ANNUAL REPORT BPS-SBERBANK

Transcription

1 ANNUAL REPORT BPS-SBERBANK 2015

2 Contents Address to Shareholders and Partners 3 Bank profile 5 Report of the Management Board Macroeconomic environment and banking system development in the Republic of Belarus Corporate business Operations in financial markets Retail business Banking holding development Risk management Bank development Corporate governance Compliance with prudential requirements set by the National Bank of the Republic of Belarus IFRS financial performance results of BPS-Sberbank Group Main performance indicators of the group Analysis of the consolidated profit and loss statement Analysis of the consolidated statement of financial condition Equity Contacts and details 71

3 Address to Shareholders and Partners Dear Shareholders, Customers and Partners! Viktor Perepelitsa Acting Chairman of the Board Another financial year is over, and it was undoubtedly more challenging than expected. The economic situation in the Republic of Belarus in 2015 evolved under influence of negative trends in the Russian and world economies. In spite of the challenges, we managed to reach certain results. BPS-Sberbank Group earned IFRS net profit of BYR 190 billion. The Bank still holds the 3rd position in the financial market and expanded its presence in the segments of corporate loans and retail deposits. The customer base loyalty was secured in conditions of tough competition. The scale of business expanded corresponding to the customers needs and strategic plans. The prevailing part of business is concentrated in the corporate sector. The Bank issued loans to the enterprises operating in core branches of the economy including export-oriented and import-replacing businesses, investment projects with high degree of readiness, as well as small and medium enterprises. Therefore, the corporate loan portfolio reached BYR 30 trillion. For the purpose of customers international business development, the Master Agreement was signed with Eximbank of Russia in order to propose new effective instruments of import financing, and the agreement with the National Bank of the Republic of Belarus allowing financing of import from China. Using the advantages of the international Sberbank Group, the customers were offered unique opportunities of cross border business in all countries of presence of the Group. The exposure under cross border transactions equaled nearly USD 2,5 billion. The new model of retail business development based on leading-edge banking technologies allowed providing new services to customers in the reporting year, namely mobile acquiring in the acquiring business segment, Sberbank Online in the Internet banking segment, new services of online placement of deposits and acquisition of precious metals with the use of Sberbank Online and Mobile Banking systems. The large-scale project of global technical reorganization of the Bank s Call Centre was implemented, which drastically changed the process of communicating with customers. The leading international vendor Oracle highly appraised the project and presented the Bank with the well-deserved award. Among other important achievements of Sberbank Group in Belarus in 2015 were: Creation of the firmware complex of the International Processing Centre that executed the first transactions in the beginning of the current year; 3

4 Address to Shareholders and Partners Establishment of the non-bank credit and financial organization for cash collection and transit, the first of the kind in the country. Transformation of all processes during the recent years including conceptually new approaches to management of risks, IT systems, and staff allowed us keep steady functioning in this difficult period. Against the backdrop of persisting high uncertainty in the world financial markets, the Group is intending to move forward. Key priorities are the customers and their needs, struggle for quality of the loan portfolio and improvement of business efficiency, management of innovations underpinned by continuous implementation of new technologies. We set ambitious goals, and we have the necessary potential and customer trust to reach them. I would like to express my sincerest gratitude for your support and cooperation. 4

5 Bank profile Bank profile Full name: BPS-Sberbank Open Joint-Stock Company. Abbreviated business name: BPS-Sberbank. Principal shareholder: Sberbank of Russia. Head Office of the Bank is located at the address: 6, Muliavin Blvd., Minsk , Belarus. BPS-Sberbank entirely shares the general mission of Sberbank Group and is its champion in the Republic of Belarus. Our mission We are committed to instilling confidence and security, we make people s lives better by helping them to fulfill their dreams and aspirations. We are building one of the best financial companies in the world, whose success is based on professional expertise and the feeling of harmony of our staff. In its activities the Bank is guided by the principles that are part of the philosophy of the Group. Our values Responsibility Integrity Aspiration for development and perfection Team spirit and efficiency Openness and trust Respect for each other and for traditions Customer focus Bank awards in 2015 Diploma Leader in Visa PayWave contactless cards issue in the Republic of Belarus the honourable award from Visa International payment system. Best customer service solution based on Oracle Call Centre solution in 2015 the award from the leading international vendor Oracle. STP Award Excellent Quality the award from Commerzbank AG presented for each of the recent six years. 5

6 Bank profile Trade Award the award from Commerzbank AG to the best partner bank in trade finance. Largest Regional Coverage in SME Financing the award from the Bank for Development of the Republic of Belarus. Position of the Bank in the financial market of the Republic of Belarus In 2015, BPS-Sberbank s business developed with support of the international Sberbank Group in compliance with the strategic plans. The Bank secured its third market position in the financial market of the country and expanded presence in the segments of corporate loans and retail deposits. Market positions Item Market share Ranking as of as of Assets Equity Loans to customers Corporate Retail 10,2% 5,7% 11,6% 13,6% 2,4% Customer funding 9,1% 3 Corporate 9,4% 4 Retail 9,0% 3 Profit 3,5% 6 International credit ratings Credit ratings assigned by the international rating agency Fitch Ratings Ltd are the highest possible with regard to the sovereign rating of the Republic of Belarus. 6

7 Bank profile Rating FitchRatings Long-term IDR Short-term IDR Stability Support В- В b- 5 Credit rating was confirmed on Credit rating is the highest possible with regard to the sovereign rating Long-term IDR outlook: Stable B B- B Long-term issuer default rating On August 14, 2014, Fitch Ratings downgraded the long-term issuer default rating in foreign currency (IDR) from B to B-. The rating downgrade is attributed to revision of sovereign and country risks of the Republic of Belarus. On August 7, 2015, Fitch Ratings confirmed the long-term issuer default rating as B- with Stable Outlook. The other ratings were also confirmed at the same level. 7

8 Report of the Management Board Macroeconomic environment and banking system development in the Republic of Belarus Development of the Belarusian economy in 2015 was shaped by deteriorating external economic environment against the backdrop of accumulated structural imbalances. Deterioration of trading terms along with continuing shrinkage of foreign demand, reduction of foreign investments inflow in conditions of high inflation and devaluation expectations laid material impact on possibilities to finance investments and ultimate consumption, which in its turn led to GDP dropdown. Basic macroeconomic parameters of the Republic of Belarus in Item Real GDP growth, % +5,5 +1,7 +1,0 +1,7-3,9 GDP per capita, USD Industrial production growth, % +9,1 +5,8-4,9 +2,0-6,6 Growth of investments into core capital, % +17,9-11,7 +9,3-5,8-14,8 Consumer price index growth, % +108,7 +21,8 +16,5 +16,2 +12,0 Growth of real disposable income of the population, % -1,1 +21,5 +16,3 +0,9-5,9 Reduction of foreign and domestic demand led to material decrease of production in all sectors of the economy. The largest drop was seen in machinery construction, metal processing and light industries. Construction and real estate areas suffered and the volume of cargo transportation reduced, too. In spite of production volume decline, growth of export in natural terms made 2%, supported by increase of export sales of oil products. At the same time, downturn in industrial production lowered the demand in imported raw materials and led to reduction of import of non-investment goods and non-food consumer products, which allowed reaching positive foreign trade balance at the level of 0,6% GDP. Improvement of foreign trade and possibility to retain duties from export of oil products in the budget of the Republic of Belarus bridged the current account deficit to 3,8% GDP. 8

9 10,0 Payment balance, % GDP 7,5 5,0 4,7 2,5 0-2,5 0,1-1,2-1,9-1,1-5,0-7,5-10, Current account Exceptional financing Financial account Change to reserves Meanwhile, significant payments to serve the external debt (USD 6,3 billion), along with reduction of new sources of capital inflow, prevented payment balance improvement, in spite of the current account balance deficit decrease, which led to reduction of international reserves by USD 880 million, or 17,5%. Pressure on the international reserves made the National Bank refuse from targeting of the foreign exchange rate and allow material devaluation of the national currency. Change of BYR exchange rate, % year-to-date (devaluation (-) / revaluation (+) USD EUR RUB 56,7 41, ,

10 Thus, the Belarusian rouble devaluated by 36,1% throughout 2015, including: to USD by 56,7%; to EUR by 41,2%; to RUB by 19%. Nominal devaluation led to weakening of the real exchange rate of the Belarusian rouble. In December 2015 the real effective exchange rate of BYR was below that of December 2014 by 25,1%, including to Russian rouble by 25,7%, which helped somehow improve competitiveness of Belarusian exporters. Change of interim objectives of the monetary and credit policy and increase of flexibility of the exchange rate policy led to material increase of volatility of BYR exchange rate to foreign currency and growth of devaluation expectations. As a result, from 2H 2015 there appeared net demand from the population for foreign currency. In order to secure stability at the foreign exchange and money markets, the National Bank adhered to strict monetary and credit policy. Shrinkage of domestic demand against the backdrop of economic policy measures led to slowdown of inflation processes in spite of material weakening of the Belarusian rouble exchange rate. External factors, recession and toughening of the economic policy resulted in deterioration of financial condition of companies and reduction of real disposable income of the population. Net profit of companies fell by 43,2%, the number of loss-making entities grew by 44%, and their share exceeded 20% of the total number of entities. In 2015, the banking sector developed in unfavourable economic conditions shaped by negative external factors. For the purpose of their minimization, the regulatory authorities undertook a set of measures aimed at balancing of the monetary and credit and the foreign exchange markets. The regulator preserved tough approaches to refinancing of banks, in order to stimulate active operations in accordance with the available resources. The banks adhered to reserved lending policy and coordinated their actions with the regulatory authority and the Government to reduce pressure on the asset quality. The interest rates in the loans and deposits market were established under influence of the economic situation at the end of 2014 and the measures for its stabilization taken by the regulatory authority. With regard to the dynamics of interest rates in the interbank market and other material factors, the regulatory authority steadily reduced interest rates on liquidity regulation instruments. Along with that, interest rates in the loans and deposits market gradually decreased. The refinancing rate remained unchanged from January 9, 2015 and made 25% p.a. at the year end. 10

11 Institutional characteristics of the banking sector 87,3 Assets / GDP, % Loans / GDP, % Equity / GDP, % 60,6 62,1 61,9 72,5 49,8 40,7 40,3 43,5 38,1 12,6 8,5 8,8 8,4 9, Equity of the banking sector as of 2016 year start made BYR 78,6 trillion, and thus increased by 26,3% for the year. Assets of banks exceeded BYR 630 trillion, and thus increased by 30,9% (without account of devaluation 1,5%). The share of impaired assets of banks in assets subject to credit risk increased from 4,4% to 6,8%. The ratio of total assets of the banking system to GDP in 2015 made 72,5%. Banking system development in ,3 0,4 0,5 0,9 1,5 Assets, BYR trillion Loans, BYR trillion NPL Share, % 259,4 147,9 321,4 201,9 395,2 259,4 481,5 314,0 630,6 377,

12 In the reporting year, profit was by 22,9% less than in Return on banking system assets made 1,0%, return on equity made 8,4%. Exposure under loans issued by banks to branches of the economy (in Belarusian roubles and foreign currencies) in comparison with the beginning of 2015 increased by 20% (without account of devaluation reduction by 4,6%). As of January 1, 2016 the loan portfolio of banks made BYR 378 trillion, of which loans in the national currency made BYR 162 trillion. The share of FX loans in the portfolio made 57,2%. The volume of deposits in BYR and foreign currencies increased by 38,1%, of which corporate funding grew by 29%, retail funding grew by 43,5%. 12

13 Corporate business Resulting from the economic growth slowdown in the Republic of Belarus in 2015, the conditions of operation and financial status of companies deteriorated. Aggravation of the macroeconomic situation directly influenced solvency of the companies, which led to growth of non-performing loans in the banking system and competition for high income-generating customers among the banks. Taking into account its competitive advantages (service quality, high technological content, functionality of the sales channels), the Bank remained a reliable partner for its customers, which was proved by expansion of the Bank s customer base. 137 new economic entities including 128 small and medium companies were attracted for lending service. Dynamics of the number of customers using cash and settlement services in Customer base structure as of by segments, % 0,3 2,7 97 Large Largest SME Continuous improvement and introduction of modern technologies into customer service is one of the most important competitive advantages of the Bank. 13

14 Corporate customer service quality Corporate customer application processing improvement continued: The channels for submission of applications to the Bank were supplemented with remote banking system channels (the period for review of applications was reduced to 7 days, paper document turnover was decreased); Positive dynamics of corporate customer satisfaction with application review process was achieved. In order to improve service quality, the questionnaire for assessment of corporate customer service was developed and published on the Bank s web-site. The Quality Index reached a high mark of 81%. Corporate CRM development Introduction of the corporate customer relations management system (CRM) has been an integral part of successful long-term business development since In the reporting year, the functionality was introduced for creation, maintenance and further storage of the potential transaction presupposing interaction of CRM with limit accounting and lending process management systems. The functionality was introduced for transfer of information about corporate customers to Sberbank of Russia to create the uniform customer profile, join transnational structures into related groups (meta-groups) at the Group level. Lending terms in the corporate lending development model were toughened. Corporate loans The Bank s market share in corporate loans segment of the Belarusian banking system increased by 0,9% and reached 13,6%. The growth was underpinned by, inter alia, cross border transactions executed on the Bank s balance sheet within the Group. The amount of loans issued by the Bank to the productive sectors of the economy in 2015 grew by 4% and made BYR 52 trillion. In accordance with IFRS, the loan portfolio including loans to finance circulating capital, portfolio investments into securities, loans to finance export and import operations, and financing of investment and construction projects (gross) as of made BYR 30 trillion, i.e. the growth made 20%. 14

15 Corporate loan portfolio structure of the Bank Group by industry (IFRS), % 25,9 3,4 13,5 1,5 0,8 1,9 2,5 1,7 1,9 2,9 4,4 6,0 17,4 2,4 10,0 3,9 Financial services (3,4%) Machinery construction and equipment (13,5%) Trade and catering (17,4%) Timber and wood processing (2,4%) Food products (10,0%) Construction (3,9%) Chemicals and petrochemicals (6,0%) Other (4,3%) Buildding materials (2,9%) Light industry (1,9%) Transport and communications (1,7%) Metallurgy (2,5%) Energy and fuel (1,9%) Mining (0,8%) Agriculture (1,5%) Real estate (25,9%) The share of specialized lending in the loan portfolio increased by 1% and thus made 53%. Corporate loan portfolio structure by product Specialized loans Commercial loans

16 A material share of loans in foreign currency is attributed to a large portion of investment loans. In conditions of augmenting foreign exchange risks, the Bank aims to reduce currency concentration of the loan portfolio. Corporate loan portfolio structure by currency 0,02% 0,02% 5,4% 5,0% 46,4% 43,7% 28,1% 37,1% 20,1% 14,2% BYR USD EUR RUB CHF Taking into account strategic priorities and establishment of favourable environment for development of private business, the Bank expands cooperation with small and medium enterprises, including implementation of certain agreements. Together with the Bank for Development of the Republic of Belarus, 51 projects valued over BYR 58 billion were financed. EBRD resources in the amount of ca. EUR 7 million were utilized to finance BelSEFF sustainable energy projects. Beneficial SME lending was carried out in accordance with Decree of President of the Republic of Belarus dated No. 255 On specific measures of state support of small business in the amount of BYR 20,5 billion. Credit Factory lending technology based on the scoring system was continued to be deployed in Micro business segment. The loan product line was approved for Small and Micro segments, and Credit Conveyor lending technology started to be deployed in Small customer segment. The IFRS loan portfolio in this segment increased by 1,3 times up to BYR 6,7 trillion. For its performance results in 2015, the Bank was awarded with the title The widest regional coverage of small and medium business financing assigned by the Bank for Development of the Republic of Belarus. 16

17 Investment business Financing of economically effective, export-oriented and import-replacing projects implemented by the companies operating in the productive sector of the economy is one of the top priorities of the Bank s investment business. Customer exposure of the Bank under the investment projects as of made BYR 21,8 trillion, which is more than half of the corporate portfolio of the Bank (including loans financed by the Group). About BYR 4 trillion was allocated to finance investment projects throughout the year. In the changing macroeconomic environment, financing of highly effective real estate construction projects initiated in the preceding years, continued: The public and residential development site Minsk Lighthouse construction of the public mall with the parking lot, to be launched this year; Financing with resources of the Group banks construction of the contemporary multifunctional trade and entertainment complex with the hotel and the parking lot in Minsk. Corporate loan portfolio structure by tenor as of (IFRS) 4,0% Call and < 1 month 25,0% From 1 to 6 months 56,0% From 6 to 12 months 15,0% > 1 year The Bank participated in financing of 27 governmental programs including 21 investment ones. In servicing governmental programs, the Bank s strategy is aimed at further reduction of lending volumes. Throughout the year, the portfolio was reduced by 46% to BYR 1,9 trillion. The funds allocated to finance governmental programs exceeded BYR 848 billion, including BYR 428 billion for financing of investment projects. Financing of investment projects with high degree of readiness continued: construction of the new milk processing plant in Nesvizh and the whey processing and whey-fat concentrate production plant in Schutchin to be launched in mid

18 Cross border deals with Sberbank Group In conditions of international sanctions applied to Sberbank Group, the exposure under cross border deals (including customer guarantees and letters of credit) equaled nearly USD 2,5 billion in the reporting year. Two prominent direct transactions with Belaruskali booked on the balance sheet of the Group were executed for the total amount of EUR 730 million which were utilized to support the country s economy. Group priorities by industry are concentrated on the exporting and the import-replacing companies (mining 56%, oil extraction and processing 15%, machinery construction 10%). International business of customers The Bank maintains the 3 rd rank in the international trade finance segment and preserves the quality of international operations despite economic challenges in the recent years. This is confirmed by the award from Commerzbank AG for excellent quality of international settlements, assigned to the Bank for the 6 th year in a row. In the difficult external market environment, the Bank executed over 500 new international trade finance deals for around USD 299 million. More than 70% of the deals were executed together with the Group, and one of the deals was declared the best Group deal in The projects using trade finance instruments were implemented in various industries: machinery construction, building, trade, health care, etc. The best products are available today to all categories of customers regardless of their business volume and international expertise. About 22% of annual trade finance liabilities fall upon SME customer segment. The highest quality of service, leading-edge products and spotless reputation are acknowledged by not only customers but also international partners. For the second consecutive year, the Bank was assigned with Trade Award from Commerzbank AG, one of the most reputable international banks. In the reporting year, trade finance products were utilized by almost 300 customers of the Bank who were proposed new efficient import financing instruments. In particular, the Framework Agreement was signed with Eximbank of Russia, and the clean limit of RUB 700 million was established to be utilized, inter alia, under the program for financing of high-tech Russian export. The swap agreement was concluded with the National Bank of the Republic of Belarus which will allow financing import from China in RMB. In order to promote trade finance services and financial awareness, the Bank actively participated in public events: the business forum Minsk Invest Weekend, the summer youth business forum Lipen.PRO, the international financial services exhibition MoneyFest. Several special educational seminars were held for the Bank s customers, attented by representatives of the Embassy of the Republic of Poland in the Republic of Belarus. 18

19 In the result of those activities, the Bank s share in servicing foreign trade turnover of the Republic of Belarus in 2015 made 9,2%. Corporate funding The Bank holds the 4 th rank by corporate customer funding with the share of 9,4%. The amount of deposits at the beginning of 2016 exceeded BYR 10 trillion, after 3,3% increase. The prioritized direction of corporate customer relations is creation of attractive conditions for placement of available funds by customers. The increasing customer interest to investment of available funds into bonds issued by the Bank is attributed to the possibility of stable income throughout the validity of the agreement and management of placement tenors. The balance on accounts after sale of bonds to legal entities throughout the year increased by 2,5 times and made BYR 1,8 trillion as of the beginning of Corporate customers are represented by companies operating in the leading branches of the economy of the Republic of Belarus. Traditionally, industrial enterprises occupy the largest share of the Bank s resource base. Share of Belarusian banks in the corporate funding structure, % Corporate funding structure of the Bank by industries, % ,9 21,2 2,5 8, , ,5 0,9 2,2 12,5 25,7 Belarusbank (33%) Belagroprombank (10%) BPS-Sberbank (9%) Belinvestbank (9%) BelVEB (7%) Priorbank (6%) Belgazprombank (8%) VTB Bank (4%) Alfa Bank (3%) Other (11%) Education and health care (2,5%) Transport and communications (8,4%) Financial services (9,2%) Wood processing (4,5%) Energy (2,2%) Mining (0,9%) Construction (12,5%) Trade (25,7%) Industrial production (21,2%) Other (12,9%) 19

20 Dynamics of attracted corporate funds by segments is characterized by the increasing share of small and medium business. Structure of corporate funding by segments, % Large and largest business Small and medium business For maximum effectiveness of the customers operations, the Bank applies contemporary high-tech and innovation solutions. The following remote banking services enjoy great popularity among the customers: Bank-Client, Internet-Client, Statement Online, Mobile Client. Customers are on package service by 100% as of , and 99% of the customers are using remote banking services. Short-term deposit agreements were concluded in the real time mode on the basis of the trade and information automated system SavEx that has been successfully functioning in the Belarusian market for 2 years. The share of agreements concluded via SavEx in 2015 reached 97% (in %). The number of corporate customers connected to SavEx doubled and reached

21 Operations in financial markets Development of relations with international financial institutions, insurance agencies, and foreign banks In 2015, great attention was paid to promotion of cooperation with foreign banks and international banking institutions. In spite of challenging external market conditions, the Bank was able not only to secure its positions in the international business but also to introduce a line of new promising products offering additional benefits to the customers in execution of foreign trade operations via Sberbank Group. Apart from the Group, cooperation was developed with other foreign partner banks. Four bank counterparties established new clean risk limits for trade finance operations with the Bank. With regard to the newly established facilities, the total amount of limits as of January 1, 2016 exceeded USD 690 million. The customers got the opportunity to have their contracts with Chinese counterparties financed in RMB on special beneficial terms. The product line was supplemented by the product that enables the customers to attract financing in Russian roubles on the most beneficial terms. Along with that, partner relations were developed with foreign banks and international financial institutions. The Bank was among the first in Belarus to conclude the cooperation agreement with the International Investment Bank, due to which the customers were offered new options to execute international transactions with counterparties from countries of Eastern Europe and Asia. Being a part of the international Sberbank Group, the Bank possesses unique advantages in execution of international operations in the countries of presence of the Group. Thus, apart from cooperating with banks in such traditional trading partner countries as Czech Republic, Austria, and Switzerland, the Bank s customers successfully implemented projects in India, Turkey and some countries of Eastern Europe and the Balkan peninsula, using intragroup products of Sberbank. Correspondent banking In the correspondent banking area, the Bank continued optimization of its correspondent network based on the current needs of the Bank and its customers. New correspondent relations with account opening were established, while other low activity correspondent accounts were closed. The Bank s correspondent network is traditionally one of the most widespread ones in Belarus. To execute customer settlements and own operations, the Bank opened nearly 60 NOSTRO correspondent accounts in 10 foreign currencies and precious metals (gold, silver, platinum, and palladium). The Bank opened more than 100 LORO accounts for Belarusian and foreign banks in different currencies. Developing its international activity, building up transaction volumes and increasing the number of counterparties, the Bank adheres to international anti-money laundering 21

22 laws, complies with the requirements of the national legislation and internal regulations, and consistently applies the know your customer policy. Stock market In the reporting year, the Bank continued to develop as a professional participant of the stock market. A lot of attention was paid to introduction of new products and improvement of service quality. The Bank invests large amounts into long-term public bonds in the local and foreign currencies. The investments available for sale and held to maturity (IFRS) increased 5 times and exceeded BYR 7 trillion. In the framework of cooperation with legal entities, 20 issues of corporate bonds were arranged, including 13 issues of mortgage bonds. Introducing a new product, the Bank implemented two transactions of sale of corporate customer bonds to natural persons for the amount of USD 15 million, and executed the transactions of placement of mortgage bonds in Belarusian roubles for the total amount exceeding BYR 59 billion. In order to build up the customer base, own bonds were actively sold. The proceeds from sale of own bonds as of made BYR 1,9 trillion. Traditionally, much attention was paid to depository services provided to legal entities and natural persons. The Bank s depository is one of the largest ones in the country and serves 365 security issuers (market share 8,2%). In the reporting year, 18 new issuers and 113 depositors were attracted for service. Foreign exchange market In 2015, development of remote channels for sale of services on operations in financial markets continued. The Bank is the only Belarusian commercial bank offering counterparty banks the services of foreign exchange operations with instant execution via the electronic trading system. The Bank s trading system is used by 18 counterparty banks; the volume of interbank foreign exchange operations in 2015 exceeded USD 20 billion. Active position of the Bank in the domestic foreign exchange market allowed confirming the status of the leading operator in the interbank market on operations with Belarusian rouble and conversion operations with foreign currencies. In order to promote operations with the national currency, in 2015 the Bank maintained the status of the market maker in foreign exchange operations with the Belarusian rouble in the trading system of Moscow Exchange JSC. This expanded the range of counterparties interested in those operations, and provided for execution of settlements on concluded deals via the central counterparty Moscow Exchange JSC. 22

23 Precious metals market Remote sales channels for execution of operations with precious metals also continued. For individual customer there were introduced the services of purchase of precious metals with placement into unallocated accounts via Sberbank Online and Mobile Banking systems. BPS-Sberbank actively continues to develop and promote the financial markets services for the customers, paying much attention to the quality of service in all market segments. 23

24 Retail business In spite of challenging competition in the banking market, retail business showed positive dynamics of development in Based on the annual performance results, the Bank became the runner-up in the nomination Best Android mobile application 2015 awarded by infobank.by. The international corporation Oracle awarded the Bank with the title Best customer service solution on the basis of Oracle call centres in The Bank became the first among Belarusian banks to introduce the possibility to pay for toll parking lots in Minsk. The previous year became the time for search of new ways of retail business development and its improvement due to increase of labour productivity and staff optimization. The Bank invested into raising financial awareness of the population, in order to make banking services simple and understandable for all categories of Belarusian citizens. Bank s positions in the retail market The Bank is present in the retail segment of the Belarusian financial market with the following rankings: the 2 nd rank by plastic cards issue maintained for many years, and the 1 st rank by issue of contactless payment cards; the stable 3 rd rank by retail deposits with the market share of 9%; the 4 th rank by retail loans (without beneficial mortgage lending and real estate financing) with the share of 7,3%. The Bank s market shares are: 12,8% of all payment cards in circulation (22,6% of the total number of contactless cards), 14,8% of ATMs, 10,1% of payment terminals, and 10,4% of merchant POS terminals. Customers The number of retail customers of the Bank increased in the reporting year by 84 thousand people or 6%, and now exceeds 1 568,4 thousand individuals. The VIP customer base increased by 28,7%, the affluent customer base grew by 40,4%. 24

25 Retail funding structure by currency as of , % Term deposits structure by tenor as of , % BYR USD EUR RUB > 1 year < 1 year Retail funding structure as of , % Retail funding dynamics, IFRS adjusted to hyperinflation, BYR billion Term deposits Current accounts Bonds Unallocated metall accounts Retail funding The product line was expanded throughout the year, and the rates set for the Bank s fees were tailored to various customer segments. Apart from the basic deposit line, retail customers were offered new deposit products with regard of their behavior preferences. In 2015, new products were launched: online deposits in Belarusian roubles and foreign currencies, available 24/7, with real-time execution of operations. 25

26 The resource base was growing also due to attraction of funds into the investment product unallocated metal accounts (gold, silver, palladium, platinum). The customers could purchase precious metals and credit them onto the unallocated account in the realtime mode. As a result, the balance of funds on unallocated accounts increased by 55% and equaled BYR 447 billion. In the reporting year, the number of opened pension accounts grew by 9%, and their balance increased by 1,6 times up to BYR 186 billion. Cultivating people s interest to alternative investment instruments, the Bank continued to develop operations with bonds sold to the population. As of , bonds in USD, EUR and BYR were sold for the total amount equaling BYR 118 billion. Attraction of retail deposits provided for their growth in the reporting year by 1,5 times up to BYR 18,2 trillion. Retail loans In conditions of decrease of real disposable income of the population, the Bank followed a conservative lending policy, in order to avoid deterioration of the loan portfolio quality. The retail loan portfolio before provisioning reduced throughout the year by 5,8%, and made BYR 1756 billion as of In 2015, retail loans were issued for the amount of BYR 2,2 trillion, including BYR 73 billion for financing of real estate and residential premises. Along with that, the Bank maintained all types of retail loans in its product line. Retail loan portfolio structure by product, % 62,3 59,0 33,6 36,7 4,1 4,3 Consumer loans Car loans Mortgage loans NPL90+ share in the retail loan portfolio as of made 3,1%. 26

27 Plastic cards and transactional products and services The Bank is a member of international payment systems MasterСard Worldwide, Visa International, BELCARD national payment system, and the exclusive acquirer of American Express cards in the territory of the Republic of Belarus. Throughout many years, the Bank remains one of the leaders in the market of banking payment cards in Belarus: Over 1,6 million cards were issued including more than 160 thousand contactless cards; 655 ATMs, 356 information terminals (including 39 terminals with cash-in modules) were installed; merchant terminals were connected. The Bank is certified as an acquirer of contactless technology cards in the international payment systems MasterCard and Visa РayWave. In the framework of development of card issuance business with American Express, beta testing of American Express cards issued by the Bank was carried out. In 2015, the Bank started issuance of Belcard-PREMIUM Maestro Motsnaya Kartka ( Strong Card ) issuance, and acquiring of contactless cards started. The card product for the Youth segment was launched. Dynamics of cards issuance and service infrastructure, units Card issued, thousand ATMs Merchants Merchant terminals The Bank offers a wide range of traditional services to the population: Transfer of funds from the account and without account opening in favour of individuals, legal entities, and individual entrepreneurs; Credit to and advance of cash from the account and without account opening; Execution of continuous transfer instruction. 27

28 Following the strategy of moving of operations into remote service channels, acceptance of payments at the Bank s cash desks is steadily reduced the number of payments decreased by 50%. Meanwhile, the amount of accepted payments in favour of legal entities in the reporting year grew by 7% up to BYR 3,6 trillion. The Bank occupies the 4 th place in the bank ranking by acceptance of payments in the Uniform Settlement and Information Area (ERIP). The market share by the number and amount of payments accepted via ERIP made 7,3% and 5,4%, respectively. Private individuals actively use the Bank s service of international money transfers, due to the convenient operation technology and attractive fees. The amount of money transfers executed via private payment systems for the year equaled USD 67,7 million. Developed regional network and technical capabilities of the Bank allow provision of these services in all service locations operating in self-authorization mode, thus the customers are able to send and receive transfers both on business days and holidays. E-Banking With this technology, the Bank installs merchant terminals for acceptance of payment tools based on innovational form factors: mobile phones, watches, stickers, sim and microsd cards (Mobile paywave and Mobile Paypass). The customers are offered a new acquiring service mobile acquiring (M-POS acquiring). The new Internet banking platform Sberbank Online was launched, online registration of new users is carried out. There was introduced the service of opening and replenishment of term bank deposits in the online mode for the users of Sberbank Online and mobile applications of the Bank on Android, ios, and Windows Phone platforms. The new service Perevedi mne! ( Transfer to me! ) was introduced allowing the customers to transfer funds between the cards Maestro and MasterCard issued by any bank of the Republic of Belarus. Last December, acceptance testing was carried out under the project of the International Processing Centre of Sberbank of Russia. Developing the remote banking channels, the Bank moves retail operations to remote service channels. The number of customers connected to Sberbank Online, SMS Banking, Automated Payment services as of made more than 450 thousand people or 29% of the total customer base of the Bank. Call Centre In 2015, the Bank continued to develop its Call Centre as the uniform information source about products and services of the Bank for the customers, and took measures to bring the customer service standards into conformity with international standards. 28

29 The work was continued to develop the Call Centre as an alternative bank product and service sales channel. During the year, the Call Centre picked more than 730 thousand customer calls, which is by 21% more than in In the structure of applications, the share of alternative communication channels increased: 83% - phone, 17% - alternative channels (online chat, , web call centre, calls ordered from the official web-site). The availability of Call Centre lines (average response time) made on average 25 seconds, while the number of incoming calls considerably increased. The project Call Centre development on the basis of the new software complex together with CRM customer relationship management system, launched in 2014, was accomplished. Main results are: Installation of the new smart IVR with introduction of automated services of retrieval of information on customer accounts before connection to the operator; Creation of the universal working environment for the operator, integrated into CRM system of the Bank with expanded functionality and convenient interface; Development of alternative communication channels (online consultant, call order service, processing of requests redirected from the web-site). In order to standardize customer service by phone, redirection of individual customer calls from the lines of the Bank s divisions to the Call Centre was organized. In the framework of customer-focused approach aimed at reduction of customer s costs on communication with the Bank, the single multi-channel mobile line was arranged. As a result, Call Centre is available not only by the line 148 but also the single mobile number The total index of customer satisfaction with Call Centre service in 2015 made 77% (scores 9 and 10 by 10-point system), meanwhile the level of customer satisfaction with the average waiting time increased by 20% in comparison with 2014, and made 69%. VIP customer service Progressive development of VIP customer service of the Bank continued. The VIP customer base in 2015 grew by 29% which was attributed to establishment of the respective service environment and further promotion of competitive segment-focused product offering. In the framework of establishment and development of long-term trust relations with VIP customers and further advancement of this direction, the specialized web-site for VIP customers of the Bank was launched: In order to improve service quality, research was carried out on Priority Pass, Concierge service, qualitative and quantitative survey of loyalty and satisfaction of VIP customers of the Bank. Additional 7 service locations for VIP customers were opened in the regional network of the Bank. Totally, 29 BPS-Sberbank Premier areas are operating. 29

30 Retail customer service quality improvement Key directions of the Bank s development are high quality of service and customer focus in business process design. Following the contemporary market trends aimed at satisfaction of customer needs, the Bank implements a range of measures directed at improvement of the provided service. At present, with regard to consumer preferences, the process of service quality monitoring is transformed into analysis of customer experience of Bank service. The customer s voice regular surveys and customer applications is the main source of information in the new system. Feedback from customers allows determination of areas for growth. In the reported year, the pilot survey of customer satisfaction with the quality of service in structural divisions of the Bank s network was carried out. Customer satisfaction index (CSI) is general assessment of customer experience in acquisition and use of products and services. This assessment allows determining the value and ratio of price, quality, accessibility, and other factors influencing customer loyalty. In order to improve customer service quality, special attention was paid to development and enhancement of arrangement of processing of incoming applications. To build an efficient customer relations system, various channels are used for feedback: the Call Centre, social networks, Internet portals, book of suggestions and observations, written and electronic applications, personal appointments with top managers of different levels. Analysis of reasons for complaints and suggestions on work improvement allows perfection of the existing processes of the Bank in accordance with customer expectations. Based on the acquired analytical data, the areas of growth and prospects of development are determined, and systematic decisions are taken. In 2015, the work was performed on structuring of the system for processing of customer applications coming via different feedback channels, and elimination of grounds underlying claims. As a result of analysis of applications there was designed the plan of measures aimed at improvement of processes and products of the Bank. In the framework of comprehensive approach to establishment of an efficient system of communication with customers, the section of the official web-site of the Bank intended for submission of applications, was upgraded. Financial awareness Understanding the importance of development of financial awareness of customers, the Bank implemented a range of large-scale projects focused on various categories of the population. Using new forms of interaction with service consumers, 4 web-conferences were arranged to inform the customers about advantages of remote banking services, planning of personal budget, forms of savings, and use of modern technologies. 30

31 The educational book for junior students Kupilki iz kopilki ( Buying from the moneybox ) was published. The days of financial awareness for various categories of people were attended by more than 2500 people from different regions of the country. The exhibition MoneyFest hosted the seminar Effective finance management. Remote banking service. Students of the first and the second years of study of secondary special and higher educational establishments participated in the events. In the reporting year, the pilot project School of new opportunities was successfully implemented. School of new opportunities is a set of information seminars for the younger generation arranged by the Bank under the programme of financial awareness improvement. The first students of the school were members of the Belarusian Republican Union of Youth. The project helped young people find answers to their financial issues, communicate with banking business practitioners. The following educational seminars were offered to the participants of the project: Personal finance management Forms of savings How to borrow a loan Payment cards. Remote banking service. In 2015, the first crowdsourcing project Digital bank of the future was implemented, participated by students of the third and the fourth year of study of the Banking Department of Polesye State University. 31

32 Banking holding development Customers demand in additional services determines development of the effective bank holding. The strategic model of the holding development stipulates outsourcing of activities outside of core banking business to subsidiary companies. The milestone of the reporting year was outsourcing of cash collection and transportation business and establishment of the company INCASS.EXPERT, the first in Belarus non-bank credit and finance organization operating in cash collection business. In the reporting year, the banking holding actively developed in the investment and banking business, IT sphere, leasing and insurance. SB-Global. In the Belarusian banking system, only BPS-Sberbank has a subsidiary providing comprehensive advisory services to support customer s business, including structuring of complex transactions with an investment part, and assessment of the value of business in accordance with international standards. IT company Service Desk. The IT subsidiary of the bank increased the volume of services sold to the customers including banks, and improved its positions in the Belarusian market. In 2015 new competencies developed: repair of NCR ATMs, installation and maintenance of Qmatic electronic queues, software for POS terminals was developed and certified for their further sale, installation and maintenance. Quality of services of the company corresponds to the international standards. The company obtained the status of the authorized partner of the Chinese telecommunication company Huawei, the status Gold IT Operations Software Specialist of HP Enterprise. Service Desk is the first company in Belarus certified under the international IT service management quality standard ISO/IEC :2011, and an associate advisor of British Standards Institution (ISO/IEC 20000, ISO 27001). IT company Sberbank Technologies. The dependent software IT company (resident of High-Tech Park) provides services of development, modification, support of software and implementation of IT projects of customers from Sberbank Group. BPS-Leasing. Following modern international trends, the Bank provides leasing services to customers via the dependent company BPS-Leasing (transactions with complex structure) and leasing partners (SME transactions). TASK insurance company. The dependent insurance company TASK has been operating in the market for 25 years. It provides all kinds of insurance except for life insurance and steadily holds the 2 nd rank in the insurance segment by the amount of fees, earning dividends for the Bank. 32

33 Risk management In 2015 the work was continued on implementation of initiatives stipulated by the plan of introduction of the targeted model of integrated risk management system of Sberbank Group in BPS-Sberbank. In the framework of introduction of the integrated risk management model, the Bank implemented the following activities: Update of risk tolerance parameters of BPS-Sberbank; Development and approval of high-level documents; Continuation of quality improvement of pilot retrieval data in the framework of introduction of new approaches to provisioning on the basis of IFRS with the use of international approaches to the quantitative assessment of credit risks (EL). In the reporting year, the tasks of corporate credit risk management improvement were actively resolved. The project Credit Factory for Macro customer segment was accomplished. The project Credit Conveyor was finalized and its deployment started in all branches. Work continued on improvement of the lending process and credit risk management in the Largest, Large and Medium customer segments. Active automation of the new credit process (NCP) was carried out, all automated process systems were put into production. In order to improve retail risk management efficiency: The scoring card of internal credit histories of the population was developed; The social and demographic scoring model for risk assessment of unsecured loan was put into operation; Methodological base and software complex under the Credit Factory technology were developed; Approaches to assessment of creditworthiness of borrowers and risk parameters for calculation of the maximum loan amount with regard to the portfolio quality and the economic situation were enhanced; The procedure of verification of information about the borrower to simplify the process for the customer was analyzed; The loan product line was expanded. The introduced automated technology of fraud prevention allowed reducing credit risk in 2015 by prevention of fraud attempts by retail customers. Due to this system, 56% of loan applications matched by certain rules, and 3% of the pool of matched applications were deemed fraudulent. The Bank adequately managed operational risks in the financial markets, both credit and market risks. Credit risk management comprises the established general system of assessment and rating of banks and tailored approaches to assessment of the ability of the specific borrower to fulfill its obligations. Financial status of counterparty banks is regularly monitored. 33

34 Improving the process of setting limits to credit risks inherent to operations executed in financial markets, PEGA FI was implemented, being the automated system for registration and monitoring of status of components of the process of management of operations in financial markets. The automated system Zeus for control of limit utilization is in use. To develop the system of post-control of market risks, the methodological base of the process of independent verification of cost of operations in financial markets was approved. Risk metrics are calculated which allows controlling the level of market risks of operations on the trade book. The Bank works on implementation of approaches of the parental company to risk management in financial markets operations. In the framework of establishment of the Uniform credit process of lending operations and operations in financial markets, the respective methodological base was prepared. Liquidity risk management process included approval of mandates of portfolios and subportfolios of securities of the internal bank, limits and restrictions on subportfolios were set. The methodologies of scenario analysis and GAP analysis of liquidity risk were developed. Net interest income sensitivity was approved as the interest rate risk tolerance indicator. The Bank adopted early warning indicators of foreign exchange risk, and developed the plan of measures to prevent crisis events related to foreign exchange risk realization. In the reporting year, the process of transformation of operational risk management into the standardized process compliant with international practice, continued. Work was performed on update and further development of the regulation base including update of the process of risk incident data collection process, development and improvement of the management report system. 34

35 Bank development Banking technologies improvement For the purpose of transformation of the Bank into a service company, a range of large-scale modifications are introduced, including technical upgrade and industrialization of systems and processes. Today, the Bank has created a single centre of transformation management being the single input point for development of optimal solutions related to introduction of new technologies and innovations, implementation of measures aimed at development of business and optimization of the processes. For successful implementation of transformations, the infrastructure of continuous improvement was created and is developing by means of integration and synergy of process management, project management and PSS 2.0 tools and their integration in to the management system of the Bank. Project management system development aims at expansion of the project culture and its active application in various spheres of the Bank s activity: In 2015, in order to improve the training system, the remote learning course Project management was created. More than 85% of mid-level executives and line managers of the Head Office underwent project management training; Development of project management methodology was carried out in terms of clarification and formalization of the process of transformations in the projects and programmes of the Bank, and update of key regulations of the Bank; In terms of management of motivation and effectiveness of managers through the system of project priorities, changes were introduced into the rules of management of such projects, the mechanism of monitoring with application of automated project management system was improved; The project approach in PSS resulted in release of the Technological Scheme of PSS project management. Innovation activity was developed in the Bank due to active use of the corporate social network by the Bank s employees. The collective interaction tools crowdsourcing, professional communities, knowledge databases allowed improving innovation activity of the staff. Initiatives implemented through PSS projects (DMAIC, PDCA and quick initiatives) and requests for changes gave the economic effect in the amount above BYR 18 billion. In the area of improvement of banking processes and Production System of Sberbank (PSS): The Mature Entity model was implemented by development of three components processes, management system, and culture; To understand the level of maturity, self-assessment of structural divisions of the Head Office and the Operating Office was carried out, which detected the areas requiring escalation of certain components; the plans for maturity improvement were established; 35

36 The system of regular surveys Voice of internal customer was launched; it allows determining problematic areas of the Bank s activities in order to improve the internal service quality; based on the survey results, optimization measures were taken in relation to the reviewed services; the general list of services to be surveyed in 2016 was drawn; To enable continuous improvement, the Bank is implementing Gemba programme on-site visits of structural divisions by top managers for visual assessment of process execution, determination of the existing problems and development of their solutions; In terms of PSS 2.0 competencies development, regular training and certification of the Bank s employees for black, green and yellow belts are carried out; remote training courses 5C in the Bank s office, Problem solution algorithm based on PDCA cycle were developed and introduced; the training course Assessment of current PSS maturity in structural divisions of the Bank was developed and implemented; the training course Management system was held for the top management of the Bank. There were undertaken the measures for identification and selection of top priority processes, detection of processes with low efficiency and high level of operating risks. The corporate process database was created and is developed: electronic repository of processes based on Business Studio software, and the resource Process management system on the corporate web-portal. The process management system is integrated with other systems of the Bank (based on role concept of the process approach): risk management, internal control system; processing of customer applications; regulation of the Bank s activity. Information technologies Simultaneously with project implementation, the following projects with IT content were implemented in the reporting year: Automation of the new lending process; Trust management of customers assets; Establishment of the non-bank credit and finance organization; Automation of the banking product Letters of credit issued by the Bank ; Introduction of the new Internet banking for individuals, and other projects; Implementation of the tools for maintenance of relations with customers and metagroups; Cross border CRM for subsidiary banks. Stage 2; Creation of the system for record of calls, management of quality and productivity for the Underwriting Centre Verint Impact 360; Transfer to the uniform processing centre of Sberbank Group (MPC. Stage 1). The Bank paid much attention to development of different systems of communication, monitoring, routing, and centralization of software complexes. The following systems were launched: 36

37 Videoconference servers, allowing continuous videoconferencing and increasing the number of calls; Fax servers, providing divisions of the Bank with electronic facsimile communication; Intellectual routing of phone calls in the most cost-efficient way, allowing the Bank reducing expenses on phone calls; Gateways for incoming communication via mobile operators for the Call Centre, which allows to provide access for the Bank s customer to the Call Centre at the rates of mobile operators; Highly productive routing hub based on Cisco Nexus 7000 and ASR1002X equipment, allowing improvement of capacity of the corporate network and providing for continuity, safety and scalability; Monitoring based on SevOne and Cisco Prime Infrastructure, improving manageability of the Bank s corporate network; Monitoring of IT infrastructure, allowing centralization processing of server, storage system and other infrastructure events. In 2015, modernization of storage systems and server equipment was carried out. The projects and processes implemented in the reporting year allowed maintenance of the customer base, improvement of quality and effectiveness of operations. Operating efficiency management An important step in achievement of objectives set for 2015 was improvement of the quality of operating support of business and cost optimization. The most important milestones were: Transformations in the organizational structure of the Operations unit The strategic project was implemented: Non-Bank Credit and Finance Organization INCASS.EXPERT CJSC was established on the basis of the Cash Management Centre; The number of staff of the Operations unit was optimized; The schedule of enlargement of interregional divisions for operations with valuables was approved, and the Department for Operations with Valuables was created. Optimization of operating costs of the Operations unit due to abandonment of premises and growth of labour efficiency The economic effect made about BYR 4,7 billion and was attributed to growth of labour efficiency, reengineering of processes, innovation activity and implementation of PSS projects of the Operating Office Central European in the result of: Launching of the robot for automatic credit of lists of individuals; Reengineering of processes for internal financial operations; Additional centralization and automation of supporting functions from divisions of the Bank to the Operating Office Central European ; 37

38 Implementation of the technology for automatic processing of requests from governmental authorities as to operations of corporate entities; Testing of approaches of the Nationаl Bank of the Republic of Belarus on introduction of electronic document exchange with governmental authorities (the Ministry of Justice of the Republic of Belarus and the banking system). The project Transformation of Operating Function broke even, NPV of economic profit made USD 1,4 million; The project Introduction of the centralized forecasting and management of cash desk resources of the Bank was accomplished. Regional network development The branch network of the Bank remains one of the most widespread in the Republic of Belarus and comprised 99 sales offices in all regions of the country, and a representative office in the Republic of Poland, as of the beginning of On , 49 sales offices, or half of their total value, functioned in the new format. In the framework of implementation of the Strategy of development of the Bank in the reporting year, measures were undertaken for reformatting of the regional network in order to establish an efficient, technological, flexible and manageable network of sales offices meeting requirements of business growth and satisfying all customer demands in services. In 2015, the work with the regional network was aimed at its optimization with regard to economic potential of the regions, prospects of business development, optimization of costs and improvement of the Bank s efficiency. Regional network of BPS-Sberbank as of Vitebsk region: 1 RD, 5 BSCs, 6 RWBs Mogilyov region: 1 RD, 2 BSCs, 5 RWBs Minsk: 1 RD, 10 BSCs, 18 RWBs Minsk region: 5 BSCs, 5 RWBs Grodno region: 1 RD, 3 BSCs, 12 RWBs Gomel region: 1 RD, 6 BSCs, 12 RWBs Brest region: 1 RD, 2 BSCs, 3 RWBs RD Regional Directorate BSC Banking Service Centre RWB Remote Workbench 38