RUSSIAN FINANCIAL SECTOR INVESTOR PRESENTATION

July 2020 2

CONTENTS

Evolution – 4 Key indicators – 14 Financial market development Reforms – 7 Macrofinance – 15 strategy – 23 Compliance with international Inflation – 16 Banking sector – 24 standards – 8 Inflation expectations – 17 Microfinance – 37 International cooperation – 9 Economic forecasts – 18 Financial stability - 38 Newsletter – 10 Monetary policy – 20 Securities market – 39 International reserves - 21 Corporate governance – 45 Countering malpractice – 46 Investment funds – 47 Non-state pension funds – 48 Insurance – 49 Payment infrastructure – 50

Russian MacroRussian Update Fintech – 53 Russian Financial SectorFinancial Russian Marketplace - 55

Bank of Russia: Russia: ofOverview Bank Consumer protection – 56 Financial inclusion – 57 AML/CFT – 58 Cybersecurity – 59 BANK OF RUSSIA: OVERVIEW BANK OF RUSSIA: OVERVIEW 4

Evolution (1)

2013 – CBR becomes an IAIS member as well as IOSCO member 2001 – Law on AML/CFT 2014 – Inflation targeting regime with 4% medium-term target rate 2002 – Law on the Central Bank of the Russian – Introduction of a floating exchange rate regime Federation – Approval of a new corporate governance code – National Card Payment System Joint-Stock Company Central Bank of Russia 2003 – Russia becomes a FATF member (AO NSPK) established (CBR): founded in 1990 – Start of the IFRS reporting project – Law on deposit insurance 2015 – Signing of the IOSCO Multilateral Memorandum of 2005 – Introduction of corridor for USD&EUR basket Understanding within the exchange rate policy framework – National payment system “Mir” established and “Mir” 1990 – Law on banks and banking activities card issue started – Law on Central bank of RSFSR 2009 – CBR becomes a BCBS member – CBR becomes a CPMI member 2016 – Banking regulation in Russia assessed as compliant with 1992 – Russia becomes an IMF member Basel II, Basel 2.5 and Basel III (RCAP) 2010 – Introduction of floating exchange rate 1995 – Law on Central bank of RSFSR: amendments corridor 2017 – Introduction of proportional regulation in banking sector – Introduction of new financial rehabilitation mechanism 1996 – CBR becomes a BIS member 2011 – Law on National Payment System 2018 – Bank of Russia joins MMoU IAIS

1990 1995 2000 2005 2010 2015 2020 Focus on Russian financial market 1992 – MICEX established 2002 – First edition of the Russian corporate conduct code development – Law on insurance business 2003 – Law on mortgage-backed securities 1995 – RTS exchange established 2011 – Law on insider trading 1996 – Law on securities market – MICEX and RTS merge into the Moscow Exchange 2013 1996 – Law on joint-stock companies – FISS joins FFMS and the latter becomes insurance market regulator CBR becomes the 1999 – Law on protection of rights of megaregulator of securities market investors 2012 – National Settlement Depository obtains status of the Central the Russian Securities Depository (CSD) of Russia financial sector Federal Financial Markets 2013 – National Clearing Center obtains status of the first qualified Central Counterparty (CCP) in Russia Service (FFMS): founded in 1993 BANK OF RUSSIA: OVERVIEW 5

EVOLUTION (2) Monetary policy framework development

2006 2008 2009 2012 2013 2014 Inflation targeting Active inflation Liquidity Transition deadline Key rate Floating exchange announced targeting management set introduced rate introduced Dec. 2018 Dec. 2019 June 2020 communications Inflation targeting is Instruments are “Floating rate and Inflation 4.3% Inflation 3.0% Inflation 3.2% represented as a developed, the inflation targeting by midterm goal in the interest rate corridor 2015” “Monetary Policy is narrowed Guidelines”

2015 1998 - 2008 2008 - 2014 Transition to the inflation Narrow band Flexible band targeting regime is completed Medium-term inflation target is around 4% Since Nov. 2014 Monetary policy framework development Free floating Ruble Exchange rate regime development BANK OF RUSSIA: OVERVIEW 6

Evolution (3) Bank of Russia supervises the following key segments

Payment Non-state pension Banking sector infrastructure funds

Market Securities market, infrastructure, Asset managers including securities including fair pricing market professionals

Credit rating Microfinance Insurance sector agencies BANK OF RUSSIA: OVERVIEW 7

REFORMS Promoting price and financial stability, fair competition, newest technologies and best practices

Monetary policy Market infrastructure ‒ Benefits from infrastructure put in place, tax and Inflation targeting regime adopted with a 4% medium- regulatory reforms (T+2, CSD and access of ICSDs, up-to- term target rate pursued using conventional monetary date CCP, Individual Investment Accounts) policy instruments ‒ Marketplace project infrastructure is developed – launch of the platform is planned for 2020 Banking regulation and supervision Corporate governance ‒ Banking sector rehabilitation in progress, new bank resolution mechanism introduced JS companies segregation into public and non-public, ‒ Proportional regulation introduced and an corporate actions reform, new corporate governance code advanced IRB approach for the largest banks adopted in 2014, listing rules based on the new corporate gradually phased in governance code, listing committees established ‒ Banking regulation compliant with the Basel II, Payment infrastructure Basel 2.5 and Basel III standards, maintaining ‒ Russian payment system infrastructure developed and AML/CFT supervision of credit and non-credit currently in use by all leading international payment financial institutions (according to the Regulatory systems Consistency Assessment Program (RCAP) 2016) ‒ Payment infrastructure monitoring and supervision ‒ New macroprudential regulation mechanism in ‒ System for transfer of financial messages (SPFS) has been force – add-ons to risk ratios are introduced and developed set by the Bank of Russia Board of Directors ‒ The Faster Payments System launched in January 2019 ‒ Introduction of PTI ratio for macroprudential regulation purposes starting October 1, 2019 Pension system ‒ Setting up a national rating industry - only credit ‒ Guarantee fund mechanism introduced ratings of Russian national agencies may be used for ‒ Investment horizon for non-state pension funds regulatory purposes extended to 5 years ‒ Guaranteed pension plan (GPP) legislation introduced in 2019 BANK OF RUSSIA: OVERVIEW 8

COMPLIANCE WITH INTERNATIONAL STANDARDS Russia complies with or implements key international standards and best practices

Russia’s Anti-Money Laundering system is Banking regulation is compliant with compliant with FATF Recommendations Basel II, 2.5 and Basel III (RCAP 2016)

Bank for International Settlements, IAIS and IOSCO Principles for financial market High FSAP grades in all surveyed segments, infrastructures (PFMI) are being including securities market, insurance and implemented payment infrastructure Upon monitoring the implementation of the PFMI, the CPMI gave Russia the highest- possible ‘4’ rating

Russia advanced to #28 in global National Settlement Depository is eligible DOING BUSINESS-2020 rankings from for custody arrangements under Rule 17f-7 st 31 in the 2019 report of the US Investment Company Act of 1940 (#35 in 2018, #40 in 2017)

Russia is a party to the Articles of Insurance sector has started implementing Agreement of the IMF and upholds free Solvency II European principles movement of capital BANK OF RUSSIA: OVERVIEW 9

INTERNATIONAL COOPERATION Bank of Russia cooperates with international financial institutions, regulators and associations

G20

BRICS BANK OF RUSSIA: OVERVIEW 10

NEWSLETTER (1) Key news from the Russian financial market Measures taken by the Bank of Russia to stabilise the situation and mitigate the negative impact on the Russian financial system and the economy from the increased volatility in global financial markets in the context of the coronavirus infection outbreak • The Bank of Russia approved a fast-track implementation of credit risk assessment approach under Basel III standard for mortgage loans. Risk weights are set in the range from 20% to 100% depending on the values of LTV and PTI ratios (earlier, risk ratios were set in the 35-100% range). 24 July 2020 Temporary regulatory easing: • To stimulate the activity during the recovery period and afterwards the risk weight for investments in subordinated debt of non-financial organizations (including perpetual) will be reduced from 150% to 100%. • To stimulate banks to settle problem loans of systemically important companies through a compensation or share pledge (a debt/equity swap) the Bank of Russia will lower the risk weight for investments in equity of systemically important companies received under the abovementioned arrangements from 150% to 100% till mid-2022. The Bank of Russia reduced the interest rate under the SME lending support programme from 2.5% to 2.25% p.a. The Bank of Russia published methodological recommendations on assessing interest rate risk in banking book. The approaches outlined in these recommendations are stipulated by the Interest rate risk in the banking book (IRRBB) standard (April 2016) of the Basel Committee on Banking Supervision. These recommendations are applicable to credit 10 July 2020 institutions whose assets total 500 billion rubles or more. Based on the application results, the Bank of Russia is going to stipulate them as mandatory in the regulations on economic situation assessment and interest rate risk reporting for large banks. 22 June 2020: The Bank of Russia reduced the interest rate under the SME lending support programme from 3.5% to 2.5% p.a. Earlier, on May 15, the Bank of Russia allocated additional Rub 50 bln under the Programme to cover entities without the status of an SME or a systemically important organization. In March, the Programme was expanded via introduction of a new lending facility with a refinancing limit of Rub 500 bln. Under this limit, banks can receive funding from the Bank of June 2020 Russia for a 1-year term including Rub 150 bln allocated for wage loans at the zero interest rate subsidised by the Government. 8 June 2020: The Bank of Russia issued a report for public consultations to discuss the prospects for estimating and monitoring of climate risks in the activities of Russian financial institutions. The regulator also considers it necessary to create balanced approaches to sustainable development, and responsible financing and investment in Russia. Колонтитул раздела или подраздела 11 NEWSLETTER (2) Key news from the Russian financial market

25 May 2020: The Bank of Russia under an agreement with the self-regulatory organisation ‘National Finance Association’ (SRO NFA) took charge for administering the RUONIA interest rate. 14 May 2020: The Bank of Russia launched long-term 1-month and 1-year ruble repo auctions. May 2020 12 May 2020: The State Duma adopted a bill in the second reading to increase the maximum amount of insurance compensation for individuals’ deposits in some cases to Rub 10 mln. 6 May 2020: Fine-tuning repo auction in the amount of Rub 1 tn. 20 April 2020: Starting from Q3 2020, the base rate of insurance premiums to compulsory deposit insurance fund will be reduced from 0.15% to 0.1% of the calculation base. 17 April 2020: Temporary regulatory forbearance: (1) banks are allowed not to increase loan loss provisions for retail borrowers whose financial situation has worsened following the pandemic, as well as for restructured loans (both under Federal Law No. 106-FZ and own bank programmes) until 30 September 2020; (2) the previous regulatory easing as regards April 2020 provisioning for restructured corporate loans will apply to all sectors beyond the list of affected industries. 6 April 2020: Fine-tuning repo auction in the amount of Rub 500 bln. 3 April 2020: The Bank of Russia cancelled add-ons to risk weights for mortgage loans and loans for construction co- funding granted in rubles before 1 April 2020. 1 April 2020: The State Duma approved the Federal Law No. 106-FZ that provides for a loan repayment deferral for individuals and SMEs for up to six months if they face a difficult life situation or income shortage due to the pandemic. 30 March, 13 March 2020: Fine-tuning repo auctions in the amount of Rub 500 bln. 20 March 2020: Temporary regulatory forbearance: • The Bank of Russia eased N26 (N27) liquidity coverage ratio and conditions under irrevocable credit lines for SIFIs with total limit raised to Rub 5 tn for the period from 1 April 2020 through 31 March 2021. • Until 30 September 2020 banks are entitled to maintain the quality category for provisioning purposes for (1) individual March 2020 borrowers if their financial standing deteriorates if they have a confirmation of being infected with coronavirus; (2) borrowers in affected industries (the list of such industries is approved by the Russian Government) assessed at 1 March 2020; (3) corporate and SME loans restructured due to the coronavirus pandemic assessed at 1 March 2020. • Banks are entitled to recognize securities purchased before 1 March 2020 at fair value as of 1 March 2020; and to recognise debt securities, purchased from 1 March 2020 through 30 September 2020, at fair value as of the acquisition date. These measures will be effective until 1 January 2021. BANK OF RUSSIA: OVERVIEW 12

NEWSLETTER (3) Key news from the Russian financial market • Foreign currency operations (except for open FX positions) can be valued at the exchange rate as of 1 March 2020 until 30 September 2020. • The Bank of Russia decided to postpone several amendments to the regulation of credit institutions, incl. the introduction of the large exposures concentration ratio (N30) until 1 January 2022. • The Bank of Russia reduced risk-weight add-ons for mortgage loans and loans for construction co-funding with downpayment from 15 to 20% granted in rubles from 1 April 2020 from 100 to 20-80 p.p. depending on the PTI ratio. March 2020 13 March 2020: Temporary regulatory easing: banks are allowed not to apply add-ons to risk weights to foreign currency- denominated loans issued to manufacturers of pharmaceuticals, medical products and equipment extended from 1 March 2020 to 30 September 2020. Risk weights for investments in foreign currency-denominated debt securities of such organisations are also set free from the add-ons made during the above-mentioned period. 10 March 2020: the Bank of Russia decided to start pre-emptive foreign currency sales in the domestic market under the fiscal rule, taking into account the current oil price and its impact on the operations of the National Wealth Fund (NWF) in April 2020. New standardised approach to credit risk assessment in accordance with “Basel III: Finalising post-crisis reforms”: • Corporate exposures received a 100% risk weight, except: (1) “investment class” corporates (65%); (2) 85% risk weight for claims to small and medium-sized enterprises (SMEs) assessed on an individual basis, with the current 75% risk weight remaining for SMEs assessed on a portfolio basis; and (3) ‘special-purpose lending’ class with differentiated risk ratios (80-130%) depending on a lending type (project finance, object or commodity finance). • Earlier, in June 2019, lower risk-weights for sovereign exposures in foreign currency and for lending with export guarantees were introduced (50% instead of 100%). 1 January 2020 • Higher risk ratios (instead of the current 150% ratio) applies to investments in legal entities’ unlisted shares (stocks): 400% for short-term speculative investments and 250% for other investments (with a five-year transition period established). • For loans invested by borrowers in other legal entities’ authorised capital, the risk ratio has been increased from the current 150% to 200%, effective 1 January 2020. • Effective from 1 January 2021, 150% risk ratio set for the unsecured part of default loans (without collateral recognised to reduce credit risk) where estimated loan loss provision is below 20%. • The total insider risk ratio (N10.1) has been cancelled. RUSSIAN MACRO UPDATE RUSSIAN MACRO UPDATE 14

KEY INDICATORS Russian economy started to recover in 2016 and has moderated in 2019 Figure 1: Real GDP growth dynamics (YoY, %) Figure 2: Private consumption and investment dynamics (YoY, %)

8.0 Private consumption Investments 6.0 4.3 15 3.7 4.0 2.5 9.1 7.9 1.8 10 1.8 5.2 2.0 0.7 0.3 1.3 3 5 6.8 2.0 2.3 2.5 0.7 0.0 5.0 5.5 0 2.9 -2.0 -2.0 1.3 1.5 - 1.9 - 5.7 - 4.5 -5 - 1.8 - 6.2 -4.0 - 7.2 -10 - 9.4 - 7.7 -6.0 - 5.5 - 11.2 -8.0 -15 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Е

Figure 3: Russian Ruble volatility remains low while in free-floating Figure 4: Retail sales and real wages dynamics (YoY, %) Real wages Retail sales 90 15 10 80 71.71 5 70 0 56.67 60 -5 -2.0 50 -10 RUB per 1 1 USD per RUB -15 40 -20 30 -25 -23.2 07.20 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 06.20 03.15 05.15 07.15 09.15 11.15 01.16 03.16 05.16 07.16 09.16 11.16 01.17 03.17 05.17 07.17 09.17 11.17 01.18 03.18 05.18 07.18 09.18 11.18 01.19 03.19 05.19 07.19 09.19 11.19 01.20 03.20 05.20 04.20

Source: Bank of Russia, Rosstat RUSSIAN MACRO UPDATE 15

MACROFINANCE Solid fiscal and external positions Figure 5: Current account surplus amounted to USD 65 bn in 2019 Figure 6: Strong fiscal position: budget consolidation and fiscal rule

Russian Federal Budget Balance, % of GDP, lhs Urals, $/bbl, rhs 120 113 12.0 120 104 97 100 8.0 5.4 4.1 100 80 72 71 4.0 2.6 67 68 65 1.8 58 0.4 80 60 50 - -0.2 60 40 33 33 - 4.0 -0.8 -0.7 -1.3 24 -3.9 -2.8 20 - 8.0 -6.0 -3.9 40 0 - 12.0 20 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2007200820092010201120122013201420152016201720182019

Figure 7: Significant international reserves assuring financial stability Figure 8: Sovereign debt to GDP lowest in both EM and DM spaces External debt, $bn Reserves, $bn Developed countries Emerging countries Russia 800 120% 691.7 External debt/GDP 2019 = 33% 109% 700 Reserves/GDP 2019 = 27% 98% Reserves cover 19 months of import 100% 600 563.5 527.7 80% 500 457.7 60% 51% 400 38% 40% 300 20% 200 8% 14% 0%

03.13 06.13 09.13 12.13 03.14 06.14 09.14 12.14 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Bank of Russia, Bloomberg, Ministry of Finance RUSSIAN MACRO UPDATE 16

INFLATION Medium-term inflation target is set at around 4% Figure 9: Inflation (YoY, %)

CPI Non-food products Food Services Key rate Medium-term inflation target 20% 20%

18% 18%

16% 16%

14% 14%

12% 12%

10% 10%

8% 8%

6% 6%

4% 4% Medium-term inflation target 3.2%* 2% 2%

0% 0% 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 06.20 09.20 12.20

Source: Bank of Russia, Rosstat *Inflation is 3.2% as of July 1, 2020 RUSSIAN MACRO UPDATE 17

INFLATION EXPECTATIONS Household and business inflation expectations have overall stabilised following a decrease in May-June

2018 2019 2020 Expect. horizon I II III IV I II III Oct Nov Dec Jan Feb Mar Apr May Jun Jul Inflation expectations (absolute numbers), % Households FOM (median, expected inflation) Next 12 months 8.5 9.8 10.1 10.2 9.1 9.4 8.9 8.6 8.3 9.0 8.3 7.9 7.9 - - - - FOM (subgroup with savings) Next 12 months 8.0 9.0 9.2 9.1 8.0 8.3 8.4 7.6 7.3 8.3 7.6 6.9 6.9 - - - - FOM (subgroup without savings) Next 12 months 8.8 10.3 10.5 10.8 9.8 10.0 9.2 9.5 8.9 9.4 8.5 8.7 8.5 - - - - FOM (median, observed inflation) Past 12 months 9.2 10.6 10.2 10.2 10.0 10.2 9.9 9.4 8.7 9.4 8.6 8.7 8.3 - - - - FOM (subgroup with savings) Past 12 months 8.4 9.7 10.0 9.2 9.2 9.0 9.4 8.2 7.6 8.7 8.0 8.0 7.2 - - - - FOM (subgroup without savings) Past 12 months 9.6 11.2 10.4 10.8 10.8 11.1 10.4 10.2 9.2 9.6 8.9 9.2 8.6 - - - - Professional analysts Bloomberg 2020 4.0 4.0 4.0 3.8 3.8 3.6 3.6 3.6 3.5 4.4 4.2 3.7 3.7 Bloomberg 2021 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 3.8 3.6 3.6 Financial markets OFZIN(option not subtracted) 2023 3.9 4.7 5.5 5.1 4.6 3.9 3.2 3.0 2.8 2.8 2.7 2.8 3.5 3.1 2.4 2.3 2.3 OFZIN(option not subtracted) 2028 4.7 5.5 5.2 4.9 4.1 3.5 3.2 3.2 3.4 3.2 3.4 4.1 3.6 3.0 3.0 3.1 Inflation expectations (balanced index*) Businesses Bank of Russia monitoring Next 3 months 6.8 10.2 12.6 16.5 10.6 9.9 8.3 8.2 8.3 8.5 8.3 13.2 18.2 18.9 16.5 15.1 14.9 PMI M, input prices, diff. index Current month … 70.3 69.1 62.5 66.2 54.6 54.3 55.1 53.2 54.0 53.5 51.5 59.8 66.6 59.8 58.8 - PMI M, output prices, diff. index Current month … 56.6 56.8 52.5 56.1 51.5 50.4 51.3 50.7 50.4 50.8 51.1 55.4 55.8 53.2 51.6 - PMI S, input prices, diff. index Current month … 61.8 59.4 60.4 60.3 56.3 55.3 54.7 54.1 55.6 55.4 55.6 61.5 57.6 54.4 55.9 - PMI S, prices charged, diff. index Current month … 52.1 51.3 53.0 54.6 52.5 52.3 52.7 52.5 52.4 49.0 48.8 54.2 48.6 48.4 49.7 - *Balanced index is the difference between the shares of those who expect prices to rise and to fall. **Households survey results for Apr-Jul will be available later. Source: FOM, Rosstat, Bloomberg, IHS Markit, Bank of Russia RUSSIAN MACRO UPDATE 18

ECONOMIC FORECASTS (1) Medium-term outlook for the Russian economy

Key parameters of the Bank of Russia’s forecast scenarios 2019 BASELINE (growth as % of previous year, if not indicated otherwise) (actual) 2020 2021 2022 Urals price, average for the year, US dollars per barrel 64 38 40 45 Inflation, as % in December year-on-year 3.0 3.7-4.2 3.5-4.0 4.0 Inflation, average for the year, as % year-on-year 4.5 3.1-3.3 3.3-4.0 4.0 Gross domestic product 1.3 -(4.5-5.5) 3.5-4.5 2.5-3.5 Final consumption expenditure 2.4 -(3.8-4.8) 3.5-4.5 1.7-2.7 – households 2.5 -(6.2-7.2) 4.3-5.3 2.0-3.0 Gross capital formation 3.8 -(9.0-12.0) 4.8-6.8 4.2-6.2 – gross fixed capital formation 1.5 -(5.7-7.7) 2.5-4.5 3.8-5.8 Exports -2.3 -(13.0-15.0) 4.5-6.5 4.5-6.5 Imports 3.4 -(18.8-21.8) 7.7-9.7 6.0-8.0 Money supply in national definition 9.7 9-12 7-11 7-11

Claims on organisations and households in rubles and foreign currency* 10.1 6-9 7-11 7-11

– on organisations 7.1 6-9 6-10 6-10 – on households 19.0 6-9 10-14 10-14

*Banking sector claims on organisations and households means all of the banking sector’s claims on non-financial and financial institutions and households in rubles, foreign currency and precious metals, including loans issued (including overdue loans), overdue interest on loans, credit institutions’ investment in debt and equity securities and promissory notes, as well as other forms of equity interest in non- financial and financial institutions, and other accounts receivable from settlement operations involving non-financial and financial institutions and households.

Claims’ growth rates are given with the exclusion of foreign currency revaluation. In order to exclude the effect of foreign currency revaluation the growth of claims in foreign currency and precious metals is converted to rubles using the period average USDRUB exchange rate Source: Bank of Russia RUSSIAN MACRO UPDATE 19

ECONOMIC FORECASTS (2) Medium-term outlook for the Russian economy

Russia’s balance of payments indicators* BASELINE 2019 (billions of US dollars) 2020 2021 2022 Current account 65 2 3 10 Balance of trade 165 58 74 96 Exports 420 286 308 350 Imports 255 228 234 255 Balance of services -36 -18 -31 -44 Exports 63 46 52 56 Imports 99 64 83 100 Balance of primary and secondary income -64 -38 -40 -42 Current and capital account balance 65 1 3 10 Financial account (excluding reserve assets) -4 19 15 7 Government and the central bank -23 -6 -9 -8 Private sector 19 25 25 15 Net errors and omissions -2 -1 0 0

Change in reserve assets ('+' – increase, '-' – decrease) 66 -18 -13 3

* Using the methodology of the 6th edition of “Balance of Payments and International Investment Position Manual” (BPM6). In the Financial account “+” stands for net lending, “-” – for net borrowing. Due to rounding total results may differ from the sum of respective values. Source: Bank of Russia RUSSIAN MACRO UPDATE 20

MONETARY POLICY Decision  Disinflationary factors continue to exert considerable influence on inflation. as of July 24, 2020  The recovery of the global and Russian economies will be gradual despite the fact that the easing of The Bank of Russia restrictions revives economic activity. In the context of prevailing disinflationary factors , there is a risk cuts the key rate that in 2021 inflation might deviate downwards from the 4% target. to 4.25% p.a.  In these circumstances, the Bank of Russia’s lowered its annual inflation forecast from 3.8-4.8% to 3.7- Signal 4.2% in 2020.  Given the monetary policy stance, annual inflation will reach 3.5-4.0% in 2021 and will stay close to 4% later on. “…In its key rate decision-making, the Bank of Russia will take Key rate, % per annum Inflation, % YoY into account actual and 12 expected inflation 10 dynamics relative to the target and economic 8 developments over the 6 forecast horizon, as well 4.25 as risks posed by 4 3.2 domestic and external 2 conditions and the reaction of financial 0 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 markets. …”

Source: Bank of Russia RUSSIAN MACRO UPDATE 21

INTERNATIONAL RESERVES Foreign exchange and gold assets by asset class As of 31 December 2018 As of 30 December 2019 Change in 2019, billions of Assets billions of share of billions of share of US dollars US dollars assets, % US dollars assets, % Government securities of foreign issuers* 191.1 40.3 203.1 36.3 12.0 Deposits and account balances with foreign counterparties 148.2 31.3 175.4 31.4 27.2 Gold 85.6 18.1 109.2 19.5 23.7 Non-government securities of foreign issuers 26.6 5.6 34.4 6.2 7.8 International organisations securities 7.4 1.6 21.5 3.9 14.1 Reverse repo operations with foreign counterparties 10.7 2.2 10.8 1.9 0.2 Claims in foreign currency on Russian counterparties and issuers** 2 0.4 2.8 0.5 0.9 Net position with the IMF 2.5 0.5 1.7 0.3 -0.8 Claims on foreign counterparties on foreign currency supply -0.2 0 0 0 0.2 Total*** 473.9 100 559.1 100 85.1 * Securities issued by a foreign government or foreign issuers with explicit government guarantee. ** Claims on Russian credit institutions, Eurobonds of the Russian Federation and other Russian issuers. *** The total value may differ from the sum of asset classes values due to rounding.

Figure 10: Bank of Russia foreign exchange and gold assets by currency* Figure 11: Bank of Russia foreign exchange and gold assets by credit rating, % (% of market value) Euro US dollar Gold Yuan Pounds sterling Others AAA AA A Gold Other* 100% 100% 7.3 6.4 7.6 7.2 6.0 6.5 18.1 19.5 80% 14.2 12.3 80%

18.1 19.5 60% 29.9 60% 36.5

40% 22.7 24.5 40% 25.6 22.4 20% 20% 31.7 30.8 18.8 14.4 0% 0% 31 December 2018 31 December 2019 31 December 2018 31 December 2019

* The distribution takes into account unsettled conversion transactions as of 31 December 2018 and 31 December 2019. * Mainly claims on Russian counterparties and issuers and Russia’s net position with the IMF. Source: Bank of Russia FINANCIAL SECTOR OVERVIEW BANK OF RUSSIA: OVERVIEW 23

FINANCIAL MARKET DEVELOPMENT STRATEGY Guidelines for the Development of the Russian Financial Market in 2019 - 2021 The Bank of Russia Guidelines for the Development of the Russian Financial Market in 2019 – 2021 cover the following key areas and activities:

Building reliable Improving financial Developing market Ensuring financial financial inclusion and competitiveness stability environment availability of capital

• Involvement of financial • Introduction of individual • Implementation of integrated • Control for the population consumer ombudsmen in pension capital accounts road map for developing indebtedness and prevention disputes resolution • Introduction of “green” bonds competition in various sectors excessive risk accumulation in • Increase of personal • Crowdfunding of Russian economy approved the segment by the Government responsibility of management • Introduction of new rules for • Risk-based approach to • • Limited employment crediting private-public Building biometric database insurance market participants opportunities in financial sector partnerships • Credit history bureau reform • Widening the list of financial for malicious (unscrupulous) • Development of concession • Marketplace project launch non-credit institutions subject people projects • Faster payment system in force to stress testing • Development of qualified • Marketplace project launch • Testing of digital identification • Improving the toolkit for investor institute macroprudential stress testing • Introduction of financial platform • Increase of responsibility for services access points map • “Regulatory sandbox” project substandard sale of financial • Development of remote development products identification and unified • Bank of Russia’s withdrawal • Unified financial transactions biometric system from the capital of banks register • Development of electronic undergoing resolution after insurance services distribution their financial rehabilitation channels • Improving insurance services inclusion in Russian regions FINANCIAL SECTOR OVERVIEW 24

BANKING SECTOR: CURRENT AGENDA Shaping a favourable operating environment and supporting market competition

Proportional banking regulation: differentiating regulatory burden for banks based on their size Risk-oriented supervision: aiming to remedy and simplifying requirements for smaller banks problematic situations in banks at an early stage focused on retail and SME lending

New resolution mechanism: reducing financial Development of macroprudential regulation: costs and execution period of the resolution streamlining the regulation, introducing procedure countercyclical approach

New regulations to the credit bureaus: Introduction of PTI ratio in order to regulate the authorising several strategic credit bureaus with consumer lending market more efficiently the function of aggregating information on debt payments

Development of banking supervision: introduction of the Basel Committee on Banking Basel II and III in force: Leverage ratio (except for Supervision (BCBS) standard on capital banks with basic license), NSFR – for Domestic- requirements for banks` equity investment in SIBs funds (since December 16, 2017) FINANCIAL SECTOR OVERVIEW 25

BANKING SECTOR: PROPORTIONAL REGULATION Differentiating regulatory burden for banks depending on their size Regulatory burden depends on license type

• Minimum size of capital (own funds) – RUB 300 mln • Only 5 mandatory requirements, • Minimum size of capital (own funds) including H1.0, H1.2, H3, H6, H25 ratios – RUB 1 bln • Limitations on international operations • May carry out all banking • Simplified disclosure rules - not required operations set forth by the law to disclose information on accepted risks, Systemically important • All mandatory requirements set by their assessment or management financial institutions (SIFI) the Bank of Russia must be met procedures, or any information on are subject to: financial instruments included in the • Must be compliant with all international standards calculation of their own funds (capital) • Higher capital adequacy requirements • Technically complicated international • Financial reporting fully compliant • Advanced risk management approach standards are non applicable with RAS and IFRS

BASIC LICENSE UNIVERSAL LICENSE

On 1 June 2017, Federal Law No. 92-FZ dated 1 May 2017 came into force. It envisages the introduction of proportional regulation designed to set up a regulatory balance for banks differing in scale and in the nature of operations. 133 banks hold basic license, as of 1 May 2020. FINANCIAL SECTOR OVERVIEW 26

BANKING SECTOR: NEW RESOLUTION MECHANISM Under new mechanism both costs of resolution and time required have been reduced significantly

RUB 758.3 bn List of banks under financial rehabilitation procedure for additional capitalization RUB 2.6 tn have been 1 Promsvyazbank provided to three banking groups (Otkritie, B&N, 2 National Bank TRUST (with ROST Bank and AVB Bank) Promsvyazbank) RUB 1.86 tn 3 Asian-Pacific Bank (APB) for liquidity (deposits)* Moscow Industrial Bank (merged with Volga-Oka Bank, 4 VOCBANK in November 2019)

RUB 156.1 bn for the On July 2, 2019, the Bank of Russia’s Board of Directors has decided to establishment of BNA** complete the implementation of bankruptcy prevention measures for Bank FC Otkritie. Currently, the Bank complies with all Bank of Russia’s statutory requirements for financial resilience and creditworthiness. RUB 42.7 bn for additional capitalization of Otkritie Bank Promsvyazbank complies with all capital adequacy and liquidity requirements and operates its business in its usual way. The bank fully repaid CBR deposits placed in the bank during resolution process. Additional RUB 9.0 bn for additional As a result of the financial resolution measures and implementation RUB 379.1 bn capitalization of APB of a new business model in the Asian-Pacific Bank, its financial standing has been stabilised, new capital has been formed, outflow of its clients’ funds has been stopped, its solvency has been restored and the Bank’s RUB 128.7 bn for additional profitability has become stable. The Bank is supposed to be sold in 2020 capitalization for MIB and RUB 39.9 bn after it discloses information about its 2019 performance to the public, for liquidity (deposits) including potential investors.

RUB 2.7 bn for additional capitalization On 12 July 2019, the Bank of Russia approved amendments to the plan of for VOCBANK its participation in bankruptcy prevention measures for the Moscow Industrial bank (MIB). These amendments provide for the Bank of Russia * Have been fully repaid by the end of 2018 to allocate 128.7 billion rubles for recapitalisation purposes. **BNA – Bank of non-core assets based on NB TRUST, ROST BANK and Bank AVB FINANCIAL SECTOR OVERVIEW 27

BANKING SECTOR: KEY FIGURES Active supervision and tighter regulation allowed to strengthen the health of the banking sector Figure 12: In 2013-2020 more than 450 licenses were revoked causing Figure 13: Banking sector profitability restored to record high levels almost no impact on the banking sector’s total assets

Number of credit institutions, lhs Banking sector assets, RUB tn, rhs Net Income, bln RUB, lhs ROA, rhs ROE, rhs 1,200 112 2,100 93.7 978 1,800 15.2 18 1,000 96 18.3^ 1,500 15 800 80 1,200 12 600 64 900 805 9 428* 561 400 41.6 48 600 6 1.9 3 200 32 300 1.9 0 0 0 16 2013 2014 2015 2016 2017 2018 2019 5m 2020 2011 2012 2013 2014 2015 2016 2017 2018 20195m 2020 ^ As of 01.05.2020 *389 banks and 39 non-banking credit organisations Figure 14: Loans and deposits volume (RUB tn) and growth rates Figure 15: Banks hold an acceptable level of capital under Basel III

Corporate and retail loans*, lhs Corporate and retail deposits, lhs Loans YoY growth**, % rhs Deposits YoY growth**, % rhs Capital adequacy ratio, N1.0, % 70 61.0 14 10.1 16 59.8 14.5* 14.7* 60 11 15 14.2* 14.2* 13.7 9.1 8 14 13.5 50.3 12.7 13.1 50 13 12.5 2.2 6.35 5 12 40 2 45.6 11 12.1 12.2 12.4 12.7 30 -1 10 9 05.20 12.15 02.16 04.16 06.16 08.16 10.16 12.16 02.17 04.17 06.17 08.17 10.17 12.17 02.18 04.18 06.18 08.18 10.18 12.18 02.19 04.19 06.19 08.19 10.19 12.19 02.20 04.20 2012 2013 2014 2015 2016 2017 2018 2019 5m 2020 *Excluding credit institutions under financial rehabilitation procedure *Since 01.01.2020 corporate loans include loans to financial and non-financial organizations (excl. credit organizations). Data for retrospective periods restated **YoY, ccy adj. by credit institutions operating as of the reporting date. Since 01.01.2020 annual growth rate is based on chain method. Data for retrospective periods restated Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 28

BANKING SECTOR: FUNDING The funding of the banking sector mostly comes from corporate and retail deposits Figure 16: In May 2020 corporate deposits grew by 6.2% YoY to RUB Figure 17: In May 2020 retail deposits demonstrated growth of 6.6% YoY, 29.8 tn* reaching RUB 31.2 tn* Corporate deposits, RUB tn, lhs Retail deposits, RUB tn, lhs YoY (ccy adj., by credit institutions operating as of the reporting date), rhs YoY (ccy adj., by credit institutions operating as of the reporting date), rhs 34 20% 30% 32 31.2 32 29.8 15% 25% 30 30 19.0% 28 27.1 10% 28 20% 26 5% 26 15% 6.2% 24 23.2 24 0% 10% 22 3.1% 22 -5% 20 5% 20 6.6% 18 -10% 18 0% 05.20 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 05.20

*Since 01.01.2020 annual growth rate is based on chain method. Data for retrospective periods restated. *Since 01.01.2020 annual growth rate is based on chain method. Data for retrospective periods restated. Figure 18: Operations with the Bank of Russia, tn RUB Figure 19: Sources of funding, % of total liabilities

Borrowings from the Bank of Russia (with minus sign) Retail deposits Corporate deposits Claims to the Bank of Russia Central bank funding Other sources Net claims to the Bank of Russia, rhs 8.5 6.5 4.5 2.74 23.8% 2.5 32.1% 33.3% 0.5 34.0% -1.5 -3.5 -5.5 -2.90 12.0% 30.2% 2.8% 31.8% 05.20 12.15 02.16 04.16 06.16 08.16 10.16 12.16 02.17 04.17 06.17 08.17 10.17 12.17 02.18 04.18 06.18 08.18 10.18 12.18 02.19 04.19 06.19 08.19 10.19 12.19 02.20 04.20 1.01.2015 1.06.2020 Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 29

BANKING SECTOR: LENDING Retail loans remain the key driver of credit expansion although the pace of growth has started to moderate Figure 20: Corporate lending increased 7.3% YoY in May 2020* Figure 21: Retail lending increased 13.1% YoY in May 2020*

Corporate loans*, RUB tn, lhs Retail loans, RUB tn, lhs YoY (ccy adj., by credit institutions operating as of the reporting date), rhs YoY (ccy adj., by credit institutions operating as of the reporting date), rhs 43.0 41.6 30% 19.5 18.2 25% 41.5 18.5 20% 40.0 20% 17.5 38.5 35.0 10% 16.5 15% 37.0 15.5 35.5 10.7 13.1% 10% 34.0 7.3% 0% 14.5 5.1% 13.5 5% 32.5 -10% 31.0 12.5 -5.6% 0% 29.5 -20% 11.5 28.0 10.5 -5% 26.5 -30% 9.5 -10% 05.20 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 05.20 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 *Since 01.01.2020 corporate loans include loans to financial and non-financial organizations *Since 01.01.2020 annual growth rate is based on chain method. Data for retrospective periods restated (excl. credit organizations). Data for retrospective periods restated Figure 22: Share of bad corporate loans** reached 11.2% in May 2020, Figure 23: Retail loans portfolio demonstrates improved quality: the while the bad loan loss reserves to bad loans ratio accounted for 72,5% share of bad loans** reached 7.7% in May 2020

Share of bad loans, lhs Bad loan loss reserves to bad loans ratio, rhs Share of bad loans, lhs Bad loan loss reserves to bad loans ratio, rhs 14% 72% 75.0% 14%12.9% 90% 12% 13% 11.2% 70.0% 12% 88% 10% 9.1% 11% 87% 86% 8% 64% 65.0% 10% 9% 83% 7.7% 84% 6% 8% 60.0% 7% 82% 4% 6% 2% 55.0% 5% 80% 05.20 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 05.20 ** Loans classified into quality category of IV and V according to the requirements of Regulation No.590-P. Quality category IV – high credit risk (probability of financial losses due to non-performance or improper performance of obligations by the borrower requires its depreciation by 51 to 100 per cent); Quality category V – no possibility of loan repayment due to the borrower’s inability or refusal to meet loan commitments, which requires complete (100 per cent) depreciation of the loan. Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 30

BANKING SECTOR: MORTGAGE SEGMENT Mortgage lending is characterised by high (although falling) growth rates and decent asset quality Figure 24: Mortgage lending increased 13.9% YoY in May 2020* Figure 25: Share of NPLs remains at historically low levels

Mortgage loans, RUB tn, lhs NPL ratio, lhs NPLs loss reserves to NPLs ratio, rhs YoY (ccy adj., by credit institutions operating as of the reporting date), rhs 9 8.1 30% 4.0% 110% 8 3.5% 3.0% 105% 97.3% 7 3.0% 100% 20% 90.5% 6 4.1 2.5% 95% 5 2.0% 90% 4 13.9% 10% 1.5% 1.5% 85% 3 11.7% 1.0% 80% 2 0% 05.20 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 05.20 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20

*Since 01.01.2020 annual growth rate is based on chain method. Data for retrospective periods restated. Figure 26: Distribution of mortgage borrowers by LTV Figure 27: Risk weight add-ons applied to RUB mortgage loans depending on the LTV and the PTI (applied from 1 April 2020) 42% 1Q2019 2Q2019 3Q2019 4Q2019 1Q2020 35% 30.2% 30.2% PTI interval, %

28% PTI not 0-30 30-40 40-50 50-60 60-70 70-80 80+ calculated 21% 14.4% 80-85 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.5 14% 8.6% 7.7% 85-90 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 7% 4.4% LTV 2.4% 0.8% 1.3% 2.0 for the whole term 90+ 0% (excl. loans repaid with the use of the maternity capital) 10-20% 20-30% 30-40% 40-50% 50-60% 60-70% 70-80% 80-90% >90% LTV interval *Risk weight add-ons applied from 1 April 2020 to mortgage loans issued from 1 April 2020 Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 31

BANKING SECTOR: UNSECURED CONSUMER LENDING Unsecured lending market growth rate has somewhat moderated following mew macroprudential regulations Figure 28: Unsecured consumer lending growth decreased to 12.7% YoY in Figure 29: Risk weights applied to unsecured consumer loans, % May 2020* Unsecured consumer loans, RUB tn, lhs Against the background of advancing growth in unsecured YoY (by credit institutions operating as of the reporting date), rhs consumer lending relative to households’ income, The Bank of Russia revised the scale of risk weights for such loans in 2017- 9.1 9.5 28% 2018 in order to prevent excessive risk-taking in this segment 9.0 22% 8.5 12.7% 8.0 16% 7.5 10% March 1, 2017 May 1, 2018 September 1, 2018 April 1, 2019 7.0 4% 6.5 -11.9% -2% 600% 6.0 5.6 5.5 -8% 600 5.0 -14%

500 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 05.20 *Since 01.01.2020 annual growth rate is based on chain method. Data for retrospective periods restated. Figure 30: Share of NPLs increased to 8.6% in May 2020 400

NPL ratio, lhs NPLs loss reserves to NPLs ratio, rhs 300% 300 96% 230% 19% 16.9% 94% 200% 17% 92% 170% 200 150% +30 92% +30 15% +60 90% +30 13% 88% +30 +50 +30 +10 11% 88% 100 +20 +10 8.6% 9% 86% 140 100 100 110 7% 84% 0 10-15% 15-20% 20-25% 25-30% 30-35% 35%+ 05.20 12.15 02.16 04.16 06.16 08.16 10.16 12.16 02.17 04.17 06.17 08.17 10.17 12.17 02.18 04.18 06.18 08.18 10.18 12.18 02.19 04.19 06.19 08.19 10.19 12.19 02.20 04.20 Effective interest rate Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 32

BANKING SECTOR: INTRODUCTION OF PTI The Bank of Russia introduces a payment to income ratio for regulatory purposes

Effective from 1 October 2019, the Bank of Russia set add-ons to the risk coefficients depending on the payment to income ratio (PTI) and the effective interest rate (EIR).

PTI interval, % Values of add-ons to the risk coefficients applied to unsecured consumer loans 0-30 30-40 40-50 50-60 60-70 70-80 80+ subject to calculation of PTI 0-10 0.3 0.3 0.3 0.6 0.7 0.9 1.1 Higher level of add-ons are applied to loans 10-15 0.5 0.5 0.5 0.7 0.8 1.0 1.2 with PTI exceeding 50%.

15-20 0.7 0.7 0.7 1.1 1.3 1.4 1.6 Banks calculate PTI in accordance with 20-25 1.0 1.0 1.0 1.5 1.7 1.8 2.0 Appendix 1 to Bank of Russia Ordinance No.4892 U when making a decision on 25-30 1.3 1.3 1.3 1.8 1.9 2.0 2.2 granting a loan in the amount (total credit EIR EIR % interval, amount) of ₽10,000 or more or an increase 30-35 2.0 2.0 2.0 2.1 2.2 2.3 2.5 in the total credit amount on a bank card. 35+ 5.0 5.0 5.0 5.0 5.0 5.0 5.0

Values of add-ons to the risk coefficients EIR interval, % 0-10 10-15 15-20 20-25 25-30 30-35 35+ applied to unsecured consumer loans Value of add-ons 0.6 0.7 1.1 1.5 1.8 2.1 5.0 for which PTI calculation is not obligatory

Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 33

BANKING SECTOR: INTEREST RATES Interest rates trending down again after a temporary pickup over 2019

Figure 31: Weighted average long-term interest Figure 32: Weighted average long-term Figure 33: Max interest rate on retail rates on loans in rubles, % interest rates on deposits in rubles, % deposits in rubles of top-10 banks and Bank of Russia’s policy rate, %

Key rate Corporate loan rates Retail loan rates Corporate deposit rates Retail deposit rates Max retail deposit rate of top-10 banks 28.0 18.0 16.0

16.0 24.0 14.0 14.0 20.0 12.0 12.0 18.3 16.0 10.0 10.0 8.0 8.39 11.6 8.0 12.0 8.0 9.0 4.80 7.3 10.6 6.0 7.00 8.0 5.0 6.0 4.50 4.0 4.9 4.0 4.0 02.14 06.14 10.14 02.15 06.15 10.15 02.16 06.16 10.16 02.17 06.17 10.17 02.18 06.18 10.18 02.19 06.19 10.19 02.20 06.20 01.14 05.14 09.14 01.15 05.15 09.15 01.16 05.16 09.16 01.17 05.17 09.17 01.18 05.18 09.18 01.19 05.19 09.19 01.20 05.20 01.14 05.14 09.14 01.15 05.15 09.15 01.16 05.16 09.16 01.17 05.17 09.17 01.18 05.18 09.18 01.19 05.19 09.19 01.20 05.20

Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 34

BANKING SECTOR: DEDOLLARISATION Dollarization of the banking sector has notably reduced over the last years Figure 34: Corporate FX lending declined significantly over the past few Figure 35: Retail FX loan portfolio is insignificant in size years Corporate loans*, USD bn, lhs Share of FX loans in total amount of loans, rhs Retail loans, USD bn, lhs Share of FX loans in total amount of loans, rhs 4.0 188.1 2.7% 190 39.2% 4.0 2.9% 40.5% 180 3.5 38.0% 2.4% 170 35.5% 3.0 1.9% 160 33.0% 144.9 2.5 150 30.5% 2.0 1.4% 140 28.0% 24.6% 1.3 0.9% 130 25.5% 1.5 120 23.0% 1.0 0.5% 0.4% 05.20 12.15 02.16 04.16 06.16 08.16 10.16 12.16 02.17 04.17 06.17 08.17 10.17 12.17 02.18 04.18 06.18 08.18 10.18 12.18 02.19 04.19 06.19 08.19 10.19 12.19 02.20 04.20 05.20 05.20 12.15 02.16 04.16 06.16 08.16 10.16 12.16 02.17 04.17 06.17 08.17 10.17 12.17 02.18 04.18 06.18 08.18 10.18 12.18 02.19 04.19 06.19 08.19 10.19 12.19 02.20 04.20 *Since 01.01.2020 corporate loans include loans to financial and non-financial organizations (excl. credit organizations). Data for retrospective periods restated. Figure 36: Share of corporate and retail FX deposits in total amount of Figure 37: Risk weights applied to the FX assets, % deposits has fallen Reserve requirements Retail Corporate end 2015 May 1, 2016 July 1, 2018 Share of FX deposits in total corporate deposits, lhs 8% 8% Share of FX deposits in total retail deposits, rhs +1 +1 150% 150% 48.9% July 1, 2019 160 August 1, 2018 +1 32.5% 130% 50.0% +1.75 +2.75 August 1, 2016 30.0% 140 +20 47.5% 110% +50 45.0% 4.25 4.25 27.5% 120 +20 29.4% end 2015 +30 42.5% 25.0% 100 +10 +10 40.0% 20.2%22.5% 37.5% 80 35.0% 20.0% 100 100 100 100 17.5% 60 32.5% 34.7% 30.0% 15.0% 40 FX loans to Other corporate Commercial FX Securities of non- 12.15 02.16 04.16 06.16 08.16 10.16 12.16 02.17 04.17 06.17 08.17 10.17 12.17 02.18 04.18 06.18 08.18 10.18 12.18 02.19 04.19 06.19 08.19 10.19 12.19 02.20 04.20

05.20 exporters FX loans mortgages resident companies Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 35

BANKING SECTOR: CAPITAL ADEQUACY High quality capital base and solid capital adequacy levels under Basel III standards

Figure 38: Capital adequacy ratio for the banking sector remained Figure 39: Credit organizations with capital exceeding RUB 25 bn stable at 12.7% (as of 1.06.20) as compared to 1.01.2016 have lower buffer vs N1.0 minimum requirement due to the economies of scale

18 12,000 11,232 55 11,000 16 50 10,000 14 9,009 45 12.79,000 39.4 12 12.7 40 10.4 8,000 35 10 8.5 7,000 30 % 8 bn RUB 25.1 % 8.2 9.66,000 25 21.5 6 20.0 5,000 20 17.4 15.1 4 13.9 14.2 12.7 4,000 15

2 3,000 10

0 2,000 5 less than 300 - 1 1-10 bln 10 - 25 25 - 50 50 - 100 100 - more 05.20 12.15 02.16 04.16 06.16 08.16 10.16 12.16 02.17 04.17 06.17 08.17 10.17 12.17 02.18 04.18 06.18 08.18 10.18 12.18 02.19 04.19 06.19 08.19 10.19 12.19 02.20 04.20 300 mln bln rub rub bln rub bln rub bln rub 250 bln than 250 Ratio of own funds (capital) to risk-weighted assets (Basel III N1.0 ratio) rub rub bln rub Tier I capital ratio (N1.2) Capital adequacy ratio N1.0 (by capital size) Common equity Tier I capital ratio (N1.1) Own funds (Basel III capital), RUB bn, rhs Capital adequacy ratio N1.0 as of 01.06.2020 (12.7%)

Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 36

BANKING SECTOR: SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTIONS The Bank of Russia has approved the list of SIFI and buffers for capital adequacy ratios

List of systemically important financial institutions Capital adequacy requirements

№ Company name Assets, RUB tn Minimum Bank of Russia requirements for capital adequacy ratios 1 Sberbank 30.8 Common equity Tier 1 capital ratio 2 VTB Bank 15.0 (N1.1) 4.50% 3 Gazprombank 7.1 Tier 1 capital (N1.2) 6.00% Total capital adequacy ratio (N1.0) 8.00% 4 Alfa-Bank 3.9 5 Russian Agricultural Bank 3.5 Values of capital buffers 2017 2018 2019 2020 6 Bank FC Otkritie 2.7 Capital conservation buffer 1.25% 1.875% 2.25% 2.50%* 7 Credit Bank of Moscow 2.7 SIFI buffer 0.35% 0.65% 0.65% 1.0% 8 Promsvyazbank n/a Countercyclical buffer 0% 0% 0% 0% 9 UniCredit Bank 1.5 Minimum capital adequacy ratios for 10 Rosbank 1.4 SIFI 2017 2018 2019 2020 11 Raiffeisenbank 1.3 N1.1 6.1% 7.0% 7.65% 8.0% N1.2 7.6% 8.5% 9.15% 9.5% Assets as of June 2020 N1.0 9.6% 10.5% 11.15% 11.5% Systemically important financial institutions account for 69% of total assets of the Russian banking sector *Capital conservation buffer was raised in accordance with the schedule approved by the Bank of Russia throughout 2019 – it wat set at 1.875% from 1 January 2019, 2.0% from 1 April 2019, 2.125% from 1 July 2019, 2.25% from 1 October 2019, and 2.5% from 1 January 2020. FINANCIAL SECTOR OVERVIEW 37

MICROFINANCE Microfinance is a vital part of financial system complementing banks to provide better financial inclusion

Microfinance institutions (MFIs) provide financial services for customers MFIs with no access to banking products, service regions with an insufficient bank presence, offer financial products missing from bank product lines, boost financial awareness and help clients build their credit histories.  Microfinance organizations (MFOs) CBR keeps a state register of MFIs and supervises MFIs directly and via SROs. Currently there are about 7,900 MFI companies.  Consumer credit cooperatives  Credit Housing communities 19% of the entire MFO microloan portfolio are microloans to small to medium enterprises (bearing 5-10% interest rate thanks to state support  Pawnbrokers via MFOs).  Agricultural credit Payday Loans, i.e. small, short-term unsecured loans (up to RUB 30k for cooperatives 30 days) at high rates, are not a development priority and account for 24% of the entire MFO microloan portfolio.

Starting from 1 October 2019, microfinance organisations have to calculate the PTI ratio when taking a decision on extending loan of ₽10,000 or more. For the loans with PTI of the borrower in excess of 50%, the level of add-on to the risk coefficients is set at 50% (65% starting from 1 January 2020). FINANCIAL SECTOR OVERVIEW 38

FINANCIAL STABILITY Macroprudential policy aimed at identifying and preventing potential systemic risks

Credit activity In April-May 2020, while the counter-pandemic measures were in place, the pace of growth in outstanding Decision amounts on household and corporate loans was mixed. as of June 19, 2020 In April-May, outstanding amounts on household loans decreased by 0.5%.1 Outstanding amounts on corporate loans posted an 1.4% increase over the same period. These exceed the readings in April-May 2019 “The Bank of Russia’s Board of (0.1%) and in the first months of the stress period in 2015 (-0.1% in January-February 2015). Moreover, April Directors has decided to keep and May 2020 saw an increase in outstanding amounts on the corporate bonds of non-financial organisations the countercyclical capital (by 1.2% over the two months). However, following the slack in economic activity, future growth rates of buffer (CCB) rate for Russian outstanding amounts on corporate loans may slow down. credit institutions at 0% of risk Effect of coronavirus outbreak on the asset quality of the banking sector weighted assets…” The measures of regulatory easing by the Bank of Russia and the restructuring of household and corporate loans by banks help the financial sector to gradually adapt to economic changes and support borrowers. No material impairment of the credit quality has been observed following the restructuring of loans and the deferred realisation of credit risk. The proportion of unsecured consumer loans overdue more than 90 days “…In anticipation of is 8.2% as of 1 May 2020 (7.5% as of 1 January 2020), and that of mortgage loans is 1.4% (1.3% as of 1 forthcoming impairment in the January 2020). The proportion of corporate loans referred to quality categories IV and V is 10.9% as of 1 May quality of credit portfolio and 2020 (11% as of 1 January 2020). given the need to support lending to the economy, the Capital adequacy Banks will be able to cover the potential increase in losses on loans out of accumulated capital buffers, positive value of the national including macroprudential capital buffers. Banks’ capital buffers, including capital conservation buffer and countercyclical buffer does not systemic importance capital buffer, total 5.6 trillion rubles.2 Additionally, the macroprudential capital buffer deem feasible.” for consumer loans totalled 574 billion rubles as of 1 May 2020, whereas for foreign currency claims on companies — 161 billion rubles.3

1 Adjusted for FX revaluation (exchange rate as of 1 June 2020). 2 The calculation was made as of 1 May 2020, inclusive of the reclassification of non-audited profit in the core capital as well as the positive effect of the loss on the risk-weighted assets. 3 If add-ons to risk weights for consumer loans decrease to zero, banks will be able to absorb losses either totalling 574 billion rubles and to preserve the current value of the capital adequacy ratio, or totalling 456 billion rubles and to preserve the current values of three capital adequacy ratios. For foreign currency claims on companies, these readings stand at 161 and 123 billion rubles respectively. FINANCIAL SECTOR OVERVIEW 39

SECURITIES MARKET (1) Russia’s financial market has been aligned with best international practices

Crisis-proven market infrastructure Simplified market access

• MICEX and RTS merged into the Moscow Exchange • Euroclear and Clearstream settlement for equities and • Establishment of a Central Securities Depository and bonds unification of CCP across all asset classes • Unified collateral pool for equities, bonds and FX • T+2 settlement on equities, T+1 on OFZs, T+0 on markets corporate bonds • International clearing system membership; Direct access to FX trading for large corporates Upgraded corporate governance • Local investor base development (individual investment account system, tax incentives, etc.) • Creation of a two-tier Quotation List within the stock • Unified license covering both depository and registrar exchange listing operations. • Strong criteria for inclusion in the top-tier Quotation • Retail investors allowed to open brokerage and list management accounts online • Streamlined dividend rules for SOEs • Corporate standards aligned with best international Increased transparency practices • Establishing of a Listing Committee at MOEX • Mandatory audited IFRS for all public companies • Strengthened regulation to prevent market Regulatory changes to promote investments manipulation and insider trading • Capital gains on securities held for more than 3 • Improved disclosure practices years are tax-exempt • Report on Corporate Governance Code compliance in • Tax deductions for Individual Investment Accounts the annual report (IIA) type A – max RUB 52 000; for IIA type B – at the • Requirement to have a written description of dividend rate of investment income; policy for the top-tier Quotation list • Corporate bonds with yield of under the key rate + • Development of basic standards for professional 5pp became tax-exempt on January 1, 2018 market participants activities FINANCIAL SECTOR OVERVIEW 40

SECURITIES MARKET (2) Growing a deeper Russian bond market with strong potential Figure 40 : Volume of the Russian local bond market, RUB tn Figure 41: Volume of the Russian corporate bond market, RUB tn OFZ Corporate Bonds RUB bonds Eurobonds 22.9 24 24 20.0 19.8 19.1 19.5 20 18.3 20 18.2 17.7 6.4 CAGR CAGR 16.0 7.6 7.6 14.7 8.0 16 +17% 13.1 13.6 16 +14% 8.0 11.9 6.7 11.3 11.1 11.1 12 12 13.6 9.2 8.7 7.8 9.2 11.5 11.9 6.7 8.1 7.1 5.2 8 5.9 6.6 8 6.2 10.2 9.7 4.7 5.3 5.4 4.2 9.3 4.3 3.0 3.6 9.3 3.5 4 2.5 7.2 7.9 4 2.5 3.0 5.9 4.7 5.0 5.5 4.5 2.2 2.9 3.1 3.5 3.9 3.2 3.6 0 0 2.9 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Figure 42: “Bondization” of the Russian financial market Figure 43: Corporate loans vs corporate bonds in Russia, RUB tn

Equity market trading volume, RUB tn Loans (incl. foreign debt) Corporate bonds (incl.eurobonds) Bond market trading volume*, RUB tn 25 22.4 70 67.6 68.0 67.5 21.2 20 60 29% 29% 16.5 27% 15.3 50 15 13.2 12.6 10.6 11.2 12.4 11.8 41.3 8.7 10.3 9.4 9.3 9.2 10.8 40 21% 10 29.2 30 73% 71% 71% 19% 5 79% 20 81% 0 10 2013 2014 2015 2016 2017 2018 2019 1H2020 2009 2012 2015 2018 2019 *excl. overnight bonds Source: Moscow Exchange FINANCIAL SECTOR OVERVIEW 41

SECURITIES MARKET (3) Russian OFZ market provides relatively high yields amid investment grade reliability Figure 44: Russian OFZ market volume keeps growing Figure 45: Zero-coupon OFZ yield curve, % OFZ outstanding market volume, RUB tn, lhs Share of non-residents holdings, %, rhs March-19 February - 20 March-20 July-20 10.0 9.62 40 35 10 9.0 8.75 30 9 33.1 31.8 8.20 8 7.43 8.0 25 6.94 20 7 6.17 7.0 6.74 6.80 15 6 6.0 10 5 5.24 3.89 4 3m 6m 9m 1 2 3 5 7 10 15 20 30 1.01.18 1.02.18 1.03.18 1.04.18 1.05.18 1.06.18 1.07.18 1.08.18 1.09.18 1.10.18 1.11.18 1.12.18 1.01.19 1.02.19 1.03.19 1.04.19 1.05.19 1.06.19 1.07.19 1.08.19 1.09.19 1.10.19 1.11.19 1.12.19 1.01.20 1.02.20 1.03.20 1.04.20 1.05.20 1.06.20 Years to maturity Figure 46: Bond market yields, key rate and RUONIA (% RUB) Figure 47: EM 10Y bond yields (% USD) on the background of credit ratings

20 Cbonds-GBI RU 5Y YTM eff Russia’s sovereign ratings 24.0 Argentina 18 S&P: BBB- (stable), as of 17 Jul 2020 RUONIA Index 21.0 Moody’s: Baa3 (stable), as of 08 Feb 2019 16 Fitch: BBB (stable), as of 7 Feb 2020 18.0 14 CBR Key Rate 15.0 12 12.0 10 Turkey 9.0 Mexico 8 Brazil 6.0 SoA Malaysia 6 3.0 Russia Hungary Philippines China Korea Kazakhstan 4 Indonesia 0.0 Peru Poland Chile 0SD B+ BB- 2 BB BB+ 4 BBB- 6 BBB BBB+ 8 A- A+ 10 AA- AA 12 06.14 09.14 12.14 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 06.20 Source: Bank of Russia, Moscow Exchange, IMF and World Federation of Exchanges FINANCIAL SECTOR OVERVIEW 42

SECURITIES MARKET (4) Demand for OFZs placements remains sustainably high Figure 48: OFZ placement dynamics in 2018, 2019 and 2020 (RUB bn)

Foreign financial institution subsidiaries Non-credit financial institutions Non-residents Other banks Systemically-important credit institutions 200

180

160

140

120

100

80

60

40

20

0 10.01.2018 24.01.2018 07.02.2018 21.02.2018 07.03.2018 21.03.2018 04.04.2018 25.04.2018 23.05.2018 06.06.2018 20.06.2018 04.07.2018 18.07.2018 01.08.2018 15.08.2018 03.10.2018 17.10.2018 31.10.2018 14.11.2018 28.11.2018 12.12.2018 26.12.2018 16.01.2019 30.01.2019 13.02.2019 27.02.2019 13.03.2019 27.03.2019 10.04.2019 24.04.2019 15.05.2019 29.05.2019 19.06.2019 03.07.2019 17.07.2019 31.07.2019 14.08.2019 28.08.2019 11.09.2019 25.09.2019 09.10.2019 23.10.2019 06.11.2019 20.11.2019 04.12.2019 18.12.2019 22.01.2020 05.02.2020 19.02.2020 08.04.2020 22.04.2020 13.05.2020 27.05.2020 10.06.2020 23.06.2020 08.07.2020

Source: Bank of Russia, Ministry of Finance, National Settlement Depository FINANCIAL SECTOR OVERVIEW 43

SECURITIES MARKET (5) Russian equity market: key trends Figure 49: Russian Equity market cap, bln RUB & bln USD Figure 50: Market capitalization to GDP ratio, %

Market cap, bln USD, rhs Market cap, bln RUB, lhs 173.7 2017 2018 48,000 1200 180 43,000 1000 150 127.4 115.8 114.0 38,000 800 120 33,000 600 90 584 42.6 42.4 28,000 400 60 39.5 367 23,000 200 30 18,000 0 0 UK Japan Korea US China Russia Euro area 06.20 01.16 04.16 07.16 10.16 01.17 04.17 07.17 10.17 01.18 04.18 07.18 10.18 01.19 04.19 07.19 10.19 01.20 04.20

Figure 51: Russian equities market trading volumes proves stable Figure 52: Dividend yield (12M): Russia vs. EM, %

Trading volumes, RUB tn, lhs MOEX Index, rhs Russia Emerging Markets

7.0 3,100 11 2767 6.0 2,800 10 9 5.0 2,500 8 5.5 7 5.38 8.17 4.0 2,200 6 3.0 1,900 5 2.3 4 2.0 1667 1,600 3 1.75 2 3.02 1.0 1,300 1 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 06.20 12.15 02.16 04.16 06.16 08.16 10.16 12.16 02.17 04.17 06.17 08.17 10.17 12.17 02.18 04.18 06.18 08.18 10.18 12.18 02.19 04.19 06.19 08.19 10.19 12.19 02.20 04.20 06.20

Source: Bloomberg, Moscow Exchange, International Monetary Fund and World Federation of Exchanges FINANCIAL SECTOR OVERVIEW 44

SECURITIES MARKET (6) Russian equity market performance vs EM peers

Figure 53: Russian MSCI index vs EM peers (01.01.15 = 100%) Figure 54: Forward P/E ratio (12m), MSCI Russia vs MSCI EM

Russia India Brazil MSCI Russia, lhs MSCI EM, lhs Russia to EM P/E discount, rhs Turkey China South Africa EMEA 20 -20% 200% 18 17.31 -25% 180% 16 -30% 160% 14 -35% 140% -38% 12 -40% 120% 11.03 10 -45% 100%

80% 8 -50%

60% 6 -55%

40% 4 -60%

20% 2 -65% 30.06.20 31.01.15 30.04.15 31.07.15 31.10.15 31.01.16 30.04.16 31.07.16 31.10.16 31.01.17 30.04.17 31.07.17 31.10.17 31.01.18 30.04.18 31.07.18 31.10.18 31.01.19 30.04.19 31.07.19 31.10.19 31.01.20 30.04.20 31.01.15 30.04.15 31.07.15 31.10.15 31.01.16 30.04.16 31.07.16 31.10.16 31.01.17 30.04.17 31.07.17 31.10.17 31.01.18 30.04.18 31.07.18 31.10.18 31.01.19 30.04.19 31.07.19 31.10.19 31.01.20 30.04.20 30.06.20

Source: Bloomberg FINANCIAL SECTOR OVERVIEW 45 CORPORATE GOVERNANCE New corporate governance standards reflect best international practices Corporate governance Corporate actions reform  Guidance for members of boards of directors of financial organisations Amendments to the JSC Law :  Recommendations on organization and conduct of self-assessment of  Protection against dilution of the share in the authorized capital of JSC the Board of Directors efficiency in public JSC and violation of dividend rights  Recommendations on participation of the Board of Directors in  Determination of the price at which the issuer repurchases at the development and management processes of IT and information request of shareholders shares admitted to trading, taking into account security risk management in public JSC their weighted average cost  Russian public JSC are implementing mandatory risk management and  Legal uncertainty with regard to the votes of parties controlled by the internal control party interested in the transaction has been eliminated  Implementation of internal audit system is mandatory for public JSC since January 2021 Securities  Information disclosure reform: reduction of administrative burden on Securities issuance reform: the procedure of securities issuance was issuers, elimination of excessive requirements for information simplified, electronic registration of securities issues was launched disclosure (to be put in force since 01.10.2021) Green, Social and Sustainable Finance Next stage  Stewardship Code  Legal framework for Green, Social and Infrastructural Bond Issuance Providing the possibility to hold general meetings of shareholders in an  Special Disclosure rules for Green, Social and Infrastructural Bonds online format Issuers  Mandatory right of redemption for green and social marked bond holders if capital allocated under Issuance was used improperly  Sustainable Development Sector for Bonds on Moscow Exchange  2 Sustainable Development Benchmarks (“Responsibility and Transparency”, “Sustainable Development Vector”)

CBR corporate governance report: annual monitoring of corporate governance practice and publication of the report on the CBR official site (only in Russian) Source: Moscow Exchange FINANCIAL SECTOR OVERVIEW 46

COUNTERING MALPRACTICE Bank of Russia supervises conduct of financial market participants to promote fair competition

• Bank of Russia has implemented an •In 2015 Bank of Russia became a effective system for signatory to the IOSCO MMoU countering malpractice including •Intense cooperation with foreign market manipulation and insider financial market regulators in trading, aimed at ensuring terms of information exchange, investors’ equality and fair pricing . including confidential information •Elaboration on international Insider trading International initiatives and market cooperation manipulation

Unlicensed Enhanced firms and consolidated Pyramid market Scheme analysis • Bank of Russia successfully •Bank of Russia improves continuous eliminates competitive advantages monitoring of on-exchange trading of unlicensed firms by decreasing for the purpose of their number. Since 2015 detriment maintaining financial stability and caused by financial pyramids preventing system shocks caused decreased by more than 5x times by misconduct FINANCIAL SECTOR OVERVIEW 47

INVESTMENT FUNDS Local institutional investor base: the potential of investment funds Figure 55: Majority of savings in Russia is held on bank deposits and in Figure 56: Assets of investments funds in Russia (RUB tn) cash* Bank deposits Cash Insurance and pension assets Securities Other Assets, RUB tn, lhs Assets to GDP, %, rhs 4.7% 3% 3% 1% 7% 13% 11% 4.8 4.7% 16% 22% 26% 8% 4.4 4.5% 47% 4.0 4.7 4.3% 51% 60% 28% 13% 53% 3.6 4.1% 37% 0% 56% 41% 3.2 3.9% 0%6% 3.1% 0% 2.8 3.7% 67% 32% 0% 21% 2.4 3.5% 0% 25% 0% 2.0 3.3% 0% 0% 1.6 3.1%

USA UK Germany Italy Brazil Mexico China India Russia 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19

Figure 57: Number of investments funds in Russia by the type Figure 58: Breakdown of investment funds’ assets by the type (as of year-end 2019) Closed-end Open-end Interval ETF

1553 14021500 1504 1497 14851464 1457 1440 1445 1456 1508 1531 7% Cash 1 4 7 12 Equities 47 36 40 36 37 39 43 43 42 40 36 30% 15% 356 43 332 331 37 264 255 228 327 325 312 303 268 267 265 Bonds Government bonds 6% 1150 1131 1132 1136 1131 1117 1,109 1,111 1128 1134 1143 1193 1216 Foreign securities 4% Real estate 3% Authorized capital 16% Other

12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 19%

* As of the end of 2018, Russia - 2019 Source: World Bank, IMF, Bank of Russia, Moscow Exchange FINANCIAL SECTOR OVERVIEW 48

NON-STATE PENSION FUNDS Local institutional investor base: the potential of non-state pension funds

Figure 59: Pension assets in Russia (RUB tn) Non-state pension funds. Reserves Bank of Russia became a regulator of the pension Non-state pension funds. Mandatory savings system in 2013. Since then a number of changes State pension fund. Mandatory savings 6.01 has been adopted to strengthen the non-state 5.28 5.59 5.67 4.76 1.37 pension system: 3.82 3.97 1.11 1.21 1.25 0.99 0.83 0.90 ‘one-year non-loss’ rule was extended to ‘five- 1.71 2.15 2.47 2.64 2.79 1.09 1.13 year non-loss’ rule 1.90 1.94 2.06 2.02 1.91 1.78 1.85 stress-testing mechanism introduced 2013 2014 2015 2016 2017 2018 3Q19 customers are now encouraged to stay with the same fund for not less than 5 years Figure 60: Pension system asset allocation  (as of September 30, 2019, %) since 2014 the Deposit Insurance Agency (DIA) guarantees the nominal value of mandatory Cash Equities Corporate bonds Government bonds Other savings 3% 3% non-state pension funds are to bear fiduciary 24% 38% 34% responsibility (since March 18, 2018) 15% non-state pension funds are to disclose their 34% 53% 43% investment portfolios 26% 6% 12% corporatisation of non-governmental pension 5% 6% State pension fund NPFs Mandatory savings NPFs Reserves funds (NPFs) completed work on individual pension accounts reform is Source: Bank of Russia in progress FINANCIAL SECTOR OVERVIEW 49

INSURANCE Local institutional investor base: the potential of insurance market Figure 61: Premium volume is gradually growing Figure 62: Assets hit 3.2% of GDP

Premiums, RUB bn, lhs Assets, RUB bn, lhs Payment of claims, RUB bn, lhs Reserves, RUB bn, lhs Premiums as % of GDP, rhs Assets as % of GDP, rhs 426.3 450 1.7 4,050 3.2 3.5 400 1.6 3,600 3.3 3,150 3.0 350 1.5 3,533.1 266.4 1.4 2,700 2.8 300 1.4 250 2,250 1,609.4 2.5 1.3 1.3 1,800 2.3 200 159.5 2,233.3 1.2 1,350 2.0 150 900 1.8 1.1 100 450 943.3 1.5 50 112.9 1.0 0 1.3 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20 03.15 06.15 09.15 12.15 03.16 06.16 09.16 12.16 03.17 06.17 09.17 12.17 03.18 06.18 09.18 12.18 03.19 06.19 09.19 12.19 03.20

Figure 63: Premium structure in 1Q20 shows high level of market Figure 64: In 1Q20 market remained highly competitive with the diversification Herfindahl-Hirschman Index equal to 1,061.5

Life insurance Capital, % Premiums, % Assets, %

23% Corporate property 32% insurance 80.6 Top-20 85.6 Private medical insurance 81.0

10% Motor car insurance 72.1 6% Top-10 73.2 Compulsory motor TPL 66.1 9% 20% insurance Other 0 10 20 30 40 50 60 70 80 90 Source: Bank of Russia FINANCIAL SECTOR OVERVIEW 50

PAYMENT INFRASTRUCTURE (1) Bank of Russia Payment System

 Money transfer services are provided to:  all credit institutions (financial market infrastructure included)  Russia’s Federal Treasury and its agencies  other Bank of Russia clients  Average daily figures: 6.4 mln payments, RUB 6.9 tn  84% of funds are transferred via the real-time service  New liquidity management tools, future value date settlement functionality, cash- pooling services for Federal Treasury and multibranch banks introduced  Transfer timeframe is adapted to Russia’s 11 time zones - system operates from 1 a.m. to 9 p.m., Moscow time.  The Faster Payments System (FPS), launched on 28 January 2019, enables instant C2C interbank transfers 24/7/365 using mobile phone number, C2B (customer–to- business). B2B (business-to-business), C2G (customer-to-government) and G2C (government-to-customer) transactions are currently in the pipeline. Starting April 2020, B2C (broker’s and MFIs’ operations) have been enabled, July 2020 – C2C pull- operations (transfer on recipient’s approval). The FPS is offered by 75 Russian banks, including all systemically important. FINANCIAL SECTOR OVERVIEW 51

PAYMENT INFRASTRUCTURE (2) Advancing supervision and oversight to ensure stable development of the payment infrastructure

Figures for early 2019 :  Supervision of the payment infrastructure: monitoring organisations’ 36 payment systems and more than 400 institutions compliance with the Russian law. Applies supervised within the National Payment System (NPS) both to banking and non-banking

institutions providing payment NPS supervision is risk-oriented. Proportionate remote infrastructure and payment services supervision approach is being introduced to the NPS

 Oversight of the payment infrastructure: improving institutions’ operations Objects supervised for compliance with CPMI/IOSCO Principles for Financial Market Infrastructure (PFMI): 2 following the Bank of Russia systemically important payment systems, 4 socially recommendations based upon important payment systems international best practices

 Bank of Russia international cooperation High PFMI compliance ratings. NPS operators implement approved action plans based on the Bank in supervision and oversight of the of Russia recommendations payment infrastructure FINANCIAL SECTOR OVERVIEW 52

NATIONAL PAYMENT CARDS SYSTEM Setting the standards for the payment industry to provide convenient and stable services

 Russian national payment system “Mir” was created on 23 July 2014  Operator of Mir Card Payment System is National Card Payment System Joint-Stock Company, 100% of its shares belong to the Bank of Russia  More than 73 mln “Mir” payment cards were issued by year end 2019 in Russia  Co-badging projects with international payment systems: Maestro, JCB, AmEx and UnionPay  Support of mobile payment service Samsung Pay  Mobile payments and contactless service MirPay is launched  Non-financial services are available on the basis of “Mir” payment cards (a transport app is launched in a number of Russian regions)  Payment system “Mir” launched a loyalty program which allows card holders to receive cashback  “Mir” payment cards are accepted in 12 countries, including the Republic of Armenia, Kyrgyz Republic, the Republic of Kazakhstan, the Republic of Belarus, Vietnam, Turkey, Cyprus FINANCIAL SECTOR OVERVIEW 53

FINTECH (1) Russia provides a favorable environment for FinTech development Goals of the Bank of Russia as a high-tech regulator Facilitate the competition in the financial market Enhance accessibility, quality and range of financial services Lower risks and costs in the financial market Advance the level of competitiveness of Russian technologies

Key areas of development 1. Legal regulation of FinTech, including protection of consumer rights and security of personal data 2. Development of digital technologies in the financial market and development of digital infrastructure 3. Transition to electronic interaction between the Bank of Russia, government, market participants and their clients 4. “Regulatory Sandbox” for experimentation with innovative financial technologies, products and services 5. Cooperation within the Eurasian Economic Union and development of single payment area for member states 6. Ensuring technological safety and sustainability in FinTech implementation 7. Development of human resources in the financial market FINANCIAL SECTOR OVERVIEW 54

FINTECH (2) Russia provides a favorable environment for FinTech development

Main FinTech projects of the Bank of Russia and FinTech Assocition

Digital identification Established on 28 December 2016 by the Digital profile Bank of Russia with participation of the largest financial institutions Faster payment system Distributed ledger technology Main goals Open API Implementation of new technological Financial marketplace solutions for the development of the Russian financial market Promotion of digitalization of the Russian economy FINANCIAL SECTOR OVERVIEW 55

MARKETPLACE Shaping future of financial services experience in Russia  New system for online sales of financial

products Open API, digital profile, Equal access to Customers biometric identification,  Aimed to complement traditional sales financial market Technologies faster payment system channels with websites and smartphone apps which will enable customers to compare multiple financial product offers Development of competitive Competition environment and financial  CBR creates the regulatory environment services optimization necessary for the project

Unified financial transactions register (NSD) Products Marketplace 1.0 12:50

Mortgage Deposits OSAGO Platform N Platform 1 Mutual Producer Bonds of financial product funds Banks, securities Consumers issuers, insurance Aggregator N companies, asset managers and other The Unified Biometric System and other databases FINANCIAL SECTOR OVERVIEW 56

CONSUMER PROTECTION Financial consumer and investor protection as one of priorities for further financial market development

KEY FINANCIAL CONSUMER PROTECTION WORKSTREAMS

Consumer and investor Differentiation of complaints handling consumer protection requirements

Conduct supervision Financial awareness model improvement

Setting requirements for Disclosure requirements financial organizations in order to improve consumer and for consumers and investor protection investors

Dispute resolution Disclosure requirements (ombudsman) for information on risks FINANCIAL SECTOR OVERVIEW 57

FINANCIAL INCLUSION Strong international background helps to promote financial inclusion

G20 GLOBAL PARTNERSHIP FOR FINANCIAL ALLIANCE FOR INCLUSION (GPFI) FINANCIAL INCLUSION (AFI) ‒ Acts as an inclusive platform for G20 countries, non-members and other parties for knowledge and experience sharing, policy advocacy and coordination in promoting financial inclusion ‒ The global knowledge exchange network empowering ‒ Russia is an original GPFI member since November 2010 policymakers to increase access to quality financial ‒ Endorsed the ‘original’FIAP in 2010 and the ‘updated’ FIAP in 2014 and 2017 services for the less well-off communities and ‒ G20 – World Bank – OECD conference on empowering consumers of financial households products and services was hosted in Moscow in June 2013 ‒ The Bank of Russia became a member of AFI in ‒ The third annual GPFI Forum was held in St. Petersburg in 2013 February 2014 ‒ In September 2014 the Bank of Russia joined the Maya Declaration setting up the priorities for AFI members Financial Inclusion Promotion by the Bank of Russia on financial inclusion ‒ Improving financial inclusion for people and SMEs is one of financial market ‒ In September 2015 the Bank of Russia joined the development priorities for 2016-2018 Maputo Accord to improve funding accessibility for SMEs ‒ The Bank of Russia annually publishes financial inclusion indicators and the Report on Financial Inclusion in Russia (with supply-side and demand-side ‒ The Bank of Russia and AFI co-hosted the ‘Financial data starting from 2015) inclusion and shadow banking: innovation and proportional regulation for balanced growth’ ‒ The technical note on financial inclusion was prepared in the context of a conference in November 2015 joint WB / IMF FSAP mission in Russia during February-March 2016; the ‒ In June 2016 the Bank of Russia hosted the AFI GSPWG note was published in May 2016 meeting. ‒ Early in 2018 the Bank of Russia launched the Financial Inclusion Strategy in ‒ CBR hosted the 2018 AFI Global Policy Forum Russia for the period of 2018-2020 FINANCIAL SECTOR OVERVIEW 58

AML/CFT Bank of Russia maintains AML/CFT supervision of credit and non-credit financial institutions

Russian AML/CFT law is based on International Standards on Combating Money Laundering (FATF Recommendations)

2013 2008 The FATF recognized that Russia 2018 – 2019 The FATF placed Russian Federation could be removed from the 4th round of mutual evaluation, joint in the regular follow-up process regular follow-up process FATF/MONEYVAL/EAG evaluation of Russia

Key measures taken in 2008-2013:  Enhancing corporate transparency by introducing beneficial ownership requirements to the AML/CFT Law  Prohibiting credit institutions from opening and maintaining anonymous accounts or accounts in fictitious names  Addressing certain shortcomings in the criminalization of terrorist financing  Amending legislation to prevent criminals from becoming major shareholders in financial institutions  Strengthening instruments to freeze terrorist assets domestically or on request of other countries  Abolishing the threshold which decriminalized self-laundering of amounts lower than RUB 6 mln and which was not in compliance with the FATF Recommendations FINANCIAL SECTOR OVERVIEW 59

CYBERSECURITY Key initiatives in information security and cybersecurity

Countering international and cross- Key avenues of cooperation in the sphere of border crime information security

 Establishing institutional and technical framework for dynamic cooperation between the common financial market regulators and Addressing the rise in money participants, building upon the Financial Sector withdrawals via illegal cross-border Computer Emergency Response Team transactions (FinCERT) of the Bank of Russia  Enabling trusted electronic operations in the increasingly digitalised common financial Compiling a general register of most market typical cyber threats and computer  Formulating unified standardised approaches attack methods to information security, cyber resilience and supervising related risks  Policy coordination and unifying the Combatting fraud in financial e- mechanisms of strong customer authentication services provided via websites for financial transactions and money transfers registered in foreign DNS zones 60

INVESTOR CONTACTS AND REGULAR MEETINGS SCHEDULE FOR 2020

January 31 – Quiet period July 17-24 Quiet period February 7 July 24 Board of Directors meeting on monetary policy February 7 Board of Directors meeting on monetary policy July 29 Conference call with institutional investors February 11 Conference call with institutional investors September 11-18 Quiet period March 13-20 Quiet period September 18 Board of Directors meeting on monetary policy March 20 Board of Directors meeting on monetary policy Ad-hoc meetings with investors on the sidelines October 16-18* of the IMF/WB meetings March 26 Conference call with institutional investors October 16-23 Quiet period April 17-24 Quiet period October 23 Board of Directors meeting on monetary policy April 24 Board of Directors meeting on monetary policy October 28 Conference call with institutional investors April 29 Conference call with institutional investors December 11-18 Quiet period June 12-19 Quiet period December 18 Board of Directors meeting on monetary policy June 19 Board of Directors meeting on monetary policy International Cooperation Department June 25 Conference call with institutional investors Tel.: +7 (495) 771-90-68 Email: [email protected] Web-site: cbr.ru/eng/about_br/irp/

* tbc.