Closed Joint Stock Company ISBANK Financial Statements … · Share Capital and Share Premium ......

Closed Joint Stock Company ISBANK Financial Statements for the Year Ended 31 December 2012 and Independent Auditor’s Report

CJSC ISBANK Financial Statements for the Year Ended 31 December 2012

2

Contents Independent Auditor’s Report

Statement of Management’s Responsibilities for the Preparation and Approval of Financial Statements

Statement of Financial Position ......................................................................................... 5 Statement of Comprehensive Income .................................................................................. 6 Statement of Cash Flows ................................................................................................. 7 Statement of Changes in Equity ......................................................................................... 8

Notes to the Financial Statements

1. Principal Activities of the Bank .................................................................................. 9 2. Operating Environment of the Bank ........................................................................... 10 3. Basis of Presentation ............................................................................................. 11 4. Summary of Significant Accounting Policies ................................................................. 13 5. Cash and Cash Equivalents ...................................................................................... 21 6. Due from Other Banks ........................................................................................... 21 7. Loans to Customers............................................................................................... 21 8. Financial Assets Available for Sale ............................................................................ 26 9. Premises and Equipment ........................................................................................ 27 10. Investment Property ............................................................................................. 29 11. Other Assets ....................................................................................................... 29 12. Due to Other Banks ............................................................................................... 30 13. Customer Accounts ............................................................................................... 30 14. Financial Liabilities at Fair Value through Profit or Loss .................................................. 30 15. Other Liabilities ................................................................................................... 31 16. Share Capital and Share Premium ............................................................................. 31 17. Retained Earnings according to Russian Legislation ........................................................ 31 18. Interest Income and Expense ................................................................................... 32 19. Fee and Commission Income and Expense ................................................................... 32 20. Operating Expenses .............................................................................................. 33 21. Income Tax ........................................................................................................ 33 22. Risk Management ................................................................................................. 35 23. Capital Management ............................................................................................. 44 24. Contingent Liabilities ............................................................................................ 44 25. Fair Value of Financial Instruments ........................................................................... 45 26. Reconciliation of Classes of Financial Instruments with Measurement Categories ................... 46 27. Related Party Transactions ..................................................................................... 47

Independent Auditor’s Report To the Shareholders and the Board of Directors of CJSC ISBANK

We have audited the accompanying financial statements of CJSC ISBANK, which comprise the statement of financial position as at 31 December 2012, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of CJSC ISBANK as at 31 December 2012, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Anton V. Efremov Senior partner 15 February 2013 BDO ZAO

CJSC ISBANK Notes to the Financial Statements for the Year Ended 31 December 2012 (in thousands of Russian Roubles)

9

1. Principal Activities of the Bank

Closed Joint Stock Company ISBANK (former Joint Stock Commercial Bank Sofia (closed joint stock company)) hereinafter referred to as the Bank was founded on 15 December 1998 as a closed joint stock company under the laws of the Russian Federation through restructuring of Commercial Bank Sofia (limited liability partnership) established by the founders’ meeting on 6 October 1993. The name of the Bank was changed to CJSC ISBANK subject to Resolution No. 3 of the Bank’s sole shareholder dated 25 July 2011. The amendments to the Charter were agreed with the Central Bank of the Russian Federation (CBR) on 25 August 2011.

The Bank has membership in the Association of Russian Banks, International payment systems MasterCard Worldwide, Society for Worldwide Interbank Financial Telecommunications (S.W.I.F.T.), Moscow Interbank Currency Exchange, Moscow Interbank Union and is a Dealer in the government bonds market.

The priority lines of the Bank’s business are commercial banking services in the Russian Federation.

In 2012 the Bank operated subject to the following licenses:

General License of the Central Bank of the Russian Federation No. 2867 of 30 September 2011 for banking operations;

License of the Central Bank of the Russian Federation No. 2867 of 30 September 2011 for receiving and placing deposits in precious metals and for conducting other operations in precious metals;

Licenses issued by the Federal Financial Markets Service (FFMS) of the Russian Federation:

No. 077-03055-010000 of 27 November 2000 for dealing transactions.

Licenses issued by the Federal Security Service of the Russian Federation:

No. 11406 Kh of 1 November 2011 for servicing of (coding) cryptographic equipment;

No. 11407 R of 1 November 2011 for distributing of (coding) cryptographic equipment;

No. 11408 U of 1 November 2011 for providing information encryption services.

The Bank has 13 locations in Moscow, Saint-Petersburg Samara, Saratov and Novosibirsk.

The Bank’s legal address and place of business: 13D Nametkina Str., Moscow, 117420.

Since 14 September 2005 the Bank has been a member of the Obligatory Deposit Insurance System regulated by the state corporation Deposit Insurance Agency.

The average annual number of the Bank’s employees in 2012 was 317 (2011: 335).

The Bank’s main shareholders are:

2012 2011 Shareholder Ownership (%) Ownership (%)

Türkiye İş Bankası Anonim Şirketi 100.0 100.0 Total 100.0 100.0

In April 2011 the Bank closed a deal on sale of 100 % of its shares. Since 27 April 2011 the 100 % of the Bank’s shares has been held by Türkiye İş Bankası Anonim Şirketi. The key controlling parties of Türkiye İş Bankası Anonim Şirketi are Supplementary Pension Fund of İşbank Members controlling 39.3 % of Türkiye İş Bankası Anonim Şirketi shares and the Republican People’s Party controlling 28.1 % of Türkiye İş Bankası Anonim Şirketi shares.


10

2. Operating Environment of the Bank

General

The economy of the Russian Federation continues to display certain characteristics of an emerging market. These characteristics include in particular inconvertibility of the national currency in most countries outside of Russia and relatively high inflation rates. The current Russian tax currency and customs legislation is subject to varying interpretations and frequent changes. Russia continues economic reforms and development of the legal tax and administrative framework to comply with the market economy requirements. The economic reforms conducted by the Government are aimed at retooling the Russian economy development of high-tech productions enhancement of labour productivity and competitiveness of the Russian products on the world market.

Continuing uncertainty and volatility of financial markets, including the European region, as well as other risks may have a considerable adverse effect on the financial and corporate sectors of Russia.

In 2012 the Russian economy continued its recovery started in 2010 and accompanied by GDP growth declining unemployment and stabilisation in inflation rates. Despite certain signs of recovery future economic growth remains uncertain. During 2012 key exchange indices slid down and most transactions on the stock exchanges were of speculative nature.

On 22 August 2012 Russia officially joined the World Trade Organisation.

On 27 June 2012 Standard & Poor's upgraded Russia’s short-term foreign currency sovereign credit rating from BBB/А-3 to BBB/А-2. The long- term foreign currency sovereign credit rating was reaffirmed at ВВВ/А-3, and the long- and short-term local currency sovereign credit rating was reaffirmed at “BBB+/A-2”, stable outlook.

On 16 August 2012 Fitch Ratings confirmed the Russian Federation long-term foreign and local currency ratings at “BBB”, stable outlook. The short-term rating and the country ceiling were confirmed at “F3” and “BBB+”, respectively.

There is an obligatory Deposit Insurance System established in the Russian Federation. According to the deposit insurance legislation 100% is compensated to the depositor if the deposit amount does not exceed RUR 700 thousand. To calculate the compensation foreign currency denominated deposits are restated at the exchange rate set by the Central Bank of the Russian Federation at the date of the insured event and the amounts due to banks from depositors are deducted from the deposit amount.

In 2012 the situation in the banking sector was characterised by growth in assets loans issued and profits but the quality of assets continues to remain a critical issue. The banking liquidity is influenced to a considerable degree by measures undertaken by the CBR and the Government in the framework of the monetary policy. Capital adequacy requirements were raised after 1 January 2012. In 2012 the refinancing rate increased from 8% to 8.25% per annum and required reserve ratios for credit institutions' obligations ranged from 4.0% to 5.5%.

The future economic direction of the Russian Federation is largely dependent upon the effectiveness of economic financial and monetary measures undertaken by the Government together with tax legal regulatory and political developments.

Inflation Russia continues to experience relatively high levels of inflation. The inflation indices for the last five years are given in the table below:

Year ended Inflation for the period

31 December 2012 6.6% 31 December 2011 6.1% 31 December 2010 8.8% 31 December 2009 8.8% 31 December 2008 13.3%


11

Currency transactions

Foreign currencies in particular the US Dollar and EUR play a significant role in the underlying economics of many business transactions in the Russian Federation. The table below shows exchange rates of RUR set by the CBR relative to USD and EUR:

Date USD EUR

31 December 2012 30.3727 40.2286 31 December 2011 32.1961 41.6714 31 December 2010 30.4769 40.3331 31 December 2009 30.2442 43.3883 31 December 2008 29.3804 41.4411

3. Basis of Presentation

General principles

These financial statements of the Bank are prepared in accordance with International Financial Reporting Standards (IFRS). The Bank maintains its accounting records in accordance with the applicable legislation of the Russian Federation. These financial statements have been prepared on the basis of those accounting records and adjusted as necessary in order to comply in all material respects with IFRS.

Functional and presentation currency

These financial statements are presented in Russian Roubles being the Bank’s functional and presentation currency.

Estimates and assumptions

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities disclosure of contingent assets and liabilities as at the date of the financial statements preparation and the reported amounts of revenues and expenses during the reporting period. Issues that require the management’s estimate and are most significant for the financial statements are disclosed in Notes 4, 7, 9 and 24.

Going concern

These financial statements reflect the Bank management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Bank. The future economic direction of the Russian Federation is largely dependent upon the effectiveness of measures undertaken by the RF Government including regulatory and political developments which are beyond the Bank’s control. The Bank’s Management cannot predict what impact these factors can have on the Bank’s financial position in future. These financial statements were prepared on a going concern assumption.

For prompt management of liquidity risk the Bank regularly monitors external factors which could influence the Bank’s liquidity level and forecasts cash flows. For the medium- and long-term liquidity risk management the Bank analyses maturity mismatches of assets and liabilities. To reduce its risk exposure the Bank sets liquidity gap limits. The set limits are periodically reviewed to reflect the changes in external and internal environment.

To maintain the required liquidity level the Bank can raise additional funds from the parent bank the Central Bank of Russia and in the interbank lending market. Diversification of liquidity sources allows to minimise the Bank’s dependence on any source and ensure full satisfaction of its liabilities. A sufficient current liquidity cushion accumulated by the Bank and the available sources of additional funding allow the Bank to continue its operations as a going concern on a long term basis. The Bank’s policies related to management of liquidity risk are disclosed in Note 22.

Changes in Accounting Policies

The accounting policies adopted are generally consistent with those of the previous financial year. Listed below are those amended standards and interpretations which became effective and which are or in the future could be relevant to the Bank’s operations:

Amendments to IFRS 7 “Financial Instruments: Disclosures” (applied prospectively for annual periods beginning on or after 1 July 2011). The amendments require additional disclosure of risks arising from the transfer of financial assets. The amendments comprise a requirement for an entity to disclose by class of a financial asset the following information in the company’s balance sheet about the financial assets transferred to a counterparty: the nature of an asset, its carrying amount, risks and benefits related to the asset. Besides, disclosure is required enabling the user to


12

understand the size of a financial liability related to the asset and the relationship between a financial asset and the related financial liability. In cases when an asset is ceased to be recognised, but the company remains to be exposed to certain risks and can receive certain benefits related to the transferred asset, additional disclosure is required to enable the user to understand the risk level.

Amendments to IAS 12 “Income Taxes” (issued in December 2010, effective for annual periods beginning on or after 1 January 2012) introduce a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 “Investment Property” should be determined on the basis that its carrying amount will be recovered through sale. Also, IAS 12 was supplemented with a requirement that deferred tax on non-depreciable assets measured using the revaluation model in IAS 16 “Property and Equipment” should always be measured on a sale basis.

IFRSs and IFRIC interpretations not yet effective

The Bank has not applied the following amendments to IFRSs and Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) that have been issued but are not yet effective:

IFRS 9 “Financial Instruments” (effective for annual periods beginning on or after 1 January 2013; however, the date can be postponed to 1 January 2015; early adoption is permitted). This standard was issued in November 2009 as the first phase of replacing IAS 39 and replaces those parts of IAS 39 that relate to classification and measurement of financial assets. The second phase of replacing this standard regarding the classification and measurement of financial liabilities took place in October 2010. The main differences of the new standard are as follows: financial assets are required to be classified into two measurement categories: those to be

measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument;

a financial instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent only payments of principal and interest (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss;

all equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment.

IFRS 13 “Fair Value Measurement” (applied prospectively for annual periods beginning on or after 1 January 2013, early adoption is permitted). The new standard replaces fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It provides a revised definition of fair value, establishes a framework for measuring fair value, and sets out disclosure requirements for fair value measurement. IFRS 13 does not introduce new requirements for measurement of assets and liabilities at fair value nor does it eliminate the exceptions to fair value measurement currently applicable to certain standards.

Amendment to IAS 1 “Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income” (applied retrospectively for annual periods beginning from 1 July 2012; early adoption is permitted). The amendment requires that an entity present separately items of other comprehensive income that may be reclassified to profit or loss in the future from those that will never be reclassified to profit or loss. Additionally, the amendment changes the title of the statement of comprehensive income to ‘statement of profit or loss and other comprehensive income’ (the use of other wording in the title is permitted).

Amendment to IAS 19 “Employee Benefits” (applied retrospectively for annual periods beginning on or after 1 January 2013; early application is permitted). The amendment introduces significant changes to the recognition and measurement of defined benefit pension expense and termination benefits. The amendment also introduces significant changes to disclosures of all employee benefits.


13

Amendments to IFRS 7 “Financial Instruments — Disclosures” (amendments are applied retrospectively to annual reporting periods effective since January 2013). This amendment requires a disclosure which will enable the financial statement users to assess the effect or potential effect of netting arrangements, including the rights to offset.

Amendments to IAS 32 “Financial Instruments — Disclosures” (amendments are applied retrospectively to annual reporting periods effective since January 2013). These amendments introduce guidance for application of IAS 32 in order to remove inconsistencies in the application of some of the offsetting criteria. The amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be considered equivalent to net settlement.

The Bank is currently assessing the adoption of these IFRS and IFRIC, the impact of their application on the Bank and the timing of adoption.

4. Summary of Significant Accounting Policies

Cash and cash equivalents

Cash and cash equivalents are assets which can be converted into cash within a day and consist of cash on hand correspondent and current account balances. All other interbank placements are included in due from other banks. Amounts which relate to funds that are of a restricted nature are excluded from cash and cash equivalents.

Cash and cash equivalents do not include mandatory cash balances with the Central Bank of the Russian Federation.

Mandatory cash balances with the Central Bank of the Russian Federation

Mandatory cash balances with the Central Bank of the Russian Federation represent mandatory reserve deposits with the CBR which are not available to finance the Bank’s day-to-day operations. The mandatory reserve balance is excluded from cash and cash equivalents for the purposes of the statement of cash flows.

Financial assets

The Bank classifies its financial assets in the following categories:

financial assets at fair value through profit or loss;

loans and receivables (this category includes due from other banks and loans to customers);

financial assets available for sale.

The Bank determines the classification of its financial assets at initial recognition. Classification of financial assets at initial recognition depends on the purpose for which they were acquired and their characteristics.

Initial recognition of financial instruments

The Bank recognises financial assets and financial liabilities on its statement of financial position when it becomes a party to the contractual obligation of the financial instrument. Regular way purchases and sales of the financial assets and liabilities are recognised using settlement date accounting.

All financial assets are initially recognised at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to acquisition or issue of the financial asset.

Fair value measurement

The fair value of financial instruments traded on the active market as at the reporting date is determined based on the market or dealers’ quotations including transaction costs.

If a quoted market price is not available the fair value of financial assets and financial liabilities recorded in the consolidated statement of financial position is estimated on the basis of market quotations for similar financial instruments or using various valuation techniques including mathematic models. Inputs are based on observable market data or judgment. Judgment is based on the time value of money, credit risk level, volatility of the instrument, market risk level and other applicable factors.


14

Amortised cost of financial instruments

The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or when appropriate a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank shall estimate cash flows considering all contractual terms of the financial instrument (for example prepayment call and similar options) but shall not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate transaction costs and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, in those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments), the Bank shall use the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

Derecognition of financial assets

A financial asset (or where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where:

the rights to receive cash flows from the asset have expired;

the Bank has transferred its rights to receive cash flows from the asset or retained the right to receive cash flows from the asset but has assumed an obligation to pay them in full without material delay to a third party; and

the Bank either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset. If the transferee has no practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the transfer, the entity has retained control.

Where the Bank has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Bank’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include derivative financial instruments at fair value through profit or loss.

Derivative financial instruments including foreign exchange contracts, currency swaps, as well as other derivative financial instruments with positive fair value, other than derivative instruments designated and effective as hedges are initially recorded in the statement of financial position at cost (including transaction costs) and subsequently remeasured at their fair value. Fair values are obtained from quoted market prices, cash flow discounting models or option/spot price models at year end, depending on the type of transaction.

Changes in the fair value of derivative financial instruments are included in gains less losses from dealing in foreign currency and gains less losses arising from financial assets at fair value through profit or loss, depending on the type of transaction.

Due from other banks

In the normal course of business the Bank places funds for various periods of time with other banks. Amounts due from other banks with a fixed maturity term are not intended for immediate or short-term trading and are measured at amortised cost using the effective interest method. Amounts due from other banks are carried net of any allowance for impairment losses.


15

Loans to customers

Loans to customers include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than:

those that the entity intends to sell immediately or in the near term which shall be classified as held for trading and those that the entity designates as at fair value through profit or loss;

those that the entity upon initial recognition designates as available for sale;

those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration which shall be classified as available for sale.

Loans to customers are initially recorded at cost which is the fair value of the consideration given. Subsequently, they are carried at amortised cost using the effective interest method less provision for loan impairment.

Loans to customers are recorded when cash is advanced to borrowers.

The Bank does not acquire loans from third parties.

Financial assets available for sale

Financial assets available for sale are non-derivative financial assets not included into any of the above three categories.

Financial assets available for sale are initially recognised at fair value plus transaction costs that are directly attributable to acquisition or issue of the financial asset. Financial assets available for sale are subsequently remeasured to fair value based on quoted bid prices. Certain financial assets available for sale for which there is no available independent quotation may be valued by the Bank at the fair value on the basis of results of recent sales of similar financial assets to unrelated third parties analysis of other information such as discounted cash flows and financial information on the investee, as well as other valuation methods.

Unrealised gains and losses arising from changes in the fair value of financial assets available for sale are recognised in the statement of comprehensive income as other comprehensive income. When financial assets available for sale are disposed of, the related accumulated unrealised gains and losses previously recognised in other comprehensive income are reclassified to profit or loss as gains less losses arising from financial assets available for sale. Disposals of financial assets available for sale are recorded on a FIFO basis.

Interest earned on debt securities available for sale is determined using the effective interest method and reflected in the statement of comprehensive income as interest income. Dividends received on equity investments available for sale are recorded in the statement of comprehensive income as other operating income when the Bank’s right to receive dividends is established and dividends are likely to be received.

Promissory notes purchased

Promissory notes purchased are included in financial assets available for sale and are subsequently accounted for in accordance with the accounting policies for these categories of assets.

Impairment of financial assets

The Bank assesses on each closing date whether there is any objective evidence that the value of a financial asset item or group of items has been impaired. Impairment losses are recognised in the statement of comprehensive income as they are incurred as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

Impairment of due from other banks and loans to customers

For amounts due from other banks and loans to customers carried at amortised cost the Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant or collectively for financial assets that are not individually significant.

Objective evidence that due from other banks and loans to customers are impaired includes observable data about the following events in respect of individually significant financial assets:

default in any payments due;


16

significant financial difficulty of the borrower supported by financial information at the Bank’s disposal;

it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

worsening national or local economic environment affecting the borrower;

breach of contract such as a default or delinquency in interest or principal payments;

the lender for economic or legal reasons relating to the borrower's financial difficulty granting to the borrower a concession that the lender would not otherwise consider.

Assets that are individually assessed for impairment and for which an impairment loss is recognised are not included in a collective assessment of impairment.

If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

The main criterion used for determining objective evidence of loss from impairment of due from other banks and loans to customers representing collectively measured financial assets is availability of observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets although the decrease cannot yet be identified with the individual financial assets in the group. Such information may include adverse changes in the payment status of borrowers in the group (for example an increased number of delayed payments or an increased number of credit card borrowers who have reached their credit limit and are paying the minimum monthly amount) national or local economic conditions that correlate with defaults on the assets in the group (for example an increase in the unemployment rate in the geographical area of the borrowers a decrease in property prices for mortgages in the relevant area a decrease in oil prices for loan assets to oil producers or adverse changes in industry conditions that affect the borrowers in the group).

If there is objective evidence that an impairment loss has been incurred the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced through the use of the provision account and the amount of the loss is recognised in the statement of comprehensive income.

The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has variable interest rate the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.

Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of historical loss experience for loans with credit risk characteristics similar to those in the group or on the basis of historical information on collections of past due debts. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect and are directionally consistent with changes in related observable data from period to period (such as changes in unemployment rates property prices commodity prices payment status or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as improvement in the debtor’s credit rating) the previously recognised impairment loss is reversed by adjusting the allowance account in the statement of comprehensive income.

Uncollectible assets are written off against the related allowance for impairment after all the necessary procedures to recover the asset in full or in part have been completed and the final amount of the loss has been determined. The carrying value of impaired financial assets is not reduced directly.

In accordance with the Russian legislation in case of a write-off of the uncollectible loan and relating interest the Bank shall take necessary and adequate steps envisaged by law standard business practice or agreement to collect this outstanding loan.


17

Financial liabilities

Financial liabilities are classified as either financial liabilities at fair value through profit or loss or financial liabilities carried at amortised cost.

Initially a financial liability shall be measured by the Bank at its fair value plus in the case of a financial liability not at fair value through profit or loss transaction costs that are directly attributable to the acquisition or issue of the financial liability.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability and the difference in the respective carrying amounts is recognised in the statement of comprehensive income.

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as financial liabilities at fair value through profit or loss if they are incurred for the purpose of repurchasing or closing them in the near term. They normally contain trade financial liabilities or "short" positions in securities or obligations to return borrowed securities sold to third parties. Derivatives with negative fair value are also classified as financial liabilities at fair value through profit or loss, unless they are designated as hedges. Obligations to return borrowed securities sold to third parties are recorded at fair value through profit or loss. Gains or losses on financial liabilities at fair value through profit or loss are recognised in the statement of comprehensive income.

Financial liabilities carried at amortised cost

Financial liabilities carried at amortised cost include due to other banks, customer accounts, debt securities issued and other borrowed funds.

Due to other banks. Due to other banks are recorded when funds are advanced to the Bank by counterparty banks.

Customer accounts. Customer accounts are non-derivative financial liabilities to individuals, state or corporate customers in respect of settlement accounts and deposits.

Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount is reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to either settle on a net basis or to realise the asset and settle the liability simultaneously.

Investment property

Investment property is property held by the Bank to earn rentals or for capital appreciation or both, rather than for: (а) use in the Bank’s ordinary course of business and for administrative purposes; or (b) sale in the ordinary course of business.

Investment property is initially recognised at cost and subsequently remeasured at fair value based on its market value. The market value of the Bank’s investment property is obtained from reports of independent appraisers, who hold a recognised and relevant professional qualification and who have experience in valuation of property of similar location and category. Changes in the fair value of investment property are recorded as profit or loss in the statement of comprehensive income. Initial direct costs incurred by lessors under an operating lease contract shall be added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income.

If the investment property is used by the Bank for its own operating activities, it is reclassified to premises and equipment, and its carrying amount at the date of reclassification becomes its deemed cost to be subsequently depreciated.

Property under construction or renovation for subsequent use as investment property is also recorded as investment property.


18

Premises and equipment

Premises and equipment are stated at cost or at revalued amount as described below less accumulated depreciation and impairment provision. Premises and equipment acquired prior to 1 January 2003 are restated to the equivalent purchasing power of the Russian Rouble as at that date.

At each reporting date the Bank assesses whether there is any indication of impairment of premises and equipment. If any such indication exists the Bank estimates the recoverable amount which is determined as the higher of an asset’s fair value less costs to sell or its value in use. Where the carrying amount of premises and equipment is greater than their estimated recoverable amount it is written down to their recoverable amount and the difference is charged as impairment loss to the statement of comprehensive income.

The Bank’s buildings and land are revalued on a regular basis. The frequency of revaluations depends on changes in the fair value of the assets subjected to revaluation. After initial recognition at cost buildings and land are carried at a revalued amount which is the fair value of the items at the date of the revaluation less any subsequent accumulated depreciation and accumulated impairment losses. Revaluations are performed regularly to avoid significant differences between the fair value of the revalued asset and its carrying amount.

After revaluation of buildings the carrying value is restated to the revalued amount and any accumulated depreciation at the date of the revaluation is restated proportionately with the increase in the gross carrying amount of the asset.

When buildings are revalued any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.

Any revaluation surplus is recorded in the statement of comprehensive income as other comprehensive income except to the extent that it reverses a revaluation decrease of the same asset previously recognised through profit or loss. A decrease arising as a result of a revaluation should be recognised as income or expense in the statement of comprehensive income except that revaluation deficit is directly offset against the surplus from revaluation of the asset recorded within other comprehensive income as effect of revaluation of premises and equipment.

The revaluation reserve for premises and equipment is transferred directly to retained earnings when the surplus is realised i.e. either on the retirement or disposal of the asset.

Gains and losses on disposal of premises and equipment are determined by reference to their carrying amount and recorded as operating expenses in the statement of comprehensive income.

Repairs and maintenance are charged to the statement of comprehensive income when the expense is incurred.

Construction in progress is carried at cost less impairment provision.

As soon as construction is completed assets are reclassified as premises and equipment at their carrying value at the date of reclassification. Construction in progress is not depreciated until the asset is available for use.

Depreciation

Depreciation of premises and equipment commences from the date the assets are ready for use. Depreciation is charged on a straight line basis over the estimated useful lives of the assets:

Buildings and premises – 50 years;

Office and computer equipment - 6 years;

Furniture – 7 years;

Motor vehicles – 5 years.

Land has an indefinite useful life and is not depreciated.

At the end of its useful life the residual value of an asset is the estimated amount that the Bank would currently obtain from disposal of the asset less the estimated costs of disposal if the asset were already of the age and in the condition expected at the end of its useful life. The assets' residual values and useful lives are reviewed and adjusted if appropriate at each reporting date.


19

Operating lease - Bank as lessee

Leases of property under which the risks and rewards of ownership are effectively retained with the lessor are classified as operating leases. Lease payments under operating lease are recognised as expenses on a straight-line basis over the lease term and included into operating expenses in the statement of comprehensive income.

Operating lease – the Bank as lessor

The Bank presents assets subject to operating leases in the statement of financial position according to the nature of the asset. Lease income from operating leases is recognised as other operating income in the statement of comprehensive income on a straight-line basis over the lease term. The aggregate cost of incentives provided to lessees is recognised as a reduction of rental income over the lease term on a straight-line basis. Initial direct costs incurred specifically to earn revenues from an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income.

Share capital

Ordinary shares and non-cumulative non-redeemable preference shares are classified as share capital. The share capital contributed before 1 January 2003 was restated for the effects of inflation. The share capital contributed after the above date is stated at original cost. External costs directly attributable to the issue of new shares other than on a business combination are shown as a deduction in equity from the proceeds.

Share premium

Share premium represents the excess of contributions over the nominal value of the shares issued.

Dividends

Dividends are recognised as a liability and deducted from shareholders’ equity at the reporting date only if they are declared before or on the reporting date. Information on dividends declared after the reporting date is disclosed in the subsequent events note. Net profit of the reporting year reflected in the statutory financial statements is the basis for payment of dividends and other appropriations.

Dividends are accrued upon their approval by the General Meeting of Shareholders and reflected in the financial statements as distribution of profit.

Contingent assets and liabilities

Contingent assets are not recognised in the statement of financial position but disclosed in the financial statements when an inflow of economic benefits is probable.

Contingent liabilities are not recognised in the statement of financial position but disclosed in the financial statements unless the possibility of any outflow in settlement is remote.

Credit related commitments

The Bank enters into credit related commitments including guarantees and commitments to extend credits. Guarantees represent irrevocable assurances of the Bank to make payments in the event that a customer cannot meet its obligations to third parties and carry the same credit risk as loans. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans or guarantees. With respect to credit risk on commitments to extend credit the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards.

Credit related commitments are initially recognised at their fair value. Subsequently they are analysed at each reporting date and adjusted to reflect the current best estimate. The best estimate of the expenditure required to settle the present obligation is the amount that the Bank would rationally pay to settle the obligation at the reporting date or transfer it to a third party at that time.

Taxation

The income tax charge/recovery comprises current tax and deferred tax and is recorded in the statement of comprehensive income. Income tax expense is recorded in the financial statements in accordance with the applicable legislation of the Russian Federation. Current tax is calculated on the basis of the estimated taxable profit for the year using the tax rates enacted during the reporting period.


20

Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current or prior periods. Tax amounts are based on estimates if financial statements are authorised prior to filing relevant tax returns.

Deferred income tax is provided using the balance sheet liability method for tax loss carryforwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial statement purposes.

Deferred tax balances are measured at tax rates enacted or substantively enacted at the reporting date which are expected to apply to the period when the temporary differences will reverse or the tax loss carryforwards will be utilised. Deferred tax assets and liabilities are offset if there is a legally enforceable right to set off current tax assets against current tax liabilities. Deferred tax assets for deductible temporary differences and tax loss carryforwards are recorded to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised. Judgement is required to determine the amount of deferred tax assets that may be recognised in financial statements based on probable periods and amounts of future taxable profits and future tax planning strategies.

Russia also has various other taxes which are assessed on the Bank’s activities. These taxes are recorded within operating expenses in the statement of comprehensive income.

Income and expense recognition Interest income and expense are recorded in the statement of comprehensive income for all debt instruments on an accrual basis using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate the Bank estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all commissions and fees paid or received by the parties to the contract that are an integral part of the effective interest rate transaction costs and all other premiums or discounts.

Interest income includes coupons earned on fixed-income financial assets and accrued discount and premiums on promissory notes and other discounted debt instruments. When loans become doubtful of collection they are written down to their recoverable amounts and interest income is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount.

Fees commissions and other income and expense items are recorded on an accrual basis after the service is provided. Loan origination fees for loans that are not yet provided but are probable of being drawn down are recognised within other assets and are subsequently taken into account in calculation of effective yield on the loan. Advisory service fees are recognised based on the applicable service contracts. The same principle is applied to services related to property management financial planning and custody services that are continuously provided over an extended period of time.

Employee benefits and social insurance contributions

The Bank pays social insurance contributions on the territory of the Russian Federation. The contributions are recorded on an accrual basis. The social contributions comprise contributions to the Russian Federation State Pension Fund Social Insurance Fund and Obligatory Medical Insurance Fund in respect of the Bank’s employees. The Bank does not have pension arrangements separate from the state pension system of the Russian Federation. Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leaves and paid sick leaves, bonuses and non-monetary benefits are accrued as the Bank’s employees render the related service.

Foreign currency

Foreign currency transactions are translated into the functional currency at the CBR exchange rate in effect at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the CBR exchange rate ruling at the reporting date. Foreign exchange gains and losses resulting from translation of transactions in foreign currency are recorded in the statement of comprehensive income within foreign exchange translation gains less losses. Non-monetary items denominated in foreign currency and carried at cost are restated at the exchange rate of CBR in effect at the transaction date. Non-monetary items denominated in foreign currency and carried at fair value are restated at the exchange rate in effect at the date the fair value is determined.

Gains and losses from purchase and sale of foreign currency are determined as a difference between the selling price and the carrying value at the date of transaction.


21

5. Cash and Cash Equivalents

2012 2011

Cash on hand 243 104 355 573 Balances with the CBR (other than mandatory reserve deposits) 366 129 228 209 Correspondent accounts with other banks of: - the Russian Federation 92 787 121 374 - other countries 474 718 121 495

Total cash and cash equivalents 1 176 738 826 651

6. Due from Other Banks

2012 2011

Loans and deposits with other banks 4 055 977 461

Total due from other banks 4 055 977 461

The credit quality analysis of due from other banks at as 31 December 2012 has shown that loans and deposits with other banks in the total amount of RUR 4 055 thousand (2011: RUR 977 461 thousand) are current with a low level of credit risk.

Due from other banks are not collateralised. 7. Loans to Customers

2012 2011

Corporate loans 1 540 149 928 078

Loans to individual entrepreneurs small and medium business 909 528 1 144 720 Consumer loans to individuals 282 310 312 986 Mortgage loans to individuals 148 622 120 551 Car loans to individuals 9 637 4 983 Less: provision for impairment of loans to customers (338 534) (310 867)

Total loans to customers 2 551 712 2 200 451

As at 31 December 2012, accrued interest income on impaired loans amounted to RUR 156 138 thousand (2011: RUR 40 910 thousand).

Movements in the provision for impairment of loans to customers for 2012 and 2011 are as follows:

Loans to individual entrepreneurs,

small and medium business

Corporate loans

Consumer loans to

individuals

Mortgage loans to

individual Car loans to individuals Total

Provision for impairment of loans to customers as at 1 January 2011 201 884 85 252 86 849 785 470 375 240

Provision/(recovery of provision) for impairment during 2011 18 354 (75 891) (5 945) 2 086 981 (60 415)

Loans to customers written off during the year as uncollectible - - (3 958) - - (3 958)

Provision for impairment of loans to customers as at 31 December 2011 220 238 9 361 76 946 2 871 1 451 310 867

Provision/(recovery of provision) for impairment during 2012 (60 382) 66 512 (10 069) 31 644 (38) 27 667

Provision for impairment of loans to customers as at 31 December 2012 159 856 75 873 66 877 34 515 1 413 338 534


22

Economic sector concentrations within the Bank’s loan portfolio are as follows:

31 December 2012 31 December 2011

Amount % Amount %

Industry 1 265 098 43.8 345 343 13.8 Individuals 440 569 15.2 438 520 17.5 Trade 395 582 13.7 386 325 15.4 Construction 358 163 12.4 668 517 26.6 Financial services 97 685 3.4 154 466 6.1 Agriculture 40 756 1.4 206 432 8.2 Transport 32 445 1.1 41 776 1.7 Lease of assets - - 93 702 3.7 Other 259 948 9.0 176 237 7.0

Total loans to customers (gross) 2 890 246 100.0 2 511 318 100.0

The industry is represented mainly wood working, glass and textile industries.

As at 31 December 2012, the Bank issued loans to 1 borrower (2011: 7 borrowers) with the total amount exceeding 10% of the Bank’s capital. The aggregate amount of these loans was RUR 394 845 thousand or 13.7 % of the total amount of loans to customers (2011: RUR 1 013 245 thousand or 40.3% of the total amount of loans to customers).

Below is the credit quality analysis of loans as at 31 December 2012:

Gross loans Impairment

provision

Loans net of impairment

provision

Impairment provision to gross loans

(%)

Loans to individual entrepreneurs, small and medium business Individually assessed loans Current loans 600 - 600 - 1 to 6 months overdue 12 228 6 202 6 026 50.7% 6 to 12 months overdue 161 678 13 902 147 776 8.6% More than 1 year overdue 155 378 95 484 59 895 61.5%

Collectively assessed loans

Current loans 566 783 43 261 523 522 7.6% 1 to 6 months overdue 2 000 121 1 879 6.1% More than 1 year overdue 10 860 886 9 974 8,2%

Total loans to individual entrepreneurs, small and medium business 909 528 159 856 749 972 17.6%

Corporate loans

Collectively assessed loans Current loans 1 388 111 20 035 1 368 076 1.4% Less than 1 month overdue 86 447 7 365 79 082 8.5% 1 to 6 months overdue 34 935 17 817 17 118 51.0% More than 1 year overdue 30 656 30 656 - 100%

Total corporate loans 1 540 149 75 873 1 464 276 4.9%

Consumer loans to individuals

Individually assessed loans 1 to 6 months overdue 7 639 207 7 432 2.7% 6 to 12 months overdue 13 206 3 474 9 732 26.3% More than 1 year overdue 54 727 35 180 19 547 64.3%


23


provision


provision


(%)

Collectively assessed loans Current loans 202 119 27 358 174 761 13.5% Less than 1 month overdue 3 720 529 3 191 14.2% 1 to 6 months overdue 899 128 771 14.2%

Mortgage loans to individuals

Individually assessed loans

More than 1 year overdue 101 144 33 720 67 424 33.3%


Current loans 47 478 795 46 683 1.7%

Total mortgage loans to individuals 148 622 34 515 114 107 23.2% Car loans to individuals

Individually assessed loans

More than 1 year overdue 523 82 441 15.7%


Current loans 7 892 1 152 6 740 14.6% Less than 1 month overdue 1 222 179 1 043 14.7%

Total car loans to individuals 9 637 1 413 8 224 14.7%

Total loans to customers 2 890 246 338 534 2 551 712 11.7%


24

Below is the credit quality analysis of loans as at 31 December 2011:


provision


provision


(%)

Loans to individual entrepreneurs small and medium business Individually assessed loans Current loans 633 907 7 814 626 093 1.2% More than 1 year overdue 38 289 38 289 - 100%

Collectively assessed loans Current loans 305 517 26 120 279 397 8.5% Less than 1 month overdue 3 317 662 2 655 20.0% 1 to 6 months overdue 20 768 13 033 7 735 62.8% 6 to 12 months overdue 38 577 29 975 8 602 77.7% More than 1 year overdue 104 345 104 345 - 100%

Total loans to individual entrepreneurs small and medium business 1 144 720 220 238 924 482 19.2%

Corporate loans

Individually assessed loans Current loans 928 078 9 361 918 717 1.0%

Total corporate loans 928 078 9 361 918 717 1.0%

Consumer loans to individuals Collectively assessed loans Current loans 222 607 25 357 197 250 11.4% Less than 1 month overdue 2 589 574 2 015 22.2% 1 to 6 months overdue 16 881 5 219 11 662 30.9% 6 to 12 months overdue 16 176 5 330 10 846 33.0% More than 1 year overdue 54 733 40 466 14 267 73.9%

Total consumer loans to individuals 312 986 76 946 236 040 24.6% Mortgage loans to individuals

Individually assessed loans Current loans 7 825 - 7 825 - 1 to 6 months overdue 52 400 - 52 400 - 6 to 12 months overdue 31 561 - 31 561 -

Collectively assessed loans Current loans 28 765 2 871 25 894 10.0%

Total mortgage loans to individuals 120 551 2 871 117 680 2.4%

Car loans to individuals

Collectively assessed loans Current loans 4 305 773 3 532 18.0% 6 to 12 months overdue 107 107 - 100% More than 1 year overdue 571 571 - 100%

Total car loans to individuals 4 983 1 451 3 532 29.1% Total loans to customers 2 511 318 310 867 2 200 451 12.4%


25

Individually assessed loans are loans that show signs of individual impairment, are material in value and individually assessed by the Bank.

Collectively assessed loans include loans grouped in homogeneous pools of claims sharing common characteristics in respect of risk exposure and/or signs of impairment.

The loans for which no signs of impairment have been identified differ by their credit quality due to a variety of industry risks and the borrowers’ financial position.

As at 31 December 2012, current loans to customers include an amount of RUR 93 931 thousand (2011: RUR 343 393 thousand), that would otherwise be past due or impaired whose terms have been renegotiated.

The amounts recognised as past due represent the entire balance of such loans rather than the overdue amounts of individual payments.

Below is the information on the collateral held as security as at 31 December 2012:

Loans to individual entrepreneurs small and

medium business Corporate

loans Consumer loans

to individuals

Mortgage loans to


Immovable property 308 460 22 207 112 430 140 986 - 584 083Securities - - - 8 650 - 8 650Motor vehicles 173 637 1 791 46 831 - 8 897 231 156Equipment 115 282 90 000 5 052 - - 210 334Goods for sale 16 368 91 118 1 124 - - 108 610Rights of claim 732 40 137 - 2 887 - 43 756Other assets 7 850 - 1 552 - - 9 402Guarantees 57 691 805 831 27 786 - - 891 308Unsecured loans 295 510 423 062 84 238 107 30 802 947Total collateral 975 530 1 474 146 279 013 152 630 8 927 2 890 246

Below is the information on the collateral held as security as at 31 December 2011:

Loans to individual entrepreneurs small and

medium business Corporate

loans

Consumer loans to

individuals

Mortgage loans to


Immovable property 526 100 5 000 158 710 120 403 - 810 213 Motor vehicles 75 486 25 884 41 047 - 4 849 147 266 Equipment 35 115 - 5 184 - - 40 299 Goods for sale 33 715 - - - - 33 715 Rights of claim 5 239 18 134 5 195 - - 28 568 Other assets 10 - 2 673 - - 2 683 Guarantees 86 346 405 284 22 118 - - 513 748 Unsecured loans 380 709 475 776 78 059 148 134 934 826 Total collateral 1 142 720 930 078 312 986 120 551 4 983 2 511 318


26

8. Financial Assets Available for Sale 2012 2011

Corporate debt securities - Bonds 825 035 79 948 - Promissory notes 710 855 235 447 - Eurobonds 156 641 -

Total financial assets available for sale 1 692 531 315 395

Corporate bonds are represented by interest-bearing Rouble-denominated securities issued by Russian banks. As at 31 December 2012, corporate bonds in the Bank’s portfolio have maturity dates from May 2013 to December 2017 (2011: from June 2013 to July 2014), coupon rates ranging from 7.95% to 12.90% per annum (2011: from 6.25% to 7.75%) and yield to maturity from 6.75% to 12.56% (2011: from 8.10% to 8.69%).

Promissory notes in the Bank’s portfolio are represented by Rouble-denominated securities issued by Russian banks. As at 31 December 2012, promissory notes in the Bank’s portfolio have maturity dates from January 2013 to June 2013 (2011: from January 2012 to October 2012) and yield to maturity from 7.60% to 10.25% per annum (2011: from 4.32% to 8.10%), depending on the issuer.

Corporate eurobonds are represented by interest-bearing USD-denominated securities issued by major Russian banks and are freely tradable on the world markets. As at 31 December 2012, corporate eurobonds in the Bank’s portfolio mature in November 2019 (2011: none) and have a coupon rate of 8.50% per annum and yield to maturity of 8.50% per annum (2011: none).

Below is the credit quality analysis of issuers of debt securities classified as financial assets available for sale as at 31 December 2012 in accordance with the ratings of international agencies:

Fitch Moody’s S&P Total

Corporate debt securities Corporate bonds — OJSC Bank Zenit В+ Ва3 - 113 375 — JSC UBRD - - В 93 211 — JSC AVANGARD - В2 - 91 204 — JSC OTKRITIE Bank В - В 90 435 — MDM Bank ВВ- Ва3 ВВ- 66 323 — OJSC VTB ВВВ Ваа1 ВВВ 60 923 — OJSC SCB Metallinvestbank - В2 - 49 274 — OJSC Moscow Credit Bank ВВ- В1 В+ 48 180 — OJSC NOMOS-BANK ВВ Ва3 - 47 744 — OJSC Rosbank ВВВ+ Ваа3 - 47 730 — CB Renaissance Capital (LLC) В В2 В 46 616 — SB Bank (LTD) - В3 - 42 715 — JSC Tatfondbank - В3 - 27 306

Promissory notes

— OJSC Sberbank ВВВ Ваа1 - 159 706 — OJSC Promsvyazbank ВВ- Ва2 - 99 189 — OJSC ALFA-BANK ВВВ- Ва1 ВВ+ 96 216 — JSC Tatfondbank - В3 - 69 736 — Bank Petrocommerce - В1 В+ 59 733 — CJSC LOKO-Bank В+ В2 - 49 574 — OJSC VTB ВВВ Ваа1 ВВВ 49 547 — Evrofinance Mosnarbank В+ Ва3 - 49 158 — CB Renaissance Capital (LLC) В В2 В 48 226 — OJSC Khanty-Mansi Bank - Ba3 - 29 770

Eurobonds — CREDIT EUROPE BANK Ltd. ВВ- Ва3 - 156 641

Total debt securities 1 692 531


27

Below is the credit quality analysis of issuers of debt securities classified as financial assets available for sale as at 31 December 2011 in accordance with the ratings of international agencies:

Fitch Moody’s S&P Total

Corporate debt securities Corporate bonds — OJSC Bank Zenit B+ Вa3 - 49 771 — OJSC NOMOS-BANK BB Вa3 - 30 178

Promissory notes — OJSC VTB BBB Baa1 BBB 99 514 — OJSC Uralsib Bank BB- Ba3 BB- 39 581 — OJSC Rosbank BBB+ Baa2 BB+ 38 221 — OJSC Moscow Credit Bank B+ B1 - 29 189 — OJSC Khanty-Mansi Bank - Вa3 - 28 941 Total debt securities 315 395

Debt securities are not collateralised.

9. Premises and Equipment

Land and buildings

Office and computer

equipment FurnitureMotor

vehicles

Construction in

progress Total Net book as at 31 December 2011 689 271 17 455 2 036 3 829 39 712 630

Cost Balance as at 1 January 2012 689 271 53 219 6 657 15 380 39 764 566 Additions 5 909 26 649 333 8 818 1 071 42 780 Disposals (363) (3 792) (108) (7 504) - (11 767) Transfer to investment property (21 700) - - - - (21 700) Revaluation 4 940 - - - - 4 940 Accumulated depreciation

eliminated against gross carrying amount of the asset on revaluation (13 267) - - - - (13 267)

Balance as at 31 December 2012 664 790 76 076 6 882 16 694 1 110 765 552

Accumulated depreciation Balance as at 1 January 2012 - 35 764 4 621 11 551 - 51 936 Depreciation charge 13 274 7 972 733 2 449 - 24 428 Disposals (7) (2 344) (101) (5 524) - (7 976) Accumulated depreciation

eliminated on revaluation (13 267) - - - - (13 267)

Balance as at 31 December 2012 - 41 392 5 253 8 476 - 55 121 Net book value as at 31 December 2012 664 790 34 684 1 629 8 218 1 110 710 431


28

Land and buildings

Office and computer

equipment Furniture Motor

vehicles Construction

in progress Total

Net book value as at 31 December 2010 688 154 16 921 2 781 6 045 1 876 715 777

Cost Balance as at 1 January 2011 688 154 49 187 6 709 15 597 1 876 761 523 Additions - 7 041 22 - 4 375 11 438 Transfers 5 747 - - - (5 747) - Disposals - (3 009) (74) (217) (465) (3 765) Revaluation 9 098 - - - - 9 098 Accumulated depreciation

eliminated against gross carrying amount of the asset on revaluation (13 728) - - - - (13 728)

Balance as at 31 December 2011 689 271 53 219 6 657 15 380 39 764 566 Accumulated depreciation Balance as at 1 January 2011 - 32 266 3 928 9 552 - 45 746 Depreciation charge 13 728 5 930 745 2 216 - 22 619 Disposals - (2 432) (52) (217) - (2 701) Accumulated depreciation

eliminated on revaluation (13 728) - - - - (13 728) Balance as at 31 December 2011 - 35 764 4 621 11 551 - 51 936 Net book value as at

31 December 2011 689 271 17 455 2 036 3 829 39 712 630

Construction in progress represents investments in construction and renovation of the premises. As soon as this work is completed these assets are recorded within the appropriate category of premises and equipment.

The Bank’s non-residential buildings (premises) and land were appraised by the independent appraiser as at 31 December 2012. The appraisal was performed by LLC Centre of Independent Property Appraisal (2011: LLC Price-Inform) on the basis of the market value. The independent appraiser applied various adjustment coefficients to the market values of property items comparable with the Bank’s buildings to determine the market value of the buildings under appraisal. The changes in the above estimates may influence the value of the buildings.

The net book value of the buildings and land includes RUR 177 535 thousand (2011: RUR 172 593 thousand) representing surplus on revaluation of the Bank’s buildings and land.

As at 31 December 2012, the total deferred tax liability in the amount of RUR 35 507 thousand (2011: RUR 34 519 thousand) was calculated in respect of this revaluation of buildings and land at fair value and charged to revaluation reserve for premises and equipment in accordance with IAS 16 (Note 21).

If the buildings were measured using the cost model, the net book value would include:

2012 2011

Cost 557 144 572 935 Accumulated depreciation and impairment (52 866) (43 679) Net book value 504 278 529 256


29

10. Investment Property

Below is the information on changes in the fair value of investment property:

2012

Cost as at 1 January - Transfer from premises and equipment 21 700 Change in the fair value during the year 350 Cost as at 31 December 22 050

The Bank’s investment property as at 31 December 2012 was appraised by the independent appraiser LLC Centre of Independent Property Appraisal on the basis of the market value. Surplus on revaluation of investment property in the amount of RUR 350 thousand was recorded as other operating income in the statement of comprehensive income.

In 2012 direct operating expenses arising from investment property that generates rental income amounted to RUR 122 thousand. Rental income for the year 2012 equalled RUR 411 thousand.

11. Other Assets

2012 2011 Assets received under the compensation agreement 74 967 102 878 Settlements on conversion transactions 31 970 38 609 Advance payments 31 799 11 230 Accounts receivable 583 4 076 Plastic card settlements 222 430 Other 2 853 5 819 Less: provision for impairment of other assets (3 134) (2 631) Total other assets 139 260 160 411

Assets received under the compensation agreement are represented by real and other property received by the Bank in settlement of overdue loans. The Bank intends to sell these assets in the foreseeable future. These assets cannot be classified as held for sale in accordance with IFRS 5 as the Bank has not yet started any active marketing to sell these assets. Initially these assets were recognized in amounts payable under the loan. As at 31 December 2012, the property was tested for impairment by the Bank. The resulting impairment loss was reflected as operating expense in the amount of RUR 10 643 thousand in the statement of comprehensive income.

The analysis of movements in the provision for impairment of other assets during 2012 and 2011 is presented below:

Other Provision for impairment of other assets as at 1 January 2011 1 507 Provision for impairment during 2011 1 124 Provision for impairment of other assets as at 31 December 2011 2 631 Provision for impairment during 2012 518 Other assets written off during the year as uncollectible (15) Provision for impairment of other assets as at 31 December 2012 3 134

As at 31 December 2012 and 31 December 2011, the credit quality analysis has shown that financial assets classified as other assets are current.

The Bank has no collateral for impaired assets classified as other assets.


30

12. Due to Other Banks

2012 2011 Loans and deposits of other banks 961 009 323 023 Correspondent accounts of other banks 15 547 240 Total due to other banks 976 556 323 263

As at 31 December 2012, the Bank had cash balances of one counterparty bank (2011: one) above 10% of the Bank’s capital. The aggregate amount of these funds was RUR 320 216 thousand or 32.79% of total due to other banks (2011: RUR 323 023 thousand or 99.9% of total due to other banks).

The Bank did not provide its financial assets as collateral for its obligations to third parties.

13. Customer Accounts

2012 2011 Legal entities — Current/settlement accounts 1 755 086 1 855 701— Term deposits 122 021 78 716Individuals — Current/demand accounts 144 392 224 317— Term deposits 1 425 096 1 982 776Total customer accounts 3 446 595 4 141 510

According to the Russian Civil Code, the Bank is obliged to repay deposits to individual depositors at short notice. If a fixed-term deposit is withdrawn by the depositor ahead of term, interest is payable at the rate paid by the Bank on demand deposits unless otherwise specified by the contract.

Economic sector concentrations within customer accounts are as follows:

2012 2011 Amount % Amount %

Individuals 1 569 488 45.5 2 207 093 53.3 Trade 515 772 15.0 443 539 10.7 Construction 415 171 12.0 443 262 10.7 Industry 454 713 13.2 313 196 7.6 Services 165 503 4.8 214 864 5.2 Publishing and printing industry 107 372 3.1 211 715 5.1 Transport and telecommunications 51 103 1.5 53 054 1.3 Financial services 33 040 1.0 38 762 0.9 Public and religious organizations 20 081 0.6 26 027 0.6 Agriculture 14 608 0.4 21 201 0.5 Other 99 744 2.9 168 797 4.1 Total customer accounts 3 446 595 100.0 4 141 510 100.0

As at 31 December 2012, the Bank had cash balances of 1 customer above 10% of its capital (2011: 3 customers). The aggregate amount of these funds was RUR 285 126 thousand or 8.27% of total customer accounts (2011: RUR 387 629 thousand or 9.36% of total customer accounts).

14. Financial Liabilities at Fair Value through Profit or Loss

Financial liabilities at fair value through profit or loss recognised in the statement of financial position as at 31 December 2011 include derivative financial instruments in the amount of RUR 10 156 thousand.

The table below contains information on outstanding transactions involving derivative financial instruments. The amounts for these transactions are shown on a gross basis before the offset of positions for each counterparty and are of a short-term nature. 2011 Notional principal amount Fair value of liability

Currency contracts

Forwards 794 308 10 156


31

15. Other Liabilities

2012 2011 Payables to employees 6 683 10 590 Other taxes payable (other than income tax) 5 073 5 544 Plastic card payables 1 681 637 Fees payable to Deposite insurance fund 1 520 - Accounts payable 860 665 Other 828 1 508 Total other liabilities 16 645 18 944

16. Share Capital and Share Premium

Authorised issued and fully paid share capital comprises:

2012 2011

Number of

shares Nominal

value

Inflation adjusted amount

Number of shares

Nominal value

Inflation adjusted amount

Ordinary shares 159 304 823 1 593 048 1 809 071 39 304 823 393 048 609 071 Preference shares 13 000 000 130 000 130 000 13 000 000 130 000 130 000 Total share capital 172 304 823 1 723 048 1 939 071 52 304 823 523 048 739 071

All ordinary shares have a nominal value of RUR 10 per share and carry one vote.

Preference shares have a nominal value of RUR 10 per share and rank ahead of the ordinary shares in the event of liquidation of the Bank. The type of preference shares is a preference share with unfixed dividend. The amount of dividend paid out on preference shares is determined by the General Meeting of the Bank’s Shareholders as a percentage of the nominal value of preference shares. These shares are not redeemable.

On 26 June 2012 the Bank registered an issue of 120 million ordinary shares with the nominal value of 10 rubles each. In accordance with an agreement of 25 July 2012, the total additional issue was acquired by the parent bank Türkiye İş Bankası Anonim Şirketi at nominal value.

Share premium represents the excess of the equity contributions over the nominal value of the shares issued. As at 31 December 2012, the share premium totalled RUR 3 496 thousand (2011: RUR 3 496 thousand) (inflation-adjusted).

17. Retained Earnings according to Russian Legislation

According to the Russian legislation only accumulated retained earnings reflected in the Bank’s statutory financial statements may be distributed among the shareholders. As at 31 December 2012, the Bank’s retained earnings amounted to RUR 2 287 thousand (2011: RUR 143 203 thousand), including loss of the reporting period in the amount of 140 946 thousand (2011: profit of RUR 2 369 thousand).

The retained earnings reflected in the Bank’s statutory records include a reserve fund in the amount of RUR 139 397 thousand (2011: RUR 138 397 thousand) that represents funds provided as required by the regulations of the Russian Federation in respect of the Bank’s general risks including future losses and other unforeseen risks or contingent liabilities.


32

18. Interest Income and Expense

2012 2011

Interest income

Loans to customers 287 732 299 131 Investments available for sale 43 718 5 090 Due from other banks 31 617 7 877 Investments held to maturity - 10 618 Correspondent accounts with other banks 50 279 Total interest income 363 117 322 995 Interest expense Term deposits of individuals 110 347 181 651 Due to other banks 17 558 1 056 Term deposits of legal entities 3 177 5 455 Current/settlement accounts 1 218 2 217 Debt securities issued - 235 Total interest expense 132 300 190 614

Net interest income 230 817 132 381

19. Fee and Commission Income and Expense

2012 2011

Fee and commission income Commission on cash and settlement transactions 97 737 109 173 Commission for currency control agent’s functions 18 933 17 220 Commission for opening of accounts 8 671 7 758 Commission on cash collection 2 561 2 439 Commission on guarantees issued 37 468 Proceeds from the sale of commemorative coins 240 72 Other 3 375 1 291 Total fee and commission income 131 554 138 421

Fee and commission expense Commission on cash and settlement transactions 8 515 7 451 Commission for money transfers 2 881 1 413 Commission on cash collection 1 054 1 415 Commission for forex transactions 925 947 Commission for guarantees received 633 - Other 556 442 Total fee and commission expense 14 564 11 668

Net fee and commission income 116 990 126 753


33

20. Operating Expenses

Note 2012 2011

Staff costs 267 229 208 767Administrative expenses 51 979 46 807Professional services (security, communications and other) 27 827 28 141Taxes (other than income tax) 25 987 24 441Depreciation of premises and equipment 9 24 428 22 619Rent expenses 18 641 12 620Impairment of property received under compensation agreement 11 10 643 -Advertising and marketing 2 399 1 601Other 8 611 13 343

Total operating expenses 437 744 358 339

21. Income Tax

Income tax expense comprises the following:

2012 2011 Current income tax expense - 7 692 Deferred taxation movement due to origination and reversal of temporary

differences (4 662) (7 216) Less: deferred taxation charged directly to other comprehensive income (2 048) (1 830) Income tax recovery for the year (6 710) (1 354)

The current tax rate applicable to the majority of the Bank’s profit is 20% (2011: 20%).

Reconciliation between the theoretical and the actual taxation charge is provided below.

2012 2011 IFRS loss before taxation (49 784) (7 081) Theoretical tax recovery at the applicable statutory rate (2012: 20%; 2011: 20%) (9 957) (1 416) Non-deductible expenses less non-taxable income 3 247 62 Income tax recovery for the year (6 710) (1 354)


34

Differences between IFRS and statutory taxation regulations of the Russian Federation give rise to certain temporary differences between the carrying amount of certain assets and liabilities for financial statement purposes and for the Bank’s income tax purposes.

2012 Movement 2011

Tax effect of deductible temporary differences

Loans to customers 34 761 6 959 27 802Statutory tax loss 13 608 13 608 -Financial assets available for sale 4 175 4 175 -Provision for impairment of loans to customers 3 397 (9 768) 13 165Premises and equipment - (3 536) 3 536Other liabilities 2 205 36 2 169Other assets 2 856 2 080 776Provision for impairment of other assets 627 101 526Revaluation of financial assets and liabilities at fair value through profit or loss - (2 031) 2 031Gross deferred tax assets 61 629 11 624 50 005

Tax effect of taxable temporary differences

Revaluation of premises and equipment (35 507) (988) (34 519)Premises and equipment (4 914) (4 914) -Revaluation of financial assets available for sale (1 070) (1 060) (10)Gross deferred tax liabilities (41 491) (6 962) (34 529)Total net deferred tax asset 20 138 4 662 15 476 2011 Movement 2010 Tax effect of deductible temporary differences Loans to customers 27 802 12 613 15 189 Provision for impairment of loans to customers 13 165 (7 431) 20 596 Premises and equipment 3 536 1 753 1 783 Other liabilities 2 169 627 1 542 Other assets 776 (499) 1 275 Provision for impairment of other assets 526 225 301 Revaluation of financial assets and liabilities at fair value through

profit or loss 2 031 1 596 435 Gross deferred tax assets 50 005 8 884 41 121 Tax effect of taxable temporary differences Revaluation of premises and equipment (34 519) (1 820) (32 699) Revaluation of financial assets available for sale (10) (10) - Accrued expense on securities issued - 162 (162) Gross deferred tax liabilities (34 529) (1 668) (32 861) Total net deferred tax asset 15 476 7 216 8 260

Net deferred tax assets represent income taxes recoverable through future tax revenues and are recorded as deferred tax assets in the statement of financial position.

Net deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences.

As at 31 December 2012, the total deferred tax liability of RUR 35 507 thousand (2011: RUR 34 519 thousand) was calculated in respect of positive revaluation of land and buildings to fair value and recorded within revaluation reserve for premises and equipment in accordance with IFRS 16 (Note 9).

As at 31 December 2012, the Bank has a cumulative tax loss of RUR 68 039 thousand (as at 31 December 2011: none). In accordance with the current Tax Code, a company has the right to utilize tax loss against future profits for the period of 10 years.


35

22. Risk Management

The risk management function within the Bank is carried out in respect of financial risks (credit, market, currency, liquidity and interest rate) operational and legal risks. The primary objectives of the financial risk management function are to establish risk limits and then ensure that exposure to risks stays within these limits. The assessment of exposure to risks also serves as a basis for optimal distribution of risk-adjusted capital transaction pricing and business performance assessment. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.

Credit risk. The Bank takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due. The Bank controls the credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower or group of related borrowers as well as by industry segments. Such risks are monitored on a regular basis and limits are reviewed at least annually. Limits on the level of credit risk by borrowers are approved by the Credit Committee.

The exposure to any one borrower including banks and broker companies is further restricted by sub-limits covering on-and off-balance sheet exposures and daily delivery risk limits in relation to trading instruments such as forward foreign exchange contracts. Actual exposures are monitored against limits daily.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and principal repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed by the Bank by obtaining collateral in the form of property and securities and corporate and personal guarantees.

The Bank’s maximum exposure to credit risk is primarily reflected in the carrying value of financial assets in the statement of financial position. The impact of possible netting of assets and liabilities to reduce potential credit exposure is not significant. For guarantees and commitments to extend credits the maximum exposure to credit risk is equal to liabilities as indicated in Note 24.

Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a result of another party to a financial instrument failing to perform in accordance with the terms of the contract. The Bank uses the same credit policies with respect to contingent liabilities as it does for on-balance sheet financial instruments through established credit approvals, risk control limits and monitoring procedures.

The Bank performs the loan maturity analysis and subsequent monitoring of overdue balances. Therefore the Bank provides information on overdue maturities and other information on credit risk as described in Notes 6 and 7.

The Bank is exposed to early redemption risk as a result of lending at fixed or variable interest rates including mortgage loans that entitle the borrower to repay loans ahead of schedule. The financial result and the Bank’s equity for the current year and at the reporting date would not greatly depend on the rate fluctuations in case of early redemption because such loans are carried at amortised cost, whereas the amount to be early redeemed corresponds or nearly corresponds to the amortised cost of loans to customers.


36

Geographical risk.

The geographical concentration of the Bank’s assets and liabilities as at 31 December 2012 is set out below:

Russia OECD* Other

countries Total Assets Cash and cash equivalents 702 020 224 133 250 585 1 176 738Mandatory cash balances with the Central Bank of the

Russian Federation 58 044 - - 58 044Due from other banks 4 055 - - 4 055Loans to customers 2 516 318 35 394 - 2 551 712Financial assets available for sale 1 692 531 - - 1 692 531Premises and equipment 710 431 - - 710 431Investment property 22 050 - - 22 050Other assets 139 260 - - 139 260Current tax assets 1 341 - - 1 341Deferred tax assets 20 138 - - 20 138

Total assets 5 866 188 259 527 250 585 6 376 300 Liabilities Due to other banks 30 374 930 635 15 547 976 556Customer accounts 3 324 791 4 935 116 869 3 446 595Other liabilities 16 645 - - 16 645Total liabilities 3 371 810 935 570 132 416 4 439 796Net balance sheet position 2 494 378 (676 043) 118 169 1 936 504Credit related commitments 461 869 - 100 060 561 929

* OECD – The Organisation for Economic Co-operation and Development.

The geographical concentration of the Bank’s assets and liabilities as at 31 December 2011 is set out below:

Russia OECD* Other

countries Total Assets Cash and cash equivalents 705 156 121 495 - 826 651 Mandatory cash balances with the Central Bank of the

Russian Federation 60 420 - - 60 420 Due from other banks 539 959 437 502 - 977 461 Loans to customers 1 954 505 245 946 - 2 200 451 Financial assets available for sale 315 395 - - 315 395 Premises and equipment 712 630 - - 712 630 Other assets 160 411 - - 160 411 Deferred tax assets 15 476 - - 15 476 Total assets 4 463 952 804 943 - 5 268 895 Liabilities Due to other banks 3 323 023 237 323 263 Customer accounts 4 103 130 28 297 10 083 4 141 510 Financial liabilities at fair value through profit or loss 10 156 - - 10 156 Current tax liabilities 4 462 - - 4 462 Other liabilities 18 944 - - 18 944 Total liabilities 4 136 695 351 320 10 320 4 498 335 Net balance sheet position 327 257 453 623 (10 320) 770 560 Credit related commitments 218 112 - - 218 112


37

Currency risk. The Bank takes on exposure to effects of fluctuations in the foreign currency exchange rates on its financial position and cash flows. The Treasury Department sets limits on the level of exposure by currency and in total for both overnight and intra-day positions as well as sublimits for regional branches and monitors them on a daily basis. The table below summarises the Bank’s exposure to foreign currency exchange rate risk as at 31 December 2012 and 31 December 2011. Included in the table are the Bank’s assets and liabilities at carrying amounts categorised by major currency.

As at 31 December 2012 the Bank had the following positions in currencies:

RUR USD EUR Other

currencies Total Assets

Cash and cash equivalents 524 099 94 699 516 449 41 491 1 176 738 Mandatory cash balances with the Central

Bank of the Russian Federation 58 044 - - - 58 044Due from other banks - 4 055 - - 4 055Loans to customers 1 611 852 926 901 12 959 - 2 551 712Financial assets available for sale 1 535 890 156 641 - - 1 692 531 Premises and equipment 710 431 - - - 710 431Investment property 22 050 - - - 22 050Other assets 111 542 3 318 24 400 - 139 260Current tax asset 1 341 - - - 1 341Deferred tax assets 20 138 - - - 20 138Total assets 4 595 387 1 185 614 553 808 41 491 6 376 300 Liabilities Due to other banks 15 548 679 060 281 948 - 976 556Customer accounts 2 603 780 528 185 274 653 39 977 3 446 595Other liabilities 15 508 317 734 86 16 645Total liabilities 2 634 836 1 207 562 557 335 40 063 4 439 796

Net balance sheet position 1 960 551 (21 948) (3 527) 1 428 1 936 504Credit related commitments 492 579 69 350 - - 561 929


38

As at 31 December 2011, the Bank had the following positions in currencies:

RUR USD EUR Other

currencies Total Assets Cash and cash equivalents 406 798 225 395 133 437 61 021 826 651 Mandatory cash balances with the Central Bank

of the Russian Federation 60 420 - - - 60 420 Due from other banks 260 305 604 572 112 584 - 977 461 Loans to customers 1 483 482 699 308 17 661 - 2 200 451 Financial assets available for sale 315 395 - - - 315 395 Premises and equipment 712 630 - - - 712 630 Other assets 124 185 35 973 253 - 160 411 Deferred tax assets 15 476 - - - 15 476 Total assets 3 378 691 1 565 248 263 935 61 021 5 268 895

Liabilities Due to other banks 182 323 042 39 - 323 263 Customer accounts 3 293 158 524 855 263 863 59 634 4 141 510 Financial liabilities at fair value through profit

or loss - 10 156 - - 10 156 Current tax liabilities 4 462 - - - 4 462 Other liabilities 18 866 77 1 - 18 944 Total liabilities 3 316 668 858 130 263 903 59 634 4 498 335 Net balance sheet position 62 023 707 118 32 1 387 770 560 Off-balance sheet position 740 949 (740 949) - - - Net balance sheet and off-balance sheet

position 802 972 (33 831) 32 1 387 770 560 Credit related commitments 208 991 9 121 - - 218 112

The Bank extended loans denominated in foreign currencies. Depending on the revenue stream of the borrower, the appreciation of the currencies against the Russian Rouble may adversely affect the borrowers’ repayment ability and therefore increases the likelihood of future loan losses.

The table below shows the change in the financial result and comprehensive income due to possible fluctuations of exchange rates used as at the reporting date if all other conditions remain unchanged. Reasonably expected exchange rate changes for each currency were projected on the basis of maximum exchange rate fluctuations for December 2012.

2012

Effect on loss before

taxation Effect on comprehensive

income

USD appreciation by 2% (439) (351) USD depreciation by 2% 439 351 EUR appreciation by 2% (71) (57) EUR depreciation by 2% 71 71 Appreciation of other currencies by 3% 43 34 Depreciation of other currencies by 3% (43) (34)


39

The table below shows the change in the financial result and comprehensive income due to possible fluctuations of exchange rates used as at the reporting date if all other conditions remain unchanged. Reasonably expected exchange rate changes for each currency were projected on the basis of maximal exchange rate fluctuations for December 2011.

2011

Effect on loss before

taxation Effect on comprehensive

income

USD appreciation by 4% (1 353) (1 082) USD depreciation by 4% 1 353 1 082 EUR appreciation by 3% 1 1 EUR depreciation by 3% (1) (1) Appreciation of other currencies by 3% 42 34 Depreciation of other currencies by 3% (42) (34)

The risk was calculated only for cash balances in currencies other than the Bank’s functional currency.

Liquidity risk. Liquidity risk is defined as the risk when the maturity of assets and liabilities does not match. The Bank is exposed to risk via daily calls from customers on its available cash resources from customer accounts, maturing deposits, loan draw downs, guarantees and other calls on cash settled derivative financial instruments. The Bank does not accumulate cash resources to meet calls on all liabilities mentioned above as based on the existing practice it is possible to forecast with a sufficient degree of certainty the required level of cash funds necessary to meet the above obligations. The liquidity risk is managed by the Treasury Department of the Bank.

The Bank is keen on maintaining stable financing predominantly consisting of due to other banks, deposits of legal entities/deposits of individuals, debt securities and also on investing funds in diversified liquid asset portfolios to be able to meet unexpected liquidity needs quickly and unhampered.

To manage its liquidity the Bank is required to analyse the level of liquid assets needed to settle the liabilities on their maturity by providing access to various sources of financing, drawing up plans to solve the problems with financing and exercising control over compliance of liquidity ratios with the laws and regulations. The Bank calculates the liquidity ratios on a daily basis in accordance with the requirements of the Central Bank of the Russian Federation. These ratios include:

Quick ratio (H2) calculated as a ratio of highly liquid assets and liabilities on demand. As at 31 December 2012, this ratio was 54.1% (2011: 42.8%). The minimum admissible value of H2 is set at 15%.

Current liquidity ratio (H3) calculated as a ratio of liquid assets and liabilities maturing within 30 calendar days. As at 31 December 2012, this ratio was 104.5% (2011: 84.5%). The minimum admissible value of H3 is set at 50%.

Long-term liquidity ratio (H4) calculated as a ratio of assets maturing in more than 1 year to equity and liabilities maturing in more than 1 year. As at 31 December 2012, this ratio was 35.2% (2011: 51.2%). The maximum admissible value of H4 is set at 120.0%.

The Financial Control and Risk Management Department receives information about financial assets and liabilities. The Financial Control and Risk Management Department then provides for an adequate portfolio of short-term liquid assets to be maintained largely made up of short-term liquid trading securities bank deposits and other interbank facilities and regulates the limits on short-term funds committed to loans (within 30 days) to ensure that sufficient liquidity is maintained within the Bank as a whole.

The daily liquidity position is monitored and regular liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions is performed by the Financial Control and Risk Management Department.

The tables below show the liabilities as at 31 December 2012 and 31 December 2011 by their remaining contractual maturity. The amounts in the table represent contractual undiscounted cash flows. These undiscounted cash flows differ from the amounts recognised in the statement of financial position as they are based on discounted cash flows.

In those cases when the amount to be paid is not fixed, the amount in the table is determined on the basis of conditions prevailing at the reporting date. Foreign currency payments are translated using the spot exchange rates effective at the reporting date.


40

The table below shows the maturity analysis of financial liabilities as at 31 December 2011:

On demand and less than

1 month From 1 to 6 months

From 6 to 12 months

From 1 to 5 years Total

Liabilities Due to other banks 247 011 307 289 436 203 - 990 503 Customer accounts 2 150 383 896 647 431 957 7 291 3 486 278 Total potential future payments

under financial liabilities 2 397 394 1 203 936 868 160 7 291 4 476 781

Customer accounts are reflected in the above analysis by the term to maturity. However in accordance with the Civil Code of the Russian Federation the individuals have the right to withdraw funds from accounts before maturity in which case they lose the accrued interest.

The table below shows the maturity analysis of financial liabilities as at 31 December 2011:

On demand and less than

1 month From 1 to 6 months

From 6 to 12 months

From 1 to 5 years Total

Liabilities Due to other banks 240 - 337 042 - 337 282 Customer accounts 2 352 988 1 163 782 636 037 54 958 4 207 765 Financial liabilities at fair value

through profit or loss 10 156 - - - 10 156 Total potential future payments

under financial liabilities 2 363 384 1 163 782 973 079 54 958 4 555 203

The Bank does not use the above undiscounted amounts in the maturity analysis to monitor the liquidity profile. Instead, the Bank monitors the expected maturity limits presented in the table below as at 31 December 2012 and 31 December 2012:

On demand and less

than 1 month

From 1 to 6 months

From 6 to 12 months

From 1 to 5 years

Over 5 years

No stated maturity Total

Assets Cash and cash equivalents 1 176 738 - - - - - 1 176 738 Mandatory cash balances

with the Central Bank of the Russian Federation - - - - - 58 044 58 044

Due from other banks 4 055 - - - - - 4 055 Loans to customers 34 275 382 605 508 721 1 402 358 97 541 126 212 2 551 712 Financial assets available for

sale 1 692 531 - - - - - 1 692 531 Premises and equipment - - - - - 710 431 710 431 Investment property - - - - - 22 050 22 050 Other assets 32 612 6 027 4 199 20 978 429 75 015 139 260 Current tax asset 1 341 - - - - - 1 341 Deferred tax assets - - - - - 20 138 20 138 Total assets 2 941 552 388 632 512 920 1 423 336 97 970 1 011 890 6 376 300 Liabilities Due to other banks 246 697 304 505 425 354 - - - 976 556 Customer accounts 2 147 213 869 175 423 066 7 141 - - 3 446 595 Other liabilities 2 878 5 158 230 15 - 8 364 16 645 Total liabilities 2 396 788 1 178 838 848 650 7 156 - 8 364 4 439 796 Net liquidity gap as at 31

December 2012 544 764 (790 206) (335 730) 1 416 180 97 970 1 003 526 1 936 504 Cumulative liquidity gap as

at 31 December 2012 544 764 (245 442) (581 172) 835 008 932 978 1 936 504


41

The table below shows the expected maturity analysis as at 31 December 2011:

On demand and less

than 1 month

From 1 to 6 months

From 6 to 12 months

From 1 to 5 years

Over 5 years

No stated maturity Total

Assets Cash and cash equivalents 826 651 - - - - - 826 651 Mandatory cash balances

with the Central Bank of the Russian Federation - - - - - 60 420 60 420

Due from other banks 747 826 68 655 160 980 - - - 977 461 Loans to customers 15 755 334 300 592 081 1 113 954 99 878 44 483 2 200 451 Financial assets available

for sale 315 395 - - - - - 315 395 Premises and equipment - - - - - 712 630 712 630 Other assets 38 969 4 024 4 123 6 132 510 106 653 160 411 Deferred tax assets - - - - - 15 476 15 476 Total assets 1 944 596 406 979 757 184 1 120 086 100 388 939 662 5 268 895 Liabilities Due to other banks 240 - 323 023 - - - 323 263 Customer accounts 2 348 276 1 120 153 619 344 53 737 - - 4 141 510 Financial liabilities at fair

value through profit or loss 10 156 - - - - - 10 156

Current tax liabilities 4 462 - - - - - 4 462 Other liabilities 45 5 667 228 13 - 12 938 18 891 Total liabilities 2 363 179 1 125 820 942 595 53 750 - 12 938 4 498 282 Net liquidity gap as at 31

December 2011 (418 583) (718 841) (185 411) 1 066 336 100 388 926 724 770 613 Cumulative liquidity gap

as at 31 December 2011 (418 583) (1 137 424) (1 322 835) (256 499) (156 111) 770 613

As the above analysis is based on expected maturity, the entire portfolio of financial assets available for sale is categorised as “on demand and less than 1 month” in accordance with the portfolio liquidity assessment by the management.

In the opinion of the Bank’s management, the matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental for successful management of the Bank. It is unusual for the banks ever to be completely matched, since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace at an acceptable cost interest-bearing liabilities as they mature are important factors in assessing the liquidity of the Bank and its exposure to changes in interest and exchange rates.

Management believes that in spite of a substantial portion of customer accounts being on demand, diversification of these deposits by number and type of depositors and the past experience of the Bank would indicate that these customer accounts provide a long-term and stable source of funding for the Bank.

Liquidity requirements in respect of guarantees are considerably lower than the amount of the related commitment, because the Bank does not generally expect a third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credits does not necessarily represent future cash requirements since many of these commitments may expire or terminate without being funded.

Interest rate risk. The Bank takes on exposure to the effects of fluctuations in the levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise.

The Bank is exposed to interest rate risk principally as a result of lending at fixed interest rates in amounts and for periods which differ from those of term borrowings at fixed interest rates. In practice interest rates are generally fixed on a short-term basis. Also interest rates fixed contractually on both


42

assets and liabilities are usually renegotiated subject to a mutual agreement to reflect current market conditions.

The Bank’s Treasury Department sets limits on the level of mismatch of interest rate re-pricing that may be undertaken which is monitored on a permanent basis. In the absence of any available hedging instruments the Bank normally seeks to match its interest rate positions.

The table below summarises the Bank's exposure to interest rate risks as at 31 December 2012. Included in the table are the Bank’s financial assets and liabilities at carrying amounts categorised by the earlier of contractual re-pricing or maturity dates.

On demand and less

than 1 month

From 1 to 6

months

From 6 to 12 months

From 1 to 5 years

Over 5 years

Non-interest bearing Total

Assets Cash and cash equivalents 36 849 - - - - 1 139 889 1 176 738 Mandatory cash balances with

the Central Bank of the Russian Federation - - - - - 58 044 58 044

Due from other banks - - - - - 4 055 4 055 Loans to customers 160 487 382 605 508 721 1 402 358 97 541 - 2 551 712 Financial assets available for

sale 290 038 526 639 41 675 679 136 155 043 - 1 692 531 Premises and equipment - - - - - 710 431 710 431 Investment property - - - - - 22 050 22 050 Other assets - - - - - 139 260 139 260 Current tax asset - - - - - 1 341 1 341 Deferred tax assets - - - - - 20 138 20 138 Total assets 487 374 909 244 550 396 2 081 494 252 584 2 095 208 6 376 300 Liabilities Due to other banks 231 149 304 505 425 354 - - 15 548 976 556 Customer accounts 332 314 869 049 422 885 7 129 - 1 815 218 3 446 595 Other liabilities - - - - - 16 645 16 645 Total liabilities 563 463 1 173 554 848 239 7 129 - 1 847 411 4 439 796 Net liquidity gap as at 31

December 2012 (76 089) (264 310) (297 843) 2 074 365 252 584 247 797 1 936 504 Cumulative liquidity gap as at

31 December 2012 (76 089) (340 399) (638 242) 1 436 123 1 688 707 1936 504


43

The table below summarises the Bank’s exposure to interest rate risks as at 31 December 2011.

On demand and less

than 1 month

From 1 to 6 months

From 6 to 12 months

From 1 to 5 years

Over 5 years

Non-

interest bearing Total

Assets Cash and cash equivalents 56 702 - - - - 769 949 826 651 Mandatory cash balances with the

Central Bank of the Russian Federation - - - - - 60 420 60 420

Due from other banks 735 844 68 655 160 980 - - 11 982 977 461 Loans to customers 28 103 334 300 592 654 1 145 516 99 878 - 2 200 451 Financial assets available for sale 881 1 053 - 78 014 - 235 447 315 395 Premises and equipment - - - - - 712 630 712 630 Other assets - - - - - 160 411 160 411 Deferred tax assets - - - - - 15 476 15 476 Total assets 821 530 404 008 753 634 1 223 530 99 878 1 966 315 5 268 895 Liabilities Due to other banks - - 323 023 - - 240 323 263 Customer accounts 318 532 1 120 153 619 344 53 737 - 2 029 744 4 141 510 Financial liabilities at fair value

through profit or loss - - - - - 10 156 10 156 Current tax liabilities - - - - - 4 462 4 462 Other liabilities - - - - - 18 891 18 891 Total liabilities 318 532 1 120 153 942 367 53 737 - 2 063 493 4 498 282 Net liquidity gap as at

31 December 2011 502 998 (716 145) (188 733) 1 169 793 99 878 (97 178) 770 613 Cumulative liquidity gap as at

31 December 2011 502 998 (213 147) (401 880) 767 913 867 791 770 613

As at 31 December 2012 and 31 December 2011, change in the interest rate by 100 basis points would not have had a material effect on the Bank’s profit, as all liabilities and financial instruments presented above have fixed interest rates.

The Bank performs monitoring of financial instrument interest rates. The table below shows the effective interest rates on the basis of reports that were analysed by the Bank’s management as at 31 December 2012 and 31 December 2011:

2012 2011

RUR USD EUR RUR USD EUR

Assets Cash and cash equivalents 0.59% 0.25% 0.25% 0.02% 0.02% 0.04% Due from other banks - - - 4.28% 1.20% 1.22% Loans to customers 13.5% 7.75% 10.27% 14.49% 8.52% 10.22% Financial assets available for sale 9.25% 8.5% - 6.43% - -

Liabilities Due to other banks - 2.76% 2.26% - 4.75% - Customer accounts - current and settlement accounts of individuals 0.73% 0.16% 0.27% 1.49% 0.17% 0.13% - term deposits of legal entities 1.41% - - 5.16% - - - term deposits of individuals 8.32% 4.19% 4.06% 8.51% 5.49% 4.99%

Concentration of other risks. The management provides monitoring and disclosure of credit risk concentrations on the basis of received reports containing information on borrowers with aggregate amount of issued loans above 10% of the Bank’s capital (Notes 6 and 7). As at 31 December 2012 and 31 December 2011, the Bank had no considerable risk concentration.

The Bank is exposed to early redemption risk as a result of loan issuance including mortgage lending that entitle the borrower to repay loans ahead of schedule. The financial result and the Bank’s equity for the current year and at the current reporting date would not greatly depend on the rate fluctuations in case of early redemption because such loans are carried at amortised cost whereas the amount to be early redeemed corresponds or nearly corresponds to the amortised cost of loans to customers.


44

23. Capital Management

The Bank’s capital management has the following objectives: to observe the capital requirements established by the Central Bank of the Russian Federation including the requirements of the deposit insurance system, assurance of the Bank’s ability to continue its operations as a going concern and maintenance of the capital base at the level required for sustaining the capital adequacy ratio at 10% as required by the CBR. The control over compliance with the capital adequacy ratio set by the Central Bank of the Russian Federation is exercised on the basis of forecast and actual data, as well as monthly reports containing corresponding calculations that are signed by the Chairman of the Management Board or his/her Deputy and the Chief Accountant of the Bank or his/her Deputy. Other capital management objectives are assessed on an annual basis.

The table below shows the regulatory capital structure based on the Bank’s reports prepared in accordance with the requirements of the Russian legislation: 2012 2011 Core capital 1 866 251 658 620Additional capital (28 886) 106 679Total regulatory capital 1 837 365 765 299

As at 31 December 2012, the Bank’s capital adequacy ratio calculated on the basis of existing capital requirements established by the CBR was 29.5% (2011: 16.9%). The minimum admissible value is set by the CBR at 10%.

24. Contingent Liabilities

Legal issues. In the ordinary course of business the Bank is subject to legal actions and complaints. Management believes that the ultimate liability if any arising from such actions or complaints will not have a material adverse effect on the financial position or the results of future operations of the Bank.

Tax legislation. Russian tax legislation is subject to varying interpretations and changes which can occur frequently. The Bank’s application of such legislation as applied to the transactions and activity of the Bank may be challenged by the relevant regional or federal authorities. Recent events in the Russian Federation have shown that the tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments and it is possible that transactions and accounting methods that have not been challenged in the past may be challenged. As a result significant additional taxes penalties and interest may be assessed. Fiscal periods remain open to review by the tax authorities in respect of taxes for three calendar years preceding the year of the review. Under certain circumstances reviews may cover longer periods.

As at 31 December 2012, the Bank believes that its application of the relevant legislation is appropriate and the Bank’s tax currency and customs positions will be sustained by controlling bodies.

Operating lease commitments. Where the Bank is the lessee the future minimum lease payments under non-cancellable operating leases are as follows:

2012 2011 Less than 1 year 1 241 1 225 From 1 to 5 years 1 272 1 697 Later than 5 years 13 974 13 974 Total operating lease commitments 16 487 16 896

In 2012 property items leased by the Bank were not subleased to third parties. The Bank recognized lease expenses in the amount of RUR 18 641 thousand (2011: RUR 12 620 thousand) (Note 20).

Credit related commitments. The main objective of these instruments is to provide funds to customers when necessary. The total outstanding contractual amount of guarantees and undrawn credit lines does not necessarily represent future cash requirements as these liabilities may expire or terminate without being funded. With respect to liabilities on extended loans and undrawn credit lines the Bank is less exposed to the risk of loss since in the case of impairment of loans issued the Bank will not repay the remaining amounts. Therefore, a provision for these credit related commitments is equal to zero.


45

Credit related commitments of the Bank are as follows:

2012 2011 Undrawn credit lines 460 928 206 921 Guarantees issued 101 000 11 191 Total credit related commitments 561 928 218 112

Pledged and restricted assets. As at 31 December 2012 and 31 December 2011, the Bank has no assets pledged as collateral.

25. Fair Value of Financial Instruments The fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties on arm’s length conditions other than in a forced sale or liquidation. Quoted financial instruments in active markets provide the best evidence of fair value. As no readily available market exists for the major part of the Bank’s financial instruments, their fair value should be determined on the basis of current economic conditions and the specific risks attributable to the instrument. The estimates presented below are not necessarily indicative of the amounts the Bank could realise in a market exchange from the sale of its full holdings of a particular instrument.

Below is the estimated fair value of the Bank’s financial instruments as at 31 December 2012 and 31 December 2011:

2012 2011 Carrying value Fair value Carrying value Fair value

Financial assets

Cash and cash equivalents 1 176 738 1 176 738 826 651 826 651 Due from other banks 4 055 4 055 977 461 977 461 Loans to customers 2 551 712 2 553 820 2 200 451 2 202 640 Financial assets available for sale 1 692 531 1 692 531 315 395 315 395

Financial liabilities Due to other banks 976 556 976 556 323 263 323 263 Customer accounts 3 446 595 3 446 595 4 141 510 4 141 510 Financial liabilities at fair value

through profit or loss - - 10 156 10 156

The Bank uses the following methods and assumptions to estimate the fair value of the said financial instruments:

Financial instruments carried at fair value. Cash and cash equivalents, financial assets and liabilities at fair value through profit or loss and financial assets available for sale are carried in the statement of financial position at their fair value.

Due from other banks. The fair value of floating rate instruments is their carrying amount. The estimated fair value of fixed interest-bearing placements is based on discounted cash flows, using prevailing money market interest rates for instruments with similar credit risk and maturity. The Bank’s management believes that the fair values of due from other banks as at 31 December 2012 and 31 December 2011 do not materially differ from the respective carrying amounts. This is primarily due to their short-term nature.

Loans to customers. Loans to customers are reported net of impairment provisions. The estimated fair value of loans to customers represents the discounted amount of estimated future cash flows expected to be received. To determine fair value expected cash flows are discounted at current market rates. The management believes that the fair values of loans to customers as at 31 December 2012 and 31 December 2011 do not materially differ from the respective carrying amounts. This is primarily due to the existing practice to renegotiate interest rates to reflect current market conditions. So, interest on most balances is accrued at rates approximating market interest rates.

Due to other banks. The fair value of due to other banks maturing in less than three months approximates the carrying amount, due to their relatively short-term maturity. The fair value of due to other banks maturing in more than three months is the present value of the estimated future cash flows discounted at the respective year-end market rates. The Bank’s management believes that fair values of due to other banks as at 31 December 2012 and 31 December 2011 do not materially differ from their respective carrying amounts. This is due to the relatively short-term maturity of these liabilities.


46

Customer accounts. The estimated fair value of liabilities with no stated maturity is the amount repayable on demand. The estimated fair value of fixed interest bearing placements and other borrowings without a quoted market price is based on discounted cash flows using interest rates for new debts with similar remaining maturity. The Bank believes that fair values of customer accounts as at 31 December 2012 and 31 December 2011 do not materially differ from respective carrying amounts. This is primarily due to the fact that it is practice to renegotiate interest rates to reflect current market conditions. So, interest on most balances is accrued at rates approximating market interest rates.

Below is the fair value hierarchy of financial assets as at 31 December 2012. Level 1 includes financial assets traded in an active market, whose fair value is determined on the basis of market quotations. Level 2 includes financial assets whose fair value is determined using different valuation models. These models are based on observable market data on market conditions and other factors that may affect the fair value of a financial asset.

Level 1 Level 2 Total Financial assets available for sale (gross)

981 676 710 855 1 692 531

Below is the fair value hierarchy of financial assets as at 31 December 2011.

Level 1 Level 2 Total Financial assets available for sale (gross)

79 948 235 447 315 395

26. Reconciliation of Classes of Financial Instruments with Measurement Categories

In accordance with IAS 39 “Financial Instruments: Recognition and Measurement” the Bank classifies its financial assets in the following measurement categories: 1) financial assets at fair value through profit or loss; 2) loans and receivables; 3) financial assets available for sale.

At the same time in accordance with IFRS 7 “Financial Instruments: Disclosure” the Bank discloses different classes of financial instruments.

The table below shows reconciliation of classes of financial assets with the above measurement categories as at 31 December 2012:

Financial assets at fair value through profit or

loss

Financial assets

available for sale

Loans and receivables Total

Assets Cash and cash equivalents 1 176 738 - - 1 176 738 Due from other banks - Loans and deposits with other

banks - - 4 055 4 055 Loans to customers - Loans to individual entrepreneurs,

small and medium business - - 819 672 819 672 - Corporate loans - - 1 394 276 1 394 276 - Consumer loans to individuals - - 211 184 211 184 - Mortgage loans to individuals - - 118 909 118 909 - Car loans to individuals - - 7 671 7 671 Financial assets available for sale - Corporate bonds - 825 035 - 825 035 - Promissory notes of credit

institutions - 710 855 - 710 855 - Eurobonds - 156 641 - 156 641 Total financial assets 1 176 738 1 692 531 2 555 767 5 425 036 Non-financial assets 951 264 Total assets 6 376 300


47

The table below shows reconciliation of classes of financial assets with the above measurement categories as at 31 December 2011:

Financial assets at fair

value through profit or loss

Financial assets

available for sale

Loans and receivables Total

Assets Cash and cash equivalents 826 651 - - 826 651 Due from other banks - Loans and deposits with other banks - - 977 461 977 461 Loans to customers - Loans to individual entrepreneurs

small and medium business - - 924 482 924 482 - Corporate loans - - 918 717 918 717 - Consumer loans to individuals - - 236 040 236 040 - Mortgage loans to individuals - - 117 680 117 680 - Car loans to individuals - - 3 532 3 532 Financial assets available for sale - Corporate bonds - 79 948 - 79 948 - Promissory notes of credit institutions - 235 447 - 235 447 Total financial assets 826 651 315 395 3 177 912 4 319 958 Non-financial assets 948 937 Total assets 5 268 895

All financial liabilities of the Bank, except financial derivative instruments, are carried at amortised cost. Derivative financial instruments are classified at fair value through profit or loss.

27. Related Party Transactions

For the purposes of these financial statements parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operational decisions as defined by IAS 24 «Related Party Disclosures». In considering each possible related party relationship attention is directed to the economic substance of the relationship not merely the legal form.

In the normal course of business the Bank enters into transactions with its major shareholders, directors and other related parties. These transactions include settlements, issuance of loans, deposit taking, guarantees, trade finance and foreign currency transactions. According to the Bank’s policy, the terms of related party transactions are equivalent to those that prevail in arm’s length transactions.


48

The outstanding balances at the year end for asset transactions with related parties in 2012 and 2011 are as follows:

Shareholders

Directors and key management

personnel Other related parties Total 2012 2011 2012 2011 2012 2011 2012 2011

Loans to customers

Loans to customers as at 1 January (gross) - 130 000 1 392 751 148 722 2 752 150 114 133 503

Loans to customers issued during the year - 274 250 880 3 266 270 000 314 895 270 880 592 411

Loans to customers repaid during the year - (404 250) (1 892) (2 625) (148 722) (168 925) (150 390) (575 800)

Nostro accounts 250 585 - - - - - 250 585 - Loans to customers as at 31

December 250 585 - 380 1 392 270 000 148 722 520 965 150 114 Provision for impairment of

loans to customers Provision for impairment of

loans to customers as at 1 January - - 159 54 131 196 290 250

(Recovery of provision)/provision for impairment of loans to customers during the year - - (159) 105 (131) (65) (290) 40

Provision for impairment of loans to customers as at 31 December - - - 159 - 131 - 290

Loans to customers as at 1 January (less provision for impairment) - 130 000 1 385 697 145 000 2 556 - 133 253

Loans to customers as at 31 December (less provision for impairment) 250 585 - 380 1 233 270 000 148 591 520 965 149 824


49

The outstanding balances at the year end for liability transactions with related parties in 2012 and 2011 are as follows:

Shareholders


personnel Other related parties Total 2012 2011 2012 2011 2012 2011 2012 2011

Due to other banks

Due to other banks as at 1 January 323 203 - - - - - 323 203 -

Due to other banks received during the year 261 551 853 214 - - 519 428 - 780 979 853 214

Due to other banks repaid during the year (569 207) (530 011) - - (214 759) - (783 966) (530 011)

Due to other banks as at 31 December 15 547 323 203 - - 304 669 - 320 216 323 203

Customer accounts

Customer accounts as at 1 January - 39 187 21 964 35 908 180 585 144 980 202 549 220 075

Customer accounts received during the year - - 112 628 69 343 6 631 003 2 005 692 6 743 631 2 075 035

Customer accounts repaid during the year - (39 187) (122 526) (83 287) (6 676 753) (1 970 087) (6 799 279) (2 092 561)

Customer accounts as at 31 December - - 12 066 21 964 134 835 180 585 146 901 202 549

Debt securities issued

Debt securities issued as at 1 January - - - - - 13 500 - 13 500

Debt securities issued redeemed during the year - - - - - (13 500) - (13 500)

Debt securities issued as at 31 December - - - - - - - -

Borrowed funds as at 31 December - 323 203 - 21 964 - 180 585 - 525 752

Below are other rights and obligations arising from related party transactions as at 31 December 2011 and 31 December 2012:


personnel Other related parties 2012 2011 2012 2011 Guarantees received by the Bank 1 262 2 163 600 171 1 340


50

Below are income and expense items arising from related party transactions for the years 2012 and 2011:

Shareholders Directors and key

management personnel Other related parties 2012 2011 2012 2011 2012 2011

Interest income - 7 323 155 289 8 675 13 188 Interest expense - - 966 547 14 752 2 276 Fee and commission income (10) 643 13 5 8 406 799

The information on remuneration to key management personnel is as follows:

2012 2011 Expenses Expenses

Short-term payments: - Salaries 27 406 16 500 - Short-term bonuses 2 695 6 785 Total 30 101 23 285

Short-term bonuses are paid in full during the 12 months after the end of the period in which respective services were provided by the management.

As at 31 December 2012 and 31 December 2011, other related parties are represented by individuals who are insiders of the Bank and subsidiaries of Türkiye İş Bankası Anonim Şirketi.

Date post:	05-Apr-2018
Category:	Documents
Upload:	hoangkhanh
View:	216 times
Download:	1 times

Closed Joint Stock Company ISBANK Financial Statements … · Share Capital and Share Premium ......

Documents