PSC “ORIENT EXPRESS BANK” · PSC Orient Express Bank Consolidated Condensed Interim Statement...

PSC “ORIENT EXPRESS BANK”

International Financial Reporting Standards Consolidated Condensed Interim Financial Information (Unaudited)

30 June 2015

CONTENTS REPORT ON REVIEW OF CONSOLIDATED CONDENSED INTERIM FINANCIAL INFORMATION Consolidated Condensed Interim Statement of Financial Position .......................................................... 1 Consolidated Condensed Interim Statement of Profit or Loss and Other Comprehensive Income......... 2 Consolidated Condensed Interim Statement of Changes in Equity ......................................................... 3 Consolidated Condensed Interim Statement of Cash Flows ................................................................... 4 Notes to the Consolidated Condensed Interim Financial Information 1 Introduction .................................................................................................................................... 5 2 Operating Environment of the Bank ............................................................................................... 6 3 Summary of Significant Accounting Policies .................................................................................. 6 4 Critical Accounting Estimates and Judgements in Applying Accounting Policies ......................... 7 5 New Accounting Pronouncements ................................................................................................. 9 6 Cash and Cash Equivalents ........................................................................................................... 9 7 Securities and Securities Pledged under Repurchase Agreements ............................................ 10 8 Due from Other Banks ................................................................................................................. 11 9 Loans and Advances to Customers ............................................................................................. 12 10 Investment Properties .................................................................................................................. 19 11 Other Assets ................................................................................................................................ 20 12 Due to Other Banks ..................................................................................................................... 21 13 Customer Accounts ...................................................................................................................... 22 14 Debt Securities in Issue ............................................................................................................... 23 15 Other Borrowed Funds ................................................................................................................. 24 16 Other Liabilities ............................................................................................................................ 24 17 Subordinated Debt ....................................................................................................................... 25 18 Share Capital ............................................................................................................................... 25 19 Interest Income and Expense ...................................................................................................... 26 20 Fee and Commission Income and Expense ................................................................................ 27 21 Administrative and Other Operating Expenses ............................................................................ 27 22 Income Taxes ............................................................................................................................... 28 23 Segment Analysis ........................................................................................................................ 28 24 Capital Adequacy ......................................................................................................................... 32 25 Contingencies and Commitments ................................................................................................ 33 26 Fair Value ..................................................................................................................................... 36 27 Related Party Transactions .......................................................................................................... 40 28 Events after the End of the Reporting Period .............................................................................. 42

PSC Orient Express Bank Consolidated Condensed Interim Statement of Profit or Loss and Other Comprehensive Income (Unaudited)

The notes set out on pages 5 to 42 form an integral part of this consolidated condensed interim financial information.

2

{In thousands of Russian Roubles}

Note Six-Month Period Ended 30 June 2015

Six-Month Period Ended 30 June 2014

Interest income 19 19 955 302 26 244 904 Interest expense 19 (10 031 896) (8 705 725)

Net interest income 9 923 406 17 539 179

Provision for loan impairment 9 (17 306 786) (19 967 829)

Net interest loss after provision for loan impairment (7 383 380) (2 428 650)

Fee and commission income 20 2 747 632 4 890 955 Fee and commission expense 20 (461 818) (643 824) Result on sale of loans 9 318 791 - Gains/(losses) from operations with securities, net 1 047 778 (172 297) Dealing in foreign currencies, net 243 740 152 913 Foreign exchange translation gain/(loss), net 162 844 (81 700) Gains on revaluation of investment properties 10 - 375 953 Other operating income 111 744 82 586 Administrative and other operating expenses 21 (4 871 113) (6 355 025) Other provisions (90 092) (69 941)

Loss before tax (8 173 874) (4 249 030)

Income tax credit 22 1 579 197 800 546

LOSS FOR THE PERIOD (6 594 677) (3 448 484)

Other comprehensive loss: Items that may be reclassified subsequently to profit or loss: Revaluation of available for sale financial assets, net of tax - (119) Exchange differences on translation to presentation currency (1 327) (360)

Other comprehensive loss for the period (1 327) (479)

TOTAL COMPREHENSIVE LOSS FOR THE PERIOD (6 596 004) (3 448 963)

PSC Orient Express Bank Consolidated Condensed Interim Statement of Changes in Equity (Unaudited)


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Note Share capital

Share premium

Retained earnings

Revalua-tion

reserve for

available for sale

securities

Currency transla-

tion reserve

Equity-settled

employee benefits reserve

Equity compo-nent of conver-

tible debt

Total Equity

Balance at

1 January 2014 863 528 11 601 286 15 767 908 (1 390) 2 934 12 500 - 28 246 766

Loss for the period - - (3 448 484) - - - - (3 448 484) Other comprehensive

loss for the period - - - (119) (360) - (479)

Total comprehensive

loss for the period - - (3 448 484) (119) (360) - - (3 448 963)

Balance at 30 June

2014 863 528 11 601 286 12 319 424 (1 509) 2 574 12 500 - 24 797 803

Balance at

1 January 2015 863 528 11 601 286 5 061 833 - 702 12 500 183 581 17 723 430

Loss for the period - - (6 594 677) - - - - (6 594 677) Other comprehensive

loss - - - - (1 327) - - (1 327)

Total comprehensive

loss for the period - - (6 594 677) - (1 327) - - (6 596 004)

Issue of shares 181118 2 558 000 50 - - - - - 2 558 050 Cancellation of share-

based payment - - 12 500 - - (12 500) - -

Balance at

30 June 2015 3 421 528 11 601 336 (1 520 344) - (625) - 183 581 13 685 476

PSC Orient Express Bank Consolidated Condensed Interim Statement of Cash Flows (Unaudited)


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Note Six-Month Period Ended 30 June 2015


Cash flows from operating activities Interest received 20 728 545 26 077 109 Interest paid (10 111 194) (8 896 125) Fees and commissions received 2 841 676 4 883 877 Fees and commissions paid (461 818) (603 705) Net gains/(losses) arising from dealing in securities 1 060 412 (16 294) Income received from dealing in foreign currencies 169 200 188 307 Other operating income received 111 744 196 829 Administrative and other operating expenses paid (4 367 867) (5 631 503) Income tax received/(paid) 60 820 (453 565)

Cash flows from operating activities before changes in operating assets

and liabilities 10 031 518 15 744 930 Net decrease/(increase) in: - mandatory cash balances with the CBRF 154 903 755 203 - due from other banks 618 707 1 805 013 - trading securities and trading securities pledged under repurchase agreements (14 073 147) 1 460 776 - loans and advances to customers 12 712 948 (4 407 225) - sale of loans 414 106 186 749 - amounts paid out to the depositors of an unrelated bank under agency

agreement with Deposit Insurance Agency -

(3 431 505) - other assets 169 563 304 329 Net increase/(decrease) in: - due to other banks 2 150 846 972 504 - customer accounts (6 422 320) (9 964 531) - other liabilities (33 771) 122 765

Net cash from operating activities 5 723 353 3 549 008

Cash flows from investing activities Acquisiton of investment securities held to maturity (6 851 220) - Acquisition of premises and equipment (26 551) (349 030) Proceeds from disposal of premises and equipment 75 585 210 274 Acquisition of intangible assets (226 812) (283 223) Acquisition of investment property (17 585) (172 462)

Net cash used in investing activities (7 046 583) (594 441)

Cash flows from financing activities Proceeds from debt securities issued 49 791 1 498 997 Repayment of debt securities issued (7 920 662) (1 909 543) Proceeds from other borrowed funds - 742 500 Repayment of other borrowed funds (1 365 767) (835 767) Proceeds from issue of subordinated debt 832 203 448 886 Issue of shares 2 558 050 -

Net cash used in financing activities (5 846 385) (54 927)

Effect of exchange rate changes on cash and cash equivalents 136 591 104 611

Net (decrease)/increase in cash and cash equivalents (7 033 024) 3 004 251 Cash and cash equivalents at the beginning of the period 21 208 608 18 129 978

Cash and cash equivalents at the end of the period 6 14 175 584 21 134 229

PSC Orient Express Bank Notes to the Consolidated Condensed Interim Financial Information (Unaudited) – 30 June 2015

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1 Introduction

This consolidated condensed interim financial information has been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” for the six-month period ended 30 June 2015 for Public Stock Company “Orient Express Bank” (the “Bank”) and its subsidiaries (together referred to as the “Group”).

The Bank was incorporated and is domiciled in the Russian Federation. The Bank is a public stock company, where the responsibility of shareholders is limited by shares belonging to them, and it was set up in accordance with Russian regulations.

The ultimate controlling party of the Bank as at 30 June 2015 is Baring Vostok Private Equity Fund IV and Baring Vostok Fund IV Supplemental Fund. As at 31 December 2014 the Bank did not have a single ultimate controlling party.

As at 30 June 2015 and 31 December 2014 the shareholders of the Bank were:

Shareholders 30 June

2015 31 December

2014

Evizon Holdings Limited (on behalf of Baring Vostok Private Equity Fund IV and

Baring Vostok Fund IV Supplemental Fund) 67.0 33.9 Troyte Investments Limited (controlled by Russia Partners III, L.P.) 16.1 7.0 Igor Kim 3.3 13.4 International Finance Corporation 3.0 11.9 Sergei Vlasov 3.0 11.8 Andrey Bekarev 1.8 7.0 RBOF Holding Company I LTD (controlled by International Finance Corporation) 0.5 2.2 ZAO DnK 0.0 5.0 Other shareholders – each less than 5% 5.3 7.8

Total 100 100

Principal activity. The Group’s principal business activity is retail banking operations within the Russian Federation. The Bank has operated under a full banking licence issued by the Central Bank of the Russian Federation (“CBRF”) since 12 May 1991. The Bank participates in the State deposit insurance scheme, which was introduced by Federal Law #177-FZ “Deposits of individuals insurance in Russian Federation” dated 23 December 2003. The State Deposit Insurance Agency guarantees repayment of 100% of individual deposits up to RR 1 400 thousand per individual in the case of the withdrawal of a licence of a bank or a CBRF imposed moratorium on payments.

As at 30 June 2015 the Group had 8 branches and 588 offices located across the Russian Federation (31 December 2014: 8 branches and 1 208 offices). As at 30 June 2015 the Bank had 6 346 employees (at 31 December 2014: 9 327).

Registered address and place of business. The Bank’s registered office is located at 1 Svyatitelya Innokentiya Pereulok, Blagoveschensk, Amursky Region, 675000, Russian Federation.

The Bank’s principal place of business is 22, Frunze Street, Khabarovsk, 680000, Russian Federation.

Presentation currency. This consolidated condensed interim financial information is presented in thousands of Russian Roubles (“RR”), unless otherwise stated.


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2 Operating Environment of the Bank

Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations. During the six months period ended 30 June 2015:

the CBRF exchange rate varied between RR 56.2376 and RR 55.5240 per USD as of 1 January 2015 and 30 June 2015 and reached the highest of 69.6640 and the lowest of 49.1777 during the six months ended 30 June 2015;

the CBRF key refinancing interest rate decreased from 17.0% p.a. to 11.5% p.a.;

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

in January 2015, Fitch Ratings downgraded Russia’s credit rating to BBB-, Standard & Poor’s cut it to BB+, and Moody’s Investors Service downgraded it to Ba1, which for the first time in ten years is below the investment grade. Fitch Ratings kept Russia’s sovereign rating at the investment grade. However, all these rating agencies provided negative outlooks for the future, which means that Russia’s credit rating may be further downgraded;

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

capital outflows increased compared to prior years.

The financial markets continue to be volatile and are characterised by frequent significant price movements and increased trading spreads. Subsequent to 30 June 2015:

the CBRF exchange rate fluctuated between RR 55.4756 per USD and RR 70.7465 per USD;

the CBRF key refinancing interest rate decreased from 11.5% p.a. to 11.0% p.a.

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

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

3 Summary of Significant Accounting Policies

This consolidated condensed interim financial information has been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting” and should be read in conjunction with the annual consolidated financial statements of the Group for the year ended 31 December 2014, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

At 30 June 2015 the principal rate of exchange used for translating foreign currency balances was USD 1 = RR 55.5240 (31 December 2014: USD 1 = RR 56.2584) and EUR 1 = RR 61.5206 (31 December 2014: EUR 1 = RR 68.3427).

The accounting policies and methods of computation applied in the preparation of this consolidated condensed interim financial information are consistent with the accounting policies and methods applied in the annual consolidated financial statements of the Group for the year ended 31 December 2014 except as disclosed below.


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3 Summary of Significant Accounting Policies (Continued)

During the financial year 2015 the following changes into Group’s accounting policy in respect of impairment of financial assets carried at amortised cost were introduced: subsequent recoveries of amounts previously written off are credited to provision for loan impairment line in profit or loss for the year except for the situation when Group sells loans previously written-off. In case the Group sells the loans that were previously written-off the result from sale is recognised in a separate line of consolidated condensed interim statement of profit or loss and other comprehensive income named “Result on sale of loans”.

This consolidated condensed interim financial information does not contain all the explanatory notes as required for a full set of financial statements, including certain disclosures introduced by IFRS 7 “Financial Instruments: Disclosures”.

Interim period measurement. Interim period income tax expense is accrued using the effective tax rate that would be applied to expected total annual earnings, i.e. the estimated weighted average annual effective income tax rate is applied to the pre-tax income of the interim period.

Changes in presentation. Where necessary, corresponding figures have been adjusted to conform to the presentation of the current period amounts.

The effect of reclassification for presentation purposes was as follows on amounts for the six-month period ended 30 June 2014:


As originally presented

30 June 2014

Reclassification As reclassified 30 June 2014

Interest income 26 141 421 103 483 26 244 904 Interest expense (8 808 346) 102 621 (8 705 725) Provision for loan impairment (19 864 346) (103 483) (19 967 829) Fee and commission expense (603 705) (40 119) (643 824) Other operating income 196 829 (114 243) 82 586 Administrative and other operating expenses (6 406 766) 51 741 (6 355 025)

The reclassification had an impact on information in Note 19 Interest Income and Expense, Note 9 Loans and Advances to Customers, Note 20 Fee and Commission Income and Expense, Note 21 Administrative and Other Operating Expenses and had no impact on any other note disclosures.

4 Critical Accounting Estimates and Judgements in Applying Accounting Policies

In preparing this consolidated condensed interim financial information, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2014.


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

Impairment losses on loans and advances. The Group regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in profit or loss for the period, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. During the six-month period ended 30 June 2015 there were no significant changes either in the methodology or assumptions used by the Bank. A 10% increase in actual loss experience compared to the loss estimates used would result in an increase in loan impairment losses of RR 2 970 410 thousand (six-month period ended 30 June 2014: RR 2 867 411 thousand). A 10% decrease in actual loss experience compared to the loss estimates used would result in an decrease in loan impairment losses of RR 3 257 007 thousand (six-month period ended 30 June 2014: RR 4 229 680 thousand).

Deferred income tax asset recognition. The recognised deferred tax asset represents income taxes recoverable through future deductions from taxable profits, and is recorded in the consolidated condensed interim statement of financial position. Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. The future taxable profits and the amount of tax benefits that are probable in the future are based on a medium term business plan prepared by management and extrapolated results thereafter.

Based on the business plan, the Bank management estimates that it is probable that taxable profits will be available against which the deferred tax asset can be utilised. Key assumption in the business plan is the improvement of the credit quality of the loans to individuals as the result of measures currently implemented by the Bank to respond to the changes in the operating environment, such as streamlining branch network by focusing on regions where the Bank has stronger market position, and improving interest margins. For other details please refer to the going concern paragraph in this note.

Valuation of investment property using income capitalisation method. Investment property is stated at its fair value based on reports prepared by an independent appraiser at the end of each reporting period (refer to Note 10 and 26). As a result of the current economic environment and market conditions as described in Note 2, the frequency of property transactions is low in Russian Federation. Nevertheless, in management’s assessment there remains sufficient market activity to provide comparable prices for orderly transactions with similar properties when determining the fair value for the Group’s investment properties.

For these properties, the valuation was based principally on discounted cash flow projections based onreasonable estimates of future cash flows, supported by the terms of any existing lease and other contracts and by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

In preparing the valuation reports on the Group’s investment property, the external appraisers excluded distressed sales when considering comparable sales prices. Management has reviewed the appraisers’ assumptions underlying discounted cash flow models used in the valuation, and confirmed that factors such as the discount rate applied have been appropriately determined considering the market conditions at the end of the reporting period. Notwithstanding the above, management considers that the valuation of its investment properties is currently subject to an increased degree of judgement and an increased likelihood that actual proceeds on a sale may differ from the carrying value.

The investment properties were valued on 25 June 2014 at fair value, by an independent appraiser, who holds a recognised and relevant professional qualification and who has recent experience in valuation of property of similar location and category. No revaluation of investment properties has been made on 30 June 2015 since the management of the Group consider that the fair value of investment properties has not changed significantly during the period from 25 June 2014 till 30 June 2015. For the principal assumptions of fair value of investment property please refer to consolidated financial statement of the Group as at 31 December 2014.


9

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

Going concern. During 2014 and the first six months of 2015 the Group incurred significant losses, primarily due to impairment of loan and advances to customers. The operating environment of the Group is characterised by negative developments and uncertainty which resulted in deterioration of profitability of the retail banking sector in Russia.

Management prepared this consolidated condensed interim financial information on a going concern basis. However, based on the current macroeconomics environment and the resulting impact on the Group operations, there is material uncertainty that may cast significant doubt about the Group ability to continue as a going concern. In making this judgement the management considered the Group’s financial position, current intentions, capital adequacy, liquidity, expected results of operations, access to financial resources, impact of the operating environment on the Group and other factors. The principal shareholder of the Group has continuously demonstrated its support of the Group during prior year by making additional equity contributions. The Group is planning to perform the following actions to increase future profitability and financial position of the business:

New products development. In 2015 the Bank launched new products with a focus on lower risk client segments. In April 2015 the Bank started using new Propensity-to-buy model (forecast of taking consumer loan or cash loan). For customer loyalty improvement and reduction of cost of funds, the Bank started development of a transaction platform and product range for attracting current and savings accounts of individuals.

Cost optimization procedures. During the first half of 2015 the branch network was reduced by 34%: since the beginning of the year 191 classical offices, 530 light offices and 10 offices of the Private banking network were closed. FTEs were reduced by 33% to approximately 6 thousand people. Detailed cost controls (weekly monitoring of the cost reasonability by the Cost management committee) were launched.

Plans for additional business (non-organic growth). The Bank’s shareholders consider the possibility of further business development via synergy with other finance institution like a SME bank or leasing company. Combining the wide distribution network of the Bank with a new customer base and product range of another financial institution will hopefully provide a positive effect on cost optimization and product range enhancement. This approach will contribute to the business model sustainability of the Group.

The Bank plans to call a General shareholders’ meeting in October 2015 to launch an emission of addition shares in Q4 2015 to raise the necessary capital for adhering to capital adequacy ratios.

5 New Accounting Pronouncements

Since the Group published its last annual consolidated financial statements, no new standards and interpretations were issued that are mandatory for the Group’s accounting periods beginning on or after 1 January 2015 or later in addition to those that are already disclosed in the Group’s IFRS consolidated financial statements for the year ended 31 December 2014.

6 Cash and Cash Equivalents


30 June 2015

31 December 2014

Cash on hand 4 659 714 8 080 462 Cash balances with the CBRF (other than mandatory reserves) 7 849 126 5 011 127 Correspondent accounts with other banks:

- Russian Federation 1 040 009 4 582 307 - Other countries 626 735 3 534 712

Total cash and cash equivalents 14 175 584 21 208 608


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6 Cash and Cash Equivalents (Continued)

At 30 June 2015 the Group had no banks (31 December 2014: 4 banks) with aggregated cash and cash equivalents balances above RR 500 000 thousand. At 31 December 2014 the total aggregate amount of these balances was RR 6 220 561 thousand or 29% of the cash and cash equivalents.

7 Securities and Securities Pledged under Repurchase Agreements

{In thousands of Russian Roubles} 30 June

2015 31 December

2014

Trading securities 21 940 443 10 614 017 Trading securities pledged under repurchase agreements 10 313 911 7 242 014 Investment securities held to maturity 4 802 276 112 519 Securities held to maturity pledged under repurchase agreements 1 964 736 209 544 Investment securities available for sale 32 448 32 448

Less: Provision for impairment of investment securities held to maturity (27 181) (27 181)

Total securities and securities pledged under repurchase agreements 39 026 633 18 183 361

At 30 June 2015 securities pledged with the CBRF in order to obtain overdraft loans if necessary were RR 2 007 506 thousand of trading securities (31 December 2014: RR 540 928 thousand). The Group did not use the overdraft facility as at 30 June 2015 and 31 December 2014.

Trading securities and trading securities pledged under repurchase agreements


30 June 2015

31 December 2014

Trading securities Bonds of credit and finance organisations 12 702 737 6 941 898 Corporate bonds 4 683 201 1 546 968 Russian Federation bonds 3 627 764 705 019 Municipal bonds 926 741 1 420 132

Total trading securities 21 940 443 10 614 017

Trading securities pledged under repurchase agreements Corporate bonds 5 894 589 419 376 Municipal bonds 3 041 341 950 664 Bonds of credit and finance organisations 1 377 981 5 871 974

Total trading securities pledged under repurchase agreements 10 313 911 7 242 014

Total trading securities and trading securities pledged under repurchase

agreements 32 254 354 17 856 031

Bonds of credit and finance organisations represent bonds of domestic banks and financial companies of large domestic corporations.

Corporate bonds represent bonds of large domestic corporations.

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


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7 Securities and Securities Pledged under Repurchase Agreements (Continued)

Securities pledged under repurchase agreements represent securities sold under direct sale and repurchase agreements, which the counterparty has the right, by contract, to sell or repledge (Note 12). The repurchase agreements were short-term in nature and matured in July 2015 (31 December 2014: January 2015).

Investment Securities Available for Sale


2015 31 December

2014

Investment securities available for sale Shares 32 448 32 448

Total investment securities available for sale 32 448 32 448

Investment Securities Held to Maturity and Investment Securities Held to Maturity Pledged under Repurchase Agreements


30 June 2015

31 December 2014

Investment securities held to maturity Corporate bonds 3 567 359 27 181 Bonds of credit and finance organisations 1 234 917 85 338 Less: Provision for impairment of investment securities held to maturity (27 181) (27 181)

Total investment securities held to maturity 4 775 095 85 338

Investment securities held to maturity pledged under repurchase agreements

Corporate bonds 1 669 090 - Bonds of credit and finance organisations 295 646 209 544

Total investment securities held to maturity pledged under repurchase agreements 1 964 736 209 544

Total investment securities held to maturity and investment securities held to maturity pledged under repurchase agreements 6 739 831 294 882

8 Due from Other Banks


2015 31 December

2014

Reverse sale and repurchase agreement 274 711 575 760 Interbank loans 73 000 242 768 Deposits with CBRF - 276 379

Less allowance for impairment (70 000) (70 000)

Total due from other banks 277 711 1 024 907


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8 Due from Other Banks (Continued)

Movements in the provision for impairment of due from other banks during the six-month period ended 30 June 2015 are as follows:

{In thousands of Russian Roubles} Total

Provision for impairment at 1 January 2015 70 000

Provision for impairment at 30 June 2015 70 000

9 Loans and Advances to Customers

This note covers both loans originated and purchased by the Group.


2015 31 December

2014

Loans and advances to individuals 136 649 912 169 720 557 Loans and advances to corporate customers 2 070 023 2 230 548 Total gross loans and advances to customers 138 719 935 171 951 105 Less: Provision for loan impairment (32 912 586) (35 362 742) Total loans and advances to customers 105 807 349 136 588 363

As at 30 June 2015 and 31 December 2014 loans and advances to individuals comprise:


2015 31 December

2014

Consumer loans 92 256 900 116 406 391 Credit cards 25 899 130 29 554 473 Car loans 7 585 554 9 567 595 SME loans 5 001 499 7 759 837 Mortgage loans 1 242 025 1 346 848 Other loans 4 664 804 5 085 413

Total gross loans and advances to individuals 136 649 912 169 720 557

Less: Provision for loan impairment (32 570 070) (35 010 448)

Total loans and advances to individuals 104 079 842 134 710 109

Other loans represent retail loans purchased from other banks. At 30 June 2015 other loans include RR 3 742 364 thousand of mortgage loans purchased from third parties (31 December 2014: RR 4 111 408 thousand).


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9 Loans and Advances to Customers (Continued)

As at 30 June 2015 and 31 December 2014 loans and advances to corporate customers comprise:


2015 31 December

2014

Reverse sale and repurchase agreements 1 172 038 - Corporate loans 756 937 2 141 088 SME loans 141 048 89 460

Total gross loans and advances to corporate customers 2 070 023 2 230 548

Less: Provision for loan impairment (342 516) (352 294)

Total loans and advances to corporate customers 1 727 507 1 878 254

Movements in the provision for impairment of loans to individuals during the six-month period ended 30 June 2015 and 2014 are as follows:


Consumer loans

Credit cards Car loans SME loans

Mortgage loans

Other loans Total

Provision for

impairment of loans to individuals at 1 January 2014 14 837 817 6 999 666 1 717 053 2 054 604 218 322 772 066 26 599 528

Provision/(recovery of provision) for impairment during the period 13 681 049 3 648 027 1 069 950 1 436 255 (23 393) 116 148 19 928 036

Provision used on sale of loans (1 870 781) (1 239 490) (236 197) (117 723) - (15 722) (3 479 913)

Write-off of loans against allowance for impairment (20) - - - (369) (1 062) (1 451)

Provision for impairment of loans to individuals at 30 June 2014 26 648 065 9 408 203 2 550 806 3 373 136 194 560 871 430 43 046 200

Provision for

impairment of loans to individuals at 1 January 2015 23 037 893 5 849 361 3 007 824 2 019 075 185 661 910 634 35 010 448

Provision for impairment during the period 13 296 336 2 964 240 169 273 762 329 47 909 76 477 17 316 564

Provision used on sale of loans (319 411) (125 150) (2 175) (33 724) (39 184) (60 317) (579 961)

Write-off of loans against allowance for impairment (14 816 297) (3 738 141) - (1 389 876) - (2 874) (19 947 188)

Recovery of written-off loans 512 249 218 971 - 38 987 - - 770 207

Provision for impairment of loans to individuals at 30 June 2015 21 710 770 5 169 281 3 174 922 1 396 791 194 386 923 920 32 570 070


14


Movements in the provision for impairment of loans to corporate customers during the six-month period ended 30 June 2015 and 2014 are as follows:


Corporate loans

SME loans Total

Provision for impairment of loans to corporate customers at

1 January 2014 336 139 62 013 398 152

Recovery of provision for impairment during the period (21 930) (8 277) (30 207)

Provision used on sale of loans (43 906) (569) (44 475)

Provision for impairment of loans to corporate customers at 30 June 2014 270 303 53 167 323 470

Provision for impairment of loans to corporate customers at

1 January 2015 306 497 45 797 352 294

Recovery of provision for impairment during the period (4 692) (5 086) (9 778)

Provision for impairment of loans to corporate customers at 30 June 2015 301 805 40 711 342 516

During the six-month period ended 30 June 2015 the Bank disposed of loans and advances to customers under cession agreements with the total gross value of RR 675 276 thousand (six-month period ended 30 June 2014: RR 3 802 767 thousand) with cash proceeds of RR 95 315 thousand (six-month period ended 30 June 2014: RR 186 749 thousand), receivable cash proceeds of zero (six-month period ended 30 June 2014: RR 91 630 thousand). As of the date of disposal these loans were provided for impairment in the total amount of RR 579 961 thousand (six-month period ended 30 June 2014: RR 3 524 388 thousand). In addition the Bank disposed loans previously written-off in the amount of RR 8 028 786 thousand from cash proceeds RR 318 791 thousand recognised in the consolidated condensed interim statement of profit or loss and other comprehensive income. The loans were disposed of by transferring the contractual rights to receive the cash flows to other banks, collection agencies, other legal entities and related parties (Note 27). Economic sector risk concentrations within the customer loan portfolio are as follows:


30 June 2015 31 December 2014

Amount % Amount %

Individuals 136 649 912 98.4 169 720 557 98.7 Financial services 1 183 462 0.9 1 393 204 0.8 Manufacturing 212 462 0.2 165 077 0.1 Trade 304 214 0.2 451 974 0.3 Other 369 885 0.3 220 293 0.1

Total loans and advances to customers (gross) 138 719 935 100 171 951 105 100


15


Analysis of credit quality of loans to individuals outstanding at 30 June 2015 is as follows:

{In thousands of Russian Rouble} Consumer

loans Credit cards Car loans SME loans Mortgage

loans Other loans Total

Neither past due nor impaired

Non classified loans 2 480 258 404 038 - - - - 2 884 296 Loans without overdue payments

at reporting date - Loans with all payments (more

than six), from origination date to reporting date, being done on time 18 894 410 3 391 960 1 203 294 942 831 412 995 - 24 845 490

- Loans with history of 1 to 6 on-time payments and no past due payments 8 366 300 1 433 722 4 586 22 169 2 079 533 880 10 362 736

- Loans with history of past due payments of up to 15 days 22 551 633 8 965 490 1 747 856 1 613 051 278 954 756 719 35 913 703

- Loans with history of past due payments of up to 30 days. 4 408 027 2 398 691 411 457 246 365 111 267 355 348 7 931 155

- Loans with history of past due payments over 30 days 3 434 560 1 529 539 378 202 243 199 168 097 892 286 6 645 883

Total neither past due nor

impaired (gross) 60 135 188 18 123 440 3 745 395 3 067 615 973 392 2 538 233 88 583 263

Overdue but not impaired loans - Loans with payments that are

overdue by no more than 30 days at reporting date 5 154 611 1 013 973 220 705 199 606 23 491 245 342 6 857 728

- Loans with payments that are overdue by more than 30 days at reporting date but are fully collateralized 33 642 - 266 885 26 951 171 216 797 769 1 296 463

Total overdue but not impaired

loans 5 188 253 1 013 973 487 590 226 557 194 707 1 043 111 8 154 191

Loans determined to be

impaired Loans with payments that are

overdue by 31 – 90 days 5 127 807 1 183 504 232 552 265 611 2 992 9 888 6 822 354 Non-performing loans (loans

overdue by 91 or more days) - Loans with payments that are

overdue by 91 – 180 days 7 740 038 1 977 897 361 837 443 567 9 136 27 210 10 559 685 - Loans with payments that are


overdue over 360 days - - 1 993 687 - 55 323 1 028 665 3 077 675

Total non-performing loans 21 805 652 5 578 213 3 120 017 1 441 716 70 934 1 073 572 33 090 104

Total impaired loans (gross) 26 933 459 6 761 717 3 352 569 1 707 327 73 926 1 083 460 39 912 458

Total loans and advances to

individuals (gross) 92 256 900 25 899 130 7 585 554 5 001 499 1 242 025 4 664 804 136 649 912

Less impairment provisions (21 710 770) (5 169 281) (3 174 922) (1 396 791) (194 386) (923 920) (32 570 070)


individuals 70 546 130 20 729 849 4 410 632 3 604 708 1 047 639 3 740 884 104 079 842


16


Analysis of credit quality of loans to corporate customers outstanding at 30 June 2015 is as follows:


Corporate loans

SME loans Reverse sale and

repurchase agreements

Total

Neither past due nor impaired Loans with all payments (more than six), from

origination date to reporting date, being done on time 108 059 11 018 - 119 077

Other current loans 319 699 70 354 1 172 038 1 562 091

Total neither past due nor impaired (gross) 427 758 81 372 1 172 038 1 681 168

Overdue but not impaired loans - Loans with payments that are overdue by more than

30 days at reporting date but are fully collateralized 10 699 6 100 - 16 799

Total overdue but not impaired loans 10 699 6 100 - 16 799

Loans individually determined to be impaired Non-performing loans - Loans with payments that are overdue over 360

days 318 480 53 576 - 372 056

Total non-performing loans 318 480 53 576 - 372 056

Total individually impaired loans (gross) 318 480 53 576 - 372 056

Total loans and advances to legal entities (gross) 756 937 141 048 1 172 038 2 070 023

Less impairment provisions (301 805) (40 711) - (342 516)

Total loans and advances to legal entities 455 132 100 337 1 172 038 1 727 507


17


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

In thousands of Russian Rouble Consumer

loans Credit cards Car loans SME loans Mortgage

loans Other loans Total

Neither past due nor impaired Non classified loans 3 969 736 308 680 4 666 36 953 6 914 - 4 326 949 Loans without overdue payments

at reporting date - Loans with all payments (more

than six), from origination date to reporting date, being done on time 25 904 082 3 634 265 1 954 040 1 656 250 521 840 - 33 670 477

- Loans with history of 1 to 6 on-time payments and no past due payments 15 221 440 2 957 006 168 712 231 444 24 521 861 476 19 464 599

- Loans with history of past due payments of up to 15 days 26 491 614 9 339 495 2 491 712 2 423 591 271 934 945 446 41 963 792

- Loans with history of past due payments of up to 30 days. 4 829 712 2 367 687 559 565 312 456 101 202 397 623 8 568 245

- Loans with history of past due payments over 30 days 3 830 784 1 672 117 438 350 244 929 110 543 865 375 7 162 098

Total neither past due nor

impaired (gross) 80 247 368 20 279 250 5 617 045 4 905 623 1 036 954 3 069 920 115 156 160

Overdue but not impaired loans - Loans with payments that are

overdue by no more than 30 days at reporting date 5 747 549 1 735 178 362 154 388 075 76 996 345 469 8 655 421

- Loans with payments that are overdue by more than 30 days at reporting date but are fully collateralized 18 663 - 304 483 38 931 174 685 1 287 277 1 824 039

Total overdue but not impaired

loans 5 766 212 1 735 178 666 637 427 006 251 681 1 632 746 10 479 460

Loans determined to be

impaired Loans with payments that are

overdue by 31 – 90 days 5 766 381 1 519 263 326 006 387 886 2 972 3 500 8 006 008 Non-performing loans (loans

overdue by 91 or more days) - Loans with payments that are


overdue by 181 – 360 days 16 832 162 4 037 445 1 091 930 1 491 489 2 560 11 653 23 467 239 - Loans with payments that are

overdue over 360 days - - 1 435 866 - 51 462 363 438 1 850 766

Total non-performing loans (loans

overdue by 91 or more days) 24 626 430 6 020 782 2 957 907 2 039 322 55 241 379 247 36 078 929

Total impaired loans (gross) 30 392 811 7 540 045 3 283 913 2 427 208 58 213 382 747 44 084 937


individuals (gross) 116 406 391 29 554 473 9 567 595 7 759 837 1 346 848 5 085 413 169 720 557

Less impairment provisions (23 037 893) (5 849 361) (3 007 824) (2 019 075) (185 661) (910 634) (35 010 448)


individuals 93 368 498 23 705 112 6 559 771 5 740 762 1 161 187 4 174 779 134 710 109


18


Analysis of credit quality of loans to corporate customers outstanding at 31 December 2014 is as follows:

In thousands of Russian Roubles

Corporate loans SME loans Total

Neither past due nor impaired Loans with all payments (more than six), from origination date

to reporting date, being done on time 677 602 16 203 693 805 Other current loans 528 551 5 006 533 557 Rolled-over loans 590 567 - 590 567

Total neither past due nor impaired (gross) 1 796 720 21 209 1 817 929

Overdue but not impaired loans - Loans with payments that are overdue by more than 30 days

at reporting date but are fully collateralized 14 524 31 828 46 352

Total overdue but not impaired loans 14 524 31 828 46 352

Loans individually determined to be impaired Non-performing loans - Loans with payments that are overdue over 360 days 329 844 36 423 366 267

Total non-performing loans (loans overdue by 91 or more

days) 329 844 36 423 366 267

Total individually impaired loans (gross) 329 844 36 423 366 267

Total loans and advances to legal entities (gross) 2 141 088 89 460 2 230 548

Less impairment provisions (306 497) (45 797) (352 294)

Total loans and advances to legal entities 1 834 591 43 663 1 878 254

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

The Group’s internal ratings scale includes the following categories:

Non classified loans – loans originated close to the reporting date. No payments were due on those loans from the date of origination to the reporting date, and there is no evidence of impairment at the reporting date.


19


Loans without overdue payments at reporting date, consisting of:

- Loans with all payments (more than six payments), from origination date to reporting date, being done on time;

- Other loans without overdue payments at reporting date – loans with no overdue payments at reporting date, but with at least one past due payment, from origination date to reporting date, which was paid by the reporting date.

Other loans – include all other loans that do not fall into categories set out above.

Loans to entrepreneurs-individuals are classified as SME loans to individuals; loans to SME legal entities are classified as SME corporate loans.

The primary factors that the Group considers in determining whether a loan is impaired are its overdue status and the Group’s ability to sell the related collateral.

Past due, but not impaired, loans include loans with payments that are overdue by more than 30 days at reporting date but are fully collateralized and loans with payments that are overdue by no more than 30 days at reporting date. The amount reported as past due but not impaired is the whole balance of such loans, not only the individual instalments that are past due.

10 Investment Properties




Investment properties at fair value at 1 January 1 440 521 -

Additions 17 585 1 024 047 Fair value gains - 375 953

Investment properties at fair value at 30 June 1 458 106 1 400 000

The investment properties were valued on 25 June 2014 at fair value, by an independent appraiser, who holds a recognised and relevant professional qualification and who has recent experience in valuation of property of similar location and category.

The income capitalisation method was applied in determining the fair value of the investment property (refer to Note 4 and 266).


20

11 Other Assets

{In thousands of Russian Roubles} 30 June 2015

31 December 2014

Other financial assets

Receivables from payment systems 1 059 231 1 056 327 Receivables from exchanges 846 573 1 317 593 Accounts receivable 329 612 132 769 Debtors for sale of loans 188 501 188 501 Foreign currency spots 23 119 78 Other financial assets 235 341 215 605

Total gross other financial assets 2 682 377 2 910 873

Less: Provision for impairment of other financial assets (388 219) (319 535)

Total other financial assets 2 294 158 2 591 338

Other non-financial assets

Prepayments for services and equipment 540 919 544 971 Repossessed collateral 322 800 382 127 Prepayment for profit tax 121 553 202 298

Total gross other non-financial assets 985 272 1 129 396

Less: Provision for impairment of other non-financial assets (62 195) (62 195)

Total other non-financial assets 923 077 1 067 201

Total other assets 3 217 235 3 658 539

Receivable from payment systems represent amounts placed with international credit card companies to ensure continuous processing of credit card payments.

Receivable from exchanges represent a security deposit for trading in foreign currency. The amount of the deposit depends on the size of the deals. The exchanges block the balances and the Bank’s access to money is thus restricted until the relevant deals are complete.

Repossessed collateral is represented by real estate, cars, inventory and other items acquired by the Group in settlement of overdue loans. The Group expects to dispose of the assets in the foreseeable future.


21

11 Other Assets (Continued)

Movements in the provision for impairment of other assets during the six-month period ended 30 June 2015 are as follows:


Accounts receivable

Prepayments for services

and equipment

Debtor for sale of

loans

Other financial

assets

Total

Provision for impairment at

1 January 2015 79 321 62 195 144 288 95 926 381 730

Provision for impairment during the period 33 934 - 33 200 6 706 73 840 Write-off of accounts receivable against

allowance for impairment (5 156) - - - (5 156)

Provision for impairment at 30 June 2015 108 099 62 195 177 488 102 632 450 414

Movements in the provision for impairment of other assets during the six-month period ended 30 June 2014 are as follows:


Accounts receivable

Prepayments for services

and equipment

Debtor for sale of

loans

Other financial

assets

Total


1 January 2014 97 315 62 195 154 365 32 188 346 063

Provision for impairment during the year 34 952 - 17 290 692 52 934 Write-off of accounts receivable against

allowance for impairment (13 998) - - - (13 998)


30 June 2014 118 269 62 195 171 655 32 880 384 999

12 Due to Other Banks

{In thousands of Russian Roubles} Note 30 June

2015 31 December

2014

Direct sale and repurchase agreements with CBRF 7,25 11 021 049 6 637 524 Loans from Russian commercial banks 779 268 2 751 971 Direct sale and repurchase agreements with other banks 7,25 352 177 276 379 Correspondent accounts and overnight placements of other banks 5 779 4 550

Total due to other banks 12 158 273 9 670 424


22

13 Customer Accounts


2015 31 December

2014

Individuals - Term deposits 110 343 593 108 847 605 - Current/demand accounts 11 788 199 12 226 311 Corporate customers - Term deposits 2 653 143 5 229 753 - Current/settlement accounts 4 224 742 7 890 068 State and public organisations - Term deposits 781 543 2 228 768 - Current/settlement accounts 267 666 431 825

Total customer accounts 130 058 886 136 854 330

Economic sector concentrations within customer accounts are as follows:

30 June 2015 31 December 2014 {In thousands of Russian Roubles} Amount % Amount %

Individuals 122 131 792 94.0 121 073 916 88.5 Financial services 2 763 414 2.1 7 197 838 5.3 Wholesale and retail trade 1 077 894 0.8 1 373 241 1.0 Manufacturing 986 348 0.8 1 056 999 0.8 Real estate, renting 704 494 0.5 1 491 310 1.1 Construction 394 731 0.3 761 623 0.6 Transport, storage and communications 368 030 0.3 573 687 0.4 Trade unions, non-for-profit organizations,

individuals entrepreneurs 303 688 0.2 330 041 0.2 Agriculture, hunting and forestry 122 909 0.1 135 277 0.1 Hotels and restaurants 87 512 0.1 76 967 0.1 Health and social work 54 865 - 43 819 - Education 38 323 - 55 061 - Electricity, gas and water supply 6 363 - 17 463 - Fishing 117 - 15 412 - Other 1 018 406 0.8 2 651 676 1.9

Total customer accounts 130 058 886 100 136 854 330 100

At 30 June 2015 deposits and current accounts of the Group’s ten largest depositors amounted to RR3 867 142 thousand or 3% of total customer accounts (31 December 2014: RR 8 232 650 thousand or 6%).

The Group has several deposits from related parties. Information on related party deposits is disclosed in Note 27.


23

14 Debt Securities in Issue


2015 31 December

2014

Bonds issued on domestic market, 4th tranche (RR 3 000 000 thousand),

matures in August 2015 a 3 036 573 3 029 918 Bonds issued on domestic market, 7th tranche (RR 5 000 000 thousand),

matures in July 2018 b 104 615 5 276 538 Bonds issued on domestic market, 10th tranche (RR 3 000 000

thousand), matures in December 2015 c 11 935 2 996 578 Promissory notes 50 578 54 953

Total debt securities in issue 3 203 701 11 357 987

a) In August 2012 the Bank issued on the Moscow Exchange a tranche of non-convertible bonds with a nominal amount of RR 3 000 000 thousand (RR 1 thousand each) with a coupon rate of 11.0% per annum. The holders of the bonds had a right to require the Bank to repurchase these bonds at nominal amount on 20 August 2013, around the date of interest rate change. On 20 August 2013 at official offer the Bank redeemed 23 586 bonds of this tranche at par value. Later in September 2013 the Bank floated repurchased bonds again with a coupon rate of 10.25% per annum.

b) In July 2013 the Bank issued on the Moscow Exchange a tranche of non-convertible bonds with a nominal amount of RR 5 000 000 thousand with a coupon rate of 10.4% per annum. The holders of the bonds had a right to require the Bank to repurchase these bonds at nominal amount on 22 January 2015, around the date of interest rate change. On 22 January 2015 at official offer the Bank redeemed 3 851 639 bonds of this tranche at par value. Starting from 22 January 2015 the coupon rate is set at 18.5% per annum. On 25 June 2015 at official offer the Bank redeemed 1 044 133 bonds of this tranche.

c) In December 2012 the Bank issued on the Moscow Exchange a tranche of non-convertible bonds with a nominal amount of RR 3 000 000 thousand (RR 1 thousand each) with a coupon rate of 12.0% per annum. The holders of the bonds had a right to require the Bank to repurchase these bonds at nominal amount in December 2014, around the date of interest rate change. On 23 December 2014 at official offer the Bank redeemed 2 618 231 bonds of this tranche. Later in December 2014 the Bank floated 2 600 015 repurchased bonds. Starting from December 2014 the coupon rate is set at 14.5% per annum. In March 2015 the Bank floated 490 repurchased bonds. On 25 June 2015 at official offer the Bank redeemed 2 969 151 bonds of this tranche.


24

15 Other Borrowed Funds


2015 31 December

2014

Loans from European Bank for Reconstruction and Development (“EBRD”): 5th credit facility of RR 1 500 000, Roisfix + Roisfix spread (0.6 %) + 4.5%, 1st tranche, due December 2016

149 265 199 936

4th credit facility of RR 1 700 000, Mosprime+4.20%, 2nd tranche, due December 2015

- 343 851

4th credit facility of RR 1 700 000, Mosprime+4.20%,1st tranche, due December 2015 - 338 154 1st credit facility of RR 2 345 000, Mosprime+4.7%, 3rd tranche, due February 2015 - 271 950 5th credit facility of RR 1 500 000, Roisfix + Roisfix spread (0.6 %) + 4.2%, 3rd

tranche, due October 2015 - 257 811

3rd credit facility of RR 300 000, Mosprime+4.20%, 1st tranche, due December 2015 - 120 315

Total other borrowed funds 149 265 1 532 017

16 Other Liabilities


31 December 2014

Other financial liabilities Accrued expenses 209 094 417 495 Accounts payable 100 657 121 307 Foreign currency spots 599 52 098 Other 139 634 52 399

Total other financial liabilities 449 984 643 299

Other non-financial liabilities Taxes other than on income 581 325 520 127 Provision for legal claims 220 426 204 174 Accrued vacation liability to employees 164 803 150 905 Accrued short-term bonuses 129 831 100 828 Accrued salary 122 533 16 Current tax liability 15 169 8 506 Other 912 3 336

Total other non-financial liabilities 1 234 999 987 892

Total other liabilities 1 684 983 1 631 191

The provision for legal claims represents the present value of the director's best estimate of the future outflows of economic benefits that will be required under the Group’s obligation to reimburse some credit related commissions that the Group collected from its customers before such practice of Russian banks was questioned by the courts. The estimate has been made on the basis of historical trends for such claims and court practice and may vary as a result of new developments in the legislation and business practice.


25

17 Subordinated Debt


2015 31 December

2014

Subordinated USD denominated notes due in May 2019 a 6 940 683 6 843 502 Subordinated RR denominated bonds due in Aug 2018 b 4 725 948 4 727 206 Subordinated USD denominated notes due in June 2017 c 2 401 293 1 589 262 Subordinated convertible RR denominated bonds due in May 2020 d 568 320 560 327

Total subordinated debt 14 636 244 13 720 297

a) In November 2013 the Bank issued USD denominated subordinated notes in the amount of USD 125 000 thousand (equivalent of RR 4 141 650 thousand). The notes bear a fixed interest rate of 12% per annum payable semi-annually from the issuance until 29 May 2019. In December 2014 the Bank repurchased subordinated notes with the nominal amount of USD 3 283 thousand (the equivalent of RUR 185 438 thousand). On 28 April 2015 the Bank sold previously repurchased subordinated notes back to the open market.

b) In February 2013 the Bank issued on the Moscow Exchange a tranche of non-convertible subordinated bonds with a nominal amount of RR 4 500 000 thousand with a coupon rate of 13.6% per annum payable semi-annually until maturity on 9 August 2018.

c) In June 2007 the Group issued USD denominated subordinated notes in the amount of USD 43 000 thousand (equivalent of RR 1 115 300 thousand). The notes bear a fixed interest rate of 11% per annum payable semi-annually from the issuance until 26 June 2012 and an interest rate thereafter set at 8.17% representing the aggregate of the US Treasury Rate in effect on 26 June 2012 plus 7.45 per cent per annum payable semi-annually until maturity on 26 June 2017. In December 2014 the Bank repurchased subordinated notes with the nominal amount of USD 12 901 thousand (the equivalent of RUR 701 583 thousand). On 28 April 2015 the Bank sold previously repurchased subordinated notes back to the open market.

d) In December 2014 the Bank issued on the Moscow Exchange a tranche of convertible subordinated bonds with a nominal amount of RR 733 919 thousand with a coupon rate of 18% per annum payable semi-annually until maturity on 28 May 2020. The equity component of this instrument is disclosed as a separate line item in the balance sheet.

The debt ranks after all other creditors in the case of liquidation.

18 Share Capital

Statutory capital authorised, issued and fully paid comprises:

{In thousands of Russian Roubles except for number of shares}

Number of Ordinary

outstanding shares

Number of Preference

outstanding shares

Ordinary shares

Preference shares

Total

At 1 January 2014 86 352 829 088 20 000 863 528 - 863 528

At 30 June 2014 86 352 829 088 20 000 863 528 - 863 528

At 1 January 2015 86 352 829 088 20 000 863 528 - 863 528

New shares issued 255 800 000 000 - 2 558 000 - 2 558 000

At 30 June 2015 342 152 829 088 20 000 3 421 528 - 3 421 528


26

18 Share Capital (Continued)

All ordinary shares carry equal rights and have a nominal value of RR 0.01. Preference shares have a nominal value of RR 0.01 and are not redeemable, carry no voting rights but rank ahead of the ordinary shares in the event of liquidation of the Bank. Holders of the preference shares are entitled to receive annual dividends of RR 0.017 per share subject to approval at the general meeting of shareholders. Share premium represents the excess of contributions received over the nominal value of shares issued. If the dividends are not paid, preference shares carry the right to vote at annual and general meetings until the dividends are paid.

In June 2015 the Bank issued 255 800 000 000 ordinary shares with nominal value of RR 0.01 per share. The Evizon Holdings Limited purchased 200 000 000 000 shares, the Troyte Investments Limited – 49 000 000 000 shares, Alexander Taranov - 6 800 000 000 shares. Issue of shares resulted in increase in share capital of RR 2 558 000 thousand.

19 Interest Income and Expense

{In thousands of Russian Roubles} Six-Month Period to

30 June 2015 Six-Month Period to

30 June 2014

Interest income

Loans and advances to individuals 18 340 381 25 354 846 Securities and securities pledged under repurchase agreements 1 242 283 572 847 Loans and advances to corporate customers 129 124 65 041 Due from other banks 124 468 83 293 Interest income on reverse repo 119 046 168 877

Total Interest income 19 955 302 26 244 904

Interest expense

Term deposits of individuals 7 552 496 5 826 985 Subordinated debt 882 851 607 873 Term deposits of legal entities 521 856 889 065 Debt securities issued 456 306 699 559 Term deposits of other banks 350 849 156 427 Interest expense on direct repo transactions 141 110 292 233 Other borrowed funds 92 612 203 859 Current/settlement accounts 33 816 29 724

Total Interest expense 10 031 896 8 705 725

Net interest income 9 923 406 17 539 179


27

20 Fee and Commission Income and Expense



30 June 2014 Insurance agent commissions 2 071 232 4 243 410 Commission on settlement and foreign currency exchange 260 172 98 482 Commission for account maintenance 92 147 178 300 Commission on plastic cards 89 808 111 178 Commission on sms information 79 140 116 345 Agency fees 38 514 6 275 Commissions received for withdrawals of cash from ATMs of other

banks 29 665 74 890 Commission on cash transactions 28 501 40 023 Other 58 453 22 052 Total fee and commission income 2 747 632 4 890 955

Collection agency fees 342 532 458 828 Commission on settlement and foreign currency exchange 47 894 63 992 Commissions paid to other banks for withdrawals from their ATMs by Bank’s clients 29 665 74 890 Cash collection 27 781 30 202 Commission on cash transactions 7 617 8 193 Other 6 329 7 719

Total fee and commission expense 461 818 643 824

Net fee and commission income 2 285 814 4 247 131

Insurance agent commissions represent commissions earned by the Bank on the effective commencement dates of the related insurance policies which the Group started to sell in the end of 2013. The purchase of insurance policy by clients is not a precondition of loan origination, does not affect terms of the loan, and, therefore, insurance agent commissions are not part of the loan effective interest rate, and are recognised as commission income on the effective commencement dates of the related insurance policies.

21 Administrative and Other Operating Expenses



30 June 2014

Staff costs 1 911 715 2 279 888 Social security tax 505 641 628 500 Rent expense 312 879 489 942 Depreciation of premises and equipment 284 411 263 966 Fines and penalties 272 124 98 136 Deposit insurance fee 253 693 261 626 Taxes other than on income 193 416 301 353 Expenses related to premises and equipment 169 616 256 975 Advertising and marketing 146 090 757 700 Communication and postage 130 912 218 584 Amortisation of intangible assets 115 416 183 405 Legal and arbitration costs 111 593 36 413 IT Expenses 87 119 122 252 Security 65 097 91 425 Insurance 28 625 23 141 Business trip expenses 26 576 52 463 Other 256 190 289 256

Total administrative and other operating expenses 4 871 113 6 355 025


28

22 Income Taxes

Income tax comprised the following:


Six-Month Period to 30 June 2015

Six-Month Period to 30 June 2014

Current tax 26 569 716 100 Deferred tax (1 605 766) (1 516 646)

Income tax benefit for the period (1 579 197) (800 546)

The income tax rate applicable to the majority of the Group’s income was 20% (2014: 20%).

For the six-month period ended 30 June 2015 the income tax recorded in other comprehensive loss amounts to RR 97 thousand (six-month period ended 30 June 2014: RR 120 thousand).

23 Segment Analysis

Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM), and for which discrete financial information is available. The CODM is the person – or group of persons – who allocates resources and assesses the performance for the entity. The functions of the CODM are performed by Chief Executive Officer and executive directors from the Board of Directors of the Group.

(a) Description of products and services from which each reportable segment derives its revenue

The Group is organised on the basis of four main business segments:

Retail banking – includes deposit taking and lending to individuals and individual entrepreneurs, money transfer and foreign exchange services, settlements and cash management;

Corporate banking – includes deposit taking and lending to corporate clients, small and medium enterprises and settlements, cash management and cash collection;

Mortgage lending – includes issuing loans to potential owners of certain types of residential properties and secured by the properties. The segment also includes purchase of portfolios of such loans from other banks and selling them both to banks and State Agency for Mortgage Lending;

Treasury operations – includes trading in securities and currencies, subordinated and interbank loans taking and lending.

(b) Factors that management used to identify the reportable segments

The Group’s segments are strategic business units that focus on different customers. They are managed separately because each business unit requires different marketing strategies and client services.

(c) Measurement of operating segment profit or loss, assets and liabilities

The Group uses IFRS as a measurement basis for segment reporting and evaluates performance of its operating segments on the basis of profit or loss before tax. The accounting policies used for preparation of the segment information are the same as those described in the summary of significant accounting policies.

The CODM reviews financial information prepared based on IFRS accounting policies. Income taxes are not allocated to segments.

The CODM evaluates performance of each segment based on profit before tax.


29

23 Segment Analysis (Continued)

(d) Information about reportable segment profit or loss, assets and liabilities

Segment breakdown of assets and liabilities of the Group is set out below:


30 June 2015

31 December 2014

Retail banking 131 173 264 134 112 353 Treasury 57 384 251 44 698 804 Corporate banking 8 486 011 17 264 188 Mortgage lending 4 228 074 5 336 467 Unallocated assets 6 514 652 4 945 239 Eliminations (32 209 424) (13 867 375)

Total assets 175 576 828 192 489 676

Retail banking 122 533 768 122 602 094 Treasury 53 604 738 40 862 507 Corporate banking 7 927 094 15 782 480 Mortgage lending 3 949 600 4 878 462 Unallocated liabilities 6 085 576 4 508 078 Eliminations (32 209 424) (13 867 375)

Total liabilities 161 891 352 174 766 246


30


Segment information for the six months ended 30 June 2015 is set out below:


Corporate banking

Retail banking

Treasury Mortgage lending

Unallo-cated

Elimina-tions

Total

Interest income 609 259 18 298 751 1 485 797 713 441 - (1 151 946) 19 955 302 Interest expense (555 672) (7 493 263) (2 620 451) (514 456) - 1 151 946 (10 031 896)

Net interest income 53 587 10 805 488 (1 134 654) 198 985 - - 9 923 406 Reversal of provision/(provision)

for loan impairment 9 778 (17 192 178) - (124 386) - - (17 306 786)

Net interest income/(expense)

after provision for loan impairment 63 365 (6 386 690) (1 134 654) 74 599 - - (7 383 380)

Fee and commission income 131 535 2 613 767 - - 2 330 - 2 747 632 Fee and commission expense - (420 091) - - (41 727) - (461 818) Result on sale of loans - 318 791 - - - - 318 791 Operations with securities, net - - 1 047 778 - - - 1 047 778 Gains less losses arising from

dealing in foreign currencies - - 243 740 - - - 243 740 Foreign exchange translation

gain, net - - 162 844 - - - 162 844 Other operating income 7 647 2 864 23 236 393 77 604 - 111 744 Administrative and Other

Operating Expenses (34 098) (4 591 024) (165 618) (974) (79 399) - (4 871 113) Other provisions (33 562) (16 250) - - (40 280) - (90 092)

Profit/(loss) before tax 134 887 (8 478 633) 177 326 74 018 (81 472) - (8 173 874) Income tax credit - - - - 1 579 197 - 1 579 197

PROFIT/(LOSS) FOR THE

PERIOD 134 887 (8 478 633) 177 326 74 018 1 497 725 - (6 594 677)


31


Segment information for the six months ended 30 June 2014 is set out below:


Corporate banking

Retail banking


Unallo-cated

Elimina-tions

Total

Interest income 1 241 776 24 594 854 1 056 032 759 992 - (1 407 750) 26 244 904 Interest expense (918 789) (6 817 250) (1 959 951) (417 485) - 1 407 750 (8 705 725)

Net interest income 322 987 17 777 604 (903 919) 342 507 - - 17 539 179

Reversal of

provision/(provision) for loan impairment 74 682 (19 442 421) - (600 090) - - (19 967 829)

Net interest

income/(expense) after provision for loan impairment 397 669 (1 664 817) (903 919) (257 583) - - (2 428 650)

Fee and commission

income 187 830 4 689 533 - - 13 592 - 4 890 955 Fee and commission

expense - (597 710) - - (46 114) - (643 824) Securities loss, net - - (172 297) - - - (172 297) Gains less losses

arising from dealing in foreign currencies - - 152 913 - - - 152 913

Foreign exchange translation loss, net - - (81 700) - - - (81 700)

Gains less losses on revaluation of investment properties - - 375 953 - - - 375 953

Other operating income 7 002 1 435 33 782 4 441 35 926 - 82 586 Administrative and

other operating expenses (301 759) (5 905 269) (12 173) (641) (135 183) - (6 355 025)

Other provisions (17 290) (17 007) - - (35 644) - (69 941)

Profit/(loss) before tax 273 452 (3 493 835) (607 441) (253 783) (167 423) - (4 249 030)

Income tax expense - - - - 800 546 - 800 546

PROFIT/(LOSS) FOR

THE PERIOD 273 452 (3 493 835) (607 441) (253 783) 633 123 - (3 448 484)


32


Capital expenditures and depreciation and amortisation charge by the segment for the six months ended 30 June 2015 is set below:


Corporate banking

Retail banking


Unalloca-ted

Total

Capital expenditures 1 068 16 512 7 223 532 820 26 155 Depreciation and amortisation 16 328 252 407 110 420 8 136 12 536 399 827

Capital expenditures and depreciation and amortisation charge by the segment for the six months ended 30 June 2014 is set below:

In thousands of Russian Roubles Corporate

banking Retail

banking Treasury Mortgage

lending Unalloca-

ted Total

Capital expenditures 25 811 185 903 48 242 5 649 3 425 269 030 Depreciation and amortisation 42 921 309 139 80 222 9 393 5 696 447 371

Outstanding credit related commitments (Note 25) by the segment are set out below:


31 December 2014

Retail banking 27 700 485 29 235 764 Corporate banking 18 532 133 125

Total credit related commitments 27 719 017 29 368 889

24 Capital Adequacy

The Group’s international risk based capital adequacy ratio, computed in accordance with the requirements of the Basel Accord, as defined in the International Convergence of Capital Measurement and Capital Standards (updated April 1998) and the Amendment to the Capital Accord to incorporate market risks (updated November 2005), commonly known as Basel I. The ratio exceeds the minimum ratio of 8% recommended by Basle Accord for the total capital and of 4% for Tier 1 capital.


33

24 Capital Adequacy (Continued)

The capital adequacy as at 30 June 2015 and 31 December 2014 was computed as follows:


30 June 2015

31 December 2014

Constituents of capital Core capital (Tier 1) Share capital, ordinary and fully paid up 3 421 528 863 528 Disclosed reserves 10 080 992 16 675 619

Total Tier 1 13 502 520 17 539 147

Supplementary capital (Tier 2) Subordinated term debt 6 751 260 8 769 574 Translation and revaluation reserves (625) 702

Total Tier 2 6 750 635 8 770 276

Total capital 20 253 155 26 309 423

Capital adequacy ratio 12.4% 15.8%

The Bank complied with the statutory capital adequacy requirements set by the CBRF as at 30 June 2015 and for the six-month period then ended.

25 Contingencies and Commitments

Legal proceedings. From time to time and in the normal course of business, claims against the Group may be received. The Group was engaged in litigations in relation to loan servicing fees that were charged to borrowers in previous periods. A provision of RR 220 426 thousand (at 31 December 2014: RR 204 174 thousand) was created by Management for these litigations as professional advice has indicated that it is likely that a loss will eventuate (Note 16).

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

The Russian transfer pricing legislation is to a large extent aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development. This legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not on an arm's length basis. Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.


34

25 Contingencies and Commitments (Continued)

The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the assumption that these companies are not subject to Russian profits tax, because they do not have a permanent establishment in Russia. This interpretation of relevant legislation may be challenged but the impact of any such challenge cannot be reliably estimated currently; however, it may be significant to the financial position and/or the overall operations of the Group.

In 2014, the Controlled Foreign Company (CFC) legislation introduced Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties). Starting from 2015, CFC income will be subject to a 20% tax rate if the CFC is controlled by a legal entity and a rate of 13% if it is controlled by an individual.

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

Capital expenditure commitments

As at 30 June 2015 and 31 December 2014 the Group had no contractual commitments for the acquisition of property, plant and equipment.

Credit Related Commitments

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

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


31 December 2014

Overdrafts and unused limits on credit cards 27 719 017 29 368 889 Financial guarantees issued to third parties 1 200 000 -

Total credit related commitments 28 919 017 29 368 889

The total outstanding contractual amount of undrawn credit lines and guarantees does not necessarily represent future cash requirements, as these financial instruments may expire or terminate without being funded. The fair value of credit related commitments is close to zero because these commitments are not unconditional and depend upon counterparties’ ability to meet certain credit quality requirements.


35


Compliance with covenants. The Group is subject to certain covenants related to its borrowings from EBRD (Note 15). At 30 June 2015 and during 6 months 2015 the Group did not comply a number of covenants. On 26 August 2015 the Group has received a formal waiver from EBRD confirming that creditor would not apply sanctions stated in the lending agreement in respect of non-compliance of the borrower to the number of covenants during the period from 31 December 2014 till 31 August 2015. At 30 June 2015 the total amount of borrowings from EBRD that are subject to those covenants is RR 149 265 thousand.

Compliance with laws and regulations. As Russian banking industry regulation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of such uncertain areas that improve statutory capital adequacy ratio (Н 1). While management currently estimates that interpretations that it has taken can probably be sustained, there is a possible risk that Central Bank of Russian Federation will challenge them which may influence statutory capital adequacy ratio (Н 1). The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position of the Group. Performance guarantees. Performance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation. Such contracts do not transfer credit risk. The risk under performance guarantee contracts is the possibility that the insured event (i.e. the failure to perform the contractual obligation by another party) occurs. The key risks the Group faces are significant fluctuations in the frequency and severity of payments incurred on such contracts relative to expectations. The Group uses historical data and statistical techniques to predict levels of such payments. Claims must be made before the contract matures and most claims are settled within short term. This allows the Group to achieve a high degree of certainty about the estimated payments and therefore future cash flows. The Group manages such risks by constantly monitoring the level of claims and has the ability to adjust its fees in the future to reflect any change in claim payments experience. The Group has a claim payment requests handling process which includes the right to review the claim and reject fraudulent or non-compliant requests.

The exposure to and concentration of performance guarantees expressed at the amounts guaranteed is as follows:


2015 31 December

2014

Guarantee of performance under insurance contracts 281 550 - Guarantee of rendering of services 175 932 211 907

Total guaranteed amounts 457 482 211 907

Assets pledged and restricted

The Group had assets pledged as collateral with the following carrying value:

Notes 30 June 2015 31 December 2014

{In thousands of Russian Roubles} Asset

pledged Related liability

Asset pledged

Related liability

Trading securities pledged under

repurchase agreements 7,12 10 313 911 9 344 090 7 242 014 6 716 227 Investment securities held to maturity

pledged under repurchase agreements 7,12 1 964 736 2 029 136 209 544 197 676

Loans to customers pledged under loans from other banks 9,12 806 854 779 268 2 791 820 2 751 971

Total 13 085 501 12 152 494 10 243 378 9 665 874


36


At the period end securities pledged with the CBRF in order to obtain overdraft loans if necessary were RR 2 007 506 thousand of trading securities (31 December 2014: RR 540 928 thousand). The Group did not use the overdraft facility as at 30 June 2015 and 31 December 2014.

As at 30 June 2015 the related liability amount in the table above includes zero (31 December 2014: RR 262 430 thousand) received under repo agreements collateralized by securities received by the Bank under reverse repo agreements.

Mandatory cash balances with the CBRF of RR 1 358 296 thousand (31 December 2014: RR 1 513 199 thousand) represent mandatory reserve deposits which are not available to finance the Bank's day to day operations.

Receivables from exchanges represent a security deposit for trade in foreign currency and the balance depends on the size of the deals. The exchanges block the balances and the Bank’s access to money is thus restricted until the relevant deals are complete.

Operating lease commitments

Where the Group is the lessee, the future minimum lease payments under non-cancellable operating leases are as follows:


2015 31 December

2014

Not later than 1 year 309 983 511 237 Later than 1 year and not later than 5 years 334 014 640 649 Later than 5 years 42 686 62 976

Total operating lease commitments 686 683 1 214 862

26 Fair Value

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

(a) Recurring fair value measurements

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


37

26 Fair Value (Continued)

30 June 2015 31 December 2014 {In thousands of Russian

Roubles} Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

ASSETS AT FAIR

VALUE FINANCIAL ASSETS Trading securities - Bonds of credit and

finance organizations 12 702 737 - - 12 702 737 6 941 898 - - 6 941 898 - Corporate bonds 4 683 201 - - 4 683 201 1 546 968 - - 1 546 968 - Russian federation

bonds 3 627 764 - - 3 627 764 705 019 - - 705 019 - Municipal bonds 926 741 - - 926 741 1 420 132 - - 1 420 132 Trading securities

pledged under repurchase agreements

- Corporate bonds 5 894 589 - - 5 894 589 419 376 - - 419 376 - Municipal bonds 3 041 341 - - 3 041 341 950 664 - - 950 664 - Bonds of credit and

finance organizations 1 377 981 - - 1 377 981 5 871 974 - - 5 871 974 Investment securities

available for sale - Shares - - 32 448 32 448 - - 32 448 32 448 Other financial assets - Foreign currency spots - 23 119 - 23 119 - 78 - 78 Non-financial assets - Investment property - - 1 458 106 1 458 106 - - 1 440 521 1 440 521

TOTAL ASSETS

RECURRING FAIR VALUE MEASUREMENTS 32 254 354 23 119 1 490 554 33 768 027 17 856 031 78 1 472 969 19 329 078


{In thousands of Russian Roubles} Level 1 Total Level 1 Total

LIABILITIES CARRIED AT FAIR VALUE FINANCIAL LIABILITIES Other financial liabilities - Foreign currency spots 599 599 52 098 52 098

TOTAL LIABILITIES RECURRING FAIR VALUE MEASUREMENTS 599 599 52 098 52 098

A reconciliation of movements in Level 3 of the fair value hierarchy for the six-month period ended 30 June 2015 is as follows:

{In thousands of Russian Roubles} Investment property

Fair value at 1 January 2015 1 440 521

Additions 17 585

Investment properties at fair value at 30 June 2015 1 458 106

Please refer to Note 4 for the valuation methodology, major assumptions used and their sensitivity for the Level 3 fair value measurement of investment property.


38


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

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



Level 1 Level 2 Level 3 Carrying amount

Level 1 Level 2 Level 3 Carrying amount

Financial assets Cash and cash equivalents 4 659 714 9 515 870 - 14 175 584 8 080 462 13 128 146 - 21 208 608

- Cash balances with the CBRF - 7 849 126 - 7 849 126 - 5 011 127 - 5 011 127

- Cash on hand 4 659 714 - - 4 659 714 8 080 462 - - 8 080 462 - Correspondent accounts - 1 666 744 - 1 666 744 - 8 117 019 - 8 117 019 Mandatory balances with the CBRF - 1 358 296 - 1 358 296 - 1 513 199 - 1 513 199

Due from other banks - 277 711 - 277 711 - 1 024 907 - 1 024 907 - Deposits with CBRF - - - - - 276 379 - 276 379 - Interbank loans - 3 000 - 3 000 - 172 768 - 172 768 - Reverse sale and repurchase agreement - 274 711 - 274 711 - 575 760 - 575 760

Loans and advances to customers - - 93 751 146 105 807 349 - - 122 947 994 136 588 363

Loans to individuals - - 92 023 278 104 079 842 - - 121 069 249 134 710 109 - Consumer loans - - 59 167 881 70 546 130 - - 77 379 591 93 368 498 - Credit cards - - 21 113 997 20 729 849 - - 27 605 615 23 705 112 - Car loans - - 3 827 801 4 410 632 - - 5 783 892 6 559 771 - Mortgage loans - - 1 209 596 1 047 639 - - 1 326 948 1 161 187 - Other loans - - 6 704 003 7 345 592 - - 8 973 203 9 915 541 Loans to legal entities - - 1 727 868 1 727 507 - - 1 878 745 1 878 254 - Corporate loans - - 466 995 455 132 - - 1 841 767 1 834 591 - Reverse sale and repurchase agreements - - 1 172 038 1 172 038 - - - -

- SME loans - - 88 835 100 337 - - 36 978 43 663 Investment securities held to maturity 4 419 830 - - 4 775 095 83 845 - - 85 338

- Corporate bonds 3 296 693 - - 3 540 178 - - - - - Bonds of credit and finance organisations 1 123 137 - - 1 234 917 83 845 - - 85 338

Investment securities held to maturity pledged under repurchase agreements 1 864 505 - - 1 964 736 207 826 - - 209 544

- Corporate bonds 1 564 064 - - 1 669 090 - - - - - Bonds of credit and finance organisations 300 441 - - 295 646 207 826 - - 209 544

Other financial assets - 1 905 804 365 235 2 271 039 - 2 373 920 217 340 2 591 260 - Settlements with payment systems - 1 059 231 - 1 059 231 - 1 056 327 - 1 056 327

- Settlements with exchanges - 846 573 - 846 573 - 1 317 593 - 1 317 593

- Accounts receivable - 221 513 221 513 - - 53 448 53 448 - Debtors for sale of loans - 11 013 11 013 - - 44 213 44 213 - Other financial assets - 132 709 132 709 - - 119 679 119 679

TOTAL FINANCIAL ASSETS CARRIED AT AMORTISED COST 10 944 049 13 057 681 94 116 381 130 629 810 8 372 133 18 040 172 123 165 334 163 221 219


39


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


{In thousands of Russian Roubles} Level 2 Level 3 Carrying

amount Level 2 Level 3 Carrying

amount

Financial liabilities Due to other banks - 12 158 273 12 158 273 - 9 670 424 9 670 424

Customer accounts - 135 176 691 130 058 886 - 134 129 803 136 854 330 Individuals - Current/demand accounts - 11 788 199 11 788 199 - 12 226 311 12 226 311 - Term deposits - 115 360 802 110 343 593 - 105 919 290 108 847 605 Corporate customers - Current/settlement accounts - 4 224 742 4 224 742 - 7 890 068 7 890 068 - Term deposits - 2 713 310 2 653 143 - 5 411 504 5 229 753 State and public organisations - Current/settlement accounts - 267 666 267 666 - 431 825 431 825 - Term deposits - 821 972 781 543 - 2 250 805 2 228 768 Debt securities issued 3 138 065 50 578 3 203 701 11 147 716 54 953 11 357 987 - Bonds issued on domestic market 3 138 065 - 3 153 123 11 147 716 - 11 303 034 - Promissory notes - 50 578 50 578 - 54 953 54 953 Other borrowed funds - 149 265 149 265 - 1 532 017 1 532 017 Other financial liabilities - 449 385 449 385 - 591 201 591 201 - Accrued expenses - 209 094 209 094 - 417 495 417 495 - Accounts payable - 100 657 100 657 - 121 307 121 307 - Other - 139 634 139 634 - 52 399 52 399 Subordinated debt 7 368 837 2 101 552 14 636 244 10 710 910 1 410 950 13 720 297 - Subordinated USD denominated

notes 4 927 885 2 101 552 9 341 976 6 740 849 1 410 950 8 432 764 - Subordinated RR denominated

bonds 2 440 952 - 5 294 268 3 970 061 - 5 287 533

TOTAL FINANCIAL LIABILITIES CARRIED AT AMORTISED COST 10 506 902 150 085 744 160 655 754 21 858 626 147 389 348 173 726 256

The fair values in level 2 and level 3 of fair value hierarchy were estimated using the discounted cash flows valuation technique. The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.

For assets, the Group used assumptions about counterparty’s incremental borrowing rate and prepayment rates. Liabilities were discounted at the Group’s own incremental borrowing rate. Liabilities due on demand were discounted from the first date that the amount could be required to be paid by the Group.

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

Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety.


40


Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Where quoted market prices were not available, the Group used valuation techniques. The fair value of floating rate instruments that are not quoted in an active market was estimated to be equal to their carrying amount. The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.

Discount rates used depend on currency, maturity of the instrument and credit risk of the counterparty and were as follows:


Loans and advances to customers Loans to individuals - Consumer loans 21.88% to 52.43% p.a. 21.82% to 53.05% p.a. - Credit cards 31.50% to 34.80% p.a. 32.09% to 35.60% p.a. - Mortgage loans 11.24% to 14.19% p.a. 11.45% to 11.62% p.a. - Car loans 16.40% to 44.42% p.a. 16.61% to 45.06% p.a. - Other loans 13.15% to 43.52% p.a. 14.03% to 43.81% p.a. Loans to legal entities - Corporate loans 12.00% to 21.50% p.a. 12.00% to 17.00% p.a. - SME loans 15.00% to 25.00% p.a. 15.00% to 17.79% p.a. Customer accounts Individuals - Term deposits 2.28% to 13.96% p.a. 5.10% to 17.85% p.a. Corporate customers - Term deposits 0.91% to 2.28% p.a. 1.86% to 4.26% p.a. State and public organisations - Term deposits 5.25% to 5.29% p.a. 8.01% to 10.62% p.a. Subordinated debt - Subordinated debt 13.41% p.a. 13.58% p.a.

The fair value of financial assets and liabilities other than those disclosed in the table above approximates their carrying amount due to their short term nature.

27 Related Party Transactions

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

At 30 June 2015 the outstanding balances with related parties were as follows:


Shareholders with

significant influence

Members of the Board of

Directors (BOD)

Management (excluding

BOD)

Other related parties

Balances as at 30 June 2015

Securities (contractual interest rate: 17 % p.a.) - - - 1 267 083 Loans issued (contractual interest rate: 9.0% -

19.0% p.a.) - - 16 736 -

Customer accounts (contractual interest rate: 11.5% - 16% p.a.)

- 4 858 12 524 69 278

Credit related commitments 1 200 000 - 4 419 3 457


41

27 Related Party Transactions (Continued)

The income and expense items with related parties for the six-month period ended 30 June 2015 were as follows:


Shareholders with


Members of BOD


BOD)


Interest income on loans issued 37 - 916 5 263

Interest income from securities - - - 45 164 Interest expense 2 473 382 2 273 274 520 Fee and commission income 18 039 14 61 1 739 204 Fee and commission expense 3 - 13 - Gains from operations with securities, net - - - 407 Other income - - - 10 721

Rent expense - - - 2 000

Other expense - - 40 17 629

Included in the “other related parties” category above are balances and income and expenses from transactions with the companies controlled by shareholders of the Group.

At 31 December 2014 the outstanding balances with related parties were as follows:


Shareholders with


Members of the Board of

Directors (BOD)


BOD)


Balances as at 31 December 2014 Cash and cash equivalents (contractual

interest rate: 8% p.a.) - - - 1 969 386 Loans issued (contractual interest rate: 9.0% -

24.0% p.a.) - - 24 173 1 521 013 Other assets (contractual interest rate: 0%

p.a.) - - - 104 040 Due to other banks (contractual interest rate:

16.52%-21.54% p.a.) - - - 1 516 994 Customer accounts (contractual interest rate:

2.35%-24.2% p.a.) 87 276 33 482 51 341 2 544 078 Subordinated debt (contractual interest rate:

13.6% p.a.) - - - 344 632 Other liabilities (contractual interest rate: 0%

p.a.) - - - 3 384 Credit related commitments 6 710 1 000 4 113 130 201

The income and expense items with related parties for the six-month period ended 30 June 2014 were as follows:


Share- holders with


Members of Board of Directors


Board of Directors)


Interest income on loans issued 2 517 - 804 49 928 Interest income from securities - - - 6 313 Interest expense 4 541 399 5 128 222 173 Fee and commission income 111 9 18 4 389 408 Fee and commission expense 29 7 21 8 091 Other income - - - 5 507 Rent expense - - - 2 076 Other expense - - - 16 804


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27 Related Party Transactions (Continued)

In addition to the above key management compensation is presented below:

Six-month ended 30 June

2015

30 June 2015

Six-month ended 30 June

2014

31 December 2014


Expense Accrued liability

Expense Accrued liability

Short-term benefits: 62 137 - 36 095 6 888 Long-term benefits: 527 2 921 13 465 2 660

Total 62 664 2 921 49 560 9 548

Short-term bonuses fall due wholly within twelve months after the end of the period in which management rendered the related services.

28 Events after the End of the Reporting Period

On 14 August 2015 the Bank repaid the 4st tranche of bonds issued on domestic market (nominal amount of RR 3 000 000 thousand) (Note 14).

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