Zapsibcombank Group Consolidated Financial Statements for ......Notes to the Consolidated Financial...

Zapsibcombank Group Consolidated Financial Statements for the Year Ended 31 December 2013 and Independent Auditor’s Report

Zapsibcombank Group Consolidated Financial Statements for the Year Ended 31 December 2013

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Contents Independent Auditor’s Report Statement of Management’s Responsibilities for the Preparation and Approval of the Consolidated Financial Statements Consolidated Statement of Financial Position ................................................................................ 6 Consolidated Statement of Income ............................................................................................. 7 Consolidated Statement of Comprehensive Income ......................................................................... 8 Consolidated Statement of Cash Flows ........................................................................................ 9 Consolidated Statement of Changes in Equity .............................................................................. 11 Notes to the Consolidated Financial Statements 1. Principal Activities of the Group .......................................................................................... 11 2. Operating Environment of the Group ..................................................................................... 12 3. Basis of Presentation ........................................................................................................ 13 4. Summary of Significant Accounting Policies ............................................................................. 20 5. Cash and Cash Equivalents .................................................................................................. 36 6. Financial Assets at Fair Value through Profit or Loss .................................................................. 36 7. Due from Other Banks ....................................................................................................... 38 8. Loans to Customers .......................................................................................................... 39 9. Net Investment in Leases ................................................................................................... 46 10. Financial Assets Available for Sale ....................................................................................... 47 11. Investments Held to Maturity ............................................................................................. 51 12. Investments in Non-Consolidated Subsidiaries ......................................................................... 53 13. Non-Current Assets Held for Sale ........................................................................................ 53 14. Investment Property ........................................................................................................ 53 15. Premises and Equipment .................................................................................................. 54 16. Other Assets ................................................................................................................. 56 17. Due to Other Banks ......................................................................................................... 58 18. Customer Accounts ......................................................................................................... 58 19. Debt Securities Issued ...................................................................................................... 58 20. Other Borrowed Funds ..................................................................................................... 59 21. Other Liabilities ............................................................................................................. 59 22. Non-controlling Interest ................................................................................................... 60 23. Share Capital and Share Premium ....................................................................................... 60 24. Retained Earnings according to Russian Legislation .................................................................. 61 25. Interest Income and Expense ............................................................................................. 61 27. Gains less Losses Arising from Financial Assets at Fair Value through Profit or Loss ........................... 62 28. Operating Expenses ......................................................................................................... 62 29. Income Tax ................................................................................................................... 63 30. Dividends ..................................................................................................................... 65 31. Components of Comprehensive Income ................................................................................. 65 32. Segment Reporting ......................................................................................................... 65 33. Risk Management............................................................................................................ 71 34. Capital Management ........................................................................................................ 87 35. Contingent Liabilities ...................................................................................................... 89 36. Fair Value of Financial Instruments ...................................................................................... 91 37. Reconciliation of Classes of Financial Instruments with Measurement Categories .............................. 93 38. Related Party Transactions ................................................................................................ 95 39. Subsequent Events .......................................................................................................... 98

Zapsibcombank Group Consolidated Statement of Cash Flows for the Year Ended 31 December 2013 (in thousands of Russian Roubles)

The notes set out on pages 11 to 98 are an integral part of these consolidated financial statements.

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2013 2012 Cash flows from operating activities Interest received 9 595 389 8 073 060 Finance lease income 203 060 169 768 Interest paid (4 688 826) (3 286 942) Gains less losses arising from financial assets at fair value through profit or loss 103 115 62 303 Gains less losses from dealing in foreign currency and precious metals 108 930 76 272 Income from insurance operations 62 442 62 035 Fees and commissions received 2 163 442 1 875 411 Fees and commissions paid (324 950) (235 135) Other operating income 167 809 92 529 Operating expenses (4 301 317) (3 568 340) Income tax paid (471 716) (432 263) Cash flows provided by operating activities before changes in operating assets

and liabilities 2 617 378 2 888 698 Net (increase)/decrease in operating assets Mandatory cash balances with the Central Bank of the Russian Federation 79 953 (48 409) Financial assets at fair value through profit or loss - (1 003) Due from other banks 2 400 093 1 567 263 Loans to customers (13 004 310) (7 685 919) Net investment in leases (197 438) (250 091) Other assets (125 856) (137 861) Net increase/(decrease) in operating liabilities Due to other banks 19 005 (235 747) Customer accounts 7 758 846 6 149 969 Debt securities issued (53 581) 240 864 Other liabilities 26 011 111 867 Net cash flows from operating activities (479 899) 2 599 631 Cash flows from investing activities Purchase of financial assets available for sale (Note 10) (1 314 186) (941 695) Proceeds from sale (redemption) of financial assets available for sale 1 443 972 1 739 049 Purchase of premises and equipment and non-current assets held for sale (266 595) (160 896) Proceeds from sale of premises and equipment 47 284 456 Proceeds from sale of non-current assets held for sale 77 813 38 706 Proceeds from disposal of investment property 86 767 6 181 Dividends received 11 193 10 903 Net cash flows from investing activities 86 248 692 704

Zapsibcombank Group Notes to the Consolidated Financial Statements for the Year Ended 31 December 2013 (in thousands of Russian Roubles)

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1. Principal Activities of the Group

These consolidated financial statements comprise the financial statements of Joint Stock West Siberian Commercial Bank OJSC (OJSC Zapsibcombank or the Bank) and its subsidiaries (collectively, the Group). The list of the Group’s subsidiaries is set out in Note 3 to these consolidated financial statements.

OJSC Zapsibcombank is the parent company of the Group. OJSC Zapsibcombank is registered in the Russian Federation on 23 November 1990 and operates subject to the following licenses: General License No. 918 of 30 August 2006 for banking operations and License No. 918 of 30 August 2006 for borrowing and selling precious metals and other transactions in precious metals in accordance with the Russian legislation. The Bank also holds licenses of the professional securities market participant for brokerage, dealing and depository transactions issued by the Federal Financial Markets Service (FFMS). In addition, the Bank holds a license issued by the Department of the Federal Security Service (FSS) of the Tyumen region for developing, producing, distributing and servicing of coding (cryptographic) equipment, information and telecommunication systems protected with the use of coding (cryptographic) equipment (except for servicing of equipment used for own needs), performing work and rendering services in the area of data encryption.

The Bank is a member of the Association of Russian Banks, Tyumen Regional Association of Credit Institutions, Self-regulatory organisation National Securities Market Association, Moscow Interbank Currency Exchange (MICEX), principal member of the international payment systems VISA International and MasterCard Worldwide, a participant of SWIFT and payment systems: VISA, MasterCard, Savings Bank, VTB, Russian Settlement Depository and Unified Settlement System. The Bank is included in the Register of banks and other organisations which can act as guarantors for customs authorities and in the Register of banks participating in the obligatory Deposit Insurance System.

The priority lines of the Group’s business are: corporate and retail banking services, investing, leasing and insurance operations in the territory of the Russian Federation.

The Bank has a Head Office in Tyumen, 9 branches in the Russian Federation (4 branches in Tyumen region, 1 branch in Moscow, 1 branch in Saint-Petersburg, 1 branch in Nizhny Novgorod, 1 branch in Novosibirsk and 1 branch in Volgograd), 102 internal divisions, including 66 additional offices, 11 operating offices, 2 cash offices outside the Bank’s cash centre, 1 consultation office и 22 remote workplaces (mini offices). All structural divisions are integrated into the common telecommunication and information system. The Bank has its own processing centre.

The Bank’s legal and mailing address is at: 1, 8 Marta Street, Tyumen, Tyumen region, 625000.

Since 7 October 2004 the Bank has been a member of the obligatory Deposit Insurance System managed by the state corporation Deposit Insurance Agency.

The average annual number of the Group’s employees in 2013 was 3 026 (2012: 2 368).

In 2013 the international rating agency Standard & Poor's reaffirmed the Bank’s credit ratings at “В+” (stable outlook) and upgraded the national scale “ruА+” rating.

The Expert Rating Agency confirmed the Bank’s credit rating at “A+” - “very high level of solvency” with stable outlook.


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Below is the information about the Bank’s main shareholders: 2013 2012

Shareholders Ownership

(%) Ownership

(%)

Centre for Strategic Development and Financial Technologies, General

Partnership 18.09 18.09 Maxim A. Parkhomenko 9.00 8.99 Andrey V. Pankov 8.67 8.67 Dmitry Yu. Goritskiy 6.23 6.23 Roman V. Paliy 5.83 5.83 LLC Legal Company PROFF 5.01 5.01 LLC Tyumen-Policy Insurance Company 4.99 4.99 Dmitry V. Terekhin 4.41 4.41 LLC SIBALLIANCE 4.20 4.20 Irina V. Paliy 4.19 4.19 Igor M. Samkaev 3.93 3.93 Lyubov G. Remizova 3.49 3.49 LLC Zapsibleasing 3.45 3.45 Andrey N. Ufimtsev 3.16 3.16 LLC Centrleasinginvest 2.63 2.63 Shareholders with shareholdings less than 2 % of the Bank’s share capital 12.72 12.73 Total 100.0 100.0

As at 31 December 2013, members of the Board of Directors and Executive Board (including indirect shareholdings of major shareholders-legal entities) controlled 42.38% of the Bank’s share capital (2012: 42.92%).

As at 31 December 2013, persons significantly influencing the Bank and being the ultimate beneficiaries of the Bank’s major shareholder (Centre for Strategic Development and Financial Technologies, General Partnership), owning 18.09% of the share capital as at 31 December 2013, are: Dmitry Yu. Goritskiy, Dmitry V. Terekhin, Natalya V. Terekhina and Igor M. Samkaev.

2. Operating Environment of the Group

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 production sectors of the Russian economy. It is impossible to estimate reliably what impact the above financial market uncertainty and volatility will have on the Group’s operations.

In 2013 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 2013 key exchange indices slid down several times, recovering slightly at the year end, and most transactions on the stock exchanges were of speculative nature.

On 28 June 2013 Standard & Poor's confirmed Russia’s short-term foreign currency sovereign credit rating at “ВВВ/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 ratings were reaffirmed at “BBB+/A-2”, with stable outlook for all ratings.

On 27 March 2013 Moody's Investors Service reaffirmed Russia’s rating at “Baa1”. The economic outlook was confirmed as stable.


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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 RUB 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 2013 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. In 2013 the refinancing rate did not change and remained at 8.25% per annum, required reserve ratios for credit institutions' obligations amounted to 4.25%.

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 2013 6.5% 31 December 2012 6.6% 31 December 2011 6.1% 31 December 2010 8.8% 31 December 2009 8.8%

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 RUB set by the CBR relative to USD and EUR:

Date USD EUR 31 December 2013 32.7292 44.9699 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

3. Basis of Presentation

General principles

The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRS). The Group maintains its accounting records in accordance with the applicable legislation of the Russian Federation. These consolidated 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 consolidated financial statements are presented in Russian Roubles being the functional and presentation currency of the Bank and the entities of the Group.

Estimates and assumptions

The preparation of the consolidated 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 consolidated financial statements preparation, and the reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and various other factors, that, according to the Group’s management, are reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates


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and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Issues that require best estimate and are most significant for the consolidated financial statements are disclosed in Notes 4, 7, 8, 15 and 33.

Going concern

These consolidated financial statements reflect the Group management’s current assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future economic direction of the Russian Federation is largely dependent upon the effectiveness of measures undertaken by the RF Government and other factors, including regulatory and political developments which are beyond the Group’s control. The Group’s management cannot predict the impact of the above factors on the financial position of the Group in future.

These consolidated financial statements were prepared on a going concern assumption. For prompt management of the liquidity risk the Group regularly monitors external factors, which could influence the Group’s liquidity level, and forecasts cash flows. For the medium- and long-term liquidity risk management the Group analyses maturity mismatches of assets and liabilities. To reduce its risk exposure the Group sets liquidity gap limits.

To maintain the required liquidity level the Group has a possibility to attract additional funds from the Central Bank of Russia and in the interbank lending market. Diversification of liquidity sources allows to minimise the Group’s dependence on any source and ensure full satisfaction of its liabilities. A sufficient current liquidity cushion accumulated by the Group and the available sources of additional funding allow the Group to continue its operation as a going concern

Changes in Accounting Policies

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

IAS 27 “Separate Financial Statements” (effective for annual reporting periods beginning on or after 1 January 2013). This standard and IFRS 10 “Consolidated Financial Statements” supersede IAS 27 "Consolidated and Separate Financial Statements" (as amended in 2003). IAS 27 sets out requirements for accounting for and disclosure of information about an entity’s investments in subsidiaries, joint ventures and associates when preparing separate financial statements.

IAS 28 “Investments in Associates and Joint Ventures” (effective for annual reporting periods beginning on or after 1 January 2013). This standard is a revised version of IAS 28 "Investments in Associates" (as amended in 2003) and sets out requirements for the application of the equity method when accounting for investments in associates and joint ventures.

IFRS 10 “Consolidated Financial Statements” (effective for annual reporting periods beginning on or after 1 January 2013). The new standard supersedes IAS 27 "Consolidated and Separate Financial Statements" and SIC 12 “Consolidation – Special Purpose Entities”. IFRS 10 introduces a unified three-level control model: the investor can have control provided that the three criteria are met:

- (а) the investor has power over the investee;

- (b) the investor is exposed or has rights to variable returns from its involvement with that investee;

- (с) the investor has the ability to use its power over the investee to affect the amount of the investor's returns.

IFRS 11 “Joint Arrangements” (applied retrospectively to annual reporting periods beginning on or after 1 January 2013). The new standard supersedes IAS 31 “Interests in Joint Ventures”. The main change introduced by IFRS 11 relates to the classification of all types of joint arrangements into joint operations, which are accounted for on a proportionate consolidation basis, or joint ventures, for which the equity method is used. The type of joint arrangement is determined based on rights and obligations of the parties to the arrangement arising from joint arrangement’s structure, legal form, contractual arrangement and other facts and circumstances.


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IFRS 12 “Disclosure of Interests in Other Entities” (effective for annual reporting periods beginning on or after 1 January 2013). The new standard contains disclosure requirements for entities that have interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. Interests in another entity are widely defined as contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. Additional and new requirements for disclosing information aim to provide the users of financial statements with information that would enable them to assess the nature of the risks related to the entity’s interests in other entities and the effect of those interests on the entity’s financial position, financial results and cash flows. To meet those goals, an entity is required to disclose the significant judgments and assumptions it has made in determining the nature of its interest in another entity or arrangement, and in determining the type of joint arrangement in which it has an interest. It is also expected to provide detailed information about its interests in any subsidiaries, joint arrangements, associates or unconsolidated structured entities.

IFRS 13 “Fair Value Measurement” (applied prospectively for annual periods beginning on or after 1 January 2013). 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). 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).

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

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.

Improvements to IFRSs (applied for annual periods beginning on or after 1 January 2013).

- Amendments to IAS 1 “Presentation of Financial Statements”. This improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information.

- Amendments to IAS 16 “Property Plant and Equipment” related to classification of major spare parts and servicing equipment that meet the definition of property, plant and equipment.

- Amendments to IAS 32 “Financial Instruments: Presentation” clarify the implications of income taxes arising from distributions to equity holders.

- Amendments to IAS 34 “Interim Financial Reporting” clarify information to be disclosed for reportable segments.

- Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards” clarify the issues relating to repeated application of IFRS 1 and borrowings costs relating to qualifying assets for which the commencement date of capitalisation is before the date of transition to IFRS.

Transition Guidance Amendments to IFRS 10 “Consolidated Financial Statements”, IFRS 11 “Joint Arrangements” and IFRS 12 “Disclosure of Interests in Other Entities” (effective for annual periods beginning 1 January 2013). The amendments clarify the transition guidance in IFRS 10 “Consolidated Financial Statements”. Entities adopting IFRS 10 should assess control at the first


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day of the annual period in which IFRS 10 is adopted, and if the consolidation conclusion under IFRS 10 differs from IAS 27 “Consolidated and Separate Financial Statements” and SIC 12 “Consolidation—Special Purpose Entities”, the immediately preceding comparative period (that is, year 2012) is restated, unless impracticable. The amendments also provide additional transition relief in IFRS 10, IFRS 11 and IFRS 12 by limiting the requirement to provide adjusted comparative information only for the immediately preceding comparative period. Further, the amendments remove the requirement to present comparative information for disclosures related to unconsolidated structured entities for periods before IFRS 12 is first applied.

The above changes did not have a material effect on the Group’s consolidated financial statements.

IFRSs and IFRIC interpretations not yet effective

The Group 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 reporting periods beginning on or after 1 January 2015; early application 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 (a) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (b) 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.

Amendments to IAS 36 “Impairment of Assets” (effective for annual periods beginning on or after 1 January 2014, early application is permitted): The main distinctive features are as follows:

- The purpose of the amendment is to introduce changes in the requirements for disclosure of information in IAS 36 “Impairment of Assets” with respect to measurement of the recoverable amount of impaired assets which were made after publication of IFRS 13 «Fair Value Measurement.

Amendments to IAS 39 “Financial Instruments: Recognition and Measurement” (effective for annual periods beginning on or after 1 January 2014, early application is permitted). The main distinctive features are as follows:

- The purpose of the amendments to IAS 39 is to provide an exception to the requirement for the discontinuance of hedge accounting in IAS 39 and IFRS 9 in circumstances when a hedging instrument is required to be novated to a central counterparty as a result of laws or regulations.

IFRIC 21 “Levies” (effective for annual periods beginning on or after 1 January 2014, early application is permitted). IFRIC 21 is an interpretation of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”.


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- The Interpretation sets out the accounting for an obligation to pay a levy that is not income tax. It clarifies, that the obligating event that gives rise to a liability to pay a levy, is the activity described in the relevant legislation that triggers the payment of the levy. The liability for the levies is recognised in the financial statements when the event, as identified by the legislation, occurs.

Amendments to IAS 32 “Financial Instruments — Disclosures” (amendments are applied retrospectively to annual reporting periods beginning on or after 1 January 2014). 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.

Amendments to IFRS 10 “Consolidated Financial Statements”, IFRS 12 “Disclosure of Interests in Other Entities” and IAS 27 “Separate Financial Statements” (effective for annual periods beginning on or after 1 January 2014). These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. In accordance with revised IFRS 12 additional disclosures are required, including any significant judgments made in determining whether an entity is an investment entity and information about financial or other support to an unconsolidated subsidiary, whether intended or already provided to the subsidiary.

Amendments to IAS 19 “Employee Benefits: Defined Benefit Plans—Employee Contributions” (effective for annual periods beginning on or after 1 January 2014). The amendment allows to enterprises to recognize contributions from employees as reduction of cost of services in the period in which the respective services are performed and not to allocate the contributions to periods of service, if such contributions are independent of the number of years of employee service.

IFRS 14 “Regulatory Deferral Accounts” (effective for annual periods beginning on or after 1 January 2014). IFRS 14 permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account for “regulatory deferral account balances” in accordance with its previous GAAP in its IFRS financial statements. For improving comparability of financial statements of such entities with financial statements of the entities already applying IFRS and not recognizing these amounts, this IFRS requires separate presentation of regulatory deferral accounts.

Annual Improvements to IFRS, 2012 (effective for annual periods beginning on or after 1 July 2014, unless otherwise stated).

- Revised IFRS 2 “Share-based Payment” (effective for share-based payments for which the date of presentation is on or after 1 July 2014) clarifies the definition of “vesting conditions” and introduces separate definitions for “performance conditions” and “service conditions”.

- Revised IFRS 3 “Business Combination” (effective for business combinations with the date of acquisition on or after 1 July 2014) clarifies that (1) an obligation to pay contingent consideration is classified as a liability or as equity on the basis of the definitions in IAS 32 and (2) any contingent consideration which is not equity, both financial and non-financial, is measured at fair value at each reporting date and changes in the fair value are reported in profit or loss.

- Revised IFRS 8 “Operating Segments” requires (1) disclosure of professional management judgments made for the purposes of aggregation of operating segments, including description of aggregated segments and economic indicators assessed in determining whether aggregated segments have similar economic characteristics and (2) to perform reconciliation of the total of the reportable segments' assets to the entity's assets when the segment assets are reported in the financial statements.

- Amendment to IFRS 13 “Fair Value Measurement” clarifies that exemption of certain paragraphs from IAS 39 “Financial Instruments: Recognition and Measurement” after


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publication of IFRS 13 did not exclude the possibility to measure short-term accounts payable and receivable without discounting if discounting is immaterial.

- Amendments to IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets” clarify how the gross carrying amounts and accumulated depreciation and amortization should be reported when the entity applies the revaluation model.

- Revised IAS 24 “Related Party Disclosures” clarifies that a related party can also be an entity providing senior managerial staff to the reporting entity or the parent of the reporting entity (“management entity”) and introduces a requirement to disclose information about service fees charged by the management entity to the reporting entity for the services delivered.

Annual Improvements to IFRS, 2013 (effective for annual periods beginning on or after 1 July 2014, unless otherwise stated).

- IFRS 1 “First-time Adoption of International Financial Reporting Standards” clarifies that a new version of a standard is not yet mandatory but is available for early adoption; a first-time adopter can use either the old or the new version, provided the same standard is applied in all periods presented.

- IFRS 3 “Business Combinations” was amended to clarify that it does not apply to the accounting for the formation of any joint arrangement under IFRS 11. The amendment also clarifies that the scope exemption only applies in the financial statements of the joint arrangement itself.

- IFRS 13 “Fair Value Measurement”. The amendment of IFRS 13 clarifies that the portfolio exception in IFRS 13, which allows an entity to measure the fair value of a group of financial assets and financial liabilities on a net basis, applies to all contracts (including contracts to buy or sell non-financial items) that are within the scope of IAS 39 or IFRS 9.

- IAS 40 “Investment Property” was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in IAS 40 assists preparers to distinguish between investment property and owner-occupied property. Preparers also need to refer to the guidance in IFRS 3 to determine whether the acquisition of an investment property is a business combination.

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

Subsidiaries

Subsidiaries are those investees, that the Group controls because the Group

- has power to direct relevant activities of the investees that significantly affect their returns, - has exposure, or rights, to variable returns from its involvement with the investees, and - has the ability to use its power over the investees to affect the amount of investor’s return.

The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than majority of voting power in an investee. In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases.


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The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent bank of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

derecognises the assets (including goodwill) and liabilities of the subsidiary;

derecognises the carrying amount of any non-controlling interest;

derecognises the cumulative translation differences recorded in equity;

recognises the fair value of the consideration received;

recognises the fair value of any investment retained;

recognises any surplus or deficit in profit or loss;

reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as required by specific IFRS requirements, as would be required if the Group had directly disposed of the related assets or liabilities.

The following subsidiaries were included in the consolidated financial statements as at 31 December 2013 and 31 December 2012:

Subsidiary

Nature of business

Date of acquisition

Percentage of ownership, %

2013 2012 LLC Fred Investment Company Investments 24.11.1995 100.0 100.0 LLC Zapsibleasing Finance lease 22.04.1999 100.0 100.0 LLC Zapsibinvestgroup Investments 08.12.1999 100.0 100.0 LLC Tyumen-Policy Insurance Company Insurance 18.03.2004 96.25 96.25

LLC Tyumen-Policy Insurance Company is a subsidiary of LLC Zapsibleasing.

Below is a subsidiary that was not included in the consolidated financial statements as at 31 December 2013 and 31 December 2012, as its individual and combined assets are less than 1% of the Bank’s assets, and its individual and combined financial result is less than 1% of the Bank’s net profit. Therefore, the financial performance indicators of this entity do not have a material effect on the Group’s consolidated financial statements.

Subsidiary Nature of business

Date of acquisition


2013 2012 LLC Zapsib-Finance Investment 14.08.2007 100.0 100.0

Non-controlling interest

Non-controlling interest is the share of the subsidiary that is not owned by the Group. Non-controlling interest at the reporting date is the non-controlling interest’s portion of the net fair values of the identifiable assets, liabilities and contingent liabilities of the subsidiary at the date of the acquisition and post-acquisition changes in the equity of the subsidiary. Non-controlling interest is recorded within equity. Losses are allocated to non-controlling interest even if they exceed the non-controlling interest in the equity of the subsidiary.


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Joint operations Joint arrangement is an arrangement of which two or more parties have joint control. A joint arrangement has the following characteristics:

The parties are bound by a contractual arrangement; The contractual arrangement gives two or more of those parties joint control of the arrangement.

Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Joint arrangement is either a joint operation or a joint venture. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement.

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. A joint operator shall recognise in relation to its interest in a joint operation: - its assets, including its share of any assets held jointly; - its liabilities, including its share of any liabilities incurred jointly; - its revenue from the sale of its share of the output arising from the joint operation; - its share of the revenue from the sale of the output by the joint operation; and - its expenses, including its share of any expenses incurred jointly. Below are joint operations of the Group as at 31 December 2013 and 31 December 2012:

Name of company

Type of operation

Recognition date

Interest in a joint arrangement , %

Share in attributable profit,

% 2013 2012 2013 2012

Simple Partnership Agreement with LLC Zapsib-Finance

Joint operation – investing activity 18.01.2008 99.99969 99.99969 99 99

Simple Partnership Agreement LLC Alfa FC


Simple Partnership Agreement with LLC Siballiance


4. Summary of Significant Accounting Policies

Cash and cash equivalents

Cash and cash equivalents are assets, which can be converted into cash within a short period of time and consist of cash on hand, balances on correspondent and current accounts of the Group, deposits and promissory notes purchased from other banks maturing in less than three months. All short-term interbank placements (other than those maturing within three months from the date of placement) 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 exclude 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 Group’s day-to-day operations. The mandatory reserve balance is excluded from cash and cash equivalents for the purposes of the consolidated statement of cash flows.


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Financial assets

The Group 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); investments held to maturity; financial assets available for sale.

The Group 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 Group recognises financial assets and financial liabilities in its consolidated 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.

Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. The Group must have access to the principal or most advantageous market.

An entity shall measure the fair value of an asset or a liability using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

Fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

All assets and liabilities for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 — quoted market prices in an active market (that are unadjusted) for identical assets or liabilities;

Level 2 — valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;

Level 3 — valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are remeasured in the consolidated financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The Group’s securities portfolio comprises securities traded on the organized market – MICEX SE CJSC. Transactions on MICEX SE CJSC are conducted on a regular basis and information on the current quotations of the active market is publicly available. Active market quotations are the best evidence for determining the current fair value of financial instruments.

The Group engages external valuers to measure material assets, such as investment property. A decision to engage external valuers is taken annually by the Bank’s Executive Board, which is governed by such selection criteria as market knowledge, reputation, independence and professional compliance.

The fair value of the Group’s investment property is its market value confirmed by an qualified valuer or, if the active market is available, determined by the administrative department of the Bank based on at least two data sources on the prices quoted on the active market of similar investment property


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(reference data from real estate companies, information on prices published in media sources and special literature).

At each reporting date the Department of Internal Accounting for Securities analyses movements in the values of assets and liabilities which are required to be re-measured or re-assessed in accordance with the Group’s accounting policies. For this analysis, the Department of Internal Accounting for Securities verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above (Note 36).

The fair value of financial instruments traded on the active market at the end of the reporting period 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 for such models are based on observable market data or judgement. Judgement is based on the time value of money, credit risk level, volatility of the instrument, market risk level and other applicable factors if such information is available.

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 Group 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 Group 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 Group 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 Group 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 Group 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 Group’s continuing involvement in the asset. Continuing


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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 Group could be required to repay.

Reclassification of financial assets

The Group shall not reclassify out of the fair value through profit or loss category a derivative financial instrument while it is held or issued or any financial instrument classified at initial recognition as at fair value through profit or loss.

Non-derivative trading financial assets at fair value through profit or loss may be reclassified out of the fair value through profit or loss category only in rare circumstances arising from a single event that is unusual if these assets are no longer held for the purpose of selling or repurchasing them in the near term.

Non-derivative trading financial assets at fair value through profit or loss may be reclassified into loans and receivables or investments held to maturity depending on the purposes for which these financial assets are held, if the Group has intention and the ability to hold these financial assets for the foreseeable future or until maturity.

Financial assets available for sale may be reclassified into loans and receivables if the Group has a positive intention and the ability to hold these financial assets for the foreseeable future or until maturity.

If financial assets are reclassified into loans and receivables or investments held to maturity, the fair value on the date of reclassification will become the new cost of these financial assets. Subsequently these assets are measured at amortised cost using the effective interest rate method.

If, as a result of a change in intention or ability, it is no longer appropriate to classify an investment as held to maturity, it shall be reclassified as financial assets available for sale and remeasured at fair value. Unrealised gains and losses arising from changes in the fair value of financial assets available for sale are recorded in the consolidated statement of comprehensive income as other comprehensive income.

The Group shall not classify any financial assets as held to maturity if the Group has, during the current financial year or during the two preceding financial years, sold or reclassified more than an insignificant amount of held-to-maturity investments before maturity (more than insignificant in relation to the total amount of held-to-maturity investments) other than sales or reclassifications that:

– are so close to maturity or the financial asset's call date (for example, less than three months before maturity) that changes in the market rate of interest would not have a significant effect on the financial asset's fair value;

– occur after the Group has collected substantially all of the financial asset's original principal through scheduled payments or prepayments; or

– are attributable to an isolated event that is beyond the Group’s control, is non-recurring and could not have been reasonably anticipated by the Group.

Whenever sales or reclassifications of more than an insignificant amount of held-to-maturity investments do not meet any of the conditions of the classification, any remaining held-to-maturity investments shall be reclassified as financial assets available for sale.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include trading securities and other financial assets at fair value through profit or loss.

Trading securities represent securities acquired principally for the purpose of generating a profit from short-term fluctuations in price or trader’s margin, or securities included in a portfolio where a pattern of short-term trading exists. The Group classifies securities as trading securities when it intends to sell them within a short period of time after purchase. Trading securities are not reclassified out of this category except for rare circumstances arising from a single event that is unusual and highly unlikely to reoccur in the near term.

Trading securities are recognised at fair value. Interest earned on trading securities is reflected as interest income in the consolidated statement of income. Dividends are recognised in the consolidated statement of income as dividends received when the Group’s right to receive dividends is established and dividends are likely to be received. All other elements of the changes in the fair value and gains or losses on derecognition are recorded in the consolidated statement of income as gains less losses arising from financial assets at fair value through profit or loss in the period in which they arise.


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Derivative financial instruments including foreign exchange contracts, interest rate futures, forward rate agreements, currency and interest rate swaps and options, 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 consolidated statement of financial position at cost (including transaction costs) and subsequently remeasured at their fair value. Fair values are obtained from quoted market prices.

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

The Group does not use derivative financial instruments for hedging purposes.

Other financial assets at fair value through profit or loss include securities that were initially classified in this category provided one of the following criteria was met:

the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring assets and recognising gains and losses on them on a different basis; or

a group of financial assets and/or financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management and investment strategy and information about this basis is regularly disclosed and revised by the Group’s management.

Recognition and measurement of financial assets designated in this category is in compliance with the accounting policies in respect of trading securities presented above.

Due from other banks

In the normal course of business, the Group 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. Guarantee funds placed with payment systems are recognised as due from other banks. Amounts due from other banks are carried net of any allowance for impairment.

Cover of the letter of credit is the amount of the letter of credit (cover) remitted by the issuing bank at the expense of the payer to the executing bank to be held at its disposal for the entire term the obligation of the issuing bank stays in effect.

Loans to customers

This category includes 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 upon initial recognition 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.

Loans to customers originated at interest rates different from market rates are remeasured at origination to their fair values, being future interest payments and principal repayment(s) discounted at market interest rates for similar loans. The difference between the fair value and the nominal value of the loan is recognised in the consolidated statement of income as gains/losses on origination of loans to customers at rates above/below market. Subsequently, the carrying amount of such loans is adjusted for amortisation of such gains/losses and the related gains/losses are recorded within the consolidated statement of income using the effective interest method.


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When the Group acquires loans from third parties at the nominal value, such loans are recognized at fair value. Subsequently the acquired loans are carried using the procedures described above.

Investments held to maturity

This category of financial assets represents non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity. The Group’s management determines the appropriate classification of financial assets at the time of purchase.

The Group assesses its intention and ability to hold its held-to-maturity investments to maturity not only when those financial assets are initially recognised, but also at each closing date.

Initially, investments held to maturity are recorded at fair value and are subsequently carried at amortised cost. Gains and losses on investments held to maturity are recognised in the consolidated statement of income when such assets are impaired, as well as through the amortisation process.

If the Group sells a significant portion of its portfolio of investments held to maturity before their maturity, the remaining financial assets from this category shall be reclassified as financial assets available for sale.

Interest earned on investments held to maturity is recognised in the consolidated statement of income.

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. Financial assets available for sale are subsequently remeasured to fair value based on market quotations. Financial assets available for sale for which there is no available independent quotation may be valued by the Group’s management at the fair value on the basis of results of recent sales of similar financial assets to unrelated third parties or determined on the basis of indicative quotations for purchase/sale of each type of securities published by information agencies or provided by professional securities market participants. If there is no active market and it is impossible to determine the fair value of equity securities using reliable methods, investments are allowed to be recognised at acquisition cost.

Unrealised gains and losses arising from changes in the fair value of financial assets available for sale are recognised in the consolidated 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 recycled to consolidated profit or loss as gains less losses arising from financial assets available for sale. Disposals of financial assets available for sale are recorded using the average cost method.

Interest earned on debt securities available for sale is determined using the effective interest method and reflected in the consolidated statement of income as interest income. Dividends received on equity investments available for sale are recorded in the consolidated statement of income as dividends received when the Group’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 at fair value through profit or loss, financial assets available for sale, investments held to maturity, cash and cash equivalents, due from other banks or loans to customers, depending on their economic substance and are subsequently accounted for in accordance with the accounting policies for these categories of assets.

Impairment of financial assets

The Group 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 consolidated statement of 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 a group of financial assets that can be reliably estimated. If the Group 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.


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(1) 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 Group 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 the following main criteria in respect of individually significant financial assets:

– default in any payments due;

– significant financial difficulty of the borrower supported by financial information at the Group’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.

In 2013 the Group revised its estimates of expected loan losses relying on its accumulated experience in credit risk assessment and management. For making provisions for loans, issued on non-standard terms, the Group uses a credit risk approach based on internal ratings, and for loans issued as a standardized banking product - a migration matrix approach.

The system of credit ratings provides a differentiated assessment of probability of default/non-execution by the counterparties of their obligations by analyzing quantitative (financial) and qualitative factors of credit risk, materiality of their impact on the ability of the counterparty to serve and repay their obligations.

The Bank’s internal regulations provide for a multi-factor approach, the factor list being standardized depending on the counterparty category: risk factors related to counterparty’s creditworthiness and its volatility, ownership structure, business reputation, credit history, cash flow and financial risks control, transparency, position of the client in the industry and the region, strength of support from local administration and parent companies (in case of a holding) are subject to mandatory monitoring and control. Based on the analysis of these risk factors the probability of default is assessed and graded by counterparty/transaction with their subsequent classification ratings.

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

If the Group 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.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics such as asset type, industry, collateral type, payment status and other relevant factors. The characteristics chosen are relevant to the estimation of future cash flows for groups of such assets by being indicative of the borrowers' ability to pay all amounts due according to the contractual terms of the assets being evaluated.

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 with respect to 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).


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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 consolidated statement of 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, prices for property and exchange-traded commodities, 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 consolidated statement of 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 amount 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 Group shall take necessary and adequate steps, envisaged by law, standard business practice or agreement, to collect this outstanding loan.

(2) Impairment of investments held to maturity

The Group assesses whether objective evidence of impairment exists individually for investments held to maturity. 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 and the amount of the loss is recognised in the consolidated statement of income. If, in the next year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is recognised as income in the consolidated statement of income.

(3) Impairment of financial assets available for sale

The Group assesses at each closing date whether there is objective evidence that an investment or a group of investments available for sale is impaired.

In case of equity investments classified as available for sale, objective evidence of impairment would include significant financial difficulty of the issuer supported by financial information at the Group’s disposal. To assess whether there is any indication of impairment the Group shall analyse the issuer’s activities taking into account the influence of economic factors, including consequences of changes in the technical, market, economic or legal environment in which the issuer operates. The Group also assesses other factors such as volatility of price per share. Cumulative impairment loss measured as a difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised through profit and loss, is reclassified from other comprehensive income to profit and loss.

Impairment losses on equity investments are not reversed through the profit and loss account: increases in the fair value after impairment are recognised directly in other comprehensive income.

In case of unquoted debt instruments not at fair value through profit or loss classified as available for sale, impairment is assessed based on the same criteria as those for financial assets carried at amortised


28

cost. Interest income is based on the reduced carrying amount and is accrued using the rate of interest used to discount future cash flows for the purpose of measuring the impairment loss.

If in the subsequent year the fair value of a debt instrument increases, and such increase can be related objectively to the event occurring after the impairment loss was recognised in the consolidated statement of income, the impairment loss is reversed and income is reported in the consolidated statement of income.

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 Group 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 consolidated statement of income.

Financial liabilities measured 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 money is advanced to the Group 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.

Debt securities issued. Debt securities issued include promissory notes and bonds issued by the Group. If the Group purchases its own debt securities issued, they are removed from the consolidated statement of financial position and the difference between the carrying amount of the liability and the consideration paid is included in other operating income as gain from retirement of debt in the consolidated statement of income.

Other borrowed funds. Other borrowed funds include subordinated deposits received by the Group and are recorded as cash is advanced to the Group.

Repurchase and reverse repurchase agreements and lending of securities Sale and repurchase agreements (“repo” agreements) are treated as secured financing transactions. Securities sold under sale and repurchase agreements are not derecognised, and the securities are not reclassified. The corresponding liability is presented within due to other banks or customer accounts.

Securities purchased under agreements to resell (“reverse repo” agreements) are recorded as due from other banks or loans to customers, as appropriate. The difference between the sale and repurchase price is treated as interest and accrued over the life of repo agreements using the effective interest rate method.

Securities lent by the Group to counterparties for a fixed fee are retained in the consolidated financial statements in their original statement of financial position category. Securities borrowed for a fixed fee are not recorded in the Group’s consolidated financial statements except when they are sold to third parties. In such cases, the financial result from sale and purchase of such securities is recognised in the consolidated statement of income within gains less losses arising from financial assets at fair value through profit or loss. The obligation to return the securities is recorded as financial liabilities at fair value through profit or loss.

Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and


29

there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

Non-current assets classified as held for sale

Non-current assets and disposal groups (which may include both non-current and current assets) are classified in the consolidated statement of financial position as non-current assets held for sale if their carrying amount will be recovered principally through a sale transaction within twelve months after the reporting date.

Both financial and non-financial assets are reclassified when all of the following conditions are met:

(a) the assets are available for immediate sale in their present condition;

(b) the Group’s management approved and initiated an active programme to locate a buyer;

(c) the assets are actively marketed for a sale at a reasonable price;

(d) the sale is expected within one year; and

(e) it is unlikely that significant changes to the plan to sell will be made or that the plan will be withdrawn by the Group’s management.

Non-current assets classified as held for sale in the current period’s consolidated statement of financial position shall not be reclassified in the comparative consolidated statement of financial position.

A disposal group represents non-current assets held for sale to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

Held for sale premises and equipment, investment property, intangible assets, or disposal groups as a whole are measured at the lower of their carrying amount and fair value less costs to sell. Held for sale premises and equipment, and intangible assets are not depreciated or amortised. The Group recognises an impairment loss for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. Reclassified non-current financial instruments, deferred taxes and investment properties held at fair value are not subject to the write down to the lower of their carrying amount and fair value less costs to sell.

Liabilities directly associated with a disposal group that will be transferred in the disposal transaction shall be reclassified and presented separately in the consolidated statement of financial position.

Investment property

Investment property is property held by the Group to earn rentals or for capital appreciation or both, rather than for: (а) use in the Group’s ordinary course of business or 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 Group’s investment property is obtained from reports of independent appraisers, who hold a recognised and relevant professional qualification and who have professional experience in valuation of property of similar location and category. Changes in the fair value of investment property are recorded in profit or loss in the consolidated statement of income and presented separately. In addition, rental income is recognised in the consolidated statement of income as other income. Direct operating expenses arising from investment property that generates rental income and other direct operating expenses arising from investment property that does not generate rental income are recorded as operating expenses.

If the investment property is used by the Group 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 and renovation intended for subsequent use as investment property is recorded as investment property.

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.


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At each closing date the Group assesses whether there is any indication of impairment of premises and equipment (except land and buildings that are carried at revalued amounts). If any such indication exists, the Group 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 an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount and the difference is charged to the consolidated statement of income as deficit on revaluation.

Land and buildings are revalued on a regular basis. After initial recognition at cost, land and buildings 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.

On revaluation of buildings, any accumulated depreciation at the date of the revaluation is eliminated against gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

Any revaluation surplus is recorded in the consolidated 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 in the consolidated statement of income as profit or loss, except that revaluation deficit is directly offset against the previous surplus from revaluation of the same asset recorded directly 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 are recognised in the consolidated statement of income as operating income/expenses.

Repairs and maintenance are charged to the consolidated statement of 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 – 20-50 years;

Equipment – 3-25 years;

Furniture – 7 years;

Motor vehicles – 5-7 years.

Land has an indefinite useful life and is not depreciated.

The assets’ useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Intangible assets

An intangible asset is an identifiable non-monetary asset without physical substance. Intangible asset is recognised if:

– the asset is expected to generate future economic benefits for the Group;

– the cost of the asset can be measured reliably;

– the asset is capable of being separated or divided from the Group and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract or liability.

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.


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The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Amortisation periods and methods for intangible assets with finite useful lives are reviewed at least at each financial year-end.

Intangible assets with indefinite useful lives are not amortised, but tested for impairment annually either individually or at the cash-generating unit level. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable.

Intangible assets are recorded within other assets.

Impairment of non-financial assets

Non-financial assets, other than deferred taxes, are assessed at each reporting date for any indications of impairment. The recoverable amount of non-financial assets is the greater of their fair value less costs to sell and value in use. Costs to sell are the costs associated with disposal of an asset tested for impairment, less finance costs. Value in use of an asset reviewed for impairment is the present value of the future cash flows expected to be derived from the use of an asset and its subsequent disposal. If there is not any evidence of impairment of an asset reviewed for impairment, its recoverable amount is not determined. The Group assesses indications of possible impairment using internal and external data sources.

All impairment losses in respect of non-financial assets are recognized in profit or loss and reversed only if there has been a change in the estimates used to determine the recoverable amount. Any impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Finance lease – the Group as lessor

Where the Group is the lessor, upon inception of a finance lease, the present value of the lease payments ("net investment in leases") is recorded separately in the consolidated statement of financial position. Unearned finance income is the difference between the cost of the leased equipment and the present value of future lease payments. Lease income is recognised over the lease term using the net investment method that reflects a constant rate of return.

Except as mentioned below, the Group considers the date of inception of finance lease to be the date of the lease agreement or commitment, if earlier. The commitment shall be in writing, signed by the parties to the transaction, and shall specifically set forth the principal terms of the transaction.

However, where the property, which is the object of lease, is not yet constructed, installed or purchased by the Group at the date of the lease agreement or the commitment incurred, the inception of the lease will be the date of completion of construction, installation or purchase of the property by the Group.

Advance payments made by the lessee prior to commencement of the lease reduce the net investment in the lease.

Finance income from leases is recognised in the consolidated statement of income as finance lease income.

In case of impairment of net investment in the lease, an impairment provision is set up by the Group. Investment in finance lease is impaired if its carrying amount is greater than its estimated recoverable amount. The amount of the impairment loss is calculated as the difference between the asset’s carrying amount and the present value of expected future cash flows discounted at the original effective interest rate of the finance lease receivable. Net investment in leases is recorded in the consolidated statement of financial position net of provision for possible impairment of their value.

Operating lease - the Group 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 of the consolidated statement of income.

Operating lease - the Group as lessor

The Group presents assets subject to operating leases in the consolidated statement of financial position according to the nature of the asset. Lease income from operating leases is recognised in the consolidated


32

statement of income on a straight-line basis over the lease term as other operating income. 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.

Share capital

Ordinary shares and preference shares are classified as share capital. The share capital contributed before 1 January 2003 is restated for the effects of inflation. The share capital contributed after the above date is stated at cost.

Share premium

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

Treasury shares

Where the Bank or its subsidiaries purchase the Bank’s shares, the consideration paid including any attributable transaction costs is deducted from total equity as treasury shares until they are cancelled or reissued. Where such shares are subsequently disposed of or reissued, any consideration received is included in the equity. Treasury shares are recognised at acquisition cost.

Dividends

Dividends are recognised as a liability and deducted from shareholders’ equity at the end of the reporting period only if they are declared before or on the reporting date. Information on dividends 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 consolidated financial statements as distribution of profit.

Contingent assets and liabilities

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

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

Credit related commitments

The Group enters into credit related commitments, including guarantees, letters of credit and commitments to extend credits. Guarantees represent irrevocable assurances to make payments in the event that a customer cannot meet its obligations to third parties and carry the same credit risk as loans. Documentary letters of credit, which are written undertakings by the Group to pay on behalf of the client the agreed amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate or cash deposits and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees and letters of credit. With respect to credit risk on commitments to extend credit, the Group 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 the end of each reporting period 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 Group would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time.


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Non-Life Insurance

Insurance premiums. Premiums under insurance contracts are recorded on an accrual basis from the date of the insurer’s liability arising in respect of the insured under insurance contracts regardless of how insurance premiums are paid and are recognised as income in proportion to the contract term in the reporting period.

Provision for unearned premiums. Provision for unearned premiums represents the portion of premiums written applicable to the unexpired term of the insurance contract as at the end of the reporting period.

Claims adjustment expenses. Claims adjustment expenses are recorded in the consolidated statement of income as incurred.

Provisions for claims. Provisions for claims are the estimated liability to settle future claims and include the provision for claims reported but not paid (RBNP) and provision for claims incurred but not reported (IBNR). The estimated claims adjustment expenses are included in RBNP and IBNR. RBNP is set up based on the claims that were reported but are still outstanding at the end of the reporting period. The estimate is made on the basis of the information obtained by the Group when the insured events are considered, including information obtained subsequent to the end of the reporting period.

IBNR is actuarially estimated by the Group by each class of insurance business based on historical payment patterns for prior claims. The methods applied to estimate the provisions are regularly reviewed. The resulting adjustments are recorded in the consolidated statement of income as they arise. The provision for claims is estimated on an undiscounted basis, as the period between the claim filing and its settlement is rather short.

Reinsurance

The Group cedes contracts to reinsurers in the normal course of business. Reinsurance contracts do not extinguish the Group’s liability to its customers. Reinsured assets include receivables from reinsurers on settled claims, including claims adjustment expenses and ceded premiums. Amounts receivable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured contracts. Payables on reinsurance comprise reinsurance premiums due to reinsurers in connection with the business ceded to reinsurers.

Reinsurance contracts that do not provide for insurance risk transfer are shown directly in the consolidated statement of financial position within other assets and accounts payable. A deposit asset or liability is recognised based on the consideration paid or received less any explicitly identified premiums or fees to be retained by the reinsured.

Deferred acquisition costs (DAC)

Acquisition costs represent commission and other direct expenses associated with obtaining insurance business and vary with and are primarily related to the acquisition of new and renewal of the existing insurance contracts. Acquisition costs are deferred and amortised over the period in which the related premiums are earned. Deferred acquisition costs are estimated by each class of insurance. At the time of policy issue and at the end of each reporting period, DAC are subject to recoverability testing by class of insurance based on future assumptions.

Liability adequacy test

At each reporting date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related deferred acquisition costs. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to profit or loss initially by writing off the deferred acquisition costs and by subsequently establishing a provision for losses arising from liability adequacy tests (provision for unexpired risk).

Voluntary Medical Insurance (VMI)

Voluntary medical insurance is divided into two groups: underwriting and non-underwriting business. Non-underwriting business represents operations that are conducted without insurance risk transfer. They are recorded directly in the consolidated statement of financial position. An asset or a liability is recorded in the amount received less amounts paid and retained commission.


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Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying future economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

Taxation

The income tax charge/recovery comprises current tax and deferred tax and is recorded in the consolidated statement of income except if it is recorded directly in other comprehensive income because it relates to transactions that are also recorded directly in other comprehensive income.

Income tax expense is recorded in the consolidated financial statements in accordance with the applicable legislation of the Russian Federation. Current tax is calculated on the basis of the taxable profit for the year, using the tax rates enacted during the reporting period.

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 consolidated 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 consolidated financial reporting purposes.

Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period 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 and deferred taxes refer to the same taxpayer of the Group and tax authority. 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 the consolidated 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 Group’s activities. These taxes are recorded within operating expenses in the consolidated statement of income.

Income and expense recognition

Interest income and expense are recorded in the consolidated statement of 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 exactly 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 Group 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 premium on promissory notes and other discounted 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 over the period the service is provided. Fees and commissions arising from negotiating a transaction for a third party, such as the acquisition of shares and other securities, are recorded on completion of the transaction in the consolidated statement of income. Investment portfolio, depository and other advisory service fees are recognised based on the applicable service contracts.

Commissions earned on business ceded to reinsurers represent a recovery of acquisition costs. Commissions earned on ceded reinsurance reduce the respective unamortised portion of acquisition costs when capitalised net acquisition costs are expensed to the extent the net income is recognised.


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Employee benefits and social insurance contributions

The Group pays social insurance contributions on the territory of the Russian Federation. These contributions comprise contributions to the Russian Federation state pension, social insurance, and obligatory medical insurance funds in respect of the Group’s employees. These contributions are recorded on an accrual basis and are included in staff costs. The Group does not have pension arrangements separate from the state pension system of the Russian Federation. Wages, salaries, paid annual leaves and paid sick leaves, bonuses and non-monetary benefits are accrued as the Group’s employees render the related service.

Foreign currency and precious metals

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 end of the reporting period. Foreign exchange gains and losses resulting from translation of transactions in foreign currency and precious metals are recorded in the consolidated statement of income within gains less losses from revaluation of foreign currency and precious metals. Non-monetary items denominated in foreign currency and carried at cost are restated at the CBR exchange rate 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.

Gold, silver and other precious metals are recorded at the bid prices set by the CBR. In the consolidated financial statements precious metals are stated at the fair value determined at the reporting date based on precious metals prices set at the London Metal Exchange. Changes in precious metals prices are recorded as exchange differences within gains less losses from revaluation of foreign currency and precious metals in the consolidated statement of income. Precious metals are recorded within other assets.

Gains and losses on purchase and sale of precious metals and foreign currency are determined as the difference between the selling price and the carrying amount at the date of the transaction.

Fiduciary activities

Assets held by the Group in its own name, but for the account of third parties under depository, agency, trust management and other similar agreements are not reported in the Group’s consolidated statement of financial position. Commissions received from such operations are shown within fee and commission income in the consolidated statement of income.

Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

The Group shall report separately in its consolidated financial statements information about an operating segment that meets any of the following quantitative thresholds:

– its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments;

– the absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of:

– the combined reported profit of all operating segments that did not report a loss in the reporting period; and

– the combined reported loss of all operating segments that reported a loss in the reporting period;

– its assets are 10 per cent or more of the combined assets of all operating segments.

Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to users of the consolidated financial statements.


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As the information is available from management reporting and can differ from the IFRS financial statements, reconciliations shall be made and reasons disclosed:

- the total of the reportable segments’ revenues to the Group’s revenue.

- the total of the reportable segments’ measures of profit or loss to the Group’s profit or loss before tax expense (tax income) and discontinued operations. However, if the Group allocates to reportable segments items such as tax expense (tax income), the Group may reconcile the total of the segments’ measures of profit or loss to the Group’s profit or loss after those items.

- the total of the reportable segments’ assets to the Group’s assets.

- the total of the reportable segments’ liabilities to the Group’s liabilities.

- the total of the reportable segments’ amounts for every other material item of information disclosed to the corresponding amount for the Group.

All material reconciling items shall be separately identified and described. For example, the amount of each material adjustment needed to reconcile reportable segment profit or loss to the Group’s profit or loss arising from different accounting policies shall be separately identified and described.

5. Cash and Cash Equivalents

2013 2012

Cash on hand 6 726 361 5 834 188 Balances with the CBR (other than mandatory reserve deposits) 3 647 921 4 557 340 Correspondent accounts and short-term deposits with other banks of: - the Russian Federation 5 239 734 4 167 947 - other countries 888 645 939 938 Promissory notes of other banks 138 501 1 593 384 Total cash and cash equivalents 16 641 162 17 092 797

As at 31 December 2013, promissory notes of other banks are represented by Rouble-denominated debt securities of JSCB Avangard, OJSC Tatfondbank with maturities from 12 February 2014 to 19 February 2014 and interest rate ranging from 7.90% to 9.45%. As at 31 December 2012, promissory notes of other banks are represented by Rouble-denominated debt securities of OJSC AK BARS Bank, OJSC VTB, OJSC Bank ZENIT, OJSC Tatfondbank, OJSC URALSIB, OJSC TransCreditBank, OJSC ALFA-BANK and JSC Bank of Khanty-Mansiysk with maturities from 21 January 2013 to 20 March 2013 and interest rate from 7.90% to 10.50%.

The credit quality analysis of cash and cash equivalents as at 31 December 2013 and 31 December 2012 has shown that all the above classes of cash and cash equivalents in the total amount of RUB 16 641 162 thousand (2012: RUB 17 092 797 thousand) are current and unimpaired.

6. Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss reflected in the consolidated statement of financial position as at 31 December 2013 and 31 December 2012 include securities and units of investment funds.

2013 2012

Government and municipal debt securities - Russian Federation bonds (OFZ) 18 042 18 652 - Municipal bonds 9 148 9 116

Corporate equity securities - Corporate shares 26 217 24 546 - Units of investment funds 4 484 4 248 Total financial assets at fair value through profit or loss 57 891 56 562


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Russian Federation bonds (OFZ) are Rouble-denominated government securities issued by the Ministry of Finance of the Russian Federation. As at 31 December 2013, OFZ bonds in the Group’s portfolio have maturity dates from November 2014 to February 2036 (2012: from November 2014 to February 2036), the coupon rate ranging from 6.9% to 8.1% per annum (2012: from 6.9% to 8.1% per annum), and yield to maturity ranging from 6.1% to 8.1% per annum (2012: from 6.35% to 7.56% per annum) depending on the issue.

Municipal bonds are represented by the City of Moscow municipal (domestic) bonds denominated in Roubles and freely tradable on the MICEX. As at 31 December 2013, municipal bonds in the Group’s portfolio have maturity date in July 2014 (2012: July 2014), the coupon rate of 7% per annum in 2013 (2012: 7% per annum), and yield to maturity of 6.7% per annum (2012: 7.2 per annum).

As at 31 December 2013 and 31 December 2012, corporate shares represent shares of OJSC Gazprom, OJSC LUKOIL and OJSC Sberbank of Russia.

As at 31 December 2013, the units of investment funds measured at fair value through profit or loss represent units of the Open-ended Unit Investment Fund Troika Dialog – Dobrynya Nikitich in the amount of RUB 4 484 thousand (2012: RUB 4 248 thousand). The Fund aims to gain income over a one-to-three-year investment horizon by investing in shares of Russian issuers which have the highest growth potential.

Below is a model industry structure of the share portfolio of Troika Dialog – Dobrynya Nikitich Fund as at 31 December 2013 and 31 December 2012:

2013 2012 Line of business Share, % Share, %Finance 22.1 17.7 Oil and gas 20.9 34.5 Telecommunications 11.5 3.7 Consumer sector 10.8 2.7 Real estate 9.4 4.5 Electricity 7.5 6.5 Media and IT 5.4 - Metals 4.8 9.9 Transport 4.4 2.5 Chemical 2.2 5.0 Cash 1.0 12.1 Mechanical engineering - 0.9 Total 100.0 100.0

As these financial investments at fair value through profit or loss are stated at fair value determined on the basis of observable market quotations, the Group does not analyse or monitor the impairment indicators.

The credit quality analysis of debt securities as at 31 December 2013 and 31 December 2012 has shown that all the above classes of trading debt securities at fair value through profit or loss in the total amount of RUB 27 190 thousand (2012: RUB 27 768 thousand) are current.

Below is the credit quality analysis of issuers of trading debt securities at 31 December 2013 in accordance with ratings of international agencies:

Fitch+ Moody’s S&P Total

Government and municipal debt securities - Russian Federation bonds (OFZ) ВВВ Ваа1 ВВВ 18 042 - Municipal bonds

- Moscow City Government Committee – 39th issue ВВВ Ваа1 ВВВ 9 148 Total trading debt securities at fair value through profit or

loss 27 190


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Below is the credit quality analysis of trading debt securities at 31 December 2012 in accordance with the ratings of international agencies

Fitch+ Moody’s S&P Total

Government and municipal debt securities - Russian Federation bonds (OFZ) ВВВ Ваа1 ВВВ 18 652 - Municipal bonds - Moscow City Government Committee – 39th issue ВВВ Ваа1 ВВВ 9 116 Total trading debt securities at fair value through profit or

loss 27 768

Debt securities are not collateralised.

Due to drastic deterioration of the situation and liquidity on the world financial markets in 2008, certain financial assets at fair value through profit or loss were reclassified, subject to the Group management’s decision and in accordance with Amendments to IAS 39 and IFRS 7, from financial assets at fair value through profit or loss to financial assets available for sale. Reclassification was performed as at 31 October 2008 at the market value as at 1 July 2008. The carrying value of financial assets at the date of reclassification was equal to their fair value as at 1 July 2008 and amounted to RUB 2 128 560 thousand. The information on reclassification is given in Note 10.

7. Due from Other Banks

2013 2012 Promissory notes of other banks 705 652 2 732 995 Guarantee fund with payment systems 517 790 414 277 Deposits with other banks - 300 119 Cover of letters of credit - 7 941 Less: provision for impairment of due from other banks (200) - Total due from other banks 1 223 242 3 455 332

As at 31 December 2013, promissory notes of other banks are represented by debt securities OJSC AK BARS Bank , OJSC NOMOS BANK, OJSC Tatfondbank, OJSC Rosselkhozbank, OJSC Investtorgbank and JSC BANK of KHANTY-MANSIYSK denominated in RUB and USD with maturities from February 2014 to October 2014 and the interest rate ranging from 4.10% to 9.00%.

As at 31 December 2012, promissory notes of other banks are represented by debt securities of OJSC Gazprombank, Asian-Pacific Bank (OJSC), OJSC AK BARS BANK, OJSC VTB, CJSC GLOBEXBANK, OJSC MDM Bank, NOMOS-BANK (OJSC), OJSC ALFA-BANK and JSC BANK of KHANTY-MANSIYSK denominated in RUB and EUR with maturities from January 2013 to June 2013 and interest rate from 3.35% to 9.35%.

Movements in the provision for impairment of due from other banks are as follows:

Guarantee fund with

payment systems Total Provision for impairment of due from other banks as at

1 January 2013 - - Provision for impairment during 2013 200 200 Provision for impairment of due from other banks as at

31 December 2013 200 200

In 2012 the Group did not make a provision for due from other banks.


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Below is the credit quality analysis of due from other banks as at 31 December 2013:

Current and unimpaired Individually assessed Total

Promissory notes of other banks 705 652 - 705 652 Guarantee fund with payment systems 517 590 200 517 790 Less: provision for impairment of due

from other banks - (200) (200) Total due from other banks 1 223 242 - 1 223 242

At 31 December 2013 and 31 December 2012 all the above classes of due from other banks are current.

Due from other banks are not collateralised.

Guarantee funds with payment systems include funds with the payment systems VISA, MasterCard and CJSC MIGOM which allow the Group to repay the liabilities of its clients. As at 31 December 2013, the Group had guarantee fund balances with VISA in the amount of RUB 312 025 thousand (2012: RUB 244 950 thousand), MasterCard - in the amount of RUB 205 565 thousand (2012: RUB 169 327 thousand) and CJSC MIGOM - in the amount of RUB 200 thousand (2012: none). As the license of CJSC MIGOM was revoked on 18 March 2014, the Group made a 100% provision for the guarantee fund balance.

As at 31 December 2013, the Group had no cash balances above 10% of the Group’s capital.

As at 31 December 2012, the Group had cash balances above 10% of the Group’s capital with OJSC Gazprombank. The aggregate amount of these funds was RUB 1 150 433 thousand or 33.29%.

At 31 December 2013, the following assets were provided as collateral to secure the obligations of the Principal represented by OJSC Benat under an agreement for issuance of a bank guarantee to JSCB Investtorgbank: - promissory note of JSCB Investtorgbank in the amount of RUB 21 400 thousand; - promissory note of JSCB Investtorgbank in the amount of RUB 4 500 thousand.

8. Loans to Customers 2013 2012 Mortgage loans to individuals 24 236 445 20 717 810 Consumer loans to individuals 21 263 853 14 812 545 Corporate loans 18 131 726 16 384 924 Housing loans to individuals 2 396 020 1 724 166 Loans to individual entrepreneurs 1 722 266 1 373 650 Car loans to individuals 1 054 293 865 350 Loans to state and municipal authorities 631 891 384 Reverse repo agreements - 533 021 Less: provision for impairment of loans to customers (4 661 479) (4 662 331) Total loans to customers 64 775 015 51 749 519

In 2013 a loss in the amount of RUB 6 945 thousand (2012: RUB 5 269 thousand), associated with origination of loans to customers as rates below market was recorded in the consolidated statement of income.

As at 31 December 2013, accrued interest income on impaired loans amounted to RUB 723 805 thousand (2012: RUB 659 867 thousand).

As at 31 December 2012, loans to customers in the amount of RUB 533 021 thousand were actually collateralised with securities acquired under reverse repo agreements with the fair value of RUB 565 559 thousand. The Group has the right to sell or repledge these securities. The Group had no intention to sell the securities pledged to it as collateral under a repo agreement before the due date of the resale obligation.


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Movements in the provision for impairment of loans to customers in 2013 and 2012 are as follows:

Mortgage loans to

individuals

Consumer loans to

individuals Corporate

loans

Housing loans to

individuals

Loans to individual

entrepreneurs

Car loans to

individuals

Loans to state and municipal

authorities Total Provision for impairment

of loans to customers as at

1 January 2012 265 311 230 339 4 033 951 81 681 142 152 39 517 - 4 792 951 (Recovery of provision)/

provision for impairment during 2012 93 793 295 123 (477 287) (14 745) (36 553) 12 815 - (126 854)

Loans written off during 2012 as uncollectible - (3 758) - - - (8) - (3 766)

Provision for impairment of loans to customers as at 31 December 2012 359 104 521 704 3 556 664 66 936 105 599 52 324 - 4 662 331

Provision/(recovery of

provision) for impairment during 2013 (166 864) 603 441 (409 637) (27 892) 30 991 (23 781) 3 819 10 077

Loans written off during 2013 as uncollectible (11) (3 014) (6 919) - - (985) - (10 929)

Provision for impairment of loans to customers as at 31 December 2013 192 229 1 122 131 3 140 108 39 044 136 590 27 558 3 819 4 661 479

In 2013 the uncollectible debt under loan agreements in the amount of RUB 10 929 thousand (2012: RUB 3 766 thousand) was written off in accordance with the decision of the Board of Directors.

Economic sector concentrations within the Group’s loan portfolio are as follows: 2013 2012 Amount % Amount % Loans to individuals 48 950 611 70.50 38 119 871 67.58 Construction (real estate) 3 980 687 5.73 4 894 288 8.68 Transport 3 046 639 4.39 1 214 351 2.15 Trade companies 2 587 746 3.73 2 672 777 4.74 Leasing companies 2 577 797 3.71 1 875 457 3.32 Loans to individual entrepreneurs 1 722 266 2.48 1 373 650 2.44 Manufacturing industry 1 638 228 2.36 1 857 351 3.29 Financial services 1 107 824 1.60 1 357 217 2.41 Agriculture 1 098 187 1.58 938 210 1.66 State and municipal authorities 631 891 0.91 384 0.00 Geophysics 27 821 0.04 35 958 0.06 Other 2 066 797 2.97 2 072 336 3.67 Total loans to customers (gross) 69 436 494 100.00 56 411 850 100.00

As at 31 December 2013, the Group had 1 borrower (2012: 1 borrower) with the total amount exceeding 10% of the Group’s capital. The aggregate amount of these loans was RUB 1 350 000 thousand or 1.94% of total loans to customers (2012: RUB 1 166 664 thousand or 2.07% of total loans to customers).


41

The credit quality analysis of loans to customers as at 31 December 2013 is as follows:

Gross loans Impairment

provision

Loans net of impairment

provision

Impairment provision to

gross loans,% Mortgage loans to individuals Collectively assessed loans Current loans (not past due) 23 598 922 6 619 23 592 303 0.03 Less than 1 month overdue 356 414 2 531 353 883 0.71 1 to 6 months overdue 93 239 20 753 72 486 22.26 6 to 12 months overdue 60 081 35 527 24 554 59.13 More than 1 year overdue 127 789 126 799 990 99.23 Total mortgage loans to

individuals 24 236 445 192 229 24 044 216 0.79 Consumer loans to individuals Collectively assessed loans Current loans (not past due) 19 493 740 67 834 19 425 906 0.35 Less than 1 month overdue 580 058 62 402 517 656 10.76 1 to 6 months overdue 551 364 385 897 165 467 69.99 6 to 12 months overdue 342 484 310 073 32 411 90.54 More than 1 year overdue 296 207 295 925 282 99.90 Total consumer loans to

individuals 21 263 853 1 122 131 20 141 722 5.28 Corporate loans

Individually assessed loans Current loans (not past due) 7 308 442 1 176 831 6 131 611 16.10 1 to 6 months overdue 558 387 510 760 47 627 91.47 6 to 12 months overdue 13 686 13 686 - 100.00 More than 1 year overdue 1 037 334 779 895 257 439 75.18 Collectively assessed loans Current loans (not past due) 8 949 903 477 152 8 472 751 5.33 Less than 1 month overdue 58 271 13 847 44 424 23.76 1 to 6 months overdue 87 785 51 208 36 577 58.33 6 to 12 months overdue 55 843 54 654 1 189 97.87 More than 1 year overdue 62 075 62 075 - 100.00 Total corporate loans 18 131 726 3 140 108 14 991 618 17.32 Housing loans to individuals

Collectively assessed loans Current loans (not past due) 2 268 793 636 2 268 157 0.03 Less than 1 month overdue 61 234 1 338 59 896 2.19 1 to 6 months overdue 29 593 7 152 22 441 24.17 6 to 12 months overdue 16 158 10 005 6 153 61.92 More than 1 year overdue 20 242 19 913 329 98.37 Total housing loans to

individuals 2 396 020 39 044 2 356 976 1.63


42


provision


provision


gross loans,% Loans to individual

entrepreneurs Individually assessed loans 1 to 6 months overdue 12 750 12 750 - 100.00 6 to 12 months overdue 16 519 16 519 - 100.00 Collectively assessed loans Current loans (not past due) 1 649 565 79 378 1 570 187 4.81 Less than 1 month overdue 13 485 3 810 9 675 28.25 1 to 6 months overdue 8 398 3 008 5 390 35.82 6 to 12 months overdue 10 641 10 217 424 96.02 More than 1 year overdue 10 908 10 908 - 100.00 Total loans to individual

entrepreneurs 1 722 266 136 590 1 585 676 7.93 Car loans to individuals

Collectively assessed loans Current loans (not past due) 991 554 320 991 234 0.03 Less than 1 month overdue 18 628 195 18 433 1.05 1 to 6 months overdue 11 925 1 442 10 483 12.09 6 to 12 months overdue 8 900 3 692 5 208 41.48 More than 1 year overdue 23 286 21 909 1 377 94.09 Total car loans to individuals 1 054 293 27 558 1 026 735 2.61

Loans to state and municipal authorities

Individually assessed loans Current loans (not past due) 471 500 1 461 470 039 0.31 Collectively assessed loans Current loans (not past due) 160 391 2 358 158 033 1.47 Total loans to state and

municipal authorities 631 891 3 819 628 072 0.60 Total loans to customers 69 436 494 4 661 479 64 775 015 6.71


43

The credit quality analysis of loans to customers as at 31 December 2012 is as follows:


provision


provision


gross loans,% Mortgage loans to individuals Collectively assessed loans Current loans (not past due) 20 396 046 220 149 20 175 897 1.08 Less than 1 month overdue 159 952 14 165 145 787 8.86 1 to 6 months overdue 53 898 28 260 25 638 52.43 6 to 12 months overdue 23 244 16 845 6 399 72.47 More than 1 year overdue 84 670 79 685 4 985 94.11 Total mortgage loans to

individuals 20 717 810 359 104 20 358 706 1.73 Consumer loans to individuals Collectively assessed loans 14 309 298 268 553 14 040 745 1.88 Current loans (not past due) 199 186 14 588 184 598 7.32 Less than 1 month overdue 168 825 118 052 50 773 69.93 1 to 6 months overdue 71 047 61 079 9 968 85.97 6 to 12 months overdue 64 189 59 432 4 757 92.59 More than 1 year overdue Total consumer loans to

individuals 14 812 545 521 704 14 290 841 3.52 Corporate loans Individually assessed loans Current loans (not past due) 7 348 411 1 533 624 5 814 787 20.87 1 to 6 months overdue 62 106 62 106 - 100.00 6 to 12 months overdue 604 152 604 152 - 100.00 Collectively assessed loans Current loans (not past due) 7 670 838 731 508 6 939 330 9.54 Less than 1 month overdue 77 037 17 981 59 056 23.34 1 to 6 months overdue 227 704 212 617 15 087 93.37 6 to 12 months overdue 20 200 20 200 - 100.00 More than 1 year overdue 374 476 374 476 - 100.00 Total corporate loans 16 384 924 3 556 664 12 828 260 21.71 Housing loans to individuals Collectively assessed loans Current loans (not past due) 1 678 914 43 093 1 635 821 2.57 Less than 1 month overdue 24 339 5 519 18 820 22.68 1 to 6 months overdue 3 510 921 2 589 26.24 6 to 12 months overdue 2 515 2 515 - 100.00 More than 1 year overdue 14 888 14 888 - 100.00 Total housing loans to

individuals 1 724 166 66 936 1 657 230 3.88


44

Loans to individual entrepreneurs Collectively assessed loans Current loans (not past due) 1 337 369 76 777 1 260 592 5.74 Less than 1 month overdue 6 430 344 6 086 5.35 1 to 6 months overdue 2 854 1 481 1 373 51.89 6 to 12 months overdue 2 757 2 757 - 100.00 More than 1 year overdue 24 240 24 240 - 100.00 Total loans to individual

entrepreneurs 1 373 650 105 599 1 268 051 7.69 Car loans to individuals

Collectively assessed loans Current loans (not past due) 824 710 23 356 801 354 2.83 Less than 1 month overdue 13 045 2 191 10 854 16.80 1 to 6 months overdue 7 521 6 999 522 93.06 6 to 12 months overdue 5 042 4 746 296 94.13 More than 1 year overdue 15 032 15 032 - 100.00 Total car loans to individuals 865 350 52 324 813 026 6.05 Loans to state and municipal authorities Collectively assessed loans Current loans (not past due) 384 - 384 - Total loans to state and

municipal authorities 384 - 384 - Reverse repo agreements Individually assessed loans Current loans (not past due) 533 021 - 533 021 - Total under reverse repo

agreements 533 021 - 533 021 - Total loans to customers 56 411 850 4 662 331 51 749 519 8.26

Individually assessed loans are loans that are material in value and/or show certain signs of impairment and are individually assessed by the Group. 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 credit quality of loans to customers for which no signs of impairment were identified is not homogeneous due to diversity of industry risks and financial position characteristics of borrowers.


45

Below is the information on allocation of corporate loans, loans to individual entrepreneurs and loans to state and municipal authorities based on the internal ratings as at 31 December 2013:


provision


provision


gross loans,%

Loans assessment based on internal ratings

ВВВ- 471 500 1 462 470 038 0.31 ВВ- 1 264 441 5 670 1 258 771 0.45 В+ 1 549 463 8 651 1 540 812 0.56 В 6 133 675 159 475 5 974 200 2.60 В- 4 102 019 239 233 3 862 786 5.83 СС- 756 297 188 736 567 561 24.96 С 307 834 137 602 170 232 44.70 Impaired loans 2 716 860 2 335 973 380 887 85.98 Total for loans assessed on the

basis of internal ratings 17 302 089 3 076 802 14 225 287 17.78 Loans assessment based on the

migration matrix Unimpaired loans 3 000 953 52 556 2 948 397 1.75 Impaired loans 182 841 151 159 31 682 82.67 Total for loans assessed on the

basis of the migration matrix 3 183 794 203 715 2 980 079 6.40 Total loans 20 485 883 3 280 517 17 205 366 16.01

The system of credit ratings provides a differentiated assessment of probability of default/non-execution by the counterparties of their obligations by analyzing quantitative (financial) and qualitative factors of credit risk, materiality of their impact on the ability of the counterparty to serve and repay their obligations.

The Group’s internal regulations provide for a multi-factor approach, the factor list being standardized depending on the counterparty category: risk factors related to counterparty’s creditworthiness and its volatility, ownership structure, business reputation, credit history, cash flow and financial risks control, transparency, position of the client in the industry and the region, strength of support from local administration and parent companies (in case of a holding) are subject to mandatory monitoring and control. Based on the analysis of these risk factors the probability of default is assessed and graded by counterparty/transaction with their subsequent classification ratings.

As at 31 December 2013, current loans to customers (not past due) include balances in the amount of RUB 300 372 thousand (2012: RUB 265 061 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, not only the individual instalments that are past due.


46

Below is the information on the collateral structure as at 31 December 2013:

Mortgage loans to

individuals

Consumer loans to


loans Housing loans to individuals

Loans to individual

entrepreneurs Car loans to individuals


authorities Total

Real estate 23 416 538 617 734 7 567 109 796 765 877 117 89 - 33 275 352 Guarantees 130 376 2 346 689 3 397 907 1 244 984 457 496 59 154 - 7 636 606 Transport 7 025 136 649 2 568 343 23 200 108 845 889 404 - 3 733 466 Rights provided as

collateral 450 851 3 500 729 254 2 045 - - - 1 185 650 Goods for sale 992 1 100 342 793 - 29 859 - - 374 744 Equipment - 16 207 1 077 473 1 598 40 958 3 104 - 1 139 340 Other securities - 1 935 36 749 - - - - 38 684 Own securities

pledged - 76 354 166 996 - 2 190 - - 245 540 Other collateral 610 1 000 256 650 6 106 62 297 778 - 327 441 Unsecured 230 053 18 062 685 1 988 452 321 322 143 504 101 764 631 891 21 479 671 Total collateral 24 236 445 21 263 853 18 131 726 2 396 020 1 722 266 1 054 293 631 891 69 436 494

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

Mortgage loans to

individuals

Consumer loans to


loans Housing loans to individuals

Loans to individual

entrepreneurs Car loans to individuals


authorities

Reverse repo

agreement Total

Real estate 19 991 964 1 087 120 7 586 158 370 469 694 884 - - - 29 730 595 Guarantees 129 267 2 463 312 3 032 218 1 205 794 395 718 11 991 384 - 7 238 684 Transport - 118 856 1 799 698 27 811 77 095 845 643 - - 2 869 103 Rights of claim

provided as collateral 425 918 27 792 447 670 - 2 200 - - - 903 580

Goods for sale - - 761 785 - 28 876 - - - 790 661 Equipment - - 708 787 - 28 448 - - - 737 235 Other securities - 30 762 35 120 - - - - 533 021 598 903 Own securities

pledged - 56 223 113 008 - 3 400 - - - 172 631 Other collateral - 6 247 142 367 8 274 8 454 - - - 165 342 Unsecured 170 661 11 022 233 1 758 113 111 818 134 575 7 716 - - 13 205 116 Total collateral 20 717 810 14 812 545 16 384 924 1 724 166 1 373 650 865 350 384 533 021 56 411 850

The above table shows the carrying amount of the loans that was broken down by type of assets and collateral.

Unsecured corporate loans mainly represent overdraft loans and microcredits. Unsecured loans to individuals include mortgage loans undergoing state registration, unsecured housing loans, car loans with pending registration of vehicles, unsecured consumer loans, and loans provided using banking cards.

The collateral value of the security may differ from its fair value.

9. Net Investment in Leases

Below is the information on net and gross investment in leases:

2013 2012

Gross investment in leases, including - current portion 512 201 376 303 - non-current portion 1 873 440 1 827 891 Less: unearned finance lease income, including - current portion (54 843) (33 154) - non-current portion (1 026 991) (1 064 671)

Total net investment in leases 1 303 807 1 106 369 - current portion 457 358 343 149 - non-current portion 846 449 763 220

In 2013 the weighted average interest rate under lease contracts was 19.08% per annum (2012: 16.48%).


47

The table below shows the maturity analysis of net investment in leases as at 31 December 2013 and 31 December 2012:

Less than

1 year From 1 to 5

years

Later than

5 years Total

Gross investment in leases 512 201 926 030 947 410 2 385 641 Less: unearned finance income (54 843) (327 407) (699 584) (1 081 834) Net investment in leases (gross) as at

31 December 2013 457 358 598 623 247 826 1 303 807 Net investment in leases (gross) as at

31 December 2012 343 149 492 477 270 743 1 106 369

10. Financial Assets Available for Sale

2013 2012

Government debt securities - Russian Federation bonds (OFZ) 2 026 900 2 045 565

Corporate debt securities - Corporate bonds 1 367 088 1 655 866

Corporate equity securities - Corporate shares 382 205 217 717 - Interest in limited liability companies 410 000 410 004 - Share contribution to SWIFT 1 187 1 062 Less: impairment of financial assets available for sale (2 349) (2 198) Total financial assets available for sale 4 185 031 4 328 016

Russian Federation bonds (OFZ) are Rouble-denominated government securities issued by the Ministry of Finance of the Russian Federation. As at 31 December 2013, OFZ bonds in the Group’s portfolio have maturity dates from July 2015 to February 2036 (2012: from July 2015 to February 2036), the coupon rate ranging from 6.5% to 7.0% (2012: from 6.0% to 7.0%), and yield to maturity ranging from 6.2 to 7.7% (2012: from 6.3% to 7.6%), depending on the issue.

As at 31 December 2013 and 31 December 2012, corporate bonds represent securities issued by major enterprises operating in Russia’s key industries. As at 31 December 2013, these bonds in the Group’s portfolio have maturity dates from February 2014 to September 2032 (2012: from March 2013 to September 2032), the coupon rate from 8.55% to 13.75% per annum (2012: from 7.4% to 13.75% per annum) and yield to maturity from 5.5% to 50.5% per annum (2012: from 7.45% to 35.0% per annum) depending on the issue.

As at 31 December 2013 and 31 December 2012, corporate shares represent shares issued by OJSC Gazprom, OJSC RusHydro and OJSC Benat.

The credit quality analysis of debt securities as at 31 December 2013 has shown that all the above classes of debt securities in the total amount of RUB 3 393 988 thousand (2012: RUB 3 701 431 thousand) are current and unimpaired.


48

Below is the credit quality analysis of issuers of debt securities classified as financial assets available for sale as at 31 December 2013 in accordance with the ratings of international agencies:

Fitch Moody’s S&P Amount No rating assigned Total

Government debt securities - Russian Federation bonds (OFZ) ВВВ Ваа1 ВВВ 2 026 900 - 2 026 900 Corporate debt securities - Corporate bonds OJSC Bank ZENIT BB- Ba3 - 175 863 - 175 863 OJSC MOSCOW CREDIT BANK BB B1 BB- 161 536 - 161 536 OJSC State Transportation Leasing

Company - - BB- 151 335 - 151 335 OJSC Holding company METALLOINVEST BB- Ba2 BB- 104 337 - 104 337 Vnesheconombank BBB Baa1 BBB 102 657 - 102 657 OJSC Eastern Express Bank - В1 - 89 138 - 89 138 OJSC NOMOS-BANK BB- Ва3 - 86 590 - 86 590 OJSC Gazprombank BBB- Ваа3 ВBВ- 73 322 - 73 322 OJSC NOTA-Bank - B2 B 71 500 - 71 500 OJSC Mechel - B3 - 65 934 - 65 934 OJSC Asian-Pacific Bank B+ В2 - 46 826 - 46 826 CB LOKO-Bank (CJSC) B+ B2 - 41 553 - 41 553 OJSC Gazprom BBB Baa1 BBB 16 508 - 16 508 LLC Obuvrus - - - - 75 608 75 608 CJSC Mikoyan meat processing plant - - - - 33 176 33 176 OJSC NK Alliance - - - - 25 944 25 944 OJSC TGK-2 - - - - 24 936 24 936 LLC Kuibyshevazot-Invest - - - - 20 325 20 325 Total debt securities available for sale 3 213 999 179 989 3 393 988


49

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 Amount No rating assigned Total

Government debt securities - Russian Federation bonds (OFZ) ВВВ Ваа1 ВВВ 2 045 565 - 2 045 565

Corporate debt securities - Corporate bonds OJSC MOSCOW CREDIT BANK BB- B1 B+ 161 488 - 161 488 OJSC Rostelecom BBB- - BB+ 153 228 - 153 228 OJSC Irkut Corporation - Ва2 - 139 797 - 139 797 OJSC Mechel - B2 - 127 028 - 127 028 OJSC Eastern Express Bank - В1 - 111 471 - 111 471 Vnesheconombank BBB Baa1 BBB 102 823 - 102 823 CJSC GLOBEXBANK BB - BB 99 676 - 99 676 OJSC NOMOS-BANK BB Ва3 - 87 324 - 87 324 OJSC Rosselkhozbank ВВВ Ваа1 - 85 087 - 85 087 OJSC Gazprombank - Ваа3 ВBВ- 71 617 - 71 617 OJSC Investtorgbank - В2 - 52 645 - 52 645 LLC CB KOLTSO URALA - - B- 30 485 - 30 485 OJSC LUKOIL BBB- Baa2 BBB- 18 788 - 18 788 OJSC Gazprom BBB Baa1 BBB 17 282 - 17 282 OJSC Asian-Pacific Bank - В2 - 14 295 - 14 295 CJSC Kedr Bank - В2 - 14 007 - 14 007 OJSC NK Alliance - - - - 114 207 114 207 LLC SUEK-Finance - - - - 104 850 104 850 LLC Obuvrus - - - - 75 132 75 132 OJSC TGK-2 - - - - 44 292 44 292 LLC Kuibyshevazot-Invest - - - - 20 102 20 102 LLC RVK-Finance - - - - 10 242 10 242 Total debt securities available for sale 3 332 606 368 825 3 701 431

Debt securities are not collateralised. Below is the information on movements in the portfolio of financial assets available for sale: Note 2013 2012

Carrying value as at 1 January 4 328 016 4 976 815 Gains less losses on revaluation to fair value (40 757) 37 117 Impairment loss reclassified from the statement of comprehensive

income to profit and loss 9 761 162 592 Accrued interest income 25 290 719 325 702 Interest received (294 764) (349 338) Acquisitions 1 314 186 941 695 Disposals (1 422 104) (1 898 454) Impairment (151) (243) Transferred from investments held to maturity 11 - 132 094 Exchange difference on share contribution 125 36 Carrying value as at 31 December 4 185 031 4 328 016


50

Below are equity securities available for sale as at 31 December 2013 and 31 December 2012:

Issuer Type of share Industry Fair value

2013 2012

OJSC Gazprom ordinary gas extraction 345 609 170 990 OJSC RusHydro ordinary electricity 34 641 44 772 OJSC Benat ordinary alcohol production 1 955 1 955 Impairment of OJSC Benat (1 955) (1 955) Total 380 250 215 762

As at 31 December 2013, interests in limited liability companies recorded in the portfolio of financial assets available for sale represent a contribution into the charter capital of LLC Siballiance Partnership in the amount of RUB 410 000 thousand. As at 31 December 2013, the interest in LLC Siballiance Partnership totals 4.74%.

As at 31 December 2012, interests in limited liability companies recorded in the portfolio of financial assets available for sale represent a contribution into the charter capital of LLC Siballiance Partnership in the amount of RUB 410 000 thousand and a contribution into the charter capital of LLC Leasing Investments Centre in the amount of RUB 4 thousand. As at 31 December 2012, the interest in LLC Siballiance Partnership totalled 4.74% and the interest in LLC Leasing Investments Centre totalled 19%.

On 27 December 2013 the Group sold its participating interest in LLC Leasing Investments Centre.

Due to drastic deterioration of the situation on the world financial markets in 2008, certain financial assets at fair value through profit or loss were reclassified as at 31 October 2008, subject to the Group’s management decision and in accordance with Amendments to IAS 39 and IFRS 7, from financial assets at fair value through profit or loss to financial assets available for sale. Reclassification was performed as at 31 October 2008 at the market value as at 1 July 2008.


51

As at 31 December 2013, the Group recorded the following financial assets reclassified in 2008 from financial assets at fair value through profit or loss into financial assets available for sale:

Description

Fair value at the date of

reclassification

Fair value as at 31 December

2013

Cash flow expected to be

recovered at the date of

reclassification

Effective interest rate

at the date of reclassification,

(%)

Gains on changes in the

fair value of assets for the

reporting period recognised

within other comprehensive

income

Increase/ (decrease) in

the fair value of assets which would have

been recognised within income

without reclassification

OFZ-AD 46017 240 549 232 451 355 780 6.52 (332) (10 366) OFZ-AD 46014 210 700 103 146 294 541 6.55 (345) (9 963) OFZ-AD 46020 171 016 161 296 507 068 7.27 (9 351) (14 346) Total 622 265 496 893 1 157 389 - (10 028) (34 675)

As at 31 December 2012, the Group recorded the following financial assets reclassified in 2008 from financial assets at fair value through profit or loss into financial assets available for sale:

Description

Fair value at the date of

reclassification

Fair value as at 31 December

2012

Cash flow expected to be

recovered at the date of

reclassification

Effective interest rate

at the date of reclassification,

(%)

Gains on changes in the

fair value of assets for the

reporting period recognised

within other comprehensive

income

Increase/ (decrease) in the fair value

of assets which would have

been recognised

within income without

reclassification

OFZ-AD 46017 240 549 232 741 355 780 6.52 10 772 (10 034) OFZ-AD 46014 210 700 103 473 294 541 6.55 6 719 (9 618) OFZ-AD 46020 171 016 170 614 507 068 7.27 14 781 (4 995) OFZ-AD 46018 167 067 156 501 300 623 6.87 9 416 (11 350) OFZ-AD 46021 67 822 67 331 111 763 6.64 5 137 (2 070) Total 857 154 730 660 1 569 775 - 46 825 (38 067)

11. Investments Held to Maturity

2013 2012

Government debt securities - Russian Federation bonds (OFZ) 1 356 505 1 356 245 Total investments held to maturity 1 356 505 1 356 245

Russian Federation bonds (OFZ) are Rouble-denominated government securities issued by the Ministry of Finance of the Russian Federation. As at 31 December 2013, OFZ bonds in the Group’s portfolio have maturity dates in January and August 2016 (2012: in January and August 2016), the coupon rate of 6.9% and 7.35% per annum (2012: 6.9% and 7.35% per annum), depending on the issue and yield to maturity of 6.4% and 6.6% (2012: 6.4% and 6.5%).

The credit quality analysis of debt securities as at 31 December 2013 and 31 December 2012 has shown that all debt securities in the total amount of RUB 1 356 505 thousand (2012: RUB 1 356 245 thousand) are current and unimpaired. As at 31 December 2013, the fair value of investments held to maturity totalled RUB 1 393 159 thousand (2012: RUB 1 404 094 thousand).


52

Below is the information on changes in the portfolio of investments held to maturity:

Note 2013 2012 Carrying value as at 1 January 1 356 245 1 489 154 Transferred to financial assets available for sale 10 - (132 094) Accrued interest income 25 94 935 103 388 Interest received (94 675) (104 203) Carrying value as at 31 December 1 356 505 1 356 245

As at 31 December 2013 and 31 December 2012, investments held to maturity were not provided as collateral under reverse repo agreements in respect of term deposits and other borrowings.

As at 1 January 2012, the portfolio of held-to-maturity investments included 755 000 OFZ bonds (series OFZ-PD 25077) and 710 000 OFZ bonds (series OFZ-PD 26203) in the total amount RUB 1 489 154 thousand. Due to the possibility of earning income from the growing prices for government bonds the Group changed its intention to hold to maturity an insignificant amount of OFZ bonds included in the portfolio of held-to-maturity investments. On 9 November 2012, 130 000 bonds of OFZ-PD 25077 series were reclassified as financial assets available for sale and subsequently sold in the open market.

The credit quality analysis of issuers of debt securities classified as investments held to maturity as at 31 December 2013 in accordance with the ratings of international agencies is presented below:

Fitch Moody’s S&P Total Government debt securities - Russian Federation bonds (OFZ) ВВВ Ваа1 ВВВ 1 356 505

The credit quality analysis of issuers of debt securities classified as investments held to maturity as at 31 December 2012 in accordance with the ratings of international agencies is presented below:

Fitch Moody’s S&P Total Government debt securities - Russian Federation bonds (OFZ) ВВВ Ваа1 ВВВ 1 356 245

Debt securities are not collateralised.


53

12. Investments in Non-Consolidated Subsidiaries

Below is the list of investments in non-consolidated subsidiaries:

2013 2012

Subsidiary Amount of investment


Amount of investment


LLC Zapsib-Finance 10 100.0 10 100.0 Total investments in non-consolidated

subsidiaries 10 100.0 10 100.0

13. Non-Current Assets Held for Sale

Asset 2013 2012

Production and warehouse facilities located in Podolsk 194 238 198 450

Land plot located in Odintsovo district of Moscow region 46 252 46 252 Land plot located in Odintsovo district of Moscow region 33 748 33 748 Non-residential premises, Malygina Street, Tyumen 14 380 - Non-residential premises located in Ishim 6 750 6 750 Residential building in the town of Gubkinsky 3 750 - Interest in common shared ownership to non-residential premises at Malygina

Street, Tyumen 299 - Production base located in Tyumen - 19 440 Residential building and land plot located in Sannikovo village of Tobolsk district - 1 719 BMW 318I car - 535 Niva car - 300 Total 299 417 307 194

In 2013 non-current assets held for sale in the amount of RUB 58 278 thousand were received by the Group under the agreements on compensation for release from obligations (2012: RUB 207 754 thousand).

Within a year from the date when a decision was taken to sell the production facilities located in Podolsk, and land plots located in Odintsovo district of Moscow region, the Group negotiated with several potential buyers. However, the transaction did not take place due to a protracted liquidity crisis occurred in the economy and declining lending volumes. Nevertheless, the Group continues active marketing of these items, advertising their sale, and has a firm intention to sell this property.

Losses from impairment of non-current assets held for sale recognised in the consolidated statement of income for the year 2013 are RUB 4 533 thousand (2012: none).

In 2013 the Group’s management took a decision on disposal of the following items:

Residential building in the town of Gubkinsky; Non-residential premises and interest in common shared ownership to non-residential premises at

Malygina Street, Tyumen.

14. Investment Property

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

Note 2013 2012 Cost as at 1 January

116 037 122 499

Transfer from premises and equipment 15 - 1 953 Disposals (79 603) (5 889) Revaluation (1 109) (2 526) Cost as at 31 December 35 325 116 037

The Group’s investment property as at 31 December 2013 was appraised by the independent valuer LLC STATUS Valuation Agency based on the market prices. A loss on impairment of the investment property


54

recognized in the consolidated statement of income for 2013 totalled RUB 2 112 thousand (2012: RUB 3 702 thousand) and gain on revaluation of investment property amounted to RUB 1 003 thousand (2012: RUB 1 176 thousand).

During 2013 direct operating expenses from investment property generating rental income amounted to RUB 895 thousand (2012: RUB 417 thousand). In 2013 rental income amounted to RUB 1 197 thousand (2012: RUB 1 268 thousand).

15. Premises and Equipment

Land and buildings

Office and other

equipment Furniture Motor

vehicles

Constru-ction in

progress Total Net book value as at

31 December 2012 2 431 846 314 492 22 222 19 872 28 956 2 817 388 Cost (or revalued amount) Balance as at 1 January 2013 2 431 846 968 881 111 307 99 598 28 956 3 640 588 Additions 3 195 203 753 7 086 24 551 19 269 257 854 Transfers between categories - 1 016 - - (1 016) - Disposals (17 046) (65 066) (2 580) (3 899) (26 465) (115 056) Revaluation 156 144 - - - - 156 144 Recognition of impairment in the

consolidated statement of income (7 469) - - - - (7 469) Reversal of impairment in the

consolidated statement of income 2 372 - - - - 2 372 Accumulated depreciation eliminated

against gross carrying amount of the asset on revaluation (72 967) - - - - (72 967)

Balance as at 31 December 2013 2 496 075 1 108 584 115 813 120 250 20 744 3 861 466

Accumulated depreciation Balance as at 1 January 2013 - 654 389 89 085 79 726 - 823 200 Depreciation charge 73 080 86 252 6 279 8 948 - 174 559 Disposals (113) (63 819) (2 520) (3 898) - (70 350) Accumulated depreciation eliminated

on revaluation (72 967) - - - - (72 967) Balance as at 31 December 2013 - 676 822 92 844 84 776 - 854 442 Net book value as at

31 December 2013 2 496 075 431 762 22 969 35 474 20 744 3 007 024


55

Land and buildings

Office and other

equipment Furniture Motor

vehicles

Constru-ction in

progress Total Net book value as at

31 December 2011 2 011 275 263 220 21 469 17 454 21 397 2 334 815

Cost (or revalued amount) Balance as at 1 January 2012 2 011 275 876 152 106 525 87 984 21 397 3 103 333 Additions 130 560 140 183 6 858 11 862 25 532 314 995 Transfers between categories 16 562 509 - - (17 071) - Disposals (411) (47 963) (2 076) (248) (902) (51 600) Transfer to investment property (1 953) - - - - (1 953) Revaluation 321 670 - - - - 321 670 Recognition of impairment in the

consolidated statement of income (274) - - - - (274) Reversal of impairment in the

consolidated statement of income 5 798 - - - - 5 798 Accumulated depreciation eliminated

against gross carrying amount of the asset on revaluation (51 381) - - - - (51 381)

Balance as at 31 December 2012 2 431 846 968 881 111 307 99 598 28 956 3 640 588

Accumulated depreciation Balance as at 1 January 2012 - 612 932 85 056 70 530 - 768 518 Depreciation charge 51 792 80 279 6 098 9 444 - 147 613 Disposals (411) (38 822) (2 069) (248) - (41 550) Accumulated depreciation eliminated

on revaluation (51 381) - - - - (51 381) Balance as at

31 December 2012 - 654 389 89 085 79 726 - 823 200 Net book value as at

31 December 2012 2 431 846 314 492 22 222 19 872 28 956 2 817 388

In 2012, additions included premises and equipment received under the agreements on compensation for release from obligations in the amount of RUB 154 099 thousand.

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

The premises and land of the Group as at 31 December 2013 were appraised by the independent valuer. The valuation was preformed by the independent valuer LLC STATUS Valuation Agency based on the market prices.

The valuation was performed in accordance with the Russian Federal Standards, standards of the Russian Union of Appraisers and IVS.

The following methods were used to determine the market value of the Group’s property: the discounted cash flow method (income approach), the sales comparison method (market approach) and the asset accumulation method (cost approach). To derive the final value, different weightings were assigned to the results obtained through application of the three approaches, depending on the extent each of the approaches applied satisfied the following parameters: reliability and sufficiency of information, specific nature of property under valuation and other characteristics.

The independent valuer applied different adjustment factors to the market prices of property items comparable to the cost of the Group’s land and buildings to derive the market value of the measured property. Changes in the above estimates may impact the cost of the land and buildings.

As at 31 December 2013, the carrying value of buildings and land included RUB 151 047 thousand (2012: RUB 327 194 thousand) representing positive revaluation of the Group’s buildings and land for the reporting period.


56

Losses from impairment of land and buildings in the consolidated statement of income for the year 2013 were included within operating expenses in the amount of RUB 7 469 thousand (2012: RUB 274 thousand). Recovery of losses from impairment of land and buildings in the amount of RUB 2 372 thousand was recorded within operating income in the consolidated statement of income for 2013 (2012: RUB 5 798 thousand).

As at 31 December 2013, the total deferred tax liability in the amount of RUB 365 531 thousand (2012: RUB 388 969 thousand) was calculated in respect of this revaluation of buildings and land to fair value and charged to revaluation reserve for premises and equipment (Note 29).

If the buildings were measured using the cost model, the net book value would be as follows:

2013 2012

Cost 1 158 216 1 163 584 Accumulated depreciation (247 700) (225 218) Net book value 910 516 938 366

16. Other Assets

2013 2012 Receivables 229 866 116 838 Prepayments 202 937 148 616 Equipment purchased for leasing purposes 131 347 128 655 Prepayments for equipment purchased for leasing purposes 118 033 135 859 VAT paid 52 428 45 734 Lease receivables 26 321 11 312 Deferred acquisition costs 13 448 6 810 Insurance provisions, reinsurers’ share 12 235 3 917 Precious metals 12 213 15 806 Tax prepayments (other than income tax and VAT) 6 876 6 641 Plastic cards settlements 2 041 14 254 Intangible assets 336 415 Settlements on broker transactions 100 363 Settlements on conversion operations - 15 888 Other 307 6 Less: provision for impairment of other assets (73 291) (98 612) Total other assets 735 197 552 502

Movements in the provision for impairment of other assets during 2013 and 2012 are as follows:

Receivables

Lease

receivables Prepayments

Total

Provision for impairment of other assets as at 1 January 2012 94 588 6 899 356 101 843

(Recovery of provision)/provision for impairment during 2012 (6 861) 4 013 (279) (3 127)

Assets written off during 2012 as uncollectible (104) - - (104) Provision for impairment of other assets as at

31 December 2012 87 623 10 912 77 98 612

(Recovery of provision)/provision for impairment during 2013 (31 657) 9 700 (48) (22 005)

Assets written off during 2013 as uncollectible (3 316) - - (3 316) Provision for impairment of other assets as at

31 December 2013 52 650 20 612 29 73 291


57

The credit quality analysis of financial assets classified as other assets as at 31 December 2013 is as follows:

Current and unimpaired

Past due and unimpaired

Individually assessed

Collectively assessed Total

Receivables 164 944 1 922 55 890 7 110 229 866 Lease receivables - 5 709 20 612 - 26 321 Plastic cards settlements 2 041 - - - 2 041 Settlements on broker

transactions 100 - - - 100 Less: provision for impairment of

other assets - - (72 952) (310) (73 262) Total financial assets classified

as other current assets 167 085 7 631 3 550 6 800 185 066

The ageing analysis of impaired financial assets classified as other assets as at 31 December 2013 is as follows:

Current

Past due

Total

Less than 1 month

From 1 to 6

months

From 6 to 12 months

More than

1 year

Receivables 8 303 5 015 1 220 911 47 551 63 000 Lease receivables - 681 4 372 4 729 10 830 20 612 Less: provision for impairment of

other assets (2 771) (878) (5 592) (5 640) (58 381) (73 262) Total financial assets classified as

other assets 5 532 4 818 - - - 10 350

The credit quality analysis of financial assets classified as other assets as at 31 December 2012 is as follows:

Current and unimpaired

Past due and unimpaired

Individually assessed

Collectively assessed Total

Receivables 22 441 422 87 679 6 296 116 838 Settlements on conversion

operations 15 888 - - - 15 888 Plastic cards settlements 14 254 - - - 14 254 Lease receivables - - 11 312 - 11 312 Settlements on broker

transactions 363 - - - 363 Less: provision for impairment

of other assets - - (98 426) (109) (98 535) Total financial assets classified

as other assets 52 946 422 565 6 187 60 120

The ageing analysis of impaired financial assets classified as other assets as at 31 December 2012 is as follows:

Current

Past due

Total

Less than 1 month

From 1 to 6

months

From 6 to 12 months

More than

1 year

Receivables 6 816 1 348 6 121 11 371 68 319 93 975 Lease receivables 137 343 - - 10 832 11 312 Less: provision for impairment of

other assets (1 570) (322) (6 121) (11 371) (79 151) (98 535) Total financial assets classified as

other assets 5 383 1 369 - - - 6 752


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17. Due to Other Banks

2013 2012 Correspondent accounts of other banks 230 637 134 057 Term loans and deposits of other banks 44 970 100 604 Current deposits of other banks 33 102 53 782 Total due to other banks 308 709 288 443

18. Customer Accounts

2013 2012

State and municipal authorities — Current/settlement accounts 87 962 188 364 Legal entities — Current/settlement accounts 9 063 411 9 090 645 — Term deposits 26 150 089 24 078 063 Individuals — Current /demand accounts 9 293 244 9 704 626 — Term deposits 32 761 250 26 312 834 Total customer accounts 77 355 956 69 374 532

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:

2013 2012 Amount % Amount %

Individuals 42 054 494 54.36 36 017 460 51.92 Services 10 050 521 13.00 10 218 766 14.73 Construction 9 596 830 12.41 8 850 750 12.76 Industry 5 145 004 6.65 4 358 808 6.28 Trade 3 528 572 4.56 3 692 320 5.32 Transport and communications 2 764 468 3.57 2 229 788 3.21 Agriculture 1 251 684 1.62 868 406 1.25 Municipal authorities 56 058 0.07 159 051 0.23 State agencies 31 904 0.04 29 313 0.04 Other 2 876 421 3.72 2 949 870 4.26 Total customer accounts 77 355 956 100.0 69 374 532 100.00

As at 31 December 2013, the Group had 2 customers (2012: 3 customers) with total balances over 10% of the Group’s capital. The aggregate amount of these customer accounts was RUB 3 002 205 thousand or 3.88% of total customer accounts (2012: RUB 5 020 925 thousand or 7.24% of total customer accounts).

19. Debt Securities Issued

2013 2012

Bonds 2 078 192 2 072 236 Promissory notes 17 525 94 131 Total debt securities issued 2 095 717 2 166 367

As at 31 December 2013, debt securities issued represent the securities with the nominal value of RUB 1 thousand each. (2012: RUB 1 thousand). These bonds mature on the 1092nd day from the date of bond placement (2012: on the 1092nd day from the date of bond placement).

On 28 February 2013 OJSC Zapsibcombank placed 2 000 000 BО-03 series exchange bonds with the nominal value of RUB 1 000 each in the total amount of RUB 2 000 000 thousand on the MICEX stock exchange. The bonds were placed for the term of 3 years with a 2 year put option. The coupon rate before the put exercise is 11.5 %.


59

On 15 February 2013 the first coupon of OJSC Zapsibcombank BО-02 series exchange bonds was paid in the amount of RUB 124.66 million.

On 21 June 2013 the fourth coupon of OJSC Zapsibcombank BО-01 series exchange bonds was paid in the amount of RUB 0.40. The coupon is accrued on 8 bonds at the rate of 0.01% per annum to the bond holders who did not exercise their rights to early bond redemption.

On 16 August 2013 the second coupon of OJSC Zapsibcombank BО-02 series exchange bonds was paid in the amount of RUB 124.66 million.

The put option of Zapsibcombank BO-02 series exchange bonds was exercised on 22 August 2013. 1 955 170 bonds in the amount of RUB 1 955 170 000 were called for redemption. BO-02 series exchange bonds in the amount of 44 830 remained in circulation.

On 29 August 2013 the first coupon of OJSC Zapsibcombank BО-03 series exchange bonds was paid in the amount of RUB 114.68 million.

On 30 September 2013 the Bank’s Board of Directors took a decision to repurchase OJSC Zapsibcombank BО-02 series exchange bonds with the consent of the bondholders. The date of repurchase of the exchange bonds is 10 October 2013.

On 10 October 2013 OJSC Zapsibcombank BО-02 series exchange bonds were repurchased with the consent of the bondholders. 44 786 bonds with the value of RUB 44 786 000 were called for redemption. BO-02 series exchange bonds in the amount of 44 remained in circulation.

On 20 December 2013 the fifth coupon of OJSC Zapsibcombank BО-01 series exchange bonds was paid in the amount of RUB 0.40. The coupon is accrued on 8 bonds at the rate of 0.01% per annum to the bond holders who did not exercise their rights to early bond redemption.

As at 31 December 2013, debt securities issued by the Group included promissory notes of RUB 17 525 thousand (2011: RUB 94 131 thousand), denominated in Russian Roubles. The promissory notes mature in the period from January 2014 to January 2015 (2012: from February 2013 to January 2015), and have interest rates between 7.0 % and 9.86% (2012: between 5.5% and 9.86%).

In 2012 a gain in the amount of RUB 563 thousand from placement of the Group’s own promissory notes at rates below market was recorded in the consolidated statement of income.

20. Other Borrowed Funds

As at 31 December 2013, other borrowed funds represented subordinated deposits in the amount of RUB 500 100 thousand (2012: RUB 587 100 thousand).

As at 31 December 2013, the Group had 16 subordinated deposit agreements in the total amount of RUB 500 100 thousand (2012: 18 subordinated deposit agreements in the amount of RUB 587 100 thousand) maturing in the period from June 2014 to June 2019 (2012: from December 2013 to June 2019). The interest rate on subordinated deposits at the year-end ranges from 6.0% to 10.5% per annum (2012: from 6.0% to 10.5% per annum).

21. Other Liabilities

Note 2013 2012 Payables to employees 338 178 276 645 Accounts payable 311 836 280 795 Provision for credit related commitments 35 281 695 437 162 Insurance provisions 153 643 90 619 Accrued annual leaves 137 366 120 675 Plastic cards settlements 87 222 23 980 Taxes payable other than income tax 74 107 86 234 Payables to the Deposit Insurance Agency 38 100 31 136 Overpaid interest payable 27 988 34 668 Provision for non-credit related commitments 35 1 310 2 887 Dividends payable 30 511 588 Settlements on funds transfers through payment systems - 8 425 Other 12 319 6 703 Total other liabilities 1 464 275 1 400 517


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In accordance with the new system of remuneration effective since 2010, the employees of the Group are entitled to bonuses based on the annual performance. Bonuses are actually paid in February of the year following the reporting one. Therefore, the bonus-related liabilities in the amount of RUB 338 178 thousand (2012: RUB 276 645 thousand) are recognised in the consolidated financial statements as at 31 December 2013.

Below is a breakdown of insurance provisions as at 31 December 2013 and 31 December 2012:

2013 2012

Provision for unearned premiums 118 072 72 322 Provision for claims 35 571 18 297 Total insurance provisions 153 643 90 619

22. Non-controlling Interest

Movements in the non-controlling interest of the Group are as follows:

Note 2013 2012

Non-controlling interest as at 1 January 16 984 15 078 Share in net profit 2 250 1 915 Fair value reserve for financial assets available for sale 31 (28) (3) Revaluation reserve for premises and equipment 31 17 (6) Dividends paid (544) - Non-controlling interest as at 31 December 18 679 16 984

23. Share Capital and Share Premium

Authorised, issued and fully paid share capital comprises:

2013 2012

Number of

shares Nominal

value

Inflation adjusted amount

Number of shares

Nominal value

Inflation adjusted amount

Ordinary shares 120 679 456 1 206 795 2 726 443 120 679 456 1 206 795 2 726 443 Preference shares 20 544 205 1 343 20 544 205 1 343 Total share capital 120 700 000 1 207 000 2 727 786 120 700 000 1 207 000 2 727 786

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

The preference shares have a nominal value of RUB 10 per share and rank ahead of the ordinary shares in the event of liquidation of the Bank. The size of dividends on preference shares is determined in the Bank’s Charter and amounts to RUB 3 per share for preference shares with state registration number 20100918B, and to RUB 10 per share for preference shares with state registration number 20200918B. These shares of the Group are not redeemable.

On 11 December 2012 the CBR registered the Report on the results of additional share issue of OJSC Zapsibcombank (the 22nd issue).

The Group’s equity increased by RUB 102 000 thousand as a result of placement of the Group’s 22nd issue of shares: through share capital by RUB 85 000 thousand and through additional capital by RUB 17 000 thousand.

Share premium represents the excess of contributions over the nominal value of the shares issued. As at 31 December 2013 and as at 31 December 2012, the share premium amounted to RUB 756 459 thousand. The above amounts were adjusted for inflation.

The share premium on shares paid-up in foreign currency before 1 July 1997 represents the excess of the contribution in the share capital over the shares’ nominal value in foreign currency translated into Russian


61

Roubles at the official exchange rate of the Central Bank of the Russian Federation as at the date of the contribution.

Part of contributions into the share capital was initially made in foreign currency and translated into RUB on 1 July 1997. In accordance with the Russian legislation, part of the share premium, resulting from exchange difference between the value of shares denominated in foreign currency and their nominal value, was used to increase the share capital as approved by the shareholders’ meeting.

24. 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 as dividends among the shareholders. As at 31 December 2013, the Bank’s retained earnings amounted to RUB 6 530 363 thousand (2012: RUB 5 360 316 thousand), including profit of the reporting period in the amount of RUB 1 329 435 thousand (2012: RUB 1 595 642 thousand).

Equity reflected in the Bank’s statutory records includes a reserve fund in the amount of RUB 181 050 thousand (2012: RUB 75 000 thousand) that represents funds provided, as required by the regulations of the Russian Federation, in respect of the Bank’s general banking risks, including future losses and other unforeseen risks or potential liabilities.

25. Interest Income and Expense

Note 2013 2012

Interest income Loans to customers 8 866 576 7 232 981 Discounted promissory notes 333 856 208 457 Financial assets available for sale 10 290 719 325 702 Due from other banks 141 627 71 491 Investments held to maturity 11 94 935 103 388 Cash deposits with the CBR 18 709 17 309 Financial assets at fair value through profit or loss 2 015 1 851 Total interest income 9 748 437 7 961 179 Finance lease income 204 791 171 686

Interest expense Deposits of individuals 2 593 820 1 790 841 Deposits of legal entities 1 618 418 1 127 274 Bonds issued 347 418 262 595 Other borrowed funds 51 928 52 156 Current/settlement accounts 26 881 60 142 Loans from the Central Bank of the Russian Federation 26 226 13 706 Loans and deposits of other banks 6 427 7 008 Promissory notes issued 4 791 1 629 Correspondent accounts of other banks 523 339 Total interest expense 4 676 432 3 315 690 Net interest expense 5 276 796 4 817 175


62

26. Fee and Commission Income and Expense 2013 2012

Fee and commission income Commission on settlement transactions 1 613 212 1 379 734 Commission on cash transactions 401 081 316 888 Commissions on guarantees issued 66 241 40 491 Commissions on cash collection 15 948 16 175 Commission on loans 8 593 6 304 Other 66 710 95 434 Total fee and commission income 2 171 785 1 855 026

Fee and commission expense Commission on settlement transactions 279 144 177 152 Commissions on cash collection 47 217 35 522 Commission on transactions in securities 3 107 2 481 Other 19 065 14 791 Total fee and commission expense 348 533 229 946 Net fee and commission income 1 823 252 1 625 080

27. Gains less Losses Arising from Financial Assets at Fair Value through Profit or Loss

2013 2012 Promissory notes 103 096 62 303 Listed equity securities 1 671 2 554 Units of investment funds 236 290 Municipal bonds 31 82 Russian Federation bonds (OFZ) (614) 802 Total gains less losses on transactions in financial assets at fair value

through profit or loss 104 420 66 031

28. Operating Expenses

Note 2013 2012

Staff costs 2 939 481 2 527 518 Administrative expenses 545 270 406 329 Professional services (security, communications, etc.) 239 922 204 343 Taxes (other than income tax) 174 590 139 496 Depreciation of premises and equipment 15 174 559 147 613 Advertising and marketing 134 176 101 282 Rent expenses 126 087 46 814 Fee for use of the software 54 106 39 821 Charity 10 499 9 180 Impairment of premises and equipment 15 7 469 274 Impairment of non-current assets held for sale 13 4 533 - Insurance expenses 1 222 3 289 Other expenses relating to premises and equipment - 119 Other 182 537 149 382 Total operating expenses 4 594 451 3 775 460


63

29. Income Tax

Income tax expense includes the following:

2013 2012

Current income tax expense 404 063 479 144 Deferred taxation movement due to origination and reversal of temporary

differences 271 716 168 037 Less: deferred taxation charged to other comprehensive income (25 030) (104 276) Income tax expense for the year 650 749 542 905

The current tax rate applicable to the majority of the Group’s profit is 20% (2012: 20%).

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

2013 2012

IFRS profit before taxation 3 130 943 2 618 990 Theoretical tax charge at the applicable statutory rate (2013: 20%; 2012: 20%) 626 189 523 798 Income on state securities taxed at the rate of 15% (10 632) (12 739) Dividend income subject to withholding tax of 9% (1 339) (1 295) Non-deductible expenses less non-taxable income 36 531 33 141 Income tax expense for the year 650 749 542 905

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 consolidated financial statement purposes and for the Group profits tax purposes.

2013 Movement 2012

Tax effect of deductible temporary differences Provision for impairment of loans to customers - (37 632) 37 632 Change in the amortised cost of loans 22 556 (695) 23 251

Revaluation of financial assets available for sale 56 554 6 199 50 355 Other 105 095 (34 632) 139 727 Gross deferred tax assets 184 205 (66 760) 250 965

Tax effect of taxable temporary differences Provision for impairment of loans to customers and due from

other banks (187 259) (187 259) - Revaluation of financial assets at fair value through profit or

loss (1 882) (241) (1 641) Revaluation of investment property and non-current assets

held for sale (1 735) 6 (1 741) Premises and equipment (94 955) 1 948 (96 903) Revaluation of premises and equipment (365 531) (26 562) (338 969) Other (11 381) 7 152 (18 533)

Gross deferred tax liabilities (662 743) (204 956) (457 787)

Total net deferred tax liability (478 538) (271 716) (206 822) Deferred tax assets 42 (2 764) 2 806 Deferred tax liabilities (478 580) (268 952) (209 628)


64

2012 Movement 2011

Tax effect of deductible temporary differences Provision for impairment of loans to customers 37 632 (92 859) 130 491 Change in the amortised cost of loans 23 251 (18 460) 41 711 Revaluation of financial assets available for sale 50 355 (39 942) 90 297 Other 139 727 58 091 81 636 Gross deferred tax assets 250 965 (93 170) 344 135

Tax effect of taxable temporary differences Revaluation of financial assets at fair value through profit or

loss (1 641) (745) (896) Revaluation of investment property and non-current assets

held for sale (1 741) 1 156 (2 897) Premises and equipment (96 903) (5 725) (91 178) Revaluation of premises and equipment (338 969) (63 563) (275 406) Other (18 533) (5 990) (12 543)

Gross deferred tax liabilities (457 787) (74 867) (382 920)

Total net deferred tax liability (206 822) (168 037) (38 785) Deferred tax assets 2 806 (3 577) 6 383 Deferred tax liabilities (209 628) (164 460) (45 168)

Net deferred tax assets represent the amounts of income tax that may be offset against future income taxes and are reported as deferred tax assets in the consolidated statement of financial position. Deferred tax asset arising from tax loss carryfowards is recognised to the extent that realisation of the respective tax benefit is probable.

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

Considering the existing structure of the Group, tax losses and current tax assets of certain entities may not be offset against current tax liabilities and taxable profit of other entities and, accordingly, taxes may accrue even where there is a net consolidated tax loss. Therefore, the Group does not offset a deferred tax asset of one entity against a deferred tax liability of another entity.

As at 31 December 2013, the total deferred tax liability of RUB 365 531 thousand (2012: RUB 338 969 thousand) was calculated in respect of positive revaluation of buildings to fair value and recorded within revaluation reserve for premises and equipment (Note 16).

As at 31 December 2013, a deferred tax asset of RUB 56 554 thousand (2012: RUB 50 355 thousand) resulted from revaluation to fair value of financial assets available for sale. The deferred tax asset associated with fair valuation of the above financial assets and reflected within comprehensive income is also recorded as movements in the Group’s equity and is subsequently included in the consolidated statement of income as financial assets available for sale are disposed of.


65

30. Dividends

Note 2013 2012

Dividends payable as at 1 January 588 576 Dividends declared during the year 90 471 50 171 Dividends paid during the year (90 548) (50 159) Dividends payable as at 31 December 21 511 588

All dividends are declared and paid in Russian Roubles.

31. Components of Comprehensive Income

2013 2012 Items not reclassifiable to profit or loss Revaluation of premises and equipment Gains less losses from revaluation of premises and equipment 156 144 321 670 Gains less losses from revaluation of premises and equipment attributable to the

non-controlling interest (21) 7 Income tax attributable to comprehensive income items not reclassifiable to

profit or loss (31 229) (64 334) Income tax relating to comprehensive income items not reclassifiable to profit

or loss attributable to the non-controlling interest 4 (1) Other comprehensive income not reclassifiable to profit or loss, net of

income tax 124 898 257 342 Items reclassifiable to profit or loss

Financial assets available for sale Gains/(losses) on revaluation of financial assets available for sale (40 757) 37 117 Losses on revaluation of financial assets available for sale attributable to the

non-controlling interest 35 4 Accumulated losses reclassified to profit or loss due to disposal of financial

assets available for sale 9 761 162 592 Income tax attributable to comprehensive income items reclassifiable to profit

or loss 6 199 (39 942) Income tax relating to comprehensive income items reclassifiable to profit or

loss attributable to the non-controlling interest (7) (1) Other comprehensive income reclassifiable to profit or loss, net of income

tax (24 769) 159 770 Other comprehensive income, net of income tax 100 129 417 112

32. Segment Reporting

The Group operates in five main business segments:

Corporate business – this business segment includes services associated with servicing settlement and current accounts of legal entities, acceptance of deposits from corporate clients, extension of credit lines in the form of overdrafts, issuance of loans and other types of financing, rendering of investment banking services, trade finance for corporate clients, raising and issuing loans on the interbank credit markets.

Retail business – this segment covers rendering of banking services to individuals - opening and maintaining accounts, accepting deposits from individuals, fiduciary services, accumulation of investments, servicing debit and credit cards, consumer and mortgage lending.

Investment banking services and financial market transactions include corporate finance services, operations on equity and money markets, trading and brokerage in securities, foreign exchange and precious metals, repo transactions.

Insurance business - this business segment includes services in personal, property and liability insurance.

Finance lease - this business segment is involved in leasing activities.


66

The Group also has a central administrative function that manages its buildings (premises) and certain corporate costs. Centralised costs are allocated to business segments on the basis of the average number of employees in each business segment.

In the ordinary course of business the Group’s financial resources are reallocated between business segments and intersegment transactions are not based on commercial terms. Results from intersegment transactions conducted on an arm’s length basis are eliminated. Therefore, intersegment income/expenses are not recorded.

The Group’s segments represent groups of strategic business divisions targeting different customers. They are managed separately, as each business division requires its own marketing strategies, technologies and level of service. The Bank’s Executive Board performs the functions of the chief operating decision maker.

The Bank’s Executive Board analyses financial information prepared in accordance with the Russian legislation. This financial information differs, in certain respects, from the information prepared under IFRS:

loan provisions are recognised in accordance with the Russian legislation rather than on the basis of the incurred loss model required by IAS 39;

fee and commission income from loan origination is recorded immediately and not in future periods using the effective interest rate method;

liabilities for unused annual leaves are not recognised; a provision for annual leaves is created;

the Bank’s Executive Board uses profit before taxation as a basis for assessing the segment’s performance.


67

Segment information on the Group’s main business segments for the year ended 31 December 2013 is given in the table below:

Corporate

business Retail business

Investment banking

services and financial

market transactions

Insurance business

Finance lease

Non-allocated Total

Assets Cash and cash equivalents 9 211 261 7 150 634 139 354 54 - - 16 501 303 Mandatory cash balances with the

Central Bank of the Russian Federation 324 516 349 452 - - - - 673 968

Financial assets at fair value through profit or loss - - 57 890 - - - 57 890

Due from other banks 517 790 - 788 179 33 - - 1 306 002 Loans to customers 15 933 255 46 859 255 29 414 41 680 634 893 - 63 498 497 Financial assets available for sale - - 4 099 086 - - - 4 099 086 Investments held to maturity - - 1 356 505 - - - 1 356 505 Non-current assets held for sale - - - - - 285 233 285 233 Investment property - - - - - 35 881 35 881 Premises and equipment 991 357 1 901 321 35 134 15 890 2 - 2 943 704 Other assets 264 247 408 903 217 513 52 135 1 690 034 - 2 632 832 Current tax assets - - 81 1 159 - - 1 240

Deferred tax assets - - 42 - 8 333 - 8 375 Total assets by segment 27 242 426 56 669 565 6 723 198 110 951 2 333 262 321 114 93 400 516

Reconciliation to assets Elimination of intra-group balances and reclassification (406 526) Loans remeasured at amortised cost 314 134 Provision for impairment of loans to customers, financial and other assets 1 286 253 Adjustment of premises and equipment 63 320 Adjustment of investment property (556) Adjustment of non-current assets held for sale 14 184 Other adjustments (376 449) Total assets under IFRS 94 294 876

Corporate business

Retail business

Investment banking


market transactions

Insurance business

Finance lease Total

Liabilities

Due to other banks 308 673 - 36 - - 308 709 Customer accounts 35 321 397 42 094 654 38 172 - - 77 454 223 Debt securities issued 22 041 - 2 078 192 - - 2 100 233 Other borrowed funds 500 100 - - - - 500 100 Other liabilities 690 925 543 320 69 392 159 675 768 211 2 231 523 Current tax liabilities 3 964 7 603 140 76 - 11 783

Deferred tax liabilities - - - - 9 859 9 859 Total liabilities by

segment 36 847 100 42 645 577 2 185 932 159 751 778 070 82 616 430

Reconciliation to liabilities Elimination of intra-group balances and reclassification (406 526) Customer accounts remeasured at amortised cost (31) Deferred taxation 478 580 Liabilities accrued for unused annual leaves 101 104Provision for guarantees (185 298)Provision for uncovered letters of credit 1 926

Current income tax 137 Other adjustments (391 065) Total liabilities under IFRS 82 215 257


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Segment information on the Group’s main business segments for the year ended 31 December 2012 is given in the table below:

Corporate

business Retail

business

Investment banking


market transactions

Insurance business

Finance lease

Non-allocated Total

Assets Cash and cash equivalents 10 435 704 5 021 015 38 998 10 - - 15 495 727 Mandatory cash balances with

the Central Bank of the Russian Federation 402 971 350 950 - - - - 753 921

Financial assets at fair value through profit or loss - - 56 562 - - - 56 562

Due from other banks 422 187 - 4 325 095 - - - 4 747 282 Loans to customers 12 717 650 37 110 069 1 161 664 18 008 973 110 - 51 980 501 Financial assets available for

sale - - 4 241 945 - - - 4 241 945 Investments held to maturity - - 1 356 245 - - - 1 356 245 Non-current assets held for sale - - - - - 309 574 309 574 Investment property - - - - - 116 213 116 213 Premises and equipment 960 977 1 758 389 38 891 16 163 134 - 2 774 554 Other assets 306 697 578 608 281 676 28 733 1 308 725 - 2 504 439 Current tax assets - - 2 4 548 - - 4 550 Total assets by segment 25 246 186 44 819 031 11 501 078 67 462 2 281 969 425 787 84 341 513

Reconciliation to assets Elimination of intra-group balances and reclassification (422 514) Loans remeasured at amortised cost 186 116 Provision for impairment of loans to customers, financial and other assets 92 946 Deferred taxation 2 806 Adjustment of premises and equipment 42 940 Adjustment of investment property (176) Adjustment of non-current assets held for sale (2 380) Other adjustments (542 003) Total assets under IFRS 83 699 248

Corporate business

Retail business

Investment banking


market transactions

Insurance business Finance lease Total

Liabilities Due to other banks 285 833 - 2 577 - - 288 410 Customer accounts 33 333 452 36 260 401 32 998 - - 69 626 851 Debt securities issued 96 112 - 2 072 236 - - 2 168 348 Other borrowed funds 587 100 - - - - 587 100 Other liabilities 985 406 296 310 75 984 103 309 770 688 2 231 697 Current tax liabilities 28 874 52 833 1 176 - - 82 883 Total liabilities by segment 35 316 777 36 609 544 2 184 971 103 309 770 688 74 985 289

Reconciliation to liabilities Elimination of intra-group balances and reclassification (416 986) Customer accounts remeasured at amortised cost (984) Deferred taxation 209 628 Liabilities accrued for unused annual leaves 87 264Provision for guarantees (199 708)Provision for uncovered letters of credit 9 116 Other adjustments (564 149) Total liabilities under IFRS 74 109 470


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The table below shows a breakdown of the Group’ consolidated statement of income by business segments for the year ended 31 December 2013:

Corporate

business Retail

business

Investment banking


market transactions

Insurance business

Finance lease

Non-alloca-

ted Total

Interest income 2 255 528 6 586 494 743 789 10 360 214 133 - 9 810 304 Interest expense (1 705 363) (2 593 820) (377 713) - (145) - (4 677 041) Gains less losses arising from

financial assets at fair value through profit or loss - - 104 420 - - - 104 420

Gains less losses arising from financial assets available for sale - - 7 077 - - - 7 077

Fee and commission income 618 361 1 549 015 178 4 231 - - 2 171 785 Fee and commission expense (73 809) (270 242) (3 715) (761) (4) - (348 531) Gains less losses from dealing in

foreign currency and revaluation of foreign currency 13 518 75 178 14 522 - - - 103 218

Dividends received - - 12 174 - - - 12 174 Gains on disposal of non-current

assets held for sale 2 426 4 652 86 - - - 7 164 Other operating income 55 391 77 079 10 009 170 127 343 862 31 731 688 199 Net operating income by segment 1 166 052 5 428 356 510 827 183 957 557 846 31 731 7 878 769

Provision for impairment of due from other banks and loans to customers (196 216) (940 668) (26 570) - - - (1 163 454)

Provision for impairment of other assets and credit and non-credit related commitments 277 529 (130 401) (2 787) - - (19 608) 124 733

Operating expenses (1 533 286) (2 900 110) (85 681) (139 496) (360 826) - (5 019 399) including:

- depreciation charge (52 726) (101 123) (1 869) (436) (311 330) - (467 484) Profit/(loss) before taxation by

segment (285 921) 1 457 177 395 789 44 461 197 020 12 123 1 820 649

Reconciliation to profit before taxation

Accrual of additional interest 120 345 Recovery of provision for loans to customers 1 153 177 Losses on origination of assets at rates below market (6 945) Loans remeasured at amortised cost 14 317Recovery of provision for impairment of financial assets, other assets and credit related commitments 57 892Expenses relating to unused annual leaves (13 840)Income from adjustments of premises and equipment, non-current assets held for sale and investment property (4 502)Other adjustments (10 150)Total profit before taxation under IFRS 3 130 943


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The table below shows a breakdown of the Group’ consolidated statement of income by business segments for the year ended 31 December 2012:

Corporate

business Retail

business

Investment banking


market transactions

Insurance business

Finance lease

Non-alloca-

ted Total

Interest income 2 200 317 4 977 463 643 712 3 423 163 128 - 7 988 043 Interest expense (1 225 122) (1 790 842) (279 102) - (19 775) - (3 314 841) Gains less losses arising from financial

assets at fair value through profit or loss - - 64 224 - - - 64 224

Gains less losses arising from financial assets available for sale - - (162 880) - - - (162 880)

Fee and commission income 533 716 1 321 148 162 4 980 - - 1 860 006 Fee and commission expense (59 682) (166 434) (3 776) (930) - - (230 822) Gains less losses from dealing in

foreign currency and revaluation of foreign currency 25 698 71 715 (23 927) - 152 - 73 638

Dividends received - - 11 771 - - - 11 771 Other operating income 10 833 20 303 96 456 433 550 282 590 21 054 864 786 Net operating income by segment 1 485 760 4 433 353 346 640 441 023 426 095 21 054 7 153 925

Provision for impairment of due from other banks and loans to customers (387 253) (15 474) 135 836 - - - (266 891)

Provision for impairment of other assets and credit and non-credit related commitments (327 655) (13 105) (528) (1 633) (698) - (343 619)

Operating expenses (1 343 373) (2 272 433) (94 074) (403 175) (290 227) - (4 403 282) including:

- depreciation charge (42 617) (77 981) (1 725) (496) (457) - (123 276) Profit/(loss) before taxation by

segment (572 521) 2 132 341 387 874 36 215 135 170 21 054 2 140 133

Reconciliation to profit before taxation

Accrual of additional interest (38 757) Recovery of provision for loans to customers 393 745 Losses on origination of assets at rates below market (5 269) Gains on origination of liabilities at rates below market 563 Loans remeasured at amortised cost 71 041 Revaluation of financial assets available for sale 14 Recovery of provision for impairment of financial assets, other assets and credit related commitments 38 123 Income from sale of financial assets 5 282 Expenses relating to unused annual leaves (23 988) Income from adjustments of premises and equipment, non-current assets held for sale and investment property 20 181 Other adjustments 17 922 Total profit before taxation under IFRS 2 618 990


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The information on the income of the Group’s major business segments received from external customers is presented in the table below:

2013 2012

Retail business 8 265 837 6 379 923 Corporate business 2 962 138 2 785 668 Investment banking services and financial market transactions 962 755 1 244 759 Finance lease 557 995 445 718 Insurance business 184 718 441 953 Total 12 933 443 11 298 021

The information on capital expenditures of the Group’s major business segments for the year ended 31 December is presented in the table below:

2013 2012

Retail business 173 127 102 571 Corporate business 90 269 56 056 Investment banking services and financial market transactions 3 199 2 269 Total capital expenditures 266 595 160 896

33. Risk Management

The risk management function within the Group 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 determine the risk level, 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 Group takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due. The Group 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. Such risks are monitored by the Group on a regular basis, the limits being subject to an annual or more frequent review. Limits on the level of credit risk by product, borrowers and industry segments are approved by the Credit Committee (if the transaction amount is less than RUB 200 000 thousand) or by the Executive Board of the Bank (if the transaction amount is more than 200 000 thousand).

The exposure to any one borrower including banks and broker companies is further restricted by sub-limits covering on- and off-balance sheet exposures. 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 obtaining collateral in the form of property and securities and corporate and personal guarantees.

The main objective of collateral activities is to ensure proper performance by customers of their obligations assumed in respect of the Group.

The Group actively uses the following methods of collateralisation:

pledge of the borrower’s (Principal) assets or third party assets (real estate, equipment, transport, goods for sale, etc.)

bank guarantees; state guarantees of RF subjects, municipal guarantees; sureties of individuals, individual entrepreneurs and legal entities; other types of collateral not contradicting the applicable Russian legislation.

Periodicity of reviewing a pledged item and determining its liquidity is as follows:

a) for newly issued loans – on a mandatory basis until a decision on loan issuance is taken.


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b) for existing loans classified in accordance with the Procedure for loan classification and making provisions for possible losses on loans and similar debts of the Bank on a case-by-case basis – not less than once per quarter.

The Group takes measures to sell the assets obtained as a result of foreclosure on the mortgaged property.

The Group’s maximum exposure to credit risk is primarily reflected in the carrying value of financial assets in the consolidated 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 total liabilities as indicated in Note 34.

Credit risk for off-balance sheet financial instruments is defined as a 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 Group uses the same credit policies in making conditional obligations as it does for on-balance sheet financial instruments through established credit approvals, risk control limits and monitoring procedures.

The Group performs the loan maturity analysis and subsequent monitoring of overdue balances. Therefore, the management provides information on overdue amounts and other information on credit risk, as described in Notes 7, 8, 10, 11 and 16.

The Group is exposed to early redemption risk as a result of lending at fixed or variable interest rates, including mortgage loans, that entitles the borrower to repay loans ahead of schedule. The financial result and the Group’s equity for the current year and at the end of the reporting period 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.

Market risk. The Group takes on exposure to market risk arising from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The Bank’s Executive Board sets acceptable risk limits and monitors them on a daily basis. However, the use of this approach does not prevent losses beyond these limits in the event of more significant market movements.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on the risk accepted.

The market risk is assessed by the Group in accordance with the requirements of CBR Regulation No. 387-P of 28 September 2012 “On procedure of market risk calculation by credit institutions” (as subsequently amended).

The Group assesses the market risk using the Value-at-Risk (VаR) methodology that is a statistical estimate of maximum losses on the selected instrument (portfolio) with a given probability and time horizon, resulting from movements in market parameters.

The VaR model is based on the following assumptions:

Modelling using a 99% confidence level; Historic modelling based on the analysis of intraday changes in the parameter for the period not

less than 255 trading days (1 calendar year); Modelling horizon - 1 day.

The use of VaR has limitations because it is based on historical correlations and volatilities in market prices and assumes that future price movements will follow a statistical distribution. Due to the fact that VaR relies heavily on historical data to provide information and may not clearly predict the future changes and modifications of the risk factors, the probability of large market moves may be underestimated if changes in risk factors fail to align with the normal distribution assumption. Even though positions may change throughout the day, the VaR only represents the risk of the open currency positions at the close of the reporting dates, and it does not account for any losses that may occur beyond the 99% confidence level. The use of one-day holding period assumes as well that all positions can be liquidated or hedged in one day, which may not reflect the market risk during times of illiquidity when one-day holding period may not be sufficient to liquidate or hedge all positions fully.


73

Since VаR is an integral part of the Bank’s market risk management, the Board of Directors sets VaR limits.

Potential market price changes (fluctuations) are determined based on the market data for 2013.

The Group does not solely rely on its VaR calculations in its market risk measurement as this methodology has certain limitations described above. The risk of limitations of the VaR methodology is mitigated by supplementing VaR limits with a limit on transactions in securities and derivative financial instruments as well as performing market risk stress-testing.

A summary of the VaR estimates in respect of price risk for the Group’s securities and units of investment funds categorised as financial assets at fair value through profit or loss as at 31 December 2013 is as follows:

Year Portfolio amount

31 December Medium Maximum Minimum

2013 57 891 989 1 101 1 320 966 2012 56 562 1 210 1 405 1 530 1 210

Based on the analysis of market price movements as at 31 December 2013, the Group’s maximum possible loss as a result of adverse fluctuations in securities prices would not exceed, with a probability of 99%, RUB 989 thousand (2012: RUB 1 210 thousand).

A summary of the VaR estimates in respect of price risk for the Group’s securities categorised as financial assets available for sale as at 31 December and for the year then ended is as follows:

Year

Total financial assets

available for sale

Financial assets in

respect of which the

value at risk was calculated

31 December Medium Maximum Minimum

2013 4 185 031 3 774 238 27 263 22 128 27 263 18 466 2012 4 328 016 3 917 193 19 013 27 864 32 361 19 013

Financial assets available for sale include assets which have no carrying (fair) value and in respect of which the VaR was not calculated. As at 31 December 2013 and 31 December 2012, these assets include interests in limited liability companies, shares of OJSC Benat and a share contribution to SWIFT.

Based on the analysis of market price movements as at 31 December 2013, the maximum possible decrease in the Group’s equity as a result of adverse fluctuations in securities prices would not exceed, with a probability of 99%, RUB 27 263 thousand (2012: RUB 19 013 thousand).


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Geographical risk

The geographical analysis of the Group’s assets and liabilities as at 31 December 2013 is set out below:

Russia OECD* Other

countries Total Assets Cash and cash equivalents 15 752 517 888 645 - 16 641 162 Mandatory cash balances with the Central Bank of the Russian

Federation 673 968 - - 673 968 Financial assets at fair value through profit or loss 57 891 - - 57 891 Due from other banks 705 652 517 590 - 1 223 242 Loans to customers 64 714 147 - 60 868 64 775 015 Net investment in leases 1 303 807 - - 1 303 807 Financial assets available for sale 4 184 238 793 - 4 185 031 Investments held to maturity 1 356 505 - - 1 356 505 Investments in non-consolidated subsidiaries 10 - - 10 Non-current assets held for sale 299 417 - - 299 417 Investment property 35 325 - - 35 325 Premises and equipment 3 007 024 - - 3 007 024 Other assets 732 890 2 279 28 735 197 Current tax assets 1 240 - - 1 240 Deferred tax assets 42 - - 42 Total assets 92 824 673 1 409 307 60 896 94 294 876 Liabilities Due to other banks 308 709 - - 308 709 Customer accounts 77 098 968 15 088 241 900 77 355 956 Debt securities issued 2 095 717 - - 2 095 717 Other borrowed funds 500 100 - - 500 100 Other liabilities 1 454 371 7 844 2 060 1 464 275 Current tax liabilities 11 920 - - 11 920 Deferred tax liabilities 478 580 - - 478 580 Total liabilities 81 948 365 22 932 243 960 82 215 257 Net balance sheet position 10 876 308 1 386 375 (183 064) 12 079 619 Credit related commitments 15 280 299 - - 15 280 299

* OECD – the Organisation for Economic Co-operation and Development


75

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

Russia OECD Other

countries Total

Assets Cash and cash equivalents 16 152 859 349 680 590 258 17 092 797 Mandatory cash balances with the Central Bank of the

Russian Federation 753 921 - - 753 921 Financial assets at fair value through profit or loss 56 562 - - 56 562 Due from other banks 3 041 055 414 277 - 3 455 332 Loans to customers 51 723 657 - 25 862 51 749 519 Net investment in leases 1 106 369 - - 1 106 369 Financial assets available for sale 4 327 197 819 - 4 328 016 Investments held to maturity 1 356 245 - - 1 356 245 Investments in non-consolidated subsidiaries 10 - - 10 Non-current assets held for sale 307 194 - - 307 194 Investment property 116 037 - - 116 037 Premises and equipment 2 817 388 - - 2 817 388 Other assets 550 148 2 354 - 552 502 Current tax assets 4 550 - - 4 550 Deferred tax assets 2 806 - - 2 806 Total assets 82 315 998 767 130 616 120 83 699 248

Liabilities Due to other banks 288 443 - - 288 443 Customer accounts 69 115 253 35 629 223 650 69 374 532 Debt securities issued 2 166 367 - - 2 166 367 Other borrowed funds 587 100 - - 587 100 Other liabilities 1 392 993 4 339 3 185 1 400 517 Current tax liabilities 82 883 - - 82 883 Deferred tax liabilities 209 628 - - 209 628 Total liabilities 73 842 667 39 968 226 835 74 109 470 Net balance sheet position 8 473 331 727 162 389 285 9 589 778 Credit related commitments 9 973 572 - - 9 973 572


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Currency risk. The Group takes on exposure to effects of fluctuations in the foreign currency exchange rates on its financial position and cash flows. The Executive Board of the Bank sets limits on and monitors the level of exposure by currency at the close of each day, which are monitored daily. The table below summarises the Group’s exposure to foreign currency exchange rate risk as at 31 December 2013.

RUB USD EUR Other

currencies Total Assets Cash and cash equivalents 15 144 080 1 131 277 351 962 13 843 16 641 162 Mandatory cash balances with the Central

Bank of the Russian Federation 673 968 - - - 673 968 Financial assets at fair value through profit

or loss 57 891 - - - 57 891 Due from other banks 576 171 335 047 312 024 - 1 223 242 Loans to customers 64 356 843 375 250 42 922 - 64 775 015 Net investment in leases 1 303 807 - - - 1 303 807 Financial assets available for sale 4 184 238 - 793 - 4 185 031 Investments held to maturity 1 356 505 - - - 1 356 505 Investments in non-consolidated subsidiaries 10 - - - 10 Non-current assets held for sale 299 417 - - - 299 417 Investment property 35 325 - - - 35 325 Premises and equipment 3 007 024 - - - 3 007 024 Other assets 722 295 685 4 12 213 735 197 Current tax assets 1 240 - - - 1 240 Deferred tax assets 42 - - - 42 Total assets 91 718 856 1 842 259 707 705 26 056 94 294 876 Liabilities Due to other banks 250 854 11 367 46 488 - 308 709 Customer accounts 74 840 797 1 836 757 663 271 15 131 77 355 956 Debt securities issued 2 095 717 - - - 2 095 717 Other borrowed funds 500 100 - - - 500 100 Other liabilities 1 451 574 12 410 291 - 1 464 275 Current tax liabilities 11 920 - - - 11 920 Deferred tax liabilities 478 580 - - - 478 580 Total liabilities 79 629 542 1 860 534 710 050 15 131 82 215 257 Net balance sheet position 12 089 314 (18 275) (2 345) 10 925 12 079 619 Credit related commitments 14 850 853 429 267 179 - 15 280 299


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

RUB USD EUR Other

currencies Total Assets Cash and cash equivalents 16 310 252 494 949 253 357 34 239 17 092 797 Mandatory cash balances with the Central

Bank of the Russian Federation 753 921 - - - 753 921 Financial assets at fair value through

profit or loss 56 562 - - - 56 562 Due from other banks 2 833 446 169 327 452 559 - 3 455 332 Loans to customers 50 698 359 1 017 552 33 608 - 51 749 519 Net investment in leases 1 106 369 - - - 1 106 369 Financial assets available for sale 4 327 197 - 819 - 4 328 016 Investments held to maturity 1 356 245 - - - 1 356 245 Investments in non-consolidated

subsidiaries 10 - - - 10 Non-current assets held for sale 307 194 - - - 307 194 Investment property 116 037 - - - 116 037 Premises and equipment 2 817 388 - - - 2 817 388 Other assets 518 424 18 258 14 15 806 552 502 Current tax assets 4 550 - - - 4 550 Deferred tax assets 2 806 - - - 2 806 Total assets 81 208 760 1 700 086 740 357 50 045 83 699 248 Liabilities Due to other banks 177 754 8 725 101 964 - 288 443 Customer accounts 66 989 654 1 730 916 637 912 16 050 69 374 532 Debt securities issued 2 166 367 - - - 2 166 367 Other borrowed funds 587 100 - - - 587 100 Other liabilities 1 391 040 9 368 109 - 1 400 517 Current tax liabilities 82 883 - - - 82 883 Deferred tax liabilities 209 628 - - - 209 628 Total liabilities 71 604 426 1 749 009 739 985 16 050 74 109 470 Net balance sheet position 9 604 334 (48 923) 372 33 995 9 589 778 Credit related commitments 9 845 145 128 275 152 - 9 973 572

The Group issues loans 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.


78

The table below shows the change in the financial result and equity due to possible fluctuations of exchange rates used at the end of the reporting period, if all other conditions remain unchanged. A reasonably possible change by each currency is determined based on the analysis of historical data on maximum movements in foreign exchange rates for December 2013. 31 December 2013 Effect on profit before taxation Effect on equity

USD appreciation by 2% (366) (292) USD depreciation by 2% 366 292 EUR appreciation by 2% (47) (37) EUR depreciation by 2% 47 37 GBP appreciation by 2% 184 147 GBP depreciation by 2% (184) (147) CAD appreciation by 2% 5 4 CAD depreciation by 2% (5) (4) Gold appreciation by 5% 7 5 Gold depreciation by 5% (7) (5) Silver appreciation by 6% 80 64 Silver depreciation by 6% (80) (64)

The table below shows the change in the financial result and equity due to possible fluctuations of exchange rates used as at 31 December 2012, if all other conditions remain unchanged. A reasonably possible change by each currency is determined based on the analysis of historical data on maximum movements in foreign exchange rates for December 2012.

31 December 2012 Effect on profit before taxation Effect on equity

USD appreciation by 2% (978) (783) USD depreciation by 2% 978 783 EUR appreciation by 2% 7 6 EUR depreciation by 2% (7) (6) GBP appreciation by 3% 86 69 GBP depreciation by 3% (86) (69) CAD appreciation by 3% 7 5 CAD depreciation by 3% (7) (5) Gold appreciation by 6% 1 628 1 302 Gold depreciation by 6% (1 628) (1 302) Silver appreciation by 17% 640 512 Silver depreciation by 17% (640) (512)

The Group’s currency risk at the reporting date is not representative of the risk during the year. The table below shows the change in the financial result due to possible fluctuations of exchange rates used in respect of the average currency risk during 2013 and 2012, if all other conditions remain unchanged. The average currency risk was determined as the chronological average of the quarterly currency risk values.


79

2013

Effect on profit before

taxation Effect on equity

USD appreciation (608) (486) USD depreciation 608 486 EUR appreciation (29) (23) EUR depreciation 29 23 GBP appreciation 183 147 GBP depreciation (183) (147) CAD appreciation 18 15 CAD depreciation (18) (15) Gold appreciation 297 237 Gold depreciation (297) (237) Silver appreciation 282 225 Silver depreciation (282) (225) 2012

Effect on profit before

taxation Effect on equity

USD appreciation (2 035) (1 628) USD depreciation 2 035 1 628 EUR appreciation 206 165 EUR depreciation (206) (165) GBP appreciation 78 63 GBP depreciation (78) (63) CAD appreciation 8 6 CAD depreciation (8) (6) Gold appreciation 2 183 1 747 Gold depreciation (2 183) (1 747) Silver appreciation 125 100 Silver depreciation (125) (100)

The risk was calculated only for cash balances in currencies other than the functional currency of the Group’s respective company.

Liquidity risk. Liquidity risk is defined as the risk when the maturity of assets and liabilities does not match. The Group is exposed to risk via daily calls from customers on its available cash resources from customer accounts, maturing deposits, loan draw downs, and guarantees. The Group 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 Bank’s Executive Board.

The Group is keen on maintaining stable financing predominantly consisting of due to other banks, deposits of legal entities/deposits of individuals and 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 Group 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 the 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. The minimum admissible value of Н2 is set at 15%. As at 31 December 2013, this ratio was 90.9% (2012: 65.1%).

- Current liquidity ratio (Н3) calculated as a ratio of liquid assets and liabilities maturing within 30 calendar days. The minimum admissible value of Н3 is set at 50%. As at 31 December 2013, this ratio was 137.0% (2012: 119.7%).


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- Long-term liquidity ratio (Н4) calculated as a ratio of assets maturing in more than 1 year to equity and liabilities maturing in more than 1 year. The maximum admissible value of Н4 is set at 120%. As at 31 December 2013, this ratio was 79.9% (2012: 84.1%).

The Resource Management and Correspondent Relations Department provides information on movement of financial assets and liabilities. The Resource Management and Correspondent Relations Department monitors the daily liquidity position and, if necessary, raises funds from financial markets, primarily interbank loans, to manage quick and current liquidity.

The Resource Management and Correspondent Relations Department together with the Brokerage Department provide for an adequate portfolio of short-term liquid assets, largely comprising state and corporate bonds, bank deposits and other interbank instruments to support the required level of the Bank’s liquidity as a whole.

Based on the data provided by the Resource Management and Correspondent Relations Department and the Brokerage Department, the Risk Management Department of the Bank performs a regular liquidity risk analysis and liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions to manage long-term liquidity.

The table below shows the liabilities as at 31 December 2013 by their remaining contractual maturity. The amounts in the table represent undiscounted cash flows payable under contract provisions. 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 end of the reporting period. Foreign currency payments are translated using the CBR exchange rates effective at the end of the reporting period.

The table below shows the maturity analysis of financial liabilities as at 31 December 2013:

On demand and less

than 1 month

From 1 to 6

months

From 6 to 12 months

From 1 to 5 years

More than 5

years Total

Liabilities Due to other banks 308 715 - - - - 308 715 Customer accounts 24 835 502 10 897 442 12 601 025 32 954 305 - 81 288 274 Debt securities issued 11 427 234 092 1 535 2 114 838 - 2 361 892 Other borrowed funds 3 766 114 194 32 011 410 115 10 405 570 491 Total potential future

payments under financial liabilities 25 159 410 11 245 728 12 634 571 35 479 258 10 405 84 529 372

The table below shows the maturity analysis of financial liabilities as at 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

More than 5

years Total

Liabilities Due to other banks 288 459 - - - - 288 459 Customer accounts 35 643 295 6 117 361 5 246 658 25 860 308 - 72 867 622 Debt securities issued 1 311 194 712 142 359 1 985 472 - 2 323 854 Other borrowed funds 4 480 21 679 76 593 607 239 11 230 721 221 Total potential future payments

under financial liabilities 35 937 545 6 333 752 5 465 610 28 453 019 11 230 76 201 156

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.


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The Group does not use the above undiscounted amounts in the maturity analysis to monitor the liquidity profile. Instead, the Group monitors the expected maturity limits presented in the table below as at 31 December 2013:

On demand and less than

1 month

From 1 to 6

months

From 6 to 12 months

From 1 to 5 years

More than 5

years No stated maturity Total

Assets Cash and cash equivalents 16 502 661 138 501 - - - - 16 641 162

Mandatory cash balances with the

Central Bank of the Russian

Federation - - - - - 673 968 673 968

Financial assets at fair value through

profit or loss 57 891 - - - - - 57 891

Due from other banks 887 308 294 943 40 991 - - - 1 223 242

Loans to customers 3 183 796 6 030 289 6 679 489 26 225 255 22 336 925 319 261 64 775 015

Net investment in leases 41 912 205 678 209 768 598 623 247 826 - 1 303 807

Financial assets available for sale 3 774 238 - - - - 410 793 4 185 031

Investments held to maturity 20 138 19 596 - 1 316 771 - - 1 356 505

Investments in non-consolidated

subsidiaries - - - - - 10 10

Non-current assets held for sale - - 299 417 - - - 299 417

Investment property - - - - - 35 325 35 325

Premises and equipment - - - - - 3 007 024 3 007 024

Other assets 169 628 251 538 163 285 99 749 40 359 10 638 735 197

Current tax assets 1 159 81 - - - - 1 240

Deferred tax assets - - - - - 42 42

Total assets 24 638 731 6 940 626 7 392 950 28 240 398 22 625 110 4 457 061 94 294 876

Liabilities Due to other banks 308 709 - - - - - 308 709

Customer accounts 24 727 190 9 978 813 11 520 991 31 128 962 - - 77 355 956

Debt securities issued 11 323 84 241 8 2 000 145 - - 2 095 717

Other borrowed funds - 96 000 15 000 379 100 10 000 - 500 100

Other liabilities 153 204 867 161 359 700 84 205 5 - 1 464 275

Current tax liabilities - 11 920 - - - - 11 920

Deferred tax liabilities - - - - - 478 580 478 580

Total liabilities 25 200 426 11 038 135 11 895 699 33 592 412 10 005 478 580 82 215 257 Net liquidity gap as at

31 December 2013 (561 695) (4 097 509) (4 502 749) (5 352 014) 22 615 105 3 978 481 12 079 619 Cumulative liquidity gap as at

31 December 2013 (561 695) (4 659 204) (9 161 953) (14 513 967) 8 101 138 12 079 619


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The table below shows the expected maturity analysis as at 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

More than 5


Assets Cash and cash equivalents 15 548 676 1 544 121 - - - - 17 092 797



Federation - - - - - 753 921 753 921

Financial assets at fair value

through profit or loss 56 562 - - - - - 56 562

Due from other banks 834 756 2 620 576 - - - - 3 455 332

Loans to customers 2 318 619 5 589 630 4 449 839 20 500 524 18 850 582 40 325 51 749 519






Non-current assets held for sale - - 307 194 - - - 307 194



Other assets 118 468 160 119 22 906 71 822 28 586 150 601 552 502

Current tax assets - 4 550 - - - - 4 550

Deferred tax assets - - - - - 2 806 2 806

Total assets 22 847 483 10 092 821 4 935 527 22 381 594 19 149 912 4 291 911 83 699 248

Liabilities Due to other banks 288 443 - - - - - 288 443

Customer accounts 35 207 831 5 250 329 4 186 354 24 730 018 - - 69 374 532

Debt securities issued 1 311 162 619 17 543 1 984 894 - - 2 166 367

Other borrowed funds - - 50 000 527 100 10 000 - 587 100

Other liabilities 140 759 358 213 463 400 438 011 134 - 1 400 517

Current tax liabilities - 82 883 - - - - 82 883


Total liabilities 35 638 344 5 854 044 4 717 297 27 680 023 10 134 209 628 74 109 470 Net liquidity gap as at

31 December 2012 (12 790 861) 4 238 777 218 230 (5 298 429) 19 139 778 4 082 283 9 589 778 Cumulative liquidity gap as at

31 December 2012 (12 790 861) (8 552 084) (8 333 854) (13 632 283) 5 507 495 9 589 778

As the above analysis is based on expected maturity, the entire portfolio of financial assets at fair value through profit or loss and part of the portfolio of financial assets available for sale are categorised as “On demand and less than 1 month” in accordance with the portfolio liquidity assessment by the management.

Before 2013, customer accounts with minimum required balances were recognised by maturity, and the amount exceeding minimum required balance was reflected in the “On demand and less than 1 month” column. In 2013 the Group brought its ageing analysis techniques for these financial instruments in line with the methods, prescribed by the Russian legislation for standard rate calculations by categorising 20% of the amount exceeding minimum required balance as “On demand and less than 1 month” and reflecting the remaining portion in accordance with its maturity.


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Below are the liquidity gaps as at 31 December 2012 adjusted for the above changes.

On demand and less than 1

month From

1 to 6 months From

6 to 12 months

From 1 to 5 years

More than 5


Net liquidity gap as at 31 December 2012 (1 383 512) 2 524 148 (2 442 952) (12 329 967) 19 139 778 4 082 283 9 589 778

Cumulative liquidity gap as at 31 December 2012 (1 383 512) 1 140 636 (1 302 316) (13 632 283) 5 507 495 9 589 778

In the opinion of the Group’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 Group. 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 Group and its exposure to changes in interest and exchange rates.

Management of the Group 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 Group would indicate that these customer accounts provide a long-term and stable source of funding for the Group. This position is based on the assumption that demand deposits are, to a considerable extent, semi-fixed investments that are not withdrawn by clients in full amounts, and are likely to be partially replaced by other liabilities. Analysis of movements in customer accounts being on demand for the last 3 years has shown that demand deposits did not drop below RUB 14 012 175 thousand (2012: RUB 11 583 858 thousand), and the last year registered a sustainable upward trend.

The table below shows the liquidity gaps adjusted for the above assumptions as at 31 December 2013:


1 month

From 1 to 6

months

From 6 to 12 months

From 1 to 5 years

More than 5


Net liquidity gap as at 31 December 2013

13 450 480 (4 097 509) (4 502 749) (5 352 014) 22 615 105 (10 033 694) 12 079 619

Cumulative liquidity gap as at 31 December 2013

13 450 480 9 352 971 4 850 222 (501 792) 22 113 313 12 079 619

The table below shows the liquidity gaps adjusted for the above assumptions as at 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

More than 5


Net liquidity gap as at 31 December 2012

10 200 346 2 524 148 (2 442 952) (12 329 967) 19 139 778 (7 501 575) 9 589 778

Cumulative liquidity gap as at 31 December 2012

10 200 346 12 724 494 10 281 542 (2 048 425) 17 091 353 9 589 778

Besides, the Group has substantial secondary liquidity reserves as it can raise funds both from the CBR against collateral in the form of assets and on the interbank market in the total amount of at least RUB 4 639 258 thousand. The ability to borrow is confirmed by limits set for the Group by the counterparty banks.

Thus, the Group believes that the maturity mismatch of assets and liabilities is controlled and admissible and, therefore, does not cause significant risk of losses.

Liquidity requirements in respect of guarantees and letters of credit are considerably lower than the amount of the related commitment because the Group 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 will expire or terminate without being funded.


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Interest rate risk. The Group takes on exposure to the effects of fluctuations in 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 Group 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 assets and liabilities, are often renegotiated upon mutual consent to reflect current market conditions.

The Asset and Liability Management Committee permanently monitors the level of mismatch of interest rate re-pricing that may be undertaken.

In the absence of any available hedging instruments, the Group normally seeks to match its interest rate positions. The table below summarises the Group’s exposure to interest rate risk as at 31 December 2013.

On demand and less

than 1 month

From 1 to 6

months

From 6 to 12 months

From 1 to 5 years

More than

5 years

Non- interest bearing Total

Assets Cash and cash equivalents 6 392 454 138 501 - - - 10 110 207 16 641 162



Federation - - - - - 673 968 673 968

Financial assets at fair value through

profit or loss 27 190 - - - - 30 701 57 891

Due from other banks 887 308 294 943 40 991 - - - 1 223 242

Loans to customers 3 183 796 6 030 289 6 679 489 26 225 255 22 656 186 - 64 775 015






Non-current assets held for sale - - - - - 299 417 299 417



Other assets - - - - - 735 197 735 197

Current tax assets - - - - - 1 240 1 240

Deferred tax assets - - - - - 42 42

Total assets 13 946 786 6 689 007 6 930 248 28 140 649 22 904 012 15 684 174 94 294 876

Liabilities Due to other banks 282 658 - - - - 26 051 308 709

Customer accounts 6 521 299 9 978 539 11 520 775 31 126 217 18 209 126 77 355 956

Debt securities issued 11 323 84 241 8 2 000 145 - - 2 095 717

Other borrowed funds - 96 000 15 000 379 100 10 000 - 500 100

Other liabilities - - - - - 1 464 275 1 464 275

Current tax liabilities - - - - - 11 920 11 920


Total liabilities 6 815 280 10 158 780 11 535 783 33 505 462 10 000 20 189 952 82 215 257 Net interest rate gap as at

31 December 2013 7 131 506 (3 469 773) (4 605 535) (5 364 813) 22 894 012 (4 505 778) 12 079 619 Cumulative interest rate gap as at

31 December 2013 7 131 506 3 661 733 (943 802) (6 308 615) 16 585 397 12 079 619


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The table below summarises the Group’s exposure to interest rate risk as at 31 December 2012.


1 month

From 1 to 6

months

From 6 to 12 months

From 1 to 5 years

More than

5 years


Assets Cash and cash equivalents 8 478 149 1 544 121 - - - 7 070 527 17 092 797

Mandatory cash balances with

the Central Bank of the

Russian Federation - - - - - 753 921 753 921


through profit or loss 27 768 - - - - 28 794 56 562

Due from other banks 834 756 2 612 635 - - - 7 941 3 455 332

Loans to customers 2 318 619 5 589 630 4 449 839 20 500 524 18 890 907 - 51 749 519


Financial assets available for

sale 3 701 431 - - - - 626 585 4 328 016


Investments in non-

consolidated subsidiaries - - - - - 10 10

Non-current assets held for sale - - - - - 307 194 307 194



Other assets - - - - - 552 502 552 502

Current tax assets - - - - - 4 550 4 550

Deferred tax assets - - - - - 2 806 2 806

Total assets 15 413 932 9 920 211 4 605 427 22 309 772 19 161 651 12 288 255 83 699 248

Liabilities Due to other banks 266 983 - - - - 21 460 288 443

Customer accounts 16 382 639 5 242 388 4 186 354 24 730 018 - 18 833 133 69 374 532

Debt securities issued 1 311 162 619 17 543 1 984 894 - - 2 166 367

Other borrowed funds - - 50 000 527 100 10 000 - 587 100

Other liabilities - - - - - 1 400 517 1 400 517

Current tax liabilities - - - - - 82 883 82 883


Total liabilities 16 650 933 5 405 007 4 253 897 27 242 012 10 000 20 547 621 74 109 470 Net interest rate gap as at

31 December 2012 (1 237 001) 4 515 204 351 530 (4 932 240) 19 151 651 (8 259 366) 9 589 778 Cumulative interest rate gap

as at 31 December 2012 (1 237 001) 3 278 203 3 629 733 (1 302 507) 17 849 144 9 589 778

Before 2013, customer accounts with minimum required balances were recognised by maturity, and the amount exceeding minimum required balance was reflected in the “On demand and less than 1 month” column. In 2013 the Group brought its ageing analysis techniques for these financial instruments in line with the methods, prescribed by the Russian legislation for standard rate calculations by categorising 20% of the amount exceeding minimum required balance as “On demand and less than 1 month” and reflecting the remaining portion in accordance with its maturity.


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Below is the interest rate risk analysis as at 31 December 2012 adjusted for the above changes.


1 month

From 1 to 6

months

From 6 to 12 months

From 1 to 5 years

More than 5 years


Net interest rate gap as at 31 December 2012 10 170 348 2 800 575 (2 309 652) (11 963 778) 19 151 651 (8 259 366) 9 589 778

Cumulative interest rate gap as at 31 December 2012 10 170 348 12 970 923 10 661 271 (1 302 507) 17 849 144 9 589 778

A reasonably possible change in interest rate at the reporting dates was determined based on the analysis of the change in average annual rate in the interbank lending market (MosPrime rate). As at 31 December 2013, a reasonably possible change in interest rate was estimated at 10 basis points. As at 31 December 2012, a reasonably possible change in interest rate was estimated at 210 basis points.

Below is the sensitivity analysis with regard for the new ageing methods for the instruments with a minimum required balance.

If as at 31 December 2013 the interest rates had been by 10 basis points lower, provided all other conditions remained unchanged, the profit for the year would have been by RUB 3 225 thousand lower as a result of a greater decrease in interest income on financial assets than in interest expense on financial liabilities. Other components of equity would have been by RUB 2 580 thousand lower.

If as at 31 December 2013 the interest rates had been by 10 basis points higher, provided all other conditions remained unchanged, the profit would have been by RUB 3 225 thousand higher as a result of a higher increase in interest income on financial assets than in interest expense on financial liabilities. Other components of equity would have been by RUB 2 580 thousand higher.

If as at 31 December 2012 the interest rates had been by 210 basis points lower, provided all other conditions remained unchanged, the profit for the year would have been by RUB 234 211 thousand lower as a result of a greater decrease in interest income on financial assets than in interest expense on financial liabilities. Other components of equity would have been by RUB 187 369 thousand lower.

If as at 31 December 2012 the interest rates had been by 210 basis points higher, provided all other conditions remained unchanged, the profit would have been by RUB 234 211 thousand higher as a result of a higher increase in interest income on financial assets than in interest expense on financial liabilities. Other components of equity would have been by RUB 187 369 thousand higher.

The Group performs monitoring of interest rates on financial instruments. The table below shows the interest rates on the basis of the reports that were analysed by the Group’s key executives as at 31 December 2013 and 31 December 2012: 2013 2012 RUB USD EUR RUB USD EUR

Assets Cash and cash equivalents 5.81% 0.05% - 5.23% 0.05% 0.40% Financial assets at fair value through profit or

loss 7.37% - - 7.36% - - Due from other banks 8.41% 0.05% - 8.45% 0.19% 3.38% Loans to customers 14.89% 8.14% 10.63% 14.30% 10.99% 10.57% Net investment in leases 19.08% - - 16.48% - - Financial assets available for sale 8.11% - - 8.01% - - Investments held to maturity 7.11% - - 7.11% - -

Liabilities Due to other banks 0.65% 0.10% 0.55% 1.25% 0.10% 0.66% Customer accounts - current and settlement accounts 1.56% 0.53% 0.16% 1.38% 0.25% 0.00% - term deposits of legal entities 7.86% 3.60% 3.12% 7.52% 3.86% 3.02% - term deposits of individuals 8.73% 3.57% 3.08% 8.85% 4.06% 3.22% Debt securities issued 11.49% - - 12.26% - - Other borrowed funds 8.87% - - 8.99% - -


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Operational risk. While managing its operational risks associated with risks of losses arising from inadequacy or failure of internal processes, people and systems or from external events, the Group is governed by the effective regulations of the Central Bank of the Russian Federation as well as by “International Convergence of Capital Management and Capital Standards”, a Revised Framework” (Basel II).

Operational risk is managed with the aim of identifying risk sources (factors) and taking risk-minimisation measures to reduce the threat of potential losses (direct and/or indirect).

The total level of the Group’s operational risk is primarily affected by operational risks of the Bank. Common processes, methods and techniques used in managing the operational risk are defined in the Operational Risk Management Methodology of Zapsibcombank approved by the Bank’s Board. The operational risk management system includes the procedure for maintaining the internal and external base of risk events for subsequent assessment and monitoring of the risk level indicators and detection of the most serious weaknesses. The operational risk is assessed and monitored in accordance with the following two approaches: based on the statistical data of the actual and potential losses related to risk events registered in the internal base; based on the calculation of the economic capital for operational risk coverage (the base and standardized methods).

The Group manages its operational risks using the established internal control procedures, developing and implementing the warning and preventive measures which allow to reduce the operational risk level and also by insuring certain types of operational risk and creating a special reserve fund.

34. Capital Management

In the context of transition of the Russian banking system to the international standards stipulated in the documents of the Basel Committee on Banking Supervision, the requirements are toughened to the sources of own funds, thus causing a reduction in the capital adequacy ratio. In these conditions the Group improves its risk management system and assesses the adequacy of the capitalisation growth sources for active development of business, considering the new approaches in the banking regulation and supervision system to achieve the strategic objectives and benchmarks. The increased cost of running a business brought about by the changes in the legislation is partially compensated by measures for improving operational efficiency. The current trend towards a sustained decrease in the level of capital adequacy in the banking sector caused by considerable growth in lending levels along with the toughened banking regulation and supervision reins in the growth of competition in the lending market.

To assess the impact of these risks on its financial indicators the Group practices regular forecasting of capital adequacy levels considering the new requirements of the Central Bank of the Russian Federation. In case of a deficit of own sources the Group adjusts its development plans. On the other hand, to increase net profit, which is the source of capitalisation, the Group takes steps aimed to improve its operational efficiency. In the sphere of the internal environment analysis on the basis of the budgeting system, the Group develops a methodology which enables to perform analysis and prepare recommendations to improve the efficiency of certain lines of activity.

The current system of tactical management of the Group’s assets and liabilities ensures a balanced policy of fund raising and allocation for the purposes of realization by the Group of the market opportunities; compliance with requirements of supervisory bodies and minimization of the interest rate, currency and liquidity risk. The above factors are coordinated on the basis of the scenarios including the changes in assets and liabilities with regard for maturity, pricing parameters and use of various instruments for fund raising and allocation.

Within the framework of improving the strategic management system, measures are taken which are aimed at developing the systems of the Group’s efficiency analysis, analysis and forecasting of external conditions of its activity, thus allowing to improve the efficiency of the information and analytical support of capital management.

Overall, the Group’s capital management has the following objectives:

- to observe the capital requirements established by the Central Bank of the Russian Federation, in particular, deposit insurance system requirements;

- to ensure the Group’s ability to operate as a going concern;

- to maintain capital base at the level required to sustain capital adequacy ratio at 10% prescribed by the CBR.


88

The control over compliance with the capital adequacy ratio set by the Central Bank of the Russian Federation is exercised daily in respect of the projected and actual data and on the basis of monthly reports with the corresponding calculations that are verified by the Bank’s Executive Board via limitation of investments into risky assets.

Apart from this, the capital adequacy matters are controlled by the Asset and Liability Management Committee whose regular monthly official meetings consider the forecasts of capital adequacy ratios and liquidity ratios for the current year.

To maintain the capital adequacy ratio at the acceptable level the Group takes the following steps:

- build-up of own funds (equity) of the Group by earning profits on investments into income-yielding instruments;

- search for external sources of capitalisation in the form of subordinated instruments;

- improvement of the quality of asset transactions and off-balance sheet liabilities of the Group, mitigation of risk associated with them through quality-based selection of customers and counterparties with regard for their financial position, international rating, availability of liquid collateral.

In the medium term, it is planned to increase capital mainly through current profit as well as using the capitalisation source such as a subordinated loan which meets the requirements of CBR Regulation No. 395-P of 28 December 2012 “On the methods of determining the value of own funds (capital) of credit institutions (Basel III)”.

The table below shows the regulatory capital structure based on the Group’s reports prepared in accordance with the requirements of the Russian legislation: 2013 2012 Share capital 1 206 795 1 206 795 Share premium 598 002 598 002 Reserve fund 199 709 86 742 Retained earnings of prior years 5 728 769 4 230 244 Treasury shares (134 191) (131 191) Investments in non-consolidated subsidiaries (10) (10) Core capital 7 599 074 5 990 582 Asset revaluation surplus 1 654 222 1 700 460 Retained earnings of the current year 1 550 300 1 904 638 Subordinated deposits 172 635 310 255 Preference shares 205 205 Additional capital 3 377 362 3 915 558 Total regulatory capital 10 976 436 9 906 140

As at 31 December 2013, the Group’s capital adequacy ratio calculated in accordance with capital requirements established by the CBR was 12.5% (2012: 12.8%). The minimum admissible value is set by the CBR at 10%.

The Group also complies with minimum capital requirements established by loan agreements including capital adequacy levels calculated in accordance with the requirements of the Basel Accord as defined in the International Convergence of Capital Measurement and Capital Standards (updated in June 2006) commonly known as Basel II.

The structure of the Group’s capital calculated in accordance with Basel Capital Accord under IFRS is as follows:

2013 2012 Tier 1 capital 8 151 047 6 106 523 Tier 2 capital 3 909 893 3 466 271 Total capital 12 060 940 9 572 794

As at 31 December 2013 and 31 December 2012, the Group’s capital adequacy ratio in accordance with international standards exceeded the minimum level of 8% recommended by the Basel Capital Accord.


89

Within the framework of implementing Basel III, the Central Bank of the Russian Federation published new instructions which give a new definition of capital for the Russian credit institutions. These new instructions came into force on 1 March 2013 for information purposes and on 1 January 2014 they take effect for prudential purposes. The Central Bank of the Russian Federation sets the following mandatory capital adequacy ratios: core capital adequacy ratio - 5%, core capital adequacy ratio -5.5% (to be increased to 6% on 1 January 2015) and total own capital adequacy ratio - 10%. 35. Contingent Liabilities

Legal issues. In the ordinary course of business the Group 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 condition or the results of future operations of the Group.

Tax legislation. Russian tax legislation is subject to varying interpretations, and changes, which can occur frequently. In addition, the provisions of Russian tax law applicable to financial instruments (including derivative instruments) are subject to significant uncertainty and lack interpretive guidance. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and federal authorities. The existing trends within the Russian Federation suggest that the tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments and, as a result, it is possible that transactions and accounting methods that have not been challenged in the past may be challenged. As a result, the Group may be assessed significant additional taxes, penalties and interest. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

The interpretations of the relevant authorities could differ and if the authorities were successful in enforcing their interpretation, additional taxes and related fines and penalties may be assessed, the effect of which cannot be reliably estimated, but which may be significant for the Group’s financial position.

As at 31 December 2013, the Group’s management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax, currency and customs positions will be sustained by controlling bodies. Management deems that the Group has accrued all applicable taxes.

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

2013 2012

Less than 1 year 59 485 57 578 From 1 to 5 years 225 075 120 620 Later than 5 years 83 783 51 971 Total operating lease commitments 368 343 230 169

In 2013 and 2012 immovable property leased by the Group was not subleased to third parties.

Credit related commitments. The main objective of these instruments is to provide funds to customers when necessary. The total outstanding contractual amount of guarantees, letters of credit and undrawn credit lines does not necessarily represent future cash requirements, as these financial instruments may expire or terminate without being funded. However, as there is a potential risk, a provision for credit related commitments in respect of issued guarantees is made in the consolidated statement of financial position within other liabilities depending on the customer’s financial position. With respect to undrawn credit lines, the Group is less exposed to the risk of loss since in the case of impairment of loans issued the Group will not pay the remaining amounts. Therefore, no provision for these credit related commitments is made.

Outstanding credit related commitments of the Group are as follows: 2013 2012

Undrawn credit lines 11 880 176 8 125 669 Guarantees issued 3 677 870 2 285 065 Letters of credit 3 948 - Less: provision for credit related commitments (281 695) (437 162) Total credit related commitments 15 280 299 9 973 572


90

Movements in the provision for credit related commitments are as follows:

Note 2013 2012

Provision for credit related commitments as at 1 January 437 162 139 316 Provision/(recovery of provision) for credit related commitments

during the year (155 467) 297 846 Provision for credit related commitments as at 31 December 23 281 695 437 162

Non-credit related commitments. As a result of legal practice to treat unlawful banking commissions for issuance of loans to individuals, OJSC Zapsibcombank got involved in litigation due to its customers’ suits claiming back the commissions paid on the loans obtained from the Bank. Commitments arising from such legal actions and complaints may have an impact on the Group’s future operations.

Non-credit related commitments whose probability of occurrence, according to the Group’s estimate, exceeded 50% are treated as provisions. As at 31 December 2013, the amount of provisions for non-credit related commitments (the due amounts of claims and debt collection suits against the Bank for which court decisions and orders were not issued in favour of the Bank as well as claim amounts which were accepted by the Bank in the course of the pre-trial dispute resolution and for which a payment decision was made) totalled RUB 1 310 thousand (2012: RUB 2 887 thousand). While making provisions for non-credit related commitments, the Group assumed that the amount of the commitment was measured reliably. There were no significant legal proceedings in the reporting period (the maximum amount of the claim was RUB 63 thousand (2012: RUB 160 thousand)).

Movements in the provision for non-credit related commitments are as follows:

Note 2013 2012

Provision for non-credit related commitments as at 1 January 2 887 1 542 Provision for non-credit related commitments during the year 11 296 10 534 Payments made from provision for non-credit related commitments

during the year (12 873) (9 189) Provision for non-credit related commitments as at 31 December 21 1 310 2 887

Capital commitments. As at 31 December 2013, the Group had contractual commitments for renovation of buildings and purchase of equipment and motor vehicles in the total amount of RUB 12 912 thousand (2012: RUB 684 thousand)

Fiduciary assets. These assets are not included in the consolidated statement of financial position as they are not assets of the Group. Nominal values disclosed below are normally different from the fair values of respective securities. The fiduciary assets fall into the following categories:

2013 2012

Ordinary shares of OJSC Zapsibcombank 1 046 844 1 071 338 Corporate shares in custody 479 000 445 224 Corporate bonds 11 064 68 745 Units 1 893 1 893 Preference shares of OJSC Zapsibcombank 149 149


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36. Fair Value of Financial Instruments

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 Group’s financial instruments, their fair value shall be estimated based on current market conditions and the specific risks attributable to the instrument. The estimates presented below are not necessarily indicative of the amounts the Group 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 Group’s financial instruments as at 31 December 2013 and 31 December 2012:

2013 2012

Carrying

value Fair value Carrying

value Fair value

Financial assets Cash and cash equivalents 16 641 162 16 641 162 17 092 797 17 092 797 Financial assets at fair value through profit

or loss 57 891 57 891 56 562 56 562 Due from other banks 1 223 242 1 221 504 3 455 332 3 451 067 Loans to customers 64 775 015 66 490 168 51 749 519 51 731 455 Net investment in leases 1 303 807 1 303 807 1 106 369 1 106 369 Financial assets available for sale 4 185 031 4 185 031 4 328 016 4 328 016 Investments held to maturity 1 356 505 1 393 159 1 356 245 1 404 094

Financial liabilities Due to other banks 308 709 308 709 288 443 288 443 Customer accounts 77 355 956 78 072 698 69 374 532 70 542 826 Debt securities issued 2 095 717 2 176 348 2 166 367 2 196 288 Other borrowed funds 500 100 511 657 587 100 591 667

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

Financial instruments carried at fair value. Cash and cash equivalents and financial assets at fair value through profit or loss and financial assets available for sale are carried in the consolidated statement of financial position at their fair value determined based on market quotations. Certain financial assets available for sale for which there are no available independent quotations have been fair valued by the Group based on the results of the analysis of financial data about investees.

Due from other banks. The fair value of due from other banks maturing within three months approximates their carrying amount because of their relatively short-term maturity. The Group’s management believes that the fair values of due from other banks as at 31 December 2013 and 31 December 2012 do not materially differ from respective carrying amounts. This is primarily due to the short-term nature of investments and 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. The estimated fair value of fixed interest rate promissory notes maturing within three months is based on discounted cash flows using weighted average interest rates published in the Bulletin of Banking Statistics on debt instruments with similar maturity (the interest rates vary from 3.3% to 9.5% (2012: from 0.1% to 9.9%) depending on maturity).

Loans to customers. Loans to customers are reported net of impairment provision. 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 interest rates for new loan proposals (the interest rates vary from 7.5% to 25.0% (2012: from 10.2% to 23.37%)).

Investments held to maturity. The fair value of investments held to maturity is based on market quotations

Due to other banks. The fair value of due to other banks maturing within three months approximates the carrying amount due to their relatively short-term maturity. The management of the Group believes that fair values of due to other banks as at 31 December 2013 and 31 December 2012 do not materially differ from their carrying amounts, which is primarily due to the short-term nature of these liabilities.


92

Customer accounts. The estimated fair values of liabilities with no stated maturity are amounts 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 liabilities and maturity (the interest rates vary from 1.38% to 11.16% (2012: from 1.23% to 9.33%) depending on the currency and maturity of the instrument).

Debt securities issued. The fair value of fixed interest bearing financial liabilities carried at amortised cost is based on discounted cash flows using weighted average interest rates published in the Bulletin of Banking Statistics on debt instruments with similar maturity (2013: 10,9% (2012: from 7,3% to 10,5%)). The fair value of quoted debt securities is based on their market quotations.

Other borrowed funds. The estimated fair value of other borrowed funds of the Group approximates their carrying amount as these instruments do not have market quotations and are attracted on special terms. The fair value of other borrowed funds is based on discounted cash flows using the effective rates (the interest rates vary from 6.48% to 7.46% (2012: from 6.00% to 10.50%)).

Below is the fair value hierarchy of financial assets as at 31 December 2013. Level 1 includes financial assets which are traded in an active market, whose fair values are measured based on market quotations:

Level 1 Total

Financial assets at fair value through profit or loss 57 891 57 891 Financial assets available for sale 3 774 238 3 774 238

Below is the fair value hierarchy of financial assets as at 31 December 2012:

Level 1 Total

Financial assets at fair value through profit or loss 56 562 56 562 Financial assets available for sale 3 917 193 3 917 193


93

37. Reconciliation of Classes of Financial Instruments with Measurement Categories

In accordance with IAS 39 “Financial Instruments: Recognition and Measurement” the Group classifies its financial assets in the following categories: 1) financial assets at fair value through profit or loss; 2) investments held to maturity; 3) loans and receivables; 4) financial assets available for sale.

At the same time, in accordance with IFRS 7 “Financial Instruments: Disclosure” the Group 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 2013:


through profit or loss

Investments held to

maturity Loans and

receivables

Financial assets

available for sale Total

Assets Cash and cash equivalents 16 641 162 - - - 16 641 162 Financial assets at fair value through profit or

loss - Government and municipal debt securities 27 190 - - - 27 190 - Corporate equity securities 30 701 - - - 30 701 Due from other banks - Promissory notes of other banks - - 705 652 - 705 652 - Guarantee fund with payment systems - - 517 590 - 517 590 Loans to customers - Mortgage loans to individuals - - 24 044 216 - 24 044 216 - Consumer loans to individuals - - 20 141 722 - 20 141 722 - Corporate loans - - 14 991 618 - 14 991 618 - Housing loans to individuals - - 2 356 976 - 2 356 976 - Loans to individual entrepreneurs - - 1 585 676 - 1 585 676 - Car loans to individuals - - 1 026 735 - 1 026 735 - Loans to government and municipal authorities - - 628 072 - 628 072 Net investments in leases - - 1 303 807 - 1 303 807 Financial assets available for sale - Government debt securities - - - 2 026 900 2 026 900 - Corporate debt securities - - - 1 367 088 1 367 088 - Corporate equity securities - - - 791 043 791 043 Investments held to maturity - Government debt securities - 1 356 505 - - 1 356 505 Investments in non-consolidated subsidiaries - - - 10 10 Total financial assets 16 699 053 1 356 505 67 302 064 4 185 041 89 542 663 Non-financial assets 4 752 213 Total assets 94 294 876


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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

Investments held to

maturity Loans and

receivables

Financial assets

available for sale Total

Assets Cash and cash equivalents 17 092 797 - - - 17 092 797 Financial assets at fair value through profit

or loss - Government and municipal debt securities 27 768 - - - 27 768 - Corporate equity securities 28 794 - - - 28 794 Due from other banks - Promissory notes of other banks - - 2 732 995 - 2 732 995 - Guarantee fund with payment systems - - 414 277 - 414 277 - Deposits with other banks - - 300 119 - 300 119 - Cover of letters of credit - - 7 941 - 7 941 Loans to customers - Mortgage loans to individuals - - 20 358 706 - 20 358 706 - Consumer loans to individuals - - 14 290 841 - 14 290 841 - Corporate loans - - 12 828 260 - 12 828 260 - Housing loans to individuals - - 1 657 230 - 1 657 230 - Loans to individual entrepreneurs - - 1 268 051 - 1 268 051 - Car loans to individuals - - 813 026 - 813 026 - Reverse repo agreements - - 533 021 - 533 021 - Loans to government and municipal

authorities - - 384 - 384 Net investments in leases - - 1 106 369 - 1 106 369 Financial assets available for sale - Government debt securities - - - 2 045 565 2 045 565 - Corporate debt securities - - - 1 655 866 1 655 866 - Corporate equity securities - - - 626 585 626 585 Investments held to maturity - Government debt securities - 1 356 245 - - 1 356 245 Investments in non-consolidated

subsidiaries - - - 10 10 Total financial assets 17 149 359 1 356 245 56 311 220 4 328 026 79 144 850 Non-financial assets 4 554 398 Total assets 83 699 248

All financial liabilities of the Group are carried at amortised cost.


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38. Related Party Transactions

For the purposes of these consolidated 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 Group enters into transactions with its major shareholders, directors, and other related parties. These transactions include settlements, issuance of loans, deposit taking, issuance of guarantees, trade finance and foreign currency transactions. According to the Group’s policy, the terms of related party transactions are equivalent to those prevailing in arm’s length transactions.

The outstanding balances at the year end and asset transactions with related parties for 2013 are as follows:

Shareholders

Directors and key

management personnel Other Total

Loans to customers Loans to customers as at 1 January

(gross) 1 158 195 42 721 3 400 1 204 316 Loans to customers issued during the

year 2 455 247 28 224 - 2 483 471 Loans to customers repaid during the

year (2 784 730) (50 408) (1 200) (2 836 338) Total loans to customers as at 31 December (gross) 828 712 20 537 2 200 851 449

Provision for impairment of loans to customers

Provision for impairment of loans to customers as at 1 January 116 248 4 733 141 121 122

(Recovery of provision)/provision for impairment of loans to customers during the year (96 068) (4 726) (114) (100 908)

Provision for impairment of loans to customers as at 31 December 20 180 7 27 20 214

Loans to customers as at 1 January

(less provision for impairment) 1 041 947 37 988 3 259 1 083 194 Loans to customers as at 31 December (less provision for

impairment) 808 532 20 530 2 173 831 235


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

Shareholders

Directors and key


Loans to customers Loans to customers as at 1 January (gross) 1 241 796 36 198 4 600 1 282 594 Loans to customers issued during the year 968 844 54 394 - 1 023 238 Loans to customers repaid during the year (1 052 445) (47 871) (1 200) (1 101 516) Loans to customers as at

31 December (gross) 1 158 195 42 721 3 400 1 204 316

Provision for impairment of loans to customers Provision for impairment of loans to customers as

at 1 January 118 164 939 471 119 574 (Recovery of provision)/provision for impairment of

loans to customers during the year (1 916) 3 794 (330) 1 548 Provision for impairment of loans to customers as

at 31 December 116 248 4 733 141 121 122 Loans to customers as at 1 January

(less provision for impairment) 1 123 632 35 259 4 129 1 163 020 Loans to customers as at 31 December (less provision for impairment) 1 041 947 37 988 3 259 1 083 194

The outstanding balances at the year end and liability transactions with related parties for 2013 are as follows:

Shareholders

Directors and key


Customer accounts Customer accounts as at 1 January 419 342 368 626 1 835 789 803 Customer accounts received during the

year 25 367 284 1 922 050 818 627 28 107 961 Customer accounts repaid during the year (25 388 187) (1 746 742) (791 743) (27 926 672) Customer accounts as at 31 December 398 439 543 934 28 719 971 092

Other borrowed funds Other borrowed funds as at 1 January 8 000 - - 8 000 Other borrowed funds received during the

year - - - - Other borrowed funds repaid during the

year - - - - Other borrowed funds as at

31 December 8 000 - - 8 000


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

Shareholders

Directors and key


Customer accounts Customer accounts as at 1 January 229 378 334 793 5 972 570 143 Customer accounts received during the

year 56 351 595 1 477 908 1 198 605 59 028 108 Customer accounts repaid during the year (56 161 631) (1 444 075) (1 202 742) (58 808 448) Customer accounts as at 31 December 419 342 368 626 1 835 789 803

Other borrowed funds Other borrowed funds as at 1 January 8 000 - - 8 000 Other borrowed funds received during the

year - - - - Other borrowed funds repaid during the

year - - - - Other borrowed funds as at

31 December 8 000 - - 8 000

Below are other rights and obligations arising from related party transactions as at 31 December 2013:

Shareholders

Directors and key


Guarantees and sureties received by the Group 43 636 34 677 - 78 313

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

Shareholders

Directors and key


Guarantees and sureties received by the Group 80 572 58 870 - 139 442 Below are income and expense items arising from related party transactions for the year 2013:

Shareholders

Directors and key


Interest income 104 537 2 234 422 107 193 Interest expense (72 891) (43 264) (173) (116 328) Fee and commission income 644 456 84 1 184 Operating income 15 158 - - 15 158 Operating expenses (3) (233) (96) (332) Gains less losses from dealing in

foreign currency 36 81 - 117


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

Shareholders

Directors and key


Interest income 130 078 4 830 601 135 509 Interest expense (60 673) (53 728) (52) (114 453) including on debt securities issued (42) - - (42) Fee and commission income 757 154 43 954 Operating income 39 24 - 63 Operating expenses - (22) - (22) Gains less losses from dealing in foreign

currency 144 154 - 298

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

2013 2012 Expenses Accrued liability Expenses Accrued liability

Short-term payments: - Salaries 63 891 22 485 59 768 19 198 - Short-term bonuses 165 794 117 545 144 693 96 188 - Other short-term payments 67 730 - 56 262 - - Anniversary bonuses 304 - - - Share-based payments: Dividends 17 142 - 8 351 - Total 314 861 140 030 269 074 115 386

The insurance contributions accrued on the key management personnel remuneration paid in 2013 amounted to RUB 23 840 thousand (2012: RUB 21 176 thousand).

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

39. Subsequent Events

On 31 January 2014 the Board of Directors took a decision to recommend to the Annual General Shareholders’ Meeting that dividends on the Bank’s placed shares for the year 2013 should be paid from the net profit earned by the Bank, based on the following rates and procedure:

- 30% per annum of the nominal value on preference registered uncertified shares (or RUB 3 per share) with state registration number 20100918B;

- 100% per annum of the nominal value on preference registered uncertified shares (or RUB 10 per share) with state registration number 20200918B;

- on ordinary registered uncertified shares with state registration number 10600918B in the amount of RUB 1.24 per ordinary share.

The total amount of net profit, which on the recommendation of the Board of Directors will be allocated for payment of dividends for the year 2013, will be RUB 149 827 thousand.

Dividend pay-outs for 2013 and replenishment of the reserve fund will be considered at the upcoming Annual General Shareholders’ Meeting of OJSC Zapsibcombank.

On 20 January 2014, Additional office No. 3 “Arctic” of the Salekhard branch of OJSC Zapsibcombank was opened at the following address: 60, Republic’s Street, Salekhard, Yamalo-Nenets Administrative District.

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