PBB LPN Issuance Limited. U.S.$750,000,000 Programme for the Issuance of Loan Participation Notes

Transcription

1 SUPPLEMENT TO THE BASE PROSPECTUS PBB LPN Issuance Limited (incorporated in Cyprus) U.S.$750,000,000 Programme for the Issuance of Loan Participation Notes Supplement dated 21 March 2011

2 - 2 - This Supplement (the "Supplement") to the Base Prospectus dated 2 November 2010 (the "Base Prospectus"), which comprises a base prospectus under Article 5.4 of the Directive 2003/71/EC for PBB LPN Issuance Limited (the "Issuer"), constitutes a base prospectus supplement in respect of the Base Prospectus for the Issuer for purposes of the Directive 2003/71/EC. This supplement is prepared pursuant to the U.S.$750,000,000 Programme for the Issuance of Loan Participation Notes (the "Programme") under which the Issuer may issue and have outstanding at any time, senior and subordinated loan participation notes of up to a maximum aggregate amount of U.S.$750,000,000 or its equivalent in alternative currencies. The Issuer has, pursuant to the Third Amended and Restated Senior Dealer Agreement dated 2 November 2010 (the "Dealer Agreement"), appointed BCP Securities LLC (the "Arranger and Dealer"). Terms defined in the Base Prospectus have the same meaning when used in this Supplement. This Supplement is supplemental to, and shall be read in conjunction with, the Base Prospectus and any other supplements to the Base Prospectus. The Issuer accepts responsibility for the information in this Supplement. To the best of the knowledge and belief of the Issuer (having taken reasonable care to ensure that such is the case) the information contained in the Base Prospectus as supplemented by this Supplement is in accordance with the facts and does not omit anything likely to affect the import of such information. To the extent that there is any inconsistency between (a) any information in or incorporated by reference into this Supplement and (b) any information in, or incorporated by reference in, the Base Prospectus, the statements in (a) above will prevail. Unless the context otherwise requires, references in this Supplement to any section in the Base Prospectus, refer to the relevant sections of the Base Prospectus, as modified or restated in their entirety by this Supplement. With effect from the date of this Supplement, references in the Base Prospectus to "this Base Prospectus" shall be deemed to refer to the Base Prospectus as supplemented by this Supplement. Save as disclosed in the Base Prospectus as supplemented by this Supplement, no significant new factor, material mistake or inaccuracy relating to the information included in the Base Prospectus which is capable of affecting the assessment of Notes issued under the Programme has arisen since the publication of the Base Prospectus. Neither the Base Prospectus as supplemented by this Supplement nor any other information supplied in connection with the Base Prospectus or Programme or any Notes (i) is intended to provide the basis of any credit or other evaluation or (ii) should be considered as a recommendation by the Issuer, the Arranger and Dealer, or the Trustee that any recipient of this Base Prospectus or any other information supplied in connection with the Programme or any Notes should purchase any Notes. Each investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. Neither the Base Prospectus as supplemented by this Supplement nor any other information supplied in connection with the Programme or the issue of any Notes constitutes an offer or invitation by or on behalf of the Issuer, the Arranger and Dealer or the Trustee to any person to subscribe for or to purchase any Notes. Neither the Arranger and Dealer nor the Trustee have independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Arranger and Dealer or the Trustee as to the accuracy or completeness at any time of this Supplement. No person has been authorised by the Issuer, the Arranger and Dealer or the Trustee to give any information or to make any representation not contained in this Supplement, and, if given or made, such information or representation must not be relied upon as having been authorised. This Supplement to the Base Prospectus does not, and is not intended to, constitute or contain an offer or invitation to any person to purchase Notes. The distribution of this Supplement and the Base Prospectus and the offering, sale and delivery of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Supplement or the Base Prospectus or any

3 - 3 - Notes come are required by the Issuer, the Arranger and Dealer and the Trustee to inform themselves about and to observe any such restrictions. In particular, such persons are required to comply with the restrictions on offers or, sales of Notes and on distribution of this Supplement and other information in relation to the Notes set out under "Subscription and Sale" in the Base Prospectus. AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. FOR A DISCUSSION OF RISKS AND OTHER FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH ANY INVESTMENT IN THE NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 16 OF THE BASE PROSPECTUS. THIS SUPPLEMENT DOES NOT DESCRIBE ALL OF THE RISKS OF AN INVESTMENT IN THE NOTES. THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ("REGULATION S")) UNLESS THE NOTES ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE. THE NOTES MAY BE OFFERED AND SOLD TO NON-U.S. PERSON IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S (SUCH NOTES SO OFFERED AND SOLD, THE "REGULATION S NOTES"). THE ISSUER HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY ACT. FOR A DESCRIPTION OF THESE AND CERTAIN OTHER RESTRICTIONS, SEE "SUBSCRIPTION AND SALE" IN THE BASE PROSPECTUS. None of the Issuer or the Arranger and Dealer makes any representation regarding the legality of an investment by any offeree or purchaser under any legal investment or similar laws. Prospective investors should consult their own advisers as to the legal, business, financial and other aspects of any purchase of the Notes. No person is authorised to provide any information or to make any representation not contained in this Supplement or the Base Prospectus or any other supplement thereto and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer or the Arranger and Dealer. The delivery of this document at any time does not imply that the information contained in it is correct as at any time subsequent to its date. None of the Issuer or the Arranger and Dealer accepts any responsibility, express or implied, for updating this Supplement or the Base Prospectus and neither the delivery of this Supplement or the Base Prospectus nor the offer, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer since the date of this Supplement. The Arranger and Dealer does not expressly undertake to review the financial condition or affairs of the Issuer during the life of the Programme or advise any investor of Notes of any information coming to their attention. None of the Issuer, the Arranger and Dealer or the Trustee makes any comment about the treatment for taxation purposes of payments or receipts in respect of any Notes. Each Investor contemplating acquiring the Notes under the Programme must seek such tax or other professional advice as it considers necessary for the purpose. THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS BASE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.

4 - 4 - TABLE OF CONTENTS Page Material Developments in the Group's Business and Prospects Arising since 2 November 2010 and Key Trends Arising from the Group's Unaudited Condensed Interim Consolidated Financial Statements for the Nine Months ended 30 September Annex 1 - The Group's Unaudited Condensed Interim Consolidated Financial Statements for the Nine Months ended 30 September

5 - 5 - MATERIAL DEVELOPMENTS IN THE GROUP S BUSINESS AND PROSPECTS ARISING SINCE 2 NOVEMBER 2010 AND KEY TRENDS ARISING FROM THE GROUP S UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 The following addresses material developments in the Group's business and prospects arising since 2 November 2010 and also summarises key trends arising from the Group's Condensed Interim Consolidated Financial Statements for the nine months ended 30 September 2010 (the "September 2010 Financial Statements", as set out in Annex 1 hereto). The financial information in this section as at and for the nine month period ending 30 September 2010 is unaudited and reflects the best estimates of the Bank's management. The Group's actual results may differ significantly from the amounts reflected herein as a result of various factors. In addition, the Group's results for an interim period are not necessarily indicative of what the Group's results will be for the full year. This Supplement must be read together with the Base Prospectus. CAPITALISATION The following table sets forth the Group's capitalisation and indebtedness as at 30 September 2010 and as at 31 December For further information regarding the Group's financial condition see the September 2010 Financial Statements included in Annex 1 of this Supplement. Equity As at 30 September 2010 RUB thousands As at 31 December 2009 RUB thousands Share Capital 4,417,399 4,417,399 Share premium 1,237,031 1,237,031 Revaluation surplus for property and equipment 739, ,015 Revaluation reserve for available-for-sale securities 3,171 (6,966) Additional paid-in capital 592, ,241 Retained earnings (accumulated loss) 2,441,940 1,736,721 Total equity attributable to equity holders of the Bank 9,430,756 8,734,441 Minority interest 31,232 28,279 Total equity 9,461,988 8,762,760 As at 30 September 2010 RUB thousands As at 31 December 2009 RUB thousands Liabilities Financial instruments at fair value through profit or loss 76,712 1,856,304 Deposits and balances from banks and other financial institutions 3,392,144 2,303,289 Amounts payable under repurchase agreements 2,941,080 1,158,749 Current accounts and deposits from customers 61,129,958 53,412,255 Debt securities issued 5,835,353 5,015,742 Other borrowed funds 8,022,970 9,094,071 Subordinated debts 1,725,313 1,707,854

6 - 6 - Other liabilities 833, ,170 Total liabilities 83,957,343 75,090,434 Total liabilities and equity 93,419,331 83,853,194 Capital adequacy The Group s capital adequacy as at 30 September 2010 calculated in accordance with the Basel Capital Accord dated 1988 and based on the September 2010 Financial Statements, is set out below: As at 30 September 2010 (RUB thousands except percentages) Tier I Capital 7,874,926 Tier II Capital 2,097,330 Total Capital 9,927,256 Risk weighted assets 92,794,960 Capital adequacy ratios Capital adequacy ratio (per cent.) Core capital adequacy ratio (per cent.) 8.49 Minimum capital adequacy ratio (per cent) 8.0 Key performance indicators Nine months ended 30 September 2010 RUB thousands Year ended 31 December 2009 RUB thousands Income statement Net interest income 6,554,728 7,002,734 Net commission income 1,547,884 1,453,212 Profit 708, ,366 Balance sheet at period end Loans to customers 46,300,668 42,522,184 Total assets 93,419,331 83,853,154 Current accounts and deposits from customers 61,129,958 53,412,255 Total equity 9,461,988 8,762,720 Key ratios Net interest margin 11.2% 10.2% Cost-to-income 58.7% 53.6% Loans/deposits 90.0% 102.2% RoAE 10.37% 1.79%

7 - 7 - FINANCIAL REVIEW Key trends arising out of the September 2010 Financial Statements Assets and Liabilities In the first three quarters of 2010, based on the September 2010 Financial Statements, the Group showed balance sheet growth. The total assets of the Group increased by 11.4 per cent. compared with the total assets of the Group as at 31 December 2009, to RUB 93.4 billion. The Group s total liabilities increased by 11.8 per cent. during the nine months ended 30 September 2010 to RUB 84.0 billion compared to RUB 75.1 billion as at 31 December A large proportion of the increase in total liabilities can be attributed to the fact that the Group experienced significant growth in customer accounts, which increased by 14.4 per cent. from RUB 53.4 billion as at 31 December 2009 to RUB 61.1 billion as at 30 September Loan portfolio and impairment The Group s gross loan portfolio (before provisions for loan impairment of RUB 5.4 billion) grew by 1.2 per cent. to RUB 51.7 billion, compared to RUB 51.1 billion as at 31 December There was a 5.6 per cent. decrease in the Group s loans to legal entities (from RUB 25.5 billion as at 31 December 2009 to RUB 23.9 billion as at 30 September 2010). The overall value of provisions for impairment of loans decreased by 36.9 per cent. to RUB 5.4 billion as at 30 September 2010, compared with RUB 8.6 billion as at 31 December This was due to write-offs of RUB 4.6 billion uncollectible loans against the loan loss provisions during the nine months of In terms of economic sector concentrations within the Group's loan portfolio, there was a 72.5 per cent. decrease in loans to finance companies, which reflects repayment of loans made by certain of the Group's large borrowers from this sector when the loans became due during the nine months of 2010 and a 46.7 per cent. increase in "Other" loans, which reflects an increase in the loan portfolio generated by the Group's retail customers and minor corporate and SME borrowers resulted from the Group's strategy to lend more to these entities. Income, expense and profit The Group's net profit was RUB 0.1 billion for the year ended 31 December 2009 as compared to RUB 0.7 billion for the nine months ended 30 September This reflects a decrease in impairment losses, which reflects the Group writing off loans as uncollectible, and the sale by the Group by third parties of certain problem loans, in the nine month period ended 30 September 2010 in the amount of RUB 6.1 billion. The Group's operating profit was RUB 9.1 billion for the nine months ended 30 September 2010, compared to RUB 11.2 billion for the year ended 31 December The Bank's basic and diluted earnings per share rose to RUB per share for the nine months ended 30 September 2010 as compared to basic and diluted earnings per share of RUB per share for the year ended 31 December BUSINESS AND OPERATIONAL DEVELOPMENTS Shareholders In January 2011, BlueCrest Strategic Limited sold its 6.35 per cent. shareholding in the Bank to BlueCrest Emerging Markets Master Fund Limited. This was a sale of a technical nature, since each of these entities is owned by BlueCrest Capital Management (UK) LLP, which has

8 - 8 - transferred the asset from one of its funds to another. Accordingly, the sale does not materially affect the Bank's shareholding structure. Ratings In February 2011, the Bank was rated by Moody's with a positive outlook as follows: B2/NP in terms of bank deposits and E+ in terms of bank financial strength. Moody's rating agency is established in the Community within the meaning of the Credit Rating Agencies Regulation (Reg (EC) No. 1060/2009) (the "Regulation") and is registered under the Regulation. Recent Acquisitions Factoring Company "Life" On 31 May 2010, the Group acquired Factoring Company "Life", which was consolidated in the Group's IFRS financial statements from that date. This consolidation is reflected through an additional RUB 2.4 billion of assets and RUB 2.5 billion of liabilities in the Group's balance sheet in the Group's 2010 Financial Statements. Probusiness Development The Bank acquired 19 per cent. of the share capital of Probusiness Development pursuant to the exercise of an option on 27 December 2010 and acquired the remaining 81 per cent. of the share capital of Probusiness Developement on 2 February 2011, also pursuant to the exercise of the option. The Group expects Probusiness Development to be consolidated into the Group with effect from 1 January 2011 and that the effect of such consolidation on the Group's balance sheet will be the addition of approximately RUB 6.8 billion to its assets and additional liabilities of RUB 7.1 billion. However, since the option agreement pursuant to which the share capital was acquired was signed on 6 May 2010, as at the date of this Supplement there is no certainty that Probusiness Development will be consolidated with effect from 1 January 2011, rather than with effect from 6 May As at the date of this Supplement, there is no certainty as to the effect on the Group's September 2010 Financial Statements if Probusiness Development is consolidated from 6 May 2010, or another date earlier than 1 January Rebranding of ICB The Group has completed its planned rebranding of ICB to "Poydem!" and has transferred ICB's head office and and banking licence to Moscow as it believes this will improve the efficiency of its operations. Branches and Customers As at 31 December 2010, the top twenty largest borrowers of the Group represented 13.9 per cent. of the Group's total loan portfolio. As at the same date, the Group had 4,056 corporate clients covered by 319 relationship managers with corporate banking services offered in 36 cities, 62,000 SME customers and 1.7 million retail customers with SME banking services offered via 120 offices. As at 31 December 2010, the Group had 335 offices in 57 Russian regions, including 152 cash offices. The Group has 338,000 active plastic cards and 411 ATMs. The Group's had 8,312 employees as at 31 December 2010.

9 - 9 - International Funding On 10 November 2010, the Bank, through the Issuer, issued U.S.$50,000,000 loan participation notes under the Programme for the purpose of funding a subordinated loan to the Bank. The Notes bear interest at per cent. per annum and a maturity of 5.5 years. Domestic Funding In December 2010, the Bank prepaid in full the loan in the amount of RUB 3.3 billion, which it received in 2008 from the Russian state corporation "Deposit Insurance Agency" (the "DIA") to acquire Bank24.ru. Bank24.ru was acquired by the Bank at the end of 2008 when it was in a state of financial rehabilitation. The DIA provided its consent for Bank24.ru to exit financial rehabilitation in February 2011 and the Group has applied to the CBR for consent to allow Bank24.ru to exit financial rehabilitation. Decrease of interest rates on retail deposits Between the end 2009 and November 2010, the Group decreased the interest rates on its retail deposits to eliminate excess liquidity. Since November 2010, the Group has aligned its interest rates on retail deposits broadly to the market, which has meant decreasing its average interest rates by 1 per cent. The Bank's average nominal interest rate on retail deposits as at 31 December 2009 was 10 per cent., compared to 6 per cent. as at 31 December The Group's security portfolio As at 30 September 2010, the Bank's security porfolio (composed of financial instruments at fair value through profit or loss) accounted for around 11.6 per cent. of the Group's total assets and such assets account for a similarly significant proportion of the Group's total assets as at the date of this Supplement. The Group believes that it the placement of its excess cash in this asset class is justified, given the performance over the last year of the Russian and international blue chip companies that largely make up the Group's portfolio of financial instruments at fair value through profit or loss. However, there is no assurance as to the future performance of such asset class and if such asset class were to fall in value dramatically, this could have a significant negative effect on the Group's assets. Litigation and Investigations The Group is, from time to time, involved in criminal proceedings, including those initiated by the Bank against current or former employees. The Group, is from time to time, subject to legal proceedings and other investigations (including regulatory) in the ordinary course of the Group s business. On the basis of its own estimates and both internal and professional advice, the management of the Group is of the opinion that no such claims (whether satisfied or not) are likely to have a material adverse effect on the business of the Group or on the results of its operations or financial condition as at the date of this Supplement. CERTAIN CHANGES IN RUSSIAN LEGISLATION, TAX PRACTICE AND INTERNATIONAL TREATIES WITH THE PARTICIPATION OF RUSSIA According to clause 28 of the Protocol of the State Duma Council No. 246, dated 22 November 2010, the second hearing of the draft law substantially amending Russia s transfer pricing legislation (which was expected to come into effect on 1 January 2011) will now be postponed to a later date. The recent signing of a protocol to Russia s double tax treaty with the Republic of Cyprus, subject to ratification by Russia and Cyprus in accordance with their applicable domestic law,

10 provides some clarity as to how Russia s Model Convention on the avoidance of double taxation and the prevention of tax evasion will be applied to existing tax treaty partners. According to the recent changes in the Russian Tax Code, approved by the Federal Law of 28 December 2010 No. 395-FZ, only a trustee, broker or other person that is a Russian legal entity or organisation or who is an entrepreneur performing any transactions with notes for the benefit of the individual holder based on a trust deed, brokerage agreement, commission or agency agreement shall be recognised as a tax agent and withhold personal income tax from proceeds where notes are disposed of. Otherwise such an individual holder, irrespective of whether he or she is a Russian tax resident or not, shall pay the tax on self-assessment basis based on personal tax return. In addition, the Ministry of Finance of the Russian Federation clarified in October 2010 that an individual non-resident holder shall pay Russian personal income tax if notes are disposed of to (i) a Russian legal entity, (ii) an individual who is a Russian tax resident, or (iii) a foreign legal entity performing its activity in Russia and purchasing notes via its permanent establishment. It is unclear, however, how the tax will be declared and paid by a non-resident Noteholder who is not residing in Russia if such a Russian legal entity, a Russian tax resident individual or foreign legal entity is not recognised as a tax agent as mentioned in the previous paragraph. As far as Noteholders who are foreign legal entities or organisations are concerned, the Ministry of Finance of the Russian Federation in the same clarifications has confirmed that a portion of proceeds from the disposal of notes allocable to accrued interest is subject to Russian withholding income tax (subject to any available treaty relief).

11 ANNEX 1 THE GROUP'S UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2010 The following financial statements are unaudited and reflect the best estimates of the Bank's management. The Group's actual results may differ significantly from the amounts reflected herein as a result of various factors. In addition, the Group's results for an interim period are not necessarily indicative of what the Group's results will be for the full year.

12 Consolidated Financial Statements as of 2010 and for 2009

13 Contents Consolidated Income Statement... 4 Consolidated Financial Statement... 5 Consolidated Cash Flow Statement... 6 Consolidated Statement of Changes in Equity... 7 Notes to the Consolidated Financial Statements Introduction Basis of preparation of the intermediary short form of consolidated financial statements Significant accounting policies Net interest income and expense Fee and commission Income Fee and commission expense Other income Net gain/(loss) on financial instruments at fair value through profit or loss Net foreign exchange income/(loss) Net gain on available-for-sale securities Impairment losses General administrative expenses Placements with banks and other financial institutions Financial instruments at fair value through profit or loss Amounts receivable under reverse repurchase agreements Loans to customers Available-for-sale securities The composition of financial instruments available for sale, including assets of RUR thousand (December 31, 2009: RUR 8,473 thousand), which are impaired and the unrealized loss from revaluation are in the amount of RUR thousand ( December 31, 2009: RUR thousand) was recognized in profit or loss Property and equipment and intangible assets Investment property Other assets Deposits and balances from banks and other financial institutions Amounts payable under repurchase agreements Customer accounts Debt securities issued Other borrowed funds Subordinated debts Other liabilities Share capital and share premium Analysis by segment Financial risk management Capital management Commitments Contingencies Сustody activities Related party transactions Cash and cash equivalents Maturity analysis Currency analysis Acquisition of daughter companies Profit per share

14 Consolidated Income statement Notes 2010, in thousands of Russian Roubles December 31, 2009, in thousands of Russian Roubles Interest Income Interest Expense 4 ( ) ( ) Net Interest Income Commission Income Commission Expense 6 ( ) ( ) Net commission income Net (loss)/gain on financial assets and liabilities at fair value through profit or loss for the reporting period Net gain /(loss) on foreign exchange operations Net gain /(loss) on available-for-sale securities 10 (5 397) Other operating income Gain on acquisition of subsidairies Operating income Impairment losses 11 ( ) ( ) Revaluation of investment property - (39 750) General administrative expenses 12 ( ) ( ) Profit/(loss) before taxes Income tax (expense)/ benefit 13 ( ) ( ) Profit /(loss) Other comprehensive income Revaluation reserve for available-for- sale securities: - Net change in fair value of available-for- sale securities, net of tax Revaluation of property and equipment, net of tax - (77 716) Other comprehensive income, net of tax Total comprehensive income Profit/(loss attributable to: Equity holders of the Bank Minority interest Profit/(loss) Total comprehensive income attributable to: Equity holders of the Bank Minority interest Total comprehensive income Basic and diluted earnings per share (expressed in Russian Roubles per share) 205,21 42,33 Lomov А.V. Deputy Chairman of the Management Board Alkhovaya L.E. Chief Accountant Consolidated statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statement. 3

15 Consolidated Income statement Notes September 30, 2010, in thousands of Russian Roubles December 31, 2009, in thousands of Russian Roubles ASSETS Cash Due from the Central Bank of Russian Federation Mandatory cash balances with the Central Bank of the Russian Federation Placements with banks and other financial institutions Financial instruments at fair value through profit or loss 15 - Held by the Group Pleged under sale and repurchase agreements Amount receivable under reverse repurchase agreements Loans to customers Goodwill Available-for -sale securities Property, equipment and intangible assets Investment property Advances issued to property development companies Current income tax asset Deferred income tax asset Other assets Total assets LIABILITIES Financial instruments at fair value through profit or loss Deposits and balances from banks and other financial institutions Amounts payable under repurchase agreements Current accounts and deposits from customers Debt securities issued Other borrowed funds Subordinated debts Other liabilties Total liabilities EQUITY Share capital Share premium Revaluation surplus for property and equipment Revaluation reserve for available-for-sale securities (6 966) Additional paid-in capital Retained earnings (accumulated loss) Total equity attributable to equity holders of the Bank Minority interest Total equity Total liabilities an equity Consolidated statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statement. 4

16 Consolidated Statement of changes in equity Attributable to equity holders of the Bank Revaluation surplus for property and equipment Revaluation reserve for available forsale securities Retained earnings (accumulated loss) Share capital Share premium Additional paid-in capital Total Minority interest Total equity Balance as at 1 January of (96 095) Total comprehensive income Profit (loss) Other comprehensive income Compensation of previous years loss by share premium - ( ) Net unrealized loss on investments available-forsale, net of deferred tax for the amount of RUR Revaluation of property and equipment, net of deferred tax for the amount of RUR (77 716) - - (77 716) - (77 716) Total other comprehensive income - ( ) - (77 716) Total comprehensive income - ( ) - (77 716) Shares issued Compensation by shareholders Increase in minority interest due to purchase of a subsidiary Dividends declared (364) (364) 4 (360) Balance as at 31 st of December (6 966) This consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statement

17 Consolidated Statement of changes in equity Share Capital Share premium Attributable to equity holders of the Bank Additional piad-in capital Revaluation surplus for property and equipment Revaluation reserve for available-forsale securities Retained earnings (accumulated loss) Total Minority interest Total equity Balance as at January (6 966) Total comprehensive income Profit (loss) Other comprehensive income Compensation of previous years loss by share premium Net unrealized gains on investments available-for-sale, net of deferred tax of RUR Revaluation of property and equipment, net of deferred tax in Total other comprehensive income Total comprehensive income Purchase of the subsidiary company under the common control - - (19 041) (19 041) - (19 041) Contribution from shareholders Changes in minority interest due to purchase of subsidiaries Dividends declared (360) (360) - (360) Balance as at This consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statement

18 1 Introduction Principal activities These intermediary short form consolidated financial statements include the financial statements of OJSC Probusinessbank (the Bank) and its subsidiaries (together referred to as the Group ). The Bank, the parent company of the Group, was established in the Russian Federation in In 1994 the Bank was reorganised into a commercial bank (Limited Liability Company) and in 1998 the Bank changed its legal form to an Open Joint-Stock Company. The Bank operates under general banking license 2412 issued by the Central Bank of the Russian Federation (the CBRF ) and provides a full range of banking services to corporate clients, including public, private, state-owned and other companies operating in various industries, as well as to individuals. In addition to the general banking license, the Bank holds licenses for depositary activities, securities management, broker, dealer activity, intermediary for dealing in futures and options in the stock exchange, non-governmental pension funds assets management, leasing in the Russian Federation, precious metal transactions, and a right to act as a guarantor in relations with customs authorities. The Bank is a member of the following financial associations and organizations: Moscow Interbank Currency Exchange, Moscow Stock Exchange, Non-for-profit Partnership RTS, Association of Russian Banks, Society for Worldwide Interbank Financial Telecommunication ( SWIFT ), REUTERS, TELEX, SPRINT, TIMELINK International Retail Banking Council ( IRBC ), American Chamber of Commerce in Moscow. The Bank is also a member of Master Card and Europay International S.A. and a member of VISA International. The Bank is a member of the state deposit insurance system in the Russian Federation. The registered address of the Bank is: , Russian Federation, Moscow, Pudovkina st., 3. The majority of the Bank s assets and liabilities are located in the Russian Federation. The average number of people employed by the Bank during the year was 3,720 (2009: 3,094). The Bank is a parent company of the banking group which consists of the following companies consolidated for the purposes of these consolidated financial statements as at 30 September 2010 and 30 December 2009: Name OJSC VUZ-Bank CJSC CB Express-Volga CJSC National Bank of Savings (former LLC Ivanovsky Oblastnoy Bank) OJSC Gazenergobank OJSC Bank 24. RU OJSC Investment City Bank OJSC Factoring Company «Life» Country of incorporation Interest/voting rights, % as at 30 September 2010 Interest/voting rights, % as at 31 December 2009 Type of activity Russian Federation 100,00% 100,00% Commercial Bank Russian Federation 98,75% 98,75% Commercial Bank Russian Federation 100,00% 100,00% Commercial Bank Russian Federation 99,99% 99,99% Commercial Bank Russian Federation 99,53% 99,53% Commercial Bank Russian Federation 96,86% 96,86% Commercial Bank Russian Federation 100% - Factoring 7

19 The average number of people employed by the Group during the year was 7,553 (2009: 6,272). On 31 March 2003 the Bank acquired a 94.5% interest in OJSC VUZ-Bank. The Bank s acquisition of VUZ-Bank s additional share issue in June 2007 resulted in increasing the Bank s interest to 98.43%. In October 2007 the Bank s interest in the share capital of VUZ-Bank reached 100%. VUZ-Bank was incorporated as a limited liability company under the legislation of the Russian Federation on 5 September 1991 and changed its legal form to an open joint-stock company on 6 September Its registered office is located at the following address: 31-b Malysheva st.,/11 Bankovsky per., Ekaterinburg, Russian Federation. VUZ-Bank s activities are regulated by the CBR and general banking licence No VUZ-Bank is an associated member of Visa International Service Association, affiliate member of MasterCard International Incorporated and member of the Urals Bank Union. VUZ-Bank is a member of the state deposit insurance system since 23 December The average number of people employed by VUZ-Bank during the year was 704 (2009: 571). On 29 December 2003 the Bank entered into an agreement with the shareholders of CJSC Express- Volga ( Express-Volga Bank ) to acquire the majority interest in Express-Volga Bank. Starting from 6 February to 10 February 2004 the Bank has become a registered owner of 57.92% of the share capital of Express-Volga Bank and, additionally, on 19 April 2004 the Bank acquired another 1.03% of the bank s share capital. In May 2005 the Bank additionally acquired 27.33% of the share capital of Express-Volga Bank. In March 2007 the Bank additionally acquired 116,382 ordinary registered shares (12.03% of share capital) of Express-Volga Bank. The Bank s interest in the share capital of Express-Volga Bank amounted to 98.31%. The Bank s acquisition of additional issue of the Bank s ordinary registered shares in June 2007 resulted in the growth of its interest in Express-Volga s share capital to 98.75%. Express-Volga Bank was incorporated as a closed joint-stock company under the legislation of the Russian Federation on 6 September Its registered office s address is: Russian Federation, Saratov, 166/168 Michurina st. Express-Volga Bank s activities are regulated by the CBR general banking license No of 2 October In addition to the license for banking operations in Russian Roubles and foreign currencies Express- Volga Bank has a license that allows it to perform depository activities. Express-Volga issues Union Card and Visa plastic cards and also services international plastic cards Eurocard/Mastercard, Visa, Cirrus Maestro, Visa Electron Plus. Express-Volga is a member of the state deposit insurance system since 16 December The average number of people employed by Express-Volga Bank during the year was 1,669 (2009: 1,329). On 1 December 2006 the Bank finalised acquisition of interest in the share capital of LLC CB Ivanovsky Oblastnoy Bank ( Ivanovsky Oblastnoy Bank ). The Bank s interest in the share capital of Ivanovsky Oblastnoy Bank is 100%. CJSC National Bank of Savings (LLC CB Ivanovsky Oblastnoy Bank) is the successor of LLC CB Ivanovskie Sittsy established by the decision of owners on 11 May 1992 and registered by the CBR on 7 July 1992, registration number

20 24 of September 2009 in accordance with the Order No. 107/1-P About the state registration of the new name of CJSC National Bank of Savings, LLC CB Ivanovsky Oblastnoy Bank was reorganized and renamed to CJSC National Bank of Savings. In accordance with the CBR license National Bank of Savings has the right to carry out operations with legal entities and individuals in Russian Roubles and in foreign currencies. National Bank of Savings is a member of the state deposit insurance system since 2 December The registered address of the Bank is: , Ivanovo, 2 Palekhskaya st. CJSC National Bank of Savings has 1 additional office in Ivanovo. Financial statements of CJSC National Bank of Savings were consolidated into Probusinessbank Group Financial statements since the acquisition date 1 st December The total number of people employed by the Bank during the year was 102 (2009: 65). On 14 November 2008 the Bank signed documents of strategic partnership with OJSC Gazenergobank. That resulted in change of the owner of OJSC Gazenergobank. The Bank became the owner of 19.83% of ordinary shares and 76.22% of ordinary shares of OJSC Gazenergobank were repurchased by the senior management of the Group. As a result the Group obtained full control over OJSC Gazenergobank, and its results were consolidated into the financial statements of the Group from that date. On 22 January 2009 the all shares were transferred from senior management to the Bank and it became the owner of 99.99% of OJSC Gazenergobank shares. OJSC Gazenergobank was incorporated as an open joint-stock company under the legislation of the Russian Federation on 19 May 1995 and is a member of the state deposit insurance system in the Russian Federation since 27 January The registered address of OJSC Gazenergobank is Russian Federation, Kaluga, 4 Plekhanova st. OJSC Gazenergobank issues banking cards in the payment system of MasterCard International, maintenances MasterCard, Cirrus/Maestro, Visa (in ATMs), American Express and Diners Club banking cards. The Bank started personalization of its own banking cards in 2006 in Kaluga. Financial statements of OJSC Gazenergobank are included into the Group s consolidated financial statements starting from the date of acquisition (14 November 2008). The total number of people employed by the bank during the year was 491 (2009: 395). On 5 December 2008 the Bank together with the government-sponsored Deposits Insurance Agency (DIS) and Bank24.ru signed a general agreement No /3. According to the Agreement, OJSC Probusinessbank was committed to ensure the financial improvement of OJSC Bank24.ru. The Bank became the owner of 20% of ordinary shares and 79.53% of ordinary shares of OJSC Bank24.ru were repurchased by the top management of the Group. As a result the Group obtained full control over OJSC Bank24.ru. On 27 January 2009 all shares were transferred from senior management to the Bank and it became the owner of % of OJSC Bank24.ru shares. OJSC Bank24.ru was established in The name of OJSC Bank24.ru till 2003 was Uralcontactbank. In 2003 as a result of changes of owners and rebranding the Bank was renamed to Bank24.ru. The registered address of OJSC Bank24.ru is: Russian Federation, Ekaterinburg, 12 Kuibysheva st. Bank24.ru has a general banking license (No.2227 of 29 October 2003) to perform operations with Russian Roubles and foreign currency. On 24 February 2005 OJSC Bank24.ru became a member of the state deposit insurance system in the Russian Federation Financial statements of OJSC Bank24.ru are included into the Group s consolidated financial statements starting from the date of acquisition (05 December 2008). The total number of people employed by OJSC Bank24.ru during the year was 645 (2009: 610). 9

21 On 25 December 2009 CJSC National Bank of Savings purchased 19,99% of ordinary shares of OJSC Investment City Bank % of ordinary shares of OJSC Investment City Bank were purchased by the senior management of the Group. As a result the Group obtained full control over OJSC Investment City Bank, and its results were consolidated into the financial statements of the Group from that date. Investment City Bank ( ICB ) was incorporated in 1993 as an opened joint-stock company under the legislation of the Russian Federation as OJSC CB Gals-Bank. In 1997 the bank was renamed to OJSC ICB. According to the decision of General Meeting of shareholders in 1999 the name of OJSC ICB was changed to the current one - OJSC Investment City Bank. Registred adress of OJSC Investment City Bank is: , Russia, Novosibirsk, 276 D. Kovalchuyk street. The total number of people employed by OJSC Investment City Bank during the year was 222 (2009: 208). On 31 May 2010 Bank entered into Agreement with its main shareholder to purchase 100% of OJSC Life Factoring Company. As a result the Group obtained full control over OJSC Life Factoring Company, and its results were consolidated into the financial statements of the Group from that date. As at 31 December 2009 the Group s network includes 5 branches, 73 additional offices and 116 separate subdivisions, 87 operation offices, 6 cash service offices, 7 points of sale and 2 representative offices throughout the country. Representative offices of the Bank operates in Saratov and Moscow. Subdivisions and operation offices are opened in in Arkhangelsk, Belgorod, Briansk,Velikie Luki, Vladivostok, Vladimir, Voronezh, Volgograd, Vologda, Vyborg, Derbent, Dzerzhinsk, Ekaterinburg, Yelec, Izhevsk, Kaliningrad, Kaluga, Kamensk-Uralskiy, Kamyshin, Kingisepp, Kirov, Kostroma, Krasnoyarsk, Kursk, Kurgan, Lipetsk, Magnitigorsk, Mourom, Nabregnye Chelny, Nizhny Novgorod, Nizhnevartovsk, Novosibirsk, Omsk, Orel, Orenburg, Petrozavodsk, Pskov, Rzhev, Rybinsk, Ryazan, Rostov-on-Don, Samara, Saransk, Saratov, St. Petersburg, Smolensk, Sosnoviy Bor, Surgut, Syktyvkar, Taganrog, Tver, Tikhvin, Tula, Ukhta, Khanty-Mansiysk, Chita, Chelyabinsk, Cherepovets, Cheboksari, Yaroslavl, Ivanovo, Irkutsk, Perm and Tyumen, regions. Shareholders As at 30 September 2010 and 2009, the following shareholders owned the shares of the Bank: 30 September December 2009 Shareholders of the first level % % LLC Alivikt 52,95 52,95 East Capital Financial Fund AB 19,93 19,93 Rekha Holdings Limited 7,22 7,22 BlueCrest Strategic Limited 6,35 6,35 Argo Capital Management 5,46 5,46 LLC Rodina 8,09 8,09 Other 100,00 100,00 Total

22 30 September December 2009 S.L. Leontiev % % East Capital Explorer Financial Institutions Fund AB 29,79 29,79 E.V. Bikmaev 19,93 19,93 A.D. Zheleznyak 11,72 11,72 Rekha Holding Limited 11,43 11,43 BlueCrest Strategic Limited 7,22 7,22 Argo Capital Management 7,94 7,94 E.V. Panteleev 6,51 6,51 Other 5,46 5,46 Total 100,00 100,00 Russian business environment The Russian Federation is experiencing political and economic change that has affected, and may continue to affect, the activities of enterprises operating in this environment. Consequently, operations in the Russian Federation involve risks that typically do not exist in other markets. In addition, the recent contraction in the capital and credit markets has further increased the level of economic uncertainty in the environment. The financial statements reflect management s assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management s assessment. 2 Basis of preparation of the intermediary short form of consolidated financial statements Statement of compliance The accompanying intermediary short form of consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) N 34 «Intermediary Financial Statements». Intermediary Short form of consolidated financial statements does not include all information requested by the complete form consolidated financial statements and shall be considered together with the Group consolidated financials for 2009, as the present short form of consolidated financial statements are an update of the earlier issued financial information. Basis of measurement The present intermediary consolidated financial statements are prepared on the historical cost basis except that financial instruments at fair value through profit or loss and available-for-sale securities are stated at fair value, and buildings are stated at revalued amounts. Functional and presentation currency The national currency of the Russian Federation is the Russian Rouble ( RUR ). Management has determined the Group s functional currency to be the RUR as it reflects the economic substance of the underlying events and circumstances of the Group. The RUR is also the Group s presentation currency for the purposes of these consolidated financial statements. Financial information presented in RUR has been rounded to the nearest thousand. 11

23 Use of estimates and judgments Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these intermediary consolidated financial statements in conformity with IFRS. Actual results could differ from those estimates. During the preparation of this intermediary short form of consolidated financial statements Management has applied the same assumptions and estimations regarding the implementation of the Group s accounting policy and a number of estimations with regard to some ambiguities as during the preparation of the Group financial statements for the year ended 31 December Additionally, as per note 6 Advances to developers companies, Group was entered into preliminary purchase agreements with some of the developers companies. Management has made a number of significant areas estimations and assumptions relating to the existing control under developers companies by the Group as at the reporting date, and thus regarding the need of the assets and liabilties consolidation into the Group performance results. The following factors have been focused by the Group during the estimation of the Group s control degree on developers companies as at the reporting date: Group s possibility to establish financial and operational policies of the company; Group s possibility to participate in the gain on companies operations; Group s possibility take decision of more than 50% of rights of voting in the company; Group s possibility take decision of more than 50% of rights of voting in the company subject to investments within the agreements with other creditors; Group s possibility to establish financial and operational policies of the company within the law or based on the agreement; Group s possibility to nominate and dismiss a majority of Board of Directors members or similar company s authority subject to investments and possibility to control the company by means of company s authority; Group s possibility to present the majority of votes on the meeting meetings of the company authority body (board of directors of similar company s body) subject to investments, by means of which the company is controlled. 3 Significant accounting policies The accounting policies have been consistently applied by the Group and accounting policies have been the same that were applied in the preparation of Financial Statements for the year ended 31 December Additionally, the following accounting policies have been applied in the accounting of transaction effected during the reporting period. Subsidiaries Subsidiaries are those enterprises controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. 12