AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS BEGINNING ON PAGE 15.

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1 U.S.$10,000,000,000 Programme for the Issuance of Loan Participation Notes to be issued by, but with limited recourse to, GPB EUROBOND FINANCE PLC for the purpose of financing loans to Gazprombank (Open Joint-stock Company) Under the Programme for the Issuance of Loan Participation Notes (the Programme ) described in this base prospectus (the Base Prospectus ), GPB Eurobond Finance PLC (the Issuer ), subject to compliance with all relevant laws, regulations and directives, may from time to time issue loan participation notes (the Notes ) on the terms set out herein and in final terms (each such final terms Final Terms ) setting out the specific terms of each issue. The aggregate principal amount of Notes outstanding will not at any time exceed U.S.$10,000,000,000 (or the equivalent in other currencies). Notes will be issued in Series (as defined in Overview of the Programme ) and the sole purpose of issuing each Series will be to finance either a senior loan (a Senior Loan ) or a subordinated loan (a Subordinated Loan and, together with a Senior Loan, the Loans and each a Loan ) to Gazprombank (Open Joint-stock Company) (formerly Joint-stock Bank of the Gas Industry Gazprombank (Closed Joint-stock Company)) ( Gazprombank, we or the Borrower ) as borrower, on the terms of either: (i) in relation to a Senior Loan, an amended and restated facility agreement between the Issuer and Gazprombank dated 23 September 2011 (the Facility Agreement ), as amended and supplemented by a loan supplement to be entered into in respect of each Loan on or before each issue date (the Issue Date ) of the relevant Series (each a Loan Supplement and, together with the Facility Agreement, the Senior Loan Agreement ), or (ii) in relation to a Subordinated Loan, a subordinated loan agreement between the Issuer and Gazprombank to be dated on or before the Issue Date of the relevant Series (the Subordinated Loan Agreement ). In this Base Prospectus, Loan Agreement shall mean either (i) a Senior Loan Agreement (in respect of a Senior Loan) or (ii) a Subordinated Loan Agreement (in respect of a Subordinated Loan), as applicable. The relevant Final Terms in respect of the issue of any Series of Notes will specify whether a Loan being financed by such Series of Notes is a Senior Loan (such Series of Notes being a Senior Series ) or a Subordinated Loan (such Series of Notes being a Subordinated Series ). Subject as provided in the Trust Deed (as defined herein) the Issuer will (a) charge, in favour of Citicorp Trustee Company Limited as trustee (the Trustee ), by way of a first fixed charge as security for its payment obligations in respect of each Series of Notes and under the Trust Deed, certain of its rights and interests under the relevant Loan Agreement and the relevant Account (as defined in the relevant Loan Supplement or the Subordinated Loan Agreement, as the case may be), but excluding any Reserved Rights (as defined in the Trust Deed), and (b) assign, in favour of the Trustee, certain of its other rights under the relevant Loan Agreement but excluding any Reserved Rights, in each case for the benefit of the holders of the corresponding Series of Notes (the Noteholders ), all as more fully described under Overview of the Programme. In each case where amounts of principal, interest and additional amounts (if any) are stated to be payable in respect of a Series of Notes, the obligation of the Issuer to make any such payment constitutes an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of such Series of Notes, for an amount equivalent to all principal, interest and additional amounts (if any) actually received and retained (net of tax) from Gazprombank by or for the account of the Issuer pursuant to the relevant Loan Agreement, less any amounts in respect of the Reserved Rights. The Issuer will have no other financial obligation under the Notes. Noteholders will be deemed to have accepted and agreed that they will be relying solely on the credit and financial standing of Gazprombank in respect of the payment obligations of the Issuer under the Notes. This Base Prospectus supersedes and replaces the Base Prospectus dated 23 September AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS BEGINNING ON PAGE 15. THE NOTES AND THE CORRESPONDING LOANS HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE SECURITIES ACT ), AS AMENDED AND, SUBJECT TO CERTAIN EXCEPTIONS, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ( REGULATION S )). THE NOTES MAY BE OFFERED AND SOLD TO NON-U.S. PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S (THE REGULATION S NOTES ). THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY ACT. FOR A DESCRIPTION OF THESE AND CERTAIN FURTHER RESTRICTIONS, SEE SUBSCRIPTION AND SALE AND TRANSFER RESTRICTIONS. Each of Moody s Investors Services Ltd. ( Moody s ) and Standard & Poor s Credit Market Services Europe Limited ( Standard & Poor s ) is established in the European Union and is registered under Regulation 1060/2009/EC (the "CRA Regulation"). The Programme has been assigned a rating of Baa3 by Moody s, and the Programme will also be rated by Standard & Poor s. The rating of certain Series of Notes to be issued under the Programme may be specified in the applicable Final Terms. Whether or not each credit rating applied for in relation to relevant Series of Notes will be issued by a credit rating agency established in the European Union and registered under the CRA Regulation will be disclosed in the Final Terms. Please also refer to Risk Factors Ratings of the Notes. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. This Base Prospectus has been approved by the Central Bank of Ireland (the Central Bank ) as competent authority under Directive 2003/71/EC (the Prospectus Directive ). The Central Bank only approves this Base Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application will be made to the Irish Stock Exchange (the Irish Stock Exchange ) for the Notes issued under the Programme within 12 months of the date of approval of this Base Prospectus to be admitted to the official list (the Official List ) and trading on its regulated market (the Main Securities Market ). The Main Securities Market is a regulated market for the purposes of the Markets in Financial Instruments Directive 2004/39/EC. Such approval relates only to the Series of Notes which are to be admitted to trading on the Main Securities Market or other regulated markets for the purposes of Directive 2004/39/EC or which are to be offered to the public in any Member State of the European Economic Area. Unlisted Notes may also be issued pursuant to the Programme. The relevant Final Terms in respect of the issue of any Notes will specify whether or not such Notes will be listed on the Irish Stock Exchange (or any other stock exchange) and admitted to the Official List and trading on the Main Securities Market (or any other market). Any reference in this Base Prospectus to listing shall be interpreted as listing and admission to trading. Notes of each Series will initially be represented by interests in a global unrestricted Note in registered form, without interest coupons, which will be deposited with a common depositary for, and registered in the name of a nominee of, Euroclear Bank SA/NV ( Euroclear ) and Clearstream Banking, société anonyme ( Clearstream, Luxembourg ) on its Issue Date. Beneficial interests in a Global Note will be shown on, and transfers thereof will be effected only through records maintained by, Euroclear or Clearstream, Luxembourg. See Summary of the Provisions Relating to the Notes in Global Form. Individual definitive Notes in registered form will only be available in certain limited circumstances as described herein. The price and amount of Notes to be issued under the Programme will be determined by the Issuer, Gazprombank and the relevant Dealer at the time of issue in accordance with prevailing market conditions. The minimum denomination of any Notes issued under the Programme shall be EUR100,000 (or its equivalent in any other currency as at the date of issue of the Notes). Arranger Goldman Sachs International Permanent Dealers Crédit Agricole CIB Goldman Sachs International Mitsubishi UFJ Securities The date of this Base Prospectus is 23 April 2012

2 This Base Prospectus comprises a base prospectus for the purposes of Article 5 of Directive 2003/71/EC and for the purpose of giving information with regard to the Issuer, Gazprombank and its subsidiaries taken as a whole (the Group ) which, according to the particular nature of the Issuer, Gazprombank, the Group, the Notes and the relevant Loan, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer, Gazprombank and the Group. Each of the Issuer and Gazprombank accepts responsibility for the information contained in this Base Prospectus. To the best of the knowledge of each of the Issuer and Gazprombank (having taken all reasonable care to ensure that such is the case) the information contained in this Base Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. In addition, Gazprombank, having made all reasonable enquiries, confirms that (i) this Base Prospectus contains all information with respect to Gazprombank, the Group, the relevant Loans and the Notes that is material in the context of the issue and offering of the Notes; (ii) the statements contained in this Base Prospectus relating to Gazprombank and the Group are in every material particular true and accurate and not misleading; (iii) the opinions, expectations and intentions expressed in this Base Prospectus with regard to Gazprombank and the Group are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions; (iv) there are no other facts in relation to Gazprombank, the Group, the relevant Loans or the Notes the omission of which would, in the context of the issue and offering of the Notes, make any statement in this Base Prospectus misleading in any material respect; and (v) all reasonable enquiries have been made by Gazprombank to ascertain such facts and to verify the accuracy of all such information and statements. Accordingly, save as set out in the immediately preceding sentence and below, Gazprombank accepts responsibility for the information contained in this Base Prospectus. Gazprombank s legal name is Gazprombank (Open Joint-stock Company) and the address of its registered office and its head office is 16 Block 1, Nametkina Street, Moscow , the Russian Federation. The telephone number of the registered office and head office is The Issuer s legal name is GPB Eurobond Finance PLC, registered as a public company with limited liability under the Companies Act of Ireland under number , and the address of its registered office is 5 Harbourmaster Place, IFSC, Dublin 1, Ireland. The telephone number of the Issuer s registered office is Information under Banking Sector and Banking Regulation in the Russian Federation and information relating to OAO Gazprom ( Gazprom ) and its subsidiaries taken as a whole (the Gazprom Group ) includes extracts from information and data publicly released by official and other sources (including, inter alia, the Central Bank of the Russian Federation (the CBR )). The Issuer and Gazprombank accept responsibility for accurately reproducing such information and data. So far as the Issuer and Gazprombank are able to ascertain from this publicly available information, no facts have been omitted which would render the reproduced information misleading or inaccurate. This Base Prospectus does not constitute an offer of, or an invitation by or on behalf of, the Issuer, Gazprombank, the Group, the Trustee, the Dealers or the Arrangers (each as defined under Overview of the Programme ) to subscribe for or purchase any of the Notes. The distribution of this Base Prospectus and the offer or sale of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Base Prospectus comes are required by the Issuer, Gazprombank, the Group, the Dealers and the Arrangers to inform themselves about and to observe any such restrictions. Further information with regard to restrictions on offers and sales of the Notes and the distribution of this Base Prospectus is set out under Subscription and Sale. No person is authorised to provide any information or make any representation not contained in this Base Prospectus and any information or representation not contained in this Base Prospectus and any information or representation so contained must not be relied upon as having been authorised by or on behalf of the Issuer, Gazprombank, the Group, the Trustee, any of the Dealers or the Arrangers. The delivery of this Base Prospectus at any time does not imply that the information contained in it is correct as at any time subsequent to its date. The websites of Gazprombank and other members of the Group do not form any part of the contents of this Base Prospectus. Neither the delivery of this Base Prospectus nor the offer, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer, Gazprombank or the Group since the date of this Base Prospectus. None of the Issuer, Gazprombank, the Trustee, the Group, the Arrangers or the Dealers or any of the respective representatives is making any representation to any offeree or purchaser of the Notes regarding the legality of an ii

3 investment by such offeree or purchaser under relevant legal investment or similar laws. Each investor should consult with its own advisers as to the legal, tax, business, financial and related aspects of the purchase of the Notes. Prospective purchasers must comply with all laws that apply to them in any place in which they buy, offer or sell any Notes or possess this Base Prospectus. Any consents or approvals that are needed in order to purchase any Notes must be obtained. Gazprombank, the Group, the Issuer, the Arrangers and the Dealers are not responsible for compliance with these legal requirements. The appropriate characterisation of any Notes under various legal investment restrictions, and thus the ability of investors subject to these restrictions to purchase such Notes, is subject to significant interpretative uncertainties. No representation or warranty is made as to whether or the extent to which any Notes constitute a legal investment for investors whose investment authority is subject to legal restrictions. Such investors should consult their legal advisers regarding such matters. This Base Prospectus is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order ) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons ). The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Notes will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. The language of this Base Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. In connection with the issue of any Series of Notes, one of the Dealers (or persons acting on its behalf), if any, will act as the stabilising manager (the Stabilising Manager ), as disclosed in the relevant Final Terms. Such Stabilising Manager (or persons acting on its behalf) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that such Stabilising Manager (or persons acting on its behalf) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of a Series of Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of such Series of Notes and 60 days after the date of allotment of such Series of Notes. Any stabilisation action or over-allotment must be conducted by such Stabilising Manager (or persons acting on its behalf) in accordance with all applicable laws and rules. This Base Prospectus has been filed with and approved by the Central Bank as required by the Prospectus (Directive 2003/71/EC) Regulations 2005 (the Prospectus Regulations ). The Base Prospectus approved by the Central Bank will be filed with the Irish Companies Registration Office in accordance with Regulation 38(1)(b) of the Prospectus Regulations. The Issuer is not and will not be regulated by the Central Bank as a result of issuing the Notes. Any investment in the Notes does not have the status of a bank deposit and is not within the scope of the deposit protection scheme operated by the Central Bank. THE DEALERS AND ARRANGERS HAVE NOT SEPARATELY VERIFIED THE INFORMATION CONTAINED IN THIS BASE PROSPECTUS. NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE BY THE DEALERS OR THE ARRANGERS AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION SET FORTH IN THIS DOCUMENT, AND NOTHING CONTAINED IN THIS DOCUMENT IS, OR SHALL BE RELIED UPON AS, A PROMISE OR REPRESENTATION, WHETHER AS TO THE PAST OR THE FUTURE. NONE OF THE DEALERS OR THE ARRANGERS ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN THIS BASE PROSPECTUS. EACH PERSON CONTEMPLATING MAKING AN INVESTMENT IN ANY NOTES ISSUED UNDER THIS PROGRAMME FROM TIME TO TIME MUST MAKE ITS OWN INVESTIGATION AND ANALYSIS OF THE CREDITWORTHINESS OF GAZPROMBANK AND THE ISSUER AND ITS OWN DETERMINATION OF THE SUITABILITY OF ANY SUCH INVESTMENT, WITH PARTICULAR REFERENCE TO ITS OWN INVESTMENT OBJECTIVES AND EXPERIENCE AND ANY OTHER FACTORS WHICH MAY BE RELEVANT TO IT IN CONNECTION WITH SUCH INVESTMENT. iii

4 TABLE OF CONTENTS ENFORCEABILITY OF CIVIL LIABILITIES IN RUSSIA...1 SUPPLEMENTAL BASE PROSPECTUS...2 PRESENTATION OF FINANCIAL AND OTHER INFORMATION...3 FORWARD-LOOKING STATEMENTS...4 DOCUMENTS INCORPORATED BY REFERENCE...5 OVERVIEW OF GAZPROMBANK...6 OVERVIEW OF THE PROGRAMME...9 RISK FACTORS...15 USE OF PROCEEDS...44 BUSINESS...45 FINANCIAL REVIEW...58 MANAGEMENT AND EMPLOYEES...81 PRINCIPAL SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...87 BANKING SECTOR AND BANKING REGULATION IN THE RUSSIAN FEDERATION...88 THE ISSUER FACILITY AGREEMENT TERMS AND CONDITIONS OF THE NOTES SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM SUBSCRIPTION AND SALE TAXATION TRANSFER RESTRICTIONS FORM OF FINAL TERMS GENERAL INFORMATION INDEX TO FINANCIAL STATEMENTS...F-1 Page iv

5 ENFORCEABILITY OF CIVIL LIABILITIES IN RUSSIA Gazprombank is an open joint-stock company incorporated under the laws of the Russian Federation. Substantially all of Gazprombank s assets are currently located outside the United Kingdom. In addition, most of directors and executive officers of Gazprombank are residents of countries other than the United Kingdom. As a result, it may not be possible for investors to: effect service of process within the United Kingdom upon any of Gazprombank s directors or executive officers named in this Base Prospectus; or enforce, in courts located within the United Kingdom, judgments obtained in courts in jurisdictions located outside the United Kingdom against Gazprombank or any of its respective directors or executive officers in any action. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United Kingdom, liabilities predicated upon English law. Judgments rendered by a court in any jurisdiction outside the Russian Federation will be recognised by courts in Russia only if an international treaty providing for the recognition and enforcement of judgments in civil cases exists between the Russian Federation and the country where the judgment is rendered. No such treaty for the reciprocal enforcement of foreign court judgments in civil and commercial matters exists between the Russian Federation and most Western jurisdictions (including the United Kingdom), which may require new proceedings to be brought in the Russian Federation in respect of a judgment already obtained in any such jurisdiction against Gazprombank or its directors or executive officers. However, most recent case law suggests that recognition and enforcement may be possible even in the absence of an international treaty, bilateral or multilateral, on the grounds of international comity and reciprocity. Nevertheless, it is unclear to what extent this case law can be applicable to the enforcement of English court judgments. In addition, Russian courts have limited experience in the enforcement of foreign court judgments. The limitations described above, including the general statutory grounds set out in Russian legislation for the refusal to recognise and enforce foreign court judgments in the Russian Federation, may significantly delay the enforcement of any such judgment, or completely deprive the plaintiff of effective legal recourse. The Arbitrazh Procedural Code of the Russian Federation sets forth procedures for the recognition and enforcement of judgments and grounds for refusal of such recognition and enforcement in the event that such a treaty or federal law was adopted. However, Russian procedural law may change further, and other grounds for refusal of the recognition and enforcement of foreign court judgments could arise in the future. The relevant Loan Agreements will be governed by English law and provide for disputes, controversies and causes of action brought by any party thereto against Gazprombank to be settled by the courts of England or by arbitration in accordance with the Rules of the London Court of International Arbitration. The Russian Federation is a party to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards of However, it may be difficult to enforce arbitral awards in the Russian Federation due to the relative inexperience of the Russian courts in international commercial transactions and political resistance to the enforcement of awards against Russian companies in favour of foreign investors. Enforcement can also be limited by the mandatory provisions of Russian laws relating to the exclusive jurisdiction of Russian courts and the application of Russian laws with respect to bankruptcy, winding-up or liquidation of Russian companies and credit organisations in particular. See Risk Factors Risks Relating to the Russian Legal System Foreign judgments may not be enforceable against us. 1

6 SUPPLEMENTAL BASE PROSPECTUS Gazprombank will, in connection with the listing of the Notes on the Irish Stock Exchange, so long as any Note remains outstanding and listed on such exchange, in the event of any significant new factor, material mistake or inaccuracy relating to the information contained in this Base Prospectus, prepare a supplement to this Base Prospectus or publish a new Base Prospectus for use in connection with any subsequent issue of the Notes to be listed on the Irish Stock Exchange. The Issuer and Gazprombank may agree with any Dealer that a Series of Notes may be issued in a form not contemplated by the Terms and Conditions herein, in which event a supplemental Base Prospectus, if appropriate, will be published which will describe the effect of the agreement reached in relation to such Notes. The Issuer and Gazprombank may agree with any Dealer the form of any future Subordinated Loan Agreement, in which event a supplemental Base Prospectus will be published for use in connection with any subsequent issue of any Subordinated Series to be listed on the Irish Stock Exchange. 2

7 PRESENTATION OF FINANCIAL AND OTHER INFORMATION This Base Prospectus includes (i) the Group s audited consolidated financial statements as at and for the year ended 31 December 2011 (the 2011 Financial Statements ) together with an independent auditors report of ZAO KPMG, the Group s independent auditors, and (ii) the Group s audited consolidated financial statements as at and for the year ended 31 December 2010 (the 2010 Financial Statements and, together with the 2011 Financial Statements, the Financial Statements ) together with an independent auditors report of ZAO KPMG, the Group s independent auditors. ZAO KPMG has expressed unqualified opinions on the 2011 Financial Statements and 2010 Financial Statements as stated in its audit reports appearing herein. The address of ZAO KPMG is Naberezhnaya Tower Complex, Block C, 10 Presnenskaya Naberezhnaya, Moscow, , Russian Federation. The Financial Statements contained in this Base Prospectus have been prepared in accordance with International Financial Reporting Standards ( IFRS ). In the year ended 31 December 2010, the Group de-consolidated OAO SIBUR Holding ( SIBUR Holding ) and certain operations of Centrex Europe Energy & Gas AG ( Centrex ). In the 2010 Financial Statements these operations are shown as discontinued operations, and the comparative profit and loss information of the Group for the year ended 31 December 2009 was re-presented to comply with the disclosure requirements of IFRS. As a result, the profit and loss information in the 2009 Group Financials is not comparable to the profit and loss information in the 2010 Group Financials. See Note 35 to the 2010 Group Financials. The audited financial statements of the Issuer as at and for the years ended 31 August 2010 and 2011 and the relevant independent auditors reports of Deloitte & Touche which have been filed with the Irish Stock Exchange, shall be deemed to be incorporated in, and form part of, this Base Prospectus. See Documents Incorporated by Reference. Deloitte & Touche have expressed an unqualified opinion on the statements of the Issuer incorporated by reference herein, as stated in the relevant reports. The address of Deloitte & Touche in Ireland is Earlsfort Terrace, Dublin 2, Ireland. The audited financial statements of the Issuer incorporated by reference into this Base Prospectus have been prepared in accordance with IFRS. In this Base Prospectus, references to Roubles, Russian Roubles and RUB are to the lawful currency for the time being of the Russian Federation, references to U.S. dollars and U.S.$ are to the lawful currency for the time being of the United States of America, references to GBP are to the lawful currency for the time being of the United Kingdom, references to CHF or Swiss Francs are to the lawful currency of Switzerland and references to euro and EUR are to the lawful currency for the time being of the member states of the European Union that adopted the single currency in accordance with the Treaty of Rome establishing the European Community, as amended from time to time. This Base Prospectus contains conversions of certain amounts from Roubles into U.S. dollars at the conversion rates quoted by the CBR as follows: assets and liabilities as at a certain date have been translated a the official rate of the CBR as at that date; and income and expenses for the period have been translated at the average official rate of the CBR during that period. The Rouble/U.S. dollar exchange rate, published by the CBR and expressed as a number of Roubles per U.S.$1.00, was RUB , RUB and RUB as at 31 December 2011, 2010 and 2009, respectively. The average Rouble/U.S. dollar exchange rate (based on the average of the exchange rates on each day for which the CBR quotes the Rouble/U.S. dollar exchange rate) expressed as a number of Roubles per U.S.$1.00 for 2011, 2010 and 2009 was RUB29.38, RUB and RUB , respectively. As at 21 April 2012, the Rouble/U.S. dollar exchange rate was RUB per U.S.$1.00. No representation is made that the Rouble or U.S. dollar amounts referred to herein could have been or could be converted into Roubles or U.S. dollars, as the case may be, at these rates, at any particular rate or at all. The functional currency of the Group is the Russian Rouble. Certain figures included in this Base Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them. 3

8 FORWARD-LOOKING STATEMENTS This Base Prospectus contains forward-looking statements that relate to, without limitation, Gazprombank s plans, objectives, goals, strategies, future operations and performance. These forward-looking statements are characterised by words such as anticipates, estimates, expects, believes, intends, plans, may, will, should and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause circumstances or actual results, performance or achievements to be materially different from any future circumstances, results, performance or achievements expressed or implied by such statements. Such forward-looking statements are inherently based on numerous assumptions regarding, among other things: the performance of the Russian economy; the Group s ability to remain competitive in the banking industry; the effects of changes in laws, regulations, taxation or accounting standards or practices; the Group s ability to comply with CBR mandatory economic ratio requirements and continue to participate in the system of mandatory insurance of retail bank deposits in Russia; the Group s ability to continue to diversify its customer base beyond the Gazprom Group and the gas industry; the impact of the growth of the loan portfolio on the Group s revenue potential and overall asset quality; the impact of fluctuations of exchange rate and value of securities portfolio; the levels of non-performing loans in the Group's loan portfolio; the Group s ability to meet its funding obligations and develop and maintain additional sources of financing; and the Group's success at managing the risks associated with the aforementioned factors. Gazprombank s management does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. Accordingly, prospective purchasers of the Notes should not rely on these forward-looking statements. The important factors that could cause the Group s actual results, performance or achievements to differ materially from those in these forward-looking statements include, but are not limited to, those discussed in Risk Factors and Business. These forward-looking statements speak only as at the date of this Base Prospectus. Gazprombank expressly disclaims any obligation or undertaking to disseminate after the date of this Base Prospectus any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectation with regard thereto or any change in events, conditions or circumstances on which any such forward-looking statement is based, unless required to do so by applicable law. 4

9 DOCUMENTS INCORPORATED BY REFERENCE The audited financial statements of the Issuer as at and for the years ended 31 August 2010 and 2011 and the independent auditors reports of Deloitte & Touche which have been filed with the Irish Stock Exchange, shall be deemed to be incorporated in, and to form part of, this Base Prospectus. All amendments and supplements to this Base Prospectus prepared by the Issuer from time to time shall be deemed to read in conjunction with this Base Prospectus, provided, however, that any statement contained in this Base Prospectus or in any of the documents incorporated by reference herein and forming part of this Base Prospectus shall be deemed to be modified or superseded for the purpose of this Base Prospectus to the extent that a statement contained in any subsequent document read in conjunction with this Base Prospectus (in the appropriate manner) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Base Prospectus. Copies of documents incorporated by reference in this Base Prospectus can be obtained from the registered office of the Issuer and at the offices of the Paying Agents. 5

10 OVERVIEW OF GAZPROMBANK The following summary should be read in conjunction with, and is qualified in its entirety by reference to, the more detailed information and the Group Financials and notes thereto included elsewhere in this Base Prospectus. Investing in the Notes involves risks. The information set forth under "Risk Factors" should be carefully considered. Certain statements in this Base Prospectus include forward looking statements that also involve risks and uncertainties as described under "Forward-Looking Statements". We were the third largest bank in the Russian Federation in terms of total assets and equity (based on RAS) as at 31 December 2011, according to the Russian Interfax News Agency. As of 31 December 2011, based on IFRS we had total assets of RUB2,477.7 billion, gross loans to customers of RUB1,454.3 billion, total amounts owed to customers of RUB1,430.0 billion and equity of RUB242.9 billion. Our principal business areas are corporate banking, retail banking, investment banking and depositary services. Our activities also include securities trading, foreign exchange operations, precious metals operations, clearing operations and settlement services. The main objective of our strategy is to ensure the balanced growth of our business and the maximisation of shareholder value of Gazprombank Group by diversifying our business, developing along the lines of a universal bank and implementing a client-focused business model. See Strategy. In December 2010 our Board of Directors approved our strategy for the period from 2011 through It is aimed at improving our financial results, significantly increasing the size of our operations and creating value for our shareholders in the context of the rapidly changing economic environment. The implementation of our strategy is now in the phase of detailing strategic plans for individual business lines. Our principal strategic objectives for the period from 2011 through 2015 are the following: Maintaining our leading position in the Russian financial sector: we plan to maintain our position as the third largest Russian bank in terms of total assets. Optimising the structure of our business to increase profitability and stable revenues: we intend to expand our profitable business units and thereby increase the share of stable revenue streams, especially fee based income, in our overall earnings structure. Strengthening our overall capital base: we intend to actively manage our capital structure and increase our capital base as necessary to support healthy future growth. To achieve our strategic goals, we seek to: Strengthen long-term relationships and strategic partnerships with large corporate clients and improve and develop product lines to meet their requirements and develop relationships with medium-sized corporate clients. To ensure that our corporate banking business reflects the needs of our clients, we will continue to refine and improve the quality of service and competitiveness of our banking products and services, and to expand our range of products and services. We seek to offer a client-focused and tailored service in order to strengthen core corporate client relationships and to remain competitive in the changing business environment. Become a leader in the Russian investment banking market and develop investment banking product lines. In order to meet the demands of our clients, we will continue to expand and diversify our offering of investment banking products and services. One priority will be to increase the volume of investment loans offered to our clients, in particular by increasing the volume of project, syndicated and structured finance. We will further promote debt and equity financing services, expand our mergers and acquisitions financing activities, and strengthen our advisory services. Also we will continue to grow our brokerage and asset management services to maximize our fee based income streams. In addition to strengthening our clientoriented products and services, we will continue private equity investments in promising companies in various non-banking industries, although the share of such private equity companies in our total assets may decrease over time as we focus on our core banking activities. Expand and improve the range of retail banking services. One of the key drivers for our retail banking expansion will be improving the technological platforms required for servicing our retail clients. We intend to develop a flexible customer service system, expand the functionality of remote sales channels, implement active sales methods and improve quality of 6

11 service. We also plan to expand the range of services provided to employees of our corporate banking customers. We aim to increase the overall size of our retail loan portfolio primarily by expanding mortgage lending as well as other collateralised lending. Increase our presence in regions, possessing high potential for economic growth and strategically important regions of the Russian Federation as well as a number for foreign countries (primarily CIS). Improve technological efficiency. We plan to continue implementing new technological solutions, necessary for improving sales and expansion of product range across all business lines. Develop human capital. We plan to further improve our organisational structure, procedures for selection and recruitment of qualified employees, professional development of existing employees and develop systems for employee motivation and social guarantees to employees and members of their families. Maintain excellence in risk management. We are committed to maintaining a high level financial stability and will utilise balanced approach to risk taking. Our strategy for the period until 2015 envisages further improvements in our risk management efficiency. We believe that the practice of continuous improvement of our risk management systems will allow us to achieve controlled business growth while maintaining an adequate level of risk. Optimise cost and term structure of our assets and liabilities structure. We provide a broad array of commercial banking services to a variety of our corporate customers, including lending in various currencies, trade finance, settlement and cash management services. One other very important sphere of our relationship with our corporate customers is funding we receive in the form of customer current accounts and term deposits. We provide services to approximately 45,000 corporate clients, including most of the largest Russian companies, e.g. Gazprom, Rosneft, Lukoil and Russian Railways. We offer our retail customers a wide variety of banking products, including credit and payment cards, securities lending, mortgages and car loans. We service over 3 million retail customers. Our key retail customers are the employees of Gazprom Group companies and of our corporate clients. Most loans offered to our retail customers are secured by collateral. Our investment banking activities include capital markets, brokerage, corporate finance and project finance services, asset management and private equity investments. In the course of our investment banking activities we conduct private equity investments in companies from different industries not connected with banking, including Gazprom Media Group and Heavy Machinery Production Companies. We acquire companies for the purpose of making medium-term investments, with the intention of realising gains through their disposal in the future. To date, we believe that we have successfully managed the companies in which we have invested and have realised considerable profits from our holdings in such companies as a whole, although the share of such private equity companies in our total assets may decrease over time as we focus on the core banking activities set out in our strategy as described above. We estimate that we are the leading Russian depositary based on market value of securities in custody. Our depositary network covers over 70 regions of the Russian Federation. Our depositary service provides a comprehensive service for Gazprom's shareholders and also holds securities issued by over 500 Russian companies We have a wide distribution network of 43 branches and over 250 banking outlets located throughout the Russian Federation. We also have ownership interests in several other Russian banks. Our regional network extends to the principal regions and largest financial and industrial centres in the Russian Federation. In addition we are represented in the markets of Belarus, Armenia and Switzerland through ownership interests in three foreign banks: Belgazprombank (Belarus), AREXIMBANK-GAZPROMBANK GROUP (Armenia) and Gazprombank (Switzerland) Ltd (Switzerland). We also have representative offices in India, Mongolia and China. We possess the infrastructure necessary to support our investment banking activities: specialized asset management companies Gazprombank Asset Management (Moscow), GPB Asset Management S.A. (Luxembourg) and an investment company, GPB-Financial Services (Cyprus). 7

12 As at 31 December 2011, our shareholders and their respective holdings comprised non state pension fund Gazfond (50 per cent. plus one share), Gazprom (41.73 per cent.), our employees (0.87 per cent.), 7.40 per cent. represented treasury shares. In February 2012, Gazprom converted its subordinated deposits with us of RUB7,500 million into ordinary shares of Gazprombank as a part of an additional shares placement. We expect that Gazfond and VEB will also convert their subordinated deposits with us of RUB32,500 million and RUB50,000 million, respectively, into ordinary shares as a part of the additional shares placement in As a result, subject to completion of these transactions, Gazprombank s shareholder structure will comprise non-state pension fund Gazfond (47.38 per cent. plus one share), Gazprom (35.54 per cent.), VEB (10.19 per cent.), our employees (0.71 per cent.) and 6.18 per cent. of treasury shares (held by a 100 per cent. subsidiary of Gazprombank). 8

13 OVERVIEW OF THE PROGRAMME The following overview contains basic information about the Notes and the relevant Loans and should be read in conjunction with, and is qualified in its entirety by, the information set forth under Terms and Conditions of the Notes and Facility Agreement appearing elsewhere in this Base Prospectus. The following overview does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this document and, (i) in relation to the terms and conditions of any particular Series of Notes, the applicable Final Terms and (ii) in relation to a Subordinated Series of Notes, the relevant Subordinated Loan Agreement. Words and expressions defined in Terms and Conditions of the Notes below shall have the same meanings in this summary. The Issuer and Gazprombank may agree with any Dealer that Notes may be issued in a form other than that contemplated in Terms and Conditions of the Notes, in which event either a supplement to this Base Prospectus or a prospectus, if appropriate, will be made available that will describe the effect of the agreement reached in relation to such Notes. Each transaction will be structured as a Loan by the Issuer to Gazprombank of a sum equivalent to the gross proceeds of an issue of a Series of Notes. The Issuer will issue Notes to Noteholders for the sole purpose of funding such Loan. Each Series of Notes will be constituted by an amended and restated principal trust deed as supplemented and amended in respect of such Series of Notes by a Supplemental Trust Deed (together, the Trust Deed ), each entered into between the Issuer and the Trustee (as defined below). Pursuant to the Trust Deed the Issuer will (i) charge to the Trustee by way of a first fixed charge as security for a Series of Notes (a) all rights to principal, interest and other amounts payable by Gazprombank under the relevant Loan Agreement, (b) the right to receive all sums which may be payable by Gazprombank under any claim, award or judgment relating to the relevant Loan Agreement and (c) all rights, title and interest in and to all sums of money now or in the future deposited in an account established for the relevant Series of Notes with the Paying Agent in the name of the Issuer (the Account ) including interest from time to time earned thereon and (ii) assign certain of its rights under the relevant Loan Agreement (but, in each case, excluding any Reserved Rights (as defined in the Trust Deed)), to the Trustee for the benefit of the holders of the corresponding Series of Notes. Gazprombank will be obliged to make payments under each Loan to the Issuer in accordance with the terms of the relevant Loan Agreement. Gazprombank will be obliged under the terms of the relevant Loan Agreement to make payments in respect of principal, interest and additional amounts (if any) to the Issuer to the Account. The Issuer will agree in the Trust Deed not to make or consent to any amendment to or any modification or waiver of, or authorise any breach or proposed breach of, the terms of any Loan Agreement, unless the Trustee has given its prior written consent. The Issuer will further agree to act at all times in accordance with any instructions of the Trustee from time to time with respect to each Loan Agreement. Any material amendments, modifications, waivers or authorisations made with the Trustee s consent shall be notified to the Noteholders in accordance with, and as more fully described in Condition 14 (Notices) of the Terms and Conditions of the Notes and shall be binding on the Noteholders. Formal notice of the security interests created by any Trust Deed will be given to Gazprombank and the Paying Agent, who will each be required to acknowledge the same. The Issuer will have no other financial obligations under the relevant Series of Notes and no other assets of the Issuer (including the Issuer s rights with respect to any Loan relating to any other Series of Notes) will be available to Noteholders. Accordingly, all payments to be made by the Issuer under each Series of Notes will be made only from and to the extent of such sums received or recovered and retained (net of tax) by or on behalf of the Issuer or the Trustee from the assets securing such Series. Noteholders shall look solely to such sums for payments to be made by the Issuer under such Notes, the obligation of the Issuer to make payments in respect of such Notes will be limited to such sums and Noteholders will have no further recourse to the Issuer or any of the Issuer s other assets in respect thereof. In the event that the amount due and payable by the Issuer under such Notes exceeds the sums so received or recovered and retained (net of tax), the right of any person to claim payment of any amount exceeding such sums shall be extinguished, and Noteholders may take no further action to recover such amounts. Set out below is a diagrammatic representation of the structure: 9

14 Notes to be Issued under the Programme Issuer GPB Eurobond Finance PLC Gazprombank (as Borrower) Gazprombank (Open Joint-stock Company) Description Programme for the Issuance of Loan Participation Notes pursuant to which the Issuer may issue Notes. Programme Size Up to U.S.$10,000,000,000 (or its equivalent in other currencies at the date of issue) in aggregate principal amount of Notes outstanding at any one time. Gazprombank may increase the amount of the Programme in accordance with the Dealer Agreement (as defined herein). In this respect, for the purpose of calculating the aggregate principal amount of Notes outstanding, Notes issued at a premium shall be treated as having been issued at the amount of their net proceeds received by the Issuer. Arranger Goldman Sachs International. Dealers Crédit Agricole Corporate and Investment Bank, Goldman Sachs International and Mitsubishi UFJ Securities International plc. Pursuant to the terms of the Dealer Agreement, the Issuer, on Gazprombank s instructions, may from time to time terminate the appointment of any Dealer under the Programme or appoint additional Dealers either in respect of one or more Series of Notes or in respect of the whole Programme. References in this Base Prospectus to Permanent Dealers are to the persons listed above as Dealers and to such additional persons that are appointed as dealers in respect of the whole Programme (and whose appointment has not been terminated) and to Dealers are to all Permanent Dealers and all persons appointed as dealers in respect of one or more Series of Notes. Trustee Citicorp Trustee Company Limited. Registrar Citibank N.A., London Branch, unless it is specified in the relevant Final Terms relating to a Series of Notes that an alternative registrar is appointed in respect of that Series. References in this Base Prospectus to Registrar are to Citibank N.A., London Branch or such alternative Registrar, as the case may be. Paying Agents Citibank N.A., London Branch, and Citibank Europe plc unless it is otherwise specified in the relevant Final Terms relating to a Series of Notes that another paying agent is appointed in respect of that Series. References in this Base Prospectus to Paying Agent are to Citibank N.A., London Branch, Citibank Europe plc or such alternative paying agent, as the case may be. Transfer Agent Citibank N.A., London Branch, unless it is specified in the relevant Final Terms relating to a Series of Notes that another transfer agent is appointed in respect of that Series. References in this Base Prospectus to Transfer Agent are to Citibank N.A., London Branch or such alternative transfer agent, as the case may be. Calculation Agent Citibank N.A., London Branch, unless it is specified in the relevant Final Terms relating to a Series of Notes that another calculation agent is appointed in respect of that Series. References in this Base Prospectus to Calculation Agent are to Citibank N.A., London Branch or such alternative calculation agent, as the case may be. Method of Issue The Notes will be issued on a syndicated or non-syndicated basis. The Notes will be issued in series (each a Series or Series of Notes ) having one or more issue dates and on terms otherwise identical (or identical other than in respect of the first payment of interest), the Notes of each Series being intended to be interchangeable with all other Notes of that Series. The specific terms of each Series will be set out in a Final Terms supplement to this Base Prospectus which shall supplement the Terms and Conditions of the Notes. Issue Price of Notes Notes may be issued at their principal amount or at a discount or premium to their principal amount. Status Each Series of Notes will constitute the obligation of the Issuer to apply the proceeds 10

15 Security Assignment of Rights Form Clearing Systems Initial Delivery of Notes Currencies from the issue of the Notes solely for financing the corresponding Loan and to account to the Noteholders for amounts equivalent to sums of principal and interest or increased principal and interest, as the case may be, and additional amounts (if any) actually received and retained (net of tax) by or for the account of the Issuer pursuant to the corresponding Loan, all as more fully described in Condition 1 (Status) of the Terms and Conditions of the Notes. The Issuer s payment obligations in respect of each Series of Notes will be secured by a first fixed charge on: (a) all of the Issuer s rights to principal, interest and other amounts paid and payable under the relevant Loan Agreement and its right to receive all sums paid and payable under any claim, award or judgment relating to such Loan Agreement (save for any Reserved Rights (as defined in the Trust Deed)); and (b) all the rights, title and interest in and to all sums of money held from time to time in an account for the particular Series specified in the relevant Loan Agreement, together with the debt represented thereby (including interest from time to time) pursuant to the Trust Deed. The Issuer will assign its rights under the relevant Loan Agreement (save for any Reserved Rights and those rights charged above), to the Trustee upon the closing of the offering of the corresponding Series of Notes. Each Series of Notes will be issued in registered form. The Notes will be represented by a Global Note without interest coupons. The Global Note will be exchangeable for Definitive Notes without interest coupons in the limited circumstances specified in the Global Note. Euroclear and Clearstream, Luxembourg and such other clearing system as may be agreed between the Issuer, Gazprombank, the Paying Agent, the Trustee and the relevant Dealer(s). On or before the issue date for each Series, the Global Note will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. The Notes will be registered in the name of a nominee of Euroclear and Clearstream, Luxembourg. A Global Note may also be deposited with any other clearing system or may be delivered outside any clearing system provided that the method of such delivery has been agreed in advance by the Issuer, Gazprombank, the Paying Agent, the Trustee and the relevant Dealer(s). Notes that are to be credited to one or more clearing systems on issue will be registered in the name of a nominee or nominees for such clearing systems. Subject to compliance with all relevant laws, regulations and directives, Notes may be issued in any currency agreed between the Issuer, Gazprombank and the relevant Dealer(s). Maturities Denomination Rate of Interest Fixed Rate Notes Floating Rate Notes Subject to compliance with all relevant laws, regulations and directives, any maturity as may be agreed between the Issuer, Gazprombank and the relevant Dealer(s) provided that such maturity shall not be less than one year. Notes will be in such denominations as may be specified in the relevant Final Terms, save that unless otherwise permitted by then current laws and regulations the minimum denomination of any Note shall be 100,000 (or its equivalent in any other currency as at the issue date of the relevant Notes). The Notes may be issued on a fixed rate or a floating rate basis. Fixed interest will be payable in arrear on the date or dates in each year specified in the relevant Final Terms. Floating Rate Notes will bear interest determined separately for each Series and corresponding Loan as follows: 11

16 Interest Periods and Interest Rates Redemption Issuer s Restrictions and Covenants Redemption by the Issuer at the Option of Gazprombank Mandatory Redemption Relevant Events Withholding Tax (a) (b) on the same basis as the floating rate under a notional interest rate swap transaction in the relevant Specified Currency governed by an agreement incorporating the 2006 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc.; or by reference to LIBOR or EURIBOR (or such other benchmark as may be specified in the relevant Final Terms) as adjusted for any applicable margin. The length of the interest periods for the Notes and the applicable interest rate may differ from time to time or be constant for any Series. Notes may have a maximum interest rate, a minimum interest rate, or both. The use of interest accrual periods permits the Notes to bear interest at different rates in the same interest period. All such information will be set out in the relevant Final Terms. The relevant Final Terms will specify the basis for calculating the redemption amounts payable. So long as any Note remains outstanding, the Issuer will not, without the consent of the Trustee, inter alia, incur any other indebtedness, open accounts, issue shares, have any employees, consolidate or merge, dispose of property or engage in any business (other than transactions contemplated herein or as permitted by the Trust Deed). Furthermore, the Issuer will agree in the Trust Deed not to make or consent to any amendment or modification or waiver of, or authorise any breach or proposed breach of the terms of, the corresponding Loan Agreement unless the Trustee has given consent. In the case of a Senior Series only, the Issuer will redeem the Notes in whole, but not in part, at 100 per cent. of their aggregate principal amount plus accrued and unpaid interest or increased aggregate principal amount plus accrued and unpaid interest, as the case may be, and all additional amounts, if any, if Gazprombank elects to repay any Loan in the event it is required to pay increased and/or additional amounts on account of Russian or Irish withholding taxes in respect of certain payments under the corresponding Loan or payments under the corresponding Notes or in the event that Gazprombank is required to pay additional amounts on account of certain costs incurred by the Issuer pursuant to the relevant Senior Loan Agreement. In the case of a Senior Series only and in limited circumstances as more fully described in the relevant Loan Agreement, the Notes may be redeemed by the Issuer in whole, but not in part, on any Interest Payment Date in the case of Floating Rate Notes or, at any time, in the case of Fixed Rate Notes, upon giving notice to the Trustee, at the principal amount thereof, together with accrued and unpaid interest or increased principal and interest, as the case may be, and all additional amounts, if any, to the date of redemption in the event that it becomes unlawful for (i) the Issuer to allow the relevant Notes to remain outstanding or (ii) the Issuer or Gazprombank to allow the relevant Loan to remain outstanding under the relevant Loan Agreement. In either case, the relevant Loan would be repaid in full. In the case of a Relevant Event (as defined in the Trust Deed), the Trustee may, subject as provided in the Trust Deed, enforce the security created in the Trust Deed in favour of the Noteholders. All payments of principal and interest to be made by the Issuer in respect of each Series of Notes will be made in full without set-off or counterclaim and free and clear of and without deduction for or on account of all taxes, which are or will be imposed, assessed, charged, levied, collected, demanded, withheld or claimed by the Russian Federation or Ireland, or any taxing authority thereof or therein, other than as required by law. If any such taxes, duties and other charges are payable, the sum payable by Gazprombank to the Issuer under the relevant Loan Agreement will (subject to certain exceptions) be required to be increased to the extent necessary to ensure that the Noteholders receive the net sum which they would have received free from any liability in respect of any such deduction or withholding had no such deduction or withholding been made or required to be made. The sole obligation of the Issuer in this respect will be to pay to the Noteholders sums equivalent to the 12

17 Further Issues Listing Rating Governing Law Selling Restrictions sums received and retained from Gazprombank. The Issuer may from time to time issue further Notes of any Series on the same terms as existing Notes and such further Notes shall be consolidated and form a single Series with such existing Notes of the same Series. In the event of such further issuance, the relevant Loan will be correspondingly increased. Application will be made, where specified in the relevant Final Terms, for a Series of Notes to be admitted to the Official List of the Irish Stock Exchange and to trading on the Main Securities Market or to be listed on such other stock exchange and traded on such other market as shall be specified in the relevant Final Terms or the Series of Notes will remain unlisted. The Programme has been assigned a rating of Baa3 by Moody s, and the Programme will also be rated by Standard & Poor s. Each of Moody s and Standard & Poor s is established in the European Union and is registered under the CRA Regulation. The rating of certain Series of Notes to be issued under the Programme may be specified in the applicable Final Terms. Whether or not each credit rating applied for in relation to relevant Series of Notes will be issued by a credit rating agency established in the European Union and registered under the CRA Regulation will be disclosed in the Final Terms. Please also refer to Risk Factors Ratings of the Notes. Credit ratings assigned to the Notes do not necessarily mean that they are a suitable investment. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid, paid on an expected final payment date or paid on any particular date before the legal final maturity date of the Notes. The ratings do not address the marketability of the Notes or any market price. Any change in the credit ratings of the Notes or Gazprombank could adversely affect the price that a subsequent purchaser will be willing to pay for the Notes. The significance of each rating should be analysed independently from any other rating. The Notes and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law. United States, United Kingdom, Russian Federation, Italy, Ireland and any other jurisdiction relevant to any Series. See Subscription and Sale. 13

18 Each Senior Loan Corresponding to a Senior Series of Notes Lender GPB Eurobond Finance PLC. Borrower Gazprombank (Open Joint-stock Company). Security and Ranking No Senior Loan will be secured by any collateral. Obligations under the Senior Loan will rank at least pari passu with all other unsecured and unsubordinated financial indebtedness of Gazprombank. Interest Basis Interest will be payable on a fixed or floating rate basis as specified in the relevant Loan Supplement. Redemption at the Option of Gazprombank Mandatory Repayments Certain Restrictions and Covenants Events of Default Use of Proceeds of the Notes Withholding Tax Each Senior Loan may be prepaid at Gazprombank s option in whole, but not in part, on any Interest Payment Date in the case of Floating Rate Loans or, at any time, in the case of Fixed Rate Loans at the principal amount thereof, together with accrued and unpaid interest or increased principal and interest, as the case may be, and additional amounts, if any, for certain tax reasons or by reason of certain increased costs. In the event that it becomes unlawful for the Issuer or Gazprombank to fund any Senior Loan or allow such Senior Loan to remain outstanding under the relevant Senior Loan Agreement or allow the corresponding Senior Series of Notes to remain outstanding, Gazprombank may be required to repay the corresponding Senior Loan in full. The Issuer will have the benefit of certain covenants made by Gazprombank all as more fully described in the relevant Senior Loan Agreement. In the case of an Event of Default (as defined in the relevant Senior Loan Agreement), the Trustee may, subject as provided in the Trust Deed, cause the Issuer to declare all amounts payable under the relevant Senior Loan Agreement to be due and payable. The Issuer will apply the gross proceeds of the offering of each Series of Notes to fund the corresponding Senior Loan to Gazprombank. In connection with the receipt of such Senior Loan, Gazprombank will pay an arrangement fee, as reflected in the relevant Loan Agreement. All payments of principal and interest under each Senior Loan will be made in full without set-off or counterclaim and free and clear and without deduction for or on account of all taxes which are or will be imposed, assessed, charged, levied, collected, demanded, withheld or claimed by the Russian Federation or Ireland, other than as required by law. If any such taxes, duties or other charges are payable in respect of the Senior Loan, the sum payable by Gazprombank under the corresponding Senior Loan will (subject to certain conditions) be required to be increased to the extent necessary to ensure that the Issuer receives and retains the net sum which it would have received and retained free from any liability in respect of any such deduction or withholding had no such deduction or withholding been made or required to be made. Governing Law Each Senior Loan and any non-contractual obligations arising out of or in connection with it shall be governed by English law. Each Subordinated Loan Corresponding to a Subordinated Series of Notes Lender GPB Eurobond Finance PLC Borrower Gazprombank (Open Joint-stock Company) Terms The terms of any Subordinated Loan will be as set out in the relevant Subordinated Loan Agreement and as agreed with the CBR. A supplemental Base Prospectus containing the form of the Subordinated Loan Agreement will, if required, be published for use in connection with any subsequent issue of any Subordinated Series to be listed on the Irish Stock Exchange. 14

19 RISK FACTORS An investment in the Notes involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this document, before you decide to buy the Notes. Any of the following risk factors could cause our business, financial condition or results of operations to be adversely affected. In that case, the value of the Notes could decline and you could lose all or part of your investment. We describe below the risks and uncertainties relating to us and to an investment in the Notes that our management believes are material, but these risks and uncertainties may not be the only ones we face. Additional risks and uncertainties, including those we currently do not know of or deem immaterial, may also have a material adverse effect on our business, financial condition or results of operations that could result in a decline in the value of the Notes. Risks Relating to Our Business and Industry The instability of the global and the Russian economies and financial markets, the ongoing European sovereign debt crisis and the destabilization of the political and economic situation in some of the regions of the world could have a material adverse effect on our business, liquidity and financial condition. Dislocation of global financial markets The financial markets, both globally and in Russia, have faced significant volatility, dislocation and liquidity constraints as a result of the global financial crisis that commenced with dramatic declines in the US housing market in the autumn of In response to the financial crisis affecting the global banking sector and financial markets, many of the largest countries in the world, including Russia, implemented significant support packages, which included, among other things, the recapitalisation of banks through a variety of direct equity support and capital relief instruments (e.g. lower provisioning requirements, state-guaranteed bank debt, etc.). As a result, since 2009, private credit markets began to open, credit risk spreads have narrowed and corporate credit default swaps reflected greater confidence among lenders to the corporate sector. However, substantial government borrowing to finance bailouts of financial and other institutions, as well as substantial fiscal stimulus packages and low economic activity, led to a deterioration of the sovereign credit of a number of countries, in the first place negatively affected the financial stability of Eurozone countries, including Greece, Portugal, Italy and Ireland. Although the Bank does not have direct exposure to European sovereign debt, a restructuring of sovereign debt issued by a number of European countries, distress of the world markets or the ongoing sovereign debt crisis affecting countries from Europe, Asia and America could have an adverse effect on our business, financial condition, results of operations and prospects through the realization of contagion risks and growing credit spreads hampering the access to foreign capital markets for the Russian banks. The continuation of the financial crisis could lead to increasing sovereign budget deficits, further increases in sovereign debt and sovereign ratings downgrades and could ultimately lead to sovereign defaults. In January 2012 S&P downgraded the sovereign credit ratings of nine Eurozone countries. The long-term ratings of Cyprus, Italy, Portugal, and Spain were lowered by two notches. The sovereign ratings of Austria, France, Malta, Slovakia, and Slovenia, were lowered by one notch. The financial problems experienced by the governments of countries may require them to issue significant amounts of indebtedness, which may reduce demand for debt issued by financial institutions and corporate borrowers. Eurozone countries may be required to provide further financial assistance to Greece or Ireland or other severely affected European countries, which may, in turn, have a negative impact on the financial condition of those contributing states. On 2 February 2012, Eurozone states signed the Treaty on the European Stability Mechanism (ESM) relating to the creation of the European Stabilisation Fund (the Fund ). The Fund should begin operating in July 2012 and will be used to support and stabilise the finances of the Eurozone states, by, among other things, providing loans to members states recapitalising of financial institutions, and purchasing sovereign bonds. It is anticipated that the Fund shall have subscribed capital of approximately EUR700 billion. Any further international economic incidents of this nature could have an adverse effect on the financial and commodities markets and the global economy. These and other events have led to significant global market volatility which, in turn, has contributed to a flight to quality, affecting demand for, and values of, securities of emerging markets issuers. Destabilization of the political and economic situation in some regions of the world 15

20 Political instability in a number of developing countries and natural and technological disasters in developed countries could have a destabilizing effect on the world commodities and financial markets. The unpredictability of these factors creates additional risks for investors on the global financial markets, including the financial market of Russia. The continuing uncertainty in the international financial markets and any tightening in credit conditions and contraction of the economies in which we operate could result in: decreases in our net interest income; significantly increased loan provision charges, loan losses and write-offs; decreases in the demand for our credit products as a result of higher interest rates; goodwill impairment; increases in borrowing costs and reduced, or no, access to capital markets due to unfavourable market conditions; and decreases in fee and commission income due to a reduction in capital markets activity, as well as significant declines in market values of securities held in our trading portfolios, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Impact on the credit ratings of us, the Russian banking sector and the Russian Federation Gazprombank's credit ratings are dependent on the sovereign ratings of Russia and the ratings of its banking sector. Any changes in the sovereign and sector ratings could have implications for our ratings. The negative implications of the financial crisis of on the Russian economy, the subsequent global economic recovery and then the sovereign debt crisis in Europe have led the major rating agencies to change ratings and outlooks several times over the course of for the Russian banking sector. Moody s outlook for the Russian banking sector has changes from negative in the third quarter of 2009 to stable in October 2010, principally due to the substantial state and the CBR support to the banking system during the crisis, and back to negative in October 2011 on the concerns that the weak global economic landscape and financial market volatility will weaken Russia s operating environment and negatively affect banks. Similarly, in the wake of the financial crisis, Standard & Poor s downgraded its sovereign credit ratings for the Russian Federation from BBB+/A-2 to BBB/A-3 in December 2008, followed by an improvement in ratings outlook to stable from negative in December In August 2011, the agency affirmed Russia's sovereign credit ratings at BBB/A-3 with stable outlook. In March 2012 Moody s indicated that a continued decrease in oil prices could lead to a downgrade of Russia s sovereign rating. Our ratings have followed a similar pattern of downgrades in and upgrades in 2010 and In early January 2009, Standard & Poor s lowered our long-term and short-term counterparty ratings from BBB / A-3 to BB+ / B. A month later, in February 2009, Moody s also lowered our long-term foreign currency bank deposits rating from Baa1 to Baa2 and our senior unsecured debt rating from A3 to Baa2 (outlook stable). In September 2009, Moody s further lowered our long-term foreign currency bank deposits rating from Baa2 to Baa3 and our senior unsecured debt rating from Baa2 to Baa3 (outlook stable). The following month, in October 2009, Standard & Poor s lowered our long-term counterparty credit rating from BB+ to BB with stable outlook, and affirmed it in July In August 2011, Standard & Poor s increased our long-term counterparty rating to BB+ with stable outlook. In December 2011, as part of reassigning ratings based on a new rating methodology, Standard & Poors s confirmed our rating at BB+ with a stable outlook. There can be no assurance that we, or the Russian Federation, will be able to maintain these credit ratings in the current environment. Any failure to do so could adversely affect our liquidity and competitive position, undermine confidence in us, increase our borrowing costs and limit our access to the capital markets. Deteriorating economic conditions in Russia, together with the continued decline in the growth of Russia s banking sector, may have an adverse effect on our business. The majority of our profit is generated in Russia and we are particularly exposed to the deterioration of economic conditions in Russia. Between 2008 and 2010, the Russian economy was adversely affected by market downturns and economic slowdowns elsewhere in the world, which has also dampened foreign investment in Russia. As Russia produces and exports large volumes of oil and gas, dramatic falls in the prices of these commodities in the world market in the second half of 2008 through the first half of 2009 resulted in sharp 16

21 decreases in Government revenues and the revenues of privately held Russian companies operating in these sectors, which in turn had a severely negative effect on the overall Russian economy. In 2009, Russia had a negative GDP growth which was the first year of negative GDP growth since According to the Federal Statistics Service (Rosstat), Russia s GDP declined 7.8 per cent. in However, commodity prices partially recovered in the latter half of 2009 and early 2010 and further rised in the end of 2010 and first quarter of According to Rosstat, Russia s GDP grew 4.3 per cent. per year in 2010 and There can be no assurance that commodity prices will not experience similar level of decline in the future, which would adversely affect Russia s GDP growth. In late 2008-early 2009, the disruptions in the global markets had a severe impact on the liquidity of Russian banks and other financial institutions and significantly affected the financial markets including the availability of credit and the terms and cost of funding in Russia. Russian banks, including Gazprombank, experienced a reduction in available financing in both the interbank and short-term funding markets, as well as in the longer term capital markets. The lack of supply resulted in significant increases in the costs of financing across these markets, for both high grade and non-investment grade borrowers. The availability of credit to emerging markets borrowers was also significantly influenced by investor confidence in such markets as a whole. The securitisation market has also remained largely inaccessible to Russian borrowers since the onset of the financial crisis in In 2009, the liquidity position in the Russian banking sector generally improved. The Russian Federation has also experienced a significant decline in equity and debt prices and has suffered a substantial outflow of capital from the country as a result of the global financial crisis. There have also been periodic suspensions of Russian stock market trading, extreme volatility in the Russian equity markets and sharp declines in the share prices of Russian financial institutions, in particular in 2008 and early A combination of these factors has resulted, and may continue to result, in a significant deterioration in the financial fundamentals of Russian banks, notably liquidity, asset quality and profitability, including those of Gazprombank. The deterioration of general economic conditions in Russia, and the declining growth of the Russian banking sector in particular, impacted our business adversely in certain respects in 2008 and While some improvement of the situation in the Russian banking sector has recently been reported, if such market disruptions were to recur, the could have a severe adverse effect on our business, financial condition and results of operations going forward. We may face liquidity risks, which we may fail to mitigate if we are unable to raise sufficient funding. In an effort to support the liquidity of the Russian banking sector amidst the global and Russian financial crisis, in October 2008 the Russian Federation adopted a set of federal laws to facilitate credit to the Russian banking sector aimed at restoring investor confidence and supporting medium-term growth of the Russian economy. Under such laws, the CBR and Vnesheconombank (State Corporation Bank for Development and Foreign Economic Affairs) ( VEB ) were authorised to issue up to RUB950 billion in subordinated loans to state owned and private banks, provided that certain financial and rating criteria would be met. In accordance with this law, in March and October 2009 we received subordinated deposits from VEB in an aggregate amount of RUB90 billion (of which RUB50 billion are expected to be converted into Gazprombank s share capital in 2012) for the purpose of providing loans to Russian companies in industries which the Government identified as priority industries in its anti-crisis 2009 programme. In addition, in 2008 and the first part of 2009, a substantial portion of our funding was short-term funding provided by the CBR to help support liquidity in the Russian economy. Such funding consisted of time deposits and amounts made available under repurchase agreements ( REPOs ), of which RUB519 billion (approximately U.S.$18 billion) was outstanding as at 31 December As the situation in the Russian financial market improved in 2009 and the interbank lending market reopened, the Group s indebtedness to the CBR was reduced to RUB49 billion (approximately U.S.$2 billion) as at 31 December 2009, or 3 per cent. of the Group s total liabilities, and had been completely repaid by 31 December As at 31 December 2011, the Group s term deposits from the CBR amounted to RUB30 billion, or 1.3 per cent. of the Group s total liabilities. The funds from the CBR that we receive have short-term maturities. Although as at 31 December 2011 the Group s term deposits from the CBR amounted to RUB30 billion, or 1.3 per cent. of the Group s total liabilities, to the extent we obtain a significant amount of such funding in the future, the short-term nature of such funding would mean that if we were unable to roll-over or replace this funding and replace it with other sources, then our liquidity position could be affected. 17

22 Although the Russian Government and the CBR have been successful in providing significant liquidity to the Russian banking sector during the financial crisis, there can be no assurance that, in the future measures by the Russian Government will have the same effect. Gazprom Group has historically provided a significant portion of our funding. As at 31 December 2011, we had RUB43.3 billion in subordinated deposits from our shareholders, Gazprom Group and Gazfond. In February 2012, Gazprom converted its subordinated deposits of RUB7,500 million into Gazprombank s share capital, and Gazfond is also expected to convert its subordinated deposit of RUB32,500 million into Gazprombank s share capital in See Financial Review Funding. Although the conversion of subordinated deposits should not impact on the Group s capital position, there can be no assurance that our shareholders will continue to provide funding to us in the future. Current accounts and time deposits of our corporate and retail customers have historically comprised a significant part of our funding base. Their share in our funding base amounted to 67.2 per cent. as at 31 December 2011 in comparison with 73.2 per cent. as at 31 December 2010 and 63.7 per cent. as at 31 December Russian companies have significant liquidity requirements, which have been further increased by the lack of liquidity available from financial markets. Accordingly, they could withdraw their deposits and also may not be in a position to place significant funds with us on a long-term basis. Retail depositors are allowed to withdraw deposits, including term deposits, at any time. As a result, unanticipated decreases in corporate customer deposits and/or unexpected withdrawals of retail deposits may result in liquidity gaps that we may not be able to cover. For a more detailed discussion of the Group s liquidity gap analysis, see Note 25 to the 2011 Financial Statements. The remainder of our funding is raised in the domestic and international capital markets, as well as in interbank markets. The deterioration of the financial markets could significantly reduce our access to such sources of funding as well as can squeeze our interest margin. For instance, market turmoil in the second half of 2011 due to uncertanties over sovereign debt materially affected the ability of borrowers in general and Russian companies in particular to attract funding. If we were to be unable to raise sufficient funding in the future this would have a material and adverse effect on our business, financial condition, results of operations, prospects and liquidity position, as well as the value of the Notes. The size of our loan portfolio and the unpredictability in the economic conditions in Russia and abroad has increased our credit exposure, which may result in increased non-performing loans despite our credit policies and risk management strategies. Our total gross loan portfolio increased from RUB804.6 billion as at 31 December 2009 to RUB1,084.0 billion as of 31 December 2010 to RUB1,454.3 billion as of 31 December We are subject to risks regarding the credit quality of, and the recovery on loans to and amounts due from, customers and market counterparties. Changes in the credit quality of our Russian and/or international customers and counterparties, or in their behaviour, mostly arising from systemic risks in the Russian and/or global financial system, have reduced the value of our assets, and increased our loan losses and allowances for loan impairment. Due to the unpredictability of economic conditions in Russia and abroad we may be unable to correctly assess the credit risks associated with our corporate borrowers and be unable to fully predict potential loan impairment or assure you that our loan loss impairment and supporting collateral will be adequate in the future. We assess credit risks based on all available information based on Russian accouting standards ( RAS ), the United States Generally Accepted Accounting Principles ( U.S. GAAP ) or IFRS, which is audited in accordance with the Russian Standards on Auditing, the United States Generally Accepted Auditing Standards or International Standards on Auditing, respectively. We also require large corporate borrowers to furnish management accounts. Even though we require regular full disclosure of our clients financial information, such financial information may not always fully reflect their financial condition, which may adversely affect the accuracy of credit risk assessment and have adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. Although we have invested substantial time and effort in our risk management strategies when creating existing portfolio and have sought to enhance those strategies in light of the current economic conditions, there can be no guarantee that such risk management strategies will protect us from increased levels of non-performing loans, particularly when confronted with risks that we did not identify or anticipate from our existing portfolio. 18

23 Our automated reporting systems have limitations that could hinder our ability to effectively manage our risks. Our automated reporting systems allow us to daily monitor the securities portfolio and the loan portfolio (including credit limits) of Gazprombank itself. However, our automated reporting systems only allow for monthly monitoring of these portfolios on a Group-wide basis. As a result, we are limited in our ability to effectively manage the risks associated with the loan portfolios of our banking subsidiaries. In addition, we are only able to monitor on a daily basis the exposure to a single borrower or group of related borrowers of Gazprombank itself, which gives rise to risks of an incorrect assessment of the Group s credit exposure and Group-wide concentration limits between reporting dates. Part of the Group's portfolio of securities consists of the portfolios of our subsidiaries, which are presently monitored on a monthly basis. As a result, we are limited in our ability to effectively manage the risks associated with the portfolios of securities of our subsidiaries. This limitation in our operational reporting systems could hinder the timely risk management control of our securities and loan portfolios, which in turn could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. This risk is partially mitigated by the presence of centralized limits on operations of our subsidiaries. We are continuously improving our IT systems with the objective of achieving full Group-wide consolidation and daily monitoring of our securities and loan portfolios, including those of our subsidiaries. The industry and borrower concentrations in our loan portfolio make us vulnerable to downturns in certain sectors. Our loan portfolio has relatively high concentrations in certain industries. The borrowers to whom our loans are most concentrated are among the largest companies in Russia. As at 31 December 2011, the metal manufacture, gas extraction, chemical industry and electric power industry sectors accounted for 15.0 per cent., 12.8 per cent., 12.3 per cent. and 7.8 per cent., respectively, of our gross corporate loan portfolio. As at 31 December 2010, these were 22.9 per cent., 18.7 per cent., 3.9 per cent. and 5.0 per cent., respectively. The financial condition of each such client depends on the prices of the relevant commodities. A decrease in the prices of these commodities or an increase in production costs not offset by a corresponding price increase could negatively affect the financial condition of each such client and could result, among other things, in a default on their obligations to us. Our loan portfolio is also concentrated in single borrowers, with the ten largest customers accounting for 30 per cent. and 25 per cent. of our gross loan portfolio as at 31 December 2010 and 31 December 2011, respectively. Although we have a long-term experience with borrowers from these industries, our financial condition is sensitive to downturns in the above industry sectors and the financial condition of our largest borrowers. While we continue to take measures in order to diversify our loan portfolio, there can be no assurance that we will be able to achieve or maintain a greater level of diversification in our loan portfolio, and a failure to do so could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. If our loan portfolio becomes inadequately collateralised, we could suffer losses. We obtain collateral for most of the loans that we make. The main types of collateral or credit support we take are guarantees from the Gazprom Group, third party bank guarantees, liquid promissory notes, shares in Russian blue-chip companies and liens over inventory, real property and other similar assets with monetary value. The recent downturns in many of these industries and the general deterioration of economic conditions in Russia has resulted, and may continue to result, in declines in the value of collateral securing a number of loans to levels below the amounts of the outstanding principal and accrued interest on those loans. The reduced collateral values may not be sufficient to cover uncollectible amounts on our secured loans which may require us to reclassify the relevant loans, establish additional allowances for loan impairment and increase reserve requirements. In addition, we may acquire controlling or minority stakes in defaulting companies which operate in sectors which are not core to our business and in respect of which we have no operational or management expertise. A failure to recover the expected value of collateral may expose us to loan losses, which may materially and adversely affect our financial condition and results of operations. 19

24 Our trading activities expose us to a number of heightened risks which have resulted in significant losses for our business in the past and may do so again in future. We trade various financial instruments and other assets, including debt, equity, fixed income, currency and related derivatives as both agent and principal. Historically we have derived a significant proportion of our noninterest income from dealing profits. Whilst going forward the portion of non-interest income attributable to dealing profits may be significantly less due to the stricter limits we have put in place, we are nevertheless still exposed to a number of heightened risks related to the movement of market prices in the underlying instruments, including the risk of unfavourable market price movements relative to our long or short positions, a decline in the market liquidity of the related instruments, volatility in market prices, interest rates or foreign currency exchange rates relating to these positions and the risk that instruments with which we choose to hedge certain positions, do not track the market value of those positions. In particular, due to the adverse market conditions resulting largely from the global financial crisis, followed by the sharp decline in the value of the Rouble that occurred in the second half of 2008, in 2008 we had a loss of RUB96.9 billion from foreign currency derivative contracts. These losses were largely attributable to a number of total return swap ( TRS ) transactions with foreign currency that we entered into with large international banks in However, these positions experienced a substantial recovery in 2009 when we had a gain of RUB15.6 billion from foreign currency derivative contracts. In 2010 we had a gain of RUB19.7 billion from foreign currency derivative contracts. During 2010, our TRS transactions with foreign currency were either unwound by paying the current fair value of the TRS contracts to relevant counterparties, or fully hedged. At present all of our TRS transactions are closed. See also Business Securities and Foreign Exchange Operations Foreign Exchange Trading and Note 14 to the 2010 Group Financials. Since 2008, we have put in place stricter limits aimed at reducing currency risks and we adhere to the CBR limits on open FX positions. However, future changes in currency exchange rates may adversely affect our financial condition and results of operations. We also have a substantial portfolio of securities in our trading and investment portfolio that includes equity and debt securities of Gazprom and other Russian issuers. As at 31 December 2011, our trading securities portfolio amounted to RUB194.3 billion and accounted for 7.8 per cent. of our total assets. In 2011, we had a loss of RUB2.2 billion from financial assets held for trading, which was mainly attributable to a RUB2.0 billion markto-market loss on our portfolio of corporate bonds. The Russian financial market has experienced significant volatility in recent years and Russia s stock markets, in particular, suffered a severe decline as a result of the global economic crisis. A fall in the price of Russian or global equity and debt securities has had, and in future could again, substantially reduce the value of our securities portfolio and the amount of our non-interest income attributable to profits resulting from fair value adjustments of our holdings and our dealings in shares and debts of these and other companies. For example, due to sharp decreases in the prices of Russian equity and debt securities in 2008, our mark-to-market loss on securities held for trading was RUB27 billion (approximately U.S.$1.1 billion) in If there is substantial downward movement in the market prices of our equity and debt securities, this will be immediately reflected in our valuation of our securities portfolio, which in turn could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. If we incur substantial losses from our trading activities, this could materially and adversely affect our business, financial conditions, results of operations and prospects and the value of the Notes. Conversely, substantial gains from our trading activities may have a material impact on our financial results, and there can be no assurance that any such gains will be repeated in the future. We could be negatively affected by the deterioration of the commercial soundness and/or the perceived soundness of other financial institutions, which could result in significant systemic liquidity problems, losses or defaults by other financial institutions and counterparties. As a result of the lack of liquidity and high cost of funds in the interbank lending market in 2008 and 2009, which is unprecedented in recent history, we have become increasingly subject to the risk of deterioration of the commercial soundness and/or perceived soundness of other financial service institutions within and outside the Russian Federation. We routinely execute a high volume of transactions with numerous counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients, resulting in a significant counterparty credit exposure. Counterparty risk is heightened as a result of recent financial institutional failures and nationalisations. 20

25 We will continue to be exposed to the risk of loss if counterparty financial institutions fail or are otherwise unable to meet their obligations. A default by, or even concerns about the stability of, one or more financial service institutions could lead to further significant systematic liquidity problems, or losses or defaults by other financial institutions which could materially and adversely affect our ability to raise interbank or other funding, our business, results of operations, financial condition and prospects. We face a number of risks relating to our equity investments portfolio and our acquisition and/or disposition of equity. We have equity interests in a range of companies which operate in non-banking related industries. We currently own 100 per cent. of the Gazprom Media Group and various stakes in certain heavy machinery production companies. We also hold various stakes in other companies. Our private equity business has required and will continue to require significant allocation of capital and management resources, further development of our financial, internal controls and information technology systems, continued upgrading and streamlining of our risk management systems and additional training and recruitment of management and other key personnel. At the same time, we must maintain a consistent level of banking client services and current banking operations to avoid loss of business or damage to our reputation. Some of our private equity investments have contributed substantially to our revenues, assets and net profits, while others have contributed losses. A notable adverse change in their performance, or their disposal, could result in a significant reduction in our assets and revenues and could also affect our margins. The Group s profit for 2011 decreased by 38.4 per cent. to RUB40.8 billion from RUB66.3 billion for 2010, while the Group s profit for 2011 from continuing operations increased by 42.8 per cent. to RUB40.8 billion from RUB28.6 billion for This is primarily explained by a one-off gain received by the Group from sale of its shareholding in SIBUR Holding. In addition, gains or losses we realise from the sale of our private equity investments in a particular period can have a significant impact on our financial results for that period. Because such gains or losses are non-recurring, to the extent that we make further disposals in future periods, our financial results for such periods may be either positively or negatively affected as a consequence and may not fully reflect the performance of our core banking business. We acquired staked in certain companies for the purpose of making medium-term investments, with the intention of making gains ultimately by means of their disposal either through strategic sales to third parties or by way of an initial public offering (an IPO ). The strategic decisions as to when, how and on what terms we exit these investments will be taken in conjunction with our shareholders. There are no restrictions in any loan agreement or the Notes on our ability to dispose of these investments. We cannot assure you that we will be successful in disposing of this or any other investments on fair market terms or at all. Deterioration in the value of any of the investments in these companies or failure to dispose of any investment on fair market terms could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. Our interest rate margins have been at times narrowing. As is the case with other commercial banks, we are exposed to risks due to mismatches of our interest-earning assets, which are principally loans due from credit institutions and customers, and debt trading securities, and our interest-bearing liabilities, which include customer deposits, bank borrowings, certificated debts and eurobonds. Depending upon the relative percentages of our total interest-bearing assets comprised of fixed rate and floating rate assets and the relative percentages of our total interest-bearing liabilities comprised of fixed rate and floating rate liabilities at any given time, our interest rate spreads could be negatively affected by general increases or decreases in interest rates. In recent years we have experienced declining interest rate margins as a result of a decrease in the average interest rates charged on our loans to customers, which decrease has not been fully matched by a decrease in the average interest rates we pay to our funding sources. Also, as a result of the global financial crisis, during 2008 and 2009 we had significant exposure to relatively expensive governmental funding from VEB and the CBR, which increased the cost of our funding and put pressure on our net interest margins. Although the Group s net interest margin increased to 3.6 per cent. for 2011 from 2.5 per cent. for 2010 and 2.6 per cent. for 2009, the interest margins could decline in the future, principally as a result of increasing competition in the Russian banking market. Our strategy envisages that we will continue growing our lending business and, in addition to our core clientele large corporations will target medium-sized corporate customers and increase the proportion of retail loans in our total portfolio, which should, if achieved, generate both an increased volume of interest income and higher interest rates on such targeted lending and thus offset the effects of any decline in our interest 21

26 margins on our loans to large corporate customers. However, the pace of our loan portfolio growth may be constrained by our ability to increase lending volumes to customers that meet our credit quality standards. A significant fall in our average interest rates charged on loans to customers that is not fully matched by a decrease in interest rates on our funding sources could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. We face foreign exchange rate risks. A certain portion of our income is denominated in U.S. dollars, while most of our costs are denominated in Roubles. Assuming that we continue to derive a similar portion of our income in U.S. dollars, if the Rouble appreciates against the U.S. dollar, this could cause our costs to increase relative to our income. On the other hand, if the Rouble depreciates against the U.S. dollar and other major currencies it could negatively affect us in a number of ways, including, among other things, by increasing the actual cost to us of servicing our foreign currency denominated liabilities and by making it more difficult for Russian borrowers to service their foreign currency denominated loans, which could lead to a deterioration of their credit quality. While the Rouble appreciated against the U.S. dollar in real terms each year from 2001 to 2007, it experienced significant depreciation against the U.S. dollar in 2008 and in the beginning of 2009, largely as a result of the global financial and economic crisis and the significant fall in the prices of oil and commodities that are the principal generators of Russia s export earnings. The Rouble to U.S. dollar exchange rate has fluctuated dramatically in the past few years. Between 1 August 2008 and 1 March 2009 the rouble depreciated by 53 per cent. against the U.S. dollar (from RUB23.42 per U.S.$1.00 to RUB35.72, according to the CBR). However, the exchange rate has fluctuated dramatically over the past several years, ranging from RUB23.13 per U.S.$1.00 as at 16 July 2008 to RUB36.43 per U.S.$1.00 as at 19 February 2009 and to RUB29.52 per U.S.$1.00 as at 21 April The ability of the Russian Government and the CBR to prevent depreciation or appreciation of the Rouble against the major currencies depends on many political and economic factors, including their ability to control inflation and the availability of foreign currency reserves. Further significant fluctuations of the Rouble against the U.S. dollar and other major currencies could negatively affect our business, financial condition, results of operations and prospects and the value of the Notes. The Rouble remains difficult to convert outside the Russian Federation. The Rouble remains difficult to convert outside the Russian Federation. From August 2008 through February 2010, the Russian Federation s foreign currency and gold reserves have fallen from U.S.$583.0 billion to U.S.$436.7 billion, although they have risen in 2010 and the beginning of 2011 from U.S.$436.7 billion in February 2010 to U.S.$513.5 billion in April Although Russia s current foreign currency and gold reserves may be sufficient to sustain the domestic currency market in the short-term, there can be no assurance that the currency market will not further deteriorate in the medium- or long-term due to the lack of foreign currency funding available in the global markets. The lack of growth of the Russian currency market in the medium- or long-term may adversely affect our business, financial condition, results of operations and prospects and the value of the Notes. We face significant and increasing competition. We operate in an increasingly competitive market. Our primary competitors in corporate banking are currently state-owned banks Sberbank, VTB and Rosselkhozbank, as well as privately-held Alfa Bank. Sberbank and VTB have larger banking operations and capital resources than we do. If we are not able to compete successfully with our main competitors, this could affect our financial performance and we could lose market share. We have observed a tendency towards increasing competition in certain product lines and client segments. This factor may adversely impact the financial performance of certain of our business lines and, as a consequence, our financial performance as a whole. We may be unable to further expand our corporate customer base, which could restrict our growth strategy. One of the key aspects of our growth strategy is to continue to expand our corporate customer base, including lending to medium-sized corporate customers that satisfy our lending criteria. Many of Russia s largest corporations have already established close co-operation with other leading Russian and foreign banking institutions through which they conduct substantially all of their banking activities. Therefore there may be a limited number of high credit quality corporate customers to whom we may extend our banking services. If we are unable to further expand our corporate customer base among larger corporates and/or if our intention to develop our business with medium-sized corporates is not successful, lending may not grow significantly and thus may not generate sufficient increased interest income to offset any decline in our interest margins. This 22

27 could materially adversely affect our business, financial condition, results of operations and prospects and the value of the Notes. Our risk management strategies and techniques could leave us exposed to unidentified or unanticipated risks. Although we invest substantial time and effort in our risk management strategies and techniques and endeavor to apply the best available practices relating to risk management, they could nonetheless fail under some circumstances, particularly when confronted with risks that we do not identify or anticipate. If circumstances arise that we did not identify or anticipate in developing our statistical models, our losses could be greater than we expect. If our measures to assess and mitigate risk prove insufficient, we could experience material unexpected losses. Many of our more sophisticated trading and investment transactions are designed to profit from price movements and differences between prices. If prices move in a way that our risk modelling has not anticipated, we could experience significant losses. Assets that are not traded on public trading markets, such as derivative contracts between banks, may be assigned values that we calculate using mathematical models. Monitoring the deterioration of assets like these can be difficult and could lead to losses we have not anticipated. Our inability to properly manage these risks could materially adversely affect our business, financial condition, results of operations and prospects and the value of the Notes. The interests of our significant shareholders may conflict with those of Noteholders. Until December 2006, we were, directly or indirectly, wholly owned by Gazprom. As at 31 December 2011, our shareholders and their respective holdings comprised non-state pension fund Gazfond (50 per cent. plus one share), Gazprom (41.73 per cent.), our employees (0.87 per cent.) and 7.40 per cent. of treasury shares (held by a 100 per cent. subsidiary of Gazprombank). In February 2012, Gazprom converted its subordinated deposits with us of RUB7,500 million into ordinary shares of Gazprombank as a part of an additional shares placement. We expect that Gazfond and VEB will also convert their subordinated deposits of RUB32,500 million and RUB50,000 million, respectively, into ordinary shares as a part of the additional shares placement in As a result, subject to completion of these transactions, the shareholder structure will include Gazfond (47.38 per cent. plus one share), Gazprom (35.54 per cent.), VEB (10.19 per cent.), our employees (0.71 per cent.) and 6.18 per cent. of treasury shares (held by a 100 per cent. subsidiary of Gazprombank). Historically, Gazprom and (indirectly) the Russian Federation have exerted significant control over our strategy, policies and operations. However, since 2008, only five of the twelve members of our Board of Directors are Gazprom appointees. Notwithstanding the reduction in Gazprom s shareholding, and its direct board representation, it and the Russian Federation have continued, and are expected to continue, to exert influence over our business, including, among other things, the election and removal of members of the Board of Directors and the Management Board, the declaration of dividends, acquisitions, investments and disposals and loans. Furthermore, although VEB s shareholding is expected to be insignificant, currently it is unclear VEB s impact on the Group s business and strategy. In addition, Gazfond has substantial voting power at shareholders meetings and oversight of, and decisionmaking power with respect to our management and general operations. For example, it can influence any vote on any proposed amendment to our charter, sale or acquisition of substantial assets or other major corporate transaction. Consequently, our shareholders have substantial oversight of, and decision-making power with respect to, our management and general operations. The interests of our shareholders may, in some circumstances, conflict with the interests of Noteholders and they may require us to take actions that may adversely affect the Noteholders investment. Any such action or conflict could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. We face a number of risks relating to our relationship with the Gazprom Group. We rely on the Gazprom Group both as a significant customer of our banking services and as a significant provider of our funding The Gazprom Group is one of our largest customers and we have historically been its preferred bank. As at 31 December 2011, our loans to the Gazprom Group accounted for 2.3 per cent. (RUB33.0 billion) of our gross loan to customers. 23

28 Gazprom has also been a significant source of our funding. As at 31 December 2011, 20 per cent. (RUB291.9 billion) of our outstanding total customer deposits were held for the benefit of the members of the Gazprom Group. However, Gazprom has no obligation to contribute funds or otherwise provide financial support to us in the future. Furthermore, Gazprom is not providing any guarantees in connection with the Notes or any Loan. We cannot assure you that we will remain the Gazprom Group s preferred bank in the future. The loss of such position could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. We are susceptible to a downturn in the natural gas sector A downturn in the Russian economy generally and/or in the natural gas sector in particular could impair the ability of the Gazprom Group and other natural gas sector companies to service their loans. See The industry and borrower concentrations in our loan portfolio make us vulnerable to downturns in certain sectors. Since the spread of the global financial crisis to Russia following the onset thereof in the autumn of 2007, fluctuations in global oil and gas prices had a significant downward impact on Russia s oil and gas sector. While there was a general improvement in the oil and gas sector in 2011, a downturn in the Russian economy or its oil and gas sector, could have a material adverse effect on our business, financial condition and results of operations and the value of the Notes. See Deteriorating economic conditions in Russia, together with the continued decline in the growth of Russia s banking sector, may continue to have an adverse effect on our business. Gazprom s continued investment in Gazprombank cannot be assured There can be no assurance that Gazprom will continue to invest in us in the future. As our primary activity is banking, our core business is not aligned with the core business of Gazprom. Any divestiture by Gazprom of its investment in us or change in its relationship with us, including by reason of the dilution of its equity stake in Gazprombank as a result of an issuance of new shares by Gazprombank where Gazprom does not subscribe for any or all of the shares to which it is entitled in proportion to its existing holding, could have a significant impact on the form and nature of our business, including our key customer base. Any such occurrence could consequently have a material adverse effect on our business, financial condition, results of operations, prospects and the value of the Notes. We are a highly regulated entity. We are subject to extensive regulation in the Russian Federation by governmental organisations, particularly the CBR. The requirements, including capital adequacy requirements (in particular, in light of Basel III guidelines), imposed by our regulators are designed to ensure the integrity of the financial markets and to protect customers and other third parties with whom we deal. These requirements are not necessarily designed to protect holders of the Notes. Consequently, these regulations could limit our activities, including our lending to the Gazprom Group, and could increase our costs of doing business. In addition, a breach of regulatory guidelines in the Russian Federation could expose us to potential liability, including the loss of our general banking licence. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities and the regulatory structure governing our operations is continuously evolving. Existing laws and regulations could be amended, the manner in which laws and regulations are enforced or interpreted could change and new laws or regulations could be adopted. If existing or future regulations were maliciously imposed on us, this could have an adverse effect on our business, financial condition and results of operations and prospects and the value of the Notes. Revocation of our existing banking licence by the CBR would have a material adverse effect on our business. Currently, all banking and various related operations in Russia require a banking licence from the CBR. We have obtained the required licence in connection with our banking activities. If we were to breach applicable legislation, the CBR could, inter alia, suspend certain of our banking operations or revoke our banking licence, depending on the scale of the breach. If our general banking licence were to be revoked, this would result in our inability to perform any banking operations or in a winding-up of our business. Failure to obtain necessary interested party transaction approval could result in the invalidation of certain transactions and adversely affect our business. Russian law provisions governing interested party transactions may be interpreted to imply that special approval procedures should apply, inter alia, to the transactions between companies within a consolidated group, even if such companies are directly or indirectly wholly owned by the parent of the consolidated group. This means that every transaction entered into between the companies within the Group requires an approval of a majority vote 24

29 of independent disinterested directors or disinterested shareholders of each such company. In addition, the concept of interested parties is defined with reference to the concepts of affiliated persons and group of persons, which are subject to many different interpretations under Russian law. Moreover, the provisions of Russian law defining which transactions must be approved as interested party transactions are subject to different interpretations. No consolidated group can be certain that its compliance with these concepts will not be subject to challenge. There is a possibility that the Russian courts, should the matter ever come before them, may conclude that the requisite approvals have not been obtained every time that the companies within the Group entered into transactions between each other. The failure to obtain the necessary approvals for such transactions could result in their invalidation and adversely affect our business, financial condition and results of operations and prospects and the value of the Notes. We may not be able to remain competitive and implement our strategy if we cannot retain and hire experienced and/or qualified personnel. We are dependent on our senior management for the implementation of our strategy and operation of our day-today activities. In addition, members of senior management have individual relationships that are important to the conduct of our business. We cannot assure you that our management will continue to make their services available to us. We strive to motivate and retain our management by implementing a long-term equity-based motivation programme and differentiated annual bonus payments. In addition, our success in growing our business will depend, in part, on our ability to continue to attract, retain and motivate qualified personnel. Competition in the Russian banking industry for personnel with relevant expertise is intense. If we fail to successfully manage our personnel needs, this would have a material adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. We are vulnerable to the risk that our employees may not adhere to our compliance procedures and risk management thresholds. We run the risk that our employees may not adhere to our compliance procedures and limits on risk-related activities. The precautions we take to prevent and detect these forms of misconduct may not always be effective. Misconduct by existing employees could include binding us to transactions that exceed authorised limits or present unacceptable risks, or concealing from us unauthorised or unsuccessful activities, which, in either case, may result in unknown and unmanaged risks or losses. Employee misconduct could also involve the improper use or disclosure of confidential information that could result in regulatory and legal sanctions and significant reputational or financial harm. Any such event could have a material adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. Transaction processing failures may expose us to legal and reputational risks, which could have a material adverse effect on our financial results. In common with other commercial banking groups, our business activities require us to record and process a very large number of transactions accurately on a daily basis. Our recording and processing of transactions are potentially subject to human and technological errors or a breakdown in our internal controls relating to the due authorisation of transactions, either centrally or within the branch network. Any failure or delay in recording or processing transactions, or other material breakdown in internal controls, could subject us to claims for losses and regulatory fines and penalties. If we suffer reputational or financial harm, this could have a material adverse effect on our financial condition, results of operations and prospects and the value of the Notes. Our potential vulnerability to a failure of our information technology systems and our reliance on certain software companies could have an adverse effect on our business. We, our regional branch network, our automated teller machine ( ATM ) systems and our risk management systems rely on the proper functioning and continuity of our information technology systems. Any significant interruption, deterioration, failure or lack of capacity of our information technology systems or any other systems in our branch network, clearing operations or elsewhere may cause us to fail to complete transactions, to fail to adhere to risk management procedures or to fail to verify critical information on a timely basis, which could have an adverse effect on our business, financial condition, results of operations, prospects and the value of the Notes. Furthermore, we are reliant to a large extent on Diasoft, CFT, GFI, Hewlett-Packard, Oracle and IBM for the informational technology services required for our banking, trust and customer information systems, and for continued reliability, upgradeability and safety of the software provided by these companies. If any of the foregoing companies were to experience delays in providing their services or were to cease producing or 25

30 servicing the relevant software altogether, this could have an adverse effect on our business, financial condition, results of operations and prospects and the value of the Notes. Risks Relating to the Russian Federation General Business Risks Emerging markets such as Russia are subject to greater risks than more developed markets, and financial turmoil in any emerging or developing market could disrupt our business, as well as cause the price of the Notes to suffer. Generally, investing in emerging and developing markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved in, and are familiar with investing in, such markets. Investors should also note that emerging markets such as Russia are subject to rapid change and that the information set out in this Base Prospectus may become outdated relatively quickly. Moreover, financial turmoil in any emerging or developing market country tends to adversely affect prices in equity and debt markets of all emerging and developing market countries as investors move their money to more stable, developed markets. The Russian markets were highly volatile during the global financial crisis beginning in The MICEX and RTS stock exchanges experienced significant overall declines although they started to recover in the course of 2009 and As has happened in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in Russia and adversely affect the Russian economy. For instance, terrorist activities in Russia and continuing armed conflicts in the Middle East region have had a significant effect on international and domestic financial and commodity markets. Because the Russian Federation produces and exports large amounts of crude oil and gas, any acts of terrorism or armed conflicts causing disruptions of Russian oil and gas exports could negatively affect the Russian economy and our business, particularly in light of our exposure to the Gazprom Group. In addition, during such times, companies that operate in emerging markets can face severe liquidity constraints as foreign funding sources are withdrawn. Furthermore, the availability of credit resources to entities operating within the emerging markets is significantly influenced by levels of investor confidence in such markets as a whole and so any factors that impact market confidence (for example, a decrease in credit ratings or state or central bank intervention in one market) could affect the price or availability of funding for entities within any of these markets. See also Economic Risks Economic instability in Russia could adversely affect our business. Financial turmoil in any emerging or developing market country could adversely affect our business, as well as result in a decrease in the price of the Notes. Political Risks Political and governmental instability or conflict could adversely affect the value of investments in Russia, including the Notes. Since 1991, Russia has changed from a one-party state with a centrally-planned economy to a federal republic with democratic institutions and a market-oriented economy. However, the Russian political system remains vulnerable to popular dissatisfaction, including dissatisfaction with the results of privatisations in the 1990s, as well as to demands for autonomy from particular regional and ethnic groups. The course of political, economic and other reforms has in some respects been uneven, and the composition of the Russian government has at times been unstable. Mr. Dmitry Medvedev, the President of the Russian Federation, and Mr. Vladimir Putin, the current Prime Minister of the Russian Federation and the President-elect, have maintained the stability of the Government and introduced policies generally oriented towards the continuation of economic reforms. In March 2012 Mr. Vladimir Putin was re-elected as the President of the Russian Federation with his inauguration scheduled for 7 May However, future changes in the Government, State Duma or the presidency, major policy shifts or eventual lack of consensus between the president, the Government, Russia s parliament and powerful economic groups could lead to political instability, which could have a material adverse effect on the value of investments in Russia generally and the Notes in particular and our prospects could be harmed if there is further governmental instability or if the course of reform policies does not continue. The actions of Russian legislative, executive and judicial authorities can affect the Russian securities market as well as banks and other businesses operating in Russia. In particular, the events surrounding claims brought by the Russian authorities against several major Russian companies, have led to questions being raised regarding the progress of market and political reforms in Russia and have resulted in significant fluctuations in the market price of Russian securities and a negative impact on foreign direct and portfolio investment in the Russian 26

31 economy, over and above the general market turmoil recently. Any similar actions by the Russian authorities that result in a further negative effect on investor confidence in Russia s business and legal environment could have a further material adverse effect on the Russian securities market, which could adversely affect our business, as well as result in a decrease in the price of the Notes. Emerging markets such as Russia are also subject to heightened volatility based on economic, military and political conflicts. The emergence of any new or escalated tensions in the region could negatively affect the economy of Russia and other countries that are involved. Such tensions or conflicts may lead to reduced liquidity, trading volatility and significant reductions in the price of listed Russian securities, with a resulting negative effect on the liquidity, stability and trading price of the Notes and our ability to raise debt or equity capital in the international capital markets. Conflict between federal and regional authorities and other domestic political conflicts could create an uncertain operating environment that would hinder our long-term planning ability and could adversely affect the value of investments in Russia. Russia is currently a federative state consisting of 83 constituent entities, or subjects. The Russian Constitution reserves some governmental powers for the federal government, some for the subjects and some for areas of joint competence. In addition, eight federal districts (federal nye okruga), which are overseen by a plenipotentiary representative of the President, supplement the country s federal system. The delineation of authority among and within the subjects is, in many instances, unclear and contested, particularly with respect to the division of tax revenues and authority over regulatory matters. For these reasons, the Russian political system is vulnerable to tension and conflict between federal, subject and local authorities. This tension could hinder our long-term planning efforts and may create uncertainties in our operating environment, any of which may prevent us from effectively and efficiently carrying out our business strategy. However, the recent amendments to Russian legislation whereby heads of regions are nominated by the president and appointed by regional legislatures (instead of direct election by the population) are designed to minimise conflict between federal and regional authorities and secure stability across the Russian Federation. In addition, ethnic, religious, historical and other divisions have, on occasion, given rise to tensions and, in certain cases, military conflict, both internally and with other countries. Russian military and paramilitary forces have been engaged in the Chechen Republic in the recent past and continue to maintain a presence there. In addition, various acts of terrorism have been committed within the Russian Federation. The most recent manifestation of terrorist acts in Moscow was the 24 January 2011 suicide bombing in the Domodedovo International Airport which killed at least 37 people. Moreover, in August 2008, Russia and Georgia were involved in an armed conflict. The conflict ended with Russian recognition of the independence of South Ossetia and Abkhazia. The risks associated with these events or potential future events could materially and adversely affect the investment environment and overall consumer confidence in the Russian Federation, which in turn could have a material adverse effect on our business, financial condition, results of operations and the value of the Notes. Deterioration of Russia s relations with other countries could have an adverse effect on our business, financial condition and results of operations and the value of the Notes. Over the past several years, Russia has been involved in economic disputes and military conflicts, with other countries, including members of the CIS, some of which are current and potential future markets for our services. On several occasions, this has resulted in the deterioration of Russia s relations with other members of the international community. For example, the military conflict which commenced in August 2008 between Russia and Georgia involving South Ossetia and Abkhazia has resulted in the deterioration of Russia s relations with certain other countries, including members of the EU, the United States and certain other former Soviet Union countries. As a result, the Russian stock exchanges experienced heightened volatility and significant overall price declines following such events. In addition, there has been a notable foreign capital outflow from Russia and the Rouble has been subject to downward exchange pressure. The emergence of new or escalated tensions between Russia and other countries, including any escalation of such conflicts, or the imposition of economic or other sanctions in response to the tensions, could negatively affect economies in the region, including the Russian economy, could have a material adverse effect on our business, financial condition and results of operations and may lead to reduced liquidity, trading volatility and significant falls in the price of listed Russian securities, including the Notes, with a resulting negative effect on the liquidity, stability and trading price of the Notes and our ability to raise debt or equity capital in the international capital markets. 27

32 Economic Risks Economic instability in Russia could adversely affect our business. Since the dissolution of the Soviet Union, the Russian economy has experienced at various times: significant declines in gross domestic product; hyperinflation or high levels of inflation; an unstable currency; high levels of state and corporate debt relative to gross domestic product; crises in the banking system limiting the ability of banks to provide liquidity to Russian corporate and individual borrowers; a large number of loss-making enterprises that continue to operate due to the lack of effective bankruptcy proceedings; significant use of barter transactions and illiquid promissory notes to settle commercial transactions; widespread tax evasion; the growth of black and grey market economies; high levels of capital flight; high levels of corruption and the penetration of organised crime into the economy; significant increases in unemployment and underemployment; the impoverishment of a large portion of the Russian population; social and governmental instability; lack of consensus between federal and local governments; ethnic and religious tensions; and outdated and deteriorating physical infrastructure. The Russian economy has been subject to abrupt downturns. In particular, on 17 August 1998, in the face of a rapidly deteriorating economic situation, the Government defaulted on its Rouble-denominated securities, the CBR stopped its support of the Rouble and a temporary moratorium was imposed on certain hard currency payments. These actions resulted in an immediate and severe devaluation of the Rouble and a sharp increase in the rate of inflation; a dramatic decline in the prices of Russian equity and debt securities; and an inability of Russian issuers to raise funds in the international capital markets. These problems were aggravated by the near collapse of the Russian banking sector after the events of 17 August 1998, which further impaired the ability of the banking sector to act as a reliable and consistent source of liquidity to Russian companies, and resulted in the loss of bank deposits in some cases. In the summer of 2004, the Russian banking sector experienced its first significant disruption since the financial crisis of August 1998, following the revocation by the CBR of the banking licences of several Russian banks. These unexpected revocations led to many banks refusing to lend to each other and the severe contraction of the Russian interbank market and sudden withdrawals of deposits by some retail and corporate customers from certain banks, which further reduced liquidity. In addition, Russia s financial market suffered a severe decline due to the global financial crisis in As Russia produces and exports large quantities of crude oil, natural gas and other commodities, the Russian economy is particularly vulnerable to fluctuations in the prices of crude oil, natural gas and other commodities on the world market, which reached record high levels in the first half of 2008 and have since experienced significant decreases, particularly in the price of crude oil which decreased by approximately 70 per cent. in the second half of 2008 and Russian banks and the Russian economy generally, have been adversely affected by the global financial turmoil beginning in the second half of The Russian economy has recently been characterised by extreme volatility in equity and debt markets, reductions in foreign investment and sharp decreases in gross domestic product. In February 2009, Fitch downgraded the long-term sovereign rating for the Russian Federation from BBB+ to BBB and downgraded Russia s country ceiling rating to BBB+ from A. In addition to 28

33 anticipated slower asset growth on the Russian banking market, the Russian Federation is facing slow GDP growth and low levels of industrial production. Furthermore, there have been periodic suspensions of trading in the Russian stock markets as well as extreme volatility in Russian equity markets generally and sharp declines in the share prices of Russian financial institutions. A combination of these factors may result in a significant deterioration in the financial fundamentals of Russian banks, including liquidity, asset quality, and profitability. These assessments may lead to a further reduction in foreign investment and an increased cost of borrowing for the Government. Since the advent of the global financial crisis, the Government has made approximately U.S.$75 billion available to the banking sector (by providing funds to financial institutions and directly to certain borrowers in the manufacturing and resource sector) in an effort to stimulate new lending and keep financial institutions afloat. See Banking sector and banking regulation in the Russian Federation Measures to support the liquidity and solvency of Russian banks and legal entities since October Although lately Russia s financial markets, the stock market and the Rouble have shown signs of improvement, there can be no assurance that these or other measures will result in a short- term recovery of the Russian economy. The positive trends in the Russian economy in recent years, such as increases in gross domestic product, a relatively stable currency and a reduced level of inflation, have begun to reverse as a consequence of the current global financial and economic crisis. From mid-2008 to the end of 2009, industrial production and exports decreased and the number of officially registered unemployed increased. Moreover, due to the Russian economy s reliance on revenue from oil and other commodities, there have been reductions in state spending and a reduction in the state budget revenues and expenditures as a result of the decrease in oil prices and prices of other commodities, which, along with other factors, have contributed to a significant devaluation of the Rouble against the U.S. dollar and euro in the second half of 2008 and the beginning of In addition, there has been some concern about the quality of banking sector credits as bad debts increase; with Standard & Poor s estimating that up to a third of Russian banks assets may be classified as problem loans in future. If financial stimulus packages, policy and other measures prove to be insufficient, this may cause a renewed deterioration of the financial market crisis which could put renewed downward pressure on the price of oil, the key driver of the Russian economy. A continuing decline in the price of crude oil, natural gas or other commodities could therefore further disrupt the Russian economy and adversely affect our operating results and financial condition. Social Risks Social instability caused by weakening economic conditions and turmoil in the financial markets in Russia could increase support for renewed centralised authority, nationalism or violence and thus materially adversely affect our ability to conduct our business effectively. Early in 2009, unemployment levels in Russia surpassed 10 per cent. although these have lately begun a slow decline and by March 2010 and January 2011 had reached 8.6 and 7.6 per cent, respectively. The weakening economic conditions and continuing turmoil in the financial markets in Russia may result in increased unemployment or the failure of state and private enterprises to pay full salaries on time and the failure of salaries and benefits generally to keep pace with the increasing cost of living. These conditions have already lead to a certain amount of labour and social unrest that may continue or escalate in the future. Such labour and social unrest may have widespread political, social and economic consequences, such as increased support for a renewal of centralised authority, increased nationalism, including restrictions on foreign involvement in the economy of Russia, and increased tension between the Government and its people. Any of these consequences could restrict our operations and lead to a loss of revenue, materially adversely affecting us. Risks Relating to the Russian Legal System Russia continues to develop legal framework in accordance with international standards and the requirements of a market economy. Russia continues developing the legal framework required by a market economy. Since 1991, Soviet law has been largely, but not entirely, replaced by a new legal regime as established by the Constitution of the Russian Federation, including the Civil Code and other federal laws, as well as decrees, orders and regulations issued by the President, the Government and federal ministries, which are, in turn, complemented by regional and local rules and regulations. These legal norms, at times, overlap or contradict one another. Several fundamental Russian laws have only recently become effective. The recent nature of much Russian legislation and the rapid evolution of the Russian legal system impact the enforceability of laws and can result in ambiguities, inconsistencies in legal interpretations and other anomalies. In addition, Russian legislation sometimes leaves substantial gaps in the regulatory infrastructure. Among the possible risks of the current Russian legal system are: 29

34 inconsistencies among: federal laws; decrees, orders and regulations issued by the president, the Government, federal ministries and regulatory authorities; and regional and local laws, rules and regulations; limited judicial and administrative guidance on interpreting Russian legislation; limited court personnel with the ability to interpret new principles of Russian legislation, particularly business and corporate law; gaps in the regulatory structure due to a delay in legislation being promulgated or the absence of implementing legislation; a high degree of discretion on the part of governmental authorities; and the absence of developed bankruptcy procedures. The insider trading regulation framework in Russia was established by the Federal Law No. 224-FZ On combating misuse of insider information and market manipulation of 27 July 2010 (the Insider Dealing Law ) which came into force on 27 January 2011, save for the regulation of insider trading a part of which came into force on 30 June 2011 with another part coming into force on 30 June The Insider Dealing Law sets out new market manipulation and insider dealing rules and, among other things, lists categories of persons that can be considered insiders, including professional market participants (e.g., brokers and dealers) who transact on behalf of their clients and have received insider information from such clients. Any person who illegally uses the inside information and publishes misleading information may be held liable for misuse of information and/or market manipulation. Certain provisions of the Insider Dealing Law are vaguely drafted and it is not clear how they will be applied in practice by state authorities and courts. All of these weaknesses could affect our ability to enforce our rights under contracts, or to defend ourselves against claims by others. The difficulty of enforcing court decisions and the discretion of governmental authorities to file and join claims and enforce court decisions could prevent us or investors from obtaining effective compensation in court proceedings. The independence of the judicial system and its immunity from economic and political influences in Russia is also developing. The court system is understaffed and underfunded. Russia is a civil law jurisdiction and, as such, judicial precedents generally have no binding effect on subsequent decisions. Additionally, court claims are often used in furtherance of personal aims different from the formal substance of the claims. If we become subject to such claims, the courts may render decisions with respect to those claims that are adverse to us and our investors. State authorities have a high degree of discretion in Russia and at times exercise their discretion arbitrarily, without due process or prior notice, and sometimes in a manner that is contrary to law. Unlawful or unilateral state actions could include the withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions and civil actions. Federal and local government entities could also use common defects in matters surrounding share issuances and registration as a basis for court claims and other demands to invalidate such issuances and registrations and/or to void transactions, often to further interests different from the formal substance of the claims. Such state action, if directed at us, could have a material adverse effect on the business of our Group, and on the value of the Notes. There are also legal uncertainties relating to property rights. During Russia s transformation from a centrally planned economy to a market economy, legislation has been enacted to protect private property against expropriation and nationalisation. However, it is possible that these protections may not be enforced in the event of an attempted nationalisation, or in the event our business is reorganised. Our failure to receive what we believe to be adequate compensation in the event of the nationalisation of any of our entities, their assets or portions thereof, or their break-up into separate companies, could have a material adverse effect on our operations and revenues, and on the value of the Notes. In addition, since 2003, the Ministry for Taxes and Levies (now succeeded by the Federal Tax Service) has begun to challenge certain Russian companies use of tax-optimisation schemes. The press has reported significant claims for back taxes and related penalties against crude oil companies, telecommunications companies, retail companies and other major companies. Although we believe that we are currently in material compliance with all of our tax obligations, there can be no assurance that state actions, if directed at us or our clients, would not have a material adverse effect on our business and on the value of the Notes. 30

35 Foreign judgments may not be enforceable against us. Russian courts may not enforce any judgment obtained in a court established in a country other than the Russian Federation unless there is a (i) treaty in effect between such country and the Russian Federation providing for reciprocal recognition and enforcement of court judgments, and (ii) federal law of the Russian Federation providing for recognition and enforcement of foreign court judgments. No such treaty exists between the Russian Federation and the United Kingdom and no such federal law has been passed. Even in the event that there is such a treaty and a federal law, Russian courts may nonetheless refuse to recognise and enforce a foreign court judgment on the grounds provided in such treaty and in Russian legislation in effect on the date on which such recognition and enforcement is sought. The Arbitrazh Procedural Code of the Russian Federation establishes the procedures for the recognition and enforcement of foreign court judgments and contains an extensive list of grounds for refusal of such recognition and enforcement in the future. Moreover, Russian procedural legislation may change and no assurance can be given that in the future no other ground for refusal of such recognition and enforcement may arise. However, we are aware of at least two instances in which Russian courts have recognised and enforced foreign court judgments (including a judgment of an English court), on the basis of the principle of reciprocity and (in the case of enforcement of an English court judgment) the existence of a number of bilateral and multilateral treaties to which both the United Kingdom and the Russian Federation are parties. The courts determined that such treaties constituted grounds for the recognition and enforcement of the relevant English court judgment in Russia. In the absence of established court practice, however, it is difficult to predict whether a Russian court will be inclined in any particular instance to recognise and enforce an English court judgment on these grounds. In addition, Russian courts have limited experience in the enforcement of foreign court judgments. The limitations described above, including the general procedural grounds set out in Russian legislation for the refusal to recognise and enforce foreign court judgments in the Russian Federation, may significantly delay the enforcement of such judgment or deprive the Issuer and/or the Noteholders of effective legal recourse for claims related to the investment in the Notes. The relevant Loan Agreement is governed by English law and provides for disputes, controversies and causes of action brought by any party thereto against us to be settled by the courts of England at the option of the lender or in general by arbitration in accordance with the Rules of the London Court of International Arbitration. The Russian Federation, as a successor of the Soviet Union, is a party to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"). A Russian court should generally recognise and enforce a foreign arbitral award obtained in a state that is party to the New York Convention (subject to the qualifications provided for in the New York Convention and compliance with Russian law). However, it may be difficult to enforce arbitral awards in the Russian Federation due to the relative inexperience of the Russian courts in international commercial transactions and political resistance to the enforcement of awards against Russian companies in favour of foreign investors. Furthermore, enforcement of any arbitral award pursuant to arbitration proceedings held in accordance with the Rules of the London Court of International Arbitration and the application of English law to the relevant Loan Agreement may be limited by the application of mandatory Russian laws with respect to bankruptcy, winding up or liquidation of Russian companies and credit organisations, in particular. Risks Relating to Specific Russian Legislation and Government Regulations The legislative framework governing bankruptcy in the Russian Federation differs substantially from that of Western European countries, which could adversely affect the value of the Notes in the event of our insolvency. Russian bankruptcy law often differs from comparable law in Western European countries and may be subject to varying interpretations. There is little precedent to predict how claims on behalf of the Noteholders or the Issuer against us would be resolved in case of our bankruptcy. Weaknesses relating to the Russian legal system and Russian legislation create an uncertain environment for investment and business activity and thus could have a material adverse effect on an investment in the Notes. In addition, under Russian law, our obligations under the Notes would be subordinated to the following obligations: claims related to the administration of insolvency proceedings, including salaries of personnel involved in insolvency proceedings, utility bills, legal expenses and other payments; first priority claims (including claims in tort for damages in respect of physical persons life or health, as well as moral damages); 31

36 claims of retail depositors and individuals holding current accounts (except for individual entrepreneurs); severance pay, claims under employment contracts and other social benefits and copyright claims; secured obligations (claims secured by a pledge of assets); and tax and other payment obligations to the government. Any residual claims of secured creditors that remain unsatisfied after the sale of the collateral rank pari passu with claims of unsecured creditors. In the event of our insolvency, the subordination of obligations under each Loan Agreement, as described above, may substantially decrease the amounts, if any, available for repayment of any Loan and, as a result, the corresponding Notes. Our failure to comply with the requirements for the membership in the system of mandatory insurance of individuals bank deposits could have an adverse effect on our business. As part of the ongoing Russian banking reform, the Federal Law No. 177-FZ On the Insurance of Individuals Bank Deposits in the Russian Federation of 23 December 2003 (the Deposit Insurance Law ) came into force in December 2003 introducing a system of mandatory insurance of deposits held by individuals in Russian banks (the System ). The Deposit Insurance Law, with its ensuing CBR regulations (the Deposit Insurance Regime ), has introduced new requirements for banks in Russia wishing to take deposits of private persons. In particular, under the Deposit Insurance Regime, banks are required to meet certain standards on the accuracy of their financial reports, compliance with the CBR prudential requirements (including the performance of the CBR mandatory economic ratios) and financial stability. The adequacy of a bank s financial stability is assessed on, inter alia, certain transparency criteria, such as the transparency of the bank s shareholding structure, the transparency of the parties exercising a material influence (direct or indirect) on the management of the bank, and the significance of the influence of off-shore entities on the management of the bank. All banks wishing to continue to accept individuals deposits in Russia and participate in the System were required to apply to the CBR for a certificate confirming compliance with the Deposit Insurance Regime prior to 27 June We submitted our application to join the System on 24 June 2004, and were accepted into the System on 10 February Being a member of the System, we must comply with the relevant requirements on a continuous basis. Failure to meet these requirements may in certain instances lead to the expulsion of us from the System and revocation of our retail banking licence. This would cause us to lose our current individual client base and would have an adverse effect on our business. The implementation in Russia of international guidelines on capital adequacy could adversely affect our business, financial conditions and results of operations. The implementation of the Basel Capital Accord in Russia is still underway. On 1 July 2010 a number of regulations aimed at the implementation of the Basel Capital Accord, providing, inter alia, for the inclusion of the operational risks amount into the calculation of the capital adequacy ratio (N1) took effect. Based on the preliminary calculation of the impact of such changes on the indicators of Gazprombank s mandatory ratios, Gazprombank s capital adequacy ratio is expected to decrease by 1.35 per cent. after the inclusion of the whole amount of the operational risk from 1 July As at 1 January 2012, Gazprombank s capital adequacy ratio (N1) amounted to 11.5 per cent. which is above the CBR minimum requirement of 10 per cent. As at the date of this Base Prospectus, we believe that Gazprombank has a sufficient amount of the capital for the compliance with the capital adequacy ratio requirements as set out by the CBR, both generally and for Gazprombank s participation in the deposit insurance scheme. In June 2004, the Basel Committee on Banking Supervision published a report entitled International Convergence of Capital Measurement and Capital Standards: a Revised Framework, which sets out a new capital adequacy framework (the Basel II Framework ) to replace the Basel Capital Accord issued in Implementation of the new framework within the 25EU Member States began on 1 January 2007, although implementation of some aspects (the advanced Basel II approaches) only commenced on 1 January 2008 and individual member countries were able to determine their own actual implementation schedules. The Basel Committee members have encouraged authorities in other jurisdictions to consider the readiness of their supervisory structures for the Basel II Framework and recommended that they proceed at their own pace based upon their own priorities. Despite the lack of implementing regulations in Russia to date, Gazprombank has been independently developing certain aspects of the Basel Capital Accord standards to allow it to assess more 32

37 accurately its capital levels and assumed risks in the Russian operating environment. The full impact of the adoption of Basel II Framework in Russia on the Group s Russian banking operations cannot yet be reliably determined. Furthermore, to address the systemic risk arising from the interconnectedness of banks and other financial institutions through the derivatives markets, improve risk management and governance, strengthen banks' transparency and disclosures and improve the banking sector's ability to absorb shocks arising from financial and economic stress, the Basel Committee on Banking Supervision developed and published in late 2010 the International Regulatory Framework for Banks (referred as the Basel III ). It is currently expected that Basel III will be fully implemented in Russia by 1 January Should any future alterations to the capital adequacy standards under Basel II Framework (or CBR regulations implementing Basel II Framework) require us to maintain higher capital levels in our banking operations or limit the use of significant portions of our capital or should the potential future implementation of Basel III require us to incur additional significant costs, this could adversely affect the Group s business, financial condition, results of operations or prospects. The rights of our shareholders, the public reporting requirements and the Russian accounting regulations to which Gazprombank is subject differ significantly from those applicable to comparable companies in other jurisdictions. Our corporate affairs are governed by our charter, internal regulations and by the laws governing Russian banks and companies incorporated in Russia. The rights of shareholders and the responsibilities of members of our board of directors (the Board of Directors ) and management board (the Management Board ) under Russian law are different from, and may be subject to certain requirements not generally applicable to, companies organised in the United Kingdom or other jurisdictions. The Federal Law No On Banks and Banking Activities of 2 December 1990 (the Banking Law ) contains certain periodic disclosure requirements including the requirement to publish annual financial statements in accordance with Russian accounting regulations. For instance, we are required to publish our annual unconsolidated financial statements in accordance with Russian Accounting Regulations, together with an independent auditor s report. The Group consists of a large number of companies with a wide geographical range of operations. A majority of the companies in the Group are governed by Russian law, including Russian accounting regulations. These factors, as well as the preparation of financial statements for each of our companies and our annual and interim consolidated accounting and financial reports, determine the time of the preparation of the reports. Therefore, we believe that it may take us more time than many western European companies to prepare and publish our financial reports. In accordance with the Banking Law, we are required to publish certain RAS accounting reports quarterly, including a statement of financial position, income statement and information on our assets, capital reserves and allowances for non-performing loans. Such publications do not contain all of the information contained in our IFRS consolidated financial statements and are not prepared in accordance with IFRS. We have regularly published such reports and generally comply with the reporting requirements. In accordance with Russian legislation applicable to securities issuers, we are required to file quarterly reports with the CBR. These reports include certain information about us, our management, subsidiaries, affiliates and selected financial and business information (such as events of litigation, quarterly statutory accounting reports prepared in accordance with RAS, etc.). In addition, Russian law requires certain disclosures be made by open joint-stock companies, such as the disclosure of annual reports, annual accounts (audited by an independent auditor and approved by shareholders), any material facts affecting the financial condition and the business of the relevant company, certain board of directors resolutions and lists of affiliated companies. Nonetheless, despite these requirements and initiatives and recent initiatives to improve corporate transparency in Russia, there is still less publicly available information about us than there is available for comparable banks in, for example, the United Kingdom or the United States. The relatively less transparent nature of corporate governance in Russia could have a material adverse effect on our business, prospects, financial condition and results of operations. Shareholder liability under Russian legislation could cause us to become liable for the obligations of our subsidiaries. Russian legislation generally provides that shareholders in a Russian joint stock company or participants in a Russian limited liability company are not liable for the obligations of the joint stock company or limited liability company and bear only the risk of loss of their investment. This may not be the case, however, when one company (the effective parent ) is capable of making decisions for another company (the effective 33

38 subsidiary ). Under certain circumstances, the effective parent bears joint and several responsibility for transactions concluded by the effective subsidiary in carrying out such decisions. In addition, the effective parent is secondarily liable for the effective subsidiary s debts if the effective subsidiary becomes insolvent or bankrupt as a result of the action or inaction of an effective parent. In addition, in accordance with the recent amendments to the Russian insolvency legislation, a bank s shareholders in certain defined circumstances could be liable for the bank s debt incurred after the occurrence of any indications of bankruptcy. Accordingly, in our position as the effective parent of the subsidiaries in which we own more than 50 per cent. of the charter capital, we could be liable for their debts. This liability could have an adverse effect on us. Some transactions conducted by us involving interested parties as defined under Russian law require the approval of disinterested directors or disinterested shareholders and our failure to obtain such approvals could have an adverse effect on us. Russian law requires a company that enters into transactions that are referred to as interested party transactions to comply with special approval procedures by disinterested directors and/or shareholders. See Principal Shareholders and Related Party Transactions. If the approval procedures are not followed, a transaction could be declared invalid upon a claim by the company or any of its shareholders. However, a shareholder may have to prove actual damages to the company or the shareholder in order to bring such a claim. The interested party could be held liable for damages. Transactions between members of a consolidated corporate group may also, in certain circumstances, be considered to be interested party transactions, even when the companies involved are wholly-owned by the parent company. Our Russian subsidiaries are subject to the same (or similar) legal requirements regarding the approval of interested party transactions. Our failure to follow the required approval procedures for interested party transactions could adversely affect our business, financial condition and results of operations. Risks Relating to the Russian Taxation System The Russian taxation system is relatively underdeveloped. The Russian Government is constantly reforming the tax system by redrafting parts of the Tax Code of the Russian Federation (the Russian Tax Code ). These changes have resulted in some improvement in the tax climate. As of 1 January 2009 the corporate profits tax rate was reduced to 20 per cent. For individuals who are tax residents in Russia the current personal income tax rate is 13 per cent. The general rate of VAT is 18 per cent. Since 1 January 2010 the Unified Social Tax was replaced by social security charges to the Russian pension, social security and medical insurance funds. Since 1 January 2012 the total security charge generally equals 30 per cent. Since 1 January 2012 the new Russian transfer pricing legislation is in force. Russian tax laws, regulations and court practice are subject to frequent change, varying interpretations and inconsistent and selective enforcement. In accordance with the Constitution of the Russian Federation, laws that introduce new taxes or worsen a taxpayer s position cannot be applied retroactively. Nonetheless, there have been several instances when such laws have been introduced and applied retroactively. Despite the Russian Government s taking steps to reduce the overall tax burden in recent years in line with its objectives, there is a possibility that the Russian Federation would impose arbitrary or onerous taxes and penalties in the future, which could have a material adverse effect on the Group s business, results of operations and financial condition. In addition to the usual tax burden imposed on Russian taxpayers, these conditions complicate tax planning and related business decisions. These uncertainties could possibly expose the Group to significant fines and penalties and potentially severe enforcement measures despite its best efforts at compliance, and could result in a greater than expected tax burden, and could have a material adverse effect on the Group s business, results of operations and financial condition or prospects. Generally, taxpayers are subject to tax audits for a period of three calendar years immediately preceding the year in which the audit commences. This provision of the Tax Code relates to the fact that the tax authorities are prohibited from carrying out repeat on-site tax audits in respect of the same taxes for a tax period which has already been audited. The statute of limitations for the commission of a tax offence is also limited to three years from the date on which it was committed or from the date following the end of the tax period during which the tax offence was committed (depending on the nature of the tax offence). Nevertheless, based on current judicial interpretation, there may be cases where the tax offence statute of limitations may be extended beyond three years. Tax audits or inspections may result in additional costs to the Group, in particular if the relevant tax authorities conclude that the Group did not satisfy its tax obligations in any given year. Such audits or inspections may also 34

39 impose additional burdens on the Group by diverting the attention of management resources. The outcome of these audits or inspections could have a material adverse effect on the Group s business, results of operations, financial condition or the trading price of the Notes. In October 2006, the Plenum of the Supreme Arbitration Court of the Russian Federation issued a ruling concerning judicial practice with respect to unjustified tax benefits. In this context, a tax benefit means a reduction in the amount of a tax liability resulting, in particular, from a reduction of the tax base, the receipt of a tax deduction or tax concession or the application of a lower tax rate, and the receipt of a right to a refund (offset) or reimbursement of tax. The ruling provides that where the true economic intent of operations is inconsistent with the manner in which they have been taken into account for tax purposes a tax benefit may be deemed to be unjustified. The same conclusion may apply when an operation lacks a reasonable economic or business rationale. As a result, a tax benefit cannot be regarded as a business objective in its own right. On the other hand, the fact that the same economic result might have been obtained with a lesser tax benefit accruing to the taxpayer does not constitute grounds for declaring a tax benefit to be unjustified. Moreover, there are no rules and little practice for distinguishing between lawful tax optimisation and tax avoidance or evasion. The tax authorities have actively sought to apply this concept when challenging tax positions taken by taxpayers in court, and are anticipated to expand this trend in the future. Although the intention of this ruling was to combat tax law abuses, in practice there can be no assurance that the tax authorities will not seek to apply this concept in a broader sense than may have been intended by the Supreme Arbitration Court. The above conditions create tax risks in the Russian Federation that are more significant than the tax risks typically found in countries with more developed taxation, legislative and judicial systems. These tax risks impose additional burdens and costs on the Group s operations, including management resources. Further, these risks and uncertainties complicate the Group s tax planning and related business decisions, potentially exposing the Group to significant fines, penalties and enforcement measures, and could materially adversely affect the Group s business, results of operations and financial condition. Furthermore, Russian tax legislation is consistently becoming more sophisticated. It is possible that new revenue raising measures could be introduced. Although it is unclear how any new measures would operate, the introduction of such measures may affect the Group s overall tax efficiency and may result in significant additional taxes becoming payable. We cannot offer prospective investors any assurance that additional tax exposures will not arise. Additional tax exposures could have a material adverse effect on the Group s business, results of operations, financial condition or prospects. New Russian transfer pricing rules may subject the Group s transfer prices to challenge by the Russian tax authorities. Since 1 January 2012 new transfer pricing legislation has been introduced to the Russian tax law. In summary, this transfer pricing legislation results in new transfer pricing rules, in particular: the methods for monitoring the prices of controlled transactions have been expanded; the list of controlled transactions has been expanded to include: - cross-border transactions with certain types of commodities where the amount of income attributable to one counterparty exceeds RUB60 million; - Russian domestic transactions between related entities if the total annual turnover of such transactions exceeds RUB1 billion (RUB3 billion for 2012 and RUB2 billion for 2013); - transactions with residents of offshore jurisdictions included in the list established by the Russian Ministry of Finance where the amount of income attributable to one counterparty exceeds RUB60 million; - transactions between Russian legal entities and related foreign legal entities. The amended transfer pricing law requires taxpayers to notify the Russian tax authorities as to all controlled transactions (for 2012 and 2013 the notification should be made in case the income attributable to one counterparty exceeds RUB100 million and RUB80 million respectively). Taxpayers must also be required to present to the Russian tax authorities transfer pricing documentation upon their request. The Russian transfer pricing law could have a material adverse effect on the Group s business, results of operations and financial condition. Risk Factors Related to the Notes and the Trading Market Your right to receive payments in respect of the Notes will be limited to payments received by the Issuer under the relevant Loan Agreement. 35

40 The Issuer is only obliged to make payments under the Notes to the Noteholders in an amount equivalent to sums of principal, interest and/or additional amounts (if any) actually received by or for the account of the Issuer under the relevant Loan Agreement, less any amount in respect of the Reserved Rights. Consequently, if we fail to fully satisfy our obligations under the relevant Loan Agreement, you will receive less than the scheduled amount of principal, interest and/or additional amounts (if any) on the relevant due date. We may not have sufficient funds to satisfy our obligations under the relevant Loan Agreement, or our contractual obligations may prevent us from repaying the relevant Loan at maturity. At maturity, we may not have the funds to fulfil our obligations under the relevant Loan Agreement and may not be able to arrange for additional financing. If the maturity date of the relevant Loan occurs at a time when other arrangements prohibit us from repaying the relevant Loan, we would try to obtain waivers of such prohibitions from the lenders under those arrangements, or we could attempt to refinance the borrowings that contain the restrictions. However, we cannot assure you that we would be able to obtain such waivers or refinance these borrowings. As a Noteholder, you have no direct recourse to us. Except as otherwise disclosed in Terms and Conditions of the Notes and in the Trust Deed, no proprietary or other direct interest in the Issuer s rights under or in respect of the relevant Loan Agreement or the relevant Loan exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any of the provisions of the relevant Loan Agreement or have direct recourse to us, except through action by the Trustee under the Security Interests (as defined under Terms and Conditions of the Notes ). Neither the Issuer nor the Trustee under the Assigned Rights (as defined under Terms and Conditions of the Notes ) shall be required to monitor our financial performance or status or to enter into proceedings to enforce payment under the relevant Loan Agreement unless it has been indemnified and/or secured by the Noteholders to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith. Payments of principal and/or interest by us under the relevant Loan Agreement to, or to the order of, the Trustee or the Paying Agent will satisfy the Issuer s obligations in respect of the Notes. Consequently, Noteholders will have no further recourse against the Issuer or us after such payment is made. There are risks associated with the newness of debt instruments that are both denominated and settled in Roubles and the inexperience of both the Clearing Systems and the Russian and international banking systems in dealing with them. The Issuer may issue series of Notes under the Programme which are denominated and settled in Roubles. Offerings of debt instruments that are both denominated and settled in Roubles are a relatively new phenomenon in the international capital markets. This, coupled with the relative inexperience of both Euroclear and Clearstream, Luxembourg (the Clearing Systems ) and the Russian and international banking systems in dealing with Rouble payments and Rouble accounts, could lead to unforeseen difficulties, which may have an adverse effect on the liquidity, marketability or trading price of such Notes. In particular: Debt instruments that are both denominated and settled in Roubles only became accepted by Clearstream, Luxembourg and Euroclear in early Due to the lack of experience of the Clearing Systems with settling, clearing and trading debt instruments that are both denominated and settled in Roubles, there can be no guarantee that such clearing, settlement and trading procedures will progress smoothly or in a way which is comparable to procedures carried out with respect to instruments denominated in more conventionally settled currencies, such as U.S. dollars or euros. Russian law previously prohibited or otherwise severely restricted the transfer and holding of Roubles offshore and their repatriation onshore. Although these restrictions have now been lifted for non- residents (save for some restrictions which apply to the regime of residents accounts held outside of Russia), there is still no specific tested framework under Russian law for transferring or holding Roubles in offshore Rouble accounts. As with much recent Russian legislation, there is extremely limited or non- existent regulatory or court practice in interpreting these regulations (see Risks relating to the Russian Legal System ). If restrictions or prohibitions were placed on the transfer and holding of Roubles offshore or if such legislation was reinterpreted by the Russian regulators or courts to the effect that restrictions were still deemed to apply to the transfer and holding of Roubles offshore, this would severely hinder Noteholders ability to receive payments of principal or interest under the relevant Notes or proceeds from the sale of such Notes. 36

41 Payments of principal and interest under the relevant Notes and proceeds from the sale of such Notes will be made in Roubles. All payments of Roubles to, from, or between Rouble accounts located outside Russia will be made via onshore correspondent accounts within the Russian banking system. The Russian banking system is less developed than many of its Western counterparts and at present has little experience in dealing with payments relating to eurobonds or similar international debt instruments. Consequently there is a risk that payments of both principal and interest under the relevant Loan and the relevant Notes and proceeds from the sale of such Notes, which need to pass through the Russian banking system, will be subject to delays and disruptions which may not exist in more mature banking markets. In order for Noteholders to remove Roubles received from payments of principal and interest on the relevant Notes and proceeds from the sale of such Notes from the Clearing Systems, they will need to hold a bank account denominated in Roubles. The administrative difficulties associated with opening Rouble accounts outside Russia are significant. Non-resident Noteholders may also encounter considerable procedural difficulties with opening Rouble accounts onshore in Russia. There can therefore be no guarantee that Noteholders will be able to successfully open up a Rouble bank account either offshore or in Russia or transfer Rouble payments made under the relevant Notes out of the Clearing Systems. Upon the occurrence of certain circumstances described in the relevant Loan Agreement, we may prepay the relevant Loan. Under the terms of the relevant Loan Agreement, we may, subject to certain conditions, prepay the relevant Loan if we are required to increase our payments for tax reasons regardless of whether the increased payment obligation results from any change in the applicable tax laws or treaties or from the change in application of existing tax laws or treaties or from enforcement of the security provided for in connection with the Notes. We may also prepay the relevant Loan if we are required to indemnify the Issuer in respect of certain increased costs to the Issuer (as set out in the relevant Loan Agreement). In the event that it becomes unlawful for the Issuer to allow the relevant Loan to remain outstanding under the relevant Loan Agreement, to maintain or give effect to any of its obligations under the relevant Loan Agreement and/or to charge or receive or to be paid interest at the rate then applicable to the relevant Loan, we may be required by the Issuer to repay the relevant Loan in full. In case of any prepayment, all outstanding Notes would be redeemable at par with accrued interest or as otherwise specified in the relevant Loan Agreement. The lack of a public market for the Notes could reduce the value of your investment. The Notes are expected to be listed on the Irish Stock Exchange. However, there can be no assurance that a liquid market for the Notes will be maintained. If an active trading market for the Notes is not maintained, the market price and liquidity of the Notes may be adversely affected. The market for securities issued by Russian issuers is influenced by economic and market conditions in other Eastern European countries and other emerging and developing markets. In view of disruptions recently experienced in the international and domestic capital markets, there can be no assurance as to the development or liquidity of any market for the Notes. Payments on the relevant Loan may be subject to Russian withholding tax. In general, interest payments on borrowed funds made by a Russian legal entity to a non-resident legal entity or organisation are subject to Russian withholding tax at a rate of 20 per cent. for legal entities and 30 per cent. for non-resident individuals, unless such withholding is reduced or eliminated pursuant to the terms of an applicable double tax treaty. Based on professional advice received, Gazprombank believes that interest payments on the relevant Loan made to the Issuer should not be subject to withholding tax under the terms of the applicable double tax treaty between the Russian Federation and Ireland. However, the application of tax benefits under the double tax treaty could be influenced by the recently proposed amendments to the Russian Tax Code, which could enter into force in the near future. The amendments state that the provisions of an applicable double tax treaty (including those establishing tax benefits) should not apply to income received by any individual or organisation if such individual or organisation, which is "the actual recipient" of such income, is not a tax resident of the Contracting State which has concluded the double tax treaty with the Russian Federation. Currently, it is not clear when or if these amendments will come into force and how they will be applied in practice. Therefore, at this time it is not possible to determine the extent to which such amendments could impact the application of the double tax treaty benefits to the interest payments under the Loan made by Gazprombank. Therefore, there can be no assurance that such double tax treaty relief will be available or will continue to be available throughout the term of the relevant Loan. 37

42 The application of tax benefits under the double tax treaty could be influenced by changes in the position of the Russian tax authorities to look beyond the mere form of the transaction while assessing the availability of treaty benefits. A recent letter of the Ministry of Finance of the Russian Federation No /1, dated December 30, 2011 expressed the view that the noteholders were the beneficial owners of interest payable by a Russian bank on the proceeds of a Eurobond offering that were placed as a deposit with the Russian bank by the issuer of the notes (the issuer was a special purpose vehicle established by the Russian bank). Although that letter refers to a deal structure which is not the same as the transaction structure described in the Base Prospectus, and refers to an issuer domiciled in a jurisdiction which is different from the jurisdiction of the Issuer, Gazprombank cannot exclude the risk that the conclusions in the letter could potentially be applied by the Russian tax authorities to the payments of interest in respect of the Loan. Gazprombank is aware of at least one recent instance where the Russian tax authorities with respect to a transaction similar to the one described in the Base Prospectus argued that the noteholders rather than the issuer should be regarded as the actual recipients of the interest income. The issuer in that particular transaction was located in a jurisdiction which is different from the Issuer's jurisdiction. This instance is currently being discussed, but, to the best of Gazprombank s knowledge, has not been brought to court. If, in the instance above, the issue is brought before a Russian court and the court decides in favour of the Russian tax authorities, such decision could result in impairing the Issuer s and Gazprombank s position to benefit from the withholding tax exemption provided by the respective double tax treaty. On the other hand, expected amendments to the Russian Tax Code could nevertheless allow the interest on the Loan not to be subject to withholding, if such amendments are adopted. In particular, the Ministry of Finance of the Russian Federation is seeking to introduce into the Russian Tax Code an exemption from the obligation to withhold tax from interest paid under transactions similar to the transactions described herein. The relevant official communication and the draft amendments to the Russian Tax Code were posted on the website of the Ministry of Finance of the Russian Federation on 20 February According to these draft amendments, in respect of bonds issued prior to 1 January 2013, Russian borrowers are exempted from the obligation to withhold Russian withholding tax from interest payments made to foreign companies on debt obligations arising in connection with placement by these foreign companies of quoted bonds, provided that (1) there is a double tax treaty between the Russian Federation and the jurisdiction of tax residence of the issuer, and (2) the issuer duly confirms its tax residence. The draft law does not provide tax exemption for the holders of Eurobonds from Russian tax on interest payments, although at present there is no mechanism or requirement for non-residents to self-assess and pay the tax. For the purpose of the above draft amendments, quoted bonds mean bonds and other debt obligations listed on one or more foreign stock exchanges specified in the list approved by the Federal authority for securities markets in consultation with the Ministry of Finance of the Russian Federation or rights to which bonds or obligations are recorded by a recognized depositary-clearing organisation located in a country which has concluded a double tax treaty with the Russian Federation which country is specified in the list approved by the Federal authority for securities markets in consultation with the Ministry of Finance of the Russian Federation. To the best of our knowledge, these lists have not been drafted yet. According to the official communication on the website of the Ministry of Finance of the Russian Federation, based on its consultations with the Federal Tax Service there are no plans to challenge borrowers in connection with payments relating to Eurobonds issued during 2012 in respect of which borrowers are expected to be released from any obligation as a tax agent under the proposed legislative amendments. The law should generally apply retrospectively to interest payments made after 1 January 2007, which, given the general three year limitation for tax audits, should mean that if the law is adopted tax agents in the above situation should not be challenged for not having withheld tax in prior periods. However, as discussed above, this communication represents merely the intention of the fiscal authorities and not a binding commitment as to future actions by the authorities. The above amendments to the Russian Tax Code have not been sent to the State Duma and, therefore, we cannot guarantee that important aspects of this draft law will not change significantly; any such changes could have either positive or, alternatively, adverse effect on the tax treatment of the transaction described herein. If any payments under the relevant Loan are subject to any Russian or Irish withholding tax, Gazprombank will be obliged to increase the amounts payable as may be necessary to ensure that the recipient receives a net amount equal to the amount it would have received in the absence of such withholding taxes. In addition, payments in respect of the Notes will, except in certain limited circumstances, be made without deduction or withholding for or on account of Irish taxes except as required by law. Based on professional advice that it has 38

43 received, Gazprombank believes that payments in respect of the Notes will only be subject to deduction or withholding for or on account of Irish taxes as described in Taxation Ireland. In the event of such a deduction or withholding, the Issuer will only be required to increase payments to the extent that it receives corresponding amounts from Gazprombank under the relevant Loan Agreement. While the Loan Agreement provides for Gazprombank to pay such corresponding amounts in these circumstances, there are some doubts as to whether a tax gross up clause such as that contained in the Loan Agreement is enforceable under Russian law. Due to the limited recourse nature of the Notes, if Gazprombank fails to pay any such gross-up amounts, the amount payable by the Issuer under the Notes will be correspondingly reduced. Any failure by Gazprombank to increase such payments would constitute an Event of Default under the Loan Agreement. In certain circumstances (including following enforcement of the security upon the occurrence of a Relevant Event as defined in the Trust Deed), in the event that Gazprombank is obliged to increase the amounts payable, it may prepay the principal amount of the Loan together with accrued interest and/or additional amounts payable (if any) thereon, and all outstanding Notes would be redeemed by the Issuer (to the extent that it has actually received the relevant funds from Gazprombank). The Issuer will grant security over certain of its rights in the Loan Agreement to the Trustee in respect of its obligations under the Notes. The security under the Trust Deed will become enforceable upon the occurrence of an Event of Default or a Relevant Event, as defined in the relevant Loan Agreement and the Trust Deed. In these circumstances, payments under the Loan Agreement (other than in respect of Reserved Rights) would be required to be made to, or to the order of, the Trustee. Under Russian tax law, payments of interest and other payments made by Gazprombank to the Trustee will in general be subject to Russian income tax withholding at a rate of 20 per cent. (or, potentially, 30 per cent. in respect of non-resident individual Noteholders). It is not expected that the Trustee will, or will be able to, claim a withholding tax exemption under any double tax treaty. In addition, while it may be possible for some Noteholders who may be eligible for an exemption from Russian withholding tax under double tax treaties to claim a refund of tax withheld, there would be considerable practical difficulties in obtaining any such refund. There is a risk that under the Russian thin capitalisation rules in certain circumstances where parties related to Gazprombank (i.e. the Related Parties as defined above) hold Notes, part or all of the interest to be paid by Gazprombank under the Loan could be reclassified as dividends for Russian tax purposes. This would occur if the overall amount of the controlled debt of Gazprombank, calculated on an individual related party basis, exceeded the capital of Gazprombank, calculated in accordance with the requirements of the Russian Tax Code, by more than 12.5 times. Interest in the amount of such excess would be reclassified as dividends for Russian tax purposes. There is a risk that the controlled debt of Gazprombank may include all or part of the Loan, to the extent that any Related Parties acquire any portion of the Notes. Such reclassification of all or a portion of the interest under the Loan as dividends could potentially lead to the imposition of Russian withholding tax on such reclassified interest at the rate of 15 per cent., subject to possible tax relief under the double tax treaty between the Russian Federation and Ireland, and the non-deductibility of such interest for Russian profit tax purposes by Gazprombank. Also, such withholding on dividends would trigger the gross-up obligation of Gazprombank discussed above. Based on the assumption that the amount of Gazprombank s controlled debt calculated in accordance with the requirements of Article 269 of the Russian Tax Code does not exceed by more than 12.5 times the amount of own capital ( собственный капитал ) of Gazprombank calculated on an individual Related Party basis, the Russian thin capitalisation rules should not apply currently to the interest on the Loan. However, changes in these assumptions could result in all or a portion of such interest being subject to the thin capitalisation rules in the future so as to treat excess interest related to the Loan as a dividend under the double tax treaty between the Russian Federation and Ireland subject to 15 per cent. withholding tax applicable to dividends (subject to possible Irish or other DTT relief, if any) rather than zero withholding tax applicable to interest. Such withholding on dividends would trigger the gross-up obligation of Gazprombank discussed above. As indicated above, it is currently unclear whether the provisions obliging Gazprombank to gross-up payments will be enforceable in the Russian Federation. If, in the case of litigation in the Russian Federation, a Russian court does not rule in favour of the Issuer or the Trustee and Noteholders, there is a risk that the tax gross-up for withholding tax will not take place and that payments made by Gazprombank under the Loan Agreement will be reduced by Russian income tax withheld by Gazprombank at a rate of 20 per cent. (or potentially, 30 per cent. in respect of individual Noteholders). See Taxation Russian Taxation. Tax might be withheld on disposals of the Notes in the Russian Federation, reducing their value. If a non-resident Noteholder that is a legal person or organisation, which in each case is not organised under Russian law and which holds and disposes of the Notes otherwise than through a permanent establishment in 39

44 Russia, sells the Notes and receives proceeds from a source within the Russian Federation, there is a risk that any part of the payment that represents accrued interest may be subject to a 20 per cent. Russian withholding tax (even if a disposal is performed at a loss). The foreign Noteholder may be entitled to a reduction of such Russian withholding tax under an applicable double tax treaty. Where proceeds from a disposal of the Notes are received from a source within the Russian Federation by a nonresident Noteholder that is an individual, there is a risk that Russian withholding tax would be charged at a rate of 30 per cent. on gross proceeds from such disposal of the Notes less any available cost deduction. There is no assurance that advance double tax treaty relief would be granted to an individual and obtaining a refund can involve considerable practical difficulties. The imposition or risk of imposition of this withholding tax could adversely affect the value of the Notes. See Taxation Russian Taxation. Subordination of payment obligations under Subordinated Loans Gazprombank s obligations in respect of the payment of principal and interest under any Subordinated Loan are subordinated to the claims of its unsubordinated creditors. As a result, in case of the entry into force of a final decision of a competent Russian court finding Gazprombank bankrupt (a Bankruptcy Event ), Gazprombank s assets will be available to satisfy obligations in respect of Subordinated Loans only after the claims of all unsubordinated creditors have been satisfied in full. Such remaining assets may not be sufficient to satisfy Gazprombank s obligations, in whole or in part, under any outstanding Subordinated Loans. The Subordinated Loan Agreements will not prohibit or limit the incurrence by Gazprombank of unsubordinated indebtedness, other subordinated indebtedness that will rank equally with the indebtedness under any Subordinated Loans or other liabilities. Incurrence of such additional indebtedness or other liabilities could adversely affect Gazprombank's ability to make payments under any Subordinated Loans. Gazprombank anticipates that, from time to time, it will incur additional indebtedness, including unsubordinated indebtedness. The qualification of Subordinated Loans as Tier 2 Capital and early redemption, termination or amendment thereof is subject to approval by the CBR Under the current bank capital regulations, any Subordinated Loan Agreement will be subject to review and approval by the CBR, in order for the CBR to grant its final approval on the regulatory capital treatment of a Subordinated Loan. There can be no assurance that any Subordinated Loan will be given regulatory capital treatment by the CBR. If a Subordinated Loan is not given regulatory capital treatment, it may be redeemed by Gazprombank, resulting in the redemption of the corresponding Series of Notes. In addition, in order for any Subordinated Loan to qualify as Tier 2 Capital under the CBR regulations, the terms of each Subordinated Loan Agreement with respect to early redemption, termination or amendment, if any, shall, in each case, operate only subject to prior approval by the CBR. There can be no assurance that the CBR will approve such redemption, termination or amendment. The EU Savings Directive may impose tax withholding. The EU has adopted a Directive (2003/48/EC) regarding the taxation of savings income. From 1 July 2005 Member States are required to provide to the tax authorities of other Member States details of payments of interest and other similar income paid by a person to an individual or certain residual entities resident in another Member State of the European Union or certain associated and dependent territories of a Member State, except that Austria, Belgium and Luxembourg instead may impose a withholding system for a transitional period unless during such period they elect otherwise. The European Commission has proposed certain amendments to the Directive which may, if implemented, amend or broaden the scope of the requirements above. A number of countries and territories including Ireland have adopted similar measures. If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. If a withholding tax is imposed on a payment made by a Paying Agent, the Issuer will be required to maintain a Paying Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive. Ratings of the Notes In general, European regulated investors are restricted under the CRA Regulation from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the EU and registered under the CRA Regulation (and such registration has not been withdrawn or suspended), subject to transitional provisions that apply in certain circumstances whilst the registration application is pending. Such general 40

45 restriction will also apply in the case of credit ratings issued by non-eu credit rating agencies, unless the relevant credit ratings are endorsed by an EU-registered credit rating agency or the relevant non-eu rating agency is certified in accordance with the CRA Regulation (and such endorsement action or certification, as the case may be, has not been withdrawn or suspended). Where a Series of Notes is rated, the rating assigned to the Notes and details of the relevant rating agency will be specified in the applicable Final Terms. Whether or not each credit rating applied for in relation to the relevant Series of Notes will be issued by a credit rating agency established in the European Union and registered under the CRA Regulation will be disclosed in the Final Terms. The Issuer is subject to risks, including the location of its COMI, the appointment of examiners and claims of preferred creditors. COMI The Issuer has its registered office in Ireland. As a result there is a rebuttable presumption that its centre of main interest ( COMI ) is in Ireland and consequently that any main insolvency proceedings applicable to it would be governed by Irish law. In the decision by the European Court of Justice ( ECJ ) in relation to Eurofood IFSC Limited, the ECJ restated the presumption in Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings, that the place of a company s registered office is presumed to be the company s COMI and stated that the presumption can only be rebutted if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at the registered office is deemed to reflect. As the Issuer has its registered office in Ireland, has Irish directors, is registered for tax in Ireland and has an Irish corporate services provider, the Issuer does not believe that factors exist that would rebut this presumption, although this would ultimately be a matter for the relevant court to decide, based on the circumstances existing at the time when it was asked to make that decision. If the Issuer s COMI is not located in Ireland, and is held to be in a different jurisdiction within the European Union, Irish insolvency proceedings would not be applicable to the Issuer. Examinership Examinership is a court procedure available under the Irish Companies (Amendment) Act 1990, as amended (the 1990 Act ) to facilitate the survival of Irish companies in financial difficulties. The Issuer, the directors of the Issuer, a contingent, prospective or actual creditor of the Issuer, or shareholders of the Issuer holding, at the date of presentation of the petition, not less than one-tenth of the voting share capital of the Issuer are each entitled to petition the court for the appointment of an examiner. The examiner, once appointed, has the power to halt, prevent or rectify acts or omissions, by or on behalf of the company after his appointment and, in certain circumstances, a negative pledge given by the company prior to his appointment will not be binding on the company. Furthermore, where proposals for a scheme of arrangement are to be formulated, the company may, subject to the approval of the court, affirm or repudiate any contract under which some element of performance other than the payment remains to be rendered both by the company and the other contracting party or parties. During the period of protection, the examiner will compile proposals for a compromise or scheme of arrangement to assist in the survival of the company or the whole or any part of its undertaking as a going concern. A scheme of arrangement may be approved by the Irish High Court when (i) a minimum of one class of creditors, whose interests are impaired under the proposals, has voted in favour of the proposals and (ii) the Irish High Court is satisfied that such proposals are fair and equitable in relation to any class of members or creditors who have not accepted the proposals and whose interests would be impaired by implementation of the scheme of arrangement and (iii) the proposals are not unfairly prejudicial to any interested party. The fact that the Issuer is a special purpose entity and that all its liabilities are of a limited recourse nature means that it is unlikely that an examiner would be appointed to the Issuer. If however, for any reason, an examiner were appointed while any amounts due by the Issuer under the Notes were unpaid, the primary risks to the holders of Notes would be as follows: (i) the Trustee, acting on behalf of Noteholders, would not be able to enforce rights against the Issuer during the period of examinership; and (ii) a scheme of arrangement may be approved involving the writing down of the debt due by the Issuer to the Noteholders irrespective of the Noteholders views. 41

46 Preferred Creditors If the Issuer becomes subject to an insolvency proceeding and the Issuer has obligations to creditors that are treated under Irish law as creditors that are senior relative to the Noteholders, the Noteholders may suffer losses as a result of their subordinated status during such insolvency proceedings. In particular: (i) under the terms of the Trust Deed, the Issuer will charge to the Trustee on behalf of Noteholders by way of first fixed charge (the Charge ) as security for its payment obligations in respect of the Notes certain rights under the relevant Loan Agreement and to the relevant Account. Under Irish law, the claims of creditors holding fixed charges may rank behind other creditors (namely fees, costs and expenses of any examiner appointed and certain capital gains tax liabilities) and, in the case of fixed charges over book debts, may rank behind claims of the Irish Revenue Commissioners for PAYE and VAT; (ii) under Irish law, for a charge to be characterised as a fixed charge, the charge holder is required to exercise the requisite level of control over the assets purported to be charged and the proceeds of such assets including any bank account into which such proceeds are paid. There is a risk therefore that even a charge which purports to be taken as a fixed charge, such as the Charge, may take effect as a floating charge if a court deems that the requisite level of control was not exercised; and (iii) in an insolvency of the Issuer, the claims of certain other creditors (including the Irish Revenue Commissioners for certain unpaid taxes), as well as those of creditors mentioned above, will rank in priority to claims of unsecured creditors and claims of creditors holding floating charges. The trading price for the Notes could be adversely affected by changes in certain credit ratings. Moody s confirmed its outlook on the Russian banking sector as negative in the third quarter of In February 2009, Fitch downgraded its long-term issuer default rating for the Russian Federation from BBB+ to BBB and downgraded Russia s country ceiling rating from A- to BBB+. Additionally, Standard & Poor s downgraded its long-term/short-term sovereign credit ratings for the Russian Federation from BBB+ / A-2 to BBB / A-3. On September 2, 2011, Fitch affirmed its long-term issue default rating for Russia at BBB with positive outlook. On August 31, Standard & Poor s affirmed Russia s foreign long-term / short-term sovereign credit ratings at BBB/A-3 with stable outlook. In October 2010, Moody s upgraded its outlook on the Russian banking sector from negative to stable (current rating at Baa1). As at the date of this Base Prospectus, outstanding Eurobonds of the Russian Federation were rated Baa1 by Moody s, BBB by Standard & Poor s and BBB by Fitch, and Gazprombank s outstanding senior unsecured Eurobonds were rated BB+ by Standard & Poor s and Baa3 by Moody s. A significant number of Gazprombank s debt obligations have credit ratings, upon which investors rely in varying degrees, and which may be a prerequisite to certain investors holding such debt obligations. The global financial crisis has witnessed credit rating agencies revising the criteria that they use to determine the credit ratings of debt obligations and/or changing their credit ratings of companies and their rated obligations. Any change in the methodology used by rating agencies could result in a downgrade in the ratings of a company or its rated obligations. Any downgrade in the ratings of a company and/or its rated obligations could make it more difficult and/or expensive for such companies to raise capital going forward and may adversely affect the price of their outstanding debt obligations. Gazprombank s rating is also sensitive to changes in the sovereign rating of the Russian Federation. Any such downgrading in corporate or sovereign ratings may cause the ratings of the Notes to be reassessed or downgraded, which could affect the value of such Notes and increase Gazprombank s cost of raising capital. Credit ratings assigned to the Notes do not necessarily mean that they are a suitable investment and credit ratings assigned to Gazprombank or to other instruments issued by or to fund Gazprombank do not necessarily mean that an investment in Gazprombank or such instruments is suitable. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid, paid on an expected final payment date or paid on any particular date before the legal final maturity date of the Notes. The ratings do not address the marketability of the Notes or any market price. 42

47 Any negative change in the credit rating of Gazprombank or the Russian Federation could adversely affect the trading price for the Notes. The significance of each rating should be analysed independently from any other rating. Other Risks We have not independently verified information regarding our competitors, nor have we independently verified official data from government agencies; uncertainties about the availability and reliability of statistical information makes business planning inherently uncertain. We have derived substantially all of the information contained in this document concerning our competitors from publicly available information, including press releases, and we have relied on the accuracy of this information without independent verification. In addition, some of the information (including that set out under Banking Sector and Banking Regulation in the Russian Federation ) contained in this document has been derived from official data of government agencies, such as the CBR and other agencies of the Russian Federation, and we accept responsibility for accurately reproducing such information but accept no further responsibility in respect of such information. The official data published by Russian federal, regional and local governments is substantially less complete or researched than those of Western countries. Official statistics may also be produced based on different principles to those used in Western countries. Any discussion of matters relating to Russia in this document (including information set out under Banking Sector and Banking Regulation in the Russian Federation ) must, therefore, be subject to uncertainty due to concerns about the completeness, comparability or reliability of available official and public information. The veracity of some official data released by the Russian government may be questionable. No assurance can be given that official data and statistics released in the future will be accurate and not misleading. Due to the unavailability of alternative reliable sources of country-specific data, Russian companies necessarily rely to some extent on this statistical data in their business planning. As a result, assumptions made by Russian companies in their business plans may prove to be incorrect. The lack of accurate statistical data for use in business planning may contribute to the overall volatility of the Russian economy and may adversely affect the profitability of many of our corporate customers, which would have a material adverse effect on our business, financial condition, results of operations and prospects. 43

48 USE OF PROCEEDS The proceeds from each offering of a Series of Notes will be used by the Issuer for the sole purpose of financing the corresponding Loan to Gazprombank. The proceeds of such Loan will be used by Gazprombank for general corporate purposes, including financing the expansion of our loan portfolio (unless otherwise specified in the relevant Loan Agreement). In connection with the receipt of such Loan, Gazprombank will pay an arrangement fee, as reflected in the relevant Final Terms. 44

49 BUSINESS Overview Gazprombank is a bank organised as an open joint-stock company under the laws of the Russian Federation, and is registered in the Russian Unified Register of Legal Entities under main state registration number Gazprombank s registered office is located at 16 Block 1, Nametkina Street, Moscow , Russian Federation and its head office is located at 63, Novocheremushkinskaya Street, Moscow , Russian Federation. Gazprombank holds a general banking licence No. 354, a licence to carry out operations with precious metals and licences to perform brokerage, dealer and depositary activities and to act as a trust manager. Our principal business areas are corporate banking, retail banking, investment banking and depositary services. Our activities include securities trading, foreign exchange operations, precious metals operations, clearing operations and settlement services. We provide services to approximately 45,000 corporate clients, including most of the largest Russian companies, and to more than 3 million retail clients. We were the third largest bank in the Russian Federation in terms of total assets and equity (based on RAS) as at 31 December 2011, according to Interfax, a Russian news agency. As part of our investment banking activities, we hold interests in a range of companies which operate in nonbanking industries, including the Gazprom Media Group companies and the Heavy Machinery Production Companies. We acquire such companies for the purpose of making medium-term investments, with the intention of making gains ultimately through their disposal. See - Private Equity Investments. As at 31 December 2011, we had a wide distribution network of 43 branches and over 250 banking outlets located throughout the Russian Federation. We also have ownership interests in several Russian banks. Our regional network extends to the principal regions and largest financial and industrial centres in the Russian Federation. In addition we are represented in the markets of Belarus, Armenia and Switzerland through ownership interests in three foreign banks: Belgazprombank (Belarus), AREXIMBANK-GAZPROMBANK GROUP (Armenia) and Gazprombank (Switzerland) Ltd. (Switzerland). We also have representative offices in India, Mongolia and China. See Regional Network. We also own an investment company, GPB-Financial Services (Cyprus). As at 31 December 2011, the Group had total assets of RUB2,477.7 billion, loans to customers of RUB1,396.5 billion, total amounts owed to customers of RUB1,430.0 billion and total equity of RUB242.9 billion. History We were founded by Gazprom to improve the quality and effectiveness of financial services provided to the Gazprom Group. On 31 July 1990, we were registered with the CBR. In 1996, the CBR granted us a general banking licence and we transformed into a limited liability company. On 13 November 2001, we were reregistered by the CBR as a closed joint-stock company. On 3 October 2007, we were transformed from a closed joint-stock company into an open joint-stock company. These changes were approved by, and registered with, the CBR. Until December 2006, we were, directly and indirectly, wholly owned by the Gazprom Group. As at 31 December 2011, Gazprombank s shareholders and their respective holdings comprised non-state pension fund Gazfond (50 per cent. plus one share), Gazprom (41.73 per cent.), OOO Novie Finansovie Technologii (7.40 per cent.) and employees of Gazprombank (0.87 per cent.). In February 2012, Gazprom converted its subordinated deposits with us of RUB7,500 million into ordinary shares of Gazprombank as a part of an additional shares placement. We expect that Gazfond and VEB will also convert their subordinated deposits of RUB32,500 million and RUB50,000 million, respectively, into ordinary shares as a part of the additional shares placement in As a result, subject to completion of these transactions, the shareholder structure will include Gazfond (47.38 per cent. plus one share), Gazprom (35.54 per cent.), VEB (10.19 per cent.), our employees (0.71 per cent.) and 6.18 per cent. of treasury shares (held by a 100 per cent. subsidiary of Gazprombank). Strategy The main objective of our strategy is to ensure the balanced growth of our business and the maximisation of shareholder value by diversifying our business, developing as a universal bank and implementing a clientfocused business model. 45

50 In December 2010, Gazprombank s Board of Directors approved its strategy for the period from 2011 through It is aimed at improving our financial results, significantly increasing the volume of operations and creating value for shareholders in the context of the rapidly changing economic environment. Gazprombank s principal strategic objectives for the period from 2011 through 2015 are the following: Maintaining a leading position in the Russian financial sector. We plan to maintain our position as the third largest Russian bank in terms of total assets. Optimising the structure of our business to increase profitability and recurring income. We intend to expand our profitable business units and thereby to increase the share of stable revenue streams, especially fee based income, in our overall earnings structure. Strengthening overall capital base. We intend to actively manage our capital structure and increase our capital base as necessary to support healthy future growth. Taking into account our competitive advantages and trends in the development of Russian economy and banking sector, to achieve our strategic goals we seek to: Strengthen long-term relationships and strategic partnerships with large corporate clients, improve and develop product lines to meet their requirements and develop business with medium-sized corporate clients One of our competitive advantages is our experience in servicing large corporate customers from the major sectors of the Russian economy. For the period until 2015, large corporate clients will remain our key client segment. We will seek to increase the volume of our corporate banking business by strengthening our competitive positions in strategically important industries. To ensure that our corporate banking business reflects the needs of our clients, we will continue to improve quality and competitiveness of our services and products. We will place emphasis on promoting and expanding product lines that are in high demand amongst our clients. For example, we are in the process of expanding a range of cash management services we provide. We also intend to expand offering of our trade finance and settlement products. In addition to our core business with large corporate clients, we intend to increase the volume of our business with medium-sized clients, particularly in strategically important regions of the Russian Federation, including those that have high growth potential. We believe that developing business with medium-sized clients has significant potential for us and will help increase the interest margins on our lending and diversify our loan portfolio. Become a leader in the Russian investment banking market We anticipate that the economic recovery and renewal of investment activity of Russian companies that occurred after the global financial crisis of 2008 and 2009 will contribute to increased corporate demand for investment banking products and services and complex financing solutions in Russia going forward. In order to ensure that we meet the demands of our clients, we will continue to expand and diversify our offering of investment banking products and services. One priority will be to increase the volume of investment loans offered to our clients, in particular by arranging project, syndicated and structured financings. We will further promote debt and equity financing services, expand our mergers and acquisitions financing activities, and strengthen our advisory services. Furthermore, we will continue to grow our brokerage and asset management services to maximise our fee-based income streams. In addition to strengthening our client-oriented products and services, we will continue making private equity investments in various non-banking industries. The Group s private equity strategy is to invest in fast-growing companies and companies with hidden growth potential, and subsequently to dispose of these investments in the medium-term by way of a strategic sale or through an initial public offering. Expand and improve range of retail banking services The primary base of the Group s retail clients consists of employees of our corporate banking customers and high and medium net worth clients. By using the experience of our work with the Gazprom Group and other major Russian companies, we plan to expand the range of services provided to employees of our corporate banking customers. We aim to increase the size of our retail loan portfolio primarily by expanding mortgage lending, as well as other collateralised lending. One of the key drivers for our retail banking expansion will be improving the technological platforms required for servicing our retail clients. We intend to develop a flexible customer service system, expand the functionality of remote sales channels, implement active sales methods and improve the quality of our retail 46

51 banking services by standardising our business processes to ensure a consistently high quality of customer service at all points of sale. Increase presence in strategically important regions A key component of the Group s future growth will be increasing its presence in strategically important regions of the Russian Federation, including those that have a high potential for growth. In line with this strategy we plan to take measures aimed at optimising our branch network. This will allow us to increase the share of regional business in our profit and strengthen our regional local competitive positions. Improve operational efficiency We plan to continue to improve our internal operational efficiency and the competitiveness of our banking operations by improving our internal processes and procedures, which will allow us to better control our costs and to improve the overall quality of our services. For example, we have recently begun a process of improving our client service processes in all of our business lines, paying especially close attention to our improving customer service in the branch network. Enhance technological efficiency We plan to continue implementing new technological solutions that are necessary for improving sales and expansion of our product range across all business lines. Automation of credit processes and risk management systems and improvement of the functionality of electronic sales channels and client service systems, especially in our retail business, will create the technological platform necessary to support the Group s long-term business growth. Develop human capital We plan to further improve the Group s organisational structure, procedures for selection and recruitment of qualified employees, professional development of existing employees and develop systems for staff motivation and social guarantees to employees and members of their families. Maintain excellence in risk management. We are committed to maintaining a high level financial stability and will utilise balanced approach to risk taking. Our strategy for the period until 2015 envisages further improvements in the Group s risk management efficiency. We believe that the practice of continuous improvement of our risk management systems will allow us to achieve controlled business growth while maintaining an adequate level of risk. Optimise funding base and asset structure. We will strive to optimise our cost of funding and maintain a balanced structure of liabilities. We also plan to improve the structure of our assets by increasing the share of loans to corporate customers and reducing the share of private equity investments in industrial companies. Relationship with the Gazprom Group The Group has a long and close relationship with the Gazprom Group. Since 1998, we have been the principal financial institution servicing the Gazprom Group. Among other things, we have traditionally customised our banking products and systems to better service Gazprom s operational needs, as well as the needs of the Gazprom Group as a whole. Products and services that we offer to the Gazprom Group include project finance and working capital facilities, trade finance, depositary, brokerage, trust, payroll and consultancy services. The Group has also developed sophisticated cash management instruments, trust management services and structured finance instruments to provide a wider range of services to the Gazprom Group. As at 31 December 2011, the Group s loan exposure to the Gazprom Group amounted to 2.3 per cent. of the Group s gross loan portfolio as compared to 3.3 per cent. of the Group s gross loan portfolio as at 31 December 2010 and 8.3 per cent. of the Group s gross loan portfolio as at 31 December See Risk Factors - Risks Relating to Our Business and Industry - We face a number of risks relating to our relationship with the Gazprom Group. While we have been diversifying our business and plan to continue such diversification, we remain committed to servicing the banking requirements of the Gazprom Group and retaining our strategic partnership with Gazprom. Gazprombank and Gazprom has a Strategic Cooperation Agreement for the period to 2015, reinforcing their current relationship and envisaging further development of the strategic partnership. Priority areas of cooperation include commercial banking products, investment projects in the gas industry, asset management, the financing of innovative projects, regional network development, development of the gas 47

52 industry s settlement and depositary infrastructure and the implementation of Gazprom s corporate housing programme. The Group Structure The diagram below sets out the organisational structure of the Group as at 31 December % Novie Finansovie Technologii Gazprom Gazfond Employees of Gazprombank 41.73% 50% + 1 share 0.87% 7.40% Gazprombank Gazprombank (Switzerland) 100% 100% Gazprom Media Group Areximbank (Armenia) 100% Heavy Machinery Production Companies 49.02% Belgazprombank (Belarus) 49.02% Other subsidiaries 9.26% GPB Mortgage (Russia) 80.80% Credit Ural Bank (Russia) 100% In February 2012, Gazprom converted its subordinated deposits with us of RUB7,500 million into ordinary shares of Gazprombank as a part of an additional shares placement. We expect that Gazfond and VEB will also convert their subordinated deposits of RUB32,500 million and RUB50,000 million, respectively, into ordinary shares as a part of the additional shares placement in As a result, subject to completion of these transactions, the shareholder structure will include Gazfond (47.38 per cent. plus one share), Gazprom (35.54 per cent.), VEB (10.19 per cent.), our employees (0.71 per cent.) and 6.18 per cent. of treasury shares (held by a 100 per cent. subsidiary of Gazprombank). Competition in the Russian Banking Industry The global financial and economic crisis of 2008 and 2009 had a significant effect on the Russian economy in general and on the Russian banking industry in particular. 48

53 The first stage of crisis was characterised by an acute shortage of liquidity in the Russian banking sector. In order to improve liquidity in the banking sector, the Russian Government undertook extensive support measures. The key instruments of anti-crisis policy were unsecured CBR loans and REPO transactions. During the crisis such lending was used by 192 Russian banks (with the maximum amount of indebtedness under such lending being RUB1.9 trillion in February 2009). In order to support the volume of lending to Russian industries and to maintain the rate of growth of its loan portfolio, the Group has widely utilised CBR facilities. As at 31 December 2008, the Group s amounts owed to the CBR amounted to RUB519.4 billion. As the situation in the Russian financial market improved in 2009 and the interbank lending market reopened, the Group s amounts owed to the CBR reduced to RUB49.2 billion as at 31 December 2009 and had been completely repaid as at 31 December Nevertheless, due to the instability in the international capital markets in the second half of 2011, lead to an increase in the Group s amounts owed to the CBR to RUB30.0 billion as at 31 December In addition to liquidity problems faced by the banking system, significant problems developed in the industrial sector. Deterioration of financial position of borrowers has led to the growth of non-performing and uncollectable loans which amounted to 3.8 per cent., 9.5 per cent. and 4.0 per cent. of the aggregate volume of loans of the Russian banking system as at 31 December 2009, 2010 and 2011, respectively, as compared to 2.5 per cent. as at 31 December Growth of non-performing loans led to the growth of non-banking assets on Russian banks balance sheets as banks started to seize control of defaulting borrowers. The liquidity crisis, decreased asset quality and a lack of new projects at high-quality borrowers led to a decrease in the pace of lending volumes. In 2008, the loan portfolio of the Russian banking industry increased by approximately 35 per cent. (with most of the growth is attributable to the first half of the year), while in 2009 it remained almost unchanged. In spite of negative market trends, the Group s loan portfolio growth amounted to 58 per cent. in 2008, 23 per cent. in 2009, 35 per cent. in 2010 and 34 per cent. in 2011, while the share of non-performing loans amounted to 1.5 per cent. as at 31 december 2008, 3.9 per cent. as at 31 December 2009, 2.1 per cent. as at 31 December 2010 and 1.4 per cent. as at 31 December 2011, respectively. Facing the economic downturn and mass writing-off of sub-quality assets, many banks suffered from capital risks. Under such circumstances the Russian Government started playing a significant role as a key provider of capital to the Russian banking industry during the period of turmoil. In order to recapitalise the Russian banking system, subordinated deposits from VEB were provided on a condition that the shareholders match VEB s contribution of subordinated deposits. VEB s contribution to the banking system amounted to RUB404 billion in subordinated deposits, and a further RUB500 billion was provided to Sberbank by the CBR, its main shareholder. These measures supported the increase of the capital of Russian banks to RUB4,621 billion as at the end of 2009 from RUB2,672 as at the end of As part of these measures, Gazprombank received a total of RUB90 billion of subordinated deposits from VEB with a further RUB40 billion was provided by Gazprom and Gazfond. Now that the state support programmes have been discontinued, the growth of banks capital has slowed down significantly. The growth rate of capital of the Russian banking system was 2.5 per cent., 21.2 per cent., 42.7 per cent. and 10.8 per cent. in 2008, 2009, 2010 and 2011, respectively, while Gazprombank s capital increased by 12.8 per cent. in 2010 and by 9.9 per cent. in 2011 due to profit capitalisation. The Group s management believes that the Russian Government s support, a prudent approach to risk management and the ability to adapt operations to changing market conditions have allowed the Group to run operations effectively during the crisis period and strengthen the Group s competitive position in the Russian banking sector. The proposed integration of Basel III standards in the global banking system expected by 2019 will tighten the capital adequacy and liquidity requirements for banks. Russia is also planning to implement these standards. Given this and also the tightening of prudential control over the banking sector by the CBR, the Group s management expects an intensification of competition between Russian banks for access to capital and for reliable borrowers. Although the current economic trend is one of a moderate recovery, which began in early 2010 with a GDP growth of 4.3 per cent. in 2011 and 4.0 per cent. in 2010 as compared to a 7.8 per cent. decrease in 2009, Russia s economic growth still lags behind its pre-crisis level of 8.5 per cent. growth in Increased economic activity is a basis for growth in banks lending activity and increased competition for quality borrowers. As at 1 March 2012, the CBR reported that there were 1,110 credit organisations operating in the Russian Federation entitled to perform banking operations. The reduction of the number of banks in the crisis and postcrisis periods (1,134 banks were registered as at 1 January 2008) was mainly caused by revocation of licenses by the CBR and, to a certain degree, by the sector consolidation. Tightening of capital adequacy requirements will 49

54 also serve to reduce the number of banks: by 2015 the minimum level of capital for Russian banks will be set at RUB300 million. On the whole, Russian banking sector is characterised by high concentration and competitiveness. As at 1 February 2012, the top five and top twenty of the banks in terms of total assets accounted for 50.6 per cent. and 70.6 per cent. of total assets of the Russian banking industry, respectively. We were the third largest bank in the Russian Federation in terms of total assets and equity (based on RAS) as at 31 December 2011, according to Interfax, a Russian news agency. In order to implement our strategy of maintaining the third position among Russian banks, we compete along the following lines: price competition with state-owned banks, primarily Sberbank, VTB and Russian Agricultural Bank. competition in terms of quality and product range with top-20 private banks, where our chief competitors are Alfa Bank, UniCredit and Raiffeisenbank. competition with Russian and foreign banks for market share in providing foreign currency and Rouble financing to corporate clients, as well as in the area of debt capital markets and client service in financial markets. competition with universal and retail banks in niche market segments (in particular, mortgage lending and specialised investment banking services to private customers). We believe we have a number of competitive advantages, which allow us to adapt to changing market conditions and maintain our competitive position going forward: a diversified and corporate customer base representing the key industries, as well as strategic partnership with several of the largest and strategically important corporate clients such as Rosatom, Rusnano, Inter RAO UES and Itera; a strong and established business relationship with the Gazprom Group; our broad and diversified product range meeting the requirements of target customers, covering corporate, retail, and investment banking business lines; significant experience in investment and infrastructure projects; our ability to adapt quickly to changing conditions in the market, enabling us to develop and market in-demand banking products more effectively; a relatively long and stable credit and rating history; effective and efficient internal management, risk assessment and compliance systems; implementation and application of advanced, modern banking technology and software; and our extensive and well-developed regional network. Regional Network The Group s network of branches and banking outlets covers 52 out of the 83 regions of the Russian Federation. Our strategy is aimed at strategic expansion of our presence in key industrial and economically-developed regions of the Russian Federation. We have a network of 43 regional branches and over 250 banking outlets, located throughout the Russian Federation. While our operational offices may carry out the same range of operations as our head office, our credit and teller offices may only provide a limited range of services. We also hold ownership interests in the following other Russian banks: KUB (ОАО) (100 per cent.); JSB GPB-Mortgage (OJSC) (90.1 per cent.); and OAO AKB Evrofinance Mosnarbank (25 per cent. plus one share). Our regional branches provide loans to corporate and retail customers, accept deposits, issue payment cards and provide bank guarantees to customers. Our regional network allows us to offer a range of banking services to our corporate and retail customers that is similar to the range of banking services provided by our head office. 50

55 Our regional branches operate within the limits set by our head office. Our head office has implemented a centralised system of control over our regional branches that includes setting maximum interest rates for receiving deposits from, and minimum interest rates for extending loans to, our regional clients as well as unified banking standards and banking procedures. We are also represented in the markets of Belarus, Armenia and Switzerland by ownership interests in three foreign banks: OAO Belgazprombank (Belarus), AREXIMBANK-GAZPROMBANK GROUP (Armenia) and Gazprombank (Switzerland) Ltd. (Switzerland). We have representative offices in India, Mongolia and China. We also own an investment company, GPB-Financial Services (Cyprus). Main Lines of Business Corporate Banking Corporate banking is our primary business activity. We provide a broad array of commercial banking services to a variety of corporate customers, including most of Russia s leading corporations. We are committed to increasing the range and volume of our services provided to corporate customers and to developing long-term relationships with them. Corporate Customers We service approximately 45,000 corporate customers, including over 1,000 enterprises and organisations within the Gazprom Group. Although we believe that the Gazprom Group will always be our core customer, one of our strategic priorities is diversification of our corporate customer base by increasing the number of largesized and medium-sized customers operating in the oil extraction, oil refining, chemical, petrochemical, coal, nuclear power, machine building, ferrous and non-ferrous metallurgy, transportation, telecommunications, extraction and processing of precious and non-precious metals, energy, food and power industries, as well as retail networks and large financial and insurance corporations. In 2011, the Group included pharmaceutical and medical equipment companies in the list of perspective industries. Generally, our corporate customers include major companies with an annual turnover of more than U.S.$100 million, although, going forward, one part of our strategy is to target medium-sized clients in order to increase the interest margins on our lending. We have established, and hope to develop further, relationships with the following Russian companies (which include members of the Gazprom Group): Gazprom, CHTPZ, Gazprom-Energoholding, Novatek, IDGC Holding, NGK Itera, INTER RAO UES, FSK UES, RKS, SIBUR Holding, Gazpromneft, Rosneft, Lukoil, Miratorg, Eksima, Lider, Gazfond, SOGAZ, the Russian Railways Group, Transaero, Aeroflot, Mechel, MMK, Mostotrest, MTS, NLMK, Investstroy-15, Polymetal, Rostelecom, Rostekhnologii, Unified Shipbuilding Corporation (OSK), Silovye mashiny, EMAlyans, Kompania TransTeleCom, the AFK Systema Group, State Atomic Energy Corporation Rosatom, RUSAL, RusHydro Group, Evraz, SUEK, the M.video Group, the L Etoile Group, Spetsstroy, the Sportmaster Group, Transneft, Uralvagonzavod, the Rosta Group, the Farmperspektiva Group, the Apteka-Holding Group, the Gazprom Media Group and the STS Media Group. Constant development and monitoring the needs of its clients allows the Group to increase sales of cash management and cash pooling products. In 2011, the Group launched a Payer Identification product that allows the clients to securely identify payers, contracts and revenue items. The Group has also started to implement Client Expense Control product that allows the clients to outsource monitoring of company s cashflows to Gazprombank. Corporate Lending As at 31 December 2011, the Group s gross loans outstanding to corporate clients (including project finance, which accounted for 5.5 per cent. of the Group s gross loan portfolio) amounted to RUB1,311.6 billion, or 90.2 per cent. of the Group s gross loan portfolio, as compared to RUB988.2 billion, or 91.2 per cent. of the Group s gross loan portfolio, as at 31 December The Group s gross corporate loan portfolio grew by 32.7 per cent. from 31 December 2010 to 31 December 2011 as compared to 36.6 per cent. from 31 December 2009 to 31 December We undertake corporate lending in foreign currencies and Roubles and provide a broad range of loan products and services. We provide our priority corporate clients with tailored loan products covering a broad range of fixed and floating interest rate solutions. We constantly improve our product offerings in accordance with client requirements. We maintain leading positions in the market for lending to leading companies with high credit ratings in key Russian industries. Most of our lending is directed towards the following industries: metallurgy, oil and gas, power, chemicals and mining. 51

56 As one of the largest Russian banks, we will continue developing long-term well-established relations with leading companies in the Russian economy. At the same time, we will also provide credit to the most reliable borrowers among medium-sized businesses, which are characterised by a level of creditworthiness on par with large clients while offering higher interest margins. The quality of the Group s loan portfolio will be supported by its strategy to overall improvement of risk management system and prodecures. Trade Finance We support our corporate customers trade finance activities by the issuance of bank undertakings in the form of bank guarantees and letters of credit as well as by providing settlements in the form of documentary collection. Our trade finance services also include pre-export financing, short-, medium- and long-term import financing and structured trade finance. We continue to further develop our cooperation with financial institutions in Russia and other CIS countries, having increased the range of our operations made at their requests including the issuance of guarantees and irrevocable reimbursement undertakings as well as confirmations of their letters of credit. We organise ECA-backed long-term financing of import transactions. We also actively participate in the Official Guarantee Support Programme for Russian industrial exports, which enables Russian banks to provide long-term export financing to buyers of equipment supplied and services rendered by Russian companies in the emerging markets. The total volume of outstanding guarantees written by the Group increased to RUB252.3 billion as at 31 December 2011 from RUB217.2 billion as at 31 December 2010 and RUB95.6 billion as at 31 December The total value of the Group s outstanding letters of credit amounted to RUB29.9 billion as at 31 December 2011 as compared to RUB21.0 billion as at 31 December 2010 and RUB23.8 billion as at 31 December Corporate Deposit Taking As at 31 December 2011, there was a total of RUB1,163 billion held in current accounts and deposits with us by corporate customers, of which RUB291.9 billion, or 25 per cent. of the Group s corporate deposit portfolio, was from Gazprom Group companies. The main products for attracting cash balances of our corporate customers are term and sight deposits, minimum balance arrangements, certificates of deposit and promissory notes. The volume of term corporate customer funds (including minimum balance arrangements) amounted to RUB898 billion as at 31 December 2011, or 77 per cent. of the Group s corporate customer funds, representing a 17 per cent. increase from RUB768 billion as at 31 December We are actively developing our corporate deposit product range, offering our customers maximum efficiency in placing their cash with us without adversely affecting our margins. In order to meet the requirements of Gazprom, we have developed technologically advanced cash management products that allows holding companies to place cash with us on the same terms across our branch network. We continue to develop our technological infrastructure to allow our corporate customers to place deposits with us through the proprietary GPB Dealing system. Special attention is paid to the diversification of our liabilities structure and the establishment of long-term relationships with our corporate customers. We have entered into over 1,500 agreements governing cooperation with customers in the areas of cash management and minimum balance arrangements. Retail Banking On 10 February 2005, we joined the Russian system of mandatory deposit insurance with respect to deposits made by individuals. Under this scheme, retail deposits made by individuals with banks are insured up to an amount of RUB700,000. During the global economic crisis, none of our services to retail customers were suspended, although our lending criteria for certain products, such as mortgages, were significantly tightened. As part of our strategy, we plan to grow our mortgage lending business through our branch network by increase the number of retail accounts (both for deposits and plastic cards), introduce co-branded payment cards (such as with department stores and sport clubs) and enhance operational efficiency by installing ATMs and automated offices rather than by opening more expensive full-service offices. Retail Customers 52

57 As at 31 December 2011, we had over 3 million retail customers. For credit cards and consumer loans, our key retail customers are the employees of Gazprom Group companies and of our corporate clients. Although we do not actively target walk-in customers, we still work with such customers for car loans and mortgages and we plan to expand this business further. We also generally benefit from a widespread regional branch network with a good brand name and credit history which, we believe, makes us an attractive choice for high net worth consumers who wish to obtain high-quality retail banking services from a reliable bank. Retail Lending Retail lending represents a relatively small part of our aggregate loan portfolio. We undertake retail lending in foreign currencies and Roubles. As at 31 December 2011, we had a total of RUB142.7 billion in gross loans outstanding to retail customers, or 9.8 per cent. of our total gross loan portfolio. Our retail lending products include mortgage loans, motor vehicle loans and consumer goods finance loans. Most loans offered to our retail customers are secured by collateral. In the case of loans to employees of our corporate customers, certain loans are guaranteed by such corporate customers. Retail Deposit Taking We offer our retail customers a wide variety of deposit services, including current and term deposits in Roubles and foreign currencies. As at 31 December 2011, the Group had a total of RUB266.5 billion in deposits from retail customers, which represented 18.6 per cent. of our total customer deposits at 31 December 2011 and represented an increase of 11.8 per cent. as compared to 31 December Plastic Card Services Since 1997, we have been a principal member of the international payment systems VISA International TM and MasterCard. This allows us to offer debit and credit card services at all of our branches and subsidiaries. As at 31 December 2011, we had more than 4 million debit/credit cards of international and domestic payment systems outstanding. The majority of these cards were debit rather than credit cards, and credit cards are predominantly offered to employees of our corporate clients. For the years ended 31 December 2009, 2010 and 2011, the Group generated U.S.$11.8 billion, U.S.$14.7 billion and U.S.$18.3 billion in debit/credit cards turnover, respectively. As at 31 December 2011, the Group had 4,322 ATMs throughout the Russian Federation and we plan to expand our ATM network further. Our ATM network provides our customers with banking services 24 hours a day and enables us to service individual clients more efficiently. We have set up and are running an electronic service centre, which enables our customers to receive account balance information and make certain payments (telephone and cable bills as well as internet and public utilities bills) by using our plastic cards at our ATMs or automated offices. We use modern automatic machines, including data terminals and ATMs with a currency exchange function, which make it possible to serve a larger number of individual clients by offering the option to make payments either by way of banking cards or in cash. Investment Banking We began to actively expand our investment banking business in 2005 in order to meet the growing requirements of our corporate clients. Since then we have assembled a highly professional investment banking team which has extensive experience in different sectors of the economy and considerable business relationships with various market players. We serve a diverse Russian client base that includes corporations, financial institutions and municipalities. We provide our clients with a broad range of investment banking services which include capital raising in debt and equity capital markets, project finance, corporate finance consulting, mergers and acquisitions financing and advisory services, brokerage services, research services and asset management, among others. We also have a significant portfolio of private equity investments in various Russian companies that we manage separately from our securities portfolio. Capital Markets Gazprombank provides arrangement and underwriting services for debt and equity securities offerings of Russian issuers, both on the domestic and international markets. In 2011, we arranged 29 domestic corporate and municipal bond offerings with a total principal amount of approximately RUB105 billion. According to Bloomberg, over the course of we consistently maintained one of the leading positions in both underwriting and arranging Rouble-denominated bonds in the Russian Federation. 53

58 Brokerage Services We offer our corporate and retail clients brokerage services for transactions on all of the major Russian stock exchanges and over-the-counter markets, as well as on several foreign stock exchanges. Using our services, our corporate and retail clients may conduct transactions with debt instruments, including bonds, bills of exchange and deposit certificates, shares and derivatives (including forwards, futures, swaps and options). We also provide market making services relating to government, municipal and corporate securities (primarily Russian debt securities) and payment agency services in relation to issues of securities by our clients. Corporate Finance We provide a full range of M&A advisory services, offering consulting services on selling and acquiring businesses and capital raising from private equity funds and strategic investors. We work with various Russian and foreign companies, representing almost all the major sectors of the Russian economy. The Group continues advising its clients in such industries as power, coal extraction, agriculture, transport, retail and wholesale trade, telecommunications, insurance and banking. We advise our clients on matters of attracting financial investors, asset acquisitions and disposals, mergers, joint ventures and equity swaps. We participate in a number of federal and regional privatization programmes as a financial advisor. We are one of the leaders in the M&A advisory market in Russia. We were ranked among the top banks by ThomsonReuters in terms of total volume of M&A deals completed in Russia in Acquisition and Equity-Backed Finance We provide our clients with financing secured by our clients existing assets or by assets being acquired. These products are part of our comprehensive offering of tailor-made financing solutions to our corporate customers. As part of these transactions we may purchase or hold certain assets, including equity investments, while simultaneously entering into derivative contracts over the underlying assets, effectively transferring the risks and economic benefits associated with such assets to counterparties of such derivative transactions. As at 31 December 2011, we had outstanding acquisition and equity-backed finance in an aggregate principal amount of RUB288.7 billion. Project Finance Our project finance business covers the following industries: gas, petrochemical, telecommunications, transportation, ferrous metallurgy, coal extraction, agriculture and agri-product processing, real estate and construction. We arrange significant financing packages for green-field facilities and service new customers on a tailor-made basis. Our substantial experience in financing large projects, particularly in the oil and gas sector, enables us to attract many new customers in Russia and abroad. We provide both bilateral facilities and loans secured by ECA guarantees. As at 31 December 2011, we had outstanding project financing loans in an aggregate principal amount of RUB80.2 billion as compared to RUB80.4 billion as at 31 December Asset Management The Group s asset management business is one of the largest Russian asset management businesses and includes Asset Management and Alternative Investment Departments of Gazprombank, Management Company Gazprombank Asset Management and GPB Asset Management S.A. (Luxembourg), and offers a wide range of asset management services to institutional and private investors, both domestic and international. As at 31 December 2011, the Group had over RUB228 billion under management. We manage mutual funds, banking trusts, pension funds, and international investment funds, as well as assets of institutions and high net worth individuals. Private Equity Investments We make private equity investments in a range of companies. Our largest private equity investments include OMZ and Gazprom Media Group. For a detailed description of the Group s major investments and their financial performance, see Note 4 and Note 31 to the 2011 Financial Statements. Managing controlling stakes. Leveraging our significant expertise in such core industries of Russian economy as oil and gas, power and machine building we acquire controlling stakes in companies operating in these industries with a view of increasing their shareholder value by actively participating in operating and strategic 54

59 management. OAO Mosenergo, OAO SIBUR Holding and OAO Sibneftegaz are examples of successful execution of this strategy. Managing minority stakes. We have created and actively manage a diversified portfolio of minority stakes in privately-held companies with significant growth potential (for example, IT, retail and pharmaceutical industries). We manage this portfolio separately from our securities portfolio. This strategy does not involve our active participation in operating matters. Exit strategies. We monetise gains in shareholder value of our investments by selling equity stakes to strategic and financial investors, as well as by taking companies to the public stock market. Links to other activities. We have accumulated unique experience in private equity investments in non-financial sector companies. This contributes to development of such related areas of business as management of blocking and controlling equity stakes on behalf of our clients, acquisition and equity-backed finance. Depositary Services The Group is one of the leading Russian depositary based on market value of securities in custody. Our depositary network covers 70 out of the 83 regions of the Russian Federation. Our depositary service provides a comprehensive service for Gazprom s shareholders and also holds securities issued by over 500 Russian companies. Due to the regulatory changes in infrastructure of the Russian financial market by the creation of the central depositary, the volume of depositary services may decrease. However, the Group intends to leverage on its experience and existing platform to actively service the Russian market of mortgage certificates. Information Technology We are constantly working on maintaining the capacity and adequacy of our IT systems for the current and future requirements of our business and its demand for efficient technological support. The main goal of our IT strategy is to improve, typify and centralise our core banking IT operations, increase operational efficiency, reduce operational risks and transaction costs and enhance our image as a client-oriented financial organisation. Our IT strategy includes active development of our IT systems on the basis of modern technological solutions, developed in accordance with industry standards and global trends. Our choice of IT platforms and banking applications is based on preference to tested solutions from global IT industry leaders (IBM, Hewlett Packard, Oracle, Microsoft, Sybase, SAS, Calypso) as well as leading Russian developers of banking and analytical software (Diasoft, CFT, Prognoz). We have created a high performance and fail-safe information technology infrastructure our IT systems we have developed modern and an advanced banking platform capable of satisfying our current and future business needs. We started to deploy critical IT systems at our proprietary data center which is ran by our head office personnel. Branch office employees are granted 24/7 access to centralised IT systems though a fully secure terminal access system. This allows our head office to control decision-making processes and execution of commercial decisions within our spatially distributed architecture. We are implementing a complex programme for upgrading our automated banking system that will allow us to improve the overall level of IT support for our business units. The programme involves the replacement of certain IT systems with more efficient modern ones, supporting the principles of service-oriented architecture. In 2010 we have launched several key components of our integrated automated banking system including principal ledger, automated system for corporate payments, automated system supporting securities operations. These components are integrated in a unified information space by the means of the integrating bus developed on the basis of IBM WebSphere. We have also upgraded our asset management systems and completely centralized IT support of retail banking operations. In order to support our business, we have also developed and expanded a corporate data warehouse based on a Sybase, Inc. solution to generate management and regulatory reports that include our head office and branches. In order to facilitate the automation of our operations we have implemented a solution based on Calypso for straightthrough processing (STP) of the operations of GPB Financial Services and an automated middle office system at Gazprombank (Switzerland) Ltd. We are continuously offering new and improved banking products, actively developing remote service channels, most importantly using Internet technologies. Our products combine banking operations with the advantages of Internet technologies and allow our clients to have access to details of their accounts and client support and to execute a wide range of transactions online. In 2011, we have implemented a new online banking service Home Bank and a new corporate Intranet portal based on Microsoft SharePoint enterprise platform. 55

60 We have made significant financial investments to maintain the security and reliability of our customer information data. Our IT infrastructure is physically separated from the external information environment and our data exchange channels are secured by a range of certified technical solutions and organizational measures restricting unauthorized access. This includes the development and implementation of an enterprise wide virus protection system following the transition to software solution developed by Sophos. In order to improve the reliability of our IT infrastructure operations, we utilise a primary data centre using the IT infrastructure based on modern information technology allowing us to run bank mission critical IT systems including core banking, corporate data warehouse, corporate and IT infrastructure applications using the most advanced hardware and software solutions. We utilise redundant servers and clusters based on high performance hardware platforms by IBM and SUN for high availability to provide appropriate business continuity and disaster recovery. To provide reliable access to our corporate transactional and historical data, we use an enterprise backup system based on virtual tape libraries (VTL) and long-term storage based on tape libraries which creates daily data back-ups to protect the integrity and validity of bank information data and to prevent data being destroyed, getting corrupted or lost in case of an emergency. In 2010 and 2011 our capital expenditure on information technology amounted to RUB1,091.5 million and RUB1,028.5 million respectively. In 2012, we have budgeted RUB1,663.8 million to expand and develop our IT infrastructure, to upgrade the core automated systems, implement key corporate systems including key banking systems, modern workflow automation system and ERP for automation of planning, accounting and bookkeeping functions and regional business. In 2012, the main volume of our capital expenditure in the sphere of information technology is associated with the implementation of our programme for modernisation and development of our information technology, including improvement of reliability of our IT infrastructure by creating an integrated platform for key IT systems. Employees As at 31 December 2011, the Group employed 10,381 people, of which 6,527 people were employed at its branch network. The average age of the Group s employees is 37.6 years. Higher professional education degrees have been obtained by 85.6 per cent. of the Group s employees. In December 2000, a labour union of our employees was established, totalling 1,760 members as at 31 December At an employee conference on 14 August 2008, our labour union committee entered into a collective bargaining agreement with our management covering the period from 2008 to 2011, which was extended until 2014 in July The collective bargaining agreement is based on principles of social partnership between the labour union committee and our management and considers the accumulated experience in the sphere of Gazprombank s social policy. The Group maintains a number of corporate social programmes for its employees, including medical insurance and social insurance, non-public pension plans and consumer and mortgage loans. Litigation Proceedings against Gazprombank (Switzerland) Ltd In 2007, Investment Commercial Bank Petroff-Bank ( Petroff-Bank ), a Russian bank, requested Gazprombank (Switzerland) Ltd ( GPBS ), a Swiss subsidiary of Gazprombank, to provide financing to a Nevisian company. The financing was structured in the following way. Petroff-Bank deposited funds with GPBS under fiduciary term deposit agreements governed by Swiss law and instructed GPBS to loan the deposited funds to the Nevisian company. In May 2010, the Nevisian company defaulted under the loan agreements with GPBS in the aggregate amount of U.S.$70 million. In June 2010, GPBS assigned the defaulted loans to Petroff-Bank and retained the amount deposited by Petroff-Bank, as provided under the contractual arrangements. In December 2010, Petroff-Bank was declared bankrupt. In October 2011, the Russian Deposit Insurance Agency (the RDIA ), in its capacity as a receiver of Petroff- Bank, filed a claim with the Moscow Arbitrazh Court against GPBS and Petroff-Bank seeking (i) the invalidation of the deposit retention by GPBS in the aggregate amount of U.S.$70 million and (ii) the collection of this amount into a bankruptcy estate. The RDIA s position is grounded on the rules of Russian bankruptcy laws whereby the deposit debit operation occurred in a six-month period prior to Petroff-Bank s bankruptcy which, in the opinion of the RDIA, lead to a preferential satisfaction of GPBS s claim as compared to other creditors of Petroff-Bank. 56

61 The first instance court has granted a decision in favour of the RDIA and the matter is currently under the appeal proceedings. The outcome of these proceedings remains uncertain. Gazprombank s management believes that the ultimate resolution of this matter will not have a material effect on the Group s business, financial condition, results of operations and prospects. Other proceedings The Group is a party to several legal proceedings in the ordinary course of business, such as recovery of debts from non-performing clients, which taken together or individually may not have a material adverse effect on its business, financial condition, results of operations or prospects. 57

62 FINANCIAL REVIEW Selected Consolidated Financial Information The summary statement of consolidated financial position data and summary profit and loss data set forth below have been derived from, and should be read in conjunction with, our Group Financials included elsewhere in this Base Prospectus. Consolidated Financial Position Data As at 31 December Assets RUB millions, except percentages Cash and cash equivalents , , ,723 Obligatory reserve with the CBR... 22,497 10,400 9,860 Due from credit institutions... 19,208 25, ,847 Financial assets held for trading , , ,138 Loans to customers... 1,396,454 1,033, ,292 Investments available-for-sale... 62,803 57,141 43,687 Investments in associates... 15,167 7,867 6,105 Receivables and prepayment... 57,906 56,318 71,397 Investments held-to-maturity... 13, Inventories... 49,092 43,038 54,171 Deferred tax assets... 7,461 16,846 31,907 Property, plant and equipment... 61,876 57, ,798 Intangibles... 26,245 22,749 20,757 Goodwill... 27,352 20,494 27,725 Other assets... 15,979 12,734 13,735 Investments in associate held for sale... 11,183 68,070 - Total assets... 2,477,668 1,951,684 1,741,142 Liabilities Amounts owed to government bodies... 66,941 56,272 49,247 Amounts owed to credit institutions ,296 89, ,654 Amounts owed to customers... 1,430,002 1,185, ,751 Subordinated deposits (1) , , ,630 Financial liabilities held for trading... 7,633 27,378 72,764 Eurobonds issued ,375 79,392 88,227 Certificated debts ,311 65,923 80,887 Deferred tax liabilities... 6,076 11,012 14,634 Other liabilities... 91,526 72,285 74,354 Total liabilities... 2,234,728 1,730,596 1,545,148 Equity Share capital... 31,836 31,836 31,836 Additional paid-in-capital... 32,478 32,916 33,322 Treasury stock... (9,696) (5,513) (1,661) Foreign currency translation reserve (1,585) Fair value reserve... 4,143 15,275 6,366 Retained earnings , ,117 83,757 Total equity attributable to the Group s shareholders , , ,035 Minority interest... 3,650 4,968 43,959 Total equity , , ,994 Total liabilities and equity... 2,477,668 1,951,684 1,741,142 Notes: (1) Includes subordinated deposits from VEB, Gazfond and Gazprom Group in the aggregate amount of RUB90 billion to be converted into Gazprombank s share capital. 58

63 Supplemental Financial Position Data As at 31 December Financial position ratios: Amounts owed to customers/total liabilities % 68.5% 57.0% Loans to customers (1) /total assets % 52.9% 43.0% Loans to customers (2) /amounts owed to customers and subordinated deposits (3) % 77.8% 73.1% Total equity/total assets % 11.3% 11.3% Tier 1 capital adequacy ratio (BIS) (4) % 10.5% 9.7% Total capital adequacy ratio (BIS) (5) % 16.7% 14.8% CBR capital adequacy ratio (6) % 14.0% 18.4% Asset quality: Non-performing loans to gross loans to customers (7) % 2.1% 3.9% Allowances for impairment to gross loans to customers % 4.7% 6.9% Notes: (1) (2) (3) (4) (5) (6) (7) Includes loans to customers less allowance for impairment. Includes loans to customers less allowance for impairment. Subordinated deposits include funds from VEB, Gazfond and Gazprom Group in the aggregate amount of RUB90 billion to be converted into Gazprombank s share capital. Tier 1 capital adequacy ratio calculated in accordance with the Bank for International Settlements ( BIS ) methodology, as presented in Business Capital Adequacy. Total capital ratio calculated in accordance with BIS methodology, as presented in Business Capital Adequacy. Calculated in accordance with CBR requirements. See Banking Sector and Banking Regulation in the Russian Federation Mandatory Economic Ratios. Loans are considered non-performing when a borrower fails to make a scheduled payment of principal or interest for more than 90 days from the date stated in the loan contract. 59

64 Consolidated Profit and Loss Data Year ended 31 December RUB millions, except percentages Interest income , , ,274 Interest expense... (73,317) (68,417) (105,748) Net interest income... 58,226 31,771 34,526 Impairment of interest-earning assets... (11,254) (1,655) (25,875) Net interest income after impairment of interest-earning assets... 46,972 30,116 8,651 Fees and commissions income... 25,608 10,882 8,788 Fees and commissions expense... (3,723) (2,529) (3,291) Gain from investments available-for-sale and investments in associates, net... 19,306 33,573 6,434 Non-interest (loss) gain from financial assets and liabilities held for trading, net... (2,242) (5,099) 27,911 Gain from trading in foreign currencies, operations with foreign currency derivatives and foreign exchange translation, net... 2,094 12,284 28,015 Other operating income... 4,785 4,571 7,824 Non-interest income... 45,828 53,682 75,681 Non-banking operating profits... 8,314 3,697 7,390 Banking salaries and employment benefits... (26,769) (25,737) (15,211) Banking administrative expenses... (17,491) (14,854) (12,285) Recovery of impairment (impairment) of assets and provisions for other risks (8,392) Impairment of goodwill... (3,094) (5,989) (1,156) Non-interest expense... (47,212) (46,137) (37,044) Profit from continuing operations before profit tax... 53,902 41,358 54,678 Profit tax (expense) from continuing operations... (13,070) (12,761) (15,550) Profit for the year from continuing operations... 40,832 28,597 39,128 Profit for the year from discontinued operations ,666 19,640 Profit for the year... 40,832 66,263 58,768 Attributable to: Group s shareholders... 42,207 56,881 54,255 Non-controlling interests... (1,375) 9,382 4,513 40,832 66,263 58,768 60

65 Supplemental Profit and Loss Data Year ended 31 December Net interest margin (NIM) (1) % 2.5% 2.6% Return on average total assets (ROAA) (2) % 3.7% 3.1% Return on average shareholders funds (ROAE) (3)(4) % 29.6% 36.4% Cost/Income ratio (CIR) % 32.0% 18.9% Notes: (1) (2) (3) The average total assets figure is calculated as the average of the balance as at the beginning of the period and the balance as at the period-end and three interim balances. Return on average total assets is calculated by dividing net profits by average total assets. Average shareholders funds is calculated as the average of the balance as at the beginning of the period and the balance as at the period-end and three interim balances. (4) Return on average shareholders funds is calculated by dividing net profit by average shareholders funds. Capital Adequacy The minimum capital adequacy ratio required by the CBR and currently applicable to us is 10.0 per cent. of riskweighted total assets, calculated in accordance with Russian legislation. As at 31 December 2011, our capital adequacy ratio was 11.5 per cent. (compared to 14.0 per cent. as at 31 December 2010), exceeding the minimum regulatory threshold. We strive to meet international standards with respect to capital adequacy. In accordance with Basel Guidelines the minimum level of capital adequacy ratio is 8 per cent. The table below sets forth information regarding our capital adequacy as at and 31 December 2011, 2010 and 2009, calculated in accordance with Basel Guidelines (Basel I): As at 31 December Paid in share capital... 31,836 31,836 31,836 Additional paid-in-capital... 32,478 32,916 33,322 Treasury stock... (9,696) (5,513) (1,661) Applicable reserves less goodwill , ,112 54,447 Minority interest... 3,650 4,968 43,959 Tier 1 Capital , , ,903 Tier 2 Capital , ,935 87,318 Total Capital , , ,221 Adjustments to Tier 2 Capital... (35) (38) (1,975) Net available capital , , ,246 Risk weighted assets... 2,204,058 1,757,473 1,670,749 Capital adequacy ratios: Tier 1 ratio (%) % 10.5% 9.7% Total capital ratio (%) (1) % 16.7% 14.8% Notes: (1) Net available capital as a percentage of risk weighted assets. In 2012, we plan to complete the additional share placement involving conversion of a part of outstanding subordinated deposits into ordinary shares. This series of transactions as planned will result in a change in our capital adequacy ratios, the values of which cannot be exactly determined until completion. See Principal Shareholders and Related Party Transactions. Other CBR Mandatory Economic Ratios 61

66 In addition to the capital adequacy ratio, the CBR has also established requirements for a number of similar ratios, including risk diversification ratios. We are currently in compliance with all CBR ratios. The following table sets forth information regarding our compliance with certain important CBR mandatory economic ratio requirements based on RAS, as at 31 December 2011, 2010 and As at 31 December CBR Maximum/ Minimum Mandatory Economic Ratio Requirements Mandatory Economic Ratios Instant liquidity ratio (N2)... Minimum 15% Current liquidity ratio (N3)... Minimum 50% Long-term liquidity ratio (N4)... Maximum 120% Maximum exposure to single borrower or groups of related borrowers (N6)... Maximum 25% Maximum amount of major credit risks (N7)... Maximum 800% Three economic ratios (N2 through N4) are designed to control the liquidity of banks and present the ratio of assets to liabilities in different maturity intervals. Maximum exposure to a single borrower or a group of related borrowers (N6) limits a bank s exposure to a single borrower or group of related borrowers to 25 per cent. of the bank s capital base. The maximum amount of major credit risks (N7) sets forth a ratio of sum of loans exceeding 5 per cent. of the bank s equity. Analysis of Financial Position Loans and Advances to Customers Our portfolio of loans to customers (excluding banks) is comprised of Rouble and of foreign currency (mostly U.S. dollar and euro denominated) loans to corporate and retail customers. As at 31 December 2011, we had a total of RUB1,454.3 billion in gross loans outstanding, 36.8 per cent. of which were denominated in a foreign currency. The following table shows our loan portfolio by currency and maturity as at 31 December 2011, 2010 and 2009, respectively: As at 31 December 2011 % 2010 % 2009 % RUB millions, except percentages Gross loans to customers by currency: RUB , % 687, % 421, % Foreign currencies , % 396, % 383, % Total gross loans... 1,454, % 1,084, % 804, % Provisions... (57,839) - (50,631) - (55,272) Total loans (without provisions)... 1,396,454-1,033, ,292 Net loans to customers by maturity: up to 1 year , % 413, % 269, % 1 to 5 years , % 490, % 424, % over 5 years , % 129, % 55, % Total loans... 1,396, % 1,033, % 749, % 62

67 We have loan concentrations in certain sectors of the economy, in particular in metal manufacture, and natural gas industry, and we have a concentration in acquisition finance. The following table shows our gross exposure by principal economic sector as at 31 December 2011 and 2010: As at 31 December 2011 As at 31 December 2010 RUB millions % RUB millions % Metal manufacture , % 226, % Gas extraction, transportation and sale enterprises , % 184, % Chemical industry , % 38, % Individuals , % 95, % Electric power industry , % 49, % Finance and investment companies... 81, % 20, % Oil extraction, transportation, processing and sale enterprises.. 74, % 70, % Real estate construction... 63, % 34, % Mining... 58, % 52, % Petrochemical industries... 58, % 101, % Machine building... 53, % 39, % Telecommunications... 52, % 33, % Transport... 40, % 19, % Food industry... 38, % 19, % Trading enterprises... 35, % 12, % Nuclear industry... 28, % 27, % Agriculture... 25, % 23, % Leasing... 7, % 1, % Shipbuilding... 4, % % Insurance... 3, % 5 0.0% Timber industry... 2, % 2, % Enterpreneur % 2, % Other... 55, % 25, % 1,454, % 1,084, % Less allowance for impairment (57,839) (50,631) Loans to customers 1,396,454 1,033,370 As at 31 December 2011, 2.3 per cent.(rub33,023 million) of our gross loans to customers were made to the Gazprom Group (3.3per cent. and RUB35,416 million as at 31 December 2010). Loan Impairment An allowance for impairment of a loan is recorded if there is reasonable evidence that we may not be able to collect all amounts due. The amount of the allowance is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the interest rate as of the loan inception date. In addition, allowances for loan loss impairment are recorded on the basis of historical patterns of losses in each component of the loan portfolio, the internal credit ratings allocated to borrowers and our assessment of the current economic conditions in which the relevant borrowers operate. We classify loans as non-performing if the loan has been in default as to payment of principal or interest for 90 days or more. The following table provides a breakdown of our loans, including our non-performing loans, and related allowances for the years ended 31 December 2011, 2010 and 2009, respectively: As at 31 December RUB millions, except percentages Allowances for impairment... 57,839 50,631 55,272 Loans to customers (prior to provisions)... 1,454,293 1,084, ,564 Allowances for impairment to gross loans to customers % 4.7% 6.9% Non-performing loans... 20,597 22,752 31,318 Non-performing loans to gross loans to customers % 2.1% 3.9% Allowances for impairment to non-performing loans % 222.5% 176.5% As at 31 December 2011 the amount of non-performing loans (those overdue by more than 90 days) decreased in absolute and relative amounts and comprised 1.4 per cent. of the total loan portfolio, as compared to 2.1 per cent. as at 31 December Improved quality of the loan portfolio led to a decrease of allowances for 63

68 impairment from 4.7 per cent. of the total loan portfolio, as at 31 December 2010 to 4.0 per cent. as at 31 December Trading Securities Portfolio We trade various types of securities both for our customers and for our own account. Our trading activity has historically consisted of trading in shares and bonds, including eurobonds, of Russian issuers. We trade on all major Russian stock exchanges, as well as on foreign stock exchanges, such as LSE and NYSE. Our trading securities portfolio is recorded in our financial statements as financial assets held for trading. As at 31 December 2011, our total trading securities portfolio amounted to RUB194.3 billion, of which 5.1 per cent. were Gazprom shares. The following table shows the carrying value in our Group Financials of our total trading securities portfolio as at 31 December 2011, 2010 and As at 31 December 2011 % 2010 % 2009 % RUB millions, except percentages Gazprom shares... 9, % 17, % 20, % Corporate bonds , % 104, % 79, % Promissory notes... 2, % 13, % 11, % Russian Federation Rouble bonds 31, % 18, % 7, % (GKO (1) and OFZ (2) )... Equity securities (3)... 9, % 1, % 3, % Municipal bonds... 13, % 6, % 4, % Russian Federation and other sovereign Eurobonds... 19, % 6, % 4, % Total , % 168, % 132, % Notes: (1) Federal short-term bonds ( GKO ). (2) (3) Federal loan bonds ( OFZ ). Excluding Gazprom shares. For 2011, significant decline of prices in the Russian securities resulted in loss from our trading securities portfolio in the amount of RUB2.7 billion. For 2010, income from our trading securities portfolio amounted to RUB5.3 billion due to net gains in corporate shares, corporate bonds, Russian government bonds and Moscow municipal bonds. In 2010, we recognised in our income statement a fair value loss of RUB10.6 billion on derivative contracts with securities. This accounting loss was principally attributable to a series of transactions involving writing of equity call options. This accounting loss was offset by accounting gains on the underlying position in equities recognised in fair value reserve in equity in This gain was transferred to our income statement in 2011 when the call options were exercised and resulted in RUB15.6 billion gain from investments available-for-sale. Foreign Exchange Trading We are active in the Russian foreign exchange market, trading both for our customers accounts and for our own account. We are one of the leading market makers in the domestic Russian foreign exchange market. For 2011, our revenue from foreign exchange transactions, including revaluation to fair value of derivative contracts, amounted to RUB2.1 billion (due to a RUB9.5 billion loss from derivative contracts and RUB11.6 billion gain from foreign exchange) as compared to a gain of RUB12.3 billion in 2010 (due to a RUB19.7 billion gain from derivative contracts offset in part by a RUB7.4 billion loss from foreign exchange). As a result of our negative experience with foreign currency derivatives transactions in 2008, we revised our approach to foreign exchange risks and, at the end of 2008, we substantially tightened our limits for proprietary transactions with foreign currency derivatives. Presently, all of our transactions that led to recognition of significant mark-to-market losses in 2008 have expired in full. Cash and Cash Equivalents Historically the structure of our assets has been characterised by a significant amount of highly liquid assets. As at 31 December 2011, cash and cash equivalents amounted to RUB494 billion, which was equal to 19.9 per cent. of our total assets (RUB347 billion and 17.8 per cent. as at 31 December2010, respectively). 64

69 The main reason for the high share of cash in our assets is significant balances on current accounts of our customers, which may be withdrawn by depositors at any time. As at 31 December 2011, cash held in on demand accounts of our customers comprised RUB644 billion, which is equal to 28.8 per cent. of our total liabilities, as compared to RUB558 billion and 32.3 per cent. as at 31 December 2010, respectively. A significant part of funds held in on demand accounts were those of Gazprom Group companies. Funding Our sources of funds comprise current accounts and term deposits of our corporate and retail customers, subordinated deposits, the issuance of debt instruments in the form of eurobonds and local Rouble-denominated bonds, promissory notes and certificates of deposit, interbank loans (including syndicated loans), deposits from the CBR and from the Russian Federal Treasury. The following table shows our sources of funding as at 31 December 2011, 2010 and 2009, respectively: Amounts owed to governmental bodies... As at 31 December 2011 % 2010 % 2009 % RUB millions, except percentages 66, % 56, % 49, % % of total funding % 3.5% 3.6% Amounts owed to credit institutions: Time deposits other banks , % 78, % 94, % Repo agreements % 2, % Current accounts other banks (1)... 15, % 8, % 45, % Total , % 89, % 139, % % of total funding % 5.5% 10.1% Certificated Debts and Eurobonds Issued: Certificated debts , % 65, % 80, % Eurobonds issued , % 79, % 88, % Total , % 145, % 169, % % of total funding % 9.0% 12.2% Amounts owed to customers: Current accounts , % 558, % 362, % Time deposits , % 627, % 518, % Total... 1,430, % 1,185, % 880, % % of total funding % 73.1% 63.7% Subordinated deposits (2) , % 143, % 144, % % of total funding % 8.9% 10.4% Total Funding... 2,129, % 1,619, % 1,383, % Notes: (1) Current accounts of other banks with us. (2) Subordinated deposits include funds from VEB, Gazfond and Gazprom Group in the aggregate amount of RUB90 billion to be converted into Gazprombank s share capital. 65

70 The residual maturity breakdown of our funding as at 31 December 2011, 2010 and 2009, respectively, was as follows: As at 31 December 2011 % 2010 % 2009 % RUB millions, except percentages Less than 3 months... 1,188, % 866, % 745, % 3 to 12 months , % 318, % 310, % 12 to 60 months , % 291, % 150, % Over 60 months , % 143, % 177, % Total Funding... 2,129, % 1,619, % 1,383, % Amounts Owed to Customers Current accounts and term deposits of our corporate and retail customers have historically comprised a significant part of our funding base. Their share in our funding base amounted to 67.2 per cent. as at 31 December 2011 in comparison with 73.1 per cent. as at 31 December 2010 and 63.7 per cent. as at 31 December The share of term deposits in amounts owed to customers amounted to 55.0 per cent. as at 31 December 2011 (in comparison with 53.0 per cent. as at 31 December 2010 and 58.9 per cent. as at 31 December 2009). As of 31 December 2011, current accounts and time deposits of the Gazprom Group amounted to 20 per cent. of our total amounts owed to customers, as compared to 22 per cent. as at 31 December Amounts Owed to Credit Institutions As at 31 December 2011, the share of deposits, including syndicated loans, repo transactions and balances on accounts of banks and other financial institutions comprised RUB240.3 billion, or 10.8 per cent. of our total liabilities, as compared to RUB89.5 billion, or 5.2 per cent. of our total liabilities, as at 31 December 2010 and RUB139.7 billion, or 9.0 per cent. of our total liabilities, as at 31 December The increase in the Group s amounts owed to credit institutions from 2010 to 2011 is primarily a result of excess liquidity available for the Group s customers, including credit institutions, who decided to place such excess liquidity with the Group as at 31 December In September 2010, we received a syndicated loan from a pool of international banks in the amount of U.S.$900 million. In August 2011 we received a syndicated loan from a pool of international banks in the amount of U.S.$1.2 billion for the purposes of repaying the September 2010 syndicated loan and with the balance to be used for general corporate purposes. The new syndicated loan is due to be repaid in August Amounts Owed to Governmental Bodies As at 31 December 2011, amounts owed to government bodies, including CBR funds, funding from the Federal Treasury and from Vnesheconombank comprised 3.1 per cent. of the Group s funding base as at 31 December 2011 as compared to 3.5 per cent. as at 31 December 2010 and 3.6 per cent. as at 31 December These funds include primarily short-term deposits. Certificated Debts and Eurobonds We issue domestic debt securities, including certificates of deposit, promissory notes and local Roubledenominated bonds, and international debt securities, primarily eurobonds. Certificated Debts As at 31 December 2011, outstanding certificates of deposit, Rouble-denominated local bonds and promissory notes totalled RUB143.3 billion or 6.7 per cent. of our funding base. In November 2006, we issued Rouble-denominated local bonds in an aggregate amount of RUB5.0 billion (U.S.$155.3 million) due in The coupon for the issue was 6.5 per cent. In November 2007, a total number of 4,999,999 notes with a face value RUB1,000 each were repurchased pursuant to a public offer. In November 2007, we issued two series of Rouble-denominated domestic bonds in an aggregate amount of RUB40.0 billion (U.S.$1,242.4 million) each of which is due in In December 2010, we issued Rouble-denominated domestic exchange traded bonds in an aggregate amount of RUB10.0 billion (U.S.$310.6 million) due in

71 In July 2011, we issued Rouble-denominated domestic exchange traded bonds in an aggregate amount of RUB10.0 billion (U.S.$310.6 million) due in In December 2011, we issued Rouble-denominated domestic exchange traded bonds in an aggregate amount of RUB10.0 billion (U.S.$310.6 million) due in In February 2012, we issued Rouble-denominated domestic exchange traded bonds in an aggregate amount of RUB10.0 billion (U.S.$310.6 million) due in Eurobonds As at 31 December 2011, the total amount of outstanding eurobonds issued by us was RUB115.4 billion or 5.4 per cent. of our funding base. In September 2005, we issued U.S.$1.0 billion eurobonds bearing interest at 6.5 per cent. per annum and maturing in In June 2008, we issued U.S.$500 million eurobonds bearing interest at 7.93 per cent. per annum and maturing in In May 2009, we issued an aggregate of U.S.$120 million eurobonds bearing interest at 7.35 per cent. per annum and maturing in May 2016 in a private placement transaction. In August 2010, we issued U.S.$500 million eurobonds bearing interest at 6.25 per cent. per annum and maturing in 2014, and in September 2010 there was an additional issue of U.S.$500 million eurobonds united in one series with the issue of U.S.$500 million eurobonds bearing interest at 6.25 per cent. per annum and maturing in December During the course of 2009 we repurchased (pursuant to a tender offer process and certain over-the-counter transactions) and cancelled certain of our then-outstanding eurobonds. For further information see Note 25 to the 2010 Group Financials. In November 2011, we issued an aggregate of RUB20 billion eurobonds bearing a floating rate with a reference to MOSPRIME and maturing in November In December 2011, we issued an aggregate of CHF420 million eurobonds bearing a per cent. per annum and maturing in December None of our eurobonds or other outstanding securities are convertible into our equity. The conditions and covenants applicable to our eurobond issues include negative pledge provisions. These provisions limit our ability to create security over any indebtedness which is (a) in the form of or represented by any bond, debenture, debenture stock, privileged shares, unsecured bonds, certificate or any other instrument which is or is intended to be listed, quoted or traded on any stock exchange or traded in any securities market (including, without limitation, any over-the-counter market), and (b) initially offered and distributed primarily outside the Russian Federation. The conditions applicable to our outstanding eurobond issues do not preclude us from issuing other types of debt and do not impose any financial covenants on us. Subordinated Deposits In October 2008 the Government of the Russian Federation adopted several federal laws to support liquidity of the Russian banking industry, pursuant to which the CBR and VEB were authorised to provide subordinated loans in the aggregate amount of up to RUB950 billion to Russian state-owned and private banks subject to compliance by the latter with certain financial and rating requirements and simultaneous provision by shareholders of such banks of subordinated deposits in the necessary amount. Subordinated deposits represent term deposits that were placed with us by our shareholders and state controlled companies according to agreements that include the following terms: (i) original maturity is not less than 5 years; (ii) the lenders have no right to claim the deposits before maturity; and (iii)in the event of our bankruptcy or default, subordinated deposits are due to be repaid only after the settlement of all other liabilities. The classification of deposits as subordinated for the purpose of compliance with the Russian statutory legislation (for the calculation of statutory capital adequacy ratio) also needs a formal approval of the terms of each deposit agreement by the CBR (the registration of deposit agreements). 67

72 As at 31 December 2011, 2010 and 2009, subordinated deposits comprised: As at 31 December Deposits from Gazprom Group... 10,813 11,568 13,120 Deposits from NPF Gazfond... 32,500 32,500 32,500 Deposits from Vnesheconombank... 89,932 89,910 89,908 Other subordinated deposits ,444 9,102 Subordinated deposits , , ,630 Included in deposits from the Gazprom Group as at 31 December 2011 is an amount of RUB7,500million that represents subordinated debt received by the Group in December 2008 which and mature in The rest of deposits from Gazprom Group are represented by various smaller deposits placed in and maturing between 2012 and As at 31 December 2011, RUB-denominated deposits from one of our shareholders, Gazfond, included a 30- year subordinated deposit of RUB25,000 million placed in August 2009 and a RUB7,500million subordinated deposit placed in December 2008 and maturing in As at 31 December 2011, included in subordinated deposits is an amount of RUB89,932million that represents deposits from VEB. In February 2012, Gazprom converted its subordinated deposits with us of RUB7,500 million into ordinary shares of Gazprombank as a part of an additional shares placement. We expect that Gazfond and VEB will also convert their subordinated deposits of RUB32,500 million and RUB50,000 million, respectively, into ordinary shares as a part of the additional shares placement in The subordinated deposits will be converted into Gazprombank s share capital. Analysis of Results of Operations Profit for the year from continuing operations The Group s profit for 2011 decreased by 38.4 per cent. to RUB40.8 billion from RUB66.3 billion for 2010, while the Group s profit for 2011 from continuing operations increased by 42.8 per cent. to RUB40.8 billion from RUB28.6 billion for This is primarily explained by a one-off gain received by the Group from sale of its shareholding in SIBUR Holding in Interest Income For 2011, the Group s interest income amounted to RUB131.5 billion, representing a 31.3 per cent. increase from RUB100.2 billion for This increase was caused mostly by the growth of both corporate and retail loan portfolios by 32.8 per cent. from RUB988.2 billion as at 31 December 2010 to RUB1,311.6 billion as at 31 December 2011 and by 48.9 per cent. from RUB95.8 billion as at 31 December 2010 to RUB142.7 billion as at 31 December 2011, respectively, and also by the growth of debt securities portfolio (including held-to maturity bonds) by 37.2 per cent. from RUB153.2 billion as at 31 December 2010 to RUB210.3 billion as at 31 December The increase in the Group s debt securities portfolio is a result of investment of available cash received by the Group from the sale of its shareholding in SIBUR Holding in For 2011, our main sources of interest income were interest on loans issued to our corporate customers, which amounted to RUB95.1billion (72.3 per cent. of our total interest income), interests on loans issued to our retail customers, which amounted to RUB15.6 billion (11.8 per cent. of our total interest income) and interest income from our debt securities portfolio, which amounted to RUB14.6 billion (11.1 per cent. of our total interest income). Interest Expense In 2011, our interest expense amounted to RUB73.3 billion, which is 7.2 per cent. more than RUB68.4 billion in We managed to keep interest expense almost at the level of 2010 mostly by the changes in the market environment which resulted in a lower cost of funds, despite an increase in the size of funding base during In 2010, our interest expense consisted mostly of interest paid on deposits of our corporate customers, which amounted to RUB30.4billion, or 41.5 per cent. of our aggregate interest expense, interest paid on deposits of our retail customers, which amounted to RUB11.8 billion or 16.1 per cent. of our aggregate interest expense, and interest paid on subordinated deposits, amounting to RUB10.5 billion or 14.3 per cent. of our aggregate interest expense. 68

73 Non-banking Operating Profits Our non-banking operating profits for 2011 amounted to RUB8.3 billion. This figure comprises consolidated operating results of the companies acquired by us as a part of private equity investments. Such companies include Gazprom Media Group, Heavy Machinery Production Companies and other companies though excludes the results of the SIBUR Holding group which were de-consolidated in 2010 and were recognised in profit from discontinued operations. Non-Interest Income For 2011, our non-interest income amounted to RUB45.8 billion, which is a 14.7 per cent. decrease as compared to RUB53.7 billion in In 2011, fees and commissions income increased by per cent. from RUB10.9 billion in 2010 to RUB25.6 billion in 2011 mainly due to one-off credit commissions in amount of RUB12.1billion received by the Group, which are unlikely reoccur in the future. Gain from Investments In 2011, our gain from investments available-for-sale and investments in associates amounted to RUB19.3 billion as compared to RUB33.6 billion in This gain was mainly due to sale of certain private equity investments in 2011, which resulted in a gain of RUB15.5 billion. The gain for 2010 is primarily attributable to a one-off gain relating to sale of private equity investments in 2010, which is unlikely to reoccur in the future. Non-Interest Expense In 2011, our non-interest expense amounted to RUB47.2 billion, which is 2.3 per cent. more in comparison with RUB46.1 billion in The Group managed to keep salary expenses on the level of 2010 (4 per cent. increase). In addition, goodwill impairment decreased from RUB6.0 billion in 2010 to RUB3.1 billion in Taxes Profit tax on continuing operations amounted to RUB13.1 billion and RUB12.8 billion for 2011 and 2010, respectively. The tax rate for current and deferred tax was 20 per cent. for each of 2011 and The effective profit tax rate differs from the current profit tax rate established in accordance with law of the Russian Federation and comprises 24.2 per cent. and 30.9 per cent. for 2011 and 2010, respectively. As at 31 December 2011 and 31 December 2010, the Group s profit tax assets comprised RUB8.3 billion and RUB18.7 billion, respectively. The Group did not record in its accounts deferred tax on investments into subsidiaries. As at 31 December 2011 and 31 December 2010, the Group s profit tax liabilities comprised RUB8.2 billion and RUB11.6 billion, respectively. 69

74 Off-Balance Sheet Liabilities Provisions for off-balance sheet credit exposures are recognised when we have a present legal or contingent obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. The following table provides a breakdown of our off-balance sheet credit exposures and the related provisions as at 31 December 2011, 2010 and As at 31 December RUB millions, except percentages Total off-balance sheet exposure ,172 (1) 546,247 (2) 293,670 (3) Provisions... 3,364 4,513 8,102 Provisions to total exposure % 0.83% 2.76% Notes: (1) Of this amount, undrawn loan commitments amounted to RUB513,021 million, letters of credit amounted to RUB29,845 million and guarantees amounted to RUB252,306 million. (2) (3) Of this amount, undrawn loan commitments amounted to RUB307,967 million, letters of credit amounted to RUB21,046 million and guarantees amounted to RUB217,234 million. Of this amount, undrawn loan commitments amounted to RUB174,345 million, letters of credit amounted to RUB23,763 million and guarantees amounted to RUB95,562 million. The year-on-year increase in the Group s credit related financial commitments is primarily explained by the constant demand for such services by Russian companies. 70

75 RISK MANAGEMENT We believe that our high quality risk management systems are one of the key elements of our success. We systematically and continuously identify, measure, monitor and manage the risks arising from our operations. Our system of risk control and risk management is fully integrated into our internal systems for planning, management and control. Risk Management Principles and Organisation The following key principles guide our approach to risk management: our Board of Directors reviews risk management systems and policies on an annual basis; our Management Board provides overall risk management oversight for our operations as a whole; in light of various specific risks that we face, our risk policies determined by our Management Board are implemented through a special flexible risk management structure; we enforce a clear division between our business origination and risk management activities; we manage credit, market, liquidity and operational risks in a coordinated manner at all levels of our operations; and in our branch operations, we delegate local decision-making authority to local/decentralised risk management units within the framework of our centralised risk management policies. To further enhance risk management, Gazprombank has developed an integrated risk management system. The system aims to unify risk management approaches and enhance control over risk management in separate organisations of the Group, as well as to align the overall Group risk profile with its strategic objectives and to facilitate risk-based decision making on Group level. The Group s risk management system is based on modern standards and practices of risk-based management of financial organisations. It follows the requirements of the Committee of Sponsoring Organizations of the Treadway Commission s Enterprise Risk Management framework and the Basel Committee on Banking Supervision, outlined in the Basel Committee s documents on key principles and appropriate practice of credit, market, operational and compliance risks and risk of liquidity management, as well as modern practice of corporate governance and internal audit in banks. In determining our risk policy, our Management Board is supported by three risk control and management committees and our Risk Management Division (as defined below). The committees comprise of the Credit Committee, the Investment Committee and the ALM Committee, all of which are appointed and monitored by our Management Board. These committees meet weekly and report regularly to our Management Board. The Credit Committee and the Investment Committee are responsible for approving operations that carry credit risk. The authority and responsibility of each committee in respect of a given transaction is determined by reference to the parameters of such transaction. In particular, the Investment Committee is responsible for approving investment deals of over RUB1.2 billion, and all other transactions fall to the Credit Committee. The primary objective of our ALM Committee is to control exposure to liquidity and market risks while maximising profitability through optimising of the assets and liabilities structure. In addition to the three committees, the Risk Management Division is responsible for the day-to-day management of risks based on standards, models and procedures it develops In order to enhance our risk management capabilities and to meet the challenges of the changing financial environment, in spring 2010 we decided to restructure our risk management units and established a risk management division (the Risk Management Division ) comprised of three units dealing with risk management. The Banking Risk Department deals with general banking risk, including credit and operational risks. The Financial Markets Risks Department targets risks exclusively linked to treasury operations, operations with counterparty banks and investment, as well as manages Bank s aggregated market risk and liquidity risk and performs monitoring of Bank s economic capital adequacy. The Centre of Consolidated Risks and Risk Methodology is responsible for risk monitoring and coordination of risk management procedures of subsidiary banks. These units are overseen by the First Vice-President, a Member of the Management Board, who reports directly to the Chairman of the Management Board, who is in charge of the risk management organisation of Gazprombank and on a Group level. The Department of Control of Transactions on Financial Markets is responsible for ongoing monitoring of established limits. The main objectives of the renovated system of risk management organisation are integrating the risk management system on a Group level and appraising and 71

76 analysing the risks associated with new products, business processes and key performance indicators, in order to bring risk management closer to Gazprombank s growing business requirements. Our risk management and control system addresses four distinct types of banking risk: credit risk; market risk; liquidity risk; and operational risk. A risk appetite statement reviewed by Gazprombank 's Board of Directors includes both quantitative and qualitative indicators designed to provide high level guidelines on type and amount of risk that Gazprombank is willing to take in pursuit of its strategic goals. In 2010 Gazprombank implemented an economic capital allocation framework, which serves the purpose of ensuring capital adequacy, increased transparency of risk-taking and optimising the balance of risk and return. Economic capital adequacy is one of the main inputs into the risk appetite statement. Gazprombank regularly monitors its actual risk profile against risk appetite and corrective actions are taken if necessary. In 2010 Gazprombank embarked on a project to implement an enterprise liquidity, interest rate, credit and operational risk management solution based on SAS Institute software. Credit Risk Credit risk is the single largest risk we face. We manage credit risk on a consistent basis in line with the principles specified in our credit policy and risk management policy that comply with CBR requirements and take into account recommendations of the Basel Committee on Banking Supervision. Credit policy and risk management policy have been approved by our Management Board. The main objective of credit risk management is timely credit risk identification, assessment, and mitigation. We use the following key principles of credit risk assessment and management: the use of a comprehensive methodological approach which includes qualitative (expert) and quantitative (statistical) credit risk assessment; the application of credit risk assessment to each individual transaction and on a portfolio basis as a whole; and the adherence to a unified approach to all aspects of the credit process including credit decision-making, administration, credit risk monitoring and provisioning. Decision-making on acceptable credit risk levels falls within the competence of several authorised bodies, such as the Investment Committee, the Credit Committee and the Chairman of the Management Board. Gazprombank has introduced risk limits for any one borrower or a group of borrowers. Compliance with such limits is monitored on a regular basis. The credit risk management system used by Gazprombank includes both qualitative and quantitative credit risk assessment for each individual transaction and on a portfolio basis as a whole. All transactions that are considered by the Credit Committee or the Investment Committee are subjected to independent qualitative assessments by the Risk Management Division. Qualitative assessment is a fundamental method of credit risk assessment. We consider, for example, the quality of the borrower s management, main business activities of the borrower, its geographical location, suppliers, customers and outstanding borrowings, as well as various financial factors relating to each borrower, including its financial stability, turnover and the likely return on the loan. The result of qualitative assessment is an expert opinion that determines acceptable transaction parameters and measures of risk minimisation that we believe are appropriate for the transaction. The expert opinion is a part of the documentation that is considered by the collegial bodies in their decision-making on acceptable credit risk levels. Qualitative credit risk assessment is undertaken in respect to the following business segments: project finance, corporate finance, retail banking, financial institution transactions, sovereign and municipal body transactions and debt market transactions. 72

77 The number of financial ratios used, the method of their calculation and applicable threshold values and appropriate total score are determined depending on the counterparty s industry and the nature of the transaction. All of our clients are assessed using a unified internal rating scale which has ten grades (from AAA to D ). In order to assess their rating all of our clients are divided into nine general categories, for each of which a dedicated assessment methodology is applied. In addition, we have an internal database, where we collect, accumulate and analyse both quantitative and qualitative credit risk metrics. The results of the rating assessment are used to determine the appropriate internal credit rating and counterparties credit risk limit, to identify and monitor problem assets for provisioning according to RAS and IAS standards and to calculate the probability of default and expected loss assessment. Also within the framework of quantitative assessment, we are determining and using VAR and stress testing models to estimate unexpected losses in the value of our credit portfolio under ordinary market conditions and the maximum value of our potential losses under a crisis situation. The adequacy of credit risk assessment models is verified by back testing procedures. We use SAS Credit Scoring for Banking projects to build scorecards for a range of lending business lines. In order to further develop our methodology for credit risk assessment we plan to continue the implementation of SAS Credit Risk for Banking projects in We consider the monitoring of credit risk levels as an essential part of credit risk management. The main instruments of credit risk monitoring include the system of credit risk limits, the control of additional and suspense conditions of transactions and the regular review of counterparties financial position, monitoring security provided as a collateral and other additional information. Lending Policies and Procedures General Lending Guidelines Our general lending guidelines provide the basic rules for our lending business. Our general lending policy is based on the following general guidelines: we review the creditworthiness of each borrower and consider factors such as the quality of the management of the borrower, the main business activities of the borrower, its geographical location, suppliers, customers and outstanding borrowings; we evaluate various financial factors relating to each borrower, including its financial stability, turnover and the expected return on the loan; we consider the legitimacy and economic feasibility of each credit transaction with a view to ensuring the preservation of our business reputation; we have strict lending requirements; in particular, we consider the proceeds of principal activity and cash flow from project implementation of each borrower to be a primary source of funds for the borrower to fulfil its respective obligations to us, whereas sources such as property and other security are considered to be secondary; we set specific lending terms and conditions for different types of loan products; we continuously enhance and optimise our internal procedures for decision-making and extending, monitoring and collecting loans; and we operate within the mandatory lending limits set by the Credit Committee and the Investment Committee (each of which is appointed by our Management Board) and the credit committees operating in our branches. Loan Approval Process Our loan approval process is conducted in compliance with the following general policies: the lending decision is made mostly on a collective basis; proper distribution and delegation of authority in relation to the decision-making process based on the level of acceptable credit risk and integrated analysis of credit and other risks arising in the course of lending transactions; 73

78 proper systematic assessment and management of credit risk given the volume and complexity of transactions including the assessment by an independent expert of the Risk Management Division and the assignment of internal ratings; and proper management of the loan portfolio based on its continuous monitoring. We require all client loan applications to be submitted in a standard format together with a set of supporting documents, and registered in our register of applications. In our head office, the initial review of applications (including financial analysis, feasibility study, examination of financial standing, reputation and past history of the applicant) is conducted by one of the following seven lending departments: the Key Industries Lending Department, the Corporate Lending Department, the Project Finance Department, the Commodities Markets Department, the Structured and Syndicated Finance Department, the Factoring Department and the Retail Customers Department. Primary analysis of applications from counterparty banks and investment companies is performed by Financial Institutions Department. Risk Management Division independently reviews all loan applications and corresponding limits at the initial stage and prepares an independent report for the Credit Committee or the Investment Committee (depending on the loan amount and type) assessing the effect that each potential loan may have on risk concentration across our loan portfolio. In addition, each client application is reviewed by each of our Legal Department and Security Department. Following review of a loan application by one of the lending departments and by the Risk Management Division, the loan application together with the reports and opinions prepared by the reviewing units, is submitted for approval by the Credit Committee or the Investment Committee, as applicable (depending on the loan amount and type). The Investment Committee s responsibilities include the approval of project financing transactions, the purchase of equity securities, mergers and acquisitions and underwriting of securities. Lending transactions, including those with financial organisations, are also subject to the limits set by of the Investment Committee, if the aggregate risk accepted for the counterparty exceeds the equivalent of RUB1.2 billion as of the decision date. The Credit Committee s responsibilities include the decision-making on lending transactions that do not fall under the Investment Committee s remit, setting of insurance risk limits for insurance companies, composition of classes of appraisers, and matters related to the setting of personal limits for standard products and retail (personal) lending. As at the date of this Base Prospectus, the Investment Committee mainly comprises the Deputy Chairmen of the Management Board and members of the Management Board of Gazprombank. The Credit Committee includes members of the Management Board and heads of the departments of Gazprombank. The approval limits for the Credit Committee and the Investment Committee are set by the Management Board. Credit committees operating in branches are authorised to approve loan applications within their respective approval limits. All loan applications submitted to branches exceeding their approval limits are reviewed by the head office s Risk Management Division and are finally approved by the relevant committee of the head office. The Board of Directors is responsible for the general direction of our lending business, approval of major and interested party transactions and adoption of decisions on the writing-off of unrecoverable loans which are, by virtue of their value, beyond the powers of the Management Board to adopt. The Management Board is responsible for the approval of our credit policy, target parameters of our loan portfolio, reports on compliance with our credit policy (reports on the status of problem loans and major risks) and internal regulatory documents relating to strategic directions in the development of lending operations, the delegation of lending decision making authority to the Investment Committee, the Credit Committee and to our officers. Lending Limits We use a hierarchy of lending limits, including an aggregate limit of credit risk acceptance per client or group of related clients, and a system of limits for particular types of transactions as a key tool of credit risk management. These limits may include several sub-limits, which are imposed depending on the type of transaction or lending purposes (e.g., working capital financing, investment financing or project financing). To limit our credit risk exposure, we have limits on the powers to make decisions on different types of loan products, limits on the total value of a loan, counterparty limits, loan concentration limits and loss limitation limits. The limits for credit committees operating in branches are approved by the Credit Committee. Gazprombank s branches are assigned different lending limits. Each branch performs its own assessment using a set of criteria, including managerial experience, bad debt history, regional needs and number of customers. Where the amount of a loan exceeds the limit set for the credit committees of the branches, a loan must be approved by the Credit Committee. 74

79 Where the amount of a loan exceeds the limit set for the Credit Committee, the loan must be approved by the Investment Committee. The Credit Committee is currently authorised to make decisions in respect of loans amounting up to RUB1.2 billion. Upon the application of the Credit Committee the Management Board delegates decision-making powers in relation to lending transactions to a number of our officers. Lending limits are reviewed on a regular basis by our managing bodies. Related party loans are extended to our affiliated companies within the limits set by the Credit Committee or the Investment Committee, and are provided on arm s length basis. All related party transactions are assessed in line with our usual internal procedures which apply to all of our customers. We further assess credit risks in transactions with related parties, in particular, in accordance with the following policies: in order to promptly identify credit risks in related party transactions, a duly authorised internal department (Department of Long-Term Investments and Equity) approves the criteria for the identification of related parties, including parties related to us; and credit risks with respect to related borrowers are assessed on a consolidated basis and credit risk limits are approved with due regard to the recognised criteria in respect of related party transactions as set out in applicable Russian legislation and regulations. We make decisions on lending matters in related party transactions strictly in accordance with the procedures set out by the Russian Federal Law No. 208-FZ On Joint-Stock Companies of 26 December 1995, as amended (the JSC Law ), our Charter, and our internal lending policies and procedures. See also Principal Shareholders and Related Party Transactions. Interested parties are excluded from the decision-making process. Lending Terms and Conditions The relevant committee approves the loan terms and conditions, including the amount, the interest rate, the repayment schedule and the type of collateral required. As a rule, interest rates under loan agreements are set on the basis of the minimum rates approved by our Asset and Liability Management Committee (the ALM Committee ). Our internal regulations provide for, inter alia, the prioritisation of certain clients - with respect to current and investment financing business, we give priority to the transactions with clients operating in sectors of strategic importance to us and/or clients that have a high internal credit rating; with respect to transactions with individuals, we usually give priority to transactions with clients who are employees of our corporate clients and/or to acquisition of real estate; with respect to transactions with local state authorities, priority is given to the transactions made for a term not exceeding the budget planning term of the respective state authority. Strategic clients and related parties may receive better loan terms (which we nonetheless believe are in accordance with market rates) including lower interest rates, less strict collateral requirements and longer maturities. Where a lower interest rate is less than the minimum rate set by our ALM Committee, such lower interest rate will be subject to a separate approval by the ALM Committee. Collateral It is our policy to seek collateral for most of our exposures. We prefer collateral in the form of a pledge of property, or a surety or guarantee from a party with a sound credit standing. The value of the property or the amount of the surety or guarantee should be sufficient to cover the principal amount of the loan and, as a rule, fees and interest for the entire term of the loan and any possible expenses and commissions involved in the foreclosure of the property, unless otherwise provided for by the decision of the relevant committee. Where collateral is considered, the relevant lending department assesses both its value, its legality and enforceability and any possible costs associated in connection with the foreclosure of such collateral. The main types of collateral or credit support accepted are guarantees from the Gazprom Group, third party bank guarantees, liquid promissory notes such as our and Gazprom s promissory notes, shares in Russian blue-chip companies (including Gazprom) and liens over inventory, real estate property and other similar monetary and physical liquid assets. Our lending policy contains a description of preferred and non-acceptable types of collateral and sets out the criteria for determining whether the proposed collateral is of sufficient value. The frequency of a collateral review depends on the type of collateral taken. Collateral with respect to which there are published market price quotations, such as shares, is reviewed daily. The sufficiency of other collateral is generally reviewed on a monthly basis. In normal circumstances, we can foreclose on liquid collateral, such as 75

80 shares, promissory notes and bonds, within a few days and other collateral within 180 days. However, foreclosure on certain types of collateral may take longer. Loan Monitoring Lending transactions are monitored continuously from the time the loan is extended until the time when the borrower discharges all of its obligations to us under the respective loan documentation. The purpose of such monitoring is to promptly identify and assess changes in the level of credit risk of the borrower and to take preventive measures to mitigate increased credit risk. In accordance with the CBR requirements, Russian banks must monitor their borrowers financial position and exposures on a regular basis. We monitor the financial position and exposures in relation to each corporate borrower, counterparty bank and investment company, including site visits, nor less than on a quarterly basis. If necessary, we evaluate on a regular basis the fair liquidation value of the collateral. In addition, our lending departments produce monthly reports on each loan. A report on any loan exposure where repayment is doubtful is submitted to the relevant committee and this exposure is monitored closely. We continuously update and refine the quality of our loan monitoring by means of computer systems in order to improve the speed of decision-making and the quality of information available for identifying and assessing potential risks. We have installed a centralised system for the monitoring and maintenance of lending transactions, which will provide for the centralisation of functions of independent control in a single structural unit. Market Risk Market risk arises from our exposure to changes in the value of certain market variables, such as interest rates or foreign exchange rates, equity or commodity prices, or the correlations among them and their levels of volatility. We are exposed to market risk in both our trading and our non-trading activities by market-making and taking positions in debt, equity, foreign exchange, other securities and commodities, as well as in interest rate, equity, foreign exchange and commodity derivatives. Market risk management system is based on: limits system, which translates risk appetite defined by the Board of Directors and economic capital allocated to business lines into risks levels, acceptable for the purposes of general banking operations; quantitative and qualitative risk measurement. Market Risk Limits The following list of limits is used in the Bank to manage price and interest rate risks related to the trading book instruments: stop loss limits; value at risk limits at portfolio level; nominal limits at position level; structure limits set for certain types and quality categories of financial instruments; special limits set for certain counterparties / issuers and securities issues. Interest rate risk limits for the banking book: indicative portfolio limits set on net interest income sensitivity; indicative limits set on net present value sensitivity of banking assets and liabilities; indicative GAP limits. Interest rate risk limits for the trading book: limit on interest rate risk related to derivatives operations; limit on notional value of derivatives portfolio. Currency risk limits: 76

81 stop loss limits; value at risk limits; special limits on treasury operations with foreign currency. Risk Measures We use a range of modern quantitative tools for managing market risk. Some of these tools are used for a number of market risk categories, while others are tailored to the unique features of a specific market risk. In particular, we rely on VAR and stress-testing to measure and manage market risk. For the purposes of internal risk reporting we calculate VaR at 98.8% confidence level (selected in accordance with targeted credit rating of GPB (BBB-) without shareholders support), with 10-days holding period and retrospective historical data collected for 1 year. To estimate volatility and correlation parameter we use EWMA approach (exponentially weighted moving average). To estimate the capital required to cover market risk we use historical VaR model at 98.8% confidence level, with 1-year holding period and retrospective historical data collected for 4-6 years depending on certain risk type and cyclical effects. For stress scenario the model also includes the estimation of risk mitigation effects arising from top-management action, which allow to reduce required capital (due to closing out positions and hedging operations). Sensitivity analysis of net interest income and net present value is used as additional measure for interest rate risk management. To measure potential losses under extreme market conditions, we complement our VAR calculations by stress losses calculations to identify the potential impact of extreme market scenarios on the value of our portfolios. Procedures for stress testing are approved by the ALM Committee. The aim of stress testing is estimation of Bank s ability to continue operations under hypothetic, hardly probable but still possible scenarios, which are expected to occur during 1 quarter. As a result of stress testing the Bank assess possible losses and changes in capital adequacy ratio through simultaneous analysis of risk factors, which affect Bank s positions. The main risk factors are: currency and interest rates, stock indices, provisions for loan impairment and other possible losses. To select assumptions for stress scenarios we consider the following data: historical data set of risk factors for the post-crisis period (since 2009); stress scenario of Russian Economic Development Ministry (the main risk factors are oil prices and Rouble exchange rates to U.S. dollar and euro; risk factors affecting the financial position and core capital of the Bank are defined within the regression model). The stress scenarios, which is used for evaluation, include consistent values of external factors (exchange rates, interest rates, market indicators, GDP projections), which correspond to a comprehensive economic situation (e.g. defined by oil price drop). Based on a scenario a complex stress test is being performed to cover all possible outcomes for the Bank from the point of view of market risk, credit risk, liquidity risk. Stress analysis is performed on a quarterly basis. The results of stress estimations are regularly reported to the ALM Committee, the largest risks are reported to the Board of Directors. We also make stress test results available to the regulators and auditors on demand. Stress analysis is also used to set/revise limits on dealing. Internal control procedures The multilevel limit control system is established in the Bank: preliminary control is performed by business unit originated the transaction; running control is performed by middle office during the 1 working day after the deal was settled; the regular control is performed by middle office and risk control department (dependent on certain limit) on the daily basis. The limit control procedures are automatized. The breach of limits is considered as risk event, required immediate measures being arranged by business unit, which has originated the correspondent transaction. The 77

82 Heads of business department, Risk Management department and Internal Controls department should all be informed about risk events. Development of market risk management performed in 2011: the limits are adjusted in accordance with financial plan of the Bank and economic capital model; valuation and limit methodology was improved for derivative operations; the limit control system was upgraded with IT-system, which allows to perform online monitor of banking operations; the integrated stress testing system was developed and implemented for all significant risks of the Bank; the system allows to estimate the effects of different stress scenarios including simultaneous realization of different risk events. Liquidity Risk We manage our liquidity position to ensure that sufficient liquidity is available to meet our commitments to customers, creditors and note holders, and to meet the demand for loans. The liquidity risk management system comprises both qualitative and quantitative approaches to liquidity risk assessment and covers operations on a bank-wide basis, including head office and regional branches. Unlike many other risks, our liquidity risk assessment includes planned operations (those yet to be conducted) along with operations already undertaken. A distinct document flow system is set up to ensure timely liquidity risk evaluation as business units update their operational plans, bank-wide planning procedures and long term programs (e.g., capital market borrowing plans and so forth). Liquidity risk is qualified through a standard gapbased analysis. All funding-relevant assets and liabilities are mapped into time buckets corresponding to their maturities. Given that different types of assets and liabilities can be more or less liquid than their suggested contractual maturities, we alter the contractual maturities for analytical purposes in order to ensure economic realities prevail over contractual terms. We also account for cash flows from planned business operations in order to estimate future liquidity gaps. Contractual, planned and probable cash flows comprise Tier 0 (highly probable cash flows) and Tiers 1-4 which form additional liquidity sources, which are supposed to cover negative liquidity gaps. These sources are divided into categories by their reliability level: liquidity buffer (Tier 1) is considered as reliable secured funding and includes high liquid repo instruments and pledging of receivables approved by CBR; Tier 1 resources are supposed to be available to Bank even under stressed conditions; other categories are formed from liquidity sources, which could be raised on money market through term deposits and bond placements; these instruments are not taken into account for stressed liquidity estimation. The Risk Management Structure monitors these liquidity reserves. The gap analysis allows estimating future Gazprombank s liquidity state along with readily available sources of extra liquidity needed to cover possible shortage. The liquidity risk assessment includes scenario analysis, based on future net income stress test, which estimates Bank s ability to maintain paying capacity under adverse market conditions. Stress test covers: contract operations (terms and values of cash flows); planned operations (decision making support: business expansion or stabilization of operations); available liquidity sources (taking into account market conditions). The Bank has the following tools to manage liquidity under stress: limitation and monitoring of liquidity buffer (which is not supposed to be used for current operations finance); the targeted value of liquidity buffer is set on quarterly basis; 78

83 contingency funding plan sets out the strategies for addressing liquidity shortfalls in emergency situations; this plan outlines policies to manage a range of stress scenarios, establishes lines of responsibility, including escalation procedures; the plan is updated on annual basis. The liquidity risk assessment aids the decision-making process on the deal/position, portfolio and bank-wide levels. Our liquidity policy is approved by the Management Board, so our liquidity risk tolerance is clearly articulated. On the executive level, liquidity risk is managed by the ALM Committee. The ALM Committee determines our policies for asset and liability management, which aim to build up a robust framework for matching the maturity of assets and liabilities, to maintain strict controls over permitted variances and to provide effective diversification in funding sources. The Financial Market Risk Department conducts regular liquidity risk assessments and reports on liquidity risk status to the department directors weekly, to the ALM Committee once a month and to the Management Board each quarter. Risk reporting includes qualitative and quantitative risk estimations, stress-testing results, and the evaluation of additional liquidity sources (liquidity buffer). Day-to-day liquidity management is carried out by the Treasury, which manages short-term liquidity (up to three months) on a close-to-real-time basis. In carrying out its liquidity management function, Gazprombank s Treasury conducts transactions in foreign currency, bonds and shares to regulate our liquidity positions and to timely respond to market fluctuations, subject to set limitations. In addition, Gazprombank s Financial Markets Operations Department continually monitors the liquidity position of the branch offices. The head office provides refinancing facilities to the branches, which are also subject to limits set by the ALM Committee. The Internal Treasury was established in the Bank to perform asset-liability management, including short-term liquidity planning (1-12 month). Internal Treasury develops on a regular basis Funding plan and Operational plan approved by ALM Committee and used for liquidity balancing. Operational Risk In line with the proposed Basel II approaches, we define operational risk as the risk of loss resulting from inadequate or ineffective internal processes, people and systems or from external events. This definition partially includes legal risk, but excludes strategic and reputational risk. Examples of events that are included under this definition of operational risk are losses from: fraud; computer system failures; settlement errors; business process and model errors; natural disasters. By their nature, these risks are difficult to measure or quantify compared to other types of risk and therefore an integrated operational risk management system is vital for effective management of operational risk. Risks identification, qualitative and quantitative assessment, control design and testing, effective monitoring along with escalation and reporting are all the key elements of the system providing the advantage of quick detection and correction of deficiencies in the policies, processes and procedures for adequate operational risk management. Promptly detecting, assessing and addressing these deficiencies to risk owners of the corresponding management level can substantially reduce the potential frequency and (or) severity of operational risk events. The Bank is focused on implementing a systematic approach process to regularly monitor and report its operational risk profiles and material exposures to operational losses. In order to ensure effective operational risk management Bank uses principles, methods and approaches based on best practices of operational risk governance and control such as: 1. Bank develops internal documents regulating: employee`s job descriptions; banking operations processing; business continuity and disaster recovery plans; rules of information disclosure in the Bank. 79

84 2. Bank implements principles for segregation of duties and conflict of interests policies. 3. Bank implements new products and processes only after proper documentation of relevant procedures and controls. Internal regulatory documents describing banking procedures can be accepted only after the approval of Risk-management, Internal control, Compliance and Security departments. 4. Bank organizes procurement of goods and services on a competitive basis. 5. As for legal risk management, as part of operational risk management, Bank: provides the legal expertise of organizational documents, internal regulatory documents and orders as well as contracts; monitors changes in regulatory base for the timely changes in contracts and Bank`s processes. Our policy for operational risk management was approved in June The new version of our policy was approved by the Corporate Governance and Remuneration Committee in March The system of operational risk management includes such elements as: operational risk register maintenance; risk audit; self-assessment of operational risks by our departments; operational risk mitigation measures; operational loss data collection; integration of operational risk framework into decision-making processes; and establishing business continuity and disaster recovery planning. the system of Key Risk Indicators (the KRI ); reporting system on the level of operational risk. We use Basic Indicator Approach for regulatory purposes and also use Advanced Measurement Approaches for capital calculations for the management. Gazprombank implemented SAS OpRisk Management. This IT solution is focused on automating the most essential processes of operational risk management, including the following: operational loss data collection; operational risk registry; KRI data collecting; and quantitative assessment of operational risk, reporting stress-testing. 80

85 MANAGEMENT AND EMPLOYEES Management Organisational Chart The following chart illustrates our principal management reporting lines: 81

86 Management Bodies According to our Charter, our principal management bodies are the General Shareholders Meeting, the Board of Directors, the Management Board and the Chairman of the Management Board. We observe the principles of corporate governance set forth in the September 1999 Basel Committee Recommendations on Enhancing Corporate Governance for Banking Organisations (recommended by the CBR for use by Russian lending organisations) and the Code of Corporate Governance (approved by the Russian Government in November 2001 and recommended for use by Russian joint-stock companies in their day-to-day activities). In addition, we have established a Corporate Governance and Remuneration Committee which is responsible for the supervision of our compliance with international and Russian principles of corporate governance, including transparency and management responsibility and accountability. General Shareholders Meeting The General Shareholders Meeting is our highest management body. The General Shareholders Meeting has the exclusive power to carry out the following matters: alterations of our Charter and the size of our charter capital; election of members of the Board of Directors, the appointment of the Chairman of the Management Board and the early termination of their respective authorities; approval of our annual reports and financial statements and the distribution of our profits; approval of certain types of transactions (such as certain related party and major transactions); decisions as to our reorganisation or liquidation; and election of the Audit Commission. Decisions of the General Shareholders Meeting are made by a simple majority of votes. On issues such as changes to the size of our charter capital, a reorganisation or liquidation, a three-quarter majority of votes of those present at the General Shareholders Meeting is required. Board of Directors Our Board of Directors supervises our Management Board, approves the agendas for our General Shareholders Meeting, has the power to elect and dismiss the members of our Management Board, approves various regulations for the operation of our various management bodies and approves plans of our operations. Members of the Board of Directors are elected by the shareholders by a majority of votes for a one-year term. Persons elected to the Board of Directors may be re-elected an unlimited number of times. Gazprombank s most recent General Shareholders Meeting was held on 22 June 2011 and the next is scheduled for May or June As at the date of this Base Prospectus, the members of the Board of Directors are: Miller A.B. Chairman of ОАО Gazprom Management Board, Chairman of the Board of Directors Akimov A.I. Chairman of the Gazprombank Management Board, Deputy Chairman of the Board of Directors Sereda M.L. Deputy Chairman of OAO Gazprom Management Board - Head of the Management Board's Administration, Deputy Chairman of the Board of Directors Shamalov U.N. President of Non-State Pension Fund Gazfond, Deputy Chairman of the Board of Directors Eliseev I.V. Deputy Chairman of the Gazprombank Management Board Gavrilenko A.A. Chief Executive Officer of ZAO Lider Ivanov S.S. Chairman of OAO SOGAZ Management Board Krasnenkov A.V. Chief Executive Officer of OOO Baltyisky Szhizheny Gas Kruglov A.V. Selesnev K.G. Deputy Chairman of OAO Gazprom Management Board, Head of Finance Department of OAO Gazprom Member of OAO Gazprom Management Board, Head of Department of Marketing, Gas and Liquid Hydrocarbon Processing 82

87 Senkevich N.U. Vasilieva E.A. Chief Executive Officer of OAO Gazprom-Media Holding Deputy Chairman of OAO Gazprom Management Board - Chief Accountant Upon conversion of subordinated deposit of VEB into Gazprombank s share capital, VEB as a per cent. shareholder will be entitled for representation at Gazprombank s Board of Directors. The business address of the above members of the Board of Directors is 63 Novocheremushkinskaya St., Moscow , Russian Federation. Audit Committee The Audit Committee of the Board of Directors is responsible for improving the efficiency of our internal control and compliance procedures, monitoring and improvement of internal and external audit procedures. Management Board The Management Board and its Chairman manage our day-to-day operations. Chairman of the Management Board is elected at the General Shareholders Meeting, other members of the Management Board are appointed by the Board of Directors. The Management Board reports to the General Shareholders Meeting and the Board of Directors. Chairman of the Management Board is authorised to represent Gazprombank, to enter into transactions on its behalf and issue power of attorney. In October 2007, an extraordinary general meeting of shareholders re-elected A.I. Akimov as Chairman of the Management Board. The Management Board consists of 15 people. The address of the Management Board is 63 Novocheremushkinskaya St., Moscow , Russian Federation. As at the date of this Base Prospectus, the members of the Management Board included: A.I. Akimov (age 58), Chairman of the Management Board, graduated from the Moscow Institute of Finance in 1975 majoring in International Economic Relations. From 1974 to 1990, he worked with the USSR Vneshtorgbank. In 1985, Mr. Akimov was appointed deputy general manager of the Zurich branch of the USSR Vneshtorgbank. In 1987 he was made Chairman of the Management Board/Director General of Donau Bank (Vienna), a banking subsidiary of the USSR Vneshtorgbank. From 1991 to 2003, he served as managing director of IMAG Investment Management & Advisory Group GmbH (Austria). Mr. Akimov supervises our day-to-day activities and performs other supervisory functions pursuant to our Charter. He has been in his current position since I.V. Eliseev (age 46), Deputy Chairman of the Management Board, graduated from the Leningrad State University, majoring in Jurisprudence in 1987, and obtained a Candidate Degree in Previously, he served as professor of civil law at Saint Petersburg State University and as a Vice-President and a President of the Legal Centre Association. He has been in his current position since F.M. Kanzerov (age 62), Deputy Chairman of the Management Board, graduated in 1971 from the High Army Command School, qualifying as troop leader, and in 1985 from the High KGB School, qualifying as a lawyer, and thereafter he served on the bodies of internal affairs and bodies of state security in the Armed Forces. He then occupied the position of deputy general director, director for external affairs of OOO Gazpromenergosbyt, and adviser to the Chairman of the Management Board of Gazprombank. He has been in his current position since V.A. Komanov (age 38), Deputy Chairman of the Management Board, graduated in 1995 from the Russian Academy of Economics, majoring in Finance and Credit. Previously he occupied the position of Head of Corporate Clients sector of Menatep Bank, analyst of the Corporate Finance Department of AKB UCB CJSC, Deputy Director of the Investment Banking operations Department of CJSC Fleming UCB, Deputy Head of the Corporate Clients and Capital Markets Department of KB J.P.Morgan Bank International (OOO), Head of the Foreign Business Development Department of Lukoil Overseas Services Ltd. representative office in Moscow, adviser of the Management Board of Gazprombank and Head of the Corporate Finance Department Managing Director, First Vice President of Gazprombank. He has been in his current position since V.B. Korytov (age 55), Deputy Chairman of the Management Board, graduated from the Leningrad Institute of Rail Transport Engineers in Previously, he served as security director with ZAO Petersburg Fuel Company, as deputy director general and as director general of ZAO OBIP and as advisor to the director general of OAO St. Petersburg Seaport, Head of Security Department of Gazprombank. He has been in his current position since

88 N.G. Korenev (age 59), Deputy Chairman of the Management Board, graduated from the Moscow State University, majoring in History in 1980, and he obtained a Candidate Degree in Economics from the All- Union Distance Institute of Finance and Economics, majoring in Finance and Credit in Previously, he served as Head of the Human Resources and Finance Educational Institutions Department of the Ministry of Finance of the USSR, Vice President, First Deputy Chairman of the Management Board Member of the Management Board of the Russian State Insurance Company (Rosgosstrah), Head of the Department of Regional Development of the Administration of the Russian Government and First Vice-President of Gazprombank. He has been in his current position since S.E. Malyuseva (age 60), Deputy Chairman of the Management Board Chief Accountant, graduated from the Leningrad Institute of Finance and Economics, majoring in Finance and Credit, in Previously, she served as chief accountant at the Petrodvorets Branch of the USSR State Bank as chief accountant, Vice-President for Economics, First Deputy Chairman of the Management Board of St. Petersburg Bank and Vice-President of OAO St. Petersburg International Bank, Advisor of the Chairman of the Management Board and as Chief Accountant of Gazprombank since She has been in her current position since A.A. Matveyev (age 48), Deputy Chairman of the Management Board, graduated from the Moscow Institute of Finance, majoring in International Economic Relations, in Previously, he served as chief expert of the finance loans section of the USSR Vnesheconombank, chief of the financial loans section of the Currency and Conversion Transactions and International Correspondent Relations of the International Moscow Bank, as Executive Vice President of Credit Suisse (Moscow) AO, as Advisor to the Chairman of the Management Board of AKB East European Investment Bank, as head of the Investment Banking Operations Department of ZAO Fleming UCB, as managing director of ZAO Troika Dialog Investment Company and as Advisor to the Chairman of the Management Board of Gazprombank. He has been in his current position since A. Y. Muranov (age 53), Deputy Chairman of the Management Board, graduated from the Lvov Polytechnic Institute in 1980, majoring in Semiconductor and Microelectronic Devices. Previously, he served as Deputy Director of a branch of AKB Gradobank, Head of the Correspondent Relations Department, Deputy Chairman of the Management Board, and First Deputy Chairman of the Management Board of KB Unibest, and Vice- President, Director of Treasury, First Vice-President, and President of KB Russian Industrial Bank. He has been in his current position since F.K. Sadygov (age 44), Deputy Chairman of the Management Board, graduated from the State University of Management, majoring in Economics and Management in motor vehicle transport in 1993 and obtained a Candidate Degree in Economics. Previously, he served as a Deputy General Director of AOZT National Diamond Fund, Head of the Forecasting and Analytical Department in the National Tax Service (Gosnalogsluzhba), Deputy Head of the Federal Road Service, Deputy Minister of the Russian Federation for Taxes and Levies, Deputy Head of the Federal Treasury. He has been in his current position since V.A. Seregin (age 45), First Vice President, graduated from the Pacific Higher Naval School in Previously, he served as a Head of the securities department of AKB Aviabank, a Head of the securities department and a Deputy Chairman of the Management Board of AKB Neftekhimbank, Deputy Chairman of the Management Board of Gazprombank, First Deputy General Director of Open Joint- Stock Company The Agency for Housing Mortgage Lending and a Chairman of JSB GPB Mortgage (OAO). He has been in his current position since April A.I. Sobol (age 42), Deputy Chairman of the Management Board, graduated from the Moscow Aviation Institute, majoring in Engineering, Economics, and Management in 1991 and obtained a Candidate Degree in Economics. Previously, he served as chief of the finance section, chief of the economic planning department, Vice-President and Deputy Chairman of the Management Board of the Russian National Commercial Bank and as adviser to the Chairman of the Management Board and deputy chief of our strategic development and resource planning. He has been in his current position since O.M. Vaksman (age 34), First Vice President, graduated from the University of the Witwatersrand, Johannesburg, majoring in Jurisprudence in Previously, he served as the Chief Operating Officer of First National Bank (Johannesburg), manager of the Department of Consulting on Risks in the Financial Sector of KPMG (London, UK), director (partner) of the Business Consulting Department of the PWC Russia B.V. branch in Moscow. He has been in his current position since February N.A. Chervonenko (age 45), First Vice-President, graduated from the Far Eastern Technological Institute of consumer services, majoring in Organisation and Norm-setting in 1988, and obtained a Candidate Degree in Economics. Previously, she served as a Head of customers lending department AKB Credit-Moscow, Deputy Director of the Commercial Department of AKB Eurofinance (OJSC), Deputy Head of the First Department of 84

89 the major clients operations of Vneshtorgbank, Executive Vice- President of Gazprombank. She has been in her current position since A.O. Shmidt (age 42), First Vice-President, graduated from the Moscow State University, majoring in Jurisprudence in Previously, he served as a general director of Stock Department of Inter-republican Legal Association, and also as an expert, a senior legal adviser, a director, a member of a Board of Directors of AKB SBS-AGRO and a Vice-President of Gazprombank. He has been in his current position since Committees The Bank has the following committees: Corporate Governance and Remuneration Committee Strategy Committee Clients Policy Committee Asset and Liability Management Committee Technologic Committee Investment Committee Credit Committee Supervisory Bodies In addition to the above managerial bodies and committees, we also have other supervisory bodies to assist us in enhancing our managerial control. These bodies are the Audit Commission, the Internal Control Department and our independent auditor. Audit Commission The Audit Commission is a supervisory body established pursuant to the requirements of the JSC Law and our Charter, which facilitates the control of our shareholders over our financial and business activities, as well as our management. As a rule, such control is limited to the annual review of the results of our activities. A positive opinion of the Audit Commission is required for our annual General Shareholders Meeting to approve our statement of financial position and profit and loss statement. The Audit Commission is governed by the Regulations of the Audit Commission adopted by the General Shareholders Meeting. The Audit Commission consists of five members and is re-elected annually by the annual General Shareholders Meeting. The members of the Audit Commission are independent in their activities and report only to our shareholders. They may not simultaneously be members of the Board of Directors or hold any other position within Gazprombank. Internal Control The Internal Control function is vested in the Internal Control Department. The internal Control Department is independent from other structural units and reports directly to the Board of Directors. Functions of the Internal Control Department include assessment and evaluation of internal control systems. Independent Auditor The independent auditor is appointed or reappointed, as appropriate, annually by tender process by the annual General Shareholders Meeting. The Financial Statements included in this Base Prospectus have been audited by ZAO KPMG (whose registered address is at Naberezhnaya Tower Complex, Block C, 10 Presnenskaya Naberezhnaya, Moscow , the Russian Federation), as stated in their report appearing herein. ZAO KPMG is a member of the Russian Chamber of Auditors (Auditorskaya Palata Rossii). ZAO KPMG was appointed as independent auditor for the Group with respect to the financial year ended 31 December No Potential Conflicts of Interest The Bank takes organisational and administrative measures to prevent and manage conflicts of interest. Our internal regulations and policies include procedures to prevent conflicts of interest from arising and, to the extent they arise, to manage them and minimise their adverse consequences. 85

90 Remuneration of Members of the Management Board and the Board of Directors In accordance with our Charter, the remuneration of our management is regulated by the Management Board and the Board of Directors. For the year ended 31 December 2011, the total compensation and other payments to the members of our Management Board and Board of Directors amounted to RUB2,916.0 million. In May and June 2010, the Group has launched two share-based compensation plans for the members of the Management Board and the Board of Directors (Plans 1 and 2 below). The Plans cover the period from 2010 to Plan 1 The plan is a long-term part of remuneration to the members of our Board of Directors. As of the date of granting rights, the directors have received options granting rights for obtaining payments equal to the increase in basis stock value. A condition for accession to an option is the fact that a person holds an office of a director within a period covered by the plan. The execution of options is performed only in the monetary form. Options do not grant dividend rights and the right to vote. Plan 2 The plan is made for the members of our Management Board. As of the date of granting rights, the members of the Management Board have acquired 3 options of the "call" type for the option to buy shares of the Bank, each of which covers a period of 1 year during A condition for accession to each of the options is the achievement of key performance levels rated based on the IFRS consolidated financial statements for the period to which the plan refers. The options are executed in shares or monetary funds at holder's choice. Loans to Members of the Management Board and the Board of Directors The following table sets out the principal amounts of loans and guarantees outstanding to members of our Management Board and Board of Directors as at 31 December As at 31 December 2011 RUB millions On demand days days years... Over 3 years Total amount of loans and guarantees to management

91 PRINCIPAL SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Principal Shareholders The following table sets out our shareholding structure as at the date of this Base Prospectus: (%) Non-state pension fund Gazfond (1) OAO Gazprom Treasury shares (held through OOO Novie Finansovie Technologii Employees of Gazprombank Total Notes: (1) Includes per cent. held by ZAO Leader, an asset management company, acting on behalf of Non-state pension fund Gazfond. In February 2012, Gazprom converted its subordinated deposits with us of RUB7,500 million into ordinary shares of Gazprombank as a part of an additional shares placement. We expect that Gazfond and VEB will also convert their subordinated deposits of RUB32,500 million and RUB50,000 million, respectively, into ordinary shares as a part of the additional shares placement in As a result, subject to completion of these transactions, the shareholder structure will include Gazfond (47.38 per cent. plus one share), Gazprom (35.54 per cent.), VEB (10.19 per cent.), our employees (0.71 per cent.) and 6.18 per cent. of treasury shares (held by OOO Novie Finansovie Technologii ). According to the terms of this conversion we will acquire a call option from VEB that will give us a right (but not an obligation) to purchase ordinary shares of Gazprombank subscribed to by VEB as a result of the conversion at a specified strike price. As of the date of this Base Prospectus, the final terms of the option are still being negotiated. Dividends We paid dividends in the years ended 31 December 2011, 2010 and 2009 in the amount of RUB2.0 billion, RUB1.1 billion and RUB1.2 billion, respectively. Related Party Transactions Within our regular business activities, we enter into a variety of transactions with related parties, including the shareholders of Gazprombank and their respective subsidiaries and affiliates, our non-consolidated subsidiaries and affiliates and our key managers and members of the Board of Directors. While analysing our relationship with each of our related parties, we pay attention not only to the legal content of the relationship, but also to its factual basis. Historically, we are under a major influence of the state-owned monopoly Gazprom. As at 31 December 2011, our loans to the Gazprom Group accounted for 2.3 per cent. (RUB33.0 billion) of our gross loans to customers and 20 per cent. (RUB291.9 billion) of our outstanding total customer deposits were held for the benefit of the members of the Gazprom Group. Whilst the major part of our operations with state owned companies comprise operations with the companies of the Gazprom Group, in the course of our business activities we transact with other state owned companies. Other significant transactions with state controlled companies include subordinated deposits received by the Group in 2009 from VEB, which as at 31 December 2011 amounted to RUB89.9 billion and of which RUB50 billion are expected to be converted into Gazprombank s share capital. For a more detailed description of the Group s related party transactions, see Note 26 to the 2011 Financial Statements. 87

92 BANKING SECTOR AND BANKING REGULATION IN THE RUSSIAN FEDERATION History of the Russian Banking Sector and Banking Statistics Under the Soviet regime, the former State Bank of the USSR, or Gosbank, (the predecessor of the CBR) allocated resources from the Russian Government s budget according to the prevailing economic plan, and was in effect the only bank in existence. In 1987, with the relaxation of controls over companies and interbank settlements, a small group of dependent, specialised banks developed to conduct business relating to savings, foreign trade, construction, industry, agriculture and small enterprises. In 1988 and 1989, during the second phase of the reform, regional commercial banks (primarily in the form of cooperatives or joint stock companies) began to rapidly emerge (with initial capital between RUB500,000 and RUB300 million). By the start of 1992, 1,500 licences had been granted to banks. In 1991, three of the specialised state dependent banks were transformed into joint stock companies and some regional branches became independent from their head offices through management buy outs. The CBR assumed all the functions of Gosbank in November 1991 and Gosbank was liquidated in December of that year. Between 1991 and 1998 the Russian banking sector experienced rapid growth. The number of commercial banks in Russia increased from 358 in 1990 to 2,538 in On 17 August 1998, the Russian financial market suffered a serious crisis, causing major concerns over the liquidity and solvency of the market as a whole. Many banks went bankrupt or fell under the administration of the Agency for Restructuring of Credit Organisations ( ARCO ). However, due to the stabilisation of the Russian banking sector, the importance of ARCO as the administrator of credit organisations undergoing financial restructuring has decreased. On 18 October 2003, the last of such credit organisations was withdrawn from ARCO s administration, and pursuant to Federal Law No. 87-FZ of 28 July 2004, ARCO itself was liquidated. Pursuant to the Deposit Insurance Law, the assets of ARCO were transferred to the Deposit Insurance Agency. Since the 1998 financial crisis the number of credit organisations operating in Russia has fallen to 1,281 as at 1 July The 1998 financial crisis revealed the lack of proper controls in the banking sector and increased public concerns over the integrity of the banking system, in particular, concerns regarding misleading advertising, money laundering, corruption, and criminal elements. Further, the Russian banking sector experienced instability and a liquidity deficit in 2004 resulting from the actions taken by the CBR and a crisis of confidence among Russian banking customers. From May to July 2004, the CBR revoked the banking licences of a number of Russian banks, and the resulting uncertainty in the Russian banking system led to the virtual collapse of the interbank lending market and to liquidity pressures for many Russian banks. The collapse of a number of Russian banks caused panic among depositors, and even the more reliable, larger banks experienced depositor withdrawals. The CBR took effective steps to reverse the trend. The rate of mandatory reserves that banks were required to deposit with the CBR was temporarily reduced from 7 per cent. to 3.5 per cent. To implement these measures, the CBR permitted banks to immediately reduce their mandatory reserves. Accordingly, banks borrowing costs have been reduced. In addition, legislation was passed to combat the crisis and to minimise potential losses of private depositors. In accordance with amendments to the Federal Law No. 86-FZ On the Central Bank of the Russian Federation (Bank of Russia) of 10 July 2002 (the Central Bank Law ) enacted in 2004, the CBR is required to make payments to private depositors of insolvent Russian banks if such banks have not been admitted to the system of private deposit insurance prior to their bankruptcy. The CBR is also able to impose, for the term of one year, a limit on the interest rates on deposits paid by banks to private depositors. In addition, banks are required to disclose certain information related to the interest rates on deposits, banks liabilities in respect of deposits and amounts of cash withdrawals by private depositors. Furthermore, as of 1 July 2007, Russian banks are obliged to disclose the effective interest rate with respect to consumer lending. Currently, the banking sector mostly offers services related to short term and mid term financing due to the historical instability of the Russian lending market and the difficulty borrowers face in providing adequate collateral. According to the CBR, as of 1 March 2012, the total assets of the Russian banking sector were valued at approximately RUB40,873.8 billion which represented a 21 per cent. growth compared to RUB33,804.6 billion as of 1 January 2011, with its own assets valued at approximately RUB5,266.6 billion as of 1 March As of 1 January 2012, the total charter capital of Russian credit organisations was RUB1,214.3 billion, which represented a 2.4 per cent. growth, as compared to RUB1,186.2 billion as of 1 January

93 As at 1 March 2012, the total amount of individuals deposits with Russian banks amounted to RUB11,793.4 billion (of which deposits in Roubles amounted to RUB9,703.0 billion and deposits in foreign currencies totalled RUB2,090.4 billion), as compared to RUB9,818.0 billion as at 1 January Corporate deposits with Russian banks in March 2012 amounted to RUB7,325.3 billion (of which deposits in Roubles amounted to RUB4,768.4 billion and deposits in foreign currencies totalled RUB2,556.9 billion), as compared to RUB6,035.6 billion as at 1 January The remaining sources of growth of the banking sector s resource base are the increasing volumes of debt security issues (primarily promissory notes) and interbank credit operations, amounting to RUB1,787.3 billion and RUB4,130.0 billion as at 1 March 2012, respectively, as compared to RUB1,364.6 billion and RUB3,754.9 billion in as at 1 January 2011, respectively. The amount of funds attracted from individuals and corporate entities through the issue of promissory notes and bank acceptances totalled RUB1,033.3 billion as at 1 March As at 1 February 2012, the total amount of loans in Roubles provided by Russian banks to their customers increased to approximately RUB20,826.4 billion (of which loans in the amount of RUB5,282.9 billion were provided to resident individuals and loans in the amount of RUB13,913.9 billion were provided to corporate customers-residents) as compared to RUB15,600.9 billion as at 1 January The total amount of loans provided by Russian banks in foreign currencies amounted to RUB6,965.3 billion as at 1 February 2012 (of which loans in the amount of RUB299.6 billion were provided to resident individuals and loans in the amount of RUB4,302.8 billion were provided to corporate customers-residents) as compared to RUB5,936.4 billion as at 1 January In accordance with Federal Law No. 175-FZ On Additional Measures for Strengthening the Stability of the Banking System for the Period until 31 December 2014 dated 27 October 2008, as amended (the Banking System Stability Law ) and decisions taken in September and October 2008 prior to the effective date of this law, Russian authorities and the CBR introduced certain measures intended to prevent bankruptcy of credit organisations. The number of credit organisations subject to such measures increased from 7 (with assets of RUB576.2 billion, or 2.3 per cent. of the total assets of Russian credit organisations) as of 1 November 2008 to 20 (with assets of RUB749.2 billion, or 2.7 per cent. of the total assets of Russian credit organisations) as of 1 January 2009, but then decreased slightly to 18 (with assets of RUB749.9 billion, or 2.6 per cent. of the total assets of Russian credit organisations) as of 1 April 2010 and 8 (with assets of RUB1,734.3 billion, or 4.2 per cent. of the total assets of Russian credit organisations) as of 1 March In December 2011, the Banking System Stability Law was amended to extend the period from 31 December 2011 to 31 December The text and title of the law were amended accordingly. The Banking System Stability Law envisages that the Deposit Insurance Agency will assist distressed banks through: (i) attracting investors for credit organisations which are experiencing financial difficulties; and (ii) liaising with the CBR regarding the provision of financial assistance to such credit organisations. The Banking System Stability Law expands the list of bankruptcy prevention measures available for Russian credit organisations under the Bank Insolvency Law by introducing the following additional procedures: provision of financial assistance to private investors that have agreed to acquire a controlling stake in a credit organisation in distress; financial assistance to other credit organisations that have agreed to acquire certain assets and obligations of a credit organisation in distress; acquisition of a controlling stake in a credit organisation in distress directly by the Deposit Insurance Agency (if there is no investor willing to participate in rehabilitation proceedings); provision of financial assistance to a credit organisation in distress subject to acquisition of a controlling stake in such credit organisation by either a private investor or the Deposit Insurance Agency; making arrangements for public sale of the assets securing obligations of a credit organisation owed to its creditors, including the CBR; and appointment of the Deposit Insurance Agency by the CBR to act as temporary administrator in relation to a credit organisation. The decision as to whether bankruptcy prevention measures should be launched in respect of a particular credit organisation rests with the CBR. 89

94 The analysis of the financial position of a credit organisation for the purpose of provision of state support to it will be performed by the CBR and the Deposit Insurance Agency. Based on the results of the analysis the Deposit Insurance Agency will develop a rehabilitation plan for that credit organisation which will then need to be approved by the CBR. According to the Deposit Insurance Agency website, as of 1 March 2012 the CBR and the Deposit Insurance Agency had launched rehabilitation measures in respect of 7 organisations. For further information on legislative and governmental measures adopted in 2008, 2009 and 2010 in response to the global financial crisis, see Measures to Support the Liquidity and Solvency of Russian Banks and Legal Entities since October Structure of the Russian Banking Sector According to the Banking Law, the Russian banking sector consists of the CBR, credit organisations and branches and representative offices of the foreign banks. Credit organisations, in turn, consist of banks, which provide a wide range of banking services, and non-banking credit organisations, which provide only limited banking services, such as maintaining accounts and making payments. As at 1 March 2012, the number of credit organisations operating in the Russian Federation amounted to 1,110. However, poor corporate governance, risk management, transparency and weak management remain widespread among many Russian banks. State-owned banks continue to play a key role in the development of the Russian banking sector. State owned banks offering retail banking services include Sberbank and VTB. Other state owned banks focus primarily on operations with budgetary funds and participate in the realisation of governmental programmes (for example, Rosselkhozbank (Russian Agricultural Bank) and Roseximbank (Russian Export Import Bank)). Although it is not possible for foreign banks to directly conduct business on the Russian financial market, many major foreign banks have subsidiary banks in the Russian Federation. The presence of foreign owned banks in the Russian market is relatively limited as their activities have been restricted in order to protect the nascent Russian banks. Foreign owned banks must satisfy additional requirements in connection with obtaining a licence, for example, there must be a degree of reciprocity in the home country of the foreign bank. The aggregate level of participation of foreign capital within the Russian banking system is determined by federal law as proposed by the Russian Government in conjunction with the CBR. At the moment, however, such law has not been yet adopted. As at 1 March 2012, the number of credit organisations operating in Russia with a 100 per cent. foreign participation amounted to 77, and with a foreign participation in the amount from 50 to 100 per cent. amounted to 36. The total number of credit organisations with foreign participation amounted to 233. Role of the CBR Until 2002, the CBR had been operating under the general terms of reference of the Federal Law On the Central Bank of the Russian Federation (the Bank of Russia) of 2 December 1990 as amended on 26 April In 2002, this law was superseded by the Central Bank Law. According to the Central Bank Law, the State cannot be liable for the CBR s obligations, nor can the CBR be liable for the State s obligations unless the relevant liability has been undertaken or is required by law. The CBR s property is under federal ownership. The CBR is legally and financially independent of the Russian Government. The CBR s governing bodies are the Board of Directors and the National Banking Council, a collective management body carrying out certain governing functions, which were solely vested in the Board of Directors prior to adoption of the Central Bank Law (including, among other things, making decisions on maximum capital expenditures of the CBR, distribution of profits gained by the CBR, appointment of the CBR s chief auditor, approval of the CBR s accounting rules and requirements). The structure of the CBR comprises the Moscow Head Office, a number of regional branches in constituent entities of the Russian Federation (in some of the Russian republics the CBR s regional branches are called National Banks) and local branches. The Chairman of the CBR s Board of Directors is appointed for a fixed term of four years by the State Duma (the chamber of the Russian Parliament), on the recommendation of the President, can be replaced under the same procedure, and has the right to participate in meetings of the Russian Government (Cabinet). The Ministers (or Deputy Ministers, as the case may be) of Finance and of Economic Development have the right to participate in meetings of the CBR s Board of Directors with consultative voting rights. The members of the National Banking Council are appointed by the Council of Federation (the chamber of the Russian Parliament), the State Duma, the President and the Government of the Russian Federation. The Chairman of the CBR is a member of the National Banking Council ex officio. 90

95 Under the Central Bank Law, the Banking Law and Federal Law No. 173-FZ On Currency Regulation and Currency Control of 10 December 2003 (the Currency Control Law ), the CBR is authorised to adopt implementing regulations on various banking and currency control issues. The CBR has actively used this authorisation in recent years, creating a detailed and extensive body of regulations. Under current legislation the CBR has the following major functions: Function Summary Issue of money and regulation of circulation The CBR is the sole issuer of Rouble banknotes and regulates their circulation. The CBR plans and arranges for the printing of banknotes and the engraving of coins, establishes the rules for their transportation and storage and regulates over the counter operations with cash. However, the CBR is prohibited from issuing money for purposes of budget deficit financing. Financing/Monetary policy Refinancing of banks by way of granting credits; fixing reserve requirements for the banks; setting capital adequacy and other mandatory economic ratio requirements for banks. The CBR is prohibited from extending credits to the government for the purposes of budget deficit financing. Transactions and deals with banks Rendering decisions on the state registration of banks, registering securities issued by banks; extending credit to banks; maintaining correspondent accounts of banks in Roubles; providing banks with guarantees; purchase and sale of Russian state securities, CBR bonds, certificates of deposit, precious metals and natural gems and holding them in depositary accounts; purchase and sale of foreign currencies and payment documents in foreign currencies issued by Russian and foreign banks. Unless otherwise directly provided in federal laws, the CBR is not permitted to participate in the charter capital of banks. Federal budget implementation and external debt service Exchange control Licensing 91 Extending credits to the Ministry of Finance, acting as a placement agent with respect to government securities issued by the Ministry of Finance except for cases when such financing is provided for offsetting budget deficit; budget accounts administration. Regulation of dealing and settlements in Roubles; regulation of foreign currency operations; administration of the gold and currency reserves; establishment of regimes for Rouble and foreign currency accounts of residents and non residents in Russia. Issuance, suspension and revocation of banking licences to banks. Control and supervision Bank supervision (compliance with mandatory economic ratios and reserve requirements, sanctions for violations, overseeing banking operations); defining format requirements for accounting and statistical reports; fixing reporting schedules; appointment of temporary administration to banks; control over acquisition (and/or a trust management) of significant (more than 1 per cent.) stakes in banks; assessment of financial standing of banks founders

96 (shareholders/ participants). Regulation Banking activities in Russia are broadly governed by the Banking Law and the Currency Control Law. The CBR supervises banks in various aspects (as outlined below) and a number of other institutions have an indirect influence over Russian banks. The FSFM issues licences to banking institutions acting as professional participants of the Russian securities market. In accordance with the Federal Law No. 135-FZ On Competition Protection of 26 July 2006, the Federal Antimonopoly Service of the Russian Federation (the FAS ) shall regulate mergers and acquisitions of stakes in excess of 25, 50 and 75 per cent. of the total voting shares in credit organisations established in the form of joint stock companies, participation interests representing one third, half and two thirds of the charter capital of credit organisations established in the form of limited liability companies and acquisitions of certain shares of credit organisations assets or rights to determine conditions relating to their activities. In addition, CBR approval is required for the acquisition of a trust management establishment over stakes in excess of 20 per cent. of total voting shares in Russian credit organisation. Tax authorities supervise tax assessments of banks. Other governmental authorities are largely inactive in relation to banks. The Association of Russian Banks, comprising, as at 1 March 2012, 701 members, including 511 member credit organisations, was established pursuant to the provisions of the Banking Law as a non-commercial self regulatory organisation. It offers various types of technical support to its members and lobbies the interests of banks in all branches of power. Set out below are some of the principal features of the regulatory regime governing banks in Russia. Licensing A licence must be obtained from the CBR for any banking activity as defined in the Banking Law. Applicants must be incorporated within the Russian Federation and submit an application for the state registration with an attached feasibility report and detailed information on the suitability of the management together with certain other information. Under the CBR regulations a bank can be created in the form of a joint stock company, a limited liability company or a company with additional liability. The latter form is not used in practice. A licence may be denied if the legal documents are not in order, if the financial or banking records of the founders are unsatisfactory or if the proposed candidates for executive positions and for the position of chief accountant do not meet the qualification requirements. Mandatory Economic Ratios The CBR is authorised to introduce various capital adequacy and liquidity requirements applicable to banks and, as the case may be, to banking groups. Such requirements currently exist in the form of the relevant mandatory economic ratios described in CBR Instruction No. 110-I On the Banks Mandatory Economic Ratios of 16 January 2004, as amended. Set out below is the system of the mandatory economic ratios which banks are required to observe on a daily basis. Mandatory Economic Ratios Capital adequacy ratio (N1) Instant liquidity ratio (N2) Description of Mandatory Economic Ratio This ratio is intended to limit the risk of a bank s insolvency and sets requirements for the minimum size of the bank s capital base necessary to cover credit and market risks. It is formulated as a ratio of the size of a bank s capital base to the amount of its risk weighted assets. This ratio is intended to limit the risk of a bank s liquidity loss within one operational day. It is formulated as the minimum ratio of a bank s highly liquid assets to the amount of the bank s liabilities payable on demand. CBR Maximum/Minimum Mandatory Economic Ratios Requirements Minimum 11 per cent. (where a bank s capital base is below RUB180 million) and minimum 10 per cent. (where a bank s capital base is equal to or more than RUB180 million). Minimum 15 per cent. 92

97 Current liquidity ratio (N3) Long term liquidity ratio (N4) Maximum exposure to single borrower or a group of related borrowers (N6) Maximum amount of major credit risks (N7) Maximum amount of loans, bank guarantees and sureties extended by the bank to its participants (shareholders) (N9.1) Aggregate exposure to the bank s insiders (N10.1) Ratio for the use of a bank s capital base to acquire shares (participation interest) in other legal entities (N12) This ratio is intended to limit the risk of a bank s liquidity loss within 30 calendar days preceding the date of the calculation of this ratio. It is formulated as the minimum ratio of the bank s liquid assets to the amount of the bank s liabilities due in less than 30 calendar days. This ratio is intended to limit the risk of loss by a bank with respect to its liquidity as a result of the placement of funds into long term assets. It is formulated as the maximum permitted ratio of a bank s credit claims maturing in more than one year, to a bank s capital base and liabilities maturing in more than one year. This ratio is intended to limit the credit exposure of a bank to one borrower or a group of related borrowers. It is formulated as the maximum ratio of the aggregate amount of a bank s claims to a borrower or a group of related borrowers to a bank s capital base. This ratio is intended to limit the aggregate amount of a bank s major credit risks. It is formulated as the maximum ratio of the aggregate amount of major credit risks to the size of a bank s capital base. This ratio is intended to limit a bank s credit exposure to the bank s shareholders. It is formulated as the maximum ratio of the amount of loans, bank guarantees and sureties extended by the bank to its shareholders, to the bank s capital base. This ratio is intended to limit the aggregate credit exposure of a bank to its insiders (i.e.individuals capable of influencing the bank s credit decisions). It is formulated as the maximum ratio of the aggregate amount of the bank s credit claims to its insiders, to the bank s capital base. This ratio is intended to limit the aggregate risk of a bank s investments in shares (participation interests) of other legal entities. It is formulated as the maximum ratio 93 Minimum 50 per cent. Maximum 120 per cent. Maximum 25 per cent. Maximum 800 per cent. Maximum 50 per cent. Maximum 3 per cent. Maximum 25 per cent.

98 of a bank s investments in shares (participation interest) of other legal entities, to a bank s capital base. Banks covered by the Deposit Insurance Regime are required to comply with additional requirements under the Mandatory Economic Ratios in accordance with Directive No U of 16 January 2004 of the CBR. The capital base of a bank is defined in CBR regulations as the aggregate amount of its fixed capital (including, inter alia, its charter, paid in capital, certain reserve funds and audited profits) and additional capital (including, inter alia, revaluation surpluses, Tier 2 subordinated loans and certain preferred shares). Also, in accordance with CBR Instruction No. 112-I of 31 March 2004, banks issuing mortgage backed bonds are required to additionally comply with the following mandatory economic ratios: (i) a minimum ratio of issued mortgage loans to a bank s capital base (N17, minimum 10 per cent.), (ii) a minimum ratio of the amount of the mortgage coverage to the amount of issued mortgage backed bonds (N18, minimum 100 per cent.), and (iii) a maximum ratio of the aggregate amount of a bank s liabilities to creditors having a priority right to satisfy their claims, to the bank s capital base (N19, maximum 50 per cent.). Charter Capital Requirements Federal Law No FZ dated 3 December 2011 On Introduction of Amendments to the Banking Law sets out (i) the minimum charter capital for newly-established banks in the amount of RUB300 million and (ii) the minimum net worth (capital) for existing banks and non-banking credit organisations seeking to become banks in Roubles in the amount of RUB300 million. Further, it maintained the minimum net (worth) capital for banks applying for a general banking license to RUB900 million. It also requires that the net worth (capital) of banks must have been at least (i) RUB90 million as of 1 January 2010, (ii) RUB180 million as of 1 January 2012 and (iii) must reach RUB300 million as of 1 January Failure to comply with this requirement will result in revocation of the banking license. Reporting Requirements Russian banks must regularly submit balance sheets to the CBR, together with financial statements showing their actual respective financial positions. They must also inform the CBR in respect of providing large loans (exceeding 5 per cent. of a bank s capital). Banking groups (i.e. alliances of banks in which one bank directly or indirectly controls decisions of the governing bodies of other banks within the alliance) and banking holdings (i.e. groups of legal entities in which one entity, which is not a credit organisation, exercising substantial influence over a credit organisation within the group) must regularly submit consolidated accounts to the CBR. The CBR may at any time carry out full or selective checks of a bank s submissions, and may inspect all books and records of the bank. In addition, annual audits must be carried out by a licensed audit company. Banks must file audited IFRS consolidated and standalone annual accounts with the CBR on an annual basis. Mandatory Reserve Deposit Requirements To cover loan losses and currency, interest and financial risks, banks are required to comply with the CBR requirements for the formation of mandatory reserve deposits. Particular reserve requirements are set by the Board of Directors of the CBR from time to time. Banks are currently required to post compulsory reserves to be held on non-interest bearing accounts with the CBR. To stabilise the situation on the local financial market and to support the liquidity of the Russian banking sector, the CBR decreased in October 2008 mandatory reserves for various obligations of credit organisations to 0.5 per cent. and successively increased them, in stages, so that effective from 1 April 2011 the rate is set at 5.5 per cent. for debts before non-resident legal entities in Roubles or foreign currency, 4.0 per cent. for debts before individuals in Roubles or foreign currency, and 4.0 per cent. for other obligations. From 1 November 2009, mandatory reserves are calculated by banks in accordance with CBR Regulation No. 342-P dated 7 August 2009 and Regulation No U dated 25 March 2011 (the Reserves Regulations ). The Reserves Regulations require the banks to promptly report to the CBR and its regional units at the end of each calendar month with the calculation of reserves and to promptly post additional reserves, if necessary. The CBR and its regional units have a right to conduct audits of credit organisations to monitor their compliance with the reserve rules. The Reserves Regulations do not require the creation of reserves for certain long term borrowings, although it requires posting of reserves for obligations to non-resident banks. In addition, credit organisations with good reserves and credit history are offered a new mechanism that will allow posting of reserves in accordance with certain calculated averages. 94

99 Provisioning The CBR established certain rules concerning the creation of loan impairment provisions for loans extended by banks. Since 1 August 2004, Russian credit organisations are required to calculate and establish their loan impairment provisions in accordance with Regulation No. 254-P On the Procedure for the Establishment by Credit Organisations of the Reserves for Possible Losses from Loans, Loan Debts and those Equated to them of 26 March 2004 (the Regulation No. 254-P ). The Regulation No. 254-P has introduced a number of new rules which purport to make loan impairment provisioning compliant with the BIS requirements. The CBR also established rules concerning creation of provisions for loans other than loan impairment, which may include losses from investments in securities, funds held in correspondent accounts of other banks, contingent liabilities, forward contracts and other transactions. CBR Instruction No. 283-P of 20 March 2006 requires banks to rank such assets and operations into five categories of quality reflecting the following situations: (i) no real or potential threat of losses; (ii) moderate potential threat of losses; (iii) serious potential or moderate real threat of losses; (iv) simultaneous potential and moderate real threat of losses or material real threat of losses; and (v) value of particular type of asset or operation is going to be lost completely. Banks are then required to provide for each type of asset or operation in the amounts corresponding to the amounts of possible losses but within the following framework established by the CBR for each risk group indicated above, respectively: (i) 0 per cent.; (ii) 1 per cent. to 20 per cent.; (iii) 21 per cent. to 50 per cent.; (iv) 51 per cent. to 100 per cent.; and (v) 100 per cent. A bank must report to the CBR as to the amounts of non-loan provisions it has created on a monthly basis. Pursuant to the CBR Directive No U of 22 June 2005, mandatory provisions must also be created for operations with residents of certain off-shore jurisdictions in the amounts of zero per cent., 25 per cent. or 50 per cent. depending on the jurisdiction involved. Regulation of Currency Exposure In CBR Instruction No. 124-I On the Establishment of the Amounts (Limits) of the Open Currency Positions, on the Methods of their Calculation and Particularities of Lending Organisations Control and Compliance therewith of 15 July 2005 as amended, the CBR established rules regarding exposure of banks to foreign currency and precious metals (collectively, currency exposure ), as well as controls over such exposure. Currency exposure is calculated with respect to net amounts of balance sheet positions, spot market positions, forward positions, option positions and positions under guarantees. Open currency position is calculated as the sum of all these net amounts. Such exposure is calculated for each currency and each precious metal, and then recalculated into Roubles in accordance with the official exchange rates and the CBR s prices for precious metals. The CBR established that at the end of each operation day the total amount of all long or short currency positions should not exceed 20 per cent. of a bank s capital base. At the same time, at the end of each operation day the long or short positions with respect to one particular currency or precious metal should not exceed 10 per cent. of a bank s capital base. The Insider Dealing Law The Insider Dealing Law came into force on 27 January 2011, save for the regulation of insider trading a part of which came into force on 30 July 2011 with another part coming into force on 30 July The Insider Dealing Law enumerates categories of persons that can be considered insiders, including, among others, professional market participants (including brokers and dealers) who transact on behalf of their clients and have received insider information from such clients. One of the main consequences for a person deemed an insider is that they must notify the Russian regulator of any transactions they conduct that relate to that client. Under the Insider Dealing Law, any person who illegally uses the inside information and publishes misleading information may be held liable for misuse of information and/or market manipulation. The Insider Dealing Law is a new law, certain of its provisions are vaguely drafted and it is not clear how the law will be applied in practice by state authorities and courts. Accounting Practices The CBR has established a standard format for the presentation of a bank s accounts and instructions on how transactions are recorded within the accounts. It requires the preparation of financial statements and other accounts in accordance with Directive of the CBR No U On the Checklist, Format and Procedure for the Preparation and Submission of Reports to the CBR by Credit Organisations of 12 November Despite certain differences, such financial statements represent a close approximation to IFRS. 95

100 Annual financial statements may be published only after their certification by an independent auditor. Quarterly financial statements may be published without such certification by an independent auditor. Starting from 1 January 2004, all credit organisations are required to prepare their accounting reports in accordance with IFRS for the period from 1 January to 31 December of each year and submit them to the CBR prior to 1 July of the following year. The CBR issued recommendations as to how to prepare IFRS financials in its Letter No. 169-T of 24 November 2011, which contain pro forma IFRS financial statements and examples of typical adjustments to RAS accounts. Bankruptcy (Insolvency) and Other Related Issues Bankruptcy of credit organisations in Russia is governed by the Federal Law No. 127-FZ On Insolvency (Bankruptcy) of 26 October 2002 (the Bankruptcy Law ) and the Federal Law No. 40-FZ On Insolvency (Bankruptcy) of Credit Organisations of 25 February 1999, as amended (the Bank Insolvency Law ). Bankruptcy Bankruptcy proceedings against a Russian bank may be initiated only after the revocation by the CBR of its banking licence. Following the revocation of the bank s licence, inter alia, all obligations of the bank are deemed to have fallen due and the bank is prohibited from entering into transactions and performing its obligations, except for a limited number of current and settlement transactions and operations listed in the Banking Law, until the liquidator or the competition manager is appointed. Bankruptcy proceedings may be initiated against a Russian bank provided that its business has signs of insolvency, as described in the Bank Insolvency Law; the overall amount of the outstanding obligations is not less than 1,000 times the statutory minimum wage amount (currently RUB100,000); the bank has failed to perform such obligations within 14 days of their due date; or after the revocation of the bank s licence its total assets do not cover all of its outstanding obligations. Prior to the institution of bankruptcy proceedings, the CBR, on its own initiative or upon the application of the authorised body of the bank, has the right to take action aimed at preventing the bank s bankruptcy. Such action may include (i) financial rehabilitation of the bank (for example, financial support, changing the structure of assets and liabilities or organisational structure of the bank), (ii) appointment of a temporary administration to the bank or (iii) reorganisation. Temporary Administration The Bank Insolvency Law provides for a special pre bankruptcy procedure called temporary administration, which is aimed at the financial rehabilitation of a bank. Technically, temporary administration precedes, and does not necessarily result in, the commencement of bankruptcy proceedings. Temporary administration may be imposed by the CBR in certain negative financial circumstances set out in Article 17 of the Bank Insolvency Law. The grounds for the appointment of a temporary administration include, among other things, breach of certain financial and regulatory capital ratios and a bank s failure to perform its payment obligations to some of its creditors for a period greater than seven days due to insufficient funds in its correspondent accounts. The introduction of a temporary administration may entail a limitation or suspension of the powers of the executive bodies of a bank. The temporary administration can manage a bank and is further entitled to request that the CBR impose a three month moratorium on all payments of a bank to counterparties and creditors. The temporary administration may also refuse performance of agreements or challenge transactions under Articles 27 and 28 of the Bank Insolvency Law. Priority of Claims Under the Bank Insolvency Law and the Insolvency Law the creditors claims of a credit organisation rank in the following order of priority: Claims in respect of insolvency proceedings (current payment claims). Claims related to administration of insolvency proceedings, including remuneration to a receiver, utilities bills, court expenses and other payments arising after the revocation of the credit organisation s banking licence. First priority. The following claims: for reimbursement of damages caused to individuals life or health, as well as moral damages; claims of retail depositors and individuals holding current accounts with the credit organisation (except for individual entrepreneurs); 96

101 claims of the Deposit Insurance Agency in respect of deposits and current accounts transferred to it pursuant to the Retail Deposit Insurance Law; and claims of the CBR arising as a result of the CBR payments to retail depositors of insolvent credit organisations that do not participate in the deposit insurance system. Second priority. Claims under employment contracts and other social benefits and copyright claims. Claims secured by a pledge of the credit organisation s assets. Secured claims, provided that any residual claims of secured creditors that remain unsatisfied after the sale of such collateral rank pari passu with claims of unsecured creditors. Third priority. Claims of all other creditors except for claims of subordinated creditors (including, among others, claims of retail depositors for lost profits and penalties). Generally, under the Insolvency Law, taxes and similar payment obligations rank pari passu with the claims of unsecured creditors. These provisions, however, contradict the Civil Code of the Russian Federation, which ranks taxes and similar payment obligations ahead of the claims of unsecured creditors. Last priority. Claims of subordinated creditors. Claims of each category of creditors must be satisfied in full before claims of the next category are considered. Liquidation and Revocation of the Banking Licence Mandatory Liquidation The procedure for the revocation of banking licences and the liquidation of banks is regulated by the Banking Law. Article 20 of the Banking Law lists a number of grounds on which the CBR can or must revoke the banking licence of a Russian bank. Among other things, these grounds include: (i) material inaccuracy of reporting statements; (ii) a delay of more than 15 days in the submission of monthly financial statements; (iii) effecting transactions that are not covered by its banking licence; (iv) persistent failure to comply with federal laws governing banking activities and CBR regulations and persistent breach of reporting, client identification and various internal control requirements of anti money laundering legislation; (v) certain breaches of capital adequacy and regulatory capital ratios; (vi) inability to discharge creditors claims within 14 days of their due date where such claims exceed 1,000 times the statutory minimum wage amount (currently, RUB100,000) and (vii) if the amount of capital does not reach RUB300 million by 1 January Upon the revocation of its licence, a bank must be liquidated either under mandatory solvent liquidation procedures set out in the Banking Law or under bankruptcy procedures set out in the Bank Insolvency Law. Article 20 of the Banking Law establishes the consequences of the revocation of the banking licence, including that the CBR must impose a temporary administration on the relevant bank, that all obligations of the bank are deemed to have fallen due, that enforcement of execution documents issued on the basis of court judgments, with certain exceptions, is suspended and that entering into certain transactions and performance by the bank of its obligations is prohibited until the liquidator or the competition manager is appointed. The CBR must make a public announcement of the revocation of the banking licence within one week of resolving to revoke such a licence. Voluntary Liquidation In the case of voluntary liquidation of a bank, the shareholders (founders), upon the adoption of the relevant decision, must apply to the CBR for cancellation of the banking licence and, upon its cancellation, the liquidation should be carried out in accordance with the liquidation rules and applicable CBR regulations. In particular, shareholders will appoint the liquidation commission to oversee the liquidation process. Banking and Other Relevant Reforms Following the 1998 financial crisis, Russian banks took important steps towards developing more transparent business practices and more diversified portfolios of assets. In recent years, confidence in local banks has gradually improved, as evidenced by the substantial growth in the volume of private deposits in Russian banks. On 5 April 2011, the Russian Government and the CBR issued their joint Strategy for the period until The Strategy foresees the intensive development of the Russian banking sector, which will be marked by a high level of competition, a diversity of modern banking services, developed systems of corporate governance and 97

102 risk management, and a high level of transparency of banks' businesses. The Strategy lists a number of key activities aimed at the development of the banking sector, in particular: a decrease instate participation in the charter capitals of banks; the development of a modern financial infrastructure, including establishment of a comprehensive legal framework for the creation of a national payment system, and increase of the amount of cashless payments through introduction of a universal electronic card for individuals; an increase in the accessibility of banking services in the remote regions, in particular, through the establishment of the Postal Bank of Russia; the protection of the banks' interests, in particular, through the creation of a register of notices on pledges of movable property and through introducing irrevocable individual deposits; the development of modern information technologies for rendering banking services; an increase in the minimum chapter capital of a newly established Russian bank (as of 1 January 2012) and net worth (capital) of an existing bank as (of 1 January 2015) to RUB300 million (approximately, USD 10 million); and a widening of the scope of tools available to banks to combat money laundering. The Strategy also specifically lists a number of key areas aimed at the development of the banking regulation and supervision, in particular: an increase of banking supervision efficiency, including the development of supervision on a consolidated basis (with respect to banking groups), and through widening the scope of tools available to the Central Bank to address deficiencies in the banks' activities; an increase in the transparency of banking business; and gradual implementation of international standards for banking regulation contained in Basel II and Basel III with respect to the quality of capital, capital adequacy and liquidity (it is expected that Basel III will be fully implemented in Russia by 1 January 2019). The system for insuring private deposits was introduced in According to the Deposit Insurance Law, banks holding a CBR licence for attracting deposits from individuals and opening and administering individuals accounts qualify for such activities. Subject to a bank s compliance with certain regulatory requirements, it enters the system of the insurance of individuals deposits and thus qualifies to receive deposits and open accounts for individuals. If a bank fails to comply with the applicable requirements or chooses not to participate in the insurance system, it will be precluded from receiving deposits and opening accounts for individuals. Banks accepting private deposits and opening accounts for individuals are required to make quarterly payments to a newly established insurance fund in the amount of up to 0.15 per cent. (the maximum rate) of the average account balances calculated under the new law. Under the Deposit Insurance Law, the protection for each client is limited to RUB700,000 per bank and banks are required to make quarterly payments into a deposit insurance fund. The insurance payment from the deposit insurance fund will be payable to depositors if a bank s licence has been revoked or if the CBR has imposed a moratorium on payments by the bank. The basis of the deposit insurance contribution is the quarterly average of daily balances of retail deposits. Standard contribution premiums cannot exceed 0.15 per cent. of the contribution basis (the applicable contribution premium was established on 25 September 2008 and is currently equal to 0.1 per cent. of the contribution basis). In certain circumstances, the premium can be increased up to 0.3 per cent. of the contribution basis, but not for more than two quarters in every 18 months. When the size of the insurance fund reaches 5 per cent. of total retail deposits of all Russian banks, all succeeding contribution premiums cannot exceed 0.05 per cent. of the contribution basis, and when the size of the insurance fund exceeds 10 per cent. of all Russian banks retail deposits, no contributions need to be made, but they resume once the insurance fund falls below the 10 per cent. threshold. Pursuant to Federal Law No. 218-FZ On Credit Histories, dated 30 December 2004 (the Credit Histories Law ), the credit history of a borrower (whether an individual or a legal entity) consists of certain data, as defined by the Credit Histories Law, which describe the borrower s performance under loan or credit arrangements and which are stored with a credit history bureau (a Russian legal entity included in the State Register of Credit History Bureaus, whose principal activity is to collect, process and store credit history data 98

103 and issue reports, as defined in the Credit Histories Law). As of 10 January 2012, the FSFM had registered 31 credit history bureaus. The Credit Histories Law defines the procedures for the submission of data to credit history bureaus, disclosure by bureaus of such data to authorised users, and the rights and obligations of borrowers and bureaus. It also sets out the procedures for the registration of credit history bureaus and the transfer of credit history data upon their liquidation. Credit history bureaus may disclose credit history data only to: a borrower itself; banks or other legal entities which are users of such data (with the borrower s consent); courts and, with the consent of a prosecutor general, certain enforcement agencies; and the Central Credit History Catalogue administered by the CBR to allow the centralised search of all credit history data. Credit organisations are obliged to make their activities compliant with the Credit Histories Law within nine months of the date of its entry into force. Since 1 September 2005, banks have been required to enter into agreements with at least one credit history bureau and provide it, subject to the borrowers consent, with the relevant information relating to the borrowers. In addition to the Credit Histories Law and as part of the development of consumer lending legislation, the Federal Law No. 152-FZ On Mortgage Backed Securities and amendments to the Civil Code, Tax Code and the Federal Law No. 102-FZ On Mortgage were enacted in 2003 and By means of these laws, Russian legislators attempted to make mortgage lending attractive to banks and affordable to individuals by simplifying the applicable procedures and making them more transparent and less costly. Another intention of this new legislation is to introduce improved regulation of mortgage backed securities in order to make them more attractive for investors. As a step towards establishing an effective domestic system for combating money laundering, in August 2001, Russia adopted the Federal Law No. 115-FZ On Combating of the Legalisation of Illegal Earnings (Money Laundering) and Terrorism Financing. In October 2002, Russia was removed from the black list of non-cooperative countries and territories in the fight against money laundering maintained by the Financial Action Task Force on Money Laundering. The CBR monitors Russian banks compliance with the anti-money laundering requirements by issuing regulations and inspecting banks activities. In particular, Russian banks are required to comply with various customer identification, reporting and other related procedures. In line with the development of the anti-money laundering system, the CBR introduced certain restrictions relating to banks operations involving foreign entities and individuals registered (residing) in off shore areas. The CBR has compiled a list of such off shore areas. In particular, the CBR restrictions apply to the establishment by Russian banks of correspondent relationships with foreign banks registered in these off shore areas. On 18 June 2004, the Currency Control Law came into force, replacing the former Federal Law On Currency Regulation and Currency Control of 1992 almost in its entirety. The Currency Control Law is generally aimed at the gradual liberalisation of Russian currency control regulations. Pursuant to the Currency Control Law, the CBR had the power to regulate certain currency operations (including non-banking operations performed by Russian banks) by introducing a special account requirement. As of 1 January 2007, the major remaining restrictions envisaged in the Currency Control Law (including the special account requirement ) have been abolished. As part of implementing legislation contemplated by the Currency Control Law, the CBR passed Directive No U of 28 April 2004, which came into force on 18 June Directive No U confirms that no currency control limitations will apply to bank operations between authorised banks and sets forth a list of non-banking transactions between authorised banks that are exempt from currency control restrictions. Directive No U specifically provides that all other currency transactions of authorised banks will fall under the general currency control regime applicable to resident legal entities. Measures to Support the Liquidity and Solvency of Russian Banks and Legal Entities since October 2008 Since October 2008, the Russian Government and the CBR have announced and, in many cases, fully implemented measures intended to support the liquidity and solvency of Russian banks and to increase the availability of credit to businesses, which have been seen as critical for restoring investor confidence and supporting the medium-term economic growth of the Russian economy. These measures were primarily introduced by Federal Law No. 173-FZ On the Additional Measures to Support the Financial System of the 99

104 Russian Federation dated 13 October 2008, as amended (the Rescue Measures Law ). According to the Rescue Measures Law, the following measures are being implemented: The Russian Government through the CBR and VEB were authorised to provide up to RUB950 billion in subordinated funding to state-owned and private banks under certain conditions. The VEB subordinated funding is for the purpose of making loans to Russian companies in industries which the Government identified as priority industries in its anti-crisis programme at preferential interest rates. The RUB950 billion state contribution to banking sector capital in the form of long-term subordinated loans with a term of at least five years is one of the key economic initiatives announced by the Russian Government to restore confidence in the Russian banking sector. State-owned banks Sberbank, VTB and Russian Agricultural Bank received RUB500 billion, RUB200 billion and RUB25 billion, respectively, as part of this initiative. The remaining RUB185 billion has been distributed among privately-owned Russian banks subject to certain conditions. The CBR is authorised to enter into agreements with privately owned banks to partially compensate such banks for the losses suffered during the period from 14 October 2008 to 31 December 2010 as the result of operations on the interbank market with banks whose licences are revoked. VEB had the right, until 31 December 2010, to originate foreign currency loans up to U.S.$50 billion to Russian legal entities to repay and/or refinance the loans received from foreign lenders prior to 25 September A set of federal laws and subordinated legislation complements the measures introduced by the Rescue Measures Law: The CBR established a new liquidity scheme to conduct uncollateralised lending covering a number of Russian banks. The maximum amount that banks can raise under this facility was set by the CBR depending on the international credit rating, asset size and the level of capitalisation of the potential borrower under this arrangement. Federal Law No. 317-FZ On Amending Articles 46 and 76 of the Federal Law on Central Bank of Russian Federation (Bank of Russia) dated 30 December 2008 vested the CBR with the right to appoint its authorised representatives to the banks and credit institutions which, inter alia, have received any foreign currency loans and/or subordinated loans under the Rescue Measures Law. The CBR Regulation No U dated 9 February 2009 provides for the procedure for such authorised representatives appointment, their rights and obligations including, inter alia, the right to participate in the meetings of the management bodies of such banks and credit institutions and the right to request information on management remuneration and the issuance of loans to third parties. CBR Regulation No U On Determination of Mandatory Reserve Requirements of the Bank of Russia dated 25 March 2011 increased the reserve requirements for all types of financial obligations, namely funds in Roubles and foreign currencies payable to non-resident banks, funds in Roubles payable to individuals and other obligations, to 5.5 per cent. from 4.5 per cent., 4 per cent. and 4 per cent. from 3.5%, respectively. The Retail Deposit Insurance Law has been amended to increase the amount of the secured deposits of individuals with Russian banks included to the state system of deposits insurance up to RUB700,000. Government Decree No. 18 On the Procedure of National Welfare Fund Assets Management of 19 January 2008 has been amended in 2008 and 2009 to increase the scope of financial instruments in which funds from the National Welfare Fund can be invested. The National Welfare Fund was established in 2008 using oil revenues, with a view to partially funding contributions to pensions of Russian citizens and to make up shortfalls in other contributions from the federal budget to federal pension funds. As a consequence, up to RUB655 billion of such funds may be deposited in VEB to support the Russian financial markets. The number of instruments eligible for the CBR s collateralised facility and for refinancing transactions with the CBR has been increased and the CBR may accept, among other things, 100

105 the pledge of certain bonds and suretyships granted by certain Russian banks as collateral under its facilities to credit organisations. 101

106 THE ISSUER Introduction GPB Eurobond Finance PLC was incorporated in Ireland on 3August 2005, with registered number as a public company with limited liability under the Companies Acts of Ireland (the Companies Acts ). The registered office of the Issuer is 5 Harbourmaster Place, IFSC, Dublin 1, Ireland and the phone number is Principal Activities The principal objects of the Issuer are set out in Article 3 of its memorandum of association (as currently in effect) and permit the Issuer, amongst other things, to lend money and give credit, secured or unsecured, to borrow or raise money and to grant security over its property for the performance of its obligations or the payment of money. The Issuer is organised as a special purpose company. The Issuer was established to raise capital by issuing debt securities and to use an amount equal to the proceeds of each such issuance and drawing to make the loans to Gazprombank. Since its incorporation, the Issuer has not engaged in any material activities other than those incidental to its registration as a public company under the Companies Acts, the issue on 23 September 2005 of U.S.$1,000,000, per cent. loan participation notes due 2015 (the 2005 LPN ), the issue on 19 January 2007 of RUB10,000,000, per cent. loan participation notes due 2010 (the RUB LPN ), the issue on 3 April 2007 of U.S.$700,000,000 floating rate loan participation notes due 2010 (the 2007 LPN ), the issue on 13 August 2008 of CHF500,000, per cent. loan participation notes due 2010 (the 2008 CHF LPN ), the issue on 24 November 2011 of RUB20,000,000 floating rate loan participation notes due 2016 (the 2011 RUB LPN ), the issue on 9 December 2011 of CHF420,000, per cent. loan participation notes due 2013 (the 2011 CHF LPN ), the authorisation of the establishment of the Programme and the issuance of Notes thereunder, the matters contemplated in this Base Prospectus, the authorisation of the other documents relating to the 2005 LPN, the RUB LPN, the 2007 LPN, the 2008 CHF LPN, the 2011 RUB LPN, the 2011 CHF LPN, and the Programme and other matters which are incidental or ancillary to those activities. The Issuer has no employees. Directors and Secretary The directors and secretary of the Issuer and their respective business addresses and principal activities are: Name Business Address Principal Activities Eimir McGrath 5 Harbourmaster Place IFSC Dublin 1 Ireland Michael Whelan 5 Harbourmaster Place IFSC Dublin 1 Ireland Deutsche International Corporate Services (Ireland) 5 Harbourmaster Place Limited IFSC Dublin 1 Ireland Company Director Company Director Company Secretary Corporate Services Agreement The corporate services provider is Deutsche International Corporate Services (Ireland) Limited, 5 Harbourmaster Place, Dublin 1, Ireland (the Corporate Services Provider ). Pursuant to the terms of a corporate services agreement dated 20 September 2005 between the Issuer and the Corporate Services Provider (the Corporate Services Agreement ), the Corporate Services Provider has nominated two Irish resident directors as directors of the Issuer and the Corporate Services Provider will also provide other corporate services to the Issuer in consideration for the payment by the Issuer of an annual fee to the Corporate Services Provider. The Corporate Services Provider s appointment may be terminated by either the Issuer or the Corporate Services Provider upon not less than 180 days written notice to the other party. 102

107 In the event of termination of the Corporate Services Agreement by the Corporate Services Provider in this way, the Corporate Services Provider shall immediately take all steps necessary to appoint a replacement corporate services provider (the choice of whom shall be approved by the Issuer). The appointment of the Corporate Services Provider may also be terminated in the event of a breach of any provision of the Corporate Services Agreement by the Issuer or the Corporate Services Provider. The authorised share capital of the Issuer is EUR40,000 divided into 40,000 ordinary shares of par value 1 each (the Shares ). The Issuer has issued 40,000 Shares, all of which are fully paid and are held on trust by Deutsche International Finance (Ireland) Limited (the Share Trustee ) under the terms of a declaration of trust (the Declaration of Trust ) dated 20 September 2005 under which the Share Trustee holds the Shares on trust for charity. The Share Trustee has no beneficial interest in and derives no benefit (other than any fees for acting as Share Trustee) from its holding of the Shares. The Share Trustee will apply any income derived from the Issuer solely for the above purposes. The Issuer produces annual audited financial statements with a financial year ending on 31 August. As the Issuer has no subsidiaries, such accounts will be non-consolidated. The most recent financial statements of the Issuer have been prepared in relation to the year ended 31 August These financial statements, together with the financial statements of the Issuer for the year ended 31 August 2010, have been deemed to be incorporated in, and form a part of, this Base Prospectus. See Documents Incorporated by Reference. The Issuer s auditors are Deloitte & Touche, Earlsfort Terrace, Dublin 2, Ireland, who are chartered accountants, members of the Institute of Chartered Accountants in Ireland and registered auditors qualified to practise in Ireland. Save as disclosed herein, the Issuer does not have any material borrowings and/or indebtedness and/or contingent liabilities and no outstanding guarantees or unsecured loan capital. None of the Issuer s indebtedness, including loan capital, is guaranteed. 103

108 FACILITY AGREEMENT This Amended and Restated Facility Agreement is made on 23 September 2011 between: (1) GAZPROMBANK (OPEN JOINT-STOCK COMPANY), an open joint-stock company established under the laws of the Russian Federation whose registered office is 16 Block 1, Nametkina St., Moscow ( Gazprombank ); and (2) GPB EUROBOND FINANCE PLC, a public limited company established under the laws of Ireland, whose registered office is at 5 Harbourmaster Place, IFSC, Dublin 1, Ireland (the Lender ). Whereas, the Lender has at the request of Gazprombank agreed, pursuant, inter alia, to a facility agreement dated 14 September 2007 as amended and restated on 2 July 2010 (the Original Facility Agreement ), to make available to Gazprombank a loan facility in the maximum amount of the Programme Limit (as defined below) on the terms and subject to the conditions of this Agreement, as amended and supplemented in relation to each Loan by a loan supplement dated the Closing Date (as defined below) substantially in the form set out in the Schedule hereto (each, a Loan Supplement ); and Whereas, it is intended that, concurrently with the extension of any Loan under this loan facility the Lender will issue certain loan participation notes in the same nominal amount and bearing the same rate of interest as such Loan. The parties hereto wish to amend and restate the Original Facility Agreement as set out below. Now it is hereby agreed as follows: 1 Definitions and Interpretation 1.1 Definitions In this Agreement (including the recitals), the following terms shall have the meanings indicated: Account means an account in the name of the Lender as specified in the relevant Loan Supplement. Advance means any advance to be made under any Loan Agreement. Affiliates of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect control by such specified Person. For the purposes of this definition, control when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing. Agency Agreement means the amended and restated paying agency agreement relating to the Programme dated 23 September 2011, as it may be further amended or supplemented from time to time between, the Lender, Gazprombank, the Trustee and the agents named therein. Arranger means Goldman Sachs International or any additional or replacement arranger appointed, and excluding any Arranger whose appointment has terminated pursuant to the Dealer Agreement. Base Prospectus means the base prospectus dated 23 September 2011, as amended, supplemented or replaced, relating to the Programme. Bilateral Contract means any Currency Protection Agreement or Interest Rate Protection Agreement. Business Day means (save in relation to Clause 4) a day (other than a Saturday or Sunday) on which (a) banks and foreign exchange markets are open for business generally in the relevant place of payment, and (b) if on that day a payment is to be made in a Specified Currency other than euro hereunder, where payment is to be made by transfer to an account maintained with a bank in the Specified Currency, foreign exchange transactions may be carried on in the Specified Currency in the principal financial centre of the country of such Specified Currency and (c) if on that day a payment is to be made in euro hereunder, a day on which the TARGET System is operating. Calculation Agent means, in relation to a Loan, Citibank, N.A., London Branch or any person named as such in the relevant Loan Supplement or any successor thereto. Closing Date means the date specified as such in the relevant Loan Supplement. Currency Protection Agreement means any foreign exchange contract, currency swap agreement, currency option or similar agreement or arrangement designed to protect against fluctuations in currency exchange rates, whether or not arising in the ordinary course of business or in connection with any Indebtedness. 104

109 Day Count Fraction has the meaning specified in Clause 4 as supplemented by the relevant Loan Supplement. Dealer Agreement means the dealer agreement relating to the Programme dated 23 September 2011 between the Lender, Gazprombank, the Arranger and the other dealers appointed pursuant to it, as it may be further amended or supplemented from time to time. Dollars, $ and U.S.$ means the lawful currency of the United States of America. euro or means the lawful currency of the member states of the European Union that adopted the single currency in accordance with the Treaty of Rome, as amended. Event of Default has the meaning assigned to such term in sub-clause 11.1 hereof. Fixed Rate Loan means a Loan specified as such in the relevant Loan Supplement. Floating Rate Loan means a Loan specified as such in the relevant Loan Supplement. Gazprombank Account means an account in the name of Gazprombank as specified in the relevant Loan Supplement for receipt of Loan funds. Gazprombank Agreements means this Agreement, the Agency Agreement, the Dealer Agreement and together with, in relation to each Loan, the relevant Subscription Agreement and Loan Supplement. Group means Gazprombank and its Subsidiaries taken as a whole. Guarantee means, in relation to any Indebtedness of any person, any obligation of another person to pay such Indebtedness including (without limitation): (i) any obligation to purchase such Indebtedness; (ii) any obligation to lend money, to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness; (iii) any indemnity against the consequences of a default in the payment of such Indebtedness; and (iv) any other agreement to be responsible for such Indebtedness. ICMA means the International Capital Market Association. IFRS means the International Financial Reporting Standards (formerly International Accounting Standards) issued by the International Accounting Standards Board ( IASB ) and interpretations issued by the International Financial Reporting Interpretations Committee (as amended, supplemented or re-issued from time to time). Indebtedness means any indebtedness of any person for or in respect of: (i) moneys borrowed or raised; (ii) amounts raised by acceptance under any acceptance credit facility; (iii) amounts raised under any note purchase facility or the issue of bonds, notes, debentures, loan stock or similar instruments; (iv) the amount of any liability in respect of leases or hire purchase contracts which would, in accordance with applicable law and generally accepted accounting principles, be treated as finance or capital leases; (v) the amount of any liability in respect of any purchase price for assets or services the payment of which is deferred for a period in excess of 30 days; or (vi) amounts raised under any other transaction (including, without limitation, under any Repurchase Agreement, any forward sale and any purchase agreement) having the commercial effect of a borrowing, but, for the avoidance of doubt, does not include any Bilateral Contract. Interest Payment Date means the dates specified as such in the relevant Loan Supplement, or, in the event of a prepayment in whole or in part in accordance with sub-clause 5.4, the date set for such redemption in respect of the part of the Loan to be redeemed. Interest Rate Protection Agreement means any interest rate swap agreement, interest rate option agreement, interest rate cap agreement, interest rate collar agreement, interest rate floor agreement or other similar 105

110 agreement or arrangement designed to protect against fluctuations in interest rates, whether or not arising in the ordinary course of business or in connection with any Indebtedness. Lead Manager(s) means the Relevant Dealer(s) specified as such in the relevant Subscription Agreement. Lender Agreements means the Dealer Agreement, this Agreement, the Agency Agreement and the Principal Trust Deed together with, in relation to each Loan, the relevant Subscription Agreement, Loan Supplement and Supplemental Trust Deed. Loan means each loan to be made pursuant to, and on the terms specified in this Agreement and the relevant Loan Supplement and includes each Fixed Rate Loan and Floating Rate Loan. Loan Agreement means this Agreement and (unless the context requires otherwise), in relation to a Loan means this Agreement as amended and supplemented by the relevant Loan Supplement. Margin shall have the meaning given to such term in the Conditions of the relevant Series of Notes. Material Adverse Effect means a material adverse effect on (a) the financial condition or operations of Gazprombank or its Material Subsidiaries or (b) Gazprombank s ability to perform its obligations under a Loan Agreement or (c) the validity, legality or enforceability of a Loan Agreement or the rights or remedies of the Lender under a Loan Agreement. Material Subsidiary at any time means a Subsidiary of Gazprombank: (i) where Gazprombank s and its other Subsidiaries investments in and advances to such Subsidiary exceed 10 per cent. of the consolidated total assets of Gazprombank all as calculated by reference to the then latest audited accounts (consolidated or, as the case may be, unconsolidated) of such Subsidiary and the then latest audited IFRS consolidated accounts of Gazprombank; or (ii) whose profit before tax attributable to Gazprombank (which, for the avoidance of doubt, is not limited to profits before tax derived only from any activities between such Subsidiary and Gazprombank and which shall be consolidated in the case of a Subsidiary which itself has Subsidiaries) represents not less than 10 per cent. of the consolidated profit before tax of Gazprombank, as calculated by reference to the then latest audited accounts (consolidated or, as the case may be, unconsolidated) of such Subsidiary and the then latest audited IFRS consolidated accounts of Gazprombank; or (iii) whose total assets (consolidated in the case of a Subsidiary which itself has Subsidiaries) represent not less than 10 per cent. of the consolidated total assets of Gazprombank, as calculated by reference to the then latest audited accounts (consolidated or, as the case may be, unconsolidated) of such Subsidiary and the then latest audited IFRS consolidated accounts of Gazprombank; or (iv) to which is transferred the whole or substantially the whole of the undertaking and assets of a Subsidiary of Gazprombank which immediately before the transfer was a Material Subsidiary. Maximum Rate of Interest shall have the meaning given to such term in the Conditions of the relevant Series of Notes. Minimum Rate of Interest shall have the meaning given to such term in the Conditions of the relevant Series of Notes. Noteholder means, in relation to a Note, the person in whose name such Note is registered in the register of the noteholders (or in the case of joint holders, the first named holder thereof). Notes means the loan participation notes that may be issued from time to time by the Lender under the Programme in Series, each Series corresponding to a Loan and relating to a Loan as defined in the relevant Loan Supplement. Officer s Certificate means a certificate signed by an officer of Gazprombank who shall be the principal executive officer, principal accounting officer or principal financial officer of Gazprombank. Opinion of Counsel means a written opinion from international legal counsel who is acceptable to the Lender. Payment Time means the time specified as such in the relevant Loan Supplement. Permitted Security Interest means, in relation to Gazprombank or any of its Material Subsidiaries: (i) any Security Interest in existence on the date of this Agreement; (ii) any Security Interest arising by operation of law; 106

111 (iii) any Security Interest existing on any property, income or assets prior to the acquisition thereof by Gazprombank or a Material Subsidiary and not created in contemplation of such acquisition, provided that such Security Interest shall not extend to any other property, income or assets and further provided that the principal, capital or nominal amount secured by any such Security Interest and outstanding at the time of acquisition may not increase except in accordance with its original terms; (iv) any Security Interest existing on any property, income or assets of any corporation at the time such corporation is merged or consolidated with or into Gazprombank or a Material Subsidiary and not created in contemplation of such event, provided such Security Interest shall not extend to any other property, income or assets and further provided that the principal, capital or nominal amount secured by any such Security Interest and outstanding at the time of merger or consolidation may not increase except in accordance with its original terms; (v) any Security Interest created on any property or assets acquired by Gazprombank or a Material Subsidiary (otherwise than from each other) securing Indebtedness of Gazprombank or a Material Subsidiary incurred or assumed for the purpose of financing all or part of the cost of acquiring such property or assets, provided that such Security Interest shall not extend to any other property or assets and such Security Interest attaches to such property or assets concurrently with or within 90 days after the acquisition thereof and further provided that the principal, capital or nominal amount secured by such Security Interest and outstanding at the time of acquisition may not increase except in accordance with its original terms; (vi) any Security Interest securing Indebtedness incurred in connection with a Project Financing if the Security Interest is created by Gazprombank or a Material Subsidiary solely on the property, income, assets or revenues of the project for which the financing was incurred, provided that the principal amount secured by such Security Interest and outstanding at the time the financing was incurred may not increase except in accordance with its original terms; and (vii) any Security Interest upon, or with respect to, any present or future property, loans, income, receivables or other assets or revenues or any part thereof which is created pursuant to any securitisation, assetbacked or similar financing provided that the amount of the Indebtedness incurred in connection with any such financing and secured by such Security Interest does not at the time it is incurred, when aggregated with any outstanding Indebtedness raised pursuant to other such securitisations, assetbacked or similar financings, exceed 30 per cent. of the consolidated total assets of Gazprombank, as determined at any time by reference to the most recent consolidated balance sheet of Gazprombank prepared in accordance with IFRS. Person means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other legal entity, whether or not having a separate legal personality. Potential Event of Default means any event which, after notice or passage of time or both, would be an Event of Default. Principal Trust Deed means the amended and restated principal trust deed dated 23 September 2011 between the Lender and the Trustee, as it may be further amended or supplemented from time to time. Programme means the programme for the issuance of Notes by the Lender for the purpose of financing Loans. Programme Limit means U.S.$10,000,000,000 or its equivalent in other currencies, being the maximum aggregate principal amount of Notes that may be issued and outstanding at any time under the Programme as may be increased in accordance with the Dealer Agreement. Project Financing means any financing of all or part of the costs of the acquisition, construction or development of any project if the person or persons providing such financing (i) expressly agree to limit their recourse to the project financed and the revenues derived from such as the principal source of repayment for the moneys advanced and (ii) have been provided with a feasibility study prepared by competent independent experts on the basis of which it is reasonable to conclude that such project would generate sufficient operating income to service substantially all Indebtedness incurred in connection with such project. Rate of Interest has the meaning assigned to such term in the relevant Loan Supplement. Relevant Indebtedness means any Indebtedness which (a) is in the form of or represented by any bond, note, debenture, debenture stock, loan stock, certificate or other instrument which is, or is intended by the issuer to be, or is (subsequent to its creation) listed, quoted or traded on any stock exchange or traded in any securities 107

112 market (including, without limitation, any over-the-counter market) and (b) was initially offered and distributed primarily outside the Russian Federation, but for the avoidance of doubt does not include (i) any Indebtedness in the form of a loan, loan note, transferable loan certificate or other loan instrument unless it is, or is intended by the issuer to be, or is (subsequent to its issue), listed or quoted on any stock exchange or (ii) any indebtedness denominated in Roubles and documented under Russian law unless it is cleared and settled through an international securities clearing system. Relevant Time means, in relation to a payment in a Specified Currency, the time in the principal financial centre of such Specified Currency and, in relation to a payment in euro, Brussels time. Repayment Date means the date specified as such in the relevant Loan Supplement. Repayment Time means the time specified as such in the Loan Supplement. Repurchase Agreement means any repurchase agreement, buy/sell back agreement, reverse repurchase agreement or stock loan with respect to any securities, whether or not arising in the ordinary course of business. Roubles means the lawful currency of the Russian Federation. Same-Day Funds means funds for payment, in the Specified Currency as the Lender may at any time determine to be customary for the settlement of international transactions in the principal financial centre of the country of the Specified Currency or, as the case may be, euro funds settled through the TARGET System or such other funds for payment in euro as the Lender may at any time determine to be customary for the settlement of international transactions in Brussels of the type contemplated hereby. Security Interest means any mortgage, charge, pledge, lien or other security interest including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction. Series means a series of Notes that (except in respect of the first payment of interest and their issue price) have identical terms on issue and are expressed to have the same series number. Specified Currency means the currency specified as such in the relevant Loan Supplement. Subscription Agreement means the agreement specified as such in the relevant Loan Supplement. Subsidiary means, in relation to any person (the first person ) at any particular time, any other person (the second person ): (i) whose affairs and policies the first person controls or has the power to control by virtue of its power to appoint or remove members of the governing body of the second person; or (ii) of whose share capital the first person directly or indirectly owns more than half. Supplemental Trust Deed means a supplemental trust deed in respect of a Series of Notes which constitutes and secures, inter alia, such Series dated the relevant Closing Date and made between the Lender and the Trustee (substantially in the form set out in Schedule 9 of the Principal Trust Deed). TARGET System means the Trans-European Automated Real-Time Gross Settlement Express Transfer (known as TARGET2) System which was launched on 19 November 2007 or any successor thereof. Taxes means any taxes (including interest or penalties thereon) which are now or at any time hereafter imposed, assessed, charged, levied, collected, demanded, withheld or claimed by the Russian Federation, Ireland or any taxing authority thereof or therein provided, however, that for the purposes of this definition the references to Ireland shall, upon the occurrence of the Relevant Event (as this term is defined in the Trust Deed), be deemed to be references to the jurisdiction in which the Trustee is domiciled for tax purposes; and the term Taxation shall be construed accordingly. Trust Deed means the Principal Trust Deed as supplemented by the relevant Supplemental Trust Deed (and as supplemented or amended from time to time) and specified as such in the relevant Loan Supplement. Trustee means Citicorp Trustee Company Limited, as trustee under the Trust Deed and any successor thereto as provided thereunder. Warranty Date means the date hereof, the date of each Loan Supplement, each Closing Date, each date on which the Base Prospectus or any of the Lender Agreements is amended, supplemented or replaced and each date on which the Programme Limit is increased. 1.2 Other Definitions Unless the context otherwise requires, terms used in this Agreement which are not defined in this Agreement but which are defined in the Principal Trust Deed, the Notes, the Agency Agreement, the 108

113 Dealer Agreement or the relevant Loan Supplement shall have the meanings assigned to such terms therein. 1.3 Interpretation Unless the context or the express provisions of this Agreement otherwise require, the following shall govern the interpretation of this Agreement: All references to Clause or sub-clause are references to a Clause or sub-clause of this Agreement The terms hereof, herein and hereunder and other words of similar import shall mean the relevant Loan Agreement as a whole and not any particular part hereof Words importing the singular number include the plural and vice versa All references to taxes include all present or future taxes, levies, imposts and duties of any nature and the terms tax and taxation shall be construed accordingly The table of contents and the headings are for convenience only and shall not affect the construction hereof All references to this Agreement or this Facility Agreement are references to this amended and restated Facility Agreement dated 23 September Amendment and Restatement This Agreement amends and restates the Original Facility Agreement. Any Loans made on or after the date hereof shall have the benefit of this Agreement. The amendments set out herein do not affect any Loans made prior to the date of this Agreement which shall be subject to the Original Facility Agreement. 2 Loans 2.1 Loans On the terms and subject to the conditions set forth herein and, as the case may be, in each Loan Supplement, the Lender hereby agrees to make available to Gazprombank Loans in principal amounts which, when aggregated with the principal amounts advanced under any subordinated loan agreement, will not exceed the total aggregate amount equal to the Programme Limit. 2.2 Purpose The proceeds of each Loan will be used for general corporate purposes (unless otherwise specified in the relevant Loan Agreement), but the Lender shall not be concerned with the application thereof. 2.3 Separate Loans It is agreed that with respect to each Loan, all the provisions of this Facility Agreement and the Loan Supplement shall apply mutatis mutandis separately and independently to each such Loan and the expressions Account, Closing Date, Day Count Fraction, Interest Payment Date, Loan Agreement, Notes, Rate of Interest, Repayment Date, Specified Currency, Subscription Agreement and Trust Deed, together with all other terms that relate to such a Loan shall be construed as referring to those of the particular Loan in question and not of all Loans unless expressly so provided, so that each such Loan shall be made pursuant to this Facility Agreement and the relevant Loan Supplement, together comprising the Loan Agreement in respect of such Loan and that, unless expressly provided, events affecting one Loan shall not affect any other. 3 Drawdown 3.1 Drawdown On the terms and subject to the conditions set forth herein and, as the case may be, in each Loan Supplement, on the Closing Date thereof the Lender shall make a Loan to Gazprombank and Gazprombank shall make a single drawing in the full amount of such Loan. 3.2 Loan Arrangement Fee In consideration of the Lender s undertaking to make a Loan available to Gazprombank, Gazprombank hereby agrees that it shall, two Business Days before each Closing Date, pay to the Lender to an account nominated by it, in Same-Day Funds, an arrangement fee in connection with the financing of 109

114 such Loan, including negotiation, preparation and execution of all related documents and other costs connected with and necessary for the extension of the Loan (the Arrangement Fee ). The Arrangement Fee shall be calculated taking into account the front-end commissions, fees and costs of the Lender in connection with financing such Loan. The total amount of the Arrangement Fee is to be as specified in the relevant Loan Supplement. 3.3 Disbursement Subject to the conditions set forth herein and, as the case may be, in each Loan Supplement, on each Closing Date the Lender shall transfer the amount of the relevant Loan to the Gazprombank Account specified in the relevant Loan Supplement. 3.4 Ongoing Fees and Expenses In consideration of the Lender agreeing to make Loans to Gazprombank and making available the facility hereunder, Gazprombank shall pay within 15 Business Days of written demand to the Lender each year an amount equating to all ongoing fees, commissions, taxes and reasonable costs incurred by the Lender (including, without limitation, listing fees and expenses, audit fees and expenses, taxes and corporate service provider fees) as set forth to Gazprombank in an invoice (together with the relevant supporting documents) from the Lender. 4 Interest 4.1 Rate of Interest for Fixed Rate Loans Each Fixed Rate Loan bears interest on its outstanding principal amount from (and including) the Interest Commencement Date at the rate(s) per annum (expressed as a percentage) equal to the applicable Rate of Interest. The amount of interest payable shall be determined in accordance with sub- Clause4.6. If a Fixed Amount or a Broken Amount is specified in the relevant Loan Supplement, the amount of interest payable per Calculation Amount on each Interest Payment Date will amount to the Fixed Amount or, if applicable, the Broken Amount so specified and in the case of the Broken Amount will be payable on the particular Interest Payment Date(s) specified in the relevant Loan Supplement. 4.2 Payment of Interest for Fixed Rate Loans Interest at the Rate of Interest shall accrue on each Fixed Rate Loan from day to day, starting from (and including) the Interest Commencement Date and thereafter from (and including) each Interest Payment Date, to (but excluding) the next Interest Payment Date and shall be paid by Gazprombank to the Lender in arrear not later than the Payment Time. 4.3 Interest for Floating Rate Loans Interest Payment Dates: Each Floating Rate Loan bears interest on its outstanding principal amount from (and including) the Interest Commencement Date and thereafter from (and including) each Interest Payment Date, to (but excluding) the next Interest Payment Date at the rate per annum (expressed as a percentage) equal to the applicable Rate of Interest, such interest shall be paid by Gazprombank to the Lender in arrear not later than the Payment Time. The amount of interest payable shall be determined in accordance with sub-clause4.6. Such Interest Payment Date(s) is/are either shown in the relevant Loan Supplement as Specified Interest Payment Date(s) or, if no Specified Interest Payment Date(s) is/are shown in the relevant Loan Supplement, Interest Payment Date shall mean each date which falls the number of months or other period shown in the relevant Loan Supplement as the Interest Period after the preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest Commencement Date Business Day Convention: If any date referred to in the relevant Loan Supplement that is specified to be subject to adjustment in accordance with a Business Day Convention would otherwise fall on a day that is not a Business Day, then, if the Business Day Convention specified is (A) the Floating Rate Business Day Convention, such date shall be postponed to the next day that is a Business Day unless it would thereby fall into the next calendar month, in which event (x) such date shall be brought forward to the immediately preceding Business Day and (y) each subsequent such date shall be the last Business Day of the month in which such date would have fallen had it not been subject to adjustment, (B) the Following Business Day Convention, such date shall be postponed to the next day that is a Business Day, (C) the 110

115 Modified Following Business Day Convention, such date shall be postponed to the next day that is a Business Day unless it would thereby fall into the next calendar month, in which event such date shall be brought forward to the immediately preceding Business Day or (D) the Preceding Business Day Convention, such date shall be brought forward to the immediately preceding Business Day Rate of Interest for Floating Rate Loans: The Rate of Interest in respect of Floating Rate Loans for each Interest Accrual Period shall be determined in the manner specified in the relevant Loan Supplement and the provisions below relating to either ISDA Determination or Screen Rate Determination shall apply, depending upon which is specified in the relevant Loan Supplement. (i) ISDA Determination for Floating Rate Loans Where ISDA Determination is specified in the relevant Loan Supplement as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Accrual Period shall be determined by the Calculation Agent as a rate equal to the relevant ISDA Rate. For the purposes of this sub-paragraph (i), ISDA Rate for an Interest Accrual Period means a rate equal to the Floating Rate that would be determined by the Calculation Agent under a Swap Transaction under the terms of an agreement incorporating the ISDA Definitions and under which: (a) the Floating Rate Option is as specified in the relevant Loan Supplement; (b) the Designated Maturity is a period specified in the relevant Loan Supplement; and (c) the relevant Reset Date is the first day of that Interest Accrual Period unless otherwise specified in the relevant Loan Supplement. For the purposes of this sub-paragraph (i), Floating Rate, Calculation Agent, Floating Rate Option, Designated Maturity, Reset Date and Swap Transaction have the meanings given to those terms in the ISDA Definitions. (ii) Screen Rate Determination for Floating Rate Loans Where Screen Rate Determination is specified in the relevant Loan Supplement as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Accrual Period will, subject as provided below, be either: (a) the offered quotation; or (b) the arithmetic mean of the offered quotations, (expressed as a percentage rate per annum) for the Reference Rate which appears or appear, as the case may be, on the Relevant Screen Page as at either a.m. (London time in the case of LIBOR or Brussels time in the case of EURIBOR) on the Interest Determination Date in question as determined by the Calculation Agent. If five or more of such offered quotations are available on the Relevant Screen Page, the highest (or, if there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Calculation Agent for the purpose of determining the arithmetic mean of such offered quotations. If the Reference Rate from time to time in respect of Floating Rate Loans is specified in the relevant Loan Supplement as being other than LIBOR or EURIBOR, the Rate of Interest in respect of such Loans will be determined as provided in the relevant Loan Supplement. I If the Relevant Screen Page is not available or if, sub-paragraph (ii)(a) applies and no such offered quotation appears on the Relevant Screen Page or if sub-paragraph (ii)(b) above applies and fewer than three such offered quotations appear on the Relevant Screen Page in each case as at the time specified above, subject as provided below, the Calculation Agent shall request, if the Reference Rate is LIBOR, the principal London office of each of the Reference Banks or, if the Reference Rate is EURIBOR, the principal Euro-zone office of each of the Reference Banks, to provide the Calculation Agent with its offered quotation (expressed as a percentage rate per 111

116 annum) for the Reference Rate if the Reference Rate is LIBOR, at approximately a.m. (London time), or if the Reference Rate is EURIBOR, at approximately a.m. (Brussels time) on the Interest Determination Date in question. If two or more of the Reference Banks provide the Calculation Agent with such offered quotations, the Rate of Interest for such Interest Accrual Period shall be the arithmetic mean of such offered quotations as determined by the Calculation Agent. II If paragraph I above applies and the Calculation Agent determines that fewer than two Reference Banks are providing offered quotations, subject as provided below, the Rate of Interest shall be the arithmetic mean of the rates per annum (expressed as a percentage) as communicated to (and at the request of) the Calculation Agent by the Reference Banks or any two or more of them, at which such banks were offered, if the Reference Rate is LIBOR, at approximately a.m. (London time) or, if the Reference Rate is EURIBOR, at approximately a.m. (Brussels time) on the relevant Interest Determination Date, deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate by leading banks in, if the Reference Rate is LIBOR, the London inter-bank market or, if the Reference Rate is EURIBOR, the Euro-zone inter-bank market, as the case may be, or, if fewer than two of the Reference Banks provide the Calculation Agent with such offered rates, the offered rate for deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate, or the arithmetic mean of the offered rates for deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate, at which, if the Reference Rate is LIBOR, at approximately a.m. (London time) or, if the Reference Rate is EURIBOR, at approximately a.m. (Brussels time), on the relevant Interest Determination Date, any one or more banks (which bank or banks is or are in the opinion of the Lender (with the consent of the Trustee) suitable for such purpose) informs the Calculation Agent it is quoting to leading banks in, if the Reference Rate is LIBOR, the London inter-bank market or, if the Reference Rate is EURIBOR, the Euro-zone inter-bank market, as the case may be, provided that, if the Rate of Interest cannot be determined in accordance with the foregoing provisions of this paragraph, the Rate of Interest shall be determined as at the last preceding Interest Determination Date (though substituting, where a different Margin or Maximum or Minimum Rate of Interest is to be applied to the relevant Interest Accrual Period from that which applied to the last preceding Interest Accrual Period, the Margin or Maximum or Minimum Rate of Interest relating to the relevant Interest Accrual Period, in place of the Margin or Maximum or Minimum Rate of Interest relating to that last preceding Interest Accrual Period). 4.4 Accrual of Interest Interest shall cease to accrue on each Loan on the due date for repayment unless payment is improperly withheld or refused, in which event interest shall continue to accrue (as well after as before judgment) at the applicable Rate of Interest to but excluding the date on which payment in full of the principal and accrued interest thereof is made. 4.5 Margin, Maximum/Minimum Rates of Interest and Rounding If any Margin is specified in the relevant Loan Supplement (either (x) generally, or (y) in relation to one or more Interest Accrual Periods), an adjustment shall be made to all Rates of Interest, in the case of (x), or the Rates of Interest for the specified Interest Accrual Periods, in the case of (y), calculated in accordance with sub-clause 4.3 above by adding (if a positive number) or subtracting the absolute value (if a negative number) of such Margin, subject always to sub-clause If any Maximum or Minimum Rate of Interest is specified in the relevant Loan Supplement, then any Rate of Interest shall be subject to such maximum or minimum, as the case may be For the purposes of any calculations required pursuant to a Loan Agreement (unless otherwise specified), (x) all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with halves being rounded up), (y) all figures shall be rounded to seven significant figures (with halves being rounded up) and (z) all currency amounts that fall due and payable shall be rounded to the nearest unit of such 112

117 currency (with halves being rounded up), save in the case of yen, which shall be rounded down to the nearest yen. For these purposes unit means the lowest amount of such currency that is available as legal tender in the country or countries of such currency. 4.6 Calculations The amount of interest payable per Calculation Amount in respect of any Loan for any Interest Accrual Period shall be equal to the product of the Rate of Interest, the Calculation Amount specified in the relevant Loan Supplement and the Day Count Fraction for such Interest Accrual Period, unless an Interest Amount (or a formula for its calculation) is applicable to such Interest Accrual Period, in which case the amount of interest payable in respect of such Calculation Amount for such Interest Accrual Period shall equal such Interest Amount (or be calculated in accordance with such formula). Where any Interest Period comprises two or more Interest Accrual Periods, the Interest Amounts payable in respect of such Interest Period shall be the sum of the amounts of interest payable in respect of each of those Interest Accrual Periods. In respect of any other period for which interest is required to be calculated, the provisions above shall apply save that the Day Count Fraction shall be for the period for which interest is required to be calculated. 4.7 Determination and Notification of Rates of Interest and Interest Amounts The Calculation Agent shall, as soon as practicable on each Interest Determination Date or such other time on such date as the Calculation Agent may be required to calculate any rate or amount, obtain any quotation or make any determination or calculation, determine such rate and calculate the Interest Amounts in respect of such Floating Rate Loan for the relevant Interest Accrual Period, obtain such quotation or make such determination or calculation, as the case may be, and cause the Rate of Interest and the Interest Amounts for each Interest Accrual Period and the relevant Interest Payment Date to be notified to Gazprombank, the Trustee, the Lender, each of the Paying Agents and any other Calculation Agent appointed in respect of such Floating Rate Loan that is to make a further calculation upon receipt of such information. Where any Interest Payment Date or Interest Period Date is subject to adjustment pursuant to sub-clause 4.3.2, the Interest Amounts and the Interest Payment Date so notified may subsequently be amended (or appropriate alternative arrangements made with the consent of Gazprombank and the Lender by way of adjustment) without notice in the event of an extension or shortening of the Interest Period. If such Floating Rate Loan becomes due and payable under Clause 11, the accrued interest and the Rate of Interest payable in respect of such Floating Rate Loan shall nevertheless continue to be calculated as previously in accordance with this Clause. The determination of any rate or amount, the obtaining of each quotation and the making of each determination or calculation by the Calculation Agent(s) shall (in the absence of manifest error) be final and binding upon all parties. 4.8 Determination or Calculation by Trustee If the Calculation Agent does not at any time for any reason determine or calculate the Rate of Interest for an Interest Accrual Period or any Interest Amount in relation to a Floating Rate Loan, each of the Lender and Gazprombank agrees that such determination or calculation may be made by or at the direction of the Trustee and shall be deemed to have been made by the Calculation Agent. The Trustee shall incur no liability in respect of such determination or calculation. 4.9 Definitions In this Clause 4, unless the context otherwise requires, the following defined terms shall have the meanings set out below: Broken Amount means the broken interest amount specified in the relevant Loan Supplement. Business Day means: (i) in the case of a currency other than euro, a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in the principal financial centre for such currency; and/or (ii) in the case of euro, a day on which the TARGET system is operating (a TARGET Business Day ); and/or (iii) in the case of a currency and/or one or more Business Centres a day (other than a Saturday or a Sunday) on which commercial banks and foreign exchange markets settle payments in such 113

118 currency in the Business Centre(s) or, if no currency is indicated, generally in each of the Business Centres. Calculation Amount means the amount of the Loan as specified in the relevant Loan Supplement. Day Count Fraction means, in respect of the calculation of an amount of interest on any Loan for any period of time (from and including the first day of such period to but excluding the last) (whether or not constituting an Interest Period or Interest Accrual Period, the Calculation Period ): (i) (ii) (iii) (iv) if Actual/Actual or Actual/Actual - ISDA is specified in the relevant Loan Supplement, the actual number of days in the Calculation Period divided by 365 (or, if any portion of that Calculation Period falls in a leap year, the sum of (A) the actual number of days in that portion of the Calculation Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Calculation Period falling in a non-leap year divided by 365); if Actual/365 (Fixed) is specified in the relevant Loan Supplement, the actual number of days in the Calculation Period divided by 365; if Actual/360 is specified in the relevant Loan Supplement, the actual number of days in the Calculation Period divided by 360; if 30/360, 360/360 or Bond Basis is specified in the relevant Loan Supplement, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows: where: Day Count Fraction = [360 x (Y 2 - Y 1 )] + [30 x (M 2 - M 1 )] + (D 2 - D 1 ) 360 Y 1 is the year, expressed as a number, in which the first day of the Calculation Period falls; Y 2 is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; M 1 is the calendar month, expressed as a number, in which the first day of the Calculation Period falls; M 2 is the calendar month, expressed as number, in which the day immediately following the last day included in the Calculation Period falls; D 1 is the first calendar day, expressed as a number, of the Calculation Period, unless such number would be 31, in which case D 1 will be 30; and D 2 is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless such number would be 31 and D 1 is greater than 29, in which case D 2 will be 30. (v) if 30E/360 or Eurobond Basis is specified in the relevant Loan Supplement, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows: where: Day Count Fraction = [360 x (Y 2 - Y 1 )] + [30 x (M 2 - M 1 )] + (D 2 - D 1 ) 360 Y 1 is the year, expressed as a number, in which the first day of the Calculation Period falls; Y 2 is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; M 1 is the calendar month, expressed as a number, in which the first day of the Calculation Period falls; M 2 is the calendar month, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; 114

119 (vi) D 1 is the first calendar day, expressed as a number, of the Calculation Period, unless such number would be 31, in which case D1 will be 30; and D 2 is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless such number would be 31, in which case D 2 will be 30; if 30E/360 (ISDA) is specified in the relevant Loan Supplement, the number of days in the Calculation Period divided by 360, calculated on a formula basis as follows: Day Count Fraction = [360 x (Y 2 - Y 1 )] + [30 x (M 2 - M 1 )] + (D 2 - D 1 ) 360 where: Y 1 is the year, expressed as a number, in which the first day of the Calculation Period falls; Y 2 is the year, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; M 1 is the calendar month, expressed as a number, in which the first day of the Calculation Period falls; M 2 is the calendar month, expressed as a number, in which the day immediately following the last day included in the Calculation Period falls; D 1 is the first calendar day, expressed as a number, of the Calculation Period, unless (i) that day is the last day of February or (ii) such number would be 31, in which case D 1 will be 30; and D 2 is the calendar day, expressed as a number, immediately following the last day included in the Calculation Period, unless (i) that day is the last day of February but not the Maturity Date or (ii) such number would be 31, in which case D 2 will be 30; (vii) if Actual/Actual-ICMA is specified in the relevant Loan Supplement: (a) If the Calculation Period is equal to or shorter than the Determination Period during which it falls, the number of days in the Calculation Period divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Periods normally ending in any year; and (b) if the Calculation Period is longer than one Determination Period, the sum of: (I) the number of days in such Calculation Period falling in the Determination Period in which it begins divided by the product of (1) the number of days in such Determination Period and (2) the number of Determination Periods normally ending in any year; and (II) the number of days in such Calculation Period falling in the next Determination Period divided by the product of (1) the number of days in such Determination Period and (2) the number of Determination Periods normally ending in any year where: Determination Period means the period from and including a Determination Date in any year to but excluding the next Determination Date. Determination Date means the date specified in the relevant Loan Supplement or, if none is so specified, the Interest Payment Date. Fixed Amount means the fixed amount of interest as specified in the relevant Loan Supplement. Interest Accrual Period means the period beginning on (and including) the Interest Commencement Date and ending on (but excluding) the first Interest Period Date and each successive period beginning on (and including) an Interest Period Date and ending on (but excluding) the next succeeding Interest Period Date. 115

120 Interest Amount means: (i) in respect of an Interest Accrual Period the amount of interest payable per Calculation Amount for that Interest Accrual Period and which, in the case of a Fixed Rate Loan, and unless otherwise specified, shall mean the Fixed Amount or Broken Amount specified as being payable on the Interest Payment Date ending the Interest Period of which such Interest Accrual Period forms part; and (ii) in respect of any other period the amount of interest payable per Calculation Amount for that period. Interest Commencement Date means the Closing Date or such other date as may be specified in the relevant Loan Supplement. Interest Determination Date means, with respect to a Rate of Interest and Interest Accrual Period, the date specified as such in the relevant Loan Supplement or, if none is so specified, (i) the first day of such Interest Accrual Period if the Specified Currency is Sterling or (ii) the day falling two Business Days in London and the Business Centre for the Specified Currency prior to the first day of such Interest Accrual Period if the Specified Currency is neither Sterling nor euro or (iii) the day falling two TARGET Business Days prior to the first day of such Interest Accrual Period if the Specified Currency is euro. Interest Period means each period beginning on (and including) an Interest Payment Date or, in the case of the first Interest Period, the Interest Commencement Date, and ending on (but excluding) the next Interest Payment Date. Interest Period Date means each Interest Payment Date unless otherwise specified in the relevant Loan Supplement. ISDA Definitions means the 2006 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc., unless otherwise specified in the relevant Loan Supplement. Reference Banks means, in the case of a determination of LIBOR, the principal London office of four major banks in the London inter-bank market and, in the case of a determination of EURIBOR, the principal Euro-zone office of four major banks in the Euro-zone inter-bank market, in each case selected by the Calculation Agent or as specified in the relevant Loan Supplement. Reference Rate means the rate specified as such in the relevant Loan Supplement. Relevant Screen Page means such page, section, caption, column or other part of a particular information service as may be specified in the relevant Loan Supplement Calculation Agent The Lender shall procure that there shall at all times be specified one or more Calculation Agents if provision is made for them hereon and for so long as any amount remains outstanding under a Loan Agreement. The Calculation Agent s appointment may be terminated by either the Issuer or the Calculation Agent upon not less than 180 days written notice to the other party. Where more than one Calculation Agent is appointed in respect of a Loan, references in the relevant Loan Agreement to the Calculation Agent shall be construed as each Calculation Agent performing its respective duties under the relevant Loan Agreement. If the Calculation Agent is unable or unwilling to act as such or if the Calculation Agent fails duly to establish the Rate of Interest for an Interest Accrual Period or to calculate any Interest Amount, or to comply with any other requirement, the Lender shall (with the prior approval of Gazprombank) appoint a leading bank or investment banking firm engaged in the interbank market (or, if appropriate, money, swap or over- the-counter index options market) that is most closely connected with the calculation or determination to be made by the Calculation Agent (acting through its principal London office or any other office actively involved in such market) to act as such in its place. The Calculation Agent may not resign its duties without a successor having been appointed as aforesaid. Both Gazprombank and the Lender agree that such successor Calculation Agent will be appointed on the terms of the Agency Agreement in relation to each particular Series. 5 Repayment and Prepayment 5.1 Repayment Except as otherwise provided herein and in the applicable Loan Supplement, Gazprombank shall repay each Loan not later than the Repayment Time. 116

121 5.2 Special Prepayment for Tax Reasons or Change in Circumstances If, (a) as a result of the application of or any amendments to, or change in the double tax treaty between the Russian Federation and Ireland or the laws or regulations of the Russian Federation or Ireland or of any political sub-division thereof or any authority having power to tax therein or (including as a result of a judgment of a court of competent jurisdiction or a change in the application or official interpretation of such law and regulations which change or amendment becomes effective on or after the date of this Agreement or (b) as a result of the enforcement of the security provided in the Trust Deed, Gazprombank would thereby be required to make or increase any payment due pursuant to any Loan Agreement as provided in sub-clause 6.2 or 6.3 (other than, in each case, where the increase in payment is in respect of any amounts due or paid pursuant to Clauses 3 and 13) if (for whatever reason) Gazprombank would have to or has been required to pay additional amounts pursuant to Clause 8, then Gazprombank may (without premium or penalty), upon giving not less than 30 days notice to the Lender (which notice shall be irrevocable), prepay the relevant Loan in whole (but not in part) on any Interest Payment Date, in the case of a Floating Rate Loan, or at any time, in the case of a Fixed Rate Loan. 5.3 Illegality If, at any time after the date of the relevant Loan Supplement, by reason of the introduction of, or any change in, any applicable law or regulation or regulatory requirement or directive of any agency of any state the Lender reasonably determines (setting out in reasonable detail the nature and extent of the relevant circumstances) (following receipt of such determination Gazprombank may request from the Lender an Opinion of Counsel with the cost of such Opinion of Counsel being borne solely by Gazprombank) that it is or would be unlawful or contrary to such applicable law, regulation, regulatory requirement or directive for the Lender to allow all or part of the relevant Loan or the corresponding Series of Notes to remain outstanding or for the Lender to maintain or give effect to any of its obligations in connection with the relevant Loan Agreement and/or to charge or receive or to be paid interest at the rate then applicable to such Loan, then upon notice by the Lender to Gazprombank in writing, Gazprombank and the Lender shall consult in good faith as to a basis which eliminates the application of such circumstances; provided, however, that the Lender shall be under no obligation to continue such consultation if a basis has not been determined within 30 days of the date on which it so notified Gazprombank. If such a basis has not been determined within the 30 days, then upon notice by the Lender to Gazprombank in writing, Gazprombank shall prepay such Loan in whole (but not in part) on the next Interest Payment Date therefor, in the case of a Floating Rate Loan, or, in the case of a Fixed Rate Loan, on such date as the Lender shall certify to be necessary to comply with such requirements. 5.4 Reduction of a Loan Upon Redemption and Cancellation of Notes Gazprombank or any Subsidiary of Gazprombank may from time to time, in accordance with the Conditions of the Notes, purchase Notes in the open market or by tender or by a private agreement at any price. In the event that an amount of Notes has been surrendered to the Lender (as issuer of such Notes) for cancellation by Gazprombank or any of Gazprombank s Subsidiaries and cancelled, the relevant Loan shall be deemed to have been prepaid by Gazprombank in an amount corresponding to the aggregate principal amount of the Notes surrendered to the Lender for cancellation, together with accrued interest and other amounts (if any) thereon and no further payment shall be made or required to be made by Gazprombank in respect of such amounts. 5.5 Payment of Other Amounts If a Loan is to be prepaid by Gazprombank pursuant to any of the provisions of sub-clauses 5.2 and 5.3 or pursuant to the terms of the relevant Loan Agreement, Gazprombank shall, simultaneously with such prepayment, pay to the Lender accrued interest thereon to the date of actual receipt of payment by the Lender and all other sums payable by Gazprombank pursuant to the relevant Loan Agreement. 5.6 Provisions Exclusive Gazprombank may not voluntarily prepay any Loan except in accordance with the express terms of the relevant Loan Agreement. Any amount prepaid may not be reborrowed under such Loan Agreement. 6 Payments 6.1 Making of Payments 117

122 All payments of principal and interest to be made by Gazprombank under each Loan Agreement shall be made to the relevant Account of the Lender not later than the Payment Time or the Repayment Time prior to each Interest Payment Date or the Repayment Date (as the case may be) in Same-Day Funds. The Lender agrees with Gazprombank that it will not deposit any other monies into such Account and will not withdraw any amounts from such Account other than as provided for and in accordance with the Trust Deed and the Agency Agreement. 6.2 No Set-Off, Counterclaim or Withholding; Gross-Up All payments to be made by Gazprombank under each Loan Agreement shall be (i) made in full without set-off or counterclaim and (except to the extent required by law) free and clear of and without deduction for or on account of any Taxes and (ii) made only from the Russian Federation, Ireland or such other jurisdiction which would not require any deductions or withholding from any such payment. If Gazprombank shall be required by applicable law to make any deduction or withholding from any payment under a Loan Agreement for or on account of any Taxes, it shall increase any payment due under such Loan Agreement to such amount as may be necessary to ensure that the Lender receives a net amount in the Specified Currency equal to the full amount which it would have received had payment not been made subject to such Taxes, and shall account to the relevant authorities for the relevant amount of such Taxes so withheld or deducted within the time allowed for such payment under the applicable law and shall deliver to the Lender without undue delay evidence satisfactory to the Lender of such deduction or withholding and of the accounting therefor to the relevant taxing authority. If the Lender pays any amount in respect of such Taxes, including penalties or interest, Gazprombank shall reimburse the Lender in the Specified Currency for such payment on demand. For the avoidance of doubt, this sub-clause 6.2 is without prejudice to the obligations of the Lender pursuant to sub-clause Withholding on Notes If the Lender notifies Gazprombank (setting out in reasonable detail the nature and extent of the obligation and providing, upon the request of Gazprombank, an Opinion of Counsel in respect of the existence of such obligation, with the cost of such Opinion of Counsel to be borne solely by Gazprombank) that it has become obliged to make any withholding or deduction for or on account of any present or future taxes, assessments or governmental charges of whatever nature imposed or levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax from any payment which it is obliged to make, or would otherwise be obliged to make but for the imposition of such withholding or deduction for or on account of any such taxes under or in respect of the Notes, Gazprombank agrees to pay into the Account for the benefit of the Lender, not later than 11:30 am (New York time) one Business Day prior to the date on which payment from the Lender is due in Same-Day Funds, such additional amounts as are equal to the said additional amounts which the Lender would be required to pay in order that the net amounts received by the Noteholders after such withholding or deduction will equal the respective amounts which would have been received by the Noteholders in the absence of such withholding or deduction; provided, however, that the Lender shall immediately upon receipt from any Paying Agent of the reimbursement of any sums paid pursuant to this provision, to the extent that the Noteholders, as the case may be, are not entitled to such additional amounts pursuant to the terms and conditions of the Notes, pay such additional amounts to Gazprombank (it being understood that neither the Lender, nor the Paying Agents shall have any obligation to determine whether any Noteholder is entitled to such additional amounts). 6.4 Reimbursement To the extent that the Lender subsequently obtains or uses any tax credit or allowance or other reimbursements relating to a deduction or withholding with respect to which Gazprombank has made a payment pursuant to this Clause 6 or obtains any other reimbursement in connection therewith, it shall pay to Gazprombank so much of the benefit received as will leave the Lender in substantially the same position as it would have been had no additional amount been required to be paid by Gazprombank pursuant to this Clause 6; provided, however, that the question of whether any such benefit has been received, and accordingly, whether any payment should be made to Gazprombank, the amount of any such payment and the timing of any such payment, shall be determined in the reasonable judgment of the Lender, provided that the Lender shall notify Gazprombank promptly upon determination that it has received any such benefits. 6.5 Mitigation 118

123 If at any time either party hereto becomes aware of circumstances which would or might, then or thereafter, give rise to an obligation on the part of Gazprombank to make any deduction, withholding or payment as described in sub-clause 6.2 or 6.3, then, without in any way limiting, reducing or otherwise qualifying the Lender s rights, or Gazprombank s obligations, under such Clauses, such party shall as soon as reasonably practicable upon becoming aware of such circumstances notify the other party, and, thereupon the parties shall consider and consult with each other in good faith with a view to finding, agreeing upon and implementing a method or methods by which any such obligation may be avoided or mitigated and, to the extent that both parties can do so without taking any action which in the reasonable opinion of such party is prejudicial to its own position, take such reasonable steps as may be reasonably available to it to avoid such obligation or mitigate the effect of such circumstances. Gazprombank agrees to reimburse the Lender for all properly incurred costs and expenses (including but not limited to legal fees) incurred by the Lender in connection with this Clause. 6.6 Tax Treaty Relief At the request of Gazprombank, the Lender shall once in each calendar year, prior to the first Interest Payment Date in such calendar year, provide Gazprombank no later than five Business Days prior to such Interest Payment Date (but in any event not before 31 January in each year) with a tax residency certificate issued or certified by (as applicable) the competent authorities of Ireland confirming that the Lender is resident for tax purposes in Ireland at such time. At the cost of Gazprombank, the residency certificate shall be apostilled at the Irish Department of Foreign Affairs and shall (at the request of Gazprombank) be translated into Russian and that translation shall be notarised under Russian law. The Lender shall not be responsible for any failure to provide, or any delays in providing, such tax residency certificate as a result of any action or inaction of any authority of Ireland, but shall notify Gazprombank as soon as practicable about any such failure or delay with an indication of the actions taken by the Lender to obtain such tax residency certificate If Russian legislation regulating the procedures for obtaining an exemption from Russian withholding tax on income changes, the Lender shall use its reasonable and timely efforts to assist Gazprombank to obtain relief from such tax pursuant to the double taxation treaty between the Russian Federation and Ireland. 7 Conditions Precedent 7.1 Documents to be Delivered The obligation of the Lender to make each Loan shall be subject to the receipt by the Lender on or prior to the relevant Closing Date of evidence that the persons mentioned in sub-clauses and hereof have agreed to receive process in the manner specified therein. 7.2 Further Conditions The obligation of the Lender to make each Loan shall be subject to the further conditions precedent that as of the relevant Closing Date (a) the representations and warranties made and given by Gazprombank in sub-clause 9.1 shall be true and accurate as if made and given on such Closing Date with respect to the facts and circumstances then existing, (b) no event shall have occurred and be continuing that constitutes, or that, with the giving of notice or the lapse of time, or both, would constitute, an Event of Default, (c) Gazprombank shall not be in breach of any of the terms, conditions and provisions of the relevant Loan Agreement, (d) the relevant Subscription Agreement, Trust Deed and the Agency Agreement shall have been executed and delivered, and the Lender shall have received the full amount of the proceeds of the issue of the corresponding Series of Notes pursuant to such Subscription Agreement and (e) the Lender shall have received in full the amount referred to in sub-clause 3.2, if due and payable, above, as specified in the relevant Loan Supplement. 8 Change in Law or Banking Practices: Increase in Cost 8.1 Compensation In the event that after the date of a Loan Agreement there is any change in or introduction of any tax, law, regulation, regulatory requirement or official directive (whether or not having the force of law but, if not having the force of law, the observance of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) or in the interpretation or application thereof by any person charged with the administration thereof and/or any compliance by the Lender in respect of any Loan with any request, policy or guideline (whether or not having the force of 119

124 law but, if not having the force of law, the observances of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) from or of any central bank or other fiscal, monetary or other authority, agency or any official of any such authority, which: subjects or will subject the Lender to any Taxes with respect to payments of principal of or interest on such Loan or any other amount payable under such Loan Agreement; or increases or will increase the taxation of or changes or will change the basis of taxation of payments to the Lender of principal of or interest on such Loan or any other amount payable under such Loan Agreement; or imposes or will impose on the Lender any other condition affecting such Loan Agreement or such Loan, and if as a result of any of the foregoing: (i) the cost to the Lender of making, funding or maintaining such Loan is increased; or (ii) the amount of principal, interest or other amount payable to or received by the Lender under such Loan Agreement is reduced; or (iii) the Lender makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of any sum receivable by it from Gazprombank hereunder or makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of such Loan, then subject to the following, and in each such case: (a) the Lender shall, as soon as practicable after becoming aware of such increased cost, reduced amount or payment made or foregone, give written notice to Gazprombank, together with a certificate signed by the Lender describing in reasonable detail the introduction or change or request which has occurred and the country or jurisdiction concerned and the nature and date thereof and demonstrating the connection between such introduction, change or request and such increased cost, reduced amount or payment made or foregone, and setting out in reasonable detail the basis on which such amount has been calculated, and providing all relevant reasonable supporting documents evidencing the matters set out in such certificates; and (b) Gazprombank, in the case of sub-paragraphs (i) and (iii) above, shall on demand by the Lender, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such increased cost, and, in the case of sub-paragraph (ii) above, at the time the amount so reduced would otherwise have been payable, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such reduction, payment or foregone interest or other return, provided, however, the amount of such increased cost, reduced amount or payment made or foregone shall be deemed not to exceed an amount equal to the proportion thereof which is directly attributable to this Agreement, provided that this sub-clause 8.1 will not apply to or in respect of any matter for which the Lender has already been compensated under sub-clause 6.2 or Mitigation In the event that the Lender becomes entitled to make a claim pursuant to sub-clause 8.1, the Lender shall consult in good faith with Gazprombank and shall use reasonable efforts (based on the Lender s reasonable interpretation of any relevant tax, law, regulation, requirement, official directive, request, policy or guideline) to reduce, in whole or in part, Gazprombank s obligations to pay any additional amount pursuant to such sub-clause, except that nothing in this sub-clause 8.2 shall obligate the Lender to incur any costs or expenses in taking any action which, in the reasonable opinion of the Lender is prejudicial to its interests. 9 Representations and Warranties 9.1 Gazprombank s Representations and Warranties 120

125 Gazprombank does, and on each Warranty Date (unless expressly stated otherwise) shall be deemed to, represent and warrant to the Lender as follows, to the intent that such shall form the basis of each Loan Agreement: Gazprombank is duly organised and incorporated and validly existing under the laws of the Russian Federation and has the power and legal right to own its property, to conduct its business as currently conducted and to enter into and to perform its obligations under each Loan Agreement and to borrow Loans; Gazprombank has taken all necessary corporate, legal and other action required to authorise the borrowing of Loans on the terms and subject to the conditions of each Loan Agreement and to authorise the execution and delivery of each Loan Agreement and all other documents to be executed and delivered by it in connection with each Loan Agreement, and the performance of each of each Loan Agreement in accordance with its terms Each Loan Agreement, including each Loan Supplement in relation thereto, has been duly executed and delivered by Gazprombank and constitutes a legal, valid and binding obligation of Gazprombank enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors rights generally, and subject, as to enforceability, (i) to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), (ii) with respect to the enforceability of a judgment whether there is a treaty in force relating to the mutual recognition of foreign judgments and (iii) to the fact that certain gross-up provisions may not be enforceable under Russian law The execution, delivery and performance of each Loan Agreement, by Gazprombank will not conflict with or result in any breach or violation of (i) any law or regulation or any order of any governmental, judicial or public body or authority in the Russian Federation, (ii) the constitutive documents, rules and regulations of Gazprombank or (iii) any agreement or other undertaking or instrument to which Gazprombank is a party or which is binding upon Gazprombank or any of its assets, nor result in the creation or imposition of any Security Interest on any of its assets pursuant to the provisions of any such agreement or other undertaking or instrument All consents, authorisations or approvals of, or filings with, any governmental, judicial and public bodies and authorities of the Russian Federation required by Gazprombank in connection with the execution, delivery, performance, legality, validity, enforceability, and, admissibility in evidence of each Loan Agreement have been obtained or effected and are in full force and effect No Potential Event of Default, Event of Default or a default (where, in the case of a default only, such would have a Material Adverse Effect) under any agreement or instrument evidencing any Indebtedness of Gazprombank has occurred, and no such event will occur upon the making of the relevant Loan Save as disclosed in the Base Prospectus, there are no judicial, arbitral or administrative actions, proceedings or claims pending or, to the knowledge of Gazprombank, threatened, against Gazprombank or any of its Material Subsidiaries, the adverse determination of which could have a Material Adverse Effect Gazprombank and each of its Material Subsidiaries has the right of ownership (as that expression is defined under the laws of the Russian Federation) to its property free and clear of all Security Interests, other than Permitted Security Interests, which if created could have a Material Adverse Effect and Gazprombank s obligations under the Loans will rank at least pari passu with all its other unsecured and unsubordinated Indebtedness (apart from any obligations mandatorily preferred by law) The most recent audited consolidated financial statements and unaudited interim consolidated financial statements of Gazprombank: (i) were prepared in accordance with IFRS, as consistently applied; and (ii) present fairly in all material respects the assets and liabilities as at their respective dates and the results of operations of the Group during the relevant financial year or six month period (as the case may be). 121

126 9.1.9 There has been no material adverse change since the date of the last audited consolidated financial statements of Gazprombank in the financial condition, results of business operations or prospects of Gazprombank or the Group taken as a whole The execution, delivery and enforceability of each Loan Agreement is not subject to any tax, duty, fee or other charge, including, without limitation, any registration or transfer tax, stamp duty or similar levy, imposed by or within the Russian Federation or any political subdivision or taxing authority thereof or therein Neither Gazprombank nor its property has any right of immunity from suit, execution, attachment or other legal process on the grounds of sovereignty or otherwise in respect of any action or proceeding relating in any way to each Loan Agreement Gazprombank is in compliance in all material respects with all applicable provisions of law except where failure to be so in compliance would not have a Material Adverse Effect Neither Gazprombank, nor any of its Material Subsidiaries, has taken any corporate action nor, to the best of the knowledge and belief of Gazprombank, have any other steps been taken or legal proceedings started or threatened in writing against Gazprombank or any of its Material Subsidiaries for its or their bankruptcy, winding-up, dissolution, reorganisation or external administration (in each case whether by voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of its or of any or all of its assets or revenues There are no strikes or other employment disputes against Gazprombank which are pending or, to Gazprombank s knowledge, threatened in writing which could have a Material Adverse Effect Save as disclosed in the Base Prospectus, in any proceedings taken in the Russian Federation in relation to each Loan Agreement, the choice of English law as the governing law of each Loan Agreement and any arbitration award obtained in England in relation to each Loan Agreement will be recognised and enforced in the Russian Federation after compliance with the applicable procedural rules and all other legal requirements in Russia Under the laws of the Russian Federation, it will not, subject to sub-clause 6.6, be required to make any deduction or withholding from any payment it may make hereunder Gazprombank has no overdue tax liabilities which could have a Material Adverse Effect other than those which it has disclosed to the Lender prior to the date of the relevant Loan or which it is contesting in good faith All licences, consents, examinations, clearances, filings, registrations and authorisations which are or may be necessary to enable Gazprombank and any of its Material Subsidiaries to own its assets and carry on its business are in full force and effect, the absence of which could have a Material Adverse Effect. 9.2 Lender s Representations and Warranties The Lender represents and warrants to Gazprombank as follows: The Lender is duly incorporated under the laws of and is resident in Ireland and subject to taxation in Ireland not merely on the basis of the source of its income or location of its property but on the basis of its registration as a legal entity, location of its management body or other similar criteria. The Lender does not have and will not have a permanent establishment or presence in Russia, save as may be caused as a result of the Lender entering into this Agreement or any other loan agreement with Gazprombank or by the performance of its obligations hereunder. The Lender has full power and capacity to execute the Lender Agreements and to undertake and perform the obligations expressed to be assumed by it herein and therein and the Lender has taken all necessary action to approve and authorise the same The Loans and the Notes will be included in the Lender s balance sheet for the purpose of Irish GAAP. 122

127 9.2.3 The execution of the Lender Agreements and the undertaking and performance by the Lender of the obligations expressed to be assumed by it herein and therein will not conflict with, or result in a breach of or default under, the laws of Ireland or the constitutive documents of the Lender The Lender Agreements constitute legal, valid and binding obligations of the Lender subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors rights generally, and subject, as to enforceability, to general principles of equity All authorisations, consents and approvals required by the Lender for or in connection with the execution of the Lender Agreements, the performance by the Lender of the obligations expressed to be undertaken by it herein and therein have been obtained and are in full force and effect The Lender does not own, either directly or indirectly, any shares of Gazprombank The Loan Agreements have been duly executed by the Lender The Lender has taken no action (other than entering into loan arrangements with Gazprombank) which would cause it to become registered in Russia for VAT purposes There is no reference to the territory of Russia as the actual place of the Lender s activity in the memorandum or articles of association of the Issuer The board of directors of the Lender is located in Ireland The Loan will be treated as an asset of the Lender under accounting guidance applicable in Ireland. 10 Covenants So long as any amount remains outstanding under a Loan Agreement: 10.1 Negative Pledge Gazprombank shall not, and shall procure that none of its Material Subsidiaries will, create or permit to subsist any Security Interest (other than a Permitted Security Interest) upon the whole or any part of its present or future undertaking, assets or revenues (including uncalled capital) to secure any Relevant Indebtedness or Guarantee of Relevant Indebtedness without (a) at the same time or prior thereto, securing its obligations hereunder equally and rateably therewith or (b) providing such other security as may be approved by the Lender Reports Gazprombank will furnish to the Lender, within 6 months of the relevant period (i) year-end, audited annual financial statements prepared in accordance with IFRS as consistently applied, including a report thereon by Gazprombank s certified independent accountants and (ii) 6 month interim, unaudited financial statements prepared in accordance with IFRS as consistently applied Semi-annually on 20 January and 20 June in each year and within 14 days of any request, Gazprombank shall deliver to the Lender a written notice in the form of an Officer s Certificate stating whether any Event of Default or Potential Event of Default has occurred and, if it has occurred and shall be continuing, what action Gazprombank is taking or proposes to take with respect thereto Gazprombank will on reasonable request of the Lender provide the Lender with such further information, other than information which Gazprombank determines in good faith to be confidential, about the business and financial condition of Gazprombank and its Subsidiaries as the Lender may require (including information deliverable pursuant to Clause 15.6 of the Trust Deed and an Officer s Certificate identifying, as at a date no more than 14 days before the date of the certificate, those Subsidiaries which are Material Subsidiaries). Where the request relates to Gazprombank or its Material Subsidiaries, the further information will be provided within 15 Business Days, and where the request relates to a Subsidiary which is not a Material Subsidiary, that information or further information will be provided within one calendar month Assistance 123

128 Gazprombank shall give to the Lender all the assistance it reasonably requests to ensure the Lender s relief from Russian withholding tax in respect of payments under the Loan Agreements. 11 Events of Default 11.1 Events of Default If one or more of the following events of default (each, an Event of Default ) shall occur and be continuing, the Lender shall be entitled to the remedies set forth in sub-clause 11.3: Gazprombank fails to pay any amount under a Loan Agreement other than interest in respect of the Advance by no later than the seventh day after the due date for payment thereof or fails to pay any amount of interest in respect of the Advance by no later than the fifteenth day after the due date for payment thereof; or Gazprombank defaults in the performance or observance of any of its other obligations under a Loan Agreement and (except for any obligation pursuant to sub-clause 11.2) such default remains unremedied for 30 days after written notice thereof, addressed to Gazprombank by the Lender, has been delivered to Gazprombank; or (i) any Indebtedness of Gazprombank or any of Gazprombank s Material Subsidiaries is not paid when due or payable (as the case may be) within any originally applicable grace period; or (ii) any such Indebtedness becomes due and payable prior to its stated maturity following an event of default (however so described) of Gazprombank or any of Gazprombank s Material Subsidiaries; or (iii) Gazprombank or any of Gazprombank s Material Subsidiaries fails to pay when due any amount payable by it under any Guarantee of any Indebtedness; provided that the amount of Indebtedness referred to in sub-paragraph (i) and/or subparagraph (ii) above and/or the amount payable under any Guarantee referred to in subparagraph (iii) above individually or in the aggregate exceeds U.S.$45,000,000 (or its equivalent in any other currency or currencies); and further provided that in determining the amount of any Indebtedness for this purpose, Indebtedness arising under a Repurchase Agreement shall be deemed to be the net amount (if any) payable to a third party pursuant to such agreement to discharge all obligations thereunder; or a judgment or order or arbitration award for the payment of an aggregate amount in excess of U.S.$45,000,000 (or its equivalent in any other currency or currencies) is rendered or granted against Gazprombank or any of Gazprombank s Material Subsidiaries and continue(s) unsatisfied and unstayed for a period of 45 days after the date thereof or, if later, the date therein specified for payment; or a secured party takes possession, or a receiver, manager or other similar officer is appointed, of the whole or any part of the undertaking, assets and revenues of Gazprombank or any of Gazprombank s Material Subsidiaries having a fair market value in excess of U.S.$45,000,000 (or its equivalent in any other currency or currencies); or (i) Gazprombank or any of Gazprombank s Material Subsidiaries becomes insolvent or is unable to pay its debts generally as they fall due, (ii) one or more administrator(s) or a liquidator of Gazprombank or any of Gazprombank s Material Subsidiaries is appointed (other than by the CBR) over the whole or substantially the whole or any material part of the undertaking, assets or revenues of Gazprombank or any of Gazprombank s Material Subsidiaries, (iii) Gazprombank or any of Gazprombank s Material Subsidiaries makes a general assignment to, or a general arrangement or general composition with or for the benefit of, all or substantially all of its creditors (provided that, with respect to the Material Subsidiaries, such actions must be likely to have a Material Adverse Effect) or declares a moratorium in respect of all or substantially all of its Indebtedness and Guarantees, (iv) Gazprombank or any of Gazprombank s Material Subsidiaries ceases or threatens to cease to carry on all or substantially all of its business (otherwise than, in the case of a Material Subsidiary of Gazprombank, for the purposes of or pursuant to an amalgamation, reorganisation or restructuring whilst solvent), (v) the CBR initiates reorganisation or appoints a temporary administration of Gazprombank, but only, in the latter case, if the CBR does so 124

129 on account of failure of Gazprombank to pay its debts as they fall due or to comply with any applicable mandatory economic ratio prescribed by Russian legislation, or (vi) the banking licence of Gazprombank is revoked; or an order is made or an effective resolution is passed for the winding up, liquidation or dissolution of Gazprombank or any of Gazprombank s Material Subsidiaries (otherwise than, in the case of a Material Subsidiary of Gazprombank, for the purposes of or pursuant to an amalgamation, reorganisation or restructuring whilst solvent); or any action, condition or thing at any time required to be taken, fulfilled or done in order (i) to enable Gazprombank lawfully to enter into and perform and comply with its obligations under and in respect of this Agreement, (ii) to ensure that those obligations are legal, valid, binding and enforceable and (iii) to make admissible in evidence in an arbitration court in London is not taken, fulfilled or done; or (i) all or any substantial part of the undertaking, assets and revenues of Gazprombank or any of Gazprombank s Material Subsidiaries is condemned, seized or otherwise appropriated by any person acting under the authority of any national, regional or local government or (ii) Gazprombank or any of Gazprombank s Material Subsidiaries is prevented by any such person from exercising normal control over all or any substantial part of its undertaking, assets and revenues provided that with respect to the Material Subsidiaries the occurrence of (i) or (ii) above must be likely to have Material Adverse Effect; or at any time it is or becomes unlawful for Gazprombank to perform or comply with any or all of its obligations under this Agreement or any of such obligations (subject as provided in sub- Clause 9.1.2) are not, or cease to be, legal, valid, binding and enforceable and such unlawfulness or cessation could have a Material Adverse Effect; or any event occurs which under the laws of any relevant jurisdiction has an effect analogous to any of the events referred to in any of sub-clauses to Notice of Default Gazprombank shall deliver to the Lender and the Trustee, within 30 days after becoming aware thereof, written notice of any event which is an Event of Default, its status and what action Gazprombank is taking or proposes to take with respect thereto Default Remedies If any Event of Default shall occur and be continuing, the Lender may, by notice in writing to Gazprombank, (a) declare the obligations of the Lender under the relevant Loan Agreement to be immediately terminated, whereupon such obligations shall terminate, and (b) declare all amounts payable under such Loan Agreement by Gazprombank that would otherwise be due after the date of such termination to be immediately due and payable, whereupon all such amounts shall become immediately due and payable, all without diligence, presentment, demand of payment, protest or notice of any kind, which are all expressly waived by Gazprombank; provided, however, that if any event of any kind referred to in sub-clause or occurs, the obligations of the Lender under such Loan Agreement shall immediately terminate, and all amounts payable under such Loan Agreement by Gazprombank that would otherwise be due after the occurrence of such event shall become immediately due and payable, all without diligence, presentment, demand of payment, protest or notice of any kind, which are all especially waived by Gazprombank Rights Not Exclusive The rights provided for in each Loan Agreement are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law. 12 Indemnity 12.1 Indemnification Gazprombank undertakes to the Lender, that if the Lender or any director, officer, employee or agent of the Lender and each person controlling the Lender (each an indemnified party ) incurs any loss, liability, claim, demand or damage, charge or expense (including without limitation taxes and properly incurred legal fees, costs and expenses) (a Loss ) as a result of or in connection with any Senior Loan, the Loan Agreement (or enforcement thereof) (excluding a Loss that is the subject of the undertakings 125

130 contained in sub-clauses 6.2, 6.3 and 13.6 and Clause 8 of this Agreement (it being understood that the Lender may not recover twice in respect of the same Loss)), and/or the issue, constitution, sale, listing and/or enforcement of the Notes and/or the Notes being outstanding, Gazprombank shall pay to the Lender on demand an amount equal to such Loss, on an after tax basis, and all costs, charges and expenses which it or any indemnified party may pay or incur in connection with investigating, disputing or defending any such action or claim as such costs, charges and expenses are incurred unless such Loss was either caused by such indemnified party s negligence or wilful misconduct or arises out of a breach of the representations and warranties of the Lender contained in Clause 5 to the Dealer Agreement. The Lender shall not have any duty or obligation whether as fiduciary or trustee for any indemnified party or otherwise, to recover any such payment or to account to any other Person for any amounts paid to it under this Clause. If and to the extent the Lender finally and irrevocably recovers from any person other than Gazprombank any damages in connection with, or arising out of, any litigation or arbitration in respect of the Notes, and has previously been indemnified by Gazprombank pursuant to this sub-clause 12.1 in respect of the Loss, on an after tax basis, corresponding to such damages, the Lender shall pay to Gazprombank the amount of such damages less any applicable fees, cost and expenses including, but not limited to, the cost of such litigation or arbitration that have not been otherwise finally and irrevocably recovered. Notwithstanding the foregoing, in no event shall the Lender be obliged to seek recovery of damages from third parties before it requires indemnification pursuant to this sub-clause 12.1 or if it has previously been indemnified by Gazprombank with respect to the corresponding Loss Independent Obligation Sub-Clause 12.1 constitutes a separate and independent obligation of Gazprombank from its other obligations under or in connection with each Loan Agreement and shall not affect, or be construed to affect, any other provision of a Loan Agreement Evidence of Loss A certificate of the Lender, setting forth the amount of Loss described in sub-clause 12.1 and specifying in full detail the basis therefor shall be prima facie evidence of the amount of such losses, expenses and liabilities Survival The obligations of Gazprombank pursuant to sub-clauses 6.2, 6.3, 12.1, 13.2 and 13.6 shall survive the execution and delivery of each Loan Agreement and the drawdown and repayment of the relevant Loan, in each case by Gazprombank. 13 General 13.1 Evidence of Debt The entries made by the Lender in the accounts maintained by the Lender in accordance with its usual practice and evidencing the amounts from time to time lent by and owing to it hereunder shall, in the absence of manifest error, constitute prima facie evidence of the existence and amounts of Gazprombank s obligations recorded therein Stamp Duties Gazprombank shall pay all stamp, registration and documentary taxes, duties or similar charges (if any) imposed on Gazprombank by any person in the United Kingdom, Russian Federation or Ireland which may be payable or determined to be payable in connection with the execution, delivery, performance, enforcement, or admissibility into evidence of any Loan Agreement and shall indemnify and reimburse the Lender against any and all costs, expenses or penalties which may be incurred or suffered by the Lender with respect to, or resulting from, any delay or failure by Gazprombank to pay such taxes or similar charges upon presentation by the Lender to Gazprombank of documentary evidence of such costs and expenses Gazprombank agrees that if the Lender incurs a liability to pay any stamp, registration and documentary taxes or similar charges (if any) imposed by any person in the United Kingdom, Russian Federation or Ireland which may be payable or determined to be payable in connection with the execution, delivery, performance, enforcement, or admissibility into evidence of any Loan Agreement and any documents related thereto as well as Notes of 126

131 corresponding Series and any documents related thereto, Gazprombank shall repay the Lender on demand an amount equal to such stamp or other documentary taxes or duties and shall indemnify the Lender against any and all costs and expenses which may be incurred or suffered by the Lender with respect to, or resulting from, delay or failure by Gazprombank to procure the payment of such taxes or similar charges Waivers No failure to exercise and no delay in exercising, on the part of the Lender or Gazprombank, any right, power or privilege under any Loan Agreement and no course of dealing between Gazprombank and the Lender shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies provided in each Loan Agreement are cumulative and not exclusive of any rights, or remedies provided by applicable law Notices All notices, requests, demands or other communications to or upon the respective parties to each Loan Agreement shall be given or made in the English language by facsimile transmission, electronic communication or otherwise in writing, addressed as follows: if to Gazprombank : Gazprombank (Open Joint-stock Company) 16 Block 1, Nametkina Street Moscow Russian Federation Fax: + 7(095) olga.kozlova@gazprombank.ru (copy to be delivered to Dobrishina Evgenia at evgeniy.dobryshina@gazprombank.ru) Attention: Olga Kozlova if to the Lender: GPB Eurobond Finance PLC 5 Harbourmaster Place IFSC Dublin 1 Ireland Fax: corporate.services@db.com Attention: The Directors or to such other address or fax number as any party may hereafter specify in writing to the other. Any notice sent by post as provided in this Clause 13 shall be deemed to have been given, made or served when delivered and any notice sent by facsimile transmission as provided in this Clause 13 shall be deemed to have been given, made or served when the relevant delivery receipt is received by the sender and any notice sent by electronic communication as provided in this Clause 13 shall be deemed to have been given, made or served when the relevant receipt of such communication being read is given, or where no read receipt is requested by the sender, at the time of sending, provided that no delivery failure notification is received by the sender within 24 hours of sending such communication; provided that any communication which is received (or deemed to take effect in accordance with the foregoing) outside business hours or on a non-business day in the place of receipt shall be deemed to take effect at the opening of business on the next following business day in such place. Any communication delivered to any party under this Agreement which is to be sent by facsimile transmission or electronic communication will be written legal evidence Assignment Subject to sub-clause , each Loan Agreement shall inure to the benefit of and be binding upon the parties, their respective successors and any permitted assignee or transferee of some or all of a party s rights under such Loan Agreement. Any reference in a Loan Agreement to any party shall be construed accordingly and, in particular, references to the exercise of rights and discretions or the 127

132 making of any determination by the Lender, shall include references to the exercise of such rights or discretions, or the making or such determinations by the Trustee (as Trustee). Notwithstanding the foregoing, the Trustee shall not be entitled to participate in any determinations by the Lender or any discussions between the Lender and Gazprombank or any agreements of the Lender or Gazprombank pursuant to sub-clause 6.4, 6.5 or Gazprombank shall not assign or transfer all or any part of its rights or obligations hereunder to any other party Subject to the provisions of Clause25 of the Principal Trust Deed, the Lender may not assign or transfer, in whole or in part, any of its rights and benefits under any Loan Agreement other than the Reserved Rights except that the Lender may charge by way of fixed first charge in favour of the Trustee (as Trustee) certain of the Lender s rights and benefits under each Loan Agreement and assign absolutely to the Trustee certain rights, interest and benefits under any Loan Agreement, in each case as set out in Clauses 6.1 and 6.2 of the Supplemental Trust Deed Currency Indemnity To the fullest extent permitted by law, the obligation of Gazprombank in respect of any amount due in the Specified Currency (or such other currency as contemplated by such obligation) under a Loan Agreement shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in the Specified Currency (or such other currency as contemplated by such obligation) that the Lender may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any premium and costs of exchange) on the Business Day immediately following the day on which the Lender receives such payment. If the amount in the Specified Currency (or such other currency as contemplated by such obligation) that may be so purchased for any reason falls short of the amount originally due (the Due Amount ), Gazprombank hereby agrees to indemnify and hold harmless the Lender against any deficiency in the Specified Currency. Any obligation of Gazprombank not discharged by payment in the Specified Currency (or such other currency as contemplated by such obligation) shall, to the fullest extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided the relevant Loan Agreement, shall continue in full force and effect. If the amount in the Specified Currency (or such other currency as contemplated by such obligation) that may be purchased exceeds that Due Amount the Lender shall promptly pay the amount of the excess to Gazprombank Prescription In the event that the Notes become void pursuant to Condition 11 of the Notes, the Lender shall forthwith repay to Gazprombank the principal amount of such Note subject to the Lender having previously received from Gazprombank, and being in possession of, a corresponding amount in respect of principal pursuant to this Agreement Contracts (Rights of Third Parties) Act 1999 A person who is not a party to a Loan Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of such Loan Agreement Choice of Law This Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with English law Jurisdiction The parties irrevocably agree that any dispute arising out of or connected with this Agreement, including a dispute as to the validity, existence or termination of this Agreement or the consequences of its nullity and/or this Clause (a Dispute ), shall be resolved: subject to sub-clause below, by arbitration in London, England, conducted in the English language by three arbitrators, in accordance with the LCIA Rules, which rules are deemed to be incorporated by reference into this Clause, save that, Article 56 of the LCIA Rules shall be amended as follows: unless the parties agree otherwise, the third arbitrator, who shall act as chairman of the tribunal, shall be nominated by the two arbitrators nominated by or on behalf of the parties. If he is not so nominated within 30 days of the date of nomination of the later of the two party-nominated arbitrators to be nominated, he shall be chosen by the 128

133 LCIA. Save as provided in sub-clause , the parties agree to exclude the jurisdiction of the English courts under section 45 and 69 of the Arbitration Act 1996; or at the sole option of the Lender, by proceedings brought in the courts of England, which courts are to have exclusive jurisdiction. If the Lender is in the position of a Respondent and the Lender wishes to exercise this option, it must do so by notice to the other parties to the Dispute within 30 days of service on it of the request for arbitration. For the avoidance of doubt, sub-clause is for the benefit of the Lender alone and shall not limit the right of the Lender to bring proceedings in any other court of competent jurisdiction Process Agents Lender s Process agent The Lender agrees that the process by which any Proceedings in England are begun may be served on it by being delivered to the attention of Aquila International Services Limited of 2nd Floor, Berkeley Square House, Berkeley Square, London, W1J 6BD or, if different, its registered office for the time being or at any address of the Lender in Great Britain at which process may be served on such person in accordance with Part 34 of the Companies Act 2006 (as modified or re-enacted from time to time). If such person is not or ceases to be effectively appointed to accept service of process on the Lender s behalf, the Lender shall, on the written demand of any Lead Manager, appoint a further person in England to accept service of process on its behalf and, failing such appointment within 15 days, any Lead Manager shall be entitled to appoint such a person by written notice to the Lender. Nothing in this sub-clause shall affect the right of the Lead Managers to serve process in any other manner permitted by law Gazprombank s Process agent Gazprombank agrees that the process by which any Proceedings in England are begun may be served on it by being delivered to Aquila International Services Limited of 2nd Floor, Berkeley Square House, Berkeley Square, London, W1J 6BD or its other principal place of business in England for the time being or at any other address for the time being at which process may be served on such person in accordance with Part 34 of the Companies Act 2006 (as modified or re-enacted from time to time). If such person is not or ceases to be effectively appointed to accept service of process on Gazprombank s behalf, Gazprombank shall, on the written demand of any Lead Manager, appoint a further person in England to accept service of process on its behalf and, failing such appointment within 15 days, any Lead Manager shall be entitled to appoint such a person by written notice to Gazprombank. Nothing in this sub-clause shall affect the right of the Lead Managers to serve process in any other manner permitted by law Counterparts Each Loan Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same agreement Language The language which governs the interpretation of each Loan Agreement is the English language Amendments Except as otherwise provided by its terms, each Loan Agreement may not be varied except by an agreement in writing signed by the parties Partial Invalidity The illegality, invalidity or unenforceability to any extent of any provision of any Loan Agreement under the law of any jurisdiction shall affect its legality, validity or enforceability in such jurisdiction to such extent only and shall not affect its legality, validity or enforceability under the law of any other jurisdiction, nor the legality, validity or enforceability of any other provision Limited Recourse Gazprombank hereby agrees that it shall have recourse in respect of any claim against the Lender only to sums in respect of principal, interest or other amounts (if any), as the case may be, received by or for the account of the Lender pursuant to this Agreement (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of such sum or in respect of the 129

134 Notes and for which the Issuer has not received a corresponding payment (also after deduction or withholding of such taxes or duties as may be required to be made by the Issuer in respect thereof) pursuant to this Agreement) (the Lender Assets ), subject always to (i) the Security Interests (as defined in the Trust Deed) and (ii) to the fact that any claims of the Dealers (as defined in the Subscription Agreement) shall rank in priority to claims of Gazprombank hereunder, and that any such claim by the Dealers or Gazprombank shall be reduced pro rata so that the total of all such claims does not exceed the aggregate value of the Lender Assets after meeting claims secured on them. The Trustee having realised the same, neither Gazprombank nor any person acting on its behalf shall be entitled to take any further steps against the Lender to recover any further sums and no debt shall be owed by the Lender to such person in respect of any such further sum. In particular, neither Gazprombank nor any other person acting on behalf of any of them shall be entitled at any time to institute against the Lender, or join with any other person in bringing, instituting or joining, insolvency proceedings (whether court based or otherwise) against the Lender Non Petition None of the parties to this Agreement nor any other person acting on their behalf shall be entitled at any time to institute against the Lender, or join in any institution against the Lender of, any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Lender under this Agreement, save for lodging a claim in the liquidation of the Lender which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Lender. It is expressly agreed and understood that the entry into this Agreement constitutes a corporate obligation only of the Lender. No personal liability shall attach to or be incurred by any shareholder, member, equity holder, officer, agent, employee or director of the Lender in his capacity as such, under or by reason of any of the obligations, covenants or agreements of such party as a result of entry into this Agreement or implied therefrom and any and all personal liability of every such shareholder, member, equity holder, officer, agent, employee or director for breaches by the Lender of any such obligations, covenants or agreements, either at law or by statute or constitution, is hereby expressly waived by Gazprombank as a condition of and in consideration for the execution of this Agreement except to the extent that any such person acts in bad faith or is negligent in the context of its obligations. 130

135 Schedule Form of Loan Supplement [DATE] GAZPROMBANK (OPEN JOINT-STOCK COMPANY) and GPB EUROBOND FINANCE PLC LOAN SUPPLEMENT to be read in conjunction with an Amended and Restated Facility Agreement dated 23 September 2011 in respect of a Loan of [ ] Series [ ] 131

136 This Loan Supplement is made on [SIGNING DATE] between: (1) GPB EUROBOND FINANCE PLC, a public limited company established under the laws of Ireland with limited liability, whose registered office is at 5 Harbourmaster Place, IFSC, Dublin 1, Ireland (the Lender ); and (2) GAZPROMBANK (OPEN JOINT-STOCK COMPANY), an open joint-stock company established under the laws of the Russian Federation whose registered office is 16 Block 1, Nametkina St., Moscow ( Gazprombank ). Whereas: (A) Gazprombank has entered into an amended and restated facility agreement dated 23 September 2011 (such amended and restated facility agreement, as may be further amended or supplemented from time to time, the Facility Agreement ) with the Lender in respect of Gazprombank s U.S.$10,000,000,000 Programme for the Issuance of loan participation notes by the Lender (the Programme ). (B) Gazprombank proposes to borrow [ ] (the Loan ) and the Lender wishes to make such Loan on the terms set out in the Facility Agreement and this Loan Supplement. It is agreed as follows: 1 Definitions Capitalised terms used but not defined in this Loan Supplement shall have the meaning given to them in the Facility Agreement save to the extent supplemented or modified herein. 2 Additional Definitions For the purpose of this Loan Supplement, the following expressions used in the Facility Agreement shall have the following meanings: Account means the account in the name of the Lender (account number [ ], [ ]); [ Calculation Agent means [Citibank, N.A., London Branch;]] Closing Date means [ ]; Gazprombank Account means the account in the name of Gazprombank (account number [ ]); Loan Agreement means the Facility Agreement as amended and supplemented by this Loan Supplement; Notes means [ ] [[ ] per cent.][floating Rate] Loan Participation Notes due [ ] issued by the Lender as Series [ ] under the Programme; Payment Time means [ ] [am/pm] [Specify relevant city/country] [ ] Business Day[s] prior to each Interest Payment Date; [NOTE: 2 DAYS PREFUNDING REQUIRED FOR ROUBLE- DENOMINATED LOANS] Repayment Date means [ ] [amend as required for Floating Rate Notes]; Repayment Time means [ ] [am/pm] [Specify relevant city/country] [ ] Business Day[s] prior to the Repayment Date; Specified Currency means [ ]; Subscription Agreement means an agreement between the Lender, Gazprombank and [MANAGERS] dated [ ] relating to the Notes; and Trust Deed means the Amended and Restated Principal Trust Deed between the Lender and the Trustee dated 23 September 2011 (as may be further amended or supplemented from time to time) as amended and supplemented by a Supplemental Trust Deed dated [ ] constituting and securing the Notes. 3 Incorporation by Reference Except as otherwise provided, the terms of the Facility Agreement shall apply to this Loan Supplement as if they were set out herein and the Facility Agreement shall be read and construed, only in relation to the Loan constituted hereby, as one document with this Loan Supplement. 4 The Loan 132

137 4.1 Drawdown Subject to the terms and conditions of the Loan Agreement, the Lender agrees to make the Loan on the Closing Date to Gazprombank and Gazprombank shall make a single drawing in the full amount of the Loan. 4.2 Interest The Loan is a [Fixed Rate][Floating Rate] Loan. Interest shall be calculated, and the following terms used in the Facility Agreement shall have the meanings, as set out below: Fixed Rate Loan Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph) (i) Interest Commencement Date: [ ] (ii) Rate[(s)] of Interest: [ ] per cent. per annum [payable [annually/semiannually] in arrear (iii) Interest Payment Date(s): [ ] in each year (iv) [Fixed Amount[(s)]: [ ] per [ ] in principal amount (v) [Calculation Amount]: [ ] (vi) Broken Amount: [ ] per Calculation Amount payable on the Interest Payment Date falling [in/on] [ ] (vii) (viii) (ix) Day Count Fraction (sub-clause 4.9): Determination Date(s) (sub-clause 4.9): Other terms relating to the method of calculating interest for Fixed Rate Loans: [ ] (Day count fraction should be Actual/Actual- ICMA for all fixed rate loans other than those denominated in U.S. dollars, unless specified) [ ] in each year. [Insert regular interest payment dates, ignoring issue date or maturity date in the case of a long or short first or last interest period] * [Not Applicable/give details] Floating Rate Loan Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Calculation Amount [ ] (ii) Interest Commencement Date [ ] (iii) Interest Period(s): [ ] (iv) Specified Interest Payment Dates: [ ] (v) Business Day Convention: [Floating Rate Business Day Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/other (give details)] (vi) (vii) Business Centre(s) (sub-clause 4.9): Manner in which the Rate(s) of Interest is/are to be determined: [ ] [Screen Rate Determination/ISDA Determination/other (give details)] (viii) Interest Period Date(s): [Not Applicable/specify dates] * Only to be completed for a Loan where Day Count Fraction is Actual/Actual-ICMA. 133

138 (ix) Party responsible for calculating the Rate(s) of Interest and Interest Amount(s) (if not the Calculation Agent): [ ] (x) Screen Rate Determination (sub- Clause 4.3.3): Relevant Time: [ ] Determination Date: [[ ] [TARGET] Business Days in [specify city] for [specify currency] prior to [the first day in each Interest Accrual Period/each Interest Payment Date]] Relevant Screen Page/Primary Source for Floating Rate: [Specify relevant screen page or Reference Banks ] Reference Banks (if Primary Source is Reference Banks ): [Specify four] Relevant Financial Centre: [The financial centre most closely connected to the Reference rate- specify if not London] Reference Rate: [LIBOR, EURIBOR or other reference rate] Representative Amount: [Specify if screen or Reference Bank quotations are to be given in respect of a transaction of a specified notional amount] Effective Date: [Specify if quotations are not to be obtained with effect from commencement of Interest Accrual Period] Specified Duration: [Specify period for quotation if not duration of Interest Accrual Period] (xi) ISDA Determination (Clause 4.3.8): Floating Rate Option: [ ] Designated Maturity: [ ] Reset Date: [ ] ISDA Definitions: (if different from those set out in the Conditions) [ ] (xii) Margin(s): [+/-][ ] per cent. per annum (xiii) Minimum Rate of Interest: [ ] per cent. per annum (xiv) Maximum Rate of Interest: [ ] per cent. per annum (xv) Day Count Fraction (sub-clause [ ] 4.6): (xvi) Rate Multiplier: [ ] (xvii) Fall back provisions, rounding provisions, denominator and any other terms relating to the method of calculating interest on Floating Rate Loans, if different from those set out in the Facility Agreement: [ ]] 134

139 5 Fees and Expenses Pursuant to sub-clause 3.2 of the Facility Agreement and in consideration of the Lender making the Loan to Gazprombank, Gazprombank hereby agrees that it shall, two Business Days before the Closing Date, pay to the Lender, in Same-Day Funds, the arrangement fee calculated taking into account the front-end fees, commissions and costs of the Lender in connection with financing the Loan in the total amount of [ ] to the following account [ ]. 6 Governing Law This Loan Supplement and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with English law. 7 Non Petition The provisions of sub-clauses and of the Facility Agreement shall apply to the parties to this Agreement as if specifically incorporated herein. 135

140 TERMS AND CONDITIONS OF THE NOTES The following is the text of the Terms and Conditions of the Notes, which contain summaries of certain provisions of the Trust Deed (as defined below), and which (subject to completion and amendment in accordance with the provisions of Part A of the relevant Final Terms) will be attached to the Notes in definitive form, if issued, and (subject to the provisions thereof) apply to the Global Notes representing each Series. Either (i) the full text of these terms and conditions together with the relevant provisions of the Part A of the relevant Final Terms or (ii) these terms and conditions as so completed, amended, supplemented or varied (and subject to simplification by the deletion of non-applicable provisions), shall be endorsed on such Notes. All capitalised terms that are not defined in these Conditions will have the meanings given to them in the Trust Deed and Part A of the relevant Final Terms. Those definitions will be endorsed on the definitive Notes. References in the Conditions to Notes are to the Notes of one Series only, not to all Notes that may be issued under the Programme. The Notes are constituted by, are subject to, and have the benefit of, a supplemental trust deed dated the Issue Date specified hereon (the Supplemental Trust Deed ) supplemental to an amended and restated principal trust deed dated 23 September 2011, as may be further amended or supplemented from time to time (the Principal Trust Deed ), each made between GPB Eurobond Finance PLC (the Issuer ) and Citicorp Trustee Company Limited (the Trustee, which expression shall include any trustee or trustees for the time being under the Trust Deed) as trustee and successors thereof for the holders of the Notes (the Noteholders ). The Principal Trust Deed and the Supplemental Trust Deed as modified from time to time in accordance with the provisions therein contained and any deed or other document expressed to be supplemental thereto, as from time to time so modified, are together referred to as the Trust Deed. The Issuer has authorised the creation, issue and sale of the Notes for the sole purpose of financing either a Senior Loan (if the status of the Loan is specified as Senior thereon) or a Subordinated Loan (if the status of the Loan is specified as Subordinated hereon and together with a Senior Loan, the Loans, and any one of them a Loan ) to Gazprombank (Open Joint-stock Company) ( Gazprombank ) subject to, and in accordance with, either (i) in relation to a Senior Loan, an amended and restated facility agreement between the Issuer and Gazprombank dated 23 September 2011 (such facility agreement, the Facility Agreement ) as amended and supplemented by a loan supplement to be dated the Trade Date (the Loan Supplement and, together with the Facility Agreement, the Senior Loan Agreement ), or (ii) in relation to a Subordinated Loan, a subordinated loan agreement between the Issuer and Gazprombank to be entered into on the Trade Date (the Subordinated Loan Agreement ). In these Terms and Conditions, Loan Agreement shall mean either (i) a Senior Loan Agreement (in respect of a Senior Loan) or (ii) a Subordinated Loan Agreement (in respect of a Subordinated Loan), as applicable. In each case where amounts of principal, interest and additional amounts (if any) are stated herein or in the Trust Deed to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders on each date upon which such amounts of principal, interest and increased and/or additional amounts (if any) are due in respect of the Notes, for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received by or for the account of the Issuer from Gazprombank pursuant to the Loan Agreement less any amount in respect of Reserved Rights (as defined in the Trust Deed). The Issuer has charged by way of first fixed charge in favour of the Trustee for the benefit of the Trustee and the Noteholders certain of its rights and interests as lender under the Loan Agreement and all its rights, title and interest in and to all sums of money deposited in the Account and the debts represented thereby, including interest from time to time earned on the Account, as security for its payment obligations in respect of the Notes and under the Trust Deed (the Charge ), and has assigned absolutely to the Trustee certain other rights under the Loan Agreement (in each case other than the Reserved Rights) (together with the Charge, the Security Interests ). In certain circumstances, the Trustee can (subject to it being indemnified and/or secured to its satisfaction) be required by Noteholders holding at least one quarter of the principal amount of the Notes outstanding or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders to exercise certain of its powers under the Trust Deed (including those arising in connection with the Security Interests). The Notes have the benefit of, and payments in respect of the Notes will be made (subject to the receipt of the relevant funds from Gazprombank) pursuant to, an amended and restated paying agency agreement dated 23 September 2011 (as may be amended or supplemented from time to time, the Agency Agreement ), and made between the Issuer and Citibank, N.A., London Branch as principal paying agent, registrar, transfer agent and calculation agent (the Principal Paying Agent and a Paying Agent, the Registrar, the Transfer Agent and the Calculation Agent ), Gazprombank and the Trustee. References herein to principal paying 136

141 agent, registrar, transfer agent or calculation agent, shall include any additional or successor principal paying agent, registrar, transfer agent or calculation agent. Copies of the Trust Deed, the Loan Agreement, the Agency Agreement and the Final Terms are available for inspection at the principal office of the Trustee and at the specified office of the Principal Paying Agent. The statements contained in these Terms and Conditions include summaries or restatements of, and are subject to, the detailed provisions of the Trust Deed, the Loan Agreement, the Final Terms, the Loan Supplement (where applicable) and the Agency Agreement. Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions thereof. Expressions used but not defined in these Terms and Conditions shall, if defined in the Trust Deed or the relevant Loan Agreement, have the meanings given to them there. 1 Status The Notes constitute secured, limited recourse obligations of the Issuer. The sole purpose of the issue of the Notes is to provide the funds for the Issuer to finance the Loan. The Notes constitute the obligation of the Issuer to apply the proceeds from the issue of the Notes solely for financing the Loan and to account to the Noteholders for an amount equivalent to sums of principal, interest and increased and/or additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement, less any amounts in respect of Reserved Rights. The Trust Deed provides that, notwithstanding the other provisions hereof, payments in respect of the Notes equal to the sums actually received by or for the account of the Issuer (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of such sum or in respect of the Notes and for which the Issuer has not received a corresponding payment (also after deduction or withholding of such taxes or duties as may be required to be made by the Issuer in respect thereof) pursuant to the Loan Agreement) by way of principal, interest or increased and/or additional amounts (if any) pursuant to the Loan Agreement, less any amounts in respect of Reserved Rights, will be made pro rata among all Noteholders, on the date of, and in the currency of, and subject to the conditions attaching to, the equivalent payment pursuant to the Loan Agreement. The Issuer shall not be liable to make any payment in respect of the Notes other than as expressly provided herein and in the Trust Deed. Neither the Issuer nor the Trustee shall be under any obligation to exercise in favour of the Noteholders any rights of set-off or of banker s lien or to combine accounts or counterclaim that may arise out of other transactions between the Issuer and Gazprombank. Noteholders have notice of, and have accepted, these Terms and Conditions, the Final Terms and the contents of the Trust Deed and the Loan Agreement, and have hereby accepted that: (a) neither the Issuer nor the Trustee makes any representation or warranty in respect of, or shall at any time have any responsibility for, or, save as otherwise expressly provided in the Trust Deed or in Condition 1(f) below, liability or obligation in respect of the performance and observance by Gazprombank of its obligations under the Loan Agreement or the recoverability of any sum of principal or interest or any increased and/or additional amounts due or to become due from Gazprombank under the Loan Agreement; (b) neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, the financial condition, creditworthiness, affairs, status or nature of Gazprombank; (c) neither the Issuer nor the Trustee shall at any time be liable for any representation or warranty or any act, default or omission of Gazprombank under or in respect of the Loan Agreement; (d) neither the Issuer nor the Trustee shall at any time have any responsibility for, or liability or obligation in respect of, the performance and observance by the Paying Agents, the Registrar or Transfer Agent of their respective obligations under the Agency Agreement; (e) the financial servicing and performance of the terms of the Notes depend solely and exclusively upon performance by Gazprombank of its obligations under the Loan Agreement and its covenant to make payments under the Loan Agreement and its credit and financial standing. Gazprombank has represented and warranted to the Issuer that the Loan Agreement constitutes a legal, valid and binding obligation of Gazprombank; (f) the Issuer and the Trustee shall be entitled to rely on (i) Officer s Certificates (as defined in the Loan Agreement) and/or other certificate (whether or not addressed to the Issuer or the 137

142 Trustee) from Gazprombank or procured by Gazprombank as to whether or not an Event of Default or Potential Event of Default (each as defined in the relevant Loan Agreement) has occurred and (ii) Officer s Certificates specifying the Material Subsidiaries (as defined in the Loan Agreement) of Gazprombank and shall not otherwise be required to or responsible for investigating any aspect of Gazprombank s performance in relation thereto and, subject as further provided in the Trust Deed, neither the Issuer as Lender under the Loan Agreement nor the Trustee will be liable for any failure to make the usual or any investigations which might be made by a lender or a security holder (as applicable) in relation to the Security Interests and held by way of security for the Notes, and shall not be bound to enquire into or be liable for any defect or failure in the right or title of the Issuer to the assigned property whether such defect or failure was known to the Trustee or might have been discovered upon examination or enquiry or whether capable of remedy or not, nor will it have any liability for the enforceability of the security created by the Security Interests whether as a result of any failure, omission or defect in registering or filing or otherwise protecting or perfecting such security and the Trustee has no responsibility for the value of such security; and (g) the Issuer will not be liable for any withholding or deduction or for any payment on account of tax (not being a tax imposed on the Issuer s net income) required to be made by the Issuer on or in relation to any sum received by it under the relevant Loan Agreement which will or may affect payments made or to be made by Gazprombank under the relevant Loan Agreement save to the extent that it has actually received additional amounts under the Loan Agreement in respect of such withholding or deduction or payment and the Issuer shall, furthermore, not be obliged to take any actions or measures as regards such deduction or withholding or payment, other than those set out in Clause 8.1 and Clause 8.2 of the Facility Agreement or in the equivalent provisions, if any, of the Subordinated Loan Agreement. The obligations of the Issuer in respect of the Notes rank pari passu and rateably without any preference among themselves. In respect of a Note issued under a Subordinated Series (as defined in the Trust Deed) only, the claims of the Issuer under the Loan Agreement constitute the direct, unconditional and unsecured subordinated obligations of Gazprombank and will rank at least pari passu with claims of other subordinated creditors of Gazprombank as more fully set out in the relevant Subordinated Loan Agreement. In the event that the payments under the Loan Agreement are made by Gazprombank to, or to the order of, the Trustee or (subject to the provisions of the Trust Deed) the Principal Paying Agent, they will pro tanto satisfy the obligations of the Issuer in respect of the Notes. Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other direct interest in the Issuer s rights under or in respect of the Loan Agreement, the Loan, the Account or the Charged Property (as defined in the Trust Deed) exist for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce the Loan Agreement or direct recourse to Gazprombank except through action by the Trustee pursuant to the relevant Security Interests granted to the Trustee in the Trust Deed. Neither the Issuer nor, following the enforcement of the Security Interests created in the Trust Deed, the Trustee shall be required to take proceedings to enforce payment under the Loan Agreement unless it has been indemnified and/or secured by the Noteholders to its satisfaction. The obligations of the Issuer under the Notes shall be solely to make payments of amounts in aggregate equal to each sum actually received by or for the account of the Issuer from Gazprombank in respect of principal, interest or, as the case may be, other amounts relating to the Loan pursuant to the Loan Agreement (less any amounts in respect of the Reserved Rights), the right to receive which will, inter alia, be assigned to the Trustee as security for the Issuer s payment obligations in respect of the Notes. Accordingly, all payments to be made by the Issuer under the Notes will be made only from and to the extent of such sums received or recovered by or on behalf of the Issuer or the Trustee (following a Relevant Event or (if applicable) an Event of Default). Noteholders shall look solely to such sums for payment to be made by the Issuer under the Notes, the obligation of the Issuer to make payments in respect of the Notes will be limited to such sums and Noteholders will have no further recourse to the Issuer or any of the Issuer s other assets in respect thereof. In the event that the amount due and payable by the Issuer under the Notes exceeds the sums so received or recovered, the right of any person to claim payment of any amount exceeding such sums shall be extinguished, and Noteholders may take no further action to recover such amounts. 138

143 None of the Noteholders or the other creditors (nor any other person acting on behalf of any of them) shall be entitled at any time to institute against the Issuer, or join in any institution against the Issuer of, any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Issuer relating to the Notes or otherwise owed to the creditors for so long as the Notes are outstanding, save for lodging a claim in the liquidation of the Issuer which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Issuer. No Noteholder shall have any recourse against any director, shareholder, or officer of the Issuer in respect of any obligations, covenants or agreement entered into or made by the Issuer in respect of the Notes, except to the extent that any such person acts in bad faith or is negligent in the context of its obligations. 2 Form, Denomination and Title The Notes will be issued in fully registered form, and in the Specified Denomination shown hereon or higher integral multiples thereof as specified in the relevant Final Terms, without interest coupons, provided that the minimum Specified Denomination of any Notes shall be 100,000 (or its equivalent in any other currency as at the date of issue of the relevant Notes). A Note issued under the Principal Trust Deed may be a Fixed Rate Note, a Floating Rate Note, a combination of the foregoing or any other kind of Note, depending upon the Interest and Redemption/Payment Basis specified hereon. 3 Register, Title and Transfers The Registrar will maintain a register (the Register ) in respect of the Notes in accordance with the provisions of the Agency Agreement. In these Conditions the holder of a Note means the person in whose name such Note is for the time being registered in the Register (or, in the case of a joint holding, the first named thereof) and Noteholder shall be construed accordingly. A Note will be issued to each Noteholder in respect of its registered holding. The holder of each Note shall (except as otherwise required by law) be treated as the absolute owner of such Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any other interest therein, any writing on the Note relating thereto (other than the endorsed form of transfer) or any notice of any previous loss or theft of such Note) and no person shall be liable for so treating such holder. A Note may be transferred upon surrender of the relevant Note, with the endorsed form of transfer duly completed, at the specified office of the Registrar or at the specified office of a Transfer Agent, together with such evidence as the Registrar or such Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer, provided, however, that a Note may not be transferred unless the principal amount of Notes transferred and (where not all of the Notes held by a holder are being transferred) the principal amount of the balance of Notes not transferred are not less than the minimum Specified Denomination (if any). Where not all the Notes represented by the surrendered Note are the subject of the transfer, a new Note in respect of the balance of the Note will be issued to the transferor. Subject to the last paragraph of this Condition, within five business days of the surrender of a Note in accordance with the immediately preceding paragraph above, the Registrar will register the transfer in question and deliver a new Note to each relevant holder at its specified office or (at the request and risk of such relevant holder) by uninsured first class mail (airmail if overseas) to the address specified for the purpose by such relevant holder. In this paragraph, business day means a day on which commercial banks are open for business (including dealings in foreign currencies) in the city where the Registrar has its specified office. The transfer of a Note will be effected without charge but against such indemnity as the Registrar may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer. Noteholders may not require transfers to be registered during the period of 15 days ending on the due date for any payment of principal or interest in respect of the Notes. 4 Restrictive Covenants 139

144 As provided in the Trust Deed, so long as any of the Notes remains outstanding (as defined in the Trust Deed), the Issuer will not (and will not consent to any request of Gazprombank to), without the prior written consent of the Trustee and, in each preceding case, in respect of a Note issued under a Subordinated Series only (a Subordinated Note ), the consent of the Central Bank of Russia (the CBR ) if applicable, agree to any amendments to or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Loan Agreement and will act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement, except as otherwise expressly provided in the Loan Agreement. Any such amendment, modification, waiver or authorisation made with the consent of the Trustee shall be binding on the Noteholders and, unless the Trustee agrees otherwise, any such amendment or modification shall be notified by the Issuer to the Noteholders in accordance with Condition Interest (a) (b) Interest on Fixed Rate Notes: Each Fixed Rate Note bears interest on its outstanding principal amount from (and including) the Interest Commencement Date at the rate(s) per annum (expressed as a percentage) equal to the Rate(s) of Interest specified thereon which shall be equal to the rate per annum at which interest under the Loan accrues. Accordingly, on each Interest Payment Date or as soon thereafter as the same shall be received by the Issuer, the Issuer shall account to the Noteholders for an amount equivalent to amounts of interest actually received by or for the account of the Issuer under the Loan Agreement. If a Fixed Coupon Amount is specified in the relevant Final Terms, the amount of interest per Calculation Amount payable on each Interest Payment Date shall be an amount equal to the Fixed Coupon Amount, provided that if a Broken Amount is specified in the relevant Final Terms as being payable on any Interest Payment Date, the amount of interest per Calculation Amount payable on such Interest Payment Date shall be an amount equal to the Broken Amount. If no Fixed Coupon Amount or Broken Amount is specified in the relevant Final Terms, the amount of interest payable shall be determined in accordance with Condition 5(d). Interest on Floating Rate Notes: (i) Interest Payment Dates: Each Floating Rate Note bears interest on its outstanding principal amount from (and including) the Interest Commencement Date at the rate per annum (expressed as a percentage) equal to the Rate of Interest specified hereon, which shall be equal to the rate per annum at which interest under the Loan accrues, such interest being payable in arrear on each Interest Payment Date. Such Interest Payment Date(s) is/are either shown hereon as Specified Interest Payment Dates or, if no Specified Interest Payment Date(s) is/are shown hereon, Interest Payment Date shall mean each date which falls the number of months or other period shown hereon as the Interest Period after the preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest Commencement Date. Accordingly, on each such date or as soon thereafter as the same shall be received by the Issuer, the Issuer shall account to the Noteholders for an amount equivalent to amounts of interest under the Loan received by or for the account of the Issuer pursuant to the Loan Agreement. (ii) Business Day Convention: If any date referred to in these Terms and Conditions that is specified to be subject to adjustment in accordance with a Business Day Convention would otherwise fall on a day that is not a Business Day, then, if the Business Day Convention specified is (A) the Floating Rate Business Day Convention, such date shall be postponed to the next day that is a Business Day unless it would thereby fall into the next calendar month, in which event (x) such date shall be brought forward to the immediately preceding Business Day and (y) each subsequent such date shall be the last Business Day of the month in which such date would have fallen had it not been subject to adjustment, (B) the Following Business Day Convention, such date shall be postponed to the next day that is a Business Day, (C) the Modified Following Business Day Convention, such date shall be postponed to the next day that is a Business Day unless it would thereby fall into the next calendar month, in which event such date shall be brought forward to the immediately preceding Business Day or (D) the Preceding Business Day Convention, such date shall be brought forward to the immediately preceding Business Day. 140

145 (c) (d) (e) (iii) Rate of Interest for Floating Rate Notes: The Rate of Interest in respect of Floating Rate Notes for each Interest Accrual Period shall be determined in the manner specified hereon and as set out in the Loan Agreement. Accrual of Interest: Interest shall cease to accrue on each Note on the due date for redemption unless, upon due presentation, payment is improperly withheld or refused, in which event interest shall continue to accrue (as well after as before judgment) at the Rate of Interest in the manner provided in this Condition 5 to the Relevant Date (as defined in Condition 8). Calculations: Notwithstanding the fact that payments of any nature shall be made in the manner provided in Condition 1, the amount of interest payable per Calculation Amount in respect of any Note for any Interest Accrual Period shall be equal to the product of the Rate of Interest, the Calculation Amount specified hereon and the Day Count Fraction for such Interest Accrual Period unless an Interest Amount (or a formula for its calculation) is applicable to such Interest Accrual Period, in which case the amount of interest payable per Calculation Amount in respect of such Note for such Interest Accrual Period shall equal such Interest Amount (or be calculated in accordance with such formula). Where any Interest Period comprises two or more Interest Accrual Periods, the amount of interest payable per Calculation Amount in respect of such Interest Period shall be the sum of Interest Amounts payable in respect of each of those Interest Accrual Periods. In respect of any other period for which interest is required to be calculated, the provisions above shall apply save that the Day Count Fraction shall be for the period for which interest is required to be calculated. Publication of Rates of Interest and Interest Amounts: The Calculation Agent shall, as soon as practicable after calculating or determining the Rate of Interest and the Interest Amounts for each Interest Accrual Period and the relevant Interest Payment Date as set out in the Loan Agreement, cause such Rate of Interest and Interest Amounts to be notified to the Trustee, the Issuer, Gazprombank, each of the Paying Agents, the Noteholders, any other Calculation Agent appointed in respect of the Notes that is to make a further calculation upon receipt of such information and, if the Notes are listed on a stock exchange and the rules of such exchange or other relevant authority so require, such exchange or other relevant authority as soon as possible after their determination but in no event later than (i) the commencement of the relevant Interest Period, if determined prior to such time, in the case of notification to such exchange of a Rate of Interest and Interest Amount, or (ii) in all other cases, the fourth Business Day after such determination. Where any Interest Payment Date or Interest Period Date is subject to adjustment pursuant to Condition 5(b)(ii), the Interest Amounts and the Interest Payment Date so published may subsequently be amended (or appropriate alternative arrangements made with the consent of the Trustee by way of adjustment) without notice in the event of an extension or shortening of the Interest Period. If the Notes become due and payable as a consequence of amounts under the Loan Agreement becoming due and payable prior to the Repayment Date (as defined in the Loan Agreement), the accrued interest and the Rate of Interest payable in respect of the Notes shall nevertheless continue to be calculated as previously in accordance with this Condition but no publication of the Rate of Interest or the Interest Amount so calculated need be made unless the Trustee otherwise requires. The determination of any rate or amount, the obtaining of each quotation and the making of each determination or calculation by the Calculation Agent(s) shall (in the absence of manifest error) be final and binding upon all parties. (f) Determination or Calculation by Trustee: If the Calculation Agent does not at any time for any reason determine or calculate the Rate of Interest for an Interest Accrual Period or any Interest Amount pursuant to the Loan Agreement, the Trustee shall do so (or shall appoint an agent on its behalf to do so) and such determination or calculation shall be deemed to have been made by the Calculation Agent. In doing so, the Trustee shall apply the foregoing provisions of this Condition, with any necessary consequential amendments, to the extent that, in its opinion, it can do so, and, in all other respects it shall do so in such manner as it shall deem fair and reasonable in all the circumstances. The Trustee shall incur no liability in respect of such determination or calculation. 6 Redemption, Deferred Rights and Purchase 141

146 (a) (b) (c) Final Redemption: Unless a Loan is previously prepaid or repaid pursuant to Clause 5.2 or 5.3 of the Facility Agreement in the case of a Senior Series of Notes or pursuant to the terms of the relevant Subordinated Loan Agreement in the case of a Subordinated Series of Notes, Gazprombank will be required to repay the Loan on the Repayment Date and, subject to such repayment, as set forth in the Loan Agreement, all the Notes then remaining outstanding will be redeemed or repaid by the Issuer in the relevant Specified Currency on the Repayment Date specified hereon at their Final Redemption Amount (which, unless otherwise specified hereon, is 100 per cent. of the principal amount thereof). Early Redemption: If the Loan should become repayable in full (and be repaid in full) pursuant to the terms and conditions of the Loan Agreement prior to its Repayment Date, all Notes then remaining outstanding will thereupon become due and redeemable or repayable at their Early Redemption Amount (which, unless otherwise specified hereon is par together with interest accrued to the date of redemption) and the Issuer will endeavour to give not less than eight days notice thereof to the Trustee and the Noteholders in accordance with Condition 14. To the extent that the Issuer receives amounts of principal, interest or other amounts (other than amounts in respect of the Reserved Rights) following acceleration and/or enforcement of the Loan (as the case may be), the Issuer shall pay an amount equal to and in the same currency as such amounts on the business day following receipt of such amounts, subject as provided in Condition 7. Deferral Rights: To the extent that the relevant Subordinated Loan Agreement in respect of Notes under a Subordinated Series contains provisions providing for the deferral by the CBR of the payment of the principal of and/or interest which is due and payable by Gazprombank under the relevant Loan and pursuant to such provision the principal or interest is at any time up to and including the Repayment Date so deferred then any payment under such Notes in respect of such deferred principal and/or interest shall also be deferred until such time as the deferral of such amounts ceases under the relevant Subordinated Loan Agreement and payments in respect thereof are actually received by or for the account of the Issuer pursuant to the relevant Subordinated Loan Agreement. (d) Purchase: The Facility Agreement provides that Gazprombank or any wholly-owned Subsidiary of Gazprombank may, among other things, purchase Notes of a Senior Series (as defined in the Trust Deed) from time to time in the open market or by tender or by private agreement at any price and may deliver to the Issuer such Notes, having an aggregate principal value of at least U.S.$1,000,000 (or the equivalent in other currencies) together with a request for the Issuer to redeem and hereafter cancel such Notes, whereupon the Issuer shall, pursuant to the Agency Agreement, instruct the Registrar to cancel such Notes. This Condition 6(d) will not apply to Notes issued under a Subordinated Series. 7 Payments and Agents Payments of principal shall be made against presentation and surrender of the relevant Notes at the specified office of any Transfer Agent or of the Registrar and in the manner provided in the paragraph below. Interest shall be paid to the person shown on the Register at the close of business on the fifteenth day before the due date for payment thereof (the Record Date ). Payments of interest shall be made in the Specified Currency by cheque drawn on a bank in the principal financial centre for the Specified Currency or, in the case of euro, in a city in which banks have access to the TARGET System (a Bank ) and mailed to the holder (or to the first named of joint holders) of such Note at its address appearing in the Register. Upon application by the holder to the specified office of the Registrar or any Transfer Agent before the Record Date, such payment of interest may be made by transfer to an account in the relevant currency maintained by the payee with a Bank, or by transfer to an account in the Specified Currency maintained by the payee with, a Bank in the principal financial centre of such Specified Currency or in the case of euro, a Bank specified by the payee or at the option of the payee, by a euro-cheque and (in the case of interest payable on redemption) upon surrender of the relevant Notes at the specified office of the Registrar or any Transfer Agent. All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws and regulations, but without prejudice to the provisions of Condition 8. No commissions or expenses shall be charged to the Noteholders in respect of such payments. 142

147 If the due date for payments of interest or principal is not a business day, a Noteholder shall not be entitled to payment of the amount due until the next following business day and shall not be entitled to any further interest or other payment in respect of any such delay. In this paragraph, business day means a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are open for business in the relevant place of presentation, in such jurisdictions as shall be specified as Financial Centres hereon, and (i) (in the case of a payment in a currency other than euro) where payment is to be made by transfer to an account maintained with a bank in the relevant currency, on which foreign exchange transactions may be carried on in the relevant currency in the principal financial centre of the country of such currency or (ii) (in the case of a payment in euro) which is a business day on which the TARGET system is operating. The name of the initial Paying Agents and their initial specified offices are set out below. The Agency Agreement provides that the Issuer may at any time, with the prior written approval of the Trustee, vary or terminate the appointment of any of the Paying Agents, and appoint additional or other paying agents provided that (i) so long as the Notes are listed on any stock exchange or admitted to listing by any other relevant authority, there will be a Paying Agent and Transfer Agent with a specified office in such place as may be required by the rules and regulations of the relevant stock exchange or other relevant authority and (ii) there will be a Paying Agent with a specified office in a European Union member state that will not be obliged to withhold or deduct tax pursuant to or any law implementing European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of November Any such variation, termination or appointment shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not more than 45 days and not less than 30 days notice thereof shall have been given to the Noteholders in accordance with Condition 14. In addition, if the due date for redemption or repayment of a Note is not an Interest Payment Date, interest accrued from the preceding Interest Payment Date or, as the case may be, from the Issue Date as specified hereon shall be payable only as and when actually received by or for the account of the Issuer pursuant to the Loan Agreement. Save as otherwise directed by the Trustee at any time after any of the Security Interests created in the Trust Deed becomes enforceable, the Issuer will, pursuant to Clause 7 of the Agency Agreement require Gazprombank to make all payments of principal and interest to be made pursuant to the Loan Agreement to the Principal Paying Agent to an account in the name of the Issuer (the Account ). Under the Charge, the Issuer will charge by way of first fixed charge all the rights, title and interest in and to all sums of money then or in the future deposited in the Account in favour of the Trustee for the benefit of the Noteholders. 8 Taxation All payments in respect of the Notes by or on behalf of the Issuer will be made without deduction or withholding for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of the Russian Federation or Ireland or any authority thereof or therein having the power to tax, unless the deduction or withholding of such taxes or duties is required by law. In such event, the Issuer shall pay such additional payments ( additional amounts ) as shall result in the receipt by the Noteholders of such amount as would have been received by them if no such withholding or deduction had been required but only to the extent and only at such time as the Issuer receives an equivalent amount from Gazprombank under the Loan Agreement. To the extent that the Issuer receives a lesser amount from Gazprombank, the Issuer will account to each Noteholder for an additional amount equivalent to a pro rata proportion of such amount (if any) as is actually received (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of the Notes) by, or for the account of, the Issuer pursuant to the Loan Agreement on the date of, in the currency of, and subject to any conditions attaching to the payment of such amount to the Issuer provided that no such additional amount will be payable in respect of any Note: (a) to a Noteholder who (i) is able to avoid such deduction or withholding by satisfying any statutory requirements or by making a declaration of non-residence or other claim for exemption to the relevant tax authority or (ii) is liable for such taxes or duties by reason of his having some connection with the Russian Federation or Ireland other than the mere holding of such Note or the receipt of payments in respect thereof; 143

148 (b) in respect of a Note presented for payment of principal more than 30 days after the Relevant Date except to the extent that such additional payment would have been payable if such Note had been presented for payment on such 30th day; (c) where such withholding or deduction is imposed on a payment to an individual or a residual entity within the meaning of the European Council Directive 2003/48/EC and is required to be made pursuant to any law implementing European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of November 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or (d) in respect of a Note presented for payment by or on behalf of a Noteholder who would have been able to avoid such withholding or deduction by presenting the relevant Note to another Paying Agent in a Member State of the European Union. As used herein, Relevant Date (i) means the date on which any payment under the Loan Agreement first becomes due but (ii) if the full amount payable by Gazprombank has not been received by, or for the account of, the Issuer pursuant to the Loan Agreement on or prior to such date, it means the date on which such moneys shall have been so received and notice to that effect shall have been duly given to the Noteholders by or on behalf of the Issuer in accordance with Condition 14. Any reference herein or in the Trust Deed to payments in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable in accordance with the Trust Deed and this Condition 8 or any undertaking given in addition thereto or in substitution therefor pursuant to the Trust Deed. 9 Enforcement Subject to the non-petition covenant contained herein, the Trust Deed provides that only the Trustee may pursue the remedies under general law, the Trust Deed or the Notes to enforce the rights of the Noteholders and no Noteholder will be entitled to pursue such remedies unless the Trustee (having become bound to do so in accordance with the terms of the Trust Deed) fails or neglects to do so within a reasonable period and such failure or neglect is continuing. At any time after the occurrence of an Event of Default ((a) in the case of an Event of Default in respect of a Senior Note, as defined in the Facility Agreement; and (b) in the case of an Acceleration Event in respect of a Subordinated Note, as defined in the Subordinated Loan Agreement) or of a Relevant Event (as defined in the Trust Deed), the Trustee may, at its discretion and without notice and shall, if requested to do so by Noteholders owning 25 per cent. in aggregate principal amount of the Notes outstanding, or if directed to do so by an Extraordinary Resolution and, in either case, subject to it being secured and/or indemnified to its satisfaction, (i) (in the case of an Event of Default in respect of a Senior Note only) declare all amounts payable under the relevant Loan Agreement by Gazprombank to be due and payable, (ii) (in the case of an Acceleration Event in respect of a Subordinated Note only) take the action permitted to be taken by the Issuer under the relevant Loan Agreement, or (iii) (in the case of a Relevant Event) exercise any rights under the Security Interests created in the Trust Deed in favour of the Trustee. Upon repayment of the Loan following an Event of Default and a declaration as provided herein, the Notes will be redeemed or repaid at their principal amount together with interest accrued to the date fixed for redemption and thereupon shall cease to be outstanding. 10 Meetings of Noteholders; Modification of Notes, Trust Deed and Loan Agreement; Waiver; Substitution of the Issuer; Appointment/Removal of Trustees The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including any modification of, or any arrangement in respect of, the Notes, the Loan Agreement or the Trust Deed. Noteholders will vote according to the principal amount of their Notes. Special quorum provisions apply for meetings of Noteholders convened for the purpose of amending certain terms concerning, inter alia, the amount payable on, and the currency of payment in respect of, the Notes and the amounts payable and the currency of payment under the Loan Agreement. Any resolution duly passed at a meeting of Noteholders will be binding on all the Noteholders, whether present or not. 144

149 The Trustee may agree, without the consent of the Noteholders, to any modification of the Notes, the Trust Deed and the Loan Agreement which in the opinion of the Trustee is of a formal, minor or technical nature, is made to correct a manifest error or is not materially prejudicial to the interests of the Noteholders. The Trustee may also waive or authorise or agree to the waiving or authorising of any breach or proposed breach by the Issuer of the Terms and Conditions of the Notes or the Trust Deed or by Gazprombank of the terms of the Loan Agreement, or determine that any event which would or might otherwise give rise to a right of acceleration under the Loan Agreement shall not be treated as such, if, in the opinion of the Trustee, to do so would not be materially prejudicial to the interests of the Noteholders. Any such modification, waiver or authorisation shall be binding on the Noteholders and, unless the Trustee agrees otherwise, any such modification shall be promptly notified to the Noteholders. The Trust Deed contains provisions to the effect that the Issuer may, having obtained the consent of Gazprombank (if such substitution is not to be made at the request of Gazprombank) and the Trustee (which latter consent may be given without the consent of the Noteholders) and having complied with such reasonable requirements as the Trustee may direct in the interests of the Noteholders, substitute any entity in place of the Issuer as issuer and principal obligor in respect of the Notes and as principal obligor under the Trust Deed and as party to the Loan Agreement, subject to the relevant provisions of the Trust Deed and the substitute s rights under the Loan Agreement being charged and assigned to the Trustee as security for the payment obligations of the substitute obligor under the Trust Deed and the Notes. In connection with the exercise of any of its powers, trusts, authorities or discretions, the Trustee shall have regard to the interests of the Noteholders as a class and, in particular, shall not have regard to the consequences of such exercise for individual Noteholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory. No Noteholder is entitled to claim from the Issuer or the Trustee any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders. The Trust Deed contains provision for the appointment or removal of a Trustee by a meeting of Noteholders passing an extraordinary resolution, provided that, in the case of the removal of a Trustee, at all times there remains a trustee in office after such removal. Any appointment or removal of a Trustee shall be notified to the Noteholders in accordance with Condition 14. The Trustee may also resign such appointment by giving not less than three months notice to the Noteholders provided that such retirement shall not become effective unless there remains a trustee in office after such retirement. The Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than 90 per cent. in nominal amount of the Notes outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders. 11 Prescription Notes will become void unless presented for payment within 10 years (in the case of principal) or five years (in the case of interest) from the due date for payment in respect thereof. 12 Indemnification of Trustee The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking proceedings to enforce payment unless indemnified and/or secured to its satisfaction. The Trustee is entitled to enter into contracts or transactions with the Issuer and/or Gazprombank and any entity related to the Issuer and/or Gazprombank without accounting for any profit, fees, corresponding interest, discounts or share of brokerage earned, arising or resulting from any such contract or transactions. There is an existing issue of notes being the U.S.$1,000,000, per cent. Loan Participation Notes due 2015 (the 2005 Notes ) constituted by a trust deed dated 23 September 2005 (the 2005 Trust Deed ) between the Issuer and the Trustee. In the Trust Deed, the Trustee has agreed in its capacity as Trustee of the Notes with itself in its capacity as trustee of the 2005 Notes, that the Trustee of the Notes will not take any action or bring any proceedings to challenge the validity, enforceability or effectiveness of the 2005 Notes and matters relating thereto as set out in the 2005 Trust Deed, or to 145

150 challenge the validity, enforceability or effectiveness of provisions of the Notes and the Trust Deed that limit the rights of the Trustee and the Noteholders to receive payments from the Issuer only insofar as the same are received from Gazprombank under the Loan Agreement. The Trustee s responsibilities are solely those of trustee for the Noteholders on the terms of the Trust Deed. Accordingly, the Trustee makes no representations and assumes no responsibility for the validity or enforceability of the Loan Agreement or the security created in respect thereof or for the performance by the Issuer of its obligations under or in respect of the Notes and the Trust Deed or for the performance by Gazprombank of its obligations under or in respect of the Loan Agreement. The Trustee has no liability to Noteholders for any shortfall arising from the Trustee being subject to tax as a result of the Trustee holding or realising the Security Interests. 13 Replacement of Notes If any Note shall become mutilated, defaced, lost, stolen or destroyed it may, subject to all applicable laws and regulations and stock exchange requirements, be replaced at the specified office of the Registrar on payment of such costs, expenses, taxes and duties as may be incurred in connection therewith and on such terms as to evidence, security and indemnity and otherwise as may reasonably be required by or on behalf of the Issuer or the Trustee. Mutilated or defaced Notes must be surrendered before replacements will be issued. The Trustee is entitled to accept as sufficient evidence of any fact or matter or the expediency of any transaction or thing a certificate signed on behalf of the Issuer or Gazprombank by a director or an authorised signatory of the Issuer or Gazprombank as to any fact or matter upon which the Trustee may, in the exercise of any of its trusts, duties, powers, authorities, rights and discretions under the Trust Deed, require to be satisfied or have information, or to the effect that in the opinion of the person so certifying any particular transaction or thing is expedient, and the Trustee shall not be bound in any such case to call for further evidence or be responsible for any loss that may be occasioned by the Trustee acting on such certificate. 14 Notices All notices to the Noteholders shall be deemed to have been duly given if (i) posted to such holders at their respective addresses as are shown on the Register and (ii) so long as the Notes are listed on the Irish Stock Exchange and the rules of that exchange so require, published in accordance with the listing rules of the Irish Stock Exchange. Any such notice shall be deemed to have been given on the first date on which both conditions shall have been met. In case by reason of any other cause it shall be impracticable to publish any notice to holders of Notes as provided above, then such notification to such holders as shall be given with the approval of the Trustee shall constitute sufficient notice to such holders for every purpose hereunder. 15 Further Issues The Issuer may from time to time, without the consent of the Noteholders, create and issue further Notes or bonds either ranking pari passu with the Notes of any series in all respects (or in all respects except for the amount and the date of the first payment of interest on the further notes) so as to be consolidated and form a single series with the notes or bonds of any series of the Issuer (including the Notes) or upon such other terms as the Issuer may determine at the time of their issue. In relation to any further issue which is to form a single series with the Notes, (i) the Issuer will enter into a loan agreement, supplemental to the Loan Agreement, with Gazprombank on substantially the same terms as the Loan Agreement (or in all respects except for the amount and date of the first payment of interest on the further Loan) or amend and restate the Loan Agreement, in each case subject to any modifications, which in the sole opinion of the Trustee, only relate to Reserved Rights or would otherwise not materially prejudice the interests of the Noteholders and (ii) the Security Interests granted in respect of the Notes of a particular series will be amended or supplemented to secure amounts due on the Notes of a particular series and such further Notes. Any further notes or bonds forming a single series with the outstanding notes or bonds of any series of the Issuer (including the Notes) constituted by the Trust Deed will, and any other notes or bonds of the Issuer may (with the consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of Noteholders and the holders of notes or bonds of other series in certain circumstances where the Trustee so decides. 16 Contracts (Rights of Third Parties) Act

151 No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act Governing Law The Notes, these Conditions, the Agency Agreement, the Trust Deed and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law. The Issuer has submitted in the Trust Deed to the jurisdiction of the courts of England and has appointed an agent for the service of process in England. 147

152 SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM The Global Notes Each Series of Notes will be evidenced on issue of a Global Note deposited with, and registered in the name of a nominee for, a common depositary for Euroclear and Clearstream, Luxembourg. Beneficial interests in a Global Note may be held only through Euroclear or Clearstream, Luxembourg at any time. By acquisition of a beneficial interest in a Global Note, the purchaser thereof will be deemed to represent, among other things, that it is not a U.S. person and that, prior to the expiration of 40 days after completion of the distribution of the Series of which such Notes are a part as determined and certified to the Paying Agent by the relevant Dealer (or in the case of a Series of Notes sold to or through more than one relevant Dealer, by each of such relevant Dealers as to the Notes of such Series sold by or through it, in which case the Paying Agent shall notify each such relevant Dealer when all relevant Dealers have so certified (the distribution compliance period ), it will not offer, sell, pledge or otherwise transfer such interest except to a person whom the seller reasonably believes to be a non-u.s. person in an offshore transaction in accordance with Rule 903 or Rule 904 of RegulationS. See Transfer Restrictions. Except in the limited circumstances described below, owners of beneficial interests in Global Notes will not be entitled to receive physical delivery of certificated Notes in definitive form (the Definitive Notes ). The Notes are not issuable in bearer form. Amendments to Conditions Each Global Note contains provisions that apply to the Notes that they represent, some of which modify the effect of the above Terms and Conditions of the Notes. The following is a summary of those provisions: Payments Payments of principal and interest in respect of Notes evidenced by a Global Note will be made against presentation for endorsement by the Paying Agent and, if no further payment falls to be made in respect o+f the relevant Notes, surrender of such Global Note to or to the order of the Paying Agent. A record of each payment so made will be endorsed in the appropriate schedule to the relevant Global Note, which endorsement will be prima facie evidence that such payment has been made in respect of the relevant Notes. Notices So long as any Notes are evidenced by a Global Note and such Global Note is held by or on behalf of a clearing system, notices to Noteholders may be given by delivery of the relevant notice to that clearing system for communication by it to entitled account holders in substitution for delivery thereof as required by the Terms and Conditions of such Notes provided that for so long as the Notes are listed on the Irish Stock Exchange and the guidelines of the Irish Stock Exchange so require, notices will also be published in accordance with the listing rules of the Irish Stock Exchange. Meetings The holder of each Global Note will be treated as being one person for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Noteholders and in any such meeting as having one vote in respect of Notes for which the relevant Global Note may be exchangeable. Trustee s Powers In considering the interests of Noteholders while the relevant Global Note is held on behalf of a clearing system, the Trustee, to the extent it considers it appropriate to do so in the circumstances, may have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to such Global Note and may consider such interests as if such accountholders were the holders of such Global Note. Cancellation Cancellation of any Note required by the Terms and Conditions of the Notes to be cancelled will be effected by reduction in the principal amount of the applicable Global Note. Record Date So long as any Notes are evidenced by a Global Note and such Global Note is held by or on behalf of a clearing system, Record Date shall mean the Clearing System Business Day before the relevant due 148

153 date for payment, where Clearing System Business Day means a day when Euroclear and Clearstream, Luxembourg is open for business. Exchange for Definitive Notes Exchange Each Global Note will be exchangeable, free of charge to the holder, in whole but not in part, for Notes in definitive, registered form (i) if Euroclear or Clearstream, Luxembourg, is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, by the holder giving notice to the Registrar or the Transfer Agent or (ii) if the Issuer would suffer a material disadvantage in respect of the Notes as a result of a change in the laws or regulations (taxation or otherwise) of any jurisdiction referred to in Condition 8 (Taxation) of the Terms and Conditions of the Notes which would not be suffered were the Notes in definitive form and a notice to such effect signed by two directors of the Issuer is delivered to the Trustee, by the Issuer giving notice to the Registrar or the Transfer Agent and the Noteholders, of its intention to exchange the relevant Global Note for Definitive Notes on or after the Exchange Date (as defined below) specified in the notice. On or after the Exchange Date, the holder of the relevant Global Note may surrender such Global Note to or to the order of the Registrar or the Transfer Agent. In exchange for the relevant Global Note, as provided in the Agency Agreement (as defined in the Facility Agreement), the Registrar will deliver, or procure the delivery of, an equal aggregate amount of duly executed and authenticated Definitive Notes in or substantially in the form set out in the relevant schedule to the Trust Deed. The Registrar will not register the transfer of, or exchange of interests in, a Global Note for definitive Notes for a period of 15 calendar days ending on the date for any payment of principal or interest or on the date of optional redemption in respect of the Notes. Exchange Date means a day falling not later than 90 days after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Registrar or the Transfer Agent is located. Delivery In such circumstances, the relevant Global Note shall be exchanged in full for definitive Notes and the Issuer will, at the cost of Gazprombank (but against such indemnity as the Registrar or the Transfer Agent may require in respect of any tax or other duty of whatever nature which may be levied or imposed in connection with such exchange), cause sufficient Definitive Notes to be executed and delivered to the Registrar for completion, authentication and dispatch to the relevant Noteholders. A person having an interest in a Global Note must provide the Registrar with a written order containing instructions and such other information as the Issuer and the Registrar may require to complete, execute and deliver such Notes. Transfers The holder of a Definitive Note may transfer the Notes evidenced thereby in whole or in part in the applicable minimum denomination by surrendering it at the specified office of the Registrar or the Transfer Agent, together with the completed form of transfer thereon. Euroclear and Clearstream, Luxembourg Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the clearance and settlement of securities transactions through electronic book-entry transfer between their respective accountholders. Indirect access to Euroclear and Clearstream, Luxembourg is available to other institutions which clear through or maintain a custodial relationship with an accountholder of either system. Euroclear and Clearstream, Luxembourg provide various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in several countries through established depository and custodial relationships. Euroclear and Clearstream, Luxembourg have established an electronic bridge between their two systems across which their respective customers may settle trades with each other. Their customers are worldwide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Investors may hold their interests in such Global Notes directly through Euroclear or Clearstream, Luxembourg if they are accountholders ( Direct Participants ) or indirectly ( Indirect Participants and, together with Direct Participants, Participants ) through organisations which are accountholders therein. Book-Entry Ownership 149

154 Euroclear and Clearstream, Luxembourg The Global Note representing Notes of any Series will have an ISIN and a Common Code and will be registered in the name of a nominee for, and deposited with a common depositary on behalf of, Euroclear and Clearstream, Luxembourg. The address of Euroclear is 1 Boulevard du Roi Albert II, B1210 Brussels, Belgium, and the address of Clearstream, Luxembourg is 42 Avenue J.F. Kennedy, L-1855, Luxembourg. Relationship of Participants with Clearing Systems Each of the persons shown in the records of Euroclear and / or Clearstream, Luxembourg as the holder of a Note evidenced by a Global Note must look solely to Euroclear and/or Clearstream, Luxembourg for his share of each payment made by the Issuer to the holder of such Global Note and in relation to all other rights arising under the Global Note, subject to and in accordance with the rules and procedures of Euroclear and / or Clearstream, Luxembourg. The Issuer expects that, upon receipt of any payment in respect of Notes evidenced by a Global Note, the common depositary by whom such Note is held, or nominee in whose name it is registered, will immediately credit the relevant participants or accountholders accounts in the relevant clearing system with payments in amounts proportionate to their respective beneficial interests in the principal amount of the relevant Global Note as shown on the records of the relevant clearing system or its nominee. The Issuer also expects that payments by Direct Participants in any clearing system to owners of beneficial interests in any Global Note held through such Direct Participants in any clearing system will be governed by standing instructions and customary practices. Save as aforesaid, such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are evidenced by such Global Note and the obligations of the Issuer will be discharged by payment to the registered holder, as the case may be, of such Global Note in respect of each amount so paid. None of the Issuer, the Trustee or any Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in any Global Note or for maintaining, supervising or reviewing any records relating to such ownership interests. Settlement and Transfer of Notes Subject to the rules and procedures of each applicable clearing system, purchases of Notes held within a clearing system must be made by or through Direct Participants, which will receive a credit for such Notes on the clearing system s records. The ownership interest of each actual purchaser of each such Note (the Beneficial Owner ) will in turn be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from any clearing system of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which such Beneficial Owner entered into the transaction. Transfers of ownership interests in Notes held within the clearing system will be affected by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in such Notes, unless and until interests in any Global Note held within a clearing system are exchanged for Definitive Notes. No clearing system has knowledge of the actual Beneficial Owners of the Notes held within such clearing system and their records will reflect only the identity of the Direct Participants to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the clearing systems to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The laws of some jurisdictions may require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in a Global Note to such persons may be limited. Trading between Euroclear and/or Clearstream, Luxembourg Participants Secondary market sales of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg to purchasers of book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg will be conducted in accordance with the normal rules and operating procedures of Euroclear and Clearstream, Luxembourg and will be settled using the procedures applicable to conventional Eurobonds. 150

155 SUBSCRIPTION AND SALE Summary of Dealer Agreement Subject to the terms and on the conditions contained in a dealer agreement dated 23 September 2011 (the Dealer Agreement ) between the Issuer, Gazprombank, the Permanent Dealers and the Arrangers, the Notes will be offered from time to time by the Issuer to the Permanent Dealers or such other Dealers as may be appointed from time to time in respect of any Series of Notes pursuant to the Dealer Agreement. Any agreement for the sale of Notes will, inter alia, make provision for the form and terms and conditions of the relevant Notes, whether the placement of the Notes is underwritten or sold on an agency basis only, the price at which such Notes will be purchased by the Dealers and the commissions or other agreed deductibles (if any) which are payable or allowable by the Issuer in respect of such purchase and the form of any indemnity to the Dealers against certain liabilities in connection with the offer and sale of the relevant Notes. The Notes may be resold at prevailing market prices, or at prices related thereto, at the time of such resale, as determined by the relevant Dealer. The Dealer Agreement also provides for Notes to be issued in syndicated Series that may be jointly and severally underwritten by two or more Dealers. Each of the Issuer and Gazprombank has agreed to indemnify the Dealers against certain losses, as set out in the Dealer Agreement. The Dealer Agreement entitles the Dealers to terminate any agreement that they make to subscribe for the Notes in certain circumstances prior to payment for such Notes being made to the Issuer. Selling Restrictions United States The Notes and the corresponding Loans have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from, or not subject to, the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by RegulationS. Each Dealer has represented, warranted and undertaken, and each further Dealer appointed under the Programme will be required to represent and agree, that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date (the Distribution Compliance Period ), within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Notes during the Distribution Compliance Period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings given to them by RegulationS. In addition, until 40 days after the commencement of the offering of the Notes, an offer or sale of Notes within the United States by a manager that is not participating in the offering may violate the registration requirements of the Securities Act. The Issuer and the Dealers reserve the right to reject any offer to purchase the Notes, in whole or in part, for any reason. United Kingdom Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (a) in relation to any Notes which have a maturity of less than one year, (i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (ii) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of Section19 of the FSMA by the Issuer; (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which Section21(1) of the FSMA does not apply to the Issuer; and 151

156 (c) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom. Russian Federation Each of the Dealers has agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that the Notes will not be offered, transferred or sold as part of their initial distribution or at any time thereafter to or for the benefit of any persons (including legal entities) resident, incorporated, established or having their usual residence in the Russian Federation or to any person located within the territory of the Russian Federation unless and to the extent otherwise permitted under Russian law. Republic of Italy The offering of the Notes has not been registered with the Commissione Nazionale per le Società e la Borsa ( CONSOB ) pursuant to Italian securities legislation and, accordingly, each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not offered, sold or distributed, and will not offer, sell or distribute any Notes or any copy of this document or any other offer document in the Republic of Italy ( Italy ) except: (a) to qualified investors (investitori qualificati), pursuant to Article 100 of Legislative Decree no. 58 of 24 February 1998 (the Consolidated Financial Services Act ) and Article 34-ter, paragraph 1, letter (b) of CONSOB regulation No of 14 May 1999 (the CONSOB Regulation ), all as amended; or (b) in any other circumstances where an express exemption from compliance with the restrictions on offers to the public applies, as provided under Article 100 of the Consolidated Financial Services Act and Article 34-ter of the CONSOB Regulation. Moreover, and subject to the foregoing, any offer, sale or delivery of the Notes or distribution of copies of this document or any other document relating to the Notes in Italy under (a) or (b) above must be: (a) made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Consolidated Financial Services Act, Legislative Decree No. 385 of 1 September 1993 (the Banking Act ), CONSOB Regulation No of 29 October 2007, all as amended; (b) in compliance with Article 129 of the Banking Act and the implementing guidelines, pursuant to which the Bank of Italy may request information on the offering or issue of securities in Italy; and (c) in compliance with any securities, tax, exchange control and any other applicable laws and regulations, including any limitation or requirement which may be imposed from time to time, inter alia, by CONSOB or the Bank of Italy. Any investor purchasing the Notes in this offering is solely responsible for ensuring that any offer or resale of the Notes it purchased in this offering occurs in compliance with applicable laws and regulations. Ireland Each Dealer has agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (a) it will not underwrite the issue of, or place, the Notes, otherwise than in conformity with the provisions of the European Communities (Markets in Financial Instruments) Regulations 2007 (Nos. 1 to 3), including, without limitation, Regulations 7 and 152 thereof or any codes of conduct issued in connection therewith and the provisions of the Investor Compensation Act 1998; (b) it will not underwrite the issue of, or place, the Notes, otherwise than in conformity with the provisions of the Central Bank Acts (as amended) and any codes of conduct rules made under Section 117(1) of the Central Bank Act 1989; (c) it will not underwrite the issue of, or place, or do anything in Ireland in respect of the Notes otherwise than in conformity with the provisions of the Prospectus (Directive 2003/71/EC) Regulations 2005 and any rules issued under Section 51 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005, by the Central Bank; and (d) it will not underwrite the issue of, place or otherwise act in Ireland in respect of the Notes, otherwise than in conformity with the provisions of the Market Abuse (Directive 2003/6/EC) Regulations 2005 and any rules issued under Section 34 of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 by the Central Bank. 152

157 General Each Dealer has agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has, to the best of its knowledge and belief, complied and will comply with applicable laws and regulations in each jurisdiction in which it offers, sells or delivers Notes or distributes this Base Prospectus (and any amendments thereof and supplements thereto) or any other offering or publicity material relating to the Notes, the Issuer or Gazprombank. Other than the approval of this Base Prospectus by the Central Bank, no action has or will be taken in any jurisdiction by the Issuer, Gazprombank or any of the Dealers that would, or is intended to, permit a public offer of the Notes or possession or distribution of any offering material in relation thereto, in any country or jurisdiction where action for that purpose is required. Accordingly, each Dealer has undertaken to the Issuer and Gazprombank that it will not, directly or indirectly, offer or sell any Notes or distribute or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of Notes by it will be made on the same terms. These selling restrictions may be modified by the agreement of the Issuer, Gazprombank and the Dealers following a change in a relevant law, regulation or directive. Any such modification will be set out in the Final Terms issued in respect of the issue of Notes to which it relates or in a supplement to this Base Prospectus. The Arrangers, the Dealers and their respective affiliates have engaged in transactions with Gazprombank and other members of the Group (including, in some cases, credit agreements and credit lines) in the ordinary course of their banking business and the Arrangers and the Dealers performed various investment banking, financial advisory and other services for Gazprombank, for which they received customary fees, and the Arrangers, the Dealers and their respective affiliates may provide such services in the future. 153

158 TAXATION The following is a general description of certain Russian and Irish tax considerations relating to the Notes and the Loan. It does not purport to be a complete analysis of all tax considerations relating to the Notes, whether in those countries or elsewhere. Prospective purchasers of the Notes should consult their own tax advisers as to which countries tax laws could be relevant to acquiring, holding and disposing of the Notes and receiving payments of interest, principal and/or other amounts under the Notes and the consequences of such actions under the laws of those countries. This summary is based upon the law as in effect on the date of this Base Prospectus. The information and analysis contained within this section are limited to taxation issues, and prospective investors should not apply any information or analysis set out below to other areas, including (but not limited to) the legality of transactions involving the Notes. Russian Taxation Taxation of the Notes General The following is a an overview of certain Russian tax considerations relevant to the purchase, ownership and disposal of the Notes, as well as the taxation of interest income on the Loan. The overview is based on the laws of the Russian Federation in effect on the date of this Base Prospectus, which are subject to potential change (possibly with retroactive effect). The overview does not seek to address the applicability of, and procedures in relation to, taxes levied by regions, municipalities or other non-federal authorities of the Russian Federation. Nor does the overview seek to address the availability of double tax treaty relief in respect of the Notes, and it should be noted that there may be practical difficulties, including satisfying certain documentation requirements, involved in claiming double tax treaty relief. Prospective investors should consult their own advisers regarding the tax consequences of investing in the Notes. No representations with respect to the Russian tax consequences of investing, owning or disposing of the Notes to any particular Noteholder is made hereby. The provisions of the Russian Tax Code applicable to Noteholders and transactions involving the Notes are ambiguous and lack interpretive guidance. Both the substantive provisions of the Russian Tax Code applicable to financial instruments and the interpretation and application of those provisions by the Russian tax authorities may be more inconsistent and subject to more rapid and unpredictable change than in jurisdictions with more developed capital markets or more developed taxation systems. In particular, the interpretation and application of such provisions will in practice rest substantially with local tax inspectorates. In practice, interpretation by different tax inspectorates may be inconsistent or contradictory and may constitute the imposition of conditions, requirements or restrictions not provided for by the existing legislation. Similarly, in the absence of binding precedents court rulings on tax or related matters by different Russian courts relating to the same or similar circumstances may also be inconsistent or contradictory. According to the Russian Tax Code, a tax resident is an individual who spent in Russia not less than 183 days within 12 consecutive months (days of medical treatment and education outside of the Russian Federation are also counted as Russian days if the individual departed from the Russian Federation for these purposes for less than six months). The interpretation of this definition by the Ministry of Finance of the Russian Federation states that for tax withholding purposes an individual s tax residence status should be determined on the date of income payment (based on the number of Russian days in the 12-month period preceding the date of payment). The individual s final tax liability in the Russian Federation for the reporting calendar year should be determined based on his/her tax residence status for such calendar year, i.e. based on the number of Russian days in the 12-months period as of the end of such period. For the purposes of this overview, a non-resident Noteholder means (i) an individual Noteholder who has not established a Russian tax residence status for the reporting calendar year as discussed above; or (ii) a legal entity or organisation in each case not organised under Russian law that holds and disposes of the Notes otherwise than through a permanent establishment in Russia. For the purposes of this overview, a Russian resident Noteholder means (i) an individual Noteholder who has established a Russian tax residence status for the reporting calendar year as discussed above; or (ii) a legal entity or organisation which is a Noteholder but is not a non-resident Noteholder defined in the previous paragraph. The Russian tax treatment of interest payments made by Gazprombank to the Issuer under the Loan Agreement may affect the holders of the Notes. See - Taxation of Interest Income on the Loan below. 154

159 Non-Resident Holders A non-resident Noteholder should not be subject to any Russian taxes on receipt from the Issuer of amounts payable in respect of principal, premium or interest on the Notes, subject to what is stated in Taxation of Interest Income on the Loan. A non-resident Noteholder generally should not be subject to any Russian taxes in respect of gain or other income realised on a redemption, sales or a disposal of the Notes outside the Russian Federation, provided that the proceeds of such sale, redemption, or other disposal of the Notes are not received from a source within the Russian Federation. In the event that proceeds from sales, redemption or a disposal of Notes are received from a source within the Russian Federation, a non-resident Noteholder that is a legal entity or organisation should not be subject to Russian tax in respect of such proceeds, provided that no portion thereof is attributable to accrued interest. Any portion of such sales proceeds attributable to accrued interest may be subject to Russian withholding tax on income at the rate of 20 per cent. subject to any available double tax treaty relief, even if the disposal itself results in a capital loss. In order to enjoy the benefits of an applicable double tax treaty, documentary evidence is required prior to payment being made to confirm the applicability of the double tax treaty under which benefits are claimed. Non-resident Noteholders that are legal entities or organisations should consult their own tax advisers with respect to possibility of obtaining a respective double tax treaty relief. If proceeds from sales, redemption or other disposal of the Notes are received from a Russian source, a nonresident Noteholder who is an individual will generally be subject to tax at a rate of 30 per cent. subject to any available double tax treaty relief as discussed below, in respect of gross proceeds from such disposal less any available cost deduction (which includes the purchase price of the Notes). Any portion of the above proceeds from sale, redemption or other disposal of the Notes attributable to accrued interest income under the Notes which is received by a non-resident Noteholder from the Russian sources may be subject to tax at a rate of 30 per cent. subject to any available double tax treaty relief as discussed below.. In this regard, if the Notes are disposed of in the Russian Federation, for Russian personal income tax purposes, the proceeds of such disposition (including any portion of such proceeds attributable to accrued interest income under the Notes) are likely to be regarded as received from a Russian source. In certain circumstances, if the disposal proceeds (including the interest income portion) are payable by a Russian legal entity, individual entrepreneur or a Russian permanent establishment of a foreign organisation, the payer may be required to withhold this tax. Unless the tax is withheld by the payer, the non-resident individual Noteholder would be liable to pay the tax to the Russian budget. In such a situation, there is a risk that the taxable base may be affected by fluctuations in the exchange rates between the currency of acquisition of the Notes, the currency of sale of the Notes and roubles. Non-resident Noteholders who are individuals should consult their own tax advisers with respect to the tax consequences of the receipt of proceeds from a source within the Russian Federation in respect of a disposition of the Notes. Resident Holders A Russian resident Noteholder is subject to all applicable Russian taxes and responsible for complying with any documentation requirements that may be established by law or practice in respect of gains from disposal of the Notes and interest income received on the Notes. Resident Noteholders should consult their own tax advisers with respect to their tax position regarding the Notes. Tax Treaty Relief Advance Treaty Relief Where proceeds from the disposal of the Notes are received from a Russian source, in order for the non - resident Noteholders, whether an individual, legal entity or organisation, to receive the benefits of an applicable double tax treaty, documentary evidence is required to confirm the applicability of the double tax treaty for which benefits are claimed. Currently, a non-resident Noteholder legal entity or organisation should present to the payer of income an apostilled or legalised confirmation of its tax residence, attaching a notarised translation in Russian. The confirmation should be presented before any payment is made and should be certified by the competent authority of the country of the Noteholder s tax residence. Such confirmation is valid for the calendar year in which it is issued. Non-resident Noteholders that are legal entities or organisations should consult their own tax advisers with respect to the possibilities to enjoy any double tax treaty relief and the relevant Russian procedures. 155

160 For non-resident individual Noteholders, procedures for advance treaty clearance are not provided for by current Russian legislation. Therefore, technically, for non-resident individual Noteholders a reduction of the Russian withholding income tax either exemption from such tax provided by a respective double tax treaty between Russia and the country of the tax residence of such non-resident individual Noteholder could practically not be obtained. Non-resident individual Noteholders should consult their own tax advisers with respect to the possibilities to enjoy any double tax treaty relief or tax refund and the relevant Russian procedures. Refund of Tax Withheld For a non-resident Noteholder which is not an individual and for which double tax treaty relief is available, if Russian withholding tax on income was withheld by the source of payment, a refund of such tax is possible within three years from the end of the tax period in which the tax was withheld. In order to obtain a refund, the tax documentation confirming the right of the non-resident recipient of the income to double tax treaty relief is required. If non-resident individual Noteholders do not obtain double tax treaty relief at the time the proceeds from a disposal of the Notes are paid to such non-resident individual Noteholders and income tax is withheld by a Russian payer of the income, such non-resident individual Noteholders may apply for a refund within one year from the end of the tax period in which the tax was withheld. The documentation requirements to obtain such a refund would include a confirmation of the income received and the taxes paid in the country of tax residence of the non-resident individual Noteholders as confirmed by the relevant tax authorities of such countries. However, there can be no assurance that the refund of any taxes withheld or double tax treaty relief (as described above) will be available for such non-resident individual Noteholders. The Russian tax authorities may, in practice, require a wide variety of documentation confirming the right to benefits under a double tax treaty. Such documentation, in practice, may not be explicitly required by the Russian Tax Code. Obtaining a refund of Russian tax withheld may be a time consuming process and can involve considerable practical difficulties, including the possibility that a tax refund may be denied for various reasons. Taxation of Interest Income on the Loan In general, interest payments on borrowed funds made by a Russian legal entity to a non-resident legal entity or organisation are subject to Russian withholding income tax at a rate of 20 per cent. (or 30 per cent. in respect of non-resident individuals), subject to reduction or elimination pursuant to the terms of an applicable double tax treaty. Based on the professional advice it has received, Gazprombank s management believes that interest payments on the Loan made by Gazprombank to the Issuer should not be subject to withholding taxes under the terms of the double tax treaty between the Russian Federation and Ireland, provided that the Russian tax documentation requirements (annual advance confirmation of the lender s tax residency) are satisfied. The application of tax benefits under the double tax treaty could be influenced by changes in the position of the Russian tax authorities to look beyond the mere form of the transaction while assessing the availability of treaty benefits. A recent letter of the Ministry of Finance of the Russian Federation No /1, dated 30 December 2011, expressed the view that the noteholders were the beneficial owners of interest payable by a Russian bank on the proceeds of a Eurobond offering that were placed as a deposit with the Russian bank by the issuer of the notes (the issuer was a special purpose vehicle established by the Russian bank). Although that letter refers to a deal structure which is not the same as the transaction structure described in the Base Prospectus, and refers to an issuer domiciled in a jurisdiction which is different from the jurisdiction of the Issuer, Gazprombank cannot exclude the risk that the conclusions in the letter could potentially be applied by the Russian tax authorities to the payments of interest in respect of the Loan. There is a risk that underthe Russian thin capitalisation rules that in certain circumstances where parties related to Gazprombank (i.e. the Related Parties as defined above) hold Notes part or all of the interest to be paid by Gazprombank under the Loan could be reclassified as dividends for Russian tax purposes. This would occur if the overall amount of the controlled debt of Gazprombank calculated on an individual Related Party basis exceeded the capital of Gazprombank, calculated in accordance with the requirements of the Russian Tax Code, by more than 12.5 times. Interest on the amount of such excess would be reclassified as dividends for Russian tax purposes. Under the Russian Tax Code, there is a risk that the controlled debt of Gazprombank may include all or part of the Loan to the extent that certain Related Parties acquire any portion of the Notes. Such reclassification of all or a portion of the interest as dividends could potentially lead to the imposition of Russian withholding tax on such reclassified interest at the rate of 15 per cent., subject to possible exemption 156

161 under the double tax treaty between the Russian Federation and Ireland, and the non-deductibility of such interest for Russian profits tax purposes by Gazprombank. Based on the assumption that the amount of Gazprombank s controlled debt calculated in accordance with the requirements of Article 269 of the Russian Tax Code will not exceed by more than 12.5 times the amount of own capital ( собственный капитал ) of Gazprombank calculated on an individual Related Party basis, the Russian thin capitalisation rules should not apply currently to the interest on the Loan. However, changes in these assumptions could result in all or a portion of such interest being subject to the thin capitalisation rules in the future so as to treat excess interest related to the Loan as a dividend under the double tax treaty between the Russian Federation and Ireland subject to 15 per cent. withholding tax applicable to dividends (subject to possible Irish or other DTT relief, if any) rather than zero withholding tax applicable to interest. Gazprombank is aware of at least one recent instance where the Russian tax authorities argued with respect to a transaction similar to the one described in the Base Prospectus that the Noteholders rather than the issuer should be regarded as the actual recipients of the interest income. The issuer in that particular transaction was located in a jurisdiction which is different from the Issuer's jurisdiction. This instance is currently being discussed, but, to the best of Gazprombank s knowledge, has not been brought to court. If, in the instance above, the issue is brought before a Russian court and the court decides in favour of the Russian tax authorities, such decision could result in impairing the Issuer s and Gazprombank s position to benefit from the withholding tax exemption provided by the respective double tax treaty. On the other hand, expected amendments to the Russian Tax Code could nevertheless allow the interest on the Loan not to be subject to withholding, if such amendments are adopted. In particular, the Ministry of Finance of the Russian Federation is seeking to introduce into the Russian Tax Code an exemption from the obligation to withhold tax from interest paid under transactions similar to the transactions described herein. The relevant official communication and the draft amendments to the Russian Tax Code were posted on the website of the Ministry of Finance of the Russian Federation on 20 February According to these draft amendments, in respect of bonds issued prior to 1 January 2013 Russian borrowers are exempted from the obligation to withhold Russian withholding tax from interest payments made to foreign companies on debt obligations arising in connection with placement by these foreign companies of quoted bonds, provided that (1) there is a double tax treaty between the Russian Federation and the jurisdiction of tax residence of the issuer, and (2) the issuer duly confirms its tax residence. The draft law does not provide tax exemption for the holders of Eurobonds from Russian tax on interest payments, although at present there is no mechanism or requirement for non-residents to self-assess and pay the tax. For the purpose of the above draft amendments, quoted bonds mean bonds and other debt obligations listed on one or more foreign stock exchanges specified in the list approved by the Federal authority for securities markets in consultation with the Ministry of Finance of the Russian Federation or rights to which bonds or obligations are recorded by a recognized depositary-clearing organisation located in a country which has concluded a double tax treaty with the Russian Federation which country is specified in the list approved by the Federal authority for securities markets in consultation with the Ministry of Finance of the Russian Federation. To the best of our knowledge, these lists have not been drafted yet. According to the official communication on the website of the Ministry of Finance of the Russian Federation, based on its consultations with the Federal Tax Service there are no plans to challenge borrowers in connection with payments relating to Eurobonds issued during 2012 in respect of which borrowers are expected to be released from any obligation as a tax agent under the proposed legislative amendments. The law should generally apply retrospectively to interest payments made after 1 January 2007, which, given the general three year limitation for tax audits, should mean that if the law is adopted tax agents in the above situation should not be challenged for not having withheld tax in prior periods. However, as discussed above this communication represents merely the intention of the fiscal authorities and not a binding commitment as to future actions by the authorities. The above amendments to the Russian Tax Code have not been sent to the State Duma and, therefore, we cannot guarantee that important aspects of this draft law will not change significantly; any such changes could have either positive or, alternatively, adverse effect on the tax treatment of the transaction described herein. If the payments under the Loan are subject to any withholding taxes for any reason (as a result of which the Issuer would reduce payments under the Notes in the amount of such withholding taxes), Gazprombank is required to increase payments as may be necessary so that the Issuer receives the net amount equal to the full amount it would have received in the absence of such withholding. It should be noted, however, that tax grossup provisions in contracts may not be enforceable in the Russian Federation. In the event that Gazprombank fails to increase the payments, such failure would constitute an Event of Default. If Gazprombank is obliged to 157

162 increase payments, it may prepay the Loan in full. In such case, all outstanding Notes would be redeemable at par with accrued interest. Russian VAT is not applied to the rendering of financial services involving the provision of a loan in monetary form. Therefore, no VAT will be payable in the Russian Federation on any payment of interest or principal in respect of the Loan. Irish Taxation Introduction The following is a summary of the principal Irish tax consequences for individuals and companies of ownership of the Notes based on the laws and practice of the Irish Revenue Commissioners currently in force in Ireland and may be subject to change. It deals with Noteholders who beneficially own their Notes as an investment. Particular rules not discussed below may apply to certain classes of taxpayers holding Notes, such as dealers in securities, trusts etc. The summary does not constitute tax or legal advice and the comments below are of a general nature only. Prospective investors in the Notes should consult their professional advisers on the tax implications of the purchase, holding, redemption or sale of the Notes and the receipt of interest thereon under the laws of their country of residence, citizenship or domicile. Taxation of Noteholders Withholding Tax In general, tax at the standard rate of income tax (currently 20 per cent.) is required to be withheld from payments of Irish source interest which should include interest payable on the Notes. The Issuer will not be obliged to make a withholding or deduction for or on account of Irish income tax from a payment of interest on a Note where: (a) the Notes are Quoted Eurobonds i.e. securities which are issued by a company (such as the Issuer), which are listed on a recognised stock exchange (such as the Irish or Luxembourg Stock Exchanges) and which carry a right to interest; and (b) the person by or through whom the payment is made is not in Ireland, or if such person is in Ireland, either: (i) (ii) the Notes are held in a clearing system recognised by the Irish Revenue Commissioners; (DTC, Euroclear and Clearstream, Luxembourg are, amongst others, so recognised); or the Noteholder is not resident in Ireland and has made a declaration to a relevant person (such as a paying agent located in Ireland) in the prescribed form; and (c) one of the following conditions is satisfied: (i) (ii) (iii) (iv) the Noteholder is resident for tax purposes in Ireland; or the Noteholder is a pension fund, government body or other person (other than a person described in paragraph (c)(iv) below), who is resident in a relevant territory and who, under the laws of that territory, is exempted from tax that generally applies to profits, income or gains in that territory; or the Noteholder is subject, without any reduction computed by reference to the amount of such interest or other distribution, to a tax in a relevant territory which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory; or the Noteholder is not a company which, directly or indirectly, controls the Issuer, is controlled by the Issuer, or is controlled by a third company which also directly or indirectly controls the Issuer, and neither the Noteholder, nor any person connected with the Noteholder, is a person or persons: (A) from whom the Issuer has acquired assets; 158

163 (B) (C) to whom the Issuer has made loans or advances; or with whom the Issuer has entered into a swap agreement, where the aggregate value of such assets, loans, advances or swap agreements represents not less than 75 per cent. of the assets of the Issuer; or (v) the Issuer is not aware at the time of the issue of any Notes that any Noteholder of those Notes is (i) a person of the type described in (c) (iv) above; and (ii) is not subject, without any reduction computed by reference to the amount of such interest or other distribution to a tax in a relevant territory which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory. where for these purposes, the term: relevant territory means a member state of the European Union (other than Ireland) or a country with which Ireland has signed a double tax treaty; and swap agreement means any agreement, arrangement or understanding that (I) (II) provides for the exchange, on a fixed or contingent basis, of one or more payments based on the value, rate or amount of one or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind, or any interest therein or based on the value thereof, and transfers to a person who is a party to the agreement, arrangement or understanding or to a person connected with that person, in whole or in part, the financial risk associated with a future change in any such value, rate or amount without also conveying a current or future direct or indirect ownership interest in an asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred. Thus, so long as the Notes continue to be quoted on the Irish Stock Exchange, are held in DTC, Euroclear and/or Clearstream, Luxembourg, and one of the conditions set out in paragraph (c) above is met, interest on the Notes can be paid by any Paying Agent acting on behalf of the Issuer free of any withholding or deduction for or on account of Irish income tax. If the Notes continue to be quoted but cease to be held in a recognised clearing system, interest on the Notes may be paid without any withholding or deduction for or on account of Irish income tax provided such payment is made through a Paying Agent outside Ireland and one of the conditions set out in paragraph (c) above is met. Encashment Tax Irish tax will be required to be withheld at the standard rate of income tax (currently 20 per cent.) from interest on any Note, where such interest is collected or realised by a bank or encashment agent in Ireland on behalf of any Noteholder. There is an exemption from encashment tax where the beneficial owner of the interest is not resident in Ireland and has made a declaration to this effect in the prescribed form to the encashment agent or bank. Income Tax, PRSI and Universal Social Charge Notwithstanding that a Noteholder may receive interest on the Notes free of withholding tax, the Noteholder may still be liable to pay Irish tax with respect to such interest. Noteholders resident or ordinarily resident in Ireland who are individuals may be liable to pay Irish income tax, social insurance (PRSI) contributions and the universal social charge in respect of interest they receive on the Notes. Interest paid on the Notes may have an Irish source and therefore may be within the charge to Irish income tax. In the case of Noteholders who are non-resident individuals such Noteholders may also be liable to pay the universal social charge in respect of interest they receive on the Notes. 159

164 Ireland operates a self-assessment system in respect of tax and any person, including a person who is neither resident nor ordinarily resident in Ireland, with Irish source income comes within its scope. There are a number of exemptions from Irish income tax available to certain non-residents. Firstly, interest payments made by the Issuer are exempt from income tax so long as the Issuer is a qualifying company for the purposes of section 110 of the TCA, the recipient is not resident in Ireland and is resident in a relevant territory and, the interest is paid out of the assets of the Issuer. Secondly, interest payments made by the Issuer in the ordinary course of its business are exempt from income tax provided the recipient is not resident in Ireland and is a company which is either resident in a relevant territory which imposes a tax that generally applies to interest receivable in that relevant territory by companies from sources outside that relevant territory or, in respect of the interest is exempted from the charge to Irish income tax under the terms of a double tax agreement which is either in force or which will come into force once all ratification procedures have been completed. Thirdly, interest paid by the Issuer free of withholding tax under the quoted Eurobond exemption is exempt from income tax, where the recipient is a person not resident in Ireland and resident in a relevant territory. Finance Act 2012 extends the foregoing exemption to companies which are under the control, whether directly or indirectly, of person(s) who by virtue of the law of a relevant territory are resident for the purposes of tax in a relevant territory and are not under the control of person(s) who are not so resident, and to 75 per cent. subsidiary companies of a company or companies the principal class of shares in which is substantially and regularly traded on a recognised stock exchange. For these purposes, residence is determined under the terms of the relevant double taxation agreement or in any other case, the law of the country in which the recipient claims to be resident. Interest falling within the above exemptions is also exempt from the universal social charge. Notwithstanding these exemptions from income tax, a corporate recipient that carries on a trade in Ireland through a branch or agency in respect of which the Notes are held or attributed, may have a liability to Irish corporation tax on the interest. Relief from Irish income tax may also be available under the specific provisions of a double tax treaty between Ireland and the country of residence of the recipient. Interest on the Notes which does not fall within the above exemptions is within the charge to income tax, and, in the case of Noteholders who are individuals, is subject to the universal social charge. In the past the Irish Revenue Commissioners have not pursued liability to tax in respect of persons who are not regarded as being resident in Ireland except where such persons have a taxable presence of some sort in Ireland or seek to claim any relief or repayment in respect of Irish tax. However, there can be no assurance that the Irish Revenue Commissioners will apply this treatment in the case of any Noteholder. Capital Gains Tax A Noteholder will not be subject to Irish tax on capital gains on a disposal of Notes unless such holder is either resident or ordinarily resident in Ireland or carries on a trade or business in Ireland through a branch or agency in respect of which the Notes were used or held. Capital Acquisitions Tax A gift or inheritance comprising of Notes will be within the charge to capital acquisitions tax (which subject to available exemptions and reliefs, will be levied at 30 per cent. if either (i) the disponer or the donee/successor in relation to the gift or inheritance is resident or ordinarily resident in Ireland (or, in certain circumstances, if the disponer is domiciled in Ireland irrespective of his residence or that of the donee/successor) on the relevant date or (ii) if the Notes are regarded as property situate in Ireland (i.e. if the Notes are physically located in Ireland or if the register of the Notes is maintained in Ireland)). Stamp Duty No stamp duty or similar tax is imposed in Ireland (on the basis of an exemption provided for in Section 85(2)(c) of the Irish Stamp Duties Consolidation Act, 1999 so long as the Issuer is a qualifying company for the purposes of Section 110 of the TCA and the proceeds of the Notes are used in the course of the Issuer s business), on the issue, transfer or redemption of the Notes. EU Directive on the Taxation of Savings Income Ireland has implemented the EC Council Directive 2003/48/EC on the taxation of savings income into national law. Accordingly, any Irish paying agent making an interest payment on behalf of the Issuer to an individual or certain residual entities resident in another Member State of the European Union or certain associated and dependent territories of a Member State will have to provide details of the payment and certain details relating to the Noteholder (including the Noteholder s name and address) to the Irish Revenue Commissioners who in turn are obliged to provide such information to the competent authorities of the state or territory of residence of the individual or residual entity concerned. 160

165 The Issuer shall be entitled to require Noteholders to provide any information regarding their tax status, identity or residency in order to satisfy the disclosure requirements in Directive 2003/48/EC and Noteholders will be deemed by their subscription for Notes to have authorised the automatic disclosure of such information by the Issuer or any other person to the relevant tax authorities. 161

166 TRANSFER RESTRICTIONS Each purchaser of Regulation S Notes outside the United States, by accepting delivery of this Base Prospectus and the Regulation S Notes, will be deemed to have represented, agreed and acknowledged that: (1) It is, or at the time RegulationS Notes are purchased will be, the beneficial owner of such Regulation S Notes and (a) it is not a U.S. person and it is located outside the United States (within the meaning of RegulationS) and (b) it is not an affiliate of the Issuer, Gazprombank or a person acting on behalf of such an affiliate. (2) It understands that the RegulationS Notes have not been and will not be registered under the Securities Act and, prior to the expiration of the distribution compliance period, it will not offer, sell, pledge or otherwise transfer such Notes except in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, in each case in accordance with any applicable securities laws of any State of the United States. (3) It understands that Notes of a Series will be evidenced by a Global Note. (4) It understands and acknowledges that its purchase and holding of such Notes constitutes a representation and agreement by it that at the time of its purchase and throughout the period it holds such Notes or any interest therein (a) it is not an employee benefit plan as described in Section3(3) of the United States Employee Retirement Income Security Act of 1974, as amended ( ERISA ), and subject to the provisions of Title I of ERISA, a plan described in Section4975(e)(l) of the Code, or an entity whose underlying assets include plan assets by reason of a plan s investment in the entity and (b) it will not sell or otherwise transfer any such Note or interest to any person without first obtaining these same foregoing representations and warranties from that person. (5) It acknowledges that the Issuer, Gazprombank, the Registrar, the Dealers and their affiliates and others will rely upon the truth and accuracy of the above acknowledgements, representations and agreements and agree that, if any of the acknowledgements, representations or agreements deemed to have been made by it by its purchase of Notes is no longer accurate, it shall promptly notify the Issuer, Gazprombank and the Dealers. If it is acquiring any Notes as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the above acknowledgements, representations and agreements on behalf of each account. 162

167 FORM OF FINAL TERMS Final Terms dated [ ] GAZPROMBANK (OPEN JOINT-STOCK COMPANY) Issue of [Aggregate Principal Amount of Series] [Title of Loan Participation Notes] by GPB EUROBOND FINANCE PLC for the purpose of financing a Loan to GAZPROMBANK (OPEN JOINT-STOCK COMPANY) ( GAZPROMBANK ) under a U.S.$10,000,000,000 Programme for the Issuance of Loan Participation Notes PART A CONTRACTUAL TERMS Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Base Prospectus dated 23 April 2012 [and the supplemental Base Prospectus dated [ ]] 1 which [together] constitute[s] a base prospectus for the purposes of the Prospectus Directive (Directive 2003/ 71/EC) (the Prospectus Directive ). This document constitutes the Final Terms of the Notes described herein for the purposes of Article 5.4 of the Prospectus Directive and must be read in conjunction with such Base Prospectus [as so supplemented]. Full information on the Issuer and Gazprombank and the offer of the Notes is only available on the basis of the combination of these Final Terms and the Base Prospectus. [The Base Prospectus [and the supplemental Base Prospectus] [is] [are] available for viewing at [address] [and] [website] and copies may be obtained from [address].] 2 The following alternative language applies if the first issue of a Series which is being increased was issued under a Base Prospectus with an earlier date. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the Conditions ) set forth in Schedule 3 of the amended and restated principal trust deed dated 23 September 2011 [and the supplemental Base Prospectus dated [ ]]. This document constitutes the Final Terms of the Notes described herein for the purposes of Article 5.4 of the Prospectus Directive (Directive 2003/71/EC) (the Prospectus Directive ) and must be read in conjunction with the Base Prospectus dated 23 April 2012 [and the supplemental Base Prospectus dated [ ]], which [together] constitute[s] a base prospectus for the purposes of the Prospectus Directive, save in respect of the Conditions which are extracted from the Base Prospectus dated 23 April 2012 [and the supplemental Base Prospectus dated [ ]] and are attached hereto. Full information on the Issuer and Gazprombank and the offer of the Notes is only available on the basis of the combination of these Final Terms and the Base Prospectuses dated 23 April 2012 and [current date] [and the supplemental Base Prospectuses dated [ ] and [ ]]. [The Base Prospectuses [and the supplemental Base Prospectuses] are available for viewing at [address] [and] [website] and copies may be obtained from [address].] 2 [Include whichever of the following apply or specify as Not Applicable (N/A). Note that the numbering should remain as set out below, even if Not Applicable is indicated for individual paragraphs or sub- paragraphs. Italics denote directions for completing the Final Terms.] [When completing final terms or adding any other final terms or information, consideration should be given as to whether such terms or information constitute significant new factors and consequently trigger the need for a supplement to the Prospectus under Article 16 of the Prospectus Directive.] 1 Issuer: GPB Eurobond Finance PLC 2 Series Number: [ ] [ ] 1 Only include details of a supplemental Base Prospectus in which the Conditions have been amended for the purposes of all future issues under the Programme. 2 Article 14.2 of the Prospectus Directive provides that a Base Prospectus is deemed available to the public when, inter alia, made available (i) in printed form free of charge at the offices of the market on which securities are being admitted to trading; OR (ii) at the registered office of the Issuer and at the offices of the Paying Agents; OR (iii) in an electronic form on the Issuer's website. Article 16 of the Prospectus Directive requires that the same arrangements are applied to supplemental Base Prospectuses. 163

168 3 Specified Currency: [ ] 4 Aggregate Nominal Amount of Notes: [ ] 5 Issue Price: [ ] per cent. of the aggregate principal amount of the Notes [plus accrued interest in respect of the period from and including [insert date] to but excluding the Issue Date (if applicable)] 6 (i) Specified Denominations: [ ] (ii) Calculation Amount [ ] 7 (i) Trade Date [ ] (ii) Issue Date: [ ] (iii) Interest Commencement Date: [ ] 8 Maturity Date: [specify date or (for Floating Rate Notes) Interest Payment Date falling in or nearest to the relevant month and year] 3 9 Interest Basis: [[ ] per cent. Fixed Rate] [subject to interest rate step-up as specified below (in the case of a Subordinated Series)] [[specify reference rate] +/- per cent. Floating Rate] [subject to margin step-up as specified below (in the case of a Subordinated Series)][(further particulars specified below)] 10 Redemption/Payment Basis: Redemption at par 11 Change of Interest or Redemption/Payment [Specify details of any provision for convertibility of Basis: Notes into another interest or redemption/payment basis] 12 (i) Status of the Notes: Senior (ii) Status of the Loan [Senior/Subordinated] [in the case of Subordinated Loan, provide further details of level of subordination, interest deferral etc.] [ ] [and [ ] respectively]] [(iii) Date [Board] approval for issuance of Notes [ ] [N.B. Only relevant where Board (or similar) obtained authorisation is required for the particular Series of Notes] 13 Method of distribution: [Syndicated/Non-syndicated] 14 Financial Centres (Condition 7): [ ] PROVISIONS RELATING TO INTEREST PAYABLE UNDER THE LOAN 15 Fixed Rate Note Provisions: [Applicable/Not Applicable] (if not applicable, delete the remaining subparagraphs of this paragraph) (i) Rate [(s)] of Interest: [[ ] per cent. per annum payable [annually/semiannually] in arrear (in the case of a Senior Series)] 3 The minimum maturity under the Programme is 365 days. 164

169 [DETAILS OF INITIAL INTEREST RATE AND INTEREST RATE STEP-UP] (in the case of a Subordinated Series) (ii) Interest Payment Date(s): [ ] in each year (iii) First Interest Payment Date: [ ] (iv) Fixed Coupon Amount [(s)]: [ ] per Calculation Amount (v) Broken Amount: [ ] per Calculation Amount payable on the Interest Payment Date falling [in/on] [ ] (vi) Day Count Fraction (Condition 5): [ ] [Day count fraction should be Actual/Actual-ICMA for all fixed rate issues other than those denominated in U.S. dollars] (vii) Determination Date(s) (Condition 5): [ ] in each year [Insert regular interest payment dates, ignoring issue date or maturity date in the case of a long or short first or last coupon] 4 (viii) Other terms relating to the method of [Not Applicable/give details] calculating interest for Fixed Rate Notes: 16 Floating Rate Note Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (i) Interest Period(s): [ ] (ii) Specified Interest Payment Dates: [ ] (iii) First Interest Payment Date: [ ] (iv) Interest Period Date: [ ] (v) Business Day Convention: [Floating Rate Business Day Convention/ Following Business Day Convention/ Modified Following Business Day Convention/ Preceding Business Day Convention/ other (give details)] (vi) Business Centre(s): [ ] (vii) Manner in which the Rate(s) of [Screen Rate Determination/ISDA Determination/other Interest is/are to be determined: (give details)] (viii) Interest Period Date(s): [Not Applicable/specify dates] (ix) Party responsible for calculating the [ ] Rate(s) of Interest and Interest Amount(s) (if not the Calculation Agent): (x) Screen Rate Determination: As set out in the attached Loan Supplement (xi) ISDA Determination: As set out in the attached Loan Supplement (xii) Margin(s): [[+/-] [l ] per cent. per annum (in the case of a Senior Series)] [DETAILS OF INITIAL MARGIN TO BE SPECIFIED] (in the case of a Subordinated Series) (xiii) Minimum Rate of Interest: [ ] per cent. per annum (xiv) Maximum Rate of Interest: [ ] per cent. per annum 4 Only to be completed for an issue where Day Count Fraction is Actual/Actual-ICMA 165

170 (xv) Day Count Fraction (Condition 5): [ ] (xvi) Rate Multiplier: [ ] (xvii) Fall back provisions, rounding [ ] provisions, denominator and any other terms relating to the method of calculating interest on Floating Rate Notes and Floating Rate Loans, if different from those set out in the Conditions: PROVISIONS RELATING TO REDEMPTION 17 Final Redemption Amount of each Note: [Principal Amount/[ ] per Calculation Amount/other] 18 Early Redemption Amount(s) of each Note[Principal amount/[ ] per Calculation Amount/other] payable if the Loan should become repayable under the Loan Agreement prior to the Maturity Date: GENERAL PROVISIONS APPLICABLE TO THE NOTES 19 Form of the Notes: Registered Notes 20 Other final terms: [Not Applicable/give details] (When adding any other final terms, consideration should be given as to whether such terms constitute a significant new factor and consequently trigger the need for a supplement to the Prospectus under Article 16 of the Prospectus Directive) DISTRIBUTION 21 (i) If syndicated, names of Managers: [Not Applicable/give names] (ii) Stabilising (if any): [Not Applicable/give name] 22 If non-syndicated, name of Dealer: [Not Applicable/give name] 23 Additional selling restrictions: [Not Applicable/give details] GENERAL 24 Additional steps that may only be taken [Not Applicable/give details] following approval by an Extraordinary Resolution in accordance with Condition 10: 25 The aggregate principal amount of Notes[Not Applicable/U.S.$[ ]] issued has been translated into U.S. dollars at the rate of [ ], producing a sum of (for Notes not denominated in U.S. dollars): [LISTING AND ADMISSION TO TRADING APPLICATION These Final Terms comprise the final terms required to list and have admitted to trading the issue of Notes described herein pursuant to the U.S.$10,000,000,000 Programme for the Issuance of Loan Participation Notes of GPB Eurobond Finance PLC for the purpose of financing loans to Gazprombank.] RESPONSIBILITY The Issuer and Gazprombank accept responsibility for the information contained in these Final Terms. [[ ] has been extracted from [ ]. Each of the Issuer and Gazprombank confirms that such information has been accurately reproduced and that, so far as it is aware, and is able to ascertain from information published by [ ], no facts have been omitted which would render the reproduced information inaccurate or misleading.] 166

171 Signed by a duly authorised attorney of the Issuer: Signed on behalf of Gazprombank: By: Duly authorised By: Duly authorised By: Duly authorised 167

172 PART B OTHER INFORMATION 1 LISTING (i) Listing: [Irish Stock Exchange/other (specify)/none] (ii) Admission to trading: [Application has been made [to the Irish Stock Exchange] for the Notes to be admitted [to the Official List and] trading on [its regulated market] with effect from [ ].] [Not Applicable] (iii) Estimate of total expenses related to [ ] admission to trading: 2 RATINGS The Programme is rated: Ratings: Moody s Investors Service Ltd.: Baa3 [Standard & Poor s Ratings Services: [ ]] The Notes to be issued have been rated: [Moody s Investors Service Ltd.: [ ]] [Standard & Poor s Ratings Services: [ ]] [[Other]: [ ]] [Insert legal name of credit rating agency] is established in the EU and registered under Regulation (EC) No 1060/2009 (the "CRA Regulation").] [Insert legal name of credit rating agency] is established in the EU and has applied for registration under Regulation (EC) No 1060/2009 (the "CRA Regulation"), although notification of the registration decision has not yet been provided.] [Insert legal name of credit rating agency] is established in the EU and is neither registered nor has it applied for registration under Regulation (EC) No 1060/2009 (the "CRA Regulation").] [Insert legal name of credit rating agency] is not established in the EU but the rating it has given to the Notes is endorsed by [insert legal name of credit rating agency], which is established in the EU and registered under Regulation (EC) No 1060/2009 (the "CRA Regulation").] [Insert legal name of credit rating agency] is not established in the EU but is certified under Regulation (EC) No 1060/2009 (the "CRA Regulation").] [Insert legal name of credit rating agency] is not established in the EU and is not certified under Regulation (EU) No 1060/2009, (the "CRA Regulation") and the rating it has given to the Notes is not endorsed by a credit rating agency established in the EU and registered under the CRA Regulation.] A rating must be issued by a credit rating agency established in the European Community and registered under the Regulation (EC) No 1060/2009 (the CRA Regulation ) unless the rating is provided by a credit rating agency that operated in the European Community before 7 June 2010 and which has submitted an application for registration in accordance with the CRA Regulation and such application for registration has not 168

173 been refused. (The above disclosure should reflect the rating allocated to Notes of the type being issued under the Programme generally or, where the issue has been specifically rated, that rating.) 3 [INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE [ISSUE/OFFER] If applicable, a description of any interest, including conflicting ones, that is material to the issue/ offer, detailing the persons involved and the nature of the interest is to be included. This may be satisfied by the inclusion of the following statement: Save as discussed in Subscription and Sale, so far as the Issuer is aware, no person involved in the offer of the Notes has an interest material to the offer. ] 1 4 [REASONS FOR THE OFFER, ESTIMATED PROCEEDS AND TOTAL EXPENSES [(i) Reasons for the offer [ ] (See Use of Proceeds wording in Prospectus if reasons for offer different from making profit and/or hedging certain risks, will need to include those reasons here)] [(ii)] Estimated proceeds: [ ] (If proceeds are intended for more than one use, will need to split out and present in order of priority. If proceeds insufficient to fund all proposed uses state amount and sources of other funding) [(iii)] Estimated total expenses: [ ] [Include breakdown of expenses] 5 [Fixed Rate Notes only YIELD Indication of yield: [[ ] The yield is calculated at the Issue Date on the basis of the Issue Price. It is not an indication of future yield (in the case of a Senior Series)] [[ ] The yield is calculated at the Issue Date on the basis of the Issue Price and in respect of the Initial Interest Term (as defined in the Subordinated Loan Agreement). Calculation of the yield beyond that period is subject to the interest rate step-up mechanism at the end of such period (in the case of a Subordinated Series)] 1 If there are material interests, but they are not discussed in ``Subscription and Sale'', insert the section name where they are discussed instead. If there are no material interests, delete the whole of paragraph

174 6 OPERATIONAL INFORMATION ISIN: Common number: [CUSIP Code Any clearing system(s) other than Euroclear Bank SA/NV [,] [and] Clearstream Banking société anonyme [and DTC] and the relevant identification number(s): Delivery: Names and addresses of additional Paying Agent(s) (if any): 7 GENERAL [ ] [ ] [ ]] [Not Applicable/give name(s) and number(s) [and addresses]] Delivery [against/free of] payment * [THE FINAL FORM OF LOAN SUPPLEMENT (IN THE CASE OF A SENIOR SERIES) OR THE SUBORDINATED LOAN AGREEMENT, (IN THE CASE OF A SUBORDINATED SERIES) WILL BE ATTACHED] [ ] 170

175 GENERAL INFORMATION (1) Gazprombank has obtained or will obtain all necessary consents, approvals and authorisations in Russia and Ireland in connection with any Loan and the issue and performance of the corresponding Series of Notes. The establishment of the Programme was authorised by the Board of Directors of the Issuer on 13 September The issue of this Base Prospectus was authorised by the Board of Directors of the Issuer on 20 April (2) Notes may be issued pursuant to the Programme which will not be listed on any stock exchange. Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in connection with the Notes and is not itself seeking admission of the Notes to the Official List or to trading on the regulated market of the Irish Stock Exchange for the purposes of the Prospectus Directive. (3) No consents, approvals, authorisations or orders of any regulatory authorities are required by the Issuer under the laws of Ireland for the issue and performance of the Notes under the Programme. (4) There has been no significant change in the financial or trading position or prospects of Gazprombank or the Group since 31 December 2011 and no material adverse change in the financial or trading position or prospects of Gazprombank or the Group since 31 December There has been no significant change and/or material adverse change in the financial or trading position or prospects of the Issuer since 31 August The Issuer has no subsidiaries. (5) Neither Gazprombank or any of its subsidiaries is involved in, or has been involved in, any governmental, legal or arbitration proceedings that may have had in the twelve months before the date of this Base Prospectus, a significant effect on the financial position or profitability of Gazprombank or the Group, nor, so far as Gazprombank is aware, are any such proceedings pending or threatened. (6) The Issuer is not, and has not been, involved in any governmental, legal or arbitration proceedings that may have had, in the twelve months before the date of this Base Prospectus, a significant effect on the Issuer s financial position or profitability, nor, so far as the Issuer is aware, are any such proceedings pending or threatened. (7) For so long as the Programme is in existence, copies (and English translations where the documents in question are not in English) of the Group s audited consolidated financial statements as at and for the years 2009, 2010 and 2011 and the audited annual financial statements of the Issuer as at and for the years ended 31 August 2009, 2010 and 2011, may be obtained free of charge in physical form at the specified offices of the Trustee and the Paying Agent in London during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted). (8) Copies of the following documents will be available for inspection in physical form at the specified offices of the Trustee and the Paying Agent in London and the registered office of the Issuer during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted): the charter of Gazprombank and the Articles of Association of the Issuer; the Trust Deed in respect of the Notes (including the forms of the Global Notes and definitive Notes); the Agency Agreement; the Facility Agreement (in relation to any Senior Series) and any executed Subordinated Loan Agreement (in relation to any Subordinated Series); each Final Terms for Notes which are listed on the Irish Stock Exchange or any other stock exchange (save that Final Terms relating to a Note which is neither admitted to trading on a regulated market within the European Economic Area nor offered in the European Economic Area in circumstances where a prospectus is required to be published under the Prospectus Directive will only be available for inspection by a holder of such Note and such holder must produce evidence satisfactory to the Issuer, Gazprombank and the Paying Agent as to its holding of Notes and identity); a copy of this Base Prospectus together with any supplement to this Base Prospectus or further Base Prospectus; and copies of any transfer notice papers or voting papers relating to the Notes. (9) Gazprombank does not prepare financial statements in accordance with U.S. GAAP. 171

176 (10) The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The Common Code and the International Securities Identification Number (ISIN) and (where applicable) the CUSIP number and the identification number for any other relevant clearing system for each Series of Notes will be set out in the relevant Final Terms. (11) As of the date of this Base Prospectus, Gazprombank is in compliance with applicable Russian law corporate governance requirements in all material respects. (12) Neither Gazprombank nor the Issuer intends to provide any post-issuance transaction information regarding any Series of Notes or Loans. 172

177 INDEX TO FINANCIAL STATEMENTS Consolidated Financial Statements of the Group as at and for the year ended 31 December 2011 Independent Auditors Report...F-5 Consolidated Statement of Comprehensive Income...F-6 Consolidated Statement of Financial Position...F-7 Consolidated Statement of Changes in Equity...F-8 Consolidated Statement of Cash Flows...F-9 Notes to the Consolidated Financial Statements...F-11 Consolidated Financial Statements of the Group as at and for the year ended 31 December 2010 Independent Auditors Report...F-96 Consolidated Statement of Comprehensive Income...F-97 Consolidated Statement of Financial Position...F-98 Consolidated Statement of Changes in Equity...F-99 Consolidated Statement of Cash Flows...F-100 Notes to the Consolidated Financial Statements...F-102 F-1

178 Consolidated Financial Statements Year Ended 31 December 2011 F-2

179 SHAREHOLDING OF THE BANK 31 December 2011 Non-State Pension Fund Gazfond * 50.00% OAO Gazprom 41.73% Treasury stock 7.40% Individuals 0.87% % BOARD OF DIRECTORS** Miller A.B. Chairman of the Board of Directors Chairman of ОАО Gazprom Management Board Akimov A.I. Deputy Chairman of the Board of Chairman of Gazprombank Management Board Directors Sereda M.L. Deputy Chairman of the Board of Directors Deputy Chairman of OAO Gazprom Management Board Shamalov U.N. Deputy Chairman of the Board of President of Non-State Pension Fund Gazfond Directors Vasilieva E.A. Member of the Board of Directors Deputy Chairman of OAO Gazprom Management Board, Chief Accountant of OAO Gazprom Gavrilenko A.A. Member of the Board of Directors Chief Executive Officer of ZAO Leader Eliseev I.V. Member of the Board of Directors Deputy Chairman of Gazprombank Management Board Ivanov S.S. Member of the Board of Directors Chairman of ОАО Sogaz Management Board Krasnenkov A.V. Member of the Board of Directors Chief Executive Officer of OOO Baltyisky Szhizheny Gas Kruglov A.V. Member of the Board of Directors Deputy Chairman of OAO Gazprom Management Board, Head of Finance Department of OAO Gazprom Selesnev K.G. Member of the Board of Directors Member of OAO Gazprom Management Board, Head of Department of marketing, gas and liquid hydrocarbon processing Senkevich N.U. Member of the Board of Directors Chief Executive Officer of OAO Gazprom-Media Holding MANAGEMENT BOARD** Akimov A.I. Chairman of the Board Chervonenko N.A. First Vice-President Corporate lending, Trade finance Eliseev I.V. Deputy Chairman of the Board Compliance, Media assets Kantserov F.M. Deputy Chairman of the Board Heavy machinery assets Komanov V.A. Deputy Chairman of the Board Merchant banking, M&A advisory, Direct investments in resource-based industries Korenev N.G. Deputy Chairman of the Board Regional network, Corporate governance Korytov V.B. Deputy Chairman of the Board Corporate security Maluseva S.E. Deputy Chairman of the Board Chief accountant Matveev A.A. Deputy Chairman of the Board Direct investments, Project and structured finance, Capital markets, Brockerage, Asset management Muranov A.U. Deputy Chairman of the Board Corporate lending policy, Precious metals, Real estate development business Sadygov F.K. Deputy Chairman of the Board Strategy, Treasury and Financial Institutions Seregin V.A. First Vice-President Retail business, Custody services Sobol A.I. Deputy Chairman of the Board Chief Financial Officer Shmidt A.O. First Vice-President Chief Legal Officer, Problem assets Vaksman O.M. First Vice-President Chief Risk Officer INDEPENDENT AUDITORS ZAO KPMG * - including 42.89% held by ZAO Leader, an asset management company acting on behalf of Non-State Pension Fund Gazfond ** - The composition of the Board of Directors and the Management Board are presented as of 31 March F-3 1

180 TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT... 3 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME... 4 CONSOLIDATED STATEMENT OF FINANCIAL POSITION... 5 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY... 6 CONSOLIDATED STATEMENT OF CASH FLOWS... 7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: NOTE 1 PRINCIPAL ACTIVITIES AND ORGANIZATION...8 NOTE 2 BASIS OF PRESENTATION...9 NOTE 3 PRINCIPAL ACCOUNTING POLICIES NOTE 4 SEGMENT REPORTING NOTE 5 NET INTEREST INCOME NOTE 6 PROVISIONS AND IMPAIRMENT LOSSES NOTE 7 NON-INTEREST LOSS FROM FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING NOTE 8 NON-BANKING OPERATING PROFITS NOTE 9 FEES AND COMMISSIONS INCOME AND EXPENSE NOTE 10 BANKING SALARIES, EMPLOYMENT BENEFITS AND ADMINISTRATIVE EXPENSES NOTE 11 PROFIT TAX NOTE 12 CASH AND CASH EQUIVALENTS AND DUE FROM CREDIT INSTITUTIONS NOTE 13 FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING NOTE 14 DERIVATIVE FINANCIAL ASSETS AND LIABILITIES NOTE 15 LOANS TO CUSTOMERS NOTE 16 INVESTMENTS AVAILABLE-FOR-SALE AND INVESTMENTS IN ASSOCIATES NOTE 17 RECEIVABLES AND PREPAYMENTS NOTE 18 GOODWILL NOTE 19 AMOUNTS OWED TO CREDIT INSTITUTIONS AND GOVERNMENTAL BODIES NOTE 20 AMOUNTS OWED TO CUSTOMERS NOTE 21 SUBORDINATED DEPOSITS NOTE 22 CERTIFICATED DEBTS AND EUROBONDS ISSUED NOTE 23 OTHER LIABILITIES NOTE 24 SHARE CAPITAL, RETAINED EARNINGS AND EARNINGS PER SHARE NOTE 25 RISK MANAGEMENT NOTE 26 RELATED PARTIES NOTE 27 FINANCIAL COMMITMENTS AND CONTINGENCIES NOTE 28 CAPITAL ADEQUACY NOTE 29 FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE 30 ANALYSIS BY MEASUREMENT CATEGORY NOTE 31 ACQUISITION AND DISPOSAL OF SUBSIDIARIES AND ASSOCIATES NOTE 32 ASSOCIATES HELD FOR SALE AND DISCONTINUED OPERATIONS NOTE 33 SUBSEQUENT EVENTS F-4 2

181 ZAO KPMG 10 Presnenskaya Naberezhnaya Moscow Russia Telephone +7 (495) Fax +7 (495) /99 Internet Independent Auditors Report To the Board of Directors of Gazprombank (Open Joint-Stock Company) We have audited the accompanying consolidated financial statements of Gazprombank (Open Joint-Stock Company) and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2011, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as manangement determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatements, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2011, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. ZAO KPMG 2 April 2012 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent F-5 member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

182 Consolidated Statement of Сomprehensive Income for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Notes Interest income 131, ,188 Interest expense (73,317) (68,417) Net interest income 5 58,226 31,771 Impairment of interest earning assets 6 (11,254) (1,655) Net interest income after impairment of interest earning assets 46,972 30,116 Fees and commissions income 9 25,608 10,882 Fees and commissions expense 9 (3,723) (2,529) Non-interest loss from financial assets and liabilities held for trading, net 7 (2,242) (5,099) Gain from investments available-for-sale and investments in associates, net 16 19,306 33,573 Gain from trading in foreign currencies, operations with foreign currency derivatives and foreign exchange translation, net 2,094 12,284 Other operating income 4,785 4,571 Non-interest income 45,828 53,682 Non-banking operating revenues 134,162 94,752 Non-banking operating expenses (125,848) (91,055) Non-banking operating profits 8 8,314 3,697 Banking salaries and employment benefits 10 (26,769) (25,737) Banking administrative expenses 10 (17,491) (14,854) Recovery of impairment of assets and provisions for other risks Impairment of goodwill 6,18 (3,094) (5,989) Non-interest expense (47,212) (46,137) Profit from continuing operations before profit tax 53,902 41,358 Profit tax expense from continuing operations 11 (13,070) (12,761) Profit for the year from continuing operations 40,832 28,597 Profit for the year from discontinued operations, net of profit tax 32-37,666 Profit for the year 40,832 66,263 Other comprehensive income Investments available-for-sale: Net change in fair value of investments available-for-sale 1,088 13,759 Net change in fair value transferred to profit or loss (12,220) (4,850) Exchange differences on translation of foreign operations (310) 1,381 Other comprehensive (loss) income, net of tax (11,442) 10,290 Total comprehensive income 29,390 76,553 Profit for the year attributable to: Group s shareholders 42,207 56,881 Non-controlling interests (1,375) 9,382 40,832 66,263 Total comprehensive income attributable to: Group s shareholders 30,765 67,864 Non-controlling interests (1,375) 8,689 29,390 76,553 Basic and diluted earnings per share (Russian Roubles) 24 2,261 3,048 Signed on behalf of the Management Board: F-6 The accompanying notes are an integral part of these consolidated financial statements. 3

183 Consolidated Statement of Financial Position as of 31 December 2011 (in millions of Russian Roubles unless otherwise stated) 31 December December 2010 Notes Assets Cash and cash equivalents , ,066 Obligatory reserve with the Central Bank of the Russian Federation 22,497 10,400 Due from credit institutions 12 19,208 25,452 Financial assets held for trading , ,802 Loans to customers 15 1,396,454 1,033,370 Investments available-for-sale 16 62,803 57,141 Investments in associates 16 15,167 7,867 Receivables and prepayments 17 57,906 56,318 Investments held-to-maturity 13, Inventories 49,092 43,038 Deferred tax assets 11 7,461 16,846 Property, plant and equipment 61,876 57,047 Intangibles 26,245 22,749 Goodwill 18 27,352 20,494 Other assets 15,979 12,734 Investment in associate held for sale 32 11,183 68,070 Total assets 2,477,668 1,951,684 Liabilities Financial liabilities held for trading 13 7,633 27,378 Amounts owed to governmental bodies 19 66,941 56,272 Amounts owed to credit institutions ,296 89,535 Amounts owed to customers 20 1,430,002 1,185,377 Subordinated deposits , ,422 Eurobonds issued ,375 79,392 Certificated debts ,311 65,923 Deferred tax liabilities 11 6,076 11,012 Other liabilities 23 91,526 72,285 Total liabilities 2,234,728 1,730,596 Equity Share capital 24 31,836 31,836 Additional paid-in-capital 32,478 32,916 Treasury stock (9,696) (5,513) Foreign currency translation reserve Fair value reserve 4,143 15,275 Retained earnings , ,117 Total equity attributable to the Group s shareholders 239, ,120 Non-controlling interests 3,650 4,968 Total equity 242, ,088 Total liabilities and equity 2,477,668 1,951,684 F-7 The accompanying notes are an integral part of these consolidated financial statements. 4

184 Consolidated Statement of Changes in Equity for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Foreign currency translation Equity attributable to the Group s Share capital Additional paid-in capital Treasury stock reserve Fair value reserve Retained earnings shareholders Noncontrolling interests Total equity 31 December ,836 33,322 (1,661) (1,585) 6,366 83, ,035 43, ,994 Profit for the year ,881 56,881 9,382 66,263 Net change in fair value of investments available-for-sale ,759-13,759-13,759 Disposal of investments available-for-sale (4,850) - (4,850) - (4,850) Exchange difference on translating foreign operations , ,074 (693) 1,381 Total comprehensive income ,074 8,909 56,881 67,864 8,689 76,553 Acquisition and disposal of non-controlling interests in subsidiaries ,915 1,915 (5,587) (3,672) Disposal of subsidiaries (Note 32) (40,268) (40,268) Acquisition of subsidiaries Dividends declared (1,119) (1,119) (1,849) (2,968) Acquisition and sale of treasury shares - 1,199 (3,852) (2,653) - (2,653) Transfer of puttable instruments to liability - (1,605) (1,605) - (1,605) 31 December 2010 (as previously reported) 31,836 32,916 (5,513) , , ,437 5, ,881 Provisional accounting finalization (Note 31) (317) (317) (476) (793) 31 December ,836 32,916 (5,513) , , ,120 4, ,088 Profit for the year ,207 42,207 (1,375) 40,832 Net change in fair value of investments available-for-sale ,088-1,088-1,088 Disposal of investments available-for-sale (12,220) - (12,220) - (12,220) Exchange difference on translating foreign operations (310) - - (310) - (310) Total comprehensive income (310) (11,132) 42,207 30,765 (1,375) 29,390 Acquisition and disposal of non-controlling interests in (950) (950) 1, subsidiaries Acquisition of subsidiaries Dividends declared (2,024) (2,024) (146) (2,170) Acquisition and sale of treasury shares - 1,003 (4,183) (3,180) - (3,180) Transfer of puttable instruments to liability - (1,441) (1,441) (1,159) (2,600) 31 December ,836 32,478 (9,696) 179 4, , ,290 3, ,940 F-8 The accompanying notes are an integral part of these consolidated financial statements. 5

185 Consolidated Statement of Cash Flows for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Notes Cash flows from operating activities Interest received 127,669 99,807 Fees and commissions received 25,464 10,781 Interest paid (68,154) (62,417) Fees and commissions paid (3,658) (2,120) Non-interest receipts from financial assets and liabilities held for trading 1,286 6,652 Payments from derivative contracts with foreign currency (15,167) (37,017) Foreign exchange receipts 6,846 1,758 Media business operating receipts 46,873 39,909 Media business operating payments (20,319) (19,017) Machinery business operating receipts 60,171 33,841 Machinery business operating payments (56,439) (36,663) Other segment operating receipts 27,118 21,001 Other segment operating payments (26,431) (19,896) Other operating receipts 3,331 3,376 Banking salaries and employment benefit payments (23,980) (19,610) Banking administrative expenses and other operating payments (15,358) (13,366) Cash flows from operating activities before changes in operating assets and liabilities 69,252 7,019 (Increase) decrease in banking operating assets Obligatory reserve with the Central Bank of the Russian Federation (12,097) (540) Due from credit institutions 3,772 79,885 Financial assets held for trading (28,717) (34,007) Loans to customers (360,469) (197,179) Receivables and prepayments, inventories, and other assets (10,200) (12,518) Increase (decrease) in operating liabilities Amounts owed to credit institutions and governmental bodies 146,728 (72,414) Amounts owed to customers 244, ,463 Certificated debts 72,851 (15,787) Other liabilities 10,938 7,049 Net cash flows from operating activities before profit taxes 136,467 69,971 Profit taxes paid (5,954) (2,402) Net cash flows from operating activities 130,513 67,569 Cash flows from operating activities from discontinued operations - 55,257 Cash flows from investing activities Property, equipment and intangibles purchased (34,447) (71,492) Property, equipment and intangibles sold ,850 Acquisition of subsidiaries, net of cash acquired (7,550) (8,380) Disposal of subsidiaries, net of cash disposed 76 - Investments available-for-sale and associates purchased and sold 42,206 3,185 Investments held-to-maturity (12,716) - Dividends received 875 1,314 Other cash flows used in investing activities (285) (1,698) Net cash flows used in investing activities (11,434) (24,221) Cash flows used in investing activities from discontinued operations - (55,821) F-9 The accompanying notes are an integral part of these consolidated financial statements. 6

186 Consolidated Statement of Cash Flows for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Notes Cash flows from financing activities Treasury stock acquired (4,621) (4,258) Eurobonds issued 34,895 30,548 Eurobonds redeemed or repurchsed (2,797) (41,787) Syndicated loans received 34,629 27,087 Syndicated loans redeemed (25,972) (1,050) Subordinated deposits received Subordinated deposits redeemed (9,794) (1,472) Acquisition of non-controlling interest - (1,020) Disposal of non-controlling interest Financing of non-banking activities received 13,959 9,999 Financing of non-banking activities redeemed (13,972) (7,255) Dividends paid (2,326) (2,975) Net cash flows from financing activities 24,901 8,142 Cash flows from financing activities from discontinued operations - 3,112 Effect of change in exchange rates on cash and cash equivalents 2,714 (14,695) Change in cash and cash equivalents 146,694 39,343 Cash and cash equivalents, beginning of the year 347, ,723 Cash and cash equivalents, end of the year , ,066 F-10 The accompanying notes are an integral part of these consolidated financial statements. 7

187 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 1 PRINCIPAL ACTIVITIES AND ORGANIZATION The Gazprombank Group (the Group) primarily consists of: the parent company Gazprombank (Open Joint-stock Company) the group of companies owned by OOO Gazprom-Media Holding (Gazprom Media Group) the group of industrial companies (machinery production) other smaller companies and banks, which are primarily part of the banking business, including GPB- Mortgage, Credit Ural Bank, Areximbank and Gazprombank (Switzerland) Ltd. The parent company of the Group Gazprombank (Open Joint-stock Company) (the Bank) was established in The Bank has a general banking license and a license for operations with precious metals from the Central Bank of the Russian Federation (the CBR), and licenses for securities operations and custody services from the Federal Financial Markets Service of Russia. The Bank is the third largest bank in the Russian Federation in terms of assets and equity, and it provides a broad range of predominantly commercial banking services to many of Russia s leading corporations and government entities including, among others, OAO Gazprom and its related parties (the Gazprom Group). The principal activities comprise commercial lending, project finance, acquisition and equity-backed finance, trade finance, deposit taking, foreign exchange and securities trading, precious metals operations, settlement services, debit/credit card services, depositary and custodian services, fund management services and brokerage services. The Bank also provides a range of retail services, both to the employees of its corporate clients and to the general public. The legal address of the Bank is: Bld.1, 16, Nametkina Str., Moscow, , Russian Federation. Gazprom Media Group is a Russian media group of companies, the principal activities of which are TV and radio broadcasting, advertising, publishing, film production and distribution primarily undertaken in the Russian Federation. As of 31 December 2011 the Group owns 100% interest in OAO Gazprom-Media Holding, the holding company of Gazprom Media Group. The group of industrial companies (machinery production) comprises OMZ (Uralmash-Izhora) Group, Cryogenmash Group, Glazovskiy zavod Khimmash, Uralkhimmash Group, Uralenergomontazh Group, MK Uralmash Group, REP Holding and certain other industrial assets, which the Group acquired in OAO OMZ is the holding company of the OMZ (Uralmash-Izhora) Group, which produces nuclear power plant equipment, speciality steels, machinery equipment, manufacturing and mining equipment. The OMZ Group manufacturing facilities are based in the Russian Federation and the Czech Republic. As of 31 December 2011 the Group effectively controlled 46.31% of OAO OMZ voting stock (17,704,613 ordinary shares translating to the effective share of 56.37% of OMZ Group). In December 2010 the Group disposed of a portion of its investment in OAO SIBUR Holding that resulted in the loss of control by the Group over SIBUR Holding Group. SIBUR Holding Group is a vertically integrated Russian petrochemical group of companies involved in refining, processing and distribution of petrochemical products and production and distribution of tires. SIBUR Holding Group operations and results from disposal are presented as discontinued operations in these consolidated financial statements. As of 31 December 2010 the investment in SIBUR Holding Group retained by the Group was recognised as an investment in associate held for sale (Note 32). In 2011 the Group completed the sale of its investment in OAO SIBUR Holding. There was no effect from the sale on comprehensive income for the year ended 31 December 2011, other than interest income recognised on deferred consideration receivable by the Group. As of 31 December 2011, OAO Gazprom owns 41.73% of the outstanding shares of the Group. A substantial portion of the Group s funding is from the Gazprom Group. As such the Group is economically dependent on the Gazprom Group (Note 26). These consolidated financial statements were authorized for issue by the Management Board of the Bank on 2 April F-11 8

188 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 2 BASIS OF PRESENTATION a) General These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). Management is responsible for the preparation of the consolidated financial statements in accordance with IFRS. The preparation of consolidated financial statements in accordance with IFRS requires management to make judgements and key estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial information and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Key areas of judgments and key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, include: estimation of allowance for impairment losses for financial assets measured at amortized cost. These include mainly loans to customers, amounts due from credit institutions, receivables and other assets. The estimation of allowance for impairment losses involves the exercise of judgment and is based on internal credit risk rating systems and statistical data valuation of complex and illiquid financial instruments. Valuation of complex and illiquid financial instruments involves the exercise of judgment and use of valuation models. In the absence of an active market management has to make assumptions in respect of appropriate inputs used in valuation models, some of which may not be based on observable market data estimation of fair values of identifiable assets and liabilities acquired in business combinations. Estimation of fair values of identifiable assets and liabilities acquired in business combinations involves the exercise of judgement and use of valuation models, which among others include assumptions about future business performance and cash flows and appropriate discount rates estimation of impairment losses for non-financial assets (including goodwill). Estimation of impairment losses for non-financial assets involves the exercise of judgement and use of valuation models, which among others include assumptions about future business performance, estimation of cash flows from assets assessed for impairment and estimation of appropriate discount rates decisions whether the Group ceased to control a subsidiary as a result of a sale of its stake in the subsidiary that is subject to further regulatory approval. Management considers all relevant facts and circumstances, including an assessment of the probability of obtaining such an approval, and applies judgment to determine whether the control over the subsidiary is lost before the Group legally transfers the ownership rights to a third party. b) Russian economic environment The Group s operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation. These consolidated financial statements reflect management s assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management s assessment. c) Basis of measurement These consolidated financial statements are prepared on the historical cost basis except that financial instruments at fair value through profit or loss and available-for-sale financial assets are stated at fair value. F-12 9

189 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) d) Functional and presentation currency The functional currency of the Bank and the majority of its subsidiaries is the Russian Rouble (RUR) as, being the national currency of the Russian Federation, it reflects the economic conditions of the majority of underlying events and circumstances relevant to them. The consolidated financial statements are presented in millions of RUR, unless otherwise stated. e) Changes in accounting policies With effect from 1 January 2011, the Group retrospectively applied limited amendments to IFRS 7 Financial Instruments: Disclosures issued as part of Improvements to IFRSs These amendments mainly relate to disclosures on collateral and other credit enhancements. Except for these changes, the accounting policies are applied consistently to all periods presented in these consolidated financial statements. Accounting policies are applied consistently by the Group entities. NOTE 3 PRINCIPAL ACCOUNTING POLICIES a) Principles of consolidation and accounting for associates The consolidated financial statements include the Bank and the companies that it controls (subsidiaries). Control exists when the Bank has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. This control is normally evidenced when the Group owns, either directly or indirectly, more than 50% of the voting rights of a company's share capital and is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. Also, the Group has established a number of other companies and special purpose entities (SPEs) for trading and investment purposes. The Group does not have any direct or indirect shareholdings in these entities. However, the SPEs are established under terms that impose strict limits on the decision-making powers of the SPEs management over the operations of the SPE. In addition, the benefits related to their operations and net assets are presently attributable to the Group via a number of agreements. As a result, the Group controls such companies and SPEs. The financial statements of subsidiaries are included in the consolidated financial statements from the date when control commences until the date that control ceases. For acquisitions on or after 1 January 2010 the Group measures goodwill as the fair value of the consideration transferred (including the fair value of any previously-held equity interest in the acquiree) and the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as at the acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The Group elects on a transaction-by-transaction basis whether to measure non-controlling interests at fair value, or at their proportionate share of the recognised amount of the identifiable net assets of the acquiree, at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. For acquisitions before 1 January 2010 goodwill represents the excess of the cost of the acquisition over the Group s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess was negative, a bargain purchase gain was recognised immediately in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection with business combinations were capitalised as part of the cost of the acquisitions. F-13 10

190 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) The loss of control is, among other factors, evidenced by an arrangement that principally transfers to a third party the power to govern and the economic benefits related to activities of the subsidiary. In certain cases the exercise of judgement is required to determine whether the arrangement between a Group and a third party results in a loss of control over a subsidiary before the Group legally transfers the ownership rights to third party, in particular, where such transfers are subject to further regulatory approval. Intercompany balances and transactions, including intercompany profits and losses are eliminated unless there is evidence of impairment. Consolidated financial statements are prepared using uniform accounting policies for similar transactions and other events in similar circumstances. The portion of the net assets and the post acquisition profit or loss of a subsidiary attributable to equity interests that are not owned, directly or indirectly, by the Group is presented as non-controlling interests in the consolidated financial statements. The difference, if any, between the consideration paid to acquire the noncontrolling interests and its carrying amount is recorded in equity. Dividends paid to non-controlling shareholders decrease the carrying amount of non-controlling interests recorded in equity. Investments in associated companies (generally investments of between 20% to 50% in a company s equity) where the Group exercises significant influence are accounted for using the equity method unless they are classified as assets held for sale. When the investee incurs losses the Group recognizes its share of losses until the carrying amount of the investment is reduced to nil. Recognition of further losses is discontinued. b) Acquisition of subsidiaries from a parent or entities under common control Acquisitions of subsidiaries from a parent or entities under common control are accounted for using the predecessor cost accounting method. The assets and liabilities of a subsidiary purchased from a parent or entities under common control are consolidated into the financial statements using their carrying amounts in the IFRS financial statements of the predecessor company, i.e. using their predecessor cost starting from the date of obtaining control over the subsidiary purchased. As a result, when the Group purchases a group of entities, the goodwill arising from the original acquisitions of entities that are parts of the purchased group is included in the consolidated financial statements as an asset. Any difference between the nominal amount of consideration paid by the Group and the predecessor cost of the Group s share of net assets purchased (including the predecessor entity s goodwill) is accounted as an adjustment of equity. c) Foreign currency translation Income and expenses, and non-monetary items included in the consolidated statement of financial position at period end, denominated in currencies other than the functional currency, are recorded by applying the exchange rate prevailing at the date of the transaction. Foreign currency denominated monetary items included in the period end consolidated statement of financial position are translated at the exchange rate prevailing at the period end. Foreign currency differences arising on retranslation are recognised in the profit or loss as gain or loss from foreign exchange, except for differences arising on the retranslation of available-for-sale equity instruments or qualifying cash flow hedges, which are recognised in other comprehensive income. Net gain from foreign exchange dealing include both the currency spread realized in the transaction and the built-in foreign exchange trading commission. If foreign subsidiaries or foreign associates have functional currencies that are different from the functional currency of the Bank (the Russian Rouble), the resulting exchange differences arising from translation to Russian Roubles of their financial statements (in the case of a subsidiary) or of their net assets (in the case of an associate) are included in other comprehensive income as a part of the foreign currency translation reserve. F-14 11

191 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) The official USD/Rouble exchange rates of the Central Bank of the Russian Federation were as follows (Roubles per 1 USD): Exchange rate as at 31 December Average rate for the year ended 31 December The Russian Rouble is not a readily convertible currency outside of the Russian Federation and, accordingly, any conversion of Rouble to USD should not be construed as a representation that the Rouble amounts have been, could be, or will be in the future, convertible into USD at the exchange rates disclosed, or at any other exchange rates. d) Income and expense recognition Interest income and expense are recognised on an accrual basis using the effective interest method. The effective interest method is a method of calculating the amortized 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 the financial liability. All borrowing costs are recognised in profit or loss using the effective interest method, except for borrowing costs related to qualifying assets which are recognised as part of the cost of such assets. The Group capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Once a financial asset or a group of similar financial assets has been written down (partly written down) as a result of an impairment loss, interest income is thereafter recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Interest earned on assets at fair value is classified within interest income. Loan origination fees are deferred, together with the related direct costs, and recognised as an adjustment to the effective interest rate of the loan. Where it is probable that a loan commitment will lead to a specific lending arrangement, the loan commitment fees are deferred, together with the related direct costs, and recognised as an adjustment to the effective interest rate of the resulting loan. Where it is unlikely that a loan commitment will lead to a specific lending arrangement, the loan commitment fees are recognised in profit or loss over the remaining period of the loan commitment. Where a loan commitment expires without resulting in a loan, the loan commitment fee is recognised in profit or loss on expiry. Loan servicing fees are recognised as revenue as the services are provided. Loan syndication fees are recognised in profit or loss when the syndication has been completed. All other commissions are recognised when services are provided. The Group recognizes advertising revenue net of value added tax (VAT) and discounts when broadcasting or publishing of the related advertisement occurs. Revenue from selling of programming rights is recognised net of VAT and discounts when all of the following conditions are met: sale of the related rights can be confirmed; programs are complete and delivered to clients or ready for delivering; license agreement period has started and clients may use the airtime; and revenue can be reliably measured. Sales of petrochemicals and tires are recognised when products are delivered to customers and title passes and are stated net of VAT, excise taxes and other similar compulsory payments. Related revenues are measured at the fair value of the consideration received or receivable. When the fair value of consideration received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up. F-15 12

192 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Revenues from sales of goods in the machinery segment are recognised at the point of transfer of risks and rewards of ownership of the goods, normally when the goods are shipped. If the Group agrees to transport goods to a specified location, revenue is recognised when the goods are passed to the customer at the destination point. Sales of services in the machinery segment are recognised in the accounting period in which the services are rendered, by reference to the stage of completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Sales are shown net of VAT and discounts. Revenues are measured at the fair value of the consideration received or receivable. When the fair value of goods received in a barter transaction cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up. e) Financial instruments (i) Classification Financial assets or liabilities at fair value through profit or loss are financial assets or liabilities held for trading that are: acquired or incurred principally for the purpose of selling or repurchasing in the near term part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking, or derivative financial instruments (except for derivative financial instruments that are effective hedging instruments). All trading derivatives in a net receivable position (positive fair value), as well as options purchased, are reported as assets. All trading derivatives in a net payable position (negative fair value), as well as options written, are reported as liabilities. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that the Group: intends to sell immediately or in the near term upon initial recognition designates as at fair value through profit or loss upon initial recognition designates as available-for-sale or, may not recover substantially all of its initial investment, other than because of credit deterioration. As part of its acquisition and equity-backed finance business the Group purchases or keeps certain assets, including equity investments, and simultaneously enters into derivative contracts linked to these assets that effectively transfer the risks and economic benefits associated with the assets to the counterparty of the derivative contract. The pricing of derivatives is usually designed in a way that the Group is earning a return representing compensation for the time value of money and the credit risk of the counterparty. To the extent that the substance of the transactions is that the Group provides the acquisition financing to the counterparty with the underlying assets used as collateral, the Group classifies such transactions as loans and receivables. Investments held-to-maturity are 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, other than those that: the Group upon initial recognition designates as at fair value through profit or loss the Group designates as available-for-sale or, meet the definition of loans and receivables. Investments available-for-sale are those financial assets that are designated as available-for-sale or are not classified as loans and receivables, investments held-to-maturity or financial instruments at fair value through profit or loss. F-16 13

193 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Management determines the appropriate classification of financial instruments at the time of the initial recognition. Derivative financial instruments are not reclassified out of at fair value through profit or loss category. Financial assets that would have met the definition of loan and receivables may be reclassified out of the fair value through profit or loss or available-for-sale category if the entity has an intention and ability to hold it for the foreseeable future or until maturity. Other financial instruments may be reclassified out of at fair value through profit or loss category only in rare circumstances. Rare circumstances arise from a single event that is unusual and highly unlikely to recur in the near term. (ii) Recognition and de-recognition of financial instruments Financial assets and liabilities are recognised in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument. All regular way purchases of financial assets are accounted for at the settlement date. The Group derecognises a financial asset when the contractual rights to receive cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. If the Group purchases its own debt, it is 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 gains or losses arising from early retirement of debt. The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. In transactions where the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset, it derecognises the asset if control over the asset is lost. The rights and obligations created or retained in the transfer are recognised separately as assets and liabilities as appropriate. In transfers where control over the asset is retained, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred assets. The Group also derecognises and writes off assets which are deemed to be uncollectible. (iii) Measurement A financial asset or liability is initially measured at its fair value plus, in the case of a financial asset or liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability. Subsequent to initial recognition, financial assets, including derivatives that are assets, are measured at their fair values, without any deduction for transaction costs that may be incurred on sale or other disposal, except for: loans and receivables which are measured at amortized cost using the effective interest method investments held-to-maturity that are measured at amortized cost using the effective interest method equity instruments that do not have a quoted market price in an active market and whose fair value can not be reliably measured which are measured at cost. F-17 14

194 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) All financial liabilities, other than those at fair value through profit or loss and financial liabilities that arise when a transfer of a financial asset carried at fair value does not qualify for derecognition, are measured at amortized cost. Amortized cost is calculated using the effective interest method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortized based on the effective interest rate of the instrument. Where a valuation based on observable market data indicates a fair value gain or loss on initial recognition of an asset or liability, the gain or loss is recognised immediately in profit or loss. Where an initial gain or loss is not based entirely on observable market data, it is deferred and recognised over the life of the asset or liability on an appropriate basis, or when prices become observable, or on disposal of the asset or liability. (iv) Fair value measurement principles Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price. The fair value of financial instruments is based on their quoted market price at the reporting date without any deduction for transaction costs. Where a quoted market price is not available, fair value is determined using valuation techniques with a maximum use of market inputs. Such valuation techniques include reference to recent arm s length market transactions, current market prices of substantially similar instruments, discounted cash flow and option pricing models and other techniques commonly used by market participants to price the instrument. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate is a market related rate at the reporting date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the reporting date. According to IFRS 7 Financial Instruments: Disclosures the Group is required to disclose estimates of fair value of financial instruments even if they are carried at amortized cost as prescribed by IAS 39 Financial instrument: Recognition and Measurement. Such instruments include: cash and due from the Central Bank of the Russian Federation, due from credit institutions, loans to customers, trade and other receivables, amounts owed to the Central Bank of the Russian Federation, amounts owed to credit institutions, amounts owed to customers, subordinated deposits, eurobonds issued, certificated debts, and other financial instruments at amortized cost. Management estimates their fair value with reference to available market quotes where available and by applying valuation techniques, which are based on discounting future projected cash flows from such instruments using current market rates for respective financial instruments. The fair value of derivatives that are not exchange-traded is estimated at the amount that the Group would receive or pay to terminate the contract at the reporting date taking into account current market conditions and the current creditworthiness of the counterparties. (v) Gain and loss on subsequent measurement A gain or loss arising from a change in the fair value of a financial asset or liability is recognised as follows: a gain or loss on a financial instrument classified as at fair value through profit or loss is recognised in profit or loss a gain or loss on an investments available-for-sale is recognised as other comprehensive income in equity (except for impairment losses and foreign exchange gains and losses on debt financial instruments available-for-sale) until the asset is derecognised, at which time the cumulative gain or loss previously recognised in equity is recognised in profit or loss. Interest in relation to investments available-for-sale is recognised as earned in profit or loss using the effective interest method. For financial assets and liabilities carried at amortized cost, a gain or loss is recognised in profit or loss when the financial asset or liability is derecognised or impaired, and through the amortization process. F-18 15

195 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) (vi) Repurchase and reverse repurchase (repo) agreements The Group, as an element of its treasury management and trading business, utilizes repo agreements and reverse repo agreements with securities. Repo agreements are accounted for as financing transactions. The related payable is included as an amounts owed to credit institutions or amounts owed to customers, as appropriate. Any related expense arising from the pricing spreads for the underlying securities is recognised as interest expense and accrued over the period that the related transactions are open using the effective interest method. Securities pledged as collateral under repo agreements are also included in the consolidated financial statements. Reverse repo agreements are accounted for as due from credit institutions or loans to customers, as appropriate. Any related income arising from the pricing spreads for the underlying securities is recognised as interest income over the period that the related transactions are open using the effective interest method. Securities received as collateral under reverse repo agreements are not recognised in the consolidated financial statements. If assets purchased under an agreement to resell are sold to third parties, the obligation to return securities is recorded as a trading liability and measured at fair value. (vii) Securitisation and transfer of assets For securitised financial assets, the Group considers both the degree of transfer of risks and rewards on assets transferred to another entity and the degree of control exercised by the Group over the other entity. When the Group, in substance, controls the entity to which financial assets have been transferred, the entity is included in these consolidated financial statements and the transferred assets are recognised in the consolidated statement of financial position. When the Group has transferred financial assets to another entity, but has retained substantially all the risks and rewards relating to the transferred assets, the transferred assets are recognised in the consolidated statement of financial position. When the Group transfers substantially all the risks and rewards relating to the transferred assets to an entity that it does not control, the assets are derecognised from the consolidated statement of financial position. If the Group neither transfers nor retains substantially all the risks and rewards relating to the transferred assets, the assets are derecognised if the Group has not retained control over the assets. (viii) Derivative financial instruments The Group enters into derivative contracts for trading purposes. Derivative financial instruments include swap, forward, futures, spot transactions and options in interest rate, foreign exchange, precious metals and stock markets, and any combinations of these instruments. The Group classifies these financial instruments as financial assets or liabilities held for trading. Derivatives are initially recognised at fair value, which is normally the transaction price (i.e. the fair value of the consideration given or received for them), and subsequently are measured at their fair value. Fair values are obtained from quoted market prices (if available) or are estimated using appropriate valuation models and available market prices. The realized trading profits from derivatives and unrealized changes in the fair value of derivative contracts are recognised immediately in profit or loss. Derivatives may be embedded in another contractual arrangement (a host contract). An embedded derivative is separated from the host contract and is accounted for as a derivative if, and only if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the combined instrument is not measured at fair value with changes in fair value recognised in profit or loss. Derivatives embedded in financial assets or financial liabilities at fair value through profit or loss are not separated. F-19 16

196 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Although the Group trades in derivative instruments for risk hedging purposes, these transactions do not qualify for hedge accounting. (ix) Due from credit institutions In the normal course of business, the Group lends or deposits funds for various periods with other credit institutions. Such amounts are categorized as loans originated by the Group and are carried at amortized cost. As these placements of funds are typically unsecured extensions of credit, some of the assets may be impaired. The principles used to create allowance for loan impairment on amounts due from credit institutions are described below for financial assets carried at amortized cost. (x) Promissory notes In the normal course of business the Group acquires promissory notes of third parties. These notes generally have short-term to medium-term maturity. Promissory notes are categorized as securities at fair value through profit or loss, investments available-for-sale or amounts due from credit institutions or loans to customers depending on their economic substance. Promissory notes are measured by the Group according to the appropriate accounting policies for the respective assets. (xi) Trade receivables (payables) Trade receivables (payables) are initially recognised at cost, which is the fair value of the consideration given (received), and are subsequently measured at amortized cost. An allowance for impairment of trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the allowance is determined using the principles described below for financial assets carried at amortized cost. (xii) Amounts owed to credit institutions and to customers and subordinated deposits Amounts owed to credit institutions and to customers and subordinated deposits are initially recognised at fair value less transaction costs that are directly attributable to the acquisition or issue of the financial liability. Subsequently amounts due are stated at amortized cost and any difference between the carrying amount and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. If the Group purchases its own debt, it is removed from the consolidated statement of financial position and the difference between the carrying amount of a liability and the consideration paid is included in net interest income. (xiii) Certificated debts and eurobonds issued Certificated debts represent promissory notes, certificates of deposit and bonds issued by the Group to domestic customers. Eurobonds represent mainly internationally traded Euro Medium Term Notes and Loan Participation Notes issued by the Group. They are accounted for according to the same principles used for amounts owed to credit institutions and to customers. (xiv) Offsetting Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. F-20 17

197 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) f) Impairment (i) Financial assets carried at amortized cost Financial assets carried at amortized cost consist principally of loans, investments held-to-maturity and other receivables. The Group reviews its loans, investments held-to-maturity and receivables to assess impairment on a regular basis. A loan or receivable is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan or receivable and that event (or events) has had an impact on the estimated future cash flows of the loan that can be reliably estimated. Objective evidence that financial assets are impaired can include default or delinquency by a borrower, breach of loan covenants or conditions, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, deterioration in the value of collateral, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers in the group, or economic conditions that correlate with defaults in the group. The Group first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for loans and receivables that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed loan or receivable, whether significant or not, it includes the loan in a group of loans and receivables with similar credit risk characteristics and collectively assesses them for impairment. Loans and receivables that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on a loan or receivable has been incurred, the amount of the loss is measured as the difference between the carrying amount of the loan or receivable and the present value of estimated future cash flows including amounts recoverable from guarantees and collateral discounted at the loan or receivable s original effective interest rate. Contractual cash flows and historical loss experience adjusted on the basis of relevant observable data that reflect current economic conditions provide the basis for estimating expected cash flows. In some cases the observable data required to estimate the amount of an impairment loss on a loan or receivable may be limited or no longer fully relevant to current circumstances. This may be the case when a borrower is in financial difficulties and there is little available historical data relating to similar borrowers. In such cases, the Group uses its experience and judgment to estimate the amount of any impairment loss. The allowance for impairment losses also covers losses where there is objective evidence that incurred losses are present in the loan portfolio at the reporting date. These have been estimated based upon historical patterns of losses in each component, the credit ratings allocated to borrowers and reflecting the current economic conditions in which the borrowers operate. All impairment losses in respect of loans and receivables are recognised in profit or loss and are only reversed if a subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. When a loan is uncollectable, it is written off against the related allowance for loan impairment. The Group writes off a loan balance (and any related allowance for impairment losses) when management determines that the loans are uncollectible and when all necessary steps to collect the loan are completed. Loans are regarded as non-performing if the loan has been in default as to payment of principal or interest for 90 days or more. Loans are considered contractually overdue when a borrower fails to make a scheduled payment of principal or interest for more than five days from the date stated in the loan agreement. F-21 18

198 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Restructured loans are renegotiated loans that would otherwise be past due or impaired. Restructured loans do not include overdue and non-performing loans. The Group assesses the financial performance of restructured loans post restructuring, and if the loan performs as expected for five consequtive quarters after the restructuring it is removed from the category. If the amount of the impairment losses subsequently decreases due to an event occurring after the write-down, the recovery of the impairment is credited to the provision for impairment losses in profit or loss. (ii) Available-for-sale Impairment losses on available-for-sale financial assets are recognised by transferring the cumulative loss that is recognised in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss For an investment in an equity security available-for-sale, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. (iii) Financial assets carried at cost Financial assets carried at cost include unquoted equity instruments included in investments available-for-sale that are not carried at fair value because their fair value can not be reliably measured. If there is objective evidence that such investments are impaired, the impairment loss is calculated as the difference between the carrying amount of the investment and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. All impairment losses in respect of these investments are recognised in profit or loss and can not be reversed. (iv) Non financial assets Other non financial assets, other than deferred taxes, are assessed at each reporting date for any indications of impairment. If any such indication exists, then the asset s recoverable amount is estimated. The recoverable amount of non financial assets is the greater of their fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount. All impairment losses in respect of non financial assets are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis. An impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only 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. F-22 19

199 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) g) Assets held for sale A non-current asset is classified as held for sale if it is highly probable that the asset s carrying amount will be recovered through a sale transaction rather than through continuing use. Such sale transaction shall be principally completed within one year from the date of classification of an asset as held for sale. Immediately before classification as held for sale, the assets are remeasured in accordance with the Group s accounting policies. Thereafter generally the assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. If the fair value less costs to sell of an asset held for sale is lower than its carrying amount, an impairment loss is recognised in profit or loss. Any subsequent increase in an asset s fair value less costs to sell is recognised to the extent of the cumulative impairment loss that was previously recognised in relation to that specific asset. h) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is separately presented in the consolidated statement of financial position. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate. Goodwill is tested for impairment annually on the reporting date or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Any excess of the Group s share of the net identifiable assets over the cost of an acquisition is recognised immediately as income in profit or loss. i) Property, equipment and intangibles Property, equipment and intangibles are recorded at historical cost less accumulated depreciation (amortization) and any accumulated impairment losses. Furthermore, the historical cost of property, equipment and intangibles of the subsidiaries, that used the Russian Rouble as the functional currency of their financial statements during the period when the Russian Federation met the criteria of a hyperinflationary economy, is restated to the equivalent purchasing power of the Russian Rouble at 31 December 2002 for assets acquired prior to that date. Depreciation (amortization) is provided to write off the cost on a straight-line basis over the estimated useful economic life of the asset. The economic lives are as follows: Years Buildings Office equipment 3-20 Leasehold improvements Over expected life of the lease Software and other intangible assets 3-10 Programming rights include licenses for broadcasting of films and TV programs owned by the Group. Programming rights are amortized depending on the number of contracted airings as follows. Number of airings Amortization rate 1 airing 100% 2 airings 65% at the first; 35% at the second 3 airings 50% at the first; 30% at the second; 20% at the third If the limitation to the number of airings is higher than three or there is no such limitation for a product, amortization is calculated based on three airings as substantially all of the economic benefit associated with content is derived from the initial airings. F-23 20

200 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Customer-related assets acquired in a business combination are recognised at fair value at the acquisition date. The contractual customer relationships have a finite useful life of 8 years and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationship. Assets under construction are not depreciated. Depreciation of these assets will begin when the related assets are ready to be placed in service. Repairs and maintenance are charged to profit or loss at the date the services are provided. j) Bullion in vault The Group enters into operations with bullion for trading purposes. Bullion in vault is measured at fair value based on the USD/ounce of precious metals quotations of the London Bullion Market Association fixing rates. k) Construction contracts The Group also enters into construction contracts, which generally represent long-term contracts to manufacture design-build equipment, including nuclear power plant equipment, continuous casting machines, handling machinery and equipment for cryogen products. Contract costs are recognised when incurred. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are probable of recovery. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. The Group uses the percentage of completion method to determine the appropriate amount of revenues to be recognised in a given period. The stage of completion is measured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as inventories, prepayments or other assets, depending on their nature. The Group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings. Progress billings not yet paid by customers are included within trade and other receivables. The Group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses). l) Inventories The Group regards non-financial assets (property) that are held for sale in the ordinary course of business as inventories. Inventories are measured at the lower of cost and net realizable value. The cost of inventories held by the Group comprises all costs of purchase including purchase price, duties and other taxes, transportation and other costs directly attributable to acquisition. The Group recognizes the amount of any write-down of inventories to net realizable value and all losses of inventories as an expense in the period the write-down or loss occurs. m) Exploration and evaluation assets The Group recognizes the following expenditures associated with finding of specific mineral resources (e.g. oil and gas) as exploration and evaluation assets: (a) acquisition of rights to explore; (b) topographical, geological, geochemical and geophysical studies; (c) exploratory drilling; (d) trenching; (e) sampling; and (f) activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource. Expenditures related to the development of mineral resources are not recognised by the Group as exploration and evaluation assets. F-24 21

201 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Exploration and evaluation assets are measured at cost. The Group distinguishes between tangible or intangible exploration and evaluation assets. To the extent that a tangible asset is consumed in developing an intangible asset, the amount reflecting that consumption is part of the cost of the intangible asset. Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. Any impairment losses is recognised immediately in profit or loss. n) Investment property Investment property is property held by the Group to earn rentals or for capital appreciation, or both, rather than for use for administrative purposes or sale in the ordinary course of business. Investment properties are stated at cost, less accumulated depreciation and allowance for impairment. If any indication exists that investment properties may be impaired, the Group estimates the recoverable amount as the higher of value-inuse and fair value less cost to sell. o) Operating and finance leases The Group enters into operating lease agreements as a lessee. The total payments made under operating leases are charged to profit or loss on a straight-line basis over the period of the lease. The Group also enters into finance lease agreements as a lessor. Assets held under finance lease in the consolidated statement of financial position of the Group are presented as a receivable at an amount equal to the net investment in the lease. Under a finance lease substantially all the risks and rewards incidental to legal ownership are transferred by the lessor, and thus the lease payment receivable is treated by the lessor as repayment of principal and finance income to reimburse and reward the lessor for its investments and services. The recognition of finance income is based on a pattern reflecting a constant periodic rate of return on the lessor s net investment in the finance lease. Lease payments relating to the period, excluding costs for services, are applied against the gross investment in the lease to reduce both the principal and unearned finance income. p) Fiduciary activities The Group provides trustee services to its customers. Also the Group provides depositary services to its customers, which include transactions with securities on their depo accounts. Assets and liabilities incurred under the trustee and depository activities are not included in the consolidated financial statements. The Group accepts the operational risk on these activities, and the customers bear the credit and market risks associated with such operations. q) Dividends, treasury stock and additional paid-in capital Dividends on ordinary shares are reflected as an appropriation of retained earnings in the period in which they are declared. Dividends for the year, which are declared after the reporting date, are treated as a subsequent event under IAS 10 Events After the Reporting Period. The Bank s shares that are reacquired by the Bank or its subsidiaries are referred to as treasury stock and are shown as a deduction from total equity. Gains and losses on sales of own shares are charged or credited to equity. Amount received on the issuance of the Bank s shares exceeding their par value is referred to as additional paid-in capital and is accounted as a part of equity. r) Provisions Provisions are recognised in the consolidated statement of financial position when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. F-25 22

202 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for. s) Taxation Profit tax comprises current and deferred tax. Profit tax is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised within other comprehensive income or directly in equity. The current taxation charge is calculated in accordance with the regulations of the Russian Federation and other jurisdictions in which the Bank has offices and branches or where its subsidiaries are located and is based on the results reported in the consolidated statement of comprehensive income of the Bank and its subsidiaries prepared under statutory tax legislation. Deferred profit taxes are provided on temporary differences between the tax base of an asset or liability and its carrying amount in the statement of financial position. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. Deferred profit tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and temporary differences related to investments in subsidiaries and associates where the parent is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences, unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are offset if the Group has a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. In accordance with the tax legislation of the Russian Federation, tax losses and current tax assets of a company in the Group may not be set off against taxable profits and current tax liabilities of other Group companies. In addition, the tax base is determined separately for each of the Group s main activities and, therefore, tax losses and taxable profits related to different activities cannot be offset. The Russian Federation also has various other taxes that are relevant to the Group s activities. These taxes (except recoverable value added tax) are included as a component of administrative expenses in profit or loss. t) Value added tax VAT related to sales of products and services is payable to tax authorities at the earlier of (a) receipt of advances from customers or (b) delivery of the goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases, which have not been settled at the reporting date (VAT recoverable and deferred VAT payable), is recognised on a gross basis and disclosed separately as other assets and other liabilities. Where an allowance has been made for impairment of receivables, the impairment loss is recorded for the gross amount of the debtor, including VAT. The related VAT deferred liability is maintained until the receivable is written off for tax purposes. F-26 23

203 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) u) Cash and cash equivalents Cash and cash equivalents comprise cash balances, current accounts with the Central Bank of the Russian Federation and amounts due from credit institutions with maturity of three months or less when originated that are subject to insignificant risk of changes in their fair value. Cash balances with contractual limitations on immediate disposal and overdue amounts are excluded from cash and cash equivalents. v) Credit related commitments In the normal course of business, the Group enters into credit related commitments, comprising undrawn loan commitments, letters of credit and guarantees, and provides other forms of credit insurance. Financial guarantees issued by the Group represent an obligation to pay certain amount to a beneficiary as a compensation of loss, incurred as a result of the debtor s failure to make payment when due in accordance with the original or modified terms of the financial instrument. Such guarantees are initially recognised at fair value. Subsequently they are measured at the higher of created provision and initial cost less, where applicable, accumulated amortization of commission income, received under the financial guarantee. Provisions for losses under financial guarantees and other credit related commitments are recognised when losses are considered probable and can be measured reliably. Financial guarantee liabilities and provisions for other credit related commitment are included within other liabilities. w) Share capital (i) Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. (ii) Repurchase of share capital When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a decrease in equity. (iii) Dividends The ability of the Bank to declare and pay dividends is subject to the rules and regulations of the Russian legislation. x) Share-based payments As a part of its remuneration policy the Group uses share-based payments (including share options) for services of its employees and directors. The fair value of services received is measured indirectly, i.e. by reference to the fair value of the share-based instruments granted. The fair value of the instruments is measured (i) by use of a market quotation for the instruments that are traded on an active market or (ii) by use of valuation techniques that are commonly used for valuation of such instruments if the share-based instrument is not actively traded. Expenses related to the options are accrued starting from the grant date through to the vesting date regardless of the service period covered. Equity-settled share-based payments are measured at the fair value of the equity instrument at the grant date. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group s estimate of the number of shares that will eventually vest. F-27 24

204 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) For cash-settled share-based payments (share appreciation rights), a liability equal to the portion of the services received is recognised at the current fair value determined at each reporting date. Share-based payment transactions with a cash alternative are structured so that the employee has the right to choose whether the transaction is settled in equity instruments or in cash-settled share appreciation rights and at the day of settlement the fair value of one settlement alternative is the same as the other. As a result, such transactions are accounted for in the same way as cash-settled share-based payments. At the date of settlement the liability is re-measured to its fair value. If the employee chooses settlement in equity instruments, the liability is transferred directly to equity. y) Segment reporting An operating segment is a component of a group that: (i) engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same group); (ii) whose operating results are regularly reviewed by the group s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (iii) for which discrete financial information is available. Internal reports which are regularly reviewed by the chief operating decision maker are based on financial information prepared in accordance with IFRS as management believes that such information is the most relevant in evaluating the segment results. Intersegment balances and transactions are eliminated in the segment reporting reviewed by the chief operating decision maker. z) Reclassifications and adjustments Results from acquisition of subsidiaries and associates of RUR 231 million and income from equity accounted associates of RUR 2,599 million are presented separately in the consolidated statement of comprehensive income for the year ended 31 December These amounts are included in a gain from investments available-for-sale and investments in associates in these consolidated financial statements. In 2011 the Group recognised adjustments to assets and liabilities and equity items included in the statement of financial position as at 31 December 2010 as a result of changes in business combination estimates made in prior period. As a result of these changes total equity as at 31 December 2010 was adjusted by RUR 793 million (note 31). The Group decided not to adjust amounts included in the statement of comprehensive income as the effect of adjustments is not significant. aa) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective as at 31 December 2011, and are not applied in preparing these consolidated financial statements. Of these pronouncements, potentially the following will have an impact on the Group s financial position and performance. The Group plans to adopt these pronouncements when they become effective. IFRS 9 Financial Instruments will be effective for annual periods beginning on or after 1 January The new standard is to be issued in phases and is intended ultimately to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement. The first phase of IFRS 9 was issued in November 2009 and relates to the classification and measurement of financial assets. The second phase regarding classification and measurement of financial liabilities was published in October The remaining parts of the standard are expected to be issued during The Group recognises that the new standard introduces many changes to the accounting for financial instruments and is likely to have a significant impact on the consolidated financial statements. The impact of these changes will be analysed during the course of the project as further phases of the standard are issued. The Group does not intend to adopt this standard early. F-28 25

205 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) IFRS 13 Fair Value Measurement will be effective for annual periods beginning on or after 1 January The new standard replaces the 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 measurements. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurement that currently exist in certain standards. The standard is applied prospectively with early adoption permitted. Comparative disclosure information is not required for periods before the date of initial application. Amendment to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income. 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 the statement of profit or loss and other comprehensive income. However, the use of other titles is permitted. The amendment shall be applied retrospectively from 1 July 2012 and early adoption is permitted. IFRS 10 Consolidated Financial Statements will be effective for annual periods beginning on or after 1 January The new standard supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation Special Purpose Entities. IFRS 10 introduces a single control model which includes entities that are currently within the scope of SIC-12. Under the new three-step control model, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with that investee, has the ability to affect those returns through its power over that investee and there is a link between power and returns. Consolidation procedures are carried forward from IAS 27 (2008). When the adoption of IFRS 10 does not result in a change in the previous consolidation or non-consolidation of an investee, no adjustments to accounting are required on initial application. When the adoption results in a change in the consolidation or non-consolidation of an investee, the new standard may be adopted with either full retrospective application from date that control was obtained or lost or, if not practicable, with limited retrospective application from the beginning of the earliest period for which the application is practicable, which may be the current period. Early adoption of IFRS 10 is permitted provided an entity also early-adopts IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011). IFRS 11 Joint Arrangements will be effective for annual periods beginning on or after 1 January 2013 with retrospective application required. The new standard supersedes IAS 31 Interests in Joint Ventures. The main change introduced by IFRS 11 is that all joint arrangements are classified either as joint operations, which are consolidated on a proportionate basis, or as joint ventures, for which the equity method is applied. The type of arrangement is determined based on the rights and obligations of the parties to the arrangement arising from joint arrangement s structure, legal form, contractual arrangement and other facts and circumstances. When the adoption of IFRS 11 results in a change in the accounting model, the change is accounted for retrospectively from the beginning of the earliest period presented. Under the new standard all parties to a joint arrangement are within the scope of IFRS 11 even if all parties do not participate in the joint control. Early adoption of IFRS 11 is permitted provided the entity also early-adopts IFRS 10, IFRS 12, IAS 27 (2011) and IAS 28 (2011). IFRS 12 Disclosure of Interests in Other Entities will be effective for annual periods beginning on or after 1 January The new standard contains disclosure requirements for entities that have interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. Interests are widely defined as contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. The expanded and new disclosure requirements aim to provide information to enable the users to evaluate the nature of risks associated with an entity s interests in other entities and the effects of those interests on the entity s financial position, financial performance and cash flows. Entities may early present some of the IFRS 12 disclosures without a need to early-adopt the other new and amended standards. However, if IFRS 12 is early-adopted in full, then IFRS 10, IFRS 11, IAS 27 (2011) and IAS 28 (2011) must also be early-adopted. F-29 26

206 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) IAS 28 (2011) Investments in Associates and Joint Ventures combines the requirements in IAS 28 (2008) and IAS 31 that were carried forward but not incorporated into IFRS 11 and IFRS 12. The amended standard will become effective for annual periods beginning of or after 1 January 2013 with retrospective application required. Early adoption of IAS 28 (2011) is permitted provided the entity also early-adopts IFRS 10, IFRS 11, IFRS 12 and IAS 27 (2011). The Group has not yet analysed the likely impact of the new standards on its financial position or performance. Various Improvements to IFRSs have been dealt with on a standard-by-standard basis. All amendments, which result in accounting changes for presentation, recognition or measurement purposes, will come into effect not earlier than 1 January The Group has not yet analysed the likely impact of the improvements on its financial position or performance. NOTE 4 SEGMENT REPORTING Management determined that the Group operates in the following operating segments according to IFRS 8 Operating Segments: banking, media (Gazprom Media Group) and machinery. Other operations include construction of real estate, natural gas trading, project engineering in the power sector and gold mining. In 2010 operating segments also included petrochemicals and tires (SIBUR Holding Group). For additional disclosures on types of products and services included in non-banking operating segments refer to Note 8. The Group primarily operates in the Russian Federation. Operations of subsidiaries domiciled in foreign countries are immaterial compared to the total volume of the Group s operations. Substantially all revenues from external customers are from residents of the Russian Federation. The total amount of revenues from each single external customer or group of connected customers does not exceed 10 per cent of revenues. Substantially all of non-current assets are located in the Russian Federation. Assets of the banking segment include investments in subsidiaries representing other segments which are eliminated at the consolidated level. As at 23 December 2010 the Group lost control over SIBUR Holding Group and from that date ceased consolidation of its assets, liabilities and performance results in the consolidated financial statements (Note 32). Performance results of SIBUR Holding Group from 1 January 2010 to the date of disposal are disclosed as discontinued operations in the petrochemicals and tires business segment information. Information regarding the results of each reportable segment is disclosed below. Performance is measured based on segment profit from operations after profit tax as included in the internal management reports that are reviewed by the Management Board. Segment information for operating segments as of 31 December 2011 and 2010 and for the years then ended is as follows. F-30 27

207 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Banking Media Machinery Other Consolidated Profit and loss information Year ended 31 December 2011 Net interest income external 59,354 (42) (1,203) ,226 Inter-segment net interest income 4, (2,541) (1,860) - Impairment of interest earning assets (10,897) 8 (366) 1 (11,254) Non-banking operating revenues - 46,873 60,171 27, ,162 Non-banking operating expenses - (37,002) (62,024) (26,822) (125,848) Non-interest income external 45,197 (214) ,828 Inter-segment non-interest income (95) (45) (59) Non-interest expense external (excluding impairment of goodwill) (43,740) (982) (44,118) Inter-segment non-interest expense (4) - Impairment of goodwill (269) (1,825) (1,000) - (3,094) Segment operating result 53,610 8,167 (6,241) (1,634) 53,902 Profit tax (expense) benefit (8,972) (2,554) (1,838) 294 (13,070) Segment result 44,638 5,613 (8,079) (1,340) 40,832 Attributable to: Owners of the parent 44,600 5,739 (6,690) (1,442) 42,207 Non-controlling interest from continuing operations 38 (126) (1,389) 102 (1,375) Segment result 44,638 5,613 (8,079) (1,340) 40,832 F-31 28

208 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Banking Petrochemicals and tires (discontinued operations) Media Machinery Other Consolidated Profit and loss information Year ended 31 December 2010 Net interest income external 31,799 (486) - (677) ,285 Inter-segment net interest income 6,805 (1,739) 252 (2,063) (3,255) - Impairment of interest earning assets (1,129) - (14) (378) (134) (1,655) Non-banking operating revenues - 241,545 39,909 35,243 19, ,297 Non-banking operating expenses - (184,203) (32,813) (39,681) (18,561) (275,258) Non-interest income external 51,556 1,017 (190) (1,264) 3,580 54,699 Inter-segment non-interest income (669) Non-interest expense external (excluding impairment of goodwill) (40,011) (161) - (39,270) Inter-segment non-interest expense (5) Impairment of goodwill (120) - (1,124) (4,745) - (5,989) Segment operating result 48,226 57,012 6,044 (13,726) 2, ,109 Profit tax (expense) benefit (11,719) (13,176) (1,785) 1,576 (833) (25,937) Segment result 36,507 43,836 4,259 (12,150) 1,720 74,172 Disposal of subsidiary (7,909) (7,909) Total segment result 28,598 43,836 4,259 (12,150) 1,720 66,263 Attributable to: Owners of the parent 28,511 32,718 4,545 (10,418) 1,525 56,881 Non-controlling interest 87 11,118 (286) (1,732) 195 9,382 Segment result 28,598 43,836 4,259 (12,150) 1,720 66,263 F-32 29

209 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Statement of financial position 31 December 2011 Banking Media Machinery Other Eliminations Consolidated Cash and due from the CBR and credit institutions 531,334 13,742 3,024 6,458 (19,093) 535,465 Financial assets held for trading 197, (60) 197,685 Loans to customers 1,449, ,169 (57,260) 1,396,454 Investments available-for-sale and investments in associates 149, ,503 7,413 (80,887) 77,970 Receivables and prepayments 12,109 8,788 32,342 5,697 (1,030) 57,906 Investments held-to-maturity 12, ,000 Inventories ,206 28,629-49,092 Property, plant and equipment and intangibles 22,766 23,172 34,766 7,417-88,121 Goodwill 1,169 22,088 3, ,352 Invetment in associate held for sale 11, ,183 All other assets 9,522 2,280 5,434 6, ,440 Total assets 2,397,535 70, ,817 67,082 (158,226) 2,477,668 Financial liabilities held for trading 7, ,633 Amounts owed to governmental bodies and credit institutions 296,811 5,041 36,748 18,974 (50,337) 307,237 Amounts owed to customers 1,446, ,439 5,710 (25,991) 1,430,002 Subordinated deposits 133, ,568 Eurobonds issued 115, ,375 Certificated debts 143, (60) 143,311 All other liabilities 31,047 12,060 42,209 13,237 (951) 97,602 Total liabilities 2,174,396 17,130 82,526 38,015 (77,339) 2,234,728 F-33 30

210 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Banking Media Machinery Other Eliminations Consolidated Statement of financial position 31 December 2010 Cash and due from the CBR and credit institutions 378,447 12,662 6,428 7,620 (22,239) 382,918 Financial assets held for trading 173, (851) 172,802 Loans to customers 1,073, ,877 2,212 (44,085) 1,033,370 Investments available-for-sale and investments in associates 132, ,213 4,324 (72,884) 65,008 Receivables and prepayments 15,589 7,755 29,849 4,686 (1,561) 56,318 Investments held-to-maturity Inventories ,834 24, ,038 Property, plant and equipment and intangibles 18,151 18,294 35,005 8,414 (68) 79,796 Goodwill 1,438 13,960 4, ,494 Investment in associate held for sale 68, ,070 All other assets 17,585 2,498 5,011 4, ,580 Total assets 1,879,013 55, ,399 57,739 (140,896) 1,951,684 Financial liabilities held for trading 27, ,378 Amounts owed to governmental bodies and credit institutions 134,708-32,951 19,680 (41,532) 145,807 Amounts owed to customers 1,202, ,721 4,847 (24,768) 1,185,377 Subordinated deposits 143, ,422 Eurobonds issued 79, ,392 Certificated debts 65,750-1,015 - (842) 65,923 All other liabilities 25,408 7,674 39,947 11,138 (870) 83,297 Total liabilities 1,678,597 7,712 76,634 35,665 (68,012) 1,730,596 F-34 31

211 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 5 NET INTEREST INCOME Net interest income for the years ended 31 December 2011 and 2010 comprise: Interest income Interest income on financial assets at amortized cost: Loans to customers: Loans to legal entities 95,112 70,401 Loans to individuals 15,585 11,671 Due from credit institutions 3,883 5,061 Financial leasing 1, Investments held-to-maturity Interest income on financial assets held for trading and investments available-for-sale: Debt securities 14,588 12, , ,188 Interest expense Interest expense on financial liabilities at amortized cost: Amounts owed to customers: Amounts owed to legal entities 30,396 29,355 Amounts owed to individuals 11,792 11,934 Amounts owed to credit institutions and governmental bodies 9,646 4,060 Subordinated deposits 10,516 12,316 Certificated debts 5,567 5,735 Eurobonds issued 5,400 5,017 73,317 68,417 Net interest income 58,226 31,771 NOTE 6 PROVISIONS AND IMPAIRMENT LOSSES Provisions for impairment losses in the consolidated statement of comprehensive income represent the charge required in the current period to establish the total allowance for losses carried forward in accordance with IFRS. The movements in the allowances for impairment losses on interest earning assets during the years ended 31 December 2011 and 2010 were: Due from credit institutions Loans to customers Total allowance for impairment 31 December ,553 55,272 56,825 (Recovery of impairment)/impairment losses (1,089) 2,744 1,655 Disposal of subsidiaries - (3,298) (3,298) Amounts written off - (4,724) (4,724) Effect of translation to presentation currency December ,631 51,136 Impairment losses ,903 11,254 Disposal of subsidiaries - (2,173) (2,173) Amounts written off - (1,652) (1,652) Effect of translation to presentation currency December ,839 58,700 F-35 32

212 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) The movements in the allowances for impairment of other assets and provisions for other risks during the years ended 31 December 2011 and 2010 were: Receivables Inventories Other assets Other risks Total allowance for impairment/ provisions 31 December ,602 2, ,102 13,530 Impairment losses/(recovery of impairment) on continuing operations (2,728) (2,277) Impairment losses/(recovery of impairment) on discontinued operations 35 (52) - (861) (878) Disposal of subsidiary (Note 32) (995) (588) - - (1,583) Amounts written off (477) (83) - - (560) Effect of translation to presentation currency (5) 33 (71) - (43) 31 December ,327 1, ,513 8,189 (Recovery of impairment)/ Impairment losses (98) 913 (36) (1,164) (385) Disposal of subsidiary - - (3) - (3) Effect of translation to presentation currency December ,229 2, ,364 7,818 The allowance for impairment on other assets is deducted from the related assets. Provisions for other risks are recorded in other liabilities. The movements in the allowances for impairment for investments available-for-sale recognised for the years ended 31 December 2011 and 2010 were as follows. Investments available-for-sale accounted for at fair value Investments available-forsale accounted for at cost Total impairment 31 December ,484 6,370 10,854 Impairment losses - 1,834 1,834 Disposal of subsidiary (Note 32) - (682) (682) Disposal of investments available-for-sale (3,469) (11) (3,480) Effect of translation to presentation currency December ,015 7,526 8,541 Impairment losses Derecognition of investments available-for-sale (24) (2,857) (2,881) 31 December ,912 5,903 As of 31 December 2011 the Group estimated recoverable amounts of its property, plant and equipment and intangible assets. As a result, their carrying values were impaired by RUR 2,006 million, which was recognised as part of non-banking operating profits in the consolidated statement of comprehensive income for the year ended 31 December 2011 (31 December 2010: RUR 1,688 million) (Note 8). Also, as of 31 December 2011 the Group impaired goodwill previously recognised on acquisition of subsidiaries by RUR 3,094 million, which was recognised as impairment loss in the consolidated statement comprehensive income for the year ended 31 December 2011 (31 December 2010: RUR 5,989 million) (Note 18). F-36 33

213 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 7 NON-INTEREST LOSS FROM FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING Net loss from financial assets and liabilities held for trading for the years ended 31 December 2011 and 2010 comprise: Corporate shares (405) 3,165 Corporate bonds (2,038) 1,109 Russian and Moscow government bonds (299) 1,042 (Loss)/gain on securities held for trading (2,742) 5,316 Derivative contracts: - Interest swaps 1, Commodity swaps (313) (45) - Securities (223) (10,572) - Bullion (131) (20) Gain/(loss) on derivative contracts other than with foreign currency 500 (10,415) Non-interest loss from financial assets and liabilities held for trading (2,242) (5,099) NOTE 8 NON-BANKING OPERATING PROFITS The composition of non-banking operating profit for the years ended 31 December 2011 and 2010 is as follows. For more information on non-banking segments see Notes 1 and 4. For more information on disposal of the petrochemicals and tires business segment see Note Media business operating profit 9,871 7,096 Machinery business operating loss (1,853) (4,438) Other businesses operating profit 296 1,039 Non-banking operating profit, net 8,314 3,697 The composition of non-banking revenues and expenses is as follows Advertising 36,335 29,340 Broadcasting 5,770 5,975 Programming rights 2,105 1,362 Publishing activities 1,149 1,166 Other 1,514 2,066 Media business operating revenues 46,873 39,909 Depreciation and amortization 16,683 13,796 Salaries and other employment benefits 8,108 6,650 Broadcasting services 4,069 3,635 Cost of goods sold 677 3,526 Other costs to sell 3,100 2,852 Publishing 1,040 1,032 Administrative expenses Impairment of property, plant and equipment and intangible assets Other 2, Media business operating expenses 37,002 32,813 Media business operating profit 9,871 7,096 F-37 34

214 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Nuclear power plant equipment 14,620 13,929 Speciality steels 6,442 4,471 Thermal and other equipment 6,122 4,457 Mining equipment 7,581 4,053 Machinery equipment manufacturing 1,692 2,424 Equipment for cryogen products 1,730 2,533 Machinery for chemical production 7,648 1,840 Engineering revenue 1,715 1,401 Building and assembly workings Gascompressor units 9,227 - Electrical equipment 2,307 - Other equipment 1,087 - Machinery business operating revenues 60,171 35,243 Materials 25,275 12,330 Salaries and other employment benefits 12,416 8,385 Production services received 8,951 8,162 Depreciation and amortization 3,579 3,145 Other production expenses 4,484 2,330 Impairment of property, plant and equipment and intangible assets 2,006 1,584 Engineering expense 1,785 1,434 Distribution costs Other 2,988 2,003 Machinery business operating expenses 62,024 39,681 Machinery business operating loss (1,853) (4,438) Revenue from sale of natural gas 18,679 14,834 Engineering revenue 4,535 3,149 Revenue from sale of projects and premises 3,904 1,617 Other businesses operating revenues 27,118 19,600 Cost of natural gas sold 18,525 13,440 Engineering expenses 4,039 2,741 Cost of projects and premises sold 4,004 2,281 Depreciation and amortization Other businesses operating expenses 26,822 18,561 Other businesses operating profit 296 1,039 As of 31 December 2011 the OMZ (Uralmash-Izhora) Group has a number of construction contracts concluded with a Russian head contractor that is responsible for the construction of a nuclear power plant in Eastern Europe. These construction contracts include clauses that permit the head contractor to cancel the contracts with the Group under certain circumstances. Management assesses that it is possible that these construction contracts could be cancelled by the head contractor due to changes in the agreements with the final customer. In the event that the construction contracts referred to above are cancelled after the reporting date, the Group may incur a loss of up to RUR 2,152 million. F-38 35

215 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 9 FEES AND COMMISSIONS INCOME AND EXPENSE Fees and commissions income for the years ended 31 December 2011 and 2010 comprise: Credit and settlements commissions 13,295 1,230 Debit/credit cards 5,022 3,575 Trade finance 2,832 1,795 Depository and custodian 1,960 1,395 Cash operations 1,051 1,347 Asset management Arrangement fees and other financial services Other Fees and commissions income 25,608 10,882 Included in credit and settlements commissions for the year 2011 is RUR 12,076 million that represents a oneoff commission received on credit operations. Commissions from debit/credit cards represent commissions received from clients to issue and process of debit/credit cards and from other financial institutions for services. Settlements commissions represent commissions received for transfer of customer funds and from other operations with clients. Fees and commissions expense for the years ended 31 December 2011 and 2010 comprise: Debit/credit cards 1,899 1,080 Arrangement fees and other financial services Settlements operations Cash related services Depository and custodian services Brokerage operations Other Fees and commissions expense 3,723 2,529 NOTE 10 BANKING SALARIES, EMPLOYMENT BENEFITS AND ADMINISTRATIVE EXPENSES Banking salaries and administrative expenses for the years ended 31 December 2011 and 2010 comprise: Salaries 23,005 23,160 Social security costs 2,007 1,361 Defined contribution pension plan Share-option plans expense Annual remuneration of the Board of Directors Banking salaries and employment benefits 26,769 25,737 Rent 2,527 2,265 Occupancy 2,337 1,994 Business development 2,266 1,480 Operating taxes 2,256 1,636 Professional services 2,000 1,678 Depreciation and amortization 1,442 1,436 Charity expenses Charges from the State Deposit Insurance System Communications Other 2,174 2,136 Banking administrative expenses 17,491 14,854 F-39 36

216 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Included in banking salaries for the year ended 31 December 2011 is RUR 1,477 million that relates to bonus payments to the members of the Management Board based on the financial performance of the Group in 2010 (bonus payments recognised in 2010 for the year ended 31 December RUR 1,649 million). A part of annual employees bonuses that exceeds a specified amount is settled in own shares. In the year ended 31 December 2011 the payment to the Management Board and other employees of RUR 1,441 million was settled in own shares based on their fair value on the date of the bonus announcement (31 December 2010: RUR 1,605 million). The shares transferred to employees are puttable at the discretion of empoyees in two years time, and the corresponding amount is recognised as a part of payable to employees in other liabilities. The Group has pension arrangements under the State pension system of the Russian Federation. The Russian Federation state pension system requires current contributions by the employer calculated as a percentage of current gross salary payments; such expense, included in social security costs, is charged to profit or loss in the period the related compensation is earned by each employee. Also, in 2005 the Bank set up a defined contribution pension plan for its employees. The Bank recognised RUR 694 million as an expense for the defined contribution plan attributable to services provided by employees in 2011 (2010 RUR 499 million). The liabilities under the defined contribution plan are included in other liabilities. The operating taxes include property tax, VAT, transport tax and other minor taxes paid according to Russian tax legislation. Share-based payments In 2010 the Group launched several share-based compensation plans for directors and employees of the Bank. The plans cover the period of 2010 to A description of specific plans follows. Plan 1 The plan represents the long-term portion of remuneration of the Board of Directors members during At grant date the directors received three options entitling them to cash payments equal to the increase in the share price of the underlying shares. Vesting condition for the options is that a person serves as a director during the service period. For some options directors have a right to exercise their options on several dates. The options are settled in cash only. The directors are neither entitled to dividends nor to voting rights. Plan 2 The plan is set up for members of the Management Board. At grant date the managers purchased three call options on the Bank s shares, each covering a one-year period during Vesting conditions of each option include key performance indicators based on the Group s financial performance measured according to IFRS financial statements during the respective service period. The options may be settled in equities or in cash at discretion of the manager. The option premium paid by the managers is not refundable whether the vesting conditions are met or not. The options carry neither rights to dividends nor voting rights. Plan 3 The plan is set up for a group of approximately 370 middle managers of the Bank, including regional managers. At grant date the managers received share appreciation rights entitling them to cash payments equal to the increase in the share price of underlying shares during the service period. The vesting conditions are that the person serves as an employee of the Bank at vesting date (July 2013). The options are settled in cash only. They carry neither rights to dividends nor voting rights. F-40 37

217 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Below is a breakdown of the expenses recognised under the share-based payment plans for the years ended 31 December 2011 and Plan Number of shares Total expenses Expenses Number of Total to be recognised in shares expenses to be recognised 2011 recognised Expenses recognised in 2010 Plan 1 150, , Plan 2 133, , Plan 3 330,925 1, ,555 1, Exercised options Total Plans 615,051 1, ,556 2, As of 31 December 2011 the Group recognised a liability of RUR 940 million related to accrued expense on share-based payments (31 December 2010: RUR 462 million). NOTE 11 PROFIT TAX The provision for profit tax from continuing operations for the years ended 31 December 2011 and 2010 comprises: Current profit tax expense 8,720 2,862 Deferred tax expense 4,350 9,899 Profit tax expense from continuing operations 13,070 12,761 In 2011 applicable tax rate for current and deferred tax is 20%. The effective profit tax rate differs from the statutory profit tax rate. A reconciliation of the profit tax provision based on the statutory rate with the actual profit tax provision is as follows: Profit from continuing operations before taxation 53,902 41,358 Statutory profit tax rate 20% 20% Theoretical profit tax charge at statutory rate 10,780 8,272 Tax effect of permanent differences 4,870 4,588 Income and expenses taxed at different rates (2,836) (182) Tax concession of subsidiaries Profit tax expense from continuing operations 13,070 12,761 As of 31 December 2011 and 2010 profit tax assets comprise: 31 December December 2010 Current profit tax assets 829 1,872 Deferred tax assets 7,461 16,846 Profit tax assets 8,290 18,718 The current profit tax assets arise from advance payments of profit tax and is usually realized either by offsetting with profit tax liabilities in subsequent periods or by repayment by the tax authorities. Deferred tax assets are the amounts of profit taxes recoverable in future periods in respect of: (i) deductible temporary differences; (ii) the carry forward of unused tax losses; and (iii) the carry forward of unused tax credits. The Group has not recognised deferred taxes in respect of investments in subsidiaries. As of 31 December 2011 tax losses carried forward of RUR 4,448 million were recognised as management considered it probable that future taxable profits will be available against which they can be utilised (31 December 2010: RUR 10,852 million). F-41 38

218 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) As of 31 December 2011 and 2010 profit tax liabilities comprise: 31 December December 2010 Current profit tax liabilities 2, Deferred tax liabilities 6,076 11,012 Profit tax liabilities 8,160 11,636 Deferred tax liabilities are the amounts of profit taxes payable in future periods in respect of taxable temporary differences. The following represents an analysis of the deferred tax balance sheet position as of 31 December 2011 and 2010: Tax effect of deductible temporary differences 31 December December 2010 Due from credit institutions Financial assets held for trading Loans to customers 1,473 1,054 Investments available-for-sale and investments in associates 2,209 2,075 Receivables and prepayments 1,364 1,109 Inventories 1,284 1,335 Property, plant and equipment 1,898 3,320 Intangible assets All other assets 2,918 1,502 Amounts owed to credit institutions Amounts owed to customers 20 - Financial liabilities held for trading 506 3,123 Eurobonds and certificated debts issued Tax loss carried forward 4,448 10,852 All other liabilities 2,133 1,593 Deferred tax assets 19,387 27,057 Off-set with deferred tax liabilities (11,926) (10,211) Deferred tax assets, net 7,461 16,846 F-42 39

219 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) 31 December December 2010 Tax effect of taxable temporary differences Due from credit institutions (112) - Financial assets held for trading (425) (945) Loans to customers (4,739) (4,228) Investments available-for-sale and investments in associates (2,186) (58) Receivables and prepayments (1,175) (1,108) Inventories (570) (856) Property, plant and equipment (5,206) (5,256) Intangible assets (368) (699) All other assets (557) (60) Amounts owed to credit institutions - (97) Amounts owed to customers (104) (173) Financial liabilities held for trading (7) (28) Eurobonds and certificated debts issued (10) (344) Assets held for sale and discontinued operations - (6,098) All other liabilities (2,543) (1,273) Deferred tax liabilities (18,002) (21,223) Off-set with deferred tax assets 11,926 10,211 Deferred tax liabilities, net (6,076) (11,012) Net deferred tax position 1,385 5,834 A reconciliation of changes in the net deferred tax position during the years ended 31 December 2011 and 2010 follows: Deferred tax position as of 31 December ,273 Effect of acquisition of subsidiaries 1,073 Translation into presentation currency (15) Disposal of subsidiary 3,285 Recognised in other comprehensive income (2,334) Recognised in profit or loss from discontinued operations (3,388) Recognised in profit or loss from continuing operations (9,899) Deferred tax position as of 31 December ,995 Provisional accounting finalization (Note 31) (161) Deferred tax position as of 31 December 2010, restated 5,834 Recognised in profit or loss from continuing operations (4,350) Effect of acquisition of subsidiaries 42 Recognised in other comprehensive income (148) Translation into presentation currency 7 Deferred tax position as of 31 December ,385 The tax effects relating to components of other comprehensive income comprise: Investments available-for-sale: Net change in fair value of investments available-for-sale Net change in fair value transferred to profit or loss Exchange differences on foreign operations Amount before tax Tax (expense) benefit Amount net of tax Amount before tax Tax benefit (expense) Amount net of tax 2,658 (1,570) 1,088 17,158 (3,399) 13,759 (13,938) 1,718 (12,220) (5,915) 1,065 (4,850) (310) - (310) 1,381-1,381 Total (11,590) 148 (11,442) 12,624 (2,334) 10,290 F-43 40

220 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 12 CASH AND CASH EQUIVALENTS AND DUE FROM CREDIT INSTITUTIONS Cash and cash equivalents as of 31 December 2011 and 2010 as shown in the consolidated cash flow statement comprised: 31 December December 2010 Cash on hand 27,429 25,936 Current account with the Central Bank of the Russian Federation 47,318 37,303 Term deposit with the Central Bank of the Russian Federation 77,300 35,272 Due from credit institutions: Current accounts 128,667 35,768 Term deposits with a maturity of three months or less when originated 203, ,641 Reverse repurchase agreements 9,948 28,146 Cash and cash equivalents 493, ,066 None of cash and cash equivalents are impaired or past due. Due from credit institutions comprise: 31 December December 2010 Term deposits agreements with a maturity of more than three months when originated 20,069 25,957 Less allowance for impairment (861) (505) Due from credit institutions 19,208 25,452 As at 31 December 2011 RUR 178,249 million of current and term deposits due from credit institutions was placed with five credit institutions which are large international and Russian banks (31 December 2010: RUR 104,841 million, five credit institutions). Reverse repurchase (reverse repo) agreements represent short-term funding granted by the Group with securities received as collateral. Securities received by the Group under reverse repo agreements are not recognised in the consolidated financial statements and are regarded as collateral by substance of the transaction. Securities received under reverse repo agreement may be sold or re-pledged by the Group in the absence of default by the owner of these securities (counterparty). However, the Group has an obligation to return the same amount of securities to the counterparty when the transaction is settled. As of 31 December 2011 and 2010 the Group had the following securities received as collateral under reverse repo agreements. Fair value of securities received under reverse repo agreement 31 December December 2010 Fair value of securities Fair value of received under reverse securities received repo agreement sold or under reverse repo re-pledged agreement Fair value of securities received under reverse repo agreement sold or re-pledged Corporate shares 9, , Corporate bonds 3,784-8,819 - Russian and Moscow government bonds 8,418-8,442-21, , F-44 41

221 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 13 FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING Financial assets classified as held for trading comprise: Note 31 December December 2010 Corporate bonds 108, ,882 Russian and Moscow government bonds 64,399 30,307 Corporate shares 19,337 19,553 Promissory notes 2,232 13,888 Trading securities 194, ,630 Derivative financial assets: 14 - foreign exchange contracts 1,934 3,965 - interest rate contracts 1, bullion contracts commodity contracts Derivative financial assets 3,358 4,172 Financial assets held for trading 197, ,802 As of 31 December 2011 and 2010 the corporate bonds portfolio mainly comprises marketable bonds of Russian blue-chip enterprises. Russian and Moscow government bonds comprise Rouble and foreign currency denominated government securities issued and guaranteed by the Ministry of Finance of the Russian Federation (OFZ), and municipal bonds issued and guaranteed by the government of the City of Moscow. As of 31 December 2011 corporate shares include RUR 9,924 million of OAO Gazprom ordinary shares (31 December 2010 RUR 17,734 million). The promissory notes portfolio is represented by promissory notes of large Russian banks. Financial liabilities classified as held for trading comprise: Note 31 December December 2010 Derivative financial liabilities 14 - foreign exchange contracts 6,944 14,610 - bullion contracts interest rate contracts commodity contracts securities contracts - 12,545 Financial liabilities held for trading 7,633 27,378 F-45 42

222 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 14 DERIVATIVE FINANCIAL ASSETS AND LIABILITIES The exposure to market risks on derivative positions and fair value of derivative financial assets and liabilities outstanding as of 31 December 2011 and 2010 is as follows: Derivative assets Notional amount equivalent Fair value of derivative contracts 31 December 2011 Derivative liabilities Notional amount equivalent Fair value of derivative contracts Foreign exchange contracts Option contracts 17, (17,627) (600) Forward contracts 48,748 1,268 (137,506) (5,931) Swap contracts 9, (25,852) (413) Interest rate contracts Swap contracts 26,097 1,366 (7,000) (295) Bullion contracts Option contracts 1, (1,085) (120) Forward contracts (1,161) (118) Swap contracts - - (718) (58) Commodity contracts Swap contracts (350) (98) Total derivative assets (liabilities) 3,358 (7,633) Derivative assets Notional amount equivalent Fair value of derivative contracts 31 December 2010 Derivative liabilities Notional amount equivalent Fair value of derivative contracts Foreign exchange contracts Option contracts 84,717 1,302 (84,703) (4,925) Forward contracts 70,332 2,308 (46,916) (9,684) Swap contracts 3, (142) (1) Securities contracts Option contracts - - (21,787) (12,545) Bullion contracts Option contracts (379) (14) Forward contracts (1,843) (107) Swap contracts (157) (4) Commodity contracts Swap contracts 1, (1,390) (98) Total derivative assets (liabilities) 4,172 (27,378) As at 31 December 2010 included in derivative liabilities arising from foreign exchange option contracts are RUR 3,623 million of liabilities arising from total return swap transactions (TRS) with large international banks. During 2011 TRS contracts were either unwound by paying the current fair value of the contracts to counterparties, or fully hedged by entering into offsetting derivative agreements with the same counterparties. As a result, as at 31 December 2011 the Group has no unhedged TRS exposures. F-46 43

223 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) The notional amount equivalents of certain types of financial instruments, e.g. derivative contracts, provide a basis for comparison with instruments recognised on the consolidated statement of financial position but does not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, does not indicate the exposure to credit or price risks. The derivative instruments become favourable (positive fair value) or unfavourable (negative fair value) as a result of fluctuations in market rates relative to their terms. The aggregate market exposure of derivative financial instruments on hand, the extent to which instruments are favourable or unfavourable and, thus, the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly over time. NOTE 15 LOANS TO CUSTOMERS Loans to customers by types of loan portfolios as of 31 December 2011 comprise: Loans to customers, gross Allowance for impairment Loans to customers, net Loans to legal entities 1,311,575 (54,785) 1,256,790 Loans to individuals 142,718 (3,054) 139,664 Total loans to customers 1,454,293 (57,839) 1,396,454 Loans to customers by types of loan portfolios as of 31 December 2010 comprise: Loans to customers, gross Allowance for impairment Loans to customers, net Loans to legal entities 988,169 (46,961) 941,208 Loans to individuals 95,832 (3,670) 92,162 Total loans to customers 1,084,001 (50,631) 1,033,370 As of 31 December 2011 loan exposures to the Gazprom Group accounted for 2.3% (RUR 33,023 million) of the gross loan portfolio (31 December 2010: 3.3% or RUR 35,416 million). Loans to the Gazprom Group bear interest from 6.5% to 15.8% per annum and have maturity dates from one month to 6 years. As of 31 December 2011 the ten largest loan exposures accounted for RUR 370,016 million or 25% of the gross loan portfolio (31 December 2010: RUR 320,568 million or 30%). As of 31 December 2011 RUR 20,597 million of gross loans to customers were past due for more than 90 days (non-performing loans) (31 December 2010: RUR 22,752 million). As of 31 December 2011 the carrying value of restructured loans was RUR 48,178 million (31 December 2010: RUR 47,934 million). These loans are not classified as overdue. a) Loans to legal entities Loans to legal entities by types of portfolios as of 31 December 2011 comprise: Loans to customers, gross Allowance for impairment Loans to customers, net Commercial lending 942,740 (31,916) 910,824 Acquisition and equity-backed finance 288,674 (17,288) 271,386 Project finance 80,161 (5,581) 74,580 Total loans to legal entities 1,311,575 (54,785) 1,256,790 F-47 44

224 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Loans to legal entities by types of portfolios as of 31 December 2010 comprise: Loans to customers, gross Allowance for impairment Loans to customers, net Commercial lending 714,493 (27,000) 687,493 Acquisition and equity-backed finance 193,250 (13,602) 179,648 Project finance 80,426 (6,359) 74,067 Total loans to legal entities 988,169 (46,961) 941,208 Loans were issued to the following types of borrowers: 31 December December 2010 Private companies, gross 1,157, ,010 Less allowance for impairment losses (54,044) (46,514) Private companies, net 1,103, ,496 State controlled companies, gross 154,385 84,159 Less allowance for impairment losses (741) (447) State controlled companies, net 153,644 83,712 Loans to legal entities, net 1,256, ,208 The breakdown of loans to legal entities by industries of the borrowers as of 31 December 2011 and 2010 is as follows: 31 December 2011 % 31 December 2010 % Metal manufacture 196, % 226, % Gas extraction, transportation and sale enterprises 167, % 184, % Chemical industry 162, % 38, % Electric power industry 102, % 49, % Finance and investment companies 81, % 20, % Oil extraction, transportation, processing and sale enterprises 74, % 70, % Real estate construction 63, % 34, % Mining 58, % 52, % Petrochemical industries 58, % 101, % Machine building 53, % 39, % Telecommunications 52, % 33, % Transport 40, % 19, % Food industry 38, % 19, % Trading enterprises 35, % 12, % Nuclear industry 28, % 27, % Agriculture 25, % 23, % Leasing 7, % 1, % Shipbuilding 4, % % Insurance 3, % 5 0.0% Timber industry 2, % 2, % Enterpreneurs % 2, % Other 55, % 25, % 1,311, % 988, % Less allowance for impairment (54,785) (46,961) Loans to legal entities, net 1,256, ,208 F-48 45

225 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) The ageing analysis of gross loans to legal entities as at 31 December 2011 and 2010 is shown below: Gross loans Impairment allowance 31 December 2011 Net loans Impairment to gross loans Loans without individual signs of impairment 1,237,559 (21,164) 1,216, % Impaired loans: -Not overdue 57,167 (17,155) 40, % -Overdue less than 30 days 865 (865) % -Overdue days 1,408 (1,408) % -Overdue days 266 (263) % -Overdue more than 180 days 14,310 (13,930) % Total impaired loans 74,016 (33,621) 40, % Total loans to legal entities 1,311,575 (54,785) 1,256, % Gross loans Impairment allowance 31 December 2010 Net loans Impairment to gross loans Loans without individual signs of impairment 913,443 (14,204) 899, % Impaired loans: -Not overdue 56,585 (15,456) 41, % -Overdue less than 30 days 73 (21) % -Overdue days 58 (55) % -Overdue days 1,435 (1,376) % -Overdue more than 180 days 16,575 (15,849) % Total impaired loans 74,726 (32,757) 41, % Total loans to legal entities 988,169 (46,961) 941, % Included in gross loans to legal entities as at 31 December 2011 is a total of RUR 1,896 million (31 December 2010: RUR 1,585 million) interest accrued on impaired loans. The Group estimates loan impairment for loans to legal entities based on an analysis of the future cash flows for impaired loans and based on its past loss experience for portfolios of loans for which no indications of impairment has been identified. Changes in these estimates could effect the loan impairment provision. For example, to the extent that the net present value of the estimated cash flows differs by plus/minus one percent, the impairment allowance on loans to legal entities as at 31 December 2011 would be RUR 12,568 million lower/higher (31 December 2010: RUR 9,412 million). The policy of the Group is to seek collateral for most of its exposures. Preferable collateral is in the form of a pledge of property, or a surety or guarantee from a party with a sound credit standing. The value of the property or the amount of the surety or guarantee should be sufficient to cover the principal amount of the loan and, as a rule, fees and interest for the entire term of the loan and any possible expenses and commissions involved in the foreclosure of the property, unless otherwise provided for by the decision of the relevant committee. F-49 46

226 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) An analysis of loans to legal entities secured by collateral or guarantees net of impairment as of 31 December 2011 and 2010 follows. Commercial lending 31 December 2011 Project finance Acquisition and equitybacked finance Securities 44,434 2, , ,298 Cash 2, ,124 Real estate 18,240 4,833-23,073 Other non-liquid collateral 496,856 61,634 95, ,696 No collateral 349,170 5, ,599 Total 910,824 74, ,386 1,256,790 Commercial lending 31 December 2010 Project finance Acquisition and equitybacked finance Securities 44,352 7, , ,424 Cash 38, ,202 Real estate 13,934 5,180-19,114 Other non-liquid collateral 368,164 59,894 56, ,244 No collateral 222,841 1, ,224 Total 687,493 74, , ,208 The amounts shown in the tables above represent the carrying value of financial asset to the extent the asset is covered by collateral or other credit enhancements, using the value of collateral determined at inception date, and do not necessarily represent the fair value of the collateral. The recoverability of loans to legal entities that are neither past due nor impaired is primarily dependent on the creditworthiness of the borrowers rather than the value of collateral, and the current value of the collateral does not significantly impact the impairment assessment. As of 31 December 2011, impaired or overdue loans to legal entities of RUR 30,260 million are secured by collateral with a fair value of RUR 19,620 million, excluding the effect of overcollateralisation. The components of net investment in finance lease included in loans to customers as of 31 December 2011 and 2010 are as follows: 31 December December 2010 Minimum lease payments 20,530 6,831 Less Unearned finance income (6,916) (2,607) Net investment in finance lease 13,614 4,224 Current portion not later than 1 year 3, Long-term portion from 1 to 5 years 10,005 3,668 Net investment in finance lease 13,614 4,224 Total Total F-50 47

227 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) b)loans to individuals Loans to individuals have been extended within the Russian Federation and comprise the following. 31 December December 2010 Mortgage loans originated 73,532 37,681 Mortgage loans acquired 28,867 27,516 Consumer loans 26,159 17,177 Car purchase loans 11,807 11,797 Credit cards and overdrafts 2,353 1, ,718 95,832 Less allowance for impairment (3,054) (3,670) Loans to individuals, net 139,664 92,162 The ageing analysis of loans to individuals as of 31 December 2011 and 2010 is shown below. Mortgage Loans Consumer loans 31 December 2011 Car purchase loans Credit cards and overdrafts Loans to individuals - Not overdue 95,492 25,715 11,166 2, ,653 - Overdue less than 30 days ,182 - Overdue days Overdue days Overdue more than 180 days 5, , ,399 26,159 11,807 2, ,718 Allowance for impairment losses (2,665) (155) (191) (43) (3,054) Loans to individuals, net 99,734 26,004 11,616 2, ,664 Allowance for impairment to gross loans (%) Total Mortgage Loans Consumer loans 31 December 2010 Car purchase loans Credit cards and overdrafts Loans to individuals - Not overdue 59,423 16,719 11,042 1,597 88,781 - Overdue less than 30 days ,124 - Overdue days 1, ,185 - Overdue days Overdue more than 180 days 3, ,108 Total loans to individuals, gross 65,197 17,177 11,797 1,661 95,832 Allowance for impairment losses (2,663) (343) (623) (41) (3,670) Loans to individuals, net 62,534 16,834 11,174 1,620 92,162 Allowance for impairment to gross loans (%) The significant assumptions used by management in determining the impairment losses for loans to individuals include the assumption that loss migration rates are constant and can be estimated based on the historic loss migration pattern for one to three years depending on the type of loans. Changes in these estimates could effect the loan impairment allowance. For example, to the extent that the net present value of the estimated cash flows differs by plus/minus three percent, the loan impairment allowance on loans on individuals as of 31 December 2011 would be RUR 4,191 million lower/higher (31 December 2010: to the extent the net present value of the estimated cash flows differs by plus/minus one percent, the loan impairment allowance would be RUR 922 million lower/higher). Total F-51 48

228 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Mortgage loans are secured by underlying housing real estate. Car purchase loans are secured by underlying cars. Consumer loans (exceeding RUR 350 thousand) are usually secured by guarantees of other individuals and pledge of assets. For mortgage and auto loans the fair value of collateral was estimated at inception of the loans and was not adjusted for subsequent changes to the reporting date. The Bank estimates that the fair value of the collateral for overdue or impaired mortgage loans is at least equal to 90% of the mortgage balance. Management believes that it is impracticable to estimate fair value of collateral held in respect of other impaired or overdue loans to individuals. For further details on the credit risk profile of the loan portfolio see Note 25. NOTE 16 INVESTMENTS AVAILABLE-FOR-SALE AND INVESTMENTS IN ASSOCIATES Investments available-for-sale and investments in associates comprise: 31 December December 2010 Available-for-sale accounted for at fair value 51,078 51,457 Available-for-sale accounted for at cost: - unconsolidated subsidiaries accounted for at cost 1,973 1,056 - associates accounted for at cost 2, other investments accounted for at cost 6,864 4,160 Investments available-for-sale 62,803 57,141 Investments in associates accounted for under the equity method 15,167 7,867 a) Investments available-for-sale accounted for at fair value Investments accounted for at fair value comprise: 31 December December 2010 Corporate shares and GDRs 19,370 41,026 Corporate bonds and CLNs 21,314 1,307 Funds participation shares 9,387 6,552 Promissory notes 1,007 2,572 Total investments available-for-sale accounted for at fair value 51,078 51,457 Investments available-for-sale accounted for at fair value are shown net of accumulated impairment of RUR 991 million (31 December 2010: RUR 1,015 million) (Note 6). As of 31 December 2011 corporate shares and GDRs include RUR 11,317 million of shares of various Russian electric power and utility companies (31 December 2010: RUR 10,848 million). Included in corporate shares and GDRs as of 31 December 2010 is RUR 29,836 million that represents ordinary shares and GDRs of OAO "Novatek". F-52 49

229 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) b) Unconsolidated subsidiaries accounted for at cost As of 31 December 2011 and 2010, the Group had investments in the following unconsolidated subsidiaries: 31 December 2011 Name Principal activity Country Group s holding, % Cost of investment Impairment allowance Carrying value of investment Banking segment OAO Morion Manufacturing Russia 92% 1,055 (585) 470 ZAO Raschetno-Depositarnaya Kompanya Clearing & custody Russia 99% 1,079 (17) 1,062 OOO Gazpromenergo-sberejenie Trading enterprises Russia 100% GPB Infrastructure Projects ltd. Financial companies Other 100% ZAO Strategicheskie aktivi Asset management Russia 100% ZAO Gamma Trading enterprises Russia 50% 25 (25) - Other 137 (35) 102 2,635 (662) 1,973 Machinery segment Other minor subsidiaries 2 (2) - Total unconsolidated subsidiaries accounted for at cost 2,637 (664) 1, December 2010 Group s holding, Cost of % investment Impairment allowance Carrying value of investment Name Principal activity Country Banking segment OAO Morion Manufacturing Russia 92% 1,055 (585) 470 OOO Gazpromenergo-sberejenie Trading enterprises Russia 100% ZAO Raschetno-Depositarnaya Clearing & custody Russia 66% 221 (17) 204 Kompanya ZAO Strategicheskie aktivi Asset management Russia 100% ZAO Gamma Trading enterprises Russia 50% 26 (26) - Other 107 (26) 81 1,702 (654) 1,048 Media segment Other minor subsidiaries 3-3 Machinery segment Other minor subsidiaries 5-5 Total unconsolidated subsidiaries accounted for at cost 1,710 (654) 1,056 F-53 50

230 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) c) Associates accounted for at cost As of 31 December 2011 and 2010, the Group has investments in the following associates accounted for at cost: 31 December 2011 Group s holding, Cost of % investment Impairment allowance Carrying value of investment Name Principal activity Country Banking segment ZAO FK Zenit Sport Russia 51% 1,658 (1,658) - OOO "GPB vysokie tehnologii" Telecommunications Russia 48% 1,316-1,316 Aeacus holding Ltd. Telecommunications Russia 25% 1,127-1,127 Kongress-centr Konstantinovskiy Telecommunications Russia 41% OAO Mezhregionteploenergo Energy Russia 41% OOO Sportstroyresurs Construction Russia 25% 50 (12) 38 Other 8-8 4,557 (1,670) 2,887 Machinery segment Other minor associates 1-1 Total associates accounted for at cost 4,558 (1,670) 2, December 2010 Group s holding, Cost of % investment Impairment allowance Carrying value of investment Name Principal activity Country Banking segment ZAO FK Zenit Sport Russia 51% 1,658 (1,658) - Kongress-centr Konstantinovskiy Telecommunications Russia 20% OAO Mezhregionteploenergo Energy Russia 41% OOO Sportstroyresurs Construction Russia 25% 50 (12) 38 Other 36 (6) 30 2,142 (1,676) 466 Machinery segment Other minor associates 2-2 Total associates accounted for at cost 2,144 (1,676) 468 Unconsolidated subsidiaries and associates have neither been consolidated with the results of the Group nor accounted for under the equity method as the effect of consolidation or equity accounting would neither materially alter the financial position as of 31 December 2011 and 2010 nor the results of its operations or cash flows for the years ended 31 December 2011 and d) Other investments accounted for at cost Other investments accounted for at cost include minor stakes in various Russian companies. The equity instruments available-for-sale are carried at cost as they do not have a quoted market price in an active market and other methods of reasonably estimating fair value are not applicable due to the lack of reliable information for discounted cash flow analysis and the absence of comparable quoted companies. It is also currently impracticable to calculate the range of estimates within which fair value of these equity investments is highly likely to lie. As of 31 December 2011 other investments accounted for at cost are shown net of accumulated impairment of RUR 2,578 million (31 December 2010: RUR 5,196 million). F-54 51

231 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) e) Investments in associates accounted for under the equity method As of 31 December 2011 and 2010 investments in associates accounted for under the equity method comprise: 31 December December 2010 Group s holding, Carrying value Group s holding, Carrying value Name Principal activity Country % % Banking segment OAO Belgazprombank Banking Belarus 49% 1,819 49% 3,063 OAO AKB Eurofinance Mosnarbank Banking Russia 25% 5, Gazpombank-Invest (MENA) S.A.L. Banking Lebanon 30% % 460 7,677 3,523 Media segment ZAO Telekompaniya Dal-TV TV broadcasting Russia 30% 55 30% Other segment Eriell Group International Ltd. Drilling Uzbekistan 46% 3, Yugorosgaz A.D., Serbia Gas trading Serbia 25% 1,613 25% 1,885 CEA Centrex Energy & Gas AG Investment Holding Austria 50% % 859 company OOO Siemens Electroprivod Machine building Russia 34% % 535 Vemex s.r.o. Gas trading Czech % 494 Republic Inverton Enterprises Ltd. Real estate Cyprus 48% % 283 development Tancredo Enterprises Ltd. Oil and gas Russia 68% % 226 Other ,435 4,283 Total investments in associates accounted for under the equity method 15,167 7,867 As of 31 December 2011 summarized financial information on significant investments in associates accounted for under the equity method is as follows: Name Assets Liabilities Profit (loss) OAO Belgazprombank 30,338 26,628 (1,207) OAO AKB Eurofinance Mosnarbank 69,223 56,175 (264) Eriell Group International Ltd. 27,258 24,747 - Profit (loss) is disclosed for the year ended 31 December 2011 or from the date of acquisition untill 31 December 2011 (if acquired in 2011). Management determined that the ownership of more than 50% of Tancredo Enterprises Ltd. does not constitute control over operations of the company, although management believes it exerts significant influence. F-55 52

232 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) f) Gain from investments available-for-sale and investments in associates Gains from investments available-for-sale and income from disposal of investments in associates for the years ended 31 December 2011 and 2010 comprise the following OAO Novatek shares and GDRs 15,551 4,019 ZAO FB MMVB shares 1,598 - Electric power and utility companies shares 10 2,288 OAO Sibneftegaz shares - 23,898 Other investments available-for-sale 2, Gain from disposal of investments available-for-sale and investments in associates 20,122 30,743 In November 2010 the Group sold its stake in OAO Sibneftegas to a third party for a deferred consideration of RUR 25,574 million. The consideration was received by the Group in full by the end of March Income from investments in associates accounted for under the equity method for the years ended 31 December 2011 and 2010 comprise the following Tancredo Enterprises Ltd ,373 OAO Belgazprombank (671) 733 Yugorosgaz A.D., Serbia (103) - OAO AKB "Eurofinance Mosnarbank" (66) - CEA Centrex Energy & Gas AG (50) - OAO Sibneftegaz Other investments in associates (71) 287 (Loss)/income from accounting of investments in associates under the equity method (816) 2,599 NOTE 17 RECEIVABLES AND PREPAYMENTS As of 31 December 2011 and 2010 receivables and prepayments comprise the following: 31 December December 2010 Trade receivables 21,786 24,167 Prepayments and advances 17,570 14,229 Settlements with budget for other taxes 9,285 9,000 Accounts due from customers for contract work 6,590 5,326 Receivable on securities operations 692 3,709 Other receivables 3,212 1,214 59,135 57,645 Less allowance for impairment losses (1,229) (1,327) Receivables and prepayments 57,906 56,318 Trade receivables and prepayments primarily consist of prepayments for raw materials and short- and medium-term receivables for industrial products marketed and processing services rendered by non-banking business segments of the Group. Included in settlements with budget as at 31 December 2011 for other taxes is RUR 6,804 million that represents short-term recoverable VAT primarily relating to activities of the media and machinery business segments (31 December 2010: RUR 5,032 million). F-56 53

233 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 18 GOODWILL The movement of goodwill for the years ended 31 December 2011 and 2010 is as follows: 31 December ,021 Business combination 7,314 Disposal of subsidiary (9,324) 31 December 2010 (as previously reported) 31,011 Provisional accounting finalization (Note 31) December ,908 Business combinations (Note 31) 9,952 Disposal of subsidiary (766) 31 December ,094 Accumulated impairment 31 December 2009 (5,296) Impairment loss for the period (5,989) 31 December 2010 as previously reported (11,285) Provisional accounting finalization (Note 31) (129) 31 December 2010 as restated (11,414) Impairment loss for the period (3,094) Disposal of subsidiary December 2011 (13,742) Goodwill less accumulated impairment 31 December 2010 as restated 20, December ,352 Goodwill is allocated to cash-generating units (CGU). An operating segment-level summary of the goodwill allocation is presented below. 31 December December 2010 Banking 1,169 1,438 Media 22,088 13,960 Machinery 3,118 4,119 Other Total goodwill 27,352 20,494 The recoverable amounts of each of the cash-generating units are determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on the financial budgets approved by management covering the next five years. The calculation of value-in-use for corporate operating segments is most sensitive to the growth margin and pre-tax discount rates. Management estimated the growth margins based on past performance and its expectations of market conditions relating to the relevant operating segments. Discount rates reflect management s estimate of return of capital employed in each line of business. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. The effective discount rate applied to cash flow projections is based on the cost of equity (for banking business) and weighted average cost of capital (for other segments) and are as follows. 31 December December 2010 Banking 12.5% 14% Media 13% 13-14% Machinery 10-16% 10-17% Other 11-32% 15-16% F-57 54

234 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) NOTE 19 AMOUNTS OWED TO CREDIT INSTITUTIONS AND GOVERNMENTAL BODIES As of 31 December 2011 amounts owed to governmental bodies of the Russian Federation represent the following short-term obligations. 31 December December 2010 Term deposit from the Federal Treasury and Ministry of Finance of the Russian Federation 26,912 56,272 Term deposit from Vnesheconombank 10,012 - Term deposits from the Central Bank of the Russian Federation 30,017 - Amounts owed to governmental bodies 66,941 56,272 Short-term Rouble-denominated deposit from the Federal Treasury of the Russian Federation with a maturity of 4 months bears interest of 7% per annum. Rouble-denominated deposits from Vnesheconombank with maturity from 6 to 24 months bear interest from 3.0% to 8.75% per annum. Rouble-denomibated deposit from the Central Bank of the Russian Federation with a maturity of 3 months bears interest of 7% per annum. Amounts owed to other credit institutions as of 31 December 2011 and 2010 comprise: 31 December December 2010 Current accounts 15,249 8,812 Term deposits 187,033 51,308 Syndicated loans 38,004 27,087 Repo agreements 10 2,328 Amounts owed to credit institutions 240,296 89,535 As at 31 December 2011 five largest exposures to other credit institutions comprise RUR 158,156 million (31 December 2010: RUR 30,357 million). In August 2011 the Group entered into a three-year U.S.$ 1,200 million term loan facility with a syndicate of banks which bears an interest at LIBOR + 1.5%. Repo agreements represent short-term funding received by the Group with securities pledged as collateral to credit institutions. NOTE 20 AMOUNTS OWED TO CUSTOMERS Amounts owed to customers comprise: 31 December December 2010 State controlled companies: - current accounts 345, ,632 - term deposits 150, , , ,199 Private companies: - current accounts 218, ,896 - term deposits 448, , , ,786 Individuals: - current accounts 78,959 69,545 - term deposits 187, , , ,392 Amounts owed to customers 1,430,002 1,185,377 F-58 55

235 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) As of 31 December 2011 current accounts and time deposits of the Gazprom Group comprised 20% (RUR 291,923 million) of the total amounts owed to customers (31 December 2010: 22% or RUR 257,672 million). Current accounts and term deposits of the Gazprom Group bear interest from 0% to 8.5% per annum. Maturiry of major portion of the Gazprom Group s deposits range from "on demand" to up to 2 years. Included in current accounts of state-controlled and private companies as of 31 December 2011 is RUR 299,776 million of minimum balances that customers are required to maintain during contractually specified periods of time (31 December 2010: RUR 309,839 million). NOTE 21 SUBORDINATED DEPOSITS Subordinated deposits represent time deposits that were placed on the following terms: (i) original maturity is not less than 5 years; (ii) the lenders have no right to claim the deposits before maturity; and (iii) in the event of the Bank s bankruptcy or default, subordinated deposits are to be repaid only after the settlement of all other liabilities. The classification of deposits as subordinated for the purpose of compliance with the Russian statutory legislation (for the calculation of statutory capital adequacy ratio) also needs a formal approval of the terms of each deposit agreement by the CBR (the registration of deposit agreements). As of 31 December 2011 and 2010 subordinated deposits comprise: 31 December December 2010 Deposits from Gazprom Group 10,813 11,568 Deposits from NPF Gazfond 32,500 32,500 Deposits from Vnesheconombank 89,932 89,910 Other subordinated deposits 323 9,444 Subordinated deposits 133, ,422 Included in deposits from Gazprom Group as of 31 December 2011 is an amount of RUR 7,500 million that represents subordinated debt received by the Group in December 2008 which bears 8% annual interest and matures in December The rest of deposits from Gazprom Group are represented by various smaller deposits placed in and maturing between 2012 and Interest rates on these deposits are floating and are linked to LIBOR. As of 31 December 2011 RUR-denominated deposits from one of the Group s shareholders, NPF Gazfond, include: i) 30-year subordinated debt of RUR 25,000 million placed in August 2009 bearing 10.5% annual interest; ii) RUR 7,500 million of subordinated debt received in December 2008 maturing in December 2019 which bears 8% annual interest. As of 31 December 2011 included in subordinated deposits is an amount of RUR 89,932 million that relates to deposits from State corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank). A deposit of RUR 74,242 million maturing in December 2020 bears interest of 7.5% per annum. A deposit of RUR 15,690 million matures in November 2019 and bears 6.5%. For subsequent events see Note 33. NOTE 22 CERTIFICATED DEBTS AND EUROBONDS ISSUED Certificated debts issued domestically comprise: 31 December December 2010 Promissory notes issued 74,364 18,629 Rouble domestic bonds issued 57,170 43,130 Certificates of deposit issued 11,244 3,262 Domestic residential mortgage backed securities issued Certificated debts 143,311 65,923 F-59 56

236 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) As of 31 December 2011 and 2010 eurobonds issued internationally comprise: Issue % Final maturity date 31 December December 2010 USD loan participation notes 6.25% December ,884 30,548 USD loan participation notes 6.50% September ,789 28,886 RUR Loan Participation Notes 7.33% November ,143 - CHF Loan Participation Notes 4.38% December ,416 - USD loan participation notes 7.93% June ,183 13,491 USD guaranteed notes 7.35% May ,399 3,109 Rouble cross-border residential mortgage backed securities 8.00% December ,024 Euro cross-border residential mortgage backed securities 1-month EURIBOR+1.3% December ,334 Eurobonds 115,375 79,392 NOTE 23 OTHER LIABILITIES Other liabilities comprise: 31 December December 2010 Settlements with suppliers 40,128 32,893 Payables on operations with securities 8,431 3,335 Payable to employees 6,135 5,672 Amounts due to customers under contract work 5,783 4,256 Operating taxes payable 5,700 5,590 Payable under employee share-option plan and puttable instruments 4,123 2,123 Provision for other risks 3,364 4,513 Deferred income 2,272 1,630 Current tax liabilities 2, Other liabilities held for trading 1,414 1,699 Other 12,092 9,950 Other liabilities 91,526 72,285 As of 31 December 2011 and 2010 settlements with suppliers primarily represents amounts payable for materials and products delivered and services rendered to non-banking business segments of the Group. NOTE 24 SHARE CAPITAL, RETAINED EARNINGS AND EARNINGS PER SHARE (a) Share capital Issued share capital comprises 19,997,777 ordinary shares as of 31 December 2011 and All ordinary shares have a par value of 1,000 Roubles. The holders of ordinary shares are entitled to receive dividends as annually declared and are entitled to one vote per share at annual and other general meetings of the Bank s shareholders. In December 2011 the Bank s general shareholder meeting decided to issue 4,534,500 additional ordinary shares to be placed at RUR 20,000 per share. The additional share issue was registered by the Central Bank of the Russian Federation in December The Bank has eight months to complete the share issue. For subsequent events regarding the share placement see Note 33. (b) Treasury shares As of 31 December ,480,488 shares were held by the Group as treasury shares (31 December 2010: 1,316,433 shares). F-60 57

237 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Movements in the outstanding shares are presented below: Opening balance as at 1 January 18,681,344 18,832,945 Shares purchased (244,196) (243,304) Shares sold 76,528 91,703 Share options exercised 3,613 - Closing balance as at 31 December 18,517,289 18,681,344 (c) Distributable reserves Dividends payable by the Bank are restricted to the maximum distributable reserves, which are determined by the amount of reserves as disclosed in the financial statements of the Bank prepared in accordance with the statutory legislation. As of 31 December 2011, the statutory financial statements of the Bank disclosed distributable reserves (including post reporting date adjustments up to the date these financial statements are authorised for issue) of RUR 100,765 million and non-distributable reserves of RUR 3,003 million (31 December 2010: distributable reserves of RUR 73,855 million and non-distributable reserves of RUR 3,003 million). (d) Earnings per share As of 31 December 2011 and 2010 the basic earnings per share were as follows: Profit for the year attributable to the Group s shareholders, RUR million 42,207 56,881 Weighted-average number of ordinary shares outstanding during the year 18,669,805 18,659,695 Earnings per share, RUR 2,261 3,048 Earnings per share continuing operations, RUR 2,261 1,626 Earnings per share discontinued operations, RUR - 1,422 As of 31 December 2011 and 2010 there were no dilutive potential ordinary shares. NOTE 25 RISK MANAGEMENT Management of risk is fundamental to the banking business and is an essential element of the Group s operations. Management considers risk management and risk controls to be vitally important aspects of its business operations and management activities. Establishing and integrating risk management and control functions into corporate organization is a continuous process. The Group sets internal standards of risk transparency as the basis for controlling, limiting and managing risks. The Group s risk management and control system addresses the key banking risks: credit risk liquidity risk market risk operational risk. A risk appetite statement reviewed by the Board of Directors includes both quantitative and qualitative indicators designed to provide high level guidelines on type and amount of risk that the Group is willing to take in pursuit of its strategic goals. In 2010 the Group implemented an economic capital allocation framework, which serves the purpose of ensuring capital adequacy, increased transparency of risk-taking and optimising the balance of risk and return. Economic capital adequacy is one of the main inputs into the risk appetite statement. F-61 58

238 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) The Group regularly monitors its actual risk profile against risk appetite and corrective actions are taken if necessary. Investments in non-banking subsidiaries are part of the private equity activities of the Bank. As a result, management estimates integrated risk on direct investments that includes both the risk that a company may default (credit risk) on its obligation to the Bank and the risk that its market value may deteriorate (market risk). Consequently, for the purposes of risk management analysis non-banking investments are presented based on their net asset values (including related non-controlling interests). Presented below is the consolidated statement of financial position in the format used for internal risk reporting and management. 31 December December 2010 Assets Cash and due from the Central Bank of the Russian Federation 174, ,261 Due from credit institutions 356, ,186 Financial assets held for trading and investments available-forsale accounted for at fair value 245, ,636 Loans to customers 1,449,117 1,073,320 Investments available-for-sale accounted for at cost and investments in associates 17,902 7,951 Investments held-to-maturity 12, Investment in associate held for sale 11,183 68,070 All other assets 49,006 57,415 Total banking segment assets 2,316,648 1,806,129 Net assets of non-banking investments (including related noncontrolling interests) 100,688 93,556 Total assets 2,417,336 1,899,685 Liabilities Amounts owed to governmental bodies 66,941 56,272 Amounts owed to credit institutions 229,870 78,436 Amounts owed to customers 1,446,815 1,202,539 Subordinated deposits 133, ,422 Eurobonds issued 115,375 79,392 Certificated debts 143,283 65,750 All other liabilities 38,544 52,786 Total banking segment liabilities 2,174,396 1,678,597 Total equity attributable to the Group s shareholders 239, ,120 Non-controlling interests 3,650 4,968 Total equity 242, ,088 Total liabilities and equity 2,417,336 1,899,685 Financial commitments and contingencies 291, ,689 Risk management principles and organization The following key principles guide the approach to risk management: the Board of Directors reviews risk management systems and policies on an annual basis the Management Board provides overall risk management oversight for the Group s operations as a whole the Group enforces a clear segregation between the business origination and risk management activities the Group manages credit, market, liquidity and operational risks in a coordinated manner at all levels of its operations and F-62 59

239 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) in branch operations, the Group delegates local decision-making authority to local/decentralised risk management units within the framework of centralised risk management policies. To further enhance risk management, the Group has developed an integrated risk management system. The system aims to unify risk management approaches and enhance control over risk management in separate organisations of the Group, as well as to align the overall Group risk profile with its strategic objectives and to facilitate risk-based decision making on the Group level. The risk management system is based on modern standards and practices of risk-based management of financial organisations. In determining the risk management policy, the Management Board is supported by four key risk control and management committees and the Risk Management Division. Committees are appointed and monitored by the Management Board. The Credit Committee and the Investment Committee are responsible for approving operations that carry credit risk. The authority and responsibility of each committee in respect of a given transaction is determined by reference to the parameters of the transaction. The Investment Committee is responsible for approving investment transactions above RUR 1.2 billion, and all other transactions are reviewed by the Credit Committee. The primary objective of the Assets and Liabilities Management (ALM) Committee is to satisfy the dual requirements of controlling exposure to liquidity and market risks while maximising profitability through the appropriate structure of assets and liabilities. The Corporate Governance and Remuneration Committee is responsible for the policies and methodology in relation to operational risks and for controlling exposure to high level operational risks. In addition to these committees, the Risk Management Division is responsible for day-to-day management of risks based on standards, models and procedures it develops. a) Credit risk The Group is exposed to credit risk, which is the risk of a financial loss occurring as a result of default by a borrower or a counterparty on their obligation to the Bank. Credit risk is managed in accordance with the Central Bank of the Russian Federation regulations, Basel Committee principles and guidelines, and internal documents developed to incorporate such principles, including credit and risk management policies. The main objective of credit risk management is timely credit risk identification, assessment, and mitigation. The key principles of credit risk assessment and management are as follows: the use of a comprehensive methodological approach which includes qualitative (expert) and quantitative (statistical) credit risk assessment the application of credit risk assessment to each individual transaction and on a portfolio basis as a whole and the adherence to a unified approach to all aspects of the credit process including credit decisionmaking, administration, credit risk monitoring and provisioning. Decision-making on acceptable credit risk levels falls within the competence of several authorized bodies, such as the Investment Committee, the Credit Committee and the Chairman of the Management Board. The Bank has introduced risk limits for any one borrower or a group of borrowers. Compliance with such limits is monitored on a daily basis. The credit risk management system used by the Bank includes both qualitative and quantitative credit risk assessment for each individual transaction and on a portfolio basis as a whole. All transactions that are considered by the Credit Committee or the Investment Committee are subjected to independent qualitative and quantitative assessments by the Risk Management Division. F-63 60

240 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Qualitative assessment is a fundamental method of credit risk assessment. The Group considers the quality of the borrower s management, main business activities of the borrower, its geographical location, suppliers, customers and outstanding borrowings, as well as various financial factors relating to each borrower, including its financial stability, turnover and the likely return on the loan. The result of qualitative assessment is an expert opinion that determines acceptable transaction parameters and risk minimization steps that are appropriate for the transaction. The expert opinion is a part of the documentation that is considered by the collegial bodies in their decision-making on acceptable credit risk levels. Qualitative credit risk assessment is undertaken in respect to the following business segments: project finance, corporate lending, retail banking, financial institution transactions, sovereign and municipal body transactions and debt market transactions. All clients are assessed using a unified internal rating scale which has ten grades (from AAA to D ). In order to assess their rating all clients are divided into nine general categories (based on type of client), for each of which a dedicated assessment methodology is applied. In addition, there is an internal database, where the Group collects, accumulates and analyses both quantitative and qualitative credit risk metrics. The number of financial ratios used, the method of their calculation and applicable threshold values and appropriate total score are determined depending on the counterparty s industry and the nature of the transaction. The results of the rating assessment are used to determine the appropriate internal credit rating and counterparty credit risk limit, to identify and monitor distressed assets for provisioning and to calculate the probability of default and expected loss assessment. Also within the framework of quantitative assessment, the Group is determining and using VAR and stress testing models to estimate unexpected losses in the value of its credit portfolio under ordinary market conditions and the maximum value of potential losses under a crisis situation. The adequacy of credit risk assessment models is verified by back testing procedures. The credit risk exposure on derivatives is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on these instruments. Credit-related commitments ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry credit risk similar to loans. Documentary and commercial letters of credit, which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw payment from the Bank up to a stipulated amount under specific terms and conditions, are frequently fully or partially covered by the funds deposited by customers and therefore bear lower credit risk. The Credit Policy is approved and periodically reviewed by the Management Board. The Group s activities may give rise to settlement risk at the time of settlement of transactions. Settlement risk is the risk of loss due to the failure of a counterparty to execute its obligations to deliver cash, securities or other assets as contractually agreed. For certain types of transactions the Group mitigates this risk by conducting settlement through settlement/clearing agents to ensure that a trade is settled only when both parties have fulfilled their contractual settlements obligations. Acceptance of settlement risk on free settlement trades requires transaction specific and/or counterparty specific settlements limits which form part of credit risk limits. In order to reduce the credit risk resulting from OTC derivative transactions, where OTC clearing is not available, the Group regularly seeks the execution of standard master agreements (such as master agreements for derivatives published by the International Swaps and Derivatives Association, Inc. (ISDA)) with its clients. A master agreement allows the netting of rights and obligations arising under derivative transactions that have been entered into under such master agreement upon the counterparty s default, resulting in a single net claim owed by or to the counterparty (close-out netting). F-64 61

241 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) (i) Geographical concentration of assets and liabilities The geographical concentration of banking assets and liabilities as of 31 December 2011 and 2010 follows: 31 December 2011 Russia OECD Other non- OECD Total Assets Cash and due from the Central Bank of the Russian Federation 173, , ,529 Due from credit institutions 82, ,229 20, ,805 Financial assets and investments available-for-sale accounted for at fair value 173,066 1,921 70, ,107 Loans to customers 1,101,702 68, ,413 1,449,117 Investments available-for-sale accounted for at cost and investments in associates 11,544-6,358 17,902 Investments held-to-maturity 8,228 4, ,999 Investment in associate held for sale 11, ,183 All other assets 38,787 3,602 6,617 49,006 Total banking segment assets 1,600, , ,614 2,316,648 Net assets of non-banking investments (including related noncontrolling interests) 86,787 6,999 6, ,688 Total assets 1,687, , ,516 2,417,336 Liabilities Amounts owed to the governmental bodies 66, ,941 Amounts owed to credit institutions 24,489 39, , ,870 Amounts owed to customers 1,365,630 39,001 42,184 1,446,815 Subordinated deposits 133, ,568 Eurobonds issued - 115, ,375 Certificated debts 143, ,283 All other liabilities 24,395 7,279 6,870 38,544 Total banking segment liabilities 1,757, , ,360 2,174,396 Net position (70,473) 137, , ,940 F-65 62

242 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) 31 December 2010 Russia OECD Other non- OECD Total Assets Cash and due from the Central Bank of the Russian Federation 107, ,261 Due from credit institutions 70, ,884 2, ,186 Financial assets and investments available-for-sale accounted for at fair value 206,534 13,099 1, ,636 Loans to customers 921,068 6, ,193 1,073,320 Investments available-for-sale accounted for at cost and investments in associates 4, ,074 7,951 Investment held-to-maturity Investment in associate held for sale 68, ,070 All other assets 53,670 3, ,415 Total banking segment assets 1,432, , ,322 1,806,129 Net assets of non-banking investments (including related noncontrolling interests) 93, ,556 Total assets 1,525, , ,322 1,899,685 Liabilities Amounts owed to the governmental bodies 56, ,272 Amounts owed to credit institutions 29,362 41,333 7,741 78,436 Amounts owed to customers 1,134,963 15,834 51,742 1,202,539 Subordinated deposits 134,015 9, ,422 Eurobonds issued - 79,392-79,392 Certificated debts 65, ,750 All other liabilities 24,273 16,205 12,308 52,786 Total banking segment liabilities 1,444, ,846 72,148 1,678,597 Net position 81,247 57,667 82, ,088 The Bank has no sovereign exposure to Portugal, Italy, Greece or Spain. (ii) Maximum credit risk exposure on financial instruments For financial assets the maximum exposure to credit risk equals the carrying value of those assets. For financial guarantees and other contingent liabilities the maximum exposure to credit risk is the maximum amount the Bank would have to pay if the guarantee was called on or in the case of commitments, if the loan amount was called on (Note 27). (iii) Internal credit rating of financial assets Internal rating grades are based on credit quality of the counterparties: Grades Credit quality Risk level AAA Highest credit quality Minimal credit risk AA Very high credit quality Very low credit risk A High credit quality Low credit risk BBB Good credit quality Adequate credit risk BB Average credit quality Average credit risk B Low credit quality Substantial speculative credit risk CCC Speculative High credit risk CC Speculative Very high credit risk C Speculative Exceptionally high credit risk D Default Default F-66 63

243 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) The classification of major banking financial assets according to the internal credit rating system as of 31 December 2011 and 2010 is represented below. 31 December 2011 AAA-A BBB-B CCC-C D Not rated Total Due from credit institutions, gross 293,285 48, , ,666 Less allowance for impairment - (422) - (50) (389) (861) Loans to customers, gross 449, , ,758 26, ,322 1,505,470 Less allowance for impairment (1,851) (7,653) (11,928) (26,212) (8,709) (56,353) Financial guarantees and other commitments 119, ,496 15, , ,987 Less provisions for losses (234) (1,960) (842) (19) (13) (3,068) 860, , , ,009 2,094, December 2010 AAA-A BBB-B CCC-C D Not rated Total Due from credit institutions, gross 182,423 69,904 6, , ,691 Less allowance for impairment (6) (32) - (50) (417) (505) Loans to customers, gross 228, , ,991 26, ,586 1,122,613 Less allowance for impairment (998) (8,870) (8,285) (23,629) (7,511) (49,293) Financial guarantees and other commitments 64, ,208 50,755-6, ,689 Less provisions for losses (203) (1,488) (2,443) - (379) (4,513) 474, , ,253 2, ,740 1,583,682 b) Liquidity risk The Group manages its liquidity position to ensure that sufficient liquidity is available to meet its commitments to customers, creditors and note holders, and to meet the demand for loans. The liquidity risk management system comprises both qualitative and quantitative approaches to liquidity risk assessment and covers operations on a bank-wide basis, including head office and regional branches. Liquidity management system is an essential part of the ALM system and consists of two main components: short-term liquidity management implemented by the Treasury on a regular basis medium-term and long-term liquidity management performed by the ALM Committee and Internal Treasury Department (ALM unit) as parts of ALM function, ultimately for the purpose of setting the effective risk-return ratio. In as a response to the recent credit crisis, the liquidity risk management system evolved to an integrated solution of risk identification, evaluation and control across the banking segment level. The liquidity policy is approved by the Management Board, so liquidity risk tolerance is clearly articulated. On the executive level, liquidity risk is managed by the ALM Committee. The ALM Committee determines the policies for asset and liability management, which aim to build up a robust framework for matching the maturity of assets and liabilities, to maintain controls over permitted variances and to provide effective diversification in funding sources. The Financial Market Risks Department conducts regular liquidity risk assessments and reports on liquidity risk status to the department directors weekly, to the ALM Committee once a month and to the Management Board each quarter. Risk reporting includes qualitative and quantitative risk estimations, stress-testing results, and the evaluation of additional liquidity sources (liquidity buffer). The Treasury on a real-time basis performs necessary transactions to regulate liquidity gaps, and provides dayto-day liquidity management. The Treasury reports to the ALM Committee on a regular basis. F-67 64

244 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) The ALM Committee uses a system of Liquidity Risk Indicators and Targets as a part of the ALM Committee function to ensure the Bank is able to cover expected and unexpected fund withdrawals. (i) Liquidity risk management methods Liquidity (funding) risk analysis covers the whole range of banking operations and allows to identify possible periods and reasons for potential liquidity shortages. The system of liquidity risk management also includes planning of operations and immediate borrowing facilities, using a wide set of risk evaluation methods: static and dynamic gap analysis, scenario approach, including stress testing, liquidity ratios and liquidity costs estimates. The Bank performs an assessment of the adequacy of the applied models (back testing) on a regular basis and revises parameters and methodological approaches to the liquidity risk evaluation if required. (ii) Gap analysis The gap analysis estimates the excess or shortfall of cash inflows over outflows grouped by maturity in each time bucket and thus allows identifying and managing open liquidity exposures. Hereinafter gap stands for cumulative gap (i.e. sum of inflows net of sum of outflows in the given time bucket and all time buckets before it). Classic gap analysis is enhanced by incorporating subdivisions of contractual, planned or probable cash flows into several tiers. These tiers comprise Tier 0 (highly probable cash flows) and Tiers 1-4 which form liquidity reserves. The gap analysis allows estimating future liquidity position along with readily available sources of extra liquidity needed to cover possible shortages. The Financial Markets Risks Department monitors liquidity reserves and borrowing facilities in case of liquidity shortages. The following table provides information on the liquidity tiers included in the gap analysis: Tier Facilities Description Tier 0 Contractual cash flows, new likely-tohappen transactions Tier 1 Committed lending facilities, provided by the Central Bank Borrowing facilities, committed by the Central Bank, and considered as the most stable funding sources. Secured funding from Central Bank forms a liquidity cushion or liquidity buffer and is available in stress conditions. Tier 2 Market funding facilities Borrowing facilities, available in the market in normal conditions, but restricted in case of a stress scenario - money market, client deposits. Tiers 3-4 Medium-term funding facilities Additional borrowing facilities restricted by the longer arrangement period, relatively high cost of funding or by negative effect on the business plans realization market REPO, bond issue, potentially available opportunities of secured borrowing from the Central Bank, where availability confirmation is pending. (iii) Scenario analysis and stress-testing Gap analysis is supported by scenario analysis, including realistic scenario (business as usual) and liquidity stress-testing, performed as a part of regular evaluation: Realistic scenario demonstrates the average expected liquidity level Stress scenario demonstrates stress tolerance and the ability to maintain sufficient liquidity without restrictions on assets-related banking transactions. F-68 65

245 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) All scenario assumptions and parameters are introduced by the ALM Committee, and are widely used throughout the Bank. Basic scenario assumptions are as follows: Financial instrument/ Realistic scenario Stress scenario portfolio Loan portfolio (Corporate & Retail) According to Assets plan Normal credit risk According to Assets plan Stress credit risk Securities No revaluation Stress repricing: equities -22%, fixed income -1~5% On demand deposits Realistic (historical simulation based) outflow Stress outflow: -100% of less stable, -20% of stable Corporate & Retail deposits According to Funding plan Stress outflow: -25% Long term debt Contractual maturity Contractual maturity Additional funding sources Secured (Central Bank collateralized debt, REPOs) and unsecured (money market, capital markets) sources Unsecured sources largely unavailable, Secured sources decay because of stress collateral repricing: equities -22%, fixed income -1~5% In assessing the liquidity position for the scenarios above, management estimates that deposits repayable on demand include a stable portion of deposits that can be considered as having maturity over one month (less stable) and over 12 months (stable). The Group assesses volumes of these deposits regularly using historical simulations. (iv) Contingency planning In addition to the integrated liquidity risk management system, the Bank has a contingency funding plan (CFP) that sets out the strategies for addressing liquidity shortfalls in emergency situations. To ensure early CFP engagement, an additional set of triggers is monitored on a regular basis, covering a wide range of risk-factors (market on a daily basis, liquidity on a weekly basis, credit risks, macroeconomic and behavioural indicators, prudential sufficiency, etc.). The CFP outlines policies to manage a range of stress scenarios, establishes lines of responsibility, including escalation procedures. The CFP is updated on an annual basis. (v) Quantitative liquidity risk analysis The analysis below is presented using the remaining contractual maturities for assets and liabilities except that management believes that in spite of a substantial portion of deposits from customers being on demand (customer current/settlement accounts), diversification of these deposits by number and type of depositors, and the past experience of the Bank would indicate that these deposits provide a long-term and stable source of funding for the Bank. For such deposits remaining expected maturities were used for the analysis. According to the estimates based on the realistic scenario, as of 31 December 2011 and 2010 withdrawals from payable on demand customer accounts will occur in the following periods: 31 December December 2010 Less than 1 month 381, ,143 From 1 month to 12 months 45,737 32,066 Over 12 months 221, , , ,496 The following tables show banking segment cash flows cumulative gap, which equals the sum of gross amounts to be received within or before each relevant time period according to maturities/redemptions of financial instruments (assets/claims) less gross amounts to be repaid within or before each time period according to maturities/redemptions of financial instruments (liabilities/obligations). F-69 66

246 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) The result of the banking gap analysis as of 31 December 2011 is as follows: Realistic scenario Time bucket, months less than Contractual gap (374,670) (404,323) (414,641) (426,770) (448,190) (507,199) (520,661) (490,433) Tier 0: Contractual gap, 279, ,104 97,450 85,407 37,235 26,571 22,429 26,425 scenario assumptions and new transactions Tiers 0-1: 589, , , , , , , ,896 Total gap, including liquidity buffer (liquidity sources of Tier 1) Tiers 0-4: Total gap, including liquidity sources of Tier , , , , , , , ,803 Stress scenario Time bucket, months less than Contractual gap (374,670) (404,323) (414,641) (426,770) (448,190) (507,199) (520,661) (490,433) Tier 0: Contractual gap, 68,879 (46,341) (190,051) (214,190) (277,712) (308,617) (336,990) (357,834) scenario assumptions and new transactions Tiers 0-1: 378, , ,201 89,511 25,640 (5,579) (46,137) (116,362) Total gap, including liquidity buffer (liquidity sources of Tier 1) Tiers 0-4: Total gap, including liquidity sources of Tier , , , , ,903 77,684 78,891 8, December December 2011 Realistic scenario Stress scenario Tiers Tier 1 Tier < 1m 1-2 m 2-3 m 3-4 m 4-5 m 5-6 m 6-9 m 9-12m Tier 0 Tiers Tiers Tier Tier 0 < 1m 1-2 m 2-3 m 3-4 m 4-5 m 5-6 m 6-9 m 9-12m Contractual cash flows, new likely-to-happen Liquidity buffer secured funding from Tier 1 transactions the Central Bank Borrowing facilities, available in the market in normal conditions- money market, client deposits; plus additional borrowing facilities market REPO, bond issue, syndicated loans, opportunities of secured borrowing from the Central Bank, where availability confirmation is pending. Based on the results of the above analysis management assessed the liquidity of the Bank as follows. Realistic scenario: current liquidity condition is estimated as well-balanced, with no significant probability of future cash shortage and excess of readily available stock of liquidity reserves. F-70 67

247 Notes to the Consolidated Financial Statements for the Year Ended 31 December 2011 (in millions of Russian Roubles unless otherwise stated) Stress scenario: the Bank is stress tolerant and able to maintain sufficient liquidity level without implying restrictions on new transactions during at least one year. The result of comparable banking segment gap analysis as of 31 December 2010 was as follows: Realistic scenario Time bucket, months less than Contractual gap (334,078) (378,125) (377,936) (379,166) (413,867) (446,335) (480,497) (457,145) Tier 0: Contractual gap, 44,144 29,280 17,667 60,324 99,350 86,221 69,961 77,582 scenario assumptions and new transactions Tiers 0-1: 260, , , , , , , ,540 Total gap, including Liquidity buffer (liquidity sources of Tier 1) Tiers 0-4: Total gap, including liquidity sources of Tier , , , , , , , ,772 Stress scenario Time bucket, months less than Contractual gap (334,078) (378,125) (377,936) (379,166) (413,867) (446,335) (480,497) (457,145) Tier 0: Contractual gap, (134,941) (201,644) (225,350) (193,984) (170,430) (203,370) (256,966) (269,428) scenario assumptions and new transactions Tiers 0-1: 63,691 (3,457) (37,362) (22,550) (15,350) (64,644) (121,301) (136,825) Total gap, including Liquidity buffer (liquidity sources of Tier 1) Tiers 0-4: Total gap, including liquidity sources of Tier , , , , ,026 76,732 17,964 (3,070) 31 December December 2010 Realistic scenario Stress scenario Tiers Tier 1 Tier < 1m 1-2 m 2-3 m 3-4 m 4-5 m 5-6 m 6-9 m 9-12m Tier 0 Tiers Tiers Tier Tier < 1m 1-2 m 2-3 m 3-4 m 4-5 m 5-6 m 6-9 m 9-12m Contractual cash flows, new likely-to-happen Liquidity buffer secured funding from Tier 1 transactions the Central Bank Borrowing facilities, available in the market in normal conditions- money market, client deposits; plus additional borrowing facilities market REPO, bond issue, syndicated loans, opportunities of secured borrowing from the Central Bank, where availability confirmation is pending. Results of the stress scenario for 31 December 2010 stress scenario were restated due to changes in the stress scenario assumptions. F-71 68