IFRS Financial Statements for the year ended 31 … 123317 Russia Telephone +7 (495) 937 4477 Fax +7...
Transcript of IFRS Financial Statements for the year ended 31 … 123317 Russia Telephone +7 (495) 937 4477 Fax +7...
ZAO “Bank Credit Suisse (Moscow)”
Financial Statements
For the year ended 31 December 2007
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Contents Independent Auditors’ Report ......................................................................................................... 3 Income Statement ............................................................................................................................ 4 Balance Sheet................................................................................................................................... 5 Statement of Cash Flows ................................................................................................................. 6 Statement of Changes in Shareholders’ Equity ............................................................................... 7 Notes to the Financial Statements.................................................................................................... 8 1 Background............................................................................................................................... 3 2 Basis of preparation.................................................................................................................. 3 3 Significant accounting policies................................................................................................. 3 4 Interest income and interest expense........................................................................................ 3 5 Fee and commission income..................................................................................................... 3 6 Fee and commission expense ................................................................................................... 3 7 Net loss on financial instruments at fair value through profit or loss....................................... 3 8 Net foreign exchange income................................................................................................... 3 9 Other income ............................................................................................................................ 3 10 General administrative expenses .............................................................................................. 3 11 Income tax expense .................................................................................................................. 3 12 Due from the Central Bank of the Russian Federation............................................................. 3 13 Placements with banks and other financial institutions............................................................ 3 14 Financial instruments at fair value through profit or loss......................................................... 3 15 Loans to customers ................................................................................................................... 3 16 Property and equipment............................................................................................................ 3 17 Other assets............................................................................................................................... 3 18 Deposits and balances from banks and other financial institutions.......................................... 3 19 Current accounts and deposits from customers ........................................................................ 3 20 Other liabilities ......................................................................................................................... 3 21 Deferred tax asset and liability ................................................................................................. 3 22 Share capital ............................................................................................................................. 3 23 Risk management ..................................................................................................................... 3 24 Capital management ................................................................................................................. 3 25 Commitments ........................................................................................................................... 3 26 Operating leases........................................................................................................................ 3 27 Contingencies ........................................................................................................................... 3 28 Custody activities ..................................................................................................................... 3 29 Related party transactions......................................................................................................... 3 30 Cash and cash equivalents ........................................................................................................ 3 31 Fair value of financial instruments ........................................................................................... 3 32 Average effective interest rates ................................................................................................ 3 33 Maturity analysis ...................................................................................................................... 3 34 Currency analysis ..................................................................................................................... 3
ZAO KPMG Naberezhnaya Tower Complex, Block C 18 Krasnopresnenskaya Naberezhnaya Moscow 123317 Russia
Telephone +7 (495) 937 4477 Fax +7 (495) 937 4400/99 Internet www.kpmg.ru
ZAO KPMG, a company incorporated under the Laws of the Russian Federation and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
Independent Auditors’ Report To the Management of ZAO “Bank Credit Suisse (Moscow)” Report on the Financial Statements We have audited the accompanying financial statements of ZAO “Bank Credit Suisse (Moscow)” (the “Bank”), which comprise the balance sheet as at 31 December 2007, the income statement, statement of changes in shareholders’ equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2007, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. ZAO KPMG 30 June 2008
ZAO “Bank Credit Suisse (Moscow)” Income Statement for the year ended 31 December 2007
The income statement is to be read in conjunction with the Notes to, and forming part of, the financial statements. 4
2007 2006
Notes RUR’000 RUR’000 Interest income 4 806,659 896,906
Interest expense 4 (275,660) (208,854)
Net interest income 530,999 688,052
Fee and commission income 5 190,423 78,247
Fee and commission expense 6 (105,618) (73,449)
Net fee and commission income 84,805 4,798 Net loss on financial instruments at fair value through profit or loss 7 (162,954) (110,591)
Net foreign exchange income 8 1,249,338 712,438
Other income 9 1,142,084 961,843
2,844,272 2,256,540
General administrative expenses 10 (1,286,908) (901,297)
Income before taxes 1,557,364 1,355,243
Income tax expense 11 (438,883) (306,701)
Net income 1,118,481 1,048,542
The financial statements as set out on pages 4 to 42 were approved by the Management of the Bank on 30 June 2008.
_____________________________ __________________________ Z. Bondarenko N. Kondrashina Vice President Chief Accountant
ZAO “Bank Credit Suisse (Moscow)” Balance Sheet as at 31 December 2007
The balance sheet is to be read in conjunction with the Notes to, and forming part of, the financial statements. 5
2007 2006
Notes RUR’000 RUR’000
ASSETS
Cash 30 326,226 20,475
Due from the Central Bank of the Russian Federation 12 1,519,507 339,016
Placements with banks and other financial institutions 13 8,877,339 7,290,811
Financial instruments at fair value through profit or loss 14 2,673,707 5,990,822
Loans to customers 15 - 150,377
Property and equipment 16 328,889 306,566
Deferred tax asset 21 12,810 -
Other assets 17 586,132 427,782
Total Assets 14,324,610 14,525,849
LIABILITIES AND SHAREHOLDERS’ EQUITY
Financial instruments at fair value through profit or loss 14 68,944 188,588
Deposits and balances from banks and other financial institutions 18 590,837 6,918,785
Current accounts and deposits from customers 19 6,095,635 1,088,550
Deferred tax liabilities 21 - 8,334
Other liabilities 20 602,237 473,116
Total Liabilities 7,357,653 8,677,373
Shareholders’ Equity
Share capital 22 460,000 460,000
Cumulative translation reserve (10,970) (10,970)
Retained earnings 6,517,927 5,399,446
Total Shareholders’ Equity 6,966,957 5,848,476
Total Liabilities and Shareholders’ Equity 14,324,610 14,525,849
Commitments and Contingencies 25-27
ZAO “Bank Credit Suisse (Moscow)” Statement of Cash Flows for the year ended 31 December 2007
The statement of cash flows is to be read in conjunction with the Notes to, and forming part of, the financial statements. 6
2007 2006
Notes RUR’000 RUR’000
CASH FLOWS FROM OPERATING ACTIVITIES Interest and fee and commission receipts 1,005,894 999,189
Interest and fee and commission payments (363,504) (282,153)
Net payments from financial instruments at fair value through profit or loss (117,517) (129,474)
Net receipts from foreign exchange 1,750,358 698,564 Other income 1,045,068 775,643
General administrative expenses (1,109,126) (731,238)
2,211,173 1,330,531 (Increase)/decrease in operating assets
Due from the Central Bank of the Russian Federation (224,379) 139,366
Placements with banks and other financial institutions (2,047,833) (5,298,088)
Financial instruments at fair value through profit or loss 3,118,428 567,153
Loans to customers 150,300 (150,300)
Other assets (63,692) (15,662)
932,824 (4,757,531) Increase/(decrease) in operating liabilities
Deposits and balances from banks and other financial institutions (6,345,023) 3,172,610
Current accounts and deposits from customers 5,000,317 641,324
Other liabilities (32,668) 13,077
Net cash from operating activities before taxes paid 1,766,623 400,011 Taxes paid (443,193) (291,002)
Cash flows from operations 1,323,430 109,009
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchases of property and equipment (55,727) (15,271)
Cash flows from investing activities (55,727) (15,271)
Net increase in cash and cash equivalents 1,267,703 93,738
Effect of changes in exchange rates on cash and cash equivalents (5,839) (1,597)
Cash and cash equivalents at the beginning of the year 248,907 156,766
Cash and cash equivalents at the end of the year 30 1,510,771 248,907
ZAO “Bank Credit Suisse (Moscow)” Statement of Changes in Shareholders’ Equity for the year ended 31 December 2007
The statement of changes in shareholders’ equity is to be read in conjunction with the Notes to, and forming part of, the financial statements. 7
Share capital
Cumulative translation
reserve Retained earnings
Total equity
RUR’000 RUR’000 RUR’000 RUR’000
Balance at 1 January 2006 460,000 (10,970) 4,350,904 4,799,934
Net income for the period - - 1,048,542 1,048,542
Balance at 31 December 2006 460,000 (10,970) 5,399,446 5,848,476
Net income for the period - - 1,118,481 1,118,481
Balance at 31 December 2007 460,000 (10,970) 6,517,927 6,966,957
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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1 Background
Principal activities
ZAO “Bank Credit Suisse (Moscow)” was established in the Russian Federation and was granted its general banking license on 13 September 1994. The Bank is a member of the state deposit insurance scheme in the Russian Federation. The principal activities of the Bank are deposit taking and customer accounts maintenance, cash and settlement operations, operations with securities and foreign exchange, and private banking services. The activities of the Bank are regulated by the Central Bank of the Russian Federation (“CBR”). The majority of the Bank’s assets and liabilities are located in the Russian Federation. The average number of people employed by the Bank during the year was 149 (2006: 113).
Shareholders
The Bank's shareholders are Credit Suisse and Credit Suisse (International) Holding AG.
The share capital of the Bank comprises of 20,000,000 ordinary shares, of which Credit Suisse owns 19,999,999 shares and Credit Suisse (International) Holding AG owns 1 share.
Russian business environment
The Russian Federation has been experiencing political and economic change which has affected, and may continue to affect, the activities of enterprises operating in this environment. Consequently, operations in the Russian Federation involve risks, which do not typically exist in other markets. The accompanying financial statements reflect management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Bank. The future business environment may differ from management’s assessment.
2 Basis of preparation
Statement of compliance
The accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).
Basis of measurement
The financial statements are prepared on the historical cost basis except that financial instruments at fair value through profit or loss and available-for-sale financial assets are stated at fair value.
Functional and presentation currency
The national currency of the Russian Federation is the Russian Rouble (“RUR”). Management have determined the Bank’s functional currency to be the RUR as it reflects the economic substance of the underlying events and circumstances of the Bank. The RUR is also the Bank’s presentation currency for the purposes of these financial statements.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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Financial information presented in RUR has been rounded to the nearest thousand.
Use of estimates and judgments
The preparation of the financial statements in conformity with IFRSs requires Management to make judgements, estimates and assumptions that affect the application of the policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on Management’s best knowledge of current events and actions, actual results ultimately may differ from these estimates.
Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with IFRS. Actual results could differ from those estimates.
3 Significant accounting policies
The following significant accounting policies have been applied in the preparation of the financial statements.
Foreign currency transactions
Transactions in foreign currencies are translated to the appropriate functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated to the functional currency at the foreign exchange rate ruling at the date of the transaction. Foreign exchange differences arising on translation are recognised in the income statement.
Inflation accounting
The Russian Federation ceased to be hyperinflationary with effect from 1 January 2003 and accordingly no adjustments for hyperinflation have been made for periods subsequent to this date. The hyperinflation-adjusted carrying amounts of the Bank’s assets, liabilities and equity items as at 31 December 2002 became their carrying amounts as at 1 January 2003 for the purpose of subsequent accounting.
Cash and cash equivalents
The Bank considers cash and nostro accounts with the CBR to be cash and cash equivalents. The minimum reserve deposit with the CBR is not considered to be a cash equivalent due to restrictions on its withdrawability.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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Financial instruments
Classification
Financial instruments at fair value through profit or loss are financial assets or liabilities that are:
- acquired or incurred principally for the purpose of selling or repurchasing in the near term;
- part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking;
- derivative financial instruments (except for derivative financial instruments that are designated and effective hedging instruments) or,
- upon initial recognition, designated by the Bank as at fair value through profit or loss.
The Bank designates financial assets and liabilities at fair value through profit or loss where either:
- the assets or liabilities are managed and evaluated on a fair value basis;
- the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise; or
- the asset or liability contains an embedded derivative that significantly modifies the cash flows that would otherwise be required under the contract.
All trading derivatives in a net receivable position (positive fair value), as well as options purchased, are reported as assets. All trading derivatives in a net payable position (negative fair value), as well as options written, are reported as liabilities.
Financial assets and liabilities at fair value through profit or loss are not reclassified subsequent to initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that:
- the Bank intends to sell immediately or in the near term;
- the Bank upon initial recognition designates as at fair value through profit or loss;
- the Bank upon initial recognition designates as available- for-sale; or
- the Bank may not recover substantially all of its initial investment, other than because of credit deterioration.
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Bank has the positive intention and ability to hold to maturity, other than those that:
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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- the Bank upon initial recognition designates as at fair value through profit or loss;
- the Bank designates as available-for-sale; or
- meet the definition of loans and receivables.
Available-for-sale assets are those financial assets that are designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial instruments at fair value through profit or loss.
Management determines the appropriate classification of financial instruments at the time of the initial recognition.
Recognition
Financial assets and liabilities are recognized in the balance sheet when the Bank becomes a party to the contractual provisions of the instrument. All regular way purchases of financial assets are accounted for at the settlement date.
Measurement
A financial asset or liability is initially measured at its fair value plus, in the case of a financial asset or liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability.
Subsequent to initial recognition, financial assets, including derivatives that are assets, are measured at their fair values, without any deduction for transaction costs that may be incurred on sale or other disposal, except for:
- loans and receivables which are measured at amortized cost using the effective interest method;
- held-to-maturity investments which are measured at amortized cost using the effective interest method; and
- investments in equity instruments that do not have a quoted market price in an active market and whose fair value can not be reliably measured which are measured at cost.
All financial liabilities, other than those designated at fair value through profit or loss and financial liabilities that arise when a transfer of a financial asset carried at fair value does not qualify for derecognition, are measured at amortized cost. Amortized cost is calculated using the effective interest rate method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortized based on the effective interest rate of the instrument.
Where a valuation based on observable market data indicates a fair value gain or loss on initial recognition of an asset or liability, the gain or loss is recognised immediately in the income statement. Where an initial gain or loss is not based entirely on observable market data, it is deferred and recognised over the life of the asset or liability on an appropriate basis, or when prices become observable, or on disposal of the asset or liability.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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Fair value measurement principles
The fair value of financial instruments is based on their quoted market price at the balance sheet date without any deduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using pricing models or discounted cash flow techniques.
Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate at the balance sheet date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the balance sheet date.
The fair value of derivatives that are not exchange-traded is estimated at the amount that the Bank would receive or pay to terminate the contract at the balance sheet date taking into account current market conditions and the current creditworthiness of the counterparties.
Gains and losses on subsequent measurement
A gain or loss arising from a change in the fair value of a financial asset or liability is recognized as follows:
- a gain or loss on a financial instrument classified as at fair value through profit or loss is recognized in the income statement;
- a gain or loss on an available-for-sale financial asset is recognized directly in equity through the statement of changes in shareholders’ equity (except for impairment losses and foreign exchange gains and losses) until the asset is derecognized, at which time the cumulative gain or loss previously recognised in equity is recognized in the income statement. Interest in relation to an available-for-sale financial asset is recognized as earned in the income statement calculated using the effective interest method.
For financial assets and liabilities carried at amortized cost, a gain or loss is recognized in the income statement when the financial asset or liability is derecognized or impaired, and through the amortization process.
Derecognition
A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire or when the Bank transfers substantially all the risks and rewards of ownership of the financial asset. Any rights or obligations created or retained in the transfer are recognized separately as assets or liabilities. A financial liability is derecognised when it is extinguished.
The Bank also derecognises certain assets when it writes off balances pertaining to the assets deemed to be uncollectible.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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Repurchase and reverse repurchase agreements
Securities sold under sale and repurchase (“repo”) agreements are accounted for as secured financing transactions, with the securities retained in the balance sheet and the counterparty liability included in amounts payable under repo transactions. The difference between the sale and repurchase prices represents interest expense and is recognized in the income statement over the term of the repo agreement using the effective interest rate method.
Securities purchased under agreements to resell (“reverse repo”) are recorded as amounts receivable under reverse repo transactions. The difference between the purchase and resale prices represents interest income and is recognized in the income statement over the term of the repo agreement using the effective interest rate method.
If assets purchased under agreement to resell are sold to third parties, the obligation to return securities is recorded as a trading liability and measured at fair value.
Offsetting
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Property and equipment
Owned assets
Items of property and equipment are stated at cost less accumulated depreciation and impairment losses.
Where an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment.
Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of the individual assets. Depreciation commences on the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and ready for use. The estimated useful lives are as follows:
Leasehold improvements 10 to 15 years
Equipment 3 to 10 years
Fixtures and fittings 5 to 15 years
Intangible assets
Intangible assets, which are acquired by the Bank, are stated at cost less accumulated amortisation and impairment losses.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets.
Impairment
Financial assets carried at amortized cost
Financial assets carried at amortized cost consist principally of loans, other receivables and unquoted available-for-sale debt securities (“loans and receivables”). The Bank reviews its loans and receivables, to assess impairment on a regular basis. A loan or receivable is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan or receivable and that event (or events) has had an impact on the estimated future cash flows of the loan that can be reliably estimated.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, breach of loan covenants or conditions, restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, deterioration in the value of collateral, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers in the group, or economic conditions that correlate with defaults in the group.
The Bank first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for loans and receivables that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed loan or receivable, whether significant or not, it includes the loan in a group of loans and receivables with similar credit risk characteristics and collectively assesses them for impairment. Loans and receivables that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on a loan or receivable has been incurred, the amount of the loss is measured as the difference between the carrying amount of the loan or receivable and the present value of estimated future cash flows including amounts recoverable from guarantees and collateral discounted at the loan or receivable’s original effective interest rate. Contractual cash flows and historical loss experience adjusted on the basis of relevant observable data that reflect current economic conditions provide the basis for estimating expected cash flows.
In some cases the observable data required to estimate the amount of an impairment loss on a loan or receivable may be limited or no longer fully relevant to current circumstances. This may be the case when a borrower is in financial difficulties and there is little available historical data relating to similar borrowers. In such cases, the Bank uses its experience and judgement to estimate the amount of any impairment loss.
All impairment losses in respect of loans and receivables are recognized in the income statement and are only reversed if a subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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When a loan is uncollectable, it is written off against the related allowance for loan impairment. The Bank writes off a loan balance (and any related allowances for loan losses) when the Bank’s management determines that the loans are uncollectible and when all necessary steps to collect the loan are completed.
Financial assets carried at cost
Financial assets carried at cost include unquoted equity instruments included in available-for-sale assets that are not carried at fair value because their fair value can not be reliably measured. If there is objective evidence that such investments are impaired, the impairment loss is calculated as the difference between the carrying amount of the investment and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset.
All impairment losses in respect of these investments are recognized in the income statement and can not be reversed.
Non financial assets
Other non financial assets, other than deferred taxes, are assessed at each reporting date for any indications of impairment. The recoverable amount of non financial assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
All impairment losses in respect of non financial assets are recognized in the consolidated income statement and reversed only if there has been a change in the estimates used to determine the recoverable amount. Any impairment loss reversed is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Interest bearing borrowing
Interest-bearing borrowings are recognized at cost, net of any transaction costs incurred. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings.
When borrowing are repurchased or settled before maturity, any difference between the amount repaid and the carrying amount is recognized immediately in the income statement.
Provisions
A provision is recognised in the balance sheet when the Bank has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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A provision for restructuring is recognised when the Bank has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.
Share capital
Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a decrease in equity.
Dividends
The ability of the Bank to declare and pay dividends is subject to the rules and regulations of the Russian legislation.
Dividends in relation to ordinary shares are reflected as an appropriation of retained earnings in the period when they are declared.
Taxation
Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and where it is probable that the temporary difference will not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences, unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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Income and expense recognition
With the exception of financial assets held for trading and other financial instruments at fair value through profit or loss, interest income and expense are recognised in the income statement using the effective interest method. Interest income on financial assets held for trading and on other financial instruments at fair value through profit or loss comprises coupon interest only. Accrued discounts and premiums on financial instruments at fair value through profit or loss are recognised in gains less losses from financial instruments at fair value through profit or loss, respectively.
Loan origination fees, loan servicing fees and other fees that are considered to be integral to the overall profitability of a loan, together with the related direct costs, are deferred and amortized to the interest income over the estimated life of the financial instrument using the effective interest rate method.
Other fees, commissions and other income and expense items are recognised when the corresponding service has been provided.
Dividend income is recognised in the income statement on the date that the dividend is declared.
Operating leases
Where the Bank is the lessee in a lease agreement where the lessor does not transfer substantially all of the risks and rewards incidental to ownership of the asset, the arrangement is accounted for as an operating lease. The leased asset is not recognised in the Bank’s financial statements, and lease payments are recognised in the statement of income on a straight-line basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.
Changes in accounting policies
As at 1 January 2007, the Bank adopted the International Financial Reporting Standard IFRS 7 “Financial Instruments: Disclosures” and the amendment to International Financial Reporting Standard IAS 1 “Presentation of Financial Statements” – “Capital Disclosures”. The application of the Standard and the amendment resulted in increased disclosure in respect of Bank’s financial instruments and the nature and extent of risks arising from financial instruments and increased disclosure in respect of Bank’s objectives, policies and processes for managing capital.
New Standards and Interpretations not yet adopted
A number of new Standards, amendments to Standards and Interpretations are not yet effective as at 31 December 2007, and have not been applied in preparing these financial statements. Of these pronouncements, potentially the following will have an impact on the Bank’s operations. The Bank plans to adopt this pronouncement when it becomes effective. The Bank has not yet analysed the likely impact of this new standard on its financial statements.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
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International Financial Reporting Standard IAS 1 “Presentation of Financial Statements” (Revised), which is effective for annual periods beginning on or after 1 January 2009, specifies how an entity should present changes in equity not resulting from transactions with owners and other changes in equity in its financial statements, and introduces certain other requirements in respect of presentation of information in the financial statements.
4 Interest income and interest expense
2007
RUR’000 2006
RUR’000
Interest income
Placements with banks and other financial institutions 406,030 151,185
Financial instruments at fair value through profit or loss 399,677 743,987
Loans to customers 952 1,734
806,659 896,906
Interest expense
Deposits and balances from banks and other financial institutions (214,902) (205,470)
Current accounts and deposits from customers (60,758) (3,384)
(275,660) (208,854)
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
19
5 Fee and commission income
2007
RUR’000 2006
RUR’000
Custodian fees 70,888 38,432
Brokerage fees 60,489 26,891
Underwriting and corporate finance fees 52,641 9,158
Settlement fees 6,405 3,766
190,423 78,247
6 Fee and commission expense
2007
RUR’000
2006
RUR’000
Brokerage fees (66,604) (34,509)
Foreign exchange fees (18,575) (20,671)
Custodian fees (18,539) (16,411)
Settlement fees (1,900) (1,858)
(105,618) (73,449)
7 Net loss on financial instruments at fair value through profit or loss
2007
RUR’000
2006
RUR’000
Debt instruments (164,727) (109,514)
Equity instruments 1,773 (1,077)
(162,954) (110,591)
8 Net foreign exchange income
2007
RUR’000 2006
RUR’000
Gain on spot transactions and derivatives 1,717,014 953,211
Loss from revaluation of financial assets and liabilities (467,676) (240,773)
1,249,338 712,438
9 Other income
2007
RUR’000 2006
RUR’000 Intercompany charges to other Credit Suisse group companies 1,125,304 957,666
Other income 16,780 4,177
1,142,084 961,843
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
20
10 General administrative expenses
2007
RUR’000 2006
RUR’000 Employee compensation (866,840) (515,937)
Rental (71,468) (72,712)
Taxes other than on income (61,836) (61,207)
Travel expenses (51,921) (11,439)
Communications and information services (45,812) (29,335)
Professional services (40,907) (23,663)
Depreciation (33,854) (35,308)
Payroll related taxes (27,458) (27,282)
Advertising and marketing (18,574) (23,784)
Occupancy costs other than rental expenses (16,065) (27,561)
Repairs and maintenance (12,701) (8,943)
Office supplies (6,244) (3,973)
Security (5,299) (4,876)
Other (27,929) (55,277)
(1,286,908) (901,297)
11 Income tax expense
2007
RUR’000 2006
RUR’000
Current tax expense
Current year 459,317 294,700
Under provided in prior years 710 1,072
460,027 295,772
Deferred tax expense
Origination and reversal of temporary differences (21,144) 10,929
(21,144) 10,929 Total income tax expense in the income statement 438,883 306,701
The Bank’s applicable tax rate for current and deferred tax is 24% (2006: 24%).
Reconciliation of effective tax rate:
2007 2006
RUR’000 % RUR’000 %
Income before taxes 1,557,364 100 1,355,243 100
Income tax at the applicable tax rate 373,767 24 325,258 24
Non-deductible costs 88,504 6 17,130 1
Income taxed at lower tax rates (24,098) (2) (36,759) (3)
Under provision of current tax in prior years 710 0 1,072 0
438,883 28 306,701 22
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
21
12 Due from the Central Bank of the Russian Federation 2007 2006 RUR’000 RUR’000 Nostro accounts 1,184,544 228,432
Minimum reserve deposit 334,963 110,584
1,519,507 339,016
The minimum reserve deposit is a mandatory non-interest bearing deposit calculated in accordance with regulations issued by the CBR and whose withdrawability is restricted. The nostro accounts represent balances with the CBR related to settlement activity and were available for withdrawal at year end.
13 Placements with banks and other financial institutions 2007 2006 RUR ’000 RUR ’000
Nostro accounts
OECD banks 316,825 189,456
Russian subsidiaries of OECD banks 39,249 50
Other Russian financial institutions 1,593,214 1,114,976
Total nostro accounts 1,949,288 1,304,482 Loans and Deposits
OECD banks 775,964 5,481,643
Russian subsidiaries of OECD banks 5,451,742 -
Largest 30 Russian banks 700,345 504,686
Total loans and deposits 6,928,051 5,986,329
8,877,339 7,290,811
Concentration of placements with banks and other financial institutions As at 31 December 2007 and 2006, balances with banks and other financial institutions, which individually exceeded 10% of placements with banks and other financial institutions were as follows: 2007 2006 RUR’000 RUR’000 BNP Paribas 2,000,616 - Raiffeisenbank 1,750,532 - ABN AMRO 1,700,594 - Clearing House MICEX 1,575,059 1,042,271
Fortis Bank - 4,214,214
ING Bank - 1,237,924
7,026,801 6,494,409
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
22
14 Financial instruments at fair value through profit or loss
2007 2006 RUR’000 RUR’000
Assets Debt and other fixed-income instruments - held for trading
Corporate bonds (rated from BBB to BBB+) 2,221,845 1,060,870
Russian Government Federal bonds (OFZ) 431,167 4,251,508
Moscow Government bonds - 497,253
Equity investments - held for trading
Ordinary shares - 7,507
Derivative financial instruments - held for trading
Foreign currency contracts 20,695 173,684
2,673,707 5,990,822
Liabilities Derivative financial instruments- held for trading
Foreign currency contracts (68,944) (188,588)
(68,944) (188,588)
Foreign currency contracts
The table below summarises, by major currencies, the contractual amounts of the Bank's forward exchange contracts outstanding at 31 December 2007 and 2006 with details of the contracted exchange rates and remaining periods to maturity. Foreign currency amounts presented below are translated at rates ruling at the balance sheet date. The resultant unrealised gains and losses on these unmatured contracts, along with the amounts payable and receivable on the matured but unsettled contracts, have been recognised in the income statement and in financial instruments at fair value through profit or loss, as appropriate.
Notional amount RUR’000
Weighted average contracted exchange rates
2007 2006 2007 2006
Buy USD sell RUR
Less than three months 5,301,979 5,273,500 24.51 26.34
Between three months and one year 1,227,310 15,820,500 25.76 26.92
Sell USD buy RUR
Less than three months 7,187,303 10,657,490 24.53 26.31
Between three months and one year - 16,125,750 - 26.93
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
23
15 Loans to customers
As at 31 December 2006 the Bank reported a commercial loan to ZAO CSFB Securities in the amount of RUR 150,300 thousand with interest accrued amounting to RUR 77 thousand which matured in 2007. As at December 2007 the Bank does not have any loans to customers.
16 Property and equipment
The tables below display the Bank’s property and equipment balances and accumulated depreciation as at 31 December 2007 and 31 December 2006:
RUR’000 Equipment Fixtures and
fittings Leasehold
improvement Total
Cost
At 1 January 2007 112,405 22,988 267,254 402,647
Additions 24,755 10,764 20,997 56,516
Disposals (2,884) (45) - (2,929)
Transfers 21,148 (21,219) 71 -
At 31 December 2007 155,424 12,488 288,322 456,234
Depreciation
At 1 January 2007 (39,461) (7,287) (49,333) (96,081)
Depreciation charge (Note 10) (8,410) (1,737) (23,707) (33,854)
Disposals 2,544 - 46 2,590
At 31 December 2007 (45,327) (9,024) (72,994) (127,345)
Carrying value
At 31 December 2007 110,097 3,464 215,328 328,889
At 31 December 2006 72,944 15,701 217,921 306,566
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
24
RUR’000 Equipment
Fixtures and
fittings Vehicles Leasehold
improvement Total
Cost
At 1 January 2006 134,138 262,640 6,615 - 403,393
Additions 14,029 2,849 - 5,662 22,540
Disposals (8,169) (8,502) (6,615) - (23,286)
Transfers (27,593) (233,999) - 261,592 -
At 31 December 2006 112,405 22,988 - 267,254 402,647
Depreciation
At 1 January 2006 (46,593) (27,391) (3,422) - (77,406)
Depreciation charge (7,272) (1,931) (266) (25,839) (35,308)
Disposals 7,734 5,211 3,688 - 16,633
Transfers 6,670 16,824 - (23,494) -
At 31 December 2006 (39,461) (7,287) - (49,333) (96,081)
Carrying value
At 31 December 2006 72,944 15,701 - 217,921 306,566
At 31 December 2005 87,545 235,249 3,193 - 325,987
17 Other assets 2007 2006 RUR’000 RUR’000 Accrued intercompany charges to other Credit Suisse companies 522,921 395,925
Prepayments 61,461 27,796
Other 1,750 4,061
586,132 427,782
18 Deposits and balances from banks and other financial institutions
2007 2006 RUR’000 RUR’000
Vostro accounts 590,837 6,918,785
590,837 6,918,785
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
25
Concentration of deposits and balances from banks and other financial institutions
As at 31 December 2007 and 2006, deposits and balances from banks and other financial institutions, which individually exceeded 10% of deposits and balances from banks and other financial institutions, were as follows:
2007 2006 RUR’000 RUR’000 Credit Suisse International 447,954 6,917,412
Credit Suisse London Branch 59,546 -
507,500 6,917,412
19 Current accounts and deposits from customers 2007 2006 RUR’000 RUR’000
Current accounts and demand deposits
- Corporate 2,002,972 831,287
- Retail 350,385 4,184
Term deposits
- Retail 3,729,715 253,079
- Corporate 12,563 -
6,095,635 1,088,550
Concentrations of current accounts and customer deposits
As at 31 December 2007 and 2006, current accounts and deposits from customers, which individually exceeded 10% of total current accounts and deposits from customers, were as follows:
2007 2006 RUR’000 RUR’000
Credit Suisse Securities Europe Ltd 1,625,509 320,442 ZAO CSFB Securities - 332,501
1,625,509 652,943
20 Other liabilities 2007 2006 RUR’000 RUR’000 Bonus and related taxes accruals 467,923 355,361
Income taxes payable 45,776 29,653
Non-income taxes payable 11,926 11,700
Rental accrual 23,347 52,454
Trademark accrual 15,741 -
Other 37,524 23,948
602,237 473,116
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
26
21 Deferred tax asset and liability
Temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes give rise to net deferred tax assets and liabilities as of 31 December 2007 and 2006. These deductible temporary differences, which have no expiry dates, are listed below at their tax effected accumulated values:
Assets Liabilities Net
RUR’000 2007 2006 2007 2006 2007 2006
Placements with banks and other financial institutions 4,086 - (574) (6,020) 3,512 (6,020)
Financial instruments at fair value through profit or loss 16,547 17,344 (5,993) - 10,554 17,344
Loans to customers - - - (35,647) - (35,647)
Property and equipment - - (10,157) (2,497) (10,157) (2,497)
Other assets - 10,451 (125,866) (95,022) (125,866) (84,571)
Other liabilities - Employee benefits 108,405 85,650 - - 108,405 85,650
Other liabilities - Other 26,362 17,407 - - 26,362 17,407
Total deferred tax assets/(liabilities) 155,400 130,852 (142,590) (139,186) 12,810 (8,334)
The tax rate applicable for deferred taxes was 24% (2006: 24%).
The above deductible temporary differences do not expire under current tax legislation.
Movement in temporary differences during the year ended 31 December 2007
RUR’000 Balance
1 January 2007 Recognised in
income
Balance 31 December
2007
Placements with banks and other financial institutions (6,020) 9,532 3,512
Financial instruments at fair value through profit or loss 17,344 (6,790) 10,554
Loans to customers (35,647) 35,647 -
Property and equipment (2,497) (7,660) (10,157)
Other assets (84,571) (41,295) (125,866)
Other liabilities - Employee benefits 85,650 22,755 108,405
Other liabilities - Other 17,407 8,955 26,362
(8,334) 21,144 12,810
22 Share capital
Issued capital and share premium
The authorised, issued and outstanding share capital comprises 20,000,000 ordinary shares (2006: 20,000,000). All shares have a nominal value of RUR 23.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
27
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at annual and general meetings of the Bank.
Dividends
Dividends payable are restricted to the maximum retained earnings of the Bank, which are determined according to legislation of the Russian Federation.
At the balance sheet date no dividends had been declared by the Bank.
23 Risk management
Management of risk is fundamental to the business of banking and is an essential element of the Bank’s operations. The major risks faced by the Bank are those related to market risk, which includes price, interest rate and currency risks, credit risk and liquidity risk.
Risk management policies and procedures
The Bank’s risk management policies aim to identify, analyze and manage the risks faced by the Bank, to set appropriate risk limits and controls, and to continuously monitor risk levels and adherence to limits. Risk management policies and procedures are reviewed regularly to reflect changes in legislations, market conditions, products and services offered and emerging best practice.
The Bank’s managerial bodies responsible for credit policy are: Shareholders' general meeting, Board of Directors, Management Board, and the President of the Bank.
The Bank’s policies are developed, maintained and controlled by specialised divisions of Credit Suisse Group. The Bank’s President, Finance Department, and other departments of the Bank are responsible for monitoring risks in accordance with these policies. These policies which cover all aspects of risk, including credit, market and liquidity are used to quantify the degree of risk accepted by the Bank and to formulate actions to manage these risks.
The Board of Directors of the Bank has overall responsibility for the oversight of the risk management framework, overseeing the management of key risks and reviewing its risk management policies and procedures as well as approving significantly large exposures.
Credit, market and liquidity risks both at portfolio and transactional levels are managed and controlled by Bank internal control system.
The Bank’s internal control system includes specialised divisions together with control functions assigned within the Finance Department, Operations department and the Compliance controller. The internal control system, which is managed by the Internal Control Department, ensures the policies are operating correctly.
Both external and internal risk factors are identified and managed throughout the Bank’s organizational structure.
The Bank’s departments are responsible for the operating of the risk management policy and the control of risk.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
28
Apart from the standard credit and market risk analysis, the Bank monitors financial and non-financial risks by holding regular meetings with operational units in order to obtain expert opinion on the potential impact.
Market risk
Market risk is the risk that movements in market prices, including foreign exchange rates, interest rates, credit spreads and equity prices will affect the Bank’s income or the value of its portfolios. Market risks comprise currency risk, interest rate risk and other price risk. Market risk arises from open positions in interest rate, currency and equity financial instruments, which are exposed to general and specific market movements and changes in the level of volatility of market prices.
Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or factors affecting all instruments traded in the market. Price risk arises when the Bank takes a long or short position in a financial instrument.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimizing the return on risk.
The Bank has developed a Market risk control policy to measure, monitor and control market risks. The below are used to measure and control market risk.
• forecasting;
• establishing limits for securities position/counterparty;
• analysis of conformity of actual rates of interest-bearing instruments to market rates at the moment of transaction conclusion.
The Bank conducts a daily estimation of the market risk on all trading securities position. This control operates by performing a daily revaluation of the trading securities portfolio and control over established limit compliance. This enables the Bank to receive on a daily basis the real commercial value of a trading portfolio for the purpose of controlling and forecasting each security category.
Interest rate risk
Interest rate risk is the risk that movements in interest rates will affect the Bank’s income or the value of its portfolios of financial instruments.
The Bank is exposed to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may also reduce or create losses in the event that unexpected movements arise.
Interest rate risk arises when the actual or forecasted assets of a given maturity period are either greater or less than the actual or forecasted liabilities in that maturity period.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
29
The Bank has developed an Interest rate policy which sets out measures to maintain profitability and liquidity in the area of interest rate risks on deposits and the placing of both roubles and foreign currencies. Interest rate risk associated with Banking services rendered is covered in a Tariff policy. These policies describe standard rules for the definition and management of interest rate risk.
The measurement, monitoring and control of interest rates on rouble and foreign currency placements and deposits is carried out by Credit Swiss Group division.
The Finance Department escalates possible negative consequences on the Bank’s margin connected with fluctuation of market interest rates or mismatches in interest-bearing instruments to the Head of Internal control and to other appropriate departments.
Breaches of interest rates policy are reported to the Head of Internal control department. The Head of Internal control department separately checks the received information, informs the President of Bank on the reported risk and provides recommendations on the actions needed to correct the breach and, where necessary, on where the existing controls must be strengthen.
An analysis of sensitivity of the Bank’s projected net income and equity to interest rate repricing risk based on a simplified scenario of a 100 basis point (bp) symmetrical fall or rise in all yield curves and positions of interest-bearing assets and liabilities existing as at 31 December 2007 and 31 December 2006 is as follows:
2007 2006 Net
income Equity Net
income Equity 100 bp parallel increase 42,526 42,526 84,982 84,982 100 bp parallel decrease (42,526) (42,526) (84,982) (84,982)
An analysis of sensitivity of the net income and equity as a result of changes in fair value of financial instruments at fair value though profit or loss due to changes in the interest rates based on positions existing as at 31 December 2007 and 2006 and a simplified scenario of a 100 basis point (bp) symmetrical fall or rise in all yield curves is as follows:
2007 2006 Net
income Equity Net
income Equity 100 bp parallel increase (11,210) (11,210) (578) (578) 100 bp parallel decrease 11,444 11,444 843 843
Currency risk
The bank manages the risk connected with fluctuation of exchange rates on its financial position and cash flows. Foreign currency risk arises when the actual or forecasted assets in a foreign currency are either greater or less than the liabilities in that currency.
Currency risks can be classified into current risk, risk of devaluation and risk of change of exchange control.
The Bank’s Market risk policy and Currency risk policies are used to monitor and control risks on a regular basis.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
30
Daily the Bank controls currency risk by monitoring open USD currency positions against a set limit (US dollars is the Bank’s main working foreign currency). Forward transactions are used by the Bank to manage foreign currency risk.
For further information on the Bank’s exposure to currency risk at year end refer to Notes 14 and 34.
An analysis of sensitivity of the Bank’s net income and equity to changes in the foreign currency exchange rates based on positions existing as at 31 December 2007 and 2006 and a simplified scenario of a 5% change in USD and Euro to Russian Rouble exchange rates is as follows:
2007 2006 Net
income Equity Net
income Equity 5% appreciation of USD against RUR 15,419 15,419 (12,518) (12,518) 5% depreciation of USD against RUR (15,419) (15,419) 12,518 12,518 5% appreciation of EUR against RUR (8,276) (8,276) 6,049 6,049 5% depreciation of EUR against RUR 8,276 8,276 (6,049) (6,049)
Credit risk
Credit risk is the risk of financial loss occurring as a result of default by a borrower or counterparty on their obligation to the Bank. The Bank’s policies are revised for changes of regulatory requirements, implementation of new operations and for credit risk management improving purposes. The Bank’s Credit policy is based on Credit Suisse Group principles, and covers areas such as:
• Decision-making process, including description of who are the authorized departments and bodies;
• Criteria for the estimation of the credit risks reflected in Loan Loss Provision Policy and Credit policy of Group.
The Bank’s structure of monetary claims and the claims resulting from transactions with financial instruments which are recognized as loans for Credit Risk assessment purposes are defined by the Bank’s Loan Loss Provision Policy.
For loans granted to new clients the Bank follows the procedures contained in the below policies:
• Rules and programs on internal controls on Anti-Money Laundering and financing of terrorism (to minimize the risks of unlawful operations including criminal income legalization);
• Credit risk management policy.
The Bank has developed the below policies to describe the assessment of the Borrowers financial position, the decision-making process granting the loan, and the control over timeliness of the credit repayment:
• Credit risk management policy;
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
31
• Loan loss provision policy.
According to Bank of Russia requirements the Bank classifies credits by groups of risk and makes a loss provision in accordance with the Loan loss provision policy. Credit risk management is performed by regular analysis of the borrower’s ability to repay interest payments and principal.
Daily the credit exposure of individual borrowers/group of related borrowers is monitored with limits set.
During 2007 the Bank was in compliance with the Central Bank of Russia ratios, except for one instance in February where the limit N6 (maximum credit exposure per one borrower/group of related borrowers) related to a deposit with MICEX group, was breached. The Bank took the necessary measures to strengthen the controls over exposures to one borrower/group of the related borrowers. No measures were taken by Central Bank of Russia.
Liquidity risk
Liquidity risk is the risk that the Bank will encounter difficulty in raising funds to meet its commitments. Liquidity risk exists when the maturities of assets and liabilities do not match. The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of financial institutions, including the Bank. It is unusual for financial institutions 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 Bank has developed a Liquidity Policy which establishes general principles of asset and liability management to minimize liquidity risks.
Under the Policy the control over liquidity is performed as well control over timeliness and completeness of payment of current obligations of Bank. The Bank maintains liquidity management with the objective of ensuring that funds will be available at all times to honor all cash flow obligations as they become due.
The system of control over liquidity meets the requirements established in the Bank’s Liquidity Policy, complies with the requirements of the Bank of Russia and corresponds to nature and volume of operations conducted by the Bank.
On regular basis liquidity risk information is sent to the Bank’s management bodies (the President, Management Board, the Board of directors) and departments being part of internal control system. The Head of internal control convenes the Management board with the purpose to make decisions on what actions are needed in cases of significant declines of current or predicted liquidity.
Internal documents of the Bank’s liquidity management and control are approved by the President of the Bank upon submission by Head of Internal control department.
The President and Management Board make decisions immediately, when required, if liquidity exposures increase.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
32
Daily liquidity management of the Bank, using limits, is performed by the Fixed Income department. The Operations department performs monitoring of short-term and medium-term liquidity.
The Internal control department carries out monitoring of functioning of an internal control system and, in particular, the control over the liquidity risk.
Employees of the Bank (including employees and heads of divisions exercising liquidity management and control) are obliged to inform the Internal control department about violations of internal or regulatory requirements.
The Bank seeks to actively support a diversified and stable funding base comprising debt securities in issue, long-term and short-term loans from other banks, core corporate and retail customer deposits, accompanied by diversified portfolios of highly liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements.
Liquidity Forecasting (preliminary and current) and control is performed by:
• Control over sufficiency of money resources on Bank correspondent accounts;
• Control over the Bank’s balance sheet in respect of the impacts of short-term and medium term liquidity.
The Finance department calculates mandatory liquidity ratios on a daily basis in accordance with the requirements of the Central Bank of Russia. The Bank was in compliance with these ratios during the years ended 31 December 2006 and 31 December 2007.
The following tables show the undiscounted cash flows on the Bank’s financial liabilities and unrecognized loan commitments on the basis of their earliest possible contractual maturity. The total (inflow)/outflow disclosed in the table is the contractual, undiscounted cash flow on the financial liability or commitment. The Bank’s expected cash flows on these financial liabilities and unrecognized loan commitments vary significantly from this analysis.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
33
The position of the Bank as at 31 December 2007 was as follows:
Demand and less than 1 month
From 1 to 3 months
From 3 to 6 months
From 6 to 12 months
More than 1 year
Total outflow/ (inflow)
Carrying amount
Non-derivative liabilities
Deposits and balances from banks and other financial institutions 590,845 - - - - 590,845 590,837
Current accounts and deposits from customers 5,588,795 482,066 35,490 - - 6,106,351 6,095,635
Other liabilities 30,123 540,072 - 7,730 24,312 602,237 602,237
Derivative liabilities
-Inflow (12,514,711) - - (1,227,310) - (13,742,021) (20,695)
-Outflow 12,506,156 - - 1,284,114 - 13,790,270 68,944
Total 6,201,208 1,022,138 35,490 64,534 24,312 7,347,682 7,336,958
Credit related commitments 81,546 - - - - 81,546 81,546
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
34
The position of the Bank as at 31 December 2006 was as follows:
Demand and less than 1 month
From 1 to 3 months
From 3 to 6 months
From 6 to 12 months
More than 1 year
Total outflow/ (inflow) Carrying amount
Non-derivative liabilities Deposits and balances from banks and other financial institutions 6,918,785 - - - - 6,918,785 6,918,785 Current accounts and deposits from customers 1,089,080 - - - - 1,089,080 1,088,550
Other liabilities 30,059 373,495 - 16,071 53,491 473,116 473,116
Derivative liabilities
- Inflow (14,613,308) (1,317,477) - (31,601,823) - (47,532,608) (173,684)
- Outflow 14,628,034 1,318,375 - 31,601,103 - 47,547,512 188,588
Total 8,052,650 374,393 - 15,351 53,491 8,495,885 8,495,355
Credit related commitments 83,368 - - - - 83,368 83,368
For further information on the Bank’s exposure to liquidity risk at year end refer to Note 33.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
35
24 Capital management The Central Bank of Russia sets and monitors capital requirements for the Bank.
The Bank defines as capital those items defined by statutory regulation as capital for credit institutions. Under the current capital requirements set by the Central Bank of Russia banks have to maintain a ratio of capital to risk weighted assets (“statutory capital ratio”) above the prescribed minimum level. As at 31 December 2007, this minimum level is 10%. The Bank was in compliance with the statutory capital ratio during the years ended 31 December 2006 and 31 December 2007.
25 Commitments
At any time the Bank has outstanding commitments to extend loans. These commitments take the form of approved loans and credit card limits and overdraft facilities.
The contractual amounts of commitments are set out in the following table.
2007 2006 RUR ’000 RUR ’000 Contracted amount
Undrawn overdraft facilities, Lukoil 81,546 83,368
The total outstanding contractual commitments to extend credit indicated above does not necessarily represent future cash requirements, as these commitments may expire or terminate without being funded.
26 Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
2007 2006 RUR ’000 RUR ’000
Less than one year 69,615 73,551
Between one and five years 257,377 283,033
More than five years 421,960 520,420
748,952 877,004
The Bank leases a number of premises and equipment under operating lease. The leases typically run for an initial period of one to five years, with an option to renew the lease after that date. Lease payments are usually increased annually to reflect market rentals. None of the leases includes contingent rentals.
During the current year RUR 71,468 thousand was recognised as an expense in the income statement in respect of operating leases (2006: RUR 72,712 thousand).
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
36
Leases as lessor
In 2007 the Bank stopped to lease out its property under operating leases. In 2006 non-cancellable operating lease rentals were receivable as follows:
2007 2006 RUR ’000 RUR ’000
Less than one year - 4,490
- 4,490
27 Contingencies
Insurance
The insurance industry in the Russian Federation is in a developing state and many forms of insurance protection common in other parts of the world are not yet generally available. The Bank does not have full coverage for its premises and equipment, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Bank’s property or relating to the Bank’s operations. Until the Bank obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Bank’s operations and financial position.
Litigation
In the ordinary course of business, the Bank is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints, will not have a material adverse effect on the financial conditions or the results of future operations of the Bank.
Taxation contingencies
The taxation system in the Russian Federation is relatively new and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are often unclear, contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year may remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive position in their interpretation and enforcement of tax legislation.
These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and the effect on the financial position of the Bank, if the authorities were successful in enforcing their interpretations, could be significant.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
37
28 Custody activities The Bank provides custody services to its customers, whereby it holds securities on behalf of customers and receives fee income for providing these services. These securities are not assets of the Bank and are not recognised in the balance sheet.
29 Related party transactions Control relationships
The Bank’s ultimate parent company is Credit Suisse which produces publicly available financial statements.
Transactions with the members of the Board of Directors and the Management Board
All remuneration was in form of short term employee benefits. The total remuneration of the Board of Directors, Management Board and Executive Officers of the bank was RUR 91,365 and RUR 44,464 thousand for the years ended 31 December 2007 and 2006, respectively.
Transactions with other related parties
The following balances and average interest rates were outstanding with other Credit Suisse Group entities at 31 December 2007 and 2006:
2007 2006
RUR’ 000
Average Interest
Rate RUR’ 000
Average Interest
Rate
Balance Sheet Assets Placements with banks and other financial institutions 101,925 0.28% 9,268 0.19% Financial instruments at fair value through profit or loss 20,696 0.00% 70,545 0.00%
Loans to customers - - 150,377 6.25%
Other assets 522,970 0.00% 395,925 0.00%
Liabilities Deposits and balances from banks and other financial institutions 586,178 0.00% 6,918,785 0.00% Current accounts and deposits from customers 1,912,699 0.00% 829,994 0.00% Financial instruments at fair value through profit or loss 11,380 0.00% 125,293 0.00%
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
38
Amounts included in the income statement for the year ended 31 December 2007 and 2006 in relation to transactions with other Credit Suisse Group entities are as follows:
2007 2006
Income statement RUR’000 RUR’000 Interest income 1,034 1,788
Interest expense - (2,290)
Fee and commission income 52,802 27,423
Intercompany charges to other Credit Suisse group companies 1,125,304 957,666
General administrative expenses (9,668) (21,058)
30 Cash and cash equivalents
Cash and cash equivalents at the end of the financial year as shown in the statement of cash flow are composed of the following items:
2007 2006 RUR’000 RUR’000
Cash 326,226 20,475
Due from the Central Bank of the Russian Federation – nostro accounts 1,184,544 228,432
1,510,770 248,907
31 Fair value of financial instruments
Management of the Bank believes that fair value of all financial instruments does not differ significantly from their carrying value. In estimating fair value management has used market prices where available, otherwise fair value has been estimated using a discounted cash flow method.
The estimates of fair value are intended to approximate the amount for which a financial instrument could be exchanged between knowledgeable, willing parties in an arm's length transaction. However given the uncertainties and the use of subjective judgment, the fair value should not be interpreted as being realisable in an immediate sale of the assets or settlement of liabilities.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
39
32 Average effective interest rates
The table below displays the Bank’s interest bearing assets and liabilities as at 31 December 2007 and 2006 and their corresponding average effective interest rates as at that date. These interest rates are an approximation of the yields to maturity of these assets and liabilities.
2007 2007 2006 2006
Value RUR’000
Average Effective Interest
Rate Value
RUR’000
Average Effective Interest
Rate
Interest Bearing Assets Placements with banks and other financial institutions Nostro accounts
- RUR 1,631,361 0.00% 1,114,770 0.00%
- USD 93,977 0.26% 9,236 0.10%
- EUR 218,957 0.05% 180,476 3.36%
- Other 4,993 0.00% - 0.00%
Loans and deposits
- RUR 6,152,087 3.96% 500,473 5.80%
- USD 775,964 4.70% 5,485,856 5.27% Financial instruments at fair value through profit or loss
- RUR 2,653,012 7.31% 5,809,631 7.61%
Loans to customers
- RUR - 0.00% 150,300 6.25%
Interest Bearing Liabilities Deposits and balances from banks and other financial institutions
Vostro accounts
- RUR 586,975 0.00% 6,918,705 0.00%
- USD 3,862 0.58% 80 0.00% Current accounts and deposits from customers
Current accounts and demand deposits
- RUR 1,986,373 0.02% 832,124 0.00%
- USD 111,232 0.06% 3,347 0.00%
- EUR 255,752 - - -
Term deposits
- RUR 3,208,448 0.48% 138,508 5.05%
- USD 259,025 0.15% 91,879 4.55%
- EUR 274,805 0.50% 22,692 3.11%
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
40
33 Maturity analysis
The following table show assets and liabilities of the Bank by their remaining contractual maturity as at 31 December 2007, with the exception of financial instruments at fair value through profit or loss, which are shown in the category “Less than 1 month” based on the fact that the Bank’s management believes that all of these trading securities could be liquidated within one month in the normal course of business.
As at 31 December 2007, the contractual maturities of financial instruments at fair value through profit and loss are: RUR 20 695 thousand in “Less than 1 month”, RUR 431,167 thousand in “1 to 3 months”, RUR 681 thousand in “3 months to 1 year”, RUR 2,221,164 thousand in “1 year to 5 years”.
As at December 2006, the contractual maturities of financial instruments at fair value through profit and loss were: RUR 6,585 thousand in “Less than 1 month”, RUR 550,520 thousand in “1 to 3 months”, RUR 2,429,986 thousand in “3 months to 1 year”, RUR 2,892,188 thousand in “1 year to 5 years”, RUR 104,035 thousand in “More than 5 years” and RUR 7,508 thousand in “No maturity”.
Due to the fact that substantially all the financial instruments of the Bank are fixed rated contracts, these remaining contractual maturity dates also represent the contractual interest rate repricing dates.
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
41
Less than 1 month
1 to 3 months
3 months to 1 year
1 to 5 years
More than 5 years
No maturity
Total
Assets RUR’000 RUR’000 RUR’000 RUR’000 RUR’000 RUR’000 RUR’000
Cash 326,226 - - - - - 326,226
Due from the Central Bank of the Russian Federation 1,184,544 - - - - 334,963 1,519,507
Placements with banks and other financial institutions 8,877,339 - - - - - 8,877,339
Financial instruments at fair value through profit or loss 2,673,707 - - - - - 2,673,707
Property and equipment - - - - - 328,889 328,889
Deferred tax asset - - - - - 12,810 12,810
Other assets 3,785 32,479 494,264 1,094 128 54,382 586,132
Total assets 13,065,601 32,479 494,264 1,094 128 731,044 14,324,610
Liabilities Financial instruments at fair value through profit or loss 12,140 - 56,804 - - - 68,944
Deposits and balances from banks and other financial institutions 590,837 - - - - - 590,837
Current accounts and deposits from customers 5,581,740 478,883 35,012 - - - 6,095,635
Other liabilities - 540,072 7,730 965 23,347 30,123 602,237
Total liabilities 6,184,717 1,018,955 99,546 965 23,347 30,123 7,357,653
Net position as at 31 December 2007 6,880,884 (986,476) 394,718 129 (23,219) 700,921 6,966,957
Net position as at 31 December 2006 4,997,840 698,844 (179,902) (1,037) (52,353) 385,084 5,848,476
ZAO “Bank Credit Suisse (Moscow)” Notes to, and forming part of, the financial statements for the year ended 31 December 2007
42
34 Currency analysis
The following table shows the currency structure of assets and liabilities at 31 December 2007:
RUR USD EUR Other currencies
Total
RUR’000 RUR’000 RUR’000 RUR’000 RUR’000
Assets
Cash 45,904 183,186 95,836 1,300 326,226 Due from the Central Bank of the Russian Federation 1,519,507 - - - 1,519,507 Placements with banks and other financial institutions 7,783,448 869,941 218,957 4,993 8,877,339 Financial instruments at fair value through profit or loss 2,673,707 - - - 2,673,707
Property and equipment 328,889 - - - 328,889
Deferred tax asset 12,810 - - - 12,810
Other assets 60,588 525,466 58 20 586,132
Total assets 12,424,853 1,578,593 314,851 6,313 14,324,610
Liabilities Financial instruments at fair value through profit or loss - 68,944 - - 68,944 Deposits and balances from banks and other financial institutions 586,975 3,862 - - 590,837 Current accounts and deposits from customers 5,194,821 370,257 530,557 - 6,095,635
Other liabilities 528,330 71,741 2,126 40 602,237
Total liabilities 6,310,126 514,804 532,683 40 7,357,653 Net on balance sheet position as of 31 December 2007 6,114,727 1,063,789 (217,832) 6,273 6,966,957 Net off balance sheet position as of 31 December 2007 658,014 (658,014) - - -
Net on and off balance sheet positions as of 31 December 2007 6,772,741 405,775 (217,832) 6,273 6,966,957 Net on and off balance sheet positions as of 31 December 2006 6,018,693 (329,409) 159,192 - 5,848,476