Banks. Russia. Full Rating Report. Key Rating Drivers. Rating Sensitivities. Ratings

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1 Russia Full Rating Report Ratings Foreign-Currency Long-Term IDR Short-Term IDR Long-Term Local-Currency Rating Viability Rating BB+ B BB+ bb+ Support Rating 4 Support Rating Floor B Outlooks Long-Term Foreign-Currency IDR Long-Term Local-Currency IDR Sovereign Long-Term Foreign-Currency IDR Financial Data Stable Stable Stable 30 Jun Dec 16 Total assets 41,804 38,247 Total equity 5,299 5,033 Operating profit Published net income Comprehensive income Operating ROAA Operating ROAE Internal capital generation Fitch Core Capital/ weighted risks Tier 1 regulatory ratio Total capital ratio Related Research Russian Banks Datawatch - 9M17 (November 2017) Russia Global Economic Outlook Forecast () Fitch: Russian Banking Sector Is Being Reshaped by Clean-up (September 2017) Russian Banking Sector in 2017 (September 2017) Analysts Anton Lopatin anton.lopatin@fitchratings.com Dmitri Vasiliev dmitri.vasiliev@fitchratings.com Key Rating Drivers Highest-Rated Russian Private Bank: s ratings, which are the highest of a Russian privately owned bank, reflect its well-developed franchise, improved asset quality, recovering profitability and good record of managing through the cycle. The ratings also take into account risks related to the Russian operating environment, significant cyclicality in the banks performance and moderate regulatory capitalisation. Improved Asset Quality: Asset quality improved with the ratio of non-performing (NPLs, more than 90 days overdue) decreasing to 2.9% at end-1h17 from 7.2% at end-2015 as a result of recoveries, foreclosures and write-offs. NPLs were fully reserved while restructured were negligible. Retail performance also improved, reflected in NPL origination (calculated as the increase in NPLs plus write-offs to average performing ) decreasing to 4% in 1H17 from 9% in 2015, well below the Fitch Ratings-calculated break-even level of 14%. Adequate Core Capitalisation: The Fitch Core Capital (FCC) ratio, calculated based on the consolidated accounts of Alfa s holding company ABH Financial Limited (ABHFL), was 15.7% at end-1h17, slightly down from 16.7% at end However, this and the bank s reported Basel I Tier 1 capital ratio (15.8%) benefit significantly from the Basel I-based risk-weighted asset calculation, which does not include charges for market and operational risk. Adjusting for these, Fitch calculates that core capital ratios would have been about 13%. Tighter Regulatory Capital: Regulatory capitalisation at the bank level is significantly tighter, with a core Tier 1 ratio of 7.7% (required minimum including buffers is 6.1%), Tier 1 ratio of 9.1% (7.6%) supported by USD700 million of additional Tier 1 perpetual bonds placed in 2H16 and a total capital ratio of 12% (9.6%) at end-1h17. Moderate Profitability: Profitability improved in 2016, with the ratio of total comprehensive income to average equity increasing to 14% in 2016 (annualised 19.6% in 1H17) from zero in 2015 due to the net interest margin improving moderately to 4.5% from 4% and a loan impairment charges (LICs) reducing significantly to 1.4% from 3.2% of average. Ample Liquidity: Liquid assets (cash and equivalents, net short-term interbank placements and bonds eligible for refinancing with the Central Bank of Russia, CBR) covered customer accounts by 47% at end-9m17. Wholesale debt maturing in the next 12 months at the same date was USD2 billion (of which USD1.7 billion was bank funding), equal to a moderate 17% of the liquidity cushion, and Alfa plans to refinance most of these obligations. Support Possible: Fitch believes there is a moderate probability of support from the Russian authorities given Alfa s broad franchise, as reflected in the Support Rating of 4 and Support Rating Floor of B. Fitch does not formally factor shareholder support into the ratings due to limited visibility of the shareholders financial position and Alfa s significant size. However, we believe they would have strong propensity to support the bank if required. Rating Sensitivities Sovereign, Asset Quality: Alfa s ratings could be upgraded if there is a further improvement in the Russian operating environment and consistently robust bank financial metrics in terms of asset quality, performance and capitalisation. An upgrade of the sovereign rating (BBB- /Positive) would be a pre-requisite for an upgrade of Alfa, as Fitch is likely to maintain at least a notch difference between the ratings of the sovereign and the bank. 18

2 Russia s Key Indicators Ratings Sovereign IDR/Outlook BBB-/Positive MPI a 1 BSI b bb 2017F 2016 Macroeconomic indicators Real GDP growth Unemployment CPI (eop) General government balance (% of GDP) General government debt (% of GDP) Banking sector 1H System assets (RUBtrn) System assets/gdp Number of banks Share of five largest banks Share of state-owned Share of foreign-owned Retail /total FC /total Retail loan growth c Corporate growth c Foreign funding FC customer funding d Impaired ratio e Equity/assets a The Macro Prudential Indicator b The Banking System Indicator c Nominal, not annualised for 1H17 d Customer accounts include Eurobonds issued through SPVs e Category 4 (problem) and 5 (loss) according to CBR Source: CBR, Fitch Operating Environment Positive Outlook on Sovereign Ratings The Outlook on Russia's Long-Term IDR of BBB- was revised to Positive in September 2017 on the back of more flexible exchange rate, strong commitment to inflation targeting and a prudent fiscal strategy. In Fitch s view, Russia s strengthening policy framework may result in improved macro stability and, together with robust external and fiscal balance sheets, increase the economy s resilience to shocks. Economic growth is reviving, but will remain weak relative to peers. Fitch expects growth to rise to 2% in 2017 after contracting in 2016 and average 2.1% in (1pp above the median for BBB category), due to reduced uncertainty, monetary policy easing supporting credit recovery, rouble stability and a benign oil price outlook. Continued current account surpluses, moderate capital outflows and higher-than-budgeted oil prices will push reserves above USD500 billion in 2018, returning to end-2013 levels. The sovereign net foreign assets position is a solid 28% of GDP. Stable Sector Outlook; Banking Clean-Up Continues Pressure on Russian banks profits reduced in as the economy has bottomed out. Credit risks are likely to remain elevated, but in most cases banks pre-impairment profit should be sufficient to cover problem without hitting capital. Liquidity is comfortable and the sector has sufficient access to foreign currency to repay external debt. Fitch believes that Sberbank (30% of sector assets), foreign-owned banks (6%) and some of the private banks (5%-10% in total, including Alfa) have reasonably strong credit profiles, while weaker state-owned banks (28%) are pre-emptively supported by the Russian authorities. These make the core of system, which is not directly affected by the CBR clean-up, which instead focuses on the remaining 20%-25%. Therefore the recent failures of B&N Bank and Otkritie are not indicative of a systemic crisis. The banks combined market share was only 5% and potential contagion risk has largely been mitigated by the CBR rescuing them without any losses for senior creditors. As the CBR plans to continue with the clean-up for the next three to four years, further weak banks may be revealed, with the CBR then deciding their fate. This uncertainty will cause gradual flight to quality to continue, benefiting larger banks. Reasonable Asset Quality and Performance; Weak Loan Growth The operating environment for Russian banks is gradually improving due to stabilised asset quality, recovered margin and a structural liquidity surplus. The latter, however, is skewed towards Sberbank and some stronger foreign and private banks (including Alfa). Capital adequacy is only moderate in most cases (sector average common equity Tier 1 ratio was 8.9% at end-9m7), although in light of limited growth and moderate profit retention, banks are likely to gradually build up their capital bases along with Basel III buffers being phased in by Fitch forecasts low single-digit corporate loan growth in 2017 (3% in 9M17, adjusted for foreignexchange moves) mostly due to weak demand. Retail lending growth may reach 10-12% in 2017 as unsecured retail lending has recovered after overheating, although in the longer term it should probably fall to 5%, in Fitch s view. Sector NPLs (we use doubtful and loss categories as a proxy) accounted for 10.2% of the sector portfolio in 9M17, but were 88% covered by reserves. We estimate restructured at 10%-15% on average, and these are weakly provisioned. Banks are likely to gradually recognise some of these as NPLs, reserving them out of pre-impairment profits. 2

3 The sector core (net of RUB0.5 billion impairment loss in Otkritie and B&N bank following their rescue by the CBR) ROAE improved to 15% in 9M17 (annualised) from 11% in 2016 thanks to 20bp net interest margin improvement and stabilisation of loan impairment charges at 2% of gross. Adjusted a Segment Revenue Structure 1H17 Retail 31% Treasury 5% Corporate and IB 64% a Net of intercompany interest income Source: Alfa, Fitch interpretations Company Profile Largest Russian Private Bank Alfa s total assets accounted for 3% of total banking system assets at end-10m17, making it the largest private bank in Russia. The CBR considers Alfa to be a systemically important bank (SIB) so Alfa should comply with higher capital buffer requirements. Well-Balanced Business Model; Recovered Retail At the core of Alfa s franchise is a well-managed corporate business, which is supplemented by mostly unsecured retail lending, and smaller-scale investment banking. Retail segment made up 31% of Alfa s adjusted revenue (net of intercompany interest income) in 1H17, while corporate and investment banking (IB) together accounted for 64%. However corporate and IB segment represented higher 85% in Alfa s profit before tax (see annex 3). Transparent Banking Group; Reputable Shareholders Alfa is the main part of shareholders banking business, which also includes banks in Ukraine, Kazakhstan and Belarus. Ultimately, all of the banking businesses are consolidated under ABH Holdings S.A. (ABHH), although each country s operations are structured through a separate sub-holding, making them sister banks. Alfa s IFRS accounts are made at the level of ABHFL, a subsidiary of ABHH, which in addition to Alfa also consolidates brokerage/investment company Alfa Capital Holdings (USD1.6 billion, equity of USD0.7 billion at end-1h17) and Amsterdam Trade Bank (ATB; assets of EUR1.1 billion, equity EUR184 million at end-1h17) which is 79% controlled by Alfa. The main beneficiaries of ABHH are Mikhail Fridman (33%), German Khan (21%), Alexey Kuzmichev (16%) and Petr Aven (12%). A 10% stake is owned by UniCredit S.p.A., which received them in exchange for 100% of Ukrainian Ukrsotsbank sold to ABHH in October ABHFL Shareholder Structure End-1H17 UninCredit S.p.A. 10% Petr Aven 12% Source: Alfa Other 8% Related Criteria Global Bank Rating Criteria (November 2016) Mikhail Fridman 33% German Khan Alexey 21% Kuzmichev 16% Apart from Alfa, its main private shareholders also held stakes in a few other large assets (including telecom, oil & gas, retail), which are reasonably cash-generative and moderately leveraged. Fitch believes Alfa s shareholders are wealthy and have a high propensity to support Alfa, although there is limited visibility of their overall financial position and therefore Fitch does not factor in shareholders support into Alfa s ratings. Management and Strategy Strong Management Fitch considers Alfa s management to be strong and in general views positively the close shareholder oversight of management. Alfa s chief executive (Alexey Marey) left the bank in November 2017 due to his move to London. Alexey joined Alfa in 2004 and became chief executive in Following his resignation, chief financial officer Alexey Tchoukhlov was appointed acting chief executive. Alfa s board of directors has 10 members and is chaired by Petr Smida, who was Alfa s chief executive between 2003 and 2008, before being promoted to chairman in Fitch views only one member of the board as independent, as the other nine members either hold senior positions in other banks within ABHH or other companies controlled by shareholders or have been employed in past. Despite this, we believe the board has a very good degree of expertise and a reasonable oversight of Alfa s strategy and execution. 3

4 Retail Loan Book Structure End-1H17 POS 14% Credit cards 36% Other 5% Source: Alfa, Fitch interpretations Cash 45% Material Exposure to Shareholders Assets Alfa reports low related-party lending of USD109 million (2% of FCC) at end-1h17, but does not treat exposures to companies owned by shareholders (X5 food retail group, VimpelCom and assets management company) as related in IFRS. If these exposures had been accounted as related, total level would be about 0.2x FCC (USD1.1 billion). Although the ratio is high, Fitch is not concerned, as the companies are financially strong and Alfa deals with them on an arm s length basis. The CBR views these exposures as related and therefore to comply with the regulatory limit on related-party lending Alfa has decreased its exposure to these companies from USD2.2 billion (0.5x FCC) at end Reasonable Strategy; Good Execution Through the Cycle After the 2014 crisis, Alfa tightened underwriting standards and changed its planning horizon to between two and three year from three to five, implementing conservative/protective strategy. In retail lending, Alfa pursues unsecured retail by focusing on less risky affluent segment and plans to expand in mortgages. After some deleveraging in , Alfa targets moderate growth of retail book in and seems to be on track based on the 30% annualised growth of retail business in 1H17. The bank also targets a further increase of fee and commission share in revenue in next two to three years largely due to more active use of retail digital services. It is difficult to set targets in the corporate segment, where it competes with state-owned and large foreign banks for top-tier corporates, so Alfa is being rather opportunistic. For full 2017, the bank targets low double digit return on equity (1H17 annualised ROAE was 17%, but partially underpinned by recovery of provisions). The overall execution record is good, although net performance is volatile through the cycle due to occasional spikes in impairment charges, as Alfa tends to recognise problems and deal with them quickly. The bank has consistently demonstrates its ability to recover problem thanks to efficient legal enforcements and collateral foreclosure. ROAE, TCI a, Provision Charges ROAE, LHC (LHS) Total CI to average equity, LHC (LHS) Provision charge/average, RHC (RHS) FY13 FY14 FY15 FY16 a Total Comprehensive Income Source: Alfa, Fitch interpretations Risk Appetite Mature Underwriting; Good Risk Controls Alfa s credit underwriting is sufficiently mature, although the loan book is fairly concentrated and asset quality may be cyclical like the Russian economy. In corporate lending, Alfa mainly relies on expected cash flows rather than collateral, with the latter being viewed as an additional safety measure Alfa is known for its unmatched record of asset recoveries. In corporate business Alfa focuses on companies with export revenues, those involved in import substitution, as well as core necessity industries, such as food and agriculture, pharmaceuticals, which are deemed as more resilient to a potential downturn. Construction lending is mainly done against collateral of completed properties generating sufficient cash flows to service interest, although some have bullet repayments and occasionally loan/values are above 100% (usually for foreign-currency issued prior to devaluation). Alfa tightened retail risk appetite in 2015 reducing approval rates to street clients to below 10%, focusing instead on mass-affluent (with high for Russia monthly salary of RUB150,000- RUB250,000), payroll and existing/former customers. At end-1h17, salaried and mass-affluent borrowers represented about 30% and 20% of retail lending, respectively. POS, which are only break-even, are considered by the bank as acquisition channel for retail clients. Growth in Line with Internal Capital Generation On average, Alfa grew in line with internal capital generation ratio in Gross increased by 8% in 1H17. 4

5 FX-Adjusted a Lending Growth and Internal Capital Generation FX adjusted lending growth (LHS) Avg. 4 years lending growth (RHS) Internal capital generation (LHS) Avg. 4 years internal capital generation (RHS) 12 FY16 FY15 FY14 FY13 a Net of currency moves Source: Alfa, Fitch interpretations Some Market Risk, Good Quality Securities Book Market risk stems from open currency position (ABHFL had a consolidated long dollar position of about USD6.3 billion, or 1.2x FCC, at end-1h17). Alfa s IFRS-reported consolidated open currency position is smaller, while regulatory position is within required limits. Securities book is of a reasonable quality with more weight towards Russian government and other sovereign (US and Europe) bonds and debt securities of better quality corporates and banks. The equities book is very small (less 1% of FCC). Financial Profile Asset Quality NPLs Rose in 2015; Improvement in 2016 Due to Write-Offs and Foreclosures Securities Book Structure End-2016 Russian sovereign 20% Equities 1% Asset-Quality Metrics End-1H17 End-2016 End-2015 End-2014 End-2013 Growth of gross NPLs/gross Reserves for NPLs/NPLs NPLs less reserves/fitch Core Capital Loan impairment charges/average gross Source: Alfa, Fitch interpretations Other sovereign 27% Corporate 52% Fitch calculated NPL origination ratio (generated NPL to average performing ) was low 1.2% in 2016 and 0.5% (annualised) in 1H17, down from 6.1% ratio in 2015 reflecting underwriting standards tightening and recoveries. On balance, NPL ratio fell to 2.9% from 7.2% and were fully reserved. Restructured exposures were negligible. Source: Alfa, Fitch interpretations Loan book is moderately concentrated, with the 25 largest exposures making up 50% of total balance at end-1h17 (2.5x FCC). Fitch has reviewed largest exposures in details the 25 largest were all performing at end-1h17 and the agency assessed most of these as being of decent quality, as they were extended to well-known Russian companies, of which 11 were state-related (see annex 5). Two among the 25 largest are viewed by Fitch as of higher risk, the net combined exposure was USD1.2 billion (22% of FCC), while risks are moderately mitigated by completed real estate objects pledged against these exposures with reasonable loan-to-value ratios. 5

6 Loan Book Concentration at End-1H17 Top 25 Other corporate Retail Total Gross 12,951 9,580 3,426 25,957 NPLs NPLs Loan impairment reserve LIR/gross LIR/NPLs n.m Source: Bank Ukrainian Loans Negligible Alfa s consolidated exposure to Ukrainian borrowers decreased to USD30 million (less than 1% of FCC) at end-2016 from USD142 million at end-2015, due to write-offs and buy out of some exposures by Alfa s shareholders. All outstanding exposures to Ukraine are booked on ATB balance sheet. Improving Retail; Reasonable Headroom Retail lending quality improved with annual credit losses decreasing to 7% in 2016 and annualised 4% in 1H17 from 9% in The Fitch-calculated net safety margin was 8% in 2016, meaning retail segment would be profitable for Alfa unless annual losses doubled. Retail Safety Margin Effective interest yield a (A) Allocated operating expenses/average retail (B) Annual retail losses b (C) Safety margin (A-B-C) a Including commissions b Fitch calculated NPL origination ratio (net increase of NPLs plus loan write-offs divided by average performing ) Source: Alfa, Fitch Interpretations Reverse Repos Adequately Collateralised The reverse repo business (USD3.7 billion at end-2016) is concentrated, with the top 10 exposures accounting for 70% of the total balance. Most counterparties have low ratings or are unrated, so the focus is on collateral, which is a mixture of shares and bonds, mostly of Russian blue chips. For most deals, the tenor is rather short-term (about two weeks), although some deals are for up to three months. The risk is adequately captured by haircuts (30%-40% for shares and 5%-15% for bonds). Earnings and Profitability Recovered Profitability Selected Profitability Metrics 1H17 b Net interest income/average earning assets Non-interest expense/gross revenues Loans and securities impairment charges/ average Operating profit/average total assets Operating profit/risk-weighted assets Net income/average equity TCI a /average equity a Total comprehensive income b Annualised Source: Alfa, Fitch s interpretations 6

7 LICs improved to 1.4% of gross in 2016 from 3.2% in 2015 and 4% in 2014, which compares well with pre-crisis levels. In 1H17, LICs were negative 0.4% of gross, due to recoveries. Net interest margin also improved by 50bp to 4.5%, resulting in total comprehensive income to average equity ratio of 14% of, which is better than the 10% sector average. Retail performance improved in H17 thanks to tighter underwriting and market stabilisation with Alfa reporting a sound 11% pre-tax profit to average segment assets ratio, although this was partially achieved thanks to provision recovery. With reserve charges normalising, Fitch believes the ratio could fall to pre-crisis level of about 5% in 2H , which is still sound. Retail Segment Performance Evolution 6,000 5,000 4,000 3,000 2,000 1,000 Average retail assets (LHS) PBT/average assets (RHS) a Annualised FY13 FY14 FY15 FY16 1H17 Source: Alfa, Fitch interpretation 0 Capitalisation and Leverage Adequate Capitalisation Selected Capital Ratios End-1H17 End-2016 End-2015 End-2014 End-2013 IFRS capital ratios (ABHFL consolidated) Fitch Core Capital/weighted risk Equity/assets Tier 1 Basel capital ratio Total Basel capital ratio Internal capital generation Local GAAP regulatory capital ratios (Alfa standalone) Core Tier 1 capital ratio n.a. Tier 1 capital ratio n.a. Total capital ratio Source: Alfa CBR SIB a Capital Requirements Including Buffers From 2017 From 2018 From 2019 Core Tier Total Tier Total capital a Systemically important banks Source: CBR Capitalisation is reasonable for Alfa s risk profile. IFRS capital ratios improved since end-2013 largely thanks to the depreciation of rouble-denominated risk-weighted assets (RWAs), while ABHFL s consolidated equity value in dollars was roughly stable (free from rouble-dollar exchange movements) thanks to the long dollar position (see Risk Appetite section above). However, Alfa s IFRS capitalisation is based on Basel I standard and therefore largely benefits (300bp-400bp) from omission of market and operational risk. Local regulatory capital ratios (calculated at Alfa s standalone level) are tighter as RWAs are USD10 billion higher due to present operating and market risk components (each adds about USD4 billion to regulatory RWAs). The regulatory Tier 1 ratio is 70bp higher than Core Tier 1 due to inclusion of USD700 million perpetual subordinated notes placed in However, under Basel I approach these notes are considered as Tier 2 capital, due to absence of additional Tier 1 component in Basel I rules. 7

8 Alfa should also comply (on a quarterly basis) with extra capital buffer requirements, including for systemic importance and capital conservation, which are being gradually rolled out till Fitch views core Tier 1 and Tier 1 ratios as potential bottlenecks, although the bank expects to retain profit and/or issue more perpetual debt to comply with increasing buffers. Considerable Loss-Absorption Capacity At end-1h17, Alfa could have withstood about 14% of credit losses before its IFRS total capital adequacy ratio decreased to an internally set minimum of 11%. The regulatory loss absorption is weaker at 5%, however viewed by Fitch as reasonable headroom, due to decent asset quality and good pre-impairment profitability (equal to 5% of in 2016). Loss Absorption Capacity Russian GAAP (RUBm) Basel I End-1H17 End-2016 End-2015 End-1H17 End-2016 End-2015 Core Tier 1 capital 202, , ,812 5,190 4,926 4,219 Tier 1 capital 238, , ,812 5,190 4,926 4,219 Total capital 316, , ,876 6,736 6,613 5,468 Core Tier 1 ratio Tier 1 ratio Total CAR ratio Risk-weighted assets 2,633,325 2,475,067 2,560,584 32,818 30,407 25,156 Gross 1,617,228 1,537,375 1,541,042 25,092 23,243 21,654 Current LIR 212, , , ,139 1,415 Additional LIR capacity a 85,839 78,991 41,678 3,512 3,672 3,035 Maximum LIR capacity a 298, , ,379 4,290 4,811 4,450 Current LIR/gross Additional LIR cap./gross a Maximum LIR/gross a Targeted or covenanted core Tier 1 CAR Targeted or covenanted Tier 1 CAR Targeted or covenanted total CAR a Loan impairment reserves that the bank could create without the total capital ratio falling below the targeted/covenanted total CAR Source: Fitch Funding and Liquidity Adequate Liquidity; Balanced Funding Structure Selected Funding Ratios End-1H17 End-2016 End-2015 End-2014 End-2013 Loans/customer deposits Interbank assets/interbank liabilities Customer deposits/total funding (excluding derivatives) Source: Alfa Dependence on wholesale and other bank funding decreased to 25% of liabilities at end-1h17 from 39% at end Bank funding was USD3.4 billion at end-2016 (10% of liabilities), of which USD0.9 billion was repo funding (including USD0.3 billion from the CBR) and USD0.6 billion corresponding accounts of other banks and remaining USD1.9 billion was term placements/. Although the latter is typically stable and rolling over, it could be less reliable in times of stress, but Alfa s significant liquidity buffer mitigates the risk. Wholesale funding maturity profile is comfortable, with USD2 billion (of which USD1.7 billion bank funding) maturing 12 months from end-9m17. 8

9 Customer accounts represented 75% of total funding; of which half were interest-free current accounts contributing to a relatively low funding cost of about 4.5% in 1H17, in line with state banks, which in challenging environment gives Alfa a significant advantage. Alfa has comfortable liquidity cushion. At end-9m17 liquid assets (cash and equivalents, unpledged bonds eligible for repo financing with CBR and net short-term interbank placements) were equal to USD11.8 billion covering customer accounts by 47%. Net of potential cash uses (wholesale debt and bank funding repayments) in next 12 months coverage was also comfortable 25%. 9

10 Annex 1 Alfa-Bank Shareholding Structure, End-11M17 Beneficiaries Mikhail Fridman 33% German Khan 21% Alexey Kuzmichev 16% Petr Aven 12% UniCredit S.p.A 10% Other 8% ABH Holdings S.A. (Luxemburg) 97.4% ABH Financial Limited (Cyprus) 79.9% Alfa Capital Holdings (Cyprus) JSC AB HOLDING 99.9% 20.1% AO Alfa-Bank (Russia) 100% 79.1% PJSC «BALTIYSKIY BANK» Amsterdam Trade Bank Source: Transactional documents 10

11 Annex 2 Peer Comparison Peer Analysis Alfa-Bank (BB+/Stable/bb+) Credit Bank of Moscow (BB-/Stable/bb-) Bank Saint Petersburg PJSC (BB-/Stable/bb-) Rosbank (BBB-/Positive/bb+) Gazprombank (JSC) (BB+/Positive/bb-) Rosevrobank (BB-/Stable/bb-) 1H17 YE16 YE15 9M7 YE16 YE15 1H17 YE16 YE15 9M17 YE16 YE15 1H17 YE16 YE15 1H17 YE16 YE15 Profitability Operating profit/risk-weighted n.a assets Interest income/average earning assets Interest expense/average interest-bearing liabilities Net interest margin Non-interest income/gross revenues Operating expenses/gross revenues Pre-impairment operating ROAA Pre-impairment operating ROAE Provisioning charge/preimpairment operating profit 10.6 ROAA ROAE Net income/risk weighted n.a. n.a assets Loan book and quality Net /assets Loan growth Non-retail /total Loan impairment charges/average NPLs/gross n.a LIR/gross n.a LIR/NPLs n.a NPLs less reserves/fcc n.a n.a. n.a Liquidity and funding Interbank assets/interbank liabilities Loans/customer deposits

12 Peer Analysis (Cont.) Alfa-Bank (BB+/Stable/bb+) Credit Bank of Moscow (BB-/Stable/bb-) Bank Saint Petersburg PJSC (BB-/Stable/bb-) Rosbank (BBB-/Positive/bb+) Gazprombank (JSC) (BB+/Positive/bb-) Rosevrobank (BB-/Stable/bb-) 1H17 YE16 YE15 9M17 YE16 YE15 1H17 YE16 YE15 9M17 YE16 YE15 1H17 YE16 YE15 1Q17 YE16 YE15 Customer deposits/total Funding (excluding derivatives) Capitalisation FCC/FCC-adjusted risk n.a n.a weighted assets Tangible common equity/tangible assets Basel Tier 1 regulatory capital n.a ratio Basel total regulatory capital n.a ratio Regulatory Tier 1 regulatory n.a capital ratio (N1.2) Regulatory total regulatory n.a capital ratio (N1.0) Equity/assets Internal capital generation Total assets 2, , , , , , , , , , (RUBbn) Total equity (RUBbn) Source: IFRS and prudential accounts 12

13 Annex 3: Segment Results 1H Corporate and IB a Retail Treasury Total Corporate and IB a Retail Treasury Total Corporate and IB a Retail Treasury Total Corporate and IB a Retail Treasury Total Corporate and IB a Retail Treasury Total Net revenue before opex and impairment ,156 1, ,945 1, , , ,132 1,358 1, ,850 Opex , ,242 Preimpairment , , ,608 profit Impairment Profit before tax , , ,098 Segment average assets 28,109 3,074 4,926 36,108 23,214 2,737 4,379 30,329 21,466 3,436 4,937 29,838 25,976 5,062 5,730 36,768 28,652 5,164 5,756 39,572 PBT/segment average assets a Investment banking Source: IFRS statements, Fitch estimates 13

14 Annex 4: Loan Quality Detail At End-1H17 Gross Lending growh 1H17 Performing Loan impairment provision Net Period-end NPLs NPLs originated (recovered) in 1H17 Written-off Renegotiated NPLs 90+ Renegotiated Loan impairment provision NPLs originated (recovered) in 1H17/avg. performing a Credit cards and 2, , , PILs Consumer Mortgage and car Reverse repo Total retail 3, , , General corporate 21, , , Reverse repo Leasing Total corporate 22, , , Total loan book 25, , , a Annualised Source: IFRS statements, Alfa 14

15 At End-2016 Gross Lending growth 1H17 Performing Loan impairment provision Net Period-end NPLs NPLs originated (recovered) in 1H17 Written-off Renegotiated NPLs 90+ Renegotiated Loan impairment provision NPLs originated (recovered) in 1H17/avg. performing a Credit cards and 2, , , PILs Consumer Mortgage and car Reverse repo Total retail 2, , , General corporate 19, , , Reverse repo Leasing Total corporate 20, ,983 1,040 19, Total loan book 23, ,895 1,139 22,762 1, a Annualised Source: IFRS statements, Alfa At End-2015 Gross Lending growth 1H17 Performing Loan impairment provision Net Period-end NPLs NPLs originated (recovered) in 1H17 Written-off Renegotiated NPLs 90+ Renegotia ted Loan impairment provision NPLs originated (recovered) in 1H17/avg. performing a Credit cards and 2,085 2, , PILs Consumer n.a n.a. Mortgage and car n.a n.a. Reverse repo n.a n.a. Total retail 2, , , General corporate 17,719 16,316 1,206 16,513 1,403 1, Reverse repo n.a n.a. Leasing n.a n.a. Total corporate 18, ,511 1,248 17,692 1,429 1, Total loan book 21, ,153 1,415 20,239 1,501 1, a Annualised Source: IFRS statements, Alfa 15

16 At End-2014 Gross Lending growth 1H17 Performing Loan impairment provision Net Period-end NPLs NPLs originated (recovered) in 1H17 Written-off Renegotiated NPLs 90+ Renegotiated Loan impairment provision NPLs originated (recovered) in 1H17/avg. performing a Credit cards and 3, , , PILs Consumer Mortgage and car Reverse repo Total retail 4, , , General corporate 22, ,722 1,284 21, n.a Reverse repo n.a Leasing n.a Total corporate 23, ,879 1,361 22, Total loan book 28, ,339 1,640 26, a Annualised Source: IFRS statements, Alfa 16

17 Annex 5 Largest Loans at End-1H17 no Industry State owned Related a End-1H17 Gross exposure Provision Net exposure Gross% of gross Net % of FCC Fitch risk assessment 1 Oil industry Yes 1, ,141 1, Moderate 2 Oil industry Yes 1, , Low 3 Non-ferrous metallurgy Low 4 Mass media and telecommunications Yes Low 5 Real estate, construction Moderate 6 Diamond extraction and processing Yes Low 7 Non-ferrous metallurgy Low 8 Chemistry and petro chemistry, Oil Yes Low industry 9 Power generation Moderate 10 Real estate, trade and commerce Moderate 11 Machinery and metal working Yes Low 12 Chemistry and petrochemistry Low 13 Ferrous metallurgy Moderate 14 Nuclear industry Yes Low 15 Oil industry Yes Low 16 Mass media and telecommunications Yes Low 17 Food industry Yes Low 18 Railway transport Moderate 19 Coal Industry Low 20 Mass media and telecommunications Yes Low 21 Food industry Moderate 22 Ferrous metallurgy Moderate 23 Nuclear industry Yes Low 24 Mass media and telecommunications Yes Low 25 Food industry Low a Fitch s view, while exposures could be treated as non-related under IFRS Source: Alfa, Fitch assessment 17

18 Annex 6: Debt Maturity Profile, End-5M17 Wholesale Debt Maturity (Alfa Standalone) Market subordinated debt VEB subordinated debt Syndicated loan Eurobonds (MTN,LPN) ECP Ruble bonds Total of liabilities May - - Jun Jul Aug - - Sep Oct Nov - - Dec - - Total , , Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Beyond , , Source: Fitch 18

19 Annex 7: Liquidity Cushion, End-9M17 Liquidity Cushion (Alfa Standalone) End-9M17 Cash sources a Cash on hand 1,070 Correspondent accounts with central banks 764 Correspondent accounts with other banks 831 Overnight placements with other banks 295 Due from other banks (short-term) 3,005 Cash and cash equivalents 5,965 Additional liquidity sources, including: HFS portfolio 1,071 HTM portfolio Repoable fixed income portfolio - Loan portfolio eligible for CBR repo 2,595 CBR/finance ministry auctions - CBR cross guarantee - OFZ capital portfolio - Total additional liquidity sources 5,876 Total available liquidity 11,841 Average monthly proceeds from loan repayments b 582 Cash uses a Loans from banks 1,731 Eurobonds (MTN, LPN) 115 ECP 172 Loan from SDIA Syndicated loan VEB subordinated debt Russian bonds Subordinated debt Wholesale/money markets debt repayments in next 12 months 2,017 Potential repayments to government related entities, including: Due to CBR (non-repo) 22 Deposits of ministry of finance, state and regional budgets 715 Non-core deposits from large state entities 3,785 Total potential repayments to government related entities 4,522 Total repayments & other potential cash uses 6,539 Total available liquidity net of wholesale/money markets debt repayments in next 12 months 9,824 Total available liquidity net of total potential cash uses 5,302 Total available liquidity/сustomer accounts 46.7 Total available liquidity net of total potential cash uses/сustomer accounts c 25.4 Monthly proceeds from loan repayments/сustomer accounts 2.3 a Excluding loan issuance/repayments and other items b Bank estimate; Fitch conservatively excludes loan proceeds from calculation of liquid assets c Customer accounts are net of Ministry of Finance/regional budgets/other non-core government deposits Source: IFRS Statements, Bank, Fitch estimates 19

20 ABH Financial Limited Income Statement 30 Jun Dec Dec Dec Months - Interim 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of USDm USDm Earning Assets USDm Earning Assets USDm Earning Assets USDm Earning Assets Reviewed - Unqualified Reviewed - Unqualified Audited - Unqualified Audited - Unqualified Audited - Unqualified 1. Interest Income on Loans 1, , , , , Other Interest Income Dividend Income n.a. n.a n.a Gross Interest and Dividend Income 1, , , , , Interest Expense on Customer Deposits , Other Interest Expense , Total Interest Expense , , , Net Interest Income , , , Net Gains (Losses) on Trading and Derivatives (46.0) (0.14) (262.0) (0.70) 10. Net Gains (Losses) on Other Securities (27.0) (0.07) 11. Net Gains (Losses) on Assets at FV through Income Statement n.a. n.a n.a Net Insurance Income n.a. n.a. - n.a. - n.a. - n.a Net Fees and Commissions Other Operating Income (185.0) (185.0) (1.05) (238.0) (0.64) 15. Total Non-Interest Operating Income , Personnel Expenses n.a. n.a Other Operating Expenses Total Non-Interest Expenses , Equity-accounted Profit/ Loss - Operating n.a. n.a. - n.a. - n.a. - n.a Pre-Impairment Operating Profit , , , Loan Impairment Charge (56.0) (56.0) (0.32) , Securities and Other Credit Impairment Charges n.a. n.a. - n.a. - n.a. - n.a Operating Profit (103.0) (0.28) 24. Equity-accounted Profit/ Loss - Non-operating n.a. n.a. - n.a. - n.a. - n.a Non-recurring Income n.a. n.a Non-recurring Expense n.a. n.a. - n.a. - n.a. - n.a Change in Fair Value of Own Debt (30.0) (0.09) (7.0) (0.03) Other Non-operating Income and Expenses n.a. n.a. - n.a. - n.a. - n.a Pre-tax Profit Tax expense (21.0) (0.06) 31. Profit/Loss from Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Net Income Change in Value of AFS Investments (23.0) (0.07) (70.0) (0.19) 34. Revaluation of Fixed Assets n.a. n.a. - n.a. - n.a Currency Translation Differences (1,199.0) (4.39) (2,073.0) (5.56) 36. Remaining OCI Gains/(losses) (90.0) (90.0) (0.51) (654.0) (2.00) , Fitch Comprehensive Income (8.0) (0.03) (415.0) (1.11) 38. Memo: Profit Allocation to Non-controlling Interests (6.0) (0.02) (6.0) (0.02) Memo: Net Income after Allocation to Non-controlling Interests Memo: Common Dividends Relating to the Period n.a. n.a. - n.a. - n.a. - n.a Memo: Preferred Dividends Related to the Period n.a. n.a. - n.a Exchange rate USD1 = USD1 USD1 = USD1 USD1 = USD1 USD1 = USD1 20

21 ABH Financial Limited Balance Sheet 30 Jun Dec Dec Dec Months - Interim 6 Months - Interim As % of Year End As % of Year End As % of Year End As % of USDm USDm Assets USDm Assets USDm Assets USDm Assets Assets A. Loans 1. Residential Mortgage Loans n.a. n.a. - n.a. - n.a. - n.a Other Mortgage Loans Other Consumer/ Retail Loans 3, , , , , Corporate & Commercial Loans 21, , , , , Other Loans n.a. n.a. - n.a. - n.a. - n.a Less: Reserves for Impaired Loans , , , Net Loans 24, , , , , Gross Loans 25, , , , , Memo: Impaired Loans included above , , Memo: Loans at Fair Value included above n.a. n.a. - n.a. - n.a. - n.a. - B. Other Earning Assets 1. Loans and Advances to Banks 4, , , , Reverse Repos and Cash Collateral 1, , , , , Trading Securities and at FV through Income 1, , , , Derivatives , Available for Sale Securities 1, , , , , Held to Maturity Securities 2, , , , Equity Investments in Associates n.a. n.a. - n.a. - n.a. - n.a Other Securities n.a. n.a. - n.a. - n.a. - n.a Total Securities 6, , , , , Memo: Government Securities included Above n.a. n.a. - 1, Memo: Total Securities Pledged Investments in Property n.a. n.a Insurance Assets n.a. n.a. - n.a. - n.a. - n.a Other Earning Assets n.a. n.a. - n.a. - n.a. - n.a Total Earning Assets 35, , , , , C. Non-Earning Assets 1. Cash and Due From Banks 4, , , , , Memo: Mandatory Reserves included above Foreclosed Real Estate n.a. n.a. - n.a. - n.a. - n.a Fixed Assets Goodwill n.a. n.a Other Intangibles n.a. n.a Current Tax Assets n.a. n.a Deferred Tax Assets Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Other Assets Total Assets 41, , , , , Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 12, , , , , Customer Deposits - Savings n.a. n.a. - n.a. - n.a. - n.a Customer Deposits - Term 14, , , , , Total Customer Deposits 26, , , , , Deposits from Banks 2, , , , , Repos and Cash Collateral n.a. n.a , Commercial Paper and Short-term Borrowings 1, , , , , Total Money Market and Short-term Funding 30, , , , , Senior Unsecured Debt (original maturity > 1 year) 2, , , , , Subordinated Borrowing 1, , , , , Covered Bonds n.a. n.a. - n.a. - n.a. - n.a Other Long-term Funding n.a. n.a. - n.a. - n.a. - n.a Total LT Funding (original maturity > 1 year) 3, , , , , Derivatives , Trading Liabilities n.a. n.a. - n.a. - n.a. - n.a Total Funding 35, , , , , E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt n.a. n.a. - n.a. - n.a. - n.a Credit impairment reserves n.a. n.a. - n.a. - n.a. - n.a Reserves for Pensions and Other n.a. n.a Current Tax Liabilities n.a. n.a Deferred Tax Liabilities Other Deferred Liabilities n.a. n.a. - n.a. - n.a. - n.a Discontinued Operations n.a. n.a. - n.a. - n.a. - n.a Insurance Liabilities n.a. n.a. - n.a. - n.a. - n.a Other Liabilities , Total Liabilities 35, , , , , F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt n.a. n.a. - n.a. - n.a. - n.a Pref. Shares and Hybrid Capital accounted for as Equity n.a. - G. Equity 1. Common Equity 6, , , , , Non-controlling Interest Securities Revaluation Reserves (55.0) (0.13) 4. Foreign Exchange Revaluation Reserves (1,210.0) (1,210.0) (2.89) (1,275.0) (3.33) (1,438.0) (4.57) (868.0) (1.99) 5. Fixed Asset Revaluations and Other Accumulated OCI Total Equity 5, , , , , Total Liabilities and Equity 41, , , , , Memo: Fitch Core Capital 5, , , , , Exchange rate USD1 = USD1 USD1 = USD1 USD1 = USD1 USD1 = USD1 21