MAINTAINING A BALANCE OF INTERESTS

ANNUAL REPORT | 2019

The draft of the Annual Report is the subject of review by VTB Bank's Supervisory Council and further approval by the Annual General Meeting of Shareholders in accordance with the time limits set by the law of the Russian Federation. Contents

VTB Group Today 4 Corporate Governance 98

Values 5 Overview of the Corporate Governance System 98 VTB Group at a Glance 5 General Meeting of Shareholders 103 VTB Group’s Presence 6 Supervisory Council 106 VTB Group’s Structure 8 Management Board 132 VTB Group’s Competitive Advantages 10 Control and Audit 140 Ownership Structure 12 Investor Relations 150 Stock Exchange Listings 13 Disclosure Policy 159 Key Financial Highlights 14 Sustainable Development 162 Statement of the Chairman Personnel 162 of the Supervisory Council 16 Responsible Resource Management 164 Social Projects 166

Statement of the Financial Statements 170 President and Chairman of the Management Board 18 Responsibility Statement 170 Consolidated Financial Statements under IFRS 171

Management Report 22 Annexes 182

Russian Economy and Banking Sector 22 Share Capital 182 2019 Key Events 26 Dividends 183 Strategy 34 Report on Compliance with the Principles Results Overview 41 and Recommendations of the Corporate Risk Management 82 Governance Code 186 Digital Transformation 94 Bank Details and Contacts 214

1 THE SCALE OF FORWARD-LOOKING SOLUTIONS

18 countries PRESENCE OF VTB GROUP BANKING AND INVESTMENT-BANKING BUSINESS

1.7 thousand VTB GROUP BRANCH NETWORK IN RUSSIA Annual Report / 2019 1 2 3 4 5 6 7 8 VTB Group Today VTB Group Today

VALUES

WE VALUE WE WORK WE ARE WE ARE WE CONTINUOUSLY OUR CUSTOMERS AS A TEAM RESPONSIBLE PROACTIVE IMPROVE FOR OUR RESULTS OUR PERFORMANCE

We put We respect We are result-, We are not indifferent We are open our customer and trust not process-oriented. to what we are doing. to change. needs first. each other. Each of us We contribute We start change We trust We support is responsible proactively with ourselves. our customers each other for our contribution when dealing with We have no fear and strive to earn and help to the common shared tasks. to experiment. MISSION their trust. our colleagues goals. We go beyond We listen grow. We openly discuss our formal duties. We help people to make their plans a reality by creating to our customers We achieve our successes the best financial solutions. We are a team of professionals, working and act upon common goals. and failures. for the benefit of our customers and the country as a whole. their feedback.

Credit ratings VTB GROUP AT A GLANCE 2019 of VTB Bank IDENTITY VTB Group is the leading Russian financial institution with a strong presence in key international markets. 18 countries 1.7 thousand 14 million VTB Group worldwide branch network in Russia clients in Russia BBB–

61 % 159 thousand 82 thousand ordinary shares individual employees VISION held by the Russian shareholders Federation A universal financial group that is developing both dynamically and sustainably, one that is focused on being the first-choice Вaa3 financial partner for its customers, and which provides the most convenient and cutting edge solutions to their needs. No. 1 No. 1 18 thousand best investment bank best broker ATMs in Russia in Russia in Russia ruAAA

4 5 Annual Report / 2019 1 2 3 4 5 6 7 8 VTB Group Today

VTB GROUP’S PRESENCE

VTB Group includes Russian and foreign commercial banks as well as financial companies. VTB Group is structured as a holding company, which envisages a unified strategy for the development of Group companies, a single brand, centralised financial management and risk management and unified control systems.

Russia

In Russia, the Group performs banking operations through a parent company (VTB Bank) and a number of subsidiary banks – Vozrozhdenie Bank, West Siberian Commercial Bank, Belarus Sarovbusinessbank – as well as through United Kingdom the Post Bank joint venture. Germany Kazakhstan As of the end of 2019, the Group’s banking Switzerland Austria and investment banking business was active Georgia in 18 countries around the world. Outside Russia, Bulgaria the Group operates through eight subsidiary banks Armenia Italy located in Germany, the United Kingdom, Armenia, Azerbaijan Belarus, Kazakhstan, Azerbaijan, Georgia and Angola and through two representative offices located China in Italy and China, as well as two VTB branches Cyprus VTB GROUP’S GLOBAL NETWORK in China and India, a branch of VTB Bank (Europe) in Austria and a branch of VTB Capital in Singapore. IS UNIQUE TO THE RUSSIAN The Group’s investment banking division conducts BANKING INDUSTRY operations with securities and provides financial India advisory services in Hong Kong, while also Group companies provide services in the CIS, conducting investment banking services in Bulgaria Vietnam Europe and Asia, enabling the Group to facilitate and offering commodities financing in Switzerland. international partnerships and promote Russian The Group also has an associated bank in Cyprus. companies aiming to engage with global markets. In addition, VRB Bank, a joint venture between VTB The Group’s international operations enable and a Vietnamese bank, conducts banking activities diversification and increased profitability from in Vietnam. its transactions in high-margin markets.

The Group operates in all major segments Singapore of the financial market. Corporate-Investment AS OF THE END OF 2019, Business, Medium and Small Business and Retail Business are the Group’s global business lines, THE GROUP’S BANKING AND which specialise in servicing various client segments. INVESTMENT BANKING BUSINESS WAS ACTIVE IN Angola

COUNTRIES AROUND 18 THE WORLD

6 7 Annual Report / 2019 1 2 3 4 5 6 7 8 VTB Group Today

VTB GROUP’S STRUCTURE KEY CHANGES IN THE STRUCTURE OF VTB GROUP IN 2019

According to VTB Bank’s Development Strategy, one of its key priorities is to strengthen the positions of VTB Group banks in the retail banking market VTB GROUP and to attract customer deposits.

In an effort to achieve this, VTB Bank acquired West Siberian Commercial Bank and Sarovbusinessbank During the reporting year, VTB Bank worked on the integration VTB BA in January 2019. of West Siberian Commercial Bank and Sarovbusinessbank, • Sarovbusinessbank is one of the leading as well as Vozrozhdenie Bank, which was acquired in 2018, banks in the Nizhny Novgorod region. into VTB Group. Vozrozhdenie Bank VTB Capital Holding VTB Factoring VTB’s acquisition of Sarovbusinessbank enabled the Group to increase its base of active retail These efforts included the following: clients in the Nizhny Novgorod region (about 183 thousand active retail clients) and to greatly BM-Bank VTB Forex VTB Pension Fund increase its market share in the region in terms of retail deposits and retail lending. • West Siberian Commercial Bank is one of the Technical and legal concepts were prepared leading banks in the Tyumen region and also for the integration; VTB Bank (Belarus) VTB Pension administrator VTB Real Estate has a significant presence in the Yamalo-Nenets and Khanty-Mansi autonomous districts (333 thousand active retail clients). With these acquisitions, VTB Group bolstered its branch VTB Bank (Armenia) VTB DC VTB Specialised Depository network in the Nizhny Novgorod and Tyumen regions, its base of salary clients (more than Corporate actions were taken to buy back shares 314 thousand individual salary clients) and its client from minority shareholders in accordance with base among small and medium-sized enterprises VTB Bank (Kazakhstan) Business-Finance VTB Registrar legal requirements; (SME) (about 24 thousand SME clients).

VTB Bank (Azerbaijan) VTB Leasing The management teams at subsidiary banks were strengthened (representatives of VTB Bank joined the banks’ Boards of Directors VTB Bank (Georgia) and Management Boards);

VTB Bank (Europe)

VTB Group’s standards for client segmentation, financial reporting and business planning were introduced; Banco VTB Africa

n January 2019, West Siberian Commercial Bank Sarovbusinessbank and West Siberian Commercial Bank An analysis was carried regarding the support and control were included in VTB Group processes for further alignment with VTB standards. Sarovbusinessbank consolidation perimeter

8 9 Annual Report / 2019 1 2 3 4 5 6 7 8 VTB Group Today

VTB GROUP’S COMPETITIVE ADVANTAGES Enable the Group to support and strengthen its market positions VTB GROUP CLIENTS

Strong market positions in Russia – With an expansive international Strong relationships with leading Leading positions in retail banking Sizeable capital creates potential 1.9 thousand a leading, systemically important bank, network, the Group has a unique Russian companies in key economy services, a leader in the market for sustainable asset growth groups of companies of holds a significant share of the banking opportunity to serve Russian industries of investment products for individuals and enables the Bank to finance large Corporate-Investment system’s total customer accounts clients across the globe companies Business segment and deposits and total assets

513 thousand companies of Has a large branch network A diversified universal banking Corporate-Investment Business division Brand awareness and state interest A professional team Medium and Small and a broad client base business with significant market VTB Capital provides ensure financial strength with a client-oriented approach Business segment shares in various segments a full range of services and increased customer confidence of the Russian market in international financial markets 13.3 million clients of Retail Business segment

Loans 17.4 % Loans 18.2 % Fees 21.3 %

Mortgages 23.9 % Deposits 20.2 % DCM 26.6 %

Deposits 15.1 % M&A 23.2 %

RUSSA RETAL CORPORATE VESTMET BAG BUSESS BUSESS BUSESS SECTOR

10 11 Annual Report / 2019 1 2 3 4 5 6 7 8 VTB Group Today

OWNERSHIP STRUCTURE STOCK EXCHANGE LISTINGS (December 2019)

EQUITY CAPITAL VOTING RIGHTS

19.9 % 3.0 % 12.1 %

47.2 % 7.8 % Ordinary shares 36.1 % Federal Agency (held by Federal Agency for State Property for State Property Management Management) VTB Bank shares are included in Moscow Exchange’s Institutional State-owned Free float Level 1 list and are included in the Moscow Exchange Ordinary shares in free float Investors ORDINARY SHARES 92.2 % 39.1 % and RTS Index, as well as the Subindex, the MOEX 10 Index, Preference type 1 shares Individual the Broader Market Index, the Finance Index, the RTS Finance (held by Ministry of Finance Investors Index and the RTS Broad Market Index. of the Russian Federarion) 60.9 % LEI 253400V1H6ART1UQ0N98 32.9 % Preference type 2 shares Ordinary shares are also included in the international (held by State Corporation ISIN RU000A0JP5V6 MSCI Russia Index and the MSCI EM Index. Deposit Insurance Agency)

GEOGRAPHICAL DISTRIBUTION OF INVESTORS REGIONAL DISTRIBUTION (% OF FREE FLOAT) (% OF INDIVIDUAL SHAREHOLDER BASE)

18.8 % 43.4 % 48.9 % International Moscow investors St. Petersburg 8.7 % Individual Moscow region shareholders GLOBAL DEPOSITARY RECEIPTS Leningrad region Russian 7.2 % (GDRs) investors Other regions 63.3 % 2.0 %

7.7 % Each GDR is equivalent to 2 thousand LEI 253400V1H6ART1UQ0N98 of VTB ordinary shares. 144A programme ISIN US46630Q1031 VTB Bank’s GDRs are included in the FTSE All-World TOTAL NUMBER Index, FTSE EMEA Index and MVIS Russia Index. RegS programme ISIN US46630Q2021 OF VTB BANK SHAREHOLDERS including

158.6 thousand individuals 159.7 thousand

12 13 Annual Report / 2019 1 2 3 4 5 6 7 8 VTB Group Today

KEY FINANCIAL HIGHLIGHTS

OPERATING INCOME BEFORE TOTAL ASSETS, RUB billion CUSTOMER LOANS, RUB billion PROVISIONS1, RUB billion NET PROFIT1, RUB billion

+14 % +5 % +13 % +0.3 % +4 % +13 % compared compared compared compared compared compared with 2015 with 2018 with 2015 with 2018 Comparable perimeter2 with 2018 Comparable perimeter2 with 2018

69 % 31 % 71 % 29 % 72 % 18 % 10 % 31 Dec 2019 15,516 31 Dec 2019 11,462 2019 610 2019 201.2 72 % 28 % 74 % 26 % 75 % 14 % 11 % 31 Dec 2018 14,761 31 Dec 2018 11,424 2018 589 2018 178.2 70 % 30 % 74 % 26 % 73 % 13 % 14 % 1 Jan 2018 12,940 POST-IFRS 9 1 Jan 2018 9,841 POST-IFRS 9 2018 641 2018 178.8

70 % 30 % PRE-IFRS 9 75 % 25 % PRE-IFRS 9 78 % 15 % 7 % 31 Dec 2017 13,009 31 Dec 2017 9,773 2017 593 2017 120.1 70 % 30 % 77 % 23 % 81 % 16 % 3 % 31 Dec 2016 12,588 31 Dec 2016 9,487 2016 511 2016 51.6 69 % 31 % 81 % 19 % 70 % 18 % 12 % 31 Dec 2015 13,645 31 Dec 2015 10,110 2015 415 2015 1.7

Net loans to customers Gross loans to legal entities Net interest income Other assets Gross loans to individuals Net fee and commission income Other net operating income

TOTAL LIABILITIES, RUB billion CUSTOMER FUNDING, RUB billion KEY PERFORMANCE AND PROFITABILITY INDICATORS, % yoy

+14 % +5 % +51 % +5 % 2015 2016 2017 2018 2018 2019 compared compared compared compared with 2015 with 2018 with 2015 with 2018 Net interest margin (NIM) 2.6 3.7 4.1 3.9 3.7 3.4 79 % <1 % 20 % 54 % 46 % Net fee and comission margin (NCM) 0.6 0.6 0.8 0.7 0.6 0.7 31 Dec 2019 13,863 31 Dec 2019 10,974 79 % <1 % 20 % 58 % 42 % Cost to income ratio (CIR) 53.5 45.8 44.0 40.5 38.3 41.6 31 Dec 2018 13,238 31 Dec 2018 10,404 Cost of risk (CoR) 1.8 1.5 1.6 1.6 1.5 0.9 79 % <1 % 20 % 60 % 40 % 1 Jan 2018 11,529 POST-IFRS 9 1 Jan 2018 9,145 POST-IFRS 9 Return on equity (ROE) 0.4 3.6 8.3 12.3 11.9 12.8 79 % <1 % 20 % PRE-IFRS 9 60 % 40 % PRE-IFRS 9 Return on assets (ROA) 0.0 0.4 0.9 1.3 1.3 1.3 31 Dec 2017 11,530 31 Dec 2017 9,145

66 % 9 % 25 % 59 % 41 % Comparable perimeter2 31 Dec 2016 11,175 31 Dec 2016 7,347 60 % 14 % 26 % 60 % 40 % 31 Dec 2015 12,188 31 Dec 2015 7,267

Customer deposits Deposits and accounts of legal entities

Funding from the Bank of Russia Deposits and accounts of individuals 1 Indicators for the years of 2015–2018 are presented as published in the IFRS accounts for the relative period with no further adjustments or reclassifications. Other liabilities 2 The P&L components have been compared with modified financial results for 2018 for purposes of accuracy of the year-on-year analisys (not including operational results of Post Bank, Multicarta, VTB Bank (Ukraine) and VTB Bank (Belgrade)).

14 15 Annual Report / 2019 1 2 3 4 5 6 7 8 Statement of the Chairman of the Supervisory Council Statement of the Chairman of the Supervisory Council

Dear shareholders, clients, and partners, VTB’s practice of maintaining a constructive areas where the activities of both the Supervisory We saw better-than- dialogue with shareholders and representatives Council itself and its committees could be improved. VTB’s practice In 2019, VTB Group strengthened its position market mortgage of the investment community is recognised as one The necessary changes will be implemented starting of maintaining as Russian leading financial institution: profitability sales and increased of the best in Russia, and the Supervisory Council this yea r. a constructive dialogue targets were met, and significant progress market share pays special attention to relations with shareholders. with shareholders was achieved across all aspects of the Bank’s in retail deposits For example, the Bank’s Development Strategy I am certain that the Group’s Development Strategy, and representatives Development Strategy. includes major proposals on the part of minority approved by the Supervisory Council, will take not only of the investment by b.p. shareholders. These steps have enabled the Bank our business to a new level but also the Russian community The Group’s results are undoubtedly positive. 110 to maintain a consistently high National Corporate financial services sector as a whole, making it more is recognised as one IFRS net profit exceeded RUB 200 billion. The number Governance Rating. technology-driven and customer-oriented. of the best in Russia, and quality of remote services available to individuals to 15.1 %. and the Supervisory increased, the range of services for businesses was Today, the rapidly changing landscape in the banking I would like to express my gratitude to VTB’s Council pays special expanded, and the investment services platform was business poses new challenges for VTB. The Group’s shareholders, clients and partners for their support attention to relations improved. We saw better-than-market mortgage sales Development Strategy for 2019–2022, which was and high degree of trust. In the future, the Bank with shareholders. and increased market share in retail deposits approved by VTB’s Supervisory Council last year, will do everything necessary not just to meet your For example, by 110 b.p. to 15.1 %. While maintaining excellent was one of the main drivers behind the Group’s expectations but to exceed them and to achieve the Bank’s positions in terms of corporate lending, the Group positive results in 2019, while also providing success together, while working for the good Development focused on small and medium-sized enterprises, guidelines for operating in the new business of society and the prosperity of our country. Strategy includes a segment that is extremely important for the national environment. major proposals economy. on the part of minority The priority areas covered in the new Strategy shareholders. Important steps were taken to further the Bank’s include healthy growth in the banking business, digitalisation and technological transformation. a strengthened focus on customer interests, The Group launched a number of important projects as well as the accelerated introduction of advanced in its Retail Business in 2019 in an effort to further technologies. The achievement of these objectives will improve customer service. VTB Bank was one of the enable the Group to meet its target of RUB 300 billion Anton Siluanov first banks to start using the Bank of Russia’s in net profit in 2022. Chairman of the Supervisory Council Faster Payments System. In addition, a biometric platform was launched that can identify Bank’s In 2019, an external assessment of the work customers through facial and voice recognition. of the Supervisory Council was conducted for the first A digital mortgage project was also implemented, time. The assessment concluded that the Supervisory which enables customers to carry out a number Council was highly engaged in decision-making of operations remotely through the VTB’s mobile on key issues concerning the Bank’s operations. Sincerely, application. At the same time, the assessment highlighted Anton Siluanov

16 17 Annual Report / 2019 1 2 3 4 5 6 7 8 Statement of the President and Chairman of the Management Board Statement of the President and Chairman of the Management Board

Net profit amounted to RUB 201 billion, an increase growth in client funding enabled us to improve In 2019, VTB consolidated its leadership of 13 % year-on-year. This increase was driven The total volume the stability of our balance sheet structure: in the corporate-investment business: VTB Capital In 2019, by organic business growth and improving balance of mortgage loans our loans-to-deposits ratio decreased to 98.2 % was named the best investment bank in emerging retail deposits sheet structure thanks to better asset quality. amounted over the year. markets for the third year in a row and was also grew recognised as the leading bookrunner in Russia, In 2019, the Group’s net profit amounted to 712 In 2019, our main banking revenues increased the CIS and Eastern Europe. We continued by 14 % to RUB 201.2 billion, which was 12.9 % higher RUB billion, by 5 %. At the same time, despite a lower to arrange financing for regional and federal year-on-year and in line with our target. Profit net interest margin, which began to recover only projects in the areas of social infrastructure, road an all-time record growth was the result of higher fee and commission in the second half of the year, we were able – construction and railway infrastructure, as well to for VTB Group. 5.0 income and improved asset quality. Another factor through the continued optimisation of our balance as innovative and high-tech projects in the real sector RUB trillion, behind the improvement in our operating metrics sheet structure – to maintain net interest income of the Russian economy. was lower provision thanks to higher asset quality. at 2018 levels. In addition, excellent growth increasing at a rate On the back of increased net profit, return on equity in cross-sales enabled us to achieve a considerable We also continued to provide investment services increased to 12.8 %. increase of 29.2 % in net fee and commission for individuals. VTB Capital Investments, a retail twice income. broker, became a recognised leader in the Russian as fast as VTB Group’s retail loan portfolio demonstrated market, having made a qualitative breakthrough the Russian banking excellent growth during the reporting period, In 2019, we were able to improve the quality in attracting new customers to the stock market, sector overall. increasing by 13 % to RUB 3.4 trillion. VTB was of our assets: the share of non-performing loans with its client base growing by 150 % in 2019 one of the few banks to increase mortgage in our total loan portfolio decreased by 100 b.p. to more than 700 thousand. The number of active volumes in 2019. As of the end of the year, our housing year-on-year to 4.7 %. We also saw declines clients using the VTB My Investments mobile platform loan portfolio amounted to RUB 1.6 trillion, while in the cost of risk and provision charge, which increased sixfold to more than 170 thousand; the total volume of mortgage loans amounted amounted to RUB 92.2 billion, down 38 % the total volume of transactions exceeded In 2019, VTB Capital to RUB 712 billion – an all-time record for VTB Group. year-on-year. The NPL coverage ratio increased RUB 2 trillion. The quality and appeal of VTB mutual Investments, In 2019, VTB issued one out of every four mortgage to 128.7 % at the end of 2019, compared with funds followed suit: last year, investors placed a retail broker, loans in Russia; around 1.4 million families were able 112.0 % a year earlier. RUB 49.5 billion with VTB Capital Management’s became a recognised Andrey Kostin to purchase housing with our help. mutual funds. This was about half of the funds raised leader in the Russian President and Chairman of Last year, staff costs and administrative expenses by all market players in Russia. market, having the Management Board Our corporate loan portfolio decreased by 4 % increased by 12.6 % year-on-year, while made a qualitative in 2019, mainly as a result of a series of large the cost to income ratio was 41.6 %, which Our 2019–2022 Development Strategy is based breakthrough repayments. At the same time, our loan portfolio indicates a high degree of operational efficiency. on VTB Group’s vision as a dynamically and steadily in attracting new Dear shareholders, clients, and partners, in the Medium and Small Business segment The substantial investments in infrastructure growing universal financial company that customers grew by 10 % over the year. VTB Group offers and competencies that we made in 2019 is designed to be the first-choice financial partner to the stock market, The year 2019 marked an important stage affordable financing, high-quality service will serve as a good basis for further growth for its customers, meeting their needs in the most with its client base in VTB Group’s development: net profit amounted and advanced digital solutions for SME throughout in productivity. convenient manner possible and using the most growing to RUB 201 billion, equivalent to a 13 % return Russia. Last year, we continued to develop advanced tools available. on equity; we attracted more than 1 million remote banking channels and services that allow In 2019, we greatly improved our positions by % new customers, bringing our total number entrepreneurs to save significant time and manage in retail and in servicing small and medium-sized Last year marked an important stage in the 150 to 13.9 million. Our shareholder base continued their business effectively. businesses; we saw significant development development of VTB Group: we successfully to more than to grow: increasing by 31 % in 2019 in retail investment products, and we also completed implementation of our 2017–2019 to 160 thousand. Last year, we also adopted The Group continued to increase the share of Retail maintained a leading position in the corporate- Development Strategy, and we embarked on a path 700 and began the successful implementation Business in its liabilities. In 2019, retail deposits investment business. towards increasing return on equity; we met all thousand. of a new Development Strategy for the period up grew by 14 % to RUB 5.0 trillion, increasing at a rate of our priority targets in terms of business volumes to 2022, which calls for a profound transformation twice as fast as the Russian banking sector overall. VTB Group’s share in the retail funding market and market positions. The integration of the Group’s of the business and a radical improvement Corporate deposits remained virtually unchanged in Russia increased to 15.1 %. The Group’s main subsidiaries was our top priority in the previous in customer experience in a rapidly changing over the year, amounting to RUB 5.9 trillion market share in terms of retail lending in Russia strategic cycle. The banking market has shifted market reality. as of 31 December 2019. Our faster-than-market was 17.4 %. to a new development paradigm: the market

18 19 Annual Report / 2019 1 2 3 4 5 6 7 8 Statement of the President and Chairman of the Management Board

is increasingly turning towards digitalisation, Programmes were launched for the purpose customers in the environmental agenda Our achievements in the past year established and all processes can be carried out much of digitalising banking support processes Our 2019–2022 and promoting environmental values in the country. a solid foundation for responding to the serious In 2019, more quickly, while competition for customers and increasing the speed of decision-making, Development Strategy We also continue to improve our own energy challenges that 2020 has brought. Thanks we identified is increasing and the traditional banking business as well as introducing an approach to assessing is based on efficiency and reduce our environmental impact. to our considerable safety buffer, VTB Group 8 priority goals is becoming less profitable. This demands credit risk based on internal ratings. VTB Group’s Our sponsorship and charity efforts are increasingly continues to expand its business and increase that VTB will a different business model; adaptation to ongoing vision as focused on supporting special-purpose funds the speed of internal transformations, contribute tasks and challenges, customer-centricity and I would also highlight our work on building a dynamically and environmental programmes. All this will enable and we are ready to use the opportunities that to through a detailed understanding of the client’s needs, an omnichannel platform, which should become and steadily us to bring our ESG management system to a level are arising to further strengthen our market its core business. as well as timely responses to changes are critical the flagship of our digitalisation process and should growing universal consistent with best practices and standards. position. I would like to thank the entire aspects of interaction and a real competitive also create additional competitive advantages financial company VTB team – a large but tight-knit group – advantage. All these aspects form new growth through, first of all, a new customer experience – that is designed We provide a more detailed discussion of our for their hard work, their readiness for change points for us. convenient, high-quality, reliable and secure service to be the first-choice ESG results and projects in our Sustainability Report. and their desire for continuous improvement, for our customers – and through the quick rollout financial partner as well as our shareholders, customers and partners Under these conditions, we adopted a new Strategy, of new client services and products, integration for its customers, In 2020, the entire world came face to face for their trust in us. Our goal is to live up including an updated mission, vision and values, with partners, a state-of-the-art IT landscape meeting their needs with fundamentally new and global challenges. to that trust. Together, we will continue to work in accordance with which VTB Group identified and the application of advanced technologies. in the most convenient In a matter of days and weeks, we had for the good of society, while playing a role three key development priorities to 2022. All this will be created in accordance with a new manner possible to reorganise our processes in order to minimise in the successful development of our country. The first priority is an increased focus on clients’ IT process involving cross-functional teams – and using risks to the life and health of our customers transactional operations, support for daily operations, close interaction between IT and business the most advanced and employees, on the one hand, and to ensure payments and transfers. Another key strategic focus and functional customers. tools available. full-scale operations during the period of self- is the optimisation of funding costs. With the goal isolation – on the other hand. We can now say of maintaining our leadership in the corporate Our responsibility to the public drives all our with confidence thatwe – the entire VTB team – segment, we plan to continue to increase our actions and strategic priorities. With the adoption fared well in facing up to these challenges. retail customer base to 18 million and to double of VTB Group’s new Development Strategy our customer base of the Medium and Small to 2022, we began the comprehensive Among the results of the ongoing transformational Business. implementation of sustainable development processes are a high degree of operational principles in our activities. The Group’s updated flexibility and the ability to quickly restructure In 2019, the Group dramatically reorganised strategy, mission and values are aligned our operations in light of the spread of COVID-19. and restructured its IT function. In a short time with the UN Sustainable Development Goals We were able to create the necessary conditions, frame, we conducted a detailed audit of our entire and are contributing to the implementation in a short time, to enable some 25 thousand IT landscape, infrastructure, production process of all 17 goals that all UN member states agreed employees and contractors to work remotely. and project management and switched to a new to achieve by 2030. We expanded communication channels, provided format for change management, i.e., through necessary access, purchased and configured programmes. We focused on improving the stability In 2019, we identified eight priority goals equipment. We ensured that our projects were and reliability of our IT systems and our entire that VTB will contribute to through its core business, carried out, and we continued to introduce IT infrastructure, upgrading origination conveyors including by supporting and participating new services and solutions. In a short amount to accelerate bringing in new customers in various projects and initiatives aimed of time, we were able to quickly and reliably alter and to improve the quality of our loan portfolio at improving the quality of life in the regions our IT systems and processes – at times the first and the speed of decision-making by using where we operate and making advancements in the market to do so – to implement government advanced technologies for data analysis in healthcare, science and education, culture initiatives and solutions to support the economy. and modelling. In addition, recognising and environmental protection. the importance of working with data, we began VTB’s coordinated, results-driven and critical building an updated data platform and creating Climate change is one of our era’s key issues, work in the context of the pandemic underlined an advanced analytics laboratory to fully utilise looming large at both the international and national our role as a leading Russian financial institution the competitive advantages of our existing levels. VTB Group is systematising and taking and a top player in the development of information Sincerely, customer base and to attract new customers. to new heights work on green financing, involving technologies. Andrey Kostin

20 21 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report Management Report

In addition, economic growth was supported From the point of view of industrial GDP, the financial RUSSIAN ECONOMY AND BANKING SECTOR by a 1.4 % increase in gross fixed capital sector (+9.7 %) was the biggest contributor formation and by a 2.8 % increase in government to economic growth in 2019 thanks to higher RUSSIAN MACROECONOMIC INDICATORS spending. retail and corporate lending, followed by industrial (% CHANGE YEAR-ON-YEAR) production (+2.4 %) and wholesale and retail Household demand was supported by solid trade (+1.7 %). Industrial production increased real wage growth and the expansion of retail in 2019 thanks to growth in mining (+3.1 %) GROSS DOMESTIC PRODUCT INVESTMENTS IN FIXED ASSETS lending. Real wages increased by 2.9 % in 2019, and manufacturing (+2.3 %). accelerating in December to 6.9 % year-on-year. 10 10 The higher pace of growth in real wages was partly An increase in the VAT rate sped up inflation due to a slowdown in consumer inflation, though at the beginning of the year (+5.3 % year-on-year it was to a large degree attributable to an increase in March) before slowing to +3.0 % year-on-year 6 6 5.4 in companies’ net profit: in 2019, companies’ net by the end of the year. Two main factors contributed 4.8 profit increased by 17.5 % from RUB 13.4 trillion to the slowdown in inflation: an increase in supply 2.3 to RUB 15.8 trillion2. in some food markets (in meat, fruits and vegetables 2 1.6 2 1.3 1.7 0.3 in particular) and a stronger rouble, which slowed 2015 2015 2016 On the whole, consumer confidence matched inflation for non-food products. –0.2 growth in real wages, as it increased in the second –2 2016 2017 2018 2019 –2 2017 2018 2019 half of 2019 amid an increase in wages and Slower-than-expected growth in prices led –2.3 slower inflation. In 2019, retail sales grew the Bank of Russia to lower its key rate from 7.75 % –6 –6 by 1.6 %, with more visible growth in the non-food at the beginning of 2019 to 6.00 % at the beginning segment. of 2020.

–10 –10 –10.1 OIL PRICE AND EXCHANGE RATES INFLATION AND BANK OF RUSSIA KEY RATE

66.9 INDUSTRIAL PRODUCTION RETAIL TURNOVER 64.7 12.6 % 62.5 60.7 10.6 % 58.3 10 10 9.1 % 69.7 12.9 % 63.9 7.4 % 7.3 % 51.0 53.1 6 6 41.6 5.4 % 4.3 % 2.9 2.8 2.2 2.1 2.4 2.5 % 3.0 % 2 2 1.3 1.6 2015 2015 2016 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2016 2017 2018 2019 2017 2018 2019 –2 –0.8 –2

–4.8 USD/RUB (Bank of Russia, average), RUB Bank of Russia key rate (average) –6 –6 Oil price (Urals, average), USD CPI inflation (December / December)

–10 –10 –10.0

The Russian economy grew by 1.3 % in 2019. The largest budget rule1: the real effective exchange rate driver of growth was household final consumption decreased by 7.7 % in 2018 and increased expenditure, which increased by 2.3 % in 2019. by 2.5 % in 2019 despite an increase in the price of oil in 2018 and a decrease in 2019. In 2018–2019, the structure of economic growth from the demand perspective was shaped As a result, exports fell by 2.2 % in 2019, by the Ministry of Finance of the Russian Federation while imports expanded by 2.2 %.

1 According to the budget rule, the Ministry of Finance of the Russian Federation uses all oil and gas revenues from oil prices above the baseline set in the budget of the Russian Federation to purchase foreign currency for the National Wealth Fund. The price of oil in the 2019 budget was set at USD 41.6 per barrel (Urals). 2 According to the Federal State Statistic Service.

22 23 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

ASSETS, RUB billion EQUITY, RUB billion LOANS TO LEGAL ENTITIES, RUB billion LOANS TO INDIVIDUALS, RUB billion

2019 96,581 2019 10,009 2019 39,854 2019 17,651

2018 94,084 2018 9,306 2018 38,947 2018 14,901

2017 85,192 2017 8,963 2017 34,786 2017 12,174

2016 80,063 2016 8,611 2016 34,036 2016 10,804

2015 83,000 2015 7,552 2015 36,173 2015 10,684

In 2019, growth in the Russian banking sector PROFIT BEFORE TAX, DEPOSITS AND ACCOUNTS OF LEGAL ENTITIES, DEPOSITS AND ACCOUNTS OF INDIVIDUALS, continued on the back of real GDP growth, a decrease RUB billion RUB billion RUB billion in the key rate and the strengthening of the rouble against the US dollar. Asset growth slowed to 2.7 % compared with a 10.4 % increase a year earlier. 2019 2,037 2019 31,788 2019 30,549 At the same time, the penetration of banking services (the ratio of banks’ total assets to GDP) decreased 1,345 2018 2018 31,424 2018 28,460 by 2.4 p.p. for the year to 88 %.

2017 790 2017 27,004 2017 25,987 Growth in the loan portfolio was driven by demand amid lower interest rates on loans stemming 2016 930 2016 25,149 2016 24,200 from the Bank of Russia’s easing of monetary policy. At the same time, the measures taken 2015 192 2015 27,923 2015 23,219 by the regulator to cool growth in consumer lending had a visible effect, especially in the fourth quarter, when additional premiums were introduced on risk factors for unsecured consumer loans depending Corporate accounts and deposits remained Profit before tax increased by 52 % in 2019 on the borrower’s debt load and the total cost an important source of funding, accounting for 72 % to RUB 2.0 trillion, while net profit increased by 73 % RUSSIAN BANKING SECTOR of the loan. As a result, growth in retail lending of banks’ liabilities. At the same time, growth to RUB 1.7 trillion. At the same time, return on equity slowed in 2019 to 18.5 % from 22.4 % a year earlier. in balances in customer accounts slowed in the context increased from 10.8 % in 2018 to 17.6 % in 2019. At the same time, growth in mortgage lending was of a stronger rouble and lower deposit rates. Corporate The number of unprofitable credit institutions Profit before tax during 2019 Return on equity down to 16.8 % (compared with 23.3 % in 2018), account balances increased by 1.2 % compared decreased from 100 at the end of 2018 to 69. increased increased while consumer lending increased by 19.7 % with 14.1 % in 2018, while term deposits increased Profit growth boosted capital adequacy by 18 b.p. (compared with 21.8 % in 2018). Growth in the by 7.3 % (compared with 9.5 % in 2018). During to 12.3 %. by 52 % to 17.6 % corporate portfolio was constrained by poor demand the year, the net loans-to-deposits ratio decreased in the first half of the year and the appreciation by 2.2 p.p. to 74 %. Banking sector debt to the Bank of the rouble against the US dollar. By the end of Russia decreased by 6 % to 2.8 % of assets. Net profit during 2019 Capital adequacy of the year, the portfolio had increased by 2.3 % increased increased compared with 12.0 % growth in 2018. The share of overdue loans in the corporate portfolio increased by 73 % to 12.3 % by 1.3 p.p. to 6.9 %, while decreasing by 0.8 p.p. in the retail portfolio to 4.3 %.

24 25 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

2019 KEY EVENTS

• VTB Bank merged its retail and corporate networks – the largest merger • VTB launched a product factory and a digital factory for working with small • VTB Bank was recognised as the best in the history of the Russian banking system and a logical continuation and medium-sized enterprises to develop and introduce new high-tech bank for trade and export finance of the project successfully completed in 2018 to merge VTB24 with products and services: in Eastern Europe according VTB Bank. to the authoritative international – The product factory is aimed at the dynamic development publication Global Trade Review. • VTB received a patent for a blockchain-based multi-issuer settlement of transactional and credit products for small and medium-sized VTB Bank The biggest international banks took and payment system – the Bank’s first-ever patent for its intellectual enterprises. It will improve and accelerate the development part in the competition. The selection property. The technology will enable VTB to create digital products, of new proposals to meet every business need, and it will ensure MERGED ITS RETAIL criteria were the volume and services and payment instruments that provide a solution for the problem that products are brought to market as quickly as possible; geography of completed transactions, of accounting for reciprocal payments between a practically unlimited AND CORPORATE – The digital factory is responsible for the development of remote sales as well as banks’ innovative approach number of system participants. NETWORKS – and the creation of a range of non-banking services for the Medium to business and participation • VTB Bank was named the winner in the Breakthrough of the Year the largest merger in the history and Small Business segment. The objectives of the digital factory in projects of strategic importance. in the Retail Financial Business category at the 12th annual Retail Finance of the Russian banking system include the organisation of business processes related to remote sales, VTB’s unique experience in terms Awards presented by The Retail Finance magazine for achievements the introduction and development of non-banking services of servicing business contracts ensures in the financial business in Russia. Experts noted VTB Bank’s record-setting for entrepreneurs, the provision of state-of-the-art digital solutions an individual approach and offers performance in terms of mortgages, lending, savings and commission for business, as well as the development of new digital communication the most advanced and most profitable products, as well as the VTB My Investments mobile application. channels. solutions for the Bank’s clients.

JANUARY MARCH MAY FEBRUARY APRIL

• VTB Bank joined the Ministry of Economic Development’s updated • A new VTB Group’s Development Strategy was adopted, which includes programme for preferential financing of small and medium-sized an updated mission, vision and values for the Group. The Group sets enterprises. The programme provides for the issuance of loans ambitious new goals, such as significantly improving its business model to SMEs at a rate of not more than 8.5 % per annum in 2019–2024, and achieving, by 2022, the net profit of more than RUB 300 billion with subsequent subsidies for lending institutions from the federal budget. with a return on equity of 15 %. The Group’s Strategy for 2019–2022 VTB Bank was named is built around three main priorities: • VTB Capital Investment was named the winner of the Runet Golden App A NEW VTB GROUP’S the winner in the 2018 mobile applications competition in the Best Investment App category. DEVELOPMENT – Healthy growth of the banking business, complemented by initiatives BREAKTHROUGH The competition was organised by the Russian Association of Electronic related to the digital economy; Communications. The VTB My Investments mobile app for private investors STRATEGY – A focus on customer interests and service quality; received the highest rating among projects by leading Russian companies. OF THE YEAR was adopted, – New trends: increased efficiency, digitalisation and advanced which includes an updated IN THE RETAIL FINANCIAL technologies. mission, vision and values BUSINESS CATEGORY for the Group at the 12th annual

Retail Finance Awards You can read more about VTB Group’s Strategy in the Strategy section.

26 27 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

• VTB Bank completed • VTB Bank launched a virtual mobile operator, a strategic project to build its VTB Mobile, which uses Tele2’s radio access own IT cloud: a unified platform network and infrastructure. Users can choose a tariff for the flexible management depending on their minutes or internet data needs of IT infrastructure was and communicate unlimited within the network. VTB Capital Investment created, which made My Smart City International roaming is available for users travelling VTB Leasing was named Management it possible to reduce the cost application abroad, it has special options to save money on calls of IT resources and to speed and internet. Clients can also use bonuses that they is the winner for developed by VTB Bank THE LEASING up the provision of those receive in the Multibonus loyalty programme to pay RETAIL INVESTORS resources. was named for extra services. When connecting, a user can switch COMPANY a network with keeping his phone number. CATEGORY • VTB Bank received an award THE BEST OF THE YEAR for high-quality service, at the international of the annual Financial as it became one of the best- TECHNOLOGY Leader Leasing Awards Market Elite competition performing banks in the world PRODUCT in terms of having fewest fraudulent transactions OF THE YEAR involving Visa payment cards. by The Banker magazine

JULY SEPTEMBER JUNE AUGUST OCTOBER

• The Bank’s Annual General Meeting of Shareholders was • My Smart City application developed • VTB Leasing was named the Leasing Company held on 5 June and was attended by 2,348 shareholders by VTB Bank was named the best technology of the Year at the international Leader Leasing and their representatives, including 740 who attended product of the year by The Banker magazine. Awards. The Leader Leasing Awards are held in person. The event was broadcasted online on VTB Bank’s VTB’s solution was the winner in the Mobile annually and are awarded to the best leasing website. For the convenience of shareholders, an e-voting Applications category at the Tech Projects companies in Eurasia and Russia, which offer system was available for use at the meeting. Awards, beating out mobile products created VTB Bank new paths for development and projects by some of the world’s top banks. My Smart and whose activities are aimed at economic • The awards ceremony for the annual Financial Market Elite launched a virtual City is the first application to link up VTB Bank development. competition for top businesses took place in Moscow. mobile operator with Moscow municipal services. The app VTB won the Brokerage Company of the Year award. enables users to view event information, VTB MOBILE The winner in the Best Management Company for Retail top up their parking account, pay utilities Investors category was VTB Capital Investment Management, bills and traffic fines, top up the balance and the VTB Treasury Fund was the winner in the Best Bond of their Troika transport card and see the latest Fund category. Active Citizen voting results and more.

28 29 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

• VTB, as part of the second intake for the corporate accelerator it runs • VTB began operating a QR code payment service through the Faster Payments THE VTB ACCELERATOR jointly with the Internet Initiatives Development Fund, launched 12 pilot System in the VTB Online mobile application. was designed to search the market projects with startups, including a borrower assessment service based for ready-made innovative solutions • VTB became the first bank in the market to issue a mortgage loan through on client behaviour data, remote verification of mobile services users, that can reduce costs or bring the Bank a VR mortgage service, when a client from Krasnoyarsk completed the purchase an interactive assistant for employee training and a platform to create additional profit through the creation of an apartment in St. Petersburg using the service. The Bank’s VR mortgage VTB became the first bank virtual voice operators. of new products and services. Through service enables clients to use virtual reality goggles to evaluate all the features in the market to issue • VTB Bank began connecting clients to its contactless payment service the accelerator, pilots are quickly carried of a property, including its location on a city map, infrastructure, layout for smartphones. This is a SoftPOS mobile application that will completely out to assess the potential business and detailed potential room designs. A MORTGAGE LOAN replace classic POS terminals. The Bank provides acquiring services impact and technological feasibility • As part of its work with small and medium-sized enterprises, VTB launched for the platform for self-employed Russians and for micro-enterprises. of innovative solutions, and the best THROUGH a platform for non-banking services that allows entrepreneurs to hook up They can accept payment for their services without purchasing special performers are scaled up. For its second the services they need to automate their activities online. The new resource A VR MORTGAGE equipment. intake, the VTB accelerator received offers customers accounting and tax payment solutions, round-the-clock 301 applications from five countries SERVICE. legal support for their business, and a package of services for taking from technology companies that meet The Bank’s VR mortgage service their business online. In addition, entrepreneurs have access to a service the Bank’s requirements. enables clients to use virtual reality that enables them to search for freelancers to find solutions to one-time goggles to evaluate all the features business problems, trade management services, as well as express services of a property for verifying counterparties and registering trademarks. NOVEMBER DECEMBER

• VTB Capital hosted the 11th annual Russia Calling! investment forum • Global Finance recognised VTB as the best trade finance bank in Moscow. The event attracted more than 2,500 visitors, including more in Russia in 2019. The publication’s editorial board reached this conclusion than 500 investors and foreign delegates from 68 countries, as well based on an assessment of a number of indicators, including transaction as government officials and heads of leading global corporations. Russian volume; innovative products, services and technologies; and the quality President Vladimir Putin addressed the forum’s plenary session. of the services provided. In addition, the opinions of international visitors VTB is recognised as analysts and experts in the field of trade finance were also taken into 2,500 • With VTB’s involvement, the M-11 Moscow – St. Petersburg toll highway from 68 countries account in determining the winners. In 2019, VTB completed trade was opened. The highway was built through a public–private partnership. attracted THE BEST TRADE and export finance transactions in partnership with 75 international The construction of the last two sections of the highway – stages 7 and 8 – the 11th annual financial institutions from more than 50 countries. Transactions was completed on the basis of a concession agreement between FINANCE BANK Russia Calling! were carried out both in traditional industries – chemicals, transport, the Government of the Russian Federation, represented by the state-owned investment forum IN RUSSIA steelmaking, nuclear energy – and in new alternative industries, including company Avtodor, and Two Capitals Highway, which was established in Moscow by the Global Finance solar and wind energy. by VTB Capital investment bank and VINCI Highways. The agreement was concluded for 27 years: for the period of construction to 2019 and for the period of operation to 2041.

30 31 WE CHOOSE THE BEST PATH

2022 STRATEGY

• FOCUS ON CUSTOMER INTERESTS

• ROBUST BUSINESS GROWTH AND DEVELOPMENT OF DIGITAL ECONOMY INITIATIVES

• DIGITALISATION AND IMPROVED EFFICIENCY Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

In accordance with its mission, values and strategic vision, VTB identifies three key development priorities STRATEGY for 2019–2022:

CONTEXT FOR THE DEVELOPMENT on equity, growth rates of its loan portfolio and customer funding. VTB Bank’s merger with VTB24 OF A NEW STRATEGY to create a single bank was the biggest integration The interests of our clients and the quality of our service are the focus, which VTB Group broadly met the key targets outlined project to take place in the Russian market in 2018; means providing the best offer for our clients and ensuring the highest level in its Strategy for 2017–2019 ahead of schedule. ambitious work is under way aimed at the digital of customer satisfaction in the market. The key factors are: strengthening The Group exceeded its targets in terms of return transformation of the Group’s business and processes. our business model in terms of focusing the Group’s efforts on customer satisfaction, moving to personalised communications based on advanced data As of the end analytics and data modelling tools available to customers through the channels of 2019, VTB was that are most convenient for them. on the Strategy course to achieve EXCEEDED 3.5x Net profit growth (2016–2018) these goals and had TARGETS Intensive growth of the banking business, complemented by digital economy met its main targets for net profit initiatives: increasing the number of retail customers by 50 %, doubling and achieved Net profit, RUB billion Return on equity (ROE) and ROE the number of Medium and Small Business customers and expanding its objectives 2018 Actual 179 2018 Actual 12.3 % customer coverage in the Corporate-Investment Business to more than 85 % for the year. of the market. 2018 Strategy 150 2018 Strategy 10 %

Loan portfolio enjoyed 2018 Actual 11.4 RUB trillion New dynamics of changes: digitalisation, advanced technologies, higher-than-expected increased efficiency. growth 2018 Strategy 10.6

Exceeded target 1. Customers’ usage of digital channels in terms of operational processes. 2018 Actual 10.4 RUB trillion for attracting customer deposits to conduct banking is expected Investments in technological solutions and increased market share 2018 Strategy 9.7 to increase significantly: more than 50 % will be aimed at creating leading solutions of sales will be completely digital and 100 % in such areas as the use of biometric of products will be available to customers identification platforms, robotics through electronic channels by the end and advanced analytics; the virtualisation VTB Bank and VTB24 integration of 2022; more than 80 % of service of processes based on artificial intelligence completed operations will move to remote channels. technology; the creation of a system While remaining a universal bank, of open interfaces for prompt integration VTB will take its branch network and other with partners; and automation of the cloud traditional channels to a new technological infrastructure for the acceleration and scaling KEY STRATEGIC PRIORITIES FOR VTB In response to the new situation at the end of level by creating a full-fledged multichannel of capacities; April 2019, VTB Bank’s Supervisory Council adopted interface for client interaction. An important GROUP’S DEVELOPMENT IN 2019–2022 3. Key factors will be accelerating a new VTB Group Development Strategy priority is the digitalisation of internal the Bank’s response to market changes The changing landscape poses new challenges for 2019–2022, which includes an updated mission, processes, which will involve, in particular, and customer demand and promoting for VTB Group. Competition for customers is heating along with a renewed vision and values. the transition to a completely paperless internal values within the corporate culture such up, while barriers to their movement between workflow while maximising the electronic as innovation, engagement, a commitment banks are breaking down, and competition workflow in relations with external to results and teamwork. This new approach from non-financial players is increasing. The model VTB’s new mission: We help people counterparties; for the consumption of financial services is being to make their plans a reality by creating will be facilitated by initiatives to develop transformed with a trend towards greater digitalisation the best financial solutions. We are a team 2. The Bank plans to build an advanced human capital: the creation of a pleasant of products and services. Pressure on margins of professionals, working for the benefit operational and processing platform working environment and attractive in traditional banking and stagnation in the banking of our customers and the country as a whole. based on a next-generation microservice conditions for the top talent in the market, sector continue. IT architecture that will create competitive the systematic development of tomorrow’s VTB’s strategic vision: A universal advantages for the Group in terms leaders, ensuring productivity growth While VTB is focused on long-term and sustainable financial group that is developing both of the speed at which technological solutions and competitive motivation, and a balance development, it has to adapt in response to new dynamically and sustainably, one that are introduced and new services are brought of team and individual success. challenges, which means the evolution of the Bank’s is focused on being the first-choice to market. A single operations centre The introduction and scaling of a new model business model, an increased focus on customers financial partner for its customers, will be created to provide a high degree of cross-functional teams will be an important and their needs, acceleration of internal processes and which provides the most convenient of reliability, scalability and efficiency driver for speeding up these processes. and optimisation of the Bank’s operating model. and cutting edge solutions to their needs.

34 35 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

MAIN DEVELOPMENT TRENDS MAIN DEVELOPMENT TRENDS IN RETAIL BUSINESS GLOBAL BUSINESS LINE IN THE MEDIUM AND SMALL BUSINESS GLOBAL BUSINESS LINE

RETAIL BUSINESS MEDIUM AND Doubled 2022 million SMALL BUSINESS 1.5x 18 2x client base Active clients 2022

Increase in average revenue of 22 % 35 % Market share Share of loans % in lending to individuals 15–35 to individuals in loan portfolio depending on the subsegments

20 % 35 % Market share in retail accounts Share of fees and commissions and deposits in net operating income

The Retail Business Strategy envisages an increase In 2019, VTB enabled customers to receive cash Goals of the Medium and Small Business global The Bank made it possible to open a current account in the client base by 50 % to 18 million customers loans through a mobile application, introduced business line: doubling the client base among small without visiting a Bank office by using a service along with an increase in market share in retail a digital debit card and expanded the possibilities and medium-sized enterprises with an increase of mobile specialists; a service was launched to enable lending to 22 % and, accordingly, an increase for money transfers and payments. VTB added in average revenue of 15 %–35 % depending the online registration of limited-liability companies to 35 % in terms of the share of loans to individuals an option to its website that enables customer on the subsegment. This will be made possible and sole proprietorships using an electronic signature in the Group’s loan portfolio. Concerning retail to get a mortgage approval in 30 seconds without first of all by increasing the transactional through a mobile phone. customer accounts and deposits, the Bank plans visiting the Bank’s branch. The Bank updated its revenue of the business – the share of current to increase its market share to 20 % on the back loyalty programme and added more than 10 thousand account balances among customer accounts As part of the Bank’s expansion into non-financial of faster growth in balances of current and savings partners to the Multibonus programme. The Bank in the segment will exceed 40 %, and the share services, a joint offer was developed by VTB and accounts, their share in the structure of deposits launched a new Savings Jar product, which helps of fees and commissions in net operating income First-OFD (fiscal data operator) for the sale of online from individuals will be greatly increased. Optimisation increase the share of savings accounts in the portfolio will exceed 35 %. Remote and partner channels cash registers and OFD products to VTB customers of the cost of funding, an increase in the share of customer accounts. will play a significant role in increasing the client base; at a discount; a Digital Accounting service and of customers carrying out transactions and customers the share of sales through digital channels will VTB Business QR1 were piloted for small enterprises. with multiple products will ensure income exceed 50 %. VTB launched a platform for non-banking services diversification and above-market growth in terms that allows both VTB Bank clients and users, who of average income per customer. In 2019, the Bank launched a new universal line are not VTB clients, to access state-of-the-art tools of settlement and cash services packages for small for automating business processes and improving As of the end of 2019, VTB had seen a record increase and medium-sized enterprises that offer a full range their efficiency. in terms of its active clients – more than 1 million of the banking services to meet customers’ needs. people – which was achieved by, among other things, Since its launch, more than 20 % of VTB’s client base Thanks to a new sales and service model introduced working with the existing customer base in order has taken advantage of this new financial product. at the beginning of the year, three times more to reduce the loss of clients, and also by developing The most popular package among VTB Bank’s new settlement accounts were opened through remote digital services and introducing new digital products clients is the For Starters service package, which channels compared to 2018. As a result, conversions to market. was developed to support small and medium-sized nearly doubled, and the Bank showed a fourfold enterprises. improvement in its response time.

1 VTB Business QR is a mobile application that enables entrepreneurs to accept cashless payments through the Faster Payments System.

36 37 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

MAIN DEVELOPMENT TRENDS SYNERGIES AMONG DEVELOPMENT OF OPERATIONAL IN THE CORPORATE-INVESTMENT BUSINESS GLOBAL BUSINESS LINE GLOBAL BUSINESS LINES AND TECHNOLOGICAL PLATFORM Оne of the key areas for the Bank in terms A key condition for the successful implementation of the Strategy implementation is the development of the strategies of the Bank’s global business CORPORATE- Maintaining of synergies among its global business lines. lines and for development in the digital economy is the creation of an advanced operational INVESTMENT leadership positions Based on 2019 results, initiatives were developed and processing platform that involves efficient in investment banking services for corporate to reinforce the synergies between the corporate processes for operational support, business support BUSINESS and institutional clients and retail businesses. In particular, a number and information systems that ensure a high level 2022 of initiatives were carried out regarding salary of automation and stability. Ensuring clients and cross-promotion of products to clients of the Retail and Corporate Businesses. In 2019, VTB developed its Retail Business IT systems; better-than-market growth the number of changes made to the IT systems in current account balances and fees and commissions Retail customers were connected to the Faster Payments increased by 30 % compared with 2018. In terms for transaction products System (FPS) to enable them to transfer funds of IT solutions for the corporate business, to individuals by telephone number. VTB Business QR VTB continued developing its remote banking was launched, making it the first solution in the market channels. enabling customers to receive C2B payments using 25 % a QR code through the Faster Payments System. The Bank also began operating cross-functional teams market share of investment products made up of staff from different Bank departments for individuals In order to reinforce the development of investment (business divisions, IT, and other organisational products, VTB enabled to open brokerage and units), which individually or in cooperation individual investment accounts through VTB Online, with other teams work on the delivery of final two partners were connected using the Open API products to the market. This format has been most VTB’s strategic vision for its Corporate-Investment for transaction products, and to create, together technology, and a pilot roboadvisory project was common in the development of the Retail Business Business implies the development of its existing with the Retail Business, conditions for a breakthrough launched. VTB entered the top three in terms and Medium and Small Business. Since the end business model with a special focus on an individualised in the investment products market for individuals of opening new accounts on the Moscow Exchange. of 2019, the Bank has been changing over to a new client approach based on industry specifics and, by the end of 2022, to have secured at least production process; nine key Strategic programmes and an understanding of client needs, expertise 25 % of this market. A strategy for financing housing construction were initiated and launched already by the end and partnerships to resolve financing challenges was approved that involves a transition to the use of 2019 that will be the main drivers of the Bank’s of any size, as well as unchallenged leadership In 2019, the Corporate-Investment Business global of escrow accounts in working with developers. development in 2020–2022. As of the end of the year, in the investment business. business line launched a new functionality that uses the Bank had launched and was operating more than biometric data to authenticate clients through remote Transport solutions for Moscow and St. Petersburg 270 such teams. The goals for the development of the Corporate- banking service channels; the questionnaire was were introduced; the process of transitioning Investment Business global business line shortened, and the process of requesting documents cardholders from their Muscovite social cards are to maintain leadership positions in investment from clients was streamlined. Among the new tools to Moscow resident cards got under way; banking services for corporate and institutional introduced, a new model for financing housing My Smart City application and a Russian Railways clients, to ensure better-than-market growth construction was launched using escrow accounts, card project were launched. Transport processing in current account balances and fees and commissions and pilot projects were launched with key developers. using an integrated payment aggregation mechanism was introduced in the Moscow Metro and for above-ground transport.

38 39 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

DATA MANAGEMENT AND INFORMATION To realise the innovative potential of staff, RESULTS OVERVIEW1 SECURITY STRATEGY an Innovation Centre was created, which establishes a unified cultural, resource- and infrastructure-related In accordance with VTB’s data management milieu for the creation, adoption, introduction FINANCIAL REVIEW and information security strategy, 2019 saw and adaptation of innovative ideas, practices the creation of a data lab team, the launch of a big data and processes. centre and the establishment of an information security VTB GROUP KEY IFRS FINANCIAL RESULTS monitoring centre. CLIENT-CENTRICITY AND QUALITY The Bank’s information security complies As part of the implementation of the Client-Centricity RUB billion with the recommendations of the Bank of Russia. Target and Quality strategic initiative, a Quality Centre was The Bank did not suffer any downtime of critical for 2019 net profit yoy created, which began conducting regular research information systems or losses as a result of cyberattacks. ACHIEVED on the quality of the customer experience on the part of retail customers, and a regular employee survey HUMAN RESOURCES, CORPORATE was introduced to evaluate internal services. +54 % +76 % 124.4 73.2 CULTURE AND HUMAN CAPITAL DEVELOPMENT STRATEGY In addition, a strategy for managing the quality of the customer experience in the Retail Business Target Net profit Based on 2019 results, the Bank became one was also developed in 2019. According to the +13 % +31 % of the top three employers in the banking industry 2019 survey, the loyalty index increased by 2 p.p. 51.2 200 201.2 and one of the top two employers for IT professionals compared with 2018. and students. –21 % In 2019, work got under way on the development 76.8 As part of the Bank’s work with young specialists of a data management centre to provide customers ROE in 2019, the Junior programme was extended with personalised offers through digital channels. +90 b.p. to the regional network, and a separate specialisation Piloting and an assessment of customer satisfaction was added, IT Junior, which added more than 70 on the part of corporate clients in the Medium 12.8 % technical specialists to the Bank’s team. and Small Business segment got under way. 1H 2019 2H 2019 3Q 2019 4Q 2019 2019 A pilot project enabling some employees to work remotely was also successfully conducted in 2019, COST EFFICIENCY AND OPTIMISATION Net interest Cost to income Cost of risk which helped prepare the Bank’s infrastructure The main areas of cost optimisation and improving and evaluate all the necessary technologies in case margin the Bank’s efficiency are simplifying processes –30 b.p. +330 b.p. –70 b.p. of an emergency situation. related to standard operations, automating and roboticising routine functions and processes, 3.4 % 41.6 % 0.8 % An initiative to reduce paper workflow was carried out, increasing transparency and reducing costs, which enabled the Bank to reduce the volume of paper managing non-core assets, reformatting the network, printed per employee by 10 % and the volume centralising and regionalising homogeneous of paper workflow involving government documents functions, and integrating banks. The P&L statement components have been compared with modified financial resultsfor 2018 for the purposes of accuracy of the year-on-year by 50 % compared with 2018. analysis (operating results of Post Bank, Multicard, VTB Insurance, VTB Bank (Ukraine) and VTB Bank (Belgrade) have been excluded as if these companies have not been consolidated by the Group during 2018).

1 All figures in the present report are based on the financial results from IFRS Consolidated Financial Statements of VTB Group and might be rounded which allows for insignificant deviations in calculations expressed in percentage amounts compared to data from the Financial Statements of the Group.

40 41 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

ANALYSIS OF VTB GROUP’S IFRS INCOME STATEMENT Net fee and commission income and capital market transactions (accounting for 9.3 p.p. of the 29.2 p.p. increase in net fee The P&L statement components have been compared with modified financial results for 2018 for the purposes Gross fee and commission income increased and commission income), fees for the distribution of accuracy of the year-on-year analysis (operating results of Post Bank, Multicard, VTB Insurance, VTB Bank by 30.3 % in 2019 to RUB 166.3 billion. The bulk of insurance products and agents’ services (Ukraine) and VTB Bank (Belgrade) have been excluded as if these companies have not been consolidated of commission income came from settlement by the Group during 2018). (7.8 p.p. of the 29.2 p.p. increase), as well transactions and trade finance, which accounted as the consolidation of three acquired banks for 56.5 % (57.0 % in 2018) of the total amount. (6.5 p.p. of the 29.2 p.p. increase). Total fee and commission expense increased KEY INCOME STATEMENT INDICATORS, RUB billion The Group’s net commission margin increased by 32.6 % in 2019, mainly due to a 37.1% increase by 10 b.p. year-on-year to 0.7 %. The Group’s net in сommission expense on settlement and cash Indicator 2019 2018 Change, % fee and commission income outstripped growth transactions and trade finance. Net interest income 440.6 439.7 0.2 in net interest income (0.2 % year-on-year) and net other income (–6.1 % year-on-year). Net fee and commission income 108.5 84.0 29.2 Net fee and commission income for 2019 increased Thus, the share of net fee and commission income by 29.2 % year-on-year to RUB 108.5 billion. Net other income 61.3 65.3 –6.1 in the structure of operating income before provisions The robust growth in net fee and commission increased to 17.8 % from 14.3 % in 2018. Operating income before provisions 610.4 589.0 3.6 income was due to operations with securities Provision charge1 –103.3 –154.6 –33.2 Staff costs and administrative expenses –254.2 –225.8 12.6 NET FEE AND COMMISSION INCOME, RUB billion Profit before tax 252.9 208.6 21.2 Indicator 2019 2018 Change, % Income tax expense –51.7 –30.4 70.1 Commission on settlement and cash transactions Net profit 201.2 178.2 12.9 94.0 72.7 29.3 and trade finance Fee received for insurance products distribution 35.3 27.8 27.0 Net interest income and net interest margin the increase in interest expense (19.4 % year- and agents’ services on-year) outstripped growth in interest income Commission on operations with securities Net interest income for 2019 amounted 17.4 9.3 87.1 (11.0 % year-on-year) mainly due to an increase and capital markets to RUB 440.6 billion, compared with RUB 439.7 billion in the cost of funding by 30 b.p. (5.2 % in 2019) a year earlier. In 2019, interest income and expenses Commission on guarantees and other credit related compared with a 10 b.p. decrease in the return 10.9 11.7 –6.8 grew on the back of an increase in interest-earning commitments issued on interest-earning assets to 8.4 % in 2019. assets and interest-bearing liabilities, while Other 8.7 6.1 42.6 Total fee and commission income 166.3 127.6 30.3 NET INTEREST INCOME, RUB billion Commission on settlement and cash transactions –52.8 –38.5 37.1 and trade finance Indicator 2019 2018 Change, % Commission on operations with securities –1.9 –1.6 18.8 Interest income calculated using the effective and capital markets 1,039.8 932.6 11.5 interest method Commission on guarantees and other credit related –0.9 –1.3 –30.8 Other interest income 67.2 65.1 3.2 facilities received Interest expense –636.5 –536.2 18.7 Other –2.2 –2.2 0 Payments to the deposit insurance system –29.9 –21.8 37.2 Total fee and commission expense –57.8 –43.6 32.6 Net interest income 440.6 439.7 0.2 Net fee and commission income 108.5 84.0 29.2

As of the end of 2019, net interest margin had of assets) due to an increase in the Bank of Russia’s decreased by 30 b.p. to 3.4 %. On the back key rate at the end of 2018. In 2Q, net interest of a series of reductions in the Bank of Russia’s margin increased slightly quarter-on-quarter key rate starting in June 2019, the Group’s net and remained at a stable level of 3.3 % throughout interest margin began growing in 2H 2019. 2Q and 3Q 2019. In 4Q, VTB Group’s net interest In 1Q 2019, the Group’s net interest margin margin increased to 3.5 % due to a consistent reached its lowest level for the year at 3.2 % amid easing of monetary policy and an improvement rising funding costs (outstripping the revaluation in the Group’s funding structure.

1 Provision charge for credit losses on debt financial assets, credit related commitments and other debt financial assets and (provision charge) / reversal of provision for legal claims and other commitments.

42 43 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

Provision charge ANALYSIS OF VTB GROUP’S RETAIL LOAN PORTFOLIO STRUCTURE, As of 31 December 2019, secured loans (mortgages IFRS BALANCE SHEET RUB billion and car loans) accounted for 52 % of total retail In 2019, the Group’s provision charge for credit lending, unchanged from the beginning of the year. losses on debt financial assets, credit related Assets +13 % +19 % commitments and other debt financial assets, compared Growth excluding with 2018 The share of retail loans in the total loan portfolio legal claims and other commitments amounted As of 31 December 2019, the Group’s total assets the sale of mortgage 48 % 44 % 4% 4 % loans as part structure increased to 29.4 % compared with 26.2 % to RUB 103.3 billion, a decrease of 33.2 % amounted to RUB 15.5 trillion, an increase of 5.1 % of a securitisation 31 Dec 2019 3,365 transaction in 2018. compared with 2018. compared with 31 December 2018. compared with 2018 48 % 44 % 4 % 4 % 31 Dec 2018 2,989 The Group’s market share in the retail lending The cost of risk was 0.8 % in 2019, down ASSETS STRUCTURE, RUB billion 43 % 48 % 5 % 4 % segment in Russia amounted to 17.4 %, decreasing by 70 b.p. year-on-year. 1 Jan 2018 2,534 POST-IFRS 9 by 30 b.p. in 2019, which was due mainly to the sale +5 % 44 % 47 % 5 % 6 % PRE-IFRS 9 of securitised mortgage loans. The decrease in the cost of risk and the drop compared 31 Dec 2017 2,486 in provision charge occurred while the quality with 2018 69 % 9 % 5 % 4 % 13 % The Group’s corporate loan portfolio decreased of portfolios in all business segments 46 % 44 % 6 % 4 % 31 Dec 2019 15,516 31 Dec 2016 2,176 by 4.0 % in 2019 to RUB 8.1 trillion, mainly remained stable. 72 % 7 % 4 % 5 % 12 % 45 % 44 % 6 % 5 % as the result of a series of large loan repayments 31 Dec 2018 14,761 31 Dec 2015 1,960 in 4Q. In light of this, the Group’s market share Staff costs and administrative expenses 70 % 7 % 5 % 6 % 12 % in the corporate lending segment in Russia decreased 1 Jan 2018 12,940 POST-IFRS 9 by 40 b.p. to 18.2 %. Staff costs and administrative expenses amounted to RUB 254.2 billion in 2019, 70 % 7 % 5 % 6 % 12 % PRE-IFRS 9 31 Dec 2017 13,009 Mortgage loans up 12.6 % from 2018. LOANS TO LEGAL ENTITIES, RUB billion 70 % 4 % 5 % 8 % 13 % Consumer loans and other loans 31 Dec 2016 12,588 The increase in expenses was attributable Credit cards –4 % 69 % 5 % 5 % 10 % 11 % compared to the consolidation of acquired banks Car loans with 2018 (up 6.8 p.p. of the 12.6 p.p. increase in staff costs 31 Dec 2015 13,645 and administrative expenses) and to expenses 31 Dec 2019 8,096 for information technology, digitalisation Significant transactions involving the sale and the transformation of business processes. Loans and advances to customers of securitised mortgage loans had an impact 31 Dec 2018 8,435 The second quarter of the year saw a slowdown on the growth of the Group’s retail loan portfolio. Cash, short-term funds and mandatory reserves In 2019, the Bank continued creating mortgage- 1 Jan 2018 in the growth of expenses: as of the end of 1H, 7,307 POST-IFRS 9 staff costs and administrative expenses had increased Securities portfolio backed securities and raising awareness of them PRE-IFRS 9 22.2 % year-on-year, which slowed to 13.8 % Due from other banks among customers. This product enables the Bank 31 Dec 2017 7,287 in 3Q. Moreover, expenses decreased by 2.1 % to attract liquidity, optimise the utilisation of capital Other assets year-on-year in 4Q 2019. on mortgage loans, remove interest risks from 31 Dec 2016 7,311 its balance sheet and earn profits by lowering The cost to income ratio (CIR) decreased during The main component of the Group’s total assets market interest rates. In 2019, VTB Bank increased 31 Dec 2015 8,150 the year from 46.6 % in 1H to 37.8 % in 3Q is net loans and advances to customers, accounting its volume of issued mortgage-backed securities and 37.7 % in 4Q. At the end of 2019, the cost for 69 % of the Group’s total assets. to RUB 265 billion1, which is a record for the Russian to income ratio was 41.6 %. market. Excluding the disposal of mortgage loans, At the same time, the loan portfolio (before In 2019, the Group’s loan portfolio (before the retail loan portfolio increased by 19 %. provisions) in the Medium and Small Business (MSB) provisions) increased by 0.3 % to RUB 11.5 trillion segment enjoyed robust growth of 10.0 %2 in 2019, Net profit amid growth in retail loans, which was partially The consumer loan portfolio increased by 14.2 % reaching RUB 1,481.0 billion. Loans to MSB borrowers Net profit for 2019 increased by 12.9 % compared offset by a decrease in loans to legal entities. from the beginning of the year, while the mortgage accounted for 18 % of the total portfolio of loans with 2018 and amounted to RUB 201.2 billion – loan portfolio grew by 11.9 % in 2019. to legal entities in 2019, an increase of 230 b.p. this is in line with the Bank’s strategic forecast VTB Group’s retail loan portfolio showed strong of RUB 200 billion – amid strong growth in fee growth during the reporting period, increasing and commission income and improved asset quality. by 12.6 % in 2019 to RUB 3.4 trillion. The net profit of RUB 201.2 billion was an all-time high for VTB Group.

1 VTB Group’s IFRS financial statements for 2019 take into account the disposal of securitised mortgage loans in the amount of RUB 190 billion. 2 To ensure comparability of data on the MSB segment of the loan portfolio, data for Vozrozhdenie Bank was included in the segment portfolio as of 31 December 2018. In the Group’s financial statements for 2018, data on Vozrozhdenie Bank was provided in a separate segment.

44 45 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

LOANS TO LEGAL ENTITIES, BY INDUSTRY By lending to legal entities in a number of industries, ASSET QUALITY, RUB billion the Group continued to expand its loan portfolio, Building construction seeing growth in industries such as metals, building –6 % +17 p.p. –18 % 15 % construction, transport, food and agriculture. 6.4 % 14 % The Group continued making advances in its work 6.0 % 5.7 % Oil and gas with all sectors, while making lending to small 4.7 % 731.9 13 % 687.4 128.7 % 653.7 and medium-sized enterprises a priority. 112.0 % 14 % 534.3 Metals 11 % Asset quality 10 % As of 31 December 2019, the total amount Trade and commerce of non-performing loans1 was RUB 534 billion, 31 Dec 2018 31 Dec 2019 31 Dec 2018 31 Dec 2019 31 Dec 2018 31 Dec 2019 9 % or 4.7 % of gross total customer loans Provision Coverage ratio NPL 8 % (compared with RUB 654 billion, or 5.7 %, Manufacturing as of 31 December 2018). Allowance for loan impairment / NPL ratio 9 % total gross loans 9 % The Group continued its policy of writing off bad Transport assets at the expense of the corresponding allowance Liabilities LIABILITIES STRUCTURE, RUB billion 8 % for loan impairment after all necessary procedures 7 % The Group’s total liabilities amounted to recover the asset have been carried out. The volume +5 % Government bodies to RUB 13.9 trillion as of 31 December 2019, compared of non-performing loans written off in 2019 with 2018 8 % an increase of 4.7 % year-on-year. amounted to RUB 165.5 billion (compared with 79 % 11 % 2 % 2 % 6 % 11 % RUB 156.8 billion in 2018). 31 Dec 2019 13,863 Telecommunications As part of VTB Group’s Development Strategy 79 % 13 % 2 % 2 % 4 % 6 % 2019–2022, one of the Group’s main objectives As a result of the write-off of non-performing loans, 31 Dec 2018 13,238 5 % is to improve its funding structure by increasing the allowance for loan impairment represented 6.0 % 79 % 9 % 3 % 2 % 7 % Energy its share of customer deposits, primarily of the total gross loans as of 31 December 2019, 1 Jan 2018 11,529 POST-IFRS 9 6 % from individuals. compared with 6.4 % as of 31 December 2018. 79 % 9 % 3 % 2 % 7 % 6 % PRE-IFRS 9 At the same time, the non-performing loans 31 Dec 2017 11,530 Food and agriculture coverage ratio increased 17 p.p. to 128.7 % As of 31 December 2019, customer deposits 5 % amounted to RUB 11.0 trillion, having 66 % 13 % 4 % 2 % 15 % as of 31 December 2019, compared with 112.0 % 31 Dec 2016 11,175 4 % as of 31 December 2018. increased by 5.5 % as of the end of 2019, Finance which enabled the Group to improve the ratio 60 % 13 % 5 % 2 % 20 % 31 Dec 2015 5 % of total loans to customer deposits to 98.2 % 12,188 4 % as of 31 December 2019 (down from 102.8 % Other as of 31 December 2018). At the same time, 5 % customer deposits accounted for 79.2 % Customer deposits 8 % of the Group’s liabilities compared with 78.6 % Due to other banks and other borrowed funds a year earlier. Debt securities issued 31 Dec 2019 Subordinated debt 31 Dec 2018 Other liabilities

1 The Group defines non-performing loans (NPL) as lifetime ECL credit-impaired financial assets with contractual principal and (or) interest payments overdue more than 90 days and POCI loans with principal and (or) interest payments becoming overdue more than 90 days after the date of initial recognition. Loans with no contractual payments until maturity, grace period on principal and or interest payments, as well as restructured loans are not considered NPL unless amounts due contractually become more than 90 days overdue.

46 47 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

In line with its Strategy, the Group continued CUSTOMER DEPOSITS, RUB billion Capital and capital adequacy of the Bank of Russia include premiums on a banking to increase the share of Retail Business in total group’s risk-weighted capital adequacy standards, The Group’s capital management policy liabilities. Customer funding from individuals increased +5 % as well as a premium for systemic importance. compared is to maintain a sustainable capital base so as to retain by 14.4 % in 2019 to RUB 5.0 trillion, being ahead with 2018 the confidence of investors, creditors and the market twice as much as the growth rate in the Russian 54 % 46 % The Group monitors compliance with capital participants, as well as to ensure the future banking sector in funding from individuals. 31 Dec 2019 10,974 adequacy standards, defined as a percentage development of its operations. The Group manages 58 % 42 % of the risk-weighted assets calculated in accordance its capital in accordance with the requirements 31 Dec 2018 10,404 with the requirements of the Bank of Russia: common As of the end of the reporting period, funding of the Bank of Russia. The Bank of Russia has 60 % 40 % equity adequacy ratio (N20.1), tier 1 capital adequacy from legal entities decreased by 1.1 % recognised the Bank as a systemically important credit 1 Jan 2018 9,145 POST-IFRS 9 ratio (N20.2) and total capital adequacy ratio to RUB 5.9 trillion, while funding from customers institution. Thus, capital adequacy requirements 60 % 40 % (N20.0). in the MSB segment increased 11.8 %1 PRE-IFRS 9 calculated in accordance with the requirements 31 Dec 2017 9,145 from the beginning of the year. Thus, the MSB segment accounted for 14.8 % of customer funding, 59 % 41 % 31 Dec 2016 7,347 VTB GROUP CAPITAL AND CAPITAL ADEQUACY, RUB billion up from 13.9 % as of 31 December 2018. 60 % 40 % 31 Dec 2015 7,267 Indicator 2019 2018 Change, % As of 31 December 2019, VTB Group’s share Tier 1 capital 1,552.9 1,388.5 11.8 of customer funding in the corporate and retail Common equity 276.1 360.2 –23.3 segments in Russia amounted to 20.2 % Legal entities (a decrease of 50 b.p. in 2019) and 15.1 % Total Capital 1,829.0 1,748.7 4.6 (an increase of 110 b.p. in 2019), respectively. Individuals Risk-weighted assets after consolidation adjustments 16,278.1 15,375.6 5.9 (N20.1) The Group’s dependance on funding from debt Risk-weighted assets after consolidation adjustments 16,268.4 15,375.3 5.8 capital markets remains low. The share of funds raised (N20.2) through issues of debt securities in total liabilities Risk-weighted assets after consolidation adjustments 16,259.3 15,339.7 6.0 increased slightly from 2.0 % as of 31 December (N20.0) 2018 to 2.5 % as of 31 December 2019. Common equity adequacy ratio (N20.1), % 8.74 8.01 0.73 p.p. Tier 1 capital adequacy ratio (Н20.2), % 9.55 9.03 0.52 p.p. LIABILITIES, RUB billion Total capital adequacy ratio (Н20.0), % 11.25 11.40 –0.15 p.p. Indicator 2019 2018 Change, % Due to other banks 1,177.2 1,425.7 –17.4 Customer deposits 10,974.2 10,403.7 5.5 Derivative financial liabilities 176.5 140.2 25.9 Other borrowed funds 348.9 329.7 5.8 Debt securities issued 343.4 259.1 32.5 Liabilities of disposal groups held for sale 0.3 – – Deferred income tax liability 15.7 12.4 26.6 Other liabilities 603.5 452.3 33.4 Total liabilities before subordinated debt 13,639.7 13,023.1 4.7 Subordinated debt 223.1 214.5 4.0 Total liabilities 13,862.8 13,237.6 4.7

1 To ensure comparability of data on the MSB segment of customer funding, data for Vozrozhdenie Bank was included in the segment as of 31 December 2018. In the Group’s financial statements for 2018, data on Vozrozhdenie Bank was provided in a separate segment.

48 49 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

CORPORATE-INVESTMENT BUSINESS thanks to its flexible business model and its willingness financing, more than 10 transactions were completed to use innovative approach while taking decisions with a drawdown limit of over RUB 130 billion. The Corporate-Investment Business (CIB) global 2019 SEGMENT according to market conditions. The Bank also successfully implemented portfolio business line specialises in servicing major corporate OVERVIEW investments in residential projects: two properties clients through sales of lending, transaction The Bank focused in particular on improving were delivered on schedule, and sales were better and investment products, as well as leasing Client base in Russia: the efficiency of processes and continued cost than expected. and factoring services in Russia, the CIS countries, reductions. Europe, Asia and Africa. It is also worth noting that the Bank enjoyed 1,855 significant success in project financing in 2019: groups of companies LENDING TO CIB CLIENTS SHARE OF VTB GROUP TOTAL, % • VTB consolidated its leading position VTB offers a wide range of lending products in terms of financing Russia’s port infrastructure; for corporate clients, providing financing for various agreements were signed with a total limit terms in all major global currencies. The Bank also Assets 49 of USD 2 billion, with the potential to increase CIB gross loan portfolio: offers a variety of credit lines with drawdown limits, the limit to USD 3.5 billion; credit limits or a combination of these limits. Loans and advances to customers (net) 55 6.3 • A syndicate agreement involving VTB was signed RUB trillion In addition to traditional financing, VTB also offers to finance the largest gas processing plant in Russia Customer deposits 34 major corporate clients complex credit products, worth the equivalent of EUR 1 billion; including structured repo, investment and project • The VEB.RF project financing factory completed Net interest income 30 financing, debt and equity financing services, its largest-ever transaction for a methanol plant consulting services on structuring investment project (with VTB’s involvement in the amount Deposits and accounts projects, trade finance services and direct financing Net fee and commission income 26 of EUR 1.1 billion); from CIB clients: from institutional investors and banks. VTB’s clients have access to structured financing products that • Funding was provided for new solar and wind Provision charge1 36 3.7 make it possible to reduce interest rates considerably generation projects through a power purchase RUB trillion by allowing the Bank to select the repayment agreement worth RUB 40 billion. Net operating income (before provisions) 46 currency. Leasing and factoring products are provided to the Group’s customers through VTB Leasing In 2019, VTB Bank continued to develop trade Staff costs and administrative expenses 28 and VTB Factoring. and export financing, expanding its product line and introducing individual solutions for its clients. Source: VTB Group’s IFRS consolidated financial As a result of stiff competition on capital markets VTB Group supported trading transactions in more statements for 2019. in 2019, the Group offered its customers complex than 50 countries all over the world using both products with more attractive financing conditions. traditional products of trade financing (including To maximise the impact of its CIB customer service, Transaction banking comprises two main product In particular, the Bank carried out extensive confirmation and discounting of letters of credit, VTB created a dedicated client coverage unit lines: the documentary business, which includes work with exporting companies regarding issuance of guarantees, supply of connected trading and product units that are responsible for maintaining a variety of guarantees and letters of credit; instruments operated by the Russian Export Center credits) and long-term export financing instruments. and developing a line of cutting-edge banking and liquidity management products, including and the Ministry of Industry and Trade of Russia products. account management products, financing products to support and stimulate exports. One of the main Bank fully supported exporters in emerging markets (such as the accrual of interest on client account targets was the development of new approaches (including in CIS, Asia and Africa) in coordination The client coverage unit’s service model centres balances), as well as acquiring services, remote and loan products for agricultural producers managing with export credit agencies. In 2019, the portfolio on sector coverage, with dedicated teams responsible banking services, and settlement and cash services. a land bank. of relevant transactions grew by 30 %, the amount for doing business with clients from different sectors of new transactions doubled. Developing this sector of the economy. This approach enables the Group The Group’s investment banking business offers At the same time, the Bank’s emphasis Bank realised unique solutions in terms of companies’ to improve the quality of its sector expertise and build a full range of investment banking products, on working with solid clients and strengthening financing in the sphere of green energy. products and solutions tailored to the needs of specific including trading operations, organising debt the structure of transactions helped reduce losses clients. and equity issuance, consulting services on M&A by creating provisions and reducing the volume VTB Bank continued developing effective transactions, private equity, asset management, of non-performing loans. This was also achieved infrastructure to fully support Clients’ foreign The product units are also structured for sector FX and interest-rate products and hedging strategies. thanks to accurate market positioning based trade activities in the international markets. specialisation and to meet the requirements of major on an analysis of macroeconomic trends in various VTB Bank (Europe) and Afreximbank thus signed corporate clients. This allows the Group to enhance In 2019, the Bank achieved its targets in terms of key sectors of the economy. an agreement to support clients’ business its approach to credit analysis and improve the quality financial indicators in the Corporate-Investment in African region. Under the agreement Afreximbank of its corporate loan portfolio. Business and was able to maintain its leading positions Lowered expectations in terms of inflation ensures obligations fulfilment by African financial and developers’ transition to escrow accounts institutions on the trade financing transactions. spurred growth in project and equity financing This will help increase VTB Group’s business scale

1 for major real estate developers. In terms of escrow in the African market. Provision charge for credit losses on debt financial assets, credit related commitments and other debt financial assets and (provision charge) / reversal of provision for legal claims and other commitments.

50 51 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

DEPOSITS AND ACCOUNTS FROM CIB CLIENTS • A project was launched together with one Documentary business By using VTB ecosystem to guarantee client funds of the leading telecommunication companies a maximum of security and thanks to the Bank’s Attracting deposits and accounts from CIB clients VTB Group remained one of the leaders in Russia to send out invoices through an electronic willingness to develop individual solutions that take is an important part of VTB’s business. The Bank in the documentary business (ranked second) document management system. The software into account the characteristics and needs of local is constantly taking steps to improve customer service with a market share of 16.9 %1 in terms of the volume solution provides a simple and quick tool business, VTB was able to expand its client base and streamline business processes to further develop of guarantees and letters of credit issued in 2019. for the exchange of legally binding electronic and intensify cooperation with existing customers. deposit products and reduce operating expenses. documents between the users of the electronic The Bank was My Smart City app Considerable attention has traditionally been paid document management system, including one of the first links up VTB Bank In order to make liquidity management more to the development of technologies and processes in communications with the Federal Tax in the market Comprehensive transactional solutions with Moscow’s effective, the Bank enabled customers to make to ensure the implementation of documentary Service of Russia; to introduce for the largest companies municipal services. overnight deposits from a pool of accounts through an innovative products and services for customers using the most It allows users the Client Settlement Centre system. The Bank’s • In the interests of servicing one of Russia’s advanced technology platform available. In 2019, During the reporting period VTB was actively service electronic click&deposit system for the simplified largest retailers, a project was launched to make VTB Bank continued to improve its remote service involved in large-scale projects to centralise that uses the Faster • to view event investment of free cash continued to gain popularity, it possible to accept cash through specialised system for documentary operations and played the management of cash flows, liquidity and financial Payments System information as it greatly reduces the time needed to process devices Automated Deposit Machine (ADM) an active role in joint work with the Bank of Russia, risks at leading Russian corporations. In 2019, established deposit transactions. installed in clients’ stores and to credit the amount the Ministry of Finance of the Russian Federation, VTB implemented comprehensive transactional • to top up by the Bank of Russia of funds deposited to the client’s current the Federal Treasury of Russia, the Federal Tax Service solutions for approximately 90 groups of companies their parking to deposit payments The structure of contracts was also revised account in real time. This solution increases of Russia and the banking community in terms that include more than 2,500 legal entities. account for retail purchases for the investment of funds in minimum-balance the efficiency of the client’s business processes of the digitalisation of bank guarantees. In addition, directly into • to pay utilities bills accounts, which further made it easier for customers related to the processing and collection of cash the Bank also plays a leading role in the Digital Bank In 2019, VTB Bank retained its position as the main the accounts of retail and traffic fines to invest deposits. VTB’s flexible policy in setting revenue, including by enabling the client to avoid Guarantee project being carried by the FinTech settlement bank for some of the largest companies businesses. rates and its individual approach to customers made errors while processing cash payments, reduce Association on the Masterchain blockchain platform. in Russia: Russian Railways, Russian Post, Transneft, • to top up it possible to respond in a timely manner to market paperwork and not be dependent on a collection Rostelecom, Moscow Metro, the Air Traffic the balance changes and requests from Russian companies. schedule; In 2019, VTB Bank expanded its range of services Management State Corporation, Rosneft, Rosatom of their Troika for documentary letters of credit by offering customers and M.Video Group. transport card • A service was introduced that offers extended a new service: early repayment on uncovered RUB CIB TRANSACTION BANKING business hours, allowing customers to make • to see the latest letters of credit offered and executed by the Bank internal RUB payments until 11 PM and external Cutting-edge solutions for transport and for cities Active Citizen by means of deferred payment. The service allows Products for managing payments and liquidity RUB payments until 7 PM Moscow time; voting results sellers, pursuant to delivery contracts with deferred VTB Bank continues to develop and roll out new and much more VTB offers companies a wide range of transactional • The process of opening a client account was greatly payment, to receive money for delivered goods before solutions for transport and the urban environment: products and services. During the reporting period, simplified. Account numbers are reserved online; the date of deferred payment according to the letter • At the St. Petersburg International Economic Forum Best VTB implemented a number of projects aimed the term for resident legal entities to open their first of credit (within the risk limit that the Bank has in June 2019, the My Smart City app was officially technology at providing customers with cutting-edge services RUB account was reduced to one business day, accepted for the buyer). launched, which links up VTB Bank with Moscow’s and improving service quality: and clients only have to visit a Bank branch once municipal services, allowing users to view event product to open an account; VTB Group continues to be an active participant • The Bank was one of the first information, top up their parking account, pay of the year in industry and professional associations in the market to introduce an innovative service • A pilot service of mobile specialists was launched utilities bills and traffic fines, top up the balance by The Banker in the documentary business, including ICC Russia, that uses the Faster Payments System established that provides customers with the submission of all of their Troika transport card and see the latest magazine and it makes significant contributions of expertise by the Bank of Russia to deposit payments for retail the documents needed to open a current account Active Citizen voting results and much more. to improving the mechanisms that have a regulatory purchases directly into the accounts of retail and to connect to the remote banking system The app was named the best technology product impact on the market and the development Winner businesses. The service enables customers to make without having to visit a Bank branch; of the year by The Banker magazine. VTB’s solution of its infrastructure. in the Mobile non-cash payments directly from a bank account was the winner in the Mobile Applications category • For a number of corporate clients, financial Applications without using a card. This new payment instrument at the Tech Projects Awards, beating out mobile data exchange with the Bank was realised category at the will improve the quality, convenience and appeal Transaction business outside Russia products created by some of the world’s top banks. through the Bank of Russia’s Financial Data of cashless payments for customers, while also On the one hand, the app focuses on providing Tech Projects Interchange System and also in accordance As of the end of 2019, the transaction business reducing the acquiring costs for retail businesses; popular services for residents of Russia’s largest city. Awards with the ISO 20022 international standard. of the VTB Group’s international network built its On the other hand, it offers a state-of-the-art • The Bank launched and began servicing a universal The Financial Data Interchange System highest volumes of business with corporate clients. channel for communicating with citizens. corporate card that can provide customised helps reduce risks that could have an impact These results were facilitated by the launch of new The Bank’s role is to provide convenient payment functionality to meet the needs of individual clients. on the uninterrupted operation, security transactional business products and the further services and infrastructure for effective interaction The product is based on a modular system, whereby and confidentiality of financial data exchange, improvement of existing products, and also between service providers and end users; the client determines the operations to be made and ISO 20022 makes it possible for the Bank thanks to efforts to enlist resource-intensive clients available to each card user, such as making cash to link its clients to new solutions implemented for services offered by VTB subsidiaries in Belarus, • A project was completed to modernise Moscow deposits into a company bank account through on the basis of this standard, and also to reduce Kazakhstan, Angola and Western Europe, as well Metro turnstiles to enable payment using the Bank’s ATM network (self-collection), setting the costs of participating parties by using unified as in the Bank’s branch in Shanghai. a bank card and other devices using contactless individual spending limits, making cashless payments models for the exchange of payment information for goods and services and cash withdrawals; when conducting operations. 1 Market share was calculated using VTB Bank’s own methodology.

52 53 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

technology. The contactless fare service enables In 2019, VTB Capital strengthened its position In 2019, VTB Group bolstered its presence Corporate financing users to complete a journey without having to buy in the Russian stock market, becoming one in commodities markets, including international In 2019, VTB Capital was once again recognised a ticket at a ticket office; of the three largest operators in the market, and it also markets. Its line of basic assets includes precious as the leader in terms of the volume and number increased its market share considerably in terms and non-ferrous metals (gold, aluminium, copper • Seamless transfers were made possible using of M&A transactions in Russia, according to a number of trading with international clients. VTB Group also and tin), oil, petroleum products and petrochemical contactless bank cards between different types of independent international agencies, including strengthened its leading position in terms of trading products, coking and power-generating coal, of urban passenger transport, such as between Refinitiv and Mergermarket. volume in the Moscow Exchange repo market and agricultural products (soybeans, wheat, barley In 2019, the Moscow Metro and the Moscow Central Circle. and became one of the three largest operators and sunflower seeds). VTB Bank continues to offer VTB Capital was According to Refinitiv, VTB Capital successfully in the repo exchange market. an option structure to hedge the commodity risks once again completed 17 transactions worth a total of Custody services of Russian producers of mineral resources. The Group’s recognised as the USD 4.5 billion, making it the leader in Russia VTB Group is a major player in currency markets trading companies – VTB Capital Trading (Zug, leader in terms VTB Group Custody is one of the largest custodians with a 23 % market share. Switzerland) and VTB Capital Trading (Moscow) – of the volume in Russia and provides a full range of custody and is a well-known brand not only in the CIS but also continue to expand their range of services. Structured services for all types of securities issued by Russian further abroad. Germany, the United Kingdom, India and number finance transactions (stocks and cargo in transit), Among VTB Capital’s largest deals was the sale of and foreign issuers. The majority of companies and China are just a few of the countries where VTB of M&A transactions advances on future deliveries (prepayment), RUB 60.3 billion in shares of TransContainer, operating in the Russian market hold depository is licensed to conduct currency trading. VTB Bank in Russia, and deliveries with delayed payments were concluded. a freight transport company, through an open auction; accounts with VTB Bank. The account service continues to be a leading player in the Russian foreign according The client base was expanded in the CIS countries VTB Capital coordinated the auction and acted on Russian and foreign securities through Euroclear exchange market, offering a wide range of traded to a number and other international locations. VTB plans to entry as financial advisor. Bank’s accounts is constantly in good demand among currencies and a substantial toolkit for executing of independent into China offshore market through creating a legal domestic and foreign market players. Euroclear client orders. In order to simplify the completion international entity on the continent territory of China in order VTB Capital also provided advisory services Bank is one of the largest international settlement and execution of transactions and to reduce agencies, to gain transactions at a wider scale and interact in international M&A markets outside Russia, including depositary, for which VTB Bank’s depository acts the processing time involved, the Bank developed including Refinitiv with Chinese clients. for deals in India, China, Kazakhstan, Angola and Italy. as an agent for depository operations in Russia. and introduced electronic trading platforms that and Mergermarket. quickly became popular with clients. In addition The deals included the acquisition of a 70 % stake Highlights of the commodities business in 2019 in the Klyuchevskoye gold deposit in the Chita region The Bank’s depository acts as a Russian sub-custodian to conversions, VTB Group is also one of the leaders included the following: by China National Gold Group Corporation (CNGC), for the BNY and Deutsche Bank Trust Company in the derivatives market, with this segment accounting for about 30 % of the total operations. a leading state-owned Chinese mining company. Americas, holding the underlying assets for issuing • No. 1 in Russia in terms of gold purchases VTB Capital acted as a financial advisor to CNGC. depository receipts for shares in a number of major (32 % market share); VTB Group is one of the leading traders of Russian Russian issuers. VTB Capital has received several prestigious awards government and corporate bonds (on the Moscow • No. 1 in the CIS countries in terms of operations for its consulting services, including: Exchange and in over-the-counter markets, with physical aluminium; CIB INVESTMENT BANKING denominated both in roubles and in foreign • No. 2 in terms of grain exports from Russia • The Best Investment Bank in Emerging Markets VTB Group is Russia’s leading investment banking currencies). The Group conducts trading operations (as of 31 December, 9.2 % of exports in the in 2018 and 2019, according to Global Finance; with a wide range of Russian and foreign clients, services and one of the key players providing access 2019–2020 season); • The Best Investment Bank in Russia 2010–2019, to global capital markets for Russian corporate providing them with liquidity in the secondary market • Agribusiness transitioned from structural according to EMEA Finance. clients. Investment services are primarily sold in a wide range of debt securities, with an estimated financing operations to a strong operational player under the VTB Capital brand. In 2019, the Group market share of about 15 %. The Group also in the global market; maintained its leading position in various segments expanded its presence in corporate debt markets Equity capital markets in 2019 for borrowers from Europe and the CIS. of Russia’s investment banking market. • A contract was signed for copper extraction As of the end of 2019, VTB Capital retained its leading at a mine in Armenia; position in the equity markets of Russia and the CIS, Global markets Global commodities • A core logistics team was established having coordinated the largest number of deals – with experience in the areas of steelmaking, seven – worth a total of USD 1.7 billion. VTB Group offers a full range of services for fixed VTB Group’s commodities business – a strategic area concentrates and primary base metals. income, equity and FX trading, as well as interest- of development for VTB Group – has established The most notable transactions included the only initial rate and global commodities market operations. a well-developed infrastructure to support public offering (IPO) in Russia in 2019, HeadHunter’s The Group also provides currency and interest-rate risk the complete sales cycle from national producers Investment banking IPO on the US Nasdaq Exchange worth USD 253 management services, including hedging solutions, to end consumers all over the world. VTB was able VTB Group offers a full range of investment banking million, in which VTB Capital acted as a bookrunner. as well as structured finance, structured deposits to create, in a very short time, a national universal products, including advising on M&A transactions Other notable transactions included the accelerated and notes, structured credit and hybrid products. trader in Russian and international markets (China, and organising the issuance of debt and equity placement of shares of Norilsk Nickel worth India, Central Asia, Europe) and to start an anchor securities. The business is focused on serving USD 551 million and shares of Polyus in the amount VTB Group clients are able to access equity capital product for the development of its international customers in key sectors of the economy in both of USD 390 million, where VTB Capital acted markets in Russia and in a number of countries business. VTB’s commodities business is currently Russia and international markets. as the global coordinator. in Eastern Europe, the Middle East and Africa. VTB represented by a top international team with expertise Capital is a member of the London Stock Exchange, in all major areas, including oil and petroleum and it also has access to a number of foreign markets products, coal, precious and industrial metals, through its extensive network of local brokers. agricultural products and fertilizers.

54 55 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

Debt capital markets EMEA Finance called VTB Capital’s USD 145 million VTB Capital Investments was managing more than VTB Bank became the first bank in Russia to use deal to acquire a new headquarters for Yandex – RUB 1.9 trillion in client assets in 2019, a 33 % Open API technology – a platform-based solution According to the independent agencies Refinitiv, the best real estate deal in Central and Eastern Europe increase year-on-year. The retail client segment saw that makes it possible to work with an unlimited Bloomberg and Dealogic, VTB Capital was once in 2019. the most growth, with assets increasing by 58 % number of partners – for its investment products. again one of the top-ranked companies in 2019 to RUB 922 billion. Funds invested by legal entities Using this technology, VTB Capital Investments in terms of volume of transactions in the debt capital increased by 16 % to RUB 1 trillion. VTB Capital and Post Bank enabled Post Bank clients to open markets of Russia, the CIS and Eastern Europe. Investment management – VTB Capital Investments’ client base increased 2.5 times to more brokerage accounts remotely and to buy VTB My Investments According to Dealogic, VTB Capital organised Investments than 715 thousand, and its business revenue and sell federal loan bonds. VTB Capital Investments mobile application over 100 transactions in the Russian debt capital increased by more than 44 % compared to 2018. and RBC launched an investment site at quote.rbc.ru is VTB Capital market in 2019 worth a total of USD 12 billion. VTB Capital Investments, VTB Group’s single, that is also based on this technology. The project Investments’ flagship The most notable deals completed during unified platform, is one of the largest and most One area of special focus was the development enables customers to open investment accounts digital product the year included participation as the lead manager successful platforms in the Russian market of the VTB My Investments mobile application, and conclude transactions on the Moscow and of a sovereign issue of Eurobonds by the Ministry for the provision of comprehensive investment VTB Capital Investments’ flagship digital product. St. Petersburg Exchanges. The number of Finance of the Russian Federation worth more services for a wide range of investors. The number of active clients using the mobile platform of active clients using than USD 6 billion, as well as the coordination increased sixfold, with more than 170 thousand By the end of 2019, VTB had become the undisputed the mobile platform of a transaction for the issue of Eurobonds by Russian With its effective business strategy, excellent team customers having used the mobile application leader in the Russian market in terms of investments increased sixfold: Railways worth EUR 500 million, the first issue of professionals, focus on the development by the end of 2019; the total volume of transactions in mutual funds. During the year, clients invested of “green” Eurobonds in Russia and the CIS. of digital services, in-depth expertise and optimal risk management system, VTB Capital Investments exceeded RUB 2 trillion, with monthly turnover RUB 49.5 billion in VTB Capital mutual funds – • more than is able to occupy a leading position in the investment exceeding RUB 200 billion. about half of the funds invested in all market Corporate real estate market services market. players. With the launch of six funds, VTB Capital In 2019, extensive work was conducted on developing Investments created the widest range of exchange- 170 In 2019, VTB Capital continued to develop one thousand the main services and functionalities offered by traded funds in the Russian market. VTB Capital customers of its newest lines of activity: providing consulting VTB My Investments: Investments became the first, and remains the only, having used services concerning corporate real estate; company in the market to disclose the structure • Functionalities were added such as opening the mobile the company has successfully completed three of exchange-traded funds online. deals since it began offering such services. brokerage accounts online, withdrawing funds into application master accounts and transferring funds between by the end In 2019, VTB Capital Investments entered into brokerage accounts, as well as withdrawing funds an agreement with the international investment of 2019 and transferring them to external accounts; group Generali Investments. Under the agreement, VTB Capital Investment Management: the largest asset management • The total volume company in Russia, it offers one of the most wide-ranging lines of trust • The Placement Platform gives users the ability VTB Capital Investments provides comprehensive to take part in initial placements directly through advisory services to an international portfolio of transactions management investment products for Russian and international investors; exceeded provides the leader in terms of managing endowment funds with a market share the VTB My Investments application; investment group in the Russian market. a full range The comprehensive approach includes the creation of more than 30 %; one of the three largest asset management companies • Functionality was added for purchasing federal of investment 1 of an investment portfolio, analytics, macroeconomic in Russia in terms of funds managed in the HNWI segment and also in terms loan bonds; 2 services of the volume of reserves among insurance companies, closed-end mutual reviews, as well as forecasts for currency conversion RUB trillion for a broad array funds and Russian Pension Fund; • Trading in foreign shares: more than 1,000 transactions. The agreement was the first step of investors of the most liquid shares on the American in long-term strategic cooperation between • monthly turnover and consolidates stock market were made available through the two investment groups in the Russian market. exceeding the following VTB Bank’s Brokerage Department: brokerage services for retail customers the St. Petersburg Exchange; companies: with opportunity to trade in both Russian and foreign markets; VTB Capital Investments carried out a record • Dividend and coupon calendars were created; 200 number of projects to launch new products RUB billion VTB Capital Broker: brokerage services for institutional investors using • The application provides a robot advisor service, and improve services for customers, such state-of-the-art technologies for remote servicing and margin lending; which helps clients form an investment portfolio as access for retail brokerage clients to trading made up of stocks, bonds and index funds based on the St. Petersburg Exchange, access to margin on their investment profile and the parameters trading on the St. Petersburg Exchange, and access VTB Forex: services for individuals in Forex markets, with direct access of each client’s existing securities; to currency operations in any amount, trading to international currency markets. assets with settlements in foreign currency • Virtual Advisor: a chatbot was added to answer in individual investment accounts, investment questions; it appears whenever the central button bonds, direct access for mutual fund managers in the VTB My Investments application is pressed; to trading on foreign platforms, access to foreign • Access was provided free of charge to materials platforms for institutional clients using brokerage adapted from reports by the VTB Capital team services, and the launch of real estate funds of analysts, which has been repeatedly recognised for market investors and others. as the best in Russia.

1 High-net-worth individuals.

56 57 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

An Investor School project was carried out subject to analysis. VTB Capital analysts work closely AWARDS RECEIVED BY VTB CAPITAL IN 2019 with the goal of improving financial literacy among with the Equity and Fixed Income Market Operations those who would like to take their first steps Departments, while also providing analytical in working on stock exchanges – and then support for strategic decision-making by VTB Group to become successful investors. management.

In 2019, VTB won the Brokerage Company According to the Institutional Investor 2019 Emerging emeafinance ACHIEVEMENT of the Year Award as part of the Financial Market EMEA Research Team survey, VTB Capital analysts AWARDS 2018 Elite annual competition. The winner in the Best ranked sixth in the Emerging EMEA region and second Management Company for Retail Investors category in the Russia category. The VTB Capital analytics #1 DCM Bookrunner #1 DCM Best Securitisation Best Investment Bank was VTB Capital Investment Management, and Transport sector team and the Electricity sector team in Eastern Europe Bookrunner in Russia House in CEE and EMEA in Russia the VTB Treasury Fund was the winner in the Best were the leaders in the EMEA region. The prize- Bond Fund category. In addition, VTB Bank received winning meta-analytics teams in the Metallurgy, 2016‒2019 2010‒2019 2009, 2010, 2013–2019 2010–2019 an award from the Moscow Exchange in 2019 Oil and Gas and Russia sectors, among others, also for its contribution to the development and promotion contributed to VTB’s high position in the rankings of individual investment accounts. in the Emerging EMEA region.

In the Extel Survey 2019 ranking, the VTB Capital Research analytics team was the winner in terms of the total VTB Capital provides its clients with high-quality number of votes in Russia, and VTB’s analysts took emeafinance ACHIEVEMENT investment analytics on the economy, sovereign first place in such categories as Macroeconomics AWARDS 2018 debt and the corporate sector and is a recognised (Russia), Analytics in the Fixed Income Instrument #1 Pan European source of information on the markets of Russia, Market (Russia), Media and Telecommunications Best Rouble #1 Leading Brokerage Conference: Best Investment Bank Bond House Firm in Russia in Russia Central and Eastern Europe, the Middle East (Russia), Banks (Russia), Electricity (EMEA), Investment Forum “RUSSIA CALLING!” and Africa. VTB Capital analysts cover the activities and Transport and Engineering (EMEA), while of more than 110 companies, publishing also winning prizes in the categories of Metallurgy 2010, 2013, 2015, 2017, 2019 2019 2016‒2019 2019 over 2.7 thousand reviews every year with analysis (Russia), Oil and Gas (Russia), Investment Strategy of financial information and major events that in the Stock Market (Russia), Country Analytics – have a direct impact on the activities and results Russia and a number of others. of the companies and sectors of the economy

World’s Best Investment Banks World’s Best Investment Banks World’s Best Investment Banks World’s Best Investment Banks

Best Investment Bank Best Investment Bank Best Investment Bank Best FX Provider in CEE in Russia in Emerging Markets in Russia

2013‒2019 2010‒2017, 2019 2018, 2019 2011‒2015, 2017‒2019

Cbonds Awards

#1 Transportation Team #1 M&A Advisor Best Financial Services Best Bond in Emerging EMEA in Russia in Russia Market Sales

2016‒2019 2019 2016‒2019 2009‒2019

58 59 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

VTB CAPITAL’S MAJOR INVESTMENT TRANSACTIONS IN 2019 NON-BANKING FINANCIAL BUSINESS to RUB 133 billion. The main sectors of its leasing portfolio are rail transport, specialised machinery Along with providing corporate clients with banking and auto leasing. The share of transactions in rapidly and insurance services, VTB Group also offers expanding sectors for leasing such as automobiles, clients leasing and factoring services. Synergies freight transport and specialised machinery continued and cross-selling of banking and non-banking to grow, reaching 16 % of its portfolio by the end products remain one of the Group’s main development of 2019. China National Gold Group DataLine Detsky Mir DOM.RF priorities. RUB 17.5 billion USD 250 million RUB 25 billion Acquisition of 70 % in Sale of 100 % to Rostelecom Marketed Follow-on Rouble Bond Factoring Klyuchevskoye gold deposit Leasing 2 • No. 3 in the market in terms of portfolio size1; • .No. 1 in the SME segment ; 2019 Financial advisor 2019 Financial advisor 2019 Joint Global Coordinator 2019 Joint Lead Manager, • No. 3 in the market in terms of the volume • .No. 1 in terms of the volume of financing Bookrunner 2 of new business in 20191; receivables ; 2 • No. 1 in terms of the volume of new business • .No. 1 in terms of the factoring portfolio size . in the construction equipment segment1; VTB Factoring, the leader in the Russian factoring • No. 1 in terms of portfolio volume market, provides a full range of factoring services 1 in the construction equipment segment ; for working with receivables and payables. The company operates across Russia through Evraz Gazprom HeadHunter Norilsk Nickel • No. 1 in terms of portfolio volume in the medical RUB 20 billion USD 1.25 billion USD 253 million USD 551 million equipment segment1. its own network of affiliates located in 15 of the Rouble Bond Eurobond IPO on Nasdaq ABB country’s largest cities and also through branches VTB Leasing is one of Russia’s leading leasing of VTB Bank. companies, with 58 offices across Russia, as well 2019 Joint Lead Manager, 2019 Lead Manager and Bookrunner 2019 Joint Bookrunner 2019 Joint Global Coordinator as subsidiary businesses in the CIS and Europe. The well-coordinated work of VTB Group’s Bookrunner VTB Leasing is one of the top three leasing companies unified team, based on an individual approach in Russia and one of the top 20 in Europe. to the development of unique solutions, enabled VTB Factoring to expand its business considerably VTB Leasing’s clients are large corporate clients, in 2019. The volume of financing receivables reached standard bearers in their industries, both state-owned RUB 724 billion; the company’s portfolio grew and private: Aeroflot, Rosneft, the Federal Cargo to RUB 256.5 billion. As a result, VTB Factoring Company, SUEK, Novotrans, Russian Post and many remained the leader for the eighth year in a row Polyus Gold Russian Federation Russian Railways Severstal others. At the same time, VTB partners with more than in terms of both financing receivables and USD 390 million USD 5.5 billion EUR 500 million USD 800 million 25 thousand small and medium-sized enterprises its factoring portfolio, with a market share of more EUR 750 million ABB Green Eurobond Eurobond and individual entrepreneurs in the area of auto than 35 %. Total New Issues and Taps leasing. As of the end of 2019, VTB Leasing was one of the largest players in this segment in terms The main focal areas of VTB Factoring’s strategy 2019 Joint Global Coordinator 2019 Lead Manager and Bookrunner 2019 Lead Manager 2019 Lead Manager and Bookrunner of the number of cars and amount of specialised are working with large companies of federal machinery leased. significance and their suppliers, continuing digitalisation of customers’ acquisition and services By the end of 2019, VTB Leasing’s leasing portfolio for factoring business scaling to companies of MSB amounted to RUB 580 billion, while the company’s and development of new areas for commercial volume of new leasing contracts amounted financing.

TransContainer Uralkali VRK-3 Yandex RUB 60.3 billion USD 500 million RUB 8.65 billion USD 145 million Sale of 50 % + 2 shares Eurobond Sale of 100 % – 1 share Acquisition of Korston Club Hotel

2019 Financial advisor 2019 Global Coordinator 2019 Financial advisor 2019 Financial advisor and Bookrunner

1 According to Expert RA’s preliminary data for 2019: raexpert.ru/rankings/leasing/2019. 2 According to Expert RA’s preliminary data for 2019: raexpert.ru/researches/factoring/factoring_2019.

60 61 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

MEDIUM AND SMALL BUSINESS MSB LENDING AND DOCUMENTARY BUSINESS In an effort to expand SMEs’ access to credit financing, VTB uses a three-level system of guarantee The Medium and Small Business (MSB) global 2019 SEGMENT The main trend in 2019 in terms of lending remained organisations – the National Guarantee System – business line specialises in serving legal entities the provision of concessional loans through state OVERVIEW which provides meaningful and effective support and individual entrepreneurs with annual revenues programmes, as well as digitalisation of the process for SMEs through guarantees and sureties. As part of up to RUB 10 billion per group of companies. of providing products with credit risk. Client base in Russia: of its work with the National Guarantee System, VTB supports SMEs by providing financing for business VTB actively Moreover, the following client sub-segments can These trends were the main drivers behind participates in all development against guarantees provided by the SME be distinguished based on client needs for banking 513 the development of the Bank’s product line in 2019. state support thousand clients Corporation and SME Bank, as well as guarantees products and service models: upper, standard The Bank began work on an integrated digital platform from regional guarantors. programmes and mass. The main (but not the only) criterion (environment) for communicating with counterparties for business, for this segmentation is the volume of annual revenue: concerning credit and documentary operations In 2019, the Bank became one of the first to begin offering preferential the upper segment includes clients with revenue conducted in electronic form. The platform will using escrow accounts to finance developers pursuant financing terms from RUB 1 billion to RUB 10 billion; the standard MSB gross loan portfolio: help reduce costs and the time needed to process to new legislation; this enabled the Bank to take under these segment is for clients with revenue from client applications, increase customer satisfaction, a leading position in the housing construction market. programmes. RUB 120 million to RUB 1 billion; the mass segment and develop the market for state and commercial is for clients with annual revenue of less than 1.5 contracts in the Russian Federation. RUB trillion In addition, work continues on the implementation RUB 120 million. of projects aimed at raising the level of digitalisation State-run business support programmes of the loan process: SHARE OF VTB GROUP TOTAL, % VTB actively participates in all state support • Meticulous preparations were made in order to transfer all departments lending to MSB clients Customer deposits: programmes for business, offering preferential financing terms under these programmes. to a single automated banking system that Assets 9 maximises functionality in terms of automating

1.6 As of the end of 2019, VTB had 3,897 existing loan processes (with the possibility of developing them Customer loans and advances (net) 12 RUB trillion agreements for state support programmes worth further); a total of RUB 364 billion. As a result, the Bank’s loan • A pilot project was launched to automate analytics Customer deposits and accounts 15 portfolio for preferential programmes amounted (accounting) for small-business clients that apply to more than RUB 222 billion as of 1 January 2020. for loans in order to establish lending limits. Net interest income 15 As of 1 January 2020, the largest volume of loan Documentary business Net fee and commission income 26 agreements were part of the preferential programme run by the Russian Agriculture Ministry, whereby loans The SME segment is one of the most competitive In 2019, the main trends in the development are provided to agricultural producers and agribusiness of the MSB documentary portfolio were driven Provision charge1 16 sectors in the banking market, while the small- companies at an annual rate of not more than 5 %. business market is characterised by high volatility: by work aimed at converting documentary products to a digital format. For example, the range Net operating income (before provisions) 16 with a relatively steady number of customers, there are new companies in the market every year, The second-largest volume of loans were provided of remote channels for providing guarantees was and a significant portion of customers change banks, through programmes for concessional financing expanded to include an express model for credit Staff costs and administrative expenses 15 which further intensifies competition among banks. through the Russian Ministry of Economic analysis, and technologies for issuing electronic Development (transactions through Programme 674 guarantees for customs authorities were further Source: VTB Group’s IFRS consolidated financial statements Despite the high degree of regional competition were concluded in 2017, transactions through developed. A project was launched to introduce for 2019. in upper and standard segments of MSB banking, Programme 1706 were concluded in 2018, a digital guarantee conveyor, which enables clients VTB Bank enjoys the following competitive and transactions through Programme 1764 were to use paperless technology to complete every Small and medium-sized enterprises are playing advantages: the quality of its customer service, concluded either in 2019 or will be concluded stage on the path to becoming a client, from filing an increasingly important role in the economy its offer of comprehensive pricing conditions in 2020). an application to receiving a guarantee. of the Russian Federation; therefore, work with clients with a selection of the best products for each client, in the MSB segment is an important strategic direction and the speed at which VTB is able to make decisions In 2019, a great deal of attention was paid Thanks to the introduction of new technologies, 2 for VTB Group. and provide services. to supporting small and medium-sized enterprises as well as penetration into regional markets, (SME). Close cooperation with the SME Corporation the documentary portfolio of MSB clients amounted continued in terms of working with existing to more than RUB 300 billion as of the end of 2019, and potential SME customers. an increase of 21 % from the beginning of the year.

2 Small and medium-sized enterprises – economic entities (legal entities and individual entrepreneurs) attributed, in accordance with conditions set by Federal law No. 209 as of 24 July 2007, to small enterprises, including 1 Provision charge for credit losses on debt financial assets, credit related commitments and other debt financial assets microenterprises and medium enterprises, information about which is included in the unified register of small and (provision charge) / reversal of provision for legal claims and other commitments. and medium-sized enterprises.

62 63 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

The Bank continued to develop product offerings VTB Bank regularly offers preferential terms of service The Bank expanded its cooperation with the Capital In 2019, the Bank made it possible for legal entities, in segments that enjoyed constant high demand. to businesses. In 2019, more than 83 thousand clients Repair Fund of the City of Moscow in 2019 by launching entrepreneurs and individuals engaged in private Letters of credit in Russian roubles with an option took part in the Let’s start with the best! campaign, a project on banking support for the settlement practice to open a settlement account without visiting of early payment were made available to MSB clients. whereby companies and individual entrepreneurs who of contracts concluded between the Capital Repair a Bank branch. The availability of guarantee products for all customer opened their first settlement account with the Bank Fund and contractors. The successful project managed segments was expanded, including through simplified were able to do so free of charge, and they also to attract a significant number of new clients. This service of mobile specialists enables the Bank to: and rapid decision-making procedures. received three months of commission-free services • Attract new customers – legal entities or individual as part of the Most Important of All and the All-Inclusive In addition, during the reporting period a number entrepreneurs – for cash and settlement services packages. of projects were carried out that were aimed outside Bank branches; MSB TRANSACTION BUSINESS at increasing customer loyalty and expanding In 2019, the MSB global business line more than The Bank actively continues to improve its services the product range, in particular: • Increase the number of current accounts and processes for opening accounts in order to meet by reducing the time it takes to open an account; doubled its number of new customers for settlement • A process was coordinated with the Deposit clients’ needs and expectations as much as possible. and cash services. Insurance Agency for payments to small businesses • Make banking services for customers affordable The Bank conducted large-scale studies to identify that were clients of Zhilkredit Bank; and convenient; In August 2019, VTB Bank launched a new unified shortcomings in its procedures for opening accounts: line of packages for MSB customers for settlement in doing so, the Bank studied the best practices • The Bank began accepting electronic charter • Increase the Bank’s competitiveness through and cash services. As of 31 December 2019, there of competing banks as well as best foreign practices, documents for legal entities and individual mobile customer service. while also analysing internal processes. entrepreneurs using an enhanced qualified electronic were more than 100 thousand clients using these The service of mobile specialists is currently provided signature from the Federal Tax Service of Russia; new financial products; in total, the Bank is serving in 15 cities, including Moscow and St. Petersburg. To optimise its processes, the following measures were more than 240 thousand clients with its packages • The standardisation of typical client forms implemented in 2019: for settlement and cash services. for contracts and conditions for transactional In 2019, the Medium and Small Business • A completely new personal account was developed products was carried out; section on the Bank’s website was updated The new VTB line includes four packages of settlement for clients that allows them to reserve accounts; with the introduction of a sales-oriented design, • A joint offer from VTB and First-OFD was launched and cash services – For Starters, Most Important simple navigation and a clear section structure, • To simplify and speed up the process of opening to provide customers with settlement and cash of All, All-Inclusive and High Turnover – which as well as a convenient application form for opening an account, the functionalities for opening the first services and online cash registers at a discount. enable entrepreneurs to choose the best option a current account. In addition, the following steps and subsequent accounts, updating information depending on the size and objectives of their business. were taken: and other internal Bank processes were automated The financial products contain a complete list BUILDING A DIGITAL BUSINESS of necessary banking services for clients. In addition, and centralised. • A new digital communication channel (online chat) was added to the Medium and Small Business the All-Inclusive and High Turnover service packages One of the key areas of the Bank’s development In 2019, a great deal of work was done to standardise section on the Bank’s website; can be expanded with additional options – Payments is the creation of a state-of-the-art digital ecosystem the line and improve the functionality of the Bank’s Plus, Personal Transfers, Cash Withdrawals, Cashier for clients: digital products and quality service across • An interactive service for clients was added that corporate cards: Plus and Foreign Economic Activities – that can be all channels, and the development of a leading digital enables them to select service packages; combined to suit the client’s needs. • The Bank began issuing registered and instant business for MSB clients in Russia. In 2019, over • A series of tests were conducted to assess (unnamed) cards that use the VISA payment 45 thousand settlement accounts were opened the convenience and effectiveness of the interface; The For Starters package is most popular among system; through remote channels, which was three times the data from the tests will provide the basis the Bank’s new clients, having been used by more the number opened in 2018. This is more than • Personalised, contactless corporate cards were for an updated user interface. than 65 thousand customers already. VTB developed a quarter of all accounts opened during the year, issued; its For Starters package in order to support small whereas, two years ago, only 5 % of accounts were and medium-sized business. The package enables • Technology was implemented that enables opened through remote channels. Non-banking services ecosystem clients to open and maintain a current account clients to make card payments via mobile devices Launched in 2019, the platform for non-banking in roubles for up to 12 months free of charge, (ApplePay, AndroidPay, GooglePay, SamsungPay). In 2019, the Bank made a great effort to find and business services allows small and medium- and it also provides remote banking services, new MSB clients through its partners. In fact, sized enterprises (both VTB Bank customers an unlimited number of intrabank transfers and In 2019, VTB Bank completed its acquisition the number of clients the Bank was able to attract and non-customers) to access state-of-the-art tools up to five external payments. of the fiscal data operator First-OFD. This acquisition through its partners increased tenfold, and more for automating business processes and increasing is a strategic investment aimed at expanding than 2.5 thousand agreements with partners were their efficiency. The platform offers cloud solutions Not only have VTB’s clients shown appreciation the Group’s customer services and bolstering its data concluded. A project on cooperation between and services from leading Russian companies for the benefits offered by the Bank’s new line monetisation models. Based on the data received the Bank and the multifunctional My Documents for accounting, tax reporting to the Federal Tax of packages, but so have independent experts. from OFD, VTB will be able to quickly monitor centres was launched and is being further developed. Service of Russia and funds, business security According to research conducted by MarksWebb the financial position of its corporate clients, improve and settlements with counterparties, moving in the third and the fourth quarters of 2019, its scoring models and increase the conversion The agency channel made a significant contribution a business online and much more. VTB is the leader in terms of service advantages of targeted offers. to the implementation of the Bank’s business plan for micro and small enterprises in the retail for 2019 in terms of the sale of settlement accounts: and service industries. the share of accounts opened through the channel accounted for 15 % of the total volume.

64 65 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

In 2019, pilots of two popular services for small In 2019, the VTB Business Connect B2B platform was In Azerbaijan, VTB’s subsidiary began cooperation entrepreneurs were also launched: Digital Accounting further developed. VTB Business Connect is an online with the Russian Export Center to finance the costs and VTB Business QR. business platform with a built-in modular e-commerce that Azerbaijani importers have to pay for deliveries tool that enables clients to automate their sales, under trade contracts. New projects were launched as well as their export- and sales-related services. for the development of digital sales channels, The platform currently has more than 20 thousand including a digital bank (chatbot) based on Facebook users and over 1 million products. In 2019, the range VTB became the first Russian bank messenger and the modernisation of the existing of services available through VTB Business Connect to launch a new way for legal entities system for remote banking services for corporate was expanded: document management was made to confirm and sign documents. Now, clients. available with support for cloud-based qualified users of VTB Business Online Lite Digital Accounting is a mobile electronic signatures, an online export accelerator was internet banking can use cloud-based Having paid a great deal of attention to improving application that covers the tax launched based on the methodology of the Russian qualified electronic signatures. This the quality of its loan portfolio, VTB Bank (Armenia) accounting and tax payment needs Export Center, a secure payment service (micro- solution was implemented on the basis expanded its specialised service areas for corporate of entrepreneurs who are used credit in digital form) was added, a pilot analysis of the first certified myDSS mobile clients and individual entrepreneurs in its branch to working in a digital environment. of government tenders was conducted on the basis application in Russia. This new option network in 2019. Cooperation projects were In addition to direct tax accounting of neural networks in an effort to search for new enables users to significantly increase implemented with specialised organisations in Armenia services, the application enables users customers for users of the service, and a small-scale the limits of operations through (Accountants Association, SME Investment Support to submit reports to the Federal Tax procurement project was scaled up within VTB Bank. this online channel thanks to increased Centre). Service of Russia and funds, download reliability and security compared bank statements, and get advice to standard SMS confirmation. Unlike In Belarus, VTB’s subsidiary bank became Internet banking and mobile banking for business on doing business. During the pilot, a conventional electronic signature, the first Belarusian bank to enter into an agreement the application was installed more than Based on the results of market research on mobile a cloud-based signature does with the Belarusian Financial Support Fund applications for business in 2019, VTB developed not require the installation of special for Entrepreneurs, which will enable clients 1,300 times. a new design for its single mobile bank for MSB software on the client’s computer. to receive loans secured by the fund (up to 60 % clients. The updated version of the application Another important advantage offered of the principal), and it launched an online service takes into account the latest design trends, ensures by the service is that it allows users called Start Your Business Now, which is used VTB Business QR is a mobile application excellent ease of use and resolves usability issues. to sign documents even when they to prepare documents for business registration. that enables entrepreneurs to accept The new application will be piloted starting in 2020. are offline. cashless payments through the Faster In 2019, VTB Bank (Georgia) introduced Payments System. Using the application, A new design of the web version of the VTB Business a procedure for internal factoring operations, which the seller enters the amount and purpose Online remote banking service was also developed. Internet banking has become even more convenient: doubled the bank’s factoring portfolio and expanded of the payment, after which a QR code The newly designed Internet bank will be available by transferring remote banking systems for legal the list of non-banking services provided at points is generated for the buyer. Individual to clients in 2020. Based on the results of an audit entities in the MSB segment to an improved, of sale (registration of legal entities and individual clients of any bank connected and tests to assess the convenience and effectiveness special-purpose anti-fraud system, the number entrepreneurs). The bank regularly takes part to the Faster Payments System can use of the interface, conducted by MarksWebb in 2019, of payments requiring customer confirmation in state programmes for financing the development the application to pay for purchases. VTB Bank received high marks for the design concept has been reduced by 30 %. of production, agribusiness and tourism. The app is especially convenient and functionality in terms of UX/UI design. for individual entrepreneurs, since MEDIUM AND SMALL BUSINESS OUTSIDE VTB Bank (Kazakhstan) continues to cooperate the revenue from sales is automatically In 2019, the system enabled the widespread use THE RUSSIAN FEDERATION with state funds to support the development declared to the Federal Tax Service of simple electronic signatures (signing documents of small and medium-sized businesses. In 2019, of Russia, and a receipt is generated using an SMS code) in remote banking systems The strategy for working with MSB clients through an agreement was signed with KazakhExport for the buyer. for legal entities and individual entrepreneurs. subsidiary banks in the CIS and Georgia focuses (Baiterek export insurance company) on pre-export In addition, the limit for the use of a simple electronic on creating a digital environment for clients financing, which made it possible to expand the range signature was also increased (up to RUB 3 million). and state-of-the-art remote service channels. of financial instruments offered to Kazakh exporters. These non-financial services help small entrepreneurs The use of simple electronic signatures with These banks continue to move in the direction The Agrarian Credit Corporation (KazAgro) became operate within the law, quickly launch a new business the increased limit will be made available in the new of cross-selling and offering comprehensive solutions, a new strategic partner of the bank, having provided and start accepting payments, which makes them design of the VTB Business Online banking system. especially in terms of servicing the foreign economic the Bank with funds for targeted financing of projects more mobile in addressing urgent problems related activities of the Group’s clients. in the agribusiness sector. to developing their business.

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RETAIL BUSINESS MORTGAGE LOANS, RUB billion A mortgage can be issued for a period of up to 30 years, while the information available The Retail Business global business line specialises 2019 SEGMENT +12 % +25 % as of the end of 2019 shows that the average in banking services for individuals and also includes OVERVIEW compared Growth excluding mortgage contractual term is about 16.5 years, a line of pension products. with 2018 the sale of mortgage loans as part and the actual period of repayment of mortgage of a securitisation 31 Dec 2019 1,614 transaction loans is about seven years. VTB Bank client base in Russia: compared with 2018 SHARE OF VTB GROUP TOTAL, % The total volume 31 Dec 2018 1,442 In 2018, a state support programme was of mortgage loans 13.3 million launched that enables families with children issued amounted to • VTB enjoyed record growth in 2019 1 Jan 2018 1,095 to get a mortgage loan at an annual interest rate Assets 25 POST-IFRS 9 with 1 million new clients of 5 %. For 2019, 16 thousand loans worth PRE-IFRS 9 712 31 Dec 2017 RUB 44 billion were issued through the programme. Customer loans and advances (net) 29 • VTB saw record-breaking results in the market 1,095 RUB billion, VTB accounted for 33 % of state-supported loans. in terms of retention of retail clients1. the highest ever 31 Dec 2016 998 In addition, about 2.5 thousand existing VTB Customer deposits and accounts 45 in VTB Group’s mortgage loans worth RUB 6 billion were transferred history. 31 Dec 2015 875 to the programme. Net interest income 44 VTB Online users: VTB has already received more than 6.6 thousand Net fee and commission income 45 As of the end of 2019, the Group had maintained applications (for RUB 450 thousand to pay off million its share of the mortgage market in Russia at 23.9 %. mortgages) as part of state support for large 8 The Bank issued 275.5 thousand mortgage loans families. Provision charge1 47 (increase of 1.7 million in 2019) in 2019. At the end of the year, the Bank’s mortgage portfolio included more than a million active In mid-December last year, VTB became the first Net operating income (before provisions) 38 mortgages. The total volume of mortgage loans market leader to start work on the Far East mortgage issued amounted to RUB 712 billion, the highest ever programme. As of 31 December 2019, the Bank Staff costs and administrative expenses 41 Number of VTB Bank retail in VTB Group’s history. As of the end of 2019, had accepted more than 3 thousand applications branches in Russia: the average annual mortgage rate at VTB was 9.6% for loans worth RUB 13 billion, and 2 thousand loans Source: VTB Group’s IFRS consolidated financial statements (the average market rate at the end of 2019 was 9.9 %). worth RUB 8 billion were approved. Ninety-five per for 2019. branches cent of these was for the acquisition of real estate 1,519 In 2019, one out of every four mortgages in properties under construction with an average loan in 77 regions of the Russian Federation RETAIL LENDING in the Russian Federation was issued by VTB, amount of RUB 3.4 million. and 440 cities and about 1.4 million families purchased housing Mortgage lending with our help. In 2019, VTB maintained its position as a market leader in lending to military personnel participating In 2019, Russia’s mortgage market fell short VTB’s active presence in the sector of mortgage lending in the accumulative mortgage system, with a market of growth forecasts. At the same time, VTB was one for housing under construction and its cooperation share of about 20 %. Mortgage loans worth around of the few banks to increase its volume of mortgage Number of VTB Bank ATMs in Russia: with the country’s largest construction companies RUB 2.5 billion were issued through this programme. sales. VTB Group significantly increased its housing enabled customers to purchase new housing compliant loan portfolio, which amounted to RUB 1.6 trillion with current quality requirements under the most In 2019, VTB became the absolute market leader as of 31 December 2019, a 12 % increase 17,620 favourable terms, including a reduced interest rate in terms of the refinancing of mortgage loans in the portfolio year-on-year. Excluding a securitisation for mortgages, and the option of purchasing housing from third-party banks. Through the programme, transaction to sell a portion of the mortgage at an earlier stage of construction. customers were issued more than 43 thousand loans loans, the Bank’s mortgage portfolio grew 25 % worth RUB 87.8 billion during the reporting period. year-on-year. VTB’s stable partnerships with leaders in secondary For the whole of 2019, refinancing housing loans mortgage market allow our clients to select from other banks accounted for 13 % of VTB’s total These results were made possible thanks to a decrease their desired property as conveniently and as quickly mortgage sales, and VTB’s share of the refinancing in interest rates during the year, the digitalisation as possible, while also minimising transaction risks. market was 54.5 %. of the lending process, the development of state 1 support programmes and the launch of a Far East According to Finalta. In 2019, the average mortgage issued by VTB Bank The Bank is actively developing its digital technologies. mortgage programme. in Moscow and the Moscow region was valued On the Bank’s website, clients can receive preliminary at RUB 4.5 million, while it was RUB 2 million in other approval for a mortgage in one minute. At the end regions. Borrowers can get a mortgage through VTB of 2019, technology was implemented in the Moscow with a down payment beginning at 10 %, while region to enable clients to submit mortgage the average down payment on mortgage loans applications and documents through their personal

1 is 30 % of the cost of the housing being purchased, accounts. The technology will be used throughout Provision charge for credit losses on debt financial assets, credit related commitments and other debt financial assets and (provision charge) / reversal of provision for legal claims and other commitments. and the maximum loan amount is RUB 60 million. the country starting in 2020.

68 69 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

The Bank operates successfully in the securitisation and through remote channels. During the year, The largest number of vehicles financed by VTB Another innovation is that it allows clients market. In 2019, the Bank of Russia registered the Bank reached an all-time record high in terms in 2019 were sold in Moscow (22 %), St. Petersburg using the Bank’s website to select a car online three issues of mortgage bonds under the Bank’s of the share of pre-approved loans issued completely (8 %), Kazan (5 %), Krasnodar (4 %) and Ufa (4 %). and immediately receive a preliminary decision mortgage agent MBS Factory project worth a total remotely through VTB Online, which amounted on a loan to purchase it. of RUB 265.2 billion. to 16 % (in terms of the number of loans). The Bank also expanded its product line in 2019. In July, the Bank introduced a new product BANK CARDS AND ACQUIRING Remote lending to the Bank’s clients without VTB Bank’s for refinancing car loans that makes it possible Consumer loans a pre-approved offer was also expanded throughout issuance of loans to refinance car loans both at third-party banks BANK CARD PORTFOLIO, RUB billion VTB Group consumer loans demonstrated strong the year. VTB Online made it possible for any Bank’s for new cars in Russia and at VTB. In December, the Bank began lending increased for the purchase of new and used cars with no down growth during the reporting period. client to submit a loan application and to receive +10 % As of 31 December 2019, VTB Group’s consumer a loan entirely through remote channels. payment. The Bank made a substantial update to its compared with 2018 loan portfolio amounted to RUB 1.5 trillion, by 6 % lending terms for the purchase of motorised vehicles an increase of 14 % year-on-year. In 2019, special attention was paid to optimising and launched the first joint federal programme 31 Dec 2019 144 the Bank’s risk procedures and its policy and amounted with the motorcycle manufacturer Yamaha. on limits when formulating proposals for cash loans CONSUMER LOANS, RUB billion 31 Dec 2018 131 and refinancing, which enabled the Bank to create to 72.3 Partnerships with leading automakers were also portfolio growth in 2019 by balancing generations developed in 2019. During the year, partnerships were +14 % RUB billion 1 Jan 2018 136 POST-IFRS 9 compared of loan in terms of their risk profile. established and joint lending programmes launched with 2018 with manufacturers such as Honda, Changan PRE-IFRS 9 31 Dec 2017 and Yamaha. 128 31 Dec 2019 1,463 Car loans 31 Dec 2016 128 As of the end of 2019, VTB Group’s car loan portfolio The Bank was In 2019, VTB once again took part in the First Car 31 Dec 2018 1,281 reached RUB 129.6 billion, an increase of 5 % the market leader and the Family Car state programmes offering 31 Dec 2015 compared to the previous year. The Bank’s share in the used-car preferential car loans, in which borrowers received 124 1 Jan 2018 1,190 POST-IFRS 9 of the car loan market was 12.7 %. loans segment, a 10 % discount for the car purchase (25 % issuing for the regions in the Far Eastern Federal District). PRE-IFRS 9 As of 31 December 2019, VTB had 26 million bank 31 Dec 2017 1,153 As of the end of the year, the share of car loans issued cards in circulation, 8.8 million of which were active, i.e., CAR LOANS, RUB billion through state-supported programmes amounted were used for an expenditure in the previous month. 31 Dec 2016 955 25.2 to 16 % of all VTB car loans (in terms of the number +5 % thousand loans The Bank issued more than 700 thousand new cards compared of loans issued). 31 Dec 2015 857 with 2018 per month. POS turnover (payment transactions worth for purchases and services) using the Bank’s cards VTB also took part in subsidy programmes together 31 Dec 2019 130 increased by 29 % year-on-year and amounted with car manufacturers. These programmes offer to more than RUB 1.9 trillion. More than 200 thousand people transferred 14.3 clients very attractive terms: in some cases, customers their loans to VTB as part of a programme 31 Dec 2018 124 RUB billion were offered annual rates of 2.9 %. The Bank’s The bulk of cards issued were the Bank’s flagship card for refinancing of loans. key partners in this area are Jaguar, Land Rover, product, Multicard, which also accounted for the bulk 1 Jan 2018 105 POST-IFRS 9 Subaru, Volvo, Suzuki, Lifan and Changan. Some of purchases. The Group is continuously improving its pricing PRE-IFRS 9 RUB 4.7 billion in loans were issued through these 31 Dec 2017 The credit card Multicard 101 received the Frank system to ensure optimal results for this business line. 103 programmes, an increase of 28 % compared to 2018. In 2H 2019, the optimisation of product terms enabled Research Group award for 2019 as the best credit the Bank to counterbalance the impact of changes 31 Dec 2016 90 A great deal of work was done on the ExtraLight card with a loyalty programme. in regulatory capital requirements and maintain programme, which focuses on VTB’s own clients, VTB Bank’s credit card portfolio grew by RUB 9 billion. an acceptable level of profitability from new loans. 31 Dec 2015 100 as well as clients who come to the programme In 2019, 1.2 million credit cards were issued, through online channels. Some RUB 3.5 billion exceeding the figures for previous periods. The Bank continued to expand its product line in loans were issued through the programme, which in 2019. A new product called Passport Refinancing VTB Bank’s issuance of loans for new cars in Russia accounted for 4 % of total loans. In 2019, the Bank Measures taken to optimise risk procedures enabled was launched for the Bank’s new payroll clients, increased by 6 % and amounted to RUB 72.3 billion. lowered rates by an additional 1 p.p. for its payroll the Bank to expand the client segments that it issues which allows clients to refinance their external The Bank was the market leader in the used-car clients and repeat customers. credit cards to, thus enabling non-working pensioners liabilities after their first wage payment at VTB. loans segment, issuing 25.2 thousand loans worth clients who have submitted a mortgage application Lending was also launched for a new segment RUB 14.3 billion. In 2019, VTB Bank completed the transition to a new to receive a credit card. for the Bank, non-working pensioners. state-of-the-art front-end solution for processing In 2019, the Bank continued to expand the geography and issuing car loans. The new platform enables Throughout the year, the Bank worked hard of its car loans, opening four new car loan centres: the Bank to make decisions and process car loans to increase the coverage of VTB’s client base in terms in Chita, Ulan-Ude, Blagoveshchensk and Abakan. quickly, and also to accept applications from partners of pre-approved offers, to optimise its communication Thus, the Bank was operating a total of 79 car loan using API technology. strategy for offers and to improve the process centres by the end of the year, as well as 703 points for obtaining loans both at the Bank branches of sale (including dealers).

70 71 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

In 2019, the Bank continued to develop its Multicard • Internet acquiring for UnionPay cards TURNOVER OF THE BANK’S ACQUIRING product line and offers for clients: and American Express cards was carried out; NETWORK, RUB trillion • The MIR-Maestro co-badged card was launched, • Scaling of a project was completed that enables +41 % allowing card payments anywhere in the world; travellers to use a bank card to pay for travel 1.8 0.6 turnover growth in 2019 in the Moscow Metro at ticket barriers. Each 2019 2.4 through M.video, Leroy Merlen, • Samsung Pay, MirPay and Swatch Pay were vestibule has at least two ticket barriers; 1.3 0.4 the TSUM department store launched; 2018 1.7 and internet acquiring sales • Merchant acquiring projects were carried out • Top managers involved in a company’s payroll 1.1 0.3 for the following clients: the TSUM department projects were given the opportunity to apply 2017 1.4 store, Leroy Merlin and the Azbuka Vkusa for a free Prime+ package through the payroll 0.8 0.2 62 supermarket chain; programme; 2016 1.0 thousand clients • A project was launched that involves the hook-up 0.5 0.1 • A pilot was implemented to reduce the time needed of an additional processing centre for Sirena Travel, 2015 0.6 to deliver cards to branches in Moscow (one day) a leader in terms of the distribution of aviation 163 and the Moscow region (two days); services in Russia; thousand terminals • Interest rates on the balance in master accounts • The Bank won S7 Airlines’ Internet acquiring Merchant acquiring were raised in August 2019; tender; Internet acquiring • Client bonus options were transferred to the unified • A licence was received from Visa to accept loyalty platform (Cashback, Car, Restaurants, payments involving high-risk enterprises; Collection and Travel options). Clients can now Multibonus loyalty programme Key loyalty programme highlights for 2019 receive simultaneous rewards both for purchases • Cooperation with Yandex Group was expanded A single, rebranded VTB Bank’s Retail Business loyalty • 5.4 million customers with active bonus accounts; in a particular category and for all purchases; and the following new services were connected: programme – Multibonus – was launched in 2019. Yandex.Auto, Beru.Ru, Yandex.Afisha, Yandex. • 1.3 million purchases using bonus points in 2019; • A digital card (without a physical plastic card) The new programme was formed on the basis Drive, Yandex.Health, Yandex.Realty and Yandex. was launched at VTB Online. Digital cards offer all of the Collection bonus programme and combines • Clients spent 12.1 billion of bonus roubles Zapravki; the features of plastic Multicards; the advantages of existing loyalty options. and their own funds on goods and services through • AliExpress traffic increased; New interfaces were developed for the website the Multibonus catalogue; • New services for cards were launched through and the Multibonus mobile application that use • Savings portfolio of RUB 10 billion (total for all VTB Online (card activation, setting up or changing • An Internet acquiring agreement was concluded the new corporate identity. the PIN code); with Lomonosov Moscow State University; programme currencies) as of 31 December 2019; • A process was launched for issuing payroll cards • Online communication was launched between The programme enables members to accumulate • Clients paid RUB 1.6 billion of their own funds. by proxy (for enterprises located in remote the Multicard processing centre and the Bank’s bonus points by making everyday purchases using their cards and to exchange the points for rewards locations); accounting system. This will enable higher-tech VTB and Post Bank loyalty programmes combined information transfer; from the catalogue on the website multibonus.ru • Cards were issued to juvenile clients (university or for rewards through programme partners. Some The combined Multibonus loyalty programme has students) through the payroll programme. • The lines of terminal equipment purchased 2 thousand programme members exchange bonus been available to VTB and Post Bank clients since by the Bank were updated, and three-in-one points every day for some RUB 8 million worth 1 February 2020. devices (cash register, bank terminal, fiscal data Acquiring projects of awards. recorder) were introduced; By using their cards to pay for everyday purchases, • A service (Cash2Card) was launched that enables • The terminal network was migrated to a single Multibonus loyalty programme: cardholders can collect bonus points from both cardholders with cards from any Russian banks processing centre (Multicard). Devices and online banks in a single personal account and exchange to top them up with cash at VTB ATMs; the service • Clients can use their bonus points for goods stores that were previously connected them at their discretion for roubles or goods includes agreements with six banks to service and services from the catalogue, for air to the processing centres of the former Bank in the multibonus.ru marketplace or through their customers through VTB’s ATM network free and train tickets, hotels, gift certificates and of Moscow, the former VTB24 and the North-West the application. of charge (with commission paid by the issuer); much more, or they can transfer their points Regional Centre are now operating with the same as money to a VTB card through their personal This is the first and only combined loyalty programme • Transfers to cards using the Chinese UnionPay technologies. accounts; payment system from Russian Visa/MasterCard/MIR in the Russian banking market to include a combined cards through the Bank’s website were certified; • More than 100 offers from partners were made balance and a single platform for disposing of bonus available to clients with bonuses of up to 14 % points. in addition to bonuses from the Bank; The combined Multibonus programme allows • Depending on the option selected, the portal clients to receive rewards for purchases made using will display the currency of the account balance VTB and Post Bank cards and to use bonus points and the catalogue prices; from both banks to pay for goods made by popular • When disposing of bonus points, the combined brands, air and train tickets, hotel reservations, car balance from all bonus accounts is used. rentals, movie tickets, etc.

72 73 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

(the catalogue offers more than 15 thousand a property from the Bank’s list of non-core assets, By developing the products offered for savings RETAIL BUSINESS DIGITAL PRODUCTS rewards). For the convenience of clients, the Post the Bank also offers the client additional products, accounts, the Bank was able to increase its savings In 2019, a number of key digital projects were Bank Online and Multibonus applications were such as a mortgage or a Privilege package. Since accounts portfolio by more than 50 % in 2019. launched as part of the strategic focus on digitalisation integrated. In the combined personal account, users the start of cross-sales, VTB Bank’s mortgage lending of the Retail Business: can check the status of their bonus account, see centres have received more than 500 applications Since 1 February 2020, holders of Multicard, expected accruals and partner rewards, exchange for mortgage loans. Multicard Privilege and Prime+ packages have 1. Paperless services in the retail network. bonus points into roubles at a rate of 1:1 and transfer been eligible to receive additional income as part In 4Q 2019, VTB Bank launched a Digital Retail Business them to their account (through the cashback option of the Savings bonus option not only from balances Office project, which included the launch digital products Barometer of Gratitude for VTB clients). in savings accounts but also from deposits. of a technology for paperless customer service 1. Paperless services in the retail network. As of the end of 2019, In 2019, the Bank put an automated system in the retail 155 Bank’s offices had switched to the Digital WORKING WITH BAD DEBTS in place to assess the quality of the telephone VTB ONLINE REMOTE BANKING SERVICE network conversations conducted by remote collectors; Office format. In 2019, the Bank confirmed its leading position the assessment system also accepts feedback Over the course of three months, customers 2. Digital mortgage in the market for the recovery of bad debts completed 25 thousand transactions through from clients. Speech analysis tools are used to count 3. Digital Multicard and for working with non-core assets obtained the number of conversations in which the client the new digital offices, including applications during recovery. thanks the operator for their attempt to help resolve for cash loans and credit cards, servicing debit 4. Digital loans and credit cards, as well as opening current a situation with overdue debts. The top operators 5. Payment VTB launched its CommissiON marketplace and savings accounts. in the Gratitude rating receive additional points for services using (komission.vtb.ru) in August 2019. In addition With steady growth, the number on top of the final rating per call, which, in turn, 2. Digital mortgage. In December 2019, a QR code to providing information on non-core property of active users of VTB Online system has a positive effect on their salary bonus. a pilot project was launched enabling applications obtained during the recovery of overdue debts, (available on the Bank’s website 6. Biometrics for digital mortgages: clients can apply the new digital platform also makes it possible and through the mobile application) for a mortgage, open a personal mortgage 7. Transfers for users to purchase property through specially RETAIL DEPOSITS AND ACCOUNTS has reached account and get approval for a mortgage loan discounted individual lots. Clients can choose 8. VTB Mobile In 2019, VTB Group increased its market share on the website without visiting a branch office. a property of interest from a wide list of assets held million. for term deposits in Russia by 0.30 p.p. to 14.8 %. 8 By the end of the reporting period, more by VTB, DOM.RF and the Russian Agricultural Bank. As of 31 December 2019, the Group’s term deposits than 3 thousand people had used the service, The site presents various types of apartments, portfolio amounted to RUB 3.6 trillion (including In 2019, 104 million payments were and more than 1 thousand loans worth houses, townhouses, land, automobiles, specialised foreign banks). made through VTB Online, an increase RUB 5 billion had been approved. machinery and equipment. Businesses can acquire of 33 %, while the volume of payments An online service was launched that enables commercial real estate, vehicles or specialised In 2019, the Bank launched the following new made through VTB Online amounted clients to order an apartment appraisal. equipment. VTB intends to fill an existing gap product offers for deposits and savings accounts: to RUB 225 billion. The number The service, which has been used by more than in the market by turning the CommissiON project of P2P1 transfers made through 230 thousand clients, enables users to request into a full-fledged marketplace with expanded • Time for Growth deposit promo from VTB Online increased by 62 % an appraisal in just a few clicks on a mobile phone functionality and a fully digital client experience. 7 February 2019 to 31 March 2020 (seasonal offer with a maximum rate); to 82 million. or computer and is available 24/7. A quarter of all appraisals are completed in one day. In 2019, the Russian Agricultural Bank • The new Savings Jar savings account from In 2019, a project offering virtual mortgages and VTB became the first players in the market The VTB Online mobile 1 March 2019 in the branch network (VR mortgages) was launched. VTB became to begin cooperation on the sale of non-core assets. application now has and from 1 October 2019 through VTB Online the first bank in the market to issue a mortgage The Russian Agricultural Bank and VTB signed (interest accrued on daily balances); loan through a VR mortgage service when an agreement on the provision of services for the sale million users. a client from Krasnoyarsk completed the purchase of non-core assets through the CommissiON • Improved terms for Savings Jar savings accounts 6.3 of an apartment in St. Petersburg using marketplace. The site currently brings together more from 1 October 2019 (a higher interest rate the service. than 3 thousand properties from across the country; for savings of up to RUB 1.5 million; a higher The VR mortgage service enables clients to use taking into account assets of the Russian Agricultural rate had previously been available on savings virtual reality goggles to evaluate all the features Bank transferred for management, the number up to RUB 300 thousand); of a property, including its location on a city map, increases to 4.5 thousand1. 1 Card-to-card cash transfer. • Investment deposits (deposit + mutual funds); infrastructure (playgrounds and viewing decks, proximity to the metro and social amenities), In 2019, the Bank found a way to make the processes • Special Pension deposits for military pensioners layout and detailed potential room designs. of loans’ collection and issuing complementary. (with a higher rate for clients with a military In 2019, 59 % of deposits and 39 % of savings During a VR session, the client is accompanied When a client contacts the Bank to purchase pension certificate). accounts were opened through VTB Online, and 10 % by a virtual consultant who gives the client of loans were issued through the VTB Online system. a detailed overview of the apartment and also discusses the mortgage terms. During the reporting period, the number of service Using VR goggles, clients can choose providers available through VTB Online doubled, and purchase, with the help of a mortgage, reaching 10,000 as of 31 December 2019. 1 Pursuant to the agreements signed by the banks, the Russian Agricultural Bank’s non-core assets are presented their favourite property from accredited in the marketplace, and users can get advice regarding such assets and make a purchase.

74 75 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

VTB developers in Moscow, St. Petersburg, 6. Biometrics. In November 2019, VTB launched Privilege programme As of the end of 2019, investment products Sochi, Krasnodar and Kaliningrad. The pilot its own biometrics platform and began getting accounted for more than half of new funds The volume of funds under management project presents about 100 of the Bank’s consent from clients for the use of biometrics under management. The portfolio of investment of the Privilege programme (customer liabilities accredited properties. and collecting voice samples from clients through products managed by VTB Private Banking increased and investment portfolio) increased to RUB 1.8 trillion the contact centre. by 50% in 2019 to RUB 656 billion. The share 3. Digital Multicard. In December 2019, (up 20 %). Privilege clients are the most stable Over a month and a half, more than 12 thousand of premium clients with investment and insurance VTB and the VISA international payment system growing customer segment (having increased clients gave consent, and more than 7 thousand products increased from 41 % to 50 %. VTB’s Family Office began issuing digital bank cards through in all four quarters of 2019), accounting samples of voice biometrics were collected. In 2019, VTB’s Family the VTB Online mobile application. Now clients for half of the increase in the Bank’s rouble liabilities. The use of this technology will improve customer Premium clients also purchased VTB bonds, which Office was recognised can receive a digital debit card and use it without The investment portfolio increased at a rapid pace security and reduce the risks posed by social are a good alternative to deposits, as they offer higher as the best in Russia the need for a plastic card, while retaining all from 15 % to 20 % of funds under management. engineering. yields. In 2019, VTB’s portfolio of VTB bonds among at the ninth Moscow the advantages of the Bank’s flagship card High-net-worth clients are showing an increasing premium clients increased by 130 % to RUB 89 billion. Forum of Family product, the Multicard. 7. Transfers. Advances in transfers by a telephone demand for long-term capital planning tools, Offices organised A digital card can be issued within seconds number or card number facilitated a 49 % such as accumulative life insurance and non-state by Hansa Fincon and is ready for use immediately. This is a new, increase in the portfolio of active users of P2P pension coverage, which are provided by the Bank’s VTB Private Banking is in constant contact with its customers, having conducted around 40 customer for HNWI clients fast and secure way for VTB’s clients to receive transfers. A number of factors made this possible: partners: the Sogaz-Life insurance company and key players a card. For the Bank, this is an important step the development of P2P interfaces; joining and the VTB Pension Fund. events and various forums in 2019, which made it possible to promptly respond to all customer in the private wealth towards a fully digital experience in applying the Faster Payments System, which was used management market. for, receiving and using card products. by no fewer than 45 banks as of the end For high-net-worth clients, the Bank has introduced inquiries. The digital Multicard is a full-fledged debit of 2019; and the ability to make transfers more stringent security requirements for transactions, card in an online format that can be issued by a telephone number between holders of Visa including online transactions, and it has also An updated Prime+ package was launched in 2019, in any of three currencies: RUB, USD or EUR. and MasterCard bank cards. introduced special measures to combat fraud involving which was developed on the basis of the Multicard Cardholders can set their PIN code, client accounts. product. The number of clients holding a Prime 8. VTB Mobile. On 25 September 2019, decide on how they want to be notified package increased by 25 % to 15,389 customers. the Bank launched its virtual mobile operator, about transactions and also choose an option At present, holders of a Privilege package can be VTB Mobile, which uses Tele2’s radio access for the bonus programme. served at 592 VTB offices in nearly every region The main drivers for the development of VTB network and infrastructure. In December, more than 15 thousand digital of the Russian Federation, including 45 dedicated Private Banking segment in 2019 were synergy Sales of VTB Mobile SIM cards were cards were issued. offices for high-net-worth clients. Most operations with the corporate division, a new model for the sale launched at several branches in Moscow can be conducted remotely, including resolving of investment products and the fact that VTB formed 4. Digital loans. In 2019, the volume in September 2019 and in St. Petersburg non-financial issues, using the Concierge Privilege a professional team that is able to give VTB Private of digital loans issued increased by 270 % in October 2019. application. Banking customers a level of investment expertise to RUB 64.6 billion. This accounted for 10 % The process of issuing a SIM card takes previously available only to large institutional investors. of digital sales compared with 2 % in 2018. no more than five minutes thanks to the close The increase in the share of digital sales among integration between the banking and telecoms Private Banking One of the fastest-growing areas of VTB Private total sales was facilitated by: IT platforms, while the vast majority 1 VTB Private Banking continued to strengthen its Banking in 2019 was the Family Office . The number of subscribers use the VTB Mobile application. • Automation of the process of issuing leadership in the private banking market in Russia. of VTB Family Office customers increased by 40 % Thanks to VTB Mobile, the Bank was able pre-approved loans through VTB Online; As of the end of 2019, the VTB Private Banking during the year. to attract new clients and reactivate existing network consisted of 31 offices in 26 Russian cities. • Reduction of the time needed to issue Bank clients. In 2019, one new VIP office was opened in Irkutsk In 2019, VTB’s Family Office was recognised pre-approved loans; (Baikal Prime). as the best in Russia at the ninth Moscow Forum • Launch of online loans: clients can now apply SERVICES FOR HIGH-NET-WORTH CLIENTS of Family Offices organised by Hansa Fincon for a loan and receive money without visiting During the year, VTB saw a 25.6 % increase in Private for HNWI2 clients and key players in the private wealth In 2019, VTB Group continued working hard a branch (through VTB Online). Banking clients (more than 22.6 thousand clients). management market. to attract high-net-worth customers. During VTB Private Banking’s assets under management the reporting period, emphasis was placed 5. Payment for services using a QR code. grew by RUB 290 billion to RUB 2.1 trillion. VTB Private Banking won the prominent Euromoney on diversification of the portfolio under management. At the end of 2019, the VTB Online system The average balance per customer at the end Private Banking and Wealth Management Survey The number of high-net-worth individuals who made it possible to pay for regular purchases of 2019 was RUB 93 million. on investments and service for business owners. are clients of the Bank reached an all-time high using a QR code; more than 10 % of the in 2019, exceeding 500 thousand customers. Bank clients used this option to pay bills During the year, the client base increased in December 2019. The ability to pay using by 75 thousand to 553.6 thousand people. a QR code through the Bank of Russia’s Faster At the same time, the average client balance Payments System was also added. Now, increased from RUB 3 million to RUB 3.2 million. the Bank’s customers can pay for purchases

in stores connected to the Faster Payments 1 A family office is a family welfare management model that includes monitoring the implementation of ongoing System using the VTB Online mobile application. financial transactions, investing family capital, tax planning, real estate transactions, arranging the education of family members, inheritance issues and so on. 2 High-net-worth individuals.

76 77 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

INVESTMENT SERVICES FOR RETAIL CUSTOMER During the reporting period, VTB Bank organised, and an individual insurance number, an entry pass In 2019, as part of the Bank’s relations More detailed for the first time, the placement of structured bonds for work and educational institutions, an electronic with shareholders: information on offers 2019 was a record-setting year for the Bank with a coupon payout that depends on the performance signature and others. The Resident Card is issued for shareholders in terms of sales of investment insurance products. • Cards were given out to congratulate shareholders can be found of the underlying assets and that provide an opportunity jointly with the relevant regional administration on the Bank’s website In terms of sales of mutual funds, the Bank became who survived the siege of Leningrad; for higher returns for investors. One must typically be and makes possible, among other things, targeted (available in Russian the absolute leader by increasing its portfolio language only). a qualified investor to invest in such products, which provision and registration of benefits for certain • A promotion was launched called “Welcome bonus by RUB 56 billion, which accounted for about are placed in large lots in the OTC market. Structured categories of citizens, forecasting and planning points for VTB Shareholders with a St. Petersburg half the growth of the pooled investment market bonds with a minimum lot of RUB 50,000 and no regional development, etc. University Resident Card” (from 2 September 2019 in the country. qualification requirements enable every retail client to 30 June 2020); of the Bank to access this type of product. Resident Card projects include the St. Petersburg Amid stagnation in the market for investment life • Meetings were held with current and potential Universal Resident Card, which was launched insurance (ILI), the Bank increased its sales shareholders of the Bank in the regions where As part of efforts to improve the services available in May. By the end of the year, the Bank had issued of ILI by 16 % year-on-year to RUB 17.9 billion. the Bank operates. through the VTB My Investments application, fees 54 thousand cards. were changed, and a new currency exchange function VTB had a banner year in terms of attracting The possibility of accessing special conditions was launched. Bank clients can now exchange as little In addition, the Muscovite Card was issued based customers investing in the stock market, with clients for certain products depends on the size as one unit of a particular currency at market rates. on the Multicard, which enabled the launch opening 565 thousand new brokerage accounts of campus projects involving the Moscow Institute of the individual shareholder’s stake in VTB Bank. (333 thousand new clients and 231 thousand new of Physics and Technology and the Moscow State At the same time, shareholders are not required personal investment accounts). This was the result SOCIAL PROJECTS AND WORK WITH SPECIAL Institute of International Relations of the Russian to provide documents confirming their ownership of the new sales model introduced across the board SEGMENTS Ministry of Foreign Affairs, with 2,700 cards issued of shares. The register of shareholders is checked in 2Q 2019 and the inclusion of mass retail clients automatically as of its last closing date whenever any In 2019, a comprehensive product offer was made to students enrolled at these universities. A trial issue in the process. branch in VTB’s retail network is contacted. available to pensioners and military pensioners of the Muscovite Card was launched for various (the current customer portfolio includes 157 thousand categories of individuals without privileges within pensioners): salary organisations and at VTB points of sale. As of 31 December 2019, VTB Bank’s portfolio of loans • Deposits for military pensioners (+0.1 % above At the end of 2019, pilot sales projects were launched to shareholders amounted the standard deposit rate); for the issue of the Social Care Card for the Vologda • Lending at a preferential rate for non-working region and the Bank Transport Card for the Nizhny to RUB billion, An Investment Advisor service pensioners, including military personnel; Novgorod region as the first stage of a Resident Card 18 project. Issues related to the Bank’s participation having increased by 67 %. was launched for VTB clients: • The possibility of changing one’s pension provider this was the first software algorithm in the issue of Resident Cards were addressed through bank branches was introduced (the with more than 20 regions. certified by the Bank of Russia existence of a verified account on the State Services Deposits and accounts from individual in accordance with the requirements portal is a prerequisite). VTB Bank shareholders amounted of Federal Law No. 397-FZ. Investment SPECIAL OFFERS FOR VTB BANK Advisor is a service that recommends The large-scale issue of campus salary cards for higher SHAREHOLDERS to RUB billion. an investment portfolio through 131 education institutions based on the Multicard product In 2017, VTB Bank developed a special programme a brokerage account in accordance began, enabling the Bank to increase its portfolio for the Bank’s shareholders that includes with the client’s risk profile. The service of salary cards in the education sector by more a comprehensive offer of financial services involves not only the initial composition OFFICE NETWORK than 100 thousand cards and to increase customer on preferential terms. The go-ahead for the shareholder of the portfolio but also further interest in using the card not only as a financial benefit programme was given at VTB Bank’s Annual On 1 January 2019, VTB began operating its single monitoring and review of the portfolio, instrument but also for other non-financial services General Meeting of Shareholders on 26 April 2017. regional network, which consists of 66 regional if necessary. The service is provided (transport, entry pass, access to electronic document On that same day, special service conditions were operational offices, 24 business groups in Moscow free of charge for the Bank’s clients. management systems, etc.). The Bank provided made available at VTB’s retail branches. The first and the Moscow region and six business groups support for universities in installing infrastructure contribution was processed on the day the launch in St. Petersburg and the Leningrad region. Branches for servicing campus cards. of the programme was announced. Special service began operating as operational support centres New functionality – the ability for non-Bank conditions for shareholders became available in all for the purpose of centralising and optimising customers to open a brokerage account remotely – In 2019, VTB began implementation of its Resident regions where VTB Bank operates since 2018 after a number of business support functions. was added to the VTB My Investments mobile Card project on the basis of its Multicard flagship merger of VTB and VTB24 Banks. application. Now, anyone can become a client card product. The Resident Card is a registered A regional network management system was of the Bank by downloading the VTB My Investments multifunctional plastic card offering banking Preferential terms and conditions for VTB shareholders established, and a single administration was application and completing the remote identification functions and additional non-financial services, such apply to the Multicard, Privilege and Prime service established for the combined regional operational procedure during a chat that takes 5–7 minutes. as a travel card, a compulsory medical insurance policy packages, custody and brokerage services offices and business groups. The managers and insurance. Shareholders also have access of the regional divisions of the integrated network, to reduced rates on cash loans, mortgages and car who were competitively selected, have broad powers loans, including when refinancing existing loans and are responsible for results-oriented business from other banks. operations in their respective regions.

78 79 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

As of the end of 2019, the regional network had As of the end of 2019, the Fund was managing network. In 2019, the Magnit non-state pension a pension through Post Bank showed impressive 1,519 offices in 77 regions and 440 cities of Russia, more than RUB 257 billion, up 30 % from 2018. fund was acquired for the purposes of further growth, increasing by 54 %. As of 31 December which included: The amount of pension savings (compulsory pension consolidation. Including Magnit, the Fund’s assets 2019, the Bank was providing pension services insurance) totalled RUB 249.4 billion (29 % growth), amounted to more than RUB 274 billion, and to a total of 1,344 thousand pensioners (up • A network of sales offices: 698 universal offices while the amount of pension reserves under non-state the Fund serves a total of 2,958 thousand clients. from 869 thousand as of the beginning of 2019). (serving individuals and legal entities), 715 retail coverage totalled RUB 7.1 billion (65 % growth). offices (serving only individuals), 72 corporate The Financial Elite of Russia awards jury named During the reporting period, Post Bank’s regional offices (serving only legal entities) and four The Fund pursues a balanced investment policy the Fund the winner of the 2019 Financial Elite network maintained its position in terms operational cash offices outside the teller network; that offers an optimal combination of high return of Russia award in two categories: Reliability and of the number of points of presence (more than • A network of support offices: 22 branches and maximum investment security, ensuring Best Customer Service. 19 thousand), while, at the same time, expanding (9 base branches and 13 auxiliary branches) the preservation and accrual of customer funds. its geography of operations. As of the end of 2019, and seven cash offices outside the teller network. In 2019, the yield on pension savings allocated Post Bank was operating in 8,136 communities POST BANK JOINT VENTURE to the Fund’s customer accounts reached 8.66 %. (up from 6,075 communities at the beginning As of the end of 2019, the network development Thus, the accumulated yield amounted to 51.26 %, In September 2018, VTB Group and Russian Post of the year). and optimisation plan was fully implemented. In order and the average annual yield for five years was 8.63 %. signed additions to the shareholder agreement to make banking services available to more people, regarding Post Bank, which resulted in Post Bank Post Bank expanded its geography of operations 55 new offices were opened during the year, The yield on pension reserves as part of the programme becoming a joint venture for the Group. VTB Group by connecting Russian Post’s offices in rural areas 24 of which are in new cities. In 2019, 23 projects for non-state pensions amounted to 8.16 % through treats its investment in Post Bank as an investment to an agency network. to optimise the infrastructure of the existing network a balanced investment portfolio and 5.54 % through in a joint venture that is accounted for using the equity were implemented, and 16 inefficient offices were a conservative investment portfolio. method. VTB Group maintains close cooperation Post Bank’s ATM network included 4,805 devices closed, which enabled the Bank to get rid of excess with Post Bank. As a shareholder, VTB Bank receives as of 31 December 2019. As part of the development space and reduce costs. Since 2015 (over five years), the yield for participants profit insofar as Post Bank continues its successful of Russian Post’s acquiring project, Post Bank in non-state pension programmes has increased growth. installed 56 thousand payment terminals at Russian In order to universalise offices a project was 49.56 % through investment income accrued Post offices that make it is possible to pay for postal implemented in 2019 to unify offices situated in one by the Fund through a balanced pension portfolio As of the end of 2019, Post Bank’s gross loan services, as well as withdraw and deposit funds onto location – 115 points of sale in Moscow. A service and 42.80 % through a conservative pension portfolio had increased by 35 % before provisions Post Bank cards at post office cash counters. support model for the regional network through portfolio, which corresponds to average annual to RUB 411 billion. Post Bank’s cash loan portfolio support units was developed and approved. returns of 8.16 % and 7.39 % per year, respectively. increased by 35 % and to RUB 344 billion, its POS Rapid growth in remote banking channels was loan portfolio increased by 24 % to RUB 46 billion, observed during the reporting period. The number The Development Strategy for the integrated network As of the end of the reporting period, the Fund was and its credit card portfolio increased by 42 % of active users of remote banking services increased to 2022 was adopted. In accordance with the Strategy, serving about 2.7 million customers. In the first nine to RUB 21 billion. by 31 % to nearly 5 million people. new technological office formats will appear months of 2019, the Fund was Russia’s fifth-largest in the regional network, the network will be more by pension assets under management. Post Bank’s retail customer deposits and accounts In June 2019, VTB Capital Investments and Post efficient, and network costs will be reduced. increased by 24 % to RUB 391 billion, while its volume Bank signed an agreement to provide brokerage In March 2019, the Expert RA ratings confirmed of term deposits increased by 10 % to RUB 249 billion. services to Post Bank’s customers through VTB Bank. the Fund’s rating of ruAAA (the highest level Customer deposits in savings and current accounts The partnership has been effective in attracting NON-BANKING FINANCIAL BUSINESS of creditworthiness/financial reliability/financial increased by 61 % to RUB 142 billion. customers and expanding the range of banking OF RETAIL BUSINESS GLOBAL BUSINESS LINE stability), with a stable outlook. Thus, the Fund has products available. had the highest-possible financial reliability rating In 2019, Post Bank’s client base increased VTB’s non-state pension fund for seven consecutive years. to 13.4 million customers (an increase of 3.5 million Non-state Pension Fund VTB Pension Fund (hereinafter, people). The number of pensioners receiving “the Fund”), a fast-growing non-state pension fund The Fund is working on the introduction of digital in Russia and one of the leading players in the Russian technologies. A new website for the Fund was market, provides a full range of services for compulsory developed and launched, the Personal Account service pension insurance and non-state retirement benefits, was updated, functionality was added to enable including corporate pension programmes. the Fund’s clients to calculate social tax refunds, and functionality was added making it possible The Fund is a member of self-regulatory organisation to submit applications for private pension payments National Association of Non-state Funds (NAPF) online. Further upgrading of the service is under way and a member of the NAPF Board. The Fund plays for accepting contributions for non-state pension an active role in the work of specialised committees programmes within the framework of the VTB and commissions within the State Duma, Multibonus programme (a format unique to Russia). the Ministry of Finance of the Russian Federation and the Bank of Russia on the development The Fund successfully implemented a project of the legislative framework and regulation on the provision of non-state pensions of the activities of non-state pension funds. for high-net-worth clients through VTB Bank’s retail

80 81 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

A high-level risk appetite for the Group includes Quantitative indicators of risk appetite are divided RISK MANAGEMENT the following key provisions: into operational indicators (they may be passed down to the system of limits established for business • The size of potential losses on risks accepted lines, VTB Group companies and other allocation POLICY, ORGANISATION AND STRUCTURE Risk management at the Group level includes risk Information about by the Group should not reach a level that would the structure of all levels) and structural indicators (centrally managed OF RISK MANAGEMENT identification, evaluation and monitoring; control lead to the cessation of the Group’s operations, over the size, structure and concentration of risks; significant risks inherent at the Group level). Risk appetite indicators limit all in the Group’s activities including under stress conditions; significant risks inherent to VTB Group’s operations. VTB GROUP-LEVEL RISK MANAGEMENT identification of effective measures to optimise is disclosed on a regular and minimise risks; and compiling regular risk reports. basis in accordance • Group’s companies must have enough The main risks that VTB Group is exposed to are with the requirements capital to secure the interests of creditors The key principles of the Group’s risk management of the Bank of Russia credit risk, market risks (including risks associated One of VTB Group’s key principles of risk on the Bank’s in the hypothetical (extremely unlikely) event system also include: with changes in the market prices of financial official website of unexpected losses as a result of risks taken; management is to take the Group’s risk appetite • Compliance with legal and other mandatory instruments, interest rates and foreign exchange (available in Russian into account when managing its activities. Risk language only). • The structure of the Group’s operational cash flow requirements; rates), liquidity risk and operational risks (including appetite is determined in accordance with regulatory and liquidity reserves should ensure the timely legal risks), as well as individual sub-types • Transparency of risk-associated activities requirements and international practice. fulfilment of obligations to clients in the short of concentration risk (risk of credit concentration for shareholders, investors and other interested This approach involves the identification and oversight and long term; within a group of borrowers, risk of concentration of the Group’s overall target risk level and risk parties (primarily by disclosing the relevant of financial instruments, risk of concentration profile in accordance with its strategic objectives • The structure of assets and liabilities must information as required), taking into account of sources of liquidity). and the integration of risk appetite into business ensure the efficient use of resources and comply their interests; with the Group’s business model; planning and risk management procedures. • Analysing and managing risks on a consolidated • The level of risk involved in the decision-making basis, covering all of the Group’s Russian VTB GROUP RISK MAP AND RISK APPETITE process must be assessed and monitored and foreign banks, as well as its key financial on an ongoing basis, and the impact of activities companies; must also be assessed on an ongoing basis while • Optimal distribution of risks within the Group; taking risks into account; Market Operational minimising exposure and potential losses from risks risk and regulatory risks • As part of its operations, the Group must try in markets where the Group operates; to avoid a high degree of concentration of credit • Developing a risk management culture within risk in counterparties, industries and countries / the Group’s companies, including improving RATION regions with a high level of risk; OPE AL employees’ skills in terms of identifying • Sustainable development and economic efficiency and preventing possible risks and losses Credit Consolidated in the long term; in their areas of responsibility; risk risks • Compliance with the regulatory requirements • Providing the risk management function of the Bank of Russia, the recommendations with sufficient resources, introducing modern of international bodies, as well as the requirements methods for assessing and monitoring risks of local (foreign subsidiaries) or industry and automated risk management systems based RS APPETTE regulators; on industry best practices. OF VTB GROUP • Maintaining an impeccable reputation, avoiding The Group’s risk management system has actions that could result in harm to the Group’s a multilayered structure, which includes consolidated Concentration Capital reputation; risk adequacy (Group-level) and local-level risk management, • Maintaining and improving credit ratings granted with a high degree of centralisation of the Group’s by international rating agencies (without state risk management function. The risk management STR AL support). system is built around the Group’s global business UCTUR lines (Corporate-Investment Business, Medium Liquidity Assets and liabilities VTB Group’s high-level risk appetite is detailed and Small Business, Retail Business) and is based risk structure through the establishment of specific quantitative on the harmonisation of approaches to managing risk, and qualitative indicators, with corresponding including through the coordination of competencies reference values. exercised by the Group’s specialised risk divisions.

82 83 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

STRUCTURE OF THE RISK AND CAPITAL MANAGEMENT SYSTEM The standard organisational structure of the Group’s • Ongoing work on the development banks and financial companies includes of a methodology and procedures for managing an independent risk assessment and control division certain types of risks (including interest-rate risk); that corresponds to the appropriate risk profile, SUPERVSOR COUCL • Implementation of projects to develop the IT specific features and scale of the business, as well infrastructure for risk management and to prepare as a senior manager responsible for comprehensive risk reports, including taking into account risk management. the requirements of the Bank of Russia. Supervisory Council The organisational structure of risk management Strategy and Corporate Governance Committee within VTB Group includes the following: VTB BANK–LEVEL RISK MANAGEMENT • Collective bodies responsible for coordination The Bank’s main internal documents specifying key within the Group; principles of, and approaches to, the organisation and development of its risk management system • Collective bodies within VTB Bank as the parent VTB GROUP MAAGEMET COMMTTEE (including subsidiaries included in the Group’s bank of the banking group (since the fourth consolidated risk management) are the following: quarter of 2019); • The Regulation on the VTB Bank Risk Management • Headquarters (the Group’s chief risk manager COLLECTVE RS AD CAPTAL MAAGEMET BODES System designed in line with the Procedures and the Group’s specialised risk divisions); endorsed by the Russian Government • Management bodies at the local level, collective and approved by the Supervisory Council Corporate- Medium and Group Collective bodies working bodies (committees), structural divisions/ on 16 November 2015; Investment Business Small Business Coordination within VTB Bank authorised officers within Group companies. global business line global business line Commission as the parent bank • VTB Bank’s Strategy for Managing Risk and Capital and the Procedure for Managing VTB Bank’s Credit Committee Credit Committee on Compliance of the banking Control over the organisation of risk management Most Significant Risks developed in accordance and the risk management policy within the Group’s and Internal group with the regulatory requirements of the Bank 1 companies is carried out on a systematic basis, Control (CMRMC, FC) of Russia and subject to revision at least once a year primarily through corporate governance for the Purpose to update its provisions. of AML/CFT (including through the representation of VTB Bank on subsidiaries’ supervisory councils/boards In 2019, new versions of VTB Bank’s Strategy of directors), as well as through the Group’s for Managing Risk and Capital and the Procedure specialised risk divisions. Key internal regulations for Managing VTB Bank’s Most Significant Risks were SUPPORT AD COTROL DVSOS of subsidiaries related to risk management approved by a decision of the Bank’s Supervisory are approved by governing bodies, taking into account Council on 11 November 2019. the contribution of the specialised risk divisions. Corporate Credit Risk Retail Credit Risk Integrated The main strategic objective in risk management Department Department Risk Management During the year, the Group continued implementation is to minimise potential financial losses from exposure Department of the Development Strategy of its risk management to the risks faced by the Bank’s operations, ensuring system for 2017–2019, as well work on the long-term financial strength and long-term sustainable growth development programme for the Bank for 2014–2019, for the Bank in accordance with the strategic objectives which was approved by the Bank’s Supervisory Risks global functional line specified by the Supervisory Council. Council, including: • The implementation of measures to ensure VTB Bank’s Strategy aims to create an integrated risk the transition to a methodology for assessing management system that corresponds to the nature Compliance Control and Finance Other credit risk and the level of provisions in accordance and scale of the Bank’s operations and risk profile, Financial Monitoring Department with IFRS 9; and that enables further business development in line Department with economic conditions and the Bank’s needs. • Improvement of a system of indicators and procedures for preparing, approving The Bank’s risk management is developed and cascading the Group’s risk appetite; and improved in accordance with legal regulations • Implementation of internal procedures for assessing and recommendations of the Bank of Russia, EECUTVE BODES AD DVSOS capital adequacy at the Group level in accordance as well as generally accepted international standards OF VTB GROUP COMPAES with the regulatory requirements of the Bank and banking best practices. of Russia;

1 CMRMC – Credit and Market Risk Management Committee; FC – Financial Committee.

84 85 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

VTB Bank’s risk management system comprises The main divisions responsible for developing CREDIT RISK and that require control over their concentration the Supervisory Council and the Bank’s executive the risk management system and controlling significant within the Group as a whole. Within the context Credit risk is the risk of incurring losses should a debtor bodies, credit committees, the Retail Risk Committee, risks assumed by VTB Bank and VTB Group are of consolidated control and reporting, the scope fail to discharge its financial obligations to the Bank the Finance Committee, the Credit and Market Risk VTB Bank’s Corporate Credit Risk Department, and range of such operations is determined in accordance with the terms of their agreement. Management Committee and other special committees Integrated Risk Management Department and Retail by the Group’s coordinating bodies. and structural units involved in risk management Credit Risk Department. processes. VTB GROUP-LEVEL CREDIT RISK In 2019, specialised units within VTB Bank, MANAGEMENT including the Non-Core and Bad Assets Department and the Retail Debt Collection Department, dealt Credit risk at VTB Group is managed simultaneously ORGANISATIONAL AND FUNCTIONAL STRUCTURE with identifying, monitoring and resolving issues at the local level with VTB Group companies OF RISKS GLOBAL FUNCTIONAL LINE of bad debt at the Group level. and at the Group (consolidated) level. The Risks global functional line departments ensure the effective functioning and development of the management system. In 2019, the corporate credit risks of subsidiary Within the framework of the local credit risk banks were managed by the Corporate Credit Risk management system, VTB Group companies assume Department. As the Group’s specialised risk division and manage credit risks independently (including RETAL CREDT RS CORPORATE CREDT RS for corporate credit risks, the Corporate Credit Risk through insurance and hedging of risks), within DEPARTMET DEPARTMET Department is responsible for developing common the scope of their authority and limits with regard approaches and methods for managing corporate to risk indicators, and in accordance with national credit risks, for evaluating them on a centralised System for managing credit risk, Corporate credit risk regulations. VTB Group’s companies are responsible and systematic basis and for developing counterparty credit risk management system for the results of their lending activities and the quality the optimal structure of corporate credit risk and other retail product risks of their loan portfolios and also for monitoring accepted by the Group, including its compliance and controlling the credit risks associated with the Group’s risk appetite. with their portfolios. In 2019, the centralised management of retail The key elements of the Group’s consolidated credit risks at VTB Bank’s subsidiary banks was carried TEGRATED RS MAAGEMET DEPARTMET risk management are as follows: out by the Retail Credit Risk Department. • Harmonisation of credit policies (credit risk As the Group’s specialised risk division dealing management policies) of the Group’s companies; with credit risks, the Retail Credit Risk Department Market, operational risks and liquidity risk management system is responsible for developing common approaches • Development and adoption of common standards and methods for managing retail risks, for evaluating Consolidated risks' analysis and management system concerning credit procedures, decision-making them on a centralised and systematic basis processes, models and methods for managing and for developing the optimal structure of retail credit risk to be used throughout the entire risk accepted by the Group, including its compliance Group (including the methodology for assessing with the Group’s risk appetite. counterparties, pricing credit operations, collateral, RS MAAGEMET DVSOS OF THE GROUP COMPAES monitoring, backup and stress testing); VTB BANK-LEVEL CREDIT RISK MANAGEMENT • Establishing consolidated limits and other Risk management system at local level of the Group companies restrictions within the Group (including limits VTB Bank manages credit risk by: on counterparties/groups of related • Restricting credit risk through the Bank’s existing counterparties, large transactions, countries, system of limits, which comply with the Bank industry sectors); of Russia’s mandatory regulations and other Risks global functional line • Assessing the capital necessary to cover the Group’s requirements. They are reviewed regularly interaction with global business lines credit risks; by the Corporate Credit Risk Department and the Integrated Risk Management Department • Maintaining a centralised database of the Group’s and approved by the authorised collective body; borrowers, including those requiring particular Retail Business Medium and Corporate- attention; • Accepting collateral and insurance to cover credit global business Small Business Investment risks, charging adequate fees for the credit risk • Preparing regular consolidated financial statements and establishing provisions for possible loan losses; line global business Business regarding the Group’s credit risk and submitting line global business them to the Group’s governing bodies for review. • Assessing the level of credit risk assumed line by the Bank for each counterparty, as well Consolidated risk management covers all as regularly monitoring the credit portfolio, essential assets and off-balance-sheet operations individual customers, transactions and collateral of the Group’s companies that bear credit risk (including by ranking borrowers);

86 87 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

• Minimising credit risk at the loan application These limits include limits for operations The Group Assets and Liabilities Management payment position and forecast future payment review stage and taking prompt measures as soon with a customer (or a group of related Committee (until 4Q 2019) / VTB Bank’s Finance position, taking into account the payments schedule as credit risk factors have been identified through customers), including sub-limits for various Committee (since 4Q 2019) approves the Regulation and other scenarios. monitoring. types of operations with a credit risk / designated on the Procedure for Managing Liquidity Risk purpose (credit limits, documentary limits, in the Group, approves the Group’s liquidity risk The objective in forecast liquidity management The Bank applies the following main methods of credit limits on trading activities, limits on transactions assessment methodology, monitors the Group’s is to develop and implement instruments to manage risk assessment: with debt securities, etc.); liquidity, and makes decisions on measures assets and liabilities to support the Bank’s instant related to the management of the Group’s assets funding capability, and to plan increases in its asset • Determining a customer’s level of creditworthiness • Limits on the concentration of credit risk and liabilities with the aim of ensuring the required portfolio by optimising the ratio of liquid assets by analysing financial and non-financial indicators (by industry, country, credit products); level of liquidity and growth of the Group’s assets. and profitability. and conducting an expert assessment • Credit and deposit limits are established for credit (in compliance with the Bank’s internal procedures organisations (including overdraft sub-limits, nostro Liquidity management is applied at the Group level The Bank achieves this by making long-term liquidity for ranking); the level at which a customer accounts, provision of funds), limits on trading based on bylaws approved by the Group’s Management forecasts and by adhering to internal liquidity (or a group of related customers) is ranked operations, limits on transactions with debt Committee. Within the Group, liquidity management standards (standards for liquid and highly liquid is taken into account when determining the cost securities, and limits on contingent liabilities; is based on the following principles: assets and the liquidity standard for the treasury levels of loan transactions; assessing retail credit securities portfolio), as formulated by the Assets risks by means of scoring models and automated • Limits in accordance with the requirements • Each bank/company within the Group manages and Liabilities Management Committee. The liquidity credit-related decision-making procedures, as well (mandatory regulations) of the Bank of Russia. its own liquidity on a separate basis to meet accounting standards of the Bank of Russia as verifying/assessing client data (the client’s its obligations and comply with the requirements are also applied when carrying out forecast liquidity financial position, social variables, credit history); The Bank employs collateral to reduce credit risk. of the national regulator and the recommendations management. of VTB Bank; • Analysing the level of concentration of the Bank’s credit risk for individual borrowers (or a group LIQUIDITY RISK • VTB Bank manages the Group’s liquidity Each forecast includes receivables and payments of related borrowers), industries, countries, by centrally controlling and managing the key according to the contractual terms for operations, customer segments, types of credit products; Liquidity risk means the risk that the Group or a Group measures taken by the Group. while also taking into account planned transactions, company will be unable to finance its activities, i.e., possible extension of clients’ funds (deposits • Estimating possible losses from credit risk to ensure asset growth and settle liabilities as they Methods for controlling and reducing the Group’s and promissory notes) and possible outflows in the process of calculating and creating become due without incurring losses in an amount liquidity risk include monitoring compliance of unstable “on-demand” capital (clients’ settlement provisions for possible losses (in compliance that would threaten the financial stability of the Group with the established appetite for liquidity risk and current accounts, as well as Loro accounts). with the requirements of the Bank of Russia and/or a Group company. and with the regulatory limit and the net stable funding and IFRS); ratio set by the Bank of Russia for the short-term In addition, the Integrated Risk Management • Assessing capital adequacy and the scale of credit VTB GROUP-LEVEL LIQUIDITY RISK liquidity of a banking group, as well as calculating Department conducts stress testing to assess risk risk when calculating the required ratios established MANAGEMENT the amount of capital needed to cover liquidity risk. factors that can have an impact on the Bank’s liquidity by the Bank of Russia; forecast. Liquidity gaps are closed through new Liquidity risk management involves a set of measures borrowings and the renewal of existing deposits. • Determining internal capital needs (capital VTB BANK-LEVEL LIQUIDITY RISK used to manage the Group’s assets and liabilities The Group’s medium-term liquidity is managed calculation) for credit risk, taking into account MANAGEMENT with the aim of maintaining the Group’s ability to meet by attracting interbank loans and customer deposits, the actual quality of the loan portfolio (as required its obligations while ensuring an optimal balance Liquidity risk management involves a set of measures repo transactions and secured loans from the Bank by the Bank of Russia and the standards set between the level of liquidity risk and profitability used to manage the Bank’s assets and liabilities of Russia. The currency structure of liquidity is managed by the Basel Committee on Banking Supervision)1; of the Group’s operations. with the aim of maintaining the Bank’s ability to meet by conducting “conversion swap” transactions. • Conducting stress testing of loan portfolio losses, its obligations while ensuring an optimal balance taking into account different macroeconomic The VTB Group Management Committee and Assets between the level of liquidity risk and profitability A significant proportion of VTB Group’s liabilities scenarios. and Liability Management Committee (until 4Q 2019) / of the Bank’s operations. is represented by customer deposits (deposits, VTB Bank’s Finance Committee (since 4Q 2019), promissory notes, current accounts of corporate The main tool for credit risk monitoring and mitigation and VTB Bank’s Treasury Department and the Market The Bank has current and forecast liquidity risk and retail customers), resources from the Bank is the system of established credit limits. Risk Division of the Integrated Risk Management management in place. of Russia and interbank deposits. Department all play a role in the Group’s liquidity risk The key types of credit risk limits are: management process. Managing current liquidity entails short-term Although a considerable portion of customer forecasting and management of cash flows in respect liabilities are short-term deposits and “on-demand” • Limits on the aggregate level of credit risk The VTB Group Management Committee determines of currencies and terms (time frames) so that accounts, the diversification of these liabilities for the loan portfolio overall and for individual the Group’s general policy in the area of liquidity the Bank can ensure that it will meet its obligations, and VTB’s past experience indicate that these liabilities segments; risk management, sets limits and triggers for VTB complete settlements on behalf of its customers are consistently refinanced by customers, and they • Limits restricting the level of risk for a particular Group’s liquidity risk appetite, and also reviews reports and fund ongoing operations. are, for the most part, a stable source of funding. customer (or a group of related customers). on the status of VTB Group’s liquidity risk as part The stable element of short-term customer liabilities of reports on Group’s risks. Current liquidity management is carried out is determined for various currencies using a statistical by the Treasury Department based on a real-time trend analysis of the cumulative balances of these 1 Approach based on internal ratings. (intraday) determination of the Bank’s current accounts over time.

88 89 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

Money-market instruments (interbank loans Committee and Credit and Market Risk Management According to this Regulation, market risk is assessed under an unfavourable change in interest rates, and deposits, repurchase agreements) are used Committee (since 4Q 2019). The main objectives and managed in the context of the following types as well as a parallel movement of the yield curves to control short-term liquidity and are not considered of the Assets and Liability Management Committee of books: by 100 and 400 basis points; and as a source of funding for long-term assets. were to address the following issues: • A trading book consisting of operations • the capital to cover interest rate risk, measured • Management of VTB Group’s assets and liabilities; carried out in order to extract profits through by assessing reductions in the net current Methods for controlling and reducing liquidity risk their revaluation or hedging of other elements value of the Bank’s interest-rate position include: • Management of VTB Group’s treasury risks; of the trading book; in the event of likely unfavourable interest-rate • Monitoring compliance with established internal • Determining the principles for internal and external movements. • A portfolio of treasury debt securities consisting limits and regulations, including appetite pricing within VTB Group; of transactions conducted by the Treasury for liquidity risk; • Determining approaches to capital allocation within Department and revalued at fair value; CURRENCY RISK OF A STRUCTURAL OPEN VTB Group according to different types of risks; CURRENCY POSITION • Analysing liquidity risk using a set of quantitative • A bank book consisting of interest-sensitive and qualitative indicators; • Determining approaches to the redistribution instruments that are revalued at amortised cost The Group uses internal regulations adopted • Implementing forecasting, situational modelling of capital among VTB Group companies. or instruments used to hedge elements of the by the Group’s Management Committee to manage and stress testing of the Bank’s liquidity; bank book. Loans that do not pass the SPPI test its currency risk. It also ensures that the currency The main objectives of the Finance Committee in terms are counted in the bank book. of its assets matches that of its liabilities • Calculating the amount of capital needed to cover of managing the Group’s risks are as follows: and maintains an open currency position (OCP) liquidity risk; Based on an analysis of VTB Group’s portfolio, in each of the Group’s banks within established limits, • Improving the risk and capital management system; • Monitoring calculated gaps taking into account the following areas of market risk can be identified: including internal OCP limits and the capital limit • Capital management; to cover the currency risk of structural OCP, as well the scenario analysis of the Bank’s liquidity • Interest rate risk of the bank book; as regulatory OCP limits. for various time periods to identify disparities • Managing the currency risk of a structurally open • Currency risk of the bank book and the treasury between receivables and payables; currency position, the interest-rate risk of the bank debt securities portfolio; Approved stress scenarios are used to calculate book, the market risk of the treasury debt securities • Identifying and analysing the impact of internal the capital required to cover VTB Bank’s currency risk portfolio, and liquidity risk (including the risk • Depending on the nature of the operations bearing and external factors on the Bank’s liquidity, stemming from structural OCP. and the forecast for changes; of liquidity sources concentration); currency risk, the Group’s entire currency position is attributed to either the trading book or the bank • Determining policies in terms of internal The following are the main parameters for assessing • Adopting and implementing solutions book; for management of the Bank’s assets and/or and external pricing and establishing principles the currency risk of the Group’s structural OCP: for the system for funding operations. • Market risk for the trading book and the treasury liabilities to maintain liquidity risk at a level that • Calculation of open currency positions debt securities portfolio. complies with internal and regulatory liquidity in the context of individual currencies and The main objectives of the Credit and Market Risk ratios; VTB Group companies; Management Committee in terms of the Group’s risk INTEREST RATE RISK OF THE BANK BOOK • Developing a detailed plan of action management are: • Calculation of the OCP sensitivity to changes for mobilisation of liquid assets by the Bank Interest rate risk management is based on VTB Group’s in foreign currency exchange rates of 1 RUB • Improving the system for managing core risks; in the event of insufficient liquidity; bylaws and includes: and by 1 %; • Managing the market risk of the trading book; • Ensuring compliance with the Bank of Russia’s • Setting standard interest rates for deposits • Capital to cover the currency risk of structural OCP. mandatory liquidity ratios by monitoring actual • Managing credit risk; and internal rates for financing, taking into and forecast values of intra-bank maximum account current market conditions; permissible indicators for mandatory ratios. • Managing model risk in terms of credit risks MARKET RISK OF TRADING OPERATIONS and market risks of the trading book; • Calculating interest-rate risk indicators; VTB Group is exposed to market risk through its • Managing concentration risks (excluding the risk • Setting capital limits for covering the interest rate trading book and its treasury debt securities portfolio MARKET RISKS of the concentration of sources of liquidity). risk for the Group and individual banks; associated with a negative revaluation of instruments Market risk is the risk of downward pressure due to changes in the values of various risk • Establishing an indicator for the bank book’s on the Group’s financial results or its capital base due The Regulation on the Procedure for Managing factors, including bond prices, stocks, commodity appetite for interest rate risk ‒ the indicative to adverse changes in the value of the Group’s assets/ Market Risk in VTB Group establishes procedures instruments, exchange rates, interest rates, credit value of the sensitivity of net interest income liabilities (claims/obligations) as a result of market for identifying and monitoring market risks, spreads, risk volatility factors and correlations to a change in interest rates. conditions, i.e., risk factors. the structure and hierarchy of market risk limits between them. from the level of VTB Group to the level of Group The main parameters used to assess interest VTB Group has a standing collective body within companies and individual divisions, procedures Although the treasury bond portfolio is separate rate risk are: the Group Management Committee as part of its for monitoring compliance with limits and restrictions from the trading book due to the different objectives system for managing the Group’s consolidated assets and for responding in case they are exceeded, • the sensitivity of the Group’s interest position in conducting transactions involving these and liabilities: the Assets and Liabilities Management and it also specifies the procedure for preparing to a change in interest rates, measured in terms portfolios, market risk management for treasury Committee (until 4Q 2019) / VTB Bank Finance reports on the Group’s market risk. of the size of the reduction in the net present value debt instruments is managed in the same way of the interest position and the net interest income as for the trading book.

90 91 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

To limit market risk within VTB Group, a set of limits OPERATIONAL RISK The Bank uses the following methods to respond • Taking preventive steps to ensure the continuity is used. All limits can be divided into the following two to operational risks: and recovery of activities related to banking Operational risk is the risk of loss resulting from flaws groups: portfolio limits (VaR limits, stop-loss limits operations and transactions by setting in the type and scale of the Group’s operations, • Minimising risk: developing and implementing and stress limits) and operational limits that limit up alternative communications channels; internal processes and procedures for carrying the necessary corrective measures to reduce the concentration of individual indicators or types geographically distributed server rooms; out banking operations and other transactions, identified risks; of assets in the portfolio. independent sources of power, heat and water the violation thereof by staff or other individuals • Taking risk: questions related to whether supply; and by taking fire protection measures. (due to unintentional or intentional acts or omissions), The Integrated Risk Management Department or not to take a certain risk are subject to approval the inadequacy or lack of functionality of IT and other performs the following market risk management by the authorised bodies/individuals within The insurance programmes covering risks systems and/or the failure (breakdown) thereof, functions for trading operations: the Bank in the event that measures aimed related to the Bank’s professional activities as well as damaging external events. at minimising the risk are not economically feasible; in 2019 were provided by insurance against crime • Evaluates and reports on the Group’s market risk under the Financial Institution’s Blanket Bond profile, reviews the structure of limits and prepares Operational risk includes legal risks but does • Avoiding risk: refusal to carry out a business scheme (including electronic and computer proposals for reducing and managing market not include strategic or reputational risks. operation subject to an identified risk if crimes), liability insurance for directors and officers risk for the trading book and the treasury debt the potential losses as a result of the risk would of the Group’s companies, insurance for funds securities portfolio; VTB Bank’s operational risk management system be critical for the Bank and/or if carrying out and valuables while in storage and during transit, is designed to minimise incidents of operational risk, the operation in question could jeopardise • Monitors on a daily basis compliance and ATM insurance. VTB Bank also insures against including reducing the likelihood of business process the economic feasibility of the activity associated with the Group’s market risk limits; local market risks related to business activities (including buildings, failures, the inability to provide high-quality services with the risk, and if measures aimed at minimising risk limits are monitored by the risk divisions equipment and vehicles). to the Bank’s clients caused by staff errors, system the risk are not economically feasible; of subsidiary banks also on a daily basis; breakdowns, internal or external fraud, breaches • Transferring risk (risk insurance): risk insurance In 2019, the Group took the following steps • Informs business units on a daily basis of client obligations or violations of contractual involves those operational risks that the Bank to develop its system for managing operational risk: about compliance with the Group’s limit discipline. obligations or of the law, and incurring possible losses is unable to manage and that exceed the Bank’s from taking on such risk. • Development of mechanisms to monitor direct control (including the risk of the loss The results of stress testing are used to assess the level of operational risk at the level of collateral pledged to the Bank to secure credit, the market risk of the trading book and the treasury In managing operational risk, the Bank adheres of the Bank and the Group’s companies as part the risks associated with the transportation securities portfolio. The methodology used to the Bank of Russia’s regulations, as well of the management of risk appetite; and storage of valuables and cash, property to assess these risk metrics is submitted as the recommendations of the Basel Committee risks, etc.). • Unification of methodological approaches to the Credit and Market Risk Management on Banking Supervision. To implement its operational to operational risk management at the Group level, Committee for consideration and communicated risk strategy, VTB carries out regular procedures The Bank uses the following key methods to reduce including risk management of risks related to fraud, to VTB Group companies. to identify, assess, monitor, control and minimise and limit its operational risk: IT and information security; operational risk. All significant deficiencies from a risk perspective that are identified within the internal • Maintaining an integrated system of ongoing • Further development of the methodology Stress testing control system are subjected to detailed analysis. and follow-up internal controls that cover all for a unified system of tools to be used The result of the revaluation of the Group’s trading Based on this analysis, measures are taken in order of the Bank’s divisions and operations; for operational risk management at the VTB book and treasury debt securities portfolio is modelled Group level (collection of data on the occurrence to eliminate the causes and sources of the risk. • Regulating all key operations using internal on the basis of historical changes in risk factor values of operational risks and related consequences, standards and codes of practice; (observed under conditions of significant changes To manage operational risk, the Bank has self-assessment, key risk indicators, corrective in macroeconomic indicators), as well as hypothetical implemented the following unified mechanisms • Registering and documenting banking operations action plans to reduce risks and the consequences changes in risk factors. to identify, assess and monitor the level of operational and transactions, and maintaining consistent thereof, scenario analysis); risk: a centralised process to collect information control over primary documents and operating • Improving regular reporting on the Group’s A scenario analysis showed that, in 2019, on incidents of operational risk and related accounts; operational risks. the greatest impact on market risk would have consequences; control over the level of key indicators • Applying the principles of dividing corresponded with a significant increase Operational risk did not have a significant impact related to operational risk, procedures to minimise and limiting employees’ functions, authority in risk-free, rouble-denominated interest rates on the Bank’s performance in 2019. operational risk, an operational risk self-assessment and responsibilities; implementing dual controls; and the widening of credit spreads. and scenario analysis. collective decision-making; setting limits on the terms and scale of operations; VaR is calculated based on the following The application of the above mechanisms makes parameters: it possible to carry out a quantitative and qualitative • Automating banking operations using assessment of operational risk indicators in relation high-performance IT systems that are constantly • Historical period: two years; to the Bank’s products, processes and systems, monitored and repaired promptly in case • Forecasting horizon: one trading day; including in the context of individual risk categories of breakdown; and the Bank’s activities, the identification of sources • Confidence interval: 95 %; • Operating a well-managed HR policy, good staff of risk, the development and adoption of mitigating training and education; • The method used is historical modelling. measures and the generation of management reports.

92 93 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

DIGITAL TRANSFORMATION RETAIL BUSINESS CORPORATE-INVESTMENT BUSINESS In 2019, a number of key digital projects In 2019, a number of key digital projects were were launched as part of the strategic focus launched in our corporate business: In 2019, the importance of digitalisation All the above-mentioned factors are reflected on the digitalisation of the Retail Business: and the introduction of new technologies were in the results of VTB’s work in the areas • Development of digital channels highlighted at the national level, with the Government of digitalisation and technological development. • Connection to the Faster Payments for investments VTB Capital Investments of Russia creating several national projects aimed The total number of changes in VTB’s banking System for individual transfers using and the RBC media holding launched an investment at introducing state-of-the-art technologies information systems increased by 31 % in 2019 a phone number as the identifier; site at https://quote.rbc.ru/. The project to encourage economic growth and development. year-on-year. Most of the changes (more enables customers to open investment accounts • Launch of a biometric platform that The increasing number of citizens who have begun than 9.3 thousand) were made to retail systems. and conclude transactions on the Moscow makes it possible to identify the Bank customers using remote services were the driving force behind and St. Petersburg Exchanges. The acquiring service by their face and voice; this decision. At 78 %, Russia has a high degree is backed by VTB Bank together with its technology NUMBER OF CHANGES IN IT SYSTEMS of Internet penetration – some 95.8 million Russians • Implementation of the Digital mortgage partner, Paymo. The platform is based on an Open BY GLOBAL BUSINESS LINES are using internet on regular basis. For the banking project: customers no longer need to visit API (application programming interface) technology. business, this is resulting in the dynamic development a Bank branch to apply for a mortgage; Using this concept, the VTB platform will be able of digital services. 9,364 1,654 964 they can submit an application, provide all to create a variety of channels offering broader 2019 11,982 the necessary documentation and get a decision opportunities to an unlimited number of partners. The Bank of Russia continues to be an active 7,199 1,104 858 remotely through the VTB mobile application; VTB became the first bank in Russia to use driver in the development of digital technologies. 2018 9,161 this technology to develop investment products. • Car marketplace launched: customers can In addition to launching its National Payment Card choose a new car right on the Bank’s website, • The Transport Processing system System, Russia’s banking regulator invested heavily where they can also receive a car loan; (used in the Moscow Metro), with its integrated in the development of a unified biometric system Retail Business payment aggregation mechanism, made and the Faster Payments System in 2019. • Introduction of chatbots for automated it easier and faster to connect with new carriers. Corporate-Investment Business processing of customer requests; The average number of metro journeys using Medium and Small Business • Launch of a robot collector: reducing bank cards increased from 1.7 thousand per day personnel costs for initial calls to debtors. in 2018 to 231 thousand per day in 2019. The robot is constantly learning; its work KEY HIGHLIGHTS AND IT ACHIEVEMENTS • The introduction of contactless payment is reviewed just like the work of human operators, for travel using bank cards on all Mosgortrans which enables us to make ongoing changes routes led to a rapid increase in the average Highlights Results to scripts. number of ground transport journeys using bank Successfully handled the high season Demands on IT systems increased by 50 % cards from 1.2 thousand per day at the beginning (October 2019–January 2020), ensuring that during the high season, with zero downtime of the year to 47.4 thousand per day at the end IT systems provided an acceptable degree To improve the stability and reliability of stability and reliability of retail systems, a set of measures was of 2019. developed that is aimed at upgrading Advancing IT competencies and creating new ones Number of developers increased by 131 % • Digital tariff management The process server hardware, improving the stability of managing the Bank’s tariff policy has been and reliability of systems in the event completely digitised: revenue from the acceleration of a catastrophic incident, and improving of processes and the flexibility of the tariff policy the quality of software programming Focus on reliability issues The reliability indicator as of the end of 4Q 2019 for customers of the Corporate-Investment and testing. As a result of these efforts, was 99.98 %, excluding maintenance windows, Business and Medium and Small Business global while the target is 99.99 % by 2022 VTB successfully made it through business lines is expected to amount to the high season, the period from October RUB 300 million through 2022; automation will to November, which is traditionally All key decisions related to IT architecture 100 % future-oriented technologies; optimise the labour costs of operational support marked by increased customer activity. were adopted zero obsolete solutions in the Bank’s IT architecture units for servicing tariff decisions. Despite a significant increase in demand on key systems (considerably greater than • Remote banking VTB continued to develop expected in some cases), we handled the functionality of remote banking services for legal Launched and began replicating a new business process; 277 Agile / Scrum teams formed the season successfully. entities as part of the RBS 2.0 project. The number all IT resources have been combined in teams (cross-functional teams) of functionalities implemented during the year as part of RBS 2.0 increased from 13 % to 60 %. The total number of customers reached 78 thousand, while the average time for processing accounts decreased by 72 %. With the introduction of new functionalities, measures to ensure the reliability of the system were improved; as a result, the number of incidents decreased by 60 %.

94 95 Annual Report / 2019 1 2 3 4 5 6 7 8 Management Report

• VTB Business QR VTB launched a pilot DEVELOPMENT AND INTRODUCTION As of the end of 2019, the accelerator portfolio • Design management tools to reduce document VTB Business QR mobile application for individual OF INNOVATIONS included 29 pilot projects involving technological preparation time; entrepreneurs, which enables them to receive C2B startups in the following areas: • Data analysis and management platforms; payments using a QR code through the Faster In 2019, intensive work continued on the testing • Voice assistants to reduce call centre costs; Payments System. The application provides and implementation of innovative technologies • Service assistants for employees; functionality that enables individual entrepreneurs and products in the framework of priority • Tools to personalise client communications; • Behavioural data assessment services for borrowers; registered as self-employed and applying development projects (foresight projects): A patent was • Voice analytics to improve the quality of service the Professional Income Tax scheme to make obtained • Tools for assessing the quality of customer service • A patent was obtained for a blockchain technology at bank offices; payments and issuing checks. to create multi-issue settlement and payment for a blockchain by determining emotions; technology to create • Geomarketing tools for branch network systems (Digital Settlement Service), and pilots • HR solutions for personnel recruitment multi-issue optimisation; DEVELOPMENT OF IT INFRASTRUCTURE were carried out for a system of cross-border and evaluations, etc. transfers, multiple-currency settlements and instant settlement One of the major focal points for IT departments payments. This was the first time the Bank has and payment in 2019 was developing infrastructure and supplying patented intellectual property developed in house. systems HOW THE STARTUP ACCELERATOR WORKS AT VTB BANK: all key systems with the necessary resources The technology will enable VTB to create digital (Digital Settlement for uninterrupted uptime during periods of peak products, services and payment instruments that Service), A search is conducted for ready-made, innovative startup solutions demand. This included the following: provide a solution for the problem of accounting and pilots were that can reduce the Bank’s costs or generate additional profit by creating for reciprocal payments between an almost carried out for • Three projects were launched to improve new products and services unlimited number of participants. These services a system 1 the reliability of the Bank’s IT infrastructure; include Faster Payments System, cross-border of cross-border • A private cloud was created, and 236 information settlements, loyalty programmes, etc. Potential users transfers, Quick (up to three months) and low-cost (up to RUB 1.5 million) pilot projects systems of the Bank were transferred into it. include both individuals and legal entities, including multiple-currency are carried out at the request of functional and business units to assess The private cloud is a single platform that other banks. A multi-issuer system has the potential their potential business impact and technological feasibility allows flexible management of the Bank’s to reduce costs and increase the efficiency settlements 2 IT infrastructure. It enables us to optimise of business processes for all participants. and instant the cost of IT resources and accelerate the process payments. • A prototype of the Bank’s mobile application was of providing them to the Bank’s internal customers. This was the first Innovative solutions are quickly integrated into the Bank’s existing created for the Russian SailFish OS RUS mobile During the implementation of the project, time the Bank has products and services operating system. The application enables users 3 a catalogue of cloud services was created patented intellectual of devices based on SailFish OS RUS to access all and automated. The catalogue made it possible property developed of VTB’s main banking services. to improve the productivity and fault tolerance in house. of the Bank’s IT systems and to introduce a cost • A Digital User Profile project and a module management mechanism for internal customers. for integrating big data into user profiles were One of the key results is an improvement implemented. in the performance of information systems • A pilot was launched to expand the customer base and in the fault tolerance of the infrastructure of the VTB My Investments service, and the first after its migration to the new private cloud mortgage loan was issued using virtual reality (VR) platform. As a result of the project, the total technology. savings for the operational activities of VTB’s IT systems amounted to RUB 920 million. • Integration tools were implemented with external The cost of ownership was reduced by lowering partners via Open API interfaces, including the cost of maintaining and upgrading old the launch of the RBC Quote project in tandem equipment; with the RBC media holding.

• A single dedicated e-mail system using Exchange VTB corporate accelerator underwent intense 2016 was put into commercial operation, development. The project was launched in 2018 and 22 thousand VTB employees were migrated as a tool for quickly piloting innovations within to this new system; the Bank. The goal of the accelerator is to select projects • A pilot was carried out with Technoserv to create that have promise for VTB’s business and to develop a hybrid cloud1. them to a level that would make it easy to integrate their innovative ideas into the Bank’s business.

1 A hybrid cloud is a combination of a public (external to the Bank) cloud with a private cloud owned by the Bank.

96 97 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance Corporate Governance

VTB BANK’S CORPORATE GOVERNANCE STRUCTURE OVERVIEW OF THE CORPORATE AS OF 29 FEBRUARY 2020 GOVERNANCE SYSTEM

VTB GROUP CORPORATE GOVERNANCE is a platform for the effective integration of assets acquired by VTB Group. VTB Group is structured as a strategic holding. Elects This model entails a common single growth strategy Independent Approves GEERAL MEETG Statutory VTB Group pays a great deal of attention to improving for all Group companies, as well as a single brand, Auditor OF SHAREHOLDERS Audit Comission its governance system, which is designed to comply Reports centralised management of financial performance fully with corporate and antimonopoly legislation and risk, and unified control systems. in countries where the Group operates. Under its current management model, the Group is governed along two key lines: VTB BANK’S CORPORATE

• Administrative management – executing GOVERNANCE SYSTEM Elects Reports the rights of the parent bank as the main Corporate governance at VTB Bank is a system shareholder by allowing its representatives of interactions between executive bodies, to participate in the management bodies the Supervisory Council, shareholders of subsidiary companies; and other stakeholders aimed at protecting SUPERVSOR COUCL Strategy and • Functional management – managing the rights of shareholders and investors, Elects Elects Corporate the Group’s business, support and control improving the Bank’s investment attractiveness Governance 11 members, lines within VTB Group as a whole. Functional and the transparency of its operations, creating Committee Reports Reports and prepares including 4 representatives and prepares coordination is a supplementary governance effective risk assessment mechanisms that recommendations recommendations of minority shareholders mechanism that provides early-stage expert can have an influence on the Bank’s value, Staff and review of management decisions. and ensuring the effective use of funds provided Remuneration by shareholders (investors). Elects Anton Committee To achieve key strategic objectives, the following Siluanov Reports business lines have been established within the Group: The Bank’s corporate governance system is based Audit and prepares Chairman of recommendations Corporate-Investment Business, Medium and Small on the principle of unconditional compliance Committee VTB Supervisory Council Minister of Finance Business, Retail Business (for more information with legislative requirements and the requirements of the Russian Federation on the global business lines and their performance, of stock exchange operators in Russia and see Results overview). abroad. It is also focused on the recommendations of the Corporate Governance Code (the Code) The Group’s Corporate Centre sets the Group’s overall approved by the Bank of Russia, strategic direction and promotes best practices within the recommendations of the Basel Committee Elects Elects Reports Reports Reports Reports the Group. on Banking Supervision and of the Financial Stability Approves Board that are applicable to financial institutions, The management system established by the Group as well as international best practices and standards enables the Bank to develop a global mechanism of corporate governance. for client service, to closely coordinate the work of every business line in all of the Bank’s regions The principles and procedures of the Bank’s MAAGEMET BOARD of operation, to increase profitability through corporate governance are enshrined in bylaws, synergies between business lines and best practices, the most important of which is the Bank’s Corporate and to reduce costs by sharing infrastructure Governance Code (approved by the Bank’s Internal 11 members and resources more extensively among the Group Supervisory Council in 2015, minutes No. 27 Corporate Audit companies. Furthermore, this management model of 11 December 2015). Secretary Department Andrey ostin

President and Chairman of VTB Management Board

Reports

98 99 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

The Bank’s corporate governance system is based for expenses of executive bodies and other key The Bank and its minority shareholders created At the Annual General Meeting of Shareholders on the following principles: executives of the Bank, plays a key role in the Bank’s a Shareholders Consultative Council, an independent on 5 June 2019, a new Supervisory Council was material corporate events, and determines the key expert consultative and advisory body consisting elected, composed of eleven members, including • Equal and fair treatment of all shareholders, principles and overall approach to risk management of minority shareholders whose meetings are also four representatives of minority shareholders providing shareholders with opportunities and the internal control system. attended by members of the Bank’s Supervisory Council and institutional investors, which maximises to exercise their rights and protect their legitimate and executive bodies. Members of the Shareholders the Supervisory Council’s independence and also interests; The executive bodies are responsible for day-to-day Consultative Council play an active part in VTB Bank’s enables it to represent the interests of a wide range • Professionalism and accountability management and carry out the tasks entrusted to them activities, discussing with the Group’s top management of shareholders. of the Supervisory Council, active participation by the shareholders and the Supervisory Council. the most pressing issues concerning the interests on the part of independent directors of shareholders, including issues related to strategy Shareholders also elected a new Statutory as well as members of the Supervisory Council The following committees function development and implementation, as well as improving Audit Commission, which retained a place nominated by the Bank’s minority shareholders under the Supervisory Council: corporate governance practices. for a representative of minority shareholders. in the management of the Bank; • The Staff and Remuneration Committee, VTB adheres to a policy of full and timely disclosure In 2019, the Bank continued to implement • Implementation of strategic management which drafts recommendations on key appointments of reliable information, giving shareholders, the action plan adopted by the Supervisory Council of the Bank by the Supervisory Council and and incentives for members of the Supervisory investors and counterparties the opportunity on the implementation of provisions of the Corporate its effective oversight of the activities of executive Council and the Bank’s executive and control to make properly informed decisions. Information Governance Code, which is the main source bodies and of the functioning of the risk bodies; is disclosed in compliance with Russian legislation of guidance for improving the Bank’s corporate management system and internal control; • The Audit Committee, whose main activity and the requirements of the UK financial regulator, governance system. • Reasonable, conscientious and effective is to analyse and support an effective and adequate the Financial Conduct Authority. The Bank’s management of the Bank’s ongoing operations system of internal control; Supervisory Council has approved the VTB Bank During the reporting year, in accordance by executive bodies and key executives; Regulation on Information Policy, which is posted with a decision (recommendation) of the Bank’s • The Strategy and Corporate Governance on the Bank’s website and specifies the ways in which Supervisory Council Staff and Remuneration • Compliance with the laws of the Russian Committee, which considers, and makes information may be disclosed, as well as the time Committee, an external assessment of the work Federation and the national laws of the countries recommendations on, strategic development frame for such disclosure and the forms such of the Supervisory Council was conducted where the Group’s companies are located; issues and on improving corporate governance, disclosure may take; it provides a list of information for the first time. The assessment also evaluated as well as on refining management of the Bank’s • Corporate social responsibility; that the Bank has taken on a duty to disclose, as well the work of the Supervisory Council committees, capital. as measures to ensure compliance with the Bank’s the Chairman of the Supervisory Council • A highly ethical approach to business and zero Information Policy. and the Bank’s Corporate Secretary. The Russian tolerance for corruption; The Bank has established a special structural unit, Institute of Directors (RID) was hired to conduct the Supervisory Council Administration, headed • Complete, transparent, reliable and timely The Bank regularly publishes its financial results the assessment. The RID is recognised by the Corporate Secretary, who is approved disclosure of information by the Bank; in accordance with both Russian and international for its expertise in the field of corporate governance by the Bank’s Supervisory Council. standards. In order for all stakeholders to obtain and for its assessments of the performance • An effective system of internal control as well the most up-to-date information on VTB Group’s of boards of directors in Russian companies. as internal and external audit; The Bank’s financial and economic affairs activities as quickly as possible, the Bank publishes are monitored by the Statutory Audit Commission • Active cooperation with investors, creditors information from its IFRS management reporting During the assessment, the members and also by the Internal Audit Department, and other stakeholders in an effort to support on a monthly basis in addition to quarterly of the Supervisory Council were interviewed an independent structural unit that operates the Bank’s assets and capitalisation; and annual reports. and completed questionnaires. The assessment under the direct supervision of the Supervisory also involved an analysis of the Bank’s bylaws, • Continuous improvement of corporate Council. It verifies and assesses the effectiveness which enabled the RID to maximise the objectivity governance practices. of the Bank’s internal control and risk management DEVELOPMENT OF CORPORATE of its assessment of every essential aspect systems; verifies the reliability, completeness, GOVERNANCE IN 2019 of the activities of the Supervisory Council The General Meeting of Shareholders is the supreme objectivity and timeliness of accounting The Bank views improving its corporate governance in such key areas as strategy development governing body of VTB Bank. Any holder of ordinary and management reports; establishes uniform system as an integral part of its work to improve and monitoring strategy implementation, shares may exercise the right to participate approaches to the organisation of internal control the efficiency and the results of its activities; performance in relation to internal control and risk directly in the management of the Bank by voting systems in companies controlled by the Bank; the corporate governance system is also subject management systems, oversight of the activities on the agenda of the General Meeting of Shareholders. gathers information about their status; and develops to constant monitoring by the Bank’s Supervisory of executive bodies and the establishment recommendations for improvement. The Supervisory Council and executive bodies. of an effective incentive system. The Supervisory Council, elected by the shareholders Council approves the Internal Audit Department’s and accountable to them, provides strategic work plans and monitors their implementation. VTB Bank closely monitors the development According to the assessment, the work management and oversight of the Bank’s executive of corporate legislation and practices and carries out of the Supervisory Council was praised by both bodies, namely the President and Chairman In order to reduce management risks, liability consistent work to improve the corporate governance the members of the Supervisory Council themselves of the Management Board and the Management Board insurance is purchased for the Bank, as well system within the Bank and the Group companies and by RID experts. The assessment concluded itself. The Supervisory Council approves the Bank’s as for members of the Bank’s Supervisory Council by applying international standards and the best that the Supervisory Council was highly engaged strategy and long-term development programme and executive bodies (Director’s and Offcer’s Russian and international practices. in decision-making on key issues concerning and its Regulation on Remuneration and Compensation Liability Insurance, D&O).

100 101 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

the Bank’s operations while maintaining its focus As part of the work that the Bank carried out on strategic management. In addition, the Bank’s to improve the corporate governance system GENERAL MEETING OF SHAREHOLDERS use of advanced tools for organising the work in its subsidiary companies during the reporting of the Supervisory Council, the high-profile year, corporate governance was assessed in its major The General Meeting of Shareholders NUMBER OF PARTICIPANTS AT THE AGM, role of the Chairman of the Supervisory Council subsidiaries, including those outside the Russian is the supreme governing body of VTB Bank. shareholders in improving the Council’s performance, Federation. The assessments were carried out Any holder of ordinary shares may exercise and the high level of information and organisational through questionnaires developed in accordance the right to participate directly in the management +46 % compared support for the activities of the Supervisory Council with the Group-wide corporate governance standards, of the Bank by voting on the agenda of the with 2018 provided by the Bank’s Corporate Secretary noted the Bank of Russia Code of Corporate Governance General Meeting of Shareholders. Preference 1,608 740 as strengths. and the OECD Principles of Corporate Governance. shares carry voting rights only in special cases, 2019 2,348 as stipulated by the law. 957 646 2,348 At the same time, the assessment highlighted The assessments found that the corporate governance 2018 1,603 participants areas in which the activities of the Supervisory system in Group companies as a whole complies Shareholders may take part in a meeting 573 513 in 2019 Council and its committees can be improved. with generally recognised best practices of corporate of shareholders either in person (in the event that 2017 1,086 These include issues related to updating the current governance, while the most important areas an in-person meeting is held) or through absentee 695 449 inducement system of the Council’s members, of activity, such as the internal control system, the risk voting. All shareholders of VTB Bank have access 2016 1,144 expanding the Supervisory Council to include management system and information disclosure, to the e-voting system developed by the Bank’s 704 379 candidates with competencies in the areas are regulated in accordance with the Group standards. registrar, VTB Registrar. 2015 1,083 of digitalisation and information technology, At the same time, areas were identified for improving issues related to the establishment of programmes corporate governance practices both in individual The decision to convene a General Meeting and the organisation of training for members companies and those requiring improvements of Shareholders is taken by the Supervisory Council. Number of participants with in-person attendance of the Supervisory Council, and increasing at the level of the Group standards. Based on the In accordance with applicable Russian laws the number of in-person meetings of the Staff assessments, a list of recommendations was compiled, and the Bank’s Charter, information about the date Number of participants who voted absentee E-voting is possible and Remuneration Committee and of the Strategy and road maps were drawn up for improving and venue of the General Meeting of Shareholders, online at vtbreg.com, and Corporate Governance Committee. corporate governance in the respective subsidiaries. as well as the record date for shareholders eligible as well as through Shareholders’ growing interest in annual meetings the VTB Shareholder to participate, is published on VTB’s website application During the reporting year, the Bank also conducted The Bank’s performance in the area of corporate and is also distributed through the VTB Shareholder can be seen not only in the increase in the number (available in Russian language only). benchmarking (comparative analysis) of corporate governance enabled it to maintain a high position application. During the time frame specified by law, of shareholders who personally attended the meeting governance practices in order to establish in the National Corporate Governance Rating, shareholders can review materials for the General but also in the nearly twofold increase in the number an objective understanding of the Bank’s current where it was accorded a score of 7++, corresponding Meeting of Shareholders on the Bank’s website of shareholders who participated absentee level of corporate governance in comparison to “well-developed corporate governance practice”. or at Shareholder Liaison Centres in Moscow, (the number of online views (2,028) increased with Russian companies that are recognised The RID provides the annual rankings, which are based St. Petersburg and Yekaterinburg. When voting by 44 % compared with the 2018 AGM). as leaders in this area. The results of this comparative on an independent review. A rating of 7++ is assigned electronically, the materials for meetings are also analysis made it possible to identify the strengths to companies that comply with the requirements available through the mobile application and in each Shareholders who had previously submitted and weaknesses of the Bank’s corporate of Russian legislation in the field of corporate user’s personal account on VTB Registrar’s website. biometric data were able to register to take part governance system and to identify areas for further governance, and it denotes fairly low risk in the meeting by using special self-service terminals. improvement. to shareholders of losses associated with corporate Two General Meetings of Shareholders were convened For the purposes of self-registration, a VTB Registrar governance. in 2019. technology was used to authenticate participants’ identity based on their face and by using a card with an NFC module (R-face service). 2019 ANNUAL GENERAL MEETING OF SHAREHOLDERS During the meeting, the Bank’s shareholders were able to familiarise themselves with materials The Annual General Meeting of Shareholders for the meeting and could obtain information (AGM) of VTB Bank was held on 5 June 2019 about products and services offered by VTB and its at the Oktyabrsky Grand Concert Hall in St. Petersburg. subsidiaries. Meeting materials were made available The meeting was attended by 740 shareholders on tablets in the consultation area in addition to being and their representatives (compared with 646 available in hard copy and on memory cards. in 2018). In total, 2,348 shareholders took part, including through absentee voting, which accounted The 2019 AGM gave shareholders an opportunity, for 11,031,539,082,384 votes, or 85.1163 % for the first time, to submit questions to the presidium of the total votes. electronically via the VTB Shareholder mobile application or through special terminals.

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The e-voting system was widely available during Meeting participants supported the proposed draft The voting results Total dividend payments amounted to The Bank’s retained net profit, which amounted the AGM, which meant that any shareholder could decisions on all 14 agenda items. on agenda items and all RUB 26.8 billion, or 15.0 % of the Group’s to RUB 192.5 billion as of the end of 2018, take part in the meeting regardless of where they decisions taken can be seen consolidated IFRS net profit for 2018 is used to ensure business growth and to maintain In addition, shareholders agreed to the following in the Investor Relations were living or located, which greatly increased section on the Bank’s (11.6 % of the Bank’s net profit under RAS), the Bank’s capital adequacy in accordance distribution the Bank’s profits from 2018 in accordance the total number of shareholders participating. official website while dividends on ordinary shares amounted with the requirements of the Bank of Russia. with the recommendations of the Bank’s Supervisory in the General Meeting Some 1,937 shareholders voted through the e-voting to 8.0 % of the Bank’s consolidated net profit Council: of Shareholders 2019 system. It is important to note that the e-voting system subsection under IFRS (or 6.2 % of the Bank’s net profit used biometrics and NFC technology, including voice • Net profit to be allocated – (available in Russian under RAS). EXTRAORDINARY GENERAL MEETING language only). recognition, which made the voting process much RUB 230,906,903,335.16 OF SHAREHOLDERS IN 2019 easier for shareholders with a visual impairment. When approving recommendations for the Annual • Allocations to the Reserve Fund – On 1 November 2019, an Extraordinary General Most of the participants in the AGM praised the quality General Meeting of Shareholders on the payment RUB 11,545,345,166.76 Meeting of Shareholders of VTB Bank was held of e-services available and the opportunities they of dividends, the Bank’s Supervisory Council in the form of absentee voting. provided. • Dividend payment allocations on ordinary shares – took into account the Bank’s need for capital RUB 14,239,456,640.85 to comply with the requirements of the Bank The agenda included three items: Fourteen agenda items were considered of Russia (increasing capital requirements as part • Dividend payment allocations on Type 1 registered of the transition to Basel III standards), as well 1. The payment (declaration) of dividends at the meeting: preference shares – RUB 5,164,109,976.47 as for sustainable business development and strategy for Type 1 preference shares; the amount, 1. Approval of VTB Bank’s Annual Report; • Dividend payment allocations on Type 2 registered implementation. terms and form of the dividend payment; 2. Approval of VTB Bank’s annual financial preference shares – RUB 7,416,433,382.68 and the establishment of the record date Dividend payments for each type of Bank share to determine eligibility to receive dividends; statements; • Retained net profit –RUB 192,541,558,168.40 for 2018 were calculated based on the principle 2. Approval of Amendment No. 1 to the Charter 3. Approval of VTB Bank’s profit allocation for 2018; of the equalisation of dividend yields for all three Shareholders approved a dividend payment of VTB Bank; 4. The amount, terms and form of the 2018 dividend Detailed information types of the Bank’s shares; the dividend yield for each of RUB 0.00109867761463259 per ordinary on dividend payments type of share was 2.4 % (for each ordinary share, 3. Approval of a new edition of the Regulation payment and the record date to determine share. for 2018 is available eligibility to receive dividends; on the Bank’s this was calculated based on their average market on VTB Bank’s Management Board; official website value on Moscow Exchange for 2018; for preference in the Dividends section. 5. The remuneration of Supervisory Council members BASIS FOR THE DISTRIBUTION OF VTB BANK’S shares, it was based on the par value of each type The shareholders supported draft decisions on all who are not state employees, in accordance PROFIT FOR 2018, RUB billion of share). agenda items at the Extraordinary General Meeting with VTB Bank’s bylaws; of Shareholders. A total of 2,759 shareholders 11.5 A portion of the net profit was allocated to the attended the meeting, 94 % of whom used 6. The remuneration of Statutory Audit Commission 7.4 230.9 5 % members who are not state employees, 5.2 3 % Reserve Fund, since, in accordance with the Federal the e-voting system. The largest number of shareholder 2 % votes came through the VTB Shareholder mobile in accordance with VTB Bank’s bylaws; 14.2 Law on Joint-Stock Companies and the Charter, 6 % the Bank must make annual payments to the Reserve application. 7. The number of VTB Bank Supervisory Council Fund in the amount of at least 5 % of net profit until members; the Reserve Fund reaches 5 % of the charter capital. The Extraordinary General Meeting of Shareholders 8. The election of VTB Bank Supervisory Council As a result of the increase in the Bank’s charter capital adopted a decision to pay interim dividends members; in 2015, it became necessary to make contributions on Type 1 preference shares from retained profit to the Bank’s Reserve Fund in the amount of 5 % of previous years. 9. The number of VTB Bank Statutory Audit 192.6 of the Bank’s net profit for the relevant reporting Commission members; 84 % year. Contributions to the Bank’s Reserve Fund 10. The election of VTB Bank Statutory Audit for 2018 amounted to RUB 11.5 billion (compared Commission members; to RUB 5.1 billion for 2017). Net profit 11. Approval of the VTB Bank auditor; for distribution (RAS) 12. Approval of a new edition of VTB Bank’s Charter; Retained net profit 13. Approval of a new edition of the Regulation on the Procedure for Preparing, Convening Dividends on ordinary shares and Holding General Meetings of Shareholders Dividends on Type 1 preference shares of VTB Bank; Dividends on Type 2 preference shares 14. Approval of a new edition of the Regulation Allocation to the Reserve Fund on VTB Bank’s Supervisory Council.

104 105 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

1 SCOPE OF RESPONSIBILITIES consisted of 11 members, 10 of whom were Regulation on VTB Bank SUPERVISORY COUNCIL non-executive directors, and three were independent Supervisory Council The Supervisory Council is one of the most directors. This combination of directors is in line important elements of VTB Bank’s corporate Anton Siluanov with international best practices and ensures that governance system. In its activities, the Supervisory all shareholders’ interests are represented Chairman of the Supervisory Council Council is guided by the interests of shareholders on the Supervisory Council. The composition and the Bank. Acting in the interests Minister of Finance of the Russian Federation of the Supervisory Council is reviewed annually of shareholders and in accordance with Russian to ensure the right level of professionalism, experience legislation, the Bank’s Charter, the Regulation and effectiveness, and to ensure that it is in line on the Supervisory Council and the Corporate with VTB’s strategic objectives. Governance Code, it provides general oversight of the Bank’s operations. VTB places great importance on the The Supervisory Council’s main tasks appointment of independent directors. are the elaboration and adoption of the Bank’s These directors’ effective work Development Strategy, as well as the formation on the Supervisory Council of the Bank’s executive bodies and oversight strengthens shareholders’ of their activities, organising assessments and investors’ trust in the Bank of the performance of the internal control and risk and ensures a high level of transparency management system, determining the Bank’s for its governance system and the personnel policy, including remuneration objectivity of the Supervisory Council’s of executive bodies and Bank management, decision-making. The independent and participation in decision-making on issues directors play an active role pertaining to Bank management. in Supervisory Council discussions and the decision-making process. Matthias Warnig Yves-Thibault Sergey Dubinin Mikhail Zadornov Andrey Kostin The Supervisory Council determines the rules for the Together, they monitor the Bank’s Executive director Head of the Finance President and Chairman President and Chairman de Silguy functioning of the Bank’s corporate governance performance and its competitive of Nord Stream 2 AG Vice President, and Credit Faculty of the Management Board of VTB Bank’s Management system through the adoption of bylaws that regulate (Switzerland) at Lomonosov Moscow of Bank Otkritie Financial Board position, analyse the performance authorised administrator the principles and procedures of its individual of VINCI (France) State University Corporation of the management team, assess elements and oversight over the effectiveness mechanisms and systems of internal of the corporate governance system as a whole. control and risk management, and settle corporate conflicts. The Supervisory Council is entrusted with the function of managing conflicts of interest between the Bank’s management bodies, According to the Bank’s Corporate Governance shareholders and employees. Code, the Supervisory Council should include at least three directors who meet the independence criteria Members of the Supervisory Council are elected established by the listing rules of the exchange by the General Meeting of Shareholders for a term whose quotation list includes the Bank’s securities. of one year. Shareholders holding at least 2 % The independent members of the Supervisory Council of the Bank’s voting shares have the right to nominate must not have any relationship with the Bank that candidates to the Supervisory Council. Members would prevent them from fairly and impartially making of the Supervisory Council are elected by means decisions with regard to VTB’s Strategy and ongoing Shahmar Movsumov Igor Repin Alexander Sokolov Oksana Tarasenko Vladimir Chistyukhin of a cumulative ballot at the General Meeting activities. In determining the independence criteria Assistant to the President Deputy Executive Director President and Chairman Deputy Minister of Economic Deputy Governor of Shareholders. for the members of the Supervisory Council, of the Republic of Azerbaijan, of the Professional Investors of the Management Board Development of the Russian of the Bank of Russia VTB Bank is guided by the requirements of applicable Head of the Department Association of Trust Bank Federation for Economic Affairs The Supervisory Council in place at the end of 2019 legislation, the listing rules of the stock exchange and Innovative Development was elected at the AGM on 5 June 2019. whose quotation list includes the Bank’s securities Policy of the Administration As of 31 December 2019, the Supervisory Council and the Bank’s Charter. of the President of the Republic of Azerbaijan

1 The biographies and positions in other organisations of the members of the Supervisory Council are as of 31 December 2019, their professional activities are as of January 2020.

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PROFESSIONAL COMPETENCIES OF MEMBERS OF THE SUPERVISORY COUNCIL1 SUPERVISORY COUNCIL COMPOSITION In carrying out their functions on the Supervisory Council, the representatives of state interests must On 5 June 2019, the AGM elected Oksana Tarasenko take into account the position of the shareholder to the Supervisory Council2 for the first time. and vote on certain issues as directed Mukhadin Eskindarov left the Supervisory Council. by the shareholder on the basis of the directives of the Russian Federation. Member of the Corporate governance in partially state-owned

Supervisory Council Anton Siluanov Matthias Warnig Yves-Thibault de Silguy Sergey Dubinin Mikhail Zadornov Andrey Kostin Shahmar Movsumov Igor Repin Alexander Sokolov Oksana Tarasenko Vladimir Chistyukhin companies differs as a result of the special status The Supervisory Council includes representatives First year of their major shareholder, the Russian Federation. of institutional/minority shareholders (professional on VTB Bank’s VTB Bank’s Supervisory Council includes state directors): Mikhail Zadornov, Alexander Sokolov, Supervisory Council 2017 2007 2007 2011 2018 2002 2013 2018 2018 2019 2014 officials: the civil servants Anton Siluanov and Oksana Shahmar Movsumov (independent director), Tarasenko, as well as the representatives of state Strategy Igor Repin (independant director) and Yves-Thibault • • • • • • • • interests Sergey Dubinin, Mattias Warnig, Andrey de Silguy (senior independent director). Finance Kostin and Vladimir Chistyukhin. and economics • • • • • • • • • Risk management, audit • • • • • • • • • • Ownership of shares Anton Siluanov as of 31 December 2019 Chairman of the Supervisory Council in the Bank Corporate governance, % of ordinary shares ► 0 % legal issues • • • • • Civil servant % of charter capital ► 0 %

Business administration • • • • • • • • •

REMIT OF THE SUPERVISORY COUNCIL The Chairman is not permitted to combine Born in 1963 this role with the position of President and Chairman The Supervisory Council provides strategic direction; of the Management Board. The Chairman of the determines VTB Bank’s long-term priorities; approves Education: Positions in other organisations: Supervisory Council may not also be a member its Development Strategy and long-term development of VTB Bank’s Management Board, nor may Doctor of Economic Sciences. • Chairman of the Supervisory Council of Alrosa programme; determines the key principles and overall he or she have any type of employment related 1985 – Moscow Financial Institute, specialisation • Governor from the Russian Federation in the BRICS approach to risk management and internal control, with the Bank. in finance and credit; New Development Bank and the International regulation on remuneration and compensation 2007 and 2010 – National State Tax Academy Monetary Fund paid to executive bodies and other key executives; of the Ministry of Finance of the Russian Federation • Member of the Supervisory Councils of the Russian The Chairman organises the work of the Council, and exercises oversight over the activities of executive and the Financial University under the Government Direct Investment Fund and VEB.RF convenes and chairs its meetings, ensures that bodies and corporate governance. The Supervisory of the Russian Federation, professional development • Member of the Boards of Trustees minutes are kept and presides over General Meetings of the Skolkovo Foundation and the Charitable Council plays a key role in the Bank’s main corporate Class 1 Full State Counsellor of the Russian Federation of Shareholders. In the absence of the Chairman, Foundation for the Restoration of the Resurrection activities. his or her duties are assumed by a Supervisory Council New Jerusalem Monastery Professional activities: member as decided by the Supervisory Council. • Member of the Academic Council of the Financial University CHAIRMAN OF THE SUPERVISORY Since January 2020 Minister of Finance of the Russian Federation; • Authorised representative of the Russian Federation COUNCIL Anton Siluanov has been the Chairman of VTB’s in the Eurasian Development Bank Supervisory Council since 28 April 2017. 2018-2020 First Deputy Minister of the Russian Federation, Minister of Finance of the Russian Federation; • Chairman of the Board of the Eurasian Fund The Chairman of the Supervisory Council is elected for Stabilisation and Development and of the National by majority vote of the members of the Supervisory 1992–2018 Deputy Head of Section, Deputy Department Manager–Head of Section, Deputy Department Manager, Financial Council of the Bank of Russia Council. The Supervisory Council has the right Deputy Department Head, Head of Department, Department to re-elect its Chairman at any time by majority vote. Manager, Deputy Minister, Director of Department, Deputy Minister, acting Minister of Finance of the Russian Federation, Minister of Finance of the Russian Federation

1 Competencies are established on the basis of information on the education and experience of the members of the Supervisory Council in professional fields and are not a complete list of competencies that the members 2 The biographies and positions in other organisations of the members of the Supervisory Council are as of 31 December 2019, of the Bank’s Supervisory Council possess. their professional activities are as of January 2020.

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Matthias Warnig Ownership of shares Sergey Dubinin Ownership of shares as of 31 December 2019 as of 31 December 2019 Member of the Strategy and Corporate in the Bank Chairman of the Staff and Remuneration Committee in the Bank Governance Committee % of ordinary shares ► 0 % Member of the Strategy and Corporate Governance % of ordinary shares ► 0 % % of charter capital ► 0 % % of charter capital ► 0 % Committee Representative of the state Representative of the state

Born in 1955 Born in 1950

Education: 2004–2005 Chairman of the Management Committee Education: 2004–2005 Member of the Management Board of Dresdner Kleinwort for Russia and the CIS of RAO UES 1981 – Bruno Leuschner Higher School of Economics 2002–2005 President of Dresdner Bank Doctor of Economic Sciences, Associate Professor 2001–2004 Deputy Chairman of the Management Board (Berlin, Karlshorst), specialisation in national economics 1973 – Lomonosov Moscow State University, of RAO UES 1995 – additional professional training at Dresdner specialisation in political economy Bank AG in Bad Homburg in Bad Homburg (Germany) Positions in other organisations: Positions in other organisations: and in London (United Kingdom) through the Lending • Member of the Board of Directors of Transneft Professional activities: and Risk Management programme and of Fussballclub Gelsenkirchen-Schalke 04 c.V. • Advisor and member of the Board of Directors (Germany) Since February 2014 Head of the Finance and of VTB Capital Professional activities: • Deputy Chairman of the Board of Directors of Rosneft Credit Faculty at Lomonosov Moscow State University • Member of the Board of Directors of VTB Capital • Chairman of the Administrative Council of Gas 2005–2008 Member of the Board of Directors, Holding IB and of VTB Capital Holding Since 2015 Executive Director of Nord Stream 2 AG Project Development Central Asia AG (Switzerland) Chief Financial Officer of RAO UES (Switzerland) and of Interatis Consulting AG (Switzerland) Since 2008 Director of Interatis AG (Switzerland) • Member of the Administrative Council of Gazprom 2006–2016 Managing Director of Nord Stream AG Schweiz AG (Switzerland) (Switzerland) 2005–2006 Chairman of the Board of Directors of Dresdner Bank

Yves-Thibault de Silguy Ownership of shares Mikhail Zadornov Ownership of shares as of 31 December 2019 as of 31 December 2019 Chairman of the Audit Committee in the Bank Member of the Supervisory Council in the Bank % of ordinary shares ► 0 % % of ordinary shares ► 0.000246 % Senior independent director % of charter capital ► 0 % Professional director % of charter capital ► 0.000049 %

Born in 1948 Born in 1963

Education: 2004–2011 Member of the Board of Directors of SMEG Education: Positions in other organisations: (Société Monégasque d’électricité et du gaz) 1971 – University of Rennes II in Upper Brittany, 2004–2006 Vice President of Suez Environnement Candidate of Economic Sciences • Member of the Supervisory Councils of Trust Bank, degree in law (Belgium) 1984 – Plekhanov Russian University of Economics, Bank Otkritie Financial Corporation and the Higher 1972 – University of Paris I (Pantheon-Sorbonne), 2003–2006 Acting General Director, Member specialisation in national economic planning School of Economics degree in public law of the Executive Committee of Suez (Belgium), • Member of the Board of Directors of the Otkritie private 1972 – Institute for Political Studies (Sciences Po) President of Aguas Argentinas (Argentina) Professional activities: pension fund (Paris, France), specialisation in public law 2002–2010 Member of the Economic Council, • Chairman of the Board of Directors of Rosgosstrakh 1976 – National School of Administration (ENA), Since 2018 President and Chairman of the Management French Defence Ministry insurance company and of RGS Bank Guernica class Board of Bank Otkritie Financial Corporation 2001–2002 General Director, Suez (Belgium) 2005–2017 President and Chairman of the Management 2000–2006 President, Sino-French Holdings (Hong Kong) Professional activities: Board and member of the Management Board of VTB24 Since 2010 Vice President and delegated Positions in other organisations: administrator of VINCI, SAS (France), Senior Director • Chairman of the Supervisory Council of Sofisport SA on the Board of Directors, Vinci Group (France), President (France) of YTSeuropaconsultants, SARL (France) • Member of the Board of Directors of Louis Vuitton 2005–2012 Member of the Council for Foreign Affairs, Moet Hennessy SA (France) French Foreign Ministry

110 111 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

Andrey Kostin Ownership of shares Shahmar Movsumov Ownership of shares as of 31 December 2019 as of 31 December 2019 Chairman of the Strategy and Corporate in the Bank Member of the Staff and Remuneration Committee in the Bank Governance Committee % of ordinary shares ► 0.00183 % Member of the Audit Committee % of ordinary shares ► 0 % % of charter capital ► 0.00036 % % of charter capital ► 0 % Representative of the state Independent director

Born in 1956 Born in 1972

Education: • Chairman of the Board of Trustees of the Bolshoi Theatre Education: Positions in other organisations: • Member of the Board of Trustees of the Foundation Candidate of Economic Sciences for Supporting and Developing Physical Culture 1995 – Moscow State Institute of International Relations, • Positions in other organisations 1979 – Lomonosov Moscow State University, Economics and Sport, the Sports Federation Dynamo Hockey specialisation in international economic relations • Chairman of the Commission for Transparency Department Club, the Financial University under the Government 2004 – John F. Kennedy School of Government at Harvard in the Extractive Industries (Azerbaijan) of the Russian Federation, Lomonosov Moscow State University, MBA with a specialisation in public finance. • Chairman of the Supervisory Council of the International Professional activities: University, St. Petersburg State University, Friends Bank of Azerbaijan of the Russian Museum Development Fund, the Moscow Professional activities: • Deputy Chairman of the Supervisory Council Since 2002 – President and Chairman of VTB Bank’s State Institute of International Relations (MGIMO), of the Azerbaijan Investment Company Management Board Since 2019 Assistant to the President of the Republic the Charitable Foundation for the Restoration • Member of the Supervisory Council of Southern Gas 1996–2002 Chairman of Vnesheconombank of Azerbaijan, Headof the Department for Economic Affairs of the Resurrection New Jerusalem Monastery, Corridor and Innovative Development Policy of the Administration the Mariinsky Theatre, the I.K.O. Centre, the State • Member of the Board of Trustees of the ADA University of the President of the Republic of Azerbaijan Positions in other organisations: Primorsky Opera and Ballet Theatre, the Deaf–Blind Foundation 2006–2019 Executive Director of the State Oil Fund Support Fund, the Russian Geographical Society, • Member of the Management Board of the International • Chairman of the Supervisory Council of the Russian of the Republic of Azerbaijan the Nauka-Detyam Foundation, the Russian Children’s Forum of Sovereign Wealth Fund Gymnastics Federation 2005–2006 General Director of the National Bank Foundation, member of the Supreme Council • Member of the Supervisory Council of Post Bank of Azerbaijan and of the Russian Volleyball Federation of the United Russia political party • Member of the Board of Directors of VTB Capital, • Member of the Presidium of the non-profit partnership VTB Capital Holding, VTB Capital IB Holding, Russian Post National Council on Corporate Governance and United Grain Company • Member of the Council of the Association of Russian • Member of the Bureau of the Board of the Russian Union Banks and of the I Am a Professional Association of Industrialists and Entrepreneurs and of the Russian • Member of the Public Council under the Ministry Union of Industrialists and Entrepreneurs Russian of Finance of the Russian Federation Employers Association Igor Repin Ownership of shares as of 31 December 2019 Member of the Strategy and Corporate Governance in the Bank Committee % of ordinary shares ► 0.0000002315 % % of charter capital ► 0.0000000461 % Member of the Staff and Remuneration Committee Member of the Audit Committee Chairman of the Shareholders Consultative Council of VTB Bank Independent director

Born in 1966

Education: Positions in other organisations: 1988 – Lomonosov Moscow State University, specialisation Chairman of the Board of Directors of the Federal Centre in land hydrology for Geoecological Systems 2004 – Russian Law Academy of the Ministry for Justice, Single Training Programme of Insolvency Receivers 2013 – Higher School of Economics, development programme for boards of directors’ members

Professional activities: Since September 2001 Deputy Executive Director of the Professional Investors Association

112 113 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

Alexander Sokolov Ownership of shares Vladimir Chistyukhin Ownership of shares as of 31 December 2019 as of 31 December 2019 Member of the Strategy and Corporate Governance in the Bank Member of the Strategy and Corporate Governance in the Bank Committee % of ordinary shares ► 0 % Committee % of ordinary shares ► 0 % % of charter capital ► 0 % % of charter capital ► 0 % Professional director Representative of the state

Born in 1979 Born in 1973

Education: Positions in other organisations: Education: Positions in other organisations: 2002 – Russian State University of Aviation Technology, • Member of the Supervisory Council of Trust Bank 1995 – Lomonosov Moscow State University, • Member of the Board of Directors of the Bank of Russia specialisation in economics and enterprise management • Chairman of the Board of Directors of United Wagon specialisation in legal studies and of the Deposit Insurance Agency Company and of Inteco Professional activities: Professional activities: Since 2018 President and Chairman of the Management Since 2014 Deputy Governor of the Bank of Russia Board of Trust Bank 2013–2014 First Deputy Head of the Financial Markets Since 2019 Head of the First Block of Bank Otkritie Service, the Bank of Russia Financial Corporation 2011–2013 Director of the Financial Stability Department, 2017–2018 Member of the Management Board of Bank the Bank of Russia Otkritie Financial Corporation 2004–2011 Deputy Director of the Banking Regulation 2008–2017 Member of the Management Board of VTB24 and Supervision Department, the Bank of Russia 2002–2004 Deputy Director of the Department of Foreign Exchange Regulation and Currency Control, the Bank of Russia

Oksana Tarasenko Ownership of shares Mukhadin Eskindarov Ownership of shares as of 31 December 2019 as of 31 December 2019 Member of the Strategy and Corporate Governance in the Bank Tenure at the AGM ended on 5 June 2019 in the Bank Committee % of ordinary shares ► 0 % % of ordinary shares ► 0 % % of charter capital ► 0 % Representative of the state % of charter capital ► 0 % Civil servant

Born in 1983 Born in 1951

Education: 2011–2015 Assistant Manager, Head of the Department Education: Professional activities: for Social and Cultural Organisations and Foreign Property, Candidate of Legal Sciences Head of Industrial Organisations and Foreign Property Doctor of Economic Sciences, Professor Since 2006 Rector of the Financial University 2005 – Lomonosov Moscow State University, specialisation of the Federal Agency for State Property Management 1976 – Moscow Financial Institute, specialisation in finance under the Government of the Russian Federation in jurisprudence and credit 2002–2006 First Pro-rector of the Finance Academy 2009 – Lomonosov Moscow State University, specialisation under the Government of the Russian Federation in management Positions in other organisations: 2016, 2017, 2018 – Lomonosov Moscow State University • Member of the Board of Directors of Rosippodromy, and Russian Presidential Academy of National Economy Rusnano, Rusnano Management Company, and Public Administration, programmes of additional RVC and Sovcomflot professional education • Member of the Supervisory Council of Russian Agricultural Bank Professional activities: • Member of the Board of Trustees of the Skolkovo Foundation and of the Charitable Foundation Since 2008 Deputy Minister of Economic Development for the Restoration of the Resurrection New Jerusalem of the Russian Federation Monastery 2015–2018 Advisor to the Minister, acting Director of the Department for Coordination, Development and Regulation of Foreign Economic Affairs, Director of the Corporate Governance Department, Assistant to the Minister of Economic Development of the Russian Federation

114 115 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

In accordance with the Regulation on the Bank’s Yves-Thibault de Silguy has been the senior Information CHANGES IN THE COMPOSITION OF THE SUPERVISORY COUNCIL Supervisory Council, a senior independent independent director since 28 April 2017. on the activities of the Bank’s director has been elected since 2015 from among It should be noted that, in October 2019, Supervisory Council the members of the Council serving as independent Mr. de Silguy won a Russian Reputation award (available in Russian directors. The senior independent director acts in the category of Best Financial Market language only). 12 changes as an adviser to the Chairman of the Supervisory Independent Director. 4 4 in the composition Council and coordinates interactions between of the Supervisory Council the independent directors. The senior independent The Staff and Remuneration Committee regularly director also interacts with the Bank’s shareholders. assesses the independence of candidates If a dispute arises, the senior independent director for the Supervisory Council and considers issues should undertake measures to resolve the dispute related to the independence of independent directors. 2 through cooperation with the Supervisory Council 5 55 % Chairman, the other members of the Supervisory In 2019, no transactions were made involving 1 1 permanent members of the composition Council and the Bank’s shareholders to ensure the acquisition or disposal of the Bank shares of the Supervisory Council of the Supervisory Council the smooth operation of the Supervisory Council. by members of the Supervisory Council. changed 2015 2016 2017 2018 2019

SHAREHOLDER REPRESENTATIVES EDUCATION LIABILITY INSURANCE FOR SUPERVISORY INTRODUCTION TO MEMBERSHIP 9 % COUNCIL MEMBERS OF THE SUPERVISORY COUNCIL

9 % Senior 27 % Supervisory Council members are insured An induction programme for first-time members independent under the director’s liability insurance programme of the Supervisory Council of VTB Bank was director University (Director’s and Officer’s Liability, D&O). In accordance introduced in order to ensure the efficient degree Minority with the D&O insurance programme, compensable operation of the Supervisory Council. It will also Balance shareholders Professional Doctor losses (including legal expenses) incurred due improve the Bank’s corporate governance practices of interests competence of Sciences to unintentional wrongful acts, negligence in accordance with the best international corporate Institutional investors Candidate or omission on the part of members of the Supervisory governance principles, including those provided 27 % 55 % of Sciences Council related to the Bank’s financial operations by the Corporate Governance Code approved 55 % Majority are reimbursed in relation to claims filed during by the Board of Directors of the Bank of Russia, 18 % shareholder the insurance period by investors, shareholders the Regulation on the Staff and Remuneration or government bodies. The grounds for a claim Committee of the Bank’s Supervisory Council may be the personal responsibility of members and the Bank’s Corporate Governance Code. of the Supervisory Council for mistakes made during The induction programme was created by decision INDEPENDENCE LENGTH OF SERVICE the decision-making process, shortfalls in financial of the Staff and Remuneration Committee control and risk management leading to losses, of the Bank’s Supervisory Council on 7 October 2016 a reduction in share price or asset value or damages (minutes No. 48). caused to third parties. 27 % 36 % As part of the programme in 2019, the Supervisory Representatives In 2019, a contract for directors’ liability insurance Council’s newest member, Oksana Tarasenko, of the state More than 3 years was signed for a new term. The feasibility met for the first time with members of VTB Bank’s of the extension was approved by VTB Bank’s Management Board and with the Corporate Professional More than 1 year Versatility Continuity Operational and Regulatory (Compliance) Secretary. During these meetings, she was provided directors From 1 year Risks Committee as well as by VTB Group’s Risk with information on the Bank’s Development Strategy Independent to 3 years 55 % 55 % Management Committee. for 2019–2022, the corporate governance system directors and the risk management and internal control 18 % system. In addition, she was given an introduction 9 % to the Bank’s bylaws and other information necessary for members of the Supervisory Council to perform their duties effectively.

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THE INDUCTION PROGRAMME CONSISTS STATISTICS ON THE PARTICIPATION Yves-Thibault de Silguy, the Supervisory Council's OF THE FOLLOWING ACTIVITIES IN MEETINGS/ABSENTEE VOTINGS senior independent director, and Igor Repin, OF THE MEMBERS OF THE SUPERVISORY an independent director, took part in meetings COUNCIL with minority shareholders and also in meetings of the Bank’s Shareholders Consultative Council. Holding meetings Consultations 5 1 10 with the managers with the Bank’s Familiarisation Anton Siluanov of the Bank’s key Corporate Secretary with Bank 3 3 9 1 KEY ISSUES CONSIDERED structural divisions, on issues related documents governing Matthias Warnig BY THE SUPERVISORY COUNCIL IN 2019 as well as with to the organisation the activities 3 3 9 1 The Bank’s Supervisory Council considered members of the work of the Bank’s Yves-Thibault de Silguy of the Bank’s of the Bank’s governing bodies a total of 142 issues in 2019, and the Supervisory 5 1 10 executive bodies Supervisory Council Council committees prepared recommendations Sergey Dubinin on 45 of these issues. 6 10 Mikhail Zadornov ISSUES CONSIDERED 6 10 REPORT ON THE ACTIVITIES Meetings of the Supervisory Council are held Andrey Kostin BY THE SUPERVISORY COUNCIL on a scheduled basis, although, if necessary, they may OF THE SUPERVISORY COUNCIL 2 4 10 7 % be held outside of the schedule by means of absentee Shahmar Movsumov Meetings of the Supervisory Council are convened voting. The format of each Supervisory Council 17 % at the initiative of its Chairman or at the request 5 1 10 10 % meeting is decided based on the importance of its Igor Repin of a Council member, the Statutory Audit Commission, agenda. The most significant matters are brought 5 1 10 the Auditor, the Management Board or the President before in-person meetings. 142 Alexander Sokolov and Chairman of the Management Board. A quorum 10 % issues 3 7 6 is formed by the attendance of half of the elected At every Supervisory Council meeting, a report considered Oksana Tarasenko members. is provided to update members on the implementation by the Supervisory of decisions, assignments and programmes approved 4 2 10 Council in 2019 Vladimir Chistyukhin Decisions are taken by a majority vote of participating by the Supervisory Council. members unless otherwise provided in the Charter and the Regulation on the Supervisory Council. Members are able to review materials for meetings 56 % For decision-making purposes, each member in advance, in addition to the recommendations Attendance at in-person meetings of the Council has one vote at meetings. and conclusions of the Supervisory Council’s Presented written opinion at an in-person meeting committees on each agenda point. The Supervisory Priority areas of the Bank’s operations When considering agenda items, the members Council’s schedule is compiled for the period between Participation in absentee voting of the Supervisory Council assess possible conflicts AGMs and is approved by the Council. Meetings Did not take part in absentee voting on agenda items Corporate governance and procedural issues between their interests and the Bank’s interests are scheduled in advance based on the Bank’s in which there was a conflict of interest Review of reports and plans and do not participate in voting on any issue business cycle and may be held in person or through (and, if necessary, do not take part in discussions Meeting held before Oksana Tarasenko’s election Risks, internal control absentee voting. Any member unable to attend to the Supervisory Council of the issue) that may, in the opinion of a member a meeting can still participate via video conference Staff issues and the incentive system of the Supervisory Council, lead to such a conflict (including voting on agenda items); they can also of interest. submit a written opinion on agenda items. Depending on the results of in-person meetings or absentee ballots, minutes are drawn up reflecting the position of each member of the Supervisory STATISTICS ON THE MEETINGS OF THE SUPERVISORY COUNCIL Council based on their vote on the agenda items.

By absentee Number of matters The Supervisory Council actively engaged Year Number of meetings In-person voting considered with the Bank’s minority shareholders and also 2019 16 6 10 142 considered the Report on Cooperation with the Bank’s Shareholders and a plan of action for working 2018 17 7 10 147 with shareholders in the upcoming calendar year. 2017 19 7 12 205 2016 21 8 13 240 2015 28 8 20 197

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PRIORITY AREAS OF THE BANK’S OPERATIONS: • Approval of the Regulation on the Procedure • Review of quarterly reports on significant risks EVALUATION OF THE WORK OF THE for Carrying out Sponsorship Activities within and on VTB Bank’s capital adequacy, as well • Approval of VTB Bank’s business plan and SUPERVISORY COUNCIL the Bank, the Regulation on the Procedure as on the results of stress testing at VTB Bank; financial plan (budget) for 2019; for Carrying out Charitable Activities within approved/amended key parameters of quantitative According to the recognised best Russian and foreign • Approval of VTB Bank’s business plan and the Bank and the Regulation on the Bank’s indicators of the risk appetite of VTB Bank practices of corporate governance, since 2012, financial plan (budget) for 2020; Procurement of Goods, Works and Services. and of VTB Group. VTB Bank has conducted an annual assessment of its corporate governance system. The assessment • Approval of VTB Bank’s Development Strategy also includes a self-evaluation of the activities for 2019–2022; STAFF ISSUES: REVIEW OF REPORTS AND PLANS: of the Supervisory Council based on a questionnaire • Approval of VTB Bank’s Investment Programme • Election of the Chairman of the Supervisory Council • Reports on the activities of the Supervisory completed by the members of the Council for 2019; approval of a programme to improve (Anton Siluanov); Council’s committees; on the ground of the methodology of the Bank's VTB Bank’s operational efficiency and reduce corporate governance system assessment approved • Election of the senior independent director • Report on the Bank’s sponsorship and charitable expenses for 2019; by the Supervisory Council’s Strategy and Corporate (Yves-Thibault de Silguy); activities for 2018; the plan for VTB Bank’s Governance Committee. • Approval of a plan to restore VTB Bank’s financial expenses for sponsorship and charitable activities • Approval of the Supervisory Council to allow stability; in 2020; the President and Chairman of the Management In accordance with the methodology the Bank's • Participation of VTB Bank in Business Board and members of the Management • Report on the work of the Bank’s Corporate corporate governance system is assessed with respect Finance and VTB Capital Holding, as well Board to hold management positions in other Secretary in 2018; to nine components: as the establishment of VTB UK Holding; organisations; • Report on interaction between VTB Bank • The division of powers between management • Approval of an action plan for the sale of Bank’s • Election of a Deputy President and Chairman and its shareholders in 2018 and plans to work bodies; non-core assets and for (quarterly) registration of the Management Board of VTB Bank (Vadim with shareholders in 2019; • Organisation of the activities of the Supervisory of the Bank’s non-core assets; Kulik) and establishing his remuneration • Report on the financial results and performance Council; and compensation; • VTB Bank’s placement of T2-1, T2-2, T2-3 and T2- of VTB Group companies (quarterly); • Approval of the Bank’s Development Strategy 4 series bonds; • Payment to the President and Chairman • Progress report on the implementation and oversight over its implementation; of the Management Board and members • Restructuring of the Bank’s corporate branch of the Bank’s Programme for the Divestment of the Management Board of VTB Bank • Coordination of risk management; network. of Non-core Assets (quarterly). of bonuses based on 2018 results and of the share • Prevention of conflicts of interest on the part of the deferred bonuses based on 2017 results; of shareholders, members of the Supervisory CORPORATE GOVERNANCE AND PROCEDURAL • New version of the Regulation on Remuneration INFORMATION TECHNOLOGY Council, the Bank’s executive bodies and ISSUES: and Key Performance Indicators for the Executive IN THE WORK OF THE SUPERVISORY its employees; COUNCIL • Calling and determining the agendas Bodies of VTB Bank and the List of Key Performance • Relations with affiliated parties; for the AGM and the Extraordinary General Indicators for Evaluating the Activities of Members Since 2018, members of the Supervisory Council Meetings of Shareholders, establishing of the Management Board of VTB Bank were have been able to use a mobile electronic office • Determination of rules and procedures ensuring the record date for eligibility in General Meetings approved. that gives them access to materials from current compliance with the principles of professional of Shareholders, consideration of issues and past meetings of the Supervisory Council ethics; proposed by Bank shareholders for inclusion RISKS AND INTERNAL CONTROL: and its committees, as well as information • Coordination of the disclosure of information on the agenda of AGMs, consideration about decisions adopted, participants and other about the Bank; of candidates proposed by Bank shareholders • New editions were approved information required for the members of the of the Bank for election to the Supervisory Council of the Bank’s Risk and Capital Management Bank’s Supervisory Council to perform their duties • Monitoring the internal control system. and the Statutory Audit Commission, and other Strategy and the Procedure for Managing the Most effectively, including financial statements, press issues related to the preparation and holding Significant Risks; reviews, Bank bylaws, etc. Based on the results of the corporate governance of the General Meeting of Shareholders; assessment conducted in 2019, the members • Review of reports on the activities of the Internal of the Supervisory Council give it a high rating. • Recommendations on the distribution Audit Department for 2H 2018 and 1H 2019, In 2019, the Bank continued to streamline The average score of the corporate governance of profits and the amount of dividends and approval of its work plan for 2020; the activities of the Supervisory Council and to update assessment hasn’t been changed in comparison on Bank shares; the information and communication system with 2018 and was 3.91 points (97.8 % of the • Review of a report on the results by introducing new, expanded functionality to make maximum value). Four components received • Preliminary approval of the Bank’s Annual of the implementation in 2018 of the Rules it even easier and more convenient for members the maximum score of 4 points: relations with affiliated Report; on Internal Monitoring in Respect of the Prevention of the Supervisory Council to use the system. of Money Laundering and Terrorist Financing parties; monitoring the internal control system; • Proposals of candidates for the Bank’s auditor; (AML / CTF) and recommended measures coordination of risk management; and prevention • Review of the results of the evaluation to improve the AML / CTF system; of conflicts of interest among shareholders, members of the corporate governance system for 2018; of the Supervisory Council, the Bank’s executive bodies • Quarterly reports by inspectors of the Bank’s and its employees. At the same time, the other assessed • Approval of new versions of the Regulations professional activities in the securities market were components of the Bank’s corporate governance were on the Supervisory Council Committees; reviewed; also highly rated, receiving 3.7–3.9 points.

120 121 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

Based on the results of the assessment, the Bank In accordance with a resolution of the General Information REMUNERATION PAID TO MEMBERS Supervisory Council members who are not state Regulation prepared a report on the results of its assessment Meeting of Shareholders, the members of VTB Bank’s on the activities OF THE SUPERVISORY COUNCIL, employees are compensated for expenses they on Remuneration of the Bank’s and Compensation of the corporate governance system, including, Supervisory Council may receive remuneration Supervisory Council RUB thousand incur while carrying out their duties, including Paid to the among other things, the Bank’s planned and compensation for expenses incurred in the (available in Russian accommodation, food, travel expenses (including Members of the measures to improve its corporate governance course of their duties during their term in office language only). VIP lounge services), other duties and fees for air Supervisory Council 2019 44,160 (available in Russian system. The report was provisionally reviewed depending on their actual involvement in the work and rail transport. language only). by the Supervisory Council’s Strategy and Corporate of the Supervisory Council and Supervisory Council 2018 Governance Committee, after which it was taken committees. 48,280 under advisement by the Supervisory Council. COMMITTEES OF THE SUPERVISORY In case of early termination, as well as 2017 47,948 COUNCIL the re-election of members of the Supervisory The Supervisory Council has standing committees COMPENSATION PAID TO MEMBERS 2016 48,760 Council at an Extraordinary General Meeting that support the effective implementation OF THE SUPERVISORY COUNCIL of Shareholders, the remuneration of a newly of the Council’s managerial and supervisory functions 2015 49,680 The amount of remuneration and compensation elected or former member of the Supervisory and that provide preliminary detailed analysis paid to the members of the Supervisory Council Council is determined proportionate to the time and recommendations regarding the issues that and the procedure for determining the amount spent as a member of the Supervisory Council, the Council deems most important. thereof is defined in accordance with the Regulation as Chairman of the Supervisory Council, COMPENSATION OF EXPENSES on Remuneration and Compensation Paid to the as a member of a Supervisory Council committee FOR MEMBERS OF THE SUPERVISORY At the end of 2019, the Supervisory Council had Members of the Supervisory Council of VTB Bank, or as the Chairman of a Supervisory Council COUNCIL, RUB thousand the following committees: approved pursuant to the recommendation committee during the corporate year. • Strategy and Corporate Governance Committee; of the Supervisory Council’s Staff and Remuneration 2019 137 Committee at the Bank’s AGM (minutes No. 47 • Audit Committee; of 24 June 2016) and posted in the Charter 2018 2,372 • Staff and Remuneration Committee. and bylaws section on the Bank’s website.

2017 1,747 THE AMOUNT OF REMUNERATION PAID TO MEMBERS OF THE BANK’S SUPERVISORY COUNCIL ISSUES CONSIDERED BY THE SUPERVISORY 1 COUNCIL COMMITTEES FOR THE CORPORATE YEAR HAS NOT CHANGED SINCE 2012 AND AMOUNTS TO : 2016 1,529

% of base 2015 955 21 % payment RUB BASE PAYMENT Remuneration for performing the duties of a member of the Supervisory Council 100 4,600,000 The decision on the payment of remuneration 80 to members of the Supervisory Council based on 2018 issues BONUSES FOR ADDITIONAL DUTIES 44 % results was taken at VTB Bank’s Annual General were considered For chairmanship of the Supervisory Council 30 1,380,000 Meeting of Shareholders on 5 June 2019. by the Supervisory For chairmanship of a Supervisory Council committee 20 920,000 Council committees The decision on the payment of remuneration For membership in a Supervisory Council committee 10 460,000 in 2019 to the members of the Supervisory Council based 35 % on 2019 results will be made at VTB Bank’s Annual General Meeting of Shareholders in 2020.

In accordance with applicable Russian legislation, Strategy and Corporate Governance Committee members of the Supervisory Council who are state employees do not receive any remuneration. Audit Committee Staff and Remuneration Committee Remuneration is paid by the Bank through bank transfers; no other forms of remuneration are stipulated.

1 Payment conditions: attendance in person or participation via video conferencing in at least half of the meetings held, as well as participation in at least half of absentee votes held by the Bank’s Supervisory Council or a Supervisory Council committee.

122 123 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

STRATEGY AND CORPORATE GOVERNANCE COMMITTEE Capital management: Corporate governance: • Distribution of profits for 2018 and determination • Results of the assessment of VTB Bank’s corporate “In 2019, the Strategy and Corporate Governance of the amount of dividends to be paid out; governance system; Committee submitted recommendations • VTB Bank’s risk and capital management • The Bank’s accession to the Association of Big Data to the Supervisory Council on key issues strategy; Market Participants; of strategic and business planning, including Andrey Kostin the Committee’s recommendation that the Bank’s • Increasing/decreasing the capital • Procedures for managing VTB Bank’s most Committee Chairman Development Strategy for 2019–2022 to be of subsidiaries. significant risks. approved. The Committee paid special attention to digital technologies introduced into the Bank’s STATISTICS ON THE PARTICIPATION operations.” IN MEETINGS/ABSENTEE VOTING ISSUES CONSIDERED BY THE STRATEGY OF THE MEMBERS OF THE STRATEGY AND CORPORATE GOVERNANCE STRATEGY AND CORPORATE GOVERNANCE MAIN TASKS: AND CORPORATE GOVERNANCE COMMITTEE COMMITTEE COMMITTEE MEMBERS • Determining the Bank’s strategic goals 1 1 9 2 and development priorities for the short, medium Andrey Kostin 7 % and long term, and monitoring of the achievement 2 6 3 thereof; Matthias Warnig 28 • Supporting and improving the Bank’s corporate 1 6 4 issues governance system; Sergey Dubinin were considered 2 9 by the Strategy • Improving the strategic management of the Bank’s Igor Repin and Corporate Matthias Alexander capital. Governance Warnig Sokolov 1 8 2 Alexander Sokolov Committee KEY AREAS OF WORK IN 2019 1 6 4 in 2019 Oksana Tarasenko Strategic objectives and priorities: 2 9 26 93 % Vladimir Chistyukhin • New versions of VTB’s business and financial plans (budget) for 2019;

• VTB Bank’s business and financial plans (budget) Attendance at in-person meetings Recommendations submitted Sergey Oksana for 2020; to the Supervisory Council Presented written opinion at an in-person meeting Dubinin Tarasenko • VTB Bank’s Development Strategy for 2019–2022; Issues within the exclusive remit Participation in absentee voting of the committee • VTB’s Bank Long-Term Development Programme Did not attend meetings was not a member for 2019–2023; of the committee / there was a conflict of interest • Report on the implementation of VTB Bank’s Long-Term Development Programme for 2014–2019 based on the results of 2018; • Report on the implementation of the IT strategy Igor Vladimir for 2017–2019; Repin Chistyukhin • VTB Bank’s Operational Efficiency and Cost (independent Reduction Programme for 2019; director) • VTB Bank’s Investment Programme for 2019; • Establishment of VTB UK Holding; • VTB Bank’s financial stability recovery plan; • Termination of the Bank’s participation in Banco VTB África, S.A.; • Termination of VTB Bank’s participation in Ryabinovaya.

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AUDIT COMMITTEE • Regular review of the consolidated financial • Discussion of issues related to the development statements of VTB Bank in compliance with IFRS of internal auditing, including consideration and quarterly monitoring of the financial results of the results of an external assessment “The work of the Audit Committee throughout of VTB Group; of the activities of the Internal Audit Department 2019 helped the Supervisory Council conduct by PwC, which confirmed that VTB’s internal • Preliminary review of matters related to the Bank’s Yves-Thibault regular in-depth reviews of VTB Bank’s financial auditing was in compliance with all auditing Internal Audit Department: analysis of the schedule de Silguy statements and its performance. Thanks standards; the assessment also confirmed that (Senior independent for internal auditing, discussion of reports to the transparent actions of the Bank and its the function had reached a high level of maturity; director) compliance with the strictest international of the Internal Audit Department on significant Committee Chairman reporting standards, shareholders and regulators violations and shortcomings discovered • Review of other matters related to the Bank’s were presented with a very reliable and objective at VTB Bank and its subsidiaries, recommendations activities, including pursuant to particular picture of the Bank’s financial situation.” by internal audit and external supervisory bodies assignments from the Supervisory Council. to further improve the procedures involved in internal and external auditing; AUDIT COMMITTEE MEMBERS MAIN TASKS:

• Ensuring the completeness, accuracy and reliability STATISTICS ON THE PARTICIPATION of the Bank’s financial statements; IN MEETINGS/ABSENTEE VOTING • Ensuring the reliability and performance of the risk OF THE MEMBERS OF THE AUDIT ISSUES CONSIDERED management and internal control system; COMMITTEE BY THE AUDIT COMMITTEE

• Ensuring the independence and objectivity 6 12 of the internal and external audit functions. Yves-Thibault de Silguy 9 Shahmar Igor 5 1 12 26 % Movsumov Repin KEY AREAS OF WORK IN 2019: Shahmar Movsumov (Independent director) (Independent director) 6 12 35 • Discussion of strategic issues related to the Bank Igor Repin issues and the Group’s development and risk were considered management, including qualitative changes by the Audit in the corporate and retail loan portfolios Attendance at in-person meetings Committee and the results of compliance risk management; in 2019 Presented written opinion at an in-person meeting • Dialogue with the Bank’s management 26 concerning corporate and social responsibility Participation in absentee voting 74 % within VTB Group; • Discussion of plans on the integration of the banking business of new members Recommendations submitted to the Supervisory Council of VTB Group; Issues within the exclusive remit • Analysis of VTB’s share price; of the committee • Analysis of initiatives implemented by VTB aimed at maintaining the effectiveness of the internal control system in combating money laundering and the financing of terrorism; • Oversight of the annual open tender for the selection of an external auditor, including the recommendation of candidates to the Supervisory Council; • Coordinating with the external auditor, assessment of the external auditor’s report and recommendations provided as part of the audit process and of the review of the Bank and Group’s interim and annual RAS and IFRS financial statements;

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STAFF AND REMUNERATION COMMITTEE • Conducting an external assessment of the work of an issuer’s Board of Directors (Supervisory of the Bank’s Supervisory Council; Council) as provided for by the Moscow Exchange Listing Rules; “With the direct participation of the Staff • Assessment of the compliance of the members and Remuneration Committee, the Bank of VTB Bank’s Supervisory Council • Other issues within the remit of the committee. approved new versions of its Regulations with the independence criteria for members on Remuneration and Compensation of Executive Bodies that guarantee that executive Sergey Dubinin STATISTICS ON THE PARTICIPATION Committee Chairman bonuses are directly tied to the performance IN MEETINGS/ABSENTEE VOTING ISSUES CONSIDERED of executive duties. In addition, a decision OF THE MEMBERS OF THE STAFF BY THE STAFF AND REMUNERATION was made to have an independent consultant AND REMUNERATION COMMITTEE COMMITTEE conduct an assessment of the performance of the Supervisory Council, and the corresponding 1 6 criteria were approved.” Sergey Dubinin 1 6 STAFF AND REMUNERATION COMMITTEE MAIN TASKS: Shahmar Movsumov 17 MEMBERS 1 6 issues • Ensuring continuity in the activities of the Bank’s Igor Repin 7 10 were considered executive bodies and the Statutory Audit 41 % 59 % by the Staff Commission; and Remuneration • Arranging a performance assessment of the Bank’s Attendance at in-person meetings Committee executive bodies and the Statutory Audit in 2019 Presented written opinion at an in-person meeting Commission; Participation in absentee voting • Review of the Bank’s HR policy, including Shahmar Igor in terms of remuneration and oversight Movsumov Repin of its implementation; (Independent director) (Independent director) Recommendations submitted • Assistance in ensuring compliance with the legal to the Supervisory Council requirements governing the activities of members Issues within the exclusive remit of the Bank’s executive bodies and the Statutory of the committee Audit Commission.

KEY AREAS OF WORK IN 2019: • Formation of the Supervisory Council and the Statutory Audit Commission; • Consideration of the status of independent members of the Supervisory Council; • Determination of the amount of remuneration for work on the Supervisory Council and the Statutory Audit Commission; • Determination of the members of VTB Bank’s Management Board and remuneration for their work; • Approval of new version of the Regulation on Remuneration and Compensation of the Executive Bodies of VTB Bank and key performance indicators for their work;

128 129 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

CORPORATE SECRETARY

Regulation on the Bank’s VTB Bank established the position of Corporate The administration of the Supervisory Council operates Corporate Secretary “As part of ongoing work in accordance (available in Russian Secretary in 2011 while introducing measures under the guidance of the Corporate Secretary. language only). with the road map for implementing to improve its corporate governance system. The Corporate Secretary is secretary to the Supervisory the provisions of the Corporate Governance Council and also serves as secretary for the General Yevgeny Ignatiev Code, an external independent evaluation The Corporate Secretary is a Bank official who Meeting of Shareholders. Chief of Staff of the activities of the Supervisory Council was oversees compliance on the part of the Bank’s of the Supervisory Council carried out last year. VTB Bank’s commitment management and employees with applicable The Staff and Remuneration Committee reviews and Corporate Secretary to high standards of corporate governance legislation, the Charter and bylaws guaranteeing candidates for the position and provides as well as the work of the Supervisory Council shareholders’ interests and their ability to exercise recommendations to the Supervisory Council. and the conduct of its activities were highly their legal rights. The Corporate Secretary also rated by external experts.” provides a liaison between the Bank and its The Corporate Secretary acts on the basis shareholders, promotes the development of corporate of the Regulation on the Corporate Secretary Born in 1981 2004–2008 Chief Consultant, Deputy Director governance practices and supports the smooth of VTB Bank, approved by the Bank’s Supervisory (acting director) of the Corporate Governance operation of the Bank’s Supervisory Council. Council (minutes No. 22 of 7 September 2015), Education: Department at VTB Bank North-West (former Industrial Functionally, the Corporate Secretary is elected which takes into account the requirements Construction Bank) by, and reports to, the Supervisory Council of the Listing Rules of Moscow Exchange, 1999 – St. Petersburg Social Services School, specialisation 2003–2004 Lawyer, Investtorg and, administratively, to the President and Chairman the recommendation of the Corporate Governance in jurisprudence, qualification to practise as a lawyer 2002–2003 Assistant Lawyer, Exchange Complex of the Bank’s Management Board. The Corporate Code approved by the Board of Directors 2002 – St. Petersburg State University of Maritime and Inland Shipping, specialisation in jurisprudence, Positions in other organisations: Secretary is subordinate to the Supervisory Council of the Bank of Russia and the guidelines of the qualification to practise as a lawyer and is appointed and dismissed by decision Federal Agency for State Property Management. 2017 – British Institute of Directors, international certificate • Member of the Expert Council of the National Association of the Supervisory Council. The report on the work as a Certified Directorand the title of Cert IoD of Corporate Secretaries of the Corporate Secretary is reviewed and approved • Member of the Moscow Exchange Committee of Issuers on an annual basis by the Bank’s Supervisory Professional activities: Council. The report on work for 2018 was approved Achievements: Since June 2013 Chief of Staff of VTB Bank’s Supervisory by the Supervisory Council on 6 March 2019. Council and Corporate Secretary Winner of the Corporate Governance Director – Corporate 2011–2013 Corporate Secretary of VTB Bank Secretary category at the Director of the Year awards held 2010–2011 Director of the Shareholder Relations Service by the Independent Directors Association and the Russian at VTB Bank Union of Industrialists and Entrepreneurs 2008–2010 Senior Manager of the Debt Origination and Investor Relations Department at VTB Bank

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MEMBERS OF THE MANAGEMENT BOARD In 2019, Vadim Kulik (29 October 2019) joined Dmitry Olyunin (31 January 2020), Oleg Smirnov the Management Board1 of VTB Bank as Deputy (13 January 2020) and Valery Chulkov (17 January President and Chairman of the Board, and Oleg 2020) left the Board. Smirnov (18 January 2019) joined as a member of the Management Board. MANAGEMENT BOARD

Andrey Kostin Andrey Kostin Term of office in accordance with employment contract: President and Chairman of the Management Board 10 June 2017 to 9 June 2022 President and Chairman of the Management Board

Born in 1956

Professional activities: For a detailed biography, see the Corporate Since 2002 President and Chairman of the VTB Bank Governance / Supervisory Management Board Council section.

Andrey Puchkov Yuri Soloviev Denis Bortnikov Olga Dergunova Vadim Kulik First Deputy President First Deputy President Deputy President Deputy President Deputy President and Chairman and Chairman and Chairman and Chairman and Chairman Andrey Puchkov Ownership of shares of the Management of the Management of the Management of the Management of the Management Term of office in accordance with employment contract: in the Bank as of 31 December 2019 Board Board Board Board Board 10 June 2017 to 9 June 2022 % of ordinary shares ► 0.0003 % % of charter capital ► 0.00006 % First Deputy President and Chairman of the Management Board Oversees the legal and administrative areas, as well as work with non-core and bad assets

Born in 1977

Education: Senior Vice President (Head of Department), Senior Vice President, member of the Management Board, 1998 – Lomonosov Moscow State University, law degree Deputy President and Chairman of the Management Board with a specialisation in jurisprudence 1999–2002 Member of the Moscow City Bar Association

Professional activities: Positions in other organisations: Valery Lukyanenko Anatoly Pechatnikov Maxim Kondratenko Erkin Norov Dmitry Pianov Joined VTB Bank in 2002 • Chairman of the Board of Directors of VTB Debt Centre Deputy President Deputy President Member of the Member of the Member of the Since February 2018, First Deputy President and Chairman and Chairman Management Board Management Board Management Board • Chairman of the Board of Directors of Hals-Development and Chairman of the Management Board • Chairman of the Board of Directors of BM Bank of the Management of the Management Before February 2018, held the following positions Board Board • Chairman of the Board of Directors of Dynamo in the Bank’s legal department: Deputy Head of Department, Management Company Head of Department, Vice President (Head of Department),

1 The biographies of the members of the Management Board are as of 31 December 2019; their powers and functions are as of 29 February 2020.

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Yuri Soloviev Ownership of shares Olga Dergunova Ownership of shares as of 31 December 2019 as of 31 December 2019 Term of office in accordance with employment contract: in the Bank Term of office in accordance with employment contract: in the Bank 10 June 2017 to 9 June 2022 % of ordinary shares ► 0.01819 % 10 June 2017 to 9 June 2022 % of ordinary shares ► 0.00000147 % % of charter capital ► 0.00362 % % of charter capital ► 0.00000029 % First Deputy President and Chairman of the Management Deputy President and Chairman of the Management Board Board Oversees the Corporate-Investment Business global business line

Born in 1970 Born in 1965

Education: 2006–2008 Head of Investment Banking, First Deputy Education: 2007–2012 Member of the Management Board Chairman of the Management Board, Deutsche Bank of VTB Bank 1994 – Plekhanov Russian University of Economics, 2002–2006 Director, Head of Eastern European 1987 – Plekhanov Russian University of Economics, 1994–2007 General Director of Microsoft Rus, degree in economics with a specialisation in international Operations at Deutsche Bank, London degree in economics and mathematics with a specialisation President of Microsoft Russia and CIS countries economic relations in economic cybernetics 2002 – London Business School, Master of Business 2014 – Russian Presidential Academy of National Economy Administration (MBA) and Public Administration, Information Technologies Positions in other organisations: Positions in other organisations: in Public Administration programme • Director of the Higher School of Management Professional activities: • Chairman of the Board of Directors of VTB Capital, at St. Petersburg State University VTB Capital Holding, VTB Capital IB Holding, VTB Leasing, Professional activities: • Member of the Board of Trustees of the Higher School Joined VTB Bank in 2008 T2 RTK Holding of Management at St. Petersburg State University, Since May 2011, First Deputy President and Chairman • Member of the Board of Directors of VTB Capital Joined VTB Bank in 2016 the Russian Academy of Education, the International of the Management Board. Investment Management Holding AG, VTB Capital Private Since July 2016, Deputy President and Chairman Banking Institute and the Target Capital Fund Prior to May 2011, held the following positions: Equity Holding AG, Sogaz, United Grain Company, of the Board of the National Research University Higher School Senior Vice President, President of VTB Capital Dynamo Moscow Football Club 2007–2012, Member of the Management Board of Economics 2012–2016 Deputy Minister of Economic Development • Member of the Management Board of the Forum of the Russian Federation and Head of the Federal Agency Analytical Centre non-profit foundation for State Property Management • Member of the Board of Directors of IBS IT Services

Denis Bortnikov Ownership of shares Vadim Kulik Ownership of shares Term of office in accordance with employment contract: in the Bank as of 31 December 2019 Term of office in accordance with employment contract: in the Bank as of 31 December 2019 10 June 2017 to 9 June 2022 % of ordinary shares ► 0 % 29 October 2019 to 9 June 2022 % of ordinary shares ► 0 % % of charter capital ► 0 % % of charter capital ► 0 % Deputy President and Chairman of the Management Board Deputy President and Chairman of the Management Board Oversees the Small and Medium Business Oversees risk management, operational business support, global business line data analysis and modelling, technological development and IT

Born in 1974 Born in 1972

Education: Department, Chief Acquiring and Authorisation Expert, Education: 2017 Member of the Management Board, First Deputy Head of the Acquiring and Authorisation Department Chairman of the Management Board of Otkritie Holding 1995 – Mendeleev Russian University of Chemical 1996 – St. Petersburg State University of Economics at Industry and Construction Bank 2012–2017 Member of the Management Board, Deputy and Finance, degree in economics with a specialisation Technology, degree in chemical engineering Chairman of the Management Board of Sberbank of Russia in national economy technology with a specialisation in chemical technology Positions in other organisations: for advanced energy materials Positions in other organisations: Professional activities: • Chairman of the Board of Directors of VTB Capital, VTB Capital Holding, VTB Capital IB Holding, VTB Leasing, Professional activities: • Director of the Centre for Digital Competencies Joined VTB Bank in 2006 T2 RTK Holding of the Russian Academy of National Economy and Public Joined VTB Bank in 2019 Since November 2011, Member of the Management • Chairman of the Board of Directors of VTB Bank Administration under the President of the Russian Since October 2019, Deputy President and Chairman Board (Belarus), VTB Bank (Kazakhstan), West Siberian Federation of the Management Board Before November 2011, Head of North-Western Commercial Bank • Member of the Board of Directors of the National September – October 2019 Advisor to the President Regional Centre; Senior Vice President, • Member of the Board of Directors of VTB Capital Holding Clearing Centre and Chairman of the Management Board Chairman of the Management Board, First Deputy and of Vozrozhdenie Bank • Member of the Supervisory Council of the Russian 2017–2019 Deputy Chairman of the Management Board Chairman of the Management Board, Deputy Chairman • Chairman of the Supervisory Council of VTB Bank National Reinsurance Company of Gazprombank of the Management Board of VTB Bank North-West; (Azerbaijan) Deputy Head of Vneshtorgbank’s St. Petersburg branch • Member of the Board of the Leningrad Regional Chamber 2004–2006 Advisor to the General Manager and Deputy of Commerce and Industry General Manager of Guta-Bank, North-West branch • Member of the Board of Trustees of the Federal State 1996–2004 Consultant with the Liquidity Management Budget Institution of Higher Professional Education Department, Consultant with the Transfer Operations St. Petersburg State University of Economics Department, Consultant with the Department of Financial Instruments, Senior Consultant with the Brokerage

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Valery Lukyanenko Ownership of shares Maxim Kondratenko Ownership of shares as of 31 December 2019 Term of office in accordance with employment contract: in the Bank Term of office in accordance with employment contract: in the Bank as of 31 December 2019 10 June 2017 to 9 June 2022 % of ordinary shares ► 0.00046 % 10 June 2017 to 9 June 2022 % of ordinary shares ► 0 % % of charter capital ► 0.00009 % % of charter capital ► 0 % Deputy President and Chairman of the Management Board Member of the Management Board Oversees work with clients from backbone industries Oversees risk management units

Born in 1955 Born in 1973

Education: Before 2008, Head of the First Corporate Business Education: Professional activities: Division and Senior Vice President, Senior Vice President 1982 – Novosibirsk Agricultural Institute, degree and Head of Mid-Size Business in the First Corporate 1996 – Lomonosov Moscow State University, degree Joined VTB Bank in 2013 in agronomy Business Division, Senior Vice President of the First Corporate in philosophy, with a qualification to teach philosophy Since November 2015, Member of the Management Board 2005 – Russian Academy of Public Administration Business Division, Vice President and Head of Large 1999 – Russian Foreign Trade Academy of the Ministry Before November 2015, Head of the Risk Department under the President of the Russian Federation, degree Corporate Business in the Fourth Corporate Business Division, of Trade of the Russian Federation, degree in economics and Senior Vice President in management with a specialisation in state and municipal Vice President; Counsellor to the President and Chairman (with a foreign language), with a specialisation: 2009–2013 First Vice President, Director of the Strategic administration of the Management Board global economy Risk Department, Director of the Restructuring and Bad Loan 2001–2002 Chairman of the Council of Experts in Project 2007– London Business School to the University of London Department, UniCredit Bank Professional activities: Financing and Forecasting at Lanta-Bank Degree, Master of Business Administration (MBA) 2008–2009 Member of the Management Board, Russian 1994–2002 Head of the State Programmes Division, Standard Bank Joined VTB Bank in 2002 Head of the Foreign Economic Relations Division Information about academic degrees: 1999–2008 Executive Director of the Retail Sales and Private Since August 2016, Deputy President and Chairman in the Administrative Directorate of the President Banking Services Department, Head of the Department for Legal of the Management Board Candidate of Economic Sciences (Decision No. 1 of the Russian Federation Entities, UniCredit Bank (until 26 December 2007, International Since December 2008, Member of the Management of the dissertation council of the IMEMO Institute Moscow Bank; until 28 September 2001, Bank Austria Board of the Russian Academy of Sciences of 9 February 2000) CreditAnstalt (Russia))

Positions in other organisations: • Member of the Supervisory Council of VTB Bank (Georgia) • Member of the Board of Directors of BM Bank and of Vozrozhdenie Bank • Member of the Board of VTB Bank (Armenia)

Anatoly Pechatnikov Ownership of shares Erkin Norov Ownership of shares Term of office in accordance with employment contract: in the Bank as of 31 December 2019 Term of office in accordance with employment contract: in the Bank as of 31 December 2019 14 July 2017 to 9 June 2022. % of ordinary shares ► 0.00001135 % 10 June 2017 to 9 June 2022 % of ordinary shares ► 0 % % of charter capital ► 0.0000026 % % of charter capital ► 0 % Deputy President and Chairman of the Management Board Member of the Management Board Oversees the Retail Business global business line Oversees issues related to internal control and audit

Born in 1969 Born in 1954

Education: 2003–2006, Head of the Mortgage and Consumer Lending Education: Professional activities: Department at Vneshtorgbank. 1992 – Moscow Engineering Physics Institute, degree 2001–2003 Head of the Credit Department, Deputy 1976 – Lomonosov Moscow State University, degree Joined VTB Bank in 2002 in engineering physics with a specialisation in automation Chairman of the Management Board of DeltaCredit Bank in economics and mathematics with a specialisation Member of Management Board from 2002 to 2007 and electronics of physical installations in economic cybernetics and since September 2009 2001 – Academy of National Economy 2007–2009 Senior Vice President, member Positions in other organisations: Professional activities: under the Government of the Russian Federation, degree of the Management Board of Nomos-Bank • Chairman of the Board of Directors of VTB Pension in economics with a specialisation in finance and credit 2002–2007 Vice President, Senior Vice President, Joined VTB Group in 2003 Fund and of Sarovbusinessbank 2001 – Academy of National Economy member of the Management Board of Vneshtorgbank Since July 2017, Deputy President and Chairman • Deputy Chairman of the Board of Directors under the Government of the Russian Federation, 1999–2002 Development Director, Development of the Management Board of VTB Bank of Vozrozhdenie Bank and of West Siberian Executive Master of Business Administration (EMBA) and Strategic Planning Director, USSR Bank for Foreign 2010–2017, Deputy President and Chairman Commercial Bank with a specialisation in banking management Economic Activities of the Management Board of VTB24 • Member of the Supervisory Council of Post Bank 1999 Head of the Department for Calculation 2006–2010, Senior Vice President, Director • Member of the Strategic Planning Committee Information about academic degrees: of the Tax Base and Tax Revenue Planning of the Russian of the Mortgage Lending Department at VTB24 of the Supervisory Council of DOM.RF Ministry of Taxes and Duties Candidate of Economic Sciences (decision of the council at the Central Economics and Mathematics Institute Positions in other organisations: of the Academy of Sciences of the Soviet Union of 7 February 1983, minutes No. 1) Member of the Board of Directors of BM Bank

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Dmitry Pianov Ownership of shares Valery Chulkov Ownership of shares as of 31 December 2019 Term of office in accordance with employment contract: in the Bank Left the Management Board on 17 January 2020 in the Bank as of 31 December 2019 26 November 2018 to 9 June 2022 % of ordinary shares ► 0 % % of ordinary shares ► 0 % % of charter capital ► 0 % Member of the Management Board % of charter capital ► 0 % Member of the Management Board Oversaw the department of business operations support Oversees the finance function (Finance Department and Accounting and Reporting Department)

Born in 1977 Born in 1960

of Economics and Finance of the Chief Executive Directorate Education: Education: 2006–2008 Corporate Director and Head of the Banking for Financial Management, Head of the Controlling Services Operations Department, ABN AMRO Bank 2000 – Omsk State University, degree in economics and Information Security Division of the Internal Control 1982 – St. Petersburg Naval Institute 2005 Director of the Retail Operations Centre at Alfa-Bank with a specialisation in economic theory Service, Head of Directorate of Controlling and Information 2002 – Financial Academy under the Government 1995–2005 Lead Economist, Senior Economist 2000 – Technical University of Munich, MBA Security Division of the Internal Control Service of Uralsib of the Russian Federation, degree in economics with a specialisation in finance and credit in the Foreign Currency Security and Control Department, Head of the Foreign Currency Dealing Department Professional activities: Positions in other organisations: Professional activities: at KredoBank, Deputy Chairman of the Management Board Joined VTB Bank in 2010 • Member of the Board of Directors of BM Bank Since November 2018, Member of the Management • Member of the Supervisory Council of Post Bank Joined VTB Group in March 2008 Positions in other organisations: Board and of VTB Bank (Europe) From May 2018, Member of the Management Board Member of the Board of Directors of Multicard Prior to November 2018, Deputy Head of the Finance • Member of the Board of VTB Bank (Armenia) of VTB Bank Department; Senior Vice President, Head of the Financial • Member of the Board of Directors of the Before May 2018, Head of the Department of Business Department; Senior Vice President Dynamo-Moscow Football Club Operations Support and Senior Vice President 2004–2010 Head of the Chief Executive Directorate of VTB Bank, Member of the Management Board of Economics and Finance, Head of the Department and Director of the Operations Department of VTB24

Dmitry Olyunin Ownership of shares Oleg Smirnov Ownership of shares Left the Management Board on 31 January 2020 in the Bank as of 31 December 2019 Left the Management Board on 13 January 2020 in the Bank as of 31 December 2019 % of ordinary shares ► 0 % % of ordinary shares ► 0 % First Deputy President and Chairman of the % of charter capital ► 0 % Member of the Management Board % of charter capital ► 0 % Management Board Oversaw the Retail Business Department, the Mortgage Oversaw the finance function (Finance Department and Car Loan Department, the Digital Business Department, and Accounting and Reporting Department), the Customer Service Department and the Retail Business risk management, and was also responsible for strategic Development Department at Subsidiaries and corporate development, business process Born in 1975 transformation Born in 1968

Education: 2013–2018 Chairman of the Board, Rosbank Education: 2007–2012 Chairman of the Management Board 2011–2013 First Vice President, President and Chairman of Sberbank of Russia’s subsidiary in Kazakhstan 1993 – Lomonosov Moscow State University, degree of the Management Board of TransCreditBank 1996 – Ural State University of Economics, degree 2007 Advisor to the First Deputy Chairman in economics 2006–2011 First Deputy Chairman of the Management in economics with a specialisation in finance and credit of the Management Board of the Sberbank of Russia 1994 – Paris Institute of Political Studies, degree Board of Industrial and Construction Bank (later renamed 2001 – Ural State University of Economics, candidate head office in economics and finance VTB North-West Bank) until 2007; after 2007, Chairman of economic sciences 1996–2007 Urals Bank Sberbank of Russia 2009 – Paris Dauphine University, master’s degree of the Management Board of VTB North-West Bank) in economics, banking and finance Professional activities: Positions in other organisations: Positions in other organisations: Professional activities: Joined VTB Bank in November 2018 • Chairman of the Supervisory Council of VTB Bank • Chairman of the Board of Directors of Vozrozhdenie Bank From January 2019 to January 2020 member (Georgia) Worked at VTB Bank from 2018 and was Vice President • Member of the Board of Directors of VTB Capital Holding of the Management Board of VTB Bank • Chairman of the Board, VTB Bank (Armenia) from 2004 to 2006; was Vice President and Head • Category B Director at Commonwealth Group SA. 2013–2018 Vice President of Sberbank and Chairman • Professor in the Department of Finance, Money of the Coordination and Analysis Office of the Investment • Member of the Board of Trustees of St. Petersburg State of Moscow Bank Sberbank Supply and Credit, Higher School of Economics Division of Vneshtorgbank University 2012–2013 Chairman of the Central Russian Bank and Management, Ural Federal University From May 2018, First Deputy President and Chairman Sberbank of Russia of the Management Board

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REMUNERATION FOR MEMBERS CONTROL AND AUDIT THE MAIN OBJECTIVES OF VTB GROUP’S Monitoring of the internal control system is carried out OF THE MANAGEMENT BOARD INTERNAL CONTROL FUNCTIONS INCLUDE on an ongoing basis by management and employees of the Bank’s structural units, as well as by the Internal • To independently assess the effectiveness The Supervisory Council is responsible for determining INTERNAL CONTROL AND AUDIT Audit Department. the amount of the remuneration and compensation of the internal control and risk management systems, accounting reports, business processes paid to members of the Management Board. VTB Group’s internal control and audit functions Audit Committee. The Audit Committee operates and the activities of departments and individual Salaries, including compensation and incentive operate in compliance with international best as part of the structure of the Supervisory Council employees, and also to assess the economic payments, are fixed in the employment contracts practices and applicable legislation in the countries in order to facilitate the effective performance expediency and effectiveness of operations of the Management Board members. where the Group operates. The system is guaranteed of the functions of the Supervisory Council and transactions; the necessary independence by the way its parts in the area of control over the Bank’s financial function together and by its reporting structure. TOTAL REMUNERATION (SALARY, BONUSES) • To verify the reliability of internal control and economic activities. More detailed information FOR MEMBERS OF THE MANAGEMENT over automated information systems, and also on the composition and activity of the Audit BOARD, RUB thousand VTB GROUP’S INTERNAL CONTROL to verify the methods used to secure property; Committee can be found in the section Corporate Governance / Supervisory Council / Supervisory SYSTEM ENSURES: • To monitor key risk areas and risk control Council Committees. Period Amount of remuneration mechanisms, with a view to identifying shortcomings in the internal control system 2019 2,230,000 Internal Audit Department. The Internal Audit and emerging risks, and to create mechanisms 2018 1,615,834 Efficiency of VTB Group’s and Department provides direct support to the Bank’s VTB Bank’s activities to prevent these risks; 2017 1,399,794 governing bodies to ensure that VTB Group • To develop recommendations to improve works efficiently and effectively. The Internal 2016 361,805 the efficiency of systems, processes, procedures, Audit Department monitors internal control 2015 399,031 Effective management of assets transactions and activities by the Group’s structural systems, conducts audits and provides impartial and liabilities (including asset integrity) units and employees; recommendations for improving banking operations and risks and control procedures. In accordance with the policy of awarding bonuses • To communicate with external regulatory bodies to key Group executives, the Management Board and external auditors. The Internal Audit Department is an independent of VTB Bank receives 60 % of its annual bonus Reliable, complete and timely financial structural unit of VTB Bank and operates at a time, and 40 % is deferred for a period of three and management information under the direct supervision of the Supervisory years. The deferred amount is paid in three equal VTB BANK'S INTERNAL CONTROL SYSTEM and reporting Council. The Supervisory Council approves instalments one, two and three years after the grant the Internal Audit Department’s work plans date, subject to the achievement of certain GOVERNING BODIES and monitors their implementation, reviews non-vesting conditions. Half of the deferred amount (General Meeting of Shareholders, Supervisory the Internal Audit Department’s reports on the results is paid in cash, and the other part is paid through Information security Council, Management Board, President of audits and on monitoring of the internal control a cash-settled, share-based payment plan. and Chairman of the Management Board) system, as well as reports on the implementation The share-based payment expense for 2019 was of the Internal Audit Department’s recommendations RUB 0.9 billion (compared to RUB 0.4 billion to address previously identified issues. in 2018). As of 31 December 2019, the liability Compliance with legislation, regulations, STATUTORY AUDIT COMMISSION arising from cash-settled, share-based payment rules and standards Taking into account the strategic goals of VTB Bank transactions amounted to RUB 1.2 billion. and VTB Group regarding the transformation CHIEF ACCOUNTANT and digitalisation of business processes, (and his or her deputies) No involvement on the part the fit-for-purpose functional model for internal of the Group and its employees audit was changed in 2019, and the Internal Audit in unlawful activities BRANCH MANAGERS Department was reorganised. The main objectives (and their deputies) of the reorganisation are: and BRANCH CHIEF ACCOUNTANTS • To develop remote, digital audit methods (and their deputies) to considerably expand the number of transactions, The VTB Group Management Committee established deals and procedures that are audited; an Internal Audit Coordination Committee, as well as a Coordination Committee for Compliance • To strengthen the focus of auditing BANK'S STRUCTURAL UNITS and Internal Control aimed at preventing money on the performance and competitiveness (responsible managers) laundering and the financing of terrorism. of business processes, the transition from the in charge of internal control discrete auditing of facilities to the continuous auditing of processes;

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• To ensure a close link between auditing In 2019, PwC conducted an external independent MAIN TASKS IN TERMS OF INTERNAL • Minimising the risk of customer transactions and the Bank’s technological transformation, assessment of the internal audit function (COMPLIANCE) CONTROL involving money laundering or terrorist including in the banking sphere; in terms of its compliance with international financing, as well as the risk of non-compliance • Ensuring that the activities of VTB Group professional standards in the context of oversight with international sanctions; • To develop new audit formats: remote and thematic credit and non-credit financial institutions recommendations and the requirements of the Bank in terms of individual processes; are in compliance with the legislation • Avoiding involving VTB Group employees of Russia and the Federal Agency for State Property of the country of registration, internal regulations, in money laundering, the financing of terrorism • To ensure that the internal audit methodology Management. The assessment concluded that standards of self-regulatory organisations and the financing of the spread of weapons and personnel are up to the task in terms of new VTB’s internal audit function is fully compliant and common business practices; of mass destruction. technological and organisational challenges. with international standards and with the Internal Audit Code of Ethics. The high level of maturity • Ensuring effective management and minimisation In the context of measures aimed at the effective The Internal Audit Department’s organisational of the Internal Audit Department was noted in terms of regulatory (compliance) risk and monitoring development of the systems of internal (compliance) structure comprises a number of units responsible of its objectivity, professionalism and use of advanced the performance of the regulatory (compliance) control and AML / CFT and preventing the spread for auditing the lending process, non-credit approaches and technologies. risk management; of WMD within VTB Group, the Compliance Control business processes, regional divisions, digital • Coordinating and participating in the development and Financial Monitoring Department interacts auditing of processes and information technologies, of a set of measures aimed at reducing the level with the Coordination Commission on Compliance as well as auditing within the Group. To improve COMPLIANCE CONTROL of regulatory (compliance) risk; and Internal Control for the Purpose of Preventing the effectiveness of the monitoring of the internal The Compliance Control and Financial Monitoring Money Laundering and the Financing of Terrorism control system in the Bank’s regional branches, • Creating and maintaining an effective system Department assists the Bank’s governing bodies (under the VTB Group Management Committee), the structure of the Internal Audit Department of governance information and reporting; with the effective management of regulatory which includes the following tasks: includes dedicated internal control teams (compliance) risks (risks resulting in losses due • Coordinating activities undertaken to meet at the branch level. • Developing common principles and standards; to non-compliance with the legislation of the country the requirements of the United States Foreign of registration, the Bank’s regulations, standards Account Tax Compliance Act (FATCA) • Introducing best practices within VTB Group; In 2019, the Internal Audit Department conducted for self-regulatory organisations, as well as the risk and Common Reporting Standard (CRS); 36 scheduled audits and control measures, including of losses resulting from the application of sanctions • Sharing information among VTB Group companies 17 audits of various activities within the parent and/or the impact of other measures on the part • Preventing the involvement of VTB Group and coordinating those companies; company and 19 audits of operations in the Bank companies or employees in unlawful activities of the supervisory authorities). • Improving the general professional capacity branches. In addition, as part of its ongoing (including corruption, improper use of insider of experts. monitoring, Internal Audit Department staff members Regulatory risks also include the risks of money information, market manipulation, etc.). conducted 869 thematic audits at the branch level. laundering and the financing of terrorism (AML / CFT), as well as financing the spread of weapons of mass MAIN TASKS IN TERMS OF INTERNAL In addition to conducting audits and monitoring destruction (WMD). CONTROL FOR THE PURPOSES OF AML / CFT the Bank’s internal control system, the Internal Audit AND PREVENTING THE SPREAD OF WMD Department’s priority is operational oversight as well The Compliance Control and Financial Monitoring as the coordination and maintenance of the same Department: • Ensuring compliance with legislation in the area level of practice and competencies in terms of internal of AML / CFT and in terms of preventing the spread • Ensures a unified approach to internal (compliance) audit within subsidiaries. In 2019, the Department of WMD; carried out 20 control measures related to the Group’s control, AML / CFT and preventing the spread • Organising an effective internal control system subsidiary companies and banks. The Internal of WMD within VTB Group’s credit and non-credit for AML / CFT and for preventing the spread Audit Department also regularly analyses reports financial organisations; of WMD that is aimed at strengthening VTB on the work of Group companies’ internal audit • Carries out the functional coordination Group’s position in financial markets, expanding services. To enhance the level of professionalism of the activities of credit and non-credit financial the scale of its business, and improving and improve the exchange of experiences, on-the- institutions that are part of VTB Group in fulfilling the performance of operations and the quality job training is provided for staff from the internal their requirements in terms of internal (compliance) of customer service; audit services within Group companies, including control, compliance with international sanctions the involvement of VTB Group functional concerning AML / CFT and the spread of WMD coordinators. in accordance with the basic principles of managing VTB Group and taking into account the legislative The Internal Audit Department liaises with the Audit provisions in the country of registration / location Committee and independent auditors, providing of the relevant VTB Group credit or non-credit information on the internal control system financial institution. and reporting any shortcomings during the audit period.

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STATUTORY AUDIT COMMISSION of VTB Bank, the organisation of the Bank’s In 2019, the Statutory Audit Commission elected In 2019, VTB Bank provided the members Information on the internal control system, and the Bank’s execution by the AGM on 23 May 2018, in accordance of the Statutory Audit Commission with information Statutory Audit Commission The Statutory Audit Commission is responsible of instructions from the President and the Government with the Work Plan for VTB Bank’s Statutory Audit necessary to monitor the Bank’s financial for providing financial control over the Bank’s of the Russian Federation. The Statutory Audit Commission for 2018, audited VTB Bank’s financial and economic activities on a regular basis, including financial and economic activities. The Statutory Commission is elected at the AGM, which determines and economic activities for 2018–2019, as a result information concerning indicators related to financial Audit Commission verifies VTB Bank’s compliance its size and composition for the period until of which the Statutory Audit Commission reached statements prepared in accordance with RAS with regulations established by the laws of the Russian the next AGM. At the Bank’s AGM on 5 June 2019, the following conclusions: and consolidated financial statements prepared Federation on accounting procedures, compiling the following members of the Statutory Audit in accordance with IFRS, as well as information reports and reporting, the reliability of the information • No violations of legal acts of the Russian Federation Commission were elected for a new term: on the Bank’s implementation of directives issued contained in reports and other financial documents on accounting and reporting procedures or violations by the government of the Russian Federation, as well of legal acts of the Russian Federation in conducting as the Bank’s Long-Term Development Programme financial and economic activities were found that and its Programme for the Sale of Non-core Assets. could have had a significant impact on the Bank’s Zahar Sabantsev Alexander Vasilchenko financial results for 2018; Chairman of the Statutory Audit Head of the Department for Relations Since June 2016, the Regulation on Remuneration Commission; Head of the Division with Government Agencies of Russian • VTB Bank’s annual accounting records and and Compensation Paid to the Members for Financial Sector Monitoring, Post; member of the Board of Directors financial statements for 2018 as well as other of the Statutory Audit Commission has been Organisational Support of Oboronpromkompleks, the Centre financial documents are accurate and provide in force at the Bank. The Regulation was approved and Consolidated Work of the for Shipbuilding and Ship Repair Financial Policy Department Technology, and Roscartography; an objective picture of the Bank’s financial position in accordance with the recommendations of the Ministry of Finance of the and member of the Statutory Audit as of 1 January 2019; of the Bank’s Supervisory Council Staff and Remuneration Committee at the Annual Russian Federation; member Commission of Alrosa. • VTB Bank’s 2018 annual report was prepared of the Statutory Audit Commission General Meeting of Shareholders (minutes No. 47 in accordance with the applicable legislation of Rosneft; member of the Statutory of 24 June 2016). Audit Commission of Rosneftgas. of the Russian Federation; • The information contained in the report According to this document, the basic part on interested-party transactions completed of the remuneration paid to members of the Statutory by the Bank in 2018 is accurate; Audit Commission is 20 % of the average Yevgeny Gontmakher Mikhail Krasnov remuneration paid to a member of the Supervisory Deputy Director of the Dialogue Member of the Statutory Audit • The Bank complies with the statutory requirements Council who is an independent director Foundation for the Development Commission of Rostelecom. established by the Bank of Russia; of Civic Initiatives, member or representative of the state. of the Management Board • The Bank’s systems of corporate governance, of the Institute for Contemporary risk management and internal control meet The actual amount of remuneration paid Development. the requirements established by the laws to a member of the Statutory Audit Commission of the Russian Federation and regulations of the Bank during the reporting period is determined based of Russia and are in accordance with the nature on the number of days in the corporate year during and scale of the Bank’s operations. which said member of the Statutory Audit Commission Anastasia Olshanova Vadim Soskov carried out their duties. Head of the Corporate Relations Deputy CEO of Gazprombank Asset Department at DOM.RF, Management, member of the In 2019, the Statutory Audit Commission held three member of the Board of Directors VTB Shareholders Consultative Council. in-person meetings at which the following issues were For chairing the Statutory Audit Commission, at Sakhalin Energy Company. considered: verifying implementation of the Bank’s the Regulation on Remuneration and Compensation budget for management expenses, analysing Paid to the Members of the Statutory Audit the Bank’s operating and non-operating expenses, Commission establishes a bonus of 30 % reviewing information on the implementation of the basic remuneration for members of the Bank’s of the Bank’s investment programme, analysing Statutory Audit Commission. Remuneration is paid reports from the Internal Control Department, by the Bank through bank transfers; no other forms analysing the Bank’s bylaws governing the activities of remuneration are stipulated. of the Statutory Audit Commission, electing the Chairman of the Statutory Audit Commission, Members of the Statutory Audit Commission who approving the work plan for the Statutory Audit miss more than half of the meetings of the Statutory Commission for the 2019–2020 business year, Audit Commission during the time in which they approving a programme for auditing the Bank’s are members of the Commission are not paid any financial and economic activities for the 2019– remuneration, nor are members of the Statutory Audit 2020 business year, and approving a programme Commission who are civil servants. for the Statutory Audit Commission’s analysis of the Bank’s bylaws.

144 145 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

At VTB Bank’s AGM on 5 June 2019, on the matter • To compensate members of the Statutory Audit Ernst & Young LLC is the Russian subsidiary of Ernst VTB Bank’s profit for 9M’2019 was audited during of the payment of remuneration to members Commission of VTB Bank who are not civil & Young, one of the four largest auditing companies the reporting period. Auditing service contract was of the Statutory Audit Commission who are not civil servants, during the performance of their duties, in the world. Ernst & Young has more than 30 years concluded between LLC CATS1 and VTB Bank as a result servants in the amount established by the bylaws for all expenses associated with the performance of successful practice in Russia and the CIS countries. of purchase from a single counterparty. The actual of VTB Bank, it was decided: of their duties as members of the Statutory Over the years, the company has established amount of remuneration was RUB 12,600 thousand. Audit Commission of VTB Bank, namely: itself as a leading expert in the provision of audit • .To pay remuneration to members of the Statutory accommodations, travel and other fees and consulting services in Russia and other CIS countries. Audit Commission of VTB Bank who are not civil and charges for various types of transport. servants: – For work as part of the Statutory Audit INFORMATION ON THE ERNST & YOUNG LLC REMUNERATION Commission of VTB Bank: RUB 916,690 each; – For chairing the Statutory Audit Commission Actual amount of remuneration2 of VTB Bank: RUB 275,007; Reporting period paid by the Bank, for which the audit Procedure for determining the amount RUB thousand AMOUNT OF REMUNERATION PAID TO MEMBERS OF THE STATUTORY AUDIT COMMISSION was carried out of the auditor's remuneration (including VAT) FOR THE PERIOD OF 2016–2019, RUB FOR THE OBLIGATORY ANNUAL AUDIT OF THE BANK'S FINANCIAL STATEMENTS Following an open tender for the selection of an auditor, 2015 212.4 Indicator 2015 2016 2017 2018 as approved by the Supervisory Council Following an open tender for the selection of an auditor, For work in the Statutory Audit Commission 2,760,000 3,680,000 1,840,000 3,670,070 2016 212.4 as approved by the Supervisory Council Compensation for expenses related to the performance Not paid Following an open tender for the selection of an auditor, of their duties as members of the Statutory Audit Commission 2017 201.8 as approved by the Supervisory Council Following an open tender for the selection of an auditor, 2018 201.8 as approved by the Supervisory Council EXTERNAL AUDITOR Three auditors submitted tender bids: Ernst & Young, The Bank published Following an open tender for the selection of an auditor, KPMG and Pricewaterhouse Coopers. information on the tender 2019 60.5 In order to audit and confirm the veracity of its and tender documentation as approved by the Supervisory Council annual financial statements, VTB Bank engages The selection of an auditor was carried out by a tender on the official public procurement website FOR THE PROVISION OF AUDIT SERVICES AS PART OF CONFIRMATION OF THE BANK’S PROFIT an independent, professional external auditor. commission consisting of competent Bank employees, (available in Russian FOR THE FIRST HALF OF THE YEAR as well as a representative of the Federal Agency language only). 1H 2018 As a result of purchase from a single counterparty 11,210.0 In accordance with the legislation of the Russian for State Property Management. The tender Federation, the external auditor is approved commission evaluated and compared the bids based on the basis of an open tender to conduct the Bank’s on the following criteria: obligatory annual audit. • Contract price; In March 2015, the Bank held an open tender to select • The qualifications of each bidder. an auditor to carry out its obligatory annual audit for the subsequent five years. The tender commission reviewed the bids and selected Ernst & Young as the winner, as it offered the best The tender procedure was governed by Federal Law conditions for fulfilling the terms of the contract No. 44-FZ of 5 April 2013 on the Contractual System and was awarded the most points in the selection for the Procurement of Goods, Works and Services procedure. for State and Municipal Needs.

1 LLC CATS is a part of EY global network and member of Ernst & Young Global Limited. 2 The actual amount of the auditor’s remuneration paid for the date of writing the report. According to the auditing service contract payment is made in two phases for every auditing year: the first payment in the amount of 30% is made in November of the year for which accounting (financial) statements was audited, the second payment in the amount of 70% is made in June of the year following the reporting year.

146 147 ENSURING RESULTS-BASED COOPERATION

159 thousand INDIVIDUAL SHAREHOLDERS

+31 % INCREASE IN THE NUMBER OF SHAREHOLDERS IN 2019 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

An important area in which the system of relations The Bank issues a specialised news digest INVESTOR RELATIONS with minority shareholders is being improved for shareholders; in 2019, 10 issues of the newsletter is the development of digital communication for shareholders were shared, and more than 200 Developing relations and supporting a constructive channels. Given that more and more young people news items were published on the Shareholders dialogue with shareholders and representatives are becoming shareholders, the demand for electronic Consultative Council’s Facebook page and through of the investment community have traditionally 159 thousand forms of communication is constantly growing. the mobile application. been a high priority for VTB Group and extend individual shareholders For example, the VTB Shareholder mobile application VTB Shareholder beyond required corporate procedures. is very popular. application VTB has been recognised as one of the leaders MEETINGS WITH SHAREHOLDERS The number of shareholders continued in Russia in this area, which has allowed the Bank to increase steadily in 2019; the number Users of the application have access AND INVESTORS to maintain a consistently high national corporate of VTB Bank shareholders increased to recommendations from leading analysts governance rating of 7 ++. One of the key elements of the road map to improve by 31 %, or by 37 thousand individuals. in VTB Group, real-time information on stock prices, 30,395 the Bank’s image is meetings with shareholders installations the ability to maintain records of their investment VTB senior management and authorised units and other interested parties (stakeholders). +60 % year-on-year portfolio and to stay up to date on important news engage with investors on an ongoing basis. The total number of shareholders and events for shareholders. The application enables The Investor Relations Department is responsible of the Bank as of 31 December 2019 Any person interested in the activities of VTB Group users to see all existing privileges for VTB Bank for communications with institutional investors, amounted to 159.7 thousand, can take part in events, including current and shareholders. In addition, clients can use the feature and its Shareholder Relations Service is responsible including 158.6 thousand individuals. potential shareholders, customers and employees 13,611 of filtering the available privileges. To do this, active users for communications with individual shareholders. of VTB Group, representatives of the media a user only needs to specify the number of shares and investment companies, professional investors +155 % year-on-year Shareholder growth factors: they own. For active investors, a function was added In 2019, the Bank continued implementing and students. In 2019, there was a marked that allows investors to connect to the trading system its Plan (road map) to improve the perception • Increase in the value of the Bank’s increase in interest in events organised by VTB in the VTB My Investments application. of VTB among minority shareholders. The number shares, with an upwards trend for its shareholders and stakeholders, which led 86 of VTB shareholders increased by more than (+35 % for the year); to a significant increase in the number of participants. news and events Starting in 2019, specially for large events, a third compared to the previous year and was publications • New VTB Group Development Strategy such as the General Meeting of Shareholders about 160 thousand people as of December 2019. In total, 62 events of various formats were held in the application for 2019–2022; and Investor Days, a section has been available in 2019. during the year in the VTB Shareholder mobile application where IN 2019, THE KEY INVESTOR RELATIONS • New formats for shareholder relations, users can find detailed programmes and information EVENTS WERE: including a benefits and privileges In particular, in 2019, the Bank prepared and held programme; about participants, download interactive maps, three Investor Days, eight Open Doors Days, 14 stock • The Annual General Meeting of Shareholders ask speakers questions and learn about special market seminars, a webcast of the AGM and a round and an Extraordinary General Meeting • Increased activity and engagement offers for VTB shareholders. table with large private investors. of Shareholders; on the part of shareholders and private investors as a result of the successful Through the mobile application, any shareholder, All these events aroused a great deal of interest • Corporate actions related to the acquisition, implementation of the road map. consolidation and merger of credit organisations regardless of where they live or are currently located, among the Bank’s current and potential shareholders. with the Bank; has access to news about the activities of the Bank The programme was updated to meet participants’ INDIVIDUAL SHAREHOLDERS BY WAYS and VTB Group as a whole, and can take part information needs and expectations; speakers • Shareholder participation in the formation OF SHARES’ AQUISITION in the management of the Bank by voting at general from the Moscow Exchange and the National of a new development strategy for VTB Group meetings, receive announcements about events Settlement Depository, analysts and stock market for 2019–2022; for shareholders and investors and register experts from Bank’s subsidiaries were invited, 66 % 28 % 4 % 2 % to participate in them. as were members of VTB Bank’s Supervisory Council • Development of a programme of special offers 2019 and products for shareholders, the introduction and the Statutory Audit Commission. 56 % 37 % 5 % 2 % The VTB Shareholders Consultative Council now of new products under special conditions; 2018 has Facebook and Twitter accounts for VTB There was a significant increase in the number • The development of the Bank’s electronic shareholders. The number of followers of these of participants taking part in events for shareholders communication channels; accounts increased by 20 % during the year. Social in 2019. In total, 2,844 people (up 27 % from 2018) • The introduction of an e-voting system Purchased shares on the secondary market networks make it possible to quickly convey important took part in such events, not including those who information to shareholders, to use a format that took part in General Meetings, webcasts and events at General Meetings of Shareholders with the use IPO participants of biometrics and new VR and NFC technologies; is convenient for a young audience, and to continue for other stakeholder groups. The biggest events Former shareholders of VTB North West developing electronic communication channels. in 2019 were the Investor Days in Moscow • Expanded functionality of the VTB Shareholder Former shareholders of VTB24 In addition, social networks make it possible to host (19 October 2019) and St. Petersburg (7 December mobile application, creating a seamless transition a wide range of additional media materials, such 2019). In total, 1,426 people attended these to the trading section (VTB My Investments). as videos and interviews, photo reports and live events. The Investor Day event in Moscow received broadcasts. 829 visitors, an all-time record.

150 151 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

Participants had the opportunity to ask speakers attractive to investors. During the meetings, topics SHAREHOLDERS CONSULTATIVE COUNCIL as the regulator, notes that this practice is an effective questions in an informal setting or to consult discussed included the activities of VTB Group, as well way to increase the activity and involvement The Shareholders Consultative Council (SCC) with them in one of eight consultation areas: as the concerns of private investors from investment of shareholders. For eleven years, the SCC has been is an independent advisory body that represents Shareholder Proposals, Insurance Products, companies and the readers of the regional business representing minority shareholders, protecting their the interests of minority shareholders of VTB Bank. VTB Pension Fund, Virtual Reality (Bank services press. An effort was made to create a favourable interests and playing an active role in the development All SCC members are minority shareholders. that use VR technologies) VTB Registrar, Investment investment image for VTB shares. In total, 19 events of VTB Group. In Russian practice, such shareholder councils Products, Shareholder Relations and the Shareholders were held during the reporting period involving are very rare. At the same time, the Bank of Russia, Consultative Council. The most popular information 152 representatives of the media and investment stand was dedicated to discounted products and brokerage companies. and services for VTB shareholders. Visitors to Investor Days also had access to an interactive area using As part of a programme to improve the financial NFC authentication and other advanced information literacy of existing and potential individual technologies offered by VTB Bank. shareholders and also to develop business cooperation between Bank branches and regional In a number of cities that are home to more than universities, VTB has been organising workshops a thousand Bank shareholders, VTB held seminars for students majoring in finance and economics on the stock market in cooperation with experts at leading Russian universities since 2013. In 2019, from Moscow Exchange. Guests included similar events were held in Irkutsk, Novosibirsk, VTB shareholders and the Group’s customers. During Moscow, Tomsk, Rostov-on-Don and Nizhny the year, seminars were held in 14 cities: Sochi, Novgorod. The workshops were attended by more Rostov-on-Don, Samara, Nizhny Novgorod, Kazan, than 700 students, who together with experts Novosibirsk, Khabarovsk, Vladivostok, Stavropol, studied how to form and keep a personal financial Tomsk, Irkutsk, Krasnoyarsk, Lipetsk and Ufa. A total plan, trade on exchange, assess qualitative assets’ of 782 people took part in the seminars. The most investment attractiveness. The workshops participants popular events were those in Kazan, Ufa and Irkutsk. appreciated quality, programme and organisation The average rating for workshops based on a survey of the events. of participants in 2019 was 4.6 out of 5. In addition, in 2019, the Bank held more than As has traditionally been the case, the Open 300 meetings with institutional investors in Russia, Doors Days were the most popular events, which Europe and the United States, while also participating were held in eight different cities in 2019 at Bank in 18 international investment conferences. branches and operational offices. At these meetings, The number of investors who attended meetings shareholders are able to discuss their questions with VTB Bank doubled compared to 2018. in detail with VTB experts and also receive individual As part of the disclosure of the Group’s IFRS consultations. financial results, four online audio conferences and question and answer sessions were held During the year, VTB experts also met for investors and analysts. In May 2019, as part with representatives of investment and brokerage of the announcement of VTB Group’s new Strategy companies, analysts and journalists. Maintaining for 2019–2022, a strategic session was held contact with these stakeholder groups for analysts from leading international investment is one of the priorities of the road map to improve banks with the participation of VTB Group’s the perception of the Bank among minority executives. Twenty-six analysts from major Russian shareholders and to make the Bank’s shares more and foreign brokerage companies attended the event.

152 153 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

MEMBERS OF THE SHAREHOLDERS CONSULTATIVE COUNCIL (AS OF 31 DECEMBER 2019)

Igor Repin For a detailed biography, Alexander Yenin Vladimir Zotov Chairman of the Bank’s Shareholders Consultative Council see the Corporate Member of the Bank’s Member of the Bank’s Governance / Supervisory Member of the Bank’s Supervisory Council Council section). Shareholders Consultative Council Shareholders Consultative Council since 2017 since 2017 Member of the Bank’s Strategy and Corporate Governance Ownership of shares Committee Corresponding Member in the Bank as of 31 December 2019 of the Russian Academy Member of the Bank’s Staff and Remuneration Committee % of ordinary shares of Engineering ► 0.000000772 % Member of the Bank’s Audit Committee % of charter capital Ownership of shares as of 31 December 2019 ► 0.000000154 % in the Bank % of ordinary shares Member of the Bank’s Shareholders Consultative Council ► 0.00000000000772 % since 2013 % of charter capital ► 0.00000000000154 %

Education: Education: Graduated from the Financial University Graduated from Moscow State University of Design under the Government of the Russian Federation and Technology, candidate of economic sciences and the Russian State Social University Professional activities: Professional activities: Director of the Institute of Social Engineering Head of Premier BCS projects at BCS at Kosygin Russian State University, Associate Professor in the Management Department

Vadim Soskov Sergey Gavrilov Vladimir Znamensky Stanislav Kleschev Member of the Bank’s Statutory Member of the Bank’s Member of the Bank’s Audit Commission Shareholders Consultative Council Shareholders Consultative Council Member of the Bank’s Member of the Bank’s since 2017 since 2013 Shareholders Consultative Council Shareholders Consultative Council Member of Young International Member of the Moscow Exchange since 2013 since 2009 Arbitration Group and the Russian Index Committee and Listing Ownership of shares Ownership of shares Arbitration Association 25 Council in the Bank as of 31 December 2019 in the Bank as of 31 December 2019 Ownership of shares Ownership of shares % of ordinary shares % of ordinary shares in the Bank as of 31 December 2019 in the Bank as of 31 December 2019 ► 0.000015431 % ► 0.000016866 % % of ordinary shares % of ordinary shares % of charter capital % of charter capital ► 0.000003086 % ► 0.000008102 % ► 0.000003072 % ► 0.000003358 % % of charter capital % of charter capital ► 0.000000614 % ► 0.000001613 %

Education: Education: Education: Education: Graduated from the Moscow Lenin State Pedagogical Lomonosov Moscow State University, candidate of economic Graduated from Lomonosov Moscow State University Completed undergraduate and graduate studies University, candidate of Economic Sciences sciences with a bachelor’s degree in law and a master’s degree at Lomonosov Moscow State University in corporate law Professional activities: Professional activities: Professional activities: Professional activities: Deputy CEO of Gazprombank – Asset Management Chairman of the Russian State Duma Committee on Civil Head of Analytics Division in VTB Bank’s Brokerage Services Society, Public Associations and Religious Organisations Lawyer for the United Metallurgical Company, specialising Department Achievements: in corporate law • Winner of a Russia’s Financial Elite award for Most Senior Player in the collective investment market • Included on the list of Russia's Top 1,000 Managers • Was a TACIS expert for the World Bank on pension reform in Russia

154 155 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

Valery Petrov Ilya Khersontsev Elena Shtykanova Member of the Bank’s Member of the Bank’s Member of the Bank’s Shareholders Consultative Council Shareholders Consultative Council Shareholders Consultative Council since 2013 since 2017 since 2013 Member of the Moscow Exchange Member of the Russian Ownership of shares Index Committee and Listing Association of Independent in the Bank as of 31 December 2019 Council Directors % of ordinary shares ► 0.000002390 % Ownership of shares Ownership of shares % of charter capital as of 31 December 2019 as of 31 December 2019 in the Bank in the Bank ► 0.000000476 % % of ordinary shares % of ordinary shares ► 0.000000077 % ► 0.000021604 % % of charter capital % of charter capital ► 0.000000015 % ► 0.000004301 %

Education: Education: Education: Holds several university degrees, as well as a Chartered Graduated from Urals State Technical University Graduated from the Moscow State Institute of International Financial Analyst (CFA) diploma, candidate of economic (information systems in economics) Relations of the Russian Foreign Ministry with a degree sciences in international economic relations, candidate of economic Professional activities: sciences Professional activities: Advisor to the Chairman of the Management Board Professional activities: Deputy Chairman of the Management Board at the Institute at Astramed-MS of Financial Markets Advisor to the Senior Vice President of Norilsk Nickel

Maxim Sergeyev Yelena Shafranskaya the Strategy and Corporate Development Department, The Regulation Member of the Bank’s Member of the Bank’s At the AGM in 2019, shareholders the Integrated Risk Management Department on VTB’s Shareholders once again elected representatives Consultative Council Shareholders Consultative Council Shareholders Consultative Council and the Human Resources Department. In addition, (available in Russian since 2013 since 2017 of the Shareholders Consultative several members of the Bank’s Management language only). Ownership of shares Ownership of shares Council to the Bank’s management Board and the Supervisory Council also took part in the Bank as of 31 December 2019 in the Bank as of 31 December 2019 and oversight bodies. in the meetings % of ordinary shares % of ordinary shares • Igor Repin Chairman of the Bank’s ► 0.000000231 % ► 0.000027069 % % of charter capital % of charter capital Shareholders Consultative Council was The Shareholders Consultative Council plays ► 0.000000046 % ► 0.000005389 % re-elected as a member of the Bank's an increasingly important role in the work Supervisory Council. of the Group’s subsidiaries. In January 2019, Education: Education: • Vadim Soskov was re-elected for example, three members of the SCC became as a member of the Bank’s Statutory independent members of the Board of Directors Graduated from Ukhta State Technical University Graduated from of the Irkutsk Polytechnical Institute Audit Commission. of Vozrozhdenie Bank. (cybernetics) Professional activities: Professional activities: SCC members play an active role in communication Engineer at St. Petersburg Alferov Academic University In 2019, five meetings of the SCC were held. with shareholders, including at the AGM, Investor Self-employed entrepreneur in the field of construction Days, seminars and online through electronic and real estate During Council meetings, members of the SCC meet channels. Information and suggestions received with representatives of the Bank’s top management are reflected in the SCC’s proposals for VTB who oversee various areas of activity. In 2019, management. In 2019, SCC members presented meetings were held with the managers of the Finance at all key events for shareholders, including Investor Department, the Brokerage Services Department, Days in Moscow and St. Petersburg.

156 157 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

2019 SHAREHOLDERS CONSULTATIVE COUNCIL RESULTS DISCLOSURE POLICY

Shareholders' rights Strategy and management Information disclosure is one of the most important PRINCIPLES OF INFORMATION The Bank’s Information tools for the Bank’s interaction with shareholders, Policy and Corporate DISCLOSURE BY THE BANK Governance Code investors, customers and other interested (available in Russian 1. High evaluation of the Bank's work 1. Inclusion of proposed initiatives to the new parties, contributing to the formation of long- language only). with shareholders and SCC by the professional VTB Group's Strategy term, transparent and trust-based relationships The principle of providing community 2. Maintaining minority representatives with all stakeholders, while also improving the Bank’s information quickly, consistently 2. Monitoring of profit target execution in the Supervisory Council and in the Statutory investment case. and on a regular basis Audit Commission 3. Development of proposals to the Bank's Throughout 2019, the Bank’s Supervisory Council dividend policy 3. Election of SCC representatives to the monitored compliance on the part of the Bank Management Board of Vozrozhdenie Bank The principle of accessibility 4. Examination of global experience and its employees with the requirements to disclosed information of interaction with shareholders of the legislation of the Russian Federation on the securities market, on the protection of the rights and legitimate interests of investors in the securities market and on advertising; Compliance with regulations the regulations of the Bank of Russia concerning on the protection of information containing state, commercial, Communications Products and services of VTB Group financial markets; and the requirements and standards of self-regulatory organisations banking and/or official of professional securities market participants secrets of the Bank and other 1. Participation of SCC members in events 1. Expansion of the programme of special products that the Bank is a member of; as well as information protected by law, for shareholders as well as speakers and services for shareholders the Bank’s internal regulations, including including insider information and protection of personal data 2. Detailed communication of new strategy 2. Improvement of investment and brokerage the Regulation on the Information Policy to shareholders by SCC members products and clients servicing technologies approved by the Bank’s Supervisory Council on 1 December 2017 (minutes No. 18) The principle of the reliability, 3. Development of communication channels 3. Proposals in development of programmes (hereinafter, the “Information Policy”). completeness and comparability with shareholders Affordable Bank and Youth Bank of disclosed information 4. Clarification of decisions made by the Bank 4. Providing feedback on the results of test When disclosing information, VTB Bank is guided purchases by the applicable legislation of the Russian Federation, the requirements of Moscow Exchange Observance of a reasonable and the London Stock Exchange, the Regulation balance between the Bank’s on the Bank’s Information Policy and its Corporate openness and protecting Governance Code, as well as other requirements of its commercial interests and regulations.

INFORMATION DISSEMINATED ABOUT THE BANK’S ACTIVITIES CAN BE DIVIDED INTO THREE GROUPS

Information that must be disclosed in the prescribed manner and by the means 1 specified in regulatory documents and by regulatory authorities

Information disclosed by the Bank on a voluntary basis by any means 2 chosen by the Bank

Publicly available information that is freely provided at the request 3 of stakeholders for informational purposes

158 159 Annual Report / 2019 1 2 3 4 5 6 7 8 Corporate Governance

Primary information disclosure channels 2019 results THE BANK’S OFFICIAL SOCIAL MEDIA ACCOUNTS The Interfax newswire and • According to Interfax, the Bank continued to be ranked second in 2019 the Bank’s dedicated page at: among leading companies in terms of information disclosure. e-disclosure.ru/portal/company. • 2,345 statements aspx?id=1210 • 1 annual report for 2018

(available in Russian language only) • 2 accounting (financial) statements under RAS facebook.com/vtbgroup/ facebook.com/vtbrussia/ vk.com/vtb ok.ru/vtb • 4 consolidated financial statements under IFRS • 4 quarterly issuer reports • 4 lists of affiliates 206,000 100,000 106,700 9,500 • New versions of the Charter and the Regulation on the Procedure followers followers followers followers for Preparing, Convening and Holding General Meetings of Shareholders • Other documents in accordance with legislative requirements Information about VTB Bank on the website • 19 material facts / press releases of the London Stock Exchange: londonstockexchange.com/ exchange/prices-and-markets/ stocks/summary/company-summary/ twitter.com/vtb instagram.com/bankvtb/ youtube.com/user/vtbgroup US46630Q2021USUSDIOBE.html VTB Bank’s corporate website, In addition to information published in accordance with the legislative vtb.ru and vtb.com, which offers the most requirements, the Bank also disclosed: 18,800 40,400 26,960,000 complete information about the Bank’s • Monthly IFRS financial results followers followers views activities and is regularly updated • A social report for 2018 in accordance with the requirements • A presentation for investors of legislation and the Bank’s bylaws. • 480 press releases

The site received 27,807,741 visits in 2019. The Company’s account in the • 154 statements Unified Federal Register of Information about the Activities of Legal Entities, Individual Entrepreneurs and Other Economic Entities: fedresurs.ru/company/8365852f-517a-4f4f- a4ff-c779c25035bd (available in Russian language only) With regard to ensuring corporate actions: • 13 statements web channels (web service in conjunction with Luch software or the web office of the National Settlement Depository) Informational seminars, conferences, press • 4 conference calls following the disclosure of IFRS statements conferences, meetings, forums and other (538 participants) meetings with persons concerned • 14 meetings with private shareholders (782 participants) • 3 Investor Days for private shareholders (1,744 participants) • 8 Open Doors Days (82 participants)

160 161 Annual Report / 2019 1 2 3 4 5 6 7 8 Sustainable Development Sustainable Development

In the context of current global challenges the concept of sustainable development becomes INCENTIVE AND REMUNERATION SYSTEM portal was launched, a survey was carried out on the engagement of personnel in Russia even more important. All over the world new approaches of business to management VTB’s actual incentive and remuneration system and abroad, which was conducted for the first resources, risks and all types of influence on economy, society and ecology are being formed. is designed to motivate employees to perform time using a single methodology for all Group National strategy is being actively formed in Russia; it combines goals on achieving economic their duties at a high level and to be results- companies participating in the survey. efficiency, social equity and environmental safety. oriented. The Group employee engagement index was 83 %, which, according to the research methodology, In 2019, work continued on improving VTB GROUP indicates that employees understand the strategic the remuneration system. In particular, the Bank EMPLOYEES goals, mission, vision and values of VTB Group, implemented a project to develop and introduce are ready to undertake additional efforts to achieve United Nations (UN) created seventeen icons on Sustainable Developments Goals (SDGs) a grade system, the main purpose of which is to make to increase visual public awareness about sustainable development and its goals. these goals and have the necessary resources the remuneration system more competitive externally Hereinafter UN SDGs’ icons are used. to do so. The results of the survey also revealed and more fair internally. The grade system will enable strengths and areas for improvement, an analysis the Group to respond to market changes faster of which will provide a road map for suitable 36 years old and in a more flexible manner in the course initiatives. average age 82,250 of its regular monitoring of the labour market VTB Bank, among other companies with best employees and to take a more balanced approach to establishing Russian business practices, established and extends PERSONNEL work at competitive wages, while taking into account effective practices in the field of corporate PERSONNEL ASSESSMENT AND years VTB Group the Bank’s financial position. 5.5 ecological and social responsibility, system charity STAFF RESERVE average term and volunteering and other. of employment One of the Bank’s highlights in 2019 was According to the Bank’s performance management at VTB Group the unification of its retail and corporate networks; procedure, employees set, at the beginning In 2019, VTB Bank’s Supervisory Council adopted in terms of personnel management issues, of the year, individual goals for their activities new Strategy of VTB Group for 2019–2020, special attention was paid to the harmonisation and goals for the development of their behavioural including renewed mission, vision and values. 59,602 competencies for the year. Then, at the end STAFF QUANTITY DYNAMICS employees of remuneration in the Bank’s unified regional After adoption of the new business strategy of the year, managers evaluate how well they work at network. VTB Bank came close to a complex introduction have achieved their goals and the degree to which 72 % 28 % VTB Bank of sustainable development elements in its activity. their behavioural competencies have developed. 72 % 2019 82,250 CORPORATE CULTURE The performance management procedure helps women Since 2008, VTB annually releases non-financial 75 % 25 % Achieving the ambitious goals of VTB Group’s employees, in a dialogue with their supervisors, reports devoted to different aspects of corporate 2018 77,211 new Strategy is largely dependent on developing identify priority areas for implementing social responsibility. Selected indicators in the field a corporate culture aimed at increasing client- the VTB Group Strategy, criteria for evaluating % of sustainable development, published in the social 28 centricity, improving cross-functional interaction results and areas for developing behavioural men reports for 2012–2018, were independently VTB Bank employees and holding individuals more accountable competencies; at the end of the year, it enables audited. Employees of other VTB Group companies for achieving results. That is why the Group’s them to receive feedback and outline areas management considered it necessary to update for further development. The goals are set In the Sustainability Report for 2018 VTB Group VTB’s mission, vision and values. and the results are evaluated in the automated declared its commitment to the UN formulated As of 31 December 2019, VTB Bank employed Additional information performance management system, which strategy to meet 17 Sustainable Developments 59.6 thousand people (compared with can be found in The top management of VTB Group played makes the process transparent and produces % Goals till 2030. In 2019, the Bank determined 58.2 thousand as of 31 December 2018), while VTB Group’s Sustainability 84 Report for the year of 2019. an active role in determining the priorities a clear picture of the results that are expected of employees its 8 priority goals of sustainable development, VTB Group employed 82.3 thousand people for the development of corporate culture. from each employee. have higher achieving of which will be paid a great attention. (compared with 77.2 thousand of 31 December Employees were given an opportunity to express education 2018). The main drivers behind the increase their opinions through a survey about VTB’s mission In 2019, projects for evaluating management The key VTB Group results and achievements in the Group’s headcount were the takeover that was conducted in February 2019, which teams were implemented in which both senior for 2019 in the field of personnel development, of two new banks – Sarovbusinessbank and West gathered the opinions of more than 17 thousand and middle managers took part. The evaluation social projects realisation and management of resource Siberian Commercial Bank – and the increase people. As a result of the survey, VTB Group results made it possible to identify strengths consumption and recycling are provided in the section. in the number of IT staff at VTB Bank. developed and adopted an updated mission and areas for development that formed the basis and vision and renewed values. for the establishment of programmes for the further development of managerial competencies. During the year, a large-scale information campaign was conducted for Group employees For participants of the staff reserve for positions in various regions of the Russian Federation in middle and line management in 2019, about the new Strategy and updated values. comprehensive development programmes were Considerable attention was also paid to strengthening implemented that were adapted to the appropriate and developing internal communication channels managerial level. in 2019. For example, an updated intranet

162 163 Annual Report / 2019 1 2 3 4 5 6 7 8 Sustainable Development

In light of the merger of the Bank’s retail fields: finance and credit and business informatics. In addition to the use of resource- and energy- – Shutting down the ventilation systems and corporate networks, work with the network’s The schools involved presentations by speakers saving technologies aimed at reducing environmental in the Bank’s office buildings during off-hours, staff reserve entered a new stage of development. that included top managers from the Bank impact, VTB Group companies are constantly holidays and weekends, resulting in savings A large-scale project was launched to develop a staff and leading instructors from the Higher School reducing their own fleet and freight traffic of 181 thousand kWh, or RUB 970 thousand, reserve for managers for the integrated network. of Economics, as well as practical workshops, and are optimising routes for automobile traffic. for the year; business games and business simulations. The winners In 2019, the number of vehicles operated – Partial repair of thermal insulation of the pipelines of the competition were offered an opportunity by VTB Group’s parent company was reduced used in the heating system and hot water supply; In 2019, TRAINING AND DEVELOPMENT to undertake an internship at the Bank. by 43 %, while the number used in the regional the number >200 • Introduction of resource-saving technologies, managers network was reduced by 45 %. In addition, a portion of vehicles operated The priorities for the development of professional including reduction of the Bank’s own fleet Work with young specialists continued in the framework took part in training of VTB’s Euro 4–rated vehicles were replaced by Euro by VTB Group’s and behavioural competencies among the Bank’s (passenger vehicles): of the Bank’s Junior and Growth programmes. programmes 5–rated vehicles. parent company employees in 2019 were determined by the objectives – A 15 % reduction in gasoline consumption The Junior programme was scaled up last year run by the INSEAD was reduced established in the VTB Group Strategy: building and a 7 % reduction in diesel consumption; a culture of leadership and performance with a balance to include the Bank’s integrated regional network. and IMD business The process of reducing office printing and of team and individual success and meeting All training and development programmes for young schools. the transition to paperless document management • Reduction of waste collection costs by selling by 43 %, the highest standards in terms of service quality professionals include a variety of formats: face-to-face is still ongoing. Used batteries are constantly a portion of the waste generated; and distance courses, as well as training sessions. being collected, and waste paper is recycled. while the number for external and internal clients. Training programmes • Collection and transfer of hazardous waste VTB Group employees also take part in voluntary used in the for managers were aimed at improving managerial for processing/disposal; skills, developing client-centricity and managing In addition, internships for young IT specialists were environmental activities. regional network service quality. Work continued with international offered for the first time in 2019: IT Junior and Java • Recycling of wastepaper: was reduced business schools and foreign professors. More than and JavaScript development schools. The following were VTB Bank’s main achievements – The volume of paper recycled increased by 78 %. 200 managers took part in training programmes run in terms of resource management in 2019: by 5 %. Goals for the period till 2022 in terms of resource by the INSEAD and IMD business schools. • Implementation of the Energy-Saving Programme, consumption and waste management: RESPONSIBLE RESOURCE including the following energy-saving steps taken A variety of formats were used to develop MANAGEMENT during the year: • Conversion to LED lights; the functional skills of employees, from classical – Conversion to LED lights, replacing • Introduction of an automated electricity modular training programmes to functional coaching 530 fluorescent lights, 1,310 incandescent metering system; (for teams working on the flexible development lights and 60 halogen lights, resulting in savings of IT solutions), international internships to study best of 152 thousand kWh, or RUB 815 thousand, • Dispatching for engineering systems; practices (corporate accelerator), the development for the year; of expert communities and short-duration • Maximisation of the volume of waste recycled. development formats such as technology breakfasts, in which more than 5,000 employees and invited One of VTB Group’s main priorities is taking VTB GROUP’S RESOURCE CONSUMPTION1 experts from other high-tech companies took part. a responsible approach to the consumption of natural resources, with considerable attention Within the framework of the special-purpose model paid to improving systems for managing the Group’s 2018 2019 for the development of Agile teams, the range own resource and power consumption. Monetary Monetary of training courses and other training formats was equivalent, Natural equivalent, considerably expanded. In 2019, the Group continued to implement its Energy Resource type Natural equivalent RUB million equivalent RUB million Conservation and Energy-Efficiency Programme. Heating energy, Gcal 115,986 183.4 121,022 190.6 The training of employees from popular specialties VTB Group companies adhere to a policy of renovating Electricity, thousand kWh 73,595 397.7 78,828 435.8 was carried out both in person and through digital existing properties, which is aimed at, among other content delivery channels, which made it possible things, increasing the resource and energy efficiency Gas, thousand m3 399 5.3 445 5.1 for employees in all regions to develop behavioural of the facilities, complying with high environmental Paper, tonnes 1,747 117.3 1,620 116.3 competencies and to maintain and improve standards and minimising the negative impact Fuel, thousand litres 2,468 105.9 2,189 96.2 their professional skills. On average, more than on the environment. 10 development events in various formats were Water, thousand litres 8,434 337.5 9,018 376.1 carried out for each Bank’s employee in 2019. As part of efforts to improve the resource and energy Drinking water, thousand litres 1,486 12.0 1,641 14.1 efficiency of VTB Group properties, resource- WORK WITH YOUNG SPECIALISTS and energy-saving technologies are being introduced everywhere, and utility systems are being replaced In 2019, the second season of the I Am a Professional or upgraded, which is having an impact on resource competition for Russian students took place within consumption and energy efficiency. The resource- the framework of Russia – Land of Opportunity and energy-saving technologies used by VTB Group 1 platform. VTB Bank once again acted as the main companies have a twofold impact by reducing harmful Data on the resource consumption of the following VTB Group’s companies: VTB Bank, Holding VTB Capital, Vozrozhdenie Bank, Sarovbusinessbank, VB-Service, VTB Factoring, VTB Leasing, VTB Specialised Depository, VTB Pension Fund, organising partner for the competition. As part effects on the environment and the generation VTB Registrar, VTB Bank (Armenia), VTB Bank (Belarus), VTB Bank (Azerbaijan), VTB Bank (Georgia), VTB Bank (Kazakhstan), of the project, winter schools were held in two of hazardous waste. VTB Bank (Europe).

164 165 Annual Report / 2019 1 2 3 4 5 6 7 8 Sustainable Development

GENERATION AND PROCESSING OF HAZARDOUS WASTE As part of its sponsorship and charitable activities, A SPORTING COUNTRY VTB continues to implement the following six 2018 2019 large-scale target programmes: % sent for % sent for • A Sporting Country; 7,276 RUB million Resource type (tonnes) Generated processing/disposal Generated processing/disposal • An Educated Country; Fluorescent lights 5 100 11 100 • Patriotism and a Country of Traditions; Batteries 1 52 11 93 Car tyres 3,141 100 2,807 100 • A Cultural Country; • A Country for Business;

GENERATION AND RECYCLING OF LOW-HAZARD WASTE • A Healthy Country. This programme provides support for both high- performance sports (hockey, tennis, volleyball, 2018 2019 Financing these programmes enables the Bank to share its core values and social mission with society. gymnastics, etc.) and popular sports that engage % sent for % sent for The programmes are mixed in nature and include a large number of people in healthy lifestyles. Resource type (tonnes) Generated processing/disposal Generated processing/disposal both sponsorship and charity projects. In addition, VTB contributes to the development Trash from office of infrastructure for the supported sports and pays and residential buildings 4,430 100 7,182 100 special attention to fulfilling strategic objectives VTB BANK EXPENSES FOR TARGETED in terms of the development of Russian sport to 2024. Food waste 65 100 70 100 SPONSORSHIP AND CHARITY PROGRAMMES In 2019, VTB Bank implemented 32 major sports projects. The most notable of these were VTB BANK EXPENSES FOR SPONSORSHIP 2 % 3 % SOCIAL PROJECTS AND CHARITY PROGRAMMES the Formula 1 VTB Russian Grand Prix, the VTB FOR 2017–2019, RUB billion Kremlin Cup and the VTB United Basketball League. In 2019, VTB Bank actively continued to support 23 % VTB also supported the Russian Volleyball Federation public-interest projects in the form of sponsorship and the KAMAZ-master rally team. and charitable assistance. 8.1 2019 45 % 8.2 PATRIOTISM AND A COUNTRY OF TRADITIONS During the reporting period, 6.8 2018 the Bank financed 9.3 9 % 7.2 2,946 RUB million % 2017 50.3 6.4 562 charity projects 18 % projects (RUB 8.2 billion)

Sponsorship A Sporting Country worth a total of 49.7 % Charity Patriotism and a Country of Traditions sponsorship A Cultural Country 16.3 projects The main goals of this programme are to build a sense An Educated Country RUB billion (RUB 8.1 billion) of patriotism and pride in the country. The programme A Country for Business includes unique projects aimed at reviving national A Healthy Country and spiritual values and preserving historical heritage sites. The Bank provides support for public-interest foundations and provides charitable assistance to people in emergency situations and facing hardships in life.

166 167 Annual Report / 2019 1 2 3 4 5 6 7 8 Sustainable Development

In 2019, VTB Bank implemented 151 projects In accordance with the objectives of the Education A HEALTHY COUNTRY • VTB Bank (Kazakhstan) Additional information in this area: support was provided to 17 veterans’ and Science national projects, VTB Bank provides can be found in • VTB Bank (Europe) VTB Group’s Sustainability foundations, as well as the Valaam and New long-term financial support to leading universities Report for the year of 2019. Jerusalem monasteries; the feature film Lev Yashin: in the country in order to ensure that their RUB million • Vozrozhdenie Bank The Dream Goalkeeper and the television series educational and scientific programmes are aligned 551 • West Siberian Commercial Bank Godunov: The Continuation were produced with the current needs of society and the long-term with VTB’s support. objectives for the development of the Russian • Sarovbusinessbank economy (including in the area of finance). • VTB Leasing This programme also includes projects to improve A CULTURAL COUNTRY financial literacy, support for startups, identifying • VTB Capital Holding talented students through professional contests, grants and scholarship programmes. Russian members of VTB Group spent a total 1,378 RUB million This programme provides funding in the framework of RUB 1,416 million, while members of VTB Group In 2019, 142 projects received financial support, of the Health and Environment national projects. operating outside the Russian Federation spent including the I Am a Professional Russian national Charitable support is provided to healthcare USD 1.3 million. In total, support was provided competition, the Changellenge Cup IT 2019, institutions and for projects related to the development for 361 projects, including 149 sponsorship and the What? Where? When? programme of advanced medical technologies. For over a decade, 212 charitable projects. and the Kidburg vocational centres for children. VTB Bank has been operating its nationwide corporate charity programme A World Without Tears, which VTB Bank subsidiaries support projects purchases equipment for children’s hospitals. and programmes that are in line with the areas A COUNTRY FOR BUSINESS The Bank helps protect the country’s environment Through this programme, the Bank supports projects of social investments that VTB Bank has by supporting projects aimed at increasing related to Russian cultural institutions; national heritage identified as corporate priorities. the population of rare animal species in Russia’s sites (major museums, significant exhibitions); RUB million ecosystems and by participating in the work national-level creative unions, troupes and performers 383 of the Arctic Council. SPONSORSHIP AND CHARITY EXPENSES (theatres, tours, performances); as well as the primary OF VTB GROUP COMPANIES channels for cultural dissemination (film production, In 2019, 77 projects were implemented, including television). Priority projects include those that VTB Bank (Azerbaijan) support for 59 healthcare institutions and seven contribute to the implementation of the strategic charitable foundations, as well as projects related objectives for the development of the Russian VTB Bank (Armenia) to biodiversity conservation. Twenty-six events Federation to 2024 in the framework of the Culture took place through the A World Without Tears national project. VTB Bank (Belarus) programme: 4 in Moscow and 22 in regional cities. VTB sponsors and organises business events Some 77 cultural events took place in 2019 with VTB’s at the national and international levels. The largest VTB Bank (Georgia) support, including notable exhibitions such as those industry events related to strategically important areas SPONSORSHIP AND CHARITY ACTIVITIES dedicated to the 175th anniversary of the birth of VTB Bank’s activities are held with the support OF OTHER VTB GROUP COMPANIES VTB Bank (Europe) of Ilya Repin at the Tretyakov Gallery and the State of Group companies. Support is provided for projects VTB companies and subsidiaries conduct sponsorship Russian Museum, the premiere of the ballet aimed at the development of state-of-the-art VTB Bank (Kazakhstan) The Pygmalion Effect at the Boris Eifman Ballet technologies in the banking and other sectors activities on the basis of their own annual sponsorship plans. Group members make their own Theatre and the premiere of the opera Manon Lescaut of the country’s economy, including those contributing Vozrozhdenie Bank at the Bolshoi Theatre and many others. to the fulfilment of the strategic objectives independent decisions on charitable activities in line with their forecast limit for the year and in accordance for the development of the Russian Federation West Siberian Commercial Bank to 2024 within the framework of the Digital Economy with a decision by their management or their own AN EDUCATED COUNTRY charity committees. national project. Sarovbusinessbank In addition to VTB Bank, the following members In order to develop the business community VTB Leasing 3,800 RUB million and strengthen its reputation in 2019, of VTB Group conducted regular activities related to social projects in 2019: the Bank supported no fewer than 40 events, VTB Capital Holding including nine major international forums • VTB Bank (Azerbaijan) (St. Petersburg International Economic Forum, World Economic Forum, Russian Internet Forum, • VTB Bank (Armenia) 0 20 40 60 80 100 Russia Calling forum, etc.) and industry • VTB Bank (Belarus) conferences. Sponsorship • VTB Bank (Georgia) Charity

168 169 Annual Report / 2019 1 2 3 4 5 6 7 8 Financial Statements

VTB Bank consolidated financial statements and independent Financial Statements auditor’s report for the year ended 31 December 2019 can be found in the Investor Relations section on the Bank’s website.

RESPONSIBILITY STATEMENT CONSOLIDATED FINANCIAL STATEMENTS UNDER IFRS

VTB management is responsible for preparing VTB Bank’s Annual Report and consolidated financial statements The following table shows VTB Group key financial data under IFRS. For a better understanding of the Group’s financial position, its financial in accordance with applicable laws. performance and its cash flows, these consolidated key financials should be read in conjunction with the audited consolidated financial statements of the Group. I hereby confirm that to the best of my knowledge: CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER, The consolidated financial statements of VTB Bank (PJSC) and its subsidiaries (hereinafter referred to as “the Group”), in billions of Russian roubles prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position, profit or loss of the Group; and 2018 2019 (restated) Change This Annual Report includes a fair review of the development and performance of the Group’s business and position, together with a description of the principal risks and uncertainties that the Group faces. Interest income calculated using the effective interest method 1,039.8 967.6 7.5 % Other interest income 67.2 66.4 1.2 % Interest expense –636.5 –542.6 17.3 % Payments to deposit insurance system –29.9 –22.8 31.1 %

Net interest income 440.6 468.6 –6.0 % Provision charge for credit losses on debt financial assets –92.2 –160.6 –42.6 %

Net interest income after provision for credit losses 348.4 308.0 13.1 % Andrey Kostin Net fee and commission income 108.5 80.6 34.6 % VTB Bank President and Chairman Gains net of losses / (losses net of gains) arising from sale and revaluation of loans of the Management Board 3.3 –2.0 265.0 % at fair value through profit or loss Gains net of losses arising from other financial instruments 63.1 21.1 199.1 % at fair value through profit or loss Gains net of losses arising from sale of financial assets at fair value through other 1.0 6.3 –84.1 % comprehensive income (Losses net of gains) / gains net of losses arising from foreign currencies and precious metals –25.6 21.4 –219.6 % Gains net of losses arising from sale of financial assets at amortised cost 9.1 0.7 1,200.0 % Other gains net of losses on financial instruments at amortised cost 0.2 0.7 –71.4 % Share in profit of associates and joint ventures 11.1 8.1 37.0 %

Impairment of investments in associates – –11.8 100.0 % Gains net of losses from disposal of subsidiaries and associates 7.5 40.8 –81.6 % Losses net of gains arising from extinguishment of liabilities – –0.5 100.0 % Provision charge for credit losses on credit related commitments and other debt financial assets –7.8 –8.3 –6.0 % (Provision charge) / reversal of provision for legal claims and other commitments –3.3 1.8 –283.3 % Excess of fair value of acquired net assets over cost 5.6 2.7 107.4 % Other operating income 7.5 10.1 –25.7 %

Non-interest gains 71.7 91.1 –21.3 %

170 171 Annual Report / 2019 1 2 3 4 5 6 7 8 Financial Statements

CONSOLIDATED INCOME STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER, CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER, in billions of Russian roubles in billions of Russian roubles

2018 2019 (restated) Change 2019 2018 Revenue and other gains from operating lease of equipment 30.5 26.5 15.1 % Net profit 201.2 181.5 Expenses related to equipment leased out –15.1 –14.9 1.3 % Other comprehensive income / (loss): Revenues less expenses from operating leasing 15.4 11.6 32.8 % Other comprehensive income / (loss) to be reclassified to profit or loss in subsequent periods: Net insurance premiums earned 40.8 121.8 –66.5 % Net change in fair value of debt financial assets at fair value 7.4 –7.4 Net insurance claims incurred, movement in liabilities to policyholders and acquisition costs –60.5 –99.3 –39.1 % through other comprehensive income, net of tax Revenues less expenses from insurance activity1 –19.7 22.5 –187.6 % Reclassification of gains to income statement on sale of debt financial assets –0.7 –5.1 at fair value through other comprehensive income, net of tax Revenue and other gains from other non-banking activities 96.9 71.3 35.9 % Cash flow hedges, net of tax 0.1 – Cost of sales and other expenses from other non-banking activities –93.2 –66.3 40.6 % Share of other comprehensive (loss) / income of associates and joint ventures –2.0 3.5 Impairment of land, premises and intangible assets other than goodwill used –1.1 –7.1 –84.5 % in non-banking activities Effect of translation, net of tax –21.2 33.8 Net loss from change in fair value of investment property recognised on revaluation or disposal –0.9 –14.4 –93.8 % Total other comprehensive (loss) / income to be reclassified –16.3 24.8 to profit or loss in subsequent periods Revenues less expenses from other non-banking activities 1.7 –16.5 110.3 % Other comprehensive income / (loss) not to be reclassified Reversal of impairment / (impairment) of land, premises and intangible assets other than 0.1 –9.4 101.1 % to profit or loss in subsequent periods: goodwill Actuarial losses net of gains arising from difference between pension plan assets and obligations –0.1 –0.2 Impairment of goodwill – –0.1 100.0 % Net change in fair value of equity financial assets at fair value 2.0 –2.7 Other operating expense –19.0 –13.6 39.7 % through other comprehensive income, net of tax Staff costs and administrative expenses –254.2 –259.8 –2.2 % Land and premises revaluation, net of tax –0.3 6.2 Non-interest expenses –273.1 –282.9 –3.5 % Total other comprehensive income not to be reclassified 1.6 3.3 to profit or loss in subsequent periods Profit before tax 252.9 214.4 18.0 % Other comprehensive (loss) / income, net of tax –14.7 28.1 Income tax expense –51.7 –32.9 57.1 % Total comprehensive income 186.5 209.6 Net profit 201.2 181.5 10.9 % Total comprehensive income / (loss) attributable to: Net profit / (loss) attributable to: Shareholders of the parent 186.2 210.8 Shareholders of the parent 202.0 181.9 11.1 % Non-controlling interests 0.3 –1.2 Non-controlling interests –0.8 –0.4 100.0 % Basic and diluted earnings per share (expressed in Russian roubles per share) 0.01453 0.01299 11.9 %

1 After disposal of VTB Insurance Group in October 2018 this line includes only results of non-state pension funds activity accounted for under IFRS 4 Insurance Contracts.

172 173 Annual Report / 2019 1 2 3 4 5 6 7 8 Financial Statements

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER, in billions of Russian roubles

2019 2018 Change 2019 2018 Change Assets Liabilities Cash and short-term funds 1,335.0 935.8 42.7 % Due to other banks 1,177.2 1,425.7 –17.4 % Mandatory cash balances with central banks 127.2 111.1 14.5 % Customer deposits 10,974.2 10,403.7 5.5 % Trading financial assets 501.3 298.7 67.8 % Derivative financial liabilities 176.5 140.2 25.9 % • Trading financial assets 481.9 264.6 82.1 % Other borrowed funds 348.9 329.7 5.8 % • Trading financial assets, pledged under repurchase agreements 19.4 34.1 –43.1 % Debt securities issued 343.4 259.1 32.5 % Derivative financial assets 142.8 202.5 –29.5 % Liabilities of disposal groups held for sale 0.3 – n/a Due from other banks 610.1 693.1 –12.0 % Deferred income tax liability 15.7 12.4 26.6 % Loans and advances to customers 10,774.1 10,691.6 0.8 % Other liabilities 603.5 452.3 33.4 % • Loans and advances to customers 10,753.1 10,665.7 0.8 % Total liabilities before subordinated debt 13,639.7 13,023.1 4.7 % • Loans and advances to customers, pledged under repurchase agreements 21.0 25.9 –18.9 % Subordinated debt 223.1 214.5 4.0 % Investment financial assets 316.6 352.6 –10.2 % Total liabilities 13,862.8 13,237.6 4.7 % • Investment financial assets 163.5 339.5 –51.8 % Equity • Investment financial assets, pledged under repurchase agreements 153.1 13.1 1,068.7 % Share capital 659.5 659.5 0.0 % Investments in associates and joint ventures 264.9 286.8 –7.6 % Share premium 433.8 433.8 0.0 % Assets of disposal groups and non-current assets held for sale 75.8 22.0 244.5 % Perpetual loan participation notes 139.3 156.3 –10.9 % Land, premises and equipment 422.5 402.3 5.0 % Treasury shares and bought back perpetual loan participation notes (0.4) (1.0) –60.0 % Investment property 196.1 197.2 –0.6 % Other reserves 66.1 82.4 –19.8 % Goodwill and other intangible assets 209.2 160.0 30.8 % Retained earnings 362.1 197.0 83.8 % Deferred income tax asset 129.9 119.6 8.6 % Equity attributable to shareholders of the parent 1,660.4 1,528.0 8.7 % Other assets 410.6 287.3 42.9 % Non-controlling interests –7.1 –5.0 42.0 % Total assets 15,516.1 14,760.6 5.1 % Total equity 1,653.3 1,523.0 8.6 % Total liabilities and equity 15,516.1 14,760.6 5.1 %

174 175 Annual Report / 2019 1 2 3 4 5 6 7 8 Financial Statements

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER, in billions of Russian roubles

2019 2018 2019 2018 Cash flows from / (used in) operating activities Cash flows from / (used in) investing activities Interest received 1,081.2 1,047.9 Dividends and other distributions received 10.7 10.0 Interest paid –649.7 –508.4 Proceeds from redemption and sales of investment financial assets 341.4 174.0 Payments to deposit insurance system –28.2 –20.2 Purchase of investment financial assets –257.5 –197.9 Gains / (losses) on operations with trading financial assets 65.1 –25.4 Acquisition of subsidiaries, net of cash –32.1 6.9 (Losses) / gains incurred on dealing in foreign currency –96.5 88.8 Disposal of subsidiaries, net of cash 3.7 –18.9 Fees and commissions received 160.0 141.7 Purchase of share in associates and other contributions –39.1 –140.1 Fees and commissions paid –58.4 –43.1 Proceeds from sale of share in associates and other distributions 0.3 64.9 Other operating income received 6.6 9.3 Purchase of land, premises and equipment –17.4 –53.3 Other operating expenses paid –8.9 –15.5 Proceeds from sale of land, premises and equipment 1.1 4.8 Revenue received from operating lease of equipment 28.4 26.9 Purchase or construction of investment property –6.6 –7.3 Expenses paid related to equipment leased out –4.8 –4.7 Proceeds from sale of investment property 12.2 3.5 Net insurance premiums received 40.7 152.2 Purchase of intangible assets –14.7 –10.1 Net insurance claims paid –3.4 –30.4 Proceeds from sale of intangible assets 0.1 0.7 Revenue received from non-banking activities 101.1 32.6 Net cash from / (used in) investing activities 2.1 –162.8 Expenses paid related to non-banking activities –87.7 –36.3 Staff costs, administrative expenses paid –227.3 –233.6 Income tax paid –53.4 –44.6

Cash flows from operating activities before changes in operating assets and liabilities 264.8 537.2 Net decrease / (increase) in operating assets Net increase in mandatory cash balances with central banks –15.7 –13.7 Net (increase) / decrease in correspondent accounts in precious metals –2.9 29.2

Net increase in trading financial assets –147.9 –74.5 Net decrease in due from other banks 53.2 122.5 Net increase in loans and advances to customers –319.5 –1,423.6 Net increase in other assets –129.4 –4.7

Net (decrease) / increase in operating liabilities

Net (decrease) / increase / in due to other banks –200.2 573.7 Net increase in customer deposits 845.5 718.9 Net increase in debt securities issued other than bonds issued 3.8 13.7 Net increase / (decrease) in other liabilities 17.8 –2.8

Net cash from operating activities 369.5 475.9

176 177 Annual Report / 2019 1 2 3 4 5 6 7 8 Financial Statements

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER, in billions of Russian roubles

2019 2018 2019 2018 Cash flows from / (used in) financing activities Non-cash changes in liabilities arising from financial activities

Dividends paid –31.1 –78.2 Foreign currency translation

Proceeds, net of repayment, from short-term local bonds issued –13.6 –11.2 Eurobonds –6.4 –15.6 Proceeds from local bonds issued 125.9 55.6 Syndicated loans 3.0 –1.4 Repayment of local bonds –16.3 –33.6 Funds from local central banks – –0.1 Buy-back of local bonds –12.0 –10.6 Subordinated debt 14.6 –18.4

Proceeds from sale of previously bought-back local bonds 0.6 3.6 Other non-cash changes

Repayment of Eurobonds – –115.8 Local bonds 11.4 –1.2 Buy-back of Eurobonds –6.7 –2.5 Eurobonds 12.9 1.2 Proceeds from sale of previously bought-back Eurobonds 6.0 2.4 Syndicated loans –2.1 –0.2 Repayment of syndicated loans –1.6 –1.6 Funds from local central banks 9.2 10.1 Proceeds from other borrowings and funds from local central banks 402.6 535.4 Subordinated debt –3.7 –2.8 Repayment of other borrowings and funds from local central banks –394.0 –540.4 Repayments of lease liabilities –10.6 – Proceeds from subordinated debt 20.0 – Repayment of subordinated debt –0.5 – Buy-back of subordinated debt – –0.7 Proceeds from sale of previously bought-back subordinated debt – 0.8 Purchase of shares in subsidiaries from non-controlling interests –6.6 – Proceeds from issue of shares to non-controlling interest holders in subsidiaries – 3.1 Cash received from sale of treasury shares 2.9 4.1 Cash paid for treasury shares –2.4 –2.4

Buy-back of perpetual loan participation notes –10.6 –10.5 Proceeds from sale of previously bought-back perpetual loan participation notes 10.7 11.1 Amounts paid on perpetual loan participation notes –13.8 –13.7

Net cash from / (used in) financing activities 48.9 –205.1 Effect of exchange rate changes on cash and cash equivalents –24.0 83.3 Effect of change in impairment loss allowance –0.2 –0.1

Net increase in cash and cash equivalents 396.3 191.2 At the beginning of year 929.3 738.1

At the end of year 1,325.6 929.3

178 179 Annual Report / 2019 1 2 3 4 5 6 7 8 Financial Statements

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER, in billions of Russian roubles

Attributable to shareholders of the parent Share Share Perpetual loan Treasury shares and bought back perpetual Other Retained Non-controlling Total capital premium participation notes loan participation loan notes reserves earnings Total interests equity Balance at 1 January 2018 659.5 433.8 129.6 –3.3 54.1 126.6 1,400.3 10.5 1,410.8 Net result from treasury shares transactions – – – 1.7 – 0.1 1.8 – 1.8 Net result from bought back perpetual loan participation notes transactions – – – 0.6 – – 0.6 – 0.6 Profit / (loss) for the period – – – – – 181.9 181.9 –0.4 181.5 Other comprehensive income / (loss) – – – – 29.1 –0.2 28.9 –0.8 28.1 Total comprehensive income / (loss) for the period – – – – 29.1 181.7 210.8 –1.2 209.6 Transfer of premises revaluation reserve upon disposal or depreciation – – – – –0.8 0.8 – – – Share-based payments – – – – – –1.1 –1.1 – –1.1 Acquisition of subsidiaries – – – – – – – 2.2 2.2 Disposal of subsidiaries – – – – – – – –15.9 –15.9 Acquisition of non-controlling interests – – – – – –0.9 –0.9 0.6 –0.3 Increase in share capital of subsidiaries – – – – – – – 3.1 3.1 Put options over non-controlling interests – – – – – –1.7 –1.7 – –1.7 Amounts paid on perpetual loan participation notes – – – – – –13.7 –13.7 – –13.7 Foreign exchange translation of perpetual loan participation notes – – 26.7 – – –26.7 – – – Tax effect recognised on perpetual loan participation notes – – – – – 5.4 5.4 – 5.4 Dividends declared – – – – – –73.5 –73.5 –4.3 –77.8 Balance at 31 December 2018 659.5 433.8 156.3 –1.0 82.4 197.0 1,528.0 –5.0 1,523.0 Impact of adopting IFRS 16 at 1 January 2019 – – – – – –6.7 –6.7 – –6.7 Balance at 1 January 2019 after adoption 659.5 433.8 156.3 –1.0 82.4 190.3 1,521.3 –5.0 1,516.3 Net result from treasury shares transactions – – – 0.5 – –0.1 0.4 – 0.4 Net result from bought back perpetual loan participation notes transactions – – – 0.1 – – 0.1 – 0.1 Profit / (loss) for the period – – – – – 202.0 202.0 –0.8 201.2 Other comprehensive (loss) / income – – – – –15.7 –0.1 –15.8 1.1 –14.7 Total comprehensive income / (loss) for the period – – – – –15.7 201.9 186.2 0.3 186.5 Transfer of premises revaluation reserve upon disposal or depreciation – – – – –0.3 0.3 – – – Transfer of fair value reserve of equity investment financial assets upon disposal or derecognition – – – – –0.3 0.3 – – – Share-based payments – – – – – –0.5 –0.5 – –0.5 Acquisition of subsidiaries – – – – – 0.6 0.6 5.1 5.7 Acquisition of non-controlling interests – – – – – 3.0 3.0 –5.4 –2.4 Amounts paid on perpetual loan participation notes – – – – – –13.8 –13.8 – –13.8 Foreign exchange translation of perpetual loan participation notes – – –17.0 – – 17.0 – – – Tax effect recognised on perpetual loan participation notes – – – – – –3.4 –3.4 – –3.4 Dividends declared and other distributions to shareholders – – – – – –33.5 –33.5 –2.1 –35.6 Balance at 31 December 2019 659.5 433.8 139.3 –0.4 66.1 362.1 1,660.4 –7.1 1,653.3

180 181 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes Annexes

SHARE CAPITAL SHAREHOLDER STRUCTURE: HOLDERS OF VTB BANK'S ORDINARY SHARES as of December 2019 Shareholder % of ordinary shares % of charter capital In 2019, the structure of VTB Bank’s share capital did not undergo significant changes. There was also no change in the amount The Russian Federation as represented by the of the Bank's charter capital, remaining at RUB 651,033,883,623.38, which is divided into ordinary and preference shares. 60.93 12.13 Federal Agency for State Property Management

SHARE CAPITAL State Oil Fund of the Republic of Azerbaijan 2.95 0.59

Type of shares Number of shares Nominal value Qatar Holding 2.35 0.47 Ordinary shares 12,960,541,337,338 RUB 0.01 Type 1 preference shares 21,403,797,025,000 RUB 0.01 Bank Otkritie Financial Corporation 9.08 1.81 Type 2 preference shares 3,073,905,000,000 RUB 0.1 Management-consulting 4.67 0.93 Total 37,438,243,362,338

Sistema Capital 1.03 0.21 In accordance with its Charter, the Bank has the right to issue VTB Bank Type 1 and Type 2 preference shares are not traded a maximum number of 14,000,000,000,000 ordinary shares on exchanges and do not offer a fixed dividend for the year. OTKRITIE LTD 0.02 0.01 with a par value of RUB 0.01 each. The state registration The amount of the dividend is subject to approval at the Annual number of ordinary shares 10401000B. The record date General Meeting of Shareholders. Other minority shareholders 18.97 3.75 for the state registration of the Bank’s issue of ordinary shares is 29 September 2006. In addition, the Bank’s Charter provides for the possibility of paying out interim dividends. The state registration number of the Bank’s Type 1 preference DIVIDENDS shares is 20301000B. The record date for the state registration The total number of shareholders of the Bank as of 31 December of the issue is 13 December 2016. All shares of this type are placed 2019 amounted to 160 thousand, including 159 thousand One of the main rights of shareholders is the right to receive a share Shareholders appearing on the register receive dividends by bank at the disposal of a sole purchaser, the Russian Federation, individuals. In 2019, the number of shareholders of the Bank of the Bank’s net profit in the form of dividend payments. Dividend transfer to their accounts (if bank details are provided) or by postal as represented by the Ministry of Finance of the Russian Federation. increased by 31 %, or by 35 thousand individuals. payments are approved by the AGM, following recommendations order. Shareholders whose rights are registered via nominal made by the Supervisory Council. In determining the recommended shareholders receive dividends in monetary form in accordance The state registration number of the Bank's Type 2 preference The Bank’s largest shareholders are the Federal Agency for State dividend amount, the Supervisory Council is guided by the amount with the procedure stipulated in Russian laws on securities. shares is 20401000B. The record date for the state registration Property Management (12.13 % of the charter capital, or 60.93 % of the Bank’s net profit and by the Dividend Policy. The Bank’s The applicable law does not provide for dividend payments in cash. of the issue is 13 December 2016. All shares of this type are placed of ordinary shares) and the Ministry of Finance of the Russian Charter also provides for the possibility of the payment of interim at the disposal of a sole purchaser, the State Corporation Deposit Federation (32.88 % of the charter capital), as well as the Deposit dividends for the first three, six and nine months of the reporting Any dividends accrued but unclaimed by shareholders within Insurance Agency (hereinafter, the “Deposit Insurance Agency”). Insurance Agency (47.22 % of the charter capital). year to holders of issued shares. a period of three calendar years are subject to allocation back to the profit of the Bank. Therefore, if a shareholder does VTB Bank’s ordinary shares trade on Moscow Exchange The record date for persons entitled to a share of the Bank’s not claim his or her accrued dividends within three years, and on the London Stock Exchange in the form of global depository net profit is determined at the General Meeting of Shareholders, he or she loses the right to receive them. If dividends are transferred receipts (GDRs). Moscow Exchange has included VTB Bank’s shares but can be no earlier than 10 days before the date when the decision to a shareholder’s bank account, they are considered paid. in its Tier 1 list. One lot is 10,000 shares. to pay dividends is due to be made, and no later than 20 days following such a decision. The time period for the payment of dividends depends on the type of registered shareholder. Dividend payments to nominal shareholders and trustees listed on the shareholder register must be made within 10 working days, while dividend payments to other registered shareholders must be made within 25 working days of the date when the list of persons entitled to dividends is compiled.

182 183 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

RECORD OF VTB BANK DIVIDEND PAYMENTS FOR THE LAST FIVE YEARS DIVIDEND PAYMENT IN 2019 Dividends were paid in full for all types of shares. There are no liabilities for the payment of dividends. 2014 2015 20161 2017 2018 Total amount of dividend payments (RUB million) 18,000 33,093 62,265 73,516 26,820 Dividends DIVIDEND PAYOUT RATIO paid, % of VTB Bank’s net profit under RAS 91 67 90 73 12 % of the total amount % of VTB Group’s net profit under IFRS 2,250 1,947 121 61 15 of deductions DIVIDEND PAYMENTS, RUB MILLION for the payment Deductions Amount of dividends Payment date / Ordinary shares 15,164 15,164 15,164 44,759 14,240 for the payment Dividend amount of dividends on shares planned Type 1 preference shares2 2,836 90 11,130 11,804 5,164 Type of shares held of dividends, RUB per share, RUB paid, RUB of a given type payment date Type 2 preference shares2 – 17,839 35,971 16,953 7,416 Federal Agency 8,676,781,631.77 60.94 3 July 2019/ for State Property 26 July 2019 DIVIDEND PER ORDINARY SHARE, RUB Management Ordinary shares 0.00117 0.00117 0.00117 ≈0.00345 ≈0.00110 Registered nominal Ordinary shares 14,239,456,640.85 0.00109867761463259 5,546,669,639.56 38.95 2 July 2019/ shareholders 5 July 2019 Type 1 preference shares – ≈0.000132 ≈0.0000042 0.00052 ≈0.00024 Type 2 preference shares – – ≈0.0058 ≈0.01170 ≈0.00241 DIVIDEND YIELD, % Other registered 13,910,760.62 0.10 10 July 2019/ shareholders 26 July 2019 Ordinary shares 2.7 1.7 1.7 5.5 2.4 Type 1 preference shares – 0.04 5.2 5.5 2.4 Ministry of Finance Type 1 preference 5,164,109,976.47 0.00024127074137541 5,164,109,976.47 100 3 July 2019/ of the Russian shares 26 July 2019 Type 2 preference shares – 5.8 11.7 5.5 2.4 Federation Deposit Insurance Type 2 preference 7,416,433,382.68 0.0024127074137541 7,416,433,382.68 100 3 July 2019/ Agency shares 26 July 2019 At the Annual General Meeting of Shareholders on 5 June 2019, a decision was made on the payment of dividends based on 2018 results, Dividends in the amount of RUB 2,094,608.90, or 0.01 % of the total amount of deductions for the payment of dividends on ordinary shares, and the record date for persons entitled to receive a divided was set at 24 June 2019. were not paid due to the failure on the part of the persons with the right to receive dividends to provide the Bank or the Bank’s registrar with the necessary address details or bank information.

Funds were sent by bank transfer to the accounts provided to the registrar by registered shareholders and nominal shareholders. In cases where bank details were not provided to the registrar, dividends were sent by postal order.

Dividend taxation The tax rate on dividends for both individuals and legal entities that are residents of the Russian Federation is 13 %, and it is 15 % When calculating dividends for the year, a tax agent calculates for non-residents. This rate applies to the total dividend sum, and withholds tax from the amount of dividends accrued. Since which can be less than the total volume of payments based 1 January 2014, when income is distributed in the form of dividends on the income received by VTB Bank as dividends from participating on shares issued by a Russian organisation, not only may the issuer in other companies, as tax has already been paid on these amounts. of these shares be considered a tax agent, but, in cases stipulated If a double taxation agreement applies, tax payments are made by law, so may trustees, depositaries and so on. Taking into account in accordance with the rate specified in the agreement, taking into that the income tax is calculated and withheld by a tax agent, account Russian legislation. mutual funds, foreign institutional investors and individual investors can apply for a tax exemption or a reduced tax rate on dividends received by submitting documents that demonstrate that they have the right to preferential tax treatment to the Bank’s registrar,

1 VTB Registrar, or to the depositary where their shares are registered. Taking into account interim dividends on Type 2 preference shares for 9M 2016 paid in December 2016. 2 In accordance with the decision of the Extraordinary General Meeting of Shareholders of VTB Bank on 8 December 2016, In the case of share transfer to beneficial ownership, documents A complete list of the required documents can be found in the Investor Relations section Type 1 and Type 2 preference shares were placed by converting preference shares and Type A registered preference shares. should be submitted to a trust manager. of the Bank’s website (Dividends subsection).

184 185 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

REPORT ON COMPLIANCE WITH THE PRINCIPLES Status1 of compliance Comments/explanation2 AND RECOMMENDATIONS OF THE CORPORATE GOVERNANCE CODE Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance Status1 1.1.3 In the course 1. Shareholders had the opportunity of compliance Comments/explanation2 of the preparation to put questions to members Compliance Criteria for assessing compliance with the principle of deviation from compliance for, and the holding of the executive bodies and the members Principles of corporate with the relevant principle of corporate with the principle of, a General Meeting, of the Board of Directors prior No. governance of corporate governance governance of corporate governance shareholders had to and during the Annual General Partial 1.1 The company shall ensure equal and fair treatment for all its shareholders in exercising their rights the opportunity Meeting. compliance to participate in the management of the company. to receive information 2. The position of the Board of Directors about the meeting (including dissenting opinions entered 1.1.1 The company creates 1. There is a publicly available internal and materials for the meeting in the minutes) on each agenda item Non-compliance the most favourable company bylaw, approved by the General Compliance without hindrance at General Meetings held during possible conditions Meeting of Shareholders that governs and in a timely manner the reporting period was included for its shareholders the procedures for conducting General to put questions in the materials for the General Meeting to participate Meetings. Partial to the executive bodies of Shareholders. in the General Meeting, 2. The company has established compliance and the members 3. The company provides for the development an accessible means of communicating of the Board of Directors shareholders (who have the right) of sound positions with the company, such as a hotline, email and to communicate with an access to the list of persons related to agenda or online forums, allowing shareholders Non-compliance with one another. entitled to participate in the General items at the General to express their opinions and send Meeting starting from the date Meeting, for coordinating questions regarding the agenda during of its receipt by the company in all cases their activities, as well preparations for the General Meeting. regarding General Meetings held during as an opportunity to express The company undertook such actions the reporting period. their views on the issues before every General Meeting that took under consideration. place during the reporting period. 1.1.4 Implementation 1. During the reporting period, shareholders of the shareholder right had the opportunity to submit proposals Compliance 1.1.2 The procedure for giving 1. Notice of an upcoming General Meeting to request that a General for inclusion on the agenda of the Annual notice of the General of Shareholders is posted (published) Compliance Meeting be convened, General Meeting during a period Meeting and the provision on the website no later than 30 days to nominate candidates of no less than 60 days after the end Partial of materials for the General before the date of the General Meeting. to the management bodies of the corresponding calendar year. compliance Meeting gives shareholders 2. The notice about an upcoming meeting Partial and to make proposals 2. During the reporting period, the company an opportunity to properly indicated the place of the meeting compliance for inclusion on the agenda did not refuse to accept proposals prepare for participation and the documents required for admission of the general meeting for the agenda or nominations Non-compliance in the meeting. to the premises. did not involve needless to the company’s various bodies as a result 3. Shareholders were provided with access Non-compliance difficulties. of typos or other insignificant errors to information about who proposed in the shareholder’s proposal. the agenda items and who nominated individuals to the Board of Directors 1.1.5 Every shareholder had The company’s bylaws (internal policy) and the Statutory Audit Commission. an opportunity to freely contain provisions pursuant to which each Compliance exercise their right participant of a General Meeting may to vote in the simplest request a copy of their completed ballot and the most convenient certified by the counting commission Partial way for them. prior to the completion of the meeting compliance in question.

Non-compliance

186 187 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 1.1.6 The procedure established 1. When conducting General Meetings 1.2.3 The company does During the reporting period, by the company of Shareholders during the reporting Compliance not permit any diminution the company did not take any actions Compliance for conducting General period in the form of a meeting (with of the dividend rights that led to the diminution of the dividend Meetings provides the joint presence of shareholders), of existing shareholders. rights of existing shareholders. an equal opportunity sufficient time was provided for reports Partial Partial to all individuals present on agenda items, as well as time to discuss compliance compliance at a meeting to express those items. their opinions and ask 2. Candidates for the company’s questions. management and oversight bodies Non-compliance Non-compliance were available to answer questions 1.2.4 The company is committed In order to prevent shareholders from shareholders at the meeting to preventing shareholders from using other means Compliance at which their nominations were put from using other means of earning a profit (income) to a vote. of earning a profit at the company’s expense beyond 3. When making decisions related (income) at the company’s dividends and liquidation value, Partial to the preparation and holding expense beyond dividends the company’s bylaws have established compliance of General Meetings of Shareholders, and liquidation value. monitoring mechanisms that ensure the Board of Directors considered the timely discovery of, and a procedure the use of telecommunications facilities for, the approval of transactions Non-compliance to provide remote access to shareholders with persons affiliated (associated) to participate in General Meetings during with major shareholders (those the reporting period. with the right to make use of the votes 1.2 Shareholders are given equal and fair opportunities to participate in the profits of the company by receiving dividends. stemming from voting shares) in cases where the law does not 1.2.1 The company has developed 1. The company has developed a dividend formally recognise such transactions and implemented policy that has been approved Compliance as related-party transactions. a transparent by the Board of Directors and that has and clear mechanism been disclosed. 1.3 The corporate governance system and practices shall ensure equal terms and conditions for all shareholders owning for determining 2. If the company’s Dividend Policy Partial shares of the same class (category), including minority and foreign shareholders, as well as their equal treatment the amount and payment uses the company’s reporting compliance by the company. of dividends. indicators to determine the amount 1.3.1 The company has During the reporting period, of the dividend, then the relevant created the conditions the procedures for managing potential Compliance provisions of the Dividend Policy Non-compliance for the fair treatment conflicts of interest involving major are taken into account by the Group's of each shareholder shareholders were effective, and conflicts consolidated financial statements. by the company’s between shareholders, if any, were given Partial 1.2.2 The company does The company’s Dividend Policy provides management due attention by the Board of Directors. compliance not take a decision clear guidance on the financial/economic Compliance and oversight bodies, on the payment of dividends circumstances under which the company including conditions if such a decision, should not pay dividends. ensuring the inadmissibility Non-compliance while not formally Partial of abuse by major in violation of legal compliance shareholders in relation restrictions, is unjustified to minority shareholders. from an economic point of view and could Non-compliance lead to the formation of misconceptions about the company’s activities.

188 189 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 1.3.2 The company There were no quasi-treasury shares, 2.1.2 The Board of Directors During the reporting period, meetings does not undertake or they did not vote during the reporting Compliance establishes of the Board of Directors addressed issues Compliance actions that lead period. the basic guidelines related to progress on implementation or may lead for the company’s and updating of the company’s strategy, to the artificial Partial activities in the long term, approval of the company’s financial Partial redistribution compliance evaluates and approves and economic plan (budget), as well compliance of corporate control. the company’s key as the consideration of criteria and indicators performance indicators (including interim) related to implementation Non-compliance and key business of the company’s strategy and business plans. Non-compliance goals, and evaluates 1.4 Shareholders must be provided with reliable and effective ways to register their rights to their shares, and approves the strategy as well the possibility to dispose of their shares freely and easily. and business plans 1.4.1 Shareholders must be The quality and reliability of the activities for the company’s core provided with reliable performed by the company’s registrar Compliance activities. and effective ways to maintain the register of securities 2.1.3 The Board of Directors 1. The Board of Directors has determined to register their rights holders meet the needs of the company determines the principles of, and approaches Compliance to their shares, as well and its shareholders. Partial the principles of, to, organising a risk management the possibility to dispose compliance and approaches to, and internal control system of their shares freely organising a risk in the company. Partial and easily. management and 2. The Board of Directors assessed compliance Non-compliance internal control the company’s risk management 2.1 The Board of Directors carries out strategic management within the company, defines the basic principles and approaches system in the company. and internal control system during to organising a risk management and internal control system within the company, supervises the activity of executive the reporting period. Non-compliance bodies and also performs other key functions. 2.1.4 The Board of Directors 1. The company has developed 2.1.1 The Board of Directors 1. The Board of Directors has the authority, determines the company and implemented a policy (policies), Compliance is responsible per the Charter, to appoint and dismiss Compliance policy on remuneration approved by the Board of Directors, for decisions relating members of executive bodies, and/or reimbursement on the remuneration and reimbursement to the appointment as well as to determine the terms (compensation) (compensation) of expenses for members Partial and dismissal of members of their contracts. Partial for expenses for members of the company’s Board of Directors, compliance of executive bodies, 2. The Board of Directors reviewed compliance of the company’s Board executive bodies and other key executives. including in connection the report(s) of the sole executive of Directors, executive 2. Issues related to this policy (policies) were with the improper body and of members of the collective bodies and other key considered during the reporting period Non-compliance performance of their duties. executive body on the implementation Non-compliance executives. at meetings of the Board of Directors. The Board of Directors of the company’s strategy. 2.1.5 The Board of Directors 1. The Board of Directors plays also carries out oversight plays a key role a key role in the prevention, detection Compliance measures to ensure that in the prevention, and resolution of internal conflicts. the company’s executive detection and resolution 2. The company has established a system bodies act in accordance of internal conflicts for identifying transactions involving Partial with the approved between the company’s a conflict of interest, and a system compliance Development Strategy executive bodies, of measures aimed at resolving such and the company’s main shareholders conflicts. areas of activity. and employees. Non-compliance

190 191 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 2.1.6 The Board of Directors 1. The Board of Directors approved 2.3 The Board of Directors must be an efficient and professional governing body that is capable of making objective plays a key role in ensuring the Regulation on Information Policy. Compliance and independent judgements and passing resolutions in the best interests of the company and its shareholders. the transparency 2. The company has appointed responsible 2.3.1 Only individuals who have 1. The company has adopted a procedure of the company, officials for implementation of its an excellent business for assessing the effectiveness Compliance the timeliness Information Policy. Partial and personal reputation, of the Board of Directors that includes and completeness compliance and who also have an assessment of the professional of the company’s the knowledge, skills qualifications of the members Partial disclosure of information, and experience required of the Board of Directors. compliance and shareholders’ Non-compliance to make decisions related 2. During the reporting period, unhindered access to the remit of the Board the Board of Directors (or its Nominating to company documents. of Directors and required Committee) evaluated candidates Non-compliance 2.1.7 The Board of Directors During the reporting period, the Board for the effective for the Board of Directors in terms oversees the corporate of Directors considered the issue Compliance performance of its of whether they had the necessary governance practices of the company’s corporate governance functions may be elected experience, knowledge and business within the company practices. as members of the Board reputation, as well as whether or not they and plays a key role Partial of Directors. had any conflicts of interest. in material corporate compliance 2.3.2 The members of the Board Whenever a General Meeting events. of Directors are elected of Shareholders was held during Compliance

through a transparent the reporting period whose Non-compliance procedure that agenda included the issue 2.2 The Board of Directors is accountable to the company’s shareholders. allows shareholders of the election of the Board of Directors, Partial to receive information the company provided the shareholders compliance 2.2.1 Information 1. The company’s Annual Report about the candidates with the CVs of all candidates about the work for the reporting period includes Compliance that is sufficient to form for members of the Board of Directors of the Board of Directors information on individual directors’ a picture of their personal and the results of the evaluation Non-compliance is disclosed and presented attendance at board and committee and professional qualities. of the candidates conducted to the shareholders. meetings. Partial by the Board of Directors (or 2. The Annual Report contains information compliance the Nominating Committee). about the main results of the assessment It also provided information of the work of the Board of Directors on each candidate’s compliance carried out during the reporting period. Non-compliance with the independence criteria 2.2.2 The Chairman of the Board The company has a transparent in accordance with recommendations of Directors must be procedure for providing shareholders Compliance 102–107 of the Code, as well available to the company’s with an opportunity to direct their questions as the written consent of the candidates shareholders. and their position on those questions for election to the Board of Directors. to the Chairman of the Board of Directors. Partial 2.3.3 The composition As part of the procedures for assessing compliance of the Board of Directors the work of the Board of Directors Compliance shall be balanced, carried out during the reporting period,

including in terms the Board of Directors analysed its own Non-compliance of the qualifications of its requirements in the area of professional Partial members, their experience, qualifications, experience and business compliance knowledge and business skills. qualities, and it shall enjoy the confidence Non-compliance of the shareholders.

192 193 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 2.3.4 The quantitative As part of the procedures for assessing 2.4.2 An assessment 1. During the reporting period, composition of the Board the work of the Board of Directors carried Compliance of the compliance the Board of Directors Compliance of Directors makes out during the reporting period, the Board of candidates (or its Nominating Committee) formed it possible to organise of Directors considered the issue for the Board of Directors an opinion about each candidate’s the activities of the Board of the compliance of the quantitative Partial with the criteria independence and presented Partial of Directors in the most composition of the Board of Directors compliance for independence shall shareholders with their conclusions. compliance efficient manner possible, with the company’s requirements be carried out, along 2. During the reporting period, including the possibility and the interests of shareholders. with a regular review the Board of Directors (or its Nominating of the formation Non-compliance of the compliance Committee) reviewed, on at least one Non-compliance of the Board committees. of independent members occasion, the independence of the current It shall also provide of the Board of Directors members of the Board of Directors who the company’s significant with the independence are indicated as independent directors minority shareholders criteria. In conducting such in the company’s Annual Report. with an opportunity an assessment, content 3. The company has developed procedures to elect to the Board should prevail over form. for determining the necessary of Directors a candidate actions a Board member must take of their choice. in the event that he or she ceases to be independent, including the obligation 2.4 The Board of Directors includes a sufficient number of independent directors. to inform the Board of Directors 2.4.1 An independent director During the reporting period, about this in a timely manner. is a person who has all independent members Compliance 2.4.3 Independent directors Independent directors account Of the 11 members of the Bank’s sufficient professionalism, of the Board of Directors met all account for at least one for at least one third of all directors Compliance Supervisory Council, three experience the criteria for independence set out third of all directors elected to the Board. are independent, which is less and independence in recommendations 102–107 Partial elected to the Board. than one third of the composition to form their own positions, of the Code or were recognised compliance Partial of the Supervisory Council is able to formulate as independent by a decision compliance recommended in this paragraph. objective and honest of the Board of Directors. opinions, is independent Non-compliance At the same time, the Bank

from the influence elected a new Supervisory Council Non-compliance of the company’s executive at the Bank's AGM in 2019, which bodies, individual includes five directors with no relation groups of shareholders to the principal shareholder, including and other interested four representatives of minority parties. It should be kept shareholders. in mind that, under normal According to the Bank, the current conditions, a candidate composition of the Bank’s (elected member Supervisory Council is balanced, of the Board of Directors) representing the interests who is associated of a wide range of shareholders, with the company, its major and it is as independent as possible shareholders, a significant in its activities. counterparty or competitor or the state may not be considered independent.

194 195 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 2.4.4 Independent directors play Independent directors (who have no 2.6 Board members act in good faith and reasonably in the interests of the company and its shareholders a key role in the prevention conflict of interest) provide a preliminary Compliance on the basis of sufficient information, with due care and diligence. of internal conflicts assessment of material corporate actions 2.6.1 Board members 1. According to the company’s bylaws, within the company related to possible conflicts of interest, take decisions based a member of the Board of Directors Compliance and in the company’s and the results of that assessment Partial on all available must notify the Board of Directors performance of material are presented to the Board of Directors. compliance information, without if he or she has a conflict of interest corporate actions. any conflicts of interest, in respect of any item on the agenda Partial

taking into account of a meeting of the board or of a board compliance Non-compliance the equal treatment committee prior to the discussion 2.5 The Chairman of the Board of Directors shall facilitate the most effective performance of the functions of the company’s of the relevant agenda item. assigned to the Board. shareholders, within 2. The company’s bylaws provide that Non-compliance the framework of normal a Board member must abstain from voting 2.5.1 The Chairman 1. The Chairman of the Board of Directors business risk. on any matter in which he or she has of the Board of Directors is an independent director, or a senior Compliance a conflict of interest. is an independent director, independent director is selected 3. The company has established a procedure or the elected independent from among the independent directors3. that allows the Board of Directors directors select a senior 2. The role, rights and responsibilities Partial to receive professional advice on matters independent director of the Chairman of the Board of Directors compliance within its remit at the company’s expense. who coordinates the work (and, if applicable, of the senior of the independent independent director) are stipulated, 2.6.2 The rights and obligations The company has adopted and published directors and is responsible as required, in the company’s bylaws. Non-compliance of members of the Board a bylaw that clearly stipulates Compliance for communication of Directors are clearly the rights and responsibilities of members with the Chairman enshrined in the company’s of the Board of Directors. of the Board of Directors. bylaws. Partial compliance 2.5.2 The Chairman of the Board The effectiveness of the work of Directors ensures of the Chairman of the Board of Directors Compliance

a constructive atmosphere is evaluated in the framework of the Non-compliance for holding meetings, a free performance evaluation procedures discussion of the issues for the Board of Directors during Partial 2.6.3 Board members have 1. Individual attendance at Board included on the meeting the reporting period. compliance sufficient time to perform and committee meetings, as well Compliance agenda and oversight their duties. as the time devoted to preparation over the execution for participation in such meetings, of decisions taken Non-compliance was taken into account as part Partial by the Board of Directors. of the Board of Directors assessment compliance procedures during the reporting period. 2.5.3 The Chairman of the Board The duty of the Chairman of the Board 2. In accordance with the company’s of Directors shall take of Directors to take steps to ensure Compliance bylaws, members of the Board Non-compliance the necessary measures the timely delivery of materials of Directors are required to notify for the timely provision to members of the Board of Directors the Board of their intention to be a part of information to members concerning items on the agenda Partial of the management bodies of other of the Board of Directors of a meeting of the board is stipulated compliance organisations (beyond those that in order to take in company bylaws. are the company’s subsidiaries decisions about items or dependent organisations), as well on the agenda. Non-compliance as the fact of such appointments.

196 197 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 2.6.4 All members of the Board 1. In accordance with the company’s 2.7.4 Decisions on the most The company’s Charter provides that of Directors shall bylaws, the members of the Board Compliance important issues decisions on the most important issues Compliance have equal access of Directors have the right to access concerning the company’s outlined in recommendation 170 to the company’s documents and to make inquiries activities shall be taken of the Code must be taken at a meeting documents and information. concerning the company and its subsidiary Partial at a meeting of the Board of the Board of Directors by a qualified Partial Newly elected members organisations, and the company’s compliance of Directors by a qualified majority of not less than three compliance of the Board of Directors executive bodies are required to provide majority or a majority fourths of the votes or by a majority shall be provided, relevant information and documents. of all the elected members of all the elected members of the Board in the shortest possible time, 2. The company has established a formalised Non-compliance of the Board of Directors. of Directors. Non-compliance with sufficient information programme of introductory events 2.8 The Board of Directors shall form committees for preliminary consideration of the most important issues about the company. for newly elected members of the Board related to the company’s activities. of Directors. 2.8.1 For the preliminary 1. The Board of Directors has formed 2.7 Meetings of the Board of Directors, preparations for them and the participation of Board members consideration of issues an Audit Committee composed entirely Compliance therein shall ensure that the Board works in an effective manner. related to the control of independent directors. 2.7.1 Meetings of the Board The Board of Directors held at least six of the company’s financial 2. The company’s bylaws stipulate t of Directors shall be meetings during the reporting year. Compliance and economic activities, he Audit Committee’s tasks, Partial held as necessary, taking an Audit Committee including those tasks outlined compliance into account the scale shall be established in recommendation 172 of the Code. of operations and the tasks Partial that is composed 3. At least one member of the Audit facing the company compliance of independent directors. Committee, who is an independent Non-compliance at a given period of time. director, has experience and expertise in the preparation, analysis, evaluation Non-compliance and auditing of financial statements. 4. Meetings of the Audit Committee took 2.7.2 The company’s bylaws The company has approved a bylaw place at least once a quarter during shall enshrine procedures that stipulates the procedure Compliance the reporting period. for the preparation for the preparation and holding of Board and holding of Board meetings, in which it is also established meetings that allow that notice about a meeting must be Partial members of the BOARD provided, as a rule, not less than five days compliance of Directors to prepare prior to the meeting. adequately for such meetings. Non-compliance 2.7.3 The format of each The company’s Charter or bylaws meeting of the Board provide that the most important Compliance of Directors is determined issues (according to the list provided based on the importance in recommendation 168 of the Code) of the items on its agenda. must be considered at in-person Board Partial The most important issues meetings. compliance are resolved at meetings of the Board of Directors held in person. Non-compliance

198 199 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 2.8.2 For preliminary 1. The Board of Directors established 1-2. Two of the three directors 2.8.3 For preliminary 1. The Board of Directors established 1. The functions of the Nominating consideration of issues a Remuneration Committee that consists Compliance on the Supervisory Council's Staff consideration a Nominating Committee (or the tasks Compliance Committee are entrusted related to the formation solely of independent directors. and Remuneration Committee of issues related thereof specified in recommendation 186 to the Supervisory Council Staff of effective and transparent 2. The Chairman of the Remuneration are independent, and the other is a non- to the implementation of the Code are performed by another and Remuneration Committee. remuneration practices, Committee is an independent director Partial executive director. of staff planning committee <4>) consisting mostly Partial a Remuneration who is not the Chairman of the Board compliance (succession planning) of independent directors. compliance The current members of the Committee Committee was of Directors. and the professional 2. The company’s bylaws stipulate are selected based on the individual established that 3. The company’s bylaws stipulate composition the tasks of the Nominating Committee experience and competence of each consists of independent the Remuneration Committee’s Non-compliance and performance (or the relevant committee with combined Non-compliance member. In addition, the Bank complies directors and is chaired tasks, including those tasks outlined of the Board of Directors, functions), including the tasks outlined with the requirements on corporate by an independent director in recommendation 180 of the Code. a Nominating Committee in recommendation 186 of the Code. governance of the Moscow Exchange who is not the Chairman (appointments, human Listing Rules, including the requirements of the Board of Directors. resources) was established, for the composition of the Supervisory most of whose members Council committees. are independent directors. At the same time, the Bank considered 2.8.4 Given the scope During the reporting period, The Strategy and Corporate the practice of forming a committee and risk level, the Board the company’s Board of Directors Compliance Governance Committee has been from independent directors only to be of Directors determined considered the composition of its formed and actively functionnig inexpedient for itself primarily because that the composition committees in terms of the Board’s in the Bank. of the risk that the Committee would of its committees fully duties and the company’s objectives. Partial include members of the Supervisory meets the company’s Additional committees were either compliance The Committee considers, Council without the necessary competence goals. Additional formed or were deemed unnecessary. and makes recommendations in this field. committees were either on, strategic development issues Bearing in mind that the decisions formed or are not deemed Non-compliance and on improving corporate at Committee meetings are adopted necessary (strategy governance, as well as on refining by a simple majority, and the majority committee, corporate management of the Bank’s capital.5 of the members of the Committee governance committee, are independent, the Bank has minimised ethics committee, the risk of biased decisions. risk management committee, budget At the same time, however, the Bank, committee, committee in collaboration with its principal on health, safety shareholder (the Federal Agency for State and the environment, etc.). Property Management), plans to explore, prior to the Bank’s next AGM, in 2020, 2.8.5 The composition 1. Committees of the Board of Directors 1. See paras. 2.8.1 and 2.8.2 the issue of including as candidates of the committees are chaired by independent directors. Compliance for positions on the Supervisory is determined 2. The company’s bylaws (policies) include Council more independent directors in such a way that it allows provisions under which individuals with the requisite experience to serve for a comprehensive who are not members of the Audit Partial on the Committee. discussion of issues Committee, the Nominating Committee compliance beforehand, taking into or the Remuneration Committee account different views. may attend committee meetings only at the invitation of the chairman Non-compliance of the relevant committee.

200 201 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 2.8.6 The committee chairmen During the reporting period, the chairmen 3.1 The company’s Corporate Secretary is responsible for efficient ongoing interaction with its shareholders, shall regularly inform of the committees reported regularly Compliance coordination of the company’s actions designed to protect the rights and interests of its shareholders the Board of Directors to the Board of Directors and support for the efficient work of its Board of Directors. and its Chairman on the work of the committees. 3.1.1 The Corporate Secretary 1. The company has adopted and disclosed about the work Partial has sufficient knowledge, a bylaw called the Regulation Compliance of their committees. compliance experience and expertise on the Corporate Secretary. for the execution 2. The company’s website and Annual

of his or her duties. Report provide biographical information Partial Non-compliance This official enjoys about the Corporate Secretary. compliance 2.9 The Board of Directors shall ensure that the quality of its work and that of its committees an impeccable reputation The same level of detail is provided and its members is assessed. and the confidence about the members of the company’s of shareholders. Board of Directors and executive Non-compliance 2.9.1 Assessment of the quality 1. The self-assessment and external management. of the work of the Board evaluation of the Board of Directors Compliance of Directors is aimed carried out during the reporting period 3.1.2 The Corporate Secretary The Board of Directors approves at determining the degree included an evaluation of the work is sufficiently independent the appointment and dismissal of the Compliance of the effectiveness of the committees, individual Board Partial of the company’s executive Corporate Secretary, as well as decisions of the work members and the Board of Directors compliance bodies, and has been given to award additional remuneration of the Board of Directors, as a whole. the necessary authority to the Corporate Secretary. Partial its committees and Board 2. The results of the self-assessment and resources to carry out compliance members, the compliance or external assessment Non-compliance his assigned tasks. of their work of the Board of Directors carried out with the company’s during the reporting period were Non-compliance development needs, discussed at an in-person meeting 4.1 The level of remuneration paid by the company is sufficient to enable it to recruit, motivate and retain employees intensification of the work of the Board of Directors. who have the required skills and qualifications. Remuneration is paid to Board members, executive bodies of the Board of Directors and other key managers at the company in accordance with the remuneration policy adopted by the company. and identifying areas in which their work can be 4.1.1 The level of remuneration The company has adopted a bylaw improved. provided by the company or bylaws (policy/policies) regulating Compliance to members of the Board the remuneration for members 2.9.2 The work of the Board To conduct an independent assessment of Directors, executive of the Board of Directors, executive of Directors, its committees of the quality of the Board of Directors’ Compliance bodies and other key bodies and other key executives, Partial and Board members work during the last three reporting executives creates which clearly stipulate approaches compliance is assessed on a regular periods, the Company engaged a third- sufficient motivation to the remuneration of these individuals. basis, at least once party entity (consultant) at least once. Partial for them to work a year. To conduct compliance effectively, allowing Non-compliance an independent the company assessment of the quality to recruit and retain of the Board of Directors’ Non-compliance competent and skilled work, a third-party entity professionals. This allows (consultant) is engaged the company to avoid at least once every three having to pay a level years. of remuneration that is more than necessary, and it prevents the formation of unjustifiably large gaps in the level of remuneration between these officials and company employees.

202 203 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 4.1.2 The company’s During the reporting period, 4.2 The system of remuneration for members of the Board of Directors shall ensure that the financial interests remuneration the Remuneration Committee reviewed Compliance of the directors are in line with the long-term financial interests of shareholders. policy is determined the Remuneration Policy (Policies) 4.2.1 The company pays fixed Fixed annual remuneration was the only by the Remuneration and the policy regulating its (their) annual remuneration form of monetary remuneration that Compliance Committee and approved implementation; if necessary, Partial to the members Board members received for their work by the Board of Directors. it presented appropriate compliance of the Board of Directors. on the Board during the reporting period. The Board of Directors, recommendations to the Board The company does Partial with the support of Directors. not pay remuneration compliance of the Remuneration Non-compliance for participation Committee, monitors in meetings of the Board the introduction or Board committees. Non-compliance and implementation The company does not use of the company’s short-term incentives Remuneration Policy, or additional material and, if necessary, it reviews incentives for members and makes adjustments of the Board of Directors. to it. 4.2.2 Long-term holding If the bylaw (bylaws) detailing the policy Members of the Board of Directors 4.1.3 The company’s The company’s Remuneration Policy of company shares (policies) on remuneration include Compliance do not participate in the Bank’s option Remuneration Policy (Policies) contains (contain) transparent Compliance has been the most a provision allowing company shares programmes. provides transparent mechanisms for determining conducive to ensuring to be granted to members of the Board mechanisms the remuneration of members the convergence of Directors, then clear rules regulating Partial for determining the amount of the Board of Directors, executive bodies Partial of the financial interests how Board members can hold these compliance of remuneration and other key executives at the company. compliance of the members shares must be stipulated in a way that for members of the Board It (they) also regulates (regulate) all kinds of the Board of Directors promotes the long-term holding of such of Directors, executive of payments, benefits and privileges with the long-term shares. Non-compliance bodies and other key provided to such individuals. Non-compliance interests of shareholders. executives at the company. The company does not make It also regulates all types the right to dispose of payments, benefits of shares dependent and privileges provided on the achievement to such individuals. of certain performance 4.1.4 The company The policy (policies) on remuneration results, and Board determines a policy or the company’s other bylaws establish Compliance members do not on the reimbursement reimbursement rules for Board members, participate in option (compensation) executive bodies and other key executives programmes. of expenses that at the company. Partial 4.2.3 The company does not The company does not provide any enumerates a list compliance provide any additional additional payments or compensation Compliance of reimbursable expenses payments or compensation in the event of the early termination and the level of service in the event of the early of members of the Board of Directors that members of the Board Non-compliance termination of members in connection with the transfer of control Partial of Directors, executive of the Board of Directors over the company or other circumstances. compliance bodies and other key in connection with the executives at the company transfer of control may qualify for. over the company Non-compliance This policy may form or other circumstances. a part of the company’s Remuneration Policy.

204 205 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 4.3 The system of remuneration due to members of the executive bodies and other key company executives provides 4.3.3 The amount The amount of compensation (golden that their remuneration is dependent on the company’s performance results and their personal contributions of compensation parachute) that is paid by the company Compliance to achieving these. (golden parachute) that in the event of the early termination is paid by the company of members of the executive bodies or key 4.3.1 Remuneration 1. During the reporting period, the annual in the event of the early executives at the initiative of the company Partial for members of executive performance indicators approved Compliance termination of members and in the absence of any actions taken compliance bodies and other key by the Board of Directors were used of the executive bodies by the employees themselves that executives at the company to determine the amount of variable or key executives were not in good faith did not, during shall be determined compensation for members of executive Partial at the initiative the reporting period, exceed two times Non-compliance in such a way bodies and other key executives compliance of the company the base salary that is paid as part as to provide a reasonable at the company. and in the absence of the annual compensation package. and justified ratio 2. In the course of the last evaluation of any actions taken between their base salary of the system of remuneration Non-compliance by the employees themselves and variable remuneration for members of executive bodies that were not in good faith depending and other key executives at the company, shall not exceed two times on the company’s the Board of Directors (the Remuneration the base salary that is paid results and the personal Committee) confirmed that the Company as part of the annual (individual) contribution employed an effective ratio of base salary compensation package. of each employee to variable compensation. to the final result. 3. The company has established a procedure 5.1 The company has established an efficient risk management and internal control system that is designed to provide that provides for the return of bonuses reasonable assurance that the company’s goals will be achieved. that were unlawfully obtained 5.1.1 The Board of Directors The functions that the company’s by members of the executive bodies determines the principles various control bodies and divisions play Compliance and other key executives at the company. and approaches used in the risk management and internal 4.3.2 The company has 1. The company has established to shape the company’s control system are clearly stipulated established a long-term a long-term incentive programme Compliance risk management in the company’s bylaws/relevant Partial incentive programme for members of the executive bodies and internal control policies that were approved by the Board compliance for members and other key company executives system. of Directors. of the executive using the company’s shares (financial Partial bodies and other key instruments based on company shares). compliance Non-compliance company executives 2. The long-term incentive programme 5.1.2 The company’s executive The company’s executive bodies have using the company’s for members of executive bodies bodies shall ensure ensured the distribution of functions Compliance shares (options or other and other key company executives Non-compliance the establishment and responsibilities for risk management derivative instruments provides that the right to sell shares and maintenance and internal control between whose underlying asset and other financial instruments that of an effective system their subordinate unit and department Partial is company shares). are granted within the programme of risk management heads. compliance shall not be granted less than three and internal control years from the date that such shares at the company. or instruments are awarded. The right Non-compliance to sell shares shall be conditional upon the company’s achievement of certain 5.1.3 The company’s risk 1. The company has approved a policy performance indicators. management and internal on preventing corruption. Compliance control system provides 2. The company provides an accessible for an objective, fair means of notifying the Board of Directors and clear picture or the Board’s Audit Committee Partial of the company’s current about violations of the law, internal compliance state and prospects, procedures and the company’s code the integrity and transparency of ethics. of the company’s reporting, Non-compliance and the reasonableness and acceptability of the risks taken by the company.

206 207 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 5.1.4 The Board of Directors During the reporting period, 6.1 The company and its activities are transparent to shareholders, investors and other interested parties. takes necessary the Board of Directors or its Audit Compliance 6.1.1 The company has developed 1. The Board of Directors approved measures to ensure that Committee evaluated the effectiveness and implemented the company’s Information Policy, Compliance the company’s current risk of the company’s risk management an information policy which takes into account management and internal and internal control system. Partial that ensures effective the recommendations of the Code. control system complies Information about the main findings compliance communication 2. The Board of Directors (or one Partial with the principles of this evaluation is included of information of its committees) considered issues compliance and approaches in the company’s Annual Report. between the company, related to the company’s compliance determined by the Board Non-compliance shareholders, investors with its Information Policy at least of Directors to ensure that and other interested once during the reporting period. Non-compliance such a system is organised parties. and functions effectively. 6.1.2 The company discloses 1. The company discloses information 5.2 The company organises an internal audit to ensure the regular independent evaluation of the reliability information on its on its system of corporate governance Compliance and effectiveness of the risk management and internal control system and corporate governance practice. corporate governance and the general principles 5.2.1 The company has created The company has created a separate system and practices, of corporate governance that a separate structural structural unit to conduct internal Compliance including detailed are applied in the company, including Partial unit or contracted audits that is functionally subordinate information on compliance on the company’s website. compliance an independent to the Board of Directors or the Audit with the principles 2. The company discloses information external organisation Committee or it has engaged Partial and recommendations on the composition of its executive to conduct the internal an independent external organisation compliance of the Code. bodies and its Board of Directors, Non-compliance audit. The functional with the same subordinate status the independence of Board members and administrative to conduct internal audits. and their membership reporting relationship Non-compliance of Board committees (in accordance of the internal audit unit with the definitions provided in the Code). has been established. 3. In the event that a person should Functionally, the internal assume control of the company, audit unit is subordinate the company publishes a memorandum to the Board of Directors. by the controlling person concerning said person’s plans in relation to the company’s 5.2.2 The internal audit unit 1. During the reporting period, corporate governance. evaluates the effectiveness an assessment was provided Compliance of the internal control of the effectiveness of the internal 6.2 The company discloses complete, up-to-date and reliable information about the company system and assesses control and risk management system to allow its shareholders and investors to make informed decisions. the effectiveness as part of the internal audit process. Partial 6.2.1 The company discloses 1. The company’s Information Policy of the risk management 2. The company uses generally accepted compliance information in accordance stipulates the approaches and criteria Compliance and corporate governance approaches to internal control and risk with the principles for determining information that systems. The company management. of regular publication, could materially affect the company’s employs generally Non-compliance consistency, timeliness, valuation, the value of its securities Partial accepted standards as well as accessibility, and the procedures that ensure the timely compliance in the field of internal accuracy, completeness disclosure of such information. auditing. and comparability 2. If the company’s securities are traded of the data disclosed. in foreign markets, then equivalent Non-compliance material information is disclosed in the Russian Federation and in those foreign markets at the same time during the reporting year. 3. If foreign shareholders hold a substantial number of shares in the company, then information was disclosed during the reporting year not only in Russian, but also in a commonly known foreign language.

208 209 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 6.2.2 The company avoids 1. During the reporting period, the company 7.1 Any actions that will or may materially affect the company’s share capital structure and its financial position taking a formal approach disclosed its annual and semi-annual Compliance and, accordingly, the position of its shareholders (“material corporate actions”) shall be taken on fair terms to the disclosure financial statements prepared and conditions ensuring that the rights and interests of the shareholders as well as other interested parties are observed. of information, in accordance with IFRS. The company’s 7.1.1 Material corporate actions 1. The company’s Charter contains a list 1-2 The Bank’s Charter does and it discloses important Annual Report for the reporting period Partial include the reorganisation of transactions or other actions that Compliance not specify a list of transactions information about its included annual financial statements that compliance of the company, constitute material corporate actions and material corporate actions. activities even when such were prepared in accordance with IFRS, the acquisition of 30 per and the criteria that are used to determine At the same time, the Bank’s Charter disclosure is not required along with the auditor’s report. cent or more of voting such actions. Decisions regarding Partial assigns decision-making power by law. 2. The company discloses both in its Annual Non-compliance shares (takeover), material material corporate actions fall within compliance regarding such material corporate Report and on its website complete transactions the remit of the Board of Directors. actions to the remit of the Bank’s information on its capital structure by the company, In cases where the authority to take Supervisory Council and General in accordance with recommendation 290 an increase or decrease such corporate actions falls within Non-compliance Meeting of Shareholders in accordance of the Code. in the company’s share the remit of the General Meeting with the recommendation. 6.2.3 The Annual Report, 1. The company’s Annual Report provides capital, the listing of Shareholders, the Board of Directors In addition, the Regulation which is one of the most information on the key aspects of its Compliance and delisting of company provides shareholders with appropriate on the Bank’s Supervisory Council important tools activities and its financial results. shares, as well as other recommendations. Audit Committee provides for for sharing information 2. The company’s Annual Report contains actions that could lead 2. The company’s Charter recognises a special procedure for the Committee with shareholders information about the environmental Partial to a significant change the following, at a minimum, to deal with matters related and other interested parties, and social aspects of the company’s compliance in the rights of shareholders to be material corporate actions: to material and non-standard contains information that activities. or a violation of their the reorganisation of the company, transactions concluded by the Bank makes it possible to assess interests. The company’s the acquisition of 30 per cent (para. 2.2.1 of the Regulation), the company’s activities Non-compliance Charter includes a list or more of voting shares (takeover), including review of their compliance for the year. of (criteria for) transactions the completion of material transactions with applicable standards. or other actions falling by the company, an increase or decrease 6.3 The company provides information and documents requested by its shareholders in accordance within the category in the company’s share capital Considering the above, in order with the principle of equal and unhindered access. of material corporate and the listing and delisting of company to avoid duplication in the Bank’s 6.3.1 The company The company’s Information Policy actions. These actions shares. Charter of provisions on the procedure provides information stipulates a non-burdensome procedure Compliance fall within the remit for taking decisions on matters falling and documents requested for providing shareholders with access of the company’s Board within the remit of the Supervisory by its shareholders to information, including information of Directors. Council and the General Meeting in accordance about the company’s subsidiaries, Partial of Shareholders, and also taking into with the principle of equal at the request of shareholders. compliance account the lack of relevant practice and unhindered access. in comparable companies, the Bank considered it inexpedient to further Non-compliance enshrine in its Charter provisions on material corporate actions 6.3.2 When the company 1. During the reporting period, and on the procedure for making provides information the company did not refuse to satisfy Compliance decisions on such actions. to shareholders, it ensures shareholder requests for information, a reasonable balance or if it did deny any requests, then such 7.1.2 The Board of Directors The company has stipulated a procedure between the interests refusals were justified. Partial plays a key role in making under which the independent directors Compliance of specific shareholders 2. In cases stipulated by the company’s compliance decisions or developing declare their positions on material and the interests Information Policy, shareholders recommendations corporate actions prior to their approval. of the company are warned about the confidential about material Partial itself in ensuring nature of information and take Non-compliance corporate actions. compliance the confidentiality responsibility for maintaining The Board of Directors of important trade its confidentiality. relies on the position secrets that could have of the company’s Non-compliance a material impact independent directors. on its competitiveness.

210 211 Annual Report / 2019 1 2 3 4 5 6 7 8 Annexes

Status1 Status1 of compliance Comments/explanation2 of compliance Comments/explanation2 Criteria for assessing compliance with the principle of deviation from compliance Criteria for assessing compliance with the principle of deviation from compliance Principles of corporate with the relevant principle of corporate with the principle Principles of corporate with the relevant principle of corporate with the principle No. governance of corporate governance governance of corporate governance No. governance of corporate governance governance of corporate governance 7.1.3 When completing material 1. Taking into account the nature 1. The issue of introducing 7.2.2 The rules and procedures 1. The company’s bylaws have established 3. The Bank believes that corporate actions that of the company’s business, the company’s Compliance amendments to the Bank’s Charter governing material a procedure for retaining an independent Compliance implementation of the corresponding affect the rights and legal Charter establishes less restrictive to enshrine provisions on material corporate actions taken appraiser to determine the value practice can make it extremely difficult interests of shareholders, criteria than the minimum provided corporate actions (transactions) by the company are stipulated of property that is alienated or acquired to carry out its activities and place equal conditions for under the law for classifying Partial with less restrictive criteria in the company’s bylaws. by a material transaction or a related- Partial it in an unequal position in relation are provided for all the company’s transactions as material compliance for classifying Bank transactions party transaction. compliance to other players of the financial company shareholders. corporate actions. as material than required by law 2. The company’s bylaws have established market, including due to the duration If the mechanisms 2. During the reporting period, all material is currently being explored. a procedure for retaining an independent of prior approval of deals. Considering protecting the legal corporate actions underwent an approval Non-compliance appraiser to assess the value of shares Non-compliance the above, the Bank does not plan At the same time, in order to minimise rights of shareholders process before implementation. that are acquired or bought back to implement this recommendation. possible risks, the Regulation are insufficient, then by the company. on the Bank’s Supervisory Council The Bank believes that the applicable further measures 3. The company’s bylaws have established Audit Committee stipulates a special legislation on joint stock companies to protect the rights an expanded list of grounds on which procedure for dealing with issues in the part of the list of grounds and legal interests the members of the Board of Directors related to concluding non-standard according to which a person may of the company’s and other persons referred to in respective and material transactions be recognised as an interested shareholders are provided. laws are deemed to have an interest (para. 2.2.1 of the Regulation). party to a transaction sufficiently The company is governed in the company’s transactions. regulates the risks of non-compliance not only by compliance with this recommendation. with the formal requirements of the law, Considering the above, but also by the principles the Bank does not plan to implement of corporate governance this recommendation set out in the Code. 7.2 The company has established a procedure regulating material corporate actions that allows shareholders to receive timely and complete information on such actions, provides them with an opportunity to influence decision-making about such actions and ensures compliance with, and an adequate level of protection of, their rights in the performance of such actions. 7.2.1 Information about material During the reporting period, the company corporate actions disclosed information on its material Compliance is disclosed together corporate actions in a timely manner with the reasons, conditions and in detail, including the reasons and consequences of such for, and timing of, such actions. Partial actions. compliance

Non-compliance

1 “Compliance” is indicated only if the company meets all the criteria for assessing compliance with the respective principle of corporate governance. Otherwise, the status of “partial compliance” or “Non-compliance” is indicated. 2 A status is assigned for each criterion that is used to assess compliance with corporate governance principles in the event that the company meets only part of the criteria or does not meet any of the criteria for assessing compliance with the principle. If the company indicates “compliance”, then no further explanation is required. 3 Specify which of the two alternative approaches permitted by the principle has been implemented within the company and explain why this approach was chosen. 4 In case the tasks of the Nominating Committee are performed by another committee, then name that committee here. 5 Provide a list of additional committees that have been created.

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BANK DETAILS AND CONTACTS

Full official name VTB Bank (Public Joint-Stock Company) Short name VTB Bank (PJSC) Main type of activity Banking Date of state registration 17 October 1990 General licence for banking operations No. 1000 Main state registration number (OGRN) 1027739609391, issued by the Interdistrict Inspectorate of the Federal Tax Service of Russia No. 39 for the city of Moscow on 22 November 2002 Taxpayer identification number (TIN) 7702070139 Bank identifier code (BIC) 044525187 Address 29 Bolshaya Morskaya St., 190000, St. Petersburg Mailing address VTB Bank (PJSC) 43 Vorontsovskaya St., bldg. 1, 109147 Moscow Call centre For corporate clients 8 800 200 7799 (toll-free within Russia) +7 495 739 7799 For private clients 8 800 100 2424 (toll-free within Russia) +7 495 777 2424 Email [email protected] (for information and offers) [email protected] (for insiders) Website vtb.com Details for transfers vtb.com/o-banke/bank-vtb/rekvizity/

Investor Relations Department VTB Bank Shareholders' Centre Registrar (institutional investors and analysts) in Yekaterinburg VTB Registrar Phone: +7 495 775 7139 5 Marshala Zhukova St. Email: [email protected] Phone: +7 343 379 6615 Legal address: 23 Pravdy St. Moscow 127015, Russia Shareholder Relations Service Chief of Staff Postal address: P.O. Box 54, (individual shareholders) of the Supervisory Council – Moscow 127137, Russia Phone: +7 495 258 4947 Corporate Secretary Email: [email protected] Yevgeny Ignatyev Phone / fax: +7 495 787 4483 Phone: +7 495 775 7088

Email: [email protected] VTB Bank Shareholders’ Centre Email: [email protected] in Moscow 35 Myasnitskaya St. Shareholders Consultative Council VTB Shareholder Phone: +7 495 645 4361 Site: facebook.com/ksavtb, mobile application twitter.com/ksavtb Phone: +7 985 774 3155 VTB Bank Shareholders' Centre Email: [email protected] in St. Petersburg 29 Bolshaya Morskaya St. Phone: +7 812 494 9446

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