IMPORTANT NOTICE IMPORTANT:

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1 IMPORTANT NOTICE IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the Prospectus (the "Prospectus") attached to this electronic transmission and you are therefore advised to read this disclaimer carefully before reading, accessing or making any other use of the attached Prospectus. In accessing the attached Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them, from time to time, each time you receive any information from us as a result of such access. Confirmation of Your Representation: By accessing this Prospectus you have confirmed to Joint Stock Company "The Ural Bank for Reconstruction and Development" ("UBRD"), BCP Securities, BNP Paribas and Sberbank CIB (the "Managers") and UBRD Capital Limited (the "Issuer") that (i) you have understood and agree to the terms set out herein, (ii) you are not a U.S. person (within the meaning of Regulation S of the United States Securities Act 1933, as amended (the "Securities Act")), or acting for the account or benefit of any U.S. person, and that the electronic mail address you have given to us is not located in the United States, its territories and possessions, (iii) you consent to delivery by electronic transmission, (iv) you will not transmit the attached Prospectus (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person except with the consent of the Managers, and (v) you acknowledge that you will make your own assessment regarding any legal, taxation or other economic considerations with respect to your decision to subscribe for or purchase of any of the Notes. You are reminded that the attached Prospectus has been delivered to you on the basis that you are a person into whose possession this Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver this Prospectus, electronically or otherwise, to any other person and, in particular, to any U.S. person or to any U.S. address. Failure to comply with this directive may result in a violation of the Securities Act or the applicable laws of other jurisdictions. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. ANY NOTES TO BE ISSUED HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED 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) EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THE ATTACHED PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. DISTRIBUTION OR REPRODUCTION OF THE ATTACHED PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS. Under no circumstances shall this Prospectus constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Notes in any jurisdiction in which such offer, solicitation or sale would be unlawful. This Prospectus is not being distributed to, and must not be passed on to, the general public in the UK. The communication of this Prospectus is only being made to those persons falling within Article 19(5) or Article 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or to other persons to whom this Prospectus may otherwise be distributed without contravention of sections 21 or 238 of the Financial Services and Markets Act 2000, or any person to whom it may otherwise lawfully be made. This communication is being directed only at persons having professional experience in matters relating to investments and any investment or investment activity to which this communication relates will be engaged in only with such persons. No other person should rely on it. This Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the Managers, any person who controls any of the Managers, UBRD, the Issuer, any director, officer, employee or agent of any of them, or any affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Prospectus distributed to you in electronic format and the hard copy version available to you on request from any of the Managers.

2 US$68,000, per cent. Loan Participation Notes due 2018 to be issued by, but with limited recourse to UBRD CAPITAL LIMITED (incorporated with limited liability under the laws of Ireland) for the sole purpose of financing a US$68,000,000 loan to JOINT STOCK COMPANY "THE URAL BANK FOR RECONSTRUCTION AND DEVELOPMENT" (incorporated under the laws of Russia) Issue Price: 100 per cent. UBRD Capital Limited (the "Issuer") is issuing an aggregate principal amount of US$68,000, per cent. Loan Participation Notes due 2018 (the "Notes") for the sole purpose of financing a US$68,000,000 subordinated loan (the "Subordinated Loan") to Joint Stock Company "The Ural Bank for Reconstruction and Development" (the "Borrower" or "UBRD", and in conjunction with its subsidiaries the "Group") pursuant to a subordinated loan agreement dated on or about 25 June 2013 (the "Subordinated Loan Agreement") between the Issuer (as lender) and the Borrower. The Notes will have the terms and conditions (the "Conditions") set out under "Terms and Conditions of the Notes" and will be constituted by and in all respects subject to the provisions of a trust deed dated on or about 27 June 2013 (the "Trust Deed") between the Issuer and BNP Paribas Trust Corporation UK Limited as trustee (the "Trustee" which expression shall include all trustees appointed from time to time in accordance with the Trust Deed). The Issuer will charge to the Trustee by way of security for its payment obligations under the Notes, its rights, title and benefits in and to principal, interest, and other amounts payable by the Borrower under the Subordinated Loan Agreement, and will transfer to the Trustee certain of its administrative rights under the Subordinated Loan Agreement (in each case other than certain reserved rights) upon the closing of the offering of the Notes for the benefit of the holders of the Notes (the "Noteholders"). The Subordinated Loan will rank at least pari passu with all UBRD's other subordinated indebtedness (whether actual or contingent) having a fixed maturity from time to time outstanding, save for such indebtedness as may be preferred by provisions of law that are both mandatory and of general application, and will be senior to the claims of holders of UBRD's share capital. The Notes are limited recourse obligations of the Issuer. Where amounts of principal, interest, or other amounts (if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest or other amounts (if any) are due in respect of the Notes, for an amount equivalent to all principal, interest or other amounts (if any) actually received and retained (net of tax) by or for the account of the Issuer pursuant to the Subordinated Loan Agreement, excluding any amounts received by or for the account of the Issuer in respect of certain Reserved Rights (as defined in "Terms and Conditions of the Notes"). The Issuer will have no other financial obligations under the Notes and no other assets of the Issuer will be available to the Noteholders. BY PURCHASING THE NOTES THE NOTEHOLDERS WILL BE DEEMED TO HAVE ACCEPTED AND AGREED THAT THEY WILL BE RELYING SOLELY AND EXCLUSIVELY ON THE CREDIT AND FINANCIAL STANDING OF THE BORROWER FOR REPAYMENT. AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 18 BEFORE INVESTING IN THE NOTES. Other than as described in this prospectus (the "Prospectus") and in the Trust Deed, the Noteholders have no proprietary or other direct interest in the Issuer's rights under or in respect of the Subordinated Loan Agreement or the Subordinated Loan. Subject to the terms of the Trust Deed, no Noteholder will have any rights to enforce any of the provisions in the Subordinated Loan Agreement or have direct recourse to the Borrower except through action by the Trustee. No Noteholder will have any action against the Issuer or any recourse, direct or indirect, to any assets whatsoever (other than principal, interest and additional amounts (if any) received by the Borrower under the Subordinated Loan Agreement) of the Issuer). Unless previously redeemed or cancelled, the Notes will be redeemed at their principal amount on 27 December The Notes are subject to redemption in whole at their principal amount at the option of the Issuer at any time in the event of certain changes affecting taxation in Ireland or Russia. See "Terms and Conditions of the Notes Redemption and Purchase". The Notes will bear interest from 27 June 2013 at the rate of 12.0 per cent. per annum payable semi-annually in arrear on 27 June and 27 December in each year commencing on 27 December Payments on the Notes will be made in US$ without deduction for or on account of taxes imposed or levied by Ireland or Russia to the extent described under "Terms and Conditions of the Notes Taxation". The Subordinated Loan may be prepaid in limited circumstances, together with accrued interest, and thereupon (subject to the receipt of the relevant funds from the Borrower, as the case may be) the principal amount of the outstanding Notes corresponding with such prepayment of the Subordinated Loan will be prepaid by the Issuer together with accrued interest. See "Terms and Conditions of the Notes Redemption and Purchase". This Prospectus has been approved by the Central Bank of Ireland as competent authority under Directive 2003/71/EC (the "Prospectus Directive"). The Central Bank of Ireland only approves this Prospectus as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange Limited (the "Irish Stock Exchange") for the Notes to be admitted to the Official List (the "Official List") and trading on its regulated market (the "Main Securities Market"). This Prospectus constitutes a "prospectus" for the purpose of the Prospectus (Directive 2003/71/EC) Regulations 2005 (the "Prospectus Regulations") (which implement the Prospectus Directive in Ireland). Reference in this Prospectus to being "listed" (and all date references) shall mean that such Notes have been admitted to trading on the Main Securities Market. There is no assurance that a trading market in the Notes will develop or be maintained. THE NOTES AND THE SUBORDINATED LOAN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND ARE SUBJECT TO UNITED STATES TAX LAW REQUIREMENTS. THE NOTES ARE BEING OFFERED OUTSIDE THE UNITED STATES BY THE MANAGERS (AS DEFINED IN "SUBSCRIPTION AND SALE") IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), AND MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. The Notes will be in registered form in the denomination of US$200,000. The Notes may be held and transferred, and will be offered and sold, in the principal amount of US$200,000 and integral multiples of US$1,000 in excess thereof. The Notes will be represented by a global registered note certificate (the "Global Note Certificate") registered in the name of BNP Paribas Securities Services, Luxembourg Branch acting as common depository for Euroclear Bank S.A./N.V. ("Euroclear") and Clearstream Banking, société anonyme, Luxembourg ("Clearstream Luxembourg"). Individual note certificates ("Individual Note Certificates") evidencing holdings of Notes will only be available in certain limited circumstances. See "Summary of Provisions relating to the Notes in Global Form". BCP Securities BNP PARIBAS Sberbank CIB 25 June 2013

3 IMPORTANT INFORMATION This Prospectus constitutes a prospectus for the purpose of the Prospectus Directive and for the purpose of giving information with regard to the Issuer, the Borrower, the Notes and the Loan which, according to the particular nature of the Issuer, the Borrower, the Notes and the Loan, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer and the Borrower, and of the rights attaching to the Notes. Each of the Borrower and the Issuer (the "Responsible Persons"), having taken all reasonable care to ensure that such is the case, accept(s) responsibility for the information contained in this Prospectus. To the best of the knowledge of the Responsible Persons, each of which has taken all reasonable care to ensure that such is the case, the information contained in the Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. In addition, the Borrower, having made all reasonable enquiries, confirms that (i) this Prospectus contains all information with respect to the Borrower, the Loan and the Notes that is material in the context of the issue and offering of the Notes; (ii) the statements contained in this Prospectus are in every material respect true and accurate and not misleading; (iii) the opinions, expectations and intentions expressed in this Prospectus are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions; (iv) there are no other facts with respect to the Borrower, the Loan or the Notes the omission of which would, in the context of the issue and offering of the Notes, make any statement in this Prospectus misleading in any material respect; and (v) all reasonable enquiries have been made by the Borrower to ascertain such facts and to verify the accuracy of all such information and statements. This Prospectus contains information, under the headings "Risk Factors", "Operating and Financial Review of UBRD", "Business", "The Banking Sector and Banking Regulation in Russia" and "Description of the Urals Region", derived from official data published by Russian Government (the "Russian Government" or "Government") agencies and the Central Bank of Russia (the "CBR"), the Russian Federal State Statistics Services ("Rosstat"), the Russian federal, regional and local governments and publicly available information, including information published by Banki.ru, RBC Rating, Interfax, the National Rating Agency and the Frank Research Group, and filings made under various securities laws. Neither the Issuer nor the Borrower accepts any responsibility for the accuracy of such information, nor have the Issuer or the Borrower independently verified any such information. The Issuer and the Borrower confirm that this information has been accurately reproduced, and so far as the Issuer and the Borrower are aware and are able to ascertain from information available from such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading. Neither the Issuer nor the Borrower has authorised the making or provision of any representation or information regarding the Issuer, the Borrower or the Notes other than as contained in this Prospectus or as approved for such purpose by the Issuer and the Borrower. Any such representation or information should not be relied upon as having been authorised by the Issuer, the Borrower or the Managers. Neither the Managers nor any of their respective affiliates have authorised the whole or any part of this Prospectus and none of them makes any representation or warranty or accepts any responsibility as to the accuracy or completeness of the information contained in this Prospectus. Neither the delivery of this Prospectus nor the offering, 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 or the Borrower since the date of this Prospectus. This Prospectus does not constitute an offer of, or an invitation to subscribe for or purchase, any Notes. The distribution of this Prospectus and the offering, sale and delivery of Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are - iii -

4 required by the Issuer, the Borrower and the Managers to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Notes and on distribution of this Prospectus and other offering material relating to the Notes, see "Subscription and Sale". In particular, the Notes and the Subordinated Loan have not been and will not be registered under the Securities Act and are subject to United States tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to U.S. persons. In connection with the issue of the Notes, BNP Paribas (the "Stabilising Manager(s)") (or persons acting on behalf of the Stabilising Manager(s)) may over allot Notes or effect transactions with a view to supporting the price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager(s) (or persons acting on behalf of a Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment must be conducted by the Stabilising Manager(s) (or persons acting on behalf of the Stabilising Manager(s)) in accordance with all applicable laws and rules. This Prospectus is only being distributed to and is only directed at (i) persons who are outside the United Kingdom, (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"), (iii) high net worth entities and (iv) other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Notes will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. The Prospectus has been filed with and approved by the Central Bank of Ireland as required by the Prospectus Regulations. This Prospectus, as approved by the Central Bank of Ireland, will be filed with the Irish Companies Registration Office in accordance with Regulation 38(1)(b) of the Prospectus Regulations. Any investment in the Notes does not have the status of a bank deposit and is not within the scope of the deposit protection scheme operated by the Central Bank of Ireland. The Issuer is not and will not be regulated by the Central Bank of Ireland as a result of issuing the Notes. The language of the Prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law. Each person contemplating making an investment in the Notes must make its own investigation and analysis of the creditworthiness of UBRD and the Issuer, and its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience and any other factors which may be relevant to it in connection with such investment. - iv -

5 FORWARD LOOKING STATEMENTS Certain statements in this Prospectus are not historical facts and constitute forward-looking statements." Forward-looking statements are identified by words such as "believes," "anticipates," "expects," "estimates," "intends," "plans," "will," "may" and similar expressions, but these expressions are not the exclusive means of identifying such statements. Forward-looking statements appear, without limitation, under the headings "Business", "Risk Factors" and "Operating and Financial Review of UBRD". UBRD may from time to time make written or oral forward-looking statements in reports to its investors and in other communications. Examples of such forward-looking statements include, but are not limited to: statements of UBRD's plans, objectives or goals, including those related to its strategy, products or services; statements of future economic performance; and statements of assumptions underlying such statements. Forward-looking statements that may be made by UBRD from time to time (but that are not included in this Prospectus) may also include projections or expectations of revenues, income (or loss), earnings (or loss) per share, dividends, capital structure or other financial items or ratios. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forwardlooking statements will not be achieved. Prospective investors should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward looking statements. These factors include: inflation, interest rate and exchange rate fluctuations in Russia; the ability of UBRD to refinance its indebtedness on reasonable terms, if at all; the health of the Russian economy, including the Russian banking sector and consumer confidence; any future expansion plans of UBRD and the likelihood of such plans being successfully implemented; the effects of, and changes in, the policy of the Russian Government, laws, regulations, taxation or accounting standards or practices in Russia, in particular, regulations promulgated by the CBR; the effects of competition in the geographic and business areas in which UBRD conducts its operations; UBRD's ability to manage its loan portfolio and overall asset quality; UBRD's ability to increase market share for its products and services and control expenses; the management of the growth of UBRD's business, assets and liabilities; the ability of UBRD to adapt its products and services to new technologies; and UBRD's success at managing the risks associated with the aforementioned factors. This list of important factors is not exhaustive. When relying on forward-looking statements, prospective investors should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which UBRD operates. Such forward-looking statements speak only as at the date on which they are made, and are not subject to any continuing obligations under the listing guidelines of the Irish Stock Exchange. Accordingly, UBRD does not undertake any obligation to update or revise any of - v -

6 them, whether as a result of new information, future events or otherwise. UBRD does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario. - vi -

7 ENFORCEABILITY OF JUDGMENTS The Borrower is organised under the laws of Russia. All of the Borrower's directors and executive officers named in this Prospectus reside in Russia. Moreover, substantially all of the assets of the Borrower and of such persons are located in Russia. As a result, the Trustee, acting on behalf of the Noteholders, (or any other person) may not be able to effect service of process in the United Kingdom on the Borrower or any of the Borrower's directors or executive officers named in this Prospectus. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any provisions of the relevant Subordinated Loan Agreement, or have direct recourse to the Borrower, except through action by the Trustee. The Trustee will not be required to enter into proceedings to enforce payment from the Borrower under the Subordinated Loan Agreement, unless it has been indemnified and/or secured by the Noteholders to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses, which it may incur in connection therewith. Similarly, the Trustee (or any other person) may not be able to obtain or enforce English or U.S. court judgments in Russia against the Borrower or its directors or executive officers. Courts in Russia will only recognise judgments rendered by a court in any jurisdiction outside Russia if an international treaty providing for the recognition and enforcement of judgments in civil cases exists between Russia and the country where the judgment is rendered. No such treaty for the reciprocal enforcement of foreign court judgments in civil and commercial matters exists between Russia and most Western jurisdictions (including the United Kingdom and the United States), which may require new proceedings to be brought in Russia in respect of a judgment already obtained in any such jurisdiction against the Borrower or its directors or executive officers. In addition, Russian courts have limited experience in the enforcement of foreign court judgments. The limitations described above, including the general procedural grounds set out in Russian legislation for the refusal to recognise and enforce foreign court judgments in Russia, may significantly delay the enforcement of any such judgment, or deprive the Noteholders or the Trustee of effective legal recourse for claims under the Notes relating to the Subordinated Loan. The Subordinated Loan Agreement will be governed by English law and will provide that, if any dispute or proceeding arises from or in connection with the Subordinated Loan Agreement, it will be settled by arbitration in accordance with the Rules of the London Court of International Arbitration (the "LCIA Rules"). The place of such arbitration shall be London, England. Russia and the United Kingdom are parties to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "New York Convention"). Consequently, Russian courts should generally recognise and enforce in Russia an arbitral award from an arbitral tribunal in the United Kingdom, on the basis of the rules of the New York Convention (subject to qualifications provided for in the New York Convention and compliance with Russian procedural regulations and other procedures and requirements established by Russian legislation). However, it may be difficult to enforce arbitral awards in Russia due to: the inexperience of the Russian courts in international commercial transactions; the inability of Russian courts to enforce such awards; and official and unofficial political resistance to the enforcement of awards against Russian companies in favour of foreign investors. The Arbitrazh Procedural Code of Russia dated 24 July 2002 (the "Arbitrazh Procedural Code") sets out the procedure for the recognition and enforcement of foreign arbitral awards by Russian courts. It also contains an exhaustive list of grounds for the refusal of recognition and enforcement of foreign arbitral awards by Russian courts, which grounds are broadly similar to those provided by the New York Convention. The Arbitrazh Procedural Code and other Russian procedural legislation could change; therefore, among other things, other grounds for Russian courts to refuse the recognition and enforcement of foreign courts' judgments and foreign arbitral awards could arise in the future. In practice, reliance upon international treaties may meet with - vii -

8 resistance or a lack of understanding on the part of a Russian court or other officials, thereby introducing delay and unpredictability into the process of enforcing any foreign judgment or any foreign arbitral award in Russia. Further, any arbitral award pursuant to arbitration proceedings in accordance with the LCIA Rules and the application of English law to the Subordinated Loan Agreement may be limited by the mandatory provisions of Russian laws relating to the exclusive jurisdiction of Russian courts and the application of Russian laws with respect to bankruptcy, winding up or liquidation of Russian companies and credit organisations in particular. - viii -

9 PRESENTATION OF FINANCIAL AND OTHER INFORMATION Presentation of Financial Information IFRS Financial Information of UBRD UBRD's audited consolidated financial statements for the years ended 31 December 2012 and 2011 ("UBRD's 2012 Consolidated Financial Statements" and "UBRD's 2011 Consolidated Financial Statements", respectively and together, "UBRD's Consolidated Financial Statements") included on pages F-2 to F-81 and pages F-82 to F-154, respectively, in this Prospectus have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS"). UBRD's Consolidated Financial Statements were audited by ZAO KPMG ("KPMG"), independent auditors, as stated in KPMG's reports appearing herein. Average Balances, Average Interest Rates and Effective Interest Rates This Prospectus includes information on the average balances of interest earning assets and interest bearing liabilities of the Group for the years ended 31 December 2012, 31 December 2011 and 31 December 2010, as well as the average interest rate for such assets and liabilities for the periods indicated. For the purposes of their calculation, the average balances of assets and liabilities represent the simple average of the opening and closing balances for the applicable period. The results of the analysis are likely to be different if alternative or more frequent averaging methods were used, and such differences could be material. The average interest rates set out in this Prospectus are calculated by dividing aggregate interest income or expense for the relevant line item by the average balance for the same line item for the applicable period. Average interest rates are distinct from the effective interest rates presented in UBRD's Consolidated Financial Statements. See the notes to UBRD's Consolidated Financial Statements included elsewhere in this Prospectus. Non-IFRS Measures This Prospectus includes certain non-ifrs financial measures and ratios. These measures are presented herein because UBRD believes that these and similar measures are widely used in the banking industry as a means of evaluating a bank's operating performance and financial condition. They may not be comparable to other similarly titled measures of other banks and are not measurements under IFRS or other generally accepted accounting principles, nor should they be considered as substitutes for the information contained in UBRD's Consolidated Financial Statements. Russian Accounting Standards This Prospectus includes certain capital adequacy information and certain financial information on UBRD's subsidiaries prepared in accordance with the applicable regulations of Russia on accounting and reporting ("Russian Accounting Standards" or "RAS"). UBRD maintains its statutory accounting records in Roubles in accordance with the standards prescribed by the CBR and RAS, which contain certain disclosure requirements, including the requirement to prepare in accordance with RAS, and file with the CBR, periodic financial statements. Much of this financial information is subsequently made available to the public. Material differences exist between financial information prepared under RAS and IFRS. As a result, prospective investors are cautioned not to place undue reliance on such RAS information when evaluating the financial performance of UBRD. Certain Definitions In this Prospectus, all references to: "DIA" are to the Deposit Insurance Agency State Corporation; "FSFM" are to the Russian Federal Financial Markets Service or its predecessor; - ix -

10 "interest-earning assets" are to the sum of net loans to customers, finance lease receivables, investment securities held to maturity, amounts receivable under reverse repurchase agreements, financial instruments at fair value through profit or loss, placements with banks and other financial institutions and available-for-sale securities, advances to real estate developers, investment property and cash and cash equivalents; "interest-bearing liabilities" are to the sum of current accounts and deposits from customers, other borrowed funds, debt securities issued, deposits and balances from banks and other financial institutions, subordinated debt and amounts payable under repurchase agreements; "Net Interest Margin" is calculated as net interest income divided by the average balance of interest earning assets; "RoAA" are to return on average assets, calculated as the Group's net income divided by the average balance of the Group's assets for the period; "RoAE" are to return on average equity, calculated as the Group's net income divided by the average balance of the Group's equity for the period; "Russia" and "Russian" pertain to the Russian Federation; and "Urals region" are to the Ural Federal District of Russia. Currency In this Prospectus, the following currency terms are used: Euro", "euro", "EUR" or " " means the lawful currency of the Member States of the European Union that adopted the single currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty Establishing the European Union, as amended. "Rouble" or "RUB" means the lawful currency of Russia;" "U.S. dollar", "Dollar" or "US$" means the lawful currency of the United States of America; and Exchange Rates Solely for the convenience of the reader, and except as otherwise stated, this Prospectus contains translations of some Rouble amounts into U.S. dollars at the conversion rate of RUB to US$1.00, which was the rate published by the CBR on 31 December UBRD does not make any representation that the Rouble amounts referred to in this Prospectus could have been or could be exchanged into U.S. dollars at the above translation rate, at any other rate or at all. - x -

11 The following table sets out, for the periods indicated, the high, low, average and period-end interbank exchange rates, in each case for the purchase of Roubles, all expressed in Roubles per U.S. dollar based on the official exchange rate quoted by the CBR. Fluctuations in the exchange rate between the Rouble and the U.S. dollar in the past are not necessarily indicative of fluctuations in the future. RUB/U.S. dollar Year ended 31 December High Low Average* Period end January February March April *Note: the average of the exchange rates on each business day for the relevant period. Rounding Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be arithmetic aggregations of the figures that precede them. Credit Ratings Credit ratings included or referred to in this Prospectus have been issued by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Credit Market Services Europe Limited, ("Standard & Poor's") and Fitch Ratings Ltd. ("Fitch"). Standard & Poor's and Fitch are established in the European Union and registered under Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (the "CRA Regulation"). Moody's is not established in the European Union and has not been registered under the CRA Regulation. - xi -

12 TABLE OF CONTENTS FORWARD LOOKING STATEMENTS ENFORCEABILITY OF JUDGMENTS PRESENTATION OF FINANCIAL AND OTHER INFORMATION OVERVIEW 13 RISK FACTORS 18 PAGE V VII IX DESCRIPTION OF THE TRANSACTION 61 USE OF PROCEEDS 63 SELECTED CONSOLIDATED FINANCIAL INFORMATION 64 CAPITALISATION 67 OPERATING AND FINANCIAL REVIEW OF UBRD 68 RECENT DEVELOPMENTS 104 BUSINESS 105 MANAGEMENT 135 PRINCIPAL SHAREHOLDERS 140 RISK MANAGEMENT 143 RELATED PARTY TRANSACTIONS 169 THE BANKING SECTOR AND BANKING REGULATION IN RUSSIA 172 DESCRIPTION OF THE URALS REGION 195 THE ISSUER 201 THE SUBORDINATED LOAN AGREEMENT 203 TERMS AND CONDITIONS OF THE NOTES 231 SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM 246 TAXATION 247 SUBSCRIPTION AND SALE 255 GENERAL INFORMATION 257 FINANCIAL STATEMENTS AND AUDITORS' REPORTS F-1 - xii -

13 OVERVIEW This overview must be read as an introduction to this Prospectus and any decision to invest in the Notes should be based on a consideration of the Prospectus as a whole. No civil liability attaches to the persons responsible for this overview in any Member State of the European Economic Area which has implemented the Prospectus Directive solely on the basis of this overview, including any translation thereof, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus. Where a claim relating to the information contained in this Prospectus is brought before a court in a Member State of the European Economic Area, the plaintiff may, under the national legislation of the Member State, be required to bear the costs of translating the Prospectus before the legal proceedings are initiated. Words and expressions defined in the "Terms and Conditions of the Notes" below or elsewhere in this Prospectus have the same meanings in this overview. UBRD is a privately-owned commercial bank headquartered in Ekaterinburg, with a leading position in the Urals region and a strategic focus on retail, corporate and SME business, including the provision of loans, the taking of deposits and fee and commission-generating services. According to Banki.ru, as at 1 May 2013, UBRD was the largest bank in Ekaterinburg in terms of net assets and retail deposits and the second largest bank in in Ekaterinburg in terms of equity and the size of its loan portfolio. According to RBC Rating, at 1 January 2013, UBRD was the 12 th largest bank in Russia in terms of its branch and office network, the 18 th largest bank in Russia in terms of ATMs and the 19 th largest bank in Russia in terms of active plastic cards in issue. As at 1 January 2013, UBRD was ranked by Interfax amongst the "Top 5" regional banks in Russia and as the 27th largest bank in Russia by the amount of its private deposits, the 40th largest bank in Russia by the amount of its total assets and 56 th largest bank in Russia by the amount of its equity. As at 1 January 2013, UBRD had 646,293 active retail customers and 30,486 active corporate and SME customers. As at 31 December 2012, UBRD's corporate (including SME) loan portfolio amounted to RUB 41,026 million (before allowance for impairment) and represented the largest proportion, 53.7 per cent., of UBRD's total gross loan portfolio, compared to 46.3 per cent. from UBRD's retail loan portfolio. However, UBRD intends to grow its retail loan portfolio to account for 60 to 70 per cent. of its total gross loan portfolio by 1 January 2015, in order to increase the profitability of its lending activities. See "Business Strategy Increasing lending to retail and SME customers". As at 1 January 2013, UBRD had 13 branches, 105 full service offices and 286 additional offices in 45 federal subjects of Russia (see "Business Branch, Office and ATM Network"). This compares to 10 branches, 84 full service offices and 117 additional offices in 21 federal subjects of Russia as at 1 January 2012 and 10 branches, 69 full service offices and 79 additional offices in 16 federal subjects of Russia as at 1 January UBRD has branches in Moscow, St. Petersburg, Kirov, Perm, Voronezh, Novosibirsk, Krasnodar and Ufa, as well as in cities in the Urals region and full service offices in Belgorod, Samara and Saratov, as well as in other cities in Russia inside and outside of the Urals region. UBRD's additional offices offer a limited range of products and services in comparison to branches and full service offices and are designed to attract and service either (but not both) (i) retail customers; or (ii) corporate and SME customers. As at 1 January 2013, UBRD had a network of 900 ATMs located in third-party retail chains and at UBRD's branches and offices, compared to 726 ATMs and 525 ATMs as at 1 January 2012 and 2011, respectively. UBRD had 5,788 employees as at 1 January 2013, compared to 4,132 and 3,615 employees as at 1 January 2012 and 2011, respectively. As at 31 December 2012, the assets of UBRD amounted to RUB 143,917 million, compared to RUB 99,995 million and RUB 75,940 million as at 31 December 2011 and 2010, respectively. UBRD's profit for the year ended 31 December 2012 amounted to RUB 846 million, compared to RUB 505 million and RUB 578 million for the years ended 31 December 2011 and 2010, respectively. As at 31 December 2012, UBRD's net loan portfolio amounted to RUB 72,415 million, compared to RUB 44,962 million and RUB 33,469 million as at 31 December 2011 and

14 2010. As at 31 December 2012, UBRD had total equity of RUB 9,390 million, compared to RUB 7,053 million and RUB 4,722 million as at 31 December 2011 and 2010, respectively. In the year ended 31 December 2012, UBRD's RoAE was 10.3 per cent. and RoAA was 0.7 per cent., as compared to 8.6 per cent. and 0.6 per cent., respectively, in the year ended 31 December 2011 and 14.5 per cent. and 0.8 per cent., respectively, in the year ended 31 December UBRD's Net Interest Margin was 5.3 per cent. in the year ended 31 December 2012, compared to 5.9 per cent. and 3.8 per cent. in the years ended 31 December 2011 and 2010, respectively. The Issuer: UBRD Capital Limited The Borrower: Joint Stock Company "The Ural Bank for Reconstruction and Development" Managers: Trustee: Principal Paying Agent and Transfer Agent: Listing Agent: The Notes: Issue Price: Issue Date: 27 June Use of Proceeds: Interest: Status of the Notes and Limited Recourse: Status of the Subordinated Loan: BCP Securities, BNP Paribas and Sberbank CIB BNP Paribas Trust Corporation UK Limited BNP Paribas Securities Services, Luxembourg Branch Arthur Cox Listing Services Limited US$68,000, per cent. Loan Participation Notes due 2018 issued by the Issuer for the sole purpose of financing a US$68,000,000 subordinated loan to the Borrower. 100 per cent. of the principal amount of the Notes. General corporate purposes. See "Use of Proceeds". The Notes will bear interest from 27 June 2013 at a rate of 12.0 per cent. per annum payable semi-annually in arrear on 27 June and 27 December in each year commencing on 27 December The Notes constitute secured and limited recourse obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves, as more fully described in "Terms and Conditions of the Notes". The Notes constitute the obligation of the Issuer to apply the proceeds from the issue of Notes solely for the purpose of financing the Subordinated Loan to the Borrower pursuant to the terms of the Subordinated Loan Agreement. The Issuer will only account to the Noteholders for all amounts equivalent to those (if any) received and retained (net of tax) from the Borrower under the Subordinated Loan Agreement in the Account less amounts in respect of the Reserved Rights (as defined in "Terms and Conditions of the Notes"), all as more fully described in "Terms and Conditions of the Notes". The Subordinated Loan and all payment obligations expressed to be assumed by the Borrower thereunder constitute direct, unconditional, unsecured and subordinated obligations of the Borrower which will at all times rank at least pari passu with all its other

15 Security: Issuer's Covenant: Form and Denomination: subordinated indebtedness (whether actual or contingent) having a fixed maturity from time to time outstanding, save for such indebtedness as may be preferred by provisions of law that are both mandatory and of general application. The Notes are secured by a first fixed charge in favour of the Trustee for the benefit of itself and the Noteholders of (i) certain of the Issuer's rights and interests as lender under the Subordinated Loan Agreement, and (ii) the Issuer's rights, title and interest in and all sums held on deposit in the Account (in each case, other than the Reserved Rights and any amounts in respect thereof), all as more fully described in "Terms and Conditions of the Notes". In addition, the Issuer with full title guarantee has assigned absolutely its administrative rights under the Subordinated Loan Agreement (save for the rights charged or excluded as described above) to the Trustee for the benefit of itself and the Noteholders, as more fully described in "Terms and Conditions of the Notes". As long as any of the Notes remains outstanding, the Issuer will not, without the prior written consent of the Trustee or an Extraordinary Resolution or a Written Resolution (as defined in the Trust Deed), agree to any amendments to or any modification of or waiver of, or authorise any breach or proposed breach of, the terms of the Subordinated Loan Agreement and will act at all times in accordance with any instructions of the Trustee from time to time with respect to the Subordinated Loan Agreement, except as otherwise expressly provided in the Trust Deed or the Subordinated Loan Agreement. The Notes will be issued in registered form in denominations of US$200,000. The Notes may be held and transferred, and will be offered and sold, in the principal amount of US$200,000 and integral multiples of US$1,000 in excess thereof. The Notes will be represented by a Global Note Certificate registered in the name of BNP Paribas Securities Services, Luxembourg Branch acting as common depository for Euroclear and Clearstream Luxembourg. Individual Note Certificates evidencing holdings of Notes will only be available in certain limited circumstances. `

16 Early Redemption at the Option of the Borrower or the Issuer: Rating: The Notes will be redeemed in whole, but not in part, at any time, upon notice having been given to the Noteholders, at their principal amount together with accrued and unpaid interest to the date of redemption and any additional amounts (if any) then due if the Borrower elects to prepay the corresponding Subordinated Loan for tax reasons or by reason of increased costs or, at the option of the Issuer, in the event that it becomes unlawful for the Issuer to fund such Subordinated Loan or to allow it to remain outstanding under such Subordinated Loan Agreement, all as more fully described in each Subordinated Loan Agreement. See also Condition 6 (Redemption and Purchase) of "Terms and Conditions of the Notes". The Notes will not be rated. Withholding Tax: All payments of interest and principal to be made by the Borrower under the Subordinated Loan Agreement will be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges by any tax authority, save as required by law. All payments of interest and principal to be made by the Issuer under the Notes will be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges by Russia or Ireland or any tax authority thereof, save as required by law. Where any deduction or withholding is required by law in relation to the Notes, the Issuer shall (subject to certain exceptions and to receipt of the relevant funds under the Subordinated Loan Agreement as described below) pay such additional amounts as will result in the receipt by the Noteholders of such amounts as would have been received had no such deduction or withholding been required. In such circumstances, the Borrower will be required to increase the sum payable under the relevant Subordinated Loan Agreement to the extent necessary to ensure that the Issuer receives and retains a net sum sufficient to pay to the Noteholders such additional amounts as will result in the receipt by the Noteholders of such amounts as would have been received had no such deduction or withholding been made or required to be made. The sole obligation of the Issuer in this respect will be to account to the Noteholders for the sums equivalent to the sums received and retained (net of tax) from the Borrower. See "Terms and Conditions of the Notes"

17 Governing Law: Listing and Trading: Clearing Systems: Selling Restrictions: Risk Factors: In the event that (i) the Borrower is required to pay additional amounts under the Subordinated Loan Agreement as a result of tax imposed by any tax authority or (ii) the Issuer is required to pay additional amounts under the Notes as a result of tax imposed by any tax authority in Russia or Ireland, the Borrower will have the right, provided that it obtains the prior consent of the CBR, to prepay the Subordinated Loan made pursuant to such Subordinated Loan Agreement, upon not less than 30 days' notice to the Issuer, in whole (but not in part) at any time. In such circumstances, the Issuer will exercise its rights to redeem the Notes. The Notes, the Trust Deed, the Agency Agreement and the Subscription Agreement will be governed by English law. This Prospectus has been approved by the Central Bank of Ireland as competent authority under the Prospectus Directive. The Central Bank of Ireland only approves this Prospectus as meeting the requirements imposed under Irish and European Union law pursuant to the Prospectus Directive. Such approval relates only to the Notes which are to be admitted to trading on a regulated market for the purposes of Directive 2004/39/EC or which are to be offered to the public in any Member State of the European Economic Area. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Main Securities Market. The Main Securities Market is a regulated market for the purposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments. There is no assurance that a trading market in the Notes will develop or be maintained. Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in connection with the Notes and is not itself seeking admission of the Notes to the official list of the Irish Stock Exchange or to trading on the Irish Stock Exchange for the purposes of the Prospectus Directive. Euroclear and Clearstream, Luxembourg See "Subscription and Sale". Investing in the Notes involves risks. See "Risk Factors". Financial Information: See "Presentation of Financial and Other Information", "Selected Consolidated Financial Information", "Operating and Financial Review of UBRD" and UBRD's Consolidated Financial Statements

18 RISK FACTORS Any investment in the Notes is subject to a number of risks. Prior to investing in the Notes, prospective investors should carefully consider risk factors associated with any investment in the Notes, the Issuer and UBRD and the industry in which UBRD operates together with all other information contained in this Prospectus, including, in particular the risk factors described below. Words and expressions defined in the "Terms and Conditions of the Notes" below or elsewhere in this Prospectus have the same meanings in this section. Prospective investors should note that the risks relating to the Issuer and UBRD, the industry in which UBRD operates and the Notes summarised in the risk factors described below are the risks that the Issuer and UBRD believe to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Notes. There may be additional risks and uncertainties relating to the Issuer and UBRD that are not known to the Issuer and UBRD or that the Issuer and UBRD deem immaterial as at the date of Prospectus and which may individually or cumulatively also have a material adverse effect on the business, results of operations, financial position and prospects of UBRD and, if any such risk should occur, the price of the Notes may decline and investors could lose all or part of their investment. Investors should consider carefully whether an investment in the Notes is suitable for them in light of the information in this Prospectus and their personal circumstances. Risks Related to UBRD's Business and the Russian Banking Sector Turmoil in global credit markets has already adversely affected, and may continue to adversely affect, the Russian economy, the Russian banking industry and UBRD Historically, the Russian economy has been adversely affected by market downturns and economic slowdowns elsewhere in the world, including the crisis (which began with the subprime mortgage crisis in the United States and developed into a global economic crisis in 2008 (the "global economic crisis")). Falling house prices and increasing foreclosures and unemployment impacted the global credit markets, resulting in significant mark-to-market write downs of asset values by financial institutions, including government sponsored entities and major commercial and investment banks. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors reduced, and in some cases, ceased to provide, funding to borrowers, including other financial institutions. In 2009 the uncertainty in the global and Russian markets alike, led to very high volatility in the Russian stock markets, and a general lack of liquidity in the global and Russian interbank lending markets gave rise to higher than normal interbank lending rates. For example, in Russia the average interbank rouble lending rate had risen to 16.3 per cent. by January 2009, up from 2.8 per cent. in January 2008 (calculated using data published by CBR data on its website from time to time, ("CBR data")). In 2010, 2011 and 2012, the average interbank lending rate was 3.1 per cent., 3.9 per cent. and 5.5 per cent. respectively, according to CBR data. Further, investment capital inflows into Russia decreased significantly as a result of the global economic crisis, and this further exacerbated the general lack of liquidity. In 2008, the Russian economy experienced a net capital outflow in the private sector of US$133.7 billion (calculated using CBR data), whereas in 2009, following signs of some stabilisation and economic recovery, net capital outflows reduced to US$56.1 billion in 2009, and to US$34.4 billion in 2010, before increasing to US$80.5 billion in 2011, according to CBR data. In the year ended 31 December 2012, net capital outflows were US$56.8 billion, according to CBR data. According to Rosstat, the volume of foreign investment into Russia was US$103.8 billion in 2008, which decreased by 21.1 per cent. to US$81.9 billion in 2009 and increased by 40 per cent. in 2010 to US$114.7 billion and further increased by 66.2 per cent. in 2011 to US$190.6 billion. In the year ended 31 December 2012, the volume of foreign investment into Russia deceased by 18.9 per cent. to US$154.6 billion, driven by a decrease in cross-border lending to Russian businesses. The reduced market liquidity that resulted from the global economic crisis increased credit risk premiums for most market participants, resulting in a reduction of available financing globally, and a sharp fall in the supply of long and medium-term financing for Russian companies and in the Russian domestic market. UBRD's loan to deposit ratio was 75.7 per cent. as at

19 December 2012, compared to 64.7 per cent. and 61.4 per cent. as at 31 December 2011 and 2010, respectively. The principal source of funding for UBRD is customer deposits, which accounted for 71.1 per cent. of UBRD's total liabilities as at 31 December 2012, compared to 74.8 per cent. and 76.5 per cent. as at 31 December 2011 and 2010, respectively, and UBRD's reliance on this source of funding creates a risk that UBRD's liquidity and financial position would be negatively affected if large numbers of customers redeem their deposits and/or fail to make new deposits with UBRD. According to CBR data, in 2008 the growth of retail deposits in the Russian banking market halved to 14.5 per cent., compared to growth of 35.4 per cent. for 2007, and corporate deposits growth slowed to 40.5 per cent. in 2008 from 67.5 per cent. in In the autumn of 2008, many Russian financial institutions suffered severely reduced liquidity and a number of financial institutions failed to maintain the required levels of regulatory capital or became unviable so that they were taken over by other banks with the support of the DIA. In addition, in certain cases, the majority shareholders of Russian banks had to sell their shares to other Russian institutions. Volatility and market disruption in the global banking sector continued through 2012 and 2013 for many reasons, including the lack of the hoped-for economic recovery in the United States, the risk of a European debt crisis and, most recently exacerbated by the turbulence in Cyprus, concerns over the stability of the European monetary system, as well as the sovereign rating downgrades of amongst others, the United States, the United Kingdom, Portugal, France, Austria, Greece, Ireland, Spain, Italy and Cyprus. These factors, together with concern over rising government deficits and debt levels across the globe, has fuelled continued volatility in financial markets, leading to a crisis of confidence and the widening of bond yield spreads and risk insurance on credit default swaps between affected countries and other European Union members. Fears that the crisis could further disrupt the banking sector have led to continued volatility in bank shares globally. Continued unrest across several countries in the Middle East and North Africa (notably Egypt, Libya, Syria, Tunisia, Bahrain and Yemen) has also fuelled volatility in the financial markets and in the prices of commodities, particularly oil. These and other events could result in a lower flow of foreign investment into and increased capital outflows from Russia and emerging markets generally or persistent volatility in global and regional financial markets. If the European debt crisis, continued unrest in the Middle East and North Africa or other macroeconomic events lead to a materially worse global macroeconomic situation and/or a negative impact on commodity prices and/or global trade flows in a material way, this could also have a material adverse effect on Russia's overall economic and financial position. In such circumstances, the lack of liquidity experienced in the Russian banking system during the height of the global economic crisis may return, and the Russian Government may fail to implement measures to support the Russian banking sector. See "The Banking Sector and Banking Regulation in Russia Measures to Support the Banking and Finance System". Intensifying turmoil in the global or Russian banking sectors, including the default of, or a material decline in the credit rating of, one or more sovereigns or significant financial institutions could cause severe stress in the financial system generally and could materially and adversely affect the markets in which UBRD and its counterparties, clients, suppliers and creditors operate, in ways that are difficult to predict. Such turmoil could materially and adversely affect UBRD's business, financial condition, results of operations and prospects for many reasons, including as a result of decreases in UBRD's net interest income, decreases in the demand for UBRD's credit products, a reduction in available funding through customer deposits and the capital markets, significantly increased bad debts and non-performing loans (defined by UBRD as loans in respect of which principal and/or interest is overdue by more than 180 days ("non-performing loans")), allowances for impairment, loan losses and write-offs. These factors could have a material adverse effect on UBRD's, business, financial condition, results of operations and prospects

20 There is significant competition in the Russian banking market, particularly from Statecontrolled banks, which may challenge UBRD's growth or reduce its market shares in the regions and/or banking sectors in which it operates The Russian banking market is intensely competitive. According to CBR data, as at 1 April 2013, 1,095 banks and non-bank credit organisations were registered in Russia and the 20 largest banks held 70.0 per cent. of total banking assets. UBRD faces significant competition in substantially all the business segments and regions in which it operates. UBRD faces competition from State-controlled banks such as Sberbank, VTB and Gazprombank, in addition to competition from both Russian private banks and subsidiaries of non-russian financial institutions. Due to the support of the Russian Government, Russian State-controlled banks have access to cheaper sources of funding from the international capital markets, are major beneficiaries of Government programmes and sometimes benefit from being able to service large State-controlled organisations. The comparatively greater (in comparison to UBRD) availability of low-cost funding to State-controlled banks allows them to attract clients by offering credit products with some of the lowest interest rates in the market, and, as a result, to compete for market share on price, without compromising their net interest margins. Moreover, as the Russian market for banking and financial services matures, the markets in which UBRD operates have become increasingly competitive as a result of competition from both local competitors and subsidiaries of non-russian financial institutions. The competition has put pressure on banks' net interest margins and funding costs, amongst other areas. The Russian banking system may see continued significant merger and acquisition activities take place in the short or medium-term, which may result in the creation of larger banks, better able to compete with UBRD. If further consolidation takes place and the newly-created entities are able to compete in new ways with UBRD and if UBRD fails to attract additional capital or engage in mergers and acquisitions to enable it to compete with such entities, it could have a material adverse effect on UBRD's, business, financial condition, results of operations and prospects. UBRD's financial position and results of operations could be affected by declines in net interest margins and/or a lower interest rate environment in the Russian banking sector UBRD's results of operations depend to a large extent on net interest income. In 2008 and early 2009, an accelerating domestic consumer price index and a global re-pricing of credit risk led to increasing interest rates in both lending and deposit-taking across the Russian banking sector. From the second half of 2009, interest rates began to decline, and this decline continued into the first half of UBRD's Net Interest Margin also decreased during this period and was 3.8 per cent. for the year ended 31 December Although UBRD's Net Interest Margin has since grown with the general level of the recovery of the Russian economy to 5.9 per cent. and 5.3 per cent., for the years ended 31 December 2011 and 2012, respectively, there is no assurance that UBRD will be able to maintain its Net Interest Margin at this level or increase it further. From the last quarter of 2010, interest rates in Russia slowly but continuously increased and by mid-2011 interest rates reached pre-global economic crisis levels. Rates on customer deposits were relatively stable during this period. These trends were sharply reversed in the last quarter of 2011 when the Eurozone sovereign debt crisis resulted in liquidity pressures for Russian banks and an increase in borrowing costs for Russian banks. In order to attract additional funds and avoid outflows of customer deposits, banks significantly increased customer deposit rates. Banks also raised lending rates in an attempt to maintain margins. Inflationary pressures subsided in 2011, which allowed the CBR to ease monetary policy, simultaneously providing extensive liquidity support to the Russian banking system. However, there is still pressure on margins as a result of competition from State-controlled banks, which have the benefit of significantly larger and cheaper funding resources at their disposal than most Russian privately-owned banks (due to the effect on their credit rating of State-support and/or access to State funds or deposits) and there is also pressure on margins as a result of competition from subsidiaries of foreign banks. See " There is significant competition in the Russian banking market, particularly from Statecontrolled banks, which may challenge UBRD's growth or reduce its market shares in the regions and/or banking sectors in which it operates" above. These factors, together with the necessity to maintain customer deposit interest rates at high levels, resulted in increased pressure on margins and profitability in 2009 and In addition, competitive pressures or fixed rates in

21 existing loan commitments or facilities may mean that UBRD will be restricted in its ability to increase interest rates charged to customers in response to changes in interest rates that affect wholesale borrowing from other banks, which may put pressure on, or have a material adverse effect on, UBRD's Net Interest Margin. See "Operating and Financial review of UBRD Results of Operations Net Interest Income". UBRD may not be able to accurately assess the credit risk of potential borrowers Credit risk assessment is generally difficult for Russian banks due to a lack of reliable information in Russia about corporate and retail customers. In particular, it is difficult to make long-term forecasts in respect of a borrower's financial position. The financial performance of Russian companies is generally more volatile and their credit quality is less predictable than those of similar companies in more mature markets and economies. Further, many clients do not prepare audited accounts in accordance with IFRS or Generally Accepted Accounting Principles in the United States ("U.S. GAAP"). With respect to retail clients, there is often less available credit history than for corporate clients. Financial information disclosed by retail clients to UBRD may not be accurate or complete and UBRD may be unable to independently confirm such information. In addition, Russia's network of independent credit agencies is not as developed as those in Western countries. As a result, there is a risk that UBRD may extend credit to customers who are unable to repay it, or to customers who are involved in fraud. There is a risk that UBRD will fail to evaluate accurately the creditworthiness, and more generally, the overall risk profile, of its customers and to determine their long-term economic outlook, a task that is significantly more difficult due to the volatility of the global economy and the effect of such volatility on the Russian economy. In addition, the lack of frequent and reliable information about borrowers in Russia may mean that UBRD fails to become aware of information that is relevant to the credit profile of its customers. If UBRD fails to assess the credit risk of its customers correctly, or if the financial condition of a significant number of UBRD's customers deteriorates because of a general economic downturn globally and/or in Russia, an economic decline in certain sectors of the Russian economy or for any other reason, it may have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. Adverse economic conditions may lead to a deterioration of the quality of UBRD's loan portfolio UBRD is subject to risks regarding the credit quality of, the recovery of loans to, and amounts due from, customers and market counterparties. The downturn in the Russian economy that resulted from the global economic crisis affected, and may continue to affect, many Russian companies' and individuals' ability to repay their loans, particularly foreign currency-denominated loans, which became more expensive for Russian companies to repay in Rouble terms due to the weakness of the Rouble during the global economic crisis. See " UBRD's business and operations are subject to market risks, including currency risk, interest rate risk and securities portfolio risk". In the future, factors including unemployment in Russia, inflation, reduced liquidity and profitability, increased corporate and personal insolvencies and/or fluctuating interest rates may reduce the ability of UBRD's clients and its market counterparties to repay their loans to UBRD. Any deterioration or stagnation in the performance of the Russian economy or a reduction in levels of personal income, individual purchasing power and consumer confidence, either generally or specifically in respect of the banking sector, could have a material adverse effect on the development of UBRD's business, financial condition, results of operations and prospects. Any changes in the credit quality of UBRD's borrowers and counterparties could accordingly reduce the value of UBRD's assets and lead to increases in UBRD's bad debts, non-performing loans, write-offs, restructured loans and allowances for impairment, which could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. A significant part of UBRD's business is with related parties and in particular with the Russian Copper Company UBRD routinely engages in transactions with related parties, in particular the Russian Copper Company and the companies RCC controls ("RCC"). As at 31 December 2012, 2011 and 2010,

22 loans to related parties represented 17.1 per cent., 20.6 per cent. and 21.3 per cent. of UBRD's total gross loans to customers and deposits from related parties represented 3.4 per cent., 4.4 per cent. and 0.3 per cent. of UBRD's total customer deposits, respectively. Loans and advances to RCC represented 98.4 per cent., 97.9 per cent. and 97.4 per cent. of UBRD's loans to related parties, or 16.8 per cent., 20.2 per cent. and 20.7 per cent. of UBRD's total gross loan portfolio as at 31 December 2012, 2011 and 2010, respectively. This represents a significant exposure to a single entity. UBRD's exposure to RCC complies with the CBR's N6 ratio, which limits the maximum exposure to a single borrower or a group of related borrowers to 25 per cent. of a bank's capital base. However, the CBR has expressed concern about the exposure of UBRD to RCC and the metallurgy sector in the Urals region as a whole and the potential impact of the relationships between the owners of companies in this sector (including RCC) on UBRD's N6 ratio in the future. Accordingly, UBRD intends to reduce its exposure to RCC and the metallurgy sector in the Urals region by See "The Banking Sector and Banking Regulation in Russia Mandatory Economic Ratios". UBRD also enters into banking transactions in the normal course of its business with shareholders, management, subsidiaries and companies with which it has shareholders in common. These transactions include loans, deposit-taking and settlements. UBRD provides loans to the members of UBRD's management from time to time for different purposes, including mortgage loans, auto loans, general-purpose loans and overdrafts. Whilst it is UBRD's policy and a requirement of the tax code of Russia (the "Russian Tax Code") to conduct transactions with related parties on the same terms and conditions as it applies to non-related party transactions, such related party transactions may present conflicts of interest. Any conflicts of interest or breaches of regulatory ratios arising from related party transactions could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. See "Related Party Transactions". UBRD may face difficulties in recruiting and retaining experienced personnel, particularly as its business and branch and office network expands UBRD's continuing success depends, in part, on its ability to continue to attract, retain and motivate qualified and experienced banking and management personnel in Russia, in particular highly qualified personnel. Competition in the Russian banking industry for personnel with relevant expertise is intense due to the relatively small number of qualified individuals available. In order to attract and recruit qualified and experienced employees and to minimise the possibility of their departure to other banks, UBRD provides packages of compensation and incentives that are consistent with evolving standards in the Russian labour market, which is experiencing an upward trend due to the easing of the global economic crisis. Pursuant to its 3:2:3 strategy, UBRD plans to grow the volume of its business by 2015 and in particular to triple the number of its branches and offices, double the number of its active customers and triple its total gross income. See "Business Strategy". In particular, UBRD shall need to recruit significant numbers of skilled front office staff. The success of UBRD's 3:2:3 strategy is reliant on its ability to attract, retain and motivate qualified and experienced personnel, which may become more challenging at those times when UBRD's business is growing rapidly, when UBRD's time and resources are limited and when suitable candidates may be more difficult to find. See " UBRD may fail to manage its growth adequately". Any inability to recruit and retain qualified and experienced personnel in Russia or manage UBRD's current personnel successfully could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. UBRD's business entails operational risks, including the risk of employee fraud or misconduct UBRD is exposed to several types of operational risk, including unauthorised or fraudulent actions by employees or customers, operational errors, including clerical or record keeping errors, errors resulting from faulty computer or telecommunications systems and the risk that

23 UBRD will be used for money laundering or the financing of terrorist activities. Given UBRD's high transaction volume and developing IT systems, errors may be repeated or compounded before they are discovered and rectified. UBRD maintains a system of controls designed to keep operational risk at appropriate levels, and following the onset of the global economic crisis, UBRD centralised to a large extent the powers of branch managers as a means of strengthening its operational risk management. UBRD conducts an investigation where it suspects an employee of misconduct and depending on the financial or reputational risk of such misconduct, UBRD disciplines, dismisses or pursues criminal convictions against employees that it considers guilty of misconduct. UBRD pursued criminal action against its employees several times in 2012 and 2013 as a result of unauthorised transactions made by such employees, although UBRD considers these to be one-off cases. While UBRD's Internal Control Unit is responsible for preventing and detecting employee misconduct, there can be no assurance that UBRD will not suffer losses from any failure to detect or contain operational risk in the future. See "Risk Management Operational Risk". UBRD is exposed to the metallurgy industry in Russia, the profitability of which is dependent on global commodity prices, which are volatile Many of UBRD's large corporate customers engage in the production and/or export of metals, which experienced dramatic falls in prices during the global economic crisis. As at 31 December 2012, 31.8 per cent. of UBRD's corporate loan portfolio consisted of loans to companies in the metallurgy sector. While metals prices have partially recovered in subsequent years, there is no assurance that they will not decline again in the future. Any future decreases in the prices of metals may negatively affect the financial condition of such customers and could result, amongst other things, in a default of their obligations to UBRD, which could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. See also " The industry and key client concentration in UBRD's loan and deposit portfolio could adversely affect UBRD's business and financial condition". A decline in the value of, or illiquidity of, the collateral securing UBRD's loans may adversely affect UBRD's loan portfolio A substantial portion of UBRD's corporate and SME loans (76.5 per cent. of UBRD's corporate and SME loans (after allowance for impairment) as at 31 December 2012) is secured by collateral over assets such as securities, real estate, machinery, equipment, goods in circulation and motor vehicles and by guarantees and sureties. In addition, certain of UBRD's corporate and SME loans are secured by direct debit agreements over borrower's accounts. See "Risk Management Credit Risk Lending Procedures Collateral". A general deterioration of economic conditions in Russia, together with any downturns in any of the sectors from which collateral is provided, may result in declines in the value of UBRD's collateral. If collateral values decline, the collateral may not be sufficient to cover outstanding amounts owed to UBRD. Further, UBRD tolerates a certain level of risk in its collateral requirements to maintain its competitive position in the market place. A decline in the value of collateral securing UBRD's loans and any failure on the part of UBRD to obtain additional collateral to supplement any exposure that results from a decline in the value of its existing collateral may require UBRD to reclassify relevant loans, establish additional allowances for loan impairment losses and increase reserves, which could adversely affect UBRD's business, financial condition, results of operations and prospects. Certain of UBRD's loans are secured by collateral consisting of ownership rights in businesses. The primary purpose of such collateral is to enable UBRD to sell such rights if a borrower fails to meet its obligations under a loan agreement. Typically UBRD accepts pledges of ownership rights in addition to other pledged assets, rather than as a sole form of collateral. As a result of UBRD taking ownership rights as collateral, UBRD may, where it exercises its rights in respect of such collateral, acquire controlling or minority stakes in, and be required to manage, or contribute to the management of, such companies, in sectors that are not core to UBRD's business and in respect of which UBRD has limited operational or management expertise. UBRD may not have an adequate number of personnel with sufficient experience to assume control of and manage such companies and may also fail to manage these businesses efficiently. This, together with the risk of downturns in the industry sectors in which UBRD's borrowers operate and any future

24 deterioration of economic conditions in Russia, may result in UBRD being unable to divest itself of ownership of such companies and being faced with a decline in the value of such ownership rights to levels below the amount of outstanding principal and accrued interest on the loans, which would lead to losses, write-offs, and impairments for UBRD. Foreclosure under Russian law may be complex and time-consuming (see " Risks Relating to Russia and the CIS - Legal Risks It may be difficult for UBRD to enforce security and sureties under Russian law") and even where UBRD is successful in foreclosing on collateral, it may be difficult to find buyers for such collateral and consequently, the collateral may be sold for significantly less than its appraised value. Any failure to recover the expected value of collateral may expose UBRD to losses, which may have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. UBRD is exposed to liquidity risk UBRD is exposed to liquidity risk arising out of the mismatches between the maturities of UBRD's assets and liabilities, which may result in UBRD being unable to meet its obligations in a timely manner. UBRD meets a significant portion of its funding requirements using customer accounts and deposits. The majority of UBRD's customer accounts and deposits are from retail customers. As at 31 December 2012, retail customer deposits represented 69.9 per cent. of UBRD's total customer deposits, as compared to 71.4 per cent. and 81.1 per cent. as at 31 December 2011 and 2010, respectively. At the onset of the global economic crisis, in the three month period at the end of 2008, UBRD's customers withdrew approximately 15 per cent. of UBRD's retail deposits, although UBRD's retail deposits quickly grew to a higher total amount in The Russian Civil Code (the "Civil Code") entitles retail depositors to withdraw deposits, including term deposits, at any time without penalty to principal and accordingly, any unexpected withdrawal of these retail deposits on a significant scale is likely to put pressures on UBRD's liquidity position and may materially and adversely impact the ability of UBRD to meet its funding requirements. In addition, some of UBRD's corporate clients have significant liquidity requirements, which have been further increased by the lack of liquidity available from financial markets as a result of the global economic crisis and subsequent instability in the financial markets. Accordingly, they are not in a position to place significant funds with UBRD on a long-term basis. Any unexpected withdrawal of these corporate deposits may also put UBRD under significant liquidity pressure and impact the ability of UBRD to meet its funding requirements. As at 31 December 2012, 2011 and 2010, respectively, corporate deposits in a total amount of RUB 12.7 billion, RUB 7.9 billion and RUB 6.5 billion, or 45.7 per cent., 39.9 per cent. and 63.2 per cent. of UBRD's total corporate deposits had a maturity classified as "on demand". Despite holding liquidity reserves in excess of the regulatory minimum and having an internal target to hold liquid assets equivalent to three months of funding requirements at all times, unanticipated withdrawals in customer deposits may result in liquidity gaps that UBRD may not be able to cover without incurring additional expenses, if at all. Such liquidity gaps may affect the ability of UBRD to run its business in accordance with its plans, and to carry out its strategy effectively. This could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. The remainder of UBRD's funding (excluding capital contributions from its controlling shareholder) is raised on the international and domestic bond and loan markets and from the CBR's financing programmes. Adverse market conditions between 2008 and 2011 significantly reduced UBRD's access to funding from the international and domestic bond and loan markets at commercially-justifiable costs. UBRD's ability to raise funding from international and domestic bond and loan markets in amounts sufficient to meet its liquidity needs could be further adversely affected by a number of factors, including in particular any deterioration in Russian and international economic conditions, and the condition of the Russian and international financial markets. In addition, while UBRD's controlling shareholder, Mr. Igor Altushkin, has provided capital contributions to support UBRD in the past, including a gratuitous cash capital contribution of RUB 1,855 million in 2011 and the purchase of newly-issued shares for consideration of RUB 2 billion in 2012, when the cost of raising capital on the international capital markets was unattractive to UBRD, there is no guarantee that Mr. Altushkin will wish to, or be able to make

25 capital contributions in the future. See " The interests of UBRD's controlling shareholder may conflict with those of Noteholders" and "Principal Shareholders History of Share Issues and Capital Contributions Made Since 2007". If UBRD is unable to access sufficient sources of funding, including from the CBR, the Russian Government, the international and domestic bond and loan markets and UBRD's main shareholder and if it is unable to manage maturity mismatches between its assets and liabilities, this could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. The interests of UBRD's controlling shareholder may conflict with those of Noteholders UBRD's principal beneficial owner is Mr. Igor Altushkin, who beneficially owns or controls 85.3 per cent. of UBRD's shares as at the date of this Prospectus. Mr. Altushkin is also the Chairman of UBRD's Board of Directors. See "Principal Shareholders" and "Management Board of Directors". Although Mr. Altushkin has not done so in the past, he could cause UBRD to substantially change its business, management direction or operations generally, or otherwise act to his benefit, to pursue acquisitions or other transactions or to pay large dividends or make other distributions or payments to himself, even though any such transactions may involve increased risk for the Noteholders. In addition, in the past UBRD has been dependent on Mr. Altushkin's ability to make periodic capital contributions to UBRD, and his ability and willingness to continue to make such capital contributions may be subject to change. The interests of Mr. Altushkin as UBRD's controlling shareholder and Chairman of UBRD's Board of Directors may as a result, in some circumstances, conflict with the interests of the Noteholders and any such conflict could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and/or the value of the Notes. The industry and key client concentration in UBRD's loan and deposit portfolio could adversely affect UBRD's business and financial condition A large portion of UBRD's client base is comprised of companies engaged in the metallurgy, trade, services, manufacturing and construction sectors. As at 31 December 2012, these five economic sectors collectively accounted for 83.6 per cent. of UBRD's total gross corporate loan portfolio, compared to 94.2 per cent. and 86.7 per cent. as at 31 December 2011 and 2010, respectively. See Note 12 to UBRD's 2012 Consolidated Financial Statements and Note 11 to UBRD's 2011 Consolidated Financial Statements. A downturn in any of these sectors could lead to UBRD's clients in such sectors facing difficulties in servicing their loans. UBRD has established exposure limits to any single sector of the economy at RUB 12 billion (excluding the metallurgy and mining sector to which UBRD has exposure in excess of RUB 12 billion due to its loans to RCC) and believes that its provisioning levels and collateral arrangements are adequate. See " A significant part of UBRD's business is with related parties and in particular with the Russian Copper Company". However, a default by one or more significant borrowers operating in these industries could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. At 31 December 2012, UBRD had 24 borrowers to whom its exposure was above RUB 250 million, compared to 22 and 17 such borrowers as at 31 December 2011 and 2010, respectively, representing, 37.5 per cent., 42.1 per cent. and 40.1 per cent. of its gross loan portfolio, respectively. The loans and advances to UBRD's 20 largest corporate and SME borrowers or groups of related borrowers represented 73.7 per cent., 77.6 per cent. and 83.7 per cent. of UBRD's gross loans and advances to legal entities as at 31 December 2012, 2011 and 2010, respectively. The loans and advances to UBRD's 10 largest corporate and SME borrowers or groups of related borrowers (before allowance for imparirment) represented 64.3 per cent., 66.7 per cent. and 72.4 per cent. of UBRD's gross loans and advances to legal entities as at 31 December 2012, 2011 and 2010, respectively. The current accounts and term deposits of UBRD's 20 largest depositors or groups of related depositors (including legal entities and individuals) collectively represented 14.8 per cent.,

26 per cent. and 5.8 per cent. of UBRD's total current accounts and term deposits by customers as at 31 December 2012, 2011 and 2010, respectively. The current accounts and term deposits of UBRD's 10 largest depositors or groups of related depositors (including legal entities and individuals) collectively accounted for 11.5 per cent., 10.2 per cent. and 3.9 per cent. of UBRD's total current accounts and term deposits by customers as at 31 December 2012, 2011 and 2010, respectively. Any impairment in the ability of such borrowers to repay their loans or any decision by these customers to unexpectedly withdraw their funds from current accounts and term deposits could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. See also " UBRD is exposed to the metallurgy industry in Russia, the profitability of which is dependent on global commodity prices, which are volatile". UBRD is not strongly capitalised and has historically maintained its capital adequacy at levels close to the minimum regulatory ratios, a breach of which could lead to a withdrawal of UBRD's banking licence or other regulatory sanctions UBRD is not strongly capitalised, has historically maintained its capital adequacy at levels close to the minimum regulatory ratios and was reliant during the global economic crisis on equity capital injections from its controlling shareholder, Mr. Igor Altushkin (see " The interests of UBRD's controlling shareholder may conflict with those of Noteholders). UBRD's capital adequacy N1 ratio calculated under CBR regulations as at 1 May 2013 was 10.5 per cent., as compared to the CBR's minimum mandatory N1 ratio of 10 per cent., which is applicable to UBRD. UBRD's management targets a minimum N1 ratio of 11 per cent. If UBRD's capital position declines, its ability to run its business and to implement its business strategy may be adversely affected and if UBRD's N1 capital adequacy ratio calculated pursuant to CBR requirements were to fall below and violate the 10 per cent. regulatory minimum level, UBRD may be subject to punitive measures or, in the case of continuous violations, the loss of its banking licence, which in turn, may have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. Moreover, if UBRD's capital adequacy ratio, calculated pursuant to CBR requirements, were to fall below 2 per cent., or if UBRD's own capital, calculated pursuant to CBR requirements, were to fall below RUB 300 million (with certain exceptions that apply until 1 January 2015 after which date the RUB 300 million requirement will universally apply to all banks), the CBR is required under Russian law to withdraw UBRD's banking licence, and to initiate bankruptcy proceedings against UBRD. See "The Banking Sector and Banking Regulation in Russia Mandatory Economic Ratios". Although UBRD's controlling shareholder Mr. Altushkin has made a number of capital contributions to UBRD's capital in the past, there is no assurance that Mr. Altushkin will wish to, or be able to make contributions in the future to support UBRD's regulatory or contractual capital ratios. See " The interests of UBRD's controlling shareholder may conflict with those of Noteholders", "Operating and Financial Review of UBRD Funding" and "Principal Shareholders History of Share Issues and Capital Contributions Made Since 2007". If UBRD requires additional capital in the future, there is no guarantee that it will be able to obtain it. If UBRD is unable to raise further capital to support its growth, or if its capital position otherwise declines, its ability to run its business, implement its business strategy and, in particular, expand its proposed lending business may be materially and adversely affected. UBRD's ability to obtain additional capital may be restricted by a number of factors, including UBRD's financial condition, results of operations and cash flows, approvals of each of its shareholders, any necessary Government regulatory approvals and general market conditions for capital raising activities by commercial banks and other financial institutions. UBRD's risk-based total capital adequacy ratio, calculated on a different basis to UBRD's N1 ratio (which is set by pursuant to CBR requirements), calculated in accordance with the International Convergence of Capital Measurement and Capital Standards of 1988 and amendment to incorporate market risks in November 2005 ("Basel I"), amounted to 9.4 per cent. as at 31 December 2012, as compared to 9.5 per cent. and 9.2 per cent. as at 31 December 2011 and 31 December UBRD's Tier 1 capital adequacy ratio as at 31 December

27 was 6.3 per cent., as compared to 6.2 per cent. and 4.7 per cent. as at 31 December 2011 and 31 December 2010, respectively. The Basel Committee on Banking Supervision (the "Basel Committee") recommends a minimum risk-based total capital adequacy ratio of 8 per cent., calculated in accordance with Basel I. Further, in December 2010 the Basel Committee published a revised set of guidelines ("Basel III" and, together with Basel I and the risk-adjusted capital adequacy guidelines promulgated by the Basel Committee in June 2004, the "Basel Accords") the implementation of which began on 1 January Although the implementation of Basel III in Russia has begun, the effect that these revised guidelines will have on the capital requirements of UBRD and on its capital position is uncertain. See "The Banking Sector and Banking Regulation in Russia Basel implementation in Russia". However, any proposed or future alterations to the capital adequacy standards under Basel III (or CBR regulations implementing Basel III) with regard to limits on the deployment and use of capital shall require UBRD to maintain higher capital levels or limit the use of significant portions of their capital and this could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. In 2012, the CBR introduced revised risk weightings for certain banking operations, including lending to offshore companies, which has affected and will continue to affect the CBR capital requirements of Russian banks, particularly their N1 capital adequacy ratios. On 3 December 2012, CBR adopted changes to Regulation No. 254-P "On the Procedure for Making Provisions for Possible Losses on Loans and Similar Indebtedness by Credit Organisations" dated 26 March 2004 (as amended), which, among other things, doubled the CBR's required provisioning levels under RAS for certain unsecured consumer loans issued after 1 January 2013 that are either not overdue or overdue by less than 31 calendar days. From 1 July 2013, pursuant to CBR Instruction No. 139-I "On the Banks' Mandatory Economic Ratios" of 3 December 2012 (the "Mandatory Economic Ratios Instruction"), Russian banks will be required to increase risk weightings for new loans with an interest rate above 25 per cent. for the purpose of calculating such banks' risk-weighted assets under the CBR's mandatory economic ratios. The risk weightings for new loans granted after 1 July 2013 with an annual effective interest rate from 25 per cent. to 35 per cent. will increase by a multiple of 1.1, from 35 per cent. to 45 per cent. by a multiple of 1.4, from 45 per cent. to 60 per cent. by a multiple of 1.7 and for loans with an interest rate over 60 per cent. by a multiple of 2. Further similar changes in regulation with respect to risk-weightings and provisioning could have a material adverse effect on UBRD's capital ratios and on UBRD's business, financial condition, results of operations and prospects. See "The Banking Sector and Banking Regulation in Russia Regulation Mandatory Economic Ratios". UBRD faces counterparty risk from other financial institutions In light of the severe lack of liquidity and the high cost of funds that characterised the interbank lending market at the end of 2008 and in the first half of 2009, and the recent volatility and market disruption of the global banking sector, UBRD remains subject to the risk of deterioration of the commercial soundness of other financial service institutions within and outside of Russia. Financial institutions that transact with each other are interrelated as a result of trading, investment, clearing, counterparty and other relationships. This risk is sometimes referred to as "systemic risk" and may adversely affect financial intermediates, such as clearing agencies, clearing houses, banks, securities firms and exchanges with whom UBRD interacts on a daily basis, all of which could have a material and adverse effect on UBRD's ability to raise new funding. UBRD routinely executes transactions with numerous counterparties in the financial services industry, including brokers and dealers and commercial banks. As a result, UBRD is exposed to counterparty risk and will continue to be exposed to the risk of loss if counterparty financial institutions fail to meet their obligations. A default by, or even concerns about the stability of one or more significant financial institutions could lead to further significant systematic liquidity problems, or losses or defaults by other financial institutions that could materially and adversely affect UBRD's business, financial condition, results of operations and prospects

28 UBRD's business and operations are subject to market risks, including currency risk, interest rate risk and securities portfolio risk UBRD is subject to market risks, arising from open positions in currency, interest rate and securities products, all of which are exposed to general and specific market movements. To the extent that the Rouble depreciates further against foreign currencies, UBRD becomes subject to higher interest payments on its foreign currency-denominated liabilities when calculated in Rouble terms. UBRD plans to increase the amount of funding that it obtains from the international bond and loan markets, which subjects it to risks inherent in currency fluctuations and the uncertainty of these markets as a reliable funding source. In order to better balance the foreign currency structure of its assets and liabilities, UBRD extends foreign currency loans to customers that are engaged in businesses with foreign currency components. As at 31 December 2012, 85.6 per cent. of UBRD's loans to customers (net of allowance for impairment) were denominated in Roubles, 14.3 per cent. in U.S. dollars and the remaining 0.1 per cent. in other currencies. Although UBRD uses currency forwards to hedge its foreign currency exposure, volatility in the money market and significant exchange rate fluctuations may have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. UBRD's foreign currency position is managed by UBRD's Treasury, which reports to UBRD's Investment Committee. UBRD faces interest rate risk resulting from mismatches in the amounts, interest rates and maturities of its assets and liabilities. Although UBRD monitors interest rate fluctuations and its asset liability tenor in order to mitigate such interest rate risk, interest rate movements on the securities markets may have a material adverse effect on UBRD's business and financial condition, results of operations and prospects. UBRD faces securities portfolio risk arising from its investment and trading in securities for its own account, primarily to manage its liquidity risk and to earn interest income. UBRD's securities portfolio consists almost exclusively of debt securities, which represented 99.5 per cent. of UBRD's securities portfolio as at 31 December 2012, with equity securities representing the remaining 0.5 per cent. Securities portfolio risk relates to the movement of market prices in the underlying instruments, including the risk of unfavourable market price movements relative to UBRD's long or short positions, a decline in the market liquidity of the relevant instruments, volatility in market prices, interest rates or foreign currency exchange rates relating to these positions and the risk that instruments UBRD uses to hedge certain positions do not track the market value of those positions. In the year ended 31 December 2012, UBRD experienced a net loss on other securities at fair value through profit or loss (all of which were debt securities) of RUB 268 million, as compared to a net loss of RUB 270 million in the year ended 31 December 2011 and a net gain of RUB 138 million in the year ended 31 December In the year ended 31 December 2012, UBRD had a net gain on available-for-sale securities (all of which were debt securities) of RUB 1 million, as compared to a net gain of RUB 2 million in the year ended 31 December 2011 and a net gain of RUB 130 million in the year ended 31 December In the year ended 31 December 2012, UBRD had a net gain on trading securities (all of which were equity securities) of RUB 4 million, as compared to a net loss of RUB 55 million in the year ended 31 December 2011 and a net gain of RUB 153 million in the year ended 31 December UBRD has established various limits on operations with securities, including instrument specific limits and limits on the activities of individual traders, in order to balance profit and risk in its portfolio. However, interest rate and price movements on the securities markets may have a material adverse effect on the value of UBRD's securities portfolio, which in turn may have a material adverse effect on UBRD's overall business, financial condition, results of operations and prospects. See "Risk Management Market Risk". UBRD is a highly-regulated entity and it could fail to comply with applicable legal requirements UBRD is subject to strict regulation in Russia by governmental organisations, particularly the CBR and the Federal Service for Financial Markets (the "FSFM"). The requirements, including capital adequacy requirements, imposed by UBRD's regulators are designed to ensure the

29 integrity of the financial markets and to protect clients and other third parties with whom UBRD deals. These requirements are not designed to protect holders of the Notes and may limit UBRD's activities and increase its costs of doing business. A breach of regulatory guidelines could expose UBRD to potential liability and other sanctions, including the loss of its banking licences. Banking operations in Russia require licences from the CBR. Operations in securities require licences from the FSFM. UBRD has obtained such licences in connection with its banking and securities operations. In order to obtain, maintain and renew such licences, UBRD must comply with the terms of the respective licence. Although UBRD has been successful in obtaining, maintaining and renewing the licences it requires to run its business, there can be no assurance that it will be able to obtain new licences or maintain its existing licences in the future. Each of the CBR and the FSFM may, in its discretion, impose additional requirements or deny UBRD's request for licences. The loss of or breach of the terms of, or the failure to obtain, a CBR or FSFM licence in the future could result in cash-flow difficulties and penalties such as the imposition of fines on UBRD, which may, in turn, affect UBRD's ability to satisfy its liabilities and run its business and would be likely to have a material adverse effect on its business, financial condition, results of operations and prospects. The loss of UBRD's general banking licence would result in its inability to perform any banking operations and effectively prevent UBRD from operating its business. UBRD is exposed to the risk that the CBR may impose sanctions on UBRD for non-compliance with certain mandatory economic ratios or other regulations. Such sanctions could include a fine, the initiation of temporary administration of UBRD by the CBR or revocation of its banking licence. Under Russian law, the CBR may appoint a temporary administrator for a term of up to six months if a bank fails to comply with CBR orders to remedy breaches, or if those breaches have created an actual threat to the interests of its creditors (i.e. depositors). A bank's general banking licence may be revoked after the repeated imposition on the bank of other sanctions during the same calendar year. Many Russian laws and regulations (including certain licence requirements) are construed in a way that provides for significant administrative discretion in application and enforcement. As a result, the applicable law may be difficult to ascertain and apply, even after reasonable effort. Reliable texts of regional and local laws and regulations may be unavailable and are rarely updated or catalogued. In addition, the laws and regulations are subject to different and changing interpretations and administrative applications. Regulatory agencies may impose additional requirements for a licence or deny licence applications. In addition, the regulatory authorities have the right to conduct periodic inspections of UBRD's operations and properties. Any such future inspections may result in a determination that UBRD has violated laws, decrees or regulations and UBRD may be unable to refute such determination or remedy the violations. UBRD's failure to comply with existing or future laws and regulations, the terms and conditions of its licences and permissions or the findings of governmental inspections, may result in the imposition of fines or penalties or more severe sanctions including the suspension, amendment or termination of UBRD's licences, permissions, approvals and authorisations, or in requirements that UBRD cease certain of its business activities, or in criminal and administrative penalties applicable to its officers. Any such decisions, requirements or sanctions, or any increase in governmental regulation of UBRD's operations, could increase its costs and materially adversely affect its business, financial condition, results of operations and prospects. While UBRD has in the past complied with applicable regulations in all material respects, there is no assurance that it will always be successful in doing so in the future. Any failures on the part of UBRD to comply with such regulations could result in the withdrawal of a licence that UBRD requires to run its business, which would have a material adverse effect on its business, financial condition, results of operations and prospects. See " Risks Relating to Russia and the CIS Legal Risks Russian regulation of banking and financial activity has been undergoing significant changes". UBRD's risk management strategies and procedures may leave it exposed to unidentified and unanticipated risks

30 Although UBRD invests substantial time and effort in its risk management strategies and procedures, such strategies and procedures for risk management may nevertheless fail under certain circumstances, particularly when confronted with risks that it has not identified or anticipated. Some of UBRD's risk management methods are based upon observations of historical market behaviour. UBRD applies statistical techniques to these observations to arrive at quantifications of its market risk exposures. Moreover, in developing its statistical models, UBRD may not identify or anticipate some circumstances and quantifications and may not take all risks into account. If UBRD's measures to assess and mitigate risks prove insufficient, its losses may be greater than expected and this could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. See "Risk Management". UBRD may fail to manage its growth adequately UBRD's business has grown rapidly and significantly in recent years and UBRD's strategy includes aiming to continue to increase the size of its overall business and its loan portfolio in a relatively short period of time. UBRD intends to implement this strategy through, inter alia, expanding its business geographically, using a greater range of sales channels and actively cross-selling to its customers. UBRD's loans to customers (net of allowance for loan impairment) increased from RUB 33,469 million as at 31 December 2010 to RUB 44,962 million as at 31 December 2011 and to RUB 72,415 million as at 31 December The total number of UBRD's employees increased from 3,615 as at 1 January 2011, to 4,132 and 5,788 as at 1 January 2012 and 2013, respectively. The number of UBRD's branches increased from 158 as at 1 January 2011 to 211 and 404 as at 1 January 2012 and 2013, respectively. As a result of the significant growth in UBRD's loan portfolio, UBRD's credit exposure has increased significantly. This increase will require continued and improved monitoring by management of credit quality and the adequacy of UBRD's provisioning levels. See "Risk Management Credit Risk". The anticipated further increase in lending in line with UBRD's overall growth strategy, particularly to small and medium-sized ("SME") and retail customers, which offer higher potential returns, but entail a higher risk of customer default than corporate customers, may further increase credit risk. The continued growth of UBRD's loan portfolio could put additional pressure on UBRD's loan monitoring and control procedures. Any failure by UBRD to manage its growing loan portfolio, while maintaining the quality of its assets through effective credit risk policies, could require further provisioning, the costs of which may not be offset by the increased profitability of its increased focus on the retail and SME customer segments and could have a material adverse effect on UBRD's financial condition or results of operations. See "Business Strategy Increasing lending to retail and SME customers". The growth of UBRD's business will require continued investment in its financial and information management systems, the recruitment and training of its employees, marketing and the monitoring of the consistency of customer service, as well as increased operating costs. In addition, overall growth in UBRD's business will require a greater allocation of management resources away from UBRD's day-to-day operations, the continued development of its financial, IT, information management, risk management and control systems, the presence of adequate supervision and monitoring of a greatly expanded loan portfolio and the maintenance of consistency of client service across UBRD's expanded branch network. Notwithstanding UBRD's focus on ensuring that its systems develop and grow to support its expanded business without detriment to the quality of its external offering and internal controls, UBRD may not be able to achieve projected results on any investment it makes in its business or any expansion of its network. In addition, the success of UBRD's growth strategy is dependent on the future performance of the Russian economy and any stagnation in the Russian economy could lead to UBRD incurring losses arising from expenditures that do not lead to a commensurate increase in income. UBRD has in the past considered making strategic acquisitions of other Russian banks and has conducted due diligence in relation to such proposed acquisitions. UBRD may consider strategic acquisitions again in the future, although as at the date of this Prospectus, UBRD has neither agreed in principle, nor signed any contracts, to make any such strategic acquisitions. If UBRD were to acquire another bank, there can be no guarantee that UBRD would be able to successfully integrate any such bank, nor that any acquisition would generate a positive return and there is a risk that UBRD's business would be negatively affected by the significant allocation of capital and management resources that any acquisition may require

31 Any failure of UBRD to adequately manage its growth, while at the same time maintaining adequate control over its different business divisions, may have a material adverse effect on UBRD's overall business, financial condition, results of operations and prospects. UBRD faces increased risk exposure associated with its strategy to expand its retail banking and SME banking businesses UBRD's business strategy includes a focus on expanding its retail and SME banking businesses. As at 31 December 2012, UBRD's gross retail loan portfolio comprised 46.3 per cent. of UBRD's total gross loans portfolio, as compared to 41.0 per cent. and 43.6 per cent. as at 31 December 2011 and 2010, respectively. The targeted share of retail banking in UBRD's loan portfolio is approximately per cent., which UBRD aims to achieve by As at 31 December 2012, loans to SME customers comprised 6.0 per cent. of UBRD's total gross loans to customers, as compared to 5.0 per cent., and 2.3 per cent. as at 31 December 2011 and The targeted share of SME banking in UBRD's loan portfolio is approximately per cent., which UBRD aims to achieve by As the level of impairment of retail loans and SME loans are higher than for corporate loans in the Russian banking sector as a whole and for UBRD, the growth of UBRD's retail lending and SME lending businesses is likely to result in a higher level of impaired loans and as a result, higher levels of provisioning, as retail and SME customers are more likely than corporate customers to default on their loans. As at 31 December 2012, allowance for impairment represented 9.2 per cent. of the gross retail loan portfolio, compared with 10.9 per cent. and 17.6 per cent. of the gross retail loan portfolio as at 31 December 2011 and As at 31 December 2012, allowance for impairment represented 6.2 per cent. of the gross SME loan portfolio, compared with 4.7 per cent. and 14.3 per cent. of the gross SME loan portfolio as at 31 December 2011 and However, the higher levels of profitability of the retail loan and SME loan segments partially offsets the higher levels of impairment associated with these segments, which drives UBRD's strategy to develop these segments. A recession or other negative developments in Russia's economy could affect retail and SME customers more significantly than larger customers and could lead to material asset quality deterioration. In addition, retail and SME customers are typically less financially transparent than larger customers as there is generally less financial information available for such clients. As a result, UBRD may not be able to accurately assess the risks, including credit risks, associated with such customers and may need to change its estimates of impairment and implement additional risk management policies and procedures. Any shortcomings in UBRD's risk management policies and controls may prevent UBRD from managing the risks associated with lending to various customer segments and could have a material adverse effect on its business, results of operations, financial condition and prospects. While UBRD's retail banking segment generated a profit before tax and before certain reconciliations to UBRD's profit 1 of RUB 3,177 million in the year ended 31 December 2012 and a profit before tax of RUB 2,088 million and 1,089 million, in 2011 and 2010 respectively, there can be no assurance that UBRD's retail banking segment will continue to be a profitable business segment going forward. Further, the global economic crisis stimulated Russian legislative initiatives that strengthen the protection of retail clients under Russian law and could place corresponding restrictions on UBRD's retail banking business, which could limit UBRD's ability to exercise its legal rights against its retail customers, thereby adversely affecting its business, financial condition, results of operations and prospects. See " Risks Relating to Russia and the CIS Legal Risks Russian regulation of banking and financial activity has been undergoing significant changes". The growth of UBRD's retail lending business will increase UBRD's exposure to the effect of such laws. 1 Including reconciliations for the elimination on revenue on transactions with other segments, allowance for the impairment of loans and advances to customers per management accounts and unallocated administrative and other expenses. See Note 31 to UBRD's 2012 Consolidated Financial Statements

32 UBRD owns real estate as investment property and is exposed to risks inherent to the real estate market in Russia and the Urals region UBRD is exposed to risks relating to its ownership of real estate held as investment property in Ekaterinburg and in other regions of Russia. Such real estate had a value of RUB 5,955 million as at 31 December 2012 (which represented 4.1 per cent. of UBRD's total assets), compared to RUB 6,048 million as at 31 December 2011 (which represented 6.0 per cent. of UBRD's total assets). UBRD financed the construction of such real estate and has held such real estate as investment property since UBRD sold a small part of its investment property in 2012 and intends to sell all or a larger part of its investment property in the future. A significant proportion of the investment property held by UBRD consists of business centres located in Ekaterinburg, including the Vysotskiy and Summit business centres, which together accounted for approximately 91 per cent. of the value of UBRD's investment property as at 31 December UBRD rents out units in these business centres, although it has also sold units in these business centres. See "Business Real Estate Investment" and "Operating and Financial Review of UBRD Assets Investment Property". UBRD made a loss from its investment property of RUB 151 million in the year ended 31 December 2012, resulting from depreciation, property tax, expenses connected with the sale of real estate and utility and repairs costs, which exceeded UBRD's income from investment property, which included rental income and income from the sale of real estate. UBRD also made a loss of RUB 26 million from its investment property in the year ended 31 December 2011, as a result of depreciation and property tax. The risks UBRD is exposed to relating to its ownership of investment property include the risk that the real estate market in Ekaterinburg, and other regions in which its real estate is located, will deteriorate, which would result in reductions in the value of such real estate and which could require the creation of provisions in respect of possible losses in connection with its investment property. UBRD is exposed to the risk that it may be unable, for other reasons, to rent out or sell its investment property and that such investment property could also be a drain on its resources. UBRD is also exposed to the risk of physical damage to its investment property through manmade or natural disasters, although UBRD is insured against this risk. Should any of these risks materialise, this could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. UBRD may lack sufficient insurance coverage While Russian banking and other laws do not require banks to maintain a variety of insurance on their material assets or liabilities, other than the mandatory insurance of retail deposits, UBRD voluntarily insures its property and operating assets at levels that are in line with the standard in the Russian market. UBRD has a bankers' blanket bond policy, valuables policy, property damage policies, a third-party liability policy and a general liability policy. The general liability policy, among other things, protects against the unlawful acts of employees, the loss of property, losses arising from frauds in connection with payments, securities and false banknotes. However, UBRD's insurance does not cover all of UBRD's assets and liabilities and UBRD is not insured against business interruption risk. See "Business Insurance". The Russian insurance industry is poorly developed, and many forms of insurance offered in economically developed countries are unavailable to UBRD on the terms common in such countries, including insurance coverage for business interruption. UBRD may incur uninsured losses of assets and face claims not covered or inadequately covered by such insurance. Until UBRD obtains sufficient insurance coverage, there is a risk that any material losses or claims that are uninsured could have a material adverse effect on its business, results of operations, financial position and prospects. UBRD's IT systems may malfunction or be insufficient to support future operations UBRD's business depends significantly on the proper functioning of its IT systems and the ability to increase their capacity sufficiently to support UBRD's operations. UBRD has invested and continues to invest considerable time and money in upgrading its technologies, centralising its information systems, creating appropriate duplicating capacities, developing internal audit functions and controlling the operation of its hardware and software. However, UBRD cannot

33 guarantee that such upgrades or the restructuring of its IT systems will be able to grow to support its operations at the speed required, or be carried out to completion, or that its IT systems will not cause any significant disruptions or temporary loss of functionality, or fully eliminate the possibility of a systems failure that may, for some time, adversely affect its operational activities and lead to expenses that may adversely affect its financial performance. In addition, UBRD's systems do not provide for the fully automated processing of data for all products and services. Any lack of immediately-available consolidated financial and operating data may hinder the ability of UBRD's management to make decisions, to react promptly to changes in market conditions and to detect fraud and non-compliance with internal procedures. If UBRD's IT systems are, or become unable to adequately support its operations and fail to allow it to effectively monitor and manage its operations, this could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. UBRD's measures to prevent money laundering and/or terrorist financing may not be completely effective and non-compliance with anti-money laundering or anti-terrorist financing regulations may result in the revocation of the banking licence of UBRD Russia is a member country of the Financial Action Task Force on Money Laundering ("FATF") and the Egmond Group, and has enacted laws and regulations to combat money laundering, terrorist financing and other financial crimes. In Russia, all banks and their employees are obliged to implement and fulfil certain requirements regarding the treatment of activities that may be referred to as money laundering. Federal Law No. 115-FZ "On Combating of the Legalisation of Illegal Earnings (Money Laundering) and Terrorism Financing" dated 7 August 2001, as amended (the "Anti-Money Laundering Law") and implementing legislation set forth the framework for this requirement and other anti-money laundering procedures. Minimum standards and duties according to the Anti-Money Laundering Law include customer identification, record keeping, suspicious activity reporting, employee training, an internal audit function and designation of a compliance officer. Suspicious ("unusual") transactions must be reported on a daily basis to the Federal Service for Financial Monitoring. During the last five years, the CBR has excluded various banks from the deposit insurance system based on suspicions of money laundering and revoked a number of banking licences for violations of reporting requirements under the Anti-Money Laundering Law. Notwithstanding the regulatory requirements of the Russian anti-money laundering regime, the risk remains that Russian financial institutions could be used as vehicles for money laundering. To ensure that UBRD is not unwittingly used as an intermediary in any money laundering process or other related criminal activities, UBRD complies with the CBR's anti-money laundering rules. UBRD's anti-money laundering measures are based on relevant Russian legislation and include rules, procedures and documents aimed at preventing money laundering and the financing of terrorist activities, including a general anti-money laundering policy and internal control procedures that include a refusal policy whereby UBRD refuses to conduct business with suspicious entities or individuals. UBRD has compliance, audit and review functions to test the robustness of anti-money laundering policies and procedures and UBRD monitors and audits customer activities and transactions in accordance with anti-money laundering legislation. UBRD conducts employee training in anti-money laundering and has procedures for reporting to the Federal Service for Financial Monitoring. See "Risk Management Operational Risk Procedures for the Prevention of Money Laundering and Terrorist Financing". Non-compliance with Russian money laundering legislation may result in the revocation of UBRD's banking licence. UBRD has not been subject to any investigation with respect to its involvement in money laundering or terrorist financing. However, there can be no assurance that third parties will not attempt to use UBRD as a conduit for money laundering or terrorist financing without UBRD's knowledge, nor that the measures described above will be completely effective. If UBRD fails to comply with anti-money laundering or and anti-terrorism financing laws, or if it is otherwise associated with money laundering or terrorist financing, this could have a material adverse effect on its reputation, business, financial condition, results of operations and prospects

34 The preparation of UBRD's consolidated financial statements under IFRS requires UBRD's management to make judgments, estimates and assumptions and the inaccuracy of these estimates and assumptions could have a material adverse impact on UBRD's consolidated financial statements The preparation of UBRD's Consolidated Financial Statements under IFRS requires UBRD's management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and of income and expenses during the relevant reporting period. These judgments, estimates and assumptions are based on a number of factors, including information available at the time and historical experience. Although estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from these estimates and such differences may be material. Estimates that have the most significant effect on the amounts recorded in UBRD's Consolidated Financial Statements include loan impairment estimates, building revaluation estimates and deferred tax asset estimates. Should circumstances change, the outcome may be materially different from what was envisaged at the time such judgments, estimates and assumptions were made. Should this occur, it could have a material adverse effect on UBRD's Consolidated Financial Statements, including its reported net income and balance sheet. UBRD's accounting systems may not be as sophisticated as those of companies organised in jurisdictions with a longer history of compliance with international accounting standards and there is less publically available information about UBRD than there would be for comparable companies in certain other jurisdictions that may make it more difficult to understand the risks associated with UBRD Accounting and reporting requirements in Russia are not comparable to those in other jurisdictions, such as the United States and the United Kingdom and RAS are not comparable to either IFRS or US GAAP. Russian accounting legislation continues to develop and has been subject to change on a regular basis in recent years. Since 1 January 2004, all credit organisations in Russia have prepared financial statements in accordance with IFRS in addition to the statutory accounting reports in accordance with RAS. Federal Law No. 395-I "On Banks and Banking Activity" dated 2 December 1990, as amended (the "Banking Law") contains certain periodic disclosure requirements, including the requirement to publish annual statutory accounting reports in accordance with RAS. As its systems and processes are tailored to the requirements of RAS, it may take UBRD longer than comparable companies in other jurisdictions to prepare its consolidated annual and interim financial statements, in accordance with IFRS. In accordance with the Banking Law, UBRD is required to publish certain RAS accounting reports quarterly, including a balance sheet, income statement and information on its assets, capital reserves and allowances for non-performing loans, which do not contain all of the information contained in UBRD's Consolidated Financial Statements and are not prepared in accordance with IFRS. UBRD has regularly published and filed such reports since its establishment and has complied with the relevant reporting requirements. In accordance with Russian legislation applicable to securities issuers, UBRD is required to file quarterly reports with the FSFM. These reports include certain information about UBRD, its management, subsidiaries, affiliates and selected financial and business information (such as events of litigation and quarterly statutory accounting reports prepared in accordance with RAS). Despite recent initiatives to improve corporate transparency in Russia, there is less publicly available information about UBRD than there is for comparable companies in other jurisdictions, such as the United States and the United Kingdom. UBRD has not independently verified information regarding its competitors and official data from the Russian Government agencies and the CBR UBRD has derived a substantial and material part of the information contained in this Prospectus concerning its competitors from publicly available information, and it has relied on the accuracy of this information without independent verification. In addition, some of the information contained in this Prospectus has been derived from the official data of the Russian Government agencies and the CBR. The official data published by Russian federal, regional and local governments is

35 substantially less complete or researched than those of Western countries, and the veracity of some official data released by the Russian Government may be questionable. Official statistics, including those produced by the CBR, may also be produced on different bases than those used in Western countries. Any discussion of matters relating to Russia in this Prospectus must, as a result, be subject to uncertainty due to concerns about the completeness or reliability of available official and public information. The absence of centralised credit information may expose UBRD to risks In 2005 Russia commenced the implementation of a system of credit bureaus, which has improved over the last few years. However, as at the date of this Prospectus, they are not fully functioning, and the credit history data within such organisations is limited. Although all banks have access to credit bureau data, UBRD and its competitors do not share some customer information and there is no single credit bureau with data on every entity and individual in Russia. Therefore, UBRD is not always able to confirm independently information provided by credit applicants regarding matters such as the total credit extended to the applicant. As a result, customers may be overextended by virtue of other credit obligations of which UBRD is unaware and/or may complete applications for credit inaccurately or fraudulently. UBRD is as a result exposed to credit risks for which it may not be able to accurately assess and provide. The effect of the EU wide financial transaction tax on UBRD's business is uncertain On 28 September 2011, the European Commission issued proposals, including a draft Directive, for implementing an EU wide financial transaction tax ("FTT"). The FTT would be a broad-based tax on "financial institutions" in relation to "financial transactions". It would apply from 1 January 2014 in circumstances where at least one party to a financial transaction is a financial institution established (or deemed established) in a Member State. It seems unlikely, at this time, that consensus can be reached in order to implement the FTT proposals across the entirety of the EU, which would require unanimity from Member State, though it is possible that this may change in future. The proposals have been considered by the committees of the European Parliament and were discussed by the Council of Ministers at its meeting on 22 June 2012, where a significant number of EU Finance Ministers continued to express opposition. Following the meeting, however, Finance Ministers from the Member States that endorsed the proposal raised the idea of adopting a side agreement within the EU, imposing an FTT in their Member States alone. Even if an FTT were introduced only in some Member States, it could impact financial institutions operating in the EU, including in Member States in which the FTT is not introduced. UBRD borrows from financial institutions that are based in the EU. Any negative impact of the FTT on UBRD's EU-based lenders or the European or global financial markets could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects. Risks Related to Russia and the CIS General Business Risks Emerging markets such as Russia are subject to greater risks than more mature markets, including significant political, economic and legal risks Generally, investments in emerging markets are only suitable for sophisticated investors who fully appreciate the significance of the risks involved, and investors are urged to consult with their own legal and financial advisers before making an investment in the Notes. Investors in emerging markets such as Russia should be aware that these markets are subject to greater risk than more mature markets, including in some cases significant political, economic and legal risks. Emerging market governments and judiciaries often exercise broad, unchecked discretion and are susceptible to abuse and corruption. Investors should also note that emerging economies such as the economy of Russia are subject to rapid change and that the information set out herein may become outdated relatively quickly. Moreover, financial turmoil in any emerging market country tends to adversely affect prices in equity and debt markets of all emerging market countries as investors move their money to more stable, developed markets. The Russian markets have been highly volatile since 2007 due to the impact of the global economic crisis. Such volatility caused the market regulator and the stock exchanges themselves

36 to temporarily suspend trading a number of times on the MICEX and RTS stock exchanges (which became the Moscow Exchange following the merger of the MICEX and RTS stock exchanges in 2011). The MICEX and RTS stock indexes have experienced significant overall declines since the summer of 2008 and dramatically declined in the second half of While the MICEX and RTS stock indexes partially recovered in 2009, 2010 and the first half of 2011, they declined again in the second half of The MICEX and RTS stock indexes subsequently recovered in March 2012, declined again in May 2012 and then partially recovered by September 2012, before declining in October and November In December 2012 and January 2013, the MICEX and RTS stock indexes partially recovered before declining in February As has happened recently and in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in Russia and adversely affect the Russian economy. Should UBRD become unable to obtain alternative financing on reasonable terms, or at all, this could have a material adverse effect on its business, financial condition, results of operations and prospects and on the value of the Notes. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. The poor availability and reliability of statistical information in Russia makes business planning inherently uncertain and may impair the ability of UBRD to plan effective strategies Statistical data, including official data, published by the CBR and otherwise in Russia are substantially less complete and reliable and may be produced on a different basis than those published in countries with more developed market economies. Due to the lack of availability of alternative reliable sources of country-specific data, Russian companies necessarily rely to some extent on this statistical data in their business planning. As a result, assumptions made by Russian companies in their business plans may prove to be incorrect. The lack of accurate statistical data for use in business planning may contribute to the overall volatility of the Russian economy and may adversely affect the profitability of many of UBRD's corporate customers, which would have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Political Risks A worsening of the political climate in Russia may have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes Since 1991, Russia has sought to transform itself from a one-party State with a centrally-planned economy to a market-oriented economy. Political conditions in Russia were highly volatile in the 1990s, as evidenced by the frequent conflicts among executive, legislative and judicial authorities, which negatively affected Russia's business and investment climate. Although the political situation in Russia has stabilised since 2000, future political instability could result in deterioration of economic conditions, including capital flight and a slowdown of investment and business activity. Following Russian parliamentary elections in December 2011, controversy concerning alleged voting fraud in favour of the ruling party, United Russia, led to organised protests in several Russian cities, including several sizeable protests in Moscow. Allegations of voting irregularities also appeared following the election of Vladimir Putin to the Russian presidency in March 2012, with a number of protests taking place throughout the country both before and after his May inauguration. Future shifts in governmental policy and regulation in Russia could also lead to political instability and disrupt or reverse political, economic and regulatory reforms, which could have a material adverse effect on the value of investments relating to Russia, as well as on UBRD's business, its ability to obtain financing in the international markets and its financial condition, results of operations and prospects and on the value of the Notes. The actions of the Russian legislative, executive and judicial authorities can affect the Russian securities market and consequently UBRD's business, financial condition, operating results and prospects

37 The actions of the Russian legislative, executive and judicial authorities can affect the Russian securities market as well as banks and other businesses operating in Russia. In particular, the events surrounding claims brought by the Russian authorities against several major Russian companies, led to questions being raised regarding the progress of market and political reforms in Russia and have resulted in significant fluctuations in the market price of Russian securities and a negative impact on foreign direct and portfolio investment in the Russian economy over and above the general market turmoil recently. Any similar actions by the Russian authorities that result in a further negative effect on investor confidence in Russia's business and legal environment could have a further material adverse effect on the Russian securities market and price of Russian securities, or securities issued or backed by Russian entities, including the Notes, as well as on UBRD's business, its ability to obtain financing in the international markets, and its financial condition, results of operations and prospects and on the value of the Notes. Domestic and regional political conflicts could create an uncertain operating environment that could adversely impact UBRD's business and hinder its long-term planning ability Russia consists of 83 federal subjects ("federal subjects"), some of which exercise considerable autonomy in their internal affairs. In certain areas, the division of authority between federal and regional governmental authorities remains uncertain. The lack of consensus between local and regional authorities and the federal governmental authorities may result in political instability and may have a material adverse effect on UBRD's business, financial condition, prospects or ability to fulfil its financial obligations. The amendments made to Russian legislation in 2004, whereby heads of regions are nominated by the President of Russia and appointed by regional legislatures (instead of direct election by the population) were designed to minimise conflict between federal and regional authorities and secure stability across Russia. In January 2012, the then President Dmitry Medvedev submitted to the State Duma a draft law restoring direct popular elections of regional governors to terms of up to five years, which law entered into force on 1 June However, on 23 January 2013 the State Duma approved a new law (the "New Regional Governor Election Law"), which allows the subjects to choose their own process of electing the regional governors. According to the New Regional Governor Election Law, each region can choose whether to proceed with direct elections of regional governors or to submit to the President a list of candidates for the position of governor from which the President chooses three candidates. The deputies of the legislative assembly would then appoint one candidate for the post of regional governor from such list, according to the New Regional Governor Election Law. In addition, ethnic, religious, historical and other divisions have, on occasion, given rise to tensions and, in certain cases, military conflict, both internally and with other countries. Russian military and paramilitary forces have been engaged in the Chechen Republic in the recent past and continue to maintain a visible presence there. Moreover, in August 2008, Russia and Georgia were involved in an armed conflict. The conflict ended with Russian recognition of the independence of South Ossetia and Abkhazia. Russian stock exchanges experienced heightened volatility, significant overall price declines and capital outflow following these events and the international capital markets temporarily closed to Russia. In addition, differing views on the Georgia conflict have had an impact on the relationship between Russia, the EU, the United States and certain former Soviet Union countries and, if prolonged, could adversely affect business relationships among these countries and adversely affect the Russian economy. The risks associated with these events or potential future events could materially and adversely affect the investment environment and overall consumer confidence in Russia, which in turn could have a material adverse effect on UBRD's business, its ability to obtain financing in the international markets, and its financial condition, results of operations and prospects and on the value of the Notes. Terrorism, crime and corruption could affect the Russian economy and disrupt UBRD's ability to conduct its business Terrorist activity inside and outside Russia and the armed conflicts in the Middle East have had a significant effect on the international and domestic financial and commodity markets. Various acts of terrorism have been committed in population centres within Russia. The risks associated with these events or potential future events could materially and adversely affect the investment environment and overall consumer confidence in Russia (for example, bombings in Domodedovo airport in Moscow in January 2011 that left 37 civilians dead and over 160 civilians wounded). In

38 particular, as Russia produces and exports large amounts of crude oil and gas, any acts of terrorism or armed conflicts causing disruptions of Russian oil and gas exports could negatively affect the Russian economy. Levels of organised criminal activity continue to be significant in Russia. The Russian and international press have reported high levels of corruption in Russia, including the bribing of officials for the purpose of initiating investigations by Government agencies. Additionally, published reports indicate that a significant number of Russian media regularly publish biased articles in exchange for payment. These factors could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Social instability could renew support for a centralised authority, nationalism or violence, and thus materially adversely affect UBRD's ability to conduct its business effectively Social instability in Russia, coupled with difficult economic conditions and the failure of salaries and benefits generally to keep pace with the rapidly increasing cost of living has led in the past to labour and social unrest (principally in urban areas). Any future labour and social unrest may have political, social and economic consequences, such as increased support for a renewal of centralised authority, increased nationalism, including restrictions on foreign involvement in the Russian economy and increased violence. This could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Legislation to protect against nationalisation and expropriation may not be enforced in the event of a nationalisation or expropriation of UBRD's assets Although the Russian Government has enacted legislation to protect property against expropriation and nationalisation and to provide fair compensation to be paid if such events were to occur, there can be no certainty that such protections will be enforced. This uncertainty is due to several factors, including the lack of State budgetary resources, the lack of an independent judicial system and insufficient mechanisms to enforce judgments. The concept of property rights is not well developed in Russia and there is not a great deal of experience in enforcing legislation enacted to protect private property against nationalisation and expropriation. As a result, UBRD may not be able to obtain proper redress in the courts, and may not receive adequate compensation if in the future the Russian Government decides to nationalise or expropriate some or all of UBRD's assets. The expropriation or nationalisation of any of UBRD's or its respective shareholders' assets without fair compensation may have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Lack of investor confidence in Russia or the other markets in which UBRD operates may have an adverse effect on UBRD's ability to attract future capital, as well as on its financial condition and prospects The availability of funding to entities operating within the emerging markets is significantly influenced by levels of investor confidence in such markets as a whole. Any factors that impact market confidence (for example, a decrease in credit ratings or State or central bank intervention in one market, or future acts of terrorism or armed conflicts in Russia or internationally could have a material adverse impact on the financial and commodities markets and the global economy) could adversely affect the price or availability of funding for entities within any of these markets. Further, as Russia produces and exports large amounts of crude oil and gas, any acts of terrorism or armed conflicts causing disruptions of Russian oil and gas exports could negatively affect the Russian economy. Such changes could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Economic Risks Instability of the Russian economy Since the dissolution of the Soviet Union in 1991, Russia has experienced: significant declines in gross domestic product;

39 hyperinflation or high levels of inflation; an unstable currency; high levels of State debt relative to gross domestic product; crises in the banking sector limiting the ability of banks to provide liquidity to Russian enterprises; a large number of loss-making enterprises that continue to operate due to the lack of effective bankruptcy proceedings; significant use of barter transactions and illiquid promissory notes to settle commercial transactions; widespread tax evasion; growth of "black" and "grey" market economies; pervasive capital flight; high levels of government corruption and the penetration of organised crime and government into the economy; political and social instability; ethnic and religious tensions; lack of consensus between federal and local governments; over-dependence of the economy on export of commodities, in particular oil, gas and metals; significant declines and volatility in the stock market; significant increases in unemployment and under-employment; the impoverishment of a large portion of the Russian population; a declining population and short life-expectancy; and outdated and deteriorating physical infrastructure. The Russian economy has been subject to abrupt downturns. For example, on 17 August 1998, in the face of a rapidly deteriorating economic situation, the Russian Government defaulted on its Rouble denominated securities, the CBR stopped its support of the Rouble and a temporary moratorium was imposed on certain hard currency payments. These actions resulted in an immediate and severe devaluation of the Rouble and a sharp increase in the rate of inflation, a dramatic decline in the prices of Russian debt and equity securities and an inability of Russian issuers to raise funds in the international capital markets. These problems were aggravated by the near collapse of the Russian banking sector in connection with the same events. This further impaired the ability of the banking sector to act as a reliable source of liquidity to Russian companies and resulted in the widespread loss of bank deposits. The positive trends in the Russian economy during the decade starting in the year 2000, such as increases in gross domestic product, a relatively stable currency and a reduced level of inflation, were partially reversed as a consequence of the global economic crisis. Moreover, due to the Russian economy's reliance on revenue from oil and other commodities, in 2008 the Russian Government made reductions in State spending and a reduction in the State budget revenues and expenditures as a result of the decrease in oil prices and prices of other commodities, which, along with other factors, contributed to a significant devaluation of the Rouble against the U.S. dollar and Euro in the second half of 2008 and the beginning of Any further devaluation of the Rouble against the major currencies could have an adverse effect on the Russian economy

40 and/or UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Instability of the Russian banking system could have a material adverse effect on UBRD's business, financial condition or results of operations In the period from May to July 2004, the Russian banking sector experienced its first significant disruption since the financial crisis of August 1998, following the revocation by the CBR of the banking licences of several Russian banks. These revocations resulted in a contraction in the Russian interbank market, which had a negative impact on the liquidity of certain banks. The revocation of certain banks' banking licences, combined with market rumours, led to sudden withdrawals of deposits by both retail and corporate customers from certain banks, which, in turn, further reduced liquidity. Although UBRD experienced some deposit withdrawals at this time, this turmoil ultimately did not have a material adverse effect on UBRD's business. See "Risks Related to UBRD's Business and the Russian Banking Sector UBRD is exposed to liquidity risk". However, no assurances can be given that UBRD will not, in the event of any future disruptions, face losses as a result of the bankruptcy of other Russian banks or their inability to perform their obligations. In addition, UBRD may be affected by consequential defaults of corporate customers that suffer from the problems faced by other Russian banks or if similar disruption in the banking sector occurs in the future and affects the overall economic situation in Russia. In the event of future instability in the Russian banking sector, UBRD's customers could withdraw some or all of their deposits more quickly than anticipated by UBRD, which could have a material adverse effect on UBRD's liquidity, business, financial condition, results of operations and prospects and on the value of the Notes. Downturns in the global financial markets and global economic crises may have an adverse effect on the Russian economy and on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes Russia's economy has been adversely affected by the global economic crisis and could be adversely affected by market downturns and economic crises or slowdowns elsewhere in the world in the future. Since mid-september 2008, adverse developments in the financial markets outside Russia and an increase in the perceived risks associated with investing in emerging economies have resulted in further reductions in the levels of foreign direct and portfolio investment in Russia that had already been weakened by other developments and have otherwise adversely affected the Russian economy. In particular, because Russia produces and exports large volumes of oil and gas, the Russian economy is particularly sensitive to the price of oil and gas on the world market. There was a dramatic decrease in the price of oil from when it reached its peak in the summer of 2008, resulting in sharp decreases in Government revenues, which in turn had a significant negative impact on the Russian economy. These developments could have a material adverse effect on the Russian Government's ability to provide financial support to Russian banks, including UBRD and could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. In addition, military conflicts, international terrorist activity and natural disasters have had a significant effect on international finance and commodity markets. Any future military conflicts, acts of terrorism or natural disasters could have an adverse effect on the international financial and commodities markets and the global economy. As Russia produces and exports large amounts of crude oil and gas, any acts of terrorism or armed conflicts, or politically motivated acts of Government, causing disruption of Russian oil and gas exports, could negatively affect the Russian economy and thereby adversely affect UBRD's business, results of operations, financial condition and prospects. Exchange rates, exchange controls and repatriation restrictions could adversely affect the value of investments in Russia The Rouble remains largely non-convertible outside Russia. A market exists within Russia for the conversion of Roubles into other currencies, but it is limited in size and is subject to rules limiting such conversion. According to the CBR, foreign currency and gold reserves fell from approximately US$597.0 billion on 1 August 2008 to US$384.1 billion on 1 March Such reserves increased to US$447.7 billion by 1 December 2009, to US$479.3 billion by 1 January 2011, to US$512.9 billion by 30 June 2012 and to US$529.5 by 15 February 2013, but are still

41 likely to fluctuate going forward. Although Russia's foreign currency and gold reserves as at the date of this Prospectus may be sufficient to sustain the domestic currency market in the shortterm, there can be no assurance that the currency market will not further deteriorate in the medium or long-term due to the lack of foreign currency funding available in the global markets. The lack of growth of the Russian currency market in the medium or long-term may have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Russia's physical infrastructure is in poor condition, which could disrupt normal business activity Russia's physical infrastructure is in very poor condition and largely dates back to Soviet times. It has not been adequately funded and maintained over the past decade and may cause disruptions in normal business activities. Particularly affected are pipeline, rail and road networks, power generation and transmission systems and communication systems. With a view to increasing capital inflows and private investment into Russia's physical infrastructure, the Government has launched a number of infrastructure modernisation programmes such as a large scale reform of the electricity sector. However, there is uncertainty in the economic environment as at the date of this Prospectus as to the extent to which such programmes will be realised. Such reforms, if realised, are likely to result in increased charges and tariffs, but may fail to generate the anticipated capital investment needed to repair, maintain and improve these systems. The Russian Government is actively considering plans to reorganise and/or privatise Russia's rail, electricity and telephone systems. Any such reorganisation or privatisation may result in increased charges and tariffs while failing to generate the anticipated capital investment needed to repair, maintain and improve these systems. The continued deterioration of Russia's physical infrastructure may harm the national economy, disrupt the transportation of goods and supplies, add costs to doing business in Russia and may interrupt business operations, any of which could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. If Russia were to return to heavy and sustained inflation, UBRD's results of operations could be adversely affected The inflation rate ("CPI") in Russia measured by Rosstat was approximately 9 per cent., in 2006, 12 per cent., in 2007 and 13 per cent. in As a result of the overall reduction of business activity, rising unemployment and a fall in consumption and investment during the global economic crisis, the inflation rate in both 2009 and 2010 was 8.8 per cent. In 2011, inflation in Russia was 6.1 per cent. and 6.6 per cent. in 2012, according to Rosstat data. Any return to high and sustained inflation could lead to market instability, new financial crises, reductions in consumer purchasing power and an erosion of consumer confidence. Any one of these events could lead to decreased demand for UBRD's products and services and result in a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Legal Risks Weaknesses relating to the Russian legal system and Russian law and difficulty in enforcing UBRD's rights in Russia create an uncertain environment for investment and for business activity and may have an adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes The Russian legal framework applicable to a market economy is still under development. Since 1991, Soviet law has been largely, but not entirely, replaced by a new legal regime as established by the 1993 Federal Constitution, the Civil Code, by other federal laws and by decrees, orders and regulations issued by the President, the Government and federal ministries, which are, in turn, complemented by regional and local rules and regulations, but which at times, overlap with or contradict one another. The recent nature of much of Russian law and the rapid evolution of the Russian legal system place the enforceability and underlying constitutionality of laws in doubt and result in ambiguities, inconsistencies and anomalies. In addition, Russian law

42 often leaves substantial gaps in the regulatory infrastructure and several fundamental Russian laws have only recently become effective. The status of the Russian legal system, as at the date of this Prospectus, makes it uncertain whether UBRD would be able to enforce its rights in disputes with any of its contractual counterparties. No assurance can be given that local laws and regulations will become stable in the future. UBRD's ability to operate in Russia could be adversely affected by difficulties in protecting and enforcing its rights and by future changes to local laws and regulations. Further, its ability to protect and enforce such rights is dependent on the Russian courts, which are underdeveloped, inefficient, and, in places, corrupt. Judicial precedents generally have no binding effect on subsequent decisions. Enforcement of court orders can in practice be very difficult in Russia. Additionally, court orders are not always enforced or followed by law enforcement agencies. Among the risks of the Russian legal system as at the date of this Prospectus are: limited judicial and administrative guidance on interpretations of Russian law; substantial gaps in the regulatory structure due to delay or absence of implementing legislation; the relative inexperience of certain judges in interpreting new principles of Russian law, particularly business and corporate law; the possibility that certain judges may be susceptible to economic, political or nationalistic influences; a high degree of discretion on the part of governmental authorities; and bankruptcy procedures that are not well developed. All of these factors make judicial decisions in Russia difficult to predict and effective redress uncertain. Additionally, court claims are often used to further political aims. UBRD may be subject to these claims and may not be able to receive a fair hearing. Additionally, court judgments are not always enforced or followed by law enforcement agencies. All of these weaknesses could result in adverse judgments against UBRD that may have material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes these weakness could limit the ability of holders of the Notes to obtain effective redress in Russian courts. Unlawful or arbitrary government action in Russia may have an adverse effect on UBRD's business State authorities have a high degree of discretion in Russia and at times exercise their discretion arbitrarily, without conducting a hearing or giving prior notice, and sometimes on disputed legal grounds. Moreover, the State also has the power in certain circumstances, by regulation or act, to interfere with the performance of, nullify or terminate contracts. Unlawful or arbitrary State actions have included withdrawal of licences, sudden and unexpected tax audits, criminal prosecutions and civil actions. Federal and local government entities have also used common defects in matters surrounding documentation of financing activities as pretexts for court claims and other demands to invalidate such activities and/or to void transactions, often for political purposes. Unlawful or arbitrary State action, if directed at UBRD, could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Russian bankruptcy and insolvency law differs from comparable law in Western European countries and the United States and Russian bankruptcy law has been the object of limited court decisions and thus it is impossible to predict with certainty how claims by the Lender or the Trustee on behalf of the Noteholders against UBRD would be resolved in the event of UBRD's bankruptcy Russian bankruptcy and insolvency law often differs from comparable laws in Western European countries or the United States and may be subject to varying interpretations. There is little

43 precedent to predict how claims on behalf of the Noteholders against UBRD would be resolved in case of its bankruptcy or insolvency. In addition, under Russian law, UBRD's obligations under the Subordinated Loan Agreement may, amongst others, be subordinated to the following obligations: costs related to bankruptcy litigation and current payments; personal injury and "moral damage" obligations (claims in tort); claims of retail depositors and of individuals who have other types of accounts with UBRD and claims of the DIA in respect of deposits and current accounts assigned to it pursuant to the Federal Law of 23 December 2003, No. 177-FZ "On Insurance of Deposits of Individuals in Banks of the Russian Federation" (the "Deposit Insurance Law") and claims of the CBR relating to payments made by the CBR to retail depositors of insolvent credit organisations not participating in the retail deposits insurance system; severance pay, copyright royalty and employment-related obligations; secured obligations; and tax and other payment obligations to the Russian Government and claims of all other creditors (except for claims of subordinated creditors). In the event of UBRD's bankruptcy or insolvency, this subordination may substantially decrease the amounts available for repayment of the Subordinated Loan and, as a result, the Notes. The Federal Law No. 127-FZ "On Insolvency (Bankruptcy)" (as amended subsequently, the "Bankruptcy Law") entered into force in late The Federal Law No. 40-FZ "On insolvency (bankruptcy) of credit organisations" was adopted on 25 February 1999 and has been subsequently amended (the "Bank Insolvency Law"). These laws set forth the priority in which claims rank in insolvency. See "The Banking Sector and Banking Regulation in Russia". As a result of limited court practice, it is impossible to predict with certainty how claims by the Lender or the Trustee on behalf of the Noteholders against UBRD would be resolved in the event of UBRD's bankruptcy and whether the Lender, the Trustee or the Noteholders would be able to recover sums owed by UBRD under the Subordinated Loan Agreement in the event of UBRD's insolvency. Specifically, in the course of UBRD's bankruptcy proceedings, the creditors' claims (including claims by the Lender or the Trustee on behalf of the Noteholders under the relevant Subordinated Loan Agreement) would need to be presented and satisfied only within the bankruptcy proceedings framework established by the mandatory provisions of bankruptcy legislation. The relevant provisions of bankruptcy legislation provide that the claims of the creditors of a bankrupt bank are fixed and satisfied (in the thus fixed amount) in Roubles (including claims denominated in foreign currency). For these purposes the foreign currency claims would be converted into Roubles at the rate established by the CBR as at the date of the revocation of UBRD's banking licence (which is a prerequisite to initiating bankruptcy proceedings with respect to a Russian bank). In the event of the insolvency of UBRD, the existence of priority claims and secured claims may substantially decrease the amount of funds and assets that may be available for making payments under the Subordinated Loan and, as a result, the Notes. It may be difficult for UBRD to enforce security and sureties under Russian law UBRD enters into security and/or surety arrangements that cover, in whole or in part, a substantial portion of its loans to legal entities and individuals. See "Risk Management Credit Risk Collateral". Under Russian law, security (which includes pledges and mortgages) and sureties (other than bank guarantees) are considered secondary obligations, which automatically terminate if the underlying obligations become void. Further, enforcement of security under Russian law generally requires either an agreement of the parties for an out of court enforcement procedure (which is subject to certain specific requirements and is relatively new) or in certain cases a court order followed by a public sale of the collateral. In some cases, a court may delay such public sale for a period of up to one year upon a pledgor's application. A mortgage is a

44 pledge over real property, such as land and buildings, which requires State registration to be valid. Russian law has no system for perfecting collateral other than mortgages and pledges of equity in Russian joint stock and limited liability companies, which may lead to unexpected or conflicting claims by secured creditors over such collateral. Each of these risks could adversely affect UBRD's financial position and results of operations. A significant position of UBRD's loans to its corporate customers is supported by sureties from individuals and other corporate clients. In addition, a certain portion of UBRD's loans to corporate customers is assured by the borrower's agreement that a certain volume of its cash receivables will flow through accounts over which UBRD has direct debit rights. However, if the surety's financial condition deteriorates or if the borrower does not honour an assurance arrangement (under Russian law, a borrower is entitled to close its bank account open with a Russian bank at any time at its discretion), UBRD may not be able to recover on sureties or assurance arrangements that may lead to losses, could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Russian regulation of banking and financial activity has been undergoing significant changes Like most of Russia's legislation on business activities, Russia's laws on banks and banking activity have only recently been adopted. In addition to Federal Law of 10 July 2002, No. 86-FZ "On the Central Bank of the Russian Federation (Bank of Russia)", as amended (the "CBR Law"), and the Banking Law, Russia has adopted and continues to develop new banking legislation. In December 2003, President Putin signed into law the Deposit Insurance Law, which mandates the protection of bank deposits of individuals. The Deposit Insurance Law establishes a deposit insurance scheme in which all Russian banks must participate or lose their ability to accept deposits and open bank accounts for individuals. The enactment of the Deposit Insurance Law strengthens competition in the retail deposit market, as all Russian banks that choose to participate in the deposit insurance scheme will have the ability to offer protected deposits. The majority of banks that filed their requests were admitted to the deposit insurance scheme. The CBR has been developing regulations on bank capital and bringing them into line with international standards. As at the date of this Prospectus, CBR regulations on bank regulatory capital are relatively new, which could lead to uncertainty in their application and interpretation. The changes in the Russian banking and financial regulation are aimed at bringing the regulatory regime more in line with that of more developed countries. However, due to the changes in the regulatory system, banks operate in a new and relatively unclear regulatory environment. It is difficult to forecast how the changes in the banking and financial regulation will affect the Russian banking system and no assurance can be given that the regulatory system will not change in a way that will impair UBRD's ability to provide a wide range of banking services or to compete effectively and thus could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. Developing securities laws and regulations in Russia may limit UBRD's ability to attract future investment and could subject UBRD to fines or other enforcement measures despite its best efforts at compliance, which could cause UBRD's financial results to suffer and harm its business The regulation and supervision of the securities market, financial intermediaries and issuers are considerably less developed in Russia than in the United States and Western Europe. Disclosure and reporting requirements, anti-fraud safeguards, insider trading restrictions and fiduciary duties are relatively new to Russia and are unfamiliar to most Russian companies and managers. In addition, Russian securities rules and regulations can change rapidly, which may adversely affect UBRD's ability to conduct securities related transactions. While some important areas are subject to virtually no oversight, the regulatory requirements imposed on Russian issuers in other areas impose obligations on Russian issuers not found in other markets and result in delays in conducting securities offerings and in accessing the capital markets. It is often unclear whether certain regulations, decisions and letters issued by the various regulatory authorities apply to

45 UBRD. UBRD may be subject to fines or other enforcement measures despite UBRD's best efforts at compliance, which could cause its financial results to suffer and harm its business. Due to the ambiguities in the recently adopted the Insider Dealing Law, trading of securities and other financial instruments by UBRD may inadvertently violate restrictions imposed by the law Certain parts of the new law "On Counteracting the Abuse of Inside Information and Market Manipulation and Amendment of Certain Legislative Acts of the Russian Federation" No. 224-FZ (the "Insider Dealing Law") generally came into force on 31 July The restrictions imposed by the Insider Dealing Law prohibit the disclosure of any price-sensitive non-public information ("Inside Information") to third parties and the use of Inside Information in connection with any trading of securities, commodities, currency or other financial instruments admitted to trading on a Russian stock exchange. The Insider Dealing Law enumerates categories of persons that can be considered insiders, including, among others, professional market participants (including brokers and dealers) who transact on behalf of their clients and have received Inside Information from such clients. One of the main consequences for a person deemed an insider is that they must notify the Russian regulator of any transactions they conduct that relate to that client. Under the Insider Dealing Law, any person who illegally uses Inside Information and publishes misleading information may be held liable for misuse of information and/or market manipulation. A number of the provisions of the Insider Dealing Law are vague and might be subject to varying interpretation by courts and State authorities. As part of UBRD's business, it not only provides financing and other financial services to customers, but it also invests in securities for its own account as part of its liquidity management operations. Accordingly, should one part of UBRD come into possession of Inside Information about a publicly traded company, whilst another part of UBRD independently enters into a trade with respect to the securities of such company, UBRD might be considered by the authorities to be in violation of the Insider Dealing Law. This, in turn, could result in the imposition of certain civil, administrative and other sanctions on UBRD and could have a material adverse effect on its business, financial condition, results of operations and prospects. Shareholder liability under Russian law could cause UBRD to be liable for the obligations of its subsidiaries The Civil Code, the Russian Federal Law "On Joint Stock Companies" No. 208-FZ dated 26 December 1995, as amended (the "Joint Stock Companies Law"), and the Russian Federal Law No. 14-FZ "On Limited Liability Companies" dated 8 February 1998, as amended (the "LLC Law"), provide that shareholders in a Russian joint stock company or members of a Russian limited liability company generally are not liable for the company's obligations and bear only the risk of loss of their investment. Shareholder liability may arise, however, if one person (the "Effective Parent") can give binding instructions to another person (the "Effective Subsidiary"). In addition, the Effective Parent bears secondary liability for the obligations of an Effective Subsidiary that becomes insolvent or bankrupt due to the Effective Parent's actions or inactions. In addition, in accordance with the recent amendments to the Bank Insolvency Law, a bank's shareholders in certain defined circumstances could be liable for the bank's debt incurred after the occurrence of any indications of bankruptcy. Accordingly, UBRD could be liable for the debts of subsidiaries of whose charter capital it owns more than 50 per cent., or which it otherwise controls, which could have a material adverse effect on UBRD's business, financial condition, results of operations and prospects and on the value of the Notes. There are weaknesses in legal protections for minority shareholders and in corporate governance standards under Russian law Corporate governance standards for many Russian companies have proven to be poor, and minority shareholders in Russian companies have suffered losses due to abusive share dilutions, asset transfers and transfer pricing practices. In general, minority shareholder protection under Russian law derives from supermajority shareholder approval requirements for certain corporate actions, as well as from the ability of a shareholder to demand that the company purchase the shares held by that shareholder if that shareholder voted against or did not participate in voting on certain types of action. Russian law also requires companies to obtain the approval of disinterested directors or shareholders for certain transactions with interested parties and the

46 failure to obtain these approvals could have a material adverse effect on UBRD's business, results of operations, financial condition and prospects. In addition, the supermajority shareholder approval requirement is met by a vote of 75 per cent. of all voting shares that are registered at a meeting of UBRD's shareholders (the "General Shareholders Meeting"). Thus, controlling shareholders owning less than 75 per cent. of the outstanding shares of a company may have 75 per cent. or more voting power if certain minority shareholders are not registered at the meeting. In situations where controlling shareholders effectively have 75 per cent. or more of the voting power at a General Shareholders Meeting, they can approve amendments to the charter of the company and other measures requiring supermajority shareholder approval, which could be prejudicial to the interests of minority shareholders. Although the Joint Stock Companies Law provides that shareholders owning not less than 1 per cent. of a company's stock may bring an action for damages on behalf of the company, Russian courts have very limited experience with such lawsuits. Investors' ability to pursue legal redress against UBRD may be limited. Disclosure and reporting requirements and anti-fraud legislation have only recently been enacted in Russia. Most Russian companies and managers are not accustomed to restrictions on their activities arising from these requirements. The concept of fiduciary duties of management or directors to their companies or shareholders is also relatively new and is not well developed. Shareholder rights provisions under Russian law may impose additional costs on UBRD, which could cause UBRD's financial results to suffer Under Russian law, UBRD's shareholders who vote against or abstain from voting on some decisions have the right to sell their shares to UBRD at market value. The obligation of UBRD to purchase shares in these circumstances, which is limited to 10 per cent. of UBRD's net assets calculated at the time the decision is taken according to RAS, could have an adverse effect on UBRD's cash flow and UBRD's ability to service its indebtedness. The decisions that trigger this right to sell shares include: a reorganisation; the approval by shareholders of a major transaction (such as a transaction involving property worth more than 50 per cent. of the gross book value of UBRD's assets calculated according to RAS, regardless of whether the transaction is actually consummated); and an amendment of UBRD's charter in a manner that limits shareholder rights. Amendments to the Joint Stock Companies Law, which were adopted on 7 August 2001, and became effective on 1 January 2002, provide that shareholders who vote against or abstain from voting on a decision to place shares or convertible securities through a closed subscription (or private placement) have a pre-emptive right to acquire additional shares or convertible securities pro rata to the number of shares they own. This requirement may lead to further delays in completing offerings of equity and convertible debt securities and may lead to uncertainty with respect to sales of newly issued shares to strategic investors and affect UBRD's ability to raise funds in the equity capital markets in the future. The implementation of certain amendments to the Civil Code may create an uncertain environment for business activities and investments On 30 December 2012, Russian President Vladimir Putin signed into law the first set of amendments to the Civil Code, which form part of a proposed major reform of the Russian civil legislation. Most of this first set of amendments became effective on 1 March The amendments relate primarily to certain basic principles of civil law, limits to the exercise of civil rights, regulation of State registration of rights to certain types of property, as well as the principle of compensation for losses incurred as a result of lawful acts of State and local authorities

47 As part of the reforms to the Civil Code, a second set of amendments has been proposed and is scheduled to have its second hearing in the State Duma in early As proposed, these amendments would significantly revise aspects of Russian law related to the status of legal entities. Most importantly, the amendments, as proposed, would: create a new classification of business entities, so that all business entities would be categorised as either public joint stock companies or private entities, and closed joint stock companies, which are a common legal form in Russia, would no longer exist; introduce a new management structure for all Russian public joint stock companies. Specifically, the amendments propose to replace the existing board of directors' structure of a joint stock company with a supervisory board exercising control powers. A person appointed as the "sole executive body" (e.g., the general director or president) and members of a "collegial executive body" (e.g., a management board that operates the company) may not also serve on the supervisory board; allow corporate agreements to be entered into not only between a company's shareholders but also between shareholders, company creditors and third parties. As presently proposed, the amendments would require parties to a corporate agreement to notify the company as to the fact of execution of any such agreement and information about corporate agreements entered into by shareholders of public joint stock companies would be subject to mandatory public disclosure within the ambit of the law. Moreover, as opposed to the provision of the Joint Stock Companies Law effective as at the date of this Prospectus, the proposed amendments provide that a breach of a corporate agreement may serve as basis for invalidation of the resolution of a company's bodies at claim brought by a party to a corporate agreement under certain circumstances; and expand the liability of the management bodies and persons who may determine a business entity's conduct. In addition to the second set of amendments, the State Duma is considering a third and fourth set of amendments to the Russian Civil Code, which may revise the regulations relating to, among other things, real and movable property, securities and transactions. As at the date of this Prospectus, the timing of the enactment of these second and subsequent amendments, the scope and nature of these amendments and their potential interpretation by State authorities (including the courts), along with their impact on our activities and corporate governance, is unknown. Lack of clear consumer protection laws in Russia may adversely affect UBRD's business Russia does not have legislation specifically regulating consumer lending or loan collection. In the absence of such laws, Russian courts have extended the scope of Federal Law No "On Consumer Protection" dated 7 February 1992, as amended (the "Consumer Protection Law"), which provides general protection for consumers, to consumer loans. If legislation specifically regulating consumer lending or loan collection is adopted in the future, such legislation could make the collection of defaulted loans or penalties more difficult and place limitations on the terms and pricing of loans generally that may adversely affect UBRD's business, financial condition, results of operations and prospects. In November 2009 and March 2010, the Supreme Commercial Court of Russia issued two judgments declaring that charging an account fee to retail borrowers is a violation of Russian consumer protection laws. In Information Letter No. 147, issued on 13 September 2011, the Supreme Commercial Court further indicated that a credit institution can only lawfully receive fees from a borrower if it is providing a separate service to the borrower other than the loan. In addition, the Supreme Commercial Court recently declared charging an up-front fee to be in violation of Russian law. Although UBRD has modified the way in which it charges fees and commissions to retail customers in the light of the challenges to which such fees and commissions have been subject with the aim of eliminating such claims in the future, UBRD faces claims from time to time from retail customers for the return of fees and commissions. In the year ended 31 December 2012, the value of such claims made against UBRD was approximately the Rouble equivalent of US$3 million and UBRD paid the Rouble equivalent of approximately US$1.5 million in satisfaction of such claims. If further fees and commissions charged by UBRD were to be deemed to be in violation of Russian consumer protection laws,

48 UBRD could be required to return such fees and commissions to the relevant clients and pay monetary penalties, which could have an adverse effect on UBRD's business, financial condition, results of operations and prospects. In addition, on 28 June 2012, the Supreme Court of Russia (which is the highest instance in the system of courts of general jurisdiction dealing with cases involving individuals), in its Resolution No. 17 "On consideration by judges of civil cases on consumer protection disputes", ruled that the Consumer Protection Law did not contemplate assignment of consumer loans by banks to entities not having banking licences (such as collection agencies), unless otherwise provided by law or agreed between the parties at the time of their entry into the relevant loan agreements. If courts of general jurisdiction support individuals seeking to challenge the assignment of their loans to collection agencies, this may adversely affect the ability of UBRD to sell bad loans to such collection agencies, thus requiring UBRD to deploy additional internal resources to ensure effective collection of bad debt. Failure by UBRD to comply with Russian data protection laws and regulations may lead to legal actions being taken against UBRD UBRD relies on the collection and use of information from customers to conduct its business. UBRD may be subject to investigative or enforcement actions by data protection authorities, legal claims and reputational damage if it acts or is perceived to be acting inconsistently with the Russian data protection laws or its personal data protection policy, customer expectations or applicable law. In addition, concern among customers about UBRD's data protection practices could deter them from using its services and require alteration of its business practices with attendant cost and possible loss of revenue. Concerns may be expressed about whether UBRD's use of data compromises the privacy of customers. Concerns about UBRD's collection, use or sharing of personal information or other privacy related matters, even if unfounded, could damage its reputation and operating results. Data protection legislation and regulation applicable to UBRD may change in the future and impose new burdensome requirements, compliance with which may increase UBRD's costs or require it to change the way it conducts business with attendant costs or possible loss of revenue. Foreign judgments and arbitral awards may not be enforceable against UBRD Russian courts will not enforce any judgment obtained in a court established in a country other than Russia unless one of the following factors is present: there is a treaty in effect between Russia and the country where the judgment was rendered providing for the recognition of court judgments in civil cases; or a federal law of Russia is adopted providing for the recognition and enforcement of foreign court judgments; or the judgment may be enforced on the basis of reciprocity, if courts of the country where the foreign judgment is rendered have previously enforced judgments issued by Russian courts. No such treaty exists between Russia and either the United Kingdom or the United States and no such federal law has been passed. Even in the event that there is such a treaty and a federal law, Russian courts may nonetheless refuse to recognise and enforce a foreign court judgment on the grounds provided in such treaty and in Russian legislation in effect on the date on which such recognition and enforcement is sought. The Commercial Procedural Code of Russia establishes the procedures for the recognition and enforcement of foreign court judgments and contains an extensive list of grounds for refusal of such recognition and enforcement in the future. Moreover, Russian procedural legislation may change and no assurance can be given that in the future no other ground for refusal of such recognition and enforcement may arise. There have been at least two instances in which Russian courts have recognised and enforced a judgment of a court of a country with which Russia does not have an international treaty to that effect (the United Kingdom and The Netherlands). The basis for this was a combination of the principle of reciprocity and the existence of a number of bilateral and multilateral treaties to which

49 both countries were parties. There have been no other Russian court decisions by which foreign judgments, in the absence of a statutory basis in Russian federal law or a treaty between Russia and the respective State where the foreign judgment was rendered, have been recognised and enforced on the territory of Russia. It may be said that as a general rule the court judgments rendered against a member of UBRD in the United Kingdom or elsewhere remain uncertain and it may be impossible to enforce in Russia, unless their recognition and enforcement are permitted by an international treaty or Russian legislation. Tax Risks The Russian taxation system is relatively underdeveloped The Russian Government is constantly reforming the tax system by redrafting parts of the Russian Tax Code. These changes have resulted in some improvement in the tax climate. As of 1 January 2009 the corporate profits tax rate was reduced to 20 per cent. For individuals who are tax residents in Russia the current personal income tax rate is 13 per cent. The general rate of VAT is 18 per cent. Since 1 January 2010, the Unified Social Tax was replaced by social security charges to the Russian pension, social security and medical insurance funds. The total rate of the respective social security charges equals 30 per cent. on the taxable base at RUB 568,000 of an employees' annual remuneration and 10 per cent. on the amount exceeding RUB 568,000 for In addition, the new Russian transfer pricing legislation has been in force since 1 January Russian tax laws, regulations and court practice are subject to frequent change, varying interpretations and inconsistent and selective enforcement. In accordance with the Constitution of Russia, laws that introduce new taxes or worsen a taxpayer's position cannot be applied retroactively. Nonetheless, there have been several instances when such laws have been introduced and applied retroactively. Despite the Russian Government's taking steps to reduce the overall tax burden in recent years in line with its objectives, there is a possibility that Russia will impose arbitrary or onerous taxes and penalties in the future, which could have a material adverse effect on the Group's or UBRD's business, results of operations, financial condition and the value of the Notes. In addition to the usual tax burden imposed on Russian taxpayers, these conditions complicate tax planning and related business decisions. These uncertainties could possibly expose UBRD to significant fines and penalties and potentially severe enforcement measures despite UBRD's best efforts at compliance, and could result in a greater than expected tax burden, and could have a material adverse effect on the Group's or UBRD's business, results of operations and financial condition or prospects. Generally, taxpayers are subject to tax audits for a period of three calendar years immediately preceding the year in which the decision to carry out a tax audit has been taken. In certain circumstances repeated tax audits (i.e. audits with respect to the same taxes and the same periods) are possible. Generally, the statute of limitations for the commission of a tax offence is also limited to three years from the date on which it was committed or from the date following the end of the tax period during which the tax offence was committed (depending on the nature of the tax offence). Nevertheless, according to the Russian Tax Code and based on current judicial interpretation, there have been cases where the tax offence statute of limitations may be extended beyond three years. Tax audits or inspections may result in additional costs to UBRD, in particular if the relevant tax authorities conclude that UBRD did not satisfy its tax obligations in any given year. Such audits or inspections may also impose additional burdens on UBRD by diverting the attention of management resources. The outcome of these audits or inspections could have a material adverse effect on UBRD's business, results of operations, financial condition and the value of the Notes. In October 2006, the Plenum of the Supreme Commercial Court of Russia issued a ruling concerning judicial practice with respect to unjustified tax benefits. In this context, a tax benefit means a reduction in the amount of a tax liability resulting, in particular, from a reduction of the tax base, the receipt of a tax deduction or tax concession or the application of a lower tax rate, and the receipt of a right to a refund (offset) or reimbursement of tax. The ruling provides that where the true economic intent of operations is inconsistent with the manner in which they have been taken into account for tax purposes, a tax benefit may be deemed to be unjustified

50 The same conclusion may apply when an operation lacks a reasonable economic or business rationale. As a result, a tax benefit cannot be regarded as a business objective in its own right. On the other hand, the fact that the same economic result might have been obtained with a lesser tax benefit accruing to the taxpayer does not constitute grounds for declaring a tax benefit to be unjustified. Moreover, there are no rules and little practice for distinguishing between lawful tax optimisation and tax avoidance or evasion. The tax authorities have actively sought to apply this concept when challenging tax positions taken by taxpayers in court, and are anticipated to expand this trend in the future. Although the intention of this ruling was to combat tax law abuses, in practice there can be no assurance that the tax authorities will not seek to apply this concept in a broader sense than may have been intended by the Supreme Commercial Court. The above conditions create tax risks in Russia that are more significant than the tax risks typically found in countries with more developed taxation, legislative and judicial systems. These tax risks impose additional burdens and costs on the Group's and UBRD's operations, including management resources. Further, these risks and uncertainties complicate the Group's tax planning and related business decisions, potentially exposing the Group to significant fines, penalties and enforcement measures, and could materially adversely affect the Group's business, results of operations, financial condition, and the value of the Notes. Further, Russian tax legislation is consistently becoming more sophisticated. It is possible that new revenue raising measures could be introduced. Although it is unclear how any new measures would operate, the introduction of such measures could affect the Group's or UBRD's overall tax efficiency and could result in significant additional taxes becoming payable. Neither UBRD nor the Group can offer prospective investors any assurance that additional tax exposures will not arise. Additional tax exposures could have a material adverse effect on the Group's or UBRD's business, results of operations, financial condition, and the value of the Notes. New Russian transfer pricing rules may subject UBRD's transfer prices to challenge by the Russian tax authorities. As of 1 January 2012, new transfer pricing legislation was introduced into Russian tax law. This transfer pricing legislation results in new transfer pricing rules. In particular, the methods for monitoring the prices of controlled transactions have been expanded and controlled transactions now include: (i) (ii) (iii) (iv) Russian domestic transactions between related entities if the total annual turnover of such transactions exceeds RUB 1 billion (RUB 3 billion for 2012, RUB 2 billion for 2013); cross-border transactions with certain types of commodities where the income attributable to one counterparty exceeds RUB 60 million; transactions with residents of offshore jurisdictions in the list published by the Russian Ministry of Finance if the income attributable to one counterparty exceeds RUB 60 million; and transactions between a Russian legal entity and a related foreign legal entity. The new transfer pricing law requires taxpayers to notify the Russian tax authorities of all controlled transactions and to present to the Russian tax authorities transfer pricing documentation upon their request. Under transitional provisions of the new law, these notification and documentation requirements, with respect to transactions listed in (ii), (iii) and (iv) above, apply if the amount of controlled transactions with a respective related party exceeds RUB 100 million in 2012, or RUB 80 million in The transfer pricing legislation allows the tax authorities to assess additional tax and penalties in the amount of 40 per cent. of the amount of underpaid tax resulting from non-compliance with the transfer pricing legislation (if transfer pricing documentation is not submitted, or documentation that is submitted is incomplete, untimely or inaccurate). The new law also provides for a transition period during the first years after the law takes effect: the law exempts transactions in 2012 and 2013 from transfer pricing penalties. A penalty of 20 per cent. will apply to transactions from 2014 to The tax authorities can also assess additional tax and late payment interest on the underpaid tax. Interest should be charged in accordance with the general rules at the rate of 1/300 of the CBR's refinancing rate. For the reasons set out in this risk factor, the Russian transfer pricing legislation

51 could have a material adverse effect on UBRD's business, results of operations and financial condition. Risk Relating to the Notes and the Trading Market There is no active trading market for the Notes The Notes are new securities which may not be widely distributed and for which there is no active trading market as at the date of this Prospectus. If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Issuer and UBRD. Although applications have been made for the Notes to be admitted to listing on the official list and trading on the Main Securities Market, there is no assurance that such applications will be accepted or that an active trading market will develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for the Notes. The Notes may be redeemed prior to maturity In the event that the Issuer or the Borrower would be obliged to increase the amounts payable in respect of any Notes due to any withholding or deduction for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of Ireland or Russia or any political subdivision thereof or any authority therein or thereof having power to tax, the Issuer may redeem all outstanding Notes in accordance with the Conditions. In addition, the Conditions provide that the Notes are redeemable at the Issuer's option in certain other circumstances and accordingly the Issuer may choose to redeem the Notes at times when prevailing interest rates may be relatively low. In such circumstances an investor may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the Notes. Because the Global Notes are held by or on behalf of Euroclear and Clearstream, Luxembourg, investors will have to rely on their procedures for transfer, payment and communication with the Issuer. The Notes will be represented by the Global Note Certificate except in certain limited circumstances described in the Global Note Certificate. The Global Note Certificate will be registered in the name of registered in the name of BNP Paribas Securities Services, Luxembourg Branch acting as common depository for Euroclear and Clearstream, Luxembourg. Individual Note Certificates evidencing holdings of Notes will only be available in certain limited circumstances. Euroclear and Clearstream, Luxembourg will maintain records of the beneficial interests in the Global Note Certificate. While the Notes are represented by the Global Note Certificate, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg. The Issuer will discharge its payment obligations under the Notes by making payments to or to the order of the common depository for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a beneficial interest in the Global Note Certificate must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the Notes. The Issuer has no responsibility or liability for the records relating to, or g made in respect of, beneficial interests in the Global Note Certificate. Holders of beneficial interests in the Global Note Certificate will not have a direct right to vote in respect of the Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear and Clearstream, Luxembourg to appoint appropriate proxies. Minimum Denomination As the Notes have a denomination consisting of the minimum denomination plus a higher integral multiple of another smaller amount, it is possible that the Notes may be traded in amounts in excess of US$200,000 (or its equivalent) that are not integral multiples of US$200,000 (or its equivalent). In such case, a Noteholder who, as a result of trading such amounts, holds a principal amount of less than the minimum denomination may not receive a Definitive Note in respect of such holding (should Definitive Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to the minimum denomination

52 Limited Recourse Obligations The Notes will be secured limited recourse obligations of the Issuer, payable solely from amounts actually received and retained (net of tax) from the Borrower pursuant to the Subordinated Loan Agreement which have been pledged to secure the Issuer's obligations in respect of the Notes. The Issuer is obliged to pay only such amount of such obligations as such relevant assets may satisfy. In the event that the relevant assets are insufficient to satisfy the Issuer's obligations in respect of the Notes in full, the additional portion of such obligations will be extinguished and holders will not have any recourse to the Issuer for the payment thereof. The Notes may not be a suitable investment for all investors In addition to the risks associated with investing in emerging markets such as Russia, each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Prospectus; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact the Notes will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes; understand thoroughly the terms of the Notes and be familiar with the behaviour of financial markets; and be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. The Notes are complex financial instruments. Sophisticated institutional investors generally do not purchase complex financial instruments as stand-alone investments but as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in the Notes unless it has the expertise (either alone or with a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of the Notes and the impact this investment will have on the potential investor's overall investment portfolio. The Notes may be redeemed prior to their scheduled maturity due to uncertainties surrounding Russian regulatory capital regulations or on account of changes in Russian tax laws Under the current bank capital regulations, the Subordinated Loan will be included into additional (Tier 2) capital (dopolnitelniy kapital) in accordance with the applicable Regulatory Capital Regulations (as defined below) after the CBR approves it as eligible for inclusion into additional (Tier 2) capital (dopolnitelniy kapital) of UBRD, but not earlier than the date on which the full loan amount is transferred to UBRD, i.e. after the settlement date for the Notes. Pursuant to the CBR Regulation No. 215-P dated 10 February 2003 "On the method of determination of own funds (capital) of credit organisations" (as amended, supplemented or replaced from time to time) ("Regulation No. 215-P") and Regulation No. 395-P dated 28 December 2012 "On the methodology for determining the amount and evaluating adequacy of own funds (capital) of credit organisations ("Basel III")" (as amended, supplemented or replaced from time to time) ("Regulation No. 395-P", and together with Regulation No. 215-P, "Regulatory Capital Regulations"), the proceeds of the Subordinated Loan Agreement can only be treated as UBRD's additional (Tier 2) capital (dopolnitelniy kapital) upon the receipt of a final conclusion from the CBR, which should be granted (or denied) within 30 days of a written application for the same being submitted by UBRD. The Regulatory Capital Regulations further set out certain requirements (including with respect to the tenor, early termination and interest rate) that the Subordinated Loan Agreement needs to satisfy for the Final Conclusion to be

53 issued. In particular, the Regulatory Capital Regulations require that the interest rate payable under the Subordinated Loan Agreement is not materially different from the average interest rate payable in connection with similar transactions. Should UBRD fail to receive the final and unconditional approval for the Subordinated Loan to be treated as additional (Tier 2) capital (dopolnitelniy kapital) by the date falling within 90 days of the date of the Subordinated Loan Agreement (the "Final Approval"), the Subordinated Loan will be reclassified as senior and be prepayable at UBRD's option, pursuant to Clause 7.2 of the Subordinated Loan Agreement. The exercise of such prepayment right would result in early redemption of the Notes. The Subordinated Loan Agreement could also lose its eligibility for inclusion into UBRD's additional (Tier 2) capital (dopolnitelniy kapital) subsequent to the receipt by UBRD of the Final Conclusion, if as a result of any amendment to, clarification of, or change in (including a change in interpretation or application of), Regulation No. 215-P, Regulation No. 395-P or other applicable requirements of the CBR, the Subordinated Loan would cease to qualify in whole but not in part as additional (Tier 2) capital (dopolnitelniy kapital). Clause 7.3 of the Subordinated Loan Agreement provides for the prepayment of the Subordinated Loan in such circumstances following inclusion into UBRD's additional (Tier 2) capital (dopolnitelniy kapital), subject to the prior written consent of the CBR (as required by the Regulatory Capital Regulations). Further, pursuant to Clause 7.4 of the Subordinated Loan Agreement, if UBRD would be required to make or increase any payment due pursuant to the Subordinated Loan Agreement as provided in Clauses 9.2 or 9.3 of the Subordinated Loan Agreement, UBRD may, subject to prior consent of the CBR, prepay the Subordinated Loan in whole (but not in part). The exercise of any such prepayment right would result in the early redemption of the Notes. Prepayment and variation of the Subordinated Loan may require the consent of the CBR Certain provisions of the relevant Subordinated Loan Agreement providing for the prepayment of the Subordinated Loan or variation of its terms are subject to the prior written consent of the CBR, pursuant to the Regulatory Capital Requirements. There can be no guarantee that the consent of the CBR will be received on time and that UBRD will be able to prepay such Subordinated Loan in accordance with relevant provisions of the Subordinated Loan Agreement or that UBRD will be able to amend the terms of such Subordinated Loan as envisaged by the Subordinated Loan Agreement. UBRD's obligations under the Subordinated Loan Agreement are subordinated The claims of the Issuer in respect of principal of, and interest on, the Subordinated Loan will: (a) (b) be subordinated upon the occurrence of a Borrower Bankruptcy Event (as defined in the Subordinated Loan Agreement) to the claims of Senior Creditors (as defined in the Subordinated Loan Agreement) in accordance with the Bank Insolvency Law; and be senior to the claims of holders of UBRD's share capital in their capacity as shareholders. By virtue of this subordination, payments to the Issuer in respect of the Subordinated Loan will, in the case of a Borrower Bankruptcy Event, only be made after all payment obligations of UBRD ranking senior to the Subordinated Loan have been satisfied. Consequently, UBRD's assets will be available to satisfy its obligations under the Subordinated Loan Agreement only after the claims of all senior ranking creditors have been satisfied in full. Such remaining assets may not be sufficient to satisfy UBRD's obligations under the Subordinated Loan. There is a significant risk that an investor in Notes will lose all or some of its investment in the case of a bankruptcy or insolvent liquidation of UBRD. In addition, by virtue of its execution of the Subordinated Loan Agreement, the Issuer shall be deemed to have waived any right of set-off, compensation or retention in respect of any amount owed to it by UBRD under or in connection with the Subordinated Loan Agreement. The Subordinated Loan Agreement does not limit UBRD's ability, or the ability of any other entity in the Group, to incur additional indebtedness, including indebtedness that ranks senior to, or pari passu with, the Subordinated Loan in priority of payment. As provided in the Trust Deed, so long as any Note remains outstanding, the Issuer, without the prior written consent of the Trustee, shall not, inter alia, incur any indebtedness for borrowed

54 moneys other than the Notes, except that it may issue additional loan participation notes (with limited recourse to the Issuer) in the future for the sole purpose of financing loans to UBRD. In each case, the incurrence of any such additional indebtedness may reduce the amount recoverable by Noteholders in the case of a bankruptcy or liquidation of UBRD. As of 31 December 2012, UBRD had senior debt with a maturity of over one year in the form of debt securities in issue of RUB 3,763 million and amounts due to other banks of RUB 854 million, in addition to customer deposits and subordinated debt. UBRD anticipates that, from time to time, it will incur additional indebtedness, including unsubordinated indebtedness. Restricted remedies The only remedies against UBRD available to the Issuer will be: for recovery of amounts of principal or interest owing in respect of the Subordinated Loan, the institution of proceedings for the insolvency (bankruptcy) of UBRD and/or proving for such debt, and claim, in any consequent liquidation of UBRD; or upon the bankruptcy or liquidation of UBRD, the revocation of UBRD's general banking licence or any analogous event under Russian law, to take any actions in the manner and to the extent contemplated by the applicable law of Russia to prove for its debt and/or, to the extent applicable, commence liquidation or winding up proceedings of UBRD; In a bankruptcy of UBRD, however, the Issuer's claim in respect of the Subordinated Loan would be subordinated to the claims of Senior Creditors (see " UBRD's obligations under the Subordinated Loan Agreement are subordinated"). Interest incurred on the Subordinated Loan may be cancelled and non-cumulative and the Subordinated Loan may be subject to loss absorption measures Pursuant to Clause 8 of the Subordinated Loan Agreement, if either of the following has occurred and is continuing: (a) the Common Equity Tier 1 Capital Ratio (as defined in the Subordinated Loan Agreement) of UBRD is less than 2 per cent.; or (b) the DIA implements any measures for the prevention of the bankruptcy of UBRD in accordance with the Federal Law No. 175-FZ dated 27 October 2008 "On Additional Measures to Enhance Stability of Banking System until 31 December 2014" (as amended) (the "Banking System Stability Law"), UBRD will cancel in whole or in part the interest accrued and not paid to the Issuer and write down in whole or in part the principal amount of the Subordinated Loan to offset its losses provided that UBRD may write down the principal amount of the Subordinated Loan only to offset losses incurred by UBRD. Once the principal amount of the Subordinated Loan has been written down in accordance with Clause 8 of the Subordinated Loan Agreement, the principal amount so written down may not be restored under any circumstances. The Issuer shall have no right to the relevant amount of interest cancelled by UBRD whether in bankruptcy or liquidation of UBRD or otherwise. None of the Issuer, the Trustee or any Noteholder shall have any right to such cancelled or written down amounts whether in a bankruptcy or dissolution of UBRD or otherwise and such non-payment shall not constitute an event entitling the Issuer to accelerate the Subordinated Loan. Consequently, investors may lose all or part of their investment following the occurrence of a Loss Absorption Event (as defined in "The Banking Sector and Banking Regulation in Russia Regulation Regulation of Capital Subordinated Debt"). To the extent that part of the principal amount of the relevant Subordinated Loan has been written down, interest will continue to accrue only on the then outstanding principal amount (as so written down) of the Subordinated Loan. Consequently, the amount of interest payable (if any) on the Notes will be correspondingly smaller following implementation of the Loss Absorption Measures (as defined in "The Banking Sector and Banking Regulation in Russia Regulation Regulation of Capital Subordinated Debt")

55 UBRD's payments under the Subordinated Loan may be subject to Russian withholding tax In general, interest payments made by a Russian legal entity to a non-resident legal entity or organisation on borrowed funds are subject to Russian withholding tax at a rate of 20 per cent. for legal entities and 30 per cent. for non-resident individuals, unless such withholding is reduced or eliminated pursuant to the terms of an applicable double tax treaty. Based on professional advice received, UBRD believes that interest payments under the Subordinated Loan Agreement made to the Issuer should not be subject to withholding tax under the terms of the applicable double tax treaty between Russia and Ireland. However, there can be no assurance that such double tax treaty relief will be available or will continue to be available throughout the term of the Subordinated Loan Agreement. The application of tax benefits under the double tax treaty could be influenced by changes in the position of the Russian tax authorities to look beyond the mere form of the transaction while assessing the availability of treaty benefits. On the other hand, the amendments to the Russian Tax Code introduced by Federal Law No. 97- FZ dated 29 June 2012 (the "Tax Code Amendments") should allow the interest under the Subordinated Loan Agreement not to be subject to withholding. In particular, the Tax Code Amendments introduced into the Russian Tax Code an exemption from the obligation to withhold tax from interest paid under transactions similar to the transactions described herein. The Tax Code Amendments were approved into law and became effective from 1 July According to the Tax Code Amendments, in respect of bonds issued prior to 1 January 2014, Russian borrowers are exempt from the obligation to withhold Russian withholding tax from interest payments made to foreign companies on debt obligations arising in connection with placement by these foreign companies of quoted bonds, provided that (i) there is a double tax treaty between Russia and the jurisdiction of tax residence of the issuer, and (ii) the issuer duly confirms its tax residence. The Tax Code Amendments do not provide a tax exemption for the holders of Eurobonds from Russian tax on interest payments, although at present there is no mechanism or requirement for non-residents to self-assess and pay the tax. For the purpose of the Tax Code Amendments, "quoted bonds" means bonds and other debt obligations which have passed the listing procedures and/or were admitted to circulation on one or more foreign stock exchanges and/or rights to which are recorded by a foreign depositoryclearing organisation, provided such foreign stock exchanges and depository-clearing organisations are on the list approved by the FSFM in consultation with the Ministry of Finance (the "List"). The List, which became effective on 30 December 2012, includes the Irish Stock Exchange among the recognised foreign stock exchanges, and Euroclear, Clearstream, Luxembourg among the recognised foreign depository-clearing organisations. Provided that the Notes have passed the listing procedure and/or were admitted to circulation on the Irish Stock Exchange and/or the rights to the Notes are recorded by Euroclear, Clearstream, Luxembourg, the Notes should be recognised as "quoted bonds" for the purposes of the Amendments and, therefore, payments under the Subordinated Loan Agreement should not be subject to Russian withholding tax. According to the Tax Code Amendments, the above exemption established for interest payments is also applicable to (i) income payable by a Russian legal entity in connection with a guarantee, surety or other security granted by such Russian organisation with respect to a debt obligation to a foreign organisation and/or with respect to quoted bonds and (ii) other income payable by a Russian organisation providing that the payment of such income is established by the provisions of the respective debt obligation or such income is paid due to a change in the terms and conditions of the respective quoted bonds and/or debt obligations including the cases of their early repurchase or redemption. The Tax Code Amendments do not address Russian tax treatment of payments under the quoted bonds issued on or after 1 January If the payments under the Subordinated Loan are subject to any withholding taxes for any reason (as a result of which the Issuer would reduce payments under the Notes in the amount of such withholding taxes), UBRD is required to increase payments as may be necessary so that the Issuer receives the net amount equal to the full amount it would have received in the absence of such withholding. It should be noted, however, that tax gross-up provisions in contracts may not be enforceable in Russia. In the event of UBRD's failure to increase the payments, such failure would constitute an event of default under the Subordinated Loan Agreement. If UBRD is obliged

56 to increase payments, UBRD may prepay the Subordinated Loan in full. In such case, all outstanding Notes would be redeemable at par with accrued interest. The Issuer will grant security over certain of its rights in the Subordinated Loan Agreement to the Trustee in respect of its obligations under the Notes. The security under the Trust Deed will become enforceable upon the occurrence of a Relevant Event, as defined in the Trust Deed. In these circumstances, payments under the Subordinated Loan Agreement (other than in respect of Reserved Rights) would be required to be made to, or to the order of, the Trustee. Under Russian tax law, payments of interest and other payments made by UBRD to the Trustee will in general be subject to Russian income tax withholding at a rate of 20 per cent. (or potentially, 30 per cent. in respect of non-resident individual Noteholders). It is not expected that the Trustee will, or will be able to, claim a withholding tax exemption under any double tax treaty. In addition, while it may be possible for some Noteholders who may be eligible for an exemption from Russian withholding tax under double tax treaties to claim a refund of tax withheld, there would be considerable practical difficulties in obtaining any such refund. There is a risk that under the Russian thin capitalisation rules, in certain circumstances where parties related to UBRD (i.e., any foreign corporate shareholder owning directly or indirectly more than a 20 per cent. share in UBRD's charter capital and, potentially, affiliates of such foreign corporate shareholder, collectively the "Related Parties") hold Notes, a portion or all of the interest to be paid by UBRD under the Subordinated Loan could be reclassified as dividends for Russian tax purposes. This would occur if the overall amount of UBRD's "controlled debt", calculated on an individual related party basis, exceeded three times its capital, calculated in accordance with the requirements of the Russian Tax Code. Interest in the amount of such excess would be reclassified as dividends for Russian tax purposes. There is a risk that UBRD's "controlled debt" may include all or part of the Subordinated Loan, to the extent that any Related Party acquires any portion of the Notes. Such reclassification of all or a portion of the interest under the Subordinated Loan as dividends could potentially lead to the imposition of Russian withholding tax on such reclassified interest at the rate of 15 per cent., subject to a possible tax relief under the double tax treaty between Russia and Ireland, and the non-deductibility of such interest for Russian profit tax purposes by UBRD. Also, such withholding on dividends would trigger the gross-up obligation as discussed above. Based on the assumption that the amount of UBRD's "controlled debt" calculated in accordance with the requirements of Article 269 of the Russian Tax Code does not exceed 12.5 times the amount of its "own capital" ("sobstvenniy capital") calculated on an individual related-party basis, the Russian thin capitalisation rules should not apply, as at the date of this Prospectus, to the interest on the Subordinated Loan. However, should such assumptions be incorrect, it could result in all or a portion of such interest being subject to the thin capitalization rules in the future, so as to treat "excess interest" related to the Subordinated Loan as a dividend under the double tax treaty between Russia and Ireland subject to 15 per cent. withholding tax applicable to dividends (subject to possible tax treaty relief, if any), rather than a zero withholding tax applicable to interest. Such withholding on dividends would trigger the gross-up obligation discussed above. It is unclear as at the date of this Prospectus whether the obligations with respect to gross-up payments will be enforceable in Russia. If, in the case of litigation in Russia, a Russian court does not rule in favour of the Issuer or the Trustee or the Noteholders, there is a risk that the tax gross-up for withholding tax will not take place and that payments made by us under the Subordinated Loan Agreement will be reduced by Russian income tax withheld by UBRD. See "Taxation - Russia". Tax might be withheld on disposals of the Notes in Russia, reducing their value. If a non-resident Noteholder that is a legal entity or organisation, which in each case is not organized under Russian law and which holds and disposes of the Notes otherwise than through a permanent establishment in Russia, sells the Notes and receives proceeds from a source within Russia, there is a risk that any part of the payment that represents accrued interest may be subject to a 20 per cent. Russian withholding tax (even if a disposal is performed at a loss). The foreign Noteholder may be entitled to a reduction of such Russian withholding tax under an applicable double tax treaty

57 Where proceeds from a disposal of the Notes are received from a source within Russia by a nonresident individual Noteholder, there is a risk that Russian withholding tax would be charged at a rate of 30 per cent. on gross proceeds from such disposal of the Notes less any available cost deduction. There is no assurance that advance double tax treaty relief would be granted to an individual and obtaining a refund can involve considerable practical difficulties. The imposition or risk of imposition of this withholding tax could adversely affect the value of the Notes. See "Taxation - Russia". It is possible that FATCA could operate to impose U.S. withholding tax on certain payments to the Borrower and the Issuer and may also apply to certain payments from the Issuer to Noteholders The U.S. Foreign Account Tax Compliance rules ("FATCA") were enacted as part of the Hiring Incentives to Restore Employment ("HIRE") Act of 2010 to require foreign banks and investment funds to provide information to the U.S. Internal Revenue Service ("IRS") about U.S. customers and investors. This is achieved through a comprehensive information reporting regime that requires foreign financial institutions (which may include the Borrower and the Issuer) to conduct diligence on their account holders and investors to determine whether their accounts are "U.S. accounts" (defined as financial accounts maintained by certain U.S. persons or U.S. owned foreign entities) and either provide detailed information about these U.S. accounts to the IRS or incur a 30 per cent. withholding tax on certain payments. The U.S. Treasury Department recently released proposed regulations addressing some issues arising under FATCA, but has not yet issued final regulations implementing FATCA, so the scope and application of FATCA is uncertain at this time. It is possible that FATCA could operate to impose U.S. withholding tax on (i) beginning in 2014, payments to the Borrower and the Issuer in respect of U.S. debt or equity instruments or other securities, including interest and dividends, (ii) beginning in 2015, payments to the Borrower and the Issuer of gross proceeds from the disposition of such securities, and (iii) beginning in 2017, certain "pass-thru payments" to the Borrower and the Issuer. FATCA may also apply to certain payments from the Issuer to Noteholders. It is also possible that the Borrower and the Issuer could incur material costs in implementing information-gathering systems to comply with FATCA. Given the lack of final regulations, it is impossible for the Borrower to evaluate the potential effect of FATCA at this time. Ireland and the United States have entered into an intergovernmental agreement ("IGA") relating to FATCA. To implement its obligations pursuant to the IGA, the Irish government is expected to issue enacting regulations in Under the IGA, a financial institution or its branch that is treated as a resident in Ireland and that complies with the requirements of the IGA will not be subject to FATCA withholding on payments it receives and generally will not be required to withhold on payments of non-us source income. It is expected however that the Irish regulations will require any such financial institution to report annually to the Irish Revenue Commissioners and provide details on its US account holders. As the supporting Irish regulations have not yet been enacted or issued however, it is not entirely clear whether the Issuer will treated as an Irish financial institution for this purpose. Although the application of FACTA is not yet clear, the Issuer intends to satisfy any obligations imposed on it under the IGA, which may require holders of the Notes to provide the Issuer with certain information deemed necessary to satisfy these obligations. Holders of Notes are encouraged to consult with their tax advisers regarding the possible implications of the IGA on their interests in Notes issued by the Issuer. Payments under the Notes are limited to the amount of certain payments received by the Issuer in respect of the Subordinated Loan In each case where amounts of principal, interest and additional amounts, if any, under the Terms and Conditions of the Notes or the Trust Deed are to be paid by the Issuer in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders on each date upon which such amounts of principal, interest and additional amounts, if any, are due in respect of the Notes, for an amount equivalent to sums of principal, interest and additional amounts, if any, actually received by or for the account of the Issuer pursuant to the Subordinated Loan Agreement less any amounts in respect of the Reserved Rights. Consequently, the failure of the Borrower to meet its payment obligations under the Subordinated Loan in full would result in the Noteholders receiving less than the scheduled amount of principal or interest or other amounts, if any, on the relevant due date

58 No direct recourse of the Noteholders to the Borrower Save as otherwise expressly provided in the Terms and Conditions of the Notes and in the Trust Deed, no proprietary or other direct interest in the Issuer's rights under or in respect of the Subordinated Loan Agreement exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce any provision of the Subordinated Loan Agreement or have direct recourse to the Borrower as borrower, except through action by the Trustee pursuant to the Security Interests (as defined in the Terms and Conditions of the Notes) granted to the Trustee in the Trust Deed. Neither the Issuer nor the Trustee shall be required to monitor the financial performance or status of the Borrower or to take proceedings to enforce payment under the Subordinated Loan Agreement unless it has been indemnified or secured by the Noteholders to its satisfaction. Interest on the Notes may be subject to withholding tax Under EC Council Directive 2003/48/EC on the Taxation of Savings Income, each Member State is required to provide to the tax authorities of another Member State details of payments of interest or other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entity established in that other Member State; however, for a transitional period, Austria and Luxembourg may instead impose a withholding system in relation to such payments, rising over time to 35 per cent. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-eu countries to the exchange of information relating to such payments. A number of non-eu countries, including Switzerland, and certain dependent or associated territories of certain Member States have adopted similar measures (either provision of information or transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entity established in a Member State. In addition, the Member States have entered into provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident or certain limited types of entity established in one of those territories. The European Commission has proposed certain amendments to the Directive which may, if implemented, amend or broaden the scope of the requirements described above. Investors who are in any doubt as to their position should consult their professional advisers. The Issuer is not required to pay additional amounts on account of withholding pursuant to the EU Savings Tax Directive. If the Principal Paying Agent or any other person by or through whom a payment on the Notes is made or received is required to withhold any amount from any such payment as a consequence of or pursuant to EC Directive 2003/48/EC on the taxation of savings income (the "EU Savings Tax Directive") or any law implementing or complying with, or introduced in order to conform to, such Directive, there is no requirement for the Issuer to pay any additional amounts on account of that withholding. In this regard, prospective Noteholders should read the information about the EU Savings Tax Directive in the section entitled "Tax Considerations" and consult their advisers. The Issuer is subject to certain legal risks, including the location of its centre of main interest ("COMI"), the appointment of an examiner in the event the Issuer experiences financial difficulties, the claims of examiners, preferred creditors under Irish law and floating charges Centre of main interest As the Issuer has its registered office in Ireland, there is a rebuttable presumption that its COMI is in Ireland and consequently that any main insolvency proceedings applicable to it would be governed by Irish law. In the decision by the European Court of Justice ("ECJ") in relation to Eurofood IFSC Limited, the ECJ restated the presumption in Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings that the place of a company's registered office is presumed to be the company's COMI and stated that the presumption can only be rebutted if "factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at the registered office is deemed to reflect". As the Issuer has its registered office in Ireland, has Irish

59 directors, is registered for tax in Ireland and has an Irish corporate services provider, the Issuer does not believe that factors exist that would rebut this presumption, although this would ultimately be a matter for the relevant court to decide, based on the circumstances existing at the time when it was asked to make that decision. If the Issuer's COMI is not located in Ireland, and is held to be in a different jurisdiction within the European Union, Irish insolvency proceedings would not be applicable to the Issuer. Examinership Examinership is a court procedure available under the Irish Companies (Amendment) Act 1990, as amended (the "1990 Act") to facilitate the survival of Irish companies in financial difficulties. The Issuer, the directors of the Issuer, a contingent, prospective or actual creditor of the Issuer, or shareholders of the Issuer holding, at the date of presentation of the petition, not less than one tenth of the voting share capital of the Issuer are each entitled to petition the court for the appointment of an examiner. The examiner, once appointed, has the power to halt, prevent or rectify acts or omissions, by or on behalf of the company after his appointment and, in certain circumstances, negative pledges given by the company prior to his appointment will not be binding on the company. Further, where proposals for a scheme of arrangement are to be formulated, the company may, subject to the approval of the court, affirm or repudiate any contract under which some element of performance other than the payment remains to be rendered both by the company and the other contracting party or parties. During the period of protection, the examiner will compile proposals for a compromise or scheme of arrangement to assist in the survival of the company or the whole or any part of its undertaking as a going concern. A scheme of arrangement may be approved by the Irish High Court when a minimum of one class of creditors, whose interests are impaired under the proposals, has voted in favour of the proposals and the Irish High Court is satisfied that such proposals are fair and equitable in relation to any class of members or creditors who have not accepted the proposals and whose interests would be impaired by implementation of the scheme of arrangement and the proposals are not unfairly prejudicial to any interested party. The fact that the Issuer is a special-purpose entity and that all its liabilities are of a limited recourse nature means that it is unlikely that an examiner would be appointed to the Issuer. If, however, for any reason, an examiner was appointed while any amounts due by the Issuer under any Further Notes were unpaid, the primary risks to the holders of such Further Notes would be as follows: the Trustee, acting on behalf of Noteholders, would not be able to enforce rights against the Issuer during the period of examinership; and a scheme of arrangement may be approved involving the writing down of the debt due by the Issuer to the Noteholders irrespective of the Noteholders' views. Preferred creditors If the Issuer becomes subject to insolvency proceedings and the Issuer has obligations to creditors that are treated under Irish law as creditors that are senior relative to the Noteholders, the Noteholders may suffer losses as a result of their subordinated status during such insolvency proceedings. In particular: under the terms of the Trust Deed, the Issuer will charge to the Trustee on behalf of Noteholders by way of first fixed charge as security for its payment obligations in respect of the Notes certain rights under the Subordinated Loan Agreement and to the Account. Under Irish law, the claims of creditors holding fixed charges may rank behind other creditors (namely fees, costs and expenses of any examiner appointed and certain capital gains tax liabilities) and, in the case of fixed charges over book debts, may rank behind claims of the Irish Revenue Commissioners for PAYE and VAT; under Irish law, for a charge to be characterised as a fixed charge, the charge holder is required to exercise the requisite level of control over the assets purported to be charged and the proceeds of such assets including any bank account into which such proceeds are paid. There is a risk therefore that even a charge which purports to be taken as a

60 fixed charge may take effect as a floating charge if a court deems that the requisite level of control was not exercised; and in an insolvency of the Issuer, the claims of certain other creditors (including the Irish Revenue Commissioners for certain unpaid taxes), as well as those of creditors mentioned above, will rank in priority to claims of unsecured creditors and claims of creditors holding floating charges

61 DESCRIPTION OF THE TRANSACTION The following summary contains basic information about the Notes and the Subordinated Loan and should be read in conjunction with, and is qualified in its entirety by, the information set forth under "Terms and Conditions of the Notes" and "The Subordinated Loan Agreement" appearing elsewhere in this Prospectus. The transaction will be structured as a Subordinated Loan to the Borrower by the Issuer on the Issue Date. The Subordinated Loan will be made on the terms of the Subordinated Loan Agreement and will have characteristics that produce funds to service any payments due and payable on the Notes. Interest and principal payable by the Borrower on the Subordinated Loan from the Issue Date will be used to service payments of interest and principal to be made under the Notes. The funds borrowed by the Borrower under the Subordinated Loan will be equal to the aggregate principal amount of the Notes. The Subordinated Loan and the Notes bear interest at the same rate. Due dates for the payment of principal and interest in respect of the Notes are matched with the due dates for payment of principal and interest in respect of the Subordinated Loan. Set out below is a diagrammatic representation of the structure: Issuer Principal and Interest on Subordinated Loan UBRD Payments of amounts received under the Subordinated Loan Proceeds of the Notes Subordinated Loan Loan Noteholders The Notes are limited recourse loan participation notes to be issued by the Issuer for the sole purpose of funding the Subordinated Loan to the Borrower. The Notes will have the benefit of, and be constituted by, the Trust Deed. As provided in the Trust Deed, the Issuer will charge in favour of the Trustee for the benefit of the Trustee and the Noteholders by way of first fixed charge: (a) the rights to all principal, interest and other amounts paid and payable by the Borrower to the Issuer under the Subordinated Loan Agreement; (b) the right to receive all sums which may be or become payable by the Borrower under or in respect of any claim, award or judgment relating to the Subordinated Loan Agreement; and (c) all the rights, title and interest in and to all sums of money now or in the future held on deposit in an account with BNP Paribas Securities Services, London Branch, in the name of the Issuer (the "Account") together with the debt represented thereby (including interest from time to time earned thereon) in each case, other than certain Reserved Rights (as defined in "Terms and Conditions of the Notes"). The Issuer will also assign certain administrative rights under the Subordinated Loan Agreement to the Trustee. The Borrower will be obliged to make payments under the Subordinated Loan to the Issuer in accordance with the terms of the Subordinated Loan Agreement to the Account or as otherwise instructed by the Trustee following a Relevant Event (as defined in the Trust Deed). The Issuer will agree in the Trust Deed not to make any amendment or any modification or waiver of or authorise any breach of or proposed breach of, the terms of the Subordinated Loan Agreement unless the Trustee has given its prior written consent or except as otherwise expressly provided in the Trust Deed or the Subordinated Loan. The Issuer will further agree to

62 act at all times in accordance with any instruction of the Trustee from time to time with respect to the Subordinated Loan Agreement, save as otherwise provided in the Trust Deed. Any amendments, modifications, waivers or authorisations made with the Trustee's consent shall be notified to the Noteholders in accordance with Condition 15 (Notices) in "Terms and Conditions of the Notes" and shall be binding on the Noteholders. Formal notice of the security interests created by the Trust Deed will be given to the Borrower and the Trustee who will each be required to acknowledge the same. In the event that the Trustee enforces the security interests granted to it following the occurrence of a Relevant Event (as defined in "Terms and Conditions of the Notes"), the Trustee will assume certain rights and obligations towards the Noteholders as more fully set out in the Trust Deed. The Notes are limited recourse obligations of the Issuer and the Issuer shall apply the proceeds from the issue of the Notes solely for financing the Subordinated Loan Agreement and to account to the Noteholders for an amount equivalent to sums of principal, interest and any additional amounts (if any) actually received and retained (net of tax) by it or for the account of the Issuer pursuant to the Subordinated Loan Agreement less any amount in respect of the Reserved Rights ("Terms and Conditions of the Notes") which the Issuer is entitled to retain from any amounts actually received. The Issuer will have no other financial obligations under the Notes and no other assets of the Issuer whatsoever and no right of action against the Issuer will be available to the Noteholders. In the event that the amount due and payable by the Issuer under the Notes exceeds the sums so received, recovered or retained (net of tax), the right of any person to claim payment of any amount exceeding such sums shall be extinguished and Noteholders may take no further action to recover such amounts. Payments in respect of the Notes will be made without any deduction or withholding for, or on account of, taxes of Ireland or Russia except as required by law. See Condition 8 (Taxation) in "Terms and Conditions of the Notes". In the event that any deduction or withholding is imposed in respect of such payments, the Issuer will only be required to pay any additional amounts to the extent it receives corresponding amounts from the Borrower under the Subordinated Loan Agreement. The Subordinated Loan Agreement provides for the Borrower to pay such corresponding amounts in these circumstances. In addition, payments under the Subordinated Loan Agreement will be made without any deduction or withholding for, or on account of, any taxes imposed by any tax authority, except as required by law. In the event of any such deduction of withholding, the Borrower will be obliged to increase the amounts payable under the Subordinated Loan Agreement. See "Risk Factors Risks Relating to the Notes and the Trading Market UBRD's payments under Subordinated Loan may be subject to Russian withholding tax"

63 USE OF PROCEEDS The gross proceeds from the offering of the Notes will be used by the Issuer for the sole purpose of financing the Subordinated Loan to UBRD. The gross proceeds of the Subordinated Loan will be used by UBRD for general corporate purposes

64 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following tables present UBRD's selected consolidated financial information that has been extracted without material adjustment from, and should be read in conjunction with, UBRD's Consolidated Financial Statements included elsewhere in this Prospectus, as well as "Presentation of Financial and Other Information", "Capitalisation" and "Operating and Financial Review of UBRD": UBRD's Consolidated Income For the year ended 31 December (In thousands of Roubles) Results of operations Interest income 13,530,680 10,085,711 8,040,010 Interest expense (7,570,417) (5,335,177) (5,703,525) Net interest income 5,960,263 4,750,534 2,336,485 Provision for/recovery of impairment (2,104,687) (1,492,037) (364,435) Net interest income after provision for impairment 3,855,576 3,258,497 1,972,050 Fee and commission income 2,304,608 1,102, ,278 Fee and commission expense (280,245) (179,394) (118,202) Other operating income and expense (348,820) (178,424) 773,283 Administrative and other operating expenses (4,519,916) (3,375,199) (2,693,727) Profit before tax 1,011, , ,682 Income tax expense/benefit (164,771) (123,424) (95,423) Net profit for the year 846, , ,

65 UBRD's Assets As at 31 December (In thousands of Roubles) Assets Cash and cash equivalents 16,165,390 13,372,036 8,434,707 Mandatory cash balances with the CBR 1,140, , ,149 Trading securities 191, ,955 13,380 Other securities at fair value through profit or loss 27,231,288 23,847,034 20,636,595 Securities available-for-sale 55, , ,725 Investment securities held to maturity 8,237, Due from other banks 84,431 64,391 62,358 Loans and advances to customers 72,415,124 44,962,190 33,469,276 Finance lease receivables 839, , ,000 Goodwill 162, , ,122 Property and equipment 4,824,699 4,989,139 4,897,410 Intangible assets 181, , ,504 Investment property 5,955,205 6,047,875 - Advances to real estate developers 2,572,622 2,730,523 4,919,290 Current income tax assets 17,705 11,243 4,683 Deferred tax assets 564, , ,394 Other assets 3,030,872 1,181,468 1,037,299 Assets held for sale 246,605 36, ,963 Total assets 143,916,943 99,995,409 75,939,

66 UBRD's Liabilities As at 31 December (In thousands of Roubles) Liabilities Customer accounts 95,645,302 69,503,461 54,473,470 Due to other banks 26,692,854 15,798,922 13,900,041 Debt securities in issue 8,939,999 5,052, ,576 Subordinated debt 2,468,741 1,646,691 1,556,425 Current income tax liability 89, ,820 17,393 Deferred income tax liability 300, , ,025 Other liabilities 389, , ,882 Total 134,526,928 92,942,293 71,217,812 UBRD's Equity As at 31 December (In thousands of Roubles) Equity Share capital 3,634,812 2,634,812 2,634,812 Share premium 1,581, , ,956 Additional capital 2,379,203 2,379, ,203 Revaluation reserve for land and premises 1,378,827 1,387,612 1,469,825 Revaluation reserve for securities available-forsale 1, ,493 Cumulative translation reserve (8,544) (29,026) (10,169) Retained earnings/(accumulated losses) 422,525 97,962 (489,077) Total Equity 9,390,015 7,053,116 4,722,

67 CAPITALISATION The following table sets out UBRD's consolidated total liabilities and equity as at 31 December This information should be read in conjunction with "Use of Proceeds", "Operating and Financial Review of UBRD" and UBRD's 2012 Consolidated Financial Statements included elsewhere in this Prospectus: Liabilities As at 31 December 2012 (in thousands of Roubles) Due to other banks Customer accounts Debt securities in issue Current income tax liability Deferred tax liability Other liabilities Subordinated debt 26,692,854 95,645,302 8,939,999 89, , ,669 2,468, 741 Total liabilities 134,526,928 Equity Share capital Share premium reserve Additional capital Revaluation reserve for land and premises Revaluation reserve for securities available-for-sale Cumulative translation reserve Retained earnings 3,634,812 1,581,956 2,379,203 1,378,827 1,236 (8,544) 422,525 Total equity 9,390,015 Total liabilities and equity 143,916,

68 OPERATING AND FINANCIAL REVIEW OF UBRD The following discussion and analysis of the consolidated financial condition and results of operations of UBRD relates to UBRD's Consolidated Financial Statements. The financial information presented in this discussion has been extracted without material adjustments from UBRD's Consolidated Financial Statements. This section should be read in conjunction with UBRD's Consolidated Financial Statements and the notes thereto and the other financial information included elsewhere in this Prospectus, as well as the sections entitled "Presentation of Financial and Other Information" and "Risk Factors". Certain information contained in the discussion and analysis set forth below and elsewhere in the Prospectus includes "forward-looking statements". Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Overview UBRD is a privately-owned commercial bank headquartered in Ekaterinburg, with a leading position in the Urals region and a strategic focus on retail, corporate and SME business, including the provision of loans, the taking of deposits and fee and commission-generating services. As at 31 December 2012, UBRD's corporate (including SME) loan portfolio amounted to RUB 41,026 million (before allowance for impairment) and represented the largest proportion, 53.7 per cent., of UBRD's total gross loan portfolio, compared to 46.3 per cent. from UBRD's retail loan portfolio. As at 31 December 2012, the assets of UBRD amounted to RUB 143,917 million, compared to RUB 99,995 million and RUB 75,940 million as at 31 December 2011 and 2010, respectively. UBRD's profit for the year ended 31 December 2012 amounted to RUB 846 million, compared to RUB 505 million and RUB 578 million for the years ended 31 December 2011 and 2010, respectively. As at 31 December 2012, UBRD's net loan portfolio amounted to RUB 72,415 million, compared to RUB 44,962 million and RUB 33,469 million as at 31 December 2011 and As at 31 December 2012, UBRD had total equity of RUB 9,390 million, compared to RUB 7,053 million and RUB 4,722 million as at 31 December 2011 and 2010, respectively. In the year ended 31 December 2012, UBRD's RoAE was 10.3 per cent. and RoAA was 0.7 per cent., as compared to 8.6 per cent. and 0.6 per cent., respectively, in the year ended 31 December 2011 and 14.5 per cent. and 0.8 per cent., respectively, in the year ended 31 December UBRD's Net Interest Margin was 5.3 per cent. in the year ended 31 December 2012, compared to 5.9 per cent. and 3.8 per cent. in the years ended 31 December 2011 and 2010, respectively. Significant Factors Affecting Results of Operations Russia's economic condition As at 31 December 2012, the majority of UBRD's assets are located in, or have businesses related to, revenues derived from, and expenses incurred in, Russia. As a result, the Group is substantially affected by Russia's economic condition. According to Rosstat, Russia's GDP growth in 2010, 2011 and 2012 was 4.3 per cent., 4.3 per cent. and 3.4 per cent., respectively. According to Rosstat, net capital outflows were US$38.3 billion in 2010 and increased again to US$84.2 billion in 2011, before decreasing to US$56.8 billion in In 2010, 2011 and 2012 the level of foreign investment in Russia was US$114.7 billion, US$190.6 billion, and US$154.6 billion, respectively. Interest rate environment and funding Fluctuations in interest rates affect UBRD's operations. For the years ended 31 December 2012 and 2011 (the "periods under review"), movements in short and long-term interest rates have affected both UBRD's interest income and interest expense, as well as UBRD's level of gains and losses on its securities portfolio

69 For the periods under review, UBRD generated a substantial majority of its interest income from loans to customers. UBRD's interest income from loans to customers was 75.2 per cent. of UBRD's total interest income for the year ended 31 December 2012, compared to 75.4 per cent. and 66.2 per cent. for the years ended 31 December 2011 and 31 December 2010, respectively. For the periods under review, UBRD incurred the substantial majority of its interest expense from customer accounts. UBRD's interest expense from customer accounts was 72.1 per cent. of UBRD's total interest expense for the year ended 31 December 2012, compared to 78.8 per cent. and 87.6 per cent. for the years ended 31 December 2011 and 31 December 2010, respectively. The average annual interest rate on UBRD's loans to customers (including finance lease receivables) decreased to 17.4 per cent. in 2012, from 19.4 per cent. in 2011, which in turn represented an increase from 18.8 per cent. in The average interest rate paid by UBRD on customer accounts, which constituted the principal source of interest expense for UBRD, decreased to 6.6 per cent. in 2012, from 6.8 per cent. in 2011, which in turn represented a decrease from 10.2 per cent. in See " Results of Operations Average Balances and Interest Rates" Interest rates can be affected by factors such as rates set by the CBR, inflation, competition among banks and general macroeconomic conditions. UBRD's Net Interest Margin decreased to 5.3 per cent. for the year ended 31 December 2012, from 5.9 per cent. for the year ended 31 December 2011, reflecting UBRD's more conservative approach to risk and the use of liquidity in the year ended 31 December UBRD's Net Interest Margin increased to 5.9 per cent. in 2011 from 3.8 per cent. for the year ended 31 December 2010, reflecting UBRD's increased focus on growing its retail lending portfolio, which has a higher average rate of interest than its corporate lending portfolio, in the year ended 31 December Provision for impairment Provision for impairment represents provisions made for loans to customers, including legal entities and individuals, placements with banks and other financial institutions, finance lease receivables and other loans. In accordance with the Banking Law and CBR Instruction 110-I "On Mandatory Requirements for Banks" dated 16 January 2004, UBRD is required to publish certain RAS accounting reports quarterly, including allowances for impaired loans, which do not contain all of the information contained in UBRD's Consolidated Financial Statements and are not prepared in accordance with IFRS. UBRD's management reviews its loans and receivables to assess impairment on a regular basis. A loan or receivable is impaired and impairment losses are incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan or receivable and that event (or events) has had an impact on the estimated future cash flows of the loan that can be reliably estimated. All impairment losses are recognised in the consolidated statement of income and are only reversed if a subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. For a detailed discussion of UBRD's policy of recording impairment losses, see Note 3 (Summary of significant accounting policies) to UBRD's 2012 Consolidated Financial Statements. For a detailed discussion of UBRD's provision for loan impairment, see " Results of Operations Provision for loan impairment". Results of Operations The following table sets out UBRD's results of operations in the years ended 31 December 2012, 2011 and 2010:

70 For the year ended 31 December (In thousands of Roubles) Results of operations Interest income 13,530,680 10,085,711 8,040,010 Interest expense (7,570,417) (5,335,177) (5,703,525) Net interest income 5,960,263 4,750,534 2,336,485 Provision for/recovery of impairment (2,104,687) (1,492,037) (364,435) Net interest income after provision for impairment 3,855,576 3,258,497 1,972,050 Fee and commission income 2,304,608 1,102, ,278 Fee and commission expense (280,245) (179,394) (118,202) Other net income (expense) (348,820) (178,424) 773,283 Administrative and other operating expenses (4,519,916) (3,375,199) (2,693,727) Profit before tax 1,011, , ,682 Income tax expense/benefit (164,771) (123,424) (95,423) Net profit for the year 846, , ,259 Average Balances and Interest Rates The following table sets forth the consolidated average balances of interest-earning assets and interest-bearing liabilities of UBRD in the years ended 31 December 2012, 2011 and The table also sets forth the amount of interest income earned and interest expense incurred by UBRD for the same periods, as well as the average interest rates at which interest income was earned on such assets and interest expense was incurred on such liabilities. The average rates below are calculated by dividing aggregate interest income or expense for the relevant line item below by the average balance for the same line item and then annualising the resulting numbers. Average interest rates are distinct from the effective interest rates presented in UBRD's Consolidated Financial Statements are referred to elsewhere in this Prospectus. See "Presentation of Financial and Other Information Presentation of Financial Information Average Balances, Average Interest Rates and Effective Interest Rates" for a description of the method of calculation of average interest rates and effective interest rates

71 Average Balance As at 31 December 2012 As at 31 December 2011 As at 31 December 2010 Interest Income/ Average Interest Average Interest Income/ Average Interest Average Interest Income/ Expense Rate (1) Balance Expense Rate (1) Balance Expense Average Interest Rate (1) Assets Interest-earning assets Loans and advances to customers and finance lease receivables 59,453,054 10,312, % 39,700,953 7,696, % 28,902,831 5,437, % Cash and cash equivalents and amounts due from other banks 14,843, , % 10,966,746 36, % 7,792,500 18, % Securities (2) 29,837,473 3,048, % 22,889,030 2,120, % 21,205,634 2,083, % Investment property and advances to real estate developers 8,653,113 54, % 6,848, , % 4,123, , % Total interest-earning assets 112,786,764 13,530, % 80,405,573 10,085, % 62,024,794 8,040, % Non-interest earning assets Mandatory cash balances with the CBR 1,007, , ,935 Deferred tax asset and current income tax asset 519, , ,325 Property and equipment and intangible assets 5,071,389 5,082,041 4,708,453 Goodwill 162, , ,122 Other assets 2,408,856 1,285,439 1,204,960 Total average assets 121,956,176 13,530, % 87,967,632 10,085, % 68,774,589 8,040, % Liabilities and equity Interest-bearing liabilities Due to other banks 21,245,888 1,482, % 14,849, , % 13,481, , % Customer accounts 82,574,382 5,458, % 61,988,466 4,203, % 48,776,973 4,994, % -Term deposits of individuals 52,862,111 4,440, % 42,797,469 3,657, % 35,629,395 4,352, % -Term deposits of legal entities 14,020, , % 7,860, , % 4,754, , % -Current/settlement accounts 15,691, , % 11,330,567 62, % 8,392,824 73, % Debt securities in issue 6,996, , % 2,893, , % 555,581 88, % Subordinated debt 2,057, , % 1,601, , % 1,550, , % Other liabilities 402, % 292,066 12, % 152,216 1, % Total interest-bearing liabilities 113,277,036 7,570, % 81,625,450 5,335, % 64,517,529 5,703, % Non-interest bearing liabilities Deferred tax liability and current income tax liability 457, , ,320 Total average liabilities and equity 121,956,176 7,570, % 87,967,632 5,335, % 68, ,703, % ROAA 0.69% 0.57% 0.84% ROAE 10.30% 8.57% 14.53% Net Interest Margin 5.28% 5.91% 3.77% (1) Average interest rates on interest-earning assets are calculated as total interest income divided by average interest-earning assets. Average rates on interest-bearing liabilities are calculated as total interest expense divided by average interest-bearing liabilities. (2) Includes other securities at fair value through profit or loss (excluding equity securities, as these securities are not interest-earning), securities available-for-sale and investment securities held to maturity

72 Interest-Earning Assets Average Balances. UBRD's average balance of interest-earning assets increased by RUB 32,381 million or by 40.3 per cent. to RUB 112,787 million in the year ended 31 December 2012, compared to RUB 80,406 million in the year ended 31 December UBRD's average balance of interest-earning assets increased by RUB 18,381 million, or 29.6 per cent., to RUB 80,406 million in the year ended 31 December 2011, compared to RUB 62,025 million in the year ended 31 December These increases were primarily due to increases in the average balances of loans and advances to customers and finance lease receivables and the average balance of securities, for the reasons described below. UBRD's average balance of loans and advances to customers and finance lease receivables increased by RUB 19,752 million or by 49.8 per cent. to RUB 59,453 million in the year ended 31 December 2012, compared to RUB 39,701 million in the year ended 31 December UBRD's average balance of loans and advances to customers and finance lease receivables increased by RUB 10,798 million, or 37.4 per cent., to RUB 39,701 million in the year ended 31 December 2011, compared to RUB 28,903 million in the year ended 31 December These increases were a result of the growth of UBRD's retail and SME loan portfolio, in line with UBRD's strategy to develop these lending segments, which UBRD considers to be comparatively more profitable than corporate lending. See "Business Strategy - Increasing lending to retail and SME customers". In addition, these increases were the result of the growth of UBRD's corporate loan portfolio, as a result of an increased demand for loans from UBRD's corporate customers. UBRD's average balance of securities increased by RUB 6,948 million or by 30.4 per cent. to RUB 29,837 million in the year ended 31 December 2012, compared to RUB 22,889 million in the year ended 31 December UBRD's average balance of securities increased by RUB 1,683 million, or 7.9 per cent., to RUB 22,889 million in the year ended 31 December 2011 compared to RUB 21,206 million in the year ended 31 December These increases were a result of the growth of UBRD's debt securities portfolio, which UBRD uses to manage its liquidity and which has grown as UBRD's liquidity needs have grown together with the increase in its retail customer accounts, which the Civil Code entitles retail customers to withdraw at any time, including term deposits, without penalty to principal. See "Risk Factors Risks Relating to UBRD's Business and Russian Banking Sector UBRD is exposed to liquidity risk" and "Business Key Strengths High proportion of liquid assets through a large debt securities portfolio". Average Interest Rates. The average interest rate on UBRD's interest-earning assets for the year ended 31 December 2012 decreased to 12.0 per cent., compared to 12.5 per cent. for the year ended 31 December 2011, due to a decrease in the average interest rate on UBRD's loans and advances to customers and finance lease receivables, which decreased to 17.4 per cent. in the year ended 31 December 2012, compared to 19.4 per cent. in the year ended 31 December 2011, which was primarily the result of changes in market interest rates. The average interest rate on UBRD's interest-earning assets for the year ended 31 December 2011 decreased to 12.5 per cent., compared to 13.0 per cent. in the year ended 31 December This was primarily due to a decrease in the average interest rate on debt securities held by UBRD, to 9.3 per cent. in the year ended 31 December 2011, compared to 9.8 per cent. in the year ended 31 December 2010 which in turn was a result of an improvement in the average credit rating of the debt securities held in UBRD's securities portfolio, which paid a lower coupon on average as a result. UBRD considers that investment grade debt securities are more suitable for managing its credit risk and UBRD was selling non-investment grade debt securities in its debt securities portfolio during these periods. See "Business Key Strengths High proportion of liquid assets through a large debt securities portfolio". Interest-Bearing Liabilities Average Balances. UBRD's average balance of interest-bearing liabilities increased by RUB 31,652 million or 38.8 per cent. to RUB 113,277 million in the year ended 31 December 2012, compared to RUB 81,625 million in the year ended 31 December UBRD's average balance

73 of interest-bearing liabilities increased by RUB 17,108 million, or 26.5 per cent., to RUB 81,625 million in the year ended 31 December 2011, compared to RUB 64,518 million in the year ended 31 December These increases were primarily due to increases in the average balances of customer accounts, for the reasons described below. UBRD's average balance of customer accounts increased by RUB 20,586 million or 33.2 per cent. to RUB 82,574 million in the year ended 31 December 2012, compared to RUB 61,988 million in the year ended 31 December UBRD's average balance of customer accounts increased by RUB 13,211 million, or 27.1 per cent., to RUB 61,988 million in the year ended 31 December 2011, compared to RUB 48,777 million in the year ended 31 December These increases were primarily due to the expansion of UBRD's branch and office network both within the Urals region and in other regions of Russia and through the improvement of UBRD's remote banking platform. Average Interest Rates. The average interest rate on UBRD's interest-bearing liabilities in the year ended 31 December 2012 increased to 6.7 per cent., compared to 6.5 per cent. in the year ended 31 December The average interest rate on interest-bearing liabilities in the year ended 31 December 2011 decreased to 6.5 per cent., compared to 8.8 per cent. in the year ended 31 December The increase in average interest rates on UBRD's interest-bearing liabilities in the year ended 31 December 2012 was primarily due to an increase in the average interest rate on amounts due to other banks to 7.0 per cent. in the year ended 31 December 2012, compared to 5.0 per cent. in the year ended 31 December 2011, as a result of an increase in interest rates in the interbank market in the year ended 31 December The decrease in average interest rates on interestbearing liabilities in the year ended 31 December 2011, compared to the year ended 31 December 2010, was primarily due to a decrease in the average interest rate on customer accounts to 6.8 per cent. in the year ended 31 December 2011, compared to 10.2 per cent. in the year ended 31 December 2010, as a result of a general decrease in market rates for customer accounts in Russia as banks were better able to meet their liquidity needs and were less incentivised to offer attractive interest rates to increase customer deposits in the year ended 31 December Net Interest Income The amount of net interest income earned by UBRD is primarily determined by the volume of interest-earning assets and interest-bearing liabilities, together with the rates earned on interestearning assets and rates incurred on interest-bearing liabilities. Interest-earning assets comprises primarily loans to customers and other securities at fair value through profit or loss. Interest income Interest income comprises interest earned by UBRD from loans and advances to customers, other securities at fair value through profit or loss, advances to real estate developers, finance lease receivables, securities available-for-sale, correspondent accounts with other banks, interest that is due from other banks and receivables under reverse repo agreements

74 The following table sets out the principal components of UBRD's interest income in the years ended 31 December 2012, 2011 and For the year ended 31 December (In thousands of Roubles) Interest income Loans and advances to customers 10,169,478 7,600,375 5,320,158 Other securities at fair value through profit or loss 2,495,417 2,051,394 1,738,918 Investment securities held to maturity 525, Advances to real estate developers 54, , ,437 Finance lease receivables 143,399 96, ,480 Securities available-for-sale 27,603 68, ,336 Correspondent accounts with other banks 97,702 23,074 1,864 Due from other banks 17,935 13,171 16,950 Receivables under reverse repo agreements ,867 Total interest income 13,530,680 10,085,711 8,040,010 Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's total interest income for the year ended 31 December 2012 increased by 34.2 per cent. to RUB 13,531 million, compared to RUB 10,086 million for the year ended 31 December This increase resulted principally from an increase in interest income from loans and advances to customers by 33.8 per cent. to RUB 10,169 million in the year ended 31 December 2012, compared to RUB 7,600 in the year ended 31 December 2011, which in turn resulted from a 49.8 per cent. increase in the average balance of loans and advances to customers and finance lease receivables. In addition, this increase resulted from an increase in interest income from other securities at fair value through profit or loss by 21.6 per cent. to RUB 2,495 million in the year ended 31 December 2012, compared to RUB 2,051 million in the year ended 31 December 2011, which in turn resulted from a 30.4 per cent. increase in the average balance of securities. In addition, this increase resulted from an increase in interest income from correspondent accounts with other banks by per cent. to RUB 98 million in the year ended 31 December 2012, compared to RUB 23 million in the year ended 31 December Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's total interest income for the year ended 31 December 2011 increased by 25.4 per cent. to RUB 10,086 million, compared to RUB 8,040 million for the year ended 31 December This increase resulted principally from an increase in interest income from loans and advances to customers by 42.9 per cent. to RUB 7,600 million in the year ended 31 December 2011, compared to RUB 5,320 million in the year ended 31 December 2010, which in turn resulted from a 37.4 per cent. increase in the average balance of loans and advances to customers and finance lease receivables in the year ended 31 December This was also a result of an

75 increase in the average interest rate on loans and advances to customers and finance lease receivables to 19.4 per cent. in the year ended 31 December 2011, compared to 18.8 per cent. in the year ended 31 December In addition, this increase resulted from an increase in interest income from other securities at fair value through profit or loss by 18.0 per cent. to RUB 2,051 million in the year ended 31 December 2011, compared to RUB 1,739 million in the year ended 31 December 2010, which in turn resulted from a 7.9 per cent. increase in the average balance of securities in the year ended 31 December Interest expense Interest expense of UBRD comprises interest expense from term deposits of individuals, term placements of legal entities, sale and repurchase agreements, subordinated debt, debt securities in issue, current/settlement accounts, term placements of other banks, correspondent accounts of other banks and finance lease payables. The following table sets out the principal components of UBRD's interest expense in the years ended 31 December 2012, 2011 and For the year ended 31 December (In thousands of Roubles) Interest expense Term deposits of individuals 4,440,914 3,657,079 4,352,993 Sale and repurchase agreements 1,286, , ,358 Term placements of legal entities 845, , ,305 Debt securities in issue 486, ,726 88,212 Subordinated debt 143, , ,480 Term placements of other banks 186,323 93,338 52,224 Current/settlement accounts 171,974 62,756 73,806 Correspondent accounts of other banks 8,983 5,941 6,723 Finance lease payables - 12,685 1,424 Total interest expense 7,570,417 5,335,177 5,703,525 Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's total interest expense for the year ended 31 December 2012 increased by 41.9 per cent. to RUB 7,570 million, compared to RUB 5,335 million for the year ended 31 December This increase resulted principally from an increase in interest expense from term deposits of individuals by 21.4 per cent. to RUB 4,441 million, compared to RUB 3,657 million in the year ended 31 December 2011, which in turn resulted from a 23.5 per cent. increase in the average balance of term deposits of individuals in the year ended 31 December This increase was also due to an increase in interest expense from sale and repurchase agreements by per cent. to RUB 1,287 million in the year ended 31 December 2012, compared to RUB 638 million in the year ended 31 December 2011, which in turn resulted from an increase in repo-based

76 financing in the year ended 31 December In addition, this increase resulted from an increase in interest expense from term placements of legal entities by 74.8 per cent. to RUB 846 million in the year ended 31 December 2012, compared to RUB 484 million in the year ended 31 December 2011, which in turn resulted from a 78.4 per cent. increase in the average balance of term deposits of legal entities to RUB 14,020 million in the year ended 31 December 2012, compared to RUB 7,860 million in the year ended 31 December Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's total interest expense for the year ended 31 December 2011 decreased by 6.5 per cent. to RUB 5,335 million, compared to RUB 5,704 million for the year ended 31 December This decrease resulted principally from a decrease in interest expense from term deposits of individuals by 16.0 per cent. to RUB 3,657 million in the year ended 31 December 2011, compared to RUB 4,353 million in the year ended 31 December 2010, which in turn resulted from a decrease in the average interest rate on term deposits of individuals to 8.6 per cent. in the year ended 31 December 2011 from 12.2 per cent. in the year ended 31 December In addition, this decrease resulted from a decrease in interest expense from term placements of legal entities by 14.7 per cent. to RUB 484 million in the year ended 31 December 2011, compared to RUB 567 million in the year ended 31 December 2010, which in turn resulted from a decrease in the average interest rate on term deposits of legal entities to 6.2 per cent. in the year ended 31 December 2010 from 11.9 per cent. in the year ended 31 December Provision for loan impairment The following table sets out UBRD's provision for provision for impairment of loans and advances to customers as at 31 December 2012, 2011 and 2010 and provisions recorded and write-offs made during the years ended 31 December 2012, 2011 and 2010: As at or for the year ended 31 December (In thousands of Roubles) Provision for loan impairment as at start of period 2,670,747 3,319,121 2,999,243 (Recovery)/charge of provision 2,103,329 1,524, ,546 Write offs (725,808) (2,173,175) (29,668) Provision for loan impairment as at end of period 4,048,268 2,670,747 3,319,121 Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's total provision for loan impairment as at 31 December 2012 increased by 51.6 per cent. to RUB 4,048 million, compared to RUB 2,671 million as at 31 December This increase resulted principally from the Group writing off a lower amount of impaired loans of RUB 726 million in in the year ended 31 December 2012, compared to a write off of RUB 2,173 million of loans in the year ended 31 December 2011 that were impaired during the global economic crisis. This increase was also a result of incurring higher provision charges of RUB 2,103 million in the year ended 31 December 2012, compared to RUB 1,525 million in the year ended 31 December 2011, as a result of the growth of UBRD's loan portfolio. Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's total provision for loan impairment as at 31 December 2011 decreased by 19.5 per cent. to RUB 2,671 million, compared to RUB 3,319 million as at 31 December This decrease

77 resulted principally from the write off of loans worth RUB 2,173 million in the year ended 31 December 2011, which in turn resulted from UBRD deciding that a substantial portion of impaired retail loans were uncollectable after all other collection procedures had been attempted or considered. However, this decrease was partially offset by a per cent. increase in provision charges to RUB 1,525 million in the year ended 31 December 2011 from RUB 350 million in the year ended 31 December 2010, as a result of provisioning charges returning to normal levels after the significant volume of write-offs and provisioning in 2009 and the improved economic conditions in 2010 resulted in UBRD recording lower provisioning charges than other recent periods in Fee and commission income Fee and commission income comprises transactions with plastic cards and cheques, settlement transactions, cash transactions, guarantees issued, cash collection, transactions with securities, fiduciary activities and other fee and commission income. The following table sets out the principal components of UBRD's fee and commission income in the years ended 31 December 2012, 2011 and For the year ended 31 December (In thousands of Roubles) Fee and commission income Transactions with plastic cards and cheques 1,578, , ,876 Settlement transactions 417, , ,950 Cash transactions 106, ,047 85,645 Guarantees issued 56,303 14,815 12,646 Cash collection 20,137 11,923 10,202 Transactions with securities 3,842 6,669 8,530 Fiduciary activities 1,403 2,096 2,733 Other 120,252 71,669 46,696 Total fee and commission income 2,304,608 1,102, ,278 Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's total fee and commission income for the year ended 31 December 2012 increased by per cent. to RUB 2,305 million, compared to RUB 1,103 million for the year ended 31 December This increase resulted principally from an increase in fee and commission income from transactions with plastic cards and cheques by per cent. to RUB 1,578 million in the year ended 31 December 2012, compared to RUB 539 million in the year ended 31 December In addition, this increase resulted from an increase in fee and commission income from settlement transactions by 18.4 per cent. to RUB 418 million in the year ended 31 December 2012, compared to RUB 353 million in the year ended 31 December In addition, this increase resulted from an increase in fee and commission income from guarantees issued by per cent. to RUB 56 million in the year ended 31 December 2012, compared to

78 RUB 15 million in the year ended 31 December These increases resulted from the growth of both UBRD's customer base and its branch and office network and UBRD's strategy of growing its fee and commission business. See "Business Strategy Growth of fee and commission income-generating products and services". Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's total fee and commission income for the year ended 31 December 2011 increased by 49.0 per cent. to RUB 1,103 million, compared to RUB 740 million for the year ended 31 December This increase resulted principally from an increase in fee and commission income from transactions with plastic cards and cheques by 98.1 per cent. to RUB 539 million in the year ended 31 December 2011, compared to RUB 272 million in the year ended 31 December In addition, this increase resulted from an increase in fee and commission income from settlement transactions by 16.9 per cent. to RUB 353 million in the year ended 31 December 2011, compared to RUB 302 million in the year ended 31 December In addition, this increase resulted from an increase in fee and commission income from cash transactions by 21.4 per cent. to RUB 104 million in the year ended 31 December 2011, compared to RUB 86 million in the year ended 31 December These increases resulted from the growth of both UBRD's customer base and its branch and office network and UBRD's strategy of growing its fee and commission-generating business. See "Business Strategy Growth of fee and commission income-generating products and services". Fee and commission expense UBRD's fee and commission expense comprises transactions with plastic cards and cheques, settlement transactions, cash collection, trade finance transactions, letters of credit, transactions with securities, transactions with precious metals and other fee and commission expense. The following table sets out the principal components of UBRD's fee and commission expense in the years ended 31 December 2012, 2011 and For the year ended 31 December (In thousands of Roubles) Fee and commission expense Transactions with plastic cards and cheques 108,212 61,678 32,640 Settlement transactions 49,465 46,288 42,000 Cash collection 53,940 43,524 24,806 Trade finance transactions 7,878 12,574 10,881 Letters of credit 44,398 7,966 6 Transactions with securities 8,225 4,334 4,130 Transactions with precious metals 2,635 3,030 2,591 Other 5,492-1,148 Total fee and commission expense 280, , ,

79 Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's total fee and commission expense for the year ended 31 December 2012 increased by 56.2 per cent. to RUB 280 million, compared to RUB 179 million for the year ended 31 December This increase resulted principally from an increase in fee and commission expense from letters of credit by per cent. to RUB 44 million in the year ended 31 December 2012, compared to RUB 8 million in the year ended 31 December 2011, as a result of the growth of UBRD's trade finance business. In addition, this increase resulted from an increase in fee and commission expense from transactions with plastic cards and cheques by 75.4 per cent. to RUB 108 million in the year ended 31 December 2012, compared to RUB 62 million in the year ended 31 December These increases resulted from the growth of both UBRD's customer base and its branch and office network and UBRD's strategy of growing its fee and commissiongenerating business. See "Business Strategy Growth of fee and commission incomegenerating products and services". Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's total fee and commission expense for the year ended 31 December 2011 increased by 51.8 per cent. to RUB 179 million, compared to RUB 118 million for the year ended 31 December This increase resulted principally from an increase in fee and commission expense from transactions with plastic cards and cheques by 89.0 per cent. to RUB 62 million in the year ended 31 December 2011, compared to RUB 33 million in the year ended 31 December In addition, this increase resulted from an increase in fee and commission expense from cash collection by 75.5 per cent. to RUB 44 million in the year ended 31 December 2011, compared to RUB 25 million in the year ended 31 December These increases resulted from the growth of both UBRD's customer base and its branch and office network and UBRD's strategy of growing its fee and commission-generating business. See "Business Strategy Growth of fee and commission income-generating products and services"

80 Other net income (expense) The following table sets out the principal components of UBRD's other net income (expense) in the years ended 31 December 2012, 2011 and 2010: For the year ended 31 December (In thousands of Roubles) Other net income (expense) (Loss)/income from trading securities 3,645 (54,976) 152,905 (Loss)/income from other securities at fair value through profit or loss (267,645) (270,301) 138,448 Income from securities available-for-sale 1,227 2, ,592 Loss from trading in foreign currencies (274,547) (376,305) (443,031) Income/(loss) from trading in precious metals 59,614 40,329 (15,816) Foreign exchange translation income /(loss) 291, , ,369 Rental income 16,639 61,896 51,232 Income/(loss) from revaluation of land and premises (8,153) - 108,021 Loss from operations with investment property (150,825) (25,726) - Loss from sale of loans (4,558) (220,467) - Other operating income 25,585 41,708 4,865 (Loss)/income from termination of lease agreements (41,125) (13,986) 5,698 Total other net income (expense) (348,820) (178,424) 773,283 Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's total other net expense for the year ended 31 December 2012 increased to RUB 349 million, compared to other net expense of RUB 178 million for the year ended 31 December This increase resulted principally from a decrease in foreign exchange translation income by 54.3 per cent. to RUB 291 million in the year ended 31 December 2012, compared to RUB 637 million in the year ended 31 December 2011, which in turn resulted from changes in foreign exchange rates during this period. In addition, this resulted from a per cent. increase in UBRD's loss from operations with investment property of RUB 151 million in the year ended 31 December 2012, compared to a loss of RUB 26 million in the year ended 31 December 2011, which was a result of depreciation, property tax, expenses connected with the sale of real estate and utility and repairs costs in the year ended 31 December 2012, which exceeded UBRD's rental income and income from the sale of real estate from investment property. UBRD's loss of RUB 268 million from other securities at fair value through profit or loss in the year ended 31 December 2012 and UBRD's loss of RUB 275 million from trading in foreign

81 currencies in the year ended 31 December 2012 resulted from market conditions during this period. Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's total other net income (expense) for the year ended 31 December 2011 changed to RUB 178 million expense, compared to RUB 773 million income for the year ended 31 December This change resulted principally from a loss from other securities at fair value through profit or loss of RUB 270 million for the year ended 31 December 2011, compared to income of RUB 138 million for the year ended 31 December 2010, which in turn resulted from a fall in the market prices of the securities in UBRD's portfolio in the year ended 31 December This decrease also resulted from a loss from the sale of loans of RUB 220 million in the year ended 31 December 2011, compared to no such loss in the year ended 31 December 2010, which in turn resulted from UBRD selling a portion of its bad loans in the year ended 31 December Administrative and other operating expenses UBRD's administrative and other operating expenses principally comprises staff costs, advertising and marketing services, depreciation of property and equipment, contributions to State deposit insurance system, operating lease expense for property and equipment, professional services and other administrative and operating expenses. The following table sets out the principal components of UBRD's administrative and other operating expenses in the years ended 31 December 2012, 2011 and 2010:

82 For the year ended 31 December (In thousands of Roubles) Administrative and other operating expenses Staff costs 2,545, ,828, ,472,475 1 Advertising and marketing services 252, , ,392 Depreciation of property and equipment 271, , ,587 Contributions to State deposit insurance system 221, , ,418 Operating lease expense for property and equipment 287, ,939 89,010 Other costs of property and equipment 109, ,245 90,596 Taxes other than income tax 103, , ,688 Professional services 235, ,655 49,030 Acquisition of fittings and materials 140,842 70,528 43,373 Information and communication services 49,199 59,338 52,375 Security services 84,659 40,559 75,423 Computer software maintenance 37,534 24,433 23,987 Amortisation of intangible assets 29,086 19,516 9,780 Insurance of employees and business property 37,643 14,353 12,172 Other 113,398 80,379 74,421 Total administrative and other operating expenses 4,519,916 3,375,199 2,693,727 1 Included in staff costs are statutory social security and pension contributions of RUB 507 million as at 31 December 2012, RUB 344 million as at 31 December 2011, RUB 200 million as at 31 December Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's total administrative and other operating expenses for the year ended 31 December 2012 increased by 33.9 per cent. to RUB 4,520 million, compared to RUB 3,375 million for the year ended 31 December This increase resulted principally from a 39.2 per cent. increase in staff costs to RUB 2,545 million in the year ended 31 December 2012, compared to RUB 1,829 million in the year ended 31 December 2011, which in turn resulted from the growth of UBRD's branch and office network in 2012, which increased by 91.5 per cent. to 404 branches and offices as at 1 January 2013, compared to 211 branches and offices as at 1 January In addition, this increase resulted from an increase in professional services costs by per cent. to RUB 236 million in the year ended 31 December 2012, compared to RUB 103 million in the year ended 31 December 2011, which in turn resulted from costs associated with debt

83 collection, consultancy services and market research services. In addition, this increase resulted from an increase in operating lease expense for property and equipment, which increased by 88.0 per cent. to RUB 287 million in the year ended 31 December 2012, compared to RUB 153 million in the year ended 31 December 2011, which in turn resulted from the expansion of UBRD's branch and office network. Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's total administrative and other operating expenses for the year ended 31 December 2011 increased by 25.3 per cent. to RUB 3,375 million, compared to RUB 2,694 million for the year ended 31 December This increase resulted principally from an increase in staff costs by 24.2 per cent. to RUB 1,829 million in the year ended 31 December 2011, compared to RUB 1,472 million in the year ended 31 December 2010, which in turn resulted from the growth of UBRD's branch and office network in 2011, which increased by 33.5 per cent. to 211 branches and offices as at 1 January 2012, compared to 158 branches and offices as at 1 January In addition, this increase resulted from an increase in advertising and marketing services by 55.3 per cent. to RUB 310 million in the year ended 31 December 2011, compared to RUB 199 million in the year ended 31 December 2010, which in turn resulted from advertising and marketing in cities in which UBRD opened a branch for the first time in 2011 and with respect to the advertising and marketing of new offices opened in See "Business Market Position and Competition". Income tax expense UBRD's income tax expense comprises current tax, income tax over provided in prior years and deferred tax. The following table sets out the principal components of UBRD's income tax expense in the years ended 31 December 2012, 2011 and 2010: For the year ended 31 December Income tax expense/(credit) (In thousands of Roubles) Current tax 356, , ,321 Income tax over provided in prior years 262 (11,004) (56,207) Deferred tax (192,447) (140,575) 13,309 Total income tax expense/(credit) 164, ,424 95,423 Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's total income tax expense for the year ended 31 December 2012 increased by 33.5 per cent. to RUB 165 million, compared to RUB 123 million for the year ended 31 December This increase resulted principally from a 29.8 per cent. increase in current tax expense to RUB 357 million in the year ended 31 December 2012, compared to RUB 275 million in the year ended 31 December 2011, which in turn resulted from an increase in taxable income as a result of the growth of UBRD's business during this period. Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's total income tax expense for the year ended 31 December 2011 increased by 29.3 per cent. to RUB 123 million, compared to RUB 95 million for the year ended 31 December

84 This increase resulted principally from an increase in current tax expense by 98.8 per cent. to RUB 275 million in the year ended 31 December 2011, compared to RUB 138 million in the year ended 31 December 2010, which in turn resulted from an increase in taxable income as a result of the growth of UBRD's business during this period. However, this increase was affected by deferred tax credit of RUB 141 million in the year ended 31 December 2011, compared to deferred tax expense of RUB 13 million in the year ended 31 December 2010, which in turn reflects temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Profit Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's total profit for the year ended 31 December 2012 increased by 67.7 per cent. to RUB 846 million, compared to RUB 505 million for the year ended 31 December 2011, for the reasons set out above. Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's total profit for the year ended 31 December 2011 decreased by 12.7 per cent. to RUB 505 million, compared to RUB 578 million for the year ended 31 December 2010, for the reasons set out above. Assets The following table sets out UBRD's assets as at 31 December 2012, 2011 and 2010:

85 As at 31 December (In thousands of Roubles) Assets Cash and cash equivalents 16,165,390 13,372,036 8,434,707 Mandatory cash balances with the CBR 1,140, , ,149 Trading securities 191, ,955 13,380 Other securities at fair value through profit or loss 27,231,288 23,847,034 20,636,595 Securities available-for-sale 55, , ,725 Investment securities held to maturity 8,237, Due from other banks 84,431 64,391 62,358 Loans and advances to customers 72,415,124 44,962,190 33,469,276 Finance lease receivables 839, , ,000 Goodwill 162, , ,122 Property and equipment 4,824,699 4,989,139 4,897,410 Intangible assets 181, , ,504 Investment property 5,955,205 6,047,875 - Advances to real estate developers 2,572,622 2,730,523 4,919,290 Current income tax assets 17,705 11,243 4,683 Deferred tax assets 564, , ,394 Other assets 3,030,872 1,181,468 1,037,299 Assets held for sale 246,605 36, ,963 Total assets 143,916,943 99,995,409 75,939,855 As at 31 December 2012 compared to as at 31 December 2011 UBRD's total assets as at 31 December 2012 increased by 43.9 per cent. to RUB 143,917 million, compared to RUB 99,995 million as at 31 December This increase resulted principally from a 61.1 per cent. increase in loans and advances to customers to RUB 72,415 million as at 31 December 2012, compared to RUB 44,962 million as at 31 December See " Loans and advances to customers". In addition, this resulted from a 14.2 per cent. increase in other securities at fair value through profit or loss to RUB 27,231 million as at 31 December 2012, compared to RUB 23,847 million as at 31 December See " Other securities at fair value through profit or loss". This increase also resulted from UBRD recording

86 investment securities held to maturity of RUB 8,237 million as at 31 December 2012, compared to UBRD recording no investment securities held to maturity as at 31 December As at 31 December 2011 compared to as at 31 December 2010 UBRD's total assets as at 31 December 2011 increased by 31.6 per cent. to RUB 99,995 million, compared to RUB 75,939 million as at 31 December This increase resulted principally from an increase in loans and advances to customers as at 31 December 2011 by 34.3 per cent. to RUB 44,962 million, compared to RUB 33,469 million as at 31 December See " Loans and advances to customers". In addition, this increase resulted from an increase in cash and cash equivalents as at 31 December 2011 by 58.5 per cent. to RUB 13,372 million, compared to RUB 8,434 million as at 31 December See " Liquidity and Capital Resources Cash flows". This increase also resulted from UBRD recording investment property of RUB 6,048 million as at 31 December 2011, compared to UBRD recording no investment property as at 31 December Loans and advances to customers The following table sets out the principal components of UBRD's loans and advances to customers as at 31 December 2012, 2011 and 2010:

87 As at 31 December (In thousands of Roubles) Loans and advances to customers Loans to legal entities -Related parties -Corporate loans* -SMEs 12,874,812 9,607,269 7,615,306 23,564,061 16,108,569 12,279,120 4,587,390 2,383, ,873 Total loans to legal entities 41,026,263 28,098,949 20,731,299 Loans to individuals -Express loans 9,656,980 7,339,811 7,451,677 -Loans to employees participating in payroll projects 4,824,373 2,744,326 2,131,863 -Unsecured consumer loans 18,579,226 8,260,788 5,513,913 -Collateralised consumer loans 2,376,550 1,189, ,645 Total loans to individuals 35,437,129 19,533,988 16,057,098 Total loans and advances to customers before allowance for impairment 76,463,392 47,632,937 36,788,397 Allowance for impairment (4,048,268) (2,670,747) (3,319,121) Total loans and advances to customers 72,415,124 44,962,190 33,469,276 *This line item represents corporate loans which are not related party loans. As at 31 December 2012 compared to as at 31 December 2011 UBRD's total loans and advances to customers as at 31 December 2012 increased by 61.1 per cent. to RUB 72,415 million, compared to RUB 44,962 million as at 31 December This increase resulted principally from an increase in loans to individuals by 81.4 per cent. to RUB 35,437 million as at 31 December 2012, compared to RUB 19,534 million as at 31 December 2011, which resulted principally from an increase in unsecured consumer loans by per cent. to RUB 18,579 million as at 31 December 2012, compared to RUB 8,261 million as at 31 December The increase in loans to individuals also resulted from a 75.8 per cent. increase in loans to employees participating in payroll projects to RUB 4,824 million as at 31 December 2012, compared to RUB 2,744 million as at 31 December 2011, a 31.6 per cent. increase in express loans to RUB 9,657 million as at 31 December 2012, compared to RUB 7,340 million as at 31 December 2011 and a 99.9 per cent. increase in collateralised consumer loans to RUB 2,377 million in the year ended 31 December 2012, compared to RUB 1,189 million in the year ended 31 December The increase in UBRD's loans to individuals in the year ended 31 December 2012 resulted from the growth of UBRD's branch and office network and the implementation of UBRD's strategy to increase lending to retail customers. UBRD's express loans increased at a slower rate proportionately than UBRD's other loans to individuals, as a result of UBRD focusing on improving the quality of its loans and advances to customers in the year ended 31 December 2012 (UBRD's experience is that express loans incur

88 higher impairment losses than other loans to individuals). See "Business Strategy Increasing lending to retail and SME customers" and "Business Strategy Expansion of geographical reach". The increase in total loans to customers as at 31 December 2012 also resulted from a 46.0 per cent. increase in loans to legal entities to RUB 41,026 million, compared to RUB 28,099 million as at 31 December 2011, which resulted principally from a 46.3 per cent. increase in corporate loans to RUB 23,564 million as at 31 December 2012, compared to RUB 16,109 million as at 31 December 2011, which in turn resulted from increased demand for loans from corporate customers. In addition, the increase in loans to legal entities as at 31 December 2012 resulted from a 34.0 per cent. increase in loans to related parties to RUB 12,875 million as at 31 December 2012, compared to RUB 9,607 million as at 31 December 2011, which in turn resulted from a demand for loans to finance the construction of investment projects by RCC (which is a related party, see "Related Party Transactions") and also from a 92.5 per cent. increase in loans to SMEs to RUB 4,587 million, compared to RUB 2,383 million, which in turn resulted from the implementation of UBRD's strategy to increase lending to SME customers. See "Business Strategy Increasing lending to retail and SME customers". As at 31 December 2011 compared to as at 31 December 2010 UBRD's total loans and advances to customers as at 31 December 2011 increased by 34.3 per cent. to RUB 44,962 million, compared to RUB 33,469 million as at 31 December This increase resulted principally from an increase in loans to legal entities by 35.5 per cent. to RUB 28,099 million as at 31 December 2011, compared to RUB 20,731 million as at 31 December 2010, which in turn resulted from an increase in corporate loans by 31.2 per cent. to RUB 16,109 million as at 31 December 2011, compared to RUB 12,279 million as at 31 December 2010, as a result of an increase in demand for loans from corporate customers, as a result of the recovery of demand for loans from corporate customers following the global economic crisis. The increase in loans to legal entities was also a result of an increase in loans to related parties by 26.2 per cent. to RUB 9,607 million as at 31 December 2011, compared to RUB 7,615 million as at 31 December 2010, as a result of a demand for loans to finance the construction of investment projects by RCC and an increase in loans to small and medium size businesses by per cent. to RUB 2,383 million as at 31 December 2011, compared to RUB 837 million as at 31 December 2010, as a result of UBRD's focus on developing its SME loan portfolio and the growth of UBRD's branch and office network during this period. In addition, the total increase in loans and advances to customers resulted from an increase in loans to individuals by 21.7 per cent. to RUB 19,534 million as at 31 December 2011, compared to RUB 16,057 million as at 31 December 2010, which in turn resulted from an increase in unsecured consumer loans by 49.8 per cent. to RUB 8,261 million as at 31 December 2011, compared to RUB 5,514 million as at 31 December 2010, as a result of UBRD's focus on developing its retail loan portfolio and the growth of UBRD's branch and office network during this period. See "Business Strategy Increasing lending to retail and SME customers"

89 The following table sets out UBRD's loan portfolio structure by economic sectors as at 31 December 2012, 2011 and 2010: As at 31 December 2012 % of total 2011 % of total 2010 % of total (In thousands of Roubles) Individuals 35,437, ,533, ,057, Metallurgy and metal trade 13,042, ,411, ,809, Trade 8,892, ,195, ,135, Manufacturing 2,663, ,639, ,168, Construction 2,533, ,972, , Services 7,144, ,256, , Other 6,748, ,623, ,751, Total before allowance for impairment 76,463, ,632, ,788, The proportion of loans to individuals in UBRD's loan portfolio increased to 46.3 per cent. as at 31 December 2012, compared to 41.0 per cent, as at 31 December 2011, due to the growth of UBRD's retail lending activity pursuant to its strategy to increase retail lending to generate higher margins and profits. See "Business Strategy Increasing lending to retail and SME customers". The proportion of loans to companies in the services sector increased as at 31 December 2012 and 2011, compared to as at 31 December 2012 and the proportion of loans to companies in the manufacturing sector decreased over the same period, reflecting UBRD's strategy to increase the proportion of its lending to SME customers, a greater proportion of which operate in the services sector than in the manufacturing sector. Other securities at fair value through profit or loss UBRD's other securities at fair value through profit or loss comprises corporate, municipal and Russian Government bonds. The following table sets out the principal components of UBRD's other securities at fair value through profit or loss as at 31 December 2012, 2011 and 2010:

90 As at 31 December (In thousands of Roubles) Other securities at fair value through profit or loss Corporate bonds 27,014,657 23,370,379 20,207,104 Municipal bonds 3, , ,602 Russian Government bonds 212, ,022 74,889 Total other securities at fair value through profit or loss 27,231,288 23,847,034 20,636,595 As at 31 December 2012 compared to as at 31 December 2011 UBRD's total other securities at fair value through profit or loss as at 31 December 2012 increased by 14.2 per cent. to RUB 27,231 million, compared to RUB 23,847 million as at 31 December This increase resulted principally from a 15.6 per cent. increase in corporate bonds to RUB 27,015 million as at 31 December 2012, compared to RUB 23,370 million as at 31 December This increase was a result of the growth of UBRD's debt securities portfolio, which UBRD uses to manage its liquidity and which has grown as UBRD's liquidity needs have grown. UBRD's liquidity needs have grown in correlation with UBRD's retail customer accounts, which the Civil Code entitles retail customers to withdraw at any time, including term deposits, without penalty to principal, which means UBRD needs to maintain sufficient liquid assets to cover any sudden increases in withdrawals of customer deposits. UBRD's municipal bonds decreased to RUB 4 million as at 31 December 2012, compared to RUB 299 million as at 31 December 2011, as a result of UBRD selling most of its municipal bonds in 2012 as part of its plan to improve the quality and the regulatory capital risk-weighting of its securities portfolio. See "Risk Factors Risks Relating to UBRD's Business and the Russian Banking Sector UBRD is exposed to liquidity risk" and "Business Key Strengths High proportion of liquid assets through a large debt securities portfolio". As at 31 December 2011 compared to as at 31 December 2010 UBRD's total other securities at fair value through profit or loss as at 31 December 2011 increased by 15.6 per cent. to RUB 23,847 million, compared to RUB 20,637 million as at 31 December This increase resulted principally from an increase in corporate bonds by 15.7 per cent. to RUB 23,370 million as at 31 December 2011, compared to RUB 20,207 million as at 31 December 2010, which was a result of the growth of UBRD's debt securities portfolio, which UBRD uses to manage its liquidity and which has grown as UBRD's liquidity needs have grown together with the increase in its retail customer accounts. Investment securities held to maturity As at 31 December 2012 compared to as at 31 December 2011 and as at 31 December 2010 As at 31 December 2012 UBRD held investment securities held to maturity in the amount of RUB 8,237 million, compared to no such securities as at 31 December 2011 and 2010, respectively. Investment securities held to maturity are represented by corporate bonds issued by the Agency for Housing Mortgage Lending ("AHML"), the State Corporation engaged in scientific research and development in natural and engineering science and municipal bonds

91 Property and equipment As at 31 December 2012 compared to as at 31 December 2011 UBRD's property and equipment as at 31 December 2012 decreased by 3.3 per cent. to RUB 4,825 million, compared to RUB 4,989 million as at 31 December This decrease resulted principally from the transfer of RUB 506 million of land and premises to the "investment property" line item as at 31 December 2012, which in turn resulted from UBRD moving its administrative staff to new premises and leasing its old premises to third parties. As at 31 December 2011 compared to as at 31 December 2010 UBRD's property and equipment as at 31 December 2011 increased by 1.9 per cent. to RUB 4,989 million, compared to RUB 4,897 million as at 31 December This increase resulted principally from increases in the book value of UBRD's computer and equipment and construction in progress as at 31 December 2011, compared to as at 31 December 2010, which in turn resulted from the growth of UBRD's branch and office network. Investment property As at 31 December 2012 compared to as at 31 December 2011 UBRD's investment property as at 31 December 2012 decreased by 1.5 per cent. to RUB 5,955 million, compared to RUB 6,048 million as at 31 December This decrease resulted principally from disposals of UBRD's investment property in the year ended 31 December As at 31 December 2011 compared to as at 31 December 2010 UBRD held no investment property as at 31 December 2010, however this increased to RUB 6,048 million as at 31 December This increase resulted principally from UBRD transferring certain construction real estate objects upon their completion to investment property as a result of the completion of such properties, which UBRD had financed. See "Note 16 (Advances to real estate developers)" to UBRD's 2011 Consolidated Financial Statements. Advances to real estate developers As at 31 December 2012 compared to as at 31 December 2011 UBRD's advances to real estate developers as at 31 December 2012 decreased by 5.8 per cent. to RUB 2,573 million, compared to RUB 2,731 million as at 31 December This decrease resulted principally from the repayment of a portion of UBRD's advances to real estate developers in the year ended 31 December As at 31 December 2011 compared to as at 31 December 2010 UBRD's advances to real estate developers as at 31 December 2011 decreased by 44.5 per cent. to RUB 2,731 million, compared to RUB 4,919 million as at 31 December This decrease resulted principally from UBRD transferring certain construction real estate objects upon their completion to investment property as a result of the completion of such properties, which UBRD had financed. See "Note 16 (Advances to real estate developers)" to UBRD's 2011 Consolidated Financial Statements. Liquidity and Capital Resources UBRD's liquidity and funding needs arise primarily from the need to extend loans and advances to customers. As at 31 December 2012, UBRD funded its business largely through customer deposits, borrowing from the CBR and Russian and international banks, funding from its controlling shareholder and bonds issued on the domestic market

92 Cash flows The following table sets out selected cash flow data from UBRD's combined cash flow statements in the years ended 31 December 2012, 2011 and 2010: For the year ended 31 December (In thousands of Roubles) Cash flows Net cash from operating activities 7,740,154 4,617,343 1,612,178 Net cash used in investing activities (8,585,406) (3,500,580) (358,276) Net cash from financing activities 3,899,583 3,357, ,193 Effect of exchange rate changes on cash and cash equivalents (260,977) 463,263 (17,331) Net increase in cash and cash equivalents 2,793,354 4,937,329 1,376,764 Cash and cash equivalents at the beginning of the year 13,372,036 8,434,707 7,057,943 Cash and cash equivalents at the end of the year 16,165,390 13,372,036 8,434,707 Cash flows from operating activities Cash from operating activities comprises cash flows from the main operating profit or loss items and net increases or decreases in: mandatory cash balances with the CBR, trading securities, receivables under reverse repo agreements, loans and advances to customers and amounts due from other banks, customer accounts, other assets and other liabilities. Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's net cash from its operating activities for the year ended 31 December 2012 increased by 67.6 per cent. to RUB 7,740 million, compared to RUB 4,617 million for the year ended 31 December This increase resulted principally from an increase in cash from the attraction of customer accounts by 75.5 per cent. to RUB 26,436 million in the year ended 31 December 2012, compared to RUB 15,067 million in the year ended 31 December See " Funding Customer accounts". In addition, this resulted from an increase in cash from the attraction of amounts due to other banks by per cent. to RUB 10,916 million in the year ended 31 December 2012, compared to RUB 1,799 million in the year ended 31 December See " Funding Due to other banks". Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's net cash from its operating activities for the year ended 31 December 2011 increased by per cent. to RUB 4,617 million, compared to RUB 1,612 million for the year ended 31 December This increase resulted principally from an increase in cash from interest received by 28.7 per cent. to RUB 10,030 million in the year ended 31 December 2011, compared to RUB 7,793 million in the year ended 31 December See " Results of Operations Net Interest Income Interest Income." In addition, this increase resulted from an increase in cash from the attraction of customer accounts by 24.6 per cent. to RUB 15,067 million for the year ended 31 December 2011, compared to RUB 12,090 million for the year ended 31 December 2010 and a decrease in net cash used in the purchase of other

93 securities at fair value through profit or loss by 55.4 per cent. to RUB 3,392 million for the year ended 31 December 2011, compared to RUB 7,611 million for the year ended 31 December See " Funding Customer accounts" and "Assets Other securities at fair value through profit or loss". Cash flows used in investing activities Cash from investing activities comprises cash flows from acquisitions of property and equipment, proceeds from investment securities held-to-maturity, proceeds from disposal of property and equipment and acquisitions of intangible assets. Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's net cash used in its investing activities for the year ended 31 December 2012 increased by per cent. to RUB 8,585 million, compared to RUB 3,501 million for the year ended 31 December This increase resulted principally from the acquisition of investment securities held to maturity for RUB 8,237 million in the year ended 31 December 2012, as UBRD's liquidity needs grew in correlation with its retail customer deposits, which the Civil Code entitles retail customers to withdraw at any time, which means UBRD needs to maintain sufficient liquid assets to cover any sudden increases in withdrawals of customer deposits. See " Assets Investment securities held to maturity". Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's net cash used in its investing activities for the year ended 31 December 2011 increased by per cent. to RUB 3,501 million, compared to RUB 358 million for the year ended 31 December This increase resulted principally from the RUB 3,133 million acquisition of investment property in the year ended 31 December 2011, as a result of the completion of properties that UBRD had financed. See " Assets Investment Property". Cash flows used in/from financing activities Cash from financing activities comprises additional funding from the controlling shareholder and proceeds from and repayment of bonds issued on the domestic market (included in debt securities in issue). Year ended 31 December 2012 compared to year ended 31 December 2011 UBRD's net cash used in its financing activities for the year ended 31 December 2012 increased by 16.2 per cent. to RUB 3,900 million, compared to RUB 3,357 million for the year ended 31 December This increase resulted principally from the receipt of proceeds of RUB 2,000 million in the year ended 31 December 2012, from the additional issue of shares, which were issued to UBRD's controlling shareholder, Mr. Altushkin, in the year ended 31 December 2012 to support UBRD's capital position and maintain its mandatory CBR N1 capital adequacy ratio above the 10.0 minimum level. Year ended 31 December 2011 compared to year ended 31 December 2010 UBRD's net cash from its financing activities for the year ended 31 December 2011 increased by 2,294.8 per cent. to RUB 3,357 million, compared to RUB 140 million for the year ended 31 December This increase resulted principally from an increase in cash from a gratuitous cash capital contribution of RUB 1,855 million from UBRD's controlling shareholder by 1,223.2 per cent. to RUB 1,855 million in the year ended 31 December 2011, compared to RUB 140 million in the year ended 31 December See " Equity". In addition, this increase resulted from the receipt of RUB 1,502 million in proceeds from bonds issued on the domestic market in the year ended 31 December 2011, compared to the receipt of no such bond issue proceeds in the year ended 31 December See " Debt securities in issue"

94 Funding The following table sets out UBRD's funding sources as at 31 December 2012, 2011 and 2010: As at 31 December Funding sources (In thousands of Roubles) Customer accounts 95,645,302 69,503,461 54,473,470 Due to other banks 26,692,854 15,798,922 13,900,041 Debt securities in issue 8,939,999 5,052, ,576 Subordinated debt 2,468,741 1,646,691 1,556,425 Total 133,746,896 92,001,256 70,665,512 The trends in UBRD's funding sources as at the dates included in the above table are described below. Customer accounts The following table sets out the principal components of UBRD's customer accounts as at 31 December 2012, 2011 and 2010:

95 As at 31 December (In thousands of Roubles) Customer accounts State and public organisations -Current/settlement accounts -Term deposits 5, ,874 1,000, Other legal entities -Current/settlement accounts -Term deposits 12,714,653 7,909,099 6,492,794 15,105,340 11,935,496 3,785,362 Individuals -Current/settlement accounts -Term deposits 6,060,467 4,694,027 3,560,333 60,759,392 44,964,831 40,630,107 Total customer accounts 95,645,302 69,503,461 54,473,470 As at 31 December 2012 compared to as at 31 December 2011 UBRD's customer accounts as at 31 December 2012 increased by 37.6 per cent. to RUB 95,645 million, compared to RUB 69,503 million as at 31 December This increase resulted principally from a 35.1 per cent. increase in term deposits from individuals to RUB 60,759 million as at 31 December 2012, compared to RUB 44,965 million as at 31 December 2011, which in turn resulted from resulted from the growth of UBRD's branch and office network during this period. See "Business Branch, Office and ATM Network". In addition, this increase resulted from an increase in current/settlement accounts from legal entities (other than State and public organisations) by 60.8 per cent. to RUB 12,715 million as at 31 December 2012, compared to RUB 7,909 million as at 31 December 2011, which in turn resulted from the growth of UBRD's branch and office network during this period. As at 31 December 2011 compared to as at 31 December 2010 UBRD's customer accounts as at 31 December 2011 increased by 27.6 per cent. to RUB 69,503 million, compared to RUB 54,473 million as at 31 December This increase resulted principally from an increase in term deposits of legal entities (other than State and public organisations) by per cent. to RUB 11,935 million as at 31 December 2011, compared to RUB 3,785 million as at 31 December 2010, which in turn resulted from the growth of UBRD's branch and office network during this period. In addition, this increase resulted from an increase in the term deposits of individuals by 10.7 per cent. to RUB 44,965 million as at 31 December 2011, compared to RUB 40,630 million as at 31 December 2010, which in turn resulted from the growth of UBRD's branch and office network during this period. See "Business Branch, Office and ATM Network"

96 Due to other banks UBRD's due to other banks comprises sale and purchase agreements on securities, short-term deposits and correspondent accounts and overnight placements. The following table sets out the principal components of UBRD's due to other banks liabilities as at 31 December 2012, 2011 and 2010: As at 31 December (In thousands of Roubles) Due to other banks Sale and repurchase agreements on securities 21,957,382 13,731,226 11,948,608 Short-term deposits 4,080,951 1,556,551 1,437,821 Correspondent accounts and overnight placements 654, , ,612 Total due to other banks 26,692,854 15,798,922 13,900,041 As at 31 December 2012 compared to as at 31 December 2011 UBRD's total due to other banks as at 31 December 2012 increased by 69.0 per cent. to RUB 26,693 million, compared to RUB 15,799 million as at 31 December This increase resulted principally from a 59.9 per cent. increase in sale and repurchase agreements on securities to RUB 21,957 million as at 31 December 2012, compared to RUB 13,731 million as at 31 December 2011, which in turn resulted from UBRD increasing its repo-based financing from the CBR, which UBRD considered to be more cost-effective and stable than other comparable sources of financing during this period. As at 31 December 2011 compared to as at 31 December 2010 UBRD's total due to other banks as at 31 December 2011 increased by 13.7 per cent. to RUB 15,799 million, compared to RUB 13,900 million as at 31 December This increase resulted principally from an increase in sale and repurchase agreements on securities by 14.9 per cent. to RUB 13,731 million as at 31 December 2011, compared to RUB 11,949 million as at 31 December 2010, which in turn resulted from UBRD increasing its repo-based financing from the CBR, which UBRD considered to be more cost-effective and stable than other comparable sources of financing during this period

97 Debt securities in issue The following table sets out the principal components of UBRD's debt securities in issue as at 31 December 2012, 2011and 2010: As at ended 31 December (In thousands of Roubles) Debt securities in issue Promissory notes 4,852,500 3,529, ,576 Bonds issued on the domestic market 4,087,499 1,522,190 - Total debt securities in issue 8,939,999 5,052, ,576 As at 31 December 2012 compared to as at 31 December 2011 UBRD's debt securities in issue as at 31 December 2012 increased by 77.0 per cent. to RUB 8,940 million, compared to RUB 5,052 million as at 31 December This increase resulted principally from a per cent. increase in bonds issued on the domestic market to RUB 4,087 million as at 31 December 2012, compared to RUB 1,522 million as at 31 December 2011, which in turn resulted principally from the issue by UBRD in October 2012 of RUB 2 billion three-year 12.5 per cent. domestic bonds, as a result of UBRD's strategy to obtain a higher proportion of funding from the debt capital markets, to diversify UBRD's funding away from its reliance on customer deposits. As at 31 December 2011 compared to as at 31 December 2010 UBRD's debt securities in issue as at 31 December 2011 increased by per cent. to RUB 5,052 million, compared to RUB 736 million as at 31 December This increase resulted principally from an increase in promissory notes in issue by per cent. to RUB 3,530 million as at 31 December 2011, compared to RUB 736 million as at 31 December 2010, which in turn resulted from an increase in UBRD issuing such promissory notes to customers as an alternative liquidity management product for such customers. In addition, this increase resulted from an issue by UBRD of Rouble-denominated bonds in the amount of RUB 1,522 million as at 31 December 2011, compared to no such bonds in issue as at 31 December 2010, as a result of UBRD's strategy to obtain a higher proportion of funding from the debt capital markets, to diversify UBRD's funding away from its reliance on customer deposits. Subordinated debt As at 31 December 2012 compared to as at 31 December 2011 UBRD's subordinated debt in issue as at 31 December 2012 increased by 49.9 per cent. to RUB 2,469 million, compared to RUB 1,647 million as at 31 December This increase resulted principally from the receipt by UBRD of a six year 8.25 per cent. subordinated loan of US$30 million from Xangbo Global Markets (Singapore) in December 2012, eligible for inclusion in additional (Tier 2) capital. As at 31 December 2011 compared to as at 31 December 2010 UBRD's subordinated debt in issue as at 31 December 2011 increased by 5.7 per cent. to RUB 1,647 million, compared to RUB 1,556 million as at 31 December This increase

98 resulted from an increase in the amortised cost of a non-secured subordinated loan of US$50 million granted by ABN AMRO (now part of The Royal Bank of Scotland) in 2007 by 5.7 per cent. to RUB 1,647 million as at 31 December 2011, compared to RUB 1,556 million as at 31 December Other Liabilities and Tax Liabilities The table below sets out UBRD's other liabilities and tax liabilities, constituting all of UBRD's other liabilities in its consolidation statement of financial position, in addition to UBRD's funding sources as set out in " Funding" above, as at the dates indicated: As at 31 December (In thousands of Roubles) Other Liabilities and Tax Liabilities Current income tax liability 89, ,820 17,393 Deferred income tax liability 300, , ,025 Other liabilities 389, , ,882 Total 780, , ,300 As at 31 December 2012 compared to as at 31 December 2011 UBRD's other liabilities and tax liabilities as at 31 December 2012 decreased by 17.1 per cent. to RUB 780 million, compared to RUB 941 million as at 31 December This decrease resulted principally from a 48.2 per cent. decrease in current income tax liability to RUB 90 million as at 31 December 2012, compared to RUB 173 million as at 31 December 2011, as a result of UBRD's advance payments of income tax to the tax authorities exceeding the amount of accrued income tax expense for the year ended 31 December As at 31 December 2011 compared to as at 31 December 2010 UBRD's other liabilities and tax liabilities as at 31 December 2011 increased by 70.4 per cent. to RUB 941 million, compared to RUB 552 million as at 31 December This increase resulted principally from a per cent. increase in other liabilities to RUB 416 million as at 31 December 2011, compared to RUB 167 million as at 31 December 2010, as a result of debt incurred in connection with the construction of UBRD's investment properties, which was subsequently repaid in

99 Equity The following table sets out the principal components of UBRD's equity as at 31 December 2012, 2011 and 2010: As at 31 December (In thousands of Roubles) Equity Share capital 3,634,812 2,634,812 2,634,812 Share premium 1,581, , ,956 Additional capital 2,379,203 2,379, ,203 Revaluation reserve for land and premises 1,378,827 1,387,612 1,469,825 Revaluation reserve for securities available-forsale 1, ,493 Cumulative translation reserve (8,544) (29,026) (10,169) Retained earnings/(accumulated losses) 422,525 97,962 (489,077) Total Equity 9,390,015 7,053,116 4,722,043 As at 31 December 2012 compared to as at 31 December 2011 UBRD's equity as at 31 December 2012 increased by 33.1 per cent. to RUB 9,390 million, compared to RUB 7,053 million as at 31 December This increase resulted principally from a 38.0 per cent. increase in share capital to RUB 3,635 million as at 31 December 2012, compared to RUB 2,635 million as at 31 December 2011, which in turn resulted from an equity share capital injection of RUB 1 billion by UBRD's controlling shareholder, Mr Igor Altushkin, in 2012, to support UBRD's capital position and maintain its mandatory CBR N1 capital adequacy ratio above the 10.0 minimum level. As at 31 December 2011 compared to as at 31 December 2010 UBRD's equity as at 31 December 2011 increased by 49.4 per cent. to RUB 7,053 million, compared to RUB 4,722 million as at 31 December This increase resulted from a per cent. increase in additional capital to RUB 2,379 million as at 31 December 2011, compared to RUB 524 million as at 31 December 2010, which in turn resulted from cash contributions made in 2011 by UBRD's controlling shareholder, Mr. Altushkin. Capital adequacy and management UBRD is required to comply with a capital adequacy ratio set by the CBR. For the purposes of calculating UBRD's capital adequacy ratio according to the CBR's requirements, UBRD's principal assets are divided into five categories with different risk weightings. Under Russian law, the minimum capital adequacy ratio that banks are required to maintain is calculated (on an unconsolidated basis) as the ratio of a bank's owned funds (its capital) to the total amount of its risk-weighted assets. The minimum capital adequacy ratio required by the CBR as at the date of this Prospectus is 10.0 per cent

100 UBRD's main objectives when managing capital are: (i) to comply with the capital requirements set by the CBR; (ii) to safeguard UBRD's ability to continue as a going concern; and (iii) to obtain a return on capital on a long term basis. Compliance with capital adequacy ratios set by the CBR is monitored monthly with reports outlining their calculation reviewed and signed by UBRD's President and Chief Accountant. Other objectives of capital management are evaluated quarterly. UBRD also monitors its capital adequacy levels calculated in accordance with the requirements of the Basel Accord (commonly known as Basel I), as defined in the International Convergence of Capital Measurement and Capital Standards dated July 1988 (as subsequently amended and updated). The following table shows the composition of UBRD's capital position calculated in accordance with the requirements of Basel I as at 31 December 2012, 2011 and 2010: For the year ended 31 December (In thousands of Roubles) Tier 1 capital Share capital 3,634,812 2,634,812 2,634,812 Share premium 1,581, , ,956 Additional capital 2,379,203 2,379, ,203 Retained earnings/(accumulated losses) 422,525 97,962 (489,077) Less goodwill (162,122) (162,122) (162,122) Total Tier 1 capital 7,856,374 5,531,811 3,089,772 Total Tier 2 capital 3,840,260 3,005,874 3,015,035 Total capital 11,696,634 8,537,685 6,104,807 Capital adequacy ratio Risk weighted average of assets 124,313,467 89,908,064 66,014,950 Total capital 11,696,634 8,537,685 6,104,807 Tier 1 capital ratio 6.3% 6.2% 4.7% Total (Tier 1 and Tier 2 capital) ratio 9.4% 9.5% 9.2% Derivatives Foreign exchange and other derivative financial instruments entered into by UBRD are generally traded in an over-the-counter market with professional market counterparties on standardised contractual terms and conditions. Derivatives have potentially favourable (assets) or unfavourable (liabilities) conditions as a result of fluctuations in market interest rates, foreign exchange rates or other variables relative to their terms. The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time

101 The following table sets out fair values of currencies receivable or payable under foreign exchange forward contracts entered into by UBRD as at 31 December 2012, 2011 and The table reflects gross positions before the netting of any counterparty positions and covers the contracts with settlement dates after the respective reporting date. The contracts are short-term in nature: As at 31 December Contracts with positive fair value Contracts with negative fair value Contracts with positive fair value Contracts with negative fair value Contracts with positive fair value Contracts with negative fair value (In thousands of Roubles) Foreign exchange forwards: fair values, at the reporting date, of - USD receivable on settlement 2,912, ,321 1,448, , , ,581 - USD payable on settlement (4,694,163) (5,092,394) (1,949,724) (38,774) (2,038,641) (8,980,960) - Euro receivable on settlement 2,816,002 1,130,424 2,060,651-2,230,420 2,064,248 - Euro payable on settlement - (804,572) - (41, 671) (806,662) (1,335,026) - RUB receivable on settlement 1,905,348 3,917,136-41,280 39,653 8,188,763 - RUB payable on settlement (2,905,875) (365) (1,552,913) (161,158) (239,593) (428,920) - Other currencies receivable on settlement - 36,233 15,749 38,714 16,809 32,137 Net fair value of foreign exchange forwards 34,054 (10,217) 22,588 (628) 11,971 (39,177) Forwards with precious metals: fair values, at the reporting date, of - USD receivable on settlement 1,403, , , ,293 - USD payable on settlement (151,624) (1,519,220) (114,386) (613,373) (1,144,757) (11,844) - Precious metals receivable on settlement 151,709 1,483, , ,306 1,266,364 11,753 - Precious metals payable on settlement (1,765,446) - (460,240) - (974,723) (198,253)

102 RUB receivable on settlement 399, Net fair value of forwards with precious metals 37,529 (35,330) 28,720 (43,067) 131,172 (5,051) Credit Related Commitments The primary purpose of these instruments is to ensure that funds are available to customers as required. Guarantees and standby letters of credit, which represent irrevocable assurances that UBRD will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by UBRD on behalf of a customer authorising a third party to draw drafts on UBRD up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate or cash deposits and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans guarantees or letters of credit. With respect to credit risk on commitments to extend credit, UBRD is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. UBRD monitors the term to maturity of credit related commitments because longerterm commitments generally have a greater degree of credit risk than shorter-term commitments. The following table sets out outstanding credit related commitments of UBRD as at 31 December 2012, 2011 and 2010: As at 31 December (in thousands of Roubles) Unused limits on overdraft loans 2,219,938 1,570, ,837 Commitments to extend credit 4,451,013 1,341,153 1,222,665 Guarantees issued 3,118,864 1,140, ,170 Import letters of credit 3,375, , ,347 Total 13,165,204 4,886,470 2,769,019 The total outstanding contractual amount of undrawn credit lines, letters of credit, and guarantees does not necessarily represent future cash requirements, as these financial instruments may expire or terminate without being funded. UBRD's credit related commitments increased by per cent. to RUB 13,615 million as at 31 December 2012, compared to RUB 4,886 million as at 31 December 2011, which in turn represented a 76.5 per cent. increase compared to RUB 2,769 million as at 31 December These increases reflect the growth of UBRD's fee and commission income business, pursuant to UBRD's strategy. See "Business Strategy Growth of fee and commission income-generating products and services"

103 The following table sets out credit related commitments of UBRD as at 31 December 2012, 2011 and 2010 as denominated in Roubles, U.S. dollars and Euros: As at 31 December (in thousands of Roubles) Roubles 9,485,781 3,794,915 2,391,226 USD 2,816,886 1,025, ,510 Euro 862,537 66,155 13,283 Total 13,165,204 4,886,470 2,769,019 Operating Lease Commitments Where UBRD is the lessee, the future minimum lease payments under operating leases are as set out in the following table: As at 31 December (in thousands of Roubles) Less than 1 year 320, ,524 74,526 From 1 to 5 years 207,337 56,687 50,579 More than 5 years 6,159 8,592 8,064 Total 533, , ,

104 RECENT DEVELOPMENTS In February 2013, UBRD issued euro-commercial paper with a principal amount of US$50 million. In February 2013, UBRD attracted six year 8.25 per cent. subordinated loan from Xangbo Global Markets (Singapore), with a principal amount of US$20 million, eligible for inclusion in additional (Tier 2) capital. In February 2013, UBRD sold non-performing loans, which had previously been fully written off as uncollectable and which had a total nominal value of RUB 7,902 million before such write-off, for consideration of RUB 1,008 million. In April 2013, UBRD issued euro-commercial paper with a principal amount of US$7.5 million. In April 2013, UBRD issued RUB 2 billion seven-year per cent. domestic bonds. In May 2013, investors in UBRD's RUB 2 billion three-year domestic bonds issued in April 2011 (see "Business Financial Markets") exercised their contractual put options (exercisable on such date only) to redeem a total of 779,074 bonds for a total amount of RUB 782 million paid by UBRD, representing approximately 39 per cent. of the total bonds of this issue. Also in May 2013, the interest rate on such bonds stepped down to per cent. from 11.5 per cent

105 BUSINESS Overview UBRD is a privately-owned commercial bank headquartered in Ekaterinburg, with a leading position in the Urals region and a strategic focus on retail, corporate and SME business, including the provision of loans, the taking of deposits and fee and commission-generating services. According to Banki.ru, as at 1 May 2013, UBRD was the largest bank in Ekaterinburg in terms of net assets and retail deposits and the second largest bank in Ekaterinburg in terms of equity and the size of its loan portfolio. According to RBC Rating, at 1 January 2013, UBRD was the 12 th largest bank in Russia in terms of its branch and office network, the 18 th largest bank in Russia in terms of ATMs and the 19 th largest bank in Russia in terms of active plastic cards in issue. As at 1 January 2013, UBRD was ranked by Interfax as the amongst the "Top 5" regional banks in Russia and as the 27th largest bank in Russia by the amount of its private deposits, the 40th largest bank in Russia by the amount of its total assets and 56 th largest bank in Russia by the amount of its equity. As at 1 January 2013, UBRD had 646,293 active retail customers and 30,486 active corporate and SME customers. As at 31 December 2012, UBRD's corporate (including SME) loan portfolio amounted to RUB 41,026 million (before allowance for impairment) and represented the largest proportion, 53.7 per cent., of UBRD's total gross loan portfolio, compared to 46.3 per cent. from UBRD's retail loan portfolio. However, UBRD intends to grow its retail loan portfolio to account for 60 to 70 per cent. of its total gross loan portfolio by 1 January 2015, in order to increase the profitability of its lending activities. See " Strategy Increasing lending to retail and SME customers". As at 1 January 2013, UBRD had 13 branches, 105 full service offices and 286 additional offices in 45 federal subjects of Russia (see " Branch, Office and ATM Network"). This compares to 10 branches, 84 full service offices and 117 additional offices in 21 federal subjects of Russia as at 1 January 2012 and 10 branches, 69 full service offices and 79 additional offices in 16 federal subjects of Russia as at 1 January UBRD has branches in Moscow, St. Petersburg, Kirov, Perm, Voronezh, Novosibirsk, Krasnodar and Ufa, as well as in cities in the Urals region and full service offices in Belgorod, Samara and Saratov, as well as in other cities in Russia inside and outside of the Urals region. UBRD's additional offices offer a limited range of products and services in comparison to branches and full service offices and are designed to attract and service either (but not both): (i) retail customers; or (ii) corporate and SME customers. As at 1 January 2013, UBRD had a network of 900 ATMs located in third-party retail chains and at UBRD's branches and offices, compared to 726 ATMs and 525 ATMs as at 1 January 2012 and 2011, respectively. UBRD had 5,788 employees as at 1 January 2013, compared to 4,132 and 3,615 employees as at 1 January 2012 and 2011, respectively. As at 31 December 2012, the assets of UBRD amounted to RUB 143,917 million, compared to RUB 99,995 million and RUB 75,940 million as at 31 December 2011 and 2010, respectively. UBRD's profit for the year ended 31 December 2012 amounted to RUB 846 million, compared to RUB 505 million and RUB 578 million for the years ended 31 December 2011 and 2010, respectively. As at 31 December 2012, UBRD's net loan portfolio amounted to RUB 72,415 million, compared to RUB 44,962 million and RUB 33,469 million as at 31 December 2011 and As at 31 December 2012, UBRD had total equity of RUB 9,390 million, compared to RUB 7,053 million and RUB 4,722 million as at 31 December 2011 and 2010, respectively. In the year ended 31 December 2012, UBRD's RoAE was 10.3 per cent. and RoAA was 0.7 per cent., as compared to 8.6 per cent. and 0.6 per cent., respectively, in the year ended 31 December 2011 and 14.5 per cent. and 0.8 per cent., respectively, in the year ended 31 December UBRD's Net Interest Margin was 5.3 per cent. in the year ended 31 December 2012, compared to 5.9 per cent. and 3.8 per cent. in the years ended 31 December 2011 and 2010, respectively

106 History and Development UBRD was established as "The Bank for the Development of Co-Operation" in Ekaterinburg on 28 September 1990, by several State unitary enterprises, as a regional bank for the development of business, providing services to both corporate and retail customers. UBRD changed its name to "The Ural Bank for Reconstruction and Development" in In 1993, the Kachkanarsovo Mining and Processing Plant and the State unitary enterprise "Ural Eletrochemical Combine" became the controlling shareholders in UBRD. In 1993, UBRD became the first commercial bank in the Sverdlovsk oblast to receive a general licence from the CBR and in the same year, was the first regional commercial bank in the Sverdlovsk oblast to become a member of SWIFT. In 1994, the Nizhny Tagil Iron and Steel Works became a significant shareholder in UBRD and in 1998, the Ural Mining and Metallurgical Company became a significant shareholder in UBRD. In 2000, UBRD became a member of MasterCard Europe and VISA International and received a licence from the Federal Commission for the Securities Market of Russia to act as a professional securities market participant. UBRD's lending activities were focused on lending to corporate customers from its establishment in 1990 until , when UBRD started expanding its retail lending activities. In 2003, Mr. Igor Altushkin and Mr. Sergey Dymshakov became UBRD's controlling shareholders. In 2004, UBRD acquired Sverdlsotsbank, another bank based in the Urals region, resulting in UBRD becoming the largest commercial bank in the Sverdlovsk oblast. The driver for UBRD's acquisition of Sverdlsotsbank was to acquire Sverdlsotsbank's SME banking business, but the acquisition also brought UBRD more retail banking customers and allowed it to benefit from a larger network in the Urals region. UBRD issued its debut domestic bond issue of RUB 500 million in 2005, becoming the first bank based in the Urals region to do so. This was followed by a second domestic bond issue of RUB 1 billion in Also in 2006, UBRD became a member of the Association of Russian Banks and a Principal Member of VISA International. In 2006, UBRD began to implement its 5- year strategic plan, developed in conjunction with the strategic consultancy firm Roland Berger. The strategic plan provided for the development of UBRD's retail banking business (which UBRD labelled its "retail hero" strategy), including through the use of a customer relationship management ("CRM") system based on software developed by SAP. UBRD attracted a ten year unsecured Tier 2 subordinated US$50 million loan with a floating rate from ABN AMRO (now The Royal Bank of Scotland) in December In 2008 UBRD joined the Urals Chamber of Trade and Commerce. In 2010, Mr. Sergey Dymshakov sold his shareholding in UBRD (to pursue his own other interests) to Mr. Altushkin, who became and remains UBRD's controlling shareholder. In 2011, Mr. Altushkin (through one of his nominees, Mr. Sergey Skubakov (see "Principal Shareholders")) increased his stake in UBRD by Sergey Skubakov's per cent. following the auction of shares in UBRD that had previously been held by a State unitary enterprise. Mr. Altushkin made a RUB 1,855 million gratuitous cash capital contribution in 2011 and purchased additional shares for consideration of RUB 2 billion in 2012, to maintain UBRD's capital adequacy ratios above the regulatory minimum, when UBRD's risk-weighted assets were growing as a result of the growth of UBRD's lending business. See "Principal Shareholders History of Share Issues and Capital Contributions Made Since 2007". UBRD's operations focused on the Urals region from its establishment until its strategy changed in 2011 (as part of its 3:2:3 strategy) to provide for expansion across Russia. See " Strategy". In 2011, UBRD was ranked amongst the largest 50 Russian banks for the first time by Forbes, and in 2012, UBRD was ranked by Forbes as the largest regional bank in the Urals region for the first time. UBRD issued domestic bonds of RUB 2 billion each in 2011 and In December 2012 and February 2013 UBRD entered into two 8.25 per cent. subordinated loans of US$30 million and US$20 million, each of six years maturity and eligible for inclusion in additional (Tier 2) capital, respectively, from Xangbo Global Markets (Singapore). In 2013, UBRD raised funding from the international debt capital markets for the first time, with issues of eurocommercial paper of US$50 million in February 2013 and US$7.5 million in April 2013, respectively. In April 2013, UBRD also issued a domestic bond of RUB 2 billion

107 Key Strengths UBRD's management believes that the following competitive strengths will help UBRD to grow and develop its business and achieve its strategic objectives: Leading positions in the Urals region UBRD has leading positions in the mineral-rich and heavily-industrialised Urals region, one of Russia's wealthiest regions, which accounts for 16 per cent. of Russia's GDP, 20 per cent. of Russia's industrial output and contributes 42 per cent. of taxes to Russia's federal budget, according to Rosstat. See "Description of the Urals region". According to Banki.ru, as at 1 May 2013, UBRD was ranked first by the amount of its net assets and retail deposits and second by the amount of its equity and the size of its loan portfolio in Ekaterinburg. As at 1 March 2013, approximately 86 per cent. of UBRD's gross retail loans and 84 per cent. of UBRD's gross corporate loans were to borrowers in the Urals region and approximately 63 per cent. of UBRD's retail customer accounts and 64 per cent. of UBRD's corporate customer accounts were from customers in the Urals region. UBRD benefits from a high level of brand awareness and brand loyalty within the Urals region. Further, over the last 20 years, UBRD has gained extensive experience in managing risk in the Urals region (see " Experienced management team with in-depth knowledge of the Urals region"). New entrants to this market would need to incur substantial time and expense to create a physical network to rival that of UBRD, and there is no assurance that they would be able to dislodge loyalty to UBRD brand and persuade customers to transfer their allegiance away from UBRD. See " Market Position and Competition." History of strong shareholder commitment and support Mr. Altushkin has historically provided financial support to UBRD, including through capital injections when no other sources of capital have been available on commercially-justifiable terms, in order to support UBRD's capital position and maintain UBRD's capital adequacy ratios above the regulatory minimum (see "The Banking Sector and Banking Regulation in Russia Regulation Mandatory Economic Ratios"). In 2011 and 2012, Mr. Igor Altushkin made capital contributions in the total amount of RUB 3,855 million to maintain UBRD's capital adequacy ratios above the regulatory minimum when UBRD's risk-weighted assets were growing as a result of the growth of UBRD's lending business. Although Mr. Altushkin is under no continuing obligation to support UBRD, Mr. Altushkin intends to continue to do so in the future. See "Risk Factors Risks Related to UBRD's Business and the Russian Banking Sector The interests of UBRD's controlling shareholder may conflict with those of Noteholder" and "Principal Shareholders History of Share Issues and Capital Contributions Made Since 2007". RCC and UBRD are the main businesses owned by Mr. Altushkin. RCC is a vertically-integrated copper company, founded in 2004 with mining, metallurgy, ore production and/or trading and management assets in the Urals region and Kazakhstan. RCC is the third largest copper producer in Russia according to the National Rating Agency. RCC's primary operations focus on each stage of its production cycle of copper, from mining to the completion and sale of copper products. RCC is developing two large scale projects in the Chelyabinsk oblast: one to commence operations in 2013, the other to commence operations in 2015, both of which have required and continue to require capital expenditure by RCC. These projects will help increase RCC's minerals base and RCC hopes they will allow it to better compete with its competitors. According to UBRD, RCC produced one per cent. of the copper produced globally in 2012 and 16 per cent. of the copper produced in Russia in 2012 and RCC has a production capacity of 200,000 tonnes of each of both copper cathodes and copper rods per year. RCC is particularly focused on developing its resource base and holds reserves of copper and zinc. As at 31 December 2010, RCC's estimated total reserves of copper and zinc amounted to approximately 7.5 million tonnes and 3.5 million tonnes, respectively, according to the mineral experts report prepared by International Mining Consultants, calculated using the JORC

108 classification of reserves. This is only an estimate of copper and zinc reserves and numerous uncertainties exist in estimating the quantity and value of copper and zinc reserves, including factors beyond the control of RCC. Actual factors may vary considerably from the assumptions that were used in estimating these reserves and for these reasons, actual recoverable and marketable reserves, together with the actual production, costs, revenue and expenditure of RCC s reserves may vary materially from these estimates. The amount of RCC's reserves of copper and zinc may have also changed significantly since 31 December 2010, the date as at which these reserves were estimated. Experienced management team with in-depth knowledge of the Urals region UBRD's management team has a wide range of experience, expertise and a strong understanding of the business environment of the Urals region. A large proportion of UBRD's Management Board have worked at UBRD for over ten years and have been closely involved in the development of UBRD over this period. UBRD's President, Mr. Anton Solovyev, has worked at UBRD since The knowledge of UBRD's management of the Urals region and of many major market participants in the market gives UBRD's management an advantage in its operations in the Urals region, because it allows UBRD to better evaluate the credit risk of borrowers and to better understand the product needs of potential customers and to allocate its resources efficiently. High proportion of liquid assets through a large debt securities portfolio UBRD manages its liquidity through a large portfolio of debt securities, which consists of corporate, municipal and Russian Government bonds, 83.4 per cent., 47.6 per cent. and 49.4 per cent. of which were rated BBB or higher by Standard & Poor's (or were assigned equivalent ratings by Moody's and/or Fitch), as at 31 December 2012 and 31 December 2011 and 2010, respectively. URBD's securities portfolio consists principally of investment grade debt securities and as a result, UBRD's exposure to market risk and the consequential impact this would have on its liquidity management is lower than would be the case if UBRD held a large number of equity securities or lower-rated debt securities, which UBRD considers as unsuitable for its liquidity management purposes. UBRD has an internal target to hold liquid assets equivalent to three months of funding requirements at all times. UBRD uses its debt securities portfolio, which can be sold and converted into cash, if required, faster than less liquid assets such as loans and investment property, to protect against liquidity squeezes, although it also nonetheless provides a significant amount of UBRD's interest income, accounting for 22.5 per cent., 21.0 per cent. and 25.6 per cent. of UBRD's total interest income in the years ended 31 December 2012, 2011 and 2010, respectively. Quality corporate loan portfolio UBRD's overdue loans amounted to RUB 8,074 million (10.7 per cent. of the gross loan portfolio) as at 31 December 2012, as compared to RUB 5,456 million (11.6 per cent. of the gross loan portfolio) as at 31 December 2011 and RUB 5,870 million (16.2 per cent. of the gross loan portfolio) as at 31 December Total overdue loans from UBRD's corporate segment accounted for 17.6 per cent., 17.9 per cent. and 19.2 per cent. of total overdue loans as at 31 December 2012, 2011 and 2010, respectively, with the remaining amount of total overdue loans arising from UBRD's retail loan portfolio, as at such dates. UBRD's proportion of overdue corporate loans to its gross corporate loan portfolio was 3.5 per cent., 3.5 per cent. and 5.6 per cent., as at 31 December 2012, 2011 and 2010, respectively. According to Banki.ru, as at 1 May 2013, UBRD was ranked 60th in Russia by the amount of its non-performing loans, compared to 41st in Russia by the size of its loan portfolio, demonstrating the above-average quality of UBRD's loan portfolio amongst Russian banks. The relatively good quality of UBRD's corporate loan portfolio (compared to the market as a whole) is a result of UBRD's regular monitoring of its clients (including through its corporate cash collection business, through which UBRD obtains up-to-date information on the cash turnover of the customers for whom it collects cash), its conservative risk management policies (see " Conservative and

109 proven risk management policies" below) and its long experience of lending to corporate customers in the Urals region. Conservative and proven risk management policies UBRD's management intends to maintain a risk management culture aimed at allowing its business to expand significantly without exposing UBRD to increased risks. UBRD is continuously developing its lending policies and procedures and risk management structure and closely monitors the market conditions of the regions and industries in which its customers operate, in order to anticipate which customers may face difficulties in meeting their repayment obligations to UBRD. In its retail lending segment, UBRD accepts a higher proportion of loan applications from customer segments that it considers to be lower risk, including retail customers from UBRD's payroll programmes and existing retail customers with a track record (rather than "walk-in" retail customers) and this reduces UBRD's credit risk. See "Risk Management". Strategy In 2011, UBRD distilled its strategy into the 3:2:3 strategy, which succeeded the five year strategy UBRD had pursued since 2006 (see " History and Development" above). UBRD intends, pursuant to its 3:2:3 strategy, to: triple the number of its branches and offices; double the number of its active customers; and triple its total gross income, between 1 January 2012 and 1 January As a result of the 3:2:3 strategy, UBRD plans to become one of the 30 largest Russian banks by total assets and one of the 20 largest Russian banks by retail loans and SME loans by UBRD was ranked the 43rd largest Russian bank by assets according to Forbes in March 2012, compared to the 49th largest Russian bank by assets according to Forbes in March UBRD aims to achieve the above strategic goals by focusing on the following strategy: Using multiple sales channels to drive customer and business volume growth UBRD is focused on selling its products and services to customers through a wide range of sales channels, including branches, full service offices, additional offices (often located at shopping centres or business centres) and remote channels, such as the Internet. UBRD is focused on increasing the proportion of the products and services it sells through sales channels other than its branches and full service offices (through which 54.7 per cent. of UBRD's retail products and services were sold in 2012). In addition, UBRD focuses on attracting new retail customers through its partner programmes with retailers and payroll programmes with its corporate customers. See " Corporate Banking Other Corporate Banking Products and Services Payroll Programmes" and " Retail Banking Other Retail Banking Products and Services Partner Programmes". UBRD's network of independent sales agents also allows it to attract new corporate and SME customers. UBRD plans to engage with a higher proportion of its customers and obtain new customers through the Internet. UBRD intends to increase the level of its cross sales through focusing on the Internet and enabling customers to purchase products and services more conveniently (see " Remote Banking and Other Direct Sales Channels"). As part of UBRD's rebranding in 2012, UBRD improved the presentation of its website, with the assistance of the international brand consultant, Mildberry. See " High brand recognition across Russia". UBRD also places a strong emphasis on advertising its services to retail customers through social networking websites and has been ranked third in Russia by the Frank Research Group with respect to its presence in Russia's social networks as at 31 December

110 Growth of fee and commission income-generating products and services UBRD is focused on growing the proportion of its total gross income that it derives from fee and commission income, in order to supplement and reduce its reliance on interest income, which has historically been and was the largest contributor to UBRD's total gross income in the years ended 31 December 2012, 2011 and UBRD offers a range of fee and commission-earning products and services, including plastic card transactions, cash transactions and settlement transactions and UBRD intends to expand this offering in the future, particularly with respect to SME customers. In the year ended 31 December 2012, UBRD's fee and commission income was RUB 2,305 million, representing a per cent. increase from RUB 1,103 million for the year ended 31 December By way of comparison, in the same period, UBRD's interest income increased by 34.2 per cent., representing a smaller proportionate increase than the increase in UBRD's fee and commission income mentioned above. Fee and commission income constituted 13.9 per cent., 8.9 per cent. and 7.1 per cent. of UBRD's total operating income in the years ended 31 December 2012, 2011 and 2010, respectively. By way of comparison, in the same periods, UBRD's interest income constituted 83.9 per cent., 83.4 per cent. and 84.4 per cent. of its total operating income, respectively, demonstrating that interest income nevertheless still generates a much larger proportion of UBRD's total operating income than fee and commission income (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). UBRD received 72.7 per cent. of its fee and commission income in the year ended 31 December 2012 from its retail banking segment, compared to 56.5 per cent. and 46.1 per cent. in the years ended 31 December 2011 and 2010, respectively (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). UBRD received 27.5 per cent. of its fee and commission income in the year ended 31 December 2012 from its corporate (including SME) banking segment, compared to 42.9 per cent. and 52.6 per cent. in the years ended 31 December 2011 and 2010, respectively (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). A key part UBRD's strategy to increase fee and commission income is its active cross-selling of its fee and commission products. See " Cross-selling products to customers". UBRD also generates fee and commission income from its asset management business and although its asset management business is not a core business for UBRD as at the date of this Prospectus, UBRD plans to increase the volume of its asset management business by Increasing lending to retail and SME customers UBRD has a strategic focus on increasing retail and SME lending. UBRD considers retail and SME lending to be its most profitable lending segments, as UBRD can charge higher interest rates to retail and SME customers than to larger corporate customers and as a result, increase its Net Interest Margin. Although UBRD's strategy has historically been to maintain an approximately equal balance between the size of its corporate and retail loan portfolios, UBRD intends to increase the share of its retail loan portfolio to 60 to 70 per cent. of its total loan portfolio by 2015, compared to 46.3 per cent. as at 31 December UBRD intends to maintain its focus on lower-middle income and middle-income customers in its retail segment, as well as to maintain its focus on existing customers and employees participating in payroll programmes, which it considers to be a lower credit risk than "walk-in" customers. UBRD focuses on servicing these customer segments through expanding its product lines (including developing niche products) and through using a range of sales channels, including at its branches, full service offices and additional offices (particularly at shopping centres), Internet banking and by making targeted telephone marketing calls

111 UBRD intends to increase the share of its SME loan portfolio from 15 to 20 per cent. of its total loan portfolio by 2015, compared to 6.0 per cent. as at 31 December UBRD's focus to increase the overall proportion of SME lending in its portfolio is driven by the higher margins available from this segment, compared to the larger corporate segment, where UBRD faces stronger competition from international and State-owned banks, which are less active and compete less with UBRD in the SME lending sector. UBRD has been and aims to continue growing its SME loan portfolio at a faster rate than SME lending is growing in Russia. Part of UBRD's strategy towards growing its SME lending business is to provide clear, easy-tounderstand terms and conditions, with all fees clearly described, to build up trust with its SME customers and allow them to better distinguish between the SME loans that UBRD offers and select the most appropriate SME loan for their particular needs. By growing its SME lending business, UBRD also intends to diversify its lending portfolio away from the metallurgy sector, which has historically been, and remains as at the date of this Prospectus, the largest sector of its corporate loan portfolio. Cross-selling products to customers In each of its business segments, UBRD aims to increase the number of products it sells to its customers and it has established a cross-selling initiative to facilitate this through its CRM system. UBRD's CRM system uses software developed by SAP to target specific customers for particular products and services (see " Information Technology"). UBRD has significantly increased the number of products each customer purchases from UBRD in recent years and it intends to continue this trend. UBRD uses information obtained in the course of loan applications from new customers, in addition to historic information obtained with respect to existing customers, to allocate each customer to a particular customer segment. Based on this information, UBRD promotes the most suitable products or services to particular customers, through targeted telephone marketing calls and or at UBRD's branches and offices. UBRD also believes that its simplified and easy-to-understand terms and procedures facilitate cross sales, as customers are more likely to make quick decisions to purchase additional products or services if they are easily understandable and can be purchased conveniently. UBRD has been increasing and intends to continue increasing its cross-selling of credit cards, other retail lending products and asset management services to UBRD's existing retail deposit customers and its cross-selling of guarantees, trade finance services, services relating to the financing of projects, corporate deposits and cash management services to its existing SME and corporate borrowers. Expansion of geographical reach UBRD aims to expand on its leading position in the Urals region to grow its presence across Russia, including in more developed regions of Russia (such as in Moscow and St. Petersburg) and in regions that have a relatively low penetration of banking services but a high growth potential. UBRD also intends to minimise its expansion and network costs in general by using remote channels, such as the Internet and its call centres, together with additional offices, which require less investment than branches and full service offices, and allow UBRD to attract and service customers in a more cost-efficient manner. In 2012, UBRD opened new branches in St. Petersburg, Krasnodar and Novosibirsk. Opening a branch in a new region raises UBRD's profile in such region and allows UBRD to develop its relationship with the local regulatory and municipal authorities and local customers, which makes further expansion in such region more likely to succeed. Part of UBRD's 3:2:3 strategy is to triple its overall branch and office network between 1 January 2012 and 1 January 2015, to reach 750 branches and offices by 1 January UBRD had 404 and 211 branches and offices as at 1 January 2013 and 2012, respectively. As at 1 January 2013, UBRD was ranked 12 th in Russia by the size of its branch and office network by RBC Rating. High brand recognition across Russia In 2012, UBRD undertook a significant rebranding exercise, advised by the international brand consulting firm Mildberry, including an overhaul of its website, its corporate logo and the

112 appearance of its branches and offices. The aim of the rebranding exercise was to project UBRD as an open, modern and customer-oriented bank. UBRD intends to develop its brand awareness across Russia, particularly through its website, advertising and the expansion of its branch network. When UBRD opens a branch or full service office in a new city in which it has a low level of brand recognition, UBRD undertakes an advertising campaign in such city to raise the profile of its brand. In May 2013 and April 2012, UBRD was named "Brand of the Year" for 2012 and 2011, respectively, by Effie Awards for its rebranding, the development of its Internet website and its presence on social networks in Russia. In June 2012, UBRD won "Best retail advertisement for financial services" for at the conference "Marketing of financial services: secrets of promotion, experience and technology of success" held in Moscow and organised by the Institute for the Development of Financial Markets (a Russian organisation). Attracting a higher proportion of corporate and SME customer deposits While UBRD attracts the largest proportion of its deposits from its retail customers (constituting 69.9 per cent., 71.4 per cent. and 81.1 per cent. of total customer accounts as at 31 December 2012, 2011 and 2010, respectively), UBRD has been and intends to continue actively increasing the amount of deposits it attracts from its corporate and SME customers (which together constituted 29.1 per cent., 28.6 per cent. and 18.9 per cent. of total customer accounts as at 31 December 2012, 2011 and 2010, respectively). In UBRD's experience, larger corporate depositors maintain their balances for longer periods than SME depositors and as a result, UBRD is particularly focused on developing strong relationships with larger corporate depositors. UBRD intends to diversify its deposit-taking funding base away from a reliance on retail deposits, which the Civil Code entitles retail customers to withdraw at any time, including term deposits, without penalty to principal. See " Diversification of funding base". UBRD has achieved and intends to continue to achieve this in several ways. One method is by cross-selling its deposit products to its corporate and SME lending customers (see " Crossselling products to customers"). In addition, UBRD attracts new corporate and SME deposit customers through its partner recommendation service, under which UBRD's existing corporate and SME deposit, settlement or cash service customers receive a 50 per cent. discount on one month's account maintenance fees when they successfully recommend a new customer to UBRD. UBRD also regularly participates in tenders to manage the deposits of State-controlled companies and organisations in Russia. Diversification of funding base The majority of UBRD's funding is based on customer deposits, which represented 71.1 per cent., 74.8 per cent. and 76.5 per cent. of UBRD's total liabilities as at 31 December 2012, 2011 and 31 December 2010, respectively, the majority of which are retail deposits that customers are entitled to withdraw at any time (see Attracting a higher proportion of corporate and SME customer deposits). UBRD intends to diversify its funding base to include a higher proportion of longer-term funding, including through senior and subordinated bond and bank debt in the international and domestic capital markets. UBRD issued its first domestic bond issue in 2005, attracted its first long-term U.S. dollar-denominated loan from an international financial institution in 2007 and raised its first international debt capital markets funding through issues of eurocommercial paper in See " History and Development" and "Financial Markets". UBRD aims to satisfy 10 per cent. of its total funding needs from the international and domestic capital markets by Registrations, Credit Ratings and Licences UBRD is organised under the laws of Russia as an open joint stock company (otkrytoe aktsionernoe obshestvo) and its registered legal address is 67 Sakko and Vancetti Street, Ekaterinburg, , Russia. The telephone number of UBRD's registered office is UBRD is registered with the Unified State Register of Legal Entities with Principal State Registration Number

113 UBRD's credit rating as at the date of this Base Prospectus is B (with outlook stable) from Standard & Poor's. UBRD has a full (general) banking licence No. 429, and licences from the Russian Ministry of Industry and Trade to export gold (No. 093RU ) and silver (No. 093RU ). UBRD's branches are registered with the CBR, but UBRD is not required to register its offices with the CBR

114 Key Financial and Operating Data As at or for the year ended 31 December (millions of Roubles, except where indicated otherwise) Gross loans to customers 76,463 47,633 36,788 of which Corporate loans SME loans Related party loans Unsecured consumer loans Express loans Loans to employees participating in payroll projects Collateralised consumer loans Total assets Total equity Customer accounts Net profit for the year Number of active retail customers (by customers) Number of active corporate and SME customers (by customers) Number of branches and offices (including full service offices and additional offices) (by branches and offices) Number of employees (by employees) 23,564 16,109 12,279 4,587 2, ,875 9,607 7,615 18,579 8,261 5,514 9,657 7,340 7,452 4,824 2,744 2,132 2,377 1, ,917 99,995 75,940 9,390 7,053 4,722 95,645 69,503 54, , , ,076 30,486 25,074 21, ,788 4,132 3,

115 Organisational Structure The Group consists of UBRD and several subsidiaries of UBRD, each of which is incorporated in Russia, including OOO "UBRiR-Finance", a securities management subsidiary, OOO "UBRiRleasing", a leasing company, OOО "Fininvest K", through which the Group owns property and equipment and OOO "Invest-leasing", a leasing company. The Group also controls several special purpose entities, for fund management, property and equipment ownership and financial intermediary purposes. The following chart shows UBRD and its subsidiaries as at 31 December UBRD OOO "UBRiR Finance" OOO "UBRiR Leasing" OOO "Fininvest K" OOO "Investleasing" Divisional Structure The chart on the following page sets out UBRD's divisional structure

116 Organisational structure of OJSC UBRD as of 1 April 2013 President of OJSC UBRD (Solovyov A.Yu.) Management Board Office of President Risk Department (Deputy director of the department Kochnev V.S.) Chief Accountant (Sirazov M.R.) Director of corporate development and human resources department (Voronin Yu.M.) Vice-President (Krokhin A.G.) Vice-President (Khlebnikov V.V.)) Vice-President Director of department for corporate customers (Ikryanikov A.V.) Vice-President director of retail services department (Ovchinnikov A.Yu.) Vice-President director of Treasury (Plastinin A.V.) Vice-President director of operations, banking and information technologies department (Mironov Yu.P.) Internet Sales Department (Semenikhin V.A.) International Business Department (Sisoshvili S.M.) Marketing Department (Dyatlov K.M.) President s Counselor (Kozochkin V.A.) Internal Control Service (Shvetsov S.V.) Retail Risk Department Directorate of financial accounting and reporting (Tutko Yu.M.) Directorate of Personnel Management (Knyazeva N.A.) Operating management (Klepikov M.V.) DARPA assets (Tuykov D.V.) Management of sales of corporate products (Dovovozova O.G.) Management of retail sales (Babushkin D.A.) Management of open market operations (Kazantsev A.G) Information technology management (Obukhov A.V.) Management of the development of Internet technologies (Kotelnikov K.P.) Management of trade and project finance (Okhrimenko S.A.) Management of advertising and promotion Security service Controlling Service (Rubshtein S.V.) Management of Financial Monitoring (Potapov A.A.) Management of Information Systems Security (Paderin A.N.) Directorate of collecting retail bad debts Corporate Risk Departments (Roslyakova M.A.) SME Risk Department Management of monitoring of banking transactions and reporting (Sopronenkova E.V.) Management accounting and control of interbank transactions (Zagolovtseva M.G.) Management of corporate education of staff (Fedorova E.M.) Management evaluation and career planning (Ezhova T.V.) Legal department (Alekseev K.A.) Department of regional development (Izevlin G.V.) Administration Management control of subsidiaries and associated companies Directorate of small and medium business (Sorvina E.S.) The development of networks of non-bank credit points (Ravitch A.A.) Management of retail business development (Babina E.A.) Management of remote sales (Zhuravlev V.S.) The management of financial institutions and investment services (Zotov V.L.)) Dealing management (Mesilov R.A.) Directorate of information technology Directorate of strategic development of information technology (Koval A.V.) Management of processing technology (Rybakov A.V.) Management of client development of Internet sales (Ogorodnikov A.V.) Department of internet promotion (Baranov V.S.) Department of work with foreign financial institutions (Aristova I.V.) Managing market research (Savicheva O.S.) Public relations department (Selivanov S.A.) Managing collection (Kurtin A.V.) Safety management (Sharavin O.A.) Secretarial Services and VIP- Communications (Dementyeva E.S.) Asset and Liability Department (Zavyalov D..L.) Management of constructions and operations (Shigaev A.N.) (Cherdantseva Yu.V.) Centre for budgeting and management reporting (Sayfuranov A.R.) Management of active sales (Shikhalev A.S.) Management of the development of new processing technologies (Suleymanov V.U.) Branches Additional, operational, credit and cash offices Transport management (Sozonov O.V.) Management of distressed assets (Shalimov K.V.) Management of partnership programmes (Teplykh Yu.V.)) Processing centre (Bederson E.A.) Knowledge centre (Turgina S.V.) Project managers, assistants of project managers Communication department (Ovchinnikov V.V.)

117 Principal Activities UBRD's principal business activities are: Retail Banking; providing retail banking services, including lending, deposit-taking, participation in partner programmes and cash and settlement services, with a particular focus on lower middle-income and middle-income customers. See " Retail Banking"; Corporate Banking; providing corporate banking services, including working capital loans and the financing of projects, corporate deposit services, trade finance, guarantees, leasing, settlement and cash operations and payroll programmes, with a particular focus on the metallurgy industry and mid-tier corporate clients with annual sales of between US$13 million and US$200 million. See " Corporate Banking"; and SME Banking; providing SME banking services, including lending services, deposittaking services and other services to SME companies and entrepreneurs. See " SME Banking". Retail Banking UBRD believes that the retail banking sector remains one of the key drivers in the Russian banking market and UBRD continues to prioritise the development of its activities in this sector. Retail banking accounted for 47.3 per cent., 38.6 per cent. and 21.9 per cent. of UBRD's profit before tax (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS), for the years ended 31 December 2012, 2011 and 2010, respectively. UBRD had 646,293, 520,090 and 456,076 retail banking customers as at 1 January 2013, 2012 and 2011, respectively. The share of UBRD's interest income from retail lending was 41.7 per cent., 43.8 per cent. and 35.9 per cent. for the years ended 31 December 2012, 2011 and 2010, respectively and for the same periods, the share of UBRD's interest expense from retail banking was 58.0 per cent., 68.6 per cent. and 76.1 per cent., respectively (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). The larger proportion of interest income derived from UBRD's retail banking segment, compared to its corporate banking segment, reflects the higher average annual interest rate on UBRD's retail loans, compared to its corporate loans. See "Operating and Financial Review Results of Operations Average Balances and Interest Rates". The share of UBRD's fee and commission income from retail banking was 72.7 per cent., 56.5 per cent. and 46.1 per cent. for the years ended 31 December 2012, 2011 and 2010, respectively and for the same periods, the share of UBRD's administrative and other operating expenses from retail banking was 75.6 per cent., 73.4 per cent. and 70.8 per cent., respectively (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). See Note 31 to UBRD's 2012 Consolidated Financial Statements and Note 30 to UBRD's 2011 Consolidated Financial Statements for further details on the results of operations of UBRD's retail banking segment. While historically, UBRD has obtained the largest proportion of its funding from retail customer accounts (constituting 69.9 per cent., 71.4 per cent. and 81.1 per cent. of total customer accounts as at 31 December 2012, 2011 and 2010, respectively), UBRD's retail lending portfolio has historically been smaller than UBRD's combined corporate and SME loan portfolio. UBRD's retail lending portfolio constituted 46.4 per cent., 41.0 per cent. and 43.6 per cent. of UBRD's total gross loan portfolio as at 31 December 2012, 2011 and 2010, respectively, compared to UBRD's corporate and SME loan portfolio together constituting 53.7 per cent., 59.0 per cent. and 56.4 per cent. of UBRD's gross loan portfolio as at the same dates. However, UBRD is focused on growing its retail loan portfolio to constitute per cent. of its total gross loan portfolio by UBRD plans to grow its retail loan portfolio faster than its corporate (excluding SME) loan portfolio because it considers retail lending to be more profitable and to offer greater potential for

118 growth than corporate (excluding SME) lending. See " Strategy Increasing lending to retail and SME customers". UBRD offers a range of retail lending products and services. (see " Retail Lending Products and Services"). The commercial terms of UBRD's retail loans vary, depending on the type of product, the customer's credit quality and financial condition, collateral, maturity and other factors. While the large majority of UBRD's retail loans are provided on an unsecured basis (representing 93.3 per cent., 93.9 per cent., 94.0 per cent. of UBRD's gross retail loans as at 31 December 2012, 2011 and 2010, respectively), secured loans include mortgage loans, auto loans and guaranteed loans. UBRD does not consider mortgage loans and auto loans as part of its core business, due to the presence of competitors in the market that provide such loans at rates with which UBRD cannot successfully compete. UBRD only provides mortgage loans and auto loans on an "on-request" basis. UBRD offers several types of current accounts and term deposits that vary by term, currency, interest accrual period and whether or not additional funds can be deposited or withdrawn prior to the expiration of the term of the deposit. UBRD continues to rapidly expand its retail branch and office network and plans to continue to do so, as part of its 3:2:3 strategy to grow its business (see " Strategy"). UBRD is also diversifying its sales channels for retail banking products, in particular through the increased use of additional offices to sell retail banking products, which have lower maintenance costs than branches and full service offices and many of which UBRD strategically locates in shopping centres. UBRD is also growing its retail business through remote banking channels, such as the Internet and overhauled the presentation of its website as part of its rebranding in UBRD's website is advertised on social networks, including Facebook and Twitter and UBRD has been ranked third in terms of its social network advertising activities amongst Russian banks as at 31 December 2012 by the Frank Research Group. See " Strategy Using multiple sales channels to drive customer and business volume growth". UBRD is focused on cross-selling credit cards and other retail lending products to UBRD's existing retail deposit customers through making targeted telephone calls to customers, from branch and office staff, using its CRM system. See "Cross-selling products to customers" and "Information Technology". UBRD regularly reviews and updates the terms and conditions of its retail banking products in response to retail customer demand, which it evaluates through customer surveys, analysing customer application trends, feedback from staff at its branches and offices and monitoring trends in the markets in which it operates. Retail Lending Products and Services UBRD's gross retail loan portfolio accounted for 46.4 per cent., 41.0 per cent. and 43.6 per cent. of UBRD's gross loan portfolio as at 31 December 2012, 2011 and 2010, respectively. Unsecured consumer loans and express loans together accounted for 79.7 per cent., 79.9 per cent. and 80.7 per cent. of UBRD's gross retail loan portfolio as at 31 December 2012, 2011 and 2010, respectively. The primary distinction between unsecured consumer loans and express loans (all of which are unsecured) is that credit decisions for express loans are made and communicated (on an expedited basis) to customers faster than for unsecured consumer loans. See "Risk Management Credit Risk Lending Procedures Retail Lending and Procedures". UBRD's provisioning levels for express loans have historically been and remain significantly higher in comparison to unsecured consumer loans. Express loans constitute a higher credit risk for UBRD than unsecured consumer loans and the interest rates on express loans are accordingly higher, while collection procedures for express loans are also handled differently. See "Risk Management Monitoring and Collection Procedures Monitoring and collection procedures for problem retail loans". The remaining part of UBRD's retail loan portfolio is composed of collateralised consumer loans (including mortgage loans, auto loans and guaranteed loans) and loans to employees of participants in payroll programmes. UBRD also provides credit card products and services

119 Unsecured Consumer Loans Unsecured consumer loans accounted for 52.4 per cent., 42.3 per cent. and 34.3 per cent. of UBRD's gross retail loan portfolio as at 31 December 2012, 2011 and 2010, respectively. The main type of unsecured consumer loan offered by UBRD is the "open" loan. "Open" loans are offered in amounts of between RUB 50,000 and RUB 1,000,000, for tenors of 12, 36, 60 or 84 months, with annual interest rates of between 20 per cent. and 27 per cent., depending on the customer's credit profile. Customers can submit applications for "open" loans at UBRD's branches and offices or through UBRD's website. UBRD's lending policies and procedures for "open" loans are more thorough than for the main type of express loan, its "matter-of-minutes" loan (see " Express Loans" below). See "Risk Management Credit Risk Lending Procedures Retail lending procedures "Open" loans (unsecured consumer loans)". Express Loans Express loans accounted for 27.3 per cent., 37.6 per cent. and 46.4 per cent. of UBRD's gross retail loan portfolio as at 31 December 2012, 2011 and 2010, respectively. The main type of express loan offered by UBRD is the "matter-of-minutes" loan. "Matter-of-minutes" loans are offered in amounts of between RUB 5,000 to RUB 150,000, for terms of up to three years, with annual interest rates of between 39 per cent. and 79 per cent., depending on the customer's credit profile. Credit decisions for "matter of minutes" loans should be made within 15 minutes of customers submitting their loan applications. Customers can submit applications at UBRD's branches and offices or through UBRD's website. In comparison to "open" loans, "matter-ofminutes" loans have lower maximum terms, lower principal amounts, but higher interest rates and credit decisions for "matter-of-minutes" loans are made more quickly. UBRD's lending policies and procedures for "matter-of-minutes" loans are less thorough than for "open" loans. See "Risk Management Credit Risk Lending Procedures Retail lending procedures "Matter-of-minutes" loans (express loans)" Loans to Employees Participating in Payroll Programmes Loans to employees participating in payroll programmes accounted for 13.6 per cent., 14.0 per cent., 13.3 per cent. of UBRD's gross retail loan portfolio as at 31 December 2012, 2011 and 2010, respectively. UBRD provides loans to employees participating in payroll programmes at favourable rates, because UBRD is able to better monitor their financial health in comparison to "walk-in" customers. See "Corporate Banking Payroll Programmes". Collateralised Consumer Loans Collateralised consumer loans accounted for 6.7 per cent., 6.1 per cent. and 6.0 per cent. of UBRD's gross retail loan portfolio as at 31 December 2012, 2011 and 2010, respectively. Collateralised consumer loans include mortgage loans and auto loans, which are not considered by UBRD to be part of its core business and are only provided on an "on-request" basis to employees of UBRD or to customers with whom UBRD has an existing relationship. Collateralised consumer loans are supported by a combination of third party guarantees and mortgages over real estate or pledges over vehicles, the combined market value of which should cover the principal amount of the collateralised loan. Where a spouse's name has been taken into account in the calculation of the applicant's income, such spouse should provide a guarantee and likewise, where a mortgage is provided over real estate that is owned or co-owned by another individual, a guarantee from such individual should be provided. See "Risk Management Credit Risk Lending Procedures Retail lending procedures Collateralised consumer loans". Credit Cards According to UBRD's management accounts, the credit card balances of UBRD's retail customers amounted to RUB 1.6 billion, RUB 1.0 billion and RUB 0.7 billion as at 31 December 2012, 2011 and 2010, respectively. UBRD offers revolving credit cards with a credit limit, which depends on the customer's risk profile and can change over time. UBRD's

120 standard credit cards have a maximum grace period of 51 days during which interest is not charged on new credit incurred and UBRD's standard credit cards also have a maximum revolving credit limit of RUB 300,000 and interest rates between 12 per cent. and 64.5 per cent. Credit card customers are sent weekly notifications by SMS of their credit balances and the unutilised amounts available for drawdown. Credit card customers are also sent SMS notifications of upcoming payment dates. As at the date of this Prospectus, UBRD has over 75,000 credit cards in circulation (including valid credit cards that are both actively used and valid credit cards those that are not actively used) and UBRD intends to actively promote its credit card products to increase the proportion of transactions its customers perform through credit card transactions in the future. UBRD also issues credit cards through its "Club 66" programme, through which UBRD's customers can use their card to receive discounts at shops, restaurants, sports centres, beauty salons, travel agents, chemists and other retailers and service providers. See "Other Retail Banking Products and Services Partner Programmes". Retail Banking Deposit Products and Services UBRD has been accepting deposits from individuals since September 1990 and has been a member of the Russian system of mandatory insurance of retail deposits since November UBRD offers current and term deposit accounts in Roubles, Euros and U.S. dollars and UBRD's retail deposit base has become an important source of funding since the global economic crisis. UBRD's retail customer accounts constituted 69.9 per cent., 71.4 per cent. and 81.1 per cent. of UBRD's total customer accounts and 49.7 per cent., 53.4 per cent. and 62.0 per cent. of UBRD's total liabilities as at 31 December 2012, 2011 and 2010, respectively. As at 1 February 2013, UBRD had approximately 231,000 retail deposit accounts in Russia, with an average amount of RUB 269,000 per deposit account. UBRD issues debit cards to its retail customers and free cash withdrawals can be made using such debit cards through the ATMs of UBRD, Alfa Bank and Investbank, which had 900, 2,802 and 157 ATMs in operation, respectively, as at 1 January 2013, according to RBC Rating. As at the date of this Prospectus, UBRD is focused on attracting deposits through remote banking and is also focused on attracting long-term deposits with terms of one year or above. As at the date of this Prospectus, UBRD has over a million debit cards in circulation (including valid debit cards that are both actively used and valid credit cards that are not actively used) and UBRD intends to actively promote its debit card products to increase the proportion of transactions its customers perform through debit card transactions in the future. UBRD provides retail customers with four main types of term deposits: "convenient", "accumulation", "mobile" and "multicurrency" term deposits. The table below sets out the key features, minimum amounts and tenors of such term deposits. Key Features Minimum Deposit Tenor Convenient Customers can choose the intervals at which they receive interest income RUB 5,000, or US$200, or EUR 200 Up to 1,400 days Accumulation The interest rate increases when more funds are put on deposit. However, on early termination, interest for the whole term is recalculated based on a lower "ondemand" rate. RUB 3,000-10,000, or US$ , or EUR (depending on federal subject) 540/370 days (depending on federal subject)

121 Mobile Customers can make withdrawals up to a minimum balance or extend the term of the deposit RUB 20,000-50,000, or US$800-1,500, or EUR 800-1,500 (depending on federal subject) Up to 7 months Multicurrency Customers are provided with accounts in Roubles, U.S. dollars and Euros and can convert and transfer amounts between accounts. RUB 3,000-10,000, or US$ , or EUR (depending on federal subject) 181 days UBRD also provides retail customers with remotely-operated deposit accounts, which can be operated free of charge by customers through using their bank cards at UBRD's branch and office network, at UBRD's ATMs and through UBRD's Internet banking system. See " Remote Banking and Other Direct Sales Channels". Remotely-operated deposit accounts can be established with no limits as to the maximum amount of deposits and a minimum deposit of only one Rouble. UBRD additionally offers customers the option to deposit funds into a "precious metals account", an investment account that holds such funds in the form of gold or silver. Customers receive a rate of interest depending on the term of the deposit and customers take the risk of fluctuations in market prices of gold or silver that increases or decreases the amount that is returned to customers at maturity. Other Retail Banking Products and Services Partner Programmes UBRD offers various partner programmes for its retail customers. Such programmes include: UBRD's "Club 66" programme, through which UBRD's customers can use their credit cards or debit cards to receive discounts at shops, restaurants, sports centres, beauty salons, travel agents, chemists and other retailers and service providers. As at the date of this Prospectus, there are more than 500 companies participating in this programme and the list of participating companies is growing; UBRD's "Internet card BayRu Club 66 VISA Virtuon" credit cards or debit cards, which provides incentives to UBRD's retail customers to buy goods from international websites such as ebay, Amazon and others; UBRD's "Rainbow Park" credit cards or debit cards, which gives customers the opportunity to receive discounts of up to 10 per cent. when paying for goods and services in the shopping and entertainment centre "Rainbow Park", located in Ekaterinburg in the Urals region; and Credit or debit card "Ural Airlines Visa UBRD", airline miles credit cards or debit cards. UBRD offers this card in "classic" or "gold" format (which provides double the amount of points of "classic" format). Settlement and Cash Services UBRD offers its retail customers various payment, money transfer and foreign exchange services. UBRD's money transfer services are performed through UBRD's correspondent account with the CBR, through which money is transferred and received several times a day. UBRD funds its foreign exchange operations either through its own foreign currency reserves or through transacting on the foreign exchange market of the Moscow Exchange to buy or sell foreign currencies on its customers' behalf

122 Corporate Banking Corporate banking has historically been the core business of UBRD and it contributes a significant part of UBRD's profit before tax, representing (together with SME banking) 34.5 per cent., 41.1 per cent. and 37.4 per cent. of UBRD's profit before tax for the years ended 31 December 2012, 2011 and 2010, respectively (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). UBRD had 30,486, 25,074 and 21,846 corporate and SME banking customers as at 1 January 2013, 2012 and 2011, respectively. The share of UBRD's interest income from corporate banking (including SME banking) in UBRD's total interest income was 34.5 per cent., 33.8 per cent. and 40.1 per cent. for the years ended 31 December 2012, 2011 and 2010, respectively, and for the same periods, the share of UBRD's interest expense from corporate banking in UBRD's total interest expense was 16.9 per cent., 13.3 per cent. and 13.1 per cent., respectively (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). The share of UBRD's fee and commission income from corporate banking in UBRD's total fee and commission income was 27.5 per cent., 42.9 per cent. and 52.6 per cent. as at 31 December 2012, 2011 and 2010, respectively, and as at the same dates, the share of UBRD's administrative and other operating expenses from corporate banking in UBRD's total administrative and other operating expenses was 23.2 per cent., 25.0 per cent. and 27.2 per cent., respectively (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). Historically, UBRD has focused more on lending to corporate customers than to retail customers, although UBRD has recently started to shift its emphasis towards retail lending. See " Strategy Increasing lending to retail and SME customers". Corporate (including SME) customer accounts represented 29.1 per cent., 28.6 per cent. and 18.9 per cent. of UBRD's total customer accounts as at 31 December 2012, 2011 and 2010, respectively (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). UBRD assigns customer relationship officers to UBRD's corporate customers to act as a point of contact to understand its corporate customers' businesses and to sell UBRD's products and services. While UBRD offers a number of standardised banking products and services to corporate customers (which overlap with those offered to SME customers (see " SME Banking")), UBRD also tailors its products and services to meet the particular needs of its corporate customers on a case-by case basis. UBRD is diversifying its sales channels for corporate banking products, in particular through the increased use of additional offices in business centres, which have lower maintenance costs than full service offices or branches, and over the Internet. UBRD cross-sells corporate banking products through its direct marketing call initiative, which is operated through its CRM system and which targets specific customers for particular products and services. In particular, UBRD is focused on cross-selling guarantees, trade and project finance products, corporate deposit products and cash management services to existing corporate borrowers. See " Strategy Cross-selling products to customers". Corporate Lending Products and Services UBRD has historically focused on providing loans to mid-sized companies involved in the metallurgy sector in the Urals region, rather than on providing loans to "blue chip" Russian companies, to whom State-owned or international banks can lend at more competitive rates than UBRD. UBRD's corporate lending products include term loans, non-revolving and revolving credit lines and overdraft facilities in Roubles, U.S. dollars and Euros. The commercial terms of UBRD's corporate loans, including maturity, interest rate and lending limit, differ depending on the type of

123 the loan, the customer's credit history and financial condition, the collateral securing the loan and other factors. Repayment schedules can be monthly, or tailored to suit a customer's requirements. Most loans to corporate customers are guaranteed by a third party or secured by collateral such as real estate, machinery, equipment, goods in circulation, motor vehicles and securities per cent., 68.1 per cent. and 88.6 per cent. of UBRD's corporate loans as at 31 December 2012, 2011 and 2010, respectively, were guaranteed by a third party or secured. UBRD offers "Capital" loans to corporate customers for the acquisition of fixed assets or the making of other investments, granted in amounts of or above RUB 500,000 and for tenors of up to five years. UBRD offers "Turnover" loans to corporate customers for working capital purposes, granted in amounts of or above RUB 300,000 and for tenors of up to three years, depending on customers' working capital financing requirements. UBRD offers "Working Cash" loans to those corporate customers for whom UBRD performs cash collection services (see " Settlement and Cash Operations") for working capital purposes, granted in amounts of or above RUB 500,000, in amounts up to 90 per cent. of the monthly cash turnover collected by UBRD and for tenors of up to one year. UBRD also offers a tailored form of its "Stable" loan to those corporate customers for whom it also performs cash collection services, under which the maximum amount is linked to the cash turnover collected by UBRD. Corporate Deposit Products and Services Historically, corporate deposits have accounted for a smaller proportion of funding than retail deposits, constituting 29.1 per cent., 28.6 per cent. and 18.9 per cent. of total customer accounts, as at 31 December 2012, 2011 and 2010, respectively, compared to 69.9 per cent., 71.4 per cent. and 81.1 per cent. from retail deposits as at the same dates. However, UBRD intends to actively increase the amount of its corporate deposits to diversify its sources of funding, particularly through cross-selling corporate deposit services to corporate loan customers and through its partner recommendation service (see " Strategy Attracting a higher proportion of corporate and SME customer deposits"). UBRD's deposit products for corporate customers include several types of term deposits (in Roubles, U.S. dollars and Euros as well as deposits linked to the price of precious metals) to address the varying needs of its customers and different types of settlement accounts through which customers can conduct day-to-day transfers and cash operations. UBRD also offers its corporate customers promissory notes in Roubles, U.S. dollars and Euros and tailored corporate deposit products and services, which have interest rates and features designed to meet the particular needs of customers. Interest on UBRD's corporate deposits is typically accrued monthly. UBRD's "Grand" deposit is a three-year deposit with a minimum amount of RUB 30 million, which includes the option for customers to make early withdrawals from the deposit on specified dates or at any time after a specified date. The interest rate payable on the deposit varies from 9.2 per cent. to 9.7 per cent. during the period starting from when the initial deposit is made until the first date at which it is possible to make a full early withdrawal of the deposit, from when the interest rate drops to 1.0 per cent. UBRD offers its corporate customers a "deposit line" product, by which customers register with UBRD in advance, provide all required information and paperwork and subsequently, when the corporate customer wants to make a deposit, such deposit can be made under an expedited procedure and under the same terms and conditions as were offered at the time the deposit line was established. UBRD's corporate customers can be provided with a deposit line for up to three years. UBRD runs a partner recommendation programme to attract new corporate deposit customers, under which UBRD's existing corporate deposit, settlement or cash service customers receive a 50 per cent. discount on one month's account maintenance fees when they successfully recommend a new customer to UBRD

124 Other Corporate Banking Products and Services Trade Finance UBRD provides trade finance loans and trade-related documentary operations, such as issuing letters of credit and providing guarantees. UBRD offers letters of credit to support domestic and international trade, also acting as a point of support and information for its customers during a transaction and processing and reviewing documentation on behalf of its customers. UBRD provided trade finance services on transactions with a value of approximately US$200 million in 2012 and as at 31 December 2012, the outstanding amount of UBRD's trade finance obligations was approximately US$110 million. UBRD provides financing to customers under their export contracts and issues letters of credit to foreign sellers. UBRD offers "Working Export" loans to export businesses for general working capital purposes or to finance the purchase of raw materials. Such loans are granted in amounts up to 80 per cent. of the expected earnings under the export contract. The tenors of such loans are up to five years and are structured so that customers can repay such loans when they receive payment for the goods and services they have exported. UBRD works with export credit agencies and similar organisations in a number of countries, including the US EXIM Bank, on transactions with "Hermes" cover from the German export credit agency and with Vnesheconombank and the Agency for Housing Mortgage Lending in Russia. UBRD has trade finance relationships with a number of international and domestic banks, including Nordea Bank, Fifth Third Bank, Credit Suisse, UBI Banca, Sberbank, Raiffeisen Bank, Standard Bank, Commerzbank, Banque de Commerce et de Placements, BNF Bank, AKA Export Finance Bank, Deutsche Bank, London Forfaiting Company Limited, KBC Bank, VTB Bank, Russian Agricultural Bank, Unicredit Bank, Danske Bank and BNP Paribas. UBRD intends to establish new relationships and expand its existing relationships in the future. The Financing of Projects UBRD offers financing for projects such as the establishment of new businesses, operations or facilities, with credit limits, interest rates, security structures, tenors and repayment schedules set on a case by case basis. UBRD has been involved in the funding of more than 40 investment projects in the manufacturing, construction, energy and other sectors. UBRD offers "Russianstyle" project financing, which does not include all the features of international project financing structures, such as full limited recourse. Recent construction projects in the Urals region that UBRD has financed include the construction of a container terminal, a power station, a luxury residential complex, a shopping centre and a business centre. UBRD has a limit from the AHML in Russia of RUB 1.8 billion for lending to construction companies engaged in the construction of affordable housing. Leasing UBRD leases and arranges financing for leases of real estate, commercial vehicles and equipment to corporate customers for use in their businesses. Common types of commercial vehicles leased includes buses, vans, trucks, trailers and caravans, while common types of equipment leased includes construction equipment, road-building machinery, loading equipment, production equipment and office equipment. UBRD also arranges for insurance cover over leased equipment to be provided by accredited insurance companies. The terms and payment schedules of leasing arrangements are determined on a case by case basis. Leases of commercial vehicles, real estate, machinery and equipment may be provided to a value of leased property of up to RUB 30 million, for terms of between one and five years and with an advance payment of between 10 per cent. (or 20 per cent. for equipment) and 50 per cent. of the value of the contract

125 Guarantees UBRD issues a variety of guarantees for its corporate customers, including guarantees of contractual obligations, payment guarantees, tender guarantees, VAT reimbursement guarantees and customs guarantees. Guarantees of contractual obligations are typically issued at the request of sellers of goods or services, in favour of the buyer of such goods and services, to whom UBRD guarantees the performance by the seller of its contractual obligations. However, UBRD also issues guarantees of contractual obligations, at the request of buyers, in favour of sellers. Payment guarantees are issued at the request of buyers of goods and services, in favour of sellers of goods and services, to whom UBRD guarantees the payment by the buyer of amounts due to the seller. Tender guarantees are issued at the request of participants in tenders, in favour of the organisers of tenders, whom UBRD agrees to compensate if the participant wins the tender but fails to subsequently perform the relevant services that had been tendered for. UBRD also offers a "package" of services to customers that intend to participate in a number of tenders over an agreed period, which includes providing guarantees for advance payments required under tender procedures and providing tender guarantees, subject to agreed credit limits. VAT reimbursement guarantees are issued at the request of VAT taxpayers, in favour of the tax authorities, to whom UBRD guarantees taxpayers' obligations to pay back VAT refunds if the tax authorities subsequently decide that such VAT refunds have been incorrectly paid. Customs guarantees are issued at the request of parties liable for customs duties, in favour of the customs authorities, to guarantee the payment of such customs duties. UBRD assists customers with complying with customs procedures and with submitting the necessary paperwork. Precious Metals UBRD is one of the leading participants in the precious metals market in the Urals region and offers corporate customers a variety of precious metals products. These include services facilitating the sale, purchase and export of precious metals, disbursing loans and holding deposits in precious metals, storing and holding precious metals in custody and disbursing loans to companies that mine or process precious metals. In 2012, UBRD facilitated the sale of 3,537 kilograms of gold and 100,549 kilograms of silver, an 18.0 per cent. increase and a 40.0 per cent. increase respectively, from the equivalent amounts in UBRD operates under a CBR licence for banking activities involving precious metals and under licences from the Ministry of Industry and Trade of Russia for the export of gold and silver. Settlement and Cash Operations UBRD offers corporate customers a range of cash and settlement services. Settlement services include accepting non-cash payments and processing non-cash payments made by its customers. Cash operations include transfers of deposited cash into customers' accounts, cash collection and delivery. UBRD also facilitates payments in foreign currencies and provides foreign exchange services to its corporate customers. UBRD has correspondent bank relationships with The Bank of New York Mellon, Deutsche Bank, Raiffeisen Bank and Commerzbank. UBRD provides its corporate customers with payment terminals, which can be used to process credit and debit card payments. UBRD offers training in how to use such terminals to the employees of its corporate customers. VISA, MasterCard and Union Card payments can be processed through UBRD's payment terminals

126 UBRD issues corporate credit cards to its corporate customers, for use by their employees to incur travel, overhead or other business expenses. A variety of VISA and MasterCard cards are available and such credit cards can be used to make free cash withdrawals from the ATMs of UBRD, Alfa-Bank and Investbank. A concierge service is available under certain types of corporate credit card. Payroll Programmes Payroll programmes involve facilitating the payment of salaries of corporate customers to their employees into new bank accounts established for each employee. UBRD also places ATMs at the premises of its corporate payroll programme customers on request. UBRD charges its corporate customers a fee for using its payroll programme services, which is negotiated on a case-by-case basis. Payroll programmes reduce the costs to businesses associated with paying their employees, who can make free cash withdrawals from the ATMs of UBRD, Alfa-Bank and Investbank and can obtain credit at more favourable terms from UBRD than "walk-in" customers. Through its payroll programmes, UBRD is able to better monitor the financial health of both its corporate and retail customers and UBRD actively cross-sells its products and services to its corporate and retail payroll programme customers. SME Banking UBRD defines an SME banking customer in accordance with Federal Law 209-FZ dated 24 July 2007 "On the development of small- and medium-sized enterprises in the Russian Federation", which, inter alia, defines an SME enterprise as an enterprise with less than 250 employees. UBRD treats companies in the trade and commerce sectors with an annual turnover of less than RUB 700 million and companies in the production and manufacturing sectors with fixed assets, construction in progress and intangible assets, together amounting to less than RUB 60 million, as SME lending customers. UBRD excludes not-for-profit organisations, State-owned organisations and companies in the agriculture, financial services, property construction or development, manufacturing of armaments, pharmaceuticals or jewellery, gambling, sports management and scientific research sectors from its definition of SME lending customers. SME banking is not included as a separate segment in the segment analysis in UBRD's Consolidated Financial Statements, but is rather recorded as part of the corporate segment. UBRD's SME banking activities are operated under the supervision of the Head of Corporate Banking, but UBRD offers particular products tailored towards SMEs and treats SMEs as a distinct customer segment. UBRD also offers its SME customers the standardised products and services that it offers its larger corporate customers, should its SME customers meet the required eligibility or scoring thresholds. UBRD has a strategic aim to grow its SME lending business, driven by its ability to compete more effectively in this sector than in the corporate lending sector, where UBRD faces stronger competition from State-owned and international banks. This strategy is also driven by the higher margins and greater portfolio diversification afforded by this segment of the market. UBRD intends to increase the size of its SME loan portfolio from 15 to 20 per cent. of its total loan portfolio by 2015 from 6.0 per cent., as at 31 December See " Strategy Increasing lending to retail and SME customers". UBRD also has a strategic aim to attract a higher proportion of its funding from customer deposits through deposits from SME customers. Historically, UBRD has relied on retail customers for the majority of its deposit funding, but by cross-selling its deposit products to its SME lending customers and through its partner recommendation service, UBRD intends to reduce this reliance on retail deposits, which the Civil Code enables to be withdrawn at any time by retail customers without penalty to principal. See "Strategy Attracting a higher proportion of corporate and SME customer deposits."

127 Lending Products and Services Since 2010, UBRD has been and aims to continue growing its SME loan portfolio at a faster rate than SME lending is growing in Russia. Part of UBRD's strategy towards growing its SME lending business is to provide clear, easy-to-understand terms and conditions, with all fees described prominently, to build up trust with customers and allow them to better distinguish between the SME loans that UBRD offers and to select the most appropriate loan for their particular needs. UBRD provides loans to SME customers on both a standardised and an individually-tailored basis. UBRD offers "business hit" loans to SME customers for both working capital and investment purposes, granted in amounts between RUB 100,000 and RUB 2 million and for tenors of three years. Credit decisions for "business hit" loans should be made quickly, within one day of the submission of an application. "Business hit" loans are granted to companies with a monthly turnover of up to RUB 10 million and are provided unsecured. UBRD offers "business growth" loans to SME customers for both working capital and investment purposes, granted in amounts between RUB 300,000 and RUB 3 million and for tenors of between 180 days and 3 years. Credit decisions for "business growth" loans should be made within three days of the submission of an application. "Business growth" loans are granted to companies with an annual turnover of up to RUB 700 million and are provided unsecured. UBRD offers "business dynamics" loans to SME customers for investment purposes, granted in amounts between RUB 300,000 and RUB 30 million and for tenors of between 180 days and five years (for loans to finance an acquisition of fixed assets) or seven years (for loans to finance the acquisition of commercial real estate). "Business dynamics" loans are granted to companies with an annual turnover of up to RUB 700 million and are provided on a secured basis. UBRD offers "business investment" loans to SME customers to finance the acquisition of commercial real estate, commercial vehicles or equipment and are granted in amounts between RUB 300,000 and RUB 30 million and for tenors of between 180 days and seven years. The proceeds of "business investment" loans must be used to finance no more than 80 per cent. of the cost of the investment and UBRD takes security over the acquired commercial real estate, commercial vehicles or equipment. UBRD offers "business factoring" loans to SME customers, granted in amounts between RUB 300,000 and RUB 30 million and for tenors of between 180 days and two years. "Business factoring" loans are secured by contractual claims against the borrower's debtors. UBRD does not offer "business factoring" loans to contractors in the construction industry. Participation in SME Lending Programmes UBRD participates in State programmes targeted at supporting small businesses in Russia. As at 31 December 2012, 16.4 per cent. of UBRD's SME loan portfolio was funded by loans provided under federal programmes for the support of lending to SME businesses run by the Russian Bank for Small and Medium Enterprises Support ("SME Bank"). UBRD has been co-operating with SME Bank since 2010, since when UBRD has granted loans to SME customers in co-operation with SME Bank in a total amount of over RUB 1.4 billion. UBRD intends to expand such co-operation in the future. UBRD provides two types of loans in co-operation with SME Bank: secured loans granted to SME customers for investment purposes related to innovation or modernisation, granted in amounts between RUB 1 million and RUB 30 million and for tenors of between one and five years. The security provided should have a value of at least 75 per cent. of the loan; and

128 micro-loans granted for any business purpose, granted in amounts between RUB 100,000 and to RUB 3 million and for tenors of between 181 days and two years. Such loans may be secured or unsecured. As at 31 December 2012, 0.1 per cent. of UBRD's loans to SME customers were also guaranteed by SME support funds run by municipal authorities in the Urals region, which provide guarantees to UBRD of its SME borrowers' payment obligations. SME Deposit Products and Services and Other SME Banking Products and Services UBRD offers the same deposit products and services and other banking products and services to SME customers as are offered to corporate customers. See "Corporate Banking Corporate Deposit Products and Services" and "Corporate Banking Other SME Banking Products and Services". UBRD's SME cash management services include two options for processing payments at different speeds. Customers can choose between having their payments processed in a real-time (online) mode, if swift payment processing is critical, or an economy mode, when customer payments are processed not later than the day following the date of receipt of customer instructions. Other Financial Services UBRD provides other financial services to retail customers and corporates, which include online trading, asset management, brokerage, financial planning and training services. UBRD's online trading services allow customers to trade equities, bonds, futures and options on the Moscow Exchange through a real-time trading system. Customers receive market information on market quotations and the price and volume of recent and historic trades and can set position limits and monitor the performance of their trades. UBRD offers training on using its online platform to customers and also holds weekly seminars for its customers on investing in the stock market and developing an investment strategy. UBRD sells mutual funds, run by many of Russia's leading asset managers, on a fee and commission basis to customers through its Super PIF market. UBRD's financial advisers assist customers in selecting funds that meet each customer's particular investment objectives. In addition, UBRD's financial advisers provide more general financial planning advice to customers. Financial Markets UBRD's Treasury manages UBRD's securities portfolio, consisting mainly of investment grade debt securities of Russian corporate, State and municipal issuers, which UBRD maintains to reduce its liquidity risk. Almost all of the debt securities held by UBRD are included in the Lombard List maintained by the CBR and as a result, can be placed with the CBR as collateral for repo-based financing from the CBR. See " Key Strengths High proportion of liquid assets through a large debt securities portfolio" and "Risk Management Liquidity Risk". Although UBRD's debt securities portfolio is not primarily held to generate income, interest income from UBRD's debt securities portfolio accounted for 23.7 per cent., 22.4 per cent. and 24.0 per cent. of UBRD's total interest income in the years ended 31 December 2012, 2011 and 2010, respectively (according to the segment analysis in UBRD's Consolidated Financial Statements, which in turn is based on UBRD's internal management reports based on RAS). As part of UBRD's strategy to diversify its funding base and attract longer-term funding, UBRD plans to raise a greater proportion of funding through the international and domestic bond and loan markets in the future. In particular, UBRD intends funding from the domestic and international debt capital markets to constitute 10 per cent. of its total funding by As at the date of this Prospectus, UBRD has the following Rouble-denominated domestic bonds in issue:

129 RUB 2 billion three-year domestic bonds issued in April The initial interest rate on these bonds was 9.5 per cent. and this was stepped up to 11.5 per cent. in October 2012, before being stepped down in per cent. in May In May 2013, investors in these bonds exercised their contractual put options (exercisable on such date only) to redeem a total of 779,074 bonds for a total amount of RUB 782 million paid by UBRD, representing approximately 39 per cent. of the total bonds of this issue; RUB 2 billion three-year 12.5 per cent. domestic bonds issued in October 2012; and RUB 2 billion seven-year per cent. domestic bonds issued in April As at the date of this Prospectus, UBRD has also registered with MICEX three planned domestic bonds, in the amounts of RUB 2 billion, RUB 3 billion and RUB 3 billion respectively, which UBRD intends to issue in 2013 and/or 2014, subject to market conditions. As at the date of this Prospectus, UBRD has the following U.S. dollar-denominated euro-commercial paper in issue under UBRD's US$200 million euro-commercial paper programme established in January 2013: US$50 million six-month euro-commercial paper issued at a discount to par in February 2013; and US$7.5 million nine-month euro-commercial paper issued at a discount to par in April As at the date of this Prospectus, UBRD has the following U.S. dollar-denominated loans outstanding: a ten year unsecured Tier 2 subordinated US$50 million loan with a floating rate granted to UBRD by ABN AMRO (now The Royal Bank of Scotland) in December 2007; and six year 8.25 per cent. subordinated loans of US$30 million and US$20 million granted by Xangbo Global Markets (Singapore) to UBRD, in December 2012 and February 2013, respectively, eligible for inclusion in additional (Tier 2) capital. Correspondent Accounts As at 1 January 2013, UBRD had correspondent accounts with 23 Russian banks, comprising 41 correspondent accounts, including 24 accounts denominated in Roubles, 10 denominated in U.S. dollars, five in Euros and two in Chinese Yuan. As at 1 January 2013, UBRD had correspondent accounts with 12 foreign banks, including 19 accounts denominated in U.S. dollars or Euros. Real Estate Investment UBRD holds real estate as investment property with a value of RUB 5,955 million as at 31 December 2012, compared to RUB 6,048 million as at 31 December UBRD financed the construction of such real estate and has held such real estate as investment property since UBRD sold a small part of its investment property in 2012 and intends to sell all or a larger part of its investment property in the future. Approximately 91 per cent. of the investment property held by UBRD as at 31 December 2012 consists of two business centres located in Ekaterinburg, the Vysotskiy and Summit business centres, with the remainder of UBRD's investment property consisting of property in Ekaterinburg and in other locations, including Moscow and Sochi. UBRD also owns its former head office in Ekaterinburg (which it fully leases out as at the date of this Prospectus) and several additional bank offices in Ekaterinburg and Chelyabinsk, as investment property. The Vysotskiy and Summit business centres are by far the most valuable real estate within UBRD's investment property portfolio, accounting for approximately 43 per cent. and 48 per

130 cent., respectively, of UBRD's investment property as at 31 December UBRD rents out space at both business centres, with approximately 24 per cent. of the 28,597 square metre office space in the Vysotskiy business centre rented to customers as at 31 December 2012 and 12 per cent. of the 42,664 square metre office space in the Summit business centre rented to customers as at 31 December UBRD had sold 600 and 502 square metres of office space at the Vysotskiy and Summit business centres as at 31 December 2012, respectively, consisting of 2.1 per cent. and 1.2 per cent. of the total office space in the Vysotskiy and Summit business centres respectively. UBRD's investment property is insured against the risk of man-made or natural disasters. UBRD made a loss from its investment property of RUB 151 million in the year ended 31 December 2012, resulting from depreciation, property tax, expenses connected with the sale of real estate and utility and repairs costs, which exceeded UBRD's income from investment property, which included rental income and income from the sale of real estate. UBRD also made a loss of RUB 26 million from its investment property in the year ended 31 December 2011, as a result of depreciation and property tax. Branch, Office and ATM Network UBRD offers a wide range of retail, corporate and SME services through its branches and full service offices. Branches, unlike full service offices, are registered with the CBR and maintain their own correspondent account with the CBR. UBRD also offers a more limited range of services, either retail-focused or corporate and SME-focused, at its additional offices, many of which are strategically located in shopping centres and business centres. As at 1 January 2013, UBRD had 13 branches, 105 full service offices and 286 additional offices in 45 federal subjects of Russia. This compares to 10 branches, 84 full service offices and 117 additional offices in 21 federal subjects of Russia as at 1 January 2012 and 10 branches, 69 full service offices and 79 additional offices in 16 federal subjects of Russia as at 1 January UBRD's additional offices consisted of 245, 112 and 79 additional retail banking offices and 41, 5 and 0 additional corporate and SME banking offices as at 1 January 2013, 2012 and 2011, respectively. UBRD's additional offices offer a limited range of products and services in comparison to branches and full service offices and are designed to attract and service either (but not both) (i) retail customers; or (ii) corporate and SME customers. UBRD has branches in a number of cities of the Urals region of Russia and also has branches in Moscow, St. Petersburg, Kirov, Perm, Voronezh, Novosibirsk, Krasnodar and Ufa, of which UBRD's branches in St. Petersburg, Novosibirsk and Krasnodar were opened in When UBRD opens a branch or full service office in a new city in which it has a low level of brand recognition, UBRD undertakes an advertising campaign in such city to raise the profile of its brand. UBRD intends to continue to rapidly expand its branch and office network by 2015 as part of its 3:2:3 strategy to grow its business (see " Strategy Expansion of geographical reach"). UBRD plans to do this through the increased use of additional offices in shopping centres (to sell to and service retail customers) and in business centres (to sell to and service corporate and SME customers) that have lower maintenance costs than branches. In 2012, UBRD undertook a significant rebranding exercise, advised by the international brand consulting firm Mildberry, including an overhaul of the appearance of its branches and offices. UBRD intends to further invest in the refurbishment and upgrade of its branches and offices. UBRD either owns or leases its branches and offices. UBRD takes decisions on whether to own or lease its branches or offices on a case-by-case basis and considers a range of factors in this respect, including the local real estate market and UBRD's long term plans for its branch and office network in the cities or regions in which it operates. In the year ended 31 December 2012, 73.2 per cent. of the value of UBRD's retail banking products were sold through UBRD's branch and office network, of which 54.7 per cent. were sold through UBRD's branches or full service offices and 18.5 per cent. were sold through UBRD's additional offices. As at 1 January 2013, UBRD was ranked 12 th in Russia by the size of its branch and office network, according to RBC Rating

131 As at 1 January 2013, UBRD had an ATM network of 900 ATMs, which was the 18 th largest network in Russia, according to RBC Rating. This represented a 24.0 per cent. increase from 726 ATMs as at 1 January 2012, which in turn represented a 38.3 per cent. increase from 525 ATMs as at 1 January UBRD's customers can receive cash free of charge and make payments at UBRD's ATMs. At approximately 80 per cent. of UBRD's ATMs, UBRD's customers can also make cash deposits. UBRD's customers can also use the ATMs of Alfa Bank and Investbank free of charge, which had 2,802 and 157 ATMs in operation and were the 6 th and 52 rd largest ATM networks in Russia, respectively, as at 1 January 2013, according to RBC Rating. Remote Banking and Other Direct Sales Channels UBRD offers a range of products and services to retail, SME and corporate customers through its remote banking platform on the Internet. UBRD's SME and corporate customers can apply for cash advances, make payments, receive account information, submit documents and receive other types of information and services. UBRD's retail customers can make transfers, payments (including the payment of traffic fines and payments for communications, broadcasting and utilities services), conduct foreign exchange activities, view information on credit and deposit products, order additional card insurance products or new cards and change their SMS notification settings, through UBRD's website. Customers can make payments or transfers using a code delivered via a USB-token, smart card or mobile phone alert. See "Information Technology Internet Banking". The number of customers using UBRD's Internet and remote SMS banking services has increased in recent years, from approximately 55,000 customers as at 1 January 2011, to approximately 170,000 and 300,000 customers as at 1 January 2012 and 2013, respectively. In the year ended 31 December 2012, 16.0 per cent. of the value of UBRD's retail banking products were sold through UBRD's website. In April 2012, UBRD was named "Brand of the Year" for 2011 by Effie Awards for the development of its Internet website and its presence on social networks in Russia. UBRD intends to further invest in developing its Internet banking platform. UBRD also sells its products and services to retail, SME and corporate customers by targeting telephone marketing calls made by its employees from its branches and offices. In the year ended 31 December 2012, 10.8 per cent. of the value of UBRD's retail banking products were sold by telephone. See " Information Technology Retail Business Information Technologies". Market Position and Competition The banking sector in Russia is highly fragmented and intensely competitive. As at 1 April 2013, according to the CBR, there were 1,095 banks and non-banking credit organisations registered in Russia, 783 of which could take deposits from private individuals. As at 1 April 2013, the five largest banks accounted for 50.9 per cent. of the total banking assets in Russia in terms of value, and the 20 largest banks accounted for 70.0 per cent. thereof, according to the CBR. For a description of the Russian banking sector, see "Overview of the Banking Sector and Banking Regulation in Russia". According to Banki.ru, as at 1 May 2013, UBRD was the largest bank in in Ekaterinburg in terms of total assets and retail deposits and the second largest bank in in Ekaterinburg in terms of equity and the size of its loan portfolio. Within the Urals region, UBRD has a particularly strong position in the Sverdlovsk oblast, in which it is both the largest banking sector employer and taxpayer, according to UBRD. UBRD is also involved with the financing of a number of projects for the development of the Urals region. See "Description of the Urals Region". As at 1 January 2013, UBRD was ranked by RBC Rating as the 12 th largest bank in Russia by the size of its branch and office network, the 18 th largest bank in Russia by the number of its ATMs, the 19 th largest bank in Russia by the number of its active plastic cards in issue and the 38 th largest bank by the amount of its net assets. As at 1 January 2013, UBRD was ranked by Interfax as the fourth largest regional bank in Russia by total assets and by Interfax as the 27th

132 largest bank in Russia by the amount of its private deposits, the 40th largest bank in Russia by the amount of its total assets and 56 th largest bank in Russia by the amount of its equity. UBRD faces competition from banks in each of the business areas and regions of Russia in which it operates. In each of the retail, corporate and SME banking sectors, UBRD considers its main competitors in the Urals region to be SKB Bank, Sberbank, VTB, Gazprombank, Alfa-Bank, URALSIB, Promsyvazbank and a number of smaller local banks focused on one or more oblasts in the Urals region. UBRD considers that its main competitors in other regions of Russia (outside the Urals region) are Sberbank, VTB, Alfa-Bank, Russian Standard Bank, Home Credit Bank, Svyaznoy Bank, Orient Express Bank and Tinkoff Credit Systems in the retail banking sector, Sberbank, VTB, Gazprombank, Alfa-Bank and Promsvyazbank in the corporate banking sector and Sberbank, Alfa-Bank, URALSIB and Promsvyazbank in the SME banking sector. UBRD regularly monitors market trends (using its own and third party market research) and the performance of its products and services and updates the terms and conditions of its products and services accordingly, in order to meet specified objectives, including to more quickly grow the volume of sales of a particular product. In 2012, UBRD undertook a significant rebranding exercise with the assistance of the international brand consultant, Mildberry, including an overhaul of its website, its corporate logo and the appearance of its branches and offices, to project UBRD as an open, modern and customer-oriented bank. See "Strategy High brand recognition across Russia". In June 2012, UBRD won the award "Best retail advertisement for financial services" for at the conference "Marketing of financial services: secrets of promotion, experience and technology of success" held in Moscow. Information Technology The key features of the information technology used by UBRD in its business are set out below. UBRD considers that its information technology capabilities are scalable and shall meet the additional demands placed on them as UBRD's business grows in the future. Credit Risk Management Programme UBRD's credit risk management programme assesses and monitors the credit risk of borrowers and loan applicants. Loan applications are recorded and reviewed through SAP, with credit scoring performed using KXEN software and UBRD's internal knowledge-based system. UBRD uses information on borrowers provided by Equifax. UBRD monitors the condition and performance of its loan portfolio using SAP's business intelligence software. Internet Banking UBRD has invested in internet banking technology to allow its customers to make payments, deposits and transfers and apply for loans over the Internet through its "Telebank" system. UBRD's customers can sign in to internet banking services using an address and password and, if additional security is requested by the customer, also by using a code delivered via a USB-token, smart card or mobile phone alert. Such code is required to make payments and transfers. UBRD uses software produced by several Russian IT companies on its Internet banking platform. As at the date of this Prospectus, approximately 190,000 retail banking customers and 35,000 corporate and SME banking customers use UBRD's internet banking services and UBRD has developed smartphone applications compatible with the Apple ios and Google Android mobile operating systems. UBRD is also undertaking a project to improve the ease of use of its Internet-based interfaces for customers as at the date of this Prospectus. Disaster Recovery and Business Continuity UBRD has disaster recovery infrastructure in place to ensure the continuity of its operations in the event of any technological system failure. The IT and business departments have developed business continuity plans, for the execution of critical processes and operations in case of an IT system failure. UBRD's key systems and data are independently kept in two data centres. The data centres and key offices of UBRD are connected to backup power systems for use in

133 emergencies. UBRD uses Symantec's Storage Foundation and HP's Smart Array storage management systems and Oracle's Data Guard data security system. Retail Business Information Technologies UBRD uses SAP's CRM software to process information about its customers to categorise its customers into segments and generate suggestions to cross-sell products and services to its customers. UBRD operates a call centre that provides customer support. UBRD uses SAP's Business Communications Management software in its call centres to process incoming and outgoing customer calls. UBRD continues to focus on modernising its procedures (including information management) in order to improve its credit origination and analysis, customer support and collection processes so that it can better facilitate customer management and cross-selling, reduce losses from fraud and refine its pricing, particularly to reflect regional risk variations. UBRD's Internal Accounting and Tax Reporting Programme UBRD uses SAP's R/3 enterprise resource planning software to coordinate the resources, information, and activities needed to complete its internal accounting and tax reporting requirements. UBRD also uses accounting and tax software produced by several Russian companies. Budget UBRD's information technology capital expenditure budget for the year ended 31 December 2013 is approximately RUB 600 million, of which RUB 481 million is allocated to equipment and RUB 119 million to software. This compares to an information technology capital expenditure budget for the years ended 31 December 2012 and 2011 of approximately RUB 368 million and RUB 259 million, respectively, of which RUB 332 million and RUB 245 million, respectively were allocated to equipment and RUB 35 million and RUB 13 million to software, respectively. Employees Over the course of 2012, UBRD had on average 4,454 employees, compared with 3,392 over the course of 2011 and 3,334 over the course of As at 31 December 2012, 2011 and 2010, UBRD had 5,788, 4,132 and 3,615 employees, respectively. UBRD's management believes that the salaries paid to UBRD's employees compare favourably with average salaries for equivalent roles in the Russian financial services market, in the regions in which UBRD operates. UBRD's staff costs (which include wages, salaries, contributions to Russian State pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits) increased by 39.2 per cent. to RUB 2,545 million in the year ended 31 December 2012, compared to RUB 1,829 million in the year ended 31 December 2011, which in turn resulted from the growth of UBRD's branch and office network. UBRD's staff costs increased by 24.2 per cent. to RUB 1,829 million in the year ended 31 December 2011, compared to RUB 1,472 million in the year ended 31 December 2010, which in turn resulted from the growth of UBRD's branch and office network. UBRD recruits new staff through assessment centres and open days and new employees participate in an induction programme. UBRD's human resources department and the individual business divisions organise internal and external training seminars on current issues. UBRD's internal training programmes are periodically reviewed to respond to new business demands. UBRD is developing new distance learning, online training, and coaching programmes. In 2013, UBRD plans to introduce a programme for managers entitled "Talent Pool", which will be designed to train new managers to manage UBRD's operations within its growing branch and office network. UBRD is also introducing new performance-related pay and benefit schemes to motivate its staff, following recommendations based on reports produced in 2012 on UBRD's underwriting and collection procedures, prepared by the international consultancy firm "ADASTRA Business Consulting". As at the date of this Prospectus, while UBRD pays some of

134 its employees' compensation in the form of bonuses, the majority of UBRD's compensation to employees is paid in the form of non-discretionary salary payments. In the year ended 31 December 2012, approximately 23.5 per cent. of the compensation paid to UBRD's employees was based on a discretionary basis relating to employees' key performance indicators and/or to motivate UBRD's employees and the remaining 76.5 per cent. of compensation was based on a non-discretionary basis. UBRD pays contributions to State-run pension funds on behalf of its employees and provides medical insurance to employees. UBRD's employees are not members of trade unions. Insurance UBRD acts as an agent for leading Russian insurance companies, to provide insurance services to UBRD's customers with respect to their obligations under the terms of the products or services they have received from UBRD, which reduces the credit risk associated with UBRD's business. As at 1 January 2013, approximately 40 per cent. of UBRD's retail loans (by value) were to borrowers who have taken out such insurance policies (compared to 12 per cent. as at 1 January 2012), which typically cover the risk of death, disability and unfair dismissal from employment, but which do not cover the risk of borrower fraud or the risk of borrower default for other reasons. UBRD does not offer its own insurance products to its customers. UBRD voluntarily insures its property and operating assets at levels that are in line with the standard in the Russian market. UBRD has a bankers' blanket bond policy, valuables policy, property damage policies, a third-party liability policy and a general liability policy. The general liability policy, among other things, protects against the unlawful acts of employees, the loss of property, losses arising from frauds in connection with payments, securities and false banknotes. UBRD is not insured against business interruption risk. Litigation UBRD is from time to time the subject of legal proceedings and other investigations in the ordinary course of its business There are no, and have not been, any governmental, legal or arbitration proceedings that may have or have had during the twelve months before the date of this Prospectus a significant effect on the financial position or profitability of UBRD (or of UBRD together with its subsidiaries), nor, so far as UBRD is aware, are any such proceedings pending or threatened

135 MANAGEMENT Management Bodies The highest corporate governance body of UBRD is the General Shareholders' Meeting, which is convened by UBRD's Board of Directors and is responsible for making decisions on a number of key corporate and financial matters prescribed by the Joint Stock Companies Law and set out in UBRD's charter. The Board of Directors is responsible for the general management of UBRD, including coordination of its overall strategy and general supervision. The Board of Directors in turn appoints members of the Management Board, which is the collective executive body of UBRD, and the President of UBRD, who oversees the Management Board. The day-to-day activities of UBRD are overseen by the President and the Management Board. Certain powers are delegated by the President to his deputies, members of the Management Board, department heads and various committees. A brief description of the General Shareholders' Meeting, the Board of Directors and the Management Board is set out below. General Shareholders' Meeting The General Shareholders' Meeting is UBRD's highest corporate governance body and General Shareholders' Meetings are held at least once a year. The following matters fall within the exclusive competence of the General Shareholders' Meeting and may not be delegated to other management bodies of UBRD: amending UBRD's charter; determining the membership of UBRD's Board of Directors, including appointing and dismissing its members; appointing UBRD's auditors; increasing or reducing UBRD's share capital; approving UBRD's annual statutory accounts and reports; declaring UBRD's dividends; and certain other matters provided for by the Joint Stock Companies Law and UBRD's charter. President of UBRD The President of UBRD is elected by the Board of Directors, from the employees of UBRD whose length of service at UBRD is no less than 5 years. The President of UBRD as at the date of this Prospectus is Mr. Anton Solovyev, who is also Chairman of the Management Board. The President of UBRD is responsible for the management of UBRD's day-to-day activities, with the exception of those matters that fall within the exclusive competence of the General Shareholders' Meeting and the Board of Directors. Board of Directors With the exception of those matters that fall within the exclusive competence of the General Shareholders' Meeting, the general corporate governance of UBRD is exercised by UBRD's Board of Directors. The Board of Directors is responsible for the overall management of UBRD, with the exception of those matters that are designated by the Joint Stock Companies Law and by UBRD's charter as falling within the exclusive competence of the General Shareholders' Meeting. The Board of Directors determines UBRD's business priorities and makes decisions as to the composition of the Management Board. UBRD's controlling shareholder, Mr. Igor Altushkin, is the Chairman of the Board of Directors as at the date of this Prospectus. The role of

136 the Chairman of the Board of Directors is, among other things, to manage the work of the Board of Directors, to convene meetings of the Board of Directors, to chair at the meetings of the Board of Directors, to organise for the meetings of the Board of Directors to be minuted and to sign such minutes. Members of UBRD's Board of Directors are elected at the annual General Shareholders' Meeting and may be re-elected an unlimited number of times. According to UBRD's charter, the Board of Directors should consist of five members. As at the date of this Prospectus, the five members of the Board of Directors are: Mr. Igor Altushkin Chairman of the Board of Directors and controlling shareholder of UBRD (see "Principal Shareholders"); Ms. Irina Gaivoronskaya shareholder of UBRD (see "Principal Shareholders"); Mr. Oleg Medvedev; Mr. Anton Solovyev President of UBRD and Chairman of the Management Board; and Mr. Dmitry Saburov. The business address of each of the members of the Board of Directors is 67 Sakko and Vancetti Street, Ekaterinburg, , Russia. Certain biographical information about the members of the Board of Directors is set forth below. Mr. Igor Altushkin (Chairman of the Board of Directors and controlling shareholder of UBRD) Born in 1970, Mr. Igor Altushkin graduated from the Urals State University of Economics before starting a scrap-metal business in Mr. Altushkin ran several metals businesses in the Urals region during the 1990s and early 2000s, before founding RCC in 2004, which is Russia's third largest copper producer as at the date of this Prospectus, according to the National Rating Agency. Mr. Altushkin is the controlling shareholder and Chairman of the Board of Directors at RCC and a member of the Board of Directors of a number of industrial, metals and mining companies in the Urals region. In 2003, Mr. Altushkin and Mr. Sergey Dymshakov became UBRD's controlling shareholders and in 2010, Mr. Sergey Dymshakov sold his shareholding in UBRD (to pursue his own other interests) to Mr. Altushkin, who became and remains UBRD's controlling shareholder. Mr. Altushkin is the Chairman of the Environmental and Ecology Committee of the Sverdlovsk regional Union of Industrialists and Entrepreneurs and has established a foundation to help children from poor families, orphans and children with serious illnesses. See "Principal Shareholders Mr. Igor Altushkin". Ms. Irina Gaivoronskaya (shareholder of UBRD) Born in 1966, Ms. Irina Gaivoronskaya has a degree in social work from the Urals State Pedagogical University and a degree in management and human resources from the Urals State University. Between 2006 and 2010, Ms. Gaivoronskaya was an adviser to the President of UBRD and she became a member of the Board of Directors in As at the date of this Prospectus, she owns a 13.3 per cent. shareholding in UBRD. See "Principal Shareholders Ms. Irina Gaivoronskaya". Mr. Oleg Medvedev Born 1974, Oleg Medvedev graduated from the Urals State Legal Academy in 1996 with a degree in law. Mr. Medvedev has been a member of the Board of Directors of UBRD since 2003 and has been an adviser to the President of UBRD since Mr. Medvedev is General Director of two Russian companies: the M&A Consulting Centre and NGO Petro-Engineering. Mr. Medvedev has been a member of the Board of Directors of RCC since 2007 and is also a

137 member of the Board of Directors of a number of industrial, metals and mining companies in the Urals region. Mr. Anton Solovyev (President of UBRD and Chairman of the Management Board) Born in 1973, Anton Solovyev graduated in 1995 with a degree in economics from the Urals State University of Economics, before joining UBRD in 1995 as the Chief Economist of the Securities Department. Mr. Solovyev held this position until 1997, when he became the Chief Economist of the Operations Department and subsequently in 1997 the Head of Trading of the Operations Department. In 1998, Mr. Solovyev became the Head of the Securities Operations Department, before, in 1999, becoming the Head of Treasury for several months before becoming a Vice-President of UBRD later in In 2005, Mr. Solovyev became Chief Financial Officer of UBRD, while retaining his Vice-President position and in 2010, Mr. Solovyev became the President of UBRD, a position he holds as at the date of this Prospectus. Significant projects undertaken by Mr. Solovyev while at UBRD include the transition of UBRD to an IFRS accounting system, improving the organisational structure of UBRD and implementing a motivation system for staff. Mr. Dmitry Saburov Born in 1961, Dmitry Saburov graduated from the Omsk Higher Police School as a lawyer and spent more than twenty years working in the police force, retiring in Mr. Saburov has been a member of the Board of Directors of RCC since 2007 and a member of the Board of Directors of UBRD since Mr. Saburov has specialist expertise in security, as well as human resources, public relations and general administration. Mr Saburov is also the General Director of the Russian company "Techno Invest" and a member of the Board of Directors of a number of industrial, metals and mining companies in the Urals region. Management Board Day-to-day management of UBRD is carried out by the President and the Management Board. These executive bodies are supervised by the Board of Directors and the General Shareholders' Meeting. The Management Board and the President are appointed by the Board of Directors. As at the date of this Prospectus, the members of the Management Board are: Mr. Anton Solovyev President of UBRD, Chairman of the Management Board and member of the Board of Directors; Mr. Alexey Krokhin Vice-President; Mr. Yuri Mironov Vice-President and Head of Operations and IT; Mr. Vadim Khlebnikov Vice-President and Head of Risk Department; Mr. Alexey Ovchinnikov Vice-President and Head of Retail Banking Department; Mr. Alexey Ikryanikov Vice-President and Head of Corporate Banking Department; Mr. Alexander Plastinin Vice President and Head of Treasury; and Mr. Marat Sirazov Chief Accountant. The business address of each of the members of the Management Board is 67 Sakko and Vancetti Street, Ekaterinburg, , Russia. Certain biographical information about the members of the Management Board (not otherwise described above) is set forth below

138 Alexey Krokhin (Vice-President) Born in 1973, Alexey Krokhin graduated in 1994 with a degree in economics from the Urals State University of Economics. From 2001, Mr. Krokhin was Chief Economist and Deputy Head of Department for Internal Control Technology at UBRD, until 2002 when Mr. Krokhin became Head of Department for Internal Control Technology at UBRD. In 2002, Mr. Krokhin was appointed as Head of the Department for Internal Control Analysis and Organisation at UBRD and in 2003, he became Head of the Department for the Control of Financial Transactions. In 2004, Mr. Krokhin joined Sverdlsotsbank, which was acquired in 2004 by UBRD and where he held various positions. In 2006, Mr. Krokhin became a Vice-President of UBRD, a position he holds as at the date of this Prospectus. Significant projects undertaken by Mr. Krokhin while at UBRD include the integration of the merged businesses of UBRD and Sverdlsotsbank, improving the corporate culture of UBRD and working with various financial market professional associations on behalf of UBRD. Yuri Mironov (Vice-President and Head of Operations and IT) Born in 1957, Yuri Mironov graduated from the Urals State Technical University and joined UBRD in 1999 as the Head of Information Technology. Mr. Mironov became the adviser to the President for Information Technology in 2005 and a Vice-President and Head of Operations and Information Technology in 2006, a position he holds as at the date of this Prospectus. Significant projects undertaken by Mr. Mironov while at UBRD include the implementation of SAP and business process automation technologies. Vadim Khlebnikov (Vice-President and Head of the Risk Department) Born in 1974, Vadim Khlebnikov graduated in 1996 from the Urals State University of Economics with a degree in economics and was appointed as the Head of Internal Audit of UBRD in 1999 and subsequently, in 1999, as the Head of Internal Control at UBRD. Mr. Khlebnikov became a Vice-President of UBRD in 2004 and was appointed as the Head of the Risk Department in 2005, a position that he holds as at the date of this Prospectus. Significant projects undertaken by Mr. Khlebnikov while at UBRD include building UBRD's risk management functions. Alexey Ovchinnikov (Vice-President and Head of Retail Banking Department) Born in 1973, Alexey Ovchinnikov graduated in 1994 from the Urals State University of Economics with a degree in economics and was appointed as the Head of Bank Cards at UBRD in In 2001, Mr. Ovchinnikov was appointed as Deputy Head of Retail Banking at UBRD and, in 2002, was appointed as the Head of Business Development for Retail Banking. Since 2005, Mr. Ovchinnikov has been the Head of Retail Banking at UBRD and Mr. Ovchinnikov has been a Vice-President at UBRD since Significant projects undertaken by Mr. Ovchinnikov while at UBRD include expanding UBRD's network of branches, offices, ATMs and payment terminals, developing UBRD's remote banking platform and establishing loyalty programmes and branding projects. Alexey Ikryanikov (Vice-President and Head of Corporate Banking Department) Born in 1970, Alexey Ikryanikov graduated from the Urals State Technical University and was appointed as the Head of the Branch Network Department in 1999 and in 2001 was appointed as the Head of Regional Development of UBRD. In 2002, Mr. Ikryanikov was appointed the Head of Sales and Banking Services of UBRD and, in 2005, he became the Head of the Corporate Department, a position which he holds as at the date of this Prospectus. Since 2007, Mr. Ikryanikov has also been a Vice-President of UBRD. Significant projects undertaken by Mr. Ikryanikov while at UBRD include expanding UBRD's SME lending services and developing UBRD's customer relationship management system. Alexander Plastinin (Vice President and Head of Treasury) Born in 1967, Alexander Plastinin graduated from the Urals State University in 1991 with a degree in mechanics and applied mathematics. Mr. Plastinin was appointed as the Head of

139 Securities at UBRD in 2002 and subsequently as the Head of the Investment Department in In 2005, Mr. Plastinin was appointed the Head of Treasury, a position that he holds as at the date of this Prospectus. Since 2007, Mr. Plastinin has also been a Vice-President of UBRD. Significant projects undertaken by Mr. Plastinin while at UBRD include expanding UBRD's online trading, portfolio management and asset management services. Marat Sirazov (Chief Accountant) Born in 1974, Marat Sirazov graduated from the Urals State Economics University in 1995 with a degree in economics. Mr. Sirazov was appointed as the Deputy Chief Accountant at UBRD in 2000 and also as the Head of the Analysis and Planning of Accounting Policy in In 2004, Mr. Sirazov was appointed the Chief Accountant of UBRD, a position that he holds as at the date of this Prospectus. Significant projects undertaken by Mr. Sirazov while at UBRD include the centralisation of UBRD's accounting function. Conflicts of Interest Other than as stated herein, no potential conflicts of interest exist between members of UBRD's Board of Directors or Management Board, their duties to UBRD and their private interests or other duties. No changes to UBRD's management structure are planned in the short to mediumterm. UBRD does not have any key-man insurance in place as UBRD's management does not consider that the success of UBRD's activities is dependent upon any one individual. Mr. Igor Altushkin, who controls RCC, ultimately controls more than 85 per cent. of the share capital of UBRD and is the Chairman of the Board of Directors as at the date of this Prospectus. Mr. Altushkin plays a key role in managing UBRD and in formulating its strategy. The interests of Mr. Altushkin may not always be aligned with the interests of UBRD's other shareholders, UBRD as a whole, or the Noteholders. See "Risk Factors Risks Related to UBRD's Business and the Russian Banking Sector The interests of UBRD's controlling shareholder may conflict with those of Noteholders". Mr. Oleg Medvedev and Mr. Dmitry Saburov are also members of the Board of Directors of RCC. Compensation In the year ended 31 December 2012, the remuneration of management comprised salaries, discretionary bonuses and other short-term benefits amounting to RUB 132 million, compared to RUB 122 million and RUB 87 million in the years ended 31 December 2011 and 2010, respectively. In the year ended 31 December 2012, social security costs amounted to RUB 14 million of the total remuneration of management, compared to RUB 1.26 million and RUB 971,000 in the years ended 31 December 2011 and Short term bonuses were fully paid during the years ended 31 December 2012, 2011 and UBRD does not have any stock options for directors or officers. Corporate Governance UBRD acts in compliance with FSFM Order No. 421/r "On Recommendations for Application of Corporate Governance Code" dated 4 April 2002 to develop a corporate governance practice. The President of UBRD reports annually to the General Shareholders on UBRD's compliance with the FSFM order

140 PRINCIPAL SHAREHOLDERS Share capital As at the date of this Prospectus, UBRD's share capital amounts to RUB 3,004 million, comprised of 1,001,454,334 ordinary shares with a par value of RUB 3.00, each which are authorised, issued and fully paid up. The Charter of UBRD authorises the additional issuance of 1,000,000,000 ordinary shares with a par value of RUB 3.00 each, of which 333,333,334 have already been issued, with 666,666,666 ordinary shares still authorised to be issued. Ownership The following table sets out information regarding UBRD's shareholders owning more than 5 per cent. of shares as at the date of this Prospectus: Ordinary shares owned as at the date of this Prospectus Number Percentage (%) Shareholders Igor Altushkin Vladimir Pechenenko Alexander Semkin Sergey Skubakov Irina Gaivoronskaya Others Total ,001,454, Mr. Igor Altushkin As at the date of this Prospectus, the majority ultimate beneficial shareholder of UBRD, Mr. Igor Altushkin, affiliated with RCC, ultimately controls approximately 85.3 per cent. of the share capital of UBRD. See "Management Board of Directors Igor Altushkin". Mr. Altushkin ultimately controls more than 85 per cent. of the share capital of UBRD due to the fact that Mr. Vladimir Pechenenko, Mr. Alexander Semkin and Mr. Sergey Skubakov act as nominees on behalf of and in favour of Mr. Igor Altushkin. Ms. Irina Gaivoronskaya Ms. Irina Gaivoronskaya is the ex-wife of Mr. Sergey Dymshakov, who, together with Mr. Altushkin, became a controlling shareholder in 2003, before selling his shareholding in UBRD to Mr. Altushkin in Ms. Gaivoronskaya obtained her per cent. shareholding in UBRD as part of her divorce settlement with Mr. Dymshakov and although she is a member of UBRD's Board of Directors, she is not involved in the day-to-day management of UBRD. Ms. Gaivoronskaya had the option to participate in the issue of new shares of UBRD to its existing shareholders in 2012 (see " History of Share Issues and Capital Contributions Made

141 Since 2007"), but decided not to participate in such share issuance, even though her ownership in UBRD was diluted as a result. Shareholdings Held at Below Certain Legal Thresholds Mr. Altushkin maintains his direct shareholding in UBRD at just below 30 per cent. of UBRD's ordinary shares, which is just below the level at which Mr. Altushkin would, under Russian law, be required to make a mandatory tender offer for the shares in UBRD that he does not own directly. Mr. Pechenenko and Mr. Semkin maintain the shareholdings they hold as nominees on behalf of Mr. Altushkin at just below 20 per cent. of UBRD's ordinary shares, which is just below the level at which they would, pursuant to CBR regulations, be required to receive the approval of the CBR to hold such shareholdings. History of Share Issues and Capital Contributions Made Since 2007 No share issues or capital contributions were made by UBRD or its shareholders in 2007, 2008 and UBRD's capital was increased by RUB million in 2010, through the gratuitous forgiveness of debt owed to Mr. Altushkin. This was recorded as "additional capital" in UBRD's Consolidated Financial Statements. In 2011, Mr. Altushkin made a gratuitous cash capital contribution of RUB 1,855 million to UBRD to maintain UBRD's capital adequacy ratios above the regulatory minimum when UBRD's riskweighted assets were growing as a result of the growth of UBRD's lending business. This was recorded as "additional capital" within UBRD's equity in UBRD's Consolidated Financial Statements. In June 2012, Mr Altushkin purchased newly-issued shares for consideration of RUB 2 billion to maintain UBRD's capital adequacy ratios above the regulatory minimum when UBRD's riskweighted assets were growing as a result of the growth of UBRD's lending business. This was recorded as a RUB 1 million increase in "share capital" and a RUB 1 million increase in "share premium" within UBRD's equity in UBRD's Consolidated Financial Statements. The nominal value of the shares issued was RUB 1 million. Rights of UBRD's shareholders Pursuant to UBRD's Charter and Russian legislation, UBRD's shareholders that own ordinary shares have the right to: participate in, and vote at General Shareholders' Meetings on all matters that fall within their competence; receive dividends; receive a share in the proceeds upon UBRD's liquidation; elect and to be elected to UBRD's management bodies; and exercise other rights provided by Russian law and UBRD's Charter. Dividends The payment of dividends by UBRD is regulated by Russian law and Chapter 10 of UBRD's Charter, which prescribe the conditions that must be met in order for dividends to be paid. According to UBRD's Charter, dividends must be paid in cash and must be paid within no more than 60 days following the decision to pay dividends. The payment of dividends must not exceed the amount recommended by the Board of Directors. UBRD's General Shareholders' Meeting determines whether to pay dividends, as well as the amount and form of payment. UBRD paid two dividends in This first dividend was in the amount of RUB 301 million and was based on UBRD's financial results for the year ended 31 December On 9 November 2012,

142 UBRD's Board of Directors also recommended to pay a dividend of RUB 300 million based on UBRD's results for the first 9 months of 2012 and this dividend was paid by UBRD in December UBRD's reserve fund Pursuant to UBRD's Charter and Russian legislation, UBRD has created a reserve fund that must be in the amount of not less than 5 per cent. of the share capital of UBRD. According to Russian legislation, the fund's facilities can only be used for two purposes: compensation for losses of UBRD; and redemption of UBRD's bonds and the buy-back of its own shares, in each case provided there are no other sources of funding available to UBRD

143 RISK MANAGEMENT Overview Management of risk is fundamental to the business of banking and is an essential element of UBRD's operations. The principal categories of risk inherent in UBRD's business are financial risks (including credit, market, geographical, currency, liquidity and interest rate risks) and operational and legal risks. The purposes of UBRD's risk management and asset and liability policies are as follows: Risk identification and analysis: the identification of risk factors and the determination of risk sensitivity. Risk assessment: setting out a methodology to assess each of the risks and assessing the acceptability and reasonableness of the risks. Risk response: using a system of early risk monitoring and a division of quick and appropriate response to prevent or mitigate the risk and setting out methods for responding to financial risk. Risk control: monitoring compliance with the limits approved by the Budget Committee, and the Investment Committee; reporting current open positions, risk magnitude, the state of limits and any violations to UBRD's management; identifying and reporting any limit violations; and reviewing its risk assessment methods at least once a year. UBRD has designed its risk management policy to manage these risks by establishing procedures and setting limits, which are monitored by UBRD's departments and committees. The administrative and IT-based systems used by UBRD can be modified to reflect changes in market conditions and product demand. The primary objective of UBRD's financial risk management is to establish risk limits and to ensure that exposure to risk stays within these limits. The operational and legal risk management functions are intended to ensure the proper functioning of internal policies and procedures to minimise operational and legal risks. Risk Management Organisational Structure UBRD's risk management functions are carried out by internal bodies that are responsible for establishing risk management policies and procedures, including the establishment of limits, and implementing UBRD's policies and procedures, including monitoring and controlling risks and limits on a continuous basis. The Board of Directors approves credit limits for customers related to RCC. The following are UBRD's principal risk management bodies, each of which reports directly to the President of UBRD, with the exception of the Legal Department, which reports directly to Mr. Alexey Krokhin. See "Management Management Board Alexey Krokhin (Vice- President)". Budget Committee. The Budget Committee consists of 14 permanent members appointed by the President of UBRD and usually meets twice each month. The Budget Committee's principal responsibility is to annually approve the financial model of UBRD, including a targeted corporate loan portfolio (by type of customer) and the retail loan portfolio (by type of product). Investment Committee. The Investment Committee consists of seven permanent members appointed by the President of UBRD and usually meets once each month. The Investment Committee's responsibilities include: o approving the structure of UBRD's securities portfolio by instrument, the portfolio management strategy and position entry/exit rules, together with representatives of the Risk Department and the Treasury;

144 o changing the securities portfolio management procedures if there is a decrease in capital allocated for operations exposed to market risks of 50 per cent. of the threshold level, at which point limits on positions are also automatically decreased by three times; and o approving the equity portfolio management rules, which have been developed by the Treasury in terms set by ALCO for capital reduction thresholds. Credit Committees. UBRD has three separate Credit Committees, namely: o the Credit Committee for corporate customers and individual entrepreneurs, which consists of 8 permanent members appointed by the President of UBRD and usually meets twice each month. The committee's responsibilities include the following: approving credit limits for corporate customers and individual entrepreneurs, other than customers related to RCC; setting limits for corporate loan applications after they have been considered by the Security Service and the Legal Department and evaluated by the Risk Department; reviewing any significant exposures to customers with deteriorating creditworthiness that are reported by the Risk Department; making decisions relating to monitoring individual credit products and modifying the methodologies and terms of individual credit products on a monthly basis; and monitoring the limits of credit risk acceptable in relation to one borrower, groups of borrowers, to geographical and industry segments, and by product and type of customer. o the Credit Committee for SME customers, which consists of six permanent members appointed by the President of UBRD and meets not less than once each week. The committee's responsibilities include the following: approving credit limits for SME customers; setting limits for SME loan applications; reviewing any significant exposures to customers with deteriorating creditworthiness, which are reported by the Risk Department; making decisions relating to monitoring individual credit products and modifying the methodologies and terms of individual credit products on a monthly basis; and monitoring the limits of credit risk acceptable in relation to one borrower, groups of borrowers, to geographical and industry segments and by product and type of customer. o the Credit Committee for operations with retail customers, which consists of seven permanent members appointed by the President of UBRD and meets twice each month. The committee's responsibilities include the following: approving credit limits for retail customers; setting limits for retail loan applications;

145 reviewing any significant exposures to customers with deteriorating creditworthiness, which are reported by the Risk Department; making decisions relating to monitoring individual credit products and modifying the methodologies and terms of individual credit products on a monthly basis; and monitoring the limits of credit risk acceptable in relation to one borrower, groups of borrowers, to geographical and industry segments, and by product and type of customer. The Assets and Liabilities Management Committee ("ALCO"). ALSO consists of 10 permanent members appointed by the President of UBRD and meets twice each month. ALCO is responsible for establishing the strategy for the attraction and allocation of funds, the strategic and operating management of risks related to the deterioration of capital and liquidity and is also responsible for currency and interest rate risks. ALCO's functions include: o analysing and monitoring the efficiency and quality of performance of UBRD's business units; o ensuring the coordination of UBRD's business units with respect to liquidity and profit management; o determining UBRD's annual liquidity management strategy and making revisions in response to certain events; o setting capital drawdown limits and allocating funds for forming a portfolio of operations exposed to market risk; o monitoring UBRD's credit risks in relation to borrowers, or groups of borrowers, and to geographical and industry segments (as part of loan yield management); o setting portfolio duration limits annually (or more frequently) on the basis of possible changes to UBRD's bond portfolio's value in the case of a 100 basis point increase in interest rates; o approving a strategy for increasing UBRD's interest income and operational income; and o reviewing internal management reports on each business unit at least twice a month. Financial Institutions Committee. The Financial Institutions Committee consists of nine permanent members appointed by the President of UBRD and meets once each month. The committee's principal functions are to approve the strategy for decreasing the credit risk when dealing with financial institutions and to set up limits for credit risk on operations with the financial institutions. Technological Committee. The Technological Committee consists of 10 permanent members appointed by the President of UBRD and meets once each quarter. The committee's principal function is to approve the strategy for development of information technology and security of IT systems in UBRD. Write-off of Bad Debts Committee. The Write-off of Bad Debts Committee consists of nine permanent members appointed by the President of UBRD and meets once each month. The committee's principal function is to review, consider and make decisions on the write-offs of bad debts owed to UBRD

146 Risk Department. UBRD's Risk Department identifies, evaluates and manages banking risks. The Risk Department is responsible for: o evaluating corporate and SME loan applications provided by client relationship managers after they have been considered by the Legal Department and Security Service, but before they are transferred to the Credit Committee for setting credit limits; o producing regular reports to monitor credit risk exposures to corporate and SME customers, based on a structured analysis focusing on the customer's business and financial performance and reporting any significant exposures to customers with deteriorating creditworthiness to the Credit Committee; o evaluating problem loan trends for the retail loan portfolio in general and for each retail loan product, evaluating the efficiency of various scoring models and changes in borrower profile by product; o performing an ageing analysis of outstanding retail loans (which is provided to management); o assisting the Investment Committee with approving the structure of the securities portfolio by instrument and position entry/exit rules; o monitoring limits for market risk set by the committees and financial results on a daily basis, together with the Treasury; o monitoring the financial results from trading in shares on a daily basis and, if capital decreases by more than 50% of a maximum set level, reducing limits by three times; and o regularly monitoring the level of possible losses of the bond portfolio in the case of a negative change in market rates. The following departments, the Department for Problem Individual Loans, the Department of Long-term Past Due Loans and the Asset and Liability Department are each sub- divisions of the Risk Department. o Department for Problem Individual Loans. The Department for Problem Individual Loans is a sub-division of the Risk Department and its main functions are: undertaking procedures (through its sub-division, the Group for Overdue Consumer Loans) on borrowers that have payments on consumer loans overdue by more than seven days. For 60 calendar days from the date of transfer of the problem consumer loan, the Group for Overdue Consumer Loans clarifies contact details of problem borrowers and groups the borrowers for subsequent work on the basis of individual scenarios for each group, before trying to settle the problem with the borrowers by means of primary negotiations. Management is provided with monthly reports based on the results of this work. If the Group for Overdue Consumer Loans concludes that the loan cannot be collected on the basis of out-of-court procedures, all materials on the borrower are passed to the Legal Department for collecting the debt by judicial means; and undertaking procedures (through its sub-division, the Response Unit) on borrowers that have payments on express loans overdue by more than 30 days. For 60 calendar days from the date of receipt of the problem express loan, the Response Unit clarifies contact details of problem borrowers and groups the borrowers for subsequent work on the basis of individual scenarios for each group, before trying to settle the problem

147 with the borrowers by means of primary negotiations. Management is provided monthly reports based on the results of this work. o Department of Long-term Past Due Loans. The Department of Long-term Past Due Loans is a sub-division of the Risk Department and handles problem express loans that the Department for Problem Individual Loans has not been able reach agreement with borrowers on. The Department of Long-term Past Due Loans works on such problem express loans for 120 days, with the assistance of the Legal Department. Work with problem borrowers comprises a set of measures ranging from telephone calls to visits and court proceedings. This is the final stage of recovery of problem express loans before write-off. o The Asset and Liability Department. The Asset and Liability Department is a subdivision of the Risk Department and its main functions are: providing analytical support to ALCO; and regularly carrying out stress tests on the level of UBRD's liquidity on the basis of various scenarios that cover both standard and unfavourable market conditions. Treasury. Treasury conducts the attraction and allocation of funds in financial markets and over-the-counter markets, and develops the principles of UBRD's activities in financial markets for the purpose of managing UBRD's liquidity position. Treasury's main functions are: o providing for an adequate portfolio of liquid assets, largely made up of bonds available for sale and for sale and repurchase transactions, liquid trading securities, deposits with banks and other interbank facilities, to ensure that sufficient liquidity is maintained within UBRD; o choosing an optimal securities portfolio structure, developing securities portfolio management regulations on the basis of the set limits and ensuring compliance with the strategy for transactions with instruments in the portfolio; o monitoring the daily liquidity position and managing instant liquidity (up to three days) by forming liquid asset provisions in accordance with requirements of ALCO; o monitoring limits for market risk set by the committees and financial results on a daily basis, together with the Risk Department; and o receiving information on the required level and structure of liquid assets by age. Legal Department. The Legal Department's main functions are: o considering corporate loan applications from client relationship managers together with the Security Service, before such loan applications are evaluated by the Risk Department and transferred to the Credit Committee for setting credit limits; o collecting problem consumer loans through litigation, at the final recovery stage before write-off, if the Group for Overdue Consumer Loans concludes that the loan cannot be collected on the basis of out-of-court procedures; and o assisting the Department of Long-term Past Due Loans with handling the recovery of problem express loans at the final stage of recovery before write-off

148 Security Service. The Security Service's main functions are: Credit Risk o reviewing applications for retail loans and making a positive or negative recommendation, alongside the client evaluation procedures of the Risk Department; o considering corporate loan applications from client relationship managers together with the Legal Department, before such loan applications are evaluated by the Risk Department and transferred to the Credit Committee for setting credit limits; and o assisting with collecting information on third parties (in respect of which information was previously unavailable), in connection with actions taken by UBRD with respect to problem corporate borrowers. UBRD takes an exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of lending and other transactions with counterparties. UBRD manages credit risk by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments and by type of product and customer. UBRD's Credit Committee, ALCO and Risk Department monitor such risks on a regular basis and review them at least annually. This model is annually approved by the Budget Committee and has a target structure for the corporate loan portfolio (by type of customer) and retail loan portfolio (by type of product). UBRD also complies with exposure limits for single borrowers and groups of borrowers established by the CBR, see "The Banking Sector and Banking Regulation in Russia". Lending Procedures Corporate and SME lending procedures Credit limits for borrowers are approved at the following decision-making levels: by UBRD's Board of Directors for customers related to RCC; and by the Credit Committee for all other corporate customers. Loan applications are reviewed by the Legal Department and Security Service, and subsequently evaluated by the Risk Department before being transferred to the Credit Committee, which sets the relevant credit limits. Exposure to credit risk is also managed, in part, by obtaining collateral and corporate and personal guarantees. In order to monitor credit risk exposures, regular reports are produced by the Risk Department based on a structured analysis focusing on the customer's business and financial performance. Any significant exposures to customers with deteriorating creditworthiness are reported to and reviewed by the Credit Committee. Credit decisions on "business hit" loans are made within one day of the submission of an application together with the necessary documents. Retail lending procedures UBRD's retail lending procedures vary by the type of credit product, the most significant of which are the following: applicants for "open" loans (unsecured consumer loans) must submit their passport, a second identification document and proof of income for the past six months. Applicants for "open" loans must also prove they have been employed in their current job for three

149 months and that they have experience in their current industry for twelve months. Applicants for "open" loans of between RUB 50,000 to RUB 600,000 must have a confirmed monthly salary of not less than RUB 6,000 and credit decisions for such loans should be made and communicated to customers within two hours of the customer submitting his or her application. Applicants for "open" loans of between RUB 600,000 to RUB 1,000,000 must have a confirmed monthly salary of not less than RUB 15,000 and credit decisions for such loans should be made and communicated within two days; applicants for "matter-of-minutes" loans (express loans) must submit their passport, but are not required to submit a second identification document, proof of income for the past six months or prove continuous employment in their current job for three months and experience in their current industry for twelve months. Credit decisions for "matter of minutes" loans should be made within fifteen minutes of customers submitting their loan applications; and applicants for collateralised consumer loans must provide documentary evidence of their income for the past six months, in addition to providing documents evidencing their ownership of the real estate or vehicle over which they are granting a mortgage or pledge. Credit decisions on collateralised consumer loans are made and communicated to customers within five days of the customer submitting his or her loan application. UBRD's retail loan applications are processed in a three stage process, using different software at each stage: retail loan application data is entered at the point of sale into UBRD's retail loan application system, using UBRD's point of sale software; retail loan applications are automatically evaluated and scored using UBRD's risk management software, on the basis of programme codes and accumulated statistical data and such scores are automatically compared against an established cut-off level; and if UBRD's risk management software has produced a score for the loan application above the established cut-off level, UBRD's Security Service makes a recommendation, using UBRD's claims group software and its own experience and information, for whether or not a loan should be approved. UBRD evaluates its credit products on the basis of the relationship between the net operating income (interest or commission) to be received from such credit product and: forecasted losses caused by non-payment; and/or actual losses caused by non-payment. Collateral In accordance with its collateral policy, UBRD accepts the following assets as security: securities, real estate, machinery, equipment, goods in circulation, motor vehicles and ownership rights in certain businesses. UBRD aims to hold collateral that is liquid and which does not prevent its borrowers from running their businesses. As at 31 December 2012 and 2011, 56.3 per cent. and 52.5 per cent., respectively, of UBRD's corporate loan portfolio was secured by collateral and a further 20.2 per cent. and 15.6 per cent., respectively, were guaranteed. The Risk Department determines the fair value of collateral based on market data and the internal methodology of UBRD and uses different approaches to value collateral (including a comparison against similar collateral and a method based on the income or expense associated with such collateral) When accepting collateral, UBRD reviews the legal and/or accounting documentation evidencing the ownership and valuation of the collateral, conducts its own valuation and inspection of the

150 collateral, including on-site visits to the extent practical and attempts to obtain an independent expert opinion on the collateral to the extent possible (which is mandatory part of UBRD's procedures for real estate provided as collateral). Every six months, UBRD assesses the fair value of all real estate, motor vehicles and equipment pledged as collateral. UBRD also monitors the market value of real estate on an ongoing basis and adjusts its fair value if significant changes in market prices have been observed. The fair value of goods in circulation pledged as collateral is estimated when the loan is granted and is not adjusted for subsequent changes in value. The following table sets out information on collateral securing loans to UBRD's corporate customers, net of impairment, by types of collateral as at 31 December 2012: (In thousands of Roubles) Loans without individual signs of impairment Carrying amount of loans to customers Fair value of collateral for collateral assessed as of reporting date Fair value of collateral for collateral assessed as of loan inception date Real estate 5,892,670 5,464, ,915 Motor vehicles 960, , ,117 Equipment 684, , ,230 Finished goods and inventories 798, , ,667 Securities 13,794,470 13,794,470 - Commitments of legal entities 5,016, Commitments of individuals 3,016, No collateral or other credit 9,315, enhancement Total 39,479,023 20,333,609 1,796,929 Overdue or impaired loans Real estate 325, ,828 27,132 Motor vehicles 22,511 12,018 10,493 Equipment 107, ,850 6,724 Finished goods and inventories 40,203 37,821 2,382 Commitments of legal entities 8, Commitments of individuals 87, No collateral or other credit 149, enhancement Total 741, ,517 46,731 Total loans to corporate customers entities before allowance for impairment 40,220,667 20,783,126 1,843,

151 The following table sets out information on collateral securing loans to UBRD's corporate customers, net of impairment, by types of collateral as at 31 December 2011: (In thousands of Roubles) Loans without individual signs of impairment Carrying amount of loans to customers Fair value of collateral for collateral assessed as of reporting date Fair value of collateral for collateral assessed as of loan inception date Real estate 4,361,417 4,080, ,362 Motor vehicles 362, , ,946 Equipment 401, , ,222 Finished goods and inventories 1,169, , ,334 Securities 7,759,193 7,759,193 - Commitments of legal entities 2,623, Commitments of individuals 1,670, No collateral or other credit 8,685, enhancement Total 27,034,577 12,837,778 1,216,864 Overdue or impaired loans Real estate 190, ,620 79,184 Motor vehicles 20,330 8,215 12,115 Equipment 126, ,241 10,173 Finished goods and inventories 56,975 56, Securities 9,081 9,081 - Commitments of legal entities 4, Commitments of individuals 15, No collateral or other credit 102, enhancement Total 526, , ,983 Total loans to corporate customers entities before allowance for impairment 27,561,066 13,139,399 1,318,847 Collateralised consumer loans are supported by a combination of third party guarantees and mortgages over real estate (which should have a minimum value of 70 per cent. of the principal amount of the secured loan) or pledges over vehicles (which should have a minimum value of 50 per cent. of the principal amount of the secured loan) and combined together, such support must cover the full principal amount of the loan. Where a spouse's name has been taken into account in the calculation of the applicant's income, such spouse must provide a guarantee and likewise, where a mortgage is provided over real estate that is owned or co-owned by another individual, a guarantee from such individual should be provided. Loan portfolio lending limits UBRD sets limits in respect of credit risk by reference to different types of concentrations, which are reviewed on a continuous basis, including: a limit on UBRD's exposure to a single economic industry sector (other than metallurgy and mining, which is the industry sector of RCC), which was RUB 12 billion as at 31 December 2012; and a limit on UBRD's exposure to a single borrower or group of related borrowers) (other than RCC), which was RUB 3 billion as at 31 December As at 31 December 2012, UBRD had a significant credit risk concentration in respect of RCC, which is a related party to UBRD. The aggregate amount of these loans as at 31 December 2012 was RUB 12,875 million, or 16.8 per cent. of the gross loan portfolio, compared to RUB 9,607 million, or 20.2 per cent. of the gross loan portfolio and RUB 7,615 million, or

152 approximately 20.7 per cent. of the gross loan portfolio, respectively, as at 31 December 2011 and At 31 December 2012, UBRD had 24 borrowers with outstanding loans above RUB 250 million, compared to 22 and 17 such borrowers as at 31 December 2011 and 2010, respectively, representing, 37.6 per cent., 42.1 per cent. and 40.1 per cent. of its gross loan portfolio, respectively. Monitoring and Collection Procedures Monitoring and collection procedures for problem corporate and SME loans UBRD monitors its corporate loans on an ongoing basis and its Corporate Credit Committee reviews and discusses UBRD's corporate loan portfolio on a monthly basis. This involves an analysis of the loan portfolio by industry sector, looking at concentrations within the loan portfolio, analysing historic repayment statistics and reviewing the financial results and balance sheets of UBRD's customers. UBRD classifies loans as problem loans on the basis of whether one of the following criteria has been met: the borrower delays making a principal payment or interest payment for more than 15 calendar days after the due date; UBRD obtains reliable information that a pledge has been withdrawn or disposed of without UBRD's consent; the borrower fails to fulfil, within 15 calendar days, a requirement to make an accelerated repayment of a loan; the borrower twice consecutively delays making contractual lease payments or violates the contractual restrictions on the use of leased property; or UBRD obtains evidence that the outstanding amount will not be duly repaid upon maturity, including where the borrower states its refusal to repay or if UBRD is not able to contact the borrower. UBRD attempts to collect problem corporate and SME loans through one or more of the following methods: contacting the problem borrower, negotiating, reviewing the reasons for the overdue balance and/or default and/or discussing different payment options (including through payment-in-kind) and different types of collateral that could be provided; collecting and reviewing information from third parties (in respect of which information was previously unavailable); organising transportation and removal of the problem borrower's property to UBRD; reviewing and evaluating the likelihood of the borrower repaying without recourse to litigation and/or initiating litigation against the problem borrower through UBRD's Legal Department; and selling the outstanding debt to third parties (including the problem borrower's other creditors or collateral providers). Monitoring and collection procedures for problem retail loans UBRD constantly monitors its retail loan portfolio. The Risk Department evaluates trends in problem loans, the efficiency of various scoring models and changes in borrower profile for the

153 portfolio in general and for each product. The Risk Department also performs an ageing analysis of outstanding loans (which is provided to management) and follows up on past due balances. The Credit Committee makes decisions relating to monitoring retail credit products and modifying methodologies and terms of retail credit products on a monthly basis. UBRD's strategy of recovering problem retail loans comprises the following stages: in the first seven days of non-payment for a consumer loan, or in the first 30 days of nonpayment for an express loan, the borrower is contacted by telephone by an automated calling system; if non-payment continues for more than seven days (for a consumer loan) or 30 days (for an express loan), responsibility for collection is passed to the Department for Problem Individual Loans. For the next 60 days, the Group for Overdue Consumer Loans of the Department for Problem Individual Loans (for consumer loans) or the Response Unit of the Department for Problem Individual Loans (for express loans) tries to negotiate an agreement for repayment with the borrower, categorises the borrower for subsequent work on the basis of individual scenarios for each group and clarifies borrower's contact details. Management is provided with monthly reports based on the results of this work; if the two stages above are unsuccessful, for the next 120 days problem express loans are handled by the Department of Long-term Past Due Loans, with the participation of the Legal Department and consumer loans are handled by the Legal Department. Work with borrowers at this stage varies from telephone calls and visits (for express loans) to initiating court proceedings, working with collection agencies or selling the loans to third parties (for express loans and consumer loans); and if all the previous stages are unsuccessful, UBRD writes off the problem retail loans. Loan Provisioning Procedures UBRD classifies loans overdue by more than 180 days as non-performing loans. UBRD estimates loan impairment for corporate and SME loans based on an analysis of the future cash flows for impaired loans and based on its past loss experience for portfolios of loans for which no indications of impairment has been identified. The value of collateral is estimated either based on an independent appraisal or using a discount ratio between 0.2 and 0.4. UBRD assesses the credit quality of current and not impaired corporate loans by analysing the following factors: whether there are delays in the repayment of principal and interest due to the financial insolvency of the borrower; whether financial statements and other financial information of the borrowers are submitted to UBRD timely and in accordance with the terms of the loan agreements, and that information is transparent and allows analysis of the financial position of the borrower; whether the borrower is sued for improper servicing of loans granted by other credit institutions; and whether the loan is secured by liquid collateral, the fair value of which covers the outstanding loan amount. Current and not impaired corporate loans are mostly represented by loans issued to large corporate entities that have a long credit history with the Group. UBRD estimates loan impairment for loans to individuals based on its past historical loss experience on each type of loan. UBRD assumes historic loss migration rates are constant and are based on the historic loss migration pattern for the past 12 months. UBRD assesses retail

154 loans as current and not impaired if there were no overdue amounts as at reporting date, and there is no evidence that individuals will not be able to meet their obligations on repayment of the loans in full and in time. Loan Quality Analysis Corporate and SME loan credit quality analysis The table set out below provides an analysis of the credit quality of UBRD's loans to corporate and SME customers as at 31 December 2012: (in thousands of Roubles) Corporate loans SME loans Related party loans Current and individually not impaired 22,627,586 4,100,138 12,874,812 39,602,536 Past due: 936, ,252-1,423,727 - loans past due less than 30 days ,168-90,336 - loans past due days 2,990 73,028-76,018 - loans past due days - 127, ,393 - loans past due days 161,271 90, ,798 - loans past due over 360 days 772, , ,182 Total loans to legal entities before allowance for impairment 23,564,061 4,587,390 12,874,812 41,026,263 Allowance for impairment (492,620) (283,306) (29,670) (805,596) Total 23,071,441 4,304,084 12,845,142 40,220,667 Allowance for impairment to gross loans (per cent.) Total The table set out below provides an analysis of the credit quality of UBRD's loans to corporate and SME customers as at 31 December 2011: (in thousands of Roubles) Corporate loans SME loans Related party loans Current and individually not impaired 15,320,712 2,194,754 9,607,269 27,122,735 Past due: 787, , ,214 - loans past due less than 30 days 23,612 26,290-49,902 - loans past due days 13,190 25,895-39,085 - loans past due days - 12,016-12,016 - loans past due days 11,668 13,568-25,236 - loans past due over 360 days 739, , ,975 Total loans to legal entities before allowance for impairment Total 16,108,569 2,383,111 9,607,269 28,098,949 Allowance for impairment (408,394) (112,005) (17,484) (537,883) Total 15,700,175 2,271,106 9,589,785 27,561,066 Allowance for impairment to gross loans (per cent.)

155 Retail loan credit quality analysis The table set out below provides an analysis of the credit quality of UBRD's loans to individuals as at 31 December 2012: (in thousands of Roubles) Loans to employees participating in Express payroll loans projects Unsecured consumer loans Collateralised consumer loans Total loans to individuals Current and not past due: 5,108,388 4,617,934 16,862,314 2,198,712 28,787,348 - with credit history of less than 90 days 2,313,323 1,127,582 5,731, ,132 10,078,500 - with credit history of more than 90 days 2,795,065 3,490,352 11,130,851 1,292,580 18,708,848 Past due: 4,548, ,439 1,716, ,838 6,649,781 Loans past due less than 30 days 721,271 80, ,286 26,242 1,299,632 - loans past due days 687,204 33, ,987 23,102 1,073,072 - loans past due days 846,612 28, ,832 8,416 1,255,208 - loans past due days 634,884 19, ,343 5, ,143 - loans past due over 360 days 1,658,621 43, , ,734 2,111,726 Total loans to individuals before allowance for impairment 9,656,980 4,824,373 18,579,226 2,376,550 35,437,129 Allowance for impairment (2,297,438) (93,428) (737,918) (113,888) (3,242,672) Total 7,359,542 4,730,945 17,841,308 2,262,662 32,194,457 Allowance for impairment to gross loans (per cent.) The following table provides an analysis by credit quality of UBRD's loans to individuals outstanding as at 31 December 2011: (in thousands of Roubles) Express loans Loans to employees participating in payroll projects Unsecured consumer loans Collateralised consumer loans Total loans to individuals Current and not past due: 3,858,372 2,623,519 7,493,265 1,079,056 15,054,212 - with credit history of less than 90 days 705, ,968 2,314, ,747 3,863,992 - with credit history of more than 90 days 3,153,070 2,056,551 5,178, ,309 11,190,220 Past due: 3,481, , , ,007 4,479,776 - loans past due less than 30 days 507,471 54, ,337 6, ,582 - loans past due days 371,665 16, , ,099 - loans past due days 621,983 19, ,836 1, ,235 - loans past due days 968,620 16, , ,963 1,189,440 - loans past due over 360 days 1,011,700 13, ,689-1,158,420 Total loans to individuals before allowance for impairment 7,339,811 2,744,326 8,260,788 1,189,063 19,533,988 Allowance for impairment (1,715,007) (48,656) (311,731) (57,470) (2,132,864) Total 5,624,804 2,695,670 7,949,057 1,131,593 17,401,124 Allowance for impairment to gross loans (per cent.)

156 Market Risk UBRD has exposure to market risks. Market risks arise from open positions in currency, interest rate and equity products, all of which are exposed to general and specific market movements. ALCO sets capital drawdown limits and allocates funds for forming a portfolio of operations exposed to market risk. The Treasury chooses an optimal portfolio structure and develops portfolio management regulations on the basis of the set limits. The Investment Committee together with representatives of the Risk Department and the Treasury approve the structure of the portfolio by instrument and position entry/exit rules. The Risk Department and the Treasury monitor limits set by the committees and financial results on a daily basis. If the decrease in capital, allocated for operations exposed to market risks, is 50 per cent. of the threshold level, limits on positions are automatically decreased by three times and the Investment Committee convenes in order to change the current portfolio management procedures. Currency Risk In respect of currency risk, management sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The tables below summarise UBRD's exposure to foreign currency exchange rate risk as at the dates indicated. The table below summarises exposure to foreign currency exchange rate risk at 31 December UBRD's exposure to foreign currency exchange rate risk fluctuates based on the demand for foreign currency-denominated products and services from its customers: (in thousands of Roubles) RUB USD Euro Assets Precious metals Other Total Cash and cash equivalents 9,449,895 5,859, ,916 12,948 26,141 16,165,390 Mandatory cash balances with the CBR 1,140, ,140,186 Trading securities 191, ,998 Other securities at fair value through profit or less 27,231, ,231,288 Securities available-for-sale 55, ,872 Investment securities held to maturity 8,237, ,237,047 Due from other banks 8,500 75, ,431 Loans and advances to customers 62,010,360 10,328,692 76, ,415,124 Finance lease receivables 839, ,354 Advances to real estate developers 1,964, , ,572,622 Other financial assets 841,888 19,112 11, ,276 Total monetary assets Liabilities Due to other banks 24,839, , , ,692,854 Customer accounts 85,020,346 7,422,719 2,798, ,439 64,357 95,645,302 Debt securities in issue 8,346, , , ,939,999 Subordinated debt - 2,468, ,468,741 Other financial liabilities 197, ,808 Total monetary liabilities 118,404,040 11,074,406 4,062, ,439 64, ,944,704 Net position (6,433,029) 5,816,818 (3,158,203) (326,491) (38,211) (4,139,116) Derivative financial instruments Net position including derivative instruments 3,316,022 (6,338,226) 3,141,854 (129,847) 36,233 26,036 (3,117,007) (521,408) (16,349) (456,338) (1,978) (4,113,080)

157 The table below summarises exposure to foreign currency exchange rate risk at 31 December 2011: (in thousands of Roubles) RUB USD Euro Assets Precious metals Other Total Cash and cash equivalents 4,354,657 8,488, ,981 71,716 8,058 13,372,036 Mandatory cash balances with the CBR 874, ,345 Trading securities 129, ,955 Other securities at fair value 23,847, ,847,034 through profit or less Securities available-for-sale 303, ,706 Due from other banks - 64, ,391 Loans and advances to customers 43,869,922 1,057,840 34, ,962,190 Finance lease receivables 689, ,440 Advances to real estate developers 2,093, , ,730,523 Other financial assets 332,643 8, ,075 Total monetary assets 76,494,828 10,256, ,421 71,716 8,063 87,314,695 Liabilities Due to other banks 14,627,770 1,146,553 24, ,798,922 Customer accounts 60,964,573 5,742,138 2,403, ,707 64,085 69,503,461 Debt securities in issue 4,853, ,556 70, ,052,182 Subordinated debt - 1,646, ,646,691 Other financial liabilities 306, ,387 Total monetary liabilities 80,752,688 8,662,938 2,499, ,707 64,085 92,307,643 Net position (4,257,860) 1,593,729 (2,015,804) (256,991) (56,022) (4,992,948) Derivative financial instruments (1,672,791) (617,544) 2,018, ,505 54,463 7,613 Net position including derivative instruments (5,930,651) 976,185 3,176 (32,486) (1,559) (4,985,335) Derivatives in each column represent the fair value at the reporting date of the respective currency that UBRD agreed to buy (positive amount) or sell (negative amount) with the counterparty. The net total represents the fair value of the currency derivatives. The above analysis includes only monetary assets and liabilities. Investments in equities and non-monetary assets are not considered to give rise to any material currency risk. An analysis of sensitivity of profit or loss and equity to changes in the foreign currency exchange rates based on positions existing as at 31 December 2012 and 2011 and a simplified scenario of a 10% change in USD, euro and precious metals to Rouble exchange rates is as follows. As at 31 December 2012 As at 31 December 2011 In thousands of Roubles Profit or loss Equity Profit or loss Equity 10% appreciation of USD against RUB (41,713) (41,713) 78,095 78,095 10% depreciation of USD against RUB 41,713 41,713 (78,095) (78,095) 10% appreciation of precious metals against RUB (36,507) (36,507) (2,599) (2,599) 10% depreciation of precious metals against RUB 36,507 36,507 2,599 2,599 10% appreciation of Euro against RUB (1,308) (1,308) % depreciation of Euro against RUB 1,308 1,308 (254) (254) Other Price Risk UBRD has limited exposure to equity price risk. Price risk inherent in trading operations with shares is managed through the setting of a capital reduction threshold and a threshold for

158 possible deviations in the portfolio's value (30-day value at risk ("VaR") with a 95 per cent. probability, given that the maximum period of holding the position does not exceed 30 days). In terms set by ALCO for capital reduction thresholds, the Treasury develops and the Investment Committee approves equity portfolio management rules. The Risk Department monitors the financial result from trading in shares on a daily basis and, if capital decreases by more than 50 per cent. of a maximum set level, reduces limits by three times, after which the Investment Committee holds a meeting for the purpose of changing the equity portfolio management rules. The below table represents model limits and actual exposure for the years ended 31 December 2012 and 2011 for the equity trading portfolio and potential exposure on profit or loss: In thousands of Roubles Exposure during 2012 Exposure during 2011 Capital drawdown limit ,000 Capital drawdown fact , day 95% VaR on portfolio (limits) ,328 Interest Rate Risk UBRD is exposed to interest risk in the case of changes in its bond portfolio's value. UBRD manages interest rate risk associated with changes in its bond portfolio's value as a result of changes in market rates (bond yield) by limiting the bond portfolio's duration. ALCO sets portfolio duration limits at least annually on the basis of the overall possible change in the portfolio's value in the case of a 100 basis point increase in interest rates. The Investment Committee approves the portfolio structure by instrument and the portfolio management strategy. The Treasury is in charge of direct portfolio management, supports its target structure and ensures compliance with the strategy for transactions with instruments in the portfolio. The Risk Department is in charge of regularly monitoring the level of possible losses of the portfolio in the case of a negative change in market rates. The table below reflects the bond portfolio's sensitivity for the year ended 31 December 2012 due to changes in interest rates: In thousands of Roubles Exposure during 2012 Profit or loss Equity Changes in portfolio's value in case of a 100 b.p. increase in rates at the year end (163,149) (163,285) The table below reflects the bond portfolio's sensitivity for the year ended 31 December 2011 due to changes in interest rates: In thousands of Roubles Exposure during 2011 Profit or loss Equity Changes in portfolio's value in case of a 100 b.p. increase in rates at the year end (122,474) (123,918) The sensitivity of financial assets and liabilities to changes in interest rates for financial assets and liabilities outstanding as at 31 December 2012 and 2011 is as follows: In thousands of Roubles Profit or loss Equity Profit or loss Equity 100 bp parallel rise (21,473) (21,473) (49,278) (49,278) 100 bp parallel fall 21,473 21,473 49,278 49,278 UBRD manages interest rate risk associated with changes in the margin through medium and long-term planning. The main source of this risk is the excess of the rate of change in the value of liabilities over the rate of change in the asset yield. UBRD does not have any assets and liabilities with floating rates, except subordinated debt, which limits the function of interest rate

159 risk management to managing and maximising the level of margin, subject to complying with adequate liquidity requirements. Rates on short-term funds are considered in interest rate calculations as the cost of coverage of liquidity gaps. To manage the margin, management develops scenario-based models by month for a term of up to one year. Reviewing the planned figures on a monthly basis enables UBRD to promptly respond to external and internal changes and implement additional scenario-based modelling in case of serious deviations. The table below displays analysis of effective interest rates for major financial instruments as at 31 December The analysis is performed based on effective interest rates as at the yearend used for the amortisation of the relevant assets and liabilities. As at 31 December 2012 RUB USD Euro Other currencies (% p. a.) Assets Cash and cash equivalents Other securities at fair value through profit or loss Debt securities available-for-sale Investment securities held to maturity Due from other banks Loans and advances to customers Finance lease receivables Advances to real estate developers Liabilities Due to other banks Customer accounts - current and settlement accounts - term deposits Debt securities in issue -promissory notes bonds issued on domestic market Subordinated debt The table below displays analysis of effective interest rates for major financial instruments as at 31 December The analysis is performed based on effective interest rates as at the yearend used for the amortisation of the relevant assets and liabilities: As at 31 December 2011 RUB USD Euro Other currencies (% p. a.) Assets Cash and cash equivalents Other securities at fair value through profit or loss Debt securities available-for-sale Due from other banks Loans and advances to customers Finance lease receivables Advances to real estate developers Liabilities Due to other banks Customer accounts - current and settlement accounts term deposits Debt securities in issue - promissory notes bonds issued on domestic market Subordinated debt

160 Geographical Risk Concentrations The geographical concentration of assets and liabilities as at 31 December 2012 is as set out below: In thousands of Roubles Russia Other countries Total Assets Assets Cash and cash equivalents 10,135,342 6,030,048 16,165,390 Mandatory cash balances with the CBR 1,140,186-1,140,186 Trading securities 191, ,998 Other securities at fair value through profit or loss 27,231,288-27,231,288 Securities available-for-sale 55,872-55,872 Investment securities held to maturity 8,237,047-8,237,047 Due from other banks 8,500 75,931 84,431 Loans and advances to customers 54,433,420 17,981,704 72,415,124 Finance lease receivables 839, ,354 Advances to real estate developers 2,572,622-2,572,622 Other financial assets 886,928 56, ,859 Total financial assets 105,732,557 24,144, ,877,171 Total non-financial assets 14,039,772-14,039,772 Total 119,772,329 24,144, ,916,943 Liabilities Due to other banks 26,419, ,383 26,692,854 Customer accounts 92,790,334 2,854,968 95,645,302 Debt securities in issue 8,939,999-8,939,999 Subordinated debt - 2,468,741 2,468,741 Other financial liabilities 235,184 8, ,355 Total financial liabilities 128,384,988 5,605, ,990,251 Total non-financial liabilities 536, ,677 Total 128,921,665 5,605, ,526,928 Net position (9,149,336) 18,539,351 9,390,015 Credit related commitments 10,870,619 2,294,585 13,165,

161 The geographical concentration of assets and liabilities at 31 December 2011 is set out below: In thousands of Roubles Russia Other countries Total Assets Assets Cash and cash equivalents 4,926,050 8,445,986 13,372,036 Mandatory cash balances with the CBR 874, ,345 Trading securities 129, ,955 Other securities at fair value through profit or loss 23,847,034-23,847,034 Securities available-for-sale 303, ,706 Due from other banks - 64,391 64,391 Loans and advances to customers 41,071,027 3,891,163 44,962,190 Finance lease receivables 689, ,440 Advances to real estate developers 2,730,523-2,730,523 Other financial assets 371,037 21, ,383 Total financial assets 74,943,117 12,422,886 87,366,003 Total non-financial assets 12,629,406-12,629,406 Total 87,572,523 12,422,886 99,995,409 Liabilities Due to other banks 15,798,922-15,798,922 Customer accounts 68,997, ,884 69,503,461 Debt securities in issue 5,043,359 8,823 5,052,182 Subordinated debt - 1,646,691 1,646,691 Other financial liabilities 331,573 18, ,082 Total financial liabilities 90,171,431 2,179,907 92,351,338 Total non-financial liabilities 590, ,955 Total 90,762,386 2,179,907 92,942,293 Net position (3,189,863) 10,242,979 7,053,116 Credit related commitments 4,403, ,941 4,886,470 Assets, liabilities and credit related commitments are based mainly on the country in which the counterparty is located. Balances with Russian counterparties actually outstanding to/from offshore companies of these Russian counterparties are allocated to the column "Russia". Cash on hand, precious metals and property and equipment are allocated based on the country in which they are physically held. Liquidity Risk Liquidity risk is defined as the risk that UBRD will encounter difficulty in meeting obligations associated with financial liabilities. UBRD is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from margin and other calls on cash settled derivative instruments. UBRD does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. UBRD manages liquidity risk at two levels: the first level is ALCO; the second level is the Treasury and the Asset and Liability Department. ALCO determines the type of liquidity management strategy for up to one year with possible revision in response to certain events. The Treasury manages instant liquidity (up to three days) by forming liquid asset provisions in accordance with requirements of ALCO. The Asset and Liability Department monitors planned transactions, performs stress testing of liquidity and provides analytical support to ALCO. UBRD seeks to maintain a stable funding base, comprising primarily amounts due to other banks, corporate and retail customer deposits and debt securities and invest the funds in diversified portfolios of liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements. The liquidity management process includes: performing daily calculations of liquid assets necessary for covering resource base risks; reviewing the level and structure of liquid assets and available liquidity forming instruments; providing access to different finance sources; maintaining

162 liquidity contingency plans; and monitoring compliance with legal requirements to balance liquidity ratios. Information on the required level and structure of liquid assets by age is provided to the Treasury. The Treasury provides for an adequate portfolio of liquid assets, largely made up of bonds available for sale and for sale and repurchase transactions, liquid trading securities, deposits with banks and other interbank facilities, to ensure that sufficient liquidity is maintained within UBRD as a whole. UBRD has an internal target to hold liquid assets equivalent to three months of funding requirements at all times. The Treasury Department is responsible for monitoring the daily liquidity position. The Asset and Liability Department regularly carries out stress tests on the level of liquidity on the basis of various scenarios that cover both standard and more unfavourable market conditions. UBRD maintains liquidity management when the bond portfolio, composed of liquid securities, the majority of which have a rating of BBB or above from Standard & Poor's, is used as an instrument for the regulation of cash liquidity gaps and can be converted into cash in one month. Other securities at fair value through profit or loss and securities available for sale as at 31 December 2012, 2011 and 2010 are classified as "Demand and less than one month". The fair value of securities that are classified to this category with maturity more than 12 months amounted to RUB 20,685 million, RUB 20,839 million and RUB 16,681 million as at 31 December 2012, 2011 and 2010, respectively

163 The following table shows financial assets and liabilities by remaining contractual maturity dates as at 31 December 2012, except for term deposits for individuals, which are shown by expected maturity dates: (in thousands of Roubles) Assets Demand and From 1 to 3 less than 1 months month From 3 to 12 months From 1 to 3 years Over 3 years Cash and cash equivalents 16,165, ,165,390 Mandatory cash balances with the CBR 256,817 42, ,688 91, ,113 1,140,186 Trading securities 191, ,998 Other securities at fair value through profit or less 27,231, ,231,288 Securities available-for-sale 55, ,872 Investment securities held to maturity - - 2,252, ,567 5,671,581 8,237,047 Due from other banks - - 4,500 79,931-84,431 Loans and advances to customers 1,546,202 3,661,550 15,784,414 26,106,523 25,316,435 72,415,124 Finance lease receivables 45,220 77, , ,499 84, ,354 Advances to real estate developers ,908 2,189,714-2,572,622 Other financial assets 906,668-27,959-9, ,859 Total financial assets 46,399,455 3,781,299 18,839,853 29,129,371 31,727, ,877,171 Liabilities Due to other banks 24,205, , , , ,164 26,692,854 Customer accounts 21,543,355 3,559,328 8,781,817 7,645,074 54,115,728 95,645,302 Debt securities in issue 673,773 3,461,037 1,042,685 3,752,327 10,177 8,939,999 Subordinated debt - 66, , ,533 1,910,478 2,468,741 Other financial liabilities 243, ,355 Total financial liabilities 46,665,652 8,034,861 10,644,983 12,120,208 56,524, ,990,251 Net liquidity gap as at 31 December 2012 (266,197) (4,253,562) 8,194,870 17,009,163 (24,797,354) (4,113,080) Cumulative liquidity gap as at 31 December 2012 (266,197) (4,519,759) 3,675,111 20,684,274 (4,113,080) Total

164 The following table shows financial assets and liabilities by remaining contractual maturity dates as at 31 December 2011, except for term deposits from individuals, which are shown by expected maturity dates: (in thousands of Roubles) Assets Demand and less than 1 month From 1 to 3 months From 3 to 12 months From 1 to 3 years Over 3 years Cash and cash equivalents 13,372, ,372,036 Mandatory cash balances with the CBR Total 164,390 8,455 51, , , ,345 Trading securities 129, ,955 Other securities at fair value 23,847, ,847,034 through profit or less Securities available-for-sale 303, ,706 Due from other banks ,391-64,391 Loans and advances to customers 1,166,510 2,028,868 10,919,550 19,405,728 11,441,534 44,962,190 Finance lease receivables 35,921 60, , , , ,440 Advances to real estate developers ,149 2,312,374-2,730,523 Other financial assets 383, , ,383 Total financial assets 39, ,098,040 11,600,878 22,170,141 12,093,498 87,366,003 Liabilities Due to other banks 14,504, ,100 45,723 63, ,570 15,798,922 Customer accounts 13,067, ,114 4,068,623 9,953,798 41,741,219 69,503,461 Debt securities in issue 408,537 1,627, ,017 2,539,350-5,052,182 Subordinated debt - 68,831 65, ,159 1,275,321 1,646,691 Other financial liabilities 350, ,082 Total financial liabilities 28,331,148 3,079,323 4,656,743 12,794,014 43,490,110 92,351,338 Net liquidity gap as at 31 December 2011 Cumulative liquidity gap as at 31 December ,072,298 (981,283) 6,944,135 9,376,127 (31,396,612) (4,985,335) 11,072,298 10,091,015 17,035,150 26,411,277 (4,985,335) The amounts disclosed in the tables below, except for term deposits from individuals, represent contractual undiscounted cash flows, including assets and liabilities under finance leases, prices specified forward foreign currency contracts for the purchase of assets, gross contractual cash flows under foreign currency swaps as well as gross amounts under existing loan commitments. Gross payments under delivery forward contracts will be accompanied with corresponding cash inflows

165 The analysis of financial liabilities and commitments taking into account undiscounted cash flows by maturity as at 31 December 2012 is as follows: (in thousands of Roubles) Liabilities Demand and less than 1 month From 1 to 3 months From 3 to 12 months From 1 to 3 years Over 3 years Due to other banks 24,233, , , , ,045 26,976,222 Customer accounts 21, ,682,123 9,798,478 9,848,338 56,983, ,878,693 including deposits from individuals 6,611,788 1,339,281 4,678,515 1,693,827 56,981,773 71,305,184 Debt securities in issue 675,321 3,499,047 1,100,830 4,739,234 15,907 10,030,339 Subordinated debt - 67, , ,904 2,972,381 3,603,737 Derivative financial instruments liabilities 16,933, ,933,659 Operating lease commitments 30,871 58, , ,042 82, ,606 Guarantees issued 661, ,441 1,536, , ,022 3,118,864 Import letters of credit issued 475, ,627 2,678, ,375,389 Unused commitments to extend credit 6,670, ,670,951 Other financial liabilities 243, ,355 Total financial and contingent liabilities 71,490,643 8,645,767 16,210,783 16,154,656 60,862, ,364,815 Total The analysis of financial liabilities and commitments taking into account undiscounted cash flows by maturity as at 31 December 2011 is as follows: (in thousands of Roubles) Liabilities Demand and less than 1 month From 1 to 3 months From 3 to 12 months From 1 to 3 years Over 3 years Due to other banks 14,526, ,450 46,717 72, ,605 15,979,120 Customer accounts 13,072, ,572 4,104,710 11,824,905 44,351,069 74,051,515 including deposits from individuals 4,830, ,584 2,166,152 1,532,446 44,282,995 53,160,345 Debt securities in issue 408,538 1,627, ,730 2,977,676-5,500,222 Subordinated debt - 69,632 68, ,258 2,070,740 2,485,505 Derivative financial instruments liabilities 4,932, ,932,239 Operating lease commitments 12,251 23,285 75,988 44,889 20, ,803 Guarantees issued 69,528 70, ,890 4,491 89,618 1,140,714 Import letters of credit issued 43,722 89, , ,307 Unused commitments to extend credit Total 2,911, ,911,449 Other financial liabilities 350, ,082 Total financial and contingent liabilities 36,326,386 3,295,644 6,391,255 15,200,249 47,148, ,361,956 Management expects that contractual maturity dates of term deposits from individuals are not representative for an analysis of its liquidity position, as based on the analysis of internal statistics. 80 per cent. of agreements are prolonged and based on past experience this ratio has never gone below than this limit. Accordingly, approximately 80 per cent. of term deposits from individuals in the categories "on demand and less than 1 month", "from 1 to 3 months", "from 3 to 12 months" and "from 1 to 3 years" are classified in the category "over 3 years" to present more

166 accurately the expected cash flows. However, in accordance with Russian legislation, individuals can withdraw their term deposits at any time, losing in most cases the accrued interest. The following table shows these deposits in accordance with their stated maturity dates: (in thousands of Roubles) Demand and less than 1 month 2,703, ,279 From 1 to 3 months 6,238,687 1,637,046 From 3 to 12 months 19,180,215 8,777,165 From 1 to 3 years 5,191,620 5,073,786 More than 3 years 27,445,762 28,805,555 Total 60,759,392 44,964,831 UBRD's management believes that in spite of a substantial portion of customer accounts being on demand, diversification of these deposits by number and type of depositors and the past experience of UBRD would indicate that these customer accounts provide a long-term and stable source of funding. UBRD's management considers the matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of UBRD. It is unusual for banks ever to be completely matched since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important factors in assessing the liquidity and its exposure to changes in interest and exchange rates. Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment because UBRD does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded. Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. UBRD is exposed to several types of operational risk, including unauthorised or fraudulent actions by employees or customers, operational errors by employees such as clerical or record keeping errors, errors resulting from faulty computer or telecommunications systems and the risk that UBRD will be used for money laundering or the financing of terrorist activities. UBRD processes a high volume of transactions on a daily basis and UBRD is still developing its IT systems and as a result, errors may be repeated or compounded before they are discovered and rectified. UBRD aims to obtain an operative and fair view of the state and extent of the operational risks facing it, evaluate the risk both qualitatively and quantitatively, identify the risk at an early stage and respond so as to prevent the risk from reaching levels that are considered substantial for UBRD. UBRD's approach to dealing with operational risk is set out in its operational risk management policy, which implements Russian statutory requirements, recommendations of the CBR and the Basel Committee, and internationally recognised principles. UBRD uses both qualitative and quantitative tools to identify, evaluate, monitor and minimise risks. UBRD gathers data on operational risk occurrences and continuously controls the risk level based on key risk indicators. To minimise its operational risks, UBRD recruits qualified staff, provides training, updates operational procedures, monitors the security of its IT systems and ensures that its infrastructure systems are robust. Further, UBRD decreases its operational risk level by insuring its assets

167 Following the onset of the global economic crisis, UBRD centralised, to a large extent, the powers of branch managers as a means of strengthening its operational risk management. UBRD's additional offices report directly to UBRD's head office in Ekaterinburg, while UBRD's full service offices report to UBRD's branches, which in turn reports to UBRD's head office in Ekaterinburg. UBRD conducts investigations where it suspects an employee of misconduct and depending on the financial or reputational risk of such misconduct, UBRD disciplines, dismisses or pursues criminal convictions against employees who are guilty of misconduct. UBRD has an internal division responsible for preventing or detecting employee misconduct, which works closely with UBRD's information technology and human resources departments. UBRD is part of an interbank fraud prevention system and UBRD also monitors potential and existing cyber security threats. The efficiency of the arrangements put in place is controlled under the existing internal control system and is compliant with CBR regulations and recommendations of the Basel Committee. Procedures for the Prevention of Money Laundering and Terrorist Financing UBRD's anti-money laundering measures are based on relevant Russian legislation and international requirements for internal control in the area of anti-money laundering and combating the financing of terrorism. UBRD has procedures aimed at preventing money laundering and the financing of terrorist activities, including a general anti-money laundering policy, internal control procedures that include a refusal policy whereby UBRD refuses to conduct business with suspicious entities or individuals and rules on counteracting money laundering and financing of individuals and legal entities engaged in terrorist activities, as well as procedures for regular reporting to the FSFM. UBRD's procedures relating to the prevention of money laundering and financing of terrorist activities include ''know-your-customer'' procedures that require clear identification of clients, verification of their identities and evaluation of the risk that they may be involved in moneylaundering activities or terrorist financing; detection of transactions that the Russian anti-money laundering legislation places under compulsory control, as well as suspicious transactions and activities; reporting; record-keeping; confidentiality; and training of personnel. UBRD's ''knowyour-customer'' procedures are designed to help recognise suspicious activity in a timely manner, to minimise the risk that UBRD will be used as a channel for illegal activities of any kind, to prevent establishment of banking relationships with a client until its true identity is known and to identify unusual or suspicious transactions or transactions inconsistent with the information that UBRD has about the client or its regular business activities. See ''Risk Factors Risks Relating to UBRD's Business and the Russian Banking Sector UBRD's measures to prevent money laundering and/or terrorist financing may not be completely effective''. UBRD uses an automated monitoring system that identifies client transactions, which are subject to mandatory control or appear suspicious in nature. The main priority of the internal monitoring system is increasing the operational efficiency of internal control mechanisms and procedures. The following are measures are taken by UBRD in accordance with Financial Action Task Force on Money Laundering (''FATF'') requirements: paying particular attention when establishing correspondent relationships with, and performing transactions with, foreign banks incorporated in jurisdictions offering beneficial tax regimes and/or requiring no disclosure of information on financial transactions (offshore jurisdictions); not having accounts with banks incorporated in jurisdictions that do not comply with the recommendations of FATF; not establishing correspondent relationships with shell banks, which are incorporated in a jurisdiction in which they have no physical presence or in a jurisdiction with no permanent regulatory authorities; and

168 taking measures to prevent the establishment of correspondent relationships with banks that are known to have correspondent relationships with banks incorporated in jurisdictions with no permanent regulatory authorities. UBRD's Anti-Money Laundering Officer is responsible for UBRD's anti-money laundering internal controls and reports directly to UBRD's President. The Anti-Money Laundering Officer is the head of UBRD's Anti-Money Laundering Department. Reputational Risk Reputational risk has the potential to negatively affect revenue, as a negative perception of UBRD's creditworthiness, reliability, quality of services and its general trustworthiness may lead to a reduction in the number of customers. The possibility and amount of reputational riskconnected losses depend on the risk level in the Russian banking sector on the whole

169 RELATED PARTY TRANSACTIONS UBRD traditionally has conducted and continues to conduct significant business with related parties. Under International Accounting Standard 24, related parties are broadly defined as parties under common control, or one party controlling the other party or capable of exercising significant influence over the other party in making financial or operational decisions, as well as management and their dependents and close relatives. In considering each possible related party relationship, attention is directed to the substance of the relationship not merely the legal form. UBRD enters into banking transactions in the normal course of business with its related parties. These transactions include attracting loans and accepting deposits, settlements and foreign exchange transactions, issuing guarantees, as well as transactions relating to information technology and risk management. It is UBRD's policy to conduct all transactions with related parties on an arms' length basis under commercial and banking terms and conditions consistent with those it applies to unrelated parties. UBRD's related party transactions have been priced at market rates and on an arms' length basis, subject to the regulation of the CBR, on the same terms and conditions as would apply to non-related party transactions, although it is subject to CBR requirements as is every other Russian bank. UBRD has no internal limits for related party transactions but UBRD intends to reduce its exposure to related parties as a proportion of its loan portfolio and its capital base by See " Regulatory N6 Ratio" below. Loans to RCC As at 31 December 2012, UBRD's loans and advances to customers included loans outstanding from RCC, representing 16.8 per cent. of UBRD's gross loan portfolio and 8.9 per cent. of UBRD's total assets, compared to 20.2 per cent. and 9.6 per cent. as at 31 December 2011 and 20.7 per cent. and 10.0 per cent. as at 31 December 2010, respectively. See "Risk Factors Risks Related to UBRD's Business and the Russian Banking Sector A significant part of UBRD's business is with related parties and in particular with the Russian Copper Company". Loans to shareholders and management As at 31 December 2012, UBRD's loans and advances to customers included balances outstanding from shareholders and members of UBRD's Board of Directors and Management Board, representing 0.3 per cent. of UBRD's gross loan portfolio, compared to 0.5 per cent. and 0.6 per cent., respectively, as at 31 December 2011 and Regulatory N6 Ratio UBRD's exposure to RCC complies with the CBR's N6 ratio, which limits the maximum exposure to a single borrower or a group of related borrowers to 25 per cent. of a bank's capital base. However, the CBR has expressed concern about the exposure of UBRD to RCC and the metallurgy sector in the Urals region as a whole and the potential impact of the relationships between the owners of companies in this sector (including RCC) on UBRD's N6 ratio in the future. Accordingly, UBRD intends to reduce its exposure to RCC and the metallurgy sector in the Urals region by See "The Banking Sector and Banking Regulation in Russia Regulation Mandatory Economic Ratios"

170 Financial Information The following table sets out the amounts included in the statement of comprehensive income and expense with UBRD's related parties for the years ended 31 December 2012, 2011 and 2010: For the year ended 31 December (In thousands of Roubles) Interest income 1,202, , ,000 Interest expense (79,387) (117,941) (119,623) Fee and commission income 241,757 90,830 10,310 Income/loss from trading in foreign currencies 54, ,728 11,521 Income from trading in precious metals 120, , ,038 Other operating income 2,030 1,013 1,544 The following table sets out the outstanding balances with related parties as at 31 December 2012, 2011 and 2010: For the year ended 31 December (In thousands of Roubles) Gross amount of loans and advances to customers 13,085,459 9,817,817 7,818,976 Allowance for impairment of loans and advances to customers (30,482) (18,343) (24,535) Receivables under reverse repo agreements - - 7,267 Finance lease receivables Other assets 469,062 2,414 1,301 Customer accounts 3,241,914 3,048, ,298 Debt securities in issue - 8,823 8,352 Foreign exchange forward contracts 17,147 (17,003) 116,308 Precious metals forward contracts Other liabilities 63,444 17,158 - As at 31 December 2012, most of the other assets of UBRD connected with related parties were in respect of silver forward sale contracts, which UBRD entered into as an intermediary between

171 RCC and other Russian national domestic banks, to sell silver that was produced as a by-product of RCC's mining activities. UBRD's customer accounts from related parties increased to RUB 3,049 million as at 31 December 2011, as a result of balances placed with UBRD by RCC in the year ended 31 December 2011, reflecting RCC's increased liquidity during this period. The following table sets out other commitments with related parties as at 31 December 2012, 2011 and 2010: For the year ended 31 December (In thousands of Roubles) Guarantees issued 397, , ,496 For further information on related party transactions, see Note 37 to UBRD's 2012 Consolidated Financial Statements and Note 36 to UBRD's 2011 Consolidated Financial Statements

172 Overview THE BANKING SECTOR AND BANKING REGULATION IN RUSSIA As at the date of this Prospectus, the banking sector mostly offers services related to short-term and medium-term financing due to the historical instability of the Russian lending market and the difficulty borrowers face in providing adequate collateral. According to the CBR, as at 1 April 2013, the total assets of the Russian banking sector were valued at approximately RUB 49,839.1 billion, which represented a growth of 16.5 per cent., compared to 1 January The capital base of Russian credit organisations was valued at approximately RUB 6,299.8 billion as at 1 April As at 1 April 2013, the total charter capital of Russian credit organisations was RUB 6,299.8 billion, which represented 20.2 per cent. growth, compared to RUB billion as at 1 January As at 1 April 2013, the total amount of individuals' deposits with Russian banks amounted to RUB 14,738.9 billion (of which deposits for a period of more than one year in Roubles amounted to RUB 7,043.3 billion and deposits for a period of more than one year in foreign currencies totalled RUB 1,934.6 billion), compared to RUB 11,871.4 billion as at 1 January Corporate deposits with Russian banks as at 1 April 2013 amounted to RUB 9,446.3 billion (of which deposits in Roubles amounted to RUB 5,766.4 billion and deposits in foreign currencies totalled RUB 3,679.9 billion), compared to RUB 8,367.4 billion as at 1 January The remaining sources of growth of the banking sector's funding base are the increasing volumes of debt security issues (primarily promissory notes) and interbank credit operations, amounting to RUB 2,614.6 billion and RUB 4,564.0 billion as at 1 April 2013, respectively, compared to RUB 1,551.1 billion and RUB 4,560.2 billion as at 1 January 2012, respectively. The amount of funds attracted from individuals and corporate entities through the issue of promissory notes and bank acceptances totalled RUB 1,219.3 billion as at 1 April As at 1 April 2013, the total amount of loans and other funding provided by Russian banks in Roubles increased to RUB 26,982.6 billion (of which loans in the amount of RUB 7,848.5 billion was provided to retail customers, loans and other funding in the amount of RUB 15,258.2 billion was provided to corporate customers, excluding banks and other financial institutions, and loans and other funding in the amount of RUB billion was provided to state financial agencies and non-budgetary funds) as compared to RUB 21,378.5 billion as at 1 January The total amount of loans and other funding provided by Russian banks in foreign currencies amounted to RUB 7,820.2 billion as at 1 April 2013 (of which loans and other funding in the amount of RUB billion was provided to retail customers and loans and other funding in the amount of RUB 3,140.1 billion was provided to corporate customers, excluding banks and other financial institutions) as compared to RUB 7,320.7 billion as at 1 January History of the Russian Banking Sector and Banking Statistics Under the Soviet regime, the former State Bank of the USSR, or Gosbank, (the predecessor of the CBR) allocated resources from the Russian Government's budget according to the prevailing economic plan and was, in effect, the only bank in existence. In 1987, with the relaxation of controls over companies and interbank settlements, a small group of dependent, specialised banks developed to conduct business relating to savings, foreign trade, construction, industry, agriculture and small enterprises. In 1988 and 1989, during the second phase of the reform, regional commercial banks (primarily in the form of cooperatives or joint stock companies) began to rapidly emerge (with initial capital between RUB 500,000 and RUB 300 million). By the beginning of 1992, 1,500 licences had been granted to banks. In 1991, three of the specialised state dependent banks were transformed into joint stock 1 Source: CBR 2 Source: CBR 3 Source: CBR 4 Source: CBR

173 companies and some regional branches became independent from their head offices through management buyouts. Further, after the collapse of the Soviet Union in December 1991, the CBR assumed all the functions of Gosbank and Gosbank was liquidated less than one month later. Between 1991 and 1998 the Russian banking sector experienced rapid growth. The number of commercial banks in Russia increased from approximately 350 in 1990 to more than 2,500 in In 1998, the Russian financial market suffered a serious crisis in part as a result of the Asian financial crisis that began in 1997, causing major concerns over the liquidity and solvency of the market as a whole. In connection with the crisis, the Government defaulted on its sovereign debt and the CBR announced a gradual devaluation of the Rouble, the imposition of a repayment moratorium on certain loans to foreigners and the compulsory restructuring of approximately US$40 billion of short-term treasury instruments. Many banks went into bankruptcy or fell under the administration of the Agency for Restructuring of Credit Organisations ("ARCO"). However, due to the stabilisation of the Russian banking sector, the importance of ARCO as the administrator of credit organisations undergoing financial restructuring has decreased. On 18 October 2003, the last of such credit organisations was withdrawn from ARCO's administration, and pursuant to Federal Law No. 87-FZ "On abolition of Federal Law "On Restructuring of Credit Organisations" and certain provisions of legal acts of the Russian Federation and on the liquidation procedure of state corporation "Agency for Restructuring of Credit Organisations" of 28 July 2004 (the "ARCO Liquidation Law"), ARCO itself was liquidated. Pursuant to the ARCO Liquidation Law, the assets of ARCO were transferred to the DIA. Following the 1998 financial crisis, the number of credit organisations operating in Russia fell, to 1,586 by 1 July The 1998 financial crisis revealed the lack of proper controls in the banking sector and increased public concern over the integrity of the banking system and, in particular, concern regarding misleading advertising, money laundering and corruption. Further, the Russian banking sector experienced instability and a liquidity deficit in 2004 resulting from the various market rumours and press speculation and, in some cases, regulatory and liquidity problems. From May to July 2004, the CBR revoked the banking licences of a number of Russian banks, and the resulting uncertainty in the Russian banking system led to the virtual collapse of the interbank lending market and to liquidity pressures for many Russian banks. The collapse of a number of Russian banks caused panic among depositors, and even the more reliable, larger banks experienced depositor withdrawals and liquidity problems as banks were unable to attract funds on the interbank market or from their client base. In 2004, the Russian banking sector experienced instability, which resulted in a crisis of confidence towards Russian banks by their customers. The CBR took effective steps to reverse the trend. The rate of mandatory reserves that banks were required to deposit with the CBR was temporarily reduced from 7 per cent. to 3.5 per cent. To implement these measures, the CBR permitted banks to immediately reduce their mandatory reserves. Accordingly, banks' borrowing costs were reduced. In addition, legislation was passed to combat the crisis and to minimise potential losses of private depositors. In accordance with amendments to the CBR Law enacted in 2004, the CBR became responsible for payments to private depositors of insolvent Russian banks if such banks were not admitted to the system of private deposit insurance prior to their bankruptcy. The CBR was also given the power to impose, for the term of one year, a limit on the interest rates on deposits paid by banks to private depositors. In addition, banks became required to disclose certain information related to the interest rates on deposits, their liabilities in respect of deposits and amounts of cash withdrawals by private depositors. In 2007, disclosure of effective interest rate became a precondition to grouping the loans in portfolios for the purposes of calculation of loss allowances (but later this provision was abolished). Since April 2008, banks are required to disclose all costs that may be associated with obtaining a bank loan by an individual. In the second half of 2008, in response to the global credit crisis and its impact on the Russian banking system and overall economy, the Russian authorities and the CBR introduced certain measures intended to prevent bankruptcy of credit organisations. These measures were taken in

174 accordance with the Banking System Stability Law and decisions taken in September and October 2008 prior to the effective date of this law. The number of credit organisations subject to such measures decreased from twenty (with assets of RUB 62.6 billion, or 1.6 per cent. of the total assets of Russian credit organisations) as at 1 January 2009 to five (with assets of RUB 1,957.4 billion, or 3.9 per cent. of the total assets of Russian credit organisations) as at 1 April The Banking System Stability Law envisages that the DIA will assist distressed banks through: (a) attracting investors for credit organisations, which are experiencing financial difficulties; and (b) liaising with the CBR regarding the provision of financial assistance to such credit organisations. The Banking System Stability Law expands the list of bankruptcy prevention measures available for Russian credit organisations under the Bank Insolvency Law by introducing the following additional procedures: provision of financial assistance to private investors that have agreed to acquire a controlling stake in a credit organisation in distress; financial assistance to other credit organisations that have agreed to acquire certain assets and obligations of a credit organisation in distress; acquisition of a controlling stake in a credit organisation in distress directly by the DIA (if there is no investor willing to participate in rehabilitation proceedings); provision of financial assistance to a credit organisation in distress subject to acquisition of a controlling stake in such credit organisation by either a private investor or the DIA; making arrangements for public sale of the assets securing obligations of a credit organisation owed to its creditors, including the CBR; and appointment of the DIA by the CBR to act as temporary administrator in relation to a credit organisation. The decision as to whether bankruptcy prevention measures should be launched in respect of a particular credit organisation rests with the CBR. The analysis of the financial position of a credit organisation for the purpose of provision of state support to it will be performed by the CBR and the DIA. Based on the results of the analysis the DIA will develop a rehabilitation plan for that credit organisation which will then need to be approved by the CBR. According to the DIA website, as at 1 May 2013, the CBR and the DIA have launched rehabilitation measures in respect of five organisations. 1 For further information on legislative and governmental measures adopted in 2008 and 2009 in response to the global economic crisis, see "Measures to Support the Liquidity and Solvency of Russian Banks and Legal Entities since October 2008". Basel Implementation in Russia Over recent years, the CBR, in cooperation with Russian banks, has started preparing the implementation of international approaches to capital adequacy of credit organisations under the "International Convergence of Capital Measurement and Capital Standards: a Revised Framework" ("Basel II"), as issued by the Basel Committee on Banking Supervision. Generally, the standardised approach for measuring credit risks of Basel II, as set forth in Pillar 1 "Minimum Capital Requirements", is being applied in Russia. On 29 June 2011, as part of introducing Pillar 2 "Supervisory Review Process", the CBR issued 1 Source: DIA (

175 Letter No. 96-T "On Methodical Recommendations for Credit Organisations on Arranging Internal Procedures for Capital Adequacy Assessment" (the "Methodical Recommendations"). Under the Methodical Recommendations, internal procedures for capital adequacy assessment should comprise the process of assessment by a credit organisation of the adequacy of its own capital, namely its internal capital to cover accepted and potential risks, as well as forming a part of such credit organisation's corporate culture. The Methodical Recommendations present the Basel II Pillar 2 requirements for credit organisations and propose recommendations for credit organisations to elaborate and use the respective internal procedures set therein. According to the Methodical Recommendations, Basel II Pillar 2 will be gradually implemented within a minimum of five years and may begin in 2014 or According to the development strategy of the Russian banking sector as set out in the statement of the Government of Russia and the CBR dated 5 April 2011, the main goals of the new stage of development of the Russian banking sector include: improvement of the quality of banking business by expanding the range of banking products and services; improving methods of their provision, using modern technologies; and ensuring long-term effectiveness and stability of the banking business. The development strategy of the Russian banking sector contemplates that the Russian Government and the CBR will take measures in order to: improve the legal environment; build banking infrastructure; increase quality of corporate governance and risk management in credit organisations; develop banking regulation and banking supervision and ensure financial stability. The development strategy of the Russian banking sector is expected to be applied as follows: (i) requirements for capital between 2013 and 2015; (ii) capital conservation buffer within ; (iii) leverage ratio starting from 1 January 2018; (iv) liquidity coverage ratio commencing from 1 January 2015; and (v) net stable funding ratio starting from 1 January As a part of the Basel III implementation process, on 28 December 2012, the CBR adopted Regulation No. 395-P for monitoring purposes. For Russian banks it means that for a certain time period the CBR will require that Russian banks' capital calculations are calculated in line with Basel III requirements as implemented in Regulation No. 395-P and the current requirements of the CBR set out in Regulation No. 215-P. Regulation No. 395-P came into force on 1 March 2013, except for certain provisions which are expected to come into force on 1 January Reporting pursuant to Regulation No. 395-P is required from 1 April 2013, with the date when they will become effective for regulatory purposes to be further determined by the CBR. As at the date of this Base Prospectus, there remains some uncertainty as to how Regulation No. 395-P will correlate with Regulation No. 215-P, as Regulation No. 395-P distinguishes between those subordinated financings which may be included in a bank's supplementary capital and those which may be included in a bank's additional capital, introduces new requirements for subordinated financings to be included in a bank's supplementary capital and provides that subordinated loans received prior to 1 March 2013, which do not meet Regulation No. 395-P requirements, shall be gradually amortised and excluded from a bank's capital by 10 per cent. annually, starting from 1 April Current Competitive Landscape The banking sector in Russia is highly fragmented and competitive. As at 1 April 2013, according to the CBR, there were 1,095 banks and non-banking credit organisations registered in Russia. However, at 1 April 2013, the five largest banks accounted for 50.9 per cent. of the total value of banking assets in Russia, and the twenty largest banks accounted for 70.0 per cent., according to the CBR. A number of the country's largest banks are part of financial industrial groups and, as such undertake transactions for related parties. As at 1 April 2013, approximately 53.5 per cent. of banks operating in Russia are located in the Moscow region and have a limited regional presence. 1 Only a small number of banks in Russia have a broad presence across Russia, including Sberbank, VTB and Rosbank (which is part of the Société Générale Group). The 1 Source: CBR

176 following table sets out market share data for the ten largest banking groups by total assets (according to RAS) as at 31 December 2012: Total Assets Rank U.S. dollar billion Market (1) share (% of Top 100 banks) Sberbank % VTB Bank % Gazprombank % Russian Agricultural Bank % VTB % Bank of Moscow % Alfa Bank % UniCredit Bank % Promsvyazbank % Rosbank (2) % Total (Top 10) % Total (Top 100)... 1,387.0 Source: Interfax. (1) Market shares are calculated as a percentage of the Top 100 total amounts. (2) Rosbank Group comprises Rosbank, CB DeltaCredit and Rusfinancebank. The presence of foreign-owned banks in the Russian market is relatively limited. Historically, foreign controlled banks have primarily serviced multinational firms operating within Russia and conducted interbank operations. More recently, these banks have increased their presence in Russian retail banking and have increased their loan portfolio in several sectors of the economy. The level of foreign investment in the Russian banking sector remains relatively low, with foreign banks accounting for 26.7 per cent. of statutory capital as at 1 April 2013, according to the CBR, compared to 24.5 per cent. as at 1 January See "Business Market Position and Competition" for a list of UBRD's key competitors in retail, corporate and SME banking sectors. Structure of the Russian Banking Sector The Russian banking sector consists of the CBR, credit organisations and branches and representative offices of foreign banks. Credit organisations, in turn, consist of banks, which provide a wide range of banking services, and non-banking credit organisations, which provide only limited banking services, such as maintaining accounts and making payments. As at 1 April 2013, the number of credit organisations registered in Russia amounted to 1,095. However, poor corporate governance, risk management, transparency and weak management remain widespread among many Russian banks. State-owned banks continue to play a key role in the development of the Russian banking sector. State-owned banks offering retail banking services include Sberbank and VTB. Other Stateowned banks focus primarily on operations with budgetary funds and participate in the realisation of governmental programmes (for example, Rosselkhozbank (Russian Agricultural Bank) and Roseximbank (Russian Export Import Bank)). Although it is not possible for foreign banks to directly conduct business on the Russian financial market, many major foreign banks have subsidiary banks in Russia. The presence of foreign owned banks in the Russian market is relatively limited as their activities have been restricted in order to protect the nascent Russian banks. Foreign owned banks must satisfy additional requirements in connection with obtaining a licence, for example, there must be a degree of reciprocity in the home country of the foreign bank. The aggregate level of participation of foreign capital within the Russian banking system is determined by federal law as proposed by the Russian Government in conjunction with the CBR. At the moment, however, such law has not been yet adopted. As at 1 April 2013, there were 74 credit organisations operating in Russian 1 Source: CBR

177 with 100 per cent. foreign participation, and 119 credit organisations operating in Russia with between 50 and 100 per cent. foreign participation. 1 Role of the CBR The CBR is the primary authority responsible for the regulation of banking institutions in Russia and also acts as Russia's central bank. Until 2002, the CBR had been operating under the general terms of reference of Federal Law "On the Central Bank of the Russian Federation (the Bank of Russia)" of 2 December 1990 as amended on 26 April In 2002, this law was superseded by the CBR Law. According to the CBR Law, the State cannot be liable for the CBR's obligations, nor can the CBR be liable for the State's obligations unless the relevant liability has been undertaken or is required by law. The CBR's property is under federal ownership. The CBR is legally and financially independent of the Russian Government. The CBR's governing bodies are the Board of Directors and the National Banking Council, a collective management body carrying out certain governing functions, which were solely vested in the Board of Directors prior to adoption of the CBR Law (including, among other things, making decisions on maximum capital expenditures of the CBR, distribution of profits gained by the CBR, appointment of the CBR's chief auditor and approval of the CBR's accounting rules and requirements). The structure of the CBR comprises the Moscow Head Office, a number of regional branches in constituent entities of Russia (in some of the Russian republics the CBR's regional branches are called National) and local branches. The Chairman of the CBR's Board of Directors is appointed for a fixed term of four years by the State Duma (the lower chamber of the Russian Parliament), on the recommendation of the President, can be replaced under the same procedure, and has the right to participate in meetings of the Russian Government (Cabinet). The Ministers (or Deputy Ministers, as the case may be) of Finance and of Economic Development and Trade have the right to participate in meetings of the CBR's Board of Directors with consultative voting rights. The members of the National Banking Council are appointed by the Council of Federation (the upper chamber of the Russian Parliament), the State Duma, the President and the Russian Government. The Chairman of the CBR is a member of the National Banking Council ex officio. Under the CBR Law, the Banking Law and Federal Law No. 173-FZ "On Currency Regulation and Currency Control" of 10 December 2003 (the "Currency Control Law"), the CBR is authorised to adopt implementing regulations on various banking and currency control issues. The CBR has actively used this authorisation in recent years, creating a detailed and extensive body of regulations. Under legislation as at the date of this Prospectus, the CBR has the following major functions: Function Issue of money and regulation of circulation Summary The CBR is the sole issuer of Rouble banknotes and regulates their circulation. The CBR plans and arranges for the printing of banknotes and the engraving of coins, establishes the rules for their transportation and storage and regulates over-the-counter operations with cash. However, the CBR is prohibited from issuing money for purposes of budget deficit Rouble and foreign currency accounts of residents and non-residents in Russia. 1 Source: CBR

178 Licensing Issuance, suspension and revocation of banking licences to banks. Control and supervision Bank supervision (compliance with mandatory economic ratios and reserves requirements, sanctions for violations, overseeing banking operations); defining format requirements for accounting and statistical reports; fixing reporting schedules; appointment of temporary administration of banks; control over acquisition (and/or a trust management) of significant (more than 1 per cent.) stakes in banks; assessment of financial standing of banks' founders (shareholders/participants). Regulation Banking activities in Russia are broadly governed by the Banking Law and the Currency Control Law. The CBR supervises banks in various aspects (as outlined below) and a number of other institutions have an indirect influence over Russian banks. The FSFM issues licences to banking institutions acting as professional participants of the Russian securities market. In accordance with Federal Law No. 135 FZ "On Competition Protection" of 26 July 2006 that came into effect at the end of October 2006, the Federal Anti-monopoly Service of Russia (the "FAS") regulates mergers and acquisitions of stakes in excess of 25, 50 and 75 per cent. of the total voting shares in credit organisations established in the form of joint stock companies, participation interests representing one third, half and two thirds of the charter capital of credit organisations established in the form of limited liability companies and acquisitions of certain shares of credit organisations' assets or rights to determine conditions relating to their activities. In addition, CBR approval is required for the acquisition of or setting up of a trust management over stakes in excess of 20 per cent. of total voting shares in Russian credit organisations and any subsequent increases of ownership/trust holding above thresholds of 25 per cent., 50 per cent. and 75 per cent. of shares or the acquisition of 100 per cent. of share capital. Where more than 1 per cent. of share capital of a bank is purchased or trust management over such shares is created, the CBR should be notified of such acquisition or actions. Tax authorities supervise tax assessments of banks. Other governmental authorities are largely inactive in relation to banks. The Association of Russian Banks, comprising, as at May 2013, 715 members, including 510 member credit organisations, was established pursuant to the provisions of the Banking Law as a non-commercial self-regulatory organisation. It offers various types of technical support to its members and lobbies the interests of banks in all branches of power. Set out below are some of the principal features of the regulatory regime governing banks in Russia. Regulation of Capital Overview Until recently, Russian regulation of capital was generally based only on Basel I (the 1988 Basel Capital Accord) and the CBR rules regarding the composition of a Russian bank's capital. Requirements for subordinated debt to qualify as part of a bank's capital, as well as Russian bank's capital calculations used, among other things, in the CBR's mandatory ratios reporting, were primarily set out in Regulation No. 215-P. On 1 March 2013 (with some exceptions), Regulation No. 395-P (together with Regulation No. 215-P, the "Regulations"), aiming to implement the Basel III approach to regulatory capital requirements for banks in Russia, came into force (with some exceptions). As at the date of this Prospectus, Russian banks are required to report to the CBR under both Regulations, but prudential measures will apply to the banks only for non-compliance with Regulation No. 215-P. The CBR has been quoted in the Russian press as saying that the period of parallel reporting may last until at least October 2013 after which it is expected that Regulation No. 215-P will cease to be in force in the most part and banks will be required to calculate their capital and report on it to the CBR solely under Regulation No. 395-P for all purposes

179 Regulation No. 215-P distinguishes between core capital and supplementary capital (together, "own funds" or "regulatory capital"). Under Regulation No. 395-P, core capital is split into base capital ("CET1") and additional (dobavochny) capital ("additional Tier 1 capital"). As at the date of this Prospectus, the Regulation No. 215-P requires supplementary (dopolnitelny) capital ("Tier 2 capital") to constitute no more than 100 per cent. of the core capital ("Tier 1 capital"). No minimum ratios for different levels of banks' regulatory capital are set out in Regulation No. 395-P. The minimum own funds requirement for banks is generally RUB300 million on an ongoing basis. However, if, as of January 1, 2007, the own funds of an existing bank were less than RUB 180 million, such bank may continue its operations, provided that its own funds do not decrease further below that level. However, the own funds of such bank had to be increased to not less than RUB 180 million by January 1, 2012 and not less than RUB 300 million by 1 January The regulatory capital requirement of RUB 900 million has recently been introduced for obtaining a general banking licence. If a bank's own funds fall below the level of its charter capital, it is required to adjust its own funds (or, if impossible, its charter capital, within applicable limits) in accordance with the procedures set by CBR Regulation No U of 24 March 2003, as amended. Subordinated Debt Under Regulation No. 215-P, subordinated debt (in the form of loans, deposits or notes) is included in Tier 2 capital if the following criteria are satisfied: its term is not less than five years; it includes a provision prohibiting, without the consent of the CBR: (i) (ii) the early redemption of the debt or any part of it, or the early repayment of any interest; and the early termination and/or amendment of the loan agreement; the terms of the debt, as of the date of the loan agreement/placement of notes (including the interest rate) do not substantially differ from those prevailing in the market for similar debt; the agreement provides for the lowest priority ranking of claims of the lender in the event of: o the borrower's bankruptcy; o the debt is unsecured; and o no individual is a party to the agreement. Further, Regulation No. 395-P sets out, inter alia, the following additional requirements for subordinated debt to qualify as part of a bank's Tier 2 capital: the agreement must provide that, if a bank's CET1 ratio (defined as a ratio of a bank's adjusted CET1 capital to its risk-weighted assets calculated in accordance with Regulation No. 395-P) falls below 2 per cent. or the Deposit Insurance Agency implements bankruptcy prevention measures over a bank pursuant to a plan approved by the CBR (a "Loss Absorption Event"): the subordinated debt shall be converted into a bank's ordinary shares; and (or) the accrued interest shall be fully or partially cancelled; and (or)

180 a bank's losses shall be covered by partial or full write down of the principal amount of such debt, (the "Loss Absorption Measures"). Under the Regulations, the qualification of subordinated debt as part of Tier 2 capital is subject to the CBR's consent. A borrower may initiate the approval procedure before the funds are disbursed or a subordinated loan is signed by submitting the loan agreement or its draft for consideration by the CBR. As a result of its review, which must take no more than one month, the CBR may respond with comments or may issue its consent to the inclusion of a subordinated debt into Tier 2 capital once the funds have been actually disbursed. Subordinated debt is included into Tier 2 capital from the date (a) following the date of the CBR's consent under Regulation No. 215-P and (b) from the date on which the CBR's consent is received under Regulation No. 395-P, but in any event not before the bank actually receives the funds. Regulation No. 215-P provides that, generally, subordinated debt which is counted towards Tier 2 Capital may not exceed 50 per cent. of a credit organisation's Tier 1 capital. However, if a credit organisation has subordinated debt outstanding for ten or more years, such subordinated debt, together with any other subordinated debt outstanding, less the subordinated debt counted as Tier 1 capital, may comprise up to 100 per cent. of a credit organisation's Tier 1 capital, provided that its underlying agreement allows the CBR to suspend the repayment of the principal and/or interest if such payment may necessitate bankruptcy prevention measures in relation to such credit organisation. Regulation No. 395-P does not establish any limitations on the amount of subordinated debt which could be counted towards Tier 2 Capital. Subordinated debt may also be included into a bank's Tier 1 capital, if it meets certain requirements in addition to those applicable for subordinated debt qualifying as part of Tier 2 capital. In particular, such debt should be long dated under Regulation No. 215-P and perpetual under Regulation No. 395-P, which are different under Regulation No. 215-P and Regulation No. 395-P and provide for the implementation of loss absorption measures in certain circumstances. Under Regulation No. 215-P, subordinated debt qualifying as Tier 1 capital must not comprise more than 15 per cent. of a bank's core capital. Regulation No. 395-P does not establish a limitation on the amount of the subordinated debt which can count towards Tier 1 capital. Regulation No. 395-P introduces a requirement for banks and other credit organisations to have in place a shareholder assistance commitment, which features have been derived from the Basel III regulations. A subordinated debt agreement must provide that, if the Loss Absorption Measures set out above prove insufficient to rectify a Loss Absorption Event, the shareholders of the credit organisation shall undertake measures to rectify such Loss Absorption Event. However, Regulation No. 395-P is unclear as to the nature and scope of such measures and the consequence of such measures not being undertaken by the shareholders. This requirement is unprecedented and, in the absence of regulatory guidance, its practical implementation as a whole remains uncertain. According to the Regulations, during the last five years of the tenor of a subordinated loan, such loan is counted towards the regulatory capital on an amortised basis, while prior to that the full principal amount of the subordinated loan counts. Subordinated debt, which is compliant only with Regulation No. 215-P and was obtained under loan agreements entered into prior to 1 March 2013, will continue to qualify as part of a bank's regulatory capital, subject to the annual amortisation of 10 per cent. Subordinated debt obtained after 1 March 2013, which is not compliant with Regulation No. 395-P, will not be counted towards regulatory capital. Licensing A licence must be obtained from the CBR in order for any institution to engage in banking activity as defined in the Banking Law. Applicants must be incorporated within Russia and registered with the CBR as a credit organisation and submit inter alia a feasibility report and detailed information on the suitability of the applicant's management team. A banking licence may be

181 denied for a number of reasons, including if the financial standing of the founders of the bank is deemed by the CBR to be unsatisfactory or if the proposed candidates for the senior management of the bank, including members of the management board and the chief executive officer, are deemed to be unsuitable or do not meet the qualification requirements. Additional requirements have been introduced for obtaining a licence for taking deposits from individuals. The licence could be granted to a bank being a member of the Deposit Insurance System existing for more than two years from the date of its registration. Such requirement may be dispensed with if (a) the charter capital of a newly established bank or the regulatory capital of a bank is not less than RUB 3,600 million, and (b) the bank complies with the CBR's requirement to publicly disclose all information relating to persons having significant influence over decisions made by the bank's management bodies. Pursuant to the Banking Law, a bank's licence may be revoked by the CBR if: (a) the information upon which the licence has been issued is untrue and misleading; (b) the bank delays the commencement of its operations for more than one year from the issue of the licence; (c) reporting statements submitted by the bank turn out to be materially untrue and misleading; (d) the bank delays submission of its monthly reports to the CBR for more than 15 days; (e) the bank conducts banking operations (or a single operation) not permitted by its licence; (f) the bank's activities do not comply with Russian banking or anti-money laundering legislation or regulations of the CBR and the bank has been subject to sanctions for such breaches/noncompliance before that; (g) multiple failures, whether intentionally or by negligence, to carry out bailiffs orders requiring seizure of funds in customer accounts; (h) in cases of insolvency, the revocation of the banking licence is requested by the temporary administration appointed to the bank; (i) the bank repeatedly fails to submit updated information required to be reflected in the State register of legal entities; or (j) a bank involved in mortgage-backed asset management operations does not comply with Russian mortgage-backed securities legislation and the bank has been subject to sanctions for such breaches/non-compliance before that. The CBR must revoke a bank's licence if: (a) its capital adequacy ratio falls below 2 per cent.; (b) its regulatory capital is less than its minimal charter capital as set by the CBR; (c) the bank fails to adjust its charter capital to its regulatory capital according to CBR requirements within 45 days of CBR notification; (d) the bank fails to satisfy the claims of any creditor and/or to make mandatory payments (for example, taxes and duties) within 14 days of their maturity in each case of the aggregate sum of at least RUB 100,000; or (e) the amount of the bank's regulatory capital is less than a certain statutory threshold during a certain defined period of time. Mandatory Economic Ratios The CBR is authorised to introduce various capital adequacy and liquidity requirements applicable to banks and, as the case may be, to banking groups in order to ensure the integrity of the banking system. As at the date of this Prospectus, such requirements exist in the form of the relevant mandatory economic ratios described in the Mandatory Economic Ratios Instruction. Set out below is the system of the mandatory economic ratios, which banks are required to observe on a daily basis. Mandatory Ratios Economic Description of Mandatory Economic Ratios CBR Maximum/Minimum Mandatory Economic Ratio Requirements Capital adequacy ratio (N1) This ratio is intended to limit the risk of a bank's insolvency and sets requirements for the minimum size of the bank's capital base necessary to cover credit, market and operational risks. It is defined as a ratio of the size of the bank's capital Minimum 10%

182 Instant liquidity ratio (N2) Current liquidity ratio (N3) base to its aggregate riskweighted assets. The riskweighted assets are calculated under a formula that aggregates different categories of the bank's assets multiplied by certain coefficients of risk, reserves created for possible losses of those assets, credit risk on credit-related commitments, credit risk on forward transactions and derivatives, operational risk, as well as market risks, in each case separating systemic and idiosyncratic risks. Unlike Tier I and Tier II capital calculated with respect to the Bank as a whole, capital adequacy ratio (N1) is calculated with respect to Bank as a bank on the basis of Russian accounting standards, as formulated by applicable Russian laws and the CBR regulations. This ratio is intended to limit the risk of a bank's liquidity loss within one operational day. It is formulated as the minimum ratio of a bank's highly-liquid assets to the amount of the bank's liabilities payable on demand adjusted for a minimum aggregate fund balance of on-demand accounts of legal entities and individuals (except for credit organisations). This ratio is intended to limit the risk of a bank's liquidity loss within 30 calendar days preceding the date of the calculation of this ratio. It is formulated as the minimum ratio of the bank's liquid assets to the amount of the bank's liabilities due in less than 30 calendar days adjusted for a minimum aggregated fund balance of on-demand accounts of legal entities and individuals (except for Minimum 15% Minimum 50%

183 Long-term liquidity ratio (N4) Maximum exposure to single borrower or a group of related borrowers (N6) Maximum amount of major credit risks (N7) Maximum amount of loans, bank guarantees and sureties extended by the bank to its participants (shareholders) (N9.1) Aggregate amount of exposure to the bank's credit organisations) and liabilities maturing up to 30 calendar days. This ratio is intended to limit the risk of loss by a bank with respect to its liquidity as a result of the placement of funds into long-term assets. It is formulated as the maximum permitted ratio of a bank's credit claims maturing in more than one year, to a bank's capital base and its liabilities maturing in more than one year adjusted for a minimum fund balance of accounts maturing in up to one calendar year and ondemand accounts of legal entities and individuals (except for credit organisations). This ratio is intended to limit the credit exposure of a bank to one borrower or a group of related borrowers. It is formulated as the maximum ratio of the aggregate amount of a bank's claims to a borrower or a group of related borrowers to a bank's capital base. This ratio is intended to limit the aggregate amount of a bank's major credit risks. It is formulated as the maximum ratio of the aggregate amount of major credit risks to the size of a bank's capital base. This ratio is intended to limit a bank's credit exposure to the bank's shareholders. It is formulated as the maximum ratio of the amount of loans, bank guarantees and sureties extended by the bank to its shareholders, to the bank's capital base. This ratio is intended to limit the aggregate credit exposure of a bank to its Maximum 120% Maximum 25% Maximum 800% Maximum 50% Maximum 3%

184 insiders (N10.1) Ratio for the use of the bank's capital base to acquire shares (participation interest) in other legal entities (N12) insiders (namely individuals capable of influencing the bank's credit decisions). It is formulated as the maximum ratio of the aggregate amount of the bank's credit claims to its insiders, to the bank's capital base. This ratio is intended to limit the aggregate risk of a bank's investments in shares (participation interests) of other legal entities. It is formulated as the maximum ratio of a bank's investments in shares (participation interest) of other legal entities, to a bank's capital base. Maximum 25% The capital base of a bank is defined in the CBR regulations as the aggregate amount of its fixed capital (including, inter alia, its charter, paid in capital, certain reserve funds and approved profits) and additional capital (including, inter alia, revaluation surpluses, subordinated loans and preferred shares) decreased by certain mandatory reserves and other amounts. Also, in accordance with the CBR Instruction No. 112-I of 31 March 2004, as amended, banks issuing mortgage backed bonds are required to additionally comply with a minimum ratio of the amount of the "mortgage coverage" to the amount of issued mortgage backed bonds (N18, minimum 100 per cent.). Charter Capital Requirements The Banking Law sets out the minimum charter capital for newly-established banks in Russia in the amount of RUB 300 million. Further, pursuant to the Banking Law, the minimum regulatory capital for banks applying for a general banking licence to RUB 900 million. It also requires the gradual increase of the net worth (capital) by banks that had a regulatory capital of less than RUB 180 million as at 1 January 2007 (such banks were allowed to continue their banking activities provided their net worth (capital) reached at that date would not further decrease). Their net worth (capital) must be at least (a) RUB 180 million as at 1 January 2012 and (b) RUB 300 million as at 1 January Failure to comply with this requirement will result in revocation of the banking licence. Reporting Requirements Russian banks must regularly submit balance sheets to the CBR, together with financial statements showing their actual respective financial positions. They must also inform the CBR in respect of providing large loans (exceeding 5 per cent. of a bank's capital). Banking groups (namely alliances of banks in which one bank directly or indirectly controls decisions of the governing bodies of other banks within the alliance) and consolidated groups (namely alliances of legal entities in which one bank, directly or indirectly, is controlled by a non-banking entity) must regularly submit consolidated accounts to the CBR. The CBR may at any time carry out full or selective checks of a bank's submissions, and may inspect all books and records of the bank. In addition, annual audits must be carried out by an audit company that is a member of a selfregulatory organisation of auditors. Starting from 2004, all credit organisations in Russia have been required to prepare financial statements according to both RAS and IFRS. Banks must file

185 IFRS standalone and audited consolidated annual accounts with the CBR on an annual basis. Mandatory Reserve Deposit Requirements To cover loan losses and currency, interest and financial risks, the CBR requires banks to form mandatory reserve deposits and keep them in designated non-interest bearing accounts with the CBR. Particular reserve requirements are set by the Board of Directors of the CBR from time to time. As at the date of this Prospectus, banks are required to post compulsory reserves to be held on non-interest bearing accounts with the CBR. To stabilise the situation on the local financial market and to support the liquidity of the Russian banking sector, the CBR decreased in October 2008 mandatory reserves for various obligations of credit organisations to 0.5 per cent. and successively increased them starting from 1 May 2009 (with the latest three increases taking place in the first quarter of 2011) to the current 4.25 per cent. for the banks' obligations to individuals and other obligations in Roubles or foreign currency and to 4.25 per cent. for the banks' obligations to non-resident legal entities in Roubles or foreign currency. The mandatory reserves are calculated by banks in accordance with CBR Regulation No. 342-P dated 7 August 2009 and Regulation No U dated 12 February 2013 (the "Reserves Regulations"). The Reserves Regulations require the banks to promptly report to the CBR and its regional units at the end of each calendar month with a calculation of reserves and to promptly post additional reserves, if necessary. The CBR and its regional units have a right to conduct unscheduled audits of credit organisations to monitor their compliance with the reserve rules. The Reserves Regulations do not require the creation of reserves for certain long-term borrowings, although it requires posting of reserves for obligations to non-resident banks. If a bank does not comply with the mandatory cash balance requirements, the CBR may impose a fine and directly debit the bank's correspondent account with the CBR in respect of the shortfall in reserve amounts. Provisioning The CBR established certain rules concerning the creation of loan impairment provisions for loans extended by banks. Since 1 August 2004, Russian credit organisations are required to calculate and establish their loan impairment provisions in accordance with Regulation No. 254-P "On the Procedure for the Establishment by Credit Organisations of the Reserves for Possible Losses from Loans, Loan Debts and those Equated to them" of 26 March 2004 (as amended) (the "Regulation No. 254-P"). Regulation No. 254-P introduced a number of rules, which purport to make loan impairment provisioning compliant with the BIS requirements. In particular, it requires credit organisations to rank their loans into five categories. The range of loans that must be provided for has been extended to include assigned rights under contracts, financial leasing operations, mortgages acquired in the secondary market, rights under repo contracts (if the securities transferred under such repo transactions are unlisted) and various other operations. It has been established that loans classified as Category I loans (standard loans) do not need provisions. In addition, credit organisations will be required to classify their loan security into three groups on the basis of its quality (taking into account the borrower's financial position and debt servicing level). Pursuant to Regulation No. 254-P, the debt servicing level of a loan to a legal entity is considered to be good if the aggregate loan or interest repayment arrear does not exceed five days (in respect of loans granted to legal entities) and 30 days (in respect of loans granted to individuals) for the last 180 calendar days. The debt servicing level of a loan to a legal entity is considered to be bad in cases if, inter alia, the aggregate loan or interest repayment arrear exceed 30 days (in respect of loans granted to legal entities) and 60 days (in respect of loans granted to individuals) for the last 180 calendar days. In addition, restructuring of a loan (including change of the loan nominal currency and time periods for repayment of the loan and interest) may affect the debt servicing level. On 3 December 2012, the CBR adopted changes to Regulation No. 254-P, which, among other things, doubled the CBR's required provisioning levels under RAS for certain unsecured consumer loans issued after 1 January 2013 that are either not overdue or overdue by less than 31 calendar days

186 The CBR also established rules concerning creation of provisions for loans other than loan impairment, which may include losses from investments in securities, funds held in correspondent accounts of other banks, contingent liabilities, forward contracts and other transactions. CBR Instruction No. 283-P of 20 March 2006 requires banks to rank such assets and operations into five categories of quality reflecting the following situations: (i) no real or potential threat of losses; (ii) moderate potential threat of losses; (iii) serious potential or moderate real threat of losses; (iv) simultaneous potential and moderate real threat of losses or material real threat of losses; and (v) value of particular type of asset or operation is going to be lost completely. Banks are then required to provide for each type of asset or operation in the amounts corresponding to the amounts of possible losses but within the following framework established by the CBR for each risk group indicated above, respectively: (i) 0 per cent.; (ii) 1 per cent. to 20 per cent.; (iii) 21 per cent. to 50 per cent.; (iv) 51 per cent. to 100 per cent.; and (v) 100 per cent. Banks must report to the CBR within eight business days (or within 17 working days in the case of certain large credit organisations) following the reporting month on the amount of non-loan impairment provisions it had created that month. The CBR and its regional units are responsible for monitoring bank compliance with these rules. Pursuant to the CBR Directive No U of 22 June 2005, mandatory provisions must also be created for operations with residents of certain off-shore jurisdictions in the amount of 25 per cent. or 50 per cent. depending on the jurisdictions involved. Regulation of Currency Exposure In CBR Instruction No. 124-I "On the Establishment of the Amounts (Limits) of the Open Currency Positions, on the Methods of their Calculation and Particularities of Lending Organisations' Control and Compliance therewith" of 15 July 2005, the CBR established rules regarding exposure of banks to foreign currency and precious metals (collectively, "currency exposure"), as well as controls over such exposure. Currency exposure is calculated with respect to net amounts of balance sheet positions, spot market positions, forward positions, option positions and positions under guarantees, suretyships and letters of credit. Open currency position is calculated as the sum of all these net amounts. Such exposure is calculated for each currency and each precious metal, and then recalculated into Roubles in accordance with the official exchange rates and CBR's prices for precious metals. The CBR established that at the end of each operation day the total amount of all long or short currency positions should not exceed 20 per cent. of a bank's capital base. At the same time, at the end of each operation day the long or short positions with respect to one particular currency or precious metal should not exceed 10 per cent. of a bank's capital base. Accounting Practices The CBR has established a standard format for the presentation of a bank's accounts and instructions on how transactions are recorded within the accounts. It requires the preparation of financial statements and other accounts in accordance with CBR Regulation No. 385-P of 16 July 2012, Directive of the CBR No U "On the procedure for the filling of and delivery of reporting statements to the CBR" of 16 July 2012 and Directive of the CBR No U "On the Rules for the Preparation and Submission of Reports to the CBR by Credit Organisations" of 16 January Despite certain differences, such financial statements represent an approximation to IFRS. Annual financial statements may be published only after their certification by an independent auditor. Quarterly financial statements may be published without such certification by an independent auditor. Starting from 1 January 2004, all credit organisations are also required to prepare their accounting reports in accordance with IFRS and those reports should be audited. Anti-Money Laundering Legislation Russia, as a member of the FATF, has developed and enacted certain anti-money laundering legislation. The basic Russian anti-money laundering law is the Anti-Money Laundering Law. The

187 Anti-Money Laundering Law follows the FATF Forty Recommendations and the FATF Special Recommendations on Terrorist Financing and provides for measures to combat money laundering in Russia to be implemented by individuals and organisations, including Russian banking institutions, involved in transactions with money and certain property. Pursuant to the Anti-Money Laundering Law, Russian banks are obligated to inter alia: (1) establish and maintain systems of internal control ensuring that the bank and its clients are in compliance with Russian anti-money laundering legislation; (2) monitor and record certain client transactions, as specified in the Anti-Money Laundering Law; and (3) report certain client transactions specified by the Anti- Money Laundering Law to the relevant Russia authorities. In addition, in certain cases Russian banks must suspend client transactions and inform the relevant Russian authorities. The current Anti-Money Laundering Law does not permit banks to suspend or freeze client transactions for longer than two business days unless extended by the authorised body to a longer period. The Federal Service on Financial Monitoring is the main governmental authority acting as a financial intelligence unit, and, together with the CBR, exercises control over banks' compliance with the Anti-Money Laundering Law. Russian banks are obligated to report through the CBR to the Federal Services on Financial Monitoring with respect to the types of transactions mentioned above. Failure by Russian banks and/or their officers to comply with the requirements of the Anti-Money Laundering Law may result in the imposition of sanctions, including the revocation of a banking licence (with a subsequent liquidation of the bank) and criminal penalties for individuals. Financial Consumer Protection Financial consumer protection is generally based on the Consumer Protection Law. According to the Resolution of the Supreme Court of Russia No. 7 of 29 September 1994, the Consumer Protection Law is applicable to relations arising from financial services agreements, if entered into by retail customers for non-commercial purposes (including lending, settlement operations, opening and maintenance of bank accounts of retail consumers, and custody of securities). In September 2011, the Supreme Arbitrazh Court issued further guidelines relating to the protection of financial consumers' rights. The Supreme Arbitrazh Court upheld the existing banks' practices of selling bad loans to specialised debt collection companies that typically function without a banking licence, by stating that an assignment by a bank of non-performing retail loans to a non-banking organisation, complies with the legislation, and does not require a borrower's consent. However, on 28 June 2012, the Supreme Court supported the opposing position in its Resolution No. 17 "On Consideration by Judges of Civil Cases on Consumer Protection Disputes". Contrary to the position of the Supreme Arbitrazh Court, the Supreme Court declared that the assignment by banks of receivables under retail loan agreements to non-banking organisations was inconsistent with the Consumer Protection Law, except where a borrower has consented to the assignment in advance. In addition, a financial ombudsman, established as a non-governmental independent body at the Association of Regional Banks of Russia to consider and help resolve banks' disputes with consumers, has been active in Russia since October If the value of a dispute does not exceed a set threshold, a retail bank customer may turn to the financial ombudsman at the pretrial stage in order to settle with the bank to avoid the need to go to court. Although decisions of the financial ombudsman are not binding, there have recently been various legislative initiatives in relation to the introduction of binding dispute settlement procedures involving the financial ombudsman. In December 2012, the Russian Ministry of Finance proposed a draft law on "Consumer Loans", which is intended to bring more transparency into, and a higher level of regulation of, the interaction between Russian banks and retail borrowers. Among other things, the draft law, if enacted, would limit the amount of fees and penalties which an individual borrower may be charged on a loan, introduces cooling-off periods in connection with loans and requires detailed disclosure by banks of lending terms to retail borrowers. Bankruptcy (Insolvency) and Other Related Issues Bankruptcy of credit organisations in Russia is governed by the Bankruptcy Law and the Bank

188 Insolvency Law. Bankruptcy Bankruptcy proceedings against a Russian bank may be initiated only after the revocation by the CBR of its banking licence. Following the revocation of the bank's licence, inter alia, all obligations of the bank are deemed to have fallen due and the bank is prohibited from entering into transactions and performing its obligations, except for a limited number of current and settlement transactions and operations listed in the Banking Law, until the liquidator or the competition manager is appointed. Bankruptcy proceedings may be initiated against a Russian bank provided that its business has "signs" of insolvency, as described in the Bank Insolvency Law; the overall amount of the outstanding obligations is not less than 1,000 times the statutory minimum wage amount (as at the date of this Prospectus, RUB 100,000); the bank has failed to perform such obligations within 14 days of their due date; or, after the revocation of the bank's licence, its total assets do not cover all of its outstanding obligations. Prior to the institution of bankruptcy proceedings, the CBR, on its own initiative or upon the application of the authorised body of the bank, has the right to take action aimed at preventing the bank's bankruptcy. Such action may include (a) financial rehabilitation of the bank (for example, financial support, changing the structure of assets and liabilities or organisational structure of the bank), (b) appointment of a temporary administration to the bank or (c) reorganisation. Temporary Administration The Bank Insolvency Law provides for a special pre-bankruptcy procedure called "temporary administration", which is aimed at the financial rehabilitation of a bank. Technically, temporary administration precedes, and does not necessarily result in, the commencement of bankruptcy proceedings. Temporary administration may be imposed by the CBR in certain negative financial circumstances set out in Article 17 of the Bank Insolvency Law. The grounds for the appointment of a temporary administration include, among other things, breach of certain financial and regulatory capital ratios and a bank's failure to perform its payment obligations to some of its creditors for a period greater than seven days due to insufficient funds in its correspondent accounts. The introduction of a temporary administration may entail a limitation or suspension of the powers of the executive bodies of a bank. The temporary administration can manage a bank and is further entitled to request that the CBR impose a three month moratorium on all payments of a bank to counterparties and creditors. The temporary administration may also refuse performance of agreements or challenge transactions under Articles 27 and 28 of the Bank Insolvency Law. Priority of Claims Under Russian bankruptcy law, claims of unsecured creditors against Russian banks are generally subordinated to the claims of individual clients arising out of deposit and bank account agreements, certain claims of creditors arising after the initiation of the bankruptcy proceedings and certain other on-going payments, workplace injury and moral damages obligations, severance pay, employment related obligations and royalties. There is also a small risk that claims of unsecured creditors may be further subordinated to claims under certain tax and mandatory payment obligations to the Russian Government, although the Bankruptcy Law ranks such claims equally. In addition, unsecured claims are also effectively subordinated to claims secured by a Russian law pledge. Under the Bankruptcy Law, claims of creditors secured by a Russian law pledge are settled with the money received from the sale of pledged assets. Claims of creditors secured by a Russian law pledge remaining unsatisfied upon the sale of pledged assets would be ranked as claims of unsecured creditors after the obligations mentioned above, irrespective of the time of the creation of such claims. Recent amendments to the Bankruptcy Law provide that the proceeds from the sale of the pledged assets will be used as follows: (a) 70 per cent. (or 80 per cent. if the pledge secures a

189 credit agreement) to satisfy secured claims; (b) 20 per cent. (or 15 per cent. if the pledge secures a credit agreement) to satisfy claims of creditors of the first and second priorities, provided the debtor's other property is insufficient to satisfy such claims; and (c) the remaining amount to cover court expenses, remuneration to a bankruptcy manager and related expenses. Any obligations of creditors secured by a pledge remaining unsatisfied following the sale of the pledged assets would be ranked as claims of unsecured creditors. Liquidation and Revocation of the Banking Licence Mandatory Liquidation The procedure for the revocation of banking licences and liquidation of banks is regulated by the Banking Law. See " Regulation Licensing" above. Upon the revocation of its licence, a bank must be liquidated either under mandatory solvent liquidation procedures set out in the Banking Law or under bankruptcy procedures set out in the Bank Insolvency Law. Article 20 of the Banking Law establishes the consequences of the revocation of the banking licence, including that the CBR must impose a "temporary administration" on the relevant bank, that all obligations of the bank are deemed to have fallen due, that enforcement of execution documents issued on the basis of court judgments, with certain exceptions, is suspended and that entering into transactions and performance by the bank of its obligations is prohibited until the liquidator or the competition manager is appointed. The CBR must make a public announcement of the revocation of the banking licence within one week of resolving to revoke such a licence. Voluntary Liquidation In the case of voluntary liquidation of a bank, the shareholders (founders), upon the adoption of the relevant decision, must apply to the CBR for cancellation of the banking licence and, upon its cancellation, the liquidation should be carried out in accordance with the liquidation rules and applicable CBR regulations. In particular, shareholders will appoint the liquidation commission to oversee the liquidation process. Banking and Other Relevant Reforms Following the 1998 financial crisis, Russian banks took important steps towards developing more transparent business practices and more diversified portfolios of assets. In recent years, confidence in local banks has gradually improved, as evidenced by the substantial growth in the volume of private deposits in Russian banks. On 17 March 2011, the Russian Government and the CBR issued their joint Strategy. The Strategy replaced the five year Strategies for the Development of the Banking Sector in Russia issued in December 2001 and April 2005, and set out an action plan for the facilitation of the development of the Russian banking sector up to Among other things, the Strategy outlined the targets for the reform of the Russian banking sector, the forecast of the results of such reform and the analysis of the condition of the Russian banking sector as at the date of this Prospectus. The Strategy also listed measures, which should be implemented to achieve these targets. The system of the insurance of private deposits was introduced in According to the Deposit Insurance Law, banks holding a CBR licence for attracting deposits from individuals and opening and administering individuals' accounts qualify for such activities. Subject to a bank's compliance with certain regulatory requirements, it enters the system of the insurance of individuals' deposits and thus qualifies to receive deposits and open accounts for individuals. If a bank fails to comply with the applicable requirements or chooses not to participate in the insurance system, it will be precluded from receiving deposits and opening accounts for individuals. Banks accepting private deposits and opening accounts for individuals are required to make quarterly payments to the insurance fund in the amount of up to 0.15 per cent. of the average account balances calculated

190 under the law. Under the Deposit Insurance Law, the protection for each individual is limited to RUB 700,000 per bank and banks are required to make quarterly payments into a deposit insurance fund. The insurance payment from the deposit insurance fund will be payable to depositors if a bank's licence has been revoked or if the CBR has imposed a moratorium on payments by the bank. The basis of the deposit insurance contribution is the quarterly average of daily balances of retail deposits. Standard contribution premiums cannot exceed 0.15 per cent. of the contribution basis. In certain circumstances, the premium can be increased up to 0.3 per cent. of the contribution basis, but not for more than two quarters in every 18 months. When the size of the insurance fund reaches 5 per cent. of total retail deposits of all Russian banks, all succeeding contribution premiums cannot exceed 0.05 per cent. of the contribution basis, and when the size of the insurance fund exceeds 10 per cent. of all Russian banks' retail deposits, no contributions need to be made, but they resume once the insurance fund falls below the 10 per cent. threshold. On 30 December 2004, the President signed Federal Law No. 218-FZ "On Credit Histories" (the "Credit Histories Law"). Most of the provisions of the Credit Histories Law came into force on 1 June Pursuant to the Credit Histories Law, the "credit history" of a borrower (whether an individual or a legal entity) consists of certain data, as defined by the Credit Histories Law, which describe the borrower's performance under loan or credit arrangements and which are stored with a "credit history bureau" (a Russian legal entity included in the State Register of Credit History Bureaus, whose principal activity is to collect, process and store credit history data and issue "reports", as defined in the Credit Histories Law). As at 20 March 2013, the FSFM had registered 25 credit history bureaus. The Credit Histories Law defines the procedures for the submission of data to credit history bureaus, disclosure by bureaus of such data to authorised users, and the rights and obligations of borrowers and bureaus. It also sets out the procedures for the registration of credit history bureaus and the transfer of credit history data upon their liquidation. Credit history bureaus may disclose credit history data only to: a borrower itself; banks or other legal entities that are users of such data (with the borrower's consent); courts and, with the consent of a prosecutor general, certain enforcement agencies; the Central Credit History Catalogue administered by the CBR to allow the centralised search of all credit history data; and the Federal Service of Court Bailiffs. Credit organisations are obliged to make their activities compliant with the Credit Histories Law within nine months of the date of its entry into force. Since 1 September 2005, banks have been required to enter into agreements with at least one credit history bureau and provide it, subject to the borrowers' consent, with the relevant information relating to the borrowers. In connection with the entry into force of the Credit Histories Law, amendments to the Banking Law, the Civil Code and to the Code of Administrative Offences were introduced in order to make them compliant with the Credit Histories Law. Specifically, these amendments address issues concerning bank secrecy, liability for unauthorised access to, and disclosure of, credit history data, and violation of the procedure for the collection, storage and processing of such data. In addition to the Credit Histories Law and as part of the development of consumer lending legislation, Federal Law No. 152-FZ "On Mortgage Backed Securities" and amendments to the Civil Code, Tax Code and Federal Law No. 102-FZ "On Mortgage" were enacted in 2003/2004. By means of these laws, Russian legislators attempted to make mortgage lending attractive to banks and affordable to individuals by simplifying the applicable procedures and making them

191 more transparent and less costly. Another intention of this new legislation is to introduce improved regulation of mortgage backed securities in order to make them more attractive for investors. On 18 June 2004, the Currency Control Law came into force, replacing the former Federal Law "On Currency Regulation and Currency Control" of 1992 almost in its entirety. The Currency Control Law is generally aimed at the gradual liberalisation of Russian currency control regulations. Pursuant to the Currency Control Law, the CBR had the power to regulate certain currency operations (including non-banking operations performed by Russian banks) by introducing a "special account requirement". As at 1 January 2007, the major remaining restrictions envisaged in the Currency Control Law (including the "special account requirement") have been abolished. As part of implementing legislation contemplated by the Currency Control Law, the CBR passed Directive No U of 28 April 2004, which came into force on 18 June Directive No U confirms that no currency control limitations will apply to bank operations between authorised banks and sets forth a list of non-banking transactions between authorised banks that are exempt from currency control restrictions. Directive No U specifically provides that all other non-banking transactions of authorised banks will fall under the general currency control regime applicable to resident legal entities. The Insider Dealing Law The Insider Dealing Law generally came into force on 31 July 2011, save for the provisions relating to of criminal liability for unlawful use of insider information and revocation of a banking licence due to multiple instances of non-compliance with the Insider Dealing Law during one year. The Insider Dealing Law enumerates categories of persons that can be considered insiders, including, among others, issuers and management companies, as well as professional market participants (including brokers and dealers) and other persons who transact on behalf of their clients with financial instruments, foreign currency and/or goods, and have received insider information from such clients. Under the Insider Dealing Law, any person who illegally uses insider information and publishes misleading information may be held liable for misuse of information and/or market manipulation. In addition, insiders must comply with certain new disclosure requirements, including keeping the insiders list and sending notices of transactions by the insiders to the FSFM and the relevant legal entities. In implementing the Insider Dealing Law and pursuant to CBR Regulation No U of 31 October 2011, the CBR began to disclose certain information relating to Russian banks on its website, including: (1) the status and results of its inspections, (2) licence revocations, (3) cases of imposing an administrative liability upon a credit organisation and/or its CEO, (4) an invalidation of the CBR's approval for taking retail deposits and opening and maintaining bank accounts for individuals, and (5) stages of issuance of securities by banks. Given that the Insider Dealing Law is relatively new and potentially allows for various interpretations, its application is not yet settled. The National Payment System Law Federal Law No. 161-FZ "On the National Payment System" (the "National Payment System Law") that was adopted on 27 June 2011, generally came into force on 29 September This law provides for legal and organisational principles of the national payment system, establishes the procedure for rendering of payment services, including making transfer of monetary funds, use of electronic means of payment, as well as sets forth requirements for organisation and operation of payment systems and the procedure for monitoring and supervision over the national payment system. This law provides that only credit institutions may carry out transfers of electronic monetary funds. Credit institutions may enter into agreements with other organisations, under which the latter may render to the credit institutions operational and clearing services for the transfer of electronic monetary funds. Under this law, the CBR is vested with additional functions of monitoring and supervision over the national payment system. The Central Depository Law Federal Law No. 414-FZ "On the Central Depository" (the "Central Depository Law"), which generally came into force on 1 January 2012, provides legal framework for establishment, and

192 operational conditions, of the central depository, in particular, setting out rights and obligations of the central depository, requirements to its activities and specifics of the state control and supervision over its activities. The Central Depository Law aims at improving effectiveness and competitiveness of Russian stock market, including, expediting and facilitating securities trade settlements and mitigating the risks associated therewith. Under this law, the central depository is defined as a depository that is a NCO, to which the status of the central depository has been assigned. Only a joint stock company registered in Russia can be the central depository. Pursuant to the Central Depository Law, the central depository (within one year from the date of assignment of its status) shall take all necessary steps in order to open its nominal holder accounts, in particular, in all securities registers of issuers obliged to disclose information in accordance with the Securities Market Law. Also, the Central Depository Law prohibits persons maintaining securities registers from opening, and depositing securities to, other nominal holder accounts from the opening date of a nominal holder account of the central depository. On 6 November 2012, CJSC NCO "National Settlement Depository" was assigned the status of the central depository. Accession of Russia to the WTO On 16 December 2011, Russia signed the Protocol on its accession to the WTO. The ratification procedures were completed in July 2012, and the accession to the WTO became effective for Russia on 22 August Upon the Protocol's entry into force, Russia became subject to the WTO regime. However, in relation to its banking sector, Russia made a reservation that it would review market access requirements for the establishment of branches of foreign banks and securities firms in the context of future negotiations on the accession of Russia to the OECD or within the framework of the next round of the WTO multilateral trade negotiations. As at the date of this Prospectus, the CBR allows foreign banks either (i) to incorporate a subsidiary bank in Russia regulated by the CBR or (ii) to maintain a representative office in Russia. A subsidiary of a foreign bank is an entity operational within the scope of its banking licence, which must comply with Russian laws and CBR regulations (including on mandatory CBR ratios), while activities of a representative office are limited to facilitating banking operations and representing interests of its foreign parent. At present, a foreign bank may set up a subsidiary or representative office in Russia, subject to obtaining the CBR approval and provided that, among other matters, the parent bank has a good reputation and is in good financial standing in its home country. The accession of Russia to the WTO is also expected to necessitate unification of requirements applicable to private banks, banks under state control and foreign-controlled banks, including, among other things, abolishing some Russian law provisions that may be deemed discriminatory against foreign-owned banks in favour of banks controlled by Russian nationals or the state. At the same time, Russia managed to keep a limit on an overall amount of foreign investments into the banking sector of Russia post-accession, which shall not exceed 50 per cent. of the total equity capital of all credit organisations registered in Russia. If the threshold is exceeded, the CBR will have a right (i) not to authorise new foreign investments in the banking sector, and/or (ii) to impose a temporary ban on disposal of banks' equity capital to foreign investors, including, inter alia, through an increase of equity capital at the account of a foreign investor. Measures to Support the Liquidity and Solvency of Russian Banks and Legal Entities since October 2008 Since October 2008, the Russian Government and the CBR have announced and, in many cases, fully implemented measures intended to support the liquidity and solvency of Russian banks and to increase the availability of credit to businesses, which have been seen as critical for restoring investor confidence and supporting the medium-term economic growth of the Russian economy. These measures were primarily introduced by the Federal Law No. 173-FZ "On Additional Measures for Supporting the Financial System of the Russian Federation" (the "Rescue Measures Law"). According to the Rescue Measures Law, the following measures are being implemented: The Russian Government through the CBR and Vnesheconombank may provide up to RUB 910 billion in subordinated loans to State-owned and private banks under certain conditions. The RUB 910 billion state contribution to banking sector capital in the form of

193 long-term subordinated loans is one of the key economic initiatives announced by the Russian Government to restore confidence in the Russian banking sector. State-owned banks such as Sberbank, VTB and Russian Agricultural Bank received RUB 500 billion, RUB 200 billion and RUB 25 billion, accordingly, as part of this initiative. The remaining amount has been distributed among privately-owned Russian banks subject to certain conditions. The CBR was authorised to enter into agreements with privately owned banks to partially compensate such banks for the losses suffered during the period from 14 October 2008 to 31 December 2010 as the result of operations on the interbank market with banks whose licences are revoked. Vnesheconombank had the right, until 31 December 2009, to originate foreign currency loans up to US$50 billion to Russian legal entities to repay and/or refinance the loans received from foreign lenders prior to 25 September The CBR established a new liquidity scheme to conduct uncollateralised lending covering a number of Russian banks. The maximum amounts that banks can raise under this facility were set by the CBR depending on the credit rating, asset size and the level of capitalisation of the potential borrower under this arrangement. The CBR Regulation dated 16 October 2008 No. 323-P "On Provision of Unsecured Loans to Russian Credit Institutions by the Bank of Russia" has introduced the procedure and criteria for issuing unsecured loans by the CBR. Federal Law No. 317-FZ "On Amending Articles 46 and 76 of the Federal Law on Central Bank of Russian Federation (Bank of Russia)" dated 30 December 2008 vested the CBR with the right to appoint its authorised representatives to the banks and credit institutions which, inter alia, have received any foreign currency loans and/or subordinated loans under the Rescue Measures Law. The CBR Regulation No U dated 9 February 2009 provides for the procedure for such authorised representatives appointment, their rights and obligations including, inter alia, the right to participate in the meetings of the management bodies of such banks and credit institutions and the right to request information on management remuneration and the issuance of loans to third parties. CBR Regulation No U "On Determination of Mandatory Reserve Requirements of the Bank of Russia" dated 14 October 2008 temporarily decreased the reserve requirements for all types of financial obligations, namely funds in Roubles and foreign currencies payable to non-resident banks, funds in Roubles payable to individuals and other obligations, to 0.5 per cent. from 4.5 per cent., 1.5 per cent. and 2 per cent., respectively. However, the CBR Regulation No U dated 25 February 2011 "On Determination of Mandatory Reserve Requirements of the Bank of Russia" increased these reserve requirements from 1 March 2011 to 4.5 per cent., 3.5 per cent. and 3.5 per cent., respectively. In addition, pursuant to the CBR Regulation No U dated 25 March 2011 "On Determination of Mandatory Reserve Requirements of the Bank of Russia", from 1 April 2011 reserve requirements for the banks' obligations to individuals and other obligations in Roubles or foreign currency have been increased to 4.0 per cent. and reserve requirements for the banks' obligations to non-resident legal entities in Roubles or foreign currency have been increased to 5.5 per cent. The Deposit Insurance Law has been amended to increase the amount of the secured deposits of individuals with Russian banks included to the state system of deposits insurance up to RUB 700,000. Government Decree No. 18 "On the Procedure of National Welfare Fund Assets Management" was amended in 2008 and 2009 to increase the scope of financial instruments in which funds from the National Welfare Fund can be invested. The National Welfare Fund was established in 2008 using oil revenues, with a view to partially funding contributions to pensions of Russian citizens and to make up shortfalls in other contributions from the federal budget to federal pension funds. As a consequence, up to RUB 655 billion of such funds may be deposited in Vnesheconombank to support the Russian financial markets

194 The number of instruments eligible for the CBR's collateralised facility and for refinancing transactions with the CBR has been increased and the CBR may accept, among other things, the pledge of certain bonds and suretyships granted by certain Russian banks as collateral under its facilities to credit organisations

195 Location of the Urals Region within Russia 1 DESCRIPTION OF THE URALS REGION Map of the Urals Region