ZENIT BANKING GROUP Condensed Interim Consolidated Financial Report (Unaudited)

Transcription

1 ZENIT BANKING GROUP Condensed Interim Consolidated Financial Report (Unaudited) Six-month period

2 Condensed Interim Consolidated Financial Report For the Six months Ended (Unaudited) Contents Statement of management s responsibilities for the preparation and approval of the Condensed Interim Consolidated Financial Report for the six months 1 Independent auditors report on review of Condensed Interim Consolidated Financial Report 2-3 Condensed Interim Consolidated Statement of Income 4 Condensed Interim Consolidated Statement of Comprehensive Income 5 Condensed Interim Consolidated Statement of Financial Position 6 Condensed Interim Consolidated Statement of Changes in Equity 7 Condensed Interim Consolidated Statement of Cash Flows 8 Notes to the financial statements 1. Principal Activities 9 2. Basis of Presentation Significant Accounting Policies Interest Income and Expense Allowance for Impairment Losses and Other Provisions Net Gain/(Loss) on Financial Assets at Fair Value Through Profit or Loss Fee and Commission Income and Expense Operating Expenses Income Taxes Lossess per Share Cash and Cash Equivalents Due from Banks Financial Assets and Liabilities at Fair Value Through Profit or Loss Available-for-Sale Financial Assets Held to Maturity Investments Loans to Customers Due to Banks and the CBR Customer Accounts Debt Securities Issued RUR-Denominated Bonds Issued Subordinated Debt Share Capital and Share Premium Dividends and Distributions Risk Management Policies Contingencies and Commitments Fair Value of Financial Instruments Related Party Transactions Segment Reporting Capital Management and Capital Adequacy Subsequent Events 45

3 Statement of Management s Responsibilities for the Preparation and Approval of the Condensed Interim Consolidated Financial Report for the Six Months Ended Management is responsible for the preparation of the condensed interim consolidated financial report that present fairly the financial position of Bank ZENIT (Public Joint-Stock Company) and its subsidiaries (hereinafter referred to as ZENIT Banking Group or the Group ) as at, the results of its operations, cash flows and changes in shareholders equity for the six months then in accordance with International Accounting Standard 34 Interim Financial Reporting ( IAS 34 ). In preparing the condensed interim consolidated financial report, management is responsible for: Properly selecting and applying accounting policies; Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; Providing additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group s consolidated financial position and financial performance; Making an assessment of the Group's ability to continue as a going concern. Management is also responsible for: Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group; Maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the condensed interim consolidated financial report of the Group comply with IAS 34; Maintaining statutory accounting records in compliance with legislation and accounting standards of the Russian Federation; Taking such steps as are reasonably available to them to safeguard the assets of the Group; and Preventing and detecting fraud and other irregularities. The condensed interim consolidated financial report for the six months was approved on 23 August 2016 by the Management Board. On behalf of the Management Board: Shpigun K.O. Chairman of the Management Board Gorovoy R.V. First Deputy Chairman 23 August August 2016 Moscow Moscow 1

4 ZAO Deloitte & Touche CIS 5 Lesnaya Street Moscow, Russia Tel: +7 (495) Fax: +7 (495) INDEPENDENT AUDITORS REPORT ON REVIEW OF THE CONDENSED INTERIM CONSOLIDATED FINANCIAL REPORT To: Shareholders and the Board of Directors of Public Joint-Stock Company Bank ZENIT Introduction We have reviewed the accompanying condensed interim consolidated statement of financial position of Public Joint-Stock Company Bank ZENIT and its subsidiaries (the Group ) as at and the related condensed interim consolidated statements of income, comprehensive income, financial position, changes in equity and cash flows for the six months then and a summary of significant accounting policies and other explanatory notes. Management is responsible for the preparation and fair presentation of this condensed interim consolidated financial report in accordance with International Accounting Standard 34 ( IAS 34 ) Interim Financial Reporting. Our responsibility is to express a conclusion on this interim financial report based on our review. Scope of Review We conducted our review in accordance with the Federal Law On Auditing, Federal Standard on Auditing 33 Review of Financial (Accounting) Statements and International Standard on Review Engagements 2410 Review of interim financial information performed by the independent auditor of the entity. A review of condensed interim financial report consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Federal Standards on Auditing and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see for a detailed description of the legal structure of Deloitte CIS. 6 2

5 Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim consolidated financial report of the Group is not prepared, in all material respects, in accordance with International Accounting Standard 34 (IAS 34) Interim Financial Reporting. 23 August 2016 Moscow, Russian Federation Ponomarenko E.V., Partner (Qualification Certificate dated November 28, 2011) ZAO Deloitte and Touch CIS The Entity: Bank ZENIT (public joint stock company)/pao Bank ZENIT Certificate of state registration 3255, issued by Central Bank of Russian Federation by *. * the Bank was registered by Central Bank of Russian Federation following the Banks reorganization from limited liability company into open joint stock company (Certificate of state registration, issued by Central Bank of Russian Federation by ) The registration date of the Bank before reorganization - 22 June Certificate of registration in the Unified State Register of , issued by Moscow Inspectorate of the Russian Ministry of Taxation 39. Independent Auditor: ZAO Deloitte & Touche CIS Certificate of state registration , issued by the Moscow Registration Chamber on Primary State Registration Number: Certificate of registration in the Unified State Register of , issued by Moscow Interdistrict Inspectorate of the Russian Ministry of Taxation 39. Certificate of membership in «NP «Audit Chamber of Russia» (auditors SRO) of , ORNZ OGRN Address: 9 Banniy pereylok, Moscow, Russia 3

6 Condensed Interim Consolidated Statement of Income (Unaudited) (in thousands of Russian Roubles, except for loss per share) Note Six months Six months 30 June 2015 Three months Three months 30 June 2015 Interest income 4, 27 14,377,473 16,704,766 7,196,188 8,104,366 Interest expense 4, 27 (11,585,067) (13,682,834) (5,671,356) (6,696,915) Net interest income 2,792,406 3,021,932 1,524,832 1,407,451 Provision for loan impairment 5, 27 (3,806,630) (2,680,356) (2,496,997) (1,407,314) Net interest (expense)/income after provision for loan impairment (1,014,224) 341,576 (972,165) 137 Net (loss) on financial assets at fair value through profit or loss 6,27 (60,616) (1,835,608) (66,165) (877,167) Net realised profit/ (loss) from available-for-sale financial assets 27 95,564 (133,629) 66,031 (106,629) (Impairment)/recovery of impairment of available-for-sale financial assets (21,689) 20,724-14,507 Net (loss)/gain on foreign exchange operations (338,235) (341,179) 106,737 (456,227) Net (loss)/gain arising on foreign exchange translation (34,193) 864,976 (212,962) 1,039,942 Fee and commission income 7, 27 1,638,043 2,074, , ,685 Fee and commission expense 7 (481,630) (468,380) (250,260) (238,901) (Provision)/ recovery of provision on credit related commitments 5 (102,533) (205,265) 94,492 (57,055) Impairment of assets for development and sale (113,388) - (113,388) - Net (loss)/gain from disposal of property and equipment (15,632) 1,685 (485) 356 Net (loss)/gain on disposal of non-current assets held for sale 16 (103,496) 7,145 (59,354) (14,294) Recovery of provision/(provision) for contingent liabilities 6,608 - (40,878) - Other operating income , ,892 75, ,839 Net revenues (308,932) 562,060 (538,905) 441,193 Operating expenses 8, 27 (3,602,261) (3,611,770) (1,820,128) (1,924,894) (Loss) before income tax (3,911,193) (3,049,710) (2,359,033) (1,483,701) Income tax 9 170,840 (342,156) (87,356) (201,831) Net (loss) (3,740,353) (3,391,866) (2,446,389) (1,685,532) Attributable to: Equity holders of the parent (3,742,389) (3,394,095) (2,447,166) (1,686,028) Non-controlling interest 2,036 2, Loss per share, basic and diluted (Russian Roubles) 10 (0.328) (0.301) (0.212) (0.149) Signed on behalf of the Management Board Shpigun K.O. Chairman of the Management Board Gorovoy R.V. First Deputy Chairman 23 August August 2016 Moscow Moscow The notes on pages 9-45 form an integral part of this condensed interim consolidated financial report. 4

7 Condensed Interim Consolidated Statement of Comprehensive Income (in thousands of Russian Roubles, except for loss per share) Note Six months Six months 30 June 2015 Three months Three months 30 June 2015 Net (loss) (3,740,353) (3,391,866) (2,446,389) (1,685,532) Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Revaluation of property, plant and equipment (1,320) Deferred income tax attributed to other comprehensive income - on: revaluation of property, plant and equipment Items that may be reclassified subsequently to profit or loss Fair value adjustment on available-for-sale financial assets recognised in the statement of income (95,564) 133,629 (66,031) 106,629 Fair value adjustment on available-for-sale financial assets impaired in the statement of income 21,689 (20,724) - (14,507) Fair value adjustment on available-for-sale financial assets 452, , , ,737 Deferred income tax attributed to other comprehensive income on: - available-for-sale financial assets (75,778) (217,996) (20,894) (103,372) Other comprehensive income, net of tax 302, ,982 83, ,487 Total comprehensive (loss) (3,438,296) (2,519,884) (2,362,811) (1,272,045) Total comprehensive (loss) attributable to: Equity holders of the parent (3,440,332) (2,522,113) (2,363,588) (1,272,541) Non-controlling interest 2,036 2, Signed on behalf of the Management Board Shpigun K.O. Chairman of the Management Board Gorovoy R.V. First Deputy Chairman 23 August August 2016 Moscow Moscow The notes on pages 9-45 form an integral part of this condensed interim consolidated financial report. 5

8 Condensed Interim Consolidated Statement of Financial Position (Unaudited) Note 31 December 2015 Assets Cash and cash equivalents 11 54,382,314 60,181,065 Mandatory reserve deposits with the Central Bank of Russia (CBR) 1,574,039 1,637,541 Due from banks 12 13,924,127 8,121,869 Financial assets at fair value through profit or loss 13, 27 4,684,544 5,015,789 Available-for-sale financial assets 14, 27 9,784,420 8,722,145 Held to maturity investments 15 10,562,234 14,447,946 Investments in associates 27 1,078,942 1,005,726 Loans to customers 16, ,525, ,887,202 Property and equipment 4,335,435 4,255,764 Assets for development and sale 398, ,388 Investment property 297, ,535 Goodwill 156, ,248 Other assets 27 1,614,212 2,051,266 Current income tax asset 252, ,585 Deferred income tax asset 845, ,546 Non-current assets held for sale 5,732,858 5,531,437 Total assets 302,147, ,817,052 Liabilities Financial liabilities at fair value through profit or loss , ,850 Due to banks and the Central Bank of Russia (CBR) 17 13,668,768 25,983,697 Customer accounts 18, ,968, ,762,940 Debt securities issued 19, 27 14,397,530 20,441,693 RUR-denominated bonds issued 20 35,016,778 30,239,741 Other liabilities 2,235,262 2,033,451 Current income tax liability 236 3,017 Deferred income tax liability 130, ,413 Subordinated debt 21, 27 14,663,987 20,399,776 Total liabilities 276,539, ,770,578 Equity Share capital 22 20,698,104 12,698,104 Treasury shares 22 (699,900) (699,900) Share premium 22 1,545,000 1,545,000 Cumulative translation reserve 32,743 32,743 Revaluation reserve for available-for-sale financial assets (308,225) (611,338) Property and equipment revaluation reserve 395, ,792 Other comprehensive loss from investments in associates (1,962) (1,962) Retained earnings 3,925,885 7,668,274 Equity attributable to shareholders of the Bank 25,587,381 21,027,713 Non-controlling interest 20,797 18,761 Total equity 25,608,178 21,046,474 Total liabilities and equity 302,147, ,817,052 Signed on behalf of the Management Board Shpigun K.O. Chairman of the Management Board Gorovoy R.V. First Deputy Chairman 23 August August 2016 Moscow Moscow The notes on pages 9-45 form an integral part of this condensed interim consolidated financial report. 6

9 Condensed Interim Consolidated Statement of Changes in Equity Share capital Treasury shares Share premium Cumulative translation reserve Revaluation of available-forsale financial assets Property and equipment revaluation reserve Other comprehensive loss from investments in associates Retained earnings Equity attributable to share-holders of the Bank Noncontrolling interest Total equity 31 December ,698,104 (699,900) 1,545,000 32,743 (1,478,043) 363,077 (3,078) 17,166,726 29,624,629 26,238 29,650,867 Net (loss) (3,394,095) (3,394,095) 2,229 (3,391,866) Other comprehensive income , , , June ,698,104 (699,900) 1,545,000 32,743 (606,061) 363,077 (3,078) 13,772,631 27,102,516 28,467 27,130, December ,698,104 (699,900) 1,545,000 32,743 (611,338) 396,792 (1,962) 7,668,274 21,027,713 18,761 21,046,474 Issue of shares (Note 22) 8,000, ,000,000-8,000,000 Net (loss) (3,742,389) (3,742,389) 2,036 (3,740,353) Other comprehensive income ,113 (1,056) , ,057 20,698,104 (699,900) 1,545,000 32,743 (308,225) 395,736 (1,962) 3,925,885 25,587,381 20,797 25,608,178 Signed on behalf of the Management Board Shpigun K.O. Chairman of the Management Board Gorovoy R.V. First Deputy Chairman 23 August August 2016 Moscow Moscow The notes on pages 9-45 form an integral part of this condensed interim consolidated financial report. 7

10 Condensed Interim Consolidated Statement of Cash Flows Note Six months Six months 30 June 2015 Cash flows from operating activities Interest received 12,983,694 14,338,949 Interest paid (11,542,994) (12,102,581) Cash paid on dealing in foreign currencies (401,390) (478,529) Cash (paid on)/received from dealing in financial assets at fair value through profit or loss (152,363) 1,679,561 Fee and commission income 1,526,932 2,006,657 Fee and commission expense (481,905) (464,928) Other operating income 261, ,619 Operating expenses (3,575,733) (3,475,096) Income tax paid (88,072) (158,387) Operating activities before changes in operating assets and liabilities (1,470,402) 1,556,265 Net cash decrease from operating assets and liabilities Mandatory reserve deposits with the Central Bank of Russia (CBR) 63, ,515 Due from banks (6,388,613) 3,736,753 Financial assets at fair value through profit or loss 371,965 (4,508,779) Loans to customers 2,830,971 15,401,172 Other assets 271, ,158 Financial liabilities at fair value through profit or loss - 30,180 Due to banks and the Central Bank of Russia (CBR) (11,730,414) (22,965,047) Customer accounts 9,489,730 13,473,395 Debt securities issued (4,170,303) (12,563,921) Other liabilities 584,234 (239,743) Net cash used in operating activities (10,148,108) (5,450,052) Cash flows from investing activities Purchase of available-for-sale financial assets (9,039,026) (7,862,711) Purchase of investments held to maturity (616,619) - Purchase of property and equipment (73,698) (113,803) Proceeds from sales of available-for-sale financial assets 8,115,486 14,232,042 Proceeds from redemption of investments held to maturity 3,232,238 3,935,114 Proceeds from sale of property and equipment 74,925 4,143 Proceeds from sale of non-current assets held for sale 654, ,938 Net cash generated generated from investing activities 2,347,476 10,730,723 Cash flows from financing activities Issuance of ordinary shares 22 8,000,000 - Issuance of RUR-denominated bonds 7,000,000 5,000,000 Redemption of RUR-denominated bonds (2,837,324) (4,372,739 Redemption of subordinated debt (4,822,931) - Net cash generated from financing activities 7,339, ,261 Effect of exchange rate changes on cash and cash equivalents (5,335,898) (873,072) Net (decrease)/increase in cash and cash equivalents (5,796,785) 5,034,860 Cash and cash equivalents, beginning of period 11 60,178,551 44,931,134 Cash and cash equivalents, end of period 11 54,381,766 49,965,994 Signed on behalf of the Management Board Shpigun K.O. Gorovoy R.V. Chairman of the Management Board First Deputy Chairman 23 August August 2016 Moscow Moscow The notes on pages 9-45 form an integral part of this condensed interim consolidated financial report. 8

11 1. Principal Activities The condensed interim consolidated financial report includes the condensed interim financial reports of Bank ZENIT (Public Joint-Stock Company) (the Bank, or ZENIT ) and its subsidiaries. ZENIT and its subsidiaries are hereinafter collectively referred to as the Group. ZENIT, the parent company and principal operating entity of the Group, was registered in the Russian Federation to carry out banking activities in The Bank provides all services permitted by the legislation of the Russian Federation in accordance with a full banking license issued by the Central Bank of the Russian Federation (the CBR ) in 1996 and other licenses issued by respective regulatory bodies. The Bank is a public joint-stock company. The Bank's registered office is located in Moscow at Bannyi Pereulok 9. As at ZENIT has 95 points of sale (31 December 2015: 96) including head office, branches, sub-branches and mini-offices throughout the Russian Federation. The Group also includes the following consolidated banking subsidiaries, incorporated in the Russian Federation: Name Date of acquisition 31 December 2015 % ownership Number of interest and points of sale voting power % ownership interest and voting power Number of points of sale PJSC Bank Devon- Credit 2 December % % 29 PJSC Lipetskcombank 29 June % % 26 JS Bank ZENIT-Sochi 15 January % % 7 PJSC SPIRITBANK 8 December % % 5 As at, the Group has an integrated ATM network consisting of 981 ATMs (as at 31 December 2015: 987). The Group has a wide correspondent network both in Russia and abroad and is involved in co-operation with more than 100 international institutions in Europe, America and Asia. The Bank has 100% ownership in LLP Regionalnoe Razvitie and ZPIF 6th Natsionalny. These subsidiaries are incorporated in the Russian Federation and engaged in the real estate business. The Bank has 100% ownership in Zenit Investment Services Inc, incorporated in the British Virgin Islands. The Group owns 35% shares of Closed joint-stock company National Non-state Pension Fund incorporated in the Russian Federation. In April 2016 the Group acquired 100% shares of a subsidiary company LLP Arsenal Group under loan settlement agreement. Arsenal Group is engaged in the real estate business. During the reporting period the Group did not have any interests in unconsolidated structured entities. In June 2016 the procedure of share capital increase for RUR 8,000,000 thousand was finalized. 9

12 1. Principal Activities (continued) The ultimate controlling parties of the Group as at and 31 December 2015 are as follows 1 : Shareholder Controlled by: % of voting rights % of effective ownership PAO Tatneft, Tatneft Oil AG PAO Tatneft Nabertherm Limited, Rosemead Enterprises Limited Ms. Maria A. Sokolova, Mr. Arkady V. Sokolov Fletcher Group Holdings Limited, Silener Management Limited Mr. Vladimir S. Lisin LLP "Danikom" Mr. Alexey A.Sokolov, Ms. Tatyana P. Shishkina Viewcom Finance Limited Ms. Maria A. Sokolova Gatehill Limited Ms. Tatyana P. Shishkina Mr. Alexey A. Sokolov CJSC Centr-Kapital Mr. Igor G. Avanesyan Jackfield Trading Limited, Laverson Consultants Limited, LLP Sintez Grupp Members of the Management Board and the Board of Directors Other Total Shareholder Controlled by: 31 December 2015 % of voting % of effective rights ownership Tatneft Oil AG PAO Tatneft Nabertherm Limited, Rosemead Enterprises Limited Mr. Alexey A. Sokolov, Mr. Arkady V. Sokolov, Ms. Tatyana P. Shishkina, Ms. T.A. Zanozina Silener Management Limited Mr. Vladimir S. Lisin Viewcom Finance Limited Mr. Aleksandr I. Proshechkin Gatehill Limited Ms. Tatyana P. Shishkina Mr. Alexey A. Sokolov CJSC Centr-Kapital Mr. Igor G. Avanesyan Jackfield Trading Limited, Laverson Consultants Limited, LLP Sintez Grupp Members of the Management Board and the Board of Directors Other Total One of the Shareholders (Mr. Aleksey A. Sokolov) died in May As at the date of signing of this Condensed Interim Consolidated Financial Report ownership of shares transfer as a result of inheritance has not been completed. 2. Basis of Presentation Accounting basis. The condensed interim consolidated financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ( IAS 34 ). Accordingly, it does not include all the information required by International Financial Reporting Standards ( IFRS ) for complete financial statements and should be read in conjunction with the complete annual consolidated financial statements as at 31 December 2015 and for the year then. Since the results of the Group s operations closely relate to and depend on changing market conditions, the results of the Group s operations for the interim period are not necessarily indicative of the results for the year. 10

13 2. Basis of Presentation (continued) This condensed interim consolidated financial report is presented in thousands of Russian Roubles ( krur ), unless otherwise indicated. This condensed interim consolidated financial report has been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, property and equipment and investment property. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. In accordance with the requirements of the Central Bank of Russia the Group has issued its quarterly interim IFRS financial statements starting from the reporting period 31 March Accordingly, the financial statements for the six months prepared by the Group disclose related comparative information for the three months 30 June 2015 and 2016, as required by IAS 34 This condensed interim consolidated financial report has been prepared on the assumption that the Group is a going concern and will continue in operation for the foreseeable future. The management and shareholders have the intention to further develop the business of the Group in the Russian Federation both in corporate and retail segments. The management believes that the going concern assumption is appropriate for the Group due to its sufficient capital adequacy. Management is not aware of any material uncertainties that may cast significant doubt upon the Group s ability to continue as a going concern. The financial statements continue to be prepared on the going concern basis. The Bank and its subsidiaries are registered in the Russian Federation and maintain their accounting records in accordance with Russian Accounting Standards ( RAS ). Foreign subsidiaries of the Bank maintain their accounting records in accordance with the law of the countries, in which they operate. This condensed interim consolidated financial report has been prepared from the Russian statutory accounting records and has been adjusted to conform with IFRS. Entered adjustments include certain reclassifications to reflect the economic substance of underlying transactions including reclassifications of certain assets and liabilities, income and expenses to appropriate financial statement captions. 11

14 2. Basis of Presentation (continued) Going concern. During the period, loss before income tax amounted to RUR 3,911,193 thousand. A decrease in net interest income, an increase in allowance for impairment losses on the overall corporate loan portfolio and negative revaluation of derivative financial instruments recognized at fair value through profit or loss were mainly responsible for the negative financial result. In current economic environment, the Group's Management and Shareholders do their best to improve the financial stability and effectiveness of the Group in order to ensure its further development. In this environment, the Bank s capitalization remains a priority. In 2015 the Bank took part in the State Corporation Deposit Insurance Agency s Capital Increase Programme. Within the framework of this Programme, the Bank received five subordinated securities loans (OFZs) totalling RUR 9,932,750 thousand from the State Corporation Deposit Insurance Agency. In accordance with the Bank of Russia s Regulation No.395-P, these subordinated loans are recognized as additional capital for the purpose of calculating capital adequacy levels of the Bank. Additionally in 2015, the Bank completed the conversion of term subordinated deposits amounting to RUR 5.1 billion from the Bank's Shareholder PJSC Tatneft into perpetual subordinated deposits. In June 2016 the Bank completed the additional placement of shares and increased its share capital by 8 billion roubles. As a result, as at, capital adequacy ratios were as follows: Н1.1=9.1%, Н1.2=10.4%, Н1.0=16.5%.As a result of the additional issue, the shareholding of PJSC Tatneft increased to 48.8%. The Group continues to improve operational efficiency and to enhance the corporate governance of its subsidiaries. The results of these efforts are to be taken into consideration in the development strategy for a period ending 2022, which will be completed as the situation in the market stabilises. The Group s management regularly reviews the financing needs of the Group to meet its commitments, which enables management to confirm that the Group will be able to satisfy all its contractual obligations. The Group plans to refinance its obligations in the usual course of business operations. In addition, against a backdrop of current economic situation, the Group continues to be in excess of liquidity and preserves additional liquidity resources, including the opportunity to refinance at the Bank of Russia by conducting reverse repurchase transactions. This condensed interim consolidated financial report was prepared based on an assumption that the Group will continue its operations in the foreseeable future. The Group's management is confident that in current difficult economic environment the measures which are taken to increase capital, to develop new business lines and products and to improve operational effectiveness will enhance the Group s growth opportunities and improve its effectiveness and competitive position of the middle and long-term. Functional currency. The functional currency of the Bank and its subsidiaries incorporated in the Russian Federation is the Russian Rouble ( RUR ) as the RUR is used by the shareholders, the managers and the regulators in measuring these entities performance. In addition, the RUR, being the national currency of the Russian Federation, is the currency that reflects the economic substance of the underlying events and circumstances relevant to the Group members incorporated in the Russian Federation. The reporting currency of Zenit Investment Services Inc is Russian Roubles as major transactions are conducted in Russian Roubles. As at, the principal rate of exchange used for translating foreign currency balances was US Dollar 1.00 = RUR (31 December 2015: US Dollar 1.00 = RUR ). 12

15 3. Significant Accounting Policies In preparing this condensed interim consolidated financial report the Group has applied the same accounting policies and methods of computation as those applied in the annual consolidated financial statements of the Group for the year 31 December except for the impact of the adoption of the following new and am Standards and Interpretations (i) IFRS 14 Regulatory Deferral Accounts 1 ; (ii) Amendments to IFRS 11 - Accounting for Acquisition of Interests in Joint Operations 1 ; (iii) Amendments to IAS 1 Disclosure initiative project 1 ; (iv) Amendments to IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation 1 ; (v) Amendments to IAS 27 - Equity Method in Separate Financial Statements 1 ; (vi) Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 ; (vii) Annual Improvements to IFRSs Cycle 1 ; Abovementioned changes does not have significant impact on the consolidated interim condensed financial statements. New and revised IFRSs in issue but not yet effective. The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective: IFRS 9 Financial Instruments and correspondent amendments to other standards 2 ; IFRS 15 Revenue from Contracts with Customers and correspondent amendments to other standards 2 ; Amendments to IAS 12 - Recognition of Deferred Tax Assets for Unrealised Losses 1 Amendments to IAS 7 - Disclosure Initiative 1 IFRS 16 Leases 3. 1 Effective for annual periods beginning on or after 1 January 2017, with earlier application permitted. 2 Effective for annual periods beginning on or after 1 January 2018, with earlier application permitted. 3 Effective for annual periods beginning on or after 1 January 2019, with earlier application permitted for entities applying IFRS 15 Revenue from Contracts with Customers. 13

16 4. Interest Income and Expense Interest income Six months Six months 30 June 2015 Three months Three months 30 June 2015 Interest income on financial assets recorded at amortized cost: Loans to customers 12,257,990 14,020,511 5,988,975 6,905,379 Due from banks 980,440 1,079, , ,844 Held to maturity investments 384, , , ,485 Correspondent accounts 7,722 9,706 2,951 - Total interest income on financial assets recorded at amortized cost 13,630,216 15,785,563 6,805,044 7,663,708 Interest income on financial assets at fair value Financial assets held for trading 253, , , ,485 Interest income on available-for-sale financial assets 493, , , ,173 Total interest income on financial assets at fair value 747, , , ,658 Total interest income 14,377,473 16,704,766 7,196,188 8,104,366 Interest expense Interest expense on liabilities recorded at amortized cost: Term deposits of individuals (3,888,784) (3,686,179) (1,884,247) (1,914,723) Term deposits of legal entities (3,132,385) (5,040,348) (1,574,122) (2,537,196) RUR-denominated bonds issued (2,154,860) (1,793,026) (1,116,539) (958,755) Subordinated debt (1,023,967) (756,952) (529,216) (369,903) Term deposits of banks (940,534) (1,532,996) (385,776) (551,728) Debt securities issued (444,537) (873,333) (181,456) (364,610) Interest expense on liabilities recorded at amortized cost (11,585,067) (13,682,834) (5,671,356) (6,696,915) Total interest expense (11,585,067) (13,682,834) (5,671,356) (6,696,915) Net interest income 2,792,406 3,021,932 1,524,832 1,407,451 14

17 5. Allowance for Impairment Losses and Other Provisions The movements in allowance for impairment losses on interest earning assets for the six months 30 June 2016 and 2015 were as follows: Loans to banks Loans to legal entities Loans to individuals Total Allowance for impairment as at 31 December (11,555,638) (1,080,108) (12,635,746) Charge of loan impairment allowance - (2,572,286) (108,070) (2,680,356) Write-off of assets - 796,057 5, ,578 Allowance for loan impairment as at 30 June (13,331,867) (1,182,657) (14,514,524) Allowance for impairment as at 31 December (18,840,433) (1,276,447) (20,116,880) Charge of loan impairment allowance (33,137) (3,659,969) (113,524) (3,806,630) Write-off of assets - 1,173,323 54,105 1,227,428 Allowance for loan impairment as at (33,137) (21,327,079) (1,335,866) (22,696,082) The movements in allowance for impairment losses on interest earning assets for the three months and 2015 were as follows: Loans to banks Loans to legal entities Loans to individuals Total Allowance for impairment as at 31 March (12,890,099) (1,017,487) (13,907,586) Charge of loan impairment allowance - (1,237,825) (169,489) (1,407,314) Write-off of assets - 796,057 4, ,376 Allowance for loan impairment as at 30 June (13,331,867) (1,182,657) (14,514,524) Allowance for impairment as at 31 March (20,032,438) (1,313,054) (21,345,492) Charge of loan impairment allowance (33,137) (2,432,895) (30,965) (2,496,997) Write-off of assets - 1,138,254 8,153 1,146,407 Allowance for loan impairment as at (33,137) (21,327,079) (1,335,866) (22,696,082) Movements in the allowance for impairment of credit related commitments for the six months and 2015 were as follows: Guarantees and other commitments Allowance for impairment as at 31 December 2014 (138,571) Charge of provision for credit related commitments during the period (205,265) Allowance for impairment losses as at 30 June 2015 (343,836) Allowance for impairment as at 31 December 2015 (1,397,466) Charge of provision for credit related commitments during the period (102,533) Allowance for impairment losses as at (1,499,999) 15

18 5. Allowance for Impairment Losses and Other Provisions (continued) Movements in the allowance for impairment of credit related commitments for the three months and 2015 were as follows: Guarantees and other commitments Allowance for impairment as at 31 March 2015 (286,781) Charge of provision for credit related commitments during the period (57,055) Allowance for impairment losses as at 30 June 2015 (343,836) Allowance for impairment as at 31 March 2016 (1,594,491) Recovery of provision for credit related commitments during the period 94,492 Allowance for impairment losses as at (1,499,999) Provision for credit related commitments is recorded in other liabilities. The total outstanding contractual amount of guarantees and letters of credit does not necessarily represent future cash requirements, as these financial instruments may expire or terminate without being funded. 6. Net Loss on Financial Assets at Fair Value Through Profit or Loss Net loss on financial assets at fair value through profit or loss comprises: Six months Six months 30 June 2015 Three months Three months 30 June 2015 (Loss)/gain on trading operations (152,363) 1,679,561 (297,083) 990,456 Net fair value adjustment 91,747 (3,515,169) 230,918 (1,867,623) Total net (loss) on financial assets at fair value through profit or loss (60,616) (1,835,608) (66,165) (877,167) 16

19 7. Fee and Commission Income and Expense Six months Six months 30 June 2015 Three months Three months 30 June 2015 Settlement transactions 950,406 1,132, , ,960 Cash operations 261, , , ,872 Foreign exchange operations 169, ,029 86, ,160 Guarantees issued 139, ,881 69,347 90,174 Operations with securities 17,882 46,837 7,981 2,818 Investment banking 11,986 8,045 11,155 44,656 Asset management 6,948 10,877 3,667 8,045 Other 80,593 54,775 41,063 - Total fee and commission income 1,638,043 2,074, , ,685 Settlement transactions (346,838) (358,819) (180,845) (179,485) Cash operations (61,695) (38,705) (29,722) (15,539) Operations with securities (27,886) (34,463) (12,225) (23,764) Foreign exchange operations (16,091) (7,970) (8,781) (3,755) Commission on guarantees received (2,709) (2,821) (1,421) (1,138) Other (26,411) (25,602) (17,266) (15,220) Total fee and commission expense (481,630) (468,380) (250,260) (238,901) Net commission income 1,156,413 1,605, , , Operating Expenses Six months Six months 30 June 2015 Three months Three months 30 June 2015 Salaries (1,438,284) (1,373,803) (709,022) (735,803) Administrative expenses (466,347) (419,536) (263,033) (225,858) Social security costs (373,739) (381,505) (163,008) (198,667) Rent (346,172) (412,349) (162,777) (161,162) Occupancy and maintenance (330,560) (340,251) (202,143) (188,015) Taxes, other than income tax (164,629) (194,816) (86,778) (105,473) Depreciation and amortization (111,114) (115,380) (55,709) (58,381) Telecommunications (61,813) (43,822) (41,223) (26,957) Other staff costs (50,369) (104,545) (25,028) (78,958) Charitable contributions (50,022) (85,731) (26,938) (68,964) Fixed payment to a non-government pension fund (48,201) (8,403) (31,863) (4,051) Insurance (35,326) (34,179) (11,538) (16,359) Advertising and marketing (17,073) (19,298) (6,622) (10,908) Other (108,612) (78,152) (34,446) (45,338) Total operating expenses (3,602,261) (3,611,770) (1,820,128) (1,924,894) 17

20 9. Income Taxes Income tax expense comprises of the following: Six months Six months 30 June 2015 Three months Three months 30 June 2015 Current income tax expense (146,875) (164,835) (84,985) (70,708) Deferred taxation movement due to: Origination and reversal of temporary differences 317,715 (177,321) (2,372) (131,123) Income tax expense 170,840 (342,156) (87,356) (201,831) The income tax rate applicable to the majority of the Group s income in 2016 and in 2015 is 20%. 10. Loss per Share Six months Six months 30 June 2015 Three months Three months 30 June 2015 (Loss): (Loss) attributable to ordinary shareholders of the Bank (3,742,389) (3,394,095) (2,447,166) (1,686,028) Weighted average number of ordinary shares for basic and diluted earnings per share 11,415,494,008 11,283,625,876 11,547,362,140 11,283,625,876 Loss per share, basic and diluted (Russian Roubles) (0.328) (0.301) (0.212) (0.149) 11. Cash and Cash Equivalents 31 December 2015 Balances with the CBR 17,307,082 15,053,596 Cash on hand 8,503,326 10,528,630 Correspondent accounts and overnight deposits with other banks: - The Russian Federation 8,983,933 9,918,859 - Other countries 19,587,973 24,679,980 Total cash and cash equivalents 54,382,314 60,181,065 As at, the Group placed RUR 17,884,108 thousand with five banks located in countries that are members of the Organisation for Economic Co-operation and Development (the OECD ), which individually exceed 5% of the Group s equity (as at 31 December 2015: RUR 21,071,088 thousand with three OECD banks) and RUR 5,359,617 with one Russian financial institution, which individually exceed 5% of the Group s equity (as at 31 December 2015: RUR 9,444,904 thousand with two Russian financial institutions). Cash and cash equivalents include RUR 548 thousand (as at 31 December 2015: RUR 2,514 thousand) of accrued interest which has not been included in cash and cash equivalents for the purposes of the consolidated statement of cash flows. 18

21 12. Due from Banks 31 December 2015 Term deposits 13,957,264 8,121,869 Allowance for impairment losses (33,137) - Total due from banks 13,924,127 8,121,869 As at deposits with banks include RUR 8,875,078 thousand placed with two Russian banks which individually exceeded 5% of the Group's equity (as at 31 December 2015: RUR 3,769,837 thousand with two Russian banks and RUR 1,119,102 thousand with one OECD bank). As at the Bank participated in four syndicated loans in total amount of RUR 1,642,295 thousand (as at 31 December 2015 five syndicated loans of RUR 2,219,412 thousand). USD-denominated loans bear interest rates from 3.1% to 6.0% (as at 31 December 2015: from 1.9% до 7.7%) and effective interest rates vary from 4.8% to 7.5% (as at 31 December 2015: from 6.5% до 8.8%), these loans mature from July 2016 to December 2016 (as at 31 December 2015: from January 2016 to April 2016). EURdenominated loan bears interest rate of 6.0% (as at 31 December 2015: 7.0%), effective interest rate of 7.2% (as at 31 December 2015: 8.5%) and matures in July 2016 (as at 31 December 2015: in January 2016). As at current deposits include RUR 7,658,489 thousand that represent deposits issued to Russian banks under reverse repurchase agreements (as at 31 December 2015: RUR 120,632 thousand). These loans are collateralized by securities, primarily corporate bonds, with market values of RUR 9,487,522 thousand (as at 31 December 2015: RUR 145,309 thousand). In accordance with the contractual terms and conditions, loans under reverse repurchase agreements outstanding as at were repaid in July 2016 (as at 31 December 2015: loans under reverse repurchase agreements outstanding as at 31 December 2015 were repaid in January 2016). As at the balance of due from banks includes deposits of RUR 61,205 thousand (as at 31 December 2015: RUR 165,095 thousand), transferred to foreign banks as collateral for irrevocable commitments under import letters of credit. 19

22 13. Financial Assets and Liabilities at Fair Value Through Profit or Loss 31 December 2015 Held for trading Held for trading RUR denominated securities Corporate bonds 3,182,919 3,155,169 Local authorities bonds 643, ,760 Federal loan bonds (OFZ) 205, ,356 Corporate shares 58,868 67,671 US Dollar and other currencies denominated securities Eurobonds RF 101,866 21,678 Corporate eurobonds 10,731 25,430 Derivatives 481, ,725 Total financial assets at fair value through profit or loss 4,684,544 5,015,789 Corporate bonds held as at and 31 December 2015 consist of RUR-denominated bonds and eurobonds issued by Russian companies and banks. As at these bonds mature from September 2016 to February 2046 (as at 31 December 2015: from February 2016 to December 2025). As at 30 June 2016 they bear annual coupon rates ranging from 8.1% to 14.5% (as at 31 December 2015: from 8.1% to 17.5%) and yields to maturity vary from 9.3% to 15.1% (as at 31 December 2015: from 4.2% to 44.9%). Local authorities bonds held as at and 31 December 2015 consist of RUR-denominated bonds issued by regional and municipal authorities of the Russian Federation and mature from November 2017 to May 2023 (as at 31 December 2015: from November 2017 to June 2021). As at they bear annual coupon rate from 7.5% to 12.7% (as at 31 December 2015: from 7.8% to 12.7%), and their yields to maturity vary from 3.9% to 11.5% (as at 31 December 2015: from 7.8% to 12.3%). Federal loan bonds held as at are RUR-denominated government securities issued by the Ministry of Finance of the Russian Federation, which are commonly referred to as OFZ. The bonds were issued with a premium to nominal. The bonds mature from June 2017 to September 2031 (as at 31 December 2015: from December 2017 to August 2023). The annual coupon rates on these securities vary from 7.0% to 8.5% (as at 31 December 2015: from 2.5% to 14.4%), and yields to maturity vary from 8.3% to 9.7% (as at 31 December 2015: from 2.6% to 12.1%). Corporate shares include quoted shares of Russian companies and banks. Eurobonds of RF held as at are RUR-denominated bearer securities. These bonds mature in from May 2026 to June 2028 (as at 31 December 2015: in June 2028). The annual coupon rates on these securities vary from 4.8% to 12.8% (as at 31 December 2015: 12.8%) and yield to maturity amounts to 4.5% (as at 31 December 2015: 6.1%). Corporate Eurobonds held as at are securities denominated in US Dollars issued by Russian and foreign companies and financial institutions. As at these securities mature from February 2018 to April 2034 (as at 31 December 2015: from April 2020 to April 2034). As at they bear annual coupon rates ranging from 5.6% to 8.6% (as at 31 December 2015: from 5.6% to 8.6%) and yields to maturity vary from 4.2% до 6.1% (as at 31 December 2015: from 6.6% to 7.5%). 20

23 13. Financial Assets and Liabilities at Fair Value Through Profit or Loss (continued) Derivatives. The Group engages in transactions with forward contracts with foreign currency, securities and precious metals. Foreign exchange and other derivative financial instruments are generally traded in an over-the-counter market with professional market counterparts on standard contractual terms and conditions. The table below includes derivative contracts with maturity dates subsequent to. The majority of these contracts (except SWAP agreements) were executed into during June 2016 and mature in July All swap agreements mature from July 2016 to October Nominal value Domestic Foreign Net fair value Nominal Net fair value Asset Liability value Asset Liability Precious metals - purchase of precious metals ,321 3,211 - Foreign currency - purchase of foreign currency 8,695 (146) - foreign currency swap 2,929,238 32,956 (456,965) 1,713, ,534 - Securities: - sale of securities , purchase of securities 112,411 - (30) 26,510 0 (238) Futures - sale of futures for precious metals 288, sale of futures on USD/RUB Exchange Rate 64, Total 3,403,276 32,957 (457,141) 2,416, ,141 (238) The table below includes derivative contracts with maturity dates subsequent to 31 December The majority of these contracts (except SWAP agreements) were executed into during December 2015 and mature in January All swaps mature from February 2016 to October Domestic Foreign Nominal Net fair value Nominal Net fair value amount Asset Liability amount Asset Liability Precious metals - purchase of precious metals ,434 - (9,842) Foreign currency - sale of foreign currency ,279 - (30,186) - foreign currency SWAP 4,464,703 - (742,329) 1,714, ,978 - Securities: - sale of securities 91, (444) purchase of securities 71, (49) Futures - sale of futures for precious metals 493, Total 5,120, (742,822) 2,718, ,978 (40,028) 21

24 14. Available-for-Sale Financial Assets 31 December 2015 US Dollar and other currencies denominated securities Corporate Eurobonds 4,162,022 2,741,254 Russian Federation Eurobonds 1,055,286 7,726 GDRs 92, ,105 RUR denominated securities Corporate bonds 2,882,175 4,011,620 Corporate shares 876,628 1,043,861 Federal loan bonds 608, ,823 Local authorities bonds 58,577 63,213 Shares in investment funds 48,456 45,543 Total available-for-sale financial assets 9,784,420 8,722,145 Corporate Eurobonds held as at and 31 December 2015 are securities denominated in US Dollars and Euros issued by Russian companies and financial institutions. These securities mature from July 2016 to October 2022 (as at 31 December 2015: from February 2016 to April 2034). They bear annual coupon rates ranging from 3.1% to 13.0% (as at 31 December 2015: from 3.1% to 13.0%) and their yields to maturity vary from 1.7% to 77.4% (as at 31 December 2015: from 3.7% to 44.3%). Russian Federation Eurobonds held as at and 31 December 2015 are USD-denominated bearer securities. These bonds mature from May 2026 to June 2028 (as at 31 December 2015: June 2028). They bear annual coupon rates ranging from 4.8% to 12.8% (as at 31 December 2015: 12.8%) and yield to maturity amounts to 4.5% (as at 31 December 2015: 6.1%). GDRs held as at and 31 December 2015 represent Global Depository Receipts for shares of Russian and Kazakh banks. These securities are denominated in USD. Corporate bonds held as at and 31 December 2015 consist of RUR-denominated bonds and eurobonds issued by Russian and foreign banks and companies. These bonds mature from July 2016 to September 2025 (as at 31 December 2015: from January 2016 to September 2025). The annual coupon rates on these securities range from 7.9% to 14.5% (as at 31 December 2015: from 7.9% to 17.0%), and their yields to maturity vary from 8.0% до 22.1% (as at 31 December 2015: from 5.5% to 23.5%). Corporate shares include quoted shares of Russian companies. Federal loan bonds held as at and 31 December 2015 are RUR-denominated government securities issued by the Ministry of Finance of the Russian Federation, which are commonly referred to as OFZ. The bonds were issued with a premium to nominal. These securities mature from August 2016 to November 2021 (as at 31 December 2015: from January 2016 to November 2021). The annual coupon rates on these securities range from 6.0% to 11.6% (as at 31 December 2015: from 6.0% to 7.4%) and yields to maturity vary from 6.0% to 11.3% (as at 31 December 2015: from 6.1% to 10.2%). 22