ZENIT BANKING GROUP. Consolidated Financial Statements For the year ended 31 December 2015

Transcription

1 ZENIT BANKING GROUP Consolidated Financial Statements For the year ended 31 December 2015

2 ZENIT BANKING GROUP Contents Statement of Management s Responsibilities for the Preparation and Approval of the Consolidated Financial Statements for the Year Ended 31 December Independent Auditors Report 2-4 Consolidated Statement of Income 5 Consolidated Statement of Comprehensive Income 6 Consolidated Statement of Financial Position 7 Consolidated Statement of Changes in Equity 8 Consolidated Statement of Cash Flows 9 : 1. Principal Activities Basis of Presentation Significant Accounting Policies Reclassifications Interest Income and Expense Allowance for Impairment Losses and Other Provisions Net (Loss)/Gain on Financial Assets at Fair Value through Profit or Loss Fee and Commission Income and Expense Other Operating Income Operating Expenses Income Taxes (Loss)/Earnings per Share Cash and Cash Equivalents Due from Banks Financial Assets at Fair Value through Profit or Loss Available-for-Sale Financial Assets Held to Maturity Investments Loans to Customers Property, Plant and Equipment Assets for Development and Sale Investment Property Non-current Assets Held For Sale Due to Banks and CBRF Customer Accounts Debt Securities Issued RUR-denominated Bonds Issued Subordinated Debt Other Assets and Other Liabilities Share Capital and Share Premium Retained Earnings Dividends and Distributions Geographical Analysis Risk Management Policies Contingencies and Commitments Fair Value of Financial Instruments Related Party Transactions Segment Reporting Capital Management and Capital Adequacy Subsequent Events 95

3 ZENIT BANKING GROUP STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 Management is responsible for the preparation of the consolidated financial statements that present fairly the financial position of Bank ZENIT (Public Joint Stock Company) and its subsidiaries (collectively the Group ) at 31 December 2015, the consolidated statements of income, comprehensive income, changes in equity and cash flows and for the year then ended, and a summary of significant accounting policies and other explanatory notes, in compliance with International Financial Reporting Standards ( IFRS ). In preparing the consolidated financial statements, 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 consolidated financial statements of the Group comply with IFRS; 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 consolidated financial statements for the year ended 31 December 2015 were approved on 22 March 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 22 March 2016 Moscow 1

4 ZAO Deloitte & Touche CIS 5 Lesnaya Street Moscow, Russia Tel: +7 (495) Fax: +7 (495) INDEPENDENT AUDITOR S REPORT To the Shareholders and the Board of Directors of Bank ZENIT (Public Joint-Stock Company). We have audited the accompanying consolidated financial statements of ZENIT (Public Joint Stock Company) and its subsidiaries (collectively the Group ), which comprise the consolidated statement of financial position as at 31 December 2015 and the consolidated statements of income and other comprehensive income, changes in equity and cash flows for 2015, and notes comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the fair presentation of these consolidated financial statements based on our audit. We conducted our audit in accordance with Russian Federal Auditing Standards and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to express an opinion on the fair presentation of these consolidated financial statements. 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 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2015, and its financial performance and its cash flows for 2015, in accordance with International Financial Reporting Standards. Report on procedures performed in accordance with the Federal Law No On Banks and Banking Activities dated 2 December 1990 Management of the Bank is responsible for compliance of the Group with the obligatory ratios established by the Bank of Russia (the obligatory ratios ), as well as for compliance of the Group s internal control and risk management systems with the Bank of Russia (the CBRF ) requirements. According to Article 42 of the Federal Law No On Banks and Banking Activities (the Federal Law ) in the course of our audit of the Group s consolidated financial statements for 2015 we performed procedures with respect to the Group s compliance with the obligatory ratios as at 1 January 2016 and compliance of its internal control and risk management systems with the CBRF requirements. We have selected and performed procedures based on our judgment, including inquiries, analysis and review of documentation, comparison of the Bank s policies, procedures and methodologies with the CBRF requirements, as well as recalculations, comparisons and reconciliations of numeric values and other information. We report our findings below: 1. with respect to the Group s compliance with the obligatory ratios: the obligatory ratios as at 1 January 2016 were within the limits established by the CBRF. We have not performed any procedures with respect to the Group's financial information other than those we considered necessary to express our opinion on whether the consolidated financial statements of the Group present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2015, its consolidated financial performance and its consolidated cash flows for 2015 in accordance with International Financial Reporting Standards. We have not performed an audit of the financial statements, prepared in accordance with the Russian accounting and financial reporting standards for credit organisations, based on which the obligatory ratios were calculated. 2. with respect to compliance of the Group s internal control and risk management systems with the CBRF requirements: a) in accordance with the CBRF requirements and recommendations as at 31 December 2015 the Bank's internal audit department was subordinated and accountable to the Bank s Board of Directors and the Bank s risk management departments were not subordinated or accountable to the departments undertaking the respective risks the heads of Banks s internal audit and risk management departments comply with qualification requirments established by the CBRF; 3

6 b) as at 31 December 2015, the Bank had duly approved in accordance with the CBRF requirements and recommendations the internal policies regarding identification and management of Group s significant risks, including credit, operating, market, interest rate, legal, liquidity, and reputational risks, as well as regarding performance of stress-testing; c) as at 31 December 2015, the Bank had a reporting system with regard to the Group s significant credit, operating, market, interest rate, legal, liquidity and reputational risks, and with regard to the Group s capital; d) Frequency and sequential order of reports prepared by the Bank's risk management and internal audit departments in 2015 on management of credit, operating, market, interest rate, legal, liquidity and reputational risks were in compliance with the Bank's internal policies; these reports included results of monitoring by the Bank's risk management and internal audit departments of effectiveness of the Bank's respective methodologies and improvement recommendations; e) as at 31 December 2015, the authority of the Bank's Board of Directors and the Bank's executive bodies included control over Group s compliance with the risk limits and capital adequacy ratios established by the Bank. In order to control effectiveness and consistency of application of the Group's risk management policies, during 2015 the Bank s Board of Directors and the Bank's executive bodies have regularly discussed reports prepared by the risk management and internal audit departments and have considered proposed corrective measures. We have carried out the procedures with respect to the Group's internal control and risk management systems solely to report on the findings related to compliance of the Group's internal control and risk management systems with the CBRF requirements. 22 March 2016 Moscow, Russian Federation Ekaterina Ponomarenko, General Director (certificate no dated 28 November 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 4

7 Consolidated Statement of Income (Thousands of Russian Roubles, except for Earnings per share) Year ended 31 December Note Interest income 5, 36 32,317,732 26,617,283 Interest expense 5, 36 (26,722,223) (17,363,630) Net interest income before provision for loan impairment 5,595,509 9,253,653 Provision for loan impairment 6, 36 (9,777,692) (4,544,494) Net interest (expense)/income (4,182,183) 4,709,159 Net (loss)/gain on financial assets at fair value through profit or loss 7, 36 (1,341,087) 2,554,455 Net realised profit/(loss) from available-for-sale financial assets 36 15,121 (130,166) Recovery/(impairment) of available-for-sale financial assets (29,216) Net (loss)/gain arising from dealing in foreign currencies (1,602,099) 4,385,273 Net gain/(loss) arising on foreign exchange translation 2,769,156 (7,412,961) Fee and commission income 8, 36 4,040,214 4,214,436 Fee and commission expense 8 (996,014) (988,900) (Provision)/recovery of provision for losses on credit related commitments 6 (1,258,895) 96,792 Recovery of impairment of property, plant and equipment 9,535 11,591 Impairment of assets for development and sale 20 (79,796) (78,419) Fair value movement of investment property 21 (14,719) 2,365 (Impairment)/recovery of non-current assets held for sale 22 (159,939) 1,101 Net (loss)/gain on disposal of property, plant and equipment (26,370) 379,711 Net gain on disposal of investment property Net gain on disposal of assets for development and sale - 301,905 Net (loss)/gain on disposal of non-current assets held for sale 22 (24,756) 90,293 (Provision) for contingent liability (47,486) - Other operating income 9, 36 1,013,534 1,256,791 Net (losses)/revenues (1,884,544) 9,364,210 Operating expenses 10, 36 (7,498,107) (7,248,283) (Loss)/profit before income tax expense (9,382,651) 2,115,927 Income tax expense 11 (115,383) (480,033) Net (loss)/profit (9,498,034) 1,635,894 Attributable to: Equity holders of the parent (9,498,452) 1,629,829 Non-controlling interest 418 6,065 (Losses)/Earnings per share, basic and diluted (Russian Roubles) 12 (0.842) Signed on behalf of the Management Board Shpigun K.O. Chairman of the Management Board Gorovoy R.V. First Deputy Chairman 22 March March 2016 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 5

8 Consolidated Statement of Comprehensive Income Year ended 31 December Note Net (loss)/profit (9,498,034) 1,635,894 Other comprehensive income Items that will not be reclassified subsequently to profit or loss Revaluation of property, plant and equipment (net of deferred income tax of RUR 8,427 thousand for the year ended 31 December 2015 and net of deferred income tax of RUR 9,609 thousand for the year ended 31 December 2014) 33,715 38,435 Other comprehensive income/(loss) from investments in associates (net of deferred income tax of RUR 279 thousand for the year ended 31 December 2015 and net of deferred income tax of RUR 769 thousand for the year ended 31 December 2014) 1,116 (3,078) Items that may be reclassified subsequently to profit or loss Net result from changes in fair value of available-for-sale financial assets reclassified to profit or loss upon disposal (net of deferred income tax of RUR 3,024 thousand for the year ended 31 December 2015 and net of deferred income tax of RUR 26,033 thousand for the year ended 31 December 2014) (12,096) 104,133 Net result from changes in fair value of available-for-sale financial assets reclassified to profit or loss upon impairment (net of deferred income tax of RUR 99 thousand for the year ended 31 December 2015 and net of deferred income tax of RUR 5,843 thousand for the year ended 31 December 2014) (397) 23,373 Fair value adjustment on available-for-sale financial assets (net of deferred income tax of RUR 219,800 thousand for the year ended 31 December 2015 and net of deferred income tax of RUR 315,133 thousand for the year ended 31 December 2014) 879,198 (1,260,532) Other comprehensive income/(loss), net of tax 901,536 (1,097,669) Total comprehensive (loss)/income (8,596,498) 538,225 Total comprehensive income attributable to: Equity holders of the parent (8,596,916) 532,160 Non-controlling interest 418 6,065 Signed on behalf of the Management Board Shpigun K.O. Gorovoy R.V. Chairman of the Management Board First Deputy Chairman 22 March March 2016 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 6

9 Consolidated Statement of Financial Position 31 December Note Assets Cash and cash equivalents 13 60,181,065 44,933,993 Mandatory reserve deposits with the Central Bank of the Russian Federation (CBRF) 1,637,541 2,388,226 Due from banks 14 8,121,869 10,218,190 Financial assets at fair value through profit or loss 15, 36 5,015,789 4,470,999 Available-for-sale financial assets 16, 36 8,722,145 18,046,552 Held to maturity investments 17 14,447,946 14,842,465 Investments in associates 1, 36 1,005, ,249 Loans to customers 18, ,887, ,256,212 Property, plant and equipment 19 4,255,764 4,018,600 Assets for development and sale , ,184 Investment property , ,267 Goodwill 156, ,248 Other assets 28, 36 2,051,266 1,849,095 Current income tax asset 313, ,716 Deferred income tax asset , ,676 Non-current assets held for sale 22 5,531,437 4,426,702 Total assets 314,817, ,097,374 Liabilities Financial liabilities at fair value through profit or loss ,850 1,447,684 Due to banks and CBRF 23 25,983,697 42,220,014 Customer accounts 24, ,762, ,205,623 Debt securities issued 25, 36 20,441,693 30,192,493 RUR-denominated bonds issued 26 30,239,741 31,563,492 Other liabilities 28 2,033,451 1,097,664 Current income tax liability 3,017 27,963 Deferred income tax liability , ,585 Subordinated debt 27, 36 20,399,776 18,566,989 Total liabilities 293,770, ,446,507 Equity Share capital 29 12,698,104 12,698,104 Treasury shares 29 (699,900) (699,900) Share premium 29 1,545,000 1,545,000 Cumulative translation reserve 32,743 32,743 Revaluation reserve for available-for-sale financial assets (611,338) (1,478,043) Property, plant and equipment revaluation reserve 396, ,077 Other comprehensive loss from investments in associates (1,962) (3,078) Retained earnings 30 7,668,274 17,166,726 Equity attributable to shareholders of the Bank 21,027,713 29,624,629 Non-controlling interest 18,761 26,238 Total equity 21,046,474 29,650,867 Total liabilities and equity 314,817, ,097,374 Signed on behalf of the Management Board Shpigun K.O. Chairman of the Management Board Gorovoy R.V. First Deputy Chairman 22 March March 2016 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 7

10 Consolidated Statement of Changes in Equity Share capital Treasury shares Share premium Cumulative translation reserve Revaluation reserve for availablefor-sale financial assets Other Property comprehensive and equipment income from revaluation investment reserve in associates Retained earnings Equity attributable to shareholders of the Bank Noncontrolling interest Total equity 31 December ,698,104 (699,900) 1,545,000 32,743 (345,017) 324,642-15,536,897 29,092,469 79,349 29,171,818 Net profit ,629,829 1,629,829 6,065 1,635,894 Dividends for 9 months of the year 2014 (Note 30) (3,379) (3,379) Net result from changes in fair value of available-for-sale financial assets reclassified to profit or loss upon disposal (net of deferred income tax of RUR 26,033 thousand) , , ,133 Net result from changes in fair value of available-for-sale financial assets reclassified to profit or loss upon impairment(net of deferred income tax of RUR 5,843 thousand) , ,373-23,373 Fair value adjustment on available-forsale financial assets (net of deferred income tax of RUR 315,133 thousand) (1,260,532) (1,260,532) - (1,260,532) Revaluation of property, plant and equipment (net of deferred income tax of RUR 9,609 thousand) , ,435-38,435 Other comprehensive income from investments in associates (net of deferred income tax of RUR 769) (3,078) - (3,078) - (3,078) Change of ownership in subsidiary (55,797) (55,797) 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) (9,498,452) (9,498,452) 418 (9,498,034) Dividends for 9 months of the year 2015 (Note 30) (8,000) (8,000) Net result from changes in fair value of available-for-sale financial assets reclassified to profit or loss upon disposal (net of deferred income tax of RUR 3,024 thousand) (12,096) (12,096) - (12,096) Net result from changes in fair value of available-for-sale financial assets reclassified to profit or loss upon impairment(net of deferred income tax of RUR 99 thousand) (397) (397) - (397) Fair value adjustment on available-forsale financial assets (net of deferred income tax of RUR 219,800 thousand) , , ,198 Revaluation of property, plant and equipment (net of deferred income tax of RUR 8,427 thousand) , ,715-33,715 Other comprehensive income from investments in associates (net of deferred income tax of RUR 279) ,116-1,116-1,116 Change of ownership in subsidiary 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 Signed on behalf of the Management Board Shpigun K.O. Chairman of the Management Board Gorovoy R.V. First Deputy Chairman 22 March March 2016 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 8

11 Consolidated Statement of Cash Flows Note Cash flows from operating activities Interest received 28,648,128 24,985,937 Interest paid (25,874,083) (17,812,792) Cash (paid)/received on dealing in foreign currencies (1,634,447) 4,471,603 Cash received/(paid) on dealing in financial assets at fair value through profit or loss 1,806,296 (428,752) Fees and commissions received 3,818,156 4,080,980 Fees and commissions paid (980,316) (936,424) Other operating income received 324, ,814 Operating expenses paid (7,207,185) (7,469,695) Income tax paid (365,622) (568,230) Operating activities before changes in operating assets and liabilities (1,464,107) 7,119,441 Net cash (decrease)/increase from operating assets and liabilities Mandatory reserve deposits with the Central Bank of the Russian Federation 750,685 (331,962) Due from banks 3,300,403 5,120,833 Financial assets at fair value through profit or loss (4,936,593) 4,731,509 Loans to customers 24,355,077 (19,492,750) Other assets (8,721) 2,346,187 Financial liabilities at fair value through profit or loss 30,180 - Due to banks (17,449,744) 5,321,988 Customer accounts (2,004,678) (23,244,475) Debt securities issued (12,115,509) 1,168,064 Other liabilities (321,825) (2,143,379) Net cash (used in) operating activities (9,864,832) (19,404,544) Cash flows from investing activities Subsequent acquisition of shares in subsidiary (21) (85,309) Purchase of available-for-sale financial assets (18,240,776) (47,847,610) Purchase of held to maturity investments (5,370,045) (1,550,961) Purchase of property, plant and equipment (341,828) (578,369) Purchase of assets for development and sale - (70,987) Proceeds from sales of available-for-sale financial assets 28,407,097 43,942,017 Proceeds from redemption of held to maturity investments 7,758,590 - Proceeds from sale of property, plant and equipment 31,634 1,110,223 Proceeds from sales of assets for development and sale - 2,586,404 Proceeds from sale of investment property 200,114 - Proceeds from sale of non-current assets held for sale 1,118,709 2,223,362 Net cash from/(used in) investing activities 13,563,474 (271,230) Cash flows from financing activities Issuance of RUR-denominated bonds 5,600,000 12,750,000 Redemption of RUR-denominated bonds (6,042,126) (7,695,255) Dividends paid (8,000) (3,379) Proceeds from subordinated debt - - Net cash (used in)/from financing activities (450,126) 5,051,366 Effect of exchange rate changes on cash and cash equivalents 11,998,901 16,502,503 Net increase in cash and cash equivalents 15,247,417 1,878,095 Cash and cash equivalents, beginning 44,931,134 43,053,039 Cash and cash equivalents, ending 13 60,178,551 44,931,134 Signed on behalf of the Management Board Shpigun K.O. Chairman of the Management Board 22 March March 2016 Moscow Moscow The notes on pages form an integral part of these consolidated financial statements. 9 Gorovoy R.V. First Deputy Chairman

12 1. Principal Activities These consolidated financial statements include the financial statements of Bank ZENIT (Open 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 CBRF ) in 1996 and other licences 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 31 December 2015 ZENIT has 96 points of sale including head office, branches, sub-branches and mini-offices throughout the Russian Federation (2014: 99). The Group also includes the following consolidated banking subsidiaries, incorporated in the Russian Federation: Name Date of acquisition 31 December December 2014 % ownership % ownership interest and Number of interest and Number of voting power points of sale voting power points of sale Bank Devon-Credit 2 December % % 30 Lipetskcombank 29 June % % 27 Bank ZENIT-Sochi 15 January % % 7 SPIRITBANK 8 December % % 5 As at 31 December 2015, the Group has an integrated ATM network consisting of 987 ATMs (2014: 1,012). 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 6 th Natsionalny. These subsidiaries are incorporated in the Russian Federation and engaged in the real estate business. The Bank has 100% ownership in Zenit Investment Service Inc, incorporated in the British Virgin Islands. The Group owns 35% shares of Closed joint-stock company National Non-state Pension Fund as a result of corporatization process. This Pension Fund is incorporated in the Russian Federation. Reconciliation of the investments in associates comprise: 31 December Share of profits of associates 502,096 Other comprehensive (loss) from associates (3,847) 31 December ,249 Share of profits of associates 506,082 Other comprehensive income from associates 1, December ,005, % shares of ZPIF 4th Natsionalny and ZPIF LIBRA Capital-Property owned by he Group as at 31 December 2014 have been redeemed during the year During the reporting period the Group did not have any interests in unconsolidated structured entities. In September 2015 the Bank received the subordinated loan from Deposit Insurance Agency (DIA) in the form of placement of Federal loan bonds with nominal value of RUR thousand. 10

13 1. Principal Activities (continued) The ultimate controlling parties of the Group as at 31 December 2015 and 2014 are as follows 1 : 31 December 2015 % of effective Shareholder Controlled by: % of voting rights ownership Tatneft Oil AG PAO Tatneft 24.56% 25.13% Mr. Alexey A. Sokolov, Mr. Arkady V. Sokolov, Ms. Tatyana P. Shishkina, Nabertherm Limited, Rosemead Enterprises Limited Ms. T.A. Zanozina 17.47% 17.88% Silener Management Limited Mr. Vladimir S. Lisin 14.42% 14.76% Viewcom Finance Limited Mr. Aleksandr I. Proshechkin 9.98% 10.21% Gatehill Limited Ms. Tatyana P. Shishkina 9.90% 10.12% Mr. Alexey A. Sokolov % 3.07% CJSC Centr-Kapital Mr. Igor G. Avanesyan 1.88% 1.92% Jackfield Trading Limited, Laverson Consultants Limited, LLP Sintez Grupp Members of the Management Board and the Board of Directors 14.01% 14.34% Other 4.78% 2.57% Total % % 31 December 2014 % of effective Shareholder Controlled by: % of voting rights ownership Tatneft Oil AG OJSC Tatneft 24.56% 25.13% Nabertherm Limited, Rosemead Enterprises Limited Mr. Alexey A. Sokolov, Mr. Arkady V. Sokolov, Ms. Tatyana P. Shishkina Ms. T.A. Zanozina 19.77% 20.23% Silener Management Limited Mr. Vladimir S. Lisin 14.42% 14.76% Viewcom Finance Limited Mr. Aleksandr I. Proshechkin 8.88% 9.09% Gatehill Limited Ms. Tatyana P. Shishkina 8.69% 8.90% Mr. Alexey A. Sokolov 3.00% 3.07% CJSC Centr-Kapital Mr. Igor G. Avanesyan 1.88% 1.92% Jackfield Trading Limited, Laverson Consultants Limited, LLP Sintez Grupp Members of the Management Board and the Board of Directors 14.02% 14.34% Other 4.78% 2.56% Total % % 1 One of the Shareholders (Mr. Aleksey A. Sokolov) died in May As at the date of signing of these Consolidated Financial Statements ownership of shares transfer as a result of inheritance has not being completed. 2. Basis of Presentation Accounting basis. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ). Going concern. In the year ended 31 December 2015, loss before tax amounted to RUR 9,382,651 thousand roubles. 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 addition, a decrease in net interest income arising from uneven changes in interest rates on assets and liabilities had a significant impact on the financial result. A surge in interest rates on liabilities was a result of a sharp increase in the CBRF key rate in December 2014; meanwhile, a growth in interest rates on assets was limited by the borrowers capacity. 11

14 2. Basis of Presentation (continued) 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 May-June 2015, the Board and the Annual General Meeting of the Bank approved a resolution authorizing the Bank s participation in the State Corporation Deposit Insurance Agency s Capital Increase Programme. In September 2015, within the framework of this Programme, the Bank received five subordinated securities loans (OFZs) totalling thousand roubles from the State Corporation Deposit Insurance Agency. In accordance with the Bank of Russia s Regulation No.395-П, these subordinated loans are recognized as additional capital for the purpose of calculating capital adequacy levels of the Bank. In October 2015, the Bank completed the conversion of term subordinated deposits amounting to 5.1 billion roubles from the Bank's Shareholder PJSC Tatneft into undated subordinated deposits. As a result, as at 31 December 2015, capital adequacy ratios (taking into account EARD) were as follows: Н1.1=6.93%, Н1.2=7.92%, Н1.0=16.00%. In addition, the Bank continues to take actions in order to increase its share capital by eight billion roubles. The meeting of the Board of Directors which reviewed this issue was held on 11 January On 18 February 2016, the Extraordinary General Meeting approved an increase in share capital of PJSC Bank ZENIT by issuing additional shares worth 8 billion roubles. The Bank plans to complete the additional placement of shares until 01 July As a result of the additional issue, the shareholding of PAO Tatneft is expected to increase to 48.8%. The Group continues to improve operational efficiency and to enhance the corporate governance of its subsidiaries. The results of these efforts must be taken into consideration, including in relation to the development strategy for a period ending 2020, 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. These consolidated financial statements were 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. Other basis of presentation criteria. These consolidated financial statements are presented in thousands of Russian Roubles ( RUR ), unless otherwise indicated. These consolidated financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, property, plant 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, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS

15 2. Basis of Presentation (continued) 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. The Bank and its consolidated companies, registered in the Russian Federation, maintain their accounting records in accordance with Russian Accounting Standards ( RAS ), foreign consolidated companies of the Bank maintain their accounting records in accordance with the law of the countries, in which they operate. These consolidated financial statements have been prepared from the Russian statutory accounting records and have 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. The Group presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the statement of financial position date (current) and more than 12 months after the statement of financial position date (non-current) is presented in Note 33. 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 Service Inc is also Russian Rouble due to the fact that major transactions are conducted in Russian Roubles. 3. Significant Accounting Policies Basis of consolidation. These consolidated financial statements incorporate the financial statements of the Bank and entities controlled by the Bank and its subsidiaries. Control is achieved when the Bank: Has power over the investee; Is exposed, or has rights, to variable returns from its involvement with the investee; and Has the ability to use its power to affect its returns. The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Bank considers all relevant facts and circumstances in assessing whether or not the Bank's voting rights in an investee are sufficient to give it power, including: The size of the Bank's holding of voting rights relative to the size and dispersion of holdings of the other vote holders; Potential voting rights held by the Bank, other vote holders or other parties; Rights arising from other contractual arrangements; and Any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings. 13

16 3. Significant Accounting Policies (continued) Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and ceases when the Bank loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Bank gains control until the date when the Bank ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Bank and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Non-controlling interests Non-controlling interests represent the portion of profit or loss and net assets of subsidiaries not owned, directly or indirectly, by the Bank. Non-controlling interests are presented separately in the consolidated income statement and within equity in the consolidated statement of financial position, separately from parent shareholders equity. Changes in the Group's ownership interests in existing subsidiaries Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Bank. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Bank had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity. Business combinations. Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are generally recognised in profit or loss as incurred. 14

17 3. Significant Accounting Policies (continued) At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the noncontrolling interests' proportionate share of the recognised amounts of the acquiree s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS. When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39 Financial Instruments: Recognition and Measurement, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss. When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date. 15

18 3. Significant Accounting Policies (continued) Business combinations that took place prior to January 1, 2010 were accounted for in accordance with the previous version of IFRS 3. Goodwill. Goodwill arising on the acquisition of a subsidiary or jointly controlled entity represents the excess of the cost of acquisition over the Group s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. The Group tests goodwill for impairment at least annually. An impairment loss recognized for goodwill is not reversed in a subsequent period. If the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the Group: (a) Reassesses the identification and measurement of the Group s identifiable assets, liabilities and contingent liabilities of acquired company and the measurement of the cost of the combination; and (b) Any excess remaining after such reassessment is recognized immediately in consolidated profit or loss statement. On disposal of an investment, the amount of goodwill attributable is included in the determination of the profit or loss on disposal. The Group s policy for goodwill arising on the acquisition of an associate is described below. Investments in associates. An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group's share of the profit or loss and other comprehensive income of the associate. When the Group's share of losses of an associate exceeds the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. 16