The 'A' rating indicates that PETERSBURG'S CITY BANK, inc 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.

PETERSBURG'S CITY BANK, inc is operating in the market of banking services in St. Petersburg city where its HQ are located, without any additional internal structural units. The Bank is focused on operations with its historically established clientele providing a fairly broad range of banking services.

The Bank's credit rating is essentially supported by its high equity, well-structured loan portfolio, a low share of overdue loans, profitable operations and low dependence on speculative incomes.

As of September 1, 2016, the credit institution's equity reached RUB 3,328.8 million increasing by 1.6% in the previous 12 months. The equity to assets ratio (with adjustments as appropriate) results in extremely high capital adequacy. The capital adequacy ratio never fell below 50% in 2014-2015 and grew to 65% as of the reporting date, an evidence of the Bank's high capacity to mitigate possible financial losses while meeting its clients' interests.

The loan portfolio of PETERSBURG'S CITY BANK, inc is of very high quality. The share of top quality loans (quality grades 1 and 2) exceeds 98%, while the share of poor quality loans does not exceed 0.02%. The quality of the Bank's loan portfolio is above the average level in Russia's banking sector. Besides, the share of prime loans grew from 22.4% to 60.6% in the last 12 months, resulting in milder requirements for provisions against possible loan losses.

The assessment by the Bank of the financial standing of its borrowers was confirmed by the high loan servicing discipline. The percentage of overdue loans remained below 0.02% and did not change in the period under review. The level of provisions for possible loan losses created by the Bank (more than 3%) exceeds both the overdue debt and the share of problem and non-performing loans.

In 2015 and in the first 8 months of 2016, PETERSBURG'S CITY BANK, inc generated profits. In January-August 2016, its net profit reached RUB 103.2 million exceeding the result achieved for the same period in 2015 by 13%. The return on assets was considerably above the average level in the banking industry, while the return on equity was close to the average ROE ratio.

One of the essential positive rating drivers is that the Bank's net income from lending and deposit operations as well as fee & commission net income made the most significant contribution to the positive financial result. Transactions on markets subject to high volatility accounted for a minor part of the total income and did not have a destabilizing effect on the overall result.

The rating of PETERSBURG'S CITY BANK, inc is constrained by low loan security, negative changes in the key balance sheet metrics and persistently high concentration of liabilities across major depositors.

We note the Bank's weak security for the loans provided, its key investment item. As of September 1, 2015, the assets (property) transferred as collateral was valued at RUB 2,420.0 million covering 86% of the loans provided by the Bank. As of the same date in 2015, the value of such assets decreased to RUB 134.2 million covering a mere 4.8% of the loan portfolio.

The Bank's key balance sheet metrics (assets and liabilities) weakened. In the 12-month period ending on July 1, 2016, liabilities decreased by 49.6% resulting in a 18.7% contraction of assets. The weaker funding base is a negative factor for the Bank's credit potential.

Another risk factor is persistently high, although somewhat decreasing, concentration of liabilities across the groups of depositors. As of September 1, 2016, the maximum share of liabilities attributable to one group of depositors was 18.53%, while ten largest depositors accounted for 63.7% of the total liabilities. The high funding base dependence on major creditors impair the Bank's funding stability.

Full Bank Name: PETERSBURG`S CITY BANK, INCORPORATED

Short name: PETERSBURG'S CITY BANK, inc.

PETERSBURG'S CITY BANK, inc. has been operating in the market of banking services since 1994. The Bank was registered by the Bank of Russia under reg. no. 2982 as of July 19, 1994. The Bank possesses license 2982 to provide banking services involving Russian rubles and foreign currencies (without accepting money deposits from individuals) as of December 17, 2014 and license 2982 to accept Russian ruble and foreign currency-denominated money deposits from individuals as of December 17, 2014. The Bank has been a member of the deposit insurance system since October 14, 2004, DIS registration no. 82.

AK&M Rating Agency assigned a credit rating to PETERSBURG'S CITY BANK, inc on November 21, 2014. The last rating action in relation to the Bank was taken on October 16, 2015. All rating action announcements are available on the akmrating.ru website.

The rating is valid until October 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 PETERSBURG'S CITY BANK, inc.

The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Bank's creditworthiness 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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