SUCCESS STORY Success means achieving good and expected results or the desired outcome of some event. Success comes natural as there can be no eventualities in operation of any company. A company’s operation repre- sents a sequence of causes and effects. One just needs to see the correct relation between events and use it for his own ends. A company brings together different persons forming a team. As part of the company we determine what our life will be in the company and beyond with our thoughts, feelings and actions. «The weak trust in luck and the strong trust in cause and effect» (R. Emerson), «Winners do not believe in an eventuality» (F. Nietzsche) — speaking of success said philosophers. Successes achieves by IBA-MOSCOW on certain days have analogues in the world history. Successes achieved in different periods of time and in different countries are in some way connected, influence each other and pave an uninterrupted path towards progress of our society. CONTENTS 1. Chairman of the Board address 5 Summing up the Bank’s performance in 2010 and plans for the future 5 2. General information about the Bank 9 Brief data 9 Mission, goals and corporate values 10 Administration 11 Members of the board 12 Management 12 Main developments in 2010 12 Charity and sponsorship programs 12 Ratings and awards 13 Membership in organizations 13 3. External environment 15 Global economy and international markets 15 Financial situation in the Russian Federation in 2010 16 Overview of the Russian banking sector in 2010 16 4. Bank's operations in 2010 19 Overall financial performance 19 Corporate business 21 Customer lending 25 Retail business 27 Operations in financial markets 31 5. Bank’s operations in Russian Federation regions in 2010 33 Saint Petersburg 34 Yekaterinburg 36 6. Bank’s support services 39 Risk management and internal control 39 Information technologies 40 Human resources department 41 Corporate communications 43 7. Priority directions of the Bank's operations and development prospects 45 8. Contact information 47 Main Bank details 47 ATM’s addresses 48 9. Financial Statements For the Year Ended December 31, 2010 49 STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2010 49 INDEPENDENT AUDITORS REPORT 50 Income statement 51 Statement of comprehensive income 52 Statement of financial position 53 Statement of changes in equity 54 Statement of cash flows 55 Notes to the financial statements 57 1. ORGANIZATION 57 2. SIGNIFICANT ACCOUNTING POLICIES 57 3. RECLASSIFICATIONS 65 4. NET INTEREST INCOME 66 5. ALLOWANCE FOR IMPAIRMENT LOSSES ON INTEREST BEARING ASSETS 66 6. FEE AND COMMISSION INCOME AND EXPENSE 67 7. OPERATING EXPENSES 67 8. INCOME TAXES 68 9. CASH AND BALANCES WITH THE CENTRAL BANK OF THE RUSSIAN FEDERATION 69 10. MINIMUM RESERVE DEPOSITS WITH THE CENTRAL BANK OF THE RUSSIAN FEDERATION 69 11. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 69 12. DUE FROM BANKS 70 13. LOANS TO CUSTOMERS 70 14. PROPERTY AND EQUIPMENT 73 15. DEPOSITS BY BANKS 74 16. DEPOSITS BY CUSTOMERS 76 17. SUBORDINATED DEBT 76 18. EQUITY 77 19. COMMITMENTS AND CONTINGENCIES 77 20. TRANSACTIONS WITH RELATED PARTIES 78 21. FAIR VALUE OF FINANCIAL INSTRUMENTS 79 22. CAPITAL RISK MANAGEMENT 81 23. RISK MANAGEMENT POLICIES 82 24. SUBSEQUENT EVENTS 96 25JANUARY2002 Opening of IBA-MOSCOW, the first bank with Azerbaijani capital in Russia Events that took place in the world on the same day: 83 YEARS EARLIER 87 YEARS EARLIER 25JANUARY1919 25JANUARY1915 Pennsylvania Hotel, the biggest Alexander Bell, inventor, carried out in the world opens in New York the first transamerican telephone communication session (New York – San Francisco) 281 YEARS EARLIER 25JANUARY1721 Peter I established the Ecclesiastical College, in future Most Holy Synod 29MAY2002 IBA-MOSCOW becomes a member of the Association of Russian Banks Events that took place in the world on the same day: 49 YEARS EARLIER 99 YEARS EARLIER 29MAY1953 29MAY1903 Man conquers the Chomolungma Ceremonial opening of Troitski bridge (Everest) for the first time in Saint Petersburg 135 YEARS EARLIER 29MAY1867 Justices of Peace are instituted in Russia 25JANUARY2002 Opening of IBA-MOSCOW, the first bank with Azerbaijani capital in Russia Events that took place in the world on the same day: 1 83 YEARS EARLIER 87 YEARS EARLIER 25JANUARY1919 25JANUARY1915 CHAIRMAN OF THE BOARD Pennsylvania Hotel, the biggest Alexander Bell, inventor, carried out ADDRESS in the world opens in New York the first transamerican telephone communication session (New York – San Francisco) SUMMING UP THE BANK’S performance IN 2010 281 YEARS EARLIER AND PLANS for THE FUTURE 25JANUARY1721 Customers, partners Peter I established the Ecclesiastical and shareholders! College, in future Most Holy Synod The year 2010 was another year of progressive development and better financial performance for IBA- MOSCOW. The Bank’s assets grew by 23% against 01.01.10 and as of 01.01.11 amounted to RUB 17,767.8 million, while the internal capital grew by 6% to RUB 1,123.9 million. In the year the profit increased by 105% and constituted RUB 106.7 million. As of 01.01.11 the Bank rated 139th with the RBC by 29MAY2002 its net assets, 134th by the credit portfolio and 116th by the amount of loans extended to legal entities. IBA-MOSCOW becomes a member In 2010 balances in the customers accounts grew of the Association of Russian Banks dynamically reaching RUB 5,119 million. Moreover funds in the individuals accounts grew by 95.7% reaching RUB 2,192 million in the year. Funds in legal entities accounts Events that took place in the world on the same day: grew by 6.5% reaching RUB 2,927 million. In the year the credit portfolio increased by 17.2% to RUB 11,824.9 million. The amount of credits extended to 49 YEARS EARLIER 99 YEARS EARLIER legal entities increased by 21% to RUB 10,486 million. IBA-MOSCOW is an active player in the international 29MAY1953 29MAY1903 bank lending market. In the year the funds raised in the international bank market grew by 36.1% to RUB 11,445 Man conquers the Chomolungma Ceremonial opening of Troitski bridge million. The deals included a club deal for USD 15 million (Everest) for the first time in Saint Petersburg with the participation of Raiffeisen Zentral Bank Osterreich AG, CJSV Raiffeisenbank, OTP Bank Plc, JSC «OTP Bank». In 2010 the Bank serviced 115,000 money transfers, mainly between Russia and Azerbaijan for the amount 135 YEARS EARLIER of USD 106 million. Visa и MasterCard issue constituted 26,000 cards. As of 01.01.11 the Bank installed 173 POS 29MAY1867 terminals and 40 ATMs to service the banks cards. In 2010 the Federal Customs Service entered Justices of Peace are instituted IBA-MOSCOW in the register of banks and other credit in Russia institutions entitled to extend customs payments bank guarantees. As of 01.01.11 the IBA-MOSCOW service network includes 2 branch offices and a network of outlets in Saint Petersburg and Yekaterinburg as well as eight offices IBA-MOSCOW ANNUAL REPORT 2010 5 in Moscow. In 2010 outlets of regional branch offices techniques of borrowers’ assessment, risk evaluation and were opened in Saint Petersburg and Yekaterinburg. The control that meet the most advanced requirements. total number of the Bank’s service offices increased to The Bank needs funding to pursue active lending 14. The Bank is planning to increase the number of its policy and assets growth. In previous years traditionally points of presence in locations of potential customers we borrowed in the international capital market and in concentration, primarily in the Moscow Region. 2010 raised funds there too. IBA-MOSCOW has always IBA-MOSCOW is a rightful and active member honored its obligations under contracts in full and in due of a number of recognized professional and social time thus earning a positive borrower image. We plan to organizations in the territory of the Russian Federation; go on with such deals as becomes necessary. We rely on it is an authorized bank of the Government of Moscow. our customers funds the amount of which grows with the IBA-MOSCOW takes an active part in the work of the Bank all the time. We constantly develop special offers Azerbaijan-Russia Intergovernmental Commission. for funds placing that are of interest to our customers We have always firmly believed that customers are the and carry out promotional campaigns. The efforts do base of any business, especially in during a crisis. Since its yield adequate results. Through stepping up operations foundation IBA-MOSCOW has proved itself to be a reliable in the small business segment the Bank may participate business partner: we constantly improve our service, the in various state purpose-oriented programs and get the service infrastructure, develop new areas of banking in relevant resources. Like before IBA-MOSCOW has access demand with the customers. It is there that we see our to resources of its parent bank but we aim at obtaining competitive advantage and our future. funds through using our own opportunities. In 2010 we started implementing our new strategic In addition to new lending programs designed to plan for the years 2010-2015 developed jointly with obtain interest income the Bank faces no less important PricewaterhouseCoopers. The new strategy provides for task of radically increasing its commission fee yield. I the changing external environment and defines the market would say that it is more difficult to earn commission position of the Bank. Now our main goal is to join TOP 100 income while it more visibly reflects the efficiency of a Russian Banks by the end of 2015 or maybe earlier.