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Valuation of VTB Bank (PJSC) Summary of valuation report №17 BI 125 RO Valuation date: 01 July 2017 Client: VTB Bank (PJSC) Consultant: RUSSIAN APPRAISAL 25 August 2017

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Page 1: Valuation of VTB Bank (PJSC) · _____ Alexander Ivanov. 3 Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC)

Valuation of

VTB Bank (PJSC)

Summary of valuation report №17 BI 125 RO

Valuation date: 01 July 2017

Client: VTB Bank (PJSC)

Consultant: RUSSIAN APPRAISAL

25 August 2017

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Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC) RUSSIAN APPRAISAL

25 August 2017

To Deputy President of VTB Bank (PJSC)

Mr. Herbert Moos

Dear Mr. Moos,

In accordance with agreement №17 BI 125 RO between VTB Bank (PJSC) and RUSSIAN APPRAISAL dated 19 July 2017 we have estimated market value of

one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC).

Valuation date: 1 July 2017.

The performed analysis allows us to make the following conclusion:

Market value of one ordinary share of VTB Bank (PJSC), subject to all assumptions and limiting condition, as of 1 July 2017 falls within range

(rounded) from 3.8 kopecks (lower limit) to 8.2 kopecks (upper limit).

Market value of one Type 1 preference share of VTB Bank (PJSC), subject to all assumptions and limiting conditions, as of 1 July 2017 equals to

1.0 kopeck.

Market value of one Type 2 preference share of VTB Bank (PJSC), subject to all assumptions and limiting conditions, as of 1 July 2017 equals to

10.0 kopeck.

The results of current valuation were approved by the Russian Society of Appraisers in accordance with the expert opinion № 1619/2017/2 from 19 September 2017.

This document represents a summary of the full valuation Report of VTB Bank (PJSC) prepared in compliance with Federal Valuation Standards of Russia. Full text

is provided in the original Report. The methodology of calculations and drawing conclusions, sources of information and all key assumptions, calculations and

conclusions are provided in the Report. The individual parts of the Summary cannot be construed separately and should be read only in conjunction with the full text

of the Report and taking into account all the assumptions and limiting conditions contained therein.

We used the Income Approach (DCF method) and Market Approach (Market quotes method) in the valuation process. Our valuation was conducted in compliance

with Federal Valuation Standards of Russia.

Sincerely yours,

CEO, RUSSIAN APPRAISAL

_____________ Alexander Ivanov

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Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC) RUSSIAN APPRAISAL

Contents

Contents 3

List of exhibits 4

Key facts 7

Valuation methodology 8

Glossary 10

Macroeconomic analysis 11

Banking sector overview 15

Bank overview 20

Financial analysis of VTB Bank (PJSC) 24

Valuation of VTB Bank (PJSC) 33

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List of exhibits

Exhibit 1 Abbreviations and notation 10 Exhibit 2 Key indicators of the world economy in 2009–2016 11 Exhibit 3 Dynamics of USD and EUR exchange rates and Brent oil price 01.01.2016–31.05.2017 12 Exhibit 4 CPI indicators 2009–2016, % 12 Exhibit 5 Key indicators of Russian socioeconomic development in 2017-2026 14 Exhibit 6 Russian banking sector macroeconomic indicators for 2010-2016, RUR billion 15 Exhibit 7 Change in loans in the Russian Federation, 2011-6 m 2017, RUR billion 16 Exhibit 8 Change in deposits in the Russian Federation, 2011-6 m 2017, RUR billion 16 Exhibit 9 Profitability indicators of Russian banks dynamics, % 16 Exhibit 10 Russian banking sector 17 Exhibit 11 Penetration rate of loans and deposits by European countries as of 01.01.2017, % 17 Exhibit 12 Forecast of VTB Bank's position in the industry 19 Exhibit 13 VTB Bank (PJSC) major stakeholders (ordinary shares) 20 Exhibit 14 VTB Bank (PJSC) major stakeholders (ordinary shares) 20 Exhibit 15 General information about VTB Bank (PJSC) 21 Exhibit 16 VTB Bank (PJSC) quotes for 01.01.2008-01.07.2017 21 Exhibit 17 VTB Bank (PJSC) credit ratings 22 Exhibit 18 Structure of the VTB Group 23 Exhibit 19 Balance sheet of VTB Bank (PJSC) for 2014-6m 2017, RUR billion 24 Exhibit 20 Bank’s assets structure for the period 2014 – 6 m. 2017, % 25 Exhibit 21 Structure of gross loans to customers by their types for the period 2014 –6 m. 2017, % 25 Exhibit 22 Structure of loans to legal entities as of 30.06.2017, % 25 Exhibit 23 Non-derivative financial assets at fair value through profit or loss structure as of 30.06.2017, % 26 Exhibit 24 Share of other assets in the Bank’s total assets, % 27 Exhibit 25 Liabilities structure of the Bank during 2014-6m 2017, % 27 Exhibit 26 Due to other banks as of 30.06.2017, RUR billion 27 Exhibit 27 Structure of other borrowed funds for 2014-6m 2017, RUR billion 28 Exhibit 28 Debt securities issued for 2014-6m 2017, RUR billion 28 Exhibit 29 Share of other liabilities in the Bank’s total liabilities, % 28

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Exhibit 30 The Bank’s equity structure as of 30.06.2017, RUR billion 28 Exhibit 31 The Bank’s share capital structure, RUR billion 29 Exhibit 32 The Bank’s capital adequacy indicators for 2015-6m 2017, RUR billion 29 Exhibit 33 VTB Bank (PJSC) profit and loss statement for the period 2014-6 m 2017, RUR billion 29 Exhibit 34 The Bank’s interest income structure, RUR billion 29 Exhibit 35 The Bank’s effective interest rates (interest income) 30 Exhibit 36 The Bank’s interest expenses structure, RUR billion 30 Exhibit 37 The Bank’s effective interest rates (interest expenses) 30 Exhibit 38 Profitability indicators of VTB Bank (PJSC) over 2014 – 6m 2017 31 Exhibit 39 Financial model (balance) of the Bank for 2017-2019, RUR billion 34 Exhibit 40 Historical and forecasted changes in total assets of the Bank 35 Exhibit 41 Historical and forecasted changes in loan portfolio of the Bank 35 Exhibit 42 Comparison of historical and forecasted structure of the Bank's assets over 2014-2019, % 35 Exhibit 43 Historical and forecasted changes in customer deposits of the Bank 35 Exhibit 44 Comparison of historical and forecasted structure of the Bank's liabilities over 2014-2019, % 35 Exhibit 45 Financial model (P&L) of the Bank for 2017-2019, RUR billion 35 Exhibit 46 Historical and forecasted changes in net interest income of the Bank 36 Exhibit 47 Historical and forecasted changes in net fee and commission income 36 Exhibit 48 Historical and forecasted changes in other non-interest income 36 Exhibit 49 Historical and forecasted changes in operating expenses 37 Exhibit 50 The Bank's loan portfolio and allowances for impairment in 2014-2019, RUR bln. 37 Exhibit 51 Historical and forecasted changes in cash and short-term assets 38 Exhibit 52 Historical and forecasted changes in due from other banks 38 Exhibit 53 Historical and forecasted changes in financial assets 39 Exhibit 54 Historical and forecasted changes in customer deposits, RUR bln. 40 Exhibit 55 Ratio between term deposits and current deposits for each group of customers, % 40 Exhibit 56 Due to other banks and other borrowed funds analysis, RUR bln. 40 Exhibit 57 Debt securities issued analysis, RUR bln. 41 Exhibit 58 Projected balance of VTB Bank (PJSC), RUR billion 42 Exhibit 59 Supporting charts for projection balance sheet calculations, RUR billion 42 Exhibit 60 Dynamics of interest rates (lending) over 2014-2019 45 Exhibit 61 Dynamics of interest rates (borrowing) over 2014-2019 45 Exhibit 62 Net fee and commission income analysis 46 Exhibit 63 Other non-interest income analysis 46 Exhibit 64 CIR analysis, % 47 Exhibit 65 Projected income statement of VTB Bank (PJSC), RUR billion 48 Exhibit 66 Supporting calculations for projected income statement 48 Exhibit 67 Analysis of key indicators of the projection income statement, % 49 Exhibit 68 Size premiums according to «2016 Valuation Handbook - Guide to Cost of Capital (Duff&Phelps)» 50 Exhibit 69 Analysis of specific risks 51 Exhibit 70 Calculation of the Bank specific risk premium, % 51 Exhibit 71 Yields on long-term dollar and ruble bonds 51 Exhibit 72 Discount rate calculation for VTB Bank (PJSC) (CAPM), % 51

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Exhibit 73 Calculation of the Bank’s terminal value 52 Exhibit 74 Discounted cash flows of VTB Bank (PJSC) 53 Exhibit 75 VTB Bank (PJSC) equity value calculation 54 Exhibit 76 Sberbank core financial indicators, RUR bln. 55 Exhibit 77 Multiples calculation 56 Exhibit 78 One ordinary share market value calculation under Capital market method 56 Exhibit 79 Equity value calculation under Market quotes method 56 Exhibit 80 One ordinary share market value calculation under Market quotes method 57 Exhibit 81 Major deals involving stakes in Russian and CIS banks since 2015 57 Exhibit 82 Calculation of P/E multiple 57 Exhibit 83 Calculation of P/BV multiple 58 Exhibit 84 Market value of one ordinary share under Previous deals method 58 Exhibit 85 Calculation of market value of one ordinary share of VTB Bank (PJSC) under Market approach 58 Exhibit 86 VTB Bank (PJSC) valuation results 59

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Key facts

Key facts

Client VTB Bank (PJSC)

Consultant RUSSIAN APPRAISAL

Standard of value Market value

Valuation subject 1 ordinary share of VTB Bank (PJSC)

1 Type 1 preference share of VTB Bank (PJSC)

1 Type 2 preference share of VTB Bank (PJSC)

Valuation standards used Federal Valuation Standards of Russia

Date of valuation 1 July 2017

Agreement’s number №17 BI 125 RO

Date of the Report 25 August 2017

Conclusion

Market value of one ordinary share of VTB Bank (PJSC), subject to all assumptions and limiting condition, as of 1 July 2017 falls within range (rounded) from 3.8 kopecks (lower limit) to 8.2 kopecks (upper limit). Market value of one Type 1 preference share of VTB Bank (PJSC), subject to all assumptions and limiting conditions, as of 1 July 2017 equals to 1.0 kopeck. Market value of one Type 2 preference share of VTB Bank (PJSC), subject to all assumptions and limiting conditions, as of 1 July 2017 equals to 10.0 kopeck.

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Valuation methodology

Market Approach

The Market Approach valuation is based on the economic principle of

competition: in a free market the supply and demand forces drive the price of

business assets to a certain equilibrium. Buyers would not pay more for the

business, and sellers will not accept anything less than the price of a

comparable business enterprise. In other words, estimation of asset’s value

under the Market approach is based on selling prices of peers.

The valuation methods under the Market Approach are:

the Capital Market Method, which is based on prices actually paid for

shares of similar (peer) companies quoted on stock markets. This

method is most preferable as it takes into account the most relevant

information about stock prices obtained directly from the market;

the Previous Transactions Method, which is based on acquisition

prices of equity stakes in similar companies;

the Market quotes method, which is used for listed banks and is

based on historical market share quotes.

Valuation process for the bank under Market approach contains the following

steps:

selection of peer-banks that are currently listed on the stock exchange and

their shares are actively traded;

a valuation multiple is computed based on a selected financial indicator of

the peer bank.

this multiple is applied to the selected financial indicator of the valuation

subject in order to estimate its value.

Valuation steps under the method:

1. Gathering and analysis of required information. Selecting peers with

actively traded shares and collecting information about them.

2. Setting a peer companies list.

3. Analysis of appropriate financial indicators. In case of using

information about foreign peers, appropriate adjustments are made: financial

statements are adjusted and calculating values of multiples are adjusted for

country risk premium, level of control and liquidity premiums.

4. Calculation of multiples. Based on the analysis of company specifics,

Consultant has selected the following most appropriate multiples:

Multiple based on Book value of equity (P/BV);

Multiple based on Earnings (P/E).

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5. Valuation. Depending on current market conditions, valuation goals,

valuation subject and accessibility of certain information Consultant allocates

weights to calculated multiples.

6. Making the final adjustments. Calculated result is adjusted (if necessary)

for a control and liquidity premiums.

Cost approach

The Cost Approach is based on the principle of substitution, which asserts that

no prudent buyer or investor will pay more for an asset than the amount for

which it could be re-created with improvements of equal desirability and utility.

It is a method of appraising assets based on their depreciated replacement costs.

In accordance with the Federal Valuation Standard № 8 (paragraph 11),

application of the cost approach is limited, and this approach is generally used

when the profit and /or cash flow can not be reliably determined, but reliable

information about bank's assets and liabilities is available.

The available information as well as an analysis of the current macroeconomic

trends (as of the valuation date) makes it possible to project the Bank‘s cash

flows reliably. Therefore it was decided not to apply the Cost approach.

Income approach

The Income Approach is based on the assumption that the value of an asset

depends on its capacity to generate income. There are two principal methods

which are within the Income Approach to business valuation:

Direct Capitalization Method;

Discounted Cash Flow Method.

Discounted cash flow (DCF) analysis is a method of valuing a company or an

asset using the time value of money concept. In the DCF analysis, the cash

flows are projected based on a set of assumptions about how the business

would perform in the future in terms of generating cash flows.

The Market value of business would be equal to the present value of all future

earnings, i.e. all future earnings are converted into present values (as of the

valuation date) by using a discount rate, and then are summed up.

In general, the Discounted Cash Flow method determines the value of 100%

stake in equity. To get the value of a minority stake, it is necessary to apply

discount for the lack of control.

The basic discounting formula is as follows:

where:

V – asset value;

PVk – present value of the k-th cash flow;

CFk - income earned by the owner in year k;

R – discount rate;

n – number of projection periods.

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Glossary

Exhibit 1 Abbreviations and notation

Abbreviation Notation

Client VTB Bank (PJSC)

Consultant RUSSIAN APPRAISAL

Bank/ Group VTB Bank (PJSC)

Valuation date 1 July 2017

Valuation subject 1 ordinary share of VTB Bank (PJSC) 1 Type 1 preference share of VTB Bank (PJSC) 1 Type 2 preference share of VTB Bank (PJSC)

CBR Central Bank of Russia

ROE Return on Equity

ROA Return on Assets

CIR Cost to income ratio

NIM Net interest margin

NPL Non-performing loan

NCI Net fee and commission income

RWA Risk weighted assets

SPO Secondary public offering

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Macroeconomic analysis

Major trends in global economy

This section of the Report outlines main trends in global and Russian economies during 2009-1H 2017. The dynamics of key economic indicators of the world

economy in 2009-2016 is presented in the Exhibit belowе.

Exhibit 2 Key indicators of the world economy in 2009–2016

Indicator Unit 2009 2010 2011 2012 2013 2014 2015 2016

World Real GDP % -0.1% 5.4% 4.2% 3.5% 3.4% 3.5% 3.4% 3.1%

US GDP growth % -2.8% 2.5% 1.6% 2.2% 1.7% 2.4% 2.6% 1.6%

Eurozone GDP growth % -4.5% 2.1% 1.5% -0.9% -0.3% 1.2% 2.0% 1.7%

Developing countries GDP growth % 2.9% 7.4% 6.3% 5.4% 5.1% 4.7% 4.2% 4.1%

CIS GDP growth rate % -6.4% 4.7% 4.6% 3.5% 2.1% 1.1% -2.2% 0.3%

Countries of Asia GDP growth rate % 7.5% 9.6% 7.9% 7.0% 6.9% 6.8% 6.7% 6.4%

Countries of Latin America GDP growth rate % -1.8% 6.1% 4.7% 3.0% 2.9% 1.2% 0.1% -1.0%

Growth rate of world trade volume % -10.5% 12.5% 7.1% 2.7% 3.7% 3.7% 2.7% 2.2%

CPI % 2.7% 3.7% 5.0% 4.1% 3.7% 3.2% 2.8% 2.8%

US CPI % -0.3% 1.6% 3.1% 2.1% 1.5% 1.6% 0.1% 1.3%

EU CPI % 1.0% 2.0% 3.1% 2.6% 1.5% 0.5% 0.0% 0.2%

Developing countries CPI % 5.0% 5.6% 7.1% 5.8% 5.5% 4.7% 4.7% 4.4%

Oil price USD/barrel 61.9 79.6 111.0 112.0 108.8 98.9 52.4 44.0

Exchange rate, USD/EUR EUR 1.4 1.3 1.4 1.3 1.3 1.3 1.1 1.1

Source: International Monetary Fund

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Socio-economic situation in Russia

External economic conditions for Russia in the first half of 2017 have been

formed on the background of a relatively favorable situation in commodity

markets, which was largely due to the conclusion of an agreement on the

reduction of oil production by the oil supplying countries and its subsequent

implementation.

International rating agency Standard&Poor's (S&P) has improved country's

credit rating, increasing it from negative to stable. Also, the Central Bank of

Russia has decreased the key rate to 9.25% on 28.04.2017. These factors

favorably increase the investment attractiveness of the real estate market in

Russia, making investing in real estate more profitable than in bank deposits.

In H1 2017 ruble has appreciated against US dollar by 6.83% and has achieved

a value of 56.52 RUR/USD. Strong monetary policy of the CBR has

contributed to a noticeable strengthening of ruble.

Dynamics of USD and EUR exchange rates and Brent oil price are illustrated at

the right diagram.

During the first 4 months of 2017 the Russian economy has demonstrated

positive long-term growth trend. In Q1 2017 and April 2017 industrial

production index was 0.1% and 2.3% respectively in comparison with

corresponding period in 2016.

Positive dynamics was also observed in country's GDP, which indicates a

gradual recovery of key sectors of the economy. According to a preliminary

estimate of the Federal State Statistics Service GDP growth rate in Q1 2017 was

0.5%.

Exhibit 3 Dynamics of USD and EUR exchange rates and Brent oil price 01.01.2016–31.05.2017

0

10

20

30

40

50

60

70

80

90

100

USD, RUR Euro, RUR Brent, USD per barrel

Source: Federal State Statistics Service

Exhibit 4 CPI indicators 2009–2016, %

2,7%

3,7%5,0%

4,1%3,7%

3,2%2,8% 2,8%

8,8% 8,8%

6,1%6,6% 6,5%

11,4%

12,9%

5,4%

-0,3% 1,6%

3,1%

2,1%1,5%

1,6%0,1%

1,3%1,0%

2,0%

3,1%2,6%

1,5%

0,5% 0,2%

-2,0%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

2009 2010 2011 2012 2013 2014 2015 2016

World Russia USA Eurozone

Source: International Monetary Fund

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CPI

The decreases in key rate and the revaluation of domestic currency have

contributed to lower growth rate of CPI. In the first half of 2017 inflation has

achieved a level of 1.7% in comparison with December 2016.

The trend of inflation in US and Eurozone is the opposite. Eurozone finally has

departed from zero inflation and has achieved a level of 0.2% in the last year.

The inflation in USA is on the way to 1.5% that is a level of CPI in 2013–2014.

As a result, the difference between inflation levels in Russia and US / Eurozone

has been sharply reduced.

Macroeconomic indicators forecast

We relied on the following main sources of information to project key

macroeconomic indicators:

Forecast of socio-economic development of the Russian Federation until

2020, prepared by the Ministry of Economic Development (basic scenario

of development);

International Monetary Fund data;

Oxford Economics Data;

Bloomberg news agency data;

Economist Intelligence Unit data;

Leading investment banks data (Renaissance, Discovery, Citibank, HSBC,

Merrill Lynch, Morgan Stanley, JP Morgan, BNP Paribas, Nomura, etc.).

A detailed forecast for macroeconomic indicators for 2017-2026 is presented in

the Exhibit below.

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Exhibit 5 Key indicators of Russian socioeconomic development in 2017-2026

Index 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Real GDP growth, % (over previous year) 1.47% 1.70% 1.57% 1.38% 1.34% 1.29% 0.99% 0.96% 0.96% 0.96%

Russian CPI, % (annual average) 4.59% 4.29% 4.26% 4.15% 4.23% 4.00% 4.00% 4.00% 4.00% 4.00%

RUB/USD exchange rate (annual average) 61.79 64.22 65.45 66.74 68.15 69.39 70.74 72.12 73.52 74.93

USCPI, % in US$ 2.31% 2.07% 2.29% 2.13% 2.08% 2.14% 2.02% 2.01% 2.03% 2.03%

Nominal GDP, RUR bn 91,311 96,847 102,554 108,280 114,378 120,486 126,550 132,880 139,527 146,506

Change in interest rates -2.51% -0.30% -0.03% -0.11% 0.08% -0.23% 0.00% 0.00% 0.00% 0.00%

Rate of interest rate growth

93.52% 92.87% 90.51% 92.33% 87.24% 87.24% 87.24% 87.24% 87.24%

Source: calculation of the Consultant

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Banking sector overview

Overview of the banking sector in Russia

Main trends

The stabilization of the Russian economy and its financial sector began in

2016, moving from recession period to recovery growth. In 2017 the Bank of

Russia continued to pursue the policy providing for a gradual decline in

inflation. The Central Bank expects that the inflation target (4.0%) will be

reached by the end of 2017.

The Russian banking system lost 63 banks in 2016 due to the Central Bank’s

recovery program. In 2017, the Central Bank continues its policy of revoking

licenses from credit institutions. According to the Central Bank, most of the

Russian banking system recovery program has been already completed, and

revocation of licenses will be reduced.

According to the Central Bank, Russian credit institutions in 2016 made a

profit of about RUR 930 billion, which is 4.8 times higher than during the

same period of last year. In 2017, the profit growth trend remained. In the

first half of 2017, total banking system’s profit amounted to RUR 770 billion.

The ratio of equity to total assets was declining over the period 2011-2014. In

2015 there was a slight increase, which continued in 2016. At the end of 2016,

the ratio of equity to total assets was 11.7%.

Total assets of banking sector grew steadily until 2016. It is expected that the

growth of assets of the banking sector will return in 2017.

Exhibit 6 Russian banking sector macroeconomic indicators for 2010-2016, RUR billion

Indicator 2010 2011 2012 2013 2014 2015 2016

Total banking sector assets 33,805 41,627 49,510 57,423 77,653 83,000 80,063

as a percentage of GDP 74.8% 69.7% 74.% 80.9% 98% 99.7% 93%

Total banking sector equity 4,732 5,242 6,113 7,064 7,928 9,009 9,387

as a percentage of GDP 10.2% 8.8,% 9.1% 9.9,% 10,% 10.8,% 10.9,%

as a percentage of banking sector total assets

14% 12.6,% 12.3,% 12.3,% 10.2,% 10.9,% 11.7%

Source: CBR «Overview of the Russian Federation banking sector»

As of the end of the first half of 2017, loans to non-financial organizations

and individuals amounted to RUR 42 trillion. Most of the loans were

represented by loans to non-financial organizations (60%).

Loans to corporate customers (non-financial organizations) since the

beginning of the year decreased by 0.5% to RUR 30 trillion. Loans to credit

institutions increased by 5% to RUR 9.5 trillion. Loans to individuals

increased by 3.5% to RUR 11.2 trillion. The volume of overdue accounts

payable grew by 2.5% to RUR 2.6 trillion.

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Exhibit 7 Change in loans in the Russian Federation, 2011-6 m 2017, RUR billion

0

10 000

20 000

30 000

40 000

50 000

60 000

1.02.11 1.08.11 1.02.12 1.08.12 1.02.13 1.08.13 1.02.14 1.08.14 1.02.15 1.08.15 1.02.16 1.08.16 1.02.17

Legal entities (non-financial organizations) Individuals Financial organizations

Source: CBR data

Liabilities of the banking system for the first half of 2017 were characterized

by an increase in individuals’ deposits and a reduction in the funds of

corporate clients. As of June 30, 2017, individuals' deposits amounted to RUR

24.9 trillion, deposits of legal entities – RUR 17.3 billion rubles. Deposits of

individuals account for 49% of total deposits as of June 2017. It should be

mentioned that population try to deposit their funds in the largest banks,

which is due to the "cleaning policy" carried out by the Central Bank.

Exhibit 8 Change in deposits in the Russian Federation, 2011-6 m 2017, RUR billion

0

10 000

20 000

30 000

40 000

50 000

60 000

1.01.11 1.07.11 1.01.12 1.07.12 1.01.13 1.07.13 1.01.14 1.07.14 1.01.15 1.07.15 1.01.16 1.07.16 1.01.17 1.07.17

Financial organizations Legal entities (non-financial organizations) Individuals

Source: CBR data

Financial organizations

Negative external factors had a significant influence on operations of Russian

banks. Overall financial result of all Russian banks has been declining since

2012. However, since 2015 total profitability of the Russian banking system

began to grow. In the first half of 2017, the return on assets increased from

1.2% (as compared to the end of 2016) to 1.7%. Return on equity also

increased from 10.3% to 14.4%.

In 2014 banks earned RUR 589.1 billion, which was 40.8% less than the result

of 2013. After 9 months of 2015 banks’ total profit amounted to RUR 126.7

billion.

Exhibit 9 Profitability indicators of Russian banks dynamics, %

4,9%

12,5%

17,6% 18,2%

15,2%

7,9%

2,3%

10,3%

14,1%

0,7%1,9% 2,4% 2,3% 1,9%

0,9% 0,3%1,2% 1,7%

0,0%

5,0%

10,0%

15,0%

20,0%

2009 2010 2011 2012 2013 2014 2015 2016 1H 2017

ROE ROA

Source: CBR data

In the first half of 2017, the net profit of credit institutions sharply increased

in comparison with the same period of 2016 and amounted to RUR 0.77

trillion (in the first half of 2016 – RUR 0.36 billion). Experts expect that by

the end of 2017, the profit of the banking sector will be at the level of RUR

1.4-1.5 trillion.

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Concentration of assets in the banking sector of the Russian

Federation

Banking sector of the Russian Federation has a consistently high level of

concentration of assets in the five largest banks, whose distinctive feature is

also the high share of state participation in the share capital.

Due to the operational environment deterioration and the Central Bank’s

"cleaning policy" the banking sector consolidated even more. The share of

the 5 largest banks in the banking sector assets for the first half of 2017 as

compared to the end of 2016 remained at the level of 55.3%. During the

same period the number of operating credit institutions declined by 6% from

623 to 589.

According to the results of the first half of 2017, the TOP-5 largest Russian

banks in terms of assets include:

1. Sberbank (RUR 22.6 trillion);

2. VTB (RUR 9.3 trillion);

3. Gazprombank (RUR 5.3 trillion);

4. VTB 24 (RUR 3.3 trillion);

5. Rosselkhozbank (RUR 2.9 trillion).

Changes in regulation

Since the beginning of 2015 number of regulatory measures has been taken to

support the banking sector in conditions of instability in financial markets. In

addition, the recommendations of the G20 and the Financial Stability Board

were implemented in terms of approaches to the organization and regulation

of the financial market infrastructure and labor remuneration. Also, a planned

work was carried out to implement the approaches of the international

agreements Basel II and Basel III, taking into account the specifics of the

Russian banking sector.

Forecast of the Russian banking sector

Penetration rate is calculated as the ratio of loans issued or deposits attracted

to nominal GDP. Changes in the penetration rate of retail and corporate

deposits and loans in Russia over the period 2014-6 m 2017 are presented

below.

Exhibit 10 Russian banking sector

Index Unit 2014 2015 2016 6m 2017

Nominal GDP RUR bln, 79,200 83,233 86,044 41,808

Corporate lending market (legal entities other than credit institutions)

RUR bln, 29,536 33,301 30,135 30,017

% from GDP % 37.3% 40.0% 35.0% 35.7%

Retail lending market (individuals) RUR bln, 11,330 10,684 10,804 11,185

% from GDP % 14.3% 12.8% 12.6% 13.3%

Corporate deposit market RUR bln, 24,443 27,923 25,149 26,246

% from GDP % 30.9% 33.5% 29.2% 31.2%

Retail deposit market RUR bln, 18,553 23,219 24,200 24,897

% from GDP % 23.4% 27.9% 28.1% 29.6%

Source: CBR data, Rosstat, calculation of the Consultant

The table below shows the penetration rate of loans and deposits by countries in Europe.

Exhibit 11 Penetration rate of loans and deposits by European countries as of 01.01.2017, %

Country Loans Deposits

Legal entities Individuals Legal entities Individuals

Austria 43.5% 43.1% 18.2% 66.2%

Belgium 27.6% 37.7% 22.1% 78.5%

Estonia 34.3% 35.1% 26.8% 29.8%

Finland 34.6% 55.6% 15.7% 38.1%

France 41.1% 49.9% 23.8% 57.0%

Germany 28.5% 47.9% 16.4% 64.1%

Hungary 16.1% 15.6% - -

Ireland 19.0% 31.9% 16.9% 35.0%

Italy 44.7% 35.6% 14.3% 58.6%

Netherlands 53.7% 63.4% 43.5% 55.5%

Poland 16.1% 34.3% - -

Portugal 39.7% 60.7% 17.4% 73.3%

Romania 12.6% 14.0% - -

Slovakia 20.1% 34.6% 14.1% 39.7%

Slovenia 22.4% 22.0% 14.0% 40.9%

Spain 43.6% 60.3% 19.5% 66.5%

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Country Loans Deposits

Legal entities Individuals Legal entities Individuals

Median 31.4% 36.6% 17.4% 57.0%

Source: Bloomberg

As can be seen from the tables above, penetration rate of loans to legal

entities in Russia has already exceeded the average European level. The ratio

of loans to legal entities to GDP over the period 2014-6 m 2017 was above

35.0%. Penetration rate of deposits to legal entities in Russia also has

exceeded the average European level. The ratio of deposits to legal entities to

GDP over the period 2014-6 m 2017 was in the range of 29.2-33.5%.

According to the Consultant assumption the current level of penetration rates

of loans and deposits to legal entities during the forecast period will remain at

the level of 6 m 2017.

There is a different situation on the Russian retail lending and deposit market

in. Russia lags far behind European countries in terms of the penetration rate

of loans and deposits to individuals.

According to the Consultant assumption penetration rate of loans to

individuals will grow with a rate of 4.7% (cumulative annual growth rate for

2010-6 months 2017) starting from 2017 until the average European

penetration rate of 36.6 % will be reached.

At the same time, penetration rate of deposits to individuals will grow with a

rate of 5.5% (cumulative annual growth rate for 2010-6 months 2017) starting

from 2017 until the average European penetration rate of 57.0 % will be

reached.

Forecast of the Bank's position in the industry

Based on the current market trends and the Consultant’s assumptions, main

drivers of the Russian banking sector and VTB Bank were projected up to

2026. In accordance with the development strategy of the VTB Group for

2017-2019, the Bank expects the growth of retail customers, which will allow

it to increase its share in both retail lending and retail deposit markets by

2019. At the same time, the strategy of the Bank on corporate clients will

allow the Bank to retain its share on the corporate lending and deposit

markets.

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Exhibit 12 Forecast of VTB Bank's position in the industry

Index Unit 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Nominal GDP bln. RUB 91,311 96,847 102,554 108,280 114,378 120,486 126,550 132,880 139,527 146,506

Banking sector

Loans to private sector (gross) bln. RUB 44,744 48,063 51,567 55,189 59,118 63,181 67,358 71,822 76,619 81,776

Corporate lending market (legal entities other than credit institutions)

bln. RUB 32,597 34,574 36,611 38,655 40,832 43,013 45,177 47,437 49,810 52,301

Retail lending market (individuals) bln. RUB 12,146 13,489 14,956 16,533 18,286 20,169 22,180 24,385 26,809 29,475

Private Sector Deposits bln. RUB 55,540 60,486 65,813 71,452 77,665 84,246 91,182 98,730 106,978 115,994

Corporate deposit market bln. RUB 28,502 30,230 32,012 33,799 35,703 37,609 39,502 41,478 43,553 45,731

Retail deposit market bln. RUB 27,037 30,255 33,801 37,653 41,963 46,637 51,680 57,252 63,425 70,263

Loans to private sector (gross) % from GDP 49.0% 49.6% 50.3% 51.0% 51.7% 52.4% 53.2% 54.1% 54.9% 55.8%

Corporate lending market (legal entities other than credit institutions)

% from GDP 35.7% 35.7% 35.7% 35.7% 35.7% 35.7% 35.7% 35.7% 35.7% 35.7%

Retail lending market (individuals) % from GDP 13.3% 13.9% 14.6% 15.3% 16.0% 16.7% 17.5% 18.4% 19.2% 20.1%

Private Sector Deposits % from GDP 60.8% 62.5% 64.2% 66.0% 67.9% 69.9% 72.1% 74.3% 76.7% 79.2%

Corporate deposit market % from GDP 31.2% 31.2% 31.2% 31.2% 31.2% 31.2% 31.2% 31.2% 31.2% 31.2%

Retail deposit market % from GDP 29.6% 31.2% 33.0% 34.8% 36.7% 38.7% 40.8% 43.1% 45.5% 48.0%

The position of VTB Bank in the industry

Loans to private sector (gross) bln. RUB 10,540 11,536 12,968 13,882 14,874 15,899 16,954 18,082 19,294 20,598

Corporate lending market (legal entities other than credit institutions)

bln. RUB 7,892 8,310 9,147 9,658 10,202 10,747 11,288 11,852 12,445 13,068

Retail lending market (individuals) bln. RUB 2,648 3,226 3,821 4,224 4,672 5,153 5,667 6,230 6,849 7,530

Private Sector Deposits bln. RUB 8,614 9,731 11,307 12,250 13,287 14,382 15,533 16,783 18,147 19,636

Corporate deposit market bln. RUB 5,044 5,248 5,952 6,284 6,638 6,992 7,344 7,712 8,097 8,502

Retail deposit market bln. RUB 3,570 4,483 5,356 5,966 6,649 7,390 8,189 9,072 10,050 11,133

Loans to private sector (gross) % from GDP 23.6% 24.0% 25.1% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2% 25.2%

Corporate lending market (legal entities other than credit institutions)

% from GDP 24.2% 24.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%

Retail lending market (individuals) % from GDP 21.8% 23.9% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5%

Private Sector Deposits % from GDP 15.5% 16.1% 17.2% 17.1% 17.1% 17.1% 17.0% 17.0% 17.0% 16.9%

Corporate deposit market % from GDP 17.7% 17.4% 18.6% 18.6% 18.6% 18.6% 18.6% 18.6% 18.6% 18.6%

Retail deposit market % from GDP 13.2% 14.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8%

Source: calculation of the Consultant

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Bank overview

The following objects are in the scope of this valuation:

1 ordinary share of VTB Bank (PJSC)

1 Type 1 preference share of VTB Bank (PJSC)

1 Type 2 preference share of VTB Bank (PJSC).

The market value is estimated at 100% controlling share of the Bank.

Share capital

As of valuation date share capital of VTB Bank (PJSC) amounted to 659.5

RUR billion and consisted of 12,960,541,337,338 ordinary shares with face

value of RUR 0.01, 21,403,797,025,000 Type 1 preference shares with face

value of RUR 0.01 and 3,073,905,000,000 Type 2 preference shares with face

value of RUR 0.1.

Exhibit 13 VTB Bank (PJSC) major stakeholders (ordinary shares)

Type of shares Shares issued, pcs. Nominal value of

share, RUR Nominal value of all shares, bln. RUR.

Ordinary shares 12,960,541,337,338 0.01 138.1

Type 1 preference shares 21,403,797,025,000 0.01 214.0

Type 2 preference shares 3,073,905,000,000 0.1 307.4

Source: Bank’s data

For the 6 months 2017, the number of treasury shares was 31,708,010,055

shares. Thus, as of June 30, 2017 the number of ordinary shares outstanding

was 12,928,833,327,283.

The majority shareholder of the VTB Bank is the Russian Government

(represented by the Federal Agency for State Property Management), which

owns 60.93% of the voting shares.

Exhibit 14 VTB Bank (PJSC) major stakeholders (ordinary shares)

Shareholder Stake

Russian Federation represented by Federal government property agency 60.93%

AO «Alfa-bank» 2.88%

Republic of Azerbaijan State Oil Fund 2.95%

Credit Suisse AG 2.35%

Minority stakeholders 30.89%

Source: Bank’s data

In September 2014 Russian Ministry of Finance acquired 21,403,797,025,000

preferred shares of the Bank for RUR 214 billion as a part of financial

institutions supporting program.

In July 2015, VTB Bank (PJSC) completed a private placement of 3,073,905

million Type A non-cumulative preferred shares with nominal value of

RUR 0.1 per share. The State Corporation “Deposit Insurance Agency”

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(“DIA”) acquired all of these preferred shares at their nominal value for

RUR 307.4 billion.

Key facts about the Bank

VTB Bank (PJSC) was established in 1990. Following table contains general

information about the Bank.

Exhibit 15 General information about VTB Bank (PJSC)

Index Information

Complete name of the Bank VTB Bank (public joint-stock company)

Short name of the Bank JSC VTB Bank

Address 29 Bolshaya Morskaya st, Saint-Petersburg, Russia, 190000

Post address 37 Plushikha st, Moscow, Russia, 119121

Industry Banking sector

Date of registration 17 October 1990

Individual tax number 7702070139

State registration number 1027739609391

General Banking License 1000

License issuing date 8 July 2015

BIC 44525187

Share capital, RUR billion 651.03

Ordinary shares 12,960,541,337,338 with face value of 0.01

Preference shares 21,403,797,025,000 with face value of 0.01

Type A preference shares 3,073,905,000,000 with face value of 0.1

Source: Bank’s data

VTB Bank (PJSC) is the second biggest bank in Russia according to most

indices and it also managed to establish an international banking group

comprised of over 20 credit institutions and financial companies operating

across all key areas of the financial markets. VTB Group is a holding

company with one strategically aligned development model, including a

common brand, centralised financial and risk management, and integrated

compliance systems. VTB Group’s global network is unique to the Russian

banking industry. It enables the group to facilitate international partnerships

and promote Russian companies aiming to engage with global markets.

VTB Group operates a large international network across CIS countries;

Armenia, Ukraine, Belarus, Kazakhstan and Azerbaijan. VTB also has banks

in Austria, Germany and France which are part of a European sub-holding

with VTB Bank (Austria) acting as the parent bank for Germany and France.

The Group also has subsidiary and affiliated banks in the United Kingdom,

Cyprus, Serbia, Georgia and Angola and branches in China and India and

VTB Capital has branches in Singapore and Dubai.

VTB Bank (PJSC) is also included in the list of Russian companies with the

largest market capitalization on Moscow stock exchange. The following chart

shows Bank’s share quote dynamics for the last 9 years.

Exhibit 16 VTB Bank (PJSC) quotes for 01.01.2008-01.07.2017

0,0000

0,0200

0,0400

0,0600

0,0800

0,1000

0,1200

0,1400

Source: Bloomberg

Bank stock is considered as one of the most liquid on Moscow exchange and

is regarded as a “blue chip” stock. VTB Bank global depositary receipts are

listed on London stock exchange.

Global rating agencies issued following ratings for VTB Bank (PJSC).

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Exhibit 17 VTB Bank (PJSC) credit ratings

Rating agency

Issuer Credit Rating Value Outlook Date of the latest rating

revision/affirmation

Moody's Investors Service

Senior Unsecured in Foreign Currency

Ba1 Stable 21 February 2017

Senior Unsecured in Domestic Currency

Ba1 Stable 21 February 2017

Long-term Bank Deposits in Foreign Currency

Ba2 Stable 21 February 2017

Long-term Bank Deposits in Domestic Currency

Ba1 Stable 21 February 2017

S&P Global Ratings

Foreign Currency Long-term BB+ Stable 20 September 2016

Local Currency Long-term BB+ Stable 20 September 2016

Source: Bank’s data

VTB Group’s development strategy for 2017-2019

On 14 December 2016, the VTB Supervisory Council approved VTB

Group’s development strategy for 2017–2019.

The Group’s strategy for the next three years is based on the following

priorities:

To increase profitability and achieve net profit in excess of RUR 200

billion by 2019.

To create an integrated banking business and build a single full-

service bank by completing the VTB Bank — VTB24 merger no later

than January 2018.

To modernise the Group by developing a more customer-

oriented bank through a large-scaletechnological transformation.

An important objective is to improve the funding profile by increasing the

share of customer funds, primarily in the retail segment, as well

as streamlining liabilities by attracting more funds into current accounts and

increasing the share of rouble-denominated account balances.

Merging VTB Bank and VTB24 into an integrated bank is a key strategic

project in the new three-yearstrategy. The initiative is expected to improve the

Group’s management structure by creating a single, highly-competitive entity,

efficiently leveraging its business lines to deliver common objectives. The

merger will also enable the Group to streamline costs and improve its overall

financial results.

Under the approved strategy, we expect above-market growth in the retail

segment. The Group is committed to improving all key indicators in the retail

segment in terms of market share.

In the next three years, increasing business profitability whilst strengthening

leadership with major corporate customers will be a priority for

the Corporate-Investment Banking (CIB) global business line.

In working with medium-sized corporate customers the strategic objectives

for the Group are to grow the customer base by three times and expand the

transactions segment by four times, including current account balances

and risk-free fees, to exceed average market growth rate.

To this effect, the Group will overhaul its business model for medium-

sized corporates. First, it will improve its risk coverage models and cross-

sales for high-end medium corporate business customers by introducing

detailed customer-level planning. Second, the Group intends to build

a transaction model for attracting more bottom-end customers.

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Exhibit 18 Structure of the VTB Group

Source: Bank’s data

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Financial analysis of VTB Bank (PJSC)

Analysis of the balance sheet

The following table presents the IFRS balance sheet of VTB Bank (PJSC) for

2014 – 6 months of 2017.

Exhibit 19 Balance sheet of VTB Bank (PJSC) for 2014-6m 2017, RUR billion

Index 2014 2015 2016 6m 2017

Cash and short-term funds 695.2 570.7 452.9 456.8

Mandatory cash balances with central banks 85.5 70.8 95.1 99.9

Non-derivative financial assets at fair value through profit or loss

375.4 308.1 267.1 288.3

Derivative financial assets 407.0 304.8 180.5 176.1

Due from other banks 814.5 1,358.2 1,051.2 1,046.5

Loans and advances to customers 8,537.3 9,437.5 8,854.5 8,884.1

Investment financial assets 215.8 353.3 340.7 317.1

Investments in associates and joint ventures 96.3 104.3 93.3 121.6

Assets of disposal groups held for sale 11.1 15.8 15.6 20.4

Land, premises and equipment 246.9 310.3 352.7 350.0

Investment property 192.3 245.0 235.5 233.7

Goodwill and other intangible assets 161.8 162.0 155.1 155.2

Deferred income tax asset 66.9 76.6 87.8 86.3

Other assets 284.8 324.5 406.2 372.9

Total assets 12,190.8 13,641.9 12,588.2 12,608.9

Due to other banks 733.2 1,224.0 1,208.9 1,079.6

Customer deposits 5,669.4 7,267.0 7,346.6 8,510.5

Derivative financial liabilities 397.8 284.1 165.0 130.5

Other borrowed funds 2,729.2 2,121.5 1,307.2 333.8

Debt securities issued 921.4 623.5 399.6 363.4

Liabilities of disposal groups held for sale 4.7 13.0 2.2 1.3

Deferred income tax liability 26.6 30.2 35.2 37.8

Index 2014 2015 2016 6m 2017

Subordinated debt 265.2 262.8 224.1 195.7

Other liabilities 312.3 361.7 486.5 524.0

Total liabilities 11,059.8 12,187.8 11,175.3 11,176.6

Share capital 352.1 659.5 659.5 659.5

Share premium 433.8 433.8 433.8 433.8

Perpetual loan participation notes 126.6 164.0 136.5 132.9

Treasury shares and bought back perpetual loan participation notes

-6.7 -2.9 -2.5 -2.7

Other reserves 42.8 72.2 44.8 53.0

Retained earnings 169.3 127.6 131.1 145.8

Equity attributable to shareholders of the parent 1,117.9 1,454.2 1,403.2 1,422.3

Non-controlling interest 13.1 -0.1 9.7 10.0

Total equity 1,131.0 1,454.1 1,412.9 1,432.3

Total liabilities and equity 12,190.8 13,641.9 12,588.2 12,608.9

Source: Bank’s data

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Analysis of assets

Total assets of the Bank have increased by 3.4% over the period 2014 - 6 m

2017 and amounted to 12,608.9 billion RUR as of the valuation date. Assets

structure of the Bank is presented on the following chart.

Exhibit 20 Bank’s assets structure for the period 2014 – 6 m. 2017, %

70,0% 69,2% 70,3% 70,5%

8,6% 8,8% 10,7% 10,5%6,7% 10,0% 8,4% 8,3%8,2% 7,1% 6,3% 6,2%5,7% 4,2% 3,6% 3,6%0,8% 0,8% 0,7% 1,0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

31.12.14 31.12.15 31.12.16 30.06.17

Investments in associates and joint ventures

Cash and short-term funds

Financial assets at fair value

Due from other banks

Other assets

Loans and advances to customers

Source: Bank’s Data

Assets structure has been stable during the reviewed period. “Loans and

advances to customers” represent the biggest share of total assets (71% as of

valuation date).

Loans and advances to customers

Loans and advances to customers item is a core part of assets of any financial

company, since it generates the most interest income. The value of loans has

increased by 4.1% over the period 2014 - 6 m 2017 and amounted to RUR

8,884.1 billion as of 30.06.2017. At the same time, compared to 2015, loans

and advances to customers of VTB Bank decreased by 5.9%, which was due to

a significant reduction of the corporate loan portfolio of the Group in 2016.

Exhibit 21 Structure of gross loans to customers by their types for the period 2014 –6 m. 2017, %

78,7%

80,6%

77,1%

75,6%

21,3%

19,4%

22,9%

24,4%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

31.12.14

31.12.15

31.12.16

30.06.17

Loans to legal entities (gross) Loans to individuals (gross)

Source: Bank’s Data

During the reviewed period the main customers of the Bank were legal

entities. However, share of loans to individuals has been slowly increased since

2016. By the end of 2016, the corporate loan portfolio of the Group decreased

by 10.3% to RUR 7,311.4 billion. In the first half of 2017 gross amount of

loans to legal entities continued to decline and amounted to RUR 7,194.2

billion.

Exhibit 22 Structure of loans to legal entities as of 30.06.2017, %

70,7%

21,5%

4,8%3,0%

Current activity financing

Project financing and other

Reverse 'repo' agreements

Financial lease

Source: Bank’s Data

As we can see from the picture above, the largest share of loans to legal

entities is represented by loans issued for current activity financing. Total value

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of these loans equaled to RUR 5,084.0 billion or 71% of all loans to legal

entities as of 30.06.2017.

By the end of 2016 the Group retained the second place and increased its

share in the Russian retail lending market. In the first half of 2017 gross

amount of loans to individuals continued to grow and amounted to RUR

2,321.6 billion.

Financial assets

Financial assets of the Bank are represented by non-derivative financial assets

at fair value through profit or loss, derivative financial assets and investment

financial assets.

Over the period 2014 - 6 m 2017 value of non-derivative financial assets at fair

value through profit or loss decreased by 23.2% and amounted to RUR 288.3

billion as of 30.06.2017.

Financial assets at fair value through profit or loss are mainly represented by

debt securities held for trading.

Exhibit 23 Non-derivative financial assets at fair value through profit or loss structure as of 30.06.2017, %

83,2%

3,3%

6,8%0,1%

6,6%

Debt securities held for trading

Equity securities held for trading

Equity securities at fair value through profit or loss

Debt securities at fair value through profit or loss

Reverse 'repo' agreements

Source: Bank’s Data

Derivative financial assets of the Bank are mainly consisting of interest rate

contracts - interest rate swaps (RUR 121.0 billion) and contracts on foreign

exchange rates and precious metals (RUR 24.9 billion).

The Bank's investment financial assets are represented by available-for-sale

financial assets, as well as financial assets held-to-maturity.

Over the period 2014 - 6 m 2017 value of investment financial assets o

increased by 46.9% and amounted to RUR 317.1 billion as of 30.06.2017.

As of June 30, 2017 investment financial assets were fully represented by debt

(RUR 284.3 billion) and equity (RUR 32.8 billion) securities available for sale.

Debt securities consist of bonds issued by the Russian Federation, and

corporate bonds of Russian issuers.

Due from other banks

The amount of due from other banks, including pledged under repurchase

agreements, item equaled to RUR 1,046.5 billion as of 30.06.2017. Mostly

these were funds in Russian Banks.

Investments in associates and joint ventures

The amount of investments in associates and joint ventures at the valuation

date was RUR 121.6 billion: RUR 68.6 billion of this amount was represented

by investments designated as at fair value through profit or loss and RUR 53.0

billion – by investments accounted under equity method.

The major share of investments in associates and joint ventures is represented

by 50% of share in telecommunication company "T2 (Netherlands)", BV.

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Other assets

Other assets include assets with an insignificant share in the total assets of

VTB Bank. The share of each item in the Bank’s total assets is presented

below.

Exhibit 24 Share of other assets in the Bank’s total assets, %

Index 31.12.14 31.12.15 31.12.16 30.06.17

Cash and short-term funds 5.7% 4.2% 3.6% 3.6%

Mandatory cash balances with central banks 0.7% 0.5% 0.8% 0.8%

Land, premises and equipment 2.0% 2.3% 2.8% 2.8%

Investment property 1.6% 1.8% 1.9% 1.9%

Goodwill and other intangible assets 1.3% 1.2% 1.2% 1.2%

Deferred income tax asset 0.5% 0.6% 0.7% 0.7%

Other assets 2.3% 2.4% 3.2% 3.0%

Total other assets 14.2% 12.9% 14.2% 13.9%

Source: Bank’s Data

Analysis of liabilities

Over the period 2014 - 6 m 2017 total liabilities of the Bank increased by 1.1%

and amounted to RUR 11,176.6 billion as of the valuation date.

The share of customer deposits for an analyzed period increased by 24.9

percentage points, while the aggregate share of other borrowed funds, issued

debt instruments and subordinated debt decreased by 27.4 percentage points.

Exhibit 25 Liabilities structure of the Bank during 2014-6m 2017, %

51,3%59,6%

65,7%76,1%

6,6%

10,0%10,8%

9,7%

24,7%

17,4%11,7%

3,0%8,3% 5,1%3,6% 3,3%2,4% 2,2% 2,0% 1,8%

6,7% 5,7% 6,2% 6,2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

31.12.14 31.12.15 31.12.16 30.06.17

Other liabilities

Subordinated debt

Debt securities issued

Other borrowed funds

Due to other banks

Customer deposits

Source: Bank’s data

Customer deposits

Customer deposits represent the biggest share (76.1%) of the Bank’s liabilities.

For 2014 - 6 m 2017, in absolute terms, customer deposits have demonstrated

significant growth: they have increased by RUR 2,841.1 billion or 50.1%.

Term deposits of legal entities (including government entities) provide the

majority of customer deposits (48.2%). A significant portion of the funds of

legal entities is represented by government entities (22.8% as of 30.06.2017).

As of 30.06.2017 the Bank’s 10 largest customers had aggregated balances of

RUR 2,577.1 billion or 30.3% of total customer deposits. Deposits of RUR

391.3 billion were held as collateral against irrevocable commitments under

import letters of credit and guaranties.

Due to other banks

Since 2014, the amount of due to other banks increased by 47.2% and

amounted to RUR 1,079.6 billion as of the valuation date. At the same time,

due to other banks decreased by 10.7% compared to 2016.

This item contains credit funds received from other commercial banks and the

CBR. Its structure is presented in the following exhibit.

Exhibit 26 Due to other banks as of 30.06.2017, RUR billion

Index Total sum, RUR

billion Share, %

Term loans and deposits 925.4 85.7%

Correspondent accounts and overnight deposits of other banks

118.4 11.0%

Sale and repurchase agreements with other banks 35.8 3.3%

Total 1,079.6 100.0%

Source: Bank’s data

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Other borrowed funds

During the analyzed period, amount of other borrowed funds decreased by

87.8% and amounted to RUR 333.8 billion as of the valuation date. The

decrease was mainly due to reduction of funds from local central banks.

Exhibit 27 Structure of other borrowed funds for 2014-6m 2017, RUR billion

Index 31.12.14 31.12.15 31.12.16 30.06.17

Funds from local central banks, including 2,388.9 1751.5 1,063.5 63.5

sale and repurchase agreements 771.9 805.0 435.9 -

term deposits from local central banks 1,617.0 946.6 627.6 63.5

Syndicated loans 131.5 156.8 16.9 12.5

Other borrowings 208.8 213.1 226.8 257.8

Total 2,729.2 2,121.5 1,307.2 333.8

Source: Bank’s data

As at 30 June 2017, funds from local central banks contain the amount of

RUR 32.0 billion secured by pledged loans to customers in the amount of

RUR 32.7 billion.

In May 2017 the Bank opened an irrevocable credit line with the CBR in the

amount of RUR 275.0 maturing in May 2018.

Debt securities issued

Since 2014 debt securities issued decreased from 921.4 to 363.4 RUR billion

due to bond repayments scheduled.

Exhibit 28 Debt securities issued for 2014-6m 2017, RUR billion

Index 31.12.14 31.12.15 31.12.16 30.06.17

Bonds 780.7 479.5 345.7 293.8

Promissory notes 123.4 126.4 47.5 68.7

Deposit certificates 17.3 17.6 6.4 0.9

Total 921.4 623.5 399.6 363.4

Source: Bank’s data

The bonds are mainly represented by Eurobonds issued mostly under Euro

Medium Term Note (EMTN) programs, other Eurobonds and local bonds

issued by VTB and other Group members.

Other liabilities

Other liabilities include liabilities with an insignificant share in the total

liabilities of VTB Bank. The share of each item in the Bank’s total liabilities is

presented below.

Exhibit 29 Share of other liabilities in the Bank’s total liabilities, %

Index 31.12.14 31.12.15 31.12.16 30.06.17

Derivative financial liabilities 5.7% 4.2% 3.6% 3.6%

Liabilities of disposal groups held for sale 0.7% 0.5% 0.8% 0.8%

Deferred income tax liability 2.0% 2.3% 2.8% 2.8%

Subordinated debt 1.6% 1.8% 1.9% 1.9%

Other liabilities 1.3% 1.2% 1.2% 1.2%

Source: Bank’s Data

During the analyzed period, the value of subordinated debt decreased by

26.2% and amounted to RUR 195.7 billion as of the valuation date.

Analysis of equity

Equity is the core balance sheet item for the Bank. VTB Bank (PJSC)’s equity

grew 1.27 times since 2014 and totaled RUR 1,432.3 billion as of the valuation

date.

Exhibit 30 The Bank’s equity structure as of 30.06.2017, RUR billion Показатель 31.12.14 31.12.15 31.12.16 30.06.17

Share capital 352.1 659.5 659.5 659.5

Share premium 433.8 433.8 433.8 433.8

Perpetual loan participation notes 126.6 164.0 136.5 132.9

Treasury shares and bought back perpetual loan participation notes

-6.7 -2.9 -2.5 -2.7

Other reserves 42.8 72.2 44.8 53.0

Retained earnings 169.3 127.6 131.1 145.8

Non-controlling interests 13.1 -0.1 9.7 10.0

Total equity 1,131.0 1,454.1 1,412.9 1,432.3

Source: Bank’s data

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Share capital

Exhibit 31 The Bank’s share capital structure, RUR billion

Index Number of shares Book value, RUR billion

Ordinary shares 12,960,541,337,338 138.1

Type 1 preference shares 21,403,797,025,000 214.0

Type 2 preference shares 3,073,905,000,000 307.4

Source: Bank’s data

In July 2015, VTB Bank (PJSC) completed a private placement of 3,073,905

million type A non-cumulative preference shares with nominal value of RUR

0.1 per share. The State Corporation “Deposit Insurance Agency” (“DIA”)

acquired all of these preference shares at their nominal value for RUR 307.4

billion. As a payment for preference shares, the DIA provided VTB Bank (PJSC)

with state bonds (OFZ). The newly issued preference shares are included in

Tier I capital of the Bank. The terms of the preference shares do not include

any fixed dividend.

Share premium

Share premium income is generated by issues of new shares and by foreign

exchange gains on the shares initially sold for foreign currency. Share premium

income constitutes about 30% of Bank’s equity and equaled to RUR 433.8

billion as of 30 June 2017.

Capital adequacy

Bank is constantly maintaining its capital adequacy ratios above minimum values

set by CBR (8% (10% until 2016) and by Basel Accord (8%). Since 2014 Bank’s

capital adequacy ratio decreased from 12.6% to 10.8%.

Exhibit 32 The Bank’s capital adequacy indicators for 2015-6m 2017, RUR billion

Index 31.12.2015 31.12.2016 30.06.2017

Required capital 1,014.7 1,017.8 1,024.2

RWA 7,713.5 9,162.0 9,521.0

The capital adequacy ratio (Н1.1) 11.7% 9.6% 9.3%

Source: Bank’s data

Profit and loss statement analysis

Exhibit 33 VTB Bank (PJSC) profit and loss statement for the period 2014-6 m 2017, RUR billion

Index 2014 2015 2016 6m 2017

Interest income 844.1 1,100.9 1,107.8 529.9

Interest expense -496.8 -811.8 -692.8 -302.8

Net interest income 347.3 289.1 415.0 227.1

Provision charge for impairment -255.4 -167.5 -144.7 -72.3

Net interest income after provision for impairment

91.9 121.6 270.3 154.8

Net fee and commission income 63.1 76.2 81.8 43.1

Trading and revaluation gain 13.5 58.8 12.0 10.8

Other income 106.9 -11.8 1.8 -4.6

Impairment of land, premises and intangible assets

-20.0 -10.6 -66.5 -3.7

Staff costs and administrative expenses -222.6 -221.9 -233.9 -122.6

Profit/(loss) before tax 32.8 12.3 65.5 77.8

Income tax expense -31.5 -6.9 -21.6 -19.9

Net profit/(loss) after tax 1.3 5.4 43.9 57.9

Profit/(loss) after tax from subsidiaries acquired exclusively with a view to resale

-0.5 -3.7 7.7 -

Net profit/(loss) 0.8 1.7 51.6 57.9

Source: Bank’s data

Interest income and expense generate major part of Bank’s total income and

expenses. For 6 month 2017 Bank’s operational income amounts to RUR

200.4 billion and consists of net interest income (75.4%), net fee and

commissions income (21.5%) and non-interest income (3.1%).

Interest income of the Bank includes accrued and received interest on loans

and advances to customers, due from other banks and financial assets.

The Bank’s interest income in 2016 amounted to RUR 1,107.8 billion. At the

end of 6 m 2017 interest income amounted to RUR 529.9 billion. Over the

period 2014-2016 interest income increased by 31.2%. Interest income

structure is presented in the following exhibit:

Exhibit 34 The Bank’s interest income structure, RUR billion

Index 2014 2015 2016 6m 2017

Interest income 844.1 1.100.9 1.107.8 529.9

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Index 2014 2015 2016 6m 2017

Loans and advances to individuals 267.3 285.7 301.4 159.6

Loans and advances to corporate clients 525.5 726.0 716.4 326.3

Due from other banks 12.5 51.5 48.0 24.1

Financial assets 38.8 37.7 42.0 19.9

Source: Bank’s data, calculations of the Consultant

Most of interest income was generated by loans and advances to customers,

67.2% of which were represented by loans to corporate clients, 32.8% by loans

to individuals.

As you can see from the table below loans and advances to individuals have

the highest profitability. Effective rates calculated as the ratio of interest

income to the average annual amount of loans by customer type.

Exhibit 35 The Bank’s effective interest rates (interest income)

Index Unit 2014 2015 2016 6m 2017

Loans and advances to legal entities

(mid-year) RUR billion 5,785.0 7,209.5 7,267.6 6,807.5

Interest income on loans to legal entities RUR billion 525.5 726.0 716.4 326.3

Effective interest rate % 9.1% 10.1% 9.9% 9.6%

Loans and advances to individuals (mid-

year) RUR billion 1,613.5 1,777.9 1,878.4 2,061.9

Interest income on loans to individuals RUR billion 267.3 285.7 301.4 159.6

Effective interest rate % 16.6% 16.1% 16.0% 15.6%

Source: Bank’s data, calculations of the Consultant

The structure of interest expenses of the Bank is presented in the table below.

Due to significant increase in the amount of customer deposits for the period

2014 - 6 m 2017, the share of interest expenses on customer deposits

increased from 54.4% in 2014 to 73.5% for the 6 m 2017.

Exhibit 36 The Bank’s interest expenses structure, RUR billion

Index 2014 2015 2016 6m 2017

Interest expenses 496.8 811.8 692.8 302.8

Deposits of individuals 101.1 158.2 164.7 74.7

Deposits of corporate clients 169.0 292.1 322.3 148.0

Due to other banks and other borrowed funds 156.5 287.5 151.9 58.8

Debt securities issued 50.9 49.9 32.4 13.0

Subordinated debt 19.3 24.1 21.5 8.3

Source: Bank’s data, calculations of the Consultant

Effective interest rates are presented below.

Exhibit 37 The Bank’s effective interest rates (interest expenses)

Index Unit 2014 2015 2016 6m 17

Term deposits of individuals (mid-year) RUR billion 1,607.5 2,088.2 2,397.1 2,394.4

Interest expenses on term deposits (individuals) RUR billion -99.0 -156.0 -162.3 -72.9

Effective interest rate % 6.2% 7.5% 6.8% 6.1%

Current deposits of individuals (mid-year) RUR billion 363.8 428.1 546.8 663.8

Interest expense on current deposits of individuals

RUR billion -2.1 -2.2 -2.4 -1.9

Effective interest rate % 0.6% 0.5% 0.4% 0.6%

Term deposits of legal entities (mid-year) RUR billion 2,181.4 3,013.3 3,327.9 3,693.9

Interest expense on term deposits of legal entities

RUR billion -165.7 -277.8 -305.0 -142.9

Effective interest rate % 7.6% 9.2% 9.2% 7.8%

Current deposits of legal entities (mid-year) RUR billion 873.8 938.7 1,035.1 1,176.6

Interest expense on current deposits of legal entities

RUR billion -3.1 -14.4 -17.2 -5.1

Effective interest rate % 0.4% 1.5% 1.7% 0.9%

Due to banks and other borrowed funds (mid-year)

RUR billion 2,786.5 3,404.0 2,930.8 1,964.8

Interest expense on due to banks RUR billion -156.5 -287.5 -151.9 -58.8

Effective interest rate % 5.6% 8.4% 5.2% 6.0%

Debt securities issued (mid-year) RUR billion 829.8 772.5 511.6 381.5

Interest expense on debt securities issued RUR billion -50.9 -49.9 -32.4 -13.0

Effective interest rate % 6.1% 6.5% 6.3% 6.9%

Subordinated loans (mid-year) RUR billion 278.1 264.0 243.5 209.9

Interest expense on subordinated loans RUR billion -19.3 -24.1 -21.5 -8.3

Effective interest rate % 6.9% 9.1% 8.8% 8.0%

Source: Bank’s data, calculations of the Consultant

Lending costs are higher than borrowing costs which confirms the Bank's

positive net interest income.

For 2014 - 2016 the ratio of net fee and commission income to total assets of

the Bank was relatively stable and amounted about to 0.6%. At the end of 6 m

2017 this ratio increased and reached 0.69%.

The Bank's operating expenses are represented by staff costs and

administrative expenses. In 2016 the Bank's operating expenses amounted to

RUR 233.9 billion, which is 5.4% higher than operating costs in 2015 and

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5.1% higher than operating costs in 2014. For 6 m 2017 operating expenses

amounted to RUR 122.6 billion.

Рисунок 1 Change in CIR (cost-to-income ratio) for 2014 – 6 m 2017

222,6 221,9 233,9122,6

530,3408,6

518,3

276,4

42,0%

54,3%

45,1% 44,4%

0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

2014 2015 2016 6 мес. 17

Staff costs and administrative expenses, bln. RUR

Income, bln. RUR

CIR (cost-to-income ratio), %

Source: Bank’s data, calculations of the Consultant

As a result of deterioration of the macroeconomic situation, the Bank's

efficiency declined significantly in 2015, the CIR (cost-to-income ratio)

increased from 42.0% to 54.3%, which was due to a significant reduction in

the Bank's interest margin. Since 2016, the Bank's efficiency level has grown

and reached relatively high value as of the end of 6 m 2017: CIR decreased

from 54.3% to 44.4%.

According to the Bank’s annual financial statement, net profit of VTB Bank

for 2016 amounted to 51.6 billion rubles, which is 30 times higher than net

profit in 2015. The sharp increase in the Bank's net profit was due to the

Bank's net interest income growth and a decrease in the provision charge for

impairment. Net interest income after provision for impairment in 2016

increased by 2.2 times compared with the amount of 2015, primarily due to a

significant reduction in interest expenses of the Bank.

At the end of 6 m 2017, the Bank reported a net profit of RUR 57.9 billion

(net profit for 6 months of 2016 amounted to RUR 15.4 billion).

Ratio analysis

Exhibit 38 Profitability indicators of VTB Bank (PJSC) over 2014 – 6m 2017

Index 2014 2015 2016 6m 2017

ROE 0.08% 0.13% 3.60% 8.19%

ROA 0.01% 0.01% 0.39% 0.92%

NIM (Net income margin) 3.91% 2.61% 3.70% 4.27%

Lending cost 9.43% 9.90% 9.96% 9.96%

Borrowing cost 5.56% 7.42% 6.34% 5.78%

Interest spread 3.87% 2.48% 3.62% 4.18%

Source: Bank’s data, calculations of the Consultant

Overall, since 2016 there is a growth tendency in the Bank's profitability,

which is also due to the decrease in borrowing cost, as well as an increase in

the interest spread of the Bank.

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Conclusion

Since 2014 the balance sheet of the Bank increased by 3.4% and

amounted to RUR 12,608.9 billion as of the valuation date. At the same

time compared to 2015 the balance sheet of VTB Bank decreased by

7.6% which was primarily due to a significant reduction in the corporate

loan portfolio of the Group in 2016.

The structure of VTB Bank’s assets was relatively stable. Loans and

advances to customers is the largest item of the Bank's assets (about

70.0%). Loans to legal entities represents the largest share of the Bank’s

loan portfolio (over 75%).

As of the end of 6 m 2017 the Bank's liabilities reached RUR 1,322.0

billion, which is 31.2% lower than liabilities at the end of 2014 by 31.2%.

There were some changes in the Bank's liabilities structure over the

period 2014 – 6m 2017. The share of customer deposits for an analyzed

period increased by 24.9 percentage points, while the aggregate share of

other borrowed funds, issued debt instruments and subordinated debt

decreased by 27.4 percentage points.

The share of the Bank's equity since 2014 grew and amounted to 11.4%

of the total equity and liabilities as of the date of valuation. The growth

of own funds was due to both growth of the authorized capital in 2015

and growth of retained earnings starting from 2016.

Bank is constantly maintaining its capital adequacy ratios above

minimum values set by CBR (8% (10% until 2016) and by Basel Accord

(8%). As of the valuation date the Bank’s capital adequacy ratio was

10.8%.

According to the Bank’s annual financial statement, net profit of VTB

Bank for 2016 amounted to 51.6 billion rubles, which is 30 times higher

than net profit in 2015. The sharp increase in the Bank's net profit was

due to the Bank's net interest income growth and a decrease in the

provision charge for impairment. Net interest income after provision for

impairment in 2016 increased by 2.2 times compared with the amount of

2015, primarily due to a significant reduction in interest expenses of the

Bank.

At the end of 6 m 2017, the Bank reported a net profit of RUR 57.9

billion (net profit for 6 months of 2016 amounted to RUR 15.4 billion).

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Valuation of VTB Bank (PJSC)

Income Approach

General provisions

Ability to generate income is the most important factor in valuation of the

Bank. Income Approach determines market value of a business on the basis of

expected generated future income.

Under the Income Approach the Discounted Cash Flow method was used to

evaluate the market value of the business.

The Income Approach to valuing business is based on assumption that a

potential investor will not pay for the business an amount greater than the

present value of future income from this business, and the owner will not sell

the business at a price below the present value of expected future income.

The Discounted Cash Flow method is considered the most reasonable in

terms of investment motives. Application of this method is justified both for

banks with significant history of operations and sustainable development as

well as for banks on growth or stagnation stages.

In the process of current valuation Consultant used the IFRS financial

statements of VTB Bank (PJSC) for 2014 – 6 months of 2017, information on

current trends in Russian banking sector and the Bank’s development strategy

(the financial model under IFRS) for 2017-2019.

Assumptions and limitations

Consultant set up a number of assumptions and limitations in respect to future

operating activities of the Bank based on the provided information, results of

discussions with Bank’s management and the additional analysis carried out by

Consultant. The assumptions made in order to value the Bank under the

Discounted Cash Flow method are presented below:

this valuation is based on the Bank’s consolidated IFRS financial

statements;

this valuation is also based on the Bank’s development strategy (the

financial model under IFRS) for 2017-2019;

the current valuation is based on the going concern principle which

assumes that the Bank will function without a threat of liquidation for the

foreseeable future;

management of the Bank would remain competent and reasonable in its

decision-making;

the Bank is planning to comply to all relevant laws and acts;

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the Bank has already obtained or is going to receive and/or prolong all

necessary permits and licenses by all state and regional regulators;

all forecasts used in the Income approach are based on current market

conditions and are conducted in line with economic growth forecasts for

Russian Federation. These forecasts are subject to variation and depend

on current market condition and events.

Selecting projection period length

While estimating market value of the Bank under the Discounted Cash Flows

method, expected period of economic activity is divided into two parts:

projection period;

post-projection period (terminal period).

In the projection period income and cost fluctuations caused by variations in

revenue, changes in the cost structure, interest rates movements etc. are

generally observed. In this particular period business activity of the Bank has

not yet been stabilized and clear trends in the company development may be

unobservable. This is the most complex part of creating a forecast, since it is

necessary to carefully analyze all factors that influence the cash flow, and their

respective fluctuations should be considered in detail. In choosing the

adequate length of the projection time period we should consider that the

longer the projected period is, the more precise and reliable will be the value

of the Bank. However, on the other hand, the longer the projected period the

harder it is to forecast the actual income, costs, macroeconomic indicators and

cash flows. Thus, the reliability of valuation results is lowering.

Length of the projection period generally equals 5-10 years. This is related to

the fact that economy of any nation, and its financial sector in particular, are

subject to significant fluctuations over time, caused by a combination of

several macroeconomic factors. For VTB Bank (PJSC) Consultant selected a

10 years long projection period (until 2027). According to Consultant’s

analysis, macroeconomic situation and Bank’s cash flows should stabilize by

the year 2024.

Thus, in the scope of this Report Consultant set the forecast period from

1 July 2017 until 1 January 2027 (2027 is the first year of post-projection

period).

Final value of the Bank was discounted to the Present value by multiplying it

by the discount factor for a corresponding time period. Current equity value of

the Bank equals the sum of discounted cash flows and Final value discounted

to valuation date.

Analysis of the Bank's financial model for 2017-2019

The following table presents the Bank’s balance according to the financial

model for 2017-2019.

Exhibit 39 Financial model (balance) of the Bank for 2017-2019, RUR billion

Index 2017 2018 2019

Cash and short-term funds 630.1 754.5 804.9

Due from other banks 771.6 805.0 829.3

Loans and advances to customers 9.676.3 10.648.1 11.949.6

Investment assets 110.7 110.6 110.7

Financial assets at fair value 994.1 1.171.2 1.275.8

Other assets 1.392.7 1.411.2 1.423.1

Total assets 13.575.5 14.900.6 16.393.4

Due to other banks and other borrowings 2,070.8 2,206.5 1,885.4

Customer deposits 8,614.1 9,730.7 11,307.4

Debt securities issued 358.6 340.4 341.5

Subordinated debt 202.3 202.3 202.3

Other liabilities 844.2 795.1 863.7

Total liabilities 12,090.1 13,274.9 14,600.3

Equity attributable to shareholders of the parent 1,483.7 1,624.0 1,791.4

Non-controlling interest 1.7 1.7 1.7

Total equity 1,485.4 1,625.7 1,793.1

Total liabilities and equity 13,575.5 14,900.6 16,393.4

Source: Bank’s data

During the period 2014-6 m 2017 the growth rate of total assets was ranged

from -7.7% (in 2016) to 39.0% (in 2014). The financial model of the Bank

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assumes a conservative growth of 7.7% – 10.0%. The analysis of the historical

and forecasted changes in total assets is presented in the table below.

Exhibit 40 Historical and forecasted changes in total assets of the Bank

Index 2014 2015 2016 6m 17 2017 2018 2019

Total assets, RUR bln. 12,190.8 13,641.9 12,588.2 12,608.9 13,575.5 14,900.6 16,393.4

Growth rate, % 39.0% 11.9% -7.7% 0.2% 7.7% 9.8% 10.0%

Source: Bank’s data, calculations of the Consultant

Total assets of VTB Bank (PJSC) will be growing primarily due to the growth

of the loan portfolio. The table below also shows that the historical and

forecasted dynamics of the loan portfolio is approximately equal to the

dynamics of the Bank's total assets.

Exhibit 41 Historical and forecasted changes in loan portfolio of the Bank Index 2014 2015 2016 6m 17 2017 2018 2019

Loan portfolio, RUR bln. 8,537.3 9,437.5 8,854.5 8,884.1 9,676.3 10,648.1 11,949.6

Growth rate, % 36.4% 10.5% -6.2% 0.3% 8.9% 10.0% 12.2%

Source: Bank’s data, calculations of the Consultant

Under the approved development strategy The Bank’s management

expect above-market growth in the retail segment. The Group is committed

to improving all key indicators in the retail segment in terms of market share.

This will increase the share of retail business in the overall Group’s loan

portfolio and in the Group’s total liabilities. Increasing the size of the mass

segment is an important objective in terms of optimizing the cost of funding

in the retail segment. This can be achieved inter alia by actively promoting

Post Bank, increasing market share in terms of current account balance

by at least 1.5-times, and significantly increasing the share of rouble-

denominated funds on retail accounts as opposed to those in foreign currency.

Exhibit 42 Comparison of historical and forecasted structure of the Bank's assets over 2014-2019, %

Index 2014 2015 2016 6m 17 2017 2018 2019

Cash and short-term funds 5.7% 4.2% 3.6% 3.6% 4.6% 5.1% 4.9%

Due from other banks 6.7% 10.0% 8.4% 8.3% 5.7% 5.4% 5.1%

Loans and advances to customers 70.0% 69.2% 70.3% 70.5% 71.3% 71.5% 72.9%

Investment assets 0.8% 0.8% 0.7% 1.0% 0.8% 0.7% 0.7%

Financial assets at fair value 8.2% 7.1% 6.3% 6.2% 7.3% 7.9% 7.8%

Index 2014 2015 2016 6m 17 2017 2018 2019

Other assets 8.6% 8.8% 10.7% 10.5% 10.3% 9.5% 8.7%

Total assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Bank’s data, calculations of the Consultant

The financial model of the Bank also assumes that customer deposits will

grow faster than the Bank's loan.

Exhibit 43 Historical and forecasted changes in customer deposits of the Bank

Index 2014 2015 2016 6m 17 2017 2018 2019

Customer deposits, RUR bln. 5,669 7,267 7,347 8,511 8,614 9,731 11,307

Growth rate, % 29.3% 28.2% 1.1% 15.8% 17.3% 13.0% 16.2%

Source: Bank’s data, calculations of the Consultant

According to the development strategy of VTB Group an important objective

is to improve the funding profile by increasing the share of customer funds

primarily in the retail segment, as well as streamlining liabilities by attracting

more funds into current accounts and increasing the share of ruble-

denominated account balances.

Exhibit 44 Comparison of historical and forecasted structure of the Bank's liabilities over 2014-2019, %

Index 2014 2015 2016 6m 17 2017 2018 2019

Due to other banks and other borrowings

31.3% 27.4% 22.5% 12.6% 17.1% 16.6% 12.9%

Customer deposits 51,3% 59,6% 65,7% 76,1% 71,2% 73,3% 77,4%

Debt securities issued 8,3% 5,1% 3,6% 3,3% 3,0% 2,6% 2,3%

Subordinated debt 2,4% 2,2% 2,0% 1,8% 1,7% 1,5% 1,4%

Other liabilities 6,7% 5,7% 6,2% 6,2% 7,0% 6,0% 5,9%

Total liabilities 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%

Source: Bank’s data, calculations of the Consultant

The following table presents the Bank’s income statement according to the

financial model for 2017-2019.

Exhibit 45 Financial model (P&L) of the Bank for 2017-2019, RUR billion

Index 2017 2018 2019

Interest income 1,058.8 1,127.7 1,200.0

Interest expense -642.4 -606.5 -580.7

Net interest income 416.4 521.2 619.3

Provision charge for impairment -189.1 -203.4 -212.5

Net interest income after provision for impairment 227.3 317.8 406.8

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Index 2017 2018 2019

Net fee and commission income 109.6 130.8 145.9

Trading and revaluation gain 17.5 29.6 60.7

Other income 36.3 27.8 18.0

Non-interest income 53.8 57.4 78.8

Staff costs and administrative expenses -255.4 -291.2 -320.3

Profit/(loss) before tax 135.3 214.7 311.2

Income tax expense -29.5 -52.6 -68.5

Net profit/(loss) after tax 105.8 162.1 242.7

Source: Bank’s data

Management of the Bank assumes a significant growth in net interest income

over 2018-2019, which is primarily due to the growth of the Bank's interest

margin.

Exhibit 46 Historical and forecasted changes in net interest income of the Bank

Index 2014 2015 2016 6m 17 2017 2018 2019

Net interest income, RUR bln. 347.3 289.1 415.0 227.1 416.4 521.2 619.3

Growth rate, % - -16.8% 43.5% - 0.3% 25.2% 18.8%

Source: Bank’s data, calculations of the Consultant

According to the financial model the Bank will actively increasing its net fee

and commission income over the period 2017-2019. As a result the ratio of

net fee and commission income to the average annual assets of the Bank will

grow to 0.93% by the end of 2019, while in the analyzed historical period this

ratio was about 0.63%.

According to the development strategy in working with medium-

sized corporate customers the strategic objectives for the Group are to grow

the customer base by three times and expand the transactions segment by four

times, including current account balances and risk-free fees, to exceed average

market growth rate.

Exhibit 47 Historical and forecasted changes in net fee and commission income

Index 2014 2015 2016 6m 17 2017 2018 2019

Net fee and commission income, RUR bln.

63.1 76.2 81.8 43.1 109.6 130.8 145.9

Growth rate, % - 20.8% 7.3% - 34.0% 19.4% 11.5%

Source: Bank’s data, calculations of the Consultant

The financial model of VTB Group also assumes a significant growth of other

non-interest income in relation to the Bank's assets.

Exhibit 48 Historical and forecasted changes in other non-interest income

Index 2014 2015 2016 6m 17 2017 2018 2019

Other non-interest income, RUR bln.

119.9 43.3 21.5 6.2 53.8 57.4 78.8

Growth rate, % 1.14% 0.34% 0.16% 0.10% 0.41% 0.40% 0.50%

Source: Bank’s data, calculations of the Consultant

At the same time the financial model (development strategy) of VTB Group

for 2017-2019 assumes significant optimization of the Group's operating

expenses which will lead to an increase in the Bank's operational efficiency and

a decrease in the cost-to-income ratio (CIR) from 44.4% (as of the valuation

date) to 38.0%.

A large contribution to improving the efficiency of VTB Group's operations

will be provided by the merger of VTB Bank and VTB24.

According to the development strategy merging VTB Bank and VTB24 into

an integrated bank is a key strategic project in the new three-year strategy. The

initiative is expected to improve the Group’s management structure

by creating a single, highly-competitive entity, efficiently leveraging its business

lines to deliver common objectives. The merger will also enable the Group

to streamline costs and improve its overall financial results.

Based on the context for determining the market value of the valuation object

and the technical assignment to the Agreement №17 BI 125 RO, the Bank's

valuation was carried out without taking into account the synergies effect from

the merger of the two banks.

Thus, the Bank's operating expenses starting from 2017 was determined based

on the CIR (cost-to-income ratio) of 44.7% (average for 2016-6 m 2017).

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Exhibit 49 Historical and forecasted changes in operating expenses

Index 2014 2015 2016 6m 17 2017 2018 2019

Operating expenses, RUR bln. 222.6 221.9 233.9 122.6 255.4 291.2 320.3

CIR in the financial model of the Bank,% 42.0% 54.3% 45.1% 44.4% 44.1% 41.1% 38.0%

CIR with adjustments, % 42.0% 54.3% 45.1% 44.4% 44.7% 44.7% 44.7% Source: Bank’s data, calculations of the Consultant

To conclude, the Bank's financial model is based on conservative assumptions

in comparison with the historical dynamics of the Bank's key indicators. The

growth of most indicators is justified by the Group's development strategy for

2017-2019.

However, as was mentioned above the Bank's valuation was carried out

without taking into account the synergies effect from the merger of the two

banks. According to this operating expenses were adjusted by the Consultant.

The Bank's balance sheet forecast

The Bank’s income cannot be projected without a detailed forecast of the

Bank’s active-passive operations. This valuation is based on the Bank’s

financial model (development strategy) for 2017-2019.

Assets

Loans and advances to customers

This major asset item was projected according to the Bank’s financial model

(development strategy) for 2017-2019 and included the following: loans to

legal entities, loans to individuals and impairment provisions.

Starting from 2020 loans to legal entities were projected by multiplying the

Bank’s share of corporate lending market as of the end 2019 and volume of

the Russian corporate lending market. Loans to individuals were projected by

multiplying the Bank’s share of retail lending market as of the end 2019 and

volume of the Russian retail lending market.

As of the valuation date VTB Bank (PJSC) occupies a 24.0% share of

corporate lending market and 20.8% share of retail lending market.

In accordance with the development strategy, the Bank's financial model

assumes a significant growth in the retail loan portfolio for 2017-2019, which

will allow the Bank to increase its share in the retail lending market to 25.5%.

At the same time, the growth of the Bank’s corporate loan portfolio will

correspond to the growth of the whole Russian corporate lending market (in

accordance with the Consultant's assumptions about the growth of the lending

market), which will allow the Bank to keep its share at the average level of

24.0% for 2017-2018 and increase its share up to 25.0% by the end of 2019.

In accordance with the financial model, by 2019 the provision rate for the

Bank’s retail loan portfolio will be 9.8% and for the corporate loan portfolio –

7.0%. Starting from 2020 provision rates were taken at the level of 2019. The

amount of provision for impairment was calculated on the basis of the Bank’s

gross loans and provision rates.

Analysis of the Bank’s allowances for impairment showed that during 2014-6m

2017 VTB Bank (PJSC) was making significant write-offs on the loan

portfolio. At the same time, in 2018-2019 the Bank's management also expects

write-offs on loans to legal entities and individuals.

Exhibit 50 The Bank's loan portfolio and allowances for impairment in 2014-2019, RUR bln.

Index 2014 2015 2016 6m 17 2017 2018 2019

Loans to legal entities

Loans to legal entities (gross) 7,205.3 8,150.0 7,311.4 7,194.2 7,892.3 8,310.1 9,147.3

Provision for impairment -180.3 -102.3 -99.9 -45.7 -105.5 -102.3 -82.1

Write-offs (+) / Recoveries (-) 1.5 80.0 132.3 48.8 -7.2 79.2 22.4

Allowance for impairment -457.0 -479.3 -446.9 -443.8 -559.6 -582.7 -642.4

Loans to legal entities (net) 6,748.3 7,670.7 6,864.5 6,750.4 7,332.7 7,727.4 8,504.9

Provision for impairment, % from gross loans

2.9% 1.3% 1.3% 1.3% 1.4% 1.3% 0.9%

Write-offs, % from gross loans 0.0% 1.0% 1.7% 1.4% - 1.0% 0.3%

Provision rate,% 6.3% 5.9% 6.1% 6.2% 7.1% 7.0% 7.0%

Loans to individuals

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Index 2014 2015 2016 6m 17 2017 2018 2019

Loans to individuals (gross) 1,945.1 1,960.0 2,175.6 2,321.6 2,648.0 3,226.1 3,820.9

Provision for impairment -75.0 -67.1 -55.8 -26.7 -83.6 -101.1 -130.4

Write-offs (+) / Recoveries (-) 1.8 30.0 63.4 24.4 -35.2 100.1 59.5

Allowance for impairment -156.1 -193.2 -185.6 -187.9 -304.4 -305.4 -376.3

Loans to individuals (net) 1,789.0 1,766.8 1,990.0 2,133.7 2,343.7 2,920.7 3,444.7

Provision for impairment, % from gross loans

4.3% 3.4% 2.7% 2.4% 3.5% 3.4% 3.7%

Write-offs, % from gross loans 0.1% 1.5% 3.1% 2.2% - 3.4% 1.7%

Provision rate.% 8.0% 9.9% 8.5% 8.1% 11.5% 9.5% 9.8%

Source: Bank’s data, Consultant calculations

Considering the constant and significant amounts of the loan portfolio write-

offs in the historical period, as well as write-offs for the period 2018-2019

forecasted in the financial model, the Consultant made the assumption that

starting from 2020 the Bank will annually write-off the part of its loan

portfolio.

The amount of annual write-offs was determined as a percentage of gross loan

portfolio at the level of 2019 (0.3% for the loans to legal entities and 1.7% for

the loans to individuals).

Thus, amount of provision for impairment of loans and advance to customers

over the period is determined as an increase in the allowance for impairment,

taking into account the amount of forecasted write-offs for the same period.

Cash and short-term funds

Analysis of the historical and forecasted changes in the item ‘Cash and short-

term funds’ is presented below.

Exhibit 51 Historical and forecasted changes in cash and short-term assets

Index Unit 2014 2015 2016 6m 17 2017 2018 2019

Cash and short-term investments

RUR bln.

695.2 570.7 452.9 456.8 630.1 754.5 804.9

Cash and short-term investments, % from customer current deposits

% 55.2% 38.7% 26.8% 22.9% 35.1% 34.5% 29.8%

Source: Bank’s data, Consultant calculations

For the period 2017-2019 cash and short-term assets were projected according

to the financial model of the Bank.

Consultant’s analysis concluded that the ratio of cash to current customer

deposits will rise from 22.9% (as of the valuation date) to 35.1% by the end of

2017, and then will gradually decline and reach 29.8% by the end of 2019,

assuming that the Bank will most effectively manage its liquid assets. From

2020 this article was forecasted as the ratio of cash to current customer

deposits at the level of 2019 (29.8%).

Due from other banks

Analysis of the historical and forecasted changes in the item ‘Due from other

banks’ is presented below.

Exhibit 52 Historical and forecasted changes in due from other banks

Index Unit 2014 2015 2016 6m 17 2017 2018 2019

Due from other banks RUR bln. 814.5 1,358.2 1,051.2 1,046.5 771.6 805.0 829.3

Due from other banks, % from customer deposits

% 14.4% 18.7% 14.3% 12.3% 9.0% 8.3% 7.3%

Source: Bank’s data, Consultant calculations

For the period 2017-2019 due from other banks were projected according to

the financial model of the Bank. Overall, the Bank’s management is planning

to reduce the amount of funds deposited in other banks.

Consultant’s analysis also showed that the ratio of due from other banks to

customer deposits will decline from 12.3% (as of the valuation date) to 9.0%

by the end of 2017, and then will gradually decline and reach 7.3% by the end

of 2019, assuming that the Bank will most effectively manage its liquid assets.

From 2020 this article was forecasted as the ratio of due from other banks to

customer deposits at the level of 2019 (7.3%).

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Financial assets at fair value

Analysis of the historical and forecasted changes in the item ‘Financial assets at

fair value’ is presented below.

Exhibit 53 Historical and forecasted changes in financial assets

Index Unit 2014 2015 2016 6m 17 2017 2018 2019

Financial assets at fair value

RUR bln. 998.2 966.2 788.3 781.5 994.1 1,171.2 1,275.8

Financial assets at fair value, % from customer deposits

% 17.6% 13.3% 10.7% 9.2% 11.5% 12.0% 11.3%

Source: Bank’s data, Consultant calculations

Financial assets at fair value were projected according to the financial model of

the Bank for 2017-2019.

Together with the reduction of funds deposited in other banks, the Bank's

financial model assumed an increase in financial assets starting from 2017. At

the same time, the ratio of financial assets to customer deposits will grow from

9.2% (as of the valuation date) to 11.5% by the end of 2017, and then will

reach 11.3% by 2019. From 2020 this article was forecasted as the ratio of

financial assets to customer deposits at the level of 2019 (11.3%).

Investment assets

According to the Bank's financial model this item will growth to RUR 110.7

billion by the end of 2017 and will fixed at this level afterwards. From 2020,

the amount of investment assets has also been assumed to be constant.

Other assets

Other assets were projected according to the financial model of the Bank for

2017-2019. Starting from 2020 the growth of other assets was projected at the

rate of inflation in the Russian Federation.

Liabilities and shareholders’ equity

Customer deposits

This major liability item was projected according to the Bank’s financial model

(development strategy) for 2017-2019 and included the following:

term deposits (legal entities);

current deposits (legal entities);

term deposits (individuals);

current deposits (individuals).

Starting from 2020 deposits of legal entities were projected by multiplying the

Bank’s corporate deposit market share as of the end 2019 and volume of the

Russian corporate deposit market. Deposits of individuals were projected by

multiplying the Bank’s retail deposit market share as of the end 2019 and

volume of the Russian retail deposit market.

In 2016, the Bank’s corporate deposit market share was 17.3%, while its retail

deposit market share was 12.4%. As of the valuation date VTB Bank (PJSC)

occupies a 20.6% share of corporate deposit market and 12.5% share of retail

deposit market.

In accordance with the development strategy, the Bank's financial model

assumes that Group VTB will strengthen its position on the retail deposit

market. The integrated VTB Bank (PJSC) and Post Bank are expected to

become leading players in terms of quality of service and customer loyalty in

their respective sectors. With this as a focus, significantly improving the

quality, convenience and functionality of digital channels, the mobile and the

online bank, is a key priority.

Thus, the Bank’s development strategy assumes a significant growth in

deposits of individuals for 2017-2019, which will allow the Bank to increase its

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share in the retail deposit market from 12.5% (as of the valuation date) to

15.8%.

At the same time, financial model assumes a slight decrease in corporate

deposits by the end of 2017 (compared to the level as of the valuation date),

followed by a slight increase in 2018-2019. According to this projected the

Bank’s corporate deposit market share will be about 18.6% by the end of

2019.

Exhibit 54 Historical and forecasted changes in customer deposits, RUR bln.

Index 2014 2015 2016 6m 17 2017 2018 2019

Corporate deposit market

24,442.6 27,923.4 25,148.8 26,246.1 28,502.4 30,230.4 32,011.8

- as % from GDP 30.9% 33.5% 29.2% 31.2% 31.2% 31.2% 31.2%

VTB Bank’s corporate deposit market share,%

14.4% 15.7% 17.3% 20.6% 17.7% 17.4% 18.6%

VTB Bank’s corporate deposit market share

3,520.3 4,383.6 4,342.3 5,398.6 5,043.6 5,247.7 5,951.6

Retail deposit market 18,552.7 23,219.1 24,200.3 24,897.1 27,037.4 30,255.1 33,801.4

- as % from GDP 23.4% 27.9% 28.1% 29.6% 29.6% 31.2% 33.0%

VTB Bank’s retail deposit market share,%

11.6% 12.4% 12.4% 12.5% 13.2% 14.8% 15.8%

VTB Bank’s retail deposit market share

2,149.1 2,883.4 3,004.3 3,111.9 3,570.5 4,483.0 5,355.8

VTB Bank’s deposit market share,%

13.2% 14.2% 14.9% 16.6% 15.5% 16.1% 17.2%

Source: Bank’s data, Consultant calculations

The ratio between term deposits and current deposits for each group of

customers for 2014-2019 is presented below. Starting from 2020 the ratio

between term deposits and current deposits for each group of customers was

fixed at the level of 2019.

Exhibit 55 Ratio between term deposits and current deposits for each group of customers, %

Index 2014 2015 2016 6m 17 2017 2018 2019

Legal entities

Current deposits 24.7% 23.0% 24.5% 23.9% 21.4% 24.5% 27.6%

Term deposits 75.3% 77.0% 75.5% 76.1% 78.6% 75.5% 72.4%

Individuals

Current deposits 18.2% 16.2% 20.9% 22.5% 20.1% 20.0% 19.8%

Term deposits 81.8% 83.8% 79.1% 77.5% 79.9% 80.0% 80.2%

Total

Index 2014 2015 2016 6m 17 2017 2018 2019

Current deposits 22.2% 20.3% 23.0% 23.4% 20.8% 22.5% 23.9%

Term deposits 77.8% 79.7% 77.0% 76.6% 79.2% 77.5% 76.1%

Source: Bank’s data, Consultant calculations

Due to other banks and other borrowed funds

Due to other banks and other borrowed funds were projected according to the

financial model of the Bank for 2017-2019.

Starting from 2020 due to other banks liabilities item served as one of a

balance sheet ‘plug’. In other words, it was assumed that this short-term

liquidity source will be used by the Bank to finance part of activity operations

that are not covered by own funds (equity), customer accounts or debt

securities issued. The percentage of funds required from the market (that is,

those that are not covered by customer accounts and debt securities issued)

was projected at the level of 2019 (84.7%).

Exhibit 56 Due to other banks and other borrowed funds analysis, RUR bln.

Index 2014 2015 2016 6m 17 2017 2018 2019

+ Assets 12,190.8 13,641.9 12,588.2 12,608.9 13,575.5 14,900.6 16,393.4

- Equity 1,131.0 1,454.1 1,412.9 1,432.3 1,485.4 1,625.7 1,793.1

- Liabilities (without funds required from the market)

6,676.0 8,218.8 8,259.6 9,399.8 9,660.6 10,728.0 12,373.4

= funds required from the market (due to other banks and debt securities issued)

4,383.8 3,969.0 2,915.7 1,776.8 2,429.4 2,546.8 2,226.9

Due to other banks 3,462.4 3,345.5 2,516.1 1,413.4 2,070.8 2,206.5 1,885.4

Due to other banks, % from total funds required from the market

79.0% 84.3% 86.3% 79.5% 85.2% 86.6% 84.7%

Source: Bank’s data, Consultant calculations

Debt securities issued

Debt securities issued were projected according to the financial model of the

Bank for 2017-2019.

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Starting from 2020 this item served as one of a balance sheet ‘plug’. In other

words, it was assumed that this short-term liquidity source will be used by the

Bank to finance part of activity operations that are not covered by own funds

(equity), customer accounts or due to other banks. The percentage of funds

required from the market (that is, those that are not covered by customer

accounts and due to other banks) was projected at the level of 2019 (15.3%).

Exhibit 57 Debt securities issued analysis, RUR bln.

Index 2014 2015 2016 6m 17 2017 2018 2019

+ Assets 12,190.8 13,641.9 12,588.2 12,608.9 13,575.5 14,900.6 16,393.4

- Equity 1,131.0 1,454.1 1,412.9 1,432.3 1,485.4 1,625.7 1,793.1

- Liabilities (without funds required from the market)

6,676.0 8,218.8 8,259.6 9,399.8 9,660.6 10,728.0 12,373.4

= funds required from the market (due to other banks and debt securities issued)

4,383.8 3,969.0 2,915.7 1,776.8 2,429.4 2,546.8 2,226.9

Debt securities issued 921.4 623.5 399.6 363.4 358.6 340.4 341.5

Debt securities issued, % from total funds required from the market

21.0% 15.7% 13.7% 20.5% 14.8% 13.4% 15.3%

Source: Bank’s data, calculations of the Consultant

Subordinated debt

As of the valuation date subordinated debt of the Bank amounts to RUR 195.7

billion. According to the Bank's financial model this item will growth to RUR

202.3 billion by the end of 2017 and will fixed at this level afterwards. From

2020, the amount of subordinated debt has also been assumed to be constant.

Other liabilities

Other liabilities were projected according to the financial model of the Bank

for 2017-2019. Starting from 2020 the growth of other liabilities was projected

at the rate of inflation in the Russian Federation.

Shareholders’ equity

The Bank's shareholders’ equity as of the valuation date is represented by

share capital, retained earnings and other funds.

The amount of share capital, as well as retained earnings and other funds for

2017-2019 was projected according to the financial model of the Bank.

Starting from 2020 retained earnings served as equity “plug”. The amount of

equity was projected with regard to all applicable capital adequacy

requirements. The Consultant assumed that the capital adequacy of the Bank

would not fall below the level of 10.00%. Thus, the bank will maintain capital

at the level of 10.00% - the minimum capital adequacy ratio of 8.00% plus 2%

as a "buffer".

For the period 2017-2019 capital adequacy of the Bank was determined on the

basis of the book value of equity (capital) forecasted according to VTB Bank's

financial model for 2017-2019 and the estimated value of regulatory capital

determined in accordance with the Basel capital adequacy requirements and

the new requirements of the Bank of Russia. Over 2017-2019 capital adequacy

ratio (H1.0) almost equals to 10.0%.

When the target capital adequacy ratio (10.0%) was determined, the

Consultant calculated the risk-weighted assets and regulatory capital

determined in accordance with the Basel capital adequacy requirements and

the new requirements of the Bank of Russia.

Non-controlling interests

Non-controlling interests were projected according to the financial model of

the Bank for 2017-2019. From 2020, the amount of non-controlling interests

has been assumed to be constant.

Results and supporting calculations are presented further.

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Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC) RUSSIAN APPRAISAL

Exhibit 58 Projected balance of VTB Bank (PJSC), RUR billion

Index 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Cash and short-term funds 630.1 754.5 804.9 868.2 937.5 1,010.3 1,086.3 1,168.5 1,257.8 1,354.9

Due from other banks 771.6 805.0 829.3 898.4 974.4 1,054.8 1,139.2 1,230.9 1,330.9 1,440.1

Loans and advances to customers 9,676.3 10,648.1 11,949.6 12,787.8 13,697.2 14,637.3 15,603.6 16,636.4 17,746.0 18,938.7

Investment assets 110.7 110.6 110.7 110.7 110.7 110.7 110.7 110.7 110.7 110.7

Financial assets at fair value 994.1 1,171.2 1,275.8 1,382.1 1,499.1 1,622.6 1,752.5 1,893.6 2,047.4 2,215.4

Other assets 1,392.7 1,411.2 1,423.1 1,482.2 1,545.0 1,606.8 1,671.0 1,737.9 1,807.4 1,879.7

Total assets 13,575.5 14,900.6 16,393.4 17,529.5 18,763.9 20,042.5 21,363.3 22,777.9 24,300.2 25,939.4

Due to other banks and other borrowings 2,070.8 2,206.5 1,885.4 1,902.2 1,926.7 1,935.2 1,926.6 1,903.2 1,863.3 1,804.2

Customer deposits 8,614.1 9,730.7 11,307.4 12,250.1 13,286.8 14,381.8 15,532.9 16,783.2 18,147.0 19,635.5

Debt securities issued 358.6 340.4 341.5 344.5 349.0 350.5 348.9 344.7 337.5 326.8

Subordinated debt 202.3 202.3 202.3 202.3 202.3 202.3 202.3 202.3 202.3 202.3

Other liabilities 844.2 795.1 863.7 899.5 937.6 975.1 1,014.1 1,054.7 1,096.9 1,140.7

Total liabilities 12,090.1 13,274.9 14,600.3 15,598.6 16,702.3 17,844.9 19,024.8 20,288.0 21,646.8 23,109.4

Share capital 1,093.3 1,093.3 1,093.3 1,093.3 1,093.3 1,093.3 1,093.3 1,093.3 1,093.3 1,093.3

Retained earnings and other 390.4 530.7 698.1 835.9 966.6 1,102.6 1,243.6 1,395.0 1,558.4 1,735.0

Total shareholders’ equity 1,483.7 1,624.0 1,791.4 1,929.2 2,059.9 2,195.9 2,336.9 2,488.3 2,651.7 2,828.3

Non-controlling interests 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7

Total equity 1,485.4 1,625.7 1,793.1 1,930.9 2,061.6 2,197.6 2,338.5 2,490.0 2,653.4 2,830.0

Total liabilities and equity 13,575.5 14,900.6 16,393.4 17,529.5 18,763.9 20,042.5 21,363.3 22,777.9 24,300.2 25,939.4

Source: calculations of the Consultant

Exhibit 59 Supporting charts for projection balance sheet calculations, RUR billion

Index Unit 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Cash and short-term funds bln. RUB 630.1 754.5 804.9 868.2 937.5 1,010.3 1,086.3 1,168.5 1,257.8 1,354.9

Current deposits bln. RUB 1,795.7 2,184.7 2,702.4 2,914.8 3,147.6 3,391.9 3,647.0 3,923.0 4,222.9 4,548.9

Cash and short-term investments, % from current customer deposits % 35.1% 34.5% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8%

Due from other banks bln. RUB 771.6 805.0 829.3 898.4 974.4 1,054.8 1,139.2 1,230.9 1,330.9 1,440.1

Customer deposits bln. RUB 8,614.1 9,730.7 11,307.4 12,250.1 13,286.8 14,381.8 15,532.9 16,783.2 18,147.0 19,635.5

Due from other banks, % from customer deposits % 9.0% 8.3% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3%

Financial assets at fair value 994.1 1,171.2 1,275.8 1,382.1 1,499.1 1,622.6 1,752.5 1,893.6 2,047.4 2,215.4

Financial assets at fair value, % from customer deposits % 11.5% 12.0% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3%

Loans and advances to customers (net) bln. RUB 9,676.3 10,648.1 11,949.6 12,787.8 13,697.2 14,637.3 15,603.6 16,636.4 17,746.0 18,938.7

Loans and advances to customers (gross) bln. RUB 10,540.3 11,536.2 12,968.2 13,882.1 14,873.7 15,899.5 16,954.3 18,082.3 19,294.5 20,597.9

Allowance for impairment bln. RUB -864.0 -888.1 -1,018.6 -1,094.2 -1,176.5 -1,262.1 -1,350.7 -1,445.8 -1,548.5 -1,659.2

Provision for impairment bln. RUB -189.1 -203.4 -212.5 -167.6 -182.9 -195.5 -208.3 -225.3 -244.3 -265.0

Legal entities bln. RUB -105.5 -102.3 -82.1 -60.0 -63.7 -65.2 -66.3 -69.4 -72.9 -76.5

Individuals bln. RUB -83.6 -101.1 -130.4 -107.6 -119.2 -130.3 -142.0 -155.9 -171.4 -188.5

Other bln. RUB

Loans to legal entities (net) bln. RUB 7,332.7 7,727.4 8,504.9 8,979.7 9,485.4 9,991.9 10,494.9 11,019.8 11,571.0 12,149.8

Loans to legal entities (gross) bln. RUB 7,892.3 8,310.1 9,147.3 9,658.0 10,201.9 10,746.7 11,287.6 11,852.2 12,445.0 13,067.5

Provision for impairment bln. RUB -105.5 -102.3 -82.1 -60.0 -63.7 -65.2 -66.3 -69.4 -72.9 -76.5

Write-offs (+) / Recoveries (-) bln. RUB -7.2 79.2 22.4 24.2 25.5 26.9 28.3 29.7 31.2 32.8

Allowance for impairment bln. RUB -559.6 -582.7 -642.4 -678.3 -716.5 -754.7 -792.7 -832.4 -874.0 -917.7

Loans to legal entities (net) bln. RUB 7,332.7 7,727.4 8,504.9 8,979.7 9,485.4 9,991.9 10,494.9 11,019.8 11,571.0 12,149.8

Provision for impairment, % from gross loans % 1.4% 1.3% 0.9% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%

Write-offs, % from gross loans % - 1.0% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%

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Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC) RUSSIAN APPRAISAL

Index Unit 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Provision rate,% % 7.1% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%

Loans to individuals (net) bln. RUB 2,343.7 2,920.7 3,444.7 3,808.1 4,211.8 4,645.4 5,108.7 5,616.6 6,175.0 6,788.9

Loans to individuals (gross) bln. RUB 2,648.0 3,226.1 3,820.9 4,224.1 4,671.8 5,152.8 5,666.7 6,230.1 6,849.5 7,530.4

Provision for impairment bln. RUB -83.6 -101.1 -130.4 -107.6 -119.2 -130.3 -142.0 -155.9 -171.4 -188.5

Write-offs (+) / Recoveries (-) bln. RUB -35.2 100.1 59.5 67.9 75.1 82.9 91.3 100.4 110.4 121.4

Allowance for impairment bln. RUB -304.4 -305.4 -376.3 -415.9 -460.0 -507.4 -558.0 -613.5 -674.5 -741.5

Loans to individuals (net) bln. RUB 2,343.7 2,920.7 3,444.7 3,808.1 4,211.8 4,645.4 5,108.7 5,616.6 6,175.0 6,788.9

Provision for impairment, % from gross loans % 3.5% 3.4% 3.7% 2.7% 2.7% 2.7% 2.6% 2.6% 2.6% 2.6%

Write-offs, % from gross loans % - 3.4% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%

Provision rate.% % 11.5% 9.5% 9.8% 9.8% 9.8% 9.8% 9.8% 9.8% 9.8% 9.8%

Other assets bln. RUB 1,392.7 1,411.2 1,423.1 1,482.2 1,545.0 1,606.8 1,671.0 1,737.9 1,807.4 1,879.7

The growth rate of other assets % 3.3% 1.3% 0.8% 4.2% 4.2% 4.0% 4.0% 4.0% 4.0% 4.0%

Other assets,% of total assets % 11.4% 10.5% 9.5% 9.2% 9.0% 8.7% 8.5% 8.3% 8.0% 7.8%

Other liabilities bln. RUB 844.2 795.1 863.7 899.5 937.6 975.1 1,014.1 1,054.7 1,096.9 1,140.7

Growth rate of other liabilities % 22.5% -5.8% 8.6% 4.2% 4.2% 4.0% 4.0% 4.0% 4.0% 4.0%

Customer deposits bln. RUB 8,614.1 9,730.7 11,307.4 12,250.1 13,286.8 14,381.8 15,532.9 16,783.2 18,147.0 19,635.5

Legal entities bln. RUB 5,043.6 5,247.7 5,951.6 6,283.9 6,637.8 6,992.2 7,344.2 7,711.5 8,097.3 8,502.3

Current deposits bln. RUB 1,079.3 1,287.2 1,643.7 1,735.4 1,833.2 1,931.0 2,028.2 2,129.7 2,236.2 2,348.1

Term deposits bln. RUB 3,964.3 3,960.5 4,308.0 4,548.5 4,804.6 5,061.2 5,315.9 5,581.8 5,861.0 6,154.2

Individuals bln. RUB 3,570.5 4,483.0 5,355.8 5,966.1 6,649.0 7,389.6 8,188.8 9,071.6 10,049.7 11,133.2

Current deposits bln. RUB 716.4 897.6 1,058.8 1,179.4 1,314.4 1,460.8 1,618.8 1,793.3 1,986.7 2,200.9

Term deposits bln. RUB 2,854.1 3,585.5 4,297.1 4,786.7 5,334.6 5,928.8 6,570.0 7,278.3 8,063.0 8,932.4

Total

Current deposits bln. RUB 1,795.7 2,184.7 2,702.4 2,914.8 3,147.6 3,391.9 3,647.0 3,923.0 4,222.9 4,548.9

Term deposits bln. RUB 6,818.4 7,546.0 8,605.0 9,335.2 10,139.2 10,990.0 11,885.9 12,860.2 13,924.1 15,086.6

Legal entities

Current deposits % 21.4% 24.5% 27.6% 27.6% 27.6% 27.6% 27.6% 27.6% 27.6% 27.6%

Term deposits % 78.6% 75.5% 72.4% 72.4% 72.4% 72.4% 72.4% 72.4% 72.4% 72.4%

Individuals

Current deposits % 20.1% 20.0% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8%

Term deposits % 79.9% 80.0% 80.2% 80.2% 80.2% 80.2% 80.2% 80.2% 80.2% 80.2%

Total

Current deposits % 20.8% 22.5% 23.9% 23.8% 23.7% 23.6% 23.5% 23.4% 23.3% 23.2%

Term deposits % 79.2% 77.5% 76.1% 76.2% 76.3% 76.4% 76.5% 76.6% 76.7% 76.8%

Share capital calculation

Regulatory capital bln. RUB 1,023.6 1,107.3 1,241.2 1,345.1 1,438.4 1,534.8 1,634.3 1,740.6 1,854.9 1,977.8

Equity bln. RUB 1,485.4 1,625.7 1,793.1 1,930.9 2,061.6 2,197.6 2,338.5 2,490.0 2,653.4 2,830.0

Regulatory capital / Equity % 68.9% 68.1% 69.2% 69.7% 69.8% 69.8% 69.9% 69.9% 69.9% 69.9%

Equity/Assets % 10.9% 10.9% 10.9% 11.0% 11.0% 11.0% 10.9% 10.9% 10.9% 10.9%

Capital adequacy ratio % 9.9% 9.7% 9.9% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%

Assets bln. RUB 13,575 14,901 16,393 17,530 18,764 20,042 21,363 22,778 24,300 25,939

RWA bln. RUB 10,383 11,377 12,591 13,451 14,384 15,348 16,343 17,406 18,549 19,778

RWA / Assets % 76.5% 76.4% 76.8% 76.7% 76.7% 76.6% 76.5% 76.4% 76.3% 76.2%

Nominal value of preferred shares bln. RUB 521.4 521.4 521.4 521.4 521.4 521.4 521.4 521.4 521.4 521.4

- issue 2014 bln. RUB 214.0 214.0 214.0 214.0 214.0 214.0 214.0 214.0 214.0 214.0

- issue 2015 bln. RUB 307.4 307.4 307.4 307.4 307.4 307.4 307.4 307.4 307.4 307.4

Perpetual loan participation notes bln. RUB 132.9 132.9 132.9 132.9 132.9 132.9 132.9 132.9 132.9 132.9

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Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC) RUSSIAN APPRAISAL

Index Unit 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Balance sheet ‘plug’ calculation

+ Assets bln. RUB 13,575.5 14,900.6 16,393.4 17,529.5 18,763.9 20,042.5 21,363.3 22,777.9 24,300.2 25,939.4

- Equity bln. RUB 1,485.4 1,625.7 1,793.1 1,930.9 2,061.6 2,197.6 2,338.5 2,490.0 2,653.4 2,830.0

- Liabilities (without funds required from the market) bln. RUB 12,090.1 13,274.9 14,600.3 13,351.8 14,426.6 15,559.2 16,749.3 18,040.1 19,446.1 20,978.5

=Funds required from the market bln. RUB 0.0 0.0 0.0 2,246.8 2,275.7 2,285.7 2,275.5 2,247.9 2,200.7 2,130.9

Funds required from the market bln. RUB 2,429.4 2,546.8 2,226.9 2,246.8 2,275.7 2,285.7 2,275.5 2,247.9 2,200.7 2,130.9

Funds required from the market (current funds) bln. RUB 2,429.4 2,546.8 2,226.9 - - - - - - -

Due to other banks bln. RUB 2,070.8 2,206.5 1,885.4

Debt securities issued bln. RUB 358.6 340.4 341.5

Due to other banks % 85.2% 86.6% 84.7% 84.7% 84.7% 84.7% 84.7% 84.7% 84.7% 84.7%

Debt securities issued % 14.8% 13.4% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3% 15.3%

Funds required from the market (additional funds) bln. RUB 0.0 0.0 0.0 2,246.8 2,275.7 2,285.7 2,275.5 2,247.9 2,200.7 2,130.9

Due to other banks bln. RUB 0.0 0.0 0.0 1,902.2 1,926.7 1,935.2 1,926.6 1,903.2 1,863.3 1,804.2

Debt securities issued bln. RUB 0.0 0.0 0.0 344.5 349.0 350.5 348.9 344.7 337.5 326.8

Off-balance sheet assets (loan commitments) 1,103.2 1,214.0 1,362.4 1,458.0 1,561.7 1,668.8 1,779.0 1,896.8 2,023.3 2,159.2

% from the loan portfolio % 11.4% 11.4% 11.4% 11.4% 11.4% 11.4% 11.4% 11.4% 11.4% 11.4%

Source: calculations of the Consultant

Page 45: Valuation of VTB Bank (PJSC) · _____ Alexander Ivanov. 3 Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC)

45

Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC) RUSSIAN APPRAISAL

The Bank's income statement forecast

Forecast of the Bank’s income statement is based on the projected balance

sheet. The Bank’s income statement was forecasted according to the financial

model of VTB Bank for 2017-2019 with some adjustments.

Interest income

Projection of interest income included forecast of the following items:

interest income on loans to legal entities;

interest income on loans to individuals;

interest income on due from banks;

interest income on financial assets.

Each interest income item was projected as an average annual value of the

relevant type of assets (projection of which is described in the section above)

multiplied by corresponding effective interest rate calculated according to the

financial model of VTB Bank (PJSC) for 2017-2019. From 2020 effective

interest rate for each item was calculated as effective interest rate for the

previous period, adjusted for inflation change in the Russian Federation.

Exhibit 60 Dynamics of interest rates (lending) over 2014-2019 Index 2014 2015 2016 6m 17 2017 2018 2019

Loans to legal entities (mid-year), RUR bln.

5,785.0 7,209.5 7,267.6 6,807.5 7,098.6 7,530.0 8,116.1

Interest income on loans to legal entities, RUR bln.

525.5 726.0 716.4 326.3 656.2 660.8 672.9

effective interest rate,% 9.1% 10.1% 9.9% 9.6% 9.2% 8.8% 8.3%

Loans to individuals (mid-year), RUR bln.

1,613.5 1,777.9 1,878.4 2,061.9 2,166.8 2,632.2 3,182.7

Interest income on loans to individuals, RUR bln.

267.3 285.7 301.4 159.6 334.9 386.4 442.5

effective interest rate,% 16.6% 16.1% 16.0% 15.6% 15.5% 14.7% 13.9%

Due from banks (mid-year), RUR bln

630.4 1,086.4 1,204.7 1,048.9 911.4 788.3 817.1

Interest income on due from banks, RUR bln

12.5 51.5 48.0 24.1 35.0 37.8 37.0

effective interest rate,% 2.0% 4.7% 4.0% 4.6% 3.8% 4.8% 4.5%

Financial assets (mid-year), RUR bln

863.8 982.2 877.3 784.9 891.2 1,082.6 1,223.5

Index 2014 2015 2016 6m 17 2017 2018 2019

Interest income on financial assets, RUR bln

38.8 37.7 42.0 19.9 32.8 42.8 47.6

effective interest rate,% 4.5% 3.8% 4.8% 5.1% 3.7% 3.9% 3.9%

Source: Bank’s data, calculations of the Consultant

Interest expenses

Projection of interest expenses included forecast of the following items:

interest expenses on term deposits (legal entities);

interest expenses on current deposits (legal entities);

interest expenses on term deposits (individuals);

interest expenses on current deposits (individuals).

interest expenses on issued debt securities;

interest expenses on due to banks;

interest expenses on subordinated loans.

Each interest expenses item was projected as an average annual value of the

relevant type of liabilities (projection of which is described in the section

above) multiplied by corresponding effective interest rate calculated according

to the financial model of VTB Bank (PJSC) for 2017-2019. From 2020

effective interest rate for each item was calculated as effective interest rate for

the previous period, adjusted for inflation change in the Russian Federation.

Exhibit 61 Dynamics of interest rates (borrowing) over 2014-2019

Index 2014 2015 2016 6m 17 2017 2018 2019

Term deposits of individuals (mid-year), RUR bln.

1,607.5 2,088.2 2,397.1 2,394.4 2,615.3 3,219.8 3,941.3

Interest expenses on term deposits (individuals), RUR bln.

-99.0 -156.0 -162.3 -72.9 -160.5 -184.9 -204.4

effective interest rate,% 6.2% 7.5% 6.8% 6.1% 6.1% 5.7% 5.2%

Current deposits of individuals (mid-year), RUR bln.

363.8 428.1 546.8 663.8 672.1 807.0 978.2

Interest expense on current deposits of individuals

-2.1 -2.2 -2.4 -1.9 -7.6 -13.1 -16.9

effective interest rate,% 0.6% 0.5% 0.4% 0.6% 1.1% 1.6% 1.7%

Term deposits of legal entities (mid-year)

2,181.4 3,013.3 3,327.9 3,693.9 3,622.4 3,962.4 4,134.2

Interest expense on term deposits of legal entities

-165.7 -277.8 -305.0 -142.9 -283.9 -228.9 -203.1

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46

Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC) RUSSIAN APPRAISAL

Index 2014 2015 2016 6m 17 2017 2018 2019

effective interest rate,% 7.6% 9.2% 9.2% 7.8% 7.8% 5.8% 4.9%

Current deposits of legal entities (mid-year)

873.8 938.7 1,035.1 1,176.6 1,070.6 1,183.3 1,465.4

Interest expense on current deposits of legal entities

-3.1 -14.4 -17.2 -5.1 -12.4 -11.8 -14.7

effective interest rate,% 0.4% 1.5% 1.7% 0.9% 1.2% 1.0% 1.0%

Due to banks and other borrowed funds (mid-year)

2,786.5 3,404.0 2,930.8 1,964.8 2,293.5 2,138.6 2,045.9

Interest expense on due to banks -156.5 -287.5 -151.9 -58.8 -141.9 -140.9 -115.1

effective interest rate,% 5.6% 8.4% 5.2% 6.0% 6.2% 6.6% 5.6%

Debt securities issued (mid-year) 829.8 772.5 511.6 381.5 379.1 349.5 340.9

Interest expense on debt securities issued

-50.9 -49.9 -32.4 -13.0 -20.8 -12.0 -11.6

effective interest rate,% 6.1% 6.5% 6.3% 6.9% 5.5% 3.4% 3.4%

Subordinated loans (mid-year) 278.1 264.0 243.5 209.9 213.2 202.3 202.3

Interest expense on subordinated loans

-19.3 -24.1 -21.5 -8.3 -15.3 -15.0 -15.0

effective interest rate,% 6.9% 9.1% 8.8% 8.0% 7.2% 7.4% 7.4%

Source: Bank’s data, calculations of the Consultant

Provisions for assets impairment

Provision charge for assets impairment was forecasted according to the

financial model of VTB Bank for 2017-2019.

Starting from 2020 provision charge for impairment of assets was projected as

an increase in allowance for impairment of interest-bearing assets (loans and

advances to customers), taking into account forecasted write-offs of loans for

the relevant period.

Net fee and commission income

Net fee and commission income was projected according to the financial

model of the Bank for 2017-2019. The financial model (development strategy)

of VTB Group assumes a significant growth of net fee and commission

income.

As a result the ratio of net fee and commission income to the average annual

assets of the Bank will grow to 0.93% by the end of 2019, while in the

analyzed historical period this ratio was about 0.63%.

From 2020 net fee and commission income was projected as average annual

assets of the Bank multiplied by the ratio NFCI/ Assets of 2019 (0.93%).

Exhibit 62 Net fee and commission income analysis

Index Unit 2017 2018 2019

Net fee and commission income RUR bln. 109.6 130.8 145.9

Average annual assets RUR bln. 13,081.8 14,238.0 15,647.0

NFCI/ Assets % 0.84% 0.92% 0.93%

Source: Bank’s data, calculations of the Consultant

Other non-interest income

Other non-interest income was forecasted according to the financial model of

VTB Bank for 2017-2019. Starting from 2020 other non-interest income (net

of expenses) was projected as a percentage of the average annual assets of the

Bank at 0.50% (level of 2019).

Exhibit 63 Other non-interest income analysis

Index Unit 2017 2018 2019

Other non-interest income RUR bln. 53.8 57.4 78.8

Average annual assets RUR bln. 13,081.8 14,238.0 15,647.0

Other non-interest income / Assets % 0.41% 0.40% 0.50%

Source: Bank’s data, calculations of the Consultant

Staff costs and administrative expenses

As was mentioned above the financial model (development strategy) of VTB

Group for 2017-2019 assumes significant optimization of the Group's

operating expenses.

A large contribution to improving the efficiency of VTB Group's operations

will be provided by the merger of VTB Bank and VTB24.

According to the development strategy merging VTB Bank and VTB24 into

an integrated bank is a key strategic project in the new three-year strategy. The

initiative is expected to improve the Group’s management structure

by creating a single, highly-competitive entity, efficiently leveraging its business

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lines to deliver common objectives. The merger will also enable the Group

to streamline costs and improve its overall financial results.

Based on the context for determining the market value of the valuation object

and the technical assignment to the Agreement №17 BI 125 RO, VTB Bank's

valuation was carried out without taking into account the synergies effect from

the merger of the two banks.

Thus, VTB Bank's operating expenses starting from 2017 was determined

based on the CIR (cost-to-income ratio) of 44.7% (average for 2016-6 m 2017,

since the value only for 6m 2017 is not indicative).

Exhibit 64 CIR analysis, %

Index 2014 2015 2016 6m 2017

CIR (cost-to-income ratio), % 42.0% 54.3% 45.1% 44.4%

Source: Bank’s data, calculations of the Consultant

Net income

Income tax expenses for 2017-2019 were projected according to the effective

income tax rate from the financial model of the Bank. Starting from 2020 the

effective income tax rate is set at 20% in accordance with the legislation of the

Russian Federation.

Results of the Bank's income statement forecast and supporting calculations are presented further.

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Exhibit 65 Projected income statement of VTB Bank (PJSC), RUR billion

Index 2H 2017 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Interest income 528.9 1,058.8 1,127.7 1,200.0 1,304.1 1,417.5 1,486.6 1,596.4 1,712.6 1,838.1 1,973.7

Interest expenses -339.6 -642.4 -606.5 -580.7 -607.1 -662.2 -670.5 -715.8 -763.4 -814.5 -869.4

Net interest income 189.3 416.4 521.2 619.3 697.0 755.3 816.0 880.6 949.2 1,023.6 1,104.3

Provision charge for impairment of assets -113.1 -189.1 -203.4 -212.5 -167.6 -182.9 -195.5 -208.3 -225.3 -244.3 -265.0

Net interest income after provisions for impairment 76.2 227.3 317.8 406.8 529.3 572.4 620.6 672.3 723.9 779.3 839.4

Net fee and commission income 66.5 109.6 130.8 145.9 158.1 169.2 180.9 193.0 205.8 219.4 234.2

Non-interest gains 47.6 53.8 57.4 78.8 85.4 91.4 97.7 104.3 111.1 118.5 126.5

Staff costs and administrative expenses -136.8 -259.4 -317.4 -377.6 -420.8 -454.5 -489.8 -527.0 -566.5 -609.2 -655.5

Profit/(loss) before tax 53.5 131.3 188.6 253.9 352.1 378.4 409.4 442.6 474.3 508.1 544.6

Income tax expense -8.7 -28.6 -46.2 -55.9 -70.4 -75.7 -81.9 -88.5 -94.9 -101.6 -108.9

Net profit/(loss) after tax 44.7 102.6 142.4 198.0 281.6 302.7 327.5 354.1 379.5 406.5 435.7

Source: calculations of the Consultant

Exhibit 66 Supporting calculations for projected income statement

Index Unit 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Net interest income bln. RUB 416.4 521.2 619.3 697.0 755.3 816.0 880.6 949.2 1,023.6 1,104.3

Interest income bln. RUB 1,058.8 1,127.7 1,200.0 1,304.1 1,417.5 1,486.6 1,596.4 1,712.6 1,838.1 1,973.7

Loans to individuals bln. RUB 334.9 386.4 442.5 500.3 556.5 604.3 665.5 731.7 804.5 884.5

Loans to legal entities bln. RUB 656.2 660.8 672.9 715.4 763.2 782.3 822.8 864.1 907.4 952.8

Due from other banks bln. RUB 35.0 37.8 37.0 38.2 42.1 43.3 46.8 50.6 54.6 59.1

Financial assets bln. RUB 32.8 42.8 47.6 50.3 55.7 56.7 61.3 66.2 71.6 77.4

Effective interest rates (interest income)

Loans to individuals % 15.5% 14.7% 13.9% 13.8% 13.9% 13.6% 13.6% 13.6% 13.6% 13.6%

Loans to legal entities % 9.2% 8.8% 8.3% 8.2% 8.3% 8.0% 8.0% 8.0% 8.0% 8.0%

Due from other banks % 3.8% 4.8% 4.5% 4.4% 4.5% 4.3% 4.3% 4.3% 4.3% 4.3%

Financial assets % 3.7% 3.9% 3.9% 3.8% 3.9% 3.6% 3.6% 3.6% 3.6% 3.6%

Interest expenses bln. RUB -642.4 -606.5 -580.7 -607.1 -662.2 -670.5 -715.8 -763.4 -814.5 -869.4

Deposits to individuals bln. RUB -168.1 -198.0 -221.3 -248.7 -282.4 -297.9 -330.6 -366.3 -405.8 -449.5

Current deposits bln. RUB -7.6 -13.1 -16.9 -18.2 -21.3 -20.4 -22.7 -25.1 -27.8 -30.8

Term deposits bln. RUB -160.5 -184.9 -204.4 -230.6 -261.1 -277.5 -307.9 -341.1 -377.9 -418.7

Deposits to legal entities bln. RUB -296.3 -240.7 -217.7 -227.8 -246.0 -243.5 -256.2 -269.0 -282.5 -296.6

Current accounts bln. RUB -12.4 -11.8 -14.7 -15.1 -17.4 -14.0 -14.7 -15.5 -16.2 -17.0

Urgent accounts bln. RUB -283.9 -228.9 -203.1 -212.7 -228.5 -229.5 -241.4 -253.6 -266.2 -279.6

Due to banks and other borrowed funds bln. RUB -141.9 -140.9 -115.1 -104.5 -107.3 -103.7 -103.7 -102.8 -101.1 -98.5

Debt securities issued bln. RUB -20.8 -12.0 -11.6 -11.3 -11.7 -11.0 -11.0 -10.9 -10.7 -10.4

Subordinated debt bln. RUB -15.3 -15.0 -15.0 -14.7 -14.9 -14.4 -14.4 -14.4 -14.4 -14.4

Effective interest rates (interest expenses)

Deposits to individuals % 5.1% 4.9% 4.5% 4.4% 4.5% 4.2% 4.2% 4.2% 4.2% 4.2%

Current deposits % 1.1% 1.6% 1.7% 1.6% 1.7% 1.5% 1.5% 1.5% 1.5% 1.5%

Term deposits % 6.1% 5.7% 5.2% 5.1% 5.2% 4.9% 4.9% 4.9% 4.9% 4.9%

Deposits to legal entities % 6.3% 4.7% 3.9% 3.7% 3.8% 3.6% 3.6% 3.6% 3.6% 3.6%

Current accounts % 1.2% 1.0% 1.0% 0.9% 1.0% 0.7% 0.7% 0.7% 0.7% 0.7%

Urgent accounts % 7.8% 5.8% 4.9% 4.8% 4.9% 4.7% 4.7% 4.7% 4.7% 4.7%

Due to banks and other borrowed funds % 6.2% 6.6% 5.6% 5.5% 5.6% 5.4% 5.4% 5.4% 5.4% 5.4%

Debt securities issued % 5.5% 3.4% 3.4% 3.3% 3.4% 3.1% 3.1% 3.1% 3.1% 3.1%

Subordinated debt % 7.2% 7.4% 7.4% 7.3% 7.4% 7.1% 7.1% 7.1% 7.1% 7.1%

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Index Unit 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Net fee and commission income bln. RUB 109.6 130.8 145.9 158.1 169.2 180.9 193.0 205.8 219.4 234.2

Average annual assets bln. RUB 13,081.8 14,238.0 15,647.0 16,961.5 18,146.7 19,403.2 20,702.9 22,070.6 23,539.1 25,119.8

NFCI/ Assets % 0.84% 0.92% 0.93% 0.93% 0.93% 0.93% 0.93% 0.93% 0.93% 0.93%

Staff costs and administrative expenses bln. RUB -259.4 -317.4 -377.6 -420.8 -454.5 -489.8 -527.0 -566.5 -609.2 -655.5

CIR (cost-to-income ratio), % % 44.7% 44.7% 44.7% 44.7% 44.7% 44.7% 44.7% 44.7% 44.7% 44.7%

Other non-interest income bln. RUB 53.8 57.4 78.8 85.4 91.4 97.7 104.3 111.1 118.5 126.5

Average annual assets bln. RUB 13,081.8 14,238.0 15,647.0 16,961.5 18,146.7 19,403.2 20,702.9 22,070.6 23,539.1 25,119.8

Other non-interest income / Assets % 0.41% 0.40% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%

Income tax expense

Profit before taxation bln. RUB 131.3 188.6 253.9 352.1 378.4 409.4 442.6 474.3 508.1 544.6

Income tax expense bln. RUB -28.6 -46.2 -55.9 -70.4 -75.7 -81.9 -88.5 -94.9 -101.6 -108.9

Effective tax rate % 21.8% 24.5% 22.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

Source: calculations of the Consultant

Exhibit 67 Analysis of key indicators of the projection income statement, %

Index 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

ROE 7.08% 9.15% 11.58% 15.13% 15.17% 15.38% 15.61% 15.72% 15.81% 15.89%

ROA 0.78% 1.00% 1.27% 1.66% 1.67% 1.69% 1.71% 1.72% 1.73% 1.73%

Net interest margin 3.76% 4.33% 4.64% 4.79% 4.84% 4.87% 4.92% 4.96% 5.01% 5.05%

Interest spread 3.65% 4.26% 4.61% 4.69% 4.73% 4.77% 4.81% 4.86% 4.90% 4.94%

Lending cost 9.62% 9.36% 9.01% 8.95% 9.07% 8.87% 8.91% 8.95% 8.99% 9.02%

Borrowing cost 5.98% 5.11% 4.40% 4.26% 4.34% 4.10% 4.10% 4.09% 4.09% 4.08%

CIR (cost-to-income ratio) 44.74% 44.74% 44.74% 44.74% 44.74% 44.74% 44.74% 44.74% 44.74% 44.74%

Source: calculations of the Consultant

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Discount rate calculation

Cost of equity is calculated according to Capital Asset Pricing Model (CAPM).

Within the CAPM the required rate of return on equity is calculated based on

analysis of the following components:

risk free rate;

beta;

market risk premium;

other additional premiums (e.g. small stock).

Thus, return on equity may be expressed by the following equation:

RiskBRiskARfRmRf )(Re , where:

Re - required return on equity;

Rf - risk free rate;

β - beta;

Rm-Rf - market risk premium;

Risk A - small stock risk.

Risk-free rate

As a risk-free rate Consultant used a 5 year average yield on 30-year Russian

sovereign Eurobonds. According to Bloomberg the yield was 3.51% as of

valuation date.

Market risk premium (Rm - Rf)

Market risk premium represents an extra return that should be added to the

risk-free rate in order to compensate for an additional investment risk.

According to «2016 Valuation Handbook - Guide to Cost of Capital

(Duff&Phelps)» investors expect on average a 6.90% excess return above the

yield on long-term US treasury bonds.

Beta

In CAPM model risk is divided into two categories: systematic and non-

systematic. Systematic risk includes risks of stock market changes,

macroeconomic and political risks, such as interest rates fluctuations, inflation,

changes in government policy etc.

CAPM model accounts for systematic risk using beta coefficient, which

reflects the magnitude of share price fluctuations of a particular bank in

comparison with market fluctuations.

In the calculations Consultant used the actual Bank’s beta from Bloomberg

(weekly average for the period 01.07.2012-01.07.2017) that equalled to 0.91.

Size premium

Premium for investing in a bank with relatively small capitalization is

calculated as difference between average historical return on investing in US

stock market and average historical return on investing in low-capitalization

banks.

According to «2016 Valuation Handbook - Guide to Cost of Capital

(Duff&Phelps)» size of the premium can be derived from the following table:

Exhibit 68 Size premiums according to «2016 Valuation Handbook - Guide to Cost of Capital (Duff&Phelps)»

Lower boundary Upper boundary Calculated premium

2.0 209.4 5.60%

209.9 448.1 2.54%

448.5 844.5 2.04%

845.5 1,400.2 1.62%

1,400.9 2,083.6 1.63%

2,090.6 3,187.5 1.49%

3,195.9 5,200.0 0.99%

5,205.8 9,611.2 0.86%

9,618.1 21,809.4 0.57%

22,035.3 629,010.3 -0.36%

Source: «2016 Valuation Handbook - Guide to Cost of Capital (Duff&Phelps)»

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Premium of VTB Bank (PJSC) was calculated based on the latest 3 months

market capitalization (01.04.2017-01.07.2017) and amounted to 0.57%.

Bank-specific risk premium

This premium reflects additional risk arising from investing in a particular bank

that was not accounted for by beta coefficient.

Major factors influencing Bank’s specific risk:

corporate governance;

reliance on government support.

Exhibit 69 Analysis of specific risks

Risk factor Risk level

Result Low Medium High

Corporate governance 1 2 3 2

Reliance on government support 1 2 3 1

Total sum 3

Calculated risk level 1.50

Source: Consultant analysis

A more detailed analysis of the risk factors is presented further:

Reliance on government support. During 2014-2015 Bank has received a

significant amount of state funds in the form of investment in preference

shares. Thus, in case of deterioration of economic situation in Russia, Bank’s

financial stability may be a subject to significant risk.

The financial model of the Bank assumed a quite optimistic growth of the

ratio of net commission income to the Bank's assets and other non-interest

income to the Bank's assets for 2017-2019. According to this the

Consultant took into account the risk of corporate governance associated

with the risk of failure in achieving targets within the development strategy

of the VTB Group for 2017-2019.

Exhibit 70 Calculation of the Bank specific risk premium, %

Risk level Result Specific risk premium

Low 1.00 1.50 0.50 2.00

Medium 1.50 2.50 2.00 4.00

High 2.50 3.00 4.00 5.50

Specific risk of VTB Bank (PJSC) 2.00

Source: Consultant analysis

Thus, the Bank's specific risk premium was determined at 2.00%.

Transition to ruble-denominated discount rate

Since cash flows for in this valuation report are denominated in Russian ruble,

a dollar-denominated discount rate should be adjusted. Transfer is based on

yield differences between ruble and dollar long-term Russian government

bonds and is calculated with the following formula:

1)1(

)1()1(

USD

f

RUB

fUSD

RUBR

RYY

Exhibit 71 Yields on long-term dollar and ruble bonds

Index Value

Long-term currency-denominated government bond (USD) 3.51%

Long-term ruble denominated government bond (RUR) 8.93%

Source: Bloomberg

The following table present discount rate calculation.

Exhibit 72 Discount rate calculation for VTB Bank (PJSC) (CAPM), %

Index Value

Risk-free rate (including country-specific risk), $ 3.51%

Market risk premium, $ 6.90%

Beta, $ 0.91

Size premium, $ 0.57%

Bank-specific risk premium, $ 2.00%

Discount rate, $ 12.35%

Risk-free rate, $ 3.51%

Risk-free rate, RUR 8.93%

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Index Value

Discount rate, RUR 18.24%

Source: calculations of the Consultant

Calculation of Terminal value

An essential part of the DCF method is the calculation of the Bank’s value in

post-projection period (Terminal value, reversion value). Value of all income

received in the post-projection period results in Terminal value. This

calculation is based on a premise that Bank is able to generate income for an

infinite period of time. It is assumed that cash flows will stabilize after the

projection period, and a long-term stable growth rate will be applied.

Generally, the Gordon Growth model is used to calculate the post-projection

period value. The model is described with the following formula:

n

n

RgR

gCFTV

)1)((

)1(

where:

CFn – normalized cash flow that is projected to be received in the final year

of the projection period;

R – discount rate;

g - expected long-term growth rate of cash flows in post-projection period.

n – number of years in projection period.

Calculation of the Bank’s terminal value is presented in the table below.

Consultant applied a long-term growth rate of 4.00% (Russia’s CPI for 2026).

Exhibit 73 Calculation of the Bank’s terminal value

Index Unit Value

Assets, mid 2027 RUR bln. 26,458.2

ROA, % % 1.73%

Net profit in 2027 RUR bln. 458.9

Assets, end of 2027 RUR bln. 26,977.0

Index Unit Value

long-term growth rate % 4.00%

RWA, end of 2027 RUR bln. 20,568.9

RWA / Assets % 76.25%

Н1.0 % 10.00%

Regulatory capital / Equity % 69.89%

Required level of equity RUR bln. 2,943.2

Investments in maintaining capital adequacy (terminal period) RUR bln. -113.2

Free cash flow (terminal period) RUR bln. 345.7

Source: calculations of the Consultant

Assets at the end of 2027 were calculated taking into account the long-term

growth rate of 4.00%. Risk-weighted assets (RWA) at the end of 2027 were

calculated by multiplying assets at the end of 2027 by the ratio of RWA/Assets

for 2026 (76.25%).

The required level of equity (RUR 2,943.2 billion) was obtained by multiplying

the RWA at the end of 2027 (RUR 20,568.9 billion) by the Equity/RWA ratio

(H1.0) (10.0%), and then adjusted for the ratio Regulatory capital / Equity

(69.89%).

The difference between required level of equity and actual level of equity in

the terminal period amounted to RUR 113.2 billion. Free cash flow of the

terminal period was calculated by subtracting the necessary investments to

maintain capital adequacy from the net profit of 2027.

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Equity value calculation

Value of the Equity calculated under the Discounted Cash Flows (DCF)

method equals the sum of projection period cash flows present values and

reversion value in post-projection period. Value of 100% of shares is

established with the following equation:

0,5

1 1 1

nt

t nt

CF VPV

R R

, where

PV - present market value of the Bank calculated using the Discounted cash

flows method;

CFt - cash flow in year t of projection period;

V - total cash flow value in post-projection period;

R - discount rate;

n - last year of the projection period.

According to valuation theory, discounting of cash flows in projection and

post-projection periods is calculated using the mid-year factor, meaning that

an assumption about income being received evenly throughout a year was

made.

Cash flow calculation

Cash flow of a financial organization consists of net income less investments,

which shareholders are making in order to preserve capital adequacy of the

Bank. Positive difference between these two values forms free-funds that may

be distributed as dividends. Negative difference forms an additional

capitalization requirement from the shareholders. While calculating Bank’s

cash flow in this report, perpetual loan participation notes were also deducted

from the equity. The following table contains calculation of the VTB Bank

(PJSC) cash flows:

Exhibit 74 Discounted cash flows of VTB Bank (PJSC)

Index Unit 2H 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Net income in the period RUR bln. 44.7 142.4 198.0 281.6 302.7 327.5 354.1 379.5 406.5 435.7

Investments in Bank’s equity RUR bln. -53.1 -140.3 -167.4 -137.8 -130.7 -135.9 -141.0 -151.4 -163.5 -176.5

Payments on perpetual loan participation notes RUR bln. -6.6 -12.6 -12.6 -12.6 -12.6 -12.6 -12.6 -12.6 -12.6 -12.6

Free Cash Flow (FCF) RUR bln. -15.0 -10.6 17.9 131.2 159.4 178.9 200.5 215.4 230.4 246.5

discount rate % 18.24% 18.24% 18.24% 18.24% 18.24% 18.24% 18.24% 18.24% 18.24% 18.24%

Present value of future cash flows RUR bln. -14.3 -8.9 12.8 79.4 81.6 77.4 73.4 66.7 60.3 54.6

Source: calculations of the Consultant

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In order to find share of equity value attributed to shareholders of ordinary

shares, the resulting value should be adjusted for the value of Type 1

preference shares and Type 2 preference shares and for minority interest (less

RUR 10.0 billion).

Consultant assumed that market value of Type 1 preference shares and Type 2

preference shares equals their respective book value because of the following

reasons:

These preferred shares represent a type of government financial aid

to the Bank.

These shares do not pay a fixed rate dividend.

These preferred shares are owned by the state institutions of the

Russian Federation, while the majority shareholder of the VTB Bank

is the Russian Government, which owns 60.9% of issued shares.

Thus, decision on preferred dividends is based on non-market

decision-making mechanisms.

Therefore, future cash flows (dividends) from Type 1 preference shares and

Type 2 preference shares could not be reliably estimated as of the valuation

date. Thus, they are valued at fair value.

Final results of VTB Bank (PJSC) equity value calculation are presented

further.

Treasury shares in the amount of 31,708,010,055 shares were excluded from

the total number of issued ordinary shares of VTB Bank (PJSC).

Exhibit 75 VTB Bank (PJSC) equity value calculation

Index Unit Value

Sum of present values of future cash flows RUR billion 482,8

Plus: present value of post-projection value RUR billion 537,4

Equity value on 100% level of control RUR billion 1,020,2

Type 1 preference shares RUR billion 214,0

Type 2 preference shares RUR billion 307,4

Non-controlling interest RUR billion 10,0

Equity value attributed to ordinary shares RUR billion 488,8

Number of shares shares 12,928,833,327,283

Value of 1 ordinary share kopecks 3,8

Source: calculations of the Consultant

Thus, market value of one ordinary share of VTB Bank (PJSC), subject

to all assumptions and limiting condition and calculated under Income

approach as of 1 July 2017 amounts to, rounded: 3.8 kopecks.

Market value of one Type 1 preference share of VTB Bank (PJSC),

subject to all assumptions and limiting conditions, as of 1 July 2017

equals to 1.0 kopeck.

Market value of one Type 2 preference share of VTB Bank (PJSC),

subject to all assumptions and limiting conditions, as of 1 July 2017

equals to 10.0 kopeck.

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Report on valuation of one ordinary share, one Type 1 preference share and one Type 2 preference share of VTB Bank (PJSC) RUSSIAN APPRAISAL

Market approach

General provisions

Market Approach to valuation assumes that asset value is determined by the

amount for which it can be sold on the open market, provided that there

exists a sufficiently mature financial market.

The following basic assumptions form the theoretical foundation for Market

Approach, proving its suitability and fairness of the resulting value:

First, the Consultant refers to stock prices of similar banks as a

benchmark. In a mature financial market, an actual sale price of the

entire business (or price per share) incorporates numerous factors

that affect value of the bank.

Second, the Market Approach is based on alternative investments

principle. The strive to earn maximum investment return with

adequate risk and unrestricted capital flow ensures the levelling of

market prices;

Third, share price reflects financial capabilities, market reputation and

growth perspectives of the bank. Consequently, the ratio of price to

the most important financial indicators of similar companies should

coincide.

The following Market approach methods were applied in this report:

Capital market method (peer-banks);

Previous deals method;

Market quotes method.

Capital market method

Capital market method is based on market prices and is used to value a non-

controlling stake (shares, stock). Under this method valuation is based on

information about comparable banks that have actively traded stock.

Comparison is also based on stock prices public data and bank financial

indicators (such as net income etc.), that will be further used to compute

ratios, or «multiples».

Consultant used the following criteria while selecting peer banks from the

stock market:

peer banks operate within Russia;

peer banks operate within same banking segments;

peer banks do not posses any restrictions on operations with their stock;

peer banks issue IFRS financial statements.

Applying this criteria (leading position in the banking industry, government

stake, similar business features etc.), the closest and sole peer of VTB Bank

(PJSC) is Sberbank.

Sberbank financial indicators calculated on the basis of its financial statement

for 6 month 2017 are presented in table below.

Exhibit 76 Sberbank core financial indicators, RUR bln.

Name Country Current market cap. (01.04.17-

01.07.17),

Market cap. with control

premium

Equity as of 30.06.2017,

ordinary shares

Net income for the 1H 2017,

LTM, ordinary shares

Sberbank Russia 3,357.7 4,249.0 3,039.2 631.5

Source: MICEX, financial statement of the bank

Consultant calculated values of the following multiples:

P/E – ratio of market capitalization to net income over 6m 2017 (last 12

months basis);

P/BV – ratio of market capitalization to book value of equity as of the end

of 6m of 2017.

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The values of the chosen multiples are presented in the following table:

Exhibit 77 Multiples calculation

Name Country P/BV 1H 2017 P/E 1H 2017 LTM ROE 1H 2017

Sberbank Russia 1.40x 6.73x 20.8%

Source: Consultant calculations

VTB Bank’s one ordinary share market value calculation under Capital market

method is presented in the table below.

Treasury shares in the amount of 31,708,010,055 shares were excluded from

the total number of issued ordinary shares of VTB Bank (PJSC).

VTB Bank’s equity as of the valuation date was determined by the Consultant

as the carrying amount of equity (RUR 1,433.3 billion) net of the nominal

value of Type 1 and Type 2 preference shares (RUR 214.0 billion and RUR

307.4 billion), book value of Perpetual Loan Participation Notes (RUR 132.9

billion) and non-controlling interest (RUR 10.0 billion).

Exhibit 78 One ordinary share market value calculation under Capital market method

Index Unit P/BV 1H 2017 P/E 1H 2017

LTM

Multiple (Sberbank) - 1.40x 6.73x

Corresponding financial indicator of VTB Bank (PJSC) RUR bln. 768.0 93.7

Market value of equity RUR bln. 1,073.7 630.5

Number of shares mln.shares 12 928 833 12 928 833

Market value of one ordinary share in a controlling interest

kopecks 8.3 4.9

weight of the multiple % 50% 50%

Market value of one ordinary share in a controlling interest

kopecks 6.6

Source: Consultant calculations

Due to the fact that the sample is presented only by the one bank

(Sberbank) and is not representative, the Consultant concluded that the

results obtained under Capital market method can be used only

indicatively.

Market quotes method

This method is applicable when Bank’s shares are actively traded on the stock

market and trading volume is big enough to consider Bank’s shares as a liquid

financial instrument. However, quote could differ from fundamental market

value of the underlying asset. Market quotes are often influenced by such

factors as market sentiment, speculation, seasonality, political agenda etc.

Therefore, a weighted average value of quotes should be used in the

valuation.

The following chart contains information about market quotes of VTB Bank

(PJSC). To smooth influence of speculative factors, the Consultant used

average quote values weighed by their respective trading volumes for 3

months prior to the valuation date.

Exhibit 79 Equity value calculation under Market quotes method

Date Last price, kopecks Trading volume,

number of shares Weighted average

price, kopecks

03.04.2017 6.69 8,138,210,000 0.087

04.04.2017 6.71 7,294,030,000 0.078

05.04.2017 6.69 7,928,640,000 0.085

06.04.2017 6.62 8,582,490,000 0.090

07.04.2017 6.56 10,601,680,000 0.111

10.04.2017 6.47 15,312,500,000 0.158

11.04.2017 6.49 25,594,240,000 0.265

12.04.2017 6.41 9,794,220,000 0.100

13.04.2017 6.40 16,434,830,000 0.168

14.04.2017 6.41 5,405,230,000 0.055

17.04.2017 6.42 3,211,550,000 0.033

18.04.2017 6.40 7,021,540,000 0.072

19.04.2017 6.40 7,625,710,000 0.078

20.04.2017 6.44 11,808,460,000 0.121

21.04.2017 6.50 10,809,740,000 0.112

24.04.2017 6.52 6,166,940,000 0.064

25.04.2017 6.61 13,045,070,000 0.137

26.04.2017 6.84 14,608,810,000 0.159

27.04.2017 6.67 9,711,130,000 0.103

28.04.2017 6.67 8,418,780,000 0.089

02.05.2017 6.74 5,980,540,000 0.064

03.05.2017 6.75 9,043,810,000 0.097

04.05.2017 6.71 9,299,890,000 0.099

05.05.2017 6.57 13,328,620,000 0.140

10.05.2017 6.69 6,805,220,000 0.073

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Date Last price, kopecks Trading volume,

number of shares Weighted average

price, kopecks

11.05.2017 6.59 5,138,640,000 0.054

12.05.2017 6.57 3,725,660,000 0.039

15.05.2017 6.66 5,925,380,000 0.063

16.05.2017 6.70 20,242,920,000 0.216

17.05.2017 6.66 8,437,710,000 0.090

18.05.2017 6.55 11,370,370,000 0.119

19.05.2017 6.64 14,208,280,000 0.150

22.05.2017 6.57 7,469,410,000 0.078

23.05.2017 6.72 6,669,520,000 0.071

24.05.2017 6.70 16,316,290,000 0.174

25.05.2017 6.69 4,208,120,000 0.045

26.05.2017 6.64 6,080,450,000 0.064

29.05.2017 6.60 1,835,610,000 0.019

30.05.2017 6.59 4,215,700,000 0.044

31.05.2017 6.62 7,957,120,000 0.084

01.06.2017 6.47 9,317,140,000 0.096

02.06.2017 6.52 10,717,760,000 0.111

05.06.2017 6.51 5,672,460,000 0.059

06.06.2017 6.44 3,210,560,000 0.033

07.06.2017 6.41 5,520,590,000 0.056

08.06.2017 6.45 8,017,090,000 0.082

09.06.2017 6.53 7,626,260,000 0.079

13.06.2017 6.45 6,602,720,000 0.068

14.06.2017 6.40 8,543,920,000 0.087

15.06.2017 6.39 43,916,940,000 0.447

16.06.2017 6.39 27,985,350,000 0.285

19.06.2017 6.32 9,883,190,000 0.100

20.06.2017 6.39 20,204,100,000 0.206

21.06.2017 6.33 5,467,680,000 0.055

22.06.2017 6.39 18,900,530,000 0.192

23.06.2017 6.40 14,029,370,000 0.143

26.06.2017 6.35 4,325,340,000 0.044

27.06.2017 6.34 13,012,970,000 0.131

28.06.2017 6.38 9,983,180,000 0.101

29.06.2017 6.39 9,944,390,000 0.101

30.06.2017 6.40 9,058,950,000 0.092

Total over 3 month

627,713,550,000 6.518

Source: MICEX, Consultant calculations

Thus, market value of VTB Bank’s one ordinary share is 6.5 kopecks.

Adjusting it for the degree of control (for a 100% stake premium is 26.55%)

results in a value of 8.2 kopeck per 1 ordinary share.

Exhibit 80 One ordinary share market value calculation under Market quotes method

Index Unit Value

Number of shares mln.shares 12,928,833

Market value of one ordinary share kopecks 6.5

Control premium % 26.55%

Market value of one ordinary share in a controlling interest kopecks 8.2

Market value of equity RUR bln. 1,066.4

Source: Consultant calculations

Thus, market value of one ordinary share of VTB Bank (PJSC), subject

to all assumptions and limiting condition and calculated under Market

quotes method as of 1 July 2017 amounts to, rounded: 8.2 kopecks.

Previous deals method

The following chart contains information about deals involving major stakes

in different Russian and CIS banks.

Exhibit 81 Major deals involving stakes in Russian and CIS banks since 2015

Bank Year Country Deal size,

USD million

Stake Control

premium P, RUR

BTA Bank JSC 2015 Kazakhstan 397 47.42% 9.93% 920

MDM Bank 2015 Russia 239 58.30% 9.39% 448

Credit Bank of Moscow 2015 Russia 237 18.80% 14.42% 1,442

Bank Vozrozhdenie 2015 Russia 200 70.86% 9.39% 309

MTS Bank 2016 Russia 121 26.07% 9.93% 509

Far Eastern Bank 2016 Russia 69 70.40% 9.39% 107

Ukrsotsbank 2016 Ukraine 323 99.80% 2.21% 331

Source: Bloomberg, KPMG, Consultant calculations

Within the Previous deals method Consultant used only P/BV multiple, since

P/E multiple for most banks demonstrate negative values.

Exhibit 82 Calculation of P/E multiple

Bank P (USD million) E (latest reporting

date) P/E

BTA Bank JSC 920 -634 -1.45x

MDM Bank 448 -98 -4.59x

Credit Bank of Moscow 1,442 88 16.45x

Bank Vozrozhdenie 309 -5 -67.93x

MTS Bank 509 -46 -11.15x

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Bank P (USD million) E (latest reporting

date) P/E

Far Eastern Bank 107 11 9.43x

Ukrsotsbank 331 -47 -6.98x

Source: Bloomberg, bank’s financial statement, Consultant calculations

Calculation of P/BV multiple under Previous deals method is presented in the

table below.

Exhibit 83 Calculation of P/BV multiple

Bank P (USD million) BV (latest reporting

date) P/BV

BTA Bank JSC 920 632 1.46x

MDM Bank 448 569 0.79x

Credit Bank of Moscow 1,442 1,046 1.38x

Bank Vozrozhdenie 309 420 0.73x

MTS Bank 509 435 1.17x

Far Eastern Bank 107 60 1.77x

Ukrsotsbank 331 682 0.48x

Median 1.17x

Source: Consultant calculations

According to the table above, several values of P/BV demonstrate significant

fluctuation from the mean considering that the sample consists of only 7

banks.

At the same time, it is not always clear under what conditions each deal

occurred. The Consultant does not have all the details about deals and admits

that additional key factors could have influenced the selling price of a

particular package.

Exhibit 84 Market value of one ordinary share under Previous deals method

Index Unit Value

Multiple - 1.17x

Corresponding financial indicator RUR bln. 768.0

Market value of equity RUR bln. 897.5

Number of shares mln.shares 12,928,833

Market value of one ordinary share in a controlling interest

kopecks 6.9

Source: Consultant calculations

Considering the circumstances mentioned above the Consultant

concluded that the results obtained under Previous deals method

can be used only indicatively.

Reconciliation of valuation results under Market approach

As mentioned above, results of Previous deals and Capital market methods

were presented only for indicative purposes. The following table sums up the

results of the Market approach valuation.

Exhibit 85 Calculation of market value of one ordinary share of VTB Bank (PJSC) under Market approach

Method Value of 1 ordinary share on 100%

level of control Weight

Peer bank 6.6 0%

Market quotes 8.2 100%

Previous deals 6.9 0%

Source: Consultant calculations

Thus, market value of one ordinary share of VTB Bank (PJSC), subject

to all assumptions and limiting condition and calculated under Market

approach as of 1 July 2017 amounts to, rounded: 8.2 kopecks

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Reconciliation of VTB Bank (PJSC) valuation results

Income approach is the most significant for the current valuation, since it

accounts for Bank’s growth perspectives, changes of market conditions and etc.

Discounted cash flows method within Income approach produced the most

conservative valuation and therefore was used to set the lower limit of the

range.

Method of market quotes within the Market approach produced the highest

value in comparison to other methods and approaches. Thus, this value was set

as an upper limit of the range.

The final reconciliation of one ordinary share value of VTB Bank (PJSC) is

presented below:

Exhibit 86 VTB Bank (PJSC) valuation results

Valuation approach

Method

Valuation results

Value of 100% of equity, RUR billion

Value of 1 ordinary share, kopeck

Income approach DCF method 488.8 3.8

Market approach

market quotes method 1,066.4 8.2

peer bank method, indicative 852.1 6.6

previous deals method, indicative

897.5 6.9

Cost approach Net assets method Not applicable Not applicable

Source: Consultant calculations

Market value of one ordinary share of VTB Bank (PJSC), subject to all

assumptions and limiting condition, as of 1 July 2017 falls within range

(rounded) from 3.8 kopecks (lower limit) to 8.2 kopecks (upper limit).

Consultant assumed that market value of Type 1 preference shares and Type 2

preference shares equals their respective book value because of the following

reasons:

These preferred shares represent a type of government financial aid

to the Bank.

These shares do not pay a fixed rate dividend.

These preferred shares are owned by the state institutions of the

Russian Federation, while the majority shareholder of the VTB Bank

is the Russian Government, which owns 60.9% of issued shares.

Thus, decision on preferred dividends is based on non-market

decision-making mechanisms.

Market value of one Type 1 preference share of VTB Bank (PJSC),

subject to all assumptions and limiting conditions, as of 1 July 2017

equals to 1.0 kopeck.

Market value of one Type 2 preference share of VTB Bank (PJSC),

subject to all assumptions and limiting conditions, as of 1 July 2017

equals to 10.0 kopeck.

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