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contents

EURASIAN BANK HIGHLIGHTS...... 3

LETTER FROM THE CHIEF EXECUTIVE OFFICER ...... 5 the MANAGEMENT TEAM...... 8 5-YEAR SELECTED IFRS CONSOLIDATED FINANCIALS ...... 10

.. . SUMMARY OF CONSOLIDATED PERFORMANCE ...... 13. 1 Market environment...... 13 BUSINESS SEGMENTS...... 16

.. . FINANCIAL STATEMENTS HIGHLIGHTS...... 25. 2 STATEMENT OF INCOME 2012 VS. 2011...... 25 BALANCE SHEET 2012 VS 2011...... 28 up STATEMENT OF INCOME 2011 VS. 2010...... 36 BALANCE SHEET 2011 VS 2010...... 40

.. . RECENT DEVELOPMENTS...... 49. 3 RECENT DEVELOPMENTS ...... 49 CORPORATE GOVERNANCE ...... 50 Management Team...... 51

. .. . RISK MANAGEMENT...... 65 4 RISK MANAGEMENT Structure...... 65 FORWARD LOOKING STATEMENTS...... 71

.. . CONSOLIDATED FINANCIAL STATEMENTS...... 73 5 CONSOLIDATED FINANCIAL STATEMENTS ...... 73 2012 COMPANY INFORMATION ...... 134 steps annual report 2012 the annual report 2012 3 2 up

Financial figures in this annual report are EURASIAN BANK as well as the rest of the country. The 2011 ac- taken from the corresponding year’s audited HIGHLIGHTS quisition of the consumer lender ProstoCredit gave the Bank the strong platform that has led consolidated financial statements and their >>JSC Eurasian Bank is a Kazakhstan bank offer- to it becoming a leading consumer lender in accompanying notes. In the management ing corporate, SME and retail banking services to Kazakhstan. Commercial banking is focused on discussion, numbers may be rounded, or its clients. Eurasian Bank ended 2012 as the 10th Natural Resources, Energy and Power, Transport largest bank in Kazakhstan by assets, with 3.4% and Agriculture. The Bank has a small presence represented graphically. Totals and percent of banking sector assets. Eurasian Bank’s activi- in Russia to assist Kazakhstan corporates trading changes presented in the document reflect the ties are currently focused on the Almaty region, within the Customs Union. calculations of the unrounded numbers, and may be different from the calculations performed on the rounded figures. The reader should read the Key Financial Figures (KZT bln) accompanying audited financial statements and kzt bln 2009 2010 2011 2012 notes for the 2011-2012 years. Prior years audited Total Assets 321.3 356.9 369.4 470.5 Customer Loans 149.0 213.3 256.0 354.6 financial statements are available on the company Client Deposits 240.6 245.8 245.6 314.7 website (www.eubank.kz). For simplification, Equity 24.2 25.6 31.9 47.8 Management’s report presents data in millions, Operating Income 8.7 12.3 25.6 38.3 and on occasion, charts with billions of tenge. The Costs 24.4 10.9 17.5 25.2 audited financial statements are all in thousands Net Income -12.1 0.6 6.0 9.8 of tenge. In all cases, the units are stated. Total Comprehensive Income -9.7 1.4 6.3 10.0 Tier 1 Capital Adequacy Ratio (FMSC) 11.8% 9.4% 6.6% 8.0% Total Capital Adequacy Ratio (FMSC) 17.1% 14.2% 11.8% 13.0%

convenience, has been converted at the year end 2012 the National Bank of the Republic of Market Shares Kazakhstan (NBRK) official rate of 150.74 tenge Jan-10 Jan-11 Jan-12 Jan-13 to the US dollar. While the tenge tends to trade Assets 2.8% 3.0% 2.9% 3.4% in a fairly stable range against the US dollar, there was a one time devaluation from 120 tenge Customer Loans (Net) 2.0% 2.5% 2.6% 3.2% to the US dollar to 150 tenge to the US dollar in Corporate Deposits 2.3% 3.3% 3.3% 3.9% ny comparative data to the February 2009. Readers who may be converting Retail Deposits 5.1% 3.8% 2.3% 2.9% Kazakhstan banking sec- financial figures presented in the report in tenge, tor (including market shares, should be aware that data for 2009 and prior loan portfolio quality) is years is not convertible to US dollars at the 2012 Ratings drawn from official reports to rate. The data on the official rate for the tenge is International Scale National Scale Outlook the Kazakhstan financial reg- presented on the NBRK’s website (www.nation- Kz-Rating BB+ A+ Stable ulator, the Committee for the albank.kz). rating date 28-Dec-12 28-Dec-12 28-Dec-12 Control and Supervision of Forecasts and historical data for the the Financial Market and Financial Organizations Kazakhstan economy are available from multila A Foreign Local Currency National Scale Outlook of the National Bank (FMSC), and are also avail- teral organizations, such as the World Bank and Currency able in English from their website (www.afn.kz). International Monetary Fund. Historical data is Long-term Short-term Long-term Short-term Long-term All data reported to the regulator is accounted also available from the Kazakhstan Government’s Standard & Poor's B+ B B+ B kzBBB Stable under Kazakhstan GAAP on a non-consolidated official Statistical Agency, and available from basis. The numbers are not directly compara- their website (www.stat.kz). A number of domes- rating date 12-Dec-11 9-Nov-09 12-Dec-11 9-Nov-09 12-Dec-11 12-Dec-11 ble to the IFRS data for the Eurasian Bank Group tic and international financial institutions and represented in the financial statements and in the search groups make forecasts available for their Long-term Senior Subordinated Bank Financial Long-term Bank Deposits Unsecured Debt Strength Short-term Outlook management discussion. clients. Any historical economic data is based Debt Any figure recorded in tenge that has on data from the Statistical Agency, or from Moody's B1 B1 B1 B2 E+ NP Negative been converted into US dollars for the readers Government releases. rating date 9-Jul-03 24-Feb-09 30-Jun-10 18-Mar-11 9-Jul-03 9-Jul-03 24-Feb-09 steps 4 annual report 2012 the annual report 2012 LETTER FROM THE CHIEF EXECUTIVE OFFICER 5 up

LETTER FROM THE CHIEF EXECUTIVE OFFICER

Dear Shareholders, Customers and Partners, 2012 has been a year of strong results and growth

to our processes, to our systems, and leverag- ing an acquisition of a consumer finance business into a big growth engine for the organization. That acquisition, ProstoCredit, is now fully integrated into the Bank’s operations. We continue to focus our attention on improving the organization’s processes to improve profitability and his past year has been the vali- customer service, and to increase our ability to dation of a road begun in 2010. manage our risks dynamically. Our management Results in 2012 were industry team has seen the addition of three new experts leading in terms of loan and pro in their field, in Operations, in IT and in Wealth fitability growth, as well as in re- Management. Our benchmarks for efficiency, turn to shareholders. We are now customer service and risk management are not a bank with almost 5,000 em- only domestic, but also international. ployees, almost 1,900 points of Again we have outpaced our peers on many Tsale, branches in all regions of the country, and fronts: net loan growth of 39% outpaced the sec- an active client relationship with about 6% of the tor’s 7.6% growth, NPLs fell to 6.9% of the loan adult population. While our overall market share portfolio, against the 36.7% level of the sector, Michael Eggleton of the loan market is just over 3%, in retail (ex- our Net Interest Margin was 7.7% (7.0% under mortgage) we have approximately 10% of the FMSC criteria for the parent company) against Chief Executive Officer market. the sector average of 4.2% according to local Eurasian Bank April 2013 None of this would have been possible with- regulatory standards. Managing growth and loan out the hard work of the past three years, in quality means that we were able to deliver 24.7% terms of radical change to our risk management, Return on Average Equity to our shareholders steps 6 annual report 2012 the annual report 2012 LETTER FROM THE CHIEF EXECUTIVE OFFICER 7 up

Our benchmarks for excess of the interest rates that it is possible to re- efficiency, customer service ceive in the segment. We aim to keep a balanced portfolio of businesses, as this is the best way to and risk management are diversify our risks. It could be that regulatory ac- tion would lead us to reconsider our business 97 not only domestic, but also percent mix, with a view of ensuring our long-term via- international of the population is bility and return on risk adjusted capital. aware of the Bank The delicate state of the global economy does and payment terminal growth, improved pro- give us some pause for reflection. We operate in Our loan book continues to cesses, and the roll-out of debit cards to a greater an economy that is dependent on resource extrac- be of far greater quality, number of our clients. tion, particularly oil. Prolonged stagnation could While the retail segment was our fastest lead to weakness in oil consumption and prices, both in terms of NPLs and in engine of growth, we also showed Corporate which would have a dampening effect on the local the regulatory credit quality and SME growth of 19%, yet again ahead of economy. While economic growth in Kazakhstan metrics the banking sector as a whole, which had 8.9% slowed in 2012, it was still a healthy 5%, and ex- growth. Our corporate segment is in part bene pectations are for similar growth in the current fiting from our improved standing, as a result of year. Consumer spending, including in durable the performance in the past two years: we are goods appears to continue growing strongly in able to attract increasingly more attractive cor- 2013. We are confident that we can manage the porate clients. SME loan growth was slower that risks in the consumer finance business, if there is to optimizing our balance sheet structure consis- for corporates, with growth of 8%. That said, a downturn, as the short-term nature of the loans tent with our plan. the now fully operational credit scoring system in that business means that we can adjust our In spite of our above average growth and ex- meant that no Corporate or SME loan originated loan book and cost structure fairly quickly. posure to consumer lending, our loan book con- in 2012 was non-performing at year end. The We continue to focus on profitable growth. tinues to be of far greater quality, both in terms corporate segment is not only a more stable seg- The retail segment continues to grow strongly, of NPLs and in the regulatory credit quality met- ment to lend to, but it is also an important seg- though our intention to keep a balance between rics. In fact, the loan quality of the sector as a ment for longer more stable deposit funding. business segments is making us explore ways to while maintaining expenses with a Cost to whole continues to deteriorate in terms of non- To date, our funding from shareholders, capture the benefits of the growth, without hav- Income ratio of 55%. The Bank maintained its performing loans, while Eurasian Bank continues earnings and depositors has been sufficient to ing the full balance sheet impact. We believe that rating throughout the crisis, and has had from to show improvement. I keep on focusing on the fund our growth. We also have a number of we can optimize our operations to handle the in- 39 S&P a B+ rating, with a stable outlook since the loan portfolio quality of our bank, which is a di- bonds issued on the local market. We continue to creased activity levels, while delivering an im- percent upgrade in December 2011. Only two (larger) rect result of the risk management systems that evaluate the opportunities for international fund- proved customer experience. We are also focus- domestic banks have a higher rating. my management team instituted over the past ing, though due to the ongoing turmoil of the fi- ing on diversifying our product offerings, and Net loan growth of 39% outpaced the sector’s Kazakhstan’s economy has shown another three years. Without the good loan quality and nancial sector in Europe, it has been difficult to have brought in a new member of the manage- 7.6% growth year of good growth, with GDP rising by 5%. best in class soft and hard collection our rapid find funding that is more attractive than our cur- ment team to focus on approaching our wealth This is below the 7.5% growth seen in 2011. The loan portfolio growth would only be a noose rent funding base, in terms of duration and cost. management business in a way that can leverage year-on-year decrease is mostly due to the sig- around our necks. Our bank is preparing for the eventual adop- on the bank’s relationships in all segments. Also, nificant slowdown of the agricultural sector. The Our infrastructure has grown to handle the tion of new international regulatory standards, as mentioned above, we are focusing on ope growth has been driven by the service sector, rapidly growing activity levels. We now have and we feel confident that we can continue to rational efficiency and having a flexible and ef- which grew by 10% in real terms. Oil prices re- 19 branches, 99 outlets, and a total of 1,897 sales thrive under these regulations. Our credit risk ficient IT system that allows us to manage the mained firm, and oil exports rose by 2% in US points (up from 1,279 in 2011). This network system is ready for Basel II (Kazakhstan is still a Bank with real time unified information, and as dollar terms. We have seen the strength of the growth does not just help to drive our consumer Basel I environment), though our system does mentioned above, we have also brought in two service sector in our lending activity, both in the loan growth, but it has also helped us in signifi- not yet have external evaluation. On the domes- management team members for this. I believe corporate loan book and in consumer lending. cantly increasing our ability to handle the repay- tic front there is some regulatory uncertainty, as that I will be able to write to you about progress Consumer lending continues to be the driver of ment of consumer loans and other transactions there is a planned introduction of dynamic risk on these fronts next year. lending growth for the banking sector and us in-house with lower costs and greater client ser- provisioning and centralizing of other processes. in particular. Overall gross loan growth in 2012 vice quality. During the course of 2012 we went If this measure is adopted in its current form, it was 11.3% for the sector and 36% for Eurasian from handling 30% of loan payments through would appear that certain segments of business Bank, in retail lending the sector grew by 23% our branches and outlets, to 60% by the end of would no longer be attractive due to the manda- and Eurasian Bank grew by 67%. The loan the year. We believe that we will be handling tory provisioning levels (incidentally significantly Michael Eggleton growth for Eurasian Bank should moderate to about 90% of repayments by the end of the cur- higher than our loss history in recent years) that Chief Executive Officer Eurasian Bank 15-20% for future years as we have come close rent year, as a result in further network, ATM would imply risk-adjusted capital costs far in April 2013 steps 8 annual report 2012 the annual report 2012 MANAGEMENT TEAM 9 up MANAGEMENT TEAM

Talgat Romain Ayaz Bertrand Seitzhan Michael Roman Anna Hermann Nurbek Abdukhalikov Hochet Bakasov Gossart Yermekbayev Eggleton Maszczyk Bichurina Tischendorf Ayazbayev

Deputy Chairman, Managing Deputy Deputy Chairman, Deputy Chairman, Chief Executive Deputy Chairman, Deputy Chairman, Managing Deputy Chairman, Branch network Director, COO Chairman, Wealth Retail Banking Corporate Officer CRO CFO Director, CIO Treasury and ALM Management, and Consumer Business and Private and VIP Finance SME Banking steps 10 annual report 2012 the annual report 2012 5-Year Selected Ifrs Consolidated Financials 11 up

5-Year Selected Ifrs Consolidated Financials Balance sheet (KZT 000) 2008 2009 2010 2011 2012 Balance sheet (KZT 000) 2008 2009 2010 2011 2012

Cash and short-term funds 41,943,734 35,860,721 17,520,590 35,232,520 29,661,462 Net Interest Income 7,280,915 4,297,618 6,032,676 18,643,222 26,936,667

Due from Central Bank 33,429,604 45,851,865 17,934,643 5,293,405 25,258,815 Net trading income 1,348,112 1,628,117 2,460,923 3,431,257 4,105,006

Trading securities 9,725,078 5,694,992 12,149,791 2,075,510 1,262,873 Net fee & commissions income 1,312,384 2,088,876 2,752,600 3,526,202 7,924,317

Inter-bank assets 8,614,131 31,263,640 7,151,287 11,794,997 8,187,890 Other operating income/ (expense) 263,338 724,468 1,027,300 4,684 (678,699)

Short-term KZT denominated Govt. securities 10,921,691 30,635,500 63,619,696 37,564,836 28,458,800 Gross operating income 10,204,749 8,739,079 12,273,499 25,605,365 38,287,291

Liquid assets 104,634,238 149,306,718 118,376,007 91,961,268 92,829,840 Operating expenses (6,495,261) (9,223,236) (9,293,371) (13,376,393) (21,047,545)

Gross loans 129,404,608 171,135,871 234,692,354 281,221,084 383,519,294 Pre-provision operating income/ (loss) 3,709,488 (484,157) 2,980,128 12,228,972 17,239,746

NPLs* 4,686,280 15,781,598 21,985,848 21,499,183 26,416,901 (Creation of)/ release of provisions for loan impairment (4,427,134) (15,075,755) (1,281,473) (4,155,757) (3,806,849)

Provision for loan impairment (6,423,120) (22,138,936) (21,365,094) (25,211,148) (28,877,007) Other provisions 34,750 (128,984) (284,027) 308 (346,593)

Net loans 122,981,488 148,996,935 213,327,260 256,009,936 354,642,287 Operating profit/ (loss) (682,896) (15,688,896) 1,414,628 8,073,523 13,086,304

Securities held to maturity — — 1,738,532 1,487,044 277,993 Income tax benefit/(expense) 577,352 3,617,778 (860,433) (2,026,785) (3,254,251)

Equities 10,000 10,000 10,000 10,000 13,945 Net Income (105,544) (12,071,118) 554,195 6,046,738 9,832,053

Deferred tax asset 566,789 4,296,247 3,488,356 1,485,024 — Net Comprehensive Income (Change in Total Capital) 1,987,666 (9,703,452) 1,360,424 6,290,983 10,002,559

Fixed assets 10,462,408 11,672,012 12,563,367 14,279,043 16,760,598

Assets of disposal group classified as held for sale 39,380,825 — — — —

Other assets 7,691,128 6,998,705 7,386,061 4,129,078 5,985,896 Selected ratios (%) 2008 2009 2010 2011 2012 Total Assets 285,726,876 321,280,617 356,889,583 369,361,393 470,510,559 Return on Average Assets 0.0% -4.0% 0.2% 1.7% 2.3% Inter-bank liabilities 59,347,020 28,495,452 41,011,675 30,741,695 39,790,732 Return on Average Equity -0.2% -32.6% 2.2% 21.0% 24.7% Total customer deposits 136,653,819 240,618,500 245,795,513 245,611,140 314,720,398 Cost/Income 63.6% 105.5% 75.7% 52.2% 55.0% Debt securities issued 22,173,348 26,746,684 42,555,870 57,510,058 62,313,268 Net Fees & Comm’s / Gross Operating Income 12.9% 23.9% 22.4% 13.8% 20.7% Deferred tax liability — — — — 41,572 Pre-provision operating income/Average assets 1.5% -0.2% 0.9% 3.4% 4.1%

Other liabilities 17,693,905 1,189,747 1,935,867 3,616,859 5,860,386 Net Interest Margin 4.5% 2.3% 2.3% 6.1% 7.7%

Total Liabilities 235,868,092 297,050,383 331,298,925 337,479,752 422,726,356 Total Equity / Total Assets 17.4% 7.5% 7.2% 8.6% 10.2%

Total Capital 49,858,784 24,230,234 25,590,658 31,881,641 47,784,203 Off Balance Sheet/ Total Adj Capital 94.9% 174.5% 151.5% 182.4% 92.1%

Tier 1 Capital (FMSC) 23,861,547 25,254,532 25,273,593 22,617,604 34,575,553 Capital Adequacy Ratio (FMSC) 17.0% 17.1% 14.2% 11.8% 13.0%

Tier 2 Capital (FMSC) 13,514,692 11,284,273 12,818,184 17,720,952 21,555,468 Gross Loans / Customer Deposits 94.7% 71.1% 95.5% 114.5% 121.9%

Total Adjusted Capital (FMSC) 37,565,109 36,730,838 38,294,090 40,434,679 56,131,021 Liquid Assets/ (Cust Dep+Inter-bank Liabilities) 53.4% 55.5% 41.3% 33.3% 26.2%

Total contingent liabilities — all 35,659,238 64,087,555 58,008,955 73,772,761 51,675,161 Liquid Assets/ Total Assets 36.6% 46.5% 33.2% 24.9% 19.7% Inter-bank Assets/ Inter-bank Liabilities 14.5% 109.7% 17.4% 38.4% 20.6% Total contingent liabilities — legally binding, only 15,596,624 30,589,879 27,469,134 39,879,558 16,793,591 NPLs/ Gross Loans* 3.6% 9.2% 9.4% 7.6% 6.9% Income statement (KZT 000) 2008 2009 2010 2011 2012 Provision for loan impairment/ Gross Loans 5.0% 12.9% 9.1% 9.0% 7.5%

Provision for loan impairment/ NPLs* 137.1% 140.3% 97.2% 117.3% 109.3%

Total Provisions/ Pre-provision Operating Income 119.3% -3113.8% 43.0% 34.0% 22.1% steps annual report 2012 the 13 up

SUMMARY OF CONSOLIDATED PERFORMANCE step The following discussion may not contain all the first class information that is important to the reader of this - Annual Report. For a more complete understanding of the events, risks and uncertainties, as well as liquidity, market, credit and operational risks, affecting Eurasian Bank and Subsidiaries (“Eurasian Bank ” or the “Bank”), this Annual Report, and the audited financial statements and their accompanying notes included in this Annual Report, should be read in its entirety.

relative terms, as bank restructurings, difficult international credit markets, and regulatory controls have driven down the bank sector’s reliance on external financing. The Government is a net creditor, with a net debt to GDP ratio of minus 17.1%. Government finances are sustained by resource taxes and royalties. The apparent government deficit is Market environment only apparent, as it limits the amount of funds from the resource sector that go into the general budget, with the balance being invested in the THE ECONOMY National Fund. >>The Kazakhstan economy in 2012 has proved According to NBRK statistics, loan growth resilient in a difficult year for many economies in the market increased by 12.6% (the NBRK around the world. GDP growth slowed to 5.0% and the FMSC have different loan classifications, from the 7.5% level of 2011. Inflation slowed to which show different total and growths. The 9.8 6.0% from the 7.4% level of 2011. GDP per ca FMSC shows gross loan growth of 11.3% and net billion pital in nominal terms is now USD 11,773. loan growth of 7.6%), the first sustained increase tenge kzt Gross external debt reached USD 137 bln, since the crisis. This loan growth continues to be though it is only 70% of GDP. Over 48% of this tenge denominated (22.9% growth), with loans debt is intercompany debt, which is how many to individuals (23.0% growth) outpacing loans international investors fund their operations. to companies (8.9% growth). The currency con- Net profit The banking sector only accounts for 10% of ex- tinues to be very stable against the USD (the cur- ternal debt, down from 47% in 2007. The decline rency in which most exports are denominated) for the banking sector is in both absolute and since the 2009 devaluation, though it weakened steps 14 annual report 2012 the annual report 2012 SUMMARY OF CONSOLIDATED PERFORMANCE 15 up

Chart 1: Banking sector evolution of loans by type of borrower Chart 2: Net Interest Margin Eurasian Bank vs. Sector (% 2006-2012) and currency (KZT bln) Source: NBRK. Source: NBRK.

11,000 8

10,000 7 9,000

6 8,000

7,000 5

6,000 4 5,000

3 4,000

> TOTAl 3,000 2 national currency 2,000 foreign currency 1 legal entities 1,000 sector 0 individuals 0 > Eurasian bank 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012

by about 1.55% during 2012 against the US dol- restructuring of the balance sheets, attracting ex- the world, and the continued restructuring of funding. All these factors, together with the new lar (to 150.74 tenge to the dollar). The tenge perienced international banks to the market is parts of the sector in Kazakhstan. ownership of ATF Bank, make it difficult to under- weakened by just over 7% against the Russian challenging in the current global environment. The regulatory pressure around the world, stand how different banks will act in the loan and 2.3 rouble, which helps Kazakhstan in its competi- The good state of the Government’s finances, and the continued crisis in the Euro area means deposit market. Net interest margins have been 24.7 percent tiveness with its main non-resource trading part- combined with the resources of the National that international banks are unlikely to help in growing across the sector in 2012, with Eurasian percent Return On Average ner. (Chart 1) Fund and Samruk-Kazyna, give the Government bringing the Kazakhstan banking sector to inter- Bank about 3% ahead of the sector. (Chart 2) Return On Average Equity Assets Multilateral organizations remain posi- the ability to deploy significant resources to as- national levels of efficiency, risk management As a whole the banking sector is still very tive for the country’s prospects, but express consist the banking sector, if it chooses to do so and and customer services. If fact, one international weak. Non-performing loans are still rising as a cern on two factors: the lack of diversification if the economic conditions warranted it. bank has recently sold the local bank (ATF Bank) proportion of total loans (reaching 37% at the in the economy (reliance on oil), and the weak- 2013 is again a challenging year around the it acquired before the crisis to a local buyer. end of 2012), which hampers the banks ability ness of the banking sector and its impact on globe, with volatility and uncertainty continu- Other international banks have been downscal- to issue new loans. The problems are more acute the lack of credit to the non-resource sectors. ing to predominate. Analysts are estimating GDP ing their presence. amongst the larger banks. Diversification of the economy is at the core of growth of about 5.5% for Kazakhstan, with infla- The initially aggressive schedule for starting Accrued interest (unpaid) and overdue fee the Government’s short, medium and long-term tion of about 6-7% and a stable currency against Basel III implementation in Kazakhstan now ap- income accounts for 61% of the banking sector strategy, but in an environment where the re- the USD. These are forecasts based on Brent oil pears to have changed. We believe that this will equity capital (78% of the capital of the top ten source economy is expected to show significant prices of around USD 90. give the regulator and the banks more time to banks). Given the level of non-performing loans growth, and the small population base make the While currency stability is forecasted, the fine tune all the elements of implementation. in the sector, this ratio of accrued interest to cap- objective challenging. NBRK does look carefully at the Russian rouble The domestic banking sector was also hit in ital is somewhat concerning. Eurasian Bank ac- The Government, through the NBRK and rate against the USD, as Russia is the major trad- 2012 by the Government’s decision to unify the crued interest and fee income is 29% of capital. the Sovereign Wealth Fund Samruk-Kazyna, has ing partner for Kazakhstan. If the ruble were to pension fund industry and put the management While write-offs of loans did receive some been trying to revitalize the banking sector, after weaken significantly, for example on the back of it under the National Bank. For many banks it favorable tax treatment, we believe that the mag- the damage it suffered in the recent crisis. The of a significant fall in oil, it is plausible that the was a good source of fee income and was also a nitude of the problem loans relative to the capi- NBRK now controls the formerly independent tenge could also be devalued. good mechanism for cross selling the banks dif- tal bases of many banks is leading to few write- financial regulator, and has put in place many ferent products. 2013 is an unsettled year for the offs or disposals of loans to the Distressed Asset measures to ensure that the sector does not fall bank sector competitive landscape, as it appears Fund, or to other distressed debt investors. into the same traps as in the previous boom. In THE BANKING SECTOR that the largest restructured bank (BTA Bank) Eurasian Bank shareholders were fortunate to particular it is promoting more domestic fund- >>While the general economic conditions in may be acquired by Halyk Bank, while the dis- recognize the problems early, and they injected ing, deposit funding at sensible rates, more local Kazakhstan are positive for the banking sector, posal by the Government of the other restructured significant new capital on the basis of a plan currency lending, and less exposure to offshore there are two themes that continue to give the banks is still pending. The local subsidiaries of in- by new management to turn the bank around. borrowers. The three most troubled banks were sector concerns: Increased regulatory pressure ternational banks have now been forbidden by the Without fresh capital injections, it is difficult to restructured, one of them twice. Apart from the globally leading to a de-risking of banks around regulator from using parent guarantees for their steps 16 annual report 2012 the annual report 2012 SUMMARY OF CONSOLIDATED PERFORMANCE 17 up

The Corporate segment has always Chart 3: 2012 Segment breakdown for major balance sheet and P&L items (%) been at the heart of the Bank, even as it expanded from its original mission to become a universal 100% financial institution. 90%

80%

70%

60%

50%

40% Corporate 30% > sME

> rETAil 20% Treasury 10% ALM

Unallocated 0

Assets Liabilities Interest income Fee income Revenue Total expenses

see how the sector as a whole will come out of its unit. Management is looking again at their cost al- Chart 4: Loan mix evolution 2010-2012 and medium term goal (%) current loan quality problems. location metrics this year, as 2012 would appear Note: Data is for Unconsolidated JSC Eurasian Bank, representing the Kazakhstan banking operations. to show anomalous segment results for the Retail

division: with a vast increase in income, it mana 100% 6 BUSINESS SEGMENTS ged to have a lower result than in 2011 after intra- percent 90% >>Until the arrival of the current management company cost allocations. the Bank has an active team in 2010, the bank had been managed and As can be seen from the chart below, 80% relationship with about 6% of the adult monitored as a whole, with no focus on the prof- Corporate accounts for 35% of assets, and 43% of 70% population of Kazakhstan itability by business lines. The bank was only pre liabilities, with Retail accounting for the next lar 60% sent in Kazakhstan. The current management gest share with 31% and 24%, respectively. ALM team has instituted a reporting system that gives has a significant percentage of assets and liabil- 50%

them the ability to make rational business deci- ities, as it has the non-deposit funding (mostly 40% sions in all segments, and this is based on indivi bonds) and the liquidity position of the bank with dual segment reporting. This was instituted dur- unallocated liquidity being maintained in this seg- 30% ing 2010, and the 2012 financials present this ment (i.e. negative carry). The detailed figures 20% data for the second time. The Bank looks at re- for this analysis can be found in Note 30 of the Corporate 10% sults of five different segments. Four segments Audited Consolidated Financial Statements. > sME > rETAil are client facing business lines: Corporate, SME, On the P&L side, it should be noted that 0 2010 2011 2012 Medium term goal Retail, and Treasury with each segment having Retail contributes 61% of total fee income, driven lending and deposit taking activity, and/or other by commissions from the sale of insurance policies income sources such as fees and commissions. with loans. Corporate is the strongest contributor The remaining segment is a support function: to the bottom line, as it accounts for 39% of rev- Asset-Liability Management (ALM). enues, and only 32% of expenses. Retail is also a Cost allocation is difficult in many organi- positive contributor, with 39% of revenues and zations, especially financial organizations where 43% of expenses, while SME accounts for 10% of cost of funding is allocated between business seg- revenues and expenses. ALM makes a significant ments with excess funding and those that require bottom line contribution on the basis of intra- funding. In addition, rapid growth of one segment company transfer pricing for funding to the busi- can lead to disproportionate allocations of indi- ness units. (Chart 3) rect costs if the allocation metric does not truly re- The Bank’s strategy, as a full service uni- flect the indirect cost base of a specific business versal bank, is to have a balance between the steps 18 annual report 2012 the annual report 2012 SUMMARY OF CONSOLIDATED PERFORMANCE 19 up

The new format of the Chart 5: Sector exposure of Corporate segment loan book at YE 2012 branches and outlets Note: In Note 17 (d) of the Audited Consolidated Financial Statements is a more detailed sector has been designed by breakdown for SME and Corporate clients combined. an international firm, and allows for a better client experience, and a greater variety of self-service banking 6.2% Other transactions.

7.3% Foods production

25.5% Wholesale trade 4.9% Retail trade

3.8% Services

Agriculture, 14.1% forestry and timber 3.1% Lease, rental and leasing

12.1% Construction 2.6% Manufacturing

8.4% Transport 2.3% Research and activities

2.0% Energy production and supply

7.7% Mining/metallurgy

different segments, and the medium term goal with the SME segment, and going forward we tar- the Bank the asset quality that it is looking for. could well make this segment less attractive for is to have a loan book mix with about 50% get to have approximately half of the loan portfo- In practice, this means that some of these borro the banking sector –especially when all the coef- Corporate and SME, and 50% Retail. Essentially, lio in Corporate and SME. In 2012 the Corporate wers have a two-step credit scoring: on the com- ficients of the risk metrics are fully implemented. 99 this means that the greatest growth is intended loan book accounted for 46% of the loan book, pany itself based on cash flows, and on the con- While this segment has declined in importance 199 outlets to come from the Retail segment, and Corporate and SME accounted for 10%. tract or business that is being financed. The Bank within the Bank’s portfolio, we did grow the SME percent Banking having a slightly decreased weight in a Lastly, it is the focus of management to re- has also tended to limit exposure to real estate, loan book in 2012 (by 8%), and no loan origi- Bank now has Notable in 2012 was 19 branches, 99 outlets, growing bank. This strategy reflects the growth duce the top 20 exposures to Total Capital to be- both as an activity to lend to, and as collateral to nated in 2012 in the segment became an NPL. All the rapid growth of auto and a total of 1,897 sales opportunities presented by the market, as well tween 125-150% in the mid term. In 2012 this ra- accept, although given local regulations this is things other things being constant, if we can con- loans by 199% in the points (up from 1,279 as balancing the risks and earning potential of tio was 205%. not always possible. The table below shows the tinue to achieve the latter of the 2012 achieve- year. This growth was in 2011) both due to the Bank’s the various segments. Management does not in- Given the low cost of funding for most of the sector exposure of the corporate lending portfo- ments, the segment does have the prospects of be- focus on this segment tend to rely solely on Retail banking, as this takes international banks present in Kazakhstan, and lio in 2012, and as can be seen, trade, agriculture ing more attractive. and the first to market away the risk mitigation of a diversified business also some of the larger domestic banks, Eurasian and construction and transport have significant Eurasian Bank is currently committed to the offering a “Car in One Day” product, as well as mix and also takes away a strong source of stable Bank does not compete with these banks in lend- weight. When we do compete with other banks, segment, and management believes that the im- the triple digit increase in funding for the bank. (Chart 4) ing to the top 30 “blue-chip” corporates market it tends to be the Bank’s ability to make swift loan proved loan quality and muted loan growth in auto sales in 2012 and largest state owned enterprises (SOEs) mar- decisions, rather than interest rate that puts it in the segment is a sign that the credit scoring sys- ket (given its standing in the banking sector, the front. (Chart 5) tem, that has now been fully rolled out to cover all CORPORATE BANKING Bank is an active participant with these clients bank clients, is achieving the aim of helping the >>The Bank was originally founded to serve the with liability and treasury products). Although Bank manage its credit risk. needs of affiliated companies of the sharehol the Bank is associated with one of the largest cor- SME In line with the Bank’s credit rating system ders. The Corporate segment has always been at porates in Kazakhstan, its relative lack of small >>SME accounted for just under 10% of the gross in the Corporate Segment, management not only the heart of the Bank, even as it expanded from its scale domestic financing needs and Eurasian loan book in 2012. Exposure to the SME segment looks at the credit worthiness of the borrower on original mission to become a universal financial Bank’s focus on limiting related party exposures, adds balance to the mix of exposures, and can be a stand-alone basis, but also looks at contracts institution. Corporate Banking at Eurasian Bank means that even this company (ENRC) does not the beginning of future corporate clients and it and business that the borrower has with compa- includes both the Kazakhstan based Corporate cli- account for any significant amount of the bank’s feeds the retail business as well. SME is the most nies and entities that are very good credits. These ent activity, as well as the activity of the Russian lending business (related parties do account for difficult segment to manage in Kazakhstan, as contracts, together with collateral, help the Bank subsidiary. The corporate business is important significant deposit funding, and when received the business sophistication of the entrepreneurs to manage risks in this segment. for cross selling (retail for employees), treasury, tends to be very short term). is lower than larger corporates, the risk of loss is deposits and payments. What the Bank does focus on is mid tier com- higher, and the rewards are limited due to low in- The strategy for the Corporate Client seg- panies that have binding contracts with the large terest rate Government programs in this segment. RETAIL ment is that it remains a core segment of the Bank corporates and SOEs. A combination of these In addition, the proposed new Dynamic Risk >>Retail banking at Eurasian Bank was com- in the near and mid term. It is managed together contract revenue flows and other security give Provisioning that the NBRK may introduce soon, pletely transformed by the 2010 ProstoCredit steps 20 annual report 2012 the annual report 2012 SUMMARY OF CONSOLIDATED PERFORMANCE 21 up

Retail banking at Eurasian Bank Chart 6: Evolution of Eurasian Bank unique client numbers Source: Eurasian Bank management information systems. Unique clients are clients with a current active was completely transformed relationship with the bank, Total clients are unique clients in the database, but do not necessarily have by the 2010 ProstoCredit an active loan or deposit account at year end). acquisition. Perhaps the surprise is how this one 1,400,000

acquisition is transforming 1,200,000 the Bank as a whole 647,696 1,000,000

The vision of wealth management 800,000 is that it goes far beyond private 600,000 banking, and is aimed at catering 481,847 to entrepreneurs’ private and 400,000

200,000 business needs 176,930 ENRC group & Their 166,740 employees 100,000 112,608 113,925 416,349 568,596 non ENRC clients 54,132 63,005 65,498 79,100 > TOTAl clients 0

2009 2010 2011 2012

acquisition. Perhaps the surprise is how this year). This growth was both due to the Bank’s one acquisition is transforming the Bank as a focus on this segment and the first to market of- whole. This acquisition is behind the greater fering a “Car in One Day” product, as well as the Chart 7: Retail loan Mix 2010-2012 (%) part of loan book growth in 2011-2012, behind triple digit increase in auto sales in 2012. Auto the six fold increase of active clients, behind the sales continue to grow at a rapid pace in 2013.

branch and network development, and behind The growth of this segment of the retail port- 100% the increased awareness of the bank that is al- folio has given us greater diversification of the 90% lowing it to fund the increased deposit base at portfolio, as has the focus on payroll loans. attractive rates. Management would like to see the retail 80%

In 2012 the loan book in this area grew by lending business account for about half of the 70% 67% to 169.9 bln tenge. Total loan origination in loan book (it was 44% at year end, up from 36% 60% the year grew by 68% to 133 bln tenge. NPLs fell in 2011), and see the potential to use the distri- from 8.9% in 2011 to 7.5% in 2012. The NPLs bution network in ways that production growth 50%

for just the loans originated in the past three will not always result in proportional increase 40% Mortgage loans years in Retail lending are running at 4.4%, and of the Bank’s loan book (i.e. as intermediaries). > sMAll Business 30% represent 2.6% of loans originated during this The efficiency of our network and the loan qual- Loans loans 20% period. Given the short duration of most of the ity that we have been able to achieve, could COLLATERALISED consumer finance business, the relatively high make us attractive partners for institutions look- by cash 10% interest rates charged, and the opportunities for ing to have exposure to this segment without > Auto loans unCOLLATERALISED fee income, the NPL levels are very sustainable. having to set up a network. (Chart 6) 0 2010 2011 2012 Our credit scoring system that relies on credit At year end 2012 the Bank’s network in- bureau data, pension fund data on salaries, and cluded 19 full branches, 99 service centers internal client historical data, now has seven and 318 ATMs, and 90 payment terminals. years of history, and is proving to be reliable at In addition, at the end of 2012 there were granting fast, automated credit approvals, while 474 staffed POS locations, and a further 221 un- keeping problem loans within acceptable levels. staffed POS locations. There were also 95 POS Notable in 2012 was the rapid growth of serving 93 new car showrooms and 2 used car auto loans, which are collateralized. Loans in showrooms, as well as points of sales at pen- this segment increased by 199% in the year, sion fund offices and corporate client offices. and accounted for 17% of the retail segment Given the breadth of our network, we have now loan book at year end (up from 9% the previous ceased using the post office network. The new steps 22 annual report 2012 the annual report 2012 SUMMARY OF CONSOLIDATED PERFORMANCE 23 up

Wealth management is seen as a target ASSET LIABILITY RUSSIA area by the Bank, >> and in this regard MANAGEMENT Eurasian Bank acquired a bank in Moscow it has appointed from Troika Dialog in 2010. The acquired bank an experienced professional to run this >>Asset-Liability management manages the was essentially an empty shell, but had a com- area. Bank’s liquidity and non-deposit funding (mainly plete set of banking licenses to operate in bonds). This is the department that actively man- Russia. Management saw this as a key to even- ages the duration and currency exposures of tual growth outside of the core Kazakhstan mar- the bank’s assets and liabilities. The department ket, and thus the acquisition can been seen as has targets of managing the Net Interest Margin opportunistic in the short term. Since the ac- (NIM, with 2012 YE at 7.7% against a target of quisition, Kazakhstan entered into a Customs 5%), cost of liabilities (including deposits, YE Union with the Russian Federation and Belarus. 2012 5.6% against a target of <6%), liquid assets This Customs Union has led to greater need of as % of total assets (19.7% at YE 2012, with cur- the Bank’s corporate client base for banking rent target of >+17%), return on liquid assets, support for their trade flows with Russia. Going and net Loan to Deposit ratio of less than 115% forward, management is looking at the possibi (113% at YE2012). These targets are medium lity of opening branches in a couple of cities in term targets that may be changed in the future. the regions close to the Kazakhstan border, to Deposits at the NBRK grew in 2012 to 27% better serve the needs of the Bank’s corporate of liquid assets, up from 6% in 2011. It should be clients operating cross border. noted that any deposits at the NBRK (there are Currently, management does not see the certain mandatory levels based on foreign and need to replicate the breadth of product and IT platform for retail banking that was rolled and international wealth management needs, domestic liabilities) penalize returns on liquid as- segments that they serve in Kazakhstan. Russia out in January 2012 is proving to be a reliable including tax and legal structuring. sets (mandatory deposits are non-yielding, and is a market with strong domestic banks, and and flexible platform. The activity is transversal across the Bank’s other deposits yield less than 1%). That said, the management sees the focused niche strategy as 36 The product mix of the retail loan portfo- entire client base, and results show up in the in- increase in 2011-2012 from 1.4% to 5.4% of total the way to have profitable growth. percent lio has transformed over the past three years, dividual business segments. Our Corporate de- assets should be viewed within the context of the This activity is accounted for within the as can be seen in the chart below. In 2010 partment is already in contact with business decline of liquid assets from 24.9% to 19.7% of Corporate banking segment. Bank’s Gross loans increased by 36% in Mortgages, Small business loans and loans col- owners, whose potential service needs go well total assets, and the higher NBRK requirements 2012, driven by the lateralized by cash accounted for 94% of the beyond the corporate segment product offer. as liquid assets decline. 67% growth in the loan portfolio in the retail segment. These three Similarly, there may be high net worth indivi It is worth mentioning that during the past Retail segment and 22% growth in the Corporate areas only accounted for 31% of the portfolio at duals who are clients that may benefit from ser- three years international banks have lowered segment the end of 2012. During the period, auto loans vices of the Corporate segment. In essence, if their exposures and lines to Kazakhstan’s bank- and uncollateralized loans have grown from we are successful, we should be able to have ing sector. In this environment, the Bank has 6% to 69% of the portfolio. With this transfor- longer term and broader relationships with our managed to increase its lines with international mation, interest margins have grown and loan clients. banks roughly eight-fold. losses have declined. (Chart 7) While the Bank suffered no direct impact from the Government’s decision to merge the TREASURY privately run pension funds into a single entity WEALTH MANAGEMENT >>Treasury’s largest activity is FX trading on controlled by the national bank, there is pro- >>Wealth management is seen as a target area behalf of the Bank and its clients. It is also in- spectively one potential impact of this event. by the Bank, and in this regard it has appointed volved in hedging activity, and trading of fixed The Bank has placed locally listed bonds with an experienced professional to run this area. income securities. Going forward, this depart- the pension funds, and has also attracted de- The vision of wealth management is that it goes ment aims to continue to increase its activity on posits from them. In the future, instead of 14 far beyond private banking, and is aimed at ca- behalf of the Bank’ clients, and intends to di- counterparties to seek funding from, there will tering to entrepreneurs’ private and business versify its product offer to include cash mana only be one. As the pension funds collectively needs. gement and derivatives. In 2012, with a very are the single largest institutional investor base, The Bank has already made agreements low asset base and no significant liabilities, it this merger leads to great concentration and in- with renown international external providers accounted for 2% of revenues and 14% of the creases the funding risk for us, and all corporates of asset and wealth management services, and Bank’s result. seeking local funding. We believe that we have in we now intend to offer services to our corporate place mechanisms to ensure our future funding, and retail clients, ensuring that together with though this move does make the task of diversifi- our partners we can assist them in all their local cation of the funding base even more important. steps annual report 2012 the 25 up

During 2012 Eurasian Bank received awards from 3 prestigious international publishers

in July 2012 Euromoney In August 2012 Bank in November 2012 Magazine named Eurasian received an award as The Banker named Bank the “Best Bank in “Best Retail Bank in Eurasian Bank the Kazakhstan” Kazakhstan” from Asian “Bank of the year in Banking and Finance Kazakhstan” step reliable FINANCIAL STATEMENTS HIGHLIGHTS

STATEMENT OF INCOME 2012 VS. 2011

>>Eurasian Bank reported Net Profit of KZT 9,832 mln in 2012, a second year of notable results. The return on average assets reached 2.3%, while the return on average equity reached 24.7%. The drivers for this improvement were the continued growth of the loan book, the positive contribution of the retail lending activity, the reduction in negative carry costs, and the conti nued quality improvement of the loan portfolio.

KZT mln 2012 2011 % change

Interest income 50,388 38,089 32% Interest expense -23,451 -19,445 21% Net interest income 26,937 18,643 44%

Impairment charges - 4,153 - 4,155 0% Net interest income after impairment charge 22,783 14,488 57% Net fee and commission income 7,924 3,526 125% Other non-interest income 3,426 3,436 0% Other non-interest expenses - 21,048 - 13,376 57% Profit before income tax expense 13,086 8,074 62%

Income tax expense - 3,254 -2,027 61% Profit for the year 9,832 6,047 63% steps 26 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 27 up

NET INTEREST INCOME growth in the retail loans (which grew by 67%) NET FEE AND this high growth in part reflects the underlying >>Net interest income rose 44% in 2012, as in- was counterbalanced by a 80 basis points decline COMMISSION INCOME growth of our consumer business, it also reflects terest income rose by 32% and interest expense in the market rates for corporate loans. Loans the full integration of the ProstoCredit consumer rose by only 21%. On the interest income side, to customers accounts for over 98% of all inte >>Net fee income grew by 125% to KZT lending business under the same legal entity. The the biggest source of improvement was on the rest income. Net interest income accounts for just 7,924 mln these fees account for 21% of pre-im- balance of the remaining fee income and expense loans to customers side, where the net loan book over 70% of pre-impairment charges operating pairment charges operating income. The big- items did not show the same change. The level of grew by 39% in the year. Interest income did income. gest components of these fees is now Agent ser- fee income from the consumer business is struc- not grow as much as the loan book, as the high vices (53% of fee income in 2012, up from 1% tural, and should be viewed as recurring. in 2011), mostly commissions on the sale of insurance policies with our consumer loans. While KZT mln 2012 2011 % change

Net Interest Income 26,937 18,643 44% KZT mln 2012 2011 % change Interest income Net Fee and Commission Income 7,924 3,526 125% Loans to customers 49,628 36,713 35% Fee and Commission Income Held-to-maturity investments 331 633 - 48% Agent services 4,714 32 14631% Available-for-sale financial assets 214 438 - 51% Settlement 1,404 1,291 9% Financial instruments at fair value through profit or loss 108 217 -50% Guarantee and letter of credit issuance 1,034 1,161 -11% Placements with banks 62 11 464% Cash withdrawal 1,012 826 22% Cash and cash equivalents 23 54 -57% Payment card maintenance fees 432 371 17% Amounts receivable under reverse repurchase agreements 21 24 -13% Custodian services 64 91 -29% Total 50,388 38,089 32% Cash delivery 47 52 -10% Interest expense Other 248 107 132% Current accounts and deposits from customers 15,669 12,265 28% Total 8,956 3,932 128% Debt securities issued 3,236 2,777 17% Fee and commission expense Subordinated debt securities issued 2,718 2,674 2% Agent services 522 71 635% Other borrowed funds 1,258 1,556 -19% Settlement 265 67 296% Deposits and balances from banks 475 151 215% Cash withdrawal 168 157 7% Amounts payable under repurchase agreements 96 22 336% Payment card maintenance fees 52 68 -23%

Total 23,451 19,445 21% Custodian services 15 29 -50%

Other 9 14 -33% Total 1,031 405 154% IMPAIRMENT CHARGES improvement, with a positive recovery in 2012. >>Impairment charges were in line with 2011 Loans originated since 2010 are showing low levels. The split of the impairment charges is NPL levels, which gives management confidence driven by the strong growth of the retail busi- on the current quality of the overall loan portfo- OTHER NON-INTEREST income. Performance in 2012 was in line with ness, where impairment charges are made lio (see table in discussion of Allowance for Loan INCOME the previous year, as the 20% increase in foreign on loan issuance at a predetermined level. Impairment). The table below shows the impair- exchange income was compensated mainly by Corporate loan impairment charges were in line ment charges for customer loans and other assets >>Other non-interest income accounts for just negative fair value adjustments. with 2011, and the SME portfolio showed a vast for 2011 and 2012. under 9% of pre-impairment charges operating

KZT mln 2012 2011 % change KZT mln 2012 2011 % change Loans to customers 3,807 4,156 -8% Net foreign exchange income 4,105 3,431 20% Other assets 347 -189 284% Net gain on available-for-sale financial assets -22 172 -113% Provision for contingent liabilities 0 189 NSF Other -657 -167 293% Total 4,153 4,155 0% Total 3,426 3,436 0% steps 28 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 29 up

OPERATING COSTS We do not expect employee cost to increase as Chart 9: Asset structure evolution (KZT mln) >>Operating cost rose by 57% in 2012, slightly fast in 2013, as the rapid expansion of physical more than the 50% increase in operating in- presence in 2012 meant that our resources were

come. Employee cost rose by 72%, as headcount not utilized to their expected efficiency in the 500,000 rose 95% to 4,615 (ex-maternity leave emp start up phase. Other expenses also grew during 23,038 450,000 loyees). Most of the head count growth was due the year, but actually declined as a percentage of -28,877 to the acquisition and subsequent growth of income, with large increases in spending on ad- 400,000 25,186 21,390 354,642 the ProstoCredit consumer lending activity, as vertising, security and professional services. The 350,000 well as the full headcount of this activity com- cost/income ratio rose from 52% in 2011 to 55% 22,977 -21,365 -25,211 92,830 300,000 ing under our corporate entity in January 2012. in 2012. Going forward we plan to have the cost/ -22,139 213,327 256,010 Employee costs rose from 27% to 31% of income. income in the range of 50-55%. 250,000 148,997 118,376 91,961 200,000 149,307 KZT mln 2012 2011 % change 150,000 liquid assets Wages, salaries, bonuses and related taxes 11,524 6,669 73% 100,000 net Loans Other employee costs 447 289 55% impairment 50,000 provision Total employee costs 11,971 6,958 72% > OTher lt assets 0

Other operating costs 2009 2010 2011 2012 Depreciation and amortization 1,927 1,204 60% Operating lease expense 1,056 713 48% Communications and information services 1,045 503 108% Advertising and marketing 1,028 699 47% Chart 10: Gross loans evolution by segment (KZT bln) Taxes other than on income 804 485 66% Loan servicing 647 1,110 -42% Repairs and maintenance 536 298 80% 400 Security 467 269 74% 350 Travel expenses 305 212 44% Stationery and office supplies 188 69 172% 300 169.9 Professional services 146 278 -48% 250 Insurance 86 38 127% 101.8 36.8 200 Cash delivery services 69 41 68% 70.1 34.1 176.8 150 Transportation 57 42 33% 68.4 26.8 145.3 Trainings 48 27 80% 100 > COrporate 21.0 137.8 Representation expenses 30 14 119% 50 sme 81.7 Payment cards production 29 33 -11% retail 0 Other 609 384 58% 2009 2010 2011 2012 Total 21,048 13,376 57%

BALANCE SHEET 2012 VS 2011

ASSETS greater than the asset increase. In 2012 the loan >>As can be seen from the chart below, the Bank book accounted for 97.5% of the increase in as- saw 27% asset growth in 2012, driven by the sets. Liquid assets now only account for 20% 39% growth of the net loan book. This came af- of the balance sheet, down from 25% in 2011. ter two years of working on the efficiency of our Provisions for loan impairment and other long balance sheet to reduce the negative carry effect, term assets grew modestly in the year, and still years in which the loan book increase was always account a combined 11% of assets. steps 30 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 31 up

Management expects that future asset segment. The SME loan book increased by 8%. Chart 11: Impairment allowance by segment (KZT mln) growth will come almost entirely from loan book The strong Retail segment growth was mainly in Source; Note 17 (a) of the Audited Consolidated Financial Statements growth. (Chart 9) the uncollateralized loans (up 107%) and auto 15,291 loans (up 199%). These increases reflected our 35,000 focus on the point of sales and auto dealers net- 12,186 2,579 8,189 10,955 3,025 11,007 LOANS works in a period when consumer spending has 30,000 2,297 2,205 10,000 (Chart 10) Gross loans increased by 36% in been growing rapidly. Net loans grew by 39%, as 11,653 8,205 2012, driven by the 67% growth in the Retail the impairment allowance grew by 15%. 25,000 segment and 22% growth in the Corporate

20,000 2,525 957 KZT mln 2012 2011 % change 15,000 2,941 Loans to corporate customers 10,000 Loans to corporate customers 176,841 145,270 22% Loans to small and medium size companies 36,774 34,144 8% Corporate 5,000

Total loans to corporate customers 213,615 179,414 19% > sME Loans to retail customers > rETAil 0 2008 2009 2010 2011 2012 Mortgage loans 33,832 29,868 13% Car loans 28,903 9,661 199% Small business loans 18,629 19,300 -3% Chart 12: (%) Loans collateralised by cash 529 464 14% Impairment allowance by segment as % of gross loans Uncollateralised consumer loans 88,012 42,514 107%

Total loans to retail customers 169,904 101,807 67% 16

Gross loans to customers 383,519 281,221 36% 14 Impairment allowance -28,877 -25,211 15% 12 Net loans to customers 354,642 256,010 39% 10

8 ALLOWANCE FOR LOAN 6 IMPAIRMENT 4 > COrporate 2 sme KZT mln 2012 2011 % change retail 0 Impairment allowance (Balance Sheet) 28,877 25,211 15% 2008 2009 2010 2011 2012 Impairment losses (Income Statement) 3,807 4,156 -8%

>>The loan impairment allowance increased loans originated in the past three years running by 15% in 2012, significantly less than loan at 2.4%, management is confident that the pro- growth. As can be seen from the chart below, visioning levels reflect the underlying state of the largest contributor to impairment allo the loan book.(Chart 11) wance is the retail segment, though this tends The chart below shows the impairment al- to be compensated by the higher interest rates lowances by sector as a percent of gross loans charged on these loans. As a percentage of gross for that segment. As can be seen, in spite of 67% loans, our impairment allowance continues to growth in retail loans in 2012, the impairment al- show improvement: in Corporate loans falling lowance fell in percentage terms. This is in great from 6.9% to 6.2% in the year, in SME loans part due to the rigorous credit assessment that is falling from 8.9% to 7.0%, and in Retail loans applied to all loans. It should be mentioned that falling from 12.0% to 9.0%. Our allowance for the impairment data is far better than the sec- impaired loans stood at 109% of non-perform- tor average, even if the restructured banks are ing loans at year end. With aggregate NPLs for eliminated from the analysis. (Chart 12) steps 32 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 33 up

The analysis shown in the table below Since our new credit evaluation process has Chart 13: NPLs to Gross Loans ratio and Gross loan portfolio (KZT mln) shows the NPL status of the loans originated been implemented, NPLs have fallen drastically, Note: NPLs is full principal amount of loans more than 90 days overdue prior to 2010, and those originated in 2010- even in the relatively high risk Retail segment.

2012. The table shows the status as of January The credit evaluation process is leading to only 450,000 10% 1,2013. It is quite clear from the table that loan modest growth of the SME portfolio, as we are quality is currently substantially better for the totally focused on credit quality in a segment 400,000

loans originated in the past three years, with that has lower interest rates than retail, but of- 350,000 8% no NPLs for loans originated in 2012 in the ten higher NPLs. Corporate and SME segments. Management be- For retail clients, the assessment occurs at 300,000 6% lieves that this demonstrates the new approach the time of loan demand, and is based on verifi- 250,000 to credit assessment and loan approval that the able earnings, credit bureau and internal bank new management team instigated is the key data. It should be noted that the higher per- 200,000 4%

internal driver to loan quality improvement. centage of impaired loans for retail clients is 150,000 While the quality of the older loans is poor in more than compensated by the interest margin 100,000 general, it is most evident in the SME segment. and fees earned from this segment. 2%

50,000 gross loans

Analysis By Segment Of Loans And Npls For > npls/gross loans % 0 0 Loans Originated Before And From 2010. (With Remaining Balances As Of Ye2012) 2008 2009 2010 2011 2012 As at 01.01.2013* Total Bank Corporate SME Retail Total loan book Principal & Accrued interest 381,563 174,671 56,080 150,812 Chart 14: Gross and net loans to deposit ratios (%) NPL (including interest) 28,228 5,66 11,158 11,407

% NPL (including interest) 7.4% 5.7% 19.9% 7.6%

Loans granted before 2010 140 Principal & Accrued interest 82,101 46,654 17,690 17,757 120 NPL (including interest) 21,117 4,760 10,732 5,625

% NPL (including interest) 25.7% 10.2% 60.7% 31.7% 100 Loans granted in 2010

Principal & Accrued interest 42,684 30,953 7,685 4,045 80 NPL (including interest) 1,094 739 167 188

% NPL (including interest) 2.6% 2.4% 2.2% 4.6% 60

Loans granted in 2011 40 Principal & Accrued interest 62,732 26,602 11,791 24,338

NPL (including interest) 3,828 164 259 3,405 net loans / 20 customer deposits % NPL (including interest) 6.1% 0.6% 2.2% 14.0% gross loans / customer deposits 0 Loans granted in 2012 2008 2009 2010 2011 2012 Principal & Accrued interest 194,047 70,461 18,914 104,672 NPL (including interest) 2,189 — — 2,189 % NPL (including interest) 1.1% 0.0% 0.0% 2.1%

*The figures appearing in this vintage analysis are unconsolidated standalone calculations in accordance with NBRK requirements, which differ from IFRS

>>The chart below shows the gross customer metrics are far better than the sector average loans and the NPL to gross loan ratio. As can (less than one third the sector level), even if be seen, the NPL ratio peaked in 2010 at 9.4%, the restructured banks are eliminated from the and in spite of strong loan growth in 2010- analysis. (Chart 13) 2012, it fell significantly. In 2012 the NPL to gross loans ratio fell to 6.9%. Eurasian Bank’s steps 34 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 35 up

DEPOSITS BY TYPE 2011), and the interest rates on the loans were total client growth of almost 165,849, driven by >>In 2012 deposits grew by 28%, as the Bank greater retail deposit growth in 2012. Corporate between 10.12-14.00%. Average rates extended the consumer lending growth. The higher num- funded a significant portion of its asset growth term deposits grew by 29%, while retail term de- to clients were between 12.29% and 18.83%, de- ber of new ENRC clients in 2012 was due to the with deposits. As can be seen from the table be- posits grew by 58%. For current accounts and depending on the currency. Deposits from related consumer lending business approaching many low, term deposits grew by 38%, while cur- mand deposits, corporates fell by 2%, while retail parties accounted for 16.5% of the deposit base corporate clients, including ENRC, to offer pay- 5.9 billion tenge rent accounts and demand deposits grew by 4%. grew by 37%. Overall, corporate deposits ac- (down from 19.6% in 2011), with deposit rates roll loans to their employees. The proportion of Existing shareholders Corporate deposits continue to be the mainstay count for 69% of total deposits, down from 74% varying from 1.11–8.19%. Average deposit rates ENRC Group employee clients fell from 13.6% to injected new capital of the deposit funding base, though the Bank had in 2011. for corporate customers were between 3.25% and 12.2% over 2012, and Management expects fur- in the amount of 5.9 bln 6.88%, depending on the currency. The low ex- ther decreases in the mid term. in 2012 posure to related party loans is a core value of the KZT mln 2012 2011 % change 2012 % of total Bank, while the relatively high exposure to related Current accounts & demand deposits 71,185 68,701 4% 23% party deposits is a reflection of its historic banking SHAREHOLDERS Retail 14,390 10,542 37% 5% relationship with affiliated entities (particularly in >>There were 16,211,133 shares outstanding as the mining sector). All of the related party loans of December 31, 2012 (unchanged since year end Corporate 56,795 58,159 -2% 18% were to companies under common control or un- 2010). The direct shareholders were Eurasian Term deposits 243,535 176,910 38% 77% der significant influence of the ultimate beneficial Financial Company, JSC for 99.67% and Retail 84,625 53,687 58% 27% owners. The related party deposits, in addition to Eurasian Industrial Company, JSC for 0.33%. Corporate 158,910 123,223 29% 50% the categories mentioned above, include deposits All shareholders subscribed to the 2012 share is- Total 314,720 245,611 28% from subsidiaries of the same parent company. sue proportionately to their existing stake in the The majority of “related party” clients are bank. The ultimate beneficial owners are, with employees of ENRC (employees are not tech- equal shareholdings, Alexander Mashkevich, The gross loans to deposits ratio has in- The NBRK has announced its intention tran- nically related as per regulations, and almost Alijan Ibragimov, Patokh Shodiyev. creased over the past three years from the 2009 sition to Basel III capital and liquidity require- all are not included in the transactions listed Eurasian Financial Company, JSC also owns low of 71%, reaching 122% at the end of 2012. ments, but the timeline is still up in the air. above). At year end 2012, ENRC Group emp one share of the Moscow Bank, and is the nomi- The 2009 low was mostly due to the fact that de- Kazakhstan currently has adopted Basel I re- loyees accounted for 12.2% of the Bank’s nee shareholder. This stake in the Russian sub- posits grew by 76%, while gross loans grew by quirements. At Eurasian Bank we are evaluat- 647,696 unique clients (the number of accounts sidiary is to satisfy Russian law that requires at only 32%. In 2010-2011 deposits hardly grew, ing the potential changes to our business that the is greater than number of clients). ENRC Group least two shareholders for a company. while loan growth was significant, allowing the Basel III requirements would bring. Our Risk de- clients grew by about 13,600 in the year, against Bank to deploy substantial excess liquidity. In partment is moving towards having credit risk 2012 both loans and deposits grew, though loans evaluation that will be compliant, and we are grew at a greater rate. The medium term target is looking at all of the Bank’s business, balance Chart 15: Tier 1 and Total Capital adequacy ratio and Risk Weighted Assets (KZT mln) a ratio of about 105-115%. Management aims to sheet structure, processes and systems to ensure

have a diversified funding base, and fixed income that we are able to continue to succeed under the 18% 450,000 markets help the Bank to diversify not only the future regulatory environment. (Chart 15) source, but also allows the Bank to have longer 16% 400,000

maturities that are essential in its effort to issue 14% 350,000 longer term loans to the Bank’s clients. (Chart 14) EQUITY >>There are 16,211,133 shares outstanding as of 12% 300,000

December 31, 2012. 903,163 new shares were is- 10% 250,000 REGULATORY sued during the 2012 fiscal year, raising 5.9 bln CAPITAL AND CAPITAL tenge from existing shareholders. The shares are 8% 200,000 not listed. Authorized capital is 33 mln ordinary 6% 150,000 ADEQUACY shares and 3 mln preference shares. The balance >>The chart below shows the evolution of the of the ordinary shares and all the preference 4% 100,000 rwa (rhs) Tier 1 and Total Capital Adequacy ratios. These shares remain unissued. 2% 50,000 > Tier 1% are calculated under the local regulators crite- > TOTAl capital % ria, and banks must have at least 5% Tier 1 ra- 0 0 2009 2010 2011 2012 tio and at least 10% Total Capital Adequacy ra- RELATED PARTY tio. The Bank meets these criteria: At year end TRANSACTIONS 2012 the Bank had a Tier 1 adequacy ratio (k1.2) of 8.0%, and a Total Capital Adequacy ratio (k2) >>In 2012 loans to related parties accounted for of 13.0%. 1.3% of the total loan book (down from 3.0% in steps 36 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 37 up

STATEMENT OF INCOME KZT mln 2011 2010 % change 2011 VS. 2010 Other borrowed funds 1,556 1,871 -17% Deposits and balances from banks 151 83 83% >>Eurasian Bank reported Net Profit of KZT were the continued growth of the loan book, Amounts payable under repurchase agreements 22 26 -15% 6,047 mln in 2011, after two years of losses or in- the positive contribution of the newly acquired Total 19,445 22,560 -14% significant profits. The return on average assets ProstoCredit consumer lending activity, the re- reached 1.7%, while the return on average equity duction in negative carry costs, and the conti reached 21%. The drivers for this improvement nued quality improvement of the loan portfolio. IMPAIRMENT CHARGES >>Impairment charges rose by 165% in 2011. In item, while in 2011 it returned to be a more nor- spite of the growth of the retail portfolio, the im- mal negative number. Loans originated since KZT mln 2011 2010 % change pairment charge from this part of the loan port- 2010 are showing low NPL levels, which gives Interest income 38,089 28,593 33% folio actually declined by about 50%. The corpo- management confidence on the current quality Interest expense -19,445 -22,561 -14% rate portfolio (including SME) accounted for the of the overall loan portfolio (see table in discus- Net interest income 18,643 6,033 209% increase in impairment charges, but this was re- sion of Allowance for Loan Impairment). The ta- Impairment charges -4,155 -1,566 165% ally due to the fact that in 2010 loan recovery ac- ble below shows the impairment charges for cus- Net interest income after impairment charge 14,488 4,467 224% tivity led to a positive contribution in this line tomer loans and other assets for 2010 and 2011. Net fee and commission income 3,526 2,753 28% Other non-interest income 3,436 3,488 -2% KZT mln 2011 2010 % change Other non-interest expenses -13,376 -9,293 44% Loans to customers 4,156 1,281 224% Profit before income tax expense 8,074 1,415 471% Other assets -189 284 -166% Income tax expense -2,027 -860 136% Provision for contingent liabilities 189 0- NSF Profit for the year 6,047 554 991% Total 4,155 1,566 165% NET INTEREST INCOME >>Net interest income rose 209% in 2011, as in- grew more than the loan book, as the loan book NET FEE AND terest income rose by 33% and interest expense growth was concentrated in higher yielding retail COMMISSION INCOME fell by almost 14%. On the interest income side, loans (which grew by 45%). Loans to customers the biggest source of improvement was on the accounts for over 96% of all interest income. Net >>Net fee income grew by 28% to KZT 3,526 mln. gross fee income (up 31%), as fee and commis- loans to customers side, where the net loan interest income accounts for just under 73% of These fees account for just under 14% of pre-im- sion expenses grew by 61% in 2010, led by sig- book grew by 20% in the year. Interest income pre-impairment charges operating income. pairment charges operating income. The biggest nificant growth in Cash withdrawal expenses (up components of these fees are settlement fees, 75%) and the presence of agent fees related to cash withdrawal fees, and Guarantee and letter the ProstoCredit consumer finance activity. KZT mln 2011 2010 % change of credit fees. Net fee income grew by less than Net Interest Income 18,643 6,033 209% Interest income KZT mln 2011 2010 % change Loans to customers 36,713 26,042 41% Net Fee and Commission Income 3,526 2,753 28% Held-to-maturity investments 633 289 119% Fee and Commission Income Available-for-sale financial assets 438 1,618 -73% Settlement 1,291 1,028 26% Financial instruments at fair value through P&L 217 174 25% Guarantee and letter of credit issuance 1,161 656 77% Cash and cash equivalents 54 168 -68% Cash withdrawal 826 691 20% Amounts receivable under reverse repurchase agreements 24 44 -47% Payment card maintenance fees 371 296 25% Placements with banks 11 258 -96% Custodian services 91 183 -50% Total 38,089 28,593 33% Cash delivery 52 57 -10% Interest expense Other 139 94 49% Current accounts and deposits from customers 12,265 17,574 -30% Total 3,932 3,004 31% Debt securities issued 2,777 1,140 144% Fee and commission expense Subordinated debt securities issued 2,674 1,868 43% Cash withdrawal 157 90 75% steps 38 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 39 up

KZT mln 2011 2010 % change KZT mln 2011 2010 % change Agent services 71 2 NSF% Wages, salaries, bonuses and related taxes 6,669 5,003 33% Payment card maintenance fees 68 51 33% Other employee costs 289 329 -12% Settlement 67 60 132% Total employee costs 6,958 5,332 31% Custodian services 29 32 -98% Other 14 18 -22% Other operating costs Total 405 251 61% Depreciation and amortization 1,204 1,276 -6% Loan servicing 1,110 NSF OTHER NON-INTEREST Operating lease expense 713 731 -2% INCOME Advertising and marketing 699 204 243% Communications and information services 503 446 13% >>Other non-interest income accounts for less financial assets fell significantly as the bank de- Taxes other than on income 485 403 20% than 14% of pre-impairment charges operating creased its portfolio of Government securities as Repairs and maintenance 298 145 105% income. The vast majority of this income is from the loan portfolio grew (liquid assets fell by 22% Professional services 278 69 305% foreign exchange income from the spread on for- in the year, as net loans grew by 20%). Security 269 105 155% eign exchange client activity. In 2011 gains on Travel expenses 212 141 50% Stationery and office supplies 69 75 -8% KZT mln 2011 2010 % change Transportation 42 35 21% Net foreign exchange income 3,431 2,480 38% Cash delivery service 41 34 22% Net gain on available-for-sale financial assets 172 892 -81% Insurance 38 65 -42% Other -167 117 -243% Payment card production 33 31 6% Total 3,436 3,488 -2% Trainings 27 11 140% Representation expenses 14 11 20% OPERATING COSTS Other 384 179 116% Total 13,376 178 44% >>Operating cost rose by almost 44% in 2011, also grew during the year, with large increases less than the 109% increase in operating income. in spending on advertising, security and profes- Employee cost rose by 31%, as headcount rose sional services. A new cost item in 2011 com- 32% to 2,371 (ex-maternity leave employees) ing from the acquired consumer finance activity and bonuses increased due to the higher profit is loan servicing paid to ProstoCredit, account- in the Bank. A significant portion of the head ing for 17% on non-employee costs. The cost/in- count growth was due to the acquisition and sub- come ratio fell from 76% level in 2010 to 52% in sequent growth of the ProstoCredit consumer 2011. lending activity (further employees joined from ProstoCredit in January 2012 on completion of the migration of ProstoCredit partners and business process into Eurasian Bank). Employee costs fell from 43% to 27% of income. Other expenses steps 40 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 41 up

BALANCE SHEET Chart 16: Asset structure evolution (KZT mln) 2011 VS 2010

ASSETS 500,000 450,000 >>As can be seen from the chart below, the Bank’s the result of net loans growing by 20%, and li focus over the past two years has not been asset quid assets shrinking by 22%. Provisions for loan 400,000 25,186 21,390 growth, but better deployment of the asset base. impairment grew less than net loans, and other 350,000 In 2011 total assets grew by only 3.5%. This was long term assets declined. (Chart 16) 22,977 -21,365 -25,211 300,000 -22,139 213,327 256,010 250,000 148,997 118,376 91,961 LOANS 200,000 (Chart 17) Gross loans increased by 20% in of sale consumer finance activity (in the Other 149,307 category in the table below). Auto loans also 150,000 2011, driven by the Retail segment. The Cor- liquid assets 100,000 porate segment portfolio grew by 5%, the SME grew substantially within the Retail segment, as net Loans the ProstoCredit acquisition also increased the loans by 27%, and the Retail loans grew by 45%. – impairment 50,000 provision This particularly strong Retail segment growth Bank’s capability in this segment. Net loans also > OTher lt assets 0 was due to the ProstoCredit acquisition and grew by 20%, as the impairment allowance grew 2009 2010 2011 subsequent growth of the uncollateralized point by 18%.

Chart 17: Gross loans evolution by segment (KZT bln) KZT mln 2011 2010 % change Loans to corporate customers

Loans to large corporate 145,270 137,820 5% 400 Loans to small and medium size companies 34,144 26,803 27% 350 Total loans to corporate customers 179,414 164,623 9% 300 Loans to retail customers Mortgage loans 29,868 28,784 4% 250 101.8 Small business loans 19,300 20,884 -8% 200 70.1 34.1 Auto loans 9,661 2,383 305% 150 Loans collateralized by cash 464 16,080 -97% 68.4 26.8 145.3 100 Other 42,514 1,938 NSF% > COrporate 21.0 137.8 50 sme Total loans to retail customers 101,807 70,069 45% 81.7 retail Gross loans to customers 281,221 234,692 20% 0 2009 2010 2011 Impairment allowance -25,211 -21,365 18% Net loans to customers 256,010 213,327 20%

ALLOWANCE FOR LOAN IMPAIRMENT

KZT mln 2011 2010 % Change Impairment allowance (Balance Sheet) 25,211 21,365 18% Impairment losses (Income Statement) 4,156 1,281 224%

>>The loan impairment allowance increased by by the higher interest rates charged on these 18% in 2011, slightly less than loan growth. As loans. In spite of the acquisition and fast growth can be seen from the chart below, the largest in 2011, the retail impairment allowance fell in contributor to impairment allowance is the retail 2011 both in absolute terms and as a % of gross segment, though this tends to be compensated segment loans. Corporate loan quality hit its low steps 42 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 43 up

in 2009, and since then has improved. SME loans originated in the past two years. Management Chart 18: Impairment allowance by segment (KZT mln) have followed a similar trend to corporate loans, believes that this demonstrates the new ap- Source: Note 17 (a) of the Audited Consolidated Financial Statements but with slightly higher impairment allowances proach to credit assessment and loan approval

as a percentage of gross loans. (Chart 18) that the new management team instigated is 35,000 The chart below shows the impairment al- the key internal driver to loan quality improve- 10,955 8,189 2,205 12,186 lowances by sector as a % of gross loans for that ment. While the quality of the older loans is poor 30,000 2,297 8,205 3,025 segment. As can be seen, in spite of 45% growth in general, it is most evident in the SME seg- 11,653 10,000 in retail loans in 2011, the impairment allowance ment. This poor quality in SME loans has been 25,000 fell in absolute and percentage terms. This is in the driver to relatively low loan growth in the great part due to the rigorous credit assessment segment until credit rating system is fully imple- 20,000 2,525 that is applied to all loans. It should be men- mented. Management expects to have the entire 957 tioned that the impairment data is far better than SME client base credit rated during 2012. The 15,000 2,941 the sector average, even if the restructured banks corporate clients and a part of the SME clients are eliminated from the analysis. (Chart 19) have already been rated. For retail clients, the as- 10,000 The analysis shown in the table below shows sessment occurs at the time of loan demand, and the NPL status of the loans originated prior to is based on verifiable earnings, credit bureau and Corporate 5,000 2010, and those originated in 2010-2011. The internal bank data. It should be mentioned that > sME > rETAil 0 table shows the status as of January 1, 2012. the higher percentage of impaired loans for retail 2008 2009 2010 2011 It is quite clear from the table that loan qua clients is more than compensated by the interest lity is currently substantially better for the loans margin and fees earned from this segment.

Chart 19: Impairment allowance by segment as % of gross loans (%) Analysis by segment of loans and NPLs for loans originated before and from 2010 As at 01.01.2012 Total Bank Corporate SME Retail 16 Total loan book Principal & Accrued interest 277,767 143,241 52,264 82,263 14

NPL (including interest) 23,422 5,163 10,903 7,356 12

% NPL (including interest) 8.4% 3.6% 20.9% 8.9% 10 Loans granted before 2010 Total Bank Corporate SME Retail 8 Principal & Accrued interest 96,047 50,246 23,925 21,876 6 NPL (including interest) 21,797 4,664 10,534 6,598 % NPL (including interest) 22.7% 9.3% 44.0% 30.2% 4 > COrporate Loans granted in 2010 Total Bank Corporate SME Retail 2 sme Principal & Accrued interest 49,270 33,805 12,133 3,332 retail 0 NPL (including interest) 632 335 131 166 2008 2009 2010 2011 % NPL (including interest) 1.3% 1.0% 1.1% 5.0% Loans granted in 2011 Total Bank Corporate SME Retail Principal & Accrued interest 132,450 59,189 16,205 57,056 NPL (including interest) 994 164 238 592 % NPL (including interest) 0.8% 0.3% 1.5% 1.0%

*The figures appearing in this vintage analysis are unconsolidated standalone calculations in accordance with NBRK requirements, which differ from IFRS

The chart below shows the gross customer Bank’s metrics are far better than the sector ave loans and the NPL to gross loan ratio. As can be rage (less than one third the sector level), even if seen, the NPL ratio peaked in 2010 at 9.4%, and the restructured banks are eliminated from the in spite of strong loan growth in 2010, it fell sig- analysis (less than half the sector level). It is not nificantly. 2011 has brought continued strong yet possible to give the exact figures for the sec- loan growth, and the NPL ratio has fallen from tor on an IFRS basis, as to date only the local ac- 9.4% to 7.6%. It should be noted that Eurasian counting standards data are available. (Chart 20) steps 44 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 45 up

A significant portion of loans is collaterali the 2008 crisis. Eurasian Bank has consistently Chart 20: NPLs to Gross Loans ratio and Gross loan portfolio (KZT mln) zed. This is especially the case for corporate and tried to diversify the collateral base, and the val- Note: NPLs is full principal amount of loans more than 90 days overdue SME loans, but also for mortgage and auto fi- uation of real estate collateral is aimed at being

nancing in the retail segment. Real estate tends conservative. As can be seen from the chart be- 300,000 10% to be the predominant form of collateral offered low, real estate currently accounts for just over 270,000 by clients, and across the banking sector real es- half of the corporate loans. (Chart 21) 240,000 tate represented at least 80% of collateral before 8%

210,000

180,000 DEPOSITS BY TYPE 6% >>In 2011 deposits showed no growth, as the has found to be a cheaper, more predictable and 150,000 Bank managed to target the deposit funding re- stable source of funding. Corporate term depos- 120,000 4% quired to fund the assets, hence reducing the its grew by 9%, while retail term deposits fell by 90,000 negative spread cost during the year. As can be 29%. For current accounts and demand deposits,

seen from the table below, term deposits shrank corporates increased by 27%, while retail shrank 60,000 2%

by 6%, while current accounts and demand de- by 10%. Overall, corporate deposits account for 30,000 gross loans posits grew by 19%. Also notable is the increased 74% of total deposits, up from 65% in 2010. > npls/gross loans % 0 focus on corporate deposits, which management 0 2008 2009 2010 2011

KZT mln 2011 2010 % change 2011 % of total Current accounts & demand deposits 68,701 57,585 19% 28% Chart 21: Evolution of Corporate loans collateralized by Real Estate (%) Retail 10,542 11,774 -10% 4% Source: 17 c) (i) of the Audited Consolidated Financial Statements. Includes Real Estate and Real Estate Corporate 58,159 45,812 27% 24% under construction Term deposits 176,910 188,210 -6% 72% 100% Retail 53,687 75,172 -29% 22% 90% Corporate 123,223 113,038 9% 50% Total 245,611 245,796 0% 80% 78% 70% The gross loans to deposits ratio has in- the Bank to deploy substantial excess liquidity. 60% creased over the past two years from the 2009 Management aims to have a diversified funding 54% low of 71%, reaching 115% at the end of 2011. base, and fixed income markets help the Bank to 50% 50% 49% The 2009 low was mostly due to the fact that de- diversify not only the source, but also allow the 40% posits grew by 76%, while gross loans grew by Bank to have longer maturities that are essen- only 32%. In 2010-2011 deposits hardly grew, tial in its effort to issue longer term loans to the 30% while loan growth was significant, allowing Bank’s clients. (Chart 22) 20%

10% Corporate loans collateralized by REGULATORY CAPITAL real estate 0 2008 2009 2010 2011 AND CAPITAL ADEQUACY

>>The chart below shows the evolution of the Bank meets these criteria: At year end 2011 the Tier 1 and Total Capital Adequacy ratios. These Bank had a Tier 1 adequacy ratio of 6,6%, and a are calculated under the local regulators criteria, Total Capital Adequacy ratio of 11,8%. (Chart 23) and banks must have at least 5% Tier 1 ratio and at least 10% Total Capital Adequacy ratio. The steps 46 annual report 2012 the annual report 2012 FINANCIAL STATEMENTS HIGHLIGHTS 47 up

EQUITY SHAREHOLDERS Chart 22: Gross and net loans to deposit ratios (%) >>There were 15,307,970 shares outstanding as >>There were 15,307,970 shares outstanding as of December 31, 2011. No new shares were is- of December 31, 2011 (unchanged since year end

sued during the 2011 fiscal year. The shares are 2010). The direct shareholders were Eurasian 140% not listed. Authorized capital is 33 mln ordinary Financial Company JSC for 99.67% and Eurasian

shares and 3 mln preference shares. The balance Industrial Company JSC for 0.33%. The ultimate 120% of the ordinary shares and all the preference beneficial owners are, with equal shareholdings,

shares remain unissued. Alexander Mashkevich, Alijan Ibragimov, Patokh 100% Shodiyev. Eurasian Financial Company JSC also owns 80% RELATED PARTY one share of the Moscow Bank, and is the nomi- TRANSACTIONS nee shareholder. This stake in the Russian subsid- 60% iary is to satisfy Russian law that requires at least >>In 2011 loans to related parties accounted for two shareholders for a company. 40% 3.0% of the total loan book (down from 3.5% in net loans / 20% 2010), and the interest rates on the loans were customer deposits

between 12.01-12.85%. Average rates extended gross loans / customer deposits 0% to clients were between 11.62% and 16.97%, de- 2007 2008 2009 2010 2011 pending on the currency. Deposits from related parties accounted for 19.46% of the deposit base (down from 28.5% in 2010), with deposit rates varying from 0.14-9.50%. Average deposit rates Chart 23: Tier 1 and Total Capital adequacy ratio and Risk Weighted Assets (KZT mln) for corporate customers were between 0.64%

and 5.06%, depending on the currency. The low 18% 450,000 exposure to related party loans is a core value of the Bank, while the relatively high exposure 16% 400,000

to related party deposits is a reflection of its his- 14% 350,000 toric banking relationship with affiliated entities (particularly in the mining sector). All of the re- 12% 300,000

lated party loans were to companies under com- 10% 250,000 mon control or under significant influence of the ultimate beneficial owners. The related party de- 8% 200,000

posits, in addition to the categories mentioned 6% 150,000 above, include deposits from subsidiaries of the same parent company. 4% 100,000 rwa (rhs) The majority of “related party” clients are 2% 50,000 > Tier 1% employees of ENRC (employees are not techni- > TOTAl capital % cally related as per regulations, and almost all 0 0 01-jan-10 01-jan-11 01-jan-12 are not included in the transactions listed above). At year end 2011, ENRC Group employees accounted for 13.6% of the Bank’s 481,847 unique clients (the number of accounts is greater than number of clients). ENRC Group clients grew by almost 2,500 in the year, against total client growth of almost 305,000, driven by the ProstoCredit acquisition and subsequent business growth. The proportion of ENRC Group employee clients fell from 35.6% to 13.6% over 2011, and Management expects further decreases in the mid term. steps annual report 2012 the 49 up

RECENT DEVELOPMENTS

step growth CONSUMER AWARENESS

>>The Bank significantly increased its marketing expenditure for the second year in a row (up 47% in 2012). It conducts periodic consumer research to better understand consumer needs and Recent the Bank’s perception in the population. Developments The most recent survey (January-March 2013) conducted by TNS (ex. Gallup) research has shown significant increase in unprompted BRANCH OPENINGS consumer awareness of Eurasian Bank (50.4%, >>The bank launched its Branch of the Future up from 46.8% at the end of 2011), to levels network development plan in 2012. The plan only beaten by the large banks. Prompted aware- covered the opening of 96 outlets and 2 full- ness is 97.0% against 91.1% at the end of 2011. service branches during the 2012-2013 pe- Consumers continue to be either neutral or un- riod. To date, one branch and 55 service centers happy with the industry’s standard branch open- have been already opened. In total, the net- ing hours, which has led management in that work growth is being done to increase the geo- past two years to extend opening hours at cer- graphic coverage of the Bank in the country, and tain high volume city branches to evening hours, to improve the network so as to allow a greater Saturday and Sunday. Existing clients of the Bank volume of consumer finance repayments to come characterize it as “a modern high-tech Bank”, “of- through Eurasian Bank locations. The network fering a wide range of services” and “a high level development allows us to come into contact with of service.” Surprisingly, consumers that were the retail customers on a continuing basis, which aware of the Bank, but are not customers, per- allows for cross-sales opportunities, greater con- ceive Eurasian Bank as an “international Bank”. trol over the client service experience, and re- 7.7 duced third party costs. The branch openings percent are targeting new locations only, and extend the branch network to all of Kazakhstan’s regions. The redevelopment of existing branches is sche duled to start in the second half of 2013. The NET INTEREST new format of the branches and outlets has been designed by an international firm, and allows for MARGIN a better client experience, and a greater variety of self-service banking transactions. steps 50 annual report 2012 the up MANAGEMENT TEAM

CORPORATE SUPERVISORY GOVERNANCE BOARD board of directors >>Eurasian Bank, like all banks in Kazakhstan, has corporate governance standards that are mandated by JSC Law (Company Law) and by Alexander Mashkevich Banking regulation. Chairman of the Supervisory As a JSC, the Bank operates with a two-tier Board, Shareholder governance structure: A Board of Directors and a Management Board. The Board of Directors Alijan Ibragimov has by law a minimum number of indepen- Shareholder dent directors. The Board of Directors has an Audit Committee, with the Internal Audit and Patokh Shodiyev Compliance functions reporting into it. The Shareholder Board of Directors receives on the Bank on weekly and monthly basis management reports. Michael Eggleton All members of the Management Board and CEO Board of Directors are subject to approval by the FMSC. The FMSC can disallow individuals, or Boris Umanov may require them to pass relevant exams. The Board Member FMSC also performs periodic audits of banks to ensure that they are in compliance with all appli- Nikolay Radostovets cable regulations and laws. In addition to these Independent Board Member local requirements, the Bank has gone out of its way to hire a Management Board with significant Ruslan Adylov international and local bank experience. Independent Board Member Michael James New management instituted voluntary an- Eggleton nual polygraph testing for all key employees. Olga Rozmanova In a region where bank employees have not al- Chairman of the Independent Board Member Management Board, ways adhered to their fiduciary duties to their CEO employer, it is seen as a sensible measure to pro- ichael Eggleton, CPA has been the as a Director and Regional Manager in Russia and mote correct behavior at Eurasian Bank. Eurasian Chief Executive Officer and mem- former USSR republics. In January 1999, he was Bank believes it pays above average salaries, ber of the Supervisory Board of nominated a Director and Regional Manager for and has a variable compensation scheme that is Eurasian Bank, Kazakhstan since Russia, former USSR republics, Turkey, Middle above local standards (variable compensation October 14, 2009. East, and Northern Africa, then as the Managing has increased to approximately 25% of employee M Prior to his appointment to the above po- Director and Head of the Strategic Markets compensation, up from approximately 20% in sition, he was an Independent Non-Executive Group. Michael Eggleton was also a Senior 2011 and about 14% in 2010). These measures The Bank has three equal ultimate benefi- Director at ENRC PLC (an FTSE 100 company) Manager of the Financial Institutions Consulting together are aimed at having a motivated staff cial owners. They are all members of the Board from the date of the company’s IPO in 2007. Practice at Price Waterhouse Coopers in Moscow. focusing on profitability and the strategy set by of Directors. Management believes that any item Michael spent almost 20 years working as Michaеl Eggleton is the Chairman of the management. that concerns the shareholders is dealt with in an an investment professional in the United States, Board of Directors at Eurasian Bank (Moscow, appropriate manner. Management also believes UK, Turkey, and Russia. In August 2006 he Russia). that the rights of shareholders are balanced with joined TRUST Investment Bank to serve as the He is certified to be a bank president by the the rights of other stakeholders, as demonstrated Chief Executive Officer and Chairman of the Russian, Egyptian, Turkish and Kazakh Central in the section on Related Party transactions. Bank. Before that he worked at Merrill Lynch Banks. He is a Certified US Public Accountant The Bank has to submit monthly data to the International Investment Bank as a Managing and also has been UK FSA certificated whilst at regulator on P&L, balance sheet and loan quality Director and the Head of Emerging Markets Credit Suisse and Merrill Lynch. parameters, This data is made public by the regu (CEEMEA) in London and Moscow since June Michael holds a BА with Honors from the lator (FMSC, at www.afn.kz). In addition, with 2004. Michael Eggleton headed Credit Suisse University of San Diego and an MSc of Business bonds listed on the Kazakhstan Stock Exchange First Boston’s Tactical Markets Group, where he from San Diego State University. (KASE), it is also subject to certain reporting and was responsible for investments in Turkey, CIS, information disclosure requirements by KASE. Middle East, and Northern Africa and also served steps 52 annual report 2012 the annual report 2012 RECENT DEVELOPMENTS 53 up

Ayaz Bakasov Anna Bichurina

Deputy Chairman Deputy Chairman, In charge of Wealth CFO Management, Private Supervises Financial and VIP Banking Analysis and yaz Bakasov joined the Bank results in cross-selling bank products of different nna Bichurina began her career in Department. The broad experience of working in Accounting Management team as Deputy business divisions, quality control of internal pro- the Eurasian Bank in 2001 as Head of the NBRK system and the second-tier banks give Chairman and Board Member supervis- cesses, launching new procedures and processes. Internal Audit. From 2002 to 2010 she Ms. Bichurina thorough knowledge of banking ing Wealth Management, Private and Ayaz Bakasov possesses expert knowledge of held the position of Chief Accountant regulation, supervision, internal audit, account- AVIP Banking on March 1, 2013. banking legislation in a number of jurisdictions. Aof the Bank and supervised the ac- ing and reporting. While working at Eurasian Prior to this appointment Ayaz Bakasov Ayaz Bakasov holds a PhD in Quantum counting and reporting departments. Anna Bank Anna has participated and led a number of held top executive positions at a number of Physics from JINR in Russia, a Diploma of Swiss joined the Management Board of the Bank in projects related to the organization of account- leading financial institutions and corporations Federal Economist and Bachelor’s degree from 2009. Since 2010 she has been responsible for ing functions and business processes, including a in Switzerland, including positions of CEO of GSBA in Switzerland. Before starting his bank- the entire finance function. In January 2013 project for centralization of accounting activity. Sea Launch AG (in the USA and Switzerland); ing career, Mr. Bakasov headed a range of re- she was appointed Deputy Chairman of the Anna Bichurina graduated from the Kazakh Managing Director and Head of Departments of search projects at leading scientific institutions in Management Board of the Bank. State Academy of Management in 1995 major- Global Financial Institutions and Private Banking Switzerland, Italy, the USA and Russia. Anna Bichurina started her career in 1993 ing in Accounting and Audit with qualification of CIS at Liechtensteinische Landesbank, Managing at the NBRK. From 1994 to 1996 she worked economist. Ms Bichurina has САР qualification Director at Valartis Bank AG, CIO at RENOVA in the Almaty territorial branch of the NBRK, and АССА Diploma in the International Financial Management AG, as well as in the management holding various positions from economist of Reporting, and received an MBA in 2011. of various subsidiaries of Credit Suisse, includ- the Department of correspondent relation- ing Credit Suisse Private Banking and Russian ship to the chief economist of the Department Projects Department. of currency regulation. From 1996 to 2000 she Ayaz Bakasov has outstanding record in worked in various divisions of the Department building, developing and managing portfolios for of Banking Supervision and the Internal Audit WM and PB as well as for institutional customers. Department of the NBRK. In 2000 she moved As seasoned executive he achieved excellent to OJSC “Temirbank” in the Internal Audit steps 54 annual report 2012 the annual report 2012 RECENT DEVELOPMENTS 55 up

Bertrand Nurbek Gossart* Ayazbayev

Deputy Chairman Deputy Chairman In charge of Retail In charge of Treasury Banking and and ALM ertrand joined the management team Rusfinance and he established another financial Consumer Finance urbek Ayazbayev joined the manage- management to develop the investment strategy of Eurasian Bank in July 2011 as company in Kazakhstan (Prostocredit) in 2006. ment team of Eurasian Bank in January and in structuring the portfolio to provide sta- Managing Director in charge of Retail In 2007, Bertrand Gossart was a non-exe 2010 as Managing Director responsible ble returns and controlling risk. He also assisted Banking and Consumer Finance. cutive member of the Board at Alliance Bank in for Treasury and Assets and Liabilities in optimizing the business processes of the pen- B Bertrand Gossart has an extensive charge of audit of the Bank’s retail business. Nmanagement. He became Deputy sion fund. background in retail banking activities, hav- Prior to his appointment at Eurasian Bank, Chairman in January 2013. Mr. Ayazbayev graduated The Russian ing spent most of his career working across in- Bertrand Gossart had worked for Société Mr. Ayazbayev has a very wide experience Presidential Academy of National Economy and ternational banking organizations, including Générale Consumer Finance as Regional in the treasury and Asset Liability management Public Administration with a DBA degree. In Renault Credit International, BNP Paribas and Director supervising company’s businesses in area in different financial institutions. Starting 2011 he obtained a PhD from the International Société Générale. India, China, Vietnam and Kazakhstan. He in 1996 as a dealer in interbank operations, Mr. Academy of Business in Switzerland. Bertrand Gossart started his career at joined the Board of Société Générale Consumer Ayazbayev worked at ATF Bank for 13 years. Renault Credit International in 1991, where he Finance in 2008. He was Director of the Treasury department of held various positions in international deve Bertrand Gossart holds a Master’s de- ATF Bank from 2007 until 2009. From 2007 un- lopments in Eastern Europe (Poland and Czech gree in business administration from Amiens til 2008 he was also Adviser on investment ac- Republic). In 1998, he moved to BNP Paribas to Business School in France. tivity to the Chairman of the Management handle the creation of a consumer finance com- Board of the Otan Pension Fund that was con- pany in Poland and in Thailand. trolled by ATF Bank. He successfully assisted the In 2003, he became CEO of Société Générale in Russia where he launched

*At this moment FMSC is considering an appointment of Mr.Gossart to the position of the Deputy Chairman of Management Board. steps 56 annual report 2012 the annual report 2012 RECENT DEVELOPMENTS 57 up

Seitzhan Roman Maszczyk Yermekbayev Deputy Chairman, Deputy Chairman, CRO In charge of In charge of Risk Corporate business & management eitzhan Yermekbayev is the Deputy Previously Seitzhan worked on the SME oman Maszczyk joined the team in Mr. Maszczyk is a former member of Chairman supervising Corporate, SME Committee for External Economic Relations February 2010, supervising risk mana Committee of European Banking Supervision, and Trade Finance Departments. He of the Almaty Akimat. He was the Head of the gement of Eurasian Bank. EU; former member of Working Group on was invited to Eurasian Bank in July Representative office of Wimpey Construction He has an extensive experience in risk Operational Risk, Institute of International S2011 to manage the bank’s Corporate Plc, a UK EPC company in Almaty, and the Rmanagement across various financial in- Finance; Member of Advisory Committee on and SME Banking. Regional Director for Albert Abela Corporation. stitutions. His risk management career has in- Regulatory Supervision, Polish Bank Association Prior to joining the bank in July 2011 Seitzhan Yermekbayev graduated from the cluded the positions of Managing Director of Risk and Member of Professional Risk Managers’ to manage the bank’s Corporate and SME Almaty Institute of Foreign Languages (1990). Division at the largest Polish bank (2001-2006, Association. Banking he worked in the European Bank for He has a Diploma in Finance and Credit from the 2009), Chief Risk Officer in Russian National Mr. Maszczyk has a graduate degree in bank- Reconstruction and Development as a Senior Eurasian Institute of Markets. Bank Trust (2007), and the Chief Risk Officer at ing from Warsaw Higher School of Banking and Banker. Seitzhan has a rich managerial expe- Nadra Bank, Ukraine (2007-2009) and several Insurance. He also holds a PhD in Theoretical rience in the banking sector. He was engaged consulting projects for the financial sector. Physics from Warsaw University. in the opening of HSBC Bank Kazakhstan, a Additionally to his risk management posts, fully owned subsidiary of the HSBC Group in Mr. Maszczyk was a member of supervisory Almaty, where he worked for 12 years manag- boards of other companies, including Bankowy ing Corporate, Institutional and Transactional Fundusz Leasingowy SA a Polish leasing com- Banking. In HSBC, he grew from the position pany (2001 – 2003); and PKO-Inwestycje SA of the Department Director to the Deputy Chief (2001 – 2003), a Polish real estate developer Executive Officer. Additionally, Seitzhan has held (2003 – 2006). the position of the Head of Representative Office of HSBC Bank Plc in Ukraine. steps 58 annual report 2012 the annual report 2012 RECENT DEVELOPMENTS 59 up

Talgat Hermann Abdukhalikov Tischendorf*

Deputy Chairman, Managing Director, Supervises the CIO designate Branch Network In charge of algat Abdukhalikov joined Eurasian Executive Officer of Verniy Capital, JSC, an as- ermann Tischendorf joined Eurasian In addition, he was Information Security Information Bank in December 2009 as Deputy set management company. During this time Bank as Chief Information Officer in Officer at Raiffeisen Zentralbank and an audi- Technology Chairman in charge of branch net- ATF Bank was bought by Unicredit, and Verniy August 2012 to manage the bank’s in- tor in Deloitte & Touche Austria’s Enterprise Rise work, operational business, credit ad- Capital was the broker for both parties. formation-technology efforts. Service Division. Tministration, Resources Department, Mr. Abdukhalikov worked as Deputy Chief H The fluent Russian speaker has Mr. Tischendorf studied at Karl-Franzens and Custody. Since January 2013 He has been Executive Officer at Astana Finance Company vast experience in information technology and Universitaet Graz in Austria and at UCLA in the focusing on branch network management and from March 2009 till August 2009, taking active in the strategic and operational management United States. He holds a master’s degree of Resources Department. part in restructuring of the company. of financial institutions. He has worked in a full Social and Economic Sciences and is a Certified Mr. Abdukhalikov has vast experience in as- Mr. Abdukhalikov was a member of Board of range of corporate environments – from startup Information Systems Analyst. sets and liabilities management, transactions at Directors of Kazakhstan Stock Exchange during to rapid expansion, consolidation, restructuring, the financial market and in establishment and 1998-2003 and 2010-2012. and mergers and acquisitions. successful development of operations. Mr. Abdukhalikov graduated in 1985 from His financial-services career has included Mr. Abdukhalikov started his career in fi- the Dzerzhinsky Higher School of the KGB in Chief Information Officer positions at Raiffeisen nance at ATF Bank in 1995 in the position of Moscow, with a Diploma in radio-engineer- Russia and Renaissance Capital Consumer Head of the Securities Division. He took active ing. In 1998 he graduated International School Finance. part in ATF transformation into one of the lead- of Business at the Kazakh State Academy of Mr. Tischendorf served as Vice President of ing banks of the country, managing the establish- Management with a Diploma in Finance and Strategic Projects at Standard Bank in Russia, as ment and successful operation of Treasury and Credit. well as Executive Director of the Contact money Custody. In 2002 he became Managing Director transfers and payment system. and member of the Management Board supervising Treasury, Operations and Custody. In *At this moment FMSC is considering the appointment of Mr. Tischendorf to February 2007 Mr. Abdukhalikov became Chief the position of Маnaging Director of Management Board. steps 60 annual report 2012 the annual report 2012 RECENT DEVELOPMENTS 61 up

At the end of 2012, Eurasian Bank had 4,958 employees. Two thirds of the employees are women, and include members of senior management.

ANTI MONEY ensuring that the Bank is in compliance with all LAUNDERING laws and regulations that control its activities, including AML requirements (see above). The de- COMPLIANCE partment works with other front and back office >>AML policies and compliance are overseen by bank departments to ensure that processes and Romain Hochet* the Compliance department, which reports di- procedures are implemented and updated to en- Managing Director, rectly to the Board of Directors. The Bank’s poli- sure full compliance. COO designate cies and procedures are in accordance with local In charge of the regulatory requirements and international best Bank’s operations omain Hochet joined the management He first gained consulting experience in practice. The Bank has active relationships with EQUAL OPPORTUNITY team in January 2013 supervising the France at IFOP and BVA groups focusing on mar- international and domestic financial institutions, EMPLOYMENT operations of Eurasian Bank. ket studies in the consumer marketing sectors, all of which require the Bank to have good AML Romain has worked in the banking sec- and gaining knowledge of the to media & adver- procedures as part of their KYC procedures to ac- >>Kazakhstan is a multicultural country, with Rtor in the CIS for 9 years. He is fluent tising markets. cept the Bank as a counterparty. over 100 ethnic groups with a number of diffe in Russian, and has a very good understand- Romain has an advanced graduate diploma rent religious beliefs. Non-discrimination on the ing of the local culture and mentality. He has a of the Business Administration Institute in Aix- basis of ethnicity, religion, age and gender is writ- significant experience and knowledge in bank en-Provence in France, and is also a graduate in INTERNAL AUDIT ten into the country’s constitution. Eurasian Bank operations and consumer finance with interna- Sciences from Marseille University in France. >>The Internal Audit department ensures that has a policy of not discriminating in hiring, com- tional banks such as Unicredit Group and Société the Bank’s policies and procedures are adhered pensation and promotion decisions, as it is the Générale. He worked as project manager, head to, and that policies and procedures are modified best way to attract and motivate the best talent of department, consultant of the management if they are leaving the bank exposed to undue available. Variable compensation is an increasing board and responsible of bank operations. He risk. Periodic random detailed audits of different proportion of total compensation, another factor achieved significant results in strategic projects branches, departments and subsidiaries ensures that helps to motivate employees to excel. delivery, launching new processes conforming that control systems and reporting are effective. At the end of 2012, Eurasian Bank had with local bank regulations, and was instrumen- Internal audit also works with external auditors 4,958 employees, including 343 on maternity tal in supporting the business growth. and regulators. leave. Two thirds of the employees are women, and include members of senior management (Management Board, Department Heads and COMPLIANCE CONTROL Branch Managers). *At this moment FMSC is considering the appointment of Mr. Hochet to the >>The compliance department, which reports Anna Bichurina, the CFO and Management position Маnaging Director of Management Board. to the Board of Directors, is responsible for Board member, heads the Equal Opportunity steps 62 annual report 2012 the annual report 2012 RECENT DEVELOPMENTS 63 up

Eurasian Bank has a top management The Future 25 program is the Bank’s team of international experts and local effort to recruit top quality managers with experience in international and local employees, and is essentially a very banks. focused and longer term training program ...Our Future 25 leadership program evaluates contribution to the community as well as performance on the job.

Committee that was formed in 2011. The com- The program is scheduled to continue through through a web-based platform. This program is where violent storms destroyed over 50,000 old mittee is tasked with looking at reducing ca- 2016. After a written and interview based screen- currently in 181 public schools, as well as 23 pri- trees in a 480 hectares area, and Monkhnatka reer advancement constraints, flexible working ing process, 25 candidates are offered employment vate schools and educational centers. The Bank Hill that was destroyed by a forest fire in 2012. 96 hours and assessing the company benefit plan. with the bank and are rotated through the Bank’s won an award for this last program, and was the Eurasian Bank continues to provide financial new outlets The Bank is looking for greater female participa- departments for hands-on experience, given in- only banking institution involved. support to war veterans and sponsors annual cel- tion in senior management, and also is looking to ternal and external training, and participate in a In the southern city of Shymkent, the Bank ebration events for them. The Bank launched its Branch of the Future keep voluntary staff turnover at less than 20% by number of outward looking activities such as uni- has been providing financial support to the Eurasian Bank was the sponsor in 2012 of network development the end of 2013. versity recruitment, charity and NGO projects, fi- “Faith, Hope, Love” charity that is supporting the first Play4Life Open in Astana, a tennis tour- plan in 2012. The plan nancial competitions and other activities where 25 children with infantile cerebral palsy. In the nament. The Bank provided funds for equipment covered the opening of 96 outlets and 2 full- they develop skills and promote the Bank as a Almaty region, in Kaskelen, Bank employees for the children’s room of the National Research service branches during TRAINING good career destination for ambitious students. have been visiting a boarding school for disad- Center of Motherhood and Childhood of Astana. the 2012-2013 period. >>Training is a key factor in ensuring that the vantaged children and organizing sponsorship The Bank sponsored the Federation of Bank’s staff remains motivated and competent and events for the students. The Bank also pro- Rhythmic Gymnastics “Zhuldyz-2012”, the 1st in their tasks. During 2012, Eurasian Bank con- CHARITABLE & SOCIAL vides IT equipment for these students. Employees International Cup in rhythmic gymnastics for ducted over 200 training sessions for more than CONTRIBUTIONS have also participated in blood drives targeted International Children’s Day. 500 young ath- 8,000 attendees. This works out to be an aver- for pediatric cancer patients. letes from Israel, Belarus, Georgia, Uzbekistan, age of more than two training sessions per em- >>Eurasian Bank remains a socially responsible The Bank sponsored the 2012 Burns Supper Kyrgyzstan, Russia, Slovakia and Kazakhstan ployee. Over 40% of the trainees came from the organization. Contribution to the communities event in Almaty. The event raised funds for the competed in the individual and group programs. ProstoCredit activity, where integration into the it operates in is a core value that is instilled in all Dara Foundation, which targets programs for The Bank also sponsored the national level com- Bank and training on the new IT systems were employees, particularly our future leaders. Our children. In this case the funds went towards petition of the University Games, and a variety of key targets for the year. During 2012 the Bank’s Future 25 leadership program evaluates contri- building stables for a hippotherapy (horse-rid- horse riding competitions. staff attended various seminars and workshops bution to the community as well as performance ing) program for children with infantile cerebral On a purely cultural note, the Bank spon- both in Kazakhstan and abroad to gain insight on the job. The Bank supports program in educa- palsy. This program has been a great success and sored the “Alma-Ata is my first love” music festi- and specific knowledge of technical and manage- tion, health, sports, environment and culture. the value of the therapy is evident in the chil- val, a popular event in the city of Almaty. ment aspects of bank operations. Education is a priority for the nation, and for dren’s smiles. our Bank. We assist underprivileged children in At the behest of the Orthodox church, the many communities to ensure that they are pre- Bank is providing computers for the orphanages FUTURE 25 pared for the new school year. In addition, to- in the parishes of Astana and Almaty. This allows >>The Future 25 program is the Bank’s effort to gether with the Presidential Foundation and the for the orphans to become computer literate. recruit top quality employees, and is essentially a city of Almaty, the Bank is sponsoring a program The Bank is sponsoring reforestation efforts, very focused and longer term training program. to improve the innovation capability of schools in particular in the Medeu area near Almaty, steps annual report 2012 the 65 6.9 up percent RISK

NPL ratio MANAGEMENT The following discussion may not contain all the information on risk management necessary to the reader of the annual report. Readers should refer to Note 31 of the consolidated audited financial statements of JSC Eurasian Bank for a more complete understanding of the Bank’s risk management processes and procedures.

RISK MANAGEMENT STRUCTURE

>>Risk management is built into the entire corporate governance structure of the Bank. The Board of Directors has overall responsibility for the oversight of the risk management framework, overseeing the management of key >> Risk is an inherent part of business activities of risks and reviewing its risk management policies Eurasian Bank, and it is the key area of improve- and procedures as well as approving significantly ment in procedures in the past three years. The large exposures. On a frequent periodic basis, the Bank’s risk management system is based on the Board receives management reports that give an principle of continually assessing risk through- ongoing view of the Bank’s exposures. out the life of any operation. Risk is managed The Management Board is responsible for through a process of ongoing identification, mea- monitoring and implementation of risk mitiga- surement and monitoring, subject to risk limits tion measures and making sure that the Bank and other controls. This process of risk manage- operates within the established risk parame- ment is critical to Eurasian Bank’s continuing ters. The Chief Risk Officer (CRO) is responsi- profitability and each individual within the bank ble for the overall risk management and compli- is accountable for the risk exposures relating to ance functions, ensuring the implementation of his or her responsibilities. common principles and methods for identifying, The major risk types identified by the bank measuring, managing and reporting both finan- step are liquidity risk, market risk (including currency cial and non-financial risks. He reports directly exchange rate risk and interest rate risk) and to the Chairman and indirectly to the Board of prudent credit risk. Directors. steps 66 annual report 2012 the annual report 2012 RISK MANAGEMENT 67 up

Chart 16: Maturity gap analysis for 2012 (KZT bln) Chart 17: Change in maturity gap for 2011-2012 (KZT bln)

250 125

225 100

200 75

175 50 20,5 104,0 49,9 150 25 6,1 0,4 20,0 41,5 2,0 125 0 -36,7 -54,4 -0,8 100 25 -106,0 75 50

50 75

25 100 > Assets 2012

liabilities 0 2011 125

< 3 m 3-6 m 6-12 m 1-5 years >5 years non-interest < 3 m 3-6 m 6-12 m 1-5 years >5 years non-interest

Credit, market and liquidity risks both RISK MANAGEMENT related party credit applications go through the and understanding of market risk by ALCO, the at the portfolio and transactional levels are AND REPORTING same screening as third party credit applications. Management Board and the Board of Directors. managed and controlled through a system of Most important of all, the shareholders, Board Currently the Bank is implementing the mar- 1.3 Credit Committees and an Asset and Liability >>Eurasian Bank measures risk using a method of Directors and Management Board are keenly ket and liquidity risk management system which percent Management Committee (ALCO). In order to fa- which reflects both the expected loss likely to focused on keeping risk within defined parame will give the Bank the technical ability to put in cilitate efficient and effective decision-making, arise in normal circumstances and unexpected ters, and management are rewarded according to the best practice in market for liquidity manage- The low exposure to related party loans is a the Bank established a hierarchy of credit com- losses, which are an estimate of the ultimate ac- performance metrics that encompass good risk ment and ALM. core value of the Bank, mittees depending on the type and amount of tual loss based on statistical models. These mo management. The chart above shows the assets and liabi while the relatively high the exposure. dels use probabilities derived from historical lities by maturity. One can see that there are ex- exposure to related party deposits is a Both external and internal risk factors are experience, adjusted to reflect the economic en- cess liabilities in 3-6 month and 6-12 month ma- reflection of its historic identified and managed throughout the organi- vironment. Eurasian Bank also runs worse case MARKET RISK turities, and excess assets in the 1-5 year and banking relationship zation. Particular attention is given to identify- scenarios that could arise in the event those ex- >>Eurasian Bank is exposed to market risk, over 5 year categories. In essence, the bank is with affiliated entities ing the full range of risk factors and determina- treme events, however unlikely to occur do, in which is the risk that the fair value or future implicitly financing long term assets with 3-12 (particularly in the mining sector) tion of the level of assurance over the current fact, occur. cash flows of financial instruments will fluctuate month liabilities. This explains management’s risk mitigation procedures. Apart from the stan- Reporting on risk is provided to The Board of due to changes in market variables such as in- wish to issue new bonds, which would improve dard credit and market risk analysis, the Risk Directors, the Management Board, and affected terest rates, foreign exchange rates, and com- the longer term period gap. (Chart 16) Management Department monitors financial business units on a regular basis. The frequency modity prices. Market risk is managed by the The chart above shows the change in the gap and non-financial risks by holding regular meet- of the reporting varies by the audience and the ALCO Committee based on the risk limits recom- from year end 2011 to year end 2012. It is evi- ings with operational units in order to obtain ex- criticality of the information. mended by the Risk Department. The group uses dent that the gaps are quite dynamic. (Chart 17) pert judgments in their areas of expertise. With a number of stress test models, and uses Value- The impact of interest rate changes has the acquisition of ProstoCredit, the beginning at-Risk (VaR) methodology to measure its mar- grown in the past years. It is estimated that a of higher activity levels in the Moscow subsidi RISK MITIGATION ket risk. Specific risk limits exist for each type of 100bps change in interest rates on all inter- ary, with new IT systems and prospective new AND EXCESSIVE RISK market risk, for instance the currency risk limit est bearing assets and liabilities would have product offers, the risk management task is dy- internally determined is 2% of shareholders’ eq- had an impact of KZT 251.8 mln (positive for namic. New procedures and processes need to be CONCENTRATION uity and the interest rate risk limit is 7 bln tenge. interest rate decline, negative for interest rate devised and implemented to cater to new bank >>Risks are actively managed, whether by spe- During 2011-2012 the VaR methodology rise) on earnings and equity in 2012, up from structure, new products, new external environ- cific customer, sector, currency or maturity li for measuring FX risk and for interest rate risk KZT 64.2 mln in 2011. The impact on the avail- ment and changing regulation. mits, or by using derivatives and other instru- was introduced. In addition, the methodology able-for-sale financial assets would have been ments to lower the specific risk. Exposure to for calculating Real Gap and forecasting the de- KZT 5.7 mln on the P&L and KZT 109.2 mln related party lending has been a problem for posit base was improved. A number of new re- on equity in 2012, versus KZT 11.0 mln and the sector in Kazakhstan; at Eurasian Bank all ports were introduced to improve the assessment KZT 39.8 mln, respectively in 2011. steps 68 annual report 2012 the annual report 2012 RISK MANAGEMENT 69 up

Risk is an inherent part of Chart 18: 2012 Assets and liabilities denominated in foreign business activities of Eurasian currencies (KZT bln) Bank, and it is the key area of 80 improvement in procedures in 70 the past three years. 70,2 60 69,9 50

20 12,1 8,7 0,5 10 > Assets 8,8 8,6 0,5 liabilities 0

USD RUB EUR Other

Details of the interest rate gap, average interest CREDIT RISK Chart 19: 2012 Foreign currency gap pre and post hedging (KZT bln) rates and sensitivity analysis can be seen in note 31 >>Credit risk is the risk that a borrower or counter- (b)(i) of the Consolidated Financial Statements. party to a financial instrument fails to meet their 109 The chart below shows the assets and liabilities contractual obligation. Credit policy is set by the 3.5 percent that are denominated in foreign currencies. The US Board of Directors, and the monitoring of credit ex- over 109% NPLs dollar is the most significant currency, followed by posures is done by the Credit Committee. The cur- 3.0 Coverage Ratio the Russian rouble and the Euro. It is only in the rent management has done much work in the past 2.5 Russian rouble that one notices any significant mis- three years to improve the situation of pre-existing match. (Chart 18) problem credits, and to ensure that credit quality 2.0

The chart below shows the currency gap by is improved in the future through a rigorous credit 1.5 currency, before and after hedging. As can be seen, approval process. 0.1 the US dollar position is essentially flat after hedg- Management implemented a soft collection 1.0 3.3 0.1 ing, and the only substantial long position is in the process managed by the bank in 2010, which im- 0.5 Russian rouble. The net RUB exposure after hedg- proved the quality of some credits, reduced the 0.4 3.0 0.0 ing increased by 21% from 2011, due to the in- number of credits going to external hard collection 0 -0.1 net -0.3 crease in the un-hedged rouble position. (Chart 19) contractors, and improved the recovery value of -0.5 It is estimated that KZT strengthening by 10% bad loans. This soft collection process is now part derivatives -0.5 net post deriv. against the USD would have reduced profit and eq- of the Bank’s normal procedures, and is in part re- -1.0 USD RUB EUR uity by KZT 8.2 mln in 2011, a 25% decline in sen- sponsible for the high quality of the loans origi- sitivity from 2011. The impact of KZT strengthen- nated after 2009. The soft collections team had a ing against the Russian rouble declined by 84% 92% success rate in 2012 with loans under 90 days and would have reduced profits by KZT 1.8 mln. It overdue. The success of soft collections reduces the should be noted that 93% of the ruble position is cost, time and losses that occur when loans go to the net assets of the Russian subsidiary, and do not hard collections (whether internally, or externally). present any direct foreign exchange risk; all foreign Significant improvement has also been achieved exchange impact for this is booked in the balance in the hard collection process, but the greatest sheet translation reserve. All things being kept con- achievement is the reduction of loans that end up stant, a weakening of the KZT would have an equal in hard collection. opposite effect from the numbers presented above. Credit and rating systems are another tools for The VaR for foreign currency risk was estimated at managing credit risk. Credit rating and scoring sys- KZT 210.3 mln. tems are now applied to all segments: Corporate, steps 70 annual report 2012 the annual report 2012 RISK MANAGEMENT 71 up

Chart 20: FMSC classification of loans for Eurasian Bank and the rest of Liquidity risk exists any time there is a mis- of being realized. Such forwardlooking statements sector in Kazakhstan match of maturities or interest rates between as- relate to, among other things: Source: FMSC, January 1, 2013 data. Data for Eurasian Bank is unconsolidated JSC Eurasian Bank data. sets and liabilities (see charts in Market Risk sec- the stability of the banking sector in tion), or when credit and deposit markets freeze up Kazakhstan generally; 50 in times of crisis. The NBRK mandates minimum li- changes in the Bank’s corporate, retail, SME 45 quidity positions, and some of this needs to be on businesses, changes in its cross selling activities account with the NBRK. In addition, the Board of among client segments and products and in its 40 Directors sets liquidity targets that aim to provide deposit base; 35 sufficient liquidity without incurring substantial expectations as to the impact of projects under-

30 negative carry costs. taken to improve cost efficiencies and enhance In note 31 (d) of the Consolidated Financial liquidity and revenues; and 25 Accounts, it is possible to see the maturity pro- estimates and financial targets for increasing, 20 file of all of the Bank’s liabilities. KZT 314.7 bln of changing and diversifying the composition, as

15 these liabilities are customer deposits (74% of to- well as the quality, of the Bank’s loan portfolio. tal liabilities), of which KZT 234.6 bln are with ma- Factors that might affect such forwardlooking 10 turities beyond one month. It should be noted that statements include, amongst other things: 5 Eurasian bank under Kazakhstan law, retail depositors may with- effects of the global financial crisis;

rest of sector 0 draw their deposit at any time, with only a penalty overall economic and business conditions, in- Standard Doubtful 1 Doubtful 2 Doubtful 3 Doubtful 4 Doubtful 5 Bad of losing the accrued interest. This in fact means cluding commodities prices; that the maturity profile of deposits is difficult to the demand for the Bank’s services; gauge with precision. This difficulty is greater for competitive factors in the industries in which the SME and Retail. For Corporate customers the roll four years. It can be seen that the higher risk cate retail deposits, where customers are more likely Bank and its customers compete; out of the rating system occurred in 2010 as the gories have remained low and under control. to switch banks depending on interest rate offers, changes by the Government regulation and in number of clients was relatively limited. Retail The significant increase in the Doubtful 1 cate- while corporate depositors tend to be more stable the Government’s and/or Samruk-Kazyna’s poli- credit scoring existed and was constantly develo gory in 2011-2012 is not due to a deterioration of and are bound by the contractual term of the de- cies regarding support for the banking sector in ped in Retail, but it received a new impulse with the Bank’s loan portfolio, but due to the signifi- posit. In 2012 we saw an increase in retail depos- Kazakhstan; the ProstoCredit acquisition — which is mainly fo- cant growth in consumer finance business (after its (growing by KZT 33.8 bln, up 54%), though the changes in tax requirements, including tax cused on low sum / high volume unsecured lend- the 2010 acquisition of ProstoCredit). Based on absolute growth of Corporate deposits was almost rate changes, new tax laws and revised tax law ing and auto loans. In consumer lending, credit the Bank’s models, these loans are provisioned on the same (growing by KZT 34.3 bln, up 19%), and interpretations; scoring is done by statistical scorecards and relies issue date at a level that automatically classifies they still accounted for 69% of the deposit base at interest rate fluctuations and other capital mar- on demographic information, salary data from the them as Doubtful 1, though the portfolio is per- year end. ket conditions; pension system, credit histories from credit bu- forming very much in line with the Bank’s expecta- exchange rate fluctuations; reaus, as well as previous experience by the Bank tions and models. economic and political conditions in inter- and ProstoCredit with their borrowers. The Bank’s FORWARD LOOKING national markets, including Governmental scoring system is integrated into the IT system and STATEMENTS changes; is able to handle high volumes of credit requests LIQUIDITY RISK economic and political conditions in Kazakhstan very rapidly (speed is essential, as customers are >>Liquidity risk is the risk that Eurasian Bank will >>Certain statements included herein may con- hostilities and restrictions on the ability to trans- usually at stores trying to purchase goods at the be unable to meet its payment obligations when stitute forwardlooking statements that involve fer capital across borders; and time of credit application). The SME rating sys- they fall due under normal and stress circum- a number of risks and uncertainties. Such state- the timing, impact and other uncertainties of fu- tem started to be rolled out in 2011, and was com- stances. Liquidity risk is managed through the ments, certain of which can be identified by the ture actions. pleted in 2012. ALCO approved liquidity framework. The Treasury use of forwardlooking terminology such as “be- The Bank is not obliged to, and does not in- Clearly, the risk assessment of the Bank’s department manages liquidity on a daily basis and lieves”, “expects”, “may”, “are expected to”, “intend to, update or revise any forwardlooking state- loan portfolios is based on internal models. That submits monthly reports to the ALCO. In order to tends”, “will”, “will continue”, “should”, “could”, ments made in this Annual Report whether as a said, in reports to the regulator in Kazakhstan, manage liquidity risk, it performs daily monitoring “would be”, “seeks”, “approximately”, “estimates”, result of new information, future events or other- the Bank presents its loan portfolio according to of future expected cash flows on client’s and bank- “predicts”, “projects”, “aims” or “anticipates”, or wise. All subsequent written or oral forwardlook- their criteria. The chart below shows the situation ing operations, which is a part of the assets/ liabili- similar expressions or the negative thereof or other ing statements attributable to the Bank, or persons for Eurasian Bank and for the rest of the sector as ties management process. The ALCO sets limits on variations thereof or comparable terminology, or acting on its behalf, are expressly qualified in their of January 1, 2013. It can be seen that Eurasian the minimum proportion of maturing funds avail- by discussions of strategy, plans or intentions, in- entirety by the cautionary statements contained Bank’s loan portfolio is substantially better than able to meet deposit withdrawals and on the mini- volve a number of risks and uncertainties. Such throughout this Annual Report. As a result of these the sector average. (Chart 20) mum level on interbank and other borrowing facili- forwardlooking statements are necessarily depen- risks, uncertainties and assumptions, the reader The chart above shows the evolution of the ties that should be in place to cover withdrawals at dent on assumptions, data or methods that may be of this Annual Report should not place undue re regulatory data for Eurasian Bank over the past unexpected levels of demand. incorrect or imprecise and that may be incapable liance on these forwardlooking statements. steps annual report 2012 the 73 up

Consolidated Financial Statements

for the year ended 31 December 2012

CONTENTS Independent Auditors’ Report...... 74 Consolidated Statement of Comprehensive Income...... 76 step Consolidated Statement of Financial Position...... 77 efficient Consolidated Statement of Cash Flows...... 78 Consolidated Statement of Changes in Equity...... 80 Notes to the Consolidated Financial Statements...... 81 55 percent

Cost to Income Ratio steps 74 annual report 2012 the annual report 2012 Consolidated Financial Statements 75 up

Independent KPMG Audit LLC >>State Licence to conduct audit # 0000021 dated 6 December 2006 issued by the Ministry of Auditors’ Report Finance of the Republic of Kazakhstan

(d) Opinion >>In our opinion, the consolidated financial statements present fairly, in all material re- spects, the financial position of the Group as «КПМГ Аудит» жауапкершілігі at 31 December 2012, and its financial per- шектеулі серіктестік 050051 Алматы, formance and its cash flows for the year then Достык д-лы 180, ended in accordance with International Financial Тел./факс: 8 (727) 298-08-98, Reporting Standards. 298-07-08 (c) Auditors’ Responsibility Nigay A. N. KPMG Audit LLC >>Our responsibility is to express an opinion on General Director of KPMG Audit LLC 050051 Almaty, 180 Dostyk Avenue, these consolidated financial statements based on acting on the basis of the Charter E-mail: our audit. We conducted our audit in accordance [email protected] with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to 27 March 2013 obtain reasonable assurance about whether the Irmatov R. I. consolidated financial statements are free from Certified Auditor material misstatement. of the Republic of Kazakhstan, (a) To the Board of Directors An audit involves performing procedures to Auditor’s Qualification Certificate of Eurasian Bank JSC obtain audit evidence about the amounts and No МФ-0000053 of 6 January 2012 >>We have audited the accompanying consoli- disclosures in the consolidated financial state- dated financial statements of Eurasian Bank JSC ments. The procedures selected depend on the and its subsidiary (together referred to as the auditor’s judgment, including the assessment of “Group”), which comprise the consolidated state- the risks of material misstatement of the con- ment of financial position as at 31 December solidated financial statements, whether due to 2012, and the consolidated statements of com- fraud or error. In making those risk assessments, prehensive income, changes in equity and cash the auditor considers internal control relevant to flows for the year then ended, and notes, com- the entity’s preparation and fair presentation of prising a summary of significant accounting poli- the consolidated financial statements in order to cies and other explanatory information. design audit procedures that are appropriate in the circumstances, but not for the purpose of ex- (b) Management’s Responsibility for the pressing an opinion on the effectiveness of the Consolidated Financial Statements entity’s internal control. An audit also includes >>Management is responsible for the preparation evaluating the appropriateness of accounting and fair presentation of these consolidated finan- policies used and the reasonableness of account- cial statements in accordance with International ing estimates made by management, as well as Financial Reporting Standards, and for such in- evaluating the overall presentation of the consol- ternal control as management determines is nec- idated financial statements. essary to enable the preparation of consolidated We believe that the audit evidence we have financial statements that are free from material obtained is sufficient and appropriate to provide misstatement, whether due to fraud or error. a basis for our audit opinion. steps 76 annual report 2012 the annual report 2012 Consolidated Financial Statements 77 up

Consolidated Statement of Comprehensive Income for the Consolidated Statement of Financial Position as at year ended 31 December 2012 31 December 2012 Note 2012 KZT’000 2011 KZT’000 2012 2011 Note KZT’000 KZT’000 Interest income 4 50,387,551 38,088,634 ASSETS Interest expense 4 (23,450,884) (19,445,412) Cash and cash equivalents 13 54,920,277 40,525,925 Net interest income 26,936,667 18,643,222 Financial instruments at fair value through profit or loss 14 1,262,873 1,657,652 Fee and commission income 5 8,955,723 3,931,662 Available-for-sale financial assets 15 18,423,546 986,008 Fee and commission expense 6 (1,031,406) (405,460) Loans and advances to banks 16 8,187,890 9,294,907 Net fee and commission income 7,924,317 3,526,202 Amounts receivable under reverse repurchase agreements — 2,500,090 Net loss on other financial instruments at fair value through profit or loss (420,138) (59,809) Loans to customers 17 354,642,287 256,009,936 Net foreign exchange gain 7 4,105,006 3,431,257 Held-to-maturity investments 18 10,327,192 38,493,730 Net (loss)/gain on available-for-sale financial assets 8 (22,061) 171,626 Current tax asset 885,141 597,640 Other operating loss (236,500) (107,133) Property, equipment and intangible assets 19 16,760,598 14,279,043 Operating income 38,287,291 25,605,365 Deferred tax asset 12 — 1,485,024 Impairment losses 9 (4,153,442) (4,155,449) Other assets 20 5,100,755 3,531,438 Personnel expenses 10 (11,971,416) (6,957,957) Total assets 470,510,559 369,361,393

Other general administrative expenses 11 (9,076,129) (6,418,436) LIABILITIES Profit before income tax 13,086,304 8,073,523 Financial instruments at fair value through profit or loss 14 1,123 38,913 Income tax expense 12 (3,254,251) (2,026,785) Deposits and balances from banks 21 21,228,576 3,221,652 Profit for the year 9,832,053 6,046,738 Amounts payable under repurchase agreements 22 — 6,755,574

Other comprehensive income Current accounts and deposits from customers 23 314,720,398 245,611,140 Revaluation reserve for available-for-sale financial assets: Debt securities issued 24 34,441,764 33,584,501 - Net change in fair value (53,532) 540,546 Subordinated debt securities issued 25 27,871,504 23,925,557 - Net change in fair value transferred to profit or loss 22,061 (171,626) Other borrowed funds 26 18,562,156 20,764,469 Foreign currency translation differences for foreign operations 201,977 (124,675) Deferred tax liability 12 41,572 — Total other comprehensive income for the year, net of income tax 170,506 244,245 Other liabilities 27 5,859,263 3,577,946

Total comprehensive income for the year 10,002,559 6,290,983 Total liabilities 422,726,356 337,479,752

Earnings per ordinary share, in KZT 29 621.63 395.01 EQUITY Share capital 28 30,110,207 24,210,204 Share premium 25,632 25,632 Reserve for general banking risks 6,650,265 5,381,456 Revaluation reserve for available-for-sale financial assets (114,258) (82,787) Cumulative translation reserve (7,755) (209,732) Retained earnings 11,120,112 2,556,868 The consolidated financial statements as set out on pages 5 to 78 were approved by management Total equity 47,784,203 31,881,641 on 27 March 2013 and were signed on its behalf by: Total liabilities and equity 470,510,559 369,361,393

Eggleton M. Nelina L.N. Chairman Chief Accountant

The consolidated statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. steps 78 annual report 2012 the annual report 2012 Consolidated Financial Statements 79 up

Consolidated Statement of Cash Flows for the year ended Consolidated Statement of Cash Flows for the year ended 31 December 2012 31 December 2012 2012 2011 2012 2011 KZT’000 KZT’000 KZT’000 KZT’000 CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES

Interest receipts 47,543,365 35,305,154 Receipts from debt securities issued 1,452,539 10,621,090 Interest payments (21,956,549) (18,776,252) Repayment of debt securities issued (105,363) — Fee and commission receipts 8,602,144 3,890,444 Receipts from subordinated debt securities issued 3,706,600 5,151,344 Fee and commission payments (1,031,402) (404,911) Repayment of subordinated debt securities issued — (1,052,160) Net payments from financial instruments at fair value through profit or loss (378,349) (169,426) Receipts of other borrowed funds 19,829,527 44,968,051 Net receipts from foreign exchange 4,251,478 3,404,091 Repayment of other borrowed funds (22,085,218) (48,553,348) Other payments (243,202) (87,544) Proceeds from issuance of share capital 5,900,003 — Personnel expenses payments (11,835,902) (6,769,129) Cash flows from financing activities 8,698,088 11,134,977

Other general administrative expenses payments (7,043,081) (5,420,973) Net increase in cash and cash equivalents 13,401,483 5,097,164

Effect of changes in exchange rates on cash and cash equivalents 992,869 (26,472) (Increase)/decrease in operating assets Cash and cash equivalents as at the beginning of the year 40,525,925 35,455,233 Financial instruments at fair value through profit or loss 416,223 1,137,898 Cash and cash equivalents as at the end of the year 54,920,277 40,525,925 Mandatory reserve 3,477,109 (3,355,583) (Note 13) Loans and advances to banks (2,360,058) 1,185,100 Amounts receivable under reverse repurchase agreements 2,500,001 (2,500,001) Loans to customers (99,753,431) (31,796,763) Other assets (671,050) 3,235,726 Increase/(decrease) in operating liabilities Deposits and balances from banks 17,538,247 1,944,128 Amounts payable under repurchase agreements (6,755,451) (8,528,145) Current accounts and deposits from customers 66,481,786 (455,785) Other liabilities 1,528,399 1,567,028

Net cash from/(used in) operating activities before income tax paid 310,277 (26,594,943) Income tax (paid)/reimbursed (2,015,156) 55,237 Cash flows used in operating activities (1,704,879) (26,539,706)

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of Prosto Kredit business (Note 38) — (14,231,576) Purchases of available-for-sale financial assets (54,832,728) (17,877,124) Sale and redemption of available-for-sale financial assets 37,509,065 51,329,403 Sale of precious metals — 41,124 Purchases of held-to-maturity investments (42,230,551) (101,363,432) Redemptions of held-to-maturity investments 70,676,262 104,326,775 Purchases of property and equipment and intangible assets (4,416,754) (1,737,073) Sale of property and equipment and intangible assets 14,630 13,796 Advances for capital expenditures (311,650) — Cash flows from investing activities 6,408,274 20,501,893

The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. The consolidated statement of cash flows is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. steps 80 annual report 2012 the annual report 2012 Consolidated Financial Statements 81 up

Consolidated Statement of Changes in Equity for the year 1 Background ended 31 December 2012 Reserve Revaluation re- (Accumulated (a) Organisation and operations of Kazakhstan. The majority of the Group’s assets and liabili- Share Share for gen- serve for avail- Cumulative losses)/ KZT’000 translation Total >>These consolidated financial statements include the finan- ties are located in Kazakhstan. capital premium eral bank- able-for-sale fi- reserve retained ing risks nancial assets earnings cial statements of Eurasian Bank JSC (the “Bank”) and its On 1 April 2010 the Bank acquired a subsidiary, Eurasian Balance as at 1 January 2011 24,210,204 25,632 5,304,320 (451,707) (85,057) (3,412,734) 25,590,658 subsidiary, Eurasian Bank OJSC (together referred to as the Bank OJSC, located in Moscow, Russian Federation. Total comprehensive income “Group”). On 1 January 2011 the Group acquired the retail assets of Profit for the year — — — — — 6,046,738 6,046,738 The Bank was established in 1994 in the Republic of LLP Prosto Kredit and LLP MKO Prosto Kredit (“Prosto Kredit”) Other comprehensive income Kazakhstan as a closed joint-stock company under the laws of in the Republic of Kazakhstan (Note 38). the Republic of Kazakhstan. Due to a change in legislation in- Net change in fair value of available-for-sale finan- — — — 540,546 — — 540,546 cial assets troduced in 2003, the Bank was re-registered as a joint-stock (b) Shareholders Net change in fair value of available-for-sale financial company on 2 September 2003. The Bank operates based on >>As at 31 December 2012 Eurasian Financial Company JSC is assets transferred to profit or loss — — — (171,626) — — (171,626) general banking licence number 237 granted on 28 December the Bank’s Parent company, which owns 99.67% of the Bank’s Foreign currency translation differences for foreign operations — — — — (124,675) — (124,675) 2007. The Bank also possesses licences number 0401100623 shares (2011: 99.67%), while Eurasian Industrial Company and number 0407100189 for brokerage, dealing and custo- JSC owns 0.33% of the Bank’s shares (2011: 0.33%). Total other comprehensive income — — — 368,920 (124,675) — 244,245 dian activities. The principal activities of the Group are deposit Total comprehensive income for the year — — — 368,920 (124,675) 6,046,738 6,290,983 taking and customer account maintenance, lending and issu- (c) Business environment Increase in general reserve (Note 28 (d)) — — 77,136 — — (77,136) — ing guarantees, custodian services, cash and settlement opera- >>The Group’s operations are primarily located in Kazakhstan. Balance as at 31 December 2011 24,210,204 25,632 5,381,456 (82,787) (209,732) 2,556,868 31,881,641 tions, operations with securities and foreign exchange. Consequently, the Group is exposed to the economic and fi- Total comprehensive income The activities of the Bank are regulated by the Committee nancial markets of Kazakhstan which display characteristics Profit for the year — — — — — 9,832,053 9,832,053 for the control and supervision of the financial market and fi- of an emerging market. The legal, tax and regulatory frame- nancial organisations of the National Bank of the Republic works continue development, but are subject to varying inter- Other comprehensive income of Kazakhstan (the “FMSC”) and the National Bank of the pretations and frequent changes which together with other le- Net change in fair value of available-for-sale financial assets — — — (53,532) — — (53,532) Republic of Kazakhstan (the “NBRK”). gal and fiscal impediments contribute to the challenges faced As at 31 December 2012 the Group has 19 regional by entities operating in Kazakhstan. The consolidated financial Net change in fair value of available-for-sale financial — — — 22,061 — — 22,061 assets transferred to profit or loss branches (2011: 18) and 99 cash settlement centers (2011: statements reflect management’s assessment of the impact of Foreign currency translation differences for foreign 50) from which it conducts business throughout the Republic the Kazakhstan business environment on the operations and operations — — — — 201,977 — 201,977 of Kazakhstan and Russian Federation. The registered address the financial position of the Group. The future business envi- Total other comprehensive income — — — (31,471) 201,977 — 170,506 of the Bank’s head office is 56 Kunayev str., Almaty, Republic ronment may differ from management’s assessment. Total comprehensive income for the year — — — (31,471) 201,977 9,832,053 10,002,559

Transactions with owners recorded directly in equity Shares issued 5,900,003 — — — — — 5,900,003 2 Basis of preparation Increase in general reserve (Note 28 (d)) — — 1,268,809 — — (1,268,809) — (a) Statement of compliance majority of underlying events and circumstances relevant to Balance as at 31 December 2012 30,110,207 25,632 6,650,265 (114,258) (7,755) 11,120,112 47,784,203 >>The accompanying consolidated financial statements are the subsidiary. prepared in accordance with International Financial Reporting The KZT is the presentation currency for the purposes of Standards (IFRS). these consolidated financial statements. In translating to the KZT, assets and liabilities of the (b) Basis of measurement Bank’s subsidiary that are included in the statement of finan- >>The consolidated financial statements are prepared on the cial position are translated at the foreign exchange rate ruling historical cost basis except that financial instruments at fair at the reporting date. All income and expense and equity items value through profit or loss and available-for-sale financial as- are translated at approximating rates at the dates of the trans- sets are stated at fair value. actions. The resulting exchange difference is recorded in the cumulative translation reserve. (c) Functional and presentation currency Financial information presented in KZT is rounded to the >>The functional currency of the Bank is the Kazakhstan tenge nearest thousand. (“KZT”) as, being the national currency of the Republic of Any conversion of RUB amounts to KZT should not be con- Kazakhstan, it reflects the economic substance of the majority strued as a representation that RUB amounts have been, could of underlying events and circumstances relevant to the Bank. be, or will be in the future, convertible into KZT at the ex- The functional currency of the Bank’s subsidiary is the change rate shown, or at any other exchange rate. Russian Rouble (“RUB”) as, being the national currency of the The consolidated statement of changes in equity is to be read in conjunction with the notes to, and forming part of, the consolidated financial statements. Russian Federation, it reflects the economic substance of the steps 82 annual report 2012 the annual report 2012 Consolidated Financial Statements 83 up

(d) Use of estimates and judgments recognised in the period in which the estimates are revised (d) Financial instruments >>Held-to-maturity investments are non-derivative financial as- >>The preparation of consolidated financial statements in con- and in any future periods affected. sets with fixed or determinable payments and fixed maturity formity with IFRSs requires management to make judgments, Information about significant areas of estimation uncer- (i) Classification that the Group has the positive intention and ability to hold to estimates and assumptions that affect the application of ac- tainty and critical judgments in applying accounting policies is >>Financial instruments at fair value through profit or loss are maturity, other than those that: counting policies and the reported amounts of assets, liabil- described in the following notes: financial assets or liabilities that are: the Group upon initial recognition designates as at fair value ities, income and expenses. Actual results could differ from insurance agent services income — Note 5 acquired or incurred principally for the purpose of selling or through profit or loss those estimates. loan impairment estimates — Note 17 repurchasing in the near term the Group designates as available-for-sale or, Estimates and underlying assumptions are reviewed estimates of fair value of financial instruments — Note 37 part of a portfolio of identified financial instruments that meet the definition of loans and receivables. on an ongoing basis. Revisions to accounting estimates are are managed together and for which there is evidence of a >>Available-for-sale financial assets are those non-derivative fi- recent actual pattern of short-term profit-taking nancial assets that are designated as available-for-sale or are derivative financial instruments (except for derivative finan- not classified as loans and receivables, held-to-maturity invest- 3 Significant accounting policies cial instruments that are designated and effective hedging ments or financial instruments at fair value through profit or instruments) or, loss. >>The accounting policies set out below are applied consis- Goodwill is allocated to cash-generating units for impair- upon initial recognition, designated as at fair value through tently to all periods presented in these consolidated financial ment testing purposes and is stated at cost less impairment profit or loss. (ii) Recognition statements, and are applied consistently by Group entities. losses. >>The Group may designate financial assets and liabilities at >>Financial assets and liabilities are recognised in the consoli- fair value through profit or loss where either: dated statement of financial position when the Group becomes (a) Basis of consolidation (b) Foreign currency the assets or liabilities are managed, evaluated and reported a party to the contractual provisions of the instrument. All re internally on a fair value basis gular way purchases of financial assets are accounted for at (i) Business combinations Foreign currency transactions the designation eliminates or significantly reduces an ac- the settlement date. >>Business combinations are accounted for using the acqui- >>Transactions in foreign currencies are translated to the re- counting mismatch which would otherwise arise or sition method as at the acquisition date, which is the date on spective functional currencies of the Group entities at ex- the asset or liability contains an embedded derivative that (iii) Measurement which control is transferred to the Group. change rates at the dates of the transactions. Monetary assets significantly modifies the cash flows that would otherwise >>A financial asset or liability is initially measured at its fair The Group measures goodwill as the fair value of the con- and liabilities denominated in foreign currencies at the report- be required under the contract. value plus, in the case of a financial asset or liability not at fair sideration transferred (including the fair value of any previ- ing date are retranslated to the functional currency at the ex- >>All trading derivatives in a net receivable position (posi- value through profit or loss, transaction costs that are directly ously-held equity interest in the acquiree) and the recognised change rate at that date. The foreign currency gain or loss on tive fair value), as well as options purchased, are reported as attributable to the acquisition or issue of the financial asset or amount of any non-controlling interest in the acquiree, less monetary items is the difference between amortised cost in the assets. All trading derivatives in a net payable position (ne liability. the net recognised amount (generally fair value) of the identi- functional currency at the beginning of the period, adjusted gative fair value), as well as options written, are reported as Subsequent to initial recognition, financial assets, includ- fiable assets acquired and liabilities assumed, all measured as for effective interest and payments during the period, and the liabilities. ing derivatives that are assets, are measured at their fair val- at the acquisition date. When the excess is negative, a bargain amortised cost in foreign currency translated at the exchange Management determines the appropriate classification ues, without any deduction for transaction costs that may be purchase gain is recognised immediately in profit or loss. rate at the end of the reporting period. Non-monetary assets of financial instruments in this category at the time of the ini- incurred on sale or other disposal, except for: Transaction costs, other than those associated with the is- and liabilities denominated in foreign currencies that are mea- tial recognition. Derivative financial instruments and financial loans and receivables which are measured at amortised cost sue of debt or equity securities, that the Group incurs in con- sured at fair value are retranslated to the functional currency instruments designated as at fair value through profit or loss using the effective interest method nection with a business combination are expensed as incurred. at the exchange rate at the date that the fair value is deter- upon initial recognition are not reclassified out of at fair value held-to-maturity investments that are measured at amor- mined. Non-monetary items that are measured in terms of his- through profit or loss category. Financial assets that would tised cost using the effective interest method (ii) Subsidiaries torical cost in a foreign currency are translated using the ex- have met the definition of loans and receivables may be reclas- investments in equity instruments that do not have a quoted >>Subsidiaries are entities controlled by the Bank. Control change rate at the date of the transaction. Foreign currency sified out of the fair value through profit or loss or available- market price in an active market and whose fair value can- exists when the Bank has the power, directly or indirectly, to differences arising on retranslation are recognised in profit for-sale category if the entity has an intention and ability to not be reliably measured which are measured at cost. govern the financial and operating policies of an entity so as or loss, except for differences arising on the retranslation of hold them for the foreseeable future or until maturity. Other >>All financial liabilities, other than those designated at fair to obtain benefits from its activities. The financial statements available-for-sale equity instruments or qualifying cash flow financial instruments may be reclassified out of at fair value value through profit or loss and financial liabilities that arise of subsidiaries are included in the consolidated financial state- hedges, which are recognised in other comprehensive income. through profit or loss category only in rare circumstances. when a transfer of a financial asset carried at fair value does ments from the date that control effectively commences until Rare circumstances arise from a single event that is unusual not qualify for derecognition, are measured at amortised cost. the date that control effectively ceases. (c) Cash and cash equivalents and highly unlikely to recur in the near term. >>Cash and cash equivalents include notes and coins on hand, Loans and receivables are non-derivative financial assets (iv) Amortised cost (iii) Transactions eliminated on consolidation unrestricted balances (nostro accounts) held with the NBRK, with fixed or determinable payments that are not quoted in an >>The amortised cost of a financial asset or liability is the >>Intra-group balances and transactions, and any unrealised the Central Bank of the Russian Federation (the “CBRF”) and active market, other than those that the Group: amount at which the financial asset or liability is measured at gains arising from intra-group transactions, are eliminated in other banks and deposits with banks with original maturi- intends to sell immediately or in the near term initial recognition, minus principal repayments, plus or mi- preparing the consolidated financial statements. ties of less than three months. The mandatory reserve depos- upon initial recognition designates as at fair value through nus the cumulative amortisation using the effective interest its with the NBRK and the CBRF are not considered to be cash profit or loss method of any difference between the initial amount recog- (iv) Goodwill equivalents due to restrictions on their withdraw ability. Cash upon initial recognition designates as available-for-sale or, nised and the maturity amount, minus any reduction for im- >>Goodwill on acquisitions of subsidiaries is included in intan- and cash equivalents are carried at amortised cost in the con- may not recover substantially all of its initial investment, pairment. Premiums and discounts, including initial transac- gible assets. solidated statement of financial position. other than because of credit deterioration. tion costs, are included in the carrying amount of the related steps 84 annual report 2012 the annual report 2012 Consolidated Financial Statements 85 up

instrument and amortised based on the effective interest rate later than when the valuation is supported wholly by observ- transferred assets or a portion of them. If all or substantially Where an item of property and equipment comprises ma- of the instrument. able market data or the transaction is closed out. all risks and rewards are retained, then the transferred assets jor components having different useful lives, they are ac- Financial assets or liabilities originated at interest rates Assets and long positions are measured at a bid price; li- are not derecognised. counted for as separate items of property and equipment. different from market rates are re-measured at origination to abilities and short positions are measured at an asking price. In transactions where the Group neither retains nor trans- their fair value, being future interest payments and principal Where the Group has positions with offsetting risks, mid-mar- fers substantially all the risks and rewards of ownership of a (ii) Depreciation repayment(s) discounted at market interest rates for similar ket prices are used to measure the offsetting risk positions and financial asset, it derecognises the asset if control over the as- >>Depreciation is charged to profit or loss on a straight-line instruments. The difference is credited or charged to profit or a bid or asking price adjustment is applied only to the net open set is lost. basis over the estimated useful lives of the individual assets. loss as gains or losses on origination of financial instruments position as appropriate. Fair values reflect the credit risk of In transfers where control over the asset is retained, the Depreciation commences on the date of acquisition or, in re- at rates different from market rates. Subsequently, the carry- the instrument and include adjustments to take account of the Group continues to recognise the asset to the extent of its con- spect of internally constructed assets, from the time an asset is ing amount of such assets or liabilities is adjusted for amor- credit risk of the Group entity and the counterparty where ap- tinuing involvement, determined by the extent to which it is completed and ready for use. Land is not depreciated. The esti- tisation of the gains/losses on origination and the related in- propriate. Fair value estimates obtained from models are ad- exposed to changes in the value of the transferred assets. mated useful lives are as follows: come/expense is recorded in interest income/expense within justed for any other factors, such as liquidity risk or model un- If the Group purchases its own debt, it is removed from profit or loss using the effective interest method. certainties, to the extent that the Group believes a third-party the consolidated statement of financial position and the differ- Buildings...... 25 to 40 years market participant would take them into account in pricing a ence between the carrying amount of the liability and the con- Computer and banking equipment...... 3 to 8 years (v) Fair value measurement principles transaction. sideration paid is included in gains or losses arising from early Vehicles...... 7 years >>Fair value is the amount for which an asset could be ex- retirement of debt. Furniture...... 8 to 10 years changed, or a liability settled, between knowledgeable, will- (vi) Gains and losses on subsequent measurement The Group writes off assets deemed to be uncollectible. Leasehold improvements...... 5 years ing parties in an arm’s length transaction on the measurement >>A gain or loss arising from a change in the fair value of a fi- date. nancial asset or liability is recognised as follows: (viii) Repurchase and reverse repurchase agreements (f) Intangible assets When available, the Group measures the fair value of an a gain or loss on a financial instrument classified as at fair >>Securities sold under sale and repurchase (repo) agreements >>Acquired intangible assets are stated at cost less accumu- instrument using quoted prices in an active market for that in- value through profit or loss is recognised in profit or loss are accounted for as secured financing transactions, with the lated amortisation and impairment losses. strument. A market is regarded as active if quoted prices are a gain or loss on an available-for-sale financial asset is recog- securities retained in the consolidated statement of financial Acquired computer software licenses are capitalised on readily and regularly available and represent actual and regu- nised as other comprehensive income in equity (except for position and the counterparty liability included in amounts the basis of the costs incurred to acquire and bring to use the larly occurring market transactions on an arm’s length basis. impairment losses and foreign exchange gains and losses on payable under repo transactions within deposits and balances specific software. If a market for a financial instrument is not active, the debt financial instruments available-for-sale) until the as- from banks or current accounts and deposits from customers, Amortisation is charged to profit or loss on a straight-line Group establishes fair value using a valuation technique. set is derecognised, at which time the cumulative gain or as appropriate. The difference between the sale and repur- basis over the estimated useful lives of intangible assets. The Valuation techniques include using recent arm’s length trans- loss previously recognised in equity is recognised in profit or chase prices represents interest expense and is recognised in estimated useful lives are as follows: actions between knowledgeable, willing parties (if available), loss. Interest in relation to an available-for-sale financial as- profit or loss over the term of the repo agreement using the ef- reference to the current fair value of other instruments that set is recognised in profit or loss using the effective interest fective interest method. Trademark...... 10 years are substantially the same, discounted cash flow analyses and method. Securities purchased under agreements to resell (reverse Computer software and other intangibles.... 5 to 7 years option pricing models. The chosen valuation technique makes For financial assets and liabilities carried at amortised repo) are recorded as amounts receivable under reverse repo maximum use of market inputs, relies as little as possible on cost, a gain or loss is recognised in profit or loss when the fi- transactions within loans and advances to banks or loans to In 2012 the Group changed its assessment of useful life of estimates specific to the Group, incorporates all factors that nancial asset or liability is derecognised or impaired, and customers, as appropriate. The difference between the pur- the trademark from 3 to 10 years. market participants would consider in setting a price, and is through the amortisation process. chase and resale prices represents interest income and is rec- consistent with accepted economic methodologies for pricing ognised in profit or loss over the term of the repo agreement (g) Impairment financial instruments. Inputs to valuation techniques reason- (vii) Derecognition using the effective interest method. ably represent market expectations and measures of the risk- >>The Group derecognises a financial asset when the contrac- If assets purchased under an agreement to resell are sold (i) Financial assets carried at amortised cost return factors inherent in the financial instrument. tual rights to the cash flows from the financial asset expire, or to third parties, the obligation to return securities is recorded >>Financial assets carried at amortised cost consist principally The best evidence of the fair value of a financial instru- when it transfers the financial asset in a transaction in which as a trading liability and measured at fair value. of loans and other receivables (loans and receivables). The ment at initial recognition is the transaction price, i.e., the fair substantially all the risks and rewards of ownership of the fi- Group reviews its loans and receivables to assess impairment value of the consideration given or received, unless the fair nancial asset are transferred or in which the Group neither (ix) Offsetting on a regular basis. A loan or receivable is impaired and impair- value of that instrument is evidenced by comparison with other transfers nor retains substantially all the risks and rewards of >>Financial assets and liabilities are offset and the net amount ment losses are incurred if, and only if, there is objective evi- observable current market transactions in the same instrument ownership and it does not retain control of the financial as- reported in the consolidated statement of financial position dence of impairment as a result of one or more events that oc- (i.e., without modification or repackaging) or based on a val- set. Any interest in transferred financial assets that qualify for when there is a legally enforceable right to set off the recog- curred after the initial recognition of the loan or receivable uation technique whose variables include only data from ob- derecognition that is created or retained by the Group is rec- nised amounts and there is an intention to settle on a net basis, and that event (or events) has had an impact on the estimated servable markets. When transaction price provides the best ognised as a separate asset or liability in the statement of fi- or realise the asset and settle the liability simultaneously. future cash flows of the loan that can be reliably estimated. evidence of fair value at initial recognition, the financial instru- nancial position. The Group derecognises a financial liability Objective evidence that financial assets are impaired can ment is initially measured at the transaction price and any dif- when its contractual obligations are discharged or cancelled (e) Property and equipment include default or delinquency by a borrower, breach of loan ference between this price and the value initially obtained from or expire. covenants or conditions, restructuring of a loan or advance on a valuation model is subsequently recognised in profit or loss The Group enters into transactions whereby it trans- (i) Owned assets terms that the Group would not otherwise consider, indica- on an appropriate basis over the life of the instrument but not fers assets recognised on its consolidated statement of finan- >>Items of property and equipment are stated at cost less accu- tions that a borrower or issuer will enter bankruptcy, the dis- cial position, but retains either all risks and rewards of the mulated depreciation and impairment losses. appearance of an active market for a security, deterioration in steps 86 annual report 2012 the annual report 2012 Consolidated Financial Statements 87 up

the value of collateral, or other observable data relating to a discounted at the current market rate of return for a similar fi- recognised. An impairment loss in respect of goodwill is not (k) Taxation group of assets such as adverse changes in the payment status nancial asset. reversed. >>Income tax comprises current and deferred tax. Income tax of borrowers in the group, or economic conditions that corre- All impairment losses in respect of these investments are is recognised in profit or loss except to the extent that it relate with defaults in the group. recognised in profit or loss and cannot be reversed. (h) Provisions lates to items of other comprehensive income or transactions The Group first assesses whether objective evidence of >>A provision is recognised in the consolidated statement of with shareholders recognised directly in equity, in which case impairment exists individually for loans and receivables that (iii) Available-for-sale financial assets financial position when the Group has a legal or construc- it is recognised within other comprehensive income or directly are individually significant, and individually or collectively Impairment losses on available-for-sale financial assets tive obligation as a result of a past event, and it is probable within equity. for loans and receivables that are not individually significant. are recognised by transferring the cumulative loss that is rec- that an outflow of economic benefits will be required to settle Current tax expense is the expected tax payable on the If the Group determines that no objective evidence of impair- ognised in other comprehensive income to profit or loss as a the obligation. If the effect is material, provisions are deter- taxable income for the year, using tax rates enacted or sub- ment exists for an individually assessed loan or receivable, reclassification adjustment. The cumulative loss that is reclas- mined by discounting the expected future cash flows at a pre- stantially enacted at the reporting date, and any adjustment to whether significant or not, it includes the loan in a group of sified from other comprehensive income to profit or loss is the tax rate that reflects current market assessments of the time tax payable in respect of previous years. loans and receivables with similar credit risk characteristics difference between the acquisition cost, net of any principal value of money and, where appropriate, the risks specific to Deferred tax is recognised in respect of temporary dif- and collectively assesses them for impairment. Loans and re- repayment and amortisation, and the current fair value, less the liability. ferences between the carrying amounts of assets and liabili- ceivables that are individually assessed for impairment and for any impairment loss previously recognised in profit or loss. A provision for restructuring is recognised when the Group ties for financial reporting purposes and the amounts used for which an impairment loss is or continues to be recognised are Changes in impairment provisions attributable to time value has approved a detailed and formal restructuring plan, and the taxation purposes. Deferred tax is not recognised for the fol- not included in a collective assessment of impairment. are reflected as a component of interest income. restructuring either has commenced or has been announced lowing temporary differences: goodwill not deductible for tax If there is objective evidence that an impairment loss on For an investment in an equity security available-for-sale, publicly. Future operating costs are not provided for. purposes, the initial recognition of assets or liabilities that af- a loan or receivable has been incurred, the amount of the loss a significant or prolonged decline in its fair value below its fect neither accounting nor taxable profit and temporary dif- is measured as the difference between the carrying amount cost is objective evidence of impairment. (i) Credit related commitments ferences related to investments in subsidiaries where the of the loan or receivable and the present value of estimated If, in a subsequent period, the fair value of an impaired >>In the normal course of business, the Group enters into parent is able to control the timing of the reversal of the tem- future cash flows including amounts recoverable from guar- available-for-sale debt security increases and the increase can credit related commitments, comprising undrawn loan com- porary difference and it is probable that the temporary differ- antees and collateral discounted at the loan or receivable’s be objectively related to an event occurring after the impair- mitments, letters of credit and guarantees, and provides other ence will not reverse in the foreseeable future. Deferred tax original effective interest rate. Contractual cash flows and his- ment loss was recognised in profit or loss, the impairment forms of credit insurance. is measured at the tax rates that are expected to be applied torical loss experience adjusted on the basis of relevant ob- loss is reversed, with the amount of the reversal recognised Financial guarantees are contracts that require the Group to the temporary differences when they reverse, based on the servable data that reflect current economic conditions provide in profit or loss. However, any subsequent recovery in the fair to make specified payments to reimburse the holder for a loss laws that have been enacted or substantively enacted by the the basis for estimating expected cash flows. value of an impaired available-for-sale equity security is recog- it incurs because a specified debtor fails to make payment reporting date. In some cases the observable data required to estimate the nised in other comprehensive income. when due in accordance with the terms of a debt instrument. A deferred tax asset is recognised only to the extent that it amount of an impairment loss on a loan or receivable may be A financial guarantee liability is recognised initially at is probable that future taxable profits will be available against limited or no longer fully relevant to current circumstances. (iv) Non-financial assets fair value net of associated transaction costs, and is measured which the temporary differences, unused tax losses and cred- This may be the case when a borrower is in financial difficul- >>Other non-financial assets, other than deferred taxes, are subsequently at the higher of the amount initially recognised its can be utilised. Deferred tax assets are reduced to the ex- ties and there is little available historical data relating to simi- assessed at each reporting date for any indications of impair- less cumulative amortisation or the amount of provision for tent that it is no longer probable that the related tax benefit lar borrowers. In such cases, the Group uses its experience and ment. The recoverable amount of goodwill is estimated at losses under the guarantee. Provisions for losses under finan- will be realised. judgement to estimate the amount of any impairment loss. each reporting date. The recoverable amount of non-financial guarantees and other credit related commitments are rec- All impairment losses in respect of loans and receivables cial assets is the greater of their fair value less costs to sell and ognised when losses are considered probable and can be mea- (l) Income and expense recognition are recognised in profit or loss and are only reversed if a sub- value in use. In assessing value in use, the estimated future sured reliably. >>Interest income and expense are recognised in profit or loss sequent increase in recoverable amount can be related ob- cash flows are discounted to their present value using a pre- Financial guarantee liabilities and provisions for other using the effective interest method. jectively to an event occurring after the impairment loss was tax discount rate that reflects current market assessments of credit related commitment are included in other liabilities. Loan origination fees, loan servicing fees and other fees recognised. the time value of money and the risks specific to the asset. For that are considered to be integral to the overall profitability When a loan is uncollectable, it is written off against the an asset that does not generate cash inflows largely indepen- (j) Share capital of a loan, together with the related transaction costs, are de- related allowance for loan impairment. The Group writes off dent of those from other assets, the recoverable amount is deferred and amortised to interest income over the estimated life a loan balance (and any related allowances for loan losses) termined for the cash-generating unit to which the asset be- (i) Ordinary shares of the financial instrument using the effective interest method. when management determines that the loans are uncollectible longs. An impairment loss is recognised when the carrying >>Ordinary shares are classified as equity. Incremental costs Other fees, commissions and other income and expense and when all necessary steps to collect the loan are completed. amount of an asset or its cash-generating unit exceeds its re- directly attributable to the issue of ordinary shares and share items are recognised in profit or loss when the corresponding coverable amount. options are recognised as a deduction from equity, net of any service is provided. (ii) Financial assets carried at cost All impairment losses in respect of non-financial assets tax effects. Payments made under operating leases are recognised in >>Financial assets carried at cost include unquoted equity in- are recognised in profit or loss and reversed only if there has profit or loss on a straight-line basis over the term of the lease. struments included in available-for-sale financial assets that been a change in the estimates used to determine the recov- (ii) Dividends Lease incentives received are recognised as an integral part of are not carried at fair value because their fair value cannot be erable amount. Any impairment loss reversed is only reversed >>The ability of the Group to declare and pay dividends is sub- the total lease expense, over the term of the lease. reliably measured. If there is objective evidence that such in- to the extent that the asset’s carrying amount does not exceed ject to the rules and regulations of the Kazakhstan legislation. vestments are impaired, the impairment loss is calculated as the carrying amount that would have been determined, net of Dividends in relation to ordinary shares are reflected as (m) Segment reporting the difference between the carrying amount of the invest- depreciation or amortisation, if no impairment loss had been an appropriation of retained earnings in the period when they >>An operating segment is a component of a Group that en- ment and the present value of the estimated future cash flows are declared. gages in business activities from which it may earn revenues steps 88 annual report 2012 the annual report 2012 Consolidated Financial Statements 89 up

and incur expenses (including revenues and expenses relating 1 January 2013. The new standard supersedes IAS 27 4 Net interest income to transactions with other components of the Group); whose Consolidated and Separate Financial Statements and SIC-12 2012 2011 operating results are regularly reviewed by the chief operat- Consolidation — Special Purpose Entities. IFRS 10 introduces KZT’000 KZT’000 ing decision maker to make decisions about resources to be a single control model which includes entities that are cur- Interest income allocated to the segment and assess its performance, and for rently within the scope of SIC-12. Under the new three-step Loans to customers 49,627,673 36,712,625 which discrete financial information is available. control model, an investor controls an investee when it is exposed, or has rights, to variable returns from its involve- Held-to-maturity investments 331,222 632,673 (n) New standards and interpretations not yet adopted ment with that investee, has the ability to affect those re- Available-for-sale financial assets 214,197 438,372 >>A number of new standards, amendments to standards and turns through its power over that investee and there is a Financial instruments at fair value through profit or loss 107,705 216,870 interpretations are not yet effective as at 31 December 2012, link between power and returns. Consolidation procedures Placements with banks 62,374 10,781 and are not applied in preparing these consolidated financial are carried forward from IAS 27 (2008). When the adop- Cash and cash equivalents 23,049 53,694 statements. Of these pronouncements, potentially the follow- tion of IFRS 10 does not result in a change in the previous Amounts receivable under reverse repurchase agreements 21,331 23,619 ing will have an impact on the Group’s financial position and consolidation or non-consolidation of an investee, no ad- 50,387,551 38,088,634 performance. The Group plans to adopt these pronouncements justments to accounting are required on initial application. Interest expense when they become effective. When the adoption results in a change in the consolidation The Group has not yet analysed the likely impact of these or non-consolidation of an investee, the new standard may Current accounts and deposits from customers (15,668,593) (12,265,430) new standards on its consolidated financial statements. be adopted with either full retrospective application from Debt securities issued (3,235,774) (2,777,400) Amendments to IFRS 7 Financial Instruments: date that control was obtained or lost or, if not practicable, Subordinated debt securities issued (2,717,540) (2,674,131) Disclosures — Offsetting Financial Assets and Financial with limited retrospective application from the beginning of Other borrowed funds (1,258,031) (1,556,004) Liabilities contain new disclosure requirements for finan- the earliest period for which the application is practicable, Deposits and balances from banks (475,192) (150,736) cial assets and liabilities that are offset in the statement of fi- which may be the current period. Early adoption of IFRS 10 Amounts payable under repurchase agreements (95,754) (21,711) nancial position or subject to master netting arrangements is permitted provided an entity also early-adopts IFRS 11, (23,450,884) (19,445,412) or similar agreements. The amendments are effective for an- IFRS 12, IAS 27 (2011) and IAS 28 (2011). 26,936,667 18,643,222 nual periods beginning on or after 1 January 2013, and are IFRS 13 Fair Value Measurement will be effective for an- to be applied retrospectively. nual periods beginning on or after 1 January 2013. The IFRS 9 Financial Instruments will be effective for annual pe- new standard replaces the fair value measurement guid- Included within various line items under interest income thousand (2011: KZT 1,682,967 thousand) accrued on im- riods beginning on or after 1 January 2015. The new stan- ance contained in individual IFRSs with a single source of for the year ended 31 December 2012 is a total of KZT 790,849 paired financial assets. dard is to be issued in phases and is intended ultimately to fair value measurement guidance. It provides a revised defi- replace International Financial Reporting Standard IAS 39 nition of fair value, establishes a framework for measuring Financial Instruments: Recognition and Measurement. The fair value and sets out disclosure requirements for fair value 5 Fee and commission income first phase of IFRS 9 was issued in November 2009 and re- measurements. IFRS 13 does not introduce new require- 2012 2011 lates to the classification and measurement of financial as- ments to measure assets or liabilities at fair value, nor does KZT’000 KZT’000 sets. The second phase regarding classification and measure- it eliminate the practicability exceptions to fair value mea- Agent services 4,713,829 32,304 ment of financial liabilities was published in October 2010. surement that currently exist in certain standards. The stan- Settlement 1,403,707 1,291,143 The remaining parts of the standard are expected to be is- dard is applied prospectively with early adoption permitted. sued during 2013. The Group recognises that the new stan- Comparative disclosure information is not required for peri- Guarantee and letter of credit issuance 1,034,157 1,160,984 dard introduces many changes to the accounting for finan- ods before the date of initial application. Cash withdrawal 1,011,892 826,319 cial instruments and is likely to have a significant impact on Various Improvements to IFRSs have been dealt with on a Payment card maintenance fees 432,417 370,879 the consolidated financial statements. The impact of these standard-by-standard basis. All amendments, which result Custodian services 64,464 91,046 changes will be analysed during the course of the project as in accounting changes for presentation, recognition or mea- Cash delivery 46,805 51,848 further phases of the standard are issued. The Group does surement purposes, will come into effect not earlier than Other 248,452 107,139 not intend to adopt this standard early. 1 January 2013. The Group has not yet analysed the likely 8,955,723 3,931,662 IFRS 10 Consolidated Financial Statements will be ef- impact of the improvements on its financial position or fective for annual periods beginning on or after performance. In December 2011 the Group signed an agreement with subscribed. Acquisition of a life insurance policy is voluntary Life Insurance Company Kazkommerce-Life JSC to provide in- and is not a condition to obtain a loan, nor does it affect the insurance agent services. The Group offers life insurance poli- terest rate on the loan. cies of this insurance company for its point of sale of retail loans and is paid an agency fee proportionate to premiums steps 90 annual report 2012 the annual report 2012 Consolidated Financial Statements 91 up

6 Fee and commission expense 11 Other general administrative expenses

2012 2011 2012 2011 KZT’000 KZT’000 KZT’000 KZT’000 Agent services 521,838 70,602 Depreciation and amortisation 1,927,270 1,203,682 Settlement 265,277 67,352 Operating lease expense 1,056,044 713,332 Cash withdrawal 168,252 156,943 Communications and information services 1,044,676 502,779 Payment card maintenance fees 52,262 67,555 Advertising and marketing 1,027,568 699,262 Custodian services 14,510 29,087 Taxes other than on income 804,283 485,011 Other 9,267 13,921 Loan servicing 647,005 1,110,361 1,031,406 405,460 Repairs and maintenance 536,046 297,706 Security 466,817 268,532 Travel expenses 304,602 211,521 7 Net foreign exchange gain Stationery and office supplies 188,353 69,317 Professional services 145,539 277,959

2012 2011 Insurance 85,749 37,742 KZT’000 KZT’000 Cash delivery services 68,718 40,794 Dealing, net 4,207,360 3,404,091 Transportation 56,725 42,499 Translation differences, net (102,354) 27,166 Trainings 48,329 26,892 4,105,006 3,431,257 Representation expenses 30,298 13,853 Payment cards production 29,357 32,880 Other 608,750 384,314 8 Net (loss) / gain on available 9,076,129 6,418,436 for-sale financial assets

2012 2011 Loan servicing fee of KZT 647,005 thousand was paid in loan collection services, call-center services, credit files admin- KZT’000 KZT’000 2012 (2011: KZT 1,110,361 thousand) to a service organisa- istration services, re-billed bank fees and other expenses in- Debt and other fixed-income instruments tion, LLP MKO Prosto Kredit, under the general agreement for curred by the service organisation. Government securities of the Republic of Kazakhstan — 49,001 Other (22,061) 122,625 (22,061) 171,626 12 Income tax expense

2012 2011 KZT’000 KZT’000 9 Impairment losses Current tax expense Current year 1,685,407 23,453

2012 2011 Under provided in prior years 42,248 — KZT’000 KZT’000 Deferred tax expense Loans to customers (Note 17) 3,806,849 4,155,757 Origination and reversal of temporary differences 1,526,596 2,003,332 Other assets (Note 20) 346,593 (188,820) Total income tax expense 3,254,251 2,026,785 Provision for contingent liabilities (Note 27) — 188,512 4,153,442 4,155,449 In 2012 the applicable tax rate for current and deferred Reconciliation of effective tax rate for the years ended tax is 20% (2011: 20%). 31 December: 10 Personnel expenses 2012 2011 KZT’000 % KZT’000 % 2012 2011 KZT’000 KZT’000 Profit before income tax 13,086,304 100.00 8,073,523 100.00 Wages, salaries, bonuses and related taxes 11,524,037 6,669,000 Income tax at the applicable tax rate 2,617,261 20.00 1,614,705 20.00 Other employee costs 447,379 288,957 Under provided in prior years 42,248 0.32 — — 11,971,416 6,957,957 steps 92 annual report 2012 the annual report 2012 Consolidated Financial Statements 93 up

2012 % 2011 % 2012 2011 KZT’000 KZT’000 KZT’000 KZT’000 Tax-exempt income on securities (87,358) (0.66) (209,129) (2.59) Term deposits with other banks Non-deductible expenses 682,100 5.21 621,209 7.69 rated BBB 1,141,210 — 3,254,251 24.87 2,026,785 25.10 rated from BB- to BB+ 3,237,258 — rated below B+ 2,786,630 — Deferred tax asset and liability Total term deposits with other banks 7,165,098 — >>Temporary differences between the carrying amounts of as- The deductible temporary differences do not expire under Total cash and cash equivalents 54,920,277 40,525,925 sets and liabilities for financial reporting purposes and the current tax legislation. amounts used for taxation purposes give rise to a net deferred Movements in temporary differences during the years tax liability as at 31 December 2012 and net deferred tax as- ended 31 December 2012 and 2011 are as follows. The credit ratings are equivalent to those of Fitch credit values of these balances as at 31 December 2012 and sets as at 31 December 2011. ratings agency. 31 December 2011 are KZT 23,370,243 thousand and KZT No cash and cash equivalents are impaired or past due. 27,822,701 thousand respectively. The ratings of these banks 2012 Balance Recognised Balance KZT’000 1 January 2012 in profit or loss 31 December 2012 As at 31 December 2012 the Group has 1 bank (2011: according to Fitch credit ratings agency are A+ and BBB. 3 banks), whose balances exceed 10% of equity. The gross Loans to customers 326,687 (133,733) 192,954 Property and equipment (635,224) (51,915) (687,139) Other assets 288,176 (55,929) 232,247 14 Financial instruments Financial instruments at fair value through profit or loss (11,745) 15,641 3,896 at fair value through profit or loss Other liabilities 181,278 35,192 216,470

Tax loss carry-forwards 1,335,852 (1,335,852) — 2012 2011 KZT’000 KZT’000 1,485,024 (1,526,596) (41,572) Assets Held by the Group — Government bonds 2011 Balance Recognised Balance KZT’000 1 January 2011 in profit or loss 31 December 2011 Russian Government Federal bonds (OFZ) 1,259,771 506,423 Loans to customers 558,583 (231,896) 326,687 Total government bonds 1,259,771 506,423

Property and equipment (524,584) (110,640) (635,224) — Corporate bonds Other assets 285,203 2,973 288,176 rated from BBB- to BBB+ — 10 Financial instruments at fair value through profit or loss 4,200 (15,945) (11,745) rated below B+ — 5 Other liabilities 140,144 41,134 181,278 Total corporate bonds — 15 Tax loss carry-forwards 3,024,810 (1,688,958) 1,335,852 Pledged under sale and repurchase agreements 3,488,356 (2,003,332) 1,485,024 — Corporate bonds rated from BBB- to BBB+ — 282,482 rated from BB- to BB+ — 541,855 13 Cash and cash equivalents rated from B- to B+ — 229,241 Total corporate bonds — 1,053,578

2012 2011 Derivative financial instruments KZT’000 KZT’000 Foreign currency contracts 3,102 97,636 Cash on hand 14,897,932 9,441,533 1,262,873 1,657,652 Nostro accounts with the NBRK and the CBRF 25,258,815 5,293,405 LIABILITIES Nostro accounts with other banks Derivative financial instruments rated from AA- to AA+ 68,981 1,988,681 Foreign currency contracts 1,123 38,913 rated A- to A+ 6,379,350 23,198,378 1,123 38,913 rated BBB- to BBB+ 377,354 29,842 rated from BB- to BB+ 702,906 357,724 The credit ratings are equivalent to those of Fitch credit Foreign currency contracts rated below B+ 17,963 13,431 ratings agency. >>The table below summarises, by major currencies, the con- not rated 51,878 202,931 tractual amounts of forward exchange contracts outstanding Total nostro accounts with other banks 7,598,432 25,790,987 at 31 December 2012 and 2011 with details of the contractual steps 94 annual report 2012 the annual report 2012 Consolidated Financial Statements 95 up

exchange rates and remaining periods to maturity. Foreign payable and receivable on the matured but unsettled con- 15 Available-for-sale financial assets currency amounts presented below are translated at rates rul- tracts, are recognised in profit or loss and in financial instru- 2012 2011 ing at the reporting date. The resultant unrealised gains and ments at fair value through profit or loss, as appropriate. KZT’000 KZT’000 losses on these unmatured contracts, along with the amounts Government bonds

Amounts Amounts Fair value Fair value Treasury notes of the Ministry of Finance of the Republic of Kazakhstan 2,432,074 558,150 Type of instrument Notional Maturity payable by receivable by Asset Liability amount Bank Bank KZT’000 KZT’000 Notes of the NBRK 15,977,527 — 31 December 2012 Total government bonds 18,409,601 558,150 USD USD KZT’000 Corporate bonds Foreign currency swap 2,000,000 03/01/2013 2,000,000 301,300 724 - rated BBB — 417,858 USD USD KZT’000 Foreign currency swap 2,000,000 04/01/2013 2,000,000 300,860 189 - Total corporate bonds — 417,858 USD USD KZT’000 Equity investments Foreign currency forward 750,000 15/03/2013 750,000 115,928 2,189 - Corporate shares 13,945 10,000 Foreign currency forward USD 09/01/2013 RUB’000 USD - 1,123 1,700,000 51,901 1,700,000 18,423,546 986,008 3,102 1,123 The credit ratings are equivalent to those of Fitch credit for these investments and there have not been any recent ratings agency. transactions that provide evidence of the current fair value. No Amounts re- Fair value Fair value Available-for-sale investments stated at cost comprise un- notes and bonds are overdue or impaired as at 31 December Type of instrument Notional Maturity Amounts pay- ceivable by Asset Liability amount able by Bank Bank KZT’000 KZT’000 quoted equity securities with a carrying value of KZT 13,945 2012 (2011: nil). 31 December 2011 thousand (2011: KZT 10,000 thousand). There is no market USD KZT’000 USD Foreign currency swap 50,000,000 14/05/2012 7,407,500 50,000,000 97,636 35,782 USD USD KZT’000 16 Loans and advances to banks Foreign currency forward 600,000 13/07/2012 600,000 88,500 — 1,728

Foreign currency forward USD 13/07/2012 USD KZT’000 — 1,080 2012 2011 375,000 375,000 55,313 KZT’000 KZT’000 USD USD KZT’000 Mandatory reserves with the NBRK and the CBRF 4,830,811 8,307,920 Foreign currency forward 750,000 13/12/2012 750,000 114,750 — 323 97,636 38,913 Term deposits rated from A- to A+ 477,135 469,190 rated from BBB- to BBB+ 1,095 572 Approach to derivative transactions rated from BB- to BB+ 785,419 482,152 >>The Group may enter into swap agreements and other types The Group’s ability to realise a profit from such transac- rated B- 1,513,080 — of over-the-counter transactions with broker-dealers or other tions will depend on the ability of the financial institution with not rated 580,350 35,073 financial institutions for hedging purposes. A swap involves which it enters into the transaction to meet their obligations Total term deposits 3,357,079 986,987 the exchange by the Group with another party of their re- to the Group. If a counterparty’s creditworthiness declines, spective commitments to pay or receive cash flows, e.g. an ex- the value of the agreement would be likely to decline, poten- Total loans and advances to banks 8,187,890 9,294,907 change of floating rate payments for fixed-rate payments. tially resulting in losses. If a default occurs by the other party Swap agreements and similar transactions can be indi- to such transaction, the Group will have contractual remedies The credit ratings are equivalent to those of Fitch credit (b) Mandatory reserves with the NBRK and the CBRF vidually negotiated and structured to include exposure to a pursuant to the agreements related to the transaction, which ratings agency. Under local legislations, the Group entities are required variety of different types of investments or market factors. may be limited by applicable law in the case of a counterpar- No loans and advances to banks are overdue or impaired to maintain certain obligatory reserves that are computed as Depending on their structures, swap agreements may increase ty’s insolvency. as at 31 December 2012 (2011: nil). a percentage of certain liabilities of the entities. Such reserves or decrease the Group’s exposure to long or short-term inter- must be held in either corresponding accounts with central est rates, foreign currency values, corporate borrowing rates, (a) Concentration of loans and advances to banks banks or in physical cash and maintained based on average bi- or other factors such as security prices or inflation rates. The >>As at 31 December 2012 no banks (2011: nil) have no bal- weekly balances of the aggregate of deposits with the central value of the swap positions increases or decreases depend- ances that exceed 10% of equity. banks and physical cash. The use of such funds is, therefore, ing on the changes in value of the underlying rates or currency subject to certain restrictions and they are excluded from cash values. Depending on how they are used, swap agreements and cash equivalents. may increase or decrease the overall volatility of the Group’s investments. steps 96 annual report 2012 the annual report 2012 Consolidated Financial Statements 97 up

17 Loans to customers (a) Credit quality of loans to customers >>The following table provides information on the credit qua 2012 2011 KZT’000 KZT’000 lity of loans to customers as at 31 December 2012: Loans to corporate customers Gross loans Impairment allowance Net loans Impairment allowance to Loans to large corporates 176,841,374 145,269,753 KZT’000 KZT’000 KZT’000 gross loans, % Loans to small and medium size companies 36,773,851 34,144,381 Loans to corporate customers Total loans to corporate customers 213,615,225 179,414,134 Loans to large corporates Loans without individual signs of impairment 165,985,888 (2,663,266) 163,322,622 1.60 Loans to retail customers Overdue or impaired loans: Mortgage loans 33,831,716 29,868,023 not overdue 6,844,306 (5,787,648) 1,056,658 84.56 Car loans 28,902,541 9,661,371 overdue more than 90 days and less than 1 year 627,354 (420,101) 207,253 66.96 Small business loans 18,629,432 19,300,061 overdue more than 1 year 3,383,826 (2,136,078) 1,247,748 63.13 Loans collateralised by cash 528,559 463,938 Total overdue or impaired loans 10,855,486 (8,343,827) 2,511,659 76.86 Uncollateralised consumer loans 88,011,821 42,513,557 Total loans to retail customers 169,904,069 101,806,950 Total loans to large corporates 176,841,374 (11,007,093) 165,834,281 6.22

Gross loans to customers 383,519,294 281,221,084 Loans to small and medium size companies Impairment allowance (28,877,007) (25,211,148) Loans without individual signs of impairment 32,948,812 (155,456) 32,793,356 0.47 Net loans to customers 354,642,287 256,009,936 Overdue or impaired loans: not overdue 161,558 (104,871) 56,687 64.91 overdue less than 90 days 161,975 (69,809) 92,166 43.10 Movements in the loan impairment allowance by classes overdue more than 90 days and less than 1 year 302,958 (132,224) 170,734 43.64 of loans to customers for the year ended 31 December 2012 overdue more than 1 year 3,198,548 (2,116,320) 1,082,228 66.17 are as follows: Total overdue or impaired loans 3,825,039 (2,423,224) 1,401,815 63.35

Loans to corporate Loans to retail Total Total loans to small and medium size companies 36,773,851 (2,578,680) 34,195,171 7.01 customers customers KZT’000 KZT’000 KZT’000 Total loans to corporate customers 213,615,225 (13,585,773) 200,029,452 6.36 Balance at the beginning of the year 13,025,391 12,185,757 25,211,148 Loans to retail customers Net charge 637,863 3,168,986 3,806,849 Mortgage loans Write-offs (137,645) (98,125) (235,770) not overdue 27,197,245 (839,862) 26,357,383 3.09 Effect of foreign currency translation 60,164 34,616 94,780 overdue less than 30 days 972,083 (171,886) 800,197 17.68 Balance at the end of the year 13,585,773 15,291,234 28,877,007 overdue 30-89 days 567,668 (158,018) 409,650 27.84 overdue 90-179 days 1,377,968 (803,144) 574,824 58.28 Movements in the loan impairment allowance by classes overdue 180-360 days 1,029,328 (722,415) 306,913 70.18 of loans to customers for the year ended 31 December 2011 overdue more than 360 days 2,687,424 (1,543,662) 1,143,762 57.44 are as follows: Total mortgage loans 33,831,716 (4,238,987) 29,592,729 12.53

Loans to corporate Loans to retail Car loans customers customers Total KZT’000 KZT’000 KZT’000 not overdue 27,351,661 (354,629) 26,997,032 1.30 Balance at the beginning of the year 10,410,019 10,955,075 21,365,094 overdue less than 30 days 569,815 (39,698) 530,117 6.97 Net charge 2,534,952 1,620,805 4,155,757 overdue 30-89 days 194,081 (18,750) 175,331 9.66 Recoveries/ (write-offs) 73,044 (399,096) (326,052) overdue 90-179 days 128,516 (29,437) 99,079 22.91 Effect of foreign currency translation 7,376 8,973 16,349 overdue 180-360 days 222,700 (76,984) 145,716 34.57 Balance at the end of the year 13,025,391 12,185,757 25,211,148 overdue more than 360 days 435,768 (197,023) 238,745 45.21 Total car loans 28,902,541 (716,521) 28,186,020 2.48

Small business loans not overdue 10,986,878 (725,339) 10,261,539 6.60 overdue less than 30 days 202,157 (44,561) 157,596 22.04 overdue 30-89 days 182,291 (92,696) 89,595 50.85 steps 98 annual report 2012 the annual report 2012 Consolidated Financial Statements 99 up

Gross loans Impairment allowance Net loans Impairment allowance to Gross loans Impairment allowance Net loans Impairment allowance to KZT’000 KZT’000 KZT’000 gross loans, % KZT’000 KZT’000 KZT’000 gross loans, % overdue 90-179 days 679,917 (257,604) 422,313 37.89 Loans to retail customers overdue 180-360 days 466,508 (252,078) 214,430 54.04 Mortgage loans overdue more than 360 days 6,111,681 (4,174,095) 1,937,586 68.30 not overdue 22,380,394 (1,184,113) 21,196,281 5.29 Total small business loans 18,629,432 (5,546,373) 13,083,059 29.77 overdue less than 30 days 1,015,640 (166,808) 848,832 16.42

Loans collateralised by cash overdue 30-89 days 747,332 (430,487) 316,845 57.60 not overdue 501,949 — 501,949 — overdue 90-179 days 1,510,777 (771,318) 739,459 51.05 overdue 30-89 days 26,610 — 26,610 — overdue 180-360 days 676,657 (281,889) 394,768 41.66 Total loans collateralised by cash 528,559 — 528,559 — overdue more than 360 days 3,537,223 (1,994,507) 1,542,716 56.39 Total mortgage loans 29,868,023 (4,829,122) 25,038,901 16.17 Uncollateralised consumer loans not overdue 76,200,669 (1,048,616) 75,152,053 1.38 Car loans overdue less than 30 days 4,035,739 (53,675) 3,982,064 1.33 not overdue 8,605,724 (170,946) 8,434,778 1.99 overdue 30-89 days 2,011,008 (25,785) 1,985,223 1.28 overdue less than 30 days 242,374 (48,841) 193,533 20.15 overdue 90-179 days 1,599,564 (836,521) 763,043 52.30 overdue 30-89 days 75,751 (23,398) 52,353 30.89 overdue 180-360 days 2,585,348 (1,664,720) 920,628 64.39 overdue 90-179 days 81,104 (36,876) 44,228 45.47 overdue more than 360 days 1,579,493 (1,160,036) 419,457 73.44 overdue 180-360 days 58,588 (16,506) 42,082 28.17 Total uncollateralised consumer loans 88,011,821 (4,789,353) 83,222,468 5.44 overdue more than 360 days 597,830 (373,873) 223,957 62.54 Total car loans 9,661,371 (670,440) 8,990,931 6.94 Total loans to retail customers 169,904,069 (15,291,234) 154,612,835 9.00 Small business loans Total loans to customers 383,519,294 (28,877,007) 354,642,287 7.53 not overdue 11,593,447 (1,258,141) 10,335,306 10.85 The following table provides information on the credit overdue less than 30 days 369,046 (232,000) 137,046 62.86 quality of loans to customers as at 31 December 2011: overdue 30-89 days 706,405 (412,107) 294,298 58.34 overdue 90-179 days 507,987 (203,651) 304,336 40.09 Gross loans Impairment allowance Net loans Impairment allowance to KZT’000 KZT’000 KZT’000 gross loans, % overdue 180-360 days 553,621 (193,614) 360,007 34.97 Loans to corporate customers overdue more than 360 days 5,569,555 (3,201,271) 2,368,284 57.48 Loans to large corporates Total small business loans 19,300,061 (5,500,784) 13,799,277 28.50

Loans without individual signs of impairment 134,777,451 (2,733,166) 132,044,285 2.03 Loans collateralised by cash Overdue or impaired loans: not overdue 463,938 — 463,938 — not overdue 6,487,880 (5,161,281) 1,326,599 79.55 Total loans collateralised by cash 463,938 — 463,938 —

overdue less than 90 days 277,878 (184,222) 93,656 66.30 Uncollateralised consumer loans overdue more than 90 days and less than 1 year 894,595 (389,031) 505,564 43.49 not overdue 39,169,167 (179,363) 38,989,804 0.46 overdue more than 1 year 2,831,949 (1,532,020) 1,299,929 54.10 overdue less than 30 days 1,504,128 (16,065) 1,488,063 1.07 Total overdue or impaired loans 10,492,302 (7,266,554) 3,225,748 69.26 overdue 30-89 days 775,484 (229,168) 546,316 29.55 Total loans to large corporates 145,269,753 (9,999,720) 135,270,033 6.88 overdue 90-179 days 313,993 (181,216) 132,777 57.71

Loans to small and medium size companies overdue 180-360 days 373,694 (270,614) 103,080 72.42 Loans without individual signs of impairment 29,292,556 (201,753) 29,090,803 0.69 overdue more than 360 days 377,091 (308,985) 68,106 81.94 Overdue or impaired loans: Total uncollateralised consumer loans 42,513,557 (1,185,411) 41,328,146 2.79

not overdue 1,027,182 (508,080) 519,102 49.46 Total loans to retail customers 101,806,950 (12,185,757) 89,621,193 11.97

overdue less than 90 days 210,124 (126,836) 83,288 60.36 Total loans to customers 281,221,084 (25,211,148) 256,009,936 8.96 overdue more than 90 days and less than 1 year 2,162,209 (1,429,193) 733,016 66.10 overdue more than 1 year 1,452,310 (759,809) 692,501 52.32 Total overdue or impaired loans 4,851,825 (2,823,918) 2,027,907 58.20

Total loans to small and medium size companies 34,144,381 (3,025,671) 31,118,710 8.86

Total loans to corporate customers 179,414,134 (13,025,391) 166,388,743 7.26 steps 100 annual report 2012 the annual report 2012 Consolidated Financial Statements 101 up

(b) Key assumptions and judgments for estimating the value of the estimated cash flows differs by one percent, the Fair value of collateral — Fair value of collateral — 31 December 2012 Loans to customers, for collateral assessed for collateral assessed Fair value of collateral loan impairment impairment allowance on loans to corporate customers as at KZT’000 carrying amount as at reporting date as at loan inception date not determined (i) Loans to corporate customers 31 December 2012 would be KZT 2,000,295 thousand lower/ Total loans without individual signs of impairment 196,115,978 95,724,054 59,572,832 40,819,092

>>Loan impairment results from one or more events that oc- higher (2011: KZT 1,663,887 thousand lower/higher). Overdue or impaired loans curred after the initial recognition of the loan and that have an Real estate 3,439,841 1,094,763 2,345,078 — impact on the estimated future cash flows associated with the (ii) Loans to retail customers Motor vehicles 196,136 — 196,136 — loan, and that can be reliably estimated. Loans without indi- >>The Group estimates loan impairment for loans to retail cus- vidual signs of impairment do not have objective evidence of tomers based on its past historical loss experience on each type Construction in progress 13,041 — 13,041 — impairment that can be directly attributed to them. of loan. The significant assumptions used by management in Equipment 10,620 — 10,620 — The objective indicators of loan impairment for loans to determining the impairment losses for loans to retail custo Goods in turnover 6,872 — 6,872 — corporate customers include the following: mers include: Cash and deposits 5,789 — 5,789 — overdue payments under the loan agreement loss migration rates are constant and can be estimated based Guarantees 76,659 — 76,659 — significant difficulties in the financial conditions of the on the historic loss migration pattern for the past 2-6 years No collateral or other credit enhancement 164,516 — — 164,516 borrower recovery rates for uncollateralised loans are estimated based Total overdue or impaired loans 3,913,474 1,094,763 2,654,195 164,516 deterioration in business environment or negative changes on historical cash recovery rates for the past 2-6 years Total loans to corporate customers 200,029,452 96,818,817 62,227,027 40,983,608 in the borrower’s markets a discount of between 15% and 50% to the annually ap- negative force-majeure events. praised value if the property pledged is sold >>The Group estimates loan impairment for loans to corporate a delay of 12 months in obtaining proceeds from the foreclo- Fair value of collateral — Fair value of collateral — customers based on an analysis of the future cash flows for im- sure of collateral. 31 December 2011 Loans to customers, Fair value of collateral KZT’000 carrying amount for collateral assessed for collateral assessed not determined paired loans and based on its past loss experience for portfo- >>Changes in these estimates could affect the loan impair- as at reporting date as at loan inception date lios of loans for which no indications of impairment has been ment provision. For example, to the extent that the net present Loans without individual signs of impairment identified. value of the estimated cash flows differs by plus minus three Real estate 48,594,541 25,550,467 23,044,074 — In determining the impairment allowance for loans to percent, the impairment allowance on loans to retail custom- Future contract revenues 25,215,864 4,464,833 20,751,031 — corporate customers, management makes the following key ers as at 31 December 2012 would be KZT 4,638,385 thousand Insurance 8,519,179 — 8,519,179 — assumptions: lower/higher (2011: KZT 2,688,636 thousand). Equipment 8,097,212 7,393,174 704,038 — annual loss rates are based on historic loss experience of Grain 7,398,769 7,218,769 180,000 — 0.47-1.60% p.a. (c) Analysis of collateral Goods in turnover 6,783,782 5,773,127 1,010,655 — a discount of between 15% and 50% to the originally ap- Cash and deposits 4,090,118 — 4,090,118 — praised value if the property pledged is sold (i) Loans to corporate customers Subsoil use 3,626,600 3,626,600 — — a delay of 12 to 36 months in obtaining proceeds from the >>The following table provides information on collateral and foreclosure of collateral. other credit enhancements securing loans to corporate cus- Motor vehicles 1,874,964 1,865,292 9,672 — >>Changes in these estimates could affect the loan impair- tomers, net of impairment, by types of collateral: Construction in progress 256,562 233,752 22,810 — ment provision. For example, to the extent that the net present Other 3,464,780 3,412,322 52,458 — Guarantees 3,474,014 — 3,474,014 — Fair value of collateral — Fair value of collateral — 31 December 2012 Loans to customers, for collateral assessed for collateral assessed Fair value of collateral No collateral or other credit enhancement 39,738,703 — — 39,738,703 KZT’000 carrying amount as at reporting date as at loan inception date not determined Total loans without individual signs of impairment 161,135,088 59,538,336 61,858,049 39,738,703 Loans without individual signs of impairment Overdue or impaired loans Real estate 41,049,402 19,118,262 21,931,140 — Real estate 4,083,062 1,420,229 2,662,833 — Future contract revenues 38,026,405 33,546,537 4,479,868 — Grain 170,304 — 170,304 — Insurance 19,161,368 — 19,161,368 — Equipment 39,896 — 39,896 — Grain 16,790,647 16,790,647 — — Future contract revenues 16,183 — 16,183 — Construction in progress 10,603,557 10,470,684 132,873 — Cash and deposits 7,927 — 7,927 — Equipment 8,453,048 7,238,210 1,214,838 — Construction in progress 3,836 — 3,836 — Goods in turnover 5,556,981 4,890,524 666,457 — No collateral or other credit enhancement 932,447 — — 932,447 Cash and deposits 4,731,021 — 4,731,021 — Total overdue or impaired loans 5,253,655 1,420,229 2,900,979 932,447 Motor vehicles 2,512,088 473,727 2,038,361 — Other 3,321,563 3,195,463 126,100 — Total loans to corporate customers 166,388,743 60,958,565 64,759,028 40,671,150 Guarantees 5,090,806 — 5,090,806 — The tables above exclude the effect of overcollateralisation. No collateral or other credit enhancement 40,819,092 — — 40,819,092 steps 102 annual report 2012 the annual report 2012 Consolidated Financial Statements 103 up

For loans secured by multiple types of collateral, collat- loans and was not adjusted for subsequent changes to the re- (d) Industry and geographical analysis eral that is most relevant for impairment assessment is dis- porting date. of the loan portfolio closed. Guarantees and sureties received from individuals, >>Loans to customers were issued primarily to customers lo- such as shareholders of SME borrowers, are not considered Car loans cated within the Republic of Kazakhstan who operate in the for impairment assessment purposes. Accordingly, such >>The Group does not assess the value of collateral for the following economic sectors: loans and unsecured portions of partially secured exposures car loans portfolio when determining the impairment allowance due to the fact that it is impracticable to determine the 2012 2011 are presented as loans without collateral or other credit KZT’000 KZT’000 enhancement. fair value of collateral. Recoverable amounts of car loans are Loans to corporate customers determined based on actual historical cash recovery rates Wholesale trade 54,460,389 39,269,442 Collateral obtained calculated on a portfolio basis. >>During the year ended 31 December 2012, the Group did Agriculture, forestry and timber 30,098,595 23,817,489 not obtain assets by taking possession of collateral for loans Small business loans Construction 25,948,505 29,186,433 to corporate customers. As at 31 December 2011, the carry- >>Included in small business loans are loans with a net car- Transport 17,864,121 17,231,655 ing amount of such assets was KZT 26,366 thousand, which rying amount of KZT 3,949,638 thousand (2011: KZT Mining/metallurgy 16,370,651 10,268,145 consisted of property. The Group’s policy is to sell these as- 4,460,439 thousand), which are secured by collateral with Foods production 15,683,238 19,101,429 sets as soon as it is practicable. a fair value of less than the net carrying amount of the in- Retail trade 10,569,052 8,230,654 dividual loans. The fair value of collateral for these loans Services 8,030,071 2,622,425 (ii) Loans to retail customers amounts to KZT 3,524,632 thousand (2011: KZT 3,433,858 Lease, rental and leasing 6,676,845 3,774,565 >>Mortgage loans are secured by the underlying housing real thousand). Manufacturing 5,522,765 6,699,815 estate. Small business loans are secured by real estate and For small business loans with a net carrying amount of movable property. Car loans are secured by the underlying KZT 9,133,421 thousand (2011: KZT 9,338,838 thousand) Research and activities 4,820,585 1,516,867 cars. Cash loans are collateralised by cash. Uncollateralised management believes that the fair value of collateral is at Energy production and supply 4,311,954 4,815,956 consumer loans are not secured. least equal to the carrying amount of individual loans at the Financial intermediary 3,870,388 4,780,690 reporting date. Real estate 1,922,944 2,794,062 Mortgage loans The Group updates the appraised values of collateral at Medical and social care 1,679,524 1,332,904 >>Included in mortgage loans are loans with a net carrying inception of the loans to the current values considering the Entertainment 630,457 2,347,639 amount of KZT 5,085,883 thousand (2011: KZT 5,102,992 approximate changes in property values. The Group obtains Publishing 343,921 333,456 thousand), which are secured by collateral with a fair value specific individual valuation of collateral once a half-year in Machinery production 35,396 200,004 of less than the net carrying amount of the individual loans. case there are indications of impairment. Other 4,775,824 1,090,504 The fair value of collateral for these loans amounts to KZT For small business loans with a net carrying amount of 4,060,617 thousand (2011: KZT 4,678,277 thousand). KZT 2,332,507 thousand (2011: KZT 1,561,842 thousand) Loans to retail customers For mortgage loans with a net carrying amount of KZT the fair value of collateral was estimated at inception of the Mortgage loans 33,831,716 29,868,023 24,506,846 thousand (2011: KZT 19,935,909 thousand) loans and was not adjusted for subsequent changes to the re- Car loans 28,902,541 9,661,371 management believes that the fair value of collateral is at porting date. Small business loans 18,629,432 19,300,061 least equal to the carrying amount of individual loans at the Loans collateralised by cash 528,559 463,938 reporting date. Collateral obtained Uncollateralised consumer loans 88,011,821 42,513,557 The Group updates the appraised values of collateral at >>During the year ended 31 December 2012, the Group did 383,519,294 281,221,084 inception of the loans to the current values considering the not obtain assets by taking possession of collateral for loans Impairment allowance (28,877,007) (25,211,148) approximate changes in property values. The Group obtains to retail customers. As at 31 December 2011, the carrying specific individual valuation of collateral once a half-year in amount of such assets was KZT 1,170 thousand, which con- 354,642,287 256,009,936 case there are indications of impairment. sisted of property. The Group’s policy is to sell these assets as For mortgage loans with a net carrying amount of KZT soon as it is practicable. 21,273,406 thousand (2011: KZT 15,079,959 thousand) (e) Significant credit exposures (f) Loan maturities the fair value of collateral was estimated at inception of the >>As at 31 December 2012 the Group has 8 borrowers or >>The maturity of the loan portfolio is presented in Note groups of connected borrowers (2011: 17), whose loan bal- 31(d), which shows the remaining period from the reporting ances exceed 10% of equity. The gross value of these loans date to the contractual maturity of the loans. as at 31 December 2012 is KZT 50,108,373 thousand (2011: KZT 79,891,088 thousand). steps 104 annual report 2012 the annual report 2012 Consolidated Financial Statements 105 up

18 Held-to-maturity Construction Computer in progress Leasehold Computer investments KZT’000 Land and and Vehicles Furniture and equip- improve- Trademark software Total buildings banking ment to be ments and other equipment installed intangibles 2012 2011 KZT’000 KZT’000 Held by the Group Effect of foreign currency translation — (12,471) (4,573) (1,905) — — — (6,890) (25,839) Government bonds Balance at 31 December (955,350) (3,296,973) (295,003) (152,107) — (245,661) (143,429) (1,530,857) (6,619,380) Treasury notes of the Ministry of Finance of the Republic of Kazakhstan 10,049,199 3,114,463 2012

Notes of the NBRK — 28,637,263 Carrying amount

Russian Government Federal bonds (OFZ) 277,993 9 At 31 December 2012 8,760,687 4,137,692 261,321 421,267 82,091 54,482 932,287 2,110,771 16,760,598 Total government bonds 10,327,192 31,751,735

Corporate bonds rated BBB — 519,950 Computer Construction Computer 10,327,192 32,271,685 Land and and in progress Leasehold software KZT’000 buildings banking Vehicles Furniture and equip- improve- Trademark and other Total Pledged under sale and repurchase agreements ment to be ments equipment installed intangibles Government bonds Russian government bonds — 967,085 Cost

Notes of the NBRK — 5,254,960 Balance at 1 January 2011 9,224,803 4,142,779 347,484 265,162 218,231 283,004 — 1,688,541 16,170,004

Total government bonds — 6,222,045 Additions 148,571 862,543 126,838 57,801 8,686 987 1,075,716 650,879 2,932,021

10,327,192 38,493,730 Disposals — (61,187) (13,270) (7,091) (20) (2,786) — — (84,354)

Balance at 31 December 2011 9,373,374 4,944,135 461,052 315,872 226,897 281,205 1,075,716 2,339,420 19,017,671 The credit ratings are equivalent to those of Fitch credit No notes or bonds are overdue or impaired as at ratings agency. 31 December 2012 (2011: nil). Depreciation and amortisation

Balance at 1 January 2011 (639,409) (1,787,759) (213,708) (97,556) — (172,119) — (696,086) (3,606,637) 19 Property, equipment Depreciation and amortisation and intangible assets for the year (93,247) (701,815) (47,293) (26,897) — (47,491) — (286,939) (1,203,682) Disposals — 53,792 10,705 5,020 — 2,174 — — 71,691

Computer Construction Computer Balance at 31 December 2011 (732,656) (2,435,782) (250,296) (119,433) — (217,436) — (983,025) (4,738,628) Land and and in progress Leasehold software KZT’000 buildings banking Vehicles Furniture and equip- improve- Trademark and other Total ment to be ments Carrying amount equipment installed intangibles At 31 December 2011 8,640,718 2,508,353 210,756 196,439 226,897 63,769 1,075,716 1,356,395 14,279,043 Cost

Balance at 1 January 2012 9,373,374 4,944,135 461,052 315,872 226,897 281,205 1,075,716 2,339,420 19,017,671 There are no capitalised borrowing costs related to the ac-

Additions 342,663 2,385,196 112,159 260,253 1,135 21,896 — 1,293,452 4,416,754 quisition or construction of property and equipment during 2012 (2011: nil). Disposals — (50,265) (21,460) (4,685) — (2,958) — (918) (80,286)

Transfers — 143,877 — — (145,941) — — 2,064 —

Effect of foreign currency translation — 11,722 4,573 1,934 — — — 7,610 25,839 20 Other assets

Balance at 31 December 9,716,037 7,434,665 556,324 573,374 82,091 300,143 1,075,716 3,641,628 23,379,978 2012 2011 2012 KZT’000 KZT’000 Accrued commission income 1,270,018 916,503 Depreciation and amortisation Debtors on loan operations 838,164 743,841

Balance at 1 January 2012 (732,656) (2,435,782) (250,296) (119,433) — (217,436) — (983,025) (4,738,628) Receivable from insurance company 300,415 — Plastic cards settlements 119,668 — Depreciation and amortisation (222,694) (895,564) (58,829) (34,469) — (30,856) (143,429) (541,429) (1,927,270) for the year Cession agreement receivables 93,000 — Disposals — 46,844 18,695 3,700 — 2,631 — 487 72,357 Debtors on letters of credit 21,906 202,595 steps 106 annual report 2012 the annual report 2012 Consolidated Financial Statements 107 up

2012 2011 KZT’000 KZT’000 23 Current accounts and deposits Due from American Express for travel cheques accepted 72,528 — from customers Other 299,912 309,337 2012 2011 Impairment allowance (403,949) (64,759) KZT’000 KZT’000 Total other financial assets 2,611,662 2,107,517 Current accounts and demand deposits

Advances for capital expenditures 1,875,568 1,085,820 Retail 14,390,311 10,541,920 Prepayments 227,043 90,011 Corporate 56,794,967 58,159,128 Materials and supplies 202,106 176,395 Term deposits Taxes prepaid other than on income tax 147,879 71,695 Retail 84,624,820 53,687,036 Other 36,497 — Corporate 158,910,300 123,223,056 Total other non-financial assets 2,489,093 1,423,921 314,720,398 245,611,140

Total other assets 5,100,755 3,531,438 As at 31 December 2012, the Group maintains cus- As at 31 December 2012, the Group has 8 customers Analysis of movements in the impairment allowance tomer deposit balances of KZT 3,843,703 thousand (2011: (2011: 14 customers), whose balances exceed 10% of equity. Movements in the impairment allowance for the years KZT 3,687,550 thousand) that serve as collateral for loans and These balances as at 31 December 2012 are KZT 83,179,091 ended 31 December are as follows: unrecognised credit instruments granted by the Group. thousand (2011: KZT 104,361,563 thousand).

2012 2011 KZT’000 KZT’000 Balance at the beginning of the year 64,759 258,176 24 Debt securities issued

Net charge/(recovery) 346,593 (188,820) 2012 2011 KZT’000 KZT’000 Write-offs (8,332) (4,770) Par value 32,943,090 31,792,200 Effect of foreign currency translation 929 173 Premium 637,256 871,502 Balance at the end of the year 403,949 64,759 Accrued interest 861,418 920,799

As at 31 December 2012, included in other assets are over- overdue for more than 90 days but less than one year and KZT 34,441,764 33,584,501 due receivables of KZT 2,802 thousand (2011: KZT 3,894 2,787 thousand are overdue for more than one year (2011: thousand), of which nil (2011: KZT 2,650 thousand) are KZT 1,075 thousand). A summary of bond issues at 31 December 2012 and 2011 is presented below:

21 Deposits and balances Issue Carrying amount registration Maturity Coupon rate Effective rate 2012 2011 from banks date KZT’000 KZT’000 Bonds of the fifth issue 01-Sep-08 01-Sep-23 inflation +1% 7.16% 7,519,653 7,572,615 2012 2011 KZT’000 KZT’000 Bonds of the seventh issue 24-Sep-08 21-Jan-19 inflation +1% 11.27% 1,402,812 1,489,176 Term deposits 21,157,779 2,675,839 Bonds of the ninth issue 15-Oct-08 15-Oct-15 13.00% 9.15% 23,229,746 22,244,503 Vostro accounts 70,797 545,813 Bonds of the tenth issue 13-Jul-11 13-Jul-14 7.00% 7.60% 2,289,553 2,278,207 21,228,576 3,221,652 34,441,764 33,584,501

As at 31 December 2012 the Group has 1 bank whose bal- these balances as at 31 December 2012 is KZT 10,335,556 Embedded derivatives represented by inflation-indexed ances exceed 10% of equity (2011: nil). The gross value of thousand. coupon payments are considered to be closely related to the host debt instruments as the inflation index is commonly used for this purpose in the tenge economic environment and it is 22 Amounts payable under not leveraged. repurchase agreements

Securities pledged >>As at 31 December 2012, the Group has no pledged se- 31 December 2011, the Group has pledged certain securities curities as collateral under repurchase agreements. As at as collateral under repurchase agreements (Note 18). steps 108 annual report 2012 the annual report 2012 Consolidated Financial Statements 109 up

25 Subordinated debt securities issued As at 31 December 2011, the terms and conditions of the loans outstanding are as follows: 2012 2011 KZT’000 KZT’000 Par value 29,391,180 24,595,860 Carrying amount Currency Interest rate Year of maturity KZT’000 Discount (2,106,655) (1,342,549)

Accrued interest 586,979 672,246 Damu Entrepreneurship Development Fund JSC KZT 5.50-8.62% 2013-2018 18,287,214 27,871,504 23,925,557 The Ministry of Finance of the Republic of Kazakhstan KZT NBRK refinancing rate 2024-2026 1,213,862 The Ministry of Finance of the Republic of As at 31 December 2012 subordinated debt securities is- would be made after repayment in full of all other liabilities of Kazakhstan USD Libor +1% 2024-2025 387,284 sued comprise unsecured obligations of the Group. In case of the Group. Foreign banks USD 4.68-4.88% 2012 876,109 bankruptcy, the repayment of the subordinated debt securities A summary of subordinated debt issues at 31 December 20,764,469 2012 and 2011 is presented below:

Carrying amount Issue registra- 2012 2011 tion date Maturity Coupon rate Effective rate KZT’000 KZT’000 27 Other liabilities Bonds of the third issue 05-Apr-06 05-Apr-13 inflation +1% 8.64% 10,112,631 10,001,144 2012 2011 Bonds of the forth issue 04-Sep-07 04-Sep-14 inflation +1% 10.04% 9,525,235 9,302,047 KZT’000 KZT’000 Bonds of the sixth issue 01-Sep-08 01-Sep-15 11.00% 9.77% 5,185,740 3,898,860 Prepayments for loans 2,550,892 1,695,950 Bonds of the eighth issue 15-Oct-08 15-Oct-23 inflation +1% 10.32% 3,047,898 723,506 Payables to borrowers on lending operations 910,793 — 27,871,504 23,925,557 Capital expenditures payables 478,098 — Accrued administrative expenses 350,716 67,153 Embedded derivatives represented by inflation-indexed for this purpose in the tenge economic environment and it is Payables to obligatory deposit insurance Fund 3,328 70,025 coupon payments are considered to be closely related to the not leveraged. Accrued reserve for litigation — 188,512 host debt instruments as the inflation index is commonly used Other financial liabilities 244,822 162,084 Total other financial liabilities 4,538,649 2,183,724 26 Other borrowed funds Amounts payable to employees 537,050 516,167 Vacation reserve 430,111 314,326 2012 2011 Deferred income 235,367 344,661 KZT’000 KZT’000 Other taxes payable 117,390 217,301 Loans from state financial institutions 15,332,623 18,287,214 Other non-financial liabilities 696 1,767 Loans from the Ministry of Finance of the Republic of Kazakhstan 1,470,631 1,601,146 Total other non-financial liabilities 1,320,614 1,394,222 Loans from banks 1,758,902 876,109 18,562,156 20,764,469 Total other liabilities 5,859,263 3,577,946

As at 31 December 2012, the terms and conditions of the Prepayments for loans comprise payments made by re- loans outstanding are as follows: tail borrowers ahead of schedule. These payments are settled against the loan balance at the date instalments fall due.

Carrying amount Currency Interest rate Year of maturity KZT’000

Damu Entrepreneurship Development Fund JSC KZT 5.50-8.62% 2013-2019 15,332,623 The Ministry of Finance of the Republic of Kazakhstan KZT NBRK refinancing rate 2024-2026 1,109,919 The Ministry of Finance of the Republic of Kazakhstan USD Libor +1% 2024-2025 360,712 Foreign banks EUR 4.58-8.72% 2013 1,758,902 18,562,156 steps 110 annual report 2012 the annual report 2012 Consolidated Financial Statements 111 up

2012 2011 28 Share capital KZT’000 KZT’000 Profit 9,832,053 6,046,738 (a) Issued capital and share premium Issued and outstanding share capital as at 31 December Weighted average number of ordinary shares 15,816,619 15,307,970 >>The authorised share capital comprises 33,000,000 ordinary comprised of the following fully paid ordinary shares: shares (2011: 33,000,000) and 3,000,000 non-redeemable cu- Basic and diluted earnings per share, in KZT 621.63 395.01 mulative preference shares (2011: 3,000,000).

2012 2011 Shares Shares 30 Analysis by segment Issued at KZT 955.98 8,368,300 8,368,300 >>The Group has five reportable segments, as described be- Assets and Liabilities management — includes maintain- Issued at KZT 1,523.90 2,631,500 2,631,500 low, which are the Group’s strategic business units. The stra- ing of liquid assets portfolio (cash, nostro accounts with Issued at KZT 1,092.00 2,930,452 2,930,452 tegic business units offer different products and services, and the NBRK and other banks, interbank financing (up to 1 Issued at KZT 6,532.60 2,280,881 1,377,718 are managed separately because they require different tech- month), investments into liquid assets and bonds issue Total issued and outstanding shares 16,211,133 15,307,970 nology and marketing strategies. For each of the strategic busi- management; ness units, the chief operating decision maker, the Chairman Treasury — includes group financing via interbank borrow- The holders of ordinary shares are entitled to receive div- (d) Reserves for general banking risks of the Management Board (the “Chairman”), reviews internal ings and using derivatives for hedging market risks and in- idends as declared from time to time and are entitled to one >>In accordance with amendments to the Resolution #196 management reports on at least a quarterly basis. The follow- vestments into liquid securities (corporate bonds). vote per share at annual and general meetings of the Bank. On Establishment of Minimum Limit on Reserve Capital of ing summary describes the operations in each of the report- Information regarding the results of each reportable seg- Second-Tier Banks issued by the FMSA on 31 January 2011, able segments. ment is included below. Performance is measured based on (b) Dividends the Bank should establish reserve capital by transferring an Retail banking — includes loans, deposits and other transac- segment profit before income tax as included in the inter- >>In accordance with Kazakhstan legislation the Bank’s distrib- amount from retained earnings to a non-distributable reserve. tions with retail customers; nal management reports that are reviewed by the Chairman. utable reserves are limited to the balance of retained earnings The amount to be transferred each year is calculated as the net Corporate banking — includes loans, deposits and other Segment profit is used to measure performance as manage- as recorded in the Bank’s statutory financial statements pre- profit for the preceding year before distribution of dividends transactions with corporate customers; ment believes that such information is the most relevant in pared in accordance with IFRS or profit for the year if there is attributable to ordinary shareholders, multiplied by the per- Small and medium size companies banking — includes evaluating the results of certain segments relative to others an accumulated loss brought forward. A distribution cannot be centage increase in Classified Assets and Contingent Liabilities loans, deposits and other transactions with small and me- who operate within these industries. Inter-segment pricing is made if this would result in negative equity or the Bank’s in- (as defined in the Resolution #296 On Approval of the Rules dium size companies; determined on an arm’s length basis. solvency. In accordance with the legislation of the Republic of of Classification of Assets, Contingent Liabilities and Creation Kazakhstan, as at the reporting date, reserves available for dis- of Provisions (Reserves) against Assets and Contingent 2012 2011 KZT’000 KZT’000 tribution amounted to KZT 9,619,591 thousand (2011: KZT Liabilities issued the FMSA on 25 December 2006) during the 6,039,513 thousand). preceding year. Such percentage increase will be not less than ASSETS As at 31 December 2012 no dividends were declared. 10% and not more than 100%. Corporate banking 163,797,053 132,881,560 Transfer from retained earnings to the reserve for gen- Retail banking 143,636,011 77,802,054 (c) Book value per share eral banking risks in the amount of KZT 1,268,809 thousand Assets and liabilities management 74,162,188 82,508,894 >>Under the listing rules of the Kazakh Stock Exchange the was made for the year ended 31 December 2012 (2011: KZT Small and medium size companies banking 48,097,028 43,963,674 Group should present book value per share in its consolidated 77,136 thousand). Treasury 4,412,384 78,371 financial statements. The book value per share is calculated di- The statutory reserve capital is non-distributable. viding net assets less intangible assets by number of outstand- In 2012 the FMSC issued a requirement for banks to dis- Unallocated assets 31,833,347 32,380,987 ing ordinary shares. As at 31 December 2012 the book value close separately a portion of their retained earnings represent- Total assets 465,938,011 369,615,540 per share was KZT 2,759.90 (2011: KZT 1,923.80). ing the excess of impairment allowances assessed under stat- LIABILITIES

utory rules and IFRS. As at 31 December 2012 the amount of Corporate banking 178,891,857 152,818,901 the excess is KZT 1,767,155 thousand (unaudited) and it re- Retail banking 98,464,545 68,295,371 lates primarily to loans to customers. Assets and liabilities management 75,316,939 66,063,521 Small and medium size companies banking 56,765,887 40,158,507 29 Earnings per share Treasury 363,249 592,215 Unallocated liabilities 8,348,239 9,441,724 >>The calculation of earnings per share is based on the net outstanding during the year, calculated as shown below. The Total liabilities 418,150,716 337,370,239 profit, and a weighted average number of ordinary shares Group has no dilutive potential ordinary shares. steps 112 annual report 2012 the annual report 2012 Consolidated Financial Statements 113 up

Reconciliations of reportable segment total assets and to- Segment information for the main reportable segments tal liabilities: for the year ended 31 December 2011 is set out below:

2012 2011 KZT’000 KZT’000 Small and me- Assets and KZT’000 Corporate dium size com- Retail banking Treasury liabilities Unallocated Total Reportable segment total assets 465,938,011 369,615,540 banking panies banking management Consolidation effect 10,177,001 5,570,801 Interest income 17,594,796 5,262,616 11,485,945 220,962 1,144,964 — 35,709,283 Other adjustments (5,604,453) (5,824,948) Fee and commission income 2,531,511 1,430,354 1,751,232 90,489 660 107,075 5,911,321 Total assets 470,510,559 369,361,393 Net gain on securities, dealing and translation differences 1,565,703 445,420 605,898 786,517 51,196 — 3,454,734

2012 2011 Other income 120,883 136,883 240,424 — — — 498,190 KZT’000 KZT’000 Funds transfer pricing 6,845,269 508,422 5,706,842 33,683 5,293,307 250,142 18,637,665 Reportable segment total liabilities 418,150,716 337,370,239 Revenue 28,658,162 7,783,695 19,790,341 1,131,651 6,490,127 357,217 64,211,193 Consolidation effect 10,182,230 5,990,469 Interest expense (6,013,688) (1,749,839) (5,512,016) — (5,928,144) (771) (19,204,458) Other adjustments (5,606,590) (5,880,956) Fee and commission expense (73,917) (9,587) (203,874) (40,202) (60,410) — (387,990) Total liabilities 422,726,356 337,479,752 Impairment losses (427,524) (2,137,046) (734,548) (2) — — (3,299,120) Funds transfer pricing (9,257,163) (1,656,191) (4,604,144) (47,343) (3,072,823) — (18,637,664) Segment information for the main reportable segments Operational costs (direct) (1,362,818) (872,514) (3,626,686) (119,608) (346,082) (79,338) (6,407,046) for the year ended 31 December 2012 is set out below: Operational costs (indirect) (2,318,679) (1,092,126) (3,405,577) (124,575) (554,559) (284,462) (7,779,978)

Corporate Small and me- Assets and Corporate income tax (1,026,288) (286,733) (553,670) (76,809) (51,761) (4,739) (2,000,000) KZT’000 banking dium size com- Retail banking Treasury liabilities Unallocated Total panies banking management Segment result 8,178,085 (20,341) 1,149,826 723,112 (3,523,652) (12,093) 6,494,937 Interest income 18,562,350 6,081,978 20,615,560 19,074 579,858 2,714 45,861,534 Other segment items Fee and commission income 2,393,933 1,633,412 7,347,697 — 3 589,764 11,964,809 Additions of property and — — 1,075,716 — — 1,856,305 2,932,021 Net gain on securities, dealing equipment and translation differences 1,414,454 338,499 439,493 1,843,923 (336,218) 4,924 3,705,075 Depreciation and amortisation (300,096) (172,101) (488,388) (8,981) (84,189) (139,922) (1,193,677) Other income 91,356 118,518 497,967 — — — 707,841 Funds transfer pricing 12,524,915 679,708 6,671,190 — 8,155,314 76,781 28,107,908 Revenue 34,987,008 8,852,115 35,571,907 1,862,997 8,398,957 674,183 90,347,167 Reconciliations of reportable segment revenues and profit or loss: Interest expense (8,309,467) (1,676,518) (6,218,117) — (6,533,935) (32,175) (22,770,212)

Fee and commission expense (223,665) (24,682) (1,442,599) (7,218) (80,611) (67,703) (1,846,478) 2012 2011 KZT’000 KZT’000 Impairment losses (450,028) 68,750 (3,269,186) — 2 (2,956) (3,653,418) Reportable segment revenue 90,347,167 64,211,193 Funds transfer pricing (11,231,201) (3,083,959) (10,554,604) (68,862) (3,094,166) (75,116) (28,107,908) Funds transfer pricing (28,107,908) (18,637,665) Operational costs (direct) (1,379,385) (1,160,375) (8,331,864) (123,978) (428,491) (134,357) (11,558,450) Other adjustments (2,643) (628,154) Operational costs (indirect) (2,897,823) (1,297,652) (4,190,422) (58,363) (583,567) (239,167) (9,266,994) Consolidation effect 1,211,664 677,805 Corporate income tax (1,631,939) (439,102) (938,880) (217,278) — (3,555) (3,230,754) Total revenue 63,448,280 45,623,179 Segment result 8,863,500 1,238,577 626,235 1,387,298 (2,321,811) 119,154 9,912,953 Reportable segment profit 9,912,953 6,494,937 Other segment items Difference in impairment losses (506,350) (825,884) Additions of property and — — 220,026 — — 4,196,728 4,416,754 equipment Other adjustments 212,988 370,460 Depreciation and amortisation (262,828) (183,882) (1,369,878) (6,867) (66,331) (30,792) (1,920,578) Consolidation effect 212,462 7,225 Total profit 9,832,053 6,046,738

Consolidation effect. Consolidation effect occurs due to the occur due to the fact that the Chairman reviews internal man- fact that the Chairman reviews internal management reports agement reports prepared on a gross-up basis whereas for on a stand-alone basis. IFRS financial statements purposes netting is made for cer- Other adjustments. These adjustments mostly represent tain other assets/liabilities included in unallocated assets/ netting of other assets and other liabilities. Other adjustments liabilities. steps 114 annual report 2012 the annual report 2012 Consolidated Financial Statements 115 up

Funds transfer pricing. For the purpose of internal man- Information about major customers and geographical (i) Interest rate risk reduce or create losses in the event that unexpected move- agement reporting transfer pricing represents the alloca- areas >>Interest rate risk is the risk that the fair value or future ments occur. tion of income and expense between segments that attract >>For the year ended 31 December 2012, there are no corpo- cash flows of a financial instrument will fluctuate because of cash resources and to segments that create interest income rate customers revenues from which individually exceed 10% changes in market interest rates. The Group is exposed to the Interest rate gap analysis generating assets using cash resources. of total revenue. effects of fluctuations in the prevailing levels of market inter- >>Interest rate risk is managed principally through monitoring The majority of revenues from external customers relate est rates on its financial position and cash flows. Interest mar- interest rate gaps. A summary of the interest gap position as at to residents of the Republic of Kazakhstan. The majority of gins may increase as a result of such changes but may also 31 December 2012 and 2011 for major financial instruments is non-current assets are located in the Republic of Kazakhstan. as follows:

Less than 3-6 6-12 1-5 More than Non-interest Carrying KZT’000 3 months months months years 5 years bearing amount 31 Risk management 31 December 2012 ASSETS Management of risk is fundamental to the business of financial and non-financial risks by holding regular meetings banking and is an essential element of the Group’s operations. with operational units in order to obtain expert judgments in Cash and cash equivalents 10,300,601 — — — — 44,619,676 54,920,277 The major risks faced by the Group are those related to market their areas of expertise. Financial instruments at fair value through profit or loss 1,259,771 — — — — 3,102 1,262,873 risk, credit risk and liquidity risk. Available-for-sale financial assets 16,006,281 11,672 787 2,390,854 7 13,945 18,423,546 (b) Market risk Loans and advances to banks 1,846,719 — 1,510,190 — 170 4,830,811 8,187,890 (a) Risk management policies and procedures >>Market risk is the risk that the fair value or future cash flows >>The risk management policies aim to identify, analyse and of a financial instrument will fluctuate because of changes Loans to customers 52,721,139 9,094,147 29,580,608 204,394,102 58,852,291 — 354,642,287 manage the risks faced by the Group, to set appropriate risk in market prices. Market risk comprises currency risk, inter- Held-to-maturity investments 323,426 20,472 1,983,962 5,999,677 1,999,655 — 10,327,192 limits and controls, and to continuously monitor risk levels est rate risk and other price risks. Market risk arises from open 82,457,937 9,126,291 33,075,547 212,784,633 60,852,123 49,467,534 447,764,065 and adherence to limits. Risk management policies and pro- positions in interest rate, currency and equity financial in- LIABILITIES cedures are reviewed regularly to reflect changes in market struments, which are exposed to general and specific mar- Financial instruments at fair — — — — — 1,123 1,123 conditions, products and services offered and emerging best ket movements and changes in the level of volatility of market value through profit or loss practice. prices. Deposits and balances from banks 8,793,545 507,195 11,842,047 — — 85,789 21,228,576 The Board of Directors has overall responsibility for the The objective of market risk management is to manage Current accounts and deposits oversight of the risk management framework, overseeing the and control market risk exposures within acceptable parame- from customers 47,399,946 32,929,224 105,014,912 69,537,994 9,617,443 50,220,879 314,720,398 management of key risks and reviewing its risk management ters, whilst optimising the return on risk. Debt securities issued 1,633,992 571,263 7,361,088 24,875,421 — — 34,441,764 policies and procedures as well as approving significantly large Overall authority for market risk is vested in the ALCO, Subordinated debt securities exposures. which is chaired by the Management Board member of the issued 371,917 10,164,776 12,330,876 5,003,935 — — 27,871,504 The Management Board is responsible for monitoring and Group. Market risk limits are approved by ALCO based on rec- Other borrowed funds 3,733,214 1,643,585 2,554,759 9,320,960 1,309,638 — 18,562,156 implementation of risk mitigation measures and making sure ommendations of the Risk Management Department. 61,932,614 45,816,043 139,103,682 108,738,310 10,927,081 50,307,791 416,825,521 that the Group operates within the established risk parame- The Group manages its market risk by setting open posi- 20,525,323 (36,689,752) (106,028,135) 104,046,323 49,925,042 (840,257) 30,938,544 ters. The Chief Risk Officer (“CRO”) is responsible for the over- tion limits in relation to financial instruments, interest rate all risk management and compliance functions, ensuring the maturity and currency positions and stop-loss limits. These are implementation of common principles and methods for identi- monitored on a regular basis and reviewed and approved by Less than 3-6 6-12 1-5 More than Non-interest Carrying fying, measuring, managing and reporting both financial and the Management Board. KZT’000 3 months months months years 5 years bearing amount non-financial risks. He reports directly to the Chairman and In addition, the Group uses a wide range of stress tests 31 December 2011 indirectly to the Board of Directors. to model the financial impact of a variety of exceptional mar- ASSETS Credit, market and liquidity risks both at the portfolio ket scenarios on individual trading portfolios and the Group’s Cash and cash equivalents 5,000,967 — — — — 35,524,958 40,525,925 and transactional levels are managed and controlled through overall position. Stress tests provide an indication of the poten- Financial instruments at fair a system of Credit Committees and an Asset and Liability tial size of losses that could arise in extreme conditions. The value through profit or loss 1,560,016 — — — — 97,636 1,657,652 Management Committee (“ALCO”). In order to facilitate ef- stress tests carried out by the Group include: risk factor stress Available-for-sale financial assets — — 50,555 825,611 99,842 10,000 986,008 ficient and effective decision-making, the Group established testing, where stress movements are applied to each risk cate- Loans and advances to banks 1,047,712 45 60 — — 8,247,090 9,294,907 a hierarchy of credit committees depending on the type and gory and ad hoc stress testing, which includes applying possi- Amounts receivable under re- amount of the exposure. ble stress events to specific positions. verse repurchase agreements 2,500,090 — — — — — 2,500,090 Both external and internal risk factors are identified and The management of interest rate risk by monitoring inter- Loans to customers 33,585,050 27,937,449 36,690,937 104,247,038 53,549,462 — 256,009,936 managed throughout the organisation. Particular attention est rate gap is supplemented by monitoring the sensitivity of Held-to-maturity investments 22,104,771 15,130,359 1,000,601 257,999 — — 38,493,730 is given to identifying the full range of risk factors and deter- net interest margin to various standard and non-standard in- 65,798,606 43,067,853 37,742,153 105,330,648 53,649,304 43,879,684 349,468,248 mination of the level of assurance over the current risk miti- terest rate scenarios. gation procedures. Apart from the standard credit and mar- The Bank also utilises Value-at-Risk (“VaR”) methodology ket risk analysis, the Risk Management Department monitors to monitor market risk of its trading positions. steps 116 annual report 2012 the annual report 2012 Consolidated Financial Statements 117 up

Less than 3-6 6-12 1-5 More than Non-interest Carrying Interest rate sensitivity analysis rates (repricing risk) based on a simplified scenario of a KZT’000 3 months months months years 5 years bearing amount >>The management of interest rate risk based on interest rate 100 basis point (bp) symmetrical rise or fall in all yield curves LIABILITIES gap analysis is supplemented by monitoring the sensitivity and positions of interest-bearing assets and liabilities existing Financial instruments at fair value through profit or loss — — — — — 38,913 38,913 of financial assets and liabilities. An analysis of sensitivity of as at 31 December 2012 and 2011 is as follows: Deposits and balances from profit or loss and equity (net of taxes) to changes in interest banks 2,675,958 — — — — 545,694 3,221,652 Amounts payable under repur- 2012 2011 chase agreements 6,755,574 — — — — — 6,755,574 Profit or loss Equity Profit or loss Equity Current accounts and deposits KZT’000 KZT’000 KZT’000 KZT’000 from customers 48,032,121 32,110,344 74,207,259 41,109,157 8,819,916 41,332,343 245,611,140 100 bp parallel rise (251,828) (251,828) (64,197) (64,197) Debt securities issued 1,814,421 537,060 7,319,985 23,913,035 — — 33,584,501 100 bp parallel fall 251,828 251,828 64,197 64,197 Subordinated debt securities issued 457,385 10,001,143 9,706,512 3,760,517 — — 23,925,557 Other borrowed funds — — 876,109 16,579,517 3,308,843 — 20,764,469 An analysis of sensitivity of profit or loss and equity as a existing as at 31 December 2012 and 2011 and a simplified 59,735,459 42,648,547 92,109,865 85,362,226 12,128,759 41,916,950 333,901,806 result of changes in the fair value of financial instruments at scenario of a 100 basis point (bp) symmetrical fall or rise in all fair value through profit or loss and available-for-sale financial yield curves is as follows: 6,063,147 419,306 (54,367,712) 19,968,422 41,520,545 1,962,734 15,566,442 assets due to changes in the interest rates based on positions

Average interest rates and 2011. These interest rates are an approximation of the 2012 2011 >>The table below displays average effective interest rates for yields to maturity of these assets and liabilities. Profit or loss Equity Profit or loss Equity KZT’000 KZT’000 KZT’000 KZT’000 interest bearing assets and liabilities as at 31 December 2012 100 bp parallel fall 5,715 109,197 11,046 39,801

2012 Average effective interest rate, % 2011 Average effective interest rate, % 100 bp parallel rise (5,715) (109,197) (11,046) (39,801) Other Other KZT USD currencies KZT USD currencies (ii) Currency risk its exposure to currency risk. The Group manages its foreign Interest bearing assets >>The Group has assets and liabilities denominated in several currency position through the limits established for each cur- Cash and cash equivalents 6.00 0.50 4.12 0.50 — — foreign currencies. rency and net foreign currency position limits. Financial instruments at fair value through profit or Currency risk is the risk that the fair value or future The following table shows the foreign currency exposure loss — — 6.8 9.40 — 8.80 cash flows of a financial instrument will fluctuate because of structure of financial assets and liabilities as at 31 December Available-for-sale financial assets 4.17 — — 3.29 14.40 — changes in foreign currency exchange rates. The Group hedges 2012: Loans and advances to banks 0.02 2.91 — 0.29 3.47 —

Amounts receivable under reverse repurchase USD RUB * EUR Other Total agreements — — — 0.98 — — KZT’000 KZT’000 KZT’000 KZT’000 KZT’000 Loans to customers 18.83 10.57 12.29 16.97 16.10 11.52 ASSETS Held-to-maturity investments 4.54 3.74 12.00 1.29 4.56 11.50 Cash and cash equivalents 22,874,087 7,342,416 6,160,532 485,444 36,862,479 Interest bearing liabilities Financial instruments at fair value through profit or Deposits and balances from banks loss 913 1,259,771 — — 1,260,684 Term deposits 7.74 1.45 — 4.60 — — Loans and advances to banks 3,352,492 128,334 — — 3,480,826 Amounts payable under repurchase agreements — — — 0.45 — 6.20 Loans to customers 42,616,874 3,055,249 2,385,609 — 48,057,732 Current accounts and deposits from customers Held-to-maturity investments — 277,993 — — 277,993 Corporate customers 6.88 3.25 5.38 6.34 2.93 0.91 Other financial assets 1,370,796 27 154,251 — 1,525,074 Retail customers 9.18 6.12 4.07 9.27 6.74 4.59 Total assets 70,215,162 12,063,790 8,700,392 485,444 91,464,788

Debt securities issued 8.70 — — 9.61 — — LIABILITIES Subordinated debt securities issued 9.51 — — 11.37 — — Deposits and balances from banks 8,222,238 2 2,086 15 8,224,341 Other borrowed funds Current accounts and deposits from customers 61,098,671 8,794,259 6,796,498 454,192 77,143,620 Loans from state financial institutions 7.48 — — 7.33 — — Other borrowed funds 360,712 — 1,758,902 — 2,119,614 Loans from banks — — 6.86 — 4.78 — Other financial liabilities 175,762 17,062 1,223 168 194,215 Loans from the Ministry of Finance of the Republic Total liabilities 69,857,383 8,811,323 8,558,709 454,375 87,681,790 of Kazakhstan 5.50 2.25 — 7.50 1.94 — Net position as at 31 December 2012 357,779 3,252,467 141,683 31,069 3,782,998 steps 118 annual report 2012 the annual report 2012 Consolidated Financial Statements 119 up

USD RUB * EUR Other Total 2012 2011 KZT’000 KZT’000 KZT’000 KZT’000 KZT’000 Profit or loss Equity Profit or loss Equity KZT’000 KZT’000 KZT’000 KZT’000 The effect of derivatives held for risk management (460,659) (257,429) — — (718,088) 10% appreciation of EUR against KZT 11,335 11,335 7,887 7,887 Net position with the effect of derivatives held for (102,880) 2,995,038 141,683 31,069 3,064,910 risk management as at 31 December 2012 10% appreciation of other currencies against KZT 2,486 2,486 2,364 2,364

The following table shows the foreign currency exposure A strengthening of the KZT against the above currencies Although VaR is a valuable tool in measuring market risk structure of financial assets and liabilities as at 31 December at 31 December 2012 and 2011 would have had the equal but exposures, it has a number of limitations, especially in less li 2011: opposite effect on the above currencies to the amounts shown quid markets as follows: above, on the basis that all other variables remain constant. the use of historical data as a basis for determining future USD RUB * EUR Other Total events may not encompass all possible scenarios, particu- KZT’000 KZT’000 KZT’000 KZT’000 KZT’000 (iii) Other price risk larly those that are of an extreme nature ASSETS >>Other price risk is the risk that the fair value or future a 1-day holding period assumes that all positions can be liq- Cash and cash equivalents 22,636,305 776,887 9,839,268 61,410 33,313,870 cash flows of a financial instrument will fluctuate because uidated or hedged within that period. This is considered to of changes in market prices (other than those arising from be a realistic assumption in almost all cases but may not be Financial instruments at fair value through profit or 9,481 1,560,016 — — 1,569,497 loss interest rate risk or currency risk), whether those changes the case in situations in which there is severe market illi- Available-for-sale financial assets 417,851 — — — 417,851 are caused by factors specific to the individual financial in- quidity for a prolonged period Loans and advances to banks 1,335,990 69,210 — — 1,405,200 strument or its issuer, or factors affecting all similar finan- the use of a 99% confidence level does not take into account Loans to customers 24,045,802 5,377,010 134,922 — 29,557,734 cial instruments traded in the market. Other price risk arises losses that may occur beyond this level. There is a one per- Held-to-maturity investments 519,950 967,094 — — 1,487,044 when the Group takes a long or short position in a financial cent probability that the loss could exceed the VaR estimate instrument. VaR is only calculated on the end-of-day balances and does Other financial assets 1,143,545 2 208,289 — 1,351,836 not necessarily reflect exposures that may arise on positions Total assets 50,108,924 8,750,219 10,182,479 61,410 69,103,032 (iv) Value at Risk estimates during the trading day LIABILITIES >>The Bank utilises VaR methodology to monitor market risk the VaR measure is dependent upon the position and the Deposits and balances from banks 32,439 4 69 — 32,512 of its currency positions. volatility of market prices. The VaR of an unchanged posi- Amounts payable under repurchase agreements — 1,755,451 — — 1,755,451 VaR is a technique that estimates the potential losses that tion reduces if market volatility declines and vice versa. Current accounts and deposits from customers 55,784,998 4,509,367 10,073,964 31,863 70,400,192 could occur on risk positions as a result of movements in mar- The Bank does not solely rely on its VaR calculations in its Other borrowed funds 1,263,393 — — — 1,263,393 ket rates and prices over a specified time horizon and to a market risk measurement due to inherent risk of usage of VaR Other financial liabilities 39,297 10,830 9,853 — 59,980 given level of confidence. The VAR model used by the Bank as described above. The limitations of the VaR methodology is based upon a 99 percent confidence level and assumes a are recognised by supplementing VaR limits with other posi- Total liabilities 57,120,127 6,275,652 10,083,886 31,863 73,511,528 1-day holding period depending on the type of positions. The tion and sensitivity limit structures, including limits to address Net position as at 31 December 2011 (7,011,203) 2,474,567 98,593 29,547 (4,408,496) VaR model used is mainly based on historical simulation. The potential concentration risks within each trading portfolio, The effect of derivatives held for risk management 7,148,937 — — — 7,148,937 model derives plausible future scenarios based on historical and gap analysis. market rate time series, taking into account inter-relationships A summary of the VaR estimates in respect of foreign cur- Net position with the effect of derivatives held for 137,734 2,474,567 98,593 29,547 2,740,441 risk management as at 31 December 2011 between different markets and rates. Potential movements in rency risk of the Bank at 31 December is as follows:

* A portion of the net RUB position equivalent to KZT 3,016,984 thousand (2011: KZT 2,610,281 thousand) is not subject to direct market prices are determined with reference to market data currency risk exposure as it represents net assets of the subsidiary that are remeasured through cumulative translation reserve. from at least the last 12 months.

31 December 2012 31 December 2011 A weakening of the KZT, as indicated below, against the is based on foreign currency exchange rate variances that the KZT’000 KZT’000 following currencies at 31 December 2012 and 2011 would Group considered to be reasonably possible at the end of the Foreign exchange risk 210,269 111,710 have increased (decreased) equity and profit or loss by the reporting period. The analysis assumes that all other variables, amounts shown below. This analysis is on net of tax basis and in particular interest rates, remain constant. (c) Credit risk The credit policy establishes: 2012 2011 >>Credit risk is the risk of financial loss to the Group if a cus- procedures for review and approval of loan credit Profit or loss Equity Profit or loss Equity tomer or counterparty to a financial instrument fails to meet applications KZT’000 KZT’000 KZT’000 KZT’000 its contractual obligations. The Group has policies and proce- methodology for the credit assessment of borrowers (corpo- 10% appreciation of USD against KZT (8,230) (8,230) 11,019 11,019 dures for the management of credit exposures (both for recog- rate and retail) 10% appreciation of RUB against KZT (1,756) 239,603 (10,857) 197,965 nised financial assets and unrecognised contractual commit- methodology for the credit assessment of counterparties, is- ments), including guidelines to limit portfolio concentration suers and insurance companies and the establishment of a Credit Committee, which actively methodology for the evaluation of collateral monitors credit risk. The credit policy is reviewed and ap- credit documentation requirements proved by the Board of Directors. steps 120 annual report 2012 the annual report 2012 Consolidated Financial Statements 121 up

procedures for the ongoing monitoring of loans and other assessed by either independent appraisal companies or inter- and short-term loans from other banks, core corporate and re- short-term liquid assets to be maintained, largely made up credit exposures. nal specialists, and in the event of negative movements in mar- tail customer deposits, accompanied by diversified portfolios of short-term liquid trading securities, loans and advances to Corporate loan credit applications are originated by ket prices the borrower is usually requested to put up addi- of highly liquid assets, in order to be able to respond quickly banks and other inter-bank facilities, to ensure that sufficient the relevant client managers and are then passed on to the tional security. and smoothly to unforeseen liquidity requirements. liquidity is maintained within the Group as a whole. Corporate Business Department, which is responsible for the Retail loan credit applications are reviewed by the Retail The liquidity management policy requires: The daily liquidity position is monitored by the Assets and corporate loan portfolio. Analysis reports are based on a struc- Business Department through the use of scoring models and projecting cash flows by major currencies and considering Liabilities Department and regular liquidity stress testing un- tured analysis focusing on the customer’s business and fi- application data verification procedures developed together the level of liquid assets necessary in relation thereto der a variety of scenarios covering both normal and more se- nancial performance. The loan credit application and the re- with the Risk Management Department. maintaining a diverse range of funding sources vere market conditions is performed by the Risk Management port are then independently reviewed by the Credit Risk and Apart from individual customer analysis by the Credit Risk managing the concentration and profile of debts Department. Under the normal market conditions, liquid- Collateral Valuation Department and a second opinion is given and Collateral Valuation Department, the credit portfolio is as- maintaining debt financing plans ity reports covering the liquidity position are presented to se- accompanied by a verification that credit policy requirements sessed also by the Risk Management Department with regard maintaining a portfolio of highly marketable assets that can nior management on a weekly basis. Decisions on liquidity ma are met. The Credit Committee reviews the loan credit appli- to credit concentration and market risks. easily be liquidated as protection against any interruption to nagement are made by ALCO and implemented by the Assets cation on the basis of submissions by the Corporate Business Loan approvals and credit card limits can be cancelled at cash flow and Liabilities Department. Department and the Credit Risk and Collateral Valuation anytime. maintaining liquidity and funding contingency plans The following tables show the undiscounted cash flows Department. Individual transactions are also reviewed by the The maximum exposure to credit risk is generally re- monitoring liquidity ratios against regulatory requirements. on financial liabilities and credit-related commitments on the Legal, Accounting and Tax departments depending on the spe- flected in the carrying amounts of financial assets on the con- The Assets and Liabilities Department receives infor- basis of their earliest possible contractual maturity. The total cific risks and pending final approval of the Credit Committee. solidated statement of financial position and unrecognised mation from business units regarding the liquidity profile of gross inflow and outflow disclosed in the tables is the contrac- The Group continuously monitors the performance of in- contractual commitments. The impact of possible netting of their financial assets and liabilities and details of other pro- tual, undiscounted cash flow on the financial asset, liability or dividual credit exposures and regularly reassesses the cred- assets and liabilities to reduce potential credit exposure is not jected cash flows arising from projected future business. The commitment. itworthiness of its customers. The review is based on the significant. Assets and Liabilities Department together with the Treasury The maturity analysis for financial liabilities as at customer’s most recent financial statements and other infor- The maximum exposure to credit risk from financial assets Department then provides for an adequate portfolio of 31 December 2012 is as follows: mation submitted by the borrower, or otherwise obtained by at the reporting date is as follows: the Group. The current market value of collateral is regularly Demand and Total gross KZT’000 less than From 1 to 3 From 3 to 6 From 6 to 12 More than amount Carrying 1 month months months months 1 year outflow / amount 2012 2011 (inflow) KZT’000 KZT’000 Non-derivative liabilities ASSETS Deposits and balances from 8,376,599 516,250 517,500 12,399,397 — 21,809,746 21,228,576 Cash and cash equivalents 40,022,345 31,084,392 banks Financial instruments at fair value through profit or loss 1,262,873 1,657,652 Current accounts and deposits from customers 80,153,778 19,508,094 36,862,727 109,926,114 92,699,350 339,150,063 314,720,398 Available-for-sale financial assets 18,409,601 976,008 Debt securities issued 145,032 239,848 1,371,031 1,755,911 44,115,121 47,626,943 34,441,764 Loans and advances to banks 8,187,890 9,294,907 Subordinated debt securities — 570,000 10,470,149 695,149 23,584,153 35,319,451 27,871,504 Amounts receivable under reverse repurchase agreements — 2,500,090 issued Loans to customers 354,642,287 256,009,936 Other borrowed funds 1,409,870 953,482 1,690,466 3,394,707 14,005,448 21,453,973 18,562,156 Held-to-maturity investments 10,327,192 38,493,730 Other financial liabilities 4,059,729 570 262 478,088 — 4,538,649 4,538,649 Other financial assets 2,611,662 2,107,517 Derivative liabilities Total maximum exposure 435,463,850 342,124,232 Inflow (344,731) (115,928) — — — (460,659) (3,102) Outflow 344,941 113,739 — — — 458,680 1,123 Total liabilities 94,145,218 21,786,055 50,912,135 128,649,366 174,404,072 469,896,846 421,361,068 For the analysis of concentration of credit risk in respect liabilities do not match. The matching and or controlled mis- of loans to customers refer to Note 17. matching of the maturities and interest rates of assets and li- Credit related commitments 51,675,161 — — — — 51,675,161 51,675,161 The maximum exposure to credit risk from unrecognised abilities is fundamental to liquidity management. It is unusual contractual commitments at the reporting date is presented in for financial institutions ever to be completely matched since The maturity analysis for financial liabilities as at Note 33. business transacted is often of an uncertain term and of differ- 31 December 2011 is as follows: As at 31 December 2012 and 2011 the Group did not have ent types. An unmatched position potentially enhances profit- debtors or groups of connected debtors, credit risk exposure to ability, but can also increase the risk of losses. Demand and Total gross KZT’000 less than From 1 to 3 From 3 to 6 From 6 to 12 More than amount Carrying whom exceeds 10% of maximum credit risk exposure. The Group maintains liquidity management with the ob- months months months 1 year outflow / amount 1 month (inflow) jective of ensuring that funds will be available at all times to Non-derivative liabilities (d) Liquidity risk honour all cash flow obligations as they become due. The li- Deposits and balances from >>Liquidity risk is the risk that the Group will encounter dif- quidity policy is reviewed and approved by the Management banks 668,601 2,575,931 — — — 3,244,532 3,221,652 ficulty in meeting obligations associated with its financial lia- Board. Amounts payable under repur- 6,758,795 — — — — 6,758,795 6,755,574 bilities that are settled by delivering cash or another financial The Group seeks to actively support a diversified and sta- chase agreements asset. Liquidity risk exists when the maturities of assets and ble funding base comprising debt securities in issue, long-term steps 122 annual report 2012 the annual report 2012 Consolidated Financial Statements 123 up

Total gross Demand and Demand and From 1 to From 3 to From 1 to More than KZT’000 less than From 1 to 3 From 3 to 6 From 6 to 12 More than amount Carrying KZT’000 less than No maturity Overdue Total months months months 1 year outflow / amount 1 month 3 months 12 months 5 years 5 years 1 month (inflow) Non-derivative liabilities Current accounts and deposits from customers 67,454,878 18,880,960 36,783,748 73,005,289 61,165,768 257,290,643 245,611,140 Deposits and balances from banks 8,370,758 508,576 12,349,242 — — — — 21,228,576 Debt securities issued 144,487 382,131 1,288,943 1,815,561 49,106,662 52,737,784 33,584,501 Current accounts and deposits 78,811,161 16,938,914 138,405,488 70,556,216 10,008,619 — — 314,720,398 Subordinated debt securities from customers issued — 679,257 493,768 1,173,025 29,039,296 31,385,346 23,925,557 Debt securities issued 131,590 158,567 571,263 24,875,421 8,704,923 — — 34,441,764 Other borrowed funds 1,589,137 345,939 1,042,438 3,864,672 17,773,909 24,616,095 20,764,469 Subordinated debt securities — 371,917 10,164,776 14,339,059 2,995,752 — — 27,871,504 Other financial liabilities 2,068,269 — 114,047 1,387 21 2,183,724 2,183,724 issued Derivative liabilities Other borrowed funds 1,178,762 913,497 4,510,343 9,852,542 2,107,012 — — 18,562,156 Inflow — — (7,505,136) (258,563) — (7,763,699) (97,636) Deferred tax liability — — — — — 41,572 — 41,572 Outflow — — 7,443,282 261,694 — 7,704,976 38,913 Other liabilities 4,354,740 539,053 486,831 478,639 — — — 5,859,263 Total liabilities 78,684,167 22,864,218 39,661,090 79,863,065 157,085,656 378,158,196 335,987,894 Total liabilities 92,847,011 19,430,524 166,487,943 120,101,877 23,816,306 41,572 — 422,725,233

Credit related commitments 73,772,761 — — — — 73,772,761 73,772,761 Net position 2,598,170 11,416,880 (124,334,644) 89,856,287 36,272,751 21,765,575 10,207,205 47,782,224

In accordance with Kazakhstan legislation, individuals Management believes that diversification of these deposits The table below shows an analysis, by expected maturi- of financial position, excluding derivative instruments, as at can withdraw their term deposits at any time, forfeiting in by number and type of depositors, financial disincentives to ties, of the amounts recognised in the consolidated statement 31 December 2011: most of the cases the accrued interest. These deposits are clas- early withdrawal in the form of loss of a portion of accrued in- sified in accordance with their stated maturity dates. The terest and past experience of the Group indicate that these de- Demand and From 1 to From 3 to From 1 to More than KZT’000 less than 3 months 12 months 5 years 5 years No maturity Overdue Total amount of such deposits, by each time band as at 31 December posits provide a long-term and stable source of funding. 1 month 2012, is as follows: Management expects that the cash flows from certain fi- Non-derivative assets from 1 to 3 months: KZT 8,617,592 thousand (2011: KZT nancial assets and liabilities will be different from their con- Cash and cash equivalents 40,525,925 — — — — — — 40,525,925 6,774,954 thousand) tractual terms either because management has the discre- Financial instruments at fair 1,560,016 — — — — — — 1,560,016 from 3 to 6 months: KZT 8,455,491 thousand (2011: KZT tionary ability to manage the cash flows or because past value through profit or loss 7,884,350 thousand) experience indicates that cash flows will differ from contrac- Available-for-sale financial assets 27,413 — 50,362 799,176 99,057 10,000 — 986,008 from 6 to 12 months: KZT 25,445,370 thousand (2011: KZT tual terms. Loans and advances to banks 33,151 205 104 — 953,527 8,307,920 — 9,294,907 17,235,127 thousand) The table below shows an analysis, by expected maturi- Amounts receivable under re- more than 1 year: KZT 42,106,367 thousand (2011: KZT ties, of the amounts recognised in the consolidated statement verse repurchase agreements 2,500,090 — — — — — — 2,500,090 21,792,605 thousand). of financial position, excluding derivative instruments, as at Loans to customers 6,504,800 11,619,092 40,113,615 140,691,181 51,553,671 — 5,527,577 256,009,936 31 December 2012: Held-to-maturity investments 727,462 21,377,309 16,130,960 257,999 — — — 38,493,730

Demand and Current tax asset 535,889 — 61,751 — — — — 597,640 KZT’000 less than From 1 to From 3 to From 1 to More than No maturity Overdue Total 1 month 3 months 12 months 5 years 5 years Property, equipment and intangible assets — — — — — 14,279,043 — 14,279,043 Non-derivative assets Deferred tax asset — — — — — 1,485,024 — 1,485,024 Cash and cash equivalents 52,625,885 2,294,392 — — — — — 54,920,277 Other assets 1,063,864 211,417 1,882,836 173,836 23,090 176,395 — 3,531,438 Financial instruments at fair value through profit or loss 1,259,771 — — — — — — 1,259,771 Total assets 53,478,610 33,208,023 58,239,628 141,922,192 52,629,345 24,258,382 5,527,577 369,263,757 Available-for-sale financial Non-derivative liabilities assets 6,996,829 9,009,452 12,459 2,390,854 7 13,945 — 18,423,546 Deposits and balances from Loans and advances to banks 1,846,573 145 1,510,190 — 171 4,830,811 — 8,187,890 banks 666,680 2,554,972 — — — — — 3,221,652 Loans to customers 29,051,566 18,858,526 36,911,533 201,543,658 58,069,799 — 10,207,205 354,642,287 Amounts payable under repurchase agreements 6,755,574 — — — — — — 6,755,574 Held-to-maturity investments — 323,426 2,004,434 5,999,677 1,999,655 — — 10,327,192 Current accounts and deposits Current tax asset 872,533 — 12,608 — — — — 885,141 from customers 66,719,465 17,364,648 110,992,461 41,534,100 9,000,466 — — 245,611,140 Property, equipment and intan- Debt securities issued 131,109 256,981 537,060 23,913,035 8,746,316 — — 33,584,501 gible assets — — — — — 16,760,598 — 16,760,598 Subordinated debt securities Other assets 2,792,024 361,463 1,702,075 23,975 19,425 201,793 — 5,100,755 issued — 441,231 231,014 22,545,959 707,353 — — 23,925,557 Total assets 95,445,181 30,847,404 42,153,299 209,958,164 60,089,057 21,807,147 10,207,205 470,507,457 Other borrowed funds 1,589,518 342,177 3,924,144 13,065,898 1,842,732 — — 20,764,469 Other liabilities 2,620,843 12,582 943,468 1,053 — — — 3,577,946 Total liabilities 78,483,189 20,972,591 116,628,147 101,060,045 20,296,867 — — 337,440,839

Net position (25,004,579) 12,235,432 (58,388,519) 40,862,147 32,332,478 24,258,382 5,527,577 31,822,918 steps 124 annual report 2012 the annual report 2012 Consolidated Financial Statements 125 up

Management believes that the following factors address withdrawals of significant customer accounts, if required, 2012 2011 KZT’000 KZT’000 the liquidity gap up to 1 year: will be coordinated with the Group’s liquidity management Tier 2 capital Management’s analysis of behaviour of holders of term de- objectives Net statutory income for the year 9,912,953 6,494,937 posits during the past three years indicates that offering of Management manages liquidity risk using VAR methodol- competitive interest rates provides for high level of renewals ogy for the assessment of current accounts stability index. Deferred tax liability accrued in the current year 34,668 — The balance of customer accounts and deposits from related Results of the management’s daily monitoring of stability Revaluation reserve for available-for-sale financial asset (114,258) (82,787) parties, which is due up to 1 year, is KZT 43,925,422 thou- of the current accounts balance indicate sufficiency of the Unamortised portion of subordinated debt 11,722,105 11,308,802 sand as at 31 December 2012. Management believes that Group’s current level of liquidity. Total tier 2 capital 21,555,468 17,720,952

the term deposits will be extended when they fall due and Tier 3 capital — 96,123 Total capital 56,131,021 40,434,679 32 Capital management Total statutory assets less uninvested funds, obtained under custody agreements 462,151,667 366,820,130 Risk-weighted statutory assets, contingent liabilities, operational and market risk >>The FMSC sets and monitors capital requirements for the Under the current capital requirements set by the FMSC Risk weighted statutory assets 391,449,772 286,439,762 Bank. The Bank and its subsidiary are directly supervised by banks have to maintain: Risk weighted statutory contingent assets and liabilities 28,592,500 48,907,482 their respective local regulators. There are no external capital a ratio of tier 1 capital less investments to total assets less in- Risk weighted statutory derivative financial instruments 10,986 61,160 requirements imposed to the Group as a whole. vestments (k1.1) Operational risk 10,567,236 7,445,809 The Bank defines as capital the following items defined by a ratio of tier 1 capital less investments to the sum of credit Total statutory risk weighted assets, contingent liabilities, operational and market risk 430,620,494 342,854,213 statutory regulation as capital for banks: and market risk-weighted assets and contingent liabilities k1.1 ratio 7.5% 6.2% Tier 1 capital, which is comprised of ordinary share capital, and a quantitative measure of operational risk (k1.2) k1.2 ratio 8.0% 6.6% share premium, prior periods’ retained earnings/accumu- a ratio of total capital to the sum of credit and market risk- lated losses and reserves created thereof, qualifying perpe weighted assets and contingent liabilities and a quantitative k2 ratio 13.0% 11.8% tual debt less intangible assets and current year losses measure of operational risk (k2). Total capital, which is the sum of tier 1 capital, tier 2 capital Investments for the purposes of calculation of the above The Group’s policy is to maintain a strong capital base so as The Group also monitors its capital adequacy levels cal- (in the amount not exceeding tier 1 capital) and tier 3 capi- ratios represent investments into equity or subordinated debt to maintain investor, creditor and market confidence and to sus- culated in accordance with the requirements of the Basle tal (in the amount not exceeding 250% of the portion of tier if their total exceeds 10% of the total of tier 1 and tier 2 capi- tain future development of the business. The impact of the level Accord, as defined in the International Convergence of Capital 1 capital attributed to cover market risk) less investments tal. For this purpose the investments are adjusted in the pro- of capital on shareholders’ return is also considered and the Measurement and Capital Standards (updated April 1998) and into equity or subordinated debt if their total exceeds 10% of portion of tier 1 capital to the total of tier 1 capital and tier 2 Group recognises the need to maintain a balance between the Amendment to the Capital Accord to incorporate market risks the total of tier 1 and tier 2 capital. capital (in the amount not exceeding tier 1 capital). higher returns that might be possible with greater gearing and (updated November 2007), commonly known as Basel I. Tier 2 capital is required for the purposes of calculation of As at 31 December 2012 and 2011 the minimum level of advantages and security afforded by a sound capital position. total capital and is comprised of current year’s income, revalu- ratios as applicable to the Bank are as follows: ation reserves, qualifying subordinated liabilities and collec- k1.1 — 5% tive impairment allowance in the amount not exceeding 1.25% k1.2 — 5% 33 Commitments of risk-weighted assets. k2 — 10%. Tier 3 capital is required for the purposes of calculation of The following table shows the composition of the Bank’s >>The Group has outstanding commitments to extend loans. financial guarantees and letters of credit as it does for granting total capital and includes subordinated liabilities not included capital position calculated in accordance with the require- These commitments take the form of approved loans and credit loans to customers. into tier 2 capital. ments of the FMSC, as at 31 December: card limits and overdraft facilities. The contractual amounts of commitments are set out in the Various further limits and qualifying criteria are applied The Group provides financial guarantees and letters of following table by category. The amounts reflected in the ta- to the above elements of the capital base. credit to guarantee the performance of customers to third par- ble for commitments assume that amounts are fully advanced. ties. These agreements have fixed limits and generally extend The amounts reflected in the table for guarantees and letters of 2012 2011 KZT’000 KZT’000 for a period of up to five years. credit represent the maximum accounting loss that would be The Group applies the same credit risk management pol- recognised at the reporting date if counterparties failed com- Tier 1 capital icies and procedures when granting credit commitments, pletely to perform as contracted. Share capital 30,110,207 24,210,204

Additional paid-in capital 2,025,632 2,025,632 2012 2011 Retained statutory loss of prior years (2,564,659) (7,846,796) KZT’000 KZT’000 Reserves formed from statutory retained earnings of prior years 6,650,265 5,381,456 Contracted amount Intangible assets (1,645,892) (1,152,892) Loan and credit line commitments 34,881,570 33,893,203 Total tier 1 capital 34,575,553 22,617,604 Guarantees 13,506,792 35,473,556 Letters of credit 3,286,799 4,406,002 51,675,161 73,772,761 steps 126 annual report 2012 the annual report 2012 Consolidated Financial Statements 127 up

Management expects that loan and credit line commit- As at 31 December 2012 the Group has 2 customers whose 36 Related party transactions ments, to the extent demanded, will be funded from amounts balances exceed 10% of total commitments (2011: nil). The collected from scheduled repayments of current loan portfolio. value of these commitments as at 31 December 2012 is KZT (a) Control relationships (b) Transactions with the members of the Board The total outstanding contractual commitments above do 12,663,424 thousand (2011: nil). >>The Group’s parent company is Eurasian Financial Company, of Directors, the Management Board and other key management personnel not necessarily represent future cash requirements, as these JSC (the “Parent company”). The Parent company is con- commitments may expire or terminate without being funded. trolled by the group of individuals, Mr. Mashkevich A.A., >>Total remuneration included in personnel expenses for the Mr. Shodiyev P.K., Ibragimov A.R., each of whom owns 33.3%. year ended 31 December is as follows: Publicly available financial statements are produced by the 34 Operating lease Group’s Parent company.

2012 2011 Leases as lessee KZT’000 KZT’000 >>Operating lease rentals as at 31 December are payable as Members of the Board of Directors 759,269 142,279 follows: Members of the Management Board 608,207 768,648

2012 2011 Other key management personnel 684,102 451,860 KZT’000 KZT’000 2,051,578 1,362,787 Less than 1 year 561,613 519,085 Between 1 and 5 years 375,678 26,335 These amounts include non-cash benefits in respect of the The outstanding balances and average interest rates as at 937,291 545,420 members of the Board of Directors, the Management Board 31 December for transactions with the members of the Board and other key management personnel. of Directors, the Management Board and other key manage- The Group leases a number of premises and equipment to reflect market rentals. None of the leases includes contin- ment personnel are as follows: under operating leases. The leases typically run for an initial gent rentals. 2012 2011 period of one to five years, with an option to renew the lease During the current year KZT 1,056,044 thousand was rec- KZT’000 Average interest rate, % KZT’000 Average interest rate, % after that date. Lease payments are usually increased annually ognised as an expense in profit or loss in respect of operating Consolidated statement of financial position leases (2011: KZT 713,332 thousand). ASSETS Loans to customers 178 12.18 381,384 10.25 35 Contingencies LIABILITIES Current accounts and deposits from customers 7,966,733 8.19 5,287,681 9.28 (a) Insurance (c) Taxation contingencies >>The insurance industry in the Kazakhstan is in a develop- >>The taxation system in the Kazakhstan is relatively new and Amounts included in profit or loss in relation to trans- Management Board and other key management personnel for ing state and many forms of insurance protection common in is characterised by frequent changes in legislation, official pro- actions with the members of the Board of Directors, the the year ended 31 December are as follows: other parts of the world are not yet generally available. The nouncements and court decisions, which are often unclear, 2012 2011 Group does not have full coverage for its premises and equip- contradictory and subject to varying interpretation by differ- KZT’000 KZT’000 ment, business interruption, or third party liability in respect ent tax authorities. Taxes are subject to review and investiga- Profit or loss of property or environmental damage arising from accidents tion by a number of authorities who have the authority to im- Interest income 140 14,591 on its property or relating to operations. Until the Group ob- pose severe fines, penalties and interest charges. A tax year tains adequate insurance coverage, there is a risk that the loss remains open for review by the tax authorities during the five Interest expense (585,397) (1,356,947) or destruction of certain assets could have a material adverse subsequent calendar years; however, under certain circum- effect on operations and financial position. stances a tax year may remain open longer. These circumstances may create tax risks in the (b) Litigation Kazakhstan that are substantially more significant than in >>In the ordinary course of business, the Group is subject to le- other countries. Management believes that it has provided gal actions and complaints. Management believes that the ul- adequately for tax liabilities based on its interpretations of ap- timate liability, if any, arising from such actions or complaints, plicable Kazakhstan tax legislation, official pronouncements will not have a material adverse effect on the financial condi- and court decisions. However, the interpretations of the rele- tion or the results of future operations. vant authorities could differ and the effect on the financial position, if the authorities were successful in enforcing their interpretations, could be significant. steps 128 annual report 2012 the annual report 2012 Consolidated Financial Statements 129 up

(c) Transactions with other related parties amounts of transactions for the year ended 31 December 2012 The outstanding balances and the related average inte amounts of transactions for the year ended 31 December 2011 >>The outstanding balances and the related average inte with other related parties are as follows. rest rates as at 31 December 2011 and related profit or loss with other related parties are as follows. rest rates as at 31 December 2012 and related profit or loss Other subsidiaries of the Parent company Parent company Other related parties* Parent company Other subsidiaries of the Other related parties* Total Parent company Average in- Average in- Average in- KZT’000 Total KZT’000 terest rate, KZT’000 terest rate, KZT’000 terest rate, Average in- Average in- Average in- KZT’000 % % % KZT’000 terest rate, KZT’000 terest rate, KZT’000 terest rate, % % % Consolidated statement of financial position Consolidated statement of financial position ASSETS ASSETS Loans to customers (principal balance) Loans to customers (principal balance) In KZT — — — — 7,650,078 12.85 7,650,078 In KZT — — — — 4,493,708 13.34 4,493,708 In USD — — — — 358,024 12.01 358,024 In USD — — — — 370,001 10.12 370,001 Loans to customers (allowance for impairment) — — — — (723,159) — (723,159) In other currencies — — — — 62,695 14.00 62,695 Other assets: Loans to customers (allowance for — — — — (286,878) — (286,878) impairment) In KZT — — 1,124 — 383 — 1,507 Other assets: LIABILITIES In KZT — — 91,074 — 3,444 — 94,518 Deposits and balances from customers LIABILITIES In KZT 3,695 — 2,734,951 9.50 18,151,853 2.35 20,890,499 Deposits and balances from customers In USD — — 1,894,757 5.68 17,111,844 1.24 19,006,601 In KZT 13,210 — 5,445,607 5.37 22,738,248 1.11 28,197,065 In other currencies — — 114,037 3.21 2,785,678 0.14 2,899,715 In USD — — 53,500 — 11,007,876 1.33 11,061,376 Debt securities issued In other currencies — — 41,222 — 4,742,299 1.74 4,783,521 In KZT 241,598 8.30 704,008 12.84 — — 945,606 Debt securities issued Subordinated debt securities issued In KZT — — 710,098 12.69 — — 710,098 In KZT — — 38,564 9.47 — — 38,564 Subordinated debt securities issued Other liabilities In KZT — — 33,947 6.78 — — 33,947 In KZT — — 3,844 — 12,226 — 16,070 Other liabilities Items not recognised in the consolidated statement of financial position In KZT — — 5,282 — 3,227 — 8,509 Loans and credit line commitments — — 119,300 119,300 In other currencies — — — — 41 — 41 Guarantees issued — — 700 700 Items not recognised in the consolidated statement of financial position Guarantees received — — 306,952 306,952 Loans and credit line commitments — — 617,302 617,302 Letters of credit — — 2,614,950 2,614,950 Guarantees issued — — 146,842 146,842 Profit (loss) Guarantees received — — 296,650 296,650 Interest income — 1,826 941,782 943,608 Letters of credit — — 945,376 945,376 Interest expense (24,026) (380,687) (955,303) (1,360,016) Profit (loss) Fee and commission income 339 52,547 639,082 691,968 Interest income — — 445,064 445,064 Other operating expenses — (63,596) (1) (63,597) Interest expense (22,267) (476,899) (893,177) (1,392,343) Impairment losses — — (360,881) (360,881) Fee and commission income 299 99,521 703,443 803,263 Other general administrative expenses — (1,536) (369) (1,905) Other operating expenses — (31,012) 6 (31,006) *Other related parties are the entities that are controlled by the Parent company’s shareholders. Reversal of impairment losses — — 367,856 367,856 Other general administrative expenses — (79,863) (363) (80,226) As at 31 December 2012 the loans to customers in the insurance company under common control (31 December amount of KZT 22,128,022 thousand were insured by the 2011: KZT 13,248,656 thousand). steps 130 annual report 2012 the annual report 2012 Consolidated Financial Statements 131 up

Held-to- Loans and Available-for- Other amor- Total carrying 37 Financial assets and liabilities: fair values KZT’000 Trading maturity receivables sale tised cost amount Fair value and accounting classifications Loans to customers Loans to corporate customers — — 166,388,743 — — 166,388,743 168,365,092

(a) Accounting classifications and fair values Loans to retail customers — — 89,621,193 — — 89,621,193 87,532,495 >>The table below sets out the carrying amounts and fair Held-to-maturity investments — 38,493,730 — — — 38,493,730 38,435,534 values of financial assets and financial liabilities as at Other financial assets — — 2,107,517 — — 2,107,517 2,107,517 31 December 2012: 1,657,652 38,493,730 310,438,375 986,008 — 351,575,765 351,405,750

Financial instruments at fair Held-to- Loans and Available-for- Other amor- Total carrying value through profit or loss 38,913 — — — — 38,913 38,913 KZT’000 Trading maturity receivables sale tised cost amount Fair value Deposits and balances from Cash and cash equivalents — — 54,920,277 — — 54,920,277 54,920,277 banks — — — — 3,221,652 3,221,652 3,213,403

Financial instruments at fair 1,262,873 — — — — 1,262,873 1,262,873 Amounts payable under repur- value through profit or loss chase agreements — — — — 6,755,574 6,755,574 6,755,574 Available-for-sale financial assets — — — 18,423,546 — 18,423,546 18,423,546 Current accounts and deposits from customers — — — — 245,611,140 245,611,140 261,883,342 Loans and advances to banks — — 8,187,890 — — 8,187,890 8,187,890 Debt securities issued — — — — 33,584,501 33,584,501 37,614,199 Loans to customers Subordinated debt securities Loans to corporate customers — — 200,029,452 — — 200,029,452 206,221,920 issued — — — — 23,925,557 23,925,557 23,743,461 Loans to retail customers — — 154,612,835 — — 154,612,835 153,717,435 Other borrowed funds — — — — 20,764,469 20,764,469 21,904,648 Held-to-maturity investments — 10,327,192 — — — 10,327,192 10,300,736 Other financial liabilities — — — — 2,183,724 2,183,724 2,183,724 Other financial assets — — 2,611,662 — — 2,611,662 2,611,662 38,913 — — — 336,046,617 336,085,530 357,337,264 1,262,873 10,327,192 420,362,116 18,423,546 — 450,375,727 455,646,339 Valuation techniques include net present value and dis- The following assumptions are used by management to es- Financial instruments at fair 1,123 — — — — 1,123 1,123 value through profit or loss counted cash flow models, comparison to similar instruments timate the fair values of financial instruments: Deposits and balances from for which market observable prices exist and other valuation discount rates of 4.6 — 11.2% and 9.5 — 26.6% are used for banks — — — — 21,228,576 21,228,576 21,228,576 models. Assumptions and inputs used in valuation techniques discounting future cash flows from loans to corporate cus- Current accounts and deposits from customers — — — — 314,720,398 314,720,398 316,678,100 include risk-free and benchmark interest rates, credit spreads tomers and loans to retail customers, respectively and other premia used in estimating discount rates, bond and discount rates of 0.6 — 7.0% and 1.3 — 8.8% are used for Debt securities issued — — — — 34,441,764 34,441,764 33,206,182 equity prices, foreign currency exchange rates, equity and eq- discounting future cash flows from current accounts and de- Subordinated debt securities issued — — — — 27,871,504 27,871,504 24,790,278 uity index price. The objective of valuation techniques is to ar- posits of corporate and retail customers, respectively Other borrowed funds — — — — 18,562,156 18,562,156 18,562,156 rive at a fair value determination that reflects the price of the quoted market prices are used for determination of fair Other financial liabilities — — — — 4,538,649 4,538,649 4,538,649 financial instrument at the reporting date that would have value of debt securities issued. been determined by market participants acting at arm’s length. The estimates of fair value are intended to approximate 1,123 — — — 421,363,047 421,364,170 419,005,064 The Group uses widely recognised valuation models for the amount for which a financial instrument can be exchanged determining the fair value of common and more simple finan- between knowledgeable, willing parties in an arm’s length The table below sets out the carrying amounts and cial instruments, like interest rate and currency swaps that use transaction. However given the uncertainties and the use of fair values of financial assets and financial liabilities as at only observable market data and require little management subjective judgment, the fair value should not be interpreted 31 December 2011: judgment and estimation. Observable prices and model inputs as being realisable in an immediate sale of the assets or settle- are usually available in the market for listed debt and equity ment of liabilities. Held-to- Loans and Available-for- Other amor- Total carrying KZT’000 Trading maturity receivables sale tised cost amount Fair value securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps. (b) Fair value hierarchy Cash and cash equivalents — — 40,525,925 — — 40,525,925 40,525,925 For more complex instruments, the Group uses propri- >>The Group measures fair values for financial instruments re- Financial instruments at fair value through profit or loss 1,657,652 — — — — 1,657,652 1,657,652 etary valuation models. Some or all of the significant inputs corded on the consolidated statement of financial position us- Available-for-sale financial assets — — — 986,008 — 986,008 986,008 into these models may not be observable in the market, and ing the following fair value hierarchy that reflects the signifi- are derived from market prices or rates or are estimated based cance of the inputs used in making the measurements: Loans and advances to banks — — 9,294,907 — — 9,294,907 9,295,437 on assumptions. Example of instruments involving significant Level 1: Quoted market price (unadjusted) in an active mar- Amounts receivable under reverse repurchase agreements — — 2,500,090 — — 2,500,090 2,500,090 unobservable inputs includes certain loans and securities for ket for an identical instrument. which there is no active market. Level 2: Valuation techniques based on observable inputs, As disclosed in Note 15, the fair value of unquoted eq- either directly (i.e., as prices) or indirectly (i.e., derived uity securities available-for-sale with a carrying value of KZT from prices). This category includes instruments valued us- 13,945 thousand (2011: KZT 10,000 thousand) cannot be ing: quoted market prices in active markets for similar in- determined. struments; quoted prices for identical or similar instruments steps 132 annual report 2012 the annual report 2012 Consolidated Financial Statements 133 up

in markets that are considered less than active; or other val- instruments that are valued based on quoted prices for simi- 38 Acquisition of Prosto Kredit business uation techniques where all significant inputs are directly or lar instruments where significant unobservable adjustments indirectly observable from market data. or assumptions are required to reflect differences between >>On 1 January 2011 the Group acquired the retail loans of The objective of the acquisition of the Prosto Kredit retail Level 3: Valuation techniques using significant unobserv- the instruments. Prosto Kredit LLC and MKO Prosto Kredit, LLC (together, business is to enable the Group to expand its retail presence, able inputs. This category includes all instruments where The table below analyses financial instruments mea- “Prosto Kredit”) and certain other tangible and intangible as- which is in alignment with the Group’s strategy. the valuation technique includes inputs not based on ob- sured at fair value at 31 December 2012, by the level in the sets in the Republic of Kazakhstan for KZT 14,231,576 thou- In acquiring the assets, transaction costs consisting mainly servable data and the unobservable inputs have a significant fair value hierarchy into which the fair value measurement is sand. There were also arrangements made to obtain posses- of legal and advisory costs of KZT 62,517 thousand were in- effect on the instrument’s valuation. This category includes categorised: sion over the “Prosto Kredit” trademark, migrate employees curred. These amounts are included in general and adminis- and renew contracts for placement of selling points with trative expenditures for the year ended 31 December 2011. KZT’000 Level 1 Level 2 Total retailers. The impact of acquiring the business, including loans Financial instruments at fair value through profit or loss The Group accounted for this transaction in accordance made subsequent to the acquisition date, was an increase in in- Debt instruments 1,259,771 — 1,259,771 with IFRS 3 because as a result of it the Group obtained con- terest and other revenue for the year ended 31 December 2011 Derivative assets — 3,102 3,102 trol of an integrated set of activities and assets that is capa- by KZT 6,682,746 thousand and net profit for the year ended Derivative liabilities — (1,123) (1,123) ble of being conducted and managed to provide a return to the 31 December 2011 by KZT 2,712,218 thousand. Available-for-sale financial assets Group. The amounts of acquired assets recognised in the consolidated financial statements at fair value were as follows at the Debt and other fixed income instruments — 18,409,601 18,409,601 date of acquisition: 1,259,771 18,411,580 19,671,351

KZT’000 Recognised amounts on acquisition The table below analyses financial instruments mea- fair value hierarchy into which the fair value measurement is ASSETS sured at fair value at 31 December 2011, by the level in the categorised: Loans to customers 13,036,654 Property, equipment and intangible assets 119,206 KZT’000 Level 1 Level 2 Total Trademark 1,075,716 Financial instruments at fair value through profit or loss Net identifiable assets 14,231,576 Debt and other fixed income instruments 1,560,016 — 1,560,016 Consideration paid 14,231,576 Derivative assets — 97,636 97,636 Net cash outflow 14,231,576 Derivative liabilities — (38,913) (38,913) Available-for-sale financial assets Loans to customers represent the gross contractual Debt and other fixed income instruments 417,851 558,157 976,008 amounts receivable. Management of the Group expects all 1,977,867 616,880 2,594,747 contractual cash flows to be collected.

Due to low market liquidity, management consider that As at 31 December 2012 and 2011 the Group does not quoted prices in active markets are not available, includ- have any financial instruments for which fair value is based on ing for government securities listed on the Kazakhstan Stock valuation techniques involving the use of non-market inputs. Exchange. Accordingly, as at 31 December 2012 and 2011 the estimated fair value of these financial instruments is based on the results of valuation techniques involving the use of observable market inputs. steps 134 annual report 2012 the up