VTB 2011 ANNUAL REPORT
JSC VTB Bank
ANNUAL REPORT
2011
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CONTENTS
Mission and values
Statement of the Chairman of the Supervisory Council
Statement of the President and Chairman of the Management Board
1. Financial highlights 2. VTB’s market position 3. The economy and banking sector 4. Management report 4.1. Key events in 2011 4.2. VTB Group strategy 4.3. Review of operating performance 4.3.1. Corporate and investment banking 4.3.2. Retail banking 4.3.3. Other businesses 4.3.4. Business outside of Russia 4.4. Review of financial performance 4.5. Risk management 5. Corporate governance 5.1. Overview of the corporate governance system 5.2. Development of the corporate governance system in 2011 5.3. The General Shareholders Meeting of JSC VTB Bank 5.4. The Supervisory Council of JSC VTB Bank 5.5. The Management Board of JSC VTB Bank 5.6. Remuneration of the members of the Supervisory Council and the Management Board of JSC VTB Bank 5.7. Internal control and audit 5.8. Relations with individual shareholders 5.9. Relations with institutional investors 5.10. Management of VTB Group 6. Corporate social responsibility 6.1. Personnel 6.2. Responsible resource management 6.3. Social programmes 7. Management responsibility statement 8. Summary consolidated financial statements in accordance with IFRS 9. Summary financial statements in accordance with RAS 10. Transactions of JSC VTB Bank 11. Other Group information 11.1. Details of JSC VTB Bank 11.2. Licences of JSC VTB Bank 11.3. Contact information 12. Shareholders’ information
The Annual Report is based on the data as of 31 March 2012 available to JSC VTB Bank and its subsidiaries at the time the report was written.
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MISSION AND VALUES
Who we are VTB Group is a leading Russian financial institution with a strong presence in key international markets.
Our vision VTB Group aims to replicate its successes in the domestic market on a global scale, becoming a premiere player in all of our priority markets.
Our mission To provide world-class financial products and services that help to create a prosperous and sustainable future for our customers, stakeholders and society.
Our values
Trust Gaining and retaining the trust of our customers is VTB Group’s most important value.
Reliability VTB Group’s long-term strength is reinforced by leading positions in the financial markets where we operate and our ability to provide local expertise on a global scale.
Transparency Our business is open and transparent, and all of our key stakeholders cooperate closely in order to deliver maximum value and visibility.
Versatility Our wealth of expertise across a broad range of financial products and services ensures that we offer all of our customers the most comprehensive, flexible and sophisticated solutions that suit their individual needs.
Solidarity Knowledge sharing and open communication are fundamental to our team ethos and strengthen our team spirit. While our lines of business are diverse, we are all pulling in the same direction, harnessing the creative insight and potential of each individual member of our team.
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STATEMENT OF THE CHAIRMAN OF THE SUPERVISORY COUNCIL
Dear Shareholders, Clients and Partners,
I am pleased to present to you the first Annual Report of VTB Group since my appointment as Chairman of the Supervisory Council. Overall 2011 was a positive year, during which a number of milestone events occurred that significantly impacted our results in the reporting year, and which will to a large extent determine the Group’s activities in the short term.
The macroeconomic environment in which VTB operated in 2011 was moderately favourable. The Russian economy has continued its recovery at a steady pace, and had returned to its pre-crisis level by the end of the year. Real GDP demonstrated dynamic growth of 4.3%, which corresponds to the 2010 level. The key growth drivers for the positive economic trends during the year were domestic consumption and fixed capital investments. The banking sector also demonstrated strong growth, with aggregate assets increasing by 23% year-on-year. The improvement in the economy and record low levels of inflation fuelled an increased demand for loans from corporate and retail clients.
The state-owned banks were the most active during 2011, thanks to their market-leading positions, access to funding at reasonable cost and sensible approach to risk management. These factors enabled VTB Group to achieve impressive organic growth in all its business areas, strengthened by the acquisition of controlling stakes in TransCreditBank and the Bank of Moscow.
In 2011, VTB acquired a 94.84% stake in the Bank of Moscow. As a result, we gained access to more than 100,000 new corporate clients and over six million active retail customers. The acquisition also increased the number of branches and sales offices we have in the Moscow region by two and a half times. We intend to develop the Bank of Moscow as a separate universal commercial bank within VTB Group, focusing particularly on the development of business in Moscow and the Moscow region, maintaining and further strengthening our partnership with the Moscow City Government, and enhancing the bank’s expertise in the small and medium-sized businesses segment.
At the end of 2010, we acquired a 43.2% stake in TransCreditBank. TransCreditBank was a captive bank within the Russian railway sector providing services to JSC Russian Railways, its subsidiaries and employees. We increased our stake in TransCreditBank to 77.9% by the end of the first quarter of 2012, following an additional share issue and in accordance with our sale and purchase agreement with JSC Russian Railways. In August 2011, the Management Committee of VTB Group approved a development strategy for TransCreditBank, including a plan for its integration. We intend to transfer TransCreditBank’s corporate and investment business to the relevant VTB business units by the end of the second quarter of 2013, and to complete its legal merger with VTB24 by the end of 2013.
We believe that the acquisitions of the Bank of Moscow and TransCreditBank are in line with the long-term strategic objectives of VTB, and that they will facilitate the further growth of the Group’s retail and corporate banking businesses.
2011 marked an important event that had a positive impact on the investment climate in Russia, and is directly related to VTB Bank. According to privatisation plans that had previously been announced, the Russian Government sold part of its shareholding, i.e. 10% of the share capital of VTB Bank, on the open market. The sale took place in February 2011 and generated a high level of interest within the investment community, which enabled us to create a pool of investors from the most reputable international investment funds and companies. The Group’s management sees great opportunities for long-term strategic partnerships with these institutions.
Having professional institutional investors among our shareholders was an additional incentive to develop VTB’s corporate governance system further. We strive to comply with the international best
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practices of corporate transparency and to meet high standards of compliance. A Strategy and Corporate Governance Committee was therefore established in 2011, in order to optimise the decision-making process of the Supervisory Council on issues of strategic development. The new Committee was founded on the basis of the best Russian and international corporate governance practices. One of the most important results of the Committee’s work during the reporting year was its decision to recommend to the Supervisory Council that dividend payments for 2010-2013 should be set at between 10% and 20% of the full-year net income for the reporting years of 2010, 2011, 2012 and 2013, in accordance with VTB Group’s IFRS financial results.
In March 2012, VTB took an unprecedented step to support individual shareholders. The Bank announced an offer to buy back the Bank’s shares from retail investors, who acquired VTB’s shares during the IPO in 2007. The buyback price was equal to the market value of the shares at the time of the IPO. Individual shareholders could sell shares that they held as at 1 February 2012 up to an amount not exceeding the number of shares they purchased during the IPO, and to a limit of RUB 500,000. This offer provided the opportunity to many of our retail shareholders to withdraw from the Bank’s capital without suffering financial loss. We believe that this initiative is a key element in building a solid reputation of VTB Group as a public financial institution.
Overall the prospects in 2012 for the financial sector generally, and for VTB Group in particular, are positive. The gradual decrease in tension in the international financial markets, especially in Europe, and rising energy prices give confidence in the future growth of the Russian economy, business activity and consumer demand. I am confident that the strategy of efficient growth that VTB adopted in 2010 will enable us fully to realise these opportunities and to strengthen our market positions in Russia. It will also enable us to take another step towards becoming a banking group that successfully competes in the global marketplace.
Chairman of the Supervisory Council of JSC VTB Bank
Sergey K. Dubinin
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STATEMENT OF THE PRESIDENT AND CHAIRMAN OF THE MANAGEMENT BOARD
Dear Shareholders, Clients and Partners,
2011 was another successful year for VTB Group. Despite the difficult situation in the global economy, VTB has demonstrated strong financial performance by increasing operational efficiency and business volumes across all of its business lines, as well as expanding its geographical footprint. During the year, we conducted a number of important transactions which, along with the first positive results of the implementation of our efficient growth strategy, created the potential for further shareholder value increase.
During the reporting period, we made a big step forward in achieving our strategic objectives, which are revenue growth and the sustained increase in returns on capital. In 2011, we generated a record net income of RUB 90.5 billion, an increase of 65% when compared to 2010. The level of return on equity increased to 15.0%, compared to 10.3% in the previous year. I would like to highlight that these results were achieved in conditions of considerable uncertainty in the global economy and volatility on the financial markets, which once again endorses our development strategy.
One of the most significant events of 2011 was the acquisition of an almost 95% shareholding in the Bank of Moscow. This transaction enabled VTB to strengthen its position in the Moscow region and expand its client base. We believe that the consolidation of the Bank of Moscow is in line with VTB’s long-term strategy and will support the further business growth of VTB Group in this highly profitable region of Russia. We also increased our stake in TransCreditBank to almost 78%. In 2011, both banks adopted new development strategies. The Bank of Moscow will continue operating as a universal bank with a particular focus on partnership with the Moscow City Government, and will work with small and medium-sized businesses, while TransCreditBank will be fully consolidated into VTB Group by the end of 2014. We are presently focusing on the seamless integration of these new members into our Group.
Our solid financial performance in 2011 is the result of our systematic efforts to grow our business organically, as well as the evidence of our successful M&A activities. The reporting period was also significant for the steps we took to change VTB’s revenue structure and to increase our operating efficiency.
In 2011 we finished setting up the Corporate Investment Banking (CIB) unit of VTB Group. The unit offers a wide range of banking services on a global basis. The CIB unit comprises three business lines – credit services, investment banking and transaction banking – and three customer service units, thus re-defining our sales efficiency and customer service. In the reporting period, we concentrated on the optimisation of our business processes. We improved lending procedures for small and medium-sized businesses, which significantly rationalised the decision-making process. We also focused on the development of the Group’s corporate transaction business in 2011, building a highly professional team, introducing a range of advanced new products for clients’ management of settlements and account balances, and developing packaged offers for transaction banking.
All these developments had a positive impact on the CIB’s performance. Its profit before taxation in 2011 amounted to RUB 84 billion, compared to RUB 59 billion in 2010. Credit services made the most substantial contribution to the Group’s total profits. The Group’s corporate loan portfolio increased by 49.6% year-on-year, and as a result VTB’s market share for corporate lending grew to 18.7%. We reached the number one position in Russia for our corporate deposit portfolio, with a market share of 21.1% at the end of 2011.
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Our retail banking business, one of the contributors to growth in 2011, also demonstrated successful results. Profitable growth continued due to the high-quality VTB24 product line, its solid customer base and our extensive geographical presence. As at the end of 2011, VTB’s retail segment profit before taxation increased to RUB 39 billion, compared to RUB 21 billion in 2010. During the year, the Group has been actively increasing its market share in the retail lending market (13.7% as at 31 December 2011), mainly through high-margin lending products. In addition, VTB continued strengthening its funding activities and increased its share in the retail deposit market to 9.0%.
Following the consolidation of the Bank of Moscow and TransCreditBank, our retail client base was increased by eight million new active clients and our retail network by more than 600 branches and sales offices. This provides the Group with significant new opportunities for mass segment growth.
The Group was also an active player in the capital markets in 2011. In February, the Russian Government sold a 10% of the share capital of VTB Bank to a wide range of institutional investors. Demand for VTB shares exceeded the offer by one and a half times, which enabled shares to be sold with minimal discount to their market value, and also enabled the Bank to diversify its shareholder base by attracting long-term investors, including sovereign wealth funds. VTB was also active in the debt capital market. In July 2011, the Group received a syndicated loan in the total amount of USD 3.1 billion with a record low floating interest rate of LIBOR +1.3%, which has become a benchmark in the Russian market. Thirty banks participated in this transaction. Furthermore, we placed two Eurobond issues for SGD 300 billion and CHF 225 million. This enabled us to strengthen the Group’s funding base, and therefore to increase our lending activities.
Looking ahead, we do not expect significant improvements in the global economy. This situation will continue to put pressure on the Russian banking sector, however we expect to see neutral to positive macroeconomic conditions. We therefore intend to continue working on the development of our high-margin business segments, on improvements in operational efficiency, the integration of new assets and on creating a new Group-wide management structure, reflecting our status as a global financial institution.
VTB Bank President and Chairman of the Management Board
Andrey L. Kostin
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1. FINANCIAL HIGHLIGHTS
Total assets1, in RUB billion
2010 4 ,290.9
2011 6,789.6
Loan portfolio, in RUB billion
2010 3,059.6
2011 4 ,590.1
Customer deposits, in RUB billion
2010 2,212.9
2011 3,596.7
1 VTB Group, i.e. JSC VTB Bank and its subsidiaries, whose results are consolidated in the IFRS financial statements for the years ended 31 December 2011 and 31 December 2010.
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Total shareholders’ equity, in RUB billion
2010 578.2
2011 625.1
Net profit, in RUB billion
2010 54.8
2011 90.5
Selected indicators
20102 2011 Net interest margin 5.1% 5.0% Cost to operating income before provision 43.0% 49.4% Return on assets (ROA) 1.5% 1.7% Return on equity (ROE) 10.3% 15.0%
2 Calculated excluding the effect of TCB consolidation.
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2. VTB’S MARKET POSITION
VTB Group is a leading Russian universal banking group that offers a wide range of financial services across Russia, as well as in a number of countries in the CIS, Western Europe, Asia and Africa. The Group’s main business areas are made up of two business lines: corporate and investment banking and retail banking. Besides those businesses, VTB is also actively developing non-banking financial services, such as insurance, factoring, leasing, and pension funds, to enable it to offer a complete range of services to its clients.
VTB Group possesses a unique international network among Russian banks that is made up of over 30 banks and financial companies across 21 countries worldwide.
Corporate and investment banking Retail banking
VTB Group’s largest business. This includes The key element of VTB Group’s business. This investment, transaction banking and lending segment focuses on working with individual business that focus on servicing large and customers and small businesses. medium-sized companies, financial institutions, as well as government executive bodies and local authorities. 76% of Group’s assets3 20% of Group’s assets5 Loans: RUB 3,424 billion Loans: RUB 851 billion Deposits: RUB 2,291 billion Deposits: RUB 1,299 billion Profit4 in 2011: RUB 84.4 billion Profit6 in 2011: RUB 38.8 billion
VTB Group in the Russian banking market 2011 2010 2009 Market Market Market Segments share Rank share Rank share Rank Corporate loans 18.7% 2 12.2% 2 13.0% 2 Corporate accounts and deposits 21.1% 1 15.0% 2 12.7% 2 Retail loans 13.7% 2 12.1% 2 10.2% 2 Retail accounts and deposits 9.0% 2 7.2% 2 6.0% 2
Source: VTB estimates based on data by the Bank of Russia and RAS financial results of VTB Bank, VTB24, TransCreditBank and the Bank of Moscow. Corporate loan market share calculated based on the Bank of Russia data (for Russian corporate loan market) and Rosstat data (for loans provided to Russian companies from abroad). Numerator represents VTB Group’s consolidated corporate loan portfolio (under IFRS).
3 The proportion of VTB Group’s total assets before elimination of intersegment transactions. 4 Profit before taxation. 5 The proportion of VTB Group’s total assets before elimination of intersegment transactions. 6 Profit before taxation.
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VTB Group’s Key Strengths
Impressive business scale and VTB Group is the leading Russian financial group. The Group’s strong market position universal business model and the scale of the business enable it to successfully compete in Russia and abroad.
Brilliant success story By implementing its strategy for aggressive growth and diversification, VTB Group has substantially increased its business volumes. Between 2001–2011, VTB Group’s assets grew 35-fold, transforming the Group from a corporation bank to a global financial institution.
Broad network of sales offices VTB Group’s network of sales offices is one of the most developed in across Russia Russia and covers more than 90% of the country’s population. Its widespread presence in the regions brings VTB closer to its clients, enabling it to build long-lasting relationships, based on a clear understanding of client needs.
Extensive corporate customer VTB Group has one of the largest corporate customer bases in base and well-established Russia that covers a diverse range of industries. At the end of 2011, relationships with the largest VTB served at least 50% of large Russian companies. Russian companies
Well-developed expertise in VTB has quickly established itself as one of the strongest investment investment banking banks in Russia and the CIS through VTB Capital. The Group’s investment banking business regularly receives top rankings from Dealogic, Institutional Investor, Thomson Reuters, Cbonds, etc., for work conducted in segments covering debt and equity transactions, M&A activities, trading and market research.
One of the largest retail As at the end of 2011, VTB Group was the second-largest bank in banking businesses in Russia Russia by the number of retail loans and deposits of individual customers. Today, around 15 million individuals are VTB clients.
A recognised and trusted The VTB brand has more than 20 years of history in Russia and its brand name is associated with reliability and quality of services. VTB has won numerous awards, including the well-known international award “The Best Russian Bank”, organised by Global Finance magazine.
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3. THE ECONOMY AND BANKING SECTOR
Russian economy in 2011
In 2011, the Russian economy continued its post-crisis recovery at a moderate pace, growing by 4.3% in real terms. National GDP totalled RUB 54.4 trillion, or nearly USD 1.9 trillion, for the year. The key growth drivers throughout the year were domestic consumption and fixed capital investments. Retail turnover grew by 7.2%, investments increased by 8.3% and industrial production saw growth of 4.7%.
Real growth of Russian GDP compared to other countries, % year-on-year
Source: IMF World Economic Outlook Database and Federal State Statistics Services (Rosstat) for Russian data
Russian macro-economic indicators, % year-on-year
Industrial production Capital investments Retail turnover
Source: Rosstat
The rate of inflation in Russia decreased to 6.1% per annum by the end of the reporting period, mainly due to the Bank of Russia’s transition from a fixed exchange rate policy to a more flexible one, as well as a good harvest in 2011. In December 2011, the food price inflation rate reached 3.9%.
The Bank of Russia shifted from tightening monetary policy in the first half of the year to easing it later in the year. Taking into account excess rouble liquidity and the high inflation rate at the beginning of 2011, it raised key interest rates and increased reserve requirements. In the first six months of the year, the Bank of Russia base rate increased to 8.25%, 50 basis points higher than in December 2010. With decreased inflationary pressure, the Bank of Russia kept the base rate unchanged until December, when it decided to lower the base rate by 25 basis points to 8.00%. During the year the Bank of Russia narrowed the interest rate corridor by gradually increasing
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deposit rates, which reached 4% at the end of 2011, a 1.25 percentage point increase from the previous year.
The RUB/USD exchange rate was 32.20 at the end of 2011, representing a depreciation of 5.6% compared to the end of 2010. The exchange rate fluctuated substantially over the year, reaching a high of 27.28 roubles per US dollar on 2 May, and a low of 32.72 roubles per US dollar on 4 October. The exchange rate was significantly affected by high oil prices arising from the tense geopolitical situation in the Middle East, the escalation of the sovereign debt crisis in the Eurozone, and capital outflows from Russia, which intensified at the end of the fourth quarter. In 2011, the net capital outflow from the Russian private sector amounted to USD 84.2 billion, which greatly exceeded the 2010 figure of USD 33.6 billion.
In 2011, trading of Russian Eurobonds was driven by investor sentiment rather than by market fundamentals. However, this investor sentiment deteriorated in the second half of 2011 following the worsening debt and banking crisis in the Eurozone. At the same time, the fundamental macroeconomic factors for Russia as a sovereign borrower, such as a flexible exchange rate, moderate inflation rates, favorable oil prices, surplus budget and an increase in international reserves, were mostly positive or neutral. The level of activity of Russian banks on the international debt market was low, mainly due to lower funding costs in the country. It became even more profitable to place bonds in the domestic market in 2011, as the difference in spreads between ruble and US dollar instruments increased by approximately 50-70 basis points.
Overall, according to the Bank of Russia, Russia’s gross foreign debt increased by USD 56.3 billion in 2011 to a total of USD 545.2 billion. Banking sector debt rose by USD 18.7 billion to USD 162.9 billion, while corporate borrowers decreased their foreign debt by USD 39.7 billion to USD 337.9 billion.
Russian banking sector
The Russian banking sector grew strongly in 2011 on the back of the robust economic recovery, which fuelled an increased demand for loan products from corporate and retail clients. The Russian banking sector’s assets increased by 23% year-on-year, compared to a 15% increase in 2010. At the same time, the penetration of the banking sector, which is defined as the ratio between the banks’ total assets and GDP, rose from 75% in 2010 to 77% in 2011.
The penetration of the lending sector relative to GDP also increased to 43% in the reporting year, compared to 40% in 2010. This increase was underpinned by strong loan portfolio growth of 28% year-on-year in 2011, including a 26% year-on-year increase in the corporate loan portfolio and 36% year-on-year increase in the retail loan portfolio, compared to a 13% increase in the total loan portfolio in 2010. The key drivers for the growth of the lending sector were economic growth and the expectation of a lending rate increase in the second half of the year – they had reached a record low in the summer of 2011. The state-owned banks were the leading players in the lending sector.
At the same time, acceleration in loan portfolio growth rates occurred mainly in the second half of the year due to the depreciation of the rouble (the RUB/USD exchange rate decreased by 16.5% from August to December 2011), as foreign currency loans accounted for 18% of the total loan portfolio.
In 2011 there was further significant improvement in asset quality as, by the end of the reporting period, the proportion of non-performing loans in the banking sector as a whole had decreased to 4.8%, compared to 5.7% at the end of 2010, supported by the growth in Russian banks’ loan portfolio. The proportion of non-performing corporate loans was down to 4.6% (5.3% at end 2010), with a non-performing retail loans figure of 5.2% (6.9% at end 2010).
The improvement in asset quality allowed banks to reduce their allowances for loan loss provisions by the end of 2011, as well as to restore a proportion of reserves. This in turn resulted in a lower
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proportion of reserves in the total portfolio - 8.5%, as opposed to 10.5% in December 2010. At the same time, the credit risk coverage ratio amounted to 179% at the end of 2011, which was a suitable level for the banking sector. Lower allowances for loan loss provisions and the stronger reserves position positively impacted many banks’ financial results. The sector’s total profit reached a record level of RUB 848 billion, compared to RUB 573 billion in 2010. In 2011, the growth in total profit was accompanied by a decrease in the number of unprofitable banks in the sector to 50 compared to 81 in 2010.
Growth in deposits remained at a consistent level in 2011, amounting to 24% compared to 23% in 2010. Retail banking deposits grew at 21% in 2011, which was slower than 31% figure of the previous year. However, corporate banking deposits growth accelerated to 26%, up from 16% in 2010. At the same time, the proportion of customer funds in gross liabilities remained at the 2010 figure of 70%.
Despite the strong growth in deposits, the even greater increase in loans resulted in a higher loan to deposit ratio of 83% in 2011, compared to 78% in 2010. This increase creates a strong foundation for further potential growth in the lending segment. A total capital adequacy ratio of 14.7% at the end of 2011 is evidence that the banking sector is able to mitigate negative factors and can further develop its lending operations in 2012.
However, the deterioration in liquidity at the end of the year resulted in an increase in interest rates on deposits as banks tried to increase their funding base for active operations. This led to an increase in lending rates, which indicates a potential decline in the demand for loans. At the same time, a possible slowdown in economic growth and lower GDP growth worldwide also suggests a possible slowdown in lending in 2012.
Due to the state-owned banks’ market-leading positions, they were the most active in 2011. The four largest state-owned banks – Sberbank, VTB Group, Gazprombank and Russian Agricultural Bank – accounted for 51.0% of all banking assets in the country as at the end of 2011, compared to 46.3% in the previous year. Against this background, and also due to growing pressure from the developing banking crisis in Europe, some subsidiaries of foreign financial institutions were forced either to reduce the scale of their operations or to close down completely.
The concentration of assets in the Russian banking sector increased in the reporting year. At the end of December 2011, the 20 largest banks (including consolidation) held 69.0% of assets compared to 66.5% in 2010. Additionally, the share of the five largest banks in the sector increased to 53.4%, compared to 48.9% a year earlier.
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Banking system indicators, in RUB billion
Source: the Bank of Russia
Russian banking sector loan portfolio and customer deposits, in RUB billion
Source: the Bank of Russia
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4. MANAGEMENT REPORT
4.1. KEY EVENTS IN 2011
1st Quarter: . The Russian government, the main shareholder of VTB Bank, represented by the Federal Agency for State Property Management, sold a 10% stake in the Bank. Following the transaction, the state’s stake in the Bank decreased from 85.5% to 75.5%;
. VTB Group completed the acquisition of 46.48% of Bank of Moscow’s shares and also acquired a 25% +1 share stake in JSC Capital Insurance Group;
. The merger of VTB Bank North-West and VTB Bank was completed. Together with the finalisation of all legal procedures, the VTB North-West Regional Centre was established at the former head office of VTB Bank North-West.
2nd Quarter: . The Supervisory Council established the Strategy and Corporate Governance Committee in order to optimise its decision-making process on issues of strategic development and to improve VTB’s corporate governance;
. Sergey Dubinin was elected as Chairman of VTB Bank Supervisory Council.
3rd Quarter: . VTB Group obtained a USD 3.13 billion syndicated loan, the largest syndicated transaction in the history of financial institutions in Central and Eastern Europe. The interest rate was set at 1.3% over LIBOR (London Interbank Offered Rate) per annum;
. VTB Bank and JSC Russian Railways signed a share purchase agreement whereby VTB Bank will acquire Russian Railways’ shareholding in TransCreditBank (TCB). The agreement was signed within the framework of the phased acquisition of TCB approved by the VTB Supervisory Council;
. VTB Group consolidated the Bank of Moscow, increasing its stake in the bank’s share capital to 80.57%.
4th Quarter: . VTB Capital opened its office in Hong Kong;
. VTB was named “Company of the Year 2011” in awards organised by RosBusinessConsulting Group;
. VTB increased its stake in the Bank of Moscow to 94.84% through purchase of the bank’s additional share issue.
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4.2. VTB GROUP STRATEGY
VTB Group consistently implements the strategy it approved in 2010, which is to grow the business effectively and improve its structure. The strategy provides for the achievement of the following four ambitious targets by 2013:
ROE: 15.0%, + 470 basis points compared to 2010 To achieve ROE of 15-20% 1 across the Group
Net income: RUB 90.5 billion, + 65.2% compared to
To more than double profit, 2010 2 when compared to 2010 figures
The proportion of fee and commission income in the Group’s operating income before provisions To achieve a qualitative change 2011 2011 increased to 14% in 2011, compared to 11% in 2010 3 in profit structure, and enhance
sustainability of financial results
. Profit before taxation of the retail banking To increase the proportion of business grew by 83.0% to RUB 38.8 billion 4 high-margin businesses in the
Group’s profit figures . Profit before taxation of the corporate and investment banking business grew by 43.8% to RUB 84.4 billion.
Strategic objectives, and the results of the implementation of strategy in 2011
Achieving large-scale transformations to increase the proportion of fee and commission income, and to improve the overall operational efficiency
. Establishing an integrated corporate and investment banking business;
. Ensuring a clear division between customer-focused and product-focused functions;
. Establishing a system of product managers with responsibility for financial results;
. Active development of transaction banking - establishing the management team and the organisational structure, launching a number of advanced cash management products, developing packaged offerings, implementing a new system of remote banking services;
. Reform of credit procedures – a 30-70% reduction in time spent on the decision-making process;
. Beginning reform of the regional network – transformation of branches into operational offices, and centralisation of back-office functions;
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Efficient integration of assets
. Completion of the largest merger in the Russian banking industry at the time: VTB Bank North-West was transformed into the VTB North-West Regional Centre;
. Acquisition of 94.84% of the Bank of Moscow’s shares, enabling the Group to strengthen its positions in the corporate and retail banking sectors. The Group’s network in Moscow and the Moscow region increased by 2.5 times, with 135 offices added. The customer base expanded by more than 100,000 corporate clients and six million active retail clients;
. Beginning the integration of TransCreditBank: development of long-term partnerships with Russian Railways and other companies in the industry; putting into action a number of synergies provided by new sources of cross-sales and an improved resource base; expansion of the network by 288 TCB sales points; access to a customer base of more than two million retail clients;
. Gaining operational control over Metropolitan Insurance Group (CIG), one of the largest players in the motor insurance market: the company is ranked third among insurance companies for compulsory civil liability insurance of owners of motor vehicles, and sixth for fully comprehensive motor insurance. Key short-term tasks for VTB Group include optimisation of the company’s ownership structure and adoption of a new development strategy, which will include a range of initiatives aimed at improving the profitability of CIG.
Improving the Group’s management system in order to create a platform for growth in Russia and abroad
. Creation of two global business lines (retail banking and corporate and investment banking);
. A centralised allocation of responsibilities and an integrated approach to the management of the key functional divisions within the Group: finance, risks, IT and the operational support of the business;
. Implementation of a new business model for servicing global clients.
The Group’s new management system enables all its subsidiary banks and companies to utilise the global expertise and resources of the Group more efficiently, as well as to provide clients with packaged offerings, developed with the direct participation of specialists from head office. The new model enables the reduction of risks, the building of a truly global model for servicing key clients, and the coordination of each business line’s operations in all the Group’s geographical locations.
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4.3. REVIEW OF OPERATING PERFORMANCE
4.3.1. CORPORATE AND INVESTMENT BANKING
During the reporting period, VTB completed the integration of its corporate and investment banking businesses within the framework of the development strategy adopted by the Banks’s Supervisory Council for the period from 2010 to 2013. In autumn 2011, VTB Group began building a major business line – Corporate and Investment Banking (CIB) - in the key regions in which the Group is present. The CIB provides services to major corporate clients in the key areas of corporate and investment banking.
The CIB comprises three product units – investment banking, credit services and transaction banking – and three customer service units, focused on large corporate clients from market-based sectors and medium-sized businesses and large corporate clients in the state sectors.
VTB Group’s investment banking business offers its corporate customers a full range of investment banking products, including support of commercial transactions, organising debt and equity issuance, financial consulting in relation to capital markets and M&A transactions, development of direct investment business, asset management and others.
The credit services business line provides various types of loan products. The structure of the unit is designed to take into account the particular requirements of servicing clients from various industries and business segments, with the objective of improving methods of credit analysis and the quality of the VTB loan portfolio.
The key purposes of establishing a separate transaction banking unit are to grow the Group’s commission-based income by increasing sales of existing transaction-related products and services, including settlement and cash services, control of foreign exchange transactions, products to attract funds, centralised settlements and liquidity management for its customers, and trade finance products, as well as to expand the range of products.
The integration of the corporate and investment banking businesses within the Group will enable VTB to implement an integrated approach to servicing large corporate customers, based on the platform offered by VTB Group. The Group will also take advantage of synergies arising from combined product and service offerings in key business areas, and from services tailored to the specific needs of clients.
Investment banking
VTB Group offers its Russian and international customers operating in various regions of the world a full range of investment banking services, including trade operations in the global markets, research, transactions in the debt and equity capital markets, structured products, M&A transactions and consulting services, asset management services and more. Investment services within the Group’s corporate investment banking business are primarily provided by VTB Capital.
During the reporting period, VTB Capital opened a new office in Hong Kong, thus expanding its presence in the Asia-Pacific region. Also, in autumn 2011, VTB Capital received FINRA’s licence to carry out broker and dealer activities in the USA and opened an office in New York in April of 2012.
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Trade operations in the global markets
The Group offers a full spectrum of trade operations in the debt and equity markets, currency exchange transactions, operations in the global commodities markets, share and bond trades, as well as currency and interest rate risk management services, including hedging services, structured finance, structured deposits and notes, and other structured credit and hybrid products.
In 2011, VTB began offering share trading operations in Ukraine in cooperation with its subsidiary VTB Bank (Ukraine). VTB Capital became a member of the Warsaw Stock Exchange and also commenced operations in the futures and options market (FORTS) of the RTS Stock Exchange and Eurex markets. VTB Capital has continued to develop its cooperation with the Russian Commercial Bank (RCB) Cyprus, enabling VTB clients actively to trade shares and derivative instruments.
According to Euromoney magazine, VTB Group transactions account for up to 31% of the total foreign exchange operations, carried out by Russian companies. As well as operations in the main currencies, in 2011 the Group offered products to Russian companies that involved exotic currencies such as Chinese yuan and Indian rupees. During the reporting period, the Group executed its first Russian rouble / Chinese yuan swap transaction.
VTB is one of the leading traders in the government and corporate bonds market on the MICEX and on over-the-counter markets, as well as being the leading trader on the Russian fixed-income instruments market. The Group conducts a significant volume of trade and investment operations with government securities, including bonds issued by the Russian Ministry of Finance and Russian Federation sovereign Eurobonds. According to the Emerging Markets Trade Association (EMTA), VTB’s share of trades in the bond market in 2011 exceeded 10% for both rouble-denominated bonds and Eurobonds.
Since 2011, VTB has been conducting bond trades in Central and Eastern European countries, including Poland, Croatia, Hungary, Lithuania, Romania and Bulgaria, as well as transactions with the main types of securities in Turkey.
Investment banking operations
VTB offers its clients a full range of investment banking services, including consulting services in relation to M&A transactions, placements of debt and equity issuances, etc.
VTB Capital took part in the arranging of a number of key transactions on the M&A market in 2011, including the merger of two leading Russian producers of potash fertilisers: OJSC Silvinit and OJSC Uralkali (with a total value of USD 23.9 billion) and the USD 4.9 billion merger of the RTS and MICEX stock exchanges. According to Thomson Reuters, as at the end of the reporting period VTB was the number one M&A advisor and arranger of debt and equity transactions in Russia.
Research
VTB Capital’s research team provides coverage on the operations of more than 90 companies in the main sectors of the economy. It also regularly conducts independent research on the fixed-income instruments markets, on the equity and commodities markets, carries out analysis of the macroeconomic situation, and provides analytical support to the companies of the Group. According to Thomson Reuters’ 2011 rankings, VTB analysts took five of the top-ten places in the Russian research team category.
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Operations in the commodities markets
VTB Capital offers a wide range of risk management services for participants in commodities markets transactions, including risk hedging products, commodity–linked finance, etc. The spectrum of VTB Capital’s services encompasses structured investment instruments, including structured deposits and structured notes with interest rates linked to commodities prices and commodities indices. The Bank also participates in the trading of precious metals, operations with derivative instruments and export operations. The Bank sells precious metals acting in its own name, or on behalf of its clients that are producers of precious metals or other banks.
Custody services
VTB Group’s Custody is one of the largest custodians in Russia, providing a full range of services in respect of all types of securities issued by Russian and foreign issuers.
The Group’s Custody was in 2011 awarded “top-rated” for the fifth consecutive year in the international custodian ranking Agent Banks in Emerging Markets.
Asset management
VTB Group offers effective asset management solutions in the Russian and international markets. Services in this market segment are provided by VTB Capital Asset Management (VTB Capital AM).
In 2011, VTB Capital Asset Management signed trust management agreements for pension savings with several non-governmental pension funds, including NPF Norilsk Nickel, NPF UMMC-Perspective, NPF Raiffeisen, NPF Telekom-Soyuz and NPF Sistema. VTB Capital AM is among the companies that are authorised to manage the funds of the Pension Fund of the Russian Federation (managing the accumulative portion of government pensions), and also successfully manages the assets of several institutional clients.
VTB Capital AM has a range of 15 open unit funds with various investment strategies, including investments in foreign assets.
In 2011, the company continued to develop its activities in the collective investment market, attracting new investors and expanding its network of sales points. As a result, VTB AM has become one of the top-ten asset management companies in the collective investment market, as measured by the volume of investment attracted into open funds.
The company established its first venture fund VTB Venture together with the Russian Venture Company in 2007. VTB contributed 50% of the fund’s assets. VTB Capital AM manages the assets of the fund. As of 31 December 2011, approximately RUB 2.2 billion of VTB Venture’s funds have been invested in 15 companies, which operate in high-tech sectors of the economy, such as telecommunications, optical electronics, space and information technologies.
Within the framework of public-private partnership, VTB Capital AM established four regional venture funds for investing into small businesses in various regions of Russia. In December 2011, an agreement to create a Russian-Kazakh Nanotechnology Fund was signed, and it is expected that this fund will be set up in the course of 2012. VTB Capital AM will manage the fund in cooperation with the international venture company I2BF, which operates in the USA, Europe and countries of the Asia-Pacific region.
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Credit services
In 2011, the Russian corporate lending market was developing during a period of moderate growth in the Russian economy. Against a background of growth in industrial production, the financial condition of corporate borrowers also gradually improved, which had a positive impact on the lending market. VTB Group was able to take full advantage of the lending market recovery and increased its corporate loan portfolio to RUB 3.8 trillion, which was 50% higher than the equivalent figure for 2010. VTB’s market share in this sector amounted to 18.7%.
An important factor in the growth of the Group’s corporate lending portfolio was the proactive sales of loan products through relationship managers, assisted by highly-qualified product specialists.
Corporate loan portfolio, in RUB billion 3,766
2,518 2,110
2009 2010 2011
Source: VTB Group’s IFRS consolidated financial statements
Total gross loans and advances to customers by industry as at 31 December 2011 Retail loans (18%)
Finance (13%)
Building construction (12%)
Manufacturing (10%)
Metals (8%)
Trade (8%)
Transport (8%)
Loans to government authorities (5%)
Energy (3%)
Oil & Gas (3%)
Food & agriculture (2%)
Telecommunications and media (2%)
Other (3%)
Source: VTB Group’s IFRS consolidated financial statements
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In addition to traditional corporate lending, VTB Group offers its large and mid-sized corporate clients complex lending instruments, including structured repo, investment and project financing, debt and equity financing services, consultancy services on the structuring of investment projects, and services to attract direct financing from institutional investors and commercial banks. VTB Group’s subsidiaries also offer their customers a range of leasing and factoring products.
VTB Group is one of the few banks in the financial sector to offer long-term project financing in the Russian regions. In 2011, VTB funded several projects with the participation of Russian and CIS companies in various sectors of the economy.
Among the key areas of future development for VTB are the optimisation of business processes in corporate lending, the improvement of utilisation of resources by the Group’s subsidiaries and expanding the geographic range of the Group’s banking products.
To rationalise the decision-making process, the Bank introduced a new Credit Procedure in 2011. This optimised the turnaround time for the credit and expert divisions, and thus reduced the time required for an authorised person/body to make a decision regarding a customer application.
Despite the improvement in the overall economic environment and the financial position of most of its customers, VTB Group continues to pay close attention to monitoring the quality of its loan portfolio. The Group actively utilised various forms of risk reduction in credit transactions, such as the creation of collateral (real estate and other property, pledge of receivables, etc.), guarantees, state guarantees, remittance speed requirements, transfer of service contracts, settlements through the Bank’s accounts, and establishing financial covenants and restrictions and the control of their execution. In addition, VTB Group uses state guarantees as one of the most reliable instruments for risk reduction when lending to major strategic customers.
In 2011, VTB Group systematically worked to reduce bad, and potentially bad, debt. The Group used standard procedures in the banking industry for the early detection, prevention and settlement of such obligations.
A more detailed analysis of the quality of the Group's loan portfolio can be found in the Risk Management section.
Transaction banking
Deposits
Unfavourable cash liquidity conditions in the second half of 2011 intensified competition among lending institutions for the funds customers had available. In the light of this, the Group increased its sale of deposit products by developing a deposit line and increasing its competitiveness. As at the end of the reporting period, the portfolio of corporate funds deposited increased by 66% to RUB 2.4 trillion, and the Group's market share in Russia rose to 21.1% (+610 basis points). As a result, the Group held the number one position in Russia in terms of volume of deposits received.
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Corporate deposits, in RUB billion
2,435
1,465 649
1,092 43 472
1,786 975 20
2009 2010 2011 Term deposits Current deposits
Source: VTB Group’s IFRS consolidated financial statements
VTB Group’s customers can manage their temporarily available funds effectively by utilising a whole range of deposit products – both in roubles and in foreign currencies – with options such as to pay in or partially withdraw, to close an account prematurely or utilise an interest capitalisation option. To meet the diverse needs of its clients, the Bank offers flexible choices of terms and rates.
In 2011, a mechanism for conducting deposit transactions under a general agreement was introduced, which substantially simplified the process of placing funds by clients. VTB also started offering new banking products, such as deposits in Chinese yuan, as well as structured deposits with a rate linked to the price of gold. The launch of these products was due to increased interest from customers in investments in the commodities markets and in the increasing volume of foreign trade operations in the Chinese currency.
Settlement transactions
The development of settlement products in 2011 was aimed at improving the system of remote banking services, integrated solutions for centralised settlements and liquidity management for customers. Users of the remote banking services system were able to use the Bank-to-Client service and Internet Customer service to accept third-party payment documents, to deposit funds and to make payments with letters of credit.
The Group’s transaction banking unit paid particular attention to the improvement of business processes designed to reduce the time taken to make services available to clients. With this aim, the method of logging on to the remote banking system was simplified, including for those clients who have a server network. Moreover, the procedure for opening an account was simplified, as well as a mechanism being developed for carrying out deposit transactions under general agreements. This made the process of allocating funds by clients more straightforward, as well as simplifying the procedure for issuing import letters of credit via subsidiary banks.
In order to improve the efficiency of settlement transactions, a team of highly-qualified specialists, possessing in-depth knowledge of the products and substantial experience of working in the leading Western banks, was created. The main task of this team is to identify clients’ needs and to implement integrated solutions designed to optimise liquidity and working capital, thus enhancing operational and financial efficiency through the management and control of clients’ cash flows. As a result, integrated solutions were implemented in 28 of Russia’s largest holding companies in 2011. This generated a 25% increase in commission-based income on services from the centralisation of
24 VTB 2011 ANNUAL REPORT
settlements and liquidity management, as well as a sevenfold increase in the closing balances of the accounts of these clients, when compared to a year earlier.
Documentary business
Documentary business is a key area of VTB Group’s business. The Bank offers all types of bank guarantees and a full range of products and services for foreign trade transactions in documentary form, including settlements by letters of credit and guarantee operations on the territory of Russia.
For the past several years VTB has been the number one bank in the Russian market in terms of the size of its portfolio and level of income from documentary operations. The Bank is the leading credit institution in Russia in the sphere of foreign trade operations. Obligations under the VTB name have always inspired trust in international financial circles.
VTB introduced a new model for the sale of documentary business products in 2011, also forming a team of product managers, who provide a full spectrum of services in this area. These initiatives have enabled the Group to accelerate the synergy effect arising from cooperation between the Bank’s client and product divisions, and VTB has thus secured its position as the Russian market leader in the sphere of documentary business. Close attention was also paid to improving pricing methodology. As a result of this, VTB Group has been successful in achieving a 69% increase in income from documentary operations, in maintaining a 14% share in total commission income, in reducing the concentration of documentary business and increasing the proportion of deals with a reduced level of risk (performance guarantees for government contracts, guarantees of reimbursement of Value Added Tax, etc.)
During the reporting period, a number of measures were implemented to develop cross-selling within the VTB Group on the basis of documentary business. In particular, client service models were developed and introduced with the participation of the Bank’s foreign branches in India and China, as well as with other subsidiary banks of the Group.
In 2011, intensive efforts were made to introduce a system for the sale of letters of credit through the remote banking service. The practice of selling bank guarantees and letters of credit under the framework of general agreements was also actively promoted.
Working with clients
In order to improve the quality of client service, the Bank adopted new approaches to customer segmentation in 2011. In particular, the criteria for defining large and medium-sized corporate clients have been revised, and the model for servicing large corporate clients has been modified.
During the reporting period, VTB formed two client service divisions to deal with large corporate clients. One of them is focused on servicing the state and defence sectors of the economy, and the other division focuses on providing services to clients in market-based sectors of the economy (metals and mining, oil and gas, power generation, trade, information technology and communications, mechanical engineering, the chemical industry, etc.). The new servicing model is based on the creation of sector directorates within the client divisions that have responsibility for developing business with clients in each sector of the economy. This approach to client servicing enables the quality of sector expertise to be improved and banking services to be customised to each client’s needs.
The medium-sized corporate client segment is crucial to the development and diversification of VTB Group’s business. The model for servicing medium-sized businesses focuses on developing a standard line of banking products and services, and so maintaining an integrated offering. Medium- sized and regional corporate clients are serviced by a separate client division.
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4.3.2. RETAIL BANKING
In 2011, VTB Group’s retail banking business developed in a dynamic fashion and grew significantly faster than both the market and VTB’s major competitors, as a result of organic growth and the successful completion of acquisitions. As the second largest bank in Russia serving individual customers, VTB24 continues to form a core part of the Group’s retail business. VTB Group retail banking services in Russia are also provided by the Bank of Moscow and TransCreditBank.
At the end of 2011, VTB24’s active customer base totalled 5.9 million, compared to 4.9 million at the end of 2010. As at the end of the reporting period, VTB Group’s total active Russian retail customer base totalled around 15 million active customers, including the Bank of Moscow and TransCreditBank active customer base. At the end of the reporting period, the number of small businesses working with VTB Group amounted to more than 250,000.
By the end of 2011, VTB Group banks in CIS countries (Ukraine, Armenia, Azerbaijan, Kazakhstan and Belarus) and Georgia were providing services to approximately 1 million individuals. The Group’s retail business in Europe is also developing successfully in France and Germany, where Group activities are mainly focused on attracting retail customer funds at present.
The Group continued to implement its retail banking strategy during 2011. The strategy centres on a customer-oriented approach to business development, which aims to improve customer service quality without losing sight of the Group’s commitment to delivering greater profitability. In addition to expanding VTB’s retail banking scale and market share, the Group’s medium-term retail business plan is to intensively develop its customer relations, as well as expand and grow remote sales channels.
The most significant market factors that influenced VTB Group’s retail business performance during 2011 included the recovery of the Russian economy against the backdrop of the European debt crisis and the reduction of the US credit rating, increased competition in the retail lending market as well as the stabilisation of the level of non-performing loans. The savings‐oriented consumer behaviour model that established itself during the credit crunch, changed to a consumer growth model over the course of the year. This trend was confirmed by a growth in loans amidst falling growth in savings.
In the context of a dynamic and growing retail lending market in 2011, VTB24 not only focused on the extensive development of its network and the growth of its loan portfolio, it also focused on the improvement of customer services and the introduction of innovative approaches to working with key customer segments. VTB24’s main competitive advantages are not restricted to the range and attractiveness of its retail product offering, as the high level of technological development of its banking and its segmented approach to different groups of customers are also key. All these factors combined contributed to record levels of profit being regained by VTB retail business-line in 2011.
The improved economic situation in Russia contributed to the dynamic growth of VTB Group’s retail loan portfolio, which grew by 52.2% to RUB 824.1 billion as at the year‐end, compared to RUB 541.5 billion in 2010. In addition to the organic growth driven by VTB24’s positive lending activity, the expansion of its portfolio was greatly enhanced by the consolidation of the Bank of Moscow in 2011. The high rate of growth in lending to individuals enabled VTB Group to increase its market share in the Russian retail lending sector to 13.7% (versus 12.2% in 2010). For the past five years, the Group was consistently the second-largest player in this segment of the Russian market.
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VTB Group retail lending market share %
13.7 12.2 10.2
2009 2010 2011
Source: VTB estimates based on RAS financial results of VTB Bank, VTB24, the Bank of Moscow and TransCreditBank.
In 2011, the Group managed to maintain growth rates in retail deposits, far outpacing the market average.
At the end of the reporting period, VTB Group’s portfolio of retail deposits reached RUB 1,161.4 billion, an increase of 55.3% compared to 2010. In an increasingly competitive environment, VTB was able to capitalise on its brand reputation and secure a significant organic influx of customer funds. The consolidation of the Bank of Moscow contributed significantly to the growth in customer funds. At the end of 2011, VTB increased its share of the retail deposit market in Russia from 7.2% to 9.0%.
VTB Group retail deposit market share, %
9.0 7.2 6.0
2009 2010 2011
Source: VTB estimates based on RAS financial results of VTB Bank, VTB24, the Bank of Moscow and TransCreditBank.
Loan products
The development of new loan products and the effective targeting of different customer groups enabled VTB Group to increase its retail portfolio in 2011. Against the background of active operations, the Group continued to focus on the effective management of non-performing loans.
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Loans to individuals, in RUB billion
824
542 440 435 272 208 76 53 45 309 182 217
2009 2010 2011
ИпотечныеMortgages кредиты КредитыCar loans на покупку автомобиля ПотредительскиеConsumer loans кредиты and other и прочее (*) (*)
(*) Including reverse repo Source: VTB Group’s IFRS consolidated financial statements
Consumer loans
During 2011, consumer lending continued to be a key organic growth driver of VTB Group’s retail loan portfolio. To increase sales volumes, the consumer loan application process at VTB24 was significantly simplified. Furthermore, VTB24 also optimised the product line for employees of companies that are VTB Group corporate clients; the sale of cash advance loans were made available through the bank’s website and compulsory registration in the region of the branch arranging the loan and individual customers guarantees were abolished.
In 2011, VTB Group’s consumer loan portfolio increased by 62.5% to RUB 436.2 billion, compared to RUB 268.4 billion at the end of 2010.
During the reporting period VTB24 issued 775,000 consumer loans. The average consumer loan in 2011 was RUB 256,000, which was 18.5% higher than the 2010 figure
VTB24’s cash loan product line is distinguished by transparent financial terms and conditions, short application approval periods, high limit levels and long repayment periods, a broad sales and service network and high quality of service.
Positive trends in cash lending will continue in 2012. VTB Group’s main goal for the next year will be to grow its sales volume and increase its market share, primarily by optimising lending procedures and offering new attractive products aimed at individual customer needs. The Group also intends to continue with the liberalisation of terms and conditions for the lending and the servicing of loans.
Car loans
In 2011, VTB Group significantly strengthened its positions in the car loan market. During the course of the year, the Group’s car loan portfolio increased by 43.0% to RUB 75.5 billion, compared to RUB 52.8 billion at the end of 2010.
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During 2011, VTB24 started offering car loans through new sales channels: namely through the Internet, by offering pre-approved loans to customers, as well as through additional bank offices. In 2011, the government subsidised car loan programme continued to operate and more than 37,000 loans worth RUB 10.2 billion were arranged as part of the scheme. In the three years of running of the scrappage programme, VTB24 issued more than 66,000 loans, amounting to RUB 16.9 billion.
Throughout 2011, the bank was actively involved in developing joint programmes with car manufacturers. Special loan offers jointly developed with leading motor vehicle companies led to an increase in VTB24’s share in direct sales of car brands. Schemes involving Lada, KIA, Hyundai and Suzuki saw a particularly high growth in sales.
In 2011, particular focus was placed on the quality of services provided to the bank's car loan customers. The past year saw a significant increase in customer satisfaction indicators. Complaints attributed to car loans represent the smallest proportion out of all of VTB24’s customer complaints.
In 2012, the bank plans to further develop its joint schemes with car manufacturers and attract new partners. Particular attention will be paid next year to increasing the competitiveness of car loan schemes in the market and to the development of additional services within new sales channels.
Mortgage lending
In 2011, the mortgage lending market continued to recover and market players became more active, which resulted in increased competition. During the course of the year, the home loan market grew by 25.2% compared to 9.7% in 2010. In the reporting period, mortgage sales exceeded the 2008 record figures for home loans arranged, marking a transition from market recovery to a period of active growth.
In addition to working with current mortgage lending schemes in 2011, such as state programmes to support the mortgage market (State Mortgage Support Programme), VTB24 also introduced a range of innovative products aimed at new customer segments:
• “Mortgage + Maternity Capital” - provides high-value mortgage loans to customers without their own savings set against the use of maternity capital.
• “Beat the Formalities” - a unique offer in this market segment, which enables clients with an initial down payment of more than 50% to obtain a loan in the shortest possible period by presenting only two documents.
• “Military Mortgage Loan” - a special offer for military servicemen participating in the Savings and Mortgage System.
Today, VTB24’s mortgage loan product line is one of the most extensive in the market, as it encompasses all market segments and covers practically all customer needs, from the purchase of existing housing and new development projects, to the purchase of parking spaces in garage complexes, both existing and under construction, to the refinancing of mortgage loans arranged by another bank, general purpose mortgage loans secured against existing home, and mortgage loans with fixed, variable and combined interest rates among many other types of loans.
In 2011, VTB24 actively sought to offer loans for new build housing projects. This was made possible following the development of relations with construction market players and an upgraded product offering. During the reporting period, the proportion of loans arranged for the purchase of property developments amounted to 29% of total mortgage loans arranged in 2011, reaching pre-crisis levels.
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Other significant events relating to mortgage lending in 2011 included:
• VTB24’s acquisition of KIT Finance Bank’s mortgage portfolio, worth more than RUB 30 billion;
• VTB24 was the first among banks, participating in Vnesheconombank’s programme for Investments in Affordable Housing and Mortgage Lending Projects, to place mortgage- backed securities, amortised bonds totalling RUB 5 billion.
In 2011, VTB Group’s mortgage loan portfolio showed significant growth. At the end of the reporting period it totalled RUB 309.0 billion, an increase of 42.3% compared to the figure at the end of 2010.
VTB24 was responsible for the majority of VTB Group’s mortgage loan sales. In December 2011, the bank achieved an all-time record for monthly mortgage sales, issuing mortgage loans worth RUB 13.6 billion. Today, VTB24’s mortgage loan portfolio comprises more than 165,000 active loans. In 2011, the bank’s share of the Russian mortgage loan market increased by 1.57 p.p. to 15.1% (taking into account its transaction with KIT Finance bank).
VTB24’s regional branches account for 70% of the total mortgage loan portfolio and more than 60% of the portfolio is attributed to eight leading regions: Moscow, St. Petersburg, Ekaterinburg, Novosibirsk, Krasnoyarsk, Kemerovo, Tyumen and Chelyabinsk. By the end of the year, the bank’s mortgage sales network comprised of 146 mortgage offices located in 116 cities in Russia.
Deposit products
In 2011, VTB24 brought a number of popular special offers to the market, which enabled individuals to deposit their funds favourably in the short and medium term. At the beginning of the year, the bank improved the terms of VTB24’s Growing Income account and introduced the possibility of making payments from the account once funds have been sitting in the account for more than six months. During the reporting period, VTB24 maintained a balanced pricing policy in line with major market trends.
During the reporting period, the bank successfully introduced a number of special offers to regional markets, including Belgorod, Vologda, Irkutsk, Kemerovo, Nizhny Novgorod, Novosibirsk and Yaroslavl regions, as well as Altai Krai, Perm Krai, Primorsky Krai and the Republic of Bashkortostan. In each case the offers were based on targeted products tailored to the needs of each specific regional market.
A notable trend in 2011 was the growth in popularity of remote banking service channels to place funds in deposit accounts. These included the use of the Telebank system and VTB24 ATMs. At the end of the reporting period, the portion of such deposits in VTB24’s deposit portfolio exceeded 12%.
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Deposits by individual customers, in RUB billion
Source: VTB Group’s IFRS consolidated financial statements
Commission-based products
A significant proportion of the Group’s retail banking income is attributable to commission-based income. VTB24 made the greatest contribution to the growth of this type of income. Commissions earned on card transactions continue be the main contributors of non-interest income, and this stems from growth in VTB’s card portfolio. Another contributor is commissions earned on settlement and cash services for small business customers, achieved by the growth of VTB24’s customer base and by the bank’s active transition to a principle of providing packaged banking services. Services provided to individuals were also one of the key sources of commission-based income in 2011. In addition to the standard range of services for retail customers, including processing payment orders and transfers of funds, VTB24 also offers a range of innovative services, which enhance the quality of customer service offered and subsequently drive the profitability of commission-based transactions.
Bank cards
In 2011, the total number of VTB24 cards in circulation grew by 26% y-o-y. As of 31 December 2011, the total number of the bank’s cards in circulation (credit and debit cards) was more than 9.0 million, of which more than 4.0 million were credit cards (including payroll cards). This positive trend was driven by the optimisation of and improvements made to VTB24’s product line which, in turn attracted new customers. An additional contributing factor to the positive trend was improvements recorded in the quality of the existing card portfolio - the success of various marketing campaigns developed by VTB24 together with payment system providers.
In 2011, 5,865 companies participated in VTB24 payroll projects (crediting the employee payrolls through VTB24 bank card accounts). Thus, as of 31 December 2011, the total number of businesses using the bank’s services reached 38,264.
In 2012, to increase the number of active cards in its portfolio, VTB24 plans to run more marketing campaigns (and competitions) for card holders and develop partnership programmes, including the creation of new co-branded card products. The bank intends to continue developing programmes to improve packaged services for card products. As at the end of 2011, the total number of cards (credit and debit cards) in circulation issued by VTB24, the Bank of Moscow and TransCreditBank reached more than 18 million.
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Number of bank cards in circulation Million 2009 2010 2011
VTB24 VTB24 TCB VTB24 Bank TCB Total Moscow
Credit 1.9 2.7 0 4.0 0.2 0.1 4.3
Debit 3.9 4.3 2.0 5.0 6.9 2.1 14.0 Total 5.8 7.0 2.0 9.0 7.1 2.2 18.3 Including payroll 3.2 3.8 1.9 4.7 0.9 2.1 7.7 cards
Remote banking services
In 2011, following mobile device market trends, VTB24 launched applications for its customers: Mobile Bank VTB24 for iOS (iPhone) and Android platforms. In less than three months more than 45,000 users installed VTB24’s mobile application.
The bank upgraded its SMS notification service during 2011 and launched a standard Card package for plastic card holders, which provides information on any card activities. VTB24 also launched an expanded Telebank+ package for Telebank users, which provides information not only on card transactions but also on operations conducted via the Telebank system. The service can be purchased for six or 12 months and includes an unlimited number of notifications during this period. The bank’s card holders are also able to subscribe to and pay for an SMS notification service at any ATM operated by the bank. This led to a five-fold increase in the penetration of paid-for SMS service packages.
At the end of 2011, a new two-tier system was introduced in Telebank system, whereby each customer now has daily and monthly spending limits set within the system. At the same time, limit levels were reviewed, which led to a reduction in the number of customers needing to confirm Internet banking and mobile banking operations in the bank’s offices.
During the year, the bank continued to extend the list of companies whose services can be paid for remotely. 188 new payee companies were added to the list during 2011 and at the end of the year the total number exceeded 450.
The bank’s constant efforts to develop its remote banking services contributed to a significant increase in its number of users. Thus, during the year the number of customers using Telebank and Teleinfo systems grew by 47% to more than 1.43 million by the end of 2011, and the share of active Internet banking users grew by 4 p.p. from 48% to 52%. The number of transactions (operations carried out via Telebank) increased by 95.6% in 2011 and reached 1.32 million at the end of the year. The balance on term deposit accounts in the Telebank system grew by 46% as at the year-end. In 2012, the bank plans to focus on developing its mobile banking platform. The bank expects to launch a mobile (PDA) version and applications for WindowsMobile and Symbian platforms. It will concentrate on increasing the usage of Internet banking, mobile banking and SMS notification services among VTB24 clients.
32 VTB 2011 ANNUAL REPORT
VTB24 Internet banking clients
Number of customers using Telebank and Teleinfo systems (in thousand users)
Percentage of all customers
15% 13%
1,433 8% 5% 974
505 211
2008 2009 2010 2011
Transfers and payments for services
VTB24 continued to develop payment services and money transfers via money transfer systems during 2011. Transactions carried out by individuals to pay for services provided by various organisations exceeded RUB 83 billion in 2011, a 71% increase over the figure for 2010. The total number of transactions grew by 29% to 32.6 million.
The significant growth in these transactions was driven by the higher demand for services by both new and current customers of the bank, with a higher number of organisations, whose products and services are available for purchase by individuals without having to pay commission to VTB24. In 2011, more than 200 new organisations joined the programme and their total number exceeded 700 across Russia.
In 2011, VTB24 introduced a service that collects consular fees for processing different types of US visas. The introduction of this service was a major event in the area of payment services business. The proportion of transactions carried out via remote banking channels (such as self-service devices and the Telebank system) continued to gradually increase during 2011. These are preferred by a greater number of VTB24’s clients due to the high level of accessibility and convenience they offer.
As at the end of 2011, the number of active unallocated bullion accounts was in excess of 17,500 and these were held in more than 590 bank’s offices. The number of coins sold during 2011 exceeded 49,000, 1.5 times more than what was sold in 2010.
Services for high net-worth customers
In 2011, VTB24 continued to pursue its programme for attracting privileged and high net-worth customers to use the bank’s comprehensive long-term services. The bank offered its privileged customers the Privilege package, which VTB24 started to offer its high net-worth customers in January 2011. The packaged offering includes a range of banking products and services, exclusive services in bank offices and special offers provided by the bank’s partners.
33 VTB 2011 ANNUAL REPORT
At the end of 2011, the number of customers subscribed to the Privilege package reached more than 14,000. The product was improved by enhancing the quality and quantity of services offered as part of the package and by extending the range of additional banking products, offered on special terms and with special rates. Guided by the needs of Privilege package holders, the bank also adapted its approach to customer service offered to premium customers in bank branches.
In its first year, the Priority package was purchased by more than 40,000 customers. In addition to the premium VISA Platinum card, the package’s main features include more favourable deposit terms than the standard offering as well as an individual service in a private front office area by a dedicated financial advisor. Furthermore, Priority package holders also have access to special terms on loan products and exclusive offers from the bank’s partners.
In 2012, VTB24 plans to further develop its customer packaged offerings by improving and expanding the quantity of banking and non-banking services included in each package.
VTB24 Private Banking
VTB24 Private Banking is a special business unit that is part of VTB24 and is the leading provider of private banking services in Russia. Its purpose is to provide a tailored approach to each customer on the basis of mutual trust. VTB24 Private Banking offers a comprehensive range of investment solutions for its customers, as well as access to VTB Group’s best financial instruments, thus creating unique opportunities for maintaining and growing its customers’ funds. Given the complexity of VIP customers’ businesses and their needs, VTB24 Private Banking adopts a synergetic approach to dealing with clients’ affairs by interacting with other VTB Group companies.
In 2011, to diversify its clients’ currency risks, VTB24 Private Banking launched a VTB24 – Prime (Yuan) deposit account, which accepts deposits in Chinese yuan. The existing Prime deposit product line was also optimised by setting new deposit limits and maturity periods. Prime package holders can also benefit from preferential terms for financial and non-financial services offered by many bank’s partners. In the reporting year, VTB24 Private Banking significantly extended the range of services it offers to customers within partnership programmes. The provision of investment services were enhanced by offering customers new management strategies and structured products developed in conjunction with VTB Asset Management and VTB Capital.
The number of VIP customers increased by 40.7% to more than 2,000 during 2011. In total, they placed more than RUB 143 billion with VTB24. The average credit balance per customer grew by 11%, reaching RUB 69.8 million at the year-end. VTB24 Private Banking sells its products and services within the premium network. A VIP office was opened in Rostov-on-Don in 2011 and VTB24 Private Banking now has eight offices in seven Russian cities, including two offices in Moscow. VTB24 Private Banking is also represented in retail sales points in eleven other Russian cities.
In 2011, for the second consecutive year, VTB24 Private Banking was named “Russian Private Bank of the Year” in Spear's Russia Wealth Management Awards for its private banking and wealth management services.
Investment services for retail customers
VTB Group – represented by VTB24 – is a leader in the retail investment services segment, ranking seventh7 amongst the largest brokers in Russia and maintaining its leading positions for customer service in the Forex market.
7 RBC estimate based on 2011 figures.
34 VTB 2011 ANNUAL REPORT
The introduction of a new segmented approach to the sales of brokerage services in 2011 enabled VTB24 to increase its brokerage services customer base by more than 11,000, which is 1.7 times more compared to 2010. As at the end of 2011, a total of 170,548 broker accounts were registered with MICEX for VTB24 customers.
In 2011, the volume of VTB24 customer transactions in shares on MICEX exceeded RUB 1.4 trillion roubles, representing a brokerage service market share of 9.5% 8 for VTB24. The volume of transactions completed by the bank’s customers in the FORTS totalled more than RUB 2.6 trillion, 1.6 times more than the 2010 figure.
During the reporting period, an additional online Forex trading platform was introduced, which increased the number of customers using the service by more than 1,000. At the end of 2011, more than 6,561 customers were registered to trade on the Forex market. The volume of customer Forex transactions during the reporting period was over USD 135 billion, including SWAP transactions.
VTB24’s customer-oriented approach and the improved quality of its retail investment services were the key drivers behind the growth in retail customer investment activity during the 12 month period. In 2011, the number of active customers reached more than 25,000.
In 2011, VTB24 reduced the down payments required to form individual trust management agreements. At the end of 2011, the number9 of active individual trust management agreements was 1.7 times bigger compared to the same period of 2010. During the reporting period, as part of the development of its product line, the bank introduced trust management services for property, constituting special-purpose capital of non-commercial organisations.
In 2011, funds attracted through VTB24 agencies into mutual funds grew by 2.5 times compared to 2010 and exceeded RUB 1.1 billion. The number of points responsible for selling mutual fund equity units grew by 72 new offices in 2011, making a total of 567.
In 2012, VTB24’s investment business will focus its efforts on improving the quality of customer service and expanding the range of its services and retail investment products.
Services for small businesses
Small business customers make up a key part of VTB Group’s retail business. Prior to the Bank of Moscow’s consolidation in the third quarter of 2011, the Group provided services to individual entrepreneurs and small enterprises mainly through VTB24. As at the end of 2011, the volume of lending by the bank to small businesses increased by 70% compared to 2010, and the bank provided RUB 50 billion of financing in 2011. The bank’s loan portfolio for this segment rose to RUB 68.7 billion during the year.
The number of companies and individual entrepreneurs using the bank’s settlement and cash services reached 218,000. The total volume of funds deposited by small business customers amounted to RUB 97 billion.
In 2011, the bank continued to implement its strategy of growing its market share and customer base. A key development towards the fulfilment of this strategy was the Bank’s transition from a single product sales model to providing integrated banking services to small business customers.
In the reporting period the bank:
8 Proportion of overall MICEX trading volume in which VTB24 customers took part (in the main trading mode). 9 Customers who concluded Forex and stock market transactions during the reporting period.
35 VTB 2011 ANNUAL REPORT
o Increased the limit for “small business” classification category from RUB 90 million to RUB 300 million of annual revenues;
o Moved to a new customer service model for small business and established an effective sales unit;
o Introduced a new product range for lending transactions and guarantees;
o Made changes to its lending procedure to rationalise the decision-making process and increase the affordability of loan products to small business customers;
o Approved a Business Express product concept (for loans of up to RUB 4 million) designed for standard segment small business customers for whom lending is subject to a scoring system as part of the Bank’s credit decision-making process. In the fourth quarter of 2011, the bank successfully completed a pilot testing of this product and expects that the product will be rolled out during the second quarter of 2012;
o Completed a project to develop a new remote banking system - Bank-to-Customer Online – a Beta version of which was launched in 2011.
Today, the bank offers one of the most extensive product ranges in the market for small businesses, covering most of its segments and meeting almost any customer need.
In 2011, as part of the state support programme for small businesses, VTB24 used OJSC MSE Bank’s lending resources of RUB 5 billion to provide financing to small businesses and individual entrepreneurs. The total volume of lending to small businesses granted through this project amounted to RUB 10 billion, as VTB24‘s Co-financing product contributed an additional RUB 5 billion of the bank’s own funds to the financing of small businesses.
During 2011, the bank continued to develop its relationship with regional institutions responsible for supporting small businesses. The number of current agreements between VTB24 and such institutions reached 51.
VTB Group’s main aim for its small business lending and servicing segment in 2012 is to grow sales volumes and increase its market share. This will be achieved by optimising internal procedures related to processing lending applications and by offering attractive new products. The Bank of Moscow will play a particular role in the development of this business area. Just as VTB24 has done, it will provide services to small and medium-sized businesses independently. The Bank of Moscow intends to focus its efforts primarily on Moscow and the Moscow region, as well as other ten key regions where it is present, thus covering more than 65% of the medium-sized businesses in Russia.
ATMs
In 2011, VTB Group had one of the largest ATM networks in Russia, and taking into account TransCreditBank’s and the Bank of Moscow’s infrastructure, the total number of ATMs reached 10,161 units as at the year-end.
As at the end of the reporting period, VTB24’s ATM network totalled more than 5,700 units, 28% of which are equipped with a cash pay-in function. Customers can withdraw and pay in money, transfer funds and open deposit accounts at the bank’s ATMs. They can also make payments to more than 100 payees.
36 VTB 2011 ANNUAL REPORT
As at the year-end, the bank’s ATM network processed more than 420 million transactions. More than RUB 214 billion was received and credited to customers’ card accounts and payments of more than RUB 31.5 billion were made.
The bank is continuously improving its ATM network by expending its size and enhancing service quality. In 2011, the bank installed 749 ATMs, including the replacement of existing ATMs, 495 of which have a cash pay-in function.
In 2011, the technical availability of ATMs, defined as a ratio of time when the devices were operational to the total time for the period, increased from 91.0% to 92.4%.
In 2012, the bank plans to expand its own network of ATMs to 6,370 units and put new devices into service, such as information and payment terminals for non-cash payments.
Network
VTB Group has one of the most developed networks of sales and service offices in Russia. This includes VTB and VTB24 offices, as well as offices belonging to the Bank of Moscow and TransCreditBank, which when combined, amounts to 1,371 units as at the end of 2011.
In 2011, VTB24 achieved impressive growth rates in the scale, efficiency and quality of its network. During the year, business volumes per branch grew by 17% for retail loans (to RUB 1 billion) and 15% for retail deposits (to RUB 1.4 billion). VTB24’s network still remains the most efficient in the industry, with growth far outpacing its main competitors.
During the reporting period, the bank accomplished all of its network development plans. VTB24 opened 76 new sales points, and the biggest growth in the network was within the Moscow region (17 new offices), St. Petersburg and Ekaterinburg (five new offices). As a result, the number of VTB24 offices totalled 606 units as at the end of 2011. Today, the bank operates sales offices in 69 regions and 212 cities in Russia, providing coverage for 72% of the country’s urban population.
2009 2010 2011 Number of sales points, including 476 531 606 Branches 9 8 8 Regional operational offices 59 61 61 Additional offices / operational offices 401 455 530 Cash desks 7 7 7
An important stage in the development of the bank’s network was the introduction of a new customer service model for the high net-worth segment in 2011. This enabled the bank to reach a new level in the provision of customer service for this segment and to significantly increase its customer base.
The bank confidently maintains its leading market positions for customer service quality. According to the results of two independent surveys, conducted by EPSI, an international research company, and Retail Finance magazine, VTB24 was the absolute leader in terms of customer service quality among Russian banks in 2011.
In 2011, a number of systemic measures were implemented to improve the quality of service:
• Half of the bank’s branches switched to the single waiting line system. During the year, the number of offices using this system increased from 133 to 309. This allowed VTB24 to
37 VTB 2011 ANNUAL REPORT
significantly increase branches’ rate of throughput while maintaining sustainable growth in incoming business streams;
• As part of the development of the segment-oriented approach to customer service, 238 private service zones for high net-worth customers were created;
• Lending application procedures became simpler and faster due to optimised internal business processes and the time needed to process a cash loan application was reduced by 40%;
• Since July 2011, the bank's customers have been able to conduct commission-free transactions through TransCreditBank and the Bank of Moscow ATMs. The combined ATM network comprises of 10,000 units, twice as much as at the beginning of 2011.
In 2012, VTB24 will continue to expand its regional network by consolidating its presence in high- volume markets and also by increasing the number of mobile offices to render sales and services to payroll customers. The 2012 network development plan aims to deliver 80 new sales points.
VTB Group’s plans provide for additional sales network growth with a higher proportion of servicing operations and sales conducted through alternative channels.
4.3.3. OTHER BUSINESSES
In addition to retail and corporate banking services, VTB Group provides financial services in such areas as leasing, factoring, insurance and private pensions. Establishing synergies and promoting the cross-selling of banking and non-banking products remain a key priority in developing the Group.
Leasing
VTB Leasing is today one of the leading Russian leasing companies, offering a broad range of services, with regional offices across Russia and subsidiaries in the CIS and Europe.
At the end of 2010, VTB Group acquired a controlling stake in TransCreditBank, and as a result the activities of VTB Leasing and TransCreditLeasing were integrated. Both leasing companies are currently working on furthering cooperation with each other, and on developing common approaches to dealing with customers.
As at the end of 2011, the combined leasing portfolio of VTB and TransCreditLeasing amounted to RUB 326.8 billion, and the volume of new leasing contracts totalled RUB 212.9 billion. Key segments of the company’s leasing portfolio include rail transport, aviation technology, oil extraction and processing equipment, power and mechanical engineering equipment.
VTB Leasing is, according to the Russian Expert RA Rating Agency, one of the top-three companies in the Russian leasing market and, based on Leaseurope data, it is among the top-50 leasing companies in Europe. In December 2011, the Expert RA Rating Agency rated VTB Leasing as the “Leader in Railway Equipment Leasing – 2011”, repeating the ranking it had given VTB Leasing in 2010.
Insurance
VTB Insurance provides individuals and institutions with a full range of services: property insurance, civil and professional liability insurance, and personal insurance (excluding life insurance).
38 VTB 2011 ANNUAL REPORT
The authorised capital of VTB Insurance was increased to RUB 1.54 billion in 2011. During the reporting period, the amount of premiums accrued for all direct insurance businesses increased to RUB 9.3 billion, up by 69% when compared to 2010. This was primarily the result of the dynamic growth of the company’s retail business, with the amount of premiums accrued doubling year-on- year to RUB 6.1 billion.
In 2011, VTB Insurance continued to focus on the development of its bankassurance segment, increasing its market share for accident insurance to 8.6% from a figure of 5% in 2010. During the reporting year, accident insurance and financial risk insurance demonstrated the greatest growth in premiums, at 166% and 122% respectively.
VTB Insurance continued to expand its retail network. At the end of 2011, 209 insurance sales outlets were operating in the branches of VTB Group’s banks. Furthermore, the first sales outlets were opened in branches of TransCreditBank and the Bank of Moscow during the reporting year.
The company strengthened its market position as a result of its performance in 2011, rising to 15th position amongst the largest Russian insurers by volume of premiums, and accounting for 1.4% of the Russian insurance market.
VTB Insurance remains one of the most reliable insurance companies in Russia. In 2011, Fitch Ratings upgraded the company’s financial strength rating from “BB” to “BBB-“ (Outlook: “Stable”), while the Expert RA Rating Agency raised the company’s rating from “A+” to “A++” (“Exceptionally high level of reliability”).
Factoring
VTB Factoring was launched at the end of 2008, and began active market operations in the second half of 2009. The authorised capital of the company was RUB 670 million as at the end of the reporting period.
During 2011, VTB Factoring significantly increased its business volumes. At the end of the year, VTB Factoring’s turnover amounted to RUB 125 billion, while the portfolio of accounts receivable grew to RUB 36 billion. The company’s operations in 2011 led to it being ranked in first position among the largest Russian factoring companies in terms of portfolio size. The company’s market share, measured on the same basis, totalled 22%.
In 2011, VTB Factoring financed approximately 650,000 deliveries of goods and services. The company’s portfolio includes 423 active customers and 667 debtors. In 2011, VTB Factoring signed more than 300 new agreements to provide factoring services.
During the reporting period, apart from its traditional intensive work with companies in the FMCG sector, VTB Factoring actively cooperated with companies from the industrial sector, including those involved in metallurgy, automobile and equipment manufacturing. The size of the regional segment of VTB Factoring’s business grew rapidly in 2011, and amounted to approximately RUB 8 billion at the end of the year. The company’s regional network of sales outlets increased to 16, covering Russia’s largest cities by year-end. VTB Factoring worked actively with the VTB Bank branch network to attract new customers.
NPF VTB Pension Fund
NPF VTB Pension Fund is a dynamically developing non-state pension fund, which provides a full range of services for mandatory pension insurance and non-state retirement benefits to individuals and corporate clients.
39 VTB 2011 ANNUAL REPORT
In 2011, the fund’s assets grew by more than eight times, reaching RUB 16.6 billion.
By the end of the reporting year, more than 600,000 people had signed contracts with the VTB Pension Fund for mandatory pension insurance. The fund actively cooperated with the Group’s banks in order to attract new clients. In 2011, VTB launched the selling of mandatory pension insurance policies in the branches of the Bank of Moscow and TransCreditBank.
As at the end of 2011, VTB Pension Fund had moved up from tenth to seventh position in the ranking compiled by the Pension Fund of the Russian Federation, which is based on the number of contracts signed for mandatory pension insurance during the year. It also moved up 20 positions to 15th in the rating of the Federal Financial Markets Service, which is based on the total pension assets under management. The Expert RA Rating Agency upgraded the Fund’s rating to “A+” (“High level of reliability”) with a “stable” outlook, while the National Rating Agency raised its rating to “AA+” (“Very high reliability and the highest level of responsibility”).
4.3.4. BUSINESS OUTSIDE OF RUSSIA
Today, VTB is the only Russian banking group that has a significant presence outside of the country. The Group’s international network enables it to provide banking services in Europe, Asia, North America10 and Africa. VTB’s international presence also assists businesses from Russia and the CIS to cooperate with and expand their presence into international markets. VTB’s international operations also enable the Group to diversify its business and increase its profitability by providing access to high-margin markets.
VTB Group has 12 subsidiary banks with operations outside of Russia. In the CIS, the Group is present in Armenia, Ukraine, Belarus, Kazakhstan, Azerbaijan and Georgia. VTB banks in Austria, Germany and France operate as part of the European sub-holding headed by VTB Bank (Austria). The Group also has subsidiary banks in Cyprus and Angola, and branches in China and India. In addition, VRB bank operates in Vietnam, which was jointly established by VTB and the Bank for Investment and Development of Vietnam.
Business in the CIS and Georgia
The development of VTB’s business in CIS countries is the key priority of the Group’s international strategy. The Bank’s active presence in financial markets of the former Soviet Union states facilitates the strengthening of economic relations between the countries and enables VTB to provide a broader range of services to its corporate clients. Ukraine is the main priority for VTB in the region. As at the end of 2011, VTB had 386 sales points in CIS countries and Georgia.
PJSC VTB Bank (Ukraine) performed well in 2011 and strengthened its market position in Ukraine, increasing VTB’s brand awareness and raising customer trust.
In 2011, net assets of VTB Bank (Ukraine) increased by 11.5% and totalled UAH 36 billion (USD 4.5 billion11). The corporate loan portfolio, excluding reserves, grew by 9.3% in 2011 to reach UAH 29.7 billion (USD 3.7 billion12). In the reporting year, the bank issued loans to a number of strategic companies, a significant proportion of which included state enterprises. A balanced approach and a focus on active development secured VTB Bank (Ukraine)’s position among the top-five largest lenders in the corporate segment of Ukraine’s economy. As at the end of 2011, the bank held a 4.8% share of the market, making it the fourth largest player in the segment.
10 In April 2012, an official opening of VTB Capital’s office in New York took place. 11 The USD equivalent is calculated on the basis of USD/UAH spot rate as of 30 December 2011. Source: Bloomberg 12 The USD equivalent is calculated on the basis of USD/UAH spot rate as of 30 December 2011. Source: Bloomberg
40 VTB 2011 ANNUAL REPORT
In 2011, the bank’s corporate liabilities portfolio increased by 110%, moving the bank from 13th place to 9th place among Ukraine’s largest financial institutions, in terms of corporate deposits, giving it a 3% share of the market. Furthermore, the bank became the fourth largest bank by commission-based income from trade finance transactions, which totalled UAH 31.1 million or USD 3.9 million13, as commission-based income grew by 58%.
VTB Bank’s (Ukraine)’s total corporate customer base increased by 13% to 4,300 during the year. The growth in the corporate banking was mainly driven by the introduction of new banking products as well as by the upgrade of existing ones, and by the changes in tariffs for settlement and cash services. Growth in the bank’s lending to retail customers was just as prominent, with the bank’s position in this segment rising from 17th place to 14th place in 2011. As at the end of the year, VTB Bank (Ukraine) was servicing 474,700 individuals and small businesses.
Despite all the difficulties faced by the Belarusian economy and its financial sector in 2011, CJSC VTB Bank (Belarus) reported excellent results in 2011, across all main business performance indicators. The bank’s profit for the reporting year was 2.9 times higher than in 2010 and totalled BYR 93.2 billion (USD 17.9 million14). The bank attracted 2.6 times more resources during 2011 to equal more than BYR 5.7 trillion (USD 679.0 million15). The bank’s assets grew 2.5 times to BYR 6.2 trillion (USD 738.5 million16). The volume of customer deposits increased to BYR 2.0 trillion (USD 238.2 million17), 2.1 times more than what was achieved in 2010. The customer loan portfolio doubled year-on-year to reach BYR 3.1 trillion (USD 369.3 million18).
VTB Bank (Belarus) successfully managed to grow its corporate customer base in 2011. The bank expanded its presence in the food, trade and construction industries, which resulted in a 23.1% increase in the number of corporate clients and entrepreneurs using the bank’s services, to total 10,152 as at the end of 2011. During 2011, the bank actively cooperated with resource-intensive companies, engaged in R&D in engineering sciences, transportation of oil products, engineering services and design.
The bank’s small business customer segment also delivered good growth dynamics. During the reporting period, the volume of loans provided by the bank to this customer segment rose by more than seven times, while the volume of non-performing loans decreased by more than 50%. The account balances of small business customers increased by 70% in 2011.
In 2011, VTB Bank (Belarus) also strengthened its market position in the retail banking segment. The bank opened new offices in Minsk, Vitebsk and Pinsk during the year and the development of its retail network, as well as its new and upgraded offering of banking products contributed to a 66% growth in the bank’s retail deposit portfolio. The bank’s retail loan portfolio increased by 71%, the highest growth recorded for the last three years.
CJSC VTB Bank (Armenia) delivered another year of success and growth by significantly strengthening its leading market positions in 2011. The bank’s assets increased by 39.2% to AMD 177.5 billion (USD 459.8 million19) as at the year-end, mainly due to an increase in lending volume to individuals. The bank’s total loan portfolio grew by 41.8% to AMD 122.7 billion (USD 317.8 million20) in 2011. VTB Bank (Armenia) increased its share of the lending segment to 9.6% during the year.
13 The USD equivalent is calculated on the basis of average USD/UAH exchange rate for 2011. Source: Bloomberg 14 The USD equivalent is calculated on the basis of average USD/BYR exchange rate for 2011. Source: Bloomberg 15 The USD equivalent is calculated on the basis of USD/BYR spot rate as of 30 December 2011. Source: Bloomberg 16 The USD equivalent is calculated on the basis of USD/BYR spot rate as of 30 December 2011. Source: Bloomberg 17 The USD equivalent is calculated on the basis of USD/BYR spot rate as of 30 December 2011. Source: Bloomberg 18 The USD equivalent is calculated on the basis of USD/BYR spot rate as of 30 December 2011. Source: Bloomberg 19 The USD equivalent is calculated on the basis of USD/AMD spot rate as of 30 December 2011. Source: Bloomberg 20 The USD equivalent is calculated on the basis of USD/AMD spot rate as of 30 December 2011. Source: Bloomberg
41 VTB 2011 ANNUAL REPORT
Customers account balances were up by AMD 21.0 billion, reaching a total of AMD 79.5 billion (USD 205.9 million21) as at the end of the reporting period. Individual customers’ funds increased by 28.9% compared to the 2010 figure, and equalled AMD 47 billion (USD 121.7 million22). Funds being held by corporate customers amounted to AMD 32.4 billion (USD 83.9 million23). Overall, the bank’s deposit market share expanded to 7.5% during the year.
As at the end of 2011, the bank’s customer base comprised of 286,400 individuals and over 5,300 companies – small, medium- and large-sized businesses.
In 2011, VTB Bank (Armenia) continued to finance key sectors of the Armenian economy, contributing to the development of large and medium-sized businesses, financial institutions and state companies. The bank’s corporate client portfolio includes market leaders and promising medium-sized businesses from a broad spectrum of sectors, such as insurance, construction, trade, power, transportation, small- and large-scale industry, IT and telecommunications.
During the reporting period, JSC VTB Bank (Kazakhstan), which started its operations in 2009, delivered high growth rates that exceeded the forecasts set out in the bank’s business plan. In 2011, the bank completed the formation of its branch network, which comprised of 24 sales points, covering 17 Kazakh regions as at the year-end. Due to the expansion of its regional branch network, the bank managed to nearly double its customer base to 14,200 in 2011.
VTB Bank (Kazakhstan) rapidly attracted new customers and further developed its relations with current clients, which enabled the bank to increase the volume of its active operations. In 2011, the bank’s loan portfolio grew by 269.4% and its proportion of total assets increased by 25.4 p.p.
In May 2011, VTB Bank (Kazakhstan) signed an agreement with the European Bank for Reconstruction and Development (EBRD) for a USD 20 million trade finance guarantee facility, as part of the EBRD Trade Facilitation Programme. In June 2011, the bank was admitted to JSC Kazakhstan Stock Exchange to trade in the Forex market category, gaining a right to participate in the trading of foreign currencies. In October 2011, the bank issued international bank cards for its customers on a large scale. By the end of the year, more than 4,000 cards were issued.
In 2011, Fitch Ratings assigned VTB Bank (Kazakhstan) with a “BBB-“ long-term issuer default rating (Outlook: “Stable”), which is evidence of the bank’s stable financial position.
JSC VTB Bank (Georgia) continued its active development during 2011. Today, the bank is among the ten largest banks in the country and has been assigned with the highest long-term issuer default rating among Georgian banks, which is “BB”.
The bank’s activities were focused on attracting funding from international financial institutions during 2011. For example, the bank obtained a USD 11.4 million credit facility from the EBRD to finance the country’s agriculture and small and medium-sized businesses.
In 2011, VTB Bank (Georgia)’s assets rose by 24.4% to GEL 423.7 million (USD 254.4 million24). The bank’s loan portfolio increased by 30.1% totalling GEL 304.8 million (USD 183.0 million25) as at the year-end. In 2011, the bank mostly developed its cooperation with individuals and as a result, the loan portfolio of this customer segment grew by 42.8%.
21 The USD equivalent is calculated on the basis of USD/AMD spot rate as of 30 December 2011. Source: Bloomberg 22 The USD equivalent is calculated on the basis of USD/AMD spot rate as of 30 December 2011. Source: Bloomberg 23 The USD equivalent is calculated on the basis of USD/AMD spot rate as of 30 December 2011. Source: Bloomberg 24 The USD equivalent is calculated on the basis of USD/GEL spot rate as of 30 December 2011. Source: Bloomberg 25 The USD equivalent is calculated on the basis of USD/GEL spot rate as of 30 December 2011. Source: Bloomberg
42 VTB 2011 ANNUAL REPORT
OJSC VTB Bank (Azerbaijan) is a universal bank providing corporate as well as retail banking services in the Republic of Azerbaijan. In 2011, the bank started the formation of its new management team with the appointment of a new Chairman of the Management Board. The bank plans to recruit new managers for the retail banking and risk management divisions. The bank’s organisational structure and internal documents regulating VTB Bank (Azerbaijan) were also started to be updated. Automated processes are running within the key bank’s business lines. The bank also initiated a comprehensive development of its strategy for the coming years.
With the help of VTB Group, the bank set plans to conduct large-scale investment banking transactions in Azerbaijan. In October 2011, the bank opened its first branch in Baku to help the expansion of its retail business. As at the year-end, the loan portfolio of the bank’s retail business increased by more than 2.5 times. VTB Bank (Azerbaijan), which started its operations in 2009, has been demonstrating high growth rates, exceeding the forecasts set out in the bank’s business plan.
Business in Europe
In 2011, the Bank’s European sub‐holding continued to strengthen its positions in servicing export and import operations of the largest Russian and CIS exporters. Overall, 2011 saw a rapid growth in the corporate lending sector. For example, the European sub‐holding’s loan portfolio grew by 190.3% year‐on‐year to EUR 5.9 billion (USD 7.6 billion). More than half of these funds were lent to Russian borrowers.
One of the main areas of activities of VTB’s European sub‐holding in 2011 were transactions of pre- export and trade financing. During the year, large transactions were arranged for companies such as Acron, RMK Group, Belorusneft, Panrusgas Gas Trading, for a total amount of approximately EUR 1.0 billion.
In 2011, VTB’s European sub‐holding developed two main areas of its business with local corporate customers. These included growing its lending operations to European companies and implementing the VTB Direct project. As at the end of 2011, European corporate clients accounted for 55% of the total corporate customer base of VTB Bank (Deutschland) AG and VTB Bank (France).
In 2011, VTB Bank (Austria) and VTB Bank (France) launched an innovative retail product for VTB Group – VTB Direct, an electronic savings deposit account. The new banking product was offered to individual customers in France, Austria and Germany, and approximately EUR 504 million was deposited by individuals during the reporting period.
The Russian Commercial Bank (Cyprus), VTB’s subsidiary in Cyprus also focused on the development of corporate lending. As at the end of the reporting period, the bank’s loan portfolio more than doubled from USD 5.3 billon to USD 11.5 billion.
Business in Asia and Africa
The main objective of VTB Group’s banking operations in Asia and Africa is to establish strong partner relationships with companies from Russia and the CIS that operate in these markets, and with local businesses looking to expand into the CIS.
VTB Bank Branch in Shanghai was launched in March 2008 and is currently the only bank from Russia and the CIS, which has a banking licence in China. It aims to provide support to VTB’s large corporate clients in China and facilitate access to the Chinese capital markets for CIS companies and banks. The branch has been active in trade finance transactions, servicing Russian importers and exporters, and in lending to the subsidiaries of Russian businesses in China. The bank is also expanding its Chinese enterprise customer base, particularly those who cooperate with Russian and CIS companies, and provides a full range of trade finance services in partnership with VTB Group’s banks.
43 VTB 2011 ANNUAL REPORT
The branch places particular emphasis on the development of operations in national currencies. The branch received official confirmation of its market maker status from the People’s Bank of China, marking a milestone for the Bank at the end of 2010. This unique status allows the branch to participate in the setting of rouble/yuan exchange rates and conduct operations on the China Foreign Exchange Trade System (CFETS). As at the end of 2011, the VTB Bank Branch in Shanghai was acknowledged as the market maker with the largest number and volume of transactions for the rouble/yuan currency pair. It was also named the forex market participant who demonstrated the most dynamic development in 2011 by CFETS.
During the reporting period, the branch played a major role in maintaining rouble liquidity in the Chinese market, as it provided Chinese banks with a full range of services for rouble-denominated bank accounts and foreign exchange operations within China.
In 2011, VTB Bank Branch in Shanghai also met all the necessary regulatory requirements to obtain permission for conducting transactions using the yuan currency. Presently, the branch conducts transactions in roubles and freely convertible currency and plans to obtain permission that would enable it to conduct transactions in yuan in 2012.
In 2011, the branch also launched Internet banking services, enabling it to expand its cooperation with customers across China from a single sales point.
The joint Russian‐Angolan bank, Banco VTB Africa S.A. (VTB-Africa), has been a success since its launch in 2007. VTB-Africa has worked hard to attract new clients and develop transactional banking experience, primarily international settlements, trade finance, currency exchange and working capital loans. In 2011, the bank operated in line with the business development strategy approved for VTB-Africa in 2010. A new organisational structure was therefore developed and a number of business priorities were defined. As a result, the bank increased the client business volumes and it built a high‐quality loan portfolio.
In 2011, new grounds were established to further develop the Vietnam‐Russia Joint Venture Bank (VRB), whose mandate is to provide reliable support to Russian companies operating in the Southeast Asian markets. To increase its market representation and create a convenient infrastructure to service Russian and Vietnamese companies, VRB has been focusing on the development of its sales network. Currently, it consists of the head office in Hanoi, five branches in Vung Tau, Ho Chi Minh, Da Nang, Nha Trang and Hai Phong; it has centres that deal with specific transactions and card requests; as well as an extensive network of additional offices in the country’s economic centres of Hanoi, Ho Chi Minh, Vung Tau; and it also has a wholly‐owned subsidiary bank in Moscow. The Bank also plans to launch branches in Can Tho and Vinh. VRB is a universal commercial bank providing an extensive range of banking products and services for Vietnamese and Russian companies, such as debt and project financing, import and export financing, trade finance and other products, including those, which are new to the Vietnamese market.
VTB Bank Branch in New Delhi (India) is the flagship of Russian banking in the country. Its key objective is to become an intermediary between both countries’ businesses in their cooperation and collaboration, the development of new projects and the opening of new markets. The branch focuses on the foreign trade operations of Russian companies that operate in India, as well as their subcontractors, and it also serves Indian companies with interests in Russia. The branch has established a customer base that comprises of large Indian and Russian enterprises. The branch’s solid development is reflected in its financial results.
Today, VTB Bank Branch in India examines opportunities to participate in Russian‐Indian joint projects in India in sectors covering technical military projects, chemicals, metals, energy, agriculture, telecommunications, the development of infrastructure and more. The branch is also considering the
44 VTB 2011 ANNUAL REPORT
prospect of conducting export and import settlements in national currencies and opportunities are being evaluated to help the branch to structure payments and arrange project financing, involving VTB’s subsidiary banks in Ukraine, Belarus, Kazakhstan and Armenia.
4.4. REVIEW OF FINANCIAL PERFORMANCE26
VTB Group key financial indicators
in RUB billion 2010 2011 Change
Net interest income 171,1 227,0 32,7% Net fee and commission income 24,7 39,2 58,7% Operating income before provisions * 221,1 286,6 29,6% Net profit 54,8 90,5 65,1%
Total gross loans and advances to customers 3 059,6 4 590,1 50,0% Customer deposits 2 212,9 3 596,7 62,5%
Net interest margin 5,1% 5,0% -10 b.p. Provision charge for loan impairment / Average 1,9% 0,9% -100 b.p. gross loan portfolio NPL ratio ** 8,6% 5,4% -320 b.p.
(*) Here and below, operating income before provisions is calculated before provisions for impairment of debt financial assets and impairment of other assets, contingencies and credit related commitments. (**) Non-performing loans (NPLs) represent impaired loans with repayments overdue by over 90 days. NPLs are calculated including the entire principal and interest payments. Ratio is calculated to total gross loans including financial assets classified as loans and advances to customers pledged under repurchase agreements.
Financial highlights
• Record net profit of RUB 90.5 billion in 2011, up 65.1% year-on-year, with ROE of 15.0%, versus 10.3% for 2010; • Net interest income for 2011 amounted to RUB 227.0 billion, up 32.7% from 2010; • Net fee and commission income in 2011 amounted to RUB 39.2 billion, up 58.7% year-on- year; • Net interest margin remained stable year-on-year at 5.0%; • Cost of risk was at 0.9% of average gross loans in 2011, versus 1.9% in 2010; • Balance sheet improved, due to organic growth and the consolidation of the Bank of Moscow: total gross loan portfolio increased by 50.0% to RUB 4,590.1 billion and customer deposits were up 62.5% to RUB 3,596.7 billion; • Loans-to-deposits ratio improved to 119.6%, compared to 125.9% as at the end of 2010.
26 This review is based on VTB Group’s IFRS consolidated financial statements for the years ended 31 December 2011 and 2010.
45 VTB 2011 ANNUAL REPORT
Profit & Loss statement analysis
Operating income
As at the end of 2011, VTB Group’s operating income before provisions totalled RUB 286.6 billion, an increase of 29.6% from RUB 221.1 in 2010. This dynamic growth resulted primarily from VTB receiving greater income from interest charges, fees and commission charges, and was also due to net recovery of losses on initial recognition of financial instruments and on loans restructuring.
Net interest income before provisions
Net interest income has historically been the largest component of the Group’s operating income. In 2011, net interest income contributed RUB 227.0 billion to operating income, which was 32.7% more than in 2010 (RUB 171.1 billion).
The Group generates interest income on loans and advances to customers, its securities portfolio and amounts due from other banks. The following table shows the principal components of VTB Group’s interest income in 2010 and 2011.
in RUB billion 2010 2011 Change Interest income Financial assets at fair value through profit or loss 19.2 28.3 47.4% Loans and advances to customers 301.5 376.7 24.9% Due from other banks 7.1 8.8 23.9% Other financial assets, including securities 2.7 2.9 7.4% Financial assets not at fair value through profit or loss 311.3 388.4 24.8% Total interest income 330.5 416.7 26.1%
Interest expense Customer deposits (85.9) (112.6) 31.1% Debt securities issued (40.1) (36.8) -8.2% Subordinated debt (17.0) (17.2) 1.2% Due to other banks and other borrowed funds (16.4) (23.1) 40.9% Total interest expense (159.4) (189.7) 19.0% Net interest income 171.1 227.0 32.7% Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011
In 2011, VTB’s interest income increased by 26.1% to RUB 416.7 billion. The key contributing factors to this were organic growth in the Group’s loan portfolio, and Bank of Moscow consolidation.
Interest income from lending to customers amounted to RUB 376.7 billion in 2011, up 24.9% compared to 2010. At the same time, interest income from the retail banking segment grew more rapidly than that from corporate and investment banking. This was primarily due to greater stability in interest rates over the course of the whole year. The worsening liquidity situation in the Russian banking sector in the second half of 2011, accompanied by the growth in interest rates, enabled the Group to increase its income from interbank lending to RUB 8.8 billion, compared to RUB 7.1 billion in 2010.
The Group’s interest expenses grew at significantly lower rates than interest income in 2011. At the year-end, VTB’s interest expenses totalled RUB 189.7 billion, up 19.0% compared to 2010. Interest expenses increased primarily due to liabilities on customer deposits, the costs of which were up
46 VTB 2011 ANNUAL REPORT
31.1% to RUB 112.6 billion. This was the result of the organic growth of the Group’s customer base and the consolidation of the Bank of Moscow’s deposit portfolio.
In 2011, VTB continued to focus its efforts on reducing the costs of funding. Despite a significant growth in customer funds, the costs of attracting those funds were lowered to 4.0%, compared to 5.0% in 2010.
Net interest spread and margin
in RUB billion 201027 2011 Change Average interest rate on interest earning assets 9.9% 9.2% -70 b.p. Average interest rate on interest bearing liabilities 5.3% 4.3% -100 b.p. Net interest spread 4.6% 4.9% +30 b.p. Net interest margin 5.1% 5.0% -10 b.p. Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011
The Group’s net interest margin was nearly flat year-on-year at 5.0% in 2011. The margin decreased by 10 b.p. in the reporting period as a result of a growth in interest earning assets. This growth outpaced the growth rates of net interest income before provisions.
Net fee and commission income
One of the Group’s strategic objectives is to create a strong transaction banking business through an enhanced product offering and an improved sales system of commission‐based products tailored to the needs of each customer segment. During the reporting period, VTB achieved notable success in this regard, with a 58.7% increase in net fee and commission income to RUB 39.2 billion.
in RUB billion 2010 2011 Change Commission on settlement transactions 15.4 24.8 61.0% Commission on guarantees issued and trade finance 3.9 6.6 69.2% Commission on cash transactions 2.9 5.3 82.8% Commission on operations with securities and capital markets 4.5 5.9 31.1% Other 2.1 4.8 128.6% Total fee and commission income 28.8 47.4 64.6% Commission on settlement transactions (2.2) (5.0) 127.3% Commission on cash transactions (1.0) (1.9) 90.0% Other (0.9) (1.3) 44.4% Total fee and commission expense (4.1) (8.2) 100.0% Net fee and commission income 24.7 39.2 58.7% Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011
Gross fee and commission income in 2011 increased by 64.6% to RUB 47.4 billion, compared to RUB 28.8 billion in 2010. The bulk of fee and commission income (63.5%) is generated by settlements and cash transactions. Aggregate fee and commission income received by VTB Group from settlements and cash transactions in the reporting period was RUB 30.1 billion, an increase of 64.5% year‐on‐year.
27 Calculated excluding the effect of TCB consolidation.
47 VTB 2011 ANNUAL REPORT
In contrast to 2010, the Group demonstrated a significant increase in fee and commission income generated from the provision of customer services in the sphere of trade finance and the issue of guarantees. Revenues for this item were up by 69.2% to RUB 6.6 billion in 2011, driven by the rapid development of the trade finance business.
In 2011, the Group’s fee and commission expenses doubled to RUB 8.2 billion, compared to RUB 4.1 billion in 2010. In parallel with this, commission expenses on settlement and cash transactions amounted to RUB 6.9 billion, up by 115.6% compared to 2010. This increase is related to the growing volume of operations conducted by the Bank.
Net gains from financial instruments
The Group’s losses net of gains arising from financial instruments amounted to RUB 26.7 billion for the reporting period, compared to gains less losses figure of RUB 14.7 billion in the previous year. This negative financial result for transactions with securities is related to the volatility of the global capital markets.
Provision charge for impairment of debt financial assets
During the reporting period, VTB Group was able to reduce significantly the provision charges for impairment of its debt financial assets, due to the improved financial stability of its corporate clients.
In 2011, the provision charge for impairment of debt financial assets decreased to RUB 31.6 billion from RUB 51.6 billion a year earlier. During the reporting period, due to an improvement in the economic conditions in Russia, the amount of the provision charge for loan impairment was 0.9% of the average gross loan portfolio, compared to 1.9%28 in 2011.
The total allowance for loan impairment increased to RUB 288.5 billion in 2011, from RUB 274.2 billion in 2010. The biggest contributor to this is the allowance for corporate loan impairment, which decreased to 84.5% of the total allowance for loan impairment in 2011, compared to 86,3% in 2010.
As a result of the lower provision charge for loan impairment in 2011, the ratio of the allowance for loan impairment to total loan portfolio reduced to 6.3% from 9.0% at the end of 2010.
Staff costs and administrative expenses
VTB Group’s staff costs and administrative expenses increased by 48.8% in 2011 to RUB 141.5 billion, primarily due to the consolidation of TransCreditBank and the Bank of Moscow, as well as the intensive development of VTB24’s retail network. The cost-to-income ratio before provisions grew to 49.4% in the reporting period, compared to 43.0% in 2010.
Net profit
For the second consecutive year the Group generated a record net profit, which was RUB 90.5 billion, compared to RUB 54.8 billion for the previous year. Substantial income growth in the Group’s core businesses and a significant reduction in the provision charge for loan impairment were key in achieving this positive financial result for 2011.
28 Calculated excluding the effect of TCB consolidation.
48 VTB 2011 ANNUAL REPORT
Analysis of VTB Group’s financial position
Assets
in RUB billion 31.12.2010 31.12.2011 Change Cash and short-term funds 275.5 407.0 47.7% Mandatory reserve deposits with central banks 26.4 71.9 172.3% Financial assets at fair value through profit or loss 344.6 571.5 65.8% Financial assets pledged under repurchase agreements and loaned financial assets 16.9 198.6 1075.1% Due from other banks 349.9 424.6 21.3% Loans and advances to customers 2,785.4 4,301.6 54.4% Assets of disposal group held for sale - 10.3 - Financial assets available-for-sale 55.9 167.7 200.0% Investments in associates and joint ventures 15.7 32.5 107.0% Investment securities held-to-maturity 34.2 32.4 -5.3% Premises and equipment 113.2 116.8 3.2% Investment property 102.2 122.5 19.9% Intangible assets and goodwill 30.5 141.2 363.0% Deferred tax asset 37.9 42.7 12.7% Other assets 102.6 148.3 44.5% Total assets 4,290.9 6,789.6 58.2% Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011
VTB Group’s total assets in 2011 stood at RUB 6,789.6 billion, compared to RUB 4,290.9 billion at the end of 2010. Asset growth in the reporting period was driven by the organic growth and the consolidation of the Bank of Moscow.
The Group’s gross loan portfolio (loans and advances to customers before allowance) increased by 50.0% to RUB 4,590.1 billion in 2011.
VTB’s corporate loan portfolio increased by 49.6% to RUB 3,776.0 billion due to the organic growth of lending in this segment, caused by a higher demand for loans in the second half of the year.
In 2011, the growth in retail lending was slightly higher than in corporate lending. As at the year-end, the retail loan portfolio had increased by 52.2% and had reached RUB 824.1 billon. The key growth drivers of the retail loan portfolio were mortgages and consumer loans, which increased by 42.3% and 62.5% respectively over the year.
The Group’s securities portfolio more than doubled in value in 2011 to RUB 970.2 billion, primarily as a result of: a RUB 226.9 billion increase in financial assets at fair value through profit or loss; a RUB 181.7 billion increase in financial assets pledged under repurchase agreements and loaned financial assets; and a RUB 111.8 billion increase in financial assets available-for-sale.
In the reporting year, the Group increased its investments in debt and equity securities by 44.0% and 142.0% respectively.
49 VTB 2011 ANNUAL REPORT
Liabilities
in RUB billion 31.12.2010 31.12.2011 Change Due to other banks 397.3 699.7 76.1% Customer deposits 2,212.9 3,596.7 62.5% Liabilities of disposal group held for sale - 8.5 - Other borrowed funds 185.7 734.6 295.6% Debt securities issued 593.1 664.5 12.0% Deferred tax liability 7.3 10.0 37.0% Other liabilities 110.9 209.4 88.8% Total liabilities before subordinated debt 3,507.2 5,923.4 68.9% Subordinated debt 205.5 241.1 17.3% Total liabilities 3,712.7 6,164.5 66.0% Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011
The Group’s total liabilities in 2011 increased by 66.0% to RUB 6,164.5 billion, mainly as a result of the increase in funding from customer deposits and the consolidation of the Bank of Moscow. As at the year‐end, VTB’s deposit portfolio had increased by RUB 1,383.8 billion and amounted to RUB 3,596.7 billion. At the same time, the volume of funds on customers’ current deposit and settlement accounts, which are among the cheapest sources of funding for the Bank, increased by 42.9% to RUB 903.5 billion, due to the Bank’s strategy of developing its transaction banking business. Customer funds remained the major contributor to the Group’s resource base. In 2011, the proportion of customer deposits within the Bank’s liabilities was down by 1.2 p.p. to 58.3%.
The reduction in the proportion of customer deposits within the Group’s resource base was driven by the Group’s extensive activity in the debt capital markets and interbank lending, as well as by greater liabilities to the Bank of Russia. The amount due to other banks increased by 76.1% to RUB 699.7 billion during the reporting period. The Bank’s liabilities to central banks in countries where the Group is present, including the Bank of Russia, grew from RUB 1.4 billion at the beginning of 2011 to RUB 365.9 billion.
Total capital and capital adequacy
In the course of 2011, the Group considerably enhanced capital utilisation efficiency through acquisitions and organic growth of operations. In 2011, the Group’s capital adequacy ratio29 stood at 13.0%, compared to 16.8% in 2010. VTB’s Tier 1 capital adequacy ratio was 9.0% at the year‐end. All of the Group’s capital adequacy indicators exceed the standards set by the Basel Committee on Banking Supervision.
in RUB billion 31.12.2010 31.12.2011 Change Tier 1 capital 546.9 509.0 (6.9%) Tier 2 capital 214.8 245.4 14.2% Less: deductions from total capital (21.7) (21.0) (3.2%) Total capital 740.0 733.4 (0.9%) Risk weighted assets 4,413.2 5,655.9 28.2% Tier 1 capital ratio 12.4% 9.0% (340 b.p). Capital adequacy ratio 16.8% 13.0% (380 b.p) Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011
29 The ratio is calculated in accordance with the Bank for International Settlements’ methods.
50 VTB 2011 ANNUAL REPORT
Analysis by segment30
Corporate and investment banking
in RUB billion 2010 2011 Change Net interest income before provisions 120.5 152.2 26.3% Net fee and commission income 14.2 23.0 62.0% Net gains / (losses) arising from financial 14.2 (26.7) - instruments Operating income before provisions 155.0 184.5 19.0% Provision charge for impairment (37.8) (20.7) -45.2% Profit before taxation 58.7 84.4 43.8% Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011
Profit before taxation for the corporate and investment banking business totalled RUB 84.4 billion, a 43.8% increase compared to 2010.
The operating income before provisions of this business increased by 19.0% and amounted to RUB 184.5 billion, while a greater contribution came from a 26.3% year-on-year increase in net interest income, which reached RUB 152.2 billion in the reporting period.
The loans and deposits segment made the major contribution to VTB’s corporate and investment banking business. In 2011, the loans and deposits segment’s profit before taxation increased by 374,1% to RUB 64.0 billion compared to RUB 13.5 billion in the previous year.
The Group’s focused approach to the development of settlement and other commission-based products provided a 62.0% increase in the net fee and commission income of this business, which amounted to RUB 23.0 billion.
The investment banking segment reported a profit before taxation of RUB 1.0 billion in 2011. The Group generated positive results in this segment, despite challenging conditions in the global financial markets during the reporting year.
Retail banking
in RUB billion 2010 2011 Change Net interest income before provisions 54.2 79.2 46.1% Net fee and commission income 11.3 18.3 61.9% Gains less losses / (losses net of gains) / arising 0.3 (0.2) - from financial instruments Operating income before provisions 68.4 102.0 49.1% Provision charge for impairment (14.9) (11.5) -22.8% Profit before taxation 21.2 38.8 83.0% Source: VTB Group’s IFRS consolidated financial statements for 2010 and 2011
In 2011, the retail banking business reported a record financial performance. Profit before taxation amounted to RUB 38.8 billion, an 83.0% increase compared to 2010.
This segment’s operating income before provisions totalled RUB 102.0 billion in 2011, compared to RUB 68.4 billion in 2010.
30 This analysis covers VTB Group’s key business areas – corporate and investment banking and retail banking.
51 VTB 2011 ANNUAL REPORT
The Group’s retail banking business continued to develop actively, on the back of a sustained growth in profitability. In 2011, net interest income for this segment increased by 46.1% to RUB 79.2 billion, while net fee and commission income grew by 61.9% compared to 2010, reaching RUB 18.3 billion.
4.5. RISK MANAGEMENT
Risk management policy, organisation and structure
VTB Group‐level risk management
The principal risks facing VTB Group’s business are credit risk, liquidity risk, market risk (including securities portfolio risk, interest rate risk and currency risk), and operational risk. Risk management at the Group level includes risk evaluation and monitoring, control over the size and distribution of risks, and the identification of efficient methods to optimise and minimise risks (including maintaining the optimal balance between the risks and benefits of operations).
The main risk management principles that have been adopted by VTB Group are:
. The analysis and management of the Group’s financial risks on a consolidated basis, covering all VTB Bank’s Russian and international subsidiary banks and key financial companies;
. The delineation of Group members’ levels of competency, and the clear allocation of responsibilities between collective bodies and individual officers/managers in the decision‐making process;
. The independence of risk assessment and control functions from operational banking functions;
. The application of state‐of‐the‐art risk assessment methods;
. A rigorous reporting system at each level of management.
In the light of VTB Group’s expansion, the process of integrating and unifying the risk management systems within the Group continued during 2011. To support and co-ordinate this process and facilitate a timely exchange and analysis of information, as well as to improve risk management procedures, a number of collective bodies functioned under VTB Group’s Management Committee, in particular:
. The Risk Management Commission;
. The Assets and Liabilities Committee;
. The Credit Committee;
. The Risk Escalation Committee (headed by the President and Chairman of the Management Board of VTB Bank), which was formed and began operating in 2011.
VTB’s risk management system has been developed and implemented in accordance with the Development Strategy of VTB Group for 2010‐2013. The Group’s risk management policy in 2011 was based on approaches and procedures designed to restrict the growth of "risk appetite" in a reasonable way, taking into account the likely impact of negative risk factors, particularly those
52 VTB 2011 ANNUAL REPORT
arising from the difficult environment of global economic and financial recovery in the post-crisis period.
VTB Bank‐level risk management
VTB Bank’s risk management policy is aimed at creating an integrated risk management system that is adequate for the nature and scale of the Bank’s activities and risk profile, but which also falls into line with the need for further development at the Bank. The development and improvement of risk management in the Bank is carried out in accordance with banking best practices, the regulations and recommendations of the Bank of Russia, recognised international standards and the recommendations of the Basel Committee on Banking Supervision.
In terms of organisation, the risk management system of VTB Bank comprises various collective bodies (the Management Board, the Credit Committee, the Small Credit Committee, the Moscow Branch Credit Committee, Credit Committees at the branches, and the Assets and Liabilities Committee) and the Bank’s structural units.
VTB Bank Risk Department
The division that is responsible for the development of the risk management system and the control of credit, market and operational risks within VTB Group and VTB Bank is the VTB Bank Risk Department.
As at the end of 2011, it comprised the following structural units:
a) Operating units for risks and/or credit procedure functions:
. Credit Risk Division; . Market and Operational Risk Division; . Credit Applications Examining Service;
b) The Consolidated Risk Analysis Division (CRAD), which is responsible for VTB’s Group‐wide risk management.
In 2011 a decision was taken to move the CRAD out of the Risk Department and turn it into a separate structural unit, as well as to create an additional Risk Strategy and Methodology Department. This reorganisation is part of a set of measures that began in 2011 and will continue in 2012, which are intended to take VTB Group’s risk management to a new qualitative level based on international best practices. During the reporting year, the Risk Department at VTB Bank ensured that previously instigated risk management procedures within the Group operated effectively, and that appropriate steps were taken to develop them. These included:
. A unified system within the Group for industry and country risk control;
. Regular updating of the Group’s databases of interconnected counterparties and non‐performing debtors;
. A standardised reporting system within VTB Group companies and consolidated risk reporting, including automation of these processes;
. Procedures for calculating the Group’s Capital-at-Risk, and for allocating it according to subsidiaries, types of risks, etc.
53 VTB 2011 ANNUAL REPORT
In 2011, VTB paid special attention to measures for controlling the concentration of risks taken on by the Group, including:
. Centralised control over major transactions entered into by VTB’s subsidiaries;
. The setting of consolidated limits related to borrowers and groups of borrowers that are clients of several companies within VTB Group, as well as appointing global client managers to manage mutual clients, which will further enhance the efficiency of this process.
Credit risk
Credit risk is the risk of financial loss should a counterparty fail to meet its contractual obligations. VTB Group and VTB Bank are primarily exposed to credit risk through their loan portfolios, securities portfolios, guarantees, commitments and derivatives portfolios.
VTB Group‐level credit risk management
The key approaches and procedures are defined by the Basic Principles and Provisions of VTB Group's Credit Policy for 2011-2012, approved by the Group's Management Committee.
The management of credit risk within the Group is based on a combination of the following approaches:
. Local credit risk management at Group company level;
. Consolidated credit risk management at the VTB Group level.
Within the framework of the local credit risk management system, the Group’s companies assume and manage credit risks independently (including insurance and hedging risks), within the scope of their authority and limits with regard to risk indicators, and in accordance with national regulations and the standards of VTB Group. The Group’s companies are responsible for the results of their lending activity, for the quality of their loan portfolios, and for the monitoring and control of credit risks associated with their portfolios.
Consolidated credit risk management includes the following functions:
. Consideration and approval of Group‐wide standards for lending procedures and credit risk management;
. Centralised regulation and control of strategic and other important matters related to lending procedures and credit risk management, both within subsidiaries and in the Group as a whole.
Consolidated risk management covers the most essential assets, items and off‐balance sheet operations of Group companies, which bear credit risk and require control over their concentration within the VTB Group as a whole. Within the context of consolidated control and reporting, the scope and range of such operations is defined by the coordinating bodies of the Group.
The key elements of consolidated credit risk management within the Group are as follows:
. Development of a unified lending policy for the VTB Group, and ensuring that the lending policies of subsidiaries are harmonised and streamlined with the Group’s lending policy;
54 VTB 2011 ANNUAL REPORT
. Development and application of unified principles and methods within the Group for borrower assessment (rating systems for large corporate clients and credit institutions; scoring systems for retail clients), setting the fees for lending transactions, security, monitoring, provisioning, etc.;
. Control over the Group’s combined credit portfolio and the level of risk taken by the Group with regard to counterparties and/or groups of related counterparties, as well as countries and industry sectors, through the establishment of consolidated limits and other types of limits (restrictions) within the Group;
. Assessment of the "economic capital" (Capital‐at‐Risk) necessary to cover the Group’s credit risks;
. Preparation of consolidated reports on the Group’s credit risks and their submission to the management bodies for review.
VTB subsidiary banks that operate in the retail lending sector are guided by the corporate plan and the Basic Rules for Managing Retail Credit Risks within VTB Group, which were approved by the Group's Management Committee and which establish the standards for managing retail risks at the level of each subsidiary bank and at Group level.
VTB Bank‐level credit risk management
VTB Bank manages credit risk by:
- Setting limits on the basis of the Bank’s existing system of consolidated limits in relation to decisions regarding the concentration of credit risk for individual borrowers; Regular reviews of credit limits by the VTB Risk Management Department, which are approved by the Credit Committee and comply with the regulations, set by the Bank of Russia;
- Coverage of credit risk by taking collateral and insurance, charging adequate fees for the risk, and establishing reserves to compensate for potential losses on loans;
- Assessment of the credit risk assumed by the Bank for individual borrowers, as well as within the framework of regular monitoring of the credit portfolio, individual customers, transactions and collaterals (including the ranking of borrowers);
- Prevention at the loan application review stage, and by taking prompt measures as soon as credit risk factors have been identified during the course of monitoring.
The Group continued to undertake measures to improve the credit risk management system in 2011:
. New lending procedures were approved;
. The methodology used to rank the Bank’s customers was significantly revised on the basis of statistics on customer defaults and financial status;
. Basic approaches to stress-testing the Bank’s credit portfolio were developed;
. The pricing system was further refined in terms of calculating the value of credit risks;
. Improvements were made to the centralised system for identifying and monitoring credit risk factors in respect of credit transactions and borrowers.
55 VTB 2011 ANNUAL REPORT
An analysis of the credit quality of loans and advances to customers and financial assets classified as loans and advances to customers pledged under repurchase agreements (gross) is presented in the table below, on both an individual and collective basis.
The credit quality of loans and advances to customers and financial assets classified as loans and advances to customers pledged under repurchase agreements is presented according to five categories:
. Pass – provision rate from 0% to 2%; . Watch – provision rate from 2% to 5%; . Substandard – provision rate from 5% to 20%; . Doubtful – provision rate from 20% to 50%; . Loss – provision rate from 50% to 100%.
The provision rate represents the weighted ratio of allowance for impairment to the gross loan portfolio (before provisions) under each pool of loans with similar credit risk, or an individually impaired loan.
Credit quality by class of loans and advances to customers and financial assets classified as loans and advances to customers pledged under repurchase agreements as at 31 December 2011 (in RUB, billion) Not impaired Impaired Pass Watch Sub- Doubtful Loss Total standard Loans to legal entities 2,617.8 541.4 362.7 30.7 213.4 3,766.0 Financial assets classified as loans and advances to customers pledged 188.3 - - - - 188.3 under repurchase agreements Loans to individuals 746.2 4.2 14.1 18.0 41.6 824.1 Total loans and advances to customers and financial assets classified as loans and advances to 3,552.3 545.6 376.8 48.7 255.0 4,778.4 customers pledged under repurchase agreements Source: VTB Group’s IFRS consolidated financial statements
VTB Group loan portfolio quality under IFRS as at 31 December 2011
Total gross loans and advances to customers (in RUB, billion) 4,590.1 NPL ratio31 (%) 5.4 Allowance for loan impairment (in RUB, billion) 288.5 Allowance for loan impairment / Total gross loans (%) 6.3 Allowance for loan impairment / NPLs (%) 111.3
Liquidity risk
Liquidity risk is the risk of a mismatch between the maturity dates of assets and liabilities, which may result in the inability to liquidate a position in a timely manner at a reasonable price to meet funding obligations (including the non‐utilisation of funds at an above‐average market rate).
31 NPL ratio is calculated to total gross loans including financial assets classified as loans and advances to customers pledged under repurchase agreements.
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VTB Group‐level liquidity risk management
VTB’s liquidity management policy was applied in 2011 not only within VTB Bank, but across the Group as a whole, based on internal regulations approved by the Group's Management Committee. Liquidity management within the Group is carried out at three basic levels:
. Each bank/company of the Group manages its own liquidity on an separate basis in order to meet its obligations and to comply with the requirements of the national regulator and the recommendations of VTB Bank;
. VTB manages Group liquidity on the basis of centralised control and management of the key measures taken by the Group;
. The Group’s medium‐term and long‐term financing programme is developed and implemented under the supervision of VTB Bank.
VTB Bank‐level liquidity risk management
The Bank separates current and forecasted liquidity risk management.
Management of current liquidity is one of the essential tasks handled by the Bank as part of its operational management of assets and liabilities, and entails short‐term forecasting and control of fund flows in terms of currencies and timings. In this way, the Bank ensures that it meets its obligations, completes settlements on behalf of customers and funds active operations.
Current liquidity management is carried out by the Treasury Finance Department based on real‐time (intraday) determination of the Bank’s current payment position and forecasted future payment position, taking into account the payments schedule and other scenarios.
The main task in forecasted liquidity management is to develop and implement a number of instruments for managing assets and liabilities, aimed at supporting the Bank's instant funding capability, and to plan increases in its asset portfolio by optimising the ratio of liquid assets and profitability.
The Bank achieves this by making long‐term liquidity forecasts and by adhering to internal liquidity standards (standards for liquid and highly-liquid assets and a standard for the Treasury securities portfolio), as formulated by the Assets and Liabilities Management Committee. The liquidity accounting standards of the Bank of Russia are also applied when carrying out forecasted liquidity management.
Long‐term liquidity forecasts and risk analysis across VTB Group and within VTB Bank are prepared by the Market Risk Division, which presents the results in a consolidated report to the Bank’s Assets and Liabilities Committee, the VTB Management Committee and the Assets and Liabilities Commission operating under the Management Committee.
Each forecast includes receivables and payments according to the contractual terms for operations, while also taking into account the following:
− planned transactions; − possible extensions in terms of clients’ funds (deposits and promissory notes); − possible outflows of unstable “on‐demand” capital (clients’ current accounts).
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In addition, the Risk Division conducts stress‐testing that allows for risk factors liable to influence the Bank’s forecast liquidity and takes into consideration its ability to mobilise liquid assets in order to alleviate a lack of liquidity.
The table below illustrates VTB Group cash flows as at 31 December 2011, categorised according to time periods to contractual maturity / payment on assets and liabilities.
Liquidity risk and contractual maturity analysis as at 31 December 2011 (in RUB, billion)
Dynamic Gap Gap FX Swap (total) Time Band Inflow Outflow Gap Cumulative Cumulative Cumulative
RUR positions Opening balance – – 285.9 285.9 – 285.9 Up to 1 month 358.8 (879.9) (521.1) (235.2) 105.5 (129.7) From 1 to 3 months 228.3 (717.5) (489.2) (724.4) 98.5 (625.9) From 3 months to 1 year 1,009.4 (678.0) 331.4 (393.0) 101.4 (291.6) From 1 to 3 years 1,396.8 (486.9) 909.9 516.9 40.5 557.4 More than 3 years 1,852.6 (891.0) 961.6 1,478.5 10.1 1,488.6
Other currency positions Opening balance – – 150.8 150.8 – 150.8 Up to 1 month 609.8 (745.4) (135.6) 15.2 (108.1) (92.9) From 1 to 3 months 213.8 (227.7) (13.9) 1.3 (101.3) (100.0) From 3 months to 1 year 888.7 (951.2) (62.5) (61.2) (106.7) (167.9) From 1 to 3 years 1,278.0 (1,178.1) 99.9 38.7 (46.6) (7.9) More than 3 years 811.5 (639.1) 172.4 211.1 (8.8) 202.3
Total Opening balance – – 436.7 436.7 – 436.7 Up to 1 month 968.6 (1,625.3) (656.7) (220.0) (2.6) (222.6) From 1 to 3 months 442.1 (945.2) (503.1) (723.1) (2.8) (725.9) From 3 months to 1 year 1,898.1 (1,629.2) 268.9 (454.2) (5.3) (459.5) From 1 to 3 years 2,674.8 (1,665.0) 1,009.8 555.6 (6.1) 549.5 More than 3 years 2,664.1 (1,530.1) 1,134.0 1,689.6 1.3 1,690.9
Source: VTB Group’s IFRS consolidated financial statements
Liquidity gaps are closed by new borrowing and the renewal of existing deposits. The Group’s medium‐term liquidity is managed by attracting customer deposits and interbank loans and the Bank of Russia’s secured loans, as well as repo transactions.
VTB also has a number of additional opportunities to raise finance to cover medium‐term negative liquidity gaps, such as Eurobonds and bonds traded on stock exchanges in Russia. The currency structure of liquidity is managed by conducting ‘conversion swap’ transactions.
A significant portion of VTB Group’s liabilities is represented by customer deposits, promissory notes, bonds, the current accounts of corporate and retail customers, Federal Treasury deposits, Eurobonds and syndicated loans.
Despite the fact that a considerable portion of customer liabilities are short-term deposits and “on‐demand” accounts, diversification of these liabilities and VTB’s past experience indicate that these liabilities are consistently refinanced by customers, and for the most part they are a stable source of funding. The stable element of short-term customer liabilities is determined for various currencies on the basis of a statistical trend analysis of the cumulative balances of these accounts over time.
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Money market instruments (interbank loans and deposits, repurchase agreements) are used to control short‐term liquidity, and are not considered as a source of funding for long‐term assets.
Market risk
Market risk is the risk of downward pressure on the Group's financial results in response to the revaluation of balance‐sheet assets and liabilities, off balance‐sheet demands and liabilities and derivative financial instruments, due to unfavourable changes in market parameters, such as interest rates (interest rate risk), exchange rates (currency risk) and the prices of securities (price risk).
Interest rate risk
Interest rate risk management is conducted on the basis of internal regulations adopted by the Group’s Management Committee and includes:
. Setting standard interest rates for deposits and internal rates for funding, which take the current state of the market into consideration;
. Calculating interest rate risk indicators (VaR, EaR);
. Setting capital limits for covering interest rate risk for VTB Group and individual banks.
The basic parameters used to assess interest rate risk are:
. The sensitivity of the Group's interest position to a change in interest rates, determined in relation (i) to the reduction in the net present value of the interest position and (ii) to net interest income under an unfavourable parallel movement of the yield curves by 100 basis points;
. The economic capital for covering interest rate risk, evaluated using the IRRC indicator (Interest Rate Risk Charge), and assessment of a reduction in the net present value of the Bank's position under a potentially unfavourable parallel movement of the yield curves by an amount determined using the Value‐at‐Risk indicator.
The table below shows the sensitivity of the Group’s annual net interest income to a parallel shift of the yield curves by currencies as at 31 December 2011.
VTB Group interest rate sensitivity as at 31 December 2011
Effect on net Effect on net Interest rate Interest rate interest income interest income increase, b.p. decrease, b.p. (in RUB, billion) (in RUB, billion) RUB 249 (19.6) (249) 19.6 USD 15 (0.1) (15) 0.1 EUR 15 0.2 (15) (0.2) GBP 17 0.0 (17) (0.0) Other 15 (0.1) (15) 0.1
Total (19.6) 19.6 Source: VTB Group’s IFRS consolidated financial statements
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Currency risk
The Group manages its currency risk on the basis of internal regulations adopted by the Group's Management Committee, by matching the currency of its assets with that of its liabilities and by maintaining an open currency position (OCP) in each of the Group's banks within established limits, including internal OCP and VaR limits and regulatory OCP limits set by the Bank of Russia.
A quantitative risk assessment is carried out using the VaR (Value‐at‐Risk) method, which estimates the largest potential negative effect (within a specified confidence interval) of changes in the value of foreign exchange positions on the financial result. The VaR assessment is based on an historical modelling approach over a period of two years with a ten trading day time horizon and a confidence interval of 99%.
VTB Group currency risk indicators as at 31 December 2011 (in RUB, billion)
OCP 11.1 VaR 1.0 Source: VTB Group’s IFRS consolidated financial statements for 2011
Price risk
The general principles for managing price risk at VTB are as follows:
. Restricting the size of price risk that is taken on by setting limits across instruments, portfolios and types of transactions;
. Controlling adherence to established limits and restrictions for taking on price risk (for example, a minimum discount size on "reverse repo" operations and margin call conditions);
. Organisation of ongoing monitoring, analysis and reporting of price risk.
A quantitative risk assessment is carried out using the VaR method and the above parameters for currency risk. Original historical data was used for instruments with a quote history of at least 100 trading days in the previous year, no more than ten successive trading days without quotes, and an issue date no later than the beginning of the reporting year. The vast majority of such instruments in the Group’s portfolio had a history of 250 trading days in the reporting year. For instruments not satisfying these criteria (but nevertheless circulating in the market and carrying market risk), the price history used was that of equivalent (proxy) instruments, expertly selected using the following criteria:
. the proxy instrument is the same type of financial instrument as the original instrument (bonds/Eurobonds); . the issuer of the proxy instrument is in the same sector and the same country as the original instrument, and the issuers have comparable credit ratings; . the proxy instrument and original instrument are denominated in the same currency; . the proxy instrument and original instrument have comparable durations.
Proxy instruments are used for the VaR calculation in respect of approximately a quarter of the securities in the portfolio. In 2010, the Group implemented a VaR assessment method adjusted for diversification. As at 31 December 2011, this indicator stood at RUB 19.0 billion.
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Operational risk
Operational risk is the risk of loss resulting from human factors, possible flaws in internal processes or inconsistency between them and legislative requirements, breakdowns in IT and other technological systems, or damaging external events (natural disasters).
VTB Bank’s operational risk management system is designed to prevent potential losses and to reduce the possibility of business process failures and the inability to provide high‐quality services to the Bank’s clients caused by staff errors, system breakdowns, internal or external fraud or violations of the law.
In managing operational risk, the Bank follows the principles contained in the Bank of Russia regulations as well as the recommendations of the Basel Committee on Banking Supervision (including Basel II). To implement its strategy, VTB carries out regular procedures to identify, assess, control and limit operational risk. All significant deficiencies from a risk perspective, identified within the internal control system, are subjected to rigorous analysis. Based on the analysis, measures are developed and implemented to eliminate the causes and sources of the risk.
To monitor and assess the consolidated operational risk, the Bank and its subsidiary financial companies have implemented unified mechanisms to collect information on incidents of operational risk and related operating losses, as well as key risk and control indicators.
The procedure used by the Group’s subsidiaries to submit regular operational risk indicator updates to VTB Bank’s centralized risk management service is supported by the Report on Operational Risk module on the Group’s Corporate Information System (CIS). This module provides multi‐level control over the quality of downloaded data and the possibility to create intra‐group analytical reports with an optional level of consolidation.
The key methods for limiting operational risk are:
• Maintaining a complex system of current and follow-up internal control that is common to all business units and operations throughout the Bank;
• The regulation of all key operations by internal standards and codes of practice;
• The registration and documentation of banking operations and transactions and consistent control over primary documents and operating accounts;
• The application of the principles of dividing and limiting the functions, authorities and responsibilities of employees; implementation of dual controls; collective decision‐making and the setting of limits on the terms and scale of operations;
• The automation of banking operations based on the use of high‐performance IT systems that are constantly monitored, and repaired promptly in case of breakdown;
• Good systems of physical and information security and control over access to the Bank’s facilities;
• A well-managed HR policy, good staff training and education.
These risk limitation strategies are augmented by insurance programmes that cover the various types and scopes of operations. In 2011, the Group’s total operational risk insurance amounted to approximately RUB 137 billion, including RUB 11 billion coverage of the Bank’s risks. These insurance
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programmes have traditionally included insurance against criminal acts under the Financial Institution’s Blanket Bond scheme (including electronic and computer crime), insurance of valuables during transit and while in storage, liability insurance, and the insurance of the “card business”, including cash machines and cover against bank card fraud.
Programme for implementing Basel II standards
In 2011, VTB Group banks continued working on comprehensive diagnostics regarding their degree of readiness for the implementation of Basel II standards and a general analysis of the potential impact on the banks’ activities32. Key aspects of this work have been coordinated at the level of VTB Bank (primarily by the Risk Management Department of VTB).
At the same time, VTB Bank and VTB 24 participated in a working group for the implementation of the Basel II IRB approach, organised by the Bank of Russia jointly with the European Union’s leading experts on banking regulation.
The Bank has also participated in the work of the Committee on Basel II Standards and Risk Management, organised by the Association of Russian Banks. In particular, a number of topical meetings and contacts with Bank of Russia representatives took place within the framework of this committee, in which the capabilities and limitations of the prospective implementation of Basel II standards were fully assessed.
Once the timeframe for incorporation of the Basel II recommendations into Russian banking legislation becomes clear, VTB Bank intends to formulate a strategy for the transition of its risk management systems to the new standards and the introduction of the necessary procedural documents, with simultaneous preparation of a corresponding budget and close coordination of initiatives by the Bank's subdivisions to carry this project forward.
Key priorities in 2012
In line with the current VTB Group Development Strategy for 2010‐2013, and within the framework of the new Group management model, the risk management system will be improved in 2012 by implementing the following measures:
. Further unification of the risk management methods and approaches applied by VTB Group companies;
. Improvement of the existing risk control procedures at Group level, based on best practices - in particular, creating new committees under the Group Management Committee and refining the functions of existing ones in the sphere of managing the Group's credit and financial risks;
. Improvement and implementation of the Group's "risk appetite" and "economic capital" models;
. Completion of the consolidation of the risk management system within the Group’s investment business into the Group‐wide risk management framework, which is an important element of the active development of this type of business;
. Development of risk‐oriented approaches to business planning within VTB Group.
32 VTB Group’s Western European banks have been operating according to Basel II standards since 1 January 2008.
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5. CORPORATE GOVERNANCE
5.1. OVERVIEW OF THE CORPORATE GOVERNANCE SYSTEM
VTB Bank’s corporate governance system is founded on the principle of unconditional compliance with the requirements imposed by Russian legislation and the Bank of Russia, and the recommendations of the Russian Federal Financial Markets Service. It also takes into account international best practices, including the globally recognised principles of corporate governance developed by the Organisation for Economic Co-operation and Development (OECD). VTB Bank guarantees that all its shareholders are treated equally, and gives them the opportunity to participate in the management of the Bank via the General Shareholders Meeting and to exercise their right to receive dividends and information about the Bank’s operations.
VTB Bank corporate governance structure
elects
External approves General Shareholders Statutory Audit Auditor Meeting Commission reports
elects reports
Strategy and appoints appoints Corporate Governance Audit Supervisory Council Committee Committee prepares prepares recommendations recommendations and reports and reports
prepares reports appoints reports recommendations and reports
reports
Staff and appoints President and Chairman Internal Remuneration Control Committee Management Board Department reports
The General Shareholders Meeting is VTB Bank’s highest governing body. The Bank’s Supervisory Council, elected by the shareholders and accountable to them, provides strategic management and oversight of the work of the executive bodies, namely the President and Chairman of the Management Board and the Management Board. The executive bodies are responsible for the day- to-day management of the Bank and carry out the tasks entrusted to them by the shareholders and the Supervisory Council.
VTB Bank has built an effective system of corporate governance and internal control of its financial and economic affairs as a means of safeguarding the rights and lawful interests of its shareholders. The Supervisory Council oversees the Audit Committee which, in conjunction with the Internal Control Department, supports the management function in ensuring the smooth running of the
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Bank’s operations. The Audit Commission monitors the Bank’s compliance with the relevant laws and regulations and the legality of its business transactions.
VTB annually engages an external auditor, who has no connection to the Bank’s or its shareholders’ proprietary interests, to inspect and verify the Bank’s financial reports.
The Staff and Remuneration Committee reports to the Supervisory Council and drafts recommendations on key appointments and incentives for members of the Supervisory Council and the Bank’s executive and control bodies.
The Strategy and Corporate Governance Committee under the Supervisory Council, was established in order to optimise the decision-making process of the Supervisory Council on issues of strategic development and to improve VTB’s corporate governance.
The Bank operates a policy of timely and full disclosure of reliable information, including details of its financial position, economic performance and ownership structure, thereby giving shareholders and investors the opportunity to make properly informed decisions. Information is disclosed in compliance with the requirements of Russian legislation and the UK financial regulator, the Financial Services Authority (FSA). In 2008, VTB Bank introduced its own Regulation on Information Policy which, inter alia, establishes rules for the protection of confidential and insider information.
5.2. DEVELOPMENT OF THE CORPORATE GOVERNANCE SYSTEM IN 2011
In 2011, the Bank continued to develop its corporate governance system in line with best practices.
The main activities in this area included:
• Introducing the office of Corporate Secretary, which entailed election of the Corporate Secretary by the Bank’s Supervisory Council and approval of the regulations governing the Corporate Secretary, which comply with the relevant recommendations of the Code of Corporate Conduct of the Federal Financial Markets Service of Russia;
• Establishing the Strategy and Corporate Governance Committee under the Supervisory Council, whose role is to provide a thorough preliminary review of strategic and corporate governance issues for consideration by the Supervisory Council;
• The election of representatives of large institutional investors to the Supervisory Council;
• Approval by the Supervisory Council of methods for evaluating the corporate governance system, developed in accordance with international best practices and in compliance with the recommendations of the Bank of Russia;
• The annual evaluation of VTB’s corporate governance system by the Russian Institute of Directors, a leading independent corporate governance expert body. The result of the evaluation was to confirm the score of seven received by the Bank in 2010 on the RID-Expert RA National Corporate Governance Scale, which corresponds to the level of “Developed Corporate Governance Practice”;
• Conducting a number of meetings and seminars with shareholders as part of a nationwide programme aimed at improving financial literacy in Russia’s regions.
In 2011, the Bank also actively participated in discussions with experts and the business community to develop a national model of corporate governance. VTB sponsored and participated in the Tenth
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National Congress of Corporate Directors, which focused on the development of corporate governance systems in companies with state participation, the implementation of innovative development programmes, and the enhancement of the efficiency of boards of directors.
VTB won the prestigious “Bank of the Year 2011” award in November 2011. The award marks the achievements of highly efficient Russian companies that combine stability with rapid development, and are also considered to have a corporate policy that is transparent to foreign investors. The other good news in 2011 was the recognition of the VTB 2010 Annual Report as “The Best Annual Report in the Financial Sector of the Economy” in two independent annual report competitions, one arranged by the RTS and MICEX stock exchanges and the other by the Expert RA Rating Agency. This is not the first time VTB has been successful in such competitions. The Bank’s annual reports consistently earn the highest ratings given by the professional financial community.
5.3. THE GENERAL SHAREHOLDERS MEETING OF JSC VTB BANK
The General Shareholders Meeting is VTB Bank’s highest governing body. In making decisions at shareholders meetings, the Bank’s owners exercise their right to participate in its management. General Shareholders Meetings can be annual or extraordinary. The Annual General Shareholders Meeting must be held once every year. According to the applicable Russian law, the Annual General Shareholders Meeting must be held no earlier than the 1st of March and no later than the 30th of June. The procedure at the Meeting is governed by the Regulation on Procedures for Preparing and Holding the General Shareholders Meeting.
The 2011 Annual General Shareholders Meeting of VTB Bank was held on the 3rd of June in Moscow under the chairmanship of Alexey Ulyukaev, First Deputy Chairman of the Bank of Russia and a member of the VTB Supervisory Council. The Meeting was attended by 733 shareholders and their representatives. For the first time the Annual General Shareholders Meeting was held in accordance with the new Regulation on General Shareholders Meetings, which was adopted in 2010. The shareholders’ debate on issues included in the agenda and the answering of questions submitted by shareholders in writing were moved to the last part of the meeting, after all the speakers had made their presentations. This enabled time to be allocated in a more rational manner, and full answers to be given to shareholders’ questions.
During the Meeting, shareholders took part in discussions and voted on the following matters:
. approval of VTB Bank’s Annual Report for 2010; . approval of the annual accounts for 2010; . distribution of profits and the announcement of dividends for 2010; . approval of remuneration payments to those Supervisory Council members that are not state employees; . approval of the composition of the Supervisory Council and election of its members; . approval of the composition of the Audit Commission and election of its members; . approval of the external auditor; . approval of the new edition of the VTB Bank Charter; . approval of the new edition of the Supervisory Council Regulation; . approval of VTB Bank’s membership of the Russian Union of Industrialists and Entrepreneurs; . approval of interested party transactions.
The results of the Annual General Shareholders Meeting of VTB Bank have been published in Rossiyskaya Gazeta and are available on the VTB website at: http://www.vtb.ru/we/ir/governance/meeting/.
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In addition to the Annual Meeting, shareholders are entitled to hold Extraordinary General Shareholders Meetings. In 2011, no Extraordinary Shareholders Meetings were held.
5.4. THE SUPERVISORY COUNCIL OF JSC VTB BANK
The Supervisory Council is one of the most important elements of VTB Bank’s corporate governance system. Acting on the basis of Russian legislation, the Bank’s Charter and the Supervisory Council Regulation, it provides general oversight of the Bank’s operations and formulates its long-term strategy.
The main functions of the Supervisory Council are defined in the Supervisory Council Regulation, which can be viewed on the Bank’s website at http://www.vtb.ru/we/ir/governance/council/.
The members of the Supervisory Council are elected by the General Shareholders Meeting for the period until the next annual meeting. The right to nominate candidates to the Supervisory Council is open to shareholders holding in aggregate not less than two percent of the Bank’s voting shares. The election of members to the Supervisory Council takes place at the General Shareholders Meeting by means of a cumulative ballot.
The Supervisory Council at the end of 2011 was elected at the Annual General Shareholders Meeting on 3 June 2011. As at 31 December 2011, the Supervisory Council consisted of 11 members, 10 of whom were Non-executive Directors and three of whom were Independent Directors. The combination of Executive and Non-executive Directors, and the inclusion of Independent Directors, is in line with international best practice and ensures that all shareholders’ interests are represented at Board level. The composition of the Supervisory Council is reviewed annually to ensure that it accords with the Bank’s current objectives, and that it is able to meet them effectively.
The appointment of Independent Directors is an important component of VTB Bank’s corporate governance. According to the Bank’s Code of Corporate Conduct, the Supervisory Council should include at least two Independent Directors that have expertise in the financial sector. The independent members of the Supervisory Council must not have any relationship with the Bank that would prevent them from fairly and impartially making decisions with regards to the strategy and current activity of VTB. The Group observes the recommendations of the Federal Financial Markets Service’s Code of Corporate Conduct, as well as other internationally recognised standards, to determine the criteria for independence.
Chairman of the Supervisory Council
The Supervisory Council’s Chairman is elected by the members of the Supervisory Council by a majority vote. The Bank’s Supervisory Council has the right to re-elect its Chairman at any time by a majority vote.
The Chairman of the Supervisory Council is not permitted also to hold the position of President and Chairman of the Management Board. Moreover, the Chairman of the Supervisory Council cannot be a member of VTB Management Board nor have any type of employment relationship with the Bank.
The Chairman of the Supervisory Council organises the Council’s work, convenes and chairs its meetings, and also presides at General Shareholders Meetings of the Bank. In the absence of the Supervisory Council’s Chairman, his or her duties are assumed by one of the Supervisory Council members, as decided by the Supervisory Council.
Alexei L. Kudrin was the Chairman of VTB Bank Supervisory Council from 2002 until June 2011. Mr. Kudrin was Deputy Prime Minister and Finance Minister of the Russian Federation until September 2011.
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In June 2011, VTB Bank Supervisory Council elected Sergey K. Dubinin as its Chairman.
Composition of the Supervisory Council
On 3 June 2011, the Annual General Shareholders Meeting elected Sergey K. Dubinin, David Bonderman and Ivan V. Oskolkov as new members to the Supervisory Council.
Alexei L. Kudrin, Arkady V. Dvorkovich and Anna V. Popova left the Supervisory Council in June 2011 after the election of the new Supervisory Council by the Annual General Shareholders Meeting.
Alexei L. Kudrin Chairman and member of the Supervisory Council of VTB Bank until 3 June 2011
2007 to September 2011 – Deputy Prime Minister of the Russian Federation and Finance Minister of the Russian Federation. Member of the Supervisory Council of JSC Sberbank, Board Chairman of the State Corporation Deposit Insurance Agency, Chairman of the Supervisory Board of JSC ALROSA, member of the Supervisory Council of the State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank).
Previous positions: 2004-2007 – Finance Minister of the Russian Federation; 2000-2004 – Deputy Prime Minister of the Russian Federation – Finance Minister of the Russian Federation; 1997-2000 – First Deputy Finance Minister of the Russian Federation; 1996-1997 – Deputy Director of the Office of the President of the Russian Federation, Head of the Presidential Control Directorate of the Russian Federation.
Acting State Advisor of the Russian Federation, Class 1.
Born in 1960. In 1983, graduated from the Leningrad State University (now St. Petersburg State University). PhD in Economics, Professor.
Holds no shares in the Bank.
Sergey K. Dubinin Chairman of the Supervisory Council of VTB Bank since 16 June 2011 Member of the Supervisory Council of VTB Bank since 3 June 2011
October 2008 to date – Member of the Board of Directors of CJSC VTB Capital. Member of the Board of Directors of OTKRITIE Financial Corporation JSC, VTB Capital plc, VTB Capital IB Holding Ltd., CJSC VTB Capital Holding and VTB Capital ITBF Innovation Partners Ltd.; member of the Supervisory Board of JSC ALROSA, member of the Committee for Investment Strategy under the Supervisory Council of the Russian Corporation of Nanotechnologies; member of the Advisory Council on Monetary Policy, Banking Regulation and Supervision under the Chairman of the Bank of Russia.
Previous positions: 2005-2008 – Member of the Board of Directors, Chief Financial Officer of RAO UES; 2004-2005 – Member of the RAO UES Board of Directors; 2001-2004 – Deputy Chairman of the RAO UES Board of Directors; 1998-2001 – Deputy Chairman of OJSC Gazprom Management Board; 1995-1998 – Chairman of the Bank of Russia; 1995-1995 – Member of OJSC Gazprom Management Board; 1994-1995 – First Deputy Chairman of the Management Board of Imperial Commercial Bank;
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1994-1994 – Acting Minister of Finance of the Russian Federation; 1993-1994 – First Deputy Minister of Finance of the Russian Federation; 1992-1993 – Deputy Chairman of the Russian State Committee for Economic Cooperation with the CIS countries; 1991-1992 – Economics Expert in the Executive Office of the USSR President; 1981-1991 – Associate Professor of Foreign Economies and Foreign Economic Relations of the Department of Economics, Lomonosov Moscow State University; 1977-1981 – Assistant Professor of Foreign Economies and Foreign Economic Relations of the Economics, Lomonosov Moscow State University. 1976-1977 – Teaching Assistant of Foreign Economies and Foreign Economic Relations of the Department of Economics, Lomonosov Moscow State University. 1975-1976 – Junior Research Associate at Lomonosov Moscow State University. 1974-1975 – Secretary of the Komsomol Committee in the Department of Economics, Lomonosov Moscow State University.
Born in 1950 in Moscow. Graduated in 1973 from Lomonosov Moscow State University, and in 1976 as an extramural postgraduate of Moscow State University. Ph.D and Higher Doctorate in Economics.
Holds no shares in the Bank.
David Bonderman Independent member of the Supervisory Council of VTB Bank since 3 June 2011
Founding Partner and President of Texas Pacific Group Investment Fund (TPG); Member of the Boards of Armstrong Worldwide Industries Inc., CoStar Group Inc., General Motors Company; Chairman of the Board of Directors of Ryanair Holdings plc; Member of Board of Directors of the following non-profit organizations: The Wilderness Society, The Grand Canyon Trust, The University of Washington Foundation, and The American Himalayan Foundation.
Previous positions: 1992 to date - Founder of Texas Pacific Group Investment Fund; 1983-1992 – Chief Operating Officer of the Robert M. Bass Group, Inc. (now Keystone Group, L.P.); Prior to 1983 – Partner in the law firm of Arnold & Porter in Washington, D.C., where he specialised in corporate, securities, bankruptcy and antitrust litigation; 1969-1970 – Fellow in Foreign and Comparative Law, studied Islamic Law at the American University in Cairo in conjunction with Harvard University; 1968-1969 – Special Assistant to the U.S. Attorney General in the Civil Rights Division; 1967-1968 – Assistant Professor at Tulane University School of Law in New Orleans;
Born in 1942 in Los Angeles, California (USA). Graduated in 1963 from the University of Washington and from Harvard Law School in 1966.
Holds no shares in the Bank.
Matthias Warnig Independent member of the Supervisory Council of VTB Bank
2006 to date – Managing Director of Nord-Stream AG (Switzerland). Chairman of the Board of Directors of JSC Transneft; Board member of JSC Bank Rossiya and JSC Rosneft Oil Company; President of the Board of GAZPROM Schweiz AG; member of the international consultative committee of Crédit Agricole S.A., member of the Supervisory Board of Verbundnetz Gas AG.
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Previous positions: 2005-2006 – Chairman of the Board of Directors of CJSC Dresdner Bank; 2004-2005 – Chairman of the Management Committee of Dresdner Kleinwort for Russia and the CIS; 2002-2005 – President of CJSC Dresdner Bank; 2000-2002 – Chief Coordinator of Dresdner Bank Group in Russia; 1999-2000 – Managing Director of the BNP-Dresdner Bank branch in St. Petersburg, later renamed Dresdner Bank; 1997-1999 – Deputy Manager of the Moscow branch of BNP-Dresdner Bank; From 1990 – Management Board Advisor, Head of the Trade Finance Division of Dresdner Bank; 1981-1990 – Officer at Cabinet of Ministers of the German Democratic Republic and Ministry of Foreign Trade, the German Main Intelligence Directorate. Retired in 1989 in the rank of Major.
Born in 1955. Graduated in 1981 from the Higher School of Economics (Berlin), majoring in Economics.
Holds no shares in the Bank.
Grigory Y. Glazkov Independent member of the Supervisory Council of VTB Bank
2004 to date – Independent consultant.
Previous positions: 2002-2004 – Director of the Viewpoint Psychological Consulting Centre, Consultant Psychologist; 1997-2002 – Head of the International Financial Institutions Department of the Ministry of Finance of the Russian Federation; 1995-1997 – Regional Representative of the European Bank for Reconstruction and Development (EBRD) in St. Petersburg & Advisor to the EBRD Russian Department in London; 1992-1995 – Advisor to the Russian Director at the International Monetary Fund, Washington D.C.
Acting State Advisor of the Russian Federation, Class 3.
Born in 1953. Graduated in 1979 from Leningrad State University (now St. Petersburg State University), and in 2006 from the Higher School of Psychology. Mr. Glazkov is an economist and psychologist.
Holds no shares in the Bank.
Arkady V. Dvorkovich Member of the Supervisory Council of VTB Bank until 3 June 2011
May 2008 to date – Aide to the President of the Russian Federation. Since June 2004, a member of the National Banking Council (representative of the President of the Russian Federation); Chairman of the Supervisory Council of the Agency for Housing Mortgage Lending; member of the Supervisory Council of JSC Sberbank; Board member of the State Corporation - Deposit Insurance Agency; member of the Supervisory Council of the State Corporation - Housing and Utilities Reform Foundation; Deputy Chairman of the Board of Trustees of the Federal Fund for the Development of Residential Construction.
Previous positions: 2004-2008 – Head of the Expert Directorate of the Russian President; 2000-2004 – Ministerial Advisor, Deputy Minister for Economic Development and Trade of the Russian Federation;
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1994-2000 – Consultant, Senior Expert, General Director and Scientific Director of the JSC Economic Expert Group.
Acting State Advisor of the Russian Federation, Class 1.
Born in 1972. Graduated in 1994 from Lomonosov Moscow State University, the Russian School of Economics, and in 1997 from Duke University (USA). Economist-mathematician, Master of Economics.
Holds no shares in the Bank.
Andrey L. Kostin Member of the Supervisory Council of VTB Bank
2002 to date – President and Chairman of the Management Board. Chairman of Supervisory Councils of CJSC Bank VTB24 and OJSC VTB Bank (Ukraine); Chairman of the Board of OJSC Bank of Moscow; Deputy Chairman of JSC Rosneft Oil Company; Board member of CJSC VTB Capital, CJSC VTB Capital Holding, VTB Capital IB Holding Ltd., Konstantinovskiy Congress-Centre LLC and the White Nights Foundation of America (USA). Member of the Council of the Association of Russian Banks; President of the Non-commercial Partnership Financial and Banking Council of the CIS and the All-Russian Public Organisation Gymnastics Federation of Russia; member of the Bureau of the Board of Directors of the Russian Union of Industrialists and Entrepreneurs; member of Presidium of Non- profit partnership National Council on Corporate Governance; member of the Interregional Bank Council under the Federation Council of the RF Federal Assembly.
Previous positions: 1996-2002 – Chairman of Vnesheconombank; 1995-1996 – First Deputy Chairman of the Management Board of the National Reserve Bank.
Born in 1956. Graduated with Honours in 1979 from the Economics Department of Lomonosov Moscow State University. PhD in Economics.
Holds shares equivalent to 0.00183% of the authorised capital of the Bank.
Nikolay M. Kropachev Independent member of the Supervisory Council of VTB Bank
2008 to date – Rector of St. Petersburg State University. Head of St. Petersburg and Leningrad region Bar Associations and Presidium member of the Association of Lawyers of Russia.
Previous positions: 2006-2008 – First Vice Principal of St. Petersburg State University; 2000-2005 – President of the Statutory Court of St. Petersburg.
Acting State Advisor of St. Petersburg, Class 1.
Born in 1959. Graduated in 1981 from the Legal Department of Leningrad State University (now St. Petersburg State University). Doctor of Law and Professor.
Holds no shares in the Bank.
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Anna V. Popova Member of the Supervisory Council of VTB Bank until 3 June 2011
October 2010 to date – Deputy Chief of the Government Staff of the Russian Federation.
Board member of the State Corporation - Deposit Insurance Agency and Moscow Interbank Currency Exchange Ltd; member of the Supervisory Councils of the State Corporation - Housing and Utilities Reform Foundation and OJSC VEB Capital; Chairman of the Board of Directors of Industrial Park Odintsovo-1.
Previous positions: 2008-2010 – Secretary of State - Deputy Minister of Economic Development of the Russian Federation; 2007-2008 – Secretary of State - Deputy Minister of Economic Development and Trade of the Russian Federation; 2004 – Head of the Corporate Governance Department of the Ministry of Economic Development and Trade of the Russian Federation; 2002-2004 – Advisor to the Office of the Committee on Financial Markets and Monetary Circulation, Office of the Council of Federation of the Federal Assembly of the Russian Federation; 1990-2002 – scientific researcher and teacher at the Leningrad Institute of Finance and Economics named after Voznesensky; the St. Petersburg University of Economics and Finance under the Ministry of Science, Higher Education and Technical Policy; the European University in St. Petersburg and St. Petersburg State University.
Acting State Advisor of the Russian Federation, Class 3.
Born in 1964. Graduated in 1986 from the Leningrad Institute of Finance and Economics named after Voznesenskiy. PhD in Economics.
Holds no shares in the Bank.
Ivan V. Oskolkov Member of the Supervisory Council of VTB Bank since 3 June 2011
2011 to date - Director of Innovation Development and Corporate Governance Department, the Ministry for Economic Development of Russia. Member of the Board of Directors and member of the HR Committee and Strategy Committee at OJSC RVC; member of the HR and Remuneration Committee of the Board of Directors of the Russian Corporation of Nanotechnologies.
Previous positions: 2007 – Director of the Corporate Governance Department, the Ministry for Economic Development of Russia; 2007 – Associate Professor of Finance and Accounting, St. Petersburg State University; 2003-2007 – Assistant Professor of Finance Theory of the Management Department, St. Petersburg State University; 1997-2003 – Teaching Assistant, Assistant Professor of Economic Cybernetics, St. Petersburg State University; 1996-1999 – Postgraduate of the European University at St. Petersburg.
Acting State Advisor of the Russian Federation, Class 3.
Born in 1973. Graduated in 1996 from St. Petersburg State University, majoring in Economics; in 1998, from the European University at St. Petersburg; and in 2001, from the Interdisciplinary
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Institute of Advanced Training for Executive Staff under St. Petersburg State Engineering and Economic University. Ph.D in Economics.
Holds no shares in the Bank.
Alexey L. Savatyugin Member of the Supervisory Council of VTB Bank
January 2010 to date – Deputy Finance Minister of the Russian Federation. Board Chairman of JSC Rosgosstrakh; member of the Supervisory Council of JSC Sberbank; and Board member of the State Corporation - Deposit Insurance Agency.
Previous positions: 2004-2009 – Director of the Department of Financial Policy at the Ministry of Finance of the Russian Federation; 1992-2004 – Assistant and senior lecturer in the Department of Economic Theory and Economic Policy at St. Petersburg State University. Acting State Advisor of the Russian Federation, Class 3.
Born in 1970. Graduated in 1992 from St. Petersburg State University, majoring in Political Economy.
Holds no shares in the Bank.
Pavel M. Teplukhin Independent member of the Supervisory Council
Independent expert since 2010. Board member of GeoProMining Ltd and the Russian Managers Association; Chairman of the Investment Policy Committee under Rusnano’s Supervisory Council.
Previous positions: 1997-2010 – Chairman of the Board of Directors of Troika Dialog Asset Management; 1997-May 2008 – member of the Board of Directors of OJSC Volga TGC (TGC-7); 1994 – head of the Moscow office of the London School of Economics; 1993 – cooperated with the Ministry of Finance and the Ministry of Economy as Economic Adviser in Jeffrey Sachs’ Task Force, and Expert Economist in the Russian-European Centre of Economic Policy; 1991-1993 – Senior Research Associate, Institute for Economic Policy, headed by Yegor Gaidar; 1990-1991 – as Executive Director of the USSR’s first private consulting company, Academia Inc., participated in a number of pioneering privatisation projects in many former USSR republics; 1989-1990 – Senior Research Associate and Research Associate under Professor Yasin in the Soviet Academy of Sciences at the Central Institute of Economics and Mathematics.
Born in 1964. Graduated in 1986 from Lomonosov Moscow State University, majoring in Economics. Graduated from the London School of Economics with a Master of Economics degree and a PhD in Economics.
Holds no shares in the Bank.
Alexey V. Ulyukaev Member of the Supervisory Council of VTB Bank
2004 to date – First Deputy Chairman of the Central Bank of the Russian Federation. Deputy Chairman of the Supervisory Council of JSC Sberbank.
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Previous positions: 2000-2004 – First Deputy Finance Minister of the Russian Federation; 1999-2000 – Deputy Director of the Institute for the Economy in Transition Foundation; 1998-1999 – Deputy Director of the Institute for Problems of the Economy in Transition; 1996-1998 – Member of the Moscow City Duma.
Acting State Advisor of the Russian Federation, Class 1.
Born in 1956. Graduated in 1979 from the Economics Department of Lomonosov Moscow State University. PhD in Economics and Professor.
Holds no shares in the Bank.
Muhadin A. Eskindarov Independent member of the Supervisory Council
2006 to date – Principal of the Federal Institute of the Higher Professional Education - Financial University under the Government of the Russian Federation. Board member of OJSC TMK, OJSC Bank of Moscow, OJSC Moscow Industrial Bank; OJSC Bank Vozrozhdenie; member of the Supervisory Board of OJSC Russian Agricultural Bank.
Previous positions: 1996-2006 – Vice Principal for Economic Affairs; Vice Principal for Academic Affairs; First Vice Principal for Academic Affairs; and First Vice Principal of the Financial Academy under the Government of the Russian Federation.
Born in 1951. Graduated in 1976 from the Moscow Financial Institute with a PhD in Economics. Professor and Fellow of the Academy of Management and Markets of the Russian Federation.
Holds no shares in the Bank.
Meetings of the Supervisory Council
Meetings of the Bank’s Supervisory Council are convened at the initiative of its Chairman, or at the request of a member of the Supervisory Council, the Audit Commission, the auditor, the Management Board, or the President and Chairman. A quorum for meetings of the Bank’s Supervisory Council is formed by the attendance of half of the elected members of the Supervisory Council. Decisions at Supervisory Council meetings are made by a majority vote of the participating members, except where otherwise provided in the Charter and the Supervisory Council Regulation. For decision-making purposes at Supervisory Council meetings, each member of the Council has one vote.
Meetings of the Supervisory Council are held on a scheduled basis, however, they may be held outside the schedule, using postal ballots.
The work schedule for the Supervisory Council is compiled for the period between the Annual General Meetings of Shareholders and is approved by the Supervisory Council. Meetings of the Supervisory Council are scheduled in advance, based on the business cycle of the Bank.
VTB Bank’s regulations do not establish a minimum number of meetings of the Supervisory Council. Nevertheless, meetings are normally held three times a quarter according to a pre-arranged plan, including those conducted by postal ballots. All members of the Supervisory Council receive the
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agenda and supplementary materials for the meeting no later than 15 days prior to the meeting. The Supervisory Council meetings may be held by postal ballot.
In 2011, the Supervisory Council held seven meetings and ten postal ballots. During the reporting period, the Supervisory Council reviewed 128 different issues in total.
2010 2011 Number of meetings in 5 7 presentia Number of meetings conducted 14 10 by postal ballots
Number of meetings / postal Supervisory Council member ballots attended by the Supervisory Council member Alexei L. Kudrin (left office on 03.06.2011) 9 Sergey K. Dubinin (elected on 03.06.2011) 8 David Bonderman (elected on 03.06.2011) 8 Matthias Warnig 15 Grigory Y. Glazkov 16 Arkady V. Dvorkovich (left office on 03.06.2011) 9 Andrey L. Kostin 14 Nikolay M. Kropachev 17 Ivan V. Oskolkov (elected on 03.06.2011) 7 Anna V. Popova (left office on 03.06.2011) 9 Alexey L. Savatyugin 17 Pavel M. Teplukhin 17 Alexey V. Ulyukaev 17 Muhadin A. Eskindarov 17
During the reporting period, the Supervisory Council made a number of decisions on priority areas of the Bank’s activities, including a review of the development strategy of VTB Group, the reorganisation and optimisation of the Bank’s branch network, the creation of the Strategy and Corporate Governance Committee, the election of members of the Supervisory Council, the appointment of the Corporate Secretary and the approval of the Regulation on the VTB Bank Corporate Secretary. In addition, the Supervisory Council considered the following matters in 2011:
• Setting the agenda for the annual General Shareholders Meeting, preliminary approval of the Annual Report, determining the auditor’s fee and recommendations on the level of dividends;
• Review and approval of quarterly reports by inspectors of the Bank’s professional activity in the securities market and specialised depositary;
• Review of activity reports and approval of the plans of the Bank’s Internal Control Department;
• Approval of interested party transactions;
• Election of members of the Supervisory Council;
• Approval of directorship positions for the President and Chairman of the Management Board and members of the Management Board of VTB Bank within other organisations;
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The Supervisory Council considered the following matters in 2011:
Development of VTB Group's companies
Review of reports, business planning
Personnel-related matters 3% 32% 16% 8% Reorganisation of the branch network 26% 5% Corporate governance and procedural matters 10% Debt write-off
Approval of transactions
Committees of the Supervisory Council
The Supervisory Council has three standing committees, which support the effective implementation of the Council’s managerial and supervisory functions and provide preliminary detailed analysis and recommendations regarding the issues that the Council deems most important. As at 31 December 2011, these were:
• Audit Committee • Staff and Remuneration Committee • Strategy and Corporate Governance Committee
The Supervisory Council committees are not governing bodies of the Bank, and cannot act in the name of the Supervisory Council.
Audit Committee
The Audit Committee performs an analysis and support function to ensure that the Bank's internal control system works adequately and effectively. The Committee's exclusive remit includes the appraisal of candidates for VTB Bank's external audit team, review of the audit report, assessment of the effectiveness of the Bank's internal control procedures and drafting of proposals for their improvement. The Audit Committee is chaired by an independent member of the Supervisory Council.
As of 31 December 2011, the Audit Committee comprised the following members:
• Matthias A. Warnig, Committee Chairman, independent member of the Supervisory Council of VTB Bank • Alexei L. Savatyugin, Committee Member, member of the Supervisory Council of VTB Bank • Aleksey V. Ulyukaev, Committee Member, member of the Supervisory Council of VTB Bank
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Members of the Audit Committee of the Number of meetings / postal ballots attended Supervisory Council by the member of the Audit Committee of the Supervisory Council Matthias A. Warnig 12 Alexey L. Savatyugin 11 Alexey V. Ulyukaev 12
During the reporting period, a total of three meetings and nine postal votes were organised by the Audit Committee in which matters covering all priority areas of the Bank's activity were considered. Considerable focus was placed on improving internal control procedures within the Bank and VTB Group and on developing the risk management system. The work of the Committee was based on the approved action plan, in accordance with the established roles of the Committee, as well as global good practice regarding the work of audit committees.
Within the area of internal control, the following topics were addressed:
• Results of the tender for an external auditor;
• Plan and activity report of the Bank's Internal Control Department;
• Review of regular reports by the Bank’s internal control units on significant violations, errors and shortcomings that had been detected at VTB Bank and its subsidiaries, and on measures taken to address those violations.
The Committee looked into the following aspects of the Bank's and VTB Group’s activity in the area of financial oversight and risk management:
• Regular consolidated financial reporting in compliance with International Financial Reporting Standards (IFRS);
• Regular reports by VTB Group’s independent auditor on the results of the audit of VTB Group’s consolidated IFRS reporting;
• The status and prospects for development and performance of the investment and retail business of VTB Group;
• Strategic development and risk management of individual member companies of VTB Group.
Staff and Remuneration Committee
The Staff and Remuneration Committee’s role is to assist the Supervisory Council in the sphere of appointments and remuneration for members of the Bank’s governing bodies and the Statutory Audit Commission.
The Committee is comprised of members of the Supervisory Council who have relevant expertise and experience in this area. The Staff and Remuneration Committee is chaired by an independent member of the Supervisory Council.
As at 31 December 2011, the Staff and Remuneration Committee comprised the following members:
• Nikolai M. Kropachev, Committee Chairman, independent member of the Supervisory Council; • Ivan V. Oskolkov, Committee member, member of the Supervisory Council; • Pavel M. Teplukhin, Committee member, member of the Supervisory Council;
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• Muhadin A. Eskindarov, Committee member, independent member of the Supervisory Council.
Members of the Staff and Remuneration Number of meetings / postal ballots attended Committee of the Supervisory Council by the member of the Staff and Remuneration Committee of the Supervisory Council Nikolai M. Kropachev 5 Ivan V. Oskolkov 5 Pavel M. Teplukhin 5 Muhadin A. Eskindarov 5
In 2011, a total of five postal votes were organised by the Staff and Remuneration Committee, in which matters concerning the composition and remuneration of the members of the Management Board were considered. The Committee also made recommendations to the Supervisory Council regarding candidates for the position of VTB Corporate Secretary.
Strategy and Corporate Governance Committee
On 5 March 2012, the Strategy and Corporate Governance Committee was established to optimise the decision-making process of the Supervisory Council on issues of strategic development and the improvement of corporate governance at VTB. The Committee’s main tasks are the determination of strategic objectives and priorities for the Bank’s development; the support and improvement of the corporate governance system of VTB; and putting forward suggestions for the strategic management of the Bank’s stock.
The Committee comprises members of the Supervisory Council who have relevant expertise and experience in the area. The Committee is required to include at least one Independent Director. As at 31 December 2011, the Strategy and Corporate Governance Committee was composed of the following members:
• Sergey K. Dubinin, Committee Chairman, Chairman of the Supervisory Council; • David Bonderman, Committee member, member of the Supervisory Council; • Grigory Y. Glazkov, Committee member, independent member of the Supervisory Council; • Andrey L. Kostin, Committee member, VTB Bank President and Chairman of the Management Board; • Ivan V. Oskolkov, Committee member, member of the Supervisory Council; • Alexey L. Savatyugin, Committee member, member of the Supervisory Council; • Pavel M. Teplukhin, Committee member, member of the Supervisory Council; • Alexey V. Ulyukaev, Committee member, member of the Supervisory Council.
Members of the Strategy and Corporate Number of meetings / postal ballots attended Governance Committee of the Supervisory by the member of the Strategy and Corporate Council Governance Committee of the Supervisory Council Sergey K. Dubinin 3 David Bonderman 3 Grigory Y. Glazkov 4 Andrey L. Kostin 4 Ivan V. Oskolkov 3 Alexey L. Savatyugin 4 Pavel M. Teplukhin 4 Alexey V. Ulyukaev 4 Anna V. Popova 1
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Since its creation, the Committee has held a total of four meetings, during which it has considered matters including the strategic development of companies within the VTB Group, reports on the implementation of VTB Group strategy, the development of corporate governance and the internal documents that regulate it.
Corporate Secretary
In 2011, VTB Bank approved the creation of the position of Corporate Secretary as part of measures undertaken by the Bank to improve its corporate governance. The Bank also approved a Regulation on the Corporate Secretary, which was developed in accordance with the relevant recommendations of the Federal Financial Markets Service Code of Corporate Conduct. The Corporate Secretary of VTB Bank ensures that the rules and procedures of corporate governance, which guarantee the rights and interests of shareholders of the Bank and cooperation between the Bank and its shareholders, are followed by the Bank and its employees.
The Corporate Secretary of VTB Bank is elected by, and reports on a functional basis to, the Supervisory Council. In relation to administrative procedures, the Corporate Secretary also reports to the President and Chairman of the Management Board of VTB Bank. The Supervisory Council’s Strategy and Corporate Governance Committee reviews the candidates for the position of Corporate Secretary, and provides recommendations to the members of the Supervisory Council.
The main responsibilities of the Corporate Secretary are:
• Supervision over the preparations for and proceedings of General Shareholders Meetings, and their compliance with the requirements of the applicable Russian legislation, the Bank’s Charter and its other internal regulations;
• Coordination of the operations of the Bank’s Supervisory Council, and supervision over the preparations for and proceedings of meetings of the Council’s committees;
• Coordination of the efficient interaction between the Supervisory Council and the Bank’s executive bodies with regard to corporate governance and administrative issues;
• Supervision over the storage of documents that shareholders are entitled to obtain in accordance with the applicable legislation of the Russian Federation, and the provision of such documents and the disclosure of information to shareholders in accordance with Russian legislation and the Bank’s Charter;
• Supervision over the disclosure of information about the Bank in accordance with the requirements of the legislation of the Russian Federation concerning the securities market and stock exchanges and the Bank’s by-laws;
• Supervision over the prompt consideration by the Bank’s management bodies and structural units of letters, requests and other inquiries received from shareholders;
• Provision of advice to shareholders on issues related to their rights;
• Timely identification of imminent corporate conflicts, notification of such conflicts to the relevant bodies within the Bank and, if necessary, participation in their resolution;
• Supervision over the correct and timely payment of dividends to shareholders.
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On 28 September 2011, the Supervisory Council of VTB Bank appointed Evgeniy G. Ignatyev as Corporate Secretary, based on the recommendations of the Supervisory Council’s Strategy and Corporate Governance Committee and Staff and Remuneration Committee.
5.5. THE MANAGEMENT BOARD OF JSC VTB BANK
The Management Board is the collective executive body of VTB Bank. It oversees the Bank’s day-to- day operations in conjunction with the President and Chairman. The Management Board reports to the General Shareholders Meeting and the Supervisory Council.
The Management Board acts on the basis of Russian legislation, the Charter of VTB Bank and the Regulation of the Management Board of VTB Bank, which has been approved by a resolution of the General Shareholders Meeting.
The Supervisory Council is responsible for determining the size and composition of the Management Board and for electing its members. The members of the Management Board are appointed by the Supervisory Council after having been proposed by the President and Chairman, and cannot serve for longer than five years.
The Management Board is in charge of the day-to-day operations of VTB Bank, with the exception of matters which fall within the exclusive remit of the General Shareholders Meeting and the Supervisory Council, and it implements decisions handed down by these bodies. More detailed information on the powers of the Management Board is provided in the Regulations of the Management Board of VTB Bank, which is available on the Bank’s website.
Composition of the Management Board
As at 31 December 2011, the Management Board of VTB Bank was composed of 11 people.
Andrey L. Kostin President and Chairman of the Management Board of VTB Bank, member of the Supervisory Council of VTB Bank
(For a detailed biography see the Supervisory Council section on p. 72-73)
Yuri A. Soloviev First Deputy President and Chairman of the Management Board of VTB Bank
Mr. Soloviev joined VTB in April 2008. Since May 2011, he has been First Deputy President and Chairman of the Management Board.
He is also Chairman of the Board of Directors of CJSC VTB Capital, CJSC Holding VTB Capital, VTB Capital IB Holding Ltd., VTB Capital Investment Management Ltd., VTB Capital ITBF Innovation Partners Ltd. and JSC VTB-Leasing; a member of the Supervisory Council of VTB Bank (Ukraine); a member of the Board of Directors of VTB Capital Investment Management Holding AG, VTB Capital Private Equity Holding AG, OJSC TransCreditBank, OJSC Novorossiysk Commercial Sea Port, OJSC Federal Grid Company of Unified Energy System, Capital Russia & CIS Equity Fund Ltd. and VTB Capital Russia & CIS Fixed Income Fund Ltd.
Previous positions: 2008 - 2011 – Senior Vice President of JSC VTB Bank; CEO of CJSC VTB Capital; 2006 - 2008 – Head of Investment Business, First Deputy Chairman of the Management Board, Deutsche Bank Russia; 2002 – 2006 – Director, Head of Global Markets in Russia and the CIS at Deutsche Bank AG, London;
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1996 – 2002 – Analyst, Executive Director at the Emerging Markets Department of Bank Lehman Brothers, London; 1994 – 1996 – Dealer, Senior Dealer at the Currency Trading Department at JSC INCOMBANK.
Born in 1970. Graduated in 1994 from Plekhanov Russian Academy of Economics, specialising in International Economic Relations, and in 2002 from the London Business School with an MBA degree.
He holds shares equivalent to 0.00341% of the authorised capital of the Bank.
Vasily N. Titov First Deputy Chairman of VTB Bank Management Board
Mr. Titov joined VTB Bank in 2002 and assumed his current position in August 2009. Before August 2009, he was Deputy Chairman and a member of the Management Board, Senior Vice President and Vice President.
He is also Chairman of the Supervisory Council of VTB Bank (Austria) AG and JSC VTB Bank (Georgia); Chairman of the Board of Directors of CJSC VTB Bank (Belarus) and CJSC Moscow Dynamo Football Club; Deputy Chairman of the Supervisory Council of VTB Bank (Ukraine); member of the Supervisory Council of EuroFinance Mosnarbank; member of the Board of Directors of PJSC Foreign trade company “Sovexportfilm”; member of the Coordinating Committee of the Non- commercial Partnership “Financial and Banking Council of the CIS”; Council Member of the non-profit organisation “Association of Regional Banks of Russia”; and member of the Interregional Bank Council under the Federation Council of the RF Federal Assembly. Previous positions: 1998-2002 – Deputy Head of the Administrative Department, External and Public Relations Director, Head of the Information and Communications Division of USSR Vnesheconombank, and Member of the Board of Directors of Vnesheconombank; 1996-1998 – Deputy Managing Director of the All-Russian Automobile Alliance; 1996 – Assistant to the First Deputy Prime Minister of the Russian Federation.
Born in 1960. Graduated in 1983 from the A.A. Zhdanov Leningrad State University, and in 2002 from the Financial Academy under the Government of the Russian Federation.
He holds shares equivalent to 0.00049% of the authorised capital of the Bank.
Herbert Moos Deputy Chairman of VTB Bank Management Board
Mr. Moos joined VTB Bank in 2009 and was appointed Deputy Chairman of the Management Board in November 2009. Until November 2009, he was Senior Vice President.
He is also Chairman of the Board of Directors of VTB Capital Plc; a member of the Board of Directors of JSC VTB-Leasing, CJSC Holding VTB Capital, CJSC VTB Debt Centre, VTB Factoring Ltd, VTB Capital IB Holding Ltd., CJSC VTB Capital, OJSC Hals-Development, OJSC Bank of Moscow, OJSC TransCreditBank and VTB Debt Centre Ltd.; a member of the Supervisory Council of CJSC Bank VTB24 and VTB Bank (Ukraine).
Previous positions: 2008-2009 – CEO at VTB Capital plc, London; 2007-2008 – CFO at Lehman Brothers Asia-Pacific, Hong Kong; 2002-2007 – Head of Asset and Liability Management and Treasurer at Lehman Brothers Asia-Pacific, Tokyo;
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1995-2002 – Debt Management, Capital and Transaction Planning, Asset and Liability Management, Lehman Brothers Bank, London.
Born in 1972. Graduated in 2002 from the London Business School with a Masters Degree in Finance.
He holds shares equivalent to 0.00341% of the authorised capital of the Bank.
Andrey S. Puchkov Deputy Chairman of VTB Bank Management Board
Mr. Puchkov joined VTB Bank in 2002 and was appointed Deputy Chairman of the Management Board in December 2008. He has held the following positions in the Bank's legal department: Deputy Head of Department, Head of Department, Vice President (Head of Department), Senior Vice President (Head of Department), Senior Vice President and member of the Management Board.
He is also Chairman of the Supervisory Council of CJSC VTB-Development; a member of the Supervisory Councils of OJSC VTB Bank (Ukraine) and CJSC Bank VTB24; Chairman of the Board of Directors of CJSC VTB Debt Centre, OJSC Sistema-Hals and VTB Debt Centre Ltd.; and a member of the Board of Directors of the Russian Commercial Bank (Cyprus) Ltd., Petersburg-City Ltd. and OJSC Bank of Moscow.
Previous positions: 1999-2002 – Member of the Moscow City Bar; 1996-1997 – Legal consultant in the Central Economic Department of the Bank of Russia.
Born in 1977. Graduated in 1998 from the Law Faculty of Lomonosov Moscow State University. Lawyer.
He holds shares equivalent to 0.00037% of the authorised capital of the Bank.
Denis A. Bortnikov Member of VTB Bank Management Board
Mr. Bortnikov joined VTB in January 2006. Since November 2011, he has been a Member of VTB Bank Management Board.
Previous positions: March 2011-November 2011 – Head of the North-West Regional Centre of VTB Bank, Senior Vice President of JSC VTB Bank; 2007-2011 - Deputy Chairman of the Management Board, First Deputy Chairman of the Management Board, Chairman of the Management Board of JSC VTB Bank North-West; 2006-2007 - Deputy Head of the JSC Vneshtorgbank Branch in St. Petersburg; 2004-2006 - Advisor to the General Manager of the North-West Branch of GUTA-BANK, Deputy General Manager of the North-West Branch; 1996-2004 - Consultant with the Liquidity Management Department, Consultant with the Transfer Operations Department, Consultant with the Department of Financial Instruments, Senior Consultant with the Brokerage Department, Chief Acquiring and Authorisation Expert, Head of the Acquiring and Authorisation Department at JSC Industry and Construction Bank. Born in 1974. Graduated in 1996 from Saint Petersburg State University of Economics and Finance with a degree in National Economy.
He holds no shares in the Bank.
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Victoria G. Vanurina Member of VTB Bank Management Board
Ms. Vanurina joined VTB Bank in October 2009. Since August 2011, she has been a member of the Management Board.
She is also Chairwoman of the Board of Directors of CJSC Holding VTB Capital and CJSC VTB Specialized Depository.
Previous positions: 2009-2011 – Senior Vice President of JSC VTB Bank; Chief Operating Officer, Member of the Management Board of CJSC VTB Capital; 2008-2009 – Managing Director, Head of the Business Support Division at CJSC VTB Capital; 1998-2008 – Head of the Fixed Income Securities Transactions Unit, Head of the Forex Transactions and Fixed Income Transactions Unit, Head of the Operational Division at Deutsche Bank Ltd; 1994- 1998 – Economist, Head of Back Office, Head of the Interbank Transactions Unit of the Forex Transactions Division at JSCB Avtobank; 1992-1994 – Forex Transactions Economist at Rosvooruzhenie.
Born in 1972. Graduated in 1995 from the International Relations Department of Moscow State Institute of International Relations (University) of the MFA of Russia.
She holds no shares in the Bank.
Olga K. Dergunova Member of VTB Bank Management Board
Ms. Dergunova joined VTB Bank in 2007.
She is also Chairwoman of the Supervisory Council of VTB Bank (France) S.A. and VTB Bank (Deutschland) AG; Deputy Chairman of the Supervisory Council of JSC VTB Bank (Georgia); a member of the Supervisory Council of CJSC Bank VTB 24, VTB Bank (Ukraine) and VTB Bank (Austria) AG; Chairwoman of the Board of Directors of Subsidiary JSC VTB Bank (Kazakhstan) and CJSC VTB Bank (Armenia); a member of the Board of Directors of CJSC VTB Bank (Belarus), OJSC Sistematika Group, VTB Factoring Ltd., CJSC Holding VTB Capital and OJSC Transneft.
Previous positions: 1994-2007 – Key Client Manager, General Director, Head of the Representative Office, President of Microsoft Russia; 1992-94 – Sales and Marketing Director at Microinform; 1990-91 – Senior Researcher for the Soviet-American joint venture Paragraph.
Born in 1965. Graduated with honours in 1987 from the G.V. Plekhanov Russian Academy of National Economy, majoring in Economic Cybernetics. She gained the qualification of Economist- Mathematician in 1991 from the Postgraduate School of the G.V. Plekhanov Russian Academy of National Economy. In February 2009, she became one of the top-100 managers to receive the patronage of the President of the Russian Federation.
She holds shares equivalent to 0.00021% of the authorised capital of the Bank.
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Valery V. Lukyanenko Member of VTB Bank Management Board
Mr. Lukyanenko joined VTB Bank in 2002 and was appointed a member of the Management Board in December 2008. Before 2008, he was Head of the First Corporate Business Division and Senior Vice President; Senior Vice President and Head of Mid-Size Business in the First Corporate Business Division; Senior Vice President in the First Corporate Business Division; Vice President and Head of Large Corporate Business in the First Corporate Business Division; Vice President; and Advisor to the President and Chairman of the Management Board of VTB.
He is also member of the Board of Directors of OJSC United Aircraft Corporation.
Previous positions: 2001-2002 – Chairman of the Council of Experts in Project Financing and Forecasting at Lanta Bank; 1994-2002 – Deputy Head of the State Programmes Division, Head of the Foreign Economic Relations Division at the Office of the President of the Russian Federation; 1993-1994 – Director, Chairman of the GagarinStroi Industrial and Investment Centre.
Born in 1955. Graduated in 1982 from Novosibirsk Agricultural Institute, and in 1991 from the Academy of the Office of the President of the Russian Federation. Doctor of Economics and Professor.
He holds shares equivalent to 0.00058% of the authorised capital of the Bank.
Erkin R. Norov Member of VTB Bank Management Board
Mr. Norov joined VTB Bank in 2002 and was a Management Board member from 2002 to 2007. He has again been a VTB Bank Management Board member from September 2009 to date.
He is also a member of the Board of Directors of OJSC Bank of Moscow.
Previous positions: 2007-2009 – Senior Vice President, Management Board member of JSC NOMOS-BANK; 2002-2007 – Vice President, Senior Vice President, Management Board member of the Bank for Foreign Trade of the Russian Federation (JSC Vneshtorgbank); 1999-2002 – Development Director, Development and Strategic Planning Director, USSR Bank for Foreign Economic Activities; 1999 – Department Head, Calculation of Taxable Base and Tax Revenue Planning Department, Russian Ministry of Taxes and Duties; 1992-1999 – AvtoVaz Corporation, Deputy Chairman of the Management Board for Development of JSC AvtoVAZ servicing – Lada Service, Marketing and Trade Director, General Director of the Economy and Finance Department.
Born in 1954. Graduated in 1976 from Lomonosov Moscow State University, and in 2001 from the Academy of National Economy under the Government of the Russian Federation. Executive Master of Business Administration (EMBA), Bank Management and Candidate of Economic Sciences.
He holds no shares in the Bank.
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Ekaterina V. Petelina Member of VTB Bank Management Board
Ms. Petelina joined VTB Bank in 2006 and was appointed a member of the Management Board in February 2010. Prior to February 2010, she was Senior Vice President – Head of the Strategy and Corporate Development Department; Senior Vice President – Head of the Corporate Development and Strategy Division; and Vice President – Head of the Corporate Development and Strategy Division.
She is also a member of the Supervisory Council of PJSC VTB Bank, CJSC Bank VTB24; a member of the Board of Directors of VTB Insurance Ltd., MultiCard Ltd., VTB Factoring Ltd., CJSC Holding VTB Capital and OJSC Bank of Moscow, as well as OJSC Capital Insurance Group, OJSC MSK Insurance Group and OJSC TransCreditBank.
Previous positions: 2003-2006 – Junior Consultant and then Consultant in the Moscow Office of McKinsey & Company, Inc., FSU; 2000-2003 – Manager of the Praktika Training Center; 1993-2000 – Expert in the Public Relations & Advertising, Marketing and Banking Products Promotion departments of NBD Bank.
Born in 1973. Graduated with Honours in 1996 from the N.I. Lobachevsky State University in Nizhny Novgorod, and with Distinction in 2003 from the MBA Degree Programme at Emory University, Atlanta, USA.
She holds shares equivalent to 0.00002% in the charter capital of the Bank.
President and Chairman of the Management Board of VTB Bank
The President and Chairman of the Management Board of VTB Bank oversees the Bank's day-to-day operations, and ensures that its targets are met and its strategy is put into effect. The Management Board Chairman reports to the General Shareholders Meeting and the Supervisory Council of the Bank. Andrei Leonidovich Kostin has been President and Chairman of the Management Board of VTB Bank since June 2002. In April 2007, he was re-elected to this position until June 2012.
5.6. REMUNERATION OF THE MEMBERS OF THE SUPERVISORY COUNCIL AND THE MANAGEMENT BOARD
In accordance with a resolution of the General Shareholders Meeting, the members of VTB Bank’s Supervisory Council may, during their term in office, receive remuneration and be compensated for expenses incurred in the course of their duties.
VTB Bank’s Regulations on remuneration and compensation for expenses of the members of the Supervisory Council have been in force since 2010. According to the Regulations, the total amount of remuneration of a member of the Supervisory Council over a reporting period is determined by taking into account their actual participation in Council activities, both as a member of the Supervisory Council and as a member and/or Chairman of a Supervisory Council committee. In accordance with current Russian legislation, members of the Supervisory Council who are civil servants do not receive any remuneration.
The decision to pay remuneration and compensation is made by the Annual General Shareholders Meeting (AGM) of VTB Bank. On 3 June 2011, the AGM approved the following:
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a) To pay remuneration as follows to VTB Bank Supervisory Council members who are not state employees:
• for their work in the VTB Bank Supervisory Council – RUB 2,322,352 each; • for chairmanship of a VTB Bank Supervisory Council committee – RUB 464,470 each; • for membership of a VTB Bank Supervisory Council committee – RUB 232,235 each.
b) To provide compensation for expenses incurred by VTB Bank Supervisory Council members who are not state employees in relation to their duties, i.e. accommodation and travel expenses and other duties and fees for using air and/or railway transportation.
In 2011, the amount paid to the independent members of the Bank’s Supervisory Council was RUB 16,024,230 (RUB 7,773,760 in 2010). Other members of the Supervisory Council did not receive any remuneration.
The Supervisory Council is responsible for determining the amount of the remuneration and compensation paid to members of the Management Board of VTB Bank. Salaries, including compensation and incentive payments, are fixed in the contracts of employment of the Management Board members.
In 2011, the members of the Management Board received remuneration in the sum of RUB 607,856,960 (compared to RUB 174,398,480 in 2010).
5.7. INTERNAL CONTROL AND AUDIT
VTB Group’s internal control and audit
VTB Group's internal control and audit system is integral to its corporate governance philosophy and is one of the most important factors in ensuring that the Bank performs effectively. The internal control and audit departments support the stable development of the Bank and ensure the protection of shareholders’ and investors’ interests, which increases the attractiveness of the Bank to investors.
The internal control and audit functions within VTB Group operate in compliance with international best practices, the requirements of Russian legislation and the applicable legislation in the countries where the Group’s subsidiaries and affiliates are present. The arrangements for interaction between the various functions, and the order of priority between them, provide the necessary level of independence, which enables the entire system to function effectively.
VTB’s internal control system ensures:
• Efficient transactions and delivery of results; • Effective management of assets and liabilities, including the safekeeping of assets; • Reliability and timeliness of financial and management information and reporting; • Security of information; • Compliance with the requirements of legislation, regulations and standards; • Avoidance of involvement of the Bank and its employees in unlawful activity; • Management of banking risks on a consolidated basis.
The key requirements in respect of the organisation of the internal control and audit systems, the main standards and principles of operation of internal audit within VTB Group, and the allocation of accountabilities and responsibilities are established in the Group’s internal regulatory documents.
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The Coordination Commission for Internal Control and Audit was established by the VTB Group Managing Committee to provide the effective coordination of internal control and audit of the Group, as well as to enable practical interaction between experts.
The main objectives of the internal control and audit functions at VTB Bank include:
• Independent monitoring and assessment of the effectiveness of the internal control system, the risk management system, accounting reports, business processes and the activities of departments and individual employees; • Ongoing monitoring of key risk areas and mechanisms to control risks, with a view to identifying shortcomings in the internal control system, emerging risks and trends, and in order to create mechanisms to control these risks; • The development of recommendations to improve the efficiency of systems, processes, procedures and departmental activities; • The control of compliance with legislation, professional standards of activity and VTB Group internal regulations, as well as assistance in the development of regulations that comply fully with current legislation and global best practices; • The organisation of efficient communications with external regulatory bodies and external auditors.
VTB Bank’s internal control and audit
Internal control within VTB Bank is currently undertaken by:
• The Bank’s governing bodies (the General Shareholders Meeting, the Supervisory Council, including the Audit Committee, the Management Board and the Chairman and President); • The Audit Commission; • The Bank’s Chief Accountant; • The Directors and Chief Accountants of the Bank’s branches; • The Internal Control Division; • Other operational divisions and managers in charge of internal control, in accordance with powers granted by the Bank’s by-laws.
To further improve the quality of its internal control system, the Bank established the Compliance Control Division in 2011. This new division is responsible for managing and minimising the risks that the Bank faces from regulators and judicial bodies, and the reputational risks resulting from non- compliance with laws, other legal acts, the Bank’s internal regulations, standards set by self- regulatory organisations and the usual business practices associated with banking activities (“compliance risks”).
VTB Group places particular importance on measures to prevent the laundering of money obtained by criminal means, and the financing of terrorism. A survey programme and internal control rules based on the ‘know your client’ principle helped the Bank to improve the effectiveness of its risk management strategy in this area in 2011.
Audit Committee
Responsibility for the smooth running of the internal control system lies with the Supervisory Council of VTB Bank. The Audit Committee was set up under the aegis of the Supervisory Council to ensure that this task is carried out effectively. Its objectives also include the detailed analysis and support of an effective and adequate functioning of the internal control system, in accordance with global best practices in corporate governance.
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The Committee’s activity is governed by the Regulations of the Audit Committee of the Supervisory Council of VTB Bank.
More detailed information about the composition and activity of the Audit Committee can be found in the Supervisory Council section on page 78.
Statutory Audit Commission
The Statutory Audit Commission, operating within the Bank, verifies the Bank's compliance with the applicable legislation and other statutory instruments that govern its activity, the proper functioning of the Bank’s internal controls, and the legality of transactions carried out by the Bank.
The Statutory Audit Commission is elected at the Annual General Shareholders Meeting of the Bank, which determines its size and composition for the period to the next annual General Shareholders Meeting.
The composition of the Statutory Audit Commission, elected at the Bank’s Annual General Shareholders Meeting on 3 June 2011, is as follows:
• Vladimir V. Lukov - Chairman of the Statutory Audit Commission, Professor at the International University in Moscow; • Tatyana A. Bogomolova - Member of the Statutory Audit Commission; Deputy Head of the Department for Organisations in the Non-productive Sector and Foreign Property; and Head of the Department for Credit and Finance, Foreign Trade, Land Use and Tax Organisations of the Federal Agency for State Property Management; • Marina A. Kostina - Member of the Statutory Audit Commission; Deputy Head of the Consolidation and Analytics Unit, Department for Organisations in the Non-productive Sector and Foreign Property of the Federal Agency for State Property Management; • Zakhar B. Sabantsev - Member of the Statutory Audit Commission; Head of the Banking Sector Monitoring, Consolidation and Analytics Unit of the Financial Policy Department of the Russian Ministry of Finance; • Natalia A. Satina - Member of the Statutory Audit Commission; Head of the Banking Unit of the Financial Policy Department, Russian Ministry of Finance; • Dmitry V. Skripichnikov - Member of the Statutory Audit Commission and Deputy Director of the Corporate Governance Department of the Russian Ministry of Economic Development.
Internal Control Department
The Internal Control Department (ICD) operates within the Bank to provide direct support to its governing bodies, in order to ensure that both the Bank and VTB Group work effectively. The ICD monitors internal control systems, conducts targeted and Group-wide inspections, and provides impartial recommendations on how banking operations and control procedures may be improved.
The ICD is an independent structural department that operates under the direct supervision of the Supervisory Council of VTB Bank, which approves its plans and monitors their implementation. The Supervisory Council also reviews reports on the results of ICD audits and its monitoring of internal control systems, as well as on the implementation of the ICD’s recommendations and the measures taken to address issues that have been identified. The Supervisory Council also considers matters related to the resourcing of the ICD, including the appointment of the Department’s Head.
The Department’s organisational structure comprises a number of units responsible for day-to-day monitoring, the coordination of internal control systems across the VTB Group and auditing, as well as a Control Group, which supervises the Bank’s activities as a participant in the securities market
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and the operations of the specialised depositary for investment funds, mutual funds and pension funds. To increase the effectiveness with which internal control systems are monitored in Bank branches, the ICD structure includes dedicated internal control teams.
The Internal Control Department is responsible for:
• Monitoring and assessing the effectiveness of the internal control system; • Monitoring the operation of the risk management system; • Verifying the reliability and adequacy of procedures instituted to safeguard the Bank's property; • Verifying the reliability, completeness, objectivity and timely preparation of accounting and management reports; • Verifying the compliance of self-regulating institutions with statutory requirements and standards; • Verifying the adequacy and reliability of internal control over the use of computerised information systems; • Establishing uniform approaches to the organisation of internal control systems in subsidiary organisations.
Within its terms of reference, the ICD liaises with the Bank’s Audit Committee and external auditors, providing information on the internal control system and reporting any deficiencies identified by the department during the period being audited.
VTB Bank’s independent auditor
VTB Bank appoints an independent professional firm of auditors to externally audit and verify the compliance of its annual financial statements.
In accordance with the applicable legislation, the auditor is chosen by means of an open tender, which is based on the following selection criteria:
• Qualifications and impartiality; • Work plan and the scope of the auditing procedures, including the proposed duration of the external auditor's services for auditing the Bank's financial statements; • Independence of the auditor and potential conflicts of interest, including whether or not the external auditor has proprietary interests in the Bank (except for receiving payment for auditing services), and whether or not there is any affiliation between the external auditor and the Bank or members of the Bank's governing bodies; • The level of remuneration payable by the Bank to the external auditor; • The provision or otherwise by the external auditor of consulting services to the Bank as defined in Article 1, paragraph 6 of the Federal Law on Auditing.
The Audit Committee has the responsibility for overseeing the tender process and for drafting recommendations on the award of the role of independent auditor for presentation to the Bank’s Supervisory Council. It is the Supervisory Council that approves the appointment, which is endorsed at the Annual General Shareholders Meeting.
Based on its inspection of the financial and commercial operations of VTB Bank, the independent auditor prepares a report, which is submitted to the Audit Committee for preliminary review. The final audit report is submitted to the Bank's Supervisory Council and is also presented to the Annual General Shareholders Meeting.
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Ernst & Young Vneshaudit JSC, a Russian subsidiary of one of the world's leading auditing firms, was appointed external auditor to VTB Bank in 2011.
Ernst & Young Vneshaudit JSC has been VTB Bank's external auditor since 2003. Besides the payment it receives for auditing services, the company has no other proprietary interests in VTB Bank, has no relationship of affiliation with the Bank, with members of its governing bodies or VTB subsidiaries, and has not provided consultancy services to the Bank as defined in Article 1, paragraph 6 of the Federal Law on Auditing.
5.8. RELATIONS WITH INDIVIDUAL SHAREHOLDERS
VTB Bank follows a policy of open communications with regard to all its activities. This is clearly seen in the Bank’s interaction with its shareholders. In 2011, VTB continued to improve the channels of communication with its shareholders by increasing the effectiveness of existing forms of interaction and creating new ways to work with them.
VTB’s Individual Shareholders Relations department is responsible for communications with individual shareholders. The department has put in place a number of ways in which shareholders can obtain full updates on the Bank’s operations and detailed answers to all of their questions. All enquiries from individual shareholders are reviewed and answered promptly, and are also analysed in order to establish if communications with the Bank’s shareholders may be further improved.
Open Days and Workshops
In 2011, VTB Bank expanded the geographical range and the size of its individual meetings with shareholders. Up until 2010, meetings were held only in Moscow and St. Petersburg, but during the year under review these activities spread far beyond the metropolitan areas. As a result, 2011 was a record year in this context, with 22 meetings being held with individual shareholders in different regions of the country.
Open days held in Moscow and St. Petersburg at the Bank’s Shareholder Interaction Centres take the form of individual counseling sessions. During these meetings, shareholders can receive professional advice on any matters related to the stock from specialists employed by VTB Bank and its subsidiaries (VTB24, VTB Insurance, VTB Registrar). Members of the Shareholders’ Consultative Council (SCC) of VTB Bank always participate in VTB Open Day events, helping individual shareholders to understand the work of the stock market. In addition, SCC members listen to shareholders’ views and pass them on to the Bank’s management.
Another channel of communications with shareholders, which has been developing during the reporting year, is the holding of workshops in different regions of Russia. During 2011, more than 1,000 individual shareholders from Ufa, Voronezh, Novosibirsk, Volgograd, Krasnodar, Samara, Stavropol and St. Petersburg participated in these workshops. During the course of the events, representatives of VTB Group provided consultation on personal finance, the ownership and management of VTB shares, financial performance, depositary and brokerage services, the activities of the SCC and beneficial products and services.
In 2011, VTB Bank also introduced a new practice of members of the Management Board participating in regional workshops via video conferencing. Vasily Titov, First Deputy President and Chairman of the Management Board, and Ekaterina Petelina, member of the Management Board, provided answers to shareholders during video workshops in 2011. In addition, the Bank continued to work on improving the workshop programme. Speakers’ presentations were optimised to meet shareholders’ needs and interests, and particularly to cover the most important and topical issues. Other key people from VTB, VTB24, VTB Insurance and VTB Registrar have taken part in the regional workshops, and the Corporate Secretary of the Bank has participated since the end of 2011.
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Newsletters
Invitations to participate in VTB workshops are sent to all regional shareholders, so that those who are unable to attend an event are informed of the communications channels that exist. So that they may receive the most up-to-date information, VTB offers its shareholders the opportunity to sign up for the Bank’s monthly "VTB Shareholder Newsletter” by registering on the VTB website.
The VTB Shareholder Newsletter is also distributed to shareholders who have registered their email address on a VTB24 Depositary form. The subscriber base comprises approximately 35,000 VTB shareholders.
The VTB Shareholder Newsletter contains the most up-to-date and relevant information for the Bank’s shareholders, including the Group’s financial performance, information about the AGM and dividend payments, invitations to meetings with other shareholders and reports on events that have taken place, news on VTB Group companies and information on the activities of the SCC. The success of this method of communicating with shareholders is clear from the growing subscriber base, as well as from positive feedback received from shareholders.
In 2011, following legislative changes, VTB sent emails to shareholders who were to lose dividends that had been unclaimed for three years. These changes impacted only unpaid dividends for 2007 announced by OJSC VTB Bank and OJSC VTB Bank North-West. As a result of the email notifications, dividends, which would otherwise have been lost, were paid to 108 VTB shareholders (out of 555 shareholders to whom emails were sent) and to 241 shareholders of VTB Bank North-West.
Prompt advice
Shareholders can receive prompt consultation in Shareholders’ Support Centres and by telephone. The Bank’s website and all its printed materials also provide contact details. The Bank’s advisers provide the most up-to-date information on matters related to ownership and disposition of VTB shares, the current share price and dividends. They handle more than 1,500 email enquiries and phone calls per month. Individual shareholders can also receive support through the VTB Unified Information Service, where call-centre operators and an automated menu provide information about VTB shares.
Shareholders' Consultative Council
The Shareholders’ Consultative Council (SCC) is an independent advisory body consisting of ten shareholders. Its work in 2011 was based mainly on meetings with VTB shareholders and the management teams of the Bank and its subsidiaries. During the reporting year, members of the SCC participated in regional workshops as external experts, answered shareholders’ questions regarding the Council’s activities, and provided individual counselling during Open Day events. A new format of interaction with individual shareholders was a meeting with a shareholder action group in Moscow in September 2011.
In 2011, the Shareholder Consultative Council held five meetings, which were attended by members of the SCC and managers of the Bank and its subsidiaries, including VTB Insurance, VTB Capital and VTB Registrar. Among the key issues on the agenda was the privatisation of a 10% stake in VTB Bank, the acquisition of the Bank of Moscow and the outdoor advertising agency News Outdoor, the financial results of VTB Group, progress reports on the Group’s subsidiaries and the SCC, and changes to the Regulation of the Shareholder Consultative Council. In one of these meetings SCC members had the opportunity to discuss current issues with Sergei Dubinin, Chairman of the Supervisory Council of VTB Bank.
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Printed publications for individual shareholders
The SCC’s activities are extensively covered in VTB’s quarterly newspaper for its shareholders called “The Controlling Interest”. The newspaper also covers other important and interesting topics for shareholders, including the performance of the VTB Group and recent news on its activities, overviews of the global markets and expert commentary, interviews with senior managers and shareholders, announcements of workshops and progress reports, and special offers to shareholders. In 2011, “The Controlling Interest” newspaper was also distributed to shareholders in Russia’s regions and its circulation increased from 2,000 to 15,000 copies during the reporting year.
VTB also distributes various brochures for shareholders through its regional network. These contain information about VTB shares, dividends and the AGM, as well as contact information. By the end of 2011, information stands for shareholders had been placed in VTB24 offices across 37 regions, and more than 60% of the VTB24 branches in Moscow and St. Petersburg have supplies of shareholder information materials.
VTB Bank website
VTB shareholders can access up-to-date and in-depth information on the Bank’s official website www.vtb.ru. The Investor Relations section of the website contains information on share price performance, financial results and the dividend policy, corporate governance and key upcoming events. VTB Bank discloses information as required by the applicable laws, as well as additional data. The structure of the IR section has undergone significant changes in order to meet shareholders’ needs. New sub-sections have been created and the menu has been made more user-friendly, which enables shareholders to find information easily and to navigate the site more quickly.
In 2012, VTB Bank plans to continue to communicate actively with individual shareholders. In addition to Moscow and St. Petersburg, Open Days will take place in Ekaterinburg, the third largest city by number of VTB shareholders. Workshops are scheduled in nine cities, including Kaliningrad, Khabarovsk, Ekaterinburg, Kazan, Moscow, Ufa, Nizhny Novgorod, Rostov-on-Don and St. Petersburg. The Bank is also planning to change the format of “The Controlling Interest” newspaper, as well as to make further improvements to its corporate website.
5.9. RELATIONS WITH INSTITUTIONAL INVESTORS
In 2011, VTB Bank continued to communicate actively with the international investment community. Regular communications were particularly important as financial markets were very volatile due to the European debt crisis, and as a result there was a significant outflow of funds from emerging markets in the second half of 2011.
Much attention was paid in the reporting period to personal meetings with investors. In 2011, VTB held a total of 364 meetings with investment funds and participated in 18 conferences with investors from Europe, North and South America, Asia and the Pacific region. A number of meetings were held as part of the Bank’s traditional roadshows to major global financial centres, including Moscow, London, Frankfurt and New York, in which top management actively participated. Andrey Kostin, President and Chairman of the Management Board of VTB Bank, held meetings with 178 investment funds; Herbert Moos, CFO of VTB Bank, with 197 funds; Yuri Soloviev, First Deputy President and Chairman of the Management Board of VTB Bank, with 183 funds; Ekaterina Petelina, Member of the Management Board of VTB Bank, with 112 funds; and Mikhail Zadornov, President of VTB24, with 154 funds, including meetings held as part of VTB Group’s first Investor Day.
One of the most important results of active collaboration with the international investment community in 2011 was the sale of a 10% stake in VTB Bank by the Russian Federation, the Bank’s majority shareholder as represented by the Federal State Property Agency, to Russian and foreign
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investors. The transaction was beneficial for all stakeholders. The State raised funds from the sale of its stake at the market price; VTB Bank increased the number of shares outstanding from 14.5% to 24.5% and improved its shareholder structure; and investors acquired VTB shares at a 12% discount to the maximum transaction price. Long-term investors demonstrated the greatest interest in VTB shares, representing 75% of the total placement. Existing shareholders accounted for 41% of orders and for 49% of shares placed.
In 2011, VTB continued borrowing, both on the traditional debt market and the local currency debt market. During the reporting year, the Bank has been actively developing relationships with credit analysts, it arranged three roadshows with debt investors and participated in three investment conferences. As a result, in 2011 VTB attracted a total of USD 4.4 billion33 in financing on the international capital markets, including in such currencies as the Singapore Dollar and the Swiss Franc. In addition, VTB attracted a record-sized syndicated loan of USD 3.13 billion, the largest in the history of the Central and Eastern European financial sector. Despite the market volatility, the Bank managed to arrange the financing on favourable terms.
During the reporting year VTB Bank also developed a special programme to keep shareholders and investors informed about the Bank’s objectives regarding the acquisition of the Bank of Moscow, as well as on progress made on the transaction. In addition, the Bank has developed and introduced effective mechanisms to communicate the investment community’s perceptions of the Bank to VTB management. VTB conducted a comparative analysis on its interaction with investors, similar to that carried out by other issuers. The results of this exercise showed that VTB’s interaction with the investment community in 2011 complied with generally accepted international practices.
For the third consecutive year, VTB is preparing the best possible annual report in the Russian financial sector for its shareholders and investors. In 2011, VTB Group’s Annual Report was recognised as the "Best Annual Report in the Financial Sector" category in two separate competitions. The first was organised by the RTS and MICEX stock exchanges, and the second was arranged by the Expert RA rating agency. VTB Group’s Annual Report received the highest marks from the jury, which was composed of experts from the Russian Federal Financial Markets Service, the Ministry of Finance of the Russian Federation, the Ministry of Economic Development of the Russian Federation, leading professional organisations and the financial media.
5.10. MANAGEMENT OF VTB GROUP
VTB Bank has a management system based on the “strategic holding” model, which means there is a common single development strategy for all companies within the Group, a single brand, centralised management of financial performance and risk, unified control systems, and a focus on interaction in order to disseminate best practices and create common standards.
In accordance with VTB’s current management model, the Group is governed along two key lines:
1. Administrative management – this relates to managing subsidiary companies within the Group’s organisational structure. This is done by using the mechanism of corporate governance, whereby VTB participates in the management bodies of its subsidiaries as a major shareholder. 2. Functional management – this relates to managing the Group’s business areas and other functional divisions within the Group as a whole. Functional coordination is a supplementary governance mechanism that enables cooperation and consultation between various parts of the Group in the early stages of the decision-making process.
33 Based on the RUB/USD exchange rate of the Central Bank of Russia as of 26 December 2011
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At a Group level, the main coordination and advisory body is the VTB Group Management Committee (VTB GMC), which analyses the development strategies of various business areas, the business plans for the Group and its subsidiaries, examines reports on their implementation, assesses liquidity and risks, oversees the implementation of priority projects, and approves the standards, approaches and principles of the Group’s operations.
As of 31 December 2011, the VTB Group Management Committee consisted of the following members:
• Andrey L. Kostin – Chairman of the GMC, President and Chairman of the VTB Bank Management Board; • Yuri A. Soloviev – member of the GMC, First Deputy Chairman of the VTB Bank Management Board; • Vasily N. Titov – member of the GMC, First Deputy Chairman of the VTB Bank Management Board; • Herbert Moos – member of the GMC, Deputy Chairman of the VTB Bank Management Board; • Andrei S. Puchkov – member of the GMC, Deputy Chairman of the VTB Bank Management Board; • Victoria G. Vanurina - member of the GMC, member of the VTB Bank Management Board; • Olga K. Dergunova – member of the GMC, member of the VTB Bank Management Board; • Valery V. Lukyanenko – member of the GMC, member of the VTB Bank Management Board; • Erkin R. Norov – member of the GMC, member of the VTB Bank Management Board; • Ekaterina V. Petelina – member of the GMC, member of the VTB Bank Management Board; • Denis A. Bortnikov - member of the GMC, member of the VTB Bank Management Board; • Riccardo Orcel - member of the GMC, Head of the Client Coverage Department, Senior Vice- President of VTB Bank; • David Brawn - member of the GMC, Advisor to the Deputy Chairman, Senior Vice-President of the Finance Department at VTB Bank; • Mikhail M. Zadornov – member of the GMC, President and Chairman of VTB24 Management Board; • Mikhail V. Kuzovlev – member of the GMC, President of the Bank of Moscow; • Yuri V. Novozhilov - member of the GMC, President of OJSC TransCreditBank; • Dmitry Y. Olyunin – member of the GMC, First Vice-President of OJSC TransCreditBank; • Alexei A. Yakovitsky - member of the GMC, Chief Executive Officer of CJSC VTB Capital Holding; • Vadim V. Pushkarev – member of the GMC, Chairman of VTB Ukraine Management Board; • Dmitry V. Rudenko – member of the GMC, First Deputy President and Chairman of VTB24 Management Board; • Alexander G. Yastrib – member of the GMC, First Deputy Chairman of the Bank of Moscow Management Board.
GMC meetings are held regularly on the basis of quarterly work plans. In 2011, the GMC of VTB held 20 meetings.
In order to provide a platform for discussion and analysis of VTB Group’s performance, the Management Committee has set up 13 Coordination Commissions within the Bank’s main business lines (corporate and investment business, business with financial institutions, risks, planning and reporting, assets and liabilities, internal control and audit, internal control for the prevention of money laundering and the financing of terrorism, branding and marketing/external communications, personnel, property management, IT and security). The Commissions are managed by the heads of the relevant divisions of the Bank. Members of the Commissions are experts drawn from all of the banks and companies in the Group. The Commissions are responsible for identifying best practices and finding ways to implement them, prior to their final approval by the Management Committee.
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In addition to the Commissions, the Group Credit Committee, which oversees the management and control of credit risk, also functions as an element of the Management Committee.
In September 2011, the Group’s Management Committee approved a decision to reform the Group’s management system. The main objective of this reform is to improve coordination and cooperation between the Group’s companies in various key business and support functions. Three key directions of reform were established to achieve this:
1. To create a major business line known as Corporate and Investment Banking, which is responsible for the financial results of VTB Group’s corporate banking business in all the geographical areas in which it is present;
2. To create a major business line known as Retail Banking, which is responsible for the financial results of the retail banking services provided by VTB Group to individuals and small businesses in all the geographical areas in which it is present;
3. To increase the centralisation of responsibility and the integration of management of the key functions of support and control, primarily the management of risks, finance, IT and operational activities.
Developments in the management system will not lead to any changes in the Bank’s strategy and policies. On the contrary, this development merely provides a different approach to their implementation. The new system will enable the Bank to reduce risks, develop a major global model for corporate banking, closely coordinate the work of every business line in all geographic locations, and to increase profitability through synergies between business lines and best practices. It will also enable the Group to cut costs by sharing infrastructure and resources more extensively among VTB’s subsidiaries. Furthermore, the new system will be a platform for the effective integration of assets acquired by VTB.
VTB Group’s governance system is designed to comply fully with the corporate and antimonopoly legislation of the countries in which the Group’s companies operate, and undergoes continual review and improvement in order that it remains in compliance. In particular, the regulations of the VTB Group Management Committee ensure that no decisions can be made that would limit competition in the markets in which VTB Group companies operate or would violate legislative norms or the statutory documents of those companies. Also, in accordance with Civil law requirements, VTB Group’s governance system is based on the principle of the independence of each of the legal entities within the Group.
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6. CORPORATE SOCIAL RESPONSIBILITY
VTB Group strives to position itself as a leader in all areas where it conducts business. At the same time, VTB is fully aware that achieving a high level of operating and financial performance, management efficiency and sustainable growth depend on those whose interests are affected by its business. The Group recognises its responsibility towards all stakeholders, communicates with them on a regular basis and takes into account their interests, not only in its ongoing operations, but also while setting its strategic objectives and directions for further development.
6. 1. PERSONNEL
In 2011, VTB continued to implement the strategy for effective development that was adopted the previous year. In accordance with this strategy, VTB Group designed a matrix system to manage its major business lines. The HR management system is one of its main elements.
On 31 December 2011, VTB Group employed more than 65,000 people. Within the framework of the Group’s Human Resources Strategy, the Group implemented a number of initiatives during 2011 to unify processes and other projects to improve the HR management system. The main goal of these activities was to provide an optimal balance between the Group deriving benefit from employees’ professional activities, which go towards achieving our strategic goals, and meeting the needs, interests and expectations of employees in the best possible way.
In 2011, teams within the Group’s banks and companies were strengthened by rotating staff internally, as well as by attracting well-qualified and successful external candidates with experience of working in Russia and abroad. A number of professionals, who have experience of working for leading international companies in the financial sector in Russia and abroad, joined the Group’s management team in 2011. All of this will help VTB to accomplish its ambitious goals.
Appraisal
VTB operates a modern and effective system of personnel assessment. The system is used to select both external and internal candidates, determine employees’ training requirements, and create development and career plans. It also helps us to identify the most promising employees, form a talent pool, and assess employees’ performance. The methodological basis of VTB Group’s appraisal system combines all the assessment techniques that exist in the market. In 2011, the Assessment Centre method was used to assess the performance of regional client teams, in order to confirm that client managers’ competencies correspond to their job profiles. When changes in organisational structure took place, the Competency-Based Interview rapid assessment method was used as the basis for selection of internal candidates.
The competency model has a special place in the appraisal system for VTB’s employees - it sets the standards for employee conduct, promotes the achievement of corporate goals, and defines the criteria for personnel selection and assessment. It reflects the values of VTB Group and represents a single procedural system for assessment in the Group’s banks and companies in Russia, the CIS, Europe and Asia. It also enables employees to better understand the banks’ and companies’ expectations and corporate standards of conduct, and to receive feedback on their performance.
Incentive System
In 2011, as part of the integration processes within the Group, VTB implemented a project to unify its approaches and programmes in the framework of the Incentive and Remuneration System and social policy. The project was also related to the merger of VTB Bank North-West with VTB Bank. The Group also started synchronising the policies and procedures on remuneration and social programmes for
95 VTB 2011 ANNUAL REPORT
employees of the Bank of Moscow and TransCreditBank with the standards of the Group during the reporting period.
VTB paid special attention to an analysis and evaluation of the Group’s incentive and remuneration principles in the context of international standards and regulations on remuneration, which were established for financial organisations following the 2008 crisis, and which are aimed at maintaining financial stability. In this regard, during the assessment of an employee’s performance, the focus is on adopting a balanced approach that takes into account results obtained and risks taken.
In addition, in accordance with international standards, high priority is given to the maintenance of financial organisations’ long-term stability. Thus, in order to strengthen the focus on achievement of long-term results, an incentive programme running over a long time period was introduced for VTB Capital employees. It is expected that this programme will be expanded to the Group’s other banks and companies, while taking into account any relevant legal or regulatory requirements in the countries where the Group operates.
Training and Development
VTB’s Human Resources Strategy also sets out the development of the corporate training scheme. In 2011, training sessions were designed and conducted for employees of the Group’s companies in order to ensure that the personnel have the knowledge and skills required for the achievement of efficient results and to meet VTB’s qualitative performance indicators, as according to the Group’s key strategic initiatives. The training improved the overall level of professional expertise of personnel in subjects such as customer service, sales techniques, product lines, cross-sales, etc.
The number of client managers involved in training for cross-selling of financial products of the Group’s companies more than tripled in 2011. Product managers and specialists of the Group’s seven banks and companies participated in developing and conducting the training programmes. Overall, more than 3,500 VTB client managers participated in intensive on‐ and off‐site training during the reporting period. Training was also conducted in other key areas of the Group’s activities, including IT, business planning, internal control, financial monitoring and credit‐related work. These training programmes were conducted by both VTB internal staff and by representatives of specialised training centres and business schools.
The most important task in 2011 was to increase the effectiveness of management. This is the role of the VTB Corporate University, which is a single training centre for VTB Group’s senior and middle management. In September 2011, the “Energy of Leadership” training programme held its sixth graduation ceremony. The parameters for admission, which is on a competitive basis, and the academic content of the programme were developed having in mind the Bank’s key strategic initiatives, including the development of transactional banking and the transformation of the corporate investment business. 14 managers of VTB Group’s companies from Russia and the CIS were enrolled in the programme. While studying at the University, they developed and implemented business projects related to various elements of the Bank’s strategy.
The focus of corporate training in 2011, as in 2010, was on training management personnel and employees of the Group’s business divisions.
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The proportion of managers to the total Breakdown of VTB Bank’s employees who participated in number of VTB Bank’s employees who training programmes, by internal divisions, in 2011 participated in training programmes
Control Divisions
Support Divisions
Business Divisions
Corporate Culture
One of the main tasks in VTB’s HR management programme during 2011 was to increase the effectiveness of internal communications channels, such as awareness-raising events, in which VTB senior managers participated, the Team Energy corporate magazine, surveys of employees on the most important issues via the intranet portal, information notices, announcements, and mail shots.
Activities uniting the whole Group on the basis of common values and interests have become particularly important in the life of VTB – these include family and sporting events, volunteer activities, Open Doors Day and others. In particular, after a two-year break, VTB Group held its 7th "Spartakiad". This large-scale event united 1,050 sportsmen and sportswomen, representing the Group’s 12 companies from eleven countries, and approximately 3,000 guests and supporters. For the first time, teams from the Bank of Moscow and TransCreditBank participated in the "Spartakiad", and our sportsmen and sportswomen competed in eleven disciplines.
6.2. RESPONSIBLE RESOURCE MANAGEMENT
The rapid development of VTB Bank’s business inevitably results in the consumption of natural resources. VTB therefore strives constantly to reduce the volume of resources it uses in order to minimise any negative impact on the environment. VTB Bank uses both technical and administrative approaches to keep the environmental impact of its operations to a minimum. The Bank’s key objectives are to have ecologically efficient principles in mind during construction and renovation projects, while at the same time using its various resources in a considerate manner and managing waste.
In 2011, VTB implemented a number of administrative measures that were aimed at reducing the consumption of resources. The Bank launched the test phase of an automated system of property management, optimised the location of its offices and expanded the implementation of electronic document management. In order to consolidate the various activities of the Bank in this area, VTB has merged its property management and logistics divisions.
The most significant events of 2011 in relation to the optimisation of office locations included the completion of the move of VTB Bank’s head office to the Federation Tower of Moscow-City Business Centre and the beginning of construction of a new administrative building on Vorontsovskaya Street in Moscow. These measures will enable the Bank to make the most efficient use of its real estate portfolio through the implementation of cost-effective space planning solutions and the highest standards of workplace facilities.
97 VTB 2011 ANNUAL REPORT
By using modern technologies and equipment, VTB aims to employ a system that guarantees good monitoring and control of energy consumption during the construction and renovation of the Bank’s office buildings. New office buildings and other large VTB Group facilities are equipped with state-of- the-art energy efficiency equipment. Unique lighting and microclimate control systems allow for the adjustment of electricity and heating consumption depending on the time of day and weather conditions. Such equipment is ‐1520% more energy efficient when compared to the previous generation of climate control systems. The Federation Tower, where the head office of the Bank is now located, has a panoramic glass facade and transparent office partitions with the lowest degree of shading. Those features increase the transmission of light through the building and allow for the efficient use of natural light, enabling significant energy savings. In order to monitor electricity consumption and control costs, the Bank has installed 70 electricity meters in its head office. Scheduled maintenance tests of climate control systems are also conducted in the building, in order to ensure the equal distribution of electricity to fan coil units, and to reduce the consumption of heat transfer fluids and coolants.
In addition to energy savings, VTB pays special attention to reducing the risk of environmental pollution. The Group makes extensive use of safe and natural materials when building and decorating its offices, and obliges construction companies to use only environmentally friendly and certified materials. VTB Bank also considers it important that its employees work in a comfortable environment that complies with the highest health and safety standards. VTB is developing specific parameters for repair and refurbishment works, so that costs for the renovation of facilities may be planned and optimised. Implementation of these parameters will also enable the Bank to monitor the extent to which new facilities comply with the Bank’s requirements, including those related to the ecology.
The Bank aims to use all available resources efficiently. VTB regularly carries out technical and administrative checks aimed at reducing the consumption of electricity, heating, water and paper in its offices. During renovation works, the Group uses special technology to insulate the exterior of buildings, ensures that heating systems are working efficiently and replaces ventilation equipment with more energy efficient variants in order to save energy. Automatic control systems for energy consumption are installed in the Bank’s offices. VTB was one of the first companies to start using fluorescent lights, and subsequently LED and halogen lights, instead of incandescent bulbs. In 2012, the lamps in various technical facilities and the hallways of three of the Bank’s buildings will be replaced with more advanced LED lights. According to preliminary estimates, this change will reduce the annual electricity consumption at these facilities by a factor of two.
The Programme for Energy Conservation and Energy Efficiency in VTB Bank for 2011‐2012, which was approved by the Management Board, is in the process of realisation. As part of this programme, VTB optimises the performance of air conditioning systems, uses energy‐saving lighting fixtures more extensively, and has gradually been reducing the number of household electric appliances.
In addition, VTB Bank is trying to reduce the consumption of paper. For this reason, an electronic document management system was introduced throughout many offices. Internal correspondence is conducted via electronic channels, and modern software is installed to automate processes. When negotiating contracts in the electronic document management system, scanned or electronic versions of documents are sent out to departments for review and approval. If necessary, amendments may also be done electronically, approved by a digital signature, and no hard copy is required. These measures have enabled the Bank to substantially reduce its paper consumption. VTB continues to increase the use of videoconferencing to reduce the amount of business travel, normally required as a result of the diverse nature of the Group’s business. This helps to save fuel, energy and financial resources.
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Along with the responsible management of resources, the Bank ensures that the production and consumption waste that is generated by its working processes is properly disposed of at specialised facilities. Paper that has been used is recycled for the production of secondary raw materials and household waste is disposed of in special landfills. A contractor with the relevant licence deals with old fluorescent lights.
When replacing old vehicles, in addition to the price and operational capabilities of the potential replacement, VTB Bank pays special attention to fuel consumption figures and the level of hazardous emissions. Currently, all VTB motor vehicles comply with Euro ‐3 and Euro‐4 standards.
Volume of resource consumption by JSC VTB Bank in 2010-2011
Unit 2010 2011 Change
Heating Gcal 17,919 17,259 -3.7% Electricity kW ‘000 22,730 21,658 -4.7% Water m³ 72,662 73,132 0.6%
6.3. SOCIAL PROGRAMMES
VTB Bank’s long-term success is inseparable from the wellbeing of society, which is why VTB supports socially important initiatives that are not directly related to the Group’s core activities. The support we provide mainly takes the form of charitable projects and sponsorships.
In 2011, VTB Bank donated approximately RUB 1.9 billion in total to charitable causes and to sponsor various projects across Russia and abroad.
The most important activities of VTB Group in the social sphere include support for projects related to social development, cultural and scientific heritage in countries where the Group operates, as well as the promotion and development of sports and the provision of aid to vulnerable groups within society. The Bank also actively develops partnerships with healthcare and educational institutions. In March 2011, VTB was awarded the ‘Patron of the Decade’ award, following the ‘Benefactors of the Decade’ rating, which is compiled by Profile magazine.
Sports
One of the priority tasks of VTB Group’s social activity is to support sporting events and to create a stable financial base that enables Russian sportsmen and sportswomen to compete successfully in various sports worldwide. In 2011, VTB Bank lent its financial support to various Russian and international sports organisations, including:
• Dynamo Moscow Football Club • VTB United League • United Hockey Club Dynamo • Futsal Club Dynamo • Russian Basketball Federation • Russian Gymnastics Federation • KAMAZ-Master rally team • Volleyball Federation of Russia • International Judo Federation
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• International Association of Athletics Federations (IAAF) • International Gymnastics Federation (FIG) • Russian Mountain Ski and Snowboarding Federation
VTB Bank has been the primary sponsor of KAMAZ-Master rally team for the past five years. The long-term partnership between the Bank and the team is an example of fruitful collaboration between business and sport, and the team’s huge success in the 2011 Dakar Rally is evidence of this. For the first time in the history of Dakar, four crews from one team won the first four places in the competition. This victory marked an anniversary for the Russian team – it was their tenth victory. The efficiency of the collaboration between VTB and KAMAZ-Master is now well proven - a Russian team has never achieved such a significant success at the international level in any other form of motorsports.
VTB also contributes to the strengthening of the Russian national teams’ status in Olympic sports disciplines, as the Bank has been sponsoring the Russian Basketball Federation and the Volleyball Federation of Russia in their preparations for two Olympic Games. Results in 2011 have shown that Russian supporters have every reason to expect good performances from Russian sportsmen and sportswomen in the 2012 London Olympic Games. During the reporting period, the Russian women’s basketball team had a successful season and won the European Women’s Basketball Championship. Another highlight was the victory of the Russian men’s national volleyball team in the World League 2011 and their gold medal in the Volleyball World Cup in Japan, which secured the team’s participation in the London Olympics.
Arts and Culture
One of the main areas of focus of the Bank’s social policy is to support cultural institutions. In recent years, VTB has collaborated with Russia’s largest museums and theatres to implement a number of large-scale projects. The Bank is actively involved in the cultural life of Moscow and St. Petersburg, it facilitates the promotion of substantial projects in the Russian regions and it helps to develop cultural ties with other countries.
In 2011, as a present for the Tretyakov Gallery’s 155th birthday, the Bank financed the Gallery’s purchase of unique paintings by Nikolai Ge so that they could be displayed at the ‘What is Truth? 180th Anniversary of Nikolai Ge’s Birth’ exhibition. Previously, the paintings had for over a century been in the possession of Swiss art collectors.
In addition, VTB sponsored an exhibition devoted to the 150th anniversary of the birth of Konstantin Korovin, an outstanding Russian painter, which was held in the halls of the Benois Wing of the Russian Museum. For the first time, about 250 of the artist’s works from 15 Russia’s museums were presented to the public.
VTB also continues to support Russia’s leading theatres. VTB is a member of the Bolshoi Theatre Board of Trustees and a General Partner of the Mariinsky Theatre. The Bank provides ongoing support to the Pyotr Fomenko Workshop Theatre in Moscow.
In 2011, VTB sponsored Pyotr Tchaikovsky’s ballet ‘Sleeping Beauty’, which was staged in the Bolshoi Theatre. It was the first ballet premier on the stage of the historic building after its re-opening.
In June 2011, the Bank supported a charity tour of the Pyotr Fomenko Workshop Theatre. The theatre gave two charity performances on the stage of the Black Sea Fleet Lavrenev Drama Theatre in Sevastopol. One performance was given for the sailors and their families, the other was open to the public. The funds raised from the second performance were donated to Lavrenev Drama Theatre in Sevastopol, which is one of the cultural and artistic divisions of the Russian Black Sea Fleet.
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The Bank supported the 10th Moscow Easter Festival in 2011. This music forum expanded on this occasion outside Russia - the concert programme covered five capitals: Moscow, Kiev, Minsk, Vilnius and Astana, as well as 38 cities in Russia. In total, there were 122 concerts.
With the support of the VTB Group, the 19th Stars of the White Nights Music Festival also reached outside St. Petersburg. 115 concerts and performances were held not only in the northern capital of Russia, but also in Moscow and Veliky Novgorod. The festival was opened at the Mariinsky Theatre with a sparkling premier of Gaetano Donizetti’s opera ’L’Elisir d’Amore’, starring Anna Netrebko. As usual, the Bank also sponsored the 11th Mariinsky International Ballet Festival.
In 2011, for the second consecutive year, VTB acted as an official sponsor of the TEFI-Region (National Television Competition), which was established in 1994. The TEFI award is the most prestigious award in the Russian television industry.
Social Investments
Over the last eight years, VTB has been developing its own charity programme, ‘World Without Tears’, which is aimed at providing support to children’s healthcare institutions. In 2011, events within the programme were held in Ufa, Orenburg, Voronezh, Kursk, Vladimir, Ulan-Ude, Yuzhno- Sakhalinsk, Petropavlovsk-Kamchatskiy, Volgograd and Moscow. The annual budget of the programme amounted to RUB 15 million. All funds were used for the purchase of medical equipment and pharmaceuticals exclusively for children’s hospitals.
VTB also traditionally provides support to Russian educational institutions. Over the course of the reporting period, VTB partnered with the following higher education establishments:
• Saint Petersburg State University • The Finance University under the Government of the Russian Federation • The Baltic State Technical University ‘Voenmeh’ • The Russian State University for the Humanities • The Moscow School of Economics of Lomonosov Moscow State University • The Military Academy of the General Staff of the Armed Forces of the Russian Federation
In addition, during the year the Bank regularly lent its financial support to residential schools and orphanages, normal schools, veterans’ funds and associations, as well as to religious organisations.
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7. MANAGEMENT RESPONSIBILITY STATEMENT
VTB Management is responsible for preparing the Annual Report and the Group’s consolidated financial statements in accordance with applicable laws and regulations. The management responsibility statement forms an integral part of the Annual Report and is prepared in accordance with the requirements of the UK Financial Services Authority (FSA).
VTB Group’s internal regulations require its management to prepare the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and applicable laws and regulations.
The consolidated financial statements, as required by law and IFRS, present a true and fair view of the Group’s state of affairs and profit.
In preparing the consolidated financial statements, VTB management is required to:
• select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, with any material deviations from the standards being disclosed and explained in the statements; • prepare consolidated financial statements on a going concern basis, unless it is inappropriate to presume that the Group will continue its business activity in the near future.
VTB management is responsible for keeping proper accounting records, which enable them to disclose with reasonable accuracy at any time, the financial position of the Group, and to ensure that the accounts comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Group and, hence, for taking reasonable steps for the prevention and detection of fraud and other irregularities.
VTB Bank President and Chairman of the Management Board
Andrey L. Kostin
102 VTB 2011 ANNUAL REPORT
8. SUMMARY FINANCIAL STATEMENTS IN ACCORDANCE WITH IFRS
VTB BANK Summary Consolidated Financial Statements Derived from the Audited Consolidated Financial Statements and Independent Auditors’ Report For the years ended 31 December 2011 and 2010
Independent auditors’ report
To the Supervisory Council and Shareholders of VTB Bank:
The accompanying summary consolidated financial statements, which comprise the consolidated statements of financial position as at 31 December 2011 and 2010, the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of cash flows, and consolidated statements of changes in shareholders’ equity for the years then ended, are derived from the audited consolidated financial statements of VTB Bank and its subsidiaries (together “the Group”) for the years ended 31 December 2011 and 2010. We expressed an unmodified audit opinion on those consolidated financial statements in our auditors’ report dated 25 April 2012.
The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated financial statements of the Group.
Management’s responsibility for the summary consolidated financial statements
Management is responsible for the preparation of a summary of the audited consolidated financial statements on the basis described in the footnote to the summary consolidated financial statements.
Auditors’ responsibility
Our responsibility is to express an opinion on the summary consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 “Engagements to Report on Summary Financial Statements”.
Opinion
In our opinion, the summary consolidated financial statements derived from the audited consolidated financial statements of the Group for the years ended 31 December 2011 and 2010 are consistent, in all material respects, with those audited consolidated financial statements, on the basis described in the footnote to the summary consolidated financial statements.
25 April 2012
103 VTB 2011 ANNUAL REPORT
VTB Bank Consolidated Statements of Financial Position as at 31 December (in billions of Russian Roubles)
2011 2010 Assets Cash and short-term funds 407.0 275.5 Mandatory reserve deposits with central banks 71.9 26.4 Financial assets at fair value through profit or loss 571.5 344.6 Financial assets pledged under repurchase agreements and loaned financial assets 198.6 16.9 Due from other banks 424.6 349.9 Loans and advances to customers 4,301.6 2,785.4 Assets of disposal group held for sale 10.3 – Financial assets available-for-sale 167.7 55.9 Investments in associates and joint ventures 32.5 15.7 Investment securities held-to-maturity 32.4 34.2 Premises and equipment 116.8 113.2 Investment property 122.5 102.2 Intangible assets and goodwill 141.2 30.5 Deferred tax asset 42.7 37.9 Other assets 148.3 102.6
Total assets 6,789.6 4,290.9
Liabilities Due to other banks 699.7 397.3 Customer deposits 3,596.7 2,212.9 Liabilities of disposal group held for sale 8.5 – Other borrowed funds 734.6 185.7 Debt securities issued 664.5 593.1 Deferred tax liability 10.0 7.3 Other liabilities 209.4 110.9
Total liabilities before subordinated debt 5,923.4 3,507.2 Subordinated debt 241.1 205.5
Total liabilities 6,164.5 3,712.7
Equity Share capital 113.1 113.1 Share premium 358.5 358.5 Treasury shares (0.6) (0.3) Unrealized gain on financial assets available-for-sale and cash flow hedge 7.9 4.0 Premises revaluation reserve 11.4 11.4 Currency translation difference 11.0 11.0 Retained earnings 102.2 56.6 Equity attributable to shareholders of the parent 603.5 554.3
Non-controlling interests 21.6 23.9
Total equity 625.1 578.2
Total liabilities and equity 6,789.6 4,290.9
Approved for issue and signed on 25 April 2012.
______A.L. Kostin President – Chairman of the Management Board
______Herbert Moos Chief Financial Officer – Deputy Chairman of the Management Board
104 VTB Bank Consolidated Income Statements for the Years Ended 31 December (in billions of Russian Roubles)
2011 2010
Interest income 416.7 330.5 Interest expense (189.7) (159.4)
Net interest income 227.0 171.1 Provision charge for impairment of debt financial assets (31.6) (51.6)
Net interest income after provision for impairment 195.4 119.5
(Losses net of gains) / gains less losses arising from financial instruments at fair value through profit or loss (30.8) 14.8 Gains less losses / (losses net of gains) from available-for-sale financial assets 4.1 (0.1) Losses net of gains arising from extinguishment of liability (0.7) – Net recovery of losses / (losses) on initial recognition of financial instruments, restructuring and other gains / (losses) on loans and advances to customers 20.2 (0.2) Gains less losses / (losses net of gains) arising from dealing in foreign currencies 6.1 (7.5) Foreign exchange translation (losses net of gains) / gains less losses (6.5) 12.1 Fee and commission income 47.4 28.8 Fee and commission expense (8.2) (4.1) Share in income / (loss) of associates and joint ventures 7.5 (0.7) Provision charge for impairment of other assets, contingencies and credit related commitments (1.4) (2.2) Income arising from non-banking activities 20.4 11.0 Expenses arising from non-banking activities (9.1) (7.2) Other operating income 9.2 3.1
Net non-interest income 58.2 47.8
Operating income 253.6 167.3
Staff costs and administrative expenses (141.5) (95.1) Impairment of goodwill – (1.1) Profit from disposal of subsidiaries and associates 3.4 –
Profit before taxation 115.5 71.1
Income tax expense (25.0) (16.3)
Net profit 90.5 54.8
Net profit / (loss) attributable to: Shareholders of the parent 89.4 58.2 Non-controlling interests 1.1 (3.4)
Basic and diluted earnings per share (expressed in Russian Roubles per share) 0.00855 0.00557
These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together "the Group") prepared in accordance with IFRS for the years ended 31 December 2011 and 2010. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.
105 VTB Bank Consolidated Statements of Comprehensive Income for the Years Ended 31 December (in billions of Russian Roubles)
2011 2010
Net profit 90.5 54.8
Other comprehensive income: Net result on financial assets available-for-sale, net of tax 2.7 0.6 Actuarial losses net of gains arising from difference between pension plan assets and obligations (0.5) (0.2) Share of other comprehensive income of associates and joint ventures (0.5) (0.2) Effect of translation, net of tax 2.4 (2.4)
Other comprehensive income, net of tax 4.1 (2.2)
Total comprehensive income 94.6 52.6
Total comprehensive income attributable to: Shareholders of the parent 93.7 56.3 Non-controlling interests 0.9 (3.7)
These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together "the Group") prepared in accordance with IFRS for the years ended 31 December 2011 and 2010. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.
106 VTB Bank Consolidated Statements of Cash Flows for the Years Ended 31 December (in billions of Russian Roubles)
2011 2010
Cash flows from operating activities Interest received 382.3 302.6 Interest paid (176.4) (158.0) (Loss incurred) / income received on operations with financial instruments at fair value through profit or loss (23.3) 13.9 Income received / (loss incurred) on dealing in foreign currency 10.8 (7.6) Fees and commissions received 48.0 28.3 Fees and commissions paid (7.6) (4.6) Other operating income received 2.0 1.6 Staff costs, administrative expenses paid (122.1) (83.5) Income received from non-banking activities 17.8 7.0 Expenses paid in non-banking activities (7.3) (1.8) Income tax paid (28.8) (22.8)
Cash flows from operating activities before changes in operating assets and liabilities 95.4 75.1
Net decrease / (increase) in operating assets Net increase in mandatory reserve deposits with central banks (37.3) (0.5) Net decrease in restricted cash – 0.2 Net increase in correspondent accounts in precious metals (6.8) (1.6) Net (increase) / decrease in financial assets at fair value through profit or loss (159.8) 42.8 Net decrease in due from other banks 11.6 58.4 Net increase in loans and advances to customers (971.2) (289.3) Net increase in other assets (44.1) (22.3) Net (decrease) / increase in operating liabilities Net increase in due to other banks 232.5 79.8 Net increase in customer deposits 832.7 361.5 Net increase / (decrease) in debt securities issued other than bonds 78.9 (14.6) Net increase in other liabilities 19.2 7.6
Net cash from operating activities 51.1 297.1
Cash flows used in investing activities
Dividends received 0.8 0.8
These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together "the Group") prepared in accordance with IFRS for the years ended 31 December 2011 and 2010. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.
107 VTB Bank Consolidated Statements of Cash Flows for the Years Ended 31 December (in billions of Russian Roubles)
Proceeds from sale or redemption of financial assets available-for-sale 58.5 13.3
Purchase of financial assets available-for-sale (125.6) (43.9)
Purchase of subsidiaries, net of cash acquired 5.8 8.1
Disposal of subsidiaries, net of cash disposed (1.1) 0.2
Purchase of and contributions to associates and joint ventures (109.1) (0.6)
Proceeds from sale of share in associates and joint ventures 6.6 –
Purchase of investment securities held-to-maturity (1.2) (0.8)
Proceeds from redemption of investment securities held-to-maturity 2.3 1.2
Purchase of premises and equipment (36.9) (31.3)
Proceeds from sale of premises and equipment 40.1 2.9
Purchase or construction of investment property (0.3) –
Proceeds from sale of investment property 1.3 –
Purchase of intangible assets (2.7) (1.4)
Proceeds from sale of intangible assets 1.2 –
Net cash used in investing activities (160.3) (51.5)
These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together "the Group") prepared in accordance with IFRS for the years ended 31 December 2011 and 2010. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.
108 VTB Bank Consolidated Statements of Cash Flows for the Years Ended 31 December (continued) (in billions of Russian Roubles)
2011 2010
Cash flows used in financing activities Dividends paid (7.3) (6.1) Proceeds from issuance of local bonds 21.0 36.1 Repayment of local bonds (53.9) (30.7) Buy-back of local bonds (16.7) (33.9) Proceeds from sale of previously bought-back local bonds 14.9 29.7 Proceeds from issuance of Eurobonds 45.6 92.4 Repayment of Eurobonds (100.8) (11.5) Buy-back of Eurobonds (35.3) (64.1) Proceeds from sale of previously bought-back Eurobonds 33.9 68.3 Proceeds from syndicated loans 87.3 0.6 Repayment of syndicated loans (43.2) (14.9) Buy-back of syndicated loans (5.9) – Proceeds from other borrowings and funds from local central banks 452.3 275.4 Repayment of other borrowings and funds from local central banks (122.7) (562.6) Repayment of subordinated debt – (9.3) Buy-back of subordinated debt (4.8) (0.3) Proceeds from sale of previously bought-back subordinated debt 3.1 0.9 Proceeds from sale of treasury shares 1.3 – Purchase of treasury shares (1.6) – Share issue to minorities 0.2 0.3 Purchase of non-controlling interests in subsidiaries (34.8) (0.2)
Net cash from / (used in) financing activities 232.6 (229.9)
Effect of exchange rate changes on cash and cash equivalents 2.6 (1.7)
Effect of hyperinflation (1.3) –
Net increase in cash and cash equivalents 124.7 14.0
Cash and cash equivalents at the beginning of the year 272.8 258.8
Cash and cash equivalents at the end of the year 397.5 272.8
These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together "the Group") prepared in accordance with IFRS for the years ended 31 December 2011 and 2010. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.
109
VTB Bank Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended 31 December (in billions of Russian Roubles)
Attributable to shareholders of the parent Unrealized gain on financial assets available-for- Premises Currency Non- Share Treasury sale and cash revaluation translation Retained controlling Total Share capital premium shares flow hedge reserve difference earnings Total interests equity
Balance at 1 January 2010 113.1 358.5 (0.4) 3.4 11.8 13.2 2.7 502.3 2.6 504.9
Net result from treasury shares transactions – – 0.1 – – – (0.1) – – –
Total comprehensive income for the period – – – 0.6 (0.1) (2.2) 58.0 56.3 (3.7) 52.6
Transfer of premises revaluation reserve upon disposal or depreciation – – – – (0.3) – 0.3 – – –
Dividends declared – – – – – – (6.1) (6.1) – (6.1) Acquisition of subsidiaries – – – – – – – – 23.2 23.2
Increase in share capital of subsidiaries – – – – – – (1.5) (1.5) 1.9 0.4
Acquisition of non-controlling interests – – – – – – (0.1) (0.1) (0.1) (0.2)
Expiration of put options over non-controlling interests – – – – – – 3.4 3.4 – 3.4
Balance at 31 December 2010 113.1 358.5 (0.3) 4.0 11.4 11.0 56.6 554.3 23.9 578.2
Net result from treasury shares transactions – – (0.3) – – – – (0.3) – (0.3)
Total comprehensive income for the period – – – 2.8 – 2.8 88.1 93.7 0.9 94.6
Transfer of premises revaluation reserve upon disposal or depreciation – – – – (0.2) – 0.2 – – –
Transfer of currency translation difference upon legal merger of subsidiary – – – – – (2.4) 2.4 – – –
Dividends declared – – – – – – (6.1) (6.1) (1.2) (7.3)
Increase in share capital of subsidiaries – – – – – – (3.2) (3.2) 3.4 0.2
Acquisition of subsidiaries – – – – – – – – 17.0 17.0
Disposal of subsidiaries – – – – – – – – (0.5) (0.5)
Acquisition of non-controlling interests – – – 1.1 0.2 (0.4) (13.9) (13.0) (21.9) (34.9)
Obligation to purchase non- controlling interests – – – – – – (21.9) (21.9) – (21.9)
Balance at 31 December 2011 113.1 358.5 (0.6) 7.9 11.4 11.0 102.2 603.5 21.6 625.1
These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together "the Group") prepared in accordance with IFRS for the years ended 31 December 2011 and 2010. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank.
110 VTB 2011 ANNUAL REPORT
9. SUMMARY FINANCIAL STATEMENTS IN ACCORDANCE WITH RAS
Audit report on the Annual Report prepared on the basis of VTB Bank’s (open joint-stock company) results for 2011
To the shareholders of VTB Bank (open joint stock company)
The Audited Entity:
Company name: VTB Bank (open joint stock company)
Entry of state registration of the credit organisation by the Central Bank of the Russian Federation: No. 1000 dated 17 October 1990
Certificate of entry made to the Unified State Register No. 1027739609391, issued by the Ministry of Taxes and Levies of the Russian Federation on 22 November 2002
Address: 29, Bolshaya Morskaya St., St. Petersburg
The Auditor:
Company name: CJSC Ernst & Young Vneshaudit
Main State Registration Number 1027739199333.
Address: 77 bldg 1, Sadovnicheskaya Emb., Moscow 115035, Russia
CJSC Ernst & Young Vneshaudit is a member of Non-Profit Partnership Audit Chamber of Russia (NPP ACR). CJSC Ernst & Young Vneshaudit is registered in the NPP ACR register of auditors and audit organisations under record number 3027 and included in the controlled copy of the auditors and audit organisations register under main record number 10301017410.
We have audited the accompanying Annual Report of VTB Bank (open joint stock company), which includes: the annual balance sheet as of 1 January 2012, the income statement for 2011, the cash flow statement for 2011, the statement of capital adequacy and loan impairment for bad loans and other assets as of 1 January 2012, the information on mandatory ratios as of 1 January 2012 and the explanatory note (only in terms of points 1.1, 2.1-2.4, 2.6-2.7, 3.1-3.5, 6, 7).
The responsibility of the audited entity for the Annual Report
It is the responsibility of JSC VTB Bank Management to prepare and present the Annual Report in compliance with the accounting procedures applicable under the Russian legislation and to maintain the internal control system needed to prepare the Annual Report free of any material misrepresentation caused by negligence or error.
The responsibility of the Auditor
Our responsibility is to express an opinion on the fairness of the Annual Report based on our audit.
111 VTB 2011 ANNUAL REPORT
We conducted our audit in accordance with the Federal Standards of Auditing and International Auditing Standards, which imply compliance with ethical principles and obtainment of reasonable assurance that the Annual Report is free from any material misrepresentation.
The audit includes various auditing procedures aimed at gaining evidence to support the amounts and disclosures in the Annual Report. The choice of the auditing procedures is subject to our judgment based on the assessment of risk of material misrepresentations in the Annual Report caused by negligence or error. While assessing the risk, the Auditor shall review the internal control system underpinning the preparation and presentation of the Annual Report in order to select the relative auditing procedure, rather than express opinion of the efficiency of such internal control system. The audit also includes an assessment of compliance with the accounting policy, and a review of the significant estimates derived by the Management of the audited entity; as well as the evaluation of the overall presentation of the Annual Report.
We believe that the audit evidence we have gained provides a reasonable and due basis for our opinion.
Opinion
In our opinion, the Annual Report presents fairly, in all material respects, the financial position of VTB Bank (open joint stock company) as at 31 December 2011, its financial performance and cash flows for the year 2011 in accordance with the rules regulating the preparation of annual reports in the Russian Federation.
Miscellaneous
Subject to Clause 9 of the Explanatory Notes, JSC VTB Bank Management has decided not to publish the Explanatory Notes within the Annual Report in the mass media in compliance with Directive No.2172-U of the Bank of Russia as at 20 January 2009 “On Publishing and Disclosing Information on Performance of Lending Institutions and Bank (Consolidated) Groups”. Please note that this Audit Opinion shall be considered together with all forms of annual financial statements and explanatory notes, being an integral part of the Annual Report. The full Annual Report comprising all financial statements and the explanatory notes shall be accessible at the relative page used by the Bank for information disclosure at www.vtb.ru.
The accompanying Annual Report is not intended to present the financial position and financial performance in accordance with accounting and reporting principles or practices generally accepted in countries and jurisdictions other than the Russian Federation. Accordingly, this Annual Report is not designed for those who are not informed about accounting and reporting principles, procedures and practices in the Russian Federation.
Partner Andrey V. Sorokin ZAO Ernst & Young Vneshaudit
6 April 2011
112 VTB 2011 ANNUAL REPORT
Balance sheet (published form) as at January 1, 2012 Form code 0409806 No. Line item Data as at the reporting Data as at the reporting date date of the previous year (RUB thousand) (RUB thousand) I. Assets 1 Cash 25,191,760 8,083,515 2 Funds with the Central Bank of the Russian Federation 158,945,660 67,527,861 2.1 Mandatory reserves 32,079,621 10,627,489 3 Due from other credit institutions 44,628,606 57,319,827 4 Net investments into securities at fair value through profit or loss 285,456,452 152,489,589 5 Net loans 2,804,629,583 1,883,198,038 6 Net investments into securities and other financial assets available-for-sale 589,310,298 419,475,907 6.1 Investments into subsidiaries and associates 351,482,525 250,875,157 7 Net investments into securities held-to-maturity 3,576,783 5,340,232 8 Fixed assets, intangible assets and materials 107,911,984 96,333,717 9 Other assets 151,800,456 94,892,713 10 Total assets 4,171,451,582 2,784,661,399
II. Liabilities 11 Loans, deposits and other funds of the Central Bank of the Russian Federation 198,544,975 0 12 Due to other credit institutions 1,148,405,077 750,529,634 13 Funds of clients (non-credit institutions) 1,907,937,588 1,228,392,832 13.1 Individual deposits 13,503,267 10,101,113 14 Financial liabilities at fair value through profit or loss 2,652,612 1,016,188 15 Debt instruments issued 215,069,960 146,476,739 16 Other liabilities 60,310,594 35,780,773 17 Provisions for possible losses on the credit commitments and contingencies, for other possible losses and for operations with offshore residents 8,759,353 4,396,754 18 Total liabilities 3,541,680,159 2,166,592,920 III. Equity 19 Share capital 104,605,413 104,605,413 20 Treasury shares 0 6 21 Share premium 361,901,101 361,901,101 22 Reserve fund 5,230,271 4,549,662 23 Unrealised gain on securities available-for -sale (7,579,468) 1,590,098 24 Premises revaluation reserve 9,234,410 6,717,369 25 Retained earnings / (accumulated deficit) of the previous years 131,973,715 95,362,018 26 Profit / (loss) for the reported period 24,405,981 43,342,824 27 Total equity 629,771,423 618,068,479 IV. Off-balance liabilities 28 Irrevocable commitments 1,598,991,540 952,387,345 29 Guarantees issued 426,216,095 148,952,280 30 Contingent non-credit related commitments 60,537 0 The annual report is available at the Bank’s website: www.vtb.ru.
President and Chairman of the Management Board Andrey.L. Kostin
Chief Accountant Olga A. Avdeeva
113 VTB 2011 ANNUAL REPORT
Income statement (published form) for 2011 Form code 0409807 No. Line item Data for the Data for the same period reporting period of the previous year (RUB (RUB thousand) thousand) 1 Total interest income including income from: 199,292,384 192,198,387 1.1 Due from other credit organisations 35,221,620 28,054,737 1.2 Loans to customers (non-credit organisations) 138,254,516 145,516,129 1.3 Financial leasing 0 0 1.4 Investments in securities 25,816,248 18,627,521 2 Total interest expenses including expenses on: 121,930,939 112,756,656 2.1 Due to other credit organisations 47,064,798 42,125,805 2.2 Customer (non-credit organisations) deposits 66,496,111 57,856,287 2.3 Debt securities issued 8,370,030 12,774,564 3 Net interest income 77,361,445 79,441,731 4 Change of provisions for possible losses on loans, other similar indebtedness and funds on correspondent accounts including: (12,532,600) (19,142,789) 4.1 Change of provisions for possible losses on accrued interest (8,957,890) (6,087,290) 5 Net interest income after provisions for possible losses 64,828,845 60,298,942 6 Gains less losses / (losses net of gains) arising from securities at fair value through profit or loss (23,486,635) (4,708,045) 7 Gains less losses arising from securities available-for-sale 7,121,931 9,397,138 8 Gains less losses / (losses net of gains) arising from securities held-to-maturity (78,124) (210) 9 Gains less losses / (losses net of gains) arising from dealing in foreign currencies (13,658,834) (10,351,770) 10 Foreign exchange translation gains less losses 1,740,759 9,196,554 11 Income from participation in other companies 26,121,766 10,577,334 12 Fee and commission income 12,506,037 10,918,906 13 Fee and commission expense 2,493,040 911,804 14 Change of provisions for possible losses on securities available-for-sale (152,809) (508,810) 15 Change of provisions for possible losses on securities held-to-maturity (5,370) (1,454,322) 16 Change of provisions for other losses (4,508,666) (2,730,341) 17 Other operating income 70,050,923 15,295,876 18 Net income 137,986,783 95,019,448 19 Operating expenses 103,183,370 33,689,955 20 Profit before taxes 34,803,413 61,329,493 21 Accrued / (paid) taxes 10,397,432 17,986,669 22 Profit after taxation 24,405,981 43,342,824 23 Total payments from profit after tax, including: 0 0 23.1 Distribution of dividends among shareholders (participants) 0 0 23.2 Assignments for creation and charging of Reserve Fund 0 0 24 Profit for the reported period 24,405,981 43,342,824 The annual report is available at the Bank’s website: www.vtb.ru.
President and Chairman of the Management Board Andrey.L. Kostin
Chief Accountant Olga A. Avdeeva
114 VTB 2011 ANNUAL REPORT
Statement of capital adequacy and loan impairment for bad loans and other assets (published form) as at January 1, 2012 Form code 0409808 No. Line item Data as at the Increase (+) / Data as at the reporting date of decrease (-) during reporting date the previous year the reporting period 1 Equity (capital),RUB thousand, including: 529,659,300 (86,384,432) 443,274,868 1.1 Authorised capital, including 104,605,413 0 104,605,413 1.1.1 Face value of registered common shares 104,605,413 0 104,605,413 1.1.2 Face value of registered preferred shares 0 0 0 1.2 Treasury shares 6 (6) 0 1.3 Share premium 361,901,101 0 361,901,101 1.4 Reserve fund 4,549,662 680,609 5,230,271 1.5 Retained earnings: 122,095,639 16,702,227 138,797,866 1.5.1 of the previous years 79,323,628 36,611,693 115,935,321 1.5.2 of the reporting period 42,772,011 (19,909,466) 22,862,545 1.6 Intangible assets 22,306 (949) 21,357 1.7 Subordinated loan (credit, deposit) 200,000,000 8,690,616 208,690,616 1.8 Sources (part of sources) of additional capital for creation of which investors utilised inappropriate assets 0 0 0 2 Standard capital adequacy ratio, % 10.0 X 10.0 3 Actual capital adequacy ratio, % 22.6 X 11.0 4 Actual provisions for possible losses (RUB thousand), including: 129,859,080 32,164,471 162,023,551 4.1 on loans and similar indebtedness 119,473,031 27,047,967 146,520,998 4.2 on other assets liable to risk of losses and for other possible losses 6,234,403 925,831 7,160,234 4.3 on credit commitments and contingencies recorded on off-balance accounts and forward transactions 4,151,646 3,780,932 7,932,578 4.4 on operations with offshore residents 0 409,741 409,741
Additional information: 1. Provision charge for / (increase in) possible losses on loans during the 61,408,648 reporting period (RUB thousand) due to: 1.1. New loans issued 25,860,002 1.2. Changes in loan quality 20,095,053 1.3. Currency translation difference 3,065,065 1.4. Other 12,388,528 2. Recovery of / (decrease in) provisions for possible losses on loans during the 50,486,791 reporting period (RUB, thousand) due to: 2.1. Write-offs 2,253,945 2.2. Repayment of loans 26,723,525 2.3. Changes in loan quality 8,680,052 2.4. Currency translation difference 2,415,924 2.5. Other 10,413,345 The annual report is available at the Bank’s website: www.vtb.ru.
President and Chairman of the Management Board Andrey.L. Kostin
Chief Accountant Olga A. Avdeeva
115 VTB 2011 ANNUAL REPORT
Information on mandatory ratios (published form) as of January 1, 2012 Form code 0409813 No. Line item Regulatory Actual value, % value, % as at the reporting as at the preceding date reporting date 1 Capital adequacy ratio (N1) 10.0 11.0 22.6 2 Capital adequacy ratio of the non-banking financial institution entitled to carry out cash transfers without opening bank account (N1.1) 3 Instant liquidity ratio (N2) 15.0 51.4 54.0 4 Current liquidity ratio (N3) 50.0 57.4 110.1 5 Long-term liquidity ratio (N4) 120.0 94.7 71.5 The ratio of maximum risk per borrower / Maximum Maximum 6 group of related borrowers (N6) 24.0 19.8 Minimum Minimum 25.0 0.5 0.3 7 Maximum large credit risk ratio (N7) 800.0 432.0 215.8 8 Maximum loans, bank guarantees and sureties granted by the bank to its shareholders (N9.1) 50.0 0.0 0.0 9 Aggregate risk by the bank’s insiders (N10.1) 3.0 0.0 0.0 10 Allocation of equity funds (capital) to purchase shares (stake) in other legal entities (N12) 25.0 23.2 2.1 11 The ratio of liquid assets with 30-day maturity to NSCA total liabilities (N15) 12 Capital adequacy ratio of the non-banking financial institution entitled to carry out cash transfers without opening bank account (N15.1) 13 Maximum aggregate loans to customers, participating in settlements to complete payment (Н16) 14 Provision of loans to borrowers granted on behalf and for account of NSCA, excluding customers participating in settlements (N16.1) 15 The ratio of minimum mortgage-backed loans to equity funds (capital) (N17) 16 The ratio of minimum mortgage-backed amount to the volume of mortgage- backed bonds issued (N18) 17 Maximum ratio of total liabilities of a credit institution, acting as the issuer, to senior debt lenders (in accordance with the applicable federal law) with respect to holders of mortgage-backed bonds, to equity funds (capital) (N19) The annual report is available at the Bank’s website: www.vtb.ru.
President and Chairman of the Management Board Andrey.L. Kostin
Chief Accountant Olga A. Avdeeva
116 VTB 2011 ANNUAL REPORT
Cash flow statement (published form) for 2011 Form code 0409814 No. Line item Cash flows for the Cash flows for the reporting period preceding reporting (RUB thousand) period (RUB thousand) 1 Net cash from (used in) operating activities 1.1 Total cash from (used in) operating activities before changes in operating assets and liabilities, including: (8,735,257) 18,757,691 1.1.1 Interest received 171,985,457 170,381,939 1.1.2 Interest paid (117,724,828) (110,816,799) 1.1.3 Fees and commissions received 12,506,037 10,918,906 1.1.4 Fees and commissions paid (2, 493,040) (911,804) 1.1.5 Gains less losses on financial assets at fair value through profit or loss, financial assets available-for-sale (16,706,546) (3,233,767) 1.1.6 Gains less losses on investment securities held-to- maturity 0 0 1.1.7 Gains less losses arising from dealing in foreign currency (17,315,299) (15,468,941) 1.1.8 Other operating income received 72,448,127 16,067,117 1.1.9 Operating expense (99,812,083) (35,607,700) 1.1.10 Taxes paid (11,623,082) (12,571,260) 1.2 Total increase (decrease) in net cash from operating assets and liabilities, including: 250,007,092 41,337,039 1.2.1 Net increase (decrease) in mandatory cash balances with the Central Bank of Russia (20,356,965) (1,127,461) 1.2.2 Net increase (decrease) in investment securities at fair value through profit or loss (124,191,768) 90,127,542 1.2.3 Net increase (decrease) in loans to customers (679,040,270) (131,666,494) 1.2.4 Net increase (decrease) in other assets (39,191,350) (944,825) 1.2.5 Net increase (decrease) in loans, deposits and due from the Central Bank of Russia 198,544,975 (287,170,904) 1.2.6 Net increase (decrease )in due to other credit institutions 326,697,414 161,547,386 1.2.7 Net increase (decrease) in customer deposits (non-credit institutions) 513,925,515 221,035,904 1.2.8 Net increase (decrease) in financial liabilities at fair value through profit or loss 1,636,424 1,016,188 1.2.9 Net increase/decrease in debt securities issued 52,993,017 (7,651,036) 1.2.10 Net increase (decrease) in other liabilities 18,990,100 (3,829,261) 1.3 Section 1 (items 1.1 + 1.2), total 241,271,835 60,094,730 2 Net cash from (used in) investing activities 2.1 Purchase of securities and other financial assets available-for-sale (465,966,231) (165,200,104) 2.2 Proceeds from sale and maturities of securities and other financial assets available-for-sale 265,879,097 112,263,828 2.3 Purchase of securities held-to-maturity 146,277 (1,344,390) 2.4 Proceeds from redemption of securities held-to-maturity 1,670,203 1,269,577 2.5 Purchase of premises and equipment, intangible assets and inventories (6,221,037) (3,350,364) 2.6 Proceeds from sale of premises and equipment, intangible assets and inventories 829,629 812,775 2.7 Dividends received 25,836,316 5,008,365 2.8 Section 2 (items 2.1 - 2.7), total (177,825,746) (50,540,313) 3 Net cash from (used in) financing activities 3.1 Proceeds from share issue 0 0 3.2 Purchase of treasury shares 0 (6) 3.3 Sale of treasury shares 6 0 3.4 Dividends paid (6,067,431) (6,066,566) 3.5 Section 3 (items 3.1 - 3.4), total (6,067,425) (6,066,572)
117 VTB 2011 ANNUAL REPORT
4 Effect of exchange rate changes on cash and cash equivalents 2,436,449 (32,392) 5 Increase in cash and cash equivalents 59,815,113 3,455,453 5.1 Cash and cash equivalents at the beginning of the year 130,988,602 118,632,357 5.2 Cash and cash equivalents at the end of the year 190,803,715 122,087,810 The annual report is available at the Bank’s website: www.vtb.ru.
President and Chairman of the Management Board Andrey.L. Kostin
Chief Accountant Olga A. Avdeeva
118 VTB 2011 ANNUAL REPORT
10. TRANSACTIONS OF JSC VTB BANK
Major transactions of JSC VTB Bank
In 2011, VTB Bank did not perform any transactions that were material as defined in accordance with article 78 of the Federal Law No. 208-FZ of 26 December 1995 on Joint Stock Companies.
Interested party transactions of JSC VTB Bank
VTB participated in the following interested party transactions between 2007 and 2011, which were approved by either its Supervisory Council or the General Shareholders Meeting:
Year Total number Total amount of transactions
of transactions in RUB thousand
2007 5,309 4,071,978,368 2008 6,640 7,811,570,233 2009 7,157 8,919,312,502 2010 9,872 12,715,935,279 2011 215,355 21,541,159,793
119 VTB 2011 ANNUAL REPORT
11. OTHER GROUP INFORMATION
11.1. DETAILS OF JSC VTB BANK
General information Full name VTB Bank (joint stock company) General banking licence No. 1000 Legal address 29, Bolshaya Morskaya St., St. Petersburg Postal address for Russian mail 37, Plyushchikha St., Moscow 119121 for international mail 43, Vorontsovskaya St., Moscow 109044 Call centre 8 800 200 77 99 (Russian toll-free) +7 495 739 7799 Fax +7 495 258 4781 Email address [email protected] (for queries and proposals) Website http://www.vtb.ru/
Details OKPO code 00032520
TIN 7702070139
Correspondent account with the Clearing 30101810700000000187 House of the Moscow Main Territorial Department of the Bank of Russia
Russian BIC 044525187
All-Russian Classifier of Political Subdivisions 40262563000
Taxpayer Record Validity Code 997950001
TELEX 412362 BFTR RU
SPRINTMAIL PROTOCOL/MOSVTB0/CEA
SWIFT VTBRRUMM
120 VTB 2011 ANNUAL REPORT
11.2. LICENCES OF JSC VTB BANK
• General licence to conduct banking operations No. 1000, dated 9 March 2007.
• Licence for performing banking activities with precious metals No. 1000, dated 9 March 2007.
• Licence of professional participation in the securities market for depository activities No. 178-06497-000100, dated 25 March 2003.
• Licence of professional participation in the securities market for brokerage activities No. 177-06492-100000, dated 25 March 2003.
• Licence of professional participation in the securities market for dealing activities No. 177- 06493-010000, dated 25 March 2003.
• Licence of professional participation in the securities market for securities management No. 177-06496-001000, dated 25 March 2003.
• Licence of a specialised depository for investment funds, unit trust and non-governmental pension funds No. 22-000-0-00011, dated 4 October 2000.
• Licence of stock exchange intermediary for futures and options transactions at stock exchanges No. 1451, dated 9 October 2009.
• General licence for exports of refined gold in standard and minted bars No. 093RU11002000662, dated 4 July 2011.
• General licence for exports of refined silver .999 Fine in standard and minted bars No. 093RU11002000100, dated 9 February 2011.
• Licence for activities involving State secrecy information No. 3872/5895, dated 2 December 2011.
• Licence to take measures and/or provide services to protect State secrecy information No. 3927, dated 13 December 2010.
• Licence to perform technical maintenance of encoding devices No. 342X, dated 16 November 2009.
• Licence for distribution of encoding devices No. 343R, dated 16 November 2009.
• Licence to render information encoding services No. 344U, dated 16 November 2009.
121 VTB 2011 ANNUAL REPORT
11.3. CONTACT INFORMATION
VTB Bank regional branch network Operating office No. 19 “Alekseevskiy” Address: 81, Mira Avenue, Moscow 129085 VTB Bank’s operating offices in Moscow and Phone: + 7 495 775 5454 the Moscow region Operating office No. 26 “Lubyanskiy” Operating office Financial Services Centre Address: 14 bldg 1, B. Lubyanka St., Moscow Address: 1, Burdenko St., Moscow 119121 101000 Phone: + 7 495 775 5454 Phone: + 7 495 775 5454
Operating office No. 3 “Turgenevskiy” Operating office No. 31 “Podolskiy” Address: 35, Myasnitskaya St., Moscow Address: 8, Klementa Gotvalda St., Podolsk, 103450 Moscow Region 142114 Phone: + 7 495 775 5454 Phone: + 7 495 775 5454
Operating office No. 4 “Kutuzovskiy” Operating office No. 39 “Ramenskiy” Address: 2 bldg 2, Pobedy St., Moscow 121170 Address: 3a, Karla Marksa St., Ramenskoye, Phone: + 7 495 775 5454 Moscow Region 140100 Phone: + 7 495 775 5454 Operating office No. 5 Address: 7 bldg 2, Pogorelskiy Per., Moscow Operating office No. 40 “Dmitrovskiy” 119017 Address: 75/74 bldg 1, Butyrskaya St., Moscow Phone: + 7 495 775 5454 127015 Phone: + 7 495 775 5454 Operating office No. 6 Address: 43 bldg 1, Vorontsovskaya St., Operating office No. 41 “Khimki” Moscow 109147 Address: 8 bldg 1, Proletarskaya St., Khimki, Phone: + 7 495 775 5454 Moscow Region 141400 Phone: + 7 495 775 5454 Operating office No. 11 “Danilovskiy” Address: 72, Lyusinovskaya St., Moscow Central Federal District 115162 Phone: + 7 495 775 5454 Branch of JSC VTB Bank in Belgorod Address: 35A, Slavy Avenue, Belgorod 308600 Operating office No. 13 “Mayakovskiy” Phone: +7 4722 58 0200 Address: 7, Gasheka St., Moscow 123056 Phone: + 7 495 775 5454 Branch of JSC VTB Bank in Bryansk Address: 16, Arsenalskaya St., Bryansk 241050 Operating office No. 16 “Zemlyanoy Val” Phone: +7 4832 66 0695 Address: 14-16 bldg 1, Zemlyanoy Val St., Moscow 105064 Branch of JSC VTB Bank in Vladimir Phone: + 7 495 775 5454 Address: 21, Razina St., Vladimir 600001 Phone: +7 4922 32 0970 Operating office No. 18 “Gagarinskiy” Address: 11 bldg 1, Leninskiy Avenue, Moscow Branch of JSC VTB Bank in Voronezh 119049 Address: 58, Revolyutsii Avenue, Voronezh Phone: + 7 495 775 5454 394006 Phone: +7 4732 53 1926
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Branch of JSC VTB Bank in Kaluga Northwestern Federal District Address: 20, Dostoevskogo St., Kaluga 248000 Phone: +7 4842 56 5085 Branch of JSC VTB Bank in Vologda Address: 9, Chelyuskintsev St., Vologda 160001 Branch of JSC VTB Bank in Kostroma Phone: +7 8172 57 1601 Address: 49, Sovetskaya St., Kostroma 156000 Phone: +7 4942 31 4448 Branch of JSC VTB Bank in Kaliningrad Address: 5, Bolnichnaya St., Kaliningrad Branch of JSC VTB Bank in Kursk 236040 Address: 24, Radishcheva St., Kursk 305000 Phone: +7 401 235 0111 Phone: +7 4712 36 0500 Branch of JSC VTB Bank in St. Petersburg Branch of JSC VTB Bank in Lipetsk Address: 30A, B. Morskaya St., St. Petersburg Address: 1, Pervomaiskaya St., Lipetsk 398001 190000 Phone: +7 4742 22 7007 Phone: +7 812 494 9454
Branch of JSC VTB Bank in Oryol Branch of JSC VTB Bank in Syktyvkar Address: 47, Maksima Gorkogo St., Oryol Address: 78 bldg 1, Pervomaiskaya St., 302040 Syktyvkar, Komi Republic 167610 Phone: +7 4862 43 7273 Phone: +7 8212 21 5180
Branch of JSC VTB Bank in Ryazan Southern Federal District Address: 39 bldg 5, Moskovskoe Shosse, Ryazan 390044 Branch of JSC VTB Bank in Astrakhan Phone: +7 4912 34 7080 Address: 67, Kuibysheva St., Astrakhan 414056 Phone: +7 8512 25 5878 Branch of JSC VTB Bank in Smolensk Address: 5A, Gagarina Avenue, Smolensk Branch of JSC VTB Bank in Volgograd 214000 Address: 30A, Raboche-Krestyanskaya St., Phone: +7 4812 49 9604 Volgograd 400074 Phone: +7 8442 93 0969 Branch of JSC VTB Bank in Tambov Address: 16A, Internatsionalnaya St., Tambov Branch of JSC VTB Bank in Krasnodar 392000 Address: 116 bldg 2, Phone: +7 4752 63 2035 Krasnoarmeiskaya/Kuznechnaya St., Krasnodar 350000 Branch of JSC VTB Bank in Tver Phone: +7 8612 79 5701 Address: 9, Svobodny Per., Tver 170100 Phone: +7 4822 77 7067 Branch of JSC VTB Bank in Rostov-on-Don Address: 62 bldg 284, Voroshilovsky Avenue, Branch of JSC VTB Bank in Tula Rostov-on-Don 344010 Address: 134, L. Tolstogo St., Tula 300034 Phone: +7 8632 97 2728 Phone: +7 4872 36 6798 Branch of JSC VTB Bank in Stavropol Branch of JSC VTB Bank in Yaroslavl Address: 7, Marshala Zhukova St., Stavropol Address: 44A, Rybinskaya St., Yaroslavl 150014 350000 Phone: +7 4852 45 7157 Phone: +7 8652 26 1754
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Volga Federal District Branch of JSC VTB Bank in Ulyanovsk Address: 5A, Kuznetsova St., Ulyanovsk 432063 Branch of JSC VTB Bank in Izhevsk Phone: +7 8422 41 6206 Address: 63, Krasnogeroiskaya St., Izhevsk, Udmurt Republic 426034 Branch of JSC VTB Bank in Ufa Phone: +7 3412 68 7319 Address: 52, Shafieva St., Ufa, Republic of Bashkortostan 450096 Branch of JSC VTB Bank in Ioshkar-Ola Phone: +7 3472 37 6000 Address: 112, Palantaya St., Ioshkar-Ola, Republic of Mari El 424000 Branch of JSC VTB Bank in Cheboksary Phone: +7 8362 45 0403 Address: 80A, K. Ivanova St., Cheboksary, Chuvash Republic 428018 Branch of JSC VTB Bank in Kazan Phone: +7 8352 58 0402 Address: 84, Ostrovskogo St., Kazan, Republic of Tatarstan 420107 Urals Federal District Phone: +7 843 570 6701 Branch of JSC VTB Bank in Ekaterinburg Branch of JSC VTB Bank in Nizhny Novgorod Address: 5, Marshala Zhukova St., Ekaterinburg Address: 4, Reshetnikovskaya St., GSP 78, 620219 Nizhny Novgorod 603950 Phone: +7 343 379 6696 Phone: +7 831 428 0434 Branch of JSC VTB Bank in Tyumen Branch of JSC VTB Bank in Orenburg Address: 143A, Respubliki St., Tyumen 625026 Address: 15/1, Chkalova St., Orenburg 460058 Phone: +7 3452 54 0454 Phone: +7 3532 99 4992 Branch of JSC VTB Bank in Chelyabinsk Branch of JSC VTB Bank in Penza Address: 2, Karla Liebknechta St., Chelyabinsk Address: 9, Moskovskaya St., Penza 440000 454092 Phone: +7 8412 52 0353 Phone: +7 3512 39 6201
Branch of JSC VTB Bank in Perm Siberian Federal District Address: 54, Lunacharskogo St., Perm 614000 Phone: +7 342 237 7711 Branch of JSC VTB Bank in Barnaul Address: 10, Krasnoarmeiskiy Avenue, Barnaul Branch of JSC VTB Bank in Samara 656043 Address: 14, Mayakovskogo St., Samara Phone: +7 3852 39 9166 443100 Phone: +7 8463 37 5333 Branch of JSC VTB Bank in Irkutsk Address: 10, Rossiyskaya St., Irkutsk 664025 Branch of JSC VTB Bank in Saransk Phone: +7 3952 24 3940 Address: 42A, Bogdana Khmelnitskogo St., Saransk, Republic of Mordovia 430005 Branch of JSC VTB Bank in Kemerovo Phone: +7 8342 27 0458 Address: 12, N. Ostrovskogo St., Kemerovo 650000 Branch of JSC VTB Bank in Saratov Phone: +7 3842 36 7767 Address: 28A, M.Yu. Lermontova St., Saratov 410002 Branch of JSC VTB Bank in Krasnoyarsk Phone: +7 8452 48 9828 Address: 3B, Krasnaya Sq., Krasnoyarsk 660021 Phone: +7 3912 56 0802
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Branch of JSC VTB Bank in Novosibirsk Branch of JSC VTB Bank in Yakutsk Address: 44, Kirova St., Novosibirsk 630102 Address: 3, Oktyabrskaya St., Yakutsk, Republic Phone: +7 3832 02 1002 of Sakha (Yakutia) 677000 Phone: +7 4112 36 7300 Branch of JSC VTB Bank in Omsk Address: 6, Tarskaya St., Omsk 644043 Banks and financial companies of VTB Group Phone: +7 3812 94 8395 in Russia
Branch of JSC VTB Bank in Tomsk JSC VTB Bank Address: 39, Lenin Avenue, Tomsk 634034 Address: 29, Bolshaya Morskaya St., St. Phone: +7 3822 56 4603 Petersburg 190000 Phone: 8 800 200 7799 (toll-free in Russia); +7 Branch of JSC VTB Bank in Ulan-Ude 495 739 7799 Address: 55B, Klyuchevskaya St., Ulan-Ude, Fax: +7 495 258 4781 Republic of Buryatia 670013 Website: www.vtb.com Phone: +7 3012 41 5415 Email: [email protected]
Branch of JSC VTB Bank in Chita CJSC Bank VTB24 Address: 41, Amurskaya St., Chita 672010 Address: 35, Myasnitskaya St., Moscow Phone: +7 3022 36 9001 101000 Phone: 8 800 100 2424; +7 495 777 2424 Far Eastern Federal District Fax: +7 495 980 4666 Website: www.vtb24.ru Branch of JSC VTB Bank in Blagoveshchensk Email: [email protected] Address: 65/1, Sovetsky Per., Blagoveshchensk 675005 OJSC TransCreditBank Phone: +7 4162 22 3101 Address: 37A, Novaya Basmannaya St., Moscow 105066 Branch of JSC VTB Bank in Vladivostok Phone: +7 495 788 0880 Address: 8A, Mordovtseva St., Vladivostok Fax: +7 495 788 0879 690091 Website: www.tcb.ru Phone: +7 4232 30 1455 Email: [email protected]
Branch of JSC VTB Bank in Magadan OJSC Bank of Moscow Address: 30B, Lenin Avenue, Magadan 685000 Address: 8/15 bldg 3, Rozhdestvenka St., Phone: +7 4132 60 7334 Moscow 107996 Phone: +7 495 925 8000 Branch of JSC VTB Bank in Petropavlovsk- Fax: +7 495 795 2600 Kamchatsky Website: www.bm.ru Address: 11, Lukashevskogo St., Petropavlovsk- Email: [email protected] Kamchatsky 683024 Phone: +7 4152 26 8900 CJSC VTB Capital Address: 12, Presnenskaya Emb., Moscow Branch of JSC VTB Bank in Khabarovsk 123100 Address: 7, Moskovskaya St., Khabarovsk Phone: +7 495 960 9999 680000 Fax: +7 495 664 4700 Phone: +7 4212 41 3601 Website: www.vtbcapital.com Email: [email protected]
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Insurance Company VTB Insurance Ltd. VTB Real Estate Ltd. Address: 2/4 bldg 1, Turgenevskaya Sq., Address: 70, Mosfilmovskaya St., Moscow Moscow 101000 119590 Phone: +7 495 580 7333; +7 495 644 4440; 8 Phone: +7 495 925 4570 800 100 4440 (toll-free in Russia) Fax: +7 495 925 45 70 Fax: +7 495 589 2408 Website: www.vtbr.ru Website: www.vtbins.ru Email: [email protected] Email: [email protected] MultiCarta Ltd. OJSC VTB Leasing Address: 43, Vorontsovskaya St., Moscow Address: 10, 2nd Volkonskiy Per., Moscow 109147 127473 Phone: +7 495 784 6055; +7 495 785 1515 Phone: +7 495 514 1651 (customer helpdesk) Fax: +7 495 514 1650 Fax: +7 495 785 1224 Website: www.vtb-leasing.com Website: www.multicarta.ru Email: [email protected] Email: [email protected]
VTB Factoring Ltd. CJSC VTB Debt Centre Address: 52/1, Kosmodamianskaya Emb., Address: P.O. Box 281, room 4094, 35, Moscow 115054 Myasnitskaya St., Moscow 101000 Phone: +7 495 783 3534 Phone: +7 495 645 43 25 Fax: +7 495 783 3534 Fax: +7 495 645 43 67 Website: www.vtbf.ru Email: [email protected] CJSC VTB-Development Address: 29, B. Morskaya St., St. Petersburg CJSC VTB Registrar 190000 Address: 23, Pravdy St., Moscow 125040 Phone: +7 812 329 2219 Phone: +7 495 787 44 83 Fax: +7 812 329 2218 Fax: +7 499 257 1700 Email: [email protected] Website: www.vtbreg.ru Email: [email protected] VTB Group banks and financial companies outside of Russia CJSC VTB Specialised Depository Address: 35, Myasnitskaya St., Moscow Banks and financial companies in Europe 101000 Phone: +7 495 956 3070 VTB Capital Plc Fax: +7 495 956 3071 Address: 14, Cornhill, London EC3V 3ND, Website: www.odk.ru United Kingdom Email: [email protected] Phone: + 44 20 3334 8000 Fax: +44 20 3345 8900 NPF VTB Pension Fund Website: www.vtbcapital.com Address: 52 bldg 4, Kosmodamianskaya Emb., Moscow 115035 VTB Bank (Austria) AG Phone: +7 495 228 0989 Address: P Postfach 560, Parkring 6, Wien A- Fax: +7 495 228 0989 1010, Austria Website: www.vtbnpf.ru Phone: + 43 15 153 50 Email: [email protected] Fax: + 43 15 153 5316 Website: www.vtb.at Email: [email protected]
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VTB Bank (France) SA OJSC VTB Bank (Azerbaijan) Address: 79/81, Boulevard Haussmann 75382, Address: 96, Nizami St., Baku AZ1010, Paris Cedex 08, France Azerbaijan Phone: +33 14 006 4321 Phone: +99 412 492 0080 Fax: +33 14 006 4848 Fax: +99 412 437 7121 Website: vtb.fr Website: www.vtb.az Email: [email protected] VTB Bank (Deutschland) AG Address: Walter-Kolb-Strasse 13, Frankfurt- JSC VTB Bank (Kazakhstan) am-Main D-60594, Germany Address: 28B, Timiryazeva St., Almaty 050040, Phone: +49 69 216 8208 Kazakhstan Fax: + 49 69 216 8389 Phone: +7727 330 5050 Website: www.vtb.de Fax: +7727 330 4050 Email: [email protected] Website: www.vtb-bank.kz Email: [email protected] Russian Commercial Bank (Cyprus) Ltd. Address: 2, Amathuntos St., P.O. Box 56868, JSC VTB Bank (Georgia) Limassol 3310, Cyprus Address: 37, D. Uznadze St., Tbilisi 0102, Phone: + 357 2583 7300 Georgia Fax: +357 2534 2350 Phone: +99 532 50 5505 Website: www.rcbcy.com Fax: +99 532 99 9139; +99 532 95 6085 Email: [email protected] Website: www.vtb.com.ge Email: [email protected] Banks in the CIS and Georgia Banks and financial companies in Asia and PJSC VTB Bank (Ukraine) Africa Address: 8/26, Taras Shevchenko Blv./ Pushkinskaya St., Kiev 01004, Ukraine Banco VTB Africa S.A. Phone: +380 44 391 5409, +380 44 239 3539 Address: 22, Rua da Missao, Luanda, Angola Fax: +380 44 391 5409 Phone: +244 222 39 5889 Website: www.vtb.com.ua Fax: +244 222 39 5297 Email: [email protected] Email: [email protected]
CJSC VTB Bank (Belarus) Vietnam-Russia Joint Venture Bank Address: 14, Moskovskaya St., Minsk 220007, Address: 85, Ly Thuong Kiet St., Hoan Kiem Belarus District, Hanoi, Vietnam Phone: +375 17 309 1515 Phone: + 844 942 6668 Fax: +375 17 309 1530 Fax: +844 942 6669 Website: www.vtb-bank.by Website: www.vrbank.com.vn Email: [email protected] Email: [email protected]
CJSC VTB Bank (Armenia) Branches and representative offices abroad Address: 46, Nalbandyana St., Yerevan 375010, Armenia JSC VTB Bank Branch in Shanghai (China) Phone: +374 1056 5860 Address: offices 1101A, 1102-03 (11 floor), Fax: +374 1056 5578 1266, Nanjing Xilu, Jing’an District, Shanghai Website: www.vtb.am municipality 200040, the People’s Republic of Email: [email protected] China Phone: + 8621 6136 6288 Fax: + 8621 6136 6265 Email: [email protected]
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JSC VTB Bank Branch in New Delhi (India) Representative office of JSC VTB Bank in Italy Address: Mezzanine floor, Taj Mahal Hotel, 1 Address: 8, Piazzale Principessa Clotilde, Milan Mansingh Road, New Delhi 110011, India 20121, Italy Phone: +9111 6622 1000 Phone: +39 02 2901 3278 Fax: +9111 6622 1024 Fax: +39 02 2906 0007 Email: [email protected] Email: [email protected]
Representative office of JSC VTB Bank in China Representative office of JSC VTB Bank in the Address: 18BC, CITIC bldg, 19, Jianguomenwai Kyrgyz Republic dajie, Beijing 100004, China Address: 55, Manasa Avenue, Bishkek 720017, Phone: +86 10 8526 2800 the Kyrgyz Republic Fax: +86 10 8526 2810 Phone: +996 775 98 3308 Email: [email protected] Fax: +996 775 55 4670
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12. SHAREHOLDERS’ INFORMATION
Share capital
The authorised share capital of VTB Bank amounts to RUB 104,605,413,373.38 and is divided into 10,460,541,337,338 shares. All shares of the Bank are ordinary registered shares, issued in a non- documentary form with a par value of RUB 0.01 each. In accordance with the Bank’s Charter, it has the right to issue a maximum number of 14,000,000,000,000 ordinary shares with a par value of RUB 0.01 each, in addition to the shares already placed.
As of 31 December 2011, there were no outstanding preferred shares of VTB Bank.
The state registration number of VTB Bank’s outstanding ordinary shares is 10401000B. The record date for the state registration of the additional issue of VTB Bank’s ordinary shares is 29 September 2006.
The Bank’s shares are traded on the Russian merged MICEX-RTS stock exchange in Quotation List B, and on the London Stock Exchange (LSE) in the form of Global Depositary Receipts (GDRs).
Each VTB GDR is equivalent to 2,000 ordinary shares. The Bank of New York International Nominees is the depositary bank for the VTB GDR Programme. On 31 December 2011, GDRs accounted for 16.4% of the Bank’s share capital.
Shareholder structure
At the beginning of 2011, the Federal Agency for State Property Management made a decision to decrease its stake in the authorised capital of VTB Bank. The amount of shares, offered by the State to the open market, was 1.04 trillion or 10% of the Bank’s share capital. VTB’s share sale became the most successful placement of Russian equity capital on the stock exchange since the financial crisis. The order book was oversubscribed by more than two times, meaning that the demand from investors substantially exceeded the number of shares offered during the sale.
Assicurazioni Generali became the largest single investor in the offering, investing more than USD 300 million in VTB shares. Over ten investors each bought VTB shares worth more than USD 100 million. TPG Capital and the Chinese sovereign wealth fund China Investment Corporation (CIC) each invested USD 100 million. Investors from 20 countries across the world participated in the share offering, which was organised by Merrill Lynch, Deutsche Bank and VTB Capital.
Following the offering, the stake of the Federal Agency for State Property Management in the Bank decreased from 85.5% to 75.5%, while the stakes of foreign institutional investors almost doubled and reached 17%. The proportion of individual investors in the Bank’s share capital increased from 2.8% to 3%.
The total number of the Bank’s shareholders increased by 9,400 to 168,681 shareholders between April 2010 and April 2011. A significant proportion of the Bank’s shares is held by individual investors. At the end of the reporting period, VTB shares were owned by 167,126 individuals, 114,062 of whom participated in the Bank’s IPO in 2007.
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Number of shares and % of the total Shareholder As of 21 April 2011 As of 31 December 2011
Russian Federation, represented by 7,897,477,400,292 shares 7,897,477,400,292 shares the Federal Agency for State 75.5 % 75.5 % Property Management Free float of GDRs (Bank of New York 1,781,970,029,875 shares 1,714,445,519,875 shares International Nominees) 17.03 % 16.4 %
464,662,116,960 shares Other institutional investors 4.44 % 848,618,417,171 shares 8.1 % 316,431,790,211 shares Individual investors 3.03 %
10,460,541,337,338 shares TOTAL 100 %
VTB Bank is not aware of any shareholders owning more than 1% of the Bank’s authorised share capital, except those mentioned above. Information on the participation of the members of the Supervisory Council and the Management Board in VTB’s share capital is available in the Corporate Governance section of this report.
The General Shareholders Meeting
The General Shareholders Meeting is VTB Bank’s highest governing body, and a meeting is held annually. The date of the meeting is set by the Supervisory Council.
The Bank notifies its shareholders about the General Shareholders Meeting by a notice, which is published in Rossiyskaya Gazeta and on the official website of the Bank no later than 30 days prior to the Meeting. Decisions taken at the Annual General Shareholders Meeting and the results of voting are communicated to shareholders in the same manner. Ballot papers are sent to shareholders by post no later than 20 days prior to the Meeting.
Materials related to the General Shareholders Meeting are available to shareholders at the Shareholders’ Support Centres or on the official corporate website www.vtb.ru
VTB Bank’s GDR holders, who wish to participate in voting on the agenda of the Annual General Shareholders Meeting, should contact the depositary bank (The Bank of New York International Nominees) for the GDR programme. The depositary bank’s contact details can be found below.
Information about the 2011 Annual General Shareholders Meeting can be found in the Corporate Governance section of this report.
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Dividend policy
One of the main rights of VTB shareholders is the right to receive a share of the Bank’s net profit in the form of dividend payments. Dividend payments are approved by the Annual General Shareholders Meeting of VTB Bank, following recommendations made by the Supervisory Council. The Supervisory Council bases its recommendations on the size of the dividend payment on the Bank’s net profit. VTB’s Strategy and Corporate Governance Committee, established in 2011, recommended to the Supervisory Council that dividend amounts for 2010-2013 should be between 10% and 20% of the full year net profit, as shown in VTB Group’s IFRS financial results for the reporting years of 2010, 2011, 2012 and 2013.
The size of the dividend payment per share, as well as the period and form of payment are determined at the Annual General Shareholders Meeting. The size of the dividend payment cannot exceed the amount recommended by the Supervisory Council.
Declared dividend payments are made in Russian roubles during a 60-day period following the decision taken by the Annual General Shareholders Meeting, either by bank transfer into shareholders’ accounts or in cash, depending on the shareholder’s preference.
In accordance with amendments to Russian legislation that came into force in 2011, any dividends accrued, but unclaimed by shareholders within a period of three calendar years, are subject to allocation back to the profit of the Bank. Thus, if a shareholder does not claim his or her accrued dividends within three years, he or she loses the right to receive them. This rule does not apply to shareholders, who receive their dividends by bank transfer, as the transfer of funds to a shareholder’s account is considered sufficient evidence of a dividend payment.
Dividend payments
On 3 June 2011, the Annual General Shareholders Meeting approved the decision to pay dividends for 2010 in the amount of RUB 0.00058 per share. The dividend amount remained at the same level as in the previous year. The total funds allocated for dividends equalled RUB 6,067 million. The dividends were paid out to the Bank’s shareholders in July 2011.
The amount of dividend payments for 2011 will be approved by the Annual General Shareholders Meeting of VTB Bank in June 2012. The record of dividend payments for the years 2007-2010 is set out below. 2007 2008 2009 2010 Net profit in accordance with RAS (in RUB million) 17,978 26,894 23,751 43,343
Dividend amount per one ordinary share (RUB) 0.00134 0.000447 0.00058 0.00058
Total amount of dividend payments (in RUB million) 9,010 3,006 6,067 6,067
Dividend payout ratio (% of net profit in accordance with RAS) 50.10 11.10 25.54 14
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Dividend taxation
As a tax agent, VTB Bank calculates and deducts tax from the dividend payments it makes at the year-end. The dividend tax rate for individuals and companies who are residents of the Russian Federation is 9%, and for non-residents the rate is 15%. The rate is applied to the taxable dividend amount, which can be less than the total dividends payable, because tax has already been withheld from income in the form of dividends that the Bank has earned from its investments in other companies.
If a double taxation agreement applies, tax payments are made in accordance with the rate specified in the agreement.
Mutual funds, foreign institutional and individual investors can apply for a tax exemption or a reduced tax rate on dividends received by submitting documents to the Bank’s registrar, CJSC VTB Registrar, that demonstrate that they have a right to preferential tax treatment. A complete list of the required documents can be found at www.vtb.ru
Disclosure
VTB Bank strives to maintain the highest level of transparency in relation to its activities, and discloses a wide range of information. The publication of information that has to be disclosed in accordance with the requirements of the Central Bank of the Russian Federation, and in accordance with the Federal Law on the Securities Market and the Regulation on Information Disclosure by Issuers of Securities (approved by Decree No 06-117/pz-n of the Federal Financial Markets Service (FFMS) on 10 October 2006), is conducted through authorised news agencies and the Bank’s corporate website at www.vtb.ru/we/ir/disclosure/
VTB publishes its audited consolidated financial statements under IFRS at the end of the fiscal year. Additionally, the Bank discloses its unaudited condensed consolidated financial statements at the end of the first, second and third quarters.
VTB places announcements of its financial results on the website of the London Stock Exchange via an information distribution system (RNS), followed by the publication of press releases on the corporate website and their dissemination to the media.
An electronic version of the Annual Report is uploaded onto the Bank’s corporate website www.vtb.ru
Hard copies of the Annual Report are available at Shareholders’ Support Centres, or can be requested by sending an email to [email protected]
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Contact information
Legal address General Enquiries of VTB Bank 29, Bolshaya Morskaya St., St. Petersburg Phone: +7 495 739 7799, 8 800 200 77 99 190000, Russia Primary State Registration Number (PSRN) – Investor Relations Department 1027739609391 (institutional investors and analysts) Phone: +7 495 775 7139 Postal address E-mail: [email protected] 37, Plyushchikha St., Moscow 119121, Russia Shareholder Relations Department Auditor (individual shareholders) CJSC Ernst & Young Vneshaudit Phone: +7 495 258 4947, +7 495 775 7075, +7 77, bldg 1, Sadovnicheskaya Emb., Moscow 495 775 7094 115035, Russia E-mail: [email protected] Phone: +7 495 755 9700 Shareholders’ Consultative Council Depositary Bank for the VTB GDR Programme Website: www.vtb.ru/we/ir/sovet The Bank of New York International Nominees Phone: +7 985 774 3155 Legal address: One Wall Street, New York, NY E-mail: [email protected] 10286, USA Postal address: BNY Mellon Shareholders’ Support Centre in Moscow Depositary Receipts Division Address: Room 1026, 35, Myasnitskaya St. 101 Barclay Street – 22nd Floor, New York, NY Phone: +7 495 645 4361 10286, USA Fax: +1 212 571 3050 Shareholders’ Support Centre in St. Petersburg Address: Room 40, 29, Bolshaya Morskaya St. Registrar Phone: +7 812 494 9446 CJSC VTB Registrar Address: 23, Pravdy St., Moscow 125040, Shareholders’ Support Centre in Ekaterinburg Russia Address: Room 204, 5, Marshala Zhukova St. Postal address: P.O. Box 54, Moscow 127137, Phone: +7 343 379 6615 Russia Phone/Fax: +7 495 787 4483
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