ING BANK (EURASIA) JSC

Transcription

1 Unaudited

2 CONTENTS INDEPENDENT AUDITORS REPORT ON REVIEW OF INTERIM CONDENSED FINANCIAL INFORMATION FINANCIAL INFORMATION Interim condensed statement of financial position...5 Interim condensed statement of profit or loss and other comprehensive income...6 Interim condensed statement of changes in equity...8 Interim condensed statement of cash flows NOTES TO THE INTERIM CONDENSED FINANCIAL INFORMATION 1. Principal activities Basis of preparation Use of estimates and judgements Summary of accounting policies Segment information Transition to IFRS Cash and cash equivalents Trading securities Amounts due from credit institutions Reverse repurchase agreements held for trading Derivative financial instruments Loans to customers Investment securities Taxation Amounts due to credit institutions Amounts due to customers Debt securities issued Subordinated loan Other impairment and provision Equity Corporate management and internal control systems Fair value measurement Related party disclosures Capital management... 34

3 Independent Auditors Report on Review of Interim Condensed Financial Information To the Shareholders and the Board of Directors of ING BANK (EURASIA) JSC Introduction We have reviewed the accompanying interim condensed statement of financial position of ING BANK (EURASIA) JSC ( the Bank ) as at 30 June and the related interim condensed statements of profit or loss and other comprehensive income, changes in equity and cash flows for the six month period then ended, and notes to the interim condensed financial information ( the interim condensed financial information ). Management is responsible for the preparation and presentation of this interim condensed financial information in accordance with IAS 34 Interim Financial Reporting. Our responsibility is to express a conclusion on this interim condensed financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim condensed financial information 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 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. Audited entity: ING BANK (EURASIA) JOINT-STOCK COMPANY. Registration No. in the Unified State Register of Legal Entities Moscow, Russia. Independent auditor: JSC KPMG, a company incorporated under the Laws of the Russian Federation, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Registration No. in the Unified State Register of Legal Entities Member of the Self-regulated organization of auditors Russian Union of auditors (Association). The Principal Registration Number of the Entry in the Register of Auditors and Audit Organisations: No

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12 1. Principal activities ING Bank (Eurasia) Joint Stock Company (the Bank ) was established in the Russian Federation in September 1993 and was granted its general banking license in March The principal activities of the Bank are deposit taking, commercial lending, operations with securities, foreign exchange and cash management services. The activities of the Bank are regulated by the Central Bank of the Russian Federation ( the CBR ). The Bank is a part of ING Group, an international financial group headquartered in Amsterdam and operating in over 40 countries. The registered address of the Bank s head office is 36, Krasnoproletarskaya street, , Moscow, Russian Federation. The majority of the Bank s assets and liabilities are located in the Russian Federation and OECD countries with regard to derivative financial assets and liabilities. The Bank operates in industries where significant seasonal or cyclical variations in operating income are not experienced during the financial year. The risk profile of the Bank has not changed considerably as at the reporting date compared to 31 December. The following shareholders owned 100% of the outstanding shares as at 31 December. Shareholder 30 June % 31 December % ING Bank N.V. 99, ,9902 Van Zwamen Holding B.V. 0,0098 0,0098 Total 100, ,0000 The Bank is 100% owned by ING Group. The activities of the Bank are in line with the requirements of the ING Group and the determination of the pricing of the Bank s services provided to / received from the ING Group is undertaken in conjunction with other ING Group companies on an arm s length basis. Related party transactions are detailed in Note 23. Russian business environment The Bank s operations are primarily located in the Russian Federation and OECD countries with regard to derivative financial assets and liabilities. Consequently, the Bank is exposed to the economic and financial risks of the Russian Federation markets, which display emerging-market characteristics. Legal, tax and regulatory frameworks continue to be developed, but are subject to varying interpretations and frequent changes that, together with other legal and fiscal impediments, contribute to the challenges faced by entities operating in the Russian Federation. By the middle of, the consistent monetary policy of the Central Bank of the Russian Federation resulted in a decrease in inflation to the all-time low. In its turn, the actions taken by the Ministry of Finance resulted in a significant decrease of the Russian rouble exchange rate sensitivity towards changes of oil price due to the implementation of the budgetary rule provisions starting from the beginning of. This led to a significant decrease of the Russian Federation credit risks and ensured a substantial foreign investments inflow in and first quarter of. The implementation of the budgetary rule provisions enabled the accumulation of additional oil and gas income, which in its turn will have a favourable impact on the budget figures and Russian economy. As at the end of, the growth of Russia s economy amounted to 1,5% as opposed to the decline of 0,2% in The Federal State Statistics Service assessed the growth of GDP for the first quarter of as 1,3%. This figure can be adjusted upwards taking into consideration the revision of production growth figures for The recovery of the domestic demand, including the increase of private consumption level and investments, against a significant decline of inflation rate to 2,5% in as opposed to the CBR target figure of 4% became the key driver of Russia s economy growth. In June, inflation decreased to 2,3% year-on-year against 2,4% in May, which is primarily due to the effect of the high base last year, when there was a significant increase in prices for fruit and vegetables due to unfavorable weather conditions. The CBR remains committed to a flexible monetary policy, which has a positive impact on the country s financial system and economy. The presence of factors that promote inflation, including the decision of the government to increase the VAT rate from 18% to 20% starting from 1 January 2019, contributes to the CBR remaining cautious with regard to the transition to a neutral monetary policy. There is uncertainty over further actions of the U.S. with regard to the extension of sanctions against Russia, regardless of the fact that the Bank does not expect strengthening of sanctions in its basic scenario. 12

13 This interim condensed financial information reflects management s assessment of the impact of the Russian business environment on the operations and financial position of the Bank. The future business environment may differ from management s assessment. 2. Basis of preparation Statement of compliance The accompanying of the Bank has been prepared in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. It does not include all of the information required for complete set of annual Financial Statements, and should be read in conjunction with the Financial Statements of the Bank for the year ended 31 December, as this interim condensed financial information provides an update of previously reported financial information. 3. Use of estimates and judgments The preparation of interim condensed financial information in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, and form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on management s best knowledge of current events and actions, actual results ultimately may differ from these estimates. In preparing these interim condensed financial information, the significant judgements made by management in applying the Bank s accounting policies and the key sources of estimation uncertainty have changed with regard to financial assets impairment estimates due to the application of the expected credit losses model in accordance with IFRS 9, while other judgements were applied similarly to those applied to the Financial Statements as at and for the year ended 31 December. 4. Summary of accounting policies The accounting policies applied in this interim condensed financial information are consistent with those applied by the Bank in the Financial Statements for the year ended 31 December, except for the initial application of IFRS 9. IFRS 9 Program management The IFRS 9 Financial Instruments was issued by the IASB in July IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement and includes requirements for the classification and measurement of financial assets and liabilities, impairment of financial assets, and hedge accounting. The new requirements become effective as of 1 January and are applied by the Bank since 1 January. The structure of the IFRS 9 Program has been set-up by ING Group based on the three pillars of the IFRS 9 standard: Classification and Measurement, Impairment, and Hedge Accounting. These central work streams consist of experts from Finance, Risk, Bank Treasury, Operations and the business. The IFRS 9 Technical Board consists of the heads of various Finance and Risk functions supporting the IFRS 9 Steering Committee by reviewing the interpretations of IFRS 9, the central guidance, and instructions as prepared by the central work streams. The IFRS 9 Steering Committee was the key decision making body and consisted of senior managers from Group Finance, Risks, Bank Treasury and Wholesale Banking Lending Services. In addition, an international IFRS 9 network has been created within ING to connect all countries with the central team to ensure consistency in implementation. The Management Banking Board and the Audit Committee are periodically updated about IFRS 9 and the key decisions. The IFRS 9 Program is being implemented across functions, businesses, and countries. The ING Group Accounting policies are also being updated to align with IFRS 9. During three parallel runs were performed to ensure transition to IFRS 9 starting from 1 January. The Bank has actively participated in the Group project and implemented the approach for its activities for transition as of 1 January and business routine onwards. The Bank took advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 were generally recognised in retained earnings and reserves as at 1 January (Note 4 to Financial Statements). Classification and measurement IFRS 9 is built on a single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. 13

14 Two criteria are used to determine how financial assets should be classified and measured at amortised cost (AC), fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL): 1. The business model assessment, performed to determine how a portfolio of financial instruments as a whole is managed in order to classify the business model as Hold to Collect (HtC), Hold to Collect & Sell (HtC&S), or other; and 2. The contractual cash flow characteristics test, performed to determine whether the financial instruments give rise to cash flows that are Solely Payments of Principal and Interest (SPPI). A financial asset is measured at amortised cost if: - it is held within a HtC business model, - the contractual cash flows are solely SPPI, - it is not designated as at FVTPL. A financial asset is measured at FVOCI if: - it is held within a HtC&S business model, - the contractual cash flows are solely SPPI, - it is not designated at FVTPL. Financial assets not classified as AC or FVOCI are measured at FVTPL. On initial recognition the Bank may irrevocably designate a financial asset that otherwise meets the requirements to be measured at AC or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Under IFRS 9 derivatives embedded in contracts where the host is a financial asset in the scope of IFRS 9 are not separated. Instead, the hybrid financial instrument as a whole is assessed for classification. Business model assessment ING s business models are based on the existing management structure of the Bank, and refined based on an analysis of how businesses are evaluated and reported, how their specific business risks are managed and on historic and expected future sales. Financial assets that are held for trading and those that are managed and whose performance is evaluated on a fair value basis will be measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. SPPI test For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. The SPPI testing was carried out in after the financial assets within the business models were stratified based on an analysis of product characteristics. In performing the SPPI testing, ING considered the contractual terms of the instruments. This included assessing whether the financial assets contained a contractual term that would change the amount or timing of contractual cash flows such that they would no longer be SPPI compliant. In making the assessment, terms such as the following were considered: Prepayment terms; Leverage features; Terms that limit the Group s claim to cash flows from specified assets; Features that modify consideration for the time value of money. Classification of financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. All financial liabilities, other than those designated at fair value through profit or loss and financial liabilities that arise when a transfer of a financial asset carried at fair value does not qualify for derecognition, are measured at amortised cost. However, under IAS 39 all fair value changes of financial liabilities designated at FVTPL are recognised in the statement of profit or loss and other comprehensive income (SOCI). 14

15 Impact assessment Changes in financial instruments classification caused by the adoption of the said policy are presented in Note 6. Impairment The implementation of IFRS 9 has a significant impact on ING s impairment methodology. The Expected Credit Loss (ECL) model is a forward-looking model. The ECL estimates are unbiased, probability-weighted, and include supportable information about past events, current conditions, and forecasts of future economic conditions. ING s ECL model reflects three macroeconomic scenarios via a baseline, up and down scenario and include the time value of money. The model applies to on-balance sheet financial assets accounted for at AC and FVOCI such as loans and debt securities, as well as off-balance sheet items such as undrawn loan commitments, certain financial guarantees, and undrawn committed revolving credit facilities. Compared to the scope under IAS 39, the main change is the inclusion of off-balance sheet exposures and HtC&S financial assets. Three stage approach ING Group applies the IFRS 9 three stage approach to measure expected credit losses: Stage 1: 12 month ECL No significantly increased credit risk Financial instruments that have not had a significant increase in credit risk since initial recognition require, at initial recognition an allowance for ECL associated with the probability of default events occurring within the next 12 months (12 month ECL). For those financial assets with a remaining maturity of less than 12 months, a Probability of Default (PD) is used that corresponds to the remaining maturity. Stage 2: Lifetime ECL Significantly increased credit risk In the event of a significant increase in credit risk since initial recognition, an allowance is required for the lifetime ECL representing losses over the life of the financial instrument (lifetime ECL). Stage 3: Lifetime ECL Defaulted Financial instruments that move into Stage 3 once credit impaired and purchases of credit impaired assets will require a lifetime allowance. Significant increase in credit risk A financial asset moves from Stage 1 to Stage 2 when there is a significant increase in credit risk since initial recognition. ING Group established a framework which incorporates quantitative and qualitative information to identify this on an asset level applying a relative assessment. Each financial asset will be assessed at the reporting date on the triggers for significant deterioration. ING Group assesses significant increase in credit risk using: Analysis of delta in the lifetime default probability; Forbearance status; Watchlist status. Loans on the watchlist are individually assessed for Stage 2 classification; Intensive control over loans; Internal rating; Arrears; and the More than 30 days past due backstop for Stage 1 to Stage 2 transfers. The delta in lifetime probability of default is the main trigger for movement between Stage 1 and Stage 2. The trigger compares lifetime probability of default at origination versus lifetime probability of default at reporting date, considering the remaining maturity. Assets can move in both directions, meaning that they will move back to Stage 1 or Stage 2 when the Stage 2 or Stage 3 triggers are not applicable anymore. The stage allocation is implemented in the central credit risk systems. Macroeconomic scenarios ING has established a quarterly process whereby forward-looking macroeconomic scenarios and probability weightings are developed for ECL calculation purposes. ING applies predominantly data from a leading service provider enriched with the internal ING view. To reflect an unbiased and probability-weighted ECL amount, a baseline, an up-scenario and a down-scenario are determined. As a baseline scenario, ING applies the market-neutral view combining consensus forecasts for economic variables such as GDP growth, commodity prices, and short-term interest rates. Applying market consensus in the baseline scenario ensures unbiased estimates of the expected credit losses. Macroeconomic scenarios 15

16 based on statistical and estimated figures of the Russian economy development are considered for assessing the Bank s financial assets impairment. The alternative scenarios are based on observed forecast errors in the past, adjusted for the risks affecting the economy today, and the forecast horizon. The probabilities assigned are based on the likelihoods of observing the three scenarios and are derived from confidence intervals on a probability distribution. The scenarios are adjusted on a quarterly basis. As the inclusion of forward-looking macroeconomic scenarios requires judgement, a Macroeconomic scenarios team and a Macroeconomic scenarios expert panel were established. The Macroeconomic scenarios team is responsible for the macroeconomic scenarios used for IFRS 9 ECL purposes with a challenge by the Macroeconomic scenarios expert panel. This ensures that the macroeconomic scenarios are sufficiently challenged and that key economic risks, including immediate short term risks, are taken into consideration when developing the macroeconomic scenarios used in the calculation of ECL. The Macroeconomic scenarios expert panel is a diverse team composed of senior management representatives from the Business, Risk, Finance, and an external party. Measurement The calculation of IFRS 9 ECL leverages on ING Group s expected loss models (PD, LGD, EAD) currently used for regulatory capital and economic capital. These models are adjusted for 1) removal of embedded prudential conservatism (such as floors), 2) provide forward-looking point in time estimates based on macroeconomic predictions and 3) a 12 months or lifetime view of credit risk where needed. Lifetime features are default behaviour over a longer horizon, full behaviour after the default moment, repayment schedules and early settlements. For most financial instruments, the expected life is limited to the remaining maturity. For overdrafts and certain revolving credit facilities, such as credit cards, open ended assumptions are taken as these do not have a fixed term or repayment schedule. To measure ECL, ING Group applies a PD x EAD x LGD approach incorporating the time value of money. For Stage 1 assets a forward looking approach on a 12 month horizon will be applied. For Stage 2 assets a lifetime view on the credit is applied. The Lifetime Expected Loss (LEL) is the discounted sum of the portions of lifetime losses related to default events within each time window of 12 months till maturity. For Stage 3 assets the PD equals 100% and the Loss Given Default (LGD) and Exposure At Default (EAD) represent a lifetime view of the losses based on characteristics of defaulted facilities. Reconciliation of opening and closing loss allowance balances by classes of financial instruments are presented in the respective notes. Definition of default ING uses a framework that integrates elements of the regulatory definition of default and the loan loss provisioning indicators under IFRS 9. The rationale is that several indicators are very close to the indications of an obligor s unlikeliness to pay under European regulation (CRR/CRDIV) and similar regulations. Integration of both frameworks further enhances ING s compliance with the CRR/CRDIV use test. Key differences between the parameters used for loan loss provisioning and regulatory capital calculations are that regulatory capital parameters are typically through the cycle while loan loss parameters are more at a point in time. Additionally, the LGD for regulatory capital calculations is based on a down-turn LGD and a Loss Emergence Period is applied for loan loss provisioning purposes on the 1 year Default Probability to obtain Incurred losses. For business loans (governments, financial institutions, and corporates), ING classifies the relevant obligors as nonperforming when any of the following default triggers occurs: The borrower has failed in the payment of principal or interest/fees and such payment failure has remained unresolved for the following period: Corporates: failure to pay for more than 90 days; and Financial Institutions and Governments: failure to pay from day 1, however, a research period of 14 calendar days will be observed in order for ING to establish whether the payment default was due to non-operational reasons (i.e. the deteriorated credit quality of the financial institution) or due to operational reasons. The latter does not trigger default. ING believes the borrower is unlikely to pay: the borrower has evidenced significant financial difficulty, to the extent that it will have a negative impact on the future cash flows of the financial asset. The following events could be seen as examples of financial difficulty indicators: (1) The borrower (or third party) has started bankruptcy proceedings. (2) NPL status of a group company/co-borrower. (3) Significant fraud (affecting the company s ability to service its debt). 16

17 (4) There is doubt as to the borrowers ability to generate stable and sufficient cash flows to service its debt. (5) Restructuring of debt. ING has granted concessions relating to the borrower s financial difficulty, the effect of which is a reduction in expected future cash flows of the financial asset below current carrying amount. ING Wholesale Banking has an individual name approach, using Early Warnings indicators to signal possible future issues in debt service. Forbearance Forbearance occurs when a client is considered to be unable to meet its financial commitments under the contract due to financial difficulties and ING decides to grant concessions towards the client. Forborne exposures are exposures in respect of which forbearance measures have been granted. Forbearance measures can be either modifications to existing contractual terms and conditions or total or partial refinancing. Within ING, forbearance is based on the European Implementing Technical Standards. To identify forbearance, ING assesses clients with Early Warning Signals, Watchlist, Restructuring, Default or Recovery status. ING reviews the performance of forborne exposures at least quarterly, either on a case-by-case (business) or on a portfolio (retail) basis. For corporate customers, ING applies forbearance measures to support clients with fundamentally sound business models that are experiencing temporary difficulties. The aim is to maximize the repayment ability of the clients. Exposures with forbearance measures can be either performing (Risk Ratings 1-19) or non-performing (Risk Ratings 20-22). ING applies criteria to move forborne exposures from non-performing to performing as well as criteria to remove the forbearance status that are consistent with the corresponding EBA standards. An exposure is reported as forborne for a minimum of two years, and a probation period of one year is observed for forborne exposures to move from nonperforming back to performing. New standards and interpretations not yet adopted A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2019 and earlier application is permitted; however, the Bank has not early adopted the following new or amended standards in preparing this interim condensed financial information. 5. Segment information The Bank has identified the following operating segments: Lending Services comprises corporate and staff lending; Financial and Capital Markets comprises securities trading, debt capital markets services, foreign currency exchange and derivatives transactions on stock exchange and over the counter market, sales and repurchase agreements, equity and debt capital markets activities (trading, research, consultancy services). This segment is also responsible for treasury services, accumulation and further redistribution of all funds attracted by other segments; Cash settlement transactions comprise payments and cash management and trade financing. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance, as explained in the table below, is measured differently from profit or loss in the financial statements. Income taxes are managed on a group basis and are not allocated to operating segments. The Bank allocates revenues and expenses between segments depending on the contractual counterparty and type of transaction. Internal funding costs ( Interest income from other segments and Interest expense relating to transactions with other segments ) are defined on the basis of transfer pricing policy. According to the existing transfer pricing system, approved by the Board, funds are transferred between segments at the funds transfer pricing rates. Choice of the rates for each interest bearing asset or liability depends on the currency and contractual maturity of this asset or liability. Segment results are based on the revenues attributable to the assets of the segment net of funding costs attributable to the liabilities of the segment less direct and allocated administrative and other operating expenses. The Bank does not allocate income tax expense to any segment results. Total expenses attributable to operating segments constitute of the expenses of the relevant front offices, back offices and those of support functions allocated to the segments. 17

18 For the six months ended 30 June and 30 June, the amount of profit received by the Bank from each of its counterparties does not exceed 10% of equity. The following table presents income and profit and total asset and liability information regarding the Bank s operating segments and as at 30 June : Total before Lending Services Cash settlement transactions Financial and capital Markets adjustments and eliminations Eliminations Total Interest income from external customers Interest income from other segments ( ) - Interest expense from external customers - (56 894) ( ) ( ) - ( ) Interest expense relating to transactions with other segments ( ) (45 395) ( ) ( ) Net fee and commission income Net losses from trading and investment financial instruments, foreign currency ( ) ( ) - ( ) operations and translation Total income Personnel expenses and payroll related taxes and contributions ( ) ( ) ( ) ( ) - ( ) Communications and information services ( ) ( ) ( ) ( ) - ( ) Occupancy and lease expenses (42 290) (37 905) (64 603) ( ) - ( ) Professional services (23 748) (29 336) (42 279) (95 363) - (95 363) Current tax (20 046) (48 131) (16 079) (84 256) - (84 256) Equipment and software maintenance (21 957) (19 680) (33 542) (75 179) - (75 179) Depreciation and amortization (15 955) (14 300) (24 464) (54 719) - (54 719) Travel and representation (9 972) (8 682) (16 235) (34 889) - (34 889) Office maintenance expenses (1 544) (1 384) (2 359) (5 287) - (5 287) Security expenses (2 038) (1 827) (3 113) (6 978) - (6 978) Other (3 399) (9 518) (7 227) (20 144) - (20 144) Total expenses ( ) ( ) ( ) ( ) - ( ) Allowance for loan impairment (17 137) Other provisions Profit before income tax expense (12 303) Segment assets Segment liabilities

19 The following table presents income and profit and total asset and liability information regarding the Bank s operating segments for the six months ended 30 June and as at 30 June : Total before Lending Services Cash settlement transactions Financial and capital Markets adjustments and eliminations Eliminations Total Interest income from external customers Interest income from other segments ( ) - Interest expense from external customers - (16 814) ( ) ( ) - ( ) Interest expense relating to transactions with other segments ( ) (34 565) ( ) ( ) Net fee and commission income Net gains from trading and available-for-sale financial instruments, foreign currency operations and translation Total income Personnel expenses and payroll related taxes and contributions ( ) ( ) ( ) ( ) - ( ) Communications and information services ( ) ( ) ( ) ( ) - ( ) Occupancy and lease expenses (31 398) (53 872) (53 537) ( ) - ( ) Professional services (23 285) (36 612) (47 982) ( ) - ( ) Current tax (21 258) (39 372) (40 286) ( ) - ( ) Equipment and software maintenance (13 699) (23 504) (23 358) (60 561) - (60 561) Depreciation and amortization (10 496) (18 010) (17 898) (46 404) - (46 404) Travel and representation (8 427) (10 798) (16 692) (35 917) - (35 917) Office maintenance expenses (1 043) (1 789) (1 778) (4 610) - (4 610) Security expenses (1 066) (1 829) (1 818) (4 713) - (4 713) Other (3 329) (5 141) (5 488) (13 958) - (13 958) Total expenses ( ) ( ) ( ) ( ) - ( ) Allowance for loan impairment (41 851) - - (41 851) - (41 851) Other provision Profit before income tax expense Segment assets Segment liabilities

20 6. Transition to IFRS 9 Classification of financial assets and financial liabilities upon initial adoption of IFRS 9 The following table shows original measurement categories under IAS 39 and new categories under IFRS 9 for financial assets and liabilities of the Group as at 1 January. Original carrying value under IAS 39 New carrying value under IFRS 9 Note Original classification under IAS 39 New classification under IFRS 9 Financial assets Cash and cash equivalent 7 Loans and receivables At amortized cost Trading securities 8 At fair value through profit or loss At fair value through profit or loss Investment securities 13 Available for sale At fair value through other comprehensive income Due from credit institutions 9 Loans and receivables At amortized cost Reverse repurchase agreements held for 10 At fair value through profit or loss At fair value through profit or loss trading Derivative financial assets 11 At fair value through profit or loss At fair value through profit or loss Loans to customers 12 Loans and receivables At amortized cost Other assets Loans and receivables At amortized cost Total financial assets Financial liabilities Due to credit institutions 15 At amortized cost At amortized cost Derivative financial liabilities 11 At fair value through profit or loss At fair value through profit or loss Short position on trading securities 8 At fair value through profit or loss At fair value through profit or loss Due to customers 16 At amortized cost At amortized cost Debt securities issued 17 At amortized cost At amortized cost Subordinated loan 18 At amortized cost At amortized cost Total financial liabilities

21 The Group s accounting policy with respect to the financial instruments classification under IFRS 9 is presented in Note 4. Changes in the financial instruments classification due to the application of the said policy are presented in the table above and clarified further. The impact of the standard on the classification and measurement of financial assets held by the Bank as at 1 January, is as follows. Trading assets and derivative assets held for risk management, which are classified as held-for-trading and measured at FVTPL under IAS 39, are also measured at FVTPL under IFRS 9. Loans and advances to banks and to customers that are classified as loans and receivables and measured at AC under IAS 39 are also measured at AC under IFRS 9. Debt investment securities that are classified as available-for-sale under IAS 39 and measured at FVOCI are also measured at FVOCI under IFRS9. There have been no changes in the classification or measurement of financial liabilities as a result of transition to IFRS 9. Comparative information As a result of its transition to IFRS 9 the Group has changed the presentation of certain items in the main statements of the interim condensed financial information. The presentation of comparative information has also been changed as appropriate according to the presentation procedure for the current period. The impact of main changes on the procedure of presenting information in the interim condensed statement of financial position as t 30 June is as follows: Available for sale securities line item is presented in investment securities line item; The impact of main changes on the procedure of presenting information in the interim condensed statement of profit or loss and other comprehensive income is as follows: The procedure for presenting interest income was changed in such a way as to present interest income related to non-derivative financial assets measured at fair value through profit or loss separately in other interest income line item; The impact of main changes on the procedure of presenting information in the interim condensed statement of cash flows as at 30 June is as follows: Acquisition of available for sale securities line item is presented in Acquisition of investment securities ; Proceeds from sale and redemption of available for sale securities line item is presented in Proceeds from sale and redemption of investment securities line item. 21

22 The following table shows the reconciliation of carrying value amounts under IAS 39 with those under IFRS 9 upon transition to the new standard on 1 January. Change of Carrying value under IAS December Reclassification measurement base (effect of changes in the impairment model) Carrying value under IFRS 9 1 January Financial assets Amortized cost Cash and cash equivalents: Opening balance Change of measurement base - (1 485) Closing balance Due from credit institutions: Opening balance Change of measurement base Closing balance Loans to customers: Opening balance Change of measurement base (24 676) Closing balance Other assets Total at amortized cost (13 208) Available for sale Available for sale securities: Opening balance To FVOCI category debt - ( ) - Closing balance - At FVOCI debt Investment securities: Opening balance From available for sale category Closing balance Total at FVOCI Fair value through profit or loss Trading securities: Reverse repurchase agreements held for trading: Derivative financial assets: Total at FVTPL Provision for liabilities related to unused credit facilities and guarantees issued Opening balance (15 858) Change of measurement base Closing balance (15 858) Change of measurement base, total Deferred tax effect (530) Effect of IFRS 9 adoption

23 Credit quality analysis The following table shows information about the credit quality of financial assets measured at amortized cost, debt instruments measured at fair value through other comprehensive income as at 30 June. Unless stated otherwise, the amounts of financial assets in the table below reflect the amounts of gross carrying value. 12 months expected credit losses Lifetime expected credit losses related to assets that are not creditimpaired 30 June Lifetime expected credit losses related to assets that are credit-impaired Assets that are credit-impaired at initial recognition thousands of roubles Due to credit institutions at amortized cost - rated A and above rated from BBB- to BBB rated from BB- to BB Loss allowance (171) (5 319) - - (5 490) Carrying value Loans to customers at amortized cost Having only internal credit risk ranking: High rating Standard rating Watchlist Loss allowance (26 614) (264) - - (26 877) Carrying value Total Investment securities at FVOCI BBB rating Carrying value

24 7. Cash and cash equivalents Cash and cash equivalents comprise: 30 June 31 December Cash on hand Current accounts with the CBR Current accounts and overnight deposits with other credit institutions: - rated A and above rated between BBB- and BBB rated from BB- to BB Cash and cash equivalents before impairment allowance Allowance for impairment (19 480) (16 330) Cash and cash equivalents Ratings of credit institutions are defined in accordance with accepted standards of international rating agencies: Standard&Poors, Moody's, Fitch. No cash and cash equivalents are individually impaired or past due. Information on related party transactions is disclosed in Note 23. The movements in allowance for impairment of current accounts and overnight deposits with credit institutions are as follows: 6 months ended 30 June Balance as at 31 December Changes of models/risk parameters (effect of change in impairment model) Balance as at 1 January (adjusted) Net charge for the period Balance as at 30 June Trading securities Trading securities owned comprise: 30 June 31 December Russian Government Federal bonds (OFZ) Corporate bonds - rated from BBB- to BBB rated from BB and below not rated Trading securities Ratings are defined in accordance with accepted standards of international rating agencies: Standard&Poors, Moody's, Fitch. Not rated trading securities are represented by bonds without emission rating. Issuers of these bonds are Russian entities with standalone ratings not lower than B-. OFZ are bonds issued by the Ministry of Finance of the Russian Federation nominated in RUB. 24

25 Short position on trading securities comprise: 30 June 31 December Russian Government Federal bonds (OFZ) Trading securities sold Amounts due from credit institutions Amounts due from credit institutions comprise: 30 June 31 December Time deposits and loans provided to credit institutions - rated A and above rated from BBB- to BBB rated from BB- to BB Amounts due from credit institutions before impairment allowance Impairment allowance (5 490) (14 822) Amounts due from credit institutions Information on transactions with related parties is disclosed in Note 23. No amounts due from credit institutions are individually impaired or past due. Allowance for impairment of amounts due from credit institutions The movements in allowance for impairment of amounts due from credit institutions are as follows: 6 months ended 30 June Balance as at 31 December Changes of models/risk parameters (effect of change in impairment model) (12 953) - Balance as at 1 January (adjusted) Net charge for the period Balance as at 30 June Reverse repurchase agreements held for trading Reverse repurchase agreements held for trading comprise: 30 June 31 December Amounts due from credit institutions Reverse repurchase agreements held for trading

26 As at 30 June, Russian Government Federal bonds (OFZ) with the total fair value of RUB thousand, corporate bonds with the total market value of RUB thousand, and shares with the total market value of RUB thousand were pledged as collateral under reverse repurchase agreements As at 31 December, Russian Government Federal bonds (OFZ) with the total fair value of RUB thousand and corporate bonds with the total market value of RUB thousand were pledged as collateral under reverse repurchase agreements. Information on transactions with related parties is disclosed in Note Derivative financial instruments The Bank enters into derivative financial instruments mainly for trading purposes. The table below shows the fair values of derivative financial instruments, recorded as assets or liabilities, together with their notional amounts. The notional amount, recorded gross, is the amount of a derivative s underlying asset and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding as at the year end and are not indicative of the credit risk. Interest rate contracts Notional amount 30 June 31 December Fair value Notional Fair value Asset Liability amount Asset Liability Swaps (interest) Foreign exchange contracts Forwards Swaps Spot Option Credit contracts Credit default swaps Total derivative financial assets / liabilities As at 30 June, ING Group derivative financial assets and liabilities included RUB thousand and RUB thousand, respectively (31 December : RUB thousand and thousand, respectively) (Note 23). Most of the Bank s derivative trading activities relate to deals with customers in order to hedge client risks. The Bank may also take positions with the expectation of profiting from favourable movements in prices or rates on indices. As at 30 June and 31 December the Bank has positions in the following types of derivatives: Forwards Forwards are contractual agreements to buy or sell a specified financial instrument at a specific price and date in the future. Swaps Swaps are contractual agreements between two parties to exchange movements in interest and foreign currency rates based on specified notional amounts. Options Options are contractual agreements that convey the right, but not the obligation, for the purchaser either to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixed future date or at any time within a specified period. 26

27 Spots Spots are agreements between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date. Credit Default Swaps Credit Default Swaps are financial contracts whereby a buyer of the swap makes payments to the swap s seller up until the maturity date of a contract. In return, the seller agrees that the debt issuer defaults or experiences another credit event, the seller will pay the buyer the security s premium as well as all interest payments that would have been paid between that time and the security s maturity date. 12. Loans to customers Loans to customers comprise: 30 June 31 December Commercial loans Loans to individuals Gross loans to customers Less impairment allowance (26 877) (42 286) Loans to customers As at 30 June and 31 December loans to individuals are mainly represented by loans issued to the Bank s employees. Allowance for loan impairment is calculated according to the Bank s policy. Movement of the allowance for impairment of loans to customers is as follows: For the six-month period ended 30 June Balance as at 31 December Changes of models/risk parameters (effect of change in impairment model) Balance as at 1 January (adjusted) Net charge / (reversal) for the period (40 085) Balance as at 30 June Individually impaired loans As at 30 June and 31 December the Bank had no individually impaired loans to customers. 13. Investment securities Investment securities owned comprise: 30 June 31 December Russian Government Federal bonds (OFZ) Investment securities