Deloitte. Deloitte & Touche" Audit organization LLC Business Center "Inkonel 75, Mustakillik Avenue Tashkent, 100000, Republic of Uzbekistan Tel: +998(71) 120 44 45 Fax: +998 (71)120 44 47 deloitte.uz INDEPENDENT AUDITORS REPORT To: Shareholders and the Council of Joint-Stock Innovation Commercial Bank Ipak Yuli O pinion W e have audited the consolidated financial statem ents of Joint-Stock Innovation Commercial Bank Ipak Yuli ( the Bank ) and its subsidiaries (the Group), which com prise the consolidated statem ent o f financial position as at 31 Decem ber 2016, and the consolidated statem ent of com prehensive income, consolidated statem ent of changes in equity and consolidated statem ent of cash flow s for the year then ended, and notes to the consolidated financial statements, including a sum m ary of significant accounting policies. In our opinion, the accom panying consolidated financial statem ents present fairly, in all material respects, the financial position of the Group as at 31 Decem ber 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). Basis fo r O pinion W e conducted our audit in accordance with International Standards on Auditing ( ISAs ). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the consolidated Financial Statements section of our report. W e are independent of the Group in accordance with the International Ethics Standards Board for A ccountants Code of Ethics for Professional Accountants (the IESBA Code ) together with the ethical requirem ents that are relevant to our audit o f the consolidated financial statem ents in the Republic of Uzbekistan, and we have fulfilled our other ethical responsibilities in accordance with these requirem ents and the IESBA Code. W e believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Em phasis o f Matter W e draw attention to Note 2 to the consolidated financial statem ents which describes the restatem ent of the corresponding figures for the year ended 31 December 2015. Our opinion is not modified in respect of this matter. Key A udit Matters Key audit matters are those matters that, in our professional judgm ent, were of most significance in our audit of the consolidated financial statem ents o f the current period. These matters were addressed in the context of our audit of the consolidated financial statem ents as a whole, and in form ing our opinion thereon, and we do not provide a separate opinion on these matters. Why the matter was determined to be a key audit matter Impairment of loans and advances to customers As disclosed in Note 9 to the consolidated financial statements, the Group is focused predom inantly on financing the Small and Medium Enterprise ( the SM E ) sector. As at 31 Decem ber 2016, loans to SMEs comprise 74% of the G roup s loans and advances to custom ers. The Group assesses the loans for impairment on an individual and collective basis. How the matter was addressed in the audit W e obtained understanding of the m anagem ent s process relating to identifying im pairm ent of loans. W e tested a sample of loans (including loans that had not been identified by m anagem ent as potentially im paired) to form our assessm ent as to w hether impairment events had occurred and to assess w hether im pairm ents had been identified in a tim ely manner. For individually assessed loans, we selected a sample of loans and tested the estimation of future expected Deloitte refers to one or more of Deioitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. DTTL and each o f its member firm s are legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. 2016 "De'oitte & Touche" Audit organization LLC. All rights reserved.
Deloitte. For individually significant loans m anagem ent evaluates w hether a loss has been incurred and uses its best estim ate to quantify the im pairm ent loss, if any, which involves a high level of subjectivity and reliance on assum ptions used in relation to cash flows from a borrower s business activity and the sale of pledged collateral. The collective assessm ent of loans for im pairm ent is susceptible to a risk of error due to the judgm ental nature of source data and models as well as allocation of loans used in probability of default calculations. Because of the significance of these judgem ents and the size of loans we consider the im pairm ent of loans and advances to custom ers to be a key audit matter. Refer to Notes 3 and 9 to the financial statem ents for the descriptions of the G roup s policy on the calculation of allowance for im pairm ent and disclosures of gross carrying amounts and related allowance balances. cash flows from custom ers and from the realization of collateral, assessed the financial standing o f the borrower based on the key financial ratios and the impact of general market and industry conditions on deterioration of the credit risk. Further, we tested the estimated future cash flow s arising from collateral by assessing the work performed by external experts used by the Group to value collateral and compared the valuations to our own research of market values, particularly in respect of comm ercial real estate. For the collective im pairm ent models, we assessed appropriateness of the collective provisioning m ethodology in accordance with IAS 39 requirements as well as the key assum ptions and data inputs, specifically probability of default rates, used in the model. Further, we tested the accuracy and com pleteness o f source data used in the models and the allocation o f loans by days in arrear. W e found no material exceptions in these tests. Written put option - recognition and measurement As discussed in Note 19, on 7 Decem ber 2012, the Group entered into a put option agreem ent. The recognition and valuation o f the put option agreem ent signed between the Group and its shareholders is a key audit m atter due to the com plexity involved in valuing this instrum ent and its significance to the financial position of the Group. W e reviewed and analysed the contractual arrangem ents of the put option agreem ent to understand the key terms and determine w hether the Group s accounting treatm ent is appropriate. W e obtained an understanding of the G roup s process for determ ining fair value measurem ents and disclosures related to fair value measurements. Due to the com plexities involved in the valuation of the instrument, we involved our internal financial instrum ent specialists to evaluate w hether the assum ptions and m ethodologies, used by m anagem ent and third party experts involved during the process to value the instrument, are consistent with those used by market participants in pricing such an agreem ent. W e also assessed w hether calibrations are needed to the relevant input data and valuation models to adjust for the lack of an active market, liquidity and other risk factors associated with this financial instrument. We also read and assessed the disclosures made in relation to the put option agreem ent in the consolidated financial statements.
Deloitte O ther Inform ation - Annual Report M anagem ent is responsible for the other information. The other inform ation com prises the inform ation included in the Annual Report, but does not include the consolidated financial statem ents and our auditors report thereon. The Annual Report is expected to be made available to us after the date of this auditors report. O ur opinion on the consolidated financial statem ents does not cover the other inform ation and we will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider w hether the other inform ation is m aterially inconsistent with the consolidated financial statem ents or our knowledge obtained in the audit, or otherwise appears to be m aterially misstated. W hen we read the Annual Report, if we conclude that there is a material m isstatem ent therein, we are required to com m unicate the m atter to those charged with governance. R esponsibilities o f M anagem ent and Those Charged w ith Governance fo r the Financial Statem ents M anagem ent is responsible for the preparation and fair presentation of the consolidated financial statem ents in accordance with International IFRSs, and for such internal control as m anagem ent determ ines is necessary to enable the preparation of the consolidated financial statem ents that are free from material misstatem ent, w hether due to fraud or error. In preparing the consolidated financial statements, m anagem ent is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless m anagem ent either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group's financial reporting process. A u d ito rs R esponsibilities fo r the A u dit o f the C onsolidated Financial Statem ents Our objectives are to obtain reasonable assurance about w hether the consolidated financial statem ents as a whole are free from material misstatement, w hether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level o f assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material m isstatem ent when it exists. M isstatem ents can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the econom ic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgm ent and maintain professional skepticism throughout the audit. W e also: Identify and assess the risks of material m isstatem ent of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatem ent resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional om issions, m isrepresentations, or the override of internal control. Obtain an understanding o f internal control relevant to the audit in order to design audit procedures that are appropriate in the circum stances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estim ates and related disclosures made by management.
Deloitte. Conclude on the appropriateness of m anagem ent's use of the going concern basis of accounting and, based on the audit evidence obtained, w hether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the consolidated financial statem ents or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and w hether the consolidated financial statements represent the underlying transactions and events in a m anner that achieves fair presentation. We com m unicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. W e also provide those charged with governance with a statem ent that we have complied with relevant ethical requirements regarding independence, and to com m unicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters com m unicated with those charged with governance, we determ ine those matters that were of most significance in the audit of the consolidated financial statem ents of the current period and are therefore the key audit matters. /7 / / r - 0-6 Tftoc ft/ T o Deloitte & Touche Audit Organisation LL( License authorizing audit of companies register"! by the M inistry o f Finance o f the Republic of Uzbekistan under #00500 dated 8 February 2008 Certificate authorizing audit of banks registered by the Central Bank of the Republic of Uzbekistan under #3 dated 14 October 2013 12 May 2017 va Touche Erkir I Auditor/Engagem ent Partner A uditor qualification certificate authorizing audit of companies, #04830 dated 22 May 2010 issued by the M inistry of Finance of the Republic of Uzbekistan A uditor qualification certificate authorizing audit of banks, #6/8 dated 30 June 2015 issued by the Central Bank of the Republic of Uzbekistan Director Deloitte & Touche Audit Organisation LLC
Joint Stock Innovation Commercial Bank Ipak Yuli C onsolidated Statem ent o f Financial Position as at 31 December 2016 (in thousands o f Uzbek Soum s) Notes 31 December 31 December 1 January 2016 2015 2015 (as restated, (as restated, see Note 2) see Note 2) ASSETS: Cash and cash equivalents 7 629,492,999 445,582,669 340,386,032 Due from banks 8 284,182,971 274,179,570 193,907,764 Loans to custom ers 9 1,268,015,661 932,580,354 663,103,588 Investments available-for-sale 10 4,117,410 2,658,000 1,580,772 Current income tax prepaym ents 4,551,162 4,428,966 2,180,893 Intangible assets 11 1,150,103 618,025 531,700 Property and equipm ent 11 78,606,696 71,603,114 56,659,024 Deferred income tax assets 27 2,455,873 1,508,281 1,047,255 Other financial assets 12 3,932,817 2,227,862 1,877,653 Other non-financial assets 13 9,091,130 26,961,221 11,997,107 TOTAL ASSETS 2,285,596,822 1,762,348,062 1,273,271,788 LIABILITIES: Due to banks 15 76,411,649 44,937,496 70,813,666 Custom er accounts 16 1,593,336,182 1,293,752,736 894,150,090 Debt securities issued 17 17,348,846 23,966,347 31,069,575 Other borrowed funds 18 347,354,069 223,184,547 136,824,358 Financial liability - written put option 19 31,209,443 17,037,297 11,017,762 Other financial liabilities 20 7,006,247 6,838,932 5,215,646 Other non-financial liabilities 20 3,897,230 3,732,125 4,072,038 TOTAL LIABILITIES 2,076,563,666 1,613,449,480 1,153,163,135 EQUITY: E quity attributable to owners o f the Bank: Share capital 21 112,653,409 94,173,409 76,973,409 Treasury shares 21 - - (1,087,009) Share premium 21 1,459,500 1,459,500 1,029,500 Retained earnings 21 94,920,247 53,265,673 41,468,599 Total e quity attributable to ow ners o f the Bank 209,033,156 148,898,582 118,384,499 Non-controlling interest - - 1,724,154 TOTAL EQUITY 209,033,156 148,898,582 TOTAL LIABILITIES AND EQUITY 1,762,348,062 120,108,653 1,273,271,788 On behalf o f the Managem ent Alisher M irzaev Acting Chairm an of the C hief Accountant 12 May 2017 12 May 2017 The notes on pages ik-.-6form an integral pan Of these consolidated financial statements.
Joint Stock Innovation Commercial Bank Ipak Yuli C onsolidated Statem ent o f P rofit or Loss and O ther Com prehensive Incom e fo r the year ended 31 December 2016 (in thousands o f Uzbek Soum s) Continuing operations Interest income Interest expense Net interest income before impairment losses on interest bearing assets Impairment losses on interest bearing assets 9 Notes 2016 2015 (as restated, see Note 2) 22 22 179,664,058 (45,591,577) 134,072,481 (10,591,515) 139,654,670 (38,299,767) 101,354,903 (11,649,408) Net interest income 123,480,966 89,705,495 Fee and commission income Fee and commission expense Net gain on foreign exchange operations Put option finance cost Provision for impairment of other assets Recovery of / (provision for) credit related commitments Recovery of / (provision for) impairment of investments availablefor-sale Other income Administrative and other operating expenses Dividend income Profit before income tax Income tax expense Profit fo r the year from continuing operations Discontinued operations 23 23 12,13 10 24 25 26 27 102,913,948 (24,311,089) 7,107,088 (14,172,146) (248,131) 527,415 33,065 10,304,050 (137,677,336) 1,372,228 69,330,058 (14,880,435) 54,449,623 79,425,755 (17,893,356) 6,810,702 (6,019,535) (939,394) (209,915) (15,311) 4,906,284 (117,669,618) 1,393,333 39,494,440 (9,977,251) 29,517,189 Profit / (loss) for the year from discontinued operations, net of tax 14, 27 5,684,951 (424,115) Net profit fo r the year 60,134,574 29,093,074 Other comprehensive income Total comprehensive income fo r the year 60,134,574 29,093,074 Attributable to: Owners of the Bank 60,134,574 29,093,074 Earnings per share From continuing and discontinued operations Basic and diluted earnings per preference share (expressed in UZS per share) Basic and diluted earnings per ordinary share (expressed in UZS per share) 29 5.39 5.39 3.63 3.63 From continuing operations Basic and diluted earnings per preference share (expressed in UZS per share) / / Basic and diluted earnings per ordinary s h a w f'^ T w ; (expressed in UZS per share) 4.88 4.88 3.68 3.68 On behalf o f the Managem ent Board: Л Ш1 Alisher Mirzaev Acting Chairm an of the Manager 12 M ay 2017 d / Ш а Nazirova L ntiboard ^ V /C h ie f Accountant /1 12 May 2017 / I The notes on pages 12-76 form an integrai part of these consolidated financial statements. 8
I 1 I I I I I I I I I I I I I I I I I Joint Stock Innovation Commercial Bank Ipak Yuli Consolidated Statem ent o f Changes in Equity fo r the Year Ended 31 Decem ber 2016 Notes Share capital Treasury shares Share premium Retained earnings Total Noncontrolling interest Total equity As at 1 January 2015 76,973,409 (1,087,009) 1,029,500 51,604,940 128,520,840 1,724,154 130,244,994 Restatement (see Note 2) 2 - - - (10,136,341) (10,136,341) - (10,136,341) As at 1 January 2015, as restated 76,973,409 (1,087,009) 1,029,500 41,468,599 118,384,499 1,724,154 120,108,653 Profit for the period as reported in 2015 financial statements - - - 34,631,046 34,631,046-34,631,046 Restatement (see Note 2) 2 - - - (5,537,972) (5,537,972) - (5,537,972) Profit for the period, as restated - - - 29,093,074 29,093,074-29,093,074 Other comprehensive income - - - - - - - Total comprehensive income for 2015, as restated - - - 29,093,074 29,093,074-29,093,074 Share issue: - ordinary shares - cash 21 1,052,809-26,320-1,079,129-1,079,129 - ordinary shares - dividends capitalised 21 16,147,191-403,680-16,550,871-16,550,871 Disposal of subsidiary 1,10-1,087,009 - - 1,087,009 (1,724,154) (637,145) Dividends declared - ordinary shares 28 - - - (17,294,620) (17,294,620) - (17,294,620) Dividends declared - preference shares 28 - - - (1,380) (1,380) - (1,380) 31 December 2015, as restated 94,173,409-1,459,500 53,265,673 148,898,582-148,898,582 Profit for the period - - - 60,134,574 60,134,574-60,134,574 Other comprehensive income -. - - - - - Total comprehensive income fo r 2016 - - - 60,134,574 60,134,574-60,134,574 Share issue: - ordinary shares - dividends capitalised 21 18,478,800 - - - 18,478,800-18,478,800 - preference shares - dividends capitalised 21 1,200 - - - 1,200-1,200 Dividends declared - ordinary shares 28 - - - (18,478,800) (18,478,800) - (18,478,800) Dividends declared - preference shares 28 - - - (1,200) (1,200) - (1,200) 31 December 2016 112,653,409-1,459,500 94,920,247 209,033,156-209,033,156 On behalf o f the M anagem en A lisher M irzaev Acting C hairm an o f t 12 M ay 2017 Tashkent, U Aida Nazirova C hief Accountant 12 M ay 2017 The notes on pages 12-76 form an integral part of these consolidated financial statements. 9
Joint Stock Innovation Commercial Bank Ipak Yuli C onsolidated Statem ent o f Cash Flows fo r the Year Ended December 31, 2016 (in thousands o f Uzbek Soums) Notes 2016 2015 Cash flo w s from operating activitie s Interest received 173,174,067 137,467,456 Interest paid (40,252,467) (39,167,235) Fee and comm ission received 102,384,979 79,947,872 Fee and comm ission paid (25,801,782) (17,845,507) Income received from trading in foreign currencies 1,486,593 1,876,122 Other operating income received 11,431,429 4,974,662 Staff costs paid (86,308,232) (74,358,163) Adm inistrative and other operating expenses paid (40,489,185) (34,623,441) Income tax paid (17,267,661) (12,686,349) Cash flo w s from operating a ctivitie s before changes in operating assets and liab ilities 78,357,741 45,585,417 Net increasez(decrease) in: - due from banks (10,780,848) (78,051,015) - loans to custom ers (270,587,952) (277,495,494) - other financial assets 136,161 (767,966) - other assets 92,545 (10,475,324) Net increase/(decrease) in: - due to other banks 31,084,734 (26,316,079) - custom er accounts 298,286,434 398,202,475 - debt securities in issue (7,037,066) (7,349,456) - other financial liabilities 3,486 (15,328) - other non-financial liabilities (212,491) 410,842 Net cash from operating activitie s 119,342,744 43,728,072 Cash flo w s from investing a ctivitie s Proceeds from disposal of investm ent securities available for sale Acquisition o f premises, equipm ent and intangible assets Proceeds from disposal of prem ises and equipm ent Dividend income received 10 135,000 (24,752,879) 349,555 1,140,373 187,280 (29,627,566) 382,380 1,393,333 Net cash used in investing activitie s (23,127,951) (27,664,573) The notes on pages 12-76 form an integral part oi these consolidated financial statements. 10
Joint Stock Innovation Commercial Bank Ipak Yuli C onsolidated Statem ent o f Cash Flows (continued) fo r the Year Ended December 31, 2016 (in thousands o f Uzbek Soums) Notes 2016 2015 Cash flow s from financing activities Proceeds from other borrowed funds 169,978,223 117,056,430 Repayment of other borrowed funds Issuance of ordinary shares Dividends paid 21 28 (86,346,017) (10,131) (31,404,714) 1,079,129 (621,057) Net cash from fin an cin g a ctivitie s 83,622,075 86,109,788 Effect o f exchange rate changes on cash and cash equivalents 4,073,462 3,023,350 Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year 7 183,910,330 445,582,669 105,196,637 340,386,032 Cash and cash equivalents at the end o f the year 7 629,492,999 445,582,669 Non-cash transactions Capitalization of dividends Sale of subsidiary on deferred terms Net change in fair value of financial liability - written put option 31 December 2016 18.480.000 11.900.000 14,172,146 31 December 2015 16,550,871 6,019,535 The notes on pages 12-76 form an integral part of these consolidated financial statements 11