INDEPENDENT AUDITORS REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 VTB BANK Interim Condensed Consolidated Financial Statements with Independent Auditors Report on Review of Interim Condensed Consolidated Financial Statements

2 Interim Condensed Consolidated Financial Statements and Independent Auditors Report on Review of Interim Condensed Consolidated Financial Statements CONTENTS INDEPENDENT AUDITORS REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Interim Consolidated Statement of Financial Position...1 Interim Consolidated Income Statement...2 Interim Consolidated Statement of Comprehensive Income...3 Interim Consolidated Statement of Cash Flows...4 Interim Consolidated Statement of Changes in Shareholders Equity...6 SELECTED NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Principal Activities Operating Environment of the Group Basis of Preparation Adoption of New or Revised Standards and Interpretations Cash and Short-Term Funds Financial Assets at Fair Value Through Profit or Loss Financial Assets Pledged under Repurchase Agreements and Loaned Financial Assets Due from Other Banks Loans and Advances to Customers Financial Assets Available-for-Sale Investments in Associates and Joint Ventures Investment Securities Held-to-Maturity Due to Other Banks Customer Deposits Other Borrowed Funds Debt Securities Issued Subordinated Debt Interest Income and Expense Fee and Commission Income and Expense Staff Costs and Administrative Expenses Allowances for Impairment and Provisions Basic and Diluted Earnings per Share Income Tax Contingencies, Commitments and Derivative Financial Instruments Analysis by Segment Fair Value Hierarchy Related Party Transactions Consolidated Subsidiaries, Associates and Joint Ventures Capital Management and Capital Adequacy Subsequent Events... 29

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5 Interim Condensed Consolidated Income Statement for the Three Months Ended (unaudited) For the three-month period ended 31 March Note Interest income Interest expense 18 (40.2) (41.6) Net interest income Provision charge for impairment of debt financial assets 21 (7.7) (15.5) Net interest income after provision for impairment Gains less losses arising from financial instruments at fair value through profit or loss Losses on initial recognition of financial instruments and on loans restructuring (0.4) Gains less losses / (losses net of gains) arising from dealing in foreign currencies 11.7 (12.0) Foreign exchange translation (losses net of gains) / gains less losses (5.8) 13.5 Fee and commission income Fee and commission expense 19 (1.1) (1.1) Share in income of associates and joint ventures Provision charge for impairment of other assets and credit related commitments 21 (0.1) (1.9) Income arising from non-banking activities Expenses arising from non-banking activities (1.7) (0.8) Other operating income Net non-interest income Operating income Staff costs and administrative expenses 20 (33.0) (22.2) Profit from disposal of associates Profit before taxation Income tax expense 23 (6.9) (3.2) Net profit Net profit attributable to: Shareholders of the parent Non-controlling interests 0.1 Basic and diluted earnings per share (expressed in Russian Roubles per share) The notes 1-30 form an integral part of these interim condensed consolidated financial statements 2

6 Interim Condensed Consolidated Statement of Comprehensive Income for the Three Months Ended (unaudited) For the three-month period ended 31 March Net profit for the period Other comprehensive income: Net result on financial assets available-for-sale, net of tax 0.2 Share of other comprehensive income of associates (0.2) Effect of translation, net of tax (3.4) (3.6) Other comprehensive income, net of tax (3.6) (3.4) Total comprehensive income Total comprehensive income attributable to: Shareholders of the parent Non-controlling interests (0.5) (0.5) The notes 1-30 form an integral part of these interim condensed consolidated financial statements 3

7 Interim Condensed Consolidated Statement of Cash Flows for the Three Months Ended (unaudited) For the three-month period ended 31 March Note Cash flows from operating activities Interest received Interest paid (36.3) (38.8) Income received on operations with financial instruments at fair value through profit or loss Income received / (loss incurred) on dealing in foreign currency 15.7 (15.5) Fees and commissions received Fees and commissions paid (1.2) (1.4) Other operating income received Staff costs, administrative expenses paid and net cash flow arising from non-banking activities (30.9) (21.0) Income tax paid (6.6) (4.7) Cash flows from / (used in) operating activities before changes in operating assets and liabilities 27.7 (1.4) Net decrease / (increase) in operating assets Net (increase) / decrease in mandatory cash balances with central banks (6.1) 0.9 Net (increase) / decrease in restricted cash (0.2) 0.1 Net (increase) / decrease in financial assets at fair value through profit or loss (14.1) 58.3 Net (increase) / decrease in due from other banks (61.7) 50.9 Net (increase) / decrease in loans and advances to customers (76.5) 4.1 Net increase in other assets (9.1) (0.8) Net increase in operating liabilities Net increase in due to other banks Net increase in customer deposits Net increase in debt securities issued Net increase in other liabilities Net cash from operating activities Cash flows used in investing activities Proceeds from sale or maturities of financial assets available-for-sale Purchase of financial assets available-for-sale (5.0) (1.2) Purchase of subsidiaries, net of cash 28 (1.7) Purchase of and contributions to associates and joint ventures 11 (104.6) Proceeds from sale of share in associates Purchase of investment securities held-to-maturity (0.1) (0.1) Proceeds from redemption of investment securities held-to-maturity Purchase of premises and equipment (8.9) (3.1) Proceeds from sale of premises and equipment Purchase or construction of investment property (0.6) Purchase of intangible assets (0.3) (0.1) Proceeds from sale of intangible assets 0.1 Net cash used in investing activities (95.0) (1.1) The notes 1-30 form an integral part of these interim condensed consolidated financial statements 4

8 Interim Condensed Consolidated Statement of Cash Flows for the Three Months Ended (unaudited) (continued) For the three-month period ended 31 March Note Cash flows used in financing activities Proceeds from issuance of local bonds Repayment of local bonds (11.9) Buy-back of local bonds (1.8) (1.6) Proceeds from sale of previously bought-back local bonds Proceeds from issuance of Eurobonds Repayment of Eurobonds (7.8) (8.4) Buy-back of Eurobonds (11.6) (20.6) Proceeds from sale of previously bought-back Eurobonds Repayment of syndicated loans (3.6) (8.2) Proceeds from other borrowings Repayment of other borrowings (13.5) (328.0) Repayment of subordinated debt (9.3) Buy-back of subordinated debt (0.9) Proceeds from sale of previously bought-back subordinated debt 0.7 Share issue to minorities 0.3 Net cash used in financing activities (10.6) (266.3) Effect of exchange rate changes on cash and cash equivalents (7.2) (3.8) Net decrease in cash and cash equivalents (27.5) (90.8) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period The notes 1-30 form an integral part of these interim condensed consolidated financial statements 5

9 Interim Condensed Consolidated Statement of Changes in Shareholders Equity for the Three Months Ended (unaudited) Share capital Share premium Treasury shares Attributable to shareholders of the parent Unrealized gain on financial assets availablefor-sale and cash flow hedge Premises revaluation reserve Currency translation difference Retained earnings Total Noncontrolling interests Balance at 1 January 2010 (audited) (0.4) Increase in share capital of subsidiaries Total comprehensive income for the period 0.2 (3.1) (0.5) 11.9 Expiration of put options over non-controlling interests Balance at 31 March (0.4) Balance at 1 January 2011 (audited) (0.3) Net result from treasury shares transactions Change of ownership share in subsidiary (Note 28) (1.2) Total comprehensive income for the period 0.1 (3.1) (0.5) 22.5 Transfer of premises revaluation reserve upon disposal or depreciation (0.1) 0.1 Transfer of currency translation difference upon legal merger of subsidiary (Note 28) (2.4) 2.4 Dividends declared (0.1) (0.1) Balance at (0.2) Total equity The notes 1-30 form an integral part of these interim condensed consolidated financial statements 6

10 Selected notes to the Interim Condensed Consolidated Financial Statements 1. Principal Activities VTB Bank and its subsidiaries (the Group ) comprise Russian and foreign commercial banks, and other companies and entities controlled by the Group. VTB Bank, formerly known as Vneshtorgbank (the Bank, or VTB ), was formed as Russia s foreign trade bank under the laws of the Russian Federation on 17 October In 1998, following several reorganisations, VTB was reorganized into an open joint stock company. In October 2006 the Group started re-branding to change its name from Vneshtorgbank to VTB. Simultaneously, the names of some of VTB s subsidiaries were changed as presented in Note 28. In March 2007, the Bank for Foreign Trade was renamed into VTB Bank (Open Joint-Stock Company). On 2 January 1991, VTB received a general banking license (number 1000) from the Central Bank of the Russian Federation (CBR). In addition, VTB holds licenses required for trading and holding securities and engaging in other securities-related activities, including acting as a broker, a dealer and a custodian, and providing asset management and special depositary services. VTB and other Russian Group banks are regulated and supervised by the CBR and the Federal Financial Markets Service. Foreign Group banks operate under the bank regulatory regimes of their respective countries. On 29 December 2004, the Bank became a member of the obligatory deposit insurance system provided by the State Corporation Deposit Insurance Agency. All Group subsidiary banks in Russia: VTB 24, CJSC and TransCreditBank, JSC are also members of the obligatory deposit insurance system provided by the State Corporation Deposit Insurance Agency. The State deposit insurance scheme implies that the State Corporation Deposit Insurance Agency guarantees repayment of individual deposits up to the maximum total amount of guaranteed payment of RUR 700 thousand with a 100% compensation of deposited amount from 1 October On 5 October 2005, VTB re-registered its legal address to 29 Bolshaya Morskaya Street, Saint-Petersburg , Russian Federation. VTB s Head Office is located in Moscow. A list of major subsidiaries, associates and joint ventures included in these interim condensed consolidated financial statements is provided in Note 28. The Group operates predominantly in the commercial banking sector. This includes deposit taking and commercial lending in freely convertible currencies and in Russian Roubles, support of clients export/import transactions, foreign exchange, securities trading, and trading in derivative financial instruments. The Group s operations are conducted in both Russian and international markets. The Group s operations are not subject to seasonal fluctuations. The Group conducts its banking business in Russia through VTB as a parent and 2 subsidiary banks with its network of 122 full service branches, including 72 branches of VTB, 8 branches of VTB 24 and 42 branches of TransCreditBank, located in major Russian regions. In March VTB North-West ceased its operations as a subsidiary of VTB following the legal merger of VTB and VTB North-West.The Group operates outside Russia through 12 bank subsidiaries, located in the Commonwealth of Independent States ( CIS ) (Armenia, Ukraine, Belarus, Kazakhstan and Azerbaijan), Europe (Austria, Cyprus, Germany, France and Great Britain), Georgia, Africa (Angola) and through 2 representative offices located in Italy and China and through 2 VTB branches in China and India and 2 branches of VTB Capital, Plc in Singapore and Dubai. VTB s majority shareholder is the Russian Federation state, acting through the Federal Property Agency, which holds 75.5% of VTB s issued and outstanding shares at (31 December 2010: 85.5%). In February 2011, the Russian Federation state, acting through the Federal Property Agency, reduced its share from 85.5% to 75.5% of VTB s issued and outstanding shares as a result of offering in the form of shares and global depositary receipts. The number of employees of the Group at was 53,311 (31 December 2010: 51,781). Unless otherwise noted herein, all amounts are expressed in billions of Russian Roubles rounded off to one decimal. 7

11 2. Operating Environment of the Group Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the government. The Russian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. In 2010 the Russian Government continued to take measures to support the economy in order to overcome the consequences of the global financial crisis. Despite some indications of recovery there continues to be uncertainty regarding further economic growth, access to capital and cost of capital, which could negatively affect the Group s future financial position, results of operations and business prospects. Also, factors including increased unemployment in Russia, reduced corporate liquidity and profitability, and increased corporate and personal insolvencies, may affect the Group s borrowers ability to repay the amounts due to the Group. In addition, changes in economic conditions may result in deterioration in the value of collateral held against loans and other obligations. To the extent that information is available, the Group has reflected revised estimates of expected future cash flows in its impairment assessment. While management believes it is taking appropriate measures to support the sustainability of the Group s business in the current circumstances, unexpected further deterioration in the areas described above could negatively affect the Group s results and financial position in a manner not currently determinable. 3. Basis of Preparation General These interim condensed consolidated financial statements ( financial statements ) have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. As a result, they do not include all of the information required by International Financial Reporting Standards (IFRS) for a complete set of financial statements. Operating results for the three-month period ended are not necessarily indicative of the results that may be expected for the year ending 31 December The Bank and its subsidiaries and associates maintain their accounting records in accordance with regulations applicable in their country of registration. These interim condensed consolidated financial statements are based on those accounting books and records, as adjusted and reclassified to comply with International Accounting Standard 34 Interim Financial Reporting. These interim condensed consolidated financial statements have been prepared under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, revaluation of premises and investment property, available-for-sale financial assets, and financial instruments categorized as at fair value through profit or loss. The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts. These estimates are based on information available as of the date of the financial statements. Actual results can differ significantly from such estimates. Judgments and significant estimates in these financial statements are consistent with those applied in the preparation of the Group s annual financial statements for the year ended 31 December Income tax expense in respect of the current tax assets and liabilities is recognized based on the income tax rates enacted by the end of the reporting period in relevant tax jurisdictions where the Group presents. Income tax expense in respect of the deferred tax assets and liabilities is measured at the income tax rates that are expected to apply to the period when deferred assets are realized or liability are settled based on the income tax rates officially enacted by the end of the reporting period. These interim condensed consolidated financial statements should be read in conjunction with the complete consolidated financial statements as of 31 December These interim condensed consolidated financial statements are presented in Russian Roubles (RUR), the national currency of the Russian Federation, where the Bank is domiciled. At, the principal closing rate of exchange used for translating balances in USD to Russian Roubles was USD 1 to RUR (at 31 December 2010: USD 1 to RUR ), and the principal closing rate of exchange used for translating balances in Euro was EUR 1 to RUR (at 31 December 2010: EUR 1 to RUR ). 8

12 4. Adoption of New or Revised Standards and Interpretations The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group s annual financial statements for the year ended 31 December 2010, except for the adoption of new standards and interpretations as of 1 January 2011, noted below: IAS 32 Financial Instruments: Presentation Classification of Rights Issues (effective for annual periods beginning on or after 1 February 2010) The Amendment was issued in October It exempts certain rights issues of shares with proceeds denominated in foreign currencies from classification as derivatives. The amendment does not have any impact on the Group's financial statements. IAS 24 Related Party Disclosures (effective for annual periods beginning on or after 1 January 2011) IAS 24 was revised in November 2009 by: (a) simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies; and by (b) providing a partial exemption from the disclosure requirements for government-related entities. The Group has not applied the exemption provided for government-related entities in the revised IAS 24 and disclosed all transactions with government-related entities. IFRS 1 First-time Adoption of International Financial Reporting Standards Amendment: Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (effective for annual periods beginning on or after 1 July 2010). Existing IFRS preparers were granted relief from presenting comparative information for the new disclosures required by the March 2009 amendments to IFRS 7, Financial Instruments: Disclosures. This amendment to IFRS 1 provides first-time adopters with the same transition provisions as included in the amendment to IFRS 7. The amendment does not have any impact on the Group's financial statements. IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Amendment: Prepayments of a Minimum Funding Requirement (effective for annual periods beginning on or after 1 January 2011). This amendment will have a limited impact as it applies only to companies that are required to make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement. The amendment does not have any impact on the Group's financial statements. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010) The interpretation clarifies the accounting for the transactions when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability. IFRIC 19 does not have any impact on the Group's financial statements. Improvements to International Financial Reporting Standards (issued in May 2010 and effective for annual periods beginning on or after 1 January 2011). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: IFRS 1 was amended (i) to allow previous GAAP carrying value to be used as deemed cost of an item of property, plant and equipment or an intangible asset if that item was used in operations subject to rate regulation, (ii) to allow an event driven revaluation to be used as deemed cost of property, plant and equipment even if the revaluation occurs during a period covered by the first IFRS financial statements and (iii) to require a first-time adopter to explain changes in accounting policies or in the IFRS 1 exemptions between its first IFRS interim report and its first IFRS financial statements; IFRS 3 was amended (i) to require measurement at fair value (unless another measurement basis is required by other IFRS standards) of noncontrolling interests that are not present ownership interest or do not entitle the holder to a proportionate share of net assets in the event of liquidation, (ii) to provide guidance on acquiree s share-based payment arrangements that were not replaced or were voluntarily replaced as a result of a business combination and (iii) to clarify that the contingent considerations from business combinations that occurred before the effective date of revised IFRS 3 (issued in January 2008) will be accounted for in accordance with the guidance in the previous version of IFRS 3; IFRS 7 was amended to clarify certain disclosure requirements, in particular (i) by adding an explicit emphasis on the interaction between qualitative and quantitative disclosures about the nature and extent of financial risks, (ii) by removing the requirement to disclose carrying amount of renegotiated financial assets that would otherwise be past due or impaired, (iii) by replacing the requirement to disclose fair value of collateral by a more general requirement to disclose its financial effect, and (iv) by clarifying that an entity should disclose the amount of foreclosed collateral held at the reporting date and not the amount obtained during the reporting period; IAS 1 was amended to clarify the requirements for the presentation and content of the statement of changes in equity with regard to a reconciliation between the carrying amount at the beginning and the end of the period for each component of equity either in the statement of changes in equity or in the notes to the financial statements; IAS 27 was amended by clarifying the transition rules for amendments to IAS 21, 28 and 31 made by the revised IAS 27 (as amended in January 2008); IAS 34 was amended to add additional examples of significant events and transactions requiring disclosure in a condensed interim financial report, including transfers between the levels of fair value hierarchy, changes in classification of financial assets or changes in business or economic environment that affect the fair values of the entity s financial instruments; and IFRIC 13 was amended to clarify measurement of fair value of award credits. The amendments do not have any material effect on the Group s financial statements. 9

13 5. Cash and Short-Term Funds (unaudited) 31 December 2010 Cash on hand Cash balances with central banks (other than mandatory reserve deposits) Correspondent accounts with other banks - Russian Federation Other countries Total cash and short-term funds Less: restricted cash (1.3) (1.1) Total cash and cash equivalents Financial Assets at Fair Value Through Profit or Loss (unaudited) 31 December 2010 Financial assets held for trading Financial assets designated as at fair value through profit or loss Total financial assets at fair value through profit or loss The financial assets designated as at fair value through profit or loss are managed on a fair value basis, in accordance with the risk management or investment strategies adopted by each Group member and the information provided to key management personnel. Financial assets held for trading (unaudited) 31 December 2010 Debt securities denominated in USD Eurobonds of Russian companies and banks Bonds and eurobonds of foreign companies and banks Bonds and eurobonds of foreign governments Eurobonds of the Russian Federation Debt securities denominated in RUR Bonds of Russian companies and banks Russian Federal loan bonds (OFZ) Bonds of the Central Bank of the Russian Federation 14.4 Russian municipal bonds Promissory notes of Russian companies and banks Eurobonds of foreign companies and banks Debt securities denominated in other currencies Bonds of foreign governments Bonds and eurobonds of foreign companies and banks Eurobonds of Russian companies and banks Eurobonds of Russian municipalities 0.1 Equity securities Balances arising from derivative financial instruments Total financial assets held for trading At bonds of Russian companies and banks are mostly represented by debt securities issued by Russian oil and gas companies, banks, transportation and telecommunication companies. At equity securities are represented by securities issued by Russian banks, oil and gas companies, building construction and metals companies. 10

14 6. Financial Assets at Fair Value Through Profit or Loss (continued) Financial assets designated as at fair value through profit or loss (unaudited) 31 December 2010 Bonds of foreign companies and banks Equity securities Bonds and eurobonds of Russian companies and banks Bonds of foreign governments Total financial assets designated as at fair value through profit or loss Financial Assets Pledged under Repurchase Agreements and Loaned Financial Assets (unaudited) 31 December 2010 Financial assets at fair value through profit or loss Financial assets held for trading Bonds of Russian companies and banks Bonds of foreign governments Equity securities Eurobonds of Russian companies and banks 0.6 Bonds of foreign companies and banks 0.1 Total Financial assets held for trading Financial assets designated as at fair value through profit or loss Eurobonds of Russian companies and banks Bonds of foreign governments Bonds of foreign companies and banks Bonds of Russian companies and banks 0.3 Total Financial assets designated as at fair value through profit or loss Total Financial assets at fair value through profit or loss Financial assets available-for-sale Bonds of Russian companies and banks Bonds of foreign governments 3.0 Total Financial assets available-for-sale Financial assets classified as loans and advances to customers 2.1 Financial assets classified as due from other banks Total financial assets pledged under repurchase agreements and loaned financial assets At bonds of Russian companies and banks included in the above table are mostly represented by debt securities issued by Russian oil and gas companies, bonds of foreign governments, telecommunication companies and banks. 8. Due from Other Banks (unaudited) 31 December 2010 Current term placements with other banks Reverse sale and repurchase agreements with other banks Overdue placements Total gross due from other banks Less: Allowance for impairment (Note 21) (2.0) (2.9) Total due from other banks

15 9. Loans and Advances to Customers (unaudited) 31 December 2010 Current loans and advances 2, ,475.0 Reverse sale and repurchase agreements Renegotiated loans and advances Overdue loans and advances Total gross loans and advances to customers 3, ,059.6 Less: Allowance for impairment (Note 21) (273.8) (274.2) Total loans and advances to customers 2, ,785.4 For the purposes of the above table, the amount of overdue loans and advances includes overdue portions of loans where the payment of either principal or interest is overdue by one day or more, rather than the entire outstanding amount of the loans. At, included in gross loans are finance lease receivables of RUR billion (31 December 2010: RUR billion), equal to the net investment in lease before allowance for impairment. Economic sector risk concentrations within the customer loan portfolio are as follows: (unaudited) 31 December 2010 Amount % Amount % Individuals Finance Metals Building construction Manufacturing Trade and commerce Chemical Transport Oil and gas Government bodies Energy Food and agriculture Coal mining Telecommunications and media Aircraft Other Total gross loans and advances to customers 3, , Finance industry includes loans issued to holding companies of industrial groups, mergers and acquisitions financing, and loans to leasing, insurance and other non-bank financial companies. At, the total amount of outstanding loans issued by the Group to 10 largest groups of interrelated borrowers comprises RUR billion, or 21% of the gross loan portfolio (31 December 2010: RUR billion, or 21%). 12

16 10. Financial Assets Available-for-Sale (unaudited) 31 December 2010 Equity investments Bonds of foreign companies and banks Bonds of foreign governments Eurobonds of Russian companies and banks Bonds of Russian companies and banks 0.4 Promissory notes of Russian companies and banks 0.3 Total financial assets available-for-sale Investments in Associates and Joint Ventures Country of registration Activity (unaudited) Carrying amount Ownership percentage 31 December 2010 Carrying amount Ownership percentage Bank of Moscow, OJSC Russia Banking % Eurofinance Mosnarbank, OJSC Russia Banking % % Vietnam-Russia Joint Venture Bank Vietnam Banking % % Metropolitan Insurance Group, OJSC Russia Insurance % KS Holding, CJSC Russia Insurance % % Sistemapsys S.a.r.l. Luxembourg Construction % % POLIEF, OJSC Russia Chemical % % Thalita Trading, Ltd Cyprus Finance % % Finnist Real Estate S.a.r.l. Luxembourg Real estate % % Telecom-Development, CJSC Russia Construction % % Hals-Technopark, CJSC Russia Construction % % Cayman Island Construction % % Sistema Saraya, Ltd Astanda, Ltd Cyprus Construction % % Izumrudniy Gorod 2000, Ltd Russia Construction 50.00% 50.00% Tagar-City, Ltd Russia Construction 50.00% 50.00% Amiral' B. V., Ltd Russia Construction 50.00% 50.00% Ilinoza investments limited, Ltd Russia Construction 45.00% 45.00% Interbank Trading House, Ltd Russia Commerce 50.00% 50.00% Total investments in associates and joint ventures In January 2011, Vietnam-Russia Joint Venture Bank increased its share capital to USD million, and VTB increased its share in Vietnam-Russia Joint Venture Bank from 49.00% to 50.00% by contribution of USD 53.6 million (RUR 1.6 billion). In February 2011, VTB purchased 46.48% of Bank of Moscow, OJSC for RUR 92.8 billion and 25% plus 1 share of Metropolitan Insurance Group, OJSC for RUR 10.2 billion. In February 2011, the Group entered into the agreement to sell shares of Eurofinance Mosnarbank, OJSC, for RUR 2.3 billion effectively decreasing the Group s ownership in Eurofinance Mosnarbank, OJSC associate to 25% plus 0.5 share and recognising profit before tax of RUR 0.9 billion from partial disposal of the associate. Eurofinance Mosnarbank, OJSC is to be renamed to Russian-Venezuelan Bank. 13

17 12. Investment Securities Held-to-Maturity (unaudited) 31 December 2010 Bonds of Russian companies and banks Russian municipal bonds Bonds of foreign governments Bonds of foreign companies and banks 0.4 Total gross investment securities held-to-maturity Less: Allowance for impairment (Note 21) (2.0) (2.0) Total investment securities held-to-maturity Due to Other Banks (unaudited) 31 December 2010 Correspondent accounts and overnight deposits of other banks Term loans and deposits Sale and repurchase agreements with other banks Total due to other banks Customer Deposits (unaudited) 31 December 2010 Government bodies Current / settlement deposits Term deposits Other legal entities Current / settlement deposits Term deposits Individuals Current / settlement deposits Term deposits Sale and repurchase agreements Total customer deposits 2, , Other Borrowed Funds (unaudited) 31 December 2010 Syndicated loans Other borrowings Total other borrowed funds Included in other borrowings are borrowings received by the Group from other banks, mainly OECD based, under non-revolving open credit lines, and funds attracted from central banks. 14

18 16. Debt Securities Issued (unaudited) 31 December 2010 Bonds Promissory notes Deposit certificates Total debt securities issued In February 2011, VTB issued USD 750 million (RUR 21.9 billion) Series 12 Eurobonds under European Medium Term Notes (EMTN) Programme 2 with maturity in February 2018 and a fixed coupon rate of 6.315% p.a. payable semiannually. In February 2011, VTB partially redeemed Series 9 Eurobonds in the amount of EUR million (RUR 7.8 billion) under investor put option. In February 2011, VTB 24 redeemed domestic bonds in the amount of RUR 10.0 billion under investor put option. 17. Subordinated Debt On 29 September 2005, OJSC Industry and Construction Bank (further renamed to OJSC Bank VTB North-West ) issued USD 400 million subordinated Eurobonds due September 2015 with early redemption option (1 October 2010; price 100; type call). The Eurobonds bear interest rate at 6.2% p.a. payable semi-annually. From 1 October 2010 interest rate under the Eurobonds is equal to US Treasury yield increased by 226 b.p. and step-up of 150 b.p. In August 2010 the Group announced a decision not to exercise the redemption option. The transaction was structured as an issue of notes by Or-ICB S.A. (Luxembourg) for the purpose of financing a subordinated loan to OJSC Bank VTB North-West. At the carrying amount of this subordinated debt was RUR 9.8 billion (31 December 2010: RUR 10.2 billion). In October and November 2008, VTB received two subordinated loans of RUR 100 billion each with a rate of 8% p.a. maturing in December 2019 from Vnesheconombank (VEB), which is a related party to the Group. At 31 December 2008 in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance the Group discounted these loans using an appropriate market rate adjusted for loan premium. In August 2010 an interest rate on these two subordinated loans was reduced from 8% to 6.5% p.a. in accordance with the Federal Law requirements. At the carrying amount of this subordinated debt is RUR billion (31 December 2010: RUR billion). Over a period from 2003 to 2009 TransCreditBank, JSC received subordinated loans from JSC RZD and its related parties in the aggregate amount of RUR 13.1 billion with interest rates from 9% p.a. to 12.1% p.a. maturing in the period from December 2012 to January At the carrying amount of this subordinated debt is RUR 14.7 billion. At 31 December 2010 the carrying amount of these subordinated loans was RUR 14.5 billion which represented the fair value determined on the acquisition date for the consolidation purposes. In July 2009, TransCreditBank, JSC received a subordinated loan of RUR 2.9 billion with an interest rate of 8% p.a. maturing in October 2019 from Vnesheconombank (VEB), which is a related party to the Group. In August 2010 an interest rate on this subordinated loan was reduced from 8% to 6.5% p.a. in accordance with the Federal Law requirements. At the carrying amount of this subordinated debt is RUR 2.8 billion. At 31 December 2010 the carrying amount of this subordinated loan was RUR 2.8 billion, which represented the fair value determined on the acquisition date for the consolidation purposes. 15

19 18. Interest Income and Expense For the three-month period ended 31 March (unaudited) Interest income Loans and advances to customers Securities Due from other banks Total interest income Interest expense Customer deposits (23.1) (20.6) Debt securities issued (9.6) (10.0) Due to other banks and other borrowed funds (3.4) (6.5) Subordinated debt (4.1) (4.5) Total interest expense (40.2) (41.6) Net interest income Fee and Commission Income and Expense For the three-month period ended 31 March (unaudited) Commission on settlement transactions Commission on guarantees issued and trade finance Commission on cash transactions Commission on operations with securities and capital markets Other Total fee and commission income Commission on settlement transactions (0.8) (0.5) Commission on cash transactions (0.2) (0.2) Other (0.1) (0.4) Total fee and commission expense (1.1) (1.1) Net fee and commission income

20 20. Staff Costs and Administrative Expenses For the three-month period ended 31 March (unaudited) Staff costs Defined contribution pension expense Depreciation and other expenses related to premises and equipment Leasing and rent expenses Taxes other than on income Professional services Payments to deposit insurance system Advertising expenses Impairment, amortization and other expenses related to intangibles, except for amortization of core deposit intangible Post and telecommunication expenses Charity Security expenses Transport expenses Insurance Amortization of core deposit intangible Other Total staff costs and administrative expenses Allowances for Impairment and Provisions The movements in allowances for impairment of due from other banks, loans and advances to customers, investment securities held-to-maturity, credit related commitments, other assets and legal claims were as follows (unaudited): Due from other banks Loans and advances to customers Investment securities held-tomaturity Credit related commitments Other assets Legal claims Balance at 1 January 2010 (audited) (Reversal of provision) / provision for impairment during the period (0.2) 16.0 (0.3) Write-offs (0.5) (0.2) (0.1) (0.8) Recoveries of amounts writtenoff in previous period Currency translation difference (1.5) 0.1 (1.4) Balance at 31 March Balance at 1 January 2011 (audited) (Reversal of provision) / provision for impairment during the period (0.8) Write-offs (5.7) (0.2) (5.9) Recoveries of amounts writtenoff in previous period Currency translation difference (0.1) (3.3) (0.2) (3.6) Balance at Total Allowances for impairment of assets are deducted from the carrying amounts of the related assets. Provisions for claims, guarantees and credit-related commitments are recorded in liabilities. In accordance with Russian legislation, loans may only be written off with the approval of the authorized management body and, in certain cases, with the respective decision of the Court. 17

21 22. Basic and Diluted Earnings per Share Basic earnings per share are calculated by dividing the net profit or loss attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares in issue during the period, excluding the average number of ordinary shares purchased by the Group and held as treasury shares. The Group has no dilutive potential ordinary shares; therefore, the diluted earnings per share are equal to basic earnings per share. For the three-month period ended 31 March (unaudited) Net profit attributable to shareholders of the parent Weighted average number of ordinary shares in issue 10,458,358,836,655 10,457,751,703,349 Basic and diluted earnings per share (expressed in Russian Roubles per share) Income Tax The Group's effective income tax rate for the first three months of 2011 was 21% (the first three months of 2010: 17%) which is close to the theoretical tax rate. The effective income tax rate for the first three months of 2010 was lower than theoretical tax rate due to difference associated with events adjusting current tax, related to prior periods, which materialized subsequent to the date of release of the 2009 financial statements. The following tables provide disclosure of income tax effects relating to each component of other comprehensive income for the three months ended and 31 March 2010: Before tax For the three-month period ended 31 March (unaudited) Tax (expense) / recovery Net of tax Before tax Tax (expense) / recovery Net of tax Unrealized gain on financial assets available-for-sale 0.3 (0.1) 0.2 Share of other comprehensive income of associates (0.2) (0.2) Effect of translation (3.4) (3.4) (3.6) (3.6) Other comprehensive income (3.6) (3.6) (3.3) (0.1) (3.4) 24. Contingencies, Commitments and Derivative Financial Instruments Legal proceedings. From time to time and in the normal course of business, claims against the Group are received. At the reporting date the Group had several unresolved legal claims. Management is of the opinion that there would be no material outflow of resources and accordingly no material provision has been made in these financial statements. Credit related commitments. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees that represent irrevocable assurances that the Group 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 (L/Cs), which are written undertakings by the Group on behalf of a customer authorizing a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralized by cash deposits and therefore carry less risk than direct borrowings. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guarantees, or letters of credit. With respect to credit risk on commitments to extend credit, the Group 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 and/or the Bank confirming its willingness to extend a loan. 18

22 24. Contingencies, Commitments and Derivative Financial Instruments (continued) The Group monitors the term to maturity of credit related commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. 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. Outstanding credit related commitments are as follows: (unaudited) 31 December 2010 Guarantees issued Undrawn credit lines Import letters of credit Commitments to extend credit Less: allowance for impairment on credit related commitments (Note 21) (1.6) (1.6) Total credit related commitments The Bank received export letters of credit for further advising to its customers. The total amount of received letters of credit as at was RUR billion (31 December 2010: RUR billion). Commitments under import letters of credit and guarantees are collateralized by customer deposits of RUR 10.1 billion (31 December 2010: RUR 9.6 billion). At, included in guarantees issued are guarantees issued for a related Russian company of RUR 26.0 billion or 11% of the guarantees issued. At 31 December 2010, included in guarantees issued are guarantees issued for 2 related Russian companies of RUR 48.1 billion or 22% of the guarantees issued. Movements in the allowance for impairment on credit related commitments are disclosed in Note 21. Fair value hedges Fair value hedges are used by the Group to protect it against the changes in the fair value of financial assets and financial liabilities due to movements in interest and currency rates. The financial instruments hedged for interest rate risk and currency risk include debt securities issued. For the period ended, the Group recognized a net gain of RUR 0.7 billion, representing the gain on the hedging instruments. The net loss on hedged items attributable to the hedged risk amounted to RUR 0.7 billion for the period ended. At 31 March 2010 the Group had no fair value hedges. 25. Analysis by Segment In accordance with IFRS 8, Operating Segments, the Group defined as the primary operating segments its key business lines. This segment disclosure is presented on the basis of IFRS compliant data of legal entities of the Group adjusted, where necessary, for intersegment reallocation and managerial adjustments. Qualitative and quantitative information about operating segments is reported to the appropriate operating decision makers for the purposes of making operating decisions on allocation of resources to the segment and assessment of its performance. On this basis, the Group aggregated these operating segments in accordance with IFRS 8 into the following reportable segments: Corporate-Investment banking (Investment banking, Loans and Deposits, Transaction banking subsegments), Retail banking, TransCreditBank, CIS and Georgia, Europe and Other. Revenues disclosed in the note include the following: interest income, fee and commission income, other operating income, income arising from non-banking activities, gains less losses from financial assets available-for-sale, gains less losses arising from financial assets at fair value through profit or loss, gains less losses from dealing in foreign currencies together with foreign exchange translation gains less losses, gains less losses arising from extinguishment of liability and share in income of associates. Each element is included in calculation of revenues by each subsegment / segment without subsegments in case it is positive for this subsegment / segment without subsegments. The totals are calculated as sum of the line components. For the purpose of disclosure of the information on geographical areas of the Group non-current assets include the following: investments in associates, premises and equipment, investment property and intangible assets and goodwill. Intersegment transactions were executed predominantly in the normal course of business. 19

23 25. Analysis by Segment (continued) Segment information for the reportable segments of the Group at (unaudited) and results for the three months ended (unaudited) is set out below: Investment banking Corporate and investment banking (CIB) Loans and Deposits Transaction banking Inter-CIB eliminations Total CIB Retail banking TransCredit- Bank CIS and Georgia Europe Other Total before Intersegmensegment Inter- eliminations eliminations Total For the three-month period ended 31 March 2011: Revenues from: External customers Other segments (12.4) (9.8) Total revenues (12.4) (9.8) Segment income and expense Interest income (12.2) (8.4) 86.2 Interest expense (10.3) (30.1) (0.3) 12.2 (28.5) (11.6) (3.4) (2.4) (1.3) (1.4) (48.6) 8.4 (40.2) Net interest income (1.2) Provision charge for impairment of debt financial assets (4.3) (4.3) (1.8) (1.4) (0.8) 0.1 (8.2) 0.5 (7.7) Net interest income after provision for impairment (1.2) Gains less losses arising from other financial instruments 10.4 (1.1) Losses on initial recognition of financial instruments and on loans restructuring (0.3) (0.3) (0.1) (0.4) (0.4) Gains less losses / (losses net of gains) arising from dealing in foreign currencies (0.1) Foreign exchange translation (losses net of gains) / gains less losses (3.8) (3.8) (1.3) (0.4) (0.3) (5.8) (5.8) Net fee and commission income (0.5) Share in income of associates and joint ventures Provision charge for impairment of other assets and credit related commitments (0.1) (0.1) (0.1) Other operating income / (expense) (0.1) 2.0 (0.1) (0.7) 2.4 Operating income (0.1) (0.3) 65.2 (0.1) 65.1 Staff costs and administrative expenses (6.4) (10.0) (0.7) 0.1 (17.0) (9.0) (3.8) (1.6) (0.7) (1.5) (33.6) 0.6 (33.0) Profit from disposal of associates Segment results: Profit before taxation (0.3) 1.7 (1.8) Income tax expense (6.9) Net profit