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2012 IFRS Results Reporting
 

2012 IFRS Results Reporting

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    2012 IFRS Results Reporting 2012 IFRS Results Reporting Document Transcript

    • BANK VOZROZHDENIEInternational Financial Reporting StandardsConsolidated Financial Statements andIndependent Auditors Report31 December 2012
    • Bank VozrozhdenieCONTENTSIndependent Auditor’s ReportConsolidated Financial StatementsConsolidated Statement of Financial Position ............................................................................................... 1Consolidated Statement of Comprehensive Income ..................................................................................... 2Consolidated Statement of Changes in Equity.............................................................................................. 3Consolidated Statement of Cash Flows ........................................................................................................ 4Notes to the Consolidated Financial Statements1 Introduction ......................................................................................................................................................... 52 Operating Environment of the Group .................................................................................................................. 53 Summary of Significant Accounting Policies ....................................................................................................... 64 Critical Accounting Estimates and Judgements in Applying Accounting Policies ............................................. 175 Adoption of New or Revised Standards and Interpretations ............................................................................. 186 New Accounting Pronouncements .................................................................................................................... 187 Cash and Cash Equivalents ............................................................................................................................. 218 Trading Securities ............................................................................................................................................. 229 Due from Other Banks ...................................................................................................................................... 2410 Loans and Advances to Customers .................................................................................................................. 2511 Investment Securities Available for Sale........................................................................................................... 3212 Premises and Equipment.................................................................................................................................. 3413 Other Financial Assets...................................................................................................................................... 3414 Other Assets ..................................................................................................................................................... 3515 Due to Other Banks .......................................................................................................................................... 3616 Customer Accounts .......................................................................................................................................... 3717 Debt Securities in Issue .................................................................................................................................... 3818 Other Financial Liabilities .................................................................................................................................. 3819 Subordinated Loans.......................................................................................................................................... 3920 Share Capital and Retained Earnings............................................................................................................... 4021 Interest Income and Expense ........................................................................................................................... 4122 Fee and Commission Income and Expense ..................................................................................................... 4123 Administrative and Other Operating Expenses ................................................................................................. 4224 Income Taxes ................................................................................................................................................... 4225 Earnings per Share ........................................................................................................................................... 4426 Dividends .......................................................................................................................................................... 4527 Segment Analysis ............................................................................................................................................. 4528 Financial Risk Management ............................................................................................................................. 5329 Management of Capital..................................................................................................................................... 6730 Contingencies and Commitments ..................................................................................................................... 6831 Transfers of Financial Assets ........................................................................................................................... 7032 Derivative Financial Instruments and Term Deals ............................................................................................ 7133 Fair Value of Financial Instruments .................................................................................................................. 7134 Presentation of Financial Instruments by Measurement Category ................................................................... 7635 Related Party Transactions .............................................................................................................................. 78
    • Independent Auditor’s ReportTo the Shareholders and Board of Directors of Bank Vozrozhdenie:We have audited the accompanying consolidated financial statements of Bank Vozrozhdenie and itssubsidiaries (the “Group”), which comprise the consolidated statement of financial position as at31 December 2012 and the consolidated statements of comprehensive income, changes in equity and cashflows for 2012, and notes comprising a summary of significant accounting policies and other explanatoryinformation.Managements Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with International Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of consolidated financial statementsthat are free from material misstatement, whether due to fraud or error.Auditor’s ResponsibilityOur responsibility is to express an opinion on the fair presentation of these consolidated financialstatements based on our audit. We conducted our audit in accordance with Russian Federal AuditingStandards and International Standards on Auditing. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whether theconsolidated financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements in orderto design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to express an opinion onthe fair presentation of these consolidated financial statements.ZAO PricewaterhouseCoopers Audit, 10 Butyrsky Val, Moscow, Russian Federation, 125047T:+7 (495) 967 6000, F: +7 (495) 967 6001, www.pwc.ru i
    • Bank VozrozhdenieConsolidated Statement of Comprehensive IncomeIn millions of Russian Roubles Note 2012 2011Interest income 21 16 611 13 959Interest expense 21 (7 553) (6 503)Net interest income 9 058 7 456Provision for loan impairment 10 (2 722) (2 304)Net interest income after provision for loan impairment 6 336 5 152Fee and commission income 22 5 503 5 232Fee and commission expense 22 (442) (410)Gains less losses from trading securities 6 7Gains less losses from trading in foreign currencies 439 420Foreign exchange translation gains less losses (40) (50)Gains less losses on disposed investment securities available for sale 3 12Other operating income 337 222Administrative and other operating expenses 23 (8 652) (8 353)Impairment of investment securities available for sale (71) -Provision for impairment of other assets 14 (449) (216)Profit before tax 2 970 2 016Income tax expense 24 (639) (422)PROFIT FOR THE YEAR 2 331 1 594Other comprehensive income:Investment securities available for sale:Gains less losses during the year 34 32Income tax expense recorded directly in other comprehensive income 24 (6) (10)Other comprehensive income for the year 28 22TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2 359 1 616Earnings per share for profit attributable to the equity holders of the Bank, basic and diluted
(expressed in RR per share)Ordinary shares 25 93 64The notes set out on pages 5 to 79 form an integral part of these consolidated financial statements. 2
    • Bank VozrozhdenieConsolidated Statement of Changes in Equity Note Share Share Revaluation Retained Total capital premium reserve for earnings investment securities available In millions of Russian Roubles for sale Balance at 1 January 2011 250 7 306 77 9 227 16 860 Profit for the year - - - 1 594 1 594 Other comprehensive income - - 22 - 22 Total comprehensive income for 2011 - - 22 1 594 1 616 Dividends declared 26 - - - (14) (14) Balance at 31 December 2011 250 7 306 99 10 807 18 462 Profit for the year - - - 2 331 2 331 Other comprehensive income - - 28 - 28 Total comprehensive income for 2012 - - 28 2 331 2 359 Dividends declared 26 - - - (14) (14) Balance at 31 December 2012 250 7 306 127 13 124 20 807The notes set out on pages 5 to 79 form an integral part of these consolidated financial statements. 3
    • Bank VozrozhdenieConsolidated Statement of Cash FlowsIn millions of Russian Roubles Note 2012 2011Cash flows from operating activitiesInterest received 16 652 14 660Interest paid (7 679) (6 601)Fees and commissions received 5 464 5 244Fees and commissions paid (442) (410)Net income received/(losses paid) from trading in trading securities 3 (32)Net income received from trading in foreign currencies 439 420Other operating income received 335 178Administrative and other operating expenses paid (8 226) (7 708)Income tax paid (966) (825)Cash flows from operating activities before changes in operating assets and liabilities 5 580 4 926Changes in operating assets and liabilitiesNet increase in mandatory cash balances with the Central Bank of the Russian Federation (158) (867)Net decrease in trading securities 1 357 4 920Net (increase)/decrease in due from other banks (4 846) 4 912Net increase in loans and advances to customers (20 994) (24 039)Net (increase)/decrease in other financial assets (125) 407Net increase in other assets (189) (213)Net increase in due to other banks 105 215Net increase in customer accounts 20 338 13 773Net increase in other borrowed funds 2 803 -Net increase in debt securities in issue 304 819Net decrease in other financial liabilities (236) (24)Net increase/(decrease) in other liabilities 4 (110)Net cash from operating activities 3 943 4 719Cash flows from investing activitiesAcquisition of investment securities available for sale 11 (3 128) (762)Proceeds from disposal of investment securities available for sale 11 1 981 1 491Acquisition of premises and equipment 12 (479) (442)Proceeds from disposal of premises and equipment 21 15Proceeds from disposal of non-current assets held for sale 204 38Proceeds from disposal of investment properties 27 181Dividend income received 2 3Net cash (used in)/from investing activities (1 372) 524Cash flows from financing activitiesReceipt of subordinated loans 19 2 000 -Repayment of subordinated loans 19 - (226)Repayment of funding from international financial institution 15 (470) -Dividends paid 26 (14) (14)Net cash from/(used in) financing activities 1 516 (240)Effect of exchange rate changes on cash and cash equivalents (957) 601Net increase in cash and cash equivalents 3 130 5 604Cash and cash equivalents at the beginning of the year 7 37 755 32 151Cash and cash equivalents at the end of the year 7 40 885 37 755The notes set out on pages 5 to 79 form an integral part of these consolidated financial statements. 4
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20121 IntroductionThese consolidated financial statements have been prepared in accordance with International FinancialReporting Standards (“IFRS”) for the year ended 31 December 2012 for Bank Vozrozhdenie (the “Bank”)and its special-purpose entities, closed joint stock company “Ipotechny Agent Vozrozhdeniye 1” andclosed joint stock company “Ipotechny Agent Vozrozhdeniye 2” (together referred to as the “Group”).The Bank was incorporated and is domiciled in the Russian Federation. The Bank is an open joint-stockcompany and was set up in accordance with Russian regulations. The Bank is ultimately controlled byMr. D. L. Orlov (2011: Mr. D. L. Orlov).Principal activity. The Bank’s principal business activity is commercial and retail banking operationswithin the Russian Federation. The Bank has operated under a full banking license issued by the CentralBank of the Russian Federation (the “CBRF”) since 1991. The Bank participates in the state depositinsurance scheme, which was introduced by Federal Law #177-FZ “Deposits of individuals insurance inRussian Federation” dated 23 December 2003. The State Deposit Insurance Agency guaranteesrepayment of 100% of individual deposits up to RR 700 thousand per individual in the case of thewithdrawal of a licence of a bank or the CBRF imposed moratorium on payments.The Bank has 53 (2011: 53) branches within the Russian Federation, the majority of which are in Moscowand Moscow region. The number of the Bank’s employees as at 31 December 2012 was 6 661 (2011:6 668).In 2012 the Group started a project on operations optimisation and centralisation. The Group will takeactions in the following areas: centralisationof the back office functions; develop remote sales and client service channels; further improvement of risk management system; expand the range of banking services offered to clients.The Banks Head office is located at the following address: 7/4, bld. 1, Luchnikov pereulok, 101990,Moscow, GSP, Russian Federation.Presentation currency. These consolidated financial statements are presented in millions of RussianRoubles (“RR millions”).2 Operating Environment of the GroupThe Russian Federation displays certain characteristics of an emerging market. Its economy is particularysensitive to oil and gas prices. The tax, currency and customs legislation is subject to varyinginterpretations and contributes to the challenges faced by banks operating in the Russian Federation(Note 30).The international sovereign debt crisis, stock market volatility and other risks could have a negative effecton the Russian financial and corporate sectors. Management determined loan impairment provisions byconsidering the economic situation and outlook at the end of the reporting period, and applied the“incurred loss” model required by the applicable accounting standards. These standards requirerecognition of impairment losses that arose from past events and prohibit recognition of impairmentlosses that could arise from future events, no matter how likely those future events are. Refer to Note 4. 5
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting PoliciesBasis of preparation. These consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards (“IFRS”) under the historical cost convention, as modified bythe revaluation of trading and available for sale financial assets. The principal accounting policies appliedin the preparation of these consolidated financial statements are set out below. These policies have beenconsistently applied to all the periods presented, unless otherwise stated (refer to Note 5).Consolidated financial statements. Subsidiaries are those companies and other entities (includingspecial purpose entities) in which the Bank, directly or indirectly, has an interest of more than one half ofthe voting rights, or otherwise has power to govern the financial and operating policies so as to obtainbenefits. The existence and effect of potential voting rights that are presently exercisable or presentlyconvertible are considered when assessing whether the Bank controls another entity. Subsidiaries areconsolidated from the date on which control is transferred to the Bank, and are deconsolidated from thedate on which control ceases.Special Purpose Entities (“SPE”) are the entities established for a clearly defined purpose such assecuritisation of certain assets or obtaining certain borrowings. An SPE is consolidated if the nature ofrelationship between the Bank and the SPE indicates that the Bank has control over the SPE.Intercompany transactions, balances and unrealised gains on transactions between group companies areeliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Bank and allof its subsidiaries use uniform accounting policies consistent with the Group’s policies.Financial instruments - key measurement terms. Depending on their classification financialinstruments are carried at fair value (cost) or amortised cost as described below.Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable,willing parties in an arm’s length transaction. Fair value is the current bid price for financial assets and thecurrent asking price for financial liabilities which are quoted in an active market. For assets and liabilities withoffsetting market risks, the Group may use mid-market prices as a basis for establishing fair values for theoffsetting risk positions, and apply the bid or asking price to the net open position as appropriate. A financialinstrument is regarded as quoted in an active market if quoted prices are readily and regularly available froman exchange or other institution, and those prices represent actual and regularly occurring market transactionson an arm’s length basis.Valuation techniques such as discounted cash flow models or models based on recent arm’s lengthtransactions or consideration of financial data of the investees, are used to measure at fair value certainfinancial instruments for which external market pricing information is not available. Valuation techniquesmay require assumptions not supported by observable market data. Disclosures are made in thesefinancial statements if changing any such assumptions to a reasonably possible alternative would result insignificantly different profit, income, total assets or total liabilities. 6
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposalof a financial instrument. These are costs that would not have been incurred if the transaction had nottaken place. Transaction costs include fees and commissions paid to agents (including employees actingas selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges,and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financingcosts or internal administrative or holding costs.Amortised cost is the amount at which the financial instrument was recognised at initial recognition lessany principal repayments, plus accrued interest, and for financial assets less any write-down for incurredimpairment losses. Accrued interest includes amortisation of transaction costs deferred at initialrecognition and of any premium or discount to maturity amount using the effective interest method.Accrued interest income and accrued interest expense, including both accrued coupon and amortiseddiscount or premium (including fees deferred at origination, if any), are not presented separately and areincluded in the carrying values of related items in the consolidated statement of financial position.The effective interest method is a method of allocating interest income or interest expense over therelevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on thecarrying amount. The effective interest rate is the rate that exactly discounts estimated future cashpayments or receipts (excluding future credit losses) through the expected life of the financial instrumentor a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effectiveinterest rate discounts cash flows of variable interest instruments to the next interest repricing date,except for the premium or discount which reflects the credit spread over the floating rate specified in theinstrument, or other variables that are not reset to market rates. Such premiums or discounts areamortised over the whole expected life of the instrument.The present value calculation includes all fees paid and received between parties to the contract that arean integral part of the effective interest rate.Initial recognition of financial instruments. Trading securities and derivatives are initially recorded atfair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fairvalue at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition isonly recorded if there is a difference between fair value and transaction price which can be evidenced byother observable current market transactions in the same instrument or by a valuation technique whoseinputs include only data from observable markets.All purchases and sales of financial assets that require delivery within the time frame established byregulation or market convention (“regular way” purchases and sales) are recorded at trade date, which isthe date on which the Group commits to deliver a financial asset. All other purchases and sales arerecognised when the Group becomes a party to the contractual provisions of the instrument.Derecognition of financial assets. The Group derecognises financial assets when (a) the assets areredeemed or the rights to cash flows from the assets otherwise expired or (b) the Group has transferredthe rights to the cash flows from the financial assets or entered into a qualifying pass-througharrangement while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii)neither transferring nor retaining substantially all risks and rewards of ownership, but not retaining control.Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety toan unrelated third party without needing to impose restrictions on the sale. 7
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible toknown amounts of cash and which are subject to an insignificant risk of changes in value. All short terminterbank placements, beyond overnight placements, are included in due from other banks. Amounts,which relate to funds that are of a restricted nature are excluded from cash and cash equivalents. Cashand cash equivalents are carried at amortised cost.Mandatory cash balances with the CBRF. Mandatory cash balances with the CBRF are carried atamortised cost and represent non-interest bearing mandatory reserve deposits which are not available tofinance the Bank’s day to day operations, and hence are not considered as part of cash and cashequivalents for the purposes of the consolidated statement of cash flows.Trading securities. Trading securities are financial assets which are either acquired for generating aprofit from short-term fluctuations in price or trader’s margin, or are securities included in a portfolio inwhich a pattern of short-term trading exists. The Group classifies securities into trading securities if it hasan intention to sell them within a short period after purchase, i.e. within six months. The Group maychoose to reclassify a non-derivative trading financial asset out of the fair value through profit or losscategory if the asset is no longer held for the purpose of selling it in the near term. Financial assets otherthan loans and receivables are permitted to be reclassified out of fair value through the profit or losscategory only in rare circumstances arising from a single event that is unusual and highly unlikely toreoccur in the near term. Financial assets that would meet the definition of loans and receivables may bereclassified if the Group has the intention and ability to hold these financial assets for the foreseeablefuture, or until maturity.Trading securities are carried at fair value. Interest earned on trading securities calculated using theeffective interest method is presented in the consolidated statement of comprehensive income as interestincome. Dividends are included in dividend income when the Group’s right to receive the dividendpayment is established and it is probable that the dividends will be collected. All other elements of thechanges in the fair value and gains or losses on derecognition are recorded in profit or loss for the yearas gains less losses from trading securities in the period in which they arise.Due from other banks. Amounts due from other banks are recorded when the Group advances moneyto counterparty banks with no intention of trading the resulting unquoted non-derivative receivable due onfixed or determinable dates. Amounts due from other banks are carried at amortised cost.Loans and advances to customers. Loans and advances to customers are recorded when the Groupadvances money to purchase or originate an unquoted non-derivative receivable from a customer due onfixed or determinable dates, and has no intention of trading the receivable. Loans and advances tocustomers are carried at amortised cost. 8
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profitor loss for the year when incurred as a result of one or more events (“loss events”) that occurred after theinitial recognition of the financial asset and which have an impact on the amount or timing of theestimated future cash flows of the financial asset or group of financial assets that can be reliablyestimated. If the Group determines that no objective evidence exists that impairment was incurred for anindividually assessed financial asset, whether significant or not, it includes the asset in a group offinancial assets with similar credit risk characteristics, and collectively assesses them for impairment. Thisrule does not apply to the financial assets recognised in the end of the reporting period (usually inDecember) for which not enough information has been collected to identify an impairment trigger event.The primary factors that the Group considers in determining whether a financial asset is impaired are itsoverdue status and realisability of related collateral, if any.The following other principal criteria are also used to determine whether there is objective evidence thatan impairment loss has occurred: any instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems; the borrower experiences a significant financial difficulty as evidenced by the borrower’s financial information that the Group obtains; the borrower considers bankruptcy or a financial reorganisation; there is an adverse change in the payment status of the borrower as a result of changes in the national or local economic conditions that impact the borrower; or the value of collateral significantly decreases as a result of deteriorating market conditions.For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis ofsimilar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flowsfor groups of such assets by being indicative of the debtors’ ability to pay all amounts due according tothe contractual terms of the assets being evaluated.Future cash flows in a group of financial assets that are collectively evaluated for impairment, areestimated on the basis of the contractual cash flows of the assets and the experience of management inrespect of the extent to which amounts will become overdue as a result of past loss events and thesuccess of recovery of overdue amounts. Past experience is adjusted on the basis of current observabledata to reflect the effects of current conditions that did not affect past periods, and to remove the effectsof past conditions that do not exist currently.If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modifiedbecause of financial difficulties of the borrower or issuer, impairment is measured using the originaleffective interest rate before the modification of terms.Impairment losses are always recognised through an allowance account to write down the asset’scarrying amount to the present value of expected cash flows (which exclude future credit losses that havenot been incurred) discounted at the original effective interest rate of the asset. The calculation of thepresent value of the estimated future cash flows of a collateralised financial asset reflects the cash flowsthat may result from foreclosure less costs for obtaining and selling the collateral, whether or notforeclosure is probable. 9
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be relatedobjectively to an event occurring after the impairment was recognised (such as an improvement in thedebtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowanceaccount through profit or loss for the year.Uncollectible assets are written off against the related impairment loss provision after all the necessaryprocedures to recover the asset have been completed and the amount of the loss has been determined.Subsequent recoveries of amounts previously written off are credited to impairment loss account in profitor loss for the year.Repossessed collateral. Repossessed collateral represents financial and non-financial assets acquiredby the Group in settlement of overdue loans. The acquired non-financial assets are initially recognised atfair value and are included in premises and equipment, long-term assets held for sale, investmentproperty or inventories within other assets depending on their nature and the Groups intention in respectof use of these assets and are subsequently remeasured and accounted for in accordance with theaccounting policies for these categories of assets. The acquired financial and non-financial assets aresubsequently remeasured and accounted for in accordance with the accounting policies for thesecategories of assets.Non-current assets classified as held for sale. Non-current assets and disposal groups (which mayinclude both non-current and current assets) are classified in the consolidated statement of financialposition as ‘non-current assets held for sale’ if their carrying amount will be recovered principally througha sale transaction within twelve months after the end of the reporting period. Assets are reclassified whenall of the following conditions are met: (a) the assets are available for immediate sale in their presentcondition; (b) the Group’s management approved and initiated an active programme to locate a buyer; (c)the assets are actively marketed for sale at a reasonable price; (d) the sale is expected within one yearand (e) it is unlikely that significant changes to the plan to sell will be made or that the plan will bewithdrawn. Non-current assets and disposal groups classified as held for sale in the current period’sconsolidated statement of financial position are not reclassified or re-presented in the comparativeconsolidated statement of financial position to reflect the classification at the end of the current period.Investment property. Investment property is property held by the Group to earn rental income or forcapital appreciation, or both and which is not occupied by the Group.Investment property is initially recognised at cost, including transaction costs. Subsequently the Groupmeasures that investment property using the cost model less accumulated depreciation and provision forimpairment according to IAS 16, Property, Plant and Equipment.Land is not depreciated. Depreciation on premises is calculated using the straight-line method to allocatetheir cost to their residual values over their estimated useful lives at annual rate of 2%.If any indication exists that investment properties may be impaired, the Group estimates the recoverableamount as the higher of value in use and fair value less costs to sell. The carrying amount of aninvestment property is written down to its recoverable amount through a charge to profit or loss for theyear. An impairment loss recognised in prior years is reversed if there has been a subsequent change inthe estimates used to determine the asset’s recoverable amount. 10
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)Earned rental income is recorded in profit or loss for the year within other operating income. Gains orlosses on disposal of investment property are calculated as proceeds less carrying amount.Subsequent expenditure is capitalised only when it is probable that future economic benefits associatedwith it will flow to the Group, and the cost can be measured reliably. All other repairs and maintenancecosts are expensed when incurred.Inventories. Inventories include the assets acquired or held for sale in the normal course of business andalso those intended for the use in the course of service provision.On initial recognition inventories are measured at cost. Subsequently, inventories are measured at thelower of cost and possible net realisable value. Cost of inventories includes all costs of acquisition andother costs of their conditioning for the intended use. Acquisition costs include purchase price,transportation costs and other costs directly attributable to the acquisition. The costs that are excludedfrom the cost of inventories and are recognised as expenses in the period when they are incurred include:holding costs, administrative overhead costs that are not associated with bringing inventories to theircurrent location and condition; costs to sell. Possible net realisable value is an estimated sales price inthe course of normal business less possible costs of work and possible costs to sell.Write-off of inventories to possible net realisable value is recognised as an expense within profit or lossduring the period of write-off or the period of loss. If possible net realisable value increases the writtendown value of inventories is recovered within the amount not exceeding the earlier recognised loss.Credit related commitments. The Group enters into credit related commitments, including letters ofcredit and financial guarantees. Financial guarantees represent irrevocable assurances to makepayments in the event that a customer cannot meet its obligations to third parties, and carry the samecredit risk as loans. Financial guarantees and commitments to provide a loan are initially recognised attheir fair value. This amount is amortised on a straight line basis over the life of the commitment, exceptfor commitments to originate loans if it is probable that the Group will enter into a specific lendingarrangement and does not expect to sell the resulting loan shortly after origination; such loan commitmentfees are deferred and included in the carrying value of the loan on initial recognition. At the end of eachreporting period, the commitments are measured at the higher of (i) the remaining unamortised balance ofthe amount at initial recognition and (ii) the best estimate of expenditure required to settle thecommitment at the end of each reporting period.Investment securities available for sale. This classification includes investment securities which theGroup intends to hold for an indefinite period of time and which may be sold in response to needs forliquidity or changes in interest rates, exchange rates or equity prices.Investment securities available for sale are carried at fair value. Interest income on available-for-sale debtsecurities is calculated using the effective interest method, and recognised in profit or loss for the year.Dividends on available-for-sale equity instruments are recognised in profit or loss for the year when theGroup’s right to receive payment is established and it is probable that the dividends will be collected. Allother elements of changes in the fair value are recognised in other comprehensive income until theinvestment is derecognised or impaired, at which time the cumulative gain or loss is reclassified fromother comprehensive income to profit or loss for the year. 11
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)Impairment losses are recognised in profit or loss for the year when incurred as a result of one or moreevents (“loss events”) that occurred after the initial recognition of investment securities available for sale.A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that itis impaired. The cumulative impairment loss – measured as the difference between the acquisition costand the current fair value, less any impairment loss on that asset previously recognised in profit or loss –is reclassified from other comprehensive income to profit or loss for the year. Impairment losses on equityinstruments are not reversed and any subsequent gains are recognised in other comprehensive income.If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases andthe increase can be objectively related to an event occurring after the impairment loss was recognised inprofit or loss, the impairment loss is reversed through profit or loss for the year.Premises and equipment. Premises and equipment are stated at cost, restated to the equivalentpurchasing power of the Russian Rouble at 31 December 2002 for assets acquired prior to 1 January2003 less accumulated depreciation and provision for impairment, where required.Construction in progress is carried at cost less provision for impairment where required. Upon completion,assets are transferred to premises and equipment at their carrying amount. Construction in progress isnot depreciated until assets are available for use.Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing major parts orcomponents of premises and equipment items are capitalised, and the replaced part is retired.At the end of each reporting period management assesses whether there is any indication of impairmentof premises and equipment. If any such indication exists, management estimates the recoverableamount, which is determined as the higher of an asset’s fair value less costs to sell and its value in use.The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in profitor loss for the year. An impairment loss recognised for an asset in prior years is reversed if there hasbeen a change in the estimates used to determine the asset’s value in use or fair value less costs to sell.Gains or losses on disposals determined by comparing proceeds with carrying amount are recognised inprofit or loss for the year.Depreciation. Land and construction in progress are not depreciated. Depreciation on other items ofpremises and equipment is calculated using the straight-line method to allocate their cost to their residualvalues over their estimated useful lives at the following annual rates:Premises 2%Office and computer equipment 15-20%;Intangible assets 20%.The residual value of an asset is the estimated amount that the Group would currently obtain fromdisposal of the asset less the estimated costs of disposal, if the asset were already of the age and in thecondition expected at the end of its useful life. The assets’ residual values and useful lives are reviewed,and adjusted if appropriate, at the end of each reporting period. 12
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)Intangible assets. The Group’s intangible assets have definite useful life and primarily includecapitalised computer software.Acquired computer software licences are capitalised on the basis of the costs incurred to acquire andbring to use the specific software. Development costs that are directly associated with identifiable andunique software controlled by the Group are recorded as intangible assets if the inflow of incrementaleconomic benefits exceeding costs is probable. All other costs associated with computer software, e.g. itsmaintenance, are expensed when incurred. Capitalised computer software is amortised on a straight linebasis over expected useful lives of 5 years.Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all therisks and rewards incidental to ownership from the lessor to the Group, the total lease payments arecharged to profit or loss for the year (rental expense) on a straight-line basis over the period of the lease.Due to other banks. Amounts due to other banks are recorded when money or other assets areadvanced to the Group by counterparty banks. The non-derivative liability is carried at amortised cost.Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporatecustomers and are carried at amortised cost.Debt securities in issue. Debt securities in issue include promissory notes, bonds, certificates of depositand debentures issued by the Group. Debt securities are stated at amortised cost. If the Group purchasesits own debt securities in issue, they are removed from the consolidated statement of financial positionand the difference between the carrying amount of the liability and the consideration paid is included ingains arising from retirement of debt.Mortgage backed bonds in issue. Mortgage backed bonds are bonds secured by mortgage loanscollateralised by mortgage certificates. Mortgage backed bonds are recorded at amortised cost and are tobe redeemed when the mortgage loans are repaid or can be redeemed pre-maturely.Subordinated loans. Subordinated loans are carried at amortised cost. Under the terms of thesubordinated loans, in the event of liquidation of the Group, the repayment of these loans is subordinatedto all other creditors of the Group. Subordinated loans are included in the calculation of capital inaccordance with Russian Accounting Rules.Derivative financial instruments. Derivative financial instruments, including forward agreements andforeign exchange contracts are carried at their fair value.All derivative instruments are carried as assets when fair value at the end of the reporting period ispositive and as liabilities when fair value at the end of the reporting period is negative. Changes in the fairvalue of derivative financial instruments are included in profit or loss. The Group does not apply hedgeaccounting.Income taxes. Income taxes have been provided for in the consolidated financial statements inaccordance with legislation enacted or substantively enacted by the end of the reporting period. Theincome tax charge comprises current tax and deferred tax and is recognised in profit or loss for the yearexcept if it is recognised in other comprehensive income or directly in equity because it relates totransactions that are also recognised, in the same or a different period, in other comprehensive income ordirectly in equity. 13
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect oftaxable profits or losses for the current and prior periods. Taxes other than on income are recorded withinadministrative and other operating expenses.Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards andtemporary differences arising between the tax bases of assets and liabilities and their carrying amountsfor financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes arenot recorded for temporary differences on initial recognition of an asset or a liability in a transaction otherthan a business combination if the transaction, when initially recorded, affects neither accounting nortaxable profit. Deferred tax balances are measured at tax rates enacted or substantively enacted at thereporting date, which are expected to apply to the period when the temporary differences will reverse orthe tax loss carry forwards will be utilised. Deferred tax assets for deductible temporary differences andtax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will beavailable against which the deductions can be utilised.Uncertain tax positions. The Groups uncertain tax positions are reassessed by management at the endof reporting period. Liabilities are recorded for income tax positions that are determined by managementas more likely than not to result in additional taxes being levied if the positions were to be challenged bythe tax authorities. The assessment is based on the interpretation of tax laws that have been enacted orsubstantively enacted by the end of the reporting period, and any known court or other rulings on suchissues. Liabilities for penalties, interest and taxes other than on income are recognised based onmanagement’s best estimate of the expenditure required to settle the obligations at the end of thereporting period.Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities ofuncertain timing or amount. They are accrued when the Group has a present legal or constructiveobligation as a result of past events, it is probable that an outflow of resources embodying economicbenefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation canbe made.Trade and other payables. Trade payables are accrued when the counterparty has performed itsobligations under the contract and are carried at amortised cost.Share capital. Ordinary shares and non-redeemable preference shares with discretionary dividends areboth classified as equity. Incremental costs directly attributable to the issue of new shares are shown inequity as a deduction, net of tax, from the share capital. Any excess of the fair value of considerationreceived over the par value of shares issued is recorded as share premium in equity.Dividends. Dividends are recorded in equity in the period in which they are declared. Any dividendsdeclared after the reporting date and before the financial statements are authorised for issue aredisclosed in the subsequent events note. The statutory accounting reports of the Bank are the basis forprofit distribution and other appropriations. Russian legislation identifies the basis of distribution as thecurrent year net profit. 14
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)Income and expense recognition. Interest income and expense are recorded in profit or loss for all debtinstruments on an accrual basis using the effective interest method. This method defers, as part of interestincome or expense, all fees paid or received between the parties to the contract that are an integral part of theeffective interest rate, transaction costs and all other premiums or discounts.Fees integral to the effective interest rate include origination fees received or paid by the entity relating tothe creation or acquisition of a financial asset or issuance of a financial liability, for example fees forevaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating the terms ofthe instrument and for processing transaction documents. Commitment fees received by the Group tooriginate loans at market interest rates are integral to the effective interest rate if it is probable that theGroup will enter into a specific lending arrangement and does not expect to sell the resulting loan shortlyafter origination. The Group does not designate loan commitments as financial liabilities at fair valuethrough profit or loss.When loans and other debt instruments become doubtful of collection, they are written down to the presentvalue of expected cash inflows and interest income is thereafter recorded for the unwinding of the presentvalue discount based on the asset’s effective interest rate, which was used to measure the impairment loss.All other fees, commissions and other income and expense items are generally recorded on an accrualbasis by reference to completion of the specific transaction assessed on the basis of the actual serviceprovided as a proportion of the total services to be provided.Foreign currency translation. The Group’s functional and presentation currency is the national currencyof the Russian Federation, Russian Roubles (“RR”).Monetary assets and liabilities are translated into the Group’s functional currency at the official exchangerate of the CBRF at the end of the respective reporting period. Foreign exchange gains and lossesresulting from the settlement of transactions in foreign currency and from the translation of monetaryassets and liabilities into the Group’s functional currency at year-end official exchange rates of the CBRFare recognised in profit or loss. Translation at year-end rates does not apply to non-monetary items thatare measured at historical cost. Non-monetary items measured at fair value in a foreign currency,including equity investments, are translated using the exchange rates at the date when the fair value wasdetermined. Effects of exchange rate changes on non-monetary items measured at fair value in a foreigncurrency are recorded as part of the fair value gain or loss.As at 31 December 2012 the principal rates of exchange used for translating foreign currency balanceswere USD 1 = RR 30.3727 (2011: USD 1 = RR 32.1961) and EUR 1 = RR 40.2286 (2011: EUR 1 =RR 41.6714).Fiduciary assets. Assets held by the Group in its own name, but on the account of third parties, are notreported in the consolidated statement of financial position. Commissions received from fiduciaryactivities are shown in fee and commission income.Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidatedstatement of financial position only when there is a legally enforceable right to offset the recognisedamounts, and there is an intention to either settle on a net basis, or to realise the asset and settle theliability simultaneously.Staff costs and related contributions. Wages, salaries, contributions to the Russian Federation statepension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetarybenefits are accrued in the year in which the associated services are rendered by the employees of theGroup. The Group has no legal or constructive obligation to make pension or similar benefit paymentsbeyond the unified social tax. 15
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20123 Summary of Significant Accounting Policies (Continued)Segment reporting. Operating segments are reported in a manner consistent with the internal reportingprovided to the Bank’s chief operating decision maker. Segments whose revenue, result or assets are tenpercent or more of all the segments are reported separately.Presentation of statement of financial position in order of liquidity. The Group does not have aclearly identifiable operating cycle and therefore does not present current and non-current assets andliabilities separately in the consolidated statement of financial position. Instead, assets and liabilities arepresented in order of their liquidity. The following table provides information for each line item in theconsolidated statement of financial position which combines amounts expected to be recovered or settledbefore and after twelve months after the reporting period. 31 December 2012 31 December 2011 Amounts expected to be Amounts expected to be recovered or settled recovered or settled within after Total within after Total 12 months 12 months 12 months 12 months after the after the after the after the reporting reporting reporting reportingIn millions of Russian Roubles period period period periodASSETSCash and cash equivalents 40 885 - 40 885 37 755 - 37 755Mandatory cash balances with the Central Bank of the Russian Federation 1 623 474 2 097 1 546 393 1 939Trading securities 5 884 - 5 884 7 347 - 7 347Due from other banks 5 406 388 5 794 602 365 967Loans and advances to customers 77 606 64 056 141 662 76 097 48 286 124 383Investment securities available for sale 2 007 469 2 476 1 312 65 1 377Premises and equipment - 3 064 3 064 - 3 048 3 048Other financial assets 1 103 - 1 103 1 254 - 1 254Non-current assets classified as held for sale 898 - 898 975 - 975Other assets 614 4 585 5 199 260 4 583 4 843TOTAL ASSETS 136 026 73 036 209 062 127 148 56 740 183 888LIABILITIESDue to other banks 1 119 6 528 7 647 1 288 6 914 8 202Customer accounts 162 167 1 709 163 876 140 505 4 637 145 142Debt securities in issue 4 925 2 107 7 032 3 746 2 976 6 722Other borrowed funds 2 803 - 2 803 - - -Other financial liabilities 350 - 350 588 - 588Other liabilities 496 - 496 555 - 555Subordinated loans 1 559 4 492 6 051 55 4 162 4 217TOTAL LIABILITIES 173 419 14 836 188 255 146 737 18 689 165 426 16
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20124 Critical Accounting Estimates and Judgements in Applying Accounting PoliciesThe Group makes estimates and assumptions that affect the amounts recognised in the consolidatedfinancial statements and the carrying amounts of assets and liabilities within the next financial year.Estimates and judgements are continually evaluated and are based on management’s experience andother factors, including expectations of future events that are believed to be reasonable under thecircumstances. Management also makes certain judgements, apart from those involving estimations, inthe process of applying the accounting policies. Judgements that have the most significant effect on theamounts recognised in the consolidated financial statements and estimates that can cause a significantadjustment to the carrying amount of assets and liabilities within the next financial year include:Impairment losses on loans and advances. The Group regularly reviews its loan portfolios to assessimpairment. In determining whether an impairment loss should be recorded in profit or loss for the year,the Group makes judgements as to whether there is any observable data indicating that there is ameasurable decrease in the estimated future cash flows from a portfolio of loans before the decrease canbe identified with an individual loan in that portfolio. This evidence may include observable data indicatingthat there has been an adverse change in the payment status of borrowers in a group, or national or localeconomic conditions that correlate with defaults on assets in the group. Management uses estimatesbased on historical loss experience for assets with credit risk characteristics and objective evidence ofimpairment similar to those in the portfolio when scheduling its future cash flows. The methodology andassumptions used for estimating both the amount and timing of future cash flows are reviewed regularlyto reduce any differences between loss estimates and actual loss experience.A 5% increase or decrease in actual loss experience compared to the loss estimates used would result inan increase or decrease in loan impairment losses of RR 735 million (2011: RR 648 million), respectively.Deferred income tax asset recognition. The recognised deferred income tax asset represents incometaxes recoverable through future deductions from taxable profits and is recorded on the consolidatedstatement of financial position. Deferred income tax assets are recorded to the extent that realisation ofthe related tax benefit is probable. The future taxable profits and the amount of tax benefits that areprobable in the future are based on a medium term business plan prepared by management that is basedon a moderately optimistic scenario of the development of the Russian economy which includesmeasures undertaken by the government aimed at assuring macroeconomic equilibrium, stable nationalcurrency, consistent lowering of inflation, and investment and consumer demand. Key assumptions usedin the business plan: average annual growth of assets is set at 11% until 2015 with the main focus oncorporate and retail lending. Should the situation in the Russian economy significantly deteriorate theGroup may partially or fully write-off the deferred tax asset. Refer to Notes 14 and 24.Tax legislation. Russian tax, currency and customs legislation is subject to varying interpretations. Referto Note 30. 17
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20125 Adoption of New or Revised Standards and InterpretationsThe following new standards and interpretations became effective for the Group from 1 January 2012:Disclosures – Transfers of Financial Assets – Amendments to IFRS 7 (issued in October 2010 andeffective for annual periods beginning on or after 1 July 2011). The amendment requires additionaldisclosures in respect of risk exposures arising from transferred financial assets. The amendmentincludes a requirement to disclose by class of asset the nature, carrying amount and a description of therisks and rewards of financial assets that have been transferred to another party, yet remain on theentitys balance sheet. Disclosures are also required to enable a user to understand the amount of anyassociated liabilities, and the relationship between the financial assets and associated liabilities. Wherefinancial assets have been derecognised, but the entity is still exposed to certain risks and rewardsassociated with the transferred asset, additional disclosure is required to enable the effects of those risksto be understood. The standard requires these new disclosures to be presented in a separate note. Referto Note 31.Other revised standards and interpretations: The amendments to IFRS 1 “First-Time Adoption ofIFRS”, relating to severe hyperinflation and eliminating references to fixed dates for certain exceptionsand exemptions, did not have any impact on these consolidated financial statements. The amendment toIAS 12 “Income taxes”, which introduced a rebuttable presumption that an investment property carried atfair value is recovered entirely through sale, did not have a material impact on these consolidatedfinancial statements.6 New Accounting PronouncementsCertain new standards and interpretations have been issued that are mandatory for the annual periodsbeginning on or after 1 January 2013 or later, and which the Group has not early adopted.IFRS 10, Consolidated Financial Statements, (issued in May 2011 and effective for annual periodsbeginning on or after 1 January 2013) replaces all of the guidance on control and consolidation inIAS 27 “Consolidated and separate financial statements” and SIC 12 “Consolidation - special purposeentities”. IFRS 10 changes the definition of control so that the same criteria are applied to all entities todetermine control. This definition is supported by extensive application guidance. The Group does notexpect the new standard to have any impact on its consolidated financial statements.IFRS 11, Joint Arrangements, (issued in May 2011 and effective for annual periods beginning onor after 1 January 2013) replaces IAS 31 “Interests in Joint Ventures” and SIC 13 “Jointly ControlledEntities – Non-Monetary Contributions by Venturers”. Changes in the definitions have reduced thenumber of types of joint arrangements to two: joint operations and joint ventures. The existing policychoice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accountingis mandatory for participants in joint ventures. The Group does not expect the new standard to have anyimpact on its consolidated financial statements.IFRS 12, Disclosure of Interests in Other Entities, (issued in May 2011 and effective for annualperiods beginning on or after 1 January 2013) applies to entities that have an interest in a subsidiary,a joint arrangement, an associate or an unconsolidated structured entity. It replaces the disclosurerequirements currently found in IAS 28 “Investments in associates”. IFRS 12 requires entities to discloseinformation that helps financial statement readers to evaluate the nature, risks and financial effectsassociated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidatedstructured entities. To meet these objectives, the new standard requires disclosures in a number of areas,including significant judgements and assumptions made in determining whether an entity controls, jointlycontrols, or significantly influences its interests in other entities, extended disclosures on share of non-controlling interests in group activities and cash flows, summarised financial information of subsidiarieswith material non-controlling interests, and detailed disclosures of interests in unconsolidated structuredentities. The Group is currently assessing the impact of the new standard on its consolidated financialstatements. 18
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20126 New Accounting Pronouncements (Continued)IFRS 13, Fair Value Measurement, (issued in May 2011 and effective for annual periods beginningon or after 1 January 2013) aims to improve consistency and reduce complexity by providing a reviseddefinition of fair value, and a single source of fair value measurement and disclosure requirements for useacross IFRSs. The Group is currently assessing the impact of the new standard on its consolidatedfinancial statements.IAS 27, Separate Financial Statements, (revised in May 2011 and effective for annual periodsbeginning on or after 1 January 2013) was changed and its objective is now to prescribe theaccounting and disclosure requirements for investments in subsidiaries, joint ventures and associateswhen an entity prepares separate financial statements. The guidance on control and consolidatedfinancial statements was replaced by IFRS 10, Consolidated Financial Statements. The Group does notexpect the standard to have any impact on its consolidated financial statements.IAS 28, Investments in Associates and Joint Ventures, (revised in May 2011 and effective forannual periods beginning on or after 1 January 2013). The amendment of IAS 28 resulted from theBoard’s project on joint ventures. When discussing that project, the Board decided to incorporate theaccounting for joint ventures using the equity method into IAS 28 because this method is applicable toboth joint ventures and associates. With this exception, other guidance remained unchanged. The Groupdoes not expect the standard to have any impact on its consolidated financial statements.Amendments to IAS 1, Presentation of Financial Statements, (issued in June 2011, effective forannual periods beginning on or after 1 July 2012) changes the disclosure of items presented in othercomprehensive income. The amendments require entities to separate items presented in othercomprehensive income into two groups, based on whether or not they may be reclassified to profit or lossin the future. The suggested title used by IAS 1 has changed to “statement of profit or loss and othercomprehensive income”. The Group expects the amended standard to change presentation of itsconsolidated financial statements, but have no impact on measurement of transactions and balances.Amended IAS 19, Employee Benefits, (issued in June 2011, effective for periods beginning on orafter 1 January 2013) makes significant changes to the recognition and measurement of defined benefitpension expense and termination benefits, and to the disclosures for all employee benefits. The standardrequires recognition of all changes in the net defined benefit liability (asset) when they occur, as follows:(i) service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income.The Group does not expect the amendments to have any material effect on its consolidated financialstatements.Amendments to IFRS 1, First-time adoption of International Financial Reporting Standards –Government loans, (issued in March 2012 and effective for annual periods beginning 1 January2013). The amendments, dealing with loans received from governments at a below market rate ofinterest, give first-time adopters of IFRSs relief from full retrospective application of IFRSs whenaccounting for these loans on transition. This will give first-time adopters the same relief as existingpreparers. The Group does not expect the amendments to have any material effect on its consolidatedfinancial statements.Improvements to International Financial Reporting Standards (issued in May 2012 and effectivefor annual periods beginning 1 January 2013). The improvements consist of changes to fivestandards. IFRS 1 was amended to (i) clarify that an entity that resumes preparing its IFRS financialstatements may either repeatedly apply IFRS 1 or apply all IFRSs retrospectively as if it had neverstopped applying them, and (ii) to add an exemption from applying IAS 23, Borrowing costs,retrospectively by first-time adopters. IAS 1 was amended to clarify that explanatory notes are notrequired to support the third balance sheet presented at the beginning of the preceding period when it isprovided because it was materially impacted by a retrospective restatement, changes in accountingpolicies or reclassifications for presentation purposes, while explanatory notes will be required when anentity voluntarily decides to provide additional comparative statements. IAS 16 was amended to clarifythat servicing equipment that is used for more than one period is classified as property, plant andequipment rather than inventory. IAS 32 was amended to clarify that certain tax consequences ofdistributions to owners should be accounted for in the income statement as was always required by IAS12. IAS 34 was amended to bring its requirements in line with IFRS 8. IAS 34 will require disclosure of ameasure of total assets and liabilities for an operating segment only if such information is regularlyprovided to chief operating decision maker and there has been a material change in those measuressince the last annual financial statements. The Group is currently assessing the impact of theamendments on its consolidated financial statements. 19
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20126 New Accounting Pronouncements (Continued)Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12 (issued in June 2012 andeffective for annual periods beginning on or after 1 January 2013). The amendments clarify thetransition guidance in IFRS 10 Consolidated Financial Statements. Entities adopting IFRS 10 shouldassess control at the first day of the annual period in which IFRS 10 is adopted, and if the consolidationconclusion under IFRS 10 differs from IAS 27 and SIC 12, the immediately preceding comparative period(that is, year 2012 for a calendar year-end entity that adopts IFRS 10 in 2013) is restated, unlessimpracticable. The amendments also provide additional transition relief in IFRS 10, IFRS 11, JointArrangements, and IFRS 12, Disclosure of Interests in Other Entities, by limiting the requirement toprovide adjusted comparative information only for the immediately preceding comparative period. Further,the amendments will remove the requirement to present comparative information for disclosures relatedto unconsolidated structured entities for periods before IFRS 12 is first applied. The Group is currentlyassessing the impact of the amendments on its consolidated financial statements.Other revised standards and interpretations: IFRIC 20, Stripping Costs in the Production Phase of aSurface Mine, considers when and how to account for the benefits arising from the stripping activity inmining industry. The interpretation will not have an impact on the Group’s consolidated financialstatements.The International Accounting Standards Board (“IASB”) has also issued standards that are not yetenacted in the Russian Federation.Disclosures – Offsetting Financial Assets and Financial Liabilities – Amendments to IFRS 7(issued in December 2011 and effective for annual periods beginning on or after 1 January 2013).The amendment requires disclosures that will enable users of the Group’s consolidated financialstatements to evaluate the effect or potential effect of netting arrangements, including rights of set-off.The amendment will have an impact on disclosures but will have no effect on measurement andrecognition of financial instruments.Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 (issued in December2011 and effective for annual periods beginning on or after 1 January 2014). The amendment addedapplication guidance to IAS 32 to address inconsistencies identified in applying some of the offsettingcriteria. This includes clarifying the meaning of “currently has a legally enforceable right of set-off” andthat some gross settlement systems may be considered equivalent to net settlement. The Group isconsidering the implications of the amendment, the impact on the Group and the timing of its adoption bythe Group.IFRS 9, Financial Instruments Part 1: Classification and Measurement. IFRS 9, issued in November2010, replaces those parts of IAS 39 relating to the classification and measurement of financial assets.IFRS 9 was further amended in October 2010 to address the classification and measurement of financialliabilities and in December 2011 to (i) change its effective date to annual periods beginning on or after1 January 2015 and (ii) add transition disclosures. Key features of the standard are as follows: Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss. All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument- by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. 20
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20126 New Accounting Pronouncements (Continued)While adoption of IFRS 9 is mandatory from 1 January 2015, earlier adoption is permitted. The Group isconsidering the implications of the standard, the impact on the Groups consolidated financial statementsand the timing of its adoption by the Group.Amendments to IFRS 10, IFRS 12 and IAS 27 – Investment entities (issued on 31 October 2012 andeffective for annual periods beginning 1 January 2014). The amendment introduced a definition of aninvestment entity as an entity that (i) obtains funds from investors for the purpose of providing them withinvestment management services, (ii) commits to its investors that its business purpose is to invest fundssolely for capital appreciation or investment income and (iii) measures and evaluates its investments on afair value basis. An investment entity will be required to account for its subsidiaries at fair value throughprofit or loss, and to consolidate only those subsidiaries that provide services that are related to theentitys investment activities. IFRS 12 was amended to introduce new disclosures, including anysignificant judgements made in determining whether an entity is an investment entity and informationabout financial or other support to an unconsolidated subsidiary, whether intended or already provided tothe subsidiary. The Group is currently assessing the impact of the amendments on its consolidatedfinancial statements.Unless otherwise described above, the new standards and interpretations are not expected to affectsignificantly the Group’s consolidated financial statements.7 Cash and Cash EquivalentsIn millions of Russian Roubles 2012 2011Cash on hand 8 616 10 582Correspondent accounts and overnight placements with banks- Russian Federation 1 049 4 041- Other countries 16 550 13 482Cash balances with the CBRF (other than mandatory cash balances) 14 670 9 650Total cash and cash equivalents 40 885 37 755The credit quality of cash and cash equivalents balances may be summarised as follows at31 December 2012: Correspondent accounts andIn millions of Russian Roubles overnight placements with banksCorrespondent accounts and overnight placements with banks:- AA- to AA+ rated 10 528- A- to A+ rated 2 073- BBB- to BBB+ rated 4 994- В- to В+ rated 2- Unrated 2Total balances on correspondent accounts and overnight placements with banks 17 599 21
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20127 Cash and Cash Equivalents (Continued)The credit quality of cash and cash equivalents balances may be summarised as follows at31 December 2011: Correspondent accounts andIn millions of Russian Roubles overnight placements with banksCorrespondent accounts and overnight placements with banks:- Russian banks not Top-20 2 115- AA- to AA+ rated 9 821- A- to A+ rated 307- BBB- to BBB+ rated 3 986- BB- to BB+ rated 1 100- Unrated 194Total balances on correspondent accounts and overnight placements with banks 17 523The credit ratings are based on Standard & Poor’s ratings where available, or Moody’s rating converted tothe nearest equivalent on the Standard & Poor’s rating scale.As at 31 December 2012 the total amount of five major aggregated balances on correspondent accountsand overnight placements with other banks was RR 15 769 million or 90% (2011: RR 13 256 million or75%) of total cash balances on correspondent accounts and overnight placements with banks.Refer to Note 33 for the estimated fair value of cash and cash equivalents.Geographical, currency and interest rate analyses of cash and cash equivalents are disclosed in Note 28.Transactions that did not require the use of cash and cash equivalents and were excluded from theconsolidated statement of cash flows are as follows:In millions of Russian Roubles 2012 2011Non-cash operating activitiesOther assets acquired by the Bank in settlements of overdue loans and advances to customers 214 1 579Repayment of loans and advances to customers by non-cash assets (214) (1 579)Non-cash operating activities - -Additional information on non-cash transactions is disclosed in Note 14 with a detailed description ofassets acquired by the Group in settlements of overdue loans and advances to customers.8 Trading SecuritiesIn millions of Russian Roubles 2012 2011Corporate bonds 3 636 3 748Corporate Eurobonds 1 517 2 954Federal loan bonds (OFZ) 603 457Municipal bonds 102 188Total debt securities 5 858 7 347Corporate shares 26 -Total trading securities 5 884 7 347 22
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20128 Trading Securities (Continued)Analysis by credit quality of debt trading securities is as follows at 31 December 2012: Corporate Corporate Federal loan Municipal TotalIn millions of Russian Roubles bonds Eurobonds bonds (OFZ) bondsNeither past due nor impaired (at fair value)- A- to A+ rated 155 - - - 155- BBB- to BBB+ rated 1 699 1 517 603 102 3 921- ВВ- to ВВ+ rated 1 782 - - - 1 782Total debt trading securities 3 636 1 517 603 102 5 858Analysis by credit quality of debt trading securities is as follows at 31 December 2011: Corporate Corporate Federal loan Municipal Total In millions of Russian Roubles bonds Eurobonds bonds (OFZ) bondsNeither past due nor impaired (at fair value)- BBB- to BBB+ rated 3 142 1 521 457 183 5 303- ВВ- to ВВ+ rated 606 1 433 - - 2 039- В- to В+ rated - - - 5 5Total debt trading securities 3 748 2 954 457 188 7 347The credit ratings are based on Standard & Poor’s ratings where available, or Moody’s rating converted tothe nearest equivalent on the Standard & Poor’s rating scale.Corporate bonds are interest bearing securities denominated in Russian Roubles issued by large Russiancompanies and freely tradable in the Russian Federation. These bonds have maturity dates ranging fromFebruary 2013 to September 2020 (2011: from June 2012 to May 2019), coupon rates from 1.0% to 9.8%p.a. (2011: from 7.5% to 14.8% p.a.) and yields to maturity from 2.4% to 8.3% p.a. (2011: from 6.2% to8.3% p.a.), depending on the type of bond issue.Corporate Eurobonds are interest bearing and zero-coupon securities denominated in USD and Euroissued by large Russian companies, and are freely tradable internationally. These bonds have maturitydates ranging from March 2013 to February 2014 (2011: from January 2012 to December 2012), couponrates from 5.0% to 9.6% p.a. (2011: from 4.6% to 8.0% p.a.) and yields to maturity from 1.0% to 1.7% p.a.(2011: from 1.4% to 3.6% p.a.), depending on the type of bond issue. Zero-coupon securities havematurity date in November 2013 and yield to maturity of 2.0% p.a.OFZ bonds are Russian Rouble denominated government securities issued by the Ministry of Finance ofthe Russian Federation. These bonds have maturity dates in January and February 2013 (2011: inJanuary and August 2012), coupon rates from 6.7% to 7.2% p.a. (2011: from 6.9% to 11.9% p.a.) andyields to maturity from 5.7% to 5.8% p.a. (2011: from 4.2% to 6.1% p.a.), depending on the type of bondissue.Corporate shares are shares of Russian companies. 23
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20128 Trading Securities (Continued)Trading securities are carried at fair value which also reflects any credit risk related write-downs. Astrading securities are carried at their fair values based on observable market data, the Group does notanalyse or monitor impairment indicators.Trading securities are used by the Group basically for managing liquidity risk.Geographical, currency, interest rate and maturity analyses of trading securities are disclosed in Note 28.The Bank is licensed by the Federal Commission on Securities Markets for trading in securities.9 Due from Other BanksIn millions of Russian Roubles 2012 2011Short-term placements with other banks 5 406 601Insurance deposits with non-resident banks 388 366Total due from other banks 5 794 967Analysis by credit quality of amounts due from other banks outstanding at 31 December 2012 is asfollows: Short-term Insurance deposits Total placements with with non-residentIn millions of Russian Roubles other banks banksNeither past due nor impaired- АА- to АА+ rated - 170 170- A- to A+ rated 2 802 218 3 020- BBB- to BBB+ rated 1 503 - 1 503- ВВ- to ВВ+ rated 1 101 - 1 101Total due from other banks 5 406 388 5 794Analysis by credit quality of amounts due from other banks outstanding at 31 December 2011 is asfollows: Short-term Insurance deposits Total placements with with non-residentIn millions of Russian Roubles other banks banksNeither past due nor impaired- Russian banks not Top-20 600 - 600- AA- to AA+ rated - 140 140- A- to A+ rated - 226 226- BBB- to BBB+ rated 1 - 1Total due from other banks 601 366 967The credit ratings are based on Standard & Poor’s ratings where available, or Moody’s rating converted tothe nearest equivalent on the Standard & Poor’s rating scale.Amounts due from other banks are not collateralised.As at 31 December 2012 the total amount of five major short-term placements with other banks wasRR 3 802 million or 66% (2011: RR 601 million or 62%) of the amounts due from other banks. 24
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 20129 Due from Other Banks (Continued)As at 31 December 2012, in compliance with the requirements of the Visa International payment system,the Group placed insurance deposits of RR 388 million at LIBOR rate with non-resident banks located inGreat Britain for the purpose of banking card settlements (2011: RR 366 million).Refer to Note 33 for the estimated fair value of each class of amounts due from other banks.Geographical, currency, maturity and interest rate analyses of due from other banks are disclosed inNote 28.10 Loans and Advances to CustomersIn millions of Russian Roubles 2012 2011Corporate loans - large 44 587 40 168Corporate loans - medium 51 849 50 306Corporate loans - small 27 079 22 512Mortgage loans 22 302 15 384Other loans to individuals 10 548 8 978Total gross loans and advances to customers 156 365 137 348Less: Provision for loan impairment (14 703) (12 965)Total loans and advances to customers 141 662 124 383In accordance with the Credit policy loans are divided into corporate and retail.Taking into consideration the Group’s customer policy requirements for 2012 and 2011, the corporateportion of borrowers is further divided on the basis of total amount owed by the customer into thefollowing categories: large – in excess of RR 750 million, medium – from RR 100 million to RR 750million, small – less than RR 100 million.Retail loans are divided into categories by product: mortgage loans and other loans to individualsincluding consumer loans, car loans and bank card loans.Mortgage loans include mortgage loans of RR 7 209 million securitised in December 2011 and December2012. The Banks management determined that the Group had not transferred main risks with respect tothe transferred assets, and, consequently, such transfer was not the ground for their derecognition. Referto Notes 17 and 31.Movements in the provision for loan impairment during 2012 are as follows: Corporate Corporate Corporate Mortgage Other Total loans - loans - loans - loans loans toIn millions of Russian Roubles large medium small individualsProvision for loan impairmentat 1 January 2012 3 514 5 501 2 876 432 642 12 965Provision for impairment during the year 1 844 397 292 179 10 2 722Amounts written off during the year as uncollectible - - (283) - (9) (292)Result from disposal of loans under cession agreements (67) (472) (54) - (99) (692)Provision for loan impairmentat 31 December 2012 5 291 5 426 2 831 611 544 14 703 25
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201210 Loans and Advances to Customers (Continued)Movements in the provision for loan impairment during 2011 are as follows: Corporate Corporate Corporate Mortgage Other Total loans - loans - loans - loans loans toIn millions of Russian Roubles large medium small individualsProvision for loan impairment at 1 January 2011 2 014 5 086 3 026 480 584 11 190Provision for impairment during the year 1 500 612 175 (48) 65 2 304Amounts written off during the year as uncollectible - - (146) - (7) (153)Result from disposal of loans under cession agreements - (197) (179) - - (376)Provision for loan impairment at 31 December 2011 3 514 5 501 2 876 432 642 12 965Economic sector risk concentrations within the customer loan portfolio are as follows: 2012 2011In millions of Russian Roubles Amount % Amount %Manufacturing 42 466 28 37 743 27Trade 35 602 23 31 510 23Individuals 32 850 21 24 362 18Construction 9 446 6 9 927 7Agriculture 9 310 6 8 122 6Real estate 8 381 5 7 693 5Transport and communication 8 225 5 5 127 4Finance 1 773 1 5 125 4State and public organisations 1 670 1 2 711 2Other 6 642 4 5 028 4Total gross loans and advances to customers 156 365 100 137 348 100State and public organisations exclude government owned profit orientated businesses.As at 31 December 2012 loans and advances to customers include loans with the carrying amount of RR3 715 million (2011: RR 3 331 million) with the rights of claim pledged as collateral with respect to termplacements of other banks. Refer to Notes 15 and 30.As at 31 December 2012 the Group had 33 borrowers with aggregated loan amounts equal or aboveRR 750 million. The total aggregate amount of these loans was RR 44 587 million or 28.5 % of the grossloans and advanced to customers.As at 31 December 2011 the Group had 32 borrowers with aggregated loan amounts equal or aboveRR 750 million. The total aggregate amount of these loans was RR 40 168 million or 29.2% of the grossloan portfolio. 26
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201210 Loans and Advances to Customers (Continued)Analysis by credit quality of loans outstanding at 31 December 2012 is as follows: Corporate Corporate Corporate Mortgage Other Total loans loans loans loans loans to - large - medium - small indivi-In millions of Russian Roubles dualsNeither past due nor impaired- Borrowers with credit history over two years 30 909 - - - - 30 909- New borrowers 8 233 - - - - 8 233- Corporate loans assessed on a portfolio basis issued in 2012 - 34 282 20 121 - - 54 403- Corporate loans assessed on a portfolio basis issued before 2012 - 12 746 4 014 - - 16 760Loans to individuals assessed on a portfolio basis:- Mortgage loans issued in 2012 - - - 12 096 - 12 096- Mortgage loans issued before 2012 - - - 9 816 - 9 816- consumer loans - - - - 7 756 7 756- credit cards - - - - 1 901 1 901- car loans - - - - 389 389Total gross neither past due nor impaired 39 142 47 028 24 135 21 912 10 046 142 263Past due but not impaired- less than 30 days overdue - - 141 20 60 221- 30 to 90 days overdue - - - 20 13 33- 91 to 180 days overdue - - - 171 5 176- 181 to 360 days overdue - - - 36 5 41Total gross past due but not impaired - - 141 247 83 471Loans collectively determined to be impaired- less than 30 days overdue - - 3 - - 3- 30 to 90 days overdue - - 43 - 12 55- 91 to 180 days overdue - 347 150 - 12 509- 181 to 360 days overdue - 449 294 - 16 759- over 360 days overdue - 2 568 2 256 - 102 4 926Total gross collectively impaired loans - 3 364 2 746 - 142 6 252Loans individually determined to be impaired- 30 to 90 days overdue - - - - 22 22- 91 to 180 days overdue 3 726 - - - 13 3 739- 181 to 360 days overdue 960 - - - 17 977- over 360 days overdue 759 1 457 57 143 225 2 641Total gross individually impaired loans 5 445 1 457 57 143 277 7 379Less impairment provision (5 291) (5 426) (2 831) (611) (544) (14 703)Total loans and advances to customers 39 296 46 423 24 248 21 691 10 004 141 662 27
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201210 Loans and Advances to Customers (Continued)Analysis by credit quality of loans outstanding at 31 December 2011 is as follows: Corporate Corporate Corporate Mortgage Other Total loans loans loans loans loans to - large - medium - small indivi-In millions of Russian Roubles dualsNeither past due nor impaired- Borrowers with credit history over two years 19 233 - - - - 19 233- New borrowers 18 955 - - - - 18 955- Corporate loans assessed on a portfolio basis issued in 2011 - 34 446 16 713 - - 51 159- Corporate loans assessed on a portfolio basis issued before 2011 - 10 942 2 948 - - 13 890Loans to individuals assessed on a portfolio basis:- Mortgage loans issued in 2011 - - - 7 477 - 7 477- Mortgage loans issued before 2011 7 647 - 7 647- consumer loans - - - - 6 063 6 063- credit cards - - - - 1 948 1 948- car loans - - - - 400 400Total gross neither past due nor impaired 38 188 45 388 19 661 15 124 8 411 126 772Past due but not impaired- less than 30 days overdue 215 21 35 23 34 328- 30 to 90 days overdue - - - 10 7 17- 91 to 180 days overdue - - - 16 2 18- 181 to 360 days overdue - - - 20 13 33Total gross past due but not impaired 215 21 35 69 56 396Loans collectively determined to be impaired- less than 30 days overdue - - 87 - - 87- 30 to 90 days overdue - - 133 - 13 146- 91 to 180 days overdue - 44 55 - 11 110- 181 to 360 days overdue - 220 296 - 18 534- over 360 days overdue - 2 776 2 025 - 188 4 989Total gross collectively impaired loans - 3 040 2 596 - 230 5 866Loans individually determined to be impaired- not past due 923 - - - - 923- less than 30 days overdue - - - - 24 24- 30 to 90 days overdue - 477 - - 13 490- 91 to 180 days overdue - - - - 19 19- 181 to 360 days overdue - - - - 12 12- over 360 days overdue 842 1 380 220 191 213 2 846Total gross individually impaired loans 1 765 1 857 220 191 281 4 314Less impairment provision (3 514) (5 501) (2 876) (432) (642) (12 965)Total loans and advances to customers 36 654 44 805 19 636 14 952 8 336 124 383The Group believes that the borrowers with long credit history have a lesser degree of credit risk. Theprimary factors that the Group considers in determining whether a loan is impaired are its overdue statusand realisability of related collateral, if any. 28
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201210 Loans and Advances to Customers (Continued)The Group applied the portfolio provisioning methodology prescribed by IAS 39 Financial Instruments:Recognition and Measurement, and set up portfolio provisions for impairment losses that were incurredbut have not been specifically identified with any individual loan by the reporting date.The Group’s policy is to classify each loan as “neither past due nor impaired” until specific objectiveevidence of impairment of the loan is identified. The impairment provisions may exceed the total grossamount of individually impaired loans as a result of this policy and the portfolio impairment methodology.Loans collectively determined to be impaired are represented by corporate small and medium loans, andloans to individuals except for mortgage loans, which have an overdue status as an impairment triggerevent. Past due but not impaired loans represent collateralised loans where the fair value of collateraltogether with consideration of discounting covers the overdue interest and principal repayments. Theamount reported as past due but not impaired is the whole balance of such loans, not only the individualinstalments that are past due.The Group usually issues loans in case there is a liquid and sufficient collateral that is documented inaccordance with legally established procedures (except for some credit products used for lending toindividuals, overdrafts without collateral, loans to RF constituents and municipal organisations, factoringfinancing, loans assessed on an individual basis and authorised for issue without collateral). Loans tolegal entities may be collateralised by the following: real estate; equipment; motor vehicles; goods in turnover; guarantee deposit; banking guarantee; state (municipal) guarantee; own promissory notes; highly liquid securities; refined precious metals (gold, silver, platinum and palladium); vested interest (for demand) implied from commitments under an agreement.Loans collateralised by third parties may be issued once the third parties provide their guarantees ascollateral. In this case: the financial position of a legal entity guarantor should be classified as not worse than average in accordance with the Group’s internal methodologies on evaluation of financial position; the financial position of an individual guarantor should be classified as good in accordance with the Group’s internal methodologies on evaluation of financial position.Pledged real estate property (except for land), equipment, motor vehicles and inventory items should beinsured. The insured amount of the collateral should be not less than its collateral value, the term of theinsurance contract should expire not earlier than one month after the loan maturity date. 29
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201210 Loans and Advances to Customers (Continued)Loans to individuals may be collateralised by the following: real estate purchased under the mortgage agreement; real estate owned by individuals; motor vehicles; guarantees of third parties, in particular employers of the individual borrower; pledge of right of claim on the individual’s deposit; and other property owned by the borrower.In addition, to mitigate the credit risk the Group uses insurance by borrowers of the pledged item, theindividual borrower’s life and disability or accident insurance.Obligations of the borrowers can be collateralised with various types of collateral simultaneously. Thecollateral should be sufficient to repay the principal, interest and the amount of the Group’s potentialexpenses associated with the fulfilment of debtor’s obligations. The liquidity of the collateral is assessedon the basis of the period during which it can be realised.Information about collateral at 31 December 2012 is as follows: Corporate Corporate Corporate Mortgage Other Total loans - loans - loans - loans loans toIn millions of Russian Roubles large medium small individualsUnsecured loans 7 371 3 043 1 932 1 151 5 582 19 079Loans collateralised by:residential real estate - - - 21 010 28 21 038other real estate 16 833 23 294 11 049 40 918 52 134equipment, inventories, motor vehicles 5 766 13 425 8 430 - 490 28 111securities (promissory notes, shares) - 207 - 35 8 250cash deposits - - 40 14 8 62state guarantees and guarantees of RF constituents 812 1 142 545 - - 2 499other guarantees and third parties guarantees 10 430 9 099 4 827 52 2 355 26 763other assets (other types of property, rights) 3 375 1 639 256 - 1 159 6 429Total gross loans and advancesto customers 44 587 51 849 27 079 22 302 10 548 156 365 30
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201210 Loans and Advances to Customers (Continued)Information about collateral at 31 December 2011 is as follows: Corporate Corporate Corporate Mortgage Other Total loans - loans - loans - loans loans toIn millions of Russian Roubles large medium small individualsUnsecured loans 3 731 5 157 1 649 1 003 3 049 14 589Loans collateralised by:residential real estate - - - 14 318 1 251 15 569other real estate 14 123 22 371 9 690 2 103 46 289equipment, inventories, motor vehicles 5 501 10 972 7 277 - 579 24 329securities (promissory notes, shares) - 7 1 - - 8cash deposits - - 11 - 5 16state guarantees and guarantees of RF constituents 792 1 254 528 - - 2 574other guarantees and third parties guarantees 12 128 8 295 3 178 60 2 841 26 502other assets (other types of property, rights) 3 893 2 250 178 1 1 150 7 472Total gross loans and advances to customers 40 168 50 306 22 512 15 384 8 978 137 348Unsecured corporate loans mainly represent loans to RF constituents and municipalities, as well asoverdraft loans. Unsecured loans to individuals mainly represent mortgage loans, whose mortgagedocuments are being registered with state authorities, as well as loans issued using banking cards.The collateral value of property is determined when a loan is issued in accordance with the Group’seffective procedure.In addition, the Group has a right for write-off from the borrower’s settlement and current accounts withthe Group in case of non-fulfilment of loan contract obligations by the borrower.Market value of property is assumed to be the collateral value of security in respect of credit products ofretail portfolio. Market value of property is confirmed by the report on real estate market valuationprepared by a valuation company.Bank card loans are secured by guarantees of individuals, life and disability insurance of the borrowers. Ifrequired and depending upon the amount of a credit limit, the borrower’s occupation and place of work,the Group may request additional collateral in the form of a pledge. 31
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201210 Loans and Advances to Customers (Continued)The financial effect of collateral is presented by disclosing impact of collateral and other creditenhancements on impairment provisions recognised at the end of the reporting period. Without holdingcollateral and other credit enhancements, the impairment provisions would be higher by the followingamounts:In millions of Russian Roubles 2012 2011Corporate loans - large 2 950 3 749Corporate loans - medium 295 369Retail loans 51 88Mortgage loans are not included in the table above as the Group issues such loans without any collateral.Refer to tables above with the information about collateral.Refer to Note 33 for the estimated fair value of each class of loans and advances to customers.Geographical, currency, maturity and interest rate analyses of loans and advances to customers aredisclosed in Note 28. Information on related party balances is disclosed in Note 35.11 Investment Securities Available for SaleIn millions of Russian Roubles 2012 2011Corporate bonds 875 -Municipal bonds 573 -Corporate Eurobonds 559 831Russian Federation Eurobonds - 65Total debt securities 2 007 896Corporate shares 469 481Total investment securities available for sale 2 476 1 377Analysis by credit quality of debt securities available for sale at 31 December 2012 is as follows: Corporate Corporate Municipal TotalIn millions of Russian Roubles bonds Eurobonds bondsNeither past due nor impaired(at fair value)- BBB- to BBB+ rated 659 - - 659- ВВ- to ВВ+ rated 216 559 573 1 348Total debt investment securities available for sale 875 559 573 2 007 32
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201211 Investment Securities Available for Sale (Continued)Analysis by credit quality of debt securities available for sale at 31 December 2011 is as follows: Corporate Russian Federation TotalIn millions of Russian Roubles Eurobonds EurobondsNeither past due nor impaired (at fair value)- BBB- to BBB+ rated 697 65 762- ВВ- to ВВ+ rated 134 - 134Total debt investment securities available for sale 831 65 896The credit ratings are based on Standard & Poor’s ratings where available, or Moody’s rating converted tothe nearest equivalent on the Standard & Poor’s rating scale.Corporate bonds are interest bearing securities denominated in Russian Roubles issued by large Russiancompanies and freely tradable in the Russian Federation. These bonds have maturity dates from May2013 to August 2013, coupon rates from 7.9% to 9.3% p.a. and yield to maturity from 4.4% to 8.1% p.a.depending on the type of bond issue.Municipal bonds are interest bearing securities denominated in Russian Roubles issued by Russianregional authorities and are freely tradable in Russia. These bonds have maturity dates from May 2013 toJuly 2013, coupon rates from 8.0% to 10.9% p.a. and yield to maturity from 7.1% to 8.5% p.a. dependingon the type of bond issue.Corporate Eurobonds are interest bearing and zero-coupon securities denominated in USD (2011:denominated in USD and Euro) issued by large Russian companies. Interest bearing bonds have maturitydates in April 2013 (2011: in January and December 2012), coupon rates of 8.4% p.a. (2011: from 4.6%to 8.0% p.a.) and yields to maturity of 2.0% p.a. (2011: from 2.7% to 3.0% p.a.), depending on the type ofbond issue. Zero-coupon securities have maturity date in March 2013 and yield to maturity of 3.0% p.a.The primary factor that the Group considers in determining whether a debt security is impaired is itsoverdue status. Debt investment securities available for sale are carried at fair value which also reflectsany credit risk related write-downs. As debt investment securities available for sale are carried at their fairvalues based on observable market data, the Group does not analyse or monitor impairment indicators.Debt investment securities available for sale are not collateralised and not pledged.Equity investment securities available for sale with a carrying value of RR 176 million (2011: RR 116million) are traded on active markets and their fair value is determined by reference to the current marketvalue at the end of the reporting period. The remaining equity investment securities available for sale witha carrying value of RR 293 million (2011: RR 365 million) are not publicly traded and are valued using thediscounted cash flow model and similarity comparison model.Geographical, currency, interest rate and maturity analyses of investment securities available for sale aredisclosed in Note 28. 33
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201212 Premises and Equipment Note Premises Office and Construc- Total Computer Total and land computer tion in premises software equipment progress and licenses equip-In millions of Russian Roubles mentCarrying amount at 31 December 2010 1 977 1 099 17 3 093 39 3 132Cost as at 31 December 2010Opening balance 2 398 3 356 17 5 771 151 5 922Additions 8 254 180 442 - 442Transfers 138 - (138) - - -Disposals (7) (110) (2) (119) - (119)Cost at the end of the year 2 537 3 500 57 6 094 151 6 245Accumulated depreciationOpening balance 421 2 257 - 2 678 112 2 790Depreciation charge 23 49 439 - 488 30 518Disposals (5) (106) - (111) - (111)Closing balance 465 2 590 - 3 055 142 3 197Carrying amount at 31 December 2011 2 072 910 57 3 039 9 3 048Cost at 31 December 2011Opening balance 2 537 3 500 57 6 094 151 6 245Additions 142 296 28 466 - 466Transfers 13 - (13) - - -Reclassification 7 (7) - - - -Reclassification to inventory - (20) - (20) - (20)Disposals (7) (215) - (222) - (222)Cost at the end of the year 2 692 3 554 72 6 318 151 6 469Accumulated depreciationOpening balance 465 2 590 - 3 055 142 3 197Depreciation charge 23 64 337 - 401 9 410Disposals (2) (200) - (202) - (202)Closing balance 527 2 727 - 3 254 151 3 405Carrying amount at 31 December 2012 2 165 827 72 3 064 - 3 064Construction in progress consists of construction and refurbishment of the Head Office and branchpremises. Upon completion, assets are transferred to premises and equipment.13 Other Financial AssetsIn millions of Russian Roubles 2012 2011Credit and debit cards receivables 533 569Receivables 316 449Settlements with currency and stock exchanges 195 193Other 59 43Total other financial assets 1 103 1 254Other financial assets are not impaired and are not collateralised. 34
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201213 Other Financial Assets (Continued)Refer to Note 33 for the estimated fair value of each class of other financial assets.Geographical, currency and maturity analyses of financial assets are disclosed in Note 28.14 Other AssetsIn millions of Russian Roubles Note 2012 2011Inventory 2 296 2 074Investment properties 1 847 1 880Deferred income tax asset 24 1 222 958Non-current assets classified as held for sale 905 984Prepayments 202 -Precious metals 31 -Other 381 260Total other assets (before provision for impairment of other assets) 6 884 6 156Less: Provision for impairment of other assets (787) (338)Total other assets 6 097 5 818Inventories represent real estate assets, equipment, motor vehicles, inventory acquired by the Group insettlement of overdue loans. The assets do not meet the definition of investment property and non-currentassets held for sale, and are classified as inventories in accordance with IAS 2, Inventories. The assetswere initially recognised at cost when acquired. All of the above assets are expected to be realised withinmore than twelve months after the year-end. Decision on the use of the repossessed property is taken bythe Bank’s Management Board or the Board of Directors.Investment property includes non-residential premises and land plots repossessed by the Group insettlements of overdue loans and leased out under operating lease or retained until the growth of theirvalue.To ensure operational management of the repossessed assets the Group established a separatebusiness unit – Restructured Assets Department – responsible for dealing with property, determining themost efficient areas and forms of dealing with property, attracting independent experts and appraisers todetermine the actual value of property, and analysing the sales market in order to attract potential buyersand lessees.Movements in the carrying value of investment properties were as follows:In millions of Russian Roubles 2012 2011Carrying value of investment properties as at 1 January 1 762 490Additions 16 1 414Disposals (49) (138)Depreciation - 3Impairment loss provision (109) (7)Carrying value of investment properties as at 31 December 1 620 1 762 35
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201214 Other Assets (Continued)The Group estimated the recoverable amount of investment properties as at 31 December 2012.At 31 December 2012, the estimated fair value of investment properties was RR 1 649 million (2011:RR 1 775 million). The comparative sales method as well as express valuation by specialised valuationcompanies were used to assess the fair value of investment properties. In this context the Group and thespecialised valuation companies analysed price and other information with regards to similar properties.The sources of information included Internet publications containing advertisements on the sale/lease ofsimilar properties, and web-sites of real estate agencies and other information.The rental income from investment properties was RR 7 million (2011: RR 7 million). Direct operatingexpenses for investment properties that generate rental income amounted to RR 2 million (2011:RR 2 million) and consisted of costs related to property tax, land tax, insurance, security, utility servicesas well as depreciation charges. The Group incurred direct operating expenses of RR 3 million forinvestment properties that did not generate rental income in 2012 (2011: RR 2 million).The portfolio of assets held for sale consists of real estate and equipment acquired by the Group insettlements of overdue loans. The Group is actively marketing these assets and expects the sale tocomplete by December 2013.Tangible assets acquired by the Group in settlements of overdue loans did not require the use of cashand cash equivalents and therefore were not included in the statement of cash flows (Refer to Note 7).15 Due to Other BanksIn millions of Russian Roubles 2012 2011Placements of other banks 7 630 7 940Correspondent accounts of other banks 17 262Total due to other banks 7 647 8 202As at 31 December 2012 the total amount of five major aggregated balances of amounts due to otherbanks was RR 7 573 million or 99% (2011: RR 7 639 million or 93%) of the total amount of due to otherbanks.As at 31 December 2012 placements of other banks include a deposit attracted under the programme onproviding state support to SME from OAO MSP Bank of RR 3 533 million at a rate from 6.0% to 8.25%p.a. with maturity in September 2017 (2011: RR 3 000 million at a rate of 6.0% p.a. with maturity inNovember 2015). The rights of claim for the loans issued under this agreement with carrying value of RR3 715 million (2011: RR 3 331 million) were pledged for the Group’s obligations to the creditor. Refer toNote 30.As at 31 December 2012 placements of other banks include deposits attracted under the program of theEuropean Bank for Reconstruction and Development for lending to small and medium businesses of RR1 136 million at a rate from 5.5% to 7.0% p.a. with maturity in April 2015 (2011: RR 1 663 million at a ratefrom 5.5% to 7.0% p.a. with maturity in April 2015). Under the terms of the agreement with EBRD the Groupshould comply with a number of financial covenants. The Group was in compliance with these financialcovenants at 31 December 2012 and 31 December 2011. 36
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201215 Due to Other Banks (Continued)Refer to Note 33 for the estimated fair value of each class of amounts due to other banks.Geographical, currency, maturity and interest rate analyses of due to other banks are disclosed inNote 28.16 Customer AccountsIn millions of Russian Roubles 2012 2011State and public organisations- Current/settlement accounts 84 254Other legal entities- Current/settlement accounts 35 982 33 053- Term deposits 25 896 19 510Individuals- Current/demand accounts 20 900 20 184- Term deposits 81 014 72 141Total customer accounts 163 876 145 142State and public organisations exclude government owned profit orientated businesses.Economic sector concentrations within customer accounts are as follows: 2012 2011In millions of Russian Roubles Amount % Amount %Individuals 101 914 62 92 325 64Trade 22 771 14 18 466 12Finance 10 927 7 10 203 7Manufacturing 8 405 5 7 204 5Construction 8 362 5 7 628 5Transport and communication 8 298 5 5 607 4Agriculture 2 314 2 2 436 2State and public organisations 84 - 254 -Other 801 - 1 019 1Total customer accounts 163 876 100 145 142 100At 31 December 2012, the Group had 25 customers with balances above RR 300 million. The aggregatebalance of these customers was RR 23 026 million or 14.1% of total customer accounts.At 31 December 2011, the Group had 21 customers with balances above RR 300 million. The aggregatebalance of these customers was RR 17 252 million or 11.9% of total customer accounts.Refer to Note 33 for the estimated fair value of each class of customer accounts.Geographical, currency, interest rate and maturity analyses of customer accounts are disclosed inNote 28. Information on related party balances is disclosed in Note 35. 37
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201217 Debt Securities in IssueIn millions of Russian Roubles 2012 2011Promissory notes 4 765 3 600Mortgage backed bonds in issue 2 082 2 931Deposit certificates 185 191Total debt securities in issue 7 032 6 722At 31 December 2012, promissory notes in issue had maturity dates from January 2013 to December2015 (2011: from January 2012 to December 2015) and effective interest rates from 1.8% to 9.5% p.a.(2011: from 1.0% to 9.0% p.a.).In December 2011, the Group issued bonds with an aggregate nominal value of RR 4 071 million as partof a securitisation transaction. The bonds were issued by Closed Joint Stock Company Ipotechny AgentVozrozhdeniye 1, a consolidated special purpose entity. Class A notes in the amount of RR 2 931 millionwere placed through open subscription on the MICEX and class B notes in the amount of RR 1 140million were bought out by the Group and, therefore, were not shown in these consolidated financialstatements. The international rating agency Moodys assigned the Baa2 credit rating to class A notes.Class A notes have a fixed coupon rate of 8.95% p.a. and should be fully repaid on 10 August 2044. As at31 December 2012 the carrying value of Class A notes was RR 2 082 million as in accordance with theissue terms and conditions the funds received from early repayment of mortgage loans were used torepay the balance of nominal value of Class A notes.Refer to Note 33 for the estimated fair value of each class of debt securities in issue.Geographical, currency, maturity and interest rate analyses of debt securities in issue are disclosed inNote 28.18 Other Financial LiabilitiesOther financial liabilities comprise the following:In millions of Russian Roubles 2012 2011Credit and debit cards payables 140 461Trade payables 117 72Settlements on conversion operations 29 -Other liabilities 64 55Total other financial liabilities 350 588Refer to Note 33 for the estimated fair value of each class of other financial liabilities.Geographical, currency and maturity analyses of other financial liabilities are disclosed in Note 28. 38
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201219 Subordinated LoansSubordinated loans represent long-term deposits of the Group’s customers. The subordinated debt ranksafter all other creditors in case of the Groups liquidation. The details of subordinated loans attracted bythe Group are disclosed in the table below: 2012 2011 Start date Maturity Currency Contrac- Value, Contrac- Value, tual RR tual RR interest million interest million rate, % rate, %Subordinated loan 1 June 2005 June 2013 USD 5.75 304 5.75 322Subordinated loan 2 December 2005 December 2013 USD 8.00 213 8.00 226Subordinated loan 3 March 2006 March 2014 USD 6.50 152 6.50 161Subordinated loan 4 May 2006 May 2014 USD 6.50 91 6.50 97Subordinated loan 5 June 2006 June 2014 USD 6.50 152 6.50 161Subordinated loan 6 December 2006 December 2013 RR 8.25 1 000 8.00 1 000Subordinated loan 7 April 2007 April 2014 RR 8.25 500 8.00 500Subordinated loan 8 July 2008 August 2018 USD 9.21 1 548 11.21 1 653Subordinated loan 9 August 2010 August 2018 USD 8.00 91 8.00 97Subordinated loan 10 July 2012 July 2020 RR 9.25 1 000 - -Subordinated loan 11 December 2012 July 2020 RR 9.25 1 000 - -Total subordinated loans 6 051 4 217The contractual interest rates are regularly revised in accordance with the terms of subordinated loanagreements No.6 and No.7.Under the agreement on subordinated loan No. 8 the Group should comply with a number of covenants. As at31 December 2012, the Group violated two covenants. The Group was in compliance with this covenants asat 31 December 2011. Refer to Note 30.Refer to Note 33 for the estimated fair of subordinated loans.Geographical, currency, maturity and interest rate analyses of subordinated debt are disclosed inNote 28.Subordinated loans No. 2, 9 were received by the Group from a related party. Refer to Note 35. 39
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201220 Share Capital and Retained Earnings Number of Ordinary Preference Share Total outstanding shares shares with a premium shares determined dividendIn millions of Russian Roubles amountAt 31 December 2010 25 043 199 237 13 7 306 7 556At 31 December 2011 25 043 199 237 13 7 306 7 556At 31 December 2012 25 043 199 237 13 7 306 7 556The registered amount of the Bank’s share capital as at 31 December 2012 is RR 250 million (2011: RR250 million). At 31 December 2012 and 31 December 2011, all of the Bank’s outstanding shares werepaid in.The total amount of the authorised ordinary shares is 23 748 694 shares (2011: 23 748 694 shares). Allordinary shares have a nominal value of RR 10 per share (2011: RR 10 per share) and rank equally.Each share carries one vote.The total amount of the authorised preference shares is 1 294 505 shares (2011: 1 294 505 shares). Allissued preference shares are fully paid. The preference shares have a nominal value of RR 10 (2011:RR 10) and carry no voting rights but rank ahead of the ordinary shares in the event of the Bank’sliquidation. The preference shares give the holders the right to participate in general shareholders’meetings in instances where decisions are made in relation to reorganisation and liquidation of the Bank,and where changes and amendments to the Bank’s charter which restrict the rights of preferenceshareholders are proposed. These shares are not redeemable. Preference share dividends are set at20% p.a. of nominal value (2011: 20% p.a. of nominal value) and rank above ordinary dividends.Dividends on preference share are not cumulative. Preference shareholders have the right to participatein general shareholders’ meetings with voting rights on all matters within its competence, starting from themeeting following the meeting where (irrespective of the reasons) a decision on dividend payment wasnot taken at all or a decision on partial payment of dividends on preference shares was taken. The right ofpreference shareholders to participate in general shareholders’ meetings is terminated from the momentof the first full payment of dividends on the preference shares.The Bank’s ordinary shares were included into quotation list "A" of the second level of Closed Joint StockCompany MICEX Stock Exchange in 2007.Share premium represents the excess of contributions to share capital received over the nominal value ofshares issued.As at 31 December 2012, 390 610 (2011: 482 680) ordinary shares of the Bank were circulating oninternational markets through Level One American Depository Receipts (ADR). One ADR is equal to oneordinary share of the Bank with a nominal value of RR 10.In accordance with Russian legislation, the Bank distributes profits as dividends or transfers them toreserves on the basis of financial statements prepared in accordance with the Russian Accounting Rules.The Bank’s reserves under Russian Accounting Rules at 31 December 2012 amount to RR 11 780 million(2011: RR 9 749 million). 40
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201221 Interest Income and ExpenseIn millions of Russian Roubles 2012 2011Interest incomeLoans and advances to customers - legal entities 11 620 10 134Loans and advances to customers - individuals 4 126 3 008Trading securities 557 506Correspondent accounts and due from other banks 203 268Investment securities available for sale 105 43Total interest income 16 611 13 959Interest expenseTerm deposits of individuals 4 510 4 201Term deposits of legal entities 1 623 1 139Debt securities in issue 617 390Subordinated loans 382 359Due to other banks 378 361Current/settlement accounts of legal entities 40 53Other 3 -Total interest expense 7 553 6 503Net interest income 9 058 7 456Information on related party balances is disclosed in Note 35.22 Fee and Commission Income and ExpenseIn millions of Russian Roubles 2012 2011Fee and commission incomeSettlement operations 1 527 1 418Credit/debit cards and cheques settlements 1 275 1 135Cash transactions 1 175 1 182Payroll projects 500 517Guarantees issued 327 250Cash collection 265 272Other 434 458Total fee and commission income 5 503 5 232Fee and commission expenseCredit/debit cards and cheques settlements 335 313Settlement operations 25 23Settlements with currency and stock exchanges 16 21Cash transactions 14 14Guarantees received - 5Other 52 34Total fee and commission expense 442 410Net fee and commission income 5 061 4 822 41
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201223 Administrative and Other Operating ExpensesIn millions of Russian Roubles Note 2012 2011Staff costs 5 111 4 910Administrative expenses 700 654Depreciation of premises and equipment and amortisation of 12 410 518 intangible assetsOther expenses related to premises and equipment 514 494Contributions to the State Deposit Insurance Agency 370 338Rent expenses 317 304Taxes other than on income 310 303Repairs of premises and equipment 142 150Advertising and marketing services 121 145Other 657 537Total administrative and other operating expenses 8 652 8 353Included in staff costs are statutory contributions to non-budget funds of RR 945 million (2011: RR 858million).24 Income Taxes(a) Components of income tax expense / (benefit)Income tax expense comprises the following:In millions of Russian Roubles 2012 2011Current tax 909 824Deferred tax (270) (402)Income tax expense for the year 639 422(b) Reconciliation between the tax expense and profit or loss multiplied by applicable tax rateThe income tax rate applicable to the majority of the Group’s income is 20% (2011: 20%). A reconciliationbetween the expected and the actual taxation charge is provided below.In millions of Russian Roubles 2012 2011IFRS profit before tax 2 970 2 016Theoretical tax charge at statutory rate (2011-2012: 20%) 594 403Tax effect of items which are not deductible or assessable for taxation purposes:- Income which is exempt from taxation (22) (2)- Income on government securities taxed at different rates (10) (10)- Non-deductible expenses/other non-temporary differences 77 31Income tax expense for the year 639 422 42
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201224 Income Taxes (Continued)Deferred taxation relating to the fair value remeasurement of investment securities available-for-sale ischarged or credited directly to other comprehensive income and is subsequently recorded in othercomprehensive income when the gain or loss on the securities is realised.(c) Deferred taxes analysed by type of temporary differenceDifferences between IFRS and Russian statutory taxation regulations give rise to temporary differencesbetween the carrying amount of assets and liabilities for financial reporting purposes and their tax bases.The tax effect of the movements in these temporary differences is detailed below and is recorded at therate of 20% (2011: 20%), except for income on state securities, which is taxed at 15% (2011: 15%). 2010 Charged/ Charged/ 2011 Charged/ Charged/ 2012 (credited) (credited) to (credited) (credited) to to profit or other to profit or otherIn millions of Russian loss comprehen- loss comprehen- Roubles sive income sive incomeTax effect of temporary deductible/(taxable) temporary differencesPremises and equipment (52) 18 - (34) (20) - (54)Loan impairment provision 103 (28) - 75 (12) - 63Fair valuation of trading securities (2) (47) - (49) 53 - 4Fair valuation of investment securities available for sale (12) - (10) (22) - (6) (28)Impairment of investment securities available for sale - - - - 14 - 14Accrued income and expenses 447 411 - 858 185 - 1 043Deferred fee and commission income 64 1 - 65 (31) - 34Other 18 47 - 65 81 - 146Total deferred tax asset 632 431 - 1 063 241 - 1 304Total deferred tax liability (66) (29) (10) (105) 29 (6) (82)Total net deferred tax asset 566 402 (10) 958 270 (6) 1 222The net deferred tax asset represents income taxes recoverable through future income and is recordedwithin other assets. The assessment of recoverability of the deferred tax asset is performed by themanagement of the Group and is based on a medium term business plan. Refer to Note 4. 43
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201224 Income Taxes (Continued)(d) Current and deferred tax effects relating to each component of other comprehensive incomeCurrent and deferred tax effects relating to each component of other comprehensive income are asfollows: 2012 2011 Before-tax Expense Net-of-tax Before-tax Expense Net-of-taxIn millions of Russian Roubles amount amount amount amountInvestment securities available for sale:- Gains/(Losses) arising during the year 34 (6) 28 32 (10) 22Other comprehensive income 34 (6) 28 32 (10) 2225 Earnings per ShareBasic earnings per share are calculated by dividing the profit or loss by the weighted average number ofordinary shares in issue during the year, excluding treasury shares.The Bank has no dilutive potential ordinary shares;In millions of Russian Roubles Note 2012 2011Profit for the year 2 331 1 594Less dividends on preference shares 26 (3) (3)Undistributed profit for the year 2 328 1 591Undistributed profit for the year attributable to ordinary shareholders based on terms of the shares 2 208 1 509Undistributed profit for the year attributable to preference shareholders based on terms of the shares 120 82Weighted average number of ordinary shares in issue (million) 23.7487 23.7487Weighted average number of preference shares in issue (million) 1.2945 1.2945Basic and diluted earnings per ordinary share(expressed in RR per share) 93 64 44
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201226 Dividends 2012 2011 Ordinary Preference Ordinary PreferenceIn millions of Russian Roubles shares shares shares sharesDividends payable at 1 January - - - -Dividends declared during the year 11 3 11 3Dividends paid during the year (11) (3) (11) (3)Dividends payable at 31 December - - - -Dividends per share declared during the year (expressed in RR per share) 0.5 2.3 0.5 2.3All dividends are declared and paid in Russian Roubles.27 Segment AnalysisThe segment analysis is performed in accordance with IFRS 8, Operating segments.Operating segment is a distinguishable component of the Bank that is engaged in providing products orservices (business segment) with the purpose to generate income, whose operating results are regularlyreviewed by the Bank’s Management Board based on statutory management accounts in terms of eachoperating segment. Management accounts do not consolidate the Banks special purpose entities. Thefunctions of the chief operating decision maker (CODM) are performed by the Management Board of theBank. Operating management and performance of an operating segment are the responsibility of theDeputy Chairman of the Management Board of the Bank supervising corresponding business line.(a) Description of products and services from which each reportable segment derives its revenueFor the purpose of management, the Banks operations are split by types of products and services and byclasses of clients acquiring them, into the following operating segments: Corporate business – representing direct debit facilities, current accounts, deposits, loans, overdrafts, credit lines and other credit facilities, foreign currency and derivative products. Retail business – representing private banking services, private customer current accounts, savings, deposits, investment savings products, custody, consumer loans and mortgages. Bank cards business – representing settlement services to individuals with the use of bank cards, overdrafts and revolving loans with the use of bank cards, payroll project services, acquiring, self- service operations on ATMs, information service to plastic cards holders. Financial business – representing transactions in the interbank lending market and securities transactions. Liquidity – representing reallocation of funds between operating segments. 45
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201227 Segment Analysis (Continued)(b) Factors that management used to identify the reportable segmentsReportable segments are identified on the basis of the organisational structure that is used to assessperformance and to take a decision on allocating resources. The Bank’s segments are strategic businessunits that focus on different customers. They are managed separately because each business unitrequires different marketing strategies and service level. For the purposes of these consolidated financialstatements each operating segment of the Bank is presented as a reportable segment. The "other"category includes unallocated items.An operating segment is reported separately if it meets any of the following quantitative thresholds: the amount of reported revenue, including revenue earned from sales to external customers, intersegment sales or transfers are ten percent or more of aggregated income (internal and external) of all operating segments; the absolute value of its reported profit or loss is ten percent or more of the aggregate reported profit of all operating segments that were not loss making in the reported period, or aggregate reported loss of all operating segments that were loss-making in the reported period; its assets are ten percent or more of aggregate assets of all operating segments.The aforementioned reportable segments are to be separately disclosed in the consolidated financialstatements as they comply with one of the above quantitative thresholds.(c) Measurement of operating segment profit or loss, assets and liabilitiesTransactions between the operating segments are on normal commercial terms and conditions. Fundsare ordinarily reallocated between operating segments, resulting in funding cost transfers disclosed ininterest income and expense. Interest rates for these funds are differentiated depending on the attractionterms and are based on market indicators.Segment assets and liabilities include operating assets and liabilities representing a major part of theBank’s assets and liabilities, as well as funds reallocated between operating segments, but excludingtaxation. Internal charges and transfer pricing adjustments have been reflected in the performance ofeach operating segment. Segment performance is based on profitability and cost-effectiveness ofoperating assets.The CODM reviews financial information prepared based on Russian accounting standards adjusted tomeet the requirements of internal reporting. Such financial information differs in certain aspects fromInternational Financial Reporting Standards:(i) the fair value changes in available for sale securities are reported within the segments’ profits or losses rather than in other comprehensive income;(ii) funds are generally reallocated between segments at internal interest rates set by the Treasury department, which are determined by reference to market interest rate benchmarks, contractual maturities for loans and observed actual maturities of customer accounts balances;(iii) income taxes are not allocated to segments;(iv) loan provisions are recognised based on the regulations of the Bank of Russia, rather than based on the incurred loss model prescribed in IAS 39; 46
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201227 Segment Analysis (Continued)(v) commission income related to lending is recognised immediately rather than deferred using the effective interest method;(vi) liabilities for the Bank’s unused vacation payments are not recognised.The CODM evaluates performance of each segment based on profit before income tax.(d) Information about reportable segment profit or loss, assets and liabilitiesThe table below represents the segment information of interest-bearing assets and interest-bearingliabilities per reportable segments for the year ended 31 December 2012 and 31 December 2011. For thepurpose of preparation of the management accounts the amount of assets and liabilities is calculated asaverage balances for the respective accounting period. Total assets and liabilities do not include thesubsequent events.The Bank does not disclose geographical information in its segment analysis as the majority oftransactions and revenues of the reportable segments are concentrated basically in Russia. The analysisof the reportable segments is based on the banking products and services but not on the geographicalfactors. In millions of Russian Corporate Retail Bank cards Financial Liquidity Other Total Roubles business business transactions business31 December 2012Total reportable segmentassets 119 486 24 171 2 523 35 742 - - 181 922Total reportable segment liabilities 64 314 74 952 18 001 4 766 - 1 555 163 58831 December 2011Total reportable segment assets 107 979 17 987 2 486 37 630 - 713 166 795Total reportable segment liabilities 59 826 68 552 16 095 5 520 - 1 469 151 462 47
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201227 Segment Analysis (Continued)The table below represents information on income and expenses per reportable segment for the yearended 31 December 2012. The Bank’s management considers operating income before provision for loanimpairment as a key measurement of reportable segments results.In millions of Russian Corporate Retail Bank cards Financial Liquidity Other Total Roubles business business transactions business2012- Interest income 11 208 3 344 398 856 - - 15 806- Non-interest income 3 465 1 064 1 821 194 - 122 6 666- Transfer income 3 528 6 132 328 265 3 451 144 13 848Total revenues 18 201 10 540 2 547 1 315 3 451 266 36 320- Interest expense (2 478) (4 419) (90) (334) - - (7 321)- Non-interest expense (101) (32) (356) (50) - (9) (548)- Transfer expense (10 849) (2 460) (163) (376) - - (13 848)Total expense (13 428) (6 911) (609) (760) - (9) (21 717)Operating income before provision for loan impairment 4 773 3 629 1 938 555 3 451 257 14 603Provision for loan impairment (2 720) (34) 90 - - (9) (2 673)Operating income 2 053 3 595 2 028 555 3 451 248 11 930Administrative and other operating expenses (3 636) (2 754) (1 567) (86) - (36) (8 079)Depreciation of premises and equipment and amortisation of intangible assets (182) (125) (78) (4) - (2) (391)Losses from cession (381) - (97) - - - (478)Profit/(loss) before tax (Segment result) (2 146) 716 286 465 3 451 210 2 982 48
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201227 Segment Analysis (Continued)Segment information for the Bank’s reportable segments for the year ended 31 December 2011 is set outbelow:In millions of Russian Corporate Retail Bank cards Financial Liquidity Other Total Roubles business business transactions business2011- Interest income 10 274 2 539 402 794 - - 14 009- Non-interest income 3 643 907 1 585 224 - 53 6 412- Transfer income 2 908 5 415 264 270 2 364 136 11 357Total revenues 16 825 8 861 2 251 1 288 2 364 189 31 778- Interest expense (1 926) (4 150) (46) (225) - (149) (6 496)- Non-interest expense (154) (11) (273) (43) - (10) (491)- Transfer expense (9 026) (1 746) (191) (394) - - (11 357)Total expense (11 106) (5 907) (510) (662) - (159) (18 344)Operating income before provision for loan impairment 5 719 2 954 1 741 626 2 364 30 13 434Provision for loan impairment (2 485) (1) (5) - - - (2 491)Operating income 3 234 2 953 1 736 626 2 364 30 10 943Administrative and other operating expenses (2 996) (3 163) (1 421) (69) - (66) (7 715)Depreciation of premises and equipment and amortisation of intangible assets (163) (138) (70) (3) - (2) (376)Losses from cession (464) - - - - - (464)Profit/(loss) before tax (Segment result) (389) (348) 245 554 2 364 (38) 2 388 49
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201227 Segment Analysis (Continued)(e) Reconciliation of reportable segment revenues, profit or loss, assets and liabilitiesThe reconciliation of assets, liabilities, income and expenses of the Bank’s reportable segments for theyear ended 31 December 2012 and 31 December 2011 is as follows:Reconciliation of reportable segment assetsIn millions of Russian Roubles 2012 2011Total reportable segment assets 181 922 166 795Assets unallocated between operating segments 30 564 20 553Interest accrued 920 932Differences in financial statements format* (8 141) (6 210)Deviation due to recording of reportable segment assets without regard to the events after the end of the reporting period 29 (18)Differences in fair valuation of securities 136 102Adjustment of provisions for loan impairment based on the incurred loss model (316) (594)Recognition of commission income from lending using the effective interest rate method (58) (147)Recognition of financial instruments using the effective interest rate method 87 96Impairment of investment securities available for sale (71) -Provision for impairment of other financial assets (787) (338)Consolidation 4 777 2 717Total assets under IFRS 209 062 183 888Reconciliation of reportable segment liabilitiesIn millions of Russian Roubles 2012 2011Total reportable segment liabilities 163 588 151 462Liabilities unallocated between operating segments 846 1 144Liabilities on interest payment 1 881 2 017Differences in financial statements format* 17 225 8 108Deviation due to recording of reportable segment liabilities without regard to the events after the end of the reporting period (8) (8)Recognition of liabilities at amortised cost (12) (10)Consolidation 4 735 2 713Total liabilities under IFRS 188 255 165 426* Differences in financial statements format arise from presentation of assets and liabilities of reportablesegments calculated as average balances for the reporting period and recognition of reportable segmentassets before provision for impairment for the purpose of management accounts preparation. 50
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201227 Segment Analysis (Continued)Reconciliation of income or expense before tax of the reportable segmentsReconciliation of profit before tax and other material income or expenses (interest income and expense,non-interest income or expense, provision for loan impairment, administrative and other operatingexpenses) for the reportable segments with the consolidated statement on comprehensive income underIFRS for the year ended 31 December 2012 is as follows: Profit Interest Non- Interest Non- Provision Administ- before tax income interest expense interest for rative and income expense impair- otherIn millions of Russian ment operating Roubles expensesTotal amount for all reportable segments 2 982 15 806 6 666 (7 321) (548) (3 151) (8 470)Recognition of commission income from lending using the effective interest rate method 88 73 15 - - - -Recognition of other fees and commissions by reference to completion of the specific transaction 24 - 24 - - - -Recognition of interest income/expense using the effective interest rate method 2 - (1) 3 - - -Differences in fair valuation of trading securities 6 - 6 - - - -Adjustment of provisions for loan impairment based on the incurred loss model 530 (7) (106) - - 643 -Accrued liabilities for unused vacations (8) - - - - - (8)Differences in depreciation charge on premises and equipment (121) - - - - - (121)Recognition of financial instruments using the effective interest rate method (9) (9) - - - - -Reclassification of management accounts items - 423 (287) (5) 66 (214) 17Provision for impairment ofother assets (449) - - - - (449) -Impairment of investment securities available for sale (71) - - - - (71) -Consolidation 42 325 (20) (230) - - (33)Other (46) - (9) - - - (37)IFRS 2 970 16 611 6 288 (7 553) (482) (3 242) (8 652) 51
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201227 Segment Analysis (Continued)Reconciliation of profit before tax and other material income or expenses (interest income and expense,non-interest income or expense, provision for loan impairment, administrative and other operatingexpenses) for the reportable segments with the consolidated statement of comprehensive income underIFRS for the year ended 31 December 2011 is as follows: Profit Interest Non- Interest Non- Provision Administ- before tax income interest expense interest for rative and income expense impair- otherIn millions of Russian ment operating Roubles expensesTotal amount for all reportable segments 2 388 14 009 6 412 (6 496) (491) (2 955) (8 091)Recognition of commission income from lending using the effective interest rate method 73 49 24 - - - -Recognition of other fees and commissions by reference to completion of the specific transaction (36) - (36) - - - -Recognition of interest income/expense using the effective interest rate method (13) - (10) (3) - - -Differences in fair valuation of trading securities 42 - 42 - - - -Adjustment of provisions for loan impairment based on the incurred loss model 192 (128) (237) - - 557 -Accrued liabilities for unused vacations (30) - - - - - (30)Differences in depreciation charge on premises and equipment (141) - - - - - (141)Recognition of financial instruments using the effective interest rate method (228) (228) - - - - -Reclassification of management accounts items - 257 (293) (4) 31 90 (81)Provision for impairment of other assets (216) - - - - (216) -Consolidation 4 4Other (19) - (9) - - - (10)IFRS 2 016 13 959 5 893 (6 503) (460) (2 520) (8 353) 52
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk ManagementThe risk management function within the Group is carried out in respect of financial risks, operationalrisks and legal risks. Financial risk comprises market risk (including currency risk, interest rate risk andother price risk), credit risk, liquidity risk and geographical risk. The primary objectives of the financial riskmanagement function are to establish risk limits, and then ensure that exposure to risks stays withinthese limits. The operational and legal risk management functions are intended to ensure properfunctioning of internal policies and procedures to minimise operational and legal risks.Credit risk. The Group takes on exposure to credit risk, which is the risk that one party to a financialinstrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure tocredit risk arises as a result of the Group’s lending and other transactions with counterparties giving riseto financial assets.The Group’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets onthe consolidated statement of financial position. The impact of possible netting of assets and liabilities toreduce potential credit exposure is not significant. For guarantees and commitments to extend credit, themaximum exposure to credit risk is the amount of the commitment. The credit risk is mitigated bycollateral and other credit enhancements as disclosed in Note 10.The Group has developed and applies policies and procedures aimed at prevention and mitigation of thedamage that the Group might incur as a result of exposure to credit risk.Thus, within the Bank there is a Credit and Investments Committee (CIC) with a system of subcommittees.For credit risk management purposes the CIC has the following members and subcommittees: Senior members of CIC – review general issues of managing credit risk, determining and implementing the credit policy within the scope of the Bank’s approved development strategy; Junior members of CIC – review issues related to implementing the credit policy within the scope of delivery of products with inherent credit risk to customers of the Group within established authority, investments of the Group; Subcommittee for corporate clients – credit risk management issues and credit policy implementation within the scope of delivery of products with inherent credit risk to corporate customers of the Group within established authority; Subcommittee for retail loans – credit risk management issues and credit policy implementation within the scope of delivery of products with inherent credit risk to retail customers of the Group (except bank cards) within established authority; Subcommittee for bank cards – credit risk management issues and credit policy implementation within the scope of delivery of products with inherent credit risk using bank cards to retail customers of the Group within established authority.Key functions and objectives of CIC: review and development of the credit policy of the Group within the approved development strategy; operational decisions on the diversification of credit risks; within the authority set by the Management Board, decisions on the following issues:  delivery of Russian Rouble or foreign currency denominated products with inherent credit risk to the borrowers;  purchasing or acceptance of external issuers’ promissory notes;  setting limits for counterparty banks. 53
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued) taking decisions focused at strengthening and modernising the methodological basis of the Group; taking decisions on developing and implementing new types of lending and services in order to expand capabilities and enhance the competitive advantages of the Group on the credit market; reviewing and approving new products and services; issues relating to writing off uncollectible loans and interest thereon against loan loss provision subject to approval by the relevant authorised body of the Group; identifying the level of authority of CIC subcommittees, structural business units of the Group, managers and individual specialists in business units of the Group, and independent crediting by branches with subsequent approval by the Groups management; approving the total number of members and membership in the branch credit committees; setting limits for the CIC subcommittees, structural business units of the Group, heads and individual specialists of the Groups business units on implementing credit programs with subsequent approval by the Groups management. making decisions on the Groups investments within the authorities set by the Groups management; considering acquisition and sale by the Group of corporate and government securities.The Junior members of the CIC of the Group review and approve limits of up to RR 500 million on Roubleloans and Rouble equivalent on currency loans to legal entities, up to RR 30 million for individuals andfrom RR 6 to 10 million on bank card loans. Loan applications in excess of the above maximum limits areapproved by the Groups management.The CIC subcommittees and management of the Group, in charge of retail loans, as well as Juniormembers of the CIC are assigned individual authority on taking credit risks limiting the amount ofobligations of one borrower (guarantor) and aggregate amount of authority.Additionally to general limits, the Groups credit policy sets certain budgeted qualitative and quantitative indicesrepresenting the segment, industry, regional structure of the corporate loan portfolio and the structure of theloan portfolio in terms of currency and maturity.The authority and certain types of limits, terms and conditions for issuing loans within correspondingauthority are subject to mandatory approval by the Groups management and quarterly review within thescope of Regulations on Major Principles of the Group’s Rouble and Currency Resource Management.Starting from 2012, within the scope of consumer lending technology improvement, credit risk mitigation andelimination of human factor at the stage of loan application the Group put into operation in its branchesDeductor (decision making support) Module of CRM Dynamics system, as well as the technology ofautomatic detection of the level of borrowers check by the Groups Economic Safety Function. DeductorModule is used to automatically process loan applications of individuals and then a decision is taken on theissue of consumer loans within the scope of CIC authorities for retail lending.Credit risk management techniques in the Group (beside the system of authority and decision taking) alsoinclude: a centralised system for applying and adjusting interest rates and tariffs (approved quarterly by the Groups management in accordance with the Regulations on Major Principles of the Group’s Rouble and Currency Resource Management which establish underlying interest rates by loan types and borrowers categories); 54
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued) a system of credit risk limits. General limits restrictions aimed at reducing concentration risk and related parties risk applied to all loans (irrespective of the client sector to which the borrower belongs) are approved annually by the Groups management in accordance with the Credit Policy of the Group:Starting from 2011, within the scope of improving the system of assessment of borrowers (legal entities)the Group uses Risk Calc software of Moody’s Analytics company. Moody’s Risk Calc allows to analysefinancial statements (balance sheet and income statement) and to forecast the probability of default(bankruptcy) of borrowers (legal entities).Classification of collateral into various groups and its assessment is exercised based on the Regulation onEnsuring Performance of Obligations by Borrowers of the Bank on Products Exposed to Credit Risk and alsoon the basis of an expert opinion based on the market situation existing as at the credit risk assessment date.Analytical reports on credit quality containing information on non-performing loans by client, creditprograms, days and amounts overdue are summarised on a regular basis by responsible divisions of theGroup and communicated to the Groups management on a monthly basis for corporate loans, on aweekly basis for retail loans and on a daily basis for bank card loans. The materials of analytical reportsare further used when reviewing credit applications.The Group’s branches monitor the current loans on a daily basis.Current loans are transferred into under the supervision category if the following factors, or at least one,arise: overdue status of principal and/or interest amount during more than five calendar days. If a borrower is a part of a group of related borrowers, in which other borrowers have overdue debts to the Group during more than five calendar days, all borrowers of the group are transferred into under the supervision category; repeated change of the maturity date of the loan agreement; the amount of transfers to a borrower’s settlement account from its settlement account in another bank (as replenishment) during the prior month is more than a half of the total replenishments; existence of negative information on a borrower or its management (for legal entities); change of the borrowers principal owner (shareholder, participant) (for legal entities); existence of information on conflicts between the owners (shareholders, participants) of a business; failure of a third party which is a borrower, guarantor or pledger to fulfil its obligations under its contracts signed with the Group. 55
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)As a result of further deterioration of servicing, loans are transferred to the Legal Department for controland supporting the collection by enforcement procedures. The terms and criteria for transferring non-performing loans are outlined by the Regulation on monitoring of loans and advances issued to legal entities andindividual entrepreneurs that are under control, the Regulation on monitoring the retail loan portfolio and theRegulation on procedures in respect of overdue and impaired credit cards loans issued to individuals.A loan is considered to be uncollectible in the following cases: the time allowed for claims has expired; the obligation is cancelled in accordance with the Civil Law as its fulfilment is not possible; the obligation has been cancelled pursuant to an act from government authorities; or the obligation has been cancelled following the liquidation of the borrower; the fact the borrower failed to fulfil its obligations to creditors within the period of at least one year from the date of the decision to write-off the loan is confirmed by documents. In addition to that, all required and sufficient legal and practical measures to collect this loan have been taken and any further action is legally impossible and/or the expected expenses will exceed the result.Uncollectible loans are written-off from the Groups balance sheet against the loan loss provision inaccordance with the Regulations approved by the Groups management.The amount of uncollectible loan written off from the Group’s balance sheet as well as related interestshall be generally accounted for on off-balance sheet accounts during at least five years in order tomonitor collection possibility in case of change in conditions.The Credit Risk Monitoring Department monitors the credit risk of the Group and its main objectives areas follows: prevention, detection and mitigation of the damage that the Group might incur as a result of exposure to credit risk; determining the aggregate credit risk taking into account all financial instruments; forecasting future credit risks arising; an objective assessment of credit risks, monitoring the loan loss provisions adequacy and communicating to the Groups management with a view to taking appropriate management decisions.The Internal Control and Audit Function follows up credit transactions of branches during internal auditsperformed in accordance with six months internal audit plans for branches approved by the Groupsmanagement. 56
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in(a) currency, (b) interest rates and (c) equity products, all of which are exposed to general and specificmarket movements. The Groups management and the Assets and Liabilities Management Committee setlimits on the volume of risk exposure and monitor it on a daily basis. However, the use of this approachdoes not prevent losses outside of these limits in the event of more significant market movements.Currency risk. The Group is exposed to currency risk due to the fact that its assets and liabilities aredenominated in different currencies as well as due to existence of open currency positions resulting fromforeign currency transactions. The Group manages currency risk by ensuring maximum possibleconsistency between the currency of its assets and the currency of its liabilities by currency withinestablished limits. The Assets and Liabilities Management Committee sets limits on the level of exposureby currency and in total for both overnight and intra-day positions, which are monitored daily.The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31December 2012: RR USD Euro Other TotalIn millions of Russian RoublesMonetary financial assetsCash and cash equivalents 23 421 10 772 6 657 35 40 885Mandatory cash balances with CBRF 1 531 399 167 - 2 097Trading securities 4 341 1 473 44 - 5 858Due from other banks 5 403 391 - - 5 794Loans and advances to customers 127 432 9 825 4 405 - 141 662Investment securities available for sale 1 448 559 - - 2 007Other financial assets 778 244 81 - 1 103Total monetary financial assets 164 354 23 663 11 354 35 199 406Monetary financial liabilitiesDue to other banks 3 544 1 146 2 957 - 7 647Customer accounts 135 546 19 955 8 356 19 163 876Debt securities in issue 7 000 32 - - 7 032Other borrowed funds 2 803 - - - 2 803Other financial liabilities 315 24 11 - 350Subordinated loans 3 500 2 551 - - 6 051Total monetary financial liabilities 152 708 23 708 11 324 19 187 759Net balance sheet position 11 646 (45) 30 16 11 647Credit related commitments (Note 30) 23 979 455 862 - 25 296The above analysis includes only monetary assets and liabilities. Investments in equities and non-monetary assets are not considered to give rise to any material currency risk. 57
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31December 2011: RR USD Euro Other TotalIn millions of Russian RoublesMonetary financial assetsCash and cash equivalents 23 165 7 400 6 966 224 37 755Mandatory cash balances with CBRF 1 390 357 192 - 1 939Trading securities 4 393 2 033 921 - 7 347Due from other banks 600 366 1 - 967Loans and advances to customers 108 710 11 772 3 901 - 124 383Investment securities available for sale - 199 697 - 896Other financial assets 921 267 66 - 1 254Total monetary financial assets 139 179 22 394 12 744 224 174 541Monetary financial liabilitiesDue to other banks 3 263 2 104 2 835 - 8 202Customer accounts 117 617 17 883 9 633 9 145 142Debt securities in issue 6 678 44 - - 6 722Other financial liabilities 575 13 - - 588Subordinated loans 1 500 2 717 - - 4 217Total monetary financial liabilities 129 633 22 761 12 468 9 164 871Net balance sheet position 9 546 (367) 276 215 9 670Credit related commitments (Note 30) 21 611 802 2 075 - 24 488At 31 December 2012, if the US Dollar exchange rate had been 10.0% higher (or 10.0% lower) with allother variables held constant, profit before tax for the year would have been RR 5 million lower (RR 5million higher).At 31 December 2011, if the US Dollar exchange rate had been 10.0% higher (or 10.0% lower) with allother variables held constant, profit before tax for the year would have been RR 37 million lower (RR 37million higher).At 31 December 2012, if the Euro exchange rate had been 10.0% higher (or 10.0% lower) with all othervariables held constant, profit before tax for the year would have been RR 3 million higher (RR 3 millionlower).At 31 December 2011, if the Euro exchange rate had been 10.0% higher (or 10.0% lower) with all othervariables held constant, profit before tax for the year would have been RR 28 million higher (RR 28 millionlower). 58
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)Interest rate risk. The Group takes on exposure to the effects of fluctuations in the prevailing levels ofmarket interest rates on its financial position and cash flows. Interest margins may increase as a result ofsuch changes, but may reduce or create losses in the event of unexpected movements.Assessment of the Group’s exposure to interest rate risk is managed upon gap analysis of financialinstruments sensitive to changes in interest rates (SFI). The principal methodological approach of gapanalysis within the framework of interest rate risk evaluation is recognition of future payment flows underSFI at carrying amounts. These carrying amounts are broken down by the earlier of contractual interestrepricing or maturity dates.Any changes in net interest income resulting from changes in the value of SFI at the date of theirredemption or interest repricing determine the amount of interest rate risk exposure. Any changes in theamount of net interest income depend upon net cumulative gap on SFI and possible changes in interestrate at the end of the annual reporting period.For the purposes of analysis of financial instruments that are sensitive to interest rate changes a yearlong period is selected as the maximum analysed interval.The table below summarises the Group’s exposure to interest rate risks at the annual reporting dates. Demand and From 1 to From 6 to More than Total less than 6 months 12 months 1 yearIn millions of Russian Roubles 1 month31 December 2012Total financial assets exposed to interest rate changes 49 991 41 927 41 056 54 616 187 590Total financial liabilities exposed to interest rate changes 70 061 36 841 29 244 51 263 187 409Net interest sensitivity gap at 31 December 2012 (20 070) 5 086 11 812 3 353 181Gap coefficient (aggregate relative cumulative gap) 0.71 0.86 0.98 1.0031 December 2011Total financial assets exposed to interest rate changes 42 063 39 741 30 237 48 716 160 757Total financial liabilities exposed to interest rate changes 59 909 28 105 32 065 44 204 164 283Net interest sensitivity gap at 31 December 2011 (17 846) 11 636 (1 828) 4 512 (3 526)Gap coefficient (aggregate relative cumulative gap) 0.70 0.93 0.93 0.98 59
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)At 31 December 2012, if interest rates at that date had been 200 basis points higher (2011: 200 basispoints higher) with all other variables held constant, profit before tax for the year would have been RR303 million (2010: RR 186 million) lower, mainly as a result of higher interest expense on term deposits ofindividuals and legal entities and due to other banks. At 31 December 2012, other components of equitywould have been RR 24 million (2011: RR 6 million) higher, mainly as a result of an increase in the fairvalue of fixed rate financial instruments classified as available for sale.At 31 December 2012, if interest rates at that date had been 200 basis points lower (2011: 200 basispoints lower) with all other variables held constant, profit before tax for the year would have been RR 303million (2011: RR 186 million) higher as a result of lower interest expense on term deposits of individualsand legal entities and due to other banks. At 31 December 2012, other components of equity would havebeen RR 24 million (2011: RR 6 million) lower, mainly as a result of a decrease in the fair value of fixedrate financial instruments classified as available for sale.Risk management comprises minimising net gap established in analysis of assets and liabilities sensitiveto interest rate changes. Depending upon the net gap amount the Group takes the decision to issue orattract resources at certain rates for a certain period in order to minimise potential losses as a result ofchanges in the market interest rate.The Group monitors interest rates for its financial instruments. The table below summarises interest ratesbased on reports reviewed by key management personnel of the Group: 2012 2011In % p.a. RR USD Euro Other RR USD Euro OtherAssetsCash and cash equivalents 1% 0% 0% 0% 1% 0% 0% 0%Trading securities 8% 7% 5% - 7% 3% 3% -Due from other banks 6% 0% - - 4% 0% - -Loans and advances to customers 12% 8% 7% - 11% 8% 8% -Investment securities available for sale 9% 7% - - - 3% 3% -LiabilitiesDue to other banks 6% 6% 2% - 6% 7% 3% -Customer accounts- current and settlement accounts 0% 0% 0% 0% 0% 0% 0% 0%- term deposits 6% 5% 4% - 7% 5% 4% -Debt securities in issue 8% 2% - - 8% 2% - -Other borrowed funds 9% - - - - - - -Subordinated loans 9% 8% - - 8% 9% - -The sign “-“ in the table above means that the Group does not have the respective assets or liabilities inthe corresponding currency. 60
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)Other price risk. This risk is not significant for the Group as the Group has limited exposure to equityprice risk.The Group is exposed to prepayment risk through providing fixed rate loans, including mortgages, whichgive the borrower the right to early repay the loans. The Group’s current year profit or loss and equity forthe year and at the end of the reporting period would not have been significantly impacted by changes inprepayment rates because such loans are carried at amortised cost and the prepayment right is at orclose to the amortised cost of the loans and advances to customers.Geographical risk concentrations. The geographical concentration of the Group’s assets and liabilitiesat 31 December 2012 is set out below: Russia OECD Other TotalIn millions of Russian Roubles countriesFinancial assetsCash and cash equivalents 24 335 16 548 2 40 885Mandatory cash balances with CBRF 2 097 - - 2 097Trading securities 5 884 - - 5 884Due from other banks 5 406 388 - 5 794Loans and advances to customers 141 649 13 - 141 662Investment securities available for sale 2 312 164 - 2 476Other financial assets 1 090 12 1 1 103Total financial assets 182 773 17 125 3 199 901Non-financial assets 9 161 - - 9 161Total assets 191 934 17 125 3 209 062Financial liabilitiesDue to other banks 3 547 4 097 3 7 647Customer accounts 162 035 414 1 427 163 876Debt securities in issue 7 032 - - 7 032Other borrowed funds 2 803 - - 2 803Other financial liabilities 350 - - 350Subordinated loans 3 804 1 548 699 6 051Total financial liabilities 179 571 6 059 2 129 187 759Non-financial liabilities 496 - - 496Total liabilities 180 067 6 059 2 129 188 255Net balance sheet position 11 867 11 066 (2 126) 20 807Credit related commitments (Note 30) 25 296 - - 25 296Assets, liabilities and credit related commitments have generally been based on the country in which thecounterparty is located. Cash on hand and premises and equipment have been allocated based on thecountry in which they are physically held. 61
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)The geographical concentration of the Group’s assets and liabilities at 31 December 2011 is set outbelow: Russia OECD Other TotalIn millions of Russian Roubles countriesFinancial assetsCash and cash equivalents 24 273 13 477 5 37 755Mandatory cash balances with CBRF 1 939 - - 1 939Trading securities 7 347 - - 7 347Due from other banks 600 367 - 967Loans and advances to customers 124 172 - 211 124 383Investment securities available for sale 1 260 117 - 1 377Other financial assets 1 254 - - 1 254Total financial assets 160 845 13 961 216 175 022Non-financial assets 8 866 - - 8 866Total assets 169 711 13 961 216 183 888Financial liabilitiesDue to other banks 3 262 4 939 1 8 202Customer accounts 142 929 505 1 708 145 142Debt securities in issue 6 722 - - 6 722Other financial liabilities 588 - - 588Subordinated loans 1 822 1 653 742 4 217Total financial liabilities 155 323 7 097 2 451 164 871Non-financial liabilities 555 - - 555Total liabilities 155 878 7 097 2 451 165 426Net balance sheet position 13 833 6 864 (2 235) 18 462Credit related commitments (Note 30) 24 488 - - 24 488Liquidity risk. Liquidity risk is defined as the risk that the Group will encounter difficulty in meetingobligations associated with financial liabilities. The Group is exposed to daily calls on its available cashresources from overnight deposits, current accounts, maturing deposits, loan draw-downs, guaranteesand from margin and other calls on cash-settled derivative instruments. The Group does not maintaincash resources to meet all of these needs as experience shows that a minimum level of reinvestment ofmaturing funds can be predicted with a high level of certainty. The overall liquidity management is carriedout by the Management Board of the Bank, which may delegate some functions to the Asset and LiabilityCommittee.The Group seeks to maintain a stable funding base comprising primarily amounts due to other banks,corporate and retail customer deposits and debt securities and invest the funds in diversified portfolios ofliquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements. 62
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)The liquidity management of the Bank requires considering the level of liquid assets necessary to settleobligations as they fall due; maintaining access to a range of funding sources; maintaining fundingcontingency plans; and monitoring balance sheet liquidity ratios against regulatory requirements. TheBank calculates liquidity ratios on a daily basis in accordance with the requirement of the Central Bank ofthe Russian Federation. These ratios are: Instant liquidity ratio (N2), which is calculated as the ratio of highly-liquid assets to liabilities payable on demand. The ratio was 61.7% at 31 December 2012 (2011: 55.1%). As at 31 December 2012 and 31 December 2011 the minimum required level for N2 ratio was 15%. Current liquidity ratio (N3), which is calculated as the ratio of liquid assets to liabilities maturing within 30 calendar days. The ratio was 88.6% at 31 December 2012 (2011: 86.6%). As at 31 December 2012 and 31 December 2011 the minimum required level for N3 ratio was 50%. Long-term liquidity ratio (N4), which is calculated as the ratio of assets maturing after one year to Bank’s regulatory capital and liabilities maturing after one year. The ratio was 76.2% at 31 December 2012 (2011: 76.5%). As at 31 December 2012 and 31 December 2011 the maximum required level for N4 ratio was 120%.The Treasury receives information about the liquidity profile of the financial assets and liabilities. TheTreasury then provides for an adequate portfolio of short-term liquid assets, largely made up of short-termliquid trading securities, deposits with banks and other inter-bank facilities, to ensure that sufficientliquidity is maintained within the Bank as a whole.The daily liquidity position is monitored and regular liquidity stress testing, under a variety of scenarioscovering both normal and more severe market conditions, is performed by the Treasury Department.The table below shows assets and liabilities by their remaining contractual maturity. The amountsdisclosed in the maturity table are the contractual undiscounted cash flows with consideration of all futurepayments (including future interest payments during the whole period of the asset or liability). Assets andliabilities were classified into groups on the basis of the earliest date when the Groups right to obtain theassets or liabilities could be established or the settlement requirement to the Group could arise.When the amount payable is not fixed, the amount disclosed is determined by reference to the conditionsexisting at the reporting date. Foreign currency payments are translated using the spot exchange rate atthe reporting date. 63
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)The maturity analysis of undiscounted cash flows of financial liabilities at 31 December 2012 is as follows: Demand and From 1 to From 6 to From From Over 3 TotalIn millions of Russian less than 6 months 12 months 12 months 2 year to years Roubles 1 month to 2 years 3 yearsFinancial liabilitiesDue to other banks 179 587 672 1 273 4 650 1 189 8 550Customer accounts 68 517 31 932 29 019 40 622 3 507 4 909 178 506Debt securities in issue 1 406 2 306 1 534 213 187 4 248 9 894Other borrowed funds - 2 863 - - - - 2 863Other financial liabilities 350 - - - - - 350Subordinated loans - 498 1 523 1 249 332 4 881 8 483Total potential future payments for financial obligations 70 452 38 186 32 748 43 357 8 676 15 227 208 646Financial guarantees 10 181 - - - - - 10 181Other credit related commitments 15 115 - - - - - 15 115Term deals- outflows - 333 - - - - 333- inflows - (337) - - - - (337)The maturity analysis of undiscounted cash flows of financial liabilities at 31 December 2011 is as follows: Demand and From 1 to From 6 to From From Over 3 TotalIn millions of Russian less than 6 months 12 months 12 months 2 year to years Roubles 1 month to 2 years 3 yearsFinancial liabilitiesDue to other banks 435 736 441 805 665 6 392 9 474Customer accounts 59 344 24 361 32 569 27 514 5 590 1 007 150 385Debt securities in issue 471 2 773 825 310 262 10 707 15 348Other financial liabilities 588 - - - - - 588Subordinated loans - 126 247 1 908 1 129 2 449 5 859Total potential future payments for financial obligations 60 838 27 996 34 082 30 537 7 646 20 555 181 654Financial guarantees 9 736 - - - - - 9 736Other credit related commitments 14 752 - - - - - 14 752Term deals- outflows - 384 - - - - 384- inflows - (389) - - - - (389) 64
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)Customer accounts are classified in the above analysis based on contractual maturities. However, inaccordance with Russian Civil Code, individuals have a right to withdraw their deposits prior to maturity ifthey forfeit their right to accrued interest.In accordance with amendments to IFRS 7, Financial Instruments: Disclosures, the maturity analysis ofliabilities should include issued financial guarantee contracts at the maximum amount of the guarantee inthe earliest period in which the guarantee could be called.Liquidity requirements to support calls under guarantees and standby letters of credit are considerablyless than the amount of the commitment disclosed in the above maturity analysis because the Groupdoes not generally expect the third party to draw funds under the agreement. The total outstandingcontractual amount of commitments to extend credit as included in the above maturity table does notnecessarily represent future cash requirements, since many of these commitments will expire orterminate without being funded.The Group does not use the above undiscounted maturity analysis to manage liquidity. Instead, theGroup monitors expected maturities, which may be summarised as follows at 31 December 2012: Demand From 1 to From 6 to Over 12 Total and less 6 months 12 months months thanIn millions of Russian Roubles 1 monthFinancial assetsCash and cash equivalents 40 885 - - - 40 885Mandatory cash balances with the CBRF 868 413 342 474 2 097Trading securities 5 884 - - - 5 884Due from other banks 5 406 - - 388 5 794Loans and advances to customers 6 458 40 387 30 761 64 056 141 662Investment securities available for sale - 1 540 467 469 2 476Other financial assets 1 103 - - - 1 103Total financial assets 60 604 42 340 31 570 65 387 199 901Financial liabilitiesDue to other banks 155 462 502 6 528 7 647Customer accounts 68 500 31 051 26 189 38 136 163 876Debt securities in issue 1 406 2 179 1 340 2 107 7 032Other borrowed funds - - - 2 803 2 803Other financial liabilities 350 - - - 350Subordinated loans - 346 1 213 4 492 6 051Total financial liabilities 70 411 34 038 29 244 54 066 187 759Net liquidity gap based on expected maturities at 31 December 2012 (9 807) 8 302 2 326 11 321 12 142Cumulative liquidity gap as at 31 December 2012 (9 807) (1 505) 821 12 142Financial guarantees 10 181 - - - 10 181Other credit related commitments 15 115 - - - 15 115 65
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)The above analysis is based on expected maturities. The entire portfolio of trading securities is thereforeclassified within demand and less than one month based on management’s assessment of the portfolio’srealisability.The expected maturity of investment securities available for sale is based on offer agreement date.The expected maturities are as follows at 31 December 2011: Demand From 1 to From 6 to Over 12 Total and less 6 months 12 months months thanIn millions of Russian Roubles 1 monthFinancial assetsCash and cash equivalents 37 755 - - - 37 755Mandatory cash balances with the CBRF 775 357 414 393 1 939Trading securities 7 347 - - - 7 347Due from other banks 600 1 1 365 967Loans and advances to customers 6 818 39 740 29 539 48 286 124 383Investment securities available for sale 615 - 697 65 1 377Other financial assets 1 254 - - - 1 254Total financial assets 55 164 40 098 30 651 49 109 175 022Financial liabilitiesDue to other banks 419 608 261 6 914 8 202Customer accounts 59 081 24 764 31 145 30 152 145 142Debt securities in issue 409 2 678 659 2 976 6 722Other financial liabilities 588 - - - 588Subordinated loans - 55 - 4 162 4 217Total financial liabilities 60 497 28 105 32 065 44 204 164 871Net liquidity gap based on expected maturities at 31 December 2011 (5 333) 11 993 (1 414) 4 905 10 151Cumulative liquidity gap as at 31 December 2011 (5 333) 6 660 5 246 10 151Financial guarantees 9 736 - - - 9 736Other credit related commitments 14 752 - - - 14 752The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities isfundamental to the management of the Group. It is unusual for banks ever to be completely matchedsince business transacted is often of an uncertain term and of different types. An unmatched positionpotentially enhances profitability, but can also increase the risk of losses. The maturities of assets andliabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, areimportant factors in assessing the liquidity of the Bank and its exposure to changes in interest andexchange rates. 66
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201228 Financial Risk Management (Continued)Management believes that in spite of a substantial portion of customer accounts being on demand,diversification of these deposits by number and type of depositors, and the past experience of the Groupwould indicate that these customer accounts provide a long-term and stable source of funding for theGroup.Liquidity requirements to support calls under guarantees and standby letters of credit are considerablyless than the amount of the commitment because the Group does not generally expect the third party todraw funds under the agreement. The total outstanding contractual amount of commitments to extendcredit does not necessarily represent future cash requirements, since many of these commitments willexpire or terminate without being funded.29 Management of CapitalThe Bank’s objectives when managing capital are (i) to comply with the capital requirements set bythe Central Bank of the Russian Federation, (ii) to safeguard the Bank’s ability to continue as a goingconcern and (iii) to maintain a sufficient capital base to achieve a capital adequacy ratio based on theBasel Accord of at least 8%.Under the current capital requirements set by the Bank of Russia, banks have to maintain the ratio ofregulatory capital to risk weighted assets (“statutory capital ratio”) above the prescribed minimum level of10%. As at 31 December 2012 this statutory capital ratio is 12.1% (2011: 11.9%). Compliance with thisratio is monitored daily, with monthly reports outlining their calculation sent to the Central Bank of theRussian Federation. As at 31 December 2012 regulatory capital calculated based on these reportsaccording to the requirements of the Bank of Russia is RR 23 192 million (2011: RR 19 607 million).The table below shows the level of the Banks capital adequacy ratio as at 31 December 2012 and 31December 2011 calculated by the Bank in accordance with the requirements of the Basel Accord, asdefined in the International Convergence of Capital Measurement and Capital Standards (updated July1998, amended November 2005) and the Amendment to the Basel Capital Accord to incorporate marketrisks (updated November 2005), commonly known as Basel I:In millions of Russian Roubles 2012 2011Tier 1 capitalShare capital formed by ordinary shares 250 250Share premium 7 306 7 306Retained earnings 13 124 10 807Total tier 1 capital 20 680 18 363Tier 2 capitalRevaluation reserve for investment securities available for sale 127 99Subordinated capital 4 132 2 745Total tier 2 capital 4 259 2 844Total capital 24 939 21 207Risk weighted assetsCredit risk 165 370 150 489Market risk 2 610 3 389Total risk weighted assets 167 980 153 878Total capital adequacy ratio (Total capital to risk weighted assets) 14.85% 13.78%Tier 1 capital adequacy ratio(Tier 1 capital to risk weighted assets) 12.31% 11.93%The Bank has complied with all externally imposed capital requirements throughout 2012 and 2011. 67
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201230 Contingencies and CommitmentsLegal proceedings. From time to time and in the normal course of business, claims against the Groupmay be received. On the basis of its own estimates and internal professional advice management is ofthe opinion that no material losses will be incurred in respect of claims and accordingly no provision hasbeen made in these consolidated financial statements.Tax legislation. Russian tax legislation which was enacted or substantively enacted at the end of thereporting period is subject to varying interpretations when being applied to the transactions and activitiesof the Group. Consequently, tax positions taken by management and the formal documentationsupporting the tax positions may be successfully challenged by relevant authorities. Russian taxadministration is gradually strengthening, including the fact that there is a higher risk of review of taxtransactions without a clear business purpose or with tax incompliant counterparties. Fiscal periodsremain open to review by the authorities in respect of taxes for three calendar years preceding the year ofreview. Under certain circumstances reviews may cover longer periods.Amended Russian transfer pricing legislation took effect from 1 January 2012. The new transfer pricingrules appear to be more technically elaborate and, to a certain extent, better aligned with the internationaltransfer pricing principles developed by the Organisation for Economic Cooperation and Development(OECD). The new legislation provides the possibility for tax authorities to impose additional tax liabilitiesin respect of controllable transactions (transactions with related parties and some types of transactionswith unrelated parties), provided that the transaction price is not arms length. The Groups managementhas implemented internal controls to be in compliance with the new transfer pricing legislation.Management believes the transfer pricing documentation that the Group has prepared provides sufficientevidence to confirm that the prices applied comply with the market level for tax purposes. However, giventhat the practice of implementation of the new Russian transfer pricing rules has not yet developed, theimpact of any challenge of the Group’s transfer prices cannot be reliably estimated; however, it may besignificant to the financial conditions and/or the overall operations of the Group.As Russian tax legislation does not provide definitive guidance in certain areas, the Group adopts, fromtime to time, interpretations of such uncertain areas that reduce the overall tax rate of the Group. Whilemanagement currently estimates that the tax positions and interpretations that it has taken can probablybe sustained, there is a possible risk that outflow of resources will be required should such tax positionsand interpretations be challenged by the relevant authorities. The impact of any such challenge cannot bereliably estimated; however, it may be significant to the financial position and/or the overall operations ofthe Group.At 31 December 2012 the management has not created any provision for potential tax liabilities(31 December 2011: nil), as the management of the Group believes that its interpretation of the relevantlegislation is appropriate and the Group’s tax, currency and customs positions will be sustained.Capital expenditure commitments. At 31 December 2012 the Group has contractual capitalexpenditure commitments in respect of buildings renovation and premises and equipment acquisitiontotalling RR 81 million (2011: RR 64 million). The Group has already allocated the necessary resources inrespect of these commitments. The Group believes that future net income and funding will be sufficient tocover this and any similar such commitments. 68
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201230 Contingencies and Commitments (Continued)Operating lease commitments. Where the Group is the lessee, the future minimum lease paymentsunder non-cancellable operating leases are as follows:In millions of Russian Roubles 2012 2011Due within 1 year 220 207Later than 1 year and not later than 5 years 471 403Over 5 years 517 506Total operating lease commitments 1 208 1 116Compliance with covenants. The Group is subject to certain covenants related to deposits from otherbanks and subordinated loans. Refer to Notes 15 and 19. These covenants include capital adequacy, singleborrower concentration and other covenants. Non-compliance with such covenants may result in creditor’sdemand for early repayment of provided funds.As at 31 December 2012 the Group was in compliance with all covenants except for two covenants withregard to the open credit risk ratio and to the additional open credit risk ratio set forth in the subordinatedloan agreement. As at date of these consolidated financial statements the Group received the notificationfrom the creditors on their intention to apply increased interest rate as a penalty with regard to thisviolation from the period started 1 January 2013 and till the increased risk event is foregone. As at31 December 2011 the Group was in compliance with covenants related to deposits from other banks andsubordinated loans.Credit related commitments. The primary purpose of these instruments is to ensure that funds areavailable to a customer as required. Guarantees and standby letters of credit, which represent irrevocableassurances that the Group will make payments in the event that a customer cannot meet its obligations tothird parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which arewritten undertakings by the Group on behalf of a customer authorising a third party to draw drafts on theGroup up to a stipulated amount under specific terms and conditions, are collateralised by the underlyingshipments of goods to which they relate or cash deposits and, therefore, carry less risk than a directborrowing.Commitments to extend credit represent unused portions of authorisations by the Groups management toextend credit in the form of loans, guarantees or letters of credit. With respect to credit risk oncommitments to extend credit, the Group is potentially exposed to loss in an amount equal to the totalunused commitments. However, the likely amount of loss is less than the total unused commitments sincemost commitments to extend credit are contingent upon customers maintaining specific credit standards.The Group monitors the term to maturity of credit related commitments, because longer-termcommitments generally have a greater degree of credit risk than shorter-term commitments.Outstanding credit related commitments are as follows:In millions of Russian Roubles 2012 2011Unused limits on overdraft loans 13 921 12 076Guarantees issued 10 181 9 736Undrawn credit lines 1 163 1 684Import letters of credit 31 992Total credit related commitments 25 296 24 488The total outstanding contractual amount of undrawn credit lines, letters of credit, and guarantees doesnot necessarily represent future cash requirements, as these financial instruments may expire orterminate without being funded. 69
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201230 Contingencies and Commitments (Continued)Assets pledged and restricted. The Group had assets pledged as collateral with the following carryingvalue: Note 2012 2011 In millions of Russian Roubles Asset pledged Related liability Asset pledged Related liability Pledged rights (claims) on loans 10, 15 3 715 3 533 3 331 3 000 Total 3 715 3 533 3 331 3 000Mandatory cash balances with the CBRF in the amount of RR 2 097 million (2011: RR 1 939 million)represent mandatory reserve deposits which are not available to finance the Groups day to dayoperations.31 Transfers of Financial AssetsThe Group transferred financial assets in transactions that did not qualify for derecognition in the currentand prior periods.Securitisation transaction. In December 2012, the Group transferred mortgage loans of RR 4 214million to a special purpose entity ZAO “Ipotechny Agent Vozrozhdeniye 2” and in December 2011 of RR3 853 million to a special purpose entity ZAO “Ipotechny Agent Vozrozhdeniye 1”. As at 31 December2012 the carrying value of the mortgage loans (less impairment provision) was RR 7 090 million.Within the scope of the first securitisation transaction (December 2011) the carrying value of the issuednotes was RR 2 082 million (31 December 2011: RR 4 071 million) as at 31 December 2012. Within thescope of the second securitisation transaction (December 2012) the Group attracted temporary financingin the amount of RR 2 803 million. The loan will be refinanced by placement of mortgage securities inApril 2013.The following schedule summarises transfers where the Group continues to recognise all of thetransferred financial assets and the risks and rewards related to these assets. 31 December 2012 Carrying amount of Carrying amount of the Net positionIn millions of Russian Roubles the assets* related borrowings*Mortgage loans 7 820 7 727 93* of special-purpose entitiesThe following schedule provides information about transfers where the counterparties to the associatedliabilities have recourse only to the transferred assets. This is the case for the Group’s securitisationtransactions. 31 December 2012 Fair value of Fair value of the related Net positionIn millions of Russian Roubles assets* borrowings*Mortgage loans 7 701 7 727 (26)* of special-purpose entities 70
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201232 Derivative Financial Instruments and Term DealsDerivative financial instruments and term deals entered into by the Group include foreign exchangecontracts and term deals for precious metals. Derivatives have potentially favourable (assets) orunfavourable (liabilities) conditions as a result of fluctuations in market interest rates, foreign exchangerates or other variables relative to their terms. The aggregate fair values of derivative financial assets andliabilities can fluctuate significantly from time to time.As at 31 December 2012, the Group had outstanding liabilities related to term contracts for preciousmetals maturing in April-May 2013 (2011: in March 2012).The fair value gain on these term deals at 31 December 2012 was RR 4 million (2011: RR 5 million). Thecontracts are short term in nature.33 Fair Value of Financial Instruments(a) Fair values of financial instruments carried at amortised cost.Fair values of financial instruments carried at amortised cost are as follows: 31 December 2012 31 December 2011 Carrying Fair value Carrying Fair valueIn millions of Russian Roubles amount amountFINANCIAL ASSETSCash and cash equivalents- Cash on hand 8 616 8 616 10 582 10 582- Cash balances with the CBRF 14 670 14 670 9 650 9 650- Correspondent accounts and overnight placements 17 599 17 599 17 523 17 523Mandatory cash balances with the CBRF 2 097 2 097 1 939 1 939Due from other banks- Short-term placements with other banks 5 406 5 406 601 601- Insurance deposits with non-resident banks 388 388 366 366Loans and advances to customers- Corporate loans - large 39 296 38 676 36 654 36 664- Corporate loans - medium 46 423 46 486 44 805 45 154- Corporate loans - small 24 248 24 259 19 636 19 338- Mortgage loans 21 691 20 584 14 952 15 763- Other loans to individuals 10 004 9 374 8 336 8 237Other financial assets- Credit and debit cards receivables 533 533 569 569- Receivables 316 316 449 449- Settlements with currency and stock exchanges 195 195 193 193- Other assets 55 55 38 38TOTAL FINANCIAL ASSETS CARRIED AT AMORTISED COST 191 537 189 254 166 293 167 066 71
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201233 Fair Value of Financial Instruments (Continued) 31 December 2012 31 December 2011 Carrying Fair value Carrying value Fair valueIn millions of Russian Roubles amountFINANCIAL LIABILITIESDue to other banks- Placements of other banks 7 630 7 064 7 940 7 818- Correspondent accounts of other banks 17 17 262 262Customer accounts- Current/settlement accounts of state and public organisations 84 84 254 254- Current/settlement accounts of other legal entities 35 982 35 982 33 053 33 053- Term deposits of other legal entities 25 896 25 634 19 510 19 784- Current/demand accounts of individuals 20 900 20 900 20 184 20 184- Term deposits of individuals 81 014 79 899 72 141 71 961Debt securities in issue- Promissory notes 4 765 4 889 3 600 3 735- Mortgage backed issued bonds 2 082 2 082 2 931 2 931- Deposit certificates 185 186 191 192Other borrowed funds 2 803 2 803 - -Other financial liabilities- Debit or credit card payables 140 140 461 461- Trade payables 117 117 72 72- Settlements on conversion operations 29 29 - -- Other liabilities 64 64 55 55Subordinated loans 6 051 6 061 4 217 4 485TOTAL FINANCIAL LIABILITIES CARRIED AT AMORTISED COST 187 759 185 951 164 871 165 247 72
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201233 Fair Value of Financial Instruments (Continued)(b) Analysis by fair value hierarchy of financial instruments carried at fair value.The Group uses the following hierarchy for determining and disclosing fair values of financial instruments:Level 1: current quoted (unadjusted) prices of financial assets or quoted prices for similar financial assets.Level 2: valuation technique, whose inputs that have a significant impact on the fair value can be directlyor indirectly observed in the market.Level 3: valuation technique taking into account significant adjustments of market data or based on asignificant volume of data inaccessible to objective observation.For financial instruments carried at fair value, the level in the fair value hierarchy into which the fair valuesare categorised are as follows: 31 December 2012 31 December 2011 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3In millions of Russian RoublesFINANCIAL ASSETSTrading securities- Corporate bonds 3 636 - - 3 748 - -- Corporate Eurobonds 1 517 - - 2 954 - -- Federal loan bonds (OFZ) 603 - - 457 - -- Municipal bonds 102 - - 188 - -- Corporate shares 26 - - - - -Investment securities available for sale- Corporate bonds 875 - - - - -- Municipal bonds 573 - - - - -- Corporate Eurobonds 559 - - 831 - -- Corporate shares 176 - 293 116 - 365- Russian Federation Eurobonds - - - 65 - -Other financial assets- Term deals - 4 - - 5 -TOTAL FINANCIAL ASSETS CARRIED AT FAIR VALUE 8 067 4 293 8 359 5 365Management applies judgement in categorising financial instruments using the fair value hierarchy. If afair value measurement uses observable inputs that require significant adjustment, that measurement is aLevel 3 measurement. 73
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201233 Fair Value of Financial Instruments (Continued)(c) Reconciliation of movements in instruments belonging to Level 3 of the fair value hierarchy.A reconciliation of movements in Level 3 of the fair value hierarchy by class of instruments is as follows: 2012 2011 Securities available for Securities available for sale saleIn millions of Russian Roubles Corporate shares Corporate sharesFair value at 1 January 365 365Fair valuation (1) -Impairment (71) -Fair value at 31 December 293 365Losses recognised in profit or loss for the current or prior years for assets held at 31 December (71) -As at 31 December 2012, the fair value of non-quoted securities available for sale was assessed basedon the amount calculated by an independent appraiser.As at 31 December 2011, the fair value of non-quoted securities available for sale was assessed basedon the discounted cash flows model and the following assumptions: selected discount rate and net profitgrowth rate. Net profit growth rate was assessed as 16% p.a. An increase in net profit growth rate by 1%would result in decrease in the estimated fair value of the investment by RR 26 million. A decrease in netprofit growth rate by 1% would result in increase in the estimated fair value of the investment by RR 29million.(d) The methods and assumptions applied in determining fair values.Fair value is the amount at which a financial instrument could be exchanged in a current transactionbetween willing parties, other than in a forced sale or liquidation, and is best evidenced by an activequoted market price. If there is no active market price, the Group applies analysis based on bothobservable and non-observable market data.The estimated fair values of financial instruments have been determined by the Group using availablemarket information, where it exists, and appropriate valuation methodologies. However, judgement isnecessarily required to interpret market data to determine the estimated fair value. The RussianFederation continues to display some characteristics of an emerging market and economic conditionscontinue to limit the volume of activity in the financial markets.Market quotations may be outdated or reflect distress sale transactions and therefore not represent fairvalues of financial instruments. Management has used all available market information in estimating thefair value of financial instruments. 74
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201233 Fair Value of Financial Instruments (Continued)Discount rates used to calculate the estimated fair value of instruments carried at amortised cost dependon the Group’s credit risk, as well as the currency and maturity of the counterparty’s instrument. Theserates are analysed below:In % p.a. 2012 2011Due from other banks- Short-term placements and insurance deposits with other banks 0%-5% 0%-5%Loans and advances to customers- Corporate loans - large 12 % 10 %- Corporate loans - medium 11 % 11 %- Corporate loans - small 12 % 12 %- Mortgage loans 14 % 13 %- Other loans to individuals 20 % 17 %Other financial assets- Receivables 0% 0%- Credit and debit cards receivables 0% 0%Due to other banks- Placements of other banks 4%-9% 3%-7%- Correspondent accounts of other banks 0% 0%Customer accounts- Current/settlement accounts of state and public organisations 0% 0%- Current/settlement accounts of other legal entities 0% 0%- Term deposits of other legal entities 1%-8% 2%-7%- Current/demand accounts of individuals 0% 0%- Term deposits of individuals 4%-8% 4%-7%Debt securities in issue- Promissory notes 0% - 4% 0% - 7%- Deposit certificates 7% 5%- Mortgage backed bonds in issue 9% 9%Other borrowed funds 9% -Subordinated loans 8%-9% 8%Other financial liabilities- Trade payables 0% 0%- Debit or credit card payables 0% 0% 75
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201234 Presentation of Financial Instruments by Measurement CategoryFor the purposes of measurement, IAS 39, Financial Instruments: Recognition and Measurement,classifies financial assets into the following categories: (a) loans and receivables; (b) available for salefinancial assets; (c) financial assets held for trading. The following table provides a reconciliation ofclasses of financial assets with these measurement categories as at 31 December 2012: Loans and Investment Trading assets Total receivables securities available for saleFINANCIAL ASSETSCash and cash equivalents- Cash on hand 8 616 - - 8 616- Cash balances with the CBRF 14 670 - - 14 670- Correspondent accounts and overnight placements 17 599 - - 17 599Mandatory cash balances with the CBRF 2 097 - - 2 097Trading securities- Corporate bonds - - 3 636 3 636- Corporate Eurobonds - - 1 517 1 517- Federal loan bonds (OFZ) - - 603 603- Municipal bonds - - 102 102- Corporate shares - - 26 26Due from other banks- Short-term placements with other banks 5 406 - - 5 406- Insurance deposits with non-resident banks 388 - - 388Loans and advances to customers- Corporate loans - large 39 296 - - 39 296- Corporate loans - medium 46 423 - - 46 423- Corporate loans - small 24 248 - - 24 248- Mortgage loans 21 691 - - 21 691- Other loans to individuals 10 004 - - 10 004Investment securities available for sale- Corporate bonds - 875 - 875- Municipal bonds - 573 - 573- Corporate Eurobonds - 559 - 559- Corporate shares - 469 - 469Other financial assets- Credit and debit cards receivables 533 - - 533- Receivables 316 - - 316- Settlements with currency and stock exchanges 195 - - 195- Other assets 59 - - 59TOTAL FINANCIAL ASSETS 191 541 2 476 5 884 199 901NON-FINANCIAL ASSETS - - - 9 161TOTAL ASSETS 191 541 2 476 5 884 209 062 76
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201234 Presentation of Financial Instruments by Measurement Category (Continued)The following table provides a reconciliation of classes of financial assets with these measurementcategories as at 31 December 2011: Loans and Investment Trading Total receivables securities assets available for saleFINANCIAL ASSETSCash and cash equivalents- Cash on hand 10 582 - - 10 582- Cash balances with the CBRF 9 650 - - 9 650- Correspondent accounts and overnight placements 17 523 - - 17 523Mandatory cash balances with the CBRF 1 939 - - 1 939Trading securities- Corporate bonds - - 3 748 3 748- Corporate Eurobonds - - 2 954 2 954- Federal loan bonds (OFZ) - - 457 457- Municipal bonds - - 188 188Due from other banks- Short-term placements with other banks 601 - - 601- Insurance deposits with non-resident banks 366 - - 366Loans and advances to customers- Corporate loans - large 36 654 - - 36 654- Corporate loans - medium 44 805 - - 44 805- Corporate loans - small 19 636 - - 19 636- Mortgage loans 14 952 - - 14 952- Other loans to individuals 8 336 - - 8 336Investment securities available for sale- Corporate Eurobonds - 831 - 831- Russian Federation Eurobonds - 65 - 65- Corporate shares 481 481Other financial assets- Credit and debit cards receivables 569 - - 569- Receivables 449 - - 449- Settlements with currency and stock exchanges 193 - - 193- Other assets 38 - 5 43TOTAL FINANCIAL ASSETS 166 293 1 377 7 352 175 022NON-FINANCIAL ASSETS - - - 8 866TOTAL ASSETS 166 293 1 377 7 352 183 888All Group’s financial liabilities are carried at amortised cost. 77
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201235 Related Party TransactionsParties are generally considered to be related if the parties are under common control, or one party hasthe ability to control the other party or can exercise significant influence over the other party in makingfinancial or operational decisions. In considering each possible related party relationship, attention isdirected to the substance of the relationship, not merely the legal form.The outstanding balances with related parties were as follows: 31 December 2012 31 December 2011 Share- Manage- Related Share- Manage- Related holders ment companies holders ment companies with with significant significantIn millions of Russian Roubles influence influenceLoans and advances to customersGross amount of loans and advancesto customers(contractual interest rate:31 December 2012: 3.3%-16.0%;31 December 2011: 3.2%-16.0%) - 26 1 233 - 13 1 148Impairment provisions for loans and advances to customers at 31 December - - (13) - - (23)Customer accountsCurrent/settlement accounts(contractual interest rate:31 December 2012: 0.0%;31 December 2011: 0.0%) 19 34 9 19 65 17Term deposits(contractual interest rate:31 December 2012: 2.0%-10.5%;31 December 2011: 4.25%-8.0%) 769 3 675 - 770 3 507 -Subordinated loans (contractual interest rate:31 December 2012: 8.0%;31 December 2011: 8.0%) 304 - - 323 - -The income and expense items with related parties for the years 2012 and 2011 were as follows: 2012 2011 Share- Manage- Related Share- Manage- Related holders ment companies holders ment companies with with significant significantIn millions of Russian Roubles influence influenceInterest income:Loans and advances to customers - 2 139 - 2 85Interest expense:Term deposits 52 164 - 46 157 -Subordinated loans 25 - - 26 - - 78
    • Bank VozrozhdenieNotes to the Consolidated Financial Statements – 31 December 201235 Related Party Transactions (Continued)Aggregate amounts lent to and repaid by related parties during 2012 and 2011 were: 2012 2011 Share- Manage- Related Share- Manage- Related holders ment companies holders ment companies with with significant significantIn millions of Russian Roubles influence influenceAmounts lent to related parties during the period - 37 620 23 18 806Amounts repaid by related parties during the period - 27 535 23 14 375In 2012, the total remuneration of members key management personnel comprised salaries, discretionarybonuses and other short-term benefits of RR 275 million (2011: RR 255 million), including payments tosocial funds RR 24 million (2011: RR 2 million). 79