Interim condensed financial statements Joint-Stock Commercial Bank "NOVIKOMBANK" for the period from 1 January to 30 June with review report

Transcription

1 Interim condensed financial statements Joint-Stock Commercial Bank "NOVIKOMBANK" for the period from 1 January to with review report

2 Interim condensed financial statements Joint-Stock Commercial Bank "NOVIKOMBANK" Contents Page Report on review of interim condensed financial statements 3 Interim condensed income statement 5 Interim condensed statement of comprehensive income 6 Interim condensed statement of financial position 7 Interim condensed statement of cash flows 8 Interim condensed statement of changes in equity 9 Notes to the interim condensed financial statements 1. Introduction Basis of preparation Interest income and interest expense Net gains/(losses) from foreign currencies Operating expenses Income tax expense Cash and cash equivalents Amounts due from banks and other financial institutions Financial instruments at fair value through profit or loss Reverse repurchase agreements receivable Loans to customers Available-for-sale assets Held-to-maturity investments Investments in an associate Other assets Accounts and deposits from banks and other financial institutions Repurchase agreements payable Current accounts and deposits from customers Debt securities issued Subordinated loans Other liabilities Equity Capital management Commitments Operating lease Contingencies Related party disclosures Fair value of financial instruments Maturity analysis of assets and liabilities Currency analysis of assets and liabilities Operating segments Events after the reporting date 39 2

3 Ernst & Young LLC Sadovnicheskaya Nab., 77, bld. 1 Moscow, , Russia Tel: +7 (495) (495) Fax: +7 (495) ООО «Эрнст энд Янг» Россия, , Москва Садовническая наб., 77, стр. 1 Тел.: +7 (495) (495) Факс: +7 (495) ОКПО: Report on review of interim condensed financial statements To the Shareholders and Board of Directors of JSCB "NOVIKOMBANK" We have reviewed the accompanying interim condensed financial statements of JSCB "NOVIKOMBANK" (the Bank ), which comprise the interim condensed income statement and statement of comprehensive income for the six-month period ended, the interim condensed statement of financial position as at and the related interim condensed statements of cash flows and changes in equity for the six-months period then ended, and explanatory notes. Management of the Bank is responsible for the preparation and presentation of these interim condensed financial statements in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. Our responsibility is to express a conclusion on these interim condensed financial statements based on our review. Our responsibility is to express a conclusion on these interim condensed financial statements based on our review. Scope of review We conducted our review in accordance with the Federal Law On Auditing, Federal Rule (Standard) on Auditing No. 33 Review of Financial (Statutory) Statements and International Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of the interim condensed financial statements consists of making inquiries of the Bank's personnel responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Federal Standards on Auditing applicable in the Russian Federation and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. A member firm of Ernst & Young Global Limited 3

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8 Joint-Stock Commercial Bank "NOVIKOMBANK" Interim condensed statement of cash flows for the six months ended Interim condensed financial statements For the six months For the six months of 2014 of 2013 (unaudited) Notes Cash flows from operating activities Interest, fees and commissions received 6,731,182 5,147,600 Interest, fees and commissions paid (3,724,717) (2,837,517) Net receipts/(payments) from financial instruments at fair value through profit or loss and available-for-sale assets (2,310) (169,116) Net receipts/(payments) from foreign currency operations 21,044 1,059,081 Net gains/(losses) from transactions with precious metals (1,831) 7,701 Dividends received Other income 6,382 6,002 Operating expenses (1,072,427) (990,498) 1,957,861 2,223,782 (Increase)/decrease in operating assets Deposits with the Central Bank of Russia 18,000,000 (12,000,000) Obligatory reserve with the Central Bank of Russia (283,396) (212,174) Amounts due from banks and other financial institutions (6,333,435) 1,134,129 Financial instruments at fair value through profit or loss 1,128,044 1,734,824 Reverse repurchase agreements receivable (2,163,080) (799,347) Loans to customers (15,286,172) (7,463,127) Other assets (105,123) (289,230) Increase/(decrease) in operating liabilities Accounts and deposits from banks and other financial institutions 9,802,087 2,530,831 Repurchase agreements payable 15,500,769 3,254,112 Current accounts and deposits from customers 6,069,929 (1,912,339) Promissory notes issued 832,345 8,826,726 Other borrowed funds (30,269) Other liabilities (21,530) 110,282 Net cash from (used in) operating activities before taxes 29,098,299 (2,891,800) Income tax paid (193,269) (136,319) Net cash from (used in) operating activities 28,905,030 (3,028,119) Cash flows from investing activities Purchase of available-for-sale assets (32,302,299) (31,796,442) Proceeds from sale of available-for-sale assets 15,052,123 26,075,179 Proceeds from sale of property and equipment 857 Purchase of property and equipment (29,238) (12,455) Net cash from/(used in) investing activities (17,278,557) (5,733,718) Cash flows from financing activities Proceeds from issue of share capital 22 4,687,609 Repayment of subordinated loans 20 (4,539,599) Proceeds from bonds issued 19 2,294,429 3,000,000 Redemption of bonds issued 19 (2,494,379) (1,962,510) Net cash from financing activities (51,940) 1,037,490 Net increase in cash and cash equivalents 11,574,533 (7,724,347) Effect of exchange rate changes on cash and cash equivalents 401, ,191 Cash and cash equivalents, beginning 16,542,621 19,202,860 Cash and cash equivalents, ending of the period 7 28,518,776 12,072,704 The interim condensed statement of cash flows should be read in conjunction with the explanatory notes 1-32 to these interim condensed financial statements presenting its integral part. 8

9 Joint-Stock Commercial Bank "NOVIKOMBANK" Interim condensed statement of changes in equity for the six months ended Interim condensed financial statements Share capital Share premium Property and equipment revaluation reserve Revaluation reserve for available-forsale assets Gains on initial recognition of subordinated loans Retained earnings Total equity (unaudited) Balance as at 1 January ,605,758 1,316, ,605 (14,257) 354,064 3,551,750 9,006,478 Profit 490, ,458 Other comprehensive income Revaluation of available-for-sale assets, net of deferred tax assets in the amount of RUR 43,616 thousand (174,462) (174,462) Revaluation of available-for-sale assets, transferred to profit or loss, net of deferred tax liabilities in the amount of RUR 5,585 thousand 22,340 22,340 Total other comprehensive loss (152,122) (152,122) Total comprehensive income/(loss) for the period (152,122) 490, ,336 Gains on initial recognition of subordinated loans, net of deferred tax assets in the amount of RUR 29 thousand (113) (113) Balance as at 30 June ,605,758 1,316, ,605 (166,379) 353,951 4,042,208 9,344,701 Balance as at 1 January ,605,758 1,316, ,315 (158,076) 354,064 4,385,165 9,705,784 Profit 568, ,391 Other comprehensive income Revaluation of available-for-sale assets, net of deferred tax assets in the amount of RUR 42,950 thousand (171,801) (171,801) Revaluation of available-for-sale assets, transferred to profit or loss, net of deferred tax liabilities in the amount of RUR 92 thousand Total other comprehensive loss (171,434) (171,434) Total comprehensive income/(loss) for the period (171,434) 568, ,957 Increase of share capital (Note 22) 1,655,229 3,032,380 4,687,609 Balance as at 5,260,987 4,348, ,315 (329,510) 354,064 4,953,556 14,790,350 The interim condensed statement of changes in equity should be read in conjunction with the explanatory notes 1-32 to these interim condensed financial statements presenting its integral part. 9

10 1. Introduction Principal activities Joint-Stock Commercial Bank "NOVIKOMBANK" ("the Bank" or "JSCB "NOVIKOMBANK") was established in the Russian Federation and has been operating since The Bank operates under a general banking license issued by the Central Bank of Russia ("CBR") (the license was reissued on 7 September 2012), as well as CBR license for operations with precious metals (issued on 3 October 2002). Also, the Bank is a professional securities market participant and has licenses from the Federal Service for Financial Markets for brokerage, securities dealing, depositary services and securities management operations issued on 25 February 2003 and 29 April Starting from 2004, the Bank is a member of the deposit insurance system. The system operates under the Federal laws and regulations and is governed by the State Corporation "Agency for Deposits Insurance". Insurance covers the Bank s liabilities to individual depositors in the amount up to RUR 700 thousand for each individual in case of business failure or revocation of the CBR banking license. The Bank s principal activities are accepting deposits, customer accounts opening and maintenance, lending and issuing guarantees, conducting cash and settlements operations, operations with securities and foreign currencies. The Bank is regulated by the Central Bank of Russia ("CBR"). The registered legal address of the Bank s head office is 4/4 Yakimanskaya naberezhnaya, building 2, Moscow, , Russia. As at and 31 December 2013, the Bank has the following branches and additional offices: "Central" subsidiary branch of JSCB "NOVIKOMBANK", Moscow; "Zhukovsky" office of JSCB "NOVIKOMBANK", Zhukovsky, Moscow Region; Rostov-on-Don branch of JSCB "NOVIKOMBANK"; Nizhny Novgorod branch of JSCB "NOVIKOMBANK"; Saint Petersburg branch of JSCB "NOVIKOMBANK"; Togliatti branch of JSCB "NOVIKOMBANK"; Samara office of Togliatti branch of JSCB "NOVIKOMBANK"; Tula operating office of JSCB "NOVIKOMBANK"; Kazan operating office of Nizhny Novgorod branch of JSCB NOVIKOMBANK; Taganrog office of Rostov-on-Don branch of JSCB NOVIKOMBANK. In the reporting period, the average number of Bank s employees comprised 750 people (2013: 725 people). As at, the Bank exercises control over four Russian entities (real estate agency services, legal and audit services and other real estate services) and one structured entity incorporated in Ireland (31 December 2013: four Russian entities and one structured entity). The Bank believes that investments in these entities are insignificant. Shareholders As at and 31 December 2013, shareholders of the Bank were as follows:, % 31 December 2013, % Group of Rostec State Corporation 49.00% 17.61% LLC "ADAMANT" 9.45% 14.05% LLC "Vega-plast" 9.33% 13.85% LLC "MEGASPETSSTROY" 9.31% 13.84% LLC "GraviLat" 9.01% 13.38% CJSC "LK-INVEST" 8.05% 11.96% LLC "Sever-Atlant" 5.35% 1.73% LLC "PULSAR" 0.50% 13.58% % % 10

11 1. Introduction (continued) Shareholders (continued) On 27 May 2014, the Central Bank of Russia registered a report on the additional issue of securities of the Bank that has resulted in the following shareholder changes: the share of Group of Rostec State Corporation increased to 49.00%, the shares of other shareholders decreased pro rata. As at, the Bank is ultimately controlled by the President of the Bank I.N. Gubin, controlling 51.00% of Bank's shares (31 December 2013: 82.39% of Bank's shares). Currently, measures are taken to increase the share of Rostec State Corporation to the controlling one (refer to Note 32). Thus, as at, members of the Board of Directors and Management Board controlled 2,581,945 Bank's shares (51.00%) (31 December 2013: 2,807,408 shares, or 82.39%). Business environment Russian Federation. Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the government. The Russian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. The global financial crisis has resulted in uncertainty regarding further economic growth, availability of financing and cost of capital, which could negatively affect the Bank's financial position, results of operations and business prospects. Management believes it is taking appropriate measures to support the sustainability of the Bank's business in the current circumstances. Other countries. Apart from operating in the Russian Federation, the Bank also enters into transactions with counterparties which are not residents of CIS (the Republic of Belarus, Azerbaijan, Armenia, Tajikistan, Uzbekistan, Kyrgyzstan, Kazakhstan, Moldova, and Ukraine) and in European countries and some other countries. Complicated economic environment and liquidity issues in many countries resulted in either decrease or slight increase in GDP and subsequent decrease in consumption and investing activity. Major objectives of local regulators were maintaining stability on money markets, GDP deficiency management, and inflation rate control. Management believes it is taking appropriate measures to support the sustainability of the Bank s business in the current circumstances, though unexpected further deterioration in the areas described above could affect the Bank s results and financial position in a manner not currently determinable. In the first half of 2014, the political and business environment in Ukraine became much more uncertain. In July and August 2014, a number of countries imposed certain sectoral sanctions against some Russian banks and companies. Currently, the Bank evaluates possible effect of these events and sanctions on its financial position and performance. The extent of such effects cannot currently be determined. 2. Basis of preparation General These interim condensed financial statements for the six months ended have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The interim condensed financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Bank's annual financial statements as at 31 December The accounting policies adopted in the preparation of the interim condensed financial statements are consistent with those followed in the preparation of the Bank's annual financial statements for the year ended 31 December 2013, except for the adoption of new standards and interpretations as at 1 January 2014, noted below. 11

12 2. Basis of preparation (continued) Changes in accounting policies Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities The amendments become effective for annual periods beginning on or after 1 January 2014 and provide an exception from the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. The amendments had no impact on the Bank, since the Bank does not qualify to be an investment entity under IFRS 10. Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities These amendments clarify the meaning of "currently has a legally enforceable right to set-off" and the criteria for nonsimultaneous settlement mechanisms of clearing houses to qualify for offsetting. The amendments become effective for annual periods beginning on or after 1 January The amendments had no impact on the Bank s financial position. IFRIC Interpretation 21 Levies (IFRIC 21) IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after 1 January IFRIC 21 did not have any significant impact on the Bank's financial statements. Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. The amendments become effective for annual periods beginning on or after 1 January These amendments had no impact on the Bank, since the Bank has not novated its derivatives during the current period. Recoverable Amount Disclosures for Non-Financial Assets Amendments to IAS 36 These amendments eliminate unintended consequences of application of IFRS 13 Fair Value Measurement required in accordance with IAS 36 Impairment of Assets. In addition, the amendments require disclosure of the recoverable amounts of assets or cash-generating units (CGUs) for which an impairment loss has been recognized or reversed during the period. These amendments had no impact on the Bank s financial position or performance. Use of estimates and judgments In 2014 to calculate the fair value of Level 1 securities the Bank primarily used the following quotes: MICEX main market Average weighted price (Market price 3), estimated by the MICEX based on the trading results; The Bloomberg terminal the last trade price provided by Bloomberg information agency. As at the use of the above-mentioned quotes resulted in change in fair value of securities: those recognized in financial instruments at fair value through profit or loss decreased by RUR 1,107 thousand; those recognized in available-for-sale assets increased by RUR 182,317 thousand. 12

13 3. Interest income and interest expense For the six months For the six months of 2014 of 2013 (unaudited) Interest income Loans to customers and held-to-maturity investments 5,476,181 4,244,440 Available-for-sale assets 832, ,477 Amounts due from banks and other financial institutions 756, ,296 7,065,669 5,232,213 Financial instruments at fair value through profit or loss 23, ,296 7,089,197 5,437,509 Interest expense Current accounts and deposits from customers 1,922,466 1,726,180 Debt securities issued 891, ,870 Subordinated loans 409, ,235 Accounts and deposits from banks and other financial institutions 297, ,735 Other borrowed funds 276 3,521,115 2,808, Net gains/(losses) from foreign currencies For the six months For the six months of 2014 of 2013 (unaudited) Gains on spot transactions and derivatives 21,044 1,059,081 Gains/(losses) from translation differences 391,423 (1,556,462) 412,467 (497,381) 5. Operating expenses For the six months For the six months of 2014 of 2013 (unaudited) Employee compensation 703, ,307 Payroll related taxes and charges 138, ,620 Rent 80,567 77,737 Communications and information services 67,558 61,376 Insurance, including insurance of deposits 34,405 22,940 Taxes other than income tax 34,104 31,490 Security 29,291 25,596 Depreciation 28,174 28,205 Professional services 26,533 25,431 Charity 24,889 25,063 Repairs and maintenance 22,813 25,063 Office supplies 14,695 17,239 Travel expenses 7,691 7,295 Advertisement and marketing 7,585 10,060 Other 14,064 25,363 1,234,144 1,087, Income tax expense For the six months For the six months of 2014 of 2013 (unaudited) Current tax expense (179,439) (180,761) (179,439) (180,761) Reversal of temporary differences on deferred tax (81,570) (2,224) (81,570) (2,224) Total income tax expense (261,009) (182,985) Current and deferred income taxes are measured at 20% (2013: 20%). 13

14 7. Cash and cash equivalents Cash on hand 2,264, ,517 Nostro accounts with the Central Bank of the Russian Federation 7,151,519 3,580,804 Nostro accounts with OECD banks 16,890,649 7,070,716 Nostro accounts with 30 largest Russian banks 223, ,022 Other financial institutions 1,988,580 4,910,562 28,518,776 16,542,621 As at, the Bank placed EUR-denominated deposits amounting to RUR 1,835,324 thousand on a nostro account in a Cypriot bank (31 December 2013: RUR 4,498,025 thousand). 8. Amounts due from banks and other financial institutions Not impaired Nostro accounts 30 largest Russian banks 16,059 Stock exchanges and clearing houses 621, ,136 Total nostro accounts 621, ,195 Loans and deposits OECD banks 2,766,886 2,735, largest Russian banks 3,432,533 19,638 Other Russian banks 1,308, ,052 Other foreign banks 15,516,935 13,045,155 Total loans and deposits 23,024,505 16,589,487 Impairment allowance (60,916) (20,912) Net amount of unimpaired loans and deposits 22,963,589 16,568,575 Impaired Nostro accounts 2,952 2,952 Loans to Russian banks 9,602 9,602 Impairment allowance (12,554) (12,554) Net impaired amounts due from banks and other financial institutions 23,585,328 17,050,770 Analysis of movements in the impairment allowance For the six months For the six months of 2014 of 2013 (unaudited) Impairment allowance as at 1 January 33,466 27,779 Net charge for the period 40,004 17,577 Impairment allowance as at the end of the period 73,470 45,356 Concentration of accounts and deposits from banks and other financial institutions As at, the Bank had six counterparties (31 December 2013: six counterparties) with balances for each counterparty individually exceeding 10% of equity of the Bank. The aggregate value of these balances as at was RUR 13,900,889 thousand (31 December 2013: RUR 9,940,481 thousand). As at, the Bank placed deposits with four OECD banks (31 December 2013: six banks). 14

15 8. Amounts due from banks and other financial institutions (continued) Concentration of accounts and deposits from banks and other financial institutions (continued) As at, the Bank placed RUR-denominated deposits amounting to RUR 3,010,000, USD-denominated deposits amounting to RUR 505,411 thousand in Russian banks, RUR-denominated deposits amounting to RUR 57,449 thousand, USD-denominated deposits amounting to RUR 7,792,444 thousand, EUR-denominated deposits amounting to RUR 5,515,991 thousand in CIS banks, EUR-denominated deposits amounting to RUR 916,502 thousand in a Latvian bank, USD-denominated deposits amounting to RUR 42,666 thousand, EUR-denominated deposits amounting to RUR 196,432 thousand in a German bank. The Bank, in its turn, attracts deposits from these banks (refer to Note 16). As at 31 December 2013, the Bank placed RUR-denominated deposits amounting to RUR 300,834 thousand in a Russian bank, RUR-denominated deposits amounting to RUR 93,000 thousand, USD-denominated deposits amounting to RUR 6,138,345 thousand, EUR-denominated deposits amounting to RUR 2,248,924 thousand in CIS banks, EUR-denominated deposits amounting to RUR 899,398 thousand in a Latvian bank, USD-denominated deposits amounting to RUR 41,522 thousand in a German bank. The Bank, in its turn, attracts deposits from these banks (refer to Note 16). Nostro accounts of 30 largest Russian banks include balances in precious metals. 9. Financial instruments at fair value through profit or loss Owned by the Bank Assets Debt and other fixed-income instruments - Corporate bonds Russian companies - Rated from B- to B+ 414,425 - Not rated 386, ,230 Russian banks - Rated from BBB- to BBB+ 309,866 - Rated from B- to B+ 20,640 20,470 20, ,336 Total corporate bonds 20,640 1,131,566 Equity investments Corporate shares 151, , , ,795 Derivatives Derivatives 132,478 19, ,478 19,582 Total assets owned by the Bank 304,843 1,325,943 Pledged under repurchase agreements - Corporate bonds Russian banks - Rated from BBB- to BBB+ 305,195 Total corporate bonds pledged under repurchase agreements 305,195 Equity investments Corporate shares 45,946 45,946 Total assets pledged under repurchase agreements 351,141 Total assets 655,984 1,325,943 Liabilities Obligation to return securities 370,909 Derivatives 72,299 37, ,208 37,123 Total liabilities 443,208 37,123 15

16 9. Financial instruments at fair value through profit or loss (continued) As at 31 December, not rated corporate bonds of Russian and foreign companies represented the following industries: Metallurgy 386, ,805 Obligation to return securities is an obligation to return securities acquired under the repurchase agreements earlier. 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 at the year end and are not indicative of the credit risk. The amounts in foreign currency below are translated at the exchange rates ruling at the reporting date. Unrealized gains and losses on the contracts that had not become due were recognized in profit or loss and in financial instruments at fair value through profit or loss, respectively. Notional amount Fair value Notional Fair value Asset Liability amount Asset Liability Foreign currency contracts Less than one month 65,103, ,051 (72,299) 33,366,572 19,582 (31,967) From one to three months 1,024,500 15,582 Gold contracts Less than one month 375, ,283 (5,156) Futures From one to three months 1,787 4 Total derivative assets/ liabilities 132,478 (72,299) 19,582 (37,123) 10. Reverse repurchase agreements receivable As at, the Bank entered into reverse repurchase agreements with four legal entities amounting to RUR 3,665,959 thousand. The subjects of agreements with four legal entities are Federal loan bonds and bonds issued by large Russian companies with a fair value of RUR 3,987,302 thousand. As at 31 December 2013, the Bank entered into a reverse repurchase agreement with a legal entity, which is the Bank's other related party, in the total amount of RUR 1,671,116 thousand. The subject of this agreement is ordinary shares issued by OJSC "TPE-CITY" (99.99% interest in this company) amounting to RUR 1,671,116 thousand. The Bank may sell or repledge securities purchased under reverse repurchase agreements and quoted in organized markets but is obliged to return the securities. In this case, the counterparty retains almost all risks and rewards of ownership. Accordingly, the Bank does not recognize such securities and records a separate asset for any possible collateral provided as cash. Under the reverse repurchase agreement, ordinary shares of OJSC "TPE-CITY" cannot be pledged or encumbered by the Bank. 16

17 11. Loans to customers Loans to legal entities - Machine building and technologies sector 38,612,522 31,940,612 - Other corporate business 76,413,009 66,095,144 Total loans to legal entities 115,025,531 98,035,756 Loans to individuals - Consumer loans 1,391,010 1,841,758 - Mortgage loans 211, ,507 Total loans to individuals 1,602,218 2,087,265 Gross loans to customers 116,627, ,123,021 Impairment allowance (5,906,656) (3,651,575) Loans to customers net of impairment allowance 110,721,093 96,471,446 Movements in the loan impairment allowance for the six months of 2014 and 2013 are as follows: For the six months For the six months of 2014 of 2013 (unaudited) Impairment allowance as at 1 January 3,651,575 1,780,123 Loans written off during the period as uncollectible (19,115) (783) Net charge for the period 2,274, ,104 Impairment allowance as at the end of the period 5,906,656 2,181,444 During the six months ended, the Bank's management determined that a loan provided to one of the borrowers with carrying amount of RUR 19,115 thousand (a 100% impairment allowance was accrued for them) were uncollectible and all efforts to collect the loan had been exhausted. Thus, the loan was written off against the related impairment allowance (six months of 2013: loans of RUR 783 thousand provided to three borrowers). As at, interest accrued on impaired loans to legal entities amounted to RUR 632,185 thousand (31 December 2013: RUR 298,378 thousand); impairment allowances on such loans amounted to RUR 297,568 thousand (31 December 2013: RUR 164,403 thousand). Credit quality of loans to legal entities The following table provides information on the credit quality of loans to legal entities as at : Impairment Impairment to Gross loans allowance Net loans gross loans (unaudited) (%) Loans to machine building and technologies sector entities - Standard loans 37,629,294 (405,234) 37,224, % - Watch list loans 577,549 (92,958) 484, % - Loans with evidence of impairment 177,845 (105,458) 72, % - Loans overdue less than 90 days 36,171 (23,511) 12, % - Loans overdue more than 1 year 191,663 (191,663) 100.0% Total loans to machine building and technologies sector entities 38,612,522 (818,824) 37,793, % Loans to other corporate business - Standard loans 61,632,193 (748,933) 60,883, % - Watch list loans 5,135,815 (749,368) 4,386, % - Loans with evidence of impairment 1,811,333 (1,039,651) 771, % - Loans overdue less than 90 days 1,082,525 (290,820) 791, % - Loans overdue more than 90 days but less than 1 year 6,394,557 (1,948,410) 4,446, % - Loans overdue more than 1 year 356,586 (232,954) 123, % Total loans to other corporate business 76,413,009 (5,010,136) 71,402, % Total loans to legal entities 115,025,531 (5,828,960) 109,196, % 17

18 11. Loans to customers (continued) Credit quality of loans to legal entities (continued) The following table provides information on the credit quality of loans to legal entities as at 31 December 2013: Gross loans Impairment allowance Net loans Impairment to gross loans (%) Loans to machine building and technologies sector entities - Standard loans 31,275,301 (305,124) 30,970, % - Watch list loans 310,388 (11,858) 298, % - Loans with evidence of impairment 147,627 (75,290) 72, % - Loans overdue more than 1 year 207,296 (207,296) 100.0% Total loans to machine building and technologies sector entities 31,940,612 (599,568) 31,341, % Loans to other corporate business - Standard loans 55,930,722 (777,971) 55,152, % - Watch list loans 6,322,997 (769,287) 5,553, % - Loans with evidence of impairment 916,387 (382,075) 534, % - Loans overdue less than 90 days 2,624,838 (720,345) 1,904, % - Loans overdue more than 90 days but less than 1 year 24,621 (24,621) 100.0% - Loans overdue more than 1 year 275,579 (275,579) 100.0% Total loans to other corporate business 66,095,144 (2,949,878) 63,145, % Total loans to legal entities 98,035,756 (3,549,446) 94,486, % Machine building and technologies sector entities comprise military-industrial complex, aircraft industry and shipbuilding entities. The Bank estimates loan impairment for loans to legal entities based on the analysis of the future cash flows for impaired loans and based on its past loss experience for portfolios of loans for which no evidence of impairment has been identified on an individual basis adjusted as necessary to reflect recent changes in the loan portfolio and economic environment. During the six months ended, the Bank renegotiated loans to legal entities that would otherwise be past due or impaired of RUR 133,591 thousand (31 December 2013: RUR 119,851 thousand). These loans are classified as loans with evidence of impairment. Impaired loans to legal entities with a net carrying amount of RUR 1,024,966 thousand (31 December 2013: RUR 2,511,144 thousand) are secured by immovable property with a fair value of RUR 1,424,894 thousand (31 December 2013: RUR 1,256,903 thousand). For loans to legal entities with a net carrying amount of RUR 50,930,732 thousand (31 December 2013: RUR 34,378,957 thousand) there is no collateral. These loans amount to 46.64% of total loans to legal entities (31 December 2013: 36.39%). During the six months ended 30 June 2013, the Bank recognized loss from initial recognition in the total amount of RUR 62,469 thousand in respect of a loan to one borrower (unrelated party) issued at below market interest rate (: no recognition). Bonds reclassified to loans to customers with a net carrying amount of RUR 478,284 thousand are pledged under repurchase agreements (31 December 2013: RUR 464,221 thousand) (refer to Note 17). 18

19 11. Loans to customers (continued) Credit quality of loans to legal entities (continued) Analysis of movements in the impairment allowance Movements in the loan impairment allowance for loans to legal entities for the six months ended are as follows: Loans to machine building and technologies entities Loans to other corporate business Total (unaudited) Impairment allowance as at 1 January 599,568 2,949,878 3,549,446 Loans written off during the period as uncollectible (19,115) (19,115) Net charge for the period 219,256 2,079,373 2,298,629 Impairment allowance as at the end of the period 818,824 5,010,136 5,828,960 Movements in the loan impairment allowance for loans to legal entities for the six months ended 30 June 2013 are as follows: Loans to machine building and technologies entities Loans to other corporate business Total (unaudited) Impairment allowance as at 1 January 488,176 1,228,777 1,716,953 Net charge for the period 106, , ,113 Impairment allowance as at the end of the period 594,437 1,530,629 2,125,066 Credit quality of loans to individuals The following table provides information on the credit quality of loans to individuals as at : (unaudited) Impairment Impairment to Gross loans allowance Net loans gross loans (%) Consumer loans - Not past due 1,265,304 (38,258) 1,227, % - Overdue less than 90 days 3,181 (967) 2, % - Overdue more than 90 days and less than 1 year 94,804 (7,674) 87, % - Overdue more than 1 year 27,721 (27,629) % Total consumer loans 1,391,010 (74,528) 1,316, % Mortgage loans - Not past due 211,208 (3,168) 208, % Total mortgage loans 211,208 (3,168) 208, % Total loans to individuals 1,602,218 (77,696) 1,524, % 19

20 11. Loans to customers (continued) Credit quality of loans to individuals (continued) The following table provides information on the credit quality of loans to individuals as at 31 December 2013: Impairment Impairment to Gross loans allowance Net loans gross loans (%) Consumer loans - Not past due 1,722,340 (43,378) 1,678, % - Overdue less than 90 days 1,626 (404) 1, % - Overdue more than 90 days and less than 1 year 88,516 (16,256) 72, % - Overdue more than 1 year 29,276 (29,186) % Total consumer loans 1,841,758 (89,224) 1,752, % Mortgage loans - Not past due 223,326 (5,769) 217, % - Overdue more than 90 days and less than 1 year 22,181 (7,136) 15, % Total mortgage loans 245,507 (12,905) 232, % Total loans to individuals 2,087,265 (102,129) 1,985, % The Bank estimates loan impairment for loans to individuals based on the analysis of the future cash flows for impaired loans and based on its past loss experience for portfolios of loans for which no evidence of impairment has been identified on an individual basis adjusted as necessary to reflect recent changes in the loan portfolio and economic environment. Analysis of collateral Mortgage loans are secured by underlying housing real estate with a fair value of RUR 435,597 thousand (31 December 2013: RUR 463,991 thousand). Consumer loans are generally not secured. Consumer loans are partially secured by real estate. Consumer loans overdue more than 90 days but less than 1 year with a net carrying amount of RUR 86,790 thousand are fully secured by real estate (31 December 2013: RUR 70,641 thousand). Analysis of movements in the impairment allowance Movements in the loan impairment allowance for loans to individuals for the six months ended are as follows: Consumer loans Mortgage loans Total (unaudited) Impairment allowance as at 1 January 89,224 12, ,129 Net recovery for the period (14,696) (9,737) (24,433) Impairment allowance as at the end of the period 74,528 3,168 77,696 Movements in the loan impairment allowance for loans to individuals for the six months ended 30 June 2013 are as follows: Consumer loans Mortgage loans Total (unaudited) Impairment allowance as at 1 January 47,971 15,199 63,170 Loans written off during the period as uncollectible (783) (783) Net (recovery)/charge for the period 1,155 (7,164) (6,009) Impairment allowance as at the end of the period 48,343 8,035 56,378 20

21 11. Loans to customers (continued) Analysis of loans to customers by industry Loans were issued primarily to customers located within the Russian Federation operating in the following economic sectors: Aircraft industry 17,403,919 14,652,797 Trade 14,836,352 17,731,743 Financial services 13,459,501 12,974,391 Agriculture, forestry and timber 11,246,965 3,742,784 Science and production and radio-electronic industry 11,073,883 8,827,940 Automobile industry, machine building and production 10,529,196 8,602,151 Mining, chemical industry and metallurgy industry 9,507,856 7,413,727 Service industry, transport and communication 8,986,185 8,276,229 Construction 8,876,879 8,344,021 Real estate rent 1,994,918 2,061,618 Shipbuilding 1,009,459 1,000,000 Sport industry 858, ,976 Food industry 448, ,539 Light industry 25,776 31,728 Other 4,768,270 3,101,112 Loans to individuals 1,602,218 2,087, ,627, ,123,021 Impairment allowance (5,906,656) (3,651,575) 110,721,093 96,471,446 Concentration of loans to customers As at, the Bank had eighteen borrowers or groups of related borrowers (31 December 2013: twenty borrowers or groups of related borrowers) whose balances individually exceeded 10% of equity of the Bank. The aggregate value of these balances as at was RUR 65,466,345 thousand (31 December 2013: RUR 54,827,405 thousand). Loan maturity Maturities of the loan portfolio are shown in Note 29 as at the reporting date and represent periods from the reporting date to the contractual maturity of the loans. 21

22 12. Available-for-sale assets Owned by the Bank Assets Debt and other fixed-income instruments - Government and municipal bonds Russian Government bonds 4,752,710 5,316,253 Total government and municipal bonds 4,752,710 5,316,253 - Corporate bonds Russian companies - Rated from BBB- to BBB+ 5,263,274 2,811,476 - Rated from BB- to BB+ 1,439,109 1,002,806 - Rated from B- to B+ 199, ,367 - Not rated 70,985 6,901,424 4,130,634 Foreign companies - Rated above А 203, , , ,559 Russian banks - Rated from A- to А+ 57,341 - Rated from BBB- to BBB+ 4,043,063 2,457,986 - Rated from BB- to BB+ 269,664 87,742 - Rated from B- to B+ 1,263, ,754 5,633,348 2,709,482 Foreign banks - Rated from BBB- to BBB+ 150,316 - Not rated , Total corporate bonds 12,889,586 7,015,639 Equity investments Corporate shares 31,574 32,238 Total equity investments 31,574 32,238 Total assets owned by the Bank 17,673,870 12,364,130 Pledged under repurchase agreements - Government and municipal bonds Russian Government bonds 3,856,964 Municipal bonds 292,738 4,149,702 - Corporate bonds Russian companies - Rated from BBB- to BBB+ 4,232, ,409 - Rated from BB- to BB+ 107,646 - Rated from B- to B+ 420,031 4,652, ,055 - Russian banks - Rated from BBB- to BBB+ 4,634,079 1,514,194 - Rated from BB- to BB+ 485,934 - Rated from B- to B+ 154,052 5,274,065 1,514,194 - Foreign banks - Rated from BBB- to BBB+ 210, ,139 Total assets pledged under repurchase agreements 14,286,781 2,160,249 Total assets 31,960,651 14,524,379 22

23 13. Held-to-maturity investments Owned by the Bank Debt and other fixed-income instruments - Government and municipal bonds Russian Government bonds 837,955 Total government and municipal bonds 837,955 - Corporate bonds Russian companies Not rated 29,474 29,474 29,474 29,474 Total corporate bonds 29,474 29, ,429 Impairment allowance (29,474) (29,474) Total assets owned by the Bank 837,955 Pledged under repurchase agreements - Government and municipal bonds Russian Government bonds 839,230 Total government and municipal bonds 839,230 Total assets pledged under repurchase agreements 839,230 Total assets 839, , Investments in an associate As at 31 December 2013, investments in an associate were presented as follows: Name Country of incorporation Main activity Interest, % as at 31 December 2013 Date of incorporation Date of acquisition of the interest Carrying value RUR 000 JSC "Togliattinskiy PTP" Russian Federation Production of auto components 25% 26 February February ,763 JSC "Togliattinskiy PTP" was liquidated in January The Bank's share in net assets of JSC "Togliattinskiy PTP" subject to distribution upon liquidation of the entity was received by the Bank on 25 December 2013 in cash in the amount of RUR 12,763 thousand. 15. Other assets Receivables and prepayments 458, ,606 Non-current assets held for sale 62,392 62,392 Precious metals (coins) 21,104 20,789 Accrued income 11,599 10,700 Materials 4,554 3,417 Taxes receivable other than income tax 4,492 3,736 Other 25,620 24, , ,986 Impairment allowance (90,059) (76,679) 497, ,307 23

24 15. Other assets (continued) Analysis of movements in the impairment allowance For the six months For the six months of 2014 of 2013 (unaudited) Impairment allowance as at 1 January 76,679 55,742 Write-offs (112) Net charge for the period 13,380 11,030 Impairment allowance as at the end of the period 90,059 66, Accounts and deposits from banks and other financial institutions Loro accounts 7,089,782 6,243,826 Term deposits 19,960,383 12,060,362 Deposits received from the CBR 1,223,092 28,273,257 18,304,188 As at, the Bank received from Russian and foreign banks RUR 3,155,840 thousand (31 December 2013: RUR 2,004,633 thousand), and USD and EUR-denominated amounts of RUR 5,279,499 thousand (31 December 2013: RUR 1,539,025 thousand). The Bank, in its turn, places deposits with these banks (refer to Note 8). Concentration of accounts and deposits from banks and other financial institutions As at, the Bank had two counterparties whose accounts and deposits exceeded 10% of equity of the Bank (31 December 2013: seven counterparties). The aggregate value of balances of these counterparties as at was RUR 3,494,761 thousand (31 December 2013: RUR 7,877,537 thousand). 17. Repurchase agreements payable Payables to the Central Bank of the Russian Federation 12,195,078 Payables to banks and other financial institutions 2,549,390 2,239,483 Payables to other customers 3,005,641 17,750,109 2,239,483 In accordance with agreements, the counterparty may sell or repledge securities sold under repurchase agreements in the absence of default by the Bank, but has an obligation to return the securities at the maturity of the agreement. These securities with a total value of RUR 15,955,436 thousand (31 December 2013: RUR 2,624,470 thousand) are shown in the statement of financial position as pledged under repurchase agreements and are included in financial instruments at fair value through profit or loss of RUR 351,141 thousand (31 December 2013: no investments), available-for-sale assets in the amount of RUR 14,286,781 thousand (31 December 2013: RUR 2,160,249 thousand), held-to-maturity investments of RUR 839,230 thousand (31 December 2013: no investments), loans to customers in the amount of RUR 478,284 thousand (31 December 2013: RUR 464,221 thousand). 24

25 18. Current accounts and deposits from customers Current accounts and demand deposits - Retail 2,120,401 2,327,820 - Corporate 67,213,154 60,003,534 Term deposits - Retail 19,117,038 17,253,836 - Corporate 17,794,364 20,084,287 Blocked accounts 106,244,957 99,669,477 As at, the Bank customers' deposit balances which were blocked as collateral for letters of credit granted by the Bank amount to RUR 1,085,371 thousand (31 December 2013: RUR 797,577 thousand). Concentration of current accounts and deposits from customers As at, the Bank had seven customers (groups of related customers) whose accounts and deposits individually exceeded 10% of equity of the Bank (31 December 2013: eleven customers). The aggregate value of balances of these customers as at was RUR 62,579,169 thousand (31 December 2013: RUR 65,943,173 thousand). 19. Debt securities issued Bonds 7,947,910 8,155,849 Promissory notes 18,642,706 17,776,865 26,590,616 25,932,714 On 15 April 2014, the Bank repurchased under an offer 2,494,379 bonds, Series BO-03, at par value of RUR 2,494,379 thousand (the nominal value of the whole amount of bonds, Series BO-03, is RUR 3,000,000 thousand). From April through June 2014, the Bank made a secondary placement of 2,294,529 bonds, Series BO-03, repurchased under an offer at par value of RUR 2,294,529 thousand at a discount of RUR 100 thousand. 20. Subordinated loans Name Currency Maturity date Interest rate (unaudited) 31 December 2013 DULUAR INVESTMENTS LIMITED Euro % 1,833,004 1,798,796 FOMINIK HOLDING LIMITED Euro % 1,747,678 1,715,062 FOMINIK HOLDING LIMITED US dollar % 1,681,530 1,636,460 DULUAR INVESTMENTS LIMITED US dollar % 1,345,224 1,309,168 LLC "Sever-Atlant" Russian ruble % 606, ,744 Vnesheconombank Russian ruble % 478, ,719 LLC ITERA Holding Russian ruble % 300, ,000 CJSC CB "LADA-CREDIT" Russian ruble % 70,208 70,136 Rostec State Corporation Russian ruble %-8.25% 1,300,000 OJSC "Rosoboronexport" Russian ruble % 1,644,550 OJSC "Rosoboronexport" US dollar % 1,636,460 8,062,712 12,494,095 In May 2014, subordinated loan agreements between the Bank and Rostec State Corporation and OJSC "Rosoboronexport" were terminated. Upon termination of the subordinated loan agreements, the Bank used the redeemed loan amount to pay for the additional issue of the Bank's securities (refer to Note 22). 25

26 21. Other liabilities Employee compensation payable 195,570 60,713 Provisions for guarantees and letters of credit issued 50,023 44,988 Taxes payable other than income tax 40,982 15,433 Settlements on currency conversion operations 3,317 5,478 Accrued expenses 3,300 40,733 Payables 3,101 7,081 Finance lease payable Settlements on transactions with securities 12,763 Other 10,278 23,875 Analysis of movements in provisions for guarantees and letters of credit issued 306, ,811 For the six months For the six months of 2014 of 2013 (unaudited) Impairment allowance as at 1 January 44,988 27,692 Net charge for the period 5,035 2,919 Impairment allowance as at the end of the period 50,023 30, Equity The share capital of the Bank has been contributed by shareholders in Russian rubles. As at, the share capital of the Bank consisted of 5,062,637 authorized, issued and fully paid ordinary shares with a nominal value of RUR 1,000 per share (31 December 2013: 3,407,408 ordinary shares). The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at annual and general meetings of the Bank. All ordinary shares provide equal rights to their holders. As at, the share capital and share premium comprised the following: (unaudited) Nominal value Inflation adjustment Total share capital Share capital (ordinary shares) 5,062, ,350 5,260,987 Share premium 4,311,687 37,251 4,348,938 Total share capital 9,374, ,601 9,609,925 As at 31 December 2013, the share capital and share premium comprised the following: Nominal value Inflation adjustment Total share capital Share capital (ordinary shares) 3,407, ,350 3,605,758 Share premium 1,279,307 37,251 1,316,558 Total share capital 4,686, ,601 4,922,316 In May 2014, the Bank additionally issued 1,655,229 ordinary shares in favor of Rostec State Corporation via private subscription with a nominal value of RUR 1,000 per ordinary share. The placement price of one ordinary share was RUR 2,832. The additional ordinary shares are fully paid in the currency of the Russian Federation. In 2014, proceeds from the issue of additional ordinary shares were spent as follows: RUR 1,655,229 thousand and RUR 3,032,380 thousand were used to increase the share capital and the share premium, respectively. At the date of issue of these financial statements, no dividends are declared by the Bank for 2014 and 2013 years. 26

27 23. Capital management The Central Bank of Russia sets and monitors capital requirements for the Bank. The Bank defines as capital those items defined by statutory regulation as capital (equity) for credit institutions. Under the current capital requirement set by the Central Bank of Russia, banks have to maintain a ratio of capital to risk weighted assets ("statutory capital ratio") above the prescribed minimum level. As at, this minimum level was 10%. The Bank was in compliance with the statutory capital ratio in 2014 and Starting 1 January 2014, the Central Bank of Russia uses new requirements concerning capital adequacy, based on Basel III Methodology, for prudential supervision/oversight purposes. According to the CBR requirements, the minimum core, main and total capital adequacy ratios computed based on Russian accounting legislation are 5%, 5.5% and 10%, respectively. The following table shows the composition of the Group s capital position and capital adequacy ratio calculated using RAP financial statements as at under Basel III requirements, adopted in the Russian Federation: 31 December 2013 (unaudited) Main capital Core capital (Н1.1) Share capital 4,912,637 3,257,408 Share premium 4,311,687 1,279,307 Reserve fund formed out of prior year profit 294, ,550 Portion of retained earnings 4,260,441 4,006,293 Total core capital 13,779,315 8,837,558 Supplementary capital Subordinated debt 880, ,000 Total supplementary capital 880, ,000 Indicators reducing the amount of main capital sources (25,384) Total main capital (Н1.2) 14,659,315 9,802,174 Additional supplementary capital Portion of share capital formed out of property revaluation 150, ,000 Portion of retained earnings 1,095, ,450 Subordinated debt 6,192,815 9,727,918 Property and equipment revaluation reserve 31,500 28,002 Total supplementary capital 7,469,714 10,267,370 Aggregate capital (Н1.0) 22,129,029 20,069,544 Total risk-weighted assets and credit risk 176,128, ,808,278 Operational risk 8,159,775 8,159,775 Market risk 14,000,530 7,759,710 Core capital adequacy ratio (Н1.1) Main capital adequacy ratio (Н1.2) Aggregate capital adequacy ratio (Н1.0) As at, core, main and aggregate capital adequacy ratios were 6.95%, 7.39% and 11.16%, respectively (as at 31 December 2013: 5,21%, 5.78% and 11.82%, respectively) and complied with the CBR minimum ratios (5%, 5.5% and 10%, respectively). In 2009, the Bank began monitoring its capital adequacy levels calculated in accordance with the requirements of the Basel Accord, as defined in the International Convergence of Capital Measurement and Capital Standards (updated April 1998) and Amendment to the Capital Accord to incorporate market risks (updated November 2007), commonly known as Basel I. 27