Сontents. Introduction. Chapter 1. Economic and financial situation in the Republic of Belarus

Transcription

1 APPROVED Edict of the President of the Republic of Belarus No. 182, dated May 25, 2017 REPORT of the National Bank of the Republic of Belarus for 2016 Minsk

2 2 Introduction Сontents Chapter 1. Economic and financial situation in the Republic of Belarus 1.1. Macroeconomic conditions of monetary policy implementation and banking sector development 1.2. The balance of payments and gross external debt 1.3. Financial sector Banking sector Institutional characteristics Structure of banks assets/liabilities Effectiveness and sustainability of the banking sector Financial market Foreign exchange market Interbank credit market Deposit and credit markets interest rates Government securities market National Bank s securities market Corporate securities market Bank management funds Leasing organizations Microfinance organizations Forex companies Chapter 2. National Bank s activities 2.1. Monetary policy Monetary policy target Exchange rate policy Interest rate policy and bank liquidity regulation Key monetary indicators 2.2. Supervision of banks activities Streamlining regulatory legal framework for banking supervision Off-site supervision Audits of banks 2.3. Regulation of banking operations Participation in the development of regulatory legal acts and banks local documents on credit and deposit markets Development of the system for non-cash settlements of retail payments Streamlining regulation of non-cash settlements

3 Formation of credit histories and provision of credit reports 2.4. Regulation of non-bank operations Regulation of leasing activities Regulation of microfinance organizations activities Regulation of operations involving over-the-counter financial instruments Monitoring the compliance with legislation on leasing activities, as well as the observance of legislation on providing and attracting microloans by microfinance institutions 2.5. Foreign exchange regulation and foreign exchange control 2.6. Financial stability monitoring 2.7. Accounting and reporting 2.8. Cash circulation 2.9. Payment system Information technologies Financial literacy Research activities International cooperation Staffing and staff training Internal audit Chapter 3. Financial statements Forms of annual financial statements of the National Bank for 2016 Notes to the annual financial statements of the National Bank for 2016 Conclusion Attachments Tables, figures, and schedules to Chapter Tables, figures, and schedules to Chapter 2

4 4 Introduction The Report of the National Bank for 2016 was prepared in accordance with Article 46 of the Banking Code of the Republic of Belarus (hereinafter the Banking Code ). In 2016, the monetary policy of the Republic of Belarus as part of the unified economic policy was implemented in line with the Monetary Policy Guidelines of the Republic of Belarus for 2016 approved by Edict of the President of the Republic of Belarus No. 505 dated December 18, 2015, having regard to the current macroeconomic situation. The National Bank s activities in 2016 were aimed at attaining the main monetary policy targets and performing the functions of the central bank assigned thereto by legislation of the Republic of Belarus.

5 5 Chapter 1 Economic and financial situation in the Republic of Belarus 1.1. Macroeconomic conditions of monetary policy implementation and banking sector development * Despite the fact that the economy of the Republic of Belarus was functioning under the unfavourable external economic conditions at the beginning of the year, the downturn in the economic activities in 2016, as a whole, was slowing down. Since 2016 H2, the key economic indicators have been improved and the rates of recession decreased. In the year under review, the volume of Gross Domestic Product (hereinafter GDP ) amounted to BYN94.3 billion, having decreased (in comparable prices) by 2.6% on the 2015 level (in 2015, by 3.8%). GDP energy intensity grew over 2016 by 1.2% (in 2015, went down by 4.9%) (Attachment 1.1). Retail turnover (in comparable prices) dropped in 2016 by 4.1% compared with 2015 (in 2015, by 1.3% on a year earlier). Households real wages dropped in 2016 by 4% compared with 2015 (in 2015, by 3.1%); real disposable money income went down by 7.3% (in 2015, by 5.9%). Investment in fixed capital decreased (in comparable prices) by 17.9% on a year earlier (in 2015, by 17.5%). The annual volume of investments in fixed capital totaled BYN18.1 billion; their share in GDP 19.2% (24.2% in 2015). In the technological structure of investment in fixed capital the expenditures for construction and installation works (52.9%) were dominating, while investments in assets (machinery, equipment, and vehicles) amounted to 35.1% and other works and costs 12% of the total volume of capital investments. Industrial output dropped in 2016 (in comparable prices) versus 2015 by 0.4% (in 2015, by 6.6%). Finished industrial stock at the enterprises warehouses amounted as at January 1, 2017 to BYN3.7 billion, having risen by 9.3% since the beginning of the year. With respect to the monthly average volume of production it amounted as at January 1, 2017 to 66.9% compared with 68.7% as at January 1, * This section was prepared based on the National Statistical Committee s data.

6 6 Agricultural output went up in 2016 (in comparable prices) by 3.4% compared with 2015 (in 2015, dropped by 2.5%). Transportation of cargo (excluding pipeline industry) dropped by 3.2% (in 2015, by 6.6%). Cargo turnover (excluding pipeline industry) went up by 1% (in 2015, declined by 8.8%). Passenger turnover went down in 2016 by 3.6% compared with 2015 (in 2015, by 4.2%). Financial situation of non-financial organizations in 2016 compared with 2015 (Attachment 1.2) was as follows: - revenues from the sale of products, goods, works, and services amounted in 2016 to BYN171.8 billion, having grown in nominal terms by 9% compared with 2015; and - profit from the sale of products totaled BYN12.6 billion, a 5.8% growth (in nominal terms) compared with At the same time, profit before tax went up by 38.9%; net profit by 54.8%. The real values of revenues from the sale of products went down, with an insignificant growth in proceeds from the sale of products, goods, works, services, as well as other profit indicators. Due to the outstripping growth of proceeds and cost of sold products over that of revenues from the sale of products the return on sales went down from 7.6% in 2015 to 7.3% in 2016; return on sold products from 9.4% to 9.2% respectively. According to the National Bank s calculations, in 2016 the share of lossmaking and low-return enterprises (in terms of return on sales) totaled 58.3%. In 2016, 1,434 organizations (19%) were in the red compared with 1,644 organizations (21.7%) in In 2016, the amount of net loss per one organization in the red in the republic on average totaled BYN1.8 million (in 2015, BYN2.5 million). Budgetary policy in 2016 remained well-balanced. In 2016, the Government ran a consolidated budget surplus of 1.3% of GDP (compared with 1.8% of GDP in 2015). In 2016, consolidated budget revenues grew by 7.1%, amounting to BYN28.5 billion (30.2% of GDP compared with 29.6% of GDP in 2015) (Attachment 1.3). Consolidated budget expenses amounted to BYN27.3 billion (29% of GDP versus 27.8% of GDP in 2015). According to the Ministry of Finance s data, in 2016 the republican budget ran a surplus as well in the amount of BYN1 billion, or 1.1% of GDP (in 2015, 1.7% of GDP). Republican budget revenues grew in 2016 compared with 2015 by 6.2% and totaled BYN17.8 billion (18.8% of GDP versus 18.6% of GDP in 2015). Republican budget expenses totaled BYN16.8 billion (17.8% of GDP compared with 16.9% of GDP in 2015).

7 7 According to the Ministry of Finance s data, as at January 1, 2017, the Government debt of the Republic of Belarus amounted to BYN37 billion, growing by BYN4.1 billion (or by 12.5%) compared with early As at January 1, 2017, the Government domestic debt totaled BYN10.2 billion (10.9% of GDP), having grown over 2016 by BYN0.5 billion, or by 5% (adjusted for the currency translation differences). In 2016, domestic government bonds for legal and natural persons denominated in foreign exchange and in Belarusian rubles worth USD1,642.5 million and BYN543.7 million were placed. In the year under review, government bonds for legal and natural persons denominated in foreign exchange and in Belarusian rubles worth USD1,502.6 million and BYN599.5 million were retired. The Government external debt amounted as at January 1, 2017 to USD13.6 billion (28.5% of GDP), having increased over 2016 by USD1,198.8 million, adjusted for the currency translation differences, or by 9.6%. In 2016, the Government attracted external loans in the amount of USD1,934.9 million; repaid USD892,4 million The balance of payments and gross external debt In 2016, the balance of payments of the Republic of Belarus ran a surplus. The current account deficit reduced due to the improvement in the results of foreign trade in services and decline in payments under the investment income item. The deficit of the current account of the balance of payments totaled USD1.7 billion, or 3.6% of GDP, having dropped by USD0.1 billion compared with 2015 (Attachment 1.4). In 2016, the deficit of foreign trade in goods and services totaled USD27.3 million (in 2015, the surplus of foreign trade worth USD121.2 million was observed). According to the balance of payments, in 2016 the balance of foreign trade in goods was characterized by the deficit in the amount of USD2.6 billion (in 2015, USD2.1 billion). At that, the balance of foreign trade in energy goods worsened by USD1.1 billion due to the low global prices for oil and oil products and shortfall in delivery of oil from the Russian Federation, amounting to minus USD2.7 billion. The balance of foreign trade in non-energy goods totaled USD0.1 billion, compared with minus USD0.5 billion in In 2016, exports of goods dropped by 12.2%, or by USD3.2 billion, amounting to USD23 billion. Reduction in the delivery of oil and oil products, milk foods, fertilizers, and black metals made the major impact on the dynamics of exports.

8 8 Imports of goods dropped in 2016 by 9.7%, or by USD2.7 billion, amounting to USD25.6 billion. Declining investments in fixed capital accounted for the decrease in the investment imports by USD0.6 billion due to the decline in the households real income. The imports of intermediate goods dropped by USD1.6 billion, including that of energy goods by USD1.8 billion. In 2016, the turnover of foreign trade in services remained at the level of 2015, amounting to USD11.1 billion, with the exports of services growing by 2.7% and totaling USD6.8 billion. The imports of services dropped by 2.8%, amounting to USD4.2 billion. The surplus of foreign trade in services totaled USD2.6 billion (up by 13.3% compared with 2015) and compensated the deficit in the trade in goods. The balance of primary income improved by USD0.2 billion and stood at minus USD2.2 billion, that was caused by a decrease in income payments to foreign investors. The balance of secondary income totaled USD0.6 billion against USD0.5 billion in According to the financial account (excluding reserve assets), in 2016 net borrowing from other countries totaled USD1.3 billion versus USD0.7 billion in Attraction of financial resources to the Republic of Belarus at the expense of foreign direct investments amounted to USD1.2 billion (in 2015, USD1.5 billion). At the same time, the inflow of foreign direct investments (excluding reinvested incomes) was still insufficient USD0.5 billion compared with USD0.4 billion in The Government and the National Bank of the Republic of Belarus attracted on net basis USD0.8 billion, including at the expense of credits to the Government of the Republic of Belarus USD1 billion and due to placement of securities by the National Bank USD0.5 billion. In 2016, net borrowing of foreign investments by the banking sector totaled USD0.1 billion; by the other sectors USD0.4 billion. In 2016, the balance of payments ran a surplus of USD0.5 billion compared with a deficit of USD0.6 billion in As at January 1, 2017, gross external debt of the Republic of Belarus amounted to USD37.6 billion, or 78.6% of GDP, decreasing over 2016 by USD0.7 billion (Attachment 1.5). As at January 1, 2017, the external debt of the government agencies sector of the Republic of Belarus totaled USD14.2 billion, having grown since the beginning of the year by USD1.2 billion, or by 9.1%.

9 9 The National Bank s external debt dropped over 2016 by USD0.3 billion, or by 15.4%, amounting as at January 1, 2017 to USD1.5 billion. Long-term borrowings accounted for the major part (94.5%) of the debt. The banking sector s liabilities (excluding intercompany financing) went down over 2016 by USD0.5 billion, or by 8.2%, amounting to USD5.9 billion as at January 1, At that, repayment of the long-term debt worth USD0.4 billion was accompanied by reduction in the short-term liabilities by USD0.1 billion. External debt of the other sectors (excluding intercompany financing) went down over 2016 by USD1.2 billion, amounting to USD14.1 billion as at January 1, At that, a decline in both the long-term liabilities (by USD1 billion, or by 14.4%) and short-term liabilities (by USD0.3 billion, or by 3.1%) was observed. Over the recent years, a stable trend towards switching from the shortterm to the long-term borrowing has been observed in the Republic of Belarus. As at January 1, 2017, long-term borrowings accounted for 71.7% of the total volume of borrowings Financial sector Banking sector Institutional characteristics As at January 1, 2017, the banking activities in the Republic of Belarus were carried out by 24 banks and three non-bank financial institutions. Five banks underwent liquidation (JSC Delta Bank, InterPayBank JSC, CJSC BIT-Bank, JSC Eurobank, and CJSC N.E.B. Bank ). The total number of banks organizational units (branches, banking services centers, settlement and cash centers, and exchange offices) in the territory of the country dropped over 2016 by 12.7%, amounting as at January 1, 2017 to 3,682. As at January 1, 2017, there were five representative offices of foreign banks in the Republic of Belarus, including those of the Russian Federation (representative offices of two banks), Latvia, and Germany, as well as a representative office of the Interstate Bank. Belarusian Banks had nine representative offices abroad. Foreign capital participated in the authorized capital of 19 banks. In 14 banks the share of foreign investors in the authorized capital exceeded 50% (of which four banks were wholly-foreign owned). Capital from Russia, Austria, Iran, Switzerland, Cyprus, Poland, Kazakhstan, United Arab Emirates,

10 10 Lebanon, Georgia, the USA, Great Britain, Germany, and other countries participates in the authorized capital of Belarusian banks. As at January 1, 2017, the banks aggregate registered authorized capital amounted to BYN4.7 billion, having increased over 2016 by 5.2%. Institutional development of banks in 2016 was characterized by: - the decreased share of banks controlled by the Government in the banking sector s aggregate authorized capital from 82% to 80.2%, with their share in the banking sector s regulatory capital declining from 63.7% to 61.4% and the share in the banking sector s assets growing from 65.4% to 66.8%; - the increased share of foreign banks * in the banking sector s aggregate authorized capital from 15.3% to 17.1%. The share of such banks in the aggregate authorized capital went up from 32.9% to 35%. In the banking sector s assets the share of such banks dropped from 32.5% to 30.7%; and - the remaining share of banks of private form of ownership in the aggregate authorized capital of the banking sector at the level of 2.7%, with the share of these banks in the banks assets growing by 0.5 percentage point and amounting to 2.6% and in the aggregate regulatory capital from 3.5% to 3.6% Structure of banks assets/liabilities In 2016, banks assets (liabilities) grew by BYN1,420.7 million, or by 2.3%, amounting as at January 1, 2017 to BYN64,467 million (Attachments ). As at January 1, 2017, assets (liabilities)/gdp ratio totaled 68.3% (as at January 1, 2016, 70.1%). As at January 1, 2017, the share of banks claims on the economy in the banks assets amounted to 62.5% (as at January 1, 2016, 66%). The share of the long-term credits in the total debt under credits amounted as at January 1, 2017 to 74.8%, having increased over 2016 by 1.7 percentage points. Banks claims on the economy ** went down over 2016 by BYN1,355.7 million, or by 3.3% (in 2015, grew by 20%), amounting as at January 1, 2017 to BYN40,276.5 million. Banks claims on the economy in the national currency dropped by BYN519.7 million, or by 3% (went up by 5.5% in 2015), in foreign exchange (in dollar terms) by USD1,099.5 million, or by 8.5% (in 2015, by 14.9%). In 2016, banks claims on the economy (at the exchange rate of the Belarusian ruble versus the US dollar as at January 1, 2016) dropped by 2016 by 2.8%. * Foreign banks are banks in which the share of foreign investors in the authorized capital exceeds 50%. ** Claims of banks and JSC Development Bank of the Republic of Belarus on the economy dropped over

11 11 BYN2,561.4 million, or by 6.2%, amounting as at January 1, 2017 to BYN39,070.8 million. Implementation of the bad assets repayment schemes, provided for by Edict of the President of the Republic of Belarus No. 320 On Developing Agricultural Production in the Vitebsk Region dated August 25, 2016, Edict of the President of the Republic of Belarus No. 496 On the Measures on Financial Sanation of the Legal Persons Participants of the Holding Company Myasomolprom ; and Resolution of the Council of Ministers and the National Bank of the Republic of Belarus No. 923/28 On Measures Designed to Implement Edict of the President of the Republic of Belarus No. 268 dated July 14, 2016 dated November 15, 2016 made a significant impact on the decline of the banks claims on the economy. As at January 1, 2017, the share of debt under credits granted by banks and JSC Development Bank of the Republic of Belarus within government programs and measures in line with decisions of the President and the Council of Ministers of the Republic of Belarus totaled BYN17, million as at January 1, 2017, having dropped since the beginning of the year by BYN million, or by 3.4%, including debt under credits granted by banks BYN14, million (a drop by BYN, million, or by 7.3%), under credits granted by JSC Development Bank of the Republic of Belarus BYN3, million (an increase by BYN503.1 million, or by 16.6%). As at January 1, 2017, the share of debt under credits granted by banks within government programs and measures totaled 35.3%, having dropped in 2016 by 1.6 percentage point. In 2016, banks granted credits worth BYN502.1 million, including soft credits worth BYN473.8 million and on banks terms BYN28.3 million, for house construction within implementation of Resolution of the Council of Ministers of the Republic of Belarus No On the Measures Designed to Execute Tasks for 2016 on Housing Construction, Volumes of Putting into Operation and Financing Housing Construction and Objects of Engineering and Transport Infrastructure in 2017 dated December 29, 2015, including soft credits worth BYN473.8 million, and on banks terms BYN28.3 million. Soft credits were granted at the expense of funds of the Ministry of Finance in the amount of BYN299.9 million, and at the expense of bank s reimbursable resources BYN147.6 million. Funds attracted from residents of the Republic of Belarus dominated the banks liabilities (in %; in %). As at January 1, 2017, the share of the natural persons funds totaled 32.2% (as at January 1, %); economic entities funds 19.5% (as at January 1, %). In 2016, funds attracted from natural persons (including bank deposits, bank deposits in precious metals and stones, saving certificates and bonds) rose

12 12 by BYN387.4 million, or by 1.9%, amounting as at January 1, 2017 to BYN20,750.5 million. Foreign exchange component dominated the structure of funds attracted from the natural persons. In 2016, the share of funds attracted from households in foreign exchange in the total volume of attracted funds dropped from 80.1% to 78.1%. The share of funds attracted from households in the national currency went up from 19.9% to 21.9%. In 2016, funds attracted in foreign exchange went down by BYN105.1 million, or by 0.6%, amounting as at January 1, 2017 to BYN16,208.9 million. Funds attracted in the national currency grew by BYN492.5 million, or by 12.2%, amounting as at January 1, 2017 to BYN4,541.6 million. Bonds were the most popular banking products with households for placement of temporary free funds. They grew over the year under review by BYN583.8 million, or by 58.2%, amounting as at January 1, 2017 to BYN1,586.5 million (7.7% of the total volume of attracted natural persons funds). Natural persons bank deposits * in the national currency grew over 2016 by BYN499.6 million, or by 12.4%, amounting as at January 1, 2017 to BYN4,520.1 million, of which bank time deposits and deposits in escrow went up by BYN336,2 million, or by 12.9%, amounting to BYN2,950.7 million. Natural persons deposits in foreign exchange (in ruble terms) dropped over 2016 by BYN697.4 million, or by 4.6%, amounting as at January 1, 2017 to BYN14,552.9 million. Time deposits and deposits in escrow dropped by BYN574.9 million, or by 4%, amounting to BYN13,707.4 million as at January 1, Natural persons deposits in foreign exchange (in dollar terms) decreased over 2016 by USD782.1 million, or by 9.5%, amounting as at January 1, 2017 to USD7,430.7 billion. At that, time deposits and deposits in escrow dropped by USD692.6 million, or by 9%, amounting as at January 1, 2017 to USD6,998.9 million. The bulk of bank deposits was placed with JSC JSSB Belarusbank, JSC Belagroprombank, Belinvestbank JSC, Priorbank JSC, BPS-Sberbank, and Bank BelVEB OJSC, the share of which in the natural persons deposit market amounted as at January 1, 2017 to 85.2% of the total volume of deposits with banks, or BYN16,239.8 million. As at January 1, 2017, the savings deposited with banks averaged BYN2,182.4 per citizen of the Republic of Belarus, compared with BYN2,144.8 as at January 1, This indicator decreased in dollar terms from USD1,155.1 to USD1,114.3 or by 3.5%. * Here and hereinafter in subparagraph the information on the natural persons bank deposits is given based on the methodology of calculation of broad money supply.

13 13 In 2016, legal persons bank deposits * grew by BYN520.5 million, or by 5.2%, amounting to BYN10,618.5 million as at January 1, Legal persons bank deposits in the national currency grew over 2016 by BYN859.5 million, or by 24.8%, amounting as at January 1, 2017 to BYN4,329 million. Legal persons deposits in foreign exchange (in ruble terms) dropped over 2016 by BYN339 million, or by 5.1%, amounting as at January 1, 2017 to BYN6,289.5 million. Legal persons deposits in foreign exchange (in dollar terms) dropped over 2016 by USD358.3 million, or by 10%, amounting as at January 1, 2017 to USD3,211.4 million. Legal persons time deposits and deposits in escrow in the national currency and foreign exchange (in ruble terms) amounted as at January 1, 2017 to BYN6,224.9 million, or 58.6% of the legal persons total deposits Effectiveness and sustainability of the banking sector In 2016, the National Bank took measures aimed at ensuring stability of the banking sector and improving efficiency of its functioning and interaction with the real sector of the economy. As at January 1, 2017, banks regulatory capital totaled BYN8.7 billion, having increased over 2016 by 11.4% in nominal terms. In 2016, the main sources of the regulatory capital growth in the banking sector as a whole were: increase in the registered authorized capital, growth in funds established at the expense of banks profit, and provision of resources to owners in the form of subsidized credits (loans). As at January 1, 2017, the regulatory capital/gdp ratio was 9.3%. In 2016, the banking sector s income had the following structure: interest income 75.3%, commission income 13.4%, other banking income 9.2%, other operational income 2%, and receipts under written-off debts 0.1%. In the structure of expenditures * the interest expenses totaled 45.8%, other operational expenditures 24.5%, other banking expenditures 6.3%, and commission expenses 4.5%. Net allocations to reserves in 2016 totaled 17%. Profit obtained by banks in 2016 totaled BYN884.9 million (in 2015 BYN585.9 million). Increase in net interest income due to decline in interest expenses was the key factor of profit increase. The profit obtained by banks made it possible for them to preserve capital and insure sustainability to potential shocks. * Here and hereinafter in subparagraph the information on the legal persons bank deposits is given based on the methodology of calculation of broad money supply. * The amount of expenses for allocations to reserves is given less the amount of expenses from reduction of reserves.

14 14 At the end of 2016, the banking sector s return on assets was 1.3% (1% in 2015) and return on regulatory capital 10.8% (in 2015, 8.4%). Credit risk remained the most significant one for the banking sector. As at January 1, 2017, bad assets of the functioning banks (assets classified under risk Groups III, IV, and V) totaled BYN5.1 billion. Assets classified under Group III grew over the year by 75.8%, amounting as at January 1, 2017 to BYN3.5 billion (68.4% of the total volume of bad assets), assets classified under Group IV 62.1% (16.9%), and assets classified under Group V 227.6% (14.7%). The share of bad assets in the assets exposed to credit risk grew over 2016 from 6.8% to 12.8%. Worsening of the financial indicators of the real sector enterprises activities (primarily, the state-owned ones) on the background of continuing decline in economic activity, as well as their high debt load, was the key reason of the credit risk potential growth. With a view to ensuring stable functioning and preventing creation of conditions threatening depositors and other creditors, the banks incurred considerable expenses when establishing special provisions to cover possible losses under assets exposed to credit risk and transactions which are not reported on the balance sheet. Over 2016, net allocations to reserves totaled BYN1.4 billion. In 2016, the most authoritative international audit companies carried out special audits in 9 core banks, which made it possible to assess the level of credit risk accepted by banks and the possibility of its compensation at the expense of available capital. The quality of assets of remaining banks will be assessed in the course of the annual audit of accounting (financial) statements for With a view to leveling out the situation, the Government and the National Bank of the Republic of Belarus took a number of measures designed to reduce the bad debt, including by means of transferring a part of bad assets to the JSC Asset Management Agency, and implementing the Edicts of the President of the Republic of Belarus on the restructuring of the agricultural enterprises debt. As a result, the share of bad assets in the assets exposed to credit risk dropped from the maximum value of 14.9% as at November 1, 2016 to 12.8% as at January 1, Despite the worsening of situation in the real sector of the economy, in 2016, banks met the major secure functioning requirements: - adequacy of banks regulatory capital (the ratio of the regulatory capital and risks assumed by banks) 18.6% (the prescribed minimum prudential requirement for an individual bank being 10%); - ratio of liquid assets to total assets 30.8% (the prescribed requirement being at least 20%); - short-term liquidity (the ratio of actual liquidity to required

15 15 liquidity) 2.1% (the requirement being at least 1); - instant liquidity (the ratio of assets on demand to liabilities on demand) 142.3% (the requirement being at least 20%); and - current liquidity (the ratio of current assets to current liabilities) 131.8% (the requirement being at least 70%). Thus, the banking sector s stability as at year-end 2016 was characterized as adequate Financial market Foreign exchange market In 2016, domestic foreign exchange market volume totaled USD70.1 billion, by 5.9% below the level of The stock market volume amounted to USD9.3 billion, having dropped by 46.2%; the over-the-counter market volume stood at USD49.7 billion, having grown over 2016 by 15.3%. Lifting of the previously imposed restrictions on carrying out foreign exchange transactions in the over-the-counter market, as well as lowering for the Belarusian exporting organizations, since September 1, 2016, of the amount of the obligatory sale of foreign exchange from 30% to 20% of the amount of receipts in foreign exchange, were conducive to reallocation of the volume of foreign exchange transactions in favour of the over-the-counter segment. Cash market turnover stood at USD11.1 billion, having decreased over 2016 by 10%. In the year under review, resident economic entities: - sold foreign exchange in the amount of USD16.1 billion, a drop by 10.1% (by USD1.8 billion) compared with 2015; and - purchased foreign exchange in the amount of USD16.3 billion, a decline by 11% (by USD2 billion) compared with 2015 (Attachment 1.10). In 2016, foreign exchange purchased by resident economic entities in the domestic foreign exchange market was, mainly, used to repay credits (USD6.1 billion or 37.3% of the total volume purchased over the year), procure raw products and materials (USD2.3 billion or 14.3%), purchase equipment and components (USD1.7 billion or 10.7%), and foods and agricultural products (USD1.2 billion or 7.2%). A total of 69.5% of the foreign exchange purchased by resident economic entities was used for the above-mentioned purposes. As a result, net demand for foreign exchange by resident economic entities in 2016 stood at USD0.2 billion (in 2015, USD0.4 billion). At that, the bulk of sales felt on January and December 2016 (USD0.5 billion), while in February - November 2016 net sale of foreign exchange totaled USD0.2 billion. In January 2016, households were net buyers of foreign exchange (USD0.2 billion); in February - December 2016 net sellers (USD2.1 billion).

16 16 Households sold over 2016 USD1.9 billion on a net basis (in 2015, USD0.1 billion). At that, net supply under operations involving foreign exchange in cash totaled USD2.4 billion; net demand under operations involving non-cash foreign exchange amounted to USD0.6 billion (Attachment 1.11). The operations involving the US dollars dominated the Belarusian foreign exchange market (56.9%). The share of this currency in foreign exchange operations fell by 3.7 percentage points compared with 2015, with the shares of euro increasing from 22.8% to 23.9% and the Russian ruble from 16.3% to 18.8%. The volume of operations involving other foreign currencies remained insignificant (less than 1%) Interbank credit market In 2016, interbank credits in the national currency continued to be one of the main instruments regulating banks liquidity. Resident banks of the Republic of Belarus and non-resident banks were involved in the activities in this segment of the money market. In the year under review the interbank credit market was characterized by a transfer from the structural deficit to the structural surplus of liquidity. The volume of operations carried out by banks in the interbank market was lower in 2016 than in 2015 totaling BYN23 billion (in 2015, BYN28 billion), that was due to the structural surplus of ruble liquidity formed in April 2016, which had been accruing till the year-end. The structure of the interbank market changed compared with 2015 as to reduction in the terms of lending. Intraday interbank credits accounted in 2015 for 66%, while in 2016 such credits totaled 73% of the aggregate market. At that, the share of transactions concluded for the term of 2-7 days dropped to 26% of the total market volume (in 2015, 32%). At the same time, the banks continued in 2016 to attract/place resources in the national currency in the interbank market through repo transactions. In the year under review, the share of such operations in the total volume of the interbank market averaged 29% of the balance of amounts owed (in 2015, 40%). The interest rates in the intraday ruble interbank market had been, mainly, within the interest rate band formed by the standing facilities designed to regulate banks liquidity (Attachment 1.12). The average weighted interest rate in the intraday interbank market dropped from 29.4% per annum in January 2016 to 10.5% per annum in December Deposit and credit markets interest rates

17 17 The situation with liquidity in the banking sector, as well as the foreign exchange and money markets, determined the dynamics of interest rates in the deposit and credit markets in 2016 (Attachment 1.13). At that, the fundamental principles of the interest rate policy ensuring of the excess of the return on savings in the national currency over the return on savings in foreign exchange were preserved, as well as ensuring of positive interest rates in the economy in real terms. The National Bank focused special attention on the improvement of the structure and well-balancing of the deposit market by means of increasing the share of long-term deposits in the national currency and expansion of the yield-gap on long-term and short-term deposits. Implementation of the measures taken in 2016 resulted in a more significant decline (compared to the forecasted one) in the level of interest rates on fresh credits and fresh natural and legal persons deposits, which had been gradually declining over the whole period. Interest rates on the natural persons fresh time bank deposits in the national currency reached maximum in March 2016, amounting to 25.5% per annum. In December 2016 they declined up to 14.3% per annum (a drop since December 2015 by 10.3 percentage points). Interest rates on the natural persons fresh time bank deposits in foreign exchange totaled 2.3% in December 2016, a drop by 1.5 percentage points compared with December Interest rates on the legal persons fresh time bank deposits in the national currency reached maximum in February 2016 and averaged 26.8% per annum, having decreased in December 2016 to 8.6% per annum (a drop since December 2015 by 15.9 percentage points). Interest rates on the legal persons fresh time bank deposits in foreign exchange averaged 2.5% per annum in December 2016, having dropped by 2.3 percentage points compared with December At that, in December 2016, the return on fresh long-term irrevocable bank deposits in the national currency exceeded the return on the fresh short-term irrevocable bank deposits by 7.3 percentage points (the short-term interest rates averaged 12.5% per annum; the long-term interest rates averaged 19.8% per annum), in January 2016 by 4.7 percentage points (the short-term interest rates averaged 24.3% per annum; the long-term interest rates averaged 29% per annum). The interest rate on aggregate bank credits in the national currency amounted to 12% per annum in December 2016, having dropped by 5.3 percentage points versus December The interest rate on fresh bank credits * to legal persons in the national currency amounted to 20.8% per annum in December 2016, having dropped by 13.5 percentage points versus December * Excluding soft credits granted pursuant to decisions of the President and the Government of the Republic of Belarus at the expense of the republican and local government agencies.

18 18 The interest rates on fresh bank credits * in foreign exchange issued to legal persons averaged 8.3% per annum in December 2016, having dropped by 1.7 percentage points compared with December Government securities market According to the data of the Ministry of Finance, the volume of government securities placed in the domestic market grew over 2016 by BYN489.8 million, or by 5%, totaling BYN10,234.2 million as at January 1, 2017, including: - government long-term bonds denominated in the national currency BYN1,594.2 million (15.6%); - government long-term bonds denominated in foreign exchange BYN8,639.3 million (84.4%); and - other government securities BYN0.7 million (0.01%). As at January 1, 2017, government long-term bonds accounted for 100% of the government securities portfolio. In the structure of government securities, bonds with variable yield accounted for 34.5% and bonds with fixed interest yield 65.5% (as at January 1, 2016, the share of government bonds with variable yield totaled 42.9%, with fixed yield 57.1%). In 2016, the volume of primary trade in government bonds in the organized market totaled BYN1,089.9 million, a 4.2 times increase versus 2015; the number of deals totaled 1,433 (in 2015, the volume of trade amounted to BYN257.3 million; number of deals 866). The volume of secondary trade in government bonds totaled BYN4,851.1 million, a 1.2 times drop versus 2015; the number of deals totaled 952 (in 2015, the volume of trade amounted to BYN5,646.2 million; number of deals 489) National Bank s securities market In 2016, the National Bank placed bonds denominated in Belarusian rubles worth BYN28,712.4 million at placement value, or worth BYN28,850.5 million at face value, with BYN27,033.8 being repaid at face value. As at January 1, 2017, the volume of the circulating National Bank s bonds denominated in Belarusian rubles totaled BYN1,816.7 million at face value. As at January 1, 2016, the National Bank s bonds denominated in Belarusian rubles were not circulating. In 2016, the National Bank also placed bonds denominated in hard currency: - in the US dollars worth USD2,330.3 million at actual value, or worth USD2,327.7 million at face value, with USD2,130.8 million being repaid at face value. As at January 1, 2017, the volume of circulating bonds

19 19 denominated in the USD dollars totaled USD1,701.3 million, exceeding by 13.1% the level of January 1, 2016 (USD1,504.3 million); and - in euro worth EUR1,022.2 million at placement value, or worth EUR1,021.4 million at face value, with EUR680.7 million being repaid at face value. As at January 1, 2017, the volume of circulating bonds denominated in euro totaled EUR779.9 million, exceeding by 77.5% the level of January 1, 2016 (EUR439.3 million). The volume of banks investments in debt and equity instruments of the securities market totaled BYN16,217.5 million *, of which the National Bank s securities accounted for BYN5,556.6 million, or 34.3%, including bonds denominated in hard currency worth BYN3,749.5 million, or 67.5%. In 2016, 474 deals worth BYN974.7 million were entered into with the National Bank s bonds in the secondary stock market on the floor of the JSC Belarusian Currency and Stock Exchange, an increase by BYN811.9 million (five times) versus 2015 (16 deals worth BYN162.8 million). The share of repo deals in the total volume of the secondary stock exchange market of the National Bank s bonds totaled 21.6%, or 248 deals worth BYN210.1 million. 439 transactions worth million in equivalent were carried out with the National Bank s bonds denominated in the hard currency, an increase by BYN799.5 million (12 deals worth BYN142.3 million) compared with transactions worth 32.9 million were carried out with the National Bank s bonds denominated in Belarusian rubles, an increase by BYN12.4 million (4 deals worth BYN20.5 million) compared with In 2016, the volume of registered purchase/sale deals involving transactions with the National Bank s bonds denominated in hard currency totaled BYN160.1 million in equivalent in the over-the-counter market (in 2015, no deals involving these bonds were registered). ** Corporate securities market In 2016, the share of the corporate segment of the securities market continued to reduce. The volume of issue of shares and corporate securities dropped almost twice, amounting to BYN4,965.4 (in 2015, BYN8,283.3 million). The share of this segment in the total volume of the shares and bonds issue in 2016 reached 50.1% (in 2015, 59.5%) (Attachment 1.14). The share of the corporate bonds market dropped from 32.7% to 20.4%. Reduction of the corporate segment of the market was caused by an increase in the share of the government segment (the share of issue of government securities and local executive and administrative authorities bonds * According to the data of banks balance-sheets, excluding the incomes planned to be received in the form of interest. ** Deals involving the National Bank s bonds denominated in the national currency are allowed on the floor of the JSC Belarusian Currency and Stock Exchange only.

20 20 and the National Bank s bonds), that caused reduction in resources available for borrowing by the corporate issuers under the limited volume of the market. In 2016, the volume of the issues of shares registered in the Government Securities Register totaled BYN2,939.3 million, dropping by 21.3% compared with 2015 (BYN3,733.6 million). As at January 1, 2017, the volume of listed issues of the operating issuers shares amounted to BYN29,168 million, increasing by 11.2% compared with January 1, 2016 (BYN26,228.7 million), with the ratio of the volume of shares in circulation to GDP totaling 30.9% (as at January 1, 2016, 29.2%). In the reporting period, 133 issues of corporate bonds of 60 issuers worth BYN2,026.1, including the banks bonds worth BYN520.3 million, were registered. This volume of issue is lower than in 2015 (BYN4,549.7 million). The volume of bonds issued by banks in 2016 went down 4 times versus 2015 (BYN2,232.3 million). The share of banks bonds in the total volume of issued corporate bonds continued to reduce from 49.1% in 2015 to 25.7% in In 2016, the share of corporate bonds issued in foreign exchange totaled 65.8% of the total volume of issue (in 2015, 58%). Thus, as at the beginning of 2017, 554 issues of corporate bonds of 221 issuers worth BYN13,072.1 million, or 13.9% of GDP, were in circulation (as at January 1, 2016, BYN12,712.9 million, or 14.1% of GDP). As a result, the volume of corporate bonds in circulation grew over the year by 2.8%. The volume of corporate bonds issued in foreign exchange amounted as at January 1, 2017 to 50.1% of the total volume of corporate bonds in circulation (as at January 1, 2016, 43.6%). The expanding share of corporate bonds denominated in foreign exchange points to the continuing trend of growing foreign exchange risk and the degree of the securities market vulnerability, due to the fact that the risks related to the currencies conversion in the course of the securities repayment and payment of income increased. The stock market of the derivatives, which are one of the instruments of foreign exchange risk management, is represented by non-deliverable future contracts for the exchange rate of the US dollar, euro, and the Russian ruble versus the Belarusian ruble; euro versus the US dollar. But, no deals were entered into in the stock exchange market in At the same time, with a view to hedging foreign exchange risks the banks proposed forward contracts for foreign exchange purchase, sale, or conversion, as well as swap deals with foreign exchange. There is no derivatives market in the Republic of Belarus. In 2016, the volume of registered issues of housing bonds, which certify the contribution by their owners of definite amounts of funds for construction of

21 21 a certain size of a total area of a housing accommodation, totaled BYN191.3 million, a 1.2 times decline versus 2015 (BYN235.9 million). According to Edict of the President of the Republic of Belarus No. 537 On Issuance of Bonds by Banks dated August 28, 2006, banks were granted the right to issue bonds secured by the right to claim the repayment of the principal amount of debt and payment of interest under the credits issued thereby for construction, reconstruction, or acquisition of housing against security of real estate (mortgage bonds). In 2016, mortgage bonds were not registered. The total volume of mortgage bonds circulating as at January 1, 2017 amounted to BYN210 million. In the year under review, 14 issues of bonds of local executive and administrative authorities of 11 issuers worth BYN1,124 million were registered, exceeding 4 times the volume of issue in 2015 (BYN229.4 million). At that, bonds denominated in foreign exchange accounted for 83.7% of issue. As at January 1, 2017, bonds of local executive and administrative authorities worth BYN1,899.8 million were in circulation, a 99.2% increase compared with January 1, 2016 (BYN953.7 million). The market value/gdp ratio totaled 2%. As at January 1, 2017, 60 professional participants were acting in the securities market (including 24 banks), of which there were 57 brokers, 57 dealers, 32 participants involved in depository activities, 19 participants in securities trust management, one participant in the activities on organizing securities trading, and one in clearing activities. In 2015, initial public offering of corporate bonds worth BYN201.4 million was carried out on the floor of the JSC Belarusian Currency and Stock Exchange, a 2 times drop compared with 2015 (BYN543.9 million). In 2016, banks bonds worth BYN36.4 million (in 2015, BYN309.2) and other legal persons bonds worth BYN165 million were placed. The volume of placed exchange-traded bonds dropped over 2016 up to BYN148.3 million (from BYN239.7 million in 2015). In addition to the sharp decline in the volume of initial public offering of corporate securities, their share in the total volume of primary offering dropped up to 15.6% as well (in 2015, 67.9%). This reduction was due to an increase by more than 4 times in the volume of placed government securities. The limited capacity of the market resulted in the decline in the volume of resources available to the corporate sector. The share of corporate bonds denominated in foreign exchange in the total volume of corporate bonds issued for the first time totaled 12.4% (in 2015, 42.3%). In 2016, open joint-stock companies didn t place their shares in the primary market. In 2016, the total volume of the secondary trading in corporate securities in the

22 22 stock market totaled BYN2,359.4 million, declining by 30% compared with 2015 (BYN3,345.9 million), including in shares BYN50.3 million (2.2% of the aggregate volume of secondary trades); in 2015, BYN20.2 million (0.6%). In the secondary market the repo transactions with the government bonds and the National Bank s bonds totaled 44% (in 2015, 47.6%). The weighted average yield in the secondary market of corporate bonds denominated in Belarusian rubles stood at: - on banks bonds 21.2% per annum (in 2015, 24.4% per annum), and - on other legal persons bonds 33.3% per annum (in 2015, 42.3% per annum). The shares market capitalization totaled: - as at January 1, 2015, BYN684 million (0.8% of GDP); - as at January 1, 2016, BYN991.6 million (1.1% of GDP); and - as at January 1, 2017, BYN2,426.1 million (2.6% of GDP). The level of capitalization grew as at January 1, 2017 due to the increase in the number of shares in circulation, based on which the market price is calculated. In 2016, purchase/sale transactions involving securities worth BYN7,768.4 million (in 2015, BYN9,187 million), of which transactions involving bonds amounted to 96.7%, were entered into in the OTC securities market Bank management funds As at January 1, 2017, two bank management funds of the trust manager Priorbank JSC ( Raiffeisen - Assets Portfolio - USD and Raiffeisen - Assets Portfolio - EUR ) were in operation. The value of the funds net assets totaled USD902.6 thousand and EUR817.3 thousand (as at January 1, 2016 USD1,804.2 thousand and EUR1,211.1 thousand). 201 natural persons, including three non-residents, were obligees of the above-mentioned funds. In 2016, the value of the bank management funds nominal share, reflecting the return on investment in bank management fund, had differently directed dynamics. After a sharp decline at the beginning of the year, the return on investment went up in March According to the information of the trust manager Priorbank JSC, the funds assets were placed into the shares of equities, the price of which was lower, on the average, than the market price, that led to the formation of losses. The strategy of assets management was revised over the year, that led to a positive result a growth in the value of the nominal share of both funds in July 2016 and its stabilization by the end of the year.

23 23 In 2016, the level of yield of the bank management funds was negative ( Raiffeisen - Assets Portfolio - USD minus 4.2% and Raiffeisen - Assets Portfolio - EUR minus 3.1%), leading to a decline in the net assets value of both bank management funds Leasing organizations As at January 1, 2017, 95 leasing institutions, of which 27 were established with foreign capital participation, were in the Register of Leasing Organizations. The leasing organizations aggregate authorized capital totaled BYN385.5 million as at January 1, The amount of the aggregate net profit of the leasing organizations which presented their reports for 2016 stood at BYN171.7 million. The share of the lessors fees (income) in the volume of leasing payments accrued over 2016 totaled 17.5%. As at January 1, 2017 the volume of the leasing portfolio * totaled BYN2,302.9 million, or USD1.2 billion (at the BYN1/USD1 exchange rate as at January 1, 2017), having dropped since early 2016 by BYN150.6 million, or by 6.1%. Slowing down of the economic entities business activity and inflow of investments to the core capital were conducive to the decline in the leasing portfolio in the year under review. The share of overdue debt in the volume of leasing payments accrued in 2016 amounted as at January 1, 2017 to 3.2% (as at January 1, 2016, 4.1%). Financial leasing operations with the condition of repurchase of the leasing item accounted for 97.4% of the leasing organizations leasing portfolio. Liabilities under agreements entered into in the national currency amounted to 66.1% of the leasing portfolio. Five leasing organizations established with participation of banks capital ( АSB Leasing LLC, OJSC Promagroleasing, VTB Leasing JLLC, Raiffeisen - Leasing JLLC, and OJSC Agroleasing ) accounted for about 70% (BYN1,610.0 million) of the aggregate leasing portfolio. As at January 1, 2017, the export leasing operations ** accounted for 3.1% of the total leasing portfolio. The majority of export operations (88.8%) was carried out by OJSC Promagroleasing. The volume of new business (the aggregate value of the agreements entered into by the leasing companies from January 1 to December 31, 2016) stood at BYN1,111.5 million, having grown over the year by BYN57.8 million, or by 5.5%, compared with * An amount of the lessees debt to lessors under leasing payments as at the reporting date. ** International leasing, where a lessor and a seller (deliverer) of an item of leasing are entities of the Republic of Belarus, while a lessee is an entity of other state.

24 24 As at January 1, 2017, the volume of the leasing companies new business totaled 11.7% of the volume of the long-term credits issued by banks to the economic entities, with the share of new business in the GDP being 1.2%. Over 2016, the leasing companies brisked up the work with lessees being natural persons, that resulted in the 4 times increase in the number of financial lease (leasing) agreements entered into with the natural persons. The number of the leasing companies which signed the financial lease (leasing) agreements with the natural persons grew up. As at January 1, 2016, 29 leasing companies worked in this segment of the leasing market (as at January 1, 2017, 43 leasing companies). Over 2016, more than 167 thousand items of leasing were passed to lessees (of which 153 thousand to natural persons), an increase by 110 thousand items versus The items of leasing were acquired by the leasing organizations at the expense of both their own and attracted funds. More than 50% of the items of leasing worth BYN378.9 million were acquired in 2016 at the expense of own funds (in 2015, 38.2% worth BYN248.2 million). 49.9% of the items of leasing worth BYN377.4 million were acquired at the expense of the attracted special purpose banks credits (in 2015, 61.8% worth BYN401.1 million). At that, the share of advances obtained from lessees accounted for 36.4% of the volume of own funds (in 2015, 42.2%). As at January 1, 2017, leasing organizations attracted credits and loans from non-residents worth BYN435.3 million, or USD222.2 million (at the BYN1/USD1 exchange rate as at January 1, 2017), that amounted to 24.4% of the total volume of credits and loans attracted by leasing institutions Microfinance organizations As at January 1, 2017, 115 microfinance organizations (four consumer cooperatives, four funds, and 107 lombards) were on the Register of Microfinance Organizations. In 2016, the number of microfinance organizations went up by nine, with 23 new organizations being included in the abovementioned register and 14 organizations being excluded therefrom. According to the reports as at January 1, 2017, the microfinance organizations assets totaled BYN23.5 million, own capital BYN15 million, liabilities BYN8.5 million, and net profit obtained over the year BYN3.7 million. The microfinance organizations assets grew by BYN4.1 million (21.1%), own capital by BYN1.8 million (13.6%), and liabilities by BYN2.3 million (37.1%). Net profit of the microfinance organizations in 2016 went up by BYN0.5 million (11.9%), being less than net profit in In 2016, the total amount of attracted monetary funds stood at BYN7.3 million, growing by BYN1.6 million (28.1%) compared with 2015, including:

25 25 - consumer cooperatives attracted BYN0.3 million, the same amount as in 2015, including, from the natural persons being founders BYN0.2 million, or 66.7% (in 2015, BYN0.1 million, or 48%); - funds attracted BYN0.2 million (an increase by BYN0.1 million, or twice as much as in 2015), including from the natural persons being founders BYN0.1 million (50%) (in 2015, BYN0.1 million, or 53.8%); and - lombards attracted BYN6.8 million (an increase by BYN1.5 million, or by 28.3% compared with 2015), including from property owners, founders (participants) BYN4.4 million, or 64.7% (in 2015, BYN3.6 million, or 68.3%). The amount of microloans granted in 2016 totaled BYN100.9 million, an increase by BYN29.6 million, or by 41.5%, compared with 2015, including: - by consumer cooperatives BYN0.9 million (the same amount as in 2015). The whole amount was granted to natural persons for the purposes of developing business and entrepreneurial activities; - by funds BYN4 million (an increase by BYN3.4 million, or 6.7 times, compared with 2015). The microloans to natural persons for the purposes related to business and entrepreneurial initiative accounted for the largest share BYN3.6 million, or 90% (in 2015, BYN0.5 million, or 78.7%); and - by lombards BYN96 million (an increase by BYN26.2 million, or 37.5%, compared with 2015). Microloans versus pledged items from precious metals and stones BYN82.1 million, or 85.5%, versus other pledged movables BYN9.2 million, or 9.6%, and versus pledged vehicles BYN4.7 billion, or 4.9%, accounted for the largest share (in 2015, 81.1%, 10.1%, and 8.8% respectively) Forex companies As at January 1, 2017, six organizations, five of which were 100% - foreign owned, were included in the Register of Forex Companies. According to the reports as at January 1, 2017, the forex companies assets totaled BYN2.7 million, own capital BYN1.2 million, and liabilities BYN1.5 million. The forex companies authorized capital totaled BYN1.6 million as at January 1, 2017, including BYN1.4 million (87.5%) placed by nonresidents. The activities on conducting operations involving non-deliverable OTC financial instruments initiated by natural and legal persons (activities in the OTC forex market) in 2016 were carried out by four forex companies, as well as the first banking forex platform (MTBankFX), which is a joint project of the Joint - Stock Company Minsk Transit Bank and the Suisse bank DukascopyBankSA, was established.

26 26 The amount of funds in foreign exchange invested by the clients of forex companies for the purpose of opening or maintaining their open position (the amount of marginal security) totaled USD0.6 million as at January 1, With a view to meeting their liabilities on repaying marginal security the forex companies, in line with legislation, build up and place secured capital, the amount of which totaled USD0.3 million as at January 1, 2017, on current (settlement) bank accounts with a special functioning regime, which were opened with no less than two banks or non-bank financial institutions of the Republic of Belarus. In 2016, the clients of forex companies and Joint - Stock Company Minsk Transit Bank totaled 974, of which 84 clients were non-residents (8.6%). In 2016, the clients of forex companies and Joint - Stock Company Minsk Transit Bank initiated 176,986 transactions worth USD3,864.8 million (having regard to the leverage), including by non-residents 8,909 transactions (5%) worth USD71.6 million (1.9%). In 2016, the amount of transactions initiated by one client averaged 182, the average amount of the open position under which totaled USD21.8 thousand (having regard to the leverage). In line with Edict of the President of the Republic of Belarus No. 231 On Carrying Out Activities in the Over-the-counter Forex Market dated June 4, 2015, the National Forex Center, the functions of which are assigned to the JSC Belarusian Currency and Stock Exchange, establishes a guarantee fund at the expense of forex companies, banks, and non-bank financial institutions contributions, for the purpose of discharging their obligations to clients involving repayment of marginal security. As at January 1, 2017, the guarantee fund amounted to USD0.5 million.

27 27 Chapter 2 National Bank s activities In 2016, the monetary policy was aimed at curbing inflation and facilitating the stable and well-balanced development of the country s economy. In the year under review, the National Bank continued to implement the monetary policy in the monetary targeting regime, with a key instrument of attaining the ultimate inflation target being control over money supply. The growth of broad money supply, as the indicator having stable interrelation with dynamics of prices, was determined as the intermediate target, while the level of ruble money supply was defined as the operational target Monetary policy Monetary policy target In 2016, curbing of inflation, measured by the Consumer Price Index, up to 12% was the major monetary policy target in In the year under review the level of inflation was below the forecasted indicator. According to the National Statistical Committee s data, the consumer prices grew in 2016 by 10.6% (December-on- December), in 2015 by 12% (Attachment 2.1). Consumer prices and tariffs grew to the utmost in the sphere of services (by 17.6%) (in 2015, by 15.7%) compared with the growth of prices for food products and non-foods (by 10.4% and 6.8% respectively) (in 2015, by 11% and 11.5% respectively). The core inflation went down from 11.3% in 2015 to 10% in 2016 and, according to the National Bank s estimates, led to the increase in the consumer prices by 7.7 percentage points (the share of this indicator totaled 72.4% in 2016 against 68.7% in 2015). Regulated prices and tariffs, including the prices for fruit and vegetable products, grew over 2016 by 12.6% compared with 13.9% in 2015, contributing to the growth in the consolidated consumer prices index by 2.9 percentage points (the share of this indicator was 27.6%, having dropped by 3.7 percentage points compared with 2015). The inflationary processes slowed down in 2016 due to the following factors: - dynamics of money supply, which was formed in line with the macroeconomic situation in the country; - contraction of domestic demand; - decline in import prices by certain positions; and

28 28 - restrained pricing policy of organizations, which manifested itself in the decrease in the rates of profit on the background of declining households incomes. The following factors made the upward pressure on the consumer prices growth: - administrative measures, which made direct as well as indirect impact on the prices and tariffs level; - depreciation of the Belarusian ruble exchange rate versus foreign currencies at the beginning of the year; and - high inflationary expectations of the economic entities. Industrial producers prices rose in 2016 by 8.9% compared with 17% in 2015, with prices for investment goods increasing by 11.9%, for intermediate goods by 7.2%, and for consumer goods by 11.6% Exchange rate policy The exchange rate policy was carried out in 2016 in the managed floating regime. Since November 1, 2016, the weights of foreign currencies included in the currency basket were changed: the share of the Russian ruble was increased from 40% to 50%, of the US dollar retained at the level of 30%, of the euro decreased from 30% to 20%. This decision was taken with a view to converging the weight of the Russian ruble in the currency basket with the share of the Russian Federation in the foreign trade turnover of the Republic of Belarus. In 2016, the Belarusian ruble depreciated by 5.5% against the US dollar (to BYN1,9585/USD1), by 0.7% (to BYN2,0450/EUR1) against the euro, and by 27.1% against the Russian ruble (to BYN3,2440/RUB100). The official exchange rate of the Belarusian ruble dropped by 14.7% against the currency basket. The most drastic decline occurred at the beginning of the year due to the heightened households and economic entities demand for foreign exchange under the influence of the devaluation expectations formed due to depreciation of the Russian ruble exchange rate. The cost of the currency basket amounted to BYN0,2542 at the beginning of December 2016 saw a 10.8% decrease in the real effective exchange rate index of the Belarusian ruble, as measured by the producer price index, from December 2015 (Attachment 2.2) Interest rate policy and bank liquidity regulation The changes in the exchange rate and the currency basket value were calculated as at the last working day of the year with a use of the weights ratios of the currency basket being in effect since November 1, 2016.

29 29 In 2016, the National Bank s interest rate policy was implemented having regard to the need to comply with the inflation target and attain macroeconomic well-balancing. After its increase on January 9, 2015, the refinance rate was gradually decreased from 25% to 18% per annum, the rate on standing operations designed to provide liquidity (overnight credit; swap transactions) from 30% to 23% per annum, the rate on standing operations designed to withdraw liquidity from 16% to 11% per annum. The average weighted interest rate in the intraday interbank market was decreased from 29.4% per annum in January 2016 to 10.5% per annum in December The National Bank s transactions designed to maintain liquidity dominated the structure of monetary transactions in 2016 Q1, that was due to the deficit of the banking system s liquidity (the share of auctions designed to provide liquidity totaled 40.5%). Under the impact of the National Bank s transactions in the domestic market the level of the banking system s liquidity in Belarusian rubles started to grow. In addition, with a view to reducing the liquidity deficit, the required reserves ratios in respect of total attracted funds were reduced by 0.5 percentage point up to 7.5%. As a result, since 2016 Q2, the banking system s liquidity has been characterized by a stable surplus. Therefore, the National Bank used, mainly, liquidity withdrawal transactions, in which the auctions designed to place the National Bank s bonds were dominating (86.6%). In 2016, the average daily balance of debt on operations designed to maintain current liquidity of the banking system amounted to BYN134.1 million. In the reporting year, banks average daily balance of operations designed to withdraw liquidity stood at BYN962.5 million Key monetary indicators An increase in the broad money supply (M3) in 2016 accounted for 3.8%, or BYN1.2 billion, of which the ruble money supply (M2*) 19.4%, or BYN1.8 billion (Attachment 2.3). In 2016, the increase in M2* was mainly due to an inflow in term deposits and deposits in escrow of the natural persons (by BYN336.2 million, or by 12.9%) and legal persons (by BYN338.7 million, or by 16.7%), transferable deposits of natural persons (by BYN163.4 million, or by 11.6%) and legal persons (by BYN520,8 million, or by 36.1%), and growth in cash in circulation (by BYN367 million, or by 25.8%) (Attachment 2.4).

30 30 In 2016, the share of natural persons term deposits and deposits in escrow in the structure of the ruble money supply dropped by 1.6 percentage points, the share of legal persons term deposits decreased by 0.5 percentage points. The share of cash in circulation went up by 0.9 percentage point, the share of natural persons transferable deposits increased by 1 percentage point, the share of legal persons transferable deposits went up by 2.2 percentage points, and the share of securities issued by banks in the national currency (outside bank circulation) grew by 0.1 percentage point. In 2016, the share of the ruble constituent of the broad money supply increased from 27.7% to 31.8 %. As of January 1, 2017, foreign currency deposits amounted to USD10.6 billion in dollar terms, a USD1.1 billion, or a 9.7% decrease in In 2016, the velocity of the broad money supply circulation fell, on an annualized basis, to 2.8 circulations, or by 6.3% (to 3 circulations, or by 17.3%, in 2015). The velocity of the ruble money supply circulation increased, on an annualized basis, to 10.1 circulations, or by 8.5% (to 9.3 circulations, or by 6.1%, in 2015). In 2016, the ruble money base decreased by BYN58 million. The main factors, which led to the decrease in the ruble money supply, were the decrease in the National Bank s net ruble claims on banks in Belarusian rubles by BYN3 billion, and the decrease in the National Bank s net ruble claims on the Government of the Republic of Belarus by BYN0.4 trillion. Foreign exchange operations carried out by the National Bank and the Government of the Republic of Belarus increased the ruble money base by BYN3.2 billion. As of January 1, 2017, international reserve assets of the Republic of Belarus amounted to: - USD4.9 billion under the IMF s methodology, a USD0.8 billion decrease in the year under review; and - USD5.2 billion on the national definition, a USD0.7 billion increase in the year under review. As of January 1, 2017, the amount of gold and foreign exchange reserves covered 2 months of goods and services imports. The growth in gold and forex reserves was mainly due to the attracted funds from the sale of bonds in foreign exchange by the National Bank and the Ministry of Finance, net purchase by the National Bank of foreign exchange in the domestic foreign exchange market, which was generated as a result of excess of the foreign exchange supply over the demand therefor, revenues from export duties for oil and oil products, two trenches of the financial credit of the Eurasian Fund for Stabilization and Development, and increase in the price of gold in the international precious metals market. Scheduled repayment of the external and internal obligations in foreign exchange by the Government and

31 31 the National Bank of the Republic of Belarus had a curbing impact on the dynamics of reserves Supervision of banks activities Streamlining regulatory legal framework for banking supervision In 2016, the work was going on to streamline regulatory legal framework governing banking supervision and bring it into line with international standards and experience of practical application (Attachment 2.5). In April 2016, within the framework of the Financial Sector Assessment Program (FSAP) in the Republic of Belarus the IMF and the World Bank mission conducted assessment of the National Bank s compliance with the Core Principles for Effective Banking Supervision, developed by the Basel Committee on Banking Supervision (BCBS), as the banking supervision authority. Based on the result of the assessment, the experts noted the achievement of significant progress in the sphere of development of the banking supervision system of the Republic of Belarus. Recommendations were received under 11 principles, which, in accordance with the updated assessment methodology, focus more on the practical implementation of the principles than on the availability of legal and regulatory frameworks. A plan of actions designed to implement the recommendations was developed. With a view to determining the banks readiness to implement the liquidity ratios Basel III as secure functioning requirements, the meeting by banks of the Net Stable Funding Ratio (NSFR) and the Liquidity Coverage Ratio (LCR) continued to be monitored over In order to improve the foreign exchange liquidity management, the liquidity coverage ratio in foreign exchange was calculated not only with respect to core foreign currencies, but also in aggregate for all types of foreign exchange. As part of the countercyclical regulation measures taken by the National Bank, which are aimed at ensuring stable functioning of banks under current macroeconomic conditions, the amount of provisions made under assets and contingent liabilities classified under Risk Group II was reduced from 10% to 5%, making it possible to reallocate the released special provisions under assets not related to the bad ones in favour of increasing the volumes of special provisions under the bad debt. In 2016, the National Bank continued to limit credit risk under loans issued to legal and natural persons in Belarusian rubles at excessively high interest rates by means of gradual reduction of the ratio used to determine the

32 32 upper limit of the annual interest rate, at which the banks are required to include the loan granted to a legal person into the special portfolio of homogeneous loans, with special provisioning under such portfolios worth 30% of the balance owed under loan. With a view to maintaining the level of yield of the Belarusian banks along with lowering the credit risk by means of creating more attractive conditions for placing foreign exchange resources in the government securities in foreign exchange characterized by a limited risk and a high degree of liquidity, the degree of risk under securities of the Government and the National Bank denominated in foreign exchange was changed when calculating the credit risk value, liquidity indicators and risk concentration. As a result of granting the powers to supervise the activities of the JSC Development Bank of the Republic of Belarus to the National Bank, since August 5, 2016 the National Bank s requirements in the sphere of banking supervision established for banks and non-bank finance institutions has been applied to this bank. The special aspects of application of the secure functioning requirements to the Development Bank, as well as the specific procedure for making special provisions and calculating regulatory capital having regard to the specific nature of its activities, were established. In the year under review, the right not to reduce the regulatory capital by certain intangible assets purchased in , which was granted to the banks in 2015, was extended to include the non-bank financial institutions and the Development Bank. This right was also applied to the intangible assets upgraded in The given changes were aimed at reducing the pressure on the regulatory capital from the intangible assets in the future, which could make it possible for banks, non-bank finance institutions and the Development Bank to continue active implementation of innovative banking technologies and building the technical capacity up to the level complying with the best standards of financial services provision. Having regard to the need to improve the efficiency of corporate governance at banks with account of the IMF s and the World Bank s recommendations, as well as to further implement the updated international standards in the sphere of corporate governance and organization of the risk management and internal control systems, additional requirements were set with regard to the composition, procedures and functions of the supervisory boards (boards of directors) and committees established under them, as well as the requirements to the activities of external auditors and information disclosure in this sphere. In order to improve the effectiveness of interaction of the National Bank s units participating in the inspections and the level of control over compliance with the requirements of the legislation regulating the procedures for organizing and conducting inspections, the inspection procedure is established, the stages

33 33 of this process related to the planning and preparation of inspections, their conduct and preparation of materials and consideration of results are detailed. For each stage, deadlines and responsible units are defined. With the aim of regulating certain matters of procedure with account of the current practice of applying the legislation norms, the resolutions of the Board of the National Bank related to the issues of external auditors activities, registration of banks and non-bank financial institutions and their licensing, assessment of compliance with qualification requirements and (or) requirements to the business reputation for managers, chef accountant, their deputies, members of the bank s management authorities, the Development Bank, nonbank financial institution, attestation for the right of acquiring a certificate of professional accountant of a bank, and attestation for compliance with professional requirements to a crisis manager in case of a bankruptcy of a bank or non-bank financial institution were amended Off-site supervision In 2016, taking the timely measures, including those of supervision response, aimed at ensuring safe and liquid functioning of banks and non-bank finance institutions (hereinafter for the purpose of this section the banks ), protecting the interests of their depositors and creditors, minimizing the risks accepted by banks, streamlining their operational costs, as well as preventing bankruptcy of the banking sector s participants, were the main tasks of the offsite supervision. An ongoing work to increase banks capitalization (in the first place to remedy failure to comply with minimum regulatory capital requirement), to improve corporate governance and to prevent performance of non-core activities thereby from happening, and tackling other issues stemming from their activities, was carried out with management and owners of banks. Banks measures to prevent decrease of the regulatory capital in real terms (taking into account inflation) and maintain regulatory capital adequacy at the level of at least 12% were controlled on an ongoing basis. In 2016, the National Bank executed control over the banks compliance with secure functioning requirements and other prudential norms and restrictions. The work was continued to provide equal conditions for functioning of banks and ensure fair competition. Particular emphasis was placed on the financial standing of banks which bear the main burden of lending to the real sector of the Belarusian economy (first and foremost the state-owned banks). Measures to ensure banks sustainable and safe functioning were regularly addressed at the meetings of the Board of the National Bank.

34 34 Within the framework of the off-site supervision, the National Bank was constantly assessing financial sustainability of banks and effectiveness of their activities, paid attention to the efficiency of risks management, primarily of the credit risk, prospects for further functioning of banks, as well as revealing problems at banks at early stages of their occurrence. Considerable attention was paid to the exercise of control over the state of liquidity and management of liquidity at banks, as well as to the issues of foreign exchange risk management. The work was continued to improve the National Bank s information and analytical system for the purpose of strengthening and expanding possibilities of the off-site supervision. Based on the results of the analysis of reports and other information, the National Bank, on the basis of a motivated judgment, took appropriate supervisory response measures with respect to banks to halt negative trends and avoid (prevent) situations threatening the depositors and other creditors interests. In 2016, the special permission (license) to carry out banking activities was revoked from the CJSC N.E.B. Bank in line with the decision on the liquidation of this bank taken at the shareholders general meeting. The National Bank continued to constructively cooperate with international financial institutions, audit organizations, the Association of Belarusian Banks, and supervisory bodies of other countries Audits of banks In 2016, the National Bank conducted three full-scope and 16 limitedscope audits of the Belarusian banks, including six audits under orders from law enforcement authorities and courts. The following banks were audited: JSC Belagroprombank, JSC JSSB Belarusbank, Belinvestbank JSC, Open Joint Stock Company "BPS-Sberbank", JSC MTBank, Zepter Bank CJSC, TC BANK JSC, JSC Eurotorginvestbank, Bank Moscow-Minsk JSC, Reshenie Bank Joint-Stock Company, CJSC Alfa-Bank, OJSC Belarusky Narodny Bank, CJSC VTB Bank (Belarus), JSC Absolutbank, JSC Delta Bank, and CJSC BTA Bank. In the course of audit, particular emphasis was placed on the quality of banks assets and level of credit risk, quality of corporate management of banks, development of risk management and internal control systems, and their compliance with the level of risks being taken. Based on the results of the audit, the instructions to remedy identified violations and prevent them from happening in the future, as well as to remedy

35 35 revealed deficiencies, which are not violations, were submitted to all audited banks Regulation of banking operations In 2016, the National Bank continued to streamline regulation of banking operations with a view to improving sustainability and developing the banking sector Participation in the development of regulatory legal acts and banks local documents on credit and deposit markets In the reporting year, the National Bank continued work on streamlining regulatory legal acts dealing with operation of credit and deposit markets of the Republic of Belarus as part of legal regulation (Attachment 2.6). With a view to ensuring implementation of Decree of the President of the Republic of Belarus No. 7 On Attracting Monetary Funds to Deposits dated November 11, 2015, amendments and modifications were made to Instructions on the Savings Books Issued by Banks and Non-bank Financial Institutions of the Republic of Belarus approved by Resolution of the Board of the National Bank of the Republic of Belarus No. 168, dated October 30, 2006, which provide for the possibility of executing revocable and irrevocable agreements of term deposits and deposits in escrow using a savings book. For the purpose of building up the long-term resource base by banks of the Republic of Belarus and stimulating savings in the national currency, Instructions on Issuance, Circulation and Redemption of Certificates of Deposit and Savings Certificates, approved by Resolution of the Board of the National Bank of the Republic of Belarus No. 219, dated December 27, 2006, were modified to include the provision on the need to draw up the savings certificates for the term of no less than one year. Taking into account the law enforcement practice, the above-mentioned instructions were also brought into line with legislation on securities. Besides, with the purpose of informing the households on the change of terms of attracting monetary funds into deposits and the order of taxation of income in the form of interest on deposits, the National Bank and the Ministry of Taxes and Duties and its inspections conducted wide-scale explanatory work. Thus, the explanations as to application of provisions of Decree of the President of the Republic of Belarus No. 7 dated November 11, 2015 were given to banks, the information on the new kinds of banking deposits and order of taxation of income in the form of interests under deposits was placed on the banks websites. Specialists of the National Bank and tax authorities

36 36 participated in direct call sessions in the republican mass media and their televised appearances were organized. The National Bank carried out comprehensive adjustment of the Banking Code of the Republic of Belarus, including the work on bringing it into line with Decree of the President of the Republic of Belarus No. 7 dated November 11, 2015 and Edict of the President of the Republic of Belarus No. 471 dated November 23, 2015 On the Issues of Financing Against the Assignment of a Monetary Claim (Factoring). Within the framework of work on protecting the rights of banking services consumers, the information placed on the banks websites, which is obtained from the call-centers, during the visits to (checks of) the banking products sales points, as well as during consideration of the natural and legal persons appeals, was monitored, in order to ensure transparency of conditions and improve the quality of the banking services provided to households in the course of lending and attracting monetary funds into deposits. 285 draft regulatory legal acts on issuing loans to economic entities, changing (extending) terms of their repayment, as well as specifying measures of government support and ways of ensuring repayment of obligations under loan agreements, were submitted to the National Bank for consideration thereby. The National Bank was also involved in developing regulatory legal acts, in particular, the norms focused on: - financial recovery and improvement of efficiency of the agricultural complex enterprises and processing organizations in the regions of the Republic of Belarus as it pertains to reducing their credit burden; and - creating conditions for complex reformation of the agricultural production financing system, as well as increasing regulatory capital of the JSC Belagroprombank and ensuring its long - term sustainable development. Within the framework of implementation of the decisions of the Head of the state in the sphere of the agricultural complex, the resolutions of the Council of Ministers of the Republic of Belarus and the National Bank were taken, which provide for the approval of the list of assets purchased by the JSC Asset Management Agency, and borrowers, as well as the list of the overdue interest of the borrowers of the JSC Belagroprombank Development of the system for non-cash settlements of retail payments The bank payment card (hereinafter the card ) is the payment instrument, which is most frequently used for non-cash settlements by households.

37 37 As of January 1, 2017, the number of bank payment cards that have been put into circulation totaled 12.7 million, of which 5 million cards of the domestic payment system BelCard (39.4% of the total number of cards) and 7.2 million cards of international payment systems, including 5.1 million cards of payment system VISA (40% of the total number of cards), 2.1 million cards of payment system MasterCard (16.9% of the total number of cards), and 0.5 million co-badging BelCard/Maestro cards (3.7% of the total number of cards). As many as 4,386 ATMs, 3,394 self-service payment and reference terminals installed by banks, and 139,608 payment terminals operating in 109,380 trading (servicing) organizations were functioning in the Republic of Belarus as of January 1, Over 2016, the share of non-cash transactions in transactions involving cards amounted to 79.8% in terms of their number and 38.6% in terms of their amount (over 2015, these indicators stood at 76.4% and 31.7% respectively). In the year under review, the e-money market was developed in the Republic of Belarus following the global trends. As of January 1, 2017, transactions involving these means of payment were carried out by OJSC Belgazprombank, OJSC Technobank, OJSC Paritetbank, Reshenie Bank Joint-Stock Company, Priorbank JSC, Belinvestbank JSC, and JSC JSSB Belarusbank, Bank Moscow Minsk JSC, CJSC Alfa-Bank, OJSC BPS-Sberbank. In 2016, the following systems of settlements based on the e-money were operating: EasyPay, WebMoney Transfer, ipay, W1 Bel, Belqi, Berlio, MTS Money, OSMP, Rosberliocard, YourCard ABB, Yandex.Money as well as e-money the access to which is provided by means of issuing the prepaid cards of the MasterCard, VISA and BelCard systems. In 2016, the efforts aimed at developing the system for non-cash settlements of retail payments were taken within the framework of the Strategy for Digital Banking Development in the Republic of Belarus in approved by Resolution the Board of the National Bank of the Republic of Belarus No. 108, dated March 2, In 2016, the National Bank in concert with the involved government agencies conducted work on improving the legislative norms with the aim of further extending the area of cashless settlements under retail payments and establishing favorable conditions for involvement of the entities of the small and medium business into the active development of the infrastructure for carrying out cashless payments. In particular, the following regulatory legal acts were taken (Attachment 2.7): = making it possible: - to use one payment terminal by one or several independent entrepreneurs, the activities of which are carried in the trade objects located in the premises of one shopping mall and/or market, and on condition that a

38 38 separate accounting of payment acceptance transactions is ensured in this terminal. Besides, independent entrepreneurs were granted the right to carry out activities without installation and usage of payment terminals during the two months from the date of occurrence of the obligation to install and use a payment terminal if the payment document confirming acceptance of the application for installation of the payment terminal by an acquiring bank is available; = providing for: - a decline in the fraud level in the sphere of use of cards in the Internet, the banks obligation to accept the cards with the EMV chip technology in the objects of the cards servicing soft- and hardware infrastructure, possibility of developing instant and contactless payments, as well as changing the date of switching from issue of the BelCard payment system cards with a magnet strip to the issue of the cards with the EMV standard microprocessor from January 1, 2017 to January 1, 2019; and - improving the quality of servicing the electronic money holders and further development of the electronic money market in the Republic of Belarus. Edict of the President of the Republic of Belarus No.71 On Modifying the Edict of the President of the Republic of Belarus dated March 9, 2017, which provides for modifications to Edict of the President of the Republic of Belarus No. 493 On Developing Non-cash Settlements dated October 16, The given document defines more exactly the order of determining the acceptable amount of cash monetary funds in settlements executed between an economic entity and a natural person in payments for goods (works and services), as well as suggests additional measures on encouraging households to conduct cashless payments involving cards and systems of remote banking service. With the aim of improving banking activities, developing remote banking service systems and implementing modern technologies, the following documents were adopted: - Resolution of the Board of the National Bank of the Republic of Belarus No. 241 On Certain Measures on Implementing Edict of the President of the Republic of Belarus No. 478 dated December 1, 2015 of May 6, 2016, entitling the client to create and sign documents in the electronic form using soft- and hardware means and technologies, which do not require electronic digital signature. Such documents are equally valid with those in hard copies signed by a client in person. Resolution of the Board of the National Bank of the Republic of Belarus No. 497 On Approving Instructions on the Order of Operation of the Interbank Identification System dated September 21, 2016, according to which the interbank identification system was created on October 1, 2016 in compliance with Edict of the President of the Republic of Belarus No. 478 On Developing

39 39 Digital Bank Technologies dated December 1, The given system is a subsystem of the automated information system Settlement of the Single Settlement and Information Space (hereinafter the AIS Settlement ) which is owned by OJSC Non-bank Financial Institution SSIS. Interbank identification system made it possible to ensure exchange of identification information about clients between banks. As a result, each client, after being indentified in one of the banks of the Republic of Belarus for only once, obtained a possibility to receive services and carry out transactions in other banks 24:7 without a personal visit thereto Streamlining regulation of non-cash settlements With a view to further streamlining the procedures for carrying out documentary operations by banks, Resolution of the Board of the National Bank of the Republic of Belarus No. 748 On Amending and Modifying the Instructions on the Procedures for Carrying out Bank Documentary Operations dated December 18, 2015 was approved, which adopted the revised version of the Instructions on the procedures for carrying out documentary operations. The above-mentioned Instructions are aimed at creating optimal legal conditions for organization of financing within the framework of settlements involving letters of credit. With a view to streamlining the rules of carrying out operations with bank guarantees and strengthening protection of rights and legal interests of the participants of civil transactions, Edict of the President of the Republic of Belarus No. 335 On the Register of Bank Guarantees dated September 8, 2016 was adopted. The Register of bank guarantees will be used by all the entities concerned for receiving information on the issued bank guarantees, that will make it possible to confirm the fact of their issuance, ease administration of economic entities activities by government agencies, and develop the segment of electronic bank guarantees. On the initiative of the National Bank, the agreement was reached between the representatives of the Eurasian Economic Union (EAEU) member - states as to modifying the Treaty on the Eurasian Economic Union regarding the use of information from the EAEU member - countries national registers of bank guarantees in the procedures of state (municipal) procurements of commodities (works, services). For the purpose of generalizing conditions of money transfers and revealing the measures on ensuring protection of consumer rights, the rules, treaties and agreements governing operation of international money transfer systems in the territory of the Republic of Belarus were analyzed. Within the As at January 1, 2017, Belinvestbank JSC and CJSC Idea Bank were providing services on authorization in the interbank identification system.

40 40 framework of regulating bank operations the work on withdrawing the settlement documents from the card files of the overdue settlement documents was carried out during denomination. The development of a new mechanism of repaying debt by means of uncontested recovery of monetary funds and electronic money placed with banks was aimed at streamlining non-cash settlements, strengthening payment discipline, decreasing the level of dollarization of the national economy, and releasing banks from irrelevant functions on maintaining card files of overdue settlement documents Formation of credit histories and provision of credit reports In 2016, the National Bank continued to form credit histories of natural and legal persons and provide the users of credit histories and subjects of credit histories with credit reports. As of January 1, 2017, there were 4.76 million credit histories formed in the Credit Registry, including 4.71 million credit histories of natural persons and 0.05 million credit histories of legal persons. In the period under review, the number of credit histories grew by 3%. Credit histories contain information on million credit transactions, of which 5.33 million credit transactions are the current ones. All the Belarusian banks of the Republic of Belarus and microfinance organizations were the sources of formation of credit histories. As of January 1, 2017, 102 microfinance organizations, which submitted information on 2.1 million credit deals concluded thereby over 2016, were connected to the Credit Registry as the sources of formation of credit histories. In 2016, the main users of credit histories were banks and mobile operators. As many as 2.11 million requests for credit histories were submitted by banks to the Credit Registry (of which credit reports were presented on 1.93 million of them), 0.15 million requests for credit histories were submitted by the mobile operators (of which credit reports were presented on 0.13 million of them). In addition to banks and mobile operators, the users of credit histories who have online connection to the Credit Registry include 63 legal persons, among which there are 17 microfinance organizations, 30 leasing companies, 7 trading organizations, insurance companies, credit brokers and others. The National Bank continued to provide scoring assessment of the natural persons creditworthiness on the basis of the Credit Registry data, which makes it possible to evaluate the probability of the overdue indebtedness occurrence for more than 90 days within the subsequent 12 months. In the year under review, 51% of credit reports were provided to the credit histories users based on the scoring assessment. With the aim of easing the mechanisms of implementation of the efficient system of provision of remote banking services, decreasing operational costs

41 41 for banks and clients within the framework of implementation of digital banking technologies, Resolution of the Board of the National Bank of the Republic of Belarus No. 241 dated May 6, 2016 provides for the possibility of receiving by banks of a consent of a credit history entity for remote delivery of its credit report in the electronic form via a remote banking service system by the National Bank. For the purpose of easing the access of natural persons to their own credit histories, examining entirety, accuracy and topicality of the credit history data in a prompt manner, as well as improving the general level of financial literacy, since January 2016 the National Bank has been providing to the natural persons the on-line access to their credit histories through the Credit Registry s webportal, which makes it possible for the credit histories entities to obtain their credit reports and apply for modification and (or) amendment thereof in the remote mode. In 2016, natural persons filed 5.1 thousand requests for credit histories via the web-portal of the Credit Register, of which 4.5 thousand requests were satisfied by submission of credit reports in the electronic form. With the aim of providing equal possibilities to the EAEU member - states residents in receiving a full complex of financial services at banks located in the territory of other EAEU member states and creating conditions for better protection of credit organizations from credit risks, the agreement on the interaction of the EAEU member - states in the field of exchange of the data included in the credit histories was drafted in the year under review Regulation of non-bank operations Regulation of leasing activities Within the efforts aimed at streamlining legal regulation of the leasing organizations activities, regulatory legal acts of the National Bank were modified with account of the practice of application of legislation norms and redenomination of the legal tender of the Republic of Belarus in 2016 (Attachment 2.8). For the purpose of building up required legislative base for granting residential houses and apartments to the natural persons possession and use under the financial lease (leasing) agreements, Edict of the President of the Republic of Belarus No. 109 On Modifying Edicts of the President of the Republic of Belarus on the Issues of Leasing Activities dated April 6, 2017 was drafted, approved and published. According to Resolution of the Board of the National Bank of the Republic of Belarus No. 423 On Establishing the Forms of Application and Certificate of Inclusion into the Leasing Organizations Register and Adopting the Instructions on the Order of Establishing and Maintaining the Register of

42 42 Leasing Organizations dated June 30, 2014, the Register of Leasing Organizations was maintained. Access to the leasing activities market was provided to the participants. As at January 1, 2017, the major share of the 95 leasing organization included in the Register was registered in Minsk 60 leasing organizations; 11 in Minsk Region, 8 in Brest Region, 4 in Vitebsk Region, 5 in Grodno Region, 5 in Gomel Region, and 2 in Mogilev Region. Within the powers of maintaining the Register of Leasing Organizations and exercising control over compliance with legislation on leasing activities, the National Bank excluded 13 leasing organizations from the Register, among which 11 leasing organizations were excluded upon their application, 1 leasing organization for the reason of its exclusion from the Single State Register of Legal Persons and Independent Entrepreneurs, and 1 leasing organization for systemic (2 times over the calendar year) non-fulfillment of the National Bank s written instructions on remedying violations Regulation of microfinance organizations activities With a view to improving the procedures for taking recourse upon and selling the pledged movable property intended for personal, family, or household use and pledged to commercial microfinance organization (lombard), the National Bank initiated the issue of Decree of the President of the Republic of Belarus No.1 On Amending and Modifying the Decree of the President of the Republic of Belarus dated January 21, According to Decree of the President of the Republic of Belarus No.1 dated January 21, 2016, a lombard is entitled, at its discretion, to take recourse upon the movable property pledged thereby under the microloans issued to natural persons if the assessed amount of such microloan does not exceed 100 base units, as well as sell such property. Enforced collection is only possible upon expiry of one month following the day of microloan repayment specified by the contract. The order of lombards work with precious metals and precious stones wares remains the same. In execution of Decree of the President of the Republic of Belarus No.1 dated January 21, 2016 regulatory legal acts were adopted (Attachment 2.9). Within the framework of streamlining regulation of the microfinance organizations activities, Resolution of the Board of the National Bank of the Republic of Belarus No. 13 On Certain Issues of Microfinance Organizations Activities dated January 13, 2016 was adopted, according to which the term of submission of the data on the changes in the number of members of a microfinance organization which are not founders was expanded, requirements to the notification of persons interested in receiving a microloan and borrowers on the changing terms of the microloan agreement were established, and the

43 43 form and order of submitting reports by the microfinance organizations were modified. With the purpose of increasing financial sustainability of non-profitmaking microfinance organizations established in the legal organizational form of a consumer cooperative and overseeing their activities on an ongoing basis, requirements to separate funds, reserves and regulations applied to these organizations were specified more exactly. The National Bank in concert with the Republican Association of Microfinance Organizations adopted the Plan of Actions on Improving Regulation of Activities of Non-profit-making Microfinance Organizations Established in the Legal Organizational Form of a Consumer Cooperative in the Republic of Belarus for The given document provides for the study of the need to hold events aimed at raising financial sustainability of consumer cooperatives attracting monetary funds from their members natural persons that are not founders of the given consumer cooperative, as well as the development and adoption of standards of attraction and provision of microloans and interaction with clients Regulation of operations involving over-the-counter financial instruments With a view to creating a system of state regulation of activities of forex companies and executing control thereof Edict of the President of the Republic of Belarus No. 231 dated June 4, 2015 was adopted, which came into force on March 7, The National Bank was appointed as the government agency responsible for the regulation of activities of legal persons on conducting operations involving non-deliverable OTC financial instruments initiated by natural and legal persons (activities in the OTC forex market). In execution of Edict of the President of the Republic of Belarus No. 231 dated June 4, 2015 the regulatory legal acts were adopted, which establish: - minimal security capital requirement and order of its build-up, replenishment and usage; - risk limits for forex companies and the National Forex Centre; - financial requirements and their amounts for forex companies; - requirements to the organization of internal control and risk management at forex companies and the National Forex Centre; and - reporting forms on the activities in the OTC forex market, terms and order of their compilation and provision (Attachment 2.10). With the aim of streamlining taxation of activities in the OTC forex market, the National Bank prepared proposals on exemption from VAT of the turnovers from carrying out activities on effecting operations with nondeliverable OTC financial instruments initiated by natural and legal persons

44 44 (activities in the OTC forex market) which were specified in the Law of the Republic of Belarus On Amending and Modifying the Tax Code of the Republic of Belarus dated October 18, Monitoring the compliance with legislation on leasing activities, as well as the observance of legislation on providing and attracting microloans by microfinance institutions In 2016, 22 planned inspections of economic entities, including 11 inspections of leasing organizations, and 11 inspections of profit-making microfinance organizations, as well as 3 unscheduled inspections of consumer cooperatives of mutual financial assistance were carried out. As a result of the conducted inspections, the instructions to remedy violations were given to the audited economic entities. Information on separate violations was submitted to the authorities with due consideration of their competence. During the reporting period 20 leasing companies and 18 microfinance organizations were monitored as to their compliance with the requirements imposed on the volume of and the procedures for disclosing information on their activities and financial condition. Based on the results of monitoring, the recommendations to remedy the violations were submitted to the organizations, at which the violations of legal requirements were revealed. Improper advertisement in the Internet of the leasing activities and activities on regular provision of microloans without inclusion in the relevant National Bank s registers were monitored on the ongoing basis. 2.5 Foreign exchange regulation and foreign exchange control Foreign exchange regulation and foreign exchange control in the year under review were, mainly, aimed at taking measures designed to ensure a sustainable functioning of the domestic foreign exchange market. Having regard to the stabilization of the situation in the financial sphere, as well as improvement of the efficiency of functioning of the domestic foreign exchange market, the non-professional participants of the foreign exchange market - legal persons were granted access to the stock exchange trading in the continuous double auction regime via banks. This measure made it possible to raise operational efficiency of foreign exchange transactions carried out by economic entities in both the OTC foreign exchange market and the stock exchange trading in the continuous double auction regime. For the purpose of ensuring liberalization of the foreign exchange legislation, the norm of mandatory sale of foreign exchange was reduced from 30% to 20% of the foreign currency revenue since September 1, 2016, that made it possible to intensify investment and business activities of the economic

45 45 entities and promoted further streamlining of the foreign exchange legislation within the EAEU. Special attention was paid to decreasing the level of dollarization of the economy and broadening the sphere of the national currency application in the Republic of Belarus. The Council of Ministers and the National Bank of the Republic of Belarus adopted the Plan of Actions on Dedollarization of the Economy, which provides for the measures on excluding foreign exchange from payments of taxes, fees, duties and other payments, as well as terminating its use as an equivalent of the standard of value in setting tariffs, rates and prices. In 2016, the National Bank was continuously monitoring external receivables of the Belarusian economic entities. According to the National Statistical Committee s data, during 2016, external accounts receivable reduced by 0.7% (from USD3,744 to USD3,716 million as at January 1, 2017), including the overdue debt by 17.1% (from USD563 million to USD467 million). As at January 1, 2017, the share of prolonged debt stood at 24.6% of the total volume of external receivables. The facts of violating the deadlines for completion of foreign trade transactions worth USD88.9 million were revealed in respect of 659 economic entities as a result of monitoring conducted in In the course of establishing and implementing the single portal of foreign trade activities in the Republic of Belarus and the mechanism one contact, the National Bank in concert with the Ministry of Foreign Affairs assessed the possibility of using electronic documents in conducting foreign trade. As part of endeavors to improve the national system for preventing money laundering and terrorism financing and financing the proliferation of mass destruction weapons, the work to introduce international standards into Belarusian legislation was continued. In particular, the banks authorities as to defining procedures for freezing funds and blocking financial operations of the persons involved in terrorist activities were extended. The mechanisms for regulating and exercising control over the activities of microfinance organizations, forex companies and the National Forex Centre in the field of preventing money laundering, terrorism financing and financing the proliferation of mass destruction weapons were established. This measure made it possible to improve effectiveness of the established system of combating money laundering and terrorism financing. In June and November 2016, at the twenty fourth and twenty fifth plenary meetings held by the Eurasian Financial Action Task Force the National Bank reported on the progress made in implementing the recommendations of international experts within the mutual evaluation of the effectiveness of the national system of preventing money laundering, terrorism financing and financing of proliferation of mass destruction weapons. The discussions

46 46 resulted in the decision to stop monitoring procedures in respect of the Republic of Belarus. In October 2016, representatives of the National Bank took part in the plenary meeting of the Financial Action Task Force on Money Laundering (FATF), at which the consultations with international experts-evaluators on the improvement of national legislation in this area were held. The National Bank adopted regulatory legal acts for the purpose of implementing measures aimed at improving foreign exchange regulation and foreign exchange control (Attachment 2.11) Financial stability monitoring In accordance with Article 26 of the Banking Code, in the year under review the National Bank carried out financial stability monitoring, the main aim of which was to identify and assess threats to the banking sector s sustainability, as well as the vulnerabilities of the Belarusian financial system. The indicators characterizing the systemic risks of financial stability and sources thereof were identified and analyzed on a regular basis. The results of financial stability monitoring were reflected in the analytic review The Financial Stability of the Republic of Belarus, posted on the official website of the National Bank in the global computer network Internet. In 2016, the financial sector of the country remained stable with regard to the risks assumed. The key indicators of financial stability had values within the safe ranges. Despite the worsening of the situation in the real sector of the economy, the stability of the banking sector was ensured. The banks complied with the basic standards of safe functioning. The segment of leasing companies had been actively developed. The main threat to financial stability in the reporting year was a high credit risk in the banking sector due to low efficiency of state-owned enterprises, dollarization of the economy, as well as a significant level of fiscal risks and external debt. In 2016 H1, the Republic of Belarus cooperated with the IMF and the World Bank within the Financial Sector Assessment Program (FSAP). During the meetings with representatives of the republican government agencies, banks, insurance organizations and other financial market participants, the IMF and the World Bank experts assessed the financial system sustainability, compliance with international standards for supervising the activities of market participants, analyzed financial protection system, as well as identified the main directions for further development of the financial sector and increase in its efficiency. Experts of the IMF and the World Bank noted a serious progress in ensuring compliance of the Belarusian practice with international standards in

47 47 the field of banking supervision, insurance sphere and the financial market infrastructures, as well as in implementing the process of integrated banking supervision and maintaining sustainable functioning of the payment system. The expert also assessed the development of corporate management in the stateowned financial institutions, financial reporting standards and audit practices, the measures aimed at securing creditors rights and legal basis of insolvency regulation, as well as designing the strategy of the digital banking development by the National Bank. As part of the FSAP, the stress-testing of the banking sector s stability was carried out independently by the experts of the National Bank, 11 largest banks and the IMF. The stress-tests were based on the same macroeconomic scenarios for , which reflect the main risks (longstanding slowingdown of the growth rates in Russia and in the world as a whole due to the low or falling-down prices on energy, depreciation of the national currency exchange rate, and increase in interest rates). The results of stress-tests, which were obtained by the National Bank and banks, are, on the whole, in line with the IMF s assessments and evidence the adequate sustainability of the Belarusian financial institutions. At the same time, in the case of the negative development of the macroeconomic situation, separate banks will be in need of additional capitalization. The National Bank and the Government of the Republic of Belarus developed a plan of actions to implement the recommendations of the Financial Sector Assessment Program of the Republic of Belarus, the priority areas of which are the development of a strategy for reforming state-owned enterprises, limiting directed lending, improving supervision of the financial sector, implementing measures designed to limit systemic risks, strengthening the control over the financial market infrastructure and certain aspects of the payment system functioning. With a view to strengthening the system of financial security and coordinating the measures designed to raise financial stability, an inter-agency Financial Stability Council was established in June 2016, at the meetings of which the issues requiring joint decisions of the National Bank and the Government of the Republic of Belarus were considered. In July 2016, a special audit of the nine largest Belarusian banks was completed by the most authoritative international audit companies with a view to assessing the quality of assets. The purpose of this assessment was to identify possible losses under banks loan portfolios, due to deterioration in the financial position of debtors and the overall economic situation, and their impact on the size of the banks capital. The results of the AQR of three banks identified a potential violation of regulatory capital adequacy ratios. These banks developed and submitted to the National Bank the plans of actions aimed at ensuring the regulatory capital

48 48 adequacy and reducing the credit risk accepted by banks, including by means of improving the quality of collateral under granted loans. The plans of actions aimed at minimizing the banks risks identified as a result of asset quality assessment were reviewed and approved at the meeting of the Financial Stability Council held in September One of three banks completed the plan in full in the reporting year, two banks are intended to finish its implementation by July 1, The transfer of the part of problem assets to the JSC Asset Management Agency established in 2016 contributed to the regulation of banks troubled debts. In the reporting year, a number of measures designed to improve the assessment of the state of the state-owned enterprises sector was taken: a stepby-step reduction in the directed lending to state-owned enterprises commenced, the target gross indicators for state enterprises were partially replaced with indicators of efficiency and profitability, and the foundations for improving the monitoring of state enterprises activities and risk analysis were laid Accounting and reporting In 2016, the work on bringing the national accounting and reporting system and financial statements into line with international principles, rules, and standards, as well as improving regulatory legal acts of the National Bank in the field of accounting and reporting and financial statements continued. For the purpose of implementing Law of the Republic of Belarus On Accounting and Reporting dated July 12, 2013, Resolutions of the Council of Ministers of the Republic of Belarus and the National Bank of the Republic of Belarus No. 657/20 On Implementing the International Financial Reporting Standards in the Republic of Belarus and Interpretations Thereof Accepted by the International Financial Reporting Standards Fund of August 19, 2016 and No. 1119/35 On Implementing the International Financial Reporting Standards in the Republic of Belarus and Interpretations Thereof Accepted by the International Financial Reporting Standards Fund dated December 30, 2016 were adopted as part of implementing international financial reporting standards (hereinafter the IFRS ). The IFRSs and Interpretations thereof stipulated by the mentioned resolutions were brought into operation as technical regulatory legal acts and should be applied by banks, non-bank financial institutions, insurance companies, separate open joint-stock companies when compiling reports in accordance with the IFRS for 2016 and subsequent years. The enshrinement of the banks obligations to prepare financial statements in accordance with the IFRS for 2016 and subsequent years in the Law of the Republic of Belarus On Accounting and Reporting contributed to

49 49 the need to annul Resolution of Board of National Bank of the Republic of Belarus No. 185 On Compiling and Submitting Financial Statements by the National Bank of the Republic of Belarus and Belarusian Banks in Accordance with International Financial Reporting Standards dated September 27, 2007, which provided for the compilation of such statements by the National Bank and banks since the reporting for On July 1, 2016, the approaches to the recognition in the accounting by the National Bank, banks and non-bank financial institutions of interest and other income from operations subject to credit risk and assessment of the probability of their generation were changed, as well as the requirement was established providing for the formation, since January 1, 2017, of reserves for the arrears under overdue, accrued and non-received income, which is consistent with the IFRS requirements (Resolution of the Board of the National Bank of the Republic of Belarus No. 543 On Amending and Modifying Certain Regulatory Legal Acts of the National Bank of the Republic of Belarus of September 10, With a view to implementing the provisions of Edict of the President of the Republic of Belarus No. 12 On the Joint-stock Company Belarusian Currency and Stock Exchange dated January 18, 2016 with regard to reflecting the transactions being performed in the accounting by the above-mentioned company and compiling the accounting in accordance with the National Bank s regulatory legal acts, governing the accounting and financial statements for banks and non-bank financial institutions, necessary amendments and modifications to the regulatory legal acts of the National Bank in the field of accounting and financial statements were made. Pursuant to Edict of the President of the Republic of Belarus No. 450 On Conducting the Redenomination of the Official Monetary Unit of the Republic of Belarus dated November 4, 2015, within the framework of the work carried out by the National Bank on the redenomination of the official monetary unit of the Republic of Belarus, the procedure for recalculating the balances of daily balances by banks and non-bank financial institutions was developed. In 2016, regulatory legal framework on accounting and financial reporting was improved with regard to the practice of application and modification of legislation (Attachment 2.12) Cash circulation In 2016, cash circulation decreased by 2.5% compared with 2015 (by BYN2.3 billion) and amounted to BYN89.3 billion. The issue of cash in circulation totaled BYN367 million.

50 50 In the year under review, the share of monetary aggregate M0 in the ruble money supply accounted for %. As at January 1, 2017, this indicator totaled 16.6% (as at January 1, 2016, 15.7%). In accordance with Edict of the President of the Republic of Belarus No. 450 dated November 4, 2015, on July 1, 2016, the official monetary unit of the Republic of Belarus was redenominated in the following proportion: 10,000 Belarusian rubles of the 2000 series per 1 Belarusian ruble of the 2009 series. A total of seven denominations of banknotes of the 2009 series (5, 10, 20, 50, 100, 200, and 500 rubles) and eight denominations of coins (1, 2, 5, 10, 20, and 50 kopecks, and 1 and 2 rubles) were put into circulation. From July 1, 2016 to December 31, 2016, the banknotes of the 2000 series and the banknotes and coins of the 2009 series were in parallel circulation. Since January 1, 2017, the banknotes and coins of the 2009 series are accepted as the only legal tender. As of January 1, 2017, the National Bank issued banknotes and coins of the 2009 series worth BYN2.3 billion. 50-ruble notes (38.1%) and 20-ruble notes (37.4%) accounted for the largest share in the total amount of banknotes of the 2009 series in circulation. 5-ruble notes, 10-ruble notes and 100-ruble notes totaled 5.9%, 14.7% and 3.7% accordingly. The share of 200-ruble notes and 500-ruble notes stood at 0.2%. 2-ruble kopecks (47.9%) and 1-ruble kopecks (24.9%) accounted for the largest share in the total amount of kopecks of the 2009 series in circulation. Coins with the denomination of 5, 10, 20 and 50 kopecks totaled 1.9%, 4.2%, 6.4% and 13.5% respectively. The share of coins with the denomination of 1 and 2 kopecks stood at 1.2%. In the year under review, commemorative coins of 18 names and commemorative banknotes of 7 names were put into circulation by the National Bank. 74,488 commemorative coins were sold in the domestic market, and 4,808 commemorative coins in the external market by mints and organizations. With a view to preventing money counterfeiting the National Bank took preventive measures to inform households and banks about authenticity features of the National Bank s banknotes and foreign notes, provided training, and made available, in a timely manner, information on newly revealed ways of forging banknotes for the cashiers of the banks. As a result of the work done, 1,129 counterfeit banknotes were identified and withdrawn from cash circulation (1,045 counterfeit banknotes in 2015), including 546 US dollar notes, 438 Russian ruble notes, 120 euro notes, 19 Belarusian ruble notes, and 6 notes denominated in other currencies. For the purpose of preventing the damage from illegal actions during the transportation (collection) of valuables, recommendations for taking measures

51 51 ensuring the safety of transportation and (or) collection of cash and other valuables were developed for the banking system of the Republic of Belarus. These recommendations determine the approaches to the organization of cash transportation and collection, taking into account the minimization of risks that may arise during the transportation of valuables (collection), regulate the order of the collectors actions in the course of preparing for the departure for the route and on the route of the movement of special vehicles, including in the event of emergency situations. In 2016, activities aimed at improving regulatory legal framework in the field of cash circulation continued. Pursuant to paragraph 5 of Edict of the President of the Republic of Belarus No. 450 dated November 4, 2015, and in the framework of the preparation for the denomination of the official monetary unit of the Republic of Belarus, the regulatory legal acts of the National Bank were adopted (Attachment 2.13) Payment system In 2016, the National Bank ensured efficient, sound, and secure functioning of the payment system of the Republic of Belarus. The automated system of interbank settlements of the National Bank (hereinafter the ASIS ) is the most important component of the payment system of the Republic of Belarus *. In the year under review, 70.1 million payment instructions worth BYN517,370.4 million were effected in the BISS (given the denomination) [Attachments 2.14 and 2.15]. Compared with 2015, payment instructions effected in the BISS grew by 2.2% in terms of their number and increased by 18.5% in terms of their amount. The average daily turnover amounted to BYN2,036.9 million in terms of payments value and 0.3 million in terms of their number. Unauthorized access to the ASIS was prevented from happening. In 2016, the parameter of banks accessibility to the ASIS was 100% of the production time, with the specified level being not lower than 99.7%. The payment system s regulatory legal framework was improved within the implementation of measures related to the redenomination of the official * The key functional component of the ASIS of the National Bank of the Republic of Belarus is the BISS (Belarus Interbank Settlement System). The BISS is a gross interbank settlement system in which settlements of urgent and non-urgent money transfers as well as settlements based on the results of clearing within the related systems (settlement and clearing system for securities, settlement systems for transactions using bank payment cards and an automated information system of a single settlement and information space) are effected on a real-time basis. The participants in the BISS are the National Bank, banks, non-bank financial institutions, and the JSC Belarusian Currency and Stock Exchange.

52 52 monetary unit of the Republic of Belarus, granting access to the JSC Belarusian Currency and Stock Exchange and non-bank financial institutions to participation in the BISS system, introduction of changes related to the work with electronic documents in the central archive of interbank settlements of the National Bank of the Republic of Belarus and submission of information on non-cash payments to government agencies, as well as implementation of a new mechanism for guaranteeing the completion of interbank settlements on transactions using the MasterCard bank payment cards. In connection with the implementation of these measures, a number of regulatory legal acts of the National Bank of the Republic of Belarus was adopted (Attachment 2.16). In the reporting year, the activities on implementing the methodology of the international standard ISO Financial Services. Universal Financial Industry Message Scheme in the payment system of the Republic of Belarus continued. Preparatory works on transiting the country s banking system to the International Bank Account Number (IBAN) and Bank Identification Code (BIC) were carried out. In connection with the objective need to change the date of the introduction of IBAN and BIC, the Board of the National Bank of the Republic of Belarus adopted Resolution No. 49 On Amending Certain Regulatory Legal Acts of the National Bank of the Republic of Belarus dated February 2, 2016, which provides for the change in the date of IBAN and BIC implementation from January 1, 2017 to July 4, For the purpose of organizing efficient work and ensuring timely transition to IBAN and BIC, recommendations on establishing new account numbers (IBAN) for earlier opened accounts, informing customers about new account numbers (IBAN) and bank identification codes of servicing banks (BIC), and bringing the contracts concluded with customers in line with the requirements of the legislation of the Republic of Belarus were submitted to banks and non-bank financial institutions. In December 2016, the Internet resource ISO 20022BY Repository, placed on the interbank information server of IRS Bank, was put into commercial operation. The main objectives of this resource are the creation of adapted Russian-language documentation for the formation of financial messages according to the methodology of the international standard ISO Financial Services. Universal Financial Industry Message Scheme and provision of conditions for obtaining information. The pricing policy in the field of settlement services provided by the National Bank was aimed at covering the costs associated with the ASIS operation at the expense of incomes, obtaining income in the amount ensuring a sufficient level of funds investment in its development, as well as reorienting the payment flow to the first half of the BISS business day.

53 53 Within monitoring of financial stability, the information on sustainable functioning of the payment system and risks inherent therein was submitted to the Commission on Assessing Financial Stability of the Banking System on a quarterly basis. In 2016, risk-based supervision of the BISS was carried out, working capacity of the software and hardware complexes and failures in the operation of the automated systems of its participants were monitored, results of monitoring were analyzed on a regular basis, recommendations were produced, and their implementation was followed up. In the course of inspections of banks the implementation of the requirements of Technical Code of Common Practice ТКП (07040) Banking Activities. Information Technologies. Processes to Ensure Continuous Performance and Emergency Recovery of Payment System Participant. General Requirements approved by Resolution of the Board of the National Bank of the Republic of Belarus No. 117 dated February 21, 2013, was monitored with regard to organizational and methodological, as well as program and technical supporting of the payment system participant s smooth performance. Within the framework of measures designed to mitigate operational risk in the ASIS, Contingency Plan for Business Continuity and Recovery Procedures of the ASIS, the list of the ASIS s crucial and reserve personnel, as well as instructions determining the actions of personnel in the event of failure and crisis situations in the operation of the ASIS, the procedure for preparing and verifying the operability of the software and hardware complex of the ASIS during the transition to the industrial mode of operation at the backup computer center were updated. Complex tests of the ASIS to verify the performance by the personnel of the National Bank and banks of the activities stipulated by their contingency plans for business continuity and recovery procedures, checking the efficiency of the measures envisaged by the contingency plans for business continuity and recovery procedures of the ASIS participants, in the event of failure of the main software and hardware complex Gateway and the main communication channels were carried out. The activities aimed at implementing international standards in the payment system of the Republic of Belarus continued. Compliance of intrabank systems of 24 banks and OJSC Non-banking Credit and Financial Organization Home Credit with the Principles for Financial Market Infrastructures, published in 2012 by the Committee on Payment and Settlement Systems of the Bank for International Settlements and the Technical Committee of the International Organization of Securities Commissions, were assessed. During the evaluation, significant problems in these systems requiring immediate resolution were not revealed. In 2017 QI, recommendations on

54 54 improving the intrabank systems to bring them in full compliance with the requirements of the Principles for Financial Market Infrastructures were given to each bank and non-bank financial institution Information technologies In 2016, the development of information technologies was aimed at improving the efficiency of administrative processes, ensuring reliability and quality of rendered banking services at the expense of using modern information and communication technologies and extending cooperation with the state administration bodies. The scope of using electronic document management in the interaction of republican government agencies and the banking system was expanded, in particularly: - the opportunity of submitting by the Ministry of Finance, its territorial bodies and local financial authorities to banks of documents for the indisputable recovery of funds from the accounts of legal persons and individual entrepreneurs, being in arrears with obligatory payments, was implemented; and - the receipt of information in the electronic form by separate authorized government agencies from banks and non-bank financial institutions required thereby in accordance with legislation was ensured. In 2016, the establishment of the National Bank s remote backup data center, the priority objectives of which are the assurance of disaster recovery of the payment system s functioning and provision of computing power to banks as the banking system s structured backup data center was continued. Modernization of the ASIS s software and hardware complex with the purpose of switching to a three-site architecture was implemented Financial literacy In 2016, the active work aimed at improving financial literacy of population continued. The above-mentioned activities were carried out in accordance with the Joint Action Plan of Government Agencies and Financial Market Participants on Improving Financial Literacy of the Population of the Republic of Belarus for approved by Resolution of the Council of Ministers of the Republic of Belarus and the National Bank of the Republic of Belarus No. 31/1 dated January 17, The Interagency Coordinating Council for Improvement of Financial Literacy of Population, which was established in accordance with Resolution of the Council of Ministers of the Republic of Belarus and the National Bank of

55 55 the Republic of Belarus No. 1009/15 On Interagency Coordinating Council for Improvement of Financial Literacy of Population dated November 2, 2012, coordinated the activities on improving financial literacy. In the reporting year, with a view to increasing financial literacy and improving population s access to financial services: - in concert with the Ministry of Education a week of financial literacy of children and youth (Global money week) was held, in the training events of which the employees of the National Bank, banks, financial market associations and other organizations took part; - a seminar for educators with the participation of experts from the Netherlands, Brazil, Moldova and Ukraine on international approaches to the integration of financial literacy into the educational system with the assistance of the Child and Youth Finance International was organized; - a competition for the best work on economic subjects among students of higher education institutions of the Republic of Belarus was conducted; - republican competition on financial literacy among students of general secondary education, was conducted with the participation of about 5,000 pupils of the 10th-11th grades; - updated information required by citizens for making appropriate financial decisions was placed at the Unified Internet Portal of the Households Financial Literacy ( - the work of accounts on financial literacy in social networks (Facebook, Vkontakte, Odnoklassniki) was organized; - the annual specialized exhibition of financial services MoneyFest was organized; - a number of joint projects on financial literacy with the printed media (TV channel ONT, newspapers Nastaunitskaya Gazeta, Perekhodnyj Vozrast, magazines Narodnaya Asveta, Obrazovanie Minshchiny, Chto Pochem and information agency Telegraph ) was implemented; and - educational events on financial literacy were carried out in the state educational institution Republican Gymnasium - College under the Belarusian State Academy of Music, SOS-Children s Village in Maryina Gorka, Children s Health Camp Zarnitsa, educational establishment Belarusian State Pedagogical University named after Maxim Tank, and educational establishment Belarusian State Economic University. As part of the joint project of the National Bank and the Alliance for Financial Inclusion (AFI) Developing Regional Cooperation in Promoting Access to Finance in the Eastern Europe and the CIS : - in September 2016, an international conference Modern Instruments of Small Business Financing was held with the participation of international experts, representatives of the republican government agencies, banks, relevant

56 56 associations, the heads of economic entities and other financial market participants; - the national studies on Assessment and Analysis of the Belarusian Population s Financial Literacy (1,500 respondents) and Analysis and Assessment of Demand on Financial Services by the Population of the Republic of Belarus (8,000 respondents) were conducted; and - the concept and the technical task on creating information resource for small business entities Microcredit Navigator were developed. Specialists of the National Bank s Call Center provided consulting services to the population on the issues related to the main activities of the National Bank, the basic issues of the economy and financial markets, the implementation of monetary policy, functioning of the banking and payment systems of the Republic of Belarus. In 2016, the Contact Center received 20,306 calls, of which 10,930 calls were from the natural persons and 9,376 calls from the legal persons. A report on the Contact Center activities was submitted to the members of the Board of the National Bank and heads of structural units on a monthly basis for the purpose of ensuring operational information provision and taking necessary response measures Research activities In 2016, economic studies of the National Bank were aimed at obtaining new knowledge, developing methodologies, recommendations and instruments designed to enhance the efficiency of measures aimed at ensuring dynamic and sustainable development of the monetary sphere, banking, payment and financial systems of the Republic of Belarus. Research activities contributed to improving human resources and strengthening position of the National Bank in the academic community. In the reporting year, employees of the National Bank fulfilled 27 studies. The results of studies were published in the periodical Bankauski Vesnik (15 research articles), a special issue of Studies of the Bank (two articles), and other domestic and foreign publications. The most significant studies included: - Evaluation of Price and Non-price Competitiveness. A new methodology for estimating price and non-price competitiveness was tested for the economy of the Republic of Belarus. According to the results of the study, the price competitiveness of the economy changes cyclically in accordance with the dynamics of the Belarusian ruble exchange rate, while non-price competitiveness decreases gradually. The competitiveness of the economy in terms of costs was assessed; - Analyzing the Transmission Mechanism of the Economic Policy Based on the DSGE-model. The analysis of the impact on the Belarusian economy of

57 57 such factors as the change in monetary conditions (exchange rate), labor productivity growth, labor market reform, and decrease in price markups was performed in the study using the developed dynamic stochastic general equilibrium model; - Financial Cycles and Early Warning Systems of Financial Crises in the Republic of Belarus. The indicator of financial cycles, consisting of 9 variables, selected in such a way as to cover the spheres of the economy to the maximum extent, which may be subject to a general change in the situation on the financial markets, was developed. The dynamics of the financial cycle indicator can predict episodes of the credit risk materialization in the banking sector and be used in early warning systems of financial crises in the Republic of Belarus; and - Modeling the Outflow of Depositors Funds from the Banking Sector. The probability of occurrence of destabilization in the market of the households time deposits in the national currency is estimated on the basis of binary choice models, depending on the change in a number of macroeconomic factors. The developed model makes it possible to quantify the influence of each considered factor, predict the probability of occurrence of an event and establish its threshold level by means of a signal approach. In addition, in the year under review the studies aimed at reducing the level of dollarization of the economy, developing financial market, including the securities market, the derivatives market, improving information policy of the National Bank, developing the payment system, and implementing international standards for banking supervision were carried out. The National Bank s employees involved in research gave lectures at the higher education establishments of the Republic of Belarus, the Training Center of the National Bank, developed academic programs for institutions of higher education of the Republic of Belarus, made presentations at international scientific conferences, peer-reviewed scientific articles, conducted a scientific management of diploma works and practical training of students and master degree s students International cooperation In 2016, within the Treaty on the Eurasian Economic Union the streamlining of the EAEU member states legal framework was continued. Two meetings of the Advisory Committee on Financial Markets and three meetings of the Advisory Council for Currency Policy of Central Banks of Member States of the EAEU were held, at which the issues of developing monetary, foreign exchange and financial spheres were discussed in order to work out coordinated solutions and prepare appropriate proposals for

58 58 harmonization of the legislations of the EAEU member states in the financial sector. Representatives of the National Bank participated in the work of other advisory committees on the macroeconomic policy of the EAEU member states. As part of the activities of the Interbank Currency Board of the National Bank of the Republic of Belarus and the Central Bank of the Russian Federation a special attention was given to the payment and settlement, monetary and foreign exchange fields. In particular, the currency terms of export and import contracts on goods between residents of the two countries were analyzed, as well as the issues of standardization in the national payment systems of the Republic of Belarus and the Russian Federation were considered. The state of balance of payments and dynamics of international reserves, specific characteristics of regulating the activities of payment system operators, development of the cards market, quantitative values of macroeconomic indicators characterizing the degree of convergence, the development of the banking sector and foreign exchange markets, and other issues were discussed at the meetings of the Eurasian Council of the Central (National) Banks. The Program of Activities of the Eurasian Council of Central (National) Banks for and the Program for the Professional Training of the Staff of Central (National) Banks for 2017 were approved. The Protocol on the Accession of the Central Bank of the Republic of Armenia to the Agreement on the Eurasian Council of Central (National) Banks dated November 18, 2015, and a number of other protocols on amendments to the documents approved by the Eurasian Council of Central (National) Banks were signed. In 2016, meetings of the Board of the Interstate Bank were held, at which the results of the bank s activities in the reporting period, the financial position of the Interstate Bank and prospective directions of activities were discussed. As part of the activities of the CIS integration authorities the regulatory regimes in the field of banking regulation and supervision in the CIS member states were analyzed. At the meeting of the Regional Consultative Group on space of the CIS countries under the Financial Stability Board macroprudential regulation tools and practices of their application, assessment of and solutions to the problems of reducing correspondent banking services, the Basel III standards and the banks general ability to absorb losses (TLAC) were discussed. The National Bank participated in the implementation of the Plan of Joint Actions of the CIS Member States to address Urgent Issues in Financial and Economic Spheres, as well as the Action Plan for the Implementation of the Third Phase of the CIS Economic Development Strategy for the period till 2020.

59 59 In April 2016, the IMF and the World Bank expert group on the Financial Sector Assessment Program worked in the Republic of Belarus. Following the assessment activities, the National Bank organized work on implementing the experts recommendations, in particular, developed a plan of actions to implement the recommendations of the Financial Sector Assessment Program. In 2016, discussions with the IMF experts and the management on the development of economic and fiscal and monetary spheres continued, the level of macroeconomic and financial stability was assessed, prospects for cooperation were considered, including the possibility of concluding an agreement on financial program with the IMF. The issues of the abovementioned program were also discussed at Spring and Annual Meetings of the IMF Board of Governors. In June 2016, the IMF mission worked in the Republic of Belarus in the framework of consultations on Article IV of the Articles of Agreement with the IMF. The IMF experts positively assessed the measures of economic policy taken by the Government of the Republic of Belarus and the National Bank, which are aimed at preserving and strengthening economic stability based on the sound macroeconomic management, for mitigation of the effects of the economic recession and creation of conditions for sustainable growth. In addition, within the framework of cooperation of the Republic of Belarus with the IMF, a number of technical missions were conducted, in the course of which the issues of assessing the quality of the Belarusian banks assets were discussed, the IMF experts provided advisory support on the restructuring of state-owned enterprises, as well as held consultations to increase the capacity for modeling monetary policy. As part of technical cooperation with the World Bank Group, the issues of improving the mechanism for secured transactions, carrying out structural reforms in the economy, and social protection were considered with a view to mitigating the negative consequences of the increase in tariffs for housing and utility services for the population. In addition, topical areas of technical assistance were discussed with the World Bank experts. The parties agreed to continue cooperation and technical assistance on resolving the problems of banks and strengthening the system of insurance of bank deposits. Cooperation with the Eurasian Fund for Stabilization and Development was carried out within the framework of the implementation of the Matrix of Economic Policy and Structural Adjustment Measures of the Government and the National Bank of the Republic of Belarus to Receive the Support in the Form of Financial Credit of the Eurasian Fund for Stabilization and Development. In 2016, the Republic of Belarus obtained two tranches of the financial credit of this international organization worth USD800 million. In the reporting year, in the course of the meetings with the management of the European Bank for Reconstruction and Development, the process of

60 60 implementing the Memorandum of Understanding between the Government of the Republic of Belarus and the European Bank for Reconstruction and Development regarding the privatization of Belinvestbank JSC was analyzed, strategic directions of cooperation for in the framework of the new full-format Strategy for the Republic of Belarus, approved in September 2016, were defined, as well as the Memorandum of Understanding between the National Bank of the Republic of Belarus and the European Bank for Reconstruction and Development concerning the privatization of Bank Moscow Minsk JSC was signed. In connection with activization of the process of accession of the Republic of Belarus to the WTO, a negotiating position on the access to the market of banking (financial) services was determined, and relevant materials for inclusion in the overall package of documents of the Republic of Belarus for negotiations with the WTO member countries were prepared. With a view to developing bilateral relations, meetings of the management of the National Bank and the central (national) banks of the neighboring countries of the CIS member states and some countries in Europe, Asia and Middle East were held. As part of development of the legal framework for bilateral international cooperation the Memorandum of Cooperation between the National Bank of the Republic of Belarus and the Bank of Latvia and the Memorandum of Understanding between the National Bank of the Republic of Belarus and the State Bank of Pakistan were signed Staffing and staff training In 2016, certain measures aimed at streamlining the organizational structure, functions, and number of employees of the National Bank were implemented. As the result, the number of the National Bank s staff was decreased (excluding the personnel in charge of buildings security and maintenance) by 62 employees, including civil servants by 12 employees. The average age of civil servants remained unchanged compared with 2015 and stood at 42 years. The share of the employees who have more than 10 years of work record in the banking sphere accounted for 60.7% of the total number of the National Bank s personnel, including civil servants 70.8%. Civil servants that are graduates of the institutions of higher education accounted for 100%, of which 34% obtained the diplomas of additional higher education or retraining in other fields. 21 employees of the National Bank have a degree. Great attention was paid to improving the quality of education and studying advanced domestic and foreign experience. 192 employees of the

61 61 National Bank participated in international seminars and courses. 111 employees completed remote training under the IMF programs. The National Bank organized and conducted 5 international training events, in which 109 employees of the bank participated. The development of a new direction of cooperation with the European Commission was initiated, within the framework of which two seminars on TAIEX programs were organized with the participation of 47 employees of the National Bank. During 2016, 71 training events were organized and held at the Training Center of the National Bank, including 49 thematic seminars on the main activities of the bank and 22 seminars on computer training. 912 employees of the National Bank and 557 employees of banks and other organizations underwent training. The priority form of implementing the program for the development of managerial skills of managers and the specialists included in the managerial personnel reserve was modular training. 185 employees of the bank were trained within the framework of the program, of which 78 specialists upgraded their qualifications in the Academy of Public Administration under the aegis of the President of the Republic of Belarus Internal audit In 2016, internal audit activities of the National Bank were aimed at improving the internal control and risk management system. International professional standards of internal audit, international standards in the field of information technologies security, international methodology in the sphere of management, control and audit of information technologies CobiT, and international best practices were used in the process of organization and performance of internal audit. The selection of objects for auditing in 2016 was carried out based on the results of the explicit quantitative risk assessment of the audited objects with regard to the strategic objectives of the National Bank s activities. In line with Resolution of the Board of the National Bank of the Republic of Belarus No. 754 On Approving the Plan of Carrying Out Audits and Inspections by the Internal Audit Directorate for dated December 21, 2015, audits of the National Bank s processes and information technologies ensuring the functioning thereof, audits of projects, as well as inspections of safekeeping of cash and other valuables in the National Bank s vaults and cash offices were carried out. In addition to the planned assignments, unscheduled orders on auditing certain areas of the National Bank s activities were executed on the instructions of the Chairman of the Board of the National Bank. The audit was carried out on the basis of a risk-based approach with the assessment of the adequacy and efficiency of the internal control and risk

62 62 management system in the National Bank s activities. Considerable attention was paid to the organization of risk management processes (financial and nonfinancial ones) inherent to the operations audited. In the course of audit of information technologies, the priority was given to the issues of ensuring the security of information systems, managing the continuity of functioning of information technologies, the efficiency of organization of information technology management processes, and the efficiency of financial costs. According to the results of the audit, the internal control and risk management system generally complied with the nature and scale of performed transactions (conducted functions). For the purpose of minimizing risks in the National Bank s activities, local regulatory legal acts were amended, measures aimed at optimizing the processes of the National Bank, increasing the efficiency and security of the National Bank s information system functioning, as well as improving the internal control and risk management system were taken. The specialists of the Internal Audit Directorate controlled the timeliness, adequacy, and the entirety of follow-up of the recommendations and execution of instructions which were made based on the audits findings. During the year under review, the Internal Audit Directorate coordinated the activities on collaboration with the external audit firm in the process of auditing the annual financial statements of the National Bank for 2015 and carrying out interim audit procedures to audit the annual financial statements for In accordance with the agreement reached on the application of International Standard of Audit 610 Using the Work of Internal Audit within the framework of regulations agreed with the external auditor, the specialists of the Internal Audit Directorate took part in carrying out preliminary audit procedures within the audit of the above-mentioned financial statements for With a view to meeting the requirements and provisions of international professional standards of internal audit, the measures aimed at ensuring the quality and improving the efficiency of the above-mentioned activities were taken. Chapter 3 Financial statements The annual financial statements of the National Bank are compiled in accordance with legislation of the Republic of Belarus and regulatory legal acts of the National Bank. In the year under review, operations stemming from the tasks and functions stipulated in the Banking Code of the Republic of Belarus, the Statute

63 63 of the National Bank of the Republic of Belarus approved by Edict of the President of Belarus No. 320 dated June 13, 2001, and the Republic of Belarus Monetary Policy Guidelines for 2016 were performed. According to the opinion of the audit firm Ernst & Young LLC, the National Bank s annual financial statements present fairly, in all material aspects, the financial position of the National Bank as at January 1, 2017, and its financial performance in 2016.

64 64 Form 1 National bank of the Republic of Belarus BALANCE SHEET as of 1 January, 2017 (BYN, thousand) No. Description Index Note ASSETS 2. Cash , , Precious metals and precious stones , 560, 905 3, 117, Securities , 504, 658 2, 507, Funds with banks , 747, 842 5, 686, Loans and other asset operations with customers , , Derivative financial assets Long-term financial investments , , Fixed and intangible assets , , Other assets , 677 1, 224, TOTAL assets , 888, , 971, LIABILITIES 13. Cash in circulation , 410, 887 2, 114, Precious metals and precious stones , , Amounts due to international financial institutions , 747 2, Amounts due to banks , 361, 406 6, 447, Amounts due to customers , 496, 076 6, 173, Required reserves of banks , , Securities issued by the National Bank , 787, 809 3, 711, Derivative financial liabilities , Other liabilities , 987 1, TOTAL liabilities , 333, , 309, EQUITY 24. Statutory fund , , Reserve fund and other funds , , Accumulated deficit (3, 435, 351) (1, 951, 228) 27. Balance sheet items revaluation reserve (4, 072, 366) (4, 449, 234) 28. TOTAL equity 121 (7, 445, 571) (6, 338, 658) 29. TOTAL liabilities and equity 12 12, 888, , 971, 036

65 65 Form 2 STATEMENT of income in 2016 National Bank of the Republic of Belarus (BYN, thousand) Note item Description Index No. 1. Interest income , , Interest expenses (957, 847) (628, 411) 3. Net interest income (expenses) (428, 672) (22, 583) 4. Fee and commission income , 637 4, Fee and commission expenses (2, 414) (2, 002) 6. Net fee and commission income , Net gain (loss) from foreign currency transactions (389, 222) (2, 953) 8. Net gain (loss) from operations with precious metals and precious stones , , Net gain (loss) from operations with securities (621) (1, 384) 10. Net gain (loss) from operations with derivative financial instruments (569, 587) (1, 127, 492) 11. Dividend income 207 4, 350 2, Net charge to provisions (4, 048) (49) 13. Other expenses (156, 469) (103, 874) 14. Other income , , Other expenses, net (107, 276) (64, 711) 16. Allocations to the budget 210 (362) (263) 17. PROFIT (LOSS) 2 (1, 484, 420) (1, 139, 470)

66 66 Form 3 National Bank of the Republic of Belarus No. Description of indicators Index STATEMENT of the change in equity in 2016 Statutory fund Reserve fund Other funds Own equity items indicators Retained earnings (loss) Balance sheet items revaluation funds (BYN,thousand) Total own equity Section I. For the year preceding the reporting year 1. Balance as at January 1, , , (811, 688) (3, 835, 717) (4, 586, 013) 2. Changes of equity items, including: (1, 139, 540) (613, 517) (1, 752, 645) 2.1. comprehensive income x x x (1, 139, 470) (613, 175) (1, 752, 645) 2.2. profit allocation to the reserves of the State Institution Agency for the Guaranteed Repayment of Natural Persons Deposits x x x x 2.3. distribution of profit retained by the National Bank (412) x 2.4. transfer of the amounts of revaluation of disposed property and equipment and intangible assets to retained earnings x x x 342 (342) 2.5. other changes Balance as at January 1, , , (1, 951, 228) (4, 449, 234) (6, 338, 658) Section II. For the reporting year 4. Balance as at January 1, , , (1, 951, 228) (4, 449, 234) (6, 338, 658) 5. Changes of equity items, including: (1, 484, 123) 376, 868 (1, 106, 913) 5.1. comprehensive income x x x (1, 484, 420) 377, 507 (1, 106, 913) 5.2. profit allocation to the reserves of the State Institution Agency for the Guaranteed Repayment of Natural Persons Deposits x x x x 5.3. distribution of profit retained by the National Bank (342) x 5.4. transfer the amounts of revaluation of disposed property and equipment and intangible assets to retained earnings x x x 639 (639) 5.5. other changes Balance as at January 1, , , (3, 435, 351) (4, 072, 366) (7, 445, 571)

67 67 Appendix to the statement of the change in equity INFORMATION on comprehensive income for 2016 National Bank of the Republic of Belarus (BYN, thousand) No. Description Index Note item Loss (1, 484, 420) (1, 139, 470) 2. Other components of comprehensive income, , 507 (613, 175) including: 2.1. revaluation of fixed assets and noninstalled equipment revaluation of intangible assets translation differences from foreign exchange revaluation (2, 722, 958) 2.4. revaluation of precious metals , 268 2, 109, revaluation of securities (761) revaluation of hedging instruments revaluation of precious stones revaluation of other balance sheet 2.8. items TOTAL comprehensive income (1, 106, 913) (1, 752, 645)

68 68 Form 4 STATEMENT of the formation and use of reserves for 2016 National Bank of the Republic of Belarus (BYN, thousand) No. Item Index Statutory fund Reserve fund Other funds Fixed assets and noninstalled equipment revaluation reserve Intangible assets revaluation reserve Translation differences funds from foreign exchange revaluation fund Translation differences from foreign exchange revaluation reserve Securities revaluatio n reserve Hedging instrument revaluatio n reserve Other balance sheet items revaluatio n reserve Total Section I. For the year preceding the reporting year 1. Balance as at 1 January, , , , 349 (3, 974, 056) 15, (3, 774, 325) 2. Paid into reserves by allocating profit х х х х х х х Paid into reserves by using other sources , 164, , 165, Reserves used 4014 (452) (2, 722, 958) (55, 004) (282) (2, 778, 696) 5. Balance as at 1 January , , , 007 (6, 697, 014) 2, 125, (4, 387, 430) Section II. For the reporting year 2,125, (4, 387, 430) 6. Balance as at 1 January , , , 007 (6, 697, 014) 7. Paid into reserves by allocating profit х х х х х х х Paid into reserves by using other sources , 857, , 857, (3, 478, Reserves used 4014 (645) 932) (836) (3, 480, 413) 10. Balance as at 1 January, , , , 368 (6, 697, 014) 2, 503, 986 (706) (4, 010, 220)

69 69 Form 6 National Bank of the Republic of Belarus No. Description of expenses STATEMENT of maintenance costs of the National Bank for 2016 Index (BYN, thousand rubles) Plan 2016 Actually for Actual Maintenance costs total, , , , 303 including: 1.1. staff costs , , , expenses on the use of land, buildings, structures and other fixed assets as well as stocks , , , expenses on the consulting, audit, informational, marketing, advertising and other services received , , 072 1, depreciation and amortization charges , , , costs arising from the disposal of longterm financial investments and property , , costs of operation of the payment system , other operating expenses , , 418 6, 996

70 70 Form 7 STATEMENT of capital investments budget execution for 2016 National Bank of the Republic of Belarus (BYN, thousand rubles) No. Capital investment workstream Index Plan 2016 Actually Actual for Capital investments, total , , , 494 including: 1.1. capital construction and reconstruction , , 435 7, measures to develop the software and technical infrastructure of the payment system , , , computer equipment, software and network equipment , , 254 3, equipment to enhance safety and protect information , , cash registers and other equipment to work with valuables , equipment to work with precious metals and precious stones vehicles including: those for transporting valuables staff motorcars and other vehicles maintenance equipment for vehicles and buildings measures to develop a unified settlement and information framework , measures to develop digital banking technologies other

71 71 Form 8 STATEMENT of profit and its allocation for 2016 National Bank of the Republic of Belarus (BYN, thousand) No. Description Index Loss 2 (1, 484, 420) (1, 139, 470) 2. Allocation of profit of the reporting year that requires approval: State Institution "Agency for the Guaranteed Repayment of Natural Persons Deposits" statutory fund reserve fund other funds 2213

72 72 Notes to the annual financial statements of the National Bank for Corporate information The National Bank is the central bank and state body of the Republic of Belarus. It operates exclusively in the interests of the Republic of Belarus. In concert with the Government of the Republic of Belarus, the National Bank pursues a unified monetary policy of the Republic of Belarus. The primary objectives of the National Bank are: to protect and ensure the stability of the Belarusian ruble, including its purchasing power and exchange rate against foreign currencies; to ensure the stability of the banking system of the Republic of Belarus; and to ensure the efficient, reliable and secure functioning of the payment system. The National Bank operates in accordance with the Constitution of the Republic of Belarus, the Banking Code of the Republic of Belarus, laws of the Republic of Belarus and regulatory legal acts of the President of the Republic of Belarus and is independent in its activities. The National Bank is accountable to the President of the Republic of Belarus. As of 1 January 2017, the National Bank comprised a head office, five main departments by regions, a Training Center and a Settlement Center. The Bank s registered legal address is Prospect Nezavisimosty 20, , Minsk, Republic of Belarus. 2. Basis of accounting and reporting The National Bank maintains its accounting records and prepares the annual financial statements in accordance with the Banking Code of the Republic of Belarus, the Law of the Republic of Belarus "On Accounting and Reporting" dated 12 July 2013 (National Legal Internet Portal of the Republic of Belarus, 24 July 2013, No. 2/2055), the "Instructions on the Procedure for Organizing Accounting Policy at the National Bank of the Republic of Belarus" approved by Resolution No. 407 of the Board of the National Bank of the Republic of Belarus dated 27 September 2010, "Instructions for Recording in Accounting the Operations of the National Bank of the Republic of Belarus" approved by Resolution No. 770 of the Board of the National Bank of the Republic of Belarus dated 23 December 2013, "Instructions for the Compilation and Presentation of the Annual Financial Statements by the National Bank of

73 73 the Republic of Belarus" approved by Resolution No. 633 of the Board of the National Bank of the Republic of Belarus dated 28 December 2011, "Instructions for Organizing Accounting at the National Bank of the Republic of Belarus" approved by Resolution No. 419 of the Board of the National Bank of the Republic of Belarus dated 30 September 2010, and the national standards of the financial statements adopted by the National Bank. The annual financial statements of the National Bank for the year ended 31 December 2016 comprise: Balance sheet (Form 1) Statement of income (Form 2) Statement of changes in equity (Form 3) Statement of formation and use of reserves (Form 4) Statement of maintenance costs of the National Bank (Form 6) Statement of capital investments budget executions (Form 7) Statement of profit and its allocation (Form 8), and Notes to the annual financial statements. Presentation currency of these annual financial statements is the Belarusian ruble. These annual financial statements are prepared in thousands of Belarusian rubles ("BYN") in whole numbers. Accumulated loss, negative results by other equity items, expenses, loss for the year, provisions and accumulated amortization are presented in brackets. Amounts due from and due to JSC "Development Bank of the Republic of Belarus and JSC "Belarusian Currency and Stock Exchange are recorded in the annual financial statements in the respective items specified for banks. The annual financial statements are prepared based on the balance sheet data of the National Bank. The annual financial statements do not include reports of the legal entities where the National Bank has an interest in equity and (or) which are controlled by the National Bank. Comparative information for 2015 has been adjusted to reflect the redenomination of the official currency of the Republic of Belarus starting from 1 July 2016 pursuant to Edict No. 450 "On Redenomination of the Official Currency of the Republic of Belarus" of the President of the Republic of Belarus dated 4 November 2015 (National Legal Internet Portal of the Republic of Belarus, 6 November 2015, No. 1/16092). 3. Summary of significant accounting policies

74 74 Accounting and reporting are based on the principles of going concern, independence, accrual, adequacy of income and expenses, credibility, predominance of the economic substance, prudence, neutrality, completeness, transparency, consistency and appropriateness. The National Bank applies the combined accounting system using the automated banking system "Transaction activities" Assets and liabilities denominated in foreign currency Assets and liabilities arising from dealing in foreign currency are divided into monetary and non-monetary items for accounting purposes. Transactions in foreign currency resulting in monetary items are recorded at the official exchange rate of the Belarusian ruble to the relevant foreign currency set by the National Bank (hereinafter, the "official rate") at the date of recording. Monetary items are revalued to reflect changes in the official exchange rate. Non-monetary items, including income and expenses, are recognized in accounting by translating the amounts into Belarusian rubles at the official exchange rate at the date of recording, using the method of currency position accounts. Thereafter, non-monetary items are recorded exceptionally in Belarusian rubles. Non-monetary items are not revalued. Translation differences arising from revaluation of monetary items denominated in foreign currency are charged to an offset account for dealing in foreign currency on a daily basis. Accumulated foreign exchange gains (losses) recorded on the last working day should be taken to the following accounts: - to the balance sheet account for recognizing the foreign exchange revaluation reserve (in case of positive difference); and - to the balance sheet account for recognizing the foreign exchange revaluation reserve or to the balance sheet account for expenses arising from dealing in foreign currency if cash on the balance sheet account for recognizing the foreign exchange revaluation reserve is not available (in case of negative difference) (Notes 19 and 22). The financial result of currency exchange operations arising from dealing in foreign currencies at the exchange rates other than the official exchange rate is taken to the gain or loss arising from dealing in foreign currency on a daily basis (Note 22). At 1 January 2017, the official exchange rates used for translating the assets and liabilities denominated in foreign currency were as follows: Currency Official exchange rate, BYN 1 Australian dollar (AUD) hryvnias (UAH) Danish kroner (DKK)

75 Currency Official exchange rate, BYN 1 US dollar (USD) euro (EUR) zlotys (PLN) 1 Canadian dollar (CAD) Chinese yuan (CNY) Norwegian kroner (NOK) 100 Russian rubles (RUB) soms (KGS) tenge (KZT) 1 pound sterling (GBP) Swiss franc (CHF) yen (JPY) 1000 Armenian drams (AMD) Precious metals and precious stones Operations with precious metals in standard bars shall be recognized on the balance sheet accounts at accounting prices set by the National Bank and valid at the date of recording the operation. Precious metals in standard bars shall be written off the balance sheet accounts (including in case of sale) at their carrying amount. Precious metals in small bars shall be recorded at actual acquisition cost (purchase price including costs of acquisition, manufacturing, insurance, delivery, cost of guarding cargo delivered by vehicles under customs control and other costs, including costs related to replacement of the damaged small bars). Precious metals in small bars shall be written off the balance sheet accounts (including in case of sale) at their carrying amount. Previously sold small bars shall be purchased at the acquisition price. Commemorative, bullion (investment) coins of the National Bank made of precious metals are accounted at their nominal value. Other coins made of precious metals intended for collection purposes are recorded at the acquisition price of precious metals in the form of coins, except for their acquisition by the National Bank at the cost of precious metals contained therein. Precious metal coins acquired by the National Bank at the cost of the precious metals contained therein are recorded as scrap precious metals. Acquisition of scrap precious metals is recorded at acquisition price for the precious metals contained therein. The financial result from the National Bank's dealing with precious metals is determined as the difference between the carrying amount of precious metals and transaction (agreement) price. The financial result is recognized on balance sheet accounts for income (expenses) arising from dealing with precious metals for accounting purposes (Note 23).

76 76 Revaluation of precious metals shall be performed in proportion to changes in accounting prices. Results of revaluation of precious metals reflected on balance sheet accounts at the date of revaluation are taken to: the amount of a positive difference - balance sheet account for recognizing the precious metals revaluation reserve (Note 19); and the amount of a negative difference - balance sheet account for recognizing the precious metals revaluation reserve; if cash on the balance sheet account for recognizing the precious metals revaluation reserve is not available - balance sheet account for expenses arising from dealing with precious metals (Notes 19 and 23). Precious stones acquired by the National Bank, except for certified diamonds purchased (repurchased) by the National Bank, and rough diamonds are accounted for at their actual acquisition cost (purchase price, including costs of acquisition, manufacturing, insurance, delivery, cost of guarding cargo delivered by vehicles under customs control and other costs directly related to the acquisition). Diamonds made of rough diamonds of the National Bank are accounted for at cost comprising the cost of acquisition and processing of rough diamonds and producing diamonds, plus profit of the diamond processing company. Certified diamonds purchased (repurchased) by the National Bank are recorded at the acquisition (repurchase) price. Actually incurred packaging costs related to the certified diamonds (including the cost of the quality certificates for diamonds) are recorded as deferred expenses and charged to expenses arising from dealing with precious stones in case of sale (disposal) of the certified diamonds (Note 23). Precious stones sold are written off from the accounts for recognizing precious stones at their carrying amount. Financial result arising from the National Bank's dealing with precious stones is determined as the difference between the consideration received and carrying amount of precious stones. The amount of the financial result as of the date of consideration receipt shall be taken to the balance sheet accounts for income (expenses) arising from dealing with precious stones (Note 23). Precious stones are not subject to mandatory regular revaluation Securities Securities acquired by the National Bank, except for securities acquired under repo agreements and on behalf of the customers, are accounted for at

77 77 their acquisition price, including income paid (accumulated) in the form of interest, which shall be recorded separately. The amount of income in the form of discount is recorded as interest income accrued over the maturity period of a security from the date of its acquisition through the date of its redemption or sale. Securities are subsequently recorded within the category of financial assets, to which they have been classified. Revaluation of securities at fair value shall be carried out on a monthly basis as of the last working day of the reporting month in case of their reclassification from one category to another or in case of derecognition. Results of changes in the fair value (revaluation) of securities recognized at fair value are recorded at the date of revaluation as related to: securities classified as "Financial assets at fair value through profit or loss" on balance sheet accounts for income (expenses) arising from dealing with securities (Note 24); and securities classified as "Financial assets available for sale" - on the balance sheet account for recognizing securities revaluation reserve (Note 19). Income (expenses) arising from the change in the fair value of securities accumulated in the securities revaluation reserve are recorded until their disposal, except for formation of a special provision for potential losses in respect of the assets exposed to credit risk. Securities are written off the balance sheet accounts at their carrying amount. Gains or losses from sale of securities are recorded as gains or losses from operations with securities (Note 24). Securities received by the National Bank under repo agreements are recorded on the off-balance sheet accounts, and advances are recorded as financing transactions on the balance sheet accounts (Note 6). Gains arising from financing under repo agreements are recorded as interest income (Note 20) Securities issued by the National Bank The National Bank issues securities bearing income in the form of interest or discount. Securities issued by the National Bank are recognized at their nominal value. Expenses are recorded as interest expenses (Note 20). Upon issue of the securities bearing income in the form of discount, the amount of discount is recorded within deferred expenses and is subsequently taken to the interest expenses over the period of maturity of securities.

78 Securities issued by the National Bank are derecognized as they are repurchased by the National Bank, including with the purpose of their subsequent sale Long-term financial investments Long-term financial investments of the National Bank in statutory funds of legal entities are recorded in Belarusian rubles at the acquisition price, and cash contributions to form the assets are recorded in the amount of funds transferred by the National Bank Loans and deposits Loans (borrowings) issued to the banks and customers and deposits placed are recorded as cash paid upon their issue (placement) taking into account the repayment made. Loans received and deposits attracted are recorded in the amount of cash received (attracted) by the National Bank subject to the payments made Provisions Special provisions for overall bank risks (hereinafter, "special provisions") are accrued to cover potential losses with respect to the assets of the National Bank in accordance with certain regulatory legal acts of the National Bank. Special provisions with respect to assets denominated in foreign currency and exposed to credit risk, as well as provisions with respect to unearned income in foreign currency on such assets are accrued in the currency of an asset. Other special provisions are accrued in Belarusian rubles. Special provisions are charged to expenses of the National Bank in full (Note 26). Decrease (reversal) of special provisions accrued is taken to the income of the National Bank in the reporting period when such decrease (reversal) takes place and when the amount for debt repayment, previously written off against provisions, is received. Special provisions are used to write off losses with respect to the assets, for which these provisions have been accrued, upon the decision of the Board of the National Bank. Assets, in respect of which special provisions have been accrued, are recorded in the balance sheet less the amount of the provisions accrued.

79 79 The National Bank accrues a provision for expected amounts of payments for unused short-term vacations of the employees of the National Bank, including payments for unused vacation, compulsory social insurance for occupational accidents and diseases, and contributions to the budget of the state non-budgetary Social Security Fund (hereinafter, the "vacation provision"). Vacation provision is accrued in Belarusian rubles. Contributions to the vacation provisions are charged to expenses of the National Bank in full (Note 27): for the accumulating paid vacations - not later than on the last working day of the reporting year; for the non-accumulating paid vacations - in the reporting period, in which they are accrued (settled) (directly upon commencement of a vacation). The accumulated amount of the vacation provision is used in the month when an employee takes a vacation. If there is no vacation provision or its accumulated amount is insufficient, the deficient amount for vacation payment is charged to the respective expenses and (or) deferred expenses accounts Derivative financial instruments Derivative financial instruments are recognized as assets at fair value if their net fair value is positive (fair value of the claims exceeds the fair value of the liabilities) within "Derivative financial assets", or as liabilities if their net fair value is negative (fair value of the liabilities exceeds the fair value of claims) within "Derivative financial liabilities" in the balance sheet. Fair value of claims and liabilities with respect to derivative financial instruments is defined in currency of the deal made with subsequent retranslating into Belarusian rubles at the official exchange rate using the discounted cash flow analysis and the market rates related to the respective financial instruments. Fair value of derivative financial instruments and the amounts of claims and liabilities under an agreement to be executed in future are recognized on the respective balance sheet accounts and on off-balance sheet accounts, respectively. Revaluation of derivative financial instruments shall be carried out on a monthly basis as of the last working day of the reporting month, upon their reclassification from one category to another or in case of derecognition. Movements in the fair value of the derivative financial instruments (revaluation results) accumulated at the end of the reporting year are recorded on a net basis within "Other assets" and "Other liabilities" upon net negative difference and net positive difference, respectively. Upon execution of the agreement, the accumulated changes are taken to the balance sheet accounts for

80 80 income or expenses arising from dealing with the derivative financial instruments (Note 25) Fixed assets and intangible assets Recognition, initial or subsequent measurement and derecognition of fixed assets shall be performed in accordance with National financial reporting standard 16 "Fixed Assets" (NFRS 16) approved by Resolution No. 708 of the Board of the National Bank of the Republic of Belarus dated 28 December Recognition, initial or subsequent measurement and derecognition of intangible assets shall be performed in accordance with National financial reporting standard 38 "Intangible Assets" (NFRS 38) approved by Resolution No. 25 of the Board of the National Bank of the Republic of Belarus dated 14 January Fixed assets and intangible assets are recorded for accounting purposes at cost if revaluation is not required in accordance with the legislation, or at the revalued amount. Measurement of the initial cost of fixed assets and intangible assets occurs before their delivery and bringing into a condition in which they are suitable for use (before putting into operation). Revalued amount is the cost of fixed assets after their revaluation. Revaluation of fixed assets, non-installed equipment, installed equipment and ready-to-operate equipment as a part of construction in progress and investments in fixed assets is carried out in accordance with Edict No. 622 "On Revaluation of Fixed Assets, Income-Bearing Investments in Tangible Assets, Construction in Progress and Non-Installed Equipment" of the President of the Republic of Belarus dated 20 October 2006 (National Register of Legal Acts of the Republic of Belarus, 2006, No. 171, 1/8013). The amounts of revaluation of disposed fixed assets recognized in the equity, except for fixed assets contributed as non-cash contributions in the statutory fund of another legal entity, are taken to the retained earnings in full. Fixed and intangible assets are depreciated on a monthly basis in accordance with: "Instructions on the Procedure of Depreciation of Fixed Assets and Amortization of Intangible Assets" approved by Resolution No. 37/18/6 of the Ministry of Economy of the Republic of Belarus, Ministry of Finance of the Republic of Belarus, Ministry of Architecture and Construction of the Republic of Belarus dated 27 February 2009 (National Register of Legal Acts of the Republic of Belarus, 2009, No. 149, 8/21041); and Resolution No. 161 "On Establishing Standard Useful Lives of Fixed Assets and Deeming as no Longer Effective Certain Resolution of the Ministry

81 81 of Economy of the Republic of Belarus" of the Ministry of Economy of the Republic of Belarus dated 30 September 2011 (National Register of Legal Acts of the Republic of Belarus, 2001, No. 129, 8/24359), as modified by regulations of the National Bank. Fixed assets and intangible assets are depreciated using a straight-line method and the amortization charges are taken to the expenses of the National Bank on a monthly basis. The useful lives, standard service lives of fixed assets and useful lives of intangible assets can be established and revised by the decision of the authorized commission. The useful lives of fixed assets are as follows: Buildings and structures from 7 to 100 years; Computers - from 1 to 15 years; Motor vehicles from 5 to 10 years; and Other fixed assets - from 1 to 58 years. The useful lives for intangible assets are from 1 to 20 years Cash in circulation The National Bank has an exclusive right to issue money and organize its circulation. Banknotes and coins issued into circulation by the National Bank, as well as commemorative, bullion (investment) coins and commemorative banknotes are recorded for the accounting purposes at their nominal value Balances on accounts with the National Bank Balances on accounts with the National Bank include: Precious metals; Amounts due to international financial institutions; Amounts due to banks; Amounts due to customers; and Obligatory reserves of banks. Balances on the accounts with the National Bank are recorded at nominal value of liabilities except for precious metals, which are recorded at accounting prices. Balances on accounts with the National Bank are derecognized upon discharge of liabilities, their replacement by new liabilities, withdrawal or expiry of liabilities Equity

82 82 The National Bank's equity comprises: Statutory fund; Reserve fund and other funds; Accumulated loss; and Balance sheet items revaluation reserves. Information on the sources of formation and use of the reserves of the National Bank is disclosed in the statement of changes in equity (Form 3) and the statement of formation and use of reserves (Form 4) Loss of the reporting year Loss of the reporting year is the financial result of the National Bank's operations for the reporting period. Financial result of the operations (profit or loss) of the National Bank is determined as the difference between the gains received and losses incurred during the calendar year in the course of the National Bank s activities in accordance with the Banking Code of the Republic of Belarus and other legislative acts. Information on the loss of the reporting year is disclosed in the statement of income (Form 2) Income and expenses The National Bank recognizes income and expenses in accordance with the requirements of the "Instructions on Recognizing in Accounting Income and Expenses of the National Bank of the Republic of Belarus, Banks and Nonbank Financial Institutions of the Republic of Belarus", approved by Resolution of the Board of the National Bank No. 125 dated 30 July 2009 (National Register of Legal Acts of the Republic of Belarus, 2009, No. 201, 8/21330) on an accrual basis, "Instructions on the Procedure for Organizing Accounting Policy at the National Bank of the Republic of Belarus", and other regulations of the National Bank. All income and expenses are recognized in the reporting period to which they relate, irrespective of the actual date of their receipt or payment. When interest income on the operations related to placement (issue) of cash, precious metals and precious stones, income as an interest or discount on securities acquired is recognized for accounting purposes, the probability of interest income is defined in accordance with the "Instructions on Defining Probability of Interest Income and Other Income Directly Associated With Assets at the National Bank of the Republic of Belarus" approved by Resolution of the Board of the National Bank No. 588 dated 29 December Criteria for defining the possibility of receiving income from active operations with the banks of the Republic of Belarus and other legal entities

83 83 include the classification of assets bearing credit risk by certain groups of risk in accordance with "Instruction on the Procedure for Forming and Using Special Provisions for Possible Losses on Assets Exposed to Credit Risk and for Unearned Income on Such Assets" approved by Resolution of the Board of the National Bank No. 508 dated 9 November Income accrued from placements with non-resident banks of the loans received from the International Monetary Fund and other external government loans received by the Government of the Republic of Belarus, and external loans received under the guarantees of the Government of the Republic of Belarus, shall be transferred to the republican budget in accordance with Article 31 of the Budget Code of the Republic of Belarus. Such income is recognized as accounts receivable for the accounting purposes. Interest income on securities of JSC "Development Bank of the Republic of Belarus" and local executive and regulatory authorities to be transferred in accordance with Edict of the President of the Republic of Belarus No. 593-dsp "On Improving the Asset Structure of the National Bank" dated 23 December 2011, is recorded as interest expenses (Note 20) Taxation of the National Bank In accordance with the Tax Code of the Republic of Belarus, the National Bank is released from taxes and levies (duties, except for customs duties). The National Bank is not released from the obligation to perform the duties of a tax agent, including withholding taxes and levies (duties) from salary payments and other gains accrued (transferred) Changes in accounting policies The procedure for recognizing accumulated foreign exchange gains (losses) on the last working day of the reporting year has been changed. The new procedure prescribes that the amount of a positive difference shall be taken to the balance sheet account for recognizing the foreign exchange revaluation reserve, while the amount of a negative difference shall be taken to the balance sheet account for recognizing the foreign exchange revaluation reserve or to the balance sheet account for expenses arising from dealing in foreign currency if cash on the balance sheet account for recognizing the foreign exchange revaluation reserve is not available. Such an amendment in the accounting policies shall be applied in accordance with transitional provisions of Resolution No. 733 "On Amending and Supplementing the Instructions on the Procedure for Organizing Accounting Policy at the National Bank of the Republic of Belarus" of the Board of the National Bank dated 9 December 2015, for preparing the financial

84 84 statements for 2016 and subsequent years, except for the comparative information for Precious metals and precious stones Gold, other precious metals and precious stones 1,177,834 1,035,226 Precious metal deposits 1,866,101 1,749,500 Correspondent accounts in precious metals 516, ,353 Total 3,560,905 3,117,079 Provisions Total 3,560,905 3,117,079 An increase in the item results from changes in the accounting prices for precious metals in standard bars established by the National Bank. Securities at fair value through profit or loss: 5. Securities Securities of banks 146,377 73,310 Securities of foreign governments 423, ,646 Other securities 26,405 45,659 Total 596, ,615 Provisions Total 596, ,615 Securities available for sale: Securities of the republican government bodies 474, ,150 Securities of local government bodies 12,983 16,896 Securities of banks 1,415,114 1,446,403 Securities of foreign governments 4,976 Other securities 5,352 5,352 Total 1,912,533 1,945,801 Provisions (4,014) Total 1,908,519 1,945,801 Total 2,504,658 2,507,416 Securities at fair value through profit or loss include bonds issued by foreign governments, non-resident banks and non-resident financial institutions. This portfolio has been formed as part of the National Bank s participation in the Reserves Advisory and Management Program (RAMP) of the World Bank's Treasury. Securities available for sale include securities of the republican government bodies, local government authorities, foreign governments, non-

85 85 resident banks, JSC "Development Bank of the Republic of Belarus" and commercial organizations. Securities of the republican government bodies include interest-bearing long-term government bonds of the Republic of Belarus denominated in Belarusian rubles and US dollars. This portfolio was formed as a result of: purchase by the National Bank of long-term government bonds under the edicts of the President of the Republic of Belarus and resolutions of the Board of the National Bank of the Republic of Belarus; restructuring of arrears of the Government of the Republic of Belarus under loans of the National Bank and their allocation to the domestic public debt in accordance with Resolution No. 1014/17 "On Restructuring the Arrears of the Government of the Republic of Belarus under the Loans of the National Bank Allocated to the Domestic Public Debt into Long-term Government Bonds" of the Council of Ministers of the Republic of Belarus and the National Bank of the Republic of Belarus dated 25 August 2004 (National Register of Legal Acts of the Republic of Belarus, 2004, No. 137, 5/14712); purchasing by the National Bank of long-term income-bearing bonds from JSC "SB Belarusbank"; and satisfying the National Bank's claims under Agreement No. 189/1/D with CJSC "Delta Bank" dated 11 March To satisfy the National Bank's claims, securities were accepted as collateral for the collateral loan issued by CJSC "Delta Bank", and were kept in the National Bank's portfolio due to default and lack of demand for these securities. Securities of local government bodies include the bonds of local executive and regulatory authorities denominated in Belarusian rubles and acquired by the National Bank for the purpose of implementing objectives of social and economic development of the regions of the Republic of Belarus. Securities of banks are represented by the bonds issued by JSC "Development Bank of the Republic of Belarus" denominated in Belarusian rubles, and bonds of non-resident banks. Bonds of JSC "Development Bank of the Republic of Belarus" were acquired by the National Bank on the primary market during their placement under Edict of the President of the Republic of Belarus No. 593-dsp dated 23 December Securities of foreign governments and non-resident banks were purchased in order to increase the effectiveness of managing foreign currency reserves. Special provision has been created for accrued and unearned interest income on bonds of JSC "HORIZONT-BELINVEST-DEVELOPER" and taken to expenses of the national Bank (Note 26). 6. Amounts due from banks

86 Loans 250,805 1,134,390 Deposits 2,634,887 1,397,854 Amounts on correspondent accounts 2,299,960 2,645,047 Amounts received under repurchase transactions 561, ,176 Other amounts Total 5,747,842 5,686,479 Provisions Total 5,747,842 5,686,479 The item "Loans" includes liabilities under loans granted to: The banking system of the Republic of Belarus in order to finance investment import from the People's Republic of China, subsequent lending aimed at completing investment projects and maintaining liquidity; and The People's Bank of China (in Belarusian rubles) under a bilateral agreement on currency swap. Securities included in the Lombard List of Securities were accepted as collateral for the loans, or a penalty was provided for. Securities received by the National Bank as collateral for loans issued were recognized on off-balance sheet accounts in the amount of BYN35,436 thousand. A decrease in the item was due to: Repayment of outstanding loans issued to maintain the liquidity level of the banking system of the Republic of Belarus; Repayment of loans issued to resident banks as part of refinancing of liabilities of the National Bank under forward sales of foreign currency and deposit exchange; and Repayment of an outstanding loan under the loan agreement with a resident bank as part of the loan agreement concluded between the National Bank and a non-resident bank (Note 13) for future target financing. Amounts placed with non-resident banks under a time deposit agreement with a bank as well as amounts placed with resident banks on demand are included in the item "Deposits". An increase in the item "Deposits" was due to transactions on placement of foreign currency denominated deposits concluded with non-resident banks. Foreign currency denominated amounts placed on correspondent accounts with non-resident banks decreased by BYN6,535 thousand and amounted to BYN2,058,746 thousand as of the reporting date. Foreign currency denominated amounts placed on correspondent accounts with resident banks decreased by BYN338,552 thousand and amounted to BYN241,214 thousand as of the reporting date. Amounts placed with non-resident banks resulting from purchase of securities of foreign issuers and subject to repurchase are included in the item

87 87 "Amounts received under repurchase transactions". Securities received by the National Bank as collateral under repurchase transactions are recognized on offbalance sheet account at present value of USD286.9 million (equivalent to BYN561,894 thousand). Fund placement transactions are one-day. Interest income accrued on funds of the Government of the Republic of Belarus placed with non-resident banks and receivable from them is included in the item "Other amounts", as well as balances on settlement of liabilities of parties of the Customs Union. 7. Loans and other active operations with customers Loans (borrowings) 12,834 14,062 Amounts due from (placed with) international financial institutions 928 Other amounts 6 8 Total 12,840 14,998 Provisions (6) Total 12,834 14,998 Amounts due from individuals (employees of the National Bank) under loans (borrowings) which were previously issued as consumer loans and loans for real estate financing are included in the item "Loans (borrowings)". Generally, the amount in the item decreased as the loans (borrowings) were repaid in accordance with the agreements. Special provision was created for loans to individuals in the amount of BYN6 thousand. Cash used in settlements on bank card transactions is included in the item "Other amounts". 8. Long-term financial investments Participation interests 9,205 38,816 Investments in legal entities 151, ,260 Total 160, ,076 Provision Total 160, ,076 This item and changes in investments of the National Bank for the reporting year are presented in the following table: Investment Participation interest in the statutory fund, % (at par) Carrying amount Participation interest in the statutory fund, % (at par) Carrying amount

88 88 Investment Participation interest in the statutory fund, % (at par) Carrying amount Participation interest in the statutory fund, % (at par) Carrying amount Participation interests JSC "Banking Processing Center" , ,278 Interstate Bank, Moscow JSC "Belinvestbank" , ,684 JSC "Development Bank of the Republic of Belarus" JSC "Paritetbank" ,693 Investments in legal entities JSC "Belarusian Currency and Stock Exchange" , ,005 JSC "Bank Moscow-Minsk" , ,804 JSC "Sanatorium Ozerny" , ,251 JSC "Sanatorium Ruzhansky" , ,600 JSC "Center for Banking Technologies" CJSC "Bank Finance Telenetwork" OJSC "Non-bank Financial Institution SSIS" ,001 State Institution "Agency for the Guaranteed Repayment of Natural Persons Bank Deposits" x 10,000 х 10,000 Changes in long-term financial investments of the National Bank resulted from: a cash and a non-cash contribution to the statutory fund of OJSC "Nonbank Financial Institution SSIS" in accordance with Edict No. 478 "On the Development of Digital Banking Technologies" of the President of the Republic of Belarus dated 1 December 2015 (National Legal Internet Portal of the Republic of Belarus, 3 December 2015, No. 1/16129); and the free-of-charge transfer of shares in OJSC "Paritetbank" pursuant to Instruction No. 221 rp-dsp "On Transfer of the Management of Shares in Open Joint-stock Company "Paritetbank" of the President of the Republic of Belarus dated 30 December Cash contribution to form assets of the State Institution "Agency for the Guaranteed Repayment of Natural Persons Bank Deposits" is accounted for in the amount of cash transferred by the National Bank in accordance with Decree No. 22 "On Safety Guarantees for Households' Deposits" of the President of the Republic of Belarus dated 4 November 2008 (National Register of Legal Acts of the Republic of Belarus No. 265, 1/10194, 2008). 9. Fixed assets and intangible assets Fixed assets 218, ,791 Intangible assets 14,334 7,425

89 89 Non-installed equipment and construction materials 18,920 9,988 Investments in fixed assets and construction in progress 9,535 6,619 Investments in intangible assets 2,351 3,810 Total 263, ,633 Depreciation and amortization (99,434) (95,690) Total 164, ,943 Groups 9.1. Value of fixed assets and intangible assets Balance as of 1 January 2016 Additions (commissioned) Disposals Change resulting from revaluation Balance as of 1 January 2017 Buildings and structures 119, ,381 Other fixed assets 99,602 13,731 14,295 99,038 Intangible assets 7,425 7, ,334 Non-installed equipment and construction materials 9,988 20,284 11,352 18,920 Investments in fixed assets and construction in progress 6,619 18,994 16,078 9,535 Investments in intangible assets 3,810 3,764 5,223 2,351 Total 246,633 64,091 47, ,559 Groups 9.2. Accumulated depreciation and amortization Balance as of 1 January 2016 Accrued depreciation and amortization charges Depreciation and amortization charges on disposed fixed assets Change resulting from revaluation Balance as of 1 January 2017 Buildings and structures 22,110 1, ,938 Other fixed assets 68,976 6,819 8,177 67,618 Intangible assets 4,604 3, ,878 Total 95,690 11,988 8,244 99,434 Net book value 150,943 х х х 164,125 In accordance with Edict No. 622 of the President of the Republic of Belarus dated 20 October 2006 and Resolutions No. 25 "On Revaluation of Fixed Assets, Construction in Progress and Non-Installed Equipment" and No. 27 "On Revaluation of Fixed Assets, Construction in Progress and Non- Installed Equipment" of the Board of the National Bank of the Republic of Belarus dated 19 January 2016 and 20 January 2017, respectively, as of 1 January 2016 and 1 January 2017, revaluation of fixed assets, non-installed equipment, installed equipment and ready-to-operate equipment within construction in progress and investments in fixed assets was not performed. Revalued cost of fully depreciated fixed assets and fully amortized intangible assets, which continue to be in use, is as follows: Buildings and structures BYN 632 thousand;

90 90 Computers BYN 15,272 thousand; Motor vehicles BYN 1,292 thousand; Other fixed assets BYN 22,772 thousand; and Intangible assets BYN 2,620 thousand. 10. Other assets Future period expenses 651, ,046 Settlements with debtors 2,577 3,184 Accrued fees, other banking and operating income 2,506 2,387 Revaluation of derivative financial instruments 560,323 Other assets 2,991 2,762 Total 659,721 1,224,702 Provision (44) (50) Total 659,677 1,224,652 Value of the shares of agricultural organizations transferred free of charge under Edict No. 593-dsp of the President of the Republic of Belarus dated 23 December 2011 accounts for the major share in the item "Future period expenses" and is annually recorded as expenses (Note 27). A decrease in the item "Revaluation of derivative financial instruments" resulted from completion of operations with derivative financial instruments and allocation of the accrued revaluation amount to the financial result of the National Bank at the moment of closing the transactions (Note 25). 11. Precious metals and precious stones Precious metal deposits 41,709 59,273 Amounts on correspondent accounts 19,574 17,280 Other amounts 44,438 18,748 Total 105,721 95,301 An increase in this item mainly results from changes in accounting prices for precious metals in standard bars set by the National Bank. Amounts placed by the Ministry of Finance on unallocated metals accounts of customers are included in the item "Other amounts". 12. Amounts due to international financial institutions Amounts due to the International Monetary Fund 4,735 2,007 Amounts due to the International Bank for Reconstruction and Development

91 91 Total 4,747 2, Amounts due to banks Loans 1,811,545 2,538,140 Deposits 439,994 1,366,474 Amounts on correspondent accounts 2,092,458 2,439,767 Other amounts 17, ,502 Total 4,361,406 6,447,883 Amounts of loans from non-resident banks and non-resident financial institutions, including the loan in Chinese yuans under a bilateral agreement on a currency swap between the National Bank of the Republic of Belarus and the People's Bank of China, are included in the item "Loans". A decrease in this item mainly results from the discharge by the National Bank of its obligations under the loan from a non-resident bank and repayment by a resident bank of the outstanding loan issued for target financing purposes (Note 6). Balances of amounts attracted from resident banks in Belarusian rubles under time deposit agreements with banks are included in the item "Deposits". A decrease in this item results from completion of operations implying attraction of foreign currency denominated cash of resident banks to deposits and simultaneous deposits of equivalent amounts of cash in Belarusian rubles in these banks (deposit exchange), as well as completion of transactions with nonresident banks implying attraction of foreign currency denominated amounts to deposits. Other amounts include: accrued interest expense in the amount of interest income on bonds of JSC "Development Bank of the Republic of Belarus" payable to JSC "Development Bank of the Republic of Belarus"; and amounts transferred by resident banks under cash transactions. 14. Amounts due to customers Deposits 1,532,944 1,045,534 Balances on current (settlement) accounts 3,372,544 4,744,956 External government loans raised by the Republic of Belarus, the Government 1,566, ,590 Other amounts 23,788 18,222 Total 6,496,076 6,173,302 The item "Other amounts" includes:

92 92 Budget funds of the Union State; Non-budgetary funds on accounts of the Ministry of Finance; Accrued interest expense in the amount of interest income on bonds of local executive and regulatory authorities payable to the state budget; and Interest income accrued on amounts (received by the Government of the Republic of Belarus) placed with non-resident banks which is payable to the state budget in accordance with Article 31 of the Budget Code of the Republic of Belarus. 15. Securities issued by the National Bank Bonds 6,787,809 3,711,940 Total 6,787,809 3,711,940 Securities issued by the National Bank include bonds in Belarusian rubles providing for income in the form of discount and bonds in freely convertible currency providing for income in the form of interest, maturing within 2017 to 2019 and acquired by banks and non-bank credit and financial institutions of the Republic of Belarus and non-resident banks. The National Bank issues bonds in the course of monetary regulation activities, as well as for the purposes of formation of gold and foreign currency reserves of the Republic of Belarus. 16. Other liabilities Settlements with creditors 1,302 1,297 Accrued fees, other banking and operating expense Other liabilities Total 1,987 1, Reserve fund and other funds Reserve fund 36,314 35,972 Other funds Total 37,146 36,804 The reserve fund of the National Bank is established in the amount not less than the amount of the statutory fund. The reserve fund amounted to

93 93 BYN36,314 thousand in the reporting period. A BYN342 thousand increase during the reporting year results from retained earnings received through transfer of revaluation amounts of disposed fixed assets in accordance with Edict No. 200 "On Approving the Statements of the National Bank for 2015" of the President of the Republic of Belarus dated 9 June 2016 (National Legal Internet Portal of the Republic of Belarus, 11 June 2016, No. 1/16455). The loan fund totaling BYN832 thousand did not change in Information on the sources of formation and use of the reserves of the National Bank is disclosed in the statement of changes in equity and the statement of formation and use of reserves (Note 28). 18. Accumulated loss Uncovered loss of prior years (1,951,570) (812,100) Retained earnings on disposed fixed assets Loss of the reporting year (1,484,420) (1,139,470) Total (3,435,351) (1,951,228) Loss of the National Bank for 2016 amounted to BYN 1,484,420 thousand; specifically, income totaled BYN719,716 thousand and expenses totaled BYN2,204,136 thousand. 19. Balance sheet items revaluation reserves Fixed assets and non-installed equipment revaluation reserve 121, ,007 Reserve for translation differences from foreign exchange revaluation (6,697,014) (6,697,014) Precious metals revaluation reserve 2,503,986 2,125,718 Securities revaluation reserve (706) 55 Total (4,072,366) (4,449,234) Information on the sources of formation and use of revaluation reserves for balance sheet items is disclosed in the statement of changes in equity (Form 3) and the statement of formation and use of reserves (Form 4). 20. Net interest expenses Interest income on: 529, ,828 operations with precious metals 10,512 2,754 amounts due from banks 220, ,851 securities at fair value through profit or loss 6,451 3,952 securities available for sale 290, ,428 settlements with clients

94 Interest expense on: (957,847) (628,411) operations with precious metals (153) (289) settlements with banks (308,082) (393,900) securities issued by the National Bank (497,286) (106,279) loans received (100,787) (84,518) operations involving budget funds and other state funds (32,288) (24,376) amounts due to customers (13,233) (9,015) other amounts due to customers (3,356) (9,359) Other (2,662) (675) Total (428,672) (22,583) A decrease in interest income mainly results from the decrease in the refinancing rate from 24% to 18% p.a. during the reporting year. An increase in interest expense relates to the issue of foreign currency denominated bonds and growth in amounts deposited by the Ministry of Finance and the State Institution "Agency for the Guaranteed Repayment of Natural Persons Bank Deposits", as well as to the weakening of the official exchange rate. The item "Other" includes interest expense on cash placed in one-day settlement credit and deposits to correspondent accounts with non-resident banks. 21. Net fee and commission income Fee and commission income on: 2,637 4,154 account maintenance securities transactions transactions with foreign currency provision of access to the AIS "Settlement", receipt and distribution of payments in the AIS "Settlement" 1,097 2,639 provision of credit reports 1, Other Fee and commission expense on: (2,414) (2,002) account maintenance (1,016) (794) transactions involving bank cards (18) (13) securities transactions (1) (1) transactions with foreign currency (7) (12) consulting services and investment management provided by IBRD (987) (797) Other (385) (385) Total 223 2,152 A decrease in fee and commission income relates to the establishment of OJSC "Non-bank Financial Institution SSIS" on 1 April 2016 and, consequently, to the termination of proceeds from services on receipt and

95 95 distribution of payments in the system of the unified settlement and information framework. An increase in fee and commission expense on account maintenance as well as on consulting services and investment management provided by the International Bank for Reconstruction and Development relates to the weakening of the official exchange rate. 22. Net loss from foreign currency transactions Gains from foreign currency transactions: 105, ,365 financial result from currency exchange transactions 105, ,365 Losses from foreign currency transactions: (495,129) (152,318) exchange rate differences from revaluation of foreign currencies (417,626) financial result from currency exchange transactions (77,503) (152,318) Total (389,222) (2,953) During the reporting year, the procedure for recognizing accumulated foreign exchange gains (losses) on the last working day of the reporting year (Note. 3.16) has been changed. Given that the reserve for translation differences from foreign exchange revaluation is negative at BYN6,697,014 thousand (Note 19), the foreign exchange losses for the reporting year were included in losses from foreign currency transactions. 23. Net gain from operations with precious metals and precious stones Gains from operations with precious metals 7,591 69,967 Gains from operations with precious stones 3,452 5,589 Losses from operations with precious metals (239) (30) Losses from operations with precious stones (9) (14) Total 10,795 75,512 Income includes positive differences between the realizable value and the carrying amount of precious metals and precious stones. A decrease in positive differences largely relates to the following: on 15 December 2015, the procedure for recognizing operations with precious metals in standard bars at the National Bank was changed. The new procedure prescribes their revaluation to reflect the changes in the accounting prices for precious metals. Losses from operations with precious metals mainly comprise the cost of changes in the location of precious metals. Losses from operations with

96 96 precious stones comprise costs to write off packaging and quality certificate forms for precious stones. 24. Net loss from operations with securities Gains from operations with securities: 7,967 4,164 at fair value through profit or loss 7,960 4,149 available for sale 7 15 Losses from operations with securities: (8,588) (5,548) at fair value through profit or loss (8,527) (5,451) available for sale (61) (97) Total (621) (1,384) This item includes the result of changes in the fair value of bonds of nonresident banks acquired by the National Bank and the result of changes in the fair value of bonds of non-resident banks accumulated in the revaluation reserve, which is recorded within income (expense) upon disposal (redemption) of bonds. 25. Net loss from operations with derivative financial instruments Gains from derivatives: 9,428 19,888 Swaps 9,428 19,888 Losses from derivatives: (579,015) (1,147,380) Forwards (572,733) (1,031,507) Swaps (6,282) (115,873) Total (569,587) (1,127,492) The item reflects changes in fair values of derivatives under transactions settled in the reporting year. A decrease in gains and losses from derivatives results from a decrease in the volume of transactions. 26. Net charges to provisions Charges to provisions: (4,064) (1,379) For settlements with banks (1,146) For securities transactions (4,014) For settlements with customers (18) (21) For settlements with debtors (9) For risks and payments (158)

97 97 For other transactions (32) (45) Decrease in provisions: 16 1,330 For settlements with banks 1,146 For settlements with customers For risks and payments 158 For other transactions 4 5 Total (4,048) (49) The item reflects charges to provisions and decrease (reversal) of provisions. A significant increase in charges relates to the necessity to create a special reserve for overdue interest income on bonds issued by JSC "HORIZONT-BELINVEST-DEVELOPER" in Group IV of the risk groups (Note 5). 27. Other expenses, net Other expenses: (156,469) (103,874) Transportation, delivery of documents (292) (232) Manufacture and delivery of banknotes and coins (551) (16,285) Staff costs (47,164) (46,490) Fixed assets and inventories (12,461) (10,093) Consulting, audit, informational, marketing, advertising and other received services (2,072) (1,596) Depreciation and amortization charges (11,988) (10,242) Long-term financial investments (32,693) (3,000) Disposal of property (6,514) (186) Payment system operation (459) (700) Support to educational institutions (2,923) (2,197) Creation of material and technical basis for educational institutions (5,666) (5,809) Gratuitous (sponsor) support (79) (98) Acquisition and maintenance of software (3,805) (2,539) On redenomination of the official currency of the Republic of Belarus (24,302) Other (5,500) (4,407) Other income: 49,193 39,163 Settlement services 12,679 9,851 Cash services to banks 6,804 7,057 Transportation, delivery of documents 8,100 5,970 Long-term financial investments 7, Disposal of property Services provided by the Settlement Center 3,783 3,077 Sale of coins and banknotes 5,622 5,938 Other 4,273 6,332 Total (107,276) (64,711) Expenses on long-term financial investments comprise expenses to partially write down shares in agricultural organizations recognized as deferred expenses in accordance with Edict No. 593-dsp of the President of the Republic of Belarus dated 23 December 2011 (BYN3,000 thousand), and expenses to

98 98 write down shares in JSC "Paritetbank" transferred free of charge under Resolution No. 221 rp-dsp of the President of the Republic of Belarus dated 30 December 2016 (BYN29,693 thousand). Expenses on redenomination of the official currency of the Republic of Belarus conducted in accordance with Edict No. 450 of the President of the Republic of Belarus dated 4 November 2015 relate to commemorative and bullion (investment) coins of the National Bank that are not subject to redenomination. Other expenses mainly comprise communication fees, write-down of acquired goods and produce of canteens, tools and administrative materials, medications, entertainment expenses, campaigns to enhance financial literacy and measures to improve safety and ensure information protection, expenses to publish the Bankauski Vesnik magazine. An increase in income on long-term financial investments and expenses on disposal of property results from a non-cash contribution to the statutory fund of OJSC "Non-bank Financial Institution SSIS". Other income mainly comprises income from paid services, canteen services, leasing, compensation for utilities and other expenses. 28. Statement of changes in equity. Statement of formation and use of reserves In accordance with clause 33 of the Charter of the National Bank of the Republic of Belarus, the statutory fund of the National Bank comprises BYN25,000 thousand and is fully provided as of the reporting date. The reserve fund of the National Bank is formed through deductions from the reporting period profit remaining after transferring 80% of profit to the State Institution "Agency for the Guaranteed Repayment of Natural Persons Bank Deposits". The reserve fund of the National Bank is formed in the amount at least equal to its statutory fund. As of the end of the reporting period, the reserve fund of the National Bank totaled BYN36,314 thousand. In accordance with clause 35 of the National Bank's Charter, the reserve fund is formed to cover potential losses arising from the National Bank's operations for which no special provisions for general banking risks are created, including risks associated with the issuance of guarantees. In 2016, the reserve fund of the National Bank was increased by BYN342 thousand of retained earnings arising through transfer of revaluation amounts of fixed assets retired in 2015 in accordance with Edict No. 200 of the President of the Republic of Belarus dated 9 June Other funds formed in accordance with clause 34 of the National Bank's Charter comprise a loan fund totaling BYN832 thousand as of 1 January Balance sheet items revaluation reserves are formed as follows:

99 99 Revaluation reserve for fixed assets and non-installed equipment of BYN121,368 thousand. Revaluation of fixed assets retired in the reporting period in the amount of BYN639 thousand, which was transferred to retained earnings; Reserve for translation differences from foreign exchange revaluation, including foreign exchange losses on revaluation of monetary items denominated in foreign currency, of BYN6,697,014 thousand (no changes in 2016). Pursuant to Resolution No. 733 of the Board of the National Bank of the Republic of Belarus dated 9 December 2015, the procedure for recognizing accumulated foreign exchange gains (losses) on the last working day of the reporting year has been changed. As a result, the foreign exchange losses for 2016 were included in losses from foreign currency transactions (Note 22); Revaluation reserve for precious metals amounted to BYN2,503,986 thousand. In 2016, an increase of BYN378,268 thousand results from the revaluation of monetary precious metals performed in proportion to changes in accounting prices; and Securities revaluation reserve was negative at BYN706 thousand, including accumulated revaluation of securities available for sale. On disposal of securities, the accumulated revaluation result is transferred to balance sheet accounts for income (expenses) arising from dealing with securities (Note 24). Resolution No. 163 of the Board of the National Bank of the Republic of Belarus dated 17 March 2015 approved the Plan of Actions to increase the equity of the National Bank and to achieve break-even operations in , which comprises a set of measures to cover the negative capital of the National Bank and to improve financial results. In accordance with Article 25 of the Banking Code of the Republic of Belarus, profit making is not the principal objective of the National Bank. 29. Statement of maintenance costs of the National Bank In accordance with "Estimates of Current Expenses and Capital Expenditures of the National Bank of the Republic of Belarus for 2016" approved by the President of the Republic of Belarus on 18 March 2016 (No. 09/ P321) and adopted by Resolution No. 146 "On Approving the Estimates for Current Expenses and Capital Expenditures of the National Bank of the Republic of Belarus for 2016 and the Estimates for Capital Expenditures of the National Bank of the Republic of Belarus for 2016 by Cost Items" of the Board of the National Bank of the Republic of Belarus dated 23 March 2016, the limit of expenses to maintain costs of the National Bank was established at BYN114,334.6 thousand, while the actual amount was BYN89,076 thousand (77.9%).

100 100 Maintenance costs of the National Bank for 2016 totaled BYN89,076 thousand (4% of the total current expenses) and increased by BYN12,773 thousand (16.7%) compared to Staff costs amounted to BYN47,164 thousand and are in line with the legislation and regulatory legal acts of the National Bank concerning remuneration. Expenses on the use of land plots, buildings, structures, other fixed assets, as well as materials, amounted to BYN12,461 thousand. These expenses comprise cost of electricity, heating, water supply, security, alarm system, repair and maintenance, maintenance of vehicles, etc. An increase in these expenses relates to increased utility tariffs. Expenses on consulting, audit, informational, marketing, advertising and other received services totaled BYN2,072 thousand. An increase in these expenses relates to growing audit fees and cost of using Bloomberg, SWIFT and Reuters systems as a result of the weakening of the official currency. Depreciation and amortization charges totaled BYN11,988 thousand. Depreciation and amortization charges were calculated based on the statutory rates. A benefit of BYN7,702 thousand results from the fact that at 1 January 2016 no revaluation was made with regard to fixed assets, noninstalled equipment, installed equipment and ready-to-operate equipment recognized as construction in progress and investments in fixed assets. Costs arising from the disposal of long-term financial investments and property totaled BYN6,514 thousand. An increase in these expenses results from a non-cash contribution made in 2016 to the statutory fund of OJSC "Nonbank Financial Institution SSIS" pursuant to Edict No. 478 of the President of the Republic of Belarus dated 1 December Payment system costs totaled BYN459 thousand. A decrease in these costs relates to the cessation of payments for the operation of the single settlement and information space and the AIS "Settlement", following the establishment of OJSC "Non-bank Financial Institution SSIS". Other operating expenses totaled BYN8,418 thousand. These expenses comprise transportation, communication, printing and representation expenses, acquisition and maintenance of software (other than software required to operate the payment system), expenses to publish the Bankauski Vesnik magazine, canteen services, administrative materials, medications, sports, recreation and cultural events, statutory payments to the budget, and other expenses. An increase in these expenses relates to growing software maintenance service costs and the National Bank's annual membership fee for 2016 to the Alliance for Financial Inclusion. 30. Statement of capital investments budget executions

101 101 In accordance with "Estimates of Current Expenses and Capital Expenditures of the National Bank for 2016", the capital expenditures of the National Bank of the Republic of Belarus total BYN47,723.7 thousand. In 2016, capital expenditures of the National Bank totaled BYN30,960 thousand (64.9%), with a benefit of BYN16,763.7 thousand. In accordance with the "Estimates of Current Expenses and Capital Expenditures of the National Bank for 2016", capital expenditures in the reporting period comprised the following: Capital construction and reconstruction BYN3,435 thousand, in particular: Construction of the remote backup computer center of the automated system of interbank settlements in Uzda BYN2,323 thousand; Upgrading engineering systems of the multi-purpose building in 7, Kalvariyskaya str., Minsk BYN259 thousand; Reconstruction of certain premises of the specialized financial institution building at 14, Lenina str., Minsk BYN221 thousand; Upgrading the conditioning system at the building in 7 (block 1), Kalvariyskaya str., Minsk BYN172 thousand; Upgrading the electric power supply system and replacement of the uninterruptible power supply unit at the building at 20, Prospect Nezavisimosti, Minsk BYN104 thousand; and Other construction BYN356 thousand. Measures to develop software and technical infrastructure for the payment system BYN20,567 thousand, in particular: Upgrading the distributed data center of the software and technical package of the automated system of interbank settlements through the use of the three-website architecture BYN11,574 thousand; Upgrading the telecommunications network of the distributed software and technical package of the automated system of interbank settlements, including the three-website architecture BYN6,476 thousand; Upgrading the archiving and backup system through the use of the threewebsite architecture BYN974 thousand; Creation of the virtual infrastructure for the automated system of interbank settlements at the remote backup computer center of the automated system of interbank settlements in Uzda BYN543 thousand; Transfer of the central archive of interbank settlements to the threewebsite architecture BYN278 thousand; Software upgrade and technical support for Fortinet and Cisco appliances BYN265 thousand; Upgrading the system-based technological platform for the three-site architecture of the central computing package of the automated system of interbank settlements BYN121 thousand; and

102 102 Other expenses BYN336 thousand. Hardware, software and network equipment BYN4,254 thousand, in particular: Corporate system of servers and server functions BYN981 thousand; Upgrading the software and technical package of the Credit register (including the development of software for the insurance register) BYN755 thousand; Acquisition of computer hardware and accessories BYN688 thousand; Further software upgrading (Fortinet) BYN526 thousand; Formation of the register of pledged movable property BYN245 thousand; Development and upgrading the information analytics system BYN195 thousand; Centralized backup system (Stage 2) BYN134 thousand; and Other expenses BYN730 thousand. Equipment to enhance safety and to protect information BYN1,986 thousand, in particular: Devices, software, software and technical data protection packages BYN298 thousand; and Systems, hardware and software packages and individual security, fire alarm, fire and emergency alert devices BYN1,688 thousand. Other capital expenditures (acquisition of cash register equipment, vehicles, maintenance equipment for vehicles and buildings, communications infrastructure, office appliances, furniture, reference information collection and other expenses) totaled BYN718 thousand. 31. Segment information Changes in operating segments during the reporting year resulted in updates of comparative data. For the purposes of management decision-making process, the National Bank identifies the following three major operating segments: Management of gold and foreign currency reserves placement of term precious metals deposits with non-resident banks, placement of foreign currency funds on correspondent accounts and term deposits with resident and non-resident banks, provision of foreign currency funds to non-resident banks under repurchase transactions, foreign currency lending to resident banks and lending to non-resident banks in Belarusian rubles, conducting operations with securities purchased under the World Bank Treasury Reserves Advisory and Management Program (the RAMP Program) that the National Bank participates in, provision of cash to the International Bank for Reconstruction and Development under the RAMP Program, investment of renminbi into securities

103 103 issued by banks of the People's Republic of China, placement of foreign currency funds by resident banks on correspondent accounts, purchases and sales of precious metals and precious stones; Formation of gold and foreign currency reserves placement of funds in Belarusian rubles and attraction of foreign currency funds on term deposits with resident banks (deposit exchange), attraction of funds (precious metals) on correspondent accounts and term deposits of resident banks, on term deposits and unallocated bullion accounts of customers, attraction of funds of nonresident banks on currency-denominated term deposits, currency-denominated borrowings from foreign counterparties, conducting currency conversion operations and operations with derivative financial instruments, issuance of currency-denominated bonds; and Regulating liquidity of the banking system attracting and placing funds in Belarusian rubles on term deposits with resident banks, placement of funds in Belarusian rubles by resident banks on correspondent accounts and with the obligatory reserve, lending to resident banks as part of refinancing, conducting swaps with resident banks and operations with securities issued by JSC "Development Bank of the Republic of Belarus" and local executive and regulatory authorities, issuance of bonds in Belarusian rubles. Operating segments are classified into reporting segments provided at least one of the following criteria is met: The operating segment's income makes at least 10% of the total income of all operating segments for the same reporting period; Profit or loss of the operating segment makes at least 10% of the higher of total profit of all profit-making operating segments or total loss of all lossmaking operating segments for the same reporting period; and The operating segment's assets make at least 10% of the total assets of all operating segments for the same reporting period. For the purposes of segment information, income, expenses, assets and liabilities are distributed on a straight-line basis using the actual accounting data on each segment. The tables below contain information about income, expenses, assets and liabilities of the National Bank for the reporting period and comparable information for the preceding year Management of gold and foreign currency reserves Formation of gold and foreign currency reserves Regulating liquidity of the banking system Other (unallocated) Total Interest income 104, ,388 1, ,175 Interest expenses (473,291) (439,035) (45,521) (957,847) Net interest expenses 104,983 (472,969) (16,647) (44,039) (428,672) Fee and commission income 2,637 2,637

104 Management of gold and foreign currency reserves Formation of gold and foreign currency reserves Regulating liquidity of the banking system Other (unallocated) Total Fee and commission expense (1,165) (1,249) (2,414) Net fee and commission income (1,165) 1, Net loss from foreign currency transactions (380,596) (8,626) (389,222) Net gain from operations with precious metals and precious stones 10,795 10,795 Net loss from operations with securities (621) (621) Net loss from operations with derivative financial instruments (572,425) 2,838 (569,587) Dividend income 4,350 4,350 Net charges to provisions (4,048) (4,048) Other expenses (3) (156,466) (156,469) Other income 49,193 49,193 Other expenses, net (3) (107,273) (107,276) Allocations to the budget (362) (362) Financial results 113,989 (1,425,990) (22,435) (149,984) (1,484,420) Assets 8,750,604 1,057,596 1,415,163 1,664,823 12,888,186 Liabilities 588,555 6,888,372 3,859,484 8,997,346 20,333,757 Income and expenses of the National Bank from operations with major external customers for the reporting period exceed 10% of the total respective income and expense and relate to the below segments: Formation of gold and foreign currency reserves net expense from operations with derivative financial instruments with JSC "JSSB Belarusbank" and CJSC "Alfa-Bank", and interest expense from transactions with JSC "JSSB Belarusbank". Regulating liquidity of the banking system interest income and expense from transactions with JSC "Development Bank of the Republic of Belarus", interest income from transactions with JSC "Belagroprombank", and interest expense from transactions with JSC "JSSB Belarusbank" Management of gold and foreign currency reserves Formation of gold and foreign currency reserves Regulating liquidity of the banking system Other (unallocated) Total Interest income 63,692 6, ,122 1, ,828 Interest expenses (181,823) (412,066) (34,522) (628,411) Net interest expenses 63,692 (175,079) 122,056 (33,252) (22,583) Fee and commission income 4,154 4,154 Fee and commission expense (975) (1,027) (2,002)

105 Management of gold and foreign currency reserves Formation of gold and foreign currency reserves Regulating liquidity of the banking system Other (unallocated) Total Net fee and commission income (975) 3,127 2,152 Net loss from foreign currency transactions 9,377 (12,330) (2,953) Net gain from operations with precious metals and precious stones 75,512 75,512 Net loss from operations with securities (1,384) (1,384) Net loss from operations with derivative financial instruments (1,121,173) (6,319) (1,127,49 2) Dividend income 2,301 2,301 Net charges to provisions (49) (49) Other expenses (5) (103,869) (103,874) Other income 39,163 39,163 Other expenses, net (5) (64,706) (64,711) Allocations to the budget (263) (263) Financial results 136,840 (1,286,875) 103,407 (92,842) (1,139,47 0) Assets 7,649,706 1,676,298 1,987,212 1,657,820 Liabilities 505,684 8,253,520 1,980,842 8,569,648 12,971, ,309,69 4 Income and expenses of the National Bank from operations with major external customers for 2015 exceed 10% of the total respective income and expense and relate to the below segments: Formation of gold and foreign currency reserves net expense from operations with derivative financial instruments with JSC "JSSB Belarusbank"; and Regulating liquidity of the banking system interest income and expense from transactions with JSC "Development Bank of the Republic of Belarus" and interest income from transactions with JSC "Belagroprombank". 32. Risk management The Board of the National Bank approved the Risk Management Policies that establish goals and objectives of the risk management system of the National Bank, risk structure, principles and approaches to risk management, organizational structure of the risk management system and procedures for control over the system operation.

106 106 The National Bank's risk management system comprises a total of documented procedures and regulated measures used for risk management purposes by all the participants to organize the work flow in compliance with the goals and objectives of the National Bank and to ensure stability of its operations providing detailed description and analysis of risks associated with the decisions taken at all management levels. The National Bank's risk management system comprises procedures for identification, analysis, assessment, response, control and monitoring of risks material for the operations of the National Bank as a state regulator for banking services and technologies and as a banking system subject performing banking operations. As part of the National Bank's administrative procedure, the risk management system is designed to ensure stability of the National Bank's operations according to its main goals and objectives and efficient performance of its functions. Depending on the approaches used in 2016 to manage certain categories of risk, the duties to identify, manage, monitor and control risk were allocated between all of the process participants, and in particular: Board of the National Bank; Monetary Policy Committee; Risk Management Commission; Risk Management Department of Internal Audit Directorate; and Structural subdivisions of the head office and structural subdivisions of the National Bank. Board of the National Bank The Board of the National Bank carries out strategic management for all types of risks of the National Bank, which includes conceptual approaches to establishing a risk management system in the National Bank and determining future development areas. The Board approves the strategy and basic approaches to risk management in carrying out operations with foreign and local currency, precious metals and other valuables, including modifications and amendments made to the list of risks the National Bank is exposed to, risk limitation regulations and risk management methodology. Monetary Policy Committee The Monetary Policy Committee designs monetary policy measures and coordinates operational activities of structural units of the National Bank's head office for implementation of the monetary policy in accordance with the Republic of Belarus Monetary Policy Guidelines for the succeeding year.

107 107 Risk Management Commission Risk Management Commission ensures integration of the risk management system into everyday activities of the National Bank, carries out tactical management of non-financial risks (operating and reputational risks) by organizing management of these types of risks, including formation of methodological basis and ensuring control over the risk management process in structural subdivisions. International Operations Directorate and Monetary Operations Directorate International Operations Directorate and Monetary Operations Directorate are responsible for managing the National Bank's assets and liabilities, as well as credit and liquidity risks of the National Bank. International Operations Directorate is responsible for managing the National Bank's assets and liabilities in foreign currency and precious metals and stones and for day-to-day efficient management of the country's reserve assets. The Monetary Operations Directorate is responsible for management of assets and liabilities of the National Bank in the national currency and for efficient day-to-day management of commercial banks' liquidity by means of liquidity support and liquidity withdrawal tools. Risk Management Department of Internal Audit Directorate Risk Management Department of Internal Audit Directorate is responsible for the development of the centralized risk management system in accordance with the Risk Management Policies of the National Bank. The list of tasks for this structural unit includes providing for methodological solutions, organizational and technical measures and training events to create and support the operation of the integrated risk management system within the National Bank. Risk concentrations and mitigation techniques Risk concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Risk concentrations reflect the relative sensitivity of the National

108 108 Bank's performance results to the changes in conditions affecting a certain industry or geographic region. The main instrument used by the National Bank to reduce (limit) risk concentrations is diversification of reserves. For this purpose, gold and foreign currency reserve assets are grouped into portfolios with a specific set of priority tasks and parameters. Identified concentrations of risks are managed accordingly. In addition, the National Bank uses the following instruments to reduce risks: Segregation of duties between the Board, the Monetary Policy Committee, the Risk Management Commission, the Deputies of the Chairman of the Board and structural units; Collegial decision-making mechanism; Detailed procedures and automated and standardized business processes; Operations secured by highly liquid collateral, application of the collateral ratio for assets pledged with the National Bank, collateral ratio differentiation depending on the type of collateralized securities; Diversification of types of operations and their terms; and Establishing and monitoring limits for counterparties and volumes of transactions, etc. Control over risk management The National Bank's system of risks management is controlled as follows: External control performed by an external auditor in accordance with the International Standards on Auditing and with the legislation of the Republic of Belarus; and Internal control classified into administrative (control over powers and regulations) and financial (control of economic feasibility of the transactions and their accounting) controls exercised by the Board of the National Board, Risk Management Commission, Risk Management Department of Internal Audit Directorate, managers at all levels, risk owners Credit risk Credit risk is the risk that the National Bank will incur a loss because its counterparty fails to discharge its financial obligations or discharge them in full. Credit risk of the National Bank is limited since the assets are either placed with highly reliable banks or secured by liquid assets. The National Bank controls credit risk by setting collective and individual limits for counterparties or transactions. The limits are determined based on the analysis of the financial position of the counterparty, its rating and number of

109 109 cases when obligations were discharged improperly. The limits are controlled by responsible subdivisions on a real-time basis using respective software. Below is the analysis of credit quality based on the National Bank's classification of financial assets exposed to credit risk: Item Note Neither overdue nor impaired financial assets High Standard grade grade Substandard grade Impaired financial assets Overdue financial assets Total as of 1 January 2017 Securities 5 1,127,727 1,362,610 12,983 1,338 2,504,658 Amounts due from banks 6 4,675,319 1,037,534 34,989 5,747,842 Loans and other active operations with customers 7 12, ,834 Other financial assets 10 1,409 1, ,484 Total 5,803,046 2,401,553 61, ,338 8,267,818 Item Note Neither overdue nor impaired financial assets High Standard grade grade Substandard grade Impaired financial assets Overdue financial assets Total as of 1 January 2016 Securities 5 1,091,156 1,394,012 22,248 2,507,416 Amounts due from banks 6 3,464,126 1,829, ,808 5,686,479 Loans and other active operations with customers ,069 14,998 Other financial assets 10 1, ,363 Total 4,556,211 3,224, , ,211,256 The National Bank's internal classification of borrowers is based on the credit ratings assigned by international rating agencies. Credit ratings are reviewed regularly in accordance with changes in the ratings assigned by international rating agencies to the National Bank's counterparties. Financial assets are rated with "High grade" if they are placed with central banks, in state securities, securities with at least А3 rating (Moody's Analytics) and (or) at least А- rating (Fitch or Standard & Poor's); and placed with counterparties having a minimum long-term creditworthiness rating not lower than А3 (Moody's Analytics) and (or) at least А- (Fitch or Standard & Poor's). Financial assets are rated with "Standard grade" if they are placed in securities having a rating below A- (Fitch or Standard & Poor's); and placed with counterparties having a long-term creditworthiness rating not lower than А3 (Moody's Analytics) and (or) А- (Fitch or Standard & Poor's).

110 110 "Sub-standard grade" includes financial assets, which are placed with unrated counterparties. Impaired assets comprise assets for which special provisions have been accrued. The table below shows maximum exposure of financial assets to credit risk. Item Note Total maximum risk exposure at the end of the reporting period Securities: 5 at fair value through profit or loss 596, ,615 available for sale 1,908,519 1,945,801 Amounts due from banks 6 5,747,842 5,686,479 Loans and other active operations with customers 7 12,834 14,998 Other financial assets 10 2,484 2,363 Total financial assets 8,267,818 8,211,256 Obligations related to provision of funds 357, ,615 Total exposure to credit risk 8,625,773 8,606,871 The maximum credit risk exposure for financial assets recorded on balance sheet accounts is limited to the carrying amounts of these assets less any special provisions. For off-balance sheet liabilities, the maximum credit risk exposure represents the maximum amount of the National Bank's obligations to its counterparties related to provision of funds. Where financial instruments are recorded at fair value, the amounts shown above represent the current but not the maximum credit risk exposure that could arise in future as a result of changes in values of financial instruments. The National Bank either accepts securities as collateral or charges penalties (Note 6) to decrease the maximum credit risk. The fair value of the collateral matches its carrying amount. In pursuance of the regulation on forming and using special provisions, the amount of the provision is calculated on a monthly basis. The special provision was accrued in full. The special provision is calculated based on the classification of assets depending on counterparty type, debt currency, availability of duly documented collateral, period of default. The table below contains information about movements in special provisions for the reporting period. Nature of transaction (provision) Balance at 1 January 2016 Provision (increase) by charges Decrease (reversal) of provisions Use of provisions Balance at 1 January 2017 Provision for possible

111 Nature of transaction (provision) Balance at 1 January Provision (increase) by charges Decrease (reversal) of provisions Use of provisions Balance at 1 January 2017 losses, including: for loans to individuals for settlements with debtors 9 9 Provisions for uncollected interest income on bonds 4,014 4,014 Provisions for uncollected fees and commission income, other banking and operating income, including: for uncollected income from derivatives for other uncollected operating income Total, including for assets classified into below risk groups: 50 4, ,064 Group III 9 х х х 6 Group IV х х х 4,014 Group V 3 х х х Group VI 38 х х х 44 The National Bank assesses the country risk effect on its operations. The tables below contain geographical concentration of financial assets and liabilities for the reporting period and comparable information for the preceding year. Financial assets Item Republic of Belarus OECD CIS and other states Total as of 1 January 2017 Cash 77,445 77,445 Securities: at fair value through profit or loss 596, ,139 available for sale 1,851,039 4,976 52,504 1,908,519 Amounts due from banks 415,197 3,598,669 1,733,976 5,747,842 Loans and other active operations with customers 12,834 12,834 Long-term financial investments 160, ,700 Other financial assets 2, ,484 Total 2,519,682 4,199,800 1,786,481 8,505,963 Financial liabilities

112 Item 112 Republic of Belarus OECD CIS and other states Total as of 1 January 2017 Cash in circulation 2,410,887 2,410,887 Amounts due to international financial institutions 4,747 4,747 Amounts due to banks 2,467,391 1,894,015 4,361,406 Amounts due to customers 6,496,076 6,496,076 Securities issued by the National Bank 6,787,809 6,787,809 Derivative financial liabilities Other financial liabilities Total 18,162,544 5,214 1,894,038 20,061,796 Net position (15,642,862) 4,194,586 (107,557) (11,555,833) Financial assets Item Republic of Belarus OECD CIS and other states Total as of 1 January 2016 Cash 92,393 92,393 Securities: at fair value through profit or loss 550,493 11, ,615 available for sale 1,893,410 52,391 1,945,801 Amounts due from banks 1,599,693 2,473,877 1,612,909 5,686,479 Loans and other active operations with customers 14, ,998 Long-term financial investments 177, ,076 Other financial assets 2, ,363 Total 3,779,003 3,025,299 1,676,423 8,480,725 Financial liabilities Cash in circulation 2,114,633 2,114,633 Amounts due to international financial institutions 2,030 2,030 Amounts due to banks 3,210,502 3,237,381 6,447,883 Amounts due to customers 6,173,302 6,173,302 Securities issued by the National Bank 3,711,940 3,711,940 Derivative financial liabilities 560, ,323 Other financial liabilities Total 15,770,860 2,489 3,237,381 19,010,730 Net position (11,991,857) 3,022,810 (1,560,958) (10,530,005) Liquidity risk Liquidity risk is the risk that the National Bank will incur losses due to inability to meet its obligations in full when they fall due and (or) due to an unforeseen need of immediate and simultaneous discharge of its financial obligations.

113 113 To limit this risk, the National Bank manages assets and monitors future cash flows and liquidity on a daily basis. This incorporates an assessment of expected cash flows and the availability of high grade collateral, which could be used to secure additional funding if required. The National Bank maintains a portfolio of highly marketable and diverse assets that can be easily liquidated in the event of an unforeseen interruption of cash flow. Liquidity risk is managed based on the currency position, current liquidity, and cash flow projections. Liquidity risk is distributed based on the remaining maturity of financial liabilities (as counted from the reporting date), and for undiscounted cash flows (principal debt and interest) based on the earliest period when the liability could be required to be settled. The tables below contain information about liquidity risk distribution for the reporting period and for the preceding year. Financial liabilities Less than 3 months From 3 to 12 months From 1 year to 5 years More than 5 years Total as of 1 January 2017 Cash in circulation 2,410,887 2,410,887 Amounts due to international financial institutions 4,747 4,747 Amounts due to banks 2,593, ,422 1,113,222 4,535,639 Amounts due to customers 6,496,076 6,496,076 Securities issued by the National Bank 3,302,751 2,815, ,850 6,986,456 Derivative financial instruments: Contractual liabilities Contractual assets Other financial liabilities Undiscounted financial liabilities, net 14,809,327 3,644,277 1,981,072 20,434,676 As of 1 January 2017, amounts due to banks comprise a loan of USD375 million provided by a non-resident credit institution. The same amount was placed to deposits with a bank in the creditor's country. Financial liabilities Less than 3 months From 3 to 12 months From 1 year to 5 years More than 5 years Total as of 1 January 2016 Cash in circulation 2,114,633 2,114,633 Amounts due to international financial institutions 2,030 2,030 Amounts due to banks 3,870,164 1,722, , ,548 6,670,129 Amounts due to customers 6,173,302 6,173,302 Securities issued by the National Bank 924,043 2,914,507 3,838,550

114 Financial liabilities Less than 3 months 114 From 3 to 12 months From 1 year to 5 years More than 5 years Total as of 1 January 2016 Derivative financial instruments: Contractual liabilities 594,208 74, ,484 Contractual assets (96,729) (12,582) (109,311) Other financial liabilities Undiscounted financial liabilities, net 13,582,179 4,698, , ,548 19,358,436 The table below shows the maturity of contractual liabilities. Each undrawn loan commitment is included in the period containing the earliest date it can be drawn down. Date Less than From 3 to From 1 year More than Total 3 months 12 months to 5 years 5 years At 1 January ,000 30,000 27, ,955 At 1 January , , Currency risk Currency risk is the risk that the National Bank will incur losses as a result of adverse changes in foreign currency rates. Currency risk is controlled by the National Bank by means of establishing and complying with a target currency structure of foreign currency reserves. The National Bank's positions in foreign currency are monitored on a daily basis using retrospective exchange rate analysis of foreign currencies. The structure of foreign currency reserves and acceptable deviation limits are approved by the Board of the National Bank. The table below shows the effect of changes in the official rate of the Belarusian ruble to the US dollar, euro and Russian ruble on the equity and revaluation of derivatives. These changes stand for assessment of the maximum possible changes in the official rate. The sensitivity analysis includes only outstanding foreign currency-denominated monetary items at the end of the reporting period. Currency Change in official rate, % Effect on equity, BYN thousa Effect on revaluation of derivatives, Change in official rate, % Effect on equity, BYN thousa Effect on revaluation of derivatives, BYN thousand nd BYN thousand nd USD +13 (726,458) +17 (1,194,642) (113,612) EUR +18 (344,137) +10 (149,472) RUB -4 (20,761) +23 (68,077) USD +8 (447,051) +4 (281,092) (26,732)

115 115 Currency Change in official rate, % Effect on equity, BYN thousa Effect on revaluation of derivatives, Change in official rate, % Effect on equity, BYN thousa Effect on revaluation of derivatives, BYN thousand nd BYN thousand nd EUR +13 (248,544) -2 29,894 RUB -9 (46,712) +12 (35,519) All other variables are held constant Interest rate risk Interest rate risk is the risk that the National Bank will incur losses due to adverse changes in market interest rates. Interest risk exposure is controlled and managed through sensitivity analysis. The risk is limited through the use of differentiated interest rates on transactions depending on the availability of collateral and terms of refinancing. The major part of assets placed in fixed maturity instruments bear a fixed interest rate, consequently, the National Bank bears substantively no interest rate risk on such instruments. The table below shows the sensitivity of the statement of income and changes in fair values of derivatives for one year to possible changes in interest rates for financial instruments with a floating interest rate: Currency Changes in interest rate, basis points Effect on profit (loss), BYN thousand Effect on revaluation of derivatives, BYN thousand Changes in interest rate, basis points Effect on profit (loss), BYN thousand Effect on revaluation of derivatives, BYN thousand BYN -200 (320) -100 (2,369) 52 USD + 20 (1,959) +40 (3,714) 132 EUR BYN -400 (640) -400 (9,476) 208 USD -20 1, ,714 (132) EUR All other variables are held constant Commodity risk Commodity risk is the risk that the National Bank will incur losses due to adverse changes in market prices for precious metals. Commodity risk is controlled by means of establishing and complying with the percentage of assets in precious metals in the general structure of assets in precious metals.

116 116 The structure of precious metals reserves and acceptable deviation limits are approved by resolution of the Board of the National Bank. For the purposes of price risk management, the National Bank performs a regular assessment of potential losses, which may result from adverse market conditions. Commodity risk exposure is controlled and managed by various methods of sensitivity analysis. The table below provides for the effect of reasonably possible change in precious metals prices at the global markets on the equity. Precious metals Change in accounting price, % Effect on equity, BYN thousand Change in accounting price, % Effect on equity, BYN thousand Gold , ,849 Silver Platinum +6 1, ,040 Palladium +9 3, ,021 All other variables are held constant Operating risk Operating risk is the risk that the National Bank will incur losses due to inadequate internal processes, errors or incompetence of the National Bank's employees, failure or breakdown of the technological, informational and (or) other systems used by the National Bank, non-compliance of transactions and other deals with the requirements of the applicable legislation or internal practices and procedures or breaches by the National Bank's employees, and due to external factors. Operating risk is managed through the procedures to identify, analyze and assess operating risks and, where necessary, take measures to limit (minimize) such risks. The National Bank has procedures in place to collect data on operational incidents, systematize and analyze them. Compliance with the established rules and procedures for managing operating risk is overseen as determined by the Risk Management Policies of the National Bank of the Republic of Belarus. 33. Assessment of fair values of financial instruments The National Bank uses the following assessment methods to determine and disclose fair values of financial instruments: Quoted prices (unadjusted) at active markets for identical assets or liabilities (Level 1);

117 117 Techniques, for which all inputs, which have a significant effect on the fair value, are observable at the market, either directly or indirectly (Level 2); and Techniques, for which all inputs, which have a significant effect on the fair value, are not observable at the market (Level 3). For the purpose of fair value disclosures, the National Bank has determined classes of assets and liabilities on the basis of their nature, characteristics and risks of the asset or liability and the fair value hierarchy. The tables below contain information about fair values for the reporting period and comparable information for the preceding year. Item Item valuation date Fair value measurement techniques Significant observable inputs Quoted prices at active markets Significant unobservable inputs Total as of 1 January 2017 Assets measured at fair value ,619 1,381,218 2,034,837 Securities: at fair value through profit or loss 596, ,139 available for sale 57,480 1,381,218 1,438,698 Assets for which fair values are disclosed ,825,287 8, ,036 6,053,429 Cash 77,445 77,445 Securities available for sale 217, ,552 Amounts due from banks 5,747,842 5,747,842 Loans and other active operations with customers 8,106 8,106 Other financial assets 2,484 2,484 Liabilities measured at fair value Derivative financial liabilities Liabilities for which fair values are disclosed ,650, ,650,909 Amounts due to international financial institutions 4,747 4,747 Amounts due to banks 4,361,406 4,361,406 Amounts due to customers 6,496,076 6,496,076 Securities issued by the National Bank 6,787,809 6,787,809 Other financial liabilities Item Item Fair value measurement techniques Total

118 valuation date 118 Quoted prices at active markets Significant observable inputs Significant unobservable inputs as of 1 January 2016 Assets measured at fair value ,006 1,416,240 2,030,246 Securities: at fair value through profit or loss 561, ,615 available for sale 52,391 1,416,240 1,468,631 Assets for which fair values are disclosed ,778,872 7, ,618 5,934,190 Cash 92,393 92,393 Securities available for sale 145, ,255 Amounts due from banks 5,686,479 5,686,479 Loans and other active operations with customers 7,700 7,700 Other financial assets 2,363 2,363 Liabilities measured at fair value , ,323 Derivative financial liabilities 560, ,323 Liabilities for which fair values are disclosed ,335, ,335,774 Amounts due to international financial institutions 2,030 2,030 Amounts due to banks 6,447,883 6,447,883 Amounts due to customers 6,173,302 6,173,302 Securities issued by the National Bank 3,711,940 3,711,940 Other financial liabilities The following describes the methodologies and assumptions used to determine fair values for those financial instruments, which are already recorded at fair value. Securities at fair value through profit or loss are represented by quoted bonds of foreign issuers denominated in foreign currency. As a rule, the fair value of bonds of foreign issuers is represented by their public price quoted at the international market according to Reuters and Bloomberg. Securities available for sale are represented by quoted bonds issued by banks of the People's Republic of China and the US government, and bonds issued by local authorities and JSC "Development Bank of the Republic of Belarus" whose value is determined on the basis of inputs observable at the market.

119 119 Set out below is a comparison by class of the carrying amounts and fair values of financial instruments that are not carried at fair value in the financial statements. Item At 1 January 2017 At 1 January 2016 Carrying amount Fair value Unrecogniz ed gain (loss) Carrying amount Fair value Unrecogniz ed gain (loss) Financial assets 8,345,263 8,088,266 (256,997) 8,303,649 7,964,436 (339,213) Cash 77,445 77,445 92,393 92,393 Securities 2,504,658 2,252,389 (252,269) 2,507,416 2,175,501 (331,915) Amounts due from banks 5,747,842 5,747,842 5,686,479 5,686,479 Loans and other active operations with customers 12,834 8,106 (4,728) 14,998 7,700 (7,298) Other financial assets 2,484 2,484 2,363 2,363 Financial liabilities 20,061,796 20,061,796 18,450,407 18,450,407 Cash in circulation 2,410,887 2,410,887 2,114,633 2,114,633 Amounts due to international financial institutions 4,747 4,747 2,030 2,030 Amounts due to banks 4,361,406 4,361,406 6,447,883 6,447,883 Amounts due to customers 6,496,076 6,496,076 6,173,302 6,173,302 Securities issued by the National Bank 6,787,809 6,787,809 3,711,940 3,711,940 Other financial liabilities Total unrecognized change in unrealized fair value х х (256,997) х х (339,213) The table does not include values for non-financial assets and nonfinancial liabilities. The following describes the methodologies and assumptions used to determine fair values for those financial instruments, which are not recorded at fair value in the financial statements: It is assumed that fair values of financial assets and financial liabilities that are liquid or have a short-term maturity approximate their carrying amounts. This assumption is also applied to demand deposits and accounts without specific maturity; and Fair values of the financial instruments whose carrying amounts do not approximate their fair values were determined by discounting future cash flows using the refinancing rate of the National Bank ruling at the reporting date.

120 120 Fair values of long-term financial investments are considered to be equal to their purchase price since such instruments do not have quoted prices at the active market. 34. Subsequent events At the beginning of 2017, the National Bank continued to gradually decrease the refinancing rate. At the date of signing the financial statements, the refinancing rate was 15% p.a. In order to develop the domestic securities market, including to enhance the procedure for the issuance of the National Bank's bonds denominated in foreign currencies, starting 1 January 2017, the National Bank began to issue discount bonds denominated in foreign currencies pursuant to Resolution No. 530 "On Approval of the Instruction for the Issuance, Circulation and Redemption of Bonds of the National Bank of the Republic of Belarus and on Annulment of Certain Resolutions of the Board of the National Bank of the Republic of Belarus" of the Board of the National Bank of the Republic of Belarus dated 12 October 2016 (National legislative web portal of the Republic of Belarus, 27 October 2016, No. 8/31370). Conclusion In 2016, the key purpose of the monetary policy related to the reduction of inflation was attained. Inflation, which is measured by the Consumer Price Index, did not exceed 12%. Along with that, the growth of gold and foreign exchange reserves was ensured under the conditions of repayment of large volumes of external liabilities in foreign exchange. The situation in the domestic foreign exchange market was stable. It was characterized by formation of net supply of foreign exchange, which exceeded demand to a great extent. Maintenance of macroeconomic stability and slowing down of inflationary processes predetermined further decrease in the level of interest rates in the economy. At that, the positive (in real terms) level of interest rates was ensured. The structure of the deposit market was improved, which manifested itself in the growth of the share of irrevocable deposits in the national currency with the longer terms against the background of declining deposits in foreign exchange. A structural surplus of ruble liquidity was formed in the banking system. At the same time, insufficient number of efficient investment projects against

121 121 the background of high debt load of enterprises constrained the growth of the lending volumes. The National Bank s exchange rate policy was aimed at smoothing the exchange rate fluctuations under the limited foreign exchange interventions. The dynamics of the national currency exchange rate was formed on the basis of demand and supply in the foreign exchange market. In the year under review, the National Bank carried out successive work aimed at ensuring stability and efficiency of the banking sector, deepening its interaction with the real sector of the economy, decreasing dollarization of the economy, establishing conditions for further development and implementation of new banking technologies, and increasing standards and quality of bank services. The measures designed to stimulate the banks to build up stable resource base and actively participate in the development of the economy by means of attracting households and legal persons funds on a long-term basis using different financial instruments were taken. Formation of the financial market involved improvement of its instruments, mechanisms, and infrastructure. Leasing and microfinancing were further developed. In 2016, the National Bank continued to streamline regulation of bank transactions in the spheres of credit and deposit markets of the Republic of Belarus. Efficient, sound, and secure functioning of the payment system of the Republic of Belarus was ensured. Development of the digital bank technologies, including on the basis of use of bank plastic cards and electronic money, was aimed at increasing the share of non-cash transactions and broadening the spectrum of new bank products and services; the information technologies were developed with a purpose of ensuring efficiency and continuity of provision of modern bank and other financial services.

122 122 MAIN macroeconomic parameters of social and economic development of the Republic of Belarus in 2016 Attachment 1.1 to the Report of the National Bank for 2016 Indicators 2016 to 2015 (in comparable prices, %) For Information: 2015 to 2014 Gross domestic product (GDP) GDP labour productivity Industrial products Profitability of sales in organizations of industry, % The share of innovative products shipped by organizations, the main economic activity of which is manufacturing of industrial products in the total volume of products shipped, % Agricultural products Export of goods and services according to the methodology of the balance of payments Balance of foreign trade in goods and services, % of GDP Reduction in GDP s energy/output ratio Households disposable real money income Foreign direct investments on a net basis (excluding the amounts owed to direct investor for goods [works, services]), USD bn Placing houses in use at the expense of all financing sources, million square meters

123 DYNAMICS of financial results of organizations 123 Attachment 1.2 to the Report of the National Bank for 2016 (BYN mln) Indicators Growth rate, % Proceeds from sale of products, goods, works, and services 157, , Taxes and fees accrued from proceeds 19, , % of proceeds х Cost of sold products, goods, works, and services 126, , % of proceeds х Profit/losses (-) from sold products, goods, works, and services 11, , Profit, losses (-) before tax 4, , Net profit, losses (-) 2, , Profitability of sales, % х Profitability of sold products, goods, works, and services, % х Share of loss-making organizations in their total number, % х Net loss amount of the loss-making organizations 4, , Funds obtained from the budget to cover losses related to state regulation of prices and tariffs and to compensate for current expenses 1, ,

124 январь январь февраль январь март январь апрель январь май январь июнь январь июль январь август январь сентябрь январь октябрь январь ноябрь январь декабрь январь январь февраль январь март январь апрель январь май январь июнь январь июль январь август январь сентябрь январь октябрь январь ноябрь январь декабрь Income, costs Deficit (-), Surplus (+) 124 Attachment 1.3 to the Report of the National Bank for 2016 DYNAMICS of the income, costs, deficit (-)/surplus(+) of the Republic of Belarus consolidated budget in (on a cumulative total from the beginning of the year, BYR bn) Доходы Расходы Сальдо

125 125 Attachment 1.4 to the Report of the National Bank for 2016 CHANGE IN international reserve assets in (USD mln) Счет текущих операций Финансовый счет (с учетом исключительного финансирования) Итоговое сальдо платежного баланса Валовой объем резервных активов

126 Attachment 1.5 to the Report of the National Bank for 2016 EXTERNAL DEBT of the Republic of Belarus in (USD bn) (%)

127 127

128 128 Attachment 1.6 to the Report of the National Bank for 2016 INFORMATION on banks liabilities Indicators (BYN bn) Actual as at Banks liabilities growth rates, % of nominal GDP, % Funds attracted from residents of the Republic of Belarus growth rates, % of which: funds of government agencies growth rates, % economic entities funds growth rates, % natural persons funds growth rates, % National Bank s funds growth rates, % banks funds growth rates, % Funds attracted from non-residents of the Republic of Belarus growth rates, % Other liabilities growth rates, % including: banks own capital growth rates, %

129 129 Attachment 1.7 to the Report of the National Bank for 2016 STRUCTURE of banks liabilities (%) Средства субъектов хозяйствования Средства Национального банка Средства нерезидентов Республики Беларусь Прочие пассивы Средства физических лиц Средства органов государственного управления Средства банков

130 130 Attachment 1.8 to the Report of the National Bank for 2016 INFORMATION on banks assets Indicators (BYN bn) Actual as at Banks assets growth rates, % of nominal GDP, % Claims on residents of the Republic of Belarus growth rates, % of which: claims on government agencies growth rates, % claims on economic entities growth rates, % claims on natural persons growth rates, % claims on the National Bank growth rates, % claims on banks growth rates, % Claims on non-residents of the Republic of Belarus growth rates, % Other assets growth rates, %

131 STRUCTURE of banks assets 131 Attachment 1.9 to the Report of the National Bank for 2016 (%) Требования к субъектам хозяйствования Требования к Национальному банку Требования к нерезидентам Республики Беларусь Прочие активы Требования к физическим лицам Требования к органам государственного управления Требования к банкам

132 132 Attachment 1.10 to the Report of the National Bank for 2016 INFORMATION on foreign exchange purchase/sale by resident economic entities * of the Republic of Belarus in the domestic foreign exchange market in (USD mln) Years Operations January February March April May June For the first half of the year, total 2015 Sold 1, , , , , , ,078.4 Purchased 1, , , , , , ,015.8 Balance of sale and purchase Sold 1, , , , , , ,517.0 Purchased 1, , , , , , ,660.5 Balance of sale and purchase Years Operations July August September October November December For the year, total 2015 Sold 1, , , , , , ,959.1 Purchased 1, , , , , , ,363.0 Balance of sale and purchase Sold 1, , , , , , ,143.0 Purchased 1, , , , , , ,349.0 Balance of sale and purchase * Economic entities commercial and non-commercial organizations, independent entrepreneurs, and non-bank financial institutions.

133 133 Attachment 1.11 to the Report of the National Bank for 2016 INFORMATION on foreign exchange purchase/sale by natural persons in (USD mln) Years Operations January February March April May June For the first half of the year, total 2015 Sold ,657.9 Purchased ,967.6 Balance of sale and purchase , Sold ,643.5 Purchased ,009.3 Balance of sale and purchase ,2 Years Operations July August September October November December For the year, total 2015 Sold ,296.9 Purchased ,167.4 Balance of sale and purchase , Sold ,617.4 Purchased ,723.4 Balance of sale and purchase ,894.0

134 DYNAMICS of the interest rate in the intraday interbank market and the interest rates on the National Bank s operations Attachment 1.12 to the Report of the National Bank for 2016 (% per annum) 5 Ставка по постоянно доступным операциям поддержки ликвидности Ставка по однодневным межбанковским кредитам Ставка по постоянно доступным операциям изъятия ликвидности Ставка рефинансирования Средневзвешенная ставка по аукционам предоставления ликвидности Средневзвешенная ставка по аукционам изъятия ликвидности

135 Январь Февраль Март Апрель Май Июнь Июль Август Сентябрь Октябрь Ноябрь Декабрь Январь Февраль Март Апрель Май Июнь Июль Август Сентябрь Октябрь Ноябрь Декабрь 135 Attachment 1.13 to the Report of the National Bank for 2016 DYNAMICS of interest rates in the deposit and credit markets in (% per annum) Средняя процентная ставка по новым банковским кредитам* в белорусских рублях Средняя процентная ставка по новым срочным банковским вкладам в белорусских рублях Средняя ставка рефинансирования Средняя ставка однодневного межбанковского рынка в белорусских рублях * Excluding loans granted on preferential terms by decisions of the President of the Republic of Belarus, the Government of the Republic of Belarus at the expense of the funds of the republican and local government bodies.

136 136 Attachment 1.14 to the Report of the National Bank for 2016 INFORMATION on securities market Structure of annual issue of the securities market s main instruments bonds under local loans government securities (%) 60 corporate bonds equities Dynamics of the change in the ratio of the securities market's main instruments bonds under local loans corporate bonds government securities (%) equities

137 Январь Февраль Март Апрель Май Июнь Июль Август Сентябрь Октябрь Ноябрь Декабрь Январь Февраль Март Апрель Май Июнь Июль Август Сентябрь Октябрь Ноябрь Декабрь DYNAMICS of consumer prices, core inflation, and regulated prices and rates for paid services offered to households in Attachment 2.1 to the Report of the National Bank for 2016 (in % to the corresponding month of the previous year) Потребительские цены Базовая инфляция Регулируемые цены