Evrofinance Mosnarbank. Consolidated financial statements For the Year Ended 31 December 2012

Transcription

1 Evrofinance Mosnarbank Consolidated financial statements For the Year Ended

2 EVROFINANCE MOSNARBANK TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 1 INDEPENDENT AUDITOR S REPORT 2-3 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER : Consolidated statement of profit and loss 4 Consolidated statement of other comprehensive income 5 Consolidated statement of financial position 6 Consolidated statement of changes in equity 7 Consolidated statement of cash flows 8-9 Notes to the consolidated financial statements 10-55

3 EVROFINANCE MOSNARBANK STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER Management of Evrofinance Mosnarbank is responsible for the preparation of the consolidated financial statements that present fairly, in all material respects, the financial position of Evrofinance Mosnarbank (the Bank ) and its subsidiaries (collectively - the Group ) as of, and the results of its operations, cash flows and changes in equity for the year then ended, in compliance with International Financial Reporting Standards ( IFRS ). In preparing the consolidated financial statements, management is responsible for: Selecting suitable accounting principles and applying them consistently; Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; Providing additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group s financial position and financial performance; Making an assessment of the Group's ability to continue as a going concern. Management is also responsible for: Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group; Maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS; Maintaining statutory accounting records in compliance with legislation and accounting standards of the Russian Federation; Taking such steps as are reasonably available to them to safeguard the assets of the Group; and Preventing and detecting fraud and other irregularities. The consolidated financial statements for the year ended were authorized for issue on 29 April 2013 by the Bank s Executive Board. On behalf of the Executive Board: I.K. Lomakin Acting President - Chairman of the Executive Board I.V. Semyonova Deputy Chief Accountant 29 April April 2013 Moscow Moscow 1

4 ZAO Deloitte & Touche CIS 5 Lesnaya Street Moscow, Russia Tel: +7 (495) Fax: +7 (495) INDEPENDENT AUDITORS REPORT To the Shareholders and the Board of Directors of Evrofinance Mosnarbank: Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Joint Stock Commercial Bank Evrofinance Mosnarbank and its subsidiaries (collectively - the Group ), which comprise the consolidated statement of financial position as of and the consolidated statements of profit and loss, other comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. 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 management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the fair presentation of these consolidated financial statements based on our audit. We conducted our audit in accordance with Russian Federal Auditing Standards and 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to express an opinion on the fair presentation of these consolidated financial statements. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see for a detailed description of the legal structure of Deloitte CIS ZAO Deloitte & Touche CIS. All rights reserved Memberof Deloitte Touche Tohmatsu Limited 2

5 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of, and its financial performance, and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. 29 April 2013 Moscow, Russian Federation S.V. Neklyudov, Partner (Qualification Certificate No ) ZAO DELOITTE & TOUCHE CIS 3

6 EVROFINANCE MOSNARBANK CONSOLIDATED STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31 DECEMBER (in thousands of Russian Rubles, except for earnings per share which are in Rubles) Notes Year ended Year ended Interest income 5,25 2,561,428 2,008,396 Interest expense 5,25 (836,809) (786,055) NET INTEREST INCOME BEFORE PROVISION FOR IMPAIRMENT LOSSES ON INTEREST-BEARING ASSETS 1,724,619 1,222,341 Provision for impairment losses on interest-bearing assets 6 (138,707) (107,587) NET INTEREST INCOME 1,585,912 1,114,754 Net loss on financial assets and liabilities at fair value through profit or loss 7 (59,006) (50,006) Net gain on foreign exchange operations 8 348, ,302 Fee and commission income 9 357, ,729 Fee and commission expense 9 (52,674) (47,773) Net gain on investments available for sale 8 526, ,879 Dividend income 16,782 11,998 Recovery of provision for other operations 6 23,331 42,539 Other income 6,360 31,399 NET NON-INTEREST INCOME 1,167, ,067 OPERATING INCOME 2,753,510 1,947,821 OPERATING EXPENSES 10,25 (1,728,553) (1,686,350) PROFIT BEFORE INCOME TAX 1,024, ,471 Income tax expenses 11 (232,556) (58,047) NET PROFIT FOR THE YEAR 792, ,424 On behalf of the Executive Board: I.K. Lomakin Acting President - Chairman of the Executive Board Deputy I.V. Semyonova Chief Accountant 29 April April 2013 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 4

7 EVROFINANCE MOSNARBANK CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER (in thousands of Russian Rubles) Notes Year ended Year ended NET PROFIT FOR THE PERIOD 792, ,424 OTHER COMPREHENSIVE INCOME Net gain/(loss) on revaluation of investments available for sale during the period, net of deferred income tax of RUR 173,449 thousand and RUR 59,602 thousand, respectively ,796 (238,408) Disposal of revaluation reserve on investments available for sale during the period, net of income tax of RUR 92,105 thousand and RUR 15,222 thousand, respectively 15 (368,419) (60,888) Net loss on revaluation of property and equipment, net of deferred income tax of RUR 6,012 thousand 17 (24,049) - OTHER COMPREHENSIVE INCOME/(LOSS) AFTER INCOME TAX 301,328 (299,296) TOTAL COMPREHENSIVE INCOME/(LOSS) 1,093,729 (95,872) On behalf of the Executive Board: I.K. Lomakin Acting President - Chairman of the Executive Board I.V. Semyonova Deputy Chief Accountant 29 April April 2013 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 5

8 EVROFINANCE MOSNARBANK CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER (in thousands of Russian Rubles) Notes ASSETS: Cash and balances with the Central Bank of the Russian Federation 12 3,509,002 2,800,888 Due from banks and other financial institutions 13,25 59,731,148 40,334,683 Loans to customers 14,25 12,107,816 10,031,438 Investments available for sale 15,25 11,578,001 12,271,917 Investments held to maturity 16,25 154, ,967 Property, equipment and intangible assets 17 3,121,210 3,398,005 Current income tax assets 5, ,275 Other assets 216, ,898 TOTAL ASSETS 90,423,056 69,714,071 LIABILITIES AND EQUITY LIABILITIES: Due to the Central Bank of the Russian Federation ,599 - Deposits by banks 19,25 47,712,821 6,882,108 Deposits by customers 20,25 25,610,640 47,596,470 Debt securities issued 21 1,889,484 1,340,854 Deferred income tax liabilities , ,032 Other liabilities , ,107 Subordinated debt 22,25 40,770 57,766 Total liabilities 76,529,154 56,590,337 EQUITY: Equity attributable to owners of the Bank: Share capital 3,510,255 3,510,255 Share premium 6,679,596 6,679,596 Investments revaluation reserve 66,852 (258,525) Property and equipment revaluation reserve 1,328,652 1,456,817 Retained earnings 2,308,547 1,735,591 Total equity 13,893,902 13,123,734 TOTAL LIABILITIES AND EQUITY 90,423,056 69,714,071 On behalf of the Executive Board: I.K. Lomakin Acting President - Chairman of the Executive Board I.V. Semyonova Deputy Chief Accountant 29 April April 2013 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 6

9 EVROFINANCE MOSNARBANK CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER (in thousands of Russian Rubles) Notes Share capital Share premium Investments revaluation reserve Property and equipment revaluation reserve Retained earnings Total equity ,510,255 6,679,596 40,771 1,456,817 1,532,167 13,219,606 Total comprehensive loss for the period - - (299,296) - 203,424 (95,872) 3,510,255 6,679,596 (258,525) 1,456,817 1,735,591 13,123,734 Total comprehensive income for the period ,377 (24,049) 792,401 1,093,729 Disposal of revaluation reserve for sold buildings (104,116) 104,116 - Dividends declared and paid (323,561) (323,561) 3,510,255 6,679,596 66,852 1,328,652 2,308,547 13,893,902 On behalf of the Executive Board: I.K. Lomakin Acting President - Chairman of the Executive Board I.V. Semyonova Deputy Chief Accountant 29 April April 2013 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 7

10 EVROFINANCE MOSNARBANK CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER (in thousands of Russian Rubles) Notes Year ended Year ended CASH FLOWS FROM OPERATING ACTIVITIES: Profit before income tax 1,024, ,471 Adjustments for non-cash items: Provision for impairment losses on interest-bearing assets 138, ,587 Change in provisions for other operations (23,331) (42,539) Net gain on investments available for sale (526,644) (122,879) Depreciation and amortization 144, ,303 (Gain)/loss on disposal of property, equipment and intangible assets (16,220) 29,497 Net change in fair value of subordinated debt (16,932) - Net change in interest accruals (64,862) (19,716) Foreign exchange differences (174,280) (376,424) Cash flows from operating activities before changes in operating assets and liabilities 485,811 (59,700) Changes in operating assets and liabilities (Increase)/decrease in operating assets: Minimum reserve deposits with the Central Bank of the Russian Federation (681,573) (1,617,220) Due from banks and other financial institutions (25,572,656) (24,701,871) Loans to customers (2,137,793) 3,910,651 Other assets 27,156 (175,449) Increase/(decrease) in operating liabilities Loans from the Central Bank of the Russian Federation 530,599 - Deposits by banks 41,821, ,539 Deposits by customers (18,252,375) 33,803,529 Debt securities issued/(repaid) in the normal course of business 532,562 (1,553,360) Other liabilities 28,853 52,822 Cash (outflow)/inflow from operating activities before taxation and interest (3,218,277) 10,239,941 Income tax paid (176,044) (49,334) Net cash (outflow)/inflow from operating activities (3,394,321) 10,190,607 8

11 EVROFINANCE MOSNARBANK CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER (in thousands of Russian Rubles) Notes Year ended Year ended CASH FLOWS FROM INVESTING ACTIVITIES: Payments for purchases of property and equipment (34,749) (44,058) Payments for purchases of intangible assets (2,186) (1,170) Proceeds on disposals of property and equipment 155,473 20,975 Proceeds on disposals of intangible assets - 1,056 Proceeds on disposals of investments available for sale 1,494,094 - Payments for purchases of investments available for sale - (4,989,980) Proceeds on repayments of investments held to maturity 285, ,049 Net cash inflow/(outflow) from investing activities 1,897,733 (4,582,128) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends 23 (323,561) - Repayment of subordinated debt - (941,935) Net cash outflow from financing activities (323,561) (941,935) Effect of exchange rate changes on cash held in foreign currencies (6,537) 17,975 NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS (1,826,686) 4,684,519 CASH AND CASH EQUIVALENTS, beginning of period 12 9,819,812 5,135,293 CASH AND CASH EQUIVALENTS, end of period 12 7,993,126 9,819,812 Interest paid and received during the year ended amounted to RUR 965,589 thousand and RUR 2,405,454 thousand, respectively. Interest paid and received during the year ended amounted to RUR 860,343 thousand and RUR 2,111,361 thousand, respectively. On behalf of the Executive Board: I.K. Lomakin Acting President - Chairman of the Executive Board I.V. Semyonova Deputy Chief Accountant 29 April April 2013 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 9

12 EVROFINANCE MOSNARBANK NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (in thousands of Russian Rubles, unless otherwise indicated) 1. ORGANIZATION Evrofinance Mosnarbank is a joint-stock bank, which was incorporated in the Russian Federation ( the RF ) in Evrofinance Mosnarbank is regulated by the Central Bank of the Russian Federation ( the CBR ) and conducts its business under general license number The primary business of Evrofinance Mosnarbank consists of commercial activities, trading with securities, foreign currencies and derivative instruments, originating loans and guarantees. The registered office of Evrofinance Mosnarbank is located at 29 Noviy Arbat, Moscow, Evrofinance Mosnarbank has presence in 9 cities in the Russian Federation: Moscow, St. Petersburg, Stavropol, Yaroslavl, Rostov-on-Don, Vladimir, Niznniy Novgorod, Nevinnomyssk, and Pyatigorsk. The Bank also has representative offices in Beijing and Caracas. The Bank s areas of operation were partly reduced following the conclusion of an agreement between the Government of the Russian Federation and the Government of the Bolivarian Republic of Venezuela ( Venezuela ) for the establishment of a Russian-Venezuelan Bank and the respective changes made to the Bank s development strategies. In Evrofinance Mosnarbank closed its branches and offices in Rostov-on-Don, Vladimir, Niznniy Novgorod, Samara, and St. Petersburg. The Bank opened a representative office in St. Petersburg. Evrofinance Mosnarbank is a parent company of a banking group (the Group ), which consists of the following entities consolidated for the purpose of preparation of these financial statements: Description Country of operation Proportion of ownership interest/voting rights, % Type of activity EVROFINANCE MOSNARBANK Russian Federation Parent Banking OOO MNK Invest Russian Federation 100% 100% Holding company OAO Herbarium Office Management Russian Federation 100% 100% Real estate operations As at and the shares of the Bank were owned by the following shareholders:, %, % Shareholder First level shareholders: FONDO DE DESARROLLO NACIONAL, FONDEN S.A % % ITC Consultants Ltd (Cyprus) % % OAO Bank VTB % % Bank VTB (France) % % VTB Group % % GAZPROMBANK % % GAZPROMBANK SWITZER % OOO Noviye Finansoviye Tekhnologii % - Gazprombank Group % % Total % % These financial statements were authorized for issue on 29 April 2013 by the Bank's Executive Board. 10

13 2. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ) and Interpretations issued by the International Financial Reporting Interpretations Committee ( IFRIC ). Other basis of presentation criteria The consolidated financial statements have been prepared on the assumption that the Group is a going concern and will continue in operation for the foreseeable future. These financial statements are presented in thousands of Russian Rubles ( RUR thousand ), unless otherwise indicated. These consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments and buildings that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The Bank and its subsidiaries registered in the Russian Federation maintain their accounting records in accordance with Russian Accounting Standards ( RAS ). These consolidated financial statements have been prepared based on the statutory accounting records of the Bank and its subsidiaries and have been adjusted to conform with IFRS. The Group presents its statement of financial position broadly in order of liquidity. Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when the Group has a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expense is not offset in the consolidated statement of profit and loss unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Group. The principal accounting policies are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Bank and entities controlled by the Bank (its subsidiaries). Control is achieved where the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of other comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognized in profit or loss as incurred. The identifiable assets acquired and the liabilities assumed are recognized at their fair value at the acquisition date. 11

14 Operating segments Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. Segment reporting An operating segment is a component of a Group that 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); whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Recognition of interest income and expense Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income and expense are recognized 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 receipts (including all fees on a debt instrument paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. 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 recognized 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. Recognition of income on repurchase and reverse repurchase agreements Gain/loss on the sale of the above instruments is recognized as interest income or expense in the statement of profit and loss based on the difference between the repurchase price accrued to date using the effective interest method and the sale price when such instruments are sold to third parties. When the reverse repo/repo is fulfilled on its original terms, the effective yield/interest between the sale and repurchase price negotiated under the original contract is recognized using the effective interest method. Recognition of revenue other Recognition of fee and commission income Loan origination fees are deferred, together with the related direct costs, and recognized 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 recognized 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 recognized 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 recognized in profit or loss on expiry. Loan servicing fees are recognized as revenue as the services are provided. Loan syndication fees are recognized in profit or loss when the syndication has been completed. All other commissions are recognized as services are provided. Recognition of dividend income Dividend income from investments is recognized when the shareholder s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Bank and the amount of income can be measured reliably). 12

15 Cash and cash equivalents Cash and cash equivalents include cash on hand, unrestricted cash balances on the correspondent and term accounts with the CBR and balances on correspondent accounts with credit institutions free from any encumbrances. Minimum reserve deposits with the CBR Minimum reserve deposits with the CBR represent the amount of obligatory reserves deposited with the CBR in accordance with requirements established by the CBR, which subject to restrictions on their availability. In view of the above the amount of the minimum reserve deposits required by the CBR is not included as a cash equivalent. Financial instruments The Group recognizes financial assets and liabilities in its consolidated statement of financial position when it becomes a party to the contractual obligations of the instrument. Regular way purchases and sales of financial assets and liabilities are recognized using settlement date accounting. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. Financial assets Financial assets are classified into the following categories: financial assets at fair value through profit or loss ( FVTPL ), held-to-maturity investments, available-for-sale ( AFS ) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets at FVTPL Financial assets are classified as at FVTPL when the financial asset is either held for trading or designated as at FVTPL. A financial asset is classified as held for trading if: It has been acquired principally for the purpose of selling it in the near term; On initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or It is a derivative that is not designated and effective as a hedging instrument. A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the 'other gains and losses and 'interest income' line item, respectively, in the statement of profit and loss. 13

16 Investments held to maturity Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity. Held-tomaturity investments are measured at amortized cost using the effective interest method less any impairment. If the Group were to sell or reclassify more than an insignificant amount of held-to-maturity investments before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as available for sale. Furthermore, the Group will not classify any financial asset as held to maturity during the current financial year and following two financial years. Financial assets available for sale Available-for-sale financial assets are non-derivatives that are either designated as available for sale or are not classified as (a) loans and receivables, (b) investments held to maturity or (c) financial assets at fair value through profit or loss. Listed shares and listed redeemable notes that are traded in an active market are classified as AFS and are stated at fair value. The Group also has investments in unlisted shares that are not traded in an active market but that are also classified as AFS financial assets and stated at fair value (because the Group management considers that fair value can be reliably measured). Fair value is determined in the manner described in Note 15. Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of other-than-temporary impairment losses, interest calculated using the effective interest method, dividend income and foreign exchange gains and losses on monetary assets, which are recognized in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. The foreign exchange gains and losses that are recognized in profit or loss are determined based on the amortized cost of the monetary asset. Other foreign exchange gains and losses are recognized in other comprehensive income. AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market (including balances with the Central Bank of the Russian Federation, due from banks, loans to customers and other financial assets) are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Securities repurchase and reverse repurchase agreements and securities lending transactions In the normal course of business, the Group enters into financial assets sale and purchase back agreements ( repos ) and financial assets purchase and sale back agreements ( reverse repos ). Repos and reverse repos are utilized by the Group as an element of its treasury management. A repo is an agreement to transfer a financial asset to another party in exchange for cash or other consideration and a concurrent obligation to reacquire the financial assets at a future date for an amount equal to the cash or other consideration exchanged plus interest. These agreements are accounted for as financing transactions. Financial assets sold under repo are retained in the consolidated financial statements and consideration received under these agreements is recorded as collateralized deposit received within depositary instruments with banks. Assets purchased under reverse repos are recorded in the consolidated financial statements as cash placed on deposit collateralized by securities and other assets and are classified within due from banks and/or loans and advances to customers. 14

17 The Group enters into securities repurchase agreements and securities lending transactions under which it receives or transfers collateral in accordance with normal market practice. Under standard terms for repurchase transactions in the RF and other CIS states, the recipient of collateral has the right to sell or repledge the collateral, subject to returning equivalent securities on settlement of the transaction. The transfer of securities to counterparties is only reflected on the statement of financial position if the risks and rewards of ownership are also transferred. Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets objective evidence of impairment could include: Significant financial difficulty of the issuer or counterparty; or Breach of contract, such as default or delinquency in interest or principal payments; Default or delinquency in interest or principal payments; or It becoming probable that the borrower will enter bankruptcy or financial re-organization; or Disappearance of an active market for that financial asset because of financial difficulties. For certain categories of financial asset, such as loans and receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of loans and receivables could include the Group s past experience of collecting payments, an increase in the number of delayed payments in the portfolio, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of loans and receivables, where the carrying amount is reduced through the use of an allowance account. When a loan or a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance are recognized in profit or loss. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. If, in a subsequent period, the amount of the impairment loss on financial assets carried at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the profit and loss to the extent that the carrying amount of financial assets at the date the impairment is reversed cannot exceed what the carrying amount would have been had the impairment not been recognized. In respect of AFS equity securities, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve. 15

18 In respect of AFS debt securities, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. Write-off of loans and advances Loans and advances are written off against the allowance for impairment losses when deemed uncollectible, including through repossession of collateral. Loans and advances are written off after management has exercised all possibilities available to collect amounts due to the Group and after the Group has sold all available collateral. Subsequent recoveries of amounts previously written off are reflected as an offset to the charge for impairment of financial assets in the consolidated statement of profit and loss in the period of recovery. Derecognition of financial assets A financial asset (or, where applicable a part of the financial asset or part of a group of similar financial assets) is derecognized where: The right to receive cash flows from the asset has expired; The Group has transferred its rights to receive cash flows from the asset, or retained the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; and The Group either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. A financial asset is derecognized when it has been transferred and the transfer qualifies for derecognition. A transfer requires that the Group either (a) transfers the contractual rights to receive the asset s cash flows; or (b) retains the right to receive the asset s cash flows but assumes a contractual obligation to pay those cash flows to a third party. After a transfer, the Group reassesses the extent to which it has retained the risks and rewards of ownership of the transferred asset. If substantially all the risks and rewards have been retained, the asset remains on the balance sheet. If substantially all of the risks and rewards have been transferred, the asset is derecognized. If substantially all the risks and rewards have been neither retained nor transferred, the Group assesses whether or not it has retained control of the asset. If it has not retained control, the asset is derecognized. Where the Group retained control of the asset, it continues to recognize the asset to the extent of its continuing involvement. On derecognition of a financial asset in its entirety, the difference between the asset s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss. On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts. Financial liabilities and equity instruments issued Classification as debt or equity Debt and equity instruments issued by a Group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. 16

19 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs. Repurchase of own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Bank s own equity instruments. Financial liabilities Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities'. Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL. A financial liability is classified as held for trading if: It has been acquired principally for the purpose of repurchasing it in the near term; or On initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or It is a derivative that is not designated and effective as a hedging instrument. A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or The financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in the interest expenses line item in the statement of profit or loss and other comprehensive income. Other financial liabilities Other financial liabilities (including depository instruments with the Central Bank of the Russian Federation, deposits by banks and customers, repurchase agreements, debt securities issued, other borrowed funds, subordinated debt and other financial liabilities) are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost. Interest expense is calculated using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. 17

20 Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument. Financial guarantee contracts issued by the Group are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of: The amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; The amount initially recognized less, where appropriate, cumulative amortization recognized in accordance with the revenue recognition policies. Derecognition of financial liabilities The Group derecognizes financial liabilities when, and only when, the Group s obligations are discharged, cancelled or they expire. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit and loss. Derivative financial instruments The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts, interest rate swaps and cross currency swaps. Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group as lessee Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. Property and equipment Buildings intended for use in the production of goods, performance of work and provision of services and for managerial purposes are stated in the consolidated statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of each reporting period. Any revaluation increase arising on the revaluation of buildings is recognized in other comprehensive income and accumulated in equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognized in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on the revaluation of land and buildings is recognized in profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. 18

21 Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of each reporting period. Depreciation on revalued buildings is recognized in profit or loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to retained earnings. Freehold land is not depreciated. Land, equipment and other property are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is recognized so as to write off the cost or valuation of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straightline method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis at the following annual rates: Buildings 2.5% Furniture and computer equipment 25% Intangible assets 15%-33.3% An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Intangible assets Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Derecognition of intangible assets An intangible asset is derecognized on disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized. Impairment of tangible and intangible assets other than goodwill At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of 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 which the estimates of future cash flows have not been adjusted. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 19