The 'A' rating indicates that the Kirov Regional Fund for Support of Small and Medium-sized Businesses (microfinance institution) qualifies as a highly reliable microfinance institution. The risk of a failure to meet obligations in time is low.

The microfinance institution rating of the Kirov Regional Fund for Support of Small and Medium-sized Businesses (hereinafter also referred to as the Fund) is supported by an increase in the amount of credit support provided to small and medium-sized businesses in the region and growing lending efficiency, relatively high security for the microloans, operational sustainability and efficiency improvements, high quality of risk management in relation to lending and operating profits.

Even though the current level of capitalization was achieved at the end of 2014, the Fund continued to expand the credit support to small and medium-sized businesses in the region in 2015 and 2016. In 2015, the total number of active loans provided to small and medium-sized businesses grew from 554 to 753 and further increased to 856 for the 9-month period in 2016.

The total amount of active loans provided by the Fund to small and medium-sized businesses in the region increased from RUB 238.4 million to RUB 378.2 million in 2015 and exceeded RUB 406 million in January-September 2016. Therefore, the Fund has increased the total amount of active microloans and the number of effective contracts. Both parameters reached their 3-year highs at the start of Q4 2016.

In 2014, the Fund's lending efficiency decreased from 65% to 46%, the lowest level in the period under review. However, in 2015, the Fund achieved a substantial improvement in 2015 as the lending efficiency grew to 73%. The upward trend persisted in 2016 as the lending efficiency reached 78.4% in January-September 2016, the highest level in the period under review.

The growing support to small businesses provided by the Fund in the region is one of the essential positive rating drivers for the microfinance institution.

The Fund maintains a relatively high level of security for the microloans exceeding the amount of existing microloans almost 3 times. This substantially mitigates the risk of irrecoverable loss of money should clients default on their obligations.

In the last five years, the Fund's operational sustainability has always exceeded 100%, with a steady growth every year (from 125% to 180% in 2013, to 221% in 2014, to 270% in 2015, to 335% in January-September 2016. The growing operational sustainability contributes to the microfinance institution's rating.

Over the same time span, the Fund improved its operational efficiency (in particular, the operational efficiency ratio decreased from 4.87% to 2.21% for the 9-month period in 2016, the best result in five years, while the maximum acceptable value is 30%). The operational efficiency improvement supports the rating of the microfinance institution.

We also appreciate the high quality of risk management during the placement of loans. For the 9-month period in 2016, the Fund's portfolio-at-risk (PAR) ratio decreased from 3.94% to 3.89%, an evidence of better risk management at the Fund.

The write-off ratio remained equal to zero at the start of Q4 2016, which is absolutely perfect for the Fund.

As of October 1, 2016, the proportion of restructured loans was approximately 1.13%, which is far below the maximum acceptable percentage (10%).

We regard the advanced risk management in relation to lending as a positive rating driver.

The Fund maintains overall profitability, while the net profit from its microfinance business keeps growing every year. In January-September 2016 alone, net earnings from microloans exceeded RUB 19 million, 21.5% above the result achieved for the 12-month period in 2015. The profitable microfinance business also contributes to the rating of the microfinance institution.

The Fund's rating is constrained by growing overdue debt with a worse structure of delays, as well as low loan provisioning.

In January-September 2016, the total amount of overdue loans grew by 22.1%, the proportion of such loans in the Fund's microloan portfolio increased from 5.5% to 6.3%. Of special concern is that overdue loans with payment delays exceeding one year account for 43.4% of the total amount of overdue loans, which is notably worse than in 2015 (38.9%).

The Fund's rating is also constrained by low provisions. At the end of Q3 2016, the Fund's actual provisions for possible microloan losses were 3.4 times below the required level.

The Kirov Regional Fund for Support of Small and Medium-sized Businesses (microfinance institution) was established in August 2002. Its founders are Kirov region (represented by the Ministry of development of entrepreneurship, trade and external relations of Kirov region, 50% of the authorized capital), PJSC Norvik Bank (25% of the authorized capital) and the Federal Small Business Support Fund (25% of the authorized capital). The Fund has been engaged in microfinance activities since January 31, 2006. The Kirov Regional Fund for Support of Small and Medium-sized Businesses (microfinance institution) was included in the State register of microfinance institutions on August 2, 2011.

Over the period from December 31, 2011 on October 1, 2016 the Fund concluded more than 3,000 microfinance contracts for a total amount of more than RUB 2 billion.

AK&M Rating Agency has assigned a microfinance institution rating to the Kirov Regional Fund for Support of Small and Medium-sized Businesses (microfinance institution) for the first time. All rating action announcements are available on the akmrating.ru website.

The rating is valid until the end of January 2018. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the microfinance institution's rating are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the microfinance institution. 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 the Kirov Regional Fund for Support of Small and Medium-sized Businesses (microfinance institution) and the Credit Rating Methodology for Microfinance Institutions rev. February 10, 2016.

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.

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