Otkritie Holding JSC. Interim condensed consolidated financial statements. 30 June 2014

Transcription

1 Otkritie Holding JSC Interim

2 Otkritie Holding JSC Interim condensed consolidated financial statements Contents Report on review of the interim Interim condensed consolidated statement of financial position... 1 Interim condensed consolidated income statement... 2 Interim condensed consolidated statement of comprehensive income... 3 Interim condensed consolidated statement of changes in equity... 4 Interim condensed consolidated cash flow statement... 5 Selected explanatory notes to the interim 1. Principal activities Basis of preparation Cash and cash equivalents Precious metals Amounts due from credit institutions Financial assets at fair value through profit or loss Loans to customers Investment securities available for sale Investment securities held to maturity Taxation Other impairment Other assets Amounts due to credit institutions Amounts due to customers and borrowings Debt securities issued Other liabilities Subordinated loans Equity Commitments and contingencies Net fee and commission income Other income Personnel and administrative expenses Fair value of assets and liabilities Major subsidiaries and associates Business combinations and disposals Segment information Related party disclosures Subsequent events... 41

3

4

5 Otkritie Holding JSC Interim condensed consolidated income statement For six months ended (Millions of Russian rubles) Interim condensed consolidated financial statements Note For six months ended (unaudited) Interest income Loans to customers 70,139 Amounts due from credit institutions 2,197 Investment securities 3,040 75,376 Financial assets at fair value through profit or loss 6,078 81,454 Interest expense Borrowings (11,087) Amounts due to customers (23,979) Amounts due to credit institutions (7,851) Debt securities issued (8,005) Other (190) (51,112) Net interest income 30,342 Allowance for impairment of interest bearing assets 5, 7 (14,456) Net interest income after allowance for impairment of interest bearing assets 15,886 Net fee and commission income 20 6,327 Net gains from financial assets at fair value through profit or loss 6 2,901 Net gains from derivative instruments 6 3,534 Net losses from investment securities available for sale (134) Net gains/(losses) from foreign currencies: - dealing 6 1,148 - translation differences (1,235) Net gains/(losses) from precious metals: - dealing translation differences (699) Gain from disposal of subsidiaries 280 Share in loss of associates (4) Other income 21 3,406 Non-interest income 16,195 Personnel and administrative expenses 22 (19,565) Depreciation and amortization (3,448) Other impairment (784) Non-interest expense (23,797) Change in non-controlling interest in mutual funds (5) Profit before tax 8,279 Income tax expense 10 (1,942) Net profit 6,337 Net profit attributable to: - shareholders of the Group 4,697 - non-controlling interests 1,640 The accompanying notes 1-28 are an integral part of these interim. 2

6 Interim condensed Otkritie Holding JSC consolidated financial statements Interim condensed consolidated statement of comprehensive income For six months ended (Millions of Russian rubles) Note For six months ended (unaudited) Profit for the period 6,337 Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods: Unrealized gains on investment securities available for sale 1,080 Realized losses on disposal of investment securities available for sale reclassified to profit or loss 134 Currency translation difference (69) Income tax relating to components of other comprehensive income 10 (240) Net other comprehensive income to be reclassified to profit or loss in subsequent periods 905 Other comprehensive income for the period, net of tax 905 Total comprehensive income for the period 7,242 Attributable to: - shareholders of the Group 5,522 - non-controlling interests 1,720 The accompanying notes 1-28 are an integral part of these interim. 3

7 Otkritie Holding JSC Interim condensed consolidated statement of changes in equity For six months ended (Millions of Russian rubles) Interim condensed consolidated financial statements Share capital Share premium Attributable to the shareholders of the Group Unrealized gains/ (losses) on revaluation of investment Treasury shares securities available for sale Revaluation reserve for property and equipment Retained earnings Foreign currency translation reserve Total Noncontrolling interests As of 31 December ,235 45,365 (1,524) 1,191 1,330 10,741 1,117 59,455 17,990 77,445 Profit for the period 4,697 4,697 1,640 6,337 Other comprehensive income/(expense) 890 (65) Total comprehensive income/(expense) 890 4,697 (65) 5,522 1,720 7,242 Depreciation of revaluation reserve for land and buildings (41) 41 Additional issue (Note 18) ,697 16,003 16,003 Effect of increase/(decrease) of the Group s interest in subsidiaries (227) 361 (478) (344) Cessation of mandatory offer to minority shareholders of a subsidiary bank (Note 16) (6,106) (6,106) 32,275 26,169 Dividends (Note 18) (500) (500) (500) As of (unaudited) 1,541 61,062 (1,524) 1,854 1,650 8,395 1,052 74,030 52, ,796 Total equity The accompanying notes 1-28 are an integral part of these interim. 4

8 Otkritie Holding JSC Interim condensed consolidated cash flows statement For six months ended (Millions of Russian rubles) Interim condensed consolidated financial statements Note For six months ended (unaudited) Cash flows from operating activities Interest received 74,843 Interest paid (46,937) Fees and commissions received 8,523 Fees and commissions paid (2,365) Gains less losses from financial assets at fair value through profit or loss 7,098 Realized gains less losses from foreign currencies 1,379 Realized gains less losses from dealing in precious metals 190 Other income received 3,795 Personnel expenses paid (10,912) Other operating expenses paid (9,047) Cash flows from operating activities before changes in operating assets and liabilities 26,567 Net (increase)/decrease in operating assets: Precious metals 445 Amounts due from credit institutions (4,000) Financial assets at fair value through profit or loss 84,988 Loans and borrowings (81,011) Other assets 3,166 Net increase/(decrease) in operating liabilities Amounts due to credit institutions (15,369) Amounts due to customers and borrowings (25,384) Promissory notes and certificates of deposit issued 31,488 Other liabilities 1,329 Net cash flows from operating activities before income tax 22,219 Income tax paid (3,175) Net cash flows from operating activities 19,044 Cash flows from investing activities Purchase of investment securities available for sale (91,617) Proceeds from sale and redemption of investment securities available for sale 42,133 Acquisition of subsidiaries, net of cash received Disposal of subsidiaries, net of cash disposed 249 Purchase of investment securities held to maturity (16,576) Prepayment for shares acquired 12 (16,356) Purchase of property and equipment and intangible assets (937) Proceeds from sale of property and equipment and intangible assets 399 Purchase of investment properties (913) Proceeds from sale of investment property 111 Net cash flows used in investing activities (83,456) Cash flows from financing activities Proceeds from increase in share capital 18 16,003 Subordinated loans received 291 Subordinated loans repaid (2) Proceeds from bonds and loan participation notes issued 10,984 Repurchase of bonds and loan participation notes of the Group (11,407) Proceeds from other borrowings 38 Acquisition of non-controlling interests (payment under put option) 16 (4,234) Proceeds from sale of interest in subsidiary 412 Redemption of interest in mutual funds controlled by the Group (82) Net cash from financing activities 12,003 Effect of exchange rates changes on cash and cash equivalents (1,210) Net decrease in cash and cash equivalents (53,619) Cash and cash equivalents, beginning 3 218,037 Cash and cash equivalents, ending 3 164,418 The accompanying notes 1-28 are an integral part of these consolidated financial statements. 5

9 (Millions of Russian rubles) 1. Principal activities These consolidated financial statements of Otkritie Holding JSC (hereinafter, the Company ) and its subsidiaries (hereinafter, the Group ) have been prepared in accordance with the International Accounting Standard IAS 34 Interim Financial Reporting for six months ended. Otkritie Holding JSC is the ultimate parent of the Group. It was formed on 17 March 2004 as a limited liability company Investment Group Otkritie under the laws of the Russian Federation. In February 2007, Investment Group Otkritie Ltd. was renamed into Financial Corporation OTKRITIE Ltd. In December 2010, the Company was reorganized into an open joint-stock company. In May 2014, Financial Corporation OTKRITIE was renamed into Otkritie Holding Joint Stock Company. The Company s registered office is 2 Letnikovskaya ul., bld.4, Moscow, Russia. The Company s head office is located at 2 Letnikovskaya ul., bld. 4, Moscow, Russia. A list of major subsidiaries and associates included in these consolidated financial statements is provided in Note 24. The Group operates predominantly in commercial and investment banking sectors, provides brokerage and asset management services. As a result of reorganization performed in September 2010 by merger of OJSC Bank Petrovski and OTKRITIE Investment Bank JSC with OTKRITIE Bank JSC (before merger OTKRITIE Commercial Bank CJSC), the Group s commercial banking and major part of investment banking operations were performed through one legal entity OTKRITIE Bank JSC, a Company s subsidiary. In June 2013, the Group obtained control over NOMOS-BANK Group (OJSC) (in June 2014, the bank was renamed into Open Joint-Stock Company Bank Otkritie Financial Corporation ). In accordance with the new structure of banking business, Bank Otkritie Financial Corporation (Open Joint-Stock Company) came at the helm of banking group and focuses on providing services to corporate customers, and OTKRITIE Bank JSC is going to focus on retail customers. Commercial banking operations performed by the Group include lending, raising RUB-denominated deposits and deposits in freely convertible currencies, settlement and currency exchange operations. Investment banking operations include securities trading and trading in derivative financial instruments, operations on the equity share and debt capital markets, services related to mergers and acquisitions and operations on the money market, including interbank loan and foreign exchange markets. The Group provides brokerage services and performs securities trading and trading in derivative financial instruments primarily through OTKRITIE Brokerage House JSC and Otkritie Securities Ltd. (in June 2014, renamed into Otkritie Capital International Ltd.), wholly owned subsidiaries of the Company. Asset management services are provided primarily through OTKRITIE Asset Management Ltd. (a wholly owned subsidiary of the Company) and include management of collective investments, fiduciary management of cash and securities in the interests of individuals and legal entities. The Group s operations are conducted on both Russian and international markets. OTKRITIE Bank JSC holds general banking license No issued by the Central Bank of the Russian Federation, licenses issued by the Federal Service for Financial Markets (hereinafter, the FSFM ) for securities trading and trading in derivative financial instruments, including brokerage, dealing and custody services, and for securities management. Since 11 January 2005, OTKRITIE Bank JSC is a member of the obligatory deposit insurance system of the Russian Federation provided by the State Corporation Deposits Insurance Agency (hereinafter, the DIA ). Bank Otkritie Financial Corporation (Open Joint-Stock Company) holds general banking license No issued by the Bank of Russia, licenses for carrying out transactions with precious metals, general license of the Ministry of Economic Development and Trade of the Russian Federation for exporting gold and silver, licenses for securities trading and trading in derivative financial instruments, including brokerage, dealing and custody services, as well as for securities management and special depositary services on investment funds, mutual funds and non-state pension funds. Bank Otkritie Financial Corporation (Open Joint-Stock Company) is a member of the obligatory deposit insurance system of the Russian Federation. JSC BANK OF KHANTY-MANSIYSK, a member of Bank Otkritie Financial Corporation (Open Joint-Stock Company) banking group, holds general banking license No issued by the Bank of Russia, licenses for securities trading and trading in derivative financial instruments, including brokerage, dealing and custody services, as well as for securities management, and license for receiving deposits in precious metals and depositing them and carrying out other transactions with precious metals. Municipal Bank of Novosibirsk OJSC, a member of Bank Otkritie Financial Corporation (Open Joint-Stock Company) banking group, holds general banking license No issued by the Bank of Russia, and license for carrying out depositary activity. 6

10 (Millions of Russian rubles) 1. Principal activities (continued) OTKRITIE Brokerage House OJSC holds the FSFM s licenses for securities and derivative financial instruments transactions, OTKRITIE Asset Management LLC holds the FSFM s licenses for securities management and operating investment funds, mutual funds and non-state pension funds. Otkritie Capital International Ltd. (UK) and Otkritie Capital Cyprus Ltd. (Cyprus) hold respective licenses issued by local regulators. The Group has a large network of offices in the Russian Federation, which comprises more than 600 offices in economically important regions of Russia. The Group is also represented on international markets and has offices in London, New York and Limassol. The Group s ultimate beneficiaries are as follows: Beneficiary % 31 December 2013 % Belyaev Vadim Stanislavovich Fedun Leonid Arnoldovich, Alekperov Vagit Yusufovich Aganbegyan Ruben Abelovich Nesis Aleksandr Natanovich N-S PF Lukoil Garant Mamut Aleksandr Leonidovich Gordeev Sergey Eduardovich Malis Oleg Adolfovich 6.65 Other Total Other beneficiaries include beneficiaries whose interest is below 5.00%. 2. Basis of preparation General These interim have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The interim do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s annual financial statements for the year ended 31 December The Company is required to maintain its records and prepare its financial statements for regulatory purposes in Russian rubles in accordance with Russian accounting and banking legislation and related instructions ( RAL ). Subsidiaries are required to maintain their records in accordance with local legislation and regulatory acts of the country of incorporation and prepare their financial statements in local currency. These consolidated financial statements are based on the Group s local books and records, as adjusted and reclassified in order to comply with IFRS. The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. For example, trading securitites, investment securities available for sale, derivative financial instruments, investment property, land and buildings have been measured at fair value. These consolidated financial statements are presented in millions of Russian rubles ( RUB million ), unless otherwise indicated. Changes in accounting policies The accounting policies adopted in the preparation of the interim are consistent with those followed in the preparation of the Group s annual financial statements for the year ended 31 December 2013, except for the adoption of new Standards and Interpretations as of 1 January 2014, noted 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. The amendments had no impact on the Group, since the Group does not qualify to be an investment entity under IFRS 10. 7

11 (Millions of Russian rubles) 2. Basis of preparation (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 amendments are effective for annual periods beginning on or after 1 January These amendments had no impact on the Group. IFRIC Interpretation 21 Levies (IFRIC 21) IFRIC 21 clarifies that an entity recognizes 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 IFRIC 21 did not have any significant impact on the Group s financial statements. IAS 39 Novation of Derivatives and Continuation of Hedge Accounting Amendments to IAS 39 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 These amendments had no impact on the Group, since the Group has not novated its derivatives during the current period. IAS 36 Recoverable Amounts Disclosures for Non-Financial Assets Amendments to IAS 36 These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under IAS 36 Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units for which impairment loss has been recognized or reversed during the period. The amendments had no impact on the financial position or performance of the Group. Changes in management estimates The Group collected more accurate information on the structure of overdue debt to enhance its methodology for the evaluation of allowance for impairment of loans issued to individuals. If the updated methodology had been used in respect of the loan portfolio at 31 December 2013, allowance for loan impairment would have been RUB 479 million lower. 3. Cash and cash equivalents Cash and cash equivalents comprise: (unaudited) 31 December 2013 Settlement and correspondent accounts with banks 37,994 46,720 Time deposits with credit institutions up to 90 days 28,583 55,616 Correspondent account with the Bank of Russia 25,419 25,958 Cash on hand 25,330 35,121 Amounts at stock exchanges clearing houses 24,858 13,571 Amounts on brokerage accounts 11,570 4,120 Reverse repurchase agreements with credit institutions up to 90 days 9,340 10,177 Time deposits with the Bank of Russia up to 90 days 1,283 26,754 Cash under trust management 41 Total cash and cash equivalents 164, ,037 Correspondent account with the Bank of Russia represents balances with the Central Bank of the Russian Federation used for settlement operations. Amounts with stock exchanges clearing houses represent the Group s unrestricted cash balances on stock exchanges accounts. 8

12 (Millions of Russian rubles) 3. Cash and cash equivalents (continued) Amounts on brokerage accounts represent the Group s balances on accounts with brokerage companies, which the Group transferred under brokerage services agreements to enter into securities and derivatives contracts. The amounts transferred under reverse repurchase agreements and the value of securities received as collateral are as follows: (unaudited) 31 December 2013 Carrying Fair value of amount of funds collateral transferred Carrying amount of funds transferred Fair value of collateral Corporate shares 4,681 7,429 5,786 6,670 Russian state bonds (OFZ) 3,816 4,129 1,695 1,791 Corporate bonds ,670 3,268 Corporate Eurobonds Total 9,340 12,508 10,177 11,764 Securities received under reverse repurchase agreements with banks with the fair value of RUB 9,118 million (31 December 2013: 4,378 million) were transferred under direct repurchase agreements in the amount of RUB 5,658 million (31 December 2013: 3,997 million). 4. Precious metals Precious metals comprise: (unaudited) 31 December 2013 Gold in vault 4,437 4,860 Gold in transit Silver in vault Silver in transit Other precious metals in vault Precious metal coins Total precious metals 5,300 5, Amounts due from credit institutions Amounts due from credit institutions comprise: (unaudited) 31 December 2013 Time deposits over 90 days 14,581 12,432 Obligatory reserves with the Bank of Russia 9,145 8,869 Restricted cash at stock exchanges 7,821 3,156 Current restricted amounts with credit institutions 520 Other amounts 1,270 Total due from credit institutions, gross 31,547 26,247 Less: allowance for impairment (10) (1) Total due from credit institutions 31,537 26,246 Time deposits over 90 days are the time placement of the Group s funds in resident and non-resident banks. Credit institutions are required to maintain a non-interest earning cash deposit (obligatory reserve) with the Bank of Russia, the amount of which depends on the level of funds attracted by the credit institution. The Group s ability to withdraw such deposit is significantly restricted by the statutory legislation. 9

13 (Millions of Russian rubles) 5. Amounts due from credit institutions (continued) Restricted cash at stock exchanges represents cash balances provided by the Group to secure positions opened by the Group and its customers at Futures and Options on RTS (FORTS), National Clearing Center and foreign stock exchanges as of the end of the reporting period, as well as contributions to the insurance fund at Futures and Options on RTS (FORTS). The movements in the allowance for impairment of amounts due from credit institutions were as follows: For six months ended (unaudited) At the beginning of the period 1 Allowance for impairment 9 At the end of the period Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss comprise: (unaudited) 31 December 2013 Debt securities Corporate Eurobonds 34,453 43,566 Corporate bonds 24,314 37,133 Russian state bonds (OFZ) 4,063 4,317 Municipal and subfederal bonds 2,942 6,815 Bonds of foreign governments Eurobonds of the Russian Federation 237 Total trading debt securities 66,594 92,832 Corporate equity securities Corporate shares 8,303 59,911 Depository receipts 1,475 Total trading equity securities 8,303 61,386 Financial assets at fair value through profit or loss Derivative financial instruments 10,238 3,141 Corporate shares Total financial assets at fair value through profit or loss 10,707 3,387 Total financial assets at fair value through profit or loss 85, ,605 Including blocked as collateral against borrowings from the Bank of Russia 9,191 19,870 Financial assets at fair value through profit or loss pledged under repurchase agreements comprise: (unaudited) 31 December 2013 Debt securities Corporate bonds 38,971 59,560 Russian state bonds (OFZ) 17,613 25,530 Municipal and subfederal bonds 8,460 3,858 Corporate Eurobonds 6, Eurobonds of the Russian Federation 1,110 Total debt trading securities pledged under repurchase agreements 72,000 90,226 Equity securities Corporate shares ,102 Depository receipts 214 Total equity trading securities pledged under repurchase agreements ,102 Total financial assets at fair value through profit or loss pledged under repurchase agreements 72, ,328 10

14 (Millions of Russian rubles) 6. Financial assets at fair value through profit or loss (continued) Corporate Eurobonds are debt securities issued by Russian and foreign finance, metals, oil and gas and energy companies. Eurobonds mature from December 2014 to June 2035 (31 December 2013: March 2014 to December 2049) with the coupon rate from 1.75% to 9.25% (31 December 2013: 1.99% to 11.5%). Corporate bonds are RUB-denominated debt securities issued by Russian and international finance, telecom, metals, oil and gas, transport and other companies. The bonds mature from July 2014 to January 2044 (31 December 2013: from February 2014 to January 2044) with the coupon rate from 7% to 19% (31 December 2013: from 7% to 19%). Russian state bonds (OFZ) are represented by RUB-denominated debt securities issued by the Ministry of Finance of the Russian Federation. The bonds mature from August 2014 to February 2036 (31 December 2013: from March 2014 to February 2036) with the coupon rate from 6.2% to 12% (31 December 2013: from 6.2% to 12%). Municipal and subfederal bonds are represented by RUB-denominated debt securities issued by regional and municipal authorities of the Russian Federation. The bonds mature from September 2015 to June 2021 (31 December 2013: from April 2014 to October 2020) with the coupon rate from 7.49% to 11.5% (31 December 2013: from 7.85% to 10%). Bonds of foreign governments are represented by USD-denominated treasury bonds issued by the United States Treasury. The bonds bear a coupon rate of 2% (31 December 2013: 2%) and mature in February 2023 (31 December 2013: February 2023). Corporate shares are mainly represented by quoted shares of Russian and foreign finance, oil and gas, metals, energy and telecom companies freely traded in Russian and international securities markets. As of, the Group attracted funds collateralized by trading securities totaling RUB 61,602 million under direct repurchase agreements with the Bank of Russia (31 December 2013: RUB 62,034 million), RUB 3,845 million under repurchase agreements with banks recorded as amounts due to credit institutions (31 December 2013: RUB 14,530 million), and RUB 1,248 million under repurchase agreements with legal entities recorded as amounts due to customers and borrowings (31 December 2013: RUB 18,081 million) (Notes 13, 14). As of, trading securities with the fair value of RUB 9,191 million were blocked as collateral against the credit line with the Bank of Russia (31 December 2013: RUB 19,870 million). As at and 31 December 2013, the Group did not utilize the credit facility. Trading securities are carried at fair value based on objective market data. Derivative financial instruments are mainly represented by swaps and forwards for underlying assets including foreign currencies, securities and precious metals. Net gains from derivative financial instruments related to foreign currency in the amount of RUB 667 million are recorded in the consolidated income statement as net gains/(losses) from foreign currencies: dealing (total RUB 1,148 million). Net gains from derivative financial instruments related to securities in the amount of RUB 2,265 million are recorded in the consolidated income statement as net gains from financial assets at fair value through profit or loss (total RUB 2,901 million). Net gains from derivative financial instruments related to precious metals in the amount of RUB 534 million are recorded in the consolidated income statement as net gains/(losses) from precious metals: dealing (total RUB 671 million). The remaining portions of gains and losses related to these items are represented by results from spot deals. Net gains from other financial instruments (excluding derivative financial instruments related to foreign currency, securities, precious metals) in the amount of RUB 3,534 million are recorded as net gains from derivative financial instruments. 11

15 (Millions of Russian rubles) 6. Financial assets at fair value through profit or loss (continued) Analysis of debt financial assets at fair value through profit or loss by credit quality as of is as follows: Investment rating Speculative rating No rating Total Debt securities issued by state and municipal authorities Russian state bonds (OFZ) 21,676 21,676 Municipal and subfederal bonds ,203 11,402 Bonds of foreign governments Corporate debt securities Corporate bonds 34,666 27,414 1,205 63,285 Corporate Eurobonds 30,209 10, ,409 Total debt financial assets at fair value through profit or loss 87,572 49,475 1, ,594 Analysis of debt financial assets at fair value through profit or loss by credit quality as of 31 December 2013 is as follows: Investment rating Speculative rating No rating Total Debt securities issued by state and municipal authorities Russian state bonds (OFZ) 29,847 29,847 Municipal and subfederal bonds 3 10,670 10,673 Eurobonds of the Russian Federation 1,347 1,347 Bonds of foreign governments Corporate debt securities Corporate bonds 45,777 48,287 2,629 96,693 Corporate Eurobonds 24,842 18,892 43,734 Total debt financial assets at fair value through profit or loss 102,580 77,849 2, ,058 The ratings in the tables above are determined based on the rating scales of international rating agencies. 7. Loans to customers Loans to customers comprise: (unaudited) 31 December 2013 Corporate lending 693, ,966 Consumer lending 127, ,391 Reverse repurchase agreements 109, ,207 Residential mortgages 56,280 54,314 Small and medium business lending 44,049 49,317 Factoring 14,752 14,337 Margined lending 9,676 10,764 Credit cards 8,783 7,428 Car loans 7,082 8,716 Claims under letters of credit 626 1,048 Net investment in finance leases 77 8,260 Total loans to customers before allowance for impairment 1,071, ,748 Less: allowance for impairment (31,707) (25,100) Total loans to customers 1,039, ,648 Corporate lending represents loans to legal entities, individual entrepreneurs, municipal and regional authorities usually in the form of standard loan facilities, overdrafts and note-backed lending. 12

16 (Millions of Russian rubles) 7. Loans to customers (continued) Consumer lending represents loans to individuals to finance their current needs. Reverse repurchase agreements represent the Group s securities reverse repurchase transactions. From the economic standpoint, reverse repurchase is similar to issuing loans collateralized by securities. Small and medium business lending includes loans to legal entities and individual entrepreneurs. Loans are issued for current purposes (increase in commodity turnover, acquisition of movable and immovable property, investments in securities, etc.). Residential mortgages are loans issued to individuals for purchasing or building residential properties secured by acquired or other owned property. Factoring is a complex of financial services that the Group provides to a client in exchange for assignment of receivables, which helps companies operating on deferred payment terms to receive cash under concluded agreements before the customer pays for goods and services. Car loans are loans issued to individuals for purchasing vehicles produced either in Russia or abroad. Net investment in financial leases is gross investment of the Group in leases less finance income received. Credit cards are general-purpose loans to individuals in the form of revolving credit facilities. Margined lending includes loans issued by broker companies to legal entities, individuals and individual entrepreneurs to acquire securities against the present value of the securities acquired. Letters of credit are the Group s claims to parties of sales transactions settlements (performance of work/provision of services transactions) based on documents stipulated by the terms of letter of credit. 13

17 7. Loans to customers (continued) Allowance for impairment of loans to customers A reconciliation of the allowance for loan impairment by class is as follows: For six months ended (unaudited) Corporate lending Consumer lending Small and medium business lending Auto lending Residential mortgages Margined lending Reverse repurchase agreements Credit cards Factoring Net investment in finance leases Claims under letters of credit As of 31 December ,185 6,051 1, ,100 Charge/(reversal) of allowance for impairment during the period 6,169 5,721 1, (2) 14,447 Amounts written off (3,351) (444) (662) (40) (8) (53) (62) (4,620) Disposal from loans and borrowings (1,594) (1,670) (40) (1) (3) (268) (3,576) Disposal of subsidiaries (91) (225) (316) Redemption of loans and borrowings previously written off Translation difference 113 (2) As of 16,859 9,718 2, , ,707 Individual impairment 7,943 1, ,303 Collective impairment 8,916 9,718 1, , ,404 Total amount of individually impaired loans before deducting allowance for impairment 43,646 2, ,275 Total 14

18 7. Loans to customers (continued) Allowance for impairment of loans to customers (continued) In accordance with the Bank of Russia requirements, loans may only be written off with the approval of the Group s authorized body and, in certain cases, with the respective court decision. In the first half year 2014, the Group sold to the third parties corporate loans and loans to small and medium business in the amount of RUB 15,959 million, less allowance, and retail loans in the amount of RUB 384 million, less allowance for consideration of RUB 16,364 million and RUB 44 million, respectively. The Group has determined that all the risks and benefits associated with the respective loans were transferred; therefore the Group derecognized these loans. The respective financial result was recorded as income from repayment and sale of the acquired claims and loan agreements in other income of the consolidated income statement (Note 21). Collateral and other credit risk enhancements The amount and type of collateral required by the Group depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters. The main types of collateral obtained are as follows: For reverse repurchase transactions securities; For corporate lending real estate properties, equipment, inventory; For margined lending securities acquired; For consumer lending mortgages over residential properties, charges over vehicles, guarantees and warranties. As of, loans to customers in the amount of RUB 3,291 million (31 December 2013: RUB 391 million) were secured by debt securities issued by the Group in the amount of RUB 2,248 million (31 December 2013: RUB 284 million). Reverse repurchase agreements The loans issued under reverse repurchase agreements and the value of securities received as collateral are as follows: (unaudited) 31 December 2013 Carrying Fair value of amount of funds collateral transferred Carrying amount of funds transferred Fair value of collateral Corporate shares 76,405 94,531 81, ,946 Mutual fund units 13,190 16, Corporate bonds 11,370 12,145 10,307 11,876 Russian state bonds (OFZ) 6,211 6,345 3,951 5,425 Corporate Eurobonds 1,076 1,028 17,289 24,204 Commodity fund Municipal and subfederal bonds Loan participation notes 3 3 Eurobonds of the Russian Federation Total 109, , , ,044 As of, loans and borrowings under reverse repurchase agreements in the amount of RUB 4,384 million (31 December 2013: RUB 29,635 million) were collaterized by bonds issued by the Group with the fair value of RUB 4,832 million (31 December 2013: RUB 26,667 million). As of, securities received under repurchase agreement with the fair value of RUB 57,420 million (31 December 2013: RUB 53,862 million) were transferred under direct repurchase agreements in the amount of RUB 37,955 million (31 December 2013: RUB 70,630 million). 15

19 8. Investment securities available for sale Investment securities available for sale comprise: (unaudited) 31 December 2013 Debt securities issued by state and municipal authorities Bonds of foreign governments 6, Eurobonds of the Russian Federation 4,717 8,262 Municipal and subfederal bonds 1,379 1,408 Russian state bonds (OFZ) 1 1 Corporate debt securities Corporate Eurobonds 43,729 34,197 Corporate bonds 7,581 4,318 Promissory notes 508 Total debt securities available for sale 64,866 49,093 Corporate equity securities Corporate shares 5,596 5,412 Mutual fund units Total equity securities available for sale 6,419 6,235 Total investment securities available for sale 71,285 55,328 Including blocked as collateral against borrowings from the Bank of Russia 4,765 2,609 Investment securities available for sale pledged under repurchase agreements comprise: (unaudited) 31 December 2013 Corporate debt securities Corporate Eurobonds 5,753 Corporate bonds 4,116 1,978 Total securities available for sale pledged under repurchase agreements 9,869 1,978 As of, bonds issued by foreign countries are mainly represented by USD-denominated treasury bonds issued by the United States Treasury and Argentinian warrants (31 December 2013: Argentinian warrants). US treasury bonds mature in May 2019, Argentinian warrants in December Coupon rate on US treasury bonds is 1.5% per annum, coupon payments on Argentinian warrants are linked to the increase in GDP of Argentina. Eurobonds of the Russian Federation are denominated in US dollars, and as of, have maturities ranging from April 2020 till March 2030 (31 December 2013: from April 2020 to March 2030), and a coupon rate ranging from 5% to 12.75% per annum (31 December 2013: 5% to 12.75% per annum). Municipal and subfederal bonds are denominated in RUB and mature from November 2014 to August 2020 (31 December 2013: from November 2014 to August 2020) and a coupon rate ranging from 7.95% to 9.5% per annum (31 December 2013: from 7.95% to 9.5% per annum). Russian state bonds (OFZ) are represented by RUB-denominated debt securities issued by the Ministry of Finance of the Russian Federation. The bonds mature in January 2016 (31 December 2013: January 2016), coupon rate is 7.35% (31 December 2013: 7.35%). Corporate Eurobonds are RUB-denominated and USD-denominated interest-bearing securities issued by Russian and foreign companies and credit institutions, freely tradable internationally. As of, corporate Eurobonds held by the Group have maturities ranging from July 2014 to February 2021 (31 December 2013: from January 2014 to February 2023) and coupon rates from 3.15% to 11% per annum depending on the issue (31 December 2013: from 3.42% to 10% per annum). Corporate bonds are represented by bonds issued by Russian companies and banks denominated in RUB with maturities from July 2014 to January 2044 (31 December 2013: from February 2014 to January 2044) and coupon rates from 7.63% to 13.5% per annum (31 December 2013: from 6% to 13%). 16

20 8. Investment securities available for sale (continued) Corporate shares are represented by investments in shares of Russian and foreign companies and banks. As of, the Group raised RUB 7,877 million (31 December 2013: RUB 1,496 million) under direct repurchase agreements with the Bank of Russia collateralized with investment securities available for sale, which were recognized within the amounts due to credit institutions (Note 13). As of, investment securities available for sale with the fair value of RUB 4,765 million (31 December 2013: RUB 2,609 million) were blocked as collateral against the credit line with the Bank of Russia. As at and 31 December 2013, the Group did not utilize the credit facility. Analysis of debt investment securities available for sale by credit quality as of is as follows: Investment rating Speculative rating No rating Total Debt securities issued by state and municipal authorities Eurobonds of the Russian Federation 4,717 4,717 Municipal and subfederal bonds 1,379 1,379 Bonds of foreign governments 6, ,951 Russian state bonds (OFZ) 1 1 Corporate debt securities Corporate Eurobonds 35,242 11,458 2,782 49,482 Corporate bonds 1,815 7,534 2,348 11,697 Promissory notes Total debt investment securities available for sale 47,869 21,228 5,638 74,735 Analysis of debt investment securities available for sale by credit quality as of 31 December 2013 is as follows: Investment rating Speculative rating No rating Total Debt securities issued by state and municipal authorities Eurobonds of the Russian Federation 8,262 8,262 Municipal and subfederal bonds 1,408 1,408 Bonds of foreign governments Russian state bonds (OFZ) 1 1 Corporate debt securities Corporate Eurobonds 23,406 9,541 1,250 34,197 Corporate bonds 1,145 3,034 2,117 6,296 Total debt investment securities available for sale 32,814 14,890 3,367 51,071 The credit quality in the above tables is based on ratings assigned by international rating agencies. 9. Investment securities held to maturity Management of the Group decided to reclassify several debt securities from financial assets at fair value through profit or loss to investment securities held to maturity starting from 1 March Management analyzed the current economic environment in Russia and concluded that it provided sufficient grounds for reclassification in accordance with IAS 39. As of, held-to-maturity securities reclassified from financial assets at fair value through profit or loss amounted to RUB 35,942 million. Fair value of reclassified securities as of the reclassification date amounted to RUB 38,204 million. As of the reclassification date, the average effective interest rate is 6.60% and expected recoverable cash flow amounted to RUB 45,540 million. If the reclassification had not been made, unrealized losses on reclassified debt securities in the amount of RUB 227 million should have been included in the income statement of the Group. The Group has intention and ability to hold these securities to maturity. Such securities are carried at amortized cost using the effective interest method less any allowance for impairment. Unwinding of discount during the maturity term is recorded as interest income using the effective interest method. 17

21 9. Investment securities held to maturity (continued) Investment securities held to maturity comprise: (unaudited) 31 December 2013 Corporate Eurobonds 21,369 Total investment securities held to maturity 21,369 Investment securities held to maturity pledged under repurchase agreements comprise: (unaudited) 31 December 2013 Corporate bonds 22,278 Corporate Eurobonds 6,496 Municipal and subfederal bonds 2,281 Total investment securities held to maturity pledged under repurchase agreements 31,055 Corporate Eurobonds are RUB-denominated and USD-denominated interest-bearing securities issued by Russian and foreign companies and credit institutions, freely tradable internationally. As of 30 June 2015, corporate Eurobonds held by the Group have maturities ranging from March 2015 to May 2018 (31 December 2013: nil) and coupon rates from 3.15% to 8.63% per annum depending on the issue (31 December 2013: nil). Corporate bonds are represented by bonds issued by Russian companies denominated in RUB with maturities from October 2020 to December 2023 (31 December 2013: nil) and coupon rates from 7.95% to 9.95% per annum (31 December 2013: nil). Municipal and subfederal bonds are denominated in RUB with maturities from October 2017 to August 2020 (31 December 2013: nil) and coupon rates from 8.15% to 8.75% per annum (31 December 2013: nil). As of, the Group raised RUB 28,969 million (31 December 2013: nil) under direct repurchase agreements with the Bank of Russia collateralized with investment securities held to maturity, which were recognized within the amounts due to credit institutions. The fair value of securities pledged under direct repurchase agreements with the Bank of Russia is RUB 30,940 million (Note 13). Analysis of debt investment securities held to maturity by credit quality as of is as follows: Investment rating Speculative rating No rating Total Corporate Eurobonds 26,207 1,658 27,865 Corporate bonds 22, ,278 Municipal and subfederal bonds 2,281 2,281 Total debt investment securities held to maturity 48,274 4,150 52,424 The ratings in the tables above are determined based on the rating scales of international rating agencies. 18

22 10. Taxation The income tax expense comprises: For six months ended (unaudited) Current tax charge 2,677 Deferred tax charge origination and reversal of temporary differences (735) Income tax expense 1,942 Deferred tax recognized in other comprehensive income is allocated as follows: For six months ended (unaudited) Losses from investment securities available for sale (243) Currency translation difference 3 Income tax recognized in other comprehensive income (240) In the first half year 2014, the current income tax rate applicable to the majority of the Group s profit was 20% ( %). The tax rate for interest income on state securities in the Russian Federation was 15% for federal taxes. 11. Other impairment The movements in other impairment allowances and provisions were as follows: Property and equipment Other financial assets Other nonfinancial assets Guarantees and commitments Total 31 December , ,136 Charge Assets written off against provisions (59) (59) Utilized (64) (64) Currency translation effect (unaudited) 23 1, ,784 For six months of 2014, impairment of investment securities available for sale in the amount of RUB 68 million was also recorded as other impairment expense. Allowance for impairment of assets is deducted from the carrying amounts of the related assets. Provisions for commitments and contingencies and other provisions are recorded in liabilities. 19

23 12. Other assets Other assets comprise: (unaudited) 31 December 2013 Accounts receivable from sale of securities 63,152 16,795 Accounts receivable from customers, clients and insurance policy holders 5,533 4,329 Assets on compensation for losses imposed by court 1,372 1,181 Precious metals and foreign currency receivables 1,174 1,301 Settlements under spot deals with foreign currency, precious metals and securities Claims on compensation for losses incurred Amounts in course of settlement Receivables on operations with coins Investments in associates Receivables from personnel 9 10 Dividends receivable 2 Other financial assets Total other financial assets before allowance for impairment 73,930 26,022 Less: allowance for impairment (1,693) (1,515) Total other financial assets 72,237 24,507 Other non-financial assets Assets held for sale 4, Deferred expenses 2,574 1,040 Goodwill 1,539 1,507 Current income tax assets 1,545 1,055 Other property Property liens Settlements with budget on taxes, fines, penalties (other than income tax) Advances to suppliers 287 1,651 Inventories Other non-financial assets Total other financial assets before allowance for impairment 13,996 8,324 Less: allowance for impairment (790) (284) Total other non-financial assets 13,206 8,040 Total other assets 85,443 32,547 In the first half year 2014, the Group additionally paid an advance under the purchase agreement of shares of Bank Petrocommerce in the amount of RUB 16,356 million. This amount was recorded within accounts receivable from sale of securities as other assets. The accounts receivable under this agreement at totaled RUB 19,356 million. The remaining amount of these accounts receivable was formed on securities transactions, the major portion of which was repaid in August Allowance for impairment is calculated by the Group based on the best estimate of the recoverable amount of other assets. The carrying amounts of goodwill allocated to each cash-generating unit are presented below: (unaudited) 31 December 2013 Commercial banking 1,404 1,404 Investment banking Insurance business 33 1 Total goodwill 1,539 1,507 20

24 13. Amounts due to credit institutions Amounts due to credit institutions comprise: (unaudited) 31 December 2013 Direct repurchase agreements with the Bank of Russia 104,957 81,603 Time deposits and loans 75, ,349 Direct repurchase agreements 40,373 54,349 Bank of Russia deposits 23,454 24,890 Current accounts 6,640 8,544 Brokerage accounts 353 1,623 Other amounts due to credit institutions 1, Total amounts due to credit institutions 252, ,907 The amounts received under direct repurchase agreements with the Bank of Russia and the value of securities pledged as collateral is as follows: (unaudited) 31 December 2013 Carrying amount of Carrying amount of repurchase agreements Fair value of collateral repurchase agreements Fair value of collateral Financial assets at fair value through profit or loss Corporate bonds 34,966 38,971 36,160 43,257 Russian state bonds (OFZ) 14,856 14,873 21,359 21,831 Corporate Eurobonds 6,235 6,956 Municipal and subfederal bonds 5,545 6,255 3,462 3,858 Eurobonds of the Russian Federation 1,053 1,110 61,602 67,055 62,034 70,056 Investment securities available for sale Corporate Eurobonds 4,504 5,753 Corporate bonds 3,373 4,116 1,496 1,978 7,877 9,869 1,496 1,978 Investment securities held to maturity Corporate bonds 21,105 22,264 Corporate Eurobonds 5,893 6,459 Municipal and subfederal bonds 1,971 2,217 28,969 30,940 Securities received under reverse repurchase agreements Corporate shares 4,074 7,429 10,172 18,752 Corporate bonds 2,250 2,473 5,832 6,887 Russian state bonds (OFZ) ,069 2,155 6,509 10,086 18,073 27,794 Total 104, ,950 81,603 99,828 21