APPROVED CHELINDBANK General Annual Shareholders’ Meeting, Minutes No. 19. “5” june 2008
ANNUAL REPORT 2007 JOINT-STOCK COMMERCIAL BANK CHELINDBANK (open joint-stock company)
Approved (preliminary) by the meeting of the Board of Directors Minutes No. 4 April 29, 2008
Chelyabinsk 2008
I. CHELINDBANK’S POSITION IN THE BANKING INDUSTRY
In 2007, Russian economy showed high growth rate. The banking system of Russia is one of the sources of the fast development of the Russian economy. Despite the sub-prime mortgage crisis that happened in August 2007 in the USA and led to the world liquidity crisis, there were still positive trends in the banking sector development – the growth rate of the main figures of the banking sector in Russia superseded the growth rate of the gross domestic product.
According to the data of the Bank of Russia, the ratio of the total assets of the Russian banks to GDP exceeded 61% as of January 1, 2008, ownership capital to GDP – 8%. The assets of the banking system increased by 44% during the year and reached 20.2 trln rubles. The own funds of the banks grew more than by 57% and totaled to 2.7 trln rubles by the end of the year. The capital adequacy for the whole banking sector was equal to 15.5%. Successful IPO made by the major Russian banks became an important factor for increasing ownership capital. As the result the capital base of the banking sector increased by almost 440 bln rubles, and more than 160 thousand private individuals became the shareholders of the banks. Russian and foreign investors also took an active part in IPO.
Pic.1 Assets and capital of the Russian banking sector
bln. % RUR. 25000,0 70,0
60,0 20000,0
50,0
15000,0 40,0
30,0 10000,0
20,0
5000,0 10,0
0,0 0,0 01.01.04 01.01.05 01.01.06 01.01.07 01.01.08
Banking Sector Assets Banking Sector Capital Assets to GDP (%) Capital to GDP (%) Capital to Assets (%)
2 The loans provided to non-financial companies and private individuals comprise the major part of the banking sector assets. Their share is equal to 60.7% or 12.3 trln rubles. In 2007, the growth rates of private lending slightly decreased in comparison to 2005 and 2006 and comprised 157%. Many banks created more severe requirements to their customers and stopped their express lending programs due to absence of access to the cheap resources of foreign financial institutions. At the same time the growth rate of lending of non-financial companies increased in 2007 and totaled to 151.6%. The major increase happened in the banks with the share of the state.
The structure of liabilities remained the same – there are mainly customers’ funds which share in the liabilities was equal to 58.8% or 12 trln rubles. In 2007, the growth rates of the balances on the corporate settlement and current accounts and private deposit accounts. Thus, the runup of the personal deposits comprised 35.4% (in 2006 – 37.7%) up to 5.1 trln rubles, and the balances of the corporate settlement accounts were – 34.3% (in 2006 – 41.1%) up to 3.1 trln rubles. At the same time the dynamics of corporate deposits growth remains on the same high level: 67.4% in 2007, 64.8% - in 2006.
The share of funds attracted from other credit companies in the liabilities structure has grown. The growth rate of this figure in 2007 totaled 162%, the balances exceeded 2.8 trln rubles. The liquidity crisis made an effect upon the securities market. Since September 2007 the placement of corporate bonds has been almost stopped due to lack of spare funds and high volatility of the market. However, in general the annual runup of the bonded loans issued by the banks was equal to more than 72%, and the absolute volume of issue – 290 bln rubles.
In 2007 the profit growth rate went on decreasing like in the previous years. The gain of the financial results of the activity of existing credit institutions comprised 36.7% in 2007, and the whole volume of the banking sector profit – 508 bln rubles. One of the factors that influenced decrease of the profit in the banking sector besides the sub-prime mortgage crisis was implementation of the requirement about efficient rate disclosure that led to cancellation of commissions for loan disbursement, and consequently led to decrease of profit. CHELINDBANK is a major Russian regional bank. The main region of the Bank’s activity is Chelyabinsk region. At the moment, the Bank is a stable member of 100 major banks of Russia by assets and capital. CHELINDBANK is among the top 10 major bank of the Urals region by the main types of activity. It takes 1-2 positions in Chelyabinsk region by the main types of banking activity among 11 independent commercial banks of Chelyabinsk region.
CHELINDBANK has 6 branches in Chelyabinsk and 22 branches in Chelyabinsk region, the Bank has opened 16 subsidiary offices and 13 operational cash offices. The Bank has its representative offices in Moscow and Zlatoust. In 2005 the Bank has opened its branch in Yekaterinburg.
3 The considerable economic potential of Chelyabinsk region attracts the banks from other regions. The development of the banking sector in 2007 was characterized by expansion of the banking network, further development of the resource base and volumes of lending. In spite of the high level of competitiveness the banks from other regions actively open their branches and representative offices both in Chelyabinsk and Chelyabinsk region. The number of such branches and representative offices grew by 11 in 2007, the number of credit and cash offices – by 20. In 2007 the following banks opened their branches in Chelyabinsk: Sverdlovsky Gubernsky Bank, Econatsbank (the National Bank for Environment Protection, Moscow); Investitsionniy Capital Bank (Ufa), Elektronika Bank (Moscow), Universal Bank (Pervouralsk, Sverdlovsky region); Moscow Capital Bank, Rus- Bank (Moscow), Moscow Bank for Reconstruction and Development, Absolut Bank, Bank 24.ru. Besides, some of the banks from other regions opened their branches in the cities of Chelyabinsk region: “My Bank. Mortgage” (Ufa) in Magnitogorsk, Raiffeisenbank – in Zlatoust.
In 2007 the number of banking service points increased by 125. In general, there were 809 banking service points by the end of 2007, 219 of which belong to regional banks, 263 – to the banks from other regions, 327 – to the Savings Bank of Russia (Sberbank). The regional credit institutions was reduced by 1. In August 2007, “Dorozhnik” Bank joined AKB “Stroyinvestbank” (Kaliningrad). Thus, there are 11 regional banks working in the region for the moment.
Despite high competitiveness in the regional market of banking services and world liquidity crisis that happened in the second half of the year, CHELINDBANK continued its positive development in the main fields of banking business. The results of 2007 justify its stable development and retention of position of the major bank in Chelyabinsk region.
In 2007 the own capital of the Bank grew by 20.3% and comprised 3.2 bln rubles as of 01.01.2008. The share capital increased by 208 mln rubles and totaled 808 mln rubles. The assets of the Bank increased by 17.9% and reached 19.6 bln (published statement) rubles as of 01.01.2008; the capital adequacy normative was equal to 18.7%.
4 Pic. 2. Assets and Capital
3500 19 630,2 20 000,0
3 220 18 000,0 3000 16 636,7 16 000,0
2 675,6 2500 14 000,0
12 185,4 12 000,0 2000 10 000,0 1500 7 976,7 8 000,0 1332,3 1000 6 291,6 6 000,0 1054,5 808,6 804,4 600 4 000,0 500 400 300 200 2 000,0
0 0,0 2003 2004 2005 2006 2007
Equity, mln.RUR Share Capital, mln.RUR Assets, mln.RUR
The amount of funds on the accounts of the Clients increased by 2.8 bln rubles (or more than by 22%) since the beginning of the year and comprised 15.4 bln rubles as of 01.01.2008 including personal funds – 9.7 bln rubles. The biggest gain of personal funds was reached due to increase of personal time deposits. The personal deposits with a term of more than 1 year grew by 75%. The loan portfolio of the Bank was equal to 13.1 bln rubles including corporate loans – 8.6 bln rubles. The level of the arrears totaled 4.3% of the customers’ loan portfolio with the reserve level of 7.3%. The balance sheet profit of the Bank for the year comprised 323 mln rubles (2006 – 306 mln rubles), the profitability of assets was equal to 2.45%; profitability of the capital – 15.73%. The achievements of the Bank have been confirmed by the Russian banking ratings and distinguished by the banking society. CHELINDBANK is the only bank in Chelyabinsk region that was included into the list of top 100 Russian banks by assets and capital by different information agencies.
CHELINDBANK is ranked as the 100th by assets and as the 84th by own capital in the Interfax-100 ranking made upon the results of performance of the major Russian banks in 2007.
According to RosBuisinessConsulting data made upon the results of 2007 CHELINDBANK is ranked as follows among 1000 Russian commercial banks: : 98th by the amount of net assets, 67th by volume of private loans,
5 49th by volume of personal funds, 106th by corporate loans.
CHELINDBANK is ranked as the 97th in the list of “Major Banks of Russia by Own Funds” (as of 01.01.2007) published by “Kommersant” publishing house in their special issue “Ъ- First Rating”
In accordance with “Expert-Ural” magazine data CHELINDBANK is ranked as 6th upon the results of 2007 among the banks of the Urals region by the amount of private deposits and consumer loans, 7th – by assets, 8th – by the amount of corporate loan portfolio and 9th – by the amount of corporate funds.
CHELINDBANK is ranked as the 1st bank among the independent banks of Chelyabinsk region as of 01.01.2008 by the amount of assets and own capital, and 1-2nd – by the performance in the main banking fields: credit investments, attracted funds of Clients, number of cards issued, total number of card transactions.
Sberbank, Chelyabinvestbank and branches of major Moscow and Yekaterinburg banks are the main competitors of CHELINDBANK in Chelyabinsk region.
In May 2007, CHELINDBANK was awarded to be the winner of “Bankovskoe delo” -2007 Prize as the Best Regional Bank. The founders of the Prize are “Bankovskoe Delo” magazine, National Banking Academy, “Agenstvo Informbank” together with Association of Regional Banks of Russia, Russian Union of Industrialists and Entrepreneurs and European Economic Chamber of Trade, Commerce and Industry.
Independent National Agency Rus-Rating confirmed a short-term rating for CHELINDBANK – BB-, forecast: stable.
II. PRIORITIES OF CHELINDBANK’S PERFORMANCE
In July 2006 the Board of Directors of CHELINDBANK approved the Conception for Development of CHELINDBANK for 2006-2010, the Main Areas of the Bank’s Performance and Product and Market Development Strategies for 2006-2007.
In accordance with the Conception, the main objective of CHELINDBANK for the period till 2010 is improvement of efficiency of the banking performance due to providing high-quality banking services to enterprises, companies and their employees, sole traders and private customers in the Urals region.
It is expected that by the end of 2010 the assets of the Bank will exceed 35 bln rubles, and the ownership capital of the Bank will comprise not less than 5 bln rubles. The annual profitability of assets pursuant to balance sheet profit is foreseen on the level that is not
6 less than 1.5%, own capital – not less than 10%. Non-distributed profit and revaluation of fixed assets will become the basics for adequate increase of the ownership capital.
Quality, speed, processability of services shall be the final goal for arrangement of business processes in the Bank and provide Customers with a 24-hour access to information and services. Customers shall be serviced by any branch or subsidiary office of the Bank irrespective of the place of account opening. The Bank offers to increase number of sales points in the Chelyabinsk region, and develop Customers service network outside the region, mainly in the Urals.
The main Customers’ values are created by the Bank personnel, that is why the Bank is increasing level of their education and loyalty. The personnel skills are the main development factors, and their work is paid according to personal contribution of each employee to the process of achieving goals.
To achieve the stated goals the Bank shall substantially expand partnership relations with international financial organizations, banks, and strategic alliances with other companies for the purposes of getting access to new opportunities.
The Bank shall strengthen and develop its current competitive advantages that are Customers trust, affordable services for a wide range of Customers, high service culture and decision-making efficiency.
In accordance with the Bank’s Main Areas of Performance for 2006-2007 the following fields of the Bank’s performance are considered to be priorities in 2007:
Save and improve positions of one of the major universal banks of the Urals region. Ensure high growth rates of assets and capital of the Bank provided that the profitability of the Bank’s performance will meet the requirements for the risks level. Implement modern methods of communication with customers, improve customer service technologies, and strengthen customer-oriented approaches in the Bank’s performance through development of corresponding departments. Develop all kinds of lending including corporate lending, leasing, small business and private lending. Develop time resource base by attracting private and corporate deposits, funds of international financial institutions, bonds issue. Develop modern banking services including non-cash settlements, emission and acquiring of international VISA cards, foreign economic activity services, and investment banking for the purposes of creating complex services for customers and increasing non-interest income of the Bank. Develop banking technologies and informational systems of the Bank. Improve organizational structure of the bank, develop customer service network. 7 Improve management systems including corporate governance, strategic and budget planning, risk management systems and internal control systems. Improve professional skills of the staff, efficiency of their labor, and perfect the motivation methods Develop cooperation with the Bank’s business partners. Develop CHELINDBANK’s brand name as a major, reliable Bank with modern customer service technologies.
III. REPORT ON RESULTS OF CHELINDBANK’S DEVELOPMENT IN PRIORITY AREAS CHELINDBANK provides the whole range of banking services. CHELINDBANK’s performance is enough diversified. The licenses acquired by the Bank and implemented technologies give the Bank opportunity to provide its customers with various services. In accordance with recommendations of PriceWaterhouseCoopers consultants, for the purposes of increasing the Bank’s competitiveness, the management of the Bank took a decision to distinguish Corporate and Retail Blocks in the Head Office’s structure in 2007. To implement the policy of the Bank, Retail Sales Department and Marketing and Corporate Business Department were created in the Bank. These departments fulfill marketing researches of the related markets, monitor customers to define whether they are satisfied with the quality of banking service, work out and implement new products and services, improve the rate system of the Bank. The main goal of these structural changes is to provide constant growth of volumes and number of sales of banking products and services, to develop completely new approaches in the customer care field.
There are more than 22 thousand accounts opened in CHELINDBANK by enterprises and companies, and more than 1 million private accounts. The gain of the account balances comprised 22.2% in 2007 including corporate accounts – 15.8%, private accounts -26.3%. The basics of the resource base of the Bank are private funds that are more than 60% of attracted funds.
8
Piс.3. Balances on the Customers’ Accounts
mln. 15 374 RUR 12 585 13 000
11 000 9 652
8 579
9 000 7 644
6 189 7 000 4 964 5 300
5 000 3 729 2 815
3 000
1 000 2003 2004 2005 2006 2007
Individual Customers Accounts Corporate Accounts Total
CORPORATE BUSINESS
CHELINDBANK provides financial services to corporate customers from different spheres of economy, with different types of property and volumes of operation. Corporate customers of CHELINDBANK are companies that belong to defense complex, ferrous and non-ferrous metallurgy, chemical industry, machine building, food industry, travel and trade companies, educational and other companies.
The product line of CHELINDBANK takes into account requirements of corporate customers. The Bank’s specialists develop services and rates for different groups of clients on an individual basis. These services are then included into the standard product line. Most of the Bank’s customers use complex banking services that include cash and settlement services, lending, deposits, foreign currency services and “salary projects”.
The cash and settlement services (CSS) are traditional type of operations in the corporate block. The Bank deals with CSS for corporate customers both in Russian and foreign currency. Time and technological efficiency of CSS is achieved due to using distant banking systems – “Client+Bank” or “Client+Bank Online”
In 2007 78% of settlements done by the corporate customers were done with the help of distant banking systems (DBS). The specialists of the Bank have developed a special model that allows to combine “1C” accounting system with DBS. This module is transferred to the customers together with DBS.
9 Corporate lending is also a traditional type of CHELINDBANK’s performance. The corporate loan portfolio was equal to 7.7 bln rubles as of 01.01.2008. The Bank provided more than 3 thousand loans to companies that belong to different industries.
Рic 4. Loan Portfolio Structure
13%
28% 59%
Loans to Corporate Customers Retail Loans SME Loans
There are two programs worked out for small business lending: loans for business development and unsecured loans. There are 6 thousand loans for amount of 1.7 bln rubles that have been disbursed within the program as of 01.01.2008. In future it is supposed that the growth of the number of loans for business development will happen because of the increase of the amount of unsecured loans, and enlarging the terms of the loans for business development and private needs of entrepreneurs.
10 Pic. 5 Small Business Lending
8000 1800 7257 1 662 1600 7000 6566 1400 6000 1 457 5 807 1200 5000 1000 4000 3845 924 800 3000 600 2056 508 2000 400
241 1000 200
0 0 2003 2004 2005 2006 2007 Number of Loan Agreements Volume of Loans, mln.RUR
ChelIndLeasing, a subsidiary of the Bank, is also successfully developing. ChelIndLeasing enters into leasing contracts for purchase of automobiles and trucks, buses, industrial machines and special equipment and real estate. In 2007, the Bank founded ChelIndLeasing-Plus, a leasing company with a simplified taxation scheme, that gave the company new advantages in the leasing market. As of 01.01.2008 the group of theses companies has entered into 709 leasing contracts for the total amount of 2.1 bln rubles.
In 2007 CHELINDBANK continued its active development in the foreign economic activity services – foreign currency control, conversion deals, foreign currency transfers, documentary operations, trade financing.
The Bank offers to its customers a wide range of trade financing services: • Direct lending for export/import contracts; • Confirmed letters of credit with delay of payment; • Documentary letters of credit with post-financing;
As of 01.01.2008 the amount of credit lines set by foreign banks and financial institutions for the Bank comprised $ 28 mln. The usage of such financial tools gives the customers an opportunity to make their costs for payment for foreign contracts considerably cheaper in comparison with the usual loans. By the end of 2007 the total number of trade financing operations for new deals totaled 18, the total amount of these operations was equal $13.9 mln. Besides, the Bank financed the contracts of the customers with the companies from Kazakhstan, China and representative offices of foreign companies in Russia. 11 The presence of Settlement Centre, wide correspondent net, participation in the international SWIFT payment system, automatic systems for payment processing allows fulfilling the customers’ orders in short terms, to different countries of the world and with favorable rates. At the moment the correspondent network of the Bank consists of 237 correspondent banks in more than 30 countries of the world.
The Bank pays an important attention to consulting and training of the customers in terms of currency control both on individual basis and within the special workshops. The Bank is actively using “Client+Bank” system for making passports of deals, and this is a unique product that has high demand among the customers.
The Bank’s employees take part in the meetings, workshops and advertising campaigns with their customers on a regular basis. In April 2007, CHELINDBANK together with the partners arranged an advertising campaign called “Make a Present to Yourself”. Within this campaign the attendants got acquainted with interesting offers and products of the Bank’s partners – travel agencies, car dealers, building and insurance companies. The Bank’s specialists told the attendants of this event about lending services of the Bank. All attendants of the event got a special coupon that allows to obtain an additional discount for consumer loan that could be taken in the Bank. In October 2007, the Bank’s employees took part in travel and tourist exhibitions that was held in Miass, Magnitogorsk and Snezhinsk. “West Travel” travel agency, that is also the Bank’s customer, was an organizer of these exhibitions.
Thus, the principles of cooperation with corporate customers are the following: compliance of services provided by the Bank with the requirements and needs of the customers; individual approach that takes into account the specifics of industry and volumes of customers’ business; complex services; partnership relations.
RETAIL BUSINESS Development of services in the retail market is still one of the most important parts of the Bank’s business. The growth rates of funds on private accounts for 2007 in CHELINDBANK comprised 26.3%. The main gain of the private funds in the Bank is achieved because of increase of private deposits, specifically private deposits with a term of one year and more. The total share of these deposits is equal to 62% of the total amount of private funds as of 01.01.2008.
12 Pic.6 Private Funds
10 000 9 652
9 000
7 644 8 000 7 563
7 000
5 686 6 000 5 300
5 000 3 984 3 729 4 000 2 815 3 000 2 078 1 699 2 000 1 258 1 135 886 624 1 000 454
0 2003 2004 2005 2006 2007 Personal Accounts Total, mln.RUR Time Deposits, mln.RUR Card Accounts, mln.RUR
The product line of deposits in CHELINDBANK is represented by deposits in three main currencies – Russian ruble, dollar and euro. The Bank offers deposits with different conditions for accrual of interests and terms of storage, and “pension deposits”. The specialist of the Bank deal with permanent monitoring of the deposit market, make questionnaires of the customers, and then, on the basis of thorough analysis, they work out and offer competitive terms and conditions for placing deposits in the Bank. In 2007, there were several advertising campaigns for depositors. There was a special prize drawings within the campaigns called “New Year Primera” (the prize was Nissan Primera) and “Summer 2007”. A new campaign called “The world is in the Palm” was started in 2007. Accounts receivable of private individuals for retail loans comprised 3.7 bln rubles as of 01.01.2008. The Bank has worked out and successfully implemented various programs of private lending: consumer loans, car loans, salary project loans (including credit cards) and mortgage loans.
13
Pic.7 Retail Loans Portfolio Structure
9%
15%
56%
20%
Consumer Loans Auto Loans Mortgage Loans Loans under Salaries Projects
CHELINDBANK is actively developing both own and partnership mortgage programs. The Bank and the European Bank for Reconstruction and Development (EBRD) entered into a 140 mln rubles loan agreement for 7 years for financing mortgage loans. Together with the funds, the EBRD provided consulting services in the field of mortgage loans. CHELINDBANK has also entered into cooperation agreement with ZAO KB Delta Bank, and South-Urals Agency for Mortgage Residual Lending. These agreements allowed the Bank to significantly expand its mortgage product line and take into account all needs of its customers.
Last year the Bank continued developing “Private Payments System”. This service is implemented by the Bank on the basis of the program module – Private Payments System (PPS). In 2007, new companies providing services in Chelyabinsk and Chelyabinsk region, joined the PPS. The PPS allows fulfilling settlements with the service provider at the very day when the payment was made; the payment can be made in any direction including the possibility to make the payments in favor of the company that has no agreements with the Bank. Those customers who got a loan in the Bank are allowed to repay their loans through this system. Also, the customers of the Bank can repay their loans through “Client+Bank Online”, mobile phone or ATM.
The Bank is actively developing and expanding the range of services including usage of VISA cards. The Bank issues several types of cards that are aimed for different categories 14 of the customers: VISA Classic, VISA Gold, Visa Electron, VISA Business. In 2007 the Bank started the project of issuing co-branding card – “VISA Electron – Transport Card of Chelyabinsker” that can be used not only for cash withdrawals and payments at the shops, but also for payments in the public transport. Together with several companies – customers of the Bank – the Bank successfully launched a “Local “Bon Appetit” Card project. These “Bon Appetit” cards are used for payments in the canteens of the factories and plants. As of 01.01.2008 the Bank issued more than 336 thousand VISA cards, the card balances has increased by 35.6% since the beginning of the year and totaled 1.7 bln rubles.
Pic.8 Dynamics of issue and balances of VISA card accounts
400 000 1800
1 694 1600 350 000 336 848
300 774 1400 300 000
1 249 1200 250 000 239 214
1000
200 000 911 169 000 800
150 000 600 567 103 985 100 000 400 377
50 000 200 2003 2004 2005 2006 2007
Number of Cards Balances on Accounts, mln.RUR
The Bank entered into 2000 agreements with enterprises for transfer of salary of the staff to the Bank’s cards. The Bank’s own infrastructure of VISA cards service includes 111 ATMs in Chelyabinsk and Chelyabinsk region, and 429 electronic terminals in the commercial network.
CHELINDBANK customers took part in several advertising campaigns. The participants of the campaigns were the Bank’s customers who paid for goods and services by VISA cards.
The volumes of such services as money transfer, foreign exchange, values deposit in individual safe boxes are growing.
CHELINDBANK fulfils money transfer both within its correspondent network and through international and Russian money transfer systems. The Bank is actively cooperating with
15 international Western Union system. At the moment there are Western Union points in all branches and subsidiary offices of the Bank. In 2007, CHELINDBANK started to make money transfers through CIS and Baltic states by MIGOM, the Russian money transfer system. To promote money transfer services the Bank arranges different advertising campaigns with discounts and prize drawing on a permanent basis.
In December 2007 CHELINDBANK became a partner and participant of the project called “The Financial Days of the Big City in Chelyabinsk” – a number of informational workshops about personal financial management. The workshops were divided into two topics: private investment and loans. The specialists from different banks told people about the stock market, investment services, mortgage and other loans, answered to their questions. Beginning from October 2007 there was a TV program called “Money of Chelyabinsk” broadcasted on local channels – “Vostochniy Express” and “Zvezda” with the weekly reviews of the Russian stock market prepared by the Securities Department of CHELINDBANK. The reviews are manly aimed at private investors who can get an up to date information about dynamics of the stock indices, corporate news and last tendencies of the market.
CHELINDBANK is an active member of the securities market. The own investments of the bank into the trade securities were equal to 2.1 bln rubles as of 01.01.2008. All operations with securities including brokerage services is done from the distant working place of the Moscow International Currency Exchange (MICEX) that allows making and confirming deals in seconds. In December 2007 CHELINDBANK became a member of the time market section of the Stock Exchange of the MICEX. Government liabilities comprise the basis of the securities portfolio of the Bank (64%). Besides liabilities of the Russian Federation, the portfolio of bonds is represented by liabilities of the banks, companies and subjects of the Russian Federation. About 5% of the securities portfolio is invested into the shares of different issuers.
16 Pic. 9 Structure of the Securities Portfolio
5,5%
30,4%
64,1%
Government Bonds Bonds of Other Issuers Shares
The Bank provides brokerage services since 1996. This service is provided both to corporate and private customers. To improve quality of brokerage services and to expand possibilities of the customers there is a trade room opened at the Transportny branch of the Bank that allows customers dealing with operations on the stock market online.
To expand the channels of access to services provided by the Bank to customers, the Bank started two projects: “New Office” and “Creation of the Common Centre for Processing Operations”. The primary objective of the “New Office” project is creation of the 24 hour automatic customer service system for private individuals in the Head Office. The goal of the second project is concentration of all supporting operations of the Bank in a single department. Implementation of the Common Centre project will help to reduce labor costs for processing these operations of the Bank, will improve collaboration with the customers due to transfer of supporting functions from the customer service departments. In 2007, modernization of the Bank’s processing centre was started. It includes installation of the new software for VISA card transactions and ATMs. In 2008 these works will be continued. The goal of this work is to increase capacities of the processing centre, improve quality of its operation and to ensure possibilities for expansion of the customers’ network (connection of new ATMs, terminals and expansion of their functions).
To improve the internal control systems, in accordance with the requirements of informational security there is an annual evaluation of the informational security systems of the Bank. During regular checks in the Bank’s departments the Internal Control Service
17 evaluates reliability and efficiency of the technological processes. The first stage of implementing the system of electronic audit of the branches has been completed. The system includes distant monitoring of fulfillment of the Board and Credit Committee decisions including control over compliance with the requirements to disbursement of the loans. To reduce credit risk that is a basis in performance of the Russian banks, in 2007 the Legal Support Department was created in the Bank. The functions of this department include evaluation and sale of pledges, debt settlement, and collection of debts. To improve skills of the staff for the purposes of increasing the level of customer service, the Bank created a training centre for personnel, the main goal of which is to teach the employees of the Bank technologies of the corporate and retail product sales.
To increase the level of informational cooperation with the customers CHELINDBANK has introduced a position of a press-secretary. The main tasks of press-secretary: - to keep positive informational background of the Bank’s performance; - to manage information designated for publishing in the mass media; - to provide effective cooperation with the mass media in critical situations for the Bank.
In 2007, there were more than 40 articles published in mass media about performance, products and services of the Bank. “The Expert Pool” consisting of the Bank’s specialists and managers continued its performance. There were more than 60 newsletters prepared about the Bank’s performance. On the basis of the newsletters and articles sent to the Branches there were about 60 informational materials published in the cities of the Bank’s presence.
In 2007, there was an Inspection check of CHELINDBANK made by the Head Office of the Bank of Russia for Chelyabinsk Region. It was stated in the summary of the check that the quality of the management of the Bank, internal control system, risk management is generally in compliance with the character and scale of performance of the credit institution.
The Act of Check points out positive results of the Bank’s performance in the field of anti- money laundering and terrorism financing. The measures taken in 2006 to improve the control over suspicious operations, promissory notes operations, limits for cash withdrawals and stiffening of the rate policy let to significant reduction of groundless big cash withdrawals and elimination of the doubtful customers.
18 IV. PERSPECTIVES OF CHELINDBANK’S DEVELOPMENT
The Board of Directors of CHELINDBANK approved Main Areas of the Bank’s Development for 2008-2010 in March 2008. This document is worked out in accordance with the Bank’s Development Conception for 2006-2010.
The main areas of the Bank’s performance in 2008 are defined as follows:
1. Retention and further expansion of the customers’ database of the Bank both of corporate clients and sole traders not less than by 10% per year. Customer services of the Bank shall investigate customers’ opinion on a regular basis to reveal the needs of the customers for the purposes of providing them with a wider range of services. To attract new customers the Bank will develop a system of revealing potential target clients and planning of work for their attraction.
2. In 2008, the Bank is planning to have a dynamic growth of the loan portfolio – the growth rate of the loans shall comprise not less than 30%. The main run-up of the loan portfolio shall happen due to individual loans. The increase of the retail loans provided to private customers by 2 bln rubles shall be first of all done because of different kinds of credit services provided to the staff of those companies have already become the participants of the Bank’s salary projects.
3. Personal deposits will be the main source for increase of credit operations, the gain of deposits shall comprise not less than 20% in 2008. The Bank plans to increase the volumes of deposits by means of attractive interest rates, convenience of service, and various advertising campaigns.
4. In 2008, the Bank is going to continue further development of services for private customers: private payments system, money transfers without an account opening, VISA cards services.
5. In 2008, the Bank will pay significant attention to improvement of banking technologies that will be primarily aimed at improvement of customer service quality – reliability of operations, non-stop work of payment systems, reduction of customer service time, expansion of channels of access to service provided by the Bank.
6. A significant growth of balance sheet profit shall become the result of dynamic development of the bank. The growth shall be more than 2 times in comparison with 2007 that will allow considerably increasing figures of efficient performance of the Bank.
19 V. REPORT ON ANNOUNCED (ACCRUED) DIVIDEND PAYMENT FOR CHELINDBANK’S SHARES
The General Annual Shareholders’ Meeting that was held on May 24, 2007 took a decision to accrue dividends upon the results of the Bank’s performance in 2006 as follows: 6 kopecks per 1 ordinary share and 15 kopecks per 1 preferred share. The dividends in the mentioned amount were accrued and paid on June 7, 2007. The amount of 36267.3 thousand rubles of the net profit of the Bank was used for dividend payment.
The Bank is going to stick to open informational policy and main principles of corporate governance in relations with its shareholders. It is expected that the Bank will use not less than 10% of the net annual profit for dividend payment.
VI. LIST OF THE MAIN RISKS IN CHELINDBANK’S ACTIVITY Financial markets become more and more complicated that leads to necessity to make corresponding amendments in the activity of the Bank. An adequate answer will be creation of the entire management and limitation systems for the risks taken by the Bank. The main objective of the risk management in the Bank is maintenance of the risk on the level that doesn’t danger interests of creditors (including depositors) and shareholders of the Bank that supposes matching of the risks taken by the Bank with the amount and structure of the capital.
Independent and complex approach to risk management in the Bank is ensured by the Risk Management Department. The Bank manages the following types of risks: credit risk, market risk, liquidity risk, general interest risk, operational risk, legal risk, and risk of loss of business reputation. The risk management process consists of identification, evaluation and control of the risks taken by the Bank. At the stage of identification, the events that have led to the risk are identified. At the stage of evaluation, the amounts of expected and unexpected loss are evaluated. The stage of control consists of setting limit system and other restrictions related to Bank’s actions, and control over their fulfillment. In terms of risk management system improvements the Bank has worked out and approved the following documents: the General Risk Management Manual, the Operational Risk Management Principles, the Risk Management Policy for Plastic Card Operations (issue and acquiring of plastic cards), the Regulations for Organization of Control over Banking Risks. There are also changes and amendments being made into existing internal documents of the Bank that regulate management of credit, liquidity and market risks.
Main areas of the Bank’s performance in terms of risk management will be as follows: - perfection of risk evaluation process, including: credit risks – testing and implementation of credit ratings for evaluation of individual borrowers; market risks – development of values on the basis of VAR-models; 20 operational risks – creation of values on the basis of collection and analysis of the data; development and implementation of indicators of operational risks; - further automation and improvement of procedures for control over fulfillment of risk limits; - support for implementation of new banking products and services with adequate evaluation and risk limitation procedures. In terms of liquidity risk management improvements, the Bank is going to use various refinancing opportunities offered by the Bank of Russia.
VII. LIST OF MAJOR DEALS In 2007 CHELINDBANK made no deals that a considered to be “major deals” in accordance with the Federal Law “On Joint-Stock Companies”, or other deals, which require approval of the major deal with the note about the main conditions of each deal in accordance with the Bank Statute.
VIII. LIST OF DEALS WITH INTEREST
During the accounting year the members of the Bank’s Board and the Board of Directors made 19 deals, which contained an interest, for the total amount of 20564.8 thousand rubles. The deals (receipt of the loan, credit card, making pledge for the loan) were done on the market condition after their approval by the Board of Directors of the Bank.
Also, in November 2007, there were 14 deals that contained an interest. Among them: 7 deals connected with the purchase by subscription of the ordinary shares of the Bank comprising more than 2% of the earlier issued ordinary shares for the total amount of 147500.9 thousand rubles and 7 mutually joint deals connected with the purchase by subscription of the ordinary shares of the Bank comprising more than 2% of the earlier issued shares for the total amount of 201596.2 thousand rubles.
The approval of the deals is done by the General Annual Shareholders’ Meeting, Minutes No. 18 dtd 01.06.2007.
IX. MEMBERS OF THE BOARD OF DIRECTORS Members of the Board of Directors of the Bank are stated in Exhibit No.1 to the Annual Report. X. INFORMATION ABOUT MEMBERS OF THE BOARD Information about General Director of the Bank and the Board members are stated in Exhibit No.2 to the Annual Report.
XI. CRITERIA OF DEFINITION AND TOTAL AMOUNT OF REMUNERATION PAID TO THE MEMBERS OF MANAGEMENT BODIES OF THE BANK The total amount of remuneration and compensations paid to the external members of the Board of Directors for the last year was approved by the General Shareholders’ Meeting dtd May 24 , 2007 and comprised 438.8 thousand. The total amount paid to the staff
21 members of the Board of Directors of the Bank (including General Director) comprised 27254.3 thousand rubles. The total amount paid to the members of the Board for 2007 comprised 42586 thousand rubles.
XII. CORPORATE GOVERNANCE CODE OF CHELINDBANK, COMPLIANCE DATA
The first edition of the Corporate Governance Code of CHELINDBANK (Code) was approved in 2004. The Code is worked out and improved in accordance with the following documents: - Federal Law “On Joint-Stock Companies”, - Recommendations of the Basle Committee for Banking Supervision “Improvement of corporate governance in the credit institutions”, - Recommendations of the Bank of Russia “On modern approaches to organization of corporate governance in credit institutions”, - Recommendations of banking associations
In accordance with the Code the main principles of corporate governance implemented in CHELINDBANK are the following: 1. Providing shareholders with real opportunity to fulfill their rights related to their participation in the Bank. 2. Equal treatment of shareholders that own equal number of shares of one type (category). 3. Providing the Board of Directors with the opportunity to fulfill strategic management of the Bank, effective control over executive bodies of the Bank, and reporting of the members of the Board of Directors to the Bank’s shareholders. 4. Reasonable, fair and effective management of daily activity fulfilled by the executive bodies of the Bank, and reporting of the executive bodies to the Board of Directors and shareholders of the Bank. 5. Prompt disclose of full and genuine information about the Bank, including its financial standing, economic figures, significant events, structure of ownership and management for the purposes of providing shareholders and customers of the Bank with the opportunity to take grounded decisions. 6. Active cooperation of the Bank with its shareholders, customers, partners and employees to increase the assets of the Bank, income from banking operations and retention of profitability. 7. Efficient control over administrative activity of the Bank to protect the rights and legal interests of shareholders and customers of the Bank.
Compliance with the Code is aimed at achievement of mutual understanding between all parties interested in the effective performance of the Bank: shareholders, customers, partners, and employees. The principles that constitute the corporate governance system and informational transparency of the Bank contribute to strengthening of shareholders’ and customers’ trust to the management of the Bank.
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Provision of shareholders with real opportunity to fulfill their rights related to their participation in the Bank’s ownership, and equal treatment of shareholders that own equal number of shares of one type (category) are the main principles of the Bank’s corporate governance.
In accordance with the decision about increase of the share capital of the Bank (General Annual Shareholders’ Meeting, Minutes N18 dtd 01.06.2007), in 2007, there was a private subscription among all shareholders of the Bank, owners of ordinary shares that were allowed to purchase an integral number of the placed shares in proportion with the number of ordinary shares they owned.
Two independent directors continued to perform their duties as members of the Board of Directors of the Bank in 2007. In July, the following permanent committees of the Board of Directors were established: strategic planning committee, audit and risk management committee, and social policy committee. The main task of these committees is to ensure efficient implementation of the most significant managing and controlling functions of the Board of Directors in the areas that are most important for successful development of the Bank. The means that can be used by the committees are the following: preliminary consideration of some questions that are under competence of the Board of Directors, preparation of recommendations to the Board of Directors pursuant to these questions; permanent control on behalf of the Board of Directors over the performance of the executive bodies of the Bank in the most important areas.
To increase efficiency and quality of performance of the Board of Directors, to provide the members of the Board of Directors with the fullest possible opportunities for managing the Bank and controlling over executive bodies of the Bank, the Regulations for Remuneration and Compensations for Members of the Board of Directors were approved in April, 2007.
In accordance with the requirements of the existing law, there was a prompt disclosure of full and genuine information about the Bank in 2007, including information about its financial standing, economic figures, significant events, ownership and management structure for the purposes of providing shareholders and customers of the Bank with the opportunity to take grounded decisions.
Therefore, improvement of the corporate governance system in the Bank requires providing all shareholders of the Bank with equal rights, observation of their interests, prompt and full disclosure of information about the Bank’s performance in accordance with the legal requirements, and implementation of active communication policy. Full observation of rights and interests of all the parties allows, in its turn, to provide the best achievement of the strategic goals of CHELINDBANK’s development.
23 Exhibit No.1
CHELINDBANK Council of Directors
Chairman Alexandr Vasilievich DOLININ Assistant Professor Trekhgorny Technological Institute MIFI
Deputy Chairman Yaroslav Ivanovich CHABAN Council Chairman, OJSC “Kopeisk Machine Building Factory” Chairman, Audit and Risk Management Committee of the Supervisory Council, “Chelindbank”
Council Members:
Vladimir Mikhailovich ANDRIUSCHENKO Deputy General Director, “Chelindbank” Chairman, Social Policy Committee of the Supervisory Council, “Chelindbank”
Luiza Nikolaevna BAIL Consultant, “Chelindbank” Chairman, Strategic Development Committee of the Supervisory Council, “Chelindbank”
Mikhail Ivanovich BRATISHKIN General Director “Chelindbank”
Tatyana Vasilyevna KHRABRYKH Head of Law Compliance Department, “Chelindbank”
Zoya Ivanovna KOSHALKO Consultant, “Chelindbank”
Sergey Ivanovich KUBITSKIY Rector, Urals Social and Economical Institute Independent Director, “Chelindbank”
Vadim Georgievich KUZMIN Council Chairman, JSC “Kyshtym Mineral Refinery Plant” Director, “Quartz GOK”, LLC General Director, OOO “NPP – Inco”
Oleg Nikolaevich MISHIN Head of Organizational and Analytical Division “Chelindbank”
Andrey Yurievich SHATIN Rector, Chelyabinsk State University Independent Director, “Chelindbank”
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Exhibit No.2
CHELINDBANK Management Board
Chairman Mikhail Ivanovich BRATISHKIN General Director CHELINDBANK
Board Members: Stanislav Vladimirovich ANDRIUSCHENKO Deputy General Director “Chelindbank”
Sergey Victorovich BAIL Deputy General Director “Chelindbank”
Tatyana Petrovna KOSOVSKAYA Deputy General Director “Chelindbank”
Vera Vitaljevna KLEPIKOVA Chief Accountant – Head Accounting Division “Chelindbank”
Liubov Nikolaevna LITVINENKO Deputy General Director “Chelindbank”
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