Success is the sum of small efforts, · Ukreximbank with the NBU’s Certificate of Honour for significant contribution to the development of banking industry, as well as for productive

1

Peer Group StandingSince its creation in 1992, the

JSC Ukreximbank has been one of the largest

banks in Ukraine. Operating in a highly com�

petitive environment of top ten of Ukrainian

banks, the JSC Ukreximbank as at January 01,

2005 ranked 3rd in terms of net income

earned in 2004, 6th in terms of shareholders’

equity and net assets, 4th in terms of statutory

capital and 7th in terms of liabilities’ volume

Debut Ratings AssignmentYear 2004 witnessed successful start�up of the

Bank's rating history. In order to ensure trans�

parency of overall activities and to sustain

credibility among financial institutions world�

wide, the JSC Ukreximbank launched co�opera�

tion with Moody’s Investors Services and Fitch

Ratings, which has resulted in debut assignment

of the highest possible B2/B+ long�term ratings

respectively, both abreast of the country ceiling.

In January 2005 Fitch Ratings had upgraded

long�term rating for the JSC Ukreximbank to

BB�, again to the top of country ceiling

Debut Eurobond IssueOn 23 September 2004 the JSC Ukreximbank

issued USD150m five�year fixed�rate loan par�

ticipation notes. UBS Limited and Dresdner

Kleinwort Wasserstein were the lead�managers

of the issue. The tightest pricing of 7.75% has

been the lowest yield ever for any Ukrainian

non�sovereign issuer. The Ba2 and B+ ratings

assigned by Moody's and Fitch respectively

were the highest ratings assigned to any

Ukrainian issuer. Furthermore, the Moody’s

Success is the sum of small efforts,repeated day in and day out

Robert Collier

At a Glance:the JSC Ukreximbank2004 Performance

2

rating exceeded Ukraine's previous B1 foreign�

currency sovereign ceiling for bonds.

In February 2005 the Bank was the first

Ukrainian issuer who entered international

capital markets after presidential elections.

Due to strong market environment and

anticipated demand for Ukrainian assets the

USD100m tap rated Ba2/BB� (Moody’s/Fitch)

was priced at 102.75%, with a yield of 7.04%.

In February 2005 the Bank also borrowed USD

40m on the terms of subordinated debt rated

Ba2 and B by Moody’s and Fitch respectively.

This was the first Ukrainian borrowing of sub�

ordinated debt in the international markets

and the first Ukrainian subordinate listed at

the stock exchange

Increase in Statutory CapitalIn 2004 the JSC Ukreximbank further

increased its statutory capital by UAH 80 mil�

lion to UAH 368 million (in accordance with

national accounting standards) compliant to

the Law "On Amendments to the Law of

Ukraine "On 2004 State Budget of Ukraine"

introduced by the Government (Cabinet of

Ministers) and adopted by the Parliament

(Verkhovna Rada) in June 2004 and under the

Resolution of the Cabinet of Ministers No.

1105 of August 25, 2004

EDP AccomplishmentIn June 2004 the JSC Ukreximbank and the

World Bank accomplished implementation of

the Export Development Project (EDP)

launched in 1997. The EDP was recognised

as one of the most successful IBRD projects

in Ukraine

Syndication RepaymentIn November 2004, despite turbulent pre�

election environment, the JSC Ukreximbank had

in due course fully met matured commitments

under the Foreign Syndicated Loan Agreement

in the amount of USD 30 million. The

Agreement was signed in November 2003 with

the ING Bank N.V., Amsterdam, as the Arranger

of the Facility, for the tenor of one year

NBU RewardThe Board of the National Bank of Ukraine

(NBU) awarded the team of the JSC

Ukreximbank with the NBU’s Certificate of

Honour for significant contribution to the

development of banking industry, as well as for

productive performance and professionalism,

which facilitated the Bank’s successful debut

eurobond issue

JP Morgan AwardFor the 4th consecutive year the JP Morgan

Chase Bank (New York, USA) recognised the

JSC Ukreximbank as one of the best amongst

its correspondent banks world�wide for the

quality of the USD settlements year 2003

results. The JSC Ukreximbank emerged the

winner upon statistic analysis of flows made by

more than 6000 correspondent banks of the JP

Morgan Chase Bank

At a Glance:the JSC Ukreximbank2004 Performance

Annual Report 2004

3

Selected Consolidated Figures, 2003�2004(in UAH thousands, according to IAS)

2004 2003 change,%

Income statement figures

Net interest income 240,294 178,248 34.8

Non interest income 46,856 29,270 60.1

Net fee and commission income 143,025 110,433 29.5

Non interest expense (268,468) (219,994) 22.0

Consolidated net income 59,404 50,812 16.9

Balance sheet figures

Total assets 5,109,7 3,723,8 37.2

Loans to customers after LLP 3,460,4 2,380,4 45.4

Shareholders' equity 461,523 322,119 43.3

Key performance indicators, %

Net interest margin 6.18 6.50

Return on equity after tax (ROE) 15.16 17.12

Return on assets (ROA) 1.34 1.53

Cost/income ratio 61.54 68.65

Cost /assets ratio (av) 5.98 6.48

Total capital adequacy ratio 11.40 11.33

Tier 1 capital adequacy ratio 11.40 11.33

Customer Loan to total assets 67.72 63.92

Equity to total assets 9.03 8.65

Personnel, people 2180 2061

Branches, number 29 29

Sub�branches, number 54 44

4

Victor V. Kapustin, Chairman of the Board

Subtlety may deceive you;integrity never will

Oliver Cromwell

Annual Report 2004

Ladies and Gentlemen,I have the honor of presenting the Annual

Report 2004 of Joint Stock Company The State

Export�Import Bank of Ukraine on its business

and financial performance.

Summing up the Bank performance in 2004

I with pleasure inform you about its consider�

able progress and efficient work. In the year

under review, the JSC Ukreximbank increased

its statutory capital, attracted significant funds

from foreign sources for Ukraine’s economy,

and considerably improved its balance sheet

ratio. For the first time the international rating

agencies assigned to the Bank the highest rat�

ings among Ukrainian banks.

The JSC Ukreximbank continued its transfor�

mation into an up�to�date bank of European

model, targeted basically to servicing foreign

economic activities of the State. As the sole act�

ing Financial Agent of the Cabinet of Ministers

of Ukraine with many years’ experience, the

Bank carried out skilled monitoring of the

effective domestic and foreign loans provided

under the Government guarantees. Pursuing

the defined strategy, the Bank contributed to

strengthening the Ukraine’s economic poten�

tial, improving its competitive edge and involv�

ing the country in the global integration

process.

In 2004, the JSC Ukreximbank considerably

expanded its international relations. Thus the

number of the Bank’s overseas partners

reached 700. The recognition by the interna�

tional financial institutions of the profes�sion�

al approaches used by the JSC Ukreximbank in

its business, its impeccable reputation and

high level of reliability contributed much

to the efficient borrowing in the internat�ional

capital market in the amount of USD

150 million.

In the year under review, the Bank enhanced

efficiency of its business, improved the quality

of its assets, extended the product range of

banking services and introduced Internet

banking (Financial PortalTM). Expansion of

the Bank’s clientele owing to the enterprises of

leading Ukrainian industries testifies to a high

degree of trust to the Bank and its irreproach�

able reputation.

Due to skilled and timely reaction of the Bank

management to challenges during political and

financial turbulence at the end of 2004 the

JSC Ukreximbank insured the continuing oper�

ation and retained trust of its customers and

partners.

The JSC Ukreximbank deeply respects the spir�

it of partnership and financial interests of its

customers, supports the development of their

business. Sincerely thanking our numerous

customers and partners, I would like to stress

that achievements of the Bank would be

impossible without mutual understanding and

trust on their part. I hope for further mutually

fruitful cooperation to the benefit of Ukraine

and assure that the JSC Ukreximbank will con�

tinue to focuse its activity on the best possible

meeting of customer needs in the banking

services.

Victor V. Kapustin

5

1. Ownership Policy The founder of the JSC Ukreximbank and the

holder of 100% of its shares is the state repre�

sented by the Cabinet of Ministers of Ukraine.

The Bank is economically self�sufficient and in

implementation of its day�to�day activities is

entirely independent from any public or local

authorities.

The State exercises its authorities with regard

to shares it owns in the Bank’s statutory

capital via regulatory bodies of the

JSC Ukreximbank. Such regulatory bodies are

the Supervisory Council and the Board of the

Bank.

2. The Supervisory CouncilThe Bank’s highest regulatory body is the

Supervisory Council. Compliant to the Statute

of the JSC Ukreximbank the Supervisory

Council is not directly involved in day�to�day

activities of the Bank, but is, in particular,

responsible for

supervising the activity of the Board to

secure the interests of the state as the Bank’s

shareholder,

formulating the guidelines of the Bank’s per�

formance,

handling the appointment and resignation

of the Chairman of the Board as well as of

the members of the Board, including those

handled upon the recommendations of the

Chairman of the Board,

approving the distribution of earnings and

setting terms and procedures for the pay�

ment of dividends,

6

Ownership &Management

The secret of success is constancy to purpose

Benjamin Disraeli

Annual Report 2004

taking decisions on the covering of losses,

approving the annual results of performance

of the Bank and its subsidiary,

executing other functions pursuant to the

legislation of Ukraine and the Bank’s

Statute.

The members of the Supervisory Council are

appointed upon the resolution of the

Parliament of Ukraine and upon the Decree

of the President of Ukraine. The Head of the

Supervisory Council is elected by and

amongst the members of the Supervisory

Council.

7

Current members of the Supervisory Council

The Supervisory Council is Headed by Mr. Sergii Mefodiiovych PROKHOROV – First Vice�

President of the Ukrainian League of Industrialists and Entrepreneurs (the ULIE)

Appointed by the Verkhovna Rada

(Parliament) of Ukraine

Mr. Leonid MykhailovychCHERNOVETSKYI –

Member of the Parliament of Ukraine

Mr. Oleksandr VilenovychCHORNOVOLENKO –


Mr. Stanislav IvanovychGURENKO –


Mr. Oleksii OleksiiovychKOSTUSIEV –

Head of the Antimonopoly Committee of

Ukraine

Mr. Volodymyr VolodymyrovychMAKEIENKO –


Mr. Oleksii IvanovychREMENIUK –


Mr. Sergii AnatoliiovychTERIOKHIN –

Minister of Economy of Ukraine

Appointed by

the President of Ukraine

Mr. Dmytro IvanovychHRYSCHENKO –

Director of limited liability partnership

Hryschenko and Partners, Law and

Patent Firm

Mr. Andrii MykolaiovychKYSLYNSKYI –

Project Co�ordinator of the Ukraine 3000

Fund

Mr. Anatolii ArkadiiovychMAKSIUTA –First Deputy Minister of Finance

Mr. Sergii MefodiiovychPROKHOROV –

First Vice�President of the ULIE

Mr. Valentyn ViktorovychSAVYTSKYI –


Mr. Sergii OleksandrovychYAREMENKO –

Deputy Governor of the National Bank of

Ukraine

3. Management of the Bank

The Board of Directors

The Board is the standing executive body of

the Bank. Compliant to the Statute of the

JSC Ukreximbank the Board operates the day�

to�day performance of the Bank and is

responsible for its efficiency as stipulated by

the Statute. The Board is, in particular,

empowered to

implement decisions taken by the

Supervisory Council as well as to submit the

issues for consideration by the Supervisory

Council and to formulate the propositions

regarding such issues,

approve strategic and operating perform�

ance plans, business�plans, financial plans,

budget estimates,

review the annual financial report and the

balance sheet of Bank and their submission

for approval by the Supervisory Council,

manage the Bank’s performance, its

accounting and reporting procedures; set up

internal controls and regulations; secure

automation of the banking activities,

solve other issues within its authority and

compliant to the legislation of Ukraine and

the Statute of the Bank

The Board of the Bank consists of 10 members

appointed by the Supervisory Council who are

officers of the Bank.

8


Mr. Victor KAPUSTIN –

Chairman of the Board;

appointed on March 18, 2005.

Supervises and directs the activity of

the Board to fulfil the Bank's strategy

and policy in domestic and interna�

tional monetary and credit markets.

Supervises Secretariat of the Bank,

Risk Management Division, Human

Resources Division, Internal Audit

Division, Security Division, Financial

Monitoring Department

From 1995 till March 2005 the

Chairman of the Board of the JSC

Ukreximbank was Mr. Olexander

Sorokin

Annual Report 2004

Mr. Mykola UDOVYCHENKO –

Deputy Chairman of the Board.

Supervises Treasury of the Bank,

Correspondent Banking and Trade Finance Division,

Documentary Operations Division

9

Mr. Igor PODOLIEV –

First Deputy Chairman of the Board.

Supervises Credit Operations Division, Foreign Loans

Division, Export Development Division, Economic

Division, Lending Methodology Department of the Bank

Mr. Anatolii SOLODOVNYK –


Supervises IT Center of the Bank, Processing Department,

Electronic Information Security Department

Mr. Andrii SERVYNSKYI –


Supervises Legal Division, Collateral Monitoring Division

Mr. Olexander IVANOV –

Head of the Lviv branch of the JSC Ukreximbank

10


Mr. Yurii KHRAMOV –


Supervises Customer Service Division, Payment Systems

Division, Cash Operations and Cash Management Division

Ms. Olga ALIEXIEEVA –

Head of the Accounting and Reporting Division, the Bank’s Chief Accountant.

Supervises the issues of Accounting and Reporting, coordinates and

supervises the work of the Clearing House

Ms. Vira VOLOSHCHENKO –

Head of the Risk Control Division.

Supervises development and implementation of the Bank’s

risk management system as well as adherence to the NBU

requirements regarding banking supervision

Annual Report 2004

Internal Regulatory Bodies

With a view to improve the efficiency of the

management of the Bank, under the

Resolution of the Bank’s Board four

Committees were created as standing collec�

tive regulatory bodies of the Bank:

Assets and Liabilities ManagementCommittee (ALCO) insures the overall man�

agement of the bank risks, assets, liabilities and

capital of the Bank within the framework of

authorities delegated by the Board of the Bank.

Credit Committee makes decision on loans

and defines their terms and conditions, evalu�

ates the Bank’s assets quality, approves cate�

gories of the loan portfolio and receivables,

gives instructions regarding provisioning for

possible losses, and is responsible for imple�

mentation of the Bank’s credit policy.

Development Committee of the Banksupervises activity of the Bank’s units related to

the business development of the Bank, imple�

mentation of advanced banking technologies

as well as expansion of the range of banking

products and services rendered by the Bank.

Budget Committee approves expenditures

for the development of the Bank and for the

support of its efficient performance, deter�

mines fees & commissions for services, the

Bank renders to legal entities and individuals.

11

1. MacroeconomicEnvironment and External Sector

Full year 2004 real GDP expanded by an

impressive 12.1%yoy, about 3 per cent above

auspicious 2003 and the highest ever since the

independence of Ukraine. Although expected,

the real GDP rate exceeded improved upward

forecast by the Government and outraced the

whole of the CIS.

In the structure of value�added the 20.9%

share of processing industry prevailed, per�

forming 39.4%yoy growth; another key con�

tributors were wholesale and retail trade and

maintenance services with 12.2% value�

added share and 42.4%yoy growth, and con�

struction with 12.1% share and 48%yoy per�

formance. On the back of the favourable cli�

matic conditions in 2004 agriculture gave

19.1%yoy output growth compared to 10.2%

decline in 2003, but only 10.8% of value�

added contribution. 2004 ended the year

with 12.5% increase in volume of industrial

products, with the sectors of end�consuming

production taking confident lead. Thus,

machinery building as a major manufacturing

contributor demonstrated 28%yoy growth,

including the highest growth performance of

49.5% in electric and electronic equipment

and 24.6% in transport equipment produc�

tion. Although key export�oriented industries

in 2004 grew slower than in 2003 � metallur�

gy gave 12%yoy against 14.3%yoy and chemi�

cal production increased by 14.4%yoy against

16%yoy, they remained, together with

machinery, main determinants of overall

2004 industrial growth.

12

EconomicClimate in 2004

The wind and waves are always onthe side of the ablest navigators

Edward Gibbon

Annual Report 2004

Inflation rate of 12.3% as well as soaring to

24.1% producers’ prices index was largely

predictable due to continued boom in the

economy.

Due to the advantageous external environ�

ment in 2004 performance of Ukrainian

exports was strong with 39%yoy growth

against import growth of 26.9%yoy (compared

to 34%yoy of export in 2003 against 24%yoy of

imports). With export results of USD38bn

against USD31bn of imports foreign trade bal�

ance in 2004 remained positive despite the

repeated contrary expectations and amounted

to USD 7bn, more than double against USD

3bn in 2003. The major share of overall mer�

chandise foreign trade was performed with

Europe (USD11.76bn of exports and

USD9.99bn of imports), and the CIS

(USD8.56bn of exports and USD14.87bn of

imports).

Year 2004 ended with USD8.8bn of direct

external debt, which dropped to 13.5% of GDP

against 17% in 2003, and gross external

debt/GDP in 2004 is estimated at 18.7% against

21.2% in 2003.

Gross Foreign Reserves of the National Bank of

Ukraine of USD9.5bn by the end of the year

went in line with the NBU Board forecast and

made up 14.6% of 2004 GDP and 108% of

direct external debt.

2. Financial System andBanking SectorPerformance

Monetary base in 2004 increased by 34.1% and

money supply grew by 32.4%, ensuring the

level of the economy monetisation of 36.4%

against 31.3% in 2003. Average annual

UAH/USD exchange rate was 5.3192 com�

pared to average 2003 rate of 5.3327.

Ukrainian banking sector embraced 160 oper�

ating banks as of 01.01.05. Among them there

were 19 banks with foreign capital, including 7

banks with 100% foreign capital.

Gross banking assets in 2004 expanded by

34.1%yoy to UAH141.6bn and attained esti�

mated 42.3% of GDP compared to 39.9% in

2003. Loan Portfolio of Ukrainian banks

increased by 32.3%yoy to UAH97.2bn (estimat�

ed 29% of GDP, including 21.8% of GDP in real

sector loans).

Asset quality improves gradually: NPL ratio

(NPL share of total loans) in 2004 reduced to

2.8% in 3Q with the year ended at 3.2% against

3.4% in 2003, or 5.8% in 2001. Gross liabilities

grew by 32.6% over 2004, with more than

43%yoy growth of corporate and 28.3%yoy

growth of household deposits. Total Assets of

Top Ten of Ukrainian Banks as of 01.01.05

made up 53,1% of overall assets of Ukrainian

banking system.

Year 2004 brought an impressive 170% growth

of overall banking net profit. Net Profit

obtained by Top Ten in 2004 accounted for

46% of 2004 net profit of the whole of

Ukrainian banks.

13

1. Agency for theGovernment

Essence of Agency Functions

Since 1992 the JSC Ukreximbank has acted as

the only Financial Agent of the Ukrainian

Government in rendering and servicing the

international loans under the state guarantees.

Such status of the Bank was defined in an

Agency Agreement of September 19, 1996.

The Bank’s Agency Functions for the

Government embrace:

Analysis and assessment of loan proposals

Elaboration of interbank draft loan

agreements, negotiations on its financial

terms, signing of international loan

agreements on behalf of the Government

of Ukraine

Examination of compliance of projects pro�

posed for financing with the Bank’s strict

regulations

Signing of loan agreements with Ukrainian

borrowers aimed at financing of the

approved projects out of the funds obtained

under the State guarantees

Servicing of loans and monitoring of collat�

eral

Scheduling payments and supervision of its

execution

Documenting of the credit process

Review of current financial statements on

international loans

Preparation of analytical reports and finan�

cial reviews to the Government of Ukraine

14

Key BusinessOverview

The reward of a thing well doneis to have done it

Ralph Waldo Emerson

Annual Report 2004

Performance of Agency Functions

The Bank, acting as a financial agent of the

Cabinet of Ministers of Ukraine, made avail�

able more than 150 loans in the amount of

USD 2.79 billion under 13 credit lines (of

Germany, the USA, France, Japan,

Switzerland, Spain, etc.). The loans were

channelled to meet the needs of Ukraine’s

economy for credit funds to finance the

import of goods, to reach prime objectives of

economic stabilisation and its structural

transformation.

The range of the Bank’s partners under inter�

national agreements includes Consortium of

Banks AKA (Ausfuhrkredit�Gesellschaft),

Germany; German Credit Agency for

Reconstruction (Kreditanstalt fur

Wiederaufbau, KfW); Association of French

Banks; US Ex�Im Bank; Japanese Bank for

International Cooperation; the group of

Italian credit institutions headed by Efibanka;

Banco Sabadell, Spain; UBS, Switzerland;

Exim Bank of Hungary; Export Bank of the

Czech Republic, etc., that provided credit

resources with the insurance cover of leading

export insurance agencies such as: Euler

Hermes, Germany; COFACE, France; EGAP,

the Czech Republic; US EX�IM BANK, the

USA; SACE, Italy, etc.

As of 01.01.05, the principal foreign debt

serviced by the Bank amounted to USD 714.8

million including USD 562.4 million restruc�

tured under the Paris Club Agreement.

The agency function for the Cabinet of

Ministers is an honorary and profitable activ�

ity of the JSC Ukreximbank.

15

Agriculture

Healthcare

Metallurgy industry

Transport, communications and IT

Light and food industry

Power engineering

Other sectors

53.6%

13.9%

12.5%

6.6%

2.7%

3.2%7.6%

Foreign Loans to the Bank, Acting as a Fiancnial Agent of the Cabinet of

Ministers of Ukraine (Breakdown by Sector)

2. Corporate BankingOperating in a highly competitive environ�

ment, the JSC Ukreximbank steadily pursues

the policy oriented at consistent improvement

of quality of the services offered to its cus�

tomers. Due to its impeccable reputation and in

virtue of high quality services and on the back

of the wide range of financial instruments

offered in the reporting year, the Bank has

notably enlarged its customer base. With 16%

growth of total clientele by the end of the year,

corporate customers of the Bank reached 30

500 as at 01.01.05.

Such growth was mainly ensured by the Bank’s

adherence to the principles of

establishment and maintenance of relations

of good partnership and mutual respect with

the customers with no interference into

their business,

provision and expansion of differentiated

sources of funding,

implementation of various and flexible

financing schemes, and

utilisation of advanced information and

communication technologies.

In year 2004 the Bank has continued to hold

significant market share of foreign trade

turnover banking services.

Corporate Lending

Lending activity is one of the core business of

the JSC Ukreximbank. It is an important

profit centre, a main source for expanding

the Bank’s client base. In conducting its lend�

ing activity the Bank aims at the income

maximisation versus targeted risks, the ulti�

mate optimisation of the loan portfolio qual�

16

47%

37%

6.3%

9.7%

Germany

the USA

the EU

Italy, France, Japan, Spain, Switzerland, the Czech Republic

International Loans to the Bank, Acting as a Financial Agent of the Cabinet of

Ministers of Ukraine (Breakdown by Lender's Country)


Annual Report 2004

ity, the improvement of the lending proce�

dures and the customer service standards

applied by the Bank.

In terms of the loan portfolio size, the

JSC Ukreximbank stands among the top five

Ukrainian banks.

In 2004, the net loan portfolio (net portfolio)

grew by 45% up and reached UAH 3.46 billion.

The share of loans in foreign currency exceed�

ed 70% of the loan portfolio. This attests the

Bank’s traditional focus on supporting foreign

trade activity of Ukrainian industries.

The Bank offers credit services to both large

enterprises – industry leaders, foremost of

export�oriented sectors, and small and medi�

um businesses. Loans to large corporate cus�

tomers with the annual sales of over UAH100

million represent the largest share in the loan

portfolio (over 60%).

The state enterprises’ share in the Bank’s

loan book is about 10% and is mainly

represented by the industrial leaders.

Long�term loans were extended mainly to

the leaders of transport machinery, electric

engineering, chemical industry and agriculture

in order to support the development

and reconstruction of their production facili�

ties.

The Bank’s strategic interests are focused on

support to the industrial sectors of Ukraine

active in promoting the development of

Ukrainian export�oriented and import�substi�

tuting industries, as well as on encouragement

of domestic manufacturers.

17

0

500

1000

1500

2000

2500

3000

3500

1626.1

2380.4

2002

loans (net portfolio)

2003 2004

UAH

, mill

ion

3460.4

Loans Extended by Ukreximbank in 2002–2004

In terms of economy sector, industry holds

51% share in the overall structure of the loan

portfolio. The largest loans were extended to

mechanical engineering and metal work

industries (17.6%), metallurgy (8.6%), chemical

and petrochemical industry (5.3%). Loans to

trade enterprises and agricultural and food

processing companies also represent consider�

able (21.5% and 11% respectively) shares of the

Bank’s loan book.

World Bank Program

In June 2004 the JSC Ukreximbank accom�

plished implementing the Export Development

Project (EDP) launched jointly with the World

Bank. The Project, effective since 1997, was

recognised as one of the most successful IBRD

projects in Ukraine.

During the EDP life the JSC Ukreximbank

financed about USD 200 million for more

than 100 credit projects in various indus�

tries.

Due to the EDP, the export potential of the

borrowers funded expanded significantly,

accompanied by the increase of their export

income and total net sales growth. Effective

implementation of the EDP allowed Ukrainian

enterprises to enter new external markets.

In view of the high efficiency of the EDP and

appreciating the necessity of further support of

Ukrainian exporters, the JSC Ukreximbank

considers the initiation of a new joint project

with the World Bank.

18


Trade Enterprises, 21.5%

Engineering, 17.6%

Agriculture and Food Processing, 11.0%

Consumer Products, 11.3%

Metals, 8.6%

Services, 16.7%

Chemistry, 5.3%

Light Industry, 2.4%

Real Estate and Construction, 1.4%

Transport, 1.3%

Power Utilities, 1.0%

Individuals, 1.5%

Communications, 0.4%

Loan Portfolio by Sector, as at 01.01.05

Annual Report 2004

Structured Finance

With a view of obtaining medium� and long�

term resources for financing of Ukrainian

enterprises the Bank actively develops its credit

relations with foreign financial institutions. The

world’s prominent export credit agencies

(ECA) have recognised the JSC Ukreximbank as

a direct borrower/guarantor for medium� and

long�term transactions, without requiring any

guarantees from the Ukrainian government.

Such recognition was obtained from 20 lead�

ing ECA, including ExImBank of the USA

(USA), EDC (Canada), Euler Hermes

(Germany), COFACE (France), SACE (Italy),

ERG (Switzerland), EKF (Denmark), OeKB

(Austria), EGAP (the Czech Republic), MEHIB

(Hungary), Eximbanka SR (the Slovak

Republic), Eximbank of China (People’s

Republic of China) and others.

The group of the Bank’s foreign partners

involved in the ECA financing is constantly

expanding. It embraces major banks and cred�

it institutions in the USA, Canada, Germany,

France, Italy, Denmark, Switzerland, the

Netherlands, the Czech Republic, China and

others. As of 31.12.2004, the total internation�

al export financing by the JSC "Ukreximbank"

under ECA coverage amounted to USD

27.2 million.

Documentary Business and

Trade Finance

The Bank is focused on developing foreign eco�

nomic activity of its customers. In pursuing this

strategy the Bank strives to wider implement

documentary and guarantee transactions, to

improve trade finance operations conducted

and to expand trade finance package offered.

The JSC Ukreximbank holds leading positions

among Ukrainian banks in trade financing of

exports and imports in terms of both range of

products and services and volume of documen�

tary and guarantee transactions. In 2004 total

amount of such transactions increased by almost

150% compared to year 2003. The Bank contin�

ued to be active in issuing all kinds of banking

guarantees and standby letters of credit, in advis�

ing and confirming guarantees issued by

Ukrainian/foreign banks. The total amount of

guarantee transactions increased for more than

three times in 2004 compared to 2003.

Today the JSC Ukreximbank maintains rela�

tionships with over 700 banks and financial

institutions all over the world. Due to the high

degree of confidence of its foreign partners,

the Bank avails of clean credit lines for short�

term trade financing established by more than

50 financial entities world�wide, which allows

covering broad geographical profile for better

servicing foreign trade performance of the

Bank’s customers.

Number of clean credit lines provided in

favour of the Bank by foreign financial institu�

tions increased by 71% within the year 2004

and their volume grew by 85%.

The Bank offers wide range of instruments and

products for short�term trade financing under

the clean credit lines from foreign financial

institutions. Such include:

documentary export/import letters of credit

(confirmed L/Cs, deferred payment L/Cs,

L/Cs with negotiation acceptance and dis�

counting),

bank guarantees (performance bond,

advance payment bond, tender bond, etc)

and stand�by letters of credit,

19

documentary export/import collection, and

post�shipment import financing, post�ship�

ment export financing by negotiation, pre�

shipment export financing.

In 2004 the total amount of short�term trade

finance transactions effected under clean credit

lines reached an equivalent of USD 100 million.

Financing of Small and Medium

Enterprises

In order to support small and medium�sized

private businesses the JSC Ukreximbank imple�

ments the Small and Medium Enterprise

Program under the Loan Facility of the

Kreditanstalt fur Wiederaufbau (KfW),

Germany.

During the Program life more than 100 proj�

ects were financed in the total amount of

about EUR 20 million. The Program applica�

tion area is quite extensive – from loans for

modernisation and expansion of production

facilities to financing investment projects in

real estate, transportation services, etc.

Flexible terms and conditions of lending, com�

prehensive approach to the analysis of invest�

ment projects, prompt decisions on granting

loans are the key factors ensuring success of

the SME Program implementation and

achievement of the Bank’s objective to facili�

tate the development of small and medium

businesses in Ukraine.

Electronic Corporate Services

Combination of standard software and equip�

ment with in�house and custom�made software

allows to effectively adjusting the information

system for servicing the Bank’s customers.

Information technologies and services, devel�

oped to meet banking tasks, are used in creation

of new products and services. In particular,

application of advanced technologies for infor�

mation protecting and data processing enables

the Bank to offer its customers modern tools for

managing their accounts and accessing banking

products through various channels: Internet�

banking, Client–Bank, Mobile banking, etc.

In 2004 the JSC Ukreximbank introduced newInternet banking product – FinancialPortal™. It enables the Bank’s customers to

obtain remote access to the banking products

in the 24hours & 7days mode. Such access is

available from any computer connected to the

Internet without installing any additional soft�

ware and allows reviewing statements on

account balances and card account balances;

sending settlement instructions and new

accounts’ opening instructions to the Bank;

blocking payment cards; setting cash disburse�

ment limits.

Corporate Client–Bank System is another

electronic product popular with the Bank’s

corporate customers. This System enables to

tackle Business to Business type of tasks, in

particular, it offers a corporate client the possi�

bility to manage cash flows and to obtain vari�

ous corporate information in interaction with

the information system of the Bank.

3. Retail BankingIn 2004, retail banking was among prime areas

in focus of the JSC Ukreximbank. The Bank

offers a full range of services to its household

customers. The range of such services grows

constantly, along with improvement of their

quality.

20


Annual Report 2004

Today the JSC Ukreximbank offers over 80 var�

ious products and services to its household

customers and in addition to traditional bank�

ing services the Bank

disburses indemnification payments to the

victims of Nazi persecutions;

opens and manages accounts (effecting pay�

ments) for servicemen of Armed Forces of

Ukraine involved in the UN peace keeping

missions;

pays pensions and cash aid to pensioners via

the JSC Ukreximbank branches.

Due to the Bank’s reliability, the volume of

transactions originated through the Bank by its

household customers is permanently growing,

thus proving high assessments by the cus�

tomers of the quality of banking provided by

the JSC Ukreximbank.

Retail Card Services

In the retail banking market the Bank offers to

its customers multiple services involving bank

plastic cards of international payment systems.

Implementation of the payroll card projects in

various Ukrainian enterprises and organisa�

tions, outnumbering 1500, significantly con�

tributes to engaging new clients’ in retail serv�

ices offered by the Bank.

The Bank’s status of a principal member of

MasterCard Int. and Visa Int. payment systems

enables the Bank to offer a full range of card

services to its customers.

The number of MasterCard Int. and Visa Int.

cards issued through the network of the

JSC Ukreximbank in 2004 grew by 51%. Card

accounts’ balances of the Bank’s customers

reached an equivalent of UAH180 million. This

ensures the leading position of the JSC

Ukreximbank among the Ukrainian banks in

terms of account balance per one card issued.

In 2004 the turnover of the Bank’s card busi�

ness increased by 54% and reached an equiva�

lent of UAH 2.0 billion.

The Bank provides advisory services to

Ukrainian banks with respect to joining

MasterCard Int. and Visa Int. payment systems

and acts as a such banks’ representative and

guarantor in relations with the international

payment systems. Currently the JSC

Ukreximbank renders services to ten

Ukrainian banks that joined MasterCard Int.

and Visa Int. with the Bank’s support.

In 2004 the Bank continued to act as a settle�

ment bank in Ukraine for the MasterCard Int.

payment system under the respective

Agreement of 1998.

In the reporting year the JSC Ukreximbank

underwent a number of certification proce�

dures arranged by the payment systems with

the view of introducing new card products

and improving the quality of the existing

products.

The JSC Ukreximbank became the first

Ukrainian bank certified by MasterCard Int. to

handle M/Chip card transactions (the Full

Grade Option) with its own POS terminals. In

2004 the Bank was certified by Visa Int. pay�

ment system to acquire and issue VSDC chip

cards.

The card business of the Bank is supported by

an in�house processing center directly con�

nected to MasterCard Int. and Visa Int. pay�

ment systems. The processing center runs

Way4 software from OpenWay Systems, Ltd.

21

Retail Electronic Services

Retail segment today trends to the highest

growth in demand for highly technological

banking services. To duly meet such require�

ments the Bank has taken the currently popu�

lar banking solution and introduced various

advanced instruments of retail electronic serv�

ices.

The system of remote servicing of the Bank’s

customers via Internet – the above�described

Financial Portal™ implemented in 2004, is

currently available not only for corporate, but

also for individual customers of the Bank.

Since the product requires no installation of

additional software and is easily accessible

from any world�wide computer connected to

the Internet, it substantially facilitates the indi�

vidual customers’ communication with the

Bank and saves their time for obtaining bank�

ing services and/or information.

Since 2004, the Bank’s individual customers�

holders of international payment cards can use

the service of mobile banking for controlling

and managing their card accounts. The service

allows to obtain required operative data by SMS,

review mini�statement on the account transac�

tions; view account balances; block the payment

card in case of its loss or theft; temporarily can�

cel all the limitations on the transactions; receive

information on new services of the Bank etc.

ExImVoice Phone Banking is a directory

inquiry service which provides the customers a

possibility to obtain information on their cur�

rent accounts and card accounts by fax or by

voice messages 24hours a day.

In 2004, a Mobile Banking system for

holders of MasterCard Int. and Visa Int. cards

was put into operation. It enables the cus�

tomers to obtain operative data on their card

accounts and information on new banking

services without visiting the Bank or access�

ing the ATM.

Phone Banking ExImVoice service offers

the customers possibility of 24hours informing

on their current accounts and card accounts

by fax or by voice messages.

The Bank is determined to continue imple�

mentation of advanced technologies, includ�

ing introduction of Internet banking and

multifunctional call centre, and further

improve quality of services provided to its

customers.

4. Funding

Debut Eurobond Issue

On September 23, 2004 the JSC Ukreximbank

issued the five�year Loan Participation Notes in

the amount of USD 150 million with a coupon

of 7.75% per annum. The Lead�Managers of the

issue were UBS Limited and Dresdner

Kleinwort Wasserstein.

It was the first time that the Ukrainian banking

institution has placed such a large amount in

the international debt market and on such

advantageous terms.

The B+ and Ba2 ratings the then assigned by

Fitch and Moody’s rating agencies respectively

were the highest ratings to any Ukrainian

issuer. Furthermore, the Moody’s rating was

two notches higher than Ukraine’s previous

foreign�currency sovereign ceiling for bonds.

The order book for initial amount of USD

100 million was 10 times oversubscribed

22


Annual Report 2004

with over USD 1 billion of orders obtained,

and on the back of such a strong demand the

deal was increased to USD 150 million. Over

125 accounts participated in the offering,

that was a substantial number for a deal of

such size. The issue was distributed with

funds taking 56%, banks 15% and retail 29%.

The geography of distribution is shown

below.

The proceeds of the issue assists the

JSC Ukreximbank in its objective to create

favourable environment for economic

progress in Ukraine through providing credit

and financial support to Ukrainian enterprises,

with focus on the projects related to structural

readjustment of the economy, to industrial

modernisation and to the development of the

export�oriented industries.

Local Funding Base

Due to irrevocably positive image of the Bank

as a stable and reliable partner, more than 300

embassies, consular departments, representa�

tive offices of foreign companies, almost all

governmental agencies of Ukraine as well as a

considerable number of industrial leaders

chose JSC Ukreximbank as their banker.

The differentiated structure of the customers’

time deposits is a specific trait of the Bank’s

resource base. Thus, the share of legal entity

deposits in the total amount of deposits with

the Bank grew from 26% at the beginning to

29% at the end of the reporting year.

The growth of the Bank’s corporate clients’

account balances evidences the establishment

of lasting partnership relations between the

Bank and its corporate customers as well as the

rising confidence of clients in the Bank’s relia�

bility. Corporate clients’ current accounts bal�

23

22%

20%

10%

40%

8%

Germany and Austria

Asia

Switzerland

Great Britain and Ireland

Other

Geographical Distribution

ances increased by 18% in 2004 and their term

deposit balances grew by 59%.

In year 2004, the Bank developed and imple�

mented 15 types of deposit products for its

household customers. An increase in house�

hold account balances by 27% in 2004 con�

firms the inalterably high confidence of the

public in the Bank.

Syndication

In November 2004 the JSC Ukreximbank had

in due course fully met matured commitments

under the Foreign Syndicated Loan Agreement

in the amount of USD 30 million.

The Agreement was signed in November 2003

with the ING Bank N.V., Amsterdam, as the

Arranger of the Facility, for the tenor of one

year. Over 10 leading world banks participated

in the then largest transaction of the Ukrainian

borrowers with most favourable conditions

ever since the Ukrainian independence.

5. Treasury OperationsThe JSC Ukreximbank remains one of the lead�

ers in the domestic inter�bank market of

Ukraine, active in operating in all the segments

of this market, which enables the Bank to duly

meet demands of its clients, both exporters

and importers. With constant growth of the

customers’ foreign economic operations, con�

ducting forex transactions and informing the

clients about the currency market tendencies

are of the top priorities among the services

provided by the Bank.

As a result of fruitful co�operation with foreign

consultants under the TACIS program as well

as with the World Bank experts, the Bank

installed the "Kondor+" software by Reuters,

which enables to centralise and optimise the

Bank’s transactions effected in the forex and

money markets in an on�line mode. Treasury

transactions are conducted in keeping with the

principle of the "Chinese wall", i.e. with strict

segregation of functions between the front�,

middle� and back�office.

The Bank’s general concept of implementing

new market products, exercising control over

effecting transactions allows to adequately

minimising risks, while remaining an active

market player and retaining leading positions

in the domestic market. In 2004 the amount of

transactions at the domestic money market

reached UAH 9.2 billion, while in the domestic

forex market the transactions amount grew by

almost 50% and was nearly UAH 4.3 billion.

Significant number of forex lines, opened by for�

eign partners in favour of the JSC Ukreximbank

enables the Bank to effect transactions in the

international forex market with the entire range

of world currencies both on the customers’

instructions and on its own behalf.

The total amount of transactions effected by

the Bank in the international money and cur�

rency markets in 2004 reached an equivalent

of UAH 116.4 billion.

As in the previous years, the Bank performed

actively at the banknotes and precious metals

trading.

6. Securities operationsThe JSC Ukreximbank renders its customers the

following particular services in the equity market:

purchase and sale of securities in the primary

and secondary equity markets (including

24


Annual Report 2004

participation in state treasury bills’ auctions

held by the National Bank of Ukraine) on

the instructions of both resident customers

and non�resident investors;

comprehensive services for non�resident

investors on investing in Ukraine;

custodian maintenance of securities

accounts and performance of a comprehen�

sive range of transactions therein;

underwriting corporate bonds issued by

Ukrainian residents.

Professional team of specialists trained and

certified in accordance with the requirements

of the State Commission on Securities and

Stock Market of Ukraine is a key guarantee of

the high�quality services offered by the Bank to

its customers in the stock market. Another

contributor is the Bank’s membership in the

leading Ukrainian trade and depository sys�

tems: First Stock Trading System (the FSTS),

the leader among Ukrainian arrangers of secu�

rities trading (held 75% of the organised secu�

rities market in 2004); the CJSC Ukrainian

Interbank Currency Exchange (the UICE stock

exchange); the JSC Interregional Stock Union

(the ISU depository) etc.

The composition of the gross corporate securi�

ties’ portfolio of the Bank that on 01.01.2005

amounted to UAH 175.993 million was chang�

ing in line with market trends. The Bank’s

securities portfolio reached UAH 383.350 mil�

lion, including investments in the state treas�

ury bills in the amount of UAH 207.357 million.

The JSC Ukreximbank securities portfolio was

efficiently used for the re�financing purposes

mainly through the National Bank of Ukraine. As

at 01.01.2005 the state and corporate bonds with

25

The JSC Ukreximbank Investments in Securities (IAS)

(in UAH and in million)

174.079

1.914

2.22

6

1.775

207.357

383.35

6.92

156.448

165.143

0.20

1

6.31864.276

70.795

208.947

122.150

333.323

2001 2002 2003 2004

State treasury bills (T�bills)

Corporate securities (bonds, bills of exchange)

Shares of stock (stocks, equity interest)

0

50

100

150

200

250

300

350

400

In 2004, the JSC Ukreximbank rendered serv�

ices of the underwriter and the payment agent

in the bond issuance for the state joint�stock

company Titan in the total amount of UAH 30

million and for commercial company

Intermarket in the total amount of UAH 10

million. Both issues were fully allocated in the

stock market and distributed among wide

range of investors (residents, non�residents,

banks, insurance companies, businesses etc.).

7. Correspondent BankingIn year 2004 the Bank preserved and expanded

its network of foreign correspondent banks,

most extensive compared to other Ukrainian

banking entities. The correspondent relations

were established with over 700 banking institu�

tions globally. This enables the Bank to ensure

a wide geographic profile of servicing the cus�

tomers’ foreign trade activity, embracing

Western, Central & Eastern Europe; Asia, Africa

and Middle East; Northern, Central & Latin

America; Australia & New Zealand; the CIS.

In 2004 the Bank effected international settle�

ments via 48 NOSTRO accounts in different

currencies opened with major foreign banks.

As of 01.01.05 44% of the performing local

banks maintained their accounts with the JSC

Ukreximbank. The total number of Ukrainian

& the CIS banking institutions having their

accounts with the Bank in foreign and nation�

al currencies amounted to 90 as of 01.01.05.

the total nominal value UAH 286.0 million were

committed in the transactions, the volume of

which allows to efficiently managing the Bank’s

current liquidity while simultaneously receiving

the interest income from securities possession.

In 2004, the VAT state treasury bills transac�

tions accounted for UAH 100 million.

26

Ukreximbank’s Securities Portfolio as of 01.01.2005 (IAS)

5%

Available�for�sale state treasury bills

Held�to�maturity corporate bonds

Held�to�maturity state securities

Available�for�sale corporate bonds


The important thing is not to stopquestioning

1. Financial MonitoringOrganisational Structure

The Financial Monitoring Department was

established with the purpose to conduct day�

to�day management of financial monitoring

activities with the view to prevent the Bank's

involvement into money laundering transac�

tions. Its functions include monitoring of

financial operations of the bank's clients with

the view of detecting actions related to the

money laundering as well as the respective

informing of the state financial monitoring

agencies about such operations. The

Department also co�ordinates financial moni�

toring efforts of the Bank's units and branches

within their powers and holds revisions of

compliance by the units and branches with the

financial monitoring requirements.

The Chairman of the Board of the JSC

Ukreximbank supervises activity of the

Financial Monitoring Department. The

Department is authorised to request clarifica�

tions of the issues related to compliance with

financial monitoring requirements from any

employee of the Bank disregard his/her posi�

tion.

The Internal Audit Division no less than once a

year verifies the compliance of the activities

performed by Financial Monitoring

Department and other units of the Bank as

well as its branches with the requirements of

Ukrainian anti�money laundering legislation.

On the basis of the revision results the Internal

Audit Division prepares conclusions and rec�

ommendations to the Bank management. The

Chairman of the Board of the JSC

Ukreximbank also supervises activity of the

Internal Audit Division.

27

Albert Einstein

Compliance

2. Compliance Policy &Procedures

The legal frame on preventing money launder�

ing was developed in Ukraine in accordance

with the FATF recommendations. The basic reg�

ulatory enactments therein are the Anti�Money

Laundering Law of Ukraine №249�IV dated

28.11.02 and the Resolution by the National

Bank of Ukraine №189 dated 14.05.03 on

Regulation of the Financial Monitoring by Banks.

In accordance with the FATF recommenda�

tions and in fulfilment of Ukraine’s legislative

requirements, in 2003 the JSC Ukreximbank

developed and introduced Internal Financial

Monitoring Rules and Financial Monitoring

Implementation Program (hereafter –

Regulations), stipulating the procedure for pre�

venting the involvement of the Bank in money

laundering transactions.

The JSC Ukreximbank neither opens nor keeps

anonymous (numbered) accounts.

The Bank performs identification of its clients

on a constant basis. The identification results

are entered into the client form that compris�

es comprehensive data on the client. In com�

pliance with legislative requirements the Bank

performs compulsory identification of:

Clients, which open accounts with the Bank,

Clients, which carry out operations that are

subject to the financial monitoring,

Clients, which effect operations with cash

for the amount exceeding UAH 50,000.00

(equivalent in foreign currency) without

opening an account, and

Persons authorised to act in the name of the

above�mentioned clients.

The details for identification procedure are

obtained from the originals of documents pro�

vided by the client or from duly certified

copies thereof; from the client ID forms; from

state authorities, banks or other authorised

legal entities, or otherwise compliant to the

Ukrainian legislation. Such details are verified

and updated no less than once a year if the risk

of performing illegal operations by the client is

estimated as high, otherwise no less than once

in 3 years.

The Bank’s Regulations stipulate data obligato�

ry for the client identification and describe

compliance procedure, including risk criteria

and principles for banking operations moni�

toring.

Internal Rules envisage direct involvement of

every employee of the Bank within his/her

authorities in detection of operations related

to money�laundering or terrorism support.

Such authorities are prescribed by Internal

Program to each unit of the Bank. The staff of

the Bank monitors suspicious financial opera�

tions on a constant basis. The detected suspi�

cious financial operations are entered into the

electronic register and information thereof is

forwarded to the State Financial Monitoring

Division, if applicable. The documents on the

suspicious financial operations and identifica�

tion data on the persons effecting such opera�

tions are kept during 5 years from the date of

such operation.

In order to maintain the adequate level of pro�

fessional skills on anti�money laundering activ�

ity, the Training/Advanced Training Program

for the staff is developed and approved every

year and related training is carried out no less

than once a year.

28

Compliance

1. Risk ManagementOrganisational Structure

The Bank considers risk management as one of

the key lines of the banking management.

Successful business of the Bank considerably

depends on the risk management strategy. The

Bank adheres to the principle of prudence in

determining the acceptable risk level.

The Bank manages assets and liabilities, capital

and various risks: credit, liquidity, interest, cur�

rency, market, strategic, operational and repu�

tation. The management of financial risks

(credit, liquidity, interest, currency and market

risks) is centralised and they are continuously

monitored. The Bank annually works out its

Risk Management Policy (hereinafter referred

to as the Policy).

The Board, the Assets and Liabilities Committee

(the ALCO), the Credit Committee, Risk

Management Division, Audit and Inspection

Division, front� and back offices of the Bank are

involved in the risk management process.

The ALCO carries out general risk management

and informs the Board about the risk level. The

ALCO decides on what risks and in what degree

the Bank can assume them, and it determines

the adequacy of the expected profitability com�

pared with the risk level assumed by the Bank.

The Credit Committee manages the loan

portfolio. The branches’ Credit Commissions

assume credit risks within the authorities dele�

gated to them by the Credit Committee.

The Bank’s structural subdivisions adhere to

the established procedures and limitations

related to the risk management: front�offices

accept risks within their authorities and back�

offices exercise control over adherence to the

established requirements.

29

Vision is the art of seeing thingsinvisible to others

Jonathon Swift

Risk Management

The key functions of the Risk ManagementDivision (the RMD) are as follows: identifying

risks; their qualitative and quantitative assess�

ment; monitoring of limits; analysis of possible

scenarios and preparing general information

on risk positions and reports to the ALCO; pro�

viding recommendations on methodology of

risks management and risks maintenance

within the limits established by the Policy;

working out and updating the methods of

individual risks evaluation and management.

The Audit and Inspection Division super�

vises adherence to the internal procedures and

rules.

In the year under review, considerable atten�

tion was paid to the risk management culture

and updating the risk management methods.

2. Risk Management Policy &ProceduresIn 2004 the risk levels were within the limits

stipulated by the Policy as acceptable. The Bank

adhered to all economic regulations and

mandatory provisioning requirements estab�

lished by the National Bank of Ukraine. The pol�

icy of pricing, assets and liabilities management

ensured obtaining by the Bank of the interest

margin required for earning the profit planned.

Credit risk management

Bank has its lending policy, guidelines and pro�

cedures approved by the Board as a part of

credit risk managing system. A review of the

lending process includes analysis of credit

manuals and actual performance of all depart�

ments involved in the credit functions. The

characteristics and quality of bank’s loan port�

folio are assessed through a review process on

the monthly base.

The Bank manages its credit risk through

limiting credit risk by setting and monitoring

limits on concentration and large exposures,

lending to the related parties, or over�expo�

sures. Bank sets these limits in compliance

with NBU mandatory limits;

asset classification. Bank has established a

system of internal credit rating to assign a

credit risk grade to the borrower and the

particular loan. Using asset classification as a

key management tool the Bank requires to

effect classification at the time of the loan

origination and then periodically reviews

and reclassifies its loans;

loss provisioning at a level adequate to

absorb anticipated losses according to the

assigned grades of classification and NBU

mandatory requirements;

providing policy on collateral monitoring

(including pledged property, property rights,

guarantees, sureties, etc.)In 2004, the expo�

sures established by the Bank for a partner

bank, an insider of the Bank and concentra�

tions of "large" loans were adhered to, thus

insuring compliance with the respective

NBU regulations. In the year under review

the quality of loan portfolio improved.

Loans are classified upon the assessment of a bor�

rower and loan projects through the internal sys�

tem of credit ratings assigned to customers/part�

ner banks and loan projects. The Bank considers

the system of credit ratings as the key instrument

of the loan portfolio risk evaluation.

ALCO reviews the adherence to the established

limits and approves any changes to the limits.

30

Risk Management

Annual Report 2004

The Bank creates provisions adequate to the

risk level in compliance with the NBU require�

ments. In order to take decisions on the loan

portfolio management, on reduction of credit

risks adversely affecting the financial position

and the capital, the internal methodology for

calculation of provisions based on the mana�

gerial standards of provisioning is applied. The

Bank writes off loss assets against the provision

on the decision made by the Board and in

accordance with Ukrainians laws.

Liquidity risk management

The Bank deliberately gives preference to liq�

uidity over profitability, considering that liq�

uidity management is of top priority in the

bank management. The key objective of the

liquidity risk management is its maintenance

within the established limits.

In order to evaluate the liquidity risk the fol�

lowing methods are used: GAP analysis; liquid�

ity ratio analysis; assets funding analysis and

borrowed funds structure analysis. The stress

testing allows evaluating the impact of the

negative scenarios on the Bank’s liquidity.

The liquidity management is effected within

the short� and medium term periods by using

assets management methods, liabilities man�

agement methods and their combinations

through setting limits, internal liquidity stan�

dards, which are more conservative compared

with the NBU’s requirements.

In 2004, the limits on instant, current and short�

term liquidity (the internal limits and those

established by the NBU) were maintained, liq�

uidity indicators were satisfactory, and maturity

gap was within the established limits. In 2004,

the control over cash flow was improved and

daily control over liquidity gap was introduced.

In November 2004, in view of the threat of cri�

sis in the Ukrainian banking system the Bank set

up the Extraordinary Commission under 2003

Contingency Plan for Liquidity Maintenance.

Since mid January 2005, the Bank has been

operating in the customary mode.

Interest rate risk management

The Bank is exposed to interest rate risk prin�

cipally as a result of mismatches in the maturi�

ty of its interest�bearing assets and liabilities.

The Bank measures interest rate risk in each of

the major international currencies separately.

The Bank’s interest rate risk management pro�

cedures are the same for all currencies.

The following methods are used for evaluation

of the interest risks: GAP analysis, static and

dynamic simulation for evaluation of the net

interest income vulnerability in the short�term

perspective, stress�testing for evaluating interest

risks if the key assumptions regarding changes

in the interest rates turn out to be wrong.

The ALCO sets the cumulative interest gap to

total assets ratio (defined as the interest gap in

each category divided by total earning assets).

The level of mismatch of interest rate is moni�

tored by the RMD. In the absence of any hedg�

ing instruments available on the Ukrainian

market, the Bank seeks to match its interest

rate positions. The evaluation and analysis of

the size of interest rate risk is performed each

month. The results of such evaluation and

analysis are discussed at ALCO meetings.

The analysis of interest rate gap includes mak�

ing periodic forecasts. Assets and liabilities are

then broken down by sensitivity to interest rate

movements and these are further broken down

by reference to their contractual re�pricing or

31

maturity date. Calculations of gap, cumulative

gap and gap ratios are carried out for each

period and measured against approved gap

ratios and cumulative gap. Static and dynamic

models can also be used for this analysis.

The Bank evaluates the efficiency of funds util�

isation based on applying the net interest rate

margin (NIM). Decisions on the interest policy

are taken with due account for the minimal

NIM stipulated in the Policy. The Bank per�

forms factor analysis of changes in this indica�

tor by major currencies.

In 2004, the interest risk level was maintained

within the limits stipulated in the Policy, but

NIM exceeded the planned level.

Market risk management

The main purpose of forex risk management is

maintaining its level within the acceptable limits.

For evaluation of forex risks the following

parameters are calculated: the amount of open

currency position, possible amount of losses

calculated in accordance with the Value�at�

Risk methodology using historic simulation

and variation� co�variation methods. The

national currency is used as the base currency.

The forex risk is managed on the basis of lim�

its established as follows:

for the total open position of the entire Bank

system by subdivisions and transactions;

for the amount of possible losses incurred as

result of changes in the currency rate;

for the Treasury transactions effected in the

international markets (both intraday limits

and close of a banking day limits);

Stop�loss (limits of possible losses).

The Bank monitors the adherence to the estab�

lished limits. In 2004, the Bank maintained

limits of the open currency position set by the

National Bank of Ukraine.

In order to control and manage the open cur�

rency position under conversion operations the

Bank employs the software complex Kondor+.

Operational risk management is per�

formed through:

updating the system of internal procedures,

rules, methodologies and job descriptions;

segregation of duties;

audit and internal control over compliance

with regulations, managerial decisions, inter�

nal procedures, rules and methodologies;

updating the management information sys�

tem;

staff professional development;

working out and updating anti�crisis plans;

updating the Bank’s software, telecommuni�

cation and transmission facilities;

analyzing facts of operational risk, identifica�

tion of their reasons, working out and taking

preventive measures to avoid such facts in

future.

Management information system TMIS(Treasury Management Information System),

developed under the World bank program, is

used to manage capital efficiently and to evalu�

ate branch performance with account of bank�

ing risks. In the TMIS system interest rate, forex

and liquidity risks are transferred from branches

to the Head Office for centralized management

via transfer pricing of resources. Capital is allo�

cated to assets according to the credit risk level

with defined rate of return on allocated capital.

32

Risk Management

1. Network of the BankThe Bank’s network comprises the Head Office

in Kiev, regional branches and operating outlets

(sub�branches), covering all the administrative

areas (oblasts) of Ukraine, including the

Autonomous Republic of Crimea, and embraces

every key industrial area of Ukraine.

In conformity with the Statute of the Bank, its

branches and sub�branches are not the sepa�

rate legal entities, but operate on behalf of the

Bank under banking licences and permits

issued to it by the National Bank of Ukraine

within authorisations provided by the Head

Office of the Bank.

As of 01.01.05 the network of the Bank con�

sisted of 29 branches and 54 operating outlets,

with 10 new outlets established in 2004. This

was in line with the Bank’s policy to extend its

network primarily to economically developed

regions with higher potential in order to pro�

vide comprehensive banking services to its tar�

get clients � large foreign�trade oriented enter�

prises and industrial leaders.

2. Human resources

The staff of the Bank is constantly in the cen�

tre of the management’s attention. In 2004 on

the core basis of the advanced HR methods a

number of actions were taken to improve

human resources organisation and to develop

professional skills of the staff.

The purposeful work aimed at creating and

perfecting skills of the personnel reserve and

its professional career planning was underway.

The Bank’s experts arranged regular interviews

to analyse social and psychological portrait of

33

If you work for money, you give the powerto your employer; if your money works for

you, you keep and control the powerJonathon Swift

Network, Staff,Technology

the staff, to diagnose the problems, to study

peculiarities of labour motivations and to

maintain healthy social and psychological cli�

mate in the Bank’s subdivisions. Constant

attention paid to the personnel, introduction

of democratic approach in human resources

management, well�considered and well�bal�

anced steps aimed at perfecting the corporate

culture, involvement of experts in the deci�

sion�making, all these efforts enabled the Bank

to achieve the goals set with respect to HR

management.

In 2004, the Bank staff consisted of 2,180 per�

sons employed as the key banking specialists.

The Bank’s specialists with higher education

accounted for 91.1% in the entire Bank system

and 95.6% at its Head office; their share in 2004

increased by 1.3%, while at the Head office by

0.6%. The Bank employs 1 Doctor of Economic

Science and 16 Candidates of Science.

Improvement of the personnel professional

skills is under permanent attention of the

Bank’s management. In 2004 the HO Training

Centre held 46 seminars to discuss various

issues of banking attended by 1,349 employees

of the Bank.

Training at the higher educational institutions

remains one of the key lines of human

resources development. Currently 81 employ�

ees of the Head office and 216 employees of

the Bank’s branches study in such institutions.

With the view to enhance the Bank’s efficien�

cy, to actively involve young experts employed

by the Bank into the achievement of the Bank

strategic goals, to encourage their initiative

and creative approach, to bring up the own

personnel reserve, the JSC Ukreximbank has

established the annual conference "Young

bankers’ view on the Bank’s vital tasks and

challenges and on their solutions". The man�

agement of the Bank, as well as the personnel

of the Head Office and the branches of the

Bank participate in the conference.

3. Information TechnologiesThe system of software and hardware and

computer networks of the Head office and

branches form the basis of the Bank’s IT infra�

structure. They arrange the corporate network

of the Bank as a unified overall system for

banking data collection and processing with

strict adherence to network calculations’ tech�

nology.

Technologies that underlie the Bank’s IT sys�

tem allow to develop and update software and

data bases for collection, transfer, storage and

processing of corporate banking data, thus

making the data accessible at all work stations,

where it is required to perform banking trans�

actions, prepare reports, exercise control and

take managerial decisions.

The corporate network of the Bank, imple�

mentation of open systems’ principles, applica�

tion and system software standardisation

enables the Bank to use both centralised and

decentralised methods of interaction and

management, which allows to consolidate and

to efficiently allocate resources of its Head

office and affiliates. Besides, the corporate net�

work of the Bank allows operating in an inter�

connected informational space thus enhanc�

ing the efficiency of existing banking tech�

nologies and facilitating creation of new ones.

ORACLE�based integrated automation system

of the Bank created by using software and

34

Network, Staff,Technology

Annual Report 2004

hardware of the industrial DMBS ensures

automation of the entire range of customer

servicing and inter�bank transactions as well as

reporting.

The core of the Bank’s payment infrastructure

is represented by the internal bank payment

system focused at creating conditions for cen�

tralised operative management of the Bank’s

free resources in view of their effective use.

The internal bank payment system ensures

interaction of the Bank with external payment

systems (national and international electronic

payment systems) via single point of entry �

the Clearing House of the Bank.

The Bank has developed and introduced the

corporate data storage used for the banking

data analysis and management decision tak�

ing. Essential accounting information is being

collected in the entire system of the Bank in

an automated mode, stored centrally and

processed at the multiprocessor server with

highly efficient disk array. Information

resources of the storage are used by analytical

and management units of the Head office and

the affiliates.

Computer network of the Head office and

branches is a complex system based on

advanced software and equipment solutions. It

comprises servers of the application data bases,

servers for SWIFT servicing as well as for VISA

and EUROPAY cards servicing, file and techno�

logical servers, which ensure telecommunica�

tion services and data protection, as well as

PCs as users’ work stations. Computer systems

of the Bank’s outlets are integrated into com�

puter networks of respective branches.

The back up pad, where all major information

systems of the Bank are being reserved, is

located at a distant Bank’s branch. On this pad

one of the nodes of the HO cluster is being

expanded, with principal databases of the

Bank kept on it for contingency.

With view of backing principal information

blocks and securing their fail�safe perform�

ance the Bank applies cluster systems with

parallel functioning of databases’ copies,

standby database, informational recourses’

backup on the alternative data carriers. The

server platforms have RAID, standby power

supply units, self�contained units of uninter�

rupted power supply. The power supply sys�

tem is protected from faults due to uninter�

rupted power supply units and oil�electrical

engine.

35

The mission of the JSC Ukreximbank is to sup�

port comprehensive development of

Ukrainian economy by rendering high quality

banking services to its customers and acting as

the financial agent of the Government of

Ukraine.

Strategic objectives of the Bank’s development

are set based on the Statute of the JSC

Ukreximbank approved by the Government of

Ukraine and stipulate as follows:

maintaining unique position as the sole

financial agent of the Ukrainian

Government;

keeping the leading position in export and

import finance and other related activities;

maintaining the regulatory capital adequacy

at the level sufficient to support sustainable

growth to hold leading positions within Top

Five of Ukrainian banks;

improving the risk management system in

compliance with the forthcoming Basel II

requirements;

maintaining the Bank’s reputation as a reli�

able and profitable state financial institution

of high international recognition;

expanding the range and volume of banking

services.

36

I avoid looking forward or back�ward, and try to keep going forward

Charlotte Brontё

Strategy

Documents

Success is the sum of small efforts, · Ukreximbank with the NBU’s Certificate of Honour for significant contribution to the development of banking industry, as well as for productive