The rating 'B++' indicates that the Guarantee Fund of the Republic of Mordovia qualifies as a guarantee institutions with a satisfactory degree of reliability. The risk of a delay in meeting obligations is moderate, the full or partial debt restructuring risk is insignificant. The rating assignment was based on the Credit Rating Methodology for Guarantee Institutions rev. February 25, 2016.

The Guarantee Fund of the Republic of Mordovia established by the government of the Republic of Mordovia in 2009 is an element of the regional small and medium-sized business support infrastructure in the region. The mission of the Fund is to increase the number of creditworthy and financially viable SME businesses in the region by creating favorable conditions for borrowing from banks through the provision of sureties to secure related obligations of SME businesses.

The lower sub-level reflects an increase in the amount of discharged payment obligations, a reduction in capitalization and the scale of business, as well as the Fund's loss-making operations.

The amount of payment obligations discharged under surety contracts increased in the period under review. In 2016, the guarantee institution effected 6 payments for a total amount of RUB 37.8 million. As a result, the total amount of payments reached RUB 92.2 million increasing by 69.5% since our previous review. Therefore, the negative outlook on the rating reflects AK&M Rating Agency's concern about the further increase in payments, a source of additional pressure on the financial result and capital of the guarantee institution in the medium term.

We also regard the Fund's lower capitalization as a risk factor. Due to the piling-up of payment obligations under surety agreements and absence of additional financing from the budget, the Fund's capitalization has been dwindling in recent years. In 2016, the Fund's capitalization decreased by RUB 24.3 million.

Besides, we note a reduction in the scale of business conducted by the guarantee institution. The number of sureties provided by the Fund on loans to small and medium-sized businesses is on a steady downward trend. Last year, the amount of sureties provided to businesses, hence the amount of loans secured by them taken from partner banks decreased more than twice. The level of the Fund's subsidiary liability for the borrowers' obligations is relatively high: the ratio of existing sureties to the loan portfolio stays in the of 67-69% range (the maximum acceptable threshold being 70%).

The Fund's rating remains under pressure due to loss-making operations. The reduction in the amount of sureties provided by the Fund cut the fees charged in 2016 twice, while the Fund's interest on deposits decreased by 14.1%. Therefore, the contraction of incomes combined with growing expenses has caused a negative financial result.

The positive rating drivers include a good guarantee capital multiple and the Fund's conservative investment policy.

In the period under review, the Fund's guarantee capital multiple has been above 100%, an evidence of the guarantee institution's efficiency in providing SME businesses with access to banks' credit facilities. As of January 1, 2017, the guarantee capital multiple was 154%.

One of the essential positive rating drivers is the reliability of the Fund's financial investments. The Fund's resources are deposited with 4 credit institutions ranked among the top 50 Russian banks in terms of asset size, with ratings corresponding to 'A' or higher on the AK&M Rating Scale. The maximum relative share of deposits with one bank is 39%, which meets the regulatory authority's requirements.

Full name: Autonomous institution 'Guarantee Fund of Credit Support of the Republic of Mordovia'.

Short name: AI Guarantee Fund of the Republic of Mordovia.

Autonomous institution 'Guarantee Fund of the Republic of Mordovia' was registered on March 19, 2009. Over its existence, the guarantee institution has concluded 204 surety agreements amounting to RUB 969.7 million, which enabled SME businesses to borrow RUB 1.457 billion from banks. As of January 1, 2017, the Fund's capitalization was RUB 177.7 million, the surety portfolio was RUB 273.6 million.

AK&M Rating Agency assigned a reliability rating to the Guarantee Fund of the Republic of Mordovia for the first time on February 27, 2013. The last rating action in relation to the Fund was taken on June 9, 2016. All rating action announcements are available on the www.akmrating.ru website.

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

For estimation purposes, we completely rely on the reliability of information provided by the guarantee 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 guarantee institution rating to the autonomous institution 'Guarantee Fund of the Republic of Mordovia' and the applicable Guarantee Institution Rating Methodology as of February 25, 2016.

The rating, along with any information and conclusions provided in this report, only conveys our opinion and shall not be construed as a recommendation to lend money resources to the Fund or to seek its guarantees and sureties.

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

Ul. Gubkina 3, Moscow, Russia

www.akmrating.ru

Phone no.: (495) 916-70-30, fax no.: (499) 132-69-18.