ZAO Citibank Annual Report 2014

Transcription

®
2014
annual report
®
ZAO Citibank
2
Citi’s place in the Russian banking system
3
Message from CEO
4
Mission and Principles
8
Citi worldwide
10
Citi in Russia
12
Ratings and Awards
14
Events
16
Executive Board
24
Board of Directors
26
Citi’s Social Investment in Russia
28
Consolidated Financial Statements (IFRS)
35
Russian Accounting Standards (RAS)
84
ZAO CITIBANK ANNUAL REPORT 2014
1
ZAO Citibank
ZAO Citibank (hereinafter — Citi Russia) is part of the international financial corporation Citigroup Inc. (100% of the
shares of ZAO Citibank belong to Citigroup Netherlands BV) and provides consumers, corporations and government institutions with a broad range of world-class financial products and services as well as access to innovative
banking technologies.
Citi began doing business in Russia in 1992 and was one of the first international banks to enter the market. Today
Citi Russia is among the largest banks in the country as measured by level of capital and volume of assets.
1
million
>
>
retail customers
4,500
500,000 credit card holders
More than 1,000 Citigold Private Client customers
with assets of $1 million or more placed with Citi
50 retail branches in 12 major Russian cities
More than 4,000 employees
More than 550 hi-tech ATMs
2
corporate clients —
major Russian and international
companies
Citi’s place in the Russian
banking system
22
12
13
net assets*
capital*
net profit*
nd
th
th
Citi was the first in Russia to offer
Internet banking
for retail
customers
(2002)
ATMs which
accept cash
(2002)
CitiPhone:
24/7 customer
service
(2002)
Credit cards
(2003)
Mobile banking Direct access to
for corporate
trading on the
clients
Moscow Exchange
(2012)
(2013)
More information about Citi Russia can be found at www.citibank.ru
* Place of ZAO Citibank in banking system
of Russia according to Finmarket.ru
3
Message from CEO
Dear clients, partners and colleagues,
Looking back, 2014 was a year when financial institutions in Russia
were forced to prove the sustainability of their business strategies. Citi
passed this test with flying colors. Faced with a number of challenges,
we maintained our balance and leveraged our strengths, which allowed
us to maintain a strong profit margin while continuing to provide added
value for clients.
Revenues for the year reached RUB 9,579 million
under IFRS. Although this result was lower than
the previous year, diligent efforts to keep expenses in check helped us to achieve a net profit of
RUB 7,379 million. At the same time, Citi remained
one of the most highly capitalized banks in the
country and today has one of the healthiest loans
portfolios in the industry.
The adverse market conditions, which included
a highly volatile currency market, lending restrictions and a general economic slowdown, were not
conducive to major transactions. Nonetheless, we
4
improved our standings on the league tables for
investment banking commissions, moving up to
third place from sixth the previous year, according
to Thomson Reuters / Freeman Consulting.
Citi’s success here was due in part to a strong performance on M&A, where Citi advised on some of
the year’s largest deals for such clients as Severstal,
Norilsk Nickel, Pharmstandard and Sanoma, among
others.
We continued to provide financing to the real
sector of the Russian economy. One major deal
5
+8%
Assets,
billion rubles
+5%
Capital,
billion rubles
398
60
370
57
332
54
2012
2013
2014
+8%
Gross profit,
billion rubles
2012
2013
2014
+14%
Clients’ accounts
and deposits,
billion rubles
31
274
241
29
28
2012
221
2013
2014
+43%
Corporate
credit portfolio,
billion rubles
2012
2013
2014
+9%
Кредиты
физическим
лицам,
млрд руб.
104
51
47
40
6
73
73
2012
2013
2014
2012
2013
2014
was PhosAgro’s $440 million ECA-backed financing
coordinated by Citi to fund construction of a new
ammonia plant. Citi also arranged, together with
Swedish Export Credit Corporation, a loan for up to
$300 million for Russian mobile operator MTS.
Russian market. In particular, clients are now taking
advantage Live FX Rates, which provides round-theclock, real-time access to the interbank currency
market, and FX Order Watch, allowing clients to
execute automatic online currency transactions.
Although debts markets cooled shortly after the
start of the year, Citi was a lead arranger on one
of the largest debt deals by a Russian corporate in
2014 — Russian Railways’ €500 million LPN placement on the Irish Stock Exchange. As the market
conditions changed, some companies moved to
decrease their debt, and Citi was able to facilitate
this process as well. For example, Citi coordinated
Severstal’s buyback of $288 million worth of loan
participation notes.
Citi’s commitment to offering the best investment
products has not gone unnoticed by the professional community. Citi Russia was voted Winner of Best
Private Banking Services for Super Affluent Clients
by Euromoney Private Banking and Wealth Management Survey for the second consecutive year.
While it was a slow year for the equity market, Citi
played a lead role in the largest deal of the year –
the US$468.5 million Accelerated Equity Offering of
the Moscow Exchange, where the Central Bank of
Russia sold half of its stake in the exchange as part
of the government’s privatization program.
In 2014 Citi’s retail banking business continued to
develop and demonstrate stable profitability. Our
consumer loan portfolio increased by 9%, driven in
part by a successful marketing campaign in the first
half of the year. Credit card use was up 10% and the
credit portfolio for credit cards increased by 15%
while the share of overdue credit remained at half
the market average.
Our focus on innovative formats in the development of Citi’s branch network has been very visible.
In 2014 the bank opened three Smart Branches —
full-service retail branches which place a strong emphasis on digital technologies and require minimal
staffing. These new branches are helping to make
our consumer banking network one of the most
efficient in the industry.
In 2014 thanks to our transition to a new technology platform, we were able to significantly expand
our spectrum of investment products and launch
solutions which appeared for the first time on the
Our long list of professional awards is a source of
pride for everyone at Citi. We were very pleased
to see that Forbes magazine named Citi the Most
Reliable Bank in Russia for the second consecutive
year. One of our biggest businesses for institutional
clients – Cash Management – was voted the best in
Russia in Euromoney’s annual survey. We also once
again were named Best Corporate/Institutional
Internet Bank by Global Finance.
These awards are not been limited to our products
and services for clients — Citi has been recognized
as an outstanding employer. Our bank earned the
title of Best Employer in both the 2014 survey of
SuperJob website and the Captains of Russian Business awards of the Journal of Human Resources
Management.
Citi also takes very seriously its commitment to giving back to the community. Following this important
tradition, the Citi Foundation allocated more than
US$1 million in 2014 for corporate citizenship programs, which are primarily focused on developing
entrepreneurship and supporting economic opportunities for youth.
One of the flagship programs of the Citi Foundation in Russia is an education program for social
entrepreneurs at the Graduate School of Management of St. Petersburg State University. In two
courses, 170 entrepreneurs completed the comprehensive study of the most important aspects of
project management for social entrepreneurship.
7
Mission
Citi works tirelessly to serve individuals, communities, institutions and nations. With
200 years of experience meeting the world’s toughest challenges and seizing its greatest
opportunities, we strive to create the best outcomes for our clients with financial solutions
that are simple, creative and responsible. An institution connecting over 1,000 cities,
160 countries and millions of people.
We are your global bank;
we are Citi
Principles
The four key principles — the values that guide us as we perform our mission — are:
Common Purpose
One team, with one goal: serving our clients and stakeholders.
Responsible Finance
Conduct that is transparent, prudent and dependable.
Ingenuity
Enhancing our clients’ lives through innovation that harnesses the breadth and
depth of our information, global network, and world-class products.
Leadership
Talented people with the best training who thrive in a diverse meritocracy that
demands excellence, initiative and courage.
8
According to data from the 86 graduates of the
first course, 70 small enterprises and 592 new jobs
were created. In 2014 this program was recognized
by the Leaders in Corporate Philanthropy awards as
one of the best professional education projects in
Russia.
We have continued our eco-entrepreneurship
program launched four years ago in Altai while
also adding a new region in 2014 — Kamchatka. This
program, which is implemented in partnership with
WWF Russia, helps achieve two important goals –
improvement of the quality of life for local residents
through small business development and conservation of the unique natural environment found in
these beautiful regions.
Another key project supported by the Citi Foundation in 2014 was the creation of an Impact Hub
business incubator for social entrepreneurs who
tackle social issues related to education, healthcare,
environmental conservation and opportunities for
children with disabilities. I would also like to mention
our partnership with the FOCUS-MEDIA Foundation,
which with our support is implementing a project
that creates real career opportunities for students
of vocational colleges.
Citi Russia’s 2014 results underscore the prudence
of our conservative, measured approach to growth
and development over the course of many years.
By focusing on the segments where Citi is best positioned to provide added value, we have a very stable position from which to grow our business even
during difficult economic times. Our team clearly
rose to the occasion, meeting unexpected challenges with the flexibility and tenacity that has helped
Citi succeed over the past two centuries and grow
into one of the world’s largest financial institutions.
market still holds true: there is enormous growth
potential here and as a global bank with great depth
and experience Citi is uniquely positioned to play
a positive role in Russia’s future growth, serving
consumers, corporations and government bodies.
I would like to take this opportunity to thank all
stakeholders who contributed to our success –
institutional clients and retail customers, industry
regulators and partners, and last but not least our
employees, whose professionalism and resolute
efforts have helped to deliver these results.
The untold story of Russia’s potential, I believe, is its
human resources. The country has always had an
abundance of smart, determined, bold individuals
with great visions and aspirations. This is something
I have personally seen my interactions with clients
and partners as well as the employees of our bank,
and this gives us good reason to be optimistic about
the market’s future and our place in it.
Sincerely,
Marc Luet
Head of Citi Russia and CEE
Citi has experienced many different situations in
modern Russia in our more than two decades of
operations here: from periods of robust growth
to sharp economic contractions. Through it all, we
have remained unwavering in our commitment to
the market. Our initial assessment of the Russian
9
Citi worldwide
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than
160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad
range of financial products and services, including consumer banking and credit, corporate and investment banking,
securities brokerage, transaction services, and wealth management.
In 2012 Citi marked the 200th anniversary of its founding in 1812.
3
$
trillion per day —
the average value of transactions executed by Citi each day. On peak
days this figure can reach $9 trillion, or more than half of the annual
GDP of the United States1.
Citi’s integrated global business model and strategy
An unparalleled global network remains Citi’s main competitive advantage and
an important factor generating the company’s revenues. Citi strives to maintain
a presence in all markets where it can be of use to its clients.
Network Market2
Broader Institutional Market
Major Consumer Banking
Cities (GCB)
10
1 $16.7 trillion in 2013.
2 Network markets represent predominately CTS, local markets FX and corporate lending.
We want Citi to be an indisputably safe and sound
institution and will do everything in our power to make
that the case, year in and year out
Michael Corbat,
Citigroup Chief Executive Officer
Citi aims to be an indisputably safe and sound financial institution. In 2014 Citi continued to develop successfully,
focusing on the following long-term strategic priorities:
>>
Enhance Citi’s position as a leading global bank for both institutions and individuals, by building on its unique global network, deep emerging markets expertise, client relationships and product expertise;
>>
Position Citi to seize the opportunities provided by three global macro-trends (globalization, urbanization and
digitization) to provide better services and products to clients;
>>
Further our commitment to responsible finance;
>>
Strengthen Citi’s performance, including gaining market share with clients, making Citi more efficient and productive, and building upon its history of innovation;
>>
Wind down Citi Holdings (the group’s assets which will not constitute part of Citi’s core business in the future) as
soon as practicable, in an economically rational manner.
P
21
19
+
15
45
BY REGION
45% North America
15%Europe, Middle East
and Africa
19%
Latin America
21%Asia
Citi’s Global Consumer
Bank
Citi is the world’s largest
credit card issuer
59 million consumers
are served by the bank in
35 countries worldwide
producing $10 billion in
pretax earnings.
139 million accounts. Citi
cards are used to make
$375 billion in purchase
each year.
53
P
23
+
24
Citicorp net revenues in 2014
BY BUSINESS
53% Global Customer
Banking
24% ICG Banking
23%ICG Markets and
Securities Services
Special services for
affluent individuals
Citi’s 800 private bankers
and product specialists
act as trusted advisors to
many of the world’s most
successful and influential
individuals and families.
Citi maintains one of the
largest global financial
infrastructures, with
trading floors in more
than 80 countries,
clearing and custody
networks in over
60 countries, and
connections with
400 clearing systems.
ICG — Institutional Clients Group
1 Results exclude Corporate/Other
11
Citi in Russia
Serving Corporate Clients
Citi’s corporate bank is one of the largest in Russia both by number of clients and by transaction volume. Citi is the
global cash management provider for more than 3000 leading Russian and international companies and advises
many on their international acquisition plans. Citi’s long list of corporate clients includes the Russia’s industrial giants,
leading multinationals, local emerging companies and major financial institutions.
Citi provides clients with the full spectrum of banking services and effective comprehensive solutions tailored to
meet their needs. Acting as a consultant for corporate clients, Citi is a key link in the process of leveraging banking
products and services and it offers solutions which not only meet clients’ needs but also help them improve
profitability.
Products and services for corporate clients:
12
Cash management
Treasury services
Trade financing
Credit and capital
raising
Depositary and
clearing services
Online banking
Online FX trading
platform
Personal manager
and more
We focus our efforts and attention on serving the clients which
we can deliver the maximum advantage thanks to our unique
capabilities: a global network which is unrivalled in scale,
innovative solutions and market insight. We strive to be the
bank of choose of our target clients.
Mark Luet,
Head of Citi in Russia and Central & Eastern Europe
Serving consumers
Citi serves more than one million retail clients across Russia. The vast majority of our customers turn to Citi for
more than just one banking service: they choose Citi for our easy access accounts, convenient banking services, and
advanced security and fraud protection. Citi offers retail customers the following products and services:
credit cards with
a grace period
personal loans
investment products
multi-currency
current and savings
accounts
payroll packages for
salaried employees
Citibank Online for
internet banking
Citi Mobile for
accessing banking
services via mobile
devices
CitiPhone for
24/7 telephone
banking support
SMS alerts about
transactions and
balances
Citigold – an exclusive
premium banking
package
13
Ratings and Awards
Best Regional and Cash
Manager in Central &
Eastern Europe, including
Russia
2013, 2014
Most Reliable Bank in
Russia
2013, 2014
Best Internet Bank
for Corporate Clients
(13th year in a row)
2014
14
Best Domestic Cash
Manager in 6 Central
& Eastern European
countries, including Russia
2014
Best Private Banking
Services for Super
Affluent Clients
2014
The Best Employer in
Russia
2014
Best Consumer Business
in EMEA
2014
Deal of the Year in
Central & Eastern Europe,
including Russia
2014
Best Employer in Russia
by National Award
«Captains of Russian
Business»
2014
FITCH RATINGS (25.07.2014)
>>
National Long-Term Rating AAA(rus) / Stable (affirmed 13 February 2015)
>>
Viability Rating BBB- (affirmed 13 February 2015)
>>
Support Rating 2 (affirmed 13 February 2015)
>>
Long-Term Foreign Currency IDR BBB / negative
(since 20 January 2015 BBB- / negative1, affirmed 13 February 2015)
>>
Long-Term Foreign Currency IDR F3 (affirmed 13 February 2015)
In 2014 Forbes magazine once
again named Citi the most reliable
bank in Russia. Citi has consistently ranked among the most
reliable banks in Russia since Forbes
launched the rating.
The magazine Retail Finance for
the third consecutive year recognized Citi Russia as one of the
best banks for customer service.
In 2014, as in 2013, Citi was ranked
first and received the gold medal.
In October 2014 Citi topped the
Thomson Reuters / Freeman Consulting rating of investment banks
according to investment banking
commissions. Over the course of
the year the company substantially
increased its commissions received
and rose from sixth place to first
place in the ranking.
1The decrease in the rating from BBB to BBB- for Long-Term Foreign Currency IDR reflects a decrease in the country ceiling for Russia. When banks are assigned Long-Term Local
Currency IDR, these ratings also take into account country risks. — Fitch Ratings, Moscow/London, 20 January 2015.
15
Events
Smart Technologies
The Smart Branch format is focused on service which is both fast and convenient for clients and uses ultra-modern
technologies. Citi opened its first Smart Branch in Japan and today is actively deploying this format worldwide.
The core concept of Citi’s Smart Branch is to ensure convenience for clients and expedient service thanks to the
use of ultra-modern technologies in the bank’s client relationship systems as well as in design features. In particular,
clients can access information through easy-to-use touchscreen panels, executive various operations via the
internet bank Citibank Online either with their own device or through tablets available at the branch, talk with the
bank’s specialists via video link and much more.
In March Citi opened the first hi-tech Smart Branch in Russia at the Moskvorechye shopping center on
Kashirskoye Shosse and the second in September at the Filion shopping center.
MORE THAN 60% OF OUR INTERACTIONS WITH OUR CUSTOMERS ARE NOW ONLINE.
Michael Corbat, CEO of Citigroup, speaking at the Mobile World Congress in Barcelona, February 25, 2014
JULY 6, 2014, WAS THE 10th ANNIVERSARY OF THE OPENING OF THE MOSKOVSKOYE
BRANCH IN ST. PETERSBURG, WHICH MARKED THE START OF CITI’S RETAIL BANKING
BUSINESS IN THE CITY.
16
Citi Serves as Partner for St. Petersburg International
Economic Forum
Once again Citi was one of the international partners of this important international economic forum. This annual
event at the Lenexpo Exhibition Complex is attended by heads of state, executives of international and Russian
corporations as well as regulators and representatives of Russian ministries and government agencies. For the
second consecutive year partnered with CNBC, one of the largest American television companies, to create a joint
stand, which was one of the most visited sited of the forum.
Moreover, for the third consecutive year Citi was granted the opportunity to present a one-of-a-kind photography
exhibition at SPIEF. This year the exhibition highlighted civilizational progress, from antiquity to the modern era, and
several of the subjects also provided a window to the possibilities of the future.
17
Citibankers attend Euromoney forum in Vienna
Euromoney’s annual forum for the Central and Eastern Europe region was held January 14-15 in Vienna. Citi was
represented by regional business heads as well as regional product seniors. The Euromoney forum is one of the
largest and most important industry gatherings for the region, providing an opportunity to network and get a sense
of the market’s pulse. Approximately 250 clients from across the CEE region attended the event.
Marc Luet, Head of Citi Russia and CEE, participated in Panel VII: CEE Banking: New Models, where the discussion focused on such issues as funding models (cross border vs local currency), regulatory challenges and building
domestic deposit bases, among others.
IN EUROMONEY’S 2014 PRIVATE BANKING AND WEALTH MANAGEMENT SURVEY,
CLIENTS RECOGNIZED CITI AS THE BEST FOR RESEARCH / ASSET ALLOCATION IN
RUSSIA. IN 2014 THE NUMBER OF CITIGOLD CLIENTS IN RUSSIA PLACING $1 MILLION
OF MORE IN ASSETS WITH CITI PASSED THE 1000 MILESTONE.
Deals
Citi participated in one of the
largest DCM market deals —
Russian Railways’ €500 million
Eurobond.
18
Citi acted as Financial
Advisor, Global Coordinator &
Mandated Lead Arranger for
PhosAgro’s$440millionECA-backed
financing to fund construction of
a new ammonia plant.
Citi played a key role in the
Accelerated Equity Offering of
the Moscow Exchange (“MOEX”),
where the Central Bank of
Russia sold half of its stake in
MOEX as part of the Russian
Government’s privatization
program.
Citi serves as partner for Vedomosti financial forum
Citi once again played an active role in the annual Finance Forum organized by Vedomosti. The year 2014 was
a time of serious adjustment for Russian banks and the main topic of discussion at the Ritz Carlton in Moscow was
the question of how the banking system should react to this new reality, which includes fewer opportunities for extensive development, a decline in asset quality, a systemic deficit of liquidity as well as inflationary and political risks.
Nataly Nikolaeva, Head of Government Affairs for Citi Russia, took part in the session devoted to the banking
system’s adaptation to the new economic conditions.
Head of Equities at Citi Russia Alexei Bolshakov moderated the session on capital markets and took part in the
roundtable “Between Sanctions and Deoffshorization: What’s an Investor to Do?” The finance specialists spoke
about the main events for investors of the preceding year, alternative areas for placement of funds and investment
as well as the most promising assets in 2015.
Elena Skuryatina, Head of E-Business for Citi Russia, participated in a roundtable on the development of retail
banking through the digital transformation of the business. Elena spoke about Citi’s strategy for developing digital
banking in Russia and the effectiveness of smart branches, as well as issues related to clients’ changing expectations in their dealings with banks and the steps which banks need to take in order to ensure a high level of client
satisfaction.
Citi participated in some of the
largest deals on the market,
including Severstal’s LPN buyback,
and advised Norilsk Nickel on
the divestment of its Australian
assets and Pharmstandard on its
acquisition of a stake in Biocad.
Citi launched a fixed income
advisory for retail clients in
Russia and extended our cobranded credit card agreement
with Aeroflot.
Citi successfully executed
a high-yield bond issue for
Evraz North America. The deal
was the first bond issuance for
a Russia-related corporate since
February 2014.
19
Forbes names Citi the most reliable bank
in Russia for the second consecutive year
On March 24, 2014, Forbes magazine named Citi the most reliable bank in Russia for the second year in a row in
its annual rating of the top 100 most reliable banks of Russia. Citi was selected as the industry leader based on the
aggregate assessment of key factors, such as assets, capitalization and credit rating.
Forbes is one of the most influential business magazines in Russia and one of the most authoritative publications in
the world. This rating was based on information provided by Fitch Ratings, Moody’s, Standard & Poor’s, Interfax CEA
and Expert.
Deal of the Year
in Central and Eastern Europe
VTB Bank’s $3.3 billion capital increase through a supplemental share offer organized by Citi was recognized by
Euromoney as Deal of the Year in Central and Eastern Europe.
The structure of the deal implied in a substantial dilution of the Russian government’s shareholding in VTB Bank,
which meant that it was considered a privatization transaction and thus the equity offering was restricted to
ordinary shares in the local market. Nonetheless, Citi succeeded in generating a high level of interest among the
primary target – sovereign wealth funds. Competing demand among several such buyers enabled VTB to push
ahead with the ordinary share issue and generate price tension. The deal uniquely leveraged demand from both
new institutional investors and existing shareholders to allow the issuer to reach its capital targets and limit the price
discount.
Citi Takes Top Spot in Russia
Investment Banking League Table
Citi is now the top ranking investment bank in Russia after a significant jump in fee income propelled it from 6th
place a year ago, according to the data compiled by Thomson Reuters/Freeman Consulting.
While Western banks have generally improved their positions, state-affiliated Russian banks have seen their
standings decline in the wake of economic uncertainties and sanctions.
20
Citi internet bank for corporate clients
recognized as the best in the world
The bank was recognized the Best Overall Global Internet Bank for the 13th consecutive year. Citi received a number
of first-place prizes for global and regional awards from Global Finance Magazine topped by the Best Overall Global
Internet Bank and Best Global Corporate/Institutional Internet Bank, as well as in Central and Eastern Europe. The
best-in-class online banking platform CitiDirect BESM makes Citi a partner of choice for clients in financial data
management.
This year, 293 banks globally were assessed against a wide range of criteria focused on features and functionality
in the online and mobile channels. Citi was named Best Overall Global Internet Bank and received awards in other
global and regional categories. In terms of services, the bank was globally awarded Best Investment Management
Services and Best Online Cash Management Site as well as Best Web Site Design, Integrated Corporate Bank Site,
and Information Security Initiatives.
This is yet another year that Citi’s professional expertise and
investments in the development of its core business were recognized
by an independent industry edition. I am proud to point out that Citi
is recognized as the best across CEE, including Russia, Ukraine and
Kazakhstan, which is a testament of Citi’s continuous leadership in
international banking services.
Emre Karter, Head of Citi’s Treasury and Trade Solutions in Central and Eastern
Europe, including Russia, Ukraine and Kazakhstan.
The core solutions of the technological platform which underpin Citi’s excellence are:
CitiDirect BE
CitiDirect BE Mobile
CitiDirect BE Tablet
TreasuryVision®
CitiConnect
an electronic banking
platform allowing
customers to centralize all corporate
banking functions in
one security-protected place, providing
access to account
information in real
time all over the
world right from their
computer.
an innovative product, which allows to
access CitiDirect BE
platform via a smartphone or a tablet PC.
The solution provides
the possibility to view
account balances,
initiate and authorize
transactions, receive
notifications via email
and SMS.
which delivers a true
tablet experience
with rich, interactive
features and on-thego-access to critical
financial information
needed for strategic
business decisions.
a web-based treasury
management platform that provides
a single window for
global visibility into
aggregated account
information for cash,
investments and debt
as well as powerful
and customizable analytics and forecasting functionality.
a connectivity offering
that enables clients to
seamlessly integrate
their ERP, treasury
workstation and
other mission critical
systems in an easyto-connect file and
message exchange
environment so that
they can maximize the
power of Citi’s internet
banking platform.
21
One of the best employers in Russia
On May 22 Citi was named a laureate of the Captains of Russian Business awards organized by the Journal
of Human Resources and received an award in the nomination for Best Employer. This recognition confirms
Citi’s strong position as one of the most attractive places to work for industry specialists – company known for its
best practice in human resource management, career development and professional growth for its employees.
The Captains of Russian Business awards are organized by the Journal of Human Resources. The winners
of the Captains of Russian Business awards were selected by a jury of experts made up of representatives
of leading recruitment agencies, law firms, business schools and leaders of the Russian market. The
nomination categories also include business leadership and reputation, corporate image, and business
ethics, among others.
Sergey Korotkov and Nataly Nikolaeva named among
Russia’s 200 most effective banking executives
Sergey Korotkov, Citi Russia’s Retail Head and Executive Board Member, and Nataly Nikolaeva, Managing Director
and Head of Government Affairs at Citi Russia, were included on the list of Russia’s 200 most effective banking
executives according to a report by Banking Overview magazine.
Rating methodology
Prior to being included in the rating, each banker was examined through the lens of a filter of numerical
indicators of work effectiveness in his/her bank or subdivision over the previous year. The rating was based on
information from the banks’ websites, Central Bank reporting and business media.
FX OrderWatch — new currency exchange opportunities
On October 17 Citi introduced FX Order Watch – a new product offered through Citi Online. This convenient and
simple solution, which has become accessible thanks to Citi’s transition to a new technology platform, allows clients
to exchange currency at a target rate predetermined by submitting various types of exchange orders. Included
as a part of the standard online banking services package, FX Order Watch changes thinking on how currency
transactions should be executed, making them more convenient, flexible and personalized.
Together with the new currencies and technology of Live FX Rates, this new product takes currency and treasury
operations to a new and qualitatively higher level for Citi’s private clients, who are the first in Russia to be provided
access to this sort of banking service.
22
Tablet applications for corporate clients
CitiDirect BESM Tablet is a new applications for Apple’s iPad and a number of other tablets operating on the Android
platform. CitiDirect BESM was developed by the Treasury & Trade team, including the Citi Innovation Lab in Dublin,
specially for corporate clients using CitiDirect BE (Citi’s main corporate internet banking platform). The app simplifies
control over important financial information and transaction processes while speeding up decision-making and
business management for treasury and finance executives. The app is available in Russian on the Apple App store
and Google Play.
With the help of CitiDirect BE Tablet, clients can now use tablet computers to execute transactions available as part
of the core functionality of the CitiDirect BE platform as well as monitor financial flows and payments of subsidiaries
throughout the world:
>> Translate data into global business intelligence with just a few taps. View data globally, by region or country; and
filter by currency, amount and country in chart or map views.
>> Use features and discovery tools to customize data views to support strategic decision-making.
>> View balances and overdrafts as well as authorize, release and repair payments anytime and everywhere..
This new offering illustrates Citi’s continued commitment to become
the world’s digital bank and to develop a full digitally enabled tool
set to meet the needs of our clients. This service was developed
specifically for our clients who require timely data and information
to drive their business in an increasingly fast paced operating
environment. CitiDirect BE Tablet continues the evolution of CitiDirect
BE from CitiDirect Online Banking and follows the successful launch of
CitiDirect BE Mobile in 2011.
Naveed Sultan, Global Head of Treasury and Trade Solutions at Citi.
Today CitiDirect BE Tablet is available in 66 countries in number of different languages, including Russian, English,
simplified Chinese, Spanish, French and Portuguese.
23
Executive Board
Nataly Nikolaeva,
Acting Chair of the Executive Board, Acting President,
Head of Government Affairs, Citi Russia
Nataly Nikolaeva has worked for more than 22 years at Citi Russia. She serves as Vice President of
the bank and is in charge of Government Affairs. In July 2013 she became the first Russian citizen
and first woman to head the Executive Committee of Citi Russia.
In 2011 and 2010 the Association of Managers of Russia included Nataly Nikolaeva in the rating of
top government affairs specialists for commercial banks published by the newspaper Kommersant
(second and third place, respectively). In 2006 the American Chamber of Commerce in Russia
named her Outstanding Participant of the Year, recognizing her exceptional contribution to the
organization’s work.
Nataly Nikolaeva received a degree in Economics with honors from Moscow State University and is
a Candidate of Economic Sciences.
Ruslan Belyaev —
St. Petersburg Branch Manager, Citi Russia
Ruslan Belyaev has led Citi’s St. Petersburg Branch since 2006. He joined the team at Citi more
than 18 years ago and throughout the course of his career at Citi he has participated in the
arrangement of a number of precedent-setting deals. In particular, Ruslan advised the government
of St. Petersburg on issues concerning the creation of a public-private partnership for the
development of Pulkovo Airport, the only Russian project to be included in the list of the Top
100 Innovation Projects according to the KPMG’s report “Infrastructure 100: World Cities Edition”.
Ruslan is a member of the Academic Development Commission of the Supervisory Board of the
Graduate School of Management of St. Petersburg State University. Since 2010 he has served on
the Executive Committee of the St. Petersburg Chapter of the American Chamber of Commerce
in Russia.
The magazine Profile included Ruslan in its 2011 rating of the Top 50 Managers of Russia in
corporate banking and the magazine Expert Northwest presented Ruslan with the title of Expert of
the Year in the education nomination category in 2012.
Ruslan graduated with honors from the Financial Academy of the Russian Government and the
University of Passau (Germany).
Sergey Korotkov,
Retail Banking Business Head, Citi Russia
Sergey Korotkov has been responsible for the development of Citi’s branch network in Russia
since August 2010. His career at Citi began more than 20 years ago, and over this time Sergey
has accumulated extensive experience working with both corporate clients and retail customers,
including in key leadership positions. Sergei was one of the pioneers of Citi’s consumer banking
business in Russia and oversaw the launch of the bank’s regional branch network for retail clients.
He also helped to create and lead Citi’s business division serving small and medium enterprises in
Russia.
Sergey graduated from the Moscow State Institute of International Relations (MGIMO University)
and has a PhD in Economics. He also earned an MBA at the University of Chicago.
24
Natalia Belaya,
Cash Management Head, Citi Russia & CEE
Natalia leads Citi’s Cash Management business, which provides corporate clients with a broad
range of cash management services based on the bank’s unsurpassed global experience and
advanced technologies developed at the Citi Innovation Lab in Dublin, Ireland.
Natalia started her career at Citi Russia in 1997 as a sales manager in Citi Transaction Services
(CTS) subsequently managed various units within CTS, including Sales in Russia, Cash
Management Services and Client Delivery in Russia, Ukraine and Kazakhstan.
Natalia graduated from the State University of Management with a degree in economics.
Michael Berner,
Consumer Business Manager, Citi Russia
Michael Berner is responsible for all of Citi’s business with retail customers in Russia.
Michael began his career at Citi in 2003, when he joined the team responsible for launching
Citi’s credit card business in Russia, the first project of this kind in the country. He later supervised
many of Citi’s major projects involving the launch of new products, joint projects with partners and
marketing initiatives, many of which were unique to the Russian financial services market. These
included the first cash back credit cards in Russia, the first retail client loyalty program (CitiSelect),
co-branded cards with the mobile operator MTS, airline Aeroflot and fuel station chain Neste, the
first mass advertising campaigns for consumer loans, and Citigold Wealth Management, among
many others.
Michael graduated from the Moscow Automobile and Road Institute (MADI) and received a degree
in financial management from the Finance Academy under the Government of the Russian
Federation.
25
Board of Directors
Marc Luet,
Chairman of the Board of Directors, Head of Citi in Russia & CEE
Marc Luet oversees Citi’s business in eight countries of Central & Eastern Europe, including Russia.
Marc has more than 20 years of experience in retail banking and the credit card business. Prior to July 1,
2013, Marc was Head of Head of Citi’s Consumer Business in Europe, Middle East and Africa (EMEA) and
simultaneously Interim Head of Citi’s Global Consumer Marketing & Internet Office. Prior to 2002, he
spent 12 years at Citigroup, including as Consumer Business Manager in Hungary and then Belgium.
Marc previously held leadership positions at Fortis group and Egg France, was a member of the Operating
Committee of Visa Inc. and also served as President of Visa for CEMEA, an area covering 80 geographies.
Marc has a BSc in Economics from the Panthéon Sorbonne University, is a graduate of Institut d’Etudes
Politiques de Paris and holds an MBA from the Tuck School of Business Administration at Dartmouth
College. He is a Board Member of Citibank Europe Plc and Citibank Turkey and a Supervisory Board
member of Citi Handlowy in Poland.
Denis Korshilov,
Head of Fixed Income, Currencies and Commodities, Citi Russia
Citi’s Fixed Income, Currencies and Commodities department (FICC) provides the full spectrum
of treasury services, including currency transactions, trading of state and corporate bonds and
derivatives, brokerage, interbank lending as well as access to currency markets via the online
trading platform FX Pulse. The department is also for managing the bank’s currency position,
securities portfolio and liquidity.
Denis was appointed head of FICC in 2011. He started his career at Citi as a Senior FX Dealer in
1997 and led the FX Unit for 14 years. Prior to joining Citi, Denis was Head Trader at Vneshtorgbank.
Denis Korshilov earned a degree in Economics from the Finance Academy under the Government
of the Russian Federation.
Florin Petrescu,
Head of Human Resources, Citi Russia, Ukraine & Kazakhstan
As Head of Human Resources for Citi in Russia, Ukraine and Kazakhstan, Florin is responsible for
a team of over 400 employees. Prior to coming to Moscow for this position, Florin was a Regional
HR Business Partner working out to Citi’s London office, where he coordinated the personnel
services of retail and commercial banking businesses in 10 countries of the CEEMEA region. Earlier
he served as HR Manager for Citi in Romania and Bulgaria.
Florin graduated from the Academy for Economic Studies in Bucharest (Romania) and earned an
Executive MSc from Cranfield School of Management (UK).
Emre Karter,
Head of Citi Transaction Services, Citi Russia & CEE
Emre joined Citi in Turkey in 1996. Prior to his current position served as Head of Global
Transaction Services for Russia, Ukraine and Kazakhstan and earlier for the Turkey/Israel cluster
and Non-Presence Countries of the region. Under his leadership Citi strengthened its position
across all product lines and client categories, including through the successful deployment of
innovations. Working at Citi’s office in Brussels, Emre coordinated Global Relationship Banking for
Citi’s Global Subsidiaries Group in CEEMEA.
Emre earned a BS in Management from Bilkent University and an MS in International Business and
Finance from New Hampshire College (USA). Emre Karter is a member of the Advisory Board for
the Committee on Youth Development of Turkey.
26
Irina Kosyachenko,
Head of Operations & Technology, Citi Russia, Ukraine & Kazakhstan
Irina has led the Operations & Technology department of Citi in Russia, Ukraine and Kazakhstan
since March 2009. Earlier she held in leadership positions overseeing various business units in both
corporate and retail banking, including commercial transaction services for corporate clients, bank
card issuance and processing of client investment transactions.
Irina began her career with Citi in Kiev in 1998 — she was appointed Head of Operations & Controls
when Citi opened its office in the city.
Irina graduated from Kiev State University with a degree in Finance and Credit.
Nataly Nikolaeva,
Acting Chair of the Executive Board,
Acting President, Head of Government Affairs, Citi Russia
Nataly Nikolaeva has worked for more than 22 years at Citi Russia. She serves as Vice President of
the bank and is in charge of Government Affairs. In July 2013 she became the first Russian citizen
and first woman to head the Executive Committee of Citi Russia.
In 2011 and 2010 the Association of Managers of Russia included Nataly Nikolaeva in the rating of
top government affairs specialists for commercial banks published by the newspaper Kommersant
(second and third place, respectively). In 2006 the American Chamber of Commerce in Russia
named her Outstanding Participant of the Year, recognizing her exceptional contribution to the
organization’s work.
Nataly Nikolaeva received a degree in Economics with honors from Moscow State University and is
a Candidate of Economic Sciences.
Maria Ivanova,
Global Subsidiaries Group Head, Citi Russia, Ukraine & Kazakhstan
Maria has served as Head of Global Subsidiaries Group for Russia, Ukraine & Kazakhstan since
March 2012. She is responsible for relations with representatives of international corporations and
financial institutions in Russia, Ukraine and Kazakhstan.
Maria Ivanova has worked at Citi since 1996. She previously served as Trade Finance Head and held
other leadership positions within the Global Subsidiaries Group in Russia.
Maria graduated from Yaroslavl State Technical University with a degree in Mechanical
Engineering and also earned a Bachelor’s degree from Champlain College in Burlington, Vermont.
Victor Rozhkov,
Commercial Bank Head, Citi Russia
Victor oversees a business serving more than 1600 clients — Russian and international companies
with annual revenues of US$ 500 million.
Victor joined Citi in Moscow in 1997. From 2002 to 2006 he was St. Petersburg Branch Manager
before taking charge of Citi’s Corporate Bank in Ukraine. In 2008 Victor returned to Moscow as
Head of Metals & Mining, Power, Infrastructure and Transport in the Russian Global Banking team.
In 2009-2010 Victor served as Deputy Chairman of the Board and Head of Corporate Business
of Sberbank’s subsidiary in Ukraine, after which he returned to Citi as Russia Commercial Banking
Head.
Victor graduated from Moscow State Technical University (MAMI). He also holds MBA degree from
University of Hartford (USA).
27
Citi’s Social Investment
in Russia
Social responsibility is a core part of Citi’s business model worldwide. At Citi we recognize the need to
actively promote economic progress and improve the lives of people in low-income communities around the
world. We invest in efforts that increase financial inclusion, catalyze job opportunities for youth, and develop
entrepreneurship. Using innovative approaches to address social issues Citi Russia stimulates the emergence and
development of projects which help produce visible changes and achieve positive results.
MORE THAN $1 000 000 — THE VOLUME OF FINANCIAL SUPPORT
DISTRIBUTED BY THE CITI FOUNDATION EACH YEAR IN RUSSIA.
Social investment focus areas
of the Сiti Foundation in Russia in 2014
Improving financial
literacy — increasing the
number of low income
people who have adopted
prudent financial behavior
and thus are capable of
improving their financial
situation and increasing
personal savings.
28
Development of
Entrepreneurship —
increasing the number
of financial products and
capital available for the
development of small
business, which leads to
creation of new jobs for low
income people.
Improving economic
opportunities for youth —
increasing the number of
young people from low
income families who are able
to graduate from vocational
schools and universities and
subsequently find gainful
employment or create their
own income-generating
businesses.
DEVELOPMENT OF ENTREPRENEURSHIP
The Citi Microentrepreneurship Awards
marked its 10th anniversary. Each year the
leaders in seven market segments are recognized
with this prize. The top award for Best Entrepreneur 2014 went to a farmer Sergei Simonovich,
a former village teacher who created his own
production business from his own food products.
The competition is organized by the Citi Foundation, Russian Microfinance Center (RMC) and
the National Partnership of Microfinance Market
Stakeholders (NAMMS) and is part of a global
program for the support and development of
small business which the Citi Foundation operates in 32 countries worldwide. Over the past
10 years more than 1200 nominees from the
majority of Russia’s regions have taken part in the
competition
Awards website: konkurs.rmcenter.ru
Social entrepreneurship is a relatively new type of business activity,
the aim of which is not to make a profit but rather to solve or ease
the scale of social and environmental problems. Social entrepreneurs
are oriented toward finding new solutions, for which a combination
of various business practices and innovative business models are
used, the best specialists are recruited and a reasonable amount
of investment capital is attracted. They are different in that they
strive to create a sustainable business model which does not require
constant financial support from the government or charities. The Citi
Foundation is focused on the support of people and organizations
whose activities combine practicality, private initiative and systematic
work for the benefit of society.
Graham Macmillan, Senior Program Officer for Financial Inclusion at the Citi
Foundation, in an interview with the magazine Delovoy Peterburg.
The joint program of Citi and the Graduate School of Management of St. Petersburg State University
“Project Management for Social Entrepreneurs” was recognized as one of Russia’s best professional education projects in the Leaders in Corporate Philanthropy contest – 2014 contest. The program was launched in
2013 and since then has seen two graduating classes totaling 170 entrepreneurs. The graduates have started
a number of social projects aimed at supporting vulnerable segments of the population and created more than
600 new jobs. It is planned that in the 2014-2015 academic year 150 students will complete the course, which is
1.5 times more than the previous year. The launch of a distance learning program will increase the accessibility
of the program for residents of remote regions of Russia. www.gsom.pu.ru
29
With the support of the Citi Foundation, the international
network of Impact Hub social innovation centers opened
a business incubator in Moscow. Social entrepreneurs working
in such areas as education, healthcare, environmental protection
and improvement of conditions for disabled people can become
residents of the center. Impact Hub in Moscow helps social
entrepreneurs share their experience, provides an expert support
and assistance in attracting investment, and offers educational
programs.
Website of Impact Hub in Moscow: www.impacthubmoscow.net
We believe that social entrepreneurship is capable of solving many
social problems, and this is why we support the development
of infrastructure which helps to increase the number of such
entrepreneurs in Russia. For us Impact Hub is not only a miniincubator but also a platform for promoting the idea of social
entrepreneurship in general.
Tatiana Avramenko,
Community Relations Officer for Citi Russia
Approximately 5 million rubles were allocated in 2014 by the
Citi Foundation to support start-ups in Altai and Kamchatka.
The Citi Foundation and WWF Russia expanded their joint
project which is aimed at forming “points of growth” in these
regions, helping local residents and communities to create small
businesses and promote their products and services on regional
and national markets. The development of entrepreneurship,
including businesses based on environmentally sound use of
natural resources, helps in the fight against poaching, which
remains the only source of subsistence for a large number of
local families. The project entails providing assistant for beginning
entrepreneurs, from educational and consulting support to the
creation of infrastructure. The number of participants in the
project in Altai and Kamchatka has exceeded 1000 people.
WWF Russia shares the stories of the most interesting and
successful projects: www.wwf.ru
Citi established the “Social Business” nomination category for several regional contests in order to
recognize the achievements of small socially oriented companies. For example, Citi is the permanent partner
of the Business Gazelle contest held each year by the magazine Delovoy Peterburg and the founder of the
nomination for “Most Significant Social Contribution”. In 2014 the award went to the company Personal Solution,
which successfully finds employment for students and migrants.
30
YOUTH EDUCATION
Citi continues to finance and support projects aimed at developing the personal, social and communication skills of children and adolescents from socially disadvantaged families. Such projects stimulate children
to continue their education in colleges and universities and thus help them to be more competitive on a labor
market.
The Citi Foundation and Focus Media Foundation are implementing a pilot program for the personal development and
employment of college students. Nearly all graduates of orphanage schools continue their studies in colleges, yet they encounter
difficulties in their subsequent search for employment. Students
from five colleges in the Moscow region and St. Petersburg are
taking part in the program, which includes training seminars for
the students as well as individual and group consultations with
psychologists and employment specialists. Over the two years of
the pilot program, approximately 400 students and more than
80 teachers have taken part.
In Ryazan, Moscow and St. Petersburg, Citi and Perspektiva,
a regional public organization for disabled people, have jointly
implemented a similar program focused on young people with
disabilities.
“The Future Begins Today” is a joint education project of the Citi Foundation and United Way
Russia Chatitable Fund. The program is oriented on schoolchildren from disadvantaged families who are
approaching graduation and want to acquire a profession which is in high demand. The children are provided
free access to additional lessons on basic school subjects and undergo training to successfully complete their
graduation exams and enroll in colleges and universities, improve their computer skills and participate in
interactive business games. The project has been implemented since 2011 and each year covers approximately
150 children from orphanages and disadvantaged families.
31
CORPORATE CULTURE OF VOLUNTEERISM
Just as all across the world, in Russia Citi’s social investment is not limited to grants. Citi’s approach to social responsibility is “More than Philanthropy”. Citi employees participate in volunteer programs in the cities where they work.
32
More than 700 employees of Citi Russia together with their friends and family participated in Citi Global
Community Day in 2014. Since 2006 Citi has held Global Community Day in all countries where it has a presence:
each year this initiative is supported by more than 70,000 employees of the bank from 93 countries. The volunteers clean up and improve city squares and parks, provide assistance at nursing homes for the elderly, animal
shelters and other social institutions.
33
34
Financial Statements
for the year ended 31 December 2014
INTERNATIONAL FINANCIAL REPORTING STANDARDS
Auditors’ Report ...36
Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2014 ...38
Statement of Financial Position as at 31 December 2014 ...39
Statement of Cash Flows for the year ended 31 December 2014 ...40
Statement of Changes in Equity for the year ended 31 December 2014 ...42
Notes to, and forming part of, the Financial Statements for the year ended 31 December 2014 ...43
1Background ...43
2 Basis of preparation ...43
3 Significant accounting policies ...44
4 Interest income and interest expense ...50
5 Fee and commission income and fee and commission expense ...51
6 Net (losses) gains on securities ...51
7
Net foreign exchange income ...51
8 General administrative expenses ...52
9 Income tax expense ...52
10 Cash and cash equivalents ...54
11 Loans and deposits with banks and other financial institutions ...54
12 Financial instruments held for trading ...55
13 Loans to customers ...58
14 Financial instruments available-for-sale ...63
15 Property and equipment ...64
16Goodwill ...64
17 Due to the Central Bank of the Russian Federation ...64
18 Deposits and balances from banks and other financial institutions ...65
19 Current accounts and deposits from customers ...65
20 Transfer of financial assets ...65
21 Other liabilities ...66
22 Share capital ...66
23 Corporate governance and internal control ...66
24 Risk management ...68
25 Credit related commitments ...74
26 Operating leases ...75
27Contingencies ...75
28 Related party transactions ...76
29 Financial assets and liabilities: fair value and accounting classifications ...77
30 Capital management ...78
31 Average effective interest rates ...79
32 Maturity analysis ...80
33 Currency analysis ...81
34 Events after the reporting period ...82
35
JSC KPMG
10 Presnenskaya Naberezhnaya
Moscow, Russia 123317
Telephone+7 (495) 937 4477
Fax+7 (495) 937 4400/99
Internetwww.kpmg.ru
Auditors’ Report
To the Shareholder and the Board of Directors of ZAO CB Citibank
We have audited the accompanying financial statements of ZAO CB Citibank (the “Bank”), which comprise the statement of financial position
as at 31 December 2014, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for 2014, and
notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the fair presentation of these financial statements based on our audit. We conducted our audit in
accordance with Russian Federal Auditing Standards and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation
of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to express an opinion on the fair presentation of these financial
statements.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2014, and its
financial performance and its cash flows for 2014 in accordance with International Financial Reporting Standards.
Audited entity: ZAO Commercial bank “Citibank”.
Registered by the Central Bank of the Russian Federation on 1 November
1993, Registration No. 2557. Re-registered as Closed Joint Stock Company
Commercial bank “Citibank” on 5 November 2001.
Entered in the Unified State Register of Legal Entities on 14 November
2002 by Moscow Inter-Regional Tax Inspectorate No. 39 of the
Ministry of Taxes and Duties of the Russian Federation, Registration No.
1027700431296, Certificate series 77 No. 00480345.
Address of audited entity: 8-10, building 1, Gasheka street, Moscow, 125047,
Russian Federation.
Independent auditor: JSC KPMG, a company incorporated under the
Laws of the Russian Federation, a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Registered by the Moscow Registration Chamber on 25 May 1992,
Registration No. 011.585.
Included in the Unified State Register of Legal Entities on 13 August
2002 by the Moscow Inter-Regional Tax Inspectorate No.39 of the
Ministry for Taxes and Duties of the Russian Federation, Registration No.
Member of the Non-commercial Partnership “Chamber of Auditors
of Russia”. The Principal Registration Number of the Entry in the State
Register of Auditors and Audit Organisations: No. 10301000804.
36
Financial Statements for the year ended 31 December 2014
Report of findings from procedures performed in accordance with the requirements of Article
42 of Federal Law dated 2 December 1990 No 395-1 On Banks and Banking Activity
Management is responsible for the Bank’s compliance with mandatory ratios and for maintaining internal control and organising risk management systems in accordance with requirements established by the Bank of Russia.
In accordance with Article 42 of Federal Law dated 2 December 1990 No 395-1 On Banks and Banking Activity (the “Federal Law”), we have
performed procedures to examine:
>>
the Bank’s compliance with mandatory ratios as at 1 January 2015 as established by the Bank of Russia; and
>>
compliance of elements of the Bank’s internal control and organization of its risk management systems with requirements established by
the Bank of Russia.
These procedures were selected based on our judgment and were limited to enquiries, analyses, inspections of documents, comparisons of the
Bank’s internal policies, procedures and methodologies to applicable requirements established by the Bank of Russia, as well as recalculations,
comparisons and reconciliations of numerical data and other information.
Our findings from the procedures performed are reported below.
>>
Based on our procedures with respect to the Bank’s compliance with mandatory ratios as established by the Bank of Russia, we found that
the Bank’s mandatory ratios as at 1 January 2015 were within the limits established by the Bank of Russia.
We have not performed any procedures on the accounting records maintained by the Bank other than those which we considered necessary to enable us to express an opinion as to whether the Bank’s financial statements present fairly, in all material respects, the financial
position of the Bank as at 31 December 2014, and its financial performance and its cash flows for 2014 in accordance with International
Financial Reporting Standards.
>>
Based on our procedures with respect to compliance of the Bank’s internal control and organization of its risk management systems with
requirements established by the Bank of Russia, we found that:
-- as at 31 December 2014, the Bank’s internal audit function was subordinated to, and reported to, the Board of Directors, and the risk
management function was not subordinated to, and did not report to, divisions accepting relevant risks in accordance with regulations
and recommendations issued by the Bank of Russia;
-- the Bank’s internal documentation, effective on 31 December 2014, establishing the procedures and methodologies for identifying and
managing the Bank’s significant credit, operational, market, interest rate, legal, liquidity and reputational risks, and for stress-testing was
approved by the authorized management bodies of the Bank in accordance with regulations and recommendations issued by the Bank
of Russia;
-- as at 31 December 2014, the Bank maintained a system for reporting on the Bank’s significant credit, operational, market, interest rate,
legal, liquidity and reputational risks, and on the Bank’s capital;
-- the frequency and consistency of reports prepared by the Bank’s risk management and internal audit functions during 2014, which
cover the Bank’s credit, operational, market, interest rate, legal, liquidity and reputational risk management, was in compliance with the
Bank’s internal documentation. The reports included observations made by the Bank’s risk management and internal audit functions as
to their assessment of the effectiveness of the Bank’s procedures and methodologies, and recommendations for improvement.
-- as at 31 December 2014, the Board of Directors and executive management of the Bank had responsibility for monitoring the
Bank’s compliance with risk limits and capital adequacy ratios as established by the Bank’s internal documentation. With the objective of
monitoring effectiveness of the Bank’s risk management procedures and their consistent application during 2014 the Board of Directors
and executive management of the Bank periodically discussed reports prepared by the risk management and internal audit functions,
and considered proposed corrective actions.
Our procedures with respect to elements of the Bank’s internal control and organization of its risk management systems were performed solely
for the purpose of examining whether these elements, as prescribed in the Federal Law and described above, are in compliance with the requirements established by the Bank of Russia.
Lukashova N.V.
Director (power of attorney dated 16 March 2015 No. 14/15)
JSC KPMG
Moscow, Russian Federation
29 June 2015
37
International Financial Reporting Standards
Statement of Profit or Loss and Other Comprehensive
Income for the year ended 31 December 2014
Notes
2014
RUB’000
2013
RUB’000
Interest income
4
22,531,864 21,355,891 Interest expense
4
(6,850,297)
(4,635,048)
15,681,567 16,720,843 Net interest income
Fee and commission income
5
9,764,235 8,857,613 Fee and commission expense
5
(4,035,706)
(3,926,626)
Net fees and commissions
5,728,529 4,930,987 Net (losses) gains on securities
6
(1,783,041)
440,460 Net foreign exchange income
7
9,941,050 5,919,202 1,278,809 622,307 15,165,347 11,912,956 30,846,914 28,633,799 (2,640,742)
(1,935,422)
(45,975)
(5,740)
(18,580,459)
(15,134,279)
9,579,738 11,558,358 (2,200,025)
(2,429,530)
7,379,713 9,128,828 (3,249,955)
(647,964)
(198,138)
(564,451)
Total items that are or may be reclassified subsequently to profit or loss
(3,448,093)
(1,212,415)
Other comprehensive loss, net of income tax
(3,448,093)
(1,212,415)
3,931,620 7,916,413 Other income
Net non-interest income
Operating income
Impairment losses on loans to customers
13
Impairment losses on other assets
General administrative expenses
8
Profit before income tax
Income tax expense
9
Profit for the period
Other comprehensive loss
Items that are or may be reclassified subsequently to profit or loss
Revaluation reserve for financial instruments available-for-sale:
- Net change in fair value of financial instruments available-for-sale, net of income tax
- N
et change in fair value of financial instruments available-for-sale transferred to profit or
loss, net of income tax
Total comprehensive income for the period
The financial statements were approved by the Board of Directors of the Bank on 29 June 2015.
Natalia Nikolaeva
Acting President
Assia Gounko
Deputy Chief Accountant
The statement of profit or loss and other comprehensive income is to be read in conjunction with the Notes to, and forming part of, the financial statements.
38
Statement of Financial Position
as at 31 December 2014
Notes
2014
RUB’000
2013
RUB’000
ASSETS
Cash and cash equivalents
10
Obligatory reserves with the Central Bank of the Russian Federation
65,556,958 32,768,660 2,998,029 2,760,361 Loans and deposits with banks and other financial institutions
11
117,292,716 138,510,589 Financial instruments held for trading
12
26,778,036 26,569,658 Loans to customers
13
152,677,147 118,123,363 Financial instruments available-for-sale
14
27,361,581 46,491,934 3,824,622 2,405,166 Other assets
Property and equipment
15
1,386,617 1,689,792 Goodwill
16
199,779 199,779 Deferred tax assets
9
210,783 177,755 398,286,268 369,697,057 Total assets
LIABILITIES
Financial instruments held for trading
12
19,706,086 1,667,035 Due to the Central Bank of the Russian Federation
17
- 24,627,807 Deposits and balances from banks and other financial institutions
18
39,638,943 40,632,497 Current accounts and deposits from customers
19
274,276,110 240,609,678 Other liabilities
21
4,966,629 5,168,160 338,587,768 312,705,177 Total liabilities
EQUITY
Share capital
22
2,099,023 2,099,023 Additional paid in capital
22
1,227,310 1,227,310 (4,209,630)
(761,537)
60,581,797 54,427,084 59,698,500 56,991,880 398,286,268 369,697,057 Revaluation reserve for financial instruments available-for-sale
Retained earnings
Total equity
Total liabilities and equity
Natalia Nikolaeva
Acting President
Assia Gounko
The statement of financial position is to be read in conjunction with the Notes to, and forming part of, the financial statements.
39
Statement of Cash Flows
Notes
2014
RUB’000
2013
RUB’000
Cash flows from operating activities
Interest and fee and commission receipts
32,100,079 31,994,899 Interest and fee and commission payments
(10,705,650)
(8,577,908)
Net (payments) receipts from foreign exchange
(10,337,440)
3,544,987 Net (payments) receipts from securities
(1,219,431)
565,037 Other receipts
1,278,809 622,307 (17,777,235)
(13,953,717)
(6,660,868) 14,195,605 (237,668)
629,849 43,974,968 (77,873,296)
17,675,181 (14,038,062)
(27,019,339)
(7,316,394)
Financial instruments available-for-sale
15,742,729 57,225,643 Other assets
(1,431,604)
(199,427)
(24,627,807)
6,421,908 Deposits and balances from banks and other financial institutions
(1,270,169)
11,688,654 Current accounts and deposits from customers
8,428,807 15,150,509 (241,811)
174,413 Net cash provided from operating activities before income tax paid
24,332,419 6,059,402 Income tax paid
(1,667,296)
(2,071,029)
Net cash provided from operating activities
22,665,123 3,988,373 Cash payments to employees and suppliers
Operating cash flows before changes in operating assets and liabilities
(Increase) decrease in operating assets
Obligatory reserves with the Central Bank of the Russian Federation
Loans and deposits with banks and other financial institutions
Loans to customers
Increase (decrease) in operating liabilities
Due to the Central Bank of the Russian Federation
Other liabilities
40
2014
RUB’000
2013
RUB’000
Net purchases of property and equipment
(182,657)
(177,118)
Net cash used in investing activities
(182,657)
(177,118)
Dividend payment
(1,225,000)
(4,770,000)
Net cash used in financing activities
(1,225,000)
(4,770,000)
Net increase (decrease) in cash and cash equivalents
21,257,466 (958,745)
11,530,832 1,283,042 32,768,660 32,444,363 65,556,958 32,768,660 Notes
Cash flows from investing activities
Cash flows from financing activities
Effect of changes in exchange rates on cash and cash equivalents
Cash and cash equivalents as at the beginning of the period
Cash and cash equivalents as at the end of the period
Natalia Nikolaeva
Acting President
10
Assia Gounko
The statement of cash flows is to be read in conjunction with the Notes to, and forming part of, the financial statements.
41
Statement of Changes in Equity
Share capital
RUB’000
Balance as at 1 January 2013
Additional paid in
capital
RUB’000
Revaluation
reserve for financial instruments
available-for-sale
RUB’000
Retained earnings
RUB’000
Total
RUB’000
2,099,023 1,227,310 450,878 50,068,256 53,845,467 - - - 9,128,828 9,128,828 Net change in fair value of financial instruments availablefor-sale, net of income tax
- - (647,964)
- (647,964)
Net change in fair value of financial instruments availablefor-sale transferred to profit or loss, net of income tax
- - (564,451)
- (564,451)
Total items that are or may be reclassified subsequently
to profit or loss
- - (1,212,415)
- (1,212,415)
Total other comprehensive loss
- - (1,212,415)
- (1,212,415)
- - (1,212,415)
9,128,828 7,916,413 Dividends paid
- - - (4,770,000)
(4,770,000)
2,099,023 1,227,310 (761,537)
54,427,084 56,991,880 - - - 7,379,713 7,379,713 Net change in fair value of financial instruments availablefor-sale, net of income tax
- - (3,249,955)
- (3,249,955)
Net change in fair value of financial instruments availablefor-sale transferred to profit or loss, net of income tax
- - (198,138)
- (198,138)
Total items that are or may be reclassified subsequently
to profit or loss
- - (3,448,093)
- (3,448,093)
Total other comprehensive loss
- - (3,448,093)
- (3,448,093)
- - (3,448,093)
7,379,713 3,931,620 Dividends paid
- - - (1,225,000)
(1,225,000)
2,099,023 1,227,310 (4,209,630)
60,581,797 59,698,500 Profit for the period
Items that are or may be reclassified subsequently to
profit or loss:
Balance as at 31 December 2013
Profit for the period
Items that are or may be reclassified subsequently to
profit or loss:
Balance as at 31 December 2014
Natalia Nikolaeva
Acting President
Assia Gounko
Отчет об изменениях капитала должен рассматриваться вместе с Примечаниями к данной финансовой отчетности, которые являются ее неотъемлемой частью.
42
Notes to, and forming part of, the Financial Statements
1
Background
(a)
Organisation and operations
ZAO CB Citibank (the Bank) was established in the Russian Federation as a limited liability company and in 1993 was granted its general banking
licence. The Bank converted to a closed joint-stock company in November 2001 and is a part of the international financial company, Citigroup,
headquartered in the United States and operating in over 100 countries. The principal activities of the Bank are deposit taking, lending, and
foreign exchange and securities transactions, which are conducted through its head office in Moscow and branch in St.Petersburg. As at 31 December 2014, the Bank also has branches in Samara, Rostov-on-Don, Ekaterinburg, Nizhny Novgorod, Volgograd and Ufa, which provide banking
services to individuals. The activities of the Bank are regulated by the Central Bank of the Russian Federation (the CB RF). The Bank became
a member of the state deposit insurance system in the Russian Federation on 3 February 2005.
The Bank’s registered office is 8-10, building 1, Gasheka str., Moscow.
(b)
Russian business environment
The Bank’s operations are primarily located in the Russian Federation. Consequently, the Bank is exposed to the economic and financial markets
of the Russian Federation, which display emerging-market characteristics. Legal, tax and regulatory frameworks continue to be developed, but
are subject to varying interpretations and frequent changes that, together with other legal and fiscal impediments, contribute to the challenges
faced by entities operating in the Russian Federation.
The recent conflict in Ukraine and related events has increased the perceived risks of doing business in the Russian Federation. The imposition of
economic sanctions on Russian individuals and legal entities by the European Union, the United States of America, Japan, Canada, Australia and
others, as well as retaliatory sanctions imposed by the Russian government, has resulted in increased economic uncertainty including more volatile equity markets, a depreciation of the Russian Rouble, a reduction in both local and foreign direct investment inflows and a significant tightening in the availability of credit. In particular, some Russian entities, including banks, may be experiencing difficulties in accessing international
equity and debt markets and may become increasingly dependent on Russian state banks to finance their operations. The longer term effects of
recently implemented sanctions, as well as the threat of additional future sanctions, are difficult to determine. Management of the Bank believes
that it takes all the necessary efforts to support the economic stability of the Bank in the current environment.
The financial statements reflect management’s assessment of the impact of the Russian business environment on the operations and financial
position of the Bank. The future business environment may differ from management’s assessment.
2 Basis of preparation
(a)
Statement of compliance
The accompanying financial statements are prepared in accordance with the requirements of International Financial Reporting Standards (IFRS).
(b)
Basis of measurement
These financial statements are prepared on the historical cost basis except that financial instruments at fair value through profit or loss and
available-for-sale financial instruments are stated at fair value.
(c)
Functional and presentation currency
The functional currency of the Bank is the Russian Rouble (RUB) as, being the national currency of the Russian Federation, it reflects the
economic substance of the majority of underlying events and circumstances relevant to them. In previous reporting periods before 1 January
2005 the Bank used US Dollar (USD) as a functional currency. Beginning from 1 January 2005 because of the enforcement of new IAS 21 The
Effect on Changes in Foreign Exchange Rates (revised in 2003) the Bank revised its functional currency, and as a result changed it from USD to
RUB. The RUB is also the presentation currency for the purposes of these financial statements.
As at 31 December 2014, the official exchange rate was 56.2584 RUB for 1 USD and as at 31 December 2013 the official exchange rate was
32.7292 RUB for 1 USD.
Financial information presented in RUB is rounded to the nearest thousand.
43
(d)Goodwill
Goodwill arises from acquisitions of subsidiaries.
Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired and is
carried at cost less accumulated impairment losses.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
(e)
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from
those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimates are revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies is described in the following
notes:
>>
loan impairment estimates – Note 13
>>
estimates of fair value of financial assets and liabilities – Note 29.
(f)
Changes in accounting policies and presentation
The Bank has adopted the following amendments to standards with a date of initial application of 1 January 2014:
>>
Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32 Financial Instruments: Presentation) (see (i))
>>
Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36 Impairment of Assets) (see (ii))
>>
Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39 Financial Instruments: Recognition and Measurements) (see (iii))
The nature and effect of the changes are explained below.
(i)
Offsetting Financial Assets and Financial Liabilities
Amendments to IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities do not introduce new rules for
offsetting financial assets and liabilities; rather they clarify the offsetting criteria to address inconsistencies in their application. The amendments
specify that an entity currently has a legally enforceable right to set-off if that right is not contingent on a future event; and enforceable both in
the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties.
(ii) Recoverable Amount Disclosures for Non-Financial Assets
Amendment requires detailed disclosure of how fair value less cost of disposal has been measured when an impairment loss has been recognized or reversed, including key assumptions and the level of fair value hierarchy for which the fair value measurement is categorized. At the
same time the amendments remove the requirement to disclose the recoverable amount when a Cash Generating Unit (CGU) contains goodwill
or indefinite lived intangible assets but there has been no impairment.
(iii) Novation of Derivatives and Continuation of Hedge Accounting
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument
meets certain criteria.
These amendments do not have an impact on the Bank’s financial statements.
3 Significant accounting policies
The following significant accounting policies are applied in the preparation of the financial statements. The accounting policies are consistently
applied by the Bank to all periods presented in these financial statements. Future changes in accounting policies are described at the end of this
Note.
(a)
Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of the Bank at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange
rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the
beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at
the exchange rate at the end of the reporting period. Foreign currency differences arising on retranslation are recognised in profit or loss, except
for differences arising on the retranslation of available-for-sale equity instruments or qualifying cash flow hedges to the extent that the hedge is
effective, which are recognised in other comprehensive income.
44
(b)
The Bank includes cash and nostro accounts with the CB RF and nostro accounts with banks and other financial institutions in cash and cash
equivalents. The obligatory reserve deposit with the CB RF is not considered to be a cash equivalent due to restrictions on its withdrawability.
Cash and cash equivalents are carried at amortised cost in the statement of financial position.
(c)
Financial instruments
(i)Classification
Financial instruments at fair value through profit or loss are financial assets or liabilities that are:
>>
acquired or incurred principally for the purpose of selling or repurchasing in the near term
>>
part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of
short-term profit-taking
>>
derivative financial instruments (except for derivative financial instruments that are designated and effective hedging instruments) or,
>>
upon initial recognition, designated by the Bank as at fair value through profit or loss.
The Bank may designate financial assets and liabilities at fair value through profit or loss where either:
>>
the assets or liabilities are managed, evaluated and reported internally on a fair value basis
>>
the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise or,
>>
the asset or liability contains an embedded derivative that significantly modifies the cash flows that would otherwise be required under the
contract.
All trading derivatives in a net receivable position (positive fair value), as well as options purchased, are reported as assets. All trading derivatives
in a net payable position (negative fair value), as well as options written, are reported in financial statements as liabilities.
Management determines the appropriate classification of financial instruments in this category at the time of the initial recognition. Derivative
financial instruments and financial instruments designated as at fair value through profit or loss upon initial recognition are not reclassified out of
the at fair value through profit or loss category. Financial assets that would have met the definition of loans and receivables may be reclassified
out of the at fair value through profit or loss or available-for-sale category if the Bank has an intention and ability to hold them for the foreseeble future or until maturity. Other financial instruments may be reclassified out of the at fair value through profit or loss category only in rare
circumstances. Rare circumstances arise from a single event that is unusual and highly unlikely to recur in the near term.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other
than those that the Bank:
>>
intends to sell immediately or in the near term
>>
upon initial recognition designates as at fair value through profit or loss
>>
upon initial recognition designates as available-for-sale, or
>>
may not recover substantially all of its initial investment, other than because of credit deterioration.
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Bank has the
positive intention and ability to hold to maturity, other than those that:
>>
the Bank upon initial recognition designates as at fair value through profit or loss
>>
the Bank designates as available-for-sale, or
>>
meet the definition of loans and receivables.
Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as loans
and receivables, held-to-maturity investments or financial instruments at fair value through profit or loss.
(ii)Recognition
Financial assets and liabilities are recognised in the statement of financial position when the Bank becomes a party to the contractual provisions
of the instrument. All regular way purchases of financial assets are accounted for at the settlement date.
(iii)Measurement
A financial asset or liability is initially measured at its fair value plus, in the case of a financial asset or liability not at fair value through profit or loss,
transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability.
Subsequent to initial recognition, financial assets, including derivatives that are assets, are measured at their fair values, without any deduction
for transaction costs that may be incurred on sale or other disposal, except for:
>>
loans and receivables which are measured at amortised cost using the effective interest method
>>
held-to-maturity investments that are measured at amortised cost using the effective interest method, and
>>
investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, which are measured at cost.
All financial liabilities, other than those designated at fair value through profit or loss and financial liabilities that arise when a transfer of a financial
asset carried at fair value does not qualify for derecognition, are measured at amortised cost.
(iv) Amortised cost
The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus
principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial
45
amount recognised and the maturity amount, minus any reduction for impairment. Premiums and discounts, including initial transaction costs,
are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.
(v) Fair value measurement principles
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 in the principal, or in its absence, the most advantageous market to which the Bank has access at that date. The fair value
of a liability reflects its non-performance risk.
When available, the Bank measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is
regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an
ongoing basis. When there is no quoted price in an active market, the Bank uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all the factors that market participants
would take into account in these circumstances.
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price, i.e., the fair value of the consideration given or received. If the Bank determines that the fair value at initial recognition differs from the transaction price and the fair value is
evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data
from observable markets, the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at
initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of
the instrument, but no later than when the valuation is supported wholly by observable market data or the transaction is closed out.
If an asset or a liability measured at fair value has a bid price and an ask price, the Bank measures assets and long positions at the bid price and
liabilities and short positions at the ask price.
Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Bank on the basis
of the net exposure to either market or credit risk, are measured on the basis of a price that would be received to sell the net-long position (or
paid to transfer the net-short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and
liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio.
The Bank recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has
occurred.
(vi) Gains and losses on subsequent measurement
A gain or loss arising from a change in the fair value of a financial asset or liability is recognised as follows:
>>
a gain or loss on a financial instrument classified as at fair value through profit or loss is recognised in profit or loss
>>
a gain or loss on an available-for-sale financial asset is recognised as other comprehensive income in equity (except for impairment losses
and foreign exchange gains and losses on debt financial instruments available-for-sale) until the asset is derecognised, at which time the
cumulative gain or loss previously recognised in equity is recognised in profit or loss. Interest in relation to an available-for-sale financial asset
is recognised in profit or loss using the effective interest method.
For financial assets and liabilities carried at amortised cost, a gain or loss is recognised in profit or loss when the financial asset or liability is
derecognised or impaired, and through the amortisation process.
(vii)Derecognition
The Bank derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the
financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the
Bank neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any
interest in transferred financial assets that qualify for derecognition that is created or retained by the Bank is recognised as a separate asset
or liability in the statement of financial position. The Bank derecognises a financial liability when its contractual obligations are discharged or
cancelled or expire.
The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all risks and
rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not
derecognised.
In transactions where the Bank neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset, it derecognises the asset if control over the asset is lost.
In transfers where control over the asset is retained, the Bank continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred assets.
The Bank writes off assets deemed to be uncollectible.
(viii) Derivative instruments
Derivative financial instruments include swaps, forward contracts, futures, spot transactions and options in interest rates, foreign exchanges,
precious metals and stock markets, and any combinations of these instruments.
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at
fair value. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.
46
Changes in the fair value of derivatives are recognised immediately in profit or loss.
Derivatives may be embedded in another contractual arrangement (a host contract). An embedded derivative is separated from the host contract and is accounted for as a derivative if, and only if the economic characteristics and risks of the embedded derivative are not closely related
to the economic characteristics and risks of the host contract, a separate instrument with the same terms as the embedded derivative would
meet the definition of a derivative; and the combined instrument is not measured at fair value with changes in fair value recognised in profit or
loss. Derivatives embedded in financial assets or financial liabilities at fair value through profit or loss are not separated.
Although the Bank trades in derivative instruments for risk hedging purposes, these instruments do not qualify for hedge accounting.
(d)
Repurchase and reverse repurchase agreements
Securities sold under sale and repurchase (repo) agreements are accounted for as secured financing transactions, with the securities retained
in the statement of financial position and the counterparty liability included in amounts payable under repo agreements within deposits and
balances from banks and other financial institutions or current accounts and deposits from customers, as appropriate. The difference between
the sale and repurchase prices represents interest expense and is recognised in profit or loss over the term of the repo agreement using the
effective interest method.
Securities purchased under agreements to resell (reverse repo) are recorded as amounts receivable under reverse repo agreements within
loans and deposits with banks and other financial institutions or loans to customers, as appropriate. The difference between the purchase and
resale prices represents interest income and is recognised in profit or loss over the term of the reverse repo agreement using the effective
interest method.
If assets purchased under agreement to resell are sold to third parties, the obligation to return securities is recorded as a trading liability and
measured at fair value.
(e)Offsetting
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable
right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
(f)
(i)
Owned assets
Items of property and equipment are stated at cost less accumulated depreciation and impairment losses. Where an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment.
(ii) Leased assets
Leases in terms of which the Bank assumes substantially all the risks and rewards of ownership are classified as finance leases. Property and
equipment acquired by way of a finance lease is stated at the amount equal to the lower of its fair value and the present value of the minimum
lease payments at inception of the lease, less accumulated depreciation and impairment losses.
Leases in terms of which the Bank does not assume substantially all the risks and rewards of ownership are classified as operating leases and
lease payments are expensed as incurred.
(iii) Depreciation
Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of the individual assets. Depreciation commences
on the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and ready for use. Land is not depreciated. The estimated useful lives are as follows:
Buildings
50 years
Equipment
3 to 12 years
Leasehold improvements
5 to 10 years
(g)Impairment
The Bank assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets
is impaired. If any such evidence exists, the Bank determines the amount of any impairment loss.
A financial asset or group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financial asset (a loss event) and that event (or events)
has had an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, breach of loan covenants or conditions,
restructuring of a financial asset or group of financial assets that the Bank would not otherwise consider, indications that a borrower or issuer will
enter bankruptcy, the disappearance of an active market for a security, deterioration in the value of collateral, or other observable data related
47
to a group of assets such as adverse changes in the payment status of borrowers in the group, or economic conditions that correlate with
defaults in the group.
In addition, for an investment in an equity security available-for-sale a significant or prolonged decline in its fair value below its cost is objective
evidence of impairment.
(i)
Financial assets carried at amortised cost
Financial assets carried at amortised cost consist principally of loans and other receivables (loans and receivables). The Bank reviews its loans
and receivables to assess impairment on a regular basis.
Management first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for loans and receivables that are not individually significant. If management determines that no objective
evidence of impairment exists for an individually assessed loan or receivable, whether significant or not, it includes the loan in a group of loans
and receivables with similar credit risk characteristics and collectively assesses them for impairment. Loans and receivables that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of
impairment.
If there is objective evidence that an impairment loss on a loan or receivable has been incurred, the amount of the loss is measured as the difference between the carrying amount of the loan or receivable and the present value of estimated future cash flows including amounts recoverable from guarantees and collateral discounted at the loan or receivable’s original effective interest rate. Contractual cash flows and historical
loss experience adjusted on the basis of relevant observable data that reflect current economic conditions provide the basis for estimating
expected cash flows.
In some cases the observable data required to estimate the amount of an impairment loss on a loan or receivable may be limited or no longer
fully relevant to current circumstances. This may be the case when a borrower is in financial difficulties and there is little available historical data
relating to similar borrowers. In such cases, the Bank uses its experience and judgment to estimate the amount of any impairment loss.
All impairment losses in respect of loans and receivables are recognised in profit or loss and are only reversed if a subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.
When a loan is uncollectable, it is written off against the related allowance for loan impairment. The Bank writes off a loan balance (and any
related allowances for loan impairment) when management determines that the loans are uncollectible and when all necessary steps to collect
the loan are completed.
(ii) Financial assets carried at cost
Financial assets carried at cost include unquoted equity instruments included in available-for-sale financial assets that are not carried at fair value
because their fair value can not be reliably measured. If there is objective evidence that such investments are impaired, the impairment loss is
calculated as the difference between the carrying amount of the investment and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset.
All impairment losses respect of these investments are recognised in profit or loss and can not be reversed.
(iii) Available-for-sale financial assets
Impairment losses on available-for-sale financial assets are recognised by transferring the cumulative loss that is recognised in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to
profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any
impairment loss previously recognised in profit or loss. Changes in impairment allowance attributable to time value are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can
be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, with the
amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity
security is recognised in other comprehensive income.
(iv) Non financial assets
Other non financial assets, other than deferred taxes, are assessed at each reporting date for any indications of impairment. The recoverable
amount of goodwill is estimated at each reporting date. The recoverable amount of non financial assets is the greater of their fair value less costs
to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate
cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
All impairment losses in respect of non financial assets are recognised in profit or loss and reversed only if there has been a change in the estimates used to determine the recoverable amount. Any impairment loss reversed is only reversed to the extent that the asset’s carrying amount
does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised. An impairment loss in respect of goodwill is not reversed.
(h)Provisions
A provision is recognised in the statement of financial position when the Bank has a legal or constructive obligation as a result of a past event,
and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined
48
by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
A provision for restructuring is recognised when the Bank has approved a detailed and formal restructuring plan, and the restructuring either has
commenced or has been announced publicly. Future operating costs are not provided for.
(i)Taxation
Income tax comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items of other
comprehensive income or transactions with shareholders recognised directly in equity, in which case it is recognised within other comprehensive
income or directly within equity.
Current tax expense is the expected tax payable on the taxable profit for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities are recognised in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are not recognised for the following
temporary differences: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor
taxable profit and temporary differences related to investments in subsidiaries, where the parent is able to control the timing of the reversal of
the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow the manner in which the Bank expects, at
the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied to the temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary
differences, unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that taxable profit will be available against
which the deductible temporary differences can be utilized.
(j)
Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised
as a deduction from equity, net of any tax effects.
Dividends
The ability of the Bank to declare and pay dividends is subject to the rules and regulations of the Russian legislation.
Dividends in relation to ordinary shares are reflected as an appropriation of retained earnings in the period when they are declared.
(k)
Credit related commitments
In the normal course of business, the Bank enters into credit related commitments, comprising undrawn loan commitments, letters of credit and
guarantees, and provides other forms of credit insurance.
Financial guarantees are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
A financial guarantee liability is recognised initially at fair value net of associated transaction costs, and is measured subsequently at the higher
of the amount initially recognised less cumulative amortisation or the amount of provision for losses under the guarantee. Provisions for losses
under financial guarantees and other credit related commitments are recognised when losses are considered probable and can be measured
reliably.
Financial guarantee liabilities and provisions for other credit related commitment are included in other liabilities.
Loan commitments are not recognised, except in the following cases:
>>
loan commitments that the Bank designates as financial liabilities at fair value through profit or loss
>>
if the Bank has a past practice of selling the assets resulting from its loan commitments shortly after origination, then the loan commitments
in the same class are treated as derivative instruments
>>
loan commitments that can be settled net in cash or by delivering or issuing another financial instrument
>>
commitments to provide a loan at a below-market interest rate.
(l)
Income and expense recognition
Interest income and expense are recognised in profit or loss using the effective interest method.
49
Loan origination fees, loan servicing fees and other fees that are considered to be integral to the overall profitability of a loan, together with the
related transaction costs, are deferred and amortised to interest income over the estimated life of the financial instrument using the effective
interest method.
Other fees, commissions and other income and expense items are recognised in profit or loss when the corresponding service is provided.
The Bank acts as an agent for insurance providers offering their insurance products to consumer loan borrowers. Commission income from
insurance represents commissions for such agency services received by the Bank from such partners. It is not considered to be integral to the
overall profitability of consumer loans because it is determined and recognised based on the Bank’s contractual arrangements with the insurance provider rather than with the borrower. The Bank does not participate in the insurance risk, which is entirely borne by the partner; commission income from insurance is recognised in profit or loss when the Bank provides the agency service to the insurance company. The borrowers
have a choice whether to purchase the insurance policy. A consumer loan customer’s decision whether or not to purchase an insurance policy
does not effect the stated interest rate offered to that customer.
Dividend income is recognised in profit or loss on the date that the dividend is declared.
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives
received are recognised as an integral part of the total lease expense, over the term of the lease.
(m) New standards and interpretations not yet adopted
The following new standard, amendments to standards, and interpretations are not yet effective as at 31 December 2014, and are not applied in
preparing these financial statements. The Bank plans to adopt these pronouncements when they become effective. The Bank has not yet analysed the likely impact of the new standard, amendments to standards, and interpretations on its financial position or performance.
IFRS 9 Financial Instruments, published in July 2014, replaces IAS 39 Financial Instruments: Recognition and Measurement. The Bank recognises
that the new standard introduces many changes to accounting for financial instruments and is likely to have a significant impact on the financial
statements. The Bank has not analysed the impact of these changes yet. The Bank does not intend to adopt this standard early. The standard will
be effective for annual periods beginning on or after 1 January 2018 and will be applied retrospectively with some exemptions.
Various Improvements to IFRS are dealt with on a standard-by-standard basis. All amendments, which result in accounting changes for presentation, recognition or measurement purposes, will come into effect not earlier than 1 January 2015. The Bank has not yet analysed the likely impact
of the improvements on its financial position or performance.
4 Interest income and interest expense
2014
RUB’000
2013
RUB’000
Interest income
Loans to customers
15,708,684 12,956,550 Loans and deposits with banks and other financial institutions and amounts receivable under reverse repo
agreements
3,656,513 2,874,710 Financial instruments held for trading and available-for-sale
3,166,667 5,524,631 22,531,864 21,355,891 5,854,363 3,990,250 995,934 644,798 6,850,297 4,635,048 Interest expense
Current accounts and deposits from customers
Deposits and balances from banks and other financial institutions and amounts payable under repo
agreements
50
5 Fee and commission income and fee and commission expense
2014
RUB’000
2013
RUB’000
Settlement fees
Commissions from insurance companies
3,157,299 2,750,374 1,177,500 1,087,654 1,086,304 954,086 Cash withdrawal fees
964,969 743,808 Annual credit card maintenance fees
927,350 960,860 Transaction processing fees
893,384 844,678 Custody fees
594,368 467,792 Brokerage and underwriting fees
464,123 338,591 Credit card late payment fees
161,076 313,430 Cash transaction fees
110,944 113,771 Investment fund fees
70,395 98,350 Guarantees and letter of credit fees
Other
156,523 184,219 9,764,235 8,857,613 2,577,334 2,150,350 Insurance fees
355,725 371,733 Cash transportation fees
281,343 261,920 Customs card transaction fees
269,410 222,086 Guarantees received fees
240,304 279,796 5,351 436,041 306,239 204,700 4,035,706 3,926,626 Fee and commission expense
Settlement fees
Franchise fee
Other
6 Net (losses) gains on securities
Realised and unrealised net loss from financial instruments held for trading
Realised net gain from financial instruments available-for-sale
2014
RUB’000
2013
RUB’000
(2,030,713)
(265,104)
247,672 705,564 (1,783,041)
440,460 7 Net foreign exchange income
2014
RUB’000
2013
RUB’000
Net (loss) gain from foreign exchange transactions
(10,146,758)
2,480,665 Net gain from revaluation of financial assets and liabilities in foreign currency
20,087,808 3,438,537 9,941,050 5,919,202 ZAO CITIBANK ANNUAL REPORT 2014
51
8 General administrative expenses
2014
RUB’000
2013
RUB’000
Employee compensation and social insurance expenses
7,069,931 5,870,820 Intercompany charges for retail information technical support and other services
3,186,720 2,509,058 Taxes other than income tax
1,681,139 1,383,183 Occupancy
1,379,159 1,174,929 Repairs and maintenance
1,051,220 556,540 Outsourcing costs
531,845 601,721 Communications and information services
514,524 391,855 Advertising and marketing
475,919 667,316 Depreciation
463,109 453,769 Insurance
361,573 200,632 Travel
148,908 96,429 Security
Other
79,548 63,705 1,636,864 1,164,322 18,580,459 15,134,279 9 Income tax expense
2014
RUB’000
2013
RUB’000
Current tax expense
Current year
1,371,030 2,363,608 828,995 65,922 2,200,025 2,429,530 Deferred tax expense
Origination and reversal of temporary differences
Total income tax expense
In 2014 and 2013 the applicable tax rate for current and deferred tax is 20%.
Reconciliation of effective tax rate
The reconciliation between the expected tax expense to the actual income tax expense is as follows.
2014
RUB’000
Profit before tax
9,579,738 2013
RUB’000
11,558,358 Income tax expense at the applicable statutory tax rate
1,915,948 20% 2,311,672 20% Non-deductible costs
403,544 4% 341,224 3% Income taxed at lower tax rates
(119,467)
(1%)
(223,366)
(2%)
2,200,025 23% 2,429,530 21% Income tax expense
Deferred tax assets and liabilities
Temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes give rise to net deferred tax assets as at 31 December 2014 and 31 December 2013.
The deductible temporary differences do not expire under current tax legislation. The tax loss carry-forwards expire in 2024.
52
Movements in temporary differences during the years ended 31 December 2014 and 2013 are presented as follows:
Balance 1 January 2014
Recognised in
profit or loss
28,984 (71,344)
- (42,360)
(266,901)
(18,486)
- (285,387)
190,384 (787,633)
862,023 264,774 15,847 (37,220)
- (21,373)
24,465 16,004 - 40,469 Other liabilities
184,976 (25,936)
- 159,040 - 95,620 - 95,620 177,755 (828,995)
862,023 210,783 Balance 1 January 2013
Recognised in
profit or loss
Recognised in other comprehensive income
Balance 31 December 2013
RUB’000
Loans to customers
Other assets
Tax loss carry-forward
RUB’000
Recognised in other Balance comprehensive income 31 December 2014
(108,860)
137,844 - 28,984 Loans to customers
(79,042)
(187,859)
- (266,901)
(112,720)
- 303,104 190,384 Other assets
18,185 (2,338)
- 15,847 Property and equipment
24,825 (360)
- 24,465 Other liabilities
198,185 (13,209)
- 184,976 (59,427)
(65,922)
303,104 177,755 Income tax recognised in other comprehensive loss
The tax effects relating to components of other comprehensive loss comprise:
2014
RUB’000
Net change in fair value of financial
instruments available-for-sale
Amount
before tax
Tax
benefit
2013
Amount
net-of-tax
Amount
before tax
Tax
benefit
Amount
net-of-tax
(4,062,444)
812,489 (3,249,955)
(809,955)
161,991 (647,964)
Net change in fair value of financial
instruments available-for-sale transferred to profit or loss
(247,672)
49,534 (198,138)
(705,564)
141,113 (564,451)
(4,310,116)
862,023 (3,448,093)
(1,515,519)
303,104 (1,212,415)
53
10 Cash and cash equivalents
2014
RUB’000
2013
RUB’000
Cash
12,410,012 5,948,291 Nostro account in the Central Bank of the Russian Federation
9,883,417 11,021,936 22,602,045 4,681,731 Nostro accounts in banks and other financial institutions
Citigroup entities
Other Russian banks and financial institutions
– MICEX Group
– Other banks and financial institutions
OECD banks
Large Russian banks
Total Nostro accounts in banks and other financial institutions
16,461,259 4,701,698 875,042 2,280,042 2,851,988 3,306,563 473,195 828,399 43,263,529 15,798,433 65,556,958 32,768,660 The Bank includes 30 largest Russian banks in terms of total assets in large Russian banks.
No cash and cash equivalents are impaired or past due.
11 Loans and deposits with banks and other financial institutions
2014
RUB’000
2013
RUB’000
Loans and deposits
Central Bank of the Russian Federation
36,000,000 12,000,000 Large Russian banks
34,589,140 23,776,402 Citigroup entities
32,868,761 76,222,535 152,237 - 4,339,595 15,491,537 107,949,733 127,490,474 7,078,936 1,761,239 Other financial institutions
1,915,638 - Other Russian banks
348,409 1,157,943 Large Russian banks
- 8,100,933 9,342,983 11,020,115 117,292,716 138,510,589 OECD banks
Other Russian banks and financial institutions
Amounts receivable under reverse repo agreements
MICEX Group
The Bank includes 30 largest Russian banks in terms of total assets in large Russian banks.
No loans and deposits with banks and other financial institutions are impaired or past due.
As at 31 December 2014, the fair value of financial assets collateralizing reverse repo agreements is RUB 10,396,809 thousand (31 December
2013: RUB 11,896,351 thousand).
Concentration of loans and deposits with banks and other financial institutions and amounts receivable under
reverse repo agreements
As at 31 December 2014 and 2013, exposures to banks and other financial institutions and amounts receivable under reverse repo agreements,
which individually comprised more than 10% of total loans and deposits with banks and other financial institutions and amounts receivable under
reverse repo agreements, are as follows:
54
2014
RUB’000
Central Bank of the Russian Federation
Citigroup
2013
RUB’000
36,000,000
- 32,868,761
76,222,535 68,868,761
76,222,535 12 Financial instruments held for trading
Financial assets held for trading
2014
RUB’000
2013
RUB’000
Unpledged
Debt and other fixed income securities
Russian Government GKO/OFZ
6,748,845 23,638,702 196,188 1,204,984 Agency on Mortgage Crediting (AIZhK)
13,128 35,319 Rosselkhozbank
4,035 10,405 Vnesheconombank
2,323 48,249 OTP Bank
2,020 6,983 Gazprombank
11 12 European Bank for Reconstruction and Development
- 26,703 Renaissance Capital
- 10,714 Vneshtorgbank
- 3,250 Rushydro
- 2,470 Credit Europe Bank
- 114 6,966,550 24,987,905 19,769,667 1,506,156 41,819 75,597 19,811,486 1,581,753 26,778,036 26,569,658 Russian Government Eurobonds
Derivative financial instruments
Foreign exchange contracts
Interest rate swaps
No financial assets held for trading are past due.
Financial liabilities held for trading
2014
RUB’000
2013
RUB’000
Interest rate swaps
19,664,240 1,591,359 41,846 75,676 19,706,086 1,667,035 As at 31 December 2014 and 2013, the majority of forward exchange contracts and interest rate swaps are entered into with other Citigroup
entities.
55
Interest rate swaps
2014
Fair value
Notional amount
RUB’000
Interest rate swaps
Asset
RUB’000
11,494,537 Liability
RUB’000
41,819 (41,846)
2013
Fair value
Notional amount
RUB’000
Interest rate swaps
Asset
RUB’000
29,261,543 Liability
RUB’000
75,597 (75,676)
The table below summarises, by major currencies, the contractual amounts of forward exchange contracts outstanding at 31 December
2014 and 2013 with details of the contractual exchange rates. Foreign currency amounts presented below are translated at rates ruling at the reporting date. The resultant unrealised gains and losses on these unmatured contracts are recognised in profit or loss and in financial instruments
held for trading, as appropriate.
2014
Nominal
buy amount
RUB’000
Spot foreign exchange contracts to buy British
Pounds and sell US Dollars
2013
Gain
(loss)
RUB’000
Weighted average contracted
exchange rate
Nominal buy
amount
RUB’000
Gain
(loss)
RUB’000
exchange rate
21,230 17 0.64
1,263 (1)
0.61
984 - 1.55
- - -
Spot foreign exchange contracts
to buy US Dollars and sell Euro
75,896 60 1.22
21,162,868 13,382 1.37
to buy Euro and sell US Dollars
231,024 (300)
0.82
6,437,479 (5,396)
0.73
to buy US Dollars and sell Russian Roubles
13,411,223 (137,660)
0.02
16,562,440 11,428 0.03
to buy Russian Roubles and sell US Dollars
24,198,779 417,452 57.23
53,122,031 (86,703)
32.68
to buy Euro and sell Russian Roubles
285,528 (5,447)
0.01
12,618,681 (11,071)
0.02
to buy Russian Roubles and sell Euro
3,996 103 70.11
12,142 35 45.10
to buy US Dollars and sell Swiss Francs
555 (1)
1.01
1,174 2 1.12
to buy Swiss Francs and sell US Dollars
58,418 123 0.99
1,215 (5)
0.89
to buy US Dollars and sell Swedish Crowns
3 - 0.13
- - -
to buy Swedish Crowns and sell US Dollars
11,821 (25)
7.80
425 (3)
6.47
to buy Euro and sell Swiss Francs
8,249 (25)
0.83
- - -
to buy Swiss Francs and sell Euro
210 1 1.20
- - -
to buy Japanese Yen and sell US Dollars
1,121 1 119.62
2,024 (5)
105.11
1,024 (2)
0.78
- - -
to buy US Dollars and sell Canadian Dollars
2 - 0.86
- - -
to buy Canadian Dollars and sell US Dollars
660 (1)
1.16
188 (1)
1.06
to buy US Dollars and sell British Pounds
to buy British Pounds and sell Euro
56
2014
Nominal
buy amount
RUB’000
2013
Gain
(loss)
RUB’000
exchange rate
Nominal buy
amount
RUB’000
Gain
(loss)
RUB’000
exchange rate
to buy Euro and sell Polish Zloty
81 - 0.23
- - -
to buy New Zealand Dollars and sell US Dollars
67 5 1.28
- - -
to buy Singapore Dollars and sell US Dollars
39 - 1.32
- - -
to buy Czech Crowns and sell US Dollars
35 - 22.78
243 (1)
19.89
to buy Russian Roubles and sell Swiss Francs
11 - 56.15
- - -
to buy Australian Dollars and sell US Dollars
11 - 1.23
- - -
to buy South African Rand and sell US Dollars
1 - 11.65
- - -
to buy US Dollars and sell Danish Crowns
- - -
104 - 0.18
Option contracts
21,223,481 - 41.24
- - -
Option contracts
15,558,698 - 0.02
- - -
Option contracts to buy Russian Roubles and sell Euro
20,502,810 - 47.37
161,891,640 - 47.37
Option contracts to buy Euro and sell Russian Roubles
14,210,500 - 0.02
170,526,000 - 0.02
Option contracts to buy US Dollars and sell Euro
- - -
10,118,228 - 1.38
Option contracts to buy Euro and sell US Dollars
- - -
10,154,359 - 0.73
Non-deliverable forward contracts
270,281
145,350 0.03
755,440 (18,751)
0.03
Non-deliverable forward contracts
71,448 (22,799)
38.33
911,181 3,116 32.98
Deliverable forward contracts
to buy US Dollars and sell Euro
1,837,023 83,526 1.29
1,343,839 (41,114)
1.34
to buy Euro and sell US Dollars
7,758,265 (379,854)
0.78
4,175,612 109,973 0.75
42,032,995 13,840,588 0.02
42,297,666 116,812 0.03
53,157,945 (12,496,776)
44.46
70,295,563 (213,962)
33.30
to buy Euro and sell Russian Roubles
6,488,655 1,333,902 0.02
15,150,946 212,811 0.02
to buy Russian Roubles and sell Euro
16,774,813 (2,336,657)
61.60
12,658,599 (178,002)
45.23
to buy British Pounds and sell Russian Roubles
515,244 85,791 0.01
269,471 6,928 0.02
to buy Russian Roubles and sell British Pounds
743,721 (84,816)
82.35
318,683 (6,787)
53.30
to buy Japanese Yen and sell US Dollars
1,305,253 (72,100)
112.89
670,677 (23,627)
101.61
to buy Russian Roubles and sell Japanese Yen
1,232,730 (181,548)
0.42
646,640 31,268 0.33
to buy Swiss Francs and sell Russian Roubles
77,609 18,436 0.02
106,948 116 0.03
to buy Russian Roubles and sell Swiss Francs
605,666 (38,590)
55.90
236,737 (9,661)
35.68
577,724 (12,943)
0.96
227,298 9,588 0.93
to buy Swiss Francs and sell US Dollars
57
2014
Nominal
buy amount
RUB’000
2013
Gain
(loss)
RUB’000
exchange rate
Nominal buy
amount
RUB’000
Gain
(loss)
RUB’000
exchange rate
to buy Russian Roubles and sell Chinese Yuan
265,681 3,671 9.28
- - -
to buy Chinese Yuan and sell US Dollars
264,104 117 6.24
- - -
to buy Russian Roubles and sell Swedish Crowns
370,021 (58,044)
6.30
- - -
to buy Swedish Crowns and sell Russian Roubles
34,062 9,733 0.18
- - -
to buy Swedish Crowns and sell US Dollars
330,786 (22,662)
7.27
- - -
to buy US Dollars and sell Swedish Crowns
43,779 4,967 0.14
- - -
176,063 (676)
0.64
45,244 (202)
0.60
to buy US Dollars and sell Kazakhstani Tenge
115,872 (5,484)
0.01
671,866 (5,629)
0.01
to buy Kazakhstani Tenge and sell US Dollars
11,875 (1,204)
198.50
- - -
to buy Russian Roubles and sell Kazakhstani Tenge
12,916 1,074 0.30
- - -
to buy Kazakhstani Tenge and sell Russian Roubles
88,609 18,073 4.25
671,446 553 4.70
849 51 1.65
- - -
50 - 0.10
- - -
- - -
13,590 (294)
1.10
to buy British Pounds and sell US Dollars
to buy US Dollars and sell British Pounds
to buy Euro and sell Swedish Crowns
to buy US Dollars and sell Swiss Francs
13 Loans to customers
2014
RUB’000
2013
RUB’000
Loans to legal entities
Loans to global corporations
69,864,003 60,331,114 34,321,669 12,672,870 104,185,672 73,003,984 27,184,821 25,615,714 23,305,508 20,859,012 463,862 484,603 Staff loans
124,365 90,363 Overdrafts
9,070 12,485 51,087,626 47,062,177 155,273,298 120,066,161 (2,596,151)
(1,942,798)
152,677,147 118,123,363 Loans to local corporate customers
Loans to individuals
Consumer loans
Credit cards
Mortgage loans
Gross loans to customers
Impairment allowance
58
Movements in the loan impairment allowance for the years ended 31 December 2014 and 2013 are as follows:
2014
RUB’000
2013
RUB’000
Balance at the beginning of the year
1,942,798 1,153,595 Net charge
2,640,742 1,935,422 Write-offs
(1,987,389)
(1,146,219)
2,596,151 1,942,798 Balance at the end of the year
Credit quality of loans to legal entities
The Bank reviewed its loan portfolio to legal entities and did not identify loans that have indicators of impairment as at 31 December 2014.
Global corporations are international public companies, generally with investment grade ratings, for which no defaults have occurred. Local
corporate customers are generally large-scale entities established in Russia, for which the Bank has not experienced late payments.
The following table provides information on the credit quality of loans to legal entities as at 31 December 2014:
Gross loans
RUB’000
Impairment
allowance
RUB’000
Net loans
RUB’000
Impairment to
gross loans
%
Standard loans non-impaired
69,864,003 649,735 69,214,268 0.9
34,225,548 318,298 33,907,250 0.9
96,121 894 95,227 0.9
34 321 669 319 192 34 002 477 0.9
104,185,672 968,927 103,216,745 0.9
Loans to local corporate customers
Overdue less than 30 days
Total loans to local corporate customers
Total loans to legal entities
Loans included in overdue less than 30 days were repaid in January 2015 as delay in repayment was due to technical reasons.
The following table provides information on the credit quality of loans to legal entities as at 31 December 2013:
Gross loans
RUB’000
Impairment
allowance
RUB’000
Net loans
RUB’000
Impairment to
gross loans
%
60,331,114 555,047 59,776,067 0.9
12,672,870 116,590 12,556,280 0.9
73,003,984 671,637 72,332,347 0.9
Loans to local corporate customers
Total loans to legal entities
The Bank estimates loan impairment based on its past historical loss experience on these types of loans, and assumes 0.9% collective rate
(31 December 2013: 0.9%).
Changes in these estimates could affect the loan impairment allowance. For example, to the extent that the net present value of the estimated cash flows differs by plus/minus one percent, the impairment allowance on loans to legal entities as at 31 December 2014 would be
RUB 1,032,167 thousand lower/higher (31 December 2013: RUB 723,323 thousand).
59
Analysis of movements in the impairment allowance for loans to legal entities
Movements in the loan impairment allowance for loans to legal entities for the years ended 31 December 2014 and 2013 are as follows:
Net charge
Write-offs
Balance at the end of the year
2014
RUB’000
2013
RUB’000
671,637 630,919 297,290 51,438 -
(10,720)
968,927 671,637 Credit quality of loans to individuals
The following table provides information on the credit quality of loans to individuals collectively assessed for impairment as at 31 December 2014:
Gross loans
RUB’000
Impairment
allowance
RUB’000
Net loans
RUB’000
Impairment
to gross loans
%
Consumer loans
Not overdue
25,983,529 299,821 25,683,708 1.2
712,257 80,979 631,278 11.4
Overdue 30-59 days
213,350 90,949 122,401 42.6
Overdue 60-89 days
169,307 101,678 67,629 60.1
Overdue 90-120 days
104,228 84,623 19,605 81.2
2,150 2,150 - 100.0
27,184,821 660,200 26,524,621 2.4
22,172,977 309,982 21,862,995 1.4
334,201 61,681 272,520 18.5
Overdue more than 120 days
Total consumer loans
Credit cards
Not overdue
Overdue 30-59 days
195,096 89,057 106,039 45.6
Overdue 60-89 days
178,856 100,621 78,235 56.3
Overdue 90-119 days
100,531 75,556 24,975 75.2
Overdue 120-149 days
121,230 101,223 20,007 83.5
129,674 117,782 11,892 90.8
72,943 72,943 - 100.0
23,305,508 928,845 22,376,663 4.0
427,498 4,656 422,842 1.1
36,364 26,239 10,125 72.2
463,862 30,895 432,967 6.7
Not overdue
124,365 1,354 123,011 1.1
Total staff loans
124,365 1,354 123,011 1.1
Not overdue
3,435 295 3,140 8.6
Overdue
5,635 5,635 - 100.0
Total overdrafts
9,070 5,930 3,140 65.4
51,087,626 1,627,224 49,460,402 3.2
Total credit cards
Mortgage loans
Not overdue
Overdue
Total mortgage loans
Staff loans
Overdrafts
Total loans to individuals
60
The following table provides information on the credit quality of loans to individuals collectively assessed for impairment as at 31 December 2013:
Gross loans
RUB’000
Impairment
allowance
RUB’000
Net loans
RUB’000
Impairment
to gross loans
%
Consumer loans
Not overdue
24,651,578 259,879 24,391,699 1.1
604,667 69,695 534,972 11.5
Overdue 30-59 days
162,937 83,774 79,163 51.4
Overdue 60-89 days
116,102 79,542 36,560 68.5
Overdue 90-120 days
79,487 72,529 6,958 91.2
943 943 - 100.0
25,615,714 566,362 25,049,352 2.2
19,920,998 224,292 19,696,706 1.1
356,069 51,106 304,963 14.4
Overdue 30-59 days
161,229 66,922 94,307 41.5
Overdue 60-89 days
116,624 66,177 50,447 56.7
Overdue 90-119 days
101,436 78,344 23,092 77.2
78,432 65,418 13,014 83.4
67,788 61,317 6,471 90.5
56,436 56,436 - 100.0
20,859,012 670,012 20,189,000 3.2
Not overdue
462,134 4,621 457,513 1.0
Overdue
22,469 21,074 1,395 93.8
484,603 25,695 458,908 5.3
Not overdue
90,363 1,124 89,239 1.2
Total staff loans
90,363 1,124 89,239 1.2
Not overdue
4,550 33 4,517 0.7
Overdue
7,935 7,935 - 100.0
Total consumer loans
Credit cards
Not overdue
Total credit cards
Mortgage loans
Total mortgage loans
Staff loans
Overdrafts
Total overdrafts
Total loans to individuals
12,485 7,968 4,517 63.8
47,062,177 1,271,161 45,791,016 2.7
The Bank estimates loan impairment based on its past historical loss experience on these types of loans.
The significant assumptions used in determining the impairment losses for loans to individuals include management’s assumption that loss
migration rates are constant and can be estimated based on a 12 month historic loss migration pattern, considering the current economic
environment.
Changes in these estimates could affect the loan impairment allowance. For example, to the extent that the net present value of the estimated
cash flows differs by plus/minus three percent (31 December 2013: one percent), the impairment allowance on loans to individuals as at 31 December 2014 would be RUB 1,483,812 thousand lower/higher (31 December 2013: RUB 457,910 thousand).
61
Analysis of movements in the impairment allowance for loans to individuals
Movements in the loan impairment allowance by classes of loans to individuals for the year ended 31 December 2014 are as follows:
Consumer loans
RUB’000
Credit cards
RUB’000
Mortgage loans
RUB’000
Staff loans
RUB’000
Over-drafts
RUB’000
Total
RUB’000
566,362 670,012 25,695 1,124 7,968 1,271,161 Net charge (recovery)
1,112,685 1,227,375 5,200 230 (2,038) 2,343,452 (1,018,847) (968,542) - - - (1,987,389) 660,200 928,845 30,895 1,354 5,930 1,627,224 Write-offs
Balance at the end of the year
Movements in the loan impairment allowance by classes of loans to individuals for the year ended 31 December 2013 are as follows:
Consumer loans
RUB’000
Credit cards
RUB’000
Mortgage loans
RUB’000
Staff loans
RUB’000
Over-drafts
RUB’000
Total
RUB’000
211,131 295,921 10,449 225 4,950 522,676 Balance at the beginning of the year
Net charge
948,242 916,579 15,246 899 3,018 1,883,984 Write-offs
(593,011) (542,488) - - - (1,135,499) Balance at the end of the year
566,362 670,012 25,695 1,124 7,968 1,271,161 Industry and geographical analysis of the loan portfolio
Loans to customers were issued primarily to customers located within the Russian Federation who operate in the following economic sectors:
2014
RUB’000
Manufacturing
2013
RUB’000
51,767,659 32,525,993 Individuals
51,087,626 47,062,177 Trade
34,549,234 23,677,561 Mining
6,366,346 2,854,669 Telecommunication
1,670,995 7,847,176 - 42,104 9,831,438 6,056,481 155,273,298 120,066,161 (2,596,151)
(1,942,798)
152,677,147 118,123,363 Energy
Other
Gross loans to customers
Impairment allowance
Analysis of collateral
Analysis of collateral for loans to legal entities
Loans issued to global corporations with a net carrying amount of RUB 52,627,681 thousand (31 December 2013: RUB 48,987,442 thousand)
are secured by guarantees of parent companies or other Citigroup entities. Loans to global corporations with a net carrying amount of
RUB 16,586,587 thousand (31 December 2013: RUB 10,788,625 thousand) are not secured. Loans to local corporate customers are secured by
guarantees of these customers.
Analysis of collateral for loans to individuals
Mortgage loans are secured by underlying residential property. Credit cards, overdrafts and consumer loans are not secured.
For mortgage loans with a net carrying amount of RUB 432,967 thousand (31 December 2013: RUB 458,908 thousand) management believes
that the fair value of collateral is at least equal to the carrying amount of individual loans at the reporting date.
During the year ended 31 December 2014, the Bank had obtained assets by taking possession of collateral for loans to individuals with a net carrying amount of RUB 10,548 thousand (31 December 2013: nil). Repossessed assets comprise real estate. The Bank did not sell these assets during
the year ended 31 December 2014. The Bank’s policy is to sell these assets as soon as it is practicable.
62
Loan maturities
The maturity of the loan portfolio is presented in Note 32, which shows the remaining periods from the reporting date to the contractual maturities of the loans. Due to the short-term nature of the loans issued by the Bank, it is likely that many of the loans will be prolonged at maturity.
Accordingly, the effective maturity of the loan portfolio may be significantly longer than the term based on contractual terms.
Concentration of loans to customers
As at 31 December 2014 and 2013, there were no exposure that individually comprise more than 10 percent of total loans to customers.
14 Financial instruments available-for-sale
2014
RUB’000
2013
RUB’000
Unpledged
15,791,679 7,655,690 Gazprom Eurobonds
1,270,208 1,086,560 Vneshtorgbank Eurobonds
864,285 527,693 Agency on Mortgage Crediting (AIZhK) Eurobonds
237,898 353,048 Russian Government Eurobonds
20,995 14,748 Vneshtorgbank
- 539,466 Rosselkhozbank
- 436,997 Sberbank Eurobonds
- 123,445 Rossiyskie Zheleznye Dorogi (RZhD)
- 80,281 European Bank for Reconstruction and Development
- 60,727 Moscow Region Government
- 4,632 4,410 4,410 5 5 - 25,400,819 3,915,478 4,067,550 Rosselkhozbank
2,669,976 2,945,621 Russian Government GKO/OFZ
1,955,920 1,453,758 630,727 720,974 - 1,015,510 27,361,581 46,491,934 Equity securities
National Bureau of Credit Histories
Other
Pledged under repo agreements
Pledged under overnight loans
Vnesheconombank
Agency on Mortgage Crediting (AIZhK)
European Bank for Reconstruction and Development
No financial instruments available-for-sale are impaired or past due.
63
15 Property and equipment
RUB’000
Land, buildings and leasehold
improvements
Equipment
Total
Cost
At 1 January 2014
2,675,293 2,991,898 5,667,191 Additions
80,614 102,043 182,657 Disposals
(21,779)
(396,781)
(418,560)
2,734,128 2,697,160 5,431,288 At 1 January 2014
(1,440,711)
(2,536,688)
(3,977,399)
Depreciation charge
(230,428)
(232,681)
(463,109)
17,586 378,251 395,837 (1,653,553)
(2,391,118)
(4,044,671)
1,080,575 306,042 1,386,617 At 31 December 2014
Depreciation
Disposals
At 31 December 2014
Carrying value at 31 December 2014
RUB’000
Land, buildings and leasehold
improvements
Equipment
Total
Cost
At 1 January 2013
2,597,288 3,151,172 5,748,460 Additions
78,005 99,113 177,118 Disposals
- (258,387)
(258,387)
2,675,293 2,991,898 5,667,191 (1,209,392)
(2,568,913)
(3,778,305)
(231,319)
(222,450)
(453,769)
- 254,675 254,675 At 31 December 2013
(1,440,711)
(2,536,688)
(3,977,399)
Carrying value at 31 December 2013
1,234,582 455,210 1,689,792 At 31 December 2013
Depreciation
At 1 January 2013
Depreciation charge
Disposals
16 Goodwill
Goodwill arose on the acquisition of ABN-Amro’s custody business in January of 2005.
17 Due to the Central Bank of the Russian Federation
2014
RUB’000
Amounts payable under repo agreements
64
2013
RUB’000
- 24,627,807 - 24,627,807 Financial Statements for the year ended 31 December 2014
18 Deposits and balances from banks and other financial institutions
2014
RUB’000
2013
RUB’000
Vostro accounts
18,892,895 15,575,806 Term deposits
20,746,048 24,668,055 - 388,636 39,638,943 40,632,497 Amounts payables under repo agreements
Concentration of deposits and balances from banks and other financial institutions
As at 31 December 2014 and 2013, exposures that individually comprise more than 10% of total deposits and balances from banks and other
financial institutions are as follows:
2014
RUB’000
2013
RUB’000
Citigroup
13,448,315 14,589,272 National Clearing Centre
4,538,363 - 17,986,678 14,589,272 19 Current accounts and deposits from customers
2014
RUB’000
Current accounts and demand deposits
Term deposits
2013
RUB’000
202,644,866 181,149,355 71,631,244 59,460,323 274,276,110 240,609,678 Concentration of current accounts and deposits from customers
As at 31 December 2014 and 2013, there are no current accounts and demand or term deposits from customers that individually exceed 10% of
total current accounts and deposits from customers.
20 Transfer of financial assets
Financial instruments avaliable-for-sale
2014
RUB’000
2013
RUB’000
Carrying amount of assets
- 25,400,819 Carrying amount of related liabilities
- 25,016,443 The Bank has transactions to lend securities and to sell securities under repo agreements and to purchase securities under reverse repo
agreements.
The securities lent or sold under repo agreements are transferred to a third party and the Bank receives cash in exchange. These financial assets
may be repledged or resold by counterparties in the absence of any default by the Bank, but the counterparty has an obligation to return the
securities when the contract matures. The Bank has determined that it retains substantially all the risks and rewards related to these securities
and therefore has not derecognised them. These securities are presented as “pledged under repo agreements” in Note 14. In addition, the Bank
recognises a financial liability for cash received as collateral included in deposits and balances from banks and other financial institutions and due
to the Central Bank of the Russian Federation.
These transactions are conducted under terms that are usual and customary to standard lending, and securities borrowing and lending activities,
as well as the requirements determined by exchanges where the Bank acts as intermediary.
65
21 Other liabilities
2014
RUB’000
Settlements
2013
RUB’000
3,943,887 3,592,591 910,534 1,122,992 Taxes payable
39,842 365,866 Other payables
72,366 86,711 4,966,629 5,168,160 Accrued expenses
22 Share capital
The Bank converted from a limited liability company to a closed joint-stock company in November 2001. In conjunction with this change in the legal form, the Bank issued 1,000 ordinary shares at RUB 1 million per share in exchange for the partner’s previous interest and RUB 763,950 thousand in retained earnings. In accordance with the Charter the Bank has the right to issue additional 6,000 ordinary shares at RUB 1 million per
share and 2,000 preference shares at RUB 1 million per share. At 31 December 2014, 1,000 ordinary shares remain issued and outstanding. The
Bank received additional paid in capital of RUB 1,227,310 thousand from Citigroup in 2007, however no additional shares were issued.
On 6 June 2014, according to the decision of the sole shareholder the Bank declared dividends in the amount of RUB 1,225 thousand per share
from retained earnings (31 December 2013: RUB 4,770 thousand), which in total amounts to RUB 1,225,000 thousand (31 December 2013:
RUB 4,770,000 thousand). These dividends were paid to Citigroup Netherlands B.V. on 9 June 2014.
23 Corporate governance and internal control
Corporate governance framework
The Bank operates as a closed joint stock company in accordance with the Russian law. The supreme governing body of the Bank is the General
Shareholders’ meeting that is called for annual or extraordinary meetings. The General Shareholders’ meeting makes strategic decisions on the
Bank’s operations.
The General Shareholders’ meeting elects the Board of Directors. The Board of Directors is responsible for overall governance of the
Bank’s activities.
Russian legislation and the Charter of the Bank establish lists of decisions that are exclusively approved by the General Shareholders’ meeting
and that are approved by the Board of Directors.
As at 31 December 2014, the Board of Directors includes:
>>
Luet Marc Raoul Marie – Chairman of the Board of Directors
>>
Korshilov Denis Nikolaevich
>>
Petrescu Florin
>>
Karter Emre
>>
Kosyachenko Irina
>>
Nikolaeva Natalia Yurievna
>>
Ivanova Maria Lvovna
>>
Rozhkov Viktor Sergeevich.
During the year ended 31 December 2014 the following changes occurred in composition of the Board of Directors:
From 1 January 2014 to 30 May 2014 the Board of Directors consisted of: Kurilin Andrey Igorevich (Chairman of the Board of Directors), Korshilov
Denis Nikolaevich, Ivanova Maria Lvovna, Rozhkov Viktor Sergeevich and Richard Smith. On 30 May 2014 new composition of the Board of
Directors had been elected – Luet Marc Raoul Marie (Chairman of the Board of Directors), Korshilov Denis Nikolaevich, Petrescu Florin, Karter
Emre, Kosyachenko Irina, Nikolaeva Natalia Yurievna, Ivanova Maria Lvovna, Rozhkov Viktor Sergeevich. This composition had been approved till
the next General Shareholders’ meeting.
Operating activities of the Bank are managed by the sole executive body of the Bank (the President) and collective executive body of the Bank
(the Management Board). Executive bodies of the Bank are accountable to the Board of Directors and to the General Shareholders’ meeting.
The General Shareholders’ meeting elects the President. The executive bodies of the Bank are responsible for implementation of decisions of the
General Shareholders’ meeting and the Board of Directors of the Bank.
66
As at 31 December 2014, the Management Board includes:
>>
Nikolaeva Natalia Yurievna – Acting Chairman of the Management Board
>>
Belyaev Ruslan Valerievich
>>
Korotkov Sergey Aleksandrovich
>>
Belaya Natalia Viktorovna
>>
Berner Mikhail Borisovich.
During the year ended 31 December 2014 no changes occurred in composition of the Management Board.
Internal control policies and procedures
The Board of Directors and the Management Board have responsibility for the development, implementation and maintaining of internal controls in the Bank that are commensurate with the scale and nature of operations.
The purpose of internal controls is to ensure:
>>
proper and comprehensive risk assessment and management
>>
proper business and accounting and financial reporting functions, including proper authorization, processing and recording of transactions
>>
completeness, accuracy and timeliness of accounting records, managerial information, regulatory reports, etc.
>>
reliability of IT-systems, data and systems integrity and protection
>>
prevention of fraudulent or illegal activities, including misappropriation of assets
>>
compliance with laws and regulations.
Management is responsible for identifying and assessing risks, designing controls and monitoring their effectiveness. Management monitors
the effectiveness of the Bank’s internal controls and periodically implements additional controls or modifies existing controls as considered
necessary.
The Bank developed a system of standards, policies and procedures to ensure effective operations and compliance with relevant legal and regulatory requirements, including the following areas:
>>
requirements for appropriate segregation of duties, including the independent authorization of transactions
>>
requirements for the recording, reconciliation and monitoring of transactions
>>
compliance with regulatory and other legal requirements
>>
documenting of controls and procedures
>>
requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks
identified
>>
requirements for the reporting of operational losses and proposed remedial action
>>
development of contingency plans
>>
training and professional development
>>
ethical and business standards and
>>
risk mitigation, including insurance where this is effective.
There is a hierarchy of requirements for authorization of transactions depending on their size and complexity. A significant portion of operations
are automated and the Bank put in place a system of automated controls.
The internal control system in the Bank comprises:
>>
the governing bodies of the Bank
>>
the revision commission (the controller)
>>
Chief Accountant (and her deputies) of the Bank
>>
Heads of branches (and their deputies) and chief accountants (and their deputies) of branches
>>
the Internal Audit Department is the Bank’s division acting on the basis of the Statute approved by the Board of Directors for the internal
control purposes and assistance to the governing bodies of the Bank in ensuring effective functioning of the Bank, and performing on
a constant basis review and assessment of internal control system efficiency based on the principles of independence and impartiality in
compliance with the Statute of the Internal Audit Department approved by the Board of Directors and in compliance with the internal audit
plan. The Internal Audit Department is headed by the Head of the Internal Audit Department who is elected and dismissed by the Board of
Directors. The Head of the Internal Audit Department is accountable to the Board of Directors.
>>
other employees, divisions and functions that are responsible for compliance with the established standards, policies and procedures,
including:
-- the responsible employee of the Anti-Money Laundering and Financing of Terrorism and Anti-Corruption Department performing
responsibilities in accordance with the Internal Control Rules of Anti-Money Laundering and Financing of Terrorism and Anti-Corruption
introduced by the Compliance Department and approved by the President of the Bank
>>
other divisions and (or) responsible employees of the Bank, including:
-- the professional securities market participant controller – a regular employee of the Bank satisfying the qualification requirements of
the Federal Service for Financial Markets of the Russian Federation, who is responsible for the arrangement and implementation of the
internal control over the Bank’s activity as a professional securities market participant, and acting on the basis of Instructions on Internal
Control
-- the Compliance and Control Department is the Bank’s division, acting on the basis of the Statute of the Compliance and Control
Department, and assisting the management of the Bank in performing control over compliance with the Russian and international
legislation (compliance). The Head of the Compliance and Control Department informs the President on the statement of the compliance-control in the Bank, disadvantages in the internal compliance-control system, actions on elimination of the detected disadvantages;
67
---
--
communicates with the corporate services and regulating authorities of the Russian Federation; consults and organises trainings of the
employees on compliance-control issues
the executive officer – a regular employee of the Bank responsible for the internal control implementation for the purposes of counteracting unlawful usage of insider information and market manipulation, acting on the basis of Instructions on Internal Control
the Division of Risk Management and Control over Currency Transactions of the Finance Department is a division of the Bank acting on
the basis of the Statute of the Division of Risk Management and Control over Currency Transactions approved by the Chief Financial
Officer, specializing on performing control over the compliance of the Bank’s daily transactions with the approved accounting policy and
policy of control over expenses for the purposes of correct accounting and recording, on control over the compliance with the market
risk limits and independent reconciliation of the financial results of the Bank’s transactions on financial markets, coordinating of the internal control procedures on the faithfulness of the financial statements performed by the divisions of the Bank on routine basis, including
reconciliation of the account balances and review of the terms of balances being on the off-balance accounts
the Currency Control Division of the Operational Department – a division of the Bank acting on the basis of the Statute of the Currency
Control Division approved by the Head of the Operational Department and in compliance with the legal acts imposed by the CB RF and
internal procedures, approved by the Heads of operational departments of the Bank.
In 2014 new requirements for the organisation of internal control system in credit organisations came into force. The new version of Regulations
of the CB RF dated 16 December 2003 No 242-P On the Organisation of Internal Control in Credit Organisations and Banking Groups sets out the
specific requirements for the internal audit service and the internal control service (the compliance service).
The main functions of the Internal Audit Department include the following:
>>
audit and efficiency assessment of the system of internal control as a whole, fulfillment of the decisions of key management structures
>>
audit of efficiency of methodology of assessment of banking risks and risk management procedures, regulated by internal documents in
the Bank (methods, programmes, rules and procedures for banking operations and transactions, and for the management of banking risks)
>>
audit of reliability of internal control system over automated information systems
>>
audit and testing of fairness, completeness and timeliness of accounting and reporting function and the reliability (including the trustworthiness, fullness and objectivity) of the collection and submission of financial information
>>
audit of applicable methods of safekeeping the Bank’s property
>>
assessment of economic reasonability and efficiency of operations and other deals
>>
audit of internal control processes and procedures
>>
audit of the Compliance and Control Department and the Risk Department.
Internal control service conducts compliance activities focused primarily on regulatory risks faced by the Bank.
The main functions of the Compliance and Control Department include the following:
>>
identification of compliance risks and regulatory risks
>>
monitoring of events related to regulatory risk, including probability of occurrence and quantitative assessment of its’ consequences
>>
monitoring of regulatory risk
>>
preparation of recommendations on regulatory risk management
>>
coordination and participation of design of measures to decrease regulatory risk
>>
monitoring of efficiency of regulatory risk management
>>
participation in preparation of internal documents on regulatory risk management, anti-corruption, compliance with corporate behaviour
rules, code of professional ethics and minimisation of conflicts of interest
>>
analysis of dynamics of clients’ complaints
>>
analysis of economic reasonableness of agreements with suppliers
>>
participation in interaction with authorities, self-organised organisations, associations and financial market participants.
Russian legislation, including Federal Law dated 2 December 1990 No. 395-1 On Banks and Banking Activity, Direction of the CB RF dated 1 April
2014 No 3223-U On Requirement to the Head of the Risk Management Service, the Head of the Internal Control Service, the Head of the Internal
Audit Service of the Credit Organisation establish the professional qualifications, business reputation and other requirements for members of the
Board of Directors, the Management Board, Heads of the Internal Audit Department, the Compliance and Control Department and the Risk Department and other key management personnel. All members of the Bank’s governing and management bodies meet with these requirements.
Management believes that the Bank complies with the CB RF requirements related to risk management and internal control systems, including
requirements related to the Internal Audit Department, the Compliance and Control Department, and that risk management and internal control
systems are appropriate for the scale, nature and complexity of operations.
24 Risk management
Management of risk is fundamental to the business of banking and is an essential element of the Bank’s operations. The major (significant) risks
faced by the Bank are those related to market risk, credit risk, liquidity risk, and operational, legal and reputational risks.
Risk management policies and procedures
The risk management policies aim to identify, analyse and manage the risks faced and to set appropriate risk limits and controls, and to continuously monitor risk levels and adherence to limits. Risk management policies and procedures are reviewed regularly to reflect changes in market
conditions, products and services offered and emerging best practice. The Bank has developed a system of reporting on significant risks and
capital.
68
As at 31 December 2014, the Bank’s internal documentation establishing the procedures and methodologies for identification, managing and
stress-testing the Bank’s significant risks, was approved by the authorized management bodies of the Bank in accordance with regulations and
recommendations issued by the CB RF.
The Board of Directors has overall responsibility for the oversight of the risk management framework, overseeing the management of key risks
and reviewing its risk management policies and procedures as well as approving significantly large exposures.
The Management Board is responsible for monitoring and implementation of risk mitigation measures and making sure that the Bank operates
within the established risk parameters. The Head of the Risk Department is responsible for the overall risk management and compliance functions, ensuring the implementation of common principles and methods for identifying, measuring, managing and reporting both financial and
non-financial risks. He reports directly to the President and indirectly to the Board of Directors. The Risk Department is not subordinate to, and
does not report to, divisions accepting relevant risks.
The Board of Directors and management bodies of the Bank have responsibility for controlling the Bank’s compliance with risk limits and capital
adequacy ratios as established by the Bank’s internal documentation. With the view of controlling effectiveness of the Bank’s risk management
procedures and their consistent application the Board of Directors and management bodies of the Bank periodically receive reports prepared by
the Internal Audit Department and the Risk Department, discuss the contents of these reports and consider proposed corrective actions.
Credit, market and liquidity risks both at the portfolio and transactional levels are managed and controlled through a system of Credit Committees and an Asset and Liability Management Committee (ALCO). In order to facilitate efficient and effective decision-making, the Bank has
established a hierarchy of Credit Committees depending on the type and amount of the exposure.
Both external and internal risk factors are identified and managed throughout the organisation. Particular attention is given to identifying the full
range of risk factors and determination of the level of assurance over the current risk mitigation procedures. Apart from the standard credit and
market risk analysis, the Risk Department monitors financial and non-financial risks by holding regular meetings with operational units in order to
obtain expert judgments in their areas of expertise.
In compliance with the Bank’s internal documentation the Risk Department and Internal Audit Department frequently prepare reports, which
cover the Bank’s significant risks management. The reports include observations as to assessment of the effectiveness of the Bank’s procedures
and methodologies, and recommendations for improvement.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market
risk comprises currency risk, interest rate risk and other price risks. Market risk arises from open positions in interest rate, currency and equity
financial instruments, which are exposed to general and specific market movements and changes in the level of volatility of market prices.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimizing the
return on risk.
Overall authority for market risk is vested in the ALCO, which is chaired by the President. Market risk limits are approved based on recommendations of the Risk Department’s Market Risk Management Division.
The Bank manages its market risk by setting open position limits in relation to financial instruments, interest rate maturity and currency positions
and stop-loss limits. They are monitored and reassessed on a regular basis.
The Bank monitors market risks by modelling the result of a fixed change in the monitored market factor while keeping other factors constant.
The potential change in the portfolio value is then defined depending on the current sensitivity of the opened position to the changes in the
market factors.
In addition, the Bank uses a wide range of stress tests to model the financial impact of a variety of exceptional market scenarios on individual
trading portfolios and the overall position. Stress tests provide an indication of the potential size of losses that could arise in extreme conditions.
The stress tests carried out by the Bank include risk factor stress testing, where stress movements are applied to each risk category and ad hoc
stress testing, which includes applying possible stress events to specific positions.
The Bank also utilizes Value-at-Risk (VAR) methodology to monitor market risk of its trading positions. The Bank does not solely rely on its VAR
calculations in its market risk measurement due to inherent risk of usage of VAR. The limitations of the VAR methodology are recognised by
supplementing VAR limits with other position and sensitivity limit structures, including limits to address potential concentration risks within each
trading portfolio, and gap analysis.
Interest rate risk
The Bank is exposed to interest rate risk as its interest bearing assets and liabilities have different maturity dates, periods of interest rate changes
and volumes during these periods. For variable interest rates, the Bank is exposed to a basis risk due to the different mechanisms of setting
different interest rates, such as Libor or MosPrime. The interest rate risk management activities are aimed at optimising net interest income in
accordance with the Bank’s strategy.
The Bank holds trading positions in various financial instruments. The majority of business activities are conducted based on the requirements
of customers. In accordance with the estimated demand from customers, the Bank holds a supply of financial instruments and maintains access
69
to the financial markets through the quoting of bid and ask prices and by trading with other market makers. These positions are also held for the
purpose of speculation on the expected future developments of financial markets. The speculative expectation and market making thus aims to
maximize net income from trading.
An analysis of sensitivity of profit or loss and equity (net of taxes) as a result of changes in the fair value of financial instruments as at 31 December 2014 and 2013 due to changes in the interest rates based on a simplified scenario of a 200 basis point (31 December 2013: 100 basis point)
(bp) symmetrical fall or rise in all yield curves is as follows:
2014
200 (100) bp parallel increase
200 (100) bp parallel decrease
2013
Profit or loss
RUB’000
Equity
RUB’000
Profit or loss
RUB’000
Equity
RUB’000
(267,675)
(1,853,473)
(892,765)
(2,334,659)
267,675 1,853,473 892,765 2,334,659 An analysis of sensitivity of profit or loss and equity (net of taxes) to changes in interest rate repricing risk based on a simplified scenario of
a 200 basis point (31 December 2013: 100 basis point) (bp) symmetrical fall or rise in all yield curves and positions of all interest bearing assets
and liabilities existing as at 31 December 2014 and 2013 is as follows:
2014
200 (100) bp parallel increase
200 (100) bp parallel decrease
2013
Profit or loss
RUB’000
Equity
RUB’000
Profit or loss
RUB’000
Equity
RUB’000
(1,523,841)
(1,523,841)
(811,271)
(811,271)
1,523,841 1,523,841 811,271 811,271 Currency risk
The Bank has assets and liabilities denominated in several foreign currencies. Foreign currency risk arises when the actual or forecasted assets in
a foreign currency are either greater or less than the liabilities in that currency. For further information on the exposure to currency risk at year
end refer to Note 33.
The measurement of the currency risk is based on the currency exposure in the individual currencies. The currency exposure calculated for
individual currencies is subject to the simulation of a standardised change in the currency rate in comparison with the functional currency (appreciation of the currency monitored), and the value of the currency exposure at the new level of the currency rate is calculated. The difference
between the calculated values represents the potential change in the value of the portfolio in a particular currency and is compared with the
limit. The limits are usually symmetrical, i.e. limiting the maximum long and short position to the same extent.
A more comprehensive approach is provided by the calculation of VAR. The Bank also carries out stress testing of the currency risk while adhering to the same methodology, but the fixed movement in exchange rates is replaced with the movement in currency rates defined for stress
testing purposes.
The Bank sets currency risk limits based on its net currency exposure in individual currencies and with respect to the total currency exposure.
An analysis of sensitivity of profit or loss and equity (net of taxes) to changes in the foreign currency exchange rates based on positions existing
as at 31 December 2014 and 2013 and a simplified scenario of a 20% (31 December 2013: 10%) change in USD and other currencies to RUB exchange rates is as follows:
2014
2013
Profit or loss
RUB’000
Equity
RUB’000
Profit or loss
RUB’000
Equity
RUB’000
20% (10%) appreciation of USD against RUB
(280,982)
(280,982)
122,016 122,016 20% (10%) depreciation of USD against RUB
280,982 280,982 (122,016)
(122,016)
20% (10%) appreciation of other currencies against RUB
(770,754)
(770,754)
767,940 767,940 20% (10%) depreciation of other currencies against RUB
770,754 770,754 (767,940)
(767,940)
Credit risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
The Bank has developed policies and procedures for the management of credit exposures (both for recognised financial assets and unrecognised contractual commitments), including guidelines to limit portfolio concentration and the establishment of Credit Committees, which
actively monitor credit risk. The credit policy is reviewed and approved by the Management Board.
70
The credit policy establishes:
>>
procedures for review and approval of loan applications
>>
methodology for the credit assessment of borrowers (legal entities and individuals)
>>
methodology for the credit assessment of counterparties, issuers and insurance companies
>>
methodology for the evaluation of collateral
>>
credit documentation requirements
>>
procedures for the ongoing monitoring of loans and other credit exposures.
Corporate loan applications are originated by the relevant client managers and are then passed on to the Loan Department, which is responsible for the corporate loan portfolio. Analysts reports are based on a structured analysis focusing on the customer’s business and financial
performance. The loan application and the report are then independently reviewed by the Risk Department’s Credit Risk Management Division
and a second opinion is given accompanied by a verification that credit policy requirements are met. The Credit Committee reviews the loan
application on the basis of submissions by the Loan Department and the Risk Department. Individual transactions are also reviewed by the Legal,
Accounting and Tax departments depending on the specific risks and pending final approval of the Credit Committee.
The Bank continuously monitors the performance of individual credit exposures and regularly reassesses the creditworthiness of its borrowers. The review is based on the customer’s most recent financial statements and other information submitted by the borrower, or otherwise
obtained by the Bank.
Retail loan applications are reviewed by the Retail Lending Division through the use of scoring models and application data verification procedures developed together with the Risk Department.
Apart from individual customer analysis, the whole credit portfolio is assessed by the Risk Department with regard to credit concentration and
market risks.
The maximum exposure to credit risk is generally reflected in the carrying amounts of financial assets in the statement of financial position and
unrecognised contractual commitment amounts. The impact of possible netting of assets and liabilities to reduce potential credit exposure is not
significant.
The maximum exposure to credit risk from financial assets at the reporting date is as follows:
2014
RUB’000
2013
RUB’000
ASSETS
Cash equivalents
53,146,946 26,820,369 Loans and deposits with banks and other financial institutions
117,292,716 138,510,589 Financial instruments held for trading
26,778,036 26,569,658 Loans to customers
152,677,147 118,123,363 Financial instruments available-for-sale
27,357,166 46,487,519 Other financial assets
2,660,766 1,423,158 379,912,777 357,934,656 Total maximum exposure
The maximum exposure to credit risk from unrecognised contractual commitments at the reporting date is presented in Note 25.
The Bank monitors concentrations of credit risk by industry/sector and by geographic location. For the analysis of concentration of credit risk in
respect of loans to customers refer to Note 13.
As at 31 December 2014, the Bank has no debt securities, credit risk exposure to which individually exceeds 10% of maximum credit risk
exposure. As at 31 December 2013, the Bank had debt securities issued by the Government of the Russian Federation, credit risk exposure to
whom exceeded 10% of maximum credit risk exposure. The credit risk exposure for these financial instruments as at 31 December 2013 is
RUB 59,368,701 thousand.
In accordance with the requirements of the CB RF, the Bank also calculates on a daily basis mandatory maximum risk exposure ratio per
borrower or group of related borrowers (N6), which regulates (mitigates) the Bank’s credit risk in respect of a borrower or group of related
borrowers and sets the maximum ratio of the total liabilities of a borrower (borrowers within a group of related borrowers) owed to the Bank, to
the Bank’s own funds (capital). As at 1 January 2015 and 2014, the maximum level of N6 ratio set by the CB RF was 25%. The N6 ratio calculated
by the Bank as at 1 January 2015 was 19.4% (1 January 2014: 21.8%) and was in compliance with limits set by the CB RF.
Offsetting financial assets and financial liabilities
The disclosures set out in the tables below include financial assets and financial liabilities that:
>>
are offset in the Bank’s statement of financial position or
>>
are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments, irrespective of
whether they are offset in the statement of financial position.
71
Similar agreements include derivative clearing agreements, global master repo agreements and global master securities lending agreements.
Similar financial instruments include derivatives, repo agreements, and reverse repo agreements, and securities borrowing and lending
agreements.
The Bank’s derivative transactions that are not transacted on an exchange are entered into under International Derivative Swaps and Dealers
Association (ISDA) Master Netting Agreements. In general, under such agreements the amounts owed by each counterparty that are due on
a single day in respect of transactions outstanding in the same currency under the agreement are aggregated into a single net amount payable
by one party to the other. In certain circumstances, for example when a credit event such as a default occurs, all outstanding transactions under
the agreement are terminated, the termination value is assessed, and only a single net amount is due or payable in settlement transactions.
Repo, reverse repo transactions, and securities borrowings and lendings are covered by master agreements with netting terms similar to those
of ISDA Master Netting Agreements.
The above ISDA and similar master netting arrangements do not meet the offsetting criteria in the statement of financial position. This is because they create a right of set-off of recognised amounts that is enforceable only following an event of default, insolvency or bankruptcy of the
Bank or the counterparties. In addition, the Bank and its counterparties do not intend to settle on a net basis or to realise the assets and settle the
liabilities simultaneously.
The Bank receives and accepts collateral in the form of marketable securities in respect of repo, and reverse sale and repo agreements.
Such collateral is subject to the standard industry terms of the ISDA Credit Support Annex. This means that securities received/given as collateral
can be pledged or sold during the term of the transaction, but must be returned on maturity of the transaction. The terms also give each counterparty the right to terminate the related transactions upon the counterparty’s failure to post collateral.
The tables below show financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar arrangements as at 31 December 2014 and 2013:
Gross amounts
of recognised
financial asset/
liability
RUB’000
Gross amount
of recognised
financial liability/
asset offset in
the statement of
financial position
RUB’000
Net amount of
financial assets/liabilities presented
in the statement
of financial
position
RUB’000
Financial
instruments
RUB’000
Cash collateral
received
RUB’000
Net amount
RUB’000
Derivative financial instruments - assets
12,794,203
-
12,794,203
8,720,340
-
4,073,863
Total financial assets
12,794,203
-
12,794,203
8,720,340
-
4,073,863
Derivative financial instruments - liabilities
18,792,504
-
18,792,504
8,720,340
-
10,072,164
Total financial liabilities
18,792,504
-
18,792,504
8,720,340
-
10,072,164
Gross amounts
of recognised
financial asset/
liability
RUB’000
Gross amount
of recognised
financial liability/
asset offset in
the statement of
financial position
RUB’000
Net amount of
financial assets/liabilities presented
in the statement
of financial
position
RUB’000
Financial
instruments
RUB’000
Cash collateral
received
RUB’000
Net amount
RUB’000
Reverse repo agreements
11,020,115
-
11,020,115
11,020,115
-
-
Derivative financial instruments - assets
1,581,753
-
1,581,753
1,581,753
-
-
Total financial assets
12,601,868
-
12,601,868
12,601,868
-
-
Repo agreements
25,016,443
-
25,016,443
25,016,443
-
-
1,667,035
-
1,667,035
1,581,753
-
85,282
26,683,478
-
26,683,478
26,598,196
-
85,282
2014
Types of financial assets/liabilities
2013
Types of financial assets/liabilities
Derivative financial instruments - liabilities
Total financial liabilities
Related amounts subject
to offset under specific conditions
Related amounts subject
to offset under specific conditions
Liquidity risk
Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset. Liquidity risk exists when the maturities of assets and liabilities do not match. The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to liquidity management. It is unusual for financial
institutions ever to be completely matched since business transacted is often of an uncertain term and of different types. An unmatched position
potentially enhances profitability, but can also increase the risk of losses.
The Bank maintains liquidity management with the objective of ensuring that funds will be available at all times to honor all cash flow obligations
as they become due. The liquidity policy is reviewed and approved by the Management Board.
72
The Bank seeks to actively support a diversified and stable funding base comprising long-term and short-term loans from other Citigroup entities,
core corporate and retail customer deposits, accompanied by diversified portfolios of highly liquid assets, in order to be able to respond quickly
and smoothly to unforeseen liquidity requirements.
The liquidity management policy requires:
>>
projecting cash flows by major currencies and considering the level of liquid assets necessary in relation thereto
>>
maintaining a diverse range of funding sources
>>
managing the concentration and profile of debts
>>
maintaining debt financing plans
>>
maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any interruption to cash flow
>>
maintaining liquidity and funding contingency plans
>>
monitoring liquidity ratios against regulatory requirements.
The Bank monitors daily its liquidity position. Liquidity reports covering the liquidity position of the Bank along with the stress testing simulations
are regularly presented to the ALCO.
The Bank also calculates mandatory liquidity ratios on a daily basis in accordance with the requirements of the CB RF. As at 1 January 2015 and
2014, the Bank is in compliance with these ratios.
The following table shows the mandatory liquidity ratios calculated as at 1 January 2015 and 2014.
Rapid liquidity ratio (Н2)
Current liquidity ratio (Н3)
Non-current liquidity ratio (Н4)
Requirement
1 January 2015,
%
1 January 2014,
%
Not less than 15%
51.6
47.4
Not less than 50%
93.1
80.1
Not greater than 120%
28.6
21.0
The following tables show the undiscounted cash flows from financial liabilities and credit related commitments on the basis of their earliest
possible contractual maturity. The total gross inflow and outflow disclosed in the tables is the contractual, undiscounted cash flow on the financial
liability or commitment. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in
which the guarantee can be called. These expected cash flows can vary significantly from the actual future cash flows.
The liquidity position as at 31 December 2014 is as follows:
RUB’000
Less than 1 month
1 to 3 months
3 to 6 months
6 months to 1 year
More than 1 year
Total gross outflow (inflow)
Carrying amount
Non-derivative liabilities
Deposits and balances
from banks and other
financial institutions
39,407,137 290,898 435 11,401 - 39,709,871 39,638,943 263,458,022 5,229,803 4,743,281 1,446,660 73,700 274,951,466 274,276,110 4,654,418 241,386 52,892 8,320 9,613 4,966,629 4,966,629 (80,166,858)
(60,959,638)
(14,249,057)
(12,056,760)
(5,969,160)
(173,401,473)
(19,811,486)
78,044,260 61,616,437 15,577,920 14,847,742 5,671,757 175,758,116 19,706,086 Total liabilities
305,396,979 6,418,886 6,125,471 4,257,363 (214,090)
321,984,609 318,776,282 Credit related
commitments
98,935,994 - - - - 98,935,994 98,935,994 Current accounts
and deposits from
customers
Other liabilities
Derivatives
- Inflow
- Outflow
73
The liquidity position as at 31 December 2013 is as follows:
RUB’000
Less than 1 month
1 to 3 months
3 to 6 months
6 months to 1 year
More than 1 year
Total gross outflow (inflow)
Carrying amount
Non-derivative liabilities
Due to the Central
Bank of the Russian
Federation
24,627,807 - - - - 24,627,807 24,627,807 Deposits and balances
from banks and other
40,265,350 130,968 84,339 229,655 - 40,710,312 40,632,497 242,350,264 2,609,964 808,202 758,282 222,500 246,749,212 240,609,678 4,386,599 560,667 220,894 - - 5,168,160 5,168,160 (160,099,262)
(32,431,496)
(23,823,334)
(23,533,700)
(20,844,484)
(260,732,276)
(1,581,753)
160,141,242 32,467,234 23,761,203 23,441,355 21,086,902 260,897,936 1,667,035 Total liabilities
311,672,000 3,337,337 1,051,304 895,592 464,918 317,421,151 311,123,424 Credit related
commitments
91,084,557 - - - - 91,084,557 91,084,557 Current accounts
and deposits from
customers
Other liabilities
Derivatives
- Inflow
- Outflow
For further information on the exposure to liquidity risk at year end refer to Note 32.
25 Credit related commitments
Guarantees and letters of credit
The Bank issues guarantees and letters of credit on behalf of its customers. These instruments bear a credit risk similar to that of loans granted.
The amounts outstanding based on the contractual maturity of the instruments are as follows:
2014
RUB’000
2013
RUB’000
Guarantees issued maturing in:
2014
- 11,508,853 2015
20,896,307 1,682,954 2016
2,396,091 772,861 2017
191,812 52,267 2018
366,281 90,460 2019
66,679 - 2020
256,079 38,424 3,938 2,291 24,177,187 14,148,110 2014
- 495,441 2015
146,063 132,553 146,063 627,994 2021
Letters of credit issued maturing in:
The contractual maturity of the above instruments is the latest date that the Bank may be called to honour its obligation under the instrument.
Undrawn loan commitments
The Bank has outstanding credit related commitments to extend loans. These credit related commitments take the form of approved loans and
credit card limits and overdraft facilities.
74
At 31 December 2014, the Bank had the following undrawn loan commitments:
RUB’000
Overdrafts
Credit cards
Unused credit lines
Loans to
individuals
Loans to legal
entities
Total
59,639 13,003,790 13,063,429 51,529,076 3,806 51,532,882 - 10,016,433 10,016,433 51,588,715 23,024,029 74,612,744 At 31 December 2013, the Bank had the following undrawn loan commitments:
RUB’000
Overdrafts
Credit cards
Unused credit lines
Loans to
individuals
68,051 Loans to legal
entities
Total
9,938,954 10,007,005 52,465,251 1,632,215 54,097,466 220 12,203,762 12,203,982 52,533,522 23,774,931 76,308,453 The Bank applies the same credit risk management policies and procedures when granting credit commitments, financial guarantees and letters
of credit as it does for granting loans to customers.
The contractual amounts of credit related commitments are set out in the above table by category. The amounts reflected in the table for credit
related commitments assume that amounts are fully advanced. The amounts reflected in the table for guarantees and letters of credit represent
the maximum accounting loss that would be recognised at the reporting date if the counterparties failed completely to perform as contracted.
The total outstanding contractual credit related commitments above do not necessarily represent future cash requirements, as these credit
related commitments may expire or terminate without being funded. The majority of loan and credit line commitments do not represent an
unconditional credit related commitment by the Bank.
Based on management’s estimate, no provisions are required against guarantees and letters of credit issued by the Bank.
26 Operating leases
Leases as lessee
Future lease payments (net of VAT and operating costs) under operating leases in effect at 31 December 2014 and 2013 are detailed below:
Less than 1 year
Between 1 and 5 years
More than 5 years
2014
RUB’000
2013
RUB’000
1,539,614 1,265,515 5,484,626 4,982,472 2,447,341 2,557,506 9,471,581 8,805,493
During 2014 RUB 1,379,159 thousand is recognised as an expense in profit or loss in respect of operating leases (31 December 2013:
RUB 1,174,929 thousand).
27 Contingencies
Taxation contingencies
The taxation system in the Russian Federation is relatively new and is characterised by frequent changes in legislation, official pronouncements
and court decisions, which are often unclear, contradictory and subject to varying interpretation by different tax authorities. Taxes are subject
to review and investigation by a number of authorities who have the authority to impose severe fines, penalties and interest charges. A tax year
remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year
may remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive position in
their interpretation and enforcement of tax legislation.
75
These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries. Management
believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation, official pronouncements
and court decisions. However, the interpretations of the relevant authorities could differ and the effect on the financial position, if the authorities
were successful in enforcing their interpretations, could be significant.
Starting from 1 January 2012 new transfer pricing rules came into force in Russia. These provide the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controllable transactions if their prices deviate from the market range or
profitability range. According to the provisions of transfer pricing rules, the taxpayer should sequentially apply five market price determination
methods prescribed by the Tax Code.
Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the evolution of the
interpretation of transfer pricing rules in the Russian Federation and changes in the approach of the Russian tax authorities, that such transfer
prices could be challenged. Since the current Russian transfer pricing rules became effective relatively recently, the impact of any such challenge
cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Bank.
Insurance
The insurance industry in the Russian Federation is in a developing state and many forms of insurance protection common in other parts of the
world are not yet generally available. The Bank does not have full coverage for its premises and equipment, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Bank’s property or relating to operations. Until the Bank obtains
adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on operations and
financial position.
Litigation
In the ordinary course of business, the Bank is subject to legal actions and complaints. Management believes that the ultimate liability, if any,
arising from such actions or complaints, will not have a material adverse effect on the financial condition or the results of future operations of
the Bank.
28 Related party transactions
Control relationships
The Bank’s parent is Citigroup Netherlands B.V., headquartered in Netherlands.
The party with ultimate control over the Bank is Citigroup Inc., which produces publicly available financial statements.
Transactions with directors and executive officers
All remuneration is in the form of short term employee benefits. The total remuneration of directors and executive officers was
RUB 248,239 thousand and RUB 185,578 thousand for the years ended 31 December 2014 and 2013, respectively.
Loans to directors and executive officers totalled RUB 40,146 thousand and RUB 46,619 thousand at 31 December 2014 and 2013, respectively.
The average effective interest rates for these loans were 8.3% and 8.2% at 31 December 2014 and 2013, respectively.
Transactions with other Citigroup entities
The following balances and average effective interest rates were outstanding with other Citigroup entities at 31 December 2014 and 2013:
2014
Carrying amount
RUB’000
Nostro accounts in banks and other financial institutions
2013
Average effective
interest rate
Carrying amount
RUB’000
Average effective
interest rate
22,602,045 -
4,681,731 -
32,868,761 0.37%
76,222,535 0.07%
Financial assets held for trading – derivatives
10,487,012 -
818,996 -
942 -
2,781 -
Deposits and balances from banks and other financial institutions
13,448,315 4.63%
14,589,272 3.84%
Financial liabilities held for trading – derivatives
14,902,513 -
1,144,323 -
5,373 -
2,037 -
Other assets
Other liabilities
76
Amounts included in profit or loss for the years ended 31 December 2014 and 2013 in relation to transactions with other Citigroup entities are as
follows:
2014
RUB’000
Interest income
Interest expense
Net loss from foreign exchange contracts
Fee and commission expense
Other income
General administrative expenses
110,552 2013
RUB’000
152,412 (155,565)
(198,288)
(8,023,728)
(2,639,598)
101,062 164,073 (100,612)
(549,618)
290,391 230,655 (3,186,720)
(2,509,058)
2014
RUB’000
2013
RUB’000
Amounts of guarantees issued to other Citigroup entities as at 31 December 2014 and 2013 are as follows:
Guarantees issued to other Citigroup entities
4,373,035 3,839,445 Amounts of guarantees received from other Citigroup entities as at 31 December 2014 and 2013 are as follows:
2014
RUB’000
Guarantees received from other Citigroup entities for corporate loans issued and undrawn facilities
95,017,715 2013
RUB’000
90,247,561 29 Financial assets and liabilities: fair value and accounting classifications
Accounting classifications and fair value
The estimates of fair value are intended to approximate 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. However, given the uncertainties and the use of subjective judgment, the fair
value should not be interpreted as being realisable in an immediate sale of the assets or transfer of liabilities.
Fair values of financial instruments held for trading and financial instruments available-for-sale are based on quoted market prices or dealer
price quotations at the reporting date without any deduction for transaction costs.
If there are no available quoted market prices, fair value is determined by cash flow discounting and other methods, used by market participants.
The objective of valuation techniques is to arrive at a fair value determination that reflects the price that would be received to sell the asset, or
paid to transfer the liability in an orderly transaction between market participants at the measurement date.
As a result of performed assessment as at 31 December 2014 and 2013, management concluded that the fair value of all short-term financial
assets and liabilities approximates their carrying amount.
Fair value hierarchy
The Bank measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the
measurements:
>>
Level 1: quoted market price (unadjusted) in an active market for an identical instrument.
>>
Level 2: inputs other than quotes prices included within Level 1 that are observable either directly (i.e., as prices) or indirectly (i.e., derived
from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices
for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly
or indirectly observable from market data.
>>
Level 3: inputs that are unobservable. This category includes all instruments where the valuation technique includes inputs not based on
observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments
that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
The tables below analyse financial instruments measured at fair value as at 31 December 2014 and 2013, by the level in the fair value hierarchy
into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position:
77
2014
Financial instruments held for trading - assets
Financial instruments held for trading - liabilities
Level 1
Level 2
Market quotes
RUB’000
Valuation techniques based on market observable inputs RUB’000
Total
RUB’000
6,966,550 19,811,486 26,778,036 - 19,706,086 19,706,086 27,357,166 - 27,357,166 2013
Financial instruments held for trading - assets
Financial instruments held for trading - liabilities
Level 1
Level 2
Market quotes
RUB’000
Valuation techniques based on market observable inputs RUB’000
Total
RUB’000
24,987,905 1,581,753 26,569,658 - 1,667,035 1,667,035 46,487,519 - 46,487,519 The fair value of unquoted equity securities available-for-sale with a carrying value of RUB 4,415 thousand as at 31 December 2014 (31 December
2013: RUB 4,415 thousand) cannot be determined.
The tables below show analysis of the fair value of financial instruments not measured at fair value as at 31 December 2014 and 2013 by the level
in the fair value hierarchy:
2014
Level 2
RUB’000
Loans to customers
Level 3
RUB’000
Total fair value
RUB’000
Total carrying
amount
RUB’000
-
149,347,517 149,347,517 152,677,147 273,376,779 -
273,376,779 274,276,110 Total carrying
amount
RUB’000
2013
Loans to customers
Level 2
RUB’000
Level 3
RUB’000
Total fair value
RUB’000
-
117,657,045
117,657,045
118,123,363 240,620,071
-
240,620,071
240,609,678 30 Capital management
The CB RF sets and monitors capital requirements for the Bank.
The Bank defines as capital those items defined by statutory regulation as capital for credit institutions. Starting from 1 January 2014 the Bank
calculates the amount of capital and capital adequacy ratios for prudential purposes in accordance with Provision of the CB RF dated 28 December 2012 No 395-P On Methodology of Calculation of Own Funds (Capital) of the Credit Organisations (Basel III), so comparative numbers are not
presented. As at 1 January 2015 minimum levels of basic capital ratio (ratio N1.1), main capital ratio (ratio N1.2), own funds (capital) ratio (ratio N1.0)
are 5.0%, 5.5% and 10.0%, accordingly. Starting from 1 January 2015 minimum level of ratio N1.2 is 6.0%.
The Bank maintains capital adequacy at the level appropriate to the nature and volume of its operations.
The Bank provides the territorial CB RF that supervises the Bank with information on mandatory ratios in accordance with set form. The Bank
controls on a daily basis compliance with capital adequacy ratios.
In case values of capital adequacy ratios become close to limits set by the CB RF and Bank’s internal policy this information is communicated to
the Management Board and the Board of Directors. The Bank is in compliance with the statutory capital ratios as at 1 January 2015 and 2014.
The calculation of capital adequacy based on requirements set by the CB RF as at 1 January 2015 is as follows:
78
1 January 2015
RUB’000
Base capital
52,467,544 Main capital
52,467,544 Own funds (capital)
52,467,544 Risk-weighted assets
355,120,316 Ratio N1.1 (%)
14.8 Ratio N1.2 (%)
14.8 Ratio N1.0 (%)
14.8 In 2013 the Bank had to maintain statutory capital ratio (N1) above the minimum level of 10% in accordance with Provision of the CB RF dated
10 February 2003 No 215-P On Methodology of Calculation of Own Funds (Capital) of the Credit Organisations. As at 1 January 2014, it was equal
to 17.1%.
31 Average effective interest rates
The table below displays average effective interest rates for interest bearing assets and liabilities as at 31 December 2014 and 2013. These interest
rates are an approximation of the yields to maturity of these assets and liabilities.
2014
Average effective interest rate
2013
RUB
USD
Other currencies
RUB
USD
Other currencies
Loans and deposits with banks
and other financial institutions and
amounts receivable under reverse
repo agreements
16.3%
1.1%
-
5.7%
0.2%
3.0%
6.6%
10.3%
-
6.8%
7.7%
-
Loans to customers
19.6%
2.3%
2.4%
13.5%
1.9%
1.7%
7.1%
6.0%
4.1%
7.3%
5.8%
4.5%
-
-
-
5.4%
-
-
9.8%
-
-
4.3%
0.1%
-
- C
urrent accounts and demand
deposits
0.5%
0.1%
0.1%
0.8%
0.3%
0.3%
- Term deposits
13.7%
0.5%
0.3%
5.1%
0.3%
0.4%
Interest bearing assets
Interest bearing liabilities
Due to the Central Bank of the Russian
Federation
Deposits from banks and other financial insitutions and amounts payable
under repo agreements
Current accounts and deposits from
customers
79
32 Maturity analysis
The following table shows all assets and liabilities as at 31 December 2014 by their remaining contractual maturities with the exception of securities included in financial instruments held for trading and financial instruments available-for-sale except equity instruments. Such securities
are shown in the category “Less than 1 month” as management believes they are liquid assets which can be sold quickly in response to liquidity
needs, if necessary.
RUB’000
Less than 1 month
1 to 3 months
3 to 6 months
6 months to 1 year
More than 1 year
No maturity
Total
Assets
65,556,958 - - - - - 65,556,958 - - - - - 2,998,029 2,998,029 Loans and deposits with banks
and other financial institutions
102,574,782 7,041,703 875,316 3,501,654 3,299,261 - 117,292,716 Financial instruments held for
trading
10,731,706 10,620,326 777,616 3,394,628 1,253,760 - 26,778,036 Loans to customers
74,087,333 25,359,136 3,095,082 13,122,169 37,013,427 - 152,677,147 Financial instruments
available-for-sale
27,357,166 - - - - 4,415 27,361,581 Other assets
2,660,198 925,680 201,091 10,790 16,315 10,548 3,824,622 Property and equipment
- - - - - 1,386,617 1,386,617 Goodwill
- - - - - 199,779 199,779 - - - - - 210,783 210,783 282,968,143 43,946,845 4,949,105 20,029,241 41,582,763 Obligatory reserves with the
Central Bank of the Russian
Federation
Deferred tax asset
Total assets
4,810,171 398,286,268 Liabilities
Financial instruments held for
trading
1,656,990 11,023,757 2,195,491 3,973,955 855,893 - 19,706,086 Deposits and balances from
banks and other financial
institutions
39,340,644 287,155 - 11,144 - - 39,638,943 Current accounts and deposits
from customers
263,170,641 5,156,709 4,550,923 1,332,627 65,210 - 274,276,110 Other liabilities
4,654,418 241,386 52,892 8,320 9,613 - 4,966,629 Total liabilities
308,822,693 16,709,007 6,799,306 5,326,046 930,716 Net position
(25,854,550)
27,237,838 (1,850,201)
14,703,195 40,652,047 4,810,171 59,698,500 Net position
(30,378,433)
22,750,980 10,105,802 24,105,302 28,336,488 2,071,741 56,991,880 Cumulative net position
(25,854,550)
1,383,288 (466,913)
14,236,282 54,888,329 59,698,500 - Cumulative net position
(30,378,433)
(7,627,453)
2,478,349 26,583,651 56,991,880 - 54,920,139 - 338,587,768 Management uses deposits and other sources of financing, provided by members of Citigroup for managing negative gap in short-term liquidity.
Also, relying on previous experience management believes that current accounts and demand deposits is a stable source of financing, although
in accordance with the Russian legislation, term deposits of individuals may be withdrawn before maturity at any time, forfeiting in the most of
the cases the accrued interest. Such deposits are shown in the table above in accordance with their contractual maturities.
80
As at 31 December 2014 and 2013, the contractual maturities of term deposits of individuals are as follows:
2014
RUB’000
2013
RUB’000
Less than 1 month 4,807,485 1,561,909 From 1 to 3 months 4,394,128 1,446,920 4,362,111 588,029 1,290,368 402,904 72,710 198,003 14,926,802 3,197,765 From 3 to 6 months From 6 months to 1 year More than 1 year As at 31 December 2014 and 2013, the contractual maturities of securities included in financial instruments held for trading and financial instruments available-for-sale are as follows:
2014
RUB’000
From 1 to 3 months From 3 to 6 months From 6 months to 1 year More than 1 year 2013
RUB’000
2,020 889,466 1,469,872 1,102,940 - 3,132,961 32,851,824 66,350,057 34,323,716 71,475,424 33 Currency analysis
The following table shows the currency structure of assets and liabilities at 31 December 2014.
RUB’000
Roubles
USD
Other currencies
Total
Assets
23,581,996 15,902,642 26,072,320 65,556,958 Obligatory reserves with the Central Bank of the Russian Federation
2,998,029 - - 2,998,029 Loans and deposits with banks and other financial institutions
70,169,936 47,122,780 - 117,292,716 Financial instruments held for trading
8,499,078 16,630,380 1,648,578 26,778,036 Loans to customers
116,860,278 31,542,161 4,274,708 152,677,147 Financial instruments available-for-sale
25,206,093 885,280 1,270,208 27,361,581 1,999,599 541,109 1,283,914 3,824,622 1,386,617 - - 1,386,617 Goodwill
199,779 - - 199,779 Deferred tax asset
210,783 - - 210,783 251,112,188 112,624,352 34,549,728 398,286,268 Financial instruments held for trading
18,660,042 368,425 677,619 19,706,086 Deposits and balances from banks and other financial institutions
35,919,528 3,224,108 495,307 39,638,943 Current accounts and deposits from customers
172,126,656 74,305,546 27,843,908 274,276,110 Other liabilities
4,324,728 430,417 211,484 4,966,629 Total liabilities
231,030,954 78,328,496 29,228,318 338,587,768 20,081,234 34,295,856 5,321,410 59,698,500 Effect of foreign currency exchange contracts as at 31 December 2014
46,190,614 (36,051,990) (10,138,624)
Net position as at 31 December 2014
66,271,848 (1,756,134) (4,817,214)
Other assets
Total assets
Liabilities
Net recognized position as at 31 December 2014
59,698,500 81
The following table shows the currency structure of assets and liabilities at 31 December 2013.
RUB’000
Roubles
USD
Other currencies
Total
Assets
19,641,306 7,098,021 6,029,333 32,768,660 2,760,361 - - 2,760,361 52,958,493 82,047,685 3,504,411 138,510,589 Financial instruments held for trading
24,665,471 1,527,228 376,959 26,569,658 Loans to customers
104,332,176 11,995,726 1,795,461 118,123,363 Financial instruments available-for-sale
44,739,398 665,886 1,086,650 46,491,934 1,251,623 337,589 815,954 2,405,166 1,689,792 - - 1,689,792 199,779 - - 199,779 Obligatory reserves with the Central Bank of the Russian Federation
Other assets
Goodwill
Deferred tax asset
177,755 - - 177,755 252,416,154 103,672,135 13,608,768 369,697,057 1,026,383 563,348 77,304 1,667,035 Due to the Central Bank of the Russian Federation
24,627,807 - - 24,627,807 Deposits and balances from banks and other financial institutions
35,446,744 4,955,038 230,715 40,632,497 Current accounts and deposits from customers
182,138,202 42,911,573 15,559,903 240,609,678 Other liabilities
4,443,775 599,383 125,002 5,168,160 Total liabilities
247,682,911 49,029,342 15,992,924 312,705,177 Net recognized position as at 31 December 2013
4,733,243 54,642,793 (2,384,156)
56,991,880 Effect of foreign currency exchange contracts as at 31 December 2013
41,134,178 (53,117,587)
11,983,409 45,867,421 1,525,206 9,599,253 Total assets
Liabilities
Net position as at 31 December 2013
56,991,880 34 Events after the reporting period
On 27 January 2015, according to the decision of the sole shareholder the Bank declared dividends in the amount of RUB 6,250 thousand per
share from retained earnings, which in total amounts to RUB 6,250,000 thousand. These dividends were paid to Citigroup Netherlands B.V. on
6 February 2015.
On 6 May 2015 Luet Marc Raoul Marie was elected the President by the General Shareholders’ meeting.
On 26 June 2015, according to the decision of the sole shareholder the Bank declared dividends in the amount of RUB 8,000 thousand per share
from retained earnings, which in total amounts to RUB 8,000,000 thousand.
Natalia Nikolaeva
Acting President
82
Assia Gounko
83
Russian Accounting Standards. Unofficial translation, please refer to the page 85
Statutory Financial Statements
Auditors’ report ...86
Balance Sheet ...88
Income Statement ...90
Report on Capital Adequacy for Risk Covering,
The Amount of Provisions for Impairment of Doubtful Loans and Other Assets ...92
Statutory Requirements ...100
Cash Flow Statement ...101
EXPLANATORY NOTES
To 2014 Annual Financial Report of ZAO CB Citibank ...103
INTRODUCTION ...103
1.
General Information ...103
1.1.
1.2.
1.3.
1.4.
State registration, general and internal subdivisions, Bank ratings ...103
About Bank Group ...104
Licensing Information ...104
Corporate Governance ...104
2. Brief description of Bank’s activities ...104
3. Brief overview of the fundamental principles underlying preparation of Bank’s Annual Accounting (Financial) Reports and key
principles of Bank’s Accounting Policy ...105
3.1.
3.2.
3.3.
3.4.
3.5.
3.6.
3.7.
3.8.
Fundamental principles underlying preparation of annual financial reports ...105
Summary of the results of balance sheet inventory verification ...105
Information on assumptions and main sources of uncertainty in estimates at end of the reporting period ...106
Principles and methods for valuation and accounting for certain transactions ...106
Nature and magnitude of adjustments due to material changes in accounting policy and calculated estimates that affect comparability of certain business indicators ...112
Changes in Accounting Policy for the following reporting year ...113
Nature and magnitude of material errors in prior periods ...113
Post Balance Sheet Events ...113
4. Notes to the balance sheet items ...113
4.1. Cash and cash equivalents ...113
4.2. Financial assets evaluated at fair value through profit or loss ...113
4.3. Net loans receivable ...116
4.4. Provisions for possible losses are established based on the type of portfolio of homogenous loans and the duration of past-due periods. ...117
4.5. Financial investments in subsidiaries, dependent organizations and other participation ...119
4.6. Fixed assets, intangible assets and real estate property temporarily unused in the core business activity ...120
4.7. Other assets ...121
4.8. Due to credit institutions ...121
4.9. Due to clients other than credit institutions ...122
4.10. Debt securities issued ...122
4.11. Other liabilities ...122
4.12. Share capital ...123
5. Notes to the Report of financial results ...123
5.1. Losses from reduction in value ...123
5.2. Exchange rate gains (losses) recognized as income (expense) excluding those related to financial instruments evaluated at fair value through profit or loss ...123
5.3.Taxes ...123
5.4. Employee remuneration ...124
5.5. Earnings per share ...124
6. Notes to the Report on capital adequacy for covering risks, size of provisions on doubtful loans and other assets ...125
7. Notes to the Report on cash flows ...126
8. Fair value ...126
9. Corporate governance and internal control ...128
9.1. Corporate Governance Structure ...128
9.2. Internal control policies and procedures ...129
10. Risk management ...131
10.1. Principles and methods of risk assessment and management ...131
10.2. Credit risk ...133
10.3. Market risk ...140
10.4. Operational risk ...144
10.5. Liquidity risk ...146
10.6. Legal risk ...148
10.7. Strategic risk ...148
10.8. Reputational risk ...148
10.9. Country risk ...148
11. Transactions with related parties ...150
11.1. Transactions with executives ...150
11.2. Transactions with other related parties ...151
84
ZAO KPMG
10 Presnenskaya Naberezhnaya
Moscow, Russia 123317
Telephone +7 (495) 937 4477
Fax +7 (495) 937 4400/99
Internet www.kpmg.ru
Information on the audit firm
Name of the audit firm:
Joint Stock Company KPMG.
Location (legal address):
18/1, Olympiysky prospect, Room 3035, Moscow 129110.
Postal address:
10, Presnenskaya Naberezhnaya, Block C, floor 31, Moscow 123317.
State registration:
Registered by the Moscow Registration Chamber on 25 May 1992, Registration No. 011.585. Included
in the Unified State Register of Legal Entities on 13 August 2002 by the Moscow Inter-Regional Tax
Inspectorate No. 39 of the Ministry for Taxes and Duties of the Russian Federation, Registration No.
Membership in a self-regulating
auditors’ organisation:
Member of the Non-commercial Partnership “Chamber of Auditors of Russia”.
The Principal Registration Number of the Entry in the State Register of Auditors and Audit
Organisations: No. 10301000804.
Information on the audited Bank
Name of the audited company:
Closed Joint Stock Company Commercial Bank “Citibank”.
Location (legal address):
8/10, building 1, Gasheka street, Moscow 125047.
Postal address:
8/10, building 1, Gasheka street, Moscow 125047.
State registration:
Registered by the Central Bank of the Russian Federation on 1 November 1993, Registration
No. 2557. Re-registered as Closed Joint Stock Company Commercial Bank “Citibank”
on 5 November 2001.
Included in the Unified State Register of Legal Entities on 14 November 2002 by the Moscow InterRegional Tax Inspectorate No. 39 of the Ministry for Taxes and Duties of the Russian Federation,
Registration No. 1027700431296, Certificate series 77 No. 00480345.
Set out below is an unofficial translation of the Auditors’ report on the annual accounting (financial) statements of the Closed Joint Stock
Company Commercial Bank “Citibank” as at and for the period from 1 January 2014 to 31 December 2014 prepared in accordance with the
requirements of effective legislation. Also set out below is an extract from the statutory annual accounting (financial) statements as at and for
the period from 1 January 2014 to 31 December 2014 comprising balance sheet (for publication purposes) as at 1 January 2015, income statement (for publication purposes) for 2014 year, statement of cash flows (for publication purposes) for 2014 year, report on capital adequacy, the
amount of provision for impairment of doubtful loans and other assets (for publication purposes) as at 1 January 2015, statutory requirements
(for publication purposes) as at 1 January 2015. This unofficial translation does not include translation of explanatory information. The statutory annual accounting (financial) statements to which the Auditors’ report relates have been prepared in accordance with the accounting and
reporting regulations of the Russian Federation. Russian accounting and reporting regulations differ from accounting framework requirements
in other jurisdictions. Consequently, the accompanying financial statements, compiled in accordance with the aforementioned requirements,
are not intended to present the financial position and results of operations of the Closed Joint Stock Company Commercial Bank “Citibank” in
accordance with accounting principles and practices generally accepted in countries and jurisdictions other than the Russian Federation.
85
Auditors’ report
To the shareholder of the Closed Joint Stock Company Commercial Bank “Citibank”
We have audited the accompanying annual accounting (financial) statements of the Closed Joint Stock Company Commercial Bank “Citibank”
(hereinafter the “Bank”) for the 2014 reporting year.
The annual accounting (financial) statements of the Bank, set on 94 (ninety four) pages, comprise:
>>
balance sheet (for publication purposes) as at 1 January 2015;
>>
income statement (for publication purposes) for the year 2014;
>>
the appendices to the balance sheet and the income statement including:
>>
report on capital adequacy for risk covering, the amount of provisions for impairment of doubtful loans and other assets (for publication
purposes) as at 1 January 2015;
>>
statutory requirements (for publication purposes) as at 1 January 2015;
>>
cash flow statement (for publication purposes) for the year 2014;
>>
explanatory information.
Management’s Responsibility for the Annual Accounting (Financial) Statements
Management of the Bank is responsible for the preparation and reliability of these annual accounting (financial) statements in accordance with
the Russian reporting principles related to the annual accounting (financial) statements preparation by credit institutions and for the system
of internal control necessary for the preparation of the annual accounting (financial) statements which are free from material misstatements,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the annual accounting (financial) statements in all material respects based on our audit. We
conducted our audit in accordance with the Federal Standards on Auditing. These standards require that we comply with relevant ethical requirements and planning and performing the audit in order to obtain sufficient assurance as to whether the annual accounting (financial) statements
are free from material misstatements.
The audit included performing procedures to obtain audit evidence confirming the amounts and disclosures in the annual accounting (financial)
statements. The selection of the procedures is a matter of our judgment, which is based on the assessment of risk of material misstatement,
whether due to fraud or error. In the process of risk assessment we considered the system of internal control relevant to the preparation and
reliability of the annual accounting (financial) statements in order to select appropriate audit procedures, but not for the purpose of expressing
an opinion on the effectiveness of internal control system.
The audit also included an assessment of the appropriateness of the Bank’s accounting policy and the reasonableness of the estimates made by
management, as well as the evaluation of the overall presentation of the annual accounting (financial) statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the reliability of the annual
accounting (financial) statements.
Opinion
In our opinion, the accompanying annual accounting (financial) statements present fairly, in all material respects, the financial position of the
Bank as at 1 January 2015 and its financial performance and its cash flows for 2014 in accordance with the Russian reporting principles related to
the annual accounting (financial) statements preparation by credit institutions.
86
Report of findings from procedures performed in accordance with the requirements of Article
42 of the Federal Law dated 2 December 1990 No 395-1 On Banks and Banking Activity
Management is responsible for the Bank’s compliance with mandatory ratios as established by the Bank of Russia, and for maintaining internal
control and organising risk management systems in accordance with requirements established by the Bank of Russia.
In accordance with Article 42 of the Federal Law dated 2 December 1990 No 395-1 On Banks and Banking Activity (the “Federal Law”), we have
performed procedures to examine:
>>
the Bank’s compliance with mandatory ratios as at 1 January 2015 as established by the Bank of Russia; and
>>
compliance of elements of the Bank’s internal control and organisation of its risk management systems with requirements established by
the Bank of Russia.
These procedures were selected based on our judgment and were limited to enquiries, analyses, inspections of documents, comparisons of the
Bank’s internal policies, procedures and methodologies to applicable requirements established by the Bank of Russia, as well as recalculations,
comparisons and reconciliations of numerical data and other information.
Our findings from the procedures performed are reported below.
>>
Based on our procedures with respect to the Bank’s compliance with mandatory ratios as established by the Bank of Russia, we found that
the Bank’s mandatory ratios as at 1 January 2015 were within the limits established by the Bank of Russia.
>>
We have not performed any procedures on the accounting records maintained by the Bank other than those which we considered necessary to enable us to express an opinion as to whether the Bank’s accounting (financial) statements present fairly, in all material respects, the
financial position of the Bank as at 1 January 2015, and its financial performance and its cash flows for 2014 in accordance with the Russian
reporting principles related to the annual accounting (financial) statements preparation by credit institutions.
>>
Based on our procedures with respect to compliance of the Bank’s internal control and organization of its risk management systems with
requirements established by the Bank of Russia, we found that:
>>
as at 31 December 2014, the Bank’s internal audit function was subordinated to, and reported to, the Board of Directors, and the risk management function was not subordinated to, and did not report to, divisions accepting relevant risks in accordance with regulations and recommendations issued by the Bank of Russia;
-- the Bank’s internal documentation, effective on 31 December 2014, establishing the procedures and methodologies for identifying and
managing the Bank’s significant credit, operational, market, interest rate, legal, liquidity and reputational risks, and for stress-testing was
approved by the authorized management bodies of the Bank in accordance with regulations and recommendations issued by the Bank
of Russia;
-- as at 31 December 2014, the Bank maintained a system for reporting on the Bank’s significant credit, operational, market, interest rate,
legal, liquidity and reputational risks, and on the Bank’s capital;
-- the frequency and consistency of reports prepared by the Bank’s risk management and internal audit functions during 2014, which
cover the Bank’s credit, operational, market, interest rate, legal, liquidity and reputational risk management, was in compliance with the
Bank’s internal documentation. The reports included observations made by the Bank’s risk management and internal audit functions as
to their assessment of the effectiveness of the Bank’s procedures and methodologies, and recommendations for improvement.
-- as at 31 December 2014, the Board of Directors and executive management of the Bank had responsibility for monitoring the
Bank’s compliance with risk limits and capital adequacy ratios as established by the Bank’s internal documentation. With the objective of
monitoring effectiveness of the Bank’s risk management procedures and their consistent application during 2014 the Board of Directors
and executive management of the Bank periodically discussed reports prepared by the risk management and internal audit functions,
and considered proposed corrective actions.
Our procedures with respect to elements of the Bank’s internal control and organization of its risk management systems were performed solely
for the purpose of examining whether these elements, as prescribed in the Federal Law and described above, are in compliance with the requirements established by the Bank of Russia.
Director JSC “KPMG”
(power of attorney dated 16 March 2015, № 14/15)
Lukashova Natalia Viktorovna
26 June 2015
87
Balance Sheet
(for publication purposes)
as at 1 January 2015
Credit institution
Postal address
Form Code Quarterly Closed Joint Stock Company Commercial Bank “Citibank”/ CJSC CB “Citibank”
8/10, bld.1, Gasheka street, Moscow 125047.
0409806
(Annual)
(Thousands of Russian Roubles)
№
Name of line item
1
2
Note number
Amounts as at the
reporting date
Amounts
as at the corresponding
reporting date for the prior
year
3
4
5
11 415 696
5 251 357
I. ASSETS
1
Cash
4.1
2
Placements of credit institutions with the Central Bank of the
Russian Federation
4.1
2.1
Mandatory reserves
3
Placements with credit institutions
4
12 881 446
13 782 297
2 998 029
2 760 361
4.1
29 767 613
12 264 399
Financial assets at fair value through profit or loss
4.2
29 825 594
26 628 546
5
Net loans to customers
4.3
280 783 714
256 917 504
6
Net investments in securities and other financial assets
available-for-sale
4.4
27 435 870
48 239 384
6.1
Investments in subsidiaries and associates
4.5
0
0
7
Net investments in securities held-to-maturity
0
0
8
Current income tax receivable
0
0
9
Deferred tax asset
190 943
0
10
Fixed assets, intangible assets and materials
4.6
1 093 834
1 177 600
11
Other assets
4.7
5 057 588
3 579 898
12
Total assets
398 452 298
367 840 985
II. LIABILITIES
13
Loans, deposits and other funds from the Central Bank of the
Russian Federation
14
Amounts due to credit institutions
15
0
24 624 052
4.8
19 043 551
21 588 333
Customer accounts (non-credit institutions)
4.9
284 385 221
249 644 017
15.1
Deposits from individuals and individual entrepreneurs
4.9
95 450 668
71 506 796
16
Financial liabilities at fair value through profit or loss
27 759 289
5 763 979
17
Debt securities issued
0
0
18
Current income tax payable
0
19
Deferred tax liability
20
Other liabilities
21
Provisions for possible losses on credit related commitments, other possible losses and settlements with offshore zones residents
22
Total liabilities
88
354 642
4.11
9 407 719
10 215 653
2 141 901
1 607 965
343 092 323
313 443 999
№
Name of line item
1
2
III. EQUITY
Funds of shareholders (participants)
24
Own shares (share of stock) repurchased from shareholders
(participants)
25
Share premium
26
Reserve fund
27
Fair value revaluation of securities available-for-sale net of deferred tax liability (net of deferred tax asset)
28
Revaluation of fixed assets net of deferred tax liability
29
Retained earnings (accumulated losses) of prior years
30
Unused profit (loss) for the reporting period
31
Total equity
IV. OFF-BALANCE SHEET LIABILITIES
Irrevocable commitments of credit institution
33
Guarantees and sureties issued by credit institution
34
Non-credit related commitments
Acting President
Amounts
as at the corresponding
reporting date for the prior
year
3
4
5
23
32
Note number
Amounts as at the
reporting date
1 000 000
1 000 000
0
0
0
0
150 000
150 000
-5 079 105
-836 081
97 330
97 330
52 760 736
46 550 411
6 431 014
7 435 326
55 359 975
54 396 986
378 212 235
345 225 068
24 323 251
14 776 104
0
0
Nikolaeva N. Y.
Stamp
Gounko A. B.
26 June 2015
89
Income Statement
for the year 2014
Credit institution
Postal address
0409807
(Annual)
Note number
Amounts for the reporting
period
Amounts for the corresponding period of the prior year
3
4
5
22 786 708
21 869 952
3 656 513
2 874 710
15 963 528
13 470 611
0
0
Investments in securities
3 166 667
5 524 631
2
Total interest expense, including:
6 868 841
4 644 370
2.1
Amounts due to credit institutions
2.2
Customer accounts (non-credit institutions)
2.3
3
Net interest income (negative interest margin)
4
Movement in the provision for possible losses on loans and loan
equivalents, placements on correspondent accounts and accrued
interest income, total including:
4.1
Movement in the provision for possible losses on accrued interest
income
5
Net interest income (negative interest margin) after provision for
possible losses
6
№
Name of line item
1
2
1
Total interest income, including:
1.1
Placements with credit institutions
1.2
Loans to customers (non-credit institutions)
1.3
Services under finance lease
1.4
997 341
644 443
5 871 500
3 999 927
0
0
15 917 867
17 225 582
5.1
-3 213 254
-2 985 480
5.1
-95 227
-27 260
12 704 613
14 240 102
Net gain from operations with financial assets at fair value
through profit or loss
-7 862 565
-1 015 590
7
Net gain from operations with securities available-for-sale
247 672
705 564
8
Net gain from operations with securities held-to-maturity
0
0
9
Net gain from operations with foreign currency
5.2
-4 542 267
3 583 120
10
Net gain on revaluation of accounts in foreign currency
5.2
20 087 809
3 438 537
11
Gain on participation in other legal entities capital
0
0
12
8 950 155
7 945 140
13
Fee and commission expense
3 806 179
3 554 893
14
Movement in the provision for possible losses on securities
available-for-sale
-8 260
-5
15
Movement in the provision for possible losses on securities
held-to-maturity
0
0
16
Movement in the provision for other losses
-662 398
-945 142
17
Other operating income
2 258 016
1 584 956
18
Net income (loss)
27 366 596
25 981 789
90
5.1
5.1
Note number
Amounts for the reporting
period
Amounts for the corresponding period of the prior year
3
4
5
17 540 480
14 793 772
9 826 116
11 188 017
3 395 102
3 752 691
6 431 014
7 435 326
Total payments out of profit after taxation including:
0
0
23.1
Distribution between shareholders (participants) in the form of
dividends
0
0
23.2
Reserve fund charge
0
0
24
Unused profit (loss) for the reporting period
6 431 014
7 435 326
№
Name of line item
1
2
19
Operating expense
20
Profit (loss) before taxation
21
Tax benefit (tax expense)
22
Profit (loss) after taxation
23
Acting President
5.3
Nikolaeva N. Y.
Stamp
Gounko A. B.
26 June 2015
91
Report on Capital Adequacy for Risk Covering,
The Amount of Provisions for Impairment of Doubtful
Loans and Other Assets
Credit institution
Postal address
0409808
(Annual)
Section 1. Information on Capital Adequacy
Name of indicator
Note number
Amounts as at the
beginning of the
reporting period
Increase (+ ) /
decrease(-) for the
reporting period
Amounts as at
the date of the
reporting period
1
2
3
4
5
6
1
Own funds (capital) (thousand Roubles), total, including:
6
53 135 862.0
-668 318
52 467 544.0
1.1
Sources of basic capital:
6
47 394 230.0
6 461 256
53 855 486.0
1.1.1
Share capital, total, including that formed by:
6
1 000 000.0
0
1 000 000.0
1.1.1.1
ordinary shares (interest)
6
1 000 000.0
0
1 000 000.0
1.1.1.2
preference shares
0.0
0
0.0
1.1.2
Share premium
0.0
0
0.0
1.1.3
Reserve fund
6
150 000.0
0
150 000.0
1.1.4
Retained earnings:
6
46 244 230.0
6 461 256
52 705 486.0
1.1.4.1
of prior years
6
46 244 230.0
6 461 256
52 705 486.0
1.1.4.2
for the reporting year
0.0
0
0.0
1.2
Indicators that decrease the amount of sources of basic capital:
6
0.0
1 387 942
1 387 942.0
1.2.1
Intangible assets
6
0.0
8 748
8 748.0
1.2.2
Deferred tax assets
6
0.0
190 943
190 943.0
1.2.3
Own shares (interest) repurchased from shareholders (participants)
0.0
0
0.0
1.2.4
Loss:
0.0
0
0.0
1.2.4.1
of prior years
0.0
0
0.0
1.2.4.2
for the reporting year
0.0
0
0.0
1.2.5
Investments in capital of financial institutions:
0.0
0
0.0
1.2.5.1
immaterial
0.0
0
0.0
1.2.5.2
material
0.0
0
0.0
1.2.5.3
cumulative sum of material investments and cumulative sum of
deferred tax assets
0.0
0
0.0
1.2.6
Negative amount of additional capital
0.0
1 188 251
1 188 251.0
1.2.7
Obligations of purchase of sources of basic capital
0.0
0
0.0
1.2.8
Funds received as payment for shares (interest), included in basic
capital
1.3
Basic capital
1.4
1.4.1
92
6
0.0
0
0.0
47 394 230.0
5 073 314
52 467 544.0
Sources of additional capital:
0.0
0
0.0
Share capital formed by preference shares, total, including:
0.0
0
0.0
6
Name of indicator
Note number
3
Amounts as at the
beginning of the
reporting period
Increase (+ ) /
decrease(-) for the
reporting period
Amounts as at
the date of the
reporting period
4
5
6
1
2
1.4.1.1
those issued in accordance with Federal Law No. 181-FZ of 18 July
2009 On Use of State Securities of the Russian Federation for Increasing Capitalisation of Banks <1>
0.0
0
0.0
1.4.2
Share premium
0.0
0
0.0
1.4.3
Subordinated loan with additional terms
0.0
0
0.0
1.4.4
Subordinated loan (deposit, borrowing or bonded loan) without limitation of maturity
0.0
0
0.0
1.5
Indicators that decrease the amount of sources of additional capital
73 661.0
1 114 590
1 188 251.0
1.5.1
Investments in own preference shares
0.0
0
0.0
1.5.2
0.0
0
0.0
1.5.2.1
immaterial
0.0
0
0.0
1.5.2.2
material
0.0
0
0.0
1.5.3
Subordinated loan (deposit, borrowing or bonded loan) issued to
0.0
0
0.0
1.5.3.1
immaterial
0.0
0
0.0
1.5.3.2
material
0.0
0
0.0
1.5.4
Negative amount of additional capital
0.0
0
0.0
1.5.5
Obligations of purchase of sources of additional capital
0.0
0
0.0
1.5.6
Funds received as paying up of shares (interest), included in the
additional capital
0.0
0
0.0
1.6
Additional capital
0.0
0
0.0
1.7
Main capital
6
47 320 569.0
5 146 975
52 467 544.0
1.8
Sources of additional capital:
6
5 815 293.0
-5 641 061
174 232.0
1.8.1
Share capital formed by preference shares, total, including:
0.0
0
0.0
1.8.1.1
after March 1, 2013
0.0
0
0.0
1.8.2
Share capital formed through capitalization of property value
appreciation
0.0
0
0.0
1.8.3
Profit:
6
5 717 963.0
-5 641 061
76 902.0
1.8.3.1
of the current year
6
5 717 963.0
-5 641 061
76 902.0
1.8.3.2
of prior years
0.0
0
0.0
1.8.4
Subordinated loan (deposit, borrowing or bonded loan), total, including
that:
0.0
0
0.0
1.8.4.1
attracted (placed) before 1 March 2013
0.0
0
0.0
1.8.4.2
Issued in accordance with Federal Law No. 173-FZ of 13 October
2008 On Additional Measures for Support of Financial System of the
Russian Federation <2> and Federal Law No. 175-FZ of 27 October
2008 On Additional Measures for Supporting Stability of Banking
System in the Period until 31 December 2014 <3>
0.0
0
0.0
97 330.0
0
97 330.0
6
1.8.5
Property value appreciation
1.9
Indicators that decrease the amount of sources of additional capital:
0.0
1 061 992
1 061 992.0
1.9.1
Investments in own preference shares
0.0
0
0.0
1.9.2
0.0
0
0.0
1.9.2.1
immaterial
0.0
0
0.0
1.9.2.2
material
0.0
0
0.0
1.9.3
Subordinated loan (deposit, borrowing or bonded loan) issued to
0.0
0
0.0
6
93
Name of indicator
Note number
Increase (+ ) /
decrease(-) for the
reporting period
Amounts as at
the date of the
reporting period
4
5
6
1
2
1.9.3.1
immaterial
0.0
0
0.0
1.9.3.2
material
0.0
0
0.0
1.9.4
Obligations of purchase of sources of additional capital
0.0
0
0.0
1.9.5
Funds received as payment of shares (interest), included in the additional capital
0.0
0
0.0
1.10
Indicators that decrease the amount of main and additional capital:
0.0
1 061 992
1 061 992.0
1.10.1
Accounts receivable overdue for more than 30 calendar days
0.0
0
0.0
1.10.2
Subordinated loans, whose value does not exceed 1 percent of the
share capital of the borrower credit institution
0.0
0
0.0
1.10.3
Excess of the total amount of loans, bank guarantees and sureties
provided to own participants (shareholders) and insiders over its maximum amount in accordance with Federal Laws and regulatory acts of
the Bank of Russia
0.0
0
0.0
1.10.4
Excess of investments in construction, manufacture and purchase of
fixed assets over the amount of sources of main and additional capital
0.0
0
0.0
1.10.5
Excess of actual value of share of a participant that exited the limited
liability company over the value at which such share was sold to other
participant of the limited liability company
0.0
0
0.0
5 815 293.0
-5 815 293
0.0
X
X
X
1.11
Additional capital
2
Risk-weighted assets (thousands of Roubles):
2.1
necessary for calculation of basic capital adequacy
2.2
necessary for calculation of main capital adequacy
3
Capital adequacy (percent):
3.1
Basic capital adequacy
3.2
3.3
3
Amounts as at the
beginning of the
reporting period
6
319 869 138.0
35 286 171
355 155 309.0
319 795 477.0
35 324 839
355 120 316.0
X
X
X
6
14,8
Х
14,8
Main capital adequacy
6
14,8
Х
14,8
Own funds (capital) adequacy
6
16,6
Х
14,8
6
<1>Federal Law No. 181-FZ of 18 July 2009 On Use of State Securities of the Russian Federation for Increasing Capitalisation of Banks (Sobranie Zakonodatelstva Rossiyskoy Federatsii, 2009, No. 29, Article 3618; 2014, No. 31, Article 4334).
<2> Federal Law No. 173-FZ of 13 October 2008 On Additional Measures for Supporting Financial System of the Russian Federation (Sobranie
Zakonodatelstva Rossiyskoy Federatsii, 2008, No. 42, Article 4698; 2009, No. 29, Article 3605; No. 48, Article 5729; No. 52, Article 6437;
2010, No. 8, Article 776; No. 21, Article 2539; No. 31, Article 4175).
<3> Federal Law No. 175-FZ of 27 October 2008 On Additional Measures for Supporting Stability of the Banking System in the Period until
31 December 2014 (Sobranie Zakonodatelstva Rossiyskoy Federatsii, 2008, No. 44, Article 4981; 2009, No. 29, Article 3630; 2011, No. 49,
Article 7059; 2013, No. 19, Article 2308).
94
Section 2. Information on the Level of Credit, Operating and Market Risks Covered by Capital
Subsection 2.1. Credit Risk
Amounts as at the date of the reporting period
Value of
risk-weighted assets
(instruments)
Value of assets
(instruments)
Assets (instruments) net of
the formed
reserve s for
possible losses
Value of
(instruments)
4
5
6
7
8
9
№
Name of indicator
1
2
1
Credit risk on assets recognised on balance sheet
accounts
240 261 184
235 393 244
91 600 696
201 334 580
197 891 951
79 927 904
1.1
Assets with the risk factor
<1> of 0 percent, total,
including:
63 581 124
63 552 833
0
31 048 442
31 048 442
0
Funds and obligatory
reserves deposited in the
Bank of Russia
60 297 142
60 297 142
0
31 033 654
31 033 654
0
Credit and other claims
secured with guarantees
of the Russian Federation,
the Ministry of Finance of
the Russian Federation, the
Bank of Russia and pledge
of state debt securities of
Ministry of Finance of the
Russian Federation and the
Bank of Russia
3 283 982
3 255 691
0
14 788
14 788
0
Credit and other claims to
central banks or governments of countries having
country ratings «0» or
«1»<2>, including those
secured with guarantees of
such countries and so forth
0
0
0
0
0
0
99 812 560
99 426 719
19 885 344
107 712 680
107 705 058
21 541 012
to the Russian Federation constituent entities,
municipal entities and other
organizations secured with
guarantees and pledge of
securities of the Russian
Federation constituent entities and municipal entities
0
0
0
0
0
0
country ratings «2», including those secured with
their guarantees (pledge of
securities)
0
0
0
0
0
0
credit institutions that are
residents of countries having country ratings of «0»
or «1», with the long-term
credit rating <3>, including
those secured by their
guarantees
58 471 696
58 453 117
11 690 623
88 258 939
88 251 578
17 650 316
Assets with the risk
factor of 50 percent, total,
including:
1 398 652
1 398 652
699 326
1 514 294
1 505 272
752 636
1.1.1
1.1.2
1.1.3
1.2
1.2.1
1.2.2
1.2.3
1.3
Assets with the risk
factor of 20 percent, total,
including:
Note number
Value of assets
(instruments)
the formed
reserves for
possible losses
Amounts as at the beginning of the reporting period
3
95
Value of
(instruments)
Value of assets
(instruments)
the formed
reserve s for
possible losses
Value of
(instruments)
4
5
6
7
8
9
№
Name of indicator
1
2
1.3.1
Credit and other claims in
foreign currency secured
with guarantees of the
Russian Federation, the
Russian Federation, the
Bank of Russia and pledge
of state debt securities of
Russian Federation and the
Bank of Russia, denominated in foreign currency
1 353 667
1 353 667
676 834
0
0
0
country ratings «3», including those secured with
their guarantees (pledge of
securities)
44 985
44 985
22 492
1 514 294
1 505 272
752 636
to credit institutions that
are residents of countries
having country ratings of
«0» or «1», without the
long-term credit rating, and
to credit institutions that
are residents of countries
having country ratings «2»,
including those secured
with their guarantees
0
0
0
0
0
0
1.3.2
1.3.3
Note number
Value of assets
(instruments)
the formed
reserves for
possible losses
3
1.4
of 100 percent, total,
including:
75 466 877
71 013 069
71 013 069
61 057 010
57 631 025
57 631 025
1.4.1
Loan debt
64 462 393
64 031 511
64 031 511
56 724 312
55 595 406
55 595 406
1.4.2
Other claims
11 004 484
6 981 558
6 981 558
4 332 698
2 035 619
2 035 619
1.5
of 150 percent - credit and
other claims to central
banks or governments of
countries having country
ratings «7»
1 971
1 971
2 957
2 154
2 154
3 231
2
Assets with the increased
risk factors total, including:
87 415 078
86 103 694
116 200 406
73 493 373
72 232 158
93 237 431
2.1
with the risk factor of
110 percent
33 032 469
32 387 838
35 626 622
38 294 572
37 777 017
41 554 719
2.2
150 percent
54 382 609
53 715 856
80 573 784
35 198 801
34 455 141
51 682 712
3
Consumer loans, total,
including:
22 970 517
21 833 194
24 509 586
21 542 211
20 745 229
23 239 597
3.1
110 percent
21 891 729
20 830 545
22 913 600
20 201 128
19 479 048
21 426 953
3.2
140 percent
971 617
902 763
1 263 868
1 212 487
1 144 744
1 602 642
3.3
170 percent
0
0
0
116 115
109 572
186 272
3.4
200 percent
0
0
0
12 481
11 865
23 730
3.5
300 percent
95 757
89 066
267 198
0
0
0
96
№
Name of indicator
1
2
3.6
600 percent
4
Credit risk on contingent
credit commitments, total,
including:
4.1
on high-risk financial
instruments
4.2
on medium-risk financial
instruments
4.3
on low-risk financial
instruments
4.4
on zero-risk financial
instruments
5
Credit risk on financial
derivatives
Note number
3
Value of assets
(instruments)
the formed
reserves for
possible losses
Value of
(instruments)
4
5
11 414
Value of assets
(instruments)
the formed
reserve s for
possible losses
Value of
(instruments)
6
7
8
9
10 820
64 920
0
0
0
99 277 481
97 146 680
25 337 127
91 084 558
89 541 117
38 440 506
24 559 623
24 276 480
21 007 469
14 776 104
14 617 435
11 690 089
7 905 469
7 896 737
3 948 368
54 613 940
53 478 836
26 750 417
1 920 514
1 906 450
381 290
0
0
0
64 891 875
63 067 013
0
21 694 514
21 444 846
0
0
0
19 968 459
0
0
3 770 173
<1> Assets are classified by risk groups in accordance with Item 2.3 of Instruction of the Bank of Russia No. 139-I.
<2> Country ratings are given in accordance with classification of Export Credit Agencies participating in the Agreement of countries that are
members of the Organization for Economic Cooperation and Development (OECD) On Basic Principles for Granting and Utilization of
Export Loans having Official Support (the information on country ratings is published on the official website of the Bank of Russia in the
section «Bank supervision»).
<3> Long-term ratings of a credit institution shall be defined on the basis of ratings assigned by international rating agencies: Standard &
Poor’s, Fitch Rating’s or Moody’s Investors Service.
97
Subsection 2.2. Operating Risk
(Thousands of Russian Roubles) / (quantity)
Note number
Amounts as at
the date of the
reporting period
Amounts as at the
beginning of the
reporting period
4
5
№
Name of indicator
1
2
6
Operating risk, total, including:
9.4
3 709 500.0
3 491 946.0
6.1
Income for the purpose of calculation of capital for operating risk coverage, total,
including:
9.4
24 729 998.0
23 279 641.0
6.1.1
Net interest income
9.4
16 363 202.0
15 043 016.0
6.1.2
Net non-interest income
9.4
8 366 796.0
8 236 625.0
6.2
Number of years preceding the date of operating risk level calculation
3.0
3.0
Amounts as at
the date of the
reporting period
Amounts as at the
beginning of the
reporting period
4
5
3
Subsection 2.3. Market risk
№
Name of indicator
Note number
1
2
7
Cumulative market risk, total, including:
9.3
10 877 850.0
27 839 846.0
7.1
interest risk, total, including:
9.3
870 228.0
2 227 187.7
7.1.1
general
9.3
757 779.3
1 990 092.2
7.1.2
specific
9.3
112 448.7
237 095.5
7.2
stock market risk, total, including:
9.3
0.0
0.0
7.2.1
general
9.3
0.0
0.0
7.2.2
specific
9.3
0.0
0.0
7.3
currency risk
9.3
0.0
0.0
Amounts as at the
beginning of the
reporting period
Increase (+ ) /
decrease(-) for the
reporting period
Amounts as at
the date of the
reporting period
4
5
6
5 115 100.0
1 913 432
7 028 532.0
3 305 885.0
1 187 724
4 493 609.0
201 250.0
191 773
393 023.0
1 548 791.0
582 010
2 130 801.0
59 174.0
-48 075
11 099.0
3
Section 3. Information on the amount of provision for coverage of doubtful loans and other assets
№
Name of indicator
1
2
1
Actual provisions for possible losses, total, including:
1.1
on loans and loan equivalents
1.2
on other balance sheet assets bearing the risk of loss and on other
losses
1.3
on contingent credit commitments and securities, the rights to which
are certified by depositories, that do not meet the criteria of the Bank
of Russia, recognised on off-balance sheet accounts
1.4
98
against operations with offshore zones residents
Note number
3
For information purposes: Information on movement of provisions for possible losses on loans and loan equivalents.
1.Total charge (additional charge) of provision for the reporting period, in the amount of 71 861 231 thousands of Russian Roubles, including
those as a result of:
1.1. Issue of loans – 58 791 241 thousands of Russian Roubles;
1.2. Change in loans quality – 4 988 270 thousands of Russian Roubles;
1.3.Change in official foreign currency exchange rate to Russian Rouble set by the Central Bank of the Russian Federation
in the amount of 1 029 897 thousands of Russian Roubles;
1.4. Other reasons – 7 051 823 thousands of Russian Roubles.
2.Total recovery (decrease) of provision for the reporting period, in the amount of 70 673 507 thousands of Russian Roubles, including those
as a result of:
2.1. Bad loans write-off – 1 969 596 thousands of Russian Roubles;
2.2. Repayment of loans – 51 496 571 thousands of Russian Roubles;
2.3. Change in loans quality – 9 984 829 thousands of Russian Roubles;
2.4.Change in official foreign currency exchange rate to Russian Rouble set by the Central Bank of the Russian Federation
in the amount of 632 266 thousands of Russian Roubles;
2.5. Other reasons – 6 590 245 thousands of Russian Roubles.
Acting President
Nikolaeva N. Y.
Stamp
Gounko A. B.
26 June 2015
99
Statutory Requirements
Сredit institution
Postal address
0409813
(Annual)
(Percent)
Actual value
Normative value
as at the reporting
date
as at the prior
reporting date
3
4
5
6
Basic capital ratio (N1.1)
6
≥ 5.0
14.8
14.8
2
Main capital ratio (N1.2)
6
≥ 5.5
14.8
14.8
3
Own funds (capital) ratio (N1.0)
6
≥ 10.0
14.8
16.6
4
Capital adequacy ratio of non-banking credit institution entitled
to money transfers without opening bank accounts and to other
related banking transactions (N1.3)
X
X
X
≥ 15.0
51.6
47.4
№
Name of indicator
1
2
1
Note number
5
Momentary liquidity ratio (N2)
6
Current liquidity ratio (N3)
≥ 50.0
93.1
80.1
7
Long-term liquidity ratio (N4)
≤ 120.0
28.6
21.0
8
Maximum amount of risk per borrower or per group of related
borrowers (N6)
9
Maximum amount of exposure to large credit risks (N7)
10
Maximum amount of loans, bank guarantees and sureties issued
by the bank to its participants (shareholders) (N9.1)
11
Aggregate amount of exposure to the bank’s insiders (N10.1)
12
Ratio for the use of equity (capital) of the bank to acquire shares
(share of stock) in other legal entities (N12)
13
Ratio of liquid assets maturing within the next 30 calendar days
to total liabilities of payment-processing non-banking credit
institution (N15)
≤ 25.0
Maximum 19.6
Maximum
21.8
0.6
Minimum
0.5
Minimum
≤ 800.0
221.9
156.1
≤ 50.0
0.0
0.0
≤ 3.0
0.5
0.5
≤ 25.0
0.0
0.0
X
X
X
Liquidity ratio of non-banking credit institution entitled to money
transfers without opening bank accounts and to other related
banking transactions (N15.1)
X
X
X
15
Maximum aggregate amount of loans to customers - settlements
participants for settlements operations (N16)
X
X
X
16
Ratio of loans issued by non-banking credit institution on its behalf
and for its own expense to customers, except for customers settlements participants (N16.1)
X
X
X
Minimum ratio of the mortgage coverage amount and the volume of issue of the mortgage covered bonds (N18)
X
X
X
14
17
Acting President
26 June 2015
100
Nikolaeva N. Y.
Stamp
Gounko A. B.
Cash Flow Statement
for the year 2014
Credit institution Closed Joint Stock Company Commercial Bank “Citibank”/ CJSC CB “Citibank”
Postal address
Form Code 0409814
Quarterly(Annual)
Cash flows for the
reporting period
Cash flows for the
previous reporting
period
4
5
-9 492 318
10 018 258
Interest receipts
22 795 377
23 572 400
1.1.2
Interest payments
-6 688 487
-4 660 605
1.1.3
Fee and commission receipts
8 950 155
7 945 140
1.1.4
Fee and commission payments
-3 806 179
-3 554 893
1.1.5
Gain less losses on financial assets at fair value through profit or loss, available-for-sale
-7 687 242
-116 539
1.1.6
Gain less losses on securities held-to-maturity
0
0
1.1.7
Gain less losses on foreign exchange
-4 542 267
3 583 120
1.1.8
2 258 016
1 584 956
1.1.9
Operating expense
-17 228 141
-14 322 811
1.1.10
Tax expense (benefit)
-3 543 550
-4 012 510
1.2
Total increase (decrease) in net cash flows from operating assets and liabilities,
including:
271 722
-62 320 404
1.2.1
Net increase (decrease) in mandatory reserves with the Central Bank of the Russian
Federation
-237 668
629 849
1.2.2
Net increase (decrease) in investments in securities at fair value through profit or loss
1.2.3
Net increase (decrease) in loans
1.2.4
Net increase (decrease) in other assets
1.2.5
Net increase (decrease) in loans, deposits and other funds from the Central Bank of the
Russian Federation
1.2.6
№
Name of line item
1
2
1
Net cash flows from (used in) operating activities
1.1
Total cash flows from (used in) operating activities before changes in operating assets
and liabilities, including:
1.1.1
Note number
3
-24 410 088
-14 101 155
4 146 657
-84 232 547
-4 485 377
1 164 120
-24 624 052
6 431 771
Net increase (decrease) in amounts due to other credit institutions
-2 164 037
8 491 506
1.2.7
Net increase (decrease) in customer accounts (non-credit institutions)
9 479 562
18 075 627
1.2.8
Net increase (decrease) in financial liabilities at fair value through profit or loss
43 250 416
4 178 505
1.2.9
Net increase (decrease) in debt securities issued
0
0
1.2.10
Net increase (decrease) in other liabilities
-683 691
-2 958 080
1.3
Total for section 1 (lines 1.1 and 1.2)
-9 220 596
-52 302 146
2
Net cash flows from (used in) investing activities
2.1
Purchase of securities and other financial assets available-for-sale
-866 433
-40 409 057
2.2
Proceeds from sale and redemption of securities and other financial assets
available-for-sale
18 493 317
96 703 902
2.3
Purchase of securities held-to-maturity
0
0
2.4
Proceeds from redemption of securities held-to-maturity
0
0
2.5
Purchase of fixed assets, intangible assets and materials
-177 937
-176 011
101
Cash flows for the
reporting period
Cash flows for the
previous reporting
period
4
5
-76 757
-181 241
0
0
17 372 190
55 937 593
Shareholders’ (participants’) contributions to charter capital
0
0
3.2
Purchase of own shares (share of stock) repurchased from shareholders (participants)
0
0
3.3
Sale of own shares (share of stock) repurchased from shareholders (participants)
0
0
3.4
Dividends paid
-1 225 000
-4 770 000
3.5
Total for section 3 (lines from 3.1 to 3.4)
-1 225 000
-4 770 000
4
Effect of changes in official foreign currency exchange rates to Russian Rouble set by
the Central Bank of the Russian Federation on cash and cash equivalents
11 530 832
1 283 042
5
Increase (decrease) in cash and cash equivalents
18 457 426
148 489
5.1
Cash and cash equivalents as at the beginning of the reporting period
28 521 767
28 373 278
5.2
Cash and cash equivalents as at the end of the reporting period
46 979 193
28 521 767
№
Name of line item
1
2
2.6
Proceeds from disposal of fixed assets, intangible assets and materials
2.7
Dividends received
2.8
Total for section 2 (lines from 2.1 to 2.7)
3
Net cash flows from (used in) financing activities
3.1
Acting President
26 June 2015
102
Note number
3
Nikolaeva N. Y.
Stamp
Gounko A. B.
4.1
EXPLANATORY NOTES
To 2014 Annual Financial Report of ZAO CB Citibank
INTRODUCTION
These Explanatory Notes are an integral part of the Annual Accounting (Financial) Report of Closed Joint Stock Company Commercial Bank
Citibank (hereinafter the Bank) as of January 1, 2015, and for the year 2014, prepared in accordance with the requirements of Ordinance No.
3054-U of the Central Bank of the Russian Federation (hereinafter CBR) dated September 4, 2013, “On the Procedure for Annual Accounts
(Financial Statement) Preparation by Credit Institutions” (hereinafter CBR Ordinance No. 3054-U).
The Annual Accounting (Financial) Report is prepared in Russian rubles and rounded to the nearest thousand rubles.
In accordance with the Federal Law No. 208-FZ dated December 26, 1995 “On Joint-Stock Companies,” General Shareholders’ Meeting has the
authority to approve the Annual Accounting (Financial) Report. The General Shareholders’ Meeting where this Annual Accounting (Financial)
Report will be discussed is scheduled for June 26, 2015.
The 2014 Annual Accounting (Financial) Report will be posted on the Bank’s website at http://citibank.ru.
1.
1.1.
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General Information
State registration, general and internal subdivisions, Bank ratings
Full name: Closed Joint Stock Company Commercial Bank Citibank
Short name: ZAO CB Citibank
Location (registered address): Russia, 125047, Moscow, Gasheka St., 8-10, bld. 1
Location (mailing address): Russia, 125047, Moscow, Gasheka St., 8-10, bld. 1
Bank identification code (BIC): 044525202
Taxpayer identification number (TIN): 7710401987
Contact number (telephone, fax): +7 (495) 725-1000 (tel), +7 (495) 725-6700 (fax).
Website: www.citibank.ru
Main state registration number: 1027700431296
Date of registration with the Unified State Register of Legal Entities: November 14, 2002
As of January 1, 2015, and January 1, 2014, the Bank had 7 branch networks and 52 internal divisions, including additional offices, back offices and
standalone cash desks, covering 8 regions of the Russian Federation. The table below represents the Bank’s regional network structure:
Regional Office
Location
Federal District
St. Petersburg (11 branches)
St. Petersburg
Northwest Federal District
Don (2 branches)
Rostov-on-Don
South Federal District
Urals (3 branches)
Yekaterinburg
Urals Federal District
Srednevolzhsky (1 branch)
Samara
Volga Federal District
Privolzhsky (1 branch)
Nizhny Novgorod
Bashkortostan (1 branch)
Ufa
Volgogradsky (1 branch)
Volgograd
South Federal District
As of January 1, 2015, and January 1, 2014, the Bank also had an office in the Novosibirsk region.
Currently, regional offices (with the exception of St. Petersburg regional office) only offer retail banking services; provision of corporate banking
services could be considered in the future.
Until March 21, 2014, the Bank had a long-term BBB+ rating with stable outlook (assigned by Fitch Ratings). However, due to the general political
situation the rating was downgraded by Fitch Ratings to BBB+ with a negative outlook. On July 29, 2014, Fitch Ratings further downgraded the
long-term ratings of thirteen foreign bank subsidiaries from BBB+ with a negative outlook to BBB with a negative outlook.
103
1.2. About Bank Group
The Bank is a subsidiary of the international banking group Citigroup.
The consolidated financial reporting of Citigroup is available online on the Citigroup website.
1.3. Licensing Information
The Bank operates under a General License № 2557 dated November 5, 2001, with no expiration date, issued by the CBR. The Bank is a subject of
the Federal Law No. 395-1 dated December 2, 1990, on Banks and Banking Activities (hereinafter Federal Law No. 395-1) and other legislative acts
of the Russian Federation.
In addition to the General License issued by the CBR, the Bank operates under the following licenses and permits:
>>
Professional Securities Market Custodian License No. 177-02719-000100 issued by the Federal Financial Markets Service on November 1,
2000;
>>
Professional Securities Market Broker License No. 177-02738-100000 issued by the Federal Financial Markets Service on November 9, 2000;
>>
Professional Securities Market Dealer License No. 177-02751-010000 issued by the Federal Financial Markets Service on November 9, 2000;
>>
The Bank is a participant of the retail deposit insurance system mandatory for banks operating in the Russian Federation.
1.4. Corporate Governance
The governing bodies of the Bank are: the General Shareholders’ Meeting, the Board of Directors, the Executive Board and the President.
Natalia Nikolaeva was appointed Acting President of the Bank on June 29, 2013.
Effective May 30, 2014, as per decision of the sole shareholder of ZAO CB Citibank on the competence of the Annual Shareholders’ Meeting, the
Board of Directors of the Bank is composed as follows:
>>
Marc Luet – Chairman of the Board of Directors
>>
Natalia Nikolaeva
>>
Denis Korshilov
>>
Maria Ivanova
>>
Viktor Rozhkov
>>
Florin Petrescu
>>
Emre Karter
>>
Irina Kosyachenko
As of January 1, 2015, the Executive Board was composed as follows:
>>
Natalia Nikolaeva – Acting Chairman of the Executive Board
>>
Michael Berner
>>
Ruslan Belyaev
>>
Sergey Korotkov
>>
Natalia Belaya
No members of the Board of Directors or the Executive Board or the President own any shares of the Bank.
As of January 1, 2015, the Bank had a workforce of 4,858 employees (4,551 as of January 1, 2014). As of January 1, 2015, the Bank had 13 senior
managers, including the Chief Accountant (11, including the Chief Accountant as of January 1, 2014).
2. Brief description of Bank’s activities
The Bank’s core business activities are lending to credit institutions and legal entities, including participation in syndicates, transactions with
securities and foreign currencies, factoring, trade finance, deposit business, cash management and payment services. Throughout the course of
the reporting period, the Bank saw a significant increase in volume of transactions in the money market as well as operations with derivatives. In
addition to corporate services, the Bank is actively participating in the retail banking market and offers a broad range of services to retail clients.
As of January 1, 2015, the Bank’s assets increased by 30,611,313 thousand rubles (8.3%) compared to January 1, 2014. The increase was primarily
due to growth in funds held with other credit institutions as well as loans outstanding.
As of January 1, 2015, the Bank’s liabilities rose by 29,648,324 thousand rubles (9.5%). The increase was mainly due to growth in client account
balances, including retail deposits.
The structure of assets changed, with 43.1% decline in net investments in securities and other financial assets available for sale, an increase of
142.7% in funds held with other credit institutions and 9.3% increase in net loans outstanding. The structure of liabilities also changed, with 100%
decline in CBR loans, deposits and other assets, 13.9% increase in account balances held by clients other than credit institutions and 381.6%
increase in financial liabilities evaluated at fair value through profit or loss.
Net income in 2014 declined by 1,004,312 thousand rubles (13.5%) mainly due to lower net interest income, increased expenses from transactions
with financial assets evaluated at fair value through profit or loss, as well as higher operating costs.
104
The structure of the Bank’s income and expenses did not change significantly in 2014.
The General Shareholders’ Meeting held on June 6, 2014, decided to pay 1,225,000 thousand rubles in 2014 dividend from retained earnings of
previous years. Also, the General Shareholders’ Meeting held on January 27, 2015, decided to pay 6,250,000 thousand rubles in dividend from
retained earnings of previous years.
Since the Bank operates within the borders of the Russian Federation, it is exposed to the economic and financial risks in the Russian markets
which are generally typical for emerging markets. The regulatory framework and tax legislation continue to evolve and are subject to varying
interpretations and frequent changes, which, along with other legal and fiscal impediments, contribute to the challenges faced by companies
operating in the Russian Federation.
Recent political events have provoked a number of negative factors that had a significant impact on the Russian economy in 2014 and increased
the risks of doing business in the Russian Federation. Economic sanctions imposed by the European Union, the United States, Japan, Canada,
Australia and other countries against Russian individuals and legal entities, as well as retaliatory sanctions by the Russian government, led to an
increase in the level of economic uncertainty, including massive capital outflows, a substantial weakening of the ruble, a decline in both domestic
and foreign direct investments in the Russian economy, the tightening of monetary policy aimed to curb rising inflation and a significant reduction in the range of available borrowing mechanisms. In particular, some Russian companies, including banks, are facing difficulties accessing foreign capital markets (both equity and debt financing) and their activities could become strongly dependent on funding by Russian state-owned
banks. The longevity of the effect of the newly imposed sanctions is difficult to forecast as is the threat of additional sanctions in the future.
According to the World Bank report on the state of the Russian economy published on April 1, 2015, the main risks to Russia’s medium-term
economic growth are the continuing shortage of available credit resources and low investment rating. Among other risks, the World Bank mentioned the anticipated global economic slowdown. Russia’s medium-term economic growth will also depend on the country’s ability to adapt to
shocks caused by falling oil prices and sanctions that pose a threat to financial stability and fiscal sustainability.
Consumer demand is also expected to slow down, while high inflation will put pressure on household incomes; at the same time, a weak ruble
could create incentives to expand production in a number of export-oriented sectors.
This Annual Accounting (Financial) Report reflects the Bank management’s assessment of the possible impact of the current financial and economic environment on the Bank’s operations and financial position. The Bank’s management believes it is taking all the necessary measures to
maintain the stability of the Bank’s activities in the current circumstances. However, a sudden further deterioration in the areas described above
could negatively affect the Bank’s results and financial standing.
3. Brief overview of the fundamental principles underlying preparation of Bank’s Annual
Accounting (Financial) Reports and key principles of Bank’s Accounting Policy
3.1. Fundamental principles underlying preparation of annual financial reports
The Bank’s accounting is performed in compliance with the requirements of CBR Regulation No.385-P dated July 16, 2012, “Accounting rules
for credit organizations located on the territory of the Russian Federation” (with addendums and amendments) (hereinafter CBR Regulation
No.385-P) and other regulatory documents.
The Annual Report was prepared in compliance with the requirements of CBR Ordinance No.3054-U and CBR Ordinance No.3081-U dated October 25, 2013, “On the disclosure of information on business activities by credit organizations” (hereinafter – CBR Instruction No.3081-U).
In 2013, the Bank exercised its right not to provide explanatory information stipulated in CBR Instruction No.3081-U as part of its financial report.
For this reason, comparative 2013 data has been provided in the 2014 Annual Financial Report, in accordance with the Ordinance referenced
above.
3.2. Summary of the results of balance sheet inventory verification
In accordance with the year-end closing schedule, the Bank conducted an inventory of balance sheet items as of January 1, 2015. The Bank
conducted an inventory of fixed assets, intangible assets and materials as of November 1, 2014. Furthermore, all cash offices of all of the
Bank’s branches and satellite offices were inventoried as of January 1, 2015. The results of the inventory were duly recorded.
The Bank conducts verification of written notes confirming balances in client accounts. On January 14, 2015, the Bank sent statements showing
account balances as of January 1, 2015, to all clients holding any type of account (settlement, loan, current, correspondent, savings, deposit etc).
The Bank performs verification of interbank loans and deposits balances using SWIFT.
No discrepancies between records and physical presence have been found during inventory of balance sheet items.
Discrepancies in the amount of 1,592 thousand rubles have been uncovered as a result of the inventory of fixed assets. This did not cause any
material misrepresentation in the financial reports. Presently, the Bank continues its efforts to locate these fixed assets. Those fixed assets which
are not recovered by the end of the allotted time period will be written off the balance sheet.
105
3.3. Information on assumptions and main sources of uncertainty in estimates at end of the reporting period
In the course of annual financial reports preparation, the management is obligated to make conclusions, calculate estimates and make assumptions that affect the application of accounting policy and value of assets, liabilities, income and expenses represented in the Annual Financial
Report. Actual results may differ from such estimates.
Estimates and the underlying assumptions are subject to regular review. Adjustments to estimates are recognized in the same accounting period
in which the estimates are revised and in any and all subsequent periods affected by the revisions.
Information on uncertain material estimates and reasonably substantiated judgments in application of the accounting policy principles with
regards to possible losses from loans and equivalent liabilities is presented in Section 4.3 below.
3.4. Principles and methods for valuation and accounting for certain transactions
Assets
Assets are recorded at cost. Subsequently, assets are valued (revalued) at current (fair) value or through provisions for impairment in compliance with CBR regulations.
Cash and its equivalents
For the purposes of annual financial reporting, the term cash equivalents denotes short-term high-liquidity investments, readily convertible into
cash and not subject to any significant risks of changing in value. Cash and its equivalents include the following articles of schedule 0409806 “Accounting Balance Sheet (published form)”: cash, cash balances held by banks with CBR (other than mandatory reserves held at CBR) and cash
held on accounts with credit institutions (excluding assets that carry a risk of loss). Mandatory reserves held with CBR are not considered cash or
cash equivalents due to their limited availability for immediate use.
Loans granted and their equivalents, provisions on possible losses on loans and their equivalents
Loans granted and their equivalents are recorded at their actual value as of the disbursement date.
In compliance with CBR Regulation No. 254-P dated March 26, 2004, “On the procedure for creation of provisions on loans, loan receivables and
equivalents by credit organizations” (as changed and amended) (hereinafter CBR Regulation No. 254-P) and the Bank’s internal Credit Policies &
Procedures for corporate and retail lending, provisions for possible losses from loans are created for issued loans and their equivalents.
Provisions are formed when loans decline in value, i.e. when the loan loses value due to non-fulfillment or improper fulfillment of the borrower’s obligations to the credit institution under the loan agreement, or when an imminent threat of such non-fulfillment exists.
Provisions are formed in the amount of the principal loan amount (balance sheet carrying amount). The following amounts are not included into
the principal loan amount: amounts due as interest for the use of money as defined in the loan agreement, legal acts or customary business
practices; commissions, penalties or any other amounts due to the Bank under the terms of loan agreement. Provisions on this type of assets
are formed in accordance with the CBR Regulation No.283-P dated March 20, 2006, “On the formation of provisions by credit organizations for
possible losses” (with amendments and addendums) (hereinafter CBR Regulation No.283-P).
Provisions are formed on a specific loan or a portfolio of homogenous loans, i.e. a group of loans with similar credit risk parameters which comply with the CBR Regulation No. 254-P and had been isolated for the purposes of forming the provision.
Loans granted to corporate clients
Provisions for possible losses on loans granted to corporate clients are formed separately for each loan based on evaluation (professional opinion) of credit risk of each such loan.
The professional opinion is formed as a result of a comprehensive and objective analysis of the borrower’s operations with regard to their financial position, quality of servicing the loan and all other information about the borrower available to the Bank. Based on the professional opinion,
loans are classified into one of five quality categories per the CBR Regulation No. 254-P.
The Bank analyzes the borrower’s financial reports and other available information on their operations and financial performance to estimate
the presence and influence of risk factors. Evaluation of the borrower’s financial position is conducted by the Bank based on that estimate. The
Bank uses mass media and other sources to obtain information on potential risk factors.
Loans classified as quality categories II through V are deemed by the Bank to have lost their value.
For loans classified as quality categories II through V, provisions are formed after taking into account category I and II collateral listed in the CBR
Regulation No. 254-P.
The amount of provisions is reviewed on an onoing basis simultaneously with the evaluation of credit risks on loans.
106
Retail loans
Provisions for possible losses on retail loans are formed by the Bank for portfolios of homogenous loans. The Bank distinguishes the following
portfolios by loan type:
1. Consumer loans PIL
2. Consumer loans – PIL – TopUp
3. Consumer loans – PIL – Extensions
4. Consumer loans – PIL – Re-write
5. Credit cards CC
6. Credit cards СС Re-age
7. Credit cards СС IB
8. Consumer loans CFinPIL
9. Consumer loans CFinPIL – Renewal
10. Credit lines Ready credit
11. Debit cards DC
12. Debit cards DC for non-residents
13. Mortgage loans Purchase Mortgage
14. Mortgage loans Home Equity
Provisions for homogenous loan portfolios are formed in accordance with the risk evaluation protocol established by the Bank on the following
portfolios of homogenous loans:
>>
portfolio of loans without past-due payments;
>>
portfolio of loans with past-due payments with a term of 1 to 30 calendar days;
>>
>>
>>
>>
>>
>>
portfolio of loans with past-due payments with a term of 181 to 360 calendar days.
The Bank continuously assesses the credit risk for portfolios of homogenous loans. In accordance with the CBR Regulation No. 254-P, the Bank
classifies the assembled portfolios of homogenous loans into five quality categories.
The Bank writes off uncollectable loans against previously established loan-specific provisions in accordance with the internal “Operating procedure for declaring loans outstanding past-due and writing them off”.
For evaluation and establishing provisions for retail loans not included into any portfolio of homogenous loans, the Bank uses a procedure similar
to the one used for evaluation and establishing provisions for loans granted to other credit institutions and corporate clients.
Acquisition of receivables arising from agreements on the provision (placement) of funds
Acquired rights to receivables arising from agreements on the provision (placement) of monetary funds are accounted for at the cost of acquisition on the date of acquisition as stipulated by the conditions of the agreement.
Income from factoring transactions is recorded by the Bank as commission receivable and is subject to monthly accrual on separate subaccounts of the sub-ledger account 47423 “Claims on Other Operations” in correspondence with account 70601 “Income” expressed by the
symbol 12401 with the subsequent creation of 100% impairment provisions for clients of the fourth and fifth quality categories.
The date of liability retirement is the date of the fulfillment of the debtors’ obligations or the date of the concession of receivables to third parties
(date of sale) stipulated by the sale agreement.
The financial result from retirement of a receivable is determined as either the difference between the purchase price of the receivable and its
selling price or the amount paid by the debtor (borrower) as stipulated by the agreement whereby the receivable was acquired. When the payment for the sold (redeemed) receivable is made in parts, the financial result is calculated as the difference between the partial payment amount
and the sold (redeemed) portion of the receivable calculated in proportion to the ratio between the partial payment amount and the nominal
value of the receivable.
Interest income arising from the conditions of the underlying agreement on investment (provision) of funds but not included in the volume of
acquired receivables is recognized as income and recorded in the books as interest income from investment operations.
The following portfolios have been created from receivables acquired under loan agreements with individuals:
1. Acquired receivables on consumer loans
2. Acquired receivables on mortgage loans
Evaluation of credit risk arising from acquired receivables as well as calculations and establishment of impairment provisions are conducted by
the Bank in accordance with the CBR Regulation No. 254-P using the methodology similar to the one used for evaluation of outstanding loans.
107
Securities
The Bank classifies securities according to purchase objectives into the following categories:
>>
Investment in securities evaluated at fair value through profit or loss;
>>
Investment in securities available for sale.
Investments in securities evaluated at fair value through profit or loss include bonds purchased for resale in the short-term (under 1 year) whose
current (fair) value can be reliably determined.
Investments in securities available for sale include bonds other than those included in “securities evaluated at fair value through profit or loss”
and “held to maturity” at the time of acquisition.
Once securities are recorded in the books, their carrying value is adjusted for the amount of discount (premium) and coupon (interest) income
accrued and received between their acquisition and retirement.
Investments in securities classified upon initial recognition as “evaluated at fair value through profit or loss” as well as those classified as “available
for sale” are accounted at current (fair) value.
For the securities classified as “available for sale”, the Bank establishes impairment provisions if it is not possible to reliably determine their
current (fair) value and there are indications of their impairment in accordance with the CBR Regulation No. 283-P and the internal “Operating
procedure for calculation and establishment of impairment provisions”.
In order to determine the amount of the impairment provision, reasonable judgment is used to classify account balances into one of five quality
categories. For each of the five quality categories, the Bank uses appropriate provision percentage as defined in the CBR Regulation No. 283-P.
When classifying account balances, the Bank evaluates the counterparty’s financial position in order to estimate the probability of non-fulfillment
or improper fulfillment of contractual obligations.
The Bank analyzes the counterparty’s financial reports and other available information on their operations and financial performance to estimate the presence and influence of risk factors. The Bank evaluates the counterparty’s financial position based on that estimate.
The Bank uses mass media and other sources to obtain information on potential risk factors. Absence of information about the counterparty is
considered by the Bank as a risk factor, which is taken into account while forming the professional opinion.
The Bank conducts risk assessment on a continuous basis.
When companies in which the Bank had previously contributed capital are reorganized into joint-stock companies, the equity securities received
by the Bank as a result of such reorganization are recorded at cost. Such securities are not re-evaluated at fair value; the Bank sets up an impairment provision in the amount of 100% of their carrying value.
In accordance with the CBR Regulation No. 283-P, the Bank also creates possible loss provisions for debt securities not redeemed at maturity.
Such provisions are established using a similar procedure to the one used for securities “available for sale».
Current (fair) value of securities is established on a daily basis. The bank uses the following methods to establish current (fair) value of securities.
If there is an active market and price quotations, the current (fair) value of securities is defined by the Bank as weighted average price disclosed
by the securities market operator in accordance with paragraph 7.7 of the Securities Trading Statute enacted by the order of the Federal Financial Markets Authority No. 10-78/pz-n dated December 28, 2010. The Bank recognizes the Moscow Stock Exchange (MICEX) as a reliable source
of information. When securities are traded on established foreign markets, the current (fair) value is defined as weighted average price disclosed
in accordance with the procedure determined by national legislation (authority). The Bank recognizes the international information agencies
Reuter and Bloomberg as reliable sources of information.
If there is no active market, the bank re-evaluates securities on a daily basis. If an active market is unavailable during a calendar month, re-evaluation is conducted on a monthly basis, on the last business day of the current month. The fair value of such securities is assumed equal to the
last weighted average price disclosed by MICEX during that calendar month. If there is no data on the weighted average market price for such
securities on MICEX, their current (fair) value is assumed equal to their demand price (BID) published by Reuter as of 5.00 pm Moscow time
on the last business day. If such information is not available from Reuter, the Bank uses the demand price (BID) reported by Bloomberg as of
5.00 pm Moscow time on the last business day. If the fair value of a security cannot be determined for a given calendar month, a provision for
possible loss on such security is created.
The Bank has established a valuation method for retired (sold) securities based on the FIFO principle.
Acquisition (transfer) of ownership of securities via transactions on conditions of maturity, repayment and interest payment is not grounds for
the initial recognition (de-recognition) of securities if it does not entail transfer of all risks and advantages (or a substantial portion thereof) related to the ownership of the transferred securities.
For reverse repurchase (repo) transactions where the Bank acts as the initial purchaser of securities, the Bank does not assume the risk and
advantages related to the ownership of these securities. Securities received during the first stage of a reverse repo transaction are accounted
without recognition as an asset of the Bank and are reflected on off-balance sheet accounts. Monies paid during the first stage of a reverse repo
transaction are recorded in the balance sheet accounts for other invested assets.
108
For repo transactions where the Bank acts as the initial seller of securities, the Bank does assume the risk and advantages related to the ownership of these securities. Transfer of securities via repo transactions is conducted without de-recognition as assets of the Bank. Monies received
during the first stage of a repo transaction are recorded in the balance sheet accounts for other borrowed funds.
Derivative financial instruments and other agreements (transactions) settled and executed not earlier than the day following the date
of the agreement (transaction)
Methods used by the bank to classify transactions recorded in accordance with requirements of the CBR Regulation No.372-P “On the procedure
for maintaining accounting records for derivative financial instruments” dated July 4, 2011, are based on criteria set out in the directive of the
Federal Financial Markets Authority No.10-13/pz-n dated March 4, 2010, on types of derivative financial instruments.
Derivatives are recorded in the Bank’s balance sheet Section A accounts at fair value. Derivatives with positive fair value are carried as assets in
the account “Financial assets evaluated at fair value through profit or loss” of form 0409806 “Balance Sheet” (published form). Derivatives with
negative fair value are carried as liabilities in the account “Financial liabilities evaluated at fair value through profit or loss” of form 0409806 “Balance Sheet” (published form).
The Bank conducts daily re-evaluation of the following types of derivatives: foreign currency forward, foreign currency swap, foreign currency
option, fixed maximum exchange rate transaction, non-deliverable foreign currency forward, non-deliverable foreign currency option and fixed
minimum foreign currency transaction.
For the purposes of determining fair value of foreign currency forwards, foreign currency swaps and similar contracts which are considered
derivatives, as well as transactions subject to CBR Regulation No. 372-P, the Bank utilizes the Net Present Value (NPV) method. Detailed methodology for calculating fair value, testing the model for market compatibility and analysis of changes in forward exchange rate was developed by
Citigroup’s Risk Analysis Department and described in a separate document “E-dealer: methodology of profit and loss determination” approved
by the Risk Management Committee on June 30, 2008.
For the purposes of determining fair value of foreign currency options and similar contracts, the Bank utilizes the Black-Scholes model. Detailed
methodology for calculating fair value (premium) and model testing scenarios for market compatibility have been developed and described in
a separate Citigroup document.
The Bank evaluates the fair value of derivative instruments and reflects its fluctuation in its accounts on the last business day of a month, on the
day of derivative’s de-recognition as well as on the day claims and/or obligations for interim payments arise in accordance with the agreement
for interim payments as part of the derivative’s settlement for the following types of derivative instruments: interest rate swap, interest rate option, interest rate forward, fixed maximum exchange rate transaction, fixed minimum exchange rate transaction, foreign currency interest rate
swap, swaption, commodity option, cap, floor, collar for which the underlying asset is a commodity, commodity swap, basic swap.
Re-evaluation of the fair value of interest rate, commodity transactions and similar contracts is uploaded and calculated in a separate module of
the front office OASYS/VELOCITY system per the methodology approved by Citigroup.
The Bank accepts the assessments of international information agencies such as Reuters and Bloomberg as well as the Moscow Stock Exchange
as reliable sources of information for the assessment of the fair value of both exchange traded and over-the-counter derivatives.
For forward contracts and other derivatives, claims and liabilities on delivery of the underlying (base) asset in the form of securities, precious
metals and foreign currencies are recorded in the accounts of part G “Derivative Financial Instruments and Forward Transactions” of the
Bank’s balance sheet. The transactions are reflected in the accounts from the date of signing to the date of receipt of the first settlement.
Agreements (transactions) which do not stipulate delivery of the underlying (base) asset (i.e., settlement derivatives) are also accounted for in
part G “Derivative Financial Instruments and Forward Transactions”.
Claims and liabilities carried in part G accounts are re-evaluated in accordance with changes in official foreign currency exchange rates of the
Central Bank of Russia, its official precious metals prices, current fair value of securities and other variables. In accordance with the requirements
of CBR Regulation No. 385-P, when re-evaluation adjustments are posted to asset accounts, the corresponding debit (credit) is applied to account
99997; when adjustments are posted to liability accounts, the corresponding debit (credit) is applied to account 99996.
Fixed assets
The term fixed assets denotes property with a useful life in excess of 12 months used as means for providing services, managing an organization
and also in instances stipulated by health and hygienic, operational, and other special technical norms and requirements. In order to be classified
as fixed, cost of the asset must exceed RUB 40,000 per unit excluding VAT.
Fixed assets are recorded at original cost. Original cost of fixed assets is derived from actual expenses incurred to acquire the assets and prepare
them for utilization.
The Bank defines the useful life for all fixed assets and amortizes them in accordance with their useful life. Depreciation of fixed assets is calculated based on either straight-line or declining balance method. The Bank applies straight-line method of depreciation to buildings, structures
and transfer units included in the 8th-10th depreciation groups regardless of the date when such fixed assets were placed in operation. The Bank
applies declining balance method of depreciation to other fixed assets placed in operation before January 1, 2008. The straight-line method of
depreciation is applied to other fixed assets placed in operation after January 1, 2008.
109
The useful life of fixed assets is defined by the Bank based on the Government Decree No. 1 “On classification of fixed assets included in amortization groups” dated January 1, 2002. For those types of fixed assets which are not listed in amortization groups, the useful life is set in accordance
with technical specifications and manufacturers’ recommendations.
The Bank does not re-evaluate fixed assets.
Intangible assets
Intangible assets are recorded at the actual (original) cost as of their acquisition date. Intangibles which do not depreciate in value in the course
of their utilization (e.g., perpetual rights of use) are not amortized. Depreciation factors for those intangible assets that are subject to amortization are calculated based on their useful life. The duration of useful life is defined based on patent (or certificate) expiry date and other time
limitations on the use of objects of intellectual property in accordance with relevant legislation. If the useful life of an intangible asset cannot be
reasonably defined, depreciation is calculated based on five-year time period (not to exceed the Bank’s operating period).
Depreciation is calculated using the straight-line method.
The Bank does not re-evaluate intangible assets.
Materials
The Bank has an internal procedure for requisitioning spare parts, materials, publications and office supplies which are acquired strictly through
applications approved by business division directors within established limits and delivered by the supplier directly to the business division. Due to
the existence of this procedure, the Bank does not record materials on sub-ledger balance sheet accounts 61002-61010.
Materials are expensed at actual cost, which includes all expenses related to acquisition, delivery and preparation for use.
Liabilities
Liabilities are reflected on the books in accordance with the terms of respective agreements in order to ensure control over timely and complete
fulfillment of related obligations. Liabilities can be re-evaluated to their current (fair) value in instances stipulated by the CBR Regulation No.
385-P and other regulatory documents.
The Bank does not issue debt securities.
Share capital, dividend
The registered share capital of the Bank comprises 1,000 uncertified common registered shares recorded in the account “Shareholders’ (participants’) funds” of the balance sheet (published form). 100% of shares belong to the sole shareholder Citigroup Netherlands B.V.
Operating leases
Lease payments made under operating leases are expensed by the Bank over the term of the lease on a straight-line basis.
Income tax
Income tax is calculated on a quarterly basis and accrued monthly. The total amount of income tax includes both current and deferred
components.
The Bank does business in various tax jurisdictions. While doing business, the management must interpret and apply the existing legal norms with
regard to transactions with third parties and the Bank’s own operations. At present, Russian tax legislation, as a rule, is based on how business
operations are documented and how they are accounted for in accordance with the Russian accounting principles. Interpretation of Russian tax
legislation by tax authorities as well as judicial practice in this regard are in a state of constant flux and in the future could focus attention not on
the form but rather on the economic substance of a transaction. Recent tax court cases demonstrate that tax authorities are taking a stricter position with regard to interpretation and application of tax legislation. Tax authorities have the right to audit documentation related to a particular
tax year at any time during the subsequent three calendar years. Throughout this period, any changes in the interpretation of tax legislation and
its practical implementation, even without any changes in Russian tax law, could be applied retroactively.
In the opinion of the Bank’s management, all relevant provisions of tax legislation as of January 1, 2015, have been correctly interpreted and there
is a high likelihood that the Bank will retain its current position in terms of compliance with tax, foreign currency and customs legislation.
Deferred income tax
Deferred income tax assets and liabilities arise from temporary differences between balances in assets (liabilities) accounts recorded in
accordance with analytical accounting methodology and the underlying tax base used to calculate income tax as per applicable tax and excise
legislation of the Russian Federation. Tax base means the amount recorded as asset or liability for tax purposes. Deferred tax assets and liabilities
are not recognized with regards to balances in liability (asset) balance sheet capital accounts.
Temporary differences are calculated until balances in asset (liability) accounts are completely written off or until the results of operations or
events (including those occurring in prior reporting periods) reflected in the Bank’s books cease to affect the amount of taxable income.
Deferred tax liability is recognized when temporary differences result in deferral of taxable income. Deferred tax asset arises from deferral of
deductible items and unused losses which allow the Bank to reduce income tax payable.
Deferred tax assets are recorded on the books when temporary differences arise and it is likely that the Bank will earn taxable income in the
future reporting periods.
110
The Bank considers the following conditions when estimating the likelihood of earning taxable income which the Bank can legitimately reduce by
the amount of deductible temporary differences:
>>
Whether the Bank has a sufficient amount of taxable temporary differences which will result in taxable income which the Bank is allowed to
reduce for tax purposes by the amount of deductibles due to temporary differences;
>>
Whether the Bank anticipates earning taxable income in the reporting period in which the Bank will be allowed to reduce taxable income for
tax purposes by the amount of deductible temporary differences.
Part of the deferred tax asset (or the entire asset) proportionately related to the probability of not earning taxable income which would allow the
Bank to benefit from the part (or all) of the deferred tax asset is not recognized.
Deferred tax assets arising from deferred unused losses from prior periods are reflected in the books if it is likely that the Bank will receive taxable income in the future reporting periods.
The Bank considers the following conditions when estimating the likelihood of earning taxable income which the Bank can legitimately reduce by
the amount of unused losses carried over from prior periods:
>>
Whether the Bank has sufficient taxable temporary differences which will result in receiving taxable income which the Bank is allowed to
reduce for tax purposes by the amount of unused losses carryover within the time period defined by the tax and excise legislation of the
Russian Federation;
>>
Whether it is likely that the Bank will receive taxable income before expiry of the allowable loss carryover period defined by the tax and
excise legislation of the Russian Federation which will allow the Bank to benefit by deducting unused losses carried over from prior periods;
>>
Whether the reasons for deferral of unused losses may re-emerge in the future;
>>
Whether the Bank anticipates receiving taxable income in the reporting period in which the Bank will be allowed to reduce taxable income
for tax purposes by the amount of deferred unused losses carried over within the period defined by the tax and excise legislation of the
Russian Federation.
The part of the deferred unused losses carried over from prior periods proportionately related to the probability of not earning taxable income
which would allow the Bank to benefit from the deductibility of the deferred unused losses carried over within the period defined by the tax and
excise legislation of the Russian Federation is not recognized.
Recognition of income and expenses
Income and expenses are recorded using the method of accruals, in compliance with the CBR requirements, except income which is subject to
uncertainty. Such income is recorded on a cash basis. The accrual principle means that financial results of operations (income and expenses) are
recognized in accounting records when the corresponding service is provided and not upon receipt (or payment) of cash or its equivalents.
Analytical accounting on the income and expense accounts is performed in Russian rubles only. Income and expense accounts reflect ruble
equivalents of sums in foreign currencies based on the official exchange rate on the date when income or expense is recognized.
Amounts received (collected) subject to remittance in favour of third parties are not recognized as income. Costs and charges subject to reimbursement are not recognized as expenses and are recorded on appropriate receivables accounts.
Interest on the Bank’s investments, including reverse repo transactions, is recorded in the books on a daily basis. Interest income expected to be
received with certainty is recognized on the accrual basis. Interest income of uncertain nature is recognized on the cash basis.
Absence or presence of uncertainty in receiving income on loans and equivalent operations is defined based on an estimate of loan quality or
level of risk of losses on the underlying asset (claim):
>>
for loans and assets (claims) classified by the Bank as quality category I through III, receipt of income is considered certain (high probability
and/or certainty of receiving income);
>>
for loans and assets (claims) classified by the Bank as quality category IV and V, receipt of income is considered uncertain (poor to no
chance of receiving income).
Interest expenses incurred as compensation to individual and corporate clients for the use of funds held in their current (demand) and term
deposit accounts (including correspondent accounts) and on direct repo operations are expensed daily.
Discount (premium) amounts as well as coupon (interest) income on securities are considered interest income and are accrued over the life of
the underlying security.
On the last business day of a month ending on a non-business day, the Bank expenses all interest which is to be accrued over the remaining
calendar (non-business) days of the month.
With the aim of optimizing and increasing efficiency of the Bank’s operations, the following assumptions are made:
>>
materiality threshold for received/paid commissions on credit and other operations is set to USD 100,000 equivalent, i.e. commission
amounts below the set equivalent may be charged to income/expenses in a single entry regardless of the length of the period they are
received/paid for;
>>
payroll costs are expensed at the time of accrual; travel and entertainment expenses are recorded at the time of approval;
>>
depreciation is charged on or before the last business day of the month, taxes and levies are recorded on or before their respective due dates;
>>
prepaid lease payments are expensed monthly at the end of the actual occupancy period;
>>
costs of subscription to publications are expensed on the date of payment;
>>
services are deemed received by the Bank on the day of their acceptance.
111
Commissions payable and receivable as well as miscellaneous income and expenses are recognized on the day when the underlying service is
rendered.
Re-evaluation of assets denominated in foreign currencies
Re-evaluation of assets denominated in foreign currencies is based on changes in the official CBR exchange rates, with resulting adjustments
posted to income and expense accounts on a daily basis.
Re-evaluation of assets denominated in foreign currencies which are not included in the list of official exchange rates set by the CBR is conducted when exchange rates calculated per the methodology described in the CBR letter No. 6-T dated January 15, 2010, change, with the resulting
adjustments posted to income and expense accounts on a daily basis.
Exchange rate gains or losses arising from foreign currency conversion transactions are included in the Bank’s financial result at the exchange
rate in effect on the day of transaction. The day of transaction means either the date of delivery of funds or the date of receipt, whichever comes
earlier.
Re-evaluation of foreign currency assets is carried out at the beginning of the operational day, before any transactions are posted to accounts.
The opening balance of each account is subject to re-evaluation, excluding any advances paid to (or received from) non-resident entities for
goods shipped and/or maintenance services rendered.
Netting
Financial assets and liabilities are offset (netted) only in situations in which the governing currency conversion agreement includes an offsetting
(netting) provision in effect as of the date of execution.
3.5. Nature and magnitude of adjustments due to material changes in accounting policy and calculated estimates that
affect comparability of certain business indicators
The Bank’s Accounting Policy for 2014 was approved by the Board of Directors per the meeting minutes dated February 28, 2014.
The CBR Regulation No. 409-P dated November 25, 2013, “On the accounting treatment of deferred tax liabilities and deferred tax assets”
(hereinafter CBR Regulation No. 409-P) and CBR Instruction No. 3121-U dated November 25, 2013, amending CBR Regulation No. 385-P came into
force effective January 25, 2014. These documents introduce the procedure for accounting treatment of deferred tax liabilities and deferred tax
assets. CBR Regulation No. 409-P stipulates accounting treatment of amounts sufficient to increase (decrease) income tax payable to the state
budget of the Russian Federation in future reporting periods, in accordance with the tax and excise legislation of the Russian Federation. Requirements contained in these legal documents have been applied starting with interim accounting (financial) reports for the first quarter of 2014.
In accordance with the CBR Letter No. 50-T dated March 28, 2014, “On peculiarities of accounting treatment of deferred tax assets and deferred
tax liabilities by credit institutions”, credit institutions were given the option to apply the requirements of the CBR Regulation No, 409-P either
retroactively or proactively at their discretion.
The Bank decided to apply the requirements of the CBR Regulation No, 409-P proactively. Nominal value of deferred tax liabilities and deferred
tax assets subject to recognition in the books in correspondence to additional capital and income accounts set as of the nominal prior period was
set to equal zero.
Therefore, income tax expense data in the report on financial results and values of deferred tax assets and liabilities in the balance sheet are not
comparable with the data for the year 2013 and the data as of January 1, 2014.
Effective April 1, 2014, CBR Ordinance No. 3134-U amending CBR Regulation No. 385-P added balance sheet account 50709 “Equity securities
valued at cost” to the Bank’s chart of accounts. In addition, the document clarified the term current (fair) value of a security, which means the
price at which the security could be sold by one securities market participant to another on voluntary basis on the date of valuation. Estimate of
current (fair) value is calculated using methodology defined in the International Financial Reporting Standard (IFRS) 13 “Fair Value Measurement”
(hereinafter IFRS 13) enacted on the territory of the Russian Federation by the order of the Minister of Finance No. 106n dated July 18, 2012.
In accordance with CBR Ordinance No. 3106-U dated November 6, 2013, amending CBR Regulation No. 372-P dated July 4, 2011, and CBR
Ordinance No. 3107-U amending CBR Regulation No. 385-P dated July 16, 2012, effective January 1, 2014, the authority of CBR Regulation No.
372-P was extended to include purchase and sale agreements for foreign currency, precious metals and securities other than derivatives stipulating the transfer of title and payment not earlier than the third day after the date of signing. The amendments also introduced the term other
agreements (transactions) stipulating settlement and delivery not earlier than the day following the date of signing and defined the accounting
procedure for such agreements. In addition, the amendments revised the accounting procedure for operations related to de-recognition of a derivative financial instrument in accordance with agreements stipulating purchase and sale of an underlying (base) asset as well as other changes
in accounting treatment of derivative financial instruments.
Effective July 1, 2014, CBR Ordinance No. 3269-U amended the CBR Ordinance No. 2332-U “On the list, forms and procedure of compilation and
submission of reports by credit institutions” to revise the report on capital adequacy for covering risks, size of provisions for doubtful loans and
other assets (published form) No. 0409808 as it relates to capital requirements for credit, market and operating risks as well as other indicators
needed to define the denominator of the capital adequacy ratio.
No event related to the Bank’s property and financial results failed to be reliably represented in its financial reporting.
112
3.6. Changes in Accounting Policy for the following reporting year
For the reporting year 2015, the Bank’s accounting policy will be amended to reflect changes in applicable legislation, including disclosure of
the procedure for uncovering inappropriate assets for the purposes of defining the Bank’s equity capital (Basel III) as well as methodologies for
estimating fair value of securities in accordance with IFRS 13.
The Bank did not conduct any analysis of possible impact of changes on its financial position or results of operations.
3.7. Nature and magnitude of material errors in prior periods
In the course of compiling the annual accounting (financial) statements, the Bank did not uncover any material errors in prior period reports
which affected the reported parameters.
3.8. Post Balance Sheet Events
The Annual Report contains adjustments for events after the end of the reporting period (hereinafter PBSE).
For the purpose of correctly compiling the Bank’s 2014 Annual Report, the following PBSE adjustments were recorded:
>>
transfer of balances recorded on balance sheet accounts 706 “Current period financial result” to balance sheet accounts 707 “Previous
period financial result”;
>>
transfer of balances from balance sheet accounts 707 “Previous period financial result” to balance sheet account 70801 “Previous Period
Profit” in the amount of RUB 6,431,014 thousand.
As part of 2014 PBSE adjustments, the following operations have been included for the total amount of RUB 984,608 thousand:
>>
over-accrual of 2014 income taxes in the amount of RUB 234,162 thousand;
>>
over-accrual of taxes on interest income from government and municipal securities for November-December 2014 in the amount of
RUB 14,255 thousand;
>>
top-up of the 2014 employee bonus reserve fund in the amount of RUB 244,628 thousand;
>>
maintenance and other non-operating expenses in the amount of RUB 988,397 thousand.
No PBSE indicating appearance of circumstances materially affecting the Bank’s financial position, assets and liabilities occurred as of the date of
compilation of the annual financial reports.
4. Notes to the balance sheet items
4.1. Cash and cash equivalents
January 1, 2015
thousands of rubles
January 1, 2014
thousands of rubles
Cash
11,415,696
5,251,357
Mandatory cash balances held with the CBR
9,883,417
11,021,936
25,680,080
12,248,474
226,159
4,260,180
25,453,921
7,988,294
46,979,193
28,521,767
January 1, 2015 thousands of rubles
7,153,915
25,047,566
22,671,679
1,580,980
29,825,594
26,628,546
Cash balances on correspondent accounts with credit institutions:
Russian Federation
Other countries
Total
Cash and cash equivalents are neither past-due nor restructured.
4.2. Financial assets evaluated at fair value through profit or loss
Debt securities
Total
113
Detailed analysis of debt securities by type is shown below:
Bonds issued by Russian federal and municipal governments
7,131,789
24,902,826
Federal loan bonds (OFZ)
6,941,920
23,693,656
189,869
1,209,170
Corporate bonds
22,126
144,740
Bonds issued by Russian corporations
13,486
38,120
Bonds issued by foreign corporations
-
26,704
8,640
79,916
7,153,915
25,047,566
Eurobonds issued by the government of the Russian Federation
Bonds issued by Russian credit institutions
Total Information on the terms of circulation and coupon rates on each series of debt securities is shown below as of January 1, 2015:
Series of securities
Number of securities held, units
Term of circulation, days
Coupon rate, %
41103349B
2,052
3,640
8.20
41203349B
1,981
3,640
7.70
4B02-01-00004-T
2,571
1,092
7.65
2,037
1,092
7.50
11
1,820
7.55
13,474
6,959
10.75
42
5,808
-
46014RMFS
192,341
5,656
7.00
46017RMFS
2,837,157
4,186
6.50
46018RMFS
888,678
6,097
7.00
46021RMFS
189
4,186
5.50
46022RMFS
159,165
5,656
6.00
25079RMFS
84,083
1,463
7.00
25080RMFS
693,893
1,820
7.40
25081RMFS
149,066
1,820
6.20
26203RMFS
952,913
2,191
6.90
26204RMFS
77,655
2,549
7.50
26205RMFS
98,699
3,654
7.60
26208RMFS
4B020202766B
4-04-36400-R
4-15-00739-A
46005RMFS
727,901
2,548
7.50
26210RMFS
4,160
2,548
6.80
26214RMFS
581
2,548
6.40
26216RMFS
75,396
2,009
6.70
SK-0-CM-128
19,507
10,957
7.50
XS0504954180
5,664
1,826
3.63
MK-0-CM-119
52,848
10,958
12.75
MK-0-CM-126
2,783
7,305
11.00
109,068
2,557
7.85
49001RMFS
114
Information on the terms of circulation and coupon rates on each series of debt securities is shown below as of January 1, 2014:
Coupon rate, %
40202766B
3,284
1,092
8.25
40501000B
3,248
3,640
7.58
40603311B
121
1,099
9.50
41103349B
2,085
3,640
8.20
41203349B
2,048
3,640
7.70
41303349B
6,331
3,640
7.70
2
7,280
8.40
48,295
1,092
7.65
4B020202766B
2,090
1,092
10.50
4B020302766B
1,654
1,092
9.20
4B020303354B
10,759
1,096
9.90
1,575
11,817
9.00
4-04-36400-R
12
1,820
7.55
4-08-55038-E
2,476
3,640
8.50
4-15-00739-A
34,057
6,959
10.75
4-04-00001-L
17,067
1,820
6.80
4-05-00001-L
9,637
1,820
7.00
25,469
5,808
-
46014RMFS
481,879
5,656
7.00
46017RMFS
239,426
4,186
6.50
46018RMFS
1,400,788
6,097
7.00
5,604
6,097
6.90
46021RMFS
1,691,500
4,186
6.00
46022RMFS
91
5,656
6.50
46023RMFS
1,044
5,410
8.16
25068RMFS
137,584
1,820
12.00
25071RMFS
673,223
1,820
8.10
25075RMFS
669,285
1,813
6.88
25076RMFS
120,273
1,149
7.10
25077RMFS
555,129
1,820
7.35
25079RMFS
12,450
1,463
7.00
25080RMFS
869,561
1,820
7.40
25081RMFS
3,220,544
1,820
6.20
25082RMFS
59,795
1,092
6.00
26203RMFS
29,920
2,191
6.90
26204RMFS
118,243
2,549
7.50
26205RMFS
58,030
3,654
7.60
4-26-00004-T
4B02-01-00004-T
4-02-72301-H
46005RMFS
46020RMFS
26206RMFS
1,132,370
2,198
7.40
26209RMFS
603,776
3,640
7.60
26210RMFS
3,354,619
2,548
6.80
26214RMFS
3,036,124
2,548
6.40
26215RMFS
2,686,682
3,633
7.00
115
Coupon rate, %
26216RMFS
2,510,246
2,009
6.70
SK-0-CM-128
836,080
10,957
7.50
XS0504954180
3,404
1,826
3.63
MK-0-CM-119
54,175
10,958
12.75
49001RMFS
315,511
2,557
7.85
The Bank does not invest in equities that are evaluated at fair value through profit or loss.
The table below shows a detailed breakdown of derivative financial instruments by type of underlying (base) asset and type of derivative.
4,541,134
489,066
5,976,875
430,401
6,106,107
414,855
41,819
75,597
Options
3,422,672
146,147
Other
2,583,072
24,914
22,671,679
1,580,980
Loans to credit institutions
128,438,807
138,903,024
Loans to corporations other than credit institutions, including
106,209,318
74,214,417
- Financing of current operations
104,570,969
70,464,507
1,638,349
3,749,910
50,689,572
47,093,632
- Consumer loans
26,973,443
25,634,801
- Credit cards and overdrafts
23,130,055
20,883,589
586,074
575,242
285,337,697
260,211,073
Forwards:
- Foreign currency
Swaps:
- Foreign currency
- Foreign currency & interest rate
- Interest rate
4.3. Net loans receivable
Detailed breakdown of loans receivable by type of loan:
- Factoring
Retail loans
- Mortgage loans
Total loans receivable
Provisions for possible losses on loans
Total net loans receivable
116
4,553,983
3,293,569
280,783,714
256,917,504
Breakdown of loans by type of borrowers’ economic activity (before provisions for possible losses):
Interbank loans
128,438,807
45.0%
138,903,024
53.4%
Other non-retail loans – total, including by type of
economic activity:
106,209,318
37.2%
74,214,417
28.5%
Wholesale and retail trade
34,602,293
12.1%
23,840,976
9.2%
Processing industry
53,065,642
18.6%
36,597,113
14.1%
Transportation and communications
2,521,725
0.9%
7,562,248
2.9%
Real estate operations, leasing and services
845,446
0.3%
497,594
0.2%
Agriculture
405,613
0.1%
336,485
0.1%
Construction
-
- 70,480
0.0%
Mining
6,651,667
2.3%
209,720
0.1%
Generation and distribution of electrical energy, natural
gas and water
458,000
0.2%
328,000
0.1%
Other types of activity
7,658,932
2.7%
4,771,801
1.8%
Loans to small and medium-sized businesses, of total
non-retail loans
1,445,829
0.5%
1,049,040
0.4%
Retail loans – total, including
50,689,572
17.8%
47,093,632
18.1%
Consumer loans
26,973,443
9.5%
25,634,801
9.9%
23,130,055
8.1%
20,883,589
8.0%
586,074
0.2%
575,242
0.2%
285,337,697
260,211,073
4,553,983
3,293,569
280,783,714
256,917,504
Credit cards and overdrafts
Mortgage loans
Total loans
Total net loans receivable
Loans to credit institutions and corporations other than credit institutions
When forming the professional opinion about the amount of provisions, the Bank made the following assumptions:
>>
on loans classified as quality categories 2 through 4, per CBR Regulation No. 254-P, the Bank defines the calculated provision value as the
lowest end of the range set for such credit quality group;
>>
when defining fair value of collateral, the Bank assumes that it can be sold within a reasonably short time not exceeding 180 calendar days.
Retail loans
The Bank establishes provisions on portfolios of homogenous loans where each loan on its own is immaterial in value. Loans provided to the
same borrower and satisfying homogeneity criteria are considered ineligible for portfolio approach to provisions if value of such loans exceeds
0.5% of the Bank’s capital as of the risk assessment date. The bank considers purpose, amount, term and presence or absence of collateral as
criteria for homogeneity.
4.4. Provisions for possible losses are established based on the type of portfolio of homogenous loans and the
duration of past-due periods.
Investments in debt and equity securities available for sale
Debt securities
27,435,870
48,239,384
Total
27,435,870
48,239,384
117
Breakdown of debt securities by type:
Owned by the Bank:
Bonds issued by the government of the Russian Federation and municipalities
15,732,316
7,710,539
15,713,893
7,691,065
18,423
14,824
-
4,650
2,204,274
4,883,724
-
80,281
2,204,274
4,803,443
-
25,430,210
-
25,430,210
2,047,375
1,462,793
2,047,375
1,462,793
Corporate bonds
7,451,905
8,752,118
667,005
721,006
6,784,900
8,031,112
27,435,870
48,239,384
Eurobonds issued by the government of the Russian Federation
Other bonds issued by local governments and municipalities
Corporate bonds
Pledged as collateral under repo agreements:
Pledged as collateral under overnight loans:
Total
In addition, the Bank holds equity securities evaluated at cost in the amount of RUB 4,415 thousand which represent payment for participation in
several organizations. A provision is set up for 100% of the amount of these investments.
Information on maturity dates of debt securities available for sale as of January 1, 2015, is shown below:
Maturity date (dd.mm.yyyy)
Type of security
Minimum
Maximum
03 June 2015
31 March 2030
Debt securities issued by credit institutions
15 July 2016
23 Sept 2032
Corporate debt securities
01 Nov 2022
15 Nov 2024
15 March 2017
25 July 2018
03 June 2015
24 Nov 2021
Debt securities of credit institutions
15 July 2016
23 Sept 2032
01 Nov 2022
15 Nov 2024
Owned by the Bank:
Government debt securities
Debt securities issued by non-residents
118
Information on maturity dates of debt securities available for sale as of January 1, 2014, is shown below:
Maturity date (dd.mm.yyyy)
Type of security
Minimum
Maximum
13.03.2014
31.03.2030
Municipal debt securities
21.07.2014
21.07.2014
19.01.2016
23.09.2032
15.07.2014
15.11.2024
09.04.2014
09.04.2014
31.10.2014
25.07.2018
03.06.2015
25.01.2023
20.08.2014
24.11.2021
15.07.2016
23.09.2032
15.07.2014
15.11.2024
09.04.2014
09.04.2014
Owned by the Bank:
Debt securities issued by non-resident banks
Debt securities issued by non-residents
Pledged as collateral under repo agreements:
Debt securities issued by non-resident banks
Analysis of investments in debt and equity securities available for sale by key industries and types of economic activity is as follows:
27,444,240
48,239,384
Bonds issued by financial organizations
9,664,549
13,553,085
- Credit institutions
6,779,785
9,069,229
- Other
2,884,764
4,483,856
Bonds issued by non-financial organizations
17,779,691
34,686,299
- Arterial railroad transportation
-
80,281
- Electricity generation
-
2,476
17,779,691
34,603,542
4,415
4,415
Shares of financial organizations
5
5
- Other
5
5
Shares of non-financial organizations
4,410
4,410
- Information services
4,410
4,410
27,448,655
48,243,799
Debt securities:
- Bonds issued by the government of the Russian Federation and municipalities
Equity securities:
4.5. Financial investments in subsidiaries, dependent organizations and other participation
The Bank has no investments in subsidiaries and dependent organizations as well as other participation interests.
119
4.6. Fixed assets, intangible assets and real estate property temporarily unused in the core business activity
The breakdown of fixed assets, intangible assets and real estate properties temporarily unused in the core business activity as of January 1, 2015,
and January 1, 2014, respectively, as well as changes in value during the year 2014 are outlined below:
thousands of rubles
Real estate property tempoIntangible assets rarily unused in core business
Land and buildings
Equipment
Total
Balance as of January 1, 2014
795,182
2,204,594
202,475
-
3,202,251
Additions
56,040
201,126
-
10,548
267,714
Disposals
(39,506)
(446,620)
-
-
(486,126)
811,716
1,959,100
202,475
10,548
2,983,839
(120,582)
(1,771,019)
(133,050)
-
(2,024,651)
(26,072)
(180,370)
(29,920)
-
(236,362)
15,936
355,072
-
-
371,008
(130,718)
(1,596,317)
(162,970)
-
(1,890,005)
680,998
362,783
39,505
10,548
1,093,834
Actual cost/Current (replacement) cost
Depreciation
Accumulated depreciation for the year
Disposals
Balance sheet carrying cost
As of January 1, 2015
Real estate property temporarily unused in the core business activity represents an apartment repossessed by the Bank as collateral against
past-due mortgage loan. The Bank did not conduct re-evaluation of fixed assets in 2014.
The breakdown of fixed assets, intangible assets and real estate properties temporarily unused in the core business activity as of January 1, 2011,
and January 1, 2013, respectively, as well as changes in value during the year 2013 are outlined below:
thousands of rubles
Real estate property tempoIntangible assets rarily unused in core business
Land and buildings
Equipment
Total
740,625
2,349,752
202,475
-
3,292,852
Additions
54,557
112,106
-
-
166,663
Disposals
-
(257,264)
-
-
(257,264)
795,182
2,204,594
202,475
-
3,202,251
(101,624)
(1,806,855)
(95,065)
-
(2,003,544)
Accumulated depreciation for the year
(18,958)
(217,276)
(37,985)
-
(274,219)
-
253,112
-
-
253,112
(120,582)
(1,771,019)
(133,050)
-
(2,024,651)
674,600
433,575
69,425
-
1,177,600
Actual cost/Current (replacement) cost
Depreciation
Disposals
Balance sheet carrying cost
As of January 1, 2014
The Bank did not conduct re-evaluation of fixed assets in 2013.
120
4.7. Other assets
2,044,826
1,104,409
1,115,680
804,876
(265,313)
(132,865)
2,895,193
1,776,420
57,621
39,429
Materials and trade receivables
365,291
150,666
Prepaid expenses of future periods
1,147,631
1,493,441
Other
598,132
123,770
Provision for impairment
(6,280)
(3,828)
2,162,395
1,803,478
5,057,588
3,579,898
Other financial assets,
thousands of rubles
Other non-financial assets,
thousands of rubles
Total
thousands of rubles
132,865
3,828
136,693
Net additions to provision for reduction in value
180,339
2,452
182,791
Deductions
(47,891)
-
(47,891)
Provision for reduction in value as of the end of the year
265,313
6,280
271,593
Other financial assets,
thousands of rubles
Other non-financial assets,
thousands of rubles
Total
thousands of rubles
130,290
2,917
133,207
Net additions to provision for reduction in value
23,706
911
24,617
Deductions
(21,131)
-
(21,131)
132,865
3,828
136,693
Loro accounts
6,192,638
5,975,100
Interbank loans and deposits
12,850,913
15,613,233
Total
19,043,551
21,588,333
Other receivables
Accrued interest receivable
Provision for impairment
Total other financial assets
Prepayments
Total other non-financial assets
Total other assets
Information on changes in other assets due to their reduction in value in 2014 is outlined below:
Provision for reduction in value as of the beginning of the year
Information on changes in other assets due to their reduction in value in 2013 is outlined below:
Provision for reduction in value as of the beginning of the year
4.8. Due to credit institutions
The bank did not attract any syndicated loans.
121
4.9. Due to clients other than credit institutions
Current accounts and demand deposits
- Retail
208 966 859
184 077 781
80 723 135
67 353 644
- Corporate
128 243 724
116 724 137
Term deposits
74 349 384
65 377 462
- Retail
14 727 533
4 153 152
- Corporate
59 621 851
61 224 310
Due to brokerage clients
1 068 978
188 774
284 385 221
249 644 017
Total
Analysis by industry and type of economic activity of accounts held by corporate clients other than credit institutions is as follows:
Trade
Manufacturing
Transportation and communications
51,703,617
53,018,708
55,866,515
40,196,025
8,510,714
10,278,713
Mining and metallurgy
8,844,469
11,289,094
Financial services
12,085,717
9,146,129
Real estate
2,445,940
2,538,531
Agriculture, forestry and wood processing
2,666,445
358,194
Other
45,892,542
51,274,915
Total
188,015,959
178,100,309
258,288
77,934
4,624,241
5,183,965
11,989
4
276,856
194
Other payables
3,400,259
3,580,973
Total other financial liabilities
8,571,633
8,843,070
43,377
365,868
4.10. Debt securities issued
The bank did not issue any debt securities.
4.11. Other liabilities
Interest payable
Amounts held on correspondent accounts until clarification is received
Funds in settlement
Settlements on foreign exchange operations, derivatives and forwards
Current taxes payable
Payable to employees
Reserve for future expenses
Estimated provisions for liabilities of non-lending nature
Deferred revenues
Total other non-financial liabilities
Total other liabilities
122
13,212
20,325
586,789
560,667
21
64,495
192,687
361,228
836,086
1,372,583
9,407,719
10,215,653
4.12. Share capital
The Bank’s registered issued share capital in circulation comprises 1,000 (one thousand) common registered uncertified shares. Each share has
a nominal value of RUB 1,000,000 (one million).
Each common registered share entitles its holder to one vote when decision are made at the general shareholders’ meeting and participates in distribution of net income after creation of the necessary provisions, tax and other mandatory payments as well as dividend payout on preferred shares.
5. Notes to the Report of financial results
5.1. Losses from reduction in value
Information by type of asset on losses from reduction in value during 2014 is outlined below:
thousands of rubles
Loans and
equivalent debt
Securities
available for sale
Other assets
Total
3,293,569
4,415
136,693
3,434,677
3,182,119
8,370
182,791
3,373,280
Deductions
(1,921,705)
-
(47,891)
(1,969,596)
Provisions for reduction in value as of the end of the year
4,553,983
12,785
271,593
4,838,361
Provisions for reduction in value as of the beginning of the year
Net additions to provisions for reduction in value
Information by type of asset on losses from reduction in value during 2013 is outlined below:
thousands of rubles
Loans and
equivalent debt
Securities
available for sale
Other assets
Total
Provisions for reduction in value as of the beginning of the year
1,446,265
4,410
133,207
1,583,882
Net additions to provisions for reduction in value
2,955,875
5
24,617
2,980,497
Deductions
(1,108,571)
-
(21,131)
(1,129,702)
3,293,569
4,415
136,693
3,434,677
5.2. Exchange rate gains (losses) recognized as income (expense) excluding those related to financial instruments
evaluated at fair value through profit or loss
2014
thousands of rubles
2013
thousands of rubles
2,450,001
1,309,461
20,087,809
3,438,537
22,537,810
4,747,998
2014
thousands of rubles
2013
thousands of rubles
1,678,834
2,363,613
Other taxes, including
1,716,268
1,389,078
VAT
1,681,867
1,349,823
19,825
22,939
16
16
332
332
14,228
15,968
3,395,102
3,752,691
Net income from foreign exchange operations
Net income from re-evaluation of foreign currencies
Total
5.3. Taxes
Details of the Bank’s current tax expense are outlined below:
Income tax
Property tax
Transportation tax
Other taxes
Duties
Total tax expense
Income tax rate was 20% in 2014 (2013: 20%).
123
Key components of the current income tax payable are outlined below:
2014
thousands of rubles
2013
thousands of rubles
Current income tax payable calculated at 20%
1,012,670
1,693,582
Current income tax payable calculated at 15%
358,344
669,993
16
29
48,783
9
1,419,813
2,363,613
2014
thousands of rubles
2013
thousands of rubles
Income tax payable
1,419,813
2,363,613
Changes in deferred income tax
259,021
-
1,678,834
2,363,613
Current income tax payable at 9%
Current income tax underpaid during prior periods
Total income tax payable
Breakdown of income taxes into current tax payable and deferred income tax is outlined below:
Total income tax
In 2014, income tax rate for both current and deferred components was 20%, except for interest income on government and municipal bonds
for which the tax rates were 15% and 9%, respectively.
Deferred tax assets and deferred tax liabilities
Temporary differences arising from balances in asset/liability balance sheet accounts (other than capital accounts) for accounting purposes and
their respective values for tax purposes give rise to deferred tax assets/liabilities as of January 1, 2015.
Russian tax law does not impose time restrictions on the usage of temporary differences that reduce taxable income. As of January 1, 2015,
deferred tax assets in the amount of RUB 95,619 thousand are carried on the balance sheet account 61703 “Deferred tax asset on loss carryover”. These deferred tax assets arose from losses incurred by the Bank on over-the-counter forward financial instruments which had not been
cleared off prior to January 1, 2010, when the federal act No. 281-FZ dated November 25, 2009 amending the Tax Code and related legislation
entered into force, and which have not been cleared off as of January 1, 2015. Such losses are deductible from total taxable income in the future
reporting (tax) periods starting January 1, 2015 by no more than 20% of the original amount of the loss defined as of December 31, 2014, in each
year until January 1, 2025. Loss carried over is set to expire in 2024.
Reconciliation of changes in temporary differences during 2014 cannot be provided as calculation of deferred taxes began in 2014.
5.4. Employee remuneration
Total amounts of employee remuneration included in the Operating Expenses section of the Reports of financial results for the years 2013 and
2014 are detailed below:
2014
thousands of rubles
2013
thousands of rubles
Short-term remuneration
6,450,678
5,650,226
Employee payroll
5,508,877
4,791,640
941,801
858,586
6,450,678
5,650,226
Payroll taxes and related expenses
Total employee remuneration
5.5. Earnings per share
The Bank does not disclose in its annual financial report the information on earnings (loss) per share which reflects possible dilution of earnings
(loss) per share due to absence of convertible securities and purchase & sale agreements on common shares at prices below the market price.
124
6. Notes to the Report on capital adequacy for covering risks, size of provisions on doubtful
loans and other assets
CBR sets and monitors compliance with requirements for the Bank’s capital adequacy.
The Bank defines as capital the balance sheet items identified as equity (capital) of credit institutions by the legislation of the Russian Federation.
The Bank calculates the amount of capital in accordance with CBR Regulation No. 215-P dated February 10, 2003, “On methods of defining equity
(capital) of credit institutions” (hereinafter CBR Regulation No. 215-P) and CBR Regulation No. 395-P dated December 28, 2012, “On methods of
defining the size and adequacy of equity (capital) of credit institutions (Basel III)” (hereinafter CBR Regulation No. 395-P). The amount of capital
calculated in accordance with CBR Regulation No. 215-P was used for the purposes of prudential oversight until January 1, 2014. The amount of
capital calculated in accordance with CBR Regulation No. 395-P has been used for the purposes of prudential oversight since January 1, 2014, as
well as for information purposes between April 1, 2013, and January 1, 2014.
In accordance with CBR Instruction No. 139-I dated December 2, 2012, “On banks’ required ratios” (hereinafter CBR Instruction No. 139-I), the
minimum value of the ratio of equity (capital) to risk-weighted assets (required capital adequacy ratio) was set to 10% as of January 1, 2014. In
accordance with CBR Instruction No. 139-I, the minimum levels for basic capital adequacy ratio, core capital ratio (hereinafter N1.2 required ratio)
and equity (capital) adequacy ratio are set at 5.0%, 5.5% and 10.0%, respectively as of January 1, 2015. Beginning January 1, 2015, the minimum
level for N1.2 required ratio is set to 6.0%.
The Bank maintains capital adequacy at the level sufficient for the nature and size of its operations.
On a monthly basis, the Bank submits information, as of the first calendar day of each month, on required ratios in the prescribed format to the
local CBR office responsible for oversight of the Bank’s operations. Financial Control Department monitors compliance with capital adequacy
requirements on a daily basis.
When levels of required capital adequacy ratios approach threshold values set by the CBR and the Bank’s internal policy, the Bank’s management
is notified. During both 2013 and 2014, the Bank’s required capital adequacy ratios satisfied the legally mandated requirements.
The detailed breakdown of the Bank’s equity (capital) per CBR Regulation No. 395-P is as follows:
January 1, 2015
thousands of rubles
January 1, 2014
thousands of rubles
Core capital
52,467,544
47,320,569
Basic capital
52,467,544
47,394,230
Supplementary capital
-
-
Additional capital
-
5,815,293
Total capital
52,467,544
53,135,862
Risk-weighted assets
355,120,316
319,795,477
Owned capital adequacy ratio N1.0 (%)
14.8
16.6
Basic capital adequacy ratio N1.1 (%)
14.8
14.8
Core capital adequacy ratio N1.2 (%)
14.8
14.8
Core capital includes the bank’s Contributed capital in the amount of RUB 1,000,000 thousand comprised of common shares on which the
Bank’s statute does not define dividend.
125
Information on the Bank’s key capital instruments is as follows:
January 1, 2015
thousands of rubles
January 1, 2014
thousands of rubles
Equity (capital) – total, including
52,467,544
53,135,862
Core capital
52,467,544
47,320,569
1,000,000
1,000,000
-
-
150,000
150,000
Reserves formed from current year retained earnings
-
-
Current year income validated by independent audit
-
-
52,705,486
46,244,230
1,387,942
-
Contributed capital raised through preferred share issue
-
-
Share premium
-
-
Subordinated loan with additional covenants
-
-
Subordinated loan without limitation for the term set by the agreement subject to
foreign jurisdiction
-
-
-
73,661
174,232
5,815,293
Contributed capital raised through preferred share issue
-
-
Contributed capital originating from capitalization of the increase in property value at
re-evaluation time before disposal
-
-
Share premium
-
-
Reserves formed from current year net income
-
-
76,902
5,717,963
-
-
97,330
97,330
Parameters reducing the amount of additional capital sources
1,061,992
-
Parameters reducing the amounts of core and additional capital sources
1,061,992
-
52,467,544
53,135,862
Sources of basic capital:
Contributed capital
Share premium
Reserves formed from retained earnings of past periods
Retained earnings of prior periods validated by independent audit
Parameters reducing the amount of basic capital sources
Sources of supplementary capital:
Parameters reducing the amount of supplementary capital sources
Parameters reducing the amount of core capital sources
Sources of additional capital
Current year net income (part) not validated by auditor
Subordinated loan at residual value
Increase in the Bank’s property value due to re-evaluation
7.
Notes to the Report on cash flows
As of January 1, 2015, and January 1, 2014, the Bank had no cash and cash equivalents unavailable for use.
The Bank has no publicly invested securities therefore it does not disclose segment information.
8. Fair value
Fair value is the proceeds which would have been received from the sale of an asset (or the amount paid upon the disposal of a liability) on the
valuation date under normal circumstances between market participants on the primary market or, if primary market does not exist, the market
with most favourable conditions to which the Bank has access at the time.
Where possible, the Bank estimates fair value of an instrument using market prices the instrument is traded at in the active market. The market
is deemed active if asset or liability is traded with sufficient frequency and sufficient volume for obtaining the price quotations on a regular basis.
When current price quotations from the active market are not available, the Bank utilizes methodologies based on publicly available inputs to
126
the highest possible extent and utilizes the minimum amount of non-publicly available inputs. Valuation methodologies include all factors which
market participants would have paid attention to for the purpose of setting the price.
Never the less, taking into account uncertainty and the use of subjective opinions, fair value should not be interpreted as attainable in case of
immediate sale of assets or disposal of liabilities.
The Bank carries the following assets at fair value:
>>
securities evaluated at fair value through profit or loss;
>>
securities available for sale;
>>
derivative financial instruments.
Fair value of financial assets traded in an active market is based on market price quotations or dealer quotations. The Bank does not use other
valuation methodologies to estimate fair value of all of its other assets.
The Bank utilizes widely accepted valuation models for estimating fair value of standard and less complex financial instruments such as interest
rate swaps and foreign currency swaps. Such evaluations rely solely on publicly available market data and do not require judgements or assumptions from the management. Publicly available price quotations and model inputs for market-traded debt and equity securities, exchange-traded
derivatives and ordinary over-the-counter derivative financial instruments such as interest rate swaps and foreign currency swaps are usually
accessible from the marketplace.
The Bank utilizes proprietary valuation models for the more complex instruments. All meaningful data inputs for the models are either publicly
available in the marketplace or derived from market quotations and rates.
The Bank utilizes the following valuation methods: net present value model, discounted cash flow model, comparison to similar instruments with
known market prices, Black-Scholes pricing models and polynomial option pricing models and other valuation methodologies. Judgements and
assumptions utilized for valuation include risk-free and basic interest rates, credit spreads and other adjustments used to estimate discounting
rates, price quotations for equities and bonds, foreign exchange rates, stock indices as well as expected price volatility and comparison of prices.
Re-evaluation of fair value of interest rate transactions, commodities transactions and similar contracts is also calculated based on publicly
available inputs.
Throughout 2014, valuation models for fair value estimates remained unchanged.
Hierarchy of fair value estimates
The Bank estimates fair value using the following hierarchy of fair value estimates which takes into account materiality of inputs used to arrive at
such estimates.
>>
Level 1: (unadjusted) price quotations in the active marketplace for identical financial instruments.
>>
Level 2: data, available directly or indirectly, other than quotations mentioned in Level 1 (i.e., data derived from quotations). This category
includes instruments evaluated with following inputs: market price quotations in active markets for similar instruments, market price quotations for similar instruments in markets other than those deemed active or other valuation methods based on inputs directly or indirectly
derived from publicly available information.
>>
Level 3: data not available to the public. This category includes instruments evaluated using inputs not based on publicly available information, when such non-public information has significant impact on valuation of an instrument. This category also includes instruments
evaluated based on price quotations for similar instruments for which material inputs must be based on non-public data or judgments on
differences between instruments.
The Bank does not use Level 3 methodologies for calculating fair value of assets and liabilities, i.e. those that utilize non-public inputs.
Methods of valuation at fair value and input assumptions
In the course of conducting trading operations with clients and other banks, the Bank enters into transactions with structured financial derivatives traded on over-the-counter market which are indexed to foreign exchange rates, interest rates and prices of other base assets.
The Bank accepts valuations of such international information agencies as Reuter and Bloomberg and the Moscow Stock Exchange as reliable
sources of information for estimating fair value of derivative financial instruments traded both on stock markets and over-the-counter.
127
Analysis of assets and liabilities carried at fair value is shown in the table below by level of fair value estimate as of January 1, 2015. All amounts
are reported as per the balance sheet (published form).
thousands of rubles
Level 1
Level 2
Total
7,153,915
-
7,153,915
- Derivative financial instruments – assets
-
22,671,679
22,671,679
- Derivative financial instruments – liabilities
-
22,840,580
22,840,580
4,918,709
-
4,918,709
26,607,284
828,586
27,435,870
Financial assets and liabilities
Financial instruments evaluated at fair value through profit or loss:
- Debt securities
- Obligations to return borrowed securities to lenders-credit institutions
Financial assets available for sale:
- Debt securities
Analysis of assets and liabilities carried at fair value is shown in the table below by level of fair value estimate as of January 1, 2014. All amounts
are reported as per the balance sheet (published form).
thousands of rubles
Level 1
Level 2
Total
Financial assets and liabilities
Financial instruments evaluated at fair value through profit or loss:
- Debt securities
25,047,566
-
25,047,566
- Derivative financial instruments – assets
-
1,580,980
1,580,980
- Derivative financial instruments – liabilities
-
1,585,474
1,585,474
3,452,136
-
3,452,136
726,369
-
726,369
48,239,384
-
48,239,384
Financial assets available for sale:
- Debt securities
9. Corporate governance and internal control
9.1. Corporate Governance Structure
The Bank has been established as a closed joint stock company in accordance with the legislation of the Russian Federation. The supreme governing body of the Bank is the General Shareholders’ Meeting convened for the annual and extraordinary meetings. The General Shareholders’
Meeting makes strategic decisions on the Bank’s activities.
General Shareholders’ Meeting elects the Board of Directors, which is responsible for the governance over the Bank’s affairs.
The powers of the General Shareholders’ Meeting and the Board of Directors are set out in the Russian legislation and the Bank’s Charter.
As of January 1, 2015, the Board of Directors, elected May 30, 2014, consists of the following members:
>>
Marc Luet - Chairman of the Board of Directors
>>
Denis Korshilov
>>
Florin Petrescu
>>
Emre Karter
>>
Irina Kosyachenko
>>
Natalia Nikolaeva
>>
Maria Ivanova
>>
Viktor Rozhkov
The previous Board of Directors, elected June 27, 2013, comprised the following members:
>>
Andrey Kurilin - Chairman of the Board of Directors
>>
Denis Korshilov
>>
Viktor Rozhkov
>>
Maria Ivanova
>>
Richard Smith
128
Operational management of the Bank is carried out by the President and the Executive Board, both appointed by the General Shareholders’
Meeting. The Bank’s executive bodies are responsible for implementing decisions adopted by the General Shareholders’ Meeting and the Board
of Directors. The executive bodies of the Bank report to the Board of Directors and General Shareholders’ Meeting.
As of January 1, 2015, the Executive Board comprised the following members:
>>
Natalia Nikolaeva - Acting Chairman of the Board
>>
Ruslan Belyaev
>>
Sergey Korotkov
>>
Natalia Belaya
>>
Michael Berner
No changes were made to the composition of the Executive Board in 2014.
9.2. Internal control policies and procedures
The Board of Directors and the Executive Board are responsible for the development, implementation and maintaining of the Bank’s internal
controls commensurate to the nature and scale of operations.
The purpose of internal control is to ensure the following:
1.Effectiveness and efficiency of financial and economic activities upon conducting banking operations and other transactions, the effectiveness of asset and liability management, including safeguarding of assets, and bank risk management, which is defined as
>>
control by the executive bodies over the Bank’s activities
>>
control over the bank risk management system and assessment of bank risks
>>
control over delegation of authority in conducting banking operations and other transactions
>>
control over data flow and IT security
>>
continuous monitoring of the internal controls system in order to assess the degree of its compliance with the Bank’s objectives,
identify gaps, develop proposals and monitor the implementation of solutions aimed at improving the system of internal controls
(hereinafter monitoring the system of internal controls)
2.Accuracy, fullness, objectivity and timeliness of preparation and submission of financial, accounting, statistical and other reports for internal and external users
3.Protection of the Bank’s interests (objectives) in the infosphere, which includes data, data infrastructure, entities that collect, create, distribute and use data, and information security
4.Compliance with regulations, standards of self-regulatory organizations, statutory requirements and the Bank’s internal instructions, the
Bank and its employees’ non-involvement in unlawful activities including legalizing (laundering) of proceeds from crime and terrorist
financing, as well as submission of information to appropriate government agencies and the CBR in a timely manner and in accordance
with the Russian legislation (compliance control)
The management is responsible for risk identification and assessment as well as development of the control system and monitoring of its
effectiveness. The management oversees the effectiveness of the Bank’s internal controls and regularly introduces new controls or changes to
existing controls as necessary.
The Bank has developed a system of standards, policies and procedures aimed at ensuring proper execution of operations and compliance with
the corresponding legislative and statutory requirements, including the following:
>>
requirements for proper delegation of authority, including independent transaction authorization
>>
requirements for transaction accounting, verification and monitoring
>>
compliance with legislative and statutory requirements
>>
keeping records of controls and procedures
>>
requirements for periodic assessment of operational risks facing the Bank and adequacy of risk management controls and procedures
>>
requirements for preparation of reports on operational losses and proposed measures to reduce operational risks
>>
development of contingency plans to restore operations
>>
training and professional development
>>
ethical standards, and
>>
risk reduction, including through insurance where it is deemed effective.
The Bank has a hierarchy of requirements for authorization of transactions depending on their scale and complexity. A substantial portion of
transactions is automated; the Bank also employs an automated control system.
Monitoring of the internal controls system is accomplished by management and employees of various departments, including the departments carrying out banking operations and other transactions, accounting and reporting, as well as the Internal Audit Department. The latter is
independent from the Bank’s management and reports directly to the Board of Directors. The results of audits conducted by the Internal Audit
Department are discussed with staff responsible for carrying out financial and economic activity. Audit reports are brought to the attention of
the Bank’s Board of Directors and senior management.
129
The Bank’s internal controls system consists of:
>>
management bodies, including Board of Directors, Executive Board and the President
>>
auditor
>>
Chief Accountant (and deputies) of the Bank
>>
branch managers (and deputies) and chief accountants (and deputies) of the Bank’s branches
>>
Business units (officers) of the Bank in charge of internal controls in accordance with the authority granted by the Bank’s internal policies,
including
-- Internal Audit Department
-- Internal Controls Service
-- Risk Management Service
-- Controller of the Bank’s operations in securities market
Officer (business unit) in charge of counteracting legalization (laundering) of proceeds of crime and terrorist financing
The new requirements for internal control in credit institutions came into force in 2014. The December 16, 2003 revision of the CBR Regulation
No. 242-P «On the Organization of Internal Control in Credit Institutions and Banking Groups» (hereinafter CBR Regulation 242-P) sets out the
requirements for segregation of duties (responsibilities) of the Internal Control Service and the Internal Audit Department. By October 1, 2014,
the Bank brought its internal procedures and documentation in line with the amended requirements of the CBR Regulation 242-P. As a result of
organizational changes, the Internal Audit Department was established as a separate unit headed by the Department Manager.
The core responsibilities of the Bank’s Internal Audit Department are as follows:
>>
Auditing the effectiveness of the Bank’s management system, risk management, internal controls system, implementation of decisions of
the Bank’s management and the Bank’s ability to respond to current and emerging risks, which helps improve the internal controls system
>>
Auditing the efficiency of banking risk assessing methodology and banking risk management, set out in the Bank’s internal documents
(methods, programs, regulations, rules and procedures for banking operations and transactions and banking risk management), and utilization of the above documents to the full extent
>>
Auditing the reliability of internal controls over the use of automated IT systems, including monitoring database integrity and protecting the
databases from unauthorized access and/or use, including measures taken in case of non-standard and emergency situations in accordance with the action plan aimed at ensuring business continuity and/or recovery of the Bank’s operation in the event of non-standard and
emergency situations
>>
Auditing and testing the accuracy, completeness and timeliness of accounting and reporting, as well as reliability (including the accuracy,
completeness and timeliness) of data collection/submission and reporting
>>
Auditing measures taken to safeguard the Bank’s property
>>
Auditing of internal control processes and procedures
>>
Audit of the efficiency of the Bank’s Internal Control Department
>>
other issues stipulated by the Bank’s internal instructions
Internal Audit Department develops an annual audit plan based on risk-based methodology and the CBR requirements. The annual plan may
change reflecting evolving risks inherent in the Bank’s activities and priorities. The annual plan and amendments, if any, require approval of the
Board of Directors. Internal Audit Department carries out audits in accordance with approved methodology, informs the Bank’s Board of Directors and senior management of identified internal control flaws and the proposed measures to address these flaws, and follows up to ensure the
flaws are eliminated.
Internal Control Service is not an independent unit within the Bank; it consists of the structural units (senior officials) of the Bank in charge of
internal controls in accordance with the powers granted by the Bank’s internal documents.
The core responsibilities of the Internal Control Service are as follows:
>>
identification of compliance and regulatory risks
>>
monitoring of events related to the regulatory risk, evaluation of likelihood of their occurrence and quantitative assessment of potential
consequences
>>
monitoring of regulatory risks
>>
making recommendations on regulatory risk management
>>
coordination and participation in the development of measures aimed at regulatory risk reduction
>>
monitoring the effectiveness of the regulatory risk management
>>
participation in the development of internal regulatory risk management procedures, as well as instruments aimed at combating commercial bribery and corruption, enforcing corporate code of conduct and professional ethics and minimizing conflicts of interests;
>>
identification of conflicts of interests in activities of the Bank and its employees and participation in the development of internal documents
aimed at minimizing conflicts of interests
>>
analysis of trends in client complaints
>>
feasibility studies for agreements with suppliers
>>
participation in the credit institution’s interactions with regulators, self-regulatory organizations, associations and financial market
participants
Head of Compliance and Control at the Bank is in charge of coordinating Internal Control Service’s activities and its management. Head of
Compliance and Control is appointed by the President of the Bank. The Internal Control Service is given the powers in accordance with Russian
legislation as well as the Bank’s Internal Control Service regulation and other internal instructions.
The Russian laws, including the Federal Law No. 395-1 and CBR Ordinance No. 3223-U dated April 1, 2014, «On the requirements for chief risk
officers, internal control service and the internal audit of a credit institution», specify the requirements for professional qualifications, business
130
reputation and other competencies for the members of the Board of Directors and the Executive Board, Chief Executive Officer, heads of units
within the Internal Audit Department and the Internal Control Service and Risk Management Service as well as other senior executives. All members of the governing and executive bodies of the Bank are in full compliance with the aforementioned requirements.
The Bank’s management believes that the Bank meets the CBR requirements for the risk management and internal controls systems, including
the requirements for the Department of Internal Audit and the Internal Control Service, while the risk management and internal controls systems are adequate to the scale, nature and complexity of operations.
10. Risk management
10.1. Principles and methods of risk assessment and management
No changes were made to the Bank’s risk assessment and management system in 2014.
The main risks the Bank is exposed to are credit risk, market risk, liquidity risk and operational risk.
The Bank’s risk management policy is aimed at identifying, assessing and managing the risks the Bank is exposed to, set risk limits and appropriate controls, as well as continuously monitoring risks to assure they do not exceed the set limits. Risk management policies and procedures are
reviewed regularly to reflect changes in market conditions, products and services offered as well as emerging best practices.
In order to avoid concentration of operations in a single market segment, the Bank adheres to risk diversification policy through the development and introduction of new products and expanding business into the economic sectors previously unexplored by the Bank. The Bank practices very cautious approach to high-risk transactions and makes every possible effort to avoid doubtful and risky investments. This policy helps to
significantly reduce the liquidity, price and market risks. The fact that the Bank operates in various financial market segments and avoids focusing
on narrow segments also contributes to the reduction of the risks mentioned above. Additionally, the Bank’s earnings are evenly distributed
across all types of transactions, which helps mitigate the risk of changes in certain indicators.
The Bank’s management implements risk management system, approves the authority and composition of collegial risk management bodies,
adopts decisions on certain types of risks and approves the Bank’s lending policy as well as policy governing other asset and liability transactions.
The distribution of authority in the Bank is as follows:
The Board of Directors approves the Bank’s policy on operational risk management and risk and control assessment, which regulates the general
risk management principles, allowable risk levels, strategic risk management objectives and priorities for the development of the risk management system.
The Board of Directors assures the risk management system is improved continuously, approves drafts of internal risk management policies, the
terms and conditions of standard products and programs offered by the Bank, oversees and controls risk management system components,
approves the allowable risk level as part of the approved development strategy, supervises the Bank operations’ compliance with the basic
principles of credit policy and other asset transaction policies, develops, implements and defines who in the Bank is authorized to make lending
decisions.
The Bank’s Credit Committee is responsible for optimizing the Bank’s credit risks and creating a loan portfolio with the optimal risk/reward ratio,
and exercises control over risks to both the portfolio as a whole and individual transactions.
Risk Assessment and Monitoring Department is responsible for operational risk management, identification of key operational risks, analysis of
managers’ assessment of controls for the purpose of defining and developing activities that allow predicting and managing the situations that
could lead to operational risks.
Risk Assessment and Monitoring Department aggregates the data and analyzes the testing methodology and test results in order to detect signs
of the internal controls system inefficiency in the discovered irregularities. All identified flaws are discussed with heads of relevant departments
and their superiors, if required. All significant flaws of the internal controls system are reported to the Board of Directors.
Bank units manage risks within their functional duties. The Internal Audit Service audits the Bank’s units for compliance with internal regulations
and no less than twice a year submits reports to the Board of Directors and other Bank management bodies on the identified issues, proposes
measures to solve such issues and assures the issues are resolved (this was valid until September 2014).
Assets and Liabilities Committee (hereinafter ALCO) is responsible for planning and coordinated management of the Bank’s balance sheet in
Russia; ALCO develops and makes strategic and tactical decisions on managing risks as well as all balance sheet components. ALCO oversees
and manages changes in the Bank’s assets, liabilities and capital, funding volumes, liquidity indicators and the structure of the Bank’s investment
portfolio.
In order to ensure effective risk management and functioning of the Internal Control Service, President of the Bank and/or the Board of Directors approve the following internal policies and regulations:
>>
Internal Control Service policy
>>
accounting policy
>>
measures designed to ensure continuity of operations and transactions
>>
information security policy
131
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
>>
credit policy
operational risk management and risk appraisal and monitoring policy
foreign currency operations control procedure
liquidity management and control procedure
deposit policy
interest rate policy
banking rules governing the process of opening, maintaining and closing of bank accounts, deposit accounts and deposits
non-cash transaction procedure
bank guarantee issue procedure
cash transaction procedure
internal control rules for prevention of legalization (laundering) of proceeds of crime and terrorist financing
procedure for accessing insider information
rules on protection of confidentiality of insider information, and compliance with the requirements of the Federal Law No. 224-FZ dated July
27, 2010 “On countering the illegitimate use of insider information and market manipulation and on amending certain laws of the Russian
Federation”
list of measures aimed at preventing conflicts of interest that could arise in the process of conducting professional activities in the securities
market
list of measures aimed to mitigate risks associated with professional activity in the securities market, including risks arising from combining
different types of professional activity in the securities market
procedure for providing securities information to investors
procedure to qualify a person as accredited investor
human resources policy including remuneration.
The Bank’s internal controls system is aimed at mitigating the following risk groups:
Strategic risk is the risk of losses resulting from errors in making decisions defining the Bank’s business and development strategy. Such errors
may include failure to consider or fully consider potential risks that could threaten the Bank’s business; incorrectly or insufficiently substantiated
determination of promising business areas in which the Bank could achieve a competitive advantage; lack (or insufficient amount) of resources
and organizational measures needed to ensure the Bank’s strategic objectives are achieved.
Credit risk group, which includes a) inherent credit risk, or risk of losses resulting from debtor insolvency, and b) country risk, including transfer
risk, or risk of losses resulting from failure of a foreign counterparty to fulfill the obligations due to economic, political or social changes as well as
inability to pay in currency of obligation due to particular aspects of national legislation.
Market risk group, which includes: a) market risk, or risk of losses resulting from changes in the market price of securities portfolio and derivatives influenced by factors related to the issuers of securities and derivatives as well as general fluctuations in the market prices of financial instruments, b) interest rate risk, or risk of losses resulting from changes in interest rates affecting the Bank’s assets, liabilities and off-balance sheet
instruments, c) currency risk, or risk of losses resulting from unfavourable changes in foreign exchange rates and/or precious metals prices on
the Bank’s open positions in foreign currencies and/or precious metals, and d) liquidity risk, or risk of losses resulting from the Bank’s inability to
fulfil its obligations in full.
Operational risk group, which includes: a) operational risk, or risk of losses caused by internal policies and banking transaction standards not being in line with the nature and scale of the Bank’s business and/or current legislation, violation of these policies and standards by the Bank’s employees and/or other persons, as well as external factors, b) technological (system) risk, or risk of financial loss due to lost data, IT systems failure,
unauthorized access to IT systems, risk of emergency situations and IT systems’ inability to perform specific tasks, c) risk of misreporting, or risk
of financial loss caused by incorrect and/or untimely reporting, d) legal risk, or risk of losses resulting from the Bank’s failure to comply with legal
requirements, agreements and contracts, legal errors, deficiencies of the legal system, violation of legislative acts and/or agreement terms by
counterparties, and e) business reputation risk, or risk of losses resulting from negative public perception of the Bank’s financial stability, quality
of services provided or the nature of the Bank’s business in general.
The procedure of identifying, assessing and mitigating risks in the groups listed above is governed by the Bank’s internal policies as well as corporate policies of Citigroup.
Risk identification and assessment
For the purpose of risk management, the Bank classifies risks into two categories:
>>
Intrinsic risk, or the potential negative impact of the Bank’s activities on its capital and/or liquidity as if there were no risk management and
internal control
>>
Residual risk, or the potential negative impact on the Bank’s capital and/or liquidity with risk management and internal control in place
Risk identification and assessment is a process that spans the entire life cycle of a product, from development stage to financial and management reporting. The process is applied to all risk groups and includes the following stages:
>>
Identification of potential negative events or factors that could cause financial loss, i.e. product-specific events and factors
>>
Intrinsic risk assessment and determination of anticipated and acceptable level of residual risk.
Technological risk is monitored by the Bank as follows:
Currently, the Bank employs several operating systems. In FLEXCUBE, a corporate operating system common to most banks comprising Citigroup, accounting records are maintained in accordance with the Generally Accepted Accounting Principles (US GAAP). The SOBOS operating
system has been developed by the Bank to keep track of transactions involving securities. The Systematics operating system had been used by
132
the Bank to keep track of retail operations until August, 2014, when it was replaced by Rainbow, an upgraded version of the legacy system. The
Total Ledger OS, developed specifically to comply with the CBR’s accounting standards, receives interface files from FLEXCUBE, SOBOS and
Systematics/Rainbow on a daily basis. All financial reporting submitted to the CBR is prepared using the Total Ledger database. Special account
balance reconciliation software is used daily to confirm data identity in all these systems. As an additional measure of controlling technological
risk, every new software product purchased by the Bank undergoes mandatory testing by the Bank’s IT department.
Operating and overhead expenses (risk of inefficiency) are overseen by the Bank’s Finance Department in accordance with internal procedures
developed and implemented by the Bank. Finance Department produces an 18-month budget split by month which is communicated to business
units after receiving approval from the Bank’s management. Additional control over budget implementation is done by the Finance Department
on a monthly basis. Any overspending needs to be reviewed and approved by the Bank’s management in advance, which significantly decreases
the risk of incurring unauthorized expenses.
Prior to introduction of new products and technologies (implementation risk) a project team is set up to prepare a comprehensive and detailed
analysis of the product. The team includes employees from the Bank’s departments involved in the process, which enables the Bank to conduct
a comprehensive analysis of the new product, including IT support, prospects for marketing, financial evaluation and risks of possible losses.
Procedures developed by the team are subject to review and approval by heads of all departments related to the product directly or indirectly.
Bank units manage risks within their areas of responsibility.
As part of planning process, the Internal Audit Department runs an annual study on activities of all the Bank’s units in order to identify, assess and
document all key risks using Risk Assessment Form. The Internal Audit Department audits the Bank’s units and business areas in order to assess
the effectiveness of the Bank’s management system, risk management, internal controls system, and implementation of the decisions adopted
by the Bank’s governing bodies, including the General Shareholders’ Meeting, the Board of Directors, the Executive Board and the President.
The Internal Audit Department also verifies compliance with Russian legislation and the Bank’s internal policies. The Internal Audit Department
informs the Bank’s management of the identified issues, proposes measures to solve such issues and assures they are successfully resolved.
10.2. Credit risk
Credit risk is the risk of financial loss resulting from failure of borrowers or counterparties to fulfil their obligations to the Bank.
The Bank has developed a credit policy and procedures governing the assessment of the borrower’s financial standing, the lending decision
making process and the procedure allowing the Bank to monitor timely repayment of loans.
The risk per borrower or a group of affiliated borrowers, the maximum exposure to large credit risks, the aggregate insider risk, as well as the
maximum amount of loans, bank guarantees and sureties provided by the Bank to its shareholder are additionally capped by internal thresholds
set below the CBR’s mandatory standards. The Bank’s business units ensure the risks do not exceed these thresholds through monitoring risks
on a daily basis.
The Bank has not violated any of the CBR’s mandatory standards aimed at limiting exposure to credit risks in 2013, and 2014.
The Bank limits risk concentration per individual client, counterparty and securities issuer, as well as groups of affiliated clients.
Exposure to credit risk is managed through regular analysis of the borrower’s creditworthiness and by changing / adjusting lending limits when
required.
The table below represents credit risk distribution (requirements for equity (capital) in relation to credit risk) across the Bank’s business lines as of
January 1, 2015:
thousands of rubles
Retail banking
Corporate banking
Retained assets
Total
Cash assets
-
-
11,415,696
11,415,696
Cash balances held with CBR, including
-
-
12,881,446
12,881,446
- Mandatory reserves
-
-
2,998,029
2,998,029
Due from credit institutions
-
29,767,613
-
29,767,613
475
29,825,119
-
29,825,594
48,467,800
232,315,914
-
280,783,714
-
27,435,870
-
27,435,870
362,108
651,332
1,881,753
2,895,193
48,830,383
319,995,848
26,178,895
395,005,126
Financial assets evaluated at fair value through profit or loss
Net loans outstanding
Net investments in securities and other financial assets available for sale
Other financial assets
Total
133
The table below represents credit risk distribution (requirements for equity (capital) in relation to credit risk) across the Bank’s business lines as of
January 1, 2014:
thousands of rubles
Retail Banking
Corporate banking
Retained assets
Total
Cash assets
-
-
5,251,357
5,251,357
-
-
13,782,297
13,782,297
-
-
2,760,361
2,760,361
-
12,264,399
-
12,264,399
348
26,628,198
-
26,628,546
45,502,101
211,415,403
-
256,917,504
-
48,239,384
-
48,239,384
176,997
567,679
1,031,744
1,776,420
45,679,446
299,115,063
20,065,398
364,859,907
Total
The table below represents credit risk distribution by type of economic activity of borrowers (counterparties) as of January 1, 2015:
thousands of rubles
Manufacturing
Construction
Service
industry
Trade
Financial
sector
Private
individuals
Cash assets
-
-
-
-
-
Cash balances held with CBR
-
-
-
-
-
-
-
-
-
29,767,613
Financial assets evaluated at
fair value through profit or loss
State sector
Other
Total
-
-
11,415,696
11,415,696
-
12,881,446
-
12,881,446
-
-
-
29,767,613
-
7,131,789
22,671,679
29,825,594
-
-
-
-
22,126
53,523,642
-
845,446
34,602,293
99,337,700
Provisions for possible losses
on loans
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
4,553,983
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
280,783,714
-
-
-
-
9,656,179
-
17,779,691
-
27,435,870
133,460
-
2,108
86,280
403,703
362,108
-
1,907,534
2,895,193
53,657,102
-
847,554
34,688,573
139,187,321
51,051,680
73,792,926
Loans outstanding
Net investments in securities
and other financial assets
available for sale
Total
50,689,572 36,000,000
10,339,044 285,337,697
46,333,953 395,005,126
The table below represents credit risk distribution by type of economic activity of borrowers (counterparties) as of January 1, 2014:
thousands of rubles
Manufacturing
Construction
Service
industry
Trade
Financial
sector
Private
individuals
Cash assets
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Financial assets evaluated at
fair value through profit or loss
-
-
-
28,152,086
70,480
on loans
ХХХ
Loans outstanding
Net investments in securities
and other financial assets
available for sale
Total
134
State sector
Other
Total
-
-
5,251,357
5,251,357
-
13,782,297
-
13,782,297
12,264,399
-
-
-
12,264,399
-
1,723,245
-
24,902,826
2,475
26,628,546
480,000
36,626,811
131,235,268
47,093,632
12,000,000
4,552,796
260,211,073
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
3,293,569
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ
ХХХ 256,917,504
-
-
-
-
13,555,560
-
34,603,542
80,282
48,239,384
36,734
92
626
47,793
476,494
176,997
-
1,037,684
1,776,420
28,188,820
70,572
480,626
36,674,604
159,254,966
47,270,629
85,288,665
10,924,594 364,859,907
The table below represents credit risk distribution by counterparty type as of January 1, 2015:
thousands of rubles
Corporate clients
Correspondent banks
Private individuals
Cash assets
-
-
-
11,415,696
11,415,696
-
-
-
12,881,446
12,881,446
-
29,767,613
-
-
29,767,613
Financial assets evaluated at fair value through profit
or loss
11,732,108
10,961,222
475
7,131,789
29,825,594
Net loans
117,711,041
78,604,873
48,467,800
36,000,000
280,783,714
available for sale
2,871,279
6,784,900
-
17,779,691
27,435,870
268,696
382,636
362,108
1,881,753
2,895,193
132,583,124
126,501,244
48,830,383
Total
Other
Total
87,090,375 395,005,126
The table below represents credit risk distribution by counterparty type as of January 1, 2014:
thousands of rubles
Corporate clients
Correspondent banks
Private individuals
Other
Total
Cash assets
-
-
-
5,251,357
5,251,357
-
-
-
13,782,297
13,782,297
-
12,264,399
-
-
12,264,399
870,661
854,711
348
24,902,826
26,628,546
76,062,138
123,353,265
45,502,101
12,000,000
256,917,504
4,528,493
9,107,349
-
34,603,542
48,239,384
96,838
470,841
176,997
1,031,744
1,776,420
81,558,130
146,050,565
45,679,446
91,571,766
364,859,907
Financial assets evaluated at fair value through profit
or loss
Net investments in securities and other financial
assets available for sale
Total
Asset classification by risk group (in accordance with paragraph 2.3 of CBR Instruction No. 139-I) as of January 1, 2015, and January 1, 2014, is disclosed in the Report on capital adequacy, provisions for non-performing loans and other assets (form 0409808) section 2 «Credit, operational
and market risks covered by capital».
Overdue and restructured debt
A loan is considered restructured if, upon mutual agreement between the Bank and the borrower, essential terms of the original loan contract
are changed to more favourable terms, except when payments on a restructured loan are made on time and in full or in case of one late payment within the past 180 days, in accordance with the time limits specified in the CBR Regulation No. 254-P, and the borrower’s financial standing
during the last full year and the current year can be rated at or above average.
The Bank uses a uniform approach to debt restructuring across all business lines and geographical areas. Under normal circumstances, the Bank
does not restructure the debt of credit institutions. The Bank also does not restructure small retail loans. Debt restructuring decision on each
individual loan to legal entities other than credit institutions is made on a case-by-case basis.
As of January 1, 2015, no loans to legal entities other than credit institutions were restructured. As of January 1, 2015, the value of restructured
retail loans was 417,509 thousand rubles (178,866 thousand rubles in provisions on retail loans), which represents 0.8% of the total retail loans
outstanding and 0.1% of the Bank’s total assets.
As of January 1, 2014, no loans to legal entities other than credit institutions were restructured. As of January 1, 2014, the value of restructured
retail loans was 494,605 rubles (201,392 thousand rubles in provisions on retail loans), which represents 1.1% of the total retail loan debt and 0.1%
of the Bank’s total assets.
No overdue corporate debt was written off against provisions for possible losses in 2014; a total of 1,969,596 thousand rubles in retail loans was
written off in 2014.
As of both January 1, 2015, and January 1, 2014, the Bank had no restructured debt on other assets and other balance sheet items.
A loan is considered delinquent when at least one payment on principal amount and/or interest is missed.
135
The table below represents overdue loans as of January 1, 2015:
thousands of rubles
Loans to legal entities other
than credit institutions
thousands of rubles
Retail loans
thousands of rubles
Total
thousands of rubles
128,438,807
106,090,409
50,568,629
285,097,845
- less than 30 days
-
94,509
13,405
107,914
- between 31 and 90 days
-
-
22,205
22,205
-
-
11,719
11,719
-
24,400
71,638
96,038
- over 360 days
-
-
1,976
1,976
Total overdue loans
-
118,909
120,943
239,852
128,438,807
106,209,318
50,689,572
285,337,697
Loans receivable not past due
Overdue loans:
As of January 1, 2015, overdue loans represented 0.08% of total amount of loans outstanding and 0.06% of the Bank’s total assets.
The table below represents overdue loans as of January 1, 2014:
thousands of rubles
Loans to legal entities other
than credit institutions
thousands of rubles
Retail loans
thousands of rubles
Total
thousands of rubles
138,903,024
74,214,417
46,995,905
260,113,346
- less than 30 days
-
-
11,614
11,614
-
-
17,496
17,496
-
-
10,467
10,467
-
-
56,479
56,479
- over 360 days
-
-
1,671
1,671
Total overdue loans
-
-
97,727
97,727
138,903,024
74,214,417
47,093,632
260,211,073
Loans receivable not past due
Overdue loans:
As of January 1, 2014, overdue loans represented 0.04% of total amount of loans outstanding and 0.03% of the Bank’s total assets.
The table below represents overdue debt on other assets as of January 1, 2015:
Interest receivable
thousands of rubles
Other receivables
thousands of rubles
Total
thousands of rubles
1,083,030
4,053,649
5,136,679
7,614
42,965
50,579
10,748
99,301
110,049
3,878
16,627
20,505
10,290
959
11,249
120
-
120
32,650
159,852
192,502
1,115,680
4,213,501
5,329,181
Receivables in good standing
Overdue receivables:
- less than 30 days
- over 360 days
Total overdue receivables
As of January 1, 2015, overdue debt on other assets represented 3.6% of the total value of other assets and 0.05% of the Bank’s total assets.
136
The table below represents overdue debt on other assets as of January 1, 2014:
Interest receivable
thousands of
rubles
Other receivables
thousands of
rubles
Total
thousands of
rubles
788,691
2,792,187
3,580,878
- less than 30 days
5,350
24,327
29,677
7,747
93,957
101,704
2,970
1,244
4,214
110
-
110
9
-
9
16,186
119,528
135,714
804,877
2,911,715
3,716,592
Receivables in good standing
Overdue receivables:
- over 360 days
Total overdue receivables
As of January 1, 2014, overdue debt on other assets represented 3.7% of the total value of other assets and 0.04% of the Bank’s total assets.
The Bank had no overdue debt on any other balance sheet items.
137
The table below represents information on calculated and actual provisions for possible losses in thousands of rubles as of January 1, 2015:
Category of Quality
Cash assets
Loans outstanding
Net investments in securities and other
financial assets available for sale
Other assets
Total
Amount
I
II
III
IV
V
11,415,696
11,415,696
-
-
-
-
29,815,883
25,680,080
4,121,697
14,106
-
-
285,337,697
80,992,327
141,544,096
17,023 992
26,997,819
18,779 463
27,448,655
26,607,284
836,956
-
-
4,415
5,329,181
1,949,542
3,058,819
93,029
41,197
186,594
359,347,112
146,644,929
149,561,568
17,131 127
27,039,016
18,970,472
The table below represents information on calculated and actual provisions for possible losses in thousands of rubles as of January 1, 2014:
Quality
I
II
III
IV
V
Amount
Cash assets
5,251,357
5,251,357
-
-
-
-
12,272,361
12,256,436
-
15,925
-
-
Loans outstanding
260,211,073
137,439,662
68,098,421
23,751,069
19,853,459
11,068,462
48,243,799
48,239,384
-
-
-
4,415
3,716,592
2,242,355
1,201,906
131,653
29,509
111,169
329,695,182
205,429,194
69,300,327
23,898,647
19,882,968
11,184,046
Other assets
Total
138
Actual provisions
Calculated provisions
less collateral
II
III
IV
V
Total
-
-
-
-
-
-
-
48,270
48,270
41,217
7,053
-
-
48,270
38,464,951
4,553,983
2,237,762
648,805
527,596
1,139,820
4,553,983
12,785
12,785
8,370
-
-
4,415
12,785
271,593
271,593
49,438
17,208
21,550
183,397
271,593
38,797,599
4,886,631
2,336,787
673,066
549,146
1,327,632
4,886,631
Actual provisions
Calculated less
collateral
II
III
IV
V
Total
-
-
-
-
-
-
-
7,962
7,962
-
7,962
-
-
7 962
27,083,363
3,293,569
958,432
454,648
1,000,649
879,840
3 293 569
4,415
4,415
-
-
-
4,415
4 415
136,694
136,694
13,272
8,591
4,094
110,737
136 694
27,232,434
3,442,640
971,704
471,201
1,004,743
994,992
3 442 640
Analysis of collateral
The Bank uses collateral as a credit risk reduction instrument.
For loans (including equivalent debt and conditional obligations of credit nature) classified as quality category II through V, the Bank creates
provisions after taking into account collateral that belongs to quality categories I-II. Collateral quality category is determined in accordance with
the CBR Regulation No. 254-P.
The table below represents the nature and value (as of January 1, 2015) of collateral received from corporate clients which is used to reduce the
amount of provisions calculated in accordance with the Bank’s policies:
Loan debt
thousands of rubles
Conditional obligations of
credit nature
thousands of rubles
Total collateral used to
reduce provisions
thousands of rubles
Collateral on loans category I:
65,714,122
8,816,564
74,530,686
Guarantees
65,714,122
8,816,564
74,530,686
219,623,575
39,211,533
-
285,337,697
48,028,097
74,530,686
Loans/liabilities without collateral or with collateral which is not
used to reduce provisions
The table below represents the nature and value (as of January 1, 2014) of collateral received from corporate clients which is used to reduce the
amount of provisions calculated in accordance with the Bank’s policies:
Loan debt
thousands of rubles
Conditional obligations of
credit nature
thousands of rubles
Total collateral used to
reduce provisions
thousands of rubles
Collateral on loan category I:
66,222,938
15,610,689
81,833,627
Guarantees
66,222,938
15,610,689
81,833,627
Loans/liabilities without collateral or with collateral which is not
used to reduce provisions
193,988,135
18,748,336
-
260,211,073
34,359,025
81,833,627
139
Loans to legal entities
In 2013 and 2014 the Bank did not take collateral into account when establishing provisions for possible losses on loans to the following types of
corporate clients:
>>
credit institutions
>>
legal entities other than credit institutions, except for legal entities that provided category I collateral in the form of guarantees (sureties) by
legal entities with an investment grade rating not lower than Standard & Poor’s BBB- or similar of Fitch Ratings and Moody’s
>>
private entrepreneurs
Retail loans
The Bank estimates provisions for possible losses on retail loans in the context of homogeneous loan portfolios. No assessment of the value of
collateral is performed on these loans.
Mortgage loans are secured by value of purchased property. According to the Bank’s policy, the mortgage loan amount to collateral ratio must
not exceed 85% on the disbursement date.
For certain mortgage loans the Bank revises the value of the mortgaged collateral to its current value, taking into account approximate changes
in property value since the disbursement date. The Bank may also carry out an individual assessment of collateral as of each balance sheet date
if there are indications of possible impairment. The fair value of collateral for mortgage loans is estimated by a third party appraiser, OOO NEO
Center Ipoteka. Value of collateral for all other mortgage loans is determined on the mortgage date and is not adjusted for subsequent changes
as of balance sheet date. For certain mortgage loans, where the amount of provisions is determined on case by case basis, 100% provision is
required, with no reduction for the appraised value of the collateral.
Overdrafts, credit card debt and consumer loans are not secured.
Repossessions
In 2014, the Bank acquired a number of assets through repossession of loan collaterals at net carrying value of 10,548 thousand rubles. As of
January 1, 2015, and January 1, 2014, the total repossessions were as follows:
January 1, 2015
thousands of rubles
January 1, 2014
thousands of rubles
Real estate
10, 548 - Total repossessions
10,548 - The Bank’s policy requires the repossessed assets to be sold as quickly as possible.
10.3. Market risk
Market risk is the risk of changes in fair value or future cash flows for a financial instrument as a result of changes in market prices. Market risk
includes currency risk, interest rate risk and other price risks. Market risk arises from open positions on interest rates and equity instruments
exposed to general and specific market fluctuations and changes in the level of market prices and exchange rate volatility.
Market risk management is aimed at maintaining an acceptable level of assumed risk, as defined by the Bank’s business strategy. The primary
goal is to ensure preservation of assets and capital through reduction or elimination of possible losses and income shortfalls from the Bank’s financial market activities as well as other transactions where potential market risk is expected.
The Bank manages its market risk by setting open position limits against the value of certain financial instruments in its portfolio, interest rate
change dates, currency positions, stop loss limits and regular monitoring of the above measures.
The Bank also utilizes Value-at-Risk (VAR) methodology to monitor market risk on its trading positions.
Value-at-Risk (VAR) methodology
The VaR methodology is a way to estimate potential losses that could occur on risk positions as a result of changes in market rates and prices
over a specified period of time at a predefined confidence inteval. The VaR model used by the Bank is based on the 99% confidence interval
and assumes financial instrument holding period of up to 1 day depending on the type of position. The VaR model is a forecast based largely on
historical data. The model derives plausible future scenarios based on historical market rate time series, and interdependence between different
markets and rates. Potential market price changes are determined based on market data collected over the last 12 months or longer.
Even though the VaR methodology is an important tool to assess the likely magnitude of market risk, it has some limitations, especially in low
liquidity markets, which can be represented as follows:
>>
Use of historical data as a basis for determining future events may not encompass all possible scenarios (especially of the extreme nature).
>>
Use of 99% confidence interval does not take into account losses that might occur beyond this level. There is still a 1% chance the loss may
exceed the value at risk.
>>
Since the VaR calculation is based on the trading session’s closing data, it does not necessarily reflect daily fluctuations.
>>
The magnitude of the risk, calculated using VaR depends on the position and the volatility of market prices. The VaR for the fixed position
goes down if market volatility declines and vice versa.
140
The table below shows the VaR estimate of possible losses as of January 1 on the portfolio of financial instruments evaluated at fair value:
January 1, 2015
thousands of rubles
Exchange rate fluctuation risk
Interest rate fluctuation risk
January 1, 2014
thousands of rubles
2,742,259 343,635 27,375,562 165,018,761 28,429,339 164,991,654 The VaR calculation is not the only methodology the Bank relies upon to assess market risks due to certain limitations mentioned above. The
VaR limitations are offset by introduction of additional limits on open positions as well as sensitivity limits.
The Bank has developed a Market Risk Control Policy which regulates market risk assessment and management.
Market risk assessment is conducted in accordance with the requirements of CBR Regulation No. 387-P «On Market Risk Calculation by Credit
Institutions.»
Breakdown of market risk components as of January 1, 2015, and January 1, 2014, is presented below:
January 1, 2015
thousands of rubles
January 1, 2014
thousands of rubles
10,877,850
27,839,846
Interest rate risk, including
870,228
2,227,188
- General interest rate risk
757,779
1,990,092
- Special interest rate risk
112,449
237,096
Stock market risk, including
-
-
- Special stock market risk
-
-
- Total stock market risk
-
-
Exchange rate risk
-
-
10,877,850
27,839,846
Market risk, total, including
Market risk, total
The Bank’s trading portfolio includes the following financial instruments that are subject to market risk:
>>
Securities at fair value classified by the Bank as at fair value through profit or loss and acquired with the purpose of selling in the near future,
or as available for sale with the Bank’s officially documented intention to sell in the near future
>>
Open positions in ruble and foreign currencies, affected by the changes in ruble exchange rate set by the CBR
>>
Derivatives
Interest rate risk
Interest rate risk arises from changes in the financial instrument’s fair value or future cash flows as a result of market interest rate fluctuations.
The main sources of interest rate risk are:
>>
Mismatching of the maturities of assets, liabilities and off-balance sheet assets and liabilities of instruments with fixed interest rate.
>>
Mismatching of the maturities of assets, liabilities and off-balance sheet assets and liabilities of instruments with variable interest rate (re-pricing risk).
>>
Changes in the yield curve for long and short maturities on a single issuer’s financial instruments, which create the risk of loss resulting from
the excess of potential expenses over income at maturity date (yield curve risk).
>>
For financial instruments with fixed interest rates with coinciding maturities - mismatching of the degree of changes in interest rates on
borrowed and invested resources; for financial instruments with variable interest rates and the same frequency of the variable interest rate
revisions - mismatching of the degree of changes in interest rates (basis risk).
The Bank’s financial standing and cash flows are affected by fluctuations in prevailing market interest rates. These fluctuations could cause the
interest margin to shrink or expand, or could lead to losses in case of unexpected changes in interest rates.
Interest rate risk is mainly managed through interest gap monitoring. ALCO with the assistance of the Treasury reviews and approves interest
rate exposure (IRE) limits, monitored on a daily basis.
141
The table below represents average effective interest rates on interest-bearing assets and liabilities as of January 1, 2015, and January 1, 2014.
These rates are an approximation of the yield-to-maturity on specific assets and liabilities.
January 1, 2015
January 1, 2014
Rubles
US Dollars
Other currencies
Rubles
US Dollars
Other currencies
Net investments in securities at fair
value through profit or loss
6.6%
10.3%
-
6.8%
7.7%
-
16.6%
1.3%
2.4%
9.3%
0.8%
2.6%
7.1%
6.0%
4.1%
7.3%
5.8%
4.5%
Interest-bearing assets
Interest-bearing liabilities
CBR loans, deposits and other assets
-
-
-
5.4%
-
-
9.8%
-
-
4.3%
0.1%
-
- Current accounts and demand
deposits
0.5%
0.1%
0.1%
0.8%
0.3%
0.3%
- Term deposits
13.7%
0.5%
0.3%
5.1%
0.3%
0.4%
Due to credit institutions
Due to clients other than credit
institutions
Bank portfolio’s exposure to interest rate risk
Volume and structure of the Bank’s financial instruments portfolio can be summarized as follows:
January 1, 2015
Investments
thousands of
rubles
January 1, 2014
% of portfolio
Investments
thousands of
rubles
% of portfolio
ASSETS
29,767,613
9%
12,264,399
4%
280,783,714
83%
256,917,504
81%
27,435,870
8%
48,239,384
15%
337,987,197
100%
317,421,287
100%
-
- 24,624,052
8%
19,043,551
6%
21,588,333
7%
Due to clients other than credit institutions
284,385,221
94%
249,644,017
85%
Retail deposits
95,450,668
31%
71,506,796
24%
303,428,772
100%
295,856,402
100%
LIABILITIES
Currency risk
Currency risk is the risk of changes in the financial instrument’s fair value or future cash flows as a result of changes in currency exchange rates.
The Bank has assets and liabilities denominated in several foreign currencies.
The Bank manages currency risk by limiting its open currency position (hereinafter OCP) on a daily basis.
At the end of each trading day the Bank sets risk limits for each of the main foreign currencies, and monitors them on a daily basis. Currency risk
is minimized through balanced OCP sufficient to provide the required foreign currency liquidity.
142
The following table represents structure of assets and liabilities by currency as of January 1, 2015:
Russian Ruble
thousands of
rubles
U.S. Dollar thousands of rubles
Other currencies
thousands of
rubles
Total thousands of
rubles
Cash assets
6,677,922
3,147,367
1,590,407
11,415,696
12,881,446
-
-
12,881,446
2,998,029
-
-
2,998,029
4,674,335
12,653,107
12,440,171
29,767,613
8,705,320
19, 471, 696
1,648,578
29,825,594
187,414,413
77,374,965
15,994,336
280,783,714
25,441,374
847,009
1,147,487
27,435,870
ASSETS
Deferred tax assets
190,943
190,943
Fixed assets, intangible assets and inventories
1,093,834
-
-
1,093,834
Other assets
3,861,795
182,677
1,013,116
5,057,588
Total assets
250,941,382
113,676,821
33,834,095
398,452,298
19,027,884
8,753
6,914
19,043,551
179,224,538
76,946,565
28,214,118
284,385,221
- Retail deposits
43,371,648
38,532,549
13,546,471
95,450,668
23,578,751
3,502,919
677,619
27,759,289
354,642
-
-
354,642
8,902,933
375,262
129,524
9,407,719
2,133,259
1,589
7,053
2,141,901
233,222,007
80,835,088
29,035,228
343,092,323
Net position
17,719,375
32,841,733
4,798,867
55,359,975
Impact of derivatives
46,190,614
(36,051,990)
(10,138,624)
63,909,989
(3,210,257)
(5,339,757)
LIABILITIES
Amounts due to clients, other than credit institutions, including
Other liabilities
Provisions for possible losses on conditional obligations of credit nature,
other possible losses and transactions with offshore residents
Total liabilities
Net position including impact of derivatives
55,359,975
143
The following table represents structure of assets and liabilities by currency as of January 1, 2014:
Russian Ruble
thousands of
rubles
U.S. Dollar thousands of rubles
Other currencies
thousands of
rubles
Total thousands of
rubles
4,114,873
886,286
250,198
5,251,357
13,782,297
-
-
13,782,297
2,760,361
-
-
2,760,361
4,356,377
5,567,687
2,340,335
12,264,399
ASSETS
Cash assets
Amounts due to credit institutions with the CBR, including
24,718,824
1,532,763
376,959
26,628,546
155,878,791
92,391,609
8,647,104
256,917,504
44,850,402
2,302,422
1,086,560
48,239,384
1,177,600
-
-
1,177,600
Other assets
2,789,503
97,370
693,025
3,579,898
Total assets
251,668,667
102,778,137
13,394,181
367,840,985
24,624,052
-
-
24,624,052
21,573,525
14,575
233
21,588,333
186,803,062
47,143,379
15,697,576
249,644,017
43,040,657
21,009,672
7,456,467
71,506,796
5,123,327
563,348
77,304
5,763,979
Other liabilities
9,391,646
704,372
119,635
10,215,653
796,980
88,144
722,841
1 607 965
248,312,592
48,513,818
16,617,589
313,443,999
Net position
3,356,075
54,264,319
(3,223,408)
54,396,986
Impact of derivatives
41,134,178
(53,117,587)
11,983,409
44,490,253
1,146,732
8,760,001
LIABILITIES
Amounts due to clients, other than credit institutions, including
- Retail deposits
Provisions for possible losses on conditional obligations of credit nature,
other possible losses and transactions with offshore residents
Total liabilities
Net position including impact of derivatives
54,396,986
10.4. Operational risk
Operational risk is one of the major risks the Bank is exposed to.
Operational risk is caused by internal policies and banking transaction standards not being in line with the nature and scale of the Bank’s business
and/or current legislation and violation of these policies and standards by Bank employees and/or other persons as a result of unintentional or
intentional actions or failure to act, IT and other systems’ inability to perform specific tasks and/or failures, as well as external events.
Operational risk management policy adopted by the Bank is based on the guidelines set out in the following documents:
The CBR letter No. 76-T, dated May 24, 2005 “On Managing Operational Risks in Credit Institutions;” the CBR letter No. 96-T dated May 27, 2014,
“On Recommendations of the Basel Committee on Banking Supervision “Principles for Effective Risk Data Aggregation and Risk Reporting;”” the
CBR letter No. 26-T dated March 23, 2007 “On Methodological Recommendations on Conducting Inspections of the Banking Risk Management
System in a Credit Institution or a Branch of a Credit Institution;” the CBR letter No. 69-T dated May 16, 2012, “On BCBS Principles for the Sound
Management of Operational Risk.”
The documents set out the basic principles of identification, assessment, management and continuous monitoring of operational risk, as well as
the principles of reporting and informing the appropriate Bank management on the operational risk exposure.
Operational risk management system is based on the principle of distribution of authority and responsibilities between all levels of management.
The Board of Directors participates in the development, approval and implementation of internal procedures, which define the principles of internal control and capital adequacy assessment. The Board of Directors approves the risk management strategy and oversees its implementation.
The President and the Executive Board approve the risk and capital management procedures based on the risk management strategy approved
by the Board of Directors, and ensure compliance with internal procedures.
144
To ensure effective operational risk management in all Bank departments, the risk management structure contains three lines of defence,
described below.
The first line of defence is the Bank units themselves, which are responsible for assessing and managing risks, including operational risk.
The Bank units are required to identify operational risks as they arise and pass the information to both Risk Management Service and Internal
Control Service, which compile a comprehensive risk assessment. Heads of departments and units bear the main responsibility for the implementation of Managers Control Assessment (MCA), as well as for the identification of inefficient controls, and passing the information to Risk
Management Service and Internal Control Service.
The second line of defence is independent Risk Management Service and Internal Control Service. Risk Monitoring and Assessment Department
at ZAO CB Citibank is an operational risk management unit which oversees identification of key operational risks, analyzes the MCA results in
order to define and work out measures that would allow the Bank to predict and manage factors related to emerging operational risks.
The third line of defence is the Internal Audit Department, which provides recommendations for improvement on an ongoing basis, and performs an independent assessment and analysis.
ZAO CB Citibank employs the following controls:
>>
preliminary (preventive) control carried out at the stage of planning and development of new products or introduction of new processes
>>
real-time monitoring of banking operations and other transactions
>>
follow-up on the results of banking operations and other transactions.
The annual risk assessment includes identification and documenting of risks significant to business objectives and activities. Existing controls are
assessed for effectiveness and feasibility with a view to reduce risks and the likelihood of operational risk emergence. Effectiveness of the internal
controls system is monitored on an ongoing basis through testing and certification of controls.
Operational risk events related to operating losses are recorded in the Bank’s EDCS. Each Bank unit assigned MCA functions is responsible for
timely reporting of operational risk events and assigns the employee in charge for proper documentation of operational risk events.
Operational risk assessment is carried out in accordance with the CBR Regulation No. 346-P dated November 3, 2009 “On the Procedure for
Calculating Operational Risk.”
Income information used to calculate capital requirements for operational risk is presented below:
2014
thousands of rubles
2013
thousands of rubles
Net interest income
16,363,202
15,043,016
Non-interest income
11,452,524
10,792,608
720,383
834,733
2,042,825
2,166,264
3,819
3,819
6,958,424
5,992,989
1,727,073
1,794,803
Net income from operations with securities at fair value through profit or loss
Net income from foreign exchange operations
Income from participation in capital of other legal entities
Less:
Fines and penalties
Miscellaneous income
Fee and commission expenses
Operational risk
2505
2,218
85,489
115,385
2,997,734
2,438,380
24,729,998
23,279,641
3,709,500
3,491,946
During the years 2014 and 2013, the Bank fully complied with mandatory standards set by the CBR.
145
10.5. Liquidity risk
Liquidity risk is a risk specific to the situations when the Bank may be unable to meet its debt obligations, or make current payments on behalf
of clients without asset restructuring and/or urgent mobilization of all required resources. Liquidity risk arises from mismatch of maturities
between assets and liabilities.
The Bank has developed a liquidity management policy aimed at ensuring the Bank’s ability to maintain control over liquidity and pay its current
liabilities in full in a timely manner. The liquidity management policy includes the following:
>>
projecting cash flows in major currencies and calculating the necessary level of liquid assets to support these cash flows
>>
maintaining a diverse range of funding sources
>>
managing composition and concentration of liabilities
>>
developing plans to raise funds through borrowing
>>
maintaining a high-liquidity asset portfolio that can easily be sold to offset liquidity gap
>>
developing contingency plans to maintain liquidity and required level of funding
>>
monitoring compliance with regulatory requirements on liquidity ratios.
The Treasury Department monitors liquidity ratios on a daily basis and runs stress tests under various possible scenarios of market conditions,
including normal and adverse circumstances. Liquidity management decisions are made by ALCO and implemented by the Treasury.
During the years 2014 and 2013, the Bank has not violated any mandatory liquidity ratios set by the CBR.
The following table shows an analysis (by expected maturities) of assets and liabilities reflected in the balance sheet (published form) as of
January 1, 2015
thousands of rubles
On demand
and less than
1 month 1-3 months 3-12 months 1-5 years
Over 5 years No maturity
date Overdue
Cash assets
11,415,696
-
-
-
-
-
-
11,415,696
12,881,446
-
-
-
-
-
-
12,881,446
2,998,029
-
-
-
-
-
-
2,998,029
29,767,613
-
-
-
-
-
-
29,767,613
Financial assets evaluated at fair value
10,699,288
10,620,346
7,249,873
1,256,087
-
-
-
29,825,594
186,243,450
34,633,521
20,316,209
38,988,628
528,608
-
73,298
280,783,714
-
-
1,379,263
19,191,875
6,864,732
-
-
27,435,870
Deferred tax assets
-
-
-
-
-
190,943
-
190,943
Fixed assets, intangible assets and
inventories
-
-
-
-
-
1,093,834
-
1,093,834
-
5,057,588
Total
ASSETS
Other assets
3,903,713
925,679
211,880
16,316
-
-
Total assets
254,911,206
46,179,546
29,157,225
59,452,906
7,393,340
1,284,777
19,043,551
-
-
-
-
-
-
19,043,551
Amounts due to clients other than
credit institutions, including
283,109,317
1,033,510
239,894
2,500
-
-
-
284,385,221
- Retail deposits
95,450,668
-
-
-
-
-
-
95,450,668
6,630,217
11,023,757
9,247,095
858,220
-
-
-
27,759,289
-
-
-
-
-
-
-
-
-
-
-
-
-
354,642
-
354,642
9,117,851
240,616
49,252
-
-
-
-
9,407,719
73,298 398,452,298
LIABILITIES
Financial liabilities evaluated at fair
Other liabilities
Provisions for possible losses on
conditional obligations of credit nature,
other possible losses and transactions
with offshore residents
Total liabilities
Net position
146
-
-
-
-
-
2,141,901
-
2,141,901
317,900,936
12,297,883
9,536,241
860,720
-
2,496,543
-
343,092,323
(62,989,730)
33,881,663
19,620,984
58,592,186
7,393,340
(1,211,766)
73,298
55,359,975
The following table shows an analysis (by expected maturities) of assets and liabilities reflected in the balance sheet (published form) as of
January 1, 2014
thousands of rubles
On demand
and less than
1 month 1-3 months 3-12 months 1-5 years
Over 5 years No maturity
date Overdue
Total
5,251,357
-
-
-
-
-
-
5,251,357
ASSETS
Cash assets
13,782,297
-
-
-
-
-
-
13,782,297
Mandatory reserves
2,760,361
-
-
-
-
-
-
2,760,361
12,264,399
-
-
-
-
-
-
12,264,399
Financial assets evaluated at fair value
Fixed assets, intangible assets and
inventories
25,447,546
265,288
820,443
95,269
-
-
-
26,628,546
164,080,998
26,419,910
38,145,502
27,802,357
447,833
-
20,904
256,917,504
-
765,969
5,025,907
18,084,358
24,363,150
-
-
48,239,384
-
-
-
-
-
1,177,600
-
1,177,600
Other assets
2,739,118
209,155
300,016
331,609
-
-
-
3,579,898
Total assets
223,565,715
27,660,322
44,291,868
46,313,593
24,810,983
1,177,600
20,904
367,840,985
24,624,052
-
-
-
-
-
-
24,624,052
21,588,333
-
-
-
-
-
-
21,588,333
247,990,383
1,132,060
521,574
-
-
-
-
249,644,017
- Retail deposits
71,506,796
-
-
-
-
-
-
71,506,796
Financial liabilities evaluated at fair
4,567,990
384,362
654,569
157,058
-
-
-
5,763,979
Other liabilities
9,434,092
560,667
220,894
-
-
-
-
10,215,653
LIABILITIES
Amounts due to clients other than
credit institutions, including
Provisions for possible losses on
conditional obligations of credit nature,
other possible losses and transactions
with offshore residents
Total liabilities
Net position
-
-
-
-
-
1,607,965
-
1,607,965
308,204,850
2,077,089
1,397,037
157,058
-
1,607,965
-
313,443,999
(84,639,135)
25,583,233
42,894,831
46,156,535
24,810,983
(430,365)
20,904
54,396,986
Management expects that cash flows from certain financial assets and liabilities may deviate from contract terms, either because the management is empowered to direct cash flows or because past experience suggests that the timing of future cash flows from financial assets and
liabilities may differ from the contractual terms. The tables below show financial assets and liabilities by maturity period, during which cash flows
from these assets and liabilities are expected.
Contractual maturities of securities can be represented as follows:
1-3 months 3-12 months January 1, 2015
thousands of rubles
January 1, 2014
thousands of rubles
2,037
123,678
89,747
849,925
1-5 years 5,825,146
9,452,663
Over 5 years 1,236,985
14,621,300
7,153,915
25,047,566
147
Russian legislation allows private individuals to withdraw their term deposits at any time but, in most cases, withdrawal on demand voids eligibility
for receiving accrued interest. These deposits, excluding accrued interest, are shown in the tables above in the “On demand and less than
1 month” category. Contractual maturities of these deposits were as follows:
January 1, 2015
thousands of rubles
January 1, 2014
thousands of rubles
4,761,555
1,527,834
1-3 months
4,307,808
1,438,382
3-12 months
5,585,650
989,256
72,520
197,680
Over 5 years
-
-
No maturity date
-
-
14,727,533
4,153,152
On demand and less than 1 month
1-5 years
The Bank adopted the following strategies to reduce liquidity risk:
>>
to maintain an adequate level of liquidity
>>
to keep highly liquid securities that can be pledged as collateral for CBR loans
>>
to keep unused lines of credit with CBR and other banks rated “BBB» by Standard & Poor’s, etc.
10.6. Legal risk
Legal risk to the Bank might arise from the following:
>>
transactions deemed invalid by the current Russian legislation
>>
contracts containing inadequate provisions on the Bank’s liability or provisions that could lead to substantial impairment of assets or increase
the Bank’s liabilities
>>
adverse outcome of litigation involving the Bank
>>
changes in exchange rates, taxes, banking legislation, and/or judicial practice related to the Bank’s core business
>>
The factors listed above are not specific to the Bank; all credit institutions are subject to these factors.
Existing and potential lawsuits where the Bank acts as defendant
In the course of their business, the Bank clients and counterparties might file lawsuits against the Bank.
As of January 1, 2015, the Bank had no ongoing risks of litigation that could have a significant impact on its financial and economic activities in the
future.
The Bank’s management believes that the total value of liabilities that may arise as a result of any legal actions against the Bank will have no
material adverse effect on the Bank’s financial standing.
As of January 1, 2015, the value of contingent liabilities of non-lending nature related to unsettled lawsuits at the balance sheet date where the
Bank acts as defendant, was not recognized due to its immateriality and inability to affect the Bank’s financial standing.
10.7. Strategic risk
Strategic risk is the risk of losses resulting from errors (flaws) in making decisions that determine the Bank’s development strategy, due to
neglect or underestimation of potential threats to the Bank’s business, wrong or ill-founded decisions on promising areas of development where
the Bank could achieve a competitive advantage, as well as lack or insufficiency of resources (financial, logistical, etc.) required to achieve set
targets.
The Executive Board develops the Bank’s strategy for a period of three to five years, as well as a business plan for the current fiscal year. Both
the strategy and the business plan require approval by the Board of Directors. The Bank’s units report to the Executive Board and the Board of
Directors on the progress of business plan implementation for the current fiscal year (quarterly) and on implementation of the strategy (annually). If needed, the Executive Board amends the strategy and the business plan. All amendments require approval by the Board of Directors.
10.8. Reputational risk
The Bank has a solid business reputation. The Bank promotes a positive perception of the Bank, quality of its services and its business in general,
based on objective business outcomes. The management estimates that the risk of financial losses resulting from loss of goodwill is negligible.
10.9. Country risk
Country risk (including transfer risk) is the risk of losses occurring as a result of a full or partial failure of foreign counterparties’ (both companies
and private individuals) to fulfil their obligations due to economic, political and social changes, as well as inability to pay in currency of obligation
due to particular aspects of national legislation, regardless of the counterparties’ financial situation.
The Bank is a resident of the Russian Federation and operates on the territory of the Russian Federation.
148
The bulk of the Bank’s credit risk falls on borrowers, issuers and counterparties whose main activity is carried out on the territory of the Russian
Federation. Credit risk to residents of other countries shall only be assumed following special analysis.
The table below represents the concentration of assets and liabilities by geographical regions as of January 1, 2015, as reflected in the reporting
form 0409806 «Balance sheet (published form).» Information is provided separately for the Russian Federation (RF), CIS countries, the group of
developed countries (DCG) and other countries (OC).
thousands of rubles
Total
ASSETS
RF
CIS
DCG
OC
Cash assets
11,415,696
11,415,696
-
-
-
Cash balances held with the CBR
12,881,446
12,881,446
-
-
-
29,767,613
4,313,691
2,356
25,421,278
30,288
Net investments in securities evaluated at fair value
29,825,594
19,338,602
-
10,486,992
-
280,783,714
241,707,904
124,615
10,262,568
28,688,627
available for sale
27,435,870
25,231,596
-
2,204,274
-
190,943
190,943
-
-
-
1,093,834
1,093,834
-
-
-
Other assets
5,057,588
5,027,853
2,228
26,098
1,409
Total assets
398,452,298
321,193,196
129,199
48,409,579
28,720,324
19,043,551
5,876,070
895,987
12,175,334
96,160
284,385,221
271,566,615
1,442,354
9,695,832
1,680,420
95,450,668
87,803,596
1,395,402
4,823,721
1,427,949
27,759,289
7,938,067
-
19,821,222
-
354,642
354,642
-
-
-
9,407,719
9,208,513
750
196,735
1,721
2,141,901
2,082,575
695
45,762
12,869
343,092,323
297,026,482
2,339,786
41,934,885
1,791,170
Irrevocable liabilities of the Bank
378,212,235
216,915,543
215,686
160,792,141
288,865
Guarantees issued by the Bank
24,323,251
19,535,614
-
3,702,09
1,085,542
Deferred tax assets
LIABILITIES
Amounts due to clients other than credit institutions,
including retail deposits
Financial liabilities evaluated at fair value through profit
or loss
Other liabilities
Provisions for possible losses on conditional obligations of
credit nature, other possible losses and transactions with
offshore residents
Total liabilities
OFF-BALANCE SHEET LIABILITIES
149
The table below represents the concentration of assets and liabilities by geographical regions as of January 1, 2014, as reflected in the reporting
form 0409806 «Balance sheet (published form).» Information is provided separately for the Russian Federation (RF), CIS countries, the group of
developed countries (DCG) and other countries (OC).
thousands of rubles
Total
ASSETS
Cash assets
RF
CIS
DCG
OC
5,251,357
5,251,357
-
-
-
Cash balances held with the CBR
13,782,297
13,782,297
-
-
-
12,264,399
4,283,466
28,897
7,946,078
5,958
Net investments in securities at fair value through profit
or loss
26,628,546
25,853,672
79
770,979
3,816
256,917,504
180,410,041
85,780
1,069,744
75,351,939
48,239,384
43,435,942
-
4,803,442
-
1,177,600
1,177,600
-
-
-
Other assets
3,579,898
3,593,083
18
-3,231
-9,972
Total assets
367,840,985
277,787,458
114,774
14,587,012
75,351,741
24,624,052
24,624,052
-
-
-
available for sale
LIABILITIES
21,588,333
5,935,823
299,439
15,184,497
168,574
249,644,017
234,229,358
1,050,638
9,581,307
4,782,714
71,506,796
64,592,386
996,802
4,535,884
1,381,724
5,763,979
4,541,769
-
1,222,210
-
Other liabilities
10,215,653
10,003,298
430
210,587
1,338
Provisions for possible losses on conditional obligations of
credit nature, other possible losses and transactions with
offshore residents
1,607,965
1,476,474
518
109,889
21,084
313,443,999
280,810,774
1,351,025
26,308,490
4,973,710
345,225,068
195,198,453
193,897
148,846,443
986,275
14,776,104
10,576,960
-
2,753,150
1,445,994
Amounts due to clients other than credit institutions
including retail deposits
Total liabilities
OFF-BALANCE SHEET LIABILITIES
Irrevocable liabilities of the Bank
Guarantees issued by the Bank
11. Transactions with related parties
Citigroup Netherlands B.V. (the Netherlands) became the Bank’s parent company on June 27, 2012, after receiving 99.9% of the shares previously held by Citibank Overseas Investment Corporation (USA) and 0.1% of the shares previously held by Foremost Investment Corporation (USA).
The Bank has no subsidiaries or dependent organizations.
11.1. Transactions with executives
The President, Executive Board members, members of the Board of Directors and Chief Accountant are considered the Bank’s executives.
In 2014, on average, the Bank employed 4,225 staff (in 2013 – 4,052 staff).
The average number of executives employed by the Bank was 13 people in 2014 (11 in 2013).
None of the Bank’s executives own the Bank’s shares.
150
Total employee remuneration included in the Operating Expenses total reported on the form 0409807 “Financial results report” for 2014 and
2013 is outlined below:
2014 thousands of
rubles
Short-term employee remuneration
Share in total
remuneration
2013
thousands of
rubles
Share in total
remuneration
248,239
3.85% 185,578
3.08% 248,239
3.85%
185,578
3.08%
11.2. Transactions with other related parties
The Bank considers Citibank N.A., its subsidiaries and affiliates worldwide as related (non-arms’ length) entities. The Bank’s insiders are also considered related (non-arms’ length) parties. The Bank made the decision not to set internal limits for the legal entities listed above.
Details on operations and transactions with related parties itemized per form 0409806 balance sheet (published form) are shown below as of
January 1, 2015.
Accounts with credit institutions
Total
thousands of
rubles
Subsidiaries
thousands of
rubles
Key executives
thousands of
rubles
Other related
parties
thousands of
rubles
22,601,934
-
-
22,601,934
10,487,012
-
-
10,487,012
32,908,072
-
40,146
32,867,926
401
-
401
-
Other assets, before provisions for possible losses
942
-
84
858
1
-
1
-
65,997,558
-
39,828
65,957,730
10,412,294
-
-
10,412,294
3,200,383
-
177,506
3,022,877
177,506
-
177,506
-
14,902,513
-
-
14,902,513
5,373
-
82
5,291
337
-
72
265
28,520,900
-
177,660
28,343,240
157,379,581
-
7,174
157,372,407
4,373,035
-
-
4,373,035
Loans outstanding, before provisions for possible losses on loans
Provisions for possible losses on other assets
Total assets
Retail deposits
Financial liabilities evaluated at fair value through profit or loss
Other liabilities
Provisions for possible losses on conditional liabilities of credit nature, other
possible losses and operations with residents of off-shore zones
Total liabilities
Irrevocable obligations of the credit institution
Guarantees and sureties issued by the credit institution
151
Details on operations and transactions with related parties itemized per form 0409806 balance sheet (published form) are shown below as of
January 1, 2014.
Accounts with credit institutions, before provision for reduction in value
Provisions for possible losses on accounts with credit institutions
Loans outstanding, before provisions for possible losses on loans
Other assets, before provisions for possible losses
Provisions for possible losses on other assets
Total
thousands of
rubles
Subsidiaries
thousands of
rubles
Key executives
thousands of
rubles
Other related
parties
thousands of
rubles
4,681,731
-
-
4,681,731
-
-
-
-
748,091
-
-
748,091
76,269,145
-
46,619
76,222,526
466
-
466
-
2,781
-
75
2,706
1
-
1
-
Total assets
81,701,281
-
46,227
81,655,054
13,710,826
-
-
13,710,826
943,075
-
65,140
877,935
65,140
-
65,140
-
1,222,210
-
-
1,222,210
2,037
-
33
2,004
270
-
56
214
Total liabilities
15,878,418
-
65,229
15,813,189
Irrevocable obligations of the credit institution
146,165,887
-
5,584
146,160,303
3,839,445
-
-
3,839,445
Retail deposits
Financial liabilities evaluated at fair value through profit or loss
Other liabilities
Provisions for possible losses on conditional liabilities of credit nature, other
possible losses and operations with residents of off-shore zones
Guarantees and sureties issued by the credit institution
Details on income and expenses from operations with related parties itemized per form 0409807 financial results report (published form) for
2014 are shown below.
Total
thousands of rubles
Subsidiaries
thousands of rubles
Key executives
thousands of rubles
Other related parties
thousands of rubles
Interest income
110,552
-
-
110,552
Interest expense
155,565
-
-
155,565
8,023,728
-
-
8,023,728
Commission income
101,062
-
-
101,062
Commission expenses
100,612
-
-
100,612
290,391
-
-
290,391
3,434,959
-
248,239
3,186,720
Net expense from operations with
financial assets
Operating expense
152
Details on income and expenses from operations with related parties itemized per form 0409807 financial results report (published form) for
2013 are shown below.
Total
thousands of rubles
Subsidiaries
thousands of rubles
Key executives
thousands of rubles
Other related parties
thousands of rubles
Interest income
152,412
-
-
152,412
Interest expense
198,288
-
-
198,288
2,639,598
-
-
2,639,598
Commission income
164,073
-
-
164,073
Commission expenses
549,618
-
-
549,618
230,655
-
-
230,655
2,694,636
-
185,578
2,509,058
Net expense from operations with
financial assets
Operating expense
As of January 1, 2015, and January 1, 2014, none of the receivables from related parties were past-due.
In 2014, all operations with related parties have been conducted on market terms.
During 2014 and 2013, the Bank did not write off any debt owed by related parties.
Acting President
Nikolaeva N. Y.
Stamp
Gounko A. B.
June 26, 2015
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ZAO Citibank Annual Report 2014

Transcription

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