BTA Bank JSC and subsidiaries. Unaudited Interim Condensed Consolidated Financial Statements

Transcription

1 and subsidiaries Unaudited Interim Condensed Consolidated Financial Statements 30 September 2014

2 Interim condensed consolidated financial statements CONTENTS Interim condensed consolidated statement of financial position... 1 Interim condensed consolidated income statement... 2 Interim condensed consolidated statement of other comprehensive income... 3 Interim condensed consolidated statement of changes in equity... 4 Interim condensed consolidated statement of cash flows... 6 Notes to the interim condensed consolidated financial statements

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4 Interim condensed consolidated financial statements INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT For nine months ended 30 September 2014 Nine months ended 30 September Notes (unaudited) (unaudited) Interest income Loans to customers 67,912 67,170 Bonds of SWF Samruk-Kazyna JSC 29,025 29,025 Investment securities 1,919 2,091 Amounts due from credit institutions 2,489 1, , ,165 Financial assets at fair value through profit or loss 1,216 1, , ,548 Interest expense Amounts due to the Government and the National Bank of the Republic of Kazakhstan (20,205) (19,264) Amounts due to credit institutions (2,871) (4,603) Amounts due to customers (21,488) (22,155) Debt securities issued (8,274) (7,022) Loan from SWF Samruk-Kazyna JSC (11,755) (10,752) (64,593) (63,796) Net interest income before impairment 37,968 37,752 Impairment charge (49,494) (10,952) Net interest (expense)/ income (11,526) 26,800 Net fee and commission income 10,620 13,210 Net trading gain/ (loss) 18 3,088 (4,635) Net gain from foreign currencies: - dealing 4,166 2,770 - translation differences 6, Net income from insurance operations 2,263 3,576 Share in net income/ (loss) of associates 189 (1,530) Gain from bargain purchase 1,007 Other income 8,477 7,287 Non-interest income 35,531 21,885 Personnel expenses 19 (13,289) (13,130) Other operating expenses 19 (17,180) (12,358) Depreciation and amortization (1,189) (1,409) Taxes other than income tax (1,884) (2,076) Impairment charge on investments 20 (5,799) (58) Other impairment and provisions 10 (942) 1,389 Loss from decline in value of repossessed collateral (1,351) Obligatory insurance of individuals deposits (3,338) (3,253) Other expenses (2,950) (1,747) Non-interest expense (47,922) (32,642) (Loss)/ profit before corporate income tax expense (23,917) 16,043 Corporate income tax (expense)/ benefit 11 (9,393) 8,096 Net (loss)/ profit (33,310) 24,139 Attributable to: Shareholders of the parent (33,365) 23,983 Non-controlling interest Net (loss)/ profit (33,310) 24,139 Basic and diluted (loss)/ profit per share (in tenge) 21 (0.05) The accompanying notes on pages 8 to 36 are an integral part of these interim condensed consolidated financial statements.

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6 Interim condensed consolidated financial statements INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For nine months ended 30 September 2014 Additional paid-in capital Issued capitalcommon shares Availablefor-sale investment securities revaluation reserve Foreign currency translation reserve Revaluation reserve for property and equipment Noncontrolling interest Treasury shares Accumulated deficit Total 31 December ,366, ,295 (8,517) 1,649 (2,501) 1,909 (1,209,315) 267,291 1, ,576 Net income for the period (unaudited) 23,983 23, ,139 Other comprehensive income for the period (unaudited) Total comprehensive income for the period (unaudited) ,983 24, ,986 Purchase of noncontrolling interest (unaudited) 2,447 2,447 Sale of treasury shares (unaudited) Distribution of dividends (unaudited) (30) (30) (30) 30 September 2013 (unaudited) 1,366, ,295 (8,516) 2,105 (2,452) 2,215 (1,185,362) 292,056 3, ,980 Total equity 4 The accompanying notes on pages 8 to 36 are an integral part of these interim condensed consolidated financial statements.

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8 Interim condensed consolidated financial statements INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For nine months ended 30 September 2014 Nine months ended 30 September Notes (unaudited) (unaudited) Cash flows from operating activities Interest received 90,775 76,047 Interest paid (51,985) (48,020) Gain from dealing in foreign currencies 3,060 2,548 Gain from trading with securities 4, Fees and commissions received 12,156 14,895 Fees and commissions paid (1,396) (1,752) Cash received from insurance operations 6,408 10,566 Cash paid for insurance operations (2,909) (2,325) Cash paid to employees (10,218) (10,629) Cash paid for obligatory deposits insurance (3,370) (3,259) Operating expenses paid (15,385) (20,718) Net cash flows from operating activities before changes in operating assets and liabilities 31,303 17,395 Net change in operating assets and liabilities Net decrease/ (increase) in obligatory reserves 36 (53) Net decrease in financial assets at fair value through profit or loss 6,055 4,117 Net (increase/ decrease in amounts due from financial institutions (3,732) 1,160 Net decrease in loans to customers 51,590 25,987 Net decrease/ (increase) in other assets 7,221 (1,711) Net decrease in due to the Government and the National Bank of the Republic of Kazakhstan (18,430) (18,219) Net change in derivative financial instruments 1,020 (236) Net decrease in amounts due to credit institutions (23,259) (22,536) Net decrease in amounts due to customers (33,736) (1,499) Net decrease in other liabilities (1,818) (1,463) Net cash from operating activities before corporate income tax 16,250 2,942 Corporate income tax paid (491) (299) Net cash from operating activities 15,759 2,643 Cash flows from investing activities Purchase of investment securities available-for-sale (2,077) (5,534) Disposal of available-for-sale investment securities 9,724 6,201 Purchase of property and equipment (4,406) (591) Proceeds from disposal of property and equipment Acquisition of subsidiaries net of cash received 58 Net cash from investing activities 3, The accompanying notes on pages 8 to 36 are an integral part of these interim condensed consolidated financial statements.

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10 Notes to the interim condensed consolidated financial statement 1. Principal activities JSC BTA Bank and its subsidiaries (the Group ) provide retail and corporate banking services, insurance services, leasing and other financial services in Kazakhstan, Belorussia, and the Russian Federation. The parent company of the Group is BTA Bank (the Bank ), a joint stock company. The Bank is incorporated and domiciled in the Republic of Kazakhstan. Note 2 lists the Bank s subsidiaries and associates. The location of the Bank is: , Republic of Kazakhstan, Almaty, Samal-2 Zholdasbekov Str., 97. The Bank accepts deposits from the public and extends credits, transfers payments within Kazakhstan and abroad, exchanges currencies and provides other banking services to its commercial and retail customers in accordance with license No. 242 issued on 4 March, 2008 by the Agency of the Republic of Kazakhstan for Regulation and Supervision of the Financial Market and Financial Organizations. The Group has a primary listing in the Kazakhstan Stock Exchange ( KASE ). Certain of the Group s securities are listed on the Luxemburg Stock Exchange with a secondary listing on the KASE. As of 30 September 2014 and 31 December 2013 the Bank had 19 regional branches and 174 cash settlement units, located throughout Kazakhstan and representative offices in Shanghai, China; Moscow, Russia; London, Great Britain. On 6 May 2014 the Management Board of the National Bank of the Republic of Kazakhstan (the NBRK ) adopted a resolution on granting a permission to Kazkommertsbank JSC to acquire a status of bank holding company over BTA Bank JSC. In accordance with previous arrangements on 30 June 2014, Kazkommertsbank JSC (the Parent or Controlling shareholder ) purchased from Sovereign Wealth Fund Samruk-Kazyna JSC ( Samruk-Kazyna ) 46.5% of the Bank s common shares and received a share of 4.26% in the Bank's equity from Samruk-Kazyna for management under Fiduciary management agreement, according to which Kazkommertsbank JSC acquired voting right on indicated share. During the third quarter of 2014 Kazkommertsbank JSC purchased a share of 1.84% in the Bank s equity from minority shareholders. Aforementioned events have provided Kazkommertsbank JSC with control over 52.6% of votes. As at 30 September 2014 Kazkommertsbank JSC is the controlling shareholder of the Bank. Below is the list of major shareholders of the Bank as at 30 September 2014 and 31 December 2013: 30 September 2014, % 31 December 2013, % (unaudited) Shareholders Kazkommertsbank JSC Mr. Kenes Rakishev Sovereign Wealth Fund Samruk-Kazyna JSC Other Basis of preparation The interim consolidated condensed financial statements for the first quarter ended 30 September 2014 have been prepared in accordance with International Financial Reporting Standard IAS 34 Interim financial reporting The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the annual consolidated financial statements of the Group as at 31 December These interim condensed consolidated financial statements are presented in millions of Kazakh tenge ( KZT or tenge ), except per share amounts and unless otherwise indicated. The KZT is utilized as the shareholders, the managers and the regulators measure the Group s performance in KZT. In addition, the KZT, being the national currency of the Republic of Kazakhstan, is the currency that reflects the economic substance of the underlying events and circumstances relevant to the Group. Transactions in other currencies are treated as transactions in foreign currencies. 8

11 Notes to the interim condensed consolidated financial statement 2. Basis of preparation (continued) Consolidated subsidiaries The interim condensed consolidated financial statements include financial statements of the following subsidiaries: Share of ownership, % 310 September Date of December incorporation Subsidiary (unaudited) 2013 Country JSC Subsidiary of JSC BTA Bank BTA Securities % % Kazakhstan 17/10/1997 JSC Subsidiary Company of JSC BTA Bank BTA Ipoteka % % Kazakhstan 20/11/2000 Date of acquisition Industry Securities trading and asset management 13/12/1997 Consumer mortgage lending 20/11/2000 JSC Subsidiary Life Insurance Company of BTA Bank BTA Life % % Kazakhstan 22/07/1999 Life insurance 30/03/2001 TuranAlem Finance B.V % % Netherlands 22/05/2001 Capital markets 22/05/2001 LLС Subsidiary of JSC BTA Bank TuranAlem Finance % % Russia 22/06/2004 Capital markets 28/09/2004 JSC Subsidiary of JSC BTA Bank Insurance Company London-Almaty % % Kazakhstan 20/11/1997 General insurance 05/08/2004 JSC Subsidiary Company of BTA Bank BTA Insurance 99.45% 99.45% Kazakhstan 08/09/1998 General insurance 21/12/2006 TemirCapital B.V % % Netherlands 29/05/2001 Capital markets 29/12/2006 BTA Bank CJSC 99.71% 99.71% Belorussia 25/04/2002 Bank activities 30/10/2008 JSC Accumulative Pension Fund Ular- Umit 92.38% 92.38% Kazakhstan 23/01/1998 Pension fund 13/01/2010 LLP Titan Inkassatsiya % % Kazakhstan 22/08/2002 Encashment 05/01/2010 Pension assets investment management 14/01/2010 JSC Pension Asset Management Company Zhetysu % % Kazakhstan 05/03/1998 Subsidiary of JSC BTA Bank BTA Alemcard LLP % % Kazakhstan 28/06/2002 Processing centre 03/10/2011 Joint-Stock Investment Real Estate Fund Alan Real Estate Investment Trust JSC % % Kazakhstan 17/06/2008 Real estate investments 29/12/2012 SK Leasing JSC 55.00% 55.00% Kazakhstan 30/08/2000 Leasing 24/06/2013 Risk Investments Closed Unit Fund Vektor % % Kazakhstan 21/06/2005 Mutual investment fund ( MIF ) 29/12/2012 Risk Investments Closed Unit Fund Gamma % % Kazakhstan 22/08/2008 MIF 29/12/2012 Risk Investments Closed Unit Fund Delta % % Kazakhstan 22/08/2008 MIF 29/12/2012 Interval Unit Investment Fund Fond Obligatsiy % % Kazakhstan 31/01/2007 MIF 29/12/2012 Risk Investments Closed Unit Fund BTA Investitsionnyi % % Kazakhstan 11/02/2005 MIF 29/12/2012 Interval Unit Investment Fund Indeksnyi 98.02% 98.02% Kazakhstan 09/09/2005 MIF 29/12/2012 Risk Investments Closed Unit Fund Novye proekty 58.27% 58.27% Kazakhstan 21/06/2005 MIF 29/12/2012 Temirleasing JSC 56.72% Kazakhstan 05/03/2001 Leasing 15/04/2013 First Kazakh Securitization Company Netherlands 08/12/2005 Second Kazakh Securitization Company Netherlands 25/09/2007 Securitization of financial assets Securitization of financial assets Although the Group did not own any shares in First Kazakh Securitisation Company and Second Kazakh Securitisation Company as at 30 September 2014 and 31 December 2013, they are treated, in accordance with IFRS 10 Consolidated Financial Statements, as subsidiaries, because at those dates the Group controlled and benefited directly from operations of these entities. On 7 February 2014 in accordance with the agreement of purchase and sale of shares dated 23 December 2013, the Bank completed the transaction on the sale of 850,600 common shares of Temirleasing for KZT 1,616 million to Temirbank JSC. 9

12 Notes to the interim condensed consolidated financial statement 2. Basis of preparation (continued) Consolidated subsidiaries (continued) On 29 September 2014 a decision with regards to the voluntary liquidation of JSC Accumulative Pension Fund Ular- Umit (hereinafter Ular-Umit ) has been made on the Extraordinary General Shareholders Meeting. As at the date of issue of these interim condensed consolidated financial statements the liquidation process has not been launched. Associates accounted for under equity method The following associates are accounted for under the equity method and included into investments in associates: Percentage of ownership 30 September 31 December Associate 2014 (unaudited) 2013 Country Activity BTA Bank PJSC 49.99% 49.99% Ukraine Bank BTA Bank JSC 49.00% 49.00% Georgia Bank BTA Bank CJSC 48.93% 48.93% Armenia Bank Oranta NJSIC 35.17% 35.17% Ukraine Insurance Fund of High Technologies Areket JSC 27.00% 27.00% Kazakhstan Investment fund ROSA JSC 29.94% 29.94% Kazakhstan Production and sale of beverages AMT Bank LLC 22.26% 22.26% Russia Bank JSCB BTA Kazan OJSC % 47.33% Russia Bank On 27 May 2014 the Central Bank of the Russian Federation (the CBR ) decided to perform rehabilitation of JSCB BTA-Kazan OJSC ( BTA-Kazan ) with the participation of the Deposit Insurance Agency (the DIA ), and also approved DIA participation plan to prevent bankruptcy of BTA-Kazan. The DIA was entrusted with functions of provisional administration, the powers of shareholders and corporate bodies of BTA-Kazan were suspended. On 10 June 2014 the CBR decided to decrease the share capital of BTA-Kazan to RUR 1 due to negative value of BTA-Kazan s equity capital. On 24 June 2014 the additional issue of BTA-Kazan common shares was registered in the amount of RUR 1.8 billion. On 1 July 2014 Novaya Neftehimiya LLC purchased 100% of additional issue in the amount of RUR 1.8 billion, as the result the Bank s share in BTA-Kazan s equity decreased from 47.33% to % and the Bank had lost significant influence over BTA-Kazan. 3. Summary of significant accounting policies Changes in accounting policies The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group s annual consolidated financial statements for the year ended 31 December 2013, except for the adoption of new standards and interpretations as described below: Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) These amendments are effective for annual periods beginning on or after 1 January 2014 and provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. This amendment is not relevant to the Group, since none of the entities in the Bank qualifies to be an investment entity under IFRS

13 Notes to the interim condensed consolidated financial statement 3. Summary of significant accounting policies (continued) Changes in accounting policies (continued) IAS 32 Offsetting Financial Assets and Financial Liabilities Amendments to IAS 32 These amendments clarify the meaning of currently has a legally enforceable right to set-off and the criteria for nonsimultaneous settlement mechanisms of clearing houses to qualify for offsetting. These are effective for annual periods beginning on or after 1 January These amendments are not relevant to the Group. IFRIC 21 Levies IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after 1 January The Group believes that IFRIC 21 does not have a material impact on its financial statements. Amendments to IAS 39 Novation of derivative instruments and continuation of hedging accounting These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after 1 January The Group has not novated its derivatives during the current period. However, these amendments would be considered for future novations. Amendments to IAS 36 Disclosure of recoverable value for non-financial assets These amendments eliminate unintended consequences of application of IFRS 13 Measurement of fair value to disclosure required in accordance with IAS 36 Impairment of assets. Besides, the amendments require disclosure of recoverable value of assets or cash generating units for which impairment was recognized or impairment losses were recovered during the period. The amendments did not have any impact on the financial position or performance of the Group. 4. Cash and cash equivalents Cash and cash equivalents comprise: 30 September 31 December (unaudited) Cash on hand 32,690 35,126 Amounts due from the NBRK 21, Current accounts with other financial institutions 19,044 19,613 Reverse repurchase agreements with contractual maturity of 90 days or less 5,091 2,571 Time deposits with contractual maturity of 90 days or less 2, Amounts due from the national banks 1,913 1,937 Loans with contractual maturity of 90 days or less Cash and cash equivalents 82,501 60,657 The Group has entered into reverse repurchase agreements on the KASE. Treasury bills of the Ministry of Finance of the Republic of Kazakhstan and corporate securities of Kazakhstani emitters acted as subject under those agreements. Fair value of collateral as at 30 September 2014 was KZT 5,450 million (as at 31 December 2013 KZT 2,739 million). As at 30 September 2014 ten largest balances with banks accounted for 52.10% of total cash and cash equivalents (as at 31 December %). Under Kazakh legislation, the Bank is required to maintain certain obligatory reserves, which are computed as a percentage of certain liabilities of the Bank. Such reserves must be held by the Bank in physical cash in the national currency or cash on correspondent accounts in the NBRK in the national currency. As at 30 September 2014 and 31 December 2013 minimum reserve requirements were established at 2.5% and 0% on domestic short-term and long-term liabilities respectively and 6% and 2.5% on foreign short-term and long-term liabilities respectively. As at 30 September 2014 the Bank was in compliance with obligatory reserve requirements for the second tier banks amounting to KZT 11,394 million (as at 31 December 2013 KZT 11,149 million). These funds can be used by the Bank for its current needs. 11

14 Notes to the interim condensed consolidated financial statement 5. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include: 30 September 2014 (unaudited) 31 December 2013 Debt securities: Corporate bonds of Kazakhstani issuers 9,099 16,792 Treasury bills of the Ministry of Finance of the Republic of Kazakhstan 2,067 2,041 Bonds of Kazakhstan financial institutions 1,459 1,215 Bonds of Kazakhstan state bodies Corporate bonds of issuers of foreign states Treasury bills of the Ministry of Finance of the Canada 409 Bonds of Kazakhstan non-financial institutions Treasury bills of the US Treasury Department Government bonds of non-oecd countries Treasury bills of the Ministry of Finance of the Russian Federation ,191 22,205 Equity securities 42,620 37,748 Financial assets at fair value through profit or loss 57,811 59,953 Subject to repurchase agreements 1,165 The Groups counterparties under repurchase agreements had no rights to sell or repledge securities held as collateral under the repurchase agreements as at 31 December As at 30 September 2014, 10.82% share in equity of Sekerbank was recorded within financial assets at fair value through profit or loss (11.76% as at 31 December 2013). Fair value of shares of Sekerbank as at 30 September 2014 was KZT 17,879 million (as at 31 December 2013 KZT 17,782 million). 6. Amounts due from financial institutions Amounts due from financial institutions comprise: 30 September 2014 (unaudited) 31 December 2013 Loans 60,502 58,464 Deposits 39,347 29,829 Amounts due from financial institutions, gross 99,849 88,293 Less allowance for impairment (56,368) (54,062) Amounts due from financial institutions 43,481 34,231 As at 30 September 2014 amounts due from ten largest financial institutions comprised 80.17% of total amounts due from financial institutions (as at 31 December %). As at 30 September 2014, cash restricted in use due from the financial institutions amounted to KZT 1,384 million (as at 31 December 2013 KZT 1,167 million). The movements in allowance for impairment of amounts due from financial institutions were as follows: As at 1 January ,491 Reversal of impairment (unaudited) (11,499) Recoveries of amounts previously written off (unaudited) 4,579 Revaluation (unaudited) (998) As at 30 September 2013 (unaudited) 56,573 Reversal of impairment (unaudited) (1,966) Recoveries of amounts previously written off (unaudited) 2,447 Transfer of related debt to other assets (unaudited) (2,742) Foreign currency translation (unaudited) (250) As at 31 December ,062 Reversal of impairment (unaudited) (2,307) Write-off (unaudited) (5) Foreign currency translation (unaudited) 4,618 As at 30 September 2014 (unaudited) 56,368 12

15 Notes to the interim condensed consolidated financial statement 7. Derivative financial instruments The Group enters into derivative financial instruments for trading purposes. The table below shows the fair values of derivative financial instruments, recorded as assets and liabilities, together with their notional amounts. The notional amount, recorded gross, is the amount of a derivative s underlying asset and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding as at 30 September 2014 and 31 December 2013 and are indicative of neither the market risk nor the credit risk. 30 September 2014 (unaudited) 31 December 2013 Notional Fair value Notional Fair value principal Assets Liabilities principal Assets Liabilities Currency swaps foreign 1,911 1,370 2,815 1,464 Options 1, , Forwards and futures domestic 9,420 (8,459) 9,439 (8,343) Total derivative assets/(liabilities) 1,683 (8,459) 1,654 (8,343) Swaps Swaps are contractual agreements between two parties to exchange movements in interest rates or foreign currency rates. Forwards and futures Forwards and futures contracts are contractual agreements to buy or sell a specified financial instrument at a specific price and date in the future. Forwards are customised contracts transacted in the over-the-counter market. Futures contracts are transacted in standardised amounts on regulated exchanges and are subject to daily cash margin requirements. In 2012 the Group signed an agreement with the Parent for sale of the remaining shares of Sekerbank at the cost recorded at a certain date. As at 30 September 2014 the difference between the fair value of these shares and cost of sale, according to the terms of agreement was recognized as a forward liability in the amount of KZT 8,459 million (as at 31 December 2013 KZT 8,343 million). Options Options are contractual agreements that convey the right, but not the obligation, for the purchaser either to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixed future date or at any time within a specified period. 8. Investment securities Available-for-sale investment securities comprise: 30 September 2014 (unaudited) 31 December 2013 Debt securities: Treasury bills of the Ministry of Finance of the Republic of Kazakhstan 7,749 12,248 Corporate bonds of Kazakhstani issuers 7,709 17,660 Corporate bonds of issuers of foreign states 3,116 2,875 Bonds of Kazakhstan state bodies 1,608 2,251 Treasury bills of the US Treasury Department Government bonds of OECD countries Government bonds of non OECD countries Treasury bills of the Ministry of Finance of the Russian Federation Bonds of Kazakhstan non-financial institutions Bonds of Kazakhstan financial institutions ,238 37,797 Equity securities 1,995 3,694 Available-for-sale investment securities 24,233 41,491 During nine months ended 30 September 2014 the Group recognized impairment loss on available-for-sale investment securities in the amount of KZT 3,117 million (30 September 2013 impairment loss in amount of KZT 30 million and reversal of impairment loss of KZT 141 million). 13

16 Notes to the interim condensed consolidated financial statement 8. Investment securities (continued) On 30 September 2014, due to expiration of two reporting periods and with resumption of the Group s intention to hold part of its investment securities up until their maturity, corresponding reclassification from available-for-sale investment securities has taken place. Carrying amount of reclassified securities as of reclassification date has comprised KZT 7,242 million and was equal to their fair value as of reclassification date. Investment securities held to maturity comprise: 30 September 2014 (unaudited) 31 December 2013 Corporate bonds of Kazakhstani issuers 4,275 Treasury bills of the Ministry of Finance of the Republic of Kazakhstan 1,856 Bonds of Kazakhstan financial institutions 605 Bonds of Kazakhstan state bodies 506 Investment securities held to maturity 7, Loans to customers Loans to customers comprised the following: 30 September 2014 (unaudited) 31 December 2013 Corporate lending 2,768,410 2,479,284 Individuals lending 243, ,845 Small and medium business lending 143, ,210 Loans to customers, gross 3,155,468 2,883,339 Less allowance for impairment (2,594,793) (2,266,900) Loans to customers 560, ,439 Loans have been extended to the following types of customers: 30 September 2014 (unaudited) 31 December 2013 Private companies 2,911,265 2,639,179 Individuals 243, ,845 Governmental entities 726 1,304 Other Loans to customers, gross 3,155,468 2,883,339 14

17 Notes to the interim condensed consolidated financial statement 10. Other impairment and provisions The movements in allowances for other losses and provisions were as follows: Guarantees and Other estimated Other assets letters of credit liabilities Total At 1 January ,418 2, ,367 Impairment charge/ (reversal) (unaudited) 358 (1,720) (27) (1,389) Write-offs (unaudited) (12) (12) Recoveries of amounts previously written off (unaudited) Business combinations (unaudited) (73) (73) Revaluation (unaudited) At 30 September 2013 (unaudited) 4,706 1,215 5,921 Impairment charge / (reversal) (unaudited) 37 (461) (424) Write-offs (unaudited) (369) (369) Recoveries of amounts previously written off (unaudited) 14,165 14,165 Transfer from amounts due from financial institutions (unaudited) 2,742 2,742 Amounts relating to assets held for sale (unaudited) (7) (7) Revaluation(unaudited) At 31 December , ,128 Impairment charge (unaudited) Write-offs (unaudited) (1,221) (1,221) Revaluation (unaudited) 2, ,373 At 30 September 2014 (unaudited) 22,992 1,230 24,222 Allowances for impairment of other assets are deducted from the related assets. 11. Taxation The corporate income tax expense comprises: Nine months period ended 30 September (unaudited) (unaudited) Current corporate income tax expense Deferred corporate income tax expense/(benefit) 8,623 (8,777) Corporate income tax expense/ (benefit) 9,393 (8,096) As at 30 September 2014 the Group had current corporate income tax assets in the amount of KZT 3,123 million (as at 31 December 2013 KZT 3,438 million). In accordance with IAS 12 a deferred tax asset was recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available in future against which the deductible temporary difference can be utilized. 12. Amounts due to the Government and the National Bank of the Republic of Kazakhstan Amounts due to the Government and the NBRK comprise the following: 30 September 2014 (unaudited) 31 December 2013 Loans from the NBRK 456, ,411 Amounts due to the Government 28 Amounts due to the Government and the National Bank of the Republic of Kazakhstan 456, ,439 Loans from NBRK represent repurchase agreements under pledge of debt securities of Samruk-Kazyna. As at 30 September 2014 the fair value of debt securities of Samruk-Kazyna representing collateral under repurchase agreements was KZT 475,543 million (as at 31 December 2013 KZT 521,766 million). 15

18 Notes to the interim condensed consolidated financial statement 13. Amounts due to credit institutions Amounts due to credit institutions comprise: 30 September 2014 (unaudited) 31 December 2013 Revolving Committed Trade Finance Facility 15,140 22,349 Loans from Kazakhstan banks and financial institutions 9,882 16,815 Interest-bearing placements from Kazakhstan banks Loro accounts Loans from non OECD banks and financial institutions 2,370 Amounts due to credit institutions 25,959 42,410 Subject to repurchase agreements 1,000 As at 30 September 2014 there were no securities pledged under repurchase agreements. As at 31 December 2013 fair value of securities pledged under repurchase amounted to KZT 1,165 million (Note 5). In accordance with the Trust Deed dated 21 December 2012 and Agreement on Revolving Committed Trade Finance Facility (the RCTFF ) dated 25 August 2010 together with amendments and additions, the Bank shall maintain a capital adequacy ratio of 1 level not less than 10.0%, calculated in accordance with the recommendations of the Basel Committee on Banking Supervision. As at 30 September 2014 the Bank was in compliance with these restricting financial conditions and capital adequacy ratios established by the NBRK for the second tier banks. During nine months ended at 30 September 2014 the Bank repaid three tranches on RCTFF totalling to USD 89,400 thousand, which equals to KZT 16,314 million in accordance with the new repayment schedule indicated in the Second and Third Supplemental Agreement in Amendments and Restatements to RCTFF. This allows the Bank to utilize the settled amounts through the issue of new trade finance instruments. 14. Amounts due to customers Amounts due to customers are following: 30 September 2014 (unaudited) 31 December 2013 Time deposits 407, ,514 Current accounts 128, ,136 Guarantees and restricted deposits 5,781 6,942 Amounts due to customers 542, ,592 Guarantee and restricted deposits represent customer s collateral under letters of credit and guarantees issued by the Bank on behalf of clients. As at 30 September 2014 the Bank s ten largest customers accounted for approximately 28.05% of the total amounts due to customers (as at 31 December %). The amounts due to customers included balances in customer current accounts and time deposits and were analysed as follows: 30 September 2014 (unaudited) 31 December 2013 Time deposits Commercial entities 19,238 26,573 Individuals 256, ,951 Governmental entities 131, ,530 Non-commercial entities Current accounts Commercial entities 75,584 76,076 Individuals 39,313 43,969 Governmental entities 11,470 7,052 Non-commercial entities 2,203 3,039 Guarantees and other restricted deposits Commercial entities 3,895 5,040 Individuals 1,769 1,688 Governmental entities Non-commercial entities 1 1 Amounts due to customers 542, ,592 16

19 Notes to the interim condensed consolidated financial statement 14. Amounts due to customers (continued) At 30 September 2014, included in time deposits are deposits of individuals in the amount of KZT 256,348 million (as at 31 December 2013 KZT 256,951 million). In accordance with the Civil Code of the Republic of Kazakhstan, the Group is obliged to repay such deposits upon demand of a depositor. In case a term deposit is repaid upon demand of the depositor prior to maturity, interest is not paid or paid at considerably lower interest rate depending on the terms specified in the agreement. An analysis of customer accounts by economic sector is as follows: 30 September 2014 (unaudited) % 31 December 2013 % Individuals 297, % 302, % Amounts due to Samruk-Kazyna JSC 131, % 128, % Wholesale trading 20, % 16, % Construction 15, % 20, % State administration bodies 9, % 8, % Oil and gas production 6, % 6, % Education 4, % 3, % Research and development 4, % 4, % Retail trading 3, % 4, % Agriculture 3, % 2, % Production of machinery and equipment 3, % 2, % Transportation 2, % 3, % Non-commercial entities 2, % 3, % Non-credit financial institutions 2, % 1, % Chemical processing 2, % 3, % Textile and leather industry 2, % 1, % Power industry 1, % 1, % Mining industry 1, % 1, % Entertainment 1, % % Food industry % 3, % Metallurgy % 4, % Communication % % Hotel and hospitality % % Other 22, % 24, % 542, % 550, % 15. Debt securities issued Debt securities issued consisted of the following: 30 September 2014 (unaudited) 31 December 2013 New bonds in US dollars 138, ,545 KZT bonds with floating rate 9,569 13,498 USD bonds with fixed rate , ,009 USD treasury bonds held by the Group (372) (341) KZT treasury bonds held by the Group (4,721) (7,810) 143, ,858 Less unamortised discount (53,399) (47,365) Debt securities issued 90,294 74,493 In accordance with the Trust Deed dated 21 December 2012, the Bank shall maintain a capital adequacy ratio of 1 level not less than 10.0%, calculated in accordance with the recommendations of the Basel Committee on Banking Supervision. As at 30 September 2014 the Bank was in compliance with these restricting financial conditions and capital adequacy ratios established by the NBRK for the second tier banks. 17

20 Notes to the interim condensed consolidated financial statement 16. Equity As at 30 September 2014 and 31 December 2013 share capital comprises: Number of authorized shares Common shares Number of shares outstanding Placement value in KZT million Non-redeemable convertible preferred shares Number of Number of authorized shares shares outstanding At 31 December ,500,688, ,367,379,978 1,366, ,000 Increase in share capital 128,639,895 At 31 December 2013 and 30 September ,500,688, ,496,019,873 1,366, ,000 Dividends on convertible preferred shares As at 30 September 2014 and 31 December 2013, no convertible preferred shares (the CPS ) were outstanding. Accordingly, no CPS dividends were declared or paid at 30 September 2014 and 31 December Available-for-sale investment securities revaluation reserve This reserve includes fair value changes on available-for-sale investment securities. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates. Revaluation reserve for property and equipment This reserve includes changes in the fair value of property and equipment. Treasury shares Movements in treasury stock were presented as follows: Amount Number of shares (KZT million) At 31 December ,936,583 8,517 Assignment of shares obtained as a result of cancellation of depositary receipts for further transfer of shares to creditors as part of 2012 restructuring 9,241,000 Assignment of shares unclaimed by creditors as part of 2010 restructuring 43,568,500 Acquisition of treasury shares as partial repayment of the client s debt 81,430 Sale of treasury shares (37,819) (4) Transfers of shares to creditors accounts (9,207,764) Sale of shares upon request of creditor (write-off) within 2010 restructuring (17,553,839) At 31 December ,028,091 8,513 Sale of treasury shares (unaudited) (72,658,178) (18) Transfer from treasury shares account to the shareholders account for unclaimed shares (unaudited) (33,236) At 30 September 2014 (unaudited) 430,336,677 8,495 18

21 Notes to the interim condensed consolidated financial statement 17. Commitments and contingencies Political and economic environment Kazakhstan continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market economy. The stability of the Kazakhstan economy is largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the Government, adopted laws and government regulations, as well as changes in the political situation in the country. During nine months of 2014 there was a growing economic and political unsteadiness observed in Ukraine. The Group has assets and operates in Ukraine through its associate BTA Ukraine PJSC. The Group s assets related to its activities in Ukraine are appropriately valued as at 30 September 2014 and amounted to KZT 12,736 million. The Group s management keeps following the situation. The risk appraisal is reviewed on an ongoing basis according to progression of events. The management of the Group believes that it is taking appropriate measures to support the sustainability of the Group s business in the current circumstances. However, deterioration in the areas described above could have negative effect on the Group's operating results and financial position. Currently it is not possible to determine such effect. Legal actions and claims The Group is subject to various legal proceedings related to business operations. The Group assesses the likelihood of material liabilities arising from individual circumstances and makes provision in its financial statements only where it is probable that events giving rise to the liability will occur and the amount of the liability can be reasonably estimated. No provision has been made in these consolidated financial statements for any of the contingent liabilities mentioned below. BTA Bank (Kyrgyzstan) In 2009, the Bank was subject to a raiding action and, as a result, was assessed by the court to pay GBP 30,418,143 or KZT 7,751 million. As part of enforcement of this decision, shares of CJSC BTA Bank (Kyrgyzstan), owned by the Bank were seized, which led to loss of the control over CJSC BTA Bank (Kyrgyzstan). As a result of actions performed, the decision on recovery was cancelled. For the purpose to return the shares ownership, the Bank filed a statement of claim to recognize the tender as invalid. On6 December 2012 the decision of Bishkek interdistrict court to declare the tender void came into force. This decision was not enforced prior to the date of these interim condensed consolidated financial statements (shares are not registered with the Bank) due to the length of proceedings on repealing existing seizures. Given the length of proceedings on the territory of Kyrgyzstan, as well as the lack of interest of Kyrgyzstan in prompt recovery of the Bank s investment rights, arbitrage proceeding resumed. Arbitrage proceedings take place in the Permanent Court of Arbitration, located in Hague, Netherlands (hereinafter the Court). On 10 October 2014, the Bank filed the Statement Claim with attachment of expert reports, witness statements and supporting documents to the International Court of Arbitration. The reviewing of the documents by the Court and hearings are planned for the years Completion of arbitration is scheduled to the middle of the year Şekerbank TAS In accordance with the decision of the Commercial Court of Istanbul dated 7 February 2012 at the request of Türkiye Vakiflar Bankasi TAO a preliminary injunction was imposed on 101,726,214 shares of Şekerbank TAŞ belonging to BTA Securities Joint Stock Company, a Subsidiary of BTA Bank Joint Stock Company ( BTA Securities ) together with the prohibition to transfer these shares to third parties. The scheduled hearing was held on 15 October 2014 on the results of with the case was forwarded by the court decision for consideration of the panel of judges due to the changes in legislation of Turkey, additionally, it was decided to notify the expert committee on the need to provide their report on the matter within ten days from the date of receipt of court notification. The next hearing is scheduled for 27 November

22 Notes to the interim condensed consolidated financial statement 17. Commitments and contingencies (continued) Tax contingencies Kazakhstan currently has a single Tax Code that regulates main taxation matters. The existing taxes include value added tax, corporate income tax, social and other taxes. Implementing regulations are often unclear or nonexistent and insignificant amount of precedents has been established. Often, differing opinions regarding legal interpretation exist both among and within government ministries and organizations; thus creating uncertainties and areas of conflict. These facts create tax risks in Kazakhstan substantially more significant than typically found in countries with more developed tax systems. Management believes that the Group is in compliance with the tax laws of the Republic of Kazakhstan regulating its operations. However, the risk remains that relevant authorities could take differing positions with regard to interpretive tax issues. Commitments and contingencies As at 30 September 2014 and 31 December 2013, the Group s commitments and contingencies comprised the following: 30 September 2014 (unaudited) 31 December 2013 Undrawn loan commitments 41,496 76,128 Guarantees 14,922 14,495 Commercial letters of credit 6, ,432 91,108 Operating lease commitments Not later than 1 year Later than 1 year but not later than 5 years 743 1,024 Over 5 years ,328 1,708 Less: cash collateral (1,048) (6,942) Less: provisions (Note 10) (1,230) (756) Commitments and contingencies 61,482 85,118 The undrawn loan commitment agreements stipulate the right of the Bank to unilaterally withdraw from the agreement should any conditions unfavourable to the Bank arise, including change of the refinance rate, inflation, exchange rates and others. The Group requires collateral to support credit-related financial instruments when it is deemed necessary. Collateral held varies, but may include deposits held in the Bank, government s and international prime financial organisations securities, and other assets. Asset management activities The Group provides asset management services for third parties which involve the Group making allocation and purchase and sales decisions in relation to securities. Those securities that are held in a fiduciary capacity are not included in these interim condensed consolidated financial statements. As at 30 September 2014 there was clients cash on the Group accounts, which was received for the purpose of trading with securities in the amount of KZT 1,173 million (as at 31 December 2013 KZT 631 million). Facilities received from customers for securities dealings represent customers non-interest bearing cash placements with restriction in use under contractual terms. The Group could use these facilities for trading transactions with securities on behalf of customers only if appropriate customers instructions are available. 20

23 Notes to the interim condensed consolidated financial statement 18. Net trading gain Net trading gain/ (loss) for the nine-months period ended 30 September comprised the following: Nine months ended 30 September 2014 (unaudited) 30 September 2013 (unaudited) Securities: Financial assets at fair value through profit or loss 2,064 (5,905) Available-for-sale investment securities 1,140 1 Derivative financial instruments (116) 1,269 3,088 (4,635) Net gain/ (loss) on securities includes the effect of buying and selling, and changes in the fair value of financial assets at fair value through profit or loss and effect of buying and selling of available-for-sale investment securities. The results of trading and changes in fair value of forward operations are recorded within the income from derivative financial instruments. 19. Personnel and other operating expenses Personnel and other operating expenses comprise: Nine months ended 30 September September 2013 (unaudited) (unaudited) Salaries and bonuses (11,885) (11,712) Social security costs (1,210) (1,250) Other payments (194) (168) Personnel expenses (13,289) (13,130) Legal services and consultancy (11,745) (5,822) Rent (1,382) (2,341) Repair and maintenance of property and equipment (843) (958) Security (577) (599) Communications (492) (576) Data processing (408) (434) Transportation (230) (231) Marketing and advertising (199) (363) Plastic cards (193) (46) Postal charges (161) (90) Business trip expenses (160) (201) Office supplies (131) (145) Encashment (111) (104) Insurance expenses (31) (14) Penalties (29) (137) Agency services (29) (34) Other (459) (263) Other operating expenses (17,180) (12,358) Legal services and consultancy comprise payment for current expenses of asset recovery advisers. 20. Impairment charge on investments Impairment charge is presented as follows: 30 September 2014 (unaudited) Nine months ended 30 September 2013 (unaudited) (Impairment charge) /income from recovery of loss from impairment of investment securities available-for-sale (3,117) 111 Impairment charge on investments in associates (2,682) (169) (5,799) (58) 21

24 Notes to the interim condensed consolidated financial statement 21. Loss per share Basic earnings or loss per share is calculated by dividing the net income or loss for the period attributable to common shareholders by the weighted average number of participating shares outstanding during the period. The Bank did not declare or pay any dividends to common shareholders at 30 September 2014 and 31 December The following reflects data on income or loss and shares used in the basic and diluted earnings or loss per share computations: Nine months ended 30 September 2014 (unaudited) 30 September 2013 (unaudited) Net (loss)/ income attributable to common shareholders for calculation of basic (loss)/ income per share (33,365) 23,983 Weighted average number of common shares for basic and diluted (loss)/ earnings per share 641,001,974, ,015,332,978 Basic and diluted (loss)/ earnings per share (in Tenge) (0.05) 0.04 The carrying amount of one common share as at 30 September 2014 and 31 December 2013 is as follows: 30 September 2014 (unaudited) 31 December 2013 Type of shares Number of outstanding shares Net assets, KZT million Book value per share, Tenge Number of outstanding shares Net assets, KZT million Book value per share, Tenge Common 641,065,683, , ,992,991, , The management of the Group believes that the book value per share is calculated in accordance with methodology provided in the KASE Listing rules. 22. Fair value measurements The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. The following table shows an analysis of financial assets and liabilities recorded at fair value by level of the fair value hierarchy: 30 September 2014 (unaudited) 31 December 2013 Level 1 Level 2 Level 1 Level 2 Financial assets Financial assets at fair value through profit or loss 57,811 59,953 Derivative financial assets 1,683 1,654 Available-for-sale investment securities 24,233 41,491 Financial liabilities Derivative financial liabilities 8,459 8,343 During nine months ended 30 September 2014 there were no transfers from level 1 to level 2. Financial instruments reflected at fair value The following is a description of the determination of fair value for financial instruments which are recorded at fair value using valuation techniques. These incorporate the Group s estimate of assumptions that a market participant would make when valuing the instruments. 22