The 'A' rating indicates that the Guarantee Fund of Vladimir region qualifies as a highly reliable guarantee institution. The full or partial default risk is low. The rating assignment was based on the Credit Rating Methodology for Guarantee Institutions rev. February 25, 2016.

The positive rating drivers include an increase in the amount of sureties provided, the Fund's conservative approach to sharing credit risks with partners, an increase in the recovery ratio, high reliability of financial investments.

In 2016, the amount of sureties provided by the Fund was RUB 245 million, the amount of loans secured by them reached RUB 824 million. For the 9-month period in 2017, the guarantee institution provided sureties for a total amount of RUB 223 million to secure RUB 985 million in loans from partner banks, which is 60% above the result achieved for the same period in 2016. We appreciate the Fund's conservative approach to sharing credit risks attributable to borrowers with partner banks (the average surety to loan ratio in the period from the start of operation to October 1, 2017 was 43%).

The rating is also supported by an acceptable capital multiple (the ratio of off-balance sheet liabilities to capitalization being 163% on October 1, 2017) and improvements in the recovery ratio. In the period under review, the Fund recovered RUB 34 million through applicable recourse procedures. Therefore, as of October 1, 2017, the recovery ratio reached 42% increasing by 21.5 p.p. since the start of the year.

AK&M Rating Agency's analysts note good reliability of the guarantee coverage for the sureties provided by the Fund. Following a competitive selection, the guarantee fund placed its money on deposits with 4 credit institutions being among the top 50 leading 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 36%, which is below the maximum acceptable percentage set by the regulatory authority.

The rating is constrained by a moderately high amount of payment obligations discharged by the Fund (as of October 1, 2017, the ratio of such payments to the total amount of sureties provided since the start of operation was 3.8%).

Besides, the high concentration of the portfolio of sureties on loans exceeding RUB 10 million (72% as of October 1, 2017) and the persistently high amount of sureties provided for a period of more than 5 years (44% on October 1, 2017) exert pressure on the rating. This combination increases potential risks related to the possible loss of borrowers' creditworthiness in the long term and the maximum amount payable on the claims of credit institutions.

Full name: the Guarantee Fund of Vladimir region

Short name: GF VR

The Guarantee Fund of Vladimir region was registered on August 4, 2015. Its founder is Vladimir region represented by the Department of Business Development, Trade and Services, a structural unit of the regional government. Over its existence, the guarantee institution has concluded 357 surety agreements for a total amount of RUB 2.1 billion, which enabled small and medium-sized businesses to take out RUB 4.9 billion in loans. As of October 1, 2017, the Guarantee Fund of Vladimir region's capitalization was RUB 482 million, its surety portfolio amounted to RUB 784 million.

AK&M Rating Agency earlier assigned a reliability rating to the Fund of development of small and average business of Vladimir region (FDSA) and state autonomous institution 'SME Development and Guarantee Fund', the predecessors of the Guarantee fund of Vladimir region. The rating was assigned to the Guarantee Fund of Vladimir region for the first time on March 23, 2016. The last rating action was taken on March 31, 2017. All rating action announcements are available on the akmrating.ru website.

The rating is valid until December 2018. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the guarantee institution's rating 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 obtained 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 Guarantee Fund of Vladimir region and the Credit Rating Methodology for Guarantee Institutions rev. 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

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