Eximbank of Russia. Semiannual update. CREDIT OPINION 27 October Update. Summary Rating Rationale

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1 CREDIT OPINION 27 October 216 Eximbank of Russia Semiannual update Update Summary Rating Rationale RATINGS Eximbank of Russia Domicile Russia Long Term Debt Not Assigned Type Not Assigned Not Assigned Long Term Deposit Ba2 Type LT Bank Deposits - Fgn Curr Negative Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. We assign long-term foreign and local-currency deposit ratings of Ba2 to Eximbank of Russia (Roseximbank), which are based on the bank's baseline credit assessment (BCA) and its adjusted BCA of, and take into account our assessment of a very high probability of government support from the Russian government (Ba1 negative). We consider that Roseximbank's ratings benefit from (1) the government's indirect 1% ownership of the bank via Russian Export Center (REC) which in turn is owned by Vnesheconombank ( Ba1 negative, b3, VEB) and its importance for the Russian government as a specialised lender, supporting the export sectors of the Russian economy; (2) a track record of strong capital and liquidity support being extended to the bank from the Russian government. Roseximbank's BCA takes into account (1) the bank's still immature business model as the government's conduit, intended to boost non-energy exports across a wide range of Russian industries; (2) substantial, albeit rapidly decreasing, levels of problem loans, and high concentrations in the loan portfolio, being diluted by new lending. More positively, the BCA also reflects the bank's (1) strong capital buffer and (2) strengthening funding and liquidity positions, which are supported by the government and VEB to further the bank's lending activities in export sectors. Contacts Lev Dorf AVP-Analyst lev.dorf@moodys.com Exhibit 1 Yaroslav Sovgyra Associate Managing Director yaroslav.sovgyra@moodys.com Source: Moody's Financial Metrics

2 Credit Strengths Strong capital position will be supported by external capital injections and recovering profitability Strengthening funding and liquidity profile Very strong support to Roseximbank from the Russian government Credit Challenges Immature business model and lack of business diversification Still material, albeit diluting, problem loans along with credit concentration Rating The outlook on Roseximbank's long-term deposit ratings is negative due to the negative outlook on the sovereign debt rating, reflecting also challenging operating environment in which the bank currently operates. Factors that Could Lead to an Upgrade We consider that upward pressure on the long-term ratings of Roseximbank is limited in the next 12 months, unless there is a positive rating action on the sovereign ratings Factors that Could Lead to a Downgrade Roseximbank's deposit ratings could be downgraded in the event of any negative rating action on the government ratings, as well as our reassessment of the current probability of government support Key Indicators Exhibit 2 Eximbank of Russia (Consolidated Financials) [1] Total Assets (RUB billion) Total Assets (USD billion) Tangible Common Equity (RUB billion) Tangible Common Equity (USD billion) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross loans / Due to customers (%) Avg , [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel I; IFRS [3] Compound Annual Growth Rate based on IFRS reporting periods [4] IFRS reporting periods have been used for average calculation [5] Basel I & IFRS reporting periods have been used for average calculation Source: Moody's Financial Metrics This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history October 216

3 Detailed Rating Considerations STRONG CAPITAL POSITION WILL REMAIN SUPPORTED BY THE GOVERNMENT We expect Roseximbank s capital position to remain strong over the next months as it has been in recent year. Thanks to the capital injections made by the government via VEB and EXIAR earlier in 215, its Tier 1 and Total CAR ratios jumped to 48.7% and 59% at year-end 215 from 12.7% and 21.7% respectively at year-end 214 and remained strong at 36.9% and 44.5% respectively as at 3 June 216. We expect that the government will provide additional capital in case of needs to support new lending growth and to maintain the bank's capital at healthy levels. Our capital score of baa1 reflects our expectation that the bank's capital position will remain strong over the next months Exhibit 3 Capital ratios Source: Moody's Financial Metrics, IFRS; STABILIZING ASSET QUALITY HOWEVER THE LEVEL OF PROBLEM LOANS REMAINS MATERIAL Roseximbank's development strategy envisages significant levels of new lending over the next three years, largely to selective Russian non-commodity exporters in different sectors. A substantial part of new lending will be under EXIAR insurance (currently 19% of gross loans ) and guaranteed by the government (currently 43% of the gross loans), providing some comfort regarding the repayment of potential problem loans and we expect Roseximbank s asset quality to remain stable over the next months. According to the bank, the level non-performing loans (NPLs) has significantly declined to around 13% of gross loans in 215 from 22.4% at year-end 214 due to material increase in the loan book (12% in 215) During the first six months in 216 the lending was subdued, but the absolute amount of NPL s decreased, leading to a further reduction of NPL level to 11.95% of gross loans. The NPLs are fully covered by Loan Loss Reserves (LLR). A bulk of existing problem loans reflects NPLs inherited from the bank's previous lending policies and are largely represented by a few loans provided to Russian enterprises in Additionally, the bank's loan book has been concentrated with the 1 largest borrowers ( net of LLR) for 1% of Tier 1 capital as of H The anticipated substantial loan book growth will help to dilute the problem loans and reduce single-name concentration. The majority of the bank's remaining assets comprise mainly cash and fixed-income securities of the Russian government and the largest Russian corporate and banking borrowers. Asset risk score of b3 reflects expected trend, potential rapid lending growth and credit concentration October 216

4 Exhibit 4 Asset quality indicators Source: Moody's Financial Metrics, IFRS RECOVERING PROFITABILITY FOLLOWING YEARS OF LOSS-MAKING PERFORMANCE We expect Roseximbank s to become profitable in 216 and its profitability metrics to gradually improve over the next months, supported by stabilizing asset quality and net interest margin. The bank posted a net profit of RUB482 million in H1 216 up from the net profit of RUB129.4 million reported for H For the whole 215, the bank posted a net loss of RUB million which resulted from recognition and provisioning of the bank's abovementioned problem loans, while the bank's net interest margin improved to 2.5% as of year-end 215 from 2.1% posted in 214. At the same time, the bank's business model envisages only marginal profitability in the years to come, because the bank is largely considered to be the government operative arm supporting export-oriented industries, rather than an income-generating commercial bank. The adjusted Profitability sub-factor in the scorecard is based on this scenario. Profitability score of b1 reflects restored and strengthening profitability metrics. STRENGTHENING FUNDING AND LIQUIDITY PROFILE We anticipate Roseximbank's liquidity position to remain robust over the next months as it has been in recent years, particularly given that the bank can rely on liquidity support from VEB and the Government. The bank has maintained a solid buffer of liquid assets of around 59% as of end-june 216. The liquidity cushion will partially be utilised to increase the loan portfolio until year-end 216, As of end-june 216, the bank's funding base was largely comprised of 1) customer account -34%, 2) interbank loans % and debt issued-15% of total liabilities. Going forward, the bank will increasingly rely on the government's stable funding provided directly, and indirectly via VEB and other budget sources, which is reflected in our Funding scorecard sub-factor adjustments. Additional financing will be available via the Central Bank repo operations. The bank will also likely increase its local-currency denominated public debt. Combined liquidity score of b1 reflects robust liquidity profile along with high reliance on wholesale funding. Notching Considerations Government Support Roseximbank's global local-currency deposit rating of Ba2/Not Prime incorporates a very high probability of government support, which is based on (1) the Russian government's ultimate control over Roseximbank executed via EXIAR; (2) the bank's strategic importance for the Russian government; and (3) a track record of the government's strong capital and funding support already provided to the bank in Roseximbank was established in 1994 as the 1% subsidiary of the fully state-owned VEB and historically had only limited franchise within VEB Group, supporting a limited number of export and non-export contracts of Russian companies, including exports to less 4 27 October 216

5 developed countries such as Cuba, Angola, Ecuador. JSC Russian Export Center (REC), VEB subsidiary, currently executes control over the bank via its subsidiary Export Insurance Agency of Russia (EXIAR). The bank's model was significantly redesigned in 214, following the Russian government's decision to strengthen governmental support for non-energy export sectors. Roseximbank was included in the government's long-term export support program which envisaged the establishment of the Centre for Credit and Guarantee Support of Exports, which is based on VEB, REC, EXIAR and Roseximbank cooperation. In this role, Roseximbank will be considered as the key government-related lender to non-energy export companies. The bank's activities will be concentrated in the following areas: (1) pre-export and post-export financing; (2) letters of credit; (3) structured and project funding; (4) factoring and leasing operations to support exports. We expect that Roseximbank will, in case of need, receive support directly from the Russian government, or via VEB and EXIAR. This support results in a multi-notch uplift for Roseximbank's deposit rating from its BCA of. On 28 November 214, Vnesheconombank transferred 1% of the Bank s shares (minus one share) to JSC Russian Agency for Export Credit and Investment Insurance (EXIAR). REC was established as a specialized organization offering a one-stop shop for exporters, providing financial and non-financial support, including cooperation with relevant ministries and agencies. The establishment of the Center was mandated by the Government of the Russian Federation, and the respective decision was made by the Supervisory Board of VEB on 13 April 215. The Center was officially registered as a 1% subsidiary of VEB on 21 April 215. Rating Methodology and Scorecard Factors Exhibit 5 Eximbank of Russia Macro Factors Weighted Macro Profile Weak + Financial Profile Factor Historic Macro Ratio Adjusted Score Credit Trend Assigned Score Key driver #1 Key driver #2 Solvency Asset Risk Problem Loans / Gross Loans 29.4% caa3 b3 Loan growth Single name concentration Capital TCE / RWA 46.1% baa1 baa1 Access to capital Profitability Net Income / Tangible Assets -6.3% caa3 b1 Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets 55.8% caa1 Liquid Resources Liquid Banking Assets / Tangible Banking Assets 59.5% baa2 ba2 Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA 5 1% 27 October 216 b1 ba2 Market funding quality b1 ba Ba1 ba3-

6 Affiliate Support notching Adjusted BCA Instrument Class Counterparty Risk Assessment Deposits Loss Given Failure notching 1 Additional Preliminary Rating notching Assessment b1 (cr) Government Local Currency rating Foreign Support notching Currency rating -3 Ba1 (cr) 3 Ba2 Ba2 Source: Moody's Financial Metrics Ratings Exhibit 6 Category EXIMBANK OF RUSSIA Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Moody's Rating Negative Ba2/NP Ba1(cr)/NP(cr) PARENT: VNESHECONOMBANK Issuer Rating ST Issuer Rating Negative Ba1 NP Source: Moody's Investors Service 6 27 October 216

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