The 'B+' rating indicates that PJSC BALTINVESTBANK qualifies as a borrower with satisfactory creditworthiness. The full or partial debt restructuring risk is relatively low. The rating assignment was based on the Credit Rating Methodology for Banks and their Debt Instruments rev. February 25, 2016.

The Bank's head office is located in St. Petersburg. The branch network of PJSC BALTINVESTBANK covers five federal districts of the Russian Federation. The Bank provides the whole range of banking products and services involving Russian rubles and foreign currencies to legal entities and private customers.

PJSC BALTINVESTBANK qualifies as a large Russian credit institution in terms of the amount of business. The credit institution's position in the Russian market of banking services can be viewed as relatively stable. As of November 1, 2016 PJSC BALTINVESTBANK was ranked among the top 100 banks of Russia in terms of assets and net profit.

The Bank's credit rating is essentially supported by its profitable operations, a steady flow of net interest revenues, growing borrowings, higher provisions for the loans provided, good liquidity ratios, the choice of Absolut Bank (PAO) as the turnaround manager and the merger into the group of Absolut Bank (PAO).

In 2016, unlike last year, the Bank has been generating profits. As of November 1, 2016, its net profit was RUB 3,004.3 million increasing steadily in the preceding three months. Besides, in the third quarter 2016, despite an increase in provisions for possible loan losses, the Bank's profit after tax amounted to RUB 191.8 million and wholly resulted from banking operations.

The Bank's steady net interest revenue (ca. RUB 600 million quarterly), one of the key sources of its operating profit in 2016, resulted from a substantial increase in the efficiency of lending and deposit operations. This lays a strong foundation for a sustainable development of the credit institution and ensures its profitability in the medium term.

We appreciate the Bank's ability to overcome the negative trend in borrowings which manifested itself early in the year. For the last 5 months of 2016, borrowings in the retail sector increased by 8%, while borrowings in the corporate sector went up more than 15%. As a result, the credit institution's assets grew by 8.6%, an evidence of the bank's higher business activity and the beginning of a comeback to the previously lost market positions.

The Bank's rating is also supported by an increase in the amount of collateral, which reduces potential losses associated with borrowers' defaults. At the start of 2016, the property and securities pledged to the Bank as collateral on loans were estimated at RUB 30.0 billion covering about 68% of the loans provided. By November 1, 2016, the collateral amounted to RUB 32.1 billion covering 90% of the loans provided.

The Bank maintains an adequate level of liquidity loss risk management, as proven by its liquidity ratios staying within acceptable limits and meeting the Central Bank of Russia's applicable requirements. The Bank has considerably strengthened its liquidity position since with the end of 2015 when its ability to meet obligations to clients and creditors caused serious concern.

At the same time, we regard a considerable share of overdue loans before the turnaround and a negative level of capital as risk factors.

In the accounting period, the Bank's overdue loans increased considerably (by more than 40%). In the 9-month period, the share of such loans in the loan book grew by 19.2 p.p. reaching 48.9% as the Bank recognized problem loans existing prior to the beginning of the turnaround procedure in its reports.

In this connection, we note that the amount of poor quality loans (loans of quality grade 5) increased by 167%. Problem and non-performing loans account for approximately 30% of the loan portfolio which is 3 times above the average percentage in the banking sector of Russia. This poses a relatively high credit risk associated with the Bank's financial restructuring procedure. The new loan portfolio in the corporate and retail segments is composed of top-quality loans (quality grades 1-2).

The capital of PJSC BALTINVESTBANK has been below zero since January 2016 as the Bank wrote off the capital to a negative level, according to Federal Law 127 "On insolvency (bankruptcy)".

Full Bank name: Public Joint-stock company «Baltic Investment Bank».

Short name: PJSC «BALTINVESTBANK».

PJSC BALTINVESTBANK has been operating in the market of banking services since 1994. The Bank possesses general banking license no. 3176 as of February 12, 2015 issued by the Central Bank of the Russian Federation.

AK&M Rating Agency assigned a credit rating to PJSC BALTINVESTBANK for the first time on December 2, 2008. The last rating action in relation to the Bank was taken on May 31, 2016. All rating action announcements are available on the akmrating.ru website.

The rating is valid until December 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 Company. 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 PJSC BALTINVESTBANK.

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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