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 7-495-228-656 Exhibit 1 Yaroslav Sovgyra 7-495-228-676 Associate Managing Director yaroslav.sovgyra@moodys.com Source: Moody's Financial Metrics
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 (%) 12-152 12-142 12-132 12-122 211 Avg. 47.1.6 1.9.1 2.1 46.1 3.6 2.5 4 -.5 56.2 55.8 59.5 28.3 14.7.2 1 36.2 8.2 98.3 2.1 -.4-15.7 19.4 7.3 45.7 547.5 11.9.4 1.6 31.9 15.4 112 3.5.3-2.6 93.8 66.1 34.9 81.8 9.4.3 1.9.1 4.4 19.5 13.3 3.5 -.2 -.8 14.6 59.1 28.3 1,344.1-7.93 27.83 79.93 34.53 23.14 22.35 63.54 2.94.95-4.94 914 62.84 42.14 745.74 [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 www.moodys.com for the most updated credit rating action information and rating history. 2 27 October 216
Detailed Rating Considerations STRONG CAPITAL POSITION WILL REMAIN SUPPORTED BY THE GOVERNMENT We expect Roseximbank s capital position to remain strong over the next 12-18 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 12-18 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 12-18 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 211-213. 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 H1 216. 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. 3 27 October 216
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 12-18 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 H1 215. For the whole 215, the bank posted a net loss of RUB 225.5 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 12-18 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 - 26.5% 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 214-215. 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
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 ba3-1 -1 Ba1 ba3-
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
216 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY, INC. AND ITS RATINGS AFFILIATES ("MIS") ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY'S CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY'S CREDIT RATINGS OR MOODY'S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody's Publications. To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY'S. To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody's Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,5 to approximately $2,5,. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations Corporate Governance Director and Shareholder Affiliation Policy." Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 3 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 15 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 21. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 21. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY'S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser. Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY2, to approximately JPY35,,. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. REPORT NUMBER 7 27 October 216 14786