The 'A' rating indicates that PAO IntechBank qualifies as a highly creditworthy borrower. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal. The rating assignment was based on the Credit Rating Methodology for Banks and their Debt Instruments rev. February 25, 2016.

PAO IntechBank is headquartered in Kazan. Its regional network comprises 4 branches in Moscow, St. Petersburg, Naberezhnye Chelny and Nizhnekamsk, 16 satellite offices and 2 stand-alone cash desks. The Bank is a universal credit institution providing the whole range of banking products and services involving Russian rubles and foreign currencies to legal entities and private customers.

PAO IntechBank qualifies as a large-sized Russian bank in terms of the amount of business. As of September 1, 2016, the Bank was in the 100-200 range among Russian banks in terms of asset size and equity capital (ranking 130th and 196th, respectively).

The Bank's credit rating is essentially supported by low overdue debts, fairly good loan provisions, a high share of interest, fee & commission incomes, low concentration of the funding base on major creditors and depositors and well-structured expenses.

We regard the low share of loans in arrears as a positive rating driver. As of August 1, 2016, the level of overdue loans stayed at 2.1%, no change against the same reporting date in 2015. The overdue debt percentage is 2.7 times below the average levels in Russia's banking sector, indicating that the rated Bank's borrowers are responsible clients with good payment discipline.

The share of net loans receivable in total assets of PAO IntechBank is 77%, which is fairly high. Therefore, we appreciate the high level of security (collateral) in the form of property and securities exceeding the amount of the Bank's loan portfolio net of provisions. Besides, additional credit risk reduction opportunities arise from a considerable amount of guarantees and sureties for loans.

The credit institution's net incomes are mainly composed of interest, fee & commission incomes. The high contribution of these components to the Bank's net incomes in the first half of 2016 (87%) indicates low dependence of the Bank's earnings on transactions in speculative markets.

The current concentration of liabilities shows that the Bank's dependence on major clients is relatively low. As of August 1, 2016, the maximum share of liabilities attributable to one group of depositors was below 5%, while the group of ten biggest depositors accounted for no more than 13% of the Bank's liabilities. The reduction of this parameter throughout 2015-2016 has made the Bank less vulnerable to specific risks related to instability of financial flows of certain creditors.

The ratio of business expenses to net incomes stayed favorable in the first quarter and the first half of 2016 (44.6% and 57.8%, respectively). The outstripping growth of net incomes improved the business expenses to net incomes ratios compared with the same periods in 2015 (60.5% and 69.3%).

Despite substantial loan provisions for the last 12 months (+RUB 993.8 million), the Bank preserved its capital adequacy ratio close to average levels in Russia's banking sector. The current level of capital ensures the Bank's acceptable capacity to expand asset-side transactions and to absorb possible losses.

At the same time, the Bank's rating is constrained by loan portfolio impairments, a low share of highly liquid assets, and weaker return ratios.

Our review of the loan portfolio structure shows obvious loan quality impairments. Over the period from August 1, 2015 to August 1, 2016, the share of top-quality loans (quality grades 1 and 2) decreased by 18.3 p.p. to 66.2%. On the contrary the share of problem and non-performing loans grew almost twice reaching 10.5%. The percentage of doubtful loans also increased. The rated Bank's structure of loans receivable looks weak compared with the average levels in Russia's banking sector.

Another point of concern is a low level of highly liquid assets. This ratio has been on a definitely downward trend in 2016 reaching 5.6% as of August 1, 2016. Seeing as the share of retail deposits in the Bank's liabilities increased to 58% this year, the highly liquid asset contraction is putting heavy pressure on the Bank's rating.

Besides, the credit institution's profit performance has weakened. In particular, the Bank's pre-tax profit decreased 2.7 times against the same period in 2015.

Full Bank name: Public Joint Stock Company «IntechBank»

Short name: PAO «IntechBank»

PAO IntechBank has been operating in the market of banking services since 1994. The Bank possesses general banking license no. 2705 as of April 10, 2015 issued by the Central Bank of the Russian Federation. The Bank is a member of the deposit insurance system, reg. no. 487 as of January 20, 2005.

AK&M Rating Agency assigned a credit rating to PAO IntechBank for the first time on June 17, 2010. The last rating action in relation to the Bank was taken on September 9, 2015. All rating action announcements are available on the akmrating.ru website.

The rating is valid until September 2017. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Bank's creditworthiness are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the Bank. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.

This press release is based on the Statement of assignment of a credit rating to PAO IntechBank.

The rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.

AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.

AK&M Rating Agency

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www.akmrating.ru

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