(limited liability company)

Commercial Bank “YAR Bank” (limited liability company)

International Financial Reporting Standards Financial Statements and Independent Auditor's Report 31 December 2014

YAR Bank Ltd.

CONTENTS

Independent Auditor’s Report FINANCIAL STATEMENTS Statement of Financial Position ..................................................................................................................... 1 Statement of Profit or Loss and Other Comprehensive Income ................................................................... 2 Statement of Changes in Equity .................................................................................................................... 3 Statement of Cash Flows .............................................................................................................................. 4 Notes to the Financial Statements

1 Introduction.......................................................................................................................................... 5 2 Operating Environment of the Bank .................................................................................................... 5 3 Summary of Significant Accounting Policies ....................................................................................... 6 4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies ............................ 13 5 Adoption of New or Revised Standards and Interpretations ............................................................. 14 6 New Accounting Pronouncements .................................................................................................... 15 7 Cash and Cash Equivalents .............................................................................................................. 19 8 Trading Securities ............................................................................................................................. 19 9 Due from Financial Institutions .......................................................................................................... 21 10 Loans and Advances to Customers .................................................................................................. 22 11 Investment Securities Held to Maturity ............................................................................................. 26 12 Premises, Equipment and Intangible Assets .................................................................................... 27 13 Due to Other Banks ........................................................................................................................... 28 14 Customer Accounts ........................................................................................................................... 28 15 Interest Income and Expense ........................................................................................................... 29 16 Fee and Commission Income and Expense ..................................................................................... 30 17 Administrative and Other Operating Expenses ................................................................................. 30 18 Income Taxes .................................................................................................................................... 31 19 Financial Risk Management .............................................................................................................. 32 20 Management of Capital ..................................................................................................................... 42 21 Contingencies and Commitments ..................................................................................................... 42 22 Offsetting Financial Assets and Financial Liabilities ......................................................................... 44 23 Fair Value Disclosures ...................................................................................................................... 44 24 Presentation of Financial Instruments by Measurement Category ................................................... 46 25 Related Party Transactions ............................................................................................................... 47 26 Events After the Reporting Date ....................................................................................................... 49

YAR Bank Ltd. Statement of Profit or Loss and Other Comprehensive Income

The notes set out on pages 5 to 49 form an integral part of these financial statements 2

In thousands of Russian Roubles Note 2014 2013

Interest income 15 820 988 767 752 Interest expense 15 (476 908) (458 730)

Net interest income 344 080 309 022

Provision for loan impairment 10 (165 424) 16 555

Net interest income after provision for loan impairment 178 656 325 577

Fee and commission income 16 48 131 32 265 Fee and commission expense 16 (23 274) (13 861) Gains less losses from trading securities (391 057) (29 200) Gains less losses from trading in foreign currencies 114 428 83 953 Foreign exchange translation gains less losses (58 026) (37 453) Provision for impairment of other assets (1 118) (228) Other operating income 3 890 155 Administrative and other operating expenses 17 (559 145) (483 336)

Loss before tax (687 515) (122 128)

Income Taxes 18 (8 538) (18 580)

LOSS FOR THE YEAR (696 053) (140 708)

TOTAL COMPREHENSIVE LOSS FOR THE YEAR (696 053) (140 708)

YAR Bank Ltd. Statement of Changes in Equity


In thousands of Russian Roubles

Note Charter capital

Additional paid-in capital

Retained earnings

Total

Balance at 1 January 2013 1 255 132 178 796 532 275 1 966 203

Loss for the year - - (140 708) (140 708)

Total comprehensive loss for the year

- - (140 708) (140 708)

Balance at 31 December 2013 1 255 132 178 796 391 567 1 825 495

Loss for the year - - (696 053) (696 053)

Total comprehensive loss for the year

- - (696 053) (696 053)

Increase in capital 20 200 000 124 000 - 324 000

Balance at 31 December 2014 1 455 132 302 796 (304 486) 1 453 442

YAR Bank Ltd. Statement of Cash Flows


In thousands of Russian Roubles Note 2014 2013

Cash flows from operating activities

Interest received 828 674 837 645 Interest paid (513 895) (474 192) Fees and commissions received 48 131 32 265 Fees and commissions paid (23 274) (13 861) Net income received from trading securities (3 877) (21 488) Net income received from trading in foreign currencies 114 428 83 953 Other operating income received 3 890 155 Administrative and other operating expenses paid (521 858) (464 582) Income tax paid (19 249) (24 486) Cash flows used in operating activities before changes in

operating assets and liabilities

(87 030) (44 591) Net (increase)/decrease in: - mandatory cash balances with the Central Bank of the Russian

Federation

(100 773) 43 738 - trading securities 1 244 690 (143 011) - due from financial institutions 1 024 617 (177 878) - loans and advances to customers (602 768) 671 263 - other assets 9 705 3 841 Net increase/(decrease) in: - due to other banks (37 051) 2 404 556 - customer accounts (2 208 363) (2 863 504) - other liabilities 5 701 66 Net cash used in operating activities (751 272) (105 520) Cash flows from investing activities Acquisition of premises, equipment and intangible assets 12 (34 954) (89 844) Proceeds from disposal of premises and equipment 228 950 Purchase of investment securities held to maturity (909 732) - Net cash used in investment activities (944 458) (88 894)

Cash flows from financing activities Repayment of subordinated debt - (110 000) Proceeds from debt securities in issue 113 548 177 806 Redemption of debt securities (170 735) (125 491) Capital contribution 324 000 - Net cash from/(used in) financing activities 266 813 (57 685)

Effect of exchange rate changes on cash and cash equivalents 429 492 41 285 Net decrease in cash and cash equivalents (999 425) (210 814)

Cash and cash equivalents at the beginning of the year 7 1 738 845 1 949 659 Cash and cash equivalents at the end of the year 7 739 420 1 738 845

YAR Bank Ltd. Notes to the Financial Statements – 31 December 2014

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1 Introduction

These financial statements have been prepared in accordance with International Financial Reporting Standards for the year ended 31 December 2014 for YAR Bank Ltd. (the “Bank”).

The Bank was registered in 1994 accordance with Russian regulations as a limited liability company. Legal and actual address of the Bank: Donskaya street, 13, Moscow, Russian Federation, 119049.

At 31 December, the Bank had the following participants:

2014 2013

OOO IFK METROPOL 30.14% 35.22%

M.V. Slipenchuk 19.86% 14.78%

SBI Holdings, Inc. 50.00% 50.00%

Total 100% 100%

M.V. Slipenchuk and SBI Holdings, Inc. are beneficial owners of the Bank in equal proportion.

In January 2013, the Bank changed its name from Limited Liability Company Commercial Bank Ob’edinennyi Investitsionnyi Bank to Commercial Bank “YAR Bank” (limited liability company).

Principal activity. The Bank's principal activities are transactions with securities, loans to legal entities and individuals, customer accounts and guarantees. The Bank operates in the Russian Federation.

The Bank received full banking licence No. 3 185 issued by the Central Bank of the Russian Federation (the “CBRF”) on 27 September 2006. The Bank participates in the state deposit insurance scheme, which was introduced by Federal Law No. 177-FZ “Deposits of individuals insurance in Russian Federation” dated 23 December 2003. The State Deposit Insurance Agency guarantees repayment of 100% of individual deposits up to RR 1 400 thousand per individual in the case of the withdrawal of a licence of a bank or the CBRF imposed moratorium on payments.

The Bank has no branches. As at 31 December 2014 the number of the Bank's employees was 184 (2013: 201).

Presentation currency. These financial statements are presented in thousands of Russian roubles (“RR thousands”), unless otherwise stated.

2 Operating Environment of the Bank

The Russian Federation displays certain characteristics of an emerging market. Its economy is sensitive to oil and gas prices. The tax, currency and customs regulatory frameworks within the Russian Federation continue to develop and are subject to frequent changes and varying interpretations (Note 21). A fall in oil prices, continuing political tension in the region, as well as international sanctions against Russian companies and individuals have had a negative impact on the Russian economy in 2014. As a result, in 2014:

the CBRF exchange rate increased from RR 32.73 to RR 56.26 per USD;

the key refinancing interest rate of the Bank of Russia increased from 5.5% p.a. to 17.0% p.a. including from 10.5% p.a. to 17.0% p.a. on 16 December 2014;

the RTS stock exchange index went down from 1 445 to 791 points;

access to international financial markets to raise funding was limited for certain entities;

capital outflows increased compared to prior years.


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2 Operating Environment of the Bank (Continued)

The financial markets continue to be volatile and are characterised by frequent significant price movements and increased trading spreads. Subsequent to 31 December 2014:

the CBRF exchange rate changed from RR 56.26 to RR 49.67 per USD at 17 April 2015;

Russia's credit rating was downgraded by Fitch Ratings in January 2015 to BBB-, whilst Standard & Poor’s cut it to BB+ in January 2015 and Moody’s Investors Service cut it to Ba1 in February 2015;

the RTS stock exchange index went up from 791 to 1 062 points at 16 April 2015;

bank lending activity decreased as banks are reassessing the business models of their borrowers and their ability to withstand the increased lending and exchange rates;

the key refinancing interest rate of the Bank of Russia decreased from 17.0% p.a. to 14% p.a.

These events may have a significant impact on the Bank’s operations and financial position in future, the effect of which is difficult to predict. The future economic and regulatory situation and its impact on the Bank's operations may differ from management’s current expectations.

Management determined loan impairment provisions using the “incurred loss” model required by the applicable accounting standards. These standards require recognition of impairment losses that arose from past events and prohibit recognition of impairment losses that could arise from future events, including future changes in the economic environment, no matter how likely those future events are. Thus, final impairment losses from financial assets could differ significantly from the current level of provisions. Refer to Note 4.

3 Summary of Significant Accounting Policies

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

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

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

Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the quantity held by the entity. This is the case even if a market’s normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price. The price within the bid-ask spread that is most representative of fair value in the circumstances was used to measure fair value, which management considers is the average of actual trading prices on the reporting date.

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


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3 Summary of Significant Accounting Policies (Continued)

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

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

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

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

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

Initial recognition of financial instruments. Trading securities, derivatives and other financial instruments at fair value through profit or loss are initially recorded at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.

All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date on which the Bank commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.

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


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Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. All short term interbank placements, beyond overnight placements, are included in due from financial institutions. Restricted funds are excluded from cash and cash equivalents. Cash and cash equivalents are carried at amortised cost.

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

Mandatory cash balances with the CBRF. Mandatory cash balances with the CBRF are carried at amortised cost and represent non-interest bearing mandatory reserve deposits which are not available to finance the Bank's day to day operations and hence are not considered as part of cash and cash equivalents for the purposes of the statement of cash flows.

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

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

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

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

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

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

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


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Investment securities held to maturity. This classification includes quoted non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank has both the intention and ability to hold to maturity. An investment is not classified as a held-to-maturity investment if the Bank has the right to require that the issuer repay or redeem the investment before its maturity, because paying for such a feature is inconsistent with expressing an intention to hold the asset until maturity. Management determines the classification of investment securities held to maturity at their initial recognition and reassesses the appropriateness of that classification at the end of each reporting period. Investment securities held to maturity are carried at amortised cost.

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

The primary factors that the Bank considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred:

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

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

the borrower considers bankruptcy or a financial reorganisation;

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

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

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

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

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

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


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

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

Premises and equipment. Premises and equipment are stated at cost less accumulated depreciation and provision for impairment, where required.

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

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

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

Depreciation. Depreciation is calculated using the straight-line method to allocate cost of assets to their residual values over their estimated useful lives at the following annual rates:

Capital improvements 4% Office and computer equipment 25% Other premises and equipment 10-33%

The residual value of an asset is the estimated amount that the Bank would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Intangible assets. The Bank’s intangible assets have definite useful lives and primarily include capitalised computer software. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Capitalised computer software is amortised on a straight line basis over expected useful lives of 5 years.

Due to other banks. Amounts due to other banks are recorded when money or other assets are advanced to the Bank by counterparty banks. The non-derivative liability is carried at amortised cost.

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

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

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


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

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

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

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

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

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

Deferred income tax is provided using the balance sheet asset or liability method for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period, which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are offset.

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


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

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

Net assets attributable to participants in the Bank, which was created as a limited liability company. The Bank classified net assets attributable to participants in the Bank, which was created as a limited liability company, as equity components.

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

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

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

All other fees, commissions and other income and expense items are generally recorded on an accrual basis by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.

Foreign currency translation. The Bank’s functional and presentation currency is the national currency of the Russian Federation, Russian Roubles (“RR”).

Monetary assets and liabilities are translated into functional currency at the official exchange rate of the CBRF at the end of the respective reporting period. Foreign exchange gains and losses resulting from the settlement of transactions and from the translation of monetary assets and liabilities into functional currency at year-end official exchange rates of the CBRF, are recognised in profit or loss for the year (as foreign exchange translation gains less losses).

Translation at year-end rates does not apply to non-monetary items that are measured at historical cost. Non-monetary items measured at fair value in a foreign currency, including equity investments, are translated using the exchange rates at the date when the fair value was determined. Effects of exchange rate changes on non-monetary items measured at fair value in a foreign currency are recorded as part of the fair value gain or loss. At 31 December 2014, the principal rate of exchange used for translating foreign currency balances was USD 1 = RR 56.2584 (2013: USD 1 = RR 32.7292).


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

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

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

Presentation of statement of financial position in order of liquidity. The Bank does not have a clearly identifiable operating cycle and therefore does not present current and non-current assets and liabilities separately in the statement of financial position. Instead, analysis of assets and liabilities by their expected maturities is presented in Note 19.

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies

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

Going concern. Management prepared these financial statements on a going concern basis. In making this judgement management considered the Bank’s financial position, current intentions, profitability of operations, access to financial resources and analysed negative impact of the current economic environment on operations of the Bank.

Net assets attributable to participants in the Bank, which was created as a limited liability company. Management of the Bank reviewed legal requirements and charter documents of the Bank and concluded that the Bank had no unconditional obligation to purchase any interests of the Bank's participants. Participants' interests may be repurchased in the cases provided by the Russian law, however, the events which may trigger such situation are controlled by the Bank, therefore the interests of the Bank's participants can be classified as equity component.

Impairment loss on loans and advances. The Bank regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in profit or loss for the year, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on data about collateral, historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.


14

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

A 10% increase or decrease in actual loss experience compared to the loss estimates used would result in an increase or decrease in loan impairment losses of RR 35 396 thousand (2013: RR 19 584 thousand), respectively.

Related parties. Management analysed the requirements of IAS 24 "Related Party Disclosures". Note 25 contains complete and detailed information on the Bank's balances and transactions with related parties.

Initial recognition of related party transactions. In the normal course of business the Bank enters into transactions with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analysis. Terms and conditions of related party balances are disclosed in Note 25.

Tax legislation. Russian tax, currency and customs legislation is subject to varying interpretations. Refer to Note 21.

Deferred income tax asset recognition. The recognised deferred tax asset represents income taxes recoverable through future deductions from taxable profits, and is recorded in the statement of financial position. Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. In 2014, the Bank did not recognise deferred tax asset in view of existence of significant losses.

5 Adoption of New or Revised Standards and Interpretations

The following new IFRS standards and interpretations became effective for the Bank from 1 January 2014:

“Offsetting Financial Assets and Financial Liabilities” - Amendments to IAS 32 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identified in applying some of the offsetting criteria. This includes clarifying the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be considered equivalent to net settlement. The standard clarified that a qualifying right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following circumstances:(i) in the normal course of business, (ii) the event of default and (iii) the event of insolvency or bankruptcy. The amendment did not have any material impact on the Bank’s financial statements.

“Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment entities” (issued on 31 October 2012 and effective for annual periods beginning 1 January 2014). The amendments introduced a definition of an investment entity as an entity that (i) obtains funds from investors for the purpose of providing them with investment management services, (ii) commits to its investors that its business purpose is to invest funds solely for capital appreciation or investment income and (iii) measures and evaluates its investments on a fair value basis. An investment entity is required to account for its subsidiaries at fair value through profit or loss, and to consolidate only those subsidiaries that provide services that are related to the entity's investment activities. IFRS 12 was amended to introduce new disclosures, including any significant judgements made in determining whether an entity is an investment entity and information about financial or other support to an unconsolidated subsidiary, whether intended or already provided to the subsidiary. The amendments did not have any material impact on the Bank’s financial statements.


15

5 Adoption of New or Revised Standards and Interpretations (Continued)

IFRIC 21 – “Levies” (issued on 20 May 2013 and effective for annual periods beginning 1 January 2014). The interpretation clarifies the accounting for an obligation to pay a levy that is not income tax. The obligating event that gives rise to a liability is the event identified by the legislation that triggers the obligation to pay the levy. The fact that an entity is economically compelled to continue operating in a future period, or prepares its financial statements under the going concern assumption, does not create an obligation. The same recognition principles apply in interim and annual financial statements. The application of the interpretation to liabilities arising from emissions trading schemes is optional. The interpretation did not have a material impact on the Bank’s financial statements.

Amendments to IAS 36 – “Recoverable amount disclosures for non-financial assets” (issued in May 2013 and effective for annual periods beginning 1 January 2014; earlier application is permitted if IFRS 13 is applied for the same accounting and comparative period). The amendments remove the requirement to disclose the recoverable amount when a CGU contains goodwill or indefinite lived intangible assets but there has been no impairment. The amendments did not have any material impact on the Bank’s financial statements.

Amendments to IAS 39 – “Novation of Derivatives and Continuation of Hedge Accounting” (issued in June 2013 and effective for annual periods beginning 1 January 2014). The amendments will allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated (i.e parties have agreed to replace their original counterparty with a new one) to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met. The amendments did not have any material impact on the Bank’s financial statements.

6 New Accounting Pronouncements

Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2015 or later, and which the Bank has not early adopted:

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

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

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

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

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


16

6 New Accounting Pronouncements (Continued)

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

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

The Bank is currently assessing the impact of the new standard on its financial statements.

Amendments to IAS 19 – “Defined benefit plans: Employee contributions” (issued in November 2013 and effective for annual periods beginning 1 July 2014). The amendment allows entities to recognise employee contributions as a reduction in the service cost in the period in which the related employee service is rendered, instead of attributing the contributions to the periods of service, if the amount of the employee contributions is independent of the number of years of service. The amendment is not expected to have any material impact on the Bank’s financial statements.

Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014, unless otherwise stated below). The improvements consist of changes to seven standards.

IFRS 2 was amended to clarify the definition of a ‘vesting condition’ and to define separately ‘performance condition’ and ‘service condition’; The amendment is effective for share-based payment transactions for which the grant date is on or after 1 July 2014.

IFRS 3 was amended to clarify that (1) an obligation to pay contingent consideration which meets the definition of a financial instrument is classified as a financial liability or as equity, on the basis of the definitions in IAS 32, and (2) all non-equity contingent consideration, both financial and non-financial, is measured at fair value at each reporting date, with changes in fair value recognised in profit or loss. Amendments to IFRS 3 are effective for business combinations where the acquisition date is on or after 1 July 2014.

IFRS 8 was amended to require (1) disclosure of the judgements made by management in aggregating operating segments, including a description of the segments which have been aggregated and the economic indicators which have been assessed in determining that the aggregated segments share similar economic characteristics, and (2) a reconciliation of segment assets to the entity’s assets when segment assets are reported.

The basis for conclusions on IFRS 13 was amended to clarify that deletion of certain paragraphs in IAS 39 upon publishing of IFRS 13 was not made with an intention to remove the ability to measure short-term receivables and payables at invoice amount where the impact of discounting is immaterial.

IAS 16 and IAS 38 were amended to clarify how the gross carrying amount and the accumulated depreciation are treated where an entity uses the revaluation model.

IAS 24 was amended to include, as a related party, an entity that provides key management personnel services to the reporting entity or to the parent of the reporting entity (‘the management entity’), and to require to disclose the amounts charged to the reporting entity by the management entity for services provided.

The Bank is currently assessing the impact of the amendments on its financial statements.


17


Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014, unless otherwise stated below). The improvements consist of changes to four standards.

The basis for conclusions on IFRS 1 is amended to clarify that, where a new version of a standard is not yet mandatory but is available for early adoption; a first-time adopter can use either the old or the new version, provided the same standard is applied in all periods presented.

IFRS 3 was amended to clarify that it does not apply to the accounting for the formation of any joint arrangement under IFRS 11. The amendment also clarifies that the scope exemption only applies in the financial statements of the joint arrangement itself.

The amendment of IFRS 13 clarifies that the portfolio exception in IFRS 13, which allows an entity to measure the fair value of a group of financial assets and financial liabilities on a net basis, applies to all contracts (including contracts to buy or sell non-financial items) that are within the scope of IAS 39 or IFRS 9.

IAS 40 was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in IAS 40 assists preparers to distinguish between investment property and owner-occupied property. Preparers also need to refer to the guidance in IFRS 3 to determine whether the acquisition of an investment property is a business combination.

The Bank is currently assessing the impact of the amendments on its financial statements.

IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods beginning on or after 1 January 2016). IFRS 14 permits first-time adopters to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. An entity that already presents IFRS financial statements is not eligible to apply the standard.

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

adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a

business. The amendments are not expected to have any material impact on the Bank’s financial statements.

Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016). In this amendment, the IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The Bank is currently assessing the impact of the amendment on its financial statements.

IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2017). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. The Bank is currently assessing the impact of the new standard on its financial statements.


18


Agriculture: Bearer plants - Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and effective for annual periods beginning 1 January 2016). The amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms, which now should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. The amendments are not expected to have any material impact on the Bank’s financial statements.

Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12 August 2014 and effective for annual periods beginning 1 January 2016). The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The amendments are not expected to have any material impact on the Bank’s financial statements.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after 1 January 2016). These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are held by a subsidiary. The amendments are not expected to have any material impact on the Bank’s financial statements.

Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016). The amendments impact four standards. IFRS 5 was amended to clarify that change in the manner of disposal (reclassification from "held for sale" to "held for distribution" or vice versa) does not constitute a change to a plan of sale or distribution, and does not have to be accounted for as such. The amendment to IFRS 7 adds guidance to help management determine whether the terms of an arrangement to service a financial asset which has been transferred constitute continuing involvement, for the purposes of disclosures required by IFRS 7. The amendment also clarifies that the offsetting disclosures of IFRS 7 are not specifically required for all interim periods, unless required by IAS 34. The amendment to IAS 19 clarifies that for post-employment benefit obligations, the decisions regarding discount rate, existence of deep market in high-quality corporate bonds, or which government bonds to use as a basis, should be based on the currency that the liabilities are denominated in, and not the country where they arise. IAS 34 will require a cross reference from the interim financial statements to the location of "information disclosed elsewhere in the interim financial report". The Bank is currently assessing the impact of the amendments on its financial statements.

Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods beginning on or after 1 January 2016). The Standard was amended to clarify the concept of materiality and explains that an entity need not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, even if the IFRS contains a list of specific requirements or describes them as minimum requirements. The Standard also provides new guidance on subtotals in financial statements, in particular, such subtotals (a) should be comprised of line items made up of amounts recognised and measured in accordance with IFRS; (b) be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable; (c) be consistent from period to period; and (d) not be displayed with more prominence than the subtotals and totals required by IFRS standards. The Bank is currently assessing the impact of the amendments on its financial statements.

Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and IAS 28 (issued in December 2014 and effective for annual periods beginning on 1 January 2016). The Standard was amended to clarify that an investment entity should measure at fair value through profit or loss all of its subsidiaries that are themselves investment entities. In addition, the exemption from preparing consolidated financial statements if the entity’s ultimate or any intermediate parent produces consolidated financial statements available for public use was amended to clarify that the exemption applies regardless whether the subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with IFRS 10 in such ultimate or any intermediate parent’s financial statements. The amendments will not have any impact on the financial statements;

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


19

7 Cash and Cash Equivalents

In thousands of Russian Roubles 2014 2013

Cash on hand 119 318 141 648 Correspondent accounts and overnight placements with banks - the Russian Federation 119 208 76 716 - other countries 188 216 1 297 266 Cash balances with the CBRF (other than mandatory reserve deposits) 312 678 223 215

Total cash and cash equivalents 739 420 1 738 845

The credit quality of correspondent accounts and overnight placements with banks was as follows at 31 December 2014 and 31 December 2013:


Neither past due nor impaired - A3 to A1 rated 12 1 197 405 - Baa3 to Baa1 rated 20 617 63 068 - Ba3 to Ba1 rated 74 613 3 654 - B3 to B1 rated 4 4 - Unrated 212 178 109 851

Total 307 424 1 373 982

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

At 31 December 2014, the amount of major balance on correspondent accounts and overnight placements was RR 168 068 thousand or 55% of total balances on correspondent accounts and overnight placements with banks.

At 31 December 2013, the amount of major balances on correspondent accounts and overnight placements with three banks was RR 1 297 265 thousand or 94% of total balances on correspondent accounts and overnight placements with banks.

Currency and interest rate analyses of cash and cash equivalents are disclosed in Note 19.

8 Trading Securities


Corporate bonds 1 472 100 2 048 908 Federal loan bonds (OFZ) 581 635 1 640 622 Municipal bonds 445 759 497 620 Corporate Eurobonds 268 540 -

Total trading securities 2 768 034 4 187 150

Corporate bonds are interest bearing securities denominated in Russian Roubles issued by large Russian companies and banks and freely tradable in the Russian Federation. These bonds have maturity dates ranging from October 2015 to April 2023 (2013: from April 2014 to April 2023), coupon rates from 7.9% to 8.9% p.a. (2013: from 7.9% to 8.8% p.a.) and yields to maturity from 12.6% to 18.9% p.a. (2013: from 7.6% to 10.9% p.a.), depending on the type of bond issue.


20

8 Trading Securities (Continued)

OFZ bonds are Russian Rouble and USD denominated government securities issued by the Ministry of Finance of the Russian Federation. These bonds have maturity dates ranging from may 2016 to February 2027 (2013: April 2015 to February 2027), coupon rates from 3.3% to 8.2% p.a. (2013: from 3.3% to 8.2% p.a.) and yields to maturity from 5.3% to 13.2% p.a. (2013: from 1.8% to 7.9% p.a.), depending on the type of bond issue.

Municipal bonds are interest bearing securities denominated in Russian Roubles issued by Russian regional authorities and are freely tradable in Russia. These bonds have maturity dates ranging from June 2015 to August 2027 (2013: from July 2014 to August 2017), coupon rates from 7.0% to 9.9% p.a. (2013: from 5.1% to 9.9% p.a.) and yields to maturity from 12.2% to 14.9% p.a. (2013: from 2.1% to 8.3% p.a.), depending on the type of bond issue.

Corporate Eurobonds are interest bearing securities denominated in Russian Roubles and US Dollars issued by large Russian companies and freely tradable in the Russian Federation. These bonds have maturity dates ranging from December 2015 to September 2019 (2013: from April 2014 to April 2023), coupon rates from 5.0% to 8.6% p.a. and yields to maturity from 7.9% to 13.8% p.a., depending on the type of bond issue.

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


Corporate bonds

Federal loan bonds

(OFZ)

Municipal bonds

Corporate Eurobonds

Total

Neither past due nor impaired

(at fair value) - Baa3 to Baa1 rated 284 534 581 635 248 589 123 049 1 237 807

- Ba3 to Ba1 rated 1 187 566 - 197 170 145 491 1 530 227

Total trading securities 1 472 100 581 635 445 759 268 540 2 768 034

Analysis by credit quality of trading securities outstanding at 31 December 2013 is as follows:


Corporate bonds

Federal loan bonds (OFZ)

Municipal bonds

Total

Neither past due nor impaired (at fair value)

- Baa3 to Baa1 rated 1 242 521 1 640 622 277 244 3 160 387 - Ba3 to Ba1 rated 758 704 - 220 376 979 080 - B3 to B1 rated 47 683 - - 47 683

Total trading securities 2 048 908 1 640 622 497 620 4 187 150


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

At 31 December 2014, the Bank's trading securities included securities in the amount of RR 2 149 606 thousand (2013: RR 3 168 216 thousand) pledged under direct sale and repurchase agreements with the CBRF. Refer to Note 21.

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

The geographical and interest rate analyses are disclosed in Note 19.


21

9 Due from Financial Institutions


Placements with other banks 275 123 1 051 756 Placements with the CBRF - 220 000 Other accounts with financial institutions 619 232 570 883

Total due from financial institutions 894 355 1 842 639

Analysis by credit quality of amounts due from financial institutions outstanding at 31 December 2014 is as follows:


Placements with other

banks

Other accounts with financial

institutions

Total

Neither past due nor impaired - Baa3 to Baa1 rated - 62 509 62 509 - Ba3 to Ba1 rated 24 472 - 24 472 - B3 to B1 rated 250 651 - 250 651 - Unrated - 556 723 556 723

Total neither past due nor impaired 275 123 619 232 894 355

Analysis by credit quality of amounts due from financial institutions outstanding at 31 December 2013 is as follows:


Placements with other

banks including the CBRF

Other accounts with financial

institutions

Total

Neither past due nor impaired - A3 to A1 rated - 36 36 - Baa3 to Baa1 rated 220 000 109 619 329 619 - Ba3 to Ba1 rated 200 037 818 200 855 - B3 to B1 rated 851 719 - 851 719 - Unrated - 460 410 460 410

Total due from financial institutions 1 271 756 570 883 1 842 639


The primary factor that the Bank considers in determining whether a deposit is impaired is its overdue status. As a result, the Bank presents above an ageing analysis of loans that are individually determined to be impaired.

Amounts due from financial institutions are not collateralised.

At 31 December 2014, the amount of major balance placed with other banks was RR 250 000 thousand or 91% of the total of placements with other banks.

At 31 December 2013 the Bank had cash balances with four counterparty banks with aggregated amount above RR 200 000 thousand. The total aggregate amount of these balances at the reporting date was RR 1 171 901 thousand or 92% of the total amount due from other banks including placements with the CBRF.


22

9 Due from Financial Institutions (Continued)

At 31 December 2014 other accounts with financial institutions included balances accumulated by the Bank for settlements under brokerage transactions with securities and other financial assets in BK Gambit Securities and IFK Metropol in the amount of RR 555 632 thousand (2013: RR 459 701 thousand). This item also includes balances placed by the Bank to perform settlements through AKB NKC in the amount of RR 62 509 thousand (2013: RR 104 710 thousand).

Currency, maturity and interest rate analyses of due from financial institutions are disclosed in Note 19.

Refer to Note 23 for the estimated fair value of each class of amounts due from financial institutions.

Information on related party transactions is disclosed in Note 25.

10 Loans and Advances to Customers


Corporate loans 3 094 047 2 697 597 Loans to individuals 573 878 323 649 Less: Provision for loan impairment (353 955) (195 839) Total loans and advances to customers 3 313 970 2 825 407

Movements in the provision for loan impairment during 2014 are as follows:

In thousands of Russian Roubles Corporate

loans Loans to

individuals Total

Provision for loan impairment at 1 January 2014 177 293 18 546 195 839 Provision for impairment during the year 118 088 47 336 165 424 Amounts written off during the year as uncollectible - (1 403) (1 403) Result from disposal of loans under cession agreements (5 905) - (5 905) Provision for loan impairment at 31 December 2014 289 476 64 479 353 955

Movements in the provision for loan impairment during 2013 are as follows:


loans Loans to

individuals Total

Provision for loan impairment at 1 January 2013 349 710 15 172 364 882 (Recovery of)/provision for impairment during the year (20 110) 3 555 (16 555) Amounts written off during the year as uncollectible (20 000) - (20 000) Result from disposal of loans under cession agreements (132 307) (181) (132 488) Provision for loan impairment at 31 December 2013 177 293 18 546 195 839


23

10 Loans and Advances to Customers (Continued)

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


2014 2013

Amount % Amount %

Finance and investments 2 315 950 63 907 420 30 Individuals 573 878 16 323 649 10 Trade 449 049 12 1 554 011 51 Manufacturing 221 022 6 77 080 3 Construction 56 038 2 20 400 1 Food and agriculture 50 000 1 50 000 2 Transport 1 988 - 24 052 1 Energy - - 64 634 2

Total loans and advances to customers (before provision for loan impairment) 3 667 925 100 3 021 246 100

At 31 December 2014 the Bank had eight borrowers (2013: five borrowers) with aggregated loan amounts above RR 250 000 thousand (2013: above RR 250 000 thousand). The total aggregate amount of these loans was RR 2 363 950 thousand (2013: RR 1 483 720 thousand) or 64% (2013: 49%) of the gross loans and advances to customers.

Analysis by credit quality of loans outstanding at 31 December 2014 is as follows:


loans Loans to

individuals Total

Neither past due nor impaired - I rated - 328 757 328 757 - II rated 1 375 674 155 773 1 531 447 - III rated 1 531 931 61 018 1 592 949

Total neither past due nor impaired 2 907 605 545 548 3 453 153

Individually impaired - not past due and less than 30 days overdue 101 341 437 101 778 - 30 to 90 days overdue 11 958 3 000 14 958 - 91 to 180 days overdue 9 400 - 9 400 - 181 to 360 days overdue 63 743 2 824 66 567 - over 360 days overdue - 22 069 22 069

Total individually impaired loans 186 442 28 330 214 772

Provision for loan impairment (289 476) (64 479) (353 955)

Total loans and advances to customers 2 804 571 509 399 3 313 970


24


Analysis by credit quality of loans outstanding at 31 December 2013 is as follows:


Corporate loans

Loans to individuals

Total

Neither past due nor impaired - I rated 200 165 835 166 035 - II rated 2 423 394 85 004 2 508 398 - III rated 107 000 3 773 110 773

Total neither past due nor impaired 2 530 594 254 612 2 785 206

Individually impaired - not past due and less than 30 days overdue 42 968 49 030 91 998 - 91 to 180 days overdue - 3 360 3 360 - over 360 days overdue 124 035 16 647 140 682

Total individually impaired loans 167 003 69 037 236 040

Provision for loan impairment (177 293) (18 546) (195 839)

Total loans and advances to customers 2 520 304 305 103 2 825 407

Information on credit quality ratings is disclosed in Note 19.

The Bank applied the portfolio provisioning methodology prescribed by IAS 39, Financial Instruments: Recognition and Measurement, and created portfolio provisions for impairment losses that were incurred, but have not been specifically identified with any individual loan, by the end of the reporting period. The Bank’s policy is to classify each loan as “neither past due nor impaired” until specific objective evidence of impairment of the loan is identified. The impairment provisions may exceed the total gross amount of individually impaired loans as a result of this policy and the portfolio impairment methodology.

The primary factors that the Bank considers in determining whether a loan is impaired are its overdue status and realisability of related collateral, if any. As a result, the Bank presents above an ageing analysis of loans that are individually determined to be impaired.


25


Information about collateral at 31 December 2014 is as follows:


Corporate loans

Loans to individuals

Total

Unsecured loans 1 603 077 390 066 1 993 143 Loans collateralised by: - guarantees and warranties 70 019 90 339 160 358 - real estate 958 636 83 663 1 042 299 - goods in turnover 295 753 - 295 753 - securities of the Bank 26 400 - 26 400 - other assets 140 162 9 810 149 972

Total loans and advances to customers

before provision for loan impairment 3 094 047 573 878 3 667 925

Information about collateral at 31 December 2013 is as follows:


loans Loans to

individuals Total

Unsecured loans 1 676 515 139 326 1 815 841 Loans collateralised by: - liquid securities - 9 427 9 427 - guarantees and warranties 411 515 89 017 500 532 - real estate 155 500 74 781 230 281 - goods in turnover 175 420 - 175 420 - securities of the Bank 112 630 - 112 630 - other assets 166 017 11 098 177 115

Total loans and advances to customers before provision for loan impairment 2 697 597 323 649 3 021 246

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

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


Corporate loans 66 935 35 257 Loans to individuals - 5 150

Currency, maturity and interest rate analyses of loans and advances to customers are disclosed in Note 19.

Refer to Note 23 for the estimated fair value of each class of loans and advances to customers.



26

11 Investment Securities Held to Maturity

In thousands of Russian Roubles 2014

Federal loan bonds (OFZ) 786 556

Total investment securities held to maturity 786 556

At 31 December 2014, investment securities held to maturity were pledged under sale and repurchase agreements (“repo”). Refer to Note 21.

These securities mature in April 2017, have a coupon rate of 7.4% and a yield to maturity of 15.4% p.a.

Federal loan bonds (OFZ) issued by the Ministry of Finance of the Russian Federation are freely tradable in Russia. These securities have no indication of impairment and therefore do not require any provision.


27

12 Premises, Equipment and Intangible Assets


Note Capital invest-

ments in leased

property

Office and computer

equipment

Capital invest-

ments in leased

property not put into

operation

Other premises

and equipment

Computer software licenses

Total

Carrying amount at

1 January 2013 29 854 5 160 66 089 9 116 - 110 219

Cost Balance at the beginning

of the year 31 500 17 203 66 089 25 537 - 140 329 Additions 4 779 24 119 11 250 9 393 40 303 89 844 Disposals - (742) - (5 713) - (6 455)

Cost at the end of the

year 36 279 40 580 77 339 29 217 40 303 223 718

Accumulated

depreciation Balance at the beginning

of the year (1 646) (12 043) - (16 421) - (30 110) Depreciation and

amortisation charge 17 (1 257) (6 293) - (2 691) (3 879) (14 120) Disposals - 674 - 5 713 - 6 387

Balance at the end of

the year (2 903) (17 662) - (13 399) (3 879) (37 843)

Carrying amount at

31 December 2013 33 376 22 918 77 339 15 818 36 424 185 875

Cost Balance at the beginning

of the year 36 279 40 580 77 339 29 217 40 303 223 718 Transfers 71 438 - (71 438) - - - Additions - 3 887 - 296 30 771 34 954 Disposals - - - (265) - (265) Cost at the end of the

year 107 717 44 467 5 901 29 248 71 074 258 407 Accumulated

depreciation Balance at the beginning

of the year (2 903) (17 662) - (13 399) (3 879) (37 843) Depreciation and

amortisation charge 17 (2 530) (10 841) - (2 347) (17 958) (33 676) Disposals - - - 264 - 264

Balance at the end of

the year (5 433) (28 503) - (15 482) (21 837) (71 255) Carrying amount at

31 December 2014 102 284 15 964 5 901 13 766 49 237 187 152


28

13 Due to Other Banks


Sale and repurchase agreements with the CBRF 2 803 349 2 837 565 Correspondent accounts with other banks 27 299 17 193

Total due to other banks 2 830 648 2 854 758

At 31 December 2014 and 2013, the Bank's largest counterparty for balances on correspondent accounts was Tallinn Business Bank.

Currency, interest rate and maturity analyses of due to other banks are disclosed in Note 19.

Refer to Note 23 for the estimated fair value of each class of amounts due from other banks.

14 Customer Accounts


State and public organisations - Current/settlement accounts 10 420 32 168 - Term deposits 2 035 102 068 Other legal entities - Current/settlement accounts 1 016 011 1 525 725 - Term deposits 979 983 688 823 Individuals - Current/demand accounts 195 583 184 953 - Term deposits 2 264 707 3 476 474

Total customer accounts 4 468 739 6 010 211

State and public organisations exclude government owned profit orientated businesses.

Economic sector concentrations within customer accounts are as follows:


2014 2013

Amount % Amount %

Individuals 2 460 290 55 3 661 427 61 Finance and investments 1 128 447 25 714 492 12 Trade and services 231 230 5 343 947 6 Construction 167 990 4 31 689 - Oil, gas and chemical industries 162 133 4 648 053 11 Charity 102 284 2 65 779 1 Manufacturing 41 166 1 59 970 1 Transport 13 113 - 17 687 - State municipal and public organisations 12 455 - 134 236 2 Other 149 631 4 332 931 6

Total customer accounts 4 468 739 100 6 010 211 100


29

14 Customer Accounts (Continued)

At 31 December 2014 the Bank had seven customers (2013: eight customers) with balances above RR 100 000 thousand (2013: RR 150 000 thousand). The aggregate balance of these customers was RR 1 787 270 thousand (2013: RR 2 725 867 thousand) or 40% (2013: 45%) of total customer accounts.

Currency, interest rate and maturity analyses of customer accounts are disclosed in Note 19.

Refer to Note 23 for the estimated fair value of each class of customer accounts.


15 Interest Income and Expense


Interest income Loans and advances to customers 423 019 420 130 Trading securities and investment securities held to maturity 335 035 278 653 Correspondent accounts and placements with financial institutions 62 934 68 969

Total interest income 820 988 767 752

Interest expense Term deposits of individuals (215 310) (246 488) Due to other banks (180 079) (99 327) Term deposits and current accounts of legal entities (67 065) (102 825) Debt securities in issue (14 454) (10 090)

Total interest expense (476 908) (458 730)

Net interest income 344 080 309 022



30

16 Fee and Commission Income and Expense


Fee and commission income Cash transactions 29 875 14 802 Guarantees issued 7 053 6 242 Settlement transactions 5 276 6 287 Foreign exchange transactions 4 524 3 231 Other 1 403 1 703

Total fee and commission income 48 131 32 265

Fee and commission expense Services on cash transfers including services of payment and settlement systems (13 750) (8 452)

Foreign exchange transactions (4 423) (1 908) Cash and settlement services (2 994) (2 087) Other (2 107) (1 414)

Total fee and commission expense (23 274) (13 861)

Net fee and commission income 24 857 18 404


17 Administrative and Other Operating Expenses


Staff costs 334 585 308 229 Professional services and IT expenses 66 723 48 173 Operating lease expenses 38 164 40 839 Depreciation of premises and equipment and amortisation of intangible assets (Note 12)

33 676 14 120

Expenses for the right to use intellectual property items 14 801 3 719 Contributions to the State Deposit Insurance Agency 14 538 14 083 Security services 10 302 12 697 Telecommunication expenses 9 686 10 762 Advertising and marketing 9 450 1 894 Other costs of premises and equipment 3 724 6 539 Taxes other than on income 1 759 1 761 Business trip expenses 541 1 721 Other 21 196 18 799

Total administrative and other operating expenses 559 145 483 336

Included in staff costs are insurance contributions in accordance with Russian legislation of RR 54 072 thousand (2013: RR 48 430 thousand).



31

18 Income Taxes

(a) Components of income tax expense

Income tax expense comprises the following:


Current tax 21 058 23 295 Deferred tax (12 520) (4 715)

Income tax expense for the year 8 538 18 580

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

The income tax rate applicable to the majority of the Bank’s income is 20% (2013: 20%). A reconciliation between the expected and the actual taxation charge is provided below.


Loss before tax (687 515) (122 128)

Theoretical tax credit at statutory rate (2014-2013: 20%) (137 503) (24 426) Tax effect of items which are not deductible or assessable for taxation purposes: - Income on government securities taxed at different rates (7 019) (7 749) - Non-deductible expenses 6 000 37 991 - Unrecognised tax loss carry forwards 66 317 - - Unrecognised deferred tax asset 60 046 - - Other 20 697 12 764

Income tax expense for the year 8 538 18 580

The Bank has unrecognised potential deferred tax assets in respect of unused tax loss carry forwards of RR 85 600 thousand (2013: RR 19 283 thousand). Based on current forecasts, the Bank intends to utilise tax loss carry forwards during 5 years.

(c) Deferred taxes analysed by type of temporary difference

Differences between IFRS and statutory taxation regulations in Russia give rise to temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases.


32

18 Income Taxes (Continued)

The tax effect of the movements in these temporary differences is detailed below.


1 January 2013

Credited/ (charged) to

profit or loss

31 December 2013

Credited/ (charged) to

profit or loss

31 December 2014

Tax effect of deductible/(taxable) temporary differences

Tax loss carry forwards 19 283 - 19 283 66 317 85 600 Unrecognised tax loss carry forwards (19 283) - (19 283) (66 317) (85 600)

Premises and equipment (1 861) 556 (1 305) (2 073) (3 378) Accrued income and expenses 13 260 (2 862) 10 398 996 11 394 Provision for loan impairment (44 019) 23 679 (20 340) 45 070 24 730 Fair valuation of trading securities (1 104) (1 993) (3 097) 2 840 (257)

Investment securities held to maturity - - - 24 660 24 660

Other assets 16 489 (14 665) 1 824 1 073 2 897 Total deferred tax asset/(liability) (17 235) 4 715 (12 520) 72 566 60 046

Unrecognised deferred tax asset - - - (60 046) (60 046)

Net deferred tax asset/(liability) (17 235) 4 715 (12 520) 12 520 -

19 Financial Risk Management

The risk management function within the Bank is carried out in respect of financial risks, operational risks and legal risks. Financial risk comprises market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The primary objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures, in order to minimise operational and legal risks.

Credit risk. The Bank takes on exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Bank’s lending and other transactions with counterparties giving rise to financial assets.

The Bank’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets in the statement of financial position. For guarantees and commitments to extend credit, the maximum exposure to credit risk is the amount of the commitment. The credit risk is mitigated by collateral and other credit enhancements as disclosed in Note 10.

The Bank has developed and applies policies and procedures aimed at prevention and mitigation of the damage that the Bank might incur as a result of exposure to credit risk.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers. Such risks are monitored on a revolving basis and are subject to an annual, or more frequent, review. Limits on the level of credit risk by borrowers are approved regularly by the Credit Committee of the Bank. The Credit Committee holds meetings on a weekly basis.


33

19 Financial Risk Management (Continued)

Loan applications originated by officers of the Credit Department are passed on to the Credit Committee for credit limit approval. When considering a loan application the Bank analyses general nature of a borrower's business, assesses risk level for an expected credit transaction taking into account the borrower's financial position, debt servicing and level of collateral in accordance with techniques adopted by the Bank. The Bank also analyses other material information such as movements on account and loans attracted from other banks. The Bank prefers borrowers with material and regular cash inflows on their settlement (current, currency and other) accounts with the Bank or borrowers whose guarantors have such cash inflows as well as borrowers with a positive credit history with the Bank. The Bank applies a credit risk diversification strategy through issuing mid-size loans to borrowers. Exposure to credit risk is also mitigated, in part, by obtaining collateral and corporate and personal guarantees.

For the purpose of credit risk monitoring, credit officers regularly analyse the borrowers' ability to repay interest and principal debt. All information on significant exposures against customers with deteriorating creditworthiness is reported to and reviewed by the Bank's Credit Committee and the Management Board. The Bank's Credit Department also analyses overdue loans by overdue periods.

The Bank monitors current loans on a daily basis.

Current loans are transferred under special control of the Bank, if the following factors, or at least one, arise:

overdue status of principal and/or interest amount during more than thirty calendar days. If a borrower is a part of a group of related borrowers, in which other borrowers have overdue debts to the Bank during more than thirty calendar days, all borrowers of the group are transferred under special control of the Bank;

repeated change of the contractual maturity date;

the amount of transfers to a borrower’s settlement account from its settlement account in another bank (as replenishment) during the prior month is more than a half of the total replenishments;

existence of negative information on a borrower or its management (for legal entities);

existence of information on conflicts between the owners (shareholders, participants) of a business;

failure of a third party which is a borrower, guarantor or pledger to fulfil its obligations under its contracts signed with the Bank.

As a result of further deterioration of servicing, loans are transferred to the Legal Function for control and supporting the collection by enforcement procedures. The terms and criteria for transferring non-performing loans are outlined by the Regulation on monitoring of loans and advances issued to legal entities and individual entrepreneurs that are under the Bank's control, the Regulation on monitoring the retail loan portfolio and the Regulation on procedures in respect of overdue and impaired credit card loans issued to individuals.

Actions aimed at liquidation of overdue debts may be summarised as follows:

negotiations and claim administration in relation to borrowers, guarantors and pledgers;

initiation of and participation in insolvency (bankruptcy) proceedings;

restructuring of borrowers' assets to restore business and/or implement non-judicial levy of execution on their property and rights;

addressing law-enforcement authorities on criminal prosecution of the borrower's managers, guarantors, pledger; or

sale (assignment) of debt to external parties.


34


A loan is considered to be uncollectible in the following cases:

the time allowed for claims has expired;

the obligation is cancelled in accordance with the Civil Law as its fulfilment is not possible;

the obligation has been cancelled pursuant to an act from government authorities; or

the obligation has been cancelled following the liquidation of the borrower;

the fact that the borrower failed to fulfil its obligations to creditors within the period of at least one year from the date of the decision to write-off the loan is confirmed by documents. In addition to that, all required and sufficient legal and practical measures to collect this loan have been taken and any further action is legally impossible and/or the expected expenses will exceed the result.

Uncollectible loans are written-off from the Bank's balance sheet against the loan loss provision in accordance with the Regulations approved by the Bank's management.

The amount of uncollectible loan written off from the Bank’s balance sheet as well as related interest shall be generally accounted for on off-balance sheet accounts during at least five years in order to monitor collection possibility in case of change in conditions.

Based on assessment of risks connected with a transaction and a borrower the Bank assigns an internal rating to the borrower, corresponding collateral and transaction as a whole.

The Bank assigns a rating based on its internal rating methodology. In accordance with this methodology a transaction is assigned with a rating category from I to V:

Rating I - high quality of a credit transaction. This rating means minimum credit risk on a transaction;

Rating II - standard quality of a credit transaction. Usually this rating means low probability of default on transactions;

Rating III - stable credit quality of a transaction. This rating means acceptable quality of cash flows connected with a borrower and transaction and/or collateral under analysis;

Rating IV - low quality of a credit transaction. Such transactions are characterised by a rather high probability of default due to low quality and lack or low quality of collateral; and

Rating V - high credit risk on a transaction. The Bank does not enter into deals initially assigned with rating V.

In addition, the Bank manages credit risk through receipt of collateral in the form of real estate, assets and securities or other collateral including guarantees and warranties of legal entities and individuals and through collateral monitoring. The Bank has adopted an internal Regulation on Collateral Review.

For the purpose of credit risk management the Bank has developed a Credit Policy. Loans are issued following decisions of the Bank's Credit Committee after a detailed review of a potential borrower's financial position and creditworthiness. The Bank diversifies the loan portfolio by industry and other segments and constantly monitors its credit quality.

Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss as the result of another party to a financial instrument failing to perform in accordance with the terms of the contract. The Bank uses the same credit policies in assuming conditional obligations as it does for on-balance sheet financial instruments through established credit approvals, risk control limits and monitoring procedures.

Market risk. The Bank takes on exposure to market risks.Market risks arise from open positions in currency and interest rate products, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.


35


Currency risk. The Bank is exposed to currency risk due to the fact that its assets and liabilities are denominated in different currencies as well as due to existence of open currency positions resulting from foreign currency transactions. The Bank manages currency risk by ensuring maximum possible consistency between the currency of its assets and the currency of its liabilities by currency within established limits. In respect of currency risk, the Bank sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily.

The table below summarises the Bank’s exposure to currency risk at 31 December 2014:

In thousands of Russian Roubles RR USD EUR Other Total

Monetary financial assets

Cash and cash equivalents 439 204 225 839 67 075 7 302 739 420 Mandatory cash balances with the CBRF 167 220 - - - 167 220 Trading securities 2 507 020 127 537 133 477 - 2 768 034 Due from financial institutions 814 155 76 782 3 418 - 894 355 Loans and advances to customers 3 218 543 87 672 - 7 755 3 313 970 Investment securities held to maturity 786 556 - - - 786 556

Total monetary financial assets 7 932 698 517 830 203 970 15 057 8 669 555

Monetary financial liabilities

Due to other banks 2 803 631 26 174 843 - 2 830 648 Customer accounts 3 487 268 638 985 331 856 10 630 4 468 739 Debt securities in issue 113 796 - - - 113 796

Total monetary financial liabilities 6 404 695 665 159 332 699 10 630 7 413 183

Net balance sheet position 1 528 003 (147 329) (128 729) 4 427 1 256 372

Spot transactions with foreign currencies (245 536) 136 185 109 351 - -

Net position 1 282 467 (11 144) (19 378) 4 427 1 256 372


36


The table below summarises the Bank’s exposure to currency risk at 31 December 2013:

In thousands of Russian Roubles RR USD EUR Other Total

Monetary financial assets

Cash and cash equivalents 321 340 1 160 488 236 199 20 818 1 738 845 Mandatory cash balances with the CBRF 66 447 - - - 66 447 Trading securities 4 075 258 13 795 98 097 - 4 187 150 Due from financial institutions 1 737 009 44 660 60 709 261 1 842 639 Loans and advances to customers 2 688 829 136 578 - - 2 825 407

Total monetary financial assets 8 888 883 1 355 521 395 005 21 079 10 660 488

Monetary financial liabilities

Due to other banks 2 839 265 15 124 369 - 2 854 758 Customer accounts 4 232 510 1 362 788 394 792 20 121 6 010 211 Debt securities in issue 170 984 - - - 170 984

Total monetary financial liabilities 7 242 759 1 377 912 395 161 20 121 9 035 953

Net balance sheet position 1 646 124 (22 391) (156) 958 1 624 535

The above analysis includes only monetary assets and liabilities. Non-monetary assets are not considered to give rise to any material currency risk.

The Bank monitors its currency position in accordance with limits set by the CBRF. These limits are:

The total of long (short) open currency positions in foreign currencies should not exceed 20% of the Bank's equity calculated in accordance with the CBRF requirements.

A long (short) open currency position in foreign currencies should not exceed 10% of the Bank's equity calculated in accordance with the CBRF requirements.

The following table presents sensitivities of profit or loss to changes in USD and Euro exchange rates, with all other variables held constant:

2014 2013

In thousands of Russian Roubles Impact on profit or loss

before tax Impact on profit or loss

before tax

Movements in USD exchange rate by +/- 40% -/+ 4 458 -/+ 8 956 Movements in Euro exchange rate by +/- 40% -/+ 7 751 -/+ 62

The exposure was calculated only for monetary balances denominated in currencies other than the functional currency of the Bank.

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

Assessment of the Bank’s exposure to interest rate risk is managed upon gap analysis of financial instruments sensitive to changes in interest rates (SFI). The principal methodological approach of gap analysis within the framework of interest rate risk evaluation is recognition of future payment flows under SFI at carrying amounts. These carrying amounts are broken down by the earlier of contractual interest repricing or maturity dates.


37


Any changes in net interest income resulting from changes in the value of SFI at the date of their redemption or interest repricing determine the amount of interest rate risk exposure. Any changes in the amount of net interest income depend upon net cumulative gap on SFI and possible changes in interest rate at the end of the annual reporting period.

For the purposes of analysis of financial instruments that are sensitive to interest rate changes a year long period is selected as the maximum analysed interval.

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


Demand and less

than 1 month

From 1 to 6 months

From 6 to 12 months

More than 1 year

Total

31 December 2014 Total financial assets exposed to interest rate changes 4 268 796 268 794 2 311 441 747 430 7 596 461

Total financial liabilities exposed to interest rate changes 4 428 090 2 254 690 560 974 169 429 7 413 183

Net interest sensitivity gap at 31 December 2014 (159 294) (1 985 896) 1 750 467 578 001 183 278

31 December 2013 Total financial assets exposed to interest rate changes 7 663 398 464 562 1 672 866 651 567 10 452 393

Total financial liabilities exposed to interest rate changes 5 113 835 1 733 233 1 736 987 451 898 9 035 953

Net interest sensitivity gap at 31 December 2013 2 549 563 (1 268 671) (64 121) 199 669 1 416 440

At 31 December 2014, if interest rates at that date had been by 400 basis points higher (2012: 400 basis points lower), with all other variables held constant, profit would have been by RR 38 689 thousand lower (higher), mainly as a result of higher (lower) interest expense on due to other banks.

At 31 December 2013, if interest rates at that date had been by 100 basis points higher (100 basis points lower) with all other variables held constant, profit before tax would have been by RR 13 696 thousand higher (lower), mainly as a result of higher (lower) interest income on debt trading securities.

Interest rate risk management comprises minimising net gap established in analysis of assets and liabilities sensitive to interest rate changes. Based on the net gap amount, the Bank resolves to issue or attract resources at certain rates for a certain period in order to minimise potential losses as a result of changes in market interest rates.


38


The Bank monitors interest rates for its financial instruments. The table below summarises interest rates based on reports reviewed by the Bank's management. For debt trading securities interest rates atr coupon rates:

In % p.a.

2014 2013

RR USD EUR Other RR USD EUR Other

Assets

Cash and cash equivalents 0% 0% 0% 0% 0% 0% 0% 0% Debt trading securities 8% 5% 5% - 8% 3% 5% - Due from financial institutions 19% 0% 0% - 7% 0% 0% 0% Loans and advances to customers 15% 14% - 11% 13% 14% - -

Investment securities held to maturity 7% - - - - - - -

Liabilities Due to other banks 17% 0% 0% - 6% 0% 0% - Customer accounts - current and settlement accounts 1% 0% 0% 0% 1% 0% 0% 0%

- term deposits 16% 4% 4% 1% 10% 4% 4% 3% Debt securities in issue 8% - - - 9% - - -

The sign “-” in the table above means that the Bank does not have the respective assets or liabilities exposed to interest rate risk in corresponding currency.

Liquidity risk. Liquidity risk is defined as the risk that the Bank will encounter difficulty in meeting obligations associated with financial liabilities. The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs and guarantees settlement on which are made in cash. The Bank does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The overall liquidity management is carried out by the Management Board of the Bank.

The Bank seeks to maintain a stable funding base comprising primarily corporate and retail customer deposits and invest the funds in diversified portfolios of liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements.

The Bank's liquidity management requires analysis of the level of liquid assets necessary to settle liabilities when due; access to various funding sources; availability of plans in case of funding problems and control over compliance of the balance sheet liquidity ratios with the statutory requirements. The Bank calculates liquidity ratios on a daily basis in accordance with the requirements of the CBRF.

The table below shows liabilities by their remaining contractual maturity. The liability amounts disclosed in the table are the contractual undiscounted cash flows. Such undiscounted cash flows differ from the amount included in the statement of financial position because the amount in the statement of financial position is based on discounted cash flows.

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


39


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


Demand and less

than 1 month

From 1 to 6 months

From 6 to 12 months

Over 12 months

Total

Liabilities

Due to other banks 2 849 351 - - - 2 849 351 Customer accounts 1 624 720 2 328 333 509 276 150 744 4 613 073 Debt securities in issue - 482 90 868 28 470 119 820 Credit related commitments 82 407 - - - 82 407

Total potential future payments for financial obligations 4 556 478 2 328 815 600 144 179 214 7 664 651

The maturity analysis of undiscounted cash flows of financial liabilities at 31 December 2013 is as follows:


Demand and less

than 1 month

From 1 to 6 months

From 6 to 12 months

Over 12 months

Total

Liabilities

Due to other banks 2 859 199 - - - 2 859 199 Customer accounts 2 325 820 1 674 844 1 705 863 459 637 6 166 164 Debt securities in issue 1 431 120 908 60 474 439 183 252 Credit related commitments 162 008 - - - 162 008

Total potential future payments for financial obligations 5 348 458 1 795 752 1 766 337 460 076 9 370 623

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

In accordance with amendments to IFRS 7 “Financial Instruments: Disclosures” the maturity analysis of liabilities should include issued financial guarantee contracts at the maximum amount of the guarantee in the earliest period in which the guarantee could be called.

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

The Bank does not use the above undiscounted maturity analysis to manage liquidity.


40


Instead, the Bank monitors expected maturities, which may be summarised as follows at 31 December 2014:


Demand and less

than 1 month

From 1 to 6 months

From 6 to 12 months

Over 12 months

Total

Assets

Cash and cash equivalents 739 420 - - - 739 420 Mandatory cash balances with CBRF 167 220 - - - 167 220 Trading securities 2 768 034 - - - 2 768 034 Due from financial institutions 871 852 - - 22 503 894 355 Loans and advances to customers 8 808 268 794 2 311 441 724 927 3 313 970 Investment securities held to maturity - - - 786 556 786 556 Current income tax prepayment - - - 22 684 22 684 Other assets 506 4 008 9 341 2 646 16 501 Premises, equipment and intangible assets - - - 187 152 187 152

Total assets 4 555 840 272 802 2 320 782 1 746 468 8 895 892

Liabilities Due to other banks 2 830 648 - - - 2 830 648 Customer accounts 1 597 442 2 254 227 476 111 140 959 4 468 739 Debt securities in issue - 463 84 863 28 470 113 796 Other liabilities 11 999 5 853 4 975 6 440 29 267

Total liabilities 4 440 089 2 260 543 565 949 175 869 7 442 450

Net liquidity gap at 31 December 2014 115 751 (1 987 741) 1 754 833 1 570 599 1 453 442

Cumulative liquidity gap as at 31 December 2014 115 751 (1 871 990) (117 157) 1 453 442


41


Instead, the Bank monitors expected maturities, which may be summarised as follows at 31 December 2013.


Demand and less

than 1 month

From 1 to 6 months

From 6 to 12 months

Over 12 months

Total

Assets

Cash and cash equivalents 1 738 845 - - - 1 738 845 Mandatory cash balances with CBRF 66 447 - - - 66 447 Trading securities 4 187 150 - - - 4 187 150 Due from financial institutions 1 829 168 - - 13 471 1 842 639 Loans and advances to customers 49 883 464 562 1 672 866 638 096 2 825 407 Current income tax prepayment - 22 684 - - 22 684 Other assets 360 17 367 10 604 701 29 032 Premises, equipment and intangible assets - - - 185 875 185 875

Total assets 7 871 853 504 613 1 683 470 838 143 10 898 079

Liabilities Due to other banks 2 854 758 - - - 2 854 758 Customer accounts 2 259 077 1 620 688 1 678 973 451 473 6 010 211 Debt securities in issue - 112 545 58 014 425 170 984 Current income tax liability 1 809 - - - 1 809 Deferred income tax liability - - - 12 520 12 520 Other liabilities 4 547 17 755 - - 22 302

Total liabilities 5 120 191 1 750 988 1 736 987 464 418 9 072 584

Net liquidity gap at 31 December 2013 2 751 662 (1 246 375) (53 517) 373 725 1 825 495

Cumulative liquidity gap as at 31 December 2014 2 751 662 1 505 287 1 451 770 1 825 495

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

Management believes that in spite of a substantial portion of customer accounts being on demand (current/settlement accounts), diversification of these deposits by number and type of depositors, and the past experience of the Bank would indicate that these customer accounts provide a long-term and stable source of funding for the Bank.

The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Bank. It is unusual for banks ever to be completely matched since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Bank and its exposure to changes in interest and exchange rates.


42

20 Management of Capital

The amount of capital as at 31 December 2014 was RR 1 433 751 thousand (2013: RR 1 663 385 thousand). The capital was calculated in accordance with Instructions No. 139-I “About mandatory ratios of banks”. Compliance with capital adequacy ratios set by the CBRF is monitored monthly with reports outlining their calculation reviewed and signed by the Bank’s Chairman of Board and Chief Accountant.

Under the current capital requirements set by the CBRF, banks have to maintain a ratio of regulatory capital to risk weighted assets (“statutory capital ratio”) above the prescribed minimum level of 10%. During 2014 and 2013 and as at 31 December 2014 and 2013 the Bank complied with the statutory capital ratio.

During 2014 and 2013 the Bank complied with all externally imposed capital requirements; the statutory capital adequacy ratio was never at a level less than an established level.

In January 2014, the Bank's participants contributed RR 324 000 thousand to its capital. This capital increase was registered by the Central Bank of the Russian Federation in April 2014 and was not considered for statutory economic ratios calculation at 31 December 2014 or later.

21 Contingencies and Commitments

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

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

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

At 31 December 2014 and 2013 the management has not created any provision for potential tax liabilities, as the management of the Bank believes that its interpretation of the relevant legislation is appropriate and the Bank’s tax and currency positions will be sustained.

Capital expenditure commitments. At 31 December 2014 and 2013, the Bank has no contractual capital commitments.

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

In thousands of Russian Roubles 2014 2013 Not later than 1 year 41 927 19 680

Later than 1 year and not later than 5 years 31 180 27 307

Later than 5 years 18 180 19 943

Total operating lease commitments 91 287 66 930


43

21 Contingencies and Commitments (Continued)

Credit related commitments. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments, if the unused amounts were to be drawn down. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit related commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

Performance guarantees. Performance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation. The risk under performance guarantee contracts is the possibility that the insured event (i.e. the failure to perform the contractual obligation by another party) occurs.

Outstanding credit related commitments and performance guarantees are as follows:


Undrawn credit lines and overdraft limits 82 407 118 906 Financial guarantees - 43 102

Total credit related commitments 82 407 162 008

Performance guarantees 174 859 199 893

Total credit related commitments and performance guarantees 257 266 361 901

The total outstanding contractual amount of undrawn credit lines and guarantees does not necessarily represent future cash requirements, as these financial instruments may expire or terminate without being funded.

Assets pledged and restricted. At 31 December 2014, the Bank had trading securities pledged as collateral under direct sale and repurchase agreements with the CBRF with the carrying value of RR 2 149 606 thousand (2013: RR 3 168 216).

At 31 December 2014, the Bank had investment securities held to maturity pledged as collateral under direct sale and repurchase agreements with the CBRF with the carrying value of RR 786 556 thousand.

The liability related to this operation had the carrying value of RR 2 803 349 thousand (2013: RR 2 837 565 thousand).

Mandatory cash balances with the CBRF represent mandatory reserve deposits which are not available to finance the Bank’s day-to-day operations.


44

22 Offsetting Financial Assets and Financial Liabilities

Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 December 2014 and 31 December 2013:

Gross amounts

before offsetting in

the statement of financial

position

(a)

Gross amounts set

off in the

statement of financial position

(b)

Net amount after

offsetting in the statement

of financial position

(c) = (a) - (b)

Amounts subject to master netting and similar

arrangements not set off in the statement of financial

position

Net amount of exposure

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

Financial instru-ments

(d)

Cash collateral received

(e)

31 December 2014

Liabilities

Due to other banks - Sale and repurchase agreements with the CBRF 2 803 349 - 2 803 349 2 803 349 - -

Total liabilities 2 803 349 - 2 803 349 2 803 349 - - 31 December 2013 Liabilities

Due to other banks - Sale and repurchase agreements with the CBRF 2 837 565 - 2 837 565 2 837 565 - -

Total liabilities 2 837 565 - 2 837 565 2 837 565 - -

The disclosure does not apply to loans and advances to customers and related customer deposits unless they are set off in the statement of financial position.

23 Fair Value Disclosures

Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on observable market data (that is, unobservable inputs). Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety.

(a) Recurring fair value measurements

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

2014 2013

In thousands of Russian Roubles Level 1 Level 2 Level 1 Financial assets Trading securities Corporate bonds - 1 472 100 2 048 908 Federal loan bonds (OFZ) 581 635 - 1 640 622 Municipal bonds - 445 759 497 620 Corporate Eurobonds - 268 540 - Total financial assets carried at fair value 581 635 2 186 399 4 187 150


45

23 Fair Value Disclosures (Continued)

(b) Assets and liabilities not measured at fair value but for which fair value is disclosed

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

2014 2013


Level 2 Level 3 Carrying value

Level 2 Level 3 Carrying value

Financial assets Due from financial institutions

- Placements with other banks 275 123 - 275 123 1 051 756 - 1 051 756 - Placements with the CBRF - - - 220 000 - 220 000 - Other accounts with financial institutions 619 232 - 619 232 570 883 - 570 883

Loans and advances to customers

- Corporate loans 2 716 664 2 804 571 - 2 520 304 2 520 304

- Loans to individuals 484 193 509 399 - 305 103 305 103 Investment securities held to maturity 793 556 - 786 556 - - -

Total financial assets 1 687 911 3 200 857 4 994 881 1 842 639 2 825 407 4 668 046

Financial liabilities Due to other banks - Sale and repurchase agreements with the CBRF 2 803 349 - 2 803 349 2 837 565 - 2 837 565

- Correspondent accounts and overnight placements of other banks 27 299 - 27 299 17 193 - 17 193

Customer accounts - Current/settlement accounts of state and public organisations 10 420 - 10 420 32 168 - 32 168

- Term deposits of state and public organisations 2 035 - 2 035 102 068 - 102 068

- Current/settlement accounts of other legal entities 1 016 011 - 1 016 011 1 525 725 - 1 525 725

- Term deposits of other legal entities 961 421 - 979 983 688 823 - 688 823

- Current/demand accounts of individuals 195 583 - 195 583 184 953 - 184 953

- Term deposits of individuals 2 141 073 - 2 264 707 3 476 474 - 3 476 474 Debt securities in issue 113 796 - 113 796 170 984 - 170 984

Total financial liabilities 7 270 987 - 7 413 183 9 035 953 - 9 035 953

The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.

The Bank’s liabilities to its customers are subject to state deposit insurance scheme as described in Note 1. The fair value of these liabilities reflects these credit enhancements.


46

24 Presentation of Financial Instruments by Measurement Category

For the purposes of measurement, IAS 39, Financial Instruments: Recognition and Measurement, the Bank classifies financial assets into the following categories: (a) loans and receivables; (b) available-for-sale financial assets and (c) financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss have two sub-categories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading. All financial liabilities of the Bank are carried at amortised cost.

At the same time the Bank classifies financial assets by classes in accordance with IFRS 7.

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

Loans and

receivables Trading

assets Held to

maturity Total

Financial assets Cash and cash equivalents - Cash on hand 119 318 - - 119 318 - Correspondent accounts and overnight placements 307 424 - - 307 424

- Cash balances with the CBRF (other than mandatory) 312 678 - - 312 678

Mandatory cash balances with the CBRF 167 220 - - 167 220 Trading securities - Corporate bonds - 1 472 100 - 1 472 100 - Federal loan bonds (OFZ) - 581 635 - 581 635 - Municipal bonds - 445 759 - 445 759 - Corporate Eurobonds - 268 540 - 268 540 Due from financial institutions - Placements with other banks 275 123 - - 275 123 - Other accounts with financial institutions 619 232 - - 619 232 Loans and advances to customers - Corporate loans 2 804 571 - - 2 804 571 - Loans to individuals 509 399 - - 509 399 Investment securities held to maturity - - 786 556 786 556

Total financial assets 5 114 965 2 768 034 786 556 8 669 555

Non-financial assets - - - 226 337

Total assets 5 114 965 2 768 034 786 556 8 895 892


47

24 Presentation of Financial Instruments by Measurement Category (Continued)

The following table provides a reconciliation of financial assets with these measurement categories at 31 December 2013:

Loans and receivables

Trading assets Total

Financial assets Cash and cash equivalents - Cash on hand 141 648 - 141 648 - Correspondent accounts and overnight placements 1 373 982 - 1 373 982 - Cash balances with the CBRF (other than mandatory) 223 215 - 223 215 Mandatory cash balances with CBRF 66 447 - 66 447 Trading securities - Corporate bonds - 2 048 908 2 048 908 - Federal loan bonds (OFZ) - 1 640 622 1 640 622 - Municipal bonds - 497 620 497 620 Due from financial institutions - Placements with other banks 1 051 756 - 1 051 756 - Placements with the CBRF 220 000 - 220 000 - Other accounts with financial institutions 570 883 - 570 883 Loans and advances to customers - Corporate loans 2 520 304 - 2 520 304 - Loans to individuals 305 103 - 305 103

Total financial assets 6 473 338 4 187 150 10 660 488

Non-financial assets - - 237 591

Total assets 6 473 338 4 187 150 10 898 079

25 Related Party Transactions

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

The Bank classifies related parties into the following three categories: participants, key management and entities under common control.


48

25 Related Party Transactions (Continued)

The outstanding balances with related parties were as follows:


2014 2013

Partici-pants

Key manage-

ment

Entities under

common control

Partici-pants

Key manage-

ment

Entities under

common control

Due from financial institutions

(contractual interest rate: 31 December 2014: 0%; 31 December 2013: 0%) 271 517 - - 285 550 - - Loans and advances to customers

Gross amount of loans and advances to customers

(contractual interest rate: 31 December 2014: 12% - 15%; 31 December 2013: 12% - 14%) - 1 652 27 305 67 1 590 55 682 Impairment provisions for loans and advances to customers at 31 December - (4) (905) - (2) (433)

Customer accounts Current/settlement accounts (contractual interest rate: 31 December 2013: 1% - 4%) 31 December 2013: 1% - 4%) 82 442 2 570 193 357 404 861 4 408 429 162 Term deposits (contractual interest rate:

31 December 2014: 4% - 10%; 31 December 2013: 4% - 10%) - 17 280 - - 13 387 300 000 Undrawn credit lines 7 126 208 - - - 1 518 Issued guarantees and warranties - - 71 531 - - 56 018

The income and expense items with related parties for the years 2014 and 2013 were as follows:


2014 2013

Partici-pants

Key manage-

ment

Entities under

common control

Partici-pants

Key manage-

ment

Entities under

common control

Interest income: Loans and advances to customers 14 204 5 103 8 118 8 835 Interest expense: Term deposits and current accounts (6 201) (1 669) (21 471) (9 787) (353) (30 039)

Fee and commission income 919 10 1 985 1 086 - 1 865 Administrative and other operating expenses - 27 820 - - 28 292 -


49

25 Related Party Transactions (Continued)

In 2014, the Bank performed several securities sales and purchase transactions with a participant. The financial result of these transactions is not material. As a result of these transactions the Bank created a portfolio of investment securities held to maturity.

Key management personnel of the Bank includes the members of the Management Board and of the Board of Directors.

As at 31 December 2014, the Board of Directors included:

1) Alexander Vladimirovich Kravtsov;

2) Yaroslav Mikhailovich Knignitskiy;

3) Miyazaki Makoto;

4) Mochida Taichi;

5) Hayashi Ryosuke;

6) Olga Vasilievna Yuzvikova.

In 2014, the total remuneration of the members of the Management Board and of the Board of Directors comprised salaries, discretionary bonuses and other short-term benefits of RR 27 820 thousand (2013: RR 28 292 thousand), including insurance contributions in accordance with Russian legislation of RR 2 783 thousand (2013: RR 3 277 thousand).

26 Events After the Reporting Date

In March 2015, a participant of the Bank made a contribution in the amount of RR 70 000 thousand.

Documents

(limited liability company)