PJSC COMMERCIAL BANK KHRESCHATYK International Financial ... · PJSC COMMERCIAL BANK KHRESCHATYK International Financial Reporting Standards Financial Statements and Independent Auditor’s

PJSC COMMERCIAL BANK KHRESCHATYK International Financial Reporting Standards Financial Statements and Independent Auditor’s Report

as at December 31, 2012

CONTENTS

Independent Auditor’s Report 1

Financial statements

Statement of Financial Position 2

Statement of Comprehensive Income 3

Statement of Changes in Equity 4

Statement of Cash Flows 5

Notes to the Financial Statements

1 Introduction 6

2 Bank’s Operating Environment 8

3 Summary of Significant Accounting Policies 8

4 Critical Accounting Estimates, and Judgments in Applying Accounting Policies 27

5 Adoption of New and Revised Standards 28

6 Cash and Cash Equivalents and Mandatory Reserves 30

7 Due from Other Banks 30

8 Loans and Advances to Customers 31

9 Investment Securities Available for Sale 35

10 Other Investment Securities 36

11 Investment Property 36

12 Premises and Equipment 36

13 Intangible Assets 37

14 Other Financial and Non-Financial Assets 38

15 Non-Current Assets Held for Sale 38

16 Due to Other Banks 38

17 Customer Accounts 38

18 Debt Securities in Issue 39

19 Other Borrowed Funds 39

20 Other Financial and Non-Financial Liabilities 40

21 Subordinated Debt 40

22 Share Capital 40

23 Other Reserves 41

24 Interest Income and Expense 41

25 Fee and Commission Income and Expense 42

26 Other Operating Income 42

27 Administrative and Other Operating Expenses 42

28 Income Tax 43

29 Segment Analysis 44

30 Financial Risk Management 48

31 Management of Capital 56

32 Contingencies and Commitments 56

33 Derivative Instruments 57

34 Fair Value of Financial Instruments 58

35 Presentation of Financial Instruments by Measurement Category 59

36 Related Party Transactions 60

37 Events After the End of the Reporting Period 62

PJSC CB KHRESCHATYK Notes to the Financial Statements – 31 December 2012

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1. Introduction

The PUBLIC JOINT-STOCK COMPANY “COMMERCIAL BANK KHRESCHATYK” (the brief name PJSC CB

KHRESCHATYK) was incorporated and is domiciled in Ukraine. The Bank is based at 8-a Khreschatyk Street, Kyiv,

01001, Ukraine.

The Bank was established on 19 May 1993 and registered with the National Bank of Ukraine as the Limited Liability

Company Commercial Bank for the Development of Enterprise “Zgoda”. On 12 August 1998, based on a shareholders

meeting resolution, the Bank’s Articles of Association were amended in the part of the Bank’s name to the Commercial

Bank for the Development of Municipal Economy and Enterprise “Khreschatyk”. On 18 October 2000 the Bank’s name

was changed for the Commercial Bank “Khreschatyk”. 26 December 2001 the Bank was re-registered with the National

Bank of Ukraine as the Open Joint-Stock Company Commercial Bank “Khreschatyk”. On 12 May 2010, in accordance

with the amended requirements of the Law of Ukraine “On Joint-Stock Companies”, based on the Resolution of the

General Meeting of Shareholders, the Bank was re-registered to THE PUBLIC JOINT-STOCK COMPANY

“COMMERCIAL BANK “KHRESCHATYK” (hereinafter: the Bank).

Principal activity. The Bank is a universal financial institution, which operates nationally and provides comprehensive

services for its customers – residents and non-residents, with an aim of earning profit. Over the reporting period the Bank

operated under the current legislation of Ukraine, in particular the Law of Ukraine “On Banks and Banking”, regulations of

the NBU and in compliance with the banking license and general license for transacting in foreign exchange #158 of 11

October 2011, issued by the NBU, license of the National Securities and Stock Market Commission for: dealing —

license series АГ # 580075 of 30 December 2011, stockbroking — license series АГ # 580074 of 30 December 2011,

underwriting — license series АГ # 580076 of 30 December 2011, depositary of securities – license series АГ # 580077

of 30 December 2011, asset management – license series АВ # 534057 of 09 June 2010.

The Bank performs the full range of financial operations, carrying out comprehensive services to customers – legal

entities and individuals – through offering of a widest list of banking services.

The Bank is a principal member of the International Payment System “Visa International” and “MasterCard WorldWide”,

member of the country’s internal payment system “National System of Mass Electronic Payments” and offers the full

complex of card services. The Bank is a direct agent of the international money-transfer systems “Unistream”,

“MoneyGram”, “Bystraya Pochta”; is a subagent of “Western Union”, “Anelik”; has its own internal “Greenwich” money-

transfer system. In 2012 the Bank pioneered transfers in Russian Rubles (RUB) using the “Bystraya Pochta” payment

system. The Bank also acts as an agent for the American Express Company in the sale of Traveler’s Checks.

In 2012, together with the Kyiv Municipal State Administration, the Bank launched the new social support “Kievan’s Card”

project, aimed at provision and accounting of electronic card-based social privileges for citizens.

Since 1999 the Bank has participated in the State Deposit Insurance Scheme (Certificate of Individuals Deposits

Guarantee Fund Membership # 019 of 16 October 2012). Being a permanent agent of the Individuals Deposits

Guarantee Fund, the Bank has carried out disbursements of deposits to depositors of 22 banks in liquidation and been

awarded an exclusive right to using the Fund’s logo on agreement letterheads and ATMs.

As per the performance results of 2012, the Bank remains a leader among operators in Ukraine’s precious metal market.

The Bank performs a wide range of transactions in precious metals in international and domestic markets: trading

operations (gold, silver, platinum, palladium); trading operations in precious-metal coins of foreign mints; opening and

maintenance of legal entities’ and individuals’ accounts; crediting legal entities in precious metals; attraction and

allocation of interbank deposits and loans.

The Bank successfully co-operates with the State Mortgage Institution in refinancing mortgages. As at 31 December

2012 the Bank was administering 121 mortgage loans worth USD 2,820 thousand.

The Bank is a member of the Professional Association of Registrars and Depositaries, PLC National Depository of

Ukraine, acts as a participant at the PLC National Securities Depository. Banking with the Bank are non-government

pension funds, 38 insurance companies, 12 asset management companies, 44 investment trusts and 8 special-purpose

programmes for selling to customers development companies’ certificates of participation and servicing the placement

securities from the State Property Fund of Ukraine.


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The Bank acts as an interbank clearing centre and has an extensive network of correspondent accounts with banks based in Ukraine and overseas, is an active member of SWIFT enabling itself to promptly execute customer and interbank payments globally with a high degree of security and minimal costs in any exchange. As of 31 December 2012 the Bank had correspondent nostro accounts with 46 banks, hosting loro accounts of 108 correspondent banks. To date, the Bank has facilities to service international customer contracts in 25 currencies, including the Uzbek Som, Indian Rupee, Hungarian Forint and in precious metals (gold, silver, platinum and palladium).

In 2012, for the second time, the Bank was awarded by the world’s leading Deutsche Bank AG (Germany) for the highest

payment quality in USD (the STP rating) – 99.8%. The receipt of this STP rating reduces risks, cuts the processing time

and international payment costs.

The Bank is a member of the PrJSC “Ukrainian Interbank Currency Exchange”, the “Fund Partnership” Association,

PrJSC “FSTS Stock Exchange” PJSC “Ukrainian Exchange”, the “Ukrainian Stock Traders” Association.

As at 31 December 2012 the Bank’s network consisted of 145 units: Head Office and 144 operating outlets (in 2011 –

152 units: Head Office, 2 branches and 149 outlets). Over 2012, decisions as to setting up or termination of branches or

outlets were not taken. The average number of Bank’s staff as at 2012 year’s end was 1,775 (as of 2011 year’s end –

1,968).

Below is the composition of the Bank’s Supervisory Board as at 31 December 2012:

Chairman of the Supervisory Board: Mr Andriy Gerasymenko

Members of the Supervisory Board:

Mr Arthur Abdinov

Mr Yevhen Voitko

Mr Ruslan Gamzatov

Mr Oleksiy Gorak

Mr Ruslan Kramarenko

Mr Artem Laznya

Ms Natalya Prudka

Ms Olexandra Fursenko

According to the Resolution of the General Meeting of Shareholders of 21 March 2013, the newly-elected structure of the Supervisory Board of the PJSC “CB “KHRESCHATYK” shalll take over 22 March 2013 and consist of the persons as follows:

Chairman of the Supervisory Board: Mr Andriy Gerasymenko

Members of the Supervisory Board:

Mr Arthur Abdinov

Mr Ruslan Gamzatov

Mr Oleksiy Gorak

Mr Ruslan Kramarenko

Mr Artem Laznya

Ms Natalya Prudka

Mr Yuriy Sereschenko

Ms Olexandra Fursenko

Below is the composition of the Bank’s Board of Directors as at 31 December 2012:

Chairman of the Board of Directors: Mr Dmytro Grydzhuk

Members of the Board of Directors:

First Deputy Chairpersons of the Board of

Directors: Ms Yuliya Tur

Mr Andriy Semenov

Deputy Chairmen of the Board of Directors: Mr Oleg Khodachuk

Mr Andriy Lisnyak

Deputy Chairman of the Board of Directors,

Head of the Financial Monitoring Department: Mr Volodymyr Gorodetskyi


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Chief Accountant: Ms Valentyna Yur

Chief Financial Officer: Ms Lyudmyla Karpenko

2. Bank’s Operating Environment

Ukraine’s economy in 2012 remained under the pressure of hard external economic conditions. Dominating recessionary

trends in global economy weakened the demand for the exported Ukrainian product range and led to significant price

cutting, which in turn adversely affected the dynamics of country’s economic indicators. The world financial crisis led to

instability of the capital market, deterioration of liquidity in the banking sector and more restrictive terms of crediting. All of

the above had a due impact on Ukraine’s banking system.

The slowdown of economic development led to a decrease in deposit growth rates in banking-sector corporate clients

and amounted, based on 2012 aggregates, to 8.8%, against 29.3% in 2011.

In conditions of external credit crunch, the population’s savings remained one of the main sources of the banking

system’s funding. The maintenance of positive dynamics, increased saving volumes and gradual restoration of trust to

the banking system in 2012 led to a 19.1% increase of population’s deposits.

Despite the increase of banks’ deposit basis, their lending activity was recovering at an insufficient pace. Based on 2012

aggregates, the increase of lending volumes was only enjoyed by the corporate sector, with the lending portfolio hitting a

5% increase. Moderate rates of corporate lending growth in 2012 were attributable to significant external risks and

uncertainty as to further development of the situation in financial and commodity markets.

One of the reasons that hampered the banks’ lending was their allocation of a considerable share of free resources into

investments in securities, specifically buying government securities. Over 2012 investments into securities, generally in

the banking system, grew 18.5%.

Aimed at maintaining price stability and national currency exchange rate, the National Bank of Ukraine, starting from the

second half-year, switched to a more moderate monetary policy through weighed-up use of monetary mechanisms and

tools. At the same time, under the increased volatility in global financial markets and deterioration of market

expectations, there was a fall of Ukrainian Hryvnya liquidity resulting in increased price of loaned resources.

Starting from June, there was a hike of the interest rates on term deposits and by the beginning of fourth quarter they

broke the 20% barrier. All of the circumstances affected the price of crediting, pushing up the interest rates in credit

operations.

The banking sector’s active efforts in fighting bad debts in 2012 afforded not only to reduce the level of problem loans,

but also to improve the performance results. Thus, the first time in the previous three years the banking system closed

the year with a positive balance of UAH 4.9 billion, as per the National Bank of Ukraine statistics.

Ukraine’s further economic development will depend on both: the external factors, which to a great extent will direct the

development of domestic economy, and government actions towards promoting consistent and necessary changes in

legislation, system of justice and regulation.

3. Summary of Significant Accounting Policies

These financial statements have been prepared in accordance with the International Financial Reporting Standards

(IFRS), set by the International Accounting Standards Board (IASB), and interpretations released by IFRS Interpretations

Committee.

The Bank’s functional currency is the currency of the primary economic environment where the bank operates. The

Bank’s functional currency is the national currency of Ukraine – Ukrainian Hryvnya. The presentation currency of the

financial statements herein is the US Dollar. The Bank’s management uses the US Dollar as the presentation currency in

the financial reporting for better presentation of the Bank’s financial position and performance results, as the US Dollar is

a currency of international settlements, and to enable the Bank’s overseas counterparties to assess the financial

information contained in its reporting. The reporting data are presented in thousands of US Dollars, unless otherwise

stated.


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The Bank carries out its accounting in accordance with the regulatory requirements as to organization of accounting and

reporting in bank institutions of Ukraine, set out by the National Bank of Ukraine rules in compliance with the International

Accounting Standards. These financial statements have been prepared based on bookkeeping entries, which are kept

according to rules set by the National Bank of Ukraine and includes adjustments and reclassifications in cases of

discrepancies between the provisions of the IFRS and the National Bank of Ukraine regulations.

These financial statements have been prepared under the historical cost convention, except for accounting of premises,

which are stated at the revalued amount in compliance with the requirements of IAS 16 “Fixed Assets”, and evaluation of

specific financial instruments, pursuant to IAS 39 “Financial Instruments. Recognition and Measurement” (hereinafter:

IAS 39) and investment property following the provisions of IAS 40 “Investment Property” which shall be recognized at

the fair value, and also assets held for sale in accordance with IFRS 5 “Non-current Assets Held for Sale and

Discontinued Operations” (hereinafter – IFRS 5), which are carried at the lower of values: carrying amount or fair value

less costs to sell.

Below is the summary of significant accounting policies that were used in preparation of these financial statements.

These principles have been applied consistently during all periods presented in the financial statements, unless

otherwise stated.

Financial instruments – key measurement terms.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing

parties in an arm’s length transaction. Fair value is the current bid price for financial assets and current asking price for

financial liabilities which are quoted in an active market. For assets and liabilities with offsetting market risks, the Bank

may use mid-market prices as a basis for establishing fair values for the offsetting risk positions and apply the bid or

asking price to the net open position as appropriate. A financial instrument is regarded as quoted in an active market if

quoted prices are readily and regularly available from an exchange or other institution and those prices represent

actual and regularly occurring market transactions on an arm’s length basis.

Valuation techniques such as discounted cash flows models or models based on recent arm’s length transactions or

consideration of financial data of the investees are used to fair value certain financial instruments for which external

market pricing information is not available. Valuation techniques may require assumptions not supported

by observable market data. Disclosures are made in these financial statements if changing any such assumptions to a

reasonably possible alternative would result in significantly different profit, income, total assets or total liabilities.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset

at the time of its acquisition and includes transaction costs. Measurement at cost is only applicable to

investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably

measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial

instrument. An incremental cost is one that would not have been incurred if the transaction had not taken

place. Transaction costs include fees and commissions paid to agents (including employees acting as selling

agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and

duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or

holding costs.

Amortized cost is the amount at which the financial instrument was carried 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 amortization 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 amortized discount or premium (including fees deferred at origination, if

any), are not presented separately and are included in the carrying values of related balance sheet items.

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


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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.

Bank’s accounting policies applied in recognition and measurement of specific assets and liabilities, income and expense

shall be disclosed in relevant notes to the financial statements herein.

Initial recognition of financial instruments. The Bank recognizes financial assets and liabilities in the Statement of

Financial Position in cases the Bank becomes a party to contractual commitments with regard to specified instrument.

Regular transactions of financial asset or liability purchase and sale are recorded at settlement date. All other purchases

and sales of financial asset or liability are recognized when the Bank becomes a party to the contractual provisions of

the financial instrument.

According to IAS 39, financial assets shall be classified accordingly as financial assets at fair value through profit or loss,

loans and accounts receivable, investments held to maturity, or financial assets available for sale.

Financial assets and liabilities are initially recognized at fair value plus transaction costs that are directly attributable

to the asset or liability acquisition or issue, in the case the financial asset or liability are recognized not at fair value

through profit or loss. In the absence of an active market, the basis for calculation of a current fair value shall be recent

arm’s length transactions.

Subsequently, financial assets and liabilities are carried at fair value, cost or amortized cost depending on their

classification. The accounting policy as to financial instruments’ subsequent revaluation is described below in relevant

provisions of the Summary of Significant Accounting Policies.

Impairment of financial assets. Financial assets, excluding financial assets at fair value through profit or loss, were

estimated as to indications of impairment as of the end of each reporting period. Impairment losses are recognized in

profit or loss when incurred. Financial assets are deemed impaired when there is an objective evidence that as a result of

one or more events (“loss events”) that occurred after the initial recognition of the financial asset, there was an adverse

impact on the estimated future cash flows from the investment.

For investments into equity instruments that are quoted or not quoted and classified as available for sale, a significant or

prolonged decline of these securities’ fair value below their cost shall be deemed an objective evidence of impairment.

For all other financial assets the evidence of impairment may be the factors as follows:

- Significant financial difficulty of the issuer or counterparty;

- A breach of contract, such as a default or delinquency in interest or principal payments;

- It becoming probable that the borrower will enter bankruptcy or other financial reorganization;

- Disappearance of an active market for the financial asset because of financial difficulties.

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.

Loans assessed for impairment separately (on the individual basis) and for which the impairment loss is recognized or

continues to be recognized shall not be included in the aggregate impairment estimate.

Another criterion for credit operations to be referred to the individually-assessed asset group is their belonging to the

Bank’s 30 biggest borrowers.

Accrued interest income for using loans is accounted for in the same portfolio where corresponding principal debt is

accounted for.

All credit operations of one borrower are assessed separately, with an estimate of credit risk related to each single

contract. In cases if in one borrower’s credit operations there are varied percentages of impairment loss provision and

identification of different categories of credit portfolio, all contracts of the said borrower shall call for the greatest of the

reservation percentages calculated under its contracts, and bear the same credit risk and is included in the same credit

portfolio category for calculation of impairment (individual or collective).

Analysis of objective evidence of impairment of a single financial instrument (loan) shall be carried out based on

indicators as follows:


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- If there are cases of overdue repayment of interest or principal;

- Indications that the Bank is likely to face difficulties with borrower repaying the full amount of loan and interest;

- Evidence of borrower’s financial difficulties;

- Changes in borrower’s performance indicators (figures for current and previous reporting periods): proceeds,

net profit (loss) over the period (comparative analysis with the same period of the previous year), balance to

reporting date, credit liability to reporting date, other current and long-term liabilities, statutory capital to

reporting date;

- Analysis of borrower’s cash flow in all current accounts and its sufficiency to pay back the commitments to the

Bank;

- Breach of credit contract terms during the period of use of borrowed funds and, in the first place, of timely

repayment of the loan, keeping to the timetable of loan service and pay-off, regardless of the time overdue;

- Change in borrower-legal entity’s management, conflicts among the founders and/or management, restructuring

and/or radical change of the business entity’s concept of development;

- Significant decrease in borrower’s market share and/or consolidation of competitors in the said market segment;

- Country’s or local political context that correlate with borrower’s default to pay back its commitments to the

Bank;

- Death of borrower - individual or bankruptcy of borrower - legal entity;

- Any other indications that can affect the assessment of the loan value.

Impairment of financial instrument (loan) is calculated as at the reporting date upon its carrying amount as amortised cost

which includes the principal, outstanding interest payable, premium and discount.

The impairment loss provision on financial instruments is equal to the amount of financial instrument impairment.

Impairment of a financial instrument is a loss of economic benefit in the amount exceeding the carrying amount of the

instrument over the amount of expected cash inflow, caused by one or several loss events, which took place after the

initial recognition of such an asset and affected the expected cash flow thereafter.

Provision for impairment loss is the Bank’s recognition of losses to reflect the real results of the Bank’s performance,

considering changes in qualiy of its assets, or in level of risk of its credit operations.

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.

Certain categories of financial assets (e.g. loans to customers), which are not estimated as individually impaired, are

additionally assessed collectively. Objective evidence for credit portfolio and accounts receivable impairment could be

taken from the Bank’s past experience in collecting loans, from increased number of overdue payments in the portfolio,

as well as from noticeable changes in the national or local economic environment, related to default to repay debts.

The carrying amount of the financial asset is reduced by the impairment through the impairment loss provision account.

For financial assets carried at amortized cost, 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 recognized, the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss, to an extent the carrying amount of the investment, as at the date the impairment is reversed, does not exceed the amortized cost that would have existed unless the decrease had been recognized.

In case when an asset available for sale is deemed impaired, the difference between its cost (less any principal

repayment and amortization) and the current fair value, less any impairment loss on that asset previously recognized in

profit or loss, is reclassified from other comprehensive income into profit or loss for the year.

With regard to equity instruments available for sale, the impairment loss previously recognized in profit or loss, are not

reversed. Any fair value appreciation after deduction of impairment loss is recognized in other comprehensive income

and accumulated in line ‘Investments Available for Sale Revaluation Surplus’ in the Statement of Financial Position. With

regard to debt securities available for sale, the impairment loss is reversed subsequently through the allowance account

in profit or loss, if the investment’s fair value appreciation can be related to an event, occurring after the impairment loss

was recognized.

Derecognition of financial instruments. Financial assets. The Bank derecognizes 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:


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also transferring substantially all the risks and rewards of ownership of the assets or

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.

Financial liabilities. The Bank derecognizes a financial liability when it is redeemed, annulled, or expired. Financial

liability shall be derecognized when it is settled, annulled, or expired. In the case a financial liability is changed for

another from the same creditor on significantly other terms, or the existing liability sustains significant alterations, then

the existing original liability shall be derecognized and the new liability shall come into force and the difference of the

relevant balance-sheet value is recognized in the Statement of Comprehensive Income.

Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Cash and cash equivalents include cash on hand, unrestricted balances on correspondent and time deposit accounts with the National Bank of Ukraine, balances on correspondent accounts with other banks and overnight deposits with other banks except for margin deposits for operations with plastic cards. Cash and cash equivalents shall be carried at amortized cost. Mandatory cash balances with the National Bank of Ukraine. Mandatory cash balances with the National Bank of Ukraine are carried at amortized cost and represent 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 Statement of Cash Flows.

Due from other banks. Amounts due from other banks are recorded when the Bank advances money to counterparty banks, which are due for repayment at a fixed or determined date. The Bank has no intention of trading the resulting unquoted non-derivative receivable. Amounts due from other banks are carried at amortized cost.

Loans and advances to customers. Loans and advances to customers are the Bank’s non-derivative financial instruments, with fixed or determinable repayments, unquoted in an active market, save for the assets classified as other categories of financial assets.

Loans, issued by the Bank were initially recognized at fair value with regard to all expenses incurred. Further loans shall

be carried at amortized cost applying the effective interest method. The issued loans are carried with a deduction of any

impairment loss provision. The interest income and loss resulting from impairment are recognized in profit or loss. In the

case of doubts as to the possibility of loan repayment, its value is reduced to the current value of the expected cash flow;

after which the interest income is recognized based on the effective interest rate used for the purpose of measuring the

impairment loss.

Over 2012 no loans were written off. The Bank’s management continuously analyses the loans with renegotiated terms

to make sure that all the criteria have been met and future payments will be effected.

Repossessed collateral. Repossessed collateral represents financial and non-financial assets acquired by the Bank in settlement of overdue loans. The assets are initially recognized at fair value when acquired and subsequently remeasured and accounted for in accordance with the accounting policies for these categories of assets.

Credit related commitments. The Bank enters into credit related commitments, including letters of credit and financial guarantees. 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 recognized at their fair value, which is normally evidenced by the amount of fees received. This amount is amortized on a straight-line basis over the life of the commitment, except for loan commitments 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 unamortized 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.

Investment securities available for sale. This classification includes investment securities – debt securities, shares and other equity instruments – which are intended for sale and that are not classified as trade securities or securities held to maturity, namely debt securities which the Bank has no intention and/or ability to keep until the maturity date, or because of certain accounting limitations for securities held to maturity; debt securities, which the Bank is ready to sell in response to needs for liquidity or changes in interest rates or currency risks, exchange rates or availability and profitability of alternative investments, sources and terms of financing; shares and other equity instruments whose fair value is not determinable.


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The Bank initially recognizes securities as available for sale at fair value plus the transaction costs. Bank’s securities available for sale (except for equity instruments whose fair value is not determinable) in subsequent periods are carried at fair value. The fair value assessment methods are established by the Bank’s internal regulation.

Shares and other equity instruments, whose fair value cannot be determined reliably, shall be carried at cost with regard

to impairment.

Interest income on available-for-sale debt securities is calculated using the effective interest method at the reporting date, at least once a month in profit or loss for the year. Dividends on available-for-sale equity instruments are recognised in profit or loss for the year when the Bank’s right to receive payment is established. Other investment securities. This classification includes financial assets with fixed or determinable payments and fixed maturities, which the Bank is determined and able to keep until the maturity date. The Bank shall not recognize securities as held to maturity if:

the Bank does not have funds to finance the securities until maturity;

the Bank has an intention to hold the securities indefinitely;

the Bank is ready to sell the securities in the event of market interest rate changes, risks, liquidity requirements;

the terms of perpetual debt securities issue stipulate the payment of interest for an indefinite time (i.e. there is no maturity date);

the issuer has the right to redeem the securities with an amount significantly lower than the amortized cost;

there is a legal or other limitation precluding the Bank from an intention to hold securities until maturity;

during the current or two previous financial years the Bank sold before maturity date a considerable amount (50% or more) of the total amount of securities held until maturity.

Initially debt securities held to maturity are recognized by the Bank at their fair value plus transaction costs. Subsequently, debt securities held to maturity are carried at amortized cost, applying the effective interest rate calculated as at the instrument’s initial recognition or as at the last change in the nominal interest rate less impairment allowance. The interest income on debt securities held to maturity is recognized in profit or loss under the effective interest rate method, at least monthly.

Investment property. This classification includes:

Own premises in the case the proportion of the overall floor space used by the Bank for operation and administrative purposes does not exceed 10%;

Land held for gains from capital appreciation in the long-term perspective, but not for disposal in the short term in the course of operations;

Land held for a currently undetermined use;

Building under the Bank’s title or its use under a finance lease contract and is rented under one or several operating lease contracts;

Building that is to date vacant, but intended for operating lease under one or several contracts;

Estate under construction or renovation for future use as investment property. After initial recognition the Bank’s investment property is measured at fair value with recognition of fair value changes in profit or loss for the year. Amortization and impairment are not recognised. Investment property is recognized at fair value, based on reports made by a firm of independent appraisers. The last appraisal was carried out at 5 October 2012. The fair value was established with the use of price comparison method. Premises and equipment. This classification includes tangible fixed assets, which the Bank holds with intent to use in the course of its operation, rending services, leasing to other parties or for performing administrative functions; estimated useful life of which is over one year and whose value per unit or set is over UAH 1 000. The premises intended for rendering services or administrative purposes were recognized in the Statement of Financial Position as at 31 December 2012 at fair value, land plots – at cost, other tangible fixed assets – at cost less accumulated depreciation. The premises are subject to annual revaluation to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Increases in the carrying amount arising from revaluation are credited to other comprehensive income and increase the revaluation surplus in equity. Decreases that offset previous increases of the same asset are recognized in other comprehensive income and decrease the previously recognized revaluation surplus in equity; all other decreases are charged to profit or loss for the year. The last premises appraisal was performed in October 2012 by professional appraisers, using the sales price comparison method and income method. The revaluation reserve for premises included in equity is transferred directly to retained earnings when the revaluation surplus is realized on retirement or disposal of the asset, or as the asset is used by the Bank; in the latter case, the amount of the surplus realized is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost.


14

Intangible assets. This category includes non-monetary assets, which do not have material form, are not money or assets held that have to be received in a fixed or determined amount of money, and can be identified. The Bank’s intangible assets have definite useful life and primarily include capitalized computer software. Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring them to use. Capitalized costs include staff costs of the software development team and an appropriate portion of relevant overheads. All other costs associated with computer software, e.g. its maintenance are expensed when incurred. Revaluation of intangible assets was not performed over the reporting period. With the purpose of establishing the impairment loss the carrying amount of tangible and intangible assets at the end of each reporting period is subject to comparison with their recoverable amount. If the carrying amount exceeds the recoverable amount it is reduced to the recoverable amount.

Construction in progress is carried at cost. Upon completion, assets are transferred to premises at their carrying amount. Construction in progress is not depreciated until the asset is ready for use. Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing major parts or components of premises and equipment items are capitalized.

Depreciation. Construction in progress and land are not depreciated. Depreciation on other items of premises and equipment is calculated using the straight-line method to allocate equal cost or revalued amounts to their residual values over their estimated useful lives as follows: Useful lives in years Premises 50 Furniture and fixtures 8-15 Computers and office equipment 5-10 Motor vehicles 5 `Intangible assets 1-10 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. Depreciation of low-value non-current tangible assets is charged in the first month of facility’s use at 100% of its cost.

Over the reporting period the Bank did not change the amortization method for tangible and intangible fixed assets.

Finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred. Whether the lease is a finance lease or operating lease depends on the substance of the transaction, rather than the form of the contract. The lease shall be classified as finance lease in the case when:

the lease transfers ownership of the asset to the lessee by the end of the lease term;

the lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than the fair value at the date the option becomes exercisable; and that, at the inception of the lease, it is reasonably certain that the option will be exercised;

the lease term is for the major part of the useful life of the asset. Title may or may not eventually be transferred;

the present value at the inception of the lease of the minimum lease payments is greater than, or equal to substantially all of the fair value of the leased asset; and

the leased assets belong to such specialized assets that only the lessee can use them without making significant modifications.

Over the reporting period no fixed assets were leased.

Acquisition of facilities of finance lease is effected at fair price, stipulated in the finance lease contract, with regard to

circumstances like the number of product units, terms of obligations discharge, payment terms customary for this kind of

operations, as well as other objective factors that can affect the price. At the same time, the contract terms shall be

comparable in the market of identical products, as the difference between the said terms shall not essentially impact the

price and be economically grounded.

During 2012 the Bank (lessee) made a finance lease contract with regard to a motor vehicle.

The Bank (lessor) recognizes finance lease transactions in the Statement of Financial Position under the line Loans and

Advances to Customers.


15

Operating lease is Bank’s economic transaction whereby the lessor conveys to the lessee a fixed asset, acquired or

produced by the lessor, on terms other than those in finance lease.

In the event the Bank acts as Lessor, the operating lease income is defined under the straight-line method within the

term of the relevant lease contract.

In the event the Bank acts as Lessee, the operating lease contract transactions are carried as expenses under the

straight-line method within the term of the relevant lease contract, except for cases where another system method better

reflects the course of time, during which the economic benefits of the leased assets are realized.

Bank’s expenses as Lessee towards the asset’s, hired on operating-lease terms, improvement – renovation, alteration,

building works, added equipment, conversion, etc – that were conductive to increased future benefits, than those

originally expected from the asset’s use, were reflected in accounting as capital investments in creation (building) of

other non-current tangible assets. Maintenance costs of non-current assets, received in operating lease, are recognized

in the item Administrative and Other Operating Expenses in the Statement of Comprehensive Income.

The assets subject to lease shall be the non-current assets in the ownership of the Bank/Lessor.

The assets subject to operating lease shall be presented in the Statement of Financial Position of the Lessor. In 2012 the

Bank provided and received assets under operating lease. In particular, the Bank is holding premises for the Bank’s

Head Office under operating lease contract .

Non-current assets held for sale. The Bank classifies non-current assets as held for sale if their carrying value will be

recovered principally through a sale transaction rather than through continuing use.

Non-current assets shall be classified as held for sale if at the date of the decision-making as to their recognition as

assets held for sale they meet the requirements as follows: the assets must be available for immediate sale in its present

condition and it is highly probable that they will be sold within one year from the date of classification.

Prior to initial classification of assets as held for sale the Bank shall determine their carrying amout at fair value.

The Bank shall proceed with classification of assets as held for sale if the sale of these assets was not effected within

one year of their classification due to events or circumstances beyond the Bank’s control and also if there is sufficient

evidence that the plan of the non-current asset(s) sale is still at the stage of implementation.

If as at the date of asset’s classification as held for sale the aforementioned criteria are not met, but will be met in three

months’ term after classification, the Bank is allowed to classify them as those held for sale.

Non-current assets that are held for sale shall be evaluated at the lower of two values: carrying amount or fair value less

costs to sell. Depreciation on non-current assets held for sale is not charged.

Derivative financial instruments. Derivative financial instruments recognised by the Bank during 2012 were not hedging instruments. The Bank effected Depo Swap transactions: credits (deposits) were issued and taken in the interbank market with the same counterparty, in different currencies and the same maturity.

Additionally, the Bank carried out trading operations in foreign currencies and precious metals on forward and swap

terms. These transactions are accounted for in conformity with IAS 39 as derivative financial instruments.

Gains and losses resulting from these transactions are included in profit or loss for the period in the Statement of

Comprehensive Income.

All derivative financial instruments are initially recognised and carried at their fair value. Transaction costs are recognized as an expense at their initial recognition.

After initial recognition derivative financial instruments are carried at their fair value without deducting any transaction

costs.

Revaluation of derivative financial instruments, which include over-the-counter instruments, is carried out by the Bank if

their fair value changes and is recognised in the Statement of Comprehensive Income.


16

The fair value of derivative financial instruments that are traded in organized markets is established at their market value.

If the quotes for derivative financial instruments are unavailable, banks establish the fair value through application of the

methods as follows:

- Reference to the market price of another similar instrument;

- Analysis of discounted cash flows;

- Other methods that ensure reliable determination of derivative financial instruments’ fair value.

Borrowed funds. Borrowed funds comprise due to other banks, other financial institutions, customer accounts and debt

securities in issue. Debt securities issued by the Bank as at 31 December 2012 consist of interest-bearing bonds.

Over 2012 the Bank did not issue own debt securities.

The Bank initially recognizes its financial liabilities at fair value less transaction costs.

After initial recognition on each subsequent reporting date the Bank measures its financial liabilities at amortized cost.

Interest expense incurred on financial liabilities is calculated at the effective interest rate and charged to profit or loss at

least once a month and presented in the Statement of Comprehensive Income.

Provisions for liabilities. Provisions for liabilities are recognized when the Bank has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions for contingent liabilities are assessed in compliance with IAS 37 “Provisions, Contingent Liabilities and

Contingent Assets”, which stipulates measurement and proffessional judgment application.

Contingent liabilities are not recognized in the Statement of Financial Position, but disclosed in the notes to the financial

statements, except for the events when the use of the resources in settlement of the liability is negligible. Contingent

asset is not recognized in the Statement of Financial Position, but disclosed in the notes to financial statements in the

event there is probability of economic benefits.

Subordinated debt is regular, unsecured debt equity instruments, which pursuant to the Contract can not be settled

earlier than five years; and in the event of Bank’s bankruptcy or liquidation will be repaid to the investor after meeting

claims of all other creditors. The sum of subordinated debt, included into the regulatory capital, shall be reduced by 20%

of its initial size annually, in the course of the five successive years after the Contract. Subordinated debt may be

included into the regulatory capital upon receiving a permission of the National Bank of Ukraine.

Income tax. The income tax charges comprise current tax and deferred tax. Current income tax charges are based on taxable annual profit. Taxable profit is distinguished from the net profit recognized in the Statement of Comprehensive Income, as it does not include the income or expenditure items taxable in other years. The Bank’s current income tax expenses are calculated based on the use of tax rates, effective over the reporting period; and is recognized in profit or loss for the year except if it is recognized in other comprehensive income or directly in equity, because it relates to transactions that are also recognized, in the same or a different period, in other comprehensive income or directly in equity. The Bank’s tax accounting is in compliance with the provisions of the Tax Code of Ukraine, the Order of the Ministry of Finance of Ukraine of 21 December 2011 #1683 “On Approval of Form of Bank’s Income Tax Return” (as amended) and other regulatory legislative acts in taxation of banks’ income. Deferred income tax. Deferred tax is calculated at tax rates that are enacted at the end of the reporting period which are expected to apply to the perod when the temporary difference will reverse or the tax loss carry forwards will be utilised. Deferred tax is recognized in profit or loss for the year except if it is recognized in other comprehensive income or directly in equity because it relates to transactions that are also recognized in other comprehensive income or directly in equity.

Calculation of tax and deferred tax was effected based on the tax rate, namely: from 01 January 2011 till 31 March 2011

at 25%, from 01 April 2011 – at the rate of 23%, starting from 01 January 2012 till 31 December 2012 inclusive - at 21%,

from 01 January 2013 till 31 December 2013 – at 19%, from 01 January 2014 - at 16%.

Deferred income tax is a tax that, as expected, has to be paid or reimbursed, at the differences between the carrying

amount of assets and liabilities for financial reporting purposes and their tax bases used when calculating taxable profit,

and which is accounted for using the balance sheet liability method. Deferred tax liabilities are normally recognized with

regard to all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that

future taxable profit will be available against which the deductable taxable differences can be utilised. Such assets and


17

liabilities are not recognized in the financial statements if temporary differences arise within a transaction that does not

affect the amount of tax or accounting profit.

The carrying value of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is not

probable that future taxable profit will be available against which that asset can be utilised completely or partially.

Deferred tax assets and deferred tax liabilities in income tax are offset and the net amount reported in the Statement of

Financial Position when the Bank has a legally enforceable right to offset current income tax assets against current

income tax liabilities.

Share capital is the shareholders’ paid commitments in subscription to the shares which were duly registered in full

compliance with Ukrainian legislation.

Increase (decrease) in the Bank’s share capital is in strict conformity to the procedure established by the National

Securities and Stock Market Commission. Under the Laws of Ukraine “On Banks and Banking” and “On Public Limited

Companies”, as well as the Bank’s Articles of Association a decision to issue shares is taken by the General Meeting of

Shareholders.

The nominal amount of the share capital was adjusted to account for the effect of the hyperinflation on the capital

contributions made before 1 January 2001. The respective amount was reclassified from retained profit to share capital

(note 22).

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. Income and expenses recognized in the Bank’s financial statements are classified into income and expenses resulting

from the Bank’s operational, investment and financial operations.

Income and expenses recognized in the Bank’s financial statements provided the following criteria are satisfied:

- With regard to assets and liabilities – there is a real indebtedness;

- With regard to rendered (received) services – financial result is measurable and there is a contract on rendering

(receipt) of services and/or documental proof of complete (partial) execution thereof.

Provided the aforementioned criteria are not met, income/expenses are recognized by the Bank upon the actual

receipt/payment of funds.

Foreign currency translation. Monetary assets and liabilities denominated in foreign currencies are translated into functional currency at the official exchange rate of the National Bank of Ukraine 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 National Bank of Ukraine are recognized in profit or loss for the year (as gains less losses from trading in foreign currencies and foreign exchange translation gains less losses, respectively). 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 instruments, 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.


18

The results and financial position of the Bank are translated into the presentation currency as follows: (i) assets and liabilities for statement of financial position presented are translated at the closing rate at the end of the respective reporting period; (ii) income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); (iii) components of equity are translated at the historic rate; and (iv) all resulting exchange differences are recognized in other comprehensive income. The principal rates of exchange used for translating foreign currency balances were as follows:

31 December 2012 31 December 2011 31 December 2010

року UAH / 1 USD 7.993 7.9898 7.9617

UAH / 1 Euro 10.537172 10.298053 10.573138

The principal average rate of exchange used for translating income and expenses was: USD 1 = UAH 7.9913 (in 2011 -

USD 1 = UAH 7.9679, in 2010 –USD 1 = UAH 7.9349).

Financial assets purchased or sold in foreign currency exchange transactions are recognized or derecognized, as

applicable, using settlement date accounting.

Precious metals. Current accounts and term deposits with other banks, those of other banks and customers, loans

issued to customers in gold and other precious metals are accounted at the National Bank of Ukraine exchange rate,

which approximately equals the fair value of precious metals and is established based on the London Bullion Market

Association (exchange) quotes. The aforementioned instruments are carried under Financial Instruments in the

Statement of Financial Position. Changes in the National Bank of Ukraine exchange rates are recognized in the

Statement of Comprehensive Income as gains or losses on precious metals revaluation.

Precious metals are recognised in the Statement of Financial Position under Other Financial and Non-Financial Assets,

and governed by IAS 2 “Inventories”, which stipulates that they must be accounted at the lower of values: carrying

amount or fair value less costs to sell. Changes in precious metals value are recognised in gains or losses in the

Statement of Comprehensive Income. The fair value is established by the international market price plus fee costs:

trader’s, bars’ manufacture, cost of their insurance and transportation. The established fair price less costs to sell is

adjusted to the US Dollar rate at the Interbank Currency Exchange of Ukraine.

The carrying amount of precious metals and their fair value less costs to sell were as follows:

UAH per ounce 31 December 2012 31 December 2011

Carrying amount

(equivalent at

NBU rate)

Fair value less

costs to sell

Carrying amount

(equivalent at

NBU rate)

Fair value less

costs to sell

Gold 34 129 34 956 41 680 43 165

Silver 3 233 3 280 3 251 3 632

Platinum 8 8 - -

Offsetting of assets and liabilities. Offsetting of financial assets and liabilities with subsequent reporting their net

amounts in the Statement of Financial Position may be only effected provided there is a legally enforceable right to offset

the recognized amounts and there is an an intention to either settle on net basis, or to realize the asset and settle the

liability simultaneously.

During 2012 the Bank did not perform offsetting of financial assets and liabilities.

Effect of comparative information recalculation and of change in accounting estimates. In 2012 changes were

introduced into comparative data of the financial statements. Introduction of changes into financial statements was

caused by harmonization of the accounting data and the financial statements prepared under IFRS requirements.


19

The lines of the Statement of Financial Position for 2011 and 2010 comprised adjustments, as follows:

- “Loans and Advances to Customers” presented ajusted loans refinanced by the State Mortgage Institution and

discounts on loans of individuals in the amount of USD 1 799 thousand and USD 2 037 thousand

correspondingly;

- “Investment Securities for Sale” contained adjusted first day results of debt financial instruments recognition in

the amount of USD 9 906 thousand as at 31 December 2011;

- “Other Investment Securities” presented ajusted results of the first day of recognition of debt financial

instruments in the amount of USD 4 056 thousand and USD 5 149 thousand correspondingly;

- “Deferred income Tax Asset” contained adjusted sums of the deferred tax, related to the first day of recognition

of debt financial instruments in the amount of USD 3 413 thousand and USD 802 thousand correspondingly;

- “Premises and Equipment” presented ajusted depreciation related to harmonization of financial reporting to

accounting records in operational system of the Bank - USD 1 349 thousand and USD1 623 thousand

correspondingly;

- “Other Financial and Non-financial Assets” presented written-off receivables in the amount of USD 73 thousand

as at 31 December 2011;

- “Other Borrowed Funds” presented funds received as refinanced loans from the State Mortgage Institution in

the amount of USD 1 750 thousand and USD 2 037 thousand correspondingly;

- “Accumulated Deficit” presented adjustments related to mentioned above, USD 13 308 thousand and USD 7

968 thousand correspondingly;

- “Other Reserves” presented adjusted amounts related to adjustments of debt financial instruments recognition

held as the Bank’s investment securities available for sale, by USD 1 388 thousand and USD 1 711 thousand

correspondingly;

The lines of the Statement of Comprehensive Income for 2011 comprised adjustments, as follows:

- “Interest Income” presented interest income in the amount of USD 24 thousand in loans, refinanced by the State

Mortgage Institution, and amortization of loan discounts and debt securities in the amount of USD 921

thousand;

- “Interest Expense” presented recognized interest expenses on loans refinanced by the State Mortgage

Institution in the amount of USD 24 thousand;

- “First Day Loss” presented adjusted results of the first day recognition of debt financial instrument in the amount

of USD 6 188 thousand;

- “Loan Impairment Loss Provision” presented adjustment for the written off loans in the amount of USD 3,053

thousand;

- “Administrative and Other Operating Expenses” presented adjusted carrying value of tangible fixed assets and

were written off the accounts receivable in the amount of USD 342 thousand;

- “Income Tax Credit” presented adjusted deferred tax asset based on the results of the first day recognition of

debt financial instruments in the amount of USD 2,595 thousand;

- “Gains less losses from revaluation of available-for-sale investment securities” presented changes in revaluation

of of available-for-sale investment securities that resulted in adjustment in the amount of USD 291 thousand.

The Bank also made changes in presentation of the credit risk of financial assets, approximating it to the disclosure

format of financial reporting for regulatory purposes.

Below is the effect of recalculation of comparative data:

Statement of Financial Position at 31 December 2011

In thousands of US Dollars Notes As

presented in

previous

period

Restatement Restated at 31

December 2011

ASSETS

Cash and cash equivalents and mandatory reserves 6 142 118 - 142 118

Due from other banks 7 2 856 - 2 856

Derivatives 229 - 229

Loans and advances to customers 8 525 848 1 799 527 647

Investment securities avalable for sale 9 55 713 9 906 65 619


20

Other investment securities 10 16 818 4 056 20 874

Current income tax prepayment 960 - 960

Deferred income tax asset 28 7 941 (3 413) 4 528

Premises and equipment 13 29 889 1 349 31 238

Intangible assets 12 2 491 - 2 491

Other financial and non-financial assets 14 24 629 (73) 24 556

TOTAL ASSETS 809 492 13 624 823 116

LIABILITIES

Due to other banks 16 79 986 - 79 986

Derivative liabilities 1 427 - 1 427

Customer accounts 17 609 149 - 609 149

Debt securities in issue 18 833 - 833

Other borrowed funds 19 - 1 750 1 750

Other financial and non-financial liabilities 20 14 585 - 14 585

Subordinated debt 21 39 241 - 39 241

TOTAL LIABILITIES 745 221 1 750 746 971

EQUITY

Share capital 22 133 021 - 133 021

Accumulated deficit (25 369) 13 308 (12 061)

Currency translation reserve (47 840) (46) (47 886)

Other reserves 23 4 459 (1 388) 3 071

TOTAL EQUITY 64 271 11 874 76 145

TOTAL LIABILITIES AND EQUITY 809 492 13 624 823 116

Statement of Comprehensive Income for 2011

In thousands of US Dollars Notes As presented

in previous

period


December 2011

Interest income 24 100 882 (897) 99 985

Interest expense 24 (75 110) (24) (75 134)

Net interest income 25 772 (921) 24 851

Provision for loan impairment (6 618) 3 053 (3 565)

Net interest income after provision for loan

impairment

19 154 2 132 21 286

Fee and commission income 25 14 230 14 230

Fee and commission expense 25 (2 529) (2 529)

Loss on initial recognition of assets at rates

below market

(6 188) 6 188 -

Gains less losses from trading in foreign

currencies

3 897 (3 897) -

Foreign exchange translation losses less gains (217) 217 -

(Losses less gains)/gains less losses on

disposal of investment securities available for

sale

(73) - (73)

Gains less losses from trading in precious

metals

- 1 695 1 695

Gains less losses from revaluation of available-

for-sale investment securities

- (667) (667)

Gains less losses from trading in foreign

currencies

- 2 202 2 202

Foreign exchange translation gains less losses - 450 450

Other operating income 26 570 - 570

Administrative and other operating expenses 27 (39 582) (342) (39 924)


21

Losses less gains from financial derivatives (2 863) - (2 863)

Loss before tax (13 601) 7 978 (5 623)

Income tax credit 28 1 846 (2 595) (749)

LOSS FOR THE YEAR (11 755) 5 383 (6 372)

Other comprehensive income

Gains less losses from revaluation of available-

for-sale investment securities

23 942 291 1 233

Income tax recorded directly in other

comprehensive income

23 (263) 668 405

Income tax effects (amendments to the Tax

Code)

669 (669) -

Exchange differences on translation to

presentation currency

(271) 231 (40)

Other comprehensive income after tax for

the year

1 077 521 1 598

TOTAL COMPREHENSIVE LOSS FOR THE

YEAR

(10 678) 5 904 (4 774)

8.Loans and advances to customers

In thousands of US Dollars As presented in

previous period


December 2011

Corporate loans 95 545 (35 264) 60 281

Loans to state and municipal organisations 412 878 38 508 451 386

Mortgage loans to individuals 5 443 - 5 443

Loans to individuals - consumer loans 34 750 (2 808) 31 942

Loans to individuals – entrepreneurs 22 678 1 538 24 216

Provision for loan impairment (45 446) (176) (45 622)

Total loans and advances to customers 525 848 1 799 527 647

Analysis of changes in loan impairment provision for 2011 is as follows:

In thousands of US Dollars Corporate

loans

Loans to

individuals -

entrepreneurs

Mortgage

loans to

individuals

Loans to

indivi-

duals -

consumer

loans

Total

Balance at 1 January (29 085) (499) (3 749) (9 151) (42 484)

(Provision)/reversal of provision for loan

impairment during the period before

restatement

(7 231) 81 (444) 976 (6 618)

(Provision)/reversal of provision for loan

impairment during the period after

restatement

(4 000) 81 (621) 976 (3 565)

Bad debts write-off against provision before

restatement

3 238 - - - 3 238

Bad debts write-off against provision

after restatement

17 - - - 17



318 8 30 53 409

Balance at 31 December after

restatement

(32 750) (410) (4 340) (8 122) (45 622)

9. Investment Securities Available for Sale


previous period


December 2011

Bonds: 55 669 9 906 65 575


22

government bonds 6 960 488 7 448

municipal bonds 1 253 - 1 253

corporate bonds 47 456 9 418 56 874

Equity instruments carried at cost 44 3 47

Provision for available-for-sale investment securities

impairment

- (3) (3)

Total available-for-sale investment securities less

provision for impairment

55 713 9 906 65 619

10.Other Investment Securities


previous period


December 2011

Corporate bonds 16 818 4 056 20 874

Total other investment securities 16 818 4 056 20 874

12. Premises and Equipment

In thousands of US

Dollars

Land and

premises

Office and

computer

equipment,

and others

Motor

vehicles

Other non-

current

assets

Construction

in Progress

Total

Carrying amount as

stated in the

previous period

18 870 5 093 - - 5 926 29 889

Cost (valuation) 21 200 14112 1 898 - 5 926 43 136

Accumulated

depreciation

(2 330) (9 019) (1 898) - - (13 247)

Restatement 569 (1 444) 380 1 728 116 1 349

Carrying amount at

the end of 2011

(restated)

19 439 3 649 380 1 728 6 042 31 238

Cost (valuation) 21 243 9 266 1 623 4 792 6 042 42 966

Accumulated

depreciation

(1 804) (5 617) (1 243) (3 064) - (11 728)

13.Intangible Assets

In thousands of US Dollars Computer software

Carrying amount as stated in the previous period 2 491

Cost 3 802

Accumulated depreciation (1 311)

Restatement -

Carrying amount at the end of 2011 (restated) 2 491

Cost 3 776


14.Other Financial and Non-financial assets


previous period

Restatement Restated as of 31

December 2011

Total other financial assets 571 (73) 498

Accrued income 276 - 276

Other settlements with clients 451 (73) 378

Provision for other financial assets (156) - (156)

Total other financial assets 24 058 - 24 058


23

Repossesed collateral 13 829 - 13 829

Precious metals 5 625 - 5 625

Prepayments 4 527 (400) 4 127

Prepaid advances for assets 38 365 403

Warehouse inventory in stock 36 (36) -

Other assets 3 71 74

Total other financial and non-financial assets less

provision

24 629 (73) 24 556

19. Other Borrowed Funds


previous period


December 2011

Loans refinanced by the State Mortgage Institution - 1 750 1 750

Total - 1 750 1 750

23. Other Reserves


previous period

Restatement 2011 (restated)

Revaluation of available-for-sale investments: (422) (273) (695)

changes in fair value 942 291 1 233

Revaluation of tangible and intangible assets: 3 580 (1 438) 2 142

revaluation surplus transferred to retained earnings (60) 46 (14)

Income tax related to:

changes in revaluation of available-for-sale

investments

(263) 668 405

Income tax effects 13 (13) -

Income tax effects (amendments to the Tax Code) 669 (669) -

Total other reserves 4 459 (1 388) 3 071

24. Interest Income and Expense


previous period


December 2011

Interest Income

Loans and advances to customers 91625 (9 697) 81 928

Loans and advances to customers(impaired) - 8 800 8 800

Due from other banks 3733 (2 682) 1 051

Debt investment securities available for sale 3256 - 3256

Other investment securities 2268 - 2268

Correspondent accounts with other banks - 2 682 2 682

Total interest income 100882 (897) 99 985

Interest expense

Term deposits of individuals (43 822) - (43 822)

Term deposits of legal entities (15 183) - (15 183)

Current/settlement accounts (7 863) - (7 863)

Subordinated debt (3 604) - (3 604)

Corresponded accounts of other banks (2 686) (2 686)

Overnight placements of other banks (713) (713)

Debt securities in issue (566) (566)

Term placements of other banks - (673) (673)

Term placements of other banks (606) 606 -


24

Borrowing from the National Bank of Ukraine (67) 67 -

Other funds - (24) (24)

Total interest expense (75 110) (24) (75 134)

Net interest income 25772 (921) 24 851

27. Administrative and Other Operating Expenses


previous period


December 2011

Staff costs (20 953) - (20 953)

Maintenance costs of fixed assets and intangibles,

communication and other services

- (4 050) (4 050)

Operating lease expense (4 331) 332 (3 999)

Insurance - (2 572) (2 572)

Depreciation of premises and equipment (2 044) (269) (2 313)

Taxes other than on income (228) (1 807) (2 035)

Professional services (500) (638) (1 138)

Security services (1 111) 27 (1 084)

Amortisation of software and other intangible assets (505) - (505)

Advertising and marketing services (321) - (321)

Charity and sponsorship (213) (213)

Payment card blanks acquisition (43) (43)

Business trip expenses (111) (111)

Operational form stock acquisition (50) (50)

Membership fees (50) (50)

Communications (1 213) 1 213 -

Other costs ofpremises and equipment (2 437) 2 437 -

Guarantee fund for individual deposits (1 807) 1 807 -

Other (4 132) 3 645 (487)

Total administrative and other operating expenses (39 582) (342) (39 924)

28. Tax effects of deferred tax assets and deferred tax liabilities recognition for 2011


previous period


December 2011

Premises and equipment 282 (397) (115)

Provision for loan impairment (544) - (544)

Fair valuation of investment securities available for sale 1 832 (1 832) -

Accruals 504 (2) 502

Other (19) (19)

Revaluation of assets - (411) (411)

Otherinvestments (loss on initial recognition) 639 (639) -

Tax loss carried forward 5 247 (132) 5 115

Net deferred tax asset 7 941 (3 413) 4 528

Recognised deferred tax asset 8 504 (2 887) 5 617

Recognised deferred tax liabilities (563) (526) (1 089)


25

Statement of Financial Positionat 31 December 2010

In thousands of US Dollars Notes As

presented

in previous

period


December 2010

ASSETS

Cash and cash equivalents and mandatory reserves 189 342 - 189 342

Due from other banks 6 623 - 6 623

Derivatives 566 - 566

Loans and advances to customers 8 498 869 2 037 500 906

Investment securities avalable for sale 9 33 834 - 33 834

Other investment securities 10 15 799 5 149 20 948

Current income tax prepayment 1 022 - 1 022

Deferred income tax asset 28 5 689 (802) 4 887

Premises and equipment 12 30 774 1 623 32 397

Intangible assets 13 1 088 - 1 088

Other financial and non-financial assets 14 35 319 - 35 319

TOTAL ASSETS 818 925 8 007 826 932

LIABILITIES

Amounts due to the National Bank of Ukraine 18 840 - 18 840

Due to other banks 16 104 144 - 104 144

Derivative liabilities 411 - 411

Customer accounts 17 576 115 - 576 115

Debt securities in issue 18 2 720 - 2 720

Other borrowed funds 19 - 2 037 2 037

Other financial and non-financial liabilities 20 2 530 - 2 530

Subordinated debt 21 39 216 - 39 216

TOTAL LIABILITIES 743 976 2 037 746 013

EQUITY

Share capital 22 133 021 - 133 021

Accumulated deficit (13 661) 7 958 (5 703)

Currency translation reserve (47 569) (277) (47 846)

Other reserves 23 3 158 (1 711) 1 447

TOTAL EQUITY 74 949 5 970 80 919

TOTAL LIABILITIES AND EQUITY 818 925 8 007 826 932

8.Loans and Advances to Customers

In thousands of US Dollars 31 December

2010


December 2010

Corporate loans 107 309 - 107 309

Loans to state and municipal organisations 357357 - 357 357

Mortgage loans to individuals 5 807 - 5 807

Loans to individuals - consumer loans 37 628 2 037 39 665

Loans to individuals - entrepreneurs 33 103 - 33 103

Provision for loan impairment (42 335) - (42 335)

Total loans and advances to customers 498 869 2 037 500 906


26

10. Other Investment Securities


2010


December 2010

Corporate bonds 15 799 5 149 20 948

Total other investment securities 15 799 5 149 20 948

11.Intangible Assets


Carrying amount as stated in the previous period 1 088

Cost 1 912

Accumulated depreciation (824)

Restatement -


Cost 1 886


12.Premises and Equipment

In thousands of US Dollars Land and

premises

Office and

computer

equipment,

and others

Motor

vehicles

Other non-

current

assets

Construction

in progress

Total

31 December 2010 18 174 5 841 145 6 614 30 774

Cost (valuation) 20 140 13 758 1 939 - 6 614 42 451

Accumulated depreciation (1 966) (7 917) (1 794) - - (11 677)

Restatement 766 (1 705) 449 2 056 58 1 623

Restated at

31 December 2010

18 940 4 136 594 2 055 6 672 32 397

Cost (valuation) 20 183 8 845 1 663 4 920 6 672 42 283

Accumulated depreciation (1 243) (4 709) (1 069) (2 865) - (9 886)



2010

Restatement Restated

at 31 December 2010

Loans refinanced by the State Mortgage Institution - 2 037 2 037

Total - 2 037 2 037

22. Other reserves


2010


at 31 December 2010

Revaluation of available-for-sale investments (422) (280) (702)

Revaluation of premises 3 580 (1 431) 2 149

Total revaluation reserves 3 158 (1 711) 1 447

28.4. Tax effects of deferred tax assets and deferred tax liabilities recognition for 2010


previous period


at 31 December 2010

Premises and equipment (1 599) - (1 599)

Provision for loan impairment 112 - 112

Revaluation of assets 500 500


27

Accruals 430 - 430

Other investments (loss on initial recognition) 802 (802) -

Tax loss carried forward 5 442 - 5 442

Other 2 2

Net deferred tax asset 5 689 (802) 4 887

Recognised deferred tax asset 7 288 (802) 6 486

Recognised deferred tax liabilities (1 599) - (1 599)

In past periods the repossessed assets as per kinds of loans were recognized in the Statement of Financial Position

under Other Financial and Non-financial Assets and were accounted for in compliance with IAS 2 “Inventories” at the

lower of two values: carrying amount or fair value less costs to sell. In 2012 the Bank effected reclassification of the

aforementioned property into Investment Property and Non-Current Assets Held for Sale. The property value was

established as at the date of reclassification at fair value, pursuant to the reports made by independent experts.

Bank’s changes in repossessed collateral accounting were made prospectively.

4 Critical Accounting Estimates, and Judgments in Applying Accounting Policies

In the course of financial reporting preparation the Bank makes estimates and assumptions that affect the amounts recognized in the financial statements. The Management shall make estimates and take professional judgments on a regular basis. Estimates and judgments are based on information, available in Bank’s management as of the reporting dates. Consequently, actual results may differ from such estimates and judgments. Apart from judgments that envisage accounting estimates, Management also makes certain judgments, apart from those involving estimations, in the process of applying the accounting policies. Judgments that have the most significant effect on the amounts recognized 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:

Impairment losses on loans and advances. Evaluation of loan impairment loss provision requires significant professional judgments. The Bank regularly reviews its loan portfolios to assess impairment. The Bank makes judgments as to whether the loan impairment loss provision is sufficient to absorb the loss incurred from the credit portfolio reduced cash flow. Calculation of the amount of loan impairment loss provision is based on the probability of writing off assets and the expected losses from this writing off. These estimates are made through application of statistical methodologies applied to historic experience. The findings are adjusted based on the Management’s professional judgments.

The Bank believes that accounting estimates related to estimation of loan impairment loss provision are the main source of uncertainty due to: (i) their being especially sensitive to change from period to period, as long as the assumptions regarding the future defaults on commitments and the estimate of potential losses, resulting from loan and advance impairment are based on Bank’s recent performance indicators; and (ii) any significant difference between the Bank’s anticipated losses (carried in reserves) and actual losses will call for Bank’s creating provisions, which in the event of significant difference, may considerably affect its Statement of Comprehensive Income and Statement of Financial Position in future periods.

The Bank uses its Management’s professional judgments in the course of impairment loss amounts estimation, when a borrower starts facing financial difficulties and there is lack of any historical data related to similar borrowers. Likewise, the Bank effects an estimate of future cash flows based on historical data, customer’s behavior in the past, available for review information, that should indicate to adverse changes in borrowers’ solvency within a group, as well as in the national or local economic context that is conductive to defaults on borrowed assets within the group. The Management applies estimates based on historical experience with regard to incurrence of losses caused by credit risk and objective indications of impairment, that are similar to another group of loans. The Bank’s Management applies professional judgments for adjustment of available for review information for groups of loans with an intent to reflect the current circumstances, missing in historical data. Amounts of loan impairment loss provisions recognized in financial reporting were determined with regard to existing economic and political context. The Bank is not able to foresee what kind of changes in the economic and political situation will take place in Ukraine and what kind of impact such changes may have on the sufficiency of loan impairment loss provision in future periods.

Deferred income tax asset recognition. The recognized deferred tax assets are determined for all temporary differences put on tax expenses, in the extents there is probability to earn taxable income, through which these differences will be possible to realize. The probability estimate is based on Management’s forecast as to the future taxable income, and is complemented by their subjective judgments. Based on the estimates drawn on Bank’s 2012 performance and taking into account plans about future development, the Bank established the deferred income tax asset recognition in as much as to meet the requirements in future periods.


28

Continuity of operations. This financial reporting was prepared based on the assumption that the Bank is capable of continuing its operations on a continuous basis in the near future. Provisions for absorbing losses from financial guarantees and other contingent liabilities. These are evaluated in compliance with IAS 37 “Provisions. Contingent Liabilities and Contingent Assets” which requires application of Management’s estimate and judgment. Tax laws. Owing to certain provisions found in the Ukrainian Contract Law and, specifically, Tax Code that can be interpreted in more than one way, as well as to the established practice existent in the unstable Ukrainian economic environment that the taxation authorities arbitrarily construe varied aspects of economic activity, the Bank may be bound to accept additional tax liabilities, fines and surcharges in the event the tax inspection challenges certain interpretations that are based on Bank’s judgment. Taxation records remain open for revaluation by the tax inspection for three years. Fair value of premises. Premises occupied by the Bank are subject to regular revaluation. These revaluations are based on the results of appraisal effected by an independent appraisal company 1 October 2008, which in the course of appraisal used professional judgment and estimates to find building analogues, assets’ useful life and income capitalization ratio. Management considered a need to further revaluation of the premises of the Bank as of 31 December 2012 and concluded that such revaluation was unnecessary since the overall fair value of premises did not differ significantly from their carrying amount as at that date.

Fair value of collateral. Bank’s collateral was used in calculation of provisions against credit risks at fair value, based on reports, made by an independent appraisal company in 2011 and Bank’s staff appraiser, who is a certified appraiser. The appraisers used comparative sales approach and professional opinions of experts in determining the fair value of collateral. Determination of collateral’s fair value requires judgments, application of assumptions as to comparability of facilities and use of other factors. Drawing on the above, the loan impairment loss provisions may be affected by the collateral’s appraised value. The book price of real estate is the main source of uncertainty, because recognition of appraisal change may potentially have a significant impact.

Initial recognition of transactions with related parties. In the course of regular business the Bank performs

transactions with related parties. IAS 39 obligates to account financial instruments at initial recognition at fair value. For

the lack of an active market of such operations, in order to establish whether or not the said transactions were performed

at market prices and rates the Bank uses professional opinion. Grounds for such judgments shall be pricing of the said

instruments in this kind of transactions, including the analysis of the effective interest rate and deal parameters.

Presentation of each budget item of Other Comprehensive Income in the Statement of Changes in Equity.

Amended IAS 1, which became effective 1 January 2009, requires from business entities to submit verified balance-

sheet value of each component of equity as of the beginning and end of the reporting period, disclosing each change

separately. This may include presentation of financial position and each budget line of other kinds of income in the

Statement of Changes in Equity. The Management analyzed the level of essentiality and came to a conclusion that the

Bank may only present this kind of information in the Statement of Comprehensive Income, and that omission of the

same information in the Statement of Changes in Equity will not create an essential lack of information. In making this

conclusion the Management considered the examples, contained in the implementation recommendations, attached to

the amended IAS 1.

5. Adoption of New and Revised Standards

New standards, amendments and interpretations that were issued by IASB but didn’t become effective for the year ended 31 December 2012 and were not implemented by the Bank.

Amendments to IAS 19 “Employee Benefits” (issued in July 2011) – key changes aimed at exclusion of “corridor principle”, modifications in accounting for payments related to dismissal, and improvement of requirements for recognition and disclosure of fixed payments systems. Amendments are effective for the annual reporting periods beginning on or after 1 January 2013.

Revised IAS 27 “Separate Financial Statements” (issued in May 2011) – revised and renamed standard now applies only to requirements for separate financial statements that were carried over unchanged from IAS 27 “Consolidated and Separate Financial Statements”. This standard basically requires from the subject to account investments in subsidiaries, associates and jointly controlled ventures either at cost or in accordance with IFRS 9 “Financial instruments”, while preparing separate financial statements. It also includes requirements for the recognitions of dividends, certain group restructuring and some disclosure requirements. It becomes effective for the annual reporting periods beginning on or after 1 January 2013.

Revised IAS 28 “Investments in associates and joint ventures” (issued in May 2011) – revised and renamed standard specifies the accounting of investments in associates and establishes requirements of the application of equity method in accounting in associates and joint ventures. The standard give a definition of “significant effect”, describes how to use the equity method (as well as some exceptions when the equity method is not applied), and establishes the procedure for


29

testing impairment of investments in associates and joint ventures. It becomes effective for the annual reporting periods beginning on or after 1 January, 2013.

Amendments to IAS 32 “Offset of financial assets and financial liabilities” (issued in December 2011) – amendments concerning disadvantages of the current practice of offset criteria in IAS 32, explain the meaning of “currently has a legally enforceable right of off-set”, and that some of the gross arrangements can be considered equivalent to net arrangements. They become effective for the annual reporting periods beginning on or after 1 July, 2014.

Amendments to IFRS 7 “Financial assets and financial liabilities: disclosure” (issued in December 2011) – amendments allow investors to eliminate differences in reporting requirements on IFRS and US GAAP offsets, and make new disclosures that provide better information about overcoming credit risk by companies, including the appropriate collateral or received security. They become effective for annual reporting periods beginning on or after January 1, 2013.

IFRS 9 “Financial instruments” (issued in November 2009 and amended in October 2010) – this standard introduces new requirements for the classification and measurement of financial assets and financial liabilities and their derecognition. IFRS 9 requires all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” to be subsequently measured at amortized cost or fair value. Specifically debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods. The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the accounting for changes in fair value (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Now, under IAS 39, the entire amount of the change in the fair value of the financial liability designated at fair value though profit or loss is recognized in profit or loss. Terms of refusal of recognition (the cancellation of the balance sheet) are carried over unchanged from IAS 39. IFRS 9 becomes effective for the annual reporting periods beginning on or after 1 January 2015 (early application is permitted).

IFRS 10 “Consolidated Financial Statements” (issued in May 2011) – the new standards defines control principles, sets out the way of determining whether an investee is under the control of the investor, and, therefore whether the investor should consolidate an investee, and sets out principles for preparing consolidated financial statements. It introduces a single consolidation model for all entities, based on whether the investor has power over the investee, rights to variable returns from its involvement with the invested and the ability to use its power over the investee to affect the amount of returns. IAS 10 replaces some parts in IAS 27 “Consolidated and Separate Financial Statements” and SIC 12 “Consolidation – Special Purpose Entities” and becomes effective for the annual reporting periods beginning on or after January 1, 2013. IFRS 11 “Joint arrangements” (issued in May 2011) – defines joint control and requires an entity that is a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and to account for those rights and obligations in accordance with that type of joint arrangement. Joint arrangements are classified for joint operation and joint ventures:

- a joint operation give the parties that have joint control of the arrangement (joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement.

- a joint venture give the parties that have joint control of the arrangement (joint ventures) have rights to the net assets of the arrangement. Joint ventures are accounted for using the equity method in accordance with IAS 28 “Investments in Associates” (2011). Unlike the IAS 31, the proportionate consolidation method is no longer used in a joint venture.

IFRS 11 becomes effective for the annual reporting periods beginning on or after 1 January 2013.

IFRS 12 “Disclosure of Interest in Other Entities” (issued in May 2011) – a new standard combines, improves and replaces the disclosure requirements for subsidiaries, arrangements, associates, and companies that are not a subject to consolidation. It requires enhanced disclosures, so that financial statement users are able to evaluate the nature of participation in other entities, associated risks as well as the effect of this participation on the financial position, financial performance and cash flows of the company. IFRS 12 is effective for the annual reporting periods beginning on or after 1 January 2013.

IFRS 13 “Fair Value Measurement” (issued in May 2011) – a new standard provides a precise definition of fair value, sets out in a single IFRS a framework for measuring fair value, requires disclosure about fair value measurements. IFRS 13 applies when another IFRS requires or permits fair value measurement. It doesn’t introduce any new requirements regarding the assessment of assets or liabilities at fair value or changes to those articles that are measured at fair value in IFRS, and doesn’t show how to represent the changes in fair value. New requirement are effective beginning on or after 1 January 2013. The Bank is currently assessing the possible impact of these amendments on its financial statements.


30

Other revised standards and interpretations: Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards” concerning loans from the government; amendments to IAS 16 “Fixed assets”, relating to the classification of service equipment; amendments to IAS 32 “Financial Instruments: presentation” regarding tax effect accounting allocating between equity holders; amendments to IAS 34 “Interim Financial Reporting” regarding disclosure by segment total assets in order to facilitate compliance with IFRS 8 “Operating Segments”.

Amendments to IFRS 10 “Consolidated financial statements”, IRFS 11 “Joint venture agreements” and IFRS 12

“Disclosure of interests in other companies”, according to which the requirement to provide comparative information is

limited to only prior comparative period; amendments to IFRS 11, IFRS 12 and IAS 27 provide “investment companies”

(as defined in the standards) with exemption from consolidation of certain subsidiaries

Other standards and interpretations that became effective for the annual reporting periods ended on or after 1 January 2012 Amendments to IAS 1 “Presentation of Financial Statements” (issued in June 2011) – these amendments improve presentation of components of other comprehensive income. Basically, the entities shall group items in other comprehensive income, depending on their subsequent reclassification to profit or loss. These amendments are effective for the annual reporting periods ended on or after 1July 2012.

Amendments to IAS 12“Deferred tax: refund of underlying assets” (issued in December 2010) – this amendment assumed that the carrying value of an asset measured using the fair value model in IAS 40 “Investment property” will be usually reimbursed through sales. Amendments to IAS 12 also include instructions for assets that are not subject to amortization which were previously contained in SIC 21 (“Income Taxes –recovery of revalued assets that are not subjected to amortization”) and therefore were excluded. These amendments are effective for the annual reporting periods ended on or after 1 January 2012.

Unless otherwise stated above, no material impact of these new standards and interpretations is expected on the Bank’s

financial statements

6. Cash and Cash Equivalents and Mandatory Reserves

In thousands of US Dollars 2012 2011

Cash on hand 27 721 26 622

Cash balances with the National Bank of Ukraine (other than mandatory

reserve deposits)

24 710 15 980

Mandatory reserve deposit with the National Bank of Ukraine 201 3 822

Correspondent accounts, deposits and overnight placements with the banks 132 109 95 694

Total cash and cash equivalents and manadatory reserves 184 741 142 118

All cash balances of the Bank are on correspondent accounts with the investment counterparty banks and other banks

that are neither bankrupt or under liquidation, nor under temporary administration or offshore. Information regarding

geographical concentration in disclosed in Note 30.

Maximum credit risk exposure per one counterparty bank as at 31 December 2012 was USD 45 475 thousand, which is

cash on correspondent accounts with the investment bank.

The Bank’s cash and cash equivalents for the purposes of Statement of cash flows were as follows:


Cash on hand 27 721 26 622

Cash balances with the National Bank of Ukraine (other than mandatory

reserve deposits)

24 710 15 980

Correspondent accounts, deposits and overnight placements with the banks 132 014 95 694

Total cash and cash equivalents 184 445 138 296

7. Due from Other Banks


Term deposits 4 944 2 000

Guarantee deposits 1 106 856

Total due from other banks 6 050 2 856


31

Maximum credit risk exposure per one counterparty bank as at 31 December 2012 was USD 4 944 thousand, which is a

short-term loan due from other bank.

Analysis by credit quality of due from other banks is as follows:


Neither past due nor impaired

With other banks of Ukraine 4 944 2 000

With big banks from OECD countries 1 106 856

Total neither past due nor impaired 6 050 2 856

8. Loans and Advances to Customers


(Restated)

Loans to state and municipal organizations 57 348 60 281

Corporate loans 495 634 451 386

Loans to individuals – entrepreneurs 4 875 5 443

Mortgage loans to individuals 29 285 31 942

Loans to individuals – consumer loans 21 325 24 216

Provision for loan impairment (38 857) (45 622)

Total loans and advances to customers 569 610 527 647

Maximum credit risk exposure per one counterparty as at 31 December 2012 was USD 57 348 thousand, which is a

long-term loan to municipal organisations.

Movements in the provision for loan impairment during 2012 were as follows:


loans

Loans to

individuals -

entrepreneurs

Mortgage

loans to

individuals

Loans to

individuals –

consumer

loans

Total

Provision for loan impairment at 1

January 2012 (Restated)

(32 750) (410) (4 340) (8 122) (45 622)

(Provision)/ Reversal of provision for loan

impairment during the year

5 722 147 200 681 6 750

Sale of loan debt - - - 4 4

Translation differences 8 - 1 2 11


December 2012

(27 020) (263) (4 139) (7 435) (38 857)

Movements in the provision for loan impairment during 2011 were as follows:


loans

Loans to

individuals -

entrepreneurs

Mortgage

loans to

individual

s

Loans to

individuals –

consumer

loans

Total


January 2011

(29 085) (499) (3 749) (9 151) (42 484)

Restated (Provision)/ Reversal of provision

for loan impairment during the year

(4 000) 81 (621) 976 (3 565)

Restated amounts written off against

provision (allowances)

17 - - - 17

Translation differences 318 8 30 53 409


December 2011

(32 750) (410) (4 340) (8 122) (45 622)


32

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


Amount % Amount %

Trade, repair of motor vehicles, household and consumer goods 132 576 21,8 49 254 8,6

Financial services 111 761 18,4 77 628 13,6

Real estate, lease, engineering and services 81 087 13,3 12 924 2,3

Cities and municipalities 57 348 9,4 60 281 10,5

Food processing 45 706 7,5 102 650 17,9

Transport and communication sector 43 841 7,2 41 456 7,2

Construction 36 598 6,0 91 260 15,9

Other manufacturing 16 624 2,7 10 931 1,9

Textile industry 14 915 2,5 12 146 2,1

Agriculture, hunting and forestry 8 163 1,4 12 137 2,1

Other 9 237 1,5 46 443 8,1

Loans to individual 50 611 8,3 56 158 9,8

Total loans and advances to customers (before impairment) 608 467 100,0% 573 269 100,0%

Information about collateral as at 31 December 2012 is as follows:

In thousands of US Dollars Loans to

state and

municipal

organisa-

tions

Corporate

loans

Loans to

indivi-

duals-

entrepreneu

rs

Mortgage

loans to

indivi-duals

Loans to

individual

s –

consumer

loans

Total

Unsecured loans - 144 079 302 8 101 11 064 163 547

Loans collateralised by: 57 348 351 555 4 572 21 184 10 261 444 920

- cash deposits - 110 360 122 137 781 111 400

- securities 47 002 - - - - 47 002

- real estate 10 346 220 506 4 179 20 955 8 136 264 121

- other property - 20 688 271 92 1 345 22 396

Total loans and advances

(before impairment)

57 348 495 634 4 875 29 285 21 325 608 467

Pursuant to Regulation on procedure of provisioning for loan impairment according to IFRS the Bank classifies as

unsecured the loans, actually collateralized by non-government securities; by property rights on future harvest; by

properly rights on cash deposits under agreements; and by properly rights on non-residential real estate.

Information about collateral as at 31 December 2011 is as follows:

In thousands of US Dollars Loans to state

and municipal

organisations

Corporate

loans

Loans to

individuals-

entrepre-

neurs

Mortgage

loans to

individuals

Loans to

indivi-

duals –

consumer

loans

Total

Unsecured loans 3 230 9 438 109 10 064 9 900 32 741

Loans collateralised by: 57 051 441 948 5 334 21 878 14 316 540 528

- cash deposits - 74 087 232 165 518 75 002

- securities 36 820 - - - - 36 820

- real estate 20 231 258 609 4 516 21 644 11 906 316 907

- other property - 109 253 586 68 1 892 111 800


to customers (before

impairment)

60 281 451 386 5 443 31 942 24 216 573 269


33

Analysis of loans by credit quality as at 31 December 2012 is as follows:


state and

municipal

organisa-

tions

Corporate

loans

Loans to

individuals-

entrepre-

neurs

Mortgage

loans to

individuals

Loans to

indivi-

duals –

consumer

loans

Total

Neither past due nor

impaired:

57 348 256 828 4 313 25 235 5 563 349 288

Large borrowers with credit

history over 2 years

57 348 41 397 - - - 98 746

loans to medium-size

business entities

- 33 092 - - - 33 092

loans to SME - 182 339 4 313 - - 186 651

loans to individuals - - - 25 235 5 563 30 799

Past due but not impaired: - 2 367 5 285 1 433 4 089

up to 31 days past due - - - 171 287 458

32 to 92 days past due - - - - 8 8

93 to 183 days past due - 1 513 - 87 41 1 641

184 to 365 days past due - 854 5 27 127 1 013

over 365 days past due - - - 1 969 970

Impaired loans, individually

assessed:

- 236 439 557 3 765 14 330 255 091

Not past due orup to 31 days

past due

- 203 639 - 1 291 5 778 210 707

32 to 92 days past due - 142 - 166 74 382

93 to 183 days past due - 88 - 8 18 114

184 to 365 days past due - 20 344 525 - 242 21 111

over 365 days past due - 12 226 32 2 300 8 218 22 776

Total loans before

impairment

57 348 495 634 4 875 29 285 21 325 608 467

Provisions for loan

impairment

- (27 020) (263) (4 139) (7 435) (38 857)


to customers

57 348 468 614 4 611 25 146 13 891 569 610

According to the Bank’s policy each loan is classified as ‘neither past due nor impaired’ until a specific objective evidence

of impairment of loan is identified. In the absence of objective evidence of impairment of an individually assessed

financial asset, it is grouped with other financial assets with similar credit risk characteristics, which are collectively

assessed for impairment.

Amounts classified as ‘past due but not impaired’ rather present total balances on such loans, than specific past due

payments.

Analysis of loans by credit quality as at 31 December 2011 is as follows:


state and

municipal

organisa-

tions

Corporate

loans

Loans to

individuals-

entrepre-

neurs

Mortgage

loans to

indivi-

duals

Loans to

indivi-

duals –

consumer

loans

Total

Neither past due nor

impaired:

60 281 411 812 4 865 28 951 13 098 519 008

Large borrowers with credit

history over 2 years

60 281 102 888 - - - 163 169

new large borrowers - 105 024 - - - 105 024

loans to medium-size

business entities

- 133 831 - - - 133 831


34

loans to SME - 70 069 4 865 - - 74 934

Otherloans to individuals - - - 28 951 13 098 42 050

Past due but not impaired: - 35 4 760 3 378 4 176

up to 31 days past due - 35 4 197 1 779 2 014

32 to 92 days past due - - - 401 603 1 004

93 to 183 days past due - - - 104 185 289

184 to 365 days past due - - - - 141 141

over 365 days past due - - - 58 671 729

Impaired loans, individually

assessed:

- 39 540 574 2 231 7 740 50 085

Not past due orup to 31 days

past due

- - - - 34 34

32 to 92 days past due - 1 716 - 138 38 1 892

93 to 183 days past due - 339 - - 821 1 160

184 to 365 days past due - 4 490 74 - 143 4 707

over 365 days past due - 32 995 501 2 093 6 703 42 292

Total loans before

impairment

60 281 451 386 5 443 31 942 24 216 573 269

Provisions for loan

impairment

- (32 750) (410) (4 340) (8 122) (45 622)


to customers

60 281 418 636 5 033 27 602 16 094 527 647

The Bank classifies entities as small (SME), medium-sized and large depending on the number of its employees and

gross income from sales for the year, as follows:

- SME (regardless of ownership) are entities that in average employ not more than 50 employees and which

gross income from sales of goods (works, services) is not more than UAH 70 000 thousand for the reporting

year (equivalent of USD8 758 thousand);

- Large are entities – that in average employ not more than 250 employees and which gross income from sales of

goods (works, services) is not more than UAH 100 000 thousand for the reporting year (equivalent of USD 12

511 thousand).

All other entities are classified as medium-sized.

The effect of collateral fair value as at 31 December 2012 is as follows:

In thousands of US Dollars Loans and advances


impairment)

Collateral

fair value

Effect

Loans to state and municipal organisations 57 348 57 348 0

Corporate loans 495 634 351 554 144 079

Loans to individuals - entrepreneurs 4 875 4 572 302

Mortgage loans to individuals 29 285 21 184 8 101

Loans to individuals – consumer loans 21 325 10 261 11 064

Total 608 467 444 920 163 547

Collateral value is determined based on its market value. Market value is determined by independent expert or by the

Bank’s risk management department officer, who is a qualified certified appraiser and acts on the basis of the Law of

Ukraine "On the valuation of property, property rights and professional appraisal activity in Ukraine." Collateral value for

the purpose of this disclosure is adjusted by the collateral value rate taken into account at calculating net credit risk

exposure according to the Regulation on procedure of provisioning for loan impairment under the international standards

in PJSC CB Khreschatyk.

During 2012 the Bank repossessed the borrowers’ pledged property, including non-residential real estate, production

equipment and land plot as a payback for issued loans. The value of the above property was determined as of the date

of its repossession according to the independent experts’ reports or at cost of the property acquisition. The Bank does

not plan to use the repossessed property for its own business needs but expects to sell it in the nearest future.


35

The effect of collateral fair value as at 31 December 2011 is as follows:

In thousands of US Dollars Loans and advances


impairment)

Collateral fair

value

Effect

Loans to state and municipal organisations 60 281 57 051 3 230

Corporate loans 451 386 441 948 9 438

Loans to individuals - entrepreneurs 5 443 5 334 109

Mortgage loans to individuals 31 942 21 878 10 064

Loans to individuals – consumer loans 24 216 14 316 9 900

Total 573 269 540 528 32 741

9. Investment Securities Available for Sale


(Restated)

Debt securities: 160 602 65 575

government bonds 43 278 7 448

municipal bonds - 1 253

corporate bonds 117 324 56 874

Equity instruments carried at cost 46 47

Provision for available-for-sale investment securities impairment (3) (3)

Total investment securities 160 645 65 619

Maximum credit risk exposure per one non-government sector counterparty as at 31 December 2012 was USD 20 130

thousand.

According to the National Bank of Ukraine regulations the Bank can satisfy its mandatory reserve requirements by:

- Ukrainian government bonds issued to finance EURO 2012 preparation activities in Ukraine (EURO 2012

bonds) in the amount 50% of their par value;

- Ukrainian government bonds nominated in foreign currency at 10% of their par value in their Hryvnya equivalent

calculated on the basis of the official forex rate of the National Bank of Ukraine as at the first date of the month

that follows the preceding reserve reporting period.

As at 31 December 2012 the Bank satisfied its mandatory reserve requirements with EURO 2012 Ukrainian government

bonds in total nominal value of USD 6 393 thousand and with Ukrainian government bonds nominated in foreign

currency in total nominal value of USD 35 000 thousand (carrying value of the above bonds amounts to USD 43 262

thousand).

As at 31 December 2012 and 2011 the Bank has no pledged or repurchased securities.

Analysis of debt securities by credit quality as at 31 December 2012 is as follows:

In thousands of US Dollars Govern-

ment

bonds

Corporate

bonds

Total

Current, not impaired: 43 278 117 324 160 602

state organisations 43 278 - 43 278

medium-sized entities - 7 318 7 318

SME - 110 006 110 006

Total debt securities 43 278 117 324 160 602


36

Analysis of debt securities by credit quality as at 31 December 2011 is as follows:

In thousands of US Dollars Govern-

ment

bonds

Municipal

bonds

Corporate

bonds

Total

Current, not impaired: 7 448 1 253 56 874 65 575

state organisations 7 448 - - 7 448

municipal organizations - 1 253 - 1 253

large entities - - 1 809 1 809

medium-sized entities - - 41 774 41 774

SME - - 13 292 13 292

Total debt securities 7 448 1 253 56 874 65 575

10. Other Investment Securities


(restated)

Corporate bonds 20 866 20 874

Total other investment securities 20 866 20 874

The Bank’s other investment securities include one issuer’s investments in securities issued under state guarantee

provided by the Cabinet of Ministry of Ukraine.

Analysis of other investment securities by credit quality as at 31 December 2012 and 31 December 2011 is as follows:


Neither past due nor impaired bonds of large entities 20 866 20 874

Total other investment securities less provision 20 866 20 874

11. Investment Property


Investment property fair value as at 31 December 2011 - -

Transition from inventory 1 380 -

Investment property fair value as at 31 December 2012 1 380 -

Minimum future lease payments for non-cancellable operating lease where the Bank is a Lessor is as follows:


Up to 1 year 83 54

1 to 5 years 28 56

Total payments due from operating lease 111 110

12. Premises and Equipment

In thousands of US Dollars Land and

premises

Office and

computer

equipment

Motor

vehicles

Other non-

current

assets

Construction

in progress

Total

Carrying value at the

beginning of 2011 (restated)

18 940 4 136 594 2 055 6 672 32 397

Cost (valuation) 20 183 8 845 1 663 4 920 6 672 42 283


Additions 1 102 366 78 173 1 103 2 822

Capital expenditure 30 44 - 104 - 178

Disposal 0 (6) (10) (15) (1 709) (1 740)


37

Depreciation (567) (1 011) (280) (455) - (2 313)

Exchange differences on

translation to presentation

currency

(66) (12) (1) (3) (24) (106)

Other changes - 132 (1) (131) - -

Carrying amount at the end of

2011 (restated)

19 439 3 649 380 1 728 6 042 31 238

Cost (valuation) 21 243 9 266 1 623 4 792 6 042 42 966


Additions 891 637 175 157 1 434 3 294

Capital expenditure - 26 1 23 - 50

Transfer to non-current assets

held for sale

- - (49) - - (49)

Disposal - (3) (1) (9) (1 402) (1 415)

Depreciation (431) (902) (164) (447) - (1 944)

Exchange differences on

translation to presentation

currency

(7) (1) - - (3) (11)

Other changes 23 (3) - (20) - -

Carrying value at the end of

2012

19 915 3 403 342 1 432 6 071 31 163

Cost (valuation) 22 170 9 766 1 205 4 697 6 071 43 909

Accumulated depreciation (2 255) (6 363) (863) (3 265) - (12 746)

As at 31 December 2012 there were no land plots or premises with statutory restrictions on their ownership, use or

disposal.

The Bank has not pledged any non-current assets. As at 31 December 2012 there were no assets disposed with the

purpose of sale.

Cost (valuation) of depreciated premises and equipment amounts to USD 2 780 thousand.

13. Intangible Assets.

Changes in intangible assets that comprise licenses for computer software are as follows:


Carrying value at the beginning of 2011 (restated) 1 088

Cost 1 886


Additions 1 468

Capital investments 444

Disposal -

Depreciation (505)

Exchange differences on translation to presentation currency (3)

Other changes (1)


Cost 3 776


Additions 569

Capital investments 422

Transfer to non-current assets held for sale -

Disposal (1)

Depreciation (525)

Exchange differences on translation to presentation currency -


38

Other changes -

Carrying value at the end of 2012 2 956

Cost 4 731


14. Other Financial and Non-Financial Assets


(Restated)

Receivables on payment cards operations 1 188 -

Receivables on money transfer and other operations with customers 464 -

Receivables on foreign currency transactions 212 -

Payments to the guarantee fund for individual deposits 191 -

Other accrued income 166 276

Other financial assets 92 378

Provision for other financial assets (464) (156)

Total other financial assets less provision 1 849 498

Repossessed collateral - 13 829

Precious metals 4 675 5 625

Prepayments 2 510 4 127

Other assets 636 403

Prepaid advances for assets 1 74

Provision for other assets (2) -

Total other assets less provision 7820 24 058

Total other financial assets less provision 9 668 24 556

Pledged property repossessed by the Bank mostly includes non-residential premises and apartments received by the

Bank as a payback for past due loans. In 2011 these assets were classified as inventory according to IAS 2 “Inventories”

and were initially recognized and purchased at fair value. In 2012 the Bank reclassified the above assets to investment

property and assets held for sale. The property cost (value) was determined as at the reclassification date as fair value

based on the reports of independent appraisers.

15. Non-Current Assets Held for Sale


Premises and equipment 20 260 -

Total non-current assets held for sale 20 260 -

16. Due to Other Banks


Correspondent accounts and overnight placements of other banks 119 190 75 199

Term loans received 32 802 4 787

Guarantee deposit received 37 -

Total due to other banks 152 029 79 986

17. Customer Accounts


State and public organisations 20 011 1 712

Current accounts 17 505 1 712

Term deposits 2 505 -

Other legal entities: 278 702 221 614


39

current accounts 68 113 77 618

term deposits 210 589 143 996

Individuals: 423 031 385 823

current accounts 70 457 62 013

term deposits 352 574 323 810

Total customer accounts 721 743 609 149

Economic sector concentrations with customer accounts are as follows:


Amount % Amount %

Individuals 423 031 58,61 385 823 63,34

Agriculture, hunting and forestry 99 010 13,72 79 363 13,03

Finance and insurance 80 972 11,22 45 620 7,49

Processing industry 40 263 5,58 26 795 4,40

Trade and repair of cars, household equipment and

devices

17 024 2,36 13 987 2,30

Other 61 443 8,51 57 561 9,44

Total customer accounts 721 743 100 609 149 100

As at 31 December 2012 and 31 December 2011 the customer accounts in the amount of USD 575 thousand and 1 093

thousand, respectively, were held to secure guarantees issued to clients.

18. Debt Securities in Issue


Bonds issued on domestic securities market - 833

Total - 833

As at 31 December 2012 the Bank issued interest-bearing registered bonds as follows:

- Series «G» in the amount of UAH 140 000 thousand (equivalent of USD 17 515 thousand) that are not in

circulation, with declared interest rate of 17%; maturity date 23 January 2013.

- Series «Н» in the amount of UAH 200 000 thousand (equivalent of USD 25 022 thousand), that are not in

circulation, with declared interest rate of 20%; maturity date 24 January 2013.

Pursuant to the resolution of JSC "PFTS” Stock Exchange" № 0106/2012/6 of 1 June 2012 regular interest-bearing

registered bonds of the Bank series «F» were moved from PFTS 2nd Tier Listing to off-listing and were redeemed on 24

September 2012.

As at 31 December 2012 regular interest-bearing registered bonds series «G» issued in a non-documentary form were

admitted to trade on PFTS Stock Exchange in total nominal value of UAH 140 000 thousand (equivalent of USD 17 515

thousand) in total number of 140 thousand bonds; and regular interest-bearing registered bonds of PJSC CB

Khreschatyk series «H» issued in a non-documentary form in total nominal value of UAH 200 000 thousand (equivalent

of USD 25 022 thousand) in total number of 200 thousand bonds.


In thousands of US Dollars 2012 2011 (Restated)

Loans refinanced by the State Mortgage Institution 2 821 1 750

Total other borrowed funds 2 821 1 750


40

20. Other Financial and Non-FinacialLiabilities


Repayment by the guaranty fund of individual deposits 1 666 -

Payables on payment card transactions 829 -

Money transfer and other payables 364 -

Other financial liabilities 138 114

Suspense accounts 43 30

Payables on foreign currency transactions 1 -

Total other financial liabilities 3 041 144

Payables on settlements with employees 2 062 2 098

Unregistered share capital contributions - 11 466

Taxes payable other than on income 707 474

Payables on purchase of assets 209 268

Other payables 127 21

Deferred income 40 62

Provision for commitments 27 53

Total other liabilities 3 172 14 441

Total other financial and non-financial liabilities 6 213 14 585

21. Subordinated Debt

As at 31 December 2012 and 31 December 2011 the Bank’s subordinated debt amounted to USD 39 205 thousand and

USD 39 241 thousand, respectively. The Bank concluded agreements on subordinate debt raised at fixed interest rate

ranging from 7.5% to 10.0% p.a. The maturity date for subordinated debt is disclosed in Note 30. In case of the Bank’s

liquidation the repayment of subordinated debt starts after other creditor requirements are satisfied.

22. Share Capital

In thousands of US Dollars

except for number of shares

Number of

outstanding

ordinary

shares,

thousands

Nominal

amount,

UAH

thousands

Adjustment for

hyperinflation,

UAH

thousands

Carrying

value, UAH

thousands

Carrying value,

USD thousands

At 31 December 2010 637 728 861 18 506 747 367 133 021

At 31 December 2011 637 728 861 18 506 747 367 133 021

New shares issued 87 99 967 - 99 967 12 532

At 31 December 2012 724 828 828 18 506 847 334 145 553

As at 31 December 2012 the share capital comprises 724 500 of ordinary shares with a par value of UAH 1 144 per

share. All issued shares are paid in full. Shares are issued in non-documentary form.

In 2012 pursuant to the resolution of General Meeting of Shareholders of the Bank of 31 October 2011 the share capital

was raised in the amount of UAH 99 967 thousand (equivalent of USD 12 532 thousand) by private placement of 87 384

shares between the Bank’s shareholders.

Each ordinary share carries one vote.

There are no shares issued under options or sales agreements.


41

The structure of shareholders of the Bank as at 31 December 2012 and 2011 is as follows:

Shareholders 2012

% of share capital

2011

% of share capital

Legal entities: 99,8736 99,8071

Limited Liability Company KF “Ukrfincom” 37,4427 37,4306

Financial Department of Kyiv City State Administration 24,9397 24,9796

Limited Liability Company “Market Invest Group” 21,0320 24,8981

SUMMERMAR INVESTMENT LIMITED 6,8276 7,7641

Other legal entities 9,6316 4,7347

Individuals: 0,1264 0,1929

Key management personnel 0,0691 0,0786

Members of the Supervisory Board 0,0075 0,0031

Other individuals 0,0498 0,1112

Total 100,0000 100,0000

As at 31 December 2012 the ultimate shareholders of the Bank with percent of shares greater than 5% are as follows:

(i) Financial Department of Kyiv City State Administration, 24.9397% of share capital;

(ii) Soldatenko М.P., citizen of Austria, 20.0652% of share capital;

(iii) Khmelnitskiy V.І., citizen of Ukraine, 15.1153% of share capital;

(iv) Ivanov А.А., citizen of Ukraine, 7.5455% of share capital;

(v) Pampina Votsi, citizen of Cyprus, 6.8276% of share capital.

As at 31 December 2011 the ultimate shareholders of the Bank with percent of shares greater than 5% are as follows:

(i) Financial Department of Kyiv City State Administration, 24.898% of share capital;

(ii) Soldatenko М.P., citizen of Austria, 23.8314% of share capital;

(iii) Khmelnitskiy V.І., citizen of Ukraine, 21.4353% of share capital;

(iv) Ivanov А.А., citizen of Ukraine, 10.7005% of share capital;

(v) Pampina Votsi, citizen of Cyprus, 7.7641% of share capital.

23. Other Reserves


Revaluation of available-for-sale investments: 275 (695)

Changes in fair value 610 1 233

Revaluation of fixed assets and intangibles: 2 795 2 142

revaluation surplus transferred to retained earnings (14) (14)

Income tax related to:

changes in fair value of available-for-sale investments (89) 405

Total other reserves (other comprehensive income) 3 578 3 071

24. Interest Income and Expense


INTEREST INCOME:

Loans and advances to customers 77 141 81 928

Loans and advances to customers (impaired) 9 486 8 800

Debt investment secuirities available for sale 9 308 3 256

Other investment securities 2 197 2 268

Correspondent accounts with other banks 1 478 2 682

Due from other banks 80 1 051

Total interest income 99 691 99 985


42

INTEREST EXPENSE:

Term deposits of individuals (45 303) (43 822)

Term deposits of legal entities (13 941) (15 183)

Current accounts (7 665) (7 863)

Subordinated debt (3 453) (3 604)

Correspondent accounts of other banks (2 497) (2 686)

Term deposits of other banks (1 149) (673)

Other borrowed funds (210) (24)

Debt securities issued (95) (566)

Overnight placements of other banks - (713)

Total interest expense (74 313) (75 134)

Net interest income 25 378 24 851

25. Fee and Commission Income and Expense


FEE AND COMMISSION INCOME:

Cash and settlement transactions 14 695 12 669

Cash collection 715 473

Securities transactions 176 140

Fiduciary management 99 28

Guarantees issued 97 160

Other 265 760

Total fee and commission income 16 046 14 230

FEE AND COMMISSION EXPENSE:

Cash and settlement transactions (2 032) (2 482)

Fee and commission expense on agents agreements (467) -

Securities transactions (15) (13)

Guarantees issued (8) (6)

Other (5) (29)

Total fee and commission expense (2 526) (2 529)

26. Other Operating Income


Fines and penalties received 528 395

Operating lease income 221 147

Income on disposal of premises, equipment and intangible assets 269 6

Income on sale of jubilee coins 100 22

Other operating income on settlements with customers 32 -

Income on settlements with international payment systems 20 -

Income on custody financial consultancy services 8 -

Other 100 -

Total other operating income 1 277 570

27. Administrative and Other Operating Expenses


Staff costs (22 070) (20 953)

Insurance (4 167) (2 572)

Operating lease expense (4 075) (3 999)

Maintenance costs of fixed assets and intangibles, communication and other services

(2 597) (4 050)


43

Taxes other than on income (2 178) (2 035)

Depreciation of premises and equipment (1 944) (2 313)

Security services (1 179) (1 084)

Professional services (691) (1 138)

Amortisation of software and other intangible assets (525) (505)

Advertising and marketing services (281) (321)

Charity and sponsorship (196) (213)

Stock acquisition for payment cards (142) (43)

Business trip expenses (80) (111)

Operational blank stock acquisition (38) (50)

Membership fees (46) (50)

Other (1 660) (487)

Total administrative and other operating expenses (41 870) (39 924)

28. Income Tax

(а) Components of income tax benefit

Income tax credit recorded in profit or loss for the year comprises the folowing:


Current income tax - -

Changes in deferred income tax relating to: 568 (749)

Origination and reversal of temporary differences 36 (1 401)

increase or reduction in tax rate 532 652

Total income tax expense/credit 568 (749)

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

Reconciliation of theoretical and actual tax expense is as follows:


Profit/loss before tax 1 347 (5 623)

Theoretical tax charge at statutory rate 283 (1 321)

ACCOUNTING PROFIT/LOSS ADJUSTMENTS: - -

Expenses that are not deductible in determining tax profit but

recognized in accounting profit or loss

255 830

Expenses that are deductible in determining tax profit but not

recognized in accounting profit or loss

(158) (822)

Income that is taxable but not recognized in accounting profit or loss 191 1 620

Income that is not taxable but recognized in accounting profit or loss (12) (5)

Unrecognized tax losses carried forward (1 026) (1 704)

Effect of tax rate change 532 652

Other adjustments 502 -

Income tax expense/credit 568 (749)

As at 31 December 2012 deferred tax asset in the amount of USD 4 974 thousand was recognized on the tax losses

incurred during 2009, 2010 and 2011. Management estimates that sufficient future taxable profits will be available

against which the deferred tax asset will be utilized. As at 31 December 2012 under Ukrainian tax legislation the period

of time available for utilization of tax losses is unlimited.

(c) Deferred taxes analysed by type of temporary difference

Differences between IFRS and statutory taxation regulations in Ukraine give rise to temporary differences between the

carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the

movements in these temporary differences is recorded at the rates ranging between 16-19% depending on the estimated

future period when the temporary differences are expected to reverse and is detailed below for 2012 and 2011,


44

respectively:

In thousands of US Dollars Balance at 1

January 2012

Credited/(charged)

to profit or loss

Credited/(charged)

to other

comprehensive

income

Balance at 31

December

2012

Premises and equipment (115) (119) - (234)

Provision for loan impairment (544) 304 - (240)

Revaluation of assets (411) 411 (89) (89)

Provision for liabilities 1114 - 1 114

Accrued income(expense) 502 (1020) - (518)

Tax loss carried forward 5 115 (141) - 4 974

Other (19) 19 - -

Net deferred tax asset/ (liabilities) 4 528 568 (89) 5 007

Recognised deferred tax asset 5 617 471 - 6 088

Recognised deferred tax liability (1 089) 97 (89) (1 081)

In thousands of US Dollars Balance at 1

January 2011

Credited/(charged)

to profit or loss

Credited/(charged)

to other

comprehensive

income

Balance at 31

December

2011

Premises and equipment (1 599) 813 668 (115)

Provision for loan impairment 112 (657) - (544)

Revaluation of assets 500 (648) (263) (411)

Accrued income (expenses) 430 74 - 502

Tax loss carried forward 5 442 (310) - 5 115

Other 2 (21) - (19)



(15)

Net deferred tax asset/ (liabilities) 4 887 (749) 390 4 528

Recognised deferred tax asset 6 486 (1 259) 390 5 617

Recognised deferred tax liability (1 599) 510 - (1 089)

29. Segment Analysis

The Bank defines operating segments based on the following criteria for segment presentation:

- Operating result of the segment is 10% or more of the total operating result of the Bank;

- Revenue of the segment is 10% or more of the total revenue of the Bank;

- Assets of the segment are 10% or more of the total assets of the Bank.

The Bank defined the following reportable segments based on the above criteria and the Bank’s key operations and

products:

- Corporate banking – representing opening and servicing current and deposit accounts, overdrafts, loan and

other credit facilities, foreign currency and derivative products, operations with plastic cards, fiduciary activities,

investment savings products, and other banking services to corporate entities operating in various economic

sectors.

- Retail banking – representing banking services to individuals, including: opening and servicing current and

savings (deposit) accounts, investment savings products, issuing and servicing plastic cards, consumer loans

and mortgages and other banking services to individuals;

- Investment banking – representing operations with investment securities (including securities refinanced by the

National Bank of Ukraine) and other investments, issue and placement of own securities, and depository

services;

- Interbank operations – representing opening and servicing correspondent accounts (loro/nostro), placing and

receiving interbank deposits, issuing and obtaining interbank loans and other operations related to interbank

activities;


45

- Other – representing operations with precious metals and other operations which cannot be allocated directly to

each segment described above and related to the Bank as a whole.

Segment assets include assets used in the ordinary activities of the reportable segment and which are directly related to

the segment or allocated to the operating segment on a proportionate basis.

Segment liabilities include liabilities arising from the ordinary activities of the reportable segment which are directly

related to the segment or allocated to the segment on a proportionate basis.

Segment revenue/ expenses include revenue/ expenses directly related to the main activities of the reportable segment

and other revenue/ expenses, which can be reasonably allocated to the reportable segment from external activity or

internal transactions between other segments within the Bank.

Operations between segments are conducted in the normal course of business. Resources are divided between

segments according to the requirements of “Transfer pricing methodology of PJSC CB Khreschatyk” that regulates the

procedure for determining the intrinsic value of segment resource to assess their performance. As a result the divided

resources generate transfer income and expense, which is reflected as interest income and expense of each segment

result.

The Bank operates in one geographical segment in Ukraine, thus it is not reportable.

The Bank does not have clients that generate more than 10% revenue of the total revenue of the Bank.

Information about reportable segment profit or loss, assets and liabilities

Information under reportable segments for 2012 is as follows:

In thousands of US Dollars Reportable segments Other

segment

operations

Eliminations Total

Corporate

banking

Retail

banking

Investment

banking

Interbank

and finance

bank

operations

External revenues:

Interest income 83 795 6 830 11 506 1 558 34 - 103 723

Fee and commission

income

8 254 6 579 288 920 5 - 16 046

Other operating income 470 101 3 23 680 - 1 277

Revenue from other

segments

Interest income 22 253 72 322 4 478 10 125 4 339 (113 517) -

Fee and commission

income

- 1 710 6 28 - (1 744) -

Other operating income 715 - - - - (715) -

Total revenues 115 487 87 542 16 281 12 654 5 058 (115 976) 121 046

Interest expense (94 915) (67 399) (15 176) (4 980) (5 359) 113 516 (74 313)

Provision for loan

impairment

258 4 361 - (16) - - 4 603

Provision for other assets

impairment

- - - - (103) - (103)

Losses less gains on

derivative instruments

- - - (4 526) - - (4 526)

Gains less losses from

available-for-sale

investment securities

- - 45 - - - 45


trading in foreign

currencies

1 139 1 293 - (1 063) - - 1 369


trading in precious metals

- - - - 783 - 783

Fee and commission

expense

(423) (3 017) (21) (811) - 1 746 (2 526)


46

Administrative and other

operating expenses

(21 271) (18 405) (1 123) (1 248) (375) 715 (41 707)

SEGMENT RESULT: (115 212) (83 167) (16 275) (12 644) (5 054) 115 977 (116 375)

Profit 275 4 375 6 10 4 1 4 671


segment

operations

Eliminations Total

Corporate

banking

Retail

banking

Investment

banking

Interbank and

finance bank

operations

SEGMENT ASSETS

Segment assets 555 440 73 605 182 651 236 090 5 951 - 1 053 737

Non-current assets held for

sale

12 980 7 280 - - - - 20 260

Unallocated assets - - - - 31 611 - 31 611

Total assets 568 420 80 885 182 651 236 090 37 562 - 1 105 608

SEGMENT LIABILITIES

Segment liabilities 343 073 426 204 62 248 312 37 - 1 017 688

Unallocated liabilities - - - - 260 - 260

Total liabilities 343 073 426 204 62 248 312 297 - 1 017 948

OTHER SEGMENT ITEMS

Capital expenditures 1 493 1 329 91 82 27 - 3 022

Depreciation (1 219) (1 086) (74) (67) (22) - (2 468)

Information under reportable segments for 2011 is as follows:


segment

operatio

ns

Eliminatios Total

Corporat

e

banking

Retail

banking

Investment

banking

Interbank and

finance bank

operations

External revenues:

Interest income 80 081 8 694 5 523 6 336 46 - 100 680

Fee and commission income 7 600 6 042 175 1 912 4 - 15 733

Othe roperating income 492 97 7 53 207 - 856

Revenue from other

segments

Interest income 22 479 74 559 3 366 9 866 1 916 (112 186) -

Fee and commission income - 1 443 30 129 1 (1 603) -

Other operating income 662 - 3 - 24 (689) -

Total segment revenue 111 314 90 835 9 104 18 296 2 198 (114 478) 117 269

Interest expense (90 241) (75 667) (6 894) (16 342) (2 348) 112 186 (79 306)

Provision for loan impairment (1 801) (1 537) - (18) - - (3 356)

Provision for other assets

impairment

- - - - (112) - (112)


available-for-sale investment

securities

- - (73) - - - (73)

Gains less losses from trading

in foreign currencies

483 1 569 - - - - 2 052

Gain less losses from trading in

precious metals

- - - - 1 027 - 1 027

Fee and commission expense (1 001) (2 776) (1 084) (117) (4) 1 603 (3 379)


operating expenses

(21 694) (14 405) (1 053) (1 833) (867) 688 (39 164)

SEGMENT RESULT: (114 254) (92 816) (9 104) (18 310) (2 304) 114 477 (122 311)

LOSS (2 940) (1 981) - (15) (106) - (5 042)


47


segment

operations

Eliminations Total

Corporate

banking

Retail

banking

Investment

banking

Interbank

and finance

bank

operations

SEGMENT ASSETS

Segment assets 515 405 88 317 96 358 213 008 736 -43 067 870 757

Unallocated assets - - - - 54 445 - 54 445

Total assets 515 405 88 317 96 358 213 008 55 181 -43 067 925 202

SEGMENT LIABILITIES

Segment liabilities 251 501 397 985 3 448 193 931 51 568 -43 067 855 366

Unallocated liabilities - - - - 1 089 - 1 089

Total liabilities 251 501 397 985 3 448 193 931 52 657 -43 067 856 455

OTHER SEGMENT ITEMS

Capital expenditure 146 114 24 41 487 - 812

Depreciation (617) (500) (85) (133) (1 477) - (2 812)

Reconciliation of reportable segment revenues, profit or loss, assets and libilities

Reconciliation of total income and expense for 2012 is as follows:

Reconciliation of total income and expenses for 2011 is as follows:

In thousands of US Dollars Total

amount for

all

reportable

segments

Presentation of

gains less

losses from

financial

derivatives

Provision

for loan

impairme

nt

Reclassifi

cation

between

categories

Other IFRS

adjustments

As

reported

under

IFRS

Revenue or expenses for 2011

Interest income 100 680 (2 607) - 1 406 506 99 985


amount for

all

reportable

segments

Presentation

of gains less

losses from

financial

derivatives

Provision

for loan

impairme

nt

Reclassific

ation

between

categories

Other IFRS

adjustments

As

reported

under

IFRS

Revenue or expenses for 2012

Interest income 103 723 - - - (4 032) 99 691

Fee and commission income 16 046 - - - - 16 046

Other operating income 1 277 - - - - 1 277

Interest expense (74 313) - - - - (74 313)

Provision for loan and other

assets impairment

4 500 - 2 250 - - 6 750

Fee and commission expense (2 526) - - - - (2 526)

Gains less losses on disposal of

investment securities available for

sale

45 - - - - 45

Gains less losses from trading in

foreign currencies and precious

metals

2 152 (952) - - - 1 200

Foreign exchange translation

losses less gains

- (427) - - - (427)

Losses less gains from financial

derivatives

(4 526) - - - - (4 526)


expenses

(41 707) - - - (163) (41 870)


48

Fee and commission income 15 733 - - (1 567) 64 14 230

Other operating income 856 - - (213) (73) 570

Interest expense (79 306) 5 047 - (851) (24) (75 134)

Provision for loan and other assets

impairment

(3 468) - -97 - - (3 565)

Fee and commission expense (3 379) - - 850 - (2 529)

Losses less gains on disposal of

investment securities available for

sale

(73) - - - - (73)

Gains less losses from trading in

foreign currencies and precious

metals

3 079 - - 375 443 3 897

Foreign exchange translation

losses less gains

- 423 - - (640) (217)

Losses less gains from

financial derivatives

- (2 863) - - 0 (2 863)

Administrative and other expenses (39 164) - - - (760) (39 924)

Reconciliation of total assets and liabilities for 2012 is as follows:


amount for

all

reportable

segments

Presentation of

derivatives at fair

value

Depreciation

of premises

and

equipment

Other IFRS

adjustments

As reported

under IFRS

Assets at 31 December 2012

Segment assets 1 105 608 (94 469) - 3 397 1 014 536

Liabilities at 31 December 2012

Segment liabilities 1 017 948 (94 469) - 923 479

Reconciliation of total assets and liabilities for 2011 is as follows:

In thousands of US Dollars Total amount

for all

reportable

segments

Presentation of

derivatives at fair

value

Depreciation of

premises and

equipment

Other IFRS

adjustments

As reported

under IFRS

Assets at 31 December 2011

Segment assets 925 202 (108 323) (902) 7 139 823 116

Liabilities at 31 December 2011

Segment liabilities 856 455 (108 323) - (1 161) 746 971

30. 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 reduce risks to acceptable levels by applying

different instruments, e.g. to establish risk limits and monitor them to ensure that exposure to risks stays within these

limits and take measures to control losses from risk operations. The operational and legal risk management functions are

intended to ensure proper functioning of internal policies and procedures to minimize 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.

The Bank’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the statement of

financial position. The impact of possible netting of assets and liabilities to reduce potential credit exposure is not

significant. For guarantees and commitments to extend credit, the maximum exposure to credit risk is the amount of the

commitment.


49

The credit risk is managed by collateral and other credit enhancements as disclosed in Note 8. The credit risk is also

largely mitigated by corporate and personal guarantees and warranties. The borrower provides all necessary documents

to justify ownership rights for collateral. The Bank’s appraiser valuates the collateral using conservative approaches. The

pledged real estate shall be insured by the borrower. Before taking the final decision the management assesses the

liquidity of the proposed collateral.

Part of credit risk management procedures of the Bank is when the borrower and its counterparties target cash flows

generated by their business through the Bank’s accounts.

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, and to geographical and industry segments. Limits on the level of credit risk by

product and industry sector are approved regularly by management. Such risks are regularly monitored and subject to an

annual or more frequent review.

The general principles of the Bank’s credit policy are outlined in the formal credit policy document approved by

management. The document regulates every significant aspect of the lending operations of the Bank and outlines

procedures for analysing the financial position of borrowers and the valuation of any proposed collateral and specifies the

requirements for loan documentation and the procedures for the monitoring of loans.

The Bank established separate credit committees for lending to corporate and individual customers which are

responsible for approving individual loans. The credit committees together with the committee for managing assets and

liabilities are responsible for determining the overall direction of the Bank’s lending activities. The Management Board

reviews and approves all of the decisions made by the credit committees.

Loan applications accepted by the relevant loan managers together with the accompanying documents required for

issuing the loans are passed on to the relevant credit committee for approval of credit limit. The borrowers’ past credit

history is analysed through reviewing the records available in the bureau of credit histories. Management may decide to

facilitate the process of the loan issue for customers which demonstrated satisfactory level of debt servicing in the past.

The financial positions of the borrowers are assessed by performing analysis of their latest financial statements. Where

loans are provided under special project financing, separate assessment of the future cash flows is performed to

determine the optimal model of the financing.

In order to monitor credit risk exposures, regular reports are produced by the credit department’s officers based on a

structured analysis focusing on the customer’s business and financial performance. The loan specialists perform

monitoring of the existing borrowers to ensure that they comply with the conditions described in the loan agreements.

Any significant exposures against customers with deteriorating creditworthiness are reported to and reviewed by the

Management Board. The Bank uses internal credit ratings to monitor exposures to credit risk. Management monitors and

follows up on past due balances.

The Bank’s reviews ageing analysis of outstanding loans and follows up on past due balances. Management therefore

considers it appropriate to provide ageing and other information about credit risk as disclosed in the related Notes.

Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a 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 that arise from open positions in (a) currency, (b) interest rate

and (c) equity products, all of which are exposed to general and specific market movements. The Bank operates a

system of 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.

Currency risk. Management sets limits on the level of exposure by currency and in total acceptable risk level for

overnight and intra-day positions which are monitored daily.


50

The exposure to currency risk is as follows:

In thousands of

US Dollars

31 December 2012 31 December 2011

Monetary

Assets

Monetary

liabilities

Derivatives Net

position

Monetary

Assets

Monetary

liabilities

Derivatives Net

position

US Dollars 215 651 (255 128) (46 066) (85 543) 168 788 (186 298) 12 318 (5 192)

Euros 46 296 (40 530) - 5 766 36 972 (35 868) (1 190) (86)

GB Pounds 922 (834) - 88 - - - -

Gold 12 500 (18 911) 15 211 8 800 - - - -

Ukrainian

Hryvnia

668 345 (603 901) 31 062 95 506 541 076 (490 863) (12 326) 37 887

Other 1 283 (1 003) - 280 13 005 (19 501) 0 (6 496)

Total 944 997 (920 307) 207 24 897 759 841 (732 530) (1 198) 26 113

Amounts disclosed in derivatives are monetary financial assets and monetary financial liabilities separately to disclose

total exposure to currency risk of the Bank.

The Bank’s position in respect of derivatives in each column represent the fair value at the end of the reporting period, of

the respective currency that the Bank agreed to buy (positive amount) or sell (negative amount) before netting of

positions and payments with the counterparty. The amounts by currency are gross. The net total represents the fair

value of the currency derivatives. The above analysis includes only monetary assets and liabilities. Management believes

that investments in equities and non-monetary assets are not considered to give rise to any material currency risk. The

sensitivity of equity as a result of foreign currency exchange rate change is indirect through sensitivities of profit or loss in

the same amounts.

The table below presents sensitivities of equity and profit or loss due to reasonably possible changes in exchange rates

applied at the end of the reporting period relative to the functional currency of the Bank, with all other variables held

constant:

The table below presents sensitivities of equity and profit or loss as a result of reasonably possible changes in official

exchange rates applied at the end of the reporting period relative to other foreign currency, with all other variables held

constant.

In thousands of US Dollars 31 December 2012 31 December 2011

Impact on profit or loss Impact on profit or loss

US Dollar strengthening by 5% (614) (509)

US Dollar weakening by 5% 614 509

Euro strengthening by 5% (9) 1

Euro weakening by 5% 9 (1)

GB Pound strengthening by 5% 4 12

GB Pound weakening by 5% (4) (12)

Gold strengthening by 5% (26) (33)

Gold weakening by 5% 26 33

Other strengthening 85 78

Other weakening (85) (78)

As a method of calculating the sensitivities of profit or loss and equity to changes in currency exchange rate the Bank

applied the following scenario testing: open position in a particular currency (in hryvnia equivalent and as at the reporting

date) multiplied by the hypothetical relative change in currency exchange rate, expressed as a percentage. Applied

scenario provides invariability of other features (such as positions and other foreign currency rates, except for the

modeled).

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

currency.


51

The table below presents sensitivities of profit or loss and equity as a result of possible changes in official exchange

rates applied as weighted averge relative to other foreign currency, with all other variables held constant.


Impact on profit or loss Impact on profit or loss

US Dollar strengthening by 5% (613) (508)

US Dollar weakening by 5% 613 508

Euro strengthening by 5% (9) 0

Euro weakening by 5% 9 0

GB Pound strengthening by 5% 4 13

GB Pound weakening by 5% (4) (13)

Gold strengthening by 5% (26) (34)

Gold weakening by 5% 26 34

Other strengthening 83 81

Other weakening (83) (81)

Interest rate risk. The Bank takes on exposure to the effects of fluctuations in 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. Management monitors on a daily basis and sets limits on the level of

mismatch of interest rate repricing.

The exposure to interest rate risk is presented below:

In thousands of US Dollars Demand

and

less than

1 month

From 1 to

6 months

From 6 to

12 months

More than 1 year

Non-

monetary Total

31 December 2012

Total financial assets 290 461 101 074 351 949 198 428 3 085 944 997

Total financial liabilities 344 176 125 978 335 362 110 721 4 070 920 307

Net interest sensitivity gap at 31 December 2012

(53 715) (24 904) 16 587 87 707 25 675

31 December 2011 -

Total financial assets 172 910 121 531 313 991 150 682 727 759 841


Net interest sensitivity gap at 31December 2011

(90 162) 41 661 47 103 29 553 28 155

The table below presents monitoring of interest rates by financial instruments:

In % p.a. 2012 2011

Ukrainian

Hryvnia

US

Dollar

Euro Other Ukrainian

Hryvnia

US

Dollar

Euro Other

Assets

Cash and cash equivalents 0,2 - - - 1,9 1,4 0,2 0,8

Due from other banks 1,8 1,5 2,6 0,1 0,1 6,6 - -

Loans and advances to customers 17,4 13,6 10,8 12,5 17,5 12,5 11,1 10,0

Investment securities available for sale 2,6 9,3 - - 13,5 - - -

Other investment securities 11,0 - - - 22,0 - - -

Other assets - - - - 14,0 2,0 - -

Liabilities

Due to other banks 13,5 2,2 1,1 0,2 13,8 2,0 2,2 1,0

Customer accounts: 13,5 7,9 5,8 2,7 12,6 7,2 3,8 3,0

Current accounts 2,7 1,3 1,0 0,5 2,5 1,0 0,5 -

Term deposits 14,1 7,9 5,6 2,3 13,3 7,0 5,2 2,2


52

Debt securities in issue - - - - 16,5 - - -

Other borrowed funds 10,2 - - - 15,2 1,1 1,0 1,1

Other liabilities - - - - - - 1,1 -

Subordinated debt 10,0 7,5 0,0 0,0 12,8 7,5 0,0 0,0

In most cases the Bank accrued interest at a fixed interest rate, but for two loans to clients that were issued with floating

interest rate.

Changes in interest rate on profit before tax is as follows:


Changes in

interest rate

+1%

Changes in

interest rate

-1%

Changes in

interest rate

+1%

Changes in

interest rate

-1%

Assets

Cash and cash equivalents 1 845 (1 845) 1 383 (1 383)

Loans and advances to customers 5 696 (5 696) 5 164 (5 164)

Investment securities available for sale 1 606 (1 606) 656 (656)

Liabilities

Due to other banks (1 525) 1 525 (800) 800

Customer accounts (7 217) 7 217 (6 092) 6 092

Other borrowed funds (28) 28 (18) 18

Subordinated debt (392) 392 (393) 393

Net impact on profit before tax (15) 15 (100) 100

Geographical risk concentration. Geographical analysis of the Bank’s assets and liabilities as at 31 December 2012 is

as follows:

In thousands of US Dollars Ukraine OECD Other

countries

Total

Assets

Cash and cash equivalents and mandatory reserves 82 282 99 863 2 596 184 741

Due from other banks 6 050 - - 6 050

Loans and advances to customers 569 610 - - 569 610

Investment securities available for sale 160 645 - - 160 645

Other investment securities 20 866 - - 20 866

Other financial assets 3 085 - - 3 085

Total financial assets 842 538 99 863 2 596 944 997

Liabilities

Due to other banks 136 692 2 624 13 152 152 468

Customer accounts 718 128 2 672 943 721 743

Other borrowed funds 2 821 - - 2 821

Other financial liabilities 4 070 - - 4 070

Subordinated debt 13 040 - 26 165 39 205

Total financial liabilities 874 751 5 296 40 260 920 307

Net position in on-balance sheet financial

Instruments

(32 214) 94 567 (37 664) 24 689

Credit related commitments 2 725 - - 2 725


53

Geographical analysis of the Bank’s assets and liabilities as at 31 December 2011 is as follows:

In thousands of US Dollars Ukraine OECD Other

countries

Total

Assets

Cash and cash equivalents and mandatory reserves 51 048 89 401 1 669 142 118

Due from other banks 2 001 855 - 2 856

Loans and advances to customers 527 647 - - 527 647

Investment securities available for sale 65 619 - - 65 619

Other investment securities 20 874 - - 20 874

Other financial assets 727 - - 727

Total financial assets 667 916 90 256 1 669 759 841

Liabilities

Due to other banks 76 008 3 785 193 79 986

Customer accounts 606 654 1 978 517 609 149

Debt securities in issue 833 - - 833

Other borrowed funds 1 750 - - 1 750

Other financial liabilities 1 571 - - 1 571

Subordinated debt 13 075 - 26 166 39 241

Total financial liabilities 699 891 5 763 26 876 732 530

Net position in on-balance sheet financial

Instruments

(31 975) 84 493 (25 207) 27 311

Credit related commitments 4 932 - - 4 932

Assets, liabilities and credit related commitments were allocated on the basis of counterparty country of location.

Balances of transactions with Ukrainian counterparties, which actually represent transaction with offshore companies of

these Ukrainian counterparties, are included in the column "Ukraine". Cash on hand, premises and equipment are

allocated based on the country in which they are physically held.

Other risks concentration. As at 31 December 2012 and 31 December 2011 the Bank did not have significant

concentration of other risks.

Liquidity risk. Liquidity risk is 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 drawdowns, guarantees and from margin. 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. Liquidity risk is managed by the Asset/Liability Committee of the Bank.

The Bank seeks to maintain a stable funding base primarily consisting of amounts due to other banks, corporate and

retail customer deposits and debt securities. The Bank invests the funds in diversified portfolios of liquid assets, in order

to be able to respond quickly and smoothly to unforeseen liquidity requirements.

The liquidity management of the Bank requires considering the level of liquid assets necessary to settle obligations as

they fall due; maintaining access to a range of funding sources; maintaining funding contingency plans; and monitoring

liquidity ratios against regulatory requirements. The Bank calculates liquidity ratios on a daily basis in accordance with

the requirement of the National Bank of Ukraine. These ratios are:

- instant liquidity ratio (N4), which is calculated as the ratio of highly-liquid assets to liabilities payable on demand.

As at 31 December 2012 this ratio was 41.06% (2011: – 42.37%), with the required ratio being not less than

20%;

- current liquidity ratio (N5), which is calculated as the ratio of liquid assets to liabilities maturing within 31

calendar days. As at 31 December 2012 this ratio was 69.71% (2011: – 54.84%), with the required ratio being

not less than 40%;

- Short-term liquidity ratio (N6), which is calculated as the ratio of liquid assets to liabilities with original maturity of

up to one year. As at 31 December 2012 this ratio was 80.71% (2011: – 98.49%), with the required ratio being

not less than 60%.

The respective Bank’s Departments and groups responsible for liquidity management receive information about the

liquidity profile of the financial assets and liabilities. The Treasury Department provides for an adequate portfolio of short-


54

term liquid assets, largely made up of short- term liquid trading securities, deposits with banks and other interbank

facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole.

The Bank monitors liquidity position daily and performs regular liquidity stress testing under a variety of scenarios

covering both normal and more severe market conditions.

Analysis of financial liabilities by maturity for 2012 is presented below:


and less

than 1

month

From 1 to

3 months

From 3 to

12 months

From 12

months to

5 years

Over 5

years

Total

Due to other banks 141 836 20 697 16 000 1 815 - 180 348

Customer accounts: 276 080 144 748 398 092 75 032 3 090 897 042

Individuals 147 342 109 019 238 829 37 453 3 038 535 681

Other 128 738 35 729 159 263 37 579 52 361 361

Other borrowed funds - - - - 3 244 3 244

Subordinated debt 310 - - - 44 770 45 080

Other financial liabilities 4 517 - - - - 4 517

Financial guarantees 151 117 536 210 - 1 014

Other credit related

commitments

209 390 575 247 290 1 711

Total potential future payments for financial obligations

423 103 165 952 415 203 77 304 51 394 1 132 956

Analysis of financial liabilities by maturity for 2011 is presented below:


and less

than 1

month

From 1 to

3 months

From 3 to

12 months

From 12

months to

5 years

Over 5

years

Total

Due to other banks 85 889 16 747 2 845 - 89 497

Customer accounts: 225 708 93 471 320 145 87 834 5 869 733 027

Individuals 100 527 63 001 208 553 87 285 2 993 462 359

Other 125 181 30 470 111 592 549 2 876 270 668

Debt securities in issue - 2 1 017 - - 1 019

Other borrowed funds 1 990 - - - - 1 990

Subordinated debt 343 - - 44 503 - 44 846

Other financial liabilities 144 - 1 427 - - 1 571

Financial guarantees - 526 1 112 649 - 2 287

Other credit related

commitments

647 59 1 086 678 174 2 644

Total potential future payments for financial obligations

314 721 94 074 325 534 136 509 6 043 876 881

The table below shows maturity analysis of non-derivative financial assets by maturity. The amounts are disclosed at

their carrying amounts and based on their contractual maturities except for assets that are readily saleable in case it

would be necessary to meet cash outflows on financial liabilities. Such financial assets are included in the maturity

analysis based on their expected date of disposal. Impaired loans are included at their carrying amounts net of

impairment provisions and based on the expected timing of cash inflows.

If the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the end

of the reporting period. Foreign currency payments are translated using the spot exchange rate at the end of the

reporting period.


55

The maturity analysis of financial assets and liabilities based on the expected maturity date for 2012 is as follows:

In thousands of US Dollars Demand and

less than 1

month

From 1 to

3 months

From 3 to

12 months

From 12

months to

5 years

Over 5

years

Total

Assets

Cash and cash equivalents and

mandatory reserves

184 741 - - - - 184 741

Due from other banks - 4 944 1 106 - - 6 050

Derivatives 1 236 - - - - 1 236

Loans and advances to customers 63 510 53 613 329 032 102 903 20 552 569 610

Investment securities available for sale 42 210 42 518 21 811 54 106 - 160 645

Other investment securities - - - 20 866 - 20 866

Other financial assets 1 849 - - - - 1 849


Liabilities

Due to other banks 119 190 18 155 13 559 1 564 - 152 468

Derivative liabilities 1 029 - - - - 1 029

Customer accounts 224 711 107 823 321 803 64 995 2 411 721 743

Other borrowed funds - - - - 2 821 2 821

Other financial liabilities 3 041 - - - - 3 041

Subordinated debt 275 - - - 38 930 39 205


Net liquidity gap at 31 December (54 700) (24 903) 16 587 111 316 (23 610) 24 690

Accumulated liquidity gap at 31

December (54 700) (79 603) (63 016) 48 300 24 690

Management believes that in spite of a substantial portion of customer accounts being on demand, the current level of

customer relations, 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 maturity analysis of financial assets and liabilitities based on the expected maturity date for 2011 is as follows:


and less

than 1

month

From 1 to

3 months

From 3 to

12 months

From 12

months to

5 years

Over 5

years

Total

Assets

Cash and cash equivalents and mandatory

reserves

142 118 - - - - 142 118

Due from other banks 317 998 685 856 - 2 856

Derivatives 229 - - - - 229

Loans and advances to customers 30 016 119 834 310 149 41 592 26 056 527 647

Investment securities available for sale 459 699 3 157 61 304 - 65 619

Other investment securities - - - 20 874 - 20 874

Other financial assets 498 - - - - 498


Liabilities

Due to other banks 76 755 14 668 2 549 - 79 986

Derivative liabilities - - 1 427 - - 1 427

Customer accounts 185 689 79 854 263 962 74 463 5 181 609 149

Bonds issued by the Bank - 2 831 - - 833

Other borrowed funds 1 750 - - - - 1 750

Other financial liabilities 144 - - - - 144


56

Subordinated debt 306 - - 38 935 - 39 241


Net liquidity gap at 31 December (91 007) 41 661 47 103 8 679 20 875 27 311

Accumulated liquidity gap at 31

December (91 007) (49 346) (2 243) 6 436 27 311

Customer accounts are classified in the above analysis based on contractual maturities. However, in accordance with

Ukrainian Civil Code, individuals have a right to withdraw their deposits prior to maturity if they forfeit their right to

accrued interest.

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.

31. Management of Capital

The basic principle of the Bank’s management of capital is to ensure its sufficiency. In its day-to-day business and

forecasts the Bank takes measures it considers necessary to ensure the appropriate level of capital ratios. The

Management considers total capital under management to be regulatory capital.


Share capital actually paid 103 694 91 187

Unregistered share capital contribution 11 461

Disclosed reserves, 4 548 4 548

decreased by the amount of deficit in provision; intangible assets less

accumulated depreciation; capital expenditure relating to intangible assets;

losses for past and current years

(34 373) (34 707)

Primary capital (1-tier capital) 73 869 72 489

Standard debt and off-balance-sheet transactions provisions 92 137

Gains less losses on revaluaton of fixed assets 2 861 2 861

Subordinated debt included in regulatory capital 38 930 38 920

Additional capital (2-tier capital) 41 883 41 918

Deductions (226) (615)

including transactions with insiders (related parties) exercisable on more

favourable than arm’s-length conditions

(226) (615)

Total regulatory capital 115 526 113 792

As at 31 December 2012 the Bank’s regulatory capital amounted to UAH 923 400 thousand (equivalent of USD 115 526

thousand), which complies with the requirements of the National Bank of Ukraine with regulatory capital being not less

than UAH 120 000 thousand (equivalent of USD 15 013 thousand).

As at 31 December 2012 capital adequacy ratio according to the National Bank of Ukraine requirements was 11.89%,

with the required ratio being not less than 10%. As at 31 December 2011 capital adequacy ratio amounted to 17.73%.

During the year ended on 31 December 2012 the Bank has never been in breach of the prescribed minimum level of

capital adequacy ratio.

32. Contingencies and Commitments

Legal proceedings. As at 31 December 2012 the court found 98 cases of claim of the Bank in the trial stage, in which

the Bank expects a decision in its favor in the total amount of USD 22 802 thousand. The Bank acts as a claimant in 80

of these court cases and expects a satisfaction of claims totaling USD 23 608 thousand. In 18 court cases in the total

amount of USD 195 thousand the Bank acts as a defendant.


57

As at 31 December 2012 there were no contingent liabilities of the Bank related to legal proceedings.

Possibility for tax contingent liabilities to arise. As at 31 December 2012 there were no events that would have

contained any supplementary information regarding operation and financial position of the Bank that had not been

disclosed in any note. Thus, it is unlikely for tax contingent liabilities to arise.

Operating lease commitments. The Bank’s equipment, land plots, premises, where the Bank’s offices and cash

machines are located, are in operating lease.

The future minimum lease payments under non-cancellable lease contracts are as follows:


Not later than 1 year 692 816

Later than 1 year and not

later than 5 years

588 90

Later than 5 years 284 179

Total 1 565 1 085

The future minimum lease payments under non-cancellable lease contracts are calculated on the basis of the terms

thereon and not on the base of discounting.

Credit related commitments. Credit related commitments present unutilized credit amounts in the form of guarantees

and standby letters of credit. Guarantees represent irrevocable assurance that the Bank will make payments to third

parties in the event that a customer cannot meet its obligations and carry the same credit risk as loans. With respect to

credit risk on commitments to extend credit, the Bank is not exposed to loss in an amount equal to the total unused

commitments, if the unused amounts were to be drawn down, since most commitments to extend credit are contingent

upon customers maintaining specific credit standards. 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.

Structure of credit related commitments is as follows:


Undrawn credit lines 1 711 2 644

Guarantees issued 1 014 2 288

Provision for credit related commitments (27) (53)

Total irrevocable commitments less

provisions for credit related

commitments

2 698 4 879

Credit related commitments are denominated in currencies as follows:


Ukrainian Hryvnia 2 469 3 921

US Dollars - 750

Euros 229 208

Total 2 698 4 879

33. Derivative Instruments

The table below presents fair value of derivatives in the trade portfolio of the Bank.


Positive fair value Negative fair value Positive fair value Negative fair value

Foreign exchange forwards 1 198 629 124 751

Foreign currency swaps 38 399 105 676

Total fair value 1 236 1 029 229 1 427


58

The Bank calculates fair value of derivatives as at the reporting date using the approved methodology based on the

foreign exchange forward rates that present market foreign currency exchange rates and interest rates at the settlement

dates.

34. Fair Value of Financial Instruments

Fair value is the amount at which an asset could be exchanged or a liability settled in a transaction between

knowledgeable, willing an independent parties. The fair value for financial assets actively quoted in an active market is

an active quoted market price. Where the market for a financial instrument is not active, or there is no information

available on current market prices, or it is impossible to find similar instrument for valuation, the Bank applies estimates

and assumptions method in respect of each class of financial assets or financial liabilities to determine the estimated fair

value.

Where the market for a financial instrument is not active the Bank applies following methods to determine fair value:

- valuation method based on application of the recent market transactions between knowledgeable, willing an

independent parties (if available);

- reference to current fair value of other similar financial instrument (similar in terms of currency, maturity, interest

rate, cash flow structure, credit risk exposure, collateral or other);

- analysis of discounted cash flows, etc.

The Bank applies above methods to define the Bank’s interest rate policy and tariffs and as the criteria for fair value of

loans issued to customers.

Analysis of financial instruments carried at amortized cost or at cost is as follows:


Fair value Carrying

amount

Fair value Carrying

amount

FINANCIAL ASSETS

Cash and cash equivalents and mandatory

reserves

184 741 184 741 142 044 142 118

Due from other banks 6 050 6 050 2 856 2 856

Loans and advances to customers 549 059 569 610 539 041 527 647

Equity instruments available for sale - 43 - 43

Other investment securities 20 866 20 866 20 874 20 874

Other financial assets 1 849 1 849 498 498

Total financial assets carried at amortised

cost

762 565 783 159 705 313 694 036

FINANCIAL LIABILITIES

Due to other banks 152 468 152 468 79 986 79 986

Customer accounts 721 743 721 743 609 149 609 149

Other borrowed funds 2 821 2 821 1 750 1 750

Other liabilities 3 041 3 041 144 144

Debt securities issued by the Bank - - 833 833

Subordinated debt 39 205 39 205 39 241 39 241

Total financial liabilities carried at amortised

cost

919 278 919 278 731 103 731 103

Methods and assumptions applied in determining fair values.

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between unrelated

willing parties, other than in a forced sale or liquidation, and is best evidenced by an active quoted market price. Where

quoted market prices are not available, the Bank used valuation techniques. The fair value of floating rate instruments

that are not quoted in an active market was estimated to be equal to their carrying amount. 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.


59

Discount rates used depend on currency, maturity of the instrument and credit risk of the counterparty and were as

follows:

Loans and advances to customers: 2012 2011

Corporate loans 14.5% to 35% p.a. 12% to 30% p.a.

Loans to individuals - entrepreneurs 14.5% to 35% p.a. 11% to 30% p.a.

Loans to state and municipal organisations 22% p.a. 12 to 30% p.a.

Mortgage loans 13.5 to 35 % p.a. 12 to 25% p.a.

Loans to individuals - consumer loans 13.5 to 35 % p.a. 12 to 26% p.a.

Financial instruments carried at fair value are broken down for disclosure purposes into a three level fair value hierarchy

based on the observability of inputs as follows:

Quoted prices in an active market (Level 1) – Valuations based on quoted prices in active markets that the Bank has the ability to access for identical assets or liabilities. Valuation adjustments and block discounts are not applied to these financial instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, a valuation of these products does not entail a significant amount of judgment. Valuation techniques using observable inputs (Level 2) – Valuations based on inputs for which all significant inputs are observable, either directly or indirectly and valuations based on one or more observable quoted prices for orderly transactions in markets that are not considered active. Valuation techniques incorporating information other than observable market data (Level 3) – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Fair value hierarchy of financial instruments carried at fair value is as follows:

In thousands of US Dollars Fair value hierarchy Total fair value Total

carrying

amount Level 1 Level 2 Level 3

FINANCIAL ASSETS

Investment securities available for sale: 160 602 - - 160 602 160 602

government bonds 43 278 - - 43 278 43 278

corporate bonds 117 324 - - 117 324 117 324

Derivative instruments - 1 236 1 236 1 236

Total financial assets 160 602 - 1 236 161 838 161 838

FINANCIAL LIABILITIES

Other financial liabilities - - 1 029 1 029 1 029

Derivative instruments - - 1 029 1 029 1 029

Total financial liabilities - - 1 029 1 029 1 029

35. Presentation of Financial Instruments by Measurement Category

For the purposes of measurement, IAS 39 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 (“FVTPL”).

Financial assets at fair value through profit or loss have two subcategories: (i) assets designated as such upon initial

recognition, and (ii) those classified as held for trading.

Presentation of financial assets by measurement category for 2012 is as follows:

In thousands of US Dollars Loans and

advances to

customers

Assets

available

for sale

Derivatives

carried at fair

value through

profit/loss

Assets held

to maturity

Total


mandatory reserves

184 741 - - - 184 741

Due from other banks 6 050 - - - 6 050

Loans and advances to customers 569 610 - - - 569 610


60

Investment securities available for

sale

- 160 645 - - 160 645

Other investment securities - - - 20 866 20 866

Other financial assets 1 849 1 236 - 3 085

Total financial assets 762 250 160 645 1 236 20 866 944 997

Presentation of financial assets by measurement category for 2011 is as follows:

In thousands of US Dollars Loans and

advances to

customers

Assets

available

for sale

Derivatives

carried at fair

value through

profit/loss

Assets held

to maturity

Total


mandatory reserves

142 118 - - - 142 118

Due from other banks 2 856 - - - 2 856

Loans and advances to customers 527 647 - - - 527 647

Investment securities available for

sale

- 65 619 - - 65 619

Other investment securities - - - 20 874 20 874

Other financial assets: 498 - 229 - 727

Total financial assets 673 119 65 619 229 20 874 759 841

36. Related Party Transactions

IAS 24 “Related Party Disclosures” provides disclosures in the financial statements of the entity information necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties. A related party - parties are considered to be related if one party has the ability to control the other or exercise significant influence over the financial and operational decision-making of the other party. A related party transaction is a transfer of resources, services or obligations between related parties, regardless of

whether a price is charged.

Control is the possession, directly or indirectly through subsidiaries by the majority of votes of the entity or a significant

percentage of votes and the power to directly define, pursuant to statute or agreement, the financial and operating

policies of the management.

Significant influence (for the purpose of this standard) is the power to participate in the financial and operating policy

decisions of an entity, but not control over those policies. Significant influence may be gained through different ways,

usually through representation in the board of directors, or, for example, by taking part in the development of policy, in

the significant operations within the entity, interchange in management personnel or through dependence on technical

information. Significant influence can be achieved by share ownership through statute or agreement. Given the share

ownership, the significant impact is considered according to the definition contained in IAS 28 “Investments in

Associates”.

As at every reporting date the Bank prepares the list of the related parties of the Bank set out according to IAS 24

"Related Party Disclosures". This list is approved by the Chairman of the Board of Directors.

The outstanding balances with related parties for 2012 are as follows:

In thousands of US Dollars The largest

shareholders

of the Bank

Key

management

personnel

Other related

parties

Due from other banks (contractual interest rate: 0 - 0.28%) - - 16

Gross amount of loans and advances to customers

(contractual interest rate: 2 - 22%)

57 348 828 6

Impairment provision for loans and advances to customers at

31 December

- (85) -


61

Due to other banks (contractual interest rate: 0 - 12,5%) - - 5 435

Customer accounts(contractual interest rate: 0 - 9,65%) 280 1 416 2 639

Provision for liabilities - 1 -

Credit related commitments - 451 8

The income and expense items with related parties for 2012 are as follows:


shareholders

of the Bank

Key

management

personnel

Other related

parties

Interest income 10 193 88 24

Interest expense (2) (77) (308)

Provision for loan impairment - 28 -

Foreign exchange translation losses less gains (3) (48) 93

Fee and commission income 72 - 11

Provision for liabilities - (50) -

Administrative and other operating expenses - (1 206) (50)

Amounts lent to and repaid by related parties during 2012 are as follows:

In thousands of US Dollars Key management

personnel

Other related

parties

Amounts lent to related parties during the year 1 717 -

Amounts repaid by related parties during the year 1 162 3

The outstanding balances with related parties for 2011 are as follows:


shareholders

of the Bank

Key

management

personnel

Other related

parties

Gross amount of loans and advances to customers

(contractual interest rate: 2 – 22%)

57 051 522 466

Impairment provision for loans and advances to customers at

31 December

- (53) (28)

Due to other banks (contractual interest rate:0 – 12%) - - 9 133

Customer accounts(contractual interest rate: 0 – 13%) 1 699 1 703 2 989

Provision for liabilities - 6 -

The income and expense items with related parties for 2011 are as follows:


shareholders of the

Bank

Key

management

personnel

Other related

parties

Interest income 8 613 103 541

Interest expense - (91) (379)

Provision for loan impairment 276 (18) (1)

Foreign exchange translation losses less gains (75) (49) (2 056)

Fee and commission income 61 - 6

Administrative and other operating expenses - (1 314) (800)


62

Amounts lent to and repaid by related parties during 2011 are as follows:

In thousands of US Dollars Key management

personnel

Other related

parties

Amounts lent to related parties during the year 1 376 1 107

Amounts repaid by related parties during the year 1 495 1 079

Key management compensation is presented below:


Expenses

Accrued

liabilities

Expenses Accrued

liabilities

Salaries 1 200 - 1 284 -

Retirement benefit - - 9 -

37. Events After the End of the Reporting Period

Pursuant to adoption of the Tax Code of Ukraine (Law of Ukraine №2755-VI of 2 December 2010), starting 1 January

2013 the applied corporate income tax rate is 19%.

On 5 March 2013 the rating agency "Credit Rating" updated the Bank’s ranking under the National scale. The credit

rating was set at uaA level with stable outlook.

In 2012 the Bank was rated by the international rating agency “Fitch Ratings” and had the following ratings, which have

been held unchanged since the end of 2006:

Long-term Issuer Default Rating (‘IDR’) in foreign and national currency: ‘B-‘

Short-term foreign currency IDR: ‘B’

Viability rating: ‘b-‘

Support rating ‘5’

Support for long-term IDR: 'no level of support’

National Long-term Rating: ‘BBB-(ukr)’

Ratings were confirmed and simultaneously recalled in March 2013. Rating withdrawal at the Bank's initiative did not

reflect changes in the creditworthiness and financial position of the Bank.

There were no other subsequent events that could have been significant for the users of financial statements of the

Bank. In particular, there were no:

- business combination;

- termination of, or the decision made to discontinue an operation;

- restructuring;

- significant changes in currency exchange rates or the Bank’s assets value;

- court decisions in favour of claimants against the Bank, which could cause material financial obligations of the

Bank.

Documents

PJSC COMMERCIAL BANK KHRESCHATYK International Financial ... · PJSC COMMERCIAL BANK KHRESCHATYK International Financial Reporting Standards Financial Statements and Independent Auditor’s