international financial reporting standards consolidated … · 2016. 7. 20. · independent...

GROUP OF PUBLIC JOINT STOCK BANK “TRANSCAPITALBANK”

International Financial Reporting Standards Consolidated Financial Statements and Independent Auditor’s Report

31 December 2015

Group of Public Joint Stock Bank “TRANSCAPITALBANK”

CONTENTS INDEPENDENT AUDITOR’S REPORT CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Position ................................................................................................................ 1 Consolidated Statement of Profit or Loss and Other Comprehensive Income ............................................................... 2 Consolidated Statement of Changes in Equity ............................................................................................................... 3 Consolidated Statement of Cash Flows ......................................................................................................................... 4 Notes to the Consolidated Financial Statements 1 Introduction ......................................................................................................................................................... 5 2 Operating Environment of the Group .................................................................................................................. 6 3 Summary of Significant Accounting Policies ....................................................................................................... 6 4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies ............................................ 17 5 Adoption of New or Revised Standards and Interpretations ............................................................................. 18 6 New Accounting Pronouncements .................................................................................................................... 18 7 Cash and Cash Equivalents ............................................................................................................................. 20 8 Trading Securities ............................................................................................................................................. 22 9 Due from Other Banks ...................................................................................................................................... 22 10 Loans and Advances to Customers .................................................................................................................. 23 11 Investment Securities Available for Sale ........................................................................................................... 30 12 Repurchase Receivables .................................................................................................................................. 30 13 Investment in Associates .................................................................................................................................. 31 14 Premises, Equipment and Intangible Assets .................................................................................................... 32 15 Other Assets ..................................................................................................................................................... 32 16 Due to Other Banks .......................................................................................................................................... 34 17 Customer Accounts .......................................................................................................................................... 35 18 Debt Securities in Issue .................................................................................................................................... 36 19 Other Borrowed Funds ..................................................................................................................................... 36 20 Subordinated Debt ............................................................................................................................................ 37 21 Other Liabilities ................................................................................................................................................. 37 22 Share Capital .................................................................................................................................................... 38 23 Interest Income and Expense ........................................................................................................................... 38 24 Fee and Commission Income and Expense ..................................................................................................... 39 25 Administrative and Other Operating Expenses ................................................................................................. 39 26 Income Taxes ................................................................................................................................................... 40 27 Segment Analysis ............................................................................................................................................. 41 28 Financial Risk Management ............................................................................................................................. 46 29 Management of Capital ..................................................................................................................................... 59 30 Contingencies and Commitments ..................................................................................................................... 60 31 Offsetting Financial Asset and Financial Liabilities ........................................................................................... 64 32 Transfers of Financial Assets ........................................................................................................................... 65 33 Derivative Financial Instruments ....................................................................................................................... 66 34 Fair Value of Financial Instruments .................................................................................................................. 66 35 Presentation of Financial Instruments by Measurement Category ................................................................... 70 36 Related Party Transactions .............................................................................................................................. 71 37 Events after the End of the Reporting Period ................................................................................................... 72

Group of Public Joint Stock Bank “TRANSCAPITALBANK” Consolidated Statement of Profit or Loss and Other Comprehensive Income

The notes set out on pages 5 to 73 form an integral part of these consolidated financial statements. 2

In thousands of Russian Roubles Note 2015 2014

Interest income 23 22 184 624 15 535 244

Interest expense 23 (13 168 681) (8 245 594) Deposits insurance program charge 23 (163 223) (143 931)

Net margin

8 852 720 7 145 719

Provision for loans and advances to customers 10 (6 495 031) (1 588 285)

Net margin after provision for loans and advances

2 357 689 5 557 434 Fee and commission income 24 2 422 040 2 143 540 Fee and commission expense 24 (498 655) (425 474) Gains less losses from trading securities 2 039 095 (1 430 140) Gains less losses (losses less gains) from investment securities available for sale 11 397 (2 332) Gains less losses from trading in foreign currencies 180 643 398 765 Losses less gains from financial derivatives

(1 243 177) (142 822)

Foreign exchange translation gains less losses

717 709 515 957 Provisions for liabilities and charges 30 (659 293) - Other reserves 15 (88 955) (14 290) Gain on disposal of associate 13 - 20 764 Other operating income

87 562 82 152

Administrative and other operating expenses 25 (4 324 868) (4 432 976)

Profit before tax

1 001 187 2 270 578 Income tax expense 26 (89 287) (438 777)

Net profit for the year

911 900 1 831 801

Other comprehensive income / (losses) Items that may be reclassified subsequently to profit or loss: Investment securities available-for-sale investments: - Losses less gains

(55 632) (20 367) - (Losses less gains)/gains less losses reclassified to profit or loss upon

disposal or impairment

(11 397) 2 332 Income tax reclaim recorded directly in other comprehensive income

13 406 3 607

Other comprehensive loss for the year

(53 623) (14 428)

Total comprehensive income for the year

858 277 1 817 373

Group of Public Joint Stock Bank “TRANSCAPITALBANK” Consolidated Statement of Changes in Equity


In thousands of Russian Roubles

Share capital Share premium

Retained earnings

Revaluation investment

securities available-for-

sale

Total net equity

Balance at 1 January 2014 2 533 352 4 566 362 8 920 101 - 16 019 815

Profit for the year - - 1 831 801 - 1 831 801 Other comprehensive losses for 2014 - - - (14 428) (14 428)

Total comprehensive income for 2014 - - 1 831 801 (14 428) 1 817 373

Balance at 31 December 2014 2 533 352 4 566 362 10 751 902 (14 428) 17 837 188

Profit for the year - - 911 900 - 911 900

Other comprehensive loss for 2015 - - - (53 623) (53 623)

Total comprehensive income for 2015 - - 911 900 (53 623) 858 277

Balance at 31 December 2015 2 533 352 4 566 362 11 663 802 (68 051) 18 695 465

Group of Public Joint Stock Bank “TRANSCAPITALBANK” Consolidated Statement of Cash Flows



Cash flows from operating activities Interest received

20 201 346 15 073 753 Interest paid

(13 332 907) (7 805 427)

Fees and commissions received

2 425 572 2 153 522 Fees and commissions paid

(498 655) (425 474)

Gains, net of losses / (losses, net of gains) received from trading securities

468 700 (653 881) Gains, net of losses / (losses, net of gains) from investment securities available for

sale

11 397 (2 332) Income received from trading in foreign currencies

180 643 398 765

Losses, net of gains from financial derivatives

(764 553) (706 571) Other operating income received

76 405 78 700

Administrative and other operating expenses paid

(4 188 246) (4 134 814) Income tax paid

(332 051) (563 377)

Cash flows from operating activities before changes in operating assets and

liabilities

4 247 651 3 412 864

Net (increase)/decrease in: - mandatory cash balances with the CBRF

86 050 (89 594) - trading securities

(15 526 848) 6 000 501

- repurchase receivables representing trading securities

9 203 842 (11 203 392) - due from other banks

(21 504 480) 243 575

- loans and advances to customers

3 217 683 (14 990 463) - held to maturity investment securities

- 91 285

- other financial assets

(973 711) 337 215 - other assets

(613 448) 25 562

Net increase/(decrease) in: - due to other banks

9 343 066 14 307 215 - customer accounts

103 563 2 323 279

- debt securities in issue

(899 350) (5 195 441) - other financial liabilities

129 570 (170 831)

- other liabilities

63 058 60 707

Net cash used in operating activities

(13 123 354) (4 847 518)

Cash flows from investing activities Acquisition of premises and equipment and intangible assets 14 (83 005) (183 924)

Acquisition of investment securities available for sale

(9 126 980) (716 252) Proceeds from disposal of premises and equipment

6 098 3 146

Net cash used in investing activities

(9 203 887) (897 030)

Cash flows from financing activities

Raising loan from The State Corporation Deposit Insurance Agency 19 500 000 - Proceeds from disposal of associate - 20 764 Raising of subordinated loan

102 552 -

Issue of bonds 2 596 953 - Redemption of bonds

(2 686 547) (1 830 690)

Net cash (used in)/from financing activities

19 512 958 (1 809 926)

Effect of exchange rate changes on cash and cash equivalents

1 824 557 3 145 846

Net decrease in cash and cash equivalents

(989 726) (4 408 628)

Cash and cash equivalents at the beginning of the year 7 13 820 363 18 228 991

Cash and cash equivalents at the end of the year 7 12 830 637 13 820 363

Group of Public Joint Stock Bank “TRANSCAPITALBANK” Notes to the Consolidated Financial Statements – 31 December 2015

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1 Introduction

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards for the year ended 31 December 2015 for TRANSCAPITALBANK (the “Bank”) and its subsidiaries including a leasing company “Oblik” JSC, an Eurobond Special Purpose Venture Transregionalcapital Ltd, mortgage Special Purpose Ventures CJSC “MA TKB-1” and LLC “MA TKB-2”, an asset holding company LLC “Tritail” (together referred to as the “Group”).

The Bank does not have any direct or indirect shareholdings in the subsidiaries Transregionalcapital Ltd, CJSC “MA TKB-1” and LLC “MA TKB-2”. Special Purpose Venture Transregionalcapital Ltd was established to raise capital by the issue of eurobonds. Special Purpose Ventures CJSC “MA TKB-1” and LLC “MA TKB-2” were established to issue bonds on domestic market and secured by mortgage loans.

The Bank was incorporated and is domiciled in the Russian Federation. The Bank is a joint stock company limited by shares and was set up in accordance with Russian regulations.

As at 31 December 2015 and 31 December 2014 the following shareholders owned more than 5% of the outstanding shares:

Shareholder 31 December

2015 31 December

2014

European Bank for Reconstruction and Development 28.59% 28.59%

Gryadovaya Olga Viktorovna 22.04% 22.04% Ivanovsky Leonid Nikolaevich 12.24% 12.24% DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH 9.14% 9.14% International Finance Corporation 7.72% 7.72% Other (less than 5% individually) 20.27% 20.27%

Total 100.00% 100.00%

Principal activity. The Group’s principal business activity is banking operations within the Russian Federation. The Bank has operated under full banking licence No. 2210 issued by the Central Bank of the Russian Federation (“CBRF”) since 1992. The Bank participates in the state deposit insurance program, which was introduced by Federal Law No. 177-FZ “Deposits of individuals insurance in Russian Federation” dated 23 December 2003. The State Corporation Deposit Insurance Agency guarantees repayment of 100% of individual deposits up to RR 1 400 thousand (before 29 December 2014: RR 700 thousand) per individual in the case of the withdrawal of a licence of a bank or a CBRF imposed moratorium on payments.

At 31 December 2015 the Bank had 13 (31 December 2014: 18) branches within the Russian Federation. The Group had 2 357 employees at 31 December 2015 (2014: 2 461 employees).

Registered address and place of business. The Bank’s registered address is: Russian Federation, 109147 Moscow, 27/35 Vorontsovskaya Str. The Bank’s principal place of business is: Russian Federation 105062, Moscow, 24/2 Pokrovka Str.

Presentation currency. These consolidated financial statements are presented in Russian Roubles (“RR”), unless otherwise stated.


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2 Operating Environment of the Group

Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations. During 2015, the Russian economy was negatively impacted by low oil prices, ongoing political tension in the region and continuing international sanctions against certain Russian companies and individuals, all of which contributed to the country’s economic recession characterised by a decline in gross domestic product. The financial markets continue to be volatile and are characterised by frequent significant price movements and increased trading spreads. Russia's credit rating was downgraded to below investment grade. This operating environment has a significant impact on the Group’s operations and financial position. Management is taking necessary measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to predict and management’s current expectations and estimates could differ from actual results.

Management determined loan impairment provisions using the “incurred loss” model required by the applicable accounting standards. These standards require recognition of impairment losses that arose from past events and prohibit recognition of impairment losses that could arise from future events, including future changes in the economic environment, no matter how likely those future events are. Thus final impairment losses from financial assets could differ significantly from the current level of provisions.

3 Summary of Significant Accounting Policies

Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, and by the revaluation of available-for-sale financial assets, and financial instruments categorised at fair value through profit or loss. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated (refer to Note 5).

Consolidated financial statements. Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of investor’s returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than majority of voting power in an investee. In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group, and are deconsolidated from the date on which control ceases.

The acquisition method of accounting is used to account for acquisition of subsidiaries. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.

Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed, and reviews appropriateness of their measurement.


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3 Summary of Significant Accounting Policies (Continued)

The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements, but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt are deducted from its carrying amount and all other transaction costs associated with the acquisition are expensed.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Bank and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies.

Disposals of subsidiaries and associates. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss, where appropriate.

Financial instruments - key measurement terms. Depending on their classification, financial instruments are carried at fair value or amortised cost as described below.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the quantity held by the entity. This is the case even if a market’s normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price.

The Group uses the last bid price as the quoted market price for financial assets and the last asking price as the quoted market price for financial liabilities.

A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an active market is measured at the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure or paid to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between market participants at the measurement date. This is applicable for assets carried at fair value on a recurring basis if the Group: (a) manages the group of financial assets and financial liabilities on the basis of the entity’s net exposure to a particular market risk (or risks) or to the credit risk of a particular counterparty in accordance with the entity’s documented risk management or investment strategy; (b) it provides information on that basis about the group of assets and liabilities to the entity’s key management personnel; and (c) the market risks, including duration of the entity’s exposure to a particular market risk (or risks) arising from the financial assets and financial liabilities is substantially the same.


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Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of financial data of the investees, are used to measure fair value of certain financial instruments for which external market pricing information is not available. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs).

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition and includes transaction costs. Measurement at cost is only applicable to investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured and derivatives that are linked to, and must be settled by, delivery of such unquoted equity instruments.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the statement of financial position.

The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.

Initial recognition of financial instruments. Trading securities, derivatives and other financial instruments at fair value through profit or loss are initially recorded at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date on which the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.


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The Group uses discounted cash flow valuation techniques to determine the fair value of currency swaps, foreign exchange forwards], loans to related parties that are not traded in an active market. Differences may arise between the fair value at initial recognition, which is considered to be the transaction price, and the amount determined at initial recognition using a valuation technique with level 3 inputs. Any such differences are initially recognised within other assets or other liabilities and are subsequently amortised on a straight line basis over the term of the instrument. The differences are immediately recognised in profit or loss if the valuation uses only level 1 or level 2 inputs.

Derecognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership, but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose restrictions on the sale.

Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents include all interbank placements with original maturities of less than three months. Funds restricted for a period of more than three months on origination are excluded from cash and cash equivalents. Cash and cash equivalents are carried at amortised cost.

The payments or receipts presented in the statement of cash flows represent transfers of cash and cash equivalents by the Group, including amounts charged or credited to current accounts of the Group’s counterparties held with the Group, such as loan interest income or principal collected by charging the customer’s current account or interest payments or disbursement of loans credited to the customer’s current account, which represents cash or cash equivalent from the customer’s perspective.

Mandatory cash balances with the Central Bank of Russian Federation (“CBRF”). Mandatory cash balances with the CBRF are carried at amortised cost and represent non-interest bearing mandatory reserve deposits which are not available to finance the Group’s day-to-day operations, and hence are not considered as part of cash and cash equivalents for the purposes of the consolidated statement of cash flows.

Trading securities. Trading securities are financial assets which are either acquired for generating a profit from short-term fluctuations in price or trader’s margin, or are securities included in a portfolio in which a pattern of short-term trading exists. The Group classifies securities into trading securities if it has an intention to sell them within a short period after purchase, i.e. within six months.

The Group may choose to reclassify a non-derivative trading financial asset out of the fair value through the profit or loss category if the asset is no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables are permitted to be reclassified out of fair value through the profit or loss category only in rare circumstances arising from a single event that is unusual and highly unlikely to reoccur in the near term. Financial assets that would meet the definition of loans and receivables may be reclassified if the Group has the intention and ability to hold these financial assets for the foreseeable future, or until maturity.

Trading securities are carried at fair value. Interest earned on trading securities calculated using the effective interest method is presented in profit or loss for the year as interest income. Dividends are included in dividend income when the Group’s right to receive the dividend payment is established, and it is probable that the dividends will be collected. All other elements of the changes in the fair value and gains or losses on derecognition are recorded in profit or loss for the year as gains less losses from trading securities in the period in which they arise.

Due from other banks. Amounts due from other banks are recorded when the Group advances money to counterparty banks with no intention of trading the resulting unquoted non-derivative receivable due on fixed or determinable dates. Amounts due from other banks are carried at amortised cost.


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Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to purchase or originate a non-derivative receivable from a customer due on fixed or determinable dates, and has no intention of trading the receivable. Loans and advances to customers are carried at amortised cost.

Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics, and collectively assesses them for impairment.

The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if any.

The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred:

any installment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems;

the borrower experiences a significant financial difficulty as evidenced by the borrower’s financial information that the Group obtains;

the borrower considers bankruptcy or a financial reorganisation;

there is an adverse change in the payment status of the borrower as a result of changes in the national or local economic conditions that impact the borrower; or

the value of collateral significantly decreases as a result of deteriorating market conditions.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment, are estimated on the basis of the contractual cash flows of the assets and the experience of management in respect of the extent to which amounts will become overdue as a result of past loss events and the success of recovery of overdue amounts. Past experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect past periods, and to remove the effects of past conditions that do not exist currently.

If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification of terms. The renegotiated asset is then derecognised and a new asset is recognised at its fair value only if the risks and rewards of the asset substantially changed. This is normally evidenced by a substantial difference between the present values of the original cash flows and the new expected cash flows.

Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.


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If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year.

Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment loss account in profit or loss for the year.

Repossessed collateral. Repossessed collateral represents financial and non-financial assets acquired by the Group in settlement of overdue loans. The assets are initially recognised at fair value when acquired and included in premises and equipment, other financial assets, investment properties or inventories within other assets depending on their nature and the Group's intention in respect of recovery of these assets, and are subsequently remeasured and accounted for in accordance with the accounting policies for these categories of assets.

Where repossessed collateral results in acquiring control over a business, the business combination is accounted for using the acquisition method of accounting with fair value of the settled loan representing the cost of acquisition (refer to the accounting policy for consolidation). Accounting policy for associates is applied to repossessed shares where the Group obtains significant influence, but not control. The cost of the associate is the fair value of the loan settled by repossessing the pledged shares.

Credit related commitments. The Group issues financial guarantees and commitments to provide loans. Financial guarantees represent irrevocable assurances to make payments in the event that a customer cannot meet its obligations to third parties, and carry the same credit risk as loans. Financial guarantees and commitments to provide a loan are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the commitment, except for commitments to originate loans if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination; such loan commitment fees are deferred and included in the carrying value of the loan on initial recognition.

At the end of each reporting period, the commitments are measured at the higher of (i) the remaining unamortised balance of the amount at initial recognition and (ii) the best estimate of expenditure required to settle the commitment at the end of each reporting period.

The principal criteria used to determine that there is objective evidence that expenditure to settle the commitment is required are the same to those principal criteria used to determine that there is objective evidence that an impairment loss has occurred for financial assets carried at amortised cost.

In cases where the fees are charged periodically in respect of an outstanding commitment, they are recognised as revenue on a time proportion basis over the respective commitment period.

Performance guarantees. Performance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation. Such contracts transfer non-financial performance risk in addition to credit risk. Performance guarantees are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the contract. At the end of each reporting period, the performance guarantee contracts are measured at the higher of (i) the unamortised balance of the amount at initial recognition and (ii) the best estimate of expenditure required to settle the contract at the end of each reporting period, discounted to present value. Where the Group has the contractual right to revert to its customer for recovering amounts paid to settle the performance guarantee contracts, such amounts will be recognised as loans and receivables upon transfer of the loss compensation to the guarantee’s beneficiary.

The principal criteria used to determine that there is objective evidence that expenditure to settle the commitment is required are the same to those principal criteria used to determine that there is objective evidence that an impairment loss has occurred for financial assets carried at amortised cost.


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Investment securities available for sale. This classification includes investment securities which the Group intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.

Investment securities available for sale are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method, and recognised in profit or loss for the year.

Dividends on available-for-sale equity instruments are recognised in profit or loss for the year when the Group’s right to receive payment is established and it is probable that the dividends will be collected. All other elements of changes in the fair value are recognised in other comprehensive income until the investment is derecognised or impaired, at which time the cumulative gain or loss is reclassified from other comprehensive income to profit or loss for the year. Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of investment securities available for sale. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired.

The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss – is reclassified from other comprehensive income to profit or loss for the year. Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other comprehensive income.

If, in a subsequent period, the fair value of a debt instrument classified as “available for sale” increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss for the year.

Sale and repurchase agreements and lending of securities. Sale and repurchase agreements (“repo agreements”), which effectively provide a lender’s return to the counterparty, are treated as secured financing transactions. Securities sold under such sale and repurchase agreements are not derecognised. The securities are reclassified as repurchase receivables in the statement of financial position if the transferee has the right by contract or custom to sell or repledge the securities. The corresponding liability is presented within amounts “due to other banks”.

Securities purchased under agreements to resell (“reverse repo agreements”), which effectively provide a lender’s return to the Group, are recorded as “due from other banks” or “loans and advances to customers”, as appropriate. The difference between the sale and repurchase price, adjusted by interest and dividend income collected by the counterparty, is treated as interest income and accrued over the life of repo agreements using the effective interest method.

Premises and equipment. Premises and equipment are stated at cost less accumulated depreciation and provision for impairment where required. The cost of premises and equipment of acquired subsidiaries is the estimated fair value at the date of acquisition. All other items of premises and equipment are stated at cost less accumulated depreciation and impairment losses, where required.

Costs of minor repairs and day-to-day maintenance are expensed when incurred. Costs of replacing major parts or components of premises and equipment items are capitalised, and the replaced part is retired.

At the end of each reporting period management assesses whether there is any indication of impairment of premises and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s fair value less costs to sell and its value in use. The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in profit or loss for the year. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset’s value in use or fair value less costs to sell.

Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit or loss for the year within other operating income or expenses.


13


Depreciation. Land and construction in progress are not depreciated. Depreciation on other items of premises and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows:

Useful lives in years Premises 50 Equipment 3-10 Intangible assets 5

Construction in progress is carried at cost less provision for impairment where required. Upon completion, assets are transferred to premises and equipment at their carrying amount. Construction in progress is not depreciated until the asset is available for use. The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Intangible assets. The Group’s intangible assets other than goodwill have definite useful life and primarily include capitalised computer software.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Development costs that are directly associated with identifiable and unique software controlled by the Group are recorded as intangible assets if the inflow of incremental economic benefits exceeding costs is probable. Capitalised costs include staff costs of the software development team and an appropriate portion of relevant overheads. All other costs associated with computer software, e.g. its maintenance, are expensed when incurred. Capitalised computer software is amortised on a straight line basis over expected useful lives of 5 years.

Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss for the year (rental expense) on a straight-line basis over the period of the lease.

Leases embedded in other agreements are separated if (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets and (b) the arrangement conveys a right to use the asset.

Finance lease receivables. Where the Group is a lessor in a lease which transfers substantially all the risks and rewards incidental to ownership to the lessee, the assets leased out are presented as a finance lease receivable and carried at the present value of the future lease payments. Finance lease receivables are initially recognised at commencement (when the lease term begins) using a discount rate determined at inception (the earlier of the date of the lease agreement and the date of commitment by the parties to the principal provisions of the lease).

The difference between the gross receivable and the discounted value of future lease payments represents unearned finance income. This income is recognised over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return. Incremental costs directly attributable to negotiating and arranging the lease are included in the initial measurement of the finance lease receivable and reduce the amount of income recognised over the lease term. Finance income from leases is recorded in profit or loss for the year. Finance income from leases is recorded within interest income on loans.

Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of finance lease receivables. The Group uses the same principal criteria to determine whether there is objective evidence that an impairment loss has occurred, as for loans carried at amortised cost. Impairment losses are recognised through an allowance account to write down the receivables’ net carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred), discounted at the interest rates implicit in the finance leases. The estimated future cash flows reflect the cash flows that may result from obtaining and selling the assets subject to the lease.


14


Due to other banks. Amounts due to other banks are recorded when money or other assets are advanced to the Group by counterparty banks. The non-derivative liability is carried at amortised cost. If the Group purchases its own debt, the liability is removed from the consolidated statement of financial position and the difference between the carrying amount of the liability and the consideration paid is included in gains or losses arising from settlement of debt.

Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporate customers and are carried at amortised cost.

Debt securities in issue. Debt securities in issue include promissory notes, bonds, certificates of deposit and debentures issued by the Group. Debt securities are stated at amortised cost. If the Group purchases its own debt securities in issue, they are removed from the consolidated statement of financial position and the difference between the carrying amount of the liability and the consideration paid is included in gains arising from retirement of debt.

Other borrowed funds. Other borrowed funds include the funds received from the State Corporation Deposit Insurance Agency within the scope of the procedures for financial rehabilitation of PJSC “Investtradebank” and are carried at amortised cost (Note 37). The corresponding expenses are recorded as interest expense in the consolidated statement of profit or loss.

Subordinated debt. Subordinated debt is debt which ranks after other debts should the Bank fall into receivership or be closed. Subordinated debt is carried at amortised cost.

Derivative financial instruments. Derivative financial instruments, including foreign exchange contracts are carried at their fair value.

All derivative instruments are carried as assets when fair value is positive, and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss for the year (gains less losses on derivatives). The Group does not apply hedge accounting.

Certain derivative instruments embedded in other financial instruments are treated as separate derivative instruments when their risks and characteristics are not closely related to those of the host contract.

Income taxes. Income taxes have been provided for in the consolidated financial statements in accordance with legislation enacted or substantively enacted by the end of the reporting period. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year, except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity.

Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if the financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within administrative and other operating expenses.

Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period, which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group.

Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.


15


Deferred income tax is not recognised on post-acquisition retained earnings and other post acquisition movements in reserves of subsidiaries where the Group controls the subsidiary’s dividend policy, and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future.

Uncertain tax positions. The Group's uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period.

Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

Trade and other payables. Trade payables are accrued when the counterparty has performed its obligations under the contract and are carried at amortised cost.

Share capital. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recorded as share premium in equity.

Income and expense recognition. Interest income and expense are recorded on an accrual basis using the effective interest method. This method defers, as part of interest income or expense, all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Fees integral to the effective interest rate include origination fees received or paid by the entity relating to the creation or acquisition of a financial asset or issuance of a financial liability, for example fees for evaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating the terms of the instrument and for processing transaction documents. Commitment fees received by the Group to originate loans at market interest rates are integral to the effective interest rate if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination. The Group does not designate loan commitments as financial liabilities at fair value through profit or loss.

When loans and other debt instruments become doubtful of collection, they are written down to the present value of expected cash inflows and interest income is thereafter recorded for the unwinding of the present value discount based on the asset’s effective interest rate which was used to measure the impairment loss.

All other fees, commissions and other income and expense items are generally recorded on an accrual basis by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Loan syndication fees are recognised as income when the syndication has been completed and the Group retains no part of the loan package for itself, or retains a part at the same effective interest rate as for the other participants.

Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as the acquisition of loans, shares or other securities or the purchase or sale of businesses, and which are earned on execution of the underlying transaction, are recorded on its completion. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time-proportion basis. Asset management fees relating to investment funds are recorded rateably over the period that the service is provided. The same principle is applied for wealth management, financial planning and custody services that are continually provided over an extended period of time.


16


Foreign currency translation. The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. Different entities within the Group may have different functional currencies, based on the underlying economic conditions of their operations. The Bank and its subsidiaries have Russian Roubles (“RR”) as its functional currency, as its activities are mostly based in the Russian Federation and are dependent on the condition of the Russian economy. Management evaluates the appropriateness of the respective functional currencies for the entities of the Group from time to time, so that the functional currency of any entity of the Group may change, once the economic conditions it is reliant on so dictate.

Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate of the CBRF at the end of the respective reporting period.

Foreign exchange gains and losses resulting from the settlement of transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange rates of the CBRF, are recognised in profit or loss for the year (as foreign exchange translation gains less losses). Translation at year-end rates does not apply to non-monetary items that are measured at historical cost.

Non-monetary items measured at fair value in a foreign currency, including equity investments, are translated using the exchange rates at the date when the fair value was determined.

Effects of exchange rate changes on non-monetary items measured at fair value in a foreign currency are recorded as part of the fair value gain or loss.

Loans between Group entities and related foreign exchange gains or losses are eliminated upon consolidation. However, where the loan is between Group entities that have different functional currencies, the foreign exchange gain or loss cannot be eliminated in full and is recognised in the consolidated profit or loss, unless the loan is not expected to be settled in the foreseeable future and thus forms part of the net investment in foreign operation. In such a case, the foreign exchange gain or loss is recognised in other comprehensive income.

The results and financial position of each Group entity are translated into the presentation currency as follows:

(i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the respective reporting period;

(ii) income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions);

(iii) components of equity are translated at the historic rate; and

(iv) all resulting exchange differences are recognised in other comprehensive income.

When control over a foreign operation is lost, the exchange differences previously recognised in other comprehensive income are reclassified to profit or loss for the year as part of the gain or loss on disposal. On partial disposal of a subsidiary without loss of control, the related portion of accumulated currency translation differences is reclassified to non-controlling interest within equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

At 31 December 2015, the principal rate of exchange used for translating foreign currency balances was USD 1 = RR 72.8827 (2014: USD 1 = RR 56.2584), EUR 1 = RR 79.6972 (2014: EUR 1 = RR 68.3427).

Fiduciary assets. Assets held by the Group in its own name, but on the account of third parties, are not reported in the consolidated statement of financial position. Commissions received from fiduciary activities are shown in fee and commission income.


17


Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Such a right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following circumstances: (i) in the normal course of business, (ii) the event of default and (iii) the event of insolvency or bankruptcy.

Staff costs and related contributions. Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by the employees of the Group. The Group has no legal or constructive obligation to make pension or similar benefit payments beyond the payments to the statutory defined contribution scheme.

Segment reporting. Segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. Segments which revenue, result or assets are ten percent or more of all the segments are reported separately.

Amendments of the consolidated financial statements after issue. The Board of Directors have the power to amend the financial statements after issue.

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognised in the consolidated financial statements, and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Impairment losses on loans and advances to customers. The Group regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in profit or loss for the year, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a Group, or national or local economic conditions that correlate with defaults on assets in the Group.

Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. A 10% increase or decrease in actual loss experience compared to the loss estimates used would result in an increase or decrease in loan impairment losses of RR 1 231 342 thousand (2014: RR 756 739 thousand), respectively.

Impairment losses for individually significant loans are based on estimates of discounted future cash flows of the individual loans, taking into account repayments and realisation of any assets held as collateral against the loans. A 10% increase or decrease in the actual loss experience compared to the estimated future discounted cash flows from individually significant loans (top 10), which could arise from differences in amounts and timing of the cash flows, would result in an increase or decrease in loan impairment losses of RR 130 073 thousand (2014: RR 127 082 thousand), respectively.

Structured entities. Structured entities are designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Judgement is also required to determine whether the substance of the relationship between the Group and a structured entity indicates that the structured entity is controlled by the Group. The Group does not consolidate structured entities that it does not control.


18

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued)

Management takes into consideration the factors presented in IFRS 10 “Consolidated Financial Statements” and makes judgements about its exposure to the risks and rewards, as well as about its ability to make operational decisions for the structured entity in question. In cases where more arguments are in place towards existence of control, the structured entity is consolidated.

The Group issued bonds though a consolidated structured entities incorporated in the Russian Federation (CJSC “MA TKB-1” and LLC “MA TKB-2”) and Ireland (Transregionalcapital Ltd). These entities were consolidated as it was specifically set up for the purposes of the Group, and the Group has exposure to substantially all risks and rewards.

Non-consolidation of the special purpose entities would decrease the Group's total consolidated assets by RR 2 442 228 thousand (2014: RR 3 269 347 thousand). The impact on the consolidated profit after tax would be an increase by RR 30 603 thousand (2014: a decrease by RR 100 390 thousand).

Initial recognition of related party transactions. In the normal course of business the Group enters into transactions with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analysis. Terms and conditions of related party balances are disclosed in Note 36.

Recognition of the deposit received from The State Corporation Deposit Insurance Agency. Within the scope of procedures of financial rehabilitation of the PJSC “Investtradebank”, (hereinafter the “ITB”), the Group raised a loan from the state-owned corporation (hereinafter the «DIA») in October 2015 in the amount of RR 19 500 000 thousand at the fixed interest rate of 6.01% per annum with interest payable quarterly and maturity date of October 2017. In accordance with the Plan of participation of DIA in accomplishment of measures aimed at the prevention of the bankruptcy of ITB the Group granted loan to PJSC “Investtradebank” (Note 9). The Group is obliged to execute loan repayment even in case of possibility of default on the loan, granted by the ITB Group. The management of the Group assessed the market terms of the received/granted funds, due to special terms of the deal and absence of similar deals on the market the terms were considered as market.

5 Adoption of New or Revised Standards and Interpretations

The following amended standards became effective for the Group from 1 January 2015, but did not have any material impact on the Group:

Amendments to IAS 19 – “Defined benefit plans: Employee contributions” (issued in November 2013 and effective for annual periods beginning 1 July 2014).

Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014).

Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014).

6 New Accounting Pronouncements

Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2016 or later, and which the Group has not early adopted.

IFRS 9 “Financial Instruments: Classification and Measurement” (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are:


19

6 New Accounting Pronouncements (Continued)

Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).

Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.

Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss.

Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.

IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a ‘three stage’ approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables.

Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging.

The standard is expected to have a significant impact on the Group’s loan impairment provisions. The Group is currently assessing the impact of the new standard on its financial statements.

IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. The Group is currently assessing the impact of the new standard on its financial statements.

IFRS 16 "Leases" (issued in January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.


20

6 New Accounting Pronouncements (Continued)

Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 (issued in January 2016 and effective for annual periods beginning on or after 1 January 2017). The amendment has clarified the requirements on recognition of deferred tax assets for unrealised losses on debt instruments. The entity will have to recognise deferred tax asset for unrealised losses that arise as a result of discounting cash flows of debt instruments at market interest rates, even if it expects to hold the instrument to maturity and no tax will be payable upon collecting the principal amount. The economic benefit

embodied in the deferred tax asset arises from the ability of the holder of the debt instrument to achieve future gains

(unwinding of the effects of discounting) without paying taxes on those gains. The Group is currently assessing the impact of the amendments on its financial statements.

Disclosure Initiative - Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or after 1 January 2017). The amended IAS 7 will require disclosure of a reconciliation of movements in liabilities arising from financing activities. The Group is currently assessing the impact of the amendment on its financial statements.

The following other new pronouncements are not expected to have any material impact on the Group when adopted:

IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods beginning on or after 1 January 2016).

Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued on 6 May 2014 and effective for the periods beginning on or after 1 January 2016).

Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016).

Agriculture: Bearer plants - Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for annual periods beginning 1 January 2016).

Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014 and effective for annual periods beginning 1 January 2016).

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after 1 January 2016).

Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016).

Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016).

Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28 (issued in December 2014 and effective for annual periods on or after 1 January 2016).

Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements.

7 Cash and Cash Equivalents

In thousands of Russian Roubles 31 December

2015 31 December

2014

Cash on hand

2 647 072 3 578 298

Cash balances with the CBRF (other than mandatory reserve deposits) 5 890 897 4 468 542 Correspondent accounts and overnight placements with other banks and non-banking

financial institutions 3 639 436 2 279 327 Short-term settlements with settlement centers and brokers 427 990 3 494 196 Placements with other banks with original maturities of less than three months 225 242 -

Total cash and cash equivalents

12 830 637 13 820 363


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7 Cash and Cash Equivalents (Continued)

The credit quality of cash and cash equivalents balances may be summarised as follows at 31 December 2015:


Cash balances with the CBRF

(other than mandatory

reserve deposits)

Correspondent accounts and

overnight placements with other banks and

non-banking financial

institutions

Short-term settlements

with settlement

centers and brokers

Placements with other

banks with original

maturities of less than three

months

Total

Neither past due nor impaired - the CBRF 5 890 897 - - - 5 890 897

- AA- to AA+ rated - 28 429 - - 28 429 - A- to A+ rated - 606 179 - - 606 179 - BBB- to BBB+ rated - 1 883 381 415 328 - 2 298 709 - BB- to BB+ rated - 922 554 - - 922 554 - B- to B+ rated - 3 010 - - 3 010 - ССС- to ССС+ rated - 9 951 - - 9 951 - Unrated - 185 932 12 662 225 242 423 836

Total cash and cash equivalents,

excluding cash on hand 5 890 897 3 639 436 427 990 225 242 10 183 565

The category “Unrated” is represented by non-banking financial institutions and banks of other CIS countries, in particular, by a deposit with IAO “Tojiksodirotbank” in the amount of RR 225 242 thousand.

The credit quality of cash equivalents balances may be summarised as follows at 31 December 2014:


Cash balances with the CBRF

(other than mandatory

reserve deposits)

Correspondent accounts and

overnight placements with

other banks, non-banking financial

institutions

Short-term settlements

with settlement

centers and brokers

Placements with other

banks with original

maturities of less than three

months

Total

Neither past due nor impaired - the CBRF 4 468 542 - - - 4 468 542

- AA- to AA+ rated - 545 - - 545 - A- to A+ rated - 1 272 351 - - 1 272 351 - BBB- to BBB+ rated - 455 587 3 491 926 - 3 947 513 - BB- to BB+ rated - 333 561 - - 333 561 - B- to B+ rated - 150 728 - - 150 728 - ССС- to ССС+ rated - 204 - - 204 - Unrated - 66 351 2 270 - 68 621

Total cash and cash equivalents,

excluding cash on hand 4 468 542 2 279 327 3 494 196 - 10 242 065

As of 31 December 2015 short term settlements with settlement centres and brokers included balances with the «National Clearing Centre Bank» (Joint-Stock Company) in the amount of RR 415 328 thousand (31 December 2014: RR 3 491 926 thousand).

Operating transactions that did not require the use of cash equivalents that were excluded from the consolidated statement of cash flows are as follows:

In thousands of Russian Roubles 2015 2014

Non-cash operating activities Acquisition of repossessed collateral in exchange for loans and

advances to customers

751 109 116 345

Geographical, currency, maturity and interest rate analyses of cash and cash equivalents are detailed in

Note 28.


22

8 Trading Securities


2015 31 December

2014

Russian government bonds

24 987 307 8 756 920 Corporate bonds

9 495 730 5 760 903

Total trading securities

34 483 037 14 517 823

At 31 December 2015 the trading securities of the Group included bonds of two issuers (2014: two issuers) with aggregated amounts above 5% of the Group’s total capital each in accordance with the requirements of the Basel Accord as disclosed in Note 29. The total aggregate amount of these securities as at 31 December 2015 is RR 6 979 541 thousand (2014: RR 2 884 156 thousand), or 20% (2014: 25%) of the total portfolio.

Trading securities are carried at fair value which also reflects any credit risk related write-downs. As trading securities are carried at their fair values based on observable market data using last bid prices from the Moscow exchange, the Group does not analyse or monitor impairment indicators.

Analysis by credit quality of trading securities is as follows at 31 December 2015:


Russian government

bonds

Corporate bonds

Total

Neither past due nor impaired (at fair value) - BBB- to BBB+ rated 18 322 920 597 647 18 920 567

- ВВ- to ВВ+ rated 6 664 387 8 898 083 15 562 470

Total trading securities 24 987 307 9 495 730 34 483 037

Analysis by credit quality of trading securities is as follows at 31 December 2014:


Russian government

bonds

Corporate bonds Total

Neither past due nor impaired (at fair value) - BBB- to BBB+ rated 8 756 920 5 699 044 14 455 964

- ВВ- to ВВ+ rated - 61 859 61 859

Total trading securities 8 756 920 5 760 903 14 517 823

The credit ratings are based on Standard & Poor’s ratings where available, or Moody’s or Fitch rating converted to the nearest equivalent on the Standard & Poor’s rating scale.

The Bank is licensed by the Federal Commission on Securities Markets for trading in securities.

Geographical, maturity and interest rate analyses of trading securities are disclosed in Note 28.

9 Due from Other Banks


2015 31 December

2014

Placements with other banks with original maturities of more than three months 22 539 472 -

Total due from other banks 22 539 472 -


23

9 Due from Other Banks (Continued)

Amounts due from other banks are not collateralised.

Analysis by credit quality of amounts due from other banks outstanding at 31 December 2015, is as follows:

In thousands of Russian Roubles Placements with other banks

Neither past due nor impaired - B- to B+ rated 1 782 416

- ССС- to ССС+ rated 20 589 559 - Unrated 167 497

Total due from other banks 22 539 472

The credit ratings are based on Standard & Poor’s ratings where available, or Moody’s or Fitch rating converted to the nearest equivalent on the Standard & Poor’s rating scale. The category with ratings from CCC- to CCC+ is represented mainly by the deposit with PJSC “Investtradebank” in the amount of RR 19 500 000 thousand received within the scope of procedures of financial rehabilitationof PJSC “Investtradebank” (disclosed in Note 37).

Geographical, maturity and interest rate analyses of amounts due from other banks are disclosed in Note 28.

10 Loans and Advances to Customers


2015 31 December

2014

Loans to legal entities: - corporate loans

52 548 430 52 753 512 - loans to small and medium-sized business

43 545 328 46 890 576

Loans to individuals: - mortgage loans

31 072 254 26 070 408 - personal and consumer loans

5 263 123 5 799 540

- car loans

712 327 1 128 444 - other loans to individuals

500 808 437 915

Total loans and advances to customers (before impairment) 133 642 270 133 080 395

Less: Provision for loans and advances to customers

(12 313 418) (7 567 389)

Total loans and advances to customers

121 328 852 125 513 006


24

10 Loans and Advances to Customers (Continued)

Movements in the provision for loan and advance impairment during 2015 are as follows:


Corporate loans

Loans to small and medium-

sized business

Mortgage loans

Personal and

consumer loans

Car loans Other loans to

indivi-duals

Total

Provision for loan and

advance to customers impairment at

1 January 2015 1 387 731 5 314 451 353 879 341 114 106 634 63 580 7 567 389

Provision for loan and advance

to customers impairment during the year 3 430 343 2 061 960 449 743 480 955 42 834 29 196 6 495 031

Amounts written off during the year as uncollectible (130 000) (1 183 271) (178) (177 490) (17 903) (575) (1 509 417)

Disposal of loans and advances to customers (109 538) (127 364) 309 (595) (1 412) (985) (239 585)

Provision for loan and advance to customers impairment at

31 December 2015 4 578 536 6 065 776 803 753 643 984 130 153 91 216 12 313 418

Movements in the provision for impairment of investment securities and advances to customers held to maturity during 2014 are as follows:


Corporate loans


sized business

Mortgage loans

Personal and

consumer loans


indivi-duals

Total



1 January 2014 1 046 102 4 733 364 278 767 275 090 92 426 12 465 6 438 214

Provision for loan and advance

to customers impairment during the year 356 855 1 020 508 76 548 66 309 22 180 51 115 1 593 515

Amounts written off during the year as uncollectible - (221 331) - (285) - - (221 616)

Disposal of loans and advances to customers (15 226) (218 090) (1 436) - (7 972) - (242 724)



31 December 2014 1 387 731 5 314 451 353 879 341 114 106 634 63 580 7 567 389

The provision for loan and advance to customers impairment during 2014 differs from the amount presented in the consolidated profit or loss and other comprehensive income for the year due to RR 5 230 thousand recovery of amounts previously written off as uncollectible. The amount of the recovery was credited directly to the provisions line in profit or loss for the year.

During 2015 year the Bank disposed loans to customers under cession and other agreements with the total gross value of RR 1 609 903 thousand (2014: RR 459 886 thousand) with cash proceeds of RR 539 152 thousand (2014: RR 164 538 thousand) and receivable cash proceeds with carrying value of RR 756 820 thousand (2014: RR 52 625 thousand). As of the date of disposal during the year ended 31 December 2015 these loans were provided for impairment in the total amount of RR 239 585 thousand (2014: RR 242 724 thousand). Refer to Note 32.


25


Economic sector risk concentrations within the customer loan portfolio are as follows:

31 December 2015 31 December 2014

In thousands of Russian Roubles Amount % Amount %

Individuals 37 548 512 28.1 33 436 307 25.1

Trade 34 226 011 25.6 40 210 575 30.2 Construction 11 465 968 8.6 9 961 697 7.5 Manufacturing 9 700 712 7.3 7 009 330 5.3 Food industry 6 540 318 4.9 6 181 001 4.6 Autodealing, repair and servicing 5 632 041 4.2 6 922 141 5.2 Real estate 5 490 425 4.1 6 033 637 4.5 Energy 4 724 285 3.5 4 898 170 3.7 Machinebuilding industry 3 937 942 2.9 3 717 890 2.8 Service companies 2 945 554 2.2 3 506 107 2.6 Leasing companies 2 861 170 2.1 2 350 343 1.8 Agriculture 2 476 288 1.9 1 994 446 1.5 Transport and communications 1 955 877 1.5 1 550 608 1.2 Construction of infrastructural objects 1 785 032 1.3 2 682 908 2.0 Investment and insurance companies 1 340 230 1.0 1 124 580 0.8 Other 1 011 905 0.8 1 500 655 1.2

Total loans and advances to customers (before

impairment) 133 642 270 100.0 133 080 395 100.0

Trade sector is represented primarily by food products trade, consumer products trade (cosmetics, clothes, and furniture), oil products and fuel, computer equipment and construction materials.

Industrial sector is represented by metal product manufacturing and processing enterprises, chemical and textile industry enterprises.

At 31 December 2015, the Group had 11 groups of borrowers (2014: 14 groups of borrowers) with aggregated loan amounts above 5% of the Group’s total capital each in accordance with the requirements of the Basel Accord as disclosed in Note 29. The aggregate amount of these loans as at 31 December 2015 is RR 23 883 621 thousand (2014: 28 026 941), or 17.9% (2014: 21.0%) of the gross loan portfolio.

The Group has transferred a pool of fixed interest rate mortgage loans to individuals to finance the purchase of habitation to CJSC “MA TKB-1”, a Russia-based special purpose entity. During loan sale criteria of derecognition were approved at the Bank level. At 31 December 2015 the amount of loans securitised was RR 2 627 686 thousand (2014: 3 358 874 thousand). The subsidiary is consolidated due to the requirements stated in IFRS 10 “Consolidated Financial Statements“. For the carrying amount of the corresponding asset backed securities refer to Notes 18 and 32.

At 31 December 2015 the Group has loans amounting to RR 5 021 814 thousand (2014: RR 2 949 927 thousand) pledged as collateral in the Joint-Stock Company “Russian Bank for Small and Medium Enterprises Support” (“SME Bank”) under the Government SME Lending Support Program. No loans were collateralised under the Mortgage Agreement with DEG-Deutsche Investitions und Entwicklungsgesellschaft mbH (2014: RR 106 144 thousand. Refer to Notes 16, 17 and 32.

At 31 December 2014, the Group had loans amounting to RR 6 142 430 thousand pledged as collateral in the CBRF. Refer to Note 16.


26


Information about collateral at 31 December 2015 is as follows:


Corporate loans


sized business

Mortgage loans

Personal and

consumer loans

Car loans Other loans to indivi-

duals

Total

Unsecured loans 14 081 490 13 976 230 1 530 575 3 335 967 103 033 500 808 33 528 103 Loans collateralised by:

- real estate 12 175 713 13 486 094 29 370 778 728 892 - - 55 761 477 - corporate guarantees 12 002 419 5 893 220 169 901 136 371 - - 18 201 911 - goods in turnover 6 948 530 2 218 453 - - - - 9 166 983 - equipment 1 437 015 4 807 534 - 50 230 609 294 - 6 904 073 - receivables 4 208 428 2 284 912 - 60 014 - - 6 553 354 - mortgage certificates

and other securities 645 835 228 875 - 731 155 - - 1 605 865 - cash deposits 949 000 393 704 1 000 21 652 - - 1 365 356 - Group’s debt

securities 100 000 256 306 - 198 842 - - 555 148

Total loans and

advances to customers 52 548 430 43 545 328 31 072 254 5 263 123 712 327 500 808 133 642 270

Information about collateral at 31 December 2014 is as follows:


Corporate loan


sized business

Mortgage loans

Personal and

consumer loans

Car loans Other loans to indivi-

duals

Total

Unsecured loans 15 385 672 13 299 673 1 673 376 3 078 273 128 857 436 971 34 002 822

Loans collateralised by: - real estate 9 259 467 14 767 211 24 295 516 739 868 488 - 49 062 550

- corporate guarantees 14 238 332 6 909 097 101 516 193 419 - 944 21 443 308 - goods in turnover 8 161 302 3 323 432 - - - - 11 484 734 - receivables 3 174 875 3 270 535 - - - - 6 445 410 - equipment 1 269 451 4 069 784 - 54 306 999 099 - 6 392 640 - mortgage certificates and other securities 910 405 273 188 - 1 449 699 - - 2 633 292

- cash deposits 305 058 607 633 - 15 975 - - 928 666 - Group’s debt securities 48 950 370 023 - 268 000 - - 686 973

Total loans and

advances to customers 52 753 512 46 890 576 26 070 408 5 799 540 1 128 444 437 915 133 080 395

The disclosure above represents the lower of the carrying value of the loan or collateral taken; the remaining part is disclosed within the unsecured exposures. The carrying value of loans was allocated based on liquidity of the assets taken as collateral.

As at 31 December 2015 personal and consumer loans besides loans granted to the employees of the Bank’s corporate clients included express consumer loans granted to “walk-in” customers in the amount of RR 79 949 thousand or 1.5% of total consumer loans portfolio (31 December 2014: RR 114 635 thousand or 2.0%).

The Group estimates its loan loss provision using Methodology for determining the borrower’s credit rating. Credit rating is a complex estimate of a borrower’s financial stability and solvency and is expressed as scores assigned to creditworthiness based on assessed factors. Such factors include: estimate of the borrower’s financial situation on the basis of indicators derived from financial statements, assessment of the borrower’s business risk (reputation and market data on the borrower’s business); estimate of movement on settlement/current accounts of the borrower with the Bank (cash flow adequacy); evaluation of the shareholder (founder) structure; statistics of repayment of the previously issued loans (credit history).

Creditworthiness rating of a corporate customer determines the amount of estimated loan loss provision and the credit risk rating category.


27


In accordance with the Methodology the following ratings are assigned:

Rating Description of Rating

A1 Credit risk is practically non-existent A2 Minimal risk: the most reliable borrowers A3 Low risk: reliable borrowers B1 Low risk: good borrowers B2 Moderate risk: fairly reliable borrowers B3 Medium risk: average borrowers B4 Acceptable risk: borrowers with creditworthiness below average B5 Maximum allowable risk: fairly good borrowers C1 High risk: borrowers with unsatisfactory creditworthiness C2 Very high risk: sub-standard loans C3 Loans with expected default D Default

The estimated loan loss provision is adjusted for collateral based on the application of various discount

factors to the assessed fair value of collateral and depending on collateral liquidity and quality.

Analysis by credit quality of loans and advances to customers outstanding at 31 December 2015 is as follows:


Corporate loans

Loans to small and

medium-sized business

Mortgage loans

Personal and

consumer loans


indivi-duals

Total

Loans individually/collectively determined to be neither past due nor impaired

A3 30 209 126 13 607 070 23 177 148 1 375 611 354 602 - 68 723 557 B1 10 721 309 15 051 897 5 333 233 3 051 301 140 012 405 308 34 703 060 B2 1 794 839 4 698 779 60 000 - 44 344 - 6 597 962 B3 - 1 129 437 3 349 - - - 1 132 786 B4 2 336 380 339 508 812 - - - 2 676 700 B5 - 6 360 - - - - 6 360

Total loans individually/

collectively determined to be neither past due nor impaired (gross) 45 061 654 34 833 051 28 574 542 4 426 912 538 958 405 308 113 840 425

Loans individually/collectively determined to be past due but not impaired

- less than 30 days overdue 55 375 367 001 368 085 80 395 8 432 4 124 883 412 - 31 to 90 days overdue 79 348 86 378 184 250 2 216 - - 352 192 - 91 to 180 days overdue 487 610 172 039 66 673 2 819 379 - 729 520


collectively determined to be past due but not impaired (gross) 622 333 625 418 619 008 85 430 8 811 4 124 1 965 124

Loans individually/collectively determined to be impaired

- impaired but not past due 1 827 543 2 904 185 100 801 8 230 14 912 - 4 855 671 - less than 30 days overdue - 851 - 32 049 3 003 - 35 903 - 31 to 90 days overdue 1 001 041 23 964 77 507 61 180 16 453 8 321 1 188 466 - 91 to 180 days overdue 1 075 892 31 602 222 240 90 634 13 354 7 019 1 440 741 - 181 to 365 days overdue 1 579 700 3 391 771 446 354 315 150 26 434 43 891 5 803 300 - over 365 days overdue 1 380 267 1 734 486 1 031 802 243 538 90 402 32 145 4 512 640


collectively determined to be impaired (gross) 6 864 443 8 086 859 1 878 704 750 781 164 558 91 376 17 836 721

Total loans and advanced to customers (gross) 52 548 430 43 545 328 31 072 254 5 263 123 712 327 500 808 133 642 270

Less impairment provision (4 578 536) (6 065 776) (803 753) (643 984) (130 153) (91 216) (12 313 418)

Total loans and advances to

customers 47 969 894 37 479 552 30 268 501 4 619 139 582 174 409 592 121 328 852


28


Analysis by credit quality of loans and advances to customers outstanding at 31 December 2014 is as follows:


Corporate loans


sized business

Mortgage loans

Personal and

consumer loans


indivi-duals

Total

Loans individually/collectively determined to be neither past due nor impaired

A3 37 302 950 26 342 865 20 222 668 2 426 784 - - 86 295 267 B1 11 305 276 6 879 926 4 413 620 2 934 843 975 237 383 584 26 892 486 B2 2 997 737 5 310 761 - - - - 8 308 498 B3 - 1 010 914 - - - - 1 010 914 C1 - 338 788 - - - - 338 788 C3 - 8 226 - - - - 8 226

Total loans

individually/collectively determined to be neither past due nor impaired (gross) 51 605 963 39 891 480 24 636 288 5 361 627 975 237 383 584 122 854 179

Loans individually/collectively determined to be past due but not impaired

- less than 30 days overdue 105 059 27 152 225 550 28 683 10 738

397 182 - 31 to 90 days overdue 408 968 237 030 314 873 12 902 401 - 974 174 - 91 to 180 days overdue 10 544 269 632 68 528 - - - 348 704

Total loans

individually/collectively determined to be past due but not impaired (gross) 524 571 533 814 608 951 41 585 11 139 - 1 720 060

Loans individually/collectively determined to be impaired

- impaired but not past due - 2 497 102 - - - - 2 497 102 - less than 30 days overdue - - 18 967 16 415 2 061 16 062 53 505 - 31 to 90 days overdue - 144 976 73 492 58 328 15 985 10 498 303 279 - 91 to 180 days overdue - 64 682 210 342 70 569 20 951 8 064 374 608 - 181 to 365 days overdue 492 978 511 965 94 099 28 714 24 046 9 240 1 161 042 - over 365 days overdue 130 000 3 246 557 428 269 222 302 79 025 10 467 4 116 620

Total loans

individually/collectively determined to be impaired (gross) 622 978 6 465 282 825 169 396 328 142 068 54 331 8 506 156

Total loans and advanced to

customers (gross) 52 753 512 46 890 576 26 070 408 5 799 540 1 128 444 437 915 133 080 395

Less loans and advances to

customers impairment provision (1 387 731) (5 314 451) (353 879) (341 114) (106 634) (63 580) (7 567 389)

Total loans and advances to

customers 51 365 781 41 576 125 25 716 529 5 458 426 1 021 810 374 335 125 513 006

The primary factors that the Group considers in determining whether a loan is impaired are its overdue

status and realisability of related collateral, if any. As a result, the Group presents above an ageing analysis of loans that are determined to be impaired.

Past due, but not impaired, loans primarily include collateralised loans where the fair value of collateral covers the overdue interest and principal repayments. The amount reported as past due but not impaired is the whole balance of such loans, not only the individual instalments that are past due.


29


For the purpose of credit quality analysis, loans to individuals are grouped by type of credit products into homogeneous sub-portfolios with similar risk characteristics. The Group analyses each portfolio by the ageing of past due debts.

The financial effect of collateral is presented by disclosing impact of collateral and other credit enhancements on impairment provisions recognised at the end of the reporting period. Without holding collateral and other credit enhancements, the impairment provisions would be higher by the following amounts:


31 December 2015

31 December 2014

Loans to legal entities:

- corporate loans

860 183 629 939 - loans to small and medium-sized business

2 203 173 2 173 769

Loans to individuals:

- mortgage loans

1 015 220 730 912

- personal and consumer loans

98 873 42 307 - car loans

22 330 28 235

Total effect of collateral on provision for loans and advances to customers

4 199 779 3 605 162

At 31 December 2015 loans to legal entities contain finance lease receivables balances in the amount of RR 1 835 803 thousand (2014: RR 1 421 205 thousand).

The components of finance lease receivables as of 31 December 2015 and 2014 are as follows:


31 December 2015

31 December 2014

Total future minimum lease payments

2 648 277 1 767 712

Less: unearned finance income

(812 474) (346 507)

Finance lease receivables

1 835 803 1 421 205

Current portion

1 042 028 788 386 Long-term portion

793 775 632 819

Finance lease receivables

1 835 803 1 421 205

The total future minimum lease payments due from customers under finance leases as of 31 December 2015 and 2014 are as follows:


2015 31 December

2014

Not later than one year

1 248 886 937 542 Later than one year not later than five years

1 276 850 830 170

Later than five years

122 541

Total future minimum lease payments

2 648 277 1 767 712

Refer to Note 34 for the estimated fair value of each class of loans and advances to customers. Interest rate analysis of loans and advances to customers is disclosed in Note 28. Information on related party balances is disclosed in Note 36.


30

11 Investment Securities Available for Sale


2015 31 December

2014

Corporate bonds

5 994 154 -

Total investment securities available for sale 5 994 154 -

Analysis by credit quality of investment securities available for sale at 31 December 2015 is as follows:


Corporate bonds

Total

Neither past due nor impaired (at fair value) - ВВ- to ВВ+ rated

5 994 154 5 994 154

Total investment securities available for sale

5 994 154 5 994 154

The primary factor that the Group considers in determining whether a debt security is impaired is its overdue status. As at 31 December 2015 the Group had no investment securities available for sale that are individually considered to be impaired. The debt securities are not collateralised.

Geographic, interest rate analysis of investment securities available for sale is disclosed in Note 28.

12 Repurchase Receivables

Repurchase receivables represents securities sold under sale and repurchase agreements which the counterparty has the right, by contract or custom, to sell or repledge. The repurchase agreements are short-term in nature.


2015 31 December

2014

Trading securities sold under REPO agreements

Russian government bonds 76 407 - Municipal bonds

1 058 953 -

Corporate bonds

5 933 301 14 234 454

Total receivables under REPO agreements representing trading securities

7 068 661 14 234 454

Investment securities available for sale sold under REPO agreements

Corporate bonds 4 477 451 707 821

Total receivables under REPO agreements representing investment securities

available for sale 4 477 451 707 821

Total receivables under REPO agreements

11 546 112 14 942 275

The primary factor that the Group takes into account in considering the issue of impairment of receivables is its overdue status. As at 31 December 2015 the Group had no repurchase receivables that are individually considered to be impaired.

At 31 December 2015 the receivables under REPO agreements of Group included bonds of two issuers (2014: three issuers) with aggregated amounts above 5% of the Group’s total capital each in accordance with the requirements of the Basel Accord as disclosed in Note 29. The total aggregate amount of these securities as at 31 December 2015 is RR 7 167 425 thousand (2014: 11 031 556 thousand), or 62% (2014: 74%) of the total portfolio.


31

12 Repurchase Receivables (Continued)

Analysis by credit quality of repurchase receivables is as follows at 31 December 2015:


Russian government

bonds

Municipal bonds

Corporate bonds

Total

Neither past due nor impaired

- BBB- to BBB+ rated

76 407 1 058 953 - 1 135 360 - ВВ- to ВВ+ rated

- - 5 933 301 5 933 301


representing trading securities 76 407 1 058 953 5 933 301 7 068 661

- ВВ- to ВВ+ rated - - 4 477 451 4 477 451


representing investment securities available for sale - - 4 477 451 4 477 451

Total receivables under REPO agreements 76 407 1 058 953 10 410 752 11 546 112

Analysis by credit quality of repurchase receivables is as follows at 31 December 2014:


Russian government

bonds

Municipal bonds

Corporate bonds

Total

Neither past due nor impaired

- BBB- to BBB+ rated - - 14 234 454 14 234 454


representing trading securities - - 14 234 454 14 234 454

- BBB- to BBB+ rated - - 707 821 707 821

Total receivables under REPO agreements representing investment securities available for sale

-

-

707 821

707 821


-

-

14 942 275

14 942 275

Refer to Note 34 for the disclosure of the fair value of each class of repurchase receivables. Trading securities and investment securities available for sale reclassified to repurchase receivables continue to be carried at fair value in accordance with accounting policies for these categories of assets.

The credit ratings are based on Standard & Poor’s ratings where available, or Moody’s rating converted to the nearest equivalent on the Standard & Poor’s rating scale.

13 Investment in Associates

On 20 February 2014 the Group sold to third non-related party its 40% owned share in CIS Factors Holding B.V. (the Netherlands), for EUR 424 thousand (RR 20 764 thousand). At the date of disposal carrying value of investments in CIS Factors Holding B.V. (the Netherlands) was RR nil.


32

14 Premises, Equipment and Intangible Assets

In thousands of Russian Roubles Note

Premises Equipment Construc-tion in

progress

Land Total premises and

equipment

Intangible assets

At cost At 1 January 2014

724 874 937 966 12 501 1 988 1 677 329 464 639 Additions

7 140 104 095 10 119 - 121 354 62 570

Put into operation

- 5 685 (9 943) - (4 258) 4 258 Disposals

(1 263) (50 711) - - (51 974) -

At 31 December 2014

730 751 997 035 12 677 1 988 1 742 451 531 467

Additions

718 21 091 15 084 - 36 893 46 111

Put into operation

- 6 577 (9 439) - (2 862) 2 862 Disposals

(5 076) (56 091) - - (61 167) (12 927)

At 31 December 2015

726 393 968 612 18 322 1 988 1 715 315 567 513

Accumulated

depreciation At 1 January 2014

87 571 691 529 - - 779 100 278 430 Charge for the period 25 14 531 124 250 - - 138 781 80 802 Disposals

(107) (48 602) - - (48 709) -

At 31 December 2014

101 995 767 177 - - 869 172 359 232 Charge for the period 25 14 495 97 035 - - 111 530 80 194 Disposals

(209) (52 487) - - (52 696) (11 710)

At 31 December 2015

116 281 811 725 - - 928 006 427 716

Carrying value At 31 December 2015

610 112 156 887 18 322 1 988 787 309 139 797

At 31 December 2014

628 756 229 858 12 677 1 988 873 279 172 235

Construction in progress consists of construction and refurbishment of branch premises and equipment. Upon completion, assets are transferred to premises and equipment.

As at 31 December 2015 and 31 December 2014 the Group tested its own premises for impairment and identified no indication of impairment of premises.

As at 31 December 2015 the carrying value of the fixed assets which are fully depreciated but still in use was RR 600 610 thousand (2014: RR 509 226 thousand).

15 Other Assets

Other financial assets

In thousands of Russian Roubles Note 31 December

2015 31 December

2014

Restricted cash

1 187 578 205 899 Financial derivatives 33 96 155 749 695 Fees and commissions accrued

80 966 50 817

Receivables from recovery of state duty

23 265 10 914 Other

60 310 77 635

Less: Provision for impairment

(62 347) (62 345)

Total other financial assets

1 385 927 1 032 615


33

15 Other Assets (Continued)

Restricted cash represents security deposits with Bank National Clearing Centre» (Joint-stock company) and balances on correspondent accounts with a Russian bank placed by the mortgage special purpose entity CJSC “MA TKB-1”.

As at 31 December 2015 the sum of neither past due not impaired other financial assets was RR 1 353 807 thousand (2014: RR 1 036 542 thousand), the sum of other financial assets with overdue less than 30 days was RR 63 179 thousand (2014: RR 22 196 thousand), the sum of other financial assets with overdue more than 30 days was RR 31 289 thousand (2014: RR 36 222 thousand). As at 31 December 2015 provision for impairment of overdue receivables was RR 62 347 thousand (2014: RR 62 345 thousand).

Movements in the provision for impairment of other financial assets during 2015 are as follows:


Fees and commissions

accrued

Receivables from recovery of state

duty

Other Total

Provision for impairment at1 January 2015 23 251

(4 353) 9 461 29 633 62 345

Provision for impairment during the year (367) 81 941 77 221 Recovery of amounts previously written off as

uncollectible - - 2 884 2 884 Amounts written off during the year as

uncollectible - - (80 103) (80 103)

Provision for impairment at 31 December

2015 18 898 9 094 34 355 62 347

Movements in the provision for impairment of other financial assets during 2014 are as follows:


Fees and commissions

accrued

Receivables from recovery of state

duty

Other Total

Provision for impairment at 1 January 2014 11 726 7 535 26 903 46 164

Provision for impairment during the year 11 525 1 926 3 906 17 357 Amounts written off during the year as uncollectible -

(1 176) (1 176)

Provision for impairment at 31 December 2014 23 251 9 461 29 633 62 345

Other non-financial assets


31 December 31 December

2015 2014

Repossessed collateral 751 109 114 116

Taxes receivable other than on income 100 503 57 010 Prepayments for services 79 762 77 382 Goodwill 47 476 47 476 Prepayments for leasing operations 26 378 77 311 Precious metals 1 651 24 952 Other 54 563 49 731 Less: Provision for impairment (13 962) (2 228)

Total other non-financial assets 1 047 480 445 750

Repossessed collateral is recognised in the consolidated financial statements in accordance with IAS 2.


34

15 Other Assets (Continued)

Movements in the provision for impairment of other non-financial assets during 2015 are as follows:

In thousands of Russian Roubles Repossessed

collateral Other Total

Provision for impairment at 1 January 2015 2 228 - 2 228 Provision for impairment during the year 11 719 15 11 734

Provision for impairment at 31 December 2015 13 947 15 13 962

Movements in the provision for impairment of other non-financial assets during 2014 are as follows:

In thousands of Russian Roubles Repossessed

collateral Other Total

Provision for impairment at 1 January 2014 5 295 - 5 295

Recovery of provision for impairment during the year (3 067) - (3 067)

Provision for impairment at 31 December 2014 2 228 - 2 228

16 Due to Other Banks


2015 31 December

2014

Correspondent accounts and overnight placements of other banks 16 960 422 53 859

Special purpose-oriented program 11 625 002 9 912 485 Sale and repurchase agreements (REPO) with other banks 10 307 736 13 006 168 Short-term placements of other banks 9 425 055 2 441 529 Trade and ECA covered finance 4 621 732 7 897 392 The CBRF loans - 7 838 428

Total due to other banks 52 939 947 41 149 861

At 31 December 2015, included in amounts due to other banks are liabilities of RR 10 307 736 thousand (2014: RR 13 006 168 thousand) from sale and repurchase agreements disclosed in Note 12.

Under Trade and Export Credit Agency (“ECA”) covered finance the Group has obtained short-term financing of international trade transactions and medium- and long-term financing of capital expenditures under insurance cover by export credit agencies.

Under special purpose-oriented program the Group has obtained special purpose-oriented financing from international and Russian development institutes.

Loans from the Open Joint-Stock Company “Russian Bank for Small and Medium Enterprises Support” (SME Bank) in the amount of RR 5 663 412 thousand (2014: RR 3 008 665 thousand) included In Special purpose-oriented program are funds under the Government SME Lending Support Program collateralised by loans to customers. Refer to Note 10.

Loans from the European Bank for Reconstruction and Development in the amount of RR 922 796 thousand (2014: RR 1 130 290 thousand) within the scope of Russian Sustainable Energy Financing Facility (RuSEFF) are aimed at credit financing of energy-saving projects in the housing sector implemented by small and small and medium entities (RuSEFF Programme).

Loans from the International Finance Corporation in the amount of RR 3 455 160 thousand (2014: RR 3 580 847 thousand) are aimed at credit financing of energy-saving projects of small and small and medium businesses and at financing female entrepreneurs.


35

16 Due to Other Banks (Continued)

Loans from the International Investment Bank in the amount of RR 1 366 238 thousand (2014: RR 1 366 854 thousand) are aimed at financing of energy-saving projects of small and small and medium businesses.

Loans received from the European Bank for Reconstruction and Development in the amount of RR 104 118 thousand (2014: RR 241 107 thousand) were allocated for crediting small and medium-sized business as part of support program for small and medium-sized business.

Refer to Note 34 for the disclosure of the fair value of amounts due to other banks. Interest rate analysis of due to other banks is disclosed in Note 28. Information on related party balances is disclosed in Note 36.

17 Customer Accounts


2015 31 December

2014

Legal entities - Current/settlement accounts 16 671 319 20 854 574

- Term deposits 37 690 044 33 227 870

Individuals - Current/settlement accounts 2 410 715 2 646 304

- Term deposits 44 009 671 37 127 075

Total customer accounts 100 781 749 93 855 823

Economic sector concentrations within customer accounts are as follows:



Amount % Amount %

Individuals 46 420 386 46.0 39 773 379 42.4

Manufacturing 24 800 281 24.6 18 223 692 19.4 Trade 11 373 077 11.3 10 192 420 10.9 Investment and insurance companies 4 274 622 4.2 10 626 126 11.3 Construction 4 205 963 4.2 4 377 089 4.7 Service companies 3 663 035 3.6 3 548 743 3.8 Machinebuilding industry 1 764 296 1.8 2 535 009 2.7 Real estate 1 480 716 1.5 1 867 572 2.0 Construction of infrastructural objects 781 734 0.7 545 733 0.6 Transport and communications 499 077 0.5 344 187 0.4 Leasing companies 271 535 0.3 107 306 0.1 Energy 271 419 0.3 199 190 0.2 Autodealing, repair and servicing 157 287 0.2 338 374 0.4 Agricultural 184 245 0.2 362 306 0.4 Food industry 141 295 0.1 250 734 0.3 Other 492 781 0.5 563 963 0.4

Total customer accounts 100 781 749 100 93 855 823 100

At 31 December 2015 the Bank had 30 customers (2014: 44 customers) with balances above RR 300 000 thousand. The aggregate balance of these customers was RR 39 324 685 thousand (2014: RR 39 085 491 thousand) or 39.1% (2014: 41.7%) of total customer accounts.

Refer to Note 34 for the disclosure of the fair value of each class of customer accounts. Interest rate analysis of customer accounts is disclosed in Note 28. Information on related party balances is disclosed in Note 36.


36

18 Debt Securities in Issue


2015 31 December

2014

Promissory notes

3 171 586 3 609 494 Bonds issued on domestic market

2 651 205 1 900 380

Bonds issued on domestic market and secured by the mortgage loans

2 371 757 3 160 229 Savings certificates

190 769 505 200

Total debt securities in issue

8 385 317 9 175 303

At 31 December 2015 the Group had debt securities in issue held by 2 counterparties (2014: 2 counterparties) with balances above RR 300 000 thousand. The aggregate amount of these balances was RR 1 036 120 thousand (2014: RR 963 351 thousand) or 12.0 % (2014: 10.5%) of total debt securities in issue.

Promissory notes are issued by the Bank with a discount to face value or with interest accrual and bear an effective interest rate from 0.01% p.a. to 15% p.a. depending on the type of issue and currency of nomination (2014: from 0.01% p.a. to 20% p.a.). As at 31 December 2015 these promissory notes have maturity dates ranging from January 2015 to April 2023 (2014: from January 2015 to August 2018).

On 27 December 2013 the Group issued bonds on domestic market secured by the mortgage loans pool of RR 4 414 295 thousand issued by the Bank. At 31 December 2015 the carrying amount of loans securitised was RR 2 627 686 thousand (2014: 3 358 874 thousand). Refer to Note 10. The senior tranche of these mortgage bonds in the amount of RR 4 117 989 was acquired by the State Agency for Housing Mortgage Lending. The notes bear a fixed interest rate of 8% per annum payable semi-annually from the issuance until maturity in 2045.

In 2013 the Bank issued on the Moscow Exchange a tranche of RR 2 000 000 Rouble-denominated non-convertible bonds with a nominal amount of RR 1 thousand each and a coupon rate of 10.75% per annum until 9 June 2015; with a coupon rate of 13% until 10 June 2016 and maturity in May 2023. The holders of these bonds have a right to require the Bank to repurchase these bonds at nominal amount on 10 June 2016. On 15 June 2015 at official offer the Bank redeemed bonds in the amount of RR 155 986 thousand of this tranche at par value and then resold the bonds in the amount of RR 974 854 thousand.

In 2011 the Bank issued on the Moscow Exchange a tranche of RR 1 800 000 Rouble-denominated non-convertible bonds with a nominal amount of RR 1 thousand each and a coupon rate of 8.15% per annum until 18 September 2012, 10.25% per annum until 17 September 2013, 9.25% until 17 March 2015 and 15% until 15 September 2015 and 12.50% until maturity in March 2016. The holders of these bonds have a right to require the Bank to repurchase these bonds at nominal amount in March 2016. On 24 March 2015 at official offer the Bank redeemed bonds in the amount of RR 680 833 thousand of this tranche at par value and resold bonds in the amount of RR 1 622 099 thousand and on 22 September 2015 at official offer redeemed bonds in the amount of RR 1 023 000 thousand.

Refer to Note 34 for the disclosure of the fair value of each class of debt securities in issue. Interest rate analyses of debt securities in issue are disclosed in Note 28.

19 Other Borrowed Funds


2015 31 December

2014

Term borrowings from government agencies 19 500 000 -

Total other borrowed funds 19 500 000 -


37

19 Other Borrowed Funds (Continued)

Other borrowed funds are a liquidity tranche received in October 2015 from the State Corporation Deposit Insurance Agency within the scope of the procedures for financial rehabilitation of PJSC “Investtradebank” at fixed interest rate of 6.01% paid quarterly with maturity date of 16 October 2017 (Note 37).

Refer to Note 34 for disclosure of the fair value of each class of other borrowed funds. Interest rate analysis of other borrowed funds is disclosed in Note 28.

20 Subordinated Debt

Name Currency Maturity date

(year) Interest rate,

% 31 December

2015 31 December

2014

Eurobonds issued USD 2020/2017 10 – 7.74 7 219 258 5 748 321

Bonds issued on domestic market RUR 2018 13.00 1 007 840 1 007 480 Vnesheconombank RUR 2019 6.50 986 748 986 748 INRS International services EUR 2017 9.00 808 959 693 706 Dolmiano Investments Limited USD 2022 7.50 366 735 283 084 Diolon Shipping Limited USD 2022 6.60 309 484 238 892 Dolmiano Investments Limited USD 2022 9.00 298 144 230 138 Dolmiano Investments Limited USD 2022 6.60 291 531 225 034 Dolmiano Investments Limited USD 2022 8.60 221 791 171 201 Diolon Shipping Limited USD 2022 8.30 221 681 171 116 Dolmiano Investments Limited USD 2021 8.50 148 888 114 927 Diolon Shipping Limited

EUR

2020

10.00

120 561

-

Total subordinated debt

12 001 620 9 870 647

Subordinated debt ranks after other creditors in case of liquidation.

In June 2015 the Bank reached an agreement with the holders of its subordinated eurobonds issued in 2007. The agreement introduces amendments to the terms and conditions of issue required to ensure compliance with CB RF Regulation No. 395-P “On the Methodology to Estimate Equity (Capital) of Credit Institutions (“Basel III”)” dated December 28th, 2012.

The amendments provide for extension of the maturity of the Bank's eurobonds from 18 July 2017 to 18 September 2020, inclusion of additional condition on termination of obligations under the loan in case of occurrence of certain events (triggers) and also for the increase of coupon rate from 7.74% to 10% per annum.

Refer to Note 34 for the disclosure of the fair value of subordinated debt. Interest rate analysis of subordinated debt is disclosed in Note 28.

21 Other Liabilities

Other financial liabilities

In thousands of Russian Roubles Note 31 December

2015 31 December

2014

Deferred income on guarantees

30 61 466 57 935 Finance lease payables

34 550 64 653

Financial derivatives

33 11 707 186 620 Other

3 700 4 292

Total other financial liabilities

111 423 313 500

Refer to Note 34 for disclosure of the fair value of each class of other financial liabilities.


38

21 Other Liabilities (Continued)

Other Non-Financial liabilities


2015 31 December

2014

Accrued employee benefit costs

181 331 173 216 Trade payables

108 715 15 753

Taxes payable other than on income

60 668 42 430 Accrued insurance expenses

43 533 110 773

Other

29 844 18 861

Total other non-financial liabilities

424 091 361 033

22 Share Capital

In thousands of Russian Roubles except for number of shares

Number of outstanding

shares

Ordinary shares Share premium Total

At 1 January 2015

2 172 382 2 533 352 4 566 362 7 099 714

At 31 December 2015

2 172 382 2 533 352 4 566 362 7 099 714

As of 31 December 2015 the total number of ordinary authorised shares is 4 344 764 shares (2014: 4 344 764 shares), with a par value of RR 1 000 per share (2014: RR 1 000 per share). As at 31 December 2015 2 172 382 issued ordinary shares are fully paid (2014: 2 172 382). Each ordinary share carries one vote.

The nominal registered amount of the Bank’s issued share capital, prior to restatement of capital contributions made before 1 January 2003 to the purchasing power of the Russian Rouble at 31 December 2002, is RR 2 133 760 thousand. Share premium represents the excess of contributions received over the nominal value of shares issued.

23 Interest Income and Expense


Interest income Loans and advances to customers

18 320 576 14 323 838 Debt trading securities

3 320 524 1 122 125

Due from other banks

472 908 78 102 Investment securities available for sale

70 258 7 268

Correspondent accounts with other banks

358 3 033 Investment securities held to maturity

- 878

Total interest income

22 184 624 15 535 244

Interest expense Term deposits of individuals

3 978 373 2 542 328 Term deposits of legal entities

3 663 385 1 925 863

Term placements of other banks

3 134 935 1 959 591 Debt securities in issue

828 919 991 460

Subordinated debt

986 233 620 091 Correspondent accounts of other banks

384 401 77

Current/settlement accounts

192 435 206 184

Total interest expense

13 168 681 8 245 594

Deposit insurance program charge

163 223 143 931

Net margin

8 852 720 7 145 719


39

23 Interest Income and Expense (Continued)

Interest income includes RR 678 887 thousand (2014: RR 536 524 thousand) interest income, recognized on impaired loans and advances to customers.

24 Fee and Commission Income and Expense


Fee and commission income Performance guarantees issued 956 790 859 886

Settlement transactions 530 199 360 941 Plastic cards 500 991 455 452 Cash transactions 151 728 181 109 Currency control 123 616 94 744 Cash collection and recounts 106 567 121 724 Banknote transactions and operations with precious coins 29 607 14 751 Financial guarantees issued 3 341 37 730 Other 19 201 17 203

Total fee and commission income 2 422 040 2 143 540

Fee and commission expense Plastic cards 357 382 260 334

Settlement transactions 95 637 104 492 Banknote transactions 30 849 13 463 Cash collection 6 644 5 997 Financial guarantees received 2 629 39 158 Other 5 514 2 030

Total fee and commission expense 498 655 425 474

Net fee and commission income 1 923 385 1 718 066

25 Administrative and Other Operating Expenses


Staff costs

2 097 011 2 118 326 Social security tax

505 692 496 392

Insurance expenses on transportation of valuables

358 940 497 878 Office rent

334 735 324 178

Communication expenses

172 779 145 012 Maintenance

130 268 164 220

Taxes other than on income

125 102 41 454 Depreciation of premises and equipment 14 111 530 138 781 Professional services

106 456 121 653

Security expenses

106 340 117 552 Amortisation of intangible assets 14 80 194 80 802 Other insurance expenses

67 166 74 180

Advertising and other business development expenses

25 424 33 707 Other

103 231 78 841

Total administrative and other operating expenses

4 324 868 4 432 976

Included in staff costs are statutory pension contributions of RR 327 549 thousand (2014: RR 347 865 thousand).


40

26 Income Taxes

(a) Components of income tax expense / (benefit)

Income tax expense recorded in profit or loss for the year comprises the following:


Current tax 350 101 86 364

Deferred tax (260 814) 352 413

Income tax expense for the year 89 287 438 777

(b) Reconciliation between the tax expense and profit or loss multiplied by applicable tax rate

The income tax rate applicable to the majority of the Group’s 2015 income is 20% (2014: 20%). A reconciliation between the expected and the actual taxation charge is provided below.


Profit before tax under IFRS 1 001 187 2 270 578

Theoretical tax charge at statutory rate (2015: 20%; 2014: 20%) 200 237 454 116

Tax effect of items which are not deductible or assessable for taxation purposes: - Non-deductible expenses 4 889 7 508

- Income on government securities taxed at different rates (111 875) (22 847) - Non-assessable income

(3 964)

-

Income tax expense for the year 89 287 438 777

(c) Tax loss carry forward

The Group has unrecognised potential deferred tax assets in respect of unused tax loss carry forward of RR 391 331 thousand (2014: RR 824 788 thousand) which are to be expired in 2024.

The Group assumes that tax loss carry forward will be fully used to decrease income tax in the next three years.

(d) Deferred taxes analysed by type of temporary difference

Differences between IFRS and statutory taxation regulations in Russia give rise to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below, and is recorded at the rate of 20% (2014: 20%).

1 January 2015

Credited/ (charged) to

profit or loss


other comprehensive

income

31 December 2015


Tax effect of (taxable)/deductible temporary differences Other 1 913 18 590 - 20 503

Deferred income tax asset 1 913 18 590 - 20 503

Tax effect of (taxable)/deductible temporary differences Premises and equipment (91 216) 15 869 - (75 347)

Loan and advance to customers impairment provision (199 133) 285 672 - 86 539 Fair valuation of trading securities (1 097 391) (2 969) - (1 100 360) Fair valuation of investment securities available for sale 3 607

13 406 17 013

Other provisions 12 915 150 223 - 163 138 Accrued interest income on loans and advances to customers 344 360 178 652 - 523 012 Other accruals (43 703) 37 155 - (6 548) Tax loss carry forward 824 788 (433 457) - 391 331 Other (25 090) 11 079 - (14 011)

Deferred tax liability (270 863) 242 224 13 406 (15 233)


41

26 Income Taxes (Continued)

Deferred tax liability from fair valuation of trading securities is mainly connected with material fluctuations of currency rates at the end of 2015.

In the context of the Group’s current structure and Russian tax legislation, tax losses and current tax assets of different group companies may not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity and the same taxation authority.

1 January 2014


profit or loss

Credited/ (charged) to other

comprehensive income

31 December 2014


Tax effect of (taxable)/deductible temporary differences

Other

(3 675) 5 588 - 1 913

Deferred tax (liability) / asset

(3 675) 5 588 - 1 913

Tax effect of (taxable)/deductible

temporary differences Premises and equipment

(95 036) 3 820 - (91 216) Provision for loan and advance

impairment

(109 919) (89 214) - (199 133) Fair valuation of trading securities

8 116 (1 105 507) - (1 097 391)

Fair valuation of investment securities available for sale

- - 3 607 3 607

Other provisions

10 187 2 728 - 12 915 Accrued interest income on loans and

advances to customers

279 293 65 067 - 344 360 Other accruals

(29 093) (14 610) - (43 703)

Tax loss carry forward

- 824 788 - 824 788 Other

19 983 (45 073) - (25 090)

Deferred tax asset/(liability)

83 531 (358 001) 3 607 (270 863)

(d) Current and deferred tax effects relating to each component of other comprehensive income

Current and deferred tax effects relating to each component of other comprehensive income are as follows:


2015 2014

Income tax benefit

Net-of-tax benefit

Income tax benefit

Net-of-tax amount

Before-tax amount

Before-tax amount

Investment securities available for sale: - Losses arising during the year

(67 029) 13 406 (53 623) (18 035) 3607 (14 428)

Other comprehensive (loss)/income

(67 029) 13 406 (53 623) (18 035) 3 607 (14 428)

27 Segment Analysis

Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM), and for which discrete financial information is available. The CODM is the person – or group of persons – who allocates resources and assesses the performance for the entity. The functions of the CODM are performed by the Chairperson of the Management Board of the Bank.


42

27 Segment Analysis (Continued)

(a) Description of products and services from which each reportable segment derives its revenue

The Group is organised on the basis of five main business segments:

Treasury – includes money market operations, brokerage and custody services, transactions with securities and foreign currency, REPO agreements and operations with derivative financial instruments;

International financing – raising funds on international capital markets.

Overall management – this segment performs the centralised risk management, and is responsible for infrastructure maintenance and development.

Retail banking – representing private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages;

Corporate banking – representing direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products.

(b) Factors that management used to identify the reportable segments

The Group’s segments are strategic business units that focus on different customers. They are managed separately because each business unit requires different marketing strategies and service level.

(c) Measurement of operating segment profit or loss, assets and liabilities

The CODM reviews financial information prepared on the base of Russian accounting standards and in particular standalone financial reporting of the Bank in particular, adjusted to meet the requirements of internal reporting. Such financial information differs in certain aspects from International Financial Reporting Standards:

(i) the fair value changes in available for sale securities are reported within the segments’ profits or losses rather than in other comprehensive income; the securities presented in the portfolio “trading securities” are subject to revaluation at average market quotes;

(ii) the depreciation rates of premises and equipment differ from the depreciation rates applied under IFRS; the value of the premises and equipment purchased before 1 January 2003 is not adjusted for inflation

(iii) income taxes are not allocated to segments;

(iv) loan provisions are recognised based on management judgement and availability of information, rather than based on the incurred loss model prescribed in IAS 39;

(v) commission income relating to lending is recognised immediately rather than deferred using the effective interest method; and

(vi) the segment financial reporting, analysed by the CODM, does not include operating results of the subsidiaries; the operating results analysis is delegated on a regular basis to the subsidiaries’ management. The information about operating results of the subsidiaries is quarterly reported to the Chairperson of the Bank’s Management Board.

The Group calculates the volume of allocated and raised resources within the segments. This calculation is based on the ratio of allocated and raised resources with regard to liquidity and types of foreign currencies (roubles, dollars, euro) for each accounting period. Internal allocation and funding rates are equal and are based on average market borrowing rates.

Expenses, which cannot be directly charged to a segment, are allocated. The principles of allocation are selected in accordance with the objective expense allocation basis such as: salary fund, staff number, occupied working area.


43


When defining profit or loss of an operational segment, the Bank allocates amortisation and depreciation costs within its operational segments. However, this principle is not applied to book value of premises and equipment.

The CODM estimates the segment results based on profit before income tax.

(d) Information about reportable segment profit or loss, assets and liabilities

Segment information for the reportable segments for the year ended 31 December 2015 and 31 December 2014 is set out below:


2015 31 December

2014

Assets Corporate banking

88 437 510 94 215 407 Treasury

81 616 076 37 269 899

Retail banking

41 112 347 38 088 746 Overall management

2 476 095 1 860 698

International financing

199 108 314 084

Total reportable segment assets

213 841 136 171 748 834

Liabilities Treasury

68 649 485 37 218 618 Corporate banking

58 322 823 54 796 837

Retail banking

46 595 627 39 922 375 International financing

21 420 569 22 971 583

Overall management

326 738 49 259

Total reportable segment liabilities

195 315 242 154 958 672

In thousands of Russian Roubles Treasury Corporate

banking Retail

banking International

financing Overall

management Total

2015 External revenues: - Interest income 677 638 13 357 960 5 111 873 - - 19 147 471

- Fee and commission income 35 032 1 793 618 572 513 - - 2 401 163 - Other operating income - 70 813 106 351 - - 177 164 Revenues from other segments:

-

- Interest income - - - 1 638 265 3 512 245 5 150 510

Total revenues 712 670 15 222 391 5 790 737 1 638 265 3 512 245 26 876 308

Interest expense (5 291 873) (3 816 552) (3 976 288) (1 348 645) - (14 433 358) Interest expense to other segments (74 272) (5 036 829) (39 409) - - (5 150 510) Provision for loans and advances to

customers (202 725) (3 627 996) (1 057 158) - - (4 887 879) Provision for credit related

commitments (223) (436 135) 28 228 - - (408 130) Fee and commission expense (66 606) (95 653) (406 446) (57 008) - (625 713) Gains less losses from trading

securities 5 385 281 27 570 - - - 5 412 851 Gains less losses from trading in

foreign currencies (12 787) 58 165 - - - 45 378 Administrative and other operating

expenses (142 064) (1 391 322) (1 353 406) (57 966) (1 354 799) (4 299 557) Depreciation (2 773) (20 388) (23 895) (734) (42 825) (90 615)

Segment result 304 628 883 251 (1 037 637) 173 912 2 114 621 2 438 775

Additional information Capital expenditures (acquisition of

premises and equipment)

2 321

20 686

31 144

865

27 988

83 004


44


In thousands of Russian Roubles Treasury Corporate

banking Retail

banking Internatio-nal

financing Overall

management Total

2014 External revenues: - Interest income 130 801 10 232 764 4 138 524 - - 14 502 089

- Fee and commission income 3 687 1 611 588 523 918 - - 2 139 193 - Other operating income - 40 626 55 548 - 2 511 98 685 Revenues from other segments:

- Interest income 1 280 890 - 244 263 1 336 402 2 244 928 5 106 483

Total revenues 1 415 378 11 884 978 4 962 253 1 336 402 2 247 439 21 846 450

Interest expense (2 224 906) (2 550 657) (2 532 294) (979 500) - (8 287 357) Interest expense to other

segments - (5 106 483) - - - (5 106 483) Provision for loan impairment (2 046) (1 162 836) (389 147) - - (1 554 029) Provision for credit related

commitments (230) 152 525 (30 639) - - 121 656 Fee and commission expense (33 427) (93 451) (290 420) (115 202) - (532 500) Gains less losses from trading

securities (118 296) 12 348 - - - (105 948) Losses from investments in

associate - - - - (110 577) (110 577) Gains less losses from trading in

foreign currencies 240 789 47 891 - - - 288 680 Administrative and other

operating expenses (114 818) (1 412 121) (1 116 456) (38 075) (1 618 877) (4 300 347) Depreciation (3 550) (43 659) (30 246) (1 177) (35 965) (114 597)

Segment result (841 106) 1 728 535 573 051 202 448 482 020 2 144 948

Additional information

Capital expenditures (acquisition of premises and equipment)

1 889

55 492

72 271

876

53 396

183 924

(e) Reconciliation of reportable segment revenues, profit or loss, assets and liabilities

Total consolidated revenues comprise interest income, fee and commission income and other operating income.


31 December 2015

31 December 2014

Total revenues for reportable segments

26 876 308 21 846 450

(a) interest income on securities

3 390 782 1 130 271 (b) interest income on leasing operations

299 623 248 856

(с) accrued income on loans

(395 577) (227 367) (d) intergroup adjustments

(470 948) (241 153)

(e) intersegment results

(5 150 510) (5 106 483) Other

144 550 131 126

Total consolidated revenues

24 694 228 17 781 700

(a) Interest income on securities is included within gains less losses from trading securities in the segment reporting;

(b) Interest income on leasing operations is arising from the leasing subsidiary of the Bank. Financial results from subsidiaries are excluded from the segment reporting results;

(c) Accrued income on loans is arising from discounted cash flow method; (d) Interest income from subsidiaries of the Bank is not eliminated from the total interest income of the

Bank for the segment reporting results; (e) Intersegment results are results arising from trading between segment;


45



2015 31 December

2014

Total reportable segment result

2 438 775 2 144 948 (f) provisions for loans and advance to customers

impairment

(1 607 152) (34 256) (g) provisions for credit related commitments

(340 119) (121 656)

(h) accrued income on loans (395 577) (127 583) (i) gains less losses from operations in foreign currencies

852 974 483 220

(j) adjustment of cargo insurance expenses

64 444 (42 225) (k) other comprehensive income

67 029 18 035

(l) adjustment of staff costs (paid leave)

(9 112) (3 541) (m) gain/(loss) from associate

- 20 764

(n) other accruals

(70 075) (67 128)

Profit before tax

1 001 187 2 270 578

(f) Provision for loan and advance to customers impairment in segment reporting is based on the statutory provision methodology of the Bank, which is different from the provision methodology applied by the Group in these consolidated financial statements;

(g) Provisions for credit related commitments impairment in segment reporting is based on the statutory provision methodology of the Bank, which is different from the provision methodology applied by the Group in these consolidated financial statements;

(h) Accrued income on loans is arising from discounted cash flow method; (i) Gains less losses from operations in foreign currencies is arising from different approaches to

revaluation of provisions on loans in foreign currencies; (j) Cargo insurance expenses are recognised under IFRS when incurred; (k) Other comprehensive income includes results from associate, which are excluded from segment

reporting results; (l) Under IFRS provision for staff paid leave is accrued; (m) Gain/loss from associate is arising from sale of investments in factoring company; (n) Accruals are mainly represented by differences in accounting of operating expenses and commissions;


2015 31 December

2014

Total reportable segment assets

213 841 135 171 748 834

(o) loans and advances to customers

(419 295) 837 133 (p) income tax

(94 270) (121 039)

(q) effect from consolidation

339 239 319 652 (r) revaluation of securities

(71 874) (66 700)

other

(80 797) 116 338

Total consolidated assets

213 514 138 172 834 218

(o) Loan provisions are recognised based on management judgement and availability of information, rather than based on the incurred loss model prescribed in IAS 39;

(p) Difference is related to deferred tax; (q) The segmental financial reporting, analysed by the CODM, does not include operating results of the

subsidiaries; (r) The fair value changes in available-for-sale investment securities are reported within the segments’

profits or losses rather than in other comprehensive income. The securities presented in the portfolio “Investment securities available for sale” and “Trading securities” are subject to revaluation at average market quotes, rather than at the last bid price;


46



2015 31 December

2014

Total reportable segment liabilities

195 315 242 154 958 672 (s) effect from consolidation

26 596 (7 441)

(t) other provisions

9 378 (712 669) (u) income tax

(258 900) 171 441

(v) financial derivatives

4 597 186 620 (w) accruals

(291 145) 345 865

other

12 905 54 542

Total consolidated liabilities

194 818 673 154 997 030

(s) The segmental financial reporting, analysed by the CODM, does not include operating results of the subsidiaries;

(t) Difference is related to provisions for contingent liabilities; (u) Difference is related to deferred tax; (v) In management accounting is presented on net basis; (w) Accruals are mainly presented by differences in accounting of operating expenses and commissions.

(f) Analysis of revenues by products and services

The Group’s revenues are analysed by products and services in Notes 23 (Interest Income), Note 24 (Fee and Commission Income).

(g) Geographical information

The Group operates in the Russian Federation only. Substantially all revenues of the Group were received from counterparties that conduct their business in the Russian Federation.

(i) Major customers

In 2015 and 2014 the Group has no clients whose revenues represent 10% or more of the total revenues.

28 Financial Risk Management

The risk management structure is based on the break-even principle and is aimed at the best balance between profitability and level of the risks taken.

The Board of Directors, executive bodies, collective bodies (committees) of the Bank regularly receive necessary and sufficient information about the level of risks and their influence on the changes of capital adequacy, about the facts of excess of the assigned risk level: violation of limits, restrictions and established procedures, results of stress testing.

Risk management system comprises all the directions of the Bank’s activity and influences the decision making process on all levels beginning with strategic and ending with operating tasks.

The risk management function within the Group is carried out in respect of financial and operational risks. Financial risk comprises market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The primary objectives of the financial risk management function are to establish limits for each type of risk, and then ensure that exposure to risks stays within these limits. The risk management function is aimed at decreasing the probability of unforeseen losses resulting from the influence of internal and external non-financial factors and at cutting down costs on financing liquidation of these losses.


47

28 Financial Risk Management (Continued)

Credit risk

The Group takes on 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 the Group’s lending and other transactions with counterparties giving rise to financial assets. The primary objective of credit risk management is to generate maximum profitability subject to the level of assumed credit risk. This objective is achieved through setting up a system of effective tools allowing minimisation of likelihood of default on principal amount and interest on loans issued. The principal instrument of credit risk management is administration of loans, including a set of sequential actions performed at different stages of transactions exposed to credit risk. The principal instrument for credit risk regulation is setting limits for financial instruments on borrowers and counterparties, assessment of the borrowers’ and counterparties' financial position in order to set loan loss provisions and assessment of collateral quality.

The Group’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the consolidated statement of financial position. For guarantees and commitments to extend credit, the maximum exposure to credit risk is the amount of the commitment. Refer to Note 30.

In a complex foreign economic environment an effective risk management system is a priority to the Group. Lending products are given only after thorough assessment of all the risks connected with the borrower’s activity.

Loss given default of the group of homogeneous loans is included in the product cost.

Collective bodies established depending on the scale of credit risk and the lines of activity effectively manage credit risk of the Group.

The Bank Management establishes collective bodies having the right to make decision on operations subject to credit risk, gives to the collective bodies and designated individuals an authority to decide.

Credit Committee of the Bank makes decisions on the structure of the loan portfolio on the whole, as well as on certain operations subject to credit risk with legal entities (except credit institutions), individual entrepreneurs and individuals. Some responsibilities of the Credit Committee are laid on Small Credit Committee and credit commissions that make decisions on limited number of operations within particular programs and credit products for legal entities and individuals (“lending programs”).

Risk Management Committee carries out the following functions:

– approves limits for different types of risks;

– makes decisions related to changes in the structure of portfolio investments, attraction and allocation of resources;

– monitors the effect of current fluctuations of market prices on financial instruments and makes decisions on formation or reduction of relevant financial instruments portfolios;

The Limit Committee of the Bank makes decisions on transactions with legal entities and credit institutions;

The Committee on work with non-performing loans of individuals makes decisions on questions dealing with non-performing and/or overdue loans of individuals;

The Committee on work with non-performing loans of legal entities (except credit institutions) and individual entrepreneurs makes decisions on questions dealing with non-performing and/or overdue loans of legal entities (except credit institutions) and individual entrepreneurs.


48


For the purpose of mitigation of its credit risk level, the Group has developed a system of limits allowing to limit exposure to credit risk. The Bank’s credit policy sets portfolio limits on its loan portfolio. The Bank’s Management Board sets limits on lending by branches. The Credit Committee sets limits on credit products for borrowers and counterparties. Decisions on transactions with the Bank's related parties (limited up to 3% of the Bank’s equity per related borrower) and insiders (limited up to 2% of the Bank’s equity per insider) are made by the Credit Committee and in other cases by the Board of Directors. The Risk Management Committee sets limits on industry diversification of loan portfolio and limits on concentration of major loans. Limits on financial instruments on counterparty banks and issuers of securities are set by the Limits Committee. Limits are monitored on a regular basis and revised as required, but not less than once a year.

Credit limits directly depend on financial performance of borrower and on credit rating being an integral estimation of the borrower’s financial stability and solvency. Internal credit rating is expressed as scores assigned to creditworthiness based on estimated factors:

borrower’s financial position;

review of the borrower’s business reputation and information of its operations;

estimation of turnover on the borrower’s accounts with the Bank (stability of cash flows);

assessment of the shareholding (foundation) structure;

credit history.

Loans are usually issued against a liquid collateral, including costs of sale of the collateral and sufficient coverage of the loan principal and interest. The most relevant indicators of the collateral analysis are sufficiency and liquidity of the collateral received. The Group actively applies collateral insurance. Credit quality of the loans and fair value of collateral are monitored on a continuing basis.

The Group monitors and controls the level of credit risk of every call of the Bank to its counterparty; of sub-portfolios, arranged into groups according to the lines of activity and lending programs; of sub-portfolios made by the divisions taking part in the credit process; of aggregate credit portfolio.

The Group’s divisions involved in lending transactions perform ageing analysis of outstanding loans and follow up past due balances. Management therefore considers it appropriate to provide ageing and other information about credit risk as disclosed in Note 10.

When the quality of an asset deteriorates, the Group creates provision for impairment losses fairly reflecting the size of impairment according to the internal regulatory documents of the Bank and the International Financial Reporting Standards.

To minimise credit risk losses divisions responsible for monitoring credit risk are to find out non-performing loans in due time. When a problem or non-performing loan is identified compliance units develop the most effective plan to pay overdue amounts and responsible divisions implement it.

To minimise credit risk losses caused by non-financial risks the Bank uses a system of insurance against risks of the total loan portfolio as well as of separate loans. The maximum credit risk exposure of the Group is included in the carrying value of financial assets in the consolidated statement of financial position unless otherwise stated. The possibility to offset assets against liabilities does not have any material impact on minimisation of potential credit risk.

Credit risk on off-balance financial instruments is defined as a possibility of losses if the other party of the transaction with this financial instrument fails to fulfil the terms of the agreement. The Group uses the same credit policies in assuming conditional obligations as it does for on-balance sheet financial instruments, through established credit approvals, risk control limits and monitoring procedures.


49


Market risk

The Group takes on exposure to market risks. Market risks arise from open positions in (a) currency, (b) interest rates and (c) equity products, all of which are exposed to general and specific market movements.

To manage market risk the Bank analyses sensibility of financial result to the changes of interest rates, foreign currency exchanges, market prices of securities and other financial instruments.

The analysis is based on assessment of volatility and interrelation of different risk factors and stress-testing. To keep risk within the policy the Group manages misbalances (GAP), sets limits on financial instruments, limits of acceptable losses (stop-loss) on trading instruments.

The Risk Management Committee sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

Interest rate risk

The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its consolidated financial position and cash flows. Interest margins may increase as a result of such changes, but may reduce or create losses in the event that unexpected movements arise.

Losses arising from interest risk are measured as follows:

likely reduction of difference between interest received and paid;

likely decrease of fair value of the Group’s assets estimated based on future cash flows formed as a difference between interest paid and received.

Interest rate risk management covers all assets and liabilities of the Bank, as well as off balance sheet accounts related to arising of interest rate risk. In order to determine the potential exposure of the Group to interest rate risk, gap analysis and duration method are applied. For gap analysis, the level of asset and liability gap sensitive to changes in interest rates is applied as the main indicator measuring the interest rate risk. For duration method analysis, the amount of interest rate risk giving rise to decrease of the Bank’s economic value by more than 20% of equity is treated as critical. In order to minimise the interest rate risk, loan agreements provide for periodic review of interest rates depending on changes in the market interest rates.

Management monitors on a daily basis and sets limits on the level of mismatch of interest rate repricing that may be undertaken.

Financial assets of the Group are subject to the following sources of interest rate risks:

mismatch of maturity periods of assets and liabilities and off-balance commitments with fixed interest rate;

mismatch of maturity periods of assets and liabilities and off-balance commitments with floating interest rate;

mismatch of the changes in interest rates on allocating and borrowing funds of the Group (for financial instruments with fixed interest rate provided that the maturity dates are the same);

mismatch of the changes in interest rates (for financial instruments with floating interest rate provided that the periods of floating interest rates review match together).


50


The table below summarises the Group’s exposure to interest rate risks. The table presents the aggregated amounts of the Group’s financial assets and liabilities at carrying amounts, categorised by the earlier of contractual interest repricing or maturity dates:


Less than1 month

From 1 to 3 months

From 3 to 12 months

From 1 to 5 years

Over Total

5 years

31 December 2015 Total financial assets 55 982 664 14 225 007 46 720 254 55 037 534 24 191 758 196 157 217

Total financial liabilities 21 794 536 27 849 442 45 168 939 67 766 526 3 576 309 166 155 752

Net interest sensitivity gap at 31 December 2015 34 188 128 (13 624 435) 1 551 315 (12 728 992) 20 615 449 30 001 465

31 December 2014 Total financial assets 40 446 383 22 527 870 47 811 982 25 803 331 19 341 306 155 930 872


Net interest sensitivity gap at 31 December 2014 1 867 232 (3 798 073) 6 266 661 2 908 865 15 994 687 23 239 372

At 31 December 2015, if interest rates at that date had been 400 basis points lower (2014: 400 basis points lower) with all other variables held constant, profit before tax for the year would have been RR 4 299 272 thousand (2014: RR 4 695 154 thousand) higher, mainly as a result of lower interest expense on variable interest liabilities. At the same time, the amount of income is decreased due to interest payments under deposits placed with the Group earlier with fixed interest rates.

If interest rates had been 400 basis points higher (2014: 400 basis points higher), with all other variables held constant, profit before tax would have been RR 4 299 272 thousand (2014: RR 4 695 154 thousand) lower, mainly as a result of higher interest expense on variable interest liabilities. At the same time, the amount of expense is decreased due to relatively cheap deposits attracted earlier and under loans with fixed interest rate.

When estimating interest rate risk the Group assumes that the amount of early loan prepayments and early withdrawal of deposits will not make great influence of the size of net interest income. Liabilities of the Group, consisting of demand and term deposits of individuals and non-credit institutions, are rather stable.


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The Group monitors interest rates for its financial instruments. The table below summarises interest rates at the respective reporting date based on reports reviewed by key management personnel. For securities, the interest rates represent yields to maturity based on market quotations at the reporting date:


In % p.a. RR USD Euro Other RR USD Euro Other

Assets Cash and cash equivalents: - correspondent accounts

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - placements with other

banks with original maturities of less than three months

14.5 3.0 - - - - - -

Due from other banks

6.0 9.0 6.5 - - - - - Debt trading securities and

repurchase receivables

12.9 3.7 2.5 - 9.8 3.3 4.1 - Loans and advances to

customers: - legal entities

15.3 10.5 8.5 - 15.8 10.2 7.5 - - individuals

14.8 11.4 14.6 - 14.6 12.2 13.1 -

- finance lease

31.2 - - - 26.2 - - - Investment securities

available for sale and repurchase receivables

- 4.2 3.5 - - - - -

Liabilities Due to other banks

9.4 4.3 3.0 - 14.7 3.8 2.5 - Customer accounts

- term deposits of individuals

12.7 4.9 4.5 - 15.8 6.3 5.6 - term deposits of legal

entities

8.7 1.8 3.8 - 12.5 3.6 5.7 - Other borrowed funds

6.0 - - - - - -

Debt securities in issue

9.5 2.9 1.8 0.1 9.1 1.0 3.3 - Subordinated debt

9.8 10.0 9.1 - 9.8 7.7 9.0 -

The sign “-“ in the table above means that the Group does not have the respective assets or liabilities in the corresponding currency.

Currency risk

Currency risk is determined as probability of negative fluctuations in foreign currency exchange rates resulting in losses from re-assessment of market value of assets and liabilities. The Group is exposed to foreign currency exchange risk on open positions (mainly USD/RR and EUR/RR exchange rate fluctuations). The Group manages currency risk by controlling its open foreign exchange currency position projecting changes in the exchange rate of the Russian rouble and other macro-economic indicators to minimise losses from sizeable fluctuations in the exchange rates of national and foreign currencies.

The Bank`s Treasury undertakes daily aggregation of the currency position of the Group and takes measures for minimising of the Group’s currency risk exposure. The Group uses swaps, forwards tradable on Moscow Exchange as the main instruments for risk management. For the purpose of currency risk analysis, the following actions are taken in respect of each currency in which the Group holds an open currency position:

– dynamic of fluctuation of the exchange rate of currency is analysed;

– factors impacting exchange rate of the relevant currency are analysed;

– feasibility of setting long (short) position is determined;

– aggregate amount of profit/loss arising from revaluation of the position is determined;

– ratio between the calculated aggregate amount of income (losses) and equity is determined.


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Based on the performed currency risk analysis:

– the maximum currency position is determined (limiting of the currency position); and

– the maximum amount of ratio of losses from position revaluation is set (limiting of losses: stop-loss).

The Risk Management Committee sets limits in respect of currency risk both overnight and intra-day positions, and monitors compliance.

The table below summarises the Group’s exposure to foreign currency exchange rate risk at the end of the reporting period:

In thousands of Russian Roubles Russian Roubles

US Dollars Euros Other Total

At 31 December 2015 Monetary financial assets 156 314 029 42 960 295 11 515 310 290 150 211 079 784

Monetary financial liabilities 130 844 209 47 208 334 15 545 902 121 611 193 720 056 Less fair value of currency derivatives 10 178 (73 520) (21 106) - (84 448) Currency derivatives (8 444 612) 4 335 190 4 193 870 - 84 448

Net position including currency derivatives 17 035 386 13 631 142 172 168 539 17 359 728

At 31 December 2014 Monetary financial assets 124 121 908 37 425 860 9 181 599 154 358 170 883 725

Monetary financial liabilities 106 629 311 30 466 787 17 237 126 31 910 154 365 134 Less fair value of currency derivatives (386) (664 764) 102 355 (280) (563 075) Currency derivatives (1 616 861) (6 022 364) 8 132 817 69 483 563 075

Net position including currency derivatives 15 875 350 271 945 179 645 191 651 16 518 591

Derivatives presented above are monetary financial assets or monetary financial liabilities, but are presented separately in order to show the Group’s gross exposure.

Amounts disclosed in respect of derivatives represent the fair value, at the end of the reporting period, of the respective currency that the Group agreed to buy (positive amount) or sell (negative amount) before netting of positions and payments with the counterparty. The amounts by currency are presented gross as stated in Note 33. 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.

The following table presents sensitivities of profit or loss and equity to reasonably possible changes in exchange rates applied at the end of the reporting date, with all other variables held constant: period relative to the functional currency of the respective Group entities, with all other variables held constant:


In thousands of Russian Roubles Impact on

profit or loss Impact on

equity Impact on

profit or loss Impact on

equity

US Dollar strengthening by 30% (2014:

strengthening by 30%)

6 364 6 364 (61 787) (61 787) US Dollar weakening by 30% (2014:

weakening by 30%)

(6 364) (6 364) 61 787 61 787 Euro strengthening by 30% (2014:

strengthening by 30%)

37 061 37 061 39 581 39 581 Euro weakening by 30% (2014: weakening by

30%)

(37 061) (37 061) (39 581) (39 581)

The exposure was calculated only for monetary balances denominated in currencies other than the

functional currency of the respective entity of the Group.


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Other price risk

The Group has exposure to equity price risk. The principal methods of equity risk management applied by the Group are:

– estimation of the issuer’s financial position;

– setting limits per issuers of securities;

– setting limits on transactions with securities.

When equity risk is measured, the level of change in the price of this security within the set period of time is estimated. The following factors are taken into consideration:

– retrospective data on price fluctuations;

– issuer’s nature;

– market liquidity of this security, ratings assigned by recognised rating agencies to these securities and their description as financial instruments;

– level of concentration of the Group’s position in securities of one issuer or in a range of its issues.

The Bank considers transactions with uncovered shares and derivative financial instruments as highly risky. In order to minimise the price risk the Risk Management Committee set nominal limits depending on the type of financial instruments and determining the size of current position as at the end of the day. All transactions with securities and derivative financial instruments on securities are conducted within the limits on issuers set by the Limit Committee.

Prepayment risk

The Group is exposed to prepayment risk through providing fixed or variable rate loans, including mortgages, which give the borrower the right to early repay the loans. The Group’s current year financial result and equity at the current reporting date would not have been significantly impacted by changes in prepayment rates because such loans are carried at amortised cost and the prepayment right is at or close to the amortised cost of the loans and advances to customers.

Liquidity risk

Liquidity risk is defined as the risk of the Group’s inability to finance its activity that is inability to ensure growth of assets and fulfil its obligations as they fall due without carrying any losses in amounts unacceptable for the financial stability. The aim of liquidity risk management is to maximise profit while keeping up necessary and sufficient level of liquid assets. The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loans draw downs, guarantees and other calls on cash settled derivative instruments. The Group 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. The Group manages liquidity risk.

Liquidity risk is managed by the Group’s Risk Management Committee. Current liquidity is managed by the Treasury Department which carries out transactions in the money markets to maintain current liquidity and optimise cash flows. The Bank’s Liquidity Division is operating within the Treasury Department and carrying out planning and management of instant and short-term liquidity, as well as calculations and analysis of medium-term and long-term liquidity.

The Treasury Department receives information on financial assets and liabilities and then provides for an adequate portfolio of short-term liquid assets, largely made up of short-term liquid trading securities, deposits with banks and other interbank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole. The daily liquidity position is monitored and regular liquidity stress testing, under a variety of scenarios covering both normal and more severe market conditions, is performed by the Treasury Department.


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GAP analysis is an instrument for projecting structural liquidity allowing to make a conclusion on the level of structural matching of the balance sheet assets and liabilities.

The Group seeks to maintain a stable funding base primarily consisting of amounts due to other banks, corporate and retail customer deposits and debt securities. The Group invests the funds in diversified portfolios of liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements.

The Group maintains adequate portfolio of short-term liquid assets, mainly consisting of liquid trading securities, deposits in other banks and other interbank instruments to keep sufficient liquidity level of the Bank on the whole.

The Group regularly performs liquidity stress-tests based on various scenarios, comprising standard and more negative market conditions.

The obligatory liquidity ratios settled by the CBRF are controlled every day.

To prevent violation of statutory liquidity ratios set by the CBRF the Risk Management Committee set internal liquidity ratios: in respect of N2 – minimum 20%, N3 – minimum 60% and N4 – maximum 110%. In order to minimise the risk of liquidity loss, the Group’s dependency on interbank transactions is analysed, as well as transactions of major clients and concentration of credit risks.

The table below shows liabilities at 31 December 2015 by their remaining contractual maturity. The amounts of liabilities disclosed in the maturity table are the contractual undiscounted cash flows, including gross finance lease obligations (before deducting future finance charges), gross loan commitments and performance financial guarantees. Such undiscounted cash flows differ from the amount included in the consolidated statement of financial position because the amount in the consolidated statement of financial position is based on discounted cash flows. Net settled derivatives are included at the net amounts expected to be paid.

Financial derivatives are included at the contractual amounts to be paid or received, unless the Group expects to close the derivative position before its maturity date in which case the derivatives are included based on the expected cash flows. For the purposes of the maturity analysis, embedded derivatives are not separated from hybrid (combined) financial instruments.

The table below shows the maturity analysis of non-derivative financial assets at their carrying amounts and based on their contractual maturities, except for assets that are readily saleable if it should be necessary to meet cash outflows on financial liabilities. Such financial assets are included in the maturity analysis based on their expected date of disposal. Impaired loans are included at their carrying amounts net of impairment provisions, and based on the expected timing of cash inflows. Derivatives are presented on the basis of their contractual maturity dates.

When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the end of the reporting period. Foreign currency payments are translated using the spot exchange rate at the end of the reporting period.


55


The undiscounted maturity analysis of financial liabilities at 31 December 2015 is as follows:


Less than 1 month

From 1 to 3 months

From 3 months to 1

year

From 1 to 5 years

Due after five years

Total

UNDISCOUNTED FINANCIAL LIABILITIES

Due to other banks 29 922 717 2 967 846 11 696 873 10 438 168 731 884 55 757 488 Customer accounts 30 156 958 23 935 899 36 854 234 13 577 064 92 332 104 616 487 Other borrowed funds - - 866 922 20 447 192 - 21 314 114 Debt securities in issue 1 099 334 1 541 856 3 375 484 2 239 033 1 671 130 9 926 837 Financial liabilities 16 158 8 523 47 402 38 744 597 111 423 Subordinated debt - 361 418 762 157 14 193 983 2 083 341 17 400 898 Gross settled derivative financial

instruments: - inflows 11 550 827 81 970 1 234 064 - - 12 866 861

- outflows (11 480 284) (83 723) (1 218 406) - - (12 782 413) Financial guarantees 10 561 299 814 440 521 - - 750 896 Performance guarantees 3 814 728 7 143 158 5 776 550 10 555 424 370 610 27 660 470 Letters of credit 103 311 176 239 142 422 - - 421 973 Undrawn revocable credit lines 14 441 521 - - - - 14 441 521

Total 79 635 831 36 433 000 59 978 223 71 489 608 4 949 894 252 486 555

Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment disclosed in the above maturity analysis, because the Group does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit as included in the above maturity table does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.

Distribution of undiscounted cash flows for financial and performance guarantees is based on the terms of guarantees. The execution of guarantees may start at any moment.

The undiscounted maturity analysis of financial liabilities at 31 December 2014 is as follows:


Less than 1 month

From 1 to 3 months

From 3 months to 1

year

From 1 to 5 years

Due after five years

Total

UNDISCOUNTED FINANCIAL LIABILITIES

Due to other banks 17 308 519 6 822 116 8 349 032 10 551 023 124 856 43 155 546 Customer accounts 39 560 661 16 423 981 31 586 471 9 787 950 114 688 97 473 751 Debt securities in issue 1 250 536 1 480 988 3 078 388 2 962 920 3 163 574 11 936 406 Financial liabilities 257 010 14 603 21 322 20 565

313 500

Subordinated debt - 233 535 567 080 10 237 124 1 709 479 12 747 218 Gross settled derivative financial

instruments: - inflows 5 291 916 3 124 517 2 218 539 - - 10 634 972

- outflows (5 399 517) (3 137 460) (1 516 940) - - (10 053 917) Financial guarantees 1 011 654 2 900 000 502 508 10 560 - 4 424 722 Performance guarantees 3 468 761 6 481 680 11 650 694 9 368 888 248 565 31 218 588 Letters of credit 120 724 131 797 261 448 47 493 - 561 462 Undrawn revocable credit lines 14 318 211 - - - - 14 318 211

Total 77 188 475 34 475 757 56 718 542 42 986 523 5 361 162 216 730 459

Customer accounts are classified in the above analysis based on contractual maturities. However, in accordance with Russian Civil Code, individuals have a right to withdraw their deposits prior to maturity if they forfeit their right to accrued interest.


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The table below represents maturity analysis of non-financial assets and liabilities:

In thousands of Russian Roubles Current Non-current Total

At 31 December 2015

Other assets

642 120 405 360 1 047 480 Other liabilities

242 572 181 519 424 091

At 31 December 2014

Other assets

273 155 172 595 445 750 Other liabilities

356 269 4 764 361 033

The Group does not use the above undiscounted maturity analysis to manage liquidity. Instead, the Group

monitors expected maturities of financial assets and financial liabilities, which may be summarised as follows at 31 December 2015:


Less than 1 month

From1 to 3 months

From 3 months to

1 year

From 1 to 5 years

Over 5 years

Total

ASSETS Cash and cash equivalents 12 830 637 - - - - 12 830 637

Mandatory cash balances with the CBRF 287 860 221 284 338 428 123 390 631 971 593 Due from other banks 1 897 535 16 308 964 469 19 661 160 - 22 539 472 Trading securities 34 483 037 - - - - 34 483 037 Investment securities available for sale 58 808 - 5 154 342 781 004 - 5 994 154 Repurchase receivables 11 546 112 - - - - 11 546 112 Loans and advances to customers 6 831 050 14 215 104 41 075 753 35 015 187 24 191 758 121 328 852 Other financial assets 1 123 787 30 6 949 255 161 - 1 385 927

Total financial assets 69 058 826 14 452 726 47 539 941 55 835 902 24 192 389 211 079 784

LIABILITIES

Due to other banks 17 161 098 2 721 413 4 261 172 28 140 964 655 300 52 939 947 Customer accounts 29 859 219 22 953 376 35 104 685 12 799 014 65 455 100 781 749 Debt securities in issue 1 073 686 1 432 922 3 175 861 1 683 938 1 018 910 8 385 317 Other borrowed funds - - - 19 500 000 - 19 500 000 Subordinated debt - - 250 978 9 913 998 1 836 644 12 001 620 Other financial liabilities 16 158 8 523 47 402 38 744 596 111 423


Net liquidity gap 20 948 665 (12 663 508) 4 699 843 (16 240 756) 20 615 484 17 359 728

Cumulative liquidity gap 20 948 665 8 285 157 12 985 000 (3 255 756) 17 359 728

The entire portfolio of trading securities is classified within demand and less than one month based on management’s assessment of the portfolio’s realisability.

Current/settlement accounts are classified in full amount within category “Less than one month”.

To manage liquidity gap the Group has a number of instruments, for instance, the Bank is on the List of banks, which attracts funds under the program “On granting loans collateralised by assets or guarantees to the credit institutions by the CBRF”.


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The expected maturities are as follows at 31 December 2014:


Less than 1 month

From 1 to 3 months

From 3 months to 1

year

From 1 to 5 years

Over 5 years

Total

ASSETS Cash and cash equivalents 13 820 363 - - - - 13 820 363

Mandatory cash balances with the CBRF 442 444 176 956 332 630 104 383 1 230 1 057 643 Trading securities 14 517 823 - - - - 14 517 823 Repurchase receivables 14 942 275 - - - - 14 942 275 Loans and advances to customers 10 028 517 22 527 870 47 811 982 25 803 331 19 341 306 125 513 006 Other financial assets 678 895 17 874 128 229 207 617 - 1 032 615

Total financial assets 54 430 317 22 722 700 48 272 841 26 115 331 19 342 536 170 883 725

LIABILITIES Due to other banks 17 899 261 6 568 202 7 779 648 8 796 840 105 910 41 149 861 Customer accounts 39 266 737 15 703 191 29 513 734 9 263 069 109 092 93 855 823 Debt securities in issue 1 254 131 1 366 479 2 787 614 2 146 048 1 621 031 9 175 303 Subordinated debt - 132 100 26 924 8 293 911 1 417 712 9 870 647 Other financial liabilities 257 010 14 603 21 322 20 565 - 313 500


Net liquidity gap (4 246 822) (1 061 875) 8 143 599 (2 405 102) 16 088 791 16 518 591

Cumulative liquidity gap (4 246 822) (5 308 697) 2 834 902 429 800 16 518 591

The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. 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 of the Group and its exposure to changes in interest and exchange rates.

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 the Group would indicate that these customer accounts provide a long-term and stable source of funding for the Group.

Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment because the Group 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.


58


Geographical risk concentrations

The geographical concentration of the Group’s financial assets and liabilities at 31 December 2015 is set out below:

In thousands of Russian Roubles The Russian

Federation OECD CIS

countries Other

countries Total

ASSETS Cash and cash equivalents

9 579 577 2 982 960 - 268 100 12 830 637

Mandatory cash balances with the CBRF

971 593 - - - 971 593 Due from other banks

19 744 022 - 2 795 450 - 22 539 472

Trading securities

34 483 037 - - - 34 483 037 Loans and advances to customers

118 998 838 708 388 - 1 621 626 121 328 852

Investment securities available for sale

5 994 154 - - - 5 994 154 Repurchase receivables

11 546 112 - - - 11 546 112

Other financial assets

1 375 022 9 128 - 1 777 1 385 927

Total financial assets 202 692 355 3 700 476 2 795 450 1 891 503 211 079 784

LIABILITIES

Due to other banks

39 950 367 8 458 167 4 071 108 460 305 52 939 947 Customer accounts

100 249 689 75 463 - 456 597 100 781 749

Debt securities in issue

8 385 317 - - - 8 385 317 Other borrowed funds

19 500 000 - - - 19 500 000

Subordinated debt

9 213 846 - - 2 787 774 12 001 620 Other financial liabilities

111 423 - - - 111 423

Total financial liabilities 177 410 642 8 533 630 4 071 108 3 704 676 193 720 056

Net position in on-balance sheet

financial instruments 25 281 713 (4 833 154) (1 275 658) (1 813 173) 17 359 728

Credit related commitments (Note 30)

1 101 009 70 912 - 948 1 172 869

The geographical concentration of the Group’s financial assets and liabilities at 31 December 2014 is set out below:

In thousands of Russian Roubles The Russian Federation

OECD CIS countries

Other countries

Total

ASSETS Cash and cash equivalents 12 240 944 1 578 744 - 675 13 820 363

Mandatory cash balances with the CBRF 1 057 643 - - - 1 057 643 Loans and advances to customers 121 770 268 2 240 961 - 1 501 777 125 513 006 Trading securities 14 517 823 - - - 14 517 823 Repurchase receivables 14 942 275 - - - 14 942 275 Other financial assets 1 032 615 - - - 1 032 615

Total financial assets 165 561 568 3 819 705 - 1 502 452 170 883 725

LIABILITIES

Due to other banks 28 099 700 12 564 920 - 485 241 41 149 861 Customer accounts 93 172 280 343 775 - 339 768 93 855 823 Debt securities in issue 9 175 303 - - - 9 175 303 Other financial liabilities 309 539 3 961 - - 313 500 Subordinated debt 7 742 549 - - 2 128 098 9 870 647

Total financial liabilities 138 499 371 12 912 656 - 2 953 107 154 365 134

Net position in on-balance sheet financial instruments 27 062 197 (9 092 951) - (1 450 655) 16 518 591

Credit related commitments 4 447 047 515 342 - 23 795 4 986 184 (Note 30)


59


Other risk concentrations. Management monitors and discloses concentrations of credit risk by obtaining reports listing exposures to borrowers with aggregated loan balances in excess of 5% of net assets. Refer to Note 10.

29 Management of Capital

The Group’s objectives when managing capital are to ensure that all Group entities continue as a going concern in the foreseeable future while maximising the return to shareholders through the optimisation of the debt and equity balance.

The Group’s Board of Directors reviews capital structure on a regular basis, at least quarterly. Within the scope of this review the Board considers the cost of capital and the risks inherent to each class of capital. On the basis of the Board’s recommendations the Group maintains capital adequacy and balances overall capital structure by additional share issue and receipt of subordinated loans.

From the 1 January, 2014 the CBRF has been established new requirements for calculation of the regulatory capital, based on recommendations of Basel Committee. Under the capital requirements set by the CBRF banks have to maintain a ratio of regulatory capital to risk weighted assets (“statutory capital ratio”) above a prescribed minimum level. As at 31 December 2015, this minimum level is 5 % for the regulatory capital, 6% for the core capital and 10% for the equity. During 2015 and 2014 and as of 31 December 2015 and 31 December 2014 the Bank and the Group were in compliance with the statutory capital adequacy ratio. Regulatory capital is based on the Bank’s reports prepared under Russian accounting standards and comprises:



2015 2014

Net assets under Russian GAAP

18 514 025 17 221 786

Less intangible assets

(7 451) (1 725) Plus subordinated debt

10 230 642 5 216 019

Total regulatory capital

28 737 216 22 436 080

The Group also monitors capital adequacy calculated in accordance with the requirements of the Basel Accord II, as defined in the International Convergence of Capital Measurement and Capital Standards (updated April 1998) and Amendment to the Capital Accord to incorporate market and operational risks.


60

29 Management of Capital (Continued)

The table below shows the Group’s capital structure and calculation of capital adequacy ratio in accordance with requirements of the Basel Accord II as at 31 December 2015 and 31 December 2014:



2015 2014

Tier 1 capital Share capital 2 533 352 2 533 352

Share premium 4 566 362 4 566 362 Retained earnings 11 663 802 10 751 902 Goodwill (47 476) (47 476)

Total tier 1 capital 18 716 040 17 804 140

Tier 2 capital Subordinated debt 9 358 020 6 356 396

Revaluation of available-for-sale investment securities (68 051) (14 428)

Total tier 2 capital 9 289 969 6 341 968

Total capital 28 006 009 24 146 108

Risk weighted assets 185 391 669 166 392 873

Capital expressed as a percentage of risk-weighted assets 15.11% 14.50%

Tier 1 capital expressed as a percentage of risk-weighted assets 10.10% 10.70%

The Group is subject to minimum capital adequacy requirements calculated in accordance with the Basel Accord established by covenants under liabilities incurred by the Group. Under these covenants the Group has to maintain the total capital ratio at a level not less than 12%. As of 31 December 2015, as of 31 December 2014 and during respective financial years the Group has complied with all imposed capital requirements.

30 Contingencies and Commitments

Legal proceedings. From time to time and in the normal course of business, claims against the Group may be received. On the basis of its own estimates and internal professional advice, management is of the opinion that no material losses will be incurred in respect of claims, and accordingly no provision has been made in these consolidated financial statements.

Tax contingencies. Russian tax legislation which was enacted or substantively enacted at the end of the reporting period, is subject to varying interpretations when being applied to the transactions of the Group. Consequently, tax positions taken by management and the formal documentation supporting the tax positions may be challenged tax authorities. Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year when decision about review was made. Under certain circumstances reviews may cover longer periods.


61

30 Contingencies and Commitments (Continued)

The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD) but has specific characteristics. This legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm's length. Management has implemented internal controls to be in compliance with this transfer pricing legislation.

Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group. Management believes that it is pricing policy is arm’s length.

The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the assumption that these companies are not subject to Russian profits tax, because they do not have a permanent establishment in Russia. This interpretation of relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be significant to the financial position and/or the overall operations of the Group. In 2014, the Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties). Starting from 2015, CFC income is subject to a 20% tax rate. As a result, management reassessed the Group’s tax positions and recognised current tax expense as well as deferred taxes for temporary differences that arise from the expected taxable manner of recovery of the relevant Group’s operations to which the CFC legislation applies to and to the extent that the Group (rather than its owners) is obliged to settle such taxes. Refer to Note 26.

As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of such uncertain areas that reduce the overall tax rate of the Group. While management currently estimates that the tax positions and interpretations that it has taken can probably be sustained, there is a possible risk that outflow of resources will be required should such tax positions and interpretations be challenged by the tax authorities. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.

Capital expenditure commitments. The Group had no contractual capital expenditure commitments as at 31 December 2015 and as at 31 December 2014.

Operating lease commitments. Where the Group is the lessee, the future minimum lease payments under non-cancellable operating leases are as follows:


2015 2014

Not later than one year

299 426 321 042

Later than 1 year and not later than 5 years

340 135 427 805 Later than 5 years

13 743 35 488

Total operating lease commitments

653 304 784 335

Compliance with covenants. The Group is subject to certain covenants primarily relating to its borrowings. Non-compliance with such covenants may result in negative consequences for the Group including growth in the cost of borrowings and declaration of default. Management believes that the Group was in compliance with covenants at 31 December 2015 and 31 December 2014.


62


Credit related commitments. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which 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, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group 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, the Group is potentially exposed to loss in an amount equal to the total unused commitments, if the unused amounts were to be drawn down. 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. 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. The fair value of credit related commitments was RR 61 466 thousand at 31 December 2015 (2014: RR 57 935 thousand).

Outstanding credit related commitments are as follows:


2015 31 December

2014

Financial guarantees

750 896 4 424 722

Letters of credit and other contingencies related to settlement transactions

421 973 561 462

Total credit-related contingencies and commitments

1 172 869 4 986 184

Credit related commitments are denominated in currencies as follows:


31 December 2015

31 December 2014

Credit-related contingencies and commitments

Euro

636 558 500 935 US Dollars

525 750 551 403

Russian Roubles

10 561 3 933 846

Total credit-related contingencies and commitments

1 172 869 4 986 184

Credit related commitments are irrevocable or are revocable only in response to a material adverse change.


63


Performance guarantees. Performance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation. Such contracts do not transfer only credit risk. The risk under performance guarantee contracts is the possibility that the insured event (i.e. the failure to perform the contractual obligation by another party) occurs. The key risks the Group faces are significant fluctuations in the frequency and severity of payments incurred on such contracts relative to expectations. The Group uses historical data and statistical techniques to predict levels of such payments. Claims must be made before the contract matures and most claims are settled within short term. This allows the Group to achieve a high degree of certainty about the estimated payments and therefore future cash flows. The Group manages such risks by constantly monitoring the level of payments for such products and has the ability to adjust its fees in the future to reflect any change in claim payments experience. The Group has a claim payment requests handling process which includes the right to review the claim and reject fraudulent or non-compliant requests.

During 2015 the Group had a claim payment request under guarantees in the amount of RR 809 812 thousand. The Bank is currently involved in litigations as the principal objects to the claims. In 2014 there were no claim payments to the Group except for one case occurred. The counterparty which failed to perform its contractual obligations paid back the Group almost all its expenses at the date of claim payment. At 31 December 2015 outstanding amount to be paid by the party is RR 307 537 thousand which is accounted for within loans to small and medium-sized entities (31 December 2014: RR 307 537 thousand) and the loan loss provision is minimised and brought to zero by means of collateral in the form of real estate with fair value of RR 673 901 thousand.

Performance guarantees are as follows:


2015 31 December

2014

Performance guarantees

27 660 470 31 218 588 Less: Provision for impairment

(659 293)

-

Total performance guarantees net of provision

27 001 177 31 218 588

Performance guarantees are denominated in currencies as follows:


31 December 2015

31 December 2014

Performance guarantees

Russian Roubles

25 777 705 30 597 787 Euro

1 123 060 418 008

US Dollars

712 229 202 793 Other 47 476 -

Total performance guarantees

27 660 470 31 218 588

Assets pledged and restricted. Mandatory cash balances with the Bank of Russia in the amount of RR 971 593 thousand (2014: RR 1 057 643 thousand) represent mandatory reserve deposits, which are not available to finance the Group’s day-to-day operations.


64


The Group had assets pledged as collateral with the following carrying value:



Note Asset

pledged Related liability

Asset pledged

Related liability

Repurchase receivables

12, 16 11 546 112 10 307 736 14 942 275 13 006 168 Loans and advances to customers

10, 16 - - 6 142 430 3 929 140

Loans and advances to customers and other financial assets

10, 15, 18 2 833 585 2 371 757 3 564 773 3 160 229

Loans and advances to customers

10, 16 5 021 814 5 663 412 2 949 927 3 008 665 Loans and advances to customers

10, 17 - - 106 144 229 085

Total

19 401 511 18 342 905 27 705 549 23 333 287

31 Offsetting Financial Asset and Financial Liabilities

Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 December 2015:

Gross amounts

before offsetting in the consoli-

dated statement

of financial position

(a)

Gross amounts

set off in the

consoli-dated

statement of financial

position

(b)

Net amount after

offsetting in the consoli-

dated statement


(c) = (a) - (b)

Amounts subject to master netting and similar

arrangements not set off in the consolidated statement


Net amount of exposure

(c) - (d) - (e) In thousands of Russian Roubles

Financial instruments

(d)

Cash collateral received

(e)

ASSETS Other assets -Restricted cash equivalents 981 679 - 981 679 4 124 - 977 555 -Receivables under REPO agreements 11 546 112 - 11 546 112 10 307 736 - 1 238 376

TOTAL ASSETS SUBJECT TO

OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT 12 527 791 - 12 527 791 10 311 860 - 2 215 931

LIABILITIES Due to other banks 10 307 736 - 10 307 736 10 307 736 - - Financial derivatives 4 124 - 4 124 4 124 - -

TOTAL LIABILITIES SUBJECT TO

OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT 10 311 860 - 10 311 860 10 311 860 - -

The amount set off in the statement of financial position reported in column (b) is the lower of (i) the gross amount before offsetting reported in column (a) and (ii) the amount of the related instrument that is eligible for offsetting. Similarly, the amounts in columns (d) and (e) are limited to the exposure reported in column (c) for each individual instrument in order not to understate the ultimate net exposure.


65

31 Offsetting Financial Asset and Financial Liabilities (Continued)

Financial instruments subject to enforceable master netting and similar arrangements are as follows at 31 December 2014:

Gross amounts

before offsetting in the consoli-

dated statement of

financial position

(a)

Gross amounts set

off in the

consoli-dated

statement of financial position

(b)

Net amount after

offsetting in the consoli-

dated statement of

financial position

(c) = (a) - (b)

Amounts subject to master netting and

similar arrangements not set off in the

consolidated statement of financial position

Net amount of exposure

(c) - (d) - (e) In thousands of Russian Roubles

Financial instruments

(d)

Cash collateral received

(e)

ASSETS Cash and cash equivalents - Short-term settlements with settlement

centres and brokers 2 557 196 - 2 557 196 107 549 - 2 449 647 Repurchase receivables 14 942 275 - 14 942 275 13 006 168 - 1 936 107

TOTAL ASSETS SUBJECT TO

OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT 17 499 471 - 17 499 471 13 113 717 - 4 385 754

LIABILITIES Due to other banks 13 006 168 - 13 006 168 13 006 168 - - Financial derivatives 107 549 - 107 549 107 549 - -

TOTAL LIABILITIES SUBJECT TO

OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT 13 113 717 - 13 113 717 13 113 717 - -

32 Transfers of Financial Assets

(a) Transfers that did not qualify for derecognition of the financial asset in its entirety.

The Group transferred financial assets in transactions that did not qualify for derecognition in the current and prior periods.

Sale and repurchase transactions. At 31 December 2015, the Group had trading securities and investment securities available for sale represented by corporate bonds of RR 11 546 112 thousand (2014: RR 14 942 275 thousand) that were subject to obligation to repurchase the securities for a pre-determined price. Refer to Note 12 for the carrying value of obligations from these sale and repurchase transactions. As the transfer did not meet criteria for derecognition of the securities, at 31 December 2015 the sale proceeds of RR 10 307 736 thousand (2014: RR 13 006 168 thousand) were recognised as borrowings and are presented in Note 16.

Securitisation transaction. In addition, at 31 December 2013 the Group transferred mortgage loans of RR 4 355 649 thousand (outstanding amount as at 31 December 2015: RR 2 627 686 thousand) to a securitisation structured entity that the Group consolidates because it acquired all of its subordinated borrowings amounting to RR 457 555 thousand and receives benefits from these loans. As at 31 December 2015 fair value of transferred mortgage loans is RR 2 626 898 thousand (2014: RR 3 358 538 thousand). This transaction was the first mortgage securitisation in the Russian market whose structure included lenders’ mortgage insurance. Refer to Note 18 for the carrying value of the related borrowings that are represented by senior notes issued by the securitisation special purpose entity to third party investors.


66

32 Transfers of Financial Assets (Continued)

(b) Transfers that qualified for derecognition of the financial asset in its entirety.

In 2015 the Group sold loans to customers with the total gross value of RR 1 609 903 thousand (2014: RR 459 886 thousand) under cession agreements to unrelated third party. Refer to Note 10. All risks and rewards associated with loans sold were transferred from the Group.

33 Derivative Financial Instruments

The table below sets out fair values, at the end of the reporting period, of currencies receivable or payable under foreign exchange forward and swap contracts entered into by the Group. The table reflects gross positions before the netting of any counterparty positions (and payments) and covers the contracts with settlement dates after the end of the respective reporting period. The contracts have maturity within 1 year:



Contracts with positive

fair value

Contracts with

negative fair value

Contracts with positive

fair value

Contracts with negative

fair value

Foreign exchange forwards and swaps: fair values, at the end of the reporting period, of

- USD receivable on settlement (+)

7 122 748 98 900 1 965 069 382 538 - USD payable on settlement (-)

(324 230) (2 562 227) (3 764 656) (4 605 315)

- Euros receivable on settlement (+)

2 360 749 2 241 232 - 8 132 817 - Euros payable

(258) (407 854) -

- on settlement (-)

- RR receivable on settlement (+)

324 925 718 308 3 735 550 445 437 - RR payable on settlement (-)

(9 387 779) (100 066) (1 255 751) (4 542 097)

- Other currencies receivable on settlement (+)

- - 70 483 - - Other currencies payable on settlement (-)

- - (1 000) -

Net fair value of foreign exchange forwards and swaps

96 155 (11 707) 749 695 (186 620)

Foreign exchange derivative financial instruments entered into by the Group 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.

34 Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Group uses the following hierarchy for determining and disclosing fair values of financial instruments depending upon valuation technique:

(i) Level 1: techniques using quoted (unadjusted) prices in active markets for identical assets or liabilities;

(ii) Level 2: techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);


67

34 Fair Value of Financial Instruments (Continued)

(iii) Level 3: techniques with inputs being valuations not based on observable market data (that is, based on unobservable inputs).

Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety.

(a) Recurring fair value measurements

Recurring fair value measurements are those that the accounting standards require or permit in the consolidated statement of financial position at the end of each reporting period. The levels in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows:


In thousands of Russian Roubles Level 1 Level 2 Level 1 Level 2

FINANCIAL ASSETS

Trading securities - Russian government bonds

24 987 307 -

8 756 920 - - Corporate bonds

9 495 730 -

5 760 903 -

Repurchase receivables

- - Repurchase receivables representing trading securities

- Russian government bonds

76 407 -

14 234 454 - - Corporate bonds

5 933 300 -

- -

- Municipal bonds

1 058 953 -

- Repurchase receivables related to investment securities available

for sale - Corporate bonds

4 477 451 -

707 821 - Investment securities available for sale

- Corporate bonds

5 994 154 Other financial assets

-

- Derivative financial instruments

- 96 155

- 749 695

TOTAL ASSETS RECURRING FAIR VALUE MEASUREMENTS

52 023 302 96 155 29 460 098 749 695

FINANCIAL LIABILITIES

Other financial liabilities - Derivative financial instruments

- 11 707 - 186 620

TOTAL LIABILITIES RECURRING FAIR VALUE

MEASUREMENTS

- 11 707 - 186 620

The Group uses a valuation technique to measure the fair value of currency swaps that are not traded in an active market. However, in accordance with IFRS, the fair value of an instrument at inception is generally the transaction price.


68


(b) Assets and liabilities not measured at fair value

Fair values analysed by level in the fair value hierarchy and carrying value of assets not measured at fair value are as follows:



Valuation technique with

inputs observable in markets

(Level 2)

Valuation technique not

based on observable market

data technique (Level 3)

Carrying value Valuation technique with

inputs observable in markets

(Level 2)


based on observable market

data technique (Level 3)

Carrying value

FINANCIAL ASSETS Cash and cash equivalents - Cash in hand 2 647 072 - 2 647 072 3 578 298 - 3 578 298

- Cash balances with the CBRF (other than mandatory reserve deposits) 5 890 897 - 5 890 897 4 468 542 - 4 468 542 - Correspondent accounts and overnight placements with other banks 3 639 436 - 3 639 436 2 279 327 - 2 279 327 - Short-term settlements with settlement centres and brokers 427 990 - 427 990 3 494 196 - 3 494 196 - Placements with other banks with original maturities of less than three

months 225 242 - 225 242 - - - Mandatory cash balances with the CBRF 971 593 - 971 593 1 057 643

1 057 643

Due from other banks 20 565 803 - 22 539 472 - - - Loans and advances to customers

- Corporate loans - 47 712 868 47 969 894 - 50 221 428 51 365 781 - Loans to small and medium-sized business - 34 858 276 37 479 552 - 38 607 961 41 576 125 - Mortgage loans - 23 358 562 30 268 501 - 19 245 956 25 716 529 - Personal and consumer loans - 4 170 234 4 619 139 - 4 422 069 5 458 426 - Car loans - 540 441 582 174 - 891 753 1 021 810 - Other - 409 592 409 592 - 374 335 374 335 Other financial assets 1 187 578 102 195 1 289 771 205 899 77 021 282 920

TOTAL FINANCIAL ASSETS CARRIED AT AMORTISED COST 35 555 611 111 152 168 158 960 325 15 083 905 113 840 523 140 673 932


69


Fair values analysed by level in the fair value hierarchy and carrying value of liabilities not measured at fair value are as follows:



Quoted price in an active market

(Level 1)


inputs observable in

markets (Level 2)


based on observable

market data technique (Level

3)

Carrying value Quoted price in an active market

(Level 1)


inputs observable in

markets (Level 2)


based on observable

market data technique

(Level 3)

Carrying value

FINANCIAL LIABILITIES Due to other banks - Term placements of other banks - 25 671 788 - 25 671 788 - 28 089 834 - 28 089 834

- Sale and repurchase agreements with other banks - 10 307 736 - 10 307 736 - 13 006 168 - 13 006 168

- Correspondent accounts and overnight placements of other banks - 16 960 422 - 16 960 422 - 53 860 - 53 860

Customer accounts - Current/settlement accounts of legal entities - 16 671 318 - 16 671 318 - 20 854 574 - 20 854 574

- Term deposits of legal entities - 37 645 666 - 37 690 044 - 32 960 589 - 33 227 870 - Current/demand accounts of individuals - 2 410 715 - 2 410 715 - 2 646 304 - 2 646 304 - Term deposits of individuals - 43 398 732 - 44 009 671 - 36 788 876 - 37 127 075 Debt securities in issue

- Bills of exchange - 3 171 586 - 3 171 586 - 3 609 494 - 3 609 494 - Bonds issued on domestic market 2 572 847 - - 2 651 205 1 855 891 - - 1 900 380 - Savings certificates - 190 769 - 190 769 - 505 200 - 505 200 - Bonds secured by mortgage loans 2 203 756 -

2 371 758 2 671 616 - - 3 160 229

Other borrowed funds - 17 526 331 - 19 500 000 Other financial liabilities - - 99 716 99 716

- 126 880 126 880

Subordinated debt - 9 678 791 - 12 001 620 5 609 436 3 114 846 - 9 870 647

TOTAL FINANCIAL LIABILITIES CARRIED

AT AMORTISED COST 4 776 603 183 633 854 99 716 193 708 348 10 136 943 141 629 745 126 880 154 178 515


70


The fair values in level 2 of fair value hierarchy were estimated using the discounted cash flows valuation technique. The fair value of unquoted fixed interest rate instruments was determined based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.

For assessment of fair value of financial instruments categorised at Level 3, the Group uses discounted cash flows model.

For the financial instruments with maturity more than one year the Group discounts monthly payments at weighted average rate by product type and currency type calculated based on contractual rates for respective financial instruments issued/obtained by the Group during the last two weeks before the reporting date. The Group uses assumption that fair value of financial instruments with residual maturity less than one year is equal to outstanding amount as influence from calculating of fair value based on current market rates is insignificant.

35 Presentation of Financial Instruments by Measurement Category

For the purposes of measurement, IAS 39 “Financial Instruments: Recognition and Measurement”, classifies financial assets into the following categories: (a) loans and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and (d) financial assets at fair value through profit or loss (“FVTPL”). Financial assets at fair value through profit or loss have two sub-categories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading. In addition, finance lease receivables form a separate category.

The following table provides a reconciliation of financial assets with these measurement categories as of 31 December 2015:


Loans and receivables

Held to maturity

Finance lease

receivables

Available-for-sale assets

Trading assets

Total

Assets

Cash and cash equivalents 12 830 637 - - - - 12 830 637 Mandatory cash balances with the

CBRF 971 593 - - - - 971 593 Due from other banks 22 539 472 - - - - 22 539 472 Trading securities - - - - 34 483 037 34 483 037 Repurchase receivables

4 477 451 7 068 661 11 546 112

Loans and advances to customers - Loans to legal entities 83 732 391 - 1 717 055 - - 85 449 446

- Loans to individuals 35 879 406 -

35 879 406 Investment securities available for

sale - - - 5 994 154 - 5 994 154 Other financial assets 1 289 772 - - - 96 155 1 385 927

Total financial assets 157 243 271 - 1 717 055 10 471 605 41 647 853 211 079 784

The following table provides a reconciliation of financial assets with measurement categories at 31 December 2014:


Loans and receivables

Held to maturity

Finance lease recei-

vables

Available-for-sale assets

Trading assets

Total

Assets Cash and cash equivalents 13 820 363 - - - - 13 820 363

Mandatory cash balances with the CBRF 1 057 643 - - - - 1 057 643

Trading securities - - - - 14 517 823 14 517 823 Repurchase receivables - - - 707 821 14 234 454 14 942 275 Loans and advances to customers

- Loans to legal entities 91 562 621 - 1 379 285 - - 92 941 906 - Loans to individuals 32 571 100 - - - - 32 571 100 Other financial assets 282 905 - - 15 749 695 1 032 615

Total financial assets 139 294 632 - 1 379 285 707 836 29 501 972 170 883 725


71

35 Presentation of Financial Instruments by Measurement Category (Continued)

As of 31 December 2015 and 31 December 2014, all of the Group’s financial liabilities except for derivatives were carried at amortised cost. Derivatives belong to the fair value through profit or loss measurement category.

36 Related Party Transactions

Parties are generally considered to be related if the parties are under common control, or one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

At 31 December 2015, the outstanding balances with related parties were as follows:


Shareholders with significant

influence

Key management personnel

Other related parties

Gross amount of loans and advances to customers (contractual interest rate: 8.4%–14.4%)

12 - -

Due to other banks (contractual interest rate: 3.5% -15.6%) 4 482 075 - - Customer accounts (contractual interest rate: 2.7%- 13.0%) 1 758 134 6 922 121 Commitments on credit lines 11 472 3 000 -

The income and expense items with related parties for the year period ended 31 December 2015 were as follows:



influence



Interest income

3 - -

Interest expense

159 871 292 - Fee and commission income

57 19 47

Fee and commission expense

- - 2 Administrative and other operating expenses

- salary

74 893 26 365 - - social security tax

11 982 4 238 -

- rent

- - 73 616 - professional services 8 333 - -

Aggregate amounts lent to and repaid by related parties during the year ended 31 December 2015 were:



influence



Amounts lent to related parties during the period 12 - - Amounts repaid by related parties during the period - - -

At 31 December 2014, the outstanding balances with related parties were as follows:



influence



Due to other banks (contractual interest rate: 3.5% -15.6%)

5 859 370 - -

Customer accounts (contractual interest rate: 2.7%- 13.0%)

1 376 961 2 898 - Commitments on credit lines

10 387 3 244 -


72

36 Related Party Transactions (Continued)

The income and expense items with related parties for the year ended 31 December 2014 were as follows:



influence

Key management

\personnel


Interest income

- 78 -

Interest expense

375 062 1 209 - Fee and commission income

39 5 51

Fee and commission expense

- - 3 Administrative and other operating

expenses - salary

69 281 13 246 - - social security tax

7 691 3 134 -

- rent

- - 63 903 - professional services 8 255 - -

Aggregate amounts lent to and repaid by related parties during the year ended 31 December 2014 were:



influence



Amounts lent to related parties during the period 832 129 - Amounts repaid by related parties during the period 863 129 -

Other related parties are represented by the parent company of one of key shareholders and a company owned by one of key management personnel.

The Group had 8 members of key personnel during 2015 and 2014, their compensation were:

2015 2014

In thousands of Russian Roubles Expense Expense

Short-term benefits: - Salaries

88 133

82 527

- Short-term bonuses

13 125

-

Total

101 258

82 527

Short-term bonuses fall due wholly within twelve months after the end of the period in which management rendered the related services.

37 Events after the End of the Reporting Period

In October 2015 TRANSKAPITALBANK was appointed the financial rehabilitation manager of PJSC “Investtradebank”. Taking into account the planned actions within the scope of financial rehabilitation, PJSC “Investtradebank” continues its activities in the ordinary course by providing full complex of banking services and smooth customer service.

The transaction of acquisition of 99.99% shares of PJSC “Investtradebank” was conducted on 11 December 2015, and on 11 January 2016 the Credit Institutions Licensing & Financial Rehabilitation Department of the Bank of Russia registered the report on the results of additional issue of registered uncertified ordinary shares of PJSC “Investtradebank” placed through private offering. The total amount of the issue was RR 10 mln in nominal and actual value. At the above dates TRANSKAPITALBANK had no control as at these dates the temporary administration of the State Corporation Deposit Insurance Agency still operated in PJSC “Investtradebank” and took key decisions.


73

37 Events after the End of the Reporting Period (Continued)

On 27 February 2016 the temporary administration of the State Corporation Deposit Insurance Agency ceased its operation in PJSC “Investtradebank”, an extraordinary general meeting of the Bank’s shareholders was held, which elected the new management and control bodies (the Board of Directors, the Chairman of the Board of Directors, the Chairman of the Management Board and the Revision Commission) which will conduct their activities for the benefit of the principal shareholder. In accordance with IFRS 10 “Consolidated Financial Statements” 27 February 2016 is considered the date of obtaining control over PJSC “Investtradebank” and its subsidiaries by the Group.

At the date of acquisition the financial performance indicators of PJSC “Investtradebank” according to management reporting in which assets and liabilities are recognized at the most positive estimate of the fair value were as follows:

In thousands of Russian Roubles 27 February 2016

Total assets 108 942 331 including

Cash and cash equivalents 2 434 519 Due from other banks 21 162 100 including due from Bank TKB 20 295 781 Securities 11 674 119 Loans and advances to customers 63 295 461 including provision for loan and advance to customers impairment (16 972 001) Premises and equipment 1 223 053 Non-core assets 2 585 065

Total liabilities 107 498 488 including

Due to other banks 21 137 430 Customer accounts 52 111 444 Debt securities in issue 2 864 268 Amounts received from the State Corporation “Deposit Insurance Agency” 29 724 831

During 12 months from the acquisition date the Group will conduct fair valuation of the assets and liabilities of PJSC “Investtradebank” and its subsidiaries, as a result of which the value of net assets of PJSC “Investtradebank” at the acquisition date may considerably differ from the amounts in the table above.

international financial reporting standards consolidated … · 2016. 7. 20. · independent...

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