IMPORTANT NOTICE NOT FOR DISTRIBUTION IN OR INTO THE UNITED STATES OR TO U.S. PERSONS OR OTHERWISE THAN TO PERSONS TO WHOM IT CAN LAWFULLY BE DISTRIBUTED IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the attached Prospectus and you are advised to read this disclaimer carefully before reading, accessing or making any other use of the attached Prospectus. In accessing the attached Prospectus you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access. The attached Prospectus is intended for the addressee only. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES DESCRIBED IN THE ATTACHED PROSPECTUS HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE ³SECURITIES ACT´), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES DESCRIBED IN THE ATTACHED PROSPECTUS MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THE ATTACHED PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER, AND IN PARTICULAR, MAY NOT BE FORWARDED TO ANY U.S. PERSON OR TO ANY UNITED STATES ADDRESS. ANY FORWARDING, REDISTRIBUTION OR REPRODUCTION OF THE ATTACHED PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. Confirmation of your Representation: In order to be eligible to view the attached Prospectus or make an investment decision with respect to the securities described in the attached Prospectus, investors must comply with the following provisions. You have been sent the attached Prospectus on the basis that you have confirmed to HSBC Bank plc or UBS Limited (together the ³Joint Lead Managers´), being the senders of the attached Prospectus that you are either (a) both a person that is (i) outside the United States (within the meaning of Regulation S under the Securities Act); and (ii) not a U.S. person (within the meaning of Regulation S under the Securities Act) and the electronic mail address that you gave us and to which this e-mail has been delivered is not located in the United States of America, its territories or possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands), any State of the United States or the District of Columbia; (b) a relevant person (as defined below) if in the United Kingdom; or (c) outside the United Kingdom. By accepting this e-mail and accessing the attached Prospectus, you shall be deemed to have made the above representation and that you consent to delivery of such Prospectus by electronic transmission. In addition, in the United Kingdom, the attached Prospectus is being distributed only to and is directed only at investors: (a) who are persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ³Order´); or (b) who are high net worth entities falling within Article 49 of the Order, and (c) other persons to whom it may otherwise lawfully be communicated under the Order, (all such person together referred to as ³relevant persons´). Any investment or investment activity to which the attached Prospectus relates is available in the United Kingdom only to relevant persons and will be engaged in only with such persons. The attached Prospectus has been delivered to you on the basis that you are a person into whose possession the attached Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located. The attached Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of UK SPV Credit Finance plc, Public Joint-Stock Company Commercial Bank PrivatBank or the Joint Lead Managers, or any person who controls them, or any director, officer, employee or agent of any of them, or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the attached Prospectus distributed to you in electronic format and the hard copy version available to you on request from the Joint Lead Managers. You are reminded that the information contained in the attached Prospectus is not complete and may be changed, and that no representation or warranty, expressed or implied, is made or given by or on behalf of the Joint Lead Managers, nor any person who controls the Joint Lead Managers or any director, officer, employee or agent of any of them, or affiliate of any such person as to the accuracy, completeness or fairness of the information or opinions contained in the attached Prospectus and such persons do not accept responsibility or liability for any such information or opinions. Neither this electronic transmission nor the attached Prospectus constitutes or contains any offer to sell or invitation to subscribe or make commitments for or in respect of any securities in any jurisdiction where such an offer or invitation would be unlawful and the attached Prospectus is subject to correction, completion, modification and amendment in its final form. PUBLIC JOINT-STOCK COMPANY COMMERCIAL BANK PRIVATBANK (incorporated in Ukraine with limited liability) U.S.$200,000,000 9.375 per cent. Loan Participation Notes due 2015 issued by, but with limited recourse to, UK SPV Credit Finance plc for the sole purpose of financing a loan to Public Joint-Stock Company Commercial Bank PrivatBank

Issue Price: 100 per cent.

UK SPV Credit Finance plc (the ³Issuer´ or the ³Lender´) is issuing U.S.$200,000,000 in aggregate principal amount of 9.375 per cent. Loan Participation Notes due 2015 (the ³Notes´). The Notes are limited recourse obligations of the Issuer and are being offered for the sole purpose of financing a U.S.$200,000,000 5 year loan (the ³Loan´) to Public Joint-Stock Company Commercial Bank PrivatBank (the ³Bank´, ³PrivatBank´ or the ³Borrower´) pursuant to a loan agreement (the ³Loan Agreement´) dated 17 September 2010 between the Issuer and the Bank. The Notes will be constituted and secured by, and will be subject to, and have the benefit of, a trust deed to be dated 24 September 2010 (the ³Trust Deed´) between the Issuer and Deutsche Trustee Company Limited, as trustee (the ³Trustee´), for the holders of the Notes from time to time (the ³Noteholders´). In the Trust Deed, the Issuer will charge in favour of the Trustee as security for its payment obligations in respect of the Notes (a) its rights to principal, interest and other amounts under the Loan Agreement (other than the Reserved Rights); (b) all amounts payable under or in respect of any claim, award or judgment relating to the Loan Agreement (other than the Reserved Rights); (c) sums held on deposit from time to time (other than the Reserved Rights); and (d) its rights, title and interest in Permitted Investments if any (as defined in the Trust Deed) (other than the Reserved Rights). The Issuer will also assign certain administrative rights under the Loan Agreement to the Trustee for the benefit of the Noteholders. The Notes are limited recourse obligations of the Issuer. In each case where amounts of principal, interest and additional amounts (if any) are stated to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to all principal, interest and additional amounts (if any) actually received by, or for the account of, the Issuer pursuant to the Loan Agreement the Issuer will have no other financial obligations under the Notes. Noteholders will be deemed to have accepted and agreed that they will be relying solely and exclusively on the Borrower¶s covenant to pay under the Loan Agreement and the credit and financial standing of the Borrower in respect of the financial servicing of the Notes. Subject to receipt by the Issuer of amounts pursuant to the Loan Agreement, interest on the Notes will be payable semi-annually in arrear in equal instalments on 23 March and 23 September in each year from and including 24 September 2010 (the ³Issue Date´), except that the total aggregate amount of interest payable on the first Interest Payment Date shall be U.S.$9,322,916.67. The Loan will bear interest of 9.375 per cent. per annum. Unless previously redeemed or cancelled, the Notes will be redeemed at their principal amount on 23 September 2015. The Loan may be prepaid at its principal amount, together with accrued interest, at the option of the Borrower for tax reasons or upon receiving notice of a Change of Control (as defined in the Loan Agreement) or in the event that it becomes unlawful for the Issuer to fund the advance or allow the Loan to remain outstanding under the Loan Agreement, and thereupon (subject to the receipt of the relevant funds from the Borrower) the principal amount of all outstanding Notes will be prepaid by the Issuer, together with accrued interest. AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK, SEE ³RISK FACTORS´ ON PAGE 10. THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE ³SECURITIES ACT´) AND ARE SUBJECT TO U.S. TAX LAW REQUIREMENTS. SUBJECT TO CERTAIN EXCEPTIONS, NOTES MAY NOT BE OFFERED, SOLD OR DELIVERED WITHIN THE UNITED STATES OR TO U.S. PERSONS. Application has been made to the Financial Services Authority in its capacity as competent authority under the Financial Services and Markets Act 2000 (the ³UK Listing Authority´) for the Notes to be admitted to the official list of the UK Listing Authority (the ³Official List´) and to the London Stock Exchange plc (the ³London Stock Exchange´) for such Notes to be admitted to trading on the London Stock Exchange¶s Regulated Market (the ³Market´). References in this Prospectus to the Notes being ³listed´ (and all related references) shall mean that the Notes have been admitted to the Official List and have been admitted to trading on the Market. The Market is a regulated market for the purposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments. The denomination of the Notes shall be U.S.$100,000 and integral multiples of U.S.$ 1,000 in excess thereof, up to and including U.S.$ 199,000. The Notes will be in bearer form and will initially be represented by a temporary global note (the ³Temporary Global Note´), without interest coupons, which will be deposited with a common depositary on behalf of Euroclear S.A./N.V. (³Euroclear´) and Clearstream Banking, société anonyme ³Clearstream, Luxembourg) on or about 24 September 2010. Interests in the Temporary Global Note will be exchangeable for interests in a permanent global note (the ³Permanent Global Note´) without interest coupons, on or after a date which is expected to be 3 November 2010, upon certification as to non-U.S. beneficial ownership. Interest payments in respect of the Notes cannot be collected without such certification of non-U.S. beneficial ownership. The Permanent Global Note will be exchangeable in certain limited circumstances, in whole but not in part, for Notes in definitive form with interest coupons attached. The Notes are expected to be rated B1 by Moody¶s Investors Service, Inc. (³Moody¶s´) and B by Fitch Ratings Ltd (³Fitch´). A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. JOINT LEAD MANAGERS HSBC UBS Investment Bank The date of this Prospectus is 17 September 2010 This Prospectus comprises a prospectus for the purposes of Directive 2003/71/EC (the ³Prospectus Directive´) and for the purpose of giving information with regard to the Issuer, the Bank and the Notes which according to the particular nature of the Issuer and the Bank and the Notes, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer and the Bank. Each of the Issuer and the Bank accept responsibility for the information contained in this Prospectus. To the best of the knowledge and belief of the Issuer and the Bank (each having taken all reasonable care to ensure that such is the case) the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. The Bank, having made all reasonable enquiries, confirms that this Prospectus contains all information which is material in the context of the issuance and offering of the Notes, that the information contained in this Prospectus is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed in this Prospectus are honestly held and that there are no other facts the omission of which would make this Prospectus or any of such information or the expression of any such opinions or intentions misleading in any material respect and all reasonable enquiries have been made by the Bank to ascertain such facts and to verify the accuracy of all such information and statements. This Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer, the Bank or any of HSBC Bank plc or UBS Limited (the ³Joint Lead Managers´) to subscribe or purchase, any of the Notes in any jurisdiction to any person to whom it is unlawful to make the offer or invitation in such jurisdiction. The distribution of this Prospectus and the offering or sale of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer, the Bank and the Joint Lead Managers to inform themselves about and to observe any such restrictions. For a description of further restrictions on offers and sales of Notes and distribution of this Prospectus, see ³Subscription and Sale´ below. No person is authorised to give any information or to make any representation not contained in this Prospectus and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer, the Bank or any of the Joint Lead Managers. Neither the delivery of this Prospectus nor any sale made in connection herewith shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer or the Bank since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer or the Bank since the date hereof or the date upon which this Prospectus has been most recently amended or supplemented or that the information contained in it or any other information supplied in connection with the Notes is correct as of any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same. To the fullest extent permitted by law, the Joint Lead Managers accept no responsibility whatsoever for the contents of this Prospectus or for any other statement, made or purported to be made by any of them or on their behalf in connection with the Issuer, the Bank or the issue and offering of the Notes. Each Joint Lead Manager accordingly disclaims all and any liability whether arising in tort or contract or otherwise (save as referred to above) which it might otherwise have in respect of this Prospectus or any such statement. The offering is being made solely on the basis of this document. Prospective investors are responsible for making their own examination of the Bank and the Issuer and their own assessment of the merits and risks of investing in the Notes. In making their investment decisions, prospective investors should not consider any information in this document to be investment, legal or tax advice. Prospective investors should consult their own counsel, accountant and other advisors for legal, tax, business, financial and related advice regarding purchasing the Notes. By purchasing the Notes prospective investors will be deemed to have acknowledged that: (a) they have reviewed this document; (b) they have had an opportunity to request, receive and review all additional information that they need from the Bank and/or the Issuer; and

2 (c) the Joint Lead Managers are not responsible for, and are not making any representation or warranty to prospective investors concerning, the Bank¶s or Issuer¶s future performance or the accuracy or completeness of this document. IN CONNECTION WITH THE ISSUE OF THE NOTES, UBS LIMITED (THE ³STABILISING MANAGER´) (OR ANY PERSON ACTING ON BEHALF OF THE STABILISING MANAGER) MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING MANAGER (OR ANY PERSON ACTING ON BEHALF OF THE STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE CLOSING DATE OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE RELEVANT STABILISING MANAGER (OR ANY PERSON ACTING ON BEHALF OF THE STABILISING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.

3 Table of Contents Page

Overview of the Offering and the Transaction ...... 5 Risk Factors ...... 9 Enforceability of Judgments...... 36 Third Party Information...... 36 Forward Looking Statements ...... 37 Presentation of Financial Information...... 38 Use of Proceeds...... 40 Capitalisation and Indebtedness ...... 41 Selected Consolidated Financial Information...... 42 Management¶s Discussion and Analysis of Financial Condition and Results of Operations...... 45 Description of the Bank¶s Business ...... 90 Risk Management...... 106 Management...... 118 Shareholders...... 123 Related Party Transactions...... 124 The Issuer...... 125 The Loan Agreement ...... 127 Terms and Conditions of the Notes...... 155 Summary of Provisions relating to the Notes while in Global Form ...... 168 Taxation ...... 170 Subscription and Sale ...... 174 General Information ...... 176 Index to Financial Statements...... F-1 Appendix A: The Banking Sector and Banking Regulation in Ukraine ...... A-1

4 Overview of the Offering and the Transaction

The following is an overview of certain information contained elsewhere in this Prospectus. Reference is made to, and this Overview is qualified in its entirety by, the more detailed information contained elsewhere in this Prospectus. Description of the Offering Issuer/Lender: UK SPV Credit Finance plc Bank/Borrower: Public Joint-Stock Company Commercial Bank PrivatBank Joint Lead Managers: HSBC Bank plc and UBS Limited Issue Amount: U.S.$200,000,000 Issue Price: 100 per cent. of the principal amount of the Notes Maturity Date: 23 September 2015 Trustee: Deutsche Trustee Company Limited Principal Paying Agent: Deutsche Bank AG, London Branch Interest: The Notes will bear interest from 24 September 2010 at a rate of 9.375 per cent. per annum payable semi-annually in arrear on 23 March and 23 September each year commencing on 23 March 2011, except that the total aggregate amount of interest payable on the first Interest Payment Date shall be U.S.$9,322,916.67. Status: The Notes will constitute secured, limited recourse obligations of the Issuer to apply an amount equal to the gross proceeds of the issue of the Notes solely for the purpose of financing the Loan to the Borrower pursuant to the terms of the Loan Agreement. The Issuer will account to the Noteholders solely for amounts equivalent to those (if any) received from the Borrower under the Loan Agreement less amounts in respect of the Reserved Rights (as defined in the Terms and Conditions of the Notes). Form: The Notes will be issued in bearer form with coupons for the payment of interest attached. The Notes will be in the denomination of U.S.$100,000 and integral multiples of U.S.$ 1,000 in excess thereof up to and including U.S.$ 199,000. The Notes will on issue be represented by a Temporary Global Note, which will be exchangeable for interests in a Permanent Global Note not earlier than 40 days after the Issue Date upon certification as to non-U.S. beneficial ownership. The Permanent Global Note will be exchangeable in certain limited circumstances in whole, but not in part, for Notes in definitive form with interest coupons attached. Early Redemption: The Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, upon giving not less than 15 days¶ nor more than 90 days¶ notice to the Noteholders, at the outstanding principal amount thereof together with interest accrued to the date fixed for redemption, upon receiving notice that the Borrower intends to prepay the Loan for tax reasons or upon receiving notice of a Change of Control (as defined in the Loan Agreement) or in the event that it becomes unlawful for the Issuer to fund the Loan or to allow it to remain outstanding under the Loan Agreement, all as more fully described in Clause 6 of the Loan Agreement. See also Condition 6.2 (Mandatory Redemption) in ³Terms and Conditions of the Notes´. Issuer¶s Covenant: As long as any of the Notes or Coupons remain outstanding (as defined in the Trust Deed), the Issuer will not, without the prior written consent

5 Overview of the Offering and the Transaction

of the Trustee or an Extraordinary Resolution of Noteholders, agree to any amendments to or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Loan Agreement, except as otherwise expressly provided in the Trust Deed or the Loan Agreement. Negative Pledge and The Loan Agreement limits, among other things, (i) certain disposals by Other Covenants: the Bank; (ii) the Bank¶s ability to enter into certain transactions with its related entities; and (iii) the placing of restrictions on the ability of any material subsidiary of the Bank to pay dividends. The Loan Agreement also contains a negative pledge and restrictions in relation to mergers and requires the Bank and any banking subsidiary of the Bank to comply with any capital ratio requirements imposed by a relevant banking authority. For further details see ³The Loan Agreement´. Rating: The Notes are expected to be rated B1 by Moody¶s and B by Fitch. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. The ratings do not address the likelihood that the principal on the Notes will be prepaid, paid on an expected final payment date or paid on a particular date before the legal final maturity date of the Notes. The ratings do not address the marketability of the Notes or any market price. Any change in the credit ratings of the Notes or the Bank could adversely affect the price that a subsequent purchaser could be willing to pay for the Notes. Events of Default/ In the case of the occurrence of an Event of Default or a Relevant Event Relevant Events: (as defined in the Terms and Conditions of the Notes), the Trustee may, subject to it being indemnified, pre-funded and/or secured to its satisfaction and subject as provided in the Trust Deed, (1) require the Issuer to declare all amounts payable under the Loan Agreement by the Borrower to be due and payable (in the case of an Event of Default); or (2) enforce the Security Interests (as defined in the Terms and Conditions of the Notes) (in the case of a Relevant Event). Upon repayment of the Loan following an Event of Default, the Notes will be redeemed or repaid at the principal amount thereof, together with interest accrued to the date fixed for redemption and thereupon shall cease to be outstanding. Withholding Tax: All payments of principal and interest in respect of the Notes will be made without withholding or deduction for, or on account of, any taxes, duties, assessments or other governmental charges of United Kingdom or Ukraine, save as required by law. If any such withholding or deduction is so required, the Issuer shall (subject to certain exceptions) pay such additional amounts as will result in the receipt by the Noteholders of such amounts as would have been received by them had no such withholding or deduction been required. The sum payable by the Borrower under the Loan Agreement will be required (subject to certain exceptions) to be increased to the extent necessary to ensure that the Issuer and, following the assignment to the Trustee pursuant to the terms of the Trust Deed, the Trustee receives a net sum sufficient to enable it to pay such additional amounts. The sole obligation of the Issuer in this respect will be to pay to the Noteholders sums equivalent to the sums received from the Borrower. See Condition 8 (Taxation) in ³Terms and Conditions of the Notes´.

6 Overview of the Offering and the Transaction

Limited Recourse: The Notes will be limited recourse obligations of the Issuer. The Notes will constitute the obligation of the Issuer to apply the proceeds from the issue of the Notes solely for financing the Loan and to account to the Noteholders for amounts equivalent to sums of principal, interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement less any amount in respect of Reserved Rights, all as more fully described in Condition 2.2 (Limited Recourse) in ³Terms and Conditions of the Notes´. Security: The Notes will be secured by a first fixed security on: (a) all of the Issuer¶s rights to principal, interest and other amounts paid and payable by the Borrower to the Issuer as lender under the Loan Agreement; (b) all amounts payable by the Borrower under any claim, award or judgment relating to the Loan Agreement; (c) all of the Issuer¶s rights, title and interest in and to all sums held on deposit in the Lender Account (as defined in the Trust Deed) together with the debts represented thereby (other than interest from time to time earned thereon); and (d) all of the Issuer¶s rights, title and interest in Permitted Investments if any (as defined in the Trust Deed), pursuant to the Trust Deed, in each case, other than the Reserved Rights (as defined in the Trust Deed). Use of Proceeds: The Issuer will lend an amount equivalent to the gross proceeds of the Notes to the Bank. The Bank intends to use the net proceeds for general banking purposes. Further Issues: The Issuer may from time to time, without the consent of the Noteholders, create and issue further Notes on the same terms and conditions as existing Notes and such further Notes shall be consolidated and form a single series with the existing Notes. Listing: Application has been made to the UK Listing Authority for the Notes to be admitted to the Official List and to the London Stock Exchange for the Notes to be admitted to trading on the Market. Selling Restrictions: There are restrictions on offers and sales of the Notes; inter alia, in the United States, the United Kingdom, Ukraine, The Russian Federation, and Italy. See ³Subscription and Sale´. Governing Law: The Notes, the Loan Agreement, the Agency Agreement, the Trust Deed and the Fees Letter (as defined in the Loan Agreement) and any non- contractual obligations arising out of or in connection with them shall be governed by, and shall be construed in accordance with, English law. Risk Factors: An investment in the Notes involves a high degree of risk. For a discussion of certain issues that should be considered by prospective purchasers of the Notes, see ³Risk Factors´. Security Codes: ISIN: XS0543744535 Common Code: 054374453

7 Overview of the Offering and the Transaction

Description of the Transaction The following information about the Notes and the Loan should be read in conjunction with, and is qualified in its entirety by, the information set forth under ³The Loan Agreement´ and ³Terms and Conditions of the Notes´ appearing elsewhere in this Prospectus. The transaction will be structured as a loan to the Borrower by the Lender. The Notes are limited recourse loan participation notes to be issued by the Issuer for the sole purpose of financing the Loan. The Notes will be constituted and secured by and will be subject to, and have the benefit of, the Trust Deed, the Issuer will charge by way of first fixed security to the Trustee (a) its right to principal, interest and other amounts paid and payable by the Borrower to the Lender under the Loan Agreement (other than the Reserved Rights); (b) all amounts payable under any claim, award or judgment relating to the Loan Agreement (other than the Reserved Rights); (c) sums held on deposit from time to time in the Lender Account (as defined in the Trust Deed) (other than the Reserved Rights); and (d) its rights, title and interest in Permitted Investments if any (as defined in the Trust Deed) (other than the Reserved Rights). The Issuer will also assign certain administrative rights under the Loan Agreement to the Trustee for the benefit of the Noteholders. The Borrower will be obliged to make payments under the Loan Agreement to the Lender in accordance with the terms of the Loan Agreement to the Lender Account. The Issuer will agree in the Trust Deed not to make any amendment to or any modification or waiver of, or authorise any breach or proposed breach of, the terms of the Loan Agreement unless the Trustee has given its prior written consent or except as otherwise expressly provided in the Trust Deed and the Loan Agreement. The Issuer will further agree to act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement, save as otherwise provided in the Trust Deed. Any amendments, modifications, waivers or authorisations made with the Trustee¶s consent shall be notified to the Noteholders in accordance with Condition 15 (Notices) and shall be binding on the Noteholders. Formal notice of the security interests created by the Trust Deed will be given to the Borrower and the Trustee, who will each be required to acknowledge the same. In the event that the Trustee enforces the security interests granted to it, the Trustee will assume certain rights and obligations towards the Noteholders as more fully set out in the Trust Deed. The Notes are limited recourse obligations and the Issuer will not have any obligation to the Noteholders other than the obligation to account to the Noteholders for payments of amounts actually received by it under the Loan Agreement less the Reserved Rights, which the Issuer is entitled to retain from any amounts actually received. Set out below is a diagrammatic representation of the structure following the issue of the Notes:

Proceeds Noteholders of Notes UK SPV Credit Loan Public Joint-Stock Finance plc as Issuer Company Commercial and Lender Bank PrivatBank as Borrower

Repayments of Repayments of principal and principal and payments payments of interest of interest in respect of on the Notes the Loan

8 Risk Factors

The Issuer and the Bank believe that the following factors may affect their ability to fulfil their obligations under the Notes. All of these factors are contingencies which may or may not occur and neither the Issuer nor the Bank are in a position to express a view on the likelihood of any such contingency occurring. Factors which the Issuer and the Bank believe may be material for the purpose of assessing the market risks associated with the Notes are also described below. The Issuer and the Bank believe that the factors described below represent the principal risks inherent in investing in the Notes, but the Issuer or the Bank may be unable to pay interest, principal or other amounts on or in connection with the Notes for other reasons, and the Issuer and the Bank do not represent that the statements below regarding the risks of holding the Notes are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision. Risks Relating to Ukraine General Since obtaining independence in 1991, Ukraine has undergone a substantial political transformation from a constituent republic of the former Union of Soviet Socialist Republics to an independent sovereign state. Concurrently with this transformation, Ukraine is changing from a centrally-planned to a market-based economy. Its achievements in this respect have been recognised by the EU, which gave Ukraine market economy status at the end of 2005, followed by the United States, which granted Ukraine such status in February 2006. In May 2008, Ukraine joined the WTO. Although some progress has been made since independence towards reforming Ukraine¶s economic, political and judicial systems, to some extent Ukraine still lacks the necessary legal infrastructure and regulatory framework that are essential to supporting market institutions, the effective transition to a market economy and broad-based social and economic reforms. The pace of economic, political and judicial reforms has been adversely affected by political instability caused by continuing disagreement among the Government, the Parliament and the President of Ukraine. Furthermore, the Ukrainian economy has been negatively affected by the recent global financial downturn, a slowdown in the real economy, a failing financial sector and an increase in energy prices. Set forth below is a brief description of some of the risks incurred by investing in Ukraine. Investments in emerging market countries such as Ukraine carry risks not typically associated with risks in more mature markets Investors in emerging markets such as Ukraine should be aware that these markets are subject to greater risks than more developed markets, including in some cases significant political, economic and legal risks. Investors should also note that emerging economies such as Ukraine are subject to rapid change and that some or all of the information set out in this Prospectus may become outdated relatively quickly. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in emerging markets such as Ukraine is only suitable for sophisticated investors who fully appreciate the significance of the risks involved, and investors are urged to consult with their own legal and financial advisors before making an investment in Ukraine. Moreover, financial turmoil in any emerging market tends to adversely affect prices in debt and equity markets of all emerging markets as investors move their money to more stable developed markets. In the second half of 2008, financial problems caused by the global economic slowdown and an increase in the perceived risks associated with investing in emerging economies dampened foreign investment in Ukraine, resulting in an outflow of capital and an adverse effect on the Ukrainian economy. In addition, Ukraine may become subject to increased volatility due to regional economic, political or military conflicts. As a consequence, an investment in Ukraine carries risks that are not typically associated with investing in more mature markets. As a result of continuing turmoil in global credit markets, the number of non-performing loans extended by Ukrainian banks has significantly increased. Those banks engaged in retail lending have experienced the most significant growth in non-performing loans. This growth of non-performing

9 Risk Factors loans may potentially affect the banks¶ decision to launch new credit programmes, since the launch of a new credit programme could potentially result in an increase in the number of non-performing loans due to a large number of borrowers seeking to refinance their existing debts through these new programmes. These risks may be compounded by incomplete, unreliable or unavailable economic and statistical data on Ukraine, including elements of the information provided in this Prospectus. Official economic data and third party information may not be reliable Although a range of government ministries, along with the National Bank of Ukraine (³NBU´) and the State Statistics Committee of Ukraine (the ³SSCU´), produce statistics on Ukraine and its economy, there can be no assurance that these statistics are as accurate or as reliable as those compiled in more developed countries. Prospective investors should be aware that figures relating to Ukraine¶s gross domestic product (the ³GDP´) and many other aggregate figures cited in this Prospectus, may be subject to a degree of uncertainty and may not be fully in accordance with international standards. Furthermore, the accuracy of statistical data may vary from ministry to ministry or from period to period due to the application of different methodologies. In this Prospectus, data are presented as provided by the relevant ministry to which the data is attributed, and no attempt has been made to reconcile such data to the data compiled by other ministries or by other organisations, such as the International Monetary Fund (the ³IMF´). Since the first quarter of 2003, Ukraine has produced data in accordance with the IMF¶s Special Data Dissemination Standard. There can be no assurance, however, that this IMF standard has been fully implemented or correctly applied. The existence of a sizeable unofficial or shadow economy may also affect the accuracy and reliability of statistical information. In addition, Ukraine has experienced variable rates of inflation, including periods of hyperinflation. Unless indicated, the information and figures presented in this Prospectus have not been restated to reflect such inflation and, as a result, period to period comparisons may not be meaningful. Prospective investors should be aware that none of these statistics has been independently verified. The Bank accepts responsibility only for the correct extraction and reproduction of such information. Notwithstanding the above, the information from such external sources has been accurately reproduced in this Prospectus and, so far as the Issuer and the Bank are aware and are able to ascertain from such external sources, no facts have been omitted which would render any such information or data presented in this Prospectus inaccurate or misleading. Political and social conflicts or instability could create an uncertain operating environment In recent years Ukraine has undergone substantial political transformation from a constituent republic in a federal socialist state to an independent sovereign democracy. In parallel with this transformation, Ukraine is transitioning from a centrally-planned economy to a market economy. However, this process of economic transition is not complete. Historically, a lack of political consensus in the Verkhovna Rada, or Parliament of Ukraine has made it difficult for the Government to sustain a stable coalition to secure the necessary support to implement a variety of policies intended to foster liberalisation, privatisation and financial stability. The current Parliament was elected at the parliamentary elections held on 30 September 2007. In December 2007, the new Parliament appointed Yuliya Tymoshenko as the Prime Minister of Ukraine and endorsed the coalition Government formed by Blok Nasha Ukrayina ± Narodna Samooborona (Our Ukraine-People¶s Self Defense Bloc) and Yuliya Tymoshenko¶s Bloc. In September 2008, Our Ukraine-People¶s Self Defense Bloc announced its withdrawal from the majority coalition, and Speaker of Parliament Arseniy Yatsenyuk officially announced the termination of the majority coalition. On 9 October 2008, the President issued a decree dissolving the Parliament and designating 7 December 2008 as the date for new parliamentary elections. However, this decree was challenged in court and cancelled by a subsequent decree by the President. In December 2008, the Parliament elected its new Speaker, Volodymyr Lytvyn, and a new majority coalition was formed comprising three parliamentary factions: Our Ukraine-People¶s Self Defense Bloc, Yuliya Tymoshenko¶s Bloc and the Volodymyr Lytvyn Bloc. The first round of the recent presidential elections was held on 17 January 2010, however, no candidate won 50 per cent. or more of the popular vote and the two highest polling candidates, Victor

10 Risk Factors

Yanukovych, a leader of Partiya Regioniv (the ³Party of Regions´), and Yuliya Tymoshenko, a leader of Yuliya Tymoshenko¶s Bloc, took part in the second round of elections. Following the results of the second round held on 7 February 2010, Victor Yanukovych won the presidential race by a simple majority. Although Yuliya Tymoshenko initially contested the results of the elections, she subsequently conceded and Victor Yanukovych was inaugurated as President of Ukraine on 25 February 2010. On 3 March 2010, the then incumbent Prime Minister Yuliya Tymoshenko was voted out of the Government following a vote of no confidence by the Parliament. On 11 March 2010, the Law of Ukraine amending the Law of Ukraine ³On Regulation of the Verkhovna Rada of Ukraine´, dated 10 February 2010, in relation to the procedure for forming the Parliamentary coalition (the ³Parliament Law´) came into effect. According to this amendment law, the coalition is formed by the majority of members of Parliament, including factions and individual members of Parliament, including non- factional deputies. On the same day, factions of the Party of Regions, Volodymyr Lytvyn Bloc and the Communist Party of Ukraine and 16 deputies formed a new parliamentary coalition consisting of 235 deputies. Thereafter, the Parliament appointed Mykola Azarov, a member of the Party of Regions, as the new Prime Minister of Ukraine and endorsed the new members of the Government. Currently, the Government consists mainly of members of the President¶s Party of Regions with a few positions being occupied by representatives of other political parties. In March 2010, two applications were submitted to the Constitutional Court of Ukraine by two groups of members of the Parliament. One group requested an official interpretation, while the other questioned the constitutionality of certain provisions of the Parliament Law in the context of the ability of individual deputies (as opposed to parliamentary factions) to take part in the formation of the majority coalition in the Parliament. On 6 April 2010, the Constitutional Court of Ukraine ruled in its decision that the provisions of the Parliament Law and the Constitution of Ukraine should be interpreted as allowing individual deputies to join the majority coalition. This decision of the Court however, was issued in response to the first request for an official interpretation of the provisions of the Parliament Law. The Court did not expressly opine on the constitutionality of such provisions in its decision. However, no assurance can be given that the Court will not come back to the issue of the constitutionality of the Parliament Law or in response to the submissions by the second group of parliamentarians in the future. Such an outcome may result in further political instability in Ukraine. In July 2010, 252 deputies submitted to the Constitutional Court of Ukraine an application questioning the constitutionality of the Law of Ukraine ³On Amendments to the Constitution of Ukraine´, dated 8 December 2004 (the ³Constitutional Reform Law´). The Constitutional Court of Ukraine has not yet provided a decision on the constitutionality of the Constitutional Reform Law, however if the Constitutional Reform Law is declared unconstitutional, there is no assurance that such a decision of the Constitutional Court of Ukraine will not lead to political confrontation in Ukraine. As at the date of this Prospectus, relations between the President, the Government and Parliament, as well as the procedures and rules governing the political process in Ukraine remain in a state of uncertainty. The formation and dissolution of a coalition Government and factions, the appointment of Government, and the authority of the state bodies may be subject to change through the normal process of political alliance-building or through constitutional amendments and decisions of the Constitutional Court of Ukraine. Recent political developments have also highlighted potential inconsistencies between the Constitution of Ukraine and various laws and presidential decrees. Furthermore, such developments have raised questions regarding the judicial system¶s independence from economic and political influences. A number of factors could adversely affect political stability in Ukraine. These could include failure to form or maintain a stable Government; lack of agreement within the factions and deputies that form a governing coalition; court action taken by opposition Parliamentarians against decrees and other actions of the President or Government; or court action by the President against Parliamentary or Governmental resolutions or actions. If political instability continues or heightens, it could have negative effects on the Ukrainian economy and, as a result, materially adversely affect the Bank¶s business, results of operations, financial condition and prospects.

11 Risk Factors

Economic instability in Ukraine could harm the Bank¶s business, results of operations, financial condition and prospects In recent years the Ukrainian economy has been characterised by a number of features that contribute to economic instability, including a relatively weak banking system providing limited liquidity to Ukrainian enterprises, tax evasion, a significant capital flight and low (but rising) wages for a large portion of the Ukrainian population. Although Ukraine made significant progress in 2007 and 2008 in increasing its GDP prior to the global economic downturn, by increasing real wages and trying to improve its trade balance, the political instability and the global financial and economic crisis have compounded the more recent negative effects on key economic indicators of the global economic downturn. The Ukrainian economy grew at an average of approximately 7.0 per cent. each year between 2000 and 2007. This growth was driven mainly by a rapid increase in foreign demand, rising commodity prices on external markets and the availability of foreign financing. While positively affecting the pace of Ukrainian economic growth in those years, these factors made the Ukrainian economy overly vulnerable to adverse external shocks. Thus, as the global economic and financial situation started to deteriorate, Ukraine¶s economy was one of the most heavily affected by the downturn. The negative impact of these factors has been compounded by weaknesses in the Ukrainian economy, which is sensitive to external and internal events. In particular, although the Government has generally been committed to economic reform, the implementation of reform has been impeded by lack of political consensus, controversies over privatisation (including privatisation of land in the agricultural sector and large industrial enterprises), restructuring of the energy sector, and removal of exemptions and privileges for certain state owned enterprises or for certain industry sectors. As a result, according to the SSCU, the rate of inflation in 2009 was 12.3 per cent., which is lower than 22.3 per cent. and 16.6 per cent. in 2008 and in 2007 respectively. The rate of inflation as at July 2010 was 3.1 per cent. In 2009, Ukrainian GDP decreased by 20.2 per cent. in the first quarter of the year, 17.8 per cent. in the second quarter of the year, 16.0 per cent. in the third quarter of the year and 6.8 per cent. in the fourth quarter of the year; each as compared to the corresponding periods in 2008. In the fourth quarter of 2008, Ukraine¶s GDP declined by 8.0 per cent. as compared to the same period in 2007. As a whole, in 2009 Ukrainian GDP decreased by 15.1 per cent., as compared to 2008. In March 2010, the Government approved its forecast for Ukraine¶s economic and social development for 2010. This forecast estimated Ukraine¶s GDP growth to be 3.7 per cent. in 2010 while the rate of inflation is expected to be 13.1 per cent. During the first 3 months of 2010, Ukraine¶s GDP increased by 4.9 per cent., according to the SSCU, as compared with the same period of 2009. The negative trends in the Ukrainian economy may continue while commodity prices on the external market remain low and access to foreign credit is limited, unless Ukraine undertakes certain important economic and financial structural reforms. A failure to achieve the political consensus necessary to support and implement such reforms could adversely affect the country¶s macroeconomic indices and economic growth. Furthermore, the future political instability in the executive or legislative branches could hamper efforts to implement necessary reforms. There can be no assurance that the political initiatives necessary to achieve these or any other reforms described elsewhere in this Prospectus will continue, will not be reversed or will achieve their intended aims. The rejection or reversal of reform policies favouring privatisation, industrial restructuring and administrative reform may have negative effects on the economy, generally, and, as a result, on the Bank¶s business, results of operations, financial condition and prospects. In addition, the current global financial crisis has led to the collapse or bailout of some Ukrainian banks, to significant liquidity constraints for others and an increase in non-performing loans and arrears in the banking system generally. The crisis has prompted the government to inject substantial funds into the banking system amid reports of difficulties amongst Ukrainian banks and other financial institutions. The continuation or worsening of the financial crisis, further insolvencies, defaults or restructurings of Ukrainian banks, and the failure to adopt and implement a system of banking regulation that achieves an increased degree of soundness and stability in the nation¶s banks could have a material adverse effect on the Ukrainian economy.

12 Risk Factors

The Ukrainian currency is subject to volatility and depreciation In view of the high dollarisation of the Ukrainian economy and increased activity of Ukrainian borrowers on external markets in 2005-2007, Ukraine has become increasingly exposed to the risk of hryvnia exchange rate fluctuations. Commencing in April 2005, the hryvnia was pegged to the U.S. dollar at a fixed rate of exchange established by the NBU of UAH 5.05 to U.S.$1.00, which provided certain stability to the hryvnia. However, as a result of the world financial crisis and the U.S. dollar depreciation, starting from 2008 the U.S. dollar peg effectively caused Ukraine to import the external inflation. In 2008, the hryvnia depreciated in real terms against the U.S. dollar by 52.5 per cent. and against the Euro by 46.3 per cent. as compared to year-end 2007, and further depreciated against these currencies in 2009 by 3.7 per cent. and 5.5 per cent., respectively. In order to manage the inflationary pressures, in November 2008 the NBU allowed the hryvnia to float within a broader range against the U.S. dollar. Also, the NBU sought to address the instability of the hryvnia by taking administrative measures (including certain foreign exchange market restrictions), and used approximately U.S.$15.3 billion of its foreign exchange reserves to support the Ukrainian currency in the last quarter of 2008 and in 2009. The official exchange rate was UAH 7.89 to U.S.$1.00 as at 1 August 2010. The fluctuations in the U.S. dollar and Euro/hryvnia exchange rate have negatively affected the ability of Ukrainian borrowers to repay their indebtedness to Ukrainian banks (more than 50 per cent. of the domestic loans are denominated in foreign currency) as well as to external lenders. The Ukrainian currency may depreciate further in the near future, given the absence of significant currency inflow from exports and foreign investment, limited foreign currency reserves, the need for borrowers to repay a substantial amount of short-term external debt (estimated by the NBU to be approximately U.S.$20.9 billion as at 1 April 2010) as well as requirements to pay a substantial amount of foreign currency for energy supplies from Russia and the rest of the CIS. Any further currency fluctuations may negatively affect the Ukrainian economy and the Bank¶s business. Social instability could have political and economic consequences and affect the value of investments in Ukraine The failure of the Ukrainian Government and many private enterprises to pay full salaries on a regular basis and the failure of salaries and benefits in Ukraine generally to keep pace with the rapidly increasing cost of living have previously led, and could again lead in the future, to labour and social unrest. This labour and social unrest may have political, social and economic consequences, such as increased support for a renewal of centralised authority, increased nationalism and may result in restrictions on foreign ownership in the Ukrainian economy, and possibly violence. Any of these events could adversely affect the Bank¶s business, financial condition and operational results. Ukraine¶s business environment is adversely affected by weak financial infrastructure and the lack of liquidity Ukrainian enterprises have a limited history of operating in free-market conditions. When compared to businesses operating in more developed jurisdictions, Ukrainian enterprises are often characterised by management that lacks experience in responding to changing market conditions and, in particular, economic disruptions and has limited capital resources with which to develop their operations. In addition, Ukraine has a limited infrastructure to support a market system, and communications, banks and other financial infrastructure are less well developed and less well regulated than their counterparts in more developed jurisdictions. Ukrainian enterprises, most of which were adversely affected by the global financial and economic crisis, face significant liquidity problems due to a limited supply of domestic savings, few foreign sources of funds, high taxes and limited lending by the banking sector to the industrial sector, among other factors. Many Ukrainian enterprises cannot make timely payments for goods or services and owe large amounts in taxes, as well as wages to employees. Any further deterioration in the business environment in Ukraine could have a material adverse effect on the Bank¶s business, results of operations, financial condition and prospects. Ukraine may not be able to increase or maintain access to foreign investment Notwithstanding improvements in the Ukrainian economy in recent years, cumulative foreign direct investment remains low for a country of Ukraine¶s size. An increase in the perceived risks associated with investing in Ukraine could reduce foreign direct investment in Ukraine and adversely affect the Ukrainian economy. No assurance can be given that Ukraine will be able to increase or maintain access to foreign investment. Although the previous Government led by Prime Minister Tymoshenko

13 Risk Factors repeatedly emphasised that the plans announced in early 2005 to review the privatisation of a number of major companies are no longer under consideration, it is unclear whether the current Government will follow that policy. Any future attempts to reverse the privatisation of previously privatised enterprises could adversely affect the climate for foreign direct investment and have an adverse effect on the economy of Ukraine which, in turn, may adversely affect the Bank¶s business, results of operations, financial condition and prospects. Inability to obtain financing from external sources could affect Ukraine¶s ability to meet financing expectations in its budget Ukraine¶s internal debt market remains illiquid and underdeveloped as compared with markets in most Western countries. Loans from multinational organisations such as the EBRD, the World Bank, the EU and the IMF comprised Ukraine¶s only significant sources of external financing in the wake of the emerging market crisis in the autumn of 1998 until the second half of 2002. From 2003 until 2008, the international capital markets were Ukraine¶s main source of external financing but they ceased to be available from mid-2008 due to the global economic and financial crisis, therefore as a result, Ukraine sought IMF financing. In November 2008, the IMF approved a two-year Stand-By Arrangement (³2008 SBA´) with Ukraine for approximately U.S.$16.4 billion to assist the Ukrainian Government in restoring financial and economic stability. In November 2009, the IMF cancelled the provision of the next tranche to Ukraine under the 2008 SBA in the amount of U.S.$3.8 billion due to an increased level of political instability and the controversies amongst the President, the Government and Parliament on the eve of the presidential elections. After the presidential elections in March 2010, the IMF renewed negotiations with Ukraine regarding the provision of the next tranche under the 2008 SBA or the adoption of a new Stand-By Arrangement. In July 2010, the IMF cancelled the 2008 SBA and approved a new 29-month Stand-By Arrangement (³2010 SBA´) for Ukraine for approximately U.S.$ 15.15 billion. An initial disbursement equivalent to U.S.$ 1.89 billion was made available immediately after the adoption of the 2010 SBA. The drawdowns of IMF financing are contingent upon the Ukraine¶s satisfaction of requirements, according to IMF Country Report No. 10/262 dated August 2010, including: Ɣ reducing the budget deficit to 5.5 per cent. of GDP in 2010 by imposing additional taxes and taking other non-tax measures; Ɣ introducing a comprehensive approach to budget and fiscal sector management; Ɣ strengthening the independence of the NBU as the principal regulator in the banking sector; Ɣ developing and implementing a comprehensive bank refinancing and restructuring programme; Ɣ bringing domestic natural gas prices in line with international market prices by increasing them by 50 per cent; and Ɣ adopting legislation transferring the authority for setting heating tariffs for communal utilities to a new independent regulator. As at the date of this Prospectus, only the initial disbursement of the 2010 SBA has been drawn down by the Government of Ukraine. As at the date of this Prospectus, the total disbursements under the 2008 SBA amounted to approximately U.S.$10.6 billion. If the international capital markets or syndicated loan markets continue to be unavailable to Ukraine, it would have to continue to rely, to a significant extent, on borrowing from international or supranational organisations to finance part of the budget deficit, to fund its payment obligations under domestic and international borrowings and to support foreign exchange reserves. Additionally, Ukraine has indicated that, as part of its debt management policy, it plans to develop the internal debt market and to reduce its reliance on external debt financing. However, reliance on internal debt and unavailability of external financing may place additional pressure on Ukraine¶s ability to meet its payment obligations. External borrowings from multilateral organisations such as the IMF, the EBRD, the World Bank or the EU may be conditional on Ukraine¶s satisfaction of certain requirements. These may include, among other things, the implementation of strategic, institutional and structural reforms; the reduction of overdue tax arrears; no increase of budgetary arrears; improvement of sovereign debt credit ratings; and reduction of overdue indebtedness for electricity and gas. If Ukraine is unable to resort to the

14 Risk Factors international capital markets or syndicated loan markets, a failure by official creditors and of multilateral organisations to grant adequate financing could put pressure on Ukraine¶s budget and foreign exchange reserves. Ukraine¶s economy depends heavily on its trade flows with Russia and certain other CIS countries and any major change in relations with Russia could have adverse effects on the economy Ukraine¶s economy depends heavily on its trade flows with Russia and the rest of the Commonwealth of Independent States (³CIS´), largely because Ukraine imports a large proportion of its energy requirements, especially from Russia (or from countries that transport energy-related exports through Russia). In addition, a large share of Ukraine¶s services receipts comprise transit charges for oil, gas and ammonia from Russia. Ukraine therefore considers its relations with Russia to be of strategic importance. However, relations between Ukraine and Russia have cooled in recent years to a certain extent and continue to remain strained due to factors including: Ɣ disagreements over the prices and methods of payment for gas delivered by the Russian gas supplier OJSC Gazprom (³Gazprom´) to, or for transportation through, Ukraine; and Ɣ a Russian ban on imports of meat and milk products from Ukraine and anti-dumping investigations conducted by Russian authorities in relation to certain Ukrainian goods. The average annual price for natural gas supplied for domestic consumption in Ukraine has increased from U.S.$50 per 1,000 cubic metres as of 1 January 2005 and in 2010 is estimated by Naftogaz to be approximately U.S.$334.0 per 1,000 cubic metres. In March 2010, Prime Minister Azarov stated that the revision of the gas supply agreements between Naftogaz and Gazprom with the aim of reducing the price for natural gas supplied by Gazprom is one of the priority tasks for the Government. On 21 April 2010, the Presidents of Ukraine and Russia reached agreement on two outstanding issues: the price of natural gas imported into Ukraine from Russia and the term for which the Russian Black Sea Fleet will remain stationed on Ukrainian territory. As a result of such agreement, existing gas supply agreements have been amended to the effect that Gazprom will supply natural gas to Ukraine at a discounted price. If the price of gas is equal to or greater than U.S.$330 per 1,000 cubic metres of gas, a discount of U.S.$100 per 1,000 cubic metres of gas will apply, and if the price is less than U.S.$330 per 1,000 cubic metres of gas, a discount of 30 per cent. of the original price will apply. Furthermore, the Presidents of both countries agreed to extend the term for which the Russian Black Sea Fleet will be stationed in Ukraine for an additional 25 years, with a right to prolong the term for a further five years. On 27 April 2010 this agreement was ratified by the Ukrainian Parliament and on 28 April 2010 by the Russian Parliament. In August 2010, Prime Minister Azarov stated that Ukraine and Russia had begun negotiations on the revision of the gas supply agreements between both countries and the potential consolidation of the assets of Naftogaz and Gazprom. Historically and currently, a significant portion of Ukrainian exports of goods go to Russia while much of Russia¶s exports of energy resources are delivered to the EU via Ukraine. Russia¶s increases in the price for natural gas have adversely affected the pace of economic growth of Ukraine due to the considerable dependence of the Ukrainian economy on imports of energy resources from Russia. Furthermore, although the gas price increases have increased pressure for reforms in the energy sector and the modernisation of major energy-consuming industries of Ukraine through the implementation of energy-efficient technologies and the modernisation of production facilities, there can be no assurance that these reforms will be implemented successfully. Any further adverse changes in Ukraine¶s relations with Russia, in particular any such changes adversely affecting supplies of energy resources from Russia to Ukraine or Ukraine¶s revenues derived from transit charges for Russian oil and gas, may have negative effects on the Ukrainian economy as a whole and thus on the Bank¶s business, results of operations, financial condition and prospects. Any deterioration in Ukraine¶s relationships with Western governments and institutions may have a material adverse effect on the Ukrainian economy and the Bank¶s business, financial condition and operational results Taking into account its geographical position and history, Ukraine¶s closest relationships are with the Russian Federation and Poland. There have also been significant relations developed with EU

15 Risk Factors countries (including Germany, Hungary, Slovakia and Romania) and CIS countries (including Belarus and Georgia), as well as Turkey. Ukraine continues to pursue the objectives of achieving a closer relationship with the EU and a constructive partnership with the North Atlantic Treaty Organisation (³NATO´) following the adoption of the Law of Ukraine ³On the Basis of the Internal and External Policy´, and joined the WTO on 16 May 2008. With effect from 30 December 2005, Ukraine was given market economy status by the EU, though without any immediate prospect of EU membership for Ukraine. Any major changes in Ukraine¶s relations with Western governments and institutions, in particular any such changes adversely affecting the ability of Ukrainian manufacturers to access or to fully compete in world export markets, could have negative effects on the Ukrainian economy as a whole and thus on the Bank¶s business, results of operations, financial condition and prospects. A failure to develop relations with the EU might have negative effects on the Ukrainian economy and the Bank¶s business, financial condition and operational results Ukraine continues to develop its economic relationship with the EU. In 2008, the EU was the largest external trade partner of Ukraine importing goods and services from Ukraine amounting to U.S.$22.2 billion (28.2 per cent. of total Ukraine¶s exports of goods and services), and importing goods and services to Ukraine amounting to U.S.$32.7 billion (35.5 per cent. of total Ukraine¶s imports of goods and services). In the nine months ended 30 September 2009, against the background of the global economic downturn, the EU remained the largest external trade partner of Ukraine with its share in the total foreign trade turnover of Ukraine amounting to about 31.0 per cent. (exports of goods and services from Ukraine to the EU amounted to approximately U.S.$8.6 billion and imports of goods and services from the EU to Ukraine amounted to approximately U.S.$13.0 billion). EU imports from Ukraine are to a large extent liberalised, apart from certain steel products, the import of which is subject to EU quantitative restrictions, and metal scrap, on which Ukraine levies export duties. A significant proportion of Ukrainian goods entering the EU market benefits from the General System of Preferences (³GSP´). In return for the effective implementation of political, economic and institutional reforms, Ukraine and other neighbouring countries should be offered the prospect of gradual integration with the EU¶s internal market, accompanied by further trade liberalisation. Ukraine¶s accession to the WTO created the necessary preconditions for the launch of formal negotiations for the introduction of a free trade area (³FTA´) with the EU. In ten rounds of negotiations on the FTA held between Ukraine and the EU from 2008 to March 2010, the parties achieved progress in the harmonisation of, among others, the following areas: trade in goods (including in relation to instruments of trade protection, tariffs, technical barriers in trade, sanitary and customs issues), intellectual property, rules relating to origin of goods, sustainable development and trade, trade in services, and public procurement. Dependence on external sources of financing may have a material adverse effect on the Ukrainian economy Ukraine¶s internal debt market remains illiquid and underdeveloped as compared to markets in most Western countries. Loans from multinational organisations such as the IMF, the European Bank for Reconstruction and Development (the ³EBRD´), the World Bank and the EU comprised Ukraine¶s only significant sources of external financing in the wake of the emerging market crisis in the autumn of 1998 until the second half of 2002. In 2000, Ukraine undertook a comprehensive debt restructuring exercise to alleviate its rising external debt resulting from the accumulation of large payments on external debt due in 2000 and 2001. Since the conclusion of this debt restructuring exercise, the ratio of external debt servicing (including principal, interest and fees but excluding debt owed to the IMF) to GDP has decreased from approximately 1.7 per cent. as at 31 December 2005 to approximately 1.4 per cent. as at 31 December 2006 to approximately 0.9 per cent. as at 31 December 2007 and to approximately 0.5 per cent. as at 31 December 2008, however it increased to approximately 1.86 per cent. as at 31 December 2009, based on official government sources as available on 1 April 2010. Total government external debt servicing (excluding payments to the IMF) was approximately U.S.$1.5 billion in each of 2005 and 2006, U.S.$1.2 billion in 2007 and is estimated to be approximately U.S.$0.9 billion in 2008, based on official government sources as available on 1 April 2010.

16 Risk Factors

In 2005, the World Bank and Ukraine entered into five facility agreements for the implementation of systemic and investment projects, the aggregate amount of such agreements totalled approximately U.S.$716 million. Further, in June 2006, the World Bank approved a U.S.$150 million loan for the ³Access to Financial Services Project for Ukraine´ (which aimed to increase access to financial services in rural areas) and in July 2006, the World Bank approved another U.S.$154.5 million loan for the ³Second Export Development Project for Ukraine´ (which aimed to support export and real sector growth in Ukraine by providing working capital and investment finance to Ukrainian private exporting enterprises and to develop financial intermediation in the Ukrainian banking sector). In August 2007, the World Bank approved two loans to Ukraine in the amounts of U.S.$200 million and U.S.$140 million aimed at the improvement of power supply and urban infrastructure in Ukraine. In December 2007, the World Bank approved an additional loan as part of the ³Second Development Policy Loan Project´ in the amount of U.S.$300 million. In January 2008, the World Bank approved a loan in the amount of U.S.$50 million aimed at strengthening operational efficiency and transparency of public financial management in Ukraine. Additionally, in April 2009, the World Bank approved a U.S.$400 million loan for the ³Roads and Safety Improvement Project in Ukraine´ (designated for the improvement of the condition and quality of sections along the M-03 road, and increase traffic safety on roads) and, in November 2009, the World Bank approved a loan in the amount of U.S.$60 million is designated for the improvement of the operational stability and reliability of Ukraine¶s power supply by increasing regulating capacity, efficiency and the safety of hydroelectric plants. In May 2010, the European Parliament approved a EUR 500 million loan to Ukraine as aid in response to the recent financial crisis. In July 2010, the IMF approved a new 29-month 2010 SBA for approximately U.S.$15.15 billion and made a first disbursement of U.S.$1.89 billion immediately thereafter. Consequently, until the international capital markets or syndicated loan markets are fully available to Ukraine, the Government will have to continue to rely to a significant extent on official or multilateral borrowings to finance part of the budget deficit, fund its payment obligations under domestic and international borrowings and support foreign exchange reserves. These borrowings may be conditional on Ukraine¶s satisfaction of certain requirements, which may include, amongst other things: implementation of strategic, institutional and structural reforms; reduction of overdue tax arrears; absence of increase of budgetary arrears; improvement of sovereign debt credit ratings; and reduction of overdue indebtedness for electricity and gas. From 2003 through the beginning of 2008, international capital markets were Ukraine¶s main source of external financing. However, since the second half of 2008 prospects for raising new financing on international capital markets have worsened substantially. Following downgrades of Ukrainian credit ratings in 2008, in February 2009, Fitch Ratings Ltd. (³Fitch´) and Standard and Poor¶s Rating Services, a division of The McGraw-Hill Companies, Inc. (³S&P´) revised their long-term foreign currency sovereign credit ratings on Ukraine to B (negative) and CCC+ (negative), respectively. In May 2009 Moody¶s Investors Service, Inc (³Moody¶s´) downgraded Ukraine¶s credit rating from B1 to B2 (negative). In November 2009, Fitch further revised its long-term foreign currency credit rating on Ukraine to B- (negative). In March 2010, however, following recent presidential elections and appointment of the new Ukrainian government, S&P and Fitch have upgraded their long-term foreign currency sovereign credit ratings on Ukraine to B- (positive) and B- (stable), respectively. In July 2010, Fitch and S&P further reviewed and upgraded their long-term foreign currency sovereign credit ratings on Ukraine to B (stable) and B+ (stable), respectively. The absence of a deep and liquid market for domestic treasury bonds means that Ukraine remains vulnerable should access to international capital markets not be possible for any reason in the future, or if such markets are only accessible on unfavourable terms. Under such circumstances, any failure of Ukraine to receive support from sovereign or private creditors or international financial institutions (such as the IMF and the World Bank) could adversely affect Ukraine¶s financing of its budget deficit, the level of inflation and/or the value of the hryvnia, which in turn may adversely affect the Ukrainian economy as a whole, the banking sector, which has a significant foreign currency exposure, and thus, the Bank¶s business, results of operations and financial condition. If Ukraine is unable to resort to the international capital markets or syndicated loan markets in the event of an international crisis (as occurred in 1998) or due to adverse domestic developments, a failure by official creditors and of multilateral organisations such as the IMF, the EBRD, the World Bank and

17 Risk Factors the EU to grant adequate financing to Ukraine could put pressure on Ukraine¶s budget and foreign exchange reserves and have a material adverse effect on the Ukrainian economy as a whole, and thus on Bank¶s business, results of operations, financial condition and prospects. The Ukrainian economy is sensitive to fluctuations in the global economy Ukraine¶s economy is vulnerable to market downturns and economic slowdowns in the global economy. In particular, because Ukraine is a major producer and exporter of metal and agricultural products, the Ukrainian economy is especially vulnerable to world commodity prices and the imposition of import tariffs by the United States, the EU or by other major export markets. For instance, Ukraine¶s industrial output has decreased dramatically starting from the fourth quarter of 2008: the full-year decline in industrial output in 2008 amounted to 3.1 per cent., compared to a growth of 10.2 per cent. in 2007 and 6.2 per cent. in 2006. Industrial output further declined in 2009 by 21.9 per cent. In addition, consumer price inflation in Ukraine was 11.6 per cent. in 2006, 16.6 per cent. in 2007, 22.3 per cent. in 2008, 12.3 per cent. in 2009 and 9.3 per cent. for the 7 months ended 31 July 2010, in each case as compared to the corresponding period of the previous year. Wholesale prices are also vulnerable to the increases in world prices for metal products and grain, as well as natural gas and oil. In addition, wholesale price inflation, or WPI, levels have been also high (at year-end 2008 and 2009, Ukraine had 23 per cent. and 14.3 per cent. inflation, respectively, in each case over the end of the previous year as measured by WPI). Further, Ukraine¶s economy has been significantly affected by the global credit crunch that began in 2008, as a result of which international capital markets ceased to be available for Ukrainian borrowers. The reduced external financing available for Ukrainian companies contributed to a decline in industrial production and the cutting down of investment projects and capital expenditures generally. A sustained deterioration of global or regional economic conditions may lead to a further worsening of the economic and financial crisis in Ukraine. Any such developments, including continued unavailability of external funding and increases in world prices for goods and services imported to Ukraine or decreases in world prices for goods and services exported from Ukraine, may have or may continue to have a material adverse effect on the economy, which in turn may adversely affect Bank¶s business, results of operations and financial condition. Corruption and money laundering may have an adverse effect on the Ukrainian economy External analysts have identified corruption and money laundering as problems in Ukraine. In accordance with Ukrainian anti-money laundering legislation which came into force in Ukraine in June 2003, the NBU and other state authorities, as well as various entities performing financial transactions, are required to monitor certain financial transactions more closely for evidence of money laundering. As a result of the implementation of this legislation, Ukraine was removed from the list of non- cooperative countries and territories by the Financial Action Task Force on Money Laundering ³FATF´) in February 2004, and in January 2006 FATF suspended the formal monitoring of Ukraine. In early June 2009, the Parliament adopted several laws setting out a general framework for the prevention and counteraction of corruption in Ukraine. In particular, the laws contain provisions relating to measures to prevent corruption, introduce more detailed regulation of responsibility for involvement in corruption (including the responsibility of legal entities) and provide for international cooperation in combating corruption. Although the newly adopted legislation is expected to facilitate anti-corruption efforts in Ukraine upon its entry into force on 1 January 2011, there can be no assurance that the laws will be effectively applied and implemented by the relevant supervising authorities in Ukraine. Any future allegations of corruption in Ukraine or evidence of money laundering could have a negative effect on the ability of Ukraine to attract foreign investment and thus have a negative effect on the economy of Ukraine which in turn may adversely affect Bank¶s business, results of operations and financial condition. However, in February 2010, Ukraine was noted by FATF as having demonstrated progress in improving its AML/CFT regime despite still having certain strategic AML/CFT deficiencies. Ukraine has made a high-level political commitment to work with FATF and MONEYVAL and developed an action plan to address these deficiencies.

18 Risk Factors

Ukraine¶s legal system is in the developmental stages, and laws and regulations may not be consistently interpreted or applied Risks associated with the Ukrainian legal system include, but are not limited to: Ɣ inconsistencies between and among Ukraine¶s Constitution, its laws, presidential decrees, and Ukrainian governmental, ministerial and local orders, decisions, resolutions and other acts; Ɣ provisions in laws and regulations that are ambiguously worded or lack specificity and thereby raise difficulties when implemented or interpreted; Ɣ a lack of judicial and administrative guidance on the interpretation of Ukrainian legislation, including the complicated mechanism through which the Constitutional Court of Ukraine exercises its constitutional jurisdiction; Ɣ general inconsistency in the judicial interpretation of Ukrainian legislation in the same or similar cases; Ɣ corruption within the judiciary; and Ɣ the fact that the resolutions, decisions, clarifications and similar governmental, regulatory and judicial acts, which by their nature do not have the same effect as primary legislation, are capable of being challenged or questioned, including on the grounds that they contravene or contradict relevant primary legislation. Furthermore, the recent enactment of many of the Ukrainian laws, their limited history of applicability in the conditions of economic downturn, as well as lack of consensus as to measures necessary to address adverse developments in the Ukrainian economy may place the enforceability and underlying constitutionality of such laws in doubt and result in ambiguities, inconsistencies and anomalies. In addition, Ukrainian legislation often contemplates implementing regulations, and often such implementing regulations have either not yet been promulgated, leaving substantial gaps in the regulatory infrastructure, or have been promulgated with substantial deviation from the principal rules and conditions imposed by the respective legislation, which results in a lack of clarity and growing conflicts between companies and regulatory authorities. These and other factors that impact Ukraine¶s legal system make an investment in the Notes subject to greater risks and uncertainties than an investment in a country with a more mature legal system. Ukraine¶s judicial system may not be completely independent, impartial or transparent and suffers from lack of staffing and funding as well as inefficiency The independence of the judicial system and its immunity from economic and political influences in Ukraine remain questionable. Although the Constitutional Court of Ukraine is the only body authorised to exercise constitutional jurisdiction and has mostly proven impartial in its judgments, the system of constitutional jurisdiction itself remains too complicated to ensure smooth and effective removal of discrepancies between Ukraine¶s Constitution and various laws of Ukraine. The court system is also understaffed and underfunded. Ukraine is a civil law jurisdiction and therefore judicial decisions under Ukrainian law have no precedential effect. As a result the courts themselves are generally not bound by earlier decisions taken under the same or similar circumstances, which can result in the inconsistent application of Ukrainian legislation to resolve the same or similar disputes. Not all Ukrainian legislation is readily available to the public or organised in a manner that facilitates understanding. Further, judicial decisions are not publicly available and, therefore, their role as guidelines in interpreting applicable Ukrainian legislation to the public at large is limited. However, according to a new law ³On Access to Court Decisions´ which became effective on 1 June 2006, decisions of courts of general jurisdiction in civil, economic, administrative and criminal matters became generally available to the public from 1 January 2007, although the relevant registry of the court decisions is still being upgraded. In addition, the Ukrainian judicial system became more complicated and hierarchical as a result of the recent judicial reforms. The generally perceived result of these reforms is that the Ukrainian judicial system has become even slower than before. Enforcement of court orders and judgments can in practice be very difficult in Ukraine. The State Execution Service, a body independent of the Ukrainian courts, is responsible for the enforcement of court orders and judgments in Ukraine. Enforcement procedures are very time-consuming and may fail for a variety of reasons including: the defendant lacking sufficient bank account funds, the complexity

19 Risk Factors of auction procedures for the sale of the defendant¶s property; or the defendant undergoing bankruptcy proceedings. In addition, the State Execution Service has limited authority to enforce court orders and judgments quickly and effectively. Ukrainian enforcement agencies are bound by the method of execution envisaged by the relevant court order or judgment and may not independently change such method even if it proves to be inefficient or unrealisable. Furthermore, notwithstanding successful execution of a court order or judgment, a higher court could reverse the court order or judgment and require that the relevant funds or property be restored to the defendant. Moreover, in practice, the procedures employed by the State Execution Service do not always comply with applicable legal requirements, resulting in delays or failure in enforcement of court orders or judgments. These uncertainties also extend to certain rights, including investor rights. In Ukraine, there is no established history of investor rights or responsibility to investors and in certain cases, the courts may not enforce these rights. Even if the courts take a consistent approach in protecting rights of investors granted under applicable Ukrainian law, the legislature of Ukraine may attempt legislatively to overrule any such court decisions by backdating such legislative changes to an earlier date. All of these factors make judicial decisions in Ukraine difficult to predict and effective redress uncertain. In addition, court claims are often used in the furtherance of political aims. The Bank may be subject to such claims and may not be able to receive a fair hearing. Finally, court orders are not always enforced efficiently by law enforcement institutions. The uncertainties relating to the judicial system could have a negative effect on the Ukrainian economy and thus on the Bank¶s business, results of operations and financial condition. Ukrainian tax law and practice are not fully developed and are subject to frequent change and interpretation Ukraine currently has tax laws imposed by both central and local authorities. Applicable taxes include value added tax, corporate income tax (profits tax), customs duties, payroll (social) taxes and other taxes. These tax laws have not been in force for significant periods of time in comparison to more developed market economies, and often result in unclear or non-existent implementing regulations. Moreover, tax laws in Ukraine are subject to frequent changes and amendments, which can result in either a friendlier environment or unusual complexities for the Bank and its business generally. For example, with effect from 1 January 2004, personal income tax was reformed by the introduction of a new flat tax of 13 per cent. for most levels of income, which was subsequently increased to 15 per cent. from 1 January 2007. In addition, with effect from 1 January 2004, the rate of corporate income tax was reduced from 30 per cent. to 25 per cent. There are often differing opinions regarding legal interpretations among and within governmental ministries and organisations, including the tax authorities, creating uncertainties and areas of conflict. Tax declarations/returns, together with other legal compliance areas (for example, customs and currency control matters), are subject to review and investigation by a number of authorities, which are authorised by law to impose substantial fines, penalties and interest charges. These circumstances generally create tax risks in Ukraine more significant than typically found in countries with more developed tax systems. Generally, the Ukrainian tax authorities may re-assess tax liabilities of taxpayers only within a period of three years after the filing of the relevant tax return. However, this statutory limitation period may not be observed or may be extended in certain circumstances. Moreover, the fact that a period has been reviewed does not exempt this period, or any tax declaration or return applicable to that period, from further review. While the authorities have consistently found the Bank to be in compliance in all material respects with tax laws, it is possible that relevant authorities could, in the future, take differing positions with regard to interpretative issues, which may have a material adverse effect on the Bank¶s business, results of operations, and financial condition. On 17 June 2010, the Ukrainian Parliament adopted a draft Tax Code on the first reading. This draft is currently undergoing public hearings and is subject to review and amendment by the Parliament Committee on Tax and Customs Policy and certain other governmental authorities. Following the public hearings of the current draft, an amended version of the draft will be submitted to the Parliament Committee on Tax and Customs Policy which will subsequently prepare a final version of the draft. The final version is expected to be ready by 10 September 2010 and will be submitted for second reading by the Ukrainian Parliament. The President of Ukraine has instructed the Government to revise

20 Risk Factors the draft Tax Code in order to resolve public and business concerns, after initial review of the draft by the Committee of Economic Reforms and also based on public responses. In general the draft Tax Code reiterates many of the existing provisions of current tax legislation. An apparently beneficial change provided by the draft Tax Code is the introduction of a gradual annual reduction in the Corporate Income Tax rate from the current 25 per cent. to 20 per cent. in 2014. The draft Tax Code also introduces a form of taxation of interest accrued on bank deposits. The draft Tax Code also provides for de-consolidation of financial results of a parent companies from their subsidiaries. The draft does not provide a detailed procedure for writing off bad debts for tax purposes. The draft does also not clearly regulate certain issues in connection with the taxation of transactions in foreign currencies (i.e. FX gains and losses). The regulation of interest income tax, factoring transactions, transactions with shares and derivatives, asset management activity, transactions with non- residents are, however covered by the draft Tax Code. There are weaknesses in corporate governance and disclosure standards under Ukrainian law The Bank¶s operations are subject to Ukrainian corporate governance rules. Disclosure and reporting requirements have only recently been enacted in Ukraine. Anti-fraud legislation has only recently been adapted to the requirements of a market economy and remains largely untested. Most Ukrainian companies do not have corporate governance procedures that are in line with U.S. or EU standards, including the standards set forth in the U.S. Sarbanes Oxley Act of 2002 or with generally accepted international standards. Ukrainian banking laws have introduced a concept of fiduciary duties owed by a bank¶s management to the bank and its shareholders. However, the concept of fiduciary duties of management or members of the board to their companies or shareholders remains undeveloped in Ukraine. Violations of disclosure and reporting requirements or breaches of fiduciary duties by the Bank or its management could significantly affect the receipt of material information or result in inappropriate management decisions, which may have a material adverse effect on the Bank¶s business, results of operations, and financial condition. Regulation of the banking industry The legislation in Ukraine has not always kept pace with market demands. Ukrainian commercial practices and legal and regulatory frameworks differ significantly from practices in other jurisdictions. As a result, it is often difficult to attract competent management and qualified accounting staff who can ensure compliance with changing regulatory requirements. The NBU¶s Resolution No. 368, dated 28 August 2001, which authorised the Instruction on Regulation of Activity of Ukrainian Banks (the ³Banking Regulation Instruction´), sets forth capital adequacy ratios and the rules upon which the calculations of capital adequacy ratios are based. The Banking Regulation Instruction also contains general rules for submitting statistical information to the NBU and the calculation of the ratios based on stand-alone and consolidated financial statements. From 31 December 2002, all banks with subsidiaries under their control are required to file consolidated financial statements with the NBU. In addition, Ukrainian authorities, including the NBU, have the right to, and do, conduct periodic inspections of the Bank¶s operations throughout the financial year. Failure to comply with any of the foregoing (whether determined by the NBU inspection or otherwise) could result in the imposition of fines, penalties or more severe sanctions, including the suspension, amendment or termination of the Bank¶s licences, any of which could increase costs or materially adversely affect the Bank¶s business, financial condition and results of operations. Notwithstanding the Banking Regulation Instruction, regulatory standards applicable to banks in Ukraine and the oversight and enforcement thereof by Ukrainian regulators differ from those applicable to banking operations in more highly developed regulatory regimes. There can be no assurance that the NBU will not implement regulations, policies or legal interpretations of existing banking or other regulations, relating to or affecting taxation, interest rates, inflation, exchange controls, or otherwise take action that could have a material adverse effect on the Bank¶s business, financial condition or results of operations or that could adversely affect the market price and liquidity of the Notes.

21 Risk Factors

Risks Relating to the Bank The continuation of turmoil in global credit markets may continue to adversely affect the Bank¶s business, financial condition, results of operations and prospects The credit markets, both globally and in Ukraine, have faced significant volatility and liquidity constraints since the summer of 2007. Global credit markets tightened initially as a result of concerns over the United States sub-prime mortgages crisis and the valuation and liquidity of mortgage-backed securities and other financial instruments, such as asset-backed commercial paper. Significant mark-to- market write-downs of asset values followed, initially in respect of mortgage-backed securities, but such write-downs then spread to other financial instruments, such as syndicated loans, and other classes of assets. These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger financial institutions and, in some cases, to fail, such as the U.S. investment bank Lehman Brothers. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders have reduced and, in some cases, ceased to provide funding to borrowers, including other financial institutions. In response to the financial crisis affecting the global banking sector and financial markets and the threats to the ability of investment banks and other financial institutions to continue as going concerns, governments including in the United States and in many of the largest countries in Europe have in many cases implemented significant rescue packages. These measures include, among other things; the recapitalisation of banks through state purchases of common and preferred equity securities, the state guarantee of certain forms of bank debt, the purchase of distressed assets from banks and other financial institutions and the provision of guarantees of distressed assets held by banks and other financial institutions. Despite these proposals and actions, the volatility and market disruption in the global banking sector is unprecedented in recent history. Although the global banking system now appears to be returning to stability as a result of such measures there can be no assurance that instability will not return. The continued turmoil in global credit markets may continue to adversely affect the Bank¶s business, financial condition, results of operations and prospects. Recent turmoil in global credit markets has already adversely affected, and may continue to adversely affect, the Ukrainian economy, the Ukrainian banking industry in general and the Bank in particular In large part due to the impact of the recent global financial and economic crisis on the Ukrainian economy, in February 2009, Fitch and S&P downgraded their long-term sovereign ratings for Ukraine to B (negative) and CCC+ (negative), respectively. In November 2009, Fitch further revised its long- term foreign currency credit rating on Ukraine to B- (negative). In March 2010 however, following the recent presidential elections and the appointment of the new Ukrainian government, S&P and Fitch have upgraded their long-term foreign currency sovereign credit ratings on Ukraine to B- (positive) and B- (stable), respectively. In July 2010, Fitch and S&P further reviewed and upgraded their long-term foreign currency sovereign credit ratings on Ukraine to B (stable) and B+ (stable), respectively. In 2009 Ukraine¶s GDP declined and it was the first year GDP had declined since 1999. Ukraine is also faced with a relatively high level of inflation, a large decrease in equity prices from the levels recorded in May 2008 and a substantial outflow of capital from the country. The State Committee of Statistics of Ukraine (³SCSU´) confirmed that Ukrainian GDP had fallen by 15.1 per cent, in 2009 and risen by 4.9 per cent, in the first quarter of 2010. The recent disruptions in the global markets have had a severe impact on the liquidity of Ukrainian banks and other financial institutions, the availability of credit, and the terms and cost of funding in Ukraine. Ukrainian banks have experienced a reduction in available financing, both in the interbank and short-term funding market, as well as on the longer-term capital markets and through bank finance instruments. The unavailability of funding to the banking sector in Ukraine has also negatively affected GDP growth in Ukraine. Since October 2008, the Ukrainian authorities have announced and, in many cases, fully implemented measures intended to support the liquidity and solvency of Ukrainian banks and to significantly increase the availability of credit to businesses. These measures have been seen as critical for restoring investor confidence and supporting the medium-term economic growth of Ukrainian economy. For a description of these measures, see ³Appendix A: The Banking Sector and Banking regulation of

22 Risk Factors

Ukraine´. Between October and December 2008, the NBU used approximately UAH 112.9 billion of its reserves to support the liquidity of the Ukrainian banks in the last quarter of 2008 and in 2009. With the aim of overcoming the global financial turmoil, the Ukrainian authorities implemented anti- crisis legislation, including; the adoption of the new laws and regulations for supporting the Ukrainian economy; and by amending the existing legislation such as the Law of Ukraine ³On Banks and Banking Activities´. After the adoption of the anti-crisis legislation, the Ministry of Finance of Ukraine, on behalf of the state, has recapitalized and, now is the major shareholder of three commercial banks, namely RodovidBank, Bank Kyiv and UkrGazBank. Since October 2008, the NBU has put in place temporary administration at a number of the commercial banks. As of 1 April 2010 six commercial banks remain under temporary administration. As of 1 August 2010, 18 commercial banks are subject to liquidation procedures. In general, these are small regional banks or other non-systemic banks. However, on 21 January 2010, the NBU revoked the banking license of UkrPromBank, which was among top 18 banks of Ukraine, and has also begun liquidation procedures. There can be no assurance that the measures taken by the Ukrainian Government and the NBU will succeed in materially improving the liquidity position and financial condition of Ukrainian banks. As a result of the current market conditions, accessing funding in the capital markets has become prohibitively expensive. The Bank may not be able to rely on the capital markets as a source of funding, as it has in the past, which could adversely affect the size and nature of its operations. If, despite the measures proposed and adopted by the Ukrainian Government and the NBU, the Bank¶s liquidity position deteriorates, or it is not able to obtain funding to support its funding base, this could have a material adverse effect on the Bank¶s business, financial condition, results of operations and prospects. If the amount of the Bank¶s overdue loans were to continue to increase significantly, especially if the Bank is not able to maintain the necessary reserves in response to any such increase, this could have a material adverse effect on the Bank¶s business, financial condition, results of operation or prospects. Furthermore, since 31 December 2008, the highly volatile economic environment created by the global credit crisis has also negatively affected the Bank¶s consolidated capitalisation and indebtedness. The Bank is a systemically and socially important bank in Ukraine As a result of its size, its large branch network and its large and diversified customer base, the Bank is important to the Ukrainian banking system as a whole and for some customers may be one of a limited number of providers of certain banking services. Accordingly, the Bank¶s status as a systemically and socially important bank in Ukraine may result in political, economic or financial pressures which may adversely affect the Bank¶s business, financial condition and results of operations. The Bank¶s strategy to concentrate its lending activities to high-quality corporate customers may not be successful Due to the economic downturn in Ukraine in the second half of 2008 the Bank changed the primary scope of its lending business from retail customers to corporate customers. See ³Description of the Bank¶s Business²Strategy´. However, due to the economic downturn, the number of reliable creditworthy corporate customers has substantially decreased and, accordingly, the Bank may face a strong competition from other major commercial banks in lending to corporate customers in Ukraine. As a result, the Bank¶s strategy to concentrate its lending activities to high-quality corporate customers may not be successful as it may not be able to extend a sufficient volume of loans to such high-quality corporate customers to maintain the size of its loan portfolio, which could have a material adverse effect on the Bank¶s business, financial condition and results of operations. The Bank could be adversely affected by the deterioration of the soundness or the perceived soundness of other financial institutions Against the backdrop of the limited liquidity and high cost funding in the international and Ukrainian domestic interbank lending markets, the Bank is subject to the risk of deterioration of the soundness and/or perceived soundness of other financial institutions within and outside the Ukraine. Financial institutions that transact with each other are interrelated as a result of trading, investment, clearing,

23 Risk Factors counterparty and other relationships. This risk is sometimes referred to as ³systemic risk´ and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which the Bank interacts on a daily basis, all of which could have an adverse effect on the Bank. The Bank routinely executes transactions with counterparties in the financial services industry, and commercial banks. As a result, the Bank is exposed to counterparty risk, and this counterparty risk is heightened due to the financial crisis. A default by, or concerns about the stability of, one or more financial institutions could lead to significant systemic liquidity problems, or losses or defaults by other financial institutions, which could have a material adverse effect on the Bank¶s business, financial condition, result of operations and prospects. The Bank¶s risk management strategies may not protect its loan portfolio against downturns in the economic cycle The Bank is subject to risks regarding the credit quality of, and the recovery on loans to and amounts due from, customers and market counterparties, which may be negatively impacted by further deterioration in general economic conditions. Until mid 2008 the Bank¶s loan portfolio expanded significantly, as did the Ukrainian economy and Ukrainian banking sector as a whole. Until the onset of the global economic crisis, the Bank¶s loan portfolio had not been tested through a downturn in the economic cycle. Due to the recent economic downturn, the provisions for loan impairment of the Bank and its subsidiaries (the ³Group´) increased to UAH 12,579 million or 15.9 per cent. of the Group¶s gross loan portfolio as at 31 December 2009, compared with UAH 8,130 million, or 10.7 per cent. of the Group¶s gross loan portfolio, as at 31 December 2008. Non-performing loans (overdue for more than 90 days) amounted to 11.6 per cent. of the Group¶s gross loan portfolio as at 31 December 2009. Furthermore, the volume of impaired loans on the Group¶s balance sheet as a percentage of total loans increased from 19.4 per cent. as at 31 December 2008 to 31.8 per cent. as at 31 December 2009. Further deterioration in the credit quality of the Bank¶s customers and counterparties, or in their behaviour, or arising from systemic risks in the Ukrainian and global financial system, can negatively affect the value of the Bank¶s assets, and lead to increased write downs and provisions for loan impairment. Factors including increased unemployment in Ukraine, rising inflation, reduced corporate liquidity and profitability, an increased number of corporate insolvencies and the inability of individuals to service personal debt can reduce the Bank¶s customers¶ and market counterparties¶ ability to repay loans. In addition, changes in economic conditions may result in a deterioration in the value of security held against lending exposures and increase the risk of loss in the event of a default by borrowers or counterparties. Although the Group reviewed its risk management strategies and implemented an internal stress testing programme in light of the deteriorating economic conditions, its risk management strategies may not protect it from substantially increased levels of non-performing loans in its portfolio. If the Group¶s non-performing loans increase significantly as a result of further economic downturn, this could have a material adverse effect on the Group¶s business, financial condition and results of operations. Exposure to the Ukrainian corporate securities and currency exchange markets The Bank¶s income from its securities operations depends on numerous factors beyond its control, such as overall market trading activity, interest rate levels, state action and general market volatility. Due in part to the limited liquidity of the Ukrainian corporate securities market and the relative lack of effective securities market regulation in comparison to more developed markets such as the United Kingdom or the United States, the prices of Ukrainian corporate securities may be significantly affected by a relatively small amount of trading activity or favourable or unfavourable press coverage. Moreover, regulation of market making and insider trading remains relatively under developed. As a result, the prices of Ukrainian corporate securities may be affected by practices prohibited in more developed securities markets. The foregoing factors may have a negative impact on the Bank¶s financial markets activities, which in turn could have a material adverse effect on the Bank¶s business, results of operations and financial condition. The Bank also trades currency on behalf of its clients and for its own account and maintains open currency positions denominated mainly in U.S. dollars and Euro, which give rise to currency risks. Although the Bank has in place limits aimed at reducing currency risk and adheres to the NBU restrictions on open currency positions, changes in currency exchange rates could have a material

24 Risk Factors adverse effect on the Bank¶s business, results of operations and financial condition. As at 31 December 2009, the Group¶s net exposure to U.S. dollars was a liability of UAH 8,035 million; to Euros an asset of UAH 3,762 million; and to other currencies an asset of UAH 744 million while as at 31 December 2008, the Group¶s net exposure to U.S. dollars was an asset of UAH 9,709 million; to Euros a liability of UAH 6,199 million; and to other currencies an asset of UAH 307 million. Reliance on retail deposits The Bank has historically relied on retail deposits for a major portion of its funding needs due to their proven stability during the economic downturns of 1998, 2004 and 2008-2009. In this respect, the Bank specifically relies on granular deposits (with an average deposit amount of approximately U.S.$750). Customer accounts of individuals comprised 47.4 per cent. of the Group¶s total liabilities as at 31 December 2008 and 50.4 per cent. as at 31 December 2009. All retail deposits can be withdrawn at any time under Ukrainian law at the request of the respective depositors. As a result, all such deposits are effectively short term deposits, which potentially exposes the Bank to liquidity problems if retail customers were to withdraw large amounts of deposits. Political, economic or social developments, or speculation about such developments, could trigger large scale withdrawals of retail deposits, which could have a material adverse effect on the Bank¶s business, financial condition or results of operations. Reliance on NBU and shareholder funding The Bank has historically relied upon issues of new shares to its shareholders and on the capitalisation of dividends to support its funding strategy and its capital adequacy ratios. Its business plan envisages continuing support from its shareholders over the next three years. In 2008 and 2009, the Bank took a loan of UAH 8,310 million from the NBU which as at 31 December 2009 comprised 10.7 per cent. of the Groups¶ total liabilities and which is repayable in equal instalments from July 2010 to October 2015. Any withdrawal of funding support by the Bank¶s shareholders or the NBU would be likely to have a material adverse effect on the Bank¶s funding strategy, may affect its ability to comply with its capital adequacy ratios and other regulatory requirements, and could have a material adverse effect on the Bank¶s business, financial condition or results of operations. The NBU Refinancing Loans are secured by pledges over certain of the Bank¶s loans and advances to customers and mortgages over certain of the Bank¶s real estate and in the event of the Bank¶s default under the NBU Refinancing Loans or the Bank¶s liquidation, the NBU¶s claims may rank senior to the claims of the Lender under the Loan Agreement The NBU has extended refinancing loans (³NBU Refinancing Loans´) to Ukrainian banks to assist them in dealing with the downturn in the financial markets and to improve their liquidity. In 2008 and 2009, the Bank received NBU Refinancing Loans in the aggregate amount of UAH 8,310 million. As of the date of this Prospectus, the total indebtedness of the Bank under the NBU Refinancing Loans is UAH 7,936 million. These loans bear an interest rate of 9.75 per cent. per annum. The NBU Refinancing Loans are secured by pledges over certain of the Bank¶s loans and advances to customers and mortgages over certain of the Bank¶s real estate, including its offices in Dnipropetrovsk. In the event of the Bank¶s default under the NBU Refinancing Loans or under related NBU requirements, the NBU may exercise its statutory right to debit UAH funds from the Bank¶s accounts with the NBU on a priority basis. The NBU is also entitled to enforce the first ranking security granted to it in respect of the NBU Refinancing Loans. On the liquidation of the Bank, the NBU¶s claims arising from the NBU Refinancing Loan(s), may rank senior to all rights and claims of other senior unsecured creditors of the Bank. There is a risk that, if the Bank is placed into liquidation prior to the repayment of the Bank¶s outstanding NBU Refinancing Loans, the Lender¶s claims under the Loan and ± consequently ± the Noteholders¶ claims under the Notes ± see ³Risks relating to the Offering, the Notes and the Trading Market´± may be limited. The Bank may face liquidity risks In common with other banks in Ukraine, since the onset of the credit crisis, the Bank has relied almost exclusively on short-term deposits from legal entities and individual customers, NBU financing support and shareholder funding (see ³Reliance on NBU and shareholder funding´). Adverse economic conditions in Ukraine may result in the withdrawal of deposits by Ukrainian customers. In addition, due to the generally low liquidity of the Ukrainian market, there are limited opportunities to sell or factor some of the Bank¶s assets other than highly-liquid assets. The reductions in corporate

25 Risk Factors client deposits and/or significant levels of withdrawals of retail deposits may result in liquidity gaps that the Bank would need to cover. Furthermore, the Bank¶s ability to receive funding in the domestic and international capital, syndicated loan, interbank and special-purpose financing markets in amounts sufficient, to meet its liquidity needs was affected by the credit crunch and the global financial and economic crisis. These factors may result in, among other things, significantly higher lending rates, in the Ukraine banking sector and limited opportunities for funding in the capital or syndicated loan markets, making financing more difficult and costly to obtain. The Bank may also be exposed to maturity mismatches between its assets and liabilities (including a currency mismatch), which may lead to a lack of liquidity at certain times. The deterioration of Ukrainian companies¶ liquidity which has been brought about, in part, by the delay of a VAT reimbursement by the Government pre-election; worsening conditions in the Ukrainian and international capital, syndicated loan and interbank markets; significant withdrawals of corporate and retail deposits; and maturity mismatches between the Bank¶s assets and liabilities may, cumulatively or separately, have a material adverse effect on the Bank¶s business, results of operations, financial condition and prospects. Interest rate volatility may adversely affect the Bank¶s results of operations Changes in prevailing interest rates (including changes in the difference between the levels of prevailing short- and long-term rates) may adversely affect the Bank¶s results of operations and costs of funding. Off-balance sheet credit related commitments may lead to potential losses As part of its lending and foreign trade-related activities, the Group provides guarantees and import letters of credit. As at 31 December 2009, the Group had issued guarantees amounting to UAH 914 million and import letters of credit amounting to UAH 616 million. As at that date, the Group also had irrevocable commitments to extend credit amounting in total to UAH 123 million. Although all such credit related commitments are classified as off-balance sheet items in the Group¶s financial statements, they still subject the Bank to credit risk. Credit related commitments are subject to credit approval and compliance procedures, and commitments to extend credit are contingent on the clients¶ maintaining specific credit standards, but these exposures are not fully secured. See ³Management Discussion and Analysis of Financial Condition and Results of Operations²Contingencies, Commitments and Derivative Financial Instruments²Off-Balance Sheet Arrangements´. As at 31 December 2009, the Group had a provision of UAH 43 million for its off-balance sheet credit related commitments. While the Bank believes that this provision is sufficient, there is a risk that the actual losses that the Bank may potentially incur on its credit related commitments may exceed such allowance. Concentration of lending The Bank has recently increased the concentration of its lending. As at 31 December 2009, the Group¶s ten largest borrowers accounted for 19 per cent. of its gross customer loan portfolio, as compared to 15 per cent. as at 31 December 2008. A significant proportion of these borrowers are active in the oil and gas sectors and an impairment in the ability of one or more of these borrowers to service or repay their loans may adversely affect the Bank¶s performance. The Bank will require continued emphasis on credit quality and the development of financial and management controls to monitor this credit exposure. Failure to achieve this could have a material adverse effect on the Bank¶s results of operations and financial condition. Quality of the Bank¶s collateral The level of uncollaterised lending on the Bank¶s balance sheet has increased significantly during 2009 compared to 2008. This has been due to the fact that the Bank has taken the view that certain types of collateral are not easily realisable in the economic conditions prevailing in 2009 and as such has moved to lending collaterised by future cash flows of the borrower, which in most cases goes though the borrower¶s bank accounts in the Bank. Consequently this borrowing is reflected as uncollateralised in the Bank¶s financial statements. There is no guarantee that the Bank will have access to such future

26 Risk Factors cash flows and lack of other collateral may further reduce the Bank¶s ability to collect amounts lent to borrowers. Transactions with related parties As at 31 December 2009, total assets due from related parties net of impairment provision for loans and advances to customers accounted for 5.0 per cent. of the Group¶s total assets compared to 5.8 per cent. of total assets as at 31 December 2008. As at 31 December 2009, liabilities due to related parties accounted for 3.6 per cent. of the Group¶s total liabilities compared to 4.9 per cent. as at 31 December 2008. A majority of these transactions are normally concluded by the Bank in the ordinary course of its business. While it is the Bank¶s policy that transactions with related parties are priced predominantly at market rates and are subject to the same loan approval procedures and limits as are applied by the Bank to transactions with unrelated parties, there can be no assurance that all transactions with related parties will be entered into on the above basis and terms. While the Bank believes it is not currently exposed to additional risk as a result of entering into such transactions, a rising level of related-party exposure may have a negative impact on the Bank¶s ratings, and any further significant increase in the level of related party transactions may have an adverse effect on the Bank¶s business, results of operations and financial condition. Capital adequacy The Basel Committee on Banking Regulation and Supervisory Practices (the ³Basel Committee´) has set international standards for capital adequacy for banks, and the NBU has established minimum capital adequacy ratios for Ukrainian banks. After a period of significant increases during previous years, the level of the Group¶s net loans and advances to customers has decreased from UAH 68,074 million as at 31 December 2008 to UAH 66,597 million as at 31 December 2009. This decline in loans to customers and in the Bank¶s risk-weighted assets generally have relieved pressure on the Bank¶s capital adequacy ratios. The Group¶s total capital adequacy ratio is calculated in accordance with Basel Committee standards (which is based on internal calculations by the Bank) was 13.7 per cent., 17.6 per cent. and 16.5 per cent. as at 31 December 2008, 31 December 2009 and 30 June 2010, respectively. Pursuant to the Law of Ukraine ³On Banks and Banking Activity´, dated 7 December 2000, as amended, the NBU¶s mandatory minimum capital adequacy ratio is currently 8.0 per cent. However, under the powers endorsed by the above mentioned law, the NBU increased the mandatory minimum capital adequacy ratio to 10 per cent. Although the higher capital adequacy ratio established by the NBU has been challenged in courts, no final decision has been adopted in this respect. The Bank is currently in compliance with both the Basel Committee¶s and the NBU¶s requirements in respect of capital adequacy. The Bank must maintain sufficient capital to cover increased risk-weighted assets in order to maintain the capital adequacy ratios set forth by the Basel Committee and the NBU. The Bank has historically relied upon issues of new shares to its shareholders and on the capitalisation of dividends to support its funding strategy and its capital adequacy ratios. Its business plan envisages continuing support from its shareholders over the next three years. A failure by the Bank to maintain certain capital adequacy ratios may violate covenants in certain of the Bank¶s loan agreements with other parties and could lead to the imposition of sanctions by the NBU, either of which could have a material adverse effect on the Bank¶s business, results of operations and financial condition. If the Bank fails to comply with applicable Ukrainian legislation and regulations of the NBU which results in the loss of significant assets and insolvency of the Bank, the NBU may revoke the Bank¶s banking license, which would result in the Bank ceasing to carry out its activities. The Bank may face competition from other banks Despite the recent economic deterioration, the Ukrainian market for financial services remains highly competitive. As at 30 June 2010, there were 176 commercial banks registered in Ukraine, excluding the NBU, all of which have been granted licences by the NBU to perform banking transactions. The Bank considers as its competitors primarily the top ten banks, the aggregate assets of which are approximately 53.2 percent of the total assets in the Ukrainian banking system. Out of the top ten banks the Bank is the only one fully owned by Ukrainian private capital. The Bank believes that its principal competitors may be divided into three tiers. The first tier comprises the Ukrainian state-owned banks such as Oschadbank and Ukreximbank. Traditionally, Oschadbank has had a strong position only in the settlement services segment. Ukreximbank is the Bank¶s competitor primarily in trade finance lending market for corporate clients. Potentially, the state may also attempt to cause the transfer of the accounts of budget employees to these banks. The second tier of the Bank¶s competitors comprises the

27 Risk Factors banks controlled by a western parent. These banks include Raiffeisen Bank Aval, UkrSibbank, Ukrsotsbank and OTP Bank. Generally these second-tier banks enjoy lower funding costs, better access to advanced banking technologies and higher operational efficiency than domestic banks. The third tier of the Bank¶s competitors includes Russian banks operating in Ukraine through their subsidiaries. These banks include Sberbank, Alfa Bank, Prominvestbank (a subsidiary of Vneshekonombank) and VTB. These banks have a high growth potential in the Ukrainian market. The Bank believes that these banks will be primarily concentrating on lending to large corporate borrowers, as they have not yet created sufficient infrastructure to effectively compete in the retail banking sector. The Bank expects competition in deposit-taking, corporate lending and settlement services to increase, which could narrow spreads between deposits and loan rates, which in turn could have an adverse impact on the Bank¶s profitability. If the Bank is unable to continue to compete successfully in the Ukrainian banking sector, there could be a material adverse effect on the Bank¶s business, results of operations and financial condition. See ³Description of the Bank¶s Business²Competition´. Lack of information and risk assessments Ukraine¶s system for gathering and publishing statistical information relating to the Ukrainian economy generally, and for specific economic sectors within it, or corporate or financial information relating to companies and other economic enterprises is not as advanced as in established market economies. Thus, the statistical, corporate and financial information, including audited financial statements, available to the Bank relating to its prospective corporate borrowers or other clients makes the assessment of credit risk, including the valuation of collateral, more difficult. Although the Bank operates its own historical credit information gathering system, a robust independent credit history information gathering system has not yet developed in Ukraine. The more limited statistical, corporate, financial and credit-related information available in Ukraine as compared to more developed countries may affect the accuracy of the Bank¶s assessments of credit risk. The Bank is, therefore, likely to have a greater risk of unanticipated borrower default and incorrect valuations of collateral relative to the norm for banks in more developed countries. Controlling shareholders Mr Gennady Bogolubov and Mr Igor Kolomojsky collectively own, directly or indirectly, approximately 98.14 per cent. of the Bank¶s statutory capital. Each of these shareholders has the ability to influence the Bank¶s business significantly in respect of all actions that require shareholder approval. Mr Kolomojsky, Mr Bogolubov and Mr Martynov also have the ability to influence the Bank¶s business through their membership on the Bank¶s Supervisory Council, which gives them the right, among other things, to elect and dismiss members of the Bank¶s Management Board. This ability to control and/or influence the Bank¶s business is further enhanced by virtue of the fact that the Bank has not appointed any independent members to its Management Board. In addition, Ukrainian law requires the attendance of shareholders holding more than 60 per cent. of a company¶s statutory capital for a quorum to be present at a general shareholders meeting. Therefore, any shareholder or combination of shareholders representing 40 per cent. or more of the Bank¶s statutory capital has the ability to block certain corporate actions by refusing to attend the general shareholders meeting. Each of Mr Kolomojsky and Mr Bogolubov holds in excess of 40 per cent. of the Bank¶s statutory capital. If circumstances were to arise where the interests of Mr Bogolubov or Mr Kolomojsky conflict with the interests of the Noteholders, Noteholders could be disadvantaged by any such conflict, as such controlling shareholders could take actions contrary to Noteholders¶ interests. For example, Mr Bogolubov and Mr Kolomojsky have the ability to exercise control over the Bank¶s pursuit of acquisitions, divestitures, financings or other transactions that could enhance the value of their equity investment without necessarily benefiting the interests of the Noteholders. See ³Shareholders´ and ³Related Party Transactions´. Internal controls deficiencies, reliance on centralised systems Management is aware that certain of the Bank¶s internal controls have deficiencies and weaknesses. These deficiencies relate to, among other areas, loan file maintenance, management information and financial reporting. The Bank has taken, and continues to take, steps to strengthen its internal controls and financial reporting process. A failure by the Bank to adequately address such deficiencies or to strengthen its internal controls could increase the risks associated with the Bank¶s operations, which in turn could have a material adverse effect on the Bank¶s business, financial condition and results of operations. The Bank is reliant on highly centralised and automated systems and procedures supported

28 Risk Factors by its information technology (³IT´) systems, in particular for the approval, documentation, monitoring and enforcement of loans. Any defect or failure to implement or adhere to these systems or procedures could have a material adverse effect on the Bank¶s business, financial condition and results of operations. Notwithstanding anything in this risk factor, this risk factor should not be taken as implying that the Bank will be unable to comply with its obligations under the Loan Agreement or that the Issuer will be unable to comply with its obligations as a company with securities admitted to the Official List. Complex information technology systems The Bank¶s financial performance and its ability to meet its strategic objectives will depend to a significant extent upon the functionality of its IT systems and its ability to increase systems capacity. Although all of the Bank¶s daily transactions are backed up both at its head office level and at all of the Bank¶s branches, disruptions to other aspects of the Bank¶s IT systems could occur and the reliability of its IT systems depends on future investments that may be necessitated by evolving technologies. A significant proportion of the software run by the Bank is designed, written and maintained by the Bank¶s in-house IT department. While the Bank sees this as a competitive strength, the successful operation of the Bank¶s business is reliant on highly centralised systems and procedures. The Bank is therefore dependent on its in-house resources to address any weaknesses in, and the further development of, its IT systems. See ³Description of the Bank¶s Business²Information Technology´. However, there can be no assurance that a disruption (even short term) to the normal operation of the Bank¶s IT systems, or delays in increasing the capacity of the IT systems, will not have a material adverse effect on the Bank¶s business, financial condition and results of operations. Notwithstanding anything in this risk factor, this risk factor should not be taken as implying that the Bank will be unable to comply with its obligations under the Loan Agreement or that the Issuer will be unable to comply with its obligations as a company with securities admitted to the Official List. Risks Relating to the Offering, the Notes and the Trading Market Noteholders have limited recourse to the Issuer as payments under the Notes are limited to the amount of certain payments received by the Issuer under the Loan Agreement The Issuer has an obligation under the Conditions and the Trust Deed to pay such amounts of principal, interest and additional amounts (if any) as are due in respect of the Notes. However, the Issuer¶s obligation to pay is limited to the amount of principal, interest and additional amounts (if any) actually received and retained (net of tax) from the Bank by or for the account of the Issuer pursuant to the Loan Agreement. Consequently, if the Bank fails to meet its payment obligations under the Loan Agreement in full, this will result in the Noteholders receiving less than the scheduled amount of principal, interest or other amounts, if any. Noteholders have no direct recourse to the Bank Except as otherwise expressly provided in the Conditions and in the Trust Deed, no proprietary or other direct interest in the Issuer¶s rights under or in respect of the Loan Agreement exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder can enforce any provision of the Loan Agreement or have direct recourse to the Bank as borrower except through an action by the Trustee pursuant to the rights granted to the Trustee in the Trust Deed. Under the Trust Deed and the Conditions, the Trustee shall not be required to take proceedings to enforce payment under the Loan Agreement unless it has been indemnified and/or secured and/or pre-funded by the Noteholders to its satisfaction. In addition, neither the Issuer nor the Trustee is required to monitor the Bank¶s financial performance. See ³Terms and Conditions of the Notes´. Payment in full of the principal and interest by the Bank pursuant to the Loan Agreement, to, or to the order of, the Trustee or the Principal Paying Agent will satisfy the Issuer¶s obligations in respect of the Notes. Consequently, Noteholders will have no further recourse against the Issuer or the Bank after such payment is made in full. The claims of Noteholders may be limited in the event that the Bank is declared bankrupt Ukrainian bankruptcy law differs from bankruptcy laws of England and is subject to varying interpretations. It is not clear how claims of the Issuer, the Trustee or the Noteholders against the Bank would be resolved in the event of the Bank¶s bankruptcy. In the event of the Bank¶s bankruptcy, the

29 Risk Factors claims of the Issuer, the Trustee and the Noteholders would be treated as unsecured and the Bank¶s obligations to the Issuer, the Trustee or, as the case may be, the Noteholders would be subordinated to the following obligations: Ɣ obligations arising as a result of inflicting harm to the life or health of individuals; Ɣ payment of wages to the Bank¶s employees due as of the commencement of the liquidation procedure; Ɣ debt obligations to the Fund for the Guaranteeing of Deposits of Individuals; Ɣ obligations to individual depositors in an amount exceeding the sum paid by the Fund of the Guaranteeing of Deposits of Individuals; Ɣ liabilities to the National Bank of Ukraine with respect to a decrease in security value, provided by a bank in relation to refinancing loan; Ɣ liabilities to the Ministry of Finance with respect to the repayable financial assistance except for the contributions to the charter capital of a bank; and Ɣ liabilities to individuals with respect to blocked payments (except for liabilities to individual entrepreneurs). Claims for the payment of fees and expenses incurred in connection with the liquidation and claims secured by pledge are satisfied outside of the order of priority. In the event of bankruptcy, Ukrainian bankruptcy law may materially adversely affect the Bank¶s ability to make payments to the Issuer or the Trustee. Claims against the Bank may be incapable of enforcement upon the introduction by the NBU of temporary administration of the Bank. If the NBU determines that a significant threat exists of the Bank becoming insolvent, the NBU is required to impose temporary administration on the Bank. The NBU may also impose temporary administration in certain other circumstances. The temporary administrator appointed by the NBU would replace all of the Bank¶s governing bodies for the entire term of the temporary administration (being a period of up to one year which may be extended for another year in case of the Bank, which is considered to be a ³systemic bank´), and would be authorised to carry out any acts aimed at the Bank¶s financial rehabilitation, including but not limited to (i) reorganising the bank; (ii) terminating any ongoing operation of the Bank (without terminating or invalidating the agreement itself); and (iii) terminating, in accordance with Ukrainian legislation, any agreement to which the Bank is party and which, in the opinion of the temporary administrator, is either loss-making or ³unnecessary´ for the Bank. This may apply only to an agreement which contains outstanding obligations of any party. The temporary administrator would have a broad discretion in determining whether a particular agreement is loss- making or ³unnecessary´, given that Ukrainian legislation provides no criteria for making such determination. During the term of the administration of the bank, the temporary administrator may assign claims, transfer debts or reorganise the bank without notification to the shareholders, debtors and creditors and/or obtainment of their approval. Shareholders, debtors and creditors of a bank are not entitled to claim premature performance of a bank¶s obligations or to claim damages against a bank resulting from such assignment or transfer during the performance of actions anticipated by a program of financial rehabilitation of a bank. During the term of the temporary administration, but not longer than for a three-month period during such term, the NBU may, in its discretion, order a moratorium on the satisfaction of claims of creditors of the Bank. During the term of such moratorium, the Bank may be unable to make payments to the Issuer and the Trustee, and the Issuer¶s and/or the Trustee¶s claims against the Bank would not be enforceable. The Bank may not be held liable for the non-performance of its obligations to the Issuer and/or the Trustee resulting from the imposition of the moratorium. Upon the termination of the moratorium (other than as a result of the Bank entering bankruptcy proceedings), the Issuer and/or the Trustee would be entitled to make, and to enforce, claims against the Bank in the amounts existing as of the date when the moratorium was imposed. Further, Article 81 of the Law of Ukraine ³On Banks and Banking Activity´ dated 7 December 2000, as amended, permits a temporary administrator of a bank appointed pursuant to any such temporary administration to request a Ukrainian court to declare invalid, among other agreements to which the bank may be party, an agreement between the bank and a third party, if there has been ³any operation´ (meaning a payment or other transaction) under such agreement (i) within a six month period before the appointment of such temporary administrator, if the purpose of the operation was to grant a preference

30 Risk Factors to such third party compared to the bank¶s other creditors; (ii) within one year before the appointment of such temporary administrator between the bank and a related party, if the operation contravened the requirements of Ukrainian legislation or ³threatened the interests of depositors and creditors´ of the bank; (iii) within three years before the appointment of such temporary administrator, with the purpose of alienating any of the bank¶s assets free of charge or purchasing assets or services by the Bank at a price significantly higher than the value of the assets or services; (iv) within three years before the appointment of such temporary administrator, with the purpose of concealing assets from the bank¶s creditors or otherwise violating the rights of such creditors; or (v) at any time if such operation was based on forged documents or was of fraudulent nature. If the Loan Agreement were to be declared invalid on such basis, the Bank would be required to repay to the Issuer all funds received from the Issuer pursuant to the Loan Agreement, and the Issuer would be required to repay to the Bank all funds received from the Bank pursuant to the Loan Agreement. There is also a lack of certainty as to whether, in such event, the court might apply any other consequences of the invalidation of the Loan Agreement (this would depend on the facts of the relevant case). Professional advisors of the Bank have advised that they believe there is no basis for challenging the validity of the Loan Agreement or any transaction contemplated thereunder as contravening the requirements of Ukrainian legislation. However, in view of the risks associated with the Ukrainian legal system as disclosed under ³²Risks Relating to Ukraine²Ukraine¶s Legal System´, no assurance can be given that the courts in Ukraine would interpret this in the same manner. The Notes may be redeemed prior to maturity In the event that the Issuer would be obliged to increase the amounts payable in respect of any Notes due to any withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of Ukraine or the United Kingdom or any political subdivision thereof or any authority therein or thereof having power to tax, the Bank would be required to increase amounts payable under the Loan Agreement. In such circumstances, the Bank may prepay the Loan, in which case the Issuer would redeem all outstanding Notes in accordance with the Conditions. In addition, the Notes shall be redeemed in whole, but not in part, upon giving notice to the Noteholders, at any time at their outstanding principal amount together with accrued interest to the date of redemption and any additional amounts in respect thereof, (i) if the Bank elects to prepay the Loan for other tax reasons (in addition to the circumstances described above) or by reason of increased costs; (ii) upon a Change of Control (as defined in Clause 1.1 (Definitions) of the Loan Agreement); or (iii) in the event that it becomes unlawful for the Issuer to fund the Loan or to allow it to remain outstanding under the Loan Agreement, all as more fully described in Clause 6 (Repayment and Prepayment) of the Loan Agreement. See ³The Loan Agreement´. See also Condition 6.2 (Mandatory Redemption) of ³Terms and Conditions of the Notes´. Any Notes acquired by the Bank or any of its subsidiaries may be surrendered through the Issuer to the Principal Paying Agent for cancellation, and the Loan shall be deemed to have been prepaid in an amount corresponding to the aggregate principal amount of the Notes surrendered for cancellation. Availability of treaty relief could impact the Bank¶s ability to make payments of interest to the Issuer or the Trustee under the Loan Agreement In general, payments of interest on borrowed funds by a Ukrainian entity to a non-resident legal entity, provided that the interest is not effectively connected with a permanent establishment of the non- resident entity situated in Ukraine, are subject to Ukrainian withholding tax at the rate of 15 per cent., not including any reduction or elimination pursuant to the terms of any applicable tax treaty. Based on professional tax advice it has received, the Bank believes that, under the terms of the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains of 10 February 1993 (the ³Double Tax Treaty´), as it is currently applied, payments of interest on the Loan will not be subject to withholding tax, provided that certain conditions set forth in the Double Tax Treaty and under applicable Ukrainian law are duly satisfied. However, there can be no assurance that the exemption from withholding tax under the Double Tax Treaty is, or will continue to be, available.

31 Risk Factors

Specifically, in order for the exemption from withholding under the Double Tax Treaty to be applicable, the Issuer must be resident in the United Kingdom for the purposes of the Double Tax Treaty, must be the beneficial owner of the interest payments being received in the United Kingdom and must be subject to tax in respect of such interest payments in the United Kingdom. The exemption will not be available under the Double Tax Treaty if the Issuer carries on business through a permanent establishment or other fixed place of business located in Ukraine, and the debt claim in respect of which the interest is paid is effectively connected with such permanent establishment or other fixed place of business. In addition, the notion of beneficial ownership is not well defined in Ukrainian tax law. It is not clear how the test of taxation of interest payments in the United Kingdom will be interpreted and applied by the Ukrainian authorities in practice. As a consequence, different interpretations are possible and the position could be taken that the Issuer should not be viewed as the beneficial owner of the interest payments being received in the United Kingdom or subject to tax thereon in the United Kingdom. However, based on professional tax advice that it has received, the Bank believes that it is unlikely that the Ukrainian authorities will adopt either of these views. In addition, Article 11(7) of the Double Tax Treaty contains a ³main purpose´ anti-avoidance provision. While there is no established practice of the Ukrainian tax authorities with respect to the application of this provision, if the Ukrainian tax authorities were to take the position that one of the main purposes of selecting the United Kingdom, the Issuer¶s jurisdiction of residence, for this loan transaction was to avail the Issuer of the tax benefits provided under the Double Tax Treaty, the Ukrainian tax authorities may invoke the anti-avoidance provision of Article 11(7). In such circumstances, there is a risk that payments of interest by the Bank under the Loan would cease to have the benefit of the Double Tax Treaty. If this were to occur, or if the Issuer or any successor or assignee of the Issuer were to cease to be resident of the UK or of a jurisdiction that has a double tax treaty with Ukraine that is similar to the Double Tax Treaty, or if the Issuer or any successor or assignee of the Issuer were to take any action that would render the Double Tax Treaty or similar treaty inapplicable, the Bank would have to withhold an amount of Ukrainian withholding tax in respect of payments under the Loan Agreement and therefore become obligated to pay additional amounts, and may prepay the Loan at its principal amount, together with accrued interest. Thereupon the Issuer would prepay all outstanding Notes. See also ³Obligation to pay additional amounts under the Loan Agreement may not be enforceable´. Obligation to pay additional amounts under the Loan Agreement may not be enforceable Ukrainian tax law contains restrictions that may affect the validity and enforceability of the obligation of the Bank to pay additional amounts under the Loan Agreement due to the effect of Ukrainian withholding tax. In November 2009, the State Tax Administration of Ukraine issued a letter indicating that tax gross-up, tax reimbursement and tax indemnity clauses of agreements between Ukrainian residents and their foreign counterparties contravene the requirements of Ukrainian legislation that prohibit the shifting of the foreign counterparty¶s tax payment obligation to the Ukrainian resident. Therefore, there is a risk that payments of interest and/or principal by the Issuer to investors could be reduced by any such amounts withheld by virtue of such applicable Ukrainian withholding tax. A failure by the Bank to pay additional amounts due under the Loan Agreement would constitute an event of default under the Loan Agreement. Also, in the event that the Bank would become obliged to pay additional amounts under the Loan Agreement, the Bank may prepay the Loan at its principal amount, together with accrued interest, and thereupon all outstanding Notes will be prepaid by the Issuer. See ³The Notes may be redeemed prior to maturity´. The Loan Agreement could be challenged as a result of the Issuer not qualifying as a financial institution The Commercial Code of Ukraine provides that Ukrainian borrowers may borrow foreign currency loans from ³foreign financial institutions´. It is unclear whether the Issuer may be regarded as a ³foreign financial institution´ for these purposes. However, the specified provision of the Commercial Code of Ukraine is generally regarded in Ukraine as declaratory rather than restrictive, and a broad practice of Ukrainian companies¶ borrowing from foreign companies which are not financial institutions confirms such position. The NBU regulations governing the extension of cross-border loans by foreign lenders to Ukrainian borrowers do not prevent the registration of loans from foreign lenders which are not financial institutions, and the NBU does register such loans in practice.

32 Risk Factors

Ukrainian currency control regulations could restrict the Bank¶s ability to make payments to the Issuer or the Trustee under the Loan Agreement The NBU is empowered to define the policy and regulate currency operations in Ukraine, as well as establish any restrictions on currency operations, cross-border payments and the repatriation of profits. Ukrainian currency control regulations and practice are subject to continuing change, with the NBU exercising considerable autonomy in their interpretation and application. While at present the Loan Agreement is only subject to registration with the NBU and no licence is required to be obtained from the NBU in order to make payments of principal and interest under the Loan Agreement, there can be no guarantee that such law and practice will remain unchanged during the term of the Loan. If the NBU determines in the future that a licence is required for payments by the Bank under the Loan Agreement, the Bank will need to apply for a licence. The Bank cannot assure investors that it will receive such a licence in such case. If the Bank does not receive such a licence (if one were to be required), no assurance can be given that the Bank will not be restricted from making payments under the Loan Agreement. While the Loan Agreement will be registered with the NBU, payments of principal and interest under the Loan Agreement to any entity other than the Issuer would require prior registration with the NBU of the resulting change in the loan transaction or the issuance of an individual licence of the NBU permitting such payments. The Bank believes that the NBU would be inclined to view enforcement of security by the Trustee as a mere assignment of the Issuer¶s claims against the Bank to the Trustee. The NBU would have a broad discretion in evaluating such a change in the loan transaction, and could refuse to perform its registration as a result of, for example, insufficient documentation. If the NBU refuse to register such a change, the Bank would not be permitted to make payments of principal and interest under the Loan Agreement to any entity other than the Issuer unless it were to obtain an individual licence of the NBU permitting such payments. There can be no assurance that the Bank would receive a licence if one were to be required or that the Trustee would be able to meet the requirements of the NBU in connection with any registration or licence. If the necessary registration or licence, as the case may be, were to be refused, there can be no assurance that the Bank would be able to make payments of principal and interest under the Loan Agreement in the event of an enforcement of security by the Trustee. The Board of the NBU has passed a resolution prohibiting Ukrainian borrowers from making, in connection with loans granted by foreign lenders, any payments (other than principal) which, in aggregate per annum, exceed an amount determined by applying the applicable maximum interest rate established by the NBU (the ³MIR´) to the principal amount of the loan. As at the date of this Prospectus, the MIR applicable to fixed interest rate loans in major foreign convertible currencies (including U.S. dollars) the maturities of which are less than one year is 9.8 per cent. per annum; the MIR applicable to loans the maturities of which are from one year to three years is 10.0 per cent. per annum; and the MIR applicable to loans the maturities of which are in excess of three years is 11.0 per cent. per annum. The NBU has the authority to review and modify the MIR from time to time and may refuse to register a change in the loan transaction (e.g. due to enforcement of security by the Trustee) if the effective interest rate (including additional amounts, fees, default interest, penalties and other charges) on the Loan exceeds the then applicable MIR. In the event of prepayment of the Loan, the NBU would not permit the aggregate amount of interest and other amounts (except the repayment of principal) payable in connection with the Loan to exceed an amount determined by applying the relevant MIR to the principal amount of the Loan. While the NBU¶s regulations have not been tested in this regard, the NBU may require the application of the MIR based on the period for which the Loan has been outstanding as of the date of prepayment rather than the contractual maturity, which would result in the application of a lower MIR to the amounts payable (e.g. the MIR applicable to fixed interest rate loans the maturities of which are less than one year instead of the MIR applicable to fixed interest rate loans the maturities of which are in excess of three years). At the current MIR, the Issuer would generally receive payment of the full amount of accrued interest in respect of the Loan since the interest rate on the Loan, and the interest rate applicable to the Notes, are less than the currently effective MIR. However, any additional amounts, default interest or other amounts (except the repayment of principal), if any, payable to the Issuer in connection with the Loan could be limited by the MIR. Further, since the NBU has the authority to review and modify the MIR

33 Risk Factors from time to time, a reduction in the MIR could further limit the ability of the Issuer to collect interest, additional amounts, default interest or other charges payable in connection with a prepayment of the Loan. There is an NBU regulation pursuant to which the State Information and Analytical Centre for Monitoring External Commodity Markets (the ³SIAC´) is required to review the fees for services rendered by a non-resident to a resident under an agreement for services (or a series of agreements for similar services purchased within one calendar year from the same payee) with a value in excess of ¼100,000 (or the equivalent value in another currency), excluding payments made by banks in favour of non-residents for rendering financial services, as well as payments made according to the registration certificate issued for the registration of a loan from a non-resident. Unless a cross-border transaction relating to the non-resident¶s services is licensed by the NBU, or is otherwise subject to an exemption, any such payment can only be made if the SIAC determines that the value of the services set forth in the agreement (or in the series of agreements) is in line with market conditions. If the SIAC for any reason refuses to make that determination, any such payment can be made only on the basis of a specific permission from the NBU. If the SIAC determines that the fees are excessive, or refuses to make that determination and the NBU does not grant the permission, the payment of fees cannot be made (unless such decision of the SIAC or the NBU has been overruled by a court order). The Bank¶s payments of fees under the Loan Agreement are exempt from this requirement to the extent they constitute fees for financial services under Ukrainian law, which the Bank believes to be the case. However, a risk exists that such exemption would not apply if the Bank were required to make any payment of such fees to a non-resident that is not authorised to render financial services under the laws of its jurisdiction, or if such services were not regarded as financial services for purposes of the applicable regulations of the NBU. Foreign judgments may not be enforceable against the Bank Under the Loan Agreement, the Issuer, in its capacity as Lender, may, at its sole option, initiate litigation proceedings in the courts of England or arbitration proceedings in London, England against the Bank. The courts in Ukraine will generally not recognise and/or enforce any judgment obtained in a court of a country other than Ukraine unless such enforcement is envisaged by an international treaty to which Ukraine is a party, and then only in accordance with the terms of such treaty. There is no such treaty in effect between Ukraine and the United Kingdom. Accordingly, the holders of the Notes and parties to the Loan Agreement will generally not be able to enforce a judgment of a United Kingdom court in Ukraine pursuant to any such treaty. In the absence of such international treaty, the Ukrainian courts may recognise and enforce a foreign court judgment only on the basis of the principle of reciprocity. Ukrainian legislation provides that unless proven otherwise the reciprocity is deemed to exist in relations between Ukraine and the country where the judgment was rendered. However, Ukrainian legislation does not provide for any clear rules on the application of the principle of reciprocity and there is no official interpretation or court practice on these provisions. Accordingly, there is no assurance that the Ukrainian courts will recognise or enforce a judgment rendered by the United Kingdom courts on the basis of the principle of reciprocity. Furthermore, the Ukrainian courts might refuse to recognise and enforce a foreign court judgment on the basis of the principle of reciprocity on the grounds provided in Ukrainian legislation in effect on the date on which such recognition and/or enforcement are sought. Since Ukraine is a party to the New York Convention, an arbitral award would be enforceable in Ukraine, subject to the terms of the New York Convention. See ³Enforceability of judgments´. There is no active trading market for the Notes The Notes are new securities which may not be widely distributed and for which there is currently no active trading market. If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Bank. Although application has been made for the Notes to be admitted to listing on the London Stock Exchange, there is no assurance that such application will be accepted or that an active trading market will develop. Accordingly, there is no assurance as to the development or liquidity of any trading market for the Notes.

34 Risk Factors

The market price of the Notes may be volatile The market price of the Notes could be subject to significant fluctuations in response to actual or anticipated variations in the Bank¶s own and the Bank¶s competitors¶ operating results, adverse business developments, changes to the regulatory environment in which the Bank operates, changes in financial estimates by securities analysts, and the actual or expected sale of a large number of Notes, as well as other factors, including the trading market for Notes issued by or on behalf of Ukraine as a sovereign borrower. In addition, in recent years the global financial markets have experienced significant price and volume fluctuations which, if repeated in the future, could adversely affect the market price of the Notes without regard to the Bank¶s results of operations, prospects or financial condition. Any negative change in Ukraine¶s or the Bank¶s own credit rating could adversely affect the market price of the Notes Ukraine sovereign bonds are rated ³B+ (stable outlook)´ by S&P, ³B2 (negative outlook)´ by Moody¶s and ³B- (stable outlook)´ by Fitch. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation. On 28 July 2010, the Bank has received an upgraded Long-Term Issuer Default rating of ³%´ from ³B- ´ from Fitch and a foreign currency debt rating ³B1´ from Moody¶s. Any negative change in Ukraine¶s or the Bank¶s own credit rating could materially adversely affect the market price of the Notes. Risks Related to the Issuer The UK regime for the taxation of securitisation companies The tax treatment of the Issuer may depend upon whether the Issuer qualifies as a ³securitisation company´ within the meaning of the Taxation of Securitisation Companies Regulations 2006 (as amended) (the ³Regulations´). The Regulations set out a number of criteria which a company must satisfy in order to qualify as a securitisation company. These criteria are intended to ensure, in very broad terms, that a company¶s activities are limited to those relating to its participation in an appropriate debt funding structure, and that its assets predominantly constitute debts, cash receivables, derivatives and other financial assets. If the Issuer qualifies as a securitisation company, then it will not be subject to the ordinary provisions which determine a company¶s taxable profit for corporation tax purposes. Instead it will, broadly speaking, be subject to corporation tax on the cash profits retained by it for each accounting period in accordance with the transaction documents. If the Issuer does not qualify as a securitisation company, then the ordinary provisions which determine a company¶s taxable profits for corporation tax purposes will apply and this might result in the Issuer being subject to corporation tax on more than its retained profit, for example as a result of a mismatch between the accounting-based amounts required to be brought into account for tax purposes and the actual payments or receipts. It would also be necessary to consider whether payments made by the Issuer were fully deductible under provisions which can treat certain payments in respect of securities as non-deductible distributions.

35 Enforceability of Judgments

The Bank is a joint stock company incorporated under the laws of Ukraine. A substantial number of the Bank's directors and executive officers named in this Prospectus reside outside the United Kingdom and a substantial portion of the assets of such persons are located outside the United Kingdom. As a result, it may not be possible for investors to effect service of process within the United Kingdom upon the Bank (although, under the Loan Agreement the Bank has appointed an agent for service of process in the United Kingdom) or such persons or to enforce against any of them judgments obtained in the United Kingdom courts. Judgments rendered by a court in any jurisdiction outside Ukraine will be recognised and/or enforced by courts in Ukraine only if an international treaty providing for the recognition and enforcement of judgments, that was ratified by the Ukrainian Parliament, exists between Ukraine and the relevant country. If there is such a treaty, the Ukrainian courts may refuse to recognise and enforce a foreign judgment on grounds provided in the relevant treaty and/or in Ukrainian legislation in effect on the date on which such recognition and/or enforcement are sought. Furthermore, Ukrainian legislation may be changed providing further grounds for refusal of recognition and/or enforcement of foreign judgments in Ukraine. There is no such treaty in effect between Ukraine and the United Kingdom. In the absence of such an international treaty, the Ukrainian courts may recognise and enforce a foreign court judgment only on the basis of the principle of reciprocity. Ukrainian legislation provides that unless proven otherwise the reciprocity is deemed to exist in relations between Ukraine and the country where the judgment was rendered. However, Ukrainian legislation does not provide any clear rules on the application of the principle of reciprocity and there is no official interpretation or court practice with respect to such principle of reciprocity. Accordingly, there is no assurance that the Ukrainian courts will recognise or enforce a judgment rendered by the United Kingdom courts on the basis of the principle of reciprocity. Furthermore, the Ukrainian courts might refuse to recognise and enforce a foreign court judgment on the basis of the principle of reciprocity on a ground provided in Ukrainian legislation in effect on the date on which such recognition and/or enforcement are sought. Ukraine is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ³New York Convention´) with a reservation to the effect that, in respect of the awards made in a state which is not a party to the New York Convention, Ukraine will only apply the New York Convention on a reciprocal basis. Consequently, a foreign arbitral award obtained in a state which is party to the New York Convention should be recognised and enforced by a Ukrainian court (under the terms of the New York Convention). The Loan Agreement contains a provision allowing for arbitration of disputes with London, England, designated as the seat of arbitration. Since the United Kingdom is a party to the New York Convention, arbitral awards in relation to such disputes may be enforced in Ukraine under the provisions of the New York Convention.

Third Party Information

Unless a specific source is identified, all information regarding market and other operating and statistical data provided in this Prospectus is based on the Group¶s own estimates. In making estimates, the Group relies on data produced internally and, where appropriate, external sources, including information made public by the NBU, the SSCU and the Association of Ukrainian Banks (the ³AUB´). The information from such external sources has been accurately reproduced in this Prospectus and, as far as the Issuer and the Bank are aware and are able to ascertain from such external sources, no facts have been omitted which would render any such information or data presented in this Prospectus inaccurate or misleading.

36 Forward Looking Statements

Some statements in this Prospectus, as well as written and oral statements, that the Bank and its officers make from time to time in reports, filings, news releases, conferences, teleconferences, web postings or otherwise, may be deemed to be ³forward-looking statements´. Forward-looking statements include statements concerning the Bank¶s plans, objectives, goals, strategies and future operations and performance and the assumptions underlying these forward-looking statements. When used in this Prospectus, the words ³anticipates´, ³estimates´, ³expects´, ³believes´, ³intends´, ³plans´, ³may´, ³will´, ³should´ and any similar expressions identify forward-looking statements. These forward- looking statements are contained in the ³Risk Factors´, ³Management Discussion and Analysis of Financial Condition and Results of Operations´, ³Description of the Bank¶s Business´, ³Risk Management´ and other sections of this Prospectus. The Bank has based these forward-looking statements on the current view of its management with respect to future events and financial performance. These views reflect the best judgment of the Bank¶s management (³Management´) but involve uncertainties and are subject to certain risks the occurrence of which could cause actual results to differ materially from those predicted in the Bank¶s forward-looking statements and from past results, performance or achievements. Although the Bank believes that the estimates and the projections reflected in its forward-looking statements are reasonable, if one or more of the risks or uncertainties materialise or occur, including those which the Bank has identified in this Prospectus, or if any of the Bank¶s underlying assumptions prove to be incomplete or incorrect, the Bank¶s actual results of operations may vary from those expected, estimated or projected. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. Prospective investors should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include: (a) inflation, interest rate and exchange rate fluctuations in Ukraine; (b) prices for securities issued by Ukrainian entities; (c) the health of the Ukrainian economy, including the Ukrainian banking sector; (d) the effects of, and changes in, the policy of the government of Ukraine and regulations promulgated by the NBU; (e) the effects of competition in geographic and business areas in which the Bank conducts its operations; (f) the effects of changes in laws, regulations, taxation or accounting standards or practices in jurisdictions where the Bank conducts its operations; (g) the Bank¶s ability to increase market share for its products and services and control expenses; (h) acquisitions or divestitures; (i) technological changes; and (j) the Bank¶s success at managing the risks associated with the aforementioned factors. This list of important factors is not exhaustive. When relying on forward-looking statements, prospective investors should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which the Bank operates. These forward-looking statements speak only as of the date of this Prospectus. Without prejudice to any requirements under applicable laws and regulations, each of the Bank and the Issuer expressly disclaims any obligation or undertaking to disseminate after the date of this Prospectus any updates or revisions to any forward-looking statements contained herein to reflect any change in their expectations with regard thereto or any change in events, conditions or circumstances on which any such forward- looking statement is based.

37 Presentation of Financial Information

Financial Information The consolidated financial statements for the Group beginning on page F-2 and ending on F-269 for the financial years ended 31 December 2007, 2008 and 2009, together with the notes thereto (the ³Financial Statements´) were prepared in accordance with International Financial Reporting Standards (³IFRS´) issued by the International Accounting Standards Board. The financial information of the Bank and the Group, unless otherwise indicated, has been derived from the Financial Statements. Auditors LLC Audit firm ³PricewaterhouseCoopers (Audit)´, independent accountants ³PricewaterhouseCoopers´), registered with the Chamber of Auditors of Ukraine, have audited, and rendered unqualified audit reports on, the IFRS consolidated financial statements of the Group for the year ended 31 December 2009, 31 December 2008 and 31 December 2007, as stated in their reports appearing herein. The address of PricewaterhouseCoopers is 75 Zhylyanska Street, 01032 Kyiv 32, Ukraine. Impact of New Financial Reporting Standards Certain new and amended standards and interpretations became effective for the Group from 1 January 2009. The amended and new standards and interpretations and their impact on the Financial Statements are described in Note 5 to the Group¶s consolidated financial statements for the year ended 31 December 2009. In particular, in accordance with International Accounting Standard 1 (³IAS 1´) (revised) ³Presentation of Financial Statements´, the Group has elected to present a statement of comprehensive income which also includes all non-owner changes in equity, such as the revaluation of available-for-sale financial assets, to replace the prior presentation of income statement in the consolidated financial statements for the year ended 31 December 2008 and 31 December 2007. In addition, starting from 1 January 2009, the Group prepares its segment analysis in accordance with IFRS 8, Operating segments, replacing segment reporting in accordance with IAS 14. The segment information presented in accordance with IAS 14 was prepared on the basis of the Group¶s consolidated financial data and is therefore not directly comparable with the segment information presented in accordance with IFRS 8, which is prepared on the basis of management reporting that does not include information on the Bank¶s subsidiaries. Therefore segment information for the year ended 31 December 2007 is not presented in the Prospectus. Corresponding Figures Certain amounts for the year ended 31 December 2007 were reclassified in the Group¶s consolidated financial statements for the year ended 31 December 2008 and certain amounts for the year ended 31 December 2008 were reclassified in the Group¶s consolidated financial statements for the year ended 31 December 2009. For consistency of presentation and to facilitate comparability in this Prospectus, financial data (i) as at and for the year ended 31 December 2007 included herein that have been extracted or derived from the Financial Statements have been so extracted or derived from the corresponding column presentation for 2007 data included in the Group¶s consolidated financial statements for the year ended 31 December 2008; and (ii) as at and for the year ended 31 December 2008 included herein that have been extracted or derived from the Financial Statements have been so extracted or derived from the corresponding column presentation for 2008 data included in the Group¶s consolidated financial statements for the year ended 31 December 2009. Currency In this Prospectus, the following currency terms are used: (a) ³EUR´, ³Euro´ or ³¼´ means the lawful currency of the member states of the European Union that adopted the single currency in accordance with the Treaty of Rome establishing the European Economic Community, as amended from time to time;

38 Presentation of Financial Information

(b) ³Pound´, ³£´ or ³GBP´ means the lawful currency of the United Kingdom; (c) ³UAH´, ³Ukrainian hryvnia´ or ³hryvnia´ means the lawful currency of Ukraine; and (d) ³U.S. dollar´, ³Dollar´, ³U.S.$´ or ³USD´ means the lawful currency of the United States. Rounding Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly, and figures shown as totals in certain tables may not be arithmetic aggregation of the figures which precede them. Exchange Rates The following table sets forth, for the periods indicated, the average and period-end official rates set by the National Bank of Ukraine (³NBU´), in each case for the purchase of Ukrainian hryvnia, all expressed in Ukrainian hryvnia per U.S. dollar. The translation of amounts from Ukrainian hryvnia to U.S. dollars are solely for convenience of the reader and are made at exchange rates established by the NBU and effective as at the dates of the respective financial information presented elsewhere in this Prospectus in respect of balance sheet items whereas an average Ukrainian hryvnia/U.S. dollar exchange rates are used in the conversion of income statement items. These translations should not be construed as representations that Ukrainian hryvnia amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated as of any at the dates mentioned in this Prospectus or at all. High Low Average(1) Period-end (Ukrainian hryvnia per U.S. dollar) 2009...... 8.01480 7.61000 7.79159 7.98500 2008...... 7.87880 4.84000 5.28419 7.70000

(1) Calculated based on the exchange rates for the first and last days of the period and the number of banking days in the period.

39 Use of Proceeds

The proceeds from the offering of the Notes, being U.S.$200,000,000, will be used by the Issuer for the purpose of financing the Loan to the Bank. The Bank will receive the gross proceeds of the Loan, in the amount of U.S.$200,000,000 and will separately pay commissions and fees in connection with the offering of approximately U.S.$800,000 and certain expenses. As a result, the net proceeds of the Loan available to the Bank, after payment of such commissions and fees, but before payment of certain expenses incurred in connection with the offering, will be approximately U.S.$199,200,000. The Bank will use such proceeds for general banking purposes.

40 Capitalisation and Indebtedness

The following table sets forth the Group¶s consolidated capitalisation and indebtedness as at 31 December 2009. Items in the table below have not been adjusted to reflect the Bank¶s borrowing under the Loan Agreement. The table below should be read in conjunction with ³Selected Consolidated Financial Information´, ³Management Discussion and Analysis of Financial Condition and Results of Operations´ and the Financial Statements included elsewhere in this Prospectus. As at 31 December 2009 (millions of UAH)

Liabilities Due to the NBU and other central banks...... 8,310 Due to other banks and other financing institutions...... 2,319 Customer accounts...... 57,133 Debt securities in issue(1)...... 6,112 Other liabilities(2) ...... 2,327 Subordinated debt ...... 1,438 Total liabilities ...... 77,639 Equity ...... Share capital(3)...... 8,064 Revaluation reserve for premises ...... 628 Additional capital...... 462 Currency translation reserve...... 354 Retained earnings ...... 2,387 Net assets attributable to the equity holders of the Bank...... 11,895 Non-controlling interest...... 155 Total equity ...... 12,050 Total liabilities and equity ...... 89,689

(1) In March 2010, the Bank repaid UAH 500 million in respect of series K hryvnia denominated unsecured private placements with local Ukrainian institutional investors and UAH 500 million in respect of series L hryvnia denominated unsecured private placements with local Ukrainian institutional investors. (2) Other liabilities include current income tax liability, deferred income tax liability and provisions for liabilities and charges, other financial and non-financial liabilities. (3) In March 2010, the shareholders of PrivatBank resolved to increase the Bank¶s share capital by UAH 1,049,336,584 up to a nominal value of UAH 8,860 million. The share capital was increased by capitalising dividends attributable to the shareholders of the Bank for the year ended 31 December 2009.

41 Selected Consolidated Financial Information

The selected consolidated financial information for the Group set forth below should be read in conjunction with the Financial Statements included elsewhere in this Prospectus as well as the sections entitled ³Capitalisation and Indebtedness´ and ³Management Discussion and Analysis of Financial Condition and Results of Operations´. The Financial Statements have been prepared in accordance with IFRS. Year ended 31 December 2007 2008 2009 (millions of UAH) INCOME STATEMENT DATA Interest income ...... 7,034 11,607 14,549 Interest expense ...... (3,021) (5,185) (7,295) Net interest income ...... 4,013 6,422 7,254 Provision for impairment of loans and advances to customers ...... (666) (4,507) (5,497) Net interest income after provision for impairment of loans and advances to customers...... 3,347 1,915 1,757 Fee and commission income ...... 1,473 2,111 2,119 Fee and commission expense ...... (161) (304) (232) Losses less gains from trading securities and other financial assets at fair value through profit or loss...... - (109) (16) (Losses less gains)/gains less losses from financial derivatives ...... (13) (35) 2,643 Gains less losses/(losses less gains) from disposals of investment securities available-for-sale ...... 145 43 (12) Gains less losses from trading in foreign currencies ...... 351 974 564 Foreign exchange translation gains less losses/(losses less gains) ...... 15 2,897 (7) Impairment of investment securities available-for-sale ...... (607) (1) (31) Release of provision/(provision) for credit related commitments ...... 48 (8) (14) Gains less losses/(losses less gains) arising from early retirement of debt ...... 5 (9) 51 Other operating income ...... 87 79 141 Excess of interest in the fair value of the net assets of the subsidiary acquired over the cost of investment ...... 60 - - Administrative and other operating expenses ...... (3,236) (5,015) (4,919) Profit before tax ...... 1,514 2,538 2,044 Income tax ...... (392) (551) (715) Profit for the year ...... 1,122 1,987 1,329

Profit/(loss) is attributable to Owners of the Bank ...... 1,101 2,027 1,379 Non-controlling interest ...... 21 (40) (50) Profit for the year ...... 1,122 1,987 1,329

42 Selected Consolidated Financial Information

As at 31 December 2007 2008 2009 (millions of UAH) SELECTED BALANCE SHEET DATA Trading securities and other financial assets at fair value through profit or loss ...... 32 101 18 Due from other banks ...... 1,328 2,662 4,069 Loans and advances to customers...... 43,070 68,074 66,597 Investment securities available-for-sale ...... 4 4 8 Total assets...... 56,270 87,520 89,689 Due to other banks and other financing institutions...... 6,240 6,593 2,319 Customer accounts...... 36,003 56,970 57,133 Debt securities in issue ...... 6,359 7,370 6,112 Subordinated debt...... 937 1,333 1,438 Share capital...... 2,967 5,939 8,064 Net assets attributable to the equity holders of the Bank...... 5,307 9,736 11,895 Non-controlling interest...... 99 94 155 Total equity...... 5,406 9,830 12,050 Total liabilities and equity...... 56,270 87,520 89,689

As at or for the year ended 31 December 2007 2008 2009 (%) FINANCIAL RATIOS Performance Ratios (1) Net interest margin ...... 10.26 10.09 8.92 (2) Net non-interest income to operating income ...... 23.91 46.82 41.89 (3) Cost to income ratio ...... 59.75 41.58 39.48 (4) Return on average assets ...... 2.49 2.76 1.50 (5) Return on average equity ...... 25.93 26.08 12.15 Balance Sheet Ratios (at period end) Customer loans to customer deposits(6) ...... 119.63 119.49 116.56 Customer loans to total assets(7) ...... 76.54 77.78 74.25 Equity attributable to the Bank¶s equity holders to total assets ...... 9.43 11.12 13.26 Tier 1 capital adequacy ratio ...... 9.54 10.54 14.22 Total capital adequacy ratio ...... 11.95 14.04 17.46 Asset Quality (at period end) Impaired customer loans to total loans (gross)(8) ...... 16.07 19.36 31.79 Provisions to total customer loans (gross)(9) ...... 6.12 10.67 15.89 Provisions to impaired loans(10) ...... 38.11 55.10 49.97 Provision charge to total customer loans (gross)(11) ...... 1.45 5.91 6.94 ______(1) Net interest margin was calculated as net interest income before provision for loan impairment divided by average interest earning assets. (2) Net non-interest income to operating income was calculated as net non-interest income (being net fee and commission income, losses less gains from trading securities and other financial assets at fair value through profit or loss, gains less losses/(losses less gains) from financial derivatives, (losses less gains)/gains less losses from disposals of investment securities available-for-sale, gains less losses from trading in foreign currencies, foreign exchange translation (losses less gains)/gains less losses, impairment of investment securities available-for-sale, gains less losses/(losses less gains) arising from early retirement of debt and other operating income) divided by operating income (calculated as profit before tax, provision for impairment of loans and advances to customers and administrative and other operating expenses). (3) Cost to income ratio was calculated as administrative and other operating expenses divided by operating income (calculated as profit before tax, provision for impairment of loans and advances to customers and administrative and other operating expenses).

43 Selected Consolidated Financial Information

(4) Return on average assets was calculated as net profit for the period divided by the simple average of total assets at the beginning and at the end of the period. (5) Return on average equity was calculated as net profit for the period divided by simple average of total equity at the beginning and at the end of the period. (6) Customer loans to customer deposits was calculated as total loans and advances to customers net of provision for loan impairment divided by total customer accounts. (7) Customer loans to total assets was calculated as total loans and advances to customers net of provision for loan impairment divided by total assets. (8) Impaired customer loans to total loans (gross) was calculated as total individually impaired loans divided by loans and advances to customers before provision for loan impairment. (9) Provisions to total customer loans was calculated as the provision for loan impairment at the period end divided by total loans and advances to customers before provision for loan impairment. (10) Provisions to impaired loans was calculated as the provision for loan impairment at the period end divided by the amount of individually impaired loans at the period end. (11) Provision charge to total customer loans was calculated as provision for impairment of loans and advances to customers for the period divided by total loans and advances to customers before provision for loan impairment at the period end.

44 Management¶s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the consolidated financial position and results of operations of the Group covers the fiscal years ended 31 December 2007, 2008 and 2009. This section should be read in conjunction with the Group¶s Financial Statements (including the notes thereto) and the other financial information included elsewhere in this Prospectus. The Group¶s Financial Statements have been prepared in accordance with IFRS. All figures presented herein, unless otherwise indicated, have been rounded. Certain information contained in the discussion and analysis set forth below and elsewhere in this Prospectus includes ³forward-looking statements´. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to differences include, but are not limited to, those discussed below and elsewhere in this Prospectus, particularly under ³Forward-Looking Statements´ and ³Risk Factors´. Overview The Group¶s principal business activities include corporate banking (i.e. providing banking services to corporate customers) and retail banking (i.e. providing banking services to individuals). In addition, the Group provides some investment banking services and engages in a range of financial markets activities. Starting from 1 January 2009, the Group prepares its segment analysis in accordance with IFRS 8, Operating segments, replacing segment reporting in accordance with IAS 14. The segment information presented in accordance with IAS 14 was prepared on the basis of the Group¶s consolidated financial data and is therefore not directly comparable with the segment information presented in accordance with IFRS 8, which is prepared on the basis of management reporting that does not include information on the Bank¶s subsidiaries. Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (the ³CODM´) and for which discrete financial information is available. The CODM is the person who, or group of persons which, allocates resources and assesses the performance for the entity. The functions of the CODM are performed by the management board of the Bank. The Group¶s segments are strategic business units that focus on different customers. They are managed separately because each business unit requires different marketing strategies and service levels. Segment financial information reviewed by the CODM does not include information on the Group¶s subsidiaries. Regular review of such subsidiaries is delegated to the local management teams. As information on such subsidiaries is available less frequently to the CODM, Management has concluded that segment reporting should exclude details of the subsidiaries. The Bank¶s corporate banking activities include deposit taking from legal entities, corporate lending (including microfinancing loans), cash settlement transactions (including cash management and payroll services to public and private sector employers), trade finance, foreign currency transactions, and other corporate banking services. Corporate banking external revenues grew from UAH 6,172 million in 2008 to UAH 10,982 million in 2009, accounting for 41.3 per cent. and 55.1 per cent. of the Bank¶s total external revenues in 2008 and 2009, respectively. The Group views loans to small and large creditworthy corporate customers that have a good credit standing and in relation to whom the Bank can implement effective monitoring systems as a priority area for further growth. The Bank¶s retail banking activities include deposit taking from individuals, retail lending (including credit cards, consumer loans, automobile loans and mortgages), ATM services, internet banking and other retail banking services. Retail banking external revenues increased from UAH 5,862 million in 2008 to UAH 6,106 million in 2009, accounting for 39.2 per cent. and 30.6 per cent. of the Bank¶s total external revenues in 2008 and 2009, respectively.

45 Management Discussion and Analysis of Financial Condition and Results of Operations

The Bank has developed the second largest branch network in Ukraine, which decreased from 39 branches as at 31 December 2007 to 37 branches as at 31 December 2008 and 36 branches as at 31 December 2009. The number of sub-branches increased from 2,808 sub-branches as at 31 December 2007 to 3,241 sub-branches as at 31 December 2008, but subsequently decreased to 3,102 sub-branches as at 31 December 2009. In addition, as at 1 January 2010, the Bank had 8,179 ATMs and 47,613 POS terminals, which are becoming increasingly important distribution channels for the Group¶s products and services. General Market Conditions and Operating Environment Due to the concentration of the Group¶s assets in Ukraine, the Group is substantially affected by Ukrainian macroeconomic conditions. Following strong real GDP growth in 2007, Ukraine was severely affected by the global economic and financial crisis which started to affect the Ukrainian economy in the beginning of the final quarter of 2008. While there have been improvements in certain macroeconomic indicators, Ukraine has not returned to the growth levels it experienced in early 2008 and preceding years. Ukraine also continues to display certain characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that is not freely convertible outside of the country, restrictive currency controls and relatively high inflation. The following table sets forth certain Ukrainian economic indicators for the years ended 31 December 2007, 2008 and 2009: For the year ended 31 December 2007 2008 2009 Nominal GDP(1) (billions of hryvnia) ...... 720.73 948.06 914.72 Real GDP (% change)(2) ...... 7.9 2.01 (15.1) Consumer price index (% change)(3) ...... 16.6 22.3 12.3 Real household income growth (% change)(4) ...... 32.0 37.4 6.2 ______Source: SCSU. (1) Gross domestic product. (2) The SCSU calculates real GDP for a particular year by dividing nominal GDP for such year by the relevant consumer price index. The real GDP percentage change for a particular year indicates the percentage change compared to the previous year. (3) The consumer price index percentage change for a particular year indicates the percentage change in weighted prices for consumer goods and services compared with the previous year. (4) Real household income growth is the percentage growth in real household income as compared to the previous year. Commencing in April 2005, the hryvnia was pegged to the U.S. dollar at a fixed rate of exchange established by the NBU of UAH 5.05 to U.S.$1.00, which provided certain stability to the hryvnia. However, as a result of the world financial crisis and the U.S. dollar depreciation, starting from 2008 the U.S. dollar peg effectively caused Ukraine to import the external inflation. In 2008, the hryvnia depreciated in real terms against the U.S. dollar by 52.5 per cent. and against the Euro by 46.3 per cent. as compared to year-end 2007, and further depreciated against these currencies in 2009 by 3.7 per cent. and 5.5 per cent., respectively. In order to manage inflationary pressures, in November 2008, the NBU allowed the hryvnia to float within a broader range against the U.S. dollar. The NBU sought to address the instability of the hryvnia by taking administrative measures (including certain foreign exchange market restrictions), and used approximately U.S.$15.3 billion of its foreign exchange reserves to support the Ukrainian currency in the last quarter of 2008 and in 2009. The official exchange rate was UAH 7.92 to U.S.$1.00 as at 1 April 2010. At the beginning of 2009, Ukraine and Russia were involved in a dispute over gas supply and pricing. However, in January 2009, Naftogaz and Gazprom entered into a long-term supply contract, expiring in 2019, which sets out a formula for price adjustment, transit fees, and the volume of gas to be supplied. Furthermore, following the election of the new President of Ukraine in February 2010 and the formation of the new government, on 21 April 2010 the Presidents of Ukraine and Russia reached agreement on the price of natural gas imported into Ukraine from Russia. As a result of such agreement, existing gas supply agreements have been amended such that Gazprom will supply natural gas to Ukraine at a discounted price. If the price of gas is equal to or greater than U.S.$330 per 1,000 cubic metres of gas, a discount of U.S.$100 per 1,000 cubic metres of gas will apply, and if the price is

46 Management Discussion and Analysis of Financial Condition and Results of Operations less than U.S.$330 per 1,000 cubic metres of gas, a discount of 30 per cent. of the original price will apply. The need for further developments in Ukraine¶s bankruptcy laws, the formalised procedures for the registration and enforcement of collateral and other legal and fiscal impediments also contribute to difficulties experienced by banks currently operating in Ukraine. Economic recovery and stability in Ukraine will be affected significantly by the Ukrainian government¶s continued implementation of administrative, legal and economic reforms. See ³Risk Factors²Risks Relating to Ukraine´. Significant Factors Affecting Results of Operations The Group generates revenue principally from corporate banking and retail banking. In addition, the Group also provides some investment banking services and engages in a range of financial markets activities. Effects of the global economic crisis and the gradual recovery of the Ukrainian economy The credit markets, both globally and in Ukraine, have faced significant volatility and liquidity constraints since the summer of 2008. Global credit markets tightened initially as a result of concerns over the United States sub-prime mortgages crisis and the valuation and liquidity of mortgage-backed securities and other financial instruments, such as asset-backed commercial paper. Significant mark-to- market write-downs of asset values followed, initially in respect of mortgage-backed securities, but such write-downs then spread to other financial instruments, such as syndicated loans, and other classes of assets. These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger financial institutions and, in some cases, to fail, such as in the case of the U.S. investment bank Lehman Brothers. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders have reduced and, in some cases, ceased to provide funding to borrowers, including other financial institutions. The recent economic crisis has resulted in substantial withdrawals of customer deposits (both retail and corporate) from Ukrainian banks in the aggregate amount of UAH 62.5 billion for the period from 1 October 2008 to 1 April 2009, which, in turn, led to an immediate shortage of liquidity in the banking sector. According to the NBU data, the net total losses in the Ukrainian banking system for the year ended 31 December 2009 amounted UAH 31.492 billion. In order to maintain an adequate level of liquidity and to offset the losses suffered by the Ukrainian banking system, the NBU offered financial support to Ukrainian banks in the aggregate amount of UAH 169.5 billion, which included short-term overnight loans and auction loans, as well as liquidity support loans during 2008. During 2009, the NBU extended liquidity support loans to Ukrainian banks in the amount of UAH 74.025 billion. In addition, the NBU imposed a temporary moratorium on early redemption of customer deposits and took certain measures to protect the hryvnia from depreciation. These measures have contributed to the stability of the Ukrainian banking system. The liquidity position of Ukrainian banks has been improving gradually from 1 April 2009 due to an increase in the volume of deposits received by them. The Bank has taken a number of measures to mitigate the negative impact of the deteriorating Ukrainian economy. These measures include, among others, a shift from retail lending to corporate lending, an increase in the number of settlement operations, further development of the two-tier credit approval procedure, strengthening its problematic debt collection system and further enhancement of client relationships. See ³Description of the Bank¶s Business²Strategy´. Lack of sources of liquidity in Ukraine All Ukrainian banks are affected by the difficulties of raising long-term funds (i.e. funds with a maturity exceeding two years) in the Ukrainian market, which results in a mismatch of their assets and liabilities. PrivatBank¶s response to the lack of long-term funding in the deteriorating market conditions in Ukraine in 2008-2009 has been twofold. Firstly, in October 2008 the Bank obtained the first NBU Refinancing Loan in the amount of UAH 3,410 million with a fixed interest rate of 15 per cent. per annum and an initial maturity in October 2009. In October 2009, the maturity of this NBU Refinancing Loan was extended. In March 2009, the Bank obtained the second NBU Refinancing Loan with a fixed interest rate of 16.5 per cent. and an initial maturity in March 2010, which increased the total amount of such NBU Refinancing Loans to UAH 8,310 million. In December 2009, both NBU Refinancing

47 Management Discussion and Analysis of Financial Condition and Results of Operations

Loans were extended and the fixed interest rates of both loans were increased to 17.3 per cent. per annum starting in January 2010, but were subsequently reduced. The NBU Refinancing Loans currently carry fixed interest rates of 12.25 per cent. per annum and are repayable in instalments in accordance with agreed repayment schedules from July 2010 until October 2015. The NBU Refinancing Loans are secured by pledges over certain of the Bank¶s loans and advances to customers and mortgages over certain of the Bank¶s real estate, including its offices in Dnipropetrovsk. Secondly, PrivatBank aims to raise long-term financing in the international markets. Historically, PrivatBank has been successful in obtaining long-term funding from foreign banks and international financial institutions. However, Management estimates that PrivatBank¶s dependence on such sources of external funding has never exceeded 10 per cent. of its funding structure. The main source of the Bank¶s funding is deposits from individuals, which accounted for 40 per cent. of the Bank¶s total funding structure as at 31 December 2009. Management believes that this deposit portfolio from individuals is well diversified (Management estimates the average deposit amount to be equivalent to U.S.$754.00) and has contributed to PrivatBank¶s stability during market volatility experienced in 1998, 2004 and 2008-2009. As a result of concerns about the overall health of the Ukrainian banking system at the end of 2008 and beginning of 2009, large amounts of deposits were withdrawn from Ukrainian banks and banks generally had to offer better terms to retain existing depositors and attract returning depositors. In order to mitigate such negative effects on its business, PrivatBank has further developed a loyalty programme, allowing its existing customers to have the benefit of an increased interest rate, as well as reducing the difference in interest rates offered for short-term and medium-term deposits. PrivatBank has also further incentivised its customers to carry out settlement operations using their credit cards. At present, due to the suspension of credit programs and state support, Ukrainian banks currently enjoy surplus liquidity. The main challenge that the Ukrainian banks face is the identification of customers with good credit standing to extend finance to. PrivatBank enjoys continued support from its shareholders, who contribute their dividends to PrivatBank¶s share capital on a regular basis. Furthermore, in 2009 the shareholders injected an additional UAH 1,000 million to the share capital of PrivatBank to support its liquidity position. PrivatBank¶s strategy is to continue to maintain an excess liquidity cushion. Temporary effects of political uncertainty The climate of political uncertainty in Ukraine throughout 2009 had several effects on the Ukrainian banking industry in general and on the Bank¶s results of operations. Generally, with the prospect of large scale withdrawals by retail customers, banks attempted to incentivise the retention of funds deposited and attract new deposits by increasing interest rates on deposits. As a result, the Group¶s average interest rate on term deposits of individuals and, as a consequence thereof, on the total interest- bearing liabilities of the Group, was higher in 2009 than in either 2008 or 2007. In addition, in 2009, the Group allocated a greater share of its assets to more liquid, but less profitable, asset classes than in either 2008 or 2007, resulting in a lower average interest rate on total interest-earning assets in 2009 than in either 2008 or 2007. Consequently, the net interest spread and net interest margin in 2009 were also lower than in either 2008 or 2007. See ³²Selected Statistical Information²Average Assets and Liabilities Balances and Interest Rate Data´. Effects of competition from other banks The recent economic downturn has forced many of the Bank¶s principal competitors (which the Bank believes may be divided into three tiers) operating in the Ukrainian market to change their business strategies. As a result, the Bank¶s competitive environment has undergone substantial changes. See ³Risk Factors²The Bank may face competition from other banks´ and ³Description of the Bank¶s Business±Competition´. The first-tier comprises the Ukrainian state-owned banks such as Oschadbank and Ukreximbank. Traditionally, Oschadbank has enjoyed a strong position in the settlement services segment while Ukreximbank has enjoyed a strong position in the trade finance lending market for corporate clients. The second-tier banks, being the banks with European ownership (such as Raiffeisen Bank Aval, UkrSibBank, Ukrsotsbank and others) generally enjoy lower funding costs, better access to advanced banking technologies and higher operational efficiency than domestic banks. The third-tier banks, being the Russian banks operating in Ukraine through a chain of subsidiaries (such as Sberbank,

48 Management Discussion and Analysis of Financial Condition and Results of Operations

Alfa Bank, VTB and others), possess high growth potential in the Ukrainian market, but lack sufficient infrastructure at present to effectively compete in SME lending as well as in lending to individuals. The Bank believes that third-tier banks will be primarily concentrating on lending to large corporate customers. After a wave of acquisitions of Ukrainian banks by foreign banks, most notably the sale of Aval to Raiffeisen, Ukrsibbank to BNP Paribas and Ukrsotsbank to Unicredit, the share of foreign banks in the Ukrainian banking sector has increased significantly. As at 1 January 2010, 18 out of 197 Ukrainian banks were fully owned by foreign investors and another 33 banks were partially owned by foreign investors. As at the same date, the share of foreign capital in the total statutory capital of banks operating in Ukraine amounted to approximately 35.8 per cent. In addition, on 16 November 2006, Verkhovna Rada (the Ukrainian Parliament) passed the Law of Ukraine No. 358-V On Amendments to Law of Ukraine On Banks and Banking Activity (the ³Banking Law Amendments´) providing the opportunity and the procedure for foreign banks to open branches in Ukraine and setting out the conditions to be fulfilled. The Banking Law Amendments came into effect as at the date of Ukraine¶s entry to the WTO, which occurred on 16 May 2008. Competition from foreign banks has been particularly intense in lending to large corporate clients because, in contrast to retail banking, this does not require a large branch network or extensive knowledge of, and experience in, local markets. Moreover, following the recent economic downturn, the Ukrainian market suffers from a lack of creditworthy corporate borrowers, which has intensified competition in this sphere. Foreign banks are well positioned to compete in the large corporate lending sector because of their generally lower funding costs but may find it more difficult to identify reliable corporate borrowers in the current environment. Such foreign-owned banks have also experienced an increase in non-performing loans because a high proportion of their retail loans, is denominated in foreign currencies. As a consequence, competition from foreign-owned banks has become less intense in the sphere of retail lending and the foreign-owned banks¶ interest in the Ukrainian retail market has decreased. Crisis has stalled growth in Ukrainian banking sector According to the statistics published by the NBU, the total value of assets in the Ukrainian banking sector (as adjusted for provisions) reached 96.2 per cent. of GDP in 2009. This represented a small reduction from 97.7 per cent. in 2008 following several years of relatively quick growth. The size of banking assets in Ukraine relative to the size of the country¶s economy is still much smaller than in developed economies. With the Ukrainian economy and real household incomes only beginning to recover from the recent economic deterioration, Management does not expect that the assets of the Ukrainian banks will significantly increase in the near future. The following table sets forth information on the Ukrainian banking sector as at and for the dates indicated: As at and for the year ended 31 December 2007 2008 2009 (millions of UAH) Total shareholders¶ equity ...... 69,578 119,263 115,175 Total assets (not adjusted for provisions)...... 619,004 973,332 1,001,626 Total assets (adjusted for provisions)...... 599,396 926,086 880,302 Statutory capital ...... 42,873 82,454 119,189 Net income/(loss) ...... 68,185 122,580 (31,492) Total deposits...... 529,818 806,823 765,127 Lending to Ukrainian economy ...... 432,539 738,788 719,403 ______Source: NBU and AUB. Leading position of PrivatBank in most segments of the Ukrainian banking market As at 1 January 2010, PrivatBank had the leading position in the Ukrainian banking market in terms of total net assets, deposits from individuals, loans to legal entities, deposits from legal entities, the number of issued VISA and MasterCard bank cards and the number of ATMs and POS terminals.

49 Management Discussion and Analysis of Financial Condition and Results of Operations

Management believes that as a result of its market leader status, PrivatBank is able to cross-sell its products and services more effectively, reduce its operating costs, and successfully compete against other banks in the most profitable segments of the market. Management also believes that the Bank is more easily able to readjust its strategy when particular segments of the market become subject to increased competition driving margins down, or economic deterioration. For instance, the negative impact of the recent economic deterioration, which resulted in an overall increase of non-performing loans in Ukraine, especially in the retail lending sector, and adversely affected the business, financial condition and results of operations of PrivatBank, has been mitigated to some extent by a strengthening of PrivatBank¶s debt collection procedures and a realignment of its operations in Ukraine to put greater emphasis on lending to large and small corporate borrowers. In addition, Management believes that short-term competitive threats, such as increased rates on deposits offered by some regional banks, are unlikely to significantly affect PrivatBank¶s operations and frequently do not even require any response due to its strong brand name, reputation for reliability and relatively higher standard of services. As a result, PrivatBank is able to retain its existing customers and attract new customers even under less favourable competitive conditions. Increasing share of cash settlements As a result of the recent economic crisis the Bank has pursued a strategy which aims at increasing the proportion of settlement operations effected as a part of its business. See ³Description of the Bank¶s Business²Strategy´. However, many corporate clients are reluctant to rely on settlements via bank transfers and prefer to effect their settlements in cash. Some employers also tend to pay salaries to their employees in cash rather than via transfer to the employees¶ bank accounts. Critical Accounting Policies The Group¶s consolidated results of operations and consolidated financial position presented in the Financial Statements and the notes thereto, and in the selected statistical and other information appearing elsewhere in this Prospectus are, to a large degree, dependent upon the Group¶s accounting policies. The selection and application of the Group¶s accounting policies involve judgments, estimates and uncertainties that are susceptible to change. The Group¶s significant accounting policies are described in the Notes to the Financial Statements. On an ongoing basis, Management evaluates its estimates and judgments, including those relating to the provision for loan impairment, other provisions, investments, fair value of derivatives, income taxes and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. Actual results may differ from these estimates, and such differences may be material. The Group has identified the following accounting policies that it believes are most critical to an understanding of the consolidated results of operations and consolidated financial position of the Group. Income and expense recognition. Interest income and expense are recorded for all debt instruments on an accrual basis using the effective interest method. This method defers, as part of interest income or expense, all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Fees integral to the effective interest rate include origination fees received or paid by the Group relating to the creation or acquisition of a financial asset or issuance of a financial liability, for example fees for evaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating the terms of the instrument and for processing transaction documents. Commitment fees received by the Group to originate loans at market interest rates are integral to the effective interest rate if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination. The Group does not designate loan commitments as financial liabilities at fair value through profit or loss. When loans and other debt instruments become doubtful of collection, they are written down to present value of expected cash inflows and interest income is thereafter recorded for the unwinding of the present value discount based on the asset¶s effective interest rate which was used to measure the impairment loss.

50 Management Discussion and Analysis of Financial Condition and Results of Operations

All other fees, commissions and other income and expense items are generally recorded on an accrual basis by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to purchase or originate an unquoted non-derivative receivable from a customer due on fixed or determinable dates and has no intention of trading the receivable. Loans and advances to customers are carried at amortised cost. Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss when incurred as a result of one or more loss events that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and the realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred: Ɣ any instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems; Ɣ the borrower experiences a significant financial difficulty as evidenced by the borrower¶s financial information that the Group obtains; Ɣ the borrower considers bankruptcy or a financial reorganisation; Ɣ there is an adverse change in the payment status of the borrower as a result of changes in the national or local economic conditions that impact the borrower; or Ɣ the value of collateral significantly decreases as a result of deteriorating market conditions. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors¶ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets and the experience of Management in respect of the extent to which amounts will become overdue as a result of past loss events and the success of recovery of overdue amounts. Past experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect past periods and to remove the effects of past conditions that do not exist currently. If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification of terms. Impairment losses are recognised through an allowance account to write down the asset¶s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor¶s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss.

51 Management Discussion and Analysis of Financial Condition and Results of Operations

Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment loss account in the consolidated statement of comprehensive income. Impairment losses on loans and advances. The Group regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. Impairment losses for individually significant loans are based on estimates of discounted future cash flows of the individual loans, taking into account repayments and realisation of any assets held as collateral against the loans. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Fair value of derivatives. The fair values of financial derivatives that are not quoted in active markets are determined by using valuation techniques. To the extent practical, models use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair values. The Group issues loans to customers in hryvnia the terms of which include an obligation of the respective customers to pay compensation to the Group in the event that the official exchange rate of the hryvnia depreciates against the U.S dollar. The contracts to receive compensation are accounted for by the Group as financial derivatives with the fair value estimated using valuation techniques. These valuation techniques take into account expected movements in exchange rates, probabilities of these movements, discount factor and credit risk. Changing the assumptions about these factors, not supported by observable market data, to a reasonably possible alternative, may result in significantly different profit and total assets. Income taxes. Income taxes have been provided for in the Financial Statements in accordance with legislation enacted or substantively enacted by the balance sheet date. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, other comprehensive income or directly in equity. Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if financial statements are authorised prior to filing relevant tax returns. Taxes, other than on income, are recorded within administrative and other operating expenses. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantively enacted at the balance sheet date which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.

52 Management Discussion and Analysis of Financial Condition and Results of Operations

Deferred income tax is provided on post acquisition retained earnings of subsidiaries, except where the Group controls the subsidiary¶s dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future. Initial recognition of related party transactions. In the normal course of business the Group enters into transactions with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgment is applied in determining if transactions are priced at market or non- market interest rates, in the case where there is no active market for such transactions. The basis for judgment is the pricing for similar types of transactions with unrelated parties and the effective interest rate analysis. Valuation of own use premises. The premises of the Group are stated at fair value based on reports prepared by a valuation company. The basis for their work is a sales comparison approach. At the date of revaluation, accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. When performing revaluation, certain judgments and estimates are applied by the valuers in determination of the comparison of premises to be used in the sales comparison approach. Changes in the assumptions about these factors could affect reported fair values. Provision for credit related commitments. The Group regularly reviews its outstanding credit related commitments to any provision to be created for credit related commitments. In determining whether a provision should be recorded in profit or loss for the year, the Group makes judgments as to whether there is any observable data indicating that the credit related commitment will be executed and whether the best estimate of the expenditure required to settle the commitment at the end of the period is lower than the remaining unamortised balance of the amount at initial recognition. Management uses estimates based on historical loss experience for commitments with credit risk characteristics similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Special Purpose Entities (³SPEs´). Judgment is also required to determine whether the substance of the relationship between the Group and a special purpose entity indicates that the special purpose entity is controlled by the Group. The Group does not consolidate SPEs that it does not control. As there is an inherent difficulty in determining whether the Group controls an SPE, Management makes judgments about its exposure to the risks and rewards, as well as about its ability to make operational decisions for the SPE in question. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when considered together make it difficult to reach a clear conclusion. In cases where more arguments are in place towards existence of control, the SPE is consolidated. Selected Statistical Information Average Assets and Liabilities Balances and Interest Rate Data The following table sets forth the consolidated average balances of interest-earning assets and interest- bearing liabilities of the Group for the years ended 31 December 2007, 2008 and 2009 and also sets forth the amount of interest income and interest expense, respectively, as well as the average interest rate on such assets and liabilities. For the purposes of this table, the consolidated average balances of assets and liabilities represent the average of the opening and closing balances for the applicable year. The results of the analysis would likely be different if alternative or more frequent averaging methods were used and such differences could be material. The average interest rates below are calculated by dividing aggregate interest income or expense for the relevant line item below by the average balance for the same item for the applicable year. Average interest rates are distinct from the year-end effective interest rates presented in the Financial Statements. See ³Notes to the Consolidated Financial Statements´.

53 Management Discussion and Analysis of Financial Condition and Results of Operations

For the year ended 31 December 2007 2008 2009 Interest Interest Interest Average Income/ Average Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate Balance Expense Rate (millions of UAH, except %) Interest-earning assets Loans and advances to legal entities (including loans to SMEs and reverse repo) ...... 23,131 2,575 11.1 39,993 5,174 12.9 55,653 8,399 15.1 Loans and advances to individuals ...... 14,376 4,276 29.7 21,050 6,103 29.0 22,037 5,846 26.5 Due from other banks...... 971 168 17.3 1,995 278 13.9 3,366 291 8.6 Debt securities and mandatory reserve with the NBU(1) ...... 628 15 2.4 603 52 8.6 298 13 4.4 Total interest-earning assets ...... 39,106 7,034 18.0 63,640 11,607 18.2 81,353 14,549 17.9

Interest-bearing liabilities Due to the NBU and other central banks(2) ...... - - - 1,777 81 4.6 5,932 1,091 18.4 Due to other banks and other financing institutions ...... 5,253 580 11.0 6,417 353 5.5 4,456 413 9.3 Term deposits of legal entities ...... 2,365 196 8.3 7,136 542 7.6 10,758 794 7.4 Term deposits of individuals ...... 15,417 1,526 9.9 24,787 2,847 11.5 31,328 3,956 12.6 Current/settlement accounts ...... 12,075 341 2.8 14,565 509 3.5 14,966 480 3.2 Debt securities in issue...... 3,642 273 7.5 6,865 645 9.4 6,741 358 5.3 Subordinated debt ...... 932 85 9.1 1,135 100 8.8 1,386 176 12.7 Other liabilities (liability for finance lease)...... 98 20 20.5 134 108 80.9 141 27 19.2 Total interest-bearing liabilities...... 39,781 3,021 7.6 62,814 5,185 8.3 75,707 7,295 9.6

Net interest spread(3) ...... 10.39 9.98 8.25 Net interest income ...... 4,013 6,422 7,254 Net interest margin(4)...... 10.26 10.1 8.9 ______(1) Debt securities include trading securities, other securities at fair value through profit or loss, investment securities available for sale and investment securities held to maturity. (2) The calculation of the average rate on due to the NBU and other central banks results from the fact that the first NBU Refinancing Loan was obtained by PrivatBank at the end of 2008 and was only outstanding for a short period in 2008. Therefore, the average rate of interest in 2008 does not reflect the actual initial rate of interest of 15 per cent. per annum agreed under the relevant loan agreement in 2008. In 2007, no financing from the NBU was received by PrivatBank. (3) The difference between the average annual interest rate on interest-earning assets and the average annual interest rate on interest bearing liabilities. (4) Net interest income before provision for loan impairment expressed as a percentage of average interest-earning assets. The Group experienced significant growth in its total interest-earning assets between 2007 and 2009. The increase of 62.7 per cent. in total interest-earning assets in the year ended 31 December 2008 was primarily the result of rapid growth in loans and advances to legal entities as well as loans and advances to individuals due to the continued expansion in the Bank¶s customer base, which was largely a result of favourable market conditions prior to the onset of the economic downturn in the second half of 2008. The increase (despite the recent economic downturn) of 27.8 per cent in total interest-earning assets in the year ended 31 December 2009 resulted primarily from rapid growth in loans and advances to legal entities due to the Bank¶s focus on corporate lending as the Bank considered high-quality corporate borrowers to represent a lower credit risk than retail customers in light of the recent

54 Management Discussion and Analysis of Financial Condition and Results of Operations economic downturn. In 2008, consolidated average balances of loans and advances to individuals increased by 46.4 per cent. (to UAH 21,050 million in 2008 from UAH 14,376 million in 2007) and consolidated average balances of loans and advances to legal entities increased by 72.9 per cent. (to UAH 39,993 million in 2008 from UAH 23,131 million in 2007). In 2009, while consolidated average balances of loans and advances to individuals increased by 4.7 per cent. (to UAH 22,037 million in 2009 from UAH 21,050 million in 2008), consolidated average balances of loans and advances to legal entities increased by 39.2 per cent. in 2009 (to UAH 55,653 million in 2009 from UAH 39,993 million in 2008). Any temporarily unused cash is generally loaned to other banks on a short-term basis, allowing the Group to maintain a solid liquidity position, which was a particular focus of the Group in the highly volatile economic environment of 2008-2009. The Group¶s excess liquidity and its focus on interbank lending in 2009 contributed to the significant increase in the consolidated average balance of the amounts due from other banks in 2009 as compared to 2008 and 2007. The increase in interest-bearing liabilities in 2009 and 2008 as compared to 2007 was mainly due to the fact that these liabilities are the major source of financing for PrivatBank¶s interest-earning assets. PrivatBank sources its funding needs mostly from customers¶ deposits, which experienced strong growth in the year ended 31 December 2008 (evidenced by a 201.7 per cent. increase in consolidated average balances of term deposits of legal entities, and a 60.8 per cent. increase in consolidated average balances of term deposits of individuals, as compared with the previous year). Growth in deposits continued in the year ended 31 December 2009 (evidenced by a 50.8 per cent. increase in consolidated average balances of term deposits of legal entities and a 26.4 per cent. increase in consolidated average balances of term deposits of individuals, as compared with the previous year). The most significant impact in absolute terms came from the increase in consolidated average balances of term deposits of legal entities (which increased by UAH 4,771 million in 2008 in comparison with 2007 and by UAH 3,622 million in 2009 in comparison with 2008) and in consolidated average balances of term deposits of individuals (which increased by UAH 9,370 million in 2008 in comparison with 2007 and by UAH 6,541 million in 2009 in comparison with 2008). In addition, in 2008 and 2009 PrivatBank partly sourced its funding needs from NBU as a result of the significant deterioration in the Ukrainian economy. Accordingly, the consolidated average balance due to the NBU and other central banks increased from nil in 2007 to UAH 1,777 million in 2008 and to UAH 5,932 million in 2009. Net interest spread decreased from 10.39 per cent. in 2007 to 9.98 per cent. in 2008 and to 8.25 per cent. in 2009. This was principally the result of a higher cost of funding in 2009 compared to 2008 and 2007 as shown by the increase in the average interest rate on interest-bearing liabilities to 9.6 per cent. in 2009 from 8.3 per cent. in 2008 and 7.6 per cent. in 2007, due to the shortage of funding availability caused by the economic downturn and general financial crisis. The average interest rate on term deposits of individuals increased to 12.6 per cent. in 2009 from 11.5 per cent. in 2008 and 9.9 per cent. in 2007 primarily due to the Bank¶s loyalty programme, which allowed its existing customers to enjoy the benefit of increased interest rates on short-term and medium-term deposits. The Bank implemented this loyalty programme in order to retain existing depositors and attract returning depositors since large amounts of deposits were withdrawn from the Ukrainian banks and banks generally had to offer better terms to customers during the economic crisis. The average interest rate due to the NBU and other central banks increased to 18.4 per cent. in 2009 compared to 4.6 per cent. in 2008. This increase is due to the fact that, as the first NBU Refinancing Loan was obtained by PrivatBank at the end of 2008 and was only outstanding for a short period in 2008. Accordingly, the average rate of interest for 2008 does not reflect the actual initial rate of interest of 15 per cent. per annum agreed under the relevant loan agreement in 2008. The average interest rate on due to other banks and other financing institutions increased to 9.3 per cent. in 2009 in comparison with 5.5 per cent. in 2008 due to the increase in interbank lending rates related to the recent economic downturn. This increase in the average interest rate on due to other banks and other financing institutions followed a decrease from 11.0 per cent. in 2007 due to the decline in floating interest rates under the Bank¶s syndicated interbank credit lines. While the average interest rate on interest-bearing liabilities increased in 2009 as compared to 2008 and 2007, the average interest rate on interest-earning assets decreased from 18.0 per cent. in 2007 and 18.2 per cent. in 2008 to 17.9 per cent. in 2009. This decrease was due primarily to the decrease in the average interest rate on loans and advances to individuals from 29.7 per cent. in 2007 and 29.0 per cent. in 2008 to 26.5 per cent. in 2009. In 2008, the Bank reduced interest rates on loans and advances to

55 Management Discussion and Analysis of Financial Condition and Results of Operations individuals in order to attract and incentivise high-quality retail borrowers and expand its retail loan portfolio in the context of increased competition from other banks in the retail banking sector in 2007 and in the first half of 2008. In addition, in 2009, the Bank again reduced interest rates to incentivise creditworthy borrowers to meet their payment obligations and make prepayments on outstanding loan balances in the deteriorating economic environment. Another reason for the decrease in the average interest rate on interest-earning assets was the decrease in the average interest rate on due from other banks, which decreased from 17.3 per cent. in 2007 and 13.9 per cent. in 2008 to 8.6 per cent. in 2009 due to a decrease in LIBOR. Net interest margin decreased from 10.26 per cent. in 2007 and 10.1 per cent. in 2008 to 8.9 per cent. in 2009 mostly due to (i) an increase in the average interest rate on interest-bearing liabilities in 2008 and 2009, resulting primarily from an increase in the interest rates on the term deposits of individuals, on loans due to the NBU and due to other banks and other financing institutions principally as a result of the economic downturn in 2008 and 2009; (ii) a decrease in the average interest rate on interest-earning assets in 2009, principally resulting from a decrease in the interest rate on loans and advances to individuals, on loans due from other banks, and on debt securities and the mandatory reserve with the NBU; and (iii) an increased allocation to due from other banks, which are highly liquid but less profitable assets, in accordance with the Group¶s focus on maintaining a solid liquidity position. Net Changes in Interest Income and Expense²Volume and Rate Analysis The following table provides a comparative analysis of net changes in interest income and interest expense by reference to changes in average volume and average interest rates for the years ended 31 December 2007, 2008 and 2009. Net changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for interest-earning assets and sources of funds on which interest is received or paid. Volume change is calculated as the change in volume multiplied by the previous average rate, while rate change is the change in average rate multiplied by the later year volume. Average balances used for calculating the information for the table below constitute the average of opening and closing balances for the applicable year.

2007/2008 2008/2009 Increase/decrease due to changes in Net Net Volume Rate Change Volume Rate Change (millions of UAH) Interest income Loans and advances to legal entities (including loans to SMEs and reverse repo) ...... 1,877 722 2,599 2,026 1,199 3,225 Loans and advances to individuals...... 1,985 (158) 1,827 286 (543) (257) Due from other banks ...... 177 (67) 110 191 (178) 13 Debt securities(1) and mandatory reserve with the NBU ...... (1) 38 37 (26) (13) (39) Total interest income ...... 4,039 534 4,573 2,477 465 2,942 Interest expense Due to the NBU and other central banks...... N/A N/A 81 189 821 1,010 Due to other banks and international financing institutions ...... 128 (355) (227) (108) 168 60 Term deposits of legal entities...... 395 (49) 346 275 (23) 252 Term deposits of individuals...... 927 394 1,321 751 358 1,109 Current/settlement accounts ...... 70 98 168 14 (43) (29) Debt securities in issue ...... 242 130 372 (12) (275) (287) Subordinated debt...... 19 (4) 15 22 54 76 Other liabilities (liability for finance lease)...... 7 81 88 6 (87) (81) Total interest expense...... 1,789 294 2,164 1,138 972 2,110 Net change in net interest income...... 2,250 240 2,409 1,339 (507) 832 ______(1) Debt securities include trading securities, other securities at fair value through profit or loss, investment securities available for sale and investment securities held to maturity.

56 Management Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations Explanation of certain key income statement items Interest income of the Group consists principally of interest paid to the Group by legal entities which have borrowed funds from the Group, interest paid to the Group by individuals who have borrowed funds from the Group and interest paid by credit institutions that have borrowed funds from the Group at interbank terms and rates. Loans and advances to legal entities, to individuals, and funds due from other banks accounted for 99.8 per cent., 99.6 per cent., and 99.9 per cent. of the Group¶s interest income in 2007, 2008 and 2009, respectively. Interest expense consists principally of amounts paid by the Group as interest on customer accounts, which include term deposits of individuals, term deposits of legal entities and current/settlement accounts, and, in 2008 and 2009, amounts paid by the Group as interest on its borrowings from the NBU. Interest expense paid by the Group on customer accounts was equal to 68.3 per cent., 75.2 per cent., and 71.7 per cent. of the Group¶s total interest expense in 2007, 2008 and 2009, respectively. Interest expense also includes amounts paid by the Group as interest on borrowings obtained from other credit institutions and international financial institutions, and interest paid on securities issued.

Net non-interest income is the net amount resulting from gains and losses arising from trading securities, other financial assets at fair value through profit or loss, financial derivatives, investment securities available for sale, impairment of investment securities available for sale, trading in foreign currencies, foreign exchange translation and fees and commissions received and paid. It also includes gains less losses arising from early retirement of debt and other operating income. In 2008 the main source of net non-interest income was foreign translation exchange gains, which accounted for 51.3 per cent. of net non-interest income, while in 2009 the main source of net non-interest income was gains from financial derivatives, which accounted for 50.6 per cent. of net non-interest income. Net fee and commission income (which included fees and commissions earned primarily on settlement transactions, cash collection and cash transactions and, to a lesser extent, on foreign exchange transactions and transactions with securities less fees and commissions expense primarily on settlement transactions) was the main source of net non-interest income in 2007 and accounted for 101.3 per cent. of net non- interest income in 2007, while it accounted for 32 per cent. of net non-interest income in 2008 as compared to 36.1 per cent. of net non-interest income in 2009. Administrative and other operating expenses consist principally of staff costs, rent, depreciation and amortisation of premises, leasehold improvements, equipment and intangible assets, utilities and household expenses, mail and telecommunication expenses and insurance expenses. These six components of administrative and other operating expenses accounted for 79.6 per cent., 77.9 per cent., and 80.9 per cent. of all administrative and other operating expenses in 2007, 2008 and 2009, respectively, with staff costs being by far the most significant component of administrative and other operating expenses in all three years. The income tax charge comprises current tax and deferred tax. Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Deferred income tax is calculated using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Taxes, other than on income, are recorded within administrative and other operating expenses. Year ended 31 December 2009 compared to year ended 31 December 2008 Interest income The Group¶s interest income increased by UAH 2,942 million, or 25.3 per cent. to UAH 14,549 million in 2009 from UAH 11,607 million in 2008.

57 Management Discussion and Analysis of Financial Condition and Results of Operations

The following table sets forth the principal components of the Group¶s interest income for the years ended 31 December 2008 and 2009: For the year ended 31 December 2008 2009 (millions of (millions of UAH) (% of total) UAH) (% of total) Interest income attributable to: Loans and advances to legal entities...... 5,174 44.6 8,399 57.7 Loans and advances to individuals...... 6,103 52.6 5,846 40.2 Due from other banks ...... 278 2.4 291 2.0 Other(1)...... 52 0.4 13 0.1 Total interest income ...... 11,607 100.0 14,549 100.0 ______(1) Other interest income includes interest income from debt securities and mandatory reserve deposits with the NBU. This increase in interest income was due primarily to a 62.3 per cent. increase in interest income attributable to loans and advances to legal entities (to UAH 8,399 million in 2009 from UAH 5,174 million in 2008), which reflected the increase in the average balance of loans and advances to legal entities as well as an increase in the average interest rate on loans and advances to legal entities, to 15.1 per cent. in 2009 from 12.9 per cent. in 2008. The Bank increased interest rates on loans and advances to legal entities in response to its increased cost of funding in 2009 as compared to 2008, which was related to the shortage of available funding in the economic downturn. The consolidated average balance of loans and advances to legal entities increased by UAH 15,660 million, or 39.2 per cent., in comparison with the previous year, which strengthened the positive impact of the increase in the average interest rate on loans and advances to legal entities on the Group¶s interest income in 2009. The increase in the consolidated average balance of loans and advances to legal entities in 2009 as compared to 2008 was due to the Bank¶s focus on corporate lending as the Bank considered high-quality corporate borrowers to represent a lower credit risk than retail customers in light of the recent economic downturn. As a result, loans and advances to legal entities in 2009 accounted for 57.7 per cent. of the total interest income in 2009 as compared to 44.6 per cent. of the total interest income in 2008. Interest income attributable to loans and advances to individuals decreased from UAH 6,103 million in 2008 to UAH 5,846 million in 2009, which represents a 4.2 per cent. decline in comparison with the previous year. Although the consolidated average balance of loans and advances to individuals in 2009 showed moderate growth of UAH 987 million, or 4.7 per cent., in comparison with the previous year, the impact of the increase in the consolidated average balance of loans and advances to individuals on the Group¶s interest income was offset by the decrease in the average interest rate on such assets to 26.5 per cent. in 2009 from 29.0 per cent. in 2008. The Bank reduced interest rates on loans and advances to individuals in 2009 to incentivise creditworthy borrowers to meet their payment obligations and make prepayments on outstanding loan balances in the declining economic environment. As a result of the Bank¶s increased focus on corporate lending and the increase in interest rate on corporate loans, loans and advances to individuals in 2009 accounted for 40.2 per cent. of the total interest income as compared to 52.6 per cent. of the total interest income in 2008. Interest expense Interest expense increased by UAH 2,110 million, or 40.7 per cent., to UAH 7,295 million in 2009 from UAH 5,185 million in 2008. This increase resulted from overall growth in interest-bearing liabilities utilised by the Group to fund its growing corporate loan portfolio.

58 Management Discussion and Analysis of Financial Condition and Results of Operations

The following table sets forth the principal components of the Group¶s consolidated interest expense for the years ended 31 December 2008 and 2009: For the year ended 31 December Change from prior 2008 2009 year (millions of UAH) (%) Interest expense Term deposits of individuals...... 2,847 3,956 39.0 Due to the NBU and other central banks ...... 81 1,091 1246.9 Term deposits of legal entities...... 542 794 46.5 Current/settlement accounts ...... 509 480 (5.7) Due to other banks and other financing institutions...... 353 413 17.0 Debt securities in issue ...... 645 358 (44.5) Subordinated debt...... 100 176 76.0 Other(1)...... 108 27 (75.0) Total interest expense...... 5,185 7,295 40.7 ______(1) Other includes interest charge on finance leases. The increase in interest expense in 2009 was primarily attributable to the increase in interest paid by the Group on term deposits of individuals, which accounted for 52.6 per cent. of the total increase in the Group¶s interest expense in 2009, and the significant increase in interest paid by the Group on loans due to the NBU, which accounted for 47.9 per cent. of the total increase in the Group¶s interest expense in 2009. The average balances of term deposits of individuals and due to the NBU also increased in 2009 as compared to 2008, which further strengthened the impact of the increase in interest paid on such liabilities on the total interest expense increase. The increase in the average balances of term deposits of individuals and due to the NBU was primarily due to the Bank¶s strategy of seeking to attract a large number of short-term deposits of individuals and also as a result of the NBU financing in 2008-2009, both aimed at mitigating the impact of economic deterioration in the Ukrainian economy on the Bank. The Bank increased interest rates on term deposits of individuals in 2009 relative to 2008 in connection with its loyalty programme, which allowed its existing customers to enjoy the benefit of increased interest rates on short-term and medium-term deposits. The Bank implemented this loyalty programme in order to retain existing depositors and attract returning depositors since large amounts of deposits were withdrawn from the Ukrainian banks and banks generally had to offer better terms to customers during the economic crisis. The average interest rate on due to other banks increased significantly in 2009 relative to 2008 due to the increase in the interbank lending rates related to the recent economic downturn. Interest expense attributable to term deposits of individuals increased to UAH 3,956 million in 2009 from UAH 2,847 million in 2008 as a result of 26.4 per cent. growth in the consolidated average balances of term deposits of individuals in 2009 (to UAH 31,328 million in 2009 from UAH 24,787 million in 2008) and the increase in the average interest rates on term deposits of individuals from 11.5 per cent. in 2008 to 12.6 per cent. in 2009. Interest expense attributable to loans from the NBU increased to UAH 1,091 million in 2009 from UAH 81 million in 2008 as a result of 233.8 per cent. growth in the consolidated average balances of due to the NBU in 2009 (to UAH 5,932 million in 2009 from UAH 1,777 million in 2008) and the increase in the average interest rates on due to the NBU from 4.6 per cent. in 2008 to 18.4 per cent. in 2009. This results from the fact that the first NBU Refinancing Loan was obtained by PrivatBank at the end of 2008 and was only outstanding for a short period in 2008; accordingly, the average rate of interest for 2008 does not reflect the actual initial rate of interest of 15 per cent. per annum agreed under the relevant loan agreement in 2008. The increase in interest expense attributable to the increases in the interest rates on and average balances of term deposits of individuals and due to the NBU and other banks was partially offset by the decrease in the interest expense attributable to current/settlement accounts and debt securities in issue. The decrease in the interest expense attributable to debt securities in issue was due to the decrease in the average interest rate on debt securities in issue with floating interest rates linked to LIBOR, primarily as a result of the decrease in LIBOR.

59 Management Discussion and Analysis of Financial Condition and Results of Operations

Increases in interest expense on term deposits of legal entities accounted for 11.9 per cent. of the total increase in the Group¶s interest expense in 2009. Such increase was due to the increase in the average balance of term deposits of legal entities (mainly comprising short-term deposits) which was partially offset by the decrease in the interest rate on such liabilities from 7.6 per cent. in 2008 to 7.4 per cent. in 2009 as lower interest rates were offered on short-term deposits. Net interest income before provision for impairment of loans and advances to customers, net interest spread and net interest margin Net interest income before provision for impairment increased by UAH 832 million, or 13 per cent. to UAH 7,254 million in 2009 from UAH 6,422 million in 2008. In 2008 and 2009, net interest income before provision for impairment of loans and advances to customers accounted for 53.3 per cent. and 58.2 per cent. respectively, of the Group¶s operating income (calculated as profit before tax, provision for impairment of loans and advances to customers and administrative and other operating expenses). The Group¶s net interest spread, defined as the difference between the average interest rate on interest-earning assets and the average interest rate on interest- bearing liabilities, decreased to 8.25 per cent. in 2009 from 9.98 per cent. in 2008. The Group¶s net interest margin, defined as net interest income before provision for loan impairment as a percentage of average interest-earning assets, decreased to 8.9 per cent. in 2009 from 10.1 per cent. in 2008. For more information on changes in net interest spread and net interest margin, see ³²Selected Statistical Information²Average Assets and Liabilities Balances and Interest Rate Data´. The table below summarises the effective interest rates by major currencies for major debt instruments as at 31 December 2008 and 2009. The analysis has been prepared based on period-end effective rates used for amortisation of the respective assets and liabilities. For a description of the method of calculation of effective interest rates, see ³Presentation of Financial and Other Information²Average Balances, Average Interest Rates and Effective Interest Rates´. 2008 2009 UAH U.S.$ Euro Other UAH U.S.$ Euro Other (%) Assets Correspondent accounts and overnight deposits with other banks ...... 0 0 1 1 0 0 2 2 Correspondent accounts with the NBU, Central Bank of Russian Federation and Central Bank of Latvia, Central Bank of Cyprus and Central Bank of Georgia ...... 0 - - 0 0 - - 0 Debt trading securities ...... 10 ------Other debt securities at fair value through profit or loss ...... ------7 Due from other banks ...... 0 11 0 3 1 5 3 0 Loans and advances to legal entities ...... 22 14 10 20 19 14 10 30 Loan and advances to individuals... 30 15 9 36 29 15 9 44 Debt investment securities held to maturity ...... ------Other financial assets...... 0 3 1 2 - 3 3 0

60 Management Discussion and Analysis of Financial Condition and Results of Operations

2008 2009 UAH U.S.$ Euro Other UAH U.S.$ Euro Other (%) Liabilities Due to the National Bank of Ukraine and other Central Banks.... 15 - - - 16 - - - Correspondent accounts and overnight deposits of other banks ... 4 1 0 8 0 3 0 3 Term placements of other banks..... 5 4 6 4 - 1 3 7 Long-term loans under the credit lines from international financial institutions ...... - 10 6 - - - 4 - Customer accounts - current accounts of customers...... 0 0 0 0 0 2 4 4 - term deposits of legal entities...... 9 11 7 3 14 11 11 11 - term deposits of individuals ...... 15 11 8 6 21 12 12 15 Debt securities in issue ...... 11 8 - 12 7 8 6 - Subordinated debt...... 12 9 10 10 11 8 10 10 Other financial liabilities...... 0 17 0 6 0 11 0 1 The sign ³´ in the table above means that the Group does not have the respective assets or liabilities in the corresponding currency. Provision for loan impairment The Group¶s provision for impairment of loans and advances to customers increased from UAH 4,507 million in 2008 to UAH 5,497 million in 2009. The following table sets forth movements in the Group¶s provision for loan impairment relating to the Group¶s gross loans and advances to customers during the years ended 31 December 2008 and 2009:

As at or for the year ended 31 December 2008 2009 (millions of UAH, except %) Provision for loan impairment at 1 January ...... 2,810 8,130 Provision for loan impairment during the year ...... 4,507 5,497 Amounts written off during the year as uncollectible...... (977) (1,293) Currency translation differences...... 1,790 245 Provision for loan impairment at 31 December...... 8,130 12,579 Gross loans and advances to customers...... 76,204 79,176 Provision for loan impairment as a percentage of gross loans and advances to customers ...... 10.7 15.9

As at 31 December 2009, the provision for loan impairment as a percentage of gross loans and advances to customers increased to 15.9 per cent. from 10.7 per cent. as at 31 December 2008. The increase in the Group¶s loan impairment provisions as a percentage of gross loans and advances to customers was in line with the Group¶s more conservative policy to build up its loan impairment provision due to uncertainty with respect to borrowers¶ performance during the recent economic downturn. In addition, the amounts written off during the year as uncollectible increased by UAH 316 million, or 32.3 per cent., in 2009 as compared to 2008. Write-offs during 2009 primarily reflected write-offs of credit card debt of individuals in the amount of UAH 976 million, which were due to the economic downturn. In 2009, although the share of loans to individuals in the Group¶s overall loan portfolio decreased to 25.1 per cent. as at 31 December 2009 from 31.7 per cent. as at 31 December 2008, the percentage of individually impaired loans to gross loans and advances to customers increased to 31.8 per cent. as at 31 December 2009 from 19.4 per cent. as at 31 December 2008 as a result of the deterioration in the Ukrainian economy during the period of 2008-2009.

61 Management Discussion and Analysis of Financial Condition and Results of Operations

Net non-interest income/(expense) The following table sets forth certain information regarding the Group¶s net non-interest income for the years ended 31 December 2008 and 2009: For the year ended 31 December 2008 2009 (millions of UAH) Losses less gains from trading securities and other securities at fair value through profit or loss ...... (109) (16) Gains less losses from trading in foreign currencies ...... 974 564 Foreign exchange translation gains less losses/(losses less gains) ...... 2,897 (7) Fee and commission income ...... 2,111 2,119 Fee and commission expense ...... (304) (232) Impairment of investment securities available-for-sale...... (1) (31) (Losses less gains)/Gains less losses from disposals of investment securities available-for-sale...... 43 (12) Gains less losses/(losses less gains) from financial derivatives ...... (35) 2,643 Gains less losses/(losses less gains) arising from early retirement of debt ...... (9) 51 Other operating income...... 79 141 Total net non-interest income...... 5,646 5,220 Net non-interest income decreased by UAH 426 million, or 7.5 per cent. to UAH 5,220 million in 2009 from UAH 5,646 million in 2008. The decrease in the Group¶s net non-interest income in 2009 resulted principally from the significant decrease in net foreign exchange translation gains, which decreased from a net gain of UAH 2,897 million in 2008 (which was caused by the depreciation of the Ukrainian hryvnia against the U.S. dollar in 2008) to a net loss of UAH 7 million in 2009. In addition, the decrease in net non-interest income in 2009 was caused by a 42.1 per cent. decrease in net non- interest income from trading in foreign currencies in 2009 in comparison with 2008 (from UAH 974 million in 2008 to UAH 564 million in 2009). The decrease in net foreign exchange translation gains was to a large extent offset by the significant increase in net gains from financial derivatives, which increased to UAH 2,643 million in 2009 in comparison with a loss of UAH 35 million in 2008. Net gain for 2009 includes losses of UAH 36 million resulting from foreign exchange forwards and swaps and gains of UAH 2,679 million from derivatives embedded in hryvnia denominated loans issued to customers the terms of which included an obligation of the respective customers to pay a compensation to the Bank in the case of a devaluation of the hryvnia against the U.S. dollar. The following table sets forth certain information regarding the Group¶s net fee and commission income for the years ended 31 December 2008 and 2009: For the year ended 31 December 2008 2009 (millions of UAH) Fee and commission income Cash collection and cash transactions(1) ...... 1,043 1,238 Settlement transactions(2) ...... 989 790 Guarantees issued ...... 18 25 Transactions with securities ...... 16 20 Foreign exchange ...... 29 13 Other...... 16 33 Total fee and commission income...... 2,111 2,119

62 Management Discussion and Analysis of Financial Condition and Results of Operations

For the year ended 31 December 2008 2009 (millions of UAH) Fee and commission expense Cash and settlement transactions...... 291 190 Other ...... 13 42 Total fee and commission expense...... 304 232 Net fee and commission income...... 1,807 1,887 ______(1) Includes fees charged to business customers for cash collection and transportation services from their collection points to the Bank¶s vaults and fees charged to customers for cash withdrawals as well as fees charged to public and private customers for payment services in respect of payments of wages, pensions and other monetary entitlements. (2) Includes fees charged in respect of payments made through the Bank¶s system from one customer¶s account to another¶s account, or from one customer¶s account to a third party. The Group¶s net fee and commission income increased by 4.4 per cent. to UAH 1,887 million in 2009 from UAH 1,807 million in 2008. This increase was primarily attributable to growth in income from cash collection and cash transactions, which increased by 18.7 per cent. to UAH 1,238 million in 2009 from UAH 1,043 million in 2008. The increase in cash collection and cash transactions was primarily due to the Bank¶s focus on risk-free operations, such as cash collection, and the overall strategy to enhance the settlement operations effected via the Bank. The implementation of this strategy was facilitated by the Bank¶s large network of ATMs, POS terminals and cash points, as well as the incentive programmes offered to employees for successful cross-selling of the Bank¶s products. In 2009, the Group experienced significant growth in cash management and payroll services provided to public and private sector employees and private sector employers, including direct deposit services for wages, pensions and other monetary entitlements. Such increase in cash collection and cash transactions was partially offset by the decrease in income from settlement transactions, which declined by 20.1 per cent. from UAH 989 million in 2008 to UAH 790 million in 2009. Such decrease was mainly due to the decline in the business activity of the Bank¶s clients in the second half of 2008 and in 2009. Administrative and other operating expenses Administrative and other operating expenses decreased by UAH 96 million, or 1.9 per cent. to UAH 4,919 million in 2009 from UAH 5,015 million in 2008. The decrease in total administrative and other operating expenses was primarily a result of lower staff costs, which decreased by 12.7 per cent. to UAH 2,171 million in 2009 from UAH 2,487 million in 2008. In addition, the decrease in total administrative and other operating expenses was due to decreases in utilities and household expenses; mail and telecommunication expenses; advertising and marketing costs; and certain other expenses reflecting the impact of the economic downturn. The following table sets forth the major components of the Group¶s administrative and other operating expenses for the years ended 31 December 2008 and 2009: For the year ended 31 December 2008 2009 (millions of UAH) Staff costs ...... 2,487 2,171 Rent...... 483 541 Depreciation and amortisation of premises, leasehold improvements, equipment and intangible assets ...... 347 400 Utilities and household expenses...... 240 208 Mail and telecommunication...... 221 215 Contributions to Individual Deposits Guarantee Fund ...... 137 171 Maintenance of premises, leasehold improvements and equipment...... 135 135 Advertising and marketing...... 129 72 Insurance expenses ...... 127 443 Taxes other than income ...... 107 112 Security...... 104 144 Transportation...... 69 68 Other...... 429 239 Total administrative and other operating expenses...... 5,015 4,919

63 Management Discussion and Analysis of Financial Condition and Results of Operations

The Group¶s staff costs decreased by 12.7 per cent. to UAH 2,171 million in 2009 from UAH 2,487 million in 2008. The decrease in staff costs (which includes remuneration to employees as well as social taxes (i.e. payments made to the State Pension Fund, the Social Security Fund, the Employment Insurance Fund and the Fund for Social Insurance regarding Accidents at Work) is principally attributable to a 22.6 per cent. decrease in the year-end number of the Group¶s employees in 2009 as compared to 2008, which was mainly due to the reduction in the Group¶s work force in the context of deteriorating market conditions. Mail and telecommunication expenses decreased by 2.7 per cent. to UAH 215 million in 2009 from UAH 221 million in 2008, while utilities and household expenses decreased from UAH 240 million in 2008 to UAH 208 million in 2009, both in line with the Bank¶s strategy to cut additional expenses. Depreciation and amortisation of premises, leasehold improvements, equipment and intangible assets increased by 15.3 per cent. to UAH 400 million in 2009 from UAH 347 million in 2008. Rent expenses increased by 12.0 per cent. to UAH 541 million in 2009 from UAH 483 million in 2008, primarily as a result of the increase in rent rates imposed by landlords. Income tax expense Income tax expense increased by UAH 164 million, or 29.8 per cent. to UAH 715 million in 2009 from UAH 551 million in 2008. The Group¶s effective income tax rate (calculated as income tax expense divided by profit before tax) increased from 21.7 per cent. in 2008 to 35.0 per cent. in 2009. The statutory income tax rate applicable to the majority of Group¶s income was 25 per cent. for each fiscal year. The statutory income tax rate applicable to the subsidiaries of PrivatBank ranged from 15 per cent. to 30 per cent. in both 2008 and 2009. The increase in the effective income tax rate in 2009 as compared to 2008 was principally attributable to the tax effect of income in the amount of UAH 163 million, arising from overdue accrued interest on loans and advances to individuals, which was exempt from taxation in 2008 with no such exemption applying in 2009. The increase in the effective income tax rate was also due to an increase in non- deductible expenses from UAH 78 million in 2008 to UAH 145 million in 2009, which resulted from an increase in write-offs of loans to individuals included as non-deductible expenses, and an increase in unrecognised deferred tax assets from UAH 1 million in 2008 to UAH 60 million in 2009, which was due to the unrecognised deferred tax assets of Moscomprivatbank. Profit for the year Primarily as a result of the factors discussed above, profit for the year decreased by UAH 658 million, or 33.1 per cent. to UAH 1,329 million in 2009 from UAH 1,987 million in 2008. Year ended 31 December 2008 compared to year ended 31 December 2007 Interest income The Group¶s interest income increased by UAH 4,573 million, or 65.0 per cent., to UAH 11,607 million in 2008 from UAH 7,034 million in 2007. The following table sets forth the principal components of the Group¶s interest income for the years ended 31 December 2007 and 2008: For the year ended 31 December 2007 2008 (millions of (millions of UAH) (% of total) UAH) (% of total) Interest income attributable to: Loans and advances to legal entities...... 2,575 36.6 5,174 44.6 Loans and advances to individuals...... 4,276 60.8 6,103 52.6 Due from other banks ...... 168 2.4 278 2.4 Other(1)...... 15 0.2 52 0.4 Total interest income ...... 7,034 100.0 11,607 100.0 ______(1) Other interest income includes interest income from debt securities.

64 Management Discussion and Analysis of Financial Condition and Results of Operations

This increase in interest income was due primarily to a 100.9 per cent. increase in interest on loans and advances to legal entities (to UAH 5,174 million in 2008 from UAH 2,575 million in 2007) and a 42.7 per cent. increase in interest on loans and advances to individuals (to UAH 6,103 million in 2008 from UAH 4,276 million in 2007), which reflected the continued growth in the Bank¶s customer base as a result of favourable market conditions prior to the onset of the economic downturn in the second half of 2008. The consolidated average balance of loans and advances to legal entities in 2008 increased by UAH 16,862 million, or 72.9 per cent., in comparison with the previous year, while the consolidated average balance of loans and advances to individuals in 2008 increased by UAH 6,674 million, or 46.4 per cent., in comparison with the previous year. The impact of the increase in the consolidated average balance of loans and advances to individuals on the growth in the Group¶s interest income was partially offset by the decrease in the average interest rate on such assets to 29.0 per cent. in 2008 from 29.7 per cent. in 2007. The Bank reduced interest rates on loans and advances to individuals in order to attract and incentivise high-quality retail borrowers and expand its retail loan portfolio in the context of increased competition from other banks in the retail banking sector in 2007 and in the first half of 2008. As a result, loans and advances to individuals accounted for 52.6 per cent. of total interest income in 2008 as compared to 60.8 per cent. of total interest income in 2007. The average interest rate on loans and advances to legal entities, however, increased to 12.9 per cent. in 2008 from 11.1 per cent. in 2007. The Bank increased interest rates on loans and advances to legal entities in 2008 in response to its increased cost of funding in 2008 as compared to 2007, which was related to the shortage of available funding starting from mid-2008. The consolidated average balance of loans and advances to legal entities also increased in 2008 due to the Bank¶s expansion of its corporate loan portfolio generally in 2008 and an enhanced focus on corporate lending in the second half of 2008 as the Bank considered high-quality corporate borrowers to represent a lower credit risk than retail customers in the deteriorating market conditions. The increase in the consolidated average balance of such assets strengthened the positive impact of the increase in the average interest rate on such assets on the Group¶s interest income in 2008. As a result, loans and advances to legal entities in 2008 accounted for 44.6 per cent. of the total interest income as compared to 36.6 per cent. in 2007. Interest expense Interest expense increased by UAH 2,164 million, or 71.6 per cent., to UAH 5,185 million in 2008 from UAH 3,021 million in 2007. This increase resulted from an overall growth of interest-bearing liabilities utilised by the Group to fund its growing corporate loan portfolio. The following table sets forth the principal components of the Group¶s consolidated interest expense for the years ended 31 December 2007 and 2008: For the year ended 31 December Change from prior 2007 2008 year (millions of UAH) (%) Interest expense Term deposits of individuals...... 1,526 2,847 86.6 Due to the NBU and other central banks ...... - 81 - Term deposits of legal entities...... 196 542 176.5 Current/settlement accounts ...... 341 509 49.3 Due to other banks and other financing institutions...... 580 353 (39.1) Debt securities in issue ...... 273 645 136.3 Subordinated debt...... 85 100 17.6 Other(1)...... 20 108 440.0 Total interest expense...... 3,021 5,185 71.6 ______(1) Other includes interest charge on finance leases. The increase in interest expense by 71.6 per cent. in 2008 in comparison with 2007 was primarily attributable to the increase in interest paid by the Group on term deposits of individuals, which

65 Management Discussion and Analysis of Financial Condition and Results of Operations accounted for 61.0 per cent. of the total increase in the Group¶s interest expense in 2008. Interest expense attributable to term deposits of individuals increased to UAH 2,847 million in 2008 from UAH 1,526 million in 2007 as a result of 60.8 per cent. growth in the consolidated average balances of term deposits of individuals in 2008 (to UAH 24,787 million in 2008 from UAH 15,417 million in 2007). The average interest rates on term deposits of individuals also increased from 9.9 per cent. in 2007 to 11.5 per cent. in 2008 as the Bank increased interest rate on term deposits in response to increased competition for retail customers from other banks in the more favourable economic conditions in 2007 and the first half of 2008, which strengthened the impact of the increase in interest paid on such liabilities on the increase in total interest expense. The increase in interest expense attributable to the increases in the interest rates on term deposits of individuals and average balances of term deposits of individuals was partially offset by a decrease in the interest expense attributable to due to other banks and other financing institutions, which was related to the decrease in the average interest rate on balances due to other banks and other financing institutions from 11.0 per cent. in 2007 to 5.5 per cent. in 2008 due to the decline in floating interest rates under the Bank¶s syndicated interbank credit lines. Increases in interest paid on term deposits of legal entities accounted for 16.0 per cent. of the total increase in the Group¶s interest expense in 2008. Such increase was due to the increase in the average balance of term deposits of legal entities which was partially offset by the decrease in the average interest rate on such liabilities from 8.3 per cent. in 2007 to 7.6 per cent. in 2008, both of which were indicative of the more favourable economic conditions prior to the onset of the economic downturn in the second half of 2008. Net interest income before provision for impairment of loans and advances to customers, net interest spread and net interest margin Net interest income before provision for impairment increased by UAH 2,409 million, or 60.0 per cent. to UAH 6,422 million in 2008 from UAH 4,013 million in 2007. In 2007 and 2008, net interest income before provision for impairment of loans and advances to customers accounted for 74.1 per cent. and 53.3 per cent., respectively, of the Group¶s operating income (calculated as profit before tax, provision for impairment of loans and advances to customers and administrative and other operating expenses). The Group¶s net interest spread, defined as the difference between the average interest rate on interest-earning assets and the average interest rate on interest-bearing liabilities, decreased to 9.98 per cent. in 2008 from 10.39 per cent. in 2007. The Group¶s net interest margin, defined as net interest income before provision for loan impairment as a percentage of average interest-earning assets, decreased to 10.09 per cent. in 2008 from 10.26 per cent. in 2007. For more information on changes in net interest spread and net interest margin, see ³² Selected Statistical Information²Average Assets and Liabilities Balances and Interest Rate Data´. The table below summarises the effective interest rates by major currencies for major debt instruments as at 31 December 2007 and 2008. The analysis has been prepared based on period-end effective rates used for amortisation of the respective assets and liabilities. 2007 2008 UAH U.S.$ Euro Other UAH U.S.$ Euro Other (%) Assets Correspondent accounts and overnight deposits with other banks...... - 1 3 0 0 0 1 1 Correspondent accounts with the NBU, Central Bank of Russian Federation and Central Bank of Latvia, Central Bank of Cyprus and Central Bank of Georgia ...... 0 - - 0 0 - - 0 Debt trading securities ...... 10 - - - 10 - - - Other debt securities at fair value through profit or loss...... - - - 8 - - - - Due from other banks...... - 11 3 - 0 11 0 3 Loans and advances to legal entities ...... 13 12 11 17 22 14 10 20 Loan and advances to individuals ...... 34 15 15 24 30 15 9 36 Debt investment securities held to maturity ...... 1 ------Other financial assets ...... 0 0 0 0 0 3 1 2

66 Management Discussion and Analysis of Financial Condition and Results of Operations

2007 2008 UAH U.S.$ Euro Other UAH U.S.$ Euro Other (%) Liabilities Due to the National Bank of Ukraine and other Central Banks...... - - - - 15 - - - Correspondent accounts and overnight deposits of other banks...... 2 0 0 0 4 1 0 8 Term placements of other banks ...... 8 8 6 6 5 4 6 4 Long-term loans under the credit lines from international financial institutions...... - 8 8 - - 10 6 - Customer accounts - current accounts of customers...... 0 0 0 0 0 0 0 0 - term deposits of legal entities ...... 9 6 7 6 9 11 7 3 - term deposits of individuals...... 14 9 7 11 15 11 8 6 Debt securities in issue...... 12 8 - 10 11 8 - 12 Subordinated debt ...... 12 9 11 7 12 9 10 10 Other financial liabilities...... 0 16 0 0 0 17 0 6 The sign ³´ in the table above means that the Group does not have the respective assets or liabilities in the corresponding currency. Provision for loan impairment The Group¶s provision for impairment of loans and advances to customers increased from UAH 666 million in 2007 to UAH 4,507 million in 2008. The following table sets forth movements in the Group¶s provision for loan impairment relating to the Group¶s gross loans and advances to customers during the years ended 31 December 2007 and 2008:

As at or for the year ended 31 December 2007 2008 (millions of UAH, except %) Provision for loan impairment at 1 January ...... 2,167 2,810 Provision for loan impairment during the year ...... 666 4,507 Amounts written off during the year as uncollectible...... (35) (977) Recovery of amounts previously written off as uncollectible...... 3 - Acquisition of subsidiaries...... 2 - Currency translation differences...... 7 1,790 Provision for loan impairment at 31 December...... 2,810 8,130 Gross loans and advances to customers...... 45,880 76,204 Provision for loan impairment as a percentage of gross loans and advances to customers...... 6.1 10.7

As at 31 December 2008, the provision for loan impairment as a percentage of gross loans and advances to customers increased to 10.7 per cent. from 6.1 per cent. as at 31 December 2007. The increase in the Group¶s loan impairment provisions as a percentage of gross loans and advances to customers was in line with the Group¶s conservative approach to building up its loan impairment provision in light of the uncertain and worsening economic environment in Ukraine and other countries in the second half of 2008. In addition, the amounts written off during the year as uncollectible increased by UAH 942 million in 2008 as compared to 2007 as the Bank wrote off consumer loans and corporate loans in accordance with more conservative internal policies. In 2008, although the share of loans to individuals in the Group¶s overall loan portfolio decreased to 31.7 per cent. as at 31 December 2008 from 39.1 per cent. as at 31 December 2007, the percentage of individually impaired loans to gross loans and advances to customers increased to 19.4 per cent. as at 31 December 2008 from 16.1 per cent. as at 31 December 2007 as a result of the deterioration in creditworthiness of borrowers in 2008.

67 Management Discussion and Analysis of Financial Condition and Results of Operations

Net non-interest income/(expense) The following table sets forth certain information regarding the Group¶s net non-interest income for the years ended 31 December 2007 and 2008: For the year ended 31 December 2007 2008 (millions of UAH) Losses less gains from trading securities and other securities at fair value through profit or loss ...... - (109) Gains less losses from trading in foreign currencies ...... 351 974 Foreign exchange translation gains less losses ...... 15 2,897 Fee and commission income ...... 1,473 2,111 Fee and commission expense ...... (161) (304) Impairment of investment securities available-for-sale...... (607) (1) Gains less losses from disposals of investment securities available-for-sale ...... 145 43 Losses less gains from financial derivatives...... (13) (35) Gains less losses/(losses less gains) arising from early retirement of debt ...... 5 (9) Other operating income...... 87 79 Total net non-interest income...... 1,295 5,646

Net non-interest income increased by UAH 4,351 million, or 336.0 per cent., to UAH 5,646 million in 2008 from UAH 1,295 million in 2007. The increase in the Group¶s net non-interest income in 2008 resulted principally from the increase in net foreign exchange translation gains, which increased from UAH 15 million in 2007 to UAH 2,897 million in 2008 due to the depreciation of the hryvnia in 2008 against the U.S. dollar and the Euro, and the increase in fee and commission income, which increased from UAH 1,473 million in 2007 to UAH 2,111 million in 2008, representing an increase of 43.3 per cent. The increase in fee and commission income was due to the significant increase in the volume of banking transactions until the onset of the economic downturn in the second half of 2008. The increase in net gains from trading in foreign currencies and the decrease in the impairment of investment securities available-for-sale also contributed to the increase in net fee and commission income. The significant increase in net non-interest income in 2008 as compared to 2007 was partially offset by an increase in the losses less gains from trading securities and other securities at fair value through profit or loss, an increase in fee and commission expense, and a decrease in net gains from disposals of investment securities available-for-sale. The following table sets forth certain information regarding the Group¶s net fee and commission income for the years ended 31 December 2007 and 2008: For the year ended 31 December 2007 2008 (millions of UAH) Fee and commission income Cash collection and cash transactions(1) ...... 730 1,043 Settlement transactions(2) ...... 669 989 Guarantees issued ...... 19 18 Transactions with securities ...... 15 16 Foreign exchange ...... 17 29 Other...... 23 16 Total fee and commission income...... 1,473 2,111

68 Management Discussion and Analysis of Financial Condition and Results of Operations

For the year ended 31 December 2007 2008 (millions of UAH) Fee and commission expense Cash and settlement transactions...... 153 291 Other ...... 8 13 Total fee and commission expense...... 161 304 Net fee and commission income...... 1,312 1,807 ______(1) Includes fees charged to business customers for cash collection and transportation services from their collection points to the Bank¶s vaults and fees charged to customers for cash withdrawals as well as fees charged to public and private customers for payment services in respect of payments of wages, pensions and other monetary entitlements. (2) Includes fees charged in respect of payments made through the Bank¶s system from one customer¶s account to another¶s account, or from one customer¶s account to a third party. The Group¶s net fee and commission income increased by 37.7 per cent. to UAH 1,807 million in 2008 from UAH 1,312 million in 2007. This significant increase was primarily attributable to growth in income from cash collection and cash transactions, which increased by 42.9 per cent. to UAH 1,043 million in 2008 from UAH 730 million in 2007, and growth in income from settlement transactions, which increased by 47.8 per cent. to UAH 989 million in 2008 from UAH 669 million in 2007. The increase in cash collection and cash transactions was primarily due to the Bank¶s focus on risk-free operations, such as cash collection, and its overall strategy of enhancing the settlement operations effected via the Bank in response to the declining economic climate in the second half of 2008. The implementation of this strategy was facilitated by the Bank¶s large network of ATMs, POS terminals and cash points. In 2008, the Group experienced significant growth in cash management and payroll services provided to public and private sector employees and private sector employers, including direct deposit services for wages, pensions and other monetary entitlements. Administrative and other operating expenses Administrative and other operating expenses increased by UAH 1,779 million, or 55.0 per cent. to UAH 5,015 million in 2008 from UAH 3,236 million in 2007. The increase in total administrative and other operating expenses was primarily a result of higher staff costs, which increased by 59.2 per cent. to UAH 2,487 million in 2008 from UAH 1,562 million in 2007. In addition, the increase in total administrative and other operating expenses was due to increases in rent, utilities and household expenses, mail and telecommunication expenses, advertising and marketing costs and certain other expenses reflecting the continued growth in the Bank¶s operations and the client base until the onset of the economic downturn in the second half of 2008. The following table sets forth the major components of the Group¶s administrative and other operating expenses for the years ended 31 December 2007 and 2008: For the year ended 31 December 2007 2008 (millions of UAH) Staff costs ...... 1,562 2,487 Rent...... 268 483 Depreciation and amortisation of premises, leasehold improvements, equipment and intangible assets ...... 274 347 Utilities and household expenses...... 145 240 Mail and telecommunication...... 168 221 Contributions to Individual Deposits Guarantee Fund ...... 85 137 Maintenance of premises, leasehold improvements and equipment...... 123 135 Advertising and marketing...... 98 129 Insurance expenses ...... 158 127 Taxes other than income ...... 39 107 Security...... 70 104 Transportation...... 49 69 Other...... 197 429 Total administrative and other operating expenses...... 3,236 5,015

69 Management Discussion and Analysis of Financial Condition and Results of Operations

The Group¶s staff costs increased by 59.2 per cent. to UAH 2,487 million in 2008 from UAH 1,562 million in 2007. The increase in staff costs (which includes remuneration to employees as well as social taxes i.e. payments made to the State Pension Fund, the Social Security Fund, the Employment Insurance Fund and the Fund for Social Insurance regarding Accidents at Work) is primarily attributable to the Bank¶s strong financial performance in 2007 and 2008 and more attractive compensation and benefits packages provided to employees by the Bank due to increased competition for highly-qualified personnel in the Ukrainian job market. Mail and telecommunication expenses, utilities and household expenses and depreciation and amortisation of premises, leasehold improvements, equipment and intangible assets increased by 31.5 per cent. (to UAH 221 million in 2008 from UAH 168 million in 2007), 65.5 per cent. (to UAH 240 million in 2008 from UAH 145 million in 2007) and 26.6 per cent. (to UAH 347 million in 2008 from UAH 274 million in 2007), respectively, partially due to development of the Bank¶s IT systems and increased cost of maintaining and upgrading the Bank¶s growing infrastructure. Rent expenses increased by 80.2 per cent. to UAH 483 million in 2008 from UAH 268 million in 2007 primarily as a result of increases in rent payable on commercial property utilised by the Bank and an increase in the number of the Bank¶s sub-branches. Income tax expense Income tax expense increased by UAH 159 million, or 40.6 per cent. to UAH 551 million in 2008 from UAH 392 million in 2007. The increase in income tax expense of the Group was primarily attributable to the increase in the Group¶s profit before tax from UAH 1,514 million in 2007 to UAH 2,538 million in 2008, which was partially offset the decrease in the effective income tax rate (calculated as income tax expense divided by profit before tax) from 25.9 per cent. in 2007 to 21.7 per cent. in 2008. The statutory income tax rate applicable to the majority of the Group¶s income was 25 per cent. for each fiscal year. The statutory income tax rate applicable to the subsidiaries of PrivatBank ranged from 15 per cent. to 30 per cent. in 2007, 2008 and 2009. The decrease in the effective income tax rate in 2008 was primarily attributable to the tax effect of income in the amount of UAH 163 million, arising from overdue accrued interest on loans and advances to individuals, which was exempt from taxation in 2008 with no such exemption applied in 2007. Profit for the year Primarily as a result of the factors discussed above, profit for the year increased by UAH 865 million, or 77.1 per cent. to UAH 1,987 million in 2008 from UAH 1,122 million in 2007. Liquidity and Capital Resources In 2009, the Group¶s liquidity needs arose primarily from interest being paid, the net increase in mandatory reserve balances required, the net increase in amounts due from other banks and other financial assets, staff costs being paid, other administrative expenses being paid, the net decrease in amounts due to other banks and other financing institutions and the repayment of debt securities issued. These needs were primarily funded by interest received, the net increase in funds received from the NBU and other central banks, fees and commissions received, income received from financial derivatives and the issuance of ordinary shares. In 2008, the Group¶s liquidity needs arose primarily from the net increase in loans and advances to customers, interest being paid, staff costs being paid and administrative and other operating expenses being paid, the net decrease in amounts due to other banks and other financing institutions, the acquisition of premises, leasehold improvements and equipment, and the repayment of debt securities issued. These needs were funded primarily by interest received, the net increase in customer accounts, fees and commissions received, the net increase in funds received from the NBU and other central banks, proceeds from the redemption of investment securities held to maturity and the issue of ordinary shares. In 2007, the Group¶s liquidity needs arose primarily from the net increase in loans and advances to customers, interest paid, the acquisition of investment securities held to maturity, staff costs being paid and administrative and other operating expenses being paid. These needs were funded primarily by the net increase in customer accounts, interest received,

70 Management Discussion and Analysis of Financial Condition and Results of Operations the proceeds from debt securities issued, fees and commissions received and net increase in funds received from other banks. Cash Flows The following table sets forth the Group¶s main sources and uses of cash for the years ended 31 December 2007, 2008 and 2009: For the year ended 31 December 2007 2008 2009 (millions of UAH) Cash flows from operating activities before changes in operating assets and liabilities...... 2,255 2,708 4,071 Net cash (used in)/from operating activities...... (1,103) (2,156)(1) 783 Net cash from/(used in) investing activities...... (1,875) 388 (193) Net cash from financing activities ...... 6,452 1,216 56 Effect of exchange rate changes on cash and cash equivalents.... 186 2,845 307 Net increase in cash and cash equivalents...... 3,660 2,293 953 Cash and cash equivalents at the end of the year ...... 7,068 9,361 10,314 ______(1) Net cash used in operating activities in 2008 includes a net increase of UAH 3,534 million in due to the NBU and other central banks. In the Group¶s consolidated statement of cash flows for the year ended 31 December 2008, such amount was reflected in net cash from financing activities under ³proceeds from refinancing loan from central banks´ but was categorised as cash from operating activities in the Group¶s cash flow statement for the year ended 31 December 2009, with the same reclassification adjustment being reflected in the 2008 comparative cash flows. Operating activities In 2009, the Group¶s net cash from operating activities was UAH 783 million, as compared to net cash used in operating activities of UAH 2,156 million in 2008. This change of UAH 2,939 million between 2008 and 2009 was primarily due to a significant reduction in the net increase in loans and advances to customers, which increased by UAH 277 million in 2009 as compared to UAH 14,318 million in 2008. Also contributing to this change was an increase in cash flows from operating activities before changes in operating assets and liabilities, from UAH 2,708 million in 2008 to UAH 4,071 million in 2009, primarily as a result of an increase in income received from financial derivatives, as well as decreases in income tax paid and staff costs paid, the effects of which were partially offset by a decrease in net interest received. The effects of the smaller net increase in loans and advances to customers in 2009 compared to 2008 and the increase in cash flows from operating activities before changes in operating assets and liabilities were partially offset by a significant fall in net increase in customer accounts, which was UAH 45 million in 2009 as compared to UAH 7,695 million in 2008, as well as a net decrease of UAH 4,496 million in due to other banks and other financing institutions in 2009 (as compared to a net decrease of UAH 2,177 million in 2008) and a net increase in mandatory reserve balances in 2009 of UAH 1,110 million (as compared to a net decrease in 2008 of UAH 852 million). In 2008, the Group used net cash in operating activities in the amount of UAH 2,156 million, while in 2007 it used net cash in operating activities in the amount of UAH 1,103 million. The increase of UAH 1,053 million between 2007 and 2008 in net cash used in operating activities was primarily due to a significant reduction in net increase in customer accounts from UAH 12,318 million in 2007 to UAH 7,695 million in 2008 that was only partially offset by a much smaller reduction in net increase in loans and advances to customers from UAH 16,457 million in 2007 to UAH 14,318 million in 2008. The increase in net cash used in operating activities was also due to a change from a net increase of UAH 1,846 million in loans due to other banks and other financing institutions in 2007 to a net decrease of UAH 2,177 million in loans due to other banks and other financing institutions in 2008. This was only partially offset by a net increase of UAH 3,534 million in loans due to the NBU and other central banks in 2008 and a net decrease of UAH 852 million in mandatory reserve balances in 2008 (as compared to a net increase of UAH 416 million in 2007). This was also partially offset by an increase in cash flows from operating activities before changes in operating assets and liabilities from UAH 2,255 million in 2007 to UAH 2,708 million in 2008, primarily as a result of an increase in the net interest received, an increase in the net fees and commissions received and an increase in the income received from trading in foreign currencies, which was partially offset by an increase in the administrative and other operating expenses paid.

71 Management Discussion and Analysis of Financial Condition and Results of Operations

Investing activities The Group used net cash in investing activities in the amount of UAH 193 million in 2009 as compared to UAH 388 million net cash generated from investing activities in 2008. This change resulted primarily from a decrease of UAH 823 million in the amount of cash used for acquisitions of premises, leasehold improvements and equipment in 2009 as compared to 2008, which reflected the general economic downturn. In 2008, the amount of cash used for acquisitions of premises, leasehold improvements and equipment was offset by the proceeds from redemption of investment securities held to maturity in the amount of UAH 1,160 million, which were not generated in 2009. The other factors that contributed to the difference between the net cash used in investing activities in 2009 relative to the net cash generated by investing activities in 2008 were a decrease of UAH 211 million in proceeds from disposal of premises, leasehold improvements and equipment received in 2009 as compared to 2008, and the use by the Group of UAH 9 million for acquisition of investment securities available-for- sale and UAH 21 million for acquisition of investment securities held to maturity in 2009, as compared to no such use in 2008. In 2008, the Group generated UAH 388 million net cash from investing activities, while in 2007, the Group used UAH 1,875 million net cash in investing activities. This change resulted primarily from the use of UAH 1,160 million in 2007 for acquisition of investment securities held to maturity, the proceeds from redemption of which, in the amount of UAH 1,160 million were received in 2008. The other factor that contributed to this change was the use of UAH 539 million for acquisition of investment securities available-for-sale and UAH 38 million for acquisition of subsidiaries, net of cash acquired, in 2007 as compared to nil in 2008, offset by the proceeds from disposal of investment securities available-for-sale in the amount of UAH 596 million received in 2007 as compared to nil in 2008, and the use of UAH 737 million for acquisition of premises, leasehold improvements and equipment in 2007. An increase of UAH 321 million in net cash used for the acquisition of premises, leasehold improvements and equipment in 2008 as compared to 2007 was offset by net cash in the amounts of UAH 1,160 million from the proceeds from redemption of investment securities held to maturity and UAH 283 million from the proceeds from disposal of premises, leasehold improvements and equipment received in 2008. Financing activities In 2009, the Group generated net cash in the amount of UAH 56 million from financing activities as compared to UAH 1,216 million generated from financing activities in 2008 and UAH 6,452 million generated from financing activities in 2007. A decrease of UAH 1,160 million in net cash from financing activities in 2009 as compared to 2008 was primarily due to a decrease of UAH 515 million in the issuance of ordinary shares in 2009 as compared to 2008 and due to the proceeds from debt securities issued in the amount of UAH 862 million generated in 2008 as compared to nil in 2009. The decrease in net cash from the issuance of ordinary shares in 2009 was partially offset by an increase of UAH 85 million in proceeds from subordinated debt generated in 2009 as compared to 2008, the funds contributed by owners of non-controlling interest into share capital of subsidiaries in 2009 in the amount of UAH 147 million as compared to nil in 2008, and a decrease of UAH 36 million in net cash used for repayment of debt securities issued in 2009 as compared to 2008. A decrease of UAH 5,236 million in net cash from financing activities in 2008 as compared to 2007 was primarily due a decrease in the proceeds from debt securities issued from UAH 5,331 million in 2007 to UAH 862 million in 2008 (which represented a decrease of UAH 4,469 million) and an increase in net cash used for repayment of debt securities issued from UAH 17 million in 2007 to UAH 1,179 million in 2008 (which represented an increase of UAH 1,162 million). The decrease in the proceeds from debt securities issued and the increase in net cash used for repayment of debt securities issued in 2008 as compared to 2007 was partially offset by an increase of UAH 883 million in net cash from the issuance of ordinary shares and the proceeds from subordinated debt in the amount of UAH 18 million generated in 2008. The other factor that contributed to the decrease in net cash from financing activities in 2008 as compared to 2007 was net cash from contributions from shareholders in the amount of UAH 506 million received in 2007 as compared to nil in 2008.

72 Management Discussion and Analysis of Financial Condition and Results of Operations

Capital Expenditures The total capital expenditure of the Bank increased to UAH 815 million for the year ended 31 December 2008 from UAH 737 million (for the Group) for the year ended 31 December 2007, which was followed by a significant decrease in the total capital expenditure of the Bank to UAH 195 million for the year ended 31 December 2009. The increase in capital expenditures in 2008 was related to the growth of the Bank¶s sub-branch network as well as its IT systems and infrastructure. The decrease in capital expenditures between 31 December 2008 and 31 December 2009, which represents a 76.1 per cent. decline, reflects the consequences of the economic downturn. As at 31 December 2009, the Group had UAH 17 million of contractually committed capital expenditures, mainly in relation to the construction of premises and the acquisition of computers, furniture and equipment. Funding The Group¶s principal sources of funding in 2007, 2008 and 2009 were customer deposits and, in addition, the funding from the Eurobond issuance in 2007 and NBU financing in 2008 and 2009. During the economic crisis, the Group¶s strategy of relying on its existing corporate and retail customer base (including through the customer loyalty program) and on the NBU financing resulted in stabilisation of its funding sources. As the markets are gradually recovering from the economic downturn, the Group focuses on growing and diversifying its funding base and, as a result, will have greater flexibility in lending on a longer-term basis. The following table sets forth the Group¶s liabilities as at 31 December 2007, 2008 and 2009: As at 31 December 2007 2008 2009 (millions (millions (millions of UAH) (%) of UAH) (%) of UAH) (%) Due to the NBU and other central banks...... - - 3,554 4.6 8,310 10.7 Due to other banks and international financing institutions Term placements of other commercial banks ...... 4,246 8.3 5,716 7.4 2,115 2.7 Correspondent accounts and overnight placements of other banks...... 469 0.9 449 0.6 181 0.2 Long-term loans under the credit lines from other financial institutions...... 1,520 3.0 423 0.5 22 0.0 Pledge deposits of other banks ...... 5 0.0 5 0.0 1 0.0 Total due to other banks and international financing institutions ...... 6,240 12.3 6,593 8.5 2, 319 3.0 Customer accounts Individuals - Term deposits...... 18,953 37.3 30,620 39.4 32,035 41.3 - Current/demand accounts...... 5,908 11.6 6,191 8.0 7,121 9.2 Legal entities - Term deposits...... 2,624 5.2 11,647 15.0 9,869 12.7 - Current/settlement accounts...... 8,518 16.7 8,512 11.0 8,108 10.4 Total customer accounts...... 36,003 70.8 56,970 73.3 57,133 73.6 Debt securities in issue...... 6,359 12.5 7,370 9.5 6,112 7.9 Subordinated debt Subordinated debt provided by legal entities...... 899 1.8 1,275 1.6 1,425 1.8 Subordinated debt provided by individuals ...... 38 0.1 58 0.1 13 0.0 Total subordinated debt ...... 937 1.8 1,333 1.7 1,438 1.9 Deferred income tax liability ...... 646 1.3 1,132 1.5 1,614 2.0 Provisions for liabilities and charges, other financial and non-financial liabilities and current income tax liabilities ...... 679 1.3 738 0.9 713 0.9 Total liabilities...... 50,864 100.0 77,690 100.0 77,639 100.0

73 Management Discussion and Analysis of Financial Condition and Results of Operations

Customer accounts As can be seen from the table above, customer accounts are the Group¶s principal source of funding. Customer accounts increased significantly by 58.2 per cent. from UAH 36,003 million as at 31 December 2007 to UAH 56,970 million as at 31 December 2008 and to UAH 57,133 million as at 31 December 2009, representing a further growth of 0.3 per cent. The increase in customer accounts is primarily due to the continued expansion in the Bank¶s customer base in light of favourable market conditions prior to the onset of the economic downturn in the second half of 2008 as well as the Bank¶s loyalty programme, which allowed its existing customers to benefit from increased interest rates on short-term and medium-term deposits, and allowed the Bank to retain existing customers and attract return customers during the economic crisis in second half of 2008 and in 2009. PrivatBank is the largest Ukrainian bank in terms of customer accounts and has thus far been able to meet the Group¶s overall funding requirements primarily from customer deposits and, during the economic downturn, the NBU financing. The rate of growth of customer deposits in PrivatBank has been generally higher than the average rate in other Ukrainian banks, even during the economic downturn. The Group believes the diversification of its deposit base is an important source of stability of its operations and one of its competitive strengths over other Ukrainian banks. The following table sets forth the Group¶s customer accounts by type of depositor and deposit as at 31 December 2007, 2008 and 2009: As at 31 December 2007 2008 2009 (millions (millions (millions of UAH) (%) of UAH) (%) of UAH) (%) Individuals Term deposits...... 18,953 52.6 30,620 53.7 32,035 56.1 Current/demand accounts...... 5,908 16.4 6,191 10.9 7,121 12.5 Legal entities Term deposits...... 2,624 7.3 11,647 20.4 9,869 17.3 Current/settlement accounts ...... 8,518 23.7 8,512 14.9 8,108 14.2 Total customer accounts...... 36,003 100.0 56,970 100.0 57,133 100.0 The growth of balances on customer accounts was primarily due to increases in term deposits of individuals to UAH 32,035 million as at 31 December 2009, as compared with UAH 30,620 million as at 31 December 2008 and UAH 18,953 million as at 31 December 2007. Customer accounts of individuals grew rapidly in 2007 and 2008 due to PrivatBank¶s extensive infrastructure, which facilitated access by retail customers, and the successful implementation of sales and marketing programmes. In 2009, the rate of growth of customer accounts decreased due to the economic downturn. PrivatBank continues to introduce various incentives to attract retail deposits. Two of the most effective incentives are issuing of credit cards free of charge to customers who already have salary cards from the Bank and the customer loyalty deposit program, which enables the existing customers to benefit, under certain circumstances, from a higher interest rate payable on deposits. In 2009, the Group¶s current/settlement accounts of legal entities experienced a decrease in comparison with both 2008 and 2007 while term deposits of legal entities experienced a decrease in 2009 in comparison with 2008, which was due to the impact of the economic crisis on the Group¶s corporate clients at the end of 2008 and in 2009. The following table sets forth the Group¶s customer accounts by type of depositor and currency as at 31 December 2008 and 2009: As at 31 December 2008 2009 (millions of UAH) (UAH) (U.S.$) (EUR) (Other) (UAH) (U.S.$) (EUR) (Other) Individuals ...... 17,013 11,488 6,712 1,598 20,369 11,585 5,025 2,177 Legal Entities ...... 6,296 10,509 2,301 1,053 6,548 8,527 2,145 757 Total customer accounts...... 23,309 21,997 9,013 2,651 26,917 20,112 7,170 2,934 ______Source: These figures are unaudited and have been extracted by the Bank from its management accounting system. The figures for 2007 are not available.

74 Management Discussion and Analysis of Financial Condition and Results of Operations

The following table sets forth the Group¶s customer accounts by sector as at 31 December 2007, 2008 and 2009: As at 31 December 2007 2008 2009 (millions (millions (millions of UAH) (%) of UAH) (%) of UAH) (%) Individuals ...... 24,861 69 36,811 65 39,156 69 Manufacturing...... 492 1 3,512 6 5,299 9 Trade ...... 2,157 6 7,584 13 4,944 9 Services ...... 5,881 16 3,124 6 1,804 3 Machinery...... 574 2 435 1 928 2 Agriculture...... 206 1 674 1 865 2 Transport and communication...... 319 1 1,837 3 784 1 Other...... 1,513 4 2,993 5 3,353 5 Total customer accounts...... 36,003 100 56,970 100 57,133 100

Customer accounts of individuals accounted for 69 per cent. of total customer accounts as at each of 31 December 2007 and 2009, and 65 per cent. as at 31 December 2008. Customer accounts of individuals grew from UAH 24,861 million in 2007 to UAH 36,811 million in 2008 and UAH 39,156 million in 2009. As at 31 December 2009, the aggregate deposits of the ten largest customers of the Group amounted to UAH 6,171 million, or 11 per cent. of total customer deposits as at such date. The aggregate balances of the ten largest customers of the Group were UAH 2,720 million as at 31 December 2007 and UAH 8,118 million as at 31 December 2008. In terms of the share of such aggregate deposits in the total customer deposits, they amounted to 7.6 per cent. as at 31 December 2007 and 14.2 per cent. as at 31 December 2008. Management believes that the Group is sufficiently diversified in terms of its depositor base and does not depend on any key customers. Interbank Borrowings In March 2008, the Group received a syndicated loan of U.S.$200 million (UAH 1,010 million at the exchange rate applicable at the date of receipt). The syndicated loan was included in term placements of other commercial banks (UAH 1,540 million at the exchange rate applicable at 31 December 2008), carried a floating interest rate of LIBOR + 0.75 per cent. and had a maturity of March 2009. The loan was fully repaid in March 2009. In October 2008 the Bank received the first NBU Refinancing Loan in the amount of UAH 3,410 million to support the Bank¶s liquidity. The first NBU Refinancing Loan had a fixed interest rate of 15 per cent. per annum and an initial maturity in October 2009. In October 2009, the maturity of this NBU Refinancing Loan was extended. In March 2009, the Bank obtained the second NBU Refinancing Loan with a fixed interest rate of 16.5 per cent. and an initial maturity in March 2010, which increased the total amount of such NBU Refinancing Loans to UAH 8,310 million. In December 2009, both NBU Refinancing Loans were extended and the fixed interest rates of both loans were increased to 17.3 per cent. per annum starting in January 2010, but were subsequently reduced. The NBU Refinancing Loans currently carry fixed interest rates of 12.25 per cent. per annum and are repayable in instalments in accordance with agreed repayment schedules from July 2010 until October 2015. The NBU Refinancing Loans are secured by pledges over certain of the Bank¶s loans and advances to customers and mortgages over certain of the Bank¶s real estate, including its offices in Dnipropetrovsk. As at 31 December 2008, included in term placements of other commercial banks were loans totalling UAH 286 million for financing of small and medium enterprises provided by the international financial institutions. These loans were denominated in U.S. dollars, loans totalling UAH 40 million with an interest rate of LIBOR + 1.85 per cent. and a maturity date of March 2009 and loans totalling UAH 246 million with an interest rate of 7.5 per cent. and a maturity date of July 2009. These loans were fully repaid by the Group in 2009.

75 Management Discussion and Analysis of Financial Condition and Results of Operations

In October 2007, the Group obtained a loan of U.S.$250 million from OECD bank with a contractual maturity of October 2012. However, the lender had a right to call back the loan at 6 October 2008, 6 October 2009, 6 October 2010 and 6 October 2011. The lender partly exercised the right and U.S.$210 million was repaid in October 2008 and the remaining U.S.$40 million was repaid by the Group in October 2009. Debt Securities in Issue As at 31 December 2009, debt securities in issue accounted for 7.9 per cent. of the Group¶s liabilities (UAH 6,112 million), compared to 9.5 per cent. (UAH 7,370 million) as at 31 December 2008. Debt securities include primarily Eurobonds issued in the international capital markets and hryvnia denominated bonds issued in private placements. The Group uses debt securities to obtain long-term funding as well as additional instruments to maintain liquidity. In February 2007, the Group issued U.S. dollar denominated Eurobonds with a par value of UAH 2,525 million maturing in February 2012. The bonds carry a coupon rate of 8 per cent. per annum and yield to maturity of 23.6 per cent. (51.6 per cent. in 2008). The Eurobonds are listed on the Swiss Stock Exchange. In February 2007, the Bank carried out a securitisation of a specific mortgage loan portfolio through the sale of such loans to Ukraine Mortgage Loan Finance No. 1 Plc, a company incorporated in England and Wales (³UK Mortgage Securitisation SPV´), and the issuance by UK Mortgage Securitisation SPV of U.S. dollar denominated Residential Mortgage Backed Floating and Fixed Rate Notes (referred to as Mortgage bonds) backed by mortgage loans extended by the Bank with a par value of U.S.$180 million (UAH 909 million at the exchange rate at the date of issue). The notes were issued in three series. In May 2008, the Bank carried out a securitisation of a specific auto-loan portfolio through the sale of such loans to Ukraine Auto Loan Finance No. 1 Plc, a company incorporated in England and Wales, ³UK Auto Securitisation SPV´) and the issuance by UK Auto Securitisation SPV of U.S. dollar denominated Asset Backed Floating and Fixed Rate Notes (referred to as Auto bonds) backed by car loans extended by the Bank with a par value of U.S.$110 million (UAH 536 million at the exchange rate at the date of issue). The notes were issued in three series. As at 31 December 2009, the Group had hryvnia denominated bonds issued in March 2007 with a par value of UAH 500 million maturing in March 2012. The bonds were issued under the terms of a private placement. As at 31 December 2009, the Group had hryvnia denominated bonds issued in March 2007 with a par value of UAH 500 million maturing in March 2010. The bonds were issued under the terms of a private placement. As at 31 December 2008, the Group had hryvnia denominated bonds issued in July 2007 with a par value of UAH 250 million maturing not earlier than March 2010. The bonds were issued under the terms of a private placement. As at 31 December 2009, auto bonds with a total nominal value of U.S.$37 million (UAH 293 million at the exchange rate applicable as of 31 December 2009) were repurchased by the Group and removed from the consolidated statement of financial position, including all class C bonds repurchased according to the terms of the issue. As at 31 December 2009, mortgage bonds with a total nominal value of U.S.$9 million (UAH 72 million at the exchange rate applicable as of 31 December 2009) were repurchased by the Group and removed from the consolidated statement of financial position, including all class C bonds repurchased according to the terms of the issue. Mortgage bonds and auto bonds mature and are being repaid in line with the maturity of the underlying loans to customers. Mortgage bonds with a carrying value of UAH 745 million (UAH 893 million in 2008) are effectively collateralised by loans and advances to customers in the amount of UAH 900 million (UAH 1,270 million in 2008). Auto bonds with a carrying value of UAH 319 million (UAH 497 million in 2008) are effectively collateralised by loans and advances to customers in the amount of UAH 394 million (UAH 497 million in 2008).

76 Management Discussion and Analysis of Financial Condition and Results of Operations

Subordinated debt As at 31 December 2009, subordinated debt accounted for 1.9 per cent. of the Group¶s liabilities (UAH 1,438 million), compared to 1.7 per cent. (UAH 1,333 million) as at 31 December 2008 and 1.8 per cent. (UAH 937 million) as at 31 December 2007. The Group uses subordinated debt to obtain long- term funding. In accordance with the Law of Ukraine on Banks and Banking Activities and NBU regulations, subordinated debt cannot be withdrawn from the Group for at least five years from the date of receipt. Included in subordinated debt provided by legal entities, are U.S. dollar denominated subordinated debts issued in February 2006 in the amount of UAH 758 million at par at the exchange rate at the date of issue at 8.75 per cent. per annum payable quarterly with a maturity date of February 2016 and U.S. dollar denominated subordinated debt issued in March 2005 in the amount of UAH 30 million at the exchange rate at the date of issue at par at 10 per cent. per annum payable monthly with a maturity date of March 2010. Under subordinated debt issued in February 2006 the Group has a call option exercisable in February 2011 at par. Subordinated debt provided by individuals represents subordinated debt issued in U.S. dollar, Euro and hryvnia during July 2004 ± April 2005 with interest rates from 10.0 per cent. to 12.0 per cent. per annum payable monthly and a maturity date from January to April 2010. Shareholder Support In March 2010, the shareholders of PrivatBank resolved to increase the Bank¶s share capital by UAH 1,049,336,584 up to a nominal value of UAH 8,860 million. The share capital was increased by capitalising dividends attributable to the shareholders of the Bank for the year ended 31 December 2009. This capital increase was registered with the NBU on 23 April 2010. Management believes that there is currently no need for any further capital injections as the Group¶s capital adequacy ratio calculated in accordance with the Basel Capital Accord standards was 17.6 per cent. as at 31 December 2009. In April 2009, the shareholders of PrivatBank made a decision to increase the nominal amount of the Bank¶s issued shares from UAH 134.45 per share to UAH 161.08 per share. The increase was followed by an increase in the share capital by capitalisation of dividends in the amount of UAH 1,125 million. In July 2009, the Bank issued an additional 6,208,100 ordinary shares with nominal amount of UAH 161.08 per share totalling UAH 1,000 million. In May 2008, the shareholders of PrivatBank made a decision to increase the nominal amount of the Bank¶s issued shares from UAH 100 per share to UAH 134.45 per share. The increase was followed by an increase in the share capital by capitalisation of dividends in the amount of UAH 1,457 million. In November 2007, the shareholders of PrivatBank made a decision to issue an additional 15,150,000 ordinary shares totalling UAH 1,150 million. In May 2007, the shareholders of PrivatBank made a decision to issue 6.3 million of additional shares totalling UAH 632 million. Loan Portfolio The Group¶s customer loan portfolio comprises fixed rate loans of short-term and long-term duration. The Group generally does not extend variable rate loans. The Group¶s outstanding loans and advances to customers net of provision for loan impairment were UAH 66,597 million as at 31 December 2009 and UAH 68,074 million as at 31 December 2008, accounting for 74.3 per cent. and 77.8 per cent. of total assets, respectively. The size of the Group¶s total customer loan portfolio before provision for loan impairment has increased by 3.9 per cent. in the year ended 31 December 2009 in comparison with the loan portfolio as at 31 December 2008. The increase in loans and advances to customers before provision for loan impairment, which increased by 3.9 per cent. in 2009 as compared to 2008, was primarily attributable to the increase in the loans to corporate borrowers. The loans and advances to customers net of provision for loan impairment decreased by 2.2 per cent. in 2009 in comparison with 2008. This decrease is mostly due to the significant growth in provisions for loan impairment (from UAH 8,130 million in 2008 to

77 Management Discussion and Analysis of Financial Condition and Results of Operations

UAH 12,579 million in 2009) in line with PrivatBank¶s conservative strategy to create considerable loan impairment provisions. The Group¶s loans to individuals decreased to UAH 19,906 million in outstanding loans as at 31 December 2009 compared to UAH 24,168 million as at 31 December 2008. The Group¶s retail lending activities are concentrated in three primary areas: card loans to individuals, mortgages and automobile loans. Card loans to individuals decreased by 19.6 per cent. to UAH 7,579 million in 2009 from UAH 9,426 million in 2008. Mortgages decreased by 9.6 per cent. to UAH 6,654 million in 2009 from UAH 7,361 million in 2008. Automobile loans decreased by 21.9 per cent. to UAH 3,851 million in 2009 from UAH 4,933 million in 2008. Consumer loans decreased by 58.1 per cent. to UAH 408 million in 2009 from UAH 973 million in 2008. These decreases are explained by a change in the Bank¶s focus from individuals to creditworthy corporate customers as well as the continuing deterioration in the automobile and real estate markets in Ukraine. The change in strategy was caused by an increase in non-performing loans extended by the Bank to individuals during the economic downturn. The Group¶s outstanding loans and advances to customers net of provision for loan impairment were UAH 43,070 million as at 31 December 2007 accounting for 76.5 per cent. of total assets as at such date, which grew by 58.1 per cent. in 2008. This reflects the overall growth in the Bank¶s operations and customer base, which was partially offset by a 189.3 per cent. increase in provision for loan impairment. The Group¶s outstanding loans and advances to customers before provision for loan impairment grew from UAH 45,880 million as at 31 December 2007 by 66.1 per cent. in 2008. The Group¶s loans to individuals increased by 34.8 per cent. in 2008 as compared to 2007, which reflects growths of 70.1 per cent. in card loans, 45.0 per cent. in mortgages and 35.0 per cent. in automobile loans. The Group¶s consumer loans, however, decreased by 57.6 per cent. in 2008 as compared to 2007. The table below sets forth a breakdown of the Group¶s retail lending: As at 31 December 2007 2008 2009 (millions of UAH) Loans to individuals ± card ...... 5,542 9,426 7,579 Loans to individuals ± mortgage...... 5,075 7,361 6,654 Loans to individuals ± auto ...... 3,655 4,933 3,851 Loans to individuals ± consumer ...... 2,297 973 408 Loans to individuals ± other...... 1,362 1,475 1,414 Total loans to individuals...... 17,931 24,168 19,906

Lending to corporate customers with high credit quality is the key element of the Group¶s lending activities. The Bank focuses on offering loans to its existing corporate customers identified through its internal performance monitoring systems as creditworthy borrowers with funding requirements. The Group¶s corporate lending activities include the provision of loans and other loan-related products in Ukrainian hryvnia and foreign currencies, principally U.S. dollars and Euros, to reliable creditworthy corporate clients, including the provision of overdraft facilities, revolving lines of credit and bank guarantees, as well as various services related to promissory notes issued by customers or third parties. Most of the Group¶s corporate loans comprise overdraft facilities with a maturity of up to one month and trade financing with a maturity of up to five years, which are subject to financing being obtained from the international markets and subject to governmental export-credit agencies guaranteeing such financing. The Group¶s corporate loan portfolio experienced strong growth of 89.6 per cent. in the year ended 31 December 2008, with loans to corporate clients totalling UAH 45,421 million, followed by a further increase of 21.2 per cent. in the year ended 31 December 2009, with loans to corporate clients totalling UAH 55,071 million.

78 Management Discussion and Analysis of Financial Condition and Results of Operations

The following table presents information on the economic risk concentration of the Group¶s loan portfolio (before impairment) as at 31 December 2007, 2008 and 2009: As at 31 December 2007 2008 2009 (millions (millions (millions of UAH) (%) of UAH) (%) of UAH) (%) Oil trading...... 3,117 7 10,774 14 23,021 30 Loans to individuals...... 17,931 39 24,168 32 19,906 25 Commerce and finance ...... 7,038 15 14,772 19 10,034 12 Agriculture, forestry and food industry...... 3,838 8 4,054 5 7,993 10 Small and medium enterprises (SME) ...... 3,924 9 6,252 8 4,054 5 Construction ...... 1,960 4 2,010 3 3,021 4 Manufacturing...... 1,758 4 3,799 5 2,916 4 Securities trading...... 1,126 3 3,230 4 2,036 2 Tourism ...... 666 1 1,166 2 1,674 2 Metallurgy and mining...... 2,735 6 3,317 4 1,216 1 Transport, storage and communication ...... 812 2 258 1 551 1 Other...... 975 2 2,404 3 2,754 4 Total loans and advances to customers (before impairment) ...... 45,880 100 76,204 100 79,176 100 As the table above shows, the share of loans in the oil trading sector in the Group¶s total loan portfolio has increased in the periods discussed, from 7 per cent. as at 31 December 2007 to 14 per cent. as at 31 December 2008 and 30 per cent. as at 31 December 2009 (from UAH 3,117 million in 2007 to UAH 10,774 million in 2008 and UAH 23,021 million in 2009). This increase in the relative share of loans in the oil trading sector was due to Management¶s focus on the oil industry as the best-performing industry, and which has proved to be the most resilient and least vulnerable in the economic downturn.

At the same time, the Bank restricts lending to those sectors that it considers to be of high risk, including metallurgy and mining, construction and agriculture. The commerce and finance and the metallurgy and mining sectors turned out to be more susceptible to deteriorating market conditions in the economic downturn, which resulted in the reduction in loans in commerce and finance by 32.1 per cent. and in metallurgy and mining by 63.3 per cent. in 2009 as compared to 2008. These sectors had previously experienced growth by 109.9 per cent. and 21.3 per cent., respectively, in the year ended 31 December 2008 compared to 2007 (from UAH 7,038 million in 2007 to UAH 14,772 million in 2008 and UAH 2,735 million in 2007 to UAH 3,317 million in 2008, respectively). In the agriculture, forestry and food sector, the increase of 97.2 per cent. in 2009 as compared to 2008, following the increase of 5.6 per cent in 2008 as compared to 2007, was due to loans to borrowers in the food industry (which has suffered less during the recent period of volatility) and due to loans to certain selected borrowers for a period of up to five years, subject to such financing being obtained from the international markets and subject to export-credit agencies guaranteeing such financing. In the construction industry, although the Group has cancelled all its future loan activities, the increase in loan portfolio by 50.3 per cent. in the year ended 31 December 2009 as compared to 2008 is due to turnover in the existing previously approved loan arrangements with the borrowers operating in the construction industry, the financial performance of which can be monitored by the Bank. The following table sets forth the Group¶s net loan portfolio by maturity as at 31 December 2007, 2008 and 2009: As at 31 December 2007 2008 2009 (millions (millions (millions of UAH) (%) of UAH) (%) of UAH) (%) Demand and less than 1 month...... 1,197 2.8 2,591 3.8 11,118 16.7 From 1 to 3 months...... 1,493 3.5 7,431 10.9 4,729 7.1 From 3 to 12 months...... 13,931 32.3 27,055 39.7 22,669 34.0 More than 1 year ...... 26,449 61.4 30,997 45.6 28,081 42.2 Total...... 43,070 100.0 68,074 100.0 66,597 100.0

79 Management Discussion and Analysis of Financial Condition and Results of Operations

Although loans with a maturity exceeding one year have historically represented the largest proportion of the Group¶s customer loan portfolio (e.g. as at 31 December 2007 loans with a maturity exceeding one year accounted for 61.4 per cent. of the Group¶s customer loan portfolio), due to the recent economic downturn the Group¶s strategy has changed and the Group now primarily concentrates on short-term loans in order to mitigate risks associated with funding availability during the economic downturn and improve its funding structure. Accordingly, the share of loans with a maturity exceeding one year in the customer portfolio decreased by 9.4 per cent. in 2009 in comparison with 2008, while the share of loans on demand and loans with a maturity of less than one month increased significantly by 329.1 per cent. in 2009 in comparison with 2008. The share of loans on demand and with a maturity of less than one month in the total loan portfolio increased to 16.7 per cent. in 2009 from 3.8 per cent. in 2008 and 2.8 per cent. in 2007. The following table sets forth loans and advances to customers, including past due loans and provision for loan impairment, as at 31 December 2007, 2008 and 2009. The Group treats as overdue loans those payments that are past due one day or more in respect of principal payments or interest payments. As at 31 December 2007 2008 2009 (millions of UAH, except %) Neither past due nor impaired loans...... 37,440 56,597 51,985 Past due but not impaired loans...... 1,066 4,853 2,017 Individually impaired loans (gross) ...... 7,374 14,754 25,174 Less: provision for loan impairment ...... (2,810) (8,130) (12,579) Total...... 43,070 68,074 66,597 Provision for loan impairment as a percentage of gross loans ...... 6.1 10.7 15.9 Provision for loan impairment as a percentage of impaired loans...... 38.1 55.1 50.0 Impaired loans as a percentage of gross loans...... 16.1 19.4 31.8

The provision for loan impairment as a percentage of gross loans increased from 6.1 per cent. as at 31 December 2007 to 10.7 per cent. as at 31 December 2008 and 15.9 per cent. as at 31 December 2009. These increases in loan impairment provisions as percentages of gross loans were a result of the Group¶s conservative strategy to build up loan impairment provisions in light of declining creditworthiness of borrowers which is evident in the increases in gross individually impaired loans in 2009 compared to 2008 and 2007. Although in 2008, the provision for loan impairment as a percentage of impaired loans increased to 55.1 per cent. (from 38.1 per cent. in 2007), in 2009, the provision for loan impairment as a percentage of impaired loans decreased to 50.0 per cent., which evidences the Group¶s conservative strategy adopted to mitigate the negative impact of the significant growth in non- performing loans. PrivatBank has changed its strategy and now endeavours to proactively target, through the utilisation of its internal performance monitoring systems, reliable creditworthy corporate borrowers representing a lower credit risk for the Group and offer them relevant financial products. Accordingly, as at 31 December 2009, the share of loans to individuals in the Group¶s overall loan portfolio decreased to 25 per cent. from 32 per cent. as at 31 December 2008 and 39 per cent. as at 31 December 2007, while the share of corporate loans in the Group¶s overall loan portfolio has increased. The table below sets forth a breakdown of loans individually determined to be impaired (gross) by credit quality of loans, as at 31 December 2009: Corporate Loans to Reverse loans individuals SME repo Total (millions of UAH) Loans individually determined to be impaired (gross) Not overdue...... 13,799 296 2 89 14,186 Less than 30 days overdue ...... 623 50 - - 673 30 to 90 days overdue...... 1,066 36 6 - 1,108 90 to 180 days overdue...... 375 1,054 169 - 1,598 180 to 360 days overdue ...... 1,539 3,298 1,216 14 6,067 Over 360 days overdue ...... 104 1,000 438 - 1,542 Total individually impaired loans (gross)..... 17,506 5,734 1,831 103 25,174

80 Management Discussion and Analysis of Financial Condition and Results of Operations

Due from Other Banks The following table summarises the Group¶s loans due from other banks as at 31 December 2007, 2008 and 2009: As at 31 December 2007 2008 2009 (millions of UAH) Term placements with other banks ...... 1,205 2,578 3,767 Guarantee deposits with other banks(1)...... 123 84 302 Total due from other banks...... 1,328 2,662 4,069 ______(1) Guarantee deposits represent balances placed with other banks as cover for letters of credit and for international payments. These are effectively restricted deposits, which are required to be maintained to complete the related trade finance activity. The increase of 52.9 per cent. in the amounts due from other banks as at 31 December 2009 in comparison with 2008 and the increase of 100.5 per cent. in the amounts due from other banks as at 31 December 2008 in comparison with 2007 is due to the Group¶s excess liquidity at the end of 2007, 2008 and 2009 and its policy of making loans of temporarily unused cash to other banks on a short- term basis, which allowed the Group to maintain a solid liquidity position and was a particular focus of the Group in the highly volatile economic environment of 2008-2009. Analysis by Segment Starting from 1 January 2009, the Group prepares its segment analysis in accordance with IFRS 8, Operating segments, replacing segment reporting in accordance with IAS 14. The segment information presented in accordance with IAS 14 was prepared on the basis of the Group¶s consolidated financial data and is therefore not directly comparable with the segment information presented in accordance with IFRS 8, which is prepared on the basis of management reporting that does not include information on the Bank¶s subsidiaries. The Bank has four business segments: retail banking, corporate banking, investment banking and treasury: Ɣ Retail banking represents private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages. Ɣ Corporate banking represents direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products. Ɣ Investment banking represents financial instruments trading, structured financing, corporate leasing, merger and acquisition advice. Ɣ Treasury represents interbank loans, deposits, foreign currency exchange operations, arrangement of funding in the international markets, asset and liabilities management, issue of senior bonds and assets backed securities, project financing, negotiation of limits for trade financing with financial institutions. The Group¶s segments are strategic business units that focus on different customers. They are managed separately because each business unit requires different marketing strategies and service levels. Segment financial information reviewed by the CODM does not include information on the Group¶s subsidiaries. Regular review of such subsidiaries is delegated to the local management teams. As information on such subsidiaries is available less frequently to the CODM, Management has concluded that segment reporting should exclude details of the subsidiaries. The CODM reviews the financial information of the Bank prepared based on Ukrainian accounting standards adjusted to meet the requirements of the NBU reporting rules and before consolidation of subsidiaries. The financial information reviewed by the CODM is unaudited and differs in certain respects from IFRS: Ɣ funds are generally reallocated between segments at internal interest rates set by the treasury department, which are determined by reference to market interest rate benchmarks, contractual maturities for loans and observed actual maturities of customer accounts balances; Ɣ income taxes are not allocated to segments;

81 Management Discussion and Analysis of Financial Condition and Results of Operations

Ɣ loan loss provisions are recognised based on the statutory accounting rules; Ɣ loans and advances to customers are written-off based on statutory requirements; Ɣ fair value of derivatives is not recognised in statutory accounts; Ɣ swap operations are not recognised at cost; Ɣ commission income related to lending is recognised immediately rather than deferred using the effective interest method; and Ɣ information on the Group¶s subsidiaries is not reviewed by the CODM. The CODM evaluates the performance of each segment based on profit before tax. The following tables set forth certain segment information for the Bank¶s reportable business segments for 2009 and 2008. Total revenues, as indicated in the following tables, comprises all items of income that are included in operating income including interest income, fees and commission income and other operating income. In addition, revenues from other segments, as shown in the tables below, represents income and expense from lending and borrowing between segments, charged at internally calculated rates. For additional information regarding the Bank¶s business segments, see Note 23 to the Financial Statements as at and for the year ended 31 December 2009. Segment information for the Bank¶s reportable business segments as at and for the year ended 31 December 2009 is set forth below: Total Retail Corporate Investment reportable banking banking banking Treasury segments Other Total (millions of UAH) Cash and cash equivalents and mandatory reserves ...... 2,822 198 - 3,266 6,286 - 6,286 Trading securities...... - - 105 - 105 - 105 Due from other banks ...... 140 - 158 8,172 8,470 - 8,470 Loans and advances to customers...... 12,345 49,302 22 - 61,669 - 61,669 Investment securities available-for-sale...... - 9 50 - 59 - 59 Investment securities held to maturity ...... - - - 372 372 - 372 Investment in subsidiaries ...... - - 796 - 796 - 796 Intangible assets ...... 2 1 - 1 4 1 5 Premises, leasehold improvements and equipment ...... 682 242 6 15 945 362 1,307 Other financial assets...... 231 31 10 6,036 6,308 - 6,308 Other assets...... 61 57 - 6 124 16 140 Non-current assets held for sale ...... - - - - - 44 44 Total reportable segment assets...... 16,283 49,840 1,147 17,868 85,138 423 85,561 Due to the NBU...... - - - 8,310 8,310 - 8,310 Due to other banks and other financing institutions ...... - - - 7,193 7,193 - 7,193 Customer accounts...... 35,935 12,905 414 741 49,995 - 49,995 Debt securities in issue ...... - 1 - 1,289 1,290 - 1,290 Current income tax liability...... - - - - - 9 9 Deferred income tax liability...... - - - - - 42 42 Other financial liabilities ...... 1,221 486 60 5,356 7,123 - 7,123 Other non-financial liabilities ...... 8 12 2 1 23 5 28 Subordinated debt ...... - 61 - 1,239 1,300 - 1,300 Total reportable segment liabilities ...... 37,164 13,465 476 24,129 75,234 56 75,290

82 Management Discussion and Analysis of Financial Condition and Results of Operations

Total Retail Corporate Investment reportable banking banking banking Treasury segments Other Total (millions of UAH) Capital expenditure ...... 102 36 1 2 141 54 195

External revenues...... 6,106 10,982 69 2,779 19,936 - 19,936 Revenues from other segments ...... 2,161 (5,678) (143) 2,370 (1,290) 1,290 -

Total revenues...... 8,267 5,304 (74) 5,149 18,646 1,290 19,936

Total revenues includes: - Interest income...... 5,909 4,391 (142) 4,868 15,026 1,290 16,316 - Fee and commission income...... 2,106 859 66 126 3,157 - 3,157 - Other operating income...... 252 54 2 155 463 - 463 Total revenues...... 8,267 5,304 (74) 5,149 18,646 1,290 19,936

Interest expense...... (4,103) (966) (6) (3,868) (8,943) - (8,943) Provision for loan impairment...... (752) (4,309) - 145 (4,916) - (4,916) Impairment of investment securities available-for- sale ...... - - (12) - (12) - (12) Release of provision for credit related commitments ...... - 254 - - 254 - 254 Fee and commission expense ...... (102) - (59) (482) (643) - (643) Losses less gains from trading securities ...... - - (430) - (430) - (430) Gains less losses from trading in foreign currencies...... - - - 192 192 - 192 Gains less losses from disposals of investment securities available for sale ...... - - 11 - 11 - 11 Administrative and other operating expenses...... (2,328) (811) (57) (85) (3,281) (1,022) (4,303) Segment result(1) ...... 982 (528) (627) 1,051 878 268 1,146 Income Tax...... (96) Income for the year...... 1,050 ______(1) This line item represents net profit before income tax expense for each respective segment.

83 Management Discussion and Analysis of Financial Condition and Results of Operations

Segment information for the Bank¶s reportable business segments as at and for the year ended 31 December 2008 is set forth below: Total Retail Corporate Investment reportable banking banking banking Treasury segments Other Total (millions of UAH) Cash and cash equivalents and mandatory reserves ...... 2,490 218 - 1,654 4,362 - 4,362 Trading securities...... - - 552 - 552 - 552 Due from other banks ...... - 2 83 6,301 6,386 - 6,386 Loans and advances to customers...... 16,355 48,562 17 907 65,841 - 65,841 Investment securities available-for-sale...... - 1 3 167 171 - 171 Investment securities held to maturity ...... - - - 258 258 - 258 Investment in associates ...... - - 556 - 556 - 556 Intangible assets ...... 3 1 - - 4 1 5 Premises, leasehold improvements and equipment ...... 832 274 9 7 1,122 339 1,461 Other financial assets...... 175 29 10 - 214 - 214 Other assets...... 50 41 7 26 124 18 142 Non-current assets held for sale ...... - - - - - 49 49 Total reportable segment assets...... 19,905 49,128 1,237 9,320 79,590 407 79,997 Due to the NBU...... - - - 3,410 3,410 - 3,410 Due to other banks and other financing institutions ...... - - 4 11,275 11,279 - 11,279 Customer accounts...... 35,656 14,437 338 2,595 53,026 - 53,026 Debt securities in issue ...... - 1 - 1,794 1,795 - 1,795 Current income tax liability...... - - - - - 16 16 Deferred income tax liability...... - - - - - 7 7 Other financial liabilities ...... 588 215 2 116 921 - 921 Other non-financial liabilities ...... 21 10 4 2 37 11 48 Subordinated debt ...... 58 46 - 1,196 1,300 - 1,300 Total reportable segment liabilities ...... 36,323 14,709 348 20,388 71,768 34 71,802

Capital expenditure ...... 465 153 5 3 626 189 815 External revenues...... 5,862 6,172 81 2,825 14,940 - 14,940 Revenues from other segments ...... 1,636 (4,392) (218) 1,414 (1,560) 1,560 - Total revenues...... 7,498 1,780 (137) 4,239 13,380 1,560 14,940 Total revenues includes: - Interest income...... 5,033 714 (212) 1,867 7,402 1,560 8,962 - Fee and commission income...... 2,373 1,030 65 2,344 5,812 - 5,812 - Other operating income...... 92 36 10 28 166 - 166 Total revenues...... 7,498 1,780 (137) 4,239 13,380 1,560 14,940

84 Management Discussion and Analysis of Financial Condition and Results of Operations

Total Retail Corporate Investment reportable banking banking banking Treasury segments Other Total (millions of UAH) Interest expense...... (2,942) (715) (24) (1,289) (4,970) - (4,970) Provision for loan impairment...... (1,709) (1,629) - 58 (3,280) - (3,280) Provision for credit related commitments...... - (178) - - (178) - (178) Fee and commission expense ...... (204) (1) - (242) (447) - (447) Losses less gains from trading securities ...... - - (550) - (550) - (550) Gains less losses from trading in foreign currencies...... 565 411 (7) (90) 879 - 879 Losses less gains from disposals of investment securities available-for- sale ...... - - (1) - (1) - (1) Administrative and other operating expenses...... (2,497) (862) (107) (103) (3,569) (939) (4,508) Segment result(1) ...... 711 (1,194) (826) 2,573 1,264 621 1,885 Income tax...... (593) Income for the year...... 1,292 ______(1) This line item represents net profit before income tax expense for each respective segment. Generally, the Bank¶s corporate banking and retail banking activities are the most important drivers of the Bank¶s revenues and profitability. Net losses reflected in the segment analysis are the result of the Bank¶s policy of reallocating funds between segments at internal interest rates. Growth in corporate banking revenues was significantly higher than growth in retail banking revenues in 2009 as compared with 2008 (198.0 per cent. and 10.3 per cent., respectively). In 2009, growth in corporate banking external revenues was larger than growth in retail banking external revenues (77.9 per cent. against 4.2 per cent.). In the year ended 31 December 2009, the Bank¶s corporate banking segment generated the largest amount of external revenue, UAH 10,982 million, followed by retail banking, with external revenues of UAH 6,106 million, and treasury, with external revenues of UAH 2,779 million. In terms of profitability, the most profitable sector was treasury, with net segment results of UAH 1,051 million, followed by retail banking, with net segment results of UAH 982 million. The corporate banking segment suffered an overall net loss of UAH 528 million for the period, resulting from the creation of a provision for loan impairment to mitigate an increase in the volume of non-performing loans due to the economic downturn. The investment banking segment suffered an overall net loss of UAH 627 million for 2009, which is by 24.1 per cent. less than an overall net loss of UAH 826 million in 2008. For the year ended 31 December 2008, the Bank¶s corporate banking segment generated the largest amount of external revenues, UAH 6,172 million, followed by retail banking segment, with external revenues of UAH 5,862 million, treasury, with external revenues of UAH 2,825 million, and investment banking, with external revenues of UAH 81 million. In terms of profitability, treasury was the most profitable segment, with net segment results of UAH 2,573 million, followed by retail banking, with net segment results of UAH 711 million. The corporate banking segment suffered an overall net loss of UAH 1,194 million, while the investment banking segment suffered an overall net loss of UAH 826 million.

85 Management Discussion and Analysis of Financial Condition and Results of Operations

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities Total consolidated revenues comprise interest income, fee and commission income and other operating income. 2008 2009 (millions of UAH) Total revenues for reportable segments ...... 13,380 18,646 Recognition of financial derivatives ...... 567 (1,560) Consolidation adjustments ...... 1,036 (1,258) Reclassification of forex gains less losses...... (2,800) (275) Other adjustments...... 54 (34) Unallocated revenues...... 1,560 1,290 Total consolidated revenues...... 13,797 16,809

Reconciliation of reportable profit or loss: 2008 2009 (millions of UAH) Total reportable segment result...... 1,264 878 Recognition of financial derivatives ...... 336 1,083 Consolidation adjustments ...... (408) (341) Other adjustments...... 814 201 Unallocated revenues and expenses...... 621 268 Provision for impairment of loans and advances to customers ...... (390) (115) Release of provision for credit related commitments...... 301 70 Profit before tax...... 2,538 2,044 Reconciliation of reportable assets: 2008 2009 (millions of UAH) Total reportable segment assets...... 79,590 85,138 Recognition of financial derivatives ...... 336 1,943 Consolidation adjustments ...... 6,709 8,793 Other adjustments...... (313) (444) Unallocated assets ...... 407 423 Release of provision for impairment of loans and advances to customers... 976 602 SWAP operations at fair value ...... (185) (6,766) Total consolidated assets...... 87,520 89,689 Reconciliation of reportable liabilities: 2008 2009 (millions of UAH) Total reportable segment liabilities ...... 71,768 75,234 Consolidation adjustments ...... 5,385 8,118 Other adjustments...... (340) (513) Unallocated liabilities...... 34 56 SWAP operations at fair value ...... (182) (6,766) Deferred income tax liability...... 1,025 1,510 Total consolidated liabilities...... 77,690 77,639 Capital Adequacy PrivatBank complies with the NBU¶s mandatory minimum capital adequacy ratios for Ukrainian banks. With effect from 1 March 2004, the NBU¶s mandatory minimum capital adequacy ratio, which is the ratio of capital to total risk-weighted assets, was 10 per cent. PrivatBank¶s capital adequacy ratio, calculated in accordance with the NBU regulations and Ukrainian statutory accounting requirements, was 11.48 per cent. as at 31 December 2009, compared with 10.16 per cent. as at 31 December 2008, and compared with 11.34 per cent. as at 31 December 2007. Under the current capital requirements set by the NBU banks must maintain a ratio of regulatory capital to risk weighted assets (³statutory capital ratio´) above a prescribed minimum level. See ³Appendix

86 Management Discussion and Analysis of Financial Condition and Results of Operations

A: Banking Supervision±Mandatory Ratios±Capital Requirements´. Regulatory capital is based on the Bank¶s reports prepared under Ukrainian accounting standards and comprises: 2007 2008 2009 (millions of UAH) Net assets unadjusted for accruals, provisions and taxes...... 4,941 7,474 8,390 Plus subordinated debt...... 807 780 1,210 Less investments into subsidiaries...... (553) (556) (796) Other...... (11) (9) (2) Total regulatory capital...... 5,184 7,689 8,802

The Group also complies with the Basel Capital Accord standards established by the Basel Committee on Banking Supervision. In accordance with the Basel Capital Accord standards, the Group must maintain a total capital ratio in excess of eight per cent. The Group, however, sets an internal target for a total capital ratio of not less than that which is required by the NBU. The following table sets forth an analysis of the Group¶s capital base, based on Basel Capital Accord standards, as at the dates indicated: As at 31 December 2007 2008 2009 (millions of UAH, except %) Tier 1 Capital Share capital...... 2,967 5,939 8,064 Disclosed reserves...... 1,582 2,191 2,542 Cumulative translation reserve...... 34 330 354 Less: goodwill and intangible assets...... (35) (53) (57) Total Tier 1 Capital...... 4,548 8,407 10,903 Tier 2 Capital Asset revaluation reserves...... 361 908 628 Additional capital...... 462 462 462 Subordinated debt...... 799 1,204 1,198 Total Tier 2 Capital ...... 1,622 2,574 2,288 Total capital...... 6,170 10,981 13,191 Risk Weighted Assets(1) ...... 45,644 80,003 74,920 Tier 1 Capital Ratio(2) ...... 9.96 10.51 14.55 Capital Adequacy Ratio(3) ...... 13.5 13.7 17.6 ______

(1) Calculated in accordance with the 1988 Basel Accord principles and 1996 Amendment to the Capital Accord to Incorporate Market Risks. (2) Total Tier 1 Capital divided by Risk Weighted Assets. (3) Total capital divided by Risk Weighted Assets. PrivatBank is currently in the process of evaluating the potential impact of the adoption of the Basel II proposals, which is expected to be implemented in the NBU over the course of the next 15 years. Pillar I of the Basel II proposals relating to the maintenance of regulatory capital calculated for three major components of risk that a bank faces (credit risk, operational risk, and market risk), is expected to be applied over the course of the next few years. Contractual Obligations The table below sets forth the Group¶s liabilities at 31 December 2009 by maturity. The amounts disclosed in the table are the non-discounted contractual cash flows, including: gross finance leasing obligations (before deducting future finance charges); prices specified in deliverable forward agreements to purchase financial assets for cash; contractual amounts to be exchanged under gross settled currency swaps; and gross loan commitments. Such non-discounted cash flows differ from the amounts included in the statement of financial position because the amounts disclosed in the consolidated statement of financial position are based on discounted cash flows.

87 Management Discussion and Analysis of Financial Condition and Results of Operations

Liabilities due by maturity as at 31 December 2009 Demand and less From From From than 1 to 3 3 to 12 12 months Over 1 month months months to 5 years 5 years Total (millions of UAH) Liabilities Due to the NBU and other central banks...... 122 232 2,030 8,950 1,495 12,829 Due to other banks and other financing institutions ...... 433 244 13 1,147 684 2,521 Customer accounts...... 30,148 6,269 20,604 1,636 118 58,775 Debt securities in issue ...... 18 740 619 5,333 236 6,946 Subordinated debt ...... 1 66 54 294 1,441 1,856 Other financial liabilities ...... 318 3 37 60 - 418 Gross settled SWAPs and forwards ...... 7,468 - - - - 7,468 Total contractual future payments for financial obligations ...... 38,508 7,554 23,357 17,420 3,974 90,813 ______

Source: Estimated information extracted from Note 24 of the Bank¶s consolidated financial statements for the year ending 31 December 2009. Contingencies, Commitments and Derivative Financial Instruments Legal Proceedings See ³Description of the Bank¶s Business² Legal Proceedings´. Credit related commitments The Group¶s credit commitments consist of guarantees issued, import letters of credit and irrevocable commitments to extend credit. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate or cash deposits and therefore carry less risk than a direct borrowing. The table below sets forth the Group¶s outstanding credit-related commitments as at 31 December 2007, 2008 and 2009: As at 31 December 2007 2008 2009 (millions of UAH) Guarantees issued...... 1,177 2,965 914 Import letters of credit ...... 909 2,794 616 Irrevocable commitments to extend credit ...... 9 140 123 Less: Cash covered letters of credit ...... - (657) (44) Less: Provision for credit related commitments...... (21) (29) (43) Total credit-related commitments ...... 2,074 5,213 1,566

As at 31 December 2008, the Group had UAH 5,213 million in outstanding credit-related commitments, net of provision, which represented an increase of 151.4 per cent. from UAH 2,074 million as at 31 December 2007, reflecting an increase in guarantees issued and import letter of credit in more favourable market conditions prior to the onset of the economic downturn. As at 31 December 2009, the Group had UAH 1,566 million in outstanding credit-related commitments, net of provisions, which represented a decrease of 70.0 per cent. from the previous year, reflecting a decrease in guarantees issued and import letters of credit as a result of the economic downturn and, as a consequence, the decrease in the business activity of the Group¶s customers.

88 Management Discussion and Analysis of Financial Condition and Results of Operations

Derivative financial instruments Ukrainian commercial banks are generally not active in engaging in operations with foreign currency derivatives as such a market in Ukraine is underdeveloped and there are certain limitations of such an activity imposed by the NBU. As at 31 December 2009, the Group had term placements with other banks in U.S. dollar, Euro and other currencies totalling UAH 7,450 million pledged against Euro, Ukrainian hryvnia, U.S. dollar and other currency deposits received for the same term from the same counterparty banks totalling UAH 7,468 million. In accordance with the specific requirements of International Accounting Standard 39 ³Financial Instruments: Recognition and Measurement´ (³IAS 39´), these arrangements are accounted for on a net basis as derivatives so as to reflect that in substance these types of transactions represent one instrument. As at 31 December 2009, the Bank had outstanding loans and advances to customers totalling UAH 36,608 million (compared to UAH 17,247 million as at 31 December 2008 and compared to UAH 10,339 million as at 31 December 2007) issued in Ukrainian hryvnia the terms of which included an obligation of the respective borrowers to pay a compensation to the Bank in the event that the official exchange rate of hryvnia depreciated against the U.S. dollar. The contract to receive compensation was accounted for by the Bank as a financial derivative with the fair value of UAH 2,005 million as at 31 December 2009 (compared to UAH 2,551 million in 2008 and nil at 31 December 2007) estimated using a valuation technique. This valuation technique takes into account expected movements in exchange rates, discount factor and credit risk. Changing the assumptions about expected exchange rates may result in a different profit. All contracts mature from 2010 to 2013, inclusive. If the expected Ukrainian hryvnia/U.S. dollar exchange rate for these years would be higher/lower by 5 per cent., the fair value of the derivative and the respective consolidated statement of comprehensive income amount would increase/decrease by UAH 1,518 million (compared to UAH 625 million in 2008). If the discount rate used for fair valuation of the derivatives as at 31 December 2009 would be higher/lower by 100 basis points, the fair value of the derivative and the respective consolidated statement of comprehensive income amount would decrease/increase by UAH 134 million (compared to UAH 12 million in 2008). If the credit risk of counterparties as at 31 December 2009 would be higher/lower by 10 per cent., the fair value of the derivative and the respective consolidated statement of comprehensive income amount would decrease/increase by UAH 200 million (compared to UAH 282 million in 2008). See Notes 4 and 27 to the 2009 Financial Statements and see Notes 4 and 32 to the 2008 Financial Statements.

89 Description of the Bank¶s Business

Overview Based on market information published by the NBU, as at 30 June 2010, PrivatBank was the largest bank in Ukraine in terms of total net assets, loans to legal entities, deposits from individuals and deposits from legal entities, each ranking based on numbers computed in accordance with Ukrainian statutory accounting standards. The Bank¶s principal business areas are corporate banking and retail banking. In addition, the Bank provides investment banking services. The Bank¶s corporate banking activities include offering current accounts and term deposits to corporate clients, corporate lending, settlement transactions, payroll services for public and private sector employers, microfinancing loans, trade finance, foreign currency transactions and other corporate banking services. The Bank provides loans and other credit-related products to its corporate clients, including the provision of overdraft facilities, revolving lines of credit and bank guarantees, and various services related to promissory notes issued by customers or third parties. The majority of loans and other credit-related products issued by the Bank are denominated in Ukrainian hryvnia. The Bank concentrates its corporate lending activities on large companies with good credit standing and small and medium-sized companies (³SMEs´). In addition, the Bank also participates in lending arrangements with international banks such as Commerzbank AG, Deutsche Bank AG, UBS, Standard Bank and others. The Bank is the leader in retail deposit taking in Ukraine according to market information published by the NBU. The Bank had a market share of 19.6 per cent. in retail deposit taking in Ukraine as at 1 July 2010, according to AUB data. The Bank¶s retail banking activities include offering current accounts and term deposits to individuals, retail lending (including consumer goods loans, mortgages and automobile loans), bank card products and services, ATM services, Internet banking and other retail banking services. The Bank provides direct deposit services for wages, pensions and other monetary entitlements. Over the past several years, the Bank has significantly increased its retail banking activities by expanding the range of its products and services and its geographical presence throughout Ukraine. Based on market information published by the NBU, as at 30 June 2010, PrivatBank was the largest bank in Ukraine in terms of total net assets, loans to legal entities, deposits from individuals and deposits from legal entities, each ranking based on numbers computed in accordance with Ukrainian statutory accounting standards. PrivatBank was the first bank in Ukraine to offer Internet banking. The Bank was also one of the first banks in Ukraine to offer customers banking services via mobile phones, the ability to access funds through ATMs and make payments with bank cards through POS terminals. As at 30 June 2010, according to statistics provided by the NBU, PrivatBank was the largest issuer of bank cards in Ukraine, having issued approximately 21.6 million bank cards (credit and debit), comprising approximately 48.1 per cent. of the total issuance of bank cards in Ukraine. The Bank¶s investment banking business consists primarily of trading and brokerage services in debt and equity securities, registrar and depository services. As at 30 June 2010, the Bank had an extensive branch network of 34 branches and 3,102 sub-branches which, Management believes, constituted the second largest branch network in Ukraine at that time. The Bank also has a branch in Cyprus. The Bank also has subsidiaries in the Russian Federation, Latvia and Georgia and representative offices in Kyiv (Ukraine), Moscow (Russia), Almaty (Kazakhstan), London (United Kingdom) and Beijing (China) and three special purpose entities in the United Kingdom. As at 30 June 2010, the Bank had a network of 8,842 ATMs and 48,865 POS terminals, as well as 4,417 cash points (allowing customers to access cash other than through an ATM) located in shops, airports, gas stations, businesses or commercial centres. As at 1 July 2010, the Bank owned the largest number of ATMs and POS terminals in Ukraine, according to the NBU. The Bank is also one of the leading banks in Ukraine in terms of its correspondent relationships with many of the world¶s leading financial institutions. The Bank¶s full legal name is PUBLIC JOINT-STOCK COMPANY COMMERCIAL BANK ³PRIVATBANK´. The Bank¶s headquarters are in Dnipropetrovsk and its registered office is at 50, Naberezhna Peremohy, 49094 Dnipropetrovsk, Ukraine. The Bank is registered as a legal entity with

90 Description of the Bank¶s Business the Unified Register of Enterprises and Organisations of Ukraine under identification code No. 14360570. History The Bank was founded and registered on 19 March 1992 as a limited liability company of unlimited duration under the laws of Ukraine to engage in various activities in the banking sector. On 4 September 2000, the Bank was reorganised as a closed joint stock company of unlimited duration in accordance with the Law of Ukraine ³On Banks and Banking Activity´. On 17 July 2009 , the Bank was reorganised as a public joint stock company of unlimited duration in accordance with a new Law ³On Joint Stock Companies´. According to its charter, PrivatBank was established with the purpose of providing a full range of banking services to retail and corporate customers. The Bank¶s activities are governed by numerous NBU regulations, including in particular the Banking Regulation Instruction. The Bank is registered with the NBU with registration No. 92 and holds a banking licence, a written permit issued by the NBU and licences to conduct professional securities market activities issued by the State Commission on Securities and the Stock Market of Ukraine. As at 31 December 2009, the Bank had authorised, issued and fully paid share capital of UAH 7,811 million at nominal value (inflation adjusted amount of UAH 8,064 million) divided into 48,490,600 ordinary registered shares. The Bank does not have any class of preferred shares or outstanding warrants or other equity securities. In 1992, the Bank¶s first year of existence, the Bank focused on expanding its branch network to develop a large retail banking customer base. In 1995, the Bank worked with the EBRD to increase its corporate lending business by extending loans to SMEs. In 1996 and 1997, the Bank significantly expanded its bank card business, became a member of the VISA international payment system and launched its first mass issuance of VISA cards. The Bank also signed an agency agreement with American Express and introduced ATM machines certified by VISA for payment operations with VISA cards. From 2000 to the present, the Bank has further expanded its retail and corporate customer base, diversified its product range, improved the quality of its payment systems and extended its regional branch network. In 2001, the Bank expanded its branch network by acquiring branches and other assets from Bank ³Ukraina´ in connection with its liquidation. Also in 2001, it became the first Ukrainian bank to offer Internet banking with the ³Privat24´ electronic banking system. In 2003, PrivatBank became the first bank in Ukraine to issue over 1,000,000 MasterCard and Maestro bank cards. Also in 2003, the Bank became the first bank in Ukraine to issue Eurobonds in the amount of U.S.$100 million. On 30 October 2006, the Bank borrowed U.S.$300 million under a syndicated loan agreement with an international consortium of banks. Also in February 2007, the Bank in cooperation with UBS Investment Bank became the first bank in Ukraine to securitise a portfolio of mortgage loans in the amount of U.S.$180 million. This was the first deal where an investment grade was attributed to securities backed by assets originated by a Ukrainian bank by an international rating agency. Subsequently, the Bank¶s securitisation experience has been expanded with a U.S.$105 million note issue in May 2008 backed by a portfolio of the Bank¶s auto loans, arranged by UBS Investment Bank. In February 2007, the Bank raised U.S.$500 million in Eurobonds (by means of guaranteed notes issued by UK SPV Credit Finance plc and listed on the main segment of the SWX Swiss Exchange) offered, inter alia, to qualified institutional buyers (that are also qualified purchasers) in the United States under Rule 144A. In March 2008, the Bank borrowed U.S.$200 million under another syndicated loan agreement with an international consortium of banks, consisting of Bayerische Landesbank, The Bank of Tokyo Mitsubishi and UniCredit. This agreement bears an interest rate of LIBOR +0.75 per cent. In October 2008 the Bank obtained the first NBU Refinancing Loan in the amount of UAH 3,410 million to support the Bank¶s liquidity. The first NBU Refinancing Loan had a fixed interest rate of 15 per cent. per annum and an initial maturity in October 2009. In October 2009, the maturity of this

91 Description of the Bank¶s Business

NBU Refinancing Loan was extended. In March 2009, the Bank obtained the second NBU Refinancing Loan with a fixed interest rate of 16.5 per cent. and an initial maturity in March 2010, which increased the total amount of such NBU Refinancing Loans to UAH 8,310 million. In December 2009 both NBU Refinancing Loans were extended and the fixed interest rates of both loans were increased to 17.3 per cent. per annum starting in January 2010, but were subsequently reduced. The NBU Refinancing Loans currently carry fixed interest rates of 9.75 per cent. per annum and are repayable in instalments in accordance with agreed repayment schedules from July 2010 until October 2015. As at the date of this Prospectus, the total amount outstanding under the NBU Refinancing Loans is UAH7,936 million. The NBU Refinancing Loans are secured by pledges over certain of the Bank¶s loans and advances to customers and mortgages over certain of the Bank¶s real estate, including its offices in Dnipropetrovsk. The Bank has recently implemented a number of technologies allowing it to further diversify its customer base and improve its relationships with existing clients. Recent developments in the corporate lending sphere include, among other things, creation of a clearing system and allowing corporate customers to obtain short-term overdraft financing secured by a pledge over their accounts. The Bank is also committed to continuous improvement of relationships with its retail customers. For example, the Bank has recently launched a permanent monitoring of payments for mobile phones through the Bank to approach these customers and offer then other banking products. The Bank has also developed a change-free settlement operations, whereby the change may be automatically directed to either the mobile phone payments or to the charity. Strengths Management believes that PrivatBank enjoys a strong position in the Ukrainian banking market and has the following competitive strengths which enable it to compete effectively in that market: Leading market position According to statistics provided by the NBU, as at 30 June 2010, PrivatBank is the largest bank in Ukraine in terms of total net assets, loans to legal entities, deposits from legal entities and deposits from individuals. The Bank also believes that it generates the highest gross margins in the Ukrainian banking sector. A significant portion of PrivatBank¶s loan portfolio is denominated in Ukrainian hryvnia. This is in line with the NBU¶s overall policy to restrict lending in foreign currencies and to encourage Ukrainian commercial banks to extend loans in the Ukrainian national currency. See ³Appendix A±Legislative Framework for the Ukrainian Banking Sector±Banking Operations´. Management believes that this allows the Bank to protect its loan portfolio against scrutiny from the NBU and to avoid potential sanctions for breach of these regulations. In addition, the Bank has a history of market leadership in retail banking in Ukraine focused on meeting customer needs through the continuous improvement of the quality of its services, including new credit and debit card services, pre-paid cards, cards to pay for utility and household bills, as well as microfinancing loans to individual entrepreneurs. Management believes that its leading market position puts PrivatBank in a strong position to benefit from the potential of the Ukrainian market and provides a strong platform to pursue its strategy. Resistance of the effects of the economic downturn PrivatBank has an international reputation as a stable and reliable bank. The impact on the Bank of instability in Ukrainian financial markets, which resulted from recent economic deterioration, was much smaller than it was on most other Ukrainian banks. In February 2010, Fitch published a report on the Ukrainian banking sector, according to which pointed out that the Bank has created a higher level of reserves for loans impaired (compared to other Ukrainian banks) that also provides a significant cushion to absorb possible further credit loss. Further, the Bank has successfully implemented a number of measures to protect its loan portfolio against the recent economic downturn. These measures have included, among others, active conversion of the loans denominated in foreign currencies to Ukrainian hryvnia, offering reductions in the effective interest rate following prepayment of 50 per cent. of principal by borrowers and active collateral repossession in loans of all categories. These measures enabled the Bank to maintain a low level of non-performing loans in its total loan portfolio ratio during the recent economic downturn.

92 Description of the Bank¶s Business

Wide territorial coverage PrivatBank has the second largest branch network of any Ukrainian bank covering all regions of Ukraine, with an aggregate of 34 branches and 3,102 sub-branches as at 31 December 2009, which significantly exceeds the branch networks of most of its competitors, according to the NBU. PrivatBank¶s ATMs and POS terminal networks are the largest in Ukraine, with 8,842 ATMs and 48,865 POS terminals operating as at 1 July 2010, according to the NBU. Its significant regional presence provides PrivatBank with greater brand recognition than its competitors and allows PrivatBank to establish relationships with regional retail and corporate clients. The Bank is often the only local bank that is able to offer a full range of banking products. The Bank¶s wide territorial coverage also provides it with a competitive advantage over other large Ukrainian banks, including foreign-owned Ukrainian banks, due to the amount of time its competitors would need to spend, and investment they would need to make, to create a comparable distribution network. Large client base For the 12 months ended 31 December 2009, 55.1 per cent. and 30.6 per cent. of PrivatBank¶s external revenues were derived from operations in its corporate banking segment and retail banking segment, respectively. As at 31 July 2010, the Bank had over 357,000 large and medium sized corporate customers and over 8.1 million individual customers. The Bank¶s extensive client base, combined with a wide range of products offered to corporate and retail customers and to SMEs, allows it to spread its credit risk and maintain a diversified high-quality loan portfolio. The depth of the Bank¶s retail customer base allows it to maintain and continuously expand its significant database of customer information, which contains information on more than 13 million debtors in Ukraine and is currently the largest credit bureau in Ukraine, allowing the Bank to perform more precise credit checks and risk assessment procedures than other Ukrainian banks. Effective credit approval and loan management procedures The Bank has established automated loan monitoring procedures which allow it to react quickly in dealing with problem loans and to manage its loan portfolio efficiently. The Bank uses a two-tier loan approval procedure. Loans of up to U.S.$25,000 are approved by the middle-offices of the Bank subject to their confirmation by the head-office. Loans in excess of U.S.$25,000 are approved by the head-office. In this case, middle-offices only perform client-service and follow-up work. Loans in excess of U.S.$2 million may only be granted upon the prior approval of the Supervisory Council. The Bank grants loans only to those corporate clients, who meet the following criteria: (i) stable turnover; (ii) positive credit history during pre-crisis and crisis periods; (iii) a wide network of business partners; and (iv) financial monitoring by the Bank. The Bank restricts lending to those sectors of the Ukrainian economy that it considers to be of high risk: steel and other metallurgy production, construction and agriculture. Innovative IT systems and technologies PrivatBank believes that its IT systems and technologies for retail and corporate banking are superior to those of most Ukrainian banks and will allow it to rapidly expand the scope of its operations, reduce costs and streamline decision-making processes. Throughout its history, PrivatBank has strived to develop and provide a wide range of innovative banking services to its customers. PrivatBank was the first bank in Ukraine to offer its clients Internet- and GSM-based banking services and to provide top- up services for mobile phones from its ATMs and POS terminals. The Bank¶s IT systems allow it to centrally manage the operations of its head office, maintain the turnover of electronic documents, and to monitor the Bank¶s performance on a regular basis. See ³Description of the Bank¶s Business² Information Technology´. International experience and reputation Throughout its operating history, PrivatBank has been active in international markets and has strong relationships with many international financial institutions, and is able to use the expertise of its foreign partners in international transactions. PrivatBank has been successful in attracting funding in the international capital markets through syndicated loans and offerings of debt securities.

93 Description of the Bank¶s Business

Experienced management PrivatBank¶s senior management team, headed by its Chairman of the Board Alexander Dubilet, has significant banking and financial experience. Members of PrivatBank¶s senior management team have an average of ten years of banking and financial expertise. Shareholders¶ support and independence The two Ukrainian shareholders who together have a controlling stake in PrivatBank have been supporting the Bank¶s operations for more than 10 years. PrivatBank believes that the willingness of its shareholders to support the Bank helps it to develop and implement its long-term strategies. In addition, PrivatBank and its shareholders are not affiliated with any Ukrainian political parties and are not involved in political processes in Ukraine. As a result, PrivatBank conducts its business in a commercially reasonable manner and believes that its clients value its independence. Strategy As part of the strategic plan for the Bank following the global economic downturn, the Bank¶s overall long-term strategy is to focus its lending activities on high-quality corporate customers and to continue to develop and strengthen its market position by improving and strengthening its relationships with existing clients. To achieve these goals and to continue to add value for its customers, employees and shareholders, the Bank has identified the following principal long-term strategies: Ɣ focusing its lending activities on high-quality corporate customers; Ɣ improving revenue and liquidity through focusing on a new strategy to increase the number of settlement operations effected through the Bank; Ɣ strengthening relationships with existing customers, inter alia, by cross-selling its range of products to its growing customer base; Ɣ reducing the number and volume of non-performing loans and improving the efficiency of its debt collection procedures; and Ɣ increasing its customer base by engaging a network of independent agents. Further, the Bank will continue to follow its strategies to: Ɣ develop innovative banking products to maintain its position as a market leader in Ukraine in providing innovative products and services in its retail and corporate banking businesses with an emphasis on bank card-related technologies; Ɣ extend the maturity profile of its funding base by attracting long-term deposits and accessing the international capital markets; Ɣ enhance cost efficiencies by using technology to lower production costs and centralise the managerial, operational and accounting functions of the Bank at its head office; and Ɣ attract customers for settlement procedures. Expand its customer base with a focus on corporate customers The economic downturn that started in 2008 and continued in 2009 demonstrated the risks of over- exposure to the retail banking segment and providing services to SMEs. As a result, PrivatBank plans to focus (for the time being) primarily on lending to reliable corporate clients. Given the existing economic circumstances, PrivatBank considers this sector to be more reliable for carrying out banking operations in Ukraine than lending to individual borrowers, as such high-quality corporate customers have proven to be relatively resistant to the recent economic downturn. For these reasons, amongst others, the Bank aims to increase the volume of loans to corporate customers (focusing on the larger end of the corporate market) that have a good credit standing and in relation to whom PrivatBank can implement effective monitoring systems. In order to achieve this goal, the Bank carefully monitors the performance of its existing or potential corporate clients. If, in the Bank¶s opinion, the performance of a potential client is likely to meet the Bank¶s expectations, the Bank endeavours to proactively contact such client and offer it an appropriate loan. The Bank offers its clients secured short-term overdraft loan facilities for financing turnaround costs. The Bank¶s policy is to offer the loans on its initiative to

94 Description of the Bank¶s Business reliable customers rather than lending to new customers, who turn to the Bank for loans themselves. As at 1 July 2010 the average size of loans to corporate customers was U.S.$1,790,372 and the average size of loans to retail customers was U.S.$194. Increase the volume of settlement operations effected via the Bank The Bank believes that servicing of a large number of settlements is a risk-free way to maintain its liquidity and carry on its business. Currently, the settlements effected through the Bank are most commonly utilities payments, payments under commercial contracts, budgetary payments as well as payments arising from non-contractual obligations. The Bank has sought to improve the quality of service of its settlement operations. Recently, it has introduced a µchange-free¶ payment system, whereby a customer is entitled to choose to direct the change to either charity or its mobile phone. The Bank also seeks to persuade more employers to effect the transfer of salaries to their employees via the accounts opened with the Bank. Continuous improvement of client relationships A key aspect of the Bank¶s strategy is focused on continuous improvement of relationships with its clients (both existing and potential). The Bank delivers its retail and corporate banking services through a number of distribution channels, primarily through its network of branches, sub-branches, POS terminals located in supermarket chains, automobile showrooms and real estate agencies, the Bank¶s network of ATMs, the Bank¶s mobile sub-branches, or banking modules, its website, the ³Privat24´ Internet banking system, mobile banking and the Bank¶s multi-channel Call Centre (which provides information about the Bank¶s services, handles bank card applications and contacts potential customers offering new products and services). The Bank believes that effecting payment for mobile phones and using mobile phones as a portal for making payments and providing bank card and other services allows it to effectively monitor potential clients and subsequently offer them suitable bank products. The Bank also intends to further develop its relationships with existing clients and, for example, to substitute automatic SMS-messaging with operator calls and certain other measures intended to make the relationship between the Bank and its clients more client-friendly. The Bank also intends to offer to its VIP clients various µvalue-added services¶ such as training courses for their children and family members, chauffeur services, baby-sitters etc. The Bank estimates that approximately 2 million individuals, who were not the Bank¶s clients, paid their mobile phone bills through the Bank in 2009. Expand and diversify its range of corporate and retail banking products and services, with an emphasis on bank card-related technologies The Bank has been a market leader in Ukraine in providing innovative products and services in its corporate and retail banking businesses, with an emphasis on its bank card-related technologies. The Bank continuously develops the range of services offered to its cardholders, including the recent expansion of the services offered by the Bank¶s ATMs. The Bank believes that this strategy will enable it to increase both its non-interest income and its interest income for retail and corporate banking services. In corporate banking, the Bank is developing innovative fee-based services such as trade finance and corporate finance services to supplement its corporate lending activities. In retail banking, the Bank intends to further enhance the individual holders of its cards to effect payments via these cards and not just to use them as a simple way to access debit accounts. The Bank intends to increase the loan limit to those individual cardholders who regularly effect payments via their cards. The Bank also intends to further develop its IT-system allowing it to submit potential banking products for a discussion between the Bank and its potential or existing clients. Cross-sell its range of products to its growing customer base The Bank intends to take advantage of its extensive branch network and bank card business to cross- sell the full range of its products and services to new and existing customers. To further this strategic objective, the Bank will utilise its technology to identify specific customer needs and use techniques such as specialised advertising campaigns to target new product sales to its customer base. Part of the Bank¶s cross-selling strategy is to build on its relationships with large corporate banking customers to attract their customers and employees as retail banking customers. For example, the Bank¶s payroll card services offered to its corporate banking customers enable the Bank to establish banking relationships with such corporate customers¶ employees.

95 Description of the Bank¶s Business

Reduction of the number and volume of non-performing loans One effect of the shift to focusing the Bank¶s lending activities to high-quality corporate clients is to reduce the number and volume of non-performing loans. Further reduction will be achieved by tightening loan approval terms, taking all available security for loans granted and enhancing the Bank¶s credit collection procedures. Such enhancements include, for example, automatic messaging and calling of the debtors, automatic filing of court claims by the Bank¶s IT systems without the involvement of lawyers and seizure of all assets of debtors and guarantors. Such automated system allows the Bank to effectively manage its enforcement documents turnover. The courts regularly review such automatically generated claims and the Bank is not aware of courts rejecting such automatically generated claims. For additional details on methodology/procedures/infrastructure/recovery statistics in relation to the Bank¶s collecting procedures please see ³Risk Management²Problem Loan Recovery´. Enhancing Agency relationships as a means of distribution of the Bank¶s products The Bank actively engages third party agents to promote its products. In 2009, approximately 6.7 per cent. of the Bank¶s credit cards and approximately 12.02 per cent. of the Bank¶s deposits have been successfully offered to the Bank¶s clients via agents. The Bank intends to further expand the operations of its distribution agents, as this allows the Bank to save costs on employment of respective staff, reach a wider potential client-base without capital investments, focus on high-return retail products, increase the market share of the Bank in relevant segments, and maintain the leading position in those segments. Extend the maturity profile of its funding base by attracting long-term deposits and accessing the international capital markets The Bank intends to continue to improve its funding base by augmenting its market share in longer- term deposits from corporate and retail clients. The Bank believes that by improving existing products and services and offering new ones it will be able to substantially increase the length of time customer deposits are held by the Bank and thus increase revenues of the Bank. In addition, to further diversify its funding sources and extend the maturity profile of its funding base, the Bank is continuing to access the international capital markets. Enhance cost efficiencies by using technology to lower production costs and centralise the managerial, operational and accounting functions of the Bank at its head office The Bank has invested significantly in technology to lower production costs and to exploit alternative distribution channels which are more cost efficient in the delivery of banking services. The Bank intends to continue to invest in its ³Privat24´ Internet banking system, ATMs, POS terminals and cash points to increase market penetration and enhance convenience of banking for its customers. One of the key drivers for improvement of efficiency at the current stage of the Bank¶s development, given its expanding branch network, is the Bank¶s initiative to centralise management, control and operations capacities in the head office. This initiative is expected to lead to improved cost/income ratios, better supervision over the Bank¶s branch network and improved quality of the Bank¶s services.

96 Corporate Structure The chart below shows the Bank¶s corporate structure and certain ownership information relating to its shareholders and subsidiaries, all as at 1 July 2010.

Banking Services Corporate Banking Corporate banking includes deposit taking from corporations, corporate lending (including the provision of promissory notes and bank guarantees for corporations and credit facilities), and payroll services and trade finance. It also includes microfinancing for private entrepreneurs and SMEs. The Bank¶s corporate banking business generated external revenues of UAH 10,982 million in 2009, as compared to UAH 6,172 million in 2008. The Bank¶s corporate banking assets were UAH 49,840 million as at 31 December 2009, as compared with UAH 49,128 million as at 31 December 2008. The growth in corporate banking is primarily as a result of the expansion of the Bank¶s corporate customer base in Ukraine, and the implementation of its sales and marketing programmes. The Bank intends to continue to concentrate on corporate banking not only because of the interest income and fee and commission income it generates but also because it presents the Bank with cross-selling opportunities, including in respect of providing retail banking services to employees of the Bank¶s growing corporate customer base. As at 31 December 2009, corporate banking represented 58.3 per cent. of the Bank¶s total segment assets and 17.9 per cent. of the Bank¶s total segment liabilities, and for the 12 months ended 31 December 2009, it represented 55.1 per cent. of the Bank¶s total external revenues. Deposit Taking The Bank is one of the leading banks in corporate deposit taking in Ukraine according to the NBU and the Association of Ukrainian Banks (the ³AUB´). According to the AUB data based on information from 159 Ukrainian banks, as at 1 January 2010, the Bank had a market share of 11.5 per cent. in corporate deposit taking in Ukraine. As at 31 December 2009, the Group had UAH 17,977 million in corporate deposits, including UAH 8,108 million (representing 45.1 per cent. of total corporate deposits) in current/settlement accounts and UAH 9,869 million (representing 54.9 per cent. of total corporate deposits) in term deposits. This represented a 10.8 per cent. decrease in corporate customer deposits compared to 31 December 2008, at which date the Group had UAH 20,159 million in corporate deposits including UAH 8,512 million (representing 42.2 per cent. of total corporate deposits) in current/settlement accounts and UAH 11,647 million (representing 57.8 per cent. of total corporate deposits) in term deposits.

97 Description of the Bank¶s Business

Corporate Lending The Bank¶s corporate lending activities include the provision of loan and credit facilities and other credit-related products to corporate clients, including the provision of overdraft facilities, revolving lines of credit and bank guarantees and various services related to promissory notes issued by customers or third parties. The majority of loans and other credit-related products issued by the Bank are denominated in Ukrainian hryvnia. The majority of the Bank¶s corporate loans are for trade financing and overdrafts, with a majority of such loans being of maturities of up to five years and up to one month respectively. As demand for longer-term financing from existing customers and new customers with high credit quality increases, the Bank intends to lengthen the maturities of the loans provided to such customers to match the maturity profile of its funding base. According to Management estimates, as at 31 December 2009, approximately 35.0 per cent. of all corporate loans extended by the Bank are fully secured. The Group¶s corporate loan portfolio continued to experience growth in the 12 months ended 31 December 2009 with loans to corporate clients (including loans to SMEs and reverse sale and repurchase agreements) totalling UAH 59,270 million as at 31 December 2009 compared to UAH 52,036 million as at 31 December 2008. In 2009, the Group had interest income from loans and advances to legal entities of UAH 8,339 million, as compared to UAH 5,174 million in 2008. The Group¶s ten largest corporate borrowers accounted for 25.8 per cent. of its total corporate loan portfolio as at 31 December 2009, as compared to 22.3 per cent. as at 31 December 2008. The Bank lends to corporate clients involved in oil trading, commerce and financial services, agriculture, forestry and food industries, metallurgy, mining and manufacturing. Cash Collection and Cash Transactions The Bank also earns significant fees and commissions as a result of providing cash collection services, and from other cash transactions. Cash collection services include cash collection and transportation services from collection points of the Bank¶s customers engaged in retail trade to the Bank¶s vaults. Cash transactions include withdrawals of cash by the Bank¶s corporate customers from their accounts with the Bank. The Bank also provides payroll services to public and private sector employers, including direct deposit services for wages, pensions and other monetary entitlements. The Bank administers the payment of salaries of the corporation¶s employees into each employee¶s bank account, which under the programme must be with the Bank. As at 30 June 2010, Management estimates that approximately 60.2 per cent. of all government employees and 1.5 million Ukrainian pensioners were paid through the Bank¶s direct deposit payment systems. Trade Finance The Bank maintains credit lines with major U.S. and European financial institutions to attract medium and long-term funds to be used for financing international trade contracts for its customers. The Bank currently has a number of credit lines with foreign financial institutions with respect to its international trade finance. The Bank also has a number of credit lines under governmental export-credit agency cover. The Bank actively works with the leading Export Credit Agencies, including Euler-Hermes, US-Exim, EDC and others. Other Corporate Banking Services In addition to its core corporate banking services described above, the Bank provides its corporate clients with foreign exchange services and issuance and servicing of corporate bank cards. The Bank operates a loyalty programme for private entrepreneurs, offering those customers a variety of discounts, and the ³PrivatBusinessClub´ project, creating a network for small and medium-sized businesses throughout Ukraine that grant reciprocal discounts to each other. In 2006, the Bank introduced its BlitzBusinessDistribution service which allows the Bank¶s customers engaged in wholesale distribution to receive payments from their clients using the PrivatBank cards and POS terminals. In addition, since 2006, the Bank¶s corporate clients, including SMEs, have been able to add funds to their corporate cards via the Internet and to manage their accounts with the Bank though the Bank¶s Call Centre operating 24 hours a day throughout the year. PrivatBank also designates certain corporate customers as ³VIP´ customers, as a result of which they receive a higher and more personal level of service from

98 Description of the Bank¶s Business the Bank. For example, having access to a personal banker who advises customers on a wide variety of banking services. Retail Banking Retail banking includes deposit taking (principally, time deposits and current account deposits), lending to individuals, bank card services, ATM services and Internet banking. The Bank¶s retail banking business generated external revenues of UAH 6,106 million in 2009, as compared to UAH 5,862 million in 2008. The Bank¶s retail banking assets were UAH 16,283 million as at 31 December 2009 and UAH 19,905 million as at 31 December 2008. The reduction in retail assets of the Bank in 2009 was caused by the economic downturn, as a reaction to which the Bank suspended its loan programs, but, rather, actively pursued the collection of outstanding loans and initiated the programs of early repayment of outstanding loans. As at 31 December 2009, retail banking accounted for 19.0 per cent. of the Bank¶s total segment assets and 49.4 per cent. of the Bank¶s total segment liabilities. Revenues generated by retail banking in the 12 months ended 31 December 2009 represented 30.6 per cent. of the Bank¶s total external revenues. The Bank¶s retail banking activities can be divided into the following categories: Settlement Operations The Bank offers wide range of hryvnia and foreign currency settlement services to its clients (both corporate and individual) through the NBU¶s clearing system, the ³Privat24´ Internet banking system, GSM banking (allowing bank customers to make payments via mobile phones), own branch network and network of correspondent banks. The Bank¶s main settlement system was originally driven by customer expectations and has evolved into the ³Internet Client Bank´ system based on internet technologies to ensure efficient settlement transactions. Deposit Taking The Bank is the leader in retail deposit taking in Ukraine according to the NBU and the AUB. According to the AUB data based on information from 159 Ukrainian banks, the Bank¶s market share in retail deposit taking in Ukraine increased from 16 per cent. as at 1 March 2009 to 17.7 per cent. as at 1 March 2010. The Bank¶s market share in Ukrainian retail deposit taking continued to grow in the first six months of 2010 and, according to the AUB, as at 30 June 2010, was 19.6 per cent. The Bank offers a variety of interest-bearing bank accounts designed for different categories of retail customers, including high-income earners, working individuals and pensioners. The Bank¶s deposit accounts include current and term accounts and are denominated in hryvnia, U.S. dollars and Euro. Account terms vary from demand deposits to term deposits, which may be extended, once or multiple times, depending on the type of account. However, term deposits of individuals can be withdrawn at any time under Ukrainian law at the request of the depositors. See ³Risk Factors²Risks Relating to the Bank²Reliance on retail deposits´. The Bank believes that it is well-positioned in the Ukrainian retail customer deposit market. The reduction in deposits is explained by the general trend in Ukraine from October 2008 until March 2009, which was characterised by an abrupt outflow of deposits from the banking system of Ukraine. However, the Bank still increased its share in deposits in the Ukrainian banking system from 16 per cent. to 17.005 per cent. Since March 2009, the Bank¶s market share of deposits has begun to increase again. According to statistics released by the AUB, the Bank¶s market share of retail deposits was 19.6 per cent. as at 1 July 2010. According to the NBU and AUB, since 1 May 2009 the inflow of retail deposits to Ukrainian banks has generally increased again. As at 31 December 2009, the Group had UAH 39,156 million in retail deposits, including UAH 7,121 million (representing 18.2 per cent. of total retail deposits) in current/demand accounts and UAH 32,035 million (representing 81.8 per cent. of total retail deposits) in term deposits. This represented a 6.4 per cent. increase in retail deposits compared to 31 December 2008, at which date the Group had UAH 36,811 million in retail deposits including UAH 6,191 million (representing 16.8 per cent. of total retail deposits) in current/demand accounts and UAH 30,620 million (representing 83.2 per cent. of total retail deposits) in term deposits. Retail deposits are a main funding source of the Bank. The Bank continues to introduce various campaigns to attract retail deposits such as loyalty programs aimed at extending deposit terms in the

99 Description of the Bank¶s Business

Bank and decreasing the difference between interest rates payable on medium and short term deposits. This package involved issuing credit cards free of charge to customers making retail deposits with the Bank and allows the customer to withdraw interest on a monthly basis. The introduction of this package has led to significant growth in retail deposits. The Bank issues all of its customers making deposits with the Bank a special bank card which allows the customer to obtain basic information about their accounts (such as account balance, current interest rate, accrued interest and dates of most recent transactions) through the Bank¶s ATM network. The Bank also seeks to attract students by campaigning at universities and offers discounts to senior citizens. Retail Lending The Bank is the leader in retail lending in Ukraine according to the NBU and the AUB. According to the AUB data based on information from 157 Ukrainian banks, as at 1 July 2010, the Bank had a market share of approximately 9.2 per cent. in retail lending in Ukraine. The Group¶s retail lending activities have decreased to UAH 19,906 million in outstanding loans to individuals as at 31 December 2009 compared to UAH 24,168 million as at 31 December 2008. This is due to restrictions on new lending, timely repayment of old loans, implementation of early-repayment programs and avoidance of loan restructuring with intensification of foreclosure and debt collection procedures. In 2009, the Group had interest income from loans and advances to individuals of UAH 5,846 million, as compared to UAH 6,103 million in 2008. The Bank¶s retail lending activities are concentrated in three primary areas: consumer loans (including credit card loans), mortgages and automobile loans. Ɣ As at 31 December 2009, the Group had UAH 7,987 million in consumer loans (including credit card loans), accounting for 40.1 per cent. of the Group¶s retail loans, as compared to UAH 10,399 million or 43.0 per cent. of the Group¶s retail loans as at 31 December 2008. Ɣ As at 31 December 2009, the Group had UAH 6,654 million in mortgages, accounting for 33.4 per cent. of the Group¶s retail loans, as compared to UAH 7,361 million or 30.5 per cent. of the Group¶s retail loans as at 31 December 2008. The mortgage loans are extended solely in hryvnia and have a maximum term of up to 10 years. Ɣ As at 31 December 2009, the Group had UAH 3,851 million in automobile loans, accounting for 19.3 per cent. of the Group¶s retail loans, as compared to UAH 4,933 million or 20.4 per cent. of the Group¶s retail loans as at 31 December 2008. The auto loans are extended solely in hryvnia and have a maximum term of up to 7 years. The Bank expects that the share of mortgage loans and automobile loans will continue to gradually decrease due to the continuing deterioration in the automobile and real estate markets in Ukraine. Other retail lending products of the Bank include specialised products such as a consumer lending programme for events such as weddings. Bank Card Products and Services PrivatBank is the largest issuer of bank cards in Ukraine according to the NBU. The Bank had issued approximately 21.6 million bank cards as at 1 July 2010, comprising approximately 48.1 per cent. of the entire issuance of bank cards in Ukraine as at that date. The Bank¶s nearest competitor in this area, Raiffeisen Bank Aval, had approximately 3.7 million bank cards, or an approximately a 8.4 per cent. market share in the bank card market in Ukraine according to the same source. The Bank¶s bank card business is a major source of fee and commission income, as well as, in the case of credit cards, interest income, and provides significant cross-selling opportunities. The Bank issues both VISA and MasterCard debit and credit cards and has an agency agreement with American Express. As part of its strategy to attract new credit card customers, the Bank offers a 30 day grace period for each new purchase made on its credit cards rather than a standard grace period for all purchases in the monthly billing cycle. The Bank also offers a variety of services through its bank card business, including direct deposit services, direct payment options for utility and household bills, pre-paid cards for telecommunications services, ATM services and payment services over the Internet. In addition, the Bank has recently

100 Description of the Bank¶s Business formed a separate credit card business unit to supervise the development of new products, services and technologies and to monitor market trends. ATM Services As at 1 July 2010, the Bank was the largest owner of ATMs and POS terminals in Ukraine according to the NBU. The Bank intends to continue to expand the number of its ATMs, POS terminals and cash points. As at 1 July 2010, the Bank had a network of 8,842 ATMs, 48,865 POS terminals and 4,417 cash points throughout Ukraine. POS terminals are devices located in shops through which Bank customers can make point-of-sale payments with bank cards, and cash points are manned locations where a Bank customer can make cash withdrawals. As at 1 July 2010, the Bank¶s 8,842 ATMs accounted for approximately 29.7 per cent. of all ATMs in Ukraine, according to information provided by the NBU. The Bank is expanding and upgrading its ATM services, which Management believes are important for attracting customers and increasing cross-selling opportunities of the Bank¶s bank card business. In addition to its traditional ATM services, the Bank has implemented programmes whereby its customers can purchase consumer goods and services on instalment using ATM cards, conduct currency exchanges via ATMs, transfer funds between bank cards, make payments for utilities and for TV services, connect to the Bank¶s Internet and GSM-based banking systems and purchase electronic vouchers for mobile communication services at ATMs. Internet Banking The Bank was the first bank in Ukraine to offer access to banking services through the Internet. The Bank¶s ³Privat24´ internet banking system allows a customer to make interbank payments to companies or individuals, monitor account balances, transfer funds, order bank cards and open interest- bearing accounts. The Bank¶s customers access ³Privat24´ system using a unique secure technology patented by PrivatBank, which involves several levels of password protection. Customers may use ³Privat24´ system to obtain credit and make withdrawals using their PrivatBank bank cards up to the maximum limit on the bank card. The Bank¶s ³Privat24´ system may also be used by customers who do not have accounts with the Bank for making payments of up to a certain amount. Management expects that the number of users of ³Privat24´ system will increase as more Ukrainians gain access to the Internet. The Bank also operates the ³Privat24.ru´ Internet banking system for its subsidiary Moscomprivatbank¶s customers in the Russian Federation. The Bank has also continued to expand its GSM banking services through its ³PrivatMobile´ brand. This service allows a bank customer to make payments via a mobile phone by sending coded SMS messages to a server at the Bank, and to receive alerts about the operations on such customer¶s account. Other Retail Banking Services In addition to the foregoing retail banking services, the Bank also provides a wide range of services for wealthy individuals, or ³VIP´ customers, including a personal banking manager (who is able to provide financial management advice to customers), platinum credit cards with special benefits such as increased spending limits and a concierge service that assists such customers with travel arrangements, hotel bookings and related services and offers discounts at a network of over 1,000 restaurants, hotels, shops and sports complexes throughout Ukraine and the Russian Federation. PrivatBank is the only bank in Ukraine which issues Visa Infinite and MasterCard World Signia bank cards to its VIP customers. The Bank also offers its retail customers domestic and international money transfer services. Call Centre The Bank has operated its 24-hour ³Call Centre´ providing its retail banking customers with assistance for more than seven years. The Call Centre was supported by approximately 1,000 operators as at 31 December 2009 and currently serves over 10 million customers of the Bank and of its subsidiaries in the Russian Federation, Georgia and Latvia. The Call Centre is accessible to customers via electronic communication such as e-mail and SMS through its ³PrivatMobile´ GSM banking programme, as well as by telephone (including a call-back service). The Call Centre receives on average approximately 60,000 calls, about 5,000 chats per day and carries out approximately 45,000 banking operations.

101 Description of the Bank¶s Business

Investment Banking Investment banking activities include trading and brokerage, registrar and depositary services. The Bank¶s investment banking business generated external revenues of UAH 69 million in 2009, as compared to UAH 81 million in 2008. Investment banking is not a strategic direction for the Bank, but rather an ancillary service for its corporate clients. The demand of the clients decreased and the revenues dropped. The Bank¶s investment banking assets were UAH 1,147 million as at 31 December 2009, as compared with UAH 1,237 million as at 31 December 2008. As at 31 December 2009, investment banking represented 1.3 per cent. of the Bank¶s total segment assets and 0.6 per cent. of the Bank¶s total segment liabilities. External revenues generated by the Bank¶s investment banking activities for the 12 months ended 31 December 2009 represented 0.3 per cent. of the Group¶s total external revenues. Trading and Brokerage The Bank¶s trading and brokerage business includes executing trades for corporate customers in fixed income and equity securities. The Bank¶s brokerage business involves primarily Ukrainian hryvnia denominated debt and equity securities of Ukrainian corporate issuers. The Bank engages in trading of securities on the principal Ukrainian stock exchanges, such as the First Stock Trading System (PFTS), and on the over-the-counter market. In 2009, the Group generated fee and commission income from transactions with securities of UAH 20 million, as compared to UAH 16 million in 2008. Registrar and Depositary Services The Bank provides a broad range of basic and supplementary registrar services for issuers and individuals registered in shareholders¶ and securities¶ registers. As at 31 December 2009, the Bank¶s registrar services were used by more than 1,370 issuers (543,767 shareholders) according to the Professional Association of Registrars and Depositaries of Ukraine (³PARD´). PrivatBank provides registrar services through 17 of its branches located throughout Ukraine. The Bank¶s depositary services include opening and administering securities accounts for corporations and individuals, residents and non-residents of Ukraine, asset management companies, joint investment institutions and private pension funds. Information Technology The Bank considers its IT systems to be a significant strength both in terms of hardware and software and believes that such systems provide the foundation for its retail banking services. Its principal IT infrastructure consists of Intel, IBM and Sun server platforms, front-office and back-office software applications, bank card service systems, a retail service system and a corporate data transfer and telephone communications network linking all bank branches, sub-branches and other offices throughout Ukraine using the TCP/IP communication protocol. The Bank creates most of its own software and has never experienced any material disruption in its IT systems. The Bank¶s daily transactions register, which incorporates front-office and back-office functions, was designed in-house and is based on Sybase technology. It enables centralised storage and monitoring at the Bank¶s head office in Dnipropetrovsk of all transactions in all of the Bank¶s branches and sub- branches. See ³²Branch Network and Subsidiaries´ below. The Bank backs up the records of all of its daily transactions both at its head office level and at all of its branches. The Bank believes the strength of its IT systems enables it to more effectively manage risks at the head office and branch level. The Bank has a card processing centre located in its headquarters which enables the Bank to handle in-house most aspects of processing PrivatBank¶s credit card transactions. The Bank¶s bank card service systems, which were designed by CardTech Ltd. and Kompas+, conduct back-office transactions, such as clearing transactions with international payment systems, and front-office transactions with ATM and POS-terminal networks. The Bank¶s Privat 24/48 retail service system incorporates the functions of teller-performed client transactions at bank offices and internet-based functions where no teller is involved. Management believes that PrivatBank is a leader in Ukraine for Internet banking services. The Bank also offers its customers GSM banking through its ³PrivatMobile´ brand whereby customers can, among other things, make payments via mobile phones by sending coded SMS messages to a server at the Bank.

102 Description of the Bank¶s Business

As at 31 December 2009, the Bank employed approximately 180 programmers, of whom around 40 are the key personnel. There is low staff turnover in this department and the Bank recruits and trains new programmers annually. The Bank has developed a back-up system, which can support data (including client data) and some of the processes (but not reporting). However, the Bank¶s back-up system has never been tested in a major disruption. The Bank uses IT security software which is in line with international IT security standards, including those of Visa and MasterCard. The Bank is committed to building a further back-up system outside Dnipropetrovsk and has allocated U.S.$20 million for this purpose. Other capital expenditures for IT systems for 2010 are anticipated to be approximately U.S.$11 million. The Bank believes that its in-house IT capabilities are sufficient to handle its growth and development plans, however, to the extent necessary, the Bank will be ready to use third party software products and adapt its in-house IT systems accordingly. The Bank is committed to developing and maintaining an operations and IT infrastructure that supports its increasing range and volume of transactions while minimising operational risks and business interruptions. The Bank maintains an Electronic Business Centre that serves a research and development function for development of technology in the Bank. The Electronic Business Centre focuses on using technology for developing new products for new markets and supporting the Bank¶s communications with its clients and communications within the Bank¶s branch network. Competition As at 1 July 2010, there were a total of 194 commercial banks registered in Ukraine, 176 of which have been granted licences by the NBU to perform banking transactions. According to the information published by the NBU, as at 1 July 2010, the licensed banks had total statutory capital of approximately UAH 133.2 billion and the total assets of UAH 885.3 billion. Commercial banks operating in Ukraine were divided by the NBU into four groups according to the size of their assets as at 1 July 2010. The first group currently includes 18 major banks which, as at 1 July 2010, had total assets of more than UAH 11 billion, including PrivatBank, Raiffeisen Bank Aval, UkrSibbank, Prominvestbank, State Export-Import Bank of Ukraine (Ukreximbank), Ukrsotsbank, OTP Bank, Oschadbank, Bank Finance and Credit, Kreditprombank, Bank Forum, Brokbusinessbank, First Ukrainian International Bank, VTB Bank, Alfa-Bank, Bank Nadra, Rodovid Bank and Swedbank. The second group currently includes 19 banks, which, as at 1 July 2010, had total assets ranging from UAH 4 billion to UAH 14 billion. The third group currently consists of 21 banks, which, as at 1 July 2010, had total assets ranging from UAH 1.5 billion to UAH 4.9 billion. The fourth group currently comprises of 118 banks, which, as at 1 July 2010, had total assets of less than UAH 2.6 billion. Two banks in Ukraine, Ukreximbank and Oschadbank, are fully state owned. As at 1 July 2010, 52 banks in Ukraine had some foreign capital and 20 of those banks were fully foreign owned. As at 1 July 2010, banks with foreign capital accounted for approximately 35.7 per cent. of the total statutory capital of banks in Ukraine. According to NBU data calculated in accordance with Ukrainian statutory accounting, as at 1 July 2010, PrivatBank was the largest bank in Ukraine in terms of total net assets, loans to legal entities, deposits from individuals and deposits from legal entities. According to the Ukrainian Interbank Payment System Member Association (EMA), PrivatBank is also the largest issuer of bank cards in Ukraine and the owner of the largest number of ATMs. The Bank believes that its principal competitors may be divided into three groups. The first group includes Ukrainian state-owned banks (i.e. Oschadbank and Ukreximbank). Traditionally, these banks have held strong positions in the settlement operations (Oschadbank) and trade finance lending market for corporate clients (Ukreximbank). These banks are also aggressively expanding their operations in the budgetary segment of the Ukrainian economy. The second tier of the Bank¶s competitors comprises the banks controlled by a European parent. These banks include Raiffeisen Bank Aval, UkrSibbank, Ukrsotsbank and OTP Bank. Generally these second-tier banks enjoy lower funding costs, better access to advanced banking technologies and higher operational efficiency than domestic banks. However, they have been severely hit by the recent crisis, which has shown that these banks did not implement strategies to cope with the economic downturn. As a result, some of these banks are currently reducing the number of branches they operate in Ukraine. The third tier of the Bank¶s competitors includes

103 Description of the Bank¶s Business

Russian banks operating in Ukraine through their subsidiaries. These banks include Sberbank, Alfa Bank, Prominvestbank (a subsidiary of Vneshekonombank) and VTB. These banks have a high growth potential in the Ukrainian market and will be primarily concentrating on lending to large corporate borrowers. However, they would need to make significant capital investments into their infrastructure to catch up with the Bank. The following table sets out information on the ten largest Ukrainian banks as at 1 July 2010 according to NBU data and calculated in accordance with Ukrainian accounting standards.

Number of Share of Share- Share of Share of Net branches top ten holders¶ top ten top ten profit and sub- Assets banks equity banks Revenues banks after tax branches (in (in (in (in millions (% of millions (% of millions (% of millions U.S.$) total) U.S.$) total) UAH) total) U.S.$) PrivatBank ...... 12,337.80 20.47 1,378.48 14.63 1,118.18 24.30 79.89 3,140 Ukreximbank...... 8,361.33 13.87 2,188.49 23.23 483.30 10.50 2.71 123 Oschadbank ...... 7,436.33 12.34 2,093.99 22.23 594.69 12.92 46.23 6,082

Raiffeisen Bank Aval...... 6,833.24 11.34 813.76 8.64 564.98 12.28 4.54 972 UkrSibbank...... 5,664.85 9.40 469.81 4.99 438.73 9.53 (159.79) 766 Ukrsotsbank...... 5,401.39 8.96 767.56 8.15 379.75 8.25 2.26 435 VTB Bank...... 3,777.87 6.27 294.56 3.13 257.95 5.61 0.04 592 Prominvestbank...... 3,626.56 6.02 631.53 6.70 241.40 5.25 (57.54) 204 Alfa-Bank ...... 3,438.80 5.71 396.11 4.21 298.60 6.49 0.07 161 OTP Bank ...... 3,391.16 5.63 385.71 4.09 224.22 4.87 29.90 94

Total ...... 60,269.62 100 9,419.99 100 4,601.80 100 (51.69) 12,569

Source: NBU. Employees As at 31 December 2009, PrivatBank had 27,123 employees, as compared to 34,049 employees as at 31 December 2008. The total number of employees of the Bank has continued to decrease and as at 1 July 2010 was 26,362. The Bank uses incentive plans to motivate its employees and has been operating a bonus system since early 2004 that is linked to the Bank¶s financial performance and the personal performance of each employee. These initiatives make it possible to monitor individual performance and remunerate employees based on quantifiable results. The Bank also provides additional benefits for its employees. For example, the Bank offers loans to its employees at lower interest rates compared to the prevailing market rates. The Bank believes that this approach has enhanced its ability to attract and retain qualified and experienced employees that it needs to excel in the competitive Ukrainian banking and financial services sector. The Bank makes statutory contributions to the Ukrainian state pension fund, state social security fund, state employment insurance fund and the state insurance fund for work-related accidents and occupational diseases. In addition, PrivatBank operates a private pension plan for its employees and covers 33.4 per cent. of contributions payable by its employees to such fund. PrivatBank provides its employees with opportunities to develop their careers and professional qualifications through in-house and external training programmes. In particular, the Bank organises regular in-house training sessions run by internal instructors who inform the Bank¶s employees about new products offered by the Bank. The Bank has also implemented induction programmes and procedures for new employees. In addition, PrivatBank operates, jointly with Kyiv Mohyla Business

104 Description of the Bank¶s Business

School, PrivatMBA training programme for its top management and ³Effective Manager´ programme for its middle management. To Management¶s knowledge, none of PrivatBank¶s employees are members of trade unions. The Bank considers its relationship with its employees to be good. Property The Bank owns approximately 27.3 per cent. of the real property used for its operations, including the premises for its head office and many of its branches and sub-branches, and leases the remaining properties. The NBU Refinancing Loans to the Bank are secured by a mortgage over the head office and certain other real estate. Branch Network and Subsidiaries As at 31 December 2009, the Bank had an extensive network of 34 regional branches (which have direct reporting obligations to the NBU) and 3,102 sub-branches. Management believes that PrivatBank has the second largest branch network in Ukraine. Branches offer a full range of services while sub-branches of varying size (including banking modules) offer either a full range of services (universal sub-branches) or a limited number of services. The Bank also has branch offices in Cyprus and representative offices in Kyiv (Ukraine), Moscow (Russia), Almaty (Kazakhstan), London (United Kingdom) and Beijing (China) and three special purpose entities in the United Kingdom. The Bank conducts annual assessments and planning with respect to expansion of its branch network taking into account macroeconomic and competitive factors and the Bank¶s general strategy. During 2009, the Bank installed 36 new banking modules, and as at 31 December 2009, had a total of 334 banking modules across Ukraine. Banking modules are sub-branches that provide a range of banking services for individuals. Each module has one to three employees and is equipped with an ATM working 24 hours a day. By installing banking modules in locations where the Bank does not have a branch or sub-branch office, the Bank has increased its retail banking services across the Ukraine. Additionally, banking modules may be installed at existing branches or sub-branches to meet increased need at a particular branch or sub-branch. Banking modules provide for flexibility as they may be installed or removed quickly and easily based on geographic or seasonal need. As at 1 July 2010, the Bank has three consolidated banking subsidiaries: ³Moscomprivatbank´ (Russia), AS ³PrivatBank´ (Latvia) and Joint-Stock Company ³TAOPRIVATBANK´ (Georgia). ³Moscomprivatbank´ (Russia) and AS ³PrivatBank´ (Latvia) have been consolidated into the Bank¶s consolidated financial statements since 2004 and Joint-Stock Company ³TAOPRIVATBANK´ (Georgia) has been consolidated into the Bank¶s consolidated financial statements since 2007. The Bank holds 92.34 per cent. of the shares in ³Moscomprivatbank´, a 75.02 per cent. shareholding in AS ³PrivatBank´ and 98.99 per cent. of the shares in ³TAOPRIVATBANK´. As at 31 December 2009, in accordance with unaudited figures extracted from the Bank¶s management accounting system, ³Moscomprivatbank´, AS ³PrivatBank´ and Joint-Stock Company ³TAOPRIVATBANK´ had total assets of U.S.$587 million, U.S.$362 million and U.S.$94 million, respectively, which was equal, after elimination of intra-group balances, to 5.2 per cent., 3.2 per cent., and 0.8 per cent. of the Group¶s consolidated balance sheet. PrivatBank plans to develop small business and retail lending at these banks. As at 31 December 2009, ³Moscomprivatbank´ had 21 branches and 176 sub-branches in Russia in addition to its Moscow-based head office. As at 31 December 2009, AS ³PrivatBank´ had 26 branches and sub-branches in Latvia, a representative office in Italy and a branch in Portugal. As at 31 December 2009, Joint-Stock Company ³TAOPRIVATBANK´ had 60 branches and sub-branches in Georgia. Legal Proceedings The Bank is, from time to time, the subject of legal proceedings and other investigations in the ordinary course of its business. The Bank does not believe that there are any pending actions, suits or proceedings against or affecting it which, if determined adversely to the Bank, would, individually or in the aggregate, have a material adverse effect on the Bank or its business, financial condition and results of operations.

105 Risk Management

Introduction The purpose of risk management is to monitor and control the size and concentration of risks arising from the Bank¶s activities. The principal categories of risk inherent to the Bank¶s businesses are credit risk, market risk (including currency risk, interest rate risk and securities portfolio risk), liquidity risk, operational risk and legal risk. The Bank¶s risk management policy is designed to identify and analyse the above-mentioned risks, set appropriate limits and continually monitor these risks and limits by means of advanced administrative and information systems. The Bank manages risks using principles of checks and balances, continuity, prudence and hedging. Furthermore, the Bank¶s risk management policies and systems are continuously modified and enhanced to reflect changes in markets and products. Risk Management Bodies Risk management policy, monitoring and control are conducted by a number of bodies of the Bank under the supervision of the credit committee (the ³Credit Committee´) and the Security Committee. Other bodies responsible for risk management within the Bank include the Bank¶s Treasury, Risk Management Division, Internal control and fraud-management division, and Finance and Risk Division (Risk Control department is within this division). The Bank also has a system of internal controls, which is supervised and monitored by its Internal Audit Department and Financial Monitoring Department. See ³Risk Management²Internal Controls´ for a description of the Internal Audit Department and the Financial Monitoring Department and their functions. Credit Committee The Credit Committee, which is composed of Mr A.V. Dubilet, Mr Y.P. Pikush, Mr V.A. Yatsenko, Mr T.Y. Novikov, Mr Y.V. Kandaurov, Ms L.A. Shmalchenko, Mr V.S. Matsak (the Head of the Dnipropetrovsk regional branch), Mr G.Y. Linskiy (the Head of the Finance and Risk Division) and Mr A.B. Sokolovskiy (the Head of Internal control and fraud-management division), Mr O.V. Gorohovsliy, Mr A.V. Shaban (Head of VIP individual clients), Ms T.M. Gur¶eva, Mr S.V. Krizhanovsliy, Mr V.L. Kovalev (Head of Risk Management Division), Mr A.V. Terehov (Head of Hard, Legal Collection Department) and Ms O.Y. Simonenko (Credit risk assessment specialist of Risk Management Division) meets bi-weekly and is responsible for setting the Bank¶s credit policy, approving loans over the prescribed lending limits and the limits for counterparty banks, monitoring loan performance and the quality of the Bank¶s loan portfolio and reviewing large loan projects. The Credit Committee also monitors the interest rates set for a range of currencies by the Bank¶s main competitors and the overall market situation and determines the Bank¶s pricing policy on the basis of the above. In addition, due to the importance of liquidity risk management, the Credit Committee is also responsible for preparing and formulating management decisions with regard to increasing the Bank¶s funding base. Security Committee The Security Committee is primarily responsible for reducing transaction risk, including assisting management in preventing fraud; enhancing the security of the Bank¶s staff and its information systems, including the implementation of the Bank¶s personnel security policy; as well as improving the Bank¶s ability to resist internal and external threats to its systems, including threats to the Bank¶s IT security. The Security Committee meets monthly and the members in attendance vary depending on the topic of the meeting. Treasury Day-to-day asset and liability management is done by the Bank¶s Treasury. The Treasury is responsible for overseeing the Bank¶s assets and liabilities and liquidity and interest rate sensitivity analysis based on instructions and guidelines from the Financial Risks Department (described below) and its own assessments.

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The Treasury is responsible for the operational aspects of asset and liability management. Financial Risks Department The Financial Risks Department calculates and monitors the Bank¶s compliance with the mandatory ratios set by the NBU, the requirement to maintain mandatory reserves on the Bank¶s correspondent account with the NBU and its internal liquidity ratios. The Financial Risks Department prepares daily reports on the maximum liquidity gap by matching assets and liabilities with different maturities and currencies as well as providing daily forecasts of the Bank¶s balances on its correspondent account with the NBU to ensure the Bank¶s compliance with the mandatory reserve requirement and with the instant, current and short-term liquidity ratios set by the NBU. The liquidity reports are maintained in an electronic database that is accessible by the Bank¶s Treasury and is used for purposes of liquidity management. In addition, the Financial Risks Department prepares guidelines for head office business divisions seeking to raise long-term funds and/or reviews decisions of the Credit Committee on the implementation of programmes to increase the Bank¶s funding base in order to ensure that the Bank¶s short- and long-term liquidity requirements are met. Risk Management Division The Risk Management Division analyses the creditworthiness of counterparties, calculates provisions for the Bank¶s active operations and limits for counterparties, monitors problem assets in the loan portfolio under credit programs, monitors compliance with interbank transaction limits, reviews the lending authority limits of the Bank¶s employees, analyses lending policies of the branches and sub- branches and provides the Credit Committee with suggestions for improving its policies. It also determines the strategy and basic methodological approaches in the Bank¶s risk management system and oversees its compliance with the requirements established by the NBU as well as the Bank¶s internal guidelines (including, among others, transaction limits and balance sheet structural limits for branches and sub-branches). Another task of the Division is the management of the business-processes of loan approvals for new credit cards and retail lending, development and implementation of scoring models and management of credit limits for the existing bank card portfolio. Internal control and fraud-management division The internal control and fraud-management division¶s principal task is to combine the efforts of the Bank¶s divisions involved in research, risk management and risk analysis by assessing, controlling, and confirming assumption made on the basis of the analysis of operations, subsequently initiating reviews and testing the assumptions and predictions, developing business decisions on the improvement of operations security and minimising the risks on the basis of the data received in the result of the aforesaid work. Internal Controls Internal Audit Department The Internal Audit Department is responsible for formulating, reviewing and improving the Bank¶s system of internal controls. It monitors the conformity of the Bank¶s policies with current legislation and regulation and with professional norms and ethics, the conformity of the Bank¶s accounting practices and financial statements with Ukrainian accounting rules, and confirms the conformity of aggregate accounting statistics with primary document data. It also monitors the timely and correct payment by the Bank of all of its tax obligations. The Internal Audit Department is headed by acting head Ms Zoya Gorskaya, who reports to the Supervisory Council and is directly subordinated to the Chairman of the Board. In order to avoid any potential conflict of interest, the head of the Internal Audit Department is not authorised to sign any contractual, accounting or other legally binding document on behalf of the Bank or another entity of the Bank. Financial Monitoring Department The Financial Monitoring Department is primarily responsible for the operation of the Bank¶s financial monitoring system. It also develops and monitors the observance of financial monitoring rules and programmes, which set out detailed policies and procedures aimed at preventing the Bank and its officers from conducting money-laundering activities on behalf of counterparties or activities

107 Risk Management connected with the financing of terrorism. In order to reduce risks related to money laundering and the financing of terrorism, the Financial Monitoring Department has implemented a system of continuous training and professional development of the bank¶s employees (including senior managers) in financial monitoring, including testing staff at least once per year. The Bank¶s ³Know Your Customer´ policies and procedures, which are aimed at reducing reputational, operational, legal and concentration risks and avoiding financial losses, place particular emphasis on the importance of identifying clients and their sources of wealth and evaluating risks relating to their operations with the Bank. The Bank¶s management believes that these procedures are generally in line with international practices. The Financial Monitoring Department is headed by Mr Igor Terjohin, who is also a member of the Management Board and reports directly to the Chairman of the Board. Reporting Systems IT Systems All significant information on historic and current cash flows and asset transfers is consolidated in the Bank¶s information and reporting system. The system generates a number of reports on a daily basis, including the maturity and cost structure of assets and liabilities, historic cash flows, potential and contingent lending projects (e.g. loans under negotiation and available credit lines), and a breakdown of assets and liabilities by department. The system also creates monthly reports, which include forecasts for long-term balance sheet and interest rate sensitivity analyses of different maturity and cost scenarios and their potential financial results. Back Office Functions The Bank¶s risk management bodies exercise their risk management functions through the back office¶s centralised on-line supervision (on a real-time basis with transaction authorisation) over banking operations in the Bank. If any operation does not meet the Bank¶s established requirements, the transaction will not be authorised. Specifically, the Bank¶s back office monitors interest rates in Bank transactions, loans granted by the Bank, deposits, securities operations and open currency position limits in the Bank as a whole. The Bank¶s back office is responsible for supervision of compliance with specified limits, which are entered into the reporting systems by the Treasury and the Finance and Risks Department. As a general policy matter, short-term risks are the purview of the Treasury while longer term risks are the responsibility of the Finance and Risk Department. Back office procedures and IT systems are designed to prevent completion of any transaction that exceeds the system limits. Any position violating a limit is either reversed, hedged or, in certain exceptional circumstances, charged against the personal credit limit of the relevant Deputy Chairman after he has given his authorisation. In many situations, a decision regarding possible limit violations is taken by the Chairman of the Board. Credit Risk In response to the economic downturn the Bank has changed its procedures on selection of borrowers and has adopted the approach where the Bank itself looks for clients, which have performed well in the course of the crisis, have maintained a solid credit history and an extensive business network. The Bank has a strategic focus on secured short-term loans to corporate clients and selected SME clients with loans of up to U.S.$25,000. The general principles of the Bank¶s credit policy are outlined in the Bank¶s Credit Policy. The Bank¶s Credit Manual regulates every significant aspect of the lending operations of the Bank and outlines procedures for analysing the financial position of borrowers and the valuation of any proposed collateral and specifies the requirements for loan documentation and the procedures for the monitoring of loans. The Bank has a prudent collateral policy based on a thorough review and assessment of the value of collateral. The Bank¶s goal is to ensure that there is sufficient collateral to cover a particular loan even if the quality of that loan should deteriorate in value. A substantial portion of the Bank¶s loan portfolio comprises short-term working capital facilities, which tends to minimise credit risk. Facilities generally include acceleration clauses in case of the deterioration of the financial position of the

108 Risk Management borrower. Credit products are, except in very unusual circumstances, only made available to customers that hold accounts with the Bank. This policy provides the dual benefits of additional security for the credit products and additional business for the Bank in other areas of corporate banking services. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to a single borrower, or groups of affiliated borrowers, and by close on-going supervision of concentrations in geographical and industry segments. Such risks are monitored on a revolving basis and are subject to review at least annually or more frequently. Exposure to credit risk is managed through regular analyses of the ability of borrowers and potential borrowers to meet interest and principal payment obligations and by changing the lending limits where appropriate. Exposure to credit risk is also managed, in part, by obtaining collateral and corporate and personal guarantees. The Bank has made the policies on evaluation of quality of the collateral stricter. Basic information on the level of credit risk, including reports on the loan portfolio and the volume of problem assets broken down by a credit programme and a manager, is posted on the Bank¶s internal website. This information is updated weekly and can be viewed both as at the current date and over a period of time. There are specific sections of the Bank¶s website dedicated to problem assets for both corporate and retail clients and the portfolio of corporate loans. A review of the lending and deposit-taking policy of each branch is presented to the Credit Committee at least twice per month. The following information on the Bank¶s branch loan portfolio is considered by the Credit Committee: Ɣ information on the major risks taken (being the ten largest exposures in the portfolio); Ɣ information on the ten largest problem loans; and Ɣ information on the ten largest problem loans that have been passed to the Bank¶s Security Service (as defined below). Loan Approval Procedure The Bank¶s general loan approval procedure, which also applies to the extension of micro financing loans, is as follows: loans of up U.S.$25,000 are considered by the middle-offices of the Bank subject to their approval by the head-office; loans in excess of U.S.$25,000 are approved by the head-office. In the latter case middle-offices do only client-service and follow-up work. The United Credit Center ³UCC´) is established in the head office. Its principal tasks are the selection of potential borrowers and the approval of the loan granting programs. The Bank sets lending authority limits in order to limit risks of the Bank arising from lending activities. The Credit Committee chaired by the Chairman of the Board can make the decisions on the loans in the amount up to U.S.$2,000,000. The loans exceeding this amount have to be approved by the Supervisory Council. Loan Monitoring The Bank re-assesses the credit risk on each loan on an ongoing basis by (i) monitoring the financial and market position of the borrower; and (ii) assessing quality and sufficiency of collateral for the loan. The financial and market position of the borrower is regularly reviewed and, on the basis of such review, the internal credit rating of the borrower may be revised. The review is based on the flow of funds into the customer¶s accounts, its most recent financial statements and other business and financial information submitted by the borrower or otherwise obtained by the Bank. The current market value of collateral is monitored regularly to assess its sufficiency with respect to the loan in question. The review of collateral is performed by independent appraisal companies. The frequency of such reviews depends on the security provided and the degree of volatility of the asset¶s market price.

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Provisioning Policy for Statutory Reporting Purposes In accordance with existing NBU regulations, the Bank creates provisions on a monthly basis based on the following three risk evaluation factors: Ɣ the borrower¶s financial status and creditworthiness; Ɣ debt servicing; and Ɣ loan security. Each borrower¶s financial status and creditworthiness is based on a five-level credit rating system (from A to E in decreasing order). Similar systems are used in international practice by leading rating agencies. Debt servicing is rated depending on the status of principal and interest payments by the borrower. There are three ratings of debt servicing by the borrower: ³good´, ³poor´ and ³unsatisfactory´. A loan is classified as poorly-serviced if the loan is overdue for over 90 days or the loan is extended for over 180 days with a downgrading of the borrower¶s rating. Depending on the borrower¶s financial condition rating and debt servicing rating, the loan is classified by the level of risk. In accordance with the NBU¶s requirements, loans are required to be assigned into one of the following five categories: ³standard´, ³controlled´, ³substandard´, ³doubtful´ and ³bad´. The loan ranking matrix currently in use is based on lowering the loan rating as the borrower receives a lower financial condition rating and the debt servicing rating deteriorates. The table below sets forth the matrix for classifying loans in accordance with the NBU¶s requirements: Quality of debt servicing Ranking of borrower in terms of financial condition Good Poor Unsatisfactory A (Best) Standard Controlled Substandard B Controlled Substandard Substandard C Substandard Substandard Doubtful D Doubtful Doubtful Bad E (Worst) Doubtful Bad Bad

The Bank¶s collateral evaluation system utilises a number of mechanisms to evaluate the value of collateral including inspection of the collateral, verification of the title to the collateral and verification of the absence of rights granted to third parties that rank senior to the title to the collateral of the Bank. Insurance on the collateral must be taken out and maintained during the entire term of the loan. The Bank regularly inspects safekeeping and maintenance of the collateral. The following table sets out information on the percentage of collateral value used when calculating loan loss provisions by type of collateral and loan rating: Loan rating Standard Controlled Substandard Doubtful Bad (%) Guarantees of the Ukrainian Government...... 100 100 50 20 0 ³$´ - ranked government and bank guarantees and secured guarantees of Ukrainian banks...... 100 100 100 20 0 Titles to money deposits and registered deposit certificates issued by the creditor bank ...... In the currency of the loan or freely convertible currency...... 100 100 100 100 0 In the currency different from the currency of the loan...... 90 90 90 90 0 Precious metals...... 80 80 60 20 0 Government securities ...... 100 80 50 20 0 Non-government securities ...... 40 20 10 0 0

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Loan rating Standard Controlled Substandard Doubtful Bad (%) Residential real estates Loans in hryvnia...... 70 70 40 20 0 Loans in foreign currency ...... 50 50 40 20 0 Other real estate...... 50 50 40 20 0 Property rights to residential real estate under construction with completion of construction scheduled for no longer than two years from the date of the loan...... 50 40 20 10 0 Other property rights ...... 30 20 10 5 0 Property subject to financial leasing Leased for up to one year...... 80 80 60 20 0 Leased for a period from one to two years ...... 65 65 50 10 0 Leased for more than two years...... 50 50 35 5 0

Depending on the gross credit risk classification for each loan and the value of collateral securing such loan, the Bank identifies the net credit risk in relation to each loan, and applies the provisioning ratio established by the NBU for loans and foreign currency loans to borrowers without foreign currency revenues, as set out in the following table: Loan rating Provisioning ratio Standard Controlled Substandard Doubtful Bad (%) Under loans in foreign currency to borrowers which have no source of proceeds in freely convertible currency ...... 50 100 100 100 100 Under loans in foreign currency to borrowers which have a source of proceeds in freely convertible currency ...... 2 7 25 60 100 Under loans in UAH...... 2 10 40 80 100

The Bank¶s internal credit rating system complies with the existing NBU rating system, which was designed based on international experts¶ recommendations. Assessment of Provision for Loan Impairment for IFRS Reporting Purposes At each balance sheet date, the Bank assesses whether there is objective evidence that a financial asset or group of financial assets carried at amortised cost is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the assets (a ³loss event´) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Bank about the following loss events: Ɣ significant financial difficulty of the issuer or obligor; Ɣ a breach of contract, such as a default or delinquency in interest or principal payments; Ɣ the Bank granting to the borrower, for economic or legal reasons relating to the borrower ¶s financial difficulty, a concession that the lender would not otherwise consider; Ɣ a significant increase in the probability of the borrower being subject to bankruptcy proceedings or other financial reorganisation; Ɣ the disappearance of an active market for that financial asset because of financial difficulties; or

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Ɣ observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including: ± adverse changes in the payment status of borrowers in the group; or ± national or local economic conditions that correlate with defaults on the assets in the group. The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset¶s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset¶s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the consolidated statement of income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets carried at amortised cost are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank¶s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors¶ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do no exist currently. Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience. Problem Loan Recovery The Credit Committee has developed a systematic approach involving a comprehensive set of procedures intended to enable the Bank to realise the highest possible level of repayment on non- performing loans. If a borrower does not perform its obligations under a loan agreement, it is the responsibility of the relevant credit officer to take initial actions to determine whether the cause of late payments is administrative or credit-related in nature. At this stage, the officers of the dedicated monitoring unit contact the borrower, request repayment and check the availability of any collateral. The monitoring unit calls borrowers to remind them of their repayment obligation several days before the scheduled

112 Risk Management repayment date, and after such date to demand repayment (during day-time and night-time). If such measures do not result in the repayment of the loan and the non-performance exceeds 90 days, the loan is classified as a ³problem loan´. The Risk Control Department, which is able to identify all problem loans in the Group, issues a banking order each month to transfer problem loans from the relevant credit unit¶s books to a specialised unit within Security Division (the ³Security Service´). The Security Service is responsible for all loans issued by the Bank classified as ³problem loans´, excluding loans where the total debt amounts to less than UAH 1,000 (which continue to be processed by the monitoring unit). The Security Service obtains and reviews all documentation relating to the borrower, performs an official internal investigation to identify the reasons for the problem, draws up a plan of action for the repayment of the debt and reviews the collateral (which may entail organising protection). Several approaches are available to the Security Service to enforce problem loans including negotiations, enforcement of the collateral (by way of requisition for sale or taking custody of the assets) pending repayment in full, court proceedings or other legal action. In a number of enforcement actions the Bank initiates court proceedings (including in the event of any criminal action by the borrower). The Security Service will often engage in negotiations with the borrower over a problem loan either concurrently with, or prior to, initiating court proceedings (court proceedings would be initiated, for example, to requisition the collateral for sale at auction, to attach the borrower¶s account(s) with another bank or to take possession of property under a mortgage or transport facilities). If collateral is available, and upon satisfactory results of an analysis of whether the borrower is undergoing purely temporary business difficulties and of that borrower¶s willingness and capacity to repay its debt, negotiations usually aim at debt restructuring and include requirements to obtain additional collateral, personal guarantees by shareholders and management, increased interest rates and revised repayment schedules. The Security Service is involved in the following cases: Ɣ obtaining of loans by borrowers on a fraudulent basis; Ɣ enforcement of security; Ɣ default on a loan exceeding 60 days by small to medium-size corporate borrowers; and Ɣ default on a loan exceeding 90 days by large corporate borrowers if the outstanding amount is not more than U.S.$50,000. A working group (with the involvement of the Legal Support Department) is appointed for every non- performing loan with an outstanding amount exceeding U.S.$50,000. Other legal actions available to the Bank include executive proceedings for the enforcement of debt and bankruptcy proceedings. In the event of any criminal action on the part of the borrower, irrespective of the borrower¶s readiness to repay its debt, the Bank involves the relevant state authorities (such as the Ministry of Internal Affairs in cases of fraud). The Security Service issues weekly reports on the results of ongoing enforcement actions and current status of problem loans to the First Deputy Chairman of the Board/Head of Security Service and half-monthly reports to the Credit Committee, which meet to review the status of problem loans. The Credit Committee meets monthly to review the status of non- performing loans. The Bank maintains a policy that problem loans are not refinanced without convincing evidence that they will be repaid or reliably secured. Sector Concentrations The Credit Committee regularly reviews and adopts sector exposure adjustments in response to submissions of the Risk Management Division. As a result of this ongoing review and adjustment process, the Group¶s exposure to corporate clients has increased, while the volume of loans to individuals has declined over the 12 months ended 31 December 2009. Exposure to the construction, metallurgy and mining as well as agricultural sectors has also decreased due to the poor performance of these industries in the course of the economic downturn . The relative share of loans to individuals in the Group¶s gross loan portfolio has decreased from 32 per cent. as at 31 December 2008 to 25 per cent. as at 31 December 2009. See ³Management Discussion and Analysis of Financial Condition and Results of Operations²Loan Portfolio´ for further information on sector concentrations.

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Related Party Lending The Bank conducts its business with related parties on a commercial, arm¶s-length basis. The Bank competes with other banking institutions for the business of these parties. Each loan request from a related party is subject to the same credit approval procedures as are applied to any other loan applicant. See ³²Credit Risk²Loan Approval Procedure´. Total exposure to related parties is subject to NBU regulation and is limited to 30 per cent. of the bank¶s statutory capital. The exposure to a single related party is also limited by the NBU and must be less than 5 per cent. of statutory capital. See ³Appendix A: The Banking sector and Banking Regulation in Ukraine²Banking Supervision² Mandatory Ratios²Credit Risk Requirements´. Market Risk The Bank has exposure to market risks arising from open positions in fixed income and equity products and currencies, all of which are exposed to general and specific market movements. The Board sets limits on the amount of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements. Currency Risk Currency risk is the risk that the value of financial instruments owned by the Group will fluctuate due to changes in foreign exchange rates. The Group¶s major currency positions are in Ukrainian hryvnia, U.S. dollars and Euros. The following table sets forth the Group¶s net currency positions as at 31 December 2009:

Swaps, Net Monetary Monetary spots balance financial financial and sheet assets liabilities forwards position (millions of UAH) Ukrainian hryvnias ...... 48,528 34,111 (634) 13,783 U.S. dollars ...... 27,151 30,883 (4,303) (8,035) Euros ...... 6,881 7,552 4,433 3,762 Other...... 3,382 3,124 486 744 Total...... 85,942 75,670 (18) 10,254

The Bank¶s policy in respect of open currency positions is restricted under Ukrainian law to certain thresholds and strictly monitored by the NBU on a daily basis. See ³Appendix A: The Banking Sector and Banking Regulation in Ukraine²Banking Supervision²Mandatory Ratios²Open Currency Position Risk´. In order to hedge its currency risk, the Group enters into arrangements with other banks pursuant to which the Group makes term deposits with other banks and accepts term deposits for the same term from the same counterparty banks in a different currency. As of 31 December 2009, the Bank had loans and advances to customers totaling UAH 36,608 million (UAH 17,247 million in 2008) issued in hryvnia the terms of which included an obligation of the respective borrowers to pay a compensation to the Bank in the event that the official exchange rate of hryvnia depreciated against U.S. dollar. The contract to receive compensation was accounted for by the Bank as a financial derivative with the fair value of UAH 2,005 million as of 31 December 2009 (UAH 2,551 million in 2008) estimated using a valuation technique. This valuation technique takes into account expected movements in exchange rates, discount factor and credit risk. Interest Rate Risk The Bank is exposed to interest rate risk, principally as a result of lending at fixed interest rates, in amounts and for periods, which differ from those of term borrowings at fixed interest rates. In practice, interest rates are generally fixed on a short-term basis. Also, interest rates that are contractually fixed on both assets and liabilities are usually renegotiated to reflect current market conditions.

114 Risk Management

The Board sets limits on the level of mismatch of interest rates on assets and liabilities sensitive to interest rates, which is monitored regularly. In the absence of any available hedging instruments, the Bank normally seeks to match its interest rate positions. The Finance and Risk Division and the Credit Committee are both responsible for interest rate risk management. The Finance and Risk Division establishes the principal policies and approaches to interest rate risk management and the Credit Committee conducts weekly monitoring and revision of interest rates for various currencies within certain time limits and product categories. The Bank regularly monitors interest rate risk by means of interest rate gap analysis, which is based on ordering assets and liabilities sensitive to interest rates into a number of time bands. Fixed interest rate assets and liabilities are arranged by the time remaining until maturity, while assets and liabilities with a variable interest rate are arranged by the nearest possible term of repricing. The net sensitivity gap between assets and liabilities in a given time band represents the volume sensitive to changes of market interest rates. The product of this difference and the presumed change of interest rates represents the approximate changes of net interest income. A negative net sensitivity gap in a given time band, which means that interest-bearing liabilities exceed interest-earning assets in that time band, represents a risk of a decline in net interest income in the event of increases in market interest rates. A positive net sensitivity gap in a given time band, which means that interest-earning assets exceed interest-bearing liabilities, represent a risk of a decline in net interest income in the event of a decline in market interest rates. The table below summarises the Group¶s exposure to interest rate risks at 31 December 2009. Included in the table are the Group¶s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.

Demand and From From less than 1 to 3 3 to 12 More than Non- 1 month months months 1 year monetary Total (millions of UAH) 31 December 2009 Total financial assets ...... 28,780 5,533 23,673 27,956 16 85,958 Total financial liabilities ...... 24,445 10,326 25,606 15,293 60 75,730 Net interest sensitivity gap at 31 December 2009...... 4,335 (4,793) (1,933) 12,663 (44) 10,228 31 December 2008 Total financial assets ...... 13,002 8,630 30,647 30,724 83 83,086 Total financial liabilities ...... 21,554 12,090 29,282 13,324 20 76,270 Net interest sensitivity gap at 31 December 2008...... (8,552) (3,460) 1,365 17,400 63 6,816

Securities Portfolio Risk Securities portfolio risk is the risk of changes in the value of securities as a result of interest rate or market price movements. The Bank¶s risk management in relation to its securities portfolio is based on the calculation of stop loss limits based on an assessment of its liquidity position, the evaluation of market volatility, monitoring of compliance with limits, revisions to limits in case of rapid changes in market conditions or significant decreases in the Bank¶s liquidity and the formation of reserves to cover potential losses. The Bank¶s management believes that equity securities of Ukrainian companies carry the greatest risk exposure in the Group¶s securities portfolio. The securities portfolio of the Bank represents a small proportion of the Bank¶s assets (approximately 1 per cent.). Liquidity Risk Liquidity risk is the risk of mismatches between maturities of assets and liabilities, which may result in the Bank being unable to meet its obligations in a timely manner. For liquidity risk management, the Treasury maintains a liquidity portfolio designed to provide support to the payment capacity of the

115 Risk Management

Bank in the event that assets and liabilities fluctuate away from internal forecasts. The Treasury constantly reviews and improves the methodology for calculating and structuring the liquidity portfolio. To date, the Bank has been effective in managing assets and liabilities fluctuations through adjustments in its liquidity portfolio. The following table shows the Group¶s net liquidity position by expected maturities as at 31 December 2009: Demand and less From From More than 1 to 3 3 to 12 than No 1 month months months 1 year Maturity Total (millions of UAH) Assets Cash and cash equivalents and mandatory reserves...... 11,455 - - - - 11,455 Other financial assets at fair value through profit or loss ...... 10 - - - 8 18 Due from other banks ...... 1,869 806 929 465 - 4,069 Loans and advances to customers...... 11,118 4,729 22,669 28,081 - 66,597 Financial derivatives...... 574 336 1,005 90 - 2,005 Investment securities available for sale ...... - - - - 8 8 Investment securities held to maturity ...... 3 - 20 - - 23 Other financial assets...... 376 306 1,063 38 - 1,783 Total financial assets...... 25,405 6,177 25,686 28,674 16 85,958 Liabilities Due to the NBU and other central banks ...... - - 998 7,312 - 8,310 Due to other banks and other financing institutions ...... 371 234 42 1,672 - 2,319 Customer accounts...... 23,632 8,887 23,351 1,263 - 57,133 Debt securities in issue ...... 11 689 435 4,977 - 6,112 Subordinated debt...... 1 101 - 1,336 - 1,438 Other financial liabilities...... 284 7 25 66 36 418 Total financial liabilities...... 24,299 9,918 24,851 16,626 36 75,730 Net liquidity gap at 31 December 2009...... 1,106 (3,741) 835 12,048 (20) 10,228 Cumulative liquidity gap at 31 December 2009...... 1,106 (2,635) (1,800) 10,248 10,228

The Bank has developed specific approaches to liquidity issues based on medium-term (i.e. three to twelve months), short-term (i.e. two to 15 weeks) and current (i.e. up to 14 days) time periods. With respect to medium-term liquidity, the Treasury, in co-ordination with the Financial Risks Department, performs an analysis of the Bank¶s payments calendar over this period and considers contingency options available to the Bank in the event that unfavourable developments or crisis situations occur. Decisions on short-term liquidity management are taken by the Treasury. These decisions are based on an analysis of the volatility of various assets and liabilities. Estimates are made after application of internally developed models as to the volume and likelihood of unexpected withdrawals of funds and the probability that additional funding might be required. In order to minimise unanticipated changes in funding, the Bank separately analyses the possible consequences of the withdrawal of a large amount of funds by major customers. Client managers and senior Bank management work closely with major customers to co-ordinate plans with regard to movement of funds.

116 Risk Management

Decisions with respect to current liquidity management are taken by the head of Treasury. Reports on actions taken are made to the Credit Committee. The Bank¶s payments calendar for each upcoming 14-day period is analysed, and decisions taken on the attraction of short-term interbank deposits, the immediate sale of securities from the Treasury portfolio, and other facilities available to the Bank. The Treasury implements decisions on a real-time basis. Operational Risk Operational risk is managed by a system of internal controls. See ³Risk Management²Internal Controls´. Legal Risk Legal compliance is the responsibility of the Bank¶s Legal Department. The Bank uses standardised master agreements, developed by the Legal Department, for entering into contracts with counterparties. The Legal Department individually reviews and approves all non-standard agreements.

117 Management

Management The Bank¶s current charter was approved by the General Meeting of Shareholders of the Bank on 20 March 2010 and registered with the NBU on 30 April 2010 and with the Executive Committee of the Dnipropetrovsk City Council on 23 April 2010. The Bank¶s governing bodies are the General Meeting of Shareholders, the Supervisory Council and the Management Board. The shareholders elect the members of Supervisory Council, and the Supervisory Council in turn elects the Management Board. The Management Board is responsible for the general management of the Bank, including the Bank¶s strategic and operational plans. Set out below is a general description of the corporate powers of the General Meeting of Shareholders, the Supervisory Council and the Management Board. The Bank¶s internal audit bodies, appointed by the General Meeting of Shareholders, are the Audit Commission and the Service of Internal Audit. General Meeting of Shareholders The authority of the General Meeting of Shareholders includes, inter alia: Ɣ determining the main areas of operations of the Bank; Ɣ approving amendments to the Bank¶s charter; Ɣ approving changes to the statutory capital of the Bank; Ɣ appointing and dismissing the Chairman and the members of the Supervisory Council as well as the Chairman and the members of the Audit Commission; Ɣ approving annual results of the Bank (including its subsidiaries) and approving reports and conclusions drawn by the Audit Commission and external auditor; Ɣ approving the distribution of the Bank profits; Ɣ terminating the business operations of the Bank, appointing the liquidation commission and approving liquidation balance sheet; and Ɣ appointing a registrar to maintain the Bank¶s shareholders¶ register. The powers listed above lie within the exclusive scope of authority of the General Meeting of Shareholders and may not be delegated to the other governing bodies of the Bank. Supervisory Council The Supervisory Council is not directly involved in the day-to-day management of the Bank but plays a significant oversight role in monitoring the business activities of the Bank. The Supervisory Council also represents the interests of the Bank¶s Shareholders between meetings of the General Meeting of Shareholders. The responsibilities of the Supervisory Council include, among others, the following: Ɣ monitoring the implementation of resolutions of the General Meeting of Shareholders, and generally supervising the actions of the Board; Ɣ approving rules, procedures and other internal documentation of the Bank relating to business operations of the Bank, including the Bank¶s internal audit regulations (with the exception of those that are approved by the General Meeting of Shareholders, the Board or the Chairman of the Board); Ɣ establishing, re-organising and liquidating subsidiaries, branches and representative offices, and approving their charters/regulations; Ɣ analysing reports on the financial and business operations of the Bank prepared by the Audit Committee, presenting such reports to the General Meetings of Shareholders and proposing recommendations to remedy any deficiencies; Ɣ approving share redemptions by the Bank;

118 Management

Ɣ establishing monetary thresholds with respect to the Board¶s authority to approve transactions for the disposal of movable and immovable property and cash and for the Chairman of the Board¶s authority to enter into agreements for such transactions; Ɣ authorising the Board and the Chairman of the Board to approve transactions which exceed value thresholds set by the Supervisory Council; Ɣ approving amalgamations, mergers or spin-offs by the Bank; Ɣ electing and dismissing the Chairman of the Board and members of the Board (based on recommendations of the Chairman of the Board); Ɣ carrying out a preliminary review of annual reports, balance sheets and conclusions of the Audit Commission; Ɣ determining the organisational structure and number of employees of the Bank, its branches and representative offices; Ɣ approving the budget for the Bank¶s costs of administration and development; Ɣ approving reports of the Board; Ɣ analysing and recommending actions of the Board relating to the management of the Bank; Ɣ establishing the procedure for inspection and monitoring of the Bank¶s financial and economic activity; Ɣ submitting to the Board matters to be included on the agenda for the General Meeting of Shareholders; Ɣ conducting a preliminary review of all matters falling under the exclusive authority of the General Meeting of Shareholders; Ɣ rendering decisions regarding material liability of the officers of the governing bodies of the Bank; Ɣ determining the terms and conditions of remuneration of certain members of Management of the Bank, its subsidiaries, branches and representative offices (including the Chairman of the Board and the Head of the Audit Commission) and certain other officers of the Bank; Ɣ reviewing labour disputes; and Ɣ appointing the Board¶s external auditors. By resolution of the General Meeting of Shareholders, the Supervisory Council may be charged with certain functions assigned to the scope of competence of the General Meeting of Shareholders. The following are the current members of the Bank¶s Supervisory Council: Name Age Position Other Management Positions Gennady Bogolubov 48 Chairman Member of Supervisory Council (Ukrneft) Igor Kolomojsky 47 Member Member of Supervisory Council (Ukrneft) Vice-President of Football Federation of Ukraine Alexey Martynov 44 Member Director of Solm Ltd.

The business address of each of the members of the Supervisory Council is 50, Naberezhna Peremohy, Dnipropetrovsk, Ukraine 49094. Other than as stated in this Prospectus, no Supervisory Council member holds any positions or has any duties relating to the banking industry other than his or her position with the Bank. Mr Gennady Bogolubov has been Chairman of the Supervisory Council for the last nine years. He graduated from the Dnipropetrovsk Institute of Construction Engineers in 1984.

119 Management

Mr Igor Kolomojsky has been a member of the Supervisory Council for the last nine years. Mr Kolomojsky is also Vice-President of Football Federation of Ukraine. He graduated from the Dnipropetrovsk Metallurgical Institute in 1985. Mr Alexey Martynov has been a member of the Supervisory Council for the last nine years. Mr Mertynov is also a director of ³Solm Ltd.´ He graduated from the Dnipropetrovsk State University in 1989. Mr Bogolubov and Mr Kolomojsky collectively own approximately 98.14 per cent. of the Bank¶s statutory capital. See ³Shareholders´.

Management Board The Management Board (the ³Board´) is an executive body of the Bank and is responsible for the day-to-day management of the Bank. It is accountable to the General Meeting of Shareholders and to the Supervisory Council of the Bank. The Board organises and manages the operations of the Bank, which includes monitoring the implementation of resolutions approved by the General Meeting of Shareholders and the Supervisory Council of the Bank. The powers of the Board include, inter alia: Ɣ approving regulations governing the operations of structural units of the Bank; Ɣ approving strategic and business plans and budgets; Ɣ approving the establishment of the Bank¶s sub-branches; Ɣ approving transactions which involve the disposal of movable and immovable property and cash, subject to value thresholds set by the Supervisory Council; Ɣ approving current operating plans and steps to complete such plans; Ɣ determining the terms and conditions of staff remuneration for the Bank (with the exception of members of the Board) and approving annual cost estimates for payment of salaries and bonuses; Ɣ approving the receipt and extension of long-term loans; Ɣ determining the amount, source, and procedures for the utilisation of the funds necessary for the charter activities of the Bank; Ɣ issuing appropriate instructions to the managers of branches and representative offices; Ɣ organising the maintenance of the Bank¶s accounts and reports; Ɣ approving the issue of Notes by the Bank; Ɣ approving the date and agenda of the General Meeting of Shareholders; and Ɣ submitting the annual report and balance sheet for approval by the General Meeting of Shareholders. The following are the current members of the Bank¶s Management Board: Name Age Position Other Management Positions Aleksandr Dubilet 47 Chairman of the Board N/A Yuri Pikush 48 General Deputy Chairman of the N/A Board Vladimir Yatsenko 40 First Deputy Chairman of the Board Head of Corporate Banking Timur Novikov 37 First Deputy Chairman of the Board Head of Investment Banking Nikita Volkov 47 First Deputy Chairman of the Board Head of Technical and Technology Support Vladimir Zavorotny 51 Deputy Chairman of the Board Director of PrivatBank Kyiv Main Branch Yuri Kandaurov 47 Deputy Chairman of the Board Head of Retail Banking Tatyana Guryeva 49 Deputy Chairperson of the Board Head of Strategic Customer Services Lyubov Chmona 51 Deputy Chairperson of the Board Head of Budgeting Services for VIP Corporate Business

120 Management

Name Age Position Other Management Positions Lyudmila Shmalchenko 42 Deputy Chairperson of the Board Director of Treasury Oleg Gorohovskiy 35 Deputy Chairman of the Board Head of Individual VIP-Client Business Alexander Vityaz 41 Deputy Chairperson of the Board Head of Electronic Business Center Stanislav Kryzhanovskyy 49 Deputy Chairperson of the Board Head of Security Lubov Korotina 44 Chief Accountant N/A Igor Terjohin 50 Head of Financial Monitoring N/A Department

The business address of each of the Directors is 50, Naberezhna Peremohy, Dnipropetrovsk, Ukraine 49094. Other than as stated in this Prospectus, no Director holds any positions or has any duties relating to the banking industry other than his or her position with the Bank. Mr Aleksandr Dubilet has been Chairman of the Board of the Bank since 1997. From 1994 to 1997, he served as First Deputy Chairman of the Board of the Bank. He graduated from the Dnipropetrovsk Metallurgical Institute with distinction in 1984. Mr Yuri Pikush has been the General Deputy Chairman of the Board since 2002. From 1992 to 2002, he was Deputy Chairman of the Board for credit policy. He graduated from the Dnipropetrovsk Metallurgical Institute in 1985. Mr Vladimir Yatsenko has been the First Deputy Chairman of the Board since 2002. He has also been the Head of Corporate Banking since 1999. From 1997 to 1999 he served as Chief of Interbank Business, and from 1997 to 2002 he served as Deputy Chairman of the Board. From 1995 to 1997, he was head of the currency department. He graduated from Dnipropetrovsk State University in 1992. Mr Timur Novikov has been the First Deputy Chairman of the Board and the Head of Investment Banking since 2002. From 1998 to 2002, he served as a Deputy Chairman of the Board. From 1997 to 1998, he served as the Head of the Trade Finance Department. He graduated from Dnipropetrovsk Institute of Mines in 1995. Mr Nikita Volkov has been First Deputy Chairman of the Board since July 2004. From 1997 to 2004, he held the position of Deputy Chairman of the Board. From 1992 to 1994, he held a series of positions including the Sector Chief, Section Chief and Directorate Chief. He graduated from Dnipropetrovsk Metallurgical Institute in 1984. Mr Volkov is also a director of VISA CEMEA. Mr Vladimir Zavorotny has been Deputy Chairman of the Board ² Director of the Kyiv regional branch since 1997. He graduated from the Agricultural Academy of Ukraine in 1980 and from the Ukrainian Banking Academy in 2003. Mr Yuri Kandaurov has been Deputy Chairman of the Board since 2002. Since 1999, he has served as the Head of Retail Banking. From 1995 to 1999, he served as the Head of the Risk Management Department. He graduated from the Dnipropetrovsk Mining Institute in 1989 and 1998 with specialties in engineering and finance, respectively. Ms Tatyana Guryeva has been the Deputy Chairperson of the Board since 2000. She is also the Head of Strategic Customer Services. She graduated from the Dnipropetrovsk State University in 1985 and the Kyiv Higher Banking School of the International Centre of Market Relations and Entrepreneurship in 1999. Ms Lyubov Chmona is Deputy Chairperson of the Board. From 2002 she has been Head of Budgeting Services for VIP Corporate Business. Since December 1999, she has served as Head of the Department of Budgeting Services for ³VIP´ corporate customers. From the beginning of 1999 to December 1999, she served as the Head of Anti-Crisis Support and Project Financing to corporate customers. From 1995 to 1999, she held a variety of positions at the Bank, including chief specialist for economic analysis in the investment business of the Bank and the Head of the Department of Financial Management for corporate customers. She graduated from the Kyiv Economic Institute in 1980.

121 Management

Ms Lyudmila Shmalchenko has been Deputy Chairperson of the Board since 1 February 2005. She has been the Director of the Treasury since 2002. From 2000 to 2002 she served as the Head of the Resource Department. She graduated from Dnipropetrovsk Metallurgical Institute in 1990. Mr Oleg Gorohovskiy has been Deputy Chairman of the Board since 1 February, 2005. He has been the Head of the VIP Individual Client Business since 2002. From 1999 to 2002 he served as the Deputy Head of Corporate Business. From 1997 to 1999 he served as the Head of the Interbank Credit Department. From 1996 to 1997 he served as the Head of the Correspondent Banking Division. He graduated from Dnipropetrovsk Metallurgical Institute in 1996. Mr Alexander Vityaz has been Deputy Chairperson of the Board and Head of Electronic Business Center since 2009. From 2000 to 2009 he served as Head of Electronic Business Center. From 1996 to 2000 he worked in Donetsk Regional Branch of PrivatBank. From 1993 to 1996 he worked in Donetsk branch of INKO Bank. He graduated from Donetskiy Polytechnic Institute in 1992. Mr Stanislav Kryzhanovskyy has been Deputy Chairperson of the Board and Head of Security since 2009. From 1986 to 2009 he served in the Ministry of Internal Affairs. He graduated from Krivorozhskiy Minding Institute in 1983 and Ukrainian Government Academy of Law in 1995. Mrs Lubov Korotina has been Chief Accountant since 1992. She graduated from the Odessa Institute of National Economy in 1992 with a speciality in accounting. Prior to that, Ms Korotina worked from 1983 as an economist at a state-owned bank. Mr Igor Terjohin has been member of the Board since July 2003 and Head of the Financial Monitoring Department since February 2003. He graduated from Dnipropetrovsk Metallurgical Institute in 1983, and also from Kyiv Higher Banking School in 1999.

122 Shareholders

Shareholders As at the date of this Prospectus, the nominal value of the share capital of the Bank was UAH 8,860,202,432 comprised of 48,490,600 ordinary registered shares with a nominal value of UAH 182.72 each. Mr Gennady Bogolubov and Mr Igor Kolomojsky, collectively own 98.14 per cent. of the Bank¶s share capital. Mr Bogolubov and Mr Kolomojsky directly hold 48.99 per cent. and 49.15 per cent., respectively, of these shares. 1.86 per cent. of the Bank¶s share capital is held by members of the Bank¶s Management and by other individuals and legal entities. Apart from Mr Bogolubov and Mr Kolomojsky none of the Bank¶s shareholders beneficially owns 1 per cent. or more of the Bank¶s shares. Rights of the Bank¶s Shareholders

Under the Bank¶s charter and Ukrainian legislation, the Bank¶s shareholders have the right to: Ɣ participate in the management of the Bank pursuant to the procedures set out in the Bank¶s charter; Ɣ receive dividends; Ɣ receive a share in the proceeds upon the Bank¶s liquidation; Ɣ have access to information and documents relating to the Bank¶s activities and financial condition; Ɣ exercise the pre-emptive rights to purchase shares additionally issued by the Bank; Ɣ dispose of their shares in the Bank¶s pursuant to the procedures established by the Bank¶s charter and Ukrainian law; and Ɣ exercise other rights provided by Ukrainian law and the Bank¶s charter.

123 Related Party Transactions

For the purposes of the Financial Statements, parties are considered to be related if (i) one party has the ability to control the other party; (ii) the parties are under common control; or (iii) one party can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The outstanding balances as at the period end with related parties were as follows: As at 31 December 2007 2008 2009 (millions of UAH) Gross amount of loans and advances to customers ...... 2,576 5,718 6,168 Impairment provisions for loans and advances to customers ...... (337) (1,305) (2,288) Financial derivatives...... - - 225 Other financial assets...... 3 247 2 Other assets...... - 432 414 Customer accounts...... 856 3,845 2,686 Subordinated debt...... 98 - 125 Other financial liabilities...... 6 - 10

The income and expense items with related parties for the respective periods were as follows: For the year ended 31 December 2007 2008 2009 (millions of UAH) Interest income...... 293 749 1,296 Interest expense...... (33) (33) (216) Fee and commission income ...... 30 81 65 Provisions for loan impairment ...... (25) (45) (1,029) Losses less gains from financial derivatives...... - (429) (104) Other operating income...... 4 5 6 Administrative and other operating expenses, excluding management remuneration...... (169) (135) (454)

Other rights and obligations with related parties as at the end of respective periods were as follows: As at 31 December 2007 2008 2009 (millions of UAH) Guarantees issued by the Group at the period end ...... 55 530 7 Import letters of credit ...... 109 186 70 Irrevocable commitment to extend credit...... 2 - - Less: Provision for credit related commitments...... (7) - (33)

In 2009, the remuneration of the members of the Management Board comprised salaries, discretionary bonuses, pension contributions and other short-term benefits totalling UAH 16 million (as compared to UAH 6 million in 2008, and UAH 6 million in 2007), including contributions into the State pension fund of UAH 1 million (as compared to UAH 1 million in 2008, and UAH 1 million in 2007) and social security contributions of UAH 0.1 million (compared to UAH 0.1 million in 2008 and UAH 0.1 million in 2007). This amount consists of expenses included in the PrivatBank Group consolidated statement of comprehensive income and expenses incurred by the Group¶s related parties on behalf of the Group, which are not reimbursable to the related parties and therefore have not been reflected in the PrivatBank Group consolidated statement of comprehensive income.

124 The Issuer

The Issuer, UK SPV Credit Finance plc, was incorporated in England and Wales on 24 January 2007 (registered number 06065720), as a public company with limited liability under the Companies Act 1985. The registered office of the Issuer is at Pellipar House, First Floor, 9 Cloak Lane, London EC4R 2RU. The telephone number for the Issuer is +44 20 7367 8930. The Issuer has no subsidiaries. 1. Principal Activities The principal objects of the Issuer are set out in clause 4 of its Memorandum of Association and are, among other things, to acquire, hold and manage financial assets, to lend or advance money and to give credit to any persons for any purpose whatsoever within the United Kingdom or elsewhere, to carry on business as a financial institution, to manage and administer loan portfolios, to borrow, raise and secure the payment of money including by the creation and issue of bonds, debentures, notes or other securities charged on the whole or any part of the Issuer¶s property or assets. 2. Directors and Secretary The directors of the Issuer and their respective business addresses are: Name Business Address Position Tariq Husain Pellipar House, First Floor, 9 Cloak Lane, Director London EC4R 2RU Joint Corporate Services Limited Pellipar House, First Floor, 9 Cloak Lane, Corporate Director (Company number 03570684) London EC4R 2RU Praxis Mgt Limited Pellipar House, First Floor, 9 Cloak Lane, Corporate Director (Company number 03577176) London EC4R 2RU

Neither Joint Corporate Services Limited nor Praxis Mgt Limited have any conflicts, or any potential conflicts, between their duties to the Issuer and their private interests or other duties. The company secretary of the Issuer is Joint Secretarial Services Limited, a company registered in England and Wales (registered number 03570682), whose business address is Pellipar House, First Floor, 9 Cloak Lane, London EC4R 2RU. The directors of Joint Secretarial Services Limited are as follows: Name Business Address Position Tariq Husain Pellipar House, First Floor, 9 Cloak Director Lane, London EC4R 2RU Diana Paxton Pellipar House, First Floor, 9 Cloak Director Lane, London EC4R 2RU Roy Neil Arthur 400 Capability Green, Luton, Director Beds LU1 3AE

Joint Corporate Services Limited is a corporate director of the Issuer and is registered in England and Wales (registered number 03570684); its directors are as follows: Name Business Address Position Tariq Husain Pellipar House, First Floor, 9 Cloak Director Lane, London EC4R 2RU Roy Neil Arthur 400 Capability Green, Luton, Director Beds LU1 3AE

Neither Tariq Husain nor Roy Neil Arthur have any conflicts, or any potential conflicts, between their duties to the Issuer and their private interests or other duties.

125 The Issuer

Praxis Mgt Limited is a corporate director of the Issuer and is registered in England and Wales (registered number 03577176); its director is Tariq Husain, whose registered business address is Pellipar House, First Floor, 9 Cloak Lane, London EC4R 2RU. Tariq Husain does not have any conflicts, or any potential conflicts, between his duties to the Issuer and his private interests or other duties.

3. Capitalisation and Indebtedness

The capitalisation and indebtedness of the Issuer as at the date of this Prospectus is as follows: Share Capital

Issued Nominal Shares Shares Paid Up Share Value of each Fully Paid Quarter Share Authorised Share Capital Capital Share Up Paid Up Capital £50,000 £50,000 £1 2 49,998 £12,501.50

49,999 of the issued shares (being 49,998 shares of £1 each, each of which is paid up as to 25 pence and one share of £1 which is fully paid) in the Issuer are held by UK Credit Finance Limited. The remaining one share in the Issuer (which is fully paid) is held by TMF Trustee Limited (registered number 03814168) (the ³Nominee Trustee´) as nominee for UK Credit Finance Limited. The entire issued share capital of UK Credit Finance Limited is held by TMF Trustee Limited (registered number 03814168) (the ³Share Trustee´) as trustee of UK Credit Finance Trust pursuant to the Declaration of Trust declared by the Share Trustee on 30 January 2007. Loan Capital

Other than the Notes to be issued on the Issue Date, U.S.$500,000,000 8 per cent. guaranteed notes due 6 February 2012. On 3 April 2008, the Issuer issued U.S.$70,000,000 floating rate notes due 2013. These were redeemed in full on 3 April 2009. Except as set out above, the Issuer has no outstanding loan capital, borrowings, indebtedness or contingent liabilities and the Issuer has not created any mortgages or charges nor has it given any guarantees as at the date hereof.

126 The Loan Agreement

The following is the text from the Loan Agreement, save for the signature page and schedules. This Agreement is made on 17 September 2010 between: PUBLIC JOINT STOCK COMPANY COMMERCIAL BANK PRIVATBANK, incorporated under the laws of Ukraine, whose registered office is at 50 Naberezhna Peremohy, Dnipropetrovsk, Ukraine 49094, as borrower (the ³Borrower´); and UK SPV CREDIT FINANCE PLC, incorporated under the laws of England, whose registered office is at Pellipar House, First Floor, 9 Cloak Lane, London EC4R 2RU, as lender (the ³Lender´). Whereas: The Lender has at the request of the Borrower agreed to make available to the Borrower a single credit term loan in the amount of U.S.$200,000,000 on the terms and subject to the conditions of this Agreement. It is agreed as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Agreement the following terms have the meanings given to them in this Clause 1.1: ³Account´ means an account in the name of the Lender with Deutsche Bank AG, London Branch, account number 0196713 0000 USD 000 CTA, MTAG 19671300 (with payment details as follows: Correspondent Bank; Deutsche Bank Trust Company Americas, SWIFT: BKTRUS33, Account with Bank: Deutsche Bank AG, London Branch, SWIFT: DEUTGB2L, Beneficiary name: UK SPV Credit Finance plc, LPN Secured Account, Beneficiary IBAN: GB23 DEUT 4050 8119 6713 00); ³Affiliate´ of any specified Person means (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person; (ii) any other Person who is a director or officer (A) of such specified Person; (B) of any Subsidiary of such specified Person; or (C) of any Person described in Clause (i) above. For the purpose of this definition: ³control´ when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise and the terms ³controlling´ and ³controlled´ have meanings correlative to the foregoing; ³Agency´ means any agency, authority, central bank, department, committee, government, legislature, minister, ministry, official or public or statutory person (whether autonomous or not) of, or of the government of, any state or supra-national body; ³Agency Agreement´ means the paying agency agreement relating to the Notes dated 24 September 2010 between the Lender (as issuer of the Notes), the Trustee and the Principal Paying Agent; ³Agents´ means the Principal Paying Agent and any other paying agents named in, or appointed under, the Agency Agreement and ³Agent´ means any one of the Agents; ³Auditors´ means LLC Audit firm ³PricewaterhouseCoopers (Audit)´ or any internationally recognised firm of accountants approved by the Lender (and, following the execution of the Loan Administration Assignment, the Trustee without regard to the Lender), such approval not to be unreasonably withheld; ³Authorised Signatory´ means, in the case of the Borrower, any of the persons referred to in the certificate listed as item 3 in the Schedule 1 hereto and, in the case of the Lender, a duly authorised officer of the Lender, from time to time;

127 The Loan Agreement

³Banking Business´ means in relation to the Borrower or any of its Material Subsidiaries, any type of banking business (including, without limitation, any factoring, consumer credit, mortgages, issuance of banking guarantees and letters of credit (and related cash cover provision), bills of exchange and promissory notes and payments under such guarantees, letters of credit and promissory notes, trading of securities, fund management and professional securities market participation business) which it conducts or may conduct pursuant to its licences issued by the appropriate authorities and accepted market practice and any applicable law; ³Capital Stock´ means, with respect to any Person, any and all shares, interests, participations, rights to purchase, warrants, options, or other equivalents (however designated) of capital stock of a corporation and any and all equivalent ownership interests in a Person other than a corporation, in each case whether now outstanding or hereafter issued; A ³Change of Control´ shall be deemed to have occurred when a Change of Control Event occurs and such event results in a Rating Decline; A ³Change of Control Event´ shall be deemed to have occurred at each time (whether or not approved by the board of directors of the Borrower) that the individuals referred to in the Prospectus dated 17 September 2010 relating to the Notes as the owners of the majority of the share capital of the Borrower at the date thereof cease to own together, directly or indirectly more than 50 per cent. of the issued or allotted ordinary charter capital carrying voting rights; ³Change of Control Payment Date´ means the date specified as such in the notice from the Borrower to the Lender pursuant to Clause 6.4 (Prepayment in the event of a Change of Control); ³Double Tax Treaty´ means the Convention of 10 February 1993 between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Ukraine for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains; ³Drawdown Date´ means 24 September 2010 or, if different, the date on which the Notes are issued and the subscription monies therefor are paid under the Subscription Agreement; ³Event of Default´ means any circumstances described as such in Clause 14 (Events of Default); ³Fees Letter´ means the fees letter dated on or around 17 September 2010 between the Borrower and the Lender; ³Funding Document´ means this Agreement, the Fees Letter, the Subscription Agreement, the Trust Deed and the Agency Agreement entered into in connection with the issue of the Notes and the Notes themselves; ³Group´ means the Borrower and its Subsidiaries from time to time taken as a whole; ³IFRS´ means International Financial Reporting Standards, including International Accounting Standards and Interpretations, issued by the International Accounting Standards Board as amended, supplemented or re-issued from time to time; ³incur´ means issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) or is merged into a Subsidiary will be deemed to be incurred or issued by the parent company or such Subsidiary (as the case may be) at the time such Person becomes a Subsidiary of such parent company or is so merged into such Subsidiary; ³Indebtedness´ means any indebtedness, in respect of any Person for, or in respect of, moneys borrowed or raised including, without limitation, any amount raised by acceptance under any acceptance credit facility; any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; any amount raised pursuant to any issue of shares which are expressed to be redeemable; any amount

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raised under any other transaction (including any forward sale or purchase agreement) having the economic effect of a borrowing; and the amount of any liability in respect of any guarantee or indemnity for any of the items referred to above, provided that such defined term does not include any indebtedness owed to the state budget, local budget and non-budgetary funds on account of taxes which are not overdue; ³Independent Appraiser´ means an investment banking firm of international standing or any third party appraiser of international standing selected by the Borrower, provided, however that such firm or third party appraiser is not an Affiliate of the Borrower; ³Interest Payment Date´ means 23 March and 23 September in each year in which the Loan remains outstanding with the last Interest Payment Date falling on the Repayment Date; ³Interest Period´ means any of those periods mentioned in Clause 4 (Interest Periods); ³Interest Rate´ means 9.375 per cent.; ³Lien´ means any mortgage, pledge, encumbrance, lien, charge or other security interest (including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction); ³Loan´ has the meaning set forth in Clause 2.1 (Grant of the Loan); ³Loan Administration Assignment´ means the assignment by the Lender to the Trustee of the Transferred Rights pursuant to the Trust Deed; ³Loan Date´ means the date on which the Notes are issued and the subscription monies therefore are paid in accordance with the Subscription Agreement; ³Manager´ means each of HSBC Bank plc and UBS Limited; ³Material Subsidiary´ means, at any given time, any Subsidiary of the Borrower (a) whose total assets or gross revenues (or, where the Subsidiary in question prepares consolidated accounts, whose total consolidated assets or gross consolidated revenues, as the case may be) represent at least 10 per cent. of the total assets, or, as the case may be, total revenues of the Borrower and its Subsidiaries and, for these purposes (i) the total assets and gross revenues of such Subsidiary shall be determined by reference to its then most recent audited financial statements (or, if none, its then most recent management accounts); and (ii) the total assets and gross revenues of the Borrower shall be determined by reference to the Borrower¶s then most recent audited financial statements (or, if none, its then most recent management accounts), in each case prepared in accordance with IFRS; or (b) to which is transferred the whole or substantially the whole of the undertaking and assets of a Subsidiary of the Borrower which immediately before the transfer is a Material Subsidiary of the Borrower. A certificate signed by two officers of the Borrower (at least one of whom shall be the principal executive officer, principal accounting officer or principal financial officer of the Borrower) that, in their opinion, a Subsidiary of the Borrower is or is not a Material Subsidiary, accompanied by a report by the Auditors addressed to the Management Board of the Borrower as to proper extraction of the figures used by such officers of the Borrower in determining the Material Subsidiaries of the Borrower and mathematical accuracy of the calculations shall, in the absence of manifest error, be conclusive and binding on all parties; ³NBU´ means the National Bank of Ukraine; ³Negative Ratings Event´ means that at any time within 90 days (which period shall be extended so long as the corporate credit rating of the Borrower or the credit rating in respect of the Notes is under publicly announced consideration for possible downgrade by any Rating Agency) after the announcement of any reorganisation or other type of corporate reconstruction as referred to in Clause 13.5 (Mergers) the corporate rating of the Borrower or the rating of the Notes is decreased or downgraded by a Rating Agency by one or more Rating Categories below the corporate rating of the Borrower or the rating of the Notes as of the date hereof (or if a Rating Agency has not assigned any such rating as of the date hereof, below the first such rating assigned to the Borrower or the Notes by that Rating Agency after the date

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hereof) as a result of such reorganisation or other type of corporate reconstruction, as specified by the relevant Rating Agency; ³Notes´ means the U.S.$200,000,000 9.375 per cent. Notes due 2015 proposed to be issued by the Lender pursuant to the Trust Deed on or about 24 September 2010 for the sole purpose of financing the Loan; ³Officers¶ Certificate´ means a certificate signed on behalf of the Borrower by two officers of the Borrower (at least one of whom shall be the principal executive officer, principal accounting officer or principal financial officer of the Borrower) and in the appropriate form set out in Schedule 2 hereto; ³Permitted Liens´ means a Lien upon, or with respect to, any present or future assets or revenues which is created pursuant to any securitisation, asset-backed financing, or similar financing transaction; provided, however, that the principal amount raised pursuant to any such financing, when aggregated with the principal amount raised pursuant to any financing referred to in the second sentence of Clause 13.6 (Disposals), does not exceed at any time 35 per cent. of the Borrower¶s total assets, as determined at any such time by reference to the then most recent quarterly balance sheet of the Borrower prepared in accordance with IFRS; ³Person´ means any individual, company, corporation, firm, partnership, joint venture, association, trust, organisation, state or agency of a state or any other entity, whether or not having separate legal personality; ³Potential Event of Default´ means any event which would become (with the passage of time, the giving of notice and/or the making of a determination under this Agreement), an Event of Default; ³Principal Paying Agent´ means Deutsche Bank AG, London Branch; ³Profit Account´ means the account in the name of the Lender with HSBC Bank plc, account number 67401470; ³Rating Agency´ means Moody¶s Investors Service Limited (³Moody¶s´) or Fitch Ratings Ltd (³Fitch´), or any of their successors or any rating agency substituted for any of them (or any permitted substitute of them) by the Borrower, from time to time with the prior written approval of the Lender (and, following the Loan Administration Assignment, the Trustee without regard to the Lender); ³Rating Categories´ means (1) with respect to Fitch, any of the following categories (any of which may or may not include a ³+´ or ³-´): AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); (2) with respect to Moody¶s, any of the following categories (any of which may or may not include a ³´, ³´ or ³´): Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (3) the equivalent of any such categories of Fitch or Moody¶s used by another rating agency, if applicable; ³Rating Decline´ means that at any time within 90 days (which period shall be extended so long as the corporate credit rating of the Borrower or the credit rating in respect of the Notes is under publicly announced consideration for possible downgrade by any Rating Agency) after: (a) in the case of a Change of Control Event, the announcement or the occurrence of such Change of Control Event; or (b) in the case of a disposal in accordance with Clause 13.6 (Disposals), the announcement or occurrence of the relevant transaction or series of transactions, the corporate rating of the Borrower or the rating of the Notes is decreased or downgraded by a Rating Agency by one or more Rating Categories below the corporate rating of the Borrower or the rating of the Notes as of the date hereof (or if a Rating Agency has not assigned any such rating as of the date hereof, below the first such rating assigned to the Borrower or the Notes by that Rating Agency after the date hereof) as a result of such transaction or series of transactions, as specified by the relevant Rating Agency; ³Relevant Event´ has the meaning given thereto in the Trust Deed;

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³Relevant Indebtedness´ means any Indebtedness in the form of or represented by any bond, note, debenture, stock, loan stock, certificate or other instrument which is for the time being or is intended to be listed, quoted or traded on any stock exchange or any securities market (including, without limitation, any over-the-counter market): (a) denominated, payable or optionally payable in a currency other than hryvnia; and (b) not initially distributed primarily to investors inside Ukraine; ³Repayment Date´ means 23 September 2015 or, if such day is not a Business Day, the next succeeding Business Day; ³Reserved Rights´ has the meaning given thereto in the Trust Deed; ³Same-Day Funds´ means U.S. dollar funds settled through the New York Clearing House Interbank Payments System or such other funds for payment in U.S. dollars as the Lender may at any time determine to be customary for the settlement of international transactions in New York City of the type contemplated hereby; ³Stock Exchange´ means the EEA Regulated Market of the London Stock Exchange plc; ³Subscription Agreement´ means the subscription agreement relating to the Notes dated 17 September 2010 between the Lender, the Borrower, HSBC Bank plc and UBS Limited; ³Subsidiary´ means a company or corporation: (a) which is controlled, directly or indirectly, by another company or corporation; or (b) more than half the issued share capital of which is beneficially owned, directly or indirectly, by B, and, for these purposes, A shall be treated as being controlled by B if B is able to direct A¶s affairs and/or to control the composition of A¶s board of directors or equivalent body; ³Taxes´ means any taxes, levies, duties, imposts, assessments, governmental charges or other charges or withholding of a similar nature (including interest and penalties thereon); ³Transferred Rights´ has the meaning given thereto in the Trust Deed; ³Trust Deed´ means the trust deed relating to the Notes dated 24 September 2010 between the Lender and the Trustee as amended from time to time; ³Trustee´ means Deutsche Trustee Company Limited, as trustee under the Trust Deed and any successor thereto as provided thereunder; and ³Ukraine´ means Ukraine and any province or political sub-division thereof or therein. 1.2 Interpretation Any reference in this Agreement to: 1.2.1 the ³Borrower´ or ³Lender´ includes its and any subsequent successors, assignees and chargees in accordance with their respective interests, including, without limitation, in the case of the latter, any entity substituted in place of the Lender as issuer of the Notes pursuant to clause 16.4 of the Trust Deed; 1.2.2 a ³Business Day´ means a day (other than a Saturday or Sunday) on which banks generally are open for business in New York City, London and Kyiv; 1.2.3 the ³equivalent´ on any given date in one currency (the ³first currency´) of an amount denominated in another currency (the ³second currency´) is a reference to the amount of the first currency which could be purchased with the amount of the second currency at the spot rate of exchange quoted for the purchase of the first currency with the second currency on the relevant Reuters page or, where the first currency is hryvnia and the second currency is U.S. dollars (or vice versa), by the NBU, at or about 10.00 a.m. (New York City time) or, as the case may be, 1.00 p.m. (Kyiv time) on such date;

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1.2.4 a ³month´ means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a Business Day, it shall end on the next succeeding Business Day, unless that day falls in the next calendar month, in which case it shall end on the immediately preceding Business Day, provided that, if a period starts on the last Business Day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that later month (and references to ³months´ shall be construed accordingly); 1.2.5 ³repay´ (or any derivative form thereof), subject to any contrary indication, includes prepay (or, as the case may be, the corresponding derivative form thereof); and 1.2.6 ³VAT´ means value added tax, including any similar tax which may be imposed in place thereof from time to time. 1.3 Currency References ³U.S.$´ and ³U.S. dollars´ denote the lawful currency of the United States of America and ³hryvnia´ denotes the lawful currency of Ukraine. 1.4 Statutes Any reference in this Agreement to a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted. 1.5 Headings Clause and Schedule headings are for ease of reference only. 1.6 Amended Documents Save where the contrary is indicated, any reference in this Agreement to this Agreement, the Fees Letter or any other agreement or document shall be construed as a reference to this Agreement, the Fees Letter or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented. 2. THE LOAN 2.1 Grant of the Loan The Lender grants to the Borrower and the Borrower hereby agrees to borrow from the Lender upon the terms and subject to the conditions hereof, a single disbursement term loan facility in the amount of U.S.$200,000,000 (the ³Loan´). 2.2 Purpose and Application The Loan is intended to be used by the Borrower for general banking purposes and, without affecting the obligations of the Borrower in any way, the Lender shall not be obliged to concern itself with such application. 3. AVAILABILITY OF THE LOAN 3.1 Drawdown Subject to the conditions hereof, the Loan will be available by way of a single advance which will be made by the Lender to the Borrower, and the Borrower will draw down the Loan, on the Drawdown Date by payment of the Loan in accordance with the following payment instructions: JPMorgan Chase Bank, New York; swift code: CHASU33; account number: USD 001-1-000080; for the account of the Borrower; swift code PBANUA2X provided that the Loan will only be advanced if: 3.1.1 the Lender has confirmed to the Borrower that it has received all of the documents listed in the Schedule 1 (Condition Precedent Documents) hereto and that each is in

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form and substance satisfactory to the Lender, save as the Lender may otherwise agree; 3.1.2 the Lender has received (i) the full amount of the proceeds of the issue of the Notes pursuant to the Subscription Agreement and such proceeds shall be and remain available in full to be on-lent to the Borrower; and (ii) in full the amount referred to in Clause 3.2; and 3.1.3 as at the Drawdown Date (i) no Event of Default or Potential Event of Default have or has occurred; (ii) the representations and warranties of the Borrower set out in Clause 10 (Representations and Warranties of the Borrower) are true and accurate with respect to the facts and circumstances then subsisting; and (iii) the Borrower is in full compliance with all of its obligations under this Agreement and there shall have been no breach of any such obligations. 3.2 Payment of Fees In consideration of the Lender advancing the Loan to the Borrower, the Borrower hereby agrees that it shall pay, in Same-Day Funds under the Fees Letter all amounts required to be paid by the Borrower under paragraph 2 of the Fees Letter by 4.30 p.m. (London time) on 23 September 2010. 4. INTEREST PERIODS The period for which the Loan is outstanding shall be divided into successive semi-annual periods (except for the first Interest Period), each of which (other than the first, which shall commence on (and shall include) the Drawdown Date) shall start on (and shall include) an Interest Payment Date and shall end on (but shall exclude) the first, or the next following, Interest Payment Date (each, an ³Interest Period´). 5. PAYMENT AND CALCULATION OF INTEREST 5.1 Payment of Interest As set out in Clause 17.1 (Payments to the Lender), the Borrower shall, not later than 10.00 a.m. (New York City time) two Business Days prior to each Interest Payment Date, in respect of the relevant Interest Period, pay (a) to the Account accrued interest (calculated to the last day of the relevant Interest Period) on the outstanding principal amount of the Loan calculated in accordance with Clause 5.2; and (b) to the Profit Account additional interest calculated in accordance with Clause 5.3. 5.2 Calculation of Interest The Borrower will pay interest semi-annually in U.S. dollars to the Account on the outstanding principal amount of the Loan at the rate of 9.375 per cent. per annum (the ³Interest Rate´). Interest shall accrue from day to day, starting from (and including) the Drawdown Date to (but excluding) the Repayment Date. The amount of interest payable in respect of the Loan for any Interest Period shall be calculated by applying the applicable Interest Rate to the outstanding principal amount of the Loan, dividing the product by two and rounding the resulting figure to the nearest cent (half a cent being rounded upwards), except that the amount of interest payable in respect of the first Interest Period commencing on (and including) the Drawdown Date and ending on (but excluding) the first Interest Payment Date, shall be U.S.$9,322,916.67. If interest is required to be calculated for any other period, it shall be calculated on the basis of a year of 360 days consisting of 12 months of 30 days each and, in the case of an incomplete month, the actual number of days elapsed. 5.3 Calculation of Additional Interest The Borrower will pay additional interest semi-annually in U.S. dollars to the Profit Account on the outstanding principal amount of the Loan at the rate per annum of 0.0048 per cent. Additional interest shall accrue from day to day, starting from (and including) the Drawdown Date to (but excluding) the Repayment Date. The amount of additional interest payable in respect of the Loan for any Interest Period shall be calculated by applying 0.0048 per cent. to

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the outstanding principal amount of the Loan, dividing the product by two and rounding the resulting figure to the nearest cent (half a cent being rounded upwards). If additional interest is required to be calculated for any other period, it shall be calculated on the basis of a year of 360 days consisting of 12 months of 30 days each and, in the case of an incomplete month, the actual number of days elapsed. 5.4 Assumption when Calculating Interest Whenever under this Agreement interest is to be calculated to the last day of an Interest Period and the calculation is required to be made before such last day, the parties shall assume that the amount of the Loan outstanding on the day of the calculation is also the amount of the Loan outstanding on the last day of the relevant Interest Period. 6. REPAYMENT AND PREPAYMENT 6.1 Repayment As set out in Clause 17.1 (Payments to the Lender) but except as otherwise provided herein, the Borrower shall, not later than 10.00 a.m. (New York City time) two Business Days prior to the Repayment Date, repay in full the outstanding principal amount of the Loan and, to the extent not already paid in accordance with Clause 5.1 (Payment of Interest) pay all interest accrued in respect of the last Interest Period (calculated to the Repayment Date) to the Account. 6.2 Prepayment for Tax Reasons and Change in Circumstances If, as a result of any amendments to or change in the Double Tax Treaty or the laws or regulations of Ukraine or the United Kingdom or of any political sub-division thereof or any authority therein having power to tax (the ³Taxing Jurisdiction´) or any amendments to or change in the application thereof or the enforcement of the security provided for in the Trust Deed, the Borrower would thereby be required to increase the payment of principal or interest or any other payment due hereunder as provided in Clause 7.1 (Additional Amounts) or to pay additional amounts as provided in Clause 7.3 (Tax Indemnity), or, if (for whatever reason) the Borrower would have to or has been required to pay additional amounts pursuant to Clause 9 (Changes in Circumstances), and, in any such case, such obligation cannot be avoided by the Borrower taking reasonable measures available to it, then the Borrower may, upon not less than 30 days¶ prior written notice to the Lender (and, following the execution of the Loan Administration Assignment, the Trustee) to that effect, providing the documentary evidence specified in the next sentence in a form reasonably satisfactory to the Lender (and, following the execution of the Loan Administration Assignment, satisfactory to the Trustee without regard to the Lender) and specifying the date of payment, prepay the whole (but not part only) of the outstanding principal amount of the Loan, together with any amounts then payable under Clauses 7.1 (Additional Amounts) or 7.3 (Tax Indemnity) and accrued interest. Prior to the delivery of any notice of prepayment pursuant to this Clause 6.2, the Borrower shall deliver to the Lender (and, following the execution of the Loan Administration Assignment, the Trustee) an Officers¶ Certificate, that the Borrower would be required to increase the amount payable or to pay additional amounts and such obligation cannot be avoided by the Borrower taking reasonable measures, supported by an opinion of an independent tax adviser of recognised standing in the relevant tax jurisdiction. 6.3 Prepayment upon Illegality If, at any time after the date of this Agreement, it is or would be unlawful or contrary to any applicable law or regulation or regulatory requirement or directive of any agency or any state or otherwise for the Lender to allow all or part of the Loan or the Notes to remain outstanding or for the Lender to maintain or give effect to any of its obligations in connection with this Agreement and/or to charge or receive or to be paid interest at the rate applicable in relation to the Loan (an ³Illegality´), then upon notice by the Lender to the Borrower in writing (setting out in reasonable detail the nature and extent of the relevant circumstances), the Borrower and the Lender shall, to the extent reasonably practicable in the circumstances and at the expense of the Borrower, consult in good faith as to a basis which eliminates the application of such

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Illegality; provided however, that the Lender shall be under no obligation to continue such consultation if, in the sole opinion of the Lender, it is not possible to eliminate the application of such Illegality. If such a basis has not been agreed, then the Borrower shall prepay the Loan in whole together with all accrued and unpaid interest and any other amounts outstanding hereunder on the date which is 90 days from the date of such notification or such earlier date as may be required by law. 6.4 Prepayment in the event of a Change of Control Promptly, and in any event within 15 calendar days after the date of any Change of Control the Borrower shall deliver to the Lender and the Trustee a notice in the form of an Officers Certificate: 6.4.1 stating that a Change of Control has occurred; and 6.4.2 specifying the Change of Control Payment Date, as the case may be, which date shall be a Business Day falling not less than 30 calendar days nor more than 60 calendar days after the date such notice is delivered. As set out in Clause 17.1 (Payments to the Lender), the Borrower shall, no later than 10.00 a.m. (New York City time) two Business Days prior to the Change of Control Payment Date, prepay the Loan together with (i) all accrued and unpaid interest; and (ii) any other amounts outstanding hereunder. 6.5 Notice of Prepayment/Repayment Any notice of prepayment given by the Borrower pursuant to Clause 6.2 (Prepayment for Tax Reasons and Change in Circumstances) or Clause 6.4 (Prepayment in the event of a Change of Control) or by the Lender pursuant to Clause 6.3 (Prepayment upon Illegality) shall be irrevocable, shall specify the date upon which such prepayment is to be made and shall oblige the Borrower to make such prepayment or repayment on such date. No such notice pursuant to Clause 6.2 (Prepayment for Tax Reasons and Change in Circumstances) shall be given earlier than 90 calendar days prior to the earliest date on which the Borrower would be obliged to pay such amounts under Clause 7.1 (Additional Amounts) or Clause 7.3 (Tax Indemnity). 6.6 Prepayment on acceleration of the Notes If the Notes become due and payable before the Redemption Date (as defined in the Terms and Conditions of the Notes), the Borrower may prepay the outstanding principal amount of the Loan. 6.7 Costs of Prepayment/Repayment As set out in Clause 17.1 (Payments to the Lender), the Borrower shall, not later than 10.00 a.m. (New York City time) two Business Days prior to the date of prepayment or repayment, pay all accrued interest (calculated to (but excluding) the date of such prepayment or repayment) on the principal amount to be repaid or prepaid and all other amounts owing to the Lender hereunder. The Borrower shall indemnify the Lender on demand against any costs and expenses reasonably incurred and properly documented by the Lender on account of any prepayment or repayment made in accordance with this Clause 6 (Repayment and Prepayment). 6.8 No Reborrowing No amount prepaid or repaid under this Agreement may subsequently be reborrowed. 6.9 Reduction of Loan Upon Cancellation of Notes The Borrower or any member of the Group may from time to time purchase Notes in the open market or by tender or by private agreement at any price. If such Notes are surrendered by the Borrower or any member of the Group to the Lender, as issuer of the Notes, for cancellation (together with an authorisation addressed to the Principal Paying Agent under the Agency Agreement to cancel such Notes), the Loan shall be deemed to have been prepaid in an amount corresponding to the aggregate principal amount of the Notes surrendered for

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cancellation, together with accrued interest and other amounts (if any) thereon, and no further payments shall be made or required to be made by the Borrower in respect of such amounts. 7. TAXES 7.1 Additional Amounts All payments to be made by the Borrower hereunder shall be made in full without set off or counterclaim, free and clear of and without deduction for or on account of any present or future Taxes imposed or levied by or on behalf of any taxing authority of or in, or having authority to tax in, the United Kingdom or Ukraine or any country or state from or through which the Borrower makes payment hereunder in connection herewith (³Relevant Taxes´), unless such withholding or deduction of Relevant Taxes is required by law, in which case, the Borrower shall, on the due date for such payment, increase the amounts payable as may be necessary to ensure that the Lender receives a net amount in U.S. dollars which, following any such deduction or withholding on account of Relevant Taxes, shall be equal to the full amount which it would have received had the payment not been made subject to Relevant Taxes so withheld or deducted and shall deliver to the Lender without undue delay, evidence satisfactory to the Lender of such deduction or withholding and of the accounting therefor to the relevant authority. If the Lender pays any amount in respect of such Relevant Taxes, the Borrower shall reimburse the Lender in U.S. dollars on demand an amount equal to such payment(s). 7.2 Double Tax Treaty Relief; Deductions or Withholdings The Borrower shall use reasonable and timely efforts to assist the Lender in ensuring that all payments of interest by the Borrower to the Lender under this Agreement may be made without deduction on account of the generally applicable withholding tax established by applicable Ukrainian legislation. The Lender shall use reasonable and timely efforts to assist the Borrower, to the extent reasonably practicable in the circumstances, to obtain relief from Ukrainian income tax pursuant to the Double Tax Treaty. 7.3 Tax Indemnity Without prejudice to the provisions of Clause 7.1 (Additional Amounts), if the Lender notifies the Borrower that: 7.3.1 the Lender (as issuer of the Notes) is obligated to make any deduction or withholding for or on account of any Taxes from any payment which the Lender (as issuer of the Notes) is obliged to make under or in respect of the Notes, and the Lender (as issuer of the Notes) is required under the terms and conditions of the Notes to pay additional amounts to the holders of the Notes in connection therewith, the Borrower agrees to pay to the Lender, at least two Business Days prior to the date on which payment is due on the Notes (and otherwise in accordance with the terms of this Agreement), such additional net amounts as are equal to the additional payments which the Lender would be required to make under the terms and conditions of the Notes in order that the net amount received by each holder of Notes is equal to the amount which such holder would have received had no such withholding or deduction been required to be made under or in respect of the Notes; 7.3.2 the Lender (as issuer of the Notes) is required to pay any Tax (other than Taxes assessed on the Lender under the laws of the jurisdiction of which the Lender is a resident of and acting through for tax purposes if such Tax is imposed on or calculated by reference to a measure of net income received or receivable, but not any sum deemed to be received or receivable, which provides full relief for the expenses associated with that income) in relation to any payment received by it under this Agreement or any Funding Document, or if any liability in respect of any such payment is at any time asserted, imposed, levied or assessed against the Lender, the Borrower shall, as soon as reasonably practicable following, and in any event within 60 calendar days of, written demand made by the Lender, indemnify the Lender

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against such properly documented payment or liability, together with any interest, penalties, costs and expenses payable or incurred in connection therewith; and 7.3.3 the Lender (as issuer of the Notes) is obliged to make any withholding or deduction for or on account of any Taxes imposed by any taxing authority in the United Kingdom under or in respect of any Funding Document, the Borrower agrees to pay to the Lender, as soon as reasonably practicable following, and in any event within 60 calendar days of, a written demand made by the Lender, such additional net amounts as are equal to the additional payments which the Lender would be required to make under the terms of such Funding Documents in order that the net amount received by each payee is equal to the amount which such payee would have received had no such withholding or deduction been required to be made under or in respect of the relevant Funding Document. Provided, however, that the Lender shall upon the receipt of any reimbursement of the sums paid pursuant to Clause 7.3.1 or 7.3.3 (including, without limitation, in any case falling within Clause 7.3.1 the event that the holders of the Notes are not entitled to such additional payments under the terms and conditions of the Notes) pay such amounts to the Borrower less any applicable taxes, duties or other costs (it being understood that the Lender shall have no obligation to determine whether any holder of Notes or any payee is entitled to such additional amount). For the avoidance of doubt, the provisions of this Clause 7.3 shall not apply to any withholding or deductions of Taxes with respect to the Loan which are subject to payment of additional amounts under Clause 7.1 (Additional Amounts). 7.4 Tax Claims If the Lender intends to make a claim pursuant to Clause 7.3 (Tax Indemnity), it shall notify the Borrower thereof as soon as reasonably practicable after the Lender becomes aware of any obligation to make any such withholding or deduction or to pay any such tax. 7.5 Tax Credits and Tax Refunds 7.5.1 If an additional amount is paid under Clause 7.1 (Additional Amounts) or 7.3 (Tax Indemnity) by the Borrower for the benefit of the Lender and the Lender determines in its absolute discretion (acting in good faith) that it has received or been granted a credit against, a relief or remission for, or a repayment of, any tax, then, if and to the extent that the Lender, in its absolute discretion (acting in good faith), determines that such credit, relief, remission or repayment is in respect of or calculated with reference to the deduction or withholding giving rise to such additional payment or, in the case of an additional payment made or indemnity payment pursuant to Clause 7.3 (Tax Indemnity), with reference to the liability, expense, cost or loss to which the payment giving rise to the additional payment or indemnity payment relates, the Lender shall, to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to the Borrower such amount as the Lender shall, in its absolute discretion (acting in good faith), have concluded to be attributable to such deduction or withholding or, as the case may be, such liability, expense, cost or loss, provided that the Lender shall not be obliged to make any payment under this Clause 7.5 in respect of such credit, relief, remission or repayment until the Lender is, in its absolute discretion (acting in good faith), satisfied that its tax affairs for its tax year in respect of which such credit, relief, remission or repayment was obtained have been finally settled and provided that the Lender shall not be obliged to make any such payment if and to the extent that the Lender determines in its absolute discretion (acting in good faith) that to do so would leave it (after the payment) in a worse after-tax position than it would have been in had the increased or additional amount not been required under Clauses 7.1 (Additional Amounts) or 7.3 (Tax Indemnity). Any such payment shall, in the absence of manifest error and subject to the Lender specifying in writing in reasonable detail the calculation of such credit, relief, remission or repayment and of such payment and

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providing relevant supporting documents evidencing such matters, be conclusive evidence of the amount due to the Borrower hereunder and shall be accepted by the Borrower in full and final settlement of its rights of reimbursement hereunder in respect of such deduction or withholding. 7.5.2 If as a result of a failure to obtain relief from deduction or withholding of any Tax imposed by the Ukrainian tax authorities (a) such Tax is deducted or withheld by the Borrower and pursuant to Clauses 7.1 (Additional Amounts) an increased amount is paid by the Borrower to the Lender in respect of such deduction or withholding; and (b) following the deduction or withholding of Tax as referred to above, the Borrower applies on behalf of the Lender to the relevant Ukrainian tax authorities for a tax refund and such tax refund is credited by the Ukrainian tax authorities to a bank account of the Lender, the Lender shall as soon as reasonably possible notify the Borrower of the receipt of such tax refund and promptly transfer the entire amount of the tax refund to the extent that the Lender determines in its absolute discretion (acting in good faith) that to do so will leave it (after the payment) in no worse an after-tax position than it would have been in had no such withholding or deduction been made or required to be made to a bank account of the Borrower provided that such an account has been specified for that purpose by the Borrower. 7.5.3 Nothing contained in this Clause 7.5 shall interfere with the right of the Lender to arrange its tax affairs generally in whatever manner it thinks fit nor oblige the Lender to disclose confidential information or any information relating to its tax affairs generally or any computations in respect thereof. 7.6 Tax Position of the Lender The Lender represents that it (i) is a financial institution which at the date hereof is a resident of the United Kingdom for the purposes of the Double Tax Treaty and is subject to taxation in the United Kingdom on the basis of its registration as a legal entity, location of its management body or another similar criterion (rather than merely on income from sources in the United Kingdom or connected with property located in the United Kingdom), and that it will be able to receive certification to this effect from the United Kingdom tax authorities; (ii) does not have a permanent establishment in Ukraine; and (iii) does not have any current intentions to effect, during the term of the Loan, any corporate action or reorganisation or change of taxing jurisdiction that would result in the Lender ceasing to be a resident of the United Kingdom. 7.7 Delivery of Forms The Lender shall within 30 days of the request of the Borrower (to the extent that the Lender is able to do so under applicable law) deliver to the Borrower, at the Borrower ¶s cost, a duly completed certificate issued by the competent taxing authority in the United Kingdom confirming that the Lender is a tax resident in the United Kingdom and (to the extent reasonably practicable) such other information or forms, including a power of attorney in form and substance acceptable to the Borrower authorising it to file the certificate on behalf of the Lender with the relevant tax authority, as may need to be duly completed and delivered to the Lender to enable the Borrower to apply to obtain relief from deduction or withholding of Ukrainian tax or, as the case may be, to apply to obtain a tax refund if a relief from deduction or withholding of Ukrainian tax has not been obtained on the basis of the relevant provisions of the Double Tax Treaty. The certificate shall be duly signed by the Lender and the Lender shall use its reasonable endeavours to procure the stamping or other approval thereof by the competent tax authority in the United Kingdom. If a relief from deduction or withholding of Ukrainian tax or a tax refund under this Clause 7.7 has not been obtained and further to an application of the Borrower to the relevant Ukrainian tax authorities the latter requests the Lender¶s hryvnia bank account details, the Lender shall (subject to it determining that such action is not adverse to its interests, such determination to be made reasonably) at the request of the Borrower (i) use reasonable efforts to procure that such hryvnia bank account of the Lender is duly opened and maintained; and (ii) thereafter furnish the Borrower with the details of such hryvnia bank account. The Borrower shall pay for all costs associated, if any, with

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opening and maintaining such hryvnia bank account. Nothing contained in this Clause 7.7 shall interfere with the right of the Lender to arrange its affairs generally in whatever manner it thinks fit nor oblige the Lender to disclose confidential information or any information relating to its affairs generally. 8. TAX RECEIPTS 8.1 Notification of Requirement to Deduct Tax If, at any time, the Borrower is required by law to make any deduction or withholding from any sum payable by it hereunder (or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated), the Borrower shall promptly notify the Lender. 8.2 Evidence of Payment of Tax If the Borrower makes any payment hereunder in respect of which it is required to make any deduction or withholding, it shall pay the full amount required to be deducted or withheld to the relevant tax or other authority (subject to any right which the Borrower may have to contest such payment) within the time allowed for such payment under applicable law and shall deliver to the Lender, within 45 days after it has made such payment to the applicable authority, an original receipt (or a certified copy thereof) issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld in respect of such payment. The Borrower shall also provide an English translation of such receipts. 9. CHANGES IN CIRCUMSTANCES 9.1 Increased Costs If, by reason of (i) any change in, repeal of or introduction of any tax, law (including any statute, treaty, order, decree, ordinance or similar legislative or executive action), regulation, regulatory requirement or official directive (whether or not having the force of law but, if not having the force of law, the observance of which is in accordance with the generally accepted accounting or financial practice of financial institutions in the country concerned), letter, instruction, request, notice, guideline, policy or practice statement (whether or not having the force of law but, if not having the force of law, the observance of which is in accordance with the generally accepted accounting or financial practice of financial institutions in the country concerned) or in the decision or ruling on, or the interpretation or application thereof by any other person charged with the administration thereof or other competent authority in Ukraine or the United Kingdom, which, in each case, occurs on or after the date of this Agreement; and/or (ii) any compliance by the Lender in respect of the Loan with any request, policy or guideline (whether or not having the force of law but, if not having the force of law, the observance of which is in accordance with the generally accepted accounting or financial practice of financial institutions in the country concerned) from or of any central or other fiscal, monetary or other authority, agency or any official of any such authority: 9.1.1 the Lender incurs or will incur an additional or increased cost as a result of the Lender entering into or performing its obligations (including the obligation to advance the Loan) under this Agreement (excluding tax payable by the Lender by reference to its net income); or 9.1.2 the Lender becomes or will become liable to make any additional payment on account of tax or otherwise (not being a tax imposed on its net income) on or calculated by reference to the amount of the Loan and/or to any sum received or receivable by the Lender hereunder, or the rate of return from the Loan or the Lender¶s (or its Affiliate¶s) overall capital or the amount of principal, interest or other amount payable to or received by the Lender hereunder is reduced; or 9.1.3 the Lender makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of any sum receivable by it from the Borrower hereunder or makes any payment or forgoes any interest or other return on or calculated by reference to the gross amount of the Loan,

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then, subject in each case to Clause 9.2 (Increased Costs Claims), upon demand by the Lender to the Borrower: (a) (in the case of Clauses 9.1.1, 9.1.2 and 9.1.3) the Borrower shall on demand pay to the Lender such additional amount as shall be necessary to compensate the Lender for such increased costs, payment or foregone interest or other return; and (b) (in the case of Clause 9.1.2 the Borrower shall, at the time the amount so reduced would otherwise have been payable, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such reduction, provided, however that in each case the amount of such increased cost, reduced amount or payment made or foregone shall be deemed not to exceed an amount equal to the proportion which is directly attributable to this Agreement. 9.2 Increased Costs Claims If the Lender intends to make a claim pursuant to Clause 9.1 (Increased Costs), it shall promptly notify the Borrower thereof and provide (to the extent reasonably practicable) a description in writing in reasonable detail of the relevant reason (as described in Clause 9.1 (Increased Costs) above) including a description of the relevant affected jurisdiction or country and the date on which the change in circumstances took effect. This written description shall (to the extent reasonably practicable) demonstrate the connection between the change in circumstance and the additional costs and shall be accompanied by relevant supporting documents evidencing the matters described therein. 9.3 Mitigation If circumstances arise which would result in any payment being required to be made by the Borrower pursuant to Clauses 7.1 (Additional Amounts), 7.3 (Tax Indemnity) or 9 (Changes in Circumstances), then, without in any way limiting, reducing or otherwise qualifying the rights of the Lender or the Borrower¶s obligations under any of the above mentioned provisions, the Lender shall as soon as reasonably practicable upon becoming aware of the same notify the Borrower thereof and, in consultation with the Borrower and to the extent it can lawfully do so and without prejudice to its own position, take reasonable steps (at the Borrower¶s expense) to remove such circumstances or mitigate the effects of such circumstances including (without limitation) by the transfer of its rights or obligations under this Agreement to another financial institution, provided that the Lender shall be under no obligation to take any such action if it would breach of any provisions of any Funding Document. 10. REPRESENTATIONS AND WARRANTIES OF THE BORROWER The Borrower makes the representations and warranties set out in Clause 10.1 (Status) to Clause 10.14 (Compliance with Laws) (inclusive) and acknowledges that the Lender has entered into this Agreement in reliance on those representations and warranties. 10.1 Status It and each of its Material Subsidiaries is validly existing under Ukrainian law, is not in liquidation, temporary administration or bankruptcy, has full power and authority to own, lease and operate its properties and conduct its business as currently conducted, and that the Borrower is able lawfully to execute and perform its obligations under this Agreement. 10.2 Governmental Approvals All actions or things required to be taken, fulfilled or done by the laws and regulations of Ukraine (including without limitation, authorisation, order, licence or qualification of or with any court or governmental agency), and all registrations, filings or notarisations required by the laws and regulations of Ukraine in order to ensure: 10.2.1 that the Borrower and each of its Subsidiaries is able to own its assets and carry on its business as currently conducted and, if not, the absence of which could not

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reasonably be expected to have a material adverse effect on the Borrower¶s ability to perform its obligations under this Agreement; and 10.2.2 the due execution, delivery, validity and performance by the Borrower of this Agreement, have been obtained, fulfilled or done and are in full force and effect (other than the registration of this Agreement with the NBU as referred to in Clause 25 (NBU Registration Requirements). 10.3 Pari passu Obligations Under the laws of Ukraine in force at the date of this Agreement, the claims of the Lender against the Borrower under this Agreement will rank at least pari passu in right of payment with the claims of all its other unsecured and unsubordinated creditors save those whose claims are preferred by any bankruptcy, insolvency, liquidation, moratorium or similar laws of general application. 10.4 No Deduction Without prejudice to the provisions of Clause 7.1 (Additional Amounts), under the laws of Ukraine in force at the date of this Agreement, in accordance with the terms of the Double Tax Treaty and subject to the satisfaction by the Lender of certain conditions set forth therein, in particular as provided in Clause 7.6 (Tax Position of the Lender), and of certain requirements of applicable Ukrainian legislation, in particular as provided in Clause 7.7 (Delivery of Forms), payments of principal and/or interest by the Borrower to the Lender under this Agreement may be made without deduction on account of the generally applicable withholding tax (at a rate of 15 per cent.) established by applicable Ukrainian legislation. 10.5 Governing Law Under the laws of Ukraine in force at the date of this Agreement, in any proceedings taken in Ukraine in relation to this Agreement, the choice of English law as the governing law of this Agreement and any arbitral award with respect to this Agreement obtained in the United Kingdom will be recognised and enforced in Ukraine after compliance with the applicable procedural rules in Ukraine. 10.6 Validity and Admissibility in Evidence All acts, conditions and things required to be done, fulfilled and performed (other than by the Lender) to make this Agreement admissible in evidence in Ukraine (whether in arbitration proceedings or otherwise) have been done, fulfilled and performed (other than the registration of this Agreement with the NBU as referred to in Clause 25 (NBU Registration Requirements). 10.7 Valid and Binding Obligations The obligations expressed to be assumed by the Borrower in this Agreement are legal, valid and binding and, subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors¶ rights generally and to general principles of equity, enforceable against it in accordance with their terms. 10.8 No Stamp Taxes Under the laws of Ukraine in force at the date of this Agreement, the execution and delivery of this Agreement is not subject to any Taxes in Ukraine (including, without limitation, any registration or transfer tax, stamp duty or similar levy). 10.9 No Default No event has occurred or circumstance has arisen which would constitute an Event of Default or Potential Event of Default. 10.10 No Material Proceedings There are no lawsuits, litigation or other legal or administrative or arbitration proceedings current or pending or, to the best of the knowledge and belief of the Borrower, threatened before any court, tribunal, arbitration panel or Agency which might (a) prohibit the execution

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and delivery of this Agreement or the Borrower¶s compliance with its obligations hereunder; or (b) adversely affect the right and power of the Borrower to enter into this Agreement; or (c) have a material adverse effect on the business, financial condition or prospects of the Borrower or on the Borrower¶s ability to perform or comply with its obligations under this Agreement. 10.11 No Material Adverse Change Since 1 January 2009 there has been no material adverse change or any development involving a prospective material adverse change in the financial condition, business prospects, properties, shareholders¶ equity or results of operations of the Group. 10.12 No Undisclosed Material Assets or Liabilities Neither the Borrower nor any other member of the Group had, as at the date as of which the audit report of the Auditors on the financial statements of the Borrower for the year ended 31 December 2009 was prepared, any material assets or liabilities (contingent or otherwise) which were not disclosed (including in the notes thereto) or adequately reserved against in accordance with IFRS nor were there at that date any unrealised or anticipated losses of the Borrower or the Group arising from commitments entered into by it which were not so disclosed or reserved against. 10.13 Execution of Agreement Its execution and delivery of this Agreement and its exercise of its rights and performance of its obligations hereunder do not and will not: 10.13.1 conflict with or result in a breach of any of the terms of, or constitute a default under, any instrument, agreement or order to which the Borrower or any of its Material Subsidiaries is a party or by which it or its properties is bound; 10.13.2 conflict with the provisions of the constitutional documents of the Borrower or any resolution of its shareholders; or 10.13.3 give rise to any Event of Default or Potential Event of Default or moratorium in respect of any of the obligations of the Borrower or any of its Material Subsidiaries or the creation of any lien, encumbrance or other security interest (howsoever described) in respect of any of the assets of the Borrower or any of its Material Subsidiaries, which, in any case, could reasonably be expected to have a material adverse effect on the Borrower¶s ability to perform its obligations under this Agreement. 10.14 Compliance with Laws Neither the entry into nor the performance by the Borrower of its obligations under this Agreement will violate any laws or regulations of Ukraine or any directives of governmental authorities therein having the force of law, and (a) the Borrower is in compliance in all material respects with all applicable provisions of the law and regulations of Ukraine; and (b) no Material Subsidiary is in violation of any applicable provision of the laws and regulations of Ukraine, except for such violations which would not have a material adverse effect on the Borrower¶s ability to perform its obligations under this Agreement. 10.15 Repetition Each of the representations and warranties contained in Clause 10 (Representations and Warranties of the Borrower) shall be deemed to be repeated by the Borrower on the Drawdown Date. 11. REPRESENTATIONS AND WARRANTIES OF THE LENDER The Lender makes the representations and warranties set out in Clause 7.6 (Tax Position of the Lender) and this Clause 11 and acknowledges that the Borrower has entered into this Agreement in reliance on those representations and warranties.

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11.1 Status and Capacity The Lender is duly incorporated under the laws of the United Kingdom and has full power and capacity to execute this Agreement, the Trust Deed, the Agency Agreement and the Subscription Agreement and to undertake and perform the obligations expressed to be assumed by it herein and therein. 11.2 Execution of Agreement The execution of this Agreement, the Trust Deed, the Agency Agreement and the Subscription Agreement and the undertaking and performance by the Lender of the obligations expressed to be assumed by it herein and therein will not conflict with, or result in a breach of or default under, the laws of England or any agreement or instrument to which it is a party or by which it is bound or in respect of indebtedness in relation to which it is a surety. 11.3 Valid and Binding Obligations This Agreement, the Trust Deed, the Agency Agreement and the Subscription Agreement, constitute legal, valid and binding obligations of the Lender enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, liquidation, administration, moratorium, re-organisation and similar laws affecting creditors¶ rights generally, and subject, as to enforceability, to general principles of equity. 11.4 Consents and Approvals All authorisations, consents, approvals and actions required by the Lender for or in connection with the execution of this Agreement, the Trust Deed, the Agency Agreement and the Subscription Agreement and the performance by the Lender of the obligations expressed to be undertaken by it herein and therein have been obtained and are in full force and effect. 12. INFORMATION The Borrower shall supply or procure to be supplied to the Lender (in sufficient copies as may reasonably be required by the Lender) (and, following the execution of the Loan Administration Assignment, as may be required by the Trustee) all such information as the Stock Exchange (or any other or further stock exchange or stock exchanges or any other relevant authority or authorities on which the Notes may, from time to time, be listed or admitted to trading) may require in connection with the listing or admittance to trading of the Notes. 13. COVENANTS The covenants in this Clause 13 remain in force from and including the date on which this Agreement takes effect as provided in Clause 25 (NBU Registration Requirements) for so long as the Loan or any part of it is or may be outstanding. 13.1 Maintenance of Legal Validity Save as provided in the proviso to the next sentence, the Borrower shall obtain, comply with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents and make or cause to be made all registrations, recordings and filings required in or by the laws and regulations of Ukraine to enable it lawfully to enter into and perform its obligations under this Agreement and to ensure the legality, validity, enforceability or admissibility in evidence in Ukraine of this Agreement. The Borrower shall promptly pay all amounts payable in respect of fees, expenses and payments under indemnities as required by this Agreement (³Relevant Payments´), provided that, in the event that the Borrower is prevented from paying such amounts by virtue of any requirement of applicable law, of the NBU or of any other relevant authority, the Borrower undertakes that it will use its best efforts to promptly obtain and maintain in full force any necessary licences or other authorisation to enable it to make the Relevant Payments and shall, as soon as practicable thereafter, make all Relevant Payments under this Agreement.

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13.2 Notification of Default The Borrower shall promptly inform the Lender (and, following the Loan Administration Assignment, the Trustee) of the occurrence of any Event of Default or Potential Event of Default and, upon receipt of a written request to that effect from the Lender (or, following the Loan Administration Assignment, the Trustee), confirm to the Lender or, as the case may be, the Trustee that, save as previously notified to the Lender or as notified in such confirmation, no Event of Default or Potential Event of Default has occurred. 13.3 Claims Pari passu The Borrower shall ensure that at all times the claims of the Lender against it under this Agreement rank at least pari passu with the claims of all other unsecured and unsubordinated creditors of the Borrower, save for those claims that are preferred by any bankruptcy, insolvency, liquidation or similar laws of general application. 13.4 Negative Pledge The Borrower shall not and shall not permit any of its Material Subsidiaries to, directly or indirectly, create, incur or suffer to exist any Lien, other than any Permitted Lien, on any of its/their assets, now owned or hereafter acquired, securing any Relevant Indebtedness, unless the Loan is secured equally and rateably with such other Relevant Indebtedness. 13.5 Mergers The Borrower shall not, and shall ensure that none of its Material Subsidiaries will, without the prior written consent of the Lender (and, following the Loan Administration Assignment, the Trustee), enter into any reorganisation (whether by way of a consolidation, merger, split- up, spin-off, accession, division, separation or transformation, as these terms are construed by applicable Ukrainian legislation), or participate in any other type of corporate reconstruction, if any such reorganisation or other type of corporate reconstruction would have (i) a material adverse effect on the business, financial condition or prospects of the Borrower or the Borrower¶s ability to perform or comply with its obligations under this Agreement; or (ii) a Negative Ratings Event. 13.6 Disposals The Borrower shall not, and shall ensure that none of its Material Subsidiaries will, sell, lease, transfer or otherwise dispose of, to a Person other than the Borrower or a Subsidiary of the Borrower, as the case may be, by one or more transactions or series of transactions (whether related or not), the whole or any part of its revenues or its assets which together constitute more than 20 per cent. of the gross revenues or assets of the Group, unless such transaction(s) is/are (a) on an arm¶s-length basis and on commercially reasonable terms; and (b) has/have been approved by a resolution of the appropriate decision making body of the Borrower resolving that the transaction complies with the requirements of this Clause 13.6 (Disposals). The restrictions set forth in this Clause 13.6 shall not apply to any sale by the Borrower of its loan assets in any securitisation, asset-backed financing or similar financing transaction, provided that the aggregate value of the assets which are the subject of all such securitisations, asset-backed financing or similar financing transactions does not at any time exceed 35 per cent. of the Borrower¶s total assets, as determined at any such time by reference to the most recent quarterly balance sheet of the Borrower prepared in accordance with IFRS. 13.7 Transactions with Affiliates The Borrower shall not, and shall ensure that none of its Subsidiaries, directly or indirectly, will, conduct any business, enter into or permit to exist any transaction or series of related transactions (including the purchase, sale, transfer, assignment, lease, conveyance or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate (an ³Affiliate Transaction´) including intercompany loans unless the terms of such Affiliate Transaction are no less favourable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm¶s-length transaction with a Person that is not an Affiliate of the Borrower or any of its Subsidiaries.

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This Clause 13.7 shall not apply to (i) any Affiliate Transaction made pursuant to a contract existing on the Loan Date (excluding any amendments or modifications thereof made after the Loan Date); or (ii) transactions between or among all or any of the Borrower and/or its Subsidiaries. 13.8 Payment of Taxes The Borrower shall, and shall ensure that its Subsidiaries will, pay or discharge or cause to be paid or discharged, before the same shall become overdue all taxes, assessments and governmental charges levied or imposed upon, or upon the income, profits or property of the Borrower and its Subsidiaries; provided, however that none of the Borrower nor any Subsidiary shall be required to pay or discharge or cause to be paid or discharged any such tax, assessment or charge or claim (a) whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with IFRS or other appropriate provision has been made; or (b) whose amount, together with any other unpaid or undischarged taxes, assessments and governmental charges does not in the aggregate exceed U.S.$5,000,000 (or its equivalent in other currencies). 13.9 Withholding Tax Exemption The Borrower shall give to the Lender all assistance it requires to ensure that, upon the Borrower¶s request and at the beginning of each calendar year, the Lender can provide the Borrower with the documents required under Ukrainian law for the relief of the Lender from Ukrainian withholding tax. 13.10 Financial Information So long as the Loan (or any part thereof) remains outstanding hereunder, the Borrower shall deliver to the Lender (and, following the execution of the Loan Administration Assignment, the Trustee): 13.10.1 not later than seven months after the end of each of its financial years, copies of the Borrower¶s audited consolidated financial statements for such financial year, prepared in accordance with IFRS; 13.10.2 not later than 75 days after the end of the second quarter of each of its financial years, copies of the Borrower¶s unaudited consolidated financial statements for six months, prepared in accordance with IFRS; and 13.10.3 without undue delay, such additional information regarding the financial position or the business of the Borrower as the Lender (and, following the execution of the Loan Administration Assignment, the Trustee) may reasonably request including for the purposes of providing certification to the Trustee pursuant to the Trust Deed. 13.11 Maintenance of Capital Adequacy The Borrower shall not, and shall ensure that each Subsidiary which carries on a Banking Business shall not, permit its total capital ratio to fall below the minimum total capital adequacy ratio required by the NBU and, in the case of a Subsidiary which carries on a Banking Business outside Ukraine, the relevant banking authority responsible for setting and/or supervising capital adequacy for financial institutions in the relevant jurisdiction in which such Subsidiary carries on its Banking Business. 13.12 Restricted Payments 13.12.1 Subject to Clause 13.12.2 the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay dividends, in cash or otherwise, or make any other distributions (whether by way of redemption, acquisition or otherwise) in respect of its share capital; or (ii) voluntarily purchase, redeem or otherwise retire for value any Capital Stock or subordinated debt,

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any such action being referred to herein as a ³Restricted Payment´. 13.12.2 The Borrower and any of its Subsidiaries may make a Restricted Payment if at the time of such payment no Event of Default has occurred or would result therefrom. 13.13 Limitation on Restrictions on Distributions from Material Subsidiaries The Borrower shall not other than pursuant to Clause 13.12 (Restricted Payments) above, permit any of its Material Subsidiaries to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Material Subsidiary to pay dividends or make any other distributions on its share capital; make any loans or advances or pay any Indebtedness owed to the Borrower; or transfer any of its property or assets to the Borrower, other than encumbrances or restrictions existing under (i) applicable law; (ii) the Notes and/or the Trust Deed; and (iii) any other agreement in effect prior to the date of the Agreement and advised in writing to the Lender (or, following the execution of the Loan Administration Assignment, the Trustee). 13.14 Compliance Certificates On each Interest Payment Date, the Borrower shall deliver to the Lender (and, following the execution of the Loan Administration Assignment, the Trustee), written notice in the form of an Officers¶ Certificate stating whether any Event of Default or Potential Event of Default has occurred and, if it has occurred and shall be continuing, what action the Borrower is taking or proposes to take with respect thereto. 14. EVENTS OF DEFAULT Each of Clause 14.1 (Failure to Pay) to Clause 14.10 (Judgments) describes circumstances which constitute an Event of Default for the purposes of this Agreement. If one or more Event of Default shall occur, the Lender (and, following the Loan Administration Assignment, the Trustee without regard to the Lender) shall be entitled to the remedies set forth in Clause 14.11 (Acceleration). 14.1 Failure to Pay The Borrower fails to pay any sum due from it hereunder at the time, in the currency and in the manner specified herein, and such failure is not remedied within five Business Days of the due date for payment. 14.2 Obligations The Borrower defaults in the performance of any of its other obligations under this Agreement and such default is not remedied within 15 days after the Lender (and, following the Loan Administration Assignment, the Trustee) has given notice of it to the Borrower requiring the same to be remedied. 14.3 Cross Default Any Indebtedness of the Borrower or any of its Subsidiaries becomes due and payable prior to the stated maturity thereof (other than at the option of the debtor) following a default of the Borrower or any of its Subsidiaries, or the Borrower or any of its Subsidiaries shall fail to make any payment in respect of any Indebtedness of the Borrower or any of its Subsidiaries on the date on which such payment is due and payable provided that the aggregate amount of the relevant Indebtedness in respect of which one or more of the events mentioned in this Clause 14.3 shall have occurred equals or exceeds U.S.$20,000,000 (or its equivalent in any other currency or currencies). 14.4 Validity and Illegality The validity of this Agreement is contested by the Borrower or the Borrower shall deny any of its obligations under this Agreement; or (b) (save as provided in Clause 13.1 (Maintenance of Legal Validity)) it is, or will become, unlawful for the Borrower to perform or comply with any of its obligations under or in respect of this Agreement; or (c) any of such obligations shall

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become unenforceable or cease to be legal, valid and binding in a manner which has a material adverse effect on the rights or claims of the Lender under this Agreement. 14.5 Authorisations Any regulation, decree, consent, approval, licence or other authority necessary to enable the Borrower to enter into or (save as provided in Clause 13.1 (Maintenance of Legal Validity)) perform its obligations under this Agreement or for the validity or enforceability thereof shall expire or be withheld, revoked or terminated or otherwise cease to remain in full force and effect or shall be modified in a manner which adversely affects any rights or claims of the Lender. 14.6 Insolvency, etc. (i) The Borrower or any of its Material Subsidiaries becomes insolvent or is unable to pay its debts as they fall due; (ii) an administrator or liquidator of the Borrower or any of its Material Subsidiaries or the whole or a substantial part of the undertaking and assets of the Borrower or any of its Material Subsidiaries is appointed (or application for any such appointment is made); (iii) the Borrower or any of its Material Subsidiaries makes a general assignment of a general arrangement or general composition with or for the benefit of its creditors or declares a moratorium in respect of any of its Indebtedness; (iv) the Borrower ceases or threatens to cease to carry on all or any substantial part of the principal business that it carried on as at the date hereof; or (v) the general banking licence of the Borrower or, if applicable, any of its Material Subsidiaries is revoked. 14.7 Winding up, etc. An order is made or an effective resolution is passed for the winding up, liquidation or dissolution of the Borrower or any of its Material Subsidiaries (otherwise than, in the case of a Material Subsidiary of the Borrower, for the purposes of or pursuant to an amalgamation, reorganisation of restructuring whilst solvent). 14.8 Analogous Events Any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in Clauses 14.6 (Insolvency, etc.) and 14.7 (Winding up, etc.). 14.9 Government Intervention (i) All or a substantial part of the undertaking and assets or the Borrower or any of its Material Subsidiaries is condemned, seized or otherwise appropriated by any person acting under the authority of any Agency, national, regional or local government; or (ii) the Borrower or any of its Material Subsidiaries is prevented by any such person from exercising normal control over all or a substantial part of its undertaking and assets. 14.10 Judgments The aggregate amount of unsatisfied judgments, decrees or orders of courts or other appropriate law enforcement bodies for the payment of money against the Borrower and/or any Material Subsidiaries of the Borrower exceeds U.S.$20,000,000 or the equivalent thereof in any other currency or currencies and there is a period of 60 days (or, if longer, the period therein specified for payment or on which such judgment, decree or order otherwise becomes enforceable) following the entry thereof during which all such judgments, decrees or orders are not discharged, waived or the execution thereof stayed and such default continues for five days. 14.11 Acceleration If an Event of Default has occurred and is continuing, the Lender (and, following the Loan Administration Assignment, the Trustee and not the Lender) may by written notice to the Borrower declare the outstanding principal amount of the Loan to be immediately due and payable (whereupon the same shall become immediately due and payable together with accrued interest thereon and any other sums then owed by the Borrower hereunder) or declare

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the outstanding principal amount of the Loan to be due and payable on demand of the Lender (and, following the Loan Administration Assignment, the Trustee and not the Lender). 14.12 Amounts Due on Demand If, pursuant to Clause 14.11 (Acceleration), the Lender (and, following the Loan Administration Assignment, the Trustee and not the Lender) declares the outstanding principal amount of the Advance to be due and payable on demand of the Lender (and, following the Loan Administration Assignment, the Trustee and not the Lender), then, and at any time thereafter, the Lender (and, following the Loan Administration Transfer, the Trustee and not the Lender) may by written notice to the Borrower require repayment of the outstanding principal amount of the Loan on such date as it may specify in such notice (whereupon the same shall become due and payable on such date together with accrued interest thereon and any other sums then owed by the Borrower hereunder) or withdraw its declaration with effect from such date as it may specify in such notice. 15. ACCRUAL OF INTEREST AND INDEMNITY 15.1 Borrower¶s Indemnity The Borrower undertakes to the Lender that if the Lender, any of its Affiliates, or any director, officer, employee or agent of the Lender or any such Affiliate or the Trustee (each an ³indemnified party´) incurs any loss, liability, cost, claim, charge, expense (including without limitation, (i) any amount payable by the Lender under the Trust Deed and/or Agency Agreement, where such amount is subject to receipt by the Lender of the relevant amount from the Borrower; (ii) Taxes, legal fees and expenses and any applicable stamp duties, stamp duty reserve tax or other duties payable, demand or damage together with in each case any VAT thereon; and (iii) interest on late payment (where the Lender is required to pay interest as a result of a payment being made by the Lender after the due date for payment), and in respect of such loss an indemnified party shall exercise reasonable endeavours to provide any relevant documentation to the Borrower) (a ³Loss´) as a result of or in connection with any Event of Default or Potential Event of Default, the Loan, this Agreement (or enforcement thereof), or the issue, constitution, sale, listing or enforcement of the Notes or the Notes being outstanding or any combination of any of the foregoing or (in the case of interest on late payment) as a result of any sum due and payable by the Borrower hereunder (other than any amount of interest) not being paid on the due date therefor in accordance with the provisions of Clause 17 (Payments), the Borrower shall pay to the Lender on demand an amount equal to such Loss and all costs, charges and expenses which it or any indemnified party may pay or incur in connection with investigating, disputing or defending any such action or claim as such costs, charges and expenses are incurred, unless such loss was caused by such indemnified party¶s fraud, negligence, wilful default or wilful misconduct or arises out of a breach of the representations and warranties of the Lender under this Agreement or the Subscription Agreement. Except as expressly provided in the Trust Deed, the Lender shall not have any duty or obligation, whether as fiduciary or trustee, for any indemnified party or otherwise, to recover any such payment or to account to any other person for any amounts paid to it under this Clause 15.1. 15.2 Independent Obligation Clause 15.1 (Borrower¶s Indemnity) constitutes a separate and independent obligation of the Borrower from its other obligations under or in connection with this Agreement or any other obligations of the Borrower in connection with the issue of the Notes by the Lender and shall not affect, or be construed to affect, any other provisions of this Agreement or any such other obligations. 15.3 Evidence of Loss Subject as provided in Clause 17.4 (Documents Evidencing Payment or Indemnification), a certificate of the Lender (or the Trustee, as the case may be) setting forth the amount of the Loss, costs, charges and expenses described in Clause 15.1 (Borrower¶s Indemnity) and

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specifying the basis therefor and calculations thereof shall be conclusive evidence of the amount of such Loss, cost, charges and expenses. 15.4 Survival The obligations of the Borrower pursuant to Clauses 7.1 (Additional Amounts), 17 (Payments) and 15.1 (Borrower¶s Indemnity) shall survive the execution and delivery of this Agreement, the drawdown of the Loan and the repayment of the Loan, in each case by the Borrower. 16. CURRENCY OF ACCOUNT AND PAYMENT 16.1 Currency of Account The U.S. dollar is the currency of account and payment for each and every sum at any time due from the Borrower hereunder. 16.2 Currency Indemnity If any sum due from the Borrower under this Agreement or any order or judgment given or made in relation hereto has to be converted from the currency (the ³first currency´) in which the same is payable hereunder or under such order or judgment into another currency (the ³second currency´) for the purpose of (a) making or filing a claim or proof against the Borrower; (b) obtaining an order or judgment in any court or other tribunal; or (c) enforcing any order or judgment given or made in relation hereto, the Borrower shall indemnify and hold harmless the Lender (and, following the execution of the Loan Administration Assignment, the Trustee) from and against any loss suffered or incurred as a result of any discrepancy between (i) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency; and (ii) the rate or rates of exchange at which the Lender (and, following the execution of the Loan Administration Assignment, the Trustee) may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof. 17. PAYMENTS 17.1 Payments to the Lender On each date on which this Agreement requires an amount denominated in U.S. dollars to be paid by the Borrower, the Borrower shall make the same available to the Lender by payment in U.S. dollars and in Same-Day Funds (or in such other funds as may for the time being be customary in London for the settlement in London of international banking transactions in U.S. dollars) not later than 10.00 a.m. (New York City time) two Business Days prior to the relevant Interest Payment Date, the Repayment Date or other such date to the Account other than amounts (i) payable under the Fees Letter; and (ii) payable in relation to Clause 15.1 (Borrower¶s Indemnity) which the Borrower shall pay to such account or accounts as the Lender and/or the Trustee shall notify to the Borrower from time to time; provided that, if at any time after the execution of the Loan Administration Assignment, the Trustee notifies the Borrower that a Relevant Event has occurred, the Borrower shall make all subsequent payments which would otherwise be made to the Account, to such other account as shall be notified by the Trustee to the Borrower. Without prejudice to its obligations under Clause 5.1 (Payment of Interest), the Borrower shall procure that, before 9.00 a.m. (New York City time) on the Banking Day before the due date of each payment made by it under this Clause 17.1, the bank effecting payment on its behalf confirms to the Lender or to such person as the Lender may direct by tested telex or authenticated SWIFT message the payment instructions relating to such payment. For these purposes, ³Banking Day´ means a day on which banks are open for general business in New York City and London. 17.2 Alternative Payment Arrangements If, at any time, it shall become impracticable (by reason of any action of any governmental authority or any change of law, exchange control regulations or any similar event) for the Borrower to make any payments under this Agreement in the manner specified in Clause 17.1 (Payments to the Lender), then the Borrower may seek agreement with the Lender (or, after

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the delivery of any such notice, agree with the Trustee) on alternative arrangements for the payment to the Lender (or, as the case may be, the Trustee) of amounts due (prior to the delivery of any notice referred to in Clause 17.1 (Payments to the Lender)) under this Agreement provided that, in the absence of any such agreement with the Lender (or, as the case may be, the Trustee), the Borrower shall be obliged to make all payments due to the Lender in the manner specified above. 17.3 No Set-off All payments required to be made by the Borrower or the Lender hereunder shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim. 17.4 Documents Evidencing Payment or Indemnification When a demand for payment or indemnification is made on the Borrower under Clause 6.7 (Costs of Prepayment/Repayment), Clause 16.2 (Currency Indemnity) or Clause 18 (Costs and Expenses), then, upon request by the Borrower, and to the extent necessary under Ukrainian legislation to enable the Borrower to make any such payment or indemnification, the Lender or the Trustee, as the case may be, shall (to the extent practicable) provide the Borrower with documents evidencing the amount to be paid or indemnified, together with a statement containing the calculation of such amount provided that nothing herein shall require the Lender to disclose any confidential information relating to the organisation of its or any other Person¶s affairs. 18. COSTS AND EXPENSES 18.1 Transaction Expenses and Fees The Borrower agrees that it shall pay the fees and expenses of the Lender as specified in the Fees Letter. 18.2 Preservation and Enforcement of Rights The Borrower shall, from time to time on demand of the Lender reimburse the Lender for all costs and expenses (including legal fees and expenses) together with any VAT thereon properly incurred in or in connection with the preservation and/or enforcement of any of its rights under this Agreement (except where the relevant claim is successfully defended by the Borrower). 18.3 Stamp Taxes The Borrower shall pay all stamp, registration and other similar duties or taxes (including any interest or penalties thereon or in connection with) to which this Agreement or any judgment given against the Borrower in connection herewith is or at any time may be subject and shall, from time to time on demand of the Lender or the Trustee, indemnify the Lender and, as the case may be, the Trustee against any liabilities, losses, costs, expenses (including, without limitation, legal fees and any applicable value added tax) and claims, actions or demand resulting from any failure to pay or any delay in paying any such duty or tax. 18.4 Costs relating to Amendments and Waivers The Borrower shall, from time to time on demand of the Lender (and, as the case may be, the Trustee) (and without prejudice to the provisions of Clause 15.1 (Borrower¶s Indemnity) and Clause 18.2 (Preservation and Enforcement of Rights)) compensate the Lender (and, as the case may be, the Trustee) at such daily and/or hourly rates as the Lender (or, as the case may be, the Trustee) shall from time to time reasonably determine for all amounts payable by the Lender to the Trustee or the corporate services provider for the Lender for their time expended and for all costs and expenses (including telephone, fax, copying, travel and personnel costs) the Lender (or, as the case may be, the Trustee) may incur, in connection with the Lender (and, as the case may be, the Trustee) taking such action as it may consider appropriate in connection with:

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18.4.1 any meeting of the holders of the Notes or the granting or proposed granting of any waiver or consent requested under this Agreement by the Borrower; 18.4.2 any actual, potential or suspected breach by the Borrower of any of its obligations under this Agreement; 18.4.3 the occurrence of any event which is an Event of Default or a Potential Event of Default; or 18.4.4 any amendment or proposed amendment to or the granting or proposed granting of any waiver, determination or consent under this Agreement or any Funding Document requested by the Borrower. 19. ASSIGNMENTS AND TRANSFERS 19.1 Binding Agreement This Agreement shall be binding upon and enure to the benefit of each party hereto and its or any subsequent successors and assigns. 19.2 No Assignments and Transfers by the Borrower The Borrower shall not be entitled to assign or transfer all or any of its rights, benefits and obligations hereunder. 19.3 Assignments by the Lender Subject to the provisions of Clause 4 of the Trust Deed, the Lender may not assign or transfer, in whole or in part, any of its rights and benefits or obligations under this agreement except for (i) the charge by way of first fixed charge granted by the Lender in favour of the Trustee (as Trustee); (ii) the absolute assignment by way of security by the Lender to the Trustee of certain rights, interests and benefits under this Agreement, in each case, pursuant to Clause 4 of the Trust Deed; and (iii) pursuant to a substitution under the Trust Deed. 20. CALCULATIONS AND EVIDENCE OF DEBT 20.1 Evidence of Debt The Lender shall maintain in accordance with its usual practice accounts evidencing the amounts from time to time lent by and owing to it hereunder; in any legal action or proceeding arising out of or in connection with this Agreement, in the absence of manifest error and subject to the provision by the Lender to the Borrower of written information describing in reasonable detail the calculation or computation of such amounts together with the relevant supporting documents evidencing the matters described therein, the entries made in such accounts shall be conclusive evidence of the existence and amounts of the obligations of the Borrower therein recorded. 20.2 Change of Circumstance Certificates A certificate signed by two Authorised Signatories of the Lender describing in reasonable detail (a) the amount by which a sum payable to it hereunder is to be increased under Clause 7.1 (Additional Amounts); or (b) the amount for the time being required to indemnify it against any such cost, payment or liability as is mentioned in Clause 7.3 (Tax Indemnity) or Clause 9.1 (Increased Costs) or Clause 15.1 (Borrower¶s Indemnity) shall, in the absence of manifest error, be conclusive evidence of the existence and amounts of the specified obligations of the Borrower in relation to the Lender. 21. REMEDIES AND WAIVERS, PARTIAL INVALIDITY 21.1 Remedies and Waivers No failure by the Lender (and, following the execution of the Loan Administration Assignment, the Trustee) to exercise, nor any delay by the Lender or the Trustee in exercising, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of

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any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 21.2 Partial Invalidity If, at any time, any provision hereof is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions hereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. 22. NOTICES; LANGUAGE 22.1 Written Notice All notices, requests, demands or other communication to be made under this Agreement shall be in writing and, unless otherwise stated, shall be delivered by fax or post. 22.2 Giving of Notice Any communication or document to be delivered by one person to another pursuant to this Agreement shall (unless that other person has by 15 days¶ written notice specified another address) be made or delivered to that other person, addressed as follows: 22.2.1 If to the Borrower: 50, Naberezhna Peremohy Dnipropetrovsk Ukraine 49094 Attention: Mrs Lyudmila Shmalchenko Deputy Chairman of the Board, Director of Treasury Tel: +380 567 161 507 Fax: +380 567 161 870

22.2.2 If to the Lender: Pellipar House First Floor 9 Cloak Lane London EC4R 2UR Attention: The Directors Fax: +44 20 7367 8959

and shall be deemed to have been delivered at the time when confirmation of its transmission has been recorded by the sender¶s fax machine at the end of the communication (in the case of any communication by fax) or (in the case of any communication made by letter) upon receipt by the addressee (in each case, if given during normal business hours of the recipient, and, if not given during such hours, on the immediately succeeding business day in the city of the addressee during which such normal business hours next occur). 22.3 English Language Each communication and document delivered by one party to another pursuant to this Agreement shall be in the English language or accompanied by a translation into English certified (by an officer of the person delivering the same) as being a true and accurate translation. In the event of any discrepancies between the English and Ukrainian versions of such communication or document, or any dispute regarding the interpretation of any provision in the English or Ukrainian versions of such communication or document, the English version of such communication or document shall prevail, unless the document is a statutory or other official document.

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22.4 Language of Agreement This Agreement has been executed in both the English language and the Ukrainian language. In the event of any discrepancies between the English and Ukrainian versions of this Agreement, or any dispute regarding the interpretation of any provision in the English or Ukrainian versions of this Agreement, the English version of this Agreement shall prevail and any question of interpretation shall be addressed solely in the English language. 23. LAW, JURISDICTION AND ARBITRATION 23.1 Governing Law This Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by, and construed in accordance with, English law. 23.2 Jurisdiction The parties irrevocably agree that any dispute arising out of or connected with this Agreement, including a dispute as to the validity, existence or termination of this Agreement or the consequences of its nullity and/or this Clause 23.2 (a ³Dispute´), shall be resolved: 23.2.1 subject to Clause 23.2.2 below, by arbitration in London, England, conducted in the English language by three arbitrators, in accordance with the LCIA Rules, which rules are deemed to be incorporated by reference into this Clause, save that Article 6 shall not apply and Article 5.6 of the LCIA Rules shall be amended as follows: ³unless the parties agree otherwise, the third arbitrator, who shall act as chairman of the tribunal, shall be nominated by the two arbitrators nominated by or on behalf of the parties. If he is not so nominated within 30 days of the date of nomination of the later of the two party-nominated arbitrators to be nominated, he shall be chosen by the LCIA´. Save as provided in Clause 23.2.2, the parties agree to exclude the jurisdiction of the English courts under section 45 of the Arbitration Act 1996; or 23.2.2 at the sole option of the Lender, by proceedings brought in the courts of England, which courts are to have exclusive jurisdiction. If the Lender is in the position of a Respondent (as defined in the LCIA Rules) and the Lender wishes to exercise this option, it must do so by notice to the other parties to the Dispute within 30 days of service on it of the Request for Arbitration (as defined in the LCIA Rules). For the avoidance of doubt, Clause 23.2.2 is for the benefit of the Lender alone and shall not limit the right of the Lender to bring proceedings in any other court of competent jurisdiction. 23.3 Appropriate Forum Each of the parties irrevocably waives any objection which it might now or hereafter have to the courts of England being nominated as the forum to hear and determine any Dispute, and agrees not to claim that any such court is not a convenient or appropriate forum. 23.4 Service of Process The Borrower agrees that the service of process relating to any Proceedings in England and Wales may be by delivery to Law Debenture Corporate Services Limited at its registered office for the time being, currently at Fifth Floor, 100 Wood Street, London EC2V 7EX. If such person is not or ceases to be effectively appointed to accept service of process, the Borrower shall immediately appoint a further person in the United Kingdom to accept service of process on its behalf and, failing such appointment within 15 days, the Lender (and, following the execution of the Loan Administration Assignment, the Trustee) shall be entitled to appoint such a person by written notice to the Borrower. Nothing in this Clause shall affect the right of the Lender (and, following the execution of the Loan Administration Assignment, the Trustee) to serve process in any other manner permitted by law. 24. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 Other than the Trustee, a person who is not a party to this Agreement has no rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this

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does not affect any right or remedy of a third party which exists or is available apart from that Act. 25. NBU REGISTRATION REQUIREMENTS 25.1 Effectiveness Requirement This Agreement shall become effective on the date of its registration with the NBU as confirmed by the loan registration notice of the Borrower bearing a registration notation and stamp of the NBU. 25.2 Maximum Interest Rate Notwithstanding any other provisions hereof to the contrary, if and to the extent required by the mandatory provisions of the regulations of the NBU governing the registration of loan agreements between Ukrainian borrowers and foreign lenders (and only until such requirement is in effect), the aggregate amount of all payments payable by the Borrower under this Agreement for the use of the Loan (i.e., all payments made by the Borrower pursuant to this Agreement other than repayments of the principal amount of the Loan, including, but not limited to, interest payments, fees and indemnity payments) shall not exceed the amount calculated by reference to the maximum interest rate established by the NBU for foreign currency loans from non-residents and effective at the date of registration of this Agreement with the NBU. For the avoidance of doubt, any application of this requirement shall not limit the rights of the Lender (and/or the Trustee, as relevant) under Clause 14.1 (Failure to Pay) or Clause 14.11 (Acceleration) of this Agreement. 25.3 Amendments and Supplements If and to the extent required by the mandatory provisions of the regulations of the NBU governing the registration of loan agreements between Ukrainian borrowers and foreign lenders (and only until such requirement is in effect) and applicable at the time of making any amendment or supplement to this Agreement, such amendment or supplement shall become effective only upon registration thereof with the NBU.

154 Terms and Conditions of the Notes

The following (other than the text in italics) is the text of the Terms and Conditions of the Notes, which (subject to modification) will be endorsed on each Note in definitive form (if issued). The terms and conditions applicable to any Note in global form will differ from those terms and conditions which would apply to the Note were it in definitive form to the extent described under ³Summary of Provisions Relating to the Notes while in Global Form´ below. The U.S.$200,000,000 9.375 per cent. Loan Participation Notes due 23 September 2015 (the ³Notes´, which expression shall in these Terms and Conditions, unless the context otherwise requires, include any further notes issued pursuant to Condition 14 (Further Issues) and consolidated and forming a single series with the then outstanding Notes) of UK SPV Credit Finance plc (the ³Issuer´) are constituted and secured by, and are subject to, and have the benefit of, a trust deed (such trust deed as modified and/or restated and/or supplemented from time to time, the ³Trust Deed´) dated 24 September 2010 between the Issuer and Deutsche Trustee Company Limited as trustee (the ³Trustee´, which expression shall include its successor(s)) for the holders of the Notes (the ³Noteholders´). The Issuer has authorised the creation, issue and sale of the Notes for the sole purpose of financing a U.S.$200,000,000 Loan (the ³Loan´) to Public Joint-Stock Company Commercial Bank PrivatBank (the ³Bank´). The Issuer and the Bank have recorded the terms of the Loan in an agreement (such agreement as modified and/or restated and/or supplemented from time to time, the ³Loan Agreement´) dated 17 September 2010 between the Issuer and the Bank. In each case where amounts of principal, interest and additional amounts (if any) are stated herein or in the Trust Deed to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement (less any amounts in respect of the Reserved Rights (as defined in Condition 3 (Security))). Noteholders must therefore rely solely and exclusively on the covenant to pay under the Loan Agreement and the credit and financial standing of the Bank. Noteholders shall have no recourse (direct or indirect) to any other assets of the Issuer. None of the Noteholders, the Trustee or the other creditors (nor any other person acting on behalf of any of them) shall be entitled at any time to institute against the Issuer, or join in any institution against the Issuer of, any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Issuer relating to the Notes or otherwise owed to the creditors or the Trustee for so long as the Notes are outstanding, save for lodging a claim in the liquidation of the Issuer which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Issuer. In certain circumstances, the Trustee can (subject to it being indemnified and/or secured and/or pre-funded to its satisfaction) be required by Noteholders holding at least one-quarter of the principal amount of the Notes outstanding (as defined in the Trust Deed) or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders to exercise certain of its powers under the Trust Deed (including any rights arising under the Loan Administration Assignment (as defined in the Trust Deed)). It may not be possible for the Trustee to take certain actions in relation to the Notes and, accordingly, in such circumstances the Trustee will be unable to take action, notwithstanding the provisions of an indemnity to it, and it will be for the Noteholders to take action directly. The statements in these terms and conditions (the ³Conditions´) include summaries of, and are subject to, the detailed provisions of, and definitions in, the Trust Deed. Copies of the Trust Deed and an agency agreement (such agreement as modified and/or restated and/or supplemented from time to time, the ³Agency Agreement´) dated 24 September 2010 between the Issuer, Deutsche Bank AG, London Branch, as principal paying agent (the ³Principal Paying Agent´ and any other paying agents named therein or appointed thereunder and, together with the Principal Paying Agent, the ³Paying Agents´, which expressions shall include any successors) and the Trustee are available for inspection during

155 Terms and Conditions of the Notes normal business hours by Noteholders and Couponholders (as defined below) at the specified office for the time being of the Trustee, being at the date hereof at Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom, and at the Specified Office (as defined in the Agency Agreement) of each Paying Agent. The Noteholders and the holders of the related interest coupons (the ³Couponholders´ and the ³Coupons´ respectively) are entitled to the benefit of, are bound by and are deemed to have notice of all the provisions of the Trust Deed and those applicable to them of the Agency Agreement. Terms defined in the Trust Deed (including the Schedules thereto) shall have the same meaning when used herein, except as otherwise provided. 1. FORM, DENOMINATION AND TITLE 1.1 Form and denomination: The Notes are serially numbered and in bearer form in the denominations of U.S.$ 100,000 and integral multiples of U.S.$ 1,000 in excess thereof up to and including U.S.$ 199,000 each with Coupons attached on issue. 1.2 Title: Title to the Notes and Coupons passes by delivery. The holder of any Note or Coupon will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it, any writing on it, or its theft or loss) and no person will be liable for so treating the holder. 2. STATUS AND LIMITED RECOURSE 2.1 Status The Notes constitute secured, limited recourse obligations of the Issuer. Recourse in respect of the Notes is limited in the manner described in Condition 2.2 (Limited Recourse) below. The Notes are secured in the manner described in Condition 3 (Security) and shall at all times rank pari passu and without any preference amongst themselves. 2.2 Limited Recourse The sole purpose of the issue of the Notes is to provide the funds for the Issuer to finance the Loan. In each case where amounts of principal, interest and additional amounts (if any) are stated in these Conditions or in the Trust Deed to be payable in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to sums of principal, interest or additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement less any amount in respect of the Reserved Rights (as defined in Condition 3 (Security) below). If the Issuer receives any amount (a ³relevant amount´) under the Loan Agreement in a currency other than U.S. dollars, the Issuer¶s obligation to make any corresponding payment under these Conditions or the Trust Deed shall be fully satisfied by paying such sum as the Issuer receives having converted the relevant amount into U.S. dollars (after deducting any costs of exchange) at the rate or rates of exchange at which the Issuer may in the ordinary course of business purchase U.S. dollars with the currency so received. Any payment in respect of the Notes and the Coupons equivalent to the sums actually received (and not required to be repaid pursuant to appropriate Ukrainian bankruptcy legislation) by or for the account of the Issuer by way of principal, interest or additional amounts (if any) pursuant to the Loan Agreement (less any amounts in respect of the Reserved Rights) will be made pro rata among all Noteholders and Couponholders (as the case may be), on or as soon as practicable after the date of the receipt of, and in the currency of, and subject to the conditions attaching to, the equivalent payment pursuant to the Loan Agreement. The Issuer shall not be liable to make any payment in respect of the Notes or the Coupons other than as expressly provided in these Conditions and in the Trust Deed. The Issuer shall not be under any obligation to exercise in favour of the Noteholders or Couponholders any rights of set-off or of banker¶s lien or to combine accounts or counterclaim that may arise out of other transactions between the Issuer and the Bank.

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It is a condition of the Notes that: 2.2.1 neither the Issuer nor the Trustee makes any representation or warranty in respect of, and shall at no time have any responsibility for or liability or obligation in respect of, or, save as otherwise expressly provided in the Trust Deed or in Condition 2.2.6 below, the performance and observance by the Bank of its obligations under the Loan Agreement or the recoverability of any sum of principal or interest (or any additional amounts) due or to become due from the Bank under the Loan Agreement; 2.2.2 neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, the condition (financial, operational or otherwise), creditworthiness, affairs, status, nature or prospects of the Bank; 2.2.3 neither the Issuer nor the Trustee shall at any time be liable for any misrepresentation or breach of warranty or any act, default or omission of the Bank under, or in respect of, the Loan Agreement; 2.2.4 neither the Issuer nor the Trustee shall at any time have any responsibility for, or liability or obligation in respect of, the performance and observance by the Principal Paying Agent or any Paying Agent of their respective obligations under the Agency Agreement; 2.2.5 the financial servicing and performance of the terms of the Notes and the Coupons depend solely and exclusively upon performance by the Bank of its obligations under the Loan Agreement, its covenant to pay under the Loan Agreement and its credit and financial standing. The Bank has represented and warranted to the Issuer in the Loan Agreement that the Loan Agreement constitutes legal, valid and binding obligations of the Bank. The representations and warranties given by the Bank in Clause 10 (Representation and Warranties of the Borrower) of the Loan Agreement are given by the Bank to the Issuer for the benefit of the Issuer and neither the Trustee, any Noteholder nor any Couponholder shall have any remedies or rights against the Bank that the Issuer may have with respect to such representations or warranties, other than any right the Trustee may have pursuant to the Loan Administration Assignment (as defined in Condition 3 (Security) below); 2.2.6 the Issuer and, pursuant to the Loan Administration Assignment, the Trustee will and are entitled to rely on self-certification by the Bank and, where applicable, certification by third parties as a means of monitoring whether the Bank is complying with its obligations under the Loan Agreement and shall not otherwise be responsible for investigating any aspect of the Bank¶s performance in relation to the Loan Agreement and, subject as further provided in the Trust Deed, neither the Issuer nor the Trustee will be liable for any failure to make any investigation which might be made by a lender or a security holder in relation to the Loan or the property which is the subject of the Security Interests (as defined in Condition 3 (Security) below) and held by way of security for the Notes, as applicable, and the Trustee shall not be bound to enquire into or be liable for any defect or failure in the right or title of the Issuer to the property which is the subject of the Security Interests whether such defect or failure was known to the Trustee or might have been discovered upon examination or enquiry and whether capable of remedy or not, nor will it have any liability for the enforceability of the security created by the Security Interests whether or not as a result of any failure, omission or defect in registering or filing or otherwise protecting or perfecting such security and the Trustee will have no responsibility for the value of such security; 2.2.7 if the Bank is required by law to make any withholding or deduction for or on account of tax from any payment under the Loan Agreement or if the Issuer is required by law to make any withholding or deduction for or on account of tax from any payment in respect of the Notes, the sole obligation of the Issuer will be to pay to the Noteholders sums equivalent to the sums actually received from the Bank pursuant to the Loan Agreement in respect of such payment, including, if applicable,

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additional amounts in respect of the tax required to be so withheld or deducted; the Issuer shall not be obliged to take any actions or measures as regards such deductions or withholdings other than those set out in Clause 7 (Taxes) of the Loan Agreement; and 2.2.8 neither the Issuer nor the Trustee shall at any time be required to expend or risk their own funds or otherwise incur any financial liability in the performance of their obligations or duties or the exercise of any right, power, authority or discretion pursuant to these Conditions until they have received the funds from the Bank that are necessary (in its opinion) to cover the costs and expenses in connection with such performance or exercise. Save as otherwise expressly provided in these Conditions and in the Trust Deed, no proprietary or other direct interest in the Issuer¶s rights under or in respect of the Loan Agreement or the Loan exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder or Couponholder will have any entitlement to enforce any of the provisions in the Loan Agreement or have direct recourse to the Bank except through action by the Trustee in respect of the Security Interests. Neither the Issuer nor the Trustee (as the case may be) shall be required to take proceedings to enforce payment under the Loan Agreement unless, subject to the more detailed provisions of the Trust Deed, it has been indemnified and/or secured and/or pre-funded to its satisfaction against all liabilities, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith. Payments made by the Bank under the Loan Agreement to, or to the order of, the Trustee or (subject to the provisions of the Trust Deed) the Principal Paying Agent will satisfy pro tanto the obligations of the Issuer in respect of the Notes and Coupons. Notwithstanding any other provisions of these Conditions and the provisions in the Trust Deed, the Trustee and the Noteholders and Couponholders shall have recourse only to the property subject to the Security Interests in accordance with the provisions of the Trust Deed. After realisation of the Security Interests which have become enforceable, the obligations of the Issuer with respect to the Trustee and the Noteholders and Couponholders in respect of the Notes and Coupons shall be satisfied and none of the foregoing parties may take any further steps against the Issuer to recover any further sums in respect thereof and the right to receive any such sums shall be extinguished. In particular, neither the Trustee nor any Noteholder or Couponholder shall petition or take any other step for the winding-up of the Issuer. Noteholders and Couponholders are deemed to have accepted and agreed that they will be relying solely and exclusively on the performance of the Bank of its obligations under the Loan Agreement which depends on the credit and financial standing of the Bank in respect of the financial servicing of the Notes. 3. SECURITY The obligations of the Issuer under the Notes and all other moneys payable under the Trust Deed are secured by the following security (together referred to as the ³Charge´): (i) a charge by way of first fixed security in favour of the Trustee of all its rights to principal, interest and other amounts paid and payable by the Bank to the Issuer as lender in respect of the Loan under the Loan Agreement; (ii) a charge by way of first fixed security in favour of the Trustee of the right to receive all sums which may be paid or be or become payable by the Bank under any claim, award or judgment relating to the Loan Agreement; (iii) a charge by way of first fixed security in favour of the Trustee of all its rights, title and interest in and to all sums of money now or in the future deposited in an account in the name of the Issuer with the Principal Paying Agent, account number 0196713 0000 USD 000 CTA, MTAG 19671300 together with the debts represented thereby (other than interest from time to time earned thereon) (the ³Account´); and

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(iv) a charge by way of first fixed security in favour of the Trustee of all its rights, title and interest in Permitted Investments (as defined in the Trust Deed) if any, (other than Reserved Rights (as defined below)) (the ³Charged Property´). ³Reserved Rights´ means the Issuer¶s right to amounts in respect of any rights, interests and benefits of the Issuer under the following clauses of the Loan Agreement: Clause 3.2 (Payment of Fees), Clause 5.3 (Calculation of Additional Interest), Clause 6.3 (Prepayment upon Illegality) and Clause 6.4 (Prepayment in the event of a Change of Control) (other than the right to receive any amounts payable under such Clauses 6.3 and 6.4), Clause 6.7 (Costs of Prepayment/Repayment) (second sentence thereof), Clause 7.1 (Additional Amounts) (penultimate sentence thereof), Clause 7.3.1 and, to the extent it does not relate to a withholding or deduction in respect of a payment to a Noteholder, Clause 7.3.2, Clause 7.5 (Tax Credits and Tax Refunds), Clause 7.7 (Delivery of Forms), Clause 9 (Change in Circumstances), Clause 10 (Representations and Warranties of the Borrower), Clause 15 (Accrual of Interest and Indemnity) and Clause 18 (Costs and Expenses). The Issuer, pursuant to the Trust Deed, with full title guarantee will assign absolutely by way of security to the Trustee for the benefit of itself and the Noteholders all the rights, interests and benefits, both present and future, which have accrued or may accrue to the Issuer as lender under or pursuant to the Loan Agreement (including, without limitation, the right to declare the Loan immediately due and payable and to take proceedings to enforce the obligations of the Bank thereunder), other than and excluding the rights subject to the Charge described in Condition 3(i) above and the Reserved Rights (the ³Loan Administration Assignment´, and together with the Charge, the ³Security Interests´). In certain circumstances, the Trustee may (subject to its being indemnified and/or secured and/or pre-funded to its satisfaction) be required in writing by Noteholders holding at least one-quarter of the principal amount of the Notes outstanding or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders to exercise certain of its powers under the Trust Deed (including those arising in connection with the Security Interests). 4. ISSUER¶S COVENANT As provided in the Trust Deed, so long as any of the Notes or Coupons remain outstanding (as defined in the Trust Deed), the Issuer will not, without the prior written consent of the Trustee or an Extraordinary Resolution, agree to any amendment to or any modification or waiver of, or authorise any breach or proposed breach of, or give any consent under, the terms of the Loan Agreement and (to the extent reasonably practicable) will act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement, except as otherwise expressly provided in the Trust Deed or the Loan Agreement. Any such amendment, modification, waiver, consent or authorisation made with the consent of the Trustee shall be binding on the Noteholders and, unless the Trustee agrees otherwise, any such amendment or modification shall be notified by the Issuer to the Noteholders and Couponholders in accordance with Condition 15 (Notices). 5. INTEREST On each Interest Payment Date (or such later date as amounts equivalent to amounts of interest are received from the Bank) the Issuer shall account to the Noteholders and/or Couponholders for an amount equivalent to amounts of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement, which interest under the Loan Agreement is equal to 9.375 per cent. per annum as set out in Clause 5.2 (Calculation of Interest) of the Loan Agreement (the ³Rate of Interest´). The amount of interest payable on an Interest Payment Date shall be calculated by applying the Rate of Interest to the aggregate outstanding principal amount of the Notes, dividing the product by two and rounding the resultant figure to the nearest cent (half a cent being rounded upwards), except that the total aggregate amount of interest payable on the first Interest Payment Date shall be U.S.$9,322,916.67. If interest is required to be calculated for any other

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period, it will be calculated on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed. In this Condition 5, ³Interest Payment Date´ means 23 March and 23 September of each year, commencing on 23 March 2011. 6. REDEMPTION AND PURCHASE 6.1 Final Redemption All the Notes will be redeemed at their outstanding principal amount on 23 September 2015 or, if such a day is not a business day, the next succeeding business day (the ³Redemption Date´), unless previously redeemed pursuant to this Condition 6 or Condition 13 (Enforcement). In this Condition 6.1, ³business day´ means a day (other than a Saturday or Sunday) on which banks generally are open for business in New York City, London and Kyiv. 6.2 Mandatory Redemption The Notes will be redeemed in whole, but not in part, at any time, on giving not less than 15 days¶ nor more than 90 days¶ notice to the Noteholders in accordance with Condition 15 (Notices) (which notice shall be irrevocable) at the outstanding principal amount thereof, together with interest accrued to the date fixed for redemption if, immediately before giving such notice, the Issuer satisfies the Trustee as set out below in this Condition 6.2 that: (a) the Issuer has received a notice of prepayment from the Bank pursuant to Clause 6.2 (Prepayment for Tax Reasons and Change in Circumstances) of the Loan Agreement; (b) the Issuer has delivered a notice to the Bank requiring the Bank to repay the whole (but not part only) of the Loan in accordance with the provisions of Clause 6.3 (Repayment upon Illegality) of the Loan Agreement; or (c) the Issuer has received a notice of Change of Control (as defined in the Loan Agreement) pursuant to Clause 6.4 (Prepayment in the event of a Change of Control) of the Loan Agreement. Prior to the publication of any notice of redemption referred to in this Condition 6.2, the Issuer shall deliver to the Trustee a certificate signed by two officers of the Issuer stating (i) that the Issuer is entitled to effect such redemption in accordance with this Condition 6.2; (ii) the text of the Bank¶s notice of prepayment or details of the circumstances contemplated by Clause 6.2 (Prepayment for Tax Reasons and Change in Circumstances), Clause 6.4 (Prepayment in the event of a Change of Control) or Clause6.3 (Repayment upon Illegality) of the Loan Agreement, as the case may be; and (iii) the date fixed for redemption of the Notes. The Trustee shall accept the certificate of the Issuer as sufficient evidence of the satisfaction of the applicable condition set out above, which shall be conclusive and binding on all parties and the Noteholders. Upon the expiry of any such notice as is referred to in this Condition 6.2, the Issuer shall be bound to redeem the Notes in accordance with this Condition 6, subject as provided in Condition 7 (Payments). 6.3 No other Redemption The Issuer shall not be entitled to redeem the Notes otherwise than as provided in this Condition 6. 6.4 Purchase The Bank or any of its subsidiaries may at any time purchase or otherwise acquire Notes in the open market or otherwise and at any price. Such Notes may be held, reissued, resold or surrendered by the purchaser through the Issuer to the Principal Paying Agent for cancellation.

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7. PAYMENTS 7.1 Payments Payments of principal and interest upon redemption will be made against presentation and surrender (or, in the case of a partial payment, endorsement) of the relevant Notes at the Specified Office of any Paying Agent (subject to the next paragraph) outside the United States by U.S. dollar cheque drawn on, or, upon application by a holder of a Note to the Specified Office of the Principal Paying Agent not later than the fifteenth day before the due date for redemption, by transfer to a U.S. dollar account maintained by the payee with, a bank in New York City. Payments of interest (other than interest due on redemption) shall be made by U.S. dollar cheque drawn on, or upon application by a holder of a Note to the Specified Office of the Principal Paying Agent not later than the fifteenth day before the due date for any such payment, by transfer to a U.S. dollar account maintained by the payee with, a bank in New York City and (in the case of interest payable on redemption) upon surrender (or, in the case of part payment only, endorsement) of the relevant Coupons at the Specified Office of any Paying Agent outside the United States. Payments of principal or interest may be made at the Specified Office of a Paying Agent in New York City if (i) the Issuer has appointed Paying Agents outside the United States with the reasonable expectation that such Paying Agents will be able to make payment of the full amount of the interest on the Notes in U.S. dollars when due; (ii) payment of the full amount of such interest at the offices of all such Paying Agents is illegal or effectively precluded by exchange controls or other similar restrictions; and (iii) payment is permitted by applicable United States law. All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws and regulations, but without prejudice to the provisions of Condition 8 (Taxation). No commissions or expenses shall be charged to the Noteholders in respect of such payments. If the due date for payment of interest or principal is not a business day, the holder of a Note or Coupon shall not be entitled to payment of the amount due until the next following business day and shall not be entitled to any further interest or other payment in respect of any such delay. In this paragraph, ³business day´ means, in relation to any place, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in that place. If a Note is presented without all unmatured Coupons relating thereto, a sum equal to the aggregate amount of the missing Coupons will be deducted from the amount of principal due for payment; provided, however, that, if the gross amount available for payment is less than the principal amount of such Note, the sum deducted will be that proportion of the aggregate amount of such missing Coupons which the gross amount actually available for payment bears to the principal amount of such Note. Each sum of principal so deducted shall be paid in the manner provided above against presentation and (provided that payment is made in full) surrender of the relevant missing Coupons. Payments of interest other than in respect of matured Coupons shall be made only against presentation of the relevant Notes at the Specified Office of any Paying Agent outside the United States (or in New York City if permitted as above). If a Paying Agent makes a partial payment in respect of any Note or Coupon presented to it for payment, such Paying Agent will endorse thereon a statement indicating the amount and date of such payment. Save as directed by the Trustee pursuant to the Trust Deed, the Issuer will require the Bank to make all payments of principal and interest to be made pursuant to the Loan Agreement to the Principal Paying Agent to an account in the name of the Issuer. Under the Charge, the Issuer will charge by way of first fixed charge all its rights, title and interest in and to all sums of money then or in the future deposited in such account in favour of the Trustee for the benefit of the Noteholders.

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7.2 Initial Paying Agents The name of the Principal Paying Agent and its initial Specified Office is set out at the end of these Conditions. The Issuer reserves the right, subject to the prior written approval of the Trustee, at any time to vary or terminate the appointment of the Principal Paying Agent, or any of the Paying Agents, and appoint additional or other paying agents provided that it will, subject to Condition 2.2.8, at all times maintain: 7.2.1 a paying agent with a Specified Office in a member state of the European Union that will not be obliged to withhold or deduct tax pursuant to European Council Directive on the Taxation of Savings Income in the form of Interest Payments (Directive 2003/48/EC) or any other Directive implementing or complying with, or introduced to conform to, the conclusions of the ECOFIN Council meeting of 26-27 November 2000; and 7.2.2 a Principal Paying Agent having a Specified Office in a major European city approved by the Trustee. Notice of any termination or appointment and of any changes in Specified Offices will be given to the Noteholders and Couponholders in accordance with Condition 15 (Notices). 7.3 Payment obligations limited The obligations of the Issuer to make payments of principal, interest and additional amounts (if any) in respect of the Notes or the Coupons shall constitute an obligation only to account to the Noteholders and Couponholders on each Interest Payment Date or such other date upon which a payment is due in respect of the Notes or the Coupons for an amount equivalent to and in the same currency as amounts of principal, interest and/or additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement less any amounts in respect of the Reserved Rights. 8. TAXATION All payments of principal and interest by or on behalf of the Issuer in respect of the Notes or the Coupons shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatsoever nature (³Taxes´) imposed or levied by or on behalf of the United Kingdom or Ukraine or any political subdivision or any authority thereof or therein having power to tax, unless such withholding or deduction of Taxes is required by law. In that case, the Issuer shall, subject as provided below, pay such additional amounts as may be necessary in order that the net amounts received by the Noteholders and the Couponholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Notes or the Coupons in the absence of the withholding or deduction, except that no additional amounts shall be payable in respect of any Note or Coupon: 8.1 presented for payment by or on behalf of a holder which is liable to Taxes in respect of such Note or Coupon by reason of his having some connection with the United Kingdom or Ukraine other than the mere holding of the Note or Coupon; or 8.2 where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive on the Taxation of Savings Income in the form of Interest Payments (Directive 2003/48/EC) or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or 8.3 presented for payment by or on behalf of a holder who would be able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the European Union; or 8.4 presented for payment by or on behalf of a holder more than 30 days after the Relevant Date (as defined below) except to the extent that the relevant holder would

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have been entitled to additional amounts on presenting the relevant Note or Coupon for payment on the last day of the period of 30 days. Notwithstanding the foregoing provisions, the Issuer shall only make such payments to the Noteholders or Couponholders to the extent and at such time as it shall have actually received an equivalent amount from the Bank under the Loan Agreement subject always to the provisions of Condition 2 (Status and Limited Recourse). To the extent that the Issuer does not receive from the Bank such equivalent amount in full, the Issuer shall account to each Noteholder or Couponholder for an additional amount equivalent to a pro rata proportion of such additional amount (if any) as is actually received by, or for the account of, the Issuer pursuant to the provisions of the Loan Agreement on or as soon as may be practicable after the date of the receipt of, in the currency of, and subject to any conditions attaching to the payment of, such additional amount by the Issuer. In these Conditions, ³Relevant Date´ means the date on which the payment in question first becomes due except that, if the full amount of the money payable has not been received by the Principal Paying Agent or the Trustee on or before the due date, it means the date on which (the full amount of the money having been so received) notice to that effect has been duly given to the Noteholders and Couponholders by the Issuer in accordance with Condition 15 (Notices). Any reference in these Conditions to principal or interest shall be deemed to include any additional amounts in respect of principal or interest (as the case may be) which may be payable under this Condition 8 or any undertaking given in addition to or in substitution for this Condition pursuant to the Trust Deed or the Loan Agreement. If the Issuer or the Bank becomes subject at any time to any taxing jurisdiction other than the United Kingdom or Ukraine, as the case may be, references in these Conditions to the United Kingdom and/or Ukraine shall be construed as references to the United Kingdom and/or Ukraine and/or such other jurisdiction. 9. PRESCRIPTION Notes will become void unless presented for payment within periods of 10 years (in the case of principal) and five years (in the case of interest) from the Relevant Date in respect thereof, subject to the provisions of Condition 7 (Payments). 10. REPLACEMENT OF NOTES AND COUPONS If any Note or Coupon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the Specified Office of the Principal Paying Agent upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may reasonably require. Mutilated or defaced Notes or Coupon must be surrendered before replacements will be issued. 11. TRUSTEE AND PAYING AGENTS 11.1 Indemnification of the Trustee The Trust Deed and the Fees Letter (as defined in the Loan Agreement) contain, inter alia, provisions for the indemnification of the Trustee, provisions for its relief from responsibility, including relieving it from taking action unless indemnified and/or secured and/or pre-funded to its satisfaction, and provisions entitling it to be paid its costs and expenses in priority to the claims of the Noteholders or Couponholders. The Trustee¶s responsibilities are solely those of trustee for the Noteholders on the terms of the Trust Deed. Accordingly, the Trustee makes no representations and assumes no responsibility for the validity or enforceability of the Loan Agreement or the security created in respect thereof or for the performance by the Issuer of its obligations under or in respect of the Notes and the Trust Deed or by the Bank in respect of the Loan Agreement. The Trustee is entitled to assume that the Bank is performing all of its obligations pursuant to the Loan Agreement and that no Event of Default, Potential Event of Default, Change of Control, Rating Decline,

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Negative Ratings Event (as each such term is defined in the Loan Agreement) or Relevant Event has occurred (and shall have no liability for doing so) until it has actual knowledge to the contrary. The Trustee shall have no liability to Noteholders for any shortfall they may suffer if it is liable for tax in respect of any payments received by it or as a result of the Security Interests being held or enforced by it. 11.2 Trustee contracting with the Issuer and the Bank The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia, (i) to enter into business transactions with the Issuer and/or the Bank and/or any subsidiary of the Issuer and/or the Bank and to act as trustee for the holders of any other securities issued or guaranteed by, or relating to, the Issuer and/or the Bank and/or any subsidiary of the Issuer and/or the Bank; (ii) to exercise and enforce its rights, comply with its obligations and perform its duties under or in relation to any such transactions or, as the case may be, any such trusteeship without regard to the interests of, or consequences for, the Noteholders; and (iii) to retain and not be liable to account for any profit made or any other amount or benefit received thereby or in connection therewith. 11.3 Trustee to have regard to interests of Noteholders as one class In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation, determination or substitution), the Trustee shall have regard to the general interests of the Noteholders as a class but shall not have regard to any interests arising from circumstances particular to individual Noteholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Noteholders or Couponholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political subdivision thereof and the Trustee shall not be entitled to require, nor shall any Noteholder be entitled to claim, from the Issuer, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders or Couponholders except to the extent already provided for in Condition 8 (Taxation) and/or any undertaking given in addition to, or in substitution for, Condition 8 (Taxation) pursuant to the Trust Deed. 11.4 Paying Agents In acting under the Agency Agreement and in connection with the Notes, the Paying Agents act solely as agents of the Issuer and (to the extent provided therein) the Trustee and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders or Couponholders. 11.5 Trustee determinations and disclosure The Trustee may, in making any determination under these Conditions, the Trust Deed or the Loan Agreement, act on the opinion or advice of, or information obtained from, any lawyer, banker, valuer, surveyor, broker, auctioneer, accountant, auditor or other expert and will not be responsible for any loss, liability, cost, claim, action, demand, expense or inconvenience which may result from it so acting or not acting notwithstanding that such opinion or advice (or the engagement letter relating thereto) contains a limitation on liability or, in the case of the auditors, disclaims all liability. Unless ordered to do so by a court of competent jurisdiction, the Trustee shall not be required to disclose to any Noteholder any confidential financial or other information made available to the Trustee by the Issuer or the Bank.

164 Terms and Conditions of the Notes

12. MEETINGS OF NOTEHOLDERS, MODIFICATION, WAIVER, SUBSTITUTION AND APPOINTMENT 12.1 Meetings of Noteholders The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including any modification of, or any arrangement in respect of, the Notes or the Trust Deed. Noteholders will, in respect of any vote by poll, be entitled to one vote per U.S.$ 1,000 in principal amount of Notes held by them. Special quorum provisions apply for meetings of Noteholders convened for the purpose of amending certain terms concerning, inter alia, the amount payable on, and the currency of payment in respect of, the Notes and the amounts payable and currency of payment under the Loan Agreement. Any resolution duly passed at a meeting of Noteholders will be binding on all the Noteholders and Couponholders, whether present or not. In addition, a resolution in writing signed by or on behalf of all holders of Notes then outstanding who for the time being are entitled to receive notice of a meeting of Noteholders under the Trust Deed will take effect as if it were an Extraordinary Resolution. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more holders of Notes then outstanding. 12.2 Modification The Trustee may agree, without the consent of the Noteholders or Couponholders, subject to the provisions of the Trust Deed, (a) to any modification of these Conditions and the Trust Deed and the Loan Agreement (other than in respect of a Reserved Matter) which, in the opinion of the Trustee, is not materially prejudicial to the interests of the Noteholders or the Couponholders; or (b) to any modification of these Conditions and the Trust Deed and the Loan Agreement which, in the opinion of the Trustee, is of a formal, minor or technical nature or is made to correct a manifest error. The Trustee may also, subject to the provisions of the Trust Deed, waive or authorise or agree to the waiving or authorising of any breach or proposed breach by the Issuer of these Conditions or the Trust Deed, or by the Bank of the terms and conditions of the Loan Agreement, or determine that any event which would or might otherwise give rise to (i) a right of acceleration under the Loan Agreement; or (ii) a Relevant Event shall not be treated as such, if, in the opinion of the Trustee, to do so would not be materially prejudicial to the interests of the Noteholders or Couponholders. Any such modification, waiver or authorisation shall be binding on the Noteholders or Couponholders and, unless the Trustee agrees otherwise, any such modification shall be promptly notified to the Noteholders or Couponholders. 12.3 Substitution of the Issuer The Trust Deed contains provisions to the effect that the Issuer may, having obtained the consent of the Trustee (which consent may be given without the consent of the Noteholders or Couponholders) and having complied with such requirements as the Trustee may direct in the interests of the Noteholders, substitute any entity in place of the Issuer as issuer and principal obligor in respect of the Notes and as principal obligor under the Trust Deed, subject to the relevant provisions of the Trust Deed and the substitute¶s rights under the Loan Agreement being charged and assigned, respectively, to, and to the satisfaction of, the Trustee as security for the payment obligations of the substitute obligor under the Trust Deed and the Notes. Such substitution shall be notified to the Noteholders and the Couponholders as soon as practicable thereafter and in accordance with Condition 15 (Notices). 12.4 Appointment or removal of Trustee The Trust Deed contains provision for the appointment or removal of a Trustee by a meeting of Noteholders passing an Extraordinary Resolution (as defined in the Trust Deed), provided that in the case of the removal of a Trustee, at all times there remains a trustee in office in respect of the Notes. Any appointment or removal of a Trustee shall be notified to the Noteholders in accordance with Condition 15 (Notices). The Trustee may also resign such appointment giving not less than three months¶ notice to the Noteholders provided that such

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resignation shall not become effective unless there remains a Trustee in office after such resignation. 13. ENFORCEMENT 13.1 Enforcement by the Trustee At any time after an Event of Default (as defined in the Loan Agreement) shall have occurred and be continuing, or a Relevant Event (as defined below) shall have occurred and be continuing, the Trustee may, at its discretion and without notice, institute such steps, actions or proceedings as it thinks fit to enforce its rights under the Trust Deed in respect of the Notes, but it shall not be bound to do so unless: 13.1.1 it has been so requested in writing by the holders of at least one-quarter in principal amount of the outstanding Notes or has been so directed by an Extraordinary Resolution; and 13.1.2 it has been indemnified and/or provided with security and/or pre-funded to its satisfaction against all liabilities, proceedings, claims and demands to which it may thereby become liable and all costs, charges and expenses which may be incurred by it in connection therewith. In the case of an Event of Default or a Relevant Event the Trustee may, and shall if requested to do so by Noteholders holding at least one-quarter in principal amount of the Notes outstanding or if directed to do so by an Extraordinary Resolution and, in either case, subject to its being secured and/or indemnified and/or pre-funded to its satisfaction, (a) (in the case of an Event of Default) declare or require the Issuer to declare all amounts payable under the Loan Agreement by the Bank to be due and payable; or (b) (in the case of a Relevant Event) subject to Condition 2.2 (Limited Recourse), enforce the security created in the Trust Deed in favour of the Trustee. Subject to Condition 2.2.8 upon repayment of the Loan following an Event of Default, the Notes (and related Coupons) will be redeemed or repaid at their principal amount together with interest accrued to the date fixed for redemption and thereupon shall cease to be outstanding. For the purposes of these Conditions, ³Relevant Event´ means any of (a) the failure by the Issuer to make any payment of principal or interest on the Notes when the same is due to be made by the Issuer and such failure is not remedied with five (5) Business Days (as defined in the Loan Agreement) of the due date for that payment; (b) the making of an order in proceedings in the United Kingdom in respect of the winding up or dissolution of the Issuer or for a composition with the Issuer¶s creditors; and (c) the passing of an effective resolution for the winding up or dissolution of the Issuer. 13.2 Enforcement by the Noteholder No Noteholder or Couponholder may proceed directly against the Issuer unless the Trustee, having become bound to do so, fails to do so within a reasonable time and the failure is continuing. 14. FURTHER ISSUES The Issuer may from time to time, without the consent of the Noteholders or Couponholders and in accordance with the Trust Deed, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the issue price, issue date and/or first payment of interest on such further notes) so as to be consolidated and form a single series with the Notes (³Further Notes´). Such Further Notes shall be issued under a deed supplemental to the Trust Deed. In relation to any issue of Further Notes (i) the Issuer will enter into a supplemental loan agreement with the Bank on substantially the same terms as the Loan Agreement (or on the same terms except for the first payment of interest) subject to any modifications which, in the sole opinion of the Trustee, would not materially prejudice the interests of the Noteholders or Couponholders; and (ii) the Security Interests granted in respect of the Notes will be amended or supplemented so as to secure amounts due in respect of such Further Notes also and/or the Issuer will provide a further fixed charge in favour of the

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Trustee in respect of certain rights and interests under the Loan Agreement or any further loan agreement and will assign absolutely certain of its rights and interests under the Loan Agreement or any further loan agreement and any loan assignment equivalent to the rights charged and assigned as security in relation to the Issuer¶s rights under the original Loan Agreement to secure amounts due on the Notes and such Further Notes. 15. NOTICES Notices to Noteholders will be valid if published in a leading newspaper having general circulation in London (which is expected to be the Financial Times) or, if in the opinion of the Trustee such publication shall not be practicable, in an English language newspaper of general circulation in Europe. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once, on the first date on which publication is made. Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Noteholders in accordance with this Condition. 16. GOVERNING LAW The Trust Deed, the Loan Agreement, the Notes and the Coupons and any non-contractual obligations arising out of or in connection with them shall be governed by, and shall be construed in accordance with, English law. 17. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

167 Summary of Provisions relating to the Notes while in Global Form

The following is a summary of the provisions to be contained in the Trust Deed to constitute the Notes and in the Temporary Global Note and the Permanent Global Note (together, the Global Notes) which will apply to, and in some cases modify, the Conditions of the Notes while the Notes are represented by such Global Notes. 1. EXCHANGE The Permanent Global Note will be exchangeable in whole but not in part (free of charge to the holder) for definitive Notes only: (a) upon the happening of a Relevant Event; or (b) if either Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so and no alternative clearing system satisfactory to the Trustee is available; or (c) if the Issuer would suffer a material disadvantage in respect of the Notes as a result of a change in laws or regulations (taxation or otherwise) which would not be suffered were the Notes in definitive form and a certificate to such effect signed by two directors of the Issuer is given to the Trustee. Thereupon (in the case of (a) and (b) above) the holder of the Permanent Global Note (acting on the instructions of one or more of the Accountholders (as defined below)) or the Trustee may give notice to the Issuer and (in the case of (c) above) the Issuer may give notice to the Trustee, the Principal Paying Agent and the Noteholders, of its intention to exchange the Permanent Global Note for definitive Notes on or after the Exchange Date (as defined below). On or after the Exchange Date the holder of the Permanent Global Note may or, in the case of (c) above, shall surrender the Permanent Global Note to or to the order of the Principal Paying Agent. In exchange for the Permanent Global Note the Issuer will (but only to the extent the Bank has first paid all the costs and expenses payable in connection with the delivery thereof) deliver, or procure the delivery of, an equal aggregate principal amount of duly executed and authenticated definitive Notes (having attached to them all Coupons in respect of interest which has not already been paid on the Permanent Global Note), security printed in accordance with any applicable legal and stock exchange requirements and in or substantially in the form set out in the Trust Deed. On exchange of the Permanent Global Note, the Issuer will procure that it is cancelled and, if the holder so requests, returned to the holder together with any relevant definitive Notes. For these purposes, ³Exchange Date´ means a day specified in the notice requiring exchange falling not less than 60 days after that on which such notice is given and being a day on which banks are open for general business in the place in which the specified office of the Principal Paying Agent is located and, except in the case of exchange pursuant to (b) above, in the place in which the relevant clearing system is located. 2. PAYMENTS On and after 3 November 2010, no payment will be made on the Temporary Global Note unless exchange for an interest in the Permanent Global Note is improperly withheld or refused. Payments of principal and interest in respect of Notes represented by a Global Note will, subject as set out below, be made against presentation for endorsement and, if no further payment falls to be made in respect of the Notes, surrender of the Global Note to or to the order of the Principal Paying Agent or such other Paying Agent as shall have been notified to the Noteholders for such purposes. A record of each payment made will be endorsed on the appropriate part of the schedule to the relevant Global Note by or on behalf of the Principal Paying Agent, which endorsement shall be prima facie evidence that such payment has been made in respect of the Notes. Payments of interest on the Temporary Global Note (if

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permitted by the first sentence of this paragraph) will be made only upon certification as to non-U.S. beneficial ownership unless such certification has already been made. 3. NOTICES For so long as all of the Notes are represented by one or both of the Global Notes and such Global Note(s) is/are held on behalf of Euroclear and/or Clearstream, Luxembourg, notices to Noteholders may be given by delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg (as the case may be) for communication to the relative Accountholders rather than by publication as required by Condition 15 (Notices), provided that, so long as the Notes are listed on the London Stock Exchange, notice will also be given by publication on the website of the London Stock Exchange if and to the extent that the rules of the London Stock Exchange so require. Any such notice shall be deemed to have been given to the Noteholders on the second day after the day on which such notice is delivered to Euroclear and/or Clearstream, Luxembourg (as the case may be) as aforesaid. 4. ACCOUNTHOLDERS For so long as all of the Notes are represented by one or both of the Global Notes and such Global Note(s) is/are held on behalf of Euroclear and/or Clearstream, Luxembourg, each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular principal amount of such Notes (each an ³Accountholder´) (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg (including any form of statement or print out of electronic records provided by the relevant clearing system (including Euroclear¶s EUCLID and Clearstream, Luxembourg¶s Creation Online system) in accordance with its usual procedures and in which the holder of a particular principal amount of Notes is clearly identified together with the amount of such holding) as to the principal amount of such Notes standing to the account of any person shall, in the absence of manifest error, be conclusive and binding for all purposes) shall be treated as the holder of such principal amount of such Notes for all purposes (including but not limited to, for the purposes of any quorum requirements of, or the right to demand a poll at, meetings of the Noteholders) other than with respect to the payment of principal and interest on such principal amount of such Notes, the right to which shall be vested, as against the Issuer and the Trustee, solely in the bearer of the relevant Global Note in accordance with and subject to its terms and the terms of the Trust Deed. Each Accountholder must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for its share of each payment made to the bearer of the relevant Global Note. 5. PRESCRIPTION Claims against the Issuer in respect of principal and interest on the Notes represented by a Global Note will be prescribed after 10 years (in the case of principal) and five years (in the case of interest) from the Relevant Date (as defined in Condition 8 (Taxation)). 6. CANCELLATION Cancellation of any Note represented by a Global Note and required by the Conditions of the Notes to be cancelled following its redemption, or if the Issuer requires any Notes represented by a Global Note to be cancelled following purchase, will be effected by endorsement by or on behalf of the Principal Paying Agent of the reduction in the principal amount of the relevant Global Note on the relevant part of the schedule thereto. 7. EUROCLEAR AND CLEARSTREAM, LUXEMBOURG References in the Global Notes and this summary to Euroclear and/or Clearstream, Luxembourg shall be deemed to include references to any other clearing system approved by the Trustee.

169 Taxation

The following is a general description of certain tax considerations relating to the Notes and the Loan. It does not purport to be a complete analysis of all tax considerations relating to the Notes, whether in those countries or elsewhere. Prospective purchasers of the Notes should consult their tax advisers as to which countries¶ tax laws could be relevant to acquiring, holding and disposing of the Notes and receiving payments of interest, principal and/or other amounts under the Notes and the consequences of such actions under the tax laws of those countries. This summary is based upon the law as in effect on the date of this Prospectus. The information and analysis contained within this section are limited to taxation issues, and prospective investors should not apply any information or analysis set out below to other areas, including (but not limited to) the legality of transactions involving the Notes. Also, investors should note that an appointment by an investor in the Notes, or any Person through which an investor holds Notes, of a custodian, collection agent or similar person in relation to such Notes in any jurisdiction may have tax implications. Investors should consult their own tax advisers in relation to the tax consequences for them of any such appointment. Ukraine General The following summary is included for general information only. Potential investors in, and holders of, the Notes, should consult their own tax advisor as to the tax consequences of the acquisition, ownership and disposition of the Notes under the laws of Ukraine. This summary is based upon the Ukrainian tax laws and regulations as in effect on the date of this Prospectus. Such laws and regulations are subject to changes and varying interpretations, possibly with retroactive effects. As with other areas of Ukrainian law, tax legislation and practice in Ukraine is not as clearly established as that of more developed jurisdictions. It is possible, therefore, that the current interpretation of the law or understanding of the practice may change or that the law may be amended with retroactive effect. Accordingly, it is possible that payments to be made to the holders of the Notes could become subject to taxation or that rates currently applicable to such payments could be increased. Withholding Tax on Interest Payments and Principal Repayments under the Loan The Law of Ukraine ³On Taxation of Profits of Enterprises´, dated 28 December 1994, as amended and restated (the ³Profits Tax Law´), envisages that income of legal entities which are non-residents of Ukraine derived from sources in Ukraine in the form of interest payments is subject to 15 per cent. withholding tax. At the same time, paragraph 13.2 of Article 13 of the Profits Tax Law provides that this withholding tax may be reduced by the provisions of an applicable tax treaty on the avoidance of double taxation. The United Kingdom and Ukraine have entered into such a treaty, signed on 10 February 1993, effective since 11 August 1993 (the ³Double Tax Treaty´), pursuant to which (Article 11) interest arising in Ukraine and paid to a resident of the United Kingdom shall be taxable only in the United Kingdom if such resident is the beneficial owner of the interest and subject to tax in respect of the interest in the United Kingdom. Based on professional tax advice it has received, the Bank believes that payments of interest on the Loan will not, under the Double Tax Treaty as currently applied, be subject to withholding tax, provided that certain conditions set forth in the Double Tax Treaty and under applicable Ukrainian legislation are duly satisfied. In particular, in order for the exemption from withholding under the Double Tax Treaty, to be applicable, the Lender must be the beneficial owner of the interest payments received in the United Kingdom and subject to tax in respect of such interest payments in the United Kingdom. The exemption will only be available under the Double Tax Treaty if the Lender neither carries on business through a permanent establishment situated in Ukraine nor performs independent personal services from a fixed base in Ukraine. However, the notion of beneficial ownership is not well defined in Ukrainian law. Moreover, it is not clear how the test of taxation of interest payments in the United Kingdom will be interpreted and applied by the Ukrainian or United Kingdom authorities in practice. As a consequence, different interpretations are possible and the position could be taken that the Lender should not be viewed as the beneficial owner of the interest

170 Taxation payments received in the United Kingdom. However, based on professional tax advice it has received, the Bank believes that it is unlikely that the Ukrainian authorities will adopt this view. In addition, Article 11(7) of the Double Tax Treaty contains a ³main purpose´ anti-avoidance position. There is no established practice by the Ukrainian tax authorities with respect to the application of this provision. However, if the Ukrainian tax authorities take a position that one of the main purposes of selecting the United Kingdom, the Lender¶s jurisdiction of residence, for this transaction was to avail the Bank of the tax benefits provided under the Double Tax Treaty, the Ukrainian tax authorities may invoke the anti-avoidance provisions of Article 11(7). In such circumstances, there is a risk that payments of interest by the Bank under the Loan Agreement would cease to have the benefit of the Double Tax Treaty. Applicable Ukrainian legislation allows relief under the Double Tax Treaty if current confirmation of the UK recipient¶s tax residency in the United Kingdom, in accordance with the requirements of the Ukrainian authorities, is available. In order to be valid, a new tax residency confirmation must be obtained for each tax year. The obtaining of this relief does not require the payee or payor to apply for and/or obtain any prior clearance for specific transactions from the Ukrainian tax authorities. Instead, the Ukrainian payor directly applies the rate under the Double Tax Treaty, provided that the current tax residence confirmation is available on or prior to the date of payment of the Ukrainian source income. Therefore, when making payments to the Lender under the Loan Agreement, the Bank will not make any deduction classified as Ukrainian withholding tax, provided that it has a current confirmation of tax residency of the Lender on or prior to the date of payment. The Profits Tax Law does not expressly exempt principal repayments from Ukrainian withholding tax. Specifically, paragraph 13.1 of Article 13 of the Profits Tax Law contains a ³catch all´ provision, under which ³other income of a non resident (a permanent establishment of such or other non resident) from carrying out business activity on the territory of Ukraine´ is subject to a 15 per cent. withholding tax, established by paragraph 13.2 of Article 13 of the Profits Tax Law. As there is no definition of ³income´ in the Profits Tax Law, there is a remote risk that the repayment of principal under the Loan Agreement may be regarded as the Ukrainian source income of the Issuer and, as such, subject to Ukrainian withholding tax at the rate of 15 per cent. Based on the professional tax advice it has received, the Bank is unaware of any situation in which the Ukrainian tax authorities have ever attempted to levy Ukrainian withholding tax on repayments of principal under a loan or credit transaction. Consequences of Ukrainian Withholding If any payments (including payments of interest) under the Loan Agreement are subject to any withholding tax, the Bank may, in certain circumstances specified in the Loan Agreement and subject to certain exceptions become obliged to pay such additional amounts as may be necessary so that the net payments received by the Issuer or the Trustee, as the case may be, will not be less than the amount the Issuer or the Trustee, as the case may be, would have received in the absence of such withholding. While there is doubt as to whether the gross up clauses contained in the Loan Agreement are enforceable under Ukrainian law (specifically, in November 2009, the State Tax Administration of Ukraine issued a letter indicating that tax gross-up, tax reimbursement and tax indemnity clauses of agreements between Ukrainian residents and their foreign counterparties contravene the requirements of Ukrainian legislation that prohibit the shifting of the foreign counterparty¶s tax payment obligation to the Ukrainian resident), a failure by the Bank to pay additional amounts due under the Loan Agreement would constitute a default under the Loan Agreement. In the event that the Bank would become obliged to pay additional amounts under the Loan Agreement, the Bank may prepay the principal amount of the Loan, together with the accrued interest, and thereupon (subject to receipt of the relevant funds from the Bank) all the outstanding Notes will be prepaid by the Issuer. Tax on Issue of and Principal and Interest Payments under the Notes No Ukrainian withholding tax will be applicable to the issue of the Notes or principal or interest payments on the Notes because the Notes will not be issued by the Bank, or from Ukraine and principal and interest payments on the Notes will not be made by the Bank, or from Ukraine.

171 Taxation

Tax on Redemption of Notes Principal payments on redemption of the Notes will not be subject to Ukrainian tax because such payments will not be made by a Ukrainian borrower. Ukrainian Holders A Ukrainian resident Noteholder, i.e., a qualifying physical person or a legal person organised under Ukrainian law, is subject to all applicable Ukrainian taxes. Transfers of Notes by Non Ukrainian Investors to Ukrainian Investors Ukrainian source profits of non-resident legal persons derived from trading securities are generally subject to 15 per cent. withholding tax and Ukrainian source income of non-resident individuals is, subject to certain exceptions, 30 per cent. from 1 January 2007 withholding tax. Both may be reduced by an applicable treaty on the avoidance of double taxation. Non-resident Noteholders are, therefore, likely to be subject to Ukrainian withholding tax on any gain (or the gross amount of the proceeds if the gain cannot be quantified) on the disposal of Notes where the proceeds of such disposal are received from a source within Ukraine. Ukrainian Stamp Duty No Ukrainian stamp duty, transfer or similar tax will be payable by a Noteholder in respect of the subscription, issue, delivery or transfer of the Notes. Transfer Pricing Rules Despite the fact that Ukrainian transfer pricing rules are not yet aggressively applied on a consistent basis by the Ukrainian tax authorities, the scope of these rules is broad enough to apply to cross border transactions, irrespective of whether related parties are involved. For this reason, there is a risk that the Ukrainian tax authorities may attempt to apply transfer pricing rules to the amount of interest accrued and paid under the Loan, as a cross border transaction, for the purposes of profits tax deductions. Interest is currently allowed as a deduction, subject to certain limitations of interest deductibility in any given tax reporting period, if the amount of interest incurred in respect of a debt obligation does not exceed the market value. The applicable Ukrainian corporate profits tax legislation does not provide any definitive test for determining the market rate of interest nor does it provide any ³safe harbour´ in case of a deviation from such market rate. For this reason, there is a slight risk that the interest rate under the Loan may be challenged by the Ukrainian tax authorities, which may result in the assessment of an additional tax liability to the Bank. If interest is increased due to gross up provisions, this will increase the transfer pricing risk, as the gross up can raise the interest rate above the market value. United Kingdom The following is a summary of the United Kingdom withholding taxation treatment in relation to payments of principal and interest in respect of the Notes and the United Kingdom stamp duty and SDRT treatment in relation to the issue and transfer of Notes as at the date hereof. The comments do not deal with other United Kingdom tax aspects of acquiring, holding or disposing of Notes. The comments relate only to the position of persons who are the absolute beneficial owners of their Notes and Coupons and may not apply to certain classes of persons such as dealers or certain professional investors. Any Noteholders who are in doubt as to their own tax position, or who may be subject to tax in a jurisdiction other than the United Kingdom, should consult their professional advisers. Interest While the Notes continue to be listed on a recognised stock exchange within the meaning of section 1005 of the Income Tax Act 2007, payments of interest by the Issuer may be made without withholding or deduction for or on account of income tax. The London Stock Exchange is a recognised stock exchange for these purposes. Securities will be treated as listed on the London Stock Exchange if they are included in the Official List by the United Kingdom Listing Authority and are admitted to trading on the London Stock Exchange. If the Notes cease to be listed interest will generally be paid by the Issuer under deduction of income tax at the basic rate subject to particular reliefs that apply in the case of particular recipients of interest.

172 Taxation

Interest on the Notes has a United Kingdom source and accordingly may be chargeable to United Kingdom tax by direct assessment. Where the interest is paid without withholding or deduction, the interest will not be assessed to United Kingdom tax in the hands of holders of the Notes who are not resident in the United Kingdom, except where the Noteholder carries on a trade, profession or vocation through a branch or agency, or in the case of a corporate holder, carries on a trade through a permanent establishment in the United Kingdom, in connection with which the interest is received or to which the Notes are attributable, in which case (subject to exemptions for interest received by certain categories of agent) tax may be levied on the United Kingdom branch or agency, or permanent establishment. If interest were paid under deduction of United Kingdom income tax (e.g. if the Notes lost their listing), Noteholders who are not resident in the United Kingdom may be able to recover all or part of the tax deducted if there is an appropriate provision in an applicable double taxation treaty. Persons in the United Kingdom paying interest to or receiving interest on behalf of another person who is an individual may be required to provide certain information to HM Revenue & Customs regarding the identity of the payee or person entitled to the interest and, in certain circumstances, such information may be exchanged with tax authorities in other countries. In relation to amounts payable on redemption of Notes, HM Revenue & Customs published practice indicates HM Revenue & Customs will not exercise its power to obtain information where such amounts are paid or received on or before 5 April 2011. EU Directive on the Taxation of Savings Income The EU has adopted a Directive regarding the taxation of savings income. The Directive requires Member States to provide to the tax authorities of other Member States details of payments of interest and other similar income paid by a person to an individual or to certain other persons in another Member State, except that Austria and Luxembourg may instead impose a withholding system for a transitional period (subject to a procedure whereby, on meeting certain conditions, the beneficial owner of the interest or other income may request that no tax be deducted) unless during such period they elect otherwise. Stamp duty and stamp duty reserve tax No United Kingdom stamp duty or stamp duty reserve tax is payable on the issue of a Note. No United Kingdom stamp duty will be payable on a transfer of Notes electronically within the Euroclear or Clearstream clearing systems. For so long as neither Euroclear nor Clearstream make any election in relation to the Notes under section 97A of the Finance Act 1986, no United Kingdom stamp duty reserve tax will be payable on transfers, or agreements to transfer Notes effected within the Euroclear or Clearstream clearing systems.

173 Subscription and Sale

HSBC Bank plc and UBS Limited (the ³Joint Lead Managers´) have pursuant to a Subscription Agreement dated 17 September 2010, jointly and severally agreed with the Issuer and the Bank, subject to the satisfaction of certain conditions, to subscribe the Notes at 100 per cent. of their principal amount. The Joint Lead Managers are entitled to commissions and reimbursement of expenses pursuant to the Subscription Agreement and the fees and expenses letter between, inter alios, the Bank, the Issuer and the Joint Lead Managers. The Subscription Agreement entitles the Joint Lead Managers to terminate it in certain circumstances prior to payment being made to the Issuer. The yield of the Notes is 9.375% on an annual basis. The yield is calculated as at 16 September 2010 on the basis of the issue price. It is not an indication of future yield. General None of the Issuer, the Bank or any Joint Lead Manager has made any representation that any action has been or will be taken in any jurisdiction that would, or is intended to, permit a public offering of the Notes, or possession or distribution of the Prospectus in any country or jurisdiction where action for that purpose is required. Each Joint Lead Manager has agreed that it will, to the best of its knowledge and belief, comply with all applicable laws and regulations in each country or jurisdiction in which it purchases, offers, sells or delivers Notes or has in its possession or distributes the Prospectus, in all cases at its own expense. United States The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act. The Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code and regulations thereunder. Each Joint Lead Manager has represented and agreed that, except as permitted by the Subscription Agreement, it has not offered, sold or delivered and will not offer, sell or deliver the Notes, (i) as part of their distribution at any time; or (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date (as defined in the Subscription Agreement) within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of U.S. persons. In addition, until 40 days after the commencement of the offering, an offer or sale of Notes within the United States by a dealer that is not participating in the offering may violate the registration requirements of the Securities Act. United Kingdom Each Joint Lead Manager has represented, warranted and agreed that: (a) it had only communicated or caused to be communicated and would only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the ³FSMA´) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and (b) it had complied and would comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

174 Subscription and Sale

Ukraine Each Joint Lead Manager has represented, warranted and agreed that the Notes shall not be offered by any of them for circulation, distribution, placement, sale, purchase or other transfer in the territory of Ukraine. Accordingly, nothing in the Prospectus or any other documents, information or communications related to the Notes shall be interpreted as containing any offer or invitation to, or solicitation of, any such circulation, distribution, placement, sale, purchase or other transfer in the territory of the Ukraine. The Russian Federation Each Joint Lead Manager has represented, warranted and agreed that the Notes will not be offered, transferred or sold as part of their initial distribution or at any time thereafter to or for the benefit of any persons (including legal entities) resident, incorporated, established or having their usual residence in the Russian Federation or to any person located within the territory of the Russian Federation unless and to the extent otherwise permitted under Russian law. Italy The offering of the Notes has not been registered with the Commissione Nazionale per le Società e la Borsa (³CONSOB´) pursuant to Italian securities legislation and, accordingly, the Notes cannot be offered, sold or distributed and copy of the Prospectus or any other offer documents relating to the Notes cannot be distributed in the Republic of Italy (³Italy´) except to qualified investors (investitori qualificati) other than ³natural persons´ (persone fisiche) , pursuant to Article 100 of Legislative Decree no. 58 of 24 February 1998, as amended (the ³Consolidated Financial Services Act´), and Article 34-ter of CONSOB Regulation No. 11971 of 14 May 1999, as amended. Moreover, and subject to the foregoing, any offer, sale or delivery of the Notes or distribution of copies of the Prospectus or any other document relating to the Notes in Italy must be: (a) made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Consolidated Financial Services Act, Legislative Decree No. 385 of 1 September 1993 (the ³Banking Act´), CONSOB Regulation No. 16190 of 29 October 2007, all as amended; (b) in compliance with Article 129 of the Banking Act and the implementing guidelines, pursuant to which the Bank of Italy may request information on the offering or issue of securities in Italy; and (c) in compliance with any securities, tax, exchange control and any other applicable laws and regulations, including any limitation or requirement which may be imposed from time to time, inter alia, by CONSOB or the Bank of Italy. Any investor purchasing the Notes in this offering is solely responsible for ensuring that any offer or resale of the Notes it purchases in this offering occurs in compliance with applicable laws and regulations.

175 General Information

1. It is expected that listing of the Notes on the Official List and admission of the Notes to trading on the Market will be granted on or before 24 September 2010, subject only to the issue of the Temporary Global Note. 2. The Bank has obtained all necessary consents, approvals and authorisations in connection with the Loan to be financed by the Issuer¶s issue of the Notes and the other documents (including the Loan Agreement) to be entered into by the Bank, other than the registration of the Loan Agreement with the NBU to be performed following execution of the Loan Agreement. The Loan to be financed by the Issuer¶s issue of the Notes and the other documents (including the Loan Agreement) to be entered into by the Bank was approved by the Bank¶s Supervisory Council on 3 September 2010 and by the Bank¶s Management Board on 3 September 2010. 3. The Issuer has obtained all necessary consents, approvals and authorisations in connection with the issue and performance of the Notes and the other documents (including the Loan Agreement) to be entered into by the Issuer. The issue of the Notes and their offer, sale and listing was approved by the Issuer¶s Board of Directors on 21 April 2010. 4. The Loan has characteristics that demonstrate capacity to produce funds to service any payments due and payable on the Notes. 5. There has been no significant change in the financial or trading position of the Group since 31 December 2009 and no material adverse change in the financial position or prospects of the Group since 31 December 2009. 6. Save for the issue of the notes disclosed on page 126 under ³The Issuer²Loan Capital´, there has been no significant change in the financial or trading position of the Issuer since the date of its incorporation on 24 January 2007 and no material adverse change in the financial position or prospects of the Issuer since the date of its incorporation on 24 January 2007. 7. Neither the Bank nor any of its subsidiaries is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Bank is aware) during the 12 months preceding the date of this Prospectus, which may have, or have had in the recent past, significant effects on the financial position or profitability of the Bank or the Group. 8. The Issuer has not been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer is aware) during the 12 months preceding the date of this Prospectus, which may have, or have had in the recent past, significant effects on the financial position or profitability of the Issuer. 9. Each Note and Coupon will bear the following legend: ³Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in sections 165(j) and 1287(a) of the Internal Revenue Code´. 10. The Notes have been accepted for clearance through the Euroclear and Clearstream, Luxembourg systems (which are the entities in charge of keeping the records) with a Common Code of 054374453. The International Securities Identification Number (ISIN) for the Notes is XS0543744535. The address of Euroclear is 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of Clearstream, Luxembourg is 42 Avenue JF Kennedy L-1855 Luxembourg. 11. There are no material contracts entered into other than in the ordinary course of the Bank¶s business, which could result in any member of the Bank¶s group being under an obligation or entitlement that is material to the Bank¶s ability to meet its obligations under the Loan Agreement.

176 General Information

12. For the life of the Notes, copies (and English translations where the documents in question are not in English) of the following documents will be available, during usual business hours on any weekday (Saturdays and public holidays excepted), for inspection at the office of the Principal Paying Agent: Ɣ the Trust Deed (which includes the form of the Global Notes, the definitive Notes and the Coupons); Ɣ the Memorandum and Articles of Association of the Issuer and the Bank; Ɣ the published audited consolidated financial statements of the Group prepared in accordance with IFRS for the two financial years ended 31 December 2009; and Ɣ a copy of this Prospectus together with any Supplement to this Prospectus or further Prospectus. 13. Neither the Issuer nor the Bank intends to provide any post-issuance transaction information regarding the Notes or the performance by the Bank of its obligations under the Loan Agreement. 14. The expenses related to admission to trading are U.S.$2,975. 15. This Prospectus will be published on the website of the Regulatory News Service operated by the London Stock Exchange at www.londonstockexchange.com/en-gb/pricesnews/ marketnews/. 16. The members of the Management Board of the Bank and, save as disclosed on page 123 in ³Shareholders´ the members of the Supervisory Council of the Bank do not have any conflicts, or any potential conflicts, between their duties to the Bank and their private interests or other duties.

177 Index to Financial Statements Index Page Consolidated Financial Statements of PrivatBank Group and the Auditor¶s Report for the year ended 31 December 2009...... F-2 Consolidated Financial Statements of PrivatBank Group and the Auditor¶s Report for the year ended 31 December 2008...... F-97 Consolidated Financial Statements of PrivatBank Group and the Auditor¶s Report for the year ended 31 December 2007...... F-184

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PRIVATBANK GROUP International Financial Reporting Standards Consolidated Financial Statements and Independent Auditor’s Report 31 December 2009

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PrivatBank Group

CONTENTS

INDEPENDENT AUDITOR’S REPORT

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Financial Position...... 1 Consolidated Statement of Comprehensive Income...... 2 Consolidated Statement of Changes in Equity...... 3 Consolidated Statement of Cash Flows...... 5

Notes to the Consolidated Financial Statements

1 Introduction...... 6 2 Operating Environment of the Group...... 7 3 Summary of Significant Accounting Policies...... 9 4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies ...... 20 5 Adoption of New or Revised Standards and Interpretations...... 23 6 New Accounting Pronouncements...... 25 7 Cash and Cash Equivalents and Mandatory Reserves...... 28 8 Due from Other Banks...... 30 9 Loans and Advances to Customers...... 31 10 Premises, Leasehold Improvements and Equipment and Intangible Assets ...... 39 11 Other Financial Assets...... 40 12 Due to the NBU and Other Central Banks and Due to Other Banks and Other Financing Institutions...... 42 13 Customer Accounts ...... 44 14 Debt Securities in Issue...... 45 15 Provisions for Liabilities and Charges, Other Financial and Non-financial Liabilities...... 46 16 Subordinated Debt...... 47 17 Share Capital...... 48 18 Other Reserves...... 48 19 Interest Income and Expense...... 49 20 Fee and Commission Income and Expense...... 49 21 Administrative and Other Operating Expenses...... 50 22 Income Taxes...... 50 23 Segment Analysis...... 53 24 Financial Risk Management ...... 65 25 Management of Capital...... 79 26 Contingencies and Commitments...... 80 27 Derivative Financial Instruments...... 83 28 Fair Value of Financial Instruments ...... 84 29 Presentation of Financial Instruments by Measurement Category ...... 88 30 Related Party Transactions ...... 90 31 Events After the End of the Reporting Period...... 92

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PrivatBank Group Consolidated Statement of Comprehensive Income

In millions of Ukrainian hryvnias Note 2009 2008

Interest income 19 14,549 11,607 Interest expense 19 (7,295) (5,185)

Net interest income 7,254 6,422 Provision for impairment of loans and advances to customers 9 (5,497) (4,507)

Net interest income after provision for impairment of loans and advances to customers 1,757 1,915

Fee and commission income 20 2,119 2,111 Fee and commission expense 20 (232) (304) Losses less gains from trading securities and other financial assets at fair value through profit or loss (16) (109) Gains less losses/(losses less gains) from financial derivatives 27 2,643 (35) Gains less losses from trading in foreign currencies 564 974 Foreign exchange translation (losses less gains)/gains less losses 24 (7) 2,897 Impairment of investment securities available-for-sale (31) (1) (Losses less gains)/Gains less losses from disposals of investment securities available-for-sale (12) 43 Provision for credit related commitments 26, 15 (14) (8) Other operating income 141 79 Gains less losses/(losses less gains) arising from early retirement of debt 51 (9) Administrativeandotheroperatingexpenses 21 (4,919) (5,015)

Profit before tax 2,044 2,538 Income tax 22 (715) (551)

Profit for the year 1,329 1,987

Profit/(loss) is attributable to Owners of the Bank 1,379 2,027 Non-controlling interest (50) (40)

Profit for the year 1,329 1,987

Other comprehensive income: Revaluation of premises 44 805 Decrease in the fair value of premises (370) (17) Exchange differences on translation to presentation currency 90 332 Incometaxrecordeddirectlyinothercomprehensiveincome 82 (198)

Other comprehensive (loss)/income for the year (154) 922

Total comprehensive income for the year 1,175 2,909

Total comprehensive income/(loss) is attributable to: Owners of the Bank 1,159 2,914 Non-controlling interest 16 (5)

Total comprehensive income for the year 1,175 2,909

The notes set out on pages 6 to 92 form an integral part of these consolidated financial statements. 2

F-6 PrivatBank Group Consolidated Statement of Changes in Equity ee:0– rm Tusa,My1,21 1:5– eprint3 – 17:45 – Thursday, May 13, 2010 – 0 From: – Level:0 Note Attributable to Owners of the Bank Non- Total equity Share Additional Revaluation Currency Retained Total controlling capital capital reserve for translation earnings interest In millions of Ukrainian hryvnias premises reserve

Balanceat1January2008 2,967 462 361 33 1,484 5,307 99 5,406

Premises: -Revaluation 10 - - 805 - - 805 - 805 -Decreaseinthefairvalue - - (17) - - (17) - (17) Incometaxrecordedinequity 22 - - (198) - - (198) - (198) Currencytranslationdifferences - - - 297 - 297 35 332

Othercomprehensiveincome - - 590 297 - 887 35 922 Profitfortheyear - - - - 2,027 2,027 (40) 1,987

Total comprehensive income for the year - - 590 297 2,027 2,914 (5) 2,909 F-7 4211 2009 Financials–

Realised revaluation reserve on premises - - (43) - 43 - - - Paid-insharecapital 17 1,515 - - - - 1,515 - 1,515 Capitalisationofdividends 17 1,457 - - - (1,457) - - -

Balanceat31December2008 5,939 462 908 330 2,097 9,736 94 9,830

The notes set out on pages 6 to 92 form an integral part of these consolidated financial statements. 3 PrivatBank Group Consolidated Statement of Changes in Equity ee:0– rm Tusa,My1,21 1:5– eprint3 – 17:45 – Thursday, May 13, 2010 – 0 From: – Level:0 Note Attributable to Owners of the Bank Non- Total equity Share Additional Revaluation Currency Retained Total controlling capital capital reserve for translation earnings interest In millions of Ukrainian hryvnias premises reserve

Balanceat31December2008 5,939 462 908 330 2,097 9,736 94 9,830

Premises: - Revaluation 10- - 44 - - 44 - 44 - Decrease in the fair value 10 - - (370) - - (370) - (370) Income tax recorded in equity 22- - 82 - - 82 - 82 Currency translation differences - - - 24 - 24 66 90

Other comprehensive income - - (244) 24 - (220) 66 (154) Profit for the year - - - - 1,379 1,379 (50) 1,329

Total comprehensive income for the year - - (244) 24 1,379 1,159 16 1,175 F-8 4211 2009 Financials–

- Realised revaluation reserve - - (36) - 36 - - - Paid-in share capital 171,000 - - - - 1,000 - 1,000 Capitalisation of dividends 171,125 - - - (1,125) - - - Disposal of non-controlling interest ------65 65 Purchase of non-controlling interest ------(20) (20)

Balanceat31December2009 8,064 462 628 354 2,387 11,895 155 12,050

The notes set out on pages 6 to 92 form an integral part of these consolidated financial statements. 4 Level: 0 – From: 0 – Thursday, May 13, 2010 – 17:45 – eprint3 – 4211 2009 Financials

PrivatBank Group Consolidated Statement of Cash Flows

In millions of Ukrainian hryvnias Note 2009 2008

Cash flows from operating activities Interest received 11,773 10,831 Interest paid (7,825) (5,105) Fees and commissions received 2,119 2,084 Fees and commissions paid (232) (304) Losses from trading securities (21) (100) Income received from/(expenses paid on) financial derivatives 2,690 (6) Income received from trading in foreign currencies 564 974 Other operating income received 130 125 Staff costs paid (1,737) (1,919) Administrative and other operating expenses paid (3,312) (3,258) Income tax paid (78) (614)

Cash flows from operating activities before changes in operating assets and liabilities 4,071 2,708

Changes in operating assets and liabilities Net (increase)/decrease in mandatory reserve balances (1,110) 852 Net decrease/(increase) in trading securities and other financial assets at fair value through profit or loss 87 (67) Net increase in due from other banks (1,328) (465) Net increase in loans and advances to customers (277) (14,318) Net (increase)/ decrease in other financial assets (1,632) 5 Net decrease/(increase) in other assets 616 (119) Net increase in due to the NBU and other central banks 4,757 3,534 Net decrease in due to other banks and other financing institutions (4,496) (2,177) Net increase in customer accounts 45 7,695 Net increase in provisions for liabilities and charges, other financial and non-financial liabilities 50 196

Net cash from/(used in) operating activities 783 (2,156)

Cash flows from investing activities Acquisition of investment securities available-for-sale (9) - Acquisition of investment securities held to maturity (21) - Proceeds from redemption of investment securities held to maturity - 1,160 Acquisition of premises, leasehold improvements and equipment (235) (1,058) Proceeds from disposal of premises, leasehold improvements and equipment 72 283 Acquisition of intangible assets - (3) Dividends received - 6

Net cash (used in)/from investing activities (193) 388

Cash flows from financing activities Proceeds from subordinated debt 103 18 Repayment of subordinated debt (51) - Issue of ordinary shares 17 1,000 1,515 Funds contributed by owners of non-controlling interest into share capital of subsidiaries 147 - Proceeds from debt securities issued - 862 Repayment of debt securities issued (1,143) (1,179)

Net cash from financing activities 56 1,216

Effect of exchange rate changes on cash and cash equivalents 307 2,845

Net increase in cash and cash equivalents 953 2,293 Cash and cash equivalents at the beginning of the year 9,361 7,068

Cash and cash equivalents at the end of the year 7 10,314 9,361

Investing and financing transactions that did not require the use of cash and cash equivalents were excluded from the consolidated statement of cash flows and are disclosed in Note 7.

The notes set out on pages 6 to 92 form an integral part of these consolidated financial statements. 5

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

1 Introduction

These financial statements have been prepared in accordance with International Financial Reporting Standards for the year ended 31 December 2009 for PrivatBank (the “Bank”) and its subsidiaries (together referred to as the “Group” or “PrivatBank Group”).

The Bank was incorporated and is domiciled in Ukraine. The Bank is a public joint stock company limited by shares and was set up in accordance with Ukrainian regulations. As of 31 December 2009 and 2008 the ultimate major shareholders of the Bank were 2 Ukrainian citizens Mr I.V. Kolomoyskiy and Mr G.B. Bogolyubov who as of 31 December 2009 owned respectively 49.15% (2008: 49.02%) and 49.00% (2008: 48.86%) of the outstanding shares and neither of which individually controlled the Bank.

As of 31 December 2009 and 2008 composition of the Supervisory Board was as follows: Chairman of the Supervisory Board: Mr G.B. Bogolyubov Members of the Supervisory Board: Mr I.V. Kolomoyskiy Mr A.G. Martynov

As of the date of issuing of the consolidated financial statements composition of the Management Board was as follows: Chairman of the Management Board: Mr A.V. Dubilet Members of the Management Board: General Deputy Chairman of the Management Board: Mr Y.P. Pikush First Deputy Chairman of the Management Board: Mr V.A. Yatsenko Mr T.Y. Novikov Mr N.A. Volkov Deputy Chairman of the Management Board: Mr Y.V. Kandaurov Mrs. L.I. Chmona Mrs. T.M. Gurieva Mrs. L.A.Shmalchenko Mr. O.V. Gorohovskiy Mr. V.G. Zavorotniy Mr. A.P. Vitiaz Mr. S.V. Kryzhanovskiy Chief Accountant: Mrs. L.I.Korotina Head of Financial Monitoring Department: Mr. I.L. Terekhin

On 5 February 2010 Mr. A.P.Vitiaz and Mr. S.V. Kryzhanovskiy were introduced to the Management Board.

A new Joint Stock Company Law, which entered into force, on 29 April 2009, provides that joint stock companies may be either public or private. The new Joint Stock Company Law establishes additional requirements for the banks to bring their statutory documents in compliance with this requirement before 29 April 2011. The Group does not expect the transformation to have any impact on its consolidated financial statements apart from certain additional disclosures required for public companies.

Principal activity. The Bank’s principal business activity is commercial and retail banking operations within Ukraine. The Bank was initially registered as a commercial entity with limited liability, re-organised into a closed joint stock entity in 2000 and into public joint stock company in 2009.The Bank has operated under a full banking licence issued by the National Bank of Ukraine (the “NBU”) since March 1992. The Bank participates in the state deposit insurance scheme (registration #113 dated 2 September 1999), which !"#$%"&' $(( #)*+,' % ' %-"' .$/' 31234 -III “On Individuals Deposits Guarantee Fund” dated 20 September 2001 (as amended). Individuals Deposits Guarantee Fund guarantees repayment of individual deposits up to UAH 150 thousand (2008: UAH 150 thousand) per individual in case bank liquidation procedure is started.

As of 31 December 2009 the Bank had 36 branches and 3,102 outlets within Ukraine and a branch in Cyprus (2008: 37 branches, 3,236 outlets in Ukraine and a branch in Cyprus). Additionally, as of 31 December 2009 and 2008 the Bank had subsidiary banks in the Russian Federation, Latvia, Georgia and representative offices in Kyiv (Ukraine), Moscow (Russia), Almaty (Kazakhstan), London (United Kingdom) and Beijing (China) and three special purpose entities in the United Kingdom.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

1 Introduction (Continued)

As of 31 December 2009 principal subsidiaries included in the consolidated financial statements, were as follows: Nature of Country of Percentage of legal ownership Name business registration 31 December 2009 31 December 2008

Moscomprivatbank Banking Russian 92.34% 86.20% Federation JSCTaoPrivatBank Banking Georgia 75.00% 75.00% ASPrivatBank Banking Latvia 50.04% 95.07%

As a result of an additional capital increase, the share of the Group in AS PrivatBank Latvia was decreased from 95.07% to 50.04%. However, the Group continues to have 95.07% of voting rights as of 31 December 2009. Registered address and place of business. The Bank’s registered address is:

50, Naberezhna Peremohy Str., 49094, Dnipropetrovsk, Ukraine.

Presentation currency. These financial statements are presented in millions of Ukrainian hryvnias ("UAH million"), unless otherwise stated.

2 Operating Environment of the Group

Ukraine displays certain characteristics of an emerging market, including but not limited to, the existence of a currency that is not freely convertible outside of Ukraine, restrictive currency controls, high inflation of 12.3% for 2009 (2008: 22.3%) and high interest rates. The financial situation in the Ukrainian financial and corporate sectors significantly deteriorated since mid-2008. The global financial crisis has had a severe effect on the Ukrainian economy: - Lower commodity prices and decrease in external demand have resulted in lower income from exports and thus lower domestic demand. Ukraine’s economy contracted in 2009, real GDP decreased by approximately 15% and the volume of industrial production decreased by 21.9% compared to 2008. - The rise in Ukrainian and emerging market risk premia resulted in a steep increase in foreign financing costs. - The depreciation of the Ukrainian hryvnia against major foreign currencies increased the burden of foreign currency corporate and retail debt, which has risen considerably in recent years. The official UAH to US Dollar (USD) exchange rate of the NBU devalued from UAH 4.861 at 30 September 2008 to UAH 7.985 at 31 December 2009 and UAH 7.926 at the date of issuance of the consolidated financial statements. - The country ratings by international rating agencies were downgraded in October 2008, February 2009 and November 2009. As of 31 December 2009 Ukraine's long-term foreign currency ratings were 'B-' by Fitch Ratings, ‘B2’ by Moody’s and ‘CCC+’ by Standard & Poor’s. - The level of non-performing loans in corporate and retail portfolios of Ukrainian banks increased considerably in 2009. - Since October 2008 the NBU introduced temporary administration at a number of Ukrainian banks due to their liquidity problems and started liquidation procedures at a number of banks. - As a result of global volatility in financial and commodity markets, among other factors, there has been a significant decline in the Ukrainian stock market since mid-2008. Management is unable to predict all developments which could have an impact on the banking sector and the wider economy and consequently what effect, if any, they could have on the future financial position of the Group.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

2 Operating Environment of the Group (Continued)

In the light of the current economic turmoil, the International Monetary Fund (the IMF) has agreed to issue an SDR 11 billion stabilizing loan to Ukraine if the country complies with certain requirements. The first tranche of SDR 3 billion has been received in November 2008, the second tranche of SDR 1.9 billion was received in May 2009, the third tranche of SDR 2.1 billion was received in July 2009 and the fourth tranche of SDR 2.5 billion was expected in November 2009. The major condition for qualifying for the loan was the development and ratification of a government anti-crisis package aiming to stabilize the economy, including determining the shortfall in capital and liquidity existing in the banking sector and taking the necessary steps to address the shortfalls.

However completion of the first review of Ukraine’s economic performance under the Stand-By Arrangement was significantly delayed and the release of the second tranche was approved only after the Executive Board of the IMF granted waivers of non-observance of certain performance criteria.

The allocation of the fourth tranche, worth SDR 2.5 billion, was scheduled for November 2009 following the third review of the IMF's cooperation program with Ukraine. The IMF mission completed its work in Kyiv late in October 2009; however, IMF was not satisfied with the measures taken by the Ukrainian government in order to overcome the negative consequences of the financial crisis. Therefore IMF delayed granting the fourth tranche.

Borrowers of the Group were adversely affected by the financial and economic environment, which in turn impacted their ability to repay the amounts owed. As a significant part of loans to customers was issued in foreign currencies, UAH depreciation against these currencies had a significant impact on borrowers’ ability to service the loans. Deteriorating economic conditions for borrowers were reflected in revised estimates of expected future cash flows in impairment assessments. The amount of provision for impaired loans is based on management's appraisals of these assets at the end of the reporting period after taking into consideration the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.

The market in Ukraine for many types of collateral, especially real estate, has been severely affected by the volatile global financial markets, resulting in a low level of liquidity for certain types of assets. In some cases the Group has also experienced unforeseeable delays in recovering collateral. As a result, the actual realisable value on future foreclosure may differ from the value ascribed in estimating allowances for impairment at the end of the reporting period. Under IFRS, impairment losses on financial assets expected as a result of future events, no matter how likely, cannot be recognised until such events arise.

The market in Ukraine for many types of real estate has been severely affected by the volatile global financial markets. As such the carrying value of premises measured at fair value in accordance with IAS 16 has been updated to reflect market conditions at the end of the reporting period. Further information is disclosed in Note 10.

The tax, currency and customs legislation within Ukraine is subject to varying interpretations and frequent changes. Furthermore, the need for further developments in the bankruptcy laws, the formalised procedures for the registration and enforcement of collateral, political instability and other legal and fiscal impediments contribute to the challenges faced by banks currently operating in Ukraine. The future economic direction of Ukraine is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Government, together with tax, legal, regulatory and political developments.

Management is unable to reliably determine the effects on the Group's future financial position of any potential further deterioration in the liquidity of the financial markets and the increased volatility in the currency and equity markets. Management believes it is taking all the necessary measures to support the sustainability and development of the Group’s business in the current circumstances.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies

Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, and by the revaluation of premises, available-for-sale financial assets, and financial instruments categorised as at fair value through profit or loss. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated (refer to Note 5).

Consolidated financial statements. Subsidiaries are those companies and other entities (including special purpose entities) in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies so as to obtain benefits. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries . The cost of an acquisition is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The date of exchange is the acquisition date where a business combination is achieved in a single transaction, and is the date of each share purchase where a business combination is achieved in stages by successive share purchases.

The excess of the cost of acquisition over the acquirer’s share of the fair value of the net assets of the acquiree at each exchange transaction is recorded as goodwill. The excess of the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired over cost (“negative goodwill”) is recognised immediately in profit or loss for the year.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest . Intercompany transac tions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Bank and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies.

Non-controlling interest is that part of the net results and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Bank. Non-controlling interest forms a separate component of the Group’s equity.

Purchases and sales of non-controlling interests. The Group applies the parent company model to account for transactions with non-controlling interest shareholders. Any difference between the purchase consideration and the carrying amount of non-controlling interest acquired is recorded as goodwill or negative goodwill. The Group recognises the difference between sales consideration and carrying amount of non-controlling interest sold as a gain or loss in the consolidated statement of comprehensive income.

Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair value, cost, or amortised cost as described below.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair value is the current bid price for financial assets and current asking price for financial liabilities which are quoted in an active market. For assets and liabilities with offsetting market risks, the Group may use mid-market prices as a basis for establishing fair values for the offsetting risk positions and apply the bid or asking price to the net open position as appropriate. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange or other institution and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

In other than active markets, the most recent arms length transactions are the basis of current fair values. Recent transaction prices are appropriately adjusted if they do not reflect current fair values, for example because the transaction was a distress sale. Fair value is not the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distress sale.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Valuation techniques such as discounted cash flows models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to fair value certain financial instruments for which external market pricing information is not available. Valuation techniques may require assumptions not supported by observable market data. Disclosures are made in these financial statements if changing any such assumptions to a reasonably possible alternative would result in significantly different profit, income, total assets or total liabilities.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition and includes transaction costs . Measurement at cost is only applicable to investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items of the statement of financial position.

The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.

Initial recognition of financial instruments . Trading securities, derivatives and other financial instruments at fair value through profit or loss are initially recorded at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.

All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.

Derecognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. All short term interbank placements, beyond overnight placements, are included in due from other banks. Amounts, which relate to funds that are of a restricted nature, are excluded from cash and cash equivalents. Cash and cash equivalents include cash on hand, unrestricted demand and overnight deposits with central and other banks. Cash and cash equivalents are carried at amortised cost.

Mandatory cash balances with the NBU. Mandatory cash balances with the NBU are carried at amortised cost and are not available to finance the Group’s day to day operations and hence are not considered as part of cash and cash equivalents for the purposes of the consolidated statement cash flow.

Trading securities. Trading securities are financial assets which are either acquired for generating a profit from short-term fluctuations in price or trader’s margin, or are securities included in a portfolio in which a pattern of short-term trading exists. The Group classifies securities into trading securities if it has an intention to sell them within a short period after purchase, i.e. within 3 months. The Group may choose to reclassify a non-derivative trading financial asset out of the fair value through profit or loss category if the asset is no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables are permitted to be reclassified out of fair value through profit or loss category only in rare circumstances arising from a single event that is unusual and highly unlikely to reoccur in the near term. Financial assets that would meet the definition of loans and receivables may be reclassified if the Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity.

Trading securities are carried at fair value. Interest earned on trading securities calculated using the effective interest method is presented in the consolidated statement of comprehensive income as interest income. Dividends are included in dividend income within other operating income when the Group’s right to receive the dividend payment is established and it is probable that the dividends will be collected. All other elements of the changes in the fair value and gains or losses on derecognition are recorded in the consolidated statement of comprehensive income as gains less losses from trading securities in the period in which they arise.

Other securities at fair value through profit or loss. Other securities at fair value through profit or loss are financial assets designated irrevocably, at initial recognition, into this category. Management designates securities into this category only if (a) such classification eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or (b) a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information on that basis is regularly provided to and reviewed by the Group’s key management personnel. Recognition and measurement of this category of financial assets is consistent with the above policy for trading securities.

Due from other banks. Amounts due from other banks are recorded when the Group advances money to counterparty banks with no intention of trading the resulting unquoted non-derivative receivable due on fixed or determinable dates. Amounts due from other banks are carried at amortised cost.

Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to purchase or originate an unquoted non-derivative receivable from a customer due on fixed or determinable dates and has no intention of trading the receivable. Loans and advances to customers are carried at amortised cost.

For the purposes of credit quality analysis the Group classifies such loans and advances based on the size of the loan exposure:

Large borrowers Above UAH 100 million Loans to medium size borrowers From UAH 1 million to UAH 100 million Loans to small borrowers Less than UAH 1 million

When financial assets are renegotiated and the renegotiated terms and conditions differ substantially from the previous terms, the new asset is initially recognised at its fair value.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Impairment of financial assets carried at amortised cost. Impairment losses are recognised in the statement of comprehensive income for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred: - any instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems; - the borrower experiences a significant financial difficulty as evidenced by the borrower’s financial information that the Group obtains; - the borrower considers bankruptcy or a financial reorganisation; - there is an adverse change in the payment status of the borrower as a result of changes in the national or local economic conditions that impact the borrower; or - the value of collateral significantly decreases as a result of deteriorating market conditions. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets and the experience of management in respect of the extent to which amounts will become overdue as a result of past loss events and the success of recovery of overdue amounts. Past experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect past periods and to remove the effects of past conditions that do not exist currently. Past experience is the basis for the estimation of the loss identification period, in particular the time lag between the actual loss event and identification of the loss event by the Group. This approach ensures that the impact of losses which have not yet been specifically identified is included in the estimation of loan loss impairment.

If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification of terms.

Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year.

Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment loss account in the consolidated statement of comprehensive income.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Credit related commitments. The Group enters into credit related commitments, including commitments to extend credit, letters of credit and financial guarantees. Financial guarantees represent irrevocable assurances to make payments in the event that a customer cannot meet its obligations to third parties and carry the same credit risk as loans. Financial guarantees and commitments to provide a loan are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the commitment, except for commitments to originate loans if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination; such loan commitment fees are deferred and included in the carrying value of the loan on initial recognition. At the end of each reporting period, the commitments are measured at the higher of (i) the remaining unamortised balance of the amount at initial recognition and (ii) the best estimate of expenditure required to settle the commitment at the end of the reporting period.

Investment securities available-for-sale. This classification includes investment securities which the Group intends to hold for an indefinite period of time and which may be sold in response to the needs for liquidity or changes in interest rates, exchange rates or equity prices. The Group classifies investments as available-for-sale at the time of purchase.

Investment securities available-for-sale are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in profit or loss for the year. Dividends on available-for-sale equity instruments are recognised in statement of comprehensive income for the year when the Group’s right to receive payment is established and it is probable that the dividends will be collected. All other elements of changes in the fair value are recognised in other comprehensive income until the investment is derecognised or impaired, at which time the cumulative gain or loss is removed from other comprehensive income to profit or loss for the year.

Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of investment securities available-for-sale. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss – is removed from other comprehensive income to profit or loss for the year. Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss for the year.

Sale and repurchase agreements. Sale and repurchase agreements (“repo agreements”) which effectively provide a lender’s return to the counterparty are treated as secured financing transactions. Securities sold under such sale and repurchase agreements are not derecognised. The securities are not reclassified in the consolidated statement of financial position unless the transferee has the right by contract or custom to sell or repledge the securities, in which case they are reclassified as repurchase receivables. The corresponding liability is presented within amounts due to other banks.

Securities purchased under agreements to resell (“reverse repo agreements”) which effectively provide a lender’s return to the Group are recorded as due from other banks or loans and advances to customers, as appropriate. The difference between the sale and repurchase price is treated as interest income and accrued over the life of repo agreements using the effective interest method.

Investment securities held to maturity. This classification includes quoted non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has both the intention and ability to hold to maturity. Management determines the classification of investment securities held to maturity at their initial recognition and reassesses the appropriateness of that classification at each balance sheet date. Investment securities held to maturity are carried at amortised cost.

Promissory notes purchased. Promissory notes purchased are included in trading securities, or in due from other banks or in loans and advances to customers, depending on their substance and are recorded, subsequently remeasured and accounted for in accordance with the accounting policies for these categories of assets.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the acquirer’s share of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the date of exchange. Goodwill on acquisitions of subsidiaries is presented separately in the consolidated statement of financial position. Goodwill on acquisitions of associates is included in the investment in associates. Goodwill is carried at cost less accumulated impairment losses, if any.

The Group tests goodwill for impairment at least annually and whenever there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the business combination. Such units or group of units represent the lowest level at which the Group monitors goodwill and are not larger than an operating segment. Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the operation disposed of, generally measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit which is retained.

Premises, leasehold improvements and equipment. Premises, leasehold improvements and equipment are stated at cost, restated to the equivalent purchasing power of the Ukrainian hryvnia at 31 December 2000 for assets acquired prior to 1 January 2001, or revalued amounts, as described below, less accumulated depreciation and provision for impairment, where required. Cost of premises and equipment of acquired subsidiaries is the estimated fair value at the date of acquisition.

Premises are subject to revaluation with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Increases in the carrying amount arising on revaluation are credited to other comprehensive income and increase the revaluation surplus in equity. Decreases that offset previous increases of the same asset are recognised in other comprehensive income and decrease the previously recognised revaluation surplus in equity; all other decreases are charged to profit or loss for the year. The revaluation reserve for premises and equipment included in equity is transferred directly to retained earnings when the revaluation surplus is realised on the retirement or disposal of the asset, or as the asset is used by the Group; in the latter case, the amount of the surplus realised is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. At the date of revaluation accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset.

Management has updated the carrying value of premises measured in accordance with the revaluation model as of the reporting date using market based evidence and is satisfied that sufficient market based evidence of fair value is available to support the updated fair values.

Construction in progress is carried at cost less provision for impairment where required. Construction in progress is not depreciated until the asset is available for use.

All other items of premises and equipment are stated at cost less accumulated depreciation and impairment losses, if any.

Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing major parts or components of premises and equipment items are capitalised and the replaced part is retired.

At each reporting date management assesses whether there is any indication of impairment of premises, leasehold improvements and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s fair value less costs to sell and its value in use. The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in profit or loss for the year to the extent it exceeds the previous revaluation surplus in equity. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset’s value in use or fair value less costs to sell.

Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit or loss for the year.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Depreciation. Land is not depreciated. Depreciation on other items of premises, leasehold improvements and equipment is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives as follows: Premises 50 years Computers 4 years Furniture and equipment 4-10 years Motor vehicles 6 years Other 3-5 years Leasehold improvements are depreciated over the term of the underlying lease.

The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Intangible assets. The Group’s intangible assets other than goodwill have definite useful life and primarily include capitalised computer software.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring them to use.

Development costs that are directly associated with identifiable and unique software controlled by the Group are recorded as intangible assets if an inflow of incremental economic benefits exceeding costs is probable. Capitalised costs include staff costs of the software development team and an appropriate portion of relevant overheads. All other costs associated with computer software, e.g. its maintenance, are expensed when incurred. Capitalised computer software is amortised on a straight line basis over expected useful lives of 5 years.

Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss on a straight-line basis over the period of the lease.

Leases embedded in other agreements are separated if (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets and (b) the arrangement conveys a right to use the asset.

Finance lease liabilities. Where the Group is a lessee in a lease which transferred substantially all the risks and rewards incidental to ownership to the Group, the assets leased are capitalised in premises, leasehold improvements and equipment at the commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance lease balance outstanding. The corresponding rental obligations, net of future finance charges, are included in other financial liabilities. The interest cost is charged to profit or loss for the year over the lease period using the effective interest method. The assets acquired under finance leases are depreciated over their useful life or the shorter lease term if the Group is not reasonably certain that it will obtain ownership by the end of the lease term.

Due to other banks and other financing institutions. Amounts due to other banks and other financing institutions are recorded when money or other assets are advanced to the Group by counterparty banks or other financing institutions. The non-derivative liability is carried at amortised cost. If the Group purchases its own debt, it is removed from the consolidated statement of financial position and the difference between the carrying amount of the liability and the consideration paid is included in gains or losses arising from early retirement of debt.

Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporate customers and are carried at amortised cost. Debt securities in issue . Debt securities in issue include Eurobonds, promissory notes and bonds issued by the Group. Debt securities are stated at amortised cost. If the Group purchases its own debt securities in issue, they are removed from the consolidated statement of financial position and the difference between the carrying amount of the liability and the consideration paid is included in gains arising from early retirement of debt.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Subordinated debt. Subordinated debt represents long-term borrowing agreements that, in case of the Group’s default, would be secondary to the Group’s primary debt obligations. Subordinated debt is carried at amortised cost.

Derivative financial instruments. Derivative financial instruments, including foreign exchange contracts, forward rate agreements, currency swaps and currency options are carried at their fair value.

All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative . Changes in the fair value of derivative instruments are included in profit or loss for the year. The Group does not apply hedge accounting.

Certain derivative instruments embedded in other financial instruments are treated as separate derivative instruments when their risks and characteristics are not closely related to those of the host contract.

When the fair value of derivative does not change in response to the changes in the foreign exchange rates and other variables and future cash flows from the financial derivative become certain the Group ceased to account for a financial derivative and recognise a receivable within loans and advances to customers.

Income taxes. Income taxes have been provided for in the consolidated financial statements in accordance with legislation enacted or substantively enacted by the end of reporting period. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity.

Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within administrative and other operating expenses.

Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit . Deferred tax liabilities are not record ed for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes . Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the reporting period which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.

Deferred income tax is provided on post acquisition retained earnings and other post acquisition movements in reserves of subsidiaries, except where the Group controls the subsidiary’s dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future.

Uncertain tax positions. The Group's uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of each reporting period and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

Trade and other payables. Trade payables are accrued when the counterparty has performed its obligations under the contract and are carried at amortised cost.

Share capital. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recorded as share premium in equity.

Dividends. Dividends are recorded in equity in the period in which they are declared. Any dividends declared after the end of reporting period and before the financial statements are authorised for issue are disclosed in the subsequent events note. The statutory accounting reports of the Bank are the basis for profit distribution and other appropriations. Ukrainian legislation identifies the basis of distribution as the retained earnings.

Income and expense recognition. Interest income and expense are recorded for all debt instruments on an accrual basis using the effective interest method. This method defers, as part of interest income or expense, all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Fees integral to the effective interest rate include origination fees received or paid by the entity relating to the creation or acquisition of a financial asset or issuance of a financial liability, for example fees for evaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating the terms of the instrument and for processing transaction documents. Commitment fees received by the Group to originate loans at market interest rates are integral to the effective interest rate if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination. The Group does not designate loan commitments as financial liabilities at fair value through profit or loss.

When loans and other debt instruments become doubtful of collection, they are written down to the present value of expected cash inflows and interest income is thereafter recorded for the unwinding of the present value discount based on the asset’s effective interest rate which was used to measure the impairment loss.

All other fees, commissions and other income and expense items are generally recorded on an accrual basis by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Loan syndication fees are recognised as income when the syndication has been completed and the Group retains no part of the loan package for itself or retains a part at the same effective interest rate as for the other participants.

Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as the acquisition of loans, shares or other securities or the purchase or sale of businesses, and which are earned on execution of the underlying transaction, are recorded on its completion. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time-proportion basis. Asset management fees related to investment funds are recorded rateably over the period the service is provided. The same principle is applied for wealth management, financial planning and custody services that are continually provided over an extended period of time.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Recognition of deferred day one profit and loss. The Group has entered into transactions, where fair value is determined using valuation models for which not all inputs are market observable prices or rates. Such a financial instrument is initially recognised at the transaction price, which is the best indicator of fair value, although the value obtained from the relevant valuation model may differ. The difference between the transaction price and the model value, commonly referred to as “day one profit and loss”, is not recognised immediately in the profit or loss.

The timing of recognition of deferred day one profit and loss is determined individually. It is either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred day one profit and loss. Subsequent changes in fair value are recognised immediately in the profit or loss for the year without reversal of deferred day one profits and losses.

Foreign currency translation. The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. The functional currency of the Bank, and the Group’s presentation currency, is the national currency of Ukraine, Ukrainian hryvnia (“UAH”).

Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate of the NBU at the respective reporting period. Foreign exchange gains and losses resulting from the settlement of transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange rates of the NBU are recognised in profit or loss for the year. Translation at year-end rates does not apply to non-monetary items that are measured at historical cost. Non-monetary items measured at fair value in a foreign currency, including equity instruments, are translated using the exchange rates at the date when the fair value was determined. Effects of exchange rate changes on the fair value of equity securities are recorded as part of the fair value gain or loss.

As the characteristics of the economic environment of Ukraine indicate that hyperinflation has ceased, effective from 1 January 2001 the Bank no longer applies the provisions of IAS 29. Accounting for the effects of hyperinflation prior to 1 January 2001 is detailed further below. The results and financial position of each group entity (the functional currency of none of which is a currency of a hyperinflationary economy) are translated into the presentation currency as follows:

(i) assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the respective reporting period;

(ii) income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions);

(iii) components of equity are translated at the historic rate; and

(iv) all resulting exchange differences are recognised in other comprehensive income.

When a subsidiary is disposed of through sale, liquidation, repayment of share capital or abandonment of all, or part of, the previously recognised exchange rate differences on translation to a different presentation currency are reclassified from other comprehensive income to profit or loss for the year.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

The principal rates of exchange used for translating foreign currency balances were as follows:

31 December 2009,UAH 31 December 2008,UAH 1 US Dollar (USD) 7.985000 7.700000 1 Euro (EUR) 11.448893 10.855460 1 Russian Ruble (RUB) 0.264020 0.262080 1 Latvian Lat (LVL) 16.141115 15.334737 1 Georgian Lari (GEL) 4.765001 4.085939

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

Fiduciary assets. Assets held by the Group in its own name, but on the account of third parties, are not reported in the consolidated statement of financial position. For the purposes of disclosure, fiduciary activities do not encompass safe custody functions. Commissions received from fiduciary activities are shown in fee and commission income.

Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

Accounting for the effects of hyperinflation. Prior to 2001 Ukraine experienced relatively high levels of inflation and was considered to be hyperinflationary as defined by IAS 29 “Financial Reporting in Hyperinflationary Economies” (“IAS 29”). In accordance with IAS 29, when an economy ceases to be hyperinflationary and an enterprise is not required to prepare and present financial statements in accordance with IAS 29, it should treat the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements. Those non-monetary items that arose in the periods of hyperinflation or earlier periods need to be restated in terms of the purchasing power of Ukrainian hryvnia at the end of the reporting period preceding the period in which hyperinflation ceased.

This restatement was prepared by indexing the historical balances by changes in the general price index up to 31 December 2000.

Monetary assets and liabilities are not restated because they are already expressed in terms of the monetary unit current at the period end. Non-monetary assets and liabilities (items which are not expressed in terms of the monetary unit current at the period end) are restated by applying the relevant conversion factor. The effect of inflation on the Group’s net monetary position in 2000 and prior years is included in retained earnings.

Staff costs and related contributions. Wages, salaries, contributions to the Ukrainian state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by the employees of the Group. The Group has no legal or constructive obligation to make pension or similar benefit payments other than the payments to the statutory defined contribution scheme.

Segment reporting . Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately.

Changes in presentation. Where necessary, corresponding figures have been adjusted to conform to the presentation of the current year amounts.

The revised IAS 1, Presentation of Financial Statements , which became effective from 1 January 2009 requires the Group to present a statement of financial position as of the beginning of the earliest comparative period (‘opening statement of financial position’), when the Group applies an accounting policy retrospectively or makes a retrospective restatement or when it reclassifies items in its financial statements.

The Group decided to separately disclose balances with the NBU and other central banks on the face of the consolidated statement of financial position and in the Note 12. Opening consolidated statement of financial position as of 1 January 2008 is not presented as the balance of borrowings from the central banks was nil as of that date. However, opening balance as at 1 January 2008 is disclosed in the Note 12. In management’s opinion, the omission of the opening consolidated statement of financial position is not material and is therefore permitted. Management considered that materiality of an omission is measured against its ability to influence the economic decisions of the users of the financial statements. The reclassifications in the consolidated statement of financial position had no impact on any other captions in the consolidated statement of financial position and related note disclosures.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

3 Summary of Significant Accounting Policies (Continued)

As of 31 December 2008 the effect of reclassifications for presentation purposes was as follows: As originally Reclassification Asreclassified In millions of Ukrainian hryvnias presented

Due to other banks and other financing institutions 10,629 (8,310) 2,319

Due to the NBU and other central banks - 8,310 8,310

Management concluded that it is sufficient for the Group to present the impact of the reclassification only in Note 12 and state in the consolidated financial statements that the other notes including disclosure about financial assets, required by IFRS 7, have not been materially impacted by the reclassification.

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognised in the consolidated financial statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Impairment losses on loans and advances . The Group regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in profit or loss for the year, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. A 10% increase or decrease in actual loss experience compared to the loss estimates used would result in an increase or decrease in loan impairment losses of UAH 490 million (2008: UAH 422 million), respectively. Impairment losses for individually significant loans are based on estimates of discounted future cash flows of the individual loans, taking into account repayments and realisation of any assets held as collateral against the loans. A 10% increase or decrease in the actual loss experience compared to the estimated future discounted cash flows from individually significant loans, which could arise from differences in amounts and timing of the cash flows, would result in an increase or decrease in loan impairment losses of UAH 500 million (2008: UAH 50 million).

Fair value of derivatives. The fair values of financial derivatives that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. To the extent practical, models use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair values.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued)

As of 31 December 2009 the Bank had loans and advances to customers totalling UAH 36,608 million (2008: UAH 17,247 million) issued in UAH with the condition of compensation to be received by the Bank in the event that the official exchange rate of UAH depreciates against USD. The contract to receive compensation was accounted for by the Bank as a financial derivative with the fair value of UAH 2,005 million as of 31 December 2009 (2008: UAH 2,551 million) estimated using a valuation technique. This valuation technique takes into account expected movements in exchange rates, discount factor and credit risk. Changing the assumptions about expected exchange rates may result in a different profit. All contracts mature from 2010 to 2013, inclusive. If the expected UAH/USD exchange rate for these years would be higher/lower by 5%, the fair value of the derivative and the respective consolidated statement of comprehensive income amount would increase/decrease by UAH 1,518 million (2008: 15%; UAH 625 million). If the discount rate used for fair valuation of the derivatives as of 31 December 2009 would be higher/lower by 100 basis points, the fair value of the derivative and the respective consolidated statement of comprehensive income amount would decrease/increase by UAH 134 million (2008: UAH 12 million). If the credit risk of counterparties as of 31 December 2009 would be higher/lower by 10%, the fair value of the derivative and the respective consolidated statement of comprehensive income amount would decrease/increase by UAH 200 million (2008: UAH 282 million). Refer to Note 27.

Tax legislation. Ukrainian and Russian tax, currency and customs legislation is subject to varying interpretations. Refer to Note 26.

Valuation of own use premises . Premises of the Group are stated at fair value based on reports prepared by a valuation company. The basis for their work is sales comparison approach. At the date of revaluation accumulated depreciation was eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. When performing revaluation certain judgements and estimates are applied by the valuers in determination of the comparison of premises to be used in sales comparison approach. Changes in assumptions about these factors could affect reported fair values. The valuation was based on comparative sales of premises with the price per square meter varying from UAH 852 to UAH 43,133 (2008: UAH 170 to UAH 52,954), depending upon the location of premises. To the extent that the price per square meter differs by +/-5 percent, the fair value of premises would be UAH 108 million higher or UAH 108 million lower (2008: UAH 215 million higher or UAH 215 million lower).s

Provision for credit related commitments. The Group regularly reviews its outstanding credit related commitments to any provision to be created for credit related commitments. In determining whether a provision should be recorded in profit or loss for the year, the Group makes judgements as to whether there is any observable data indicating that credit related commitment will be executed and the best estimate of the expenditure required to settle the commitment at the end of the period is lower than the remaining unamortised balance of the amount at initial recognition.

Management uses estimates based on historical loss experience for commitments with credit risk characteristics similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued)

Special Purpose Entities (SPEs). Judgement is also required to determine whether the substance of the relationship between the Group and a special purpose entity indicates that the special purpose entity is controlled by the Group.

The Group does not consolidate SPEs that it does not control. As it can sometimes be difficult to determine whether the Group does control an SPE, Management makes judgements about its exposure to the risks and rewards, as well as about its ability to make operational decisions for the SPE in question. In many instances, elements are present that, considered in isolation, indicate control or lack of control over an SPE, but when considered together make it difficult to reach a clear conclusion. In cases where more arguments are in place towards existence of control, the SPE is consolidated.

Were the Group not to consolidate the assets, liabilities and the results of these consolidated SPEs, the net effect on the consolidated statement of financial position would be a decrease in net assets by UAH 86 million (2008: a decrease in net assets by UAH 24 million) and increase in profit by UAH 78 million (2008: increase by UAH 4 million).

Deferred income tax asset recognition. The recognised deferred tax asset represents income taxes recoverable through future deductions from taxable profits and is recorded in the consolidated statement of financial position. Deferred income tax assets are recorded to the extent that realisation of the related tax benefit is probable. The future taxable profits and the amount of tax benefits that are probable in the future are based on a medium term business plan prepared by management and extrapolated results thereafter. The business plan is based on management expectations that are believed to be reasonable under the circumstances. The Group does not recognise a deferred tax asset where it does not expect future taxable profits will be available against which the temporary differences can be utilised.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

5 Adoption of New or Revised Standards and Interpretations

Certain new standards and interpretations became effective for the Group from 1 January 2009:

IFRS 8, Operating Segments . The standard applies to entities whose debt or equity instruments are traded in a public market or that file, or are in the process of filing, their financial statements with a regulatory organisation for the purpose of issuing any class of instruments in a public market. IFRS 8 requires an entity to report financial and descriptive information about its operating segments, with segment information presented on a similar basis to that used for internal reporting purposes. The adoption of IFRS 8 has not resulted in the change of reportable segments presented.

IAS 23, Borrowing Costs, revised in March 2007. The main change is the removal of the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that is not carried at fair value and that necessarily takes a substantial period of time to get ready for its intended use or sale (a qualifying asset) form part of the cost of that asset, if the commencement date for capitalisation is on or after 1 January 2009. Other borrowing costs are recognised as an expense using the effective interest method. The revised IAS 23 did not have an impact on these consolidated financial statements.

IAS 1, Presentation of Financial Statements, revised in September 2007 . The main change in IAS 1 is the replacement of the income statement by a statement of comprehensive income which includes all non-owner changes in equity, such as the revaluation of available-for-sale financial assets. Alternatively, entities are allowed to present two statements: a separate income statement and a statement of comprehensive income. The Group has elected to present a single consolidated statement of comprehensive income. The revised IAS 1 also introduces a requirement to present a statement of financial position (balance sheet) at the beginning of the earliest comparative period whenever the entity restates comparatives due to reclassifications, changes in accounting policies, or corrections of errors. The revised IAS 1 had an impact on the presentation of the Group’s consolidated financial statements but had no impact on the recognition or measurement of specific transactions and balances.

Improvements to International Financial Reporting Standards (issued in May 2008). In 2008, the International Accounting Standards Board decided to initiate an annual improvements project as a method of making necessary, but non-urgent, amendments to IFRS. The amendments consist of a mixture of substantive changes, clarifications, and changes in terminology in various standards. The substantive changes relate to the following areas: classification as held for sale under IFRS 5 in case of a loss of control over a subsidiary; possibility of presentation of financial instruments held for trading as non-current under IAS 1; accounting for sale of IAS 16 assets which were previously held for rental and classification of the related cash flows under IAS 7 as cash flows from operating activities; clarification of definition of a curtailment under IAS 19; accounting for below market interest rate government loans in accordance with IAS 20; making the definition of borrowing costs in IAS 23 consistent with the effective interest method; clarification of accounting for subsidiaries held for sale under IAS 27 and IFRS 5; reduction in the disclosure requirements relating to associates and joint ventures under IAS 28 and IAS 31; enhancement of disclosures required by IAS 36; clarification of accounting for advertising costs under IAS 38; amending the definition of the fair value through profit or loss category to be consistent with hedge accounting under IAS 39; introduction of accounting for investment properties under construction in accordance with IAS 40; and reduction in restrictions over manner of determining fair value of biological assets under IAS 41. Further amendments made to IAS 8, 10, 18, 20, 29, 34, 40, 41 and to IFRS 7 represent terminology or editorial changes only, which the IASB believes have no or minimal effect on accounting. The amendments did not have an impact on the Group.

Puttable Financial Instruments and Obligations Arising on Liquidation—IAS 32 and IAS 1 Amendment . The amendment requires classification as equity of some financial instruments that meet the definition of financial liabilities. The amendment did not have an impact on these consolidated financial statements.

Vesting Conditions and Cancellations—Amendment to IFRS 2, Share-based Payment . The amendment clarified that only service conditions and performance conditions are vesting conditions. Other features of a share-based payment are not vesting conditions. The amendment specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The amendment did not have an impact on these consolidated financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

5 Adoption of New or Revised Standards and Interpretations (Continued)

IFRIC 13, Customer Loyalty Programmes . IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. The amendment did not have an impact on these consolidated financial statements.

IFRIC 15, Agreements for the Construction of Real Estate . The interpretation applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors, and provides guidance for determining whether agreements for the construction of real estate are within the scope of IAS 11 or IAS 18. It also provides criteria for determining when entities should recognise revenue on such transactions. The amendment did not have an impact on these consolidated financial statements.

Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate—IFRS 1 and IAS 27 Amendment, issued in May 2008 . The amendment allows first-time adopters of IFRS to measure investments in subsidiaries, jointly controlled entities or associates at fair value or at previous GAAP carrying value as deemed cost in the separate financial statements. The amendment also requires distributions from pre-acquisition net assets of investees to be recognised in profit or loss for the year rather than as a recovery of the investment. The amendment did not have an impact on these consolidated financial statements.

Improving Disclosures about Financial Instruments - Amendment to IFRS 7, Financial Instruments: Disclosures, issued in March 2009 . The amendment requires enhanced disclosures about fair value measurements and liquidity risk. The entity is required to disclose an analysis of financial instruments using a three-level fair value measurement hierarchy. The amendment (a) clarifies that the maturity analysis of liabilities should include issued financial guarantee contracts at the maximum amount of the guarantee in the earliest period in which the guarantee could be called; and (b) requires disclosure of remaining contractual maturities of financial derivatives if the contractual maturities are essential for an understanding of the timing of the cash flows. An entity will further have to disclose a maturity analysis of financial assets it holds for managing liquidity risk, if that information is necessary to enable users of its financial statements to evaluate the nature and extent of liquidity risk. The enhanced disclosures are included in these financial statements.

Embedded Derivatives - Amendments to IFRIC 9 and IAS 39, issued in March 2009 . The amendments clarify that on reclassification of a financial asset out of the ‘at fair value through profit or loss’ category, all embedded derivatives have to be assessed and, if necessary, separately accounted for. The amendment did not have an impact on these consolidated financial statements.

IFRIC 16, Hedges of a Net Investment in a Foreign Operation . The interpretation explains which currency risk exposures are eligible for hedge accounting and states that translation from the functional currency to the presentation currency does not create an exposure to which hedge accounting could be applied. The IFRIC allows the hedging instrument to be held by any entity or entities within a group except the foreign operation that itself is being hedged. The interpretation also clarifies how the currency translation gain or loss reclassified from other comprehensive income to profit or loss is calculated on disposal of the hedged foreign operation. Reporting entities apply IAS 39 to discontinue hedge accounting prospectively when their hedges do not meet the criteria for hedge accounting in IFRIC 16. IFRIC 16 did not have an impact on these consolidated financial statements.

The International Financial Reporting Standard for Small and Medium-sized Entities (issued in July 2009) is a self-contained standard, tailored to the needs and capabilities of smaller businesses. Many of the principles of full IFRS for recognising and measuring assets, liabilities, income and expense have been simplified, and the number of required disclosures have been simplified and significantly reduced. The IFRS for SMEs may be applied by entities which publish general purpose financial statements for external users and do not have public accountability. The Group is not eligible to apply the IFRS for SMEs due to the public accountability of its banking business.

Unless otherwise stated above, the amendments and interpretations did not have any significant effect on the Group’s consolidated financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

6 New Accounting Pronouncements

Certain new standards and interpretations have been published that are mandatory for the Group’s accounting periods beginning on or after 1 January 2010 or later periods and which the Group has not early adopted:

IFRIC 17, Distributions of Non-Cash Assets to Owners (effective for annual periods beginning on or after 1 July 2009). The interpretation clarifies when and how distribution of non-cash assets as dividends to the owners should be recognised. An entity should measure a liability to distribute non-cash assets as a dividend to its owners at the fair value of the assets to be distributed. A gain or loss on disposal of the distributed non-cash assets will be recognised in profit or loss for the year when the entity settles the dividend payable. IFRIC 17 is not relevant to the Group’s operations because it does not distribute non- cash assets to owners.

IFRIC 18, Transfers of Assets from Customers (effective for annual periods beginning on or after 1 July 2009) . The interpretation clarifies the accounting for transfers of assets from customers, namely, the circumstances in which the definition of an asset is met; the recognition of the asset and the measurement of its cost on initial recognition; the identification of the separately identifiable services (one or more services in exchange for the transferred asset); the recognition of revenue, and the accounting for transfers of cash from customers. IFRIC 18 is not expected to have any impact on the Group’s consolidated financial statements.

IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010). The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability. It does not address the accounting by the creditor. IFRIC 19 is not expected to have any impact on the Group’s consolidated financial statements.

Classification of Rights Issues - Amendment to IAS 32 (issued 8 October 2009; effective for annual periods beginning on or after 1 February 2010). The amendment exempts certain rights issues of shares with proceeds denominated in foreign currencies from classification as financial derivatives. The amendment is not expected to have any impact on the Group’s consolidated financial statements.

IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual periods beginning on or after 1 July 2009). The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minority interests”) even if this results in the non-controlling interests having a deficit balance (the current standard requires the excess losses to be allocated to the owners of the parent in most cases). The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the former subsidiary will have to be measured at its fair value. The Group is currently assessing the impact of the amended standard on its consolidated financial statements.

IFRS 3, Business Combinations (revised January 2008; effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The revised IFRS 3 will allow entities to choose to measure non-controlling interests using the existing IFRS 3 method (proportionate share of the acquiree’s identifiable net assets) or at fair value. The revised IFRS 3 is more detailed in providing guidance on the application of the purchase method to business combinations. The requirement to measure at fair value every asset and liability at each step in a step acquisition for the purposes of calculating a portion of goodwill has been removed. Instead, in a business combination achieved in stages, the acquirer will have to remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss for the year. Acquisition-related costs will be accounted for separately from the business combination and therefore recognised as expenses rather than included in goodwill. An acquirer will have to recognise at the acquisition date a liability for any contingent purchase consideration. Changes in the value of that liability after the acquisition date will be recognised in accordance with other applicable IFRSs, as appropriate, rather than by adjusting goodwill. The revised IFRS 3 brings into its scope business combinations involving only mutual entities and business combinations achieved by contract alone. The Group is currently assessing the impact of the amended standard on its consolidated financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

6 New Accounting Pronouncements (Continued)

Eligible Hedged Items—Amendment to IAS 39, Financial Instruments: Recognition and Measurement (effective with retrospective application for annual periods beginning on or after 1 July 2009). The amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment is not expected to have any impact on the Group's consolidated financial statements as the Group does not apply hedge accounting.

IFRS 1, First-time Adoption of International Financial Reporting Standards (following an amendment in December 2008, effective for the first IFRS financial statements for a period beginning on or after 1 July 2009). The revised IFRS 1 retains the substance of its previous version but within a changed structure in order to make it easier for the reader to understand and to better accommodate future changes. The Group concluded that the revised standard does not have any effect on its financial statements.

Group Cash-settled Share-based Payment Transactions - Amendments to IFRS 2, Share-based Payment (effective for annual periods beginning on or after 1 January 2010). The amendments provide a clear basis to determine the classification of share-based payment awards in both consolidated and separate financial statements. The amendments incorporate into the standard the guidance in IFRIC 8 and IFRIC 11, which are withdrawn. The amendments expand on the guidance given in IFRIC 11 to address plans that were previously not considered in the interpretation. The amendments also clarify the defined terms in the Appendix to the standard. The Group does not expect the amendments to have any material effect on its consolidated financial statements.

Additional Exemptions for First-time Adopters - Amendments to IFRS 1, First-time Adoption of IFRS (effective for annual periods beginning on or after 1 January 2010). The amendments exempt entities using the full cost method from retrospective application of IFRSs for oil and gas assets and also exempt entities with existing leasing contracts from reassessing the classification of those contracts in accordance with IFRIC 4, 'Determining Whether an Arrangement Contains a Lease' when the application of their national accounting requirements produced the same result. The amendments will not have any impact on the Group’s consolidated financial statements.

Improvements to International Financial Reporting Standards (issued in April 2009; amendments to IFRS 2, IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009; amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods beginning on or after 1 January 2010). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: clarification that contributions of businesses in common control transactions and formation of joint ventures are not within the scope of IFRS 2; clarification of disclosure requirements set by IFRS 5 and other standards for non- current assets (or disposal groups) classified as held for sale or discontinued operations; requiring to report a measure of total assets and liabilities for each reportable segment under IFRS 8 only if such amounts are regularly provided to the chief operating decision maker; amending IAS 1 to allow classification of certain liabilities settled by entity’s own equity instruments as non-current; changing IAS 7 such that only expenditures that result in a recognised asset are eligible for classification as investing activities; allowing classification of certain long-term land leases as finance leases under IAS 17 even without transfer of ownership of the land at the end of the lease; providing additional guidance in IAS 18 for determining whether an entity acts as a principal or an agent; clarification in IAS 36 that a cash generating unit shall not be larger than an operating segment before aggregation; supplementing IAS 38 regarding measurement of fair value of intangible assets acquired in a business combination; amending IAS 39 (i) to include in its scope option contracts that could result in business combinations, (ii) to clarify the period of reclassifying gains or losses on cash flow hedging instruments from equity to profit or loss for the year and (iii) to state that a prepayment option is closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender; amending IFRIC 9 to state that embedded derivatives in contracts acquired in common control transactions and formation of joint ventures are not within its scope; and removing the restriction in IFRIC 16 that hedging instruments may not be held by the foreign operation that itself is being hedged. The Group does not expect the amendments to have any material effect on its consolidated financial statements.

Amendment to IAS 24, Related Party Disclosures (issued in November 2009 and effective for annual periods beginning on or after 1 January 2011). IAS 24 was revised in 2009 by: (a) simplifying the definition of a related party, clarifying its intended meaning and eliminating inconsistencies; and by (b) providing a partial exemption from the disclosure requirements for government-related entities.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

6 New Accounting Pronouncements (Continued)

IFRS 9, Financial Instruments Part 1: Classification and Measurement. IFRS 9 was issued in November 2009 and replaces those parts of IAS 39 relating to the classification and measurement of financial assets. Key features are as follows:

 Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.

 An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent only payments of principal and interest (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss.

 All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument- by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment.

 While adoption of IFRS 9 is mandatory from 1 January 2013, earlier adoption is permitted.

The Group is considering the implications of the standard, the impact on the Group and the timing of its adoption by the Group.

Prepayments of a Minimum Funding Requirement – Amendment to IFRIC 14 (effective for annual periods beginning on or after 1 January 2011). This amendment will have a limited impact as it applies only to companies that are required to make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement. The amendments will not have any impact on the Group’s consolidated financial statements.

Limited exemption from comparative IFRS 7 disclosures for first-time adopters - Amendment to IFRS 1 (effective for annual periods beginning on or after 1 July 2010). Existing IFRS preparers were granted relief from presenting comparative information for the new disclosures required by the March 2009 amendments to IFRS 7 'Financial Instruments: Disclosures'. This amendment to IFRS 1 provides first-time adopters with the same transition provisions as included in the amendment to IFRS 7. The amendments will not have any impact on the Group’s consolidated financial statements.

Unless otherwsise described above, the new standards and interpretations are not expected to significantly affect the Group’s consolidated financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

7 Cash and Cash Equivalents and Mandatory Reserves

In millions of Ukrainian hryvnias 2009 2008

Cash on hand 3,494 3,206 Cash balances with the NBU 1,677 78 CashbalanceswiththeCentralBankofRussianFederation 908 241 Cash balances with the Central Bank of Latvia 137 127 Cash balances with the Central Bank of Cyprus 98 70 Cash balances with the Central Bank of Georgia 45 178 Correspondent accounts and overnight placements with other banks - Ukraine 209 132 - Other countries 4,887 5,360

Totalcashandcashequivalentsandmandatoryreserves 11,455 9,392

As of 31 December 2009 mandatory reserve balance with the National Bank of Ukraine is calculated on the basis of a simple average over a monthly period and should be maintained at the level of 0 to 7 per cent (2008: 0.5 to 5 per cent) of certain obligations of the Bank. As such, mandatory reserve balance with the National Bank of Ukraine can vary from day to day. For December 2009 the Bank’s mandatory reserve balance was UAH 1,042 million (2008: UAH 1,091 million).

As at 31 December 2009 in accordance with the NBU regulations the Bank was required to maintain the balance on accounts with the NBU at the level not less than 90% of the mandatory reserves balance for the preceding month (31 December 2008: not less than 90% of the mandatory reserve balance for the preceding month). As at 31 December 2009 it was also required to maintain the balance on the separate account with the NBU at the level not less than 50% of the mandatory reserves balance for the preceding month, as a part of the total required level of mandatory reserves; the amount is subject to interest payments from the side of the NBU at rate 3.075% (30% of the NBU official interest rate), provided that the Bank is in compliance with the mandatory reserve requirements (31 December 2008: no such requirement was in place).

As of 31 December 2008 the National Bank of Ukraine did not require the Bank to observe mandatory reserve requirements. All funds held on accounts with the NBU could have been used for settlements with third parties.

As of 31 December 2009 the mandatory reserve balances of the Bank’s subsidiaries in Russia and Georgia that should be kept with respective central banks were UAH 99 million (2008: mandatory reserves in Russia and Georgia were UAH 31 million).

As the respective liquid assets are not available to finance the Group’s day-to-day operations, except for the mandatory reserves with the Bank of Latvia and the Central Bank of Cyprus, for the purposes of the consolidated statement of cash flows, the mandatory reserve balances relating to the Bank, Russian and Georgian subsidiaries (2008: mandatory reserve balances relating to the Russian and Georgian subsidiaries) are excluded from the cash and cash equivalents. As of 31 December 2009 the Group’s cash and cash equivalents for the purposes of consolidated statement of cash flows were as follows:

In millions of Ukrainian hryvnias 2009 2008

Totalcashandcashequivalentsandmandatoryreserves 11,455 9,392 Less mandatory reserves balances (1,141) (31)

Cash and cash equivalents for the purposes of the consolidated statement of cash flows 10,314 9,361

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

7 Cash and Cash Equivalents and Mandatory Reserves (Continued)

Analysis by credit quality of cash and cash equivalents and mandatory reserve balances may be summarised based on Moody’s ratings at 31 December 2009 as follows:

Cash on Cash balances with Correspondent Total hand the Central Banks, accounts and overnight including mandatory placements with other In millions of Ukrainian hryvnias reserves banks

Neither past due nor impaired Cashonhand 3,494 - - 3,494 CashbalanceswiththeCentralBanks - 2,865 - 2,865 Aaa rated - - 7878 Aa1toAa3rated - 3,895 3,895 A1toA3rated - - 530 530 Baa1toBaa3rated - - 212 212 Ba1toBa3rated - - 2 2 B1toB3rated - - 36 36 Unrated - - 343343

Total cash and cash equivalents and mandatoryreserves 3,494 2,865 5,096 11,455

In 2009 the Group decided to provide credit quality analysis of neither past due nor impaired balances based on Moody’s ratings, accordingly comparative numbers originally disclosed on Fitch’s ratings were converted to the nearest equivalent on the Moody’s rating scale.

Analysis by credit quality of cash and cash equivalents and mandatory reserve balances summarised based on Moody’s ratings at 31 December 2008 is as follows:

Cash on Cash balances with Correspondent Total hand the Central Banks, accounts and overnight including mandatory placements with other In millions of Ukrainian hryvnias reserves banks

Neither past due nor impaired Cashonhand 3,206 - - 3,206 CashbalanceswiththeCentralBanks - 694 - 694 Aa3 rated - - 1,133 1,133 A1 rated - - 2,375 2,375 A2 rated - - 1,303 1,303 Baa2toB3rated - - 49 49 Unrated - - 632632

Total cash and cash equivalents and mandatoryreserves 3,206 694 5,492 9,392

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

7 Cash and Cash Equivalents and Mandatory Reserves (Continued)

Investing and financing transactions that did not require the use of cash and cash equivalents and were excluded from the cash flow statement are as follows:

In millions of Ukrainian hryvnias 2009 2008

Non-cash investing activities Proceeds from disposal of investment securities available-for-sale in exchange for trading securities - 43

Non-cash investing activities - 43

Non-cash financing activities Dividends (1,125) (1,457) Increase in share capital 1,125 1,457

Non-cash financing activities - -

Geographical, maturity and interest rate analysis of cash and cash equivalents and mandatory reserves is disclosed in Note 24.

8 Due from Other Banks

In millions of Ukrainian hryvnias 2009 2008

Term placements with other banks 3,767 2,578 Guarantee deposits with other banks 302 84

Total due from other banks 4,069 2,662

Term placements with other banks include UAH 367 million (2008: UAH 419 million) of a placement with a local bank that purchased a portfolio of loans from the Group of gross amount of UAH 617 million in December 2007.

Guarantee deposits represent balances placed with other banks as cover for letters of credit and for international payments. These are effectively restricted deposits, which are required to be maintained to complete the related trade finance activity. Refer to Note 26.

Amounts due from other banks are not collateralised. Analysis by credit quality of amounts due from other banks outstanding at 31 December 2009 is as follows:

Term placements with Guarantee deposits Total In millions of Ukrainian hryvnias other banks with other banks

Neither past due nor impaired - Aaa rated 191 10 201 - Aa1 rated - 14 14 - Aa3 rated 268 276 544 - A1 rated - 2 2 - B1 rated 47 - 47 - Unrated 3,261 - 3,261

Totalduefromotherbanks 3,767 302 4,069

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

8 Due from Other Banks (Continued)

Analysis by credit quality of amounts due from other banks outstanding at 31 December 2008 is as follows:

Term placements with Guarantee deposits Total In millions of Ukrainian hryvnias other banks with other banks

Neither past due nor impaired - A1 rated 12 12 24 - A2 rated 1 70 71 - B2 rated 3 2 5 - Unrated 2,562 - 2,562

Totalduefromotherbanks 2,578 84 2,662

In 2009 the Group decided to provide credit quality analysis of neither past due nor impaired balances based on Moody’s ratings, accordingly comparative numbers originally disclosed on Fitch’s ratings were converted to the nearest equivalent on the Moody’s rating scale.

Unrated amounts of due from other banks represent balances with Ukrainian banks and non-OECD banks.

The primary factor that the Group considers in determining whether a deposit is impaired is its overdue status.

As of 31 December 2009 the total aggregate amount of one counterparty of the Group amounted to UAH 1,933 million (2008: UAH 1,970 million) or 48% (2008: 74%) of gross amount of due from other banks. These placements are denominated in USD and were placed with a private bank in an OECD country. As of 31 December 2008 out of this amount UAH 1,448 million was pledged against loans provided by the counterparty to the Group’s customers totalling UAH 1,448 million. Refer to Note 26.

As an active participant in the banking markets, the Group has a significant concentration of credit risk with other financial institutions. In total, credit risk exposure to financial institutions is estimated to have amounted to gross amount of UAH 16,615 million (2008: UAH 10,808 million) comprising cash and cash equivalents, due from other banks and financial derivatives. Refer to Note 7 and 26.

Refer to Note 28 for the estimated fair value of each class of amounts due from other banks. Interest rate analysis of due from other banks is disclosed in Note 24.

9 Loans and Advances to Customers

In millions of Ukrainian hryvnias 2009 2008

Corporate loans 55,071 45,421 Loans to individuals - card 7,579 9,426 Loans to individuals - mortgage 6,654 7,361 Loans to individuals - auto 3,851 4,933 Loans to individuals - consumer 408 973 Loans to individuals - other 1,414 1,475 Loans to small and medium enterprises (SME) 4,054 6,252 Reverse sale and repurchase agreements – corporate (Reverse repo) 145 363

Less: Provision for loan impairment (12,579) (8,130)

Total loans and advances to customers 66,597 68,074

As of 31 December 2009 interest income of UAH 1,857 million (2008: UAH 660 million) was accrued on loans and advances to customers impaired at the year end.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

9 Loans and Advances to Customers (Continued)

Movements in the provision for loan impairment during 2009 are as follows:

Corpo- Loans to individuals SME Reverse Total rate repo In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Provision for loan impairment at 1January2009 4,276 1,469 808 541 231 68 735 2 8,130 Provision for impairment during the year 3,055 481 832 274 17 132 654 52 5,497 Amounts written off during the year asuncollectible (58) (976) (12) (34) (199) (7) (7) - (1,293) Currencytranslationdifferences 145 26 43 (2) (5) 8 26 4 245

Provision for loan impairment at 31December2009 7,418 1,000 1,671 779 44 2011,408 58 12,579

Movements in the provision for loan impairment during 2008 are as follows:

Corpo- Loans to individuals SME Reverse Total rate repo In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Provision for loan impairment at 1 January 2008 1,566 644 88 65 323 75 48 12,810 Provision for impairment during the year 2,282 475 477 327 387 16 542 14,507 Amounts written off during the year asuncollectible (219) (22) - (9) (696) (31) - - (977) Currencytranslationdifferences 647 372 243 158 217 8 145 - 1,790

Provision for loan impairment at 31December2008 4,276 1,469 808 541 231 68 735 2 8,130

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

9 Loans and Advances to Customers (Continued)

Economic sector risk concentrations within the customer loan portfolio are as follows:

2009 2008 In millions of Ukrainian hryvnias Amount % Amount %

Oil trading 23,021 30 10,774 14 Loanstoindividuals 19,906 25 24,168 32 Commerceandfinance 10,034 12 14,772 19 Agriculture,forestryandfoodindustry 7,993 10 4,054 5 Smallandmediumenterprises(SME) 4,054 5 6,252 8 Construction 3,021 4 2,010 3 Manufacturing 2,916 4 3,799 5 Securitiestrading 2,036 2 3,230 4 Tourism 1,674 2 1,166 2 Metallurgyandmining 1,216 1 3,317 4 Transport,storageandcommunication 551 1 258 1 Other 2,754 4 2,404 3

Total loans and advances to customers (before impairment) 79,176 100 76,204 100

As of 31 December 2009 the total aggregate amount of loans to the top 10 borrowers of the Group amounted to UAH 15,319 million (2008: UAH 11,629 million) or 19% of the gross loan portfolio (2008: 15%).

As of 31 December 2009 the Group had 11 borrowers (2008: 8 borrowers) with aggregate loan balances in excess of 10% of the net assets or UAH 1,205 million (2008: UAH 983 million). The total aggregate amount of these loans was UAH 16,132 million (2008: UAH 10,127 million).

The borrowers have the contractual right to early repay the loans. Based on the types of the loan products, the Group may charge penalties for such early repayments.

As of 31 December 2009 mortgage loans in the amount of UAH 900 million (2008: UAH 1,270 million) have been pledged as collateral with respect to the mortgage bonds issued and auto loans in the amount of UAH 394 million (2008: 497 million) have been pledged as collateral with respect to auto bonds issued. Please refer to Notes 14 and 26. As of 31 December 2009 loans to 4 corporate borrowers in the amount of UAH 1,070 (2008: nil) million were pledged as collateral under the NBU refinancing. Please refer to Note 12 and 26.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

9 Loans and Advances to Customers (Continued)

Breakdown of loans and advances to customers by type of collateral taken as of 31 December 2009 is as follows:

Corporate Loans to individuals SME Reverse Total In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other repo

Unsecuredexposures 35,4837,579 912 678 21 6611,050 - 46,384 Loans collateralised by: -cashdeposits 7,167 - 1 - - 156 17 - 7,341 -residentialrealestate 214 - 5,112 - 4 81 708 - 6,119 -otherrealestate 1,930 - 537 - 10 143 914 - 3,534 -tradablesecurities 3,222 - 27 - - 17 5 145 3,416 -equipment 1,473 - - - 58 6128 -1,665 -guarantees 655 - 59 6 - 27101 - 848 -transportvehicles 945 - - 48 - 17 663 - 1,673 -auto(cars) 467 - 53,119 - 12 384 - 3,987 -otherassets 3,515 - 1 - 315 294 84 - 4,209

Total loans and advances to customers(beforeimpairment) 55,071 7,579 6,654 3,851 408 1,414 4,054 145 79,176

Breakdown of loans and advances to customers by type of collateral taken as of 31 December 2008 is as follows:

Corporate Loans to individuals SME Reverse Total In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other repo

Unsecuredexposures 16,6279,426 634 520 109 6901,990 - 29,996 Loans collateralised by: -cashdeposits 8,454 - 100 102 - 65 7 - 8,728 -residentialrealestate 234 - 5,937 1 22 97 898 - 7,189 -otherrealestate 9,015 - 541 - 4 2261,129 -10,915 -tradablesecurities 1,796 - 24 - - 193 6 363 2,382 -equipment 5,243 - 1 - 109 11 246 - 5,610 -guarantees 658 - 77 12 - 24 437 -1,208 -transportvehicles 601 - - 86 - 17 846 - 1,550 -auto(cars) 409 - 54,209 - 5 482 -5,110 -otherassets 2,384 - 42 3 729 147 211 - 3,516

Total loans and advances to customers(beforeimpairment) 45,421 9,426 7,361 4,933 973 1,475 6,252 363 76,204

Other assets held as collateral mainly include gas, oil, iron ore and agricultural products. Included in unsecured loans to corporate clients are mainly loans and advances to customers secured with property rights for future cash proceeds from the sales contracts.

This disclosure represents the lower of the carrying value of the loan or collateral taken; the remaining part is disclosed within the unsecured exposures. The carrying value of loans was allocated based on the liquidity of the assets taken as collateral.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

9 Loans and Advances to Customers (Continued)

Analysis by credit quality of loans outstanding at 31 December 2009 is as follows:

Corpo- Loans to individuals SME Reverse Total rate Card Mortgage Auto Consumer Other repo In millions of Ukrainian hryvnias loans

Neither past due nor impaired - Large borrowers with credit history with the Group over two years 19,336 - - - -233 - -19,569 - Large new borrowers with credit history with the Group less than 2 years 7,867 ------7,867 -Loanstomediumsizeborrowers 6,670 - - - - 668 247 30 7,615 -Loanstosmallborrowers 371 - - - - - 1,405 12 1,788 - Loans between UAH 1-100 million - 27 455 - - - - - 482 -LoanslessthanUAH1million - 6,045 2,4022,230 330 195 - - 11,202 -Loansrenegotiatedin2009 2,927 - 254 104 - 13 164 - 3,462

Total neither past due nor impaired 37,171 6,072 3,111 2,334 330 1,109 1,816 42 51,985

Past due but not impaired -lessthan30daysoverdue 247 19 443 302 7 26 275 - 1,319 -30to90daysoverdue 147 109 183 90 4 33 132 - 698

Totalpastduebutnotimpaired 394 128 626 392 11 59 407 - 2,017

Loans individually determined to be impaired (gross) -Notoverdue 13,799 16 272 4 2 2 2 8914,186 -lessthan30daysoverdue 623 7 40 3 - - - - 673 -30to90daysoverdue 1,066 3 30 3 - - 6 - 1,108 -90to180daysoverdue 375 506 306 211 8 23 169 - 1,598 -180to360daysoverdue 1,539 491 1,905 667 16 219 1,216 14 6,067 -over360daysoverdue 104 356 364 237 41 2 438 - 1,542

Total individually impaired loans(gross) 17,506 1,379 2,9171,125 67 246 1,831 103 25,174

Lessimpairmentprovisions (7,418) (1,000) (1,671) (779) (44) (201) (1,408) (58) (12,579)

Total loans and advances to customers 47,653 6,579 4,983 3,072 364 1,213 2,646 87 66,597

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

9 Loans and Advances to Customers (Continued)

Analysis by credit quality of loans outstanding at 31 December 2008 is as follows:

Corpo- Loans to individuals SME Reverse Total rate Card Mortgage Auto Consumer Other repo In millions of Ukrainian hryvnias loans

Neither past due nor impaired - Large borrowers with credit history with the Group over two years 15,667 ------15,667 - Large new borrowers with credit history with the Group less than 2 years 5,080 ------5,080 -Loanstomediumsizeborrowers 10,888 - - - - - 637 332 11,857 -Loanstosmallborrowers 860 - - - - -4,502 30 5,392 - Loans between UAH 1-100 million - 18 819 6 -946 - -1,789 -LoanslessthanUAH1million - 5,964 4,4653,923 624 328 - - 15,304 -Loansrenegotiatedin2008 1,297 - 200 - - 11 - - 1,508

Total neither past due nor impaired 33,792 5,982 5,484 3,929 624 1,285 5,139 362 56,597

Past due but not impaired -lessthan30daysoverdue 270 1,832 800 384 59 28 477 - 3,850 -30to60daysoverdue 205 - 398 136 39 20 205 - 1,003

Totalpastduebutnotimpaired 475 1,832 1,198 520 98 48 682 - 4,853

Loans individually determined to be impaired (gross) -Notoverdue 10,695 - 4 - 1 - - -10,700 -lessthan30daysoverdue 107 ------107 -30to60daysoverdue 1 323 - 1 - - 5 - 330 -60to180daysoverdue 123 575 334 316 79 78 219 - 1,724 -180to360daysoverdue 130 328 241 104 81 34 99 - 1,017 -over360daysoverdue 98 386 100 63 90 30 108 1 876

Total individually impaired loans(gross) 11,154 1,612 679 484 251 142 431 1 14,754

Lessimpairmentprovisions (4,276) (1,469) (808) (541) (231) (68) (735) (2) (8,130)

Total loans and advances to customers 41,145 7,957 6,553 4,392 742 1,407 5,517 361 68,074

The Group applied the portfolio provisioning methodology prescribed by IAS 39, Financial Instruments: Recognition and Measurement , and created portfolio provisions for impairment losses that were incurred but have not been specifically identified with any individual loan by the end of reporting period. The Group’s policy is to classify each loan as ‘neither past due nor impaired’ until specific objective evidence of impairment of the loan is identified. The impairment provisions may exceed the total gross amount of individually impaired loans as a result of this policy and the portfolio impairment methodology.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

9 Loans and Advances to Customers (Continued)

The primary factors that the Group considers in determining whether a loan is impaired are its overdue status and realisability of related collateral, if any. As a result, the Group presents above an ageing analysis of loans that are individually determined to be impaired.

Neither past due nor impaired, but renegotiated loans represent the carrying amount of loans that would otherwise be past due or impaired whose terms have been renegotiated. Past due but not impaired loans, except for card loans to individuals, represent collateralised loans where the fair value of collateral covers the overdue interest and principal repayments. The amount reported as past due but not impaired is the whole balance of such loans, not only the individual instalments that are past due.

The fair value of collateral in respect of loans past due but not impaired and in respect of loans individually determined to be impaired at 31 December 2009 was as follows:

Corporate Loanstoindividuals SME Total In millions of Ukrainian hryvnias loans Mortgage Auto Consumer Other

Fair value of collateral - loans past due but not impaired -cashdeposits 5 - - - - - 5 -residentialrealestate 18 489 - - 18 93 618 -otherrealestate 74 47 - 5 10 119 255 -tradablesecurities - 1 - - - - 1 -equipment 58 - 1 - - 26 85 -guarantees - - - -2 - 2 -transportvehicles 87 - 14 - 1 83 185 -auto(cars) 29 8350 - 1 42 430 -otherassets 11 - - 12 - 5 28

Total fair value of collateral - loans past due but not impaired 282 545 365 17 32 368 1,609

Fair value of collateral - individually impaired loans -cashdeposits 6 - - - 3 - 9 -residentialrealestate 68 1,711 - - 31 175 1,985 -otherrealestate 1,045 446 - 18 50 233 1,792 -tradablesecurities - - - - 2 - 2 -equipment 542 - 22 - 3 60 627 -guarantees - - - -17 - 17 -transportvehicles 115 - 17 - 9 208 349 -auto(cars) 298 13514 - 3 106 934 -otherassets 248 - - 28 4 24 304

Total fair value of collateral - individuallyimpairedloans 2,322 2,170 553 46 122 806 6,019

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

9 Loans and Advances to Customers (Continued)

The fair value of collateral in respect of loans past due but not impaired and in respect of loans individually determined to be impaired at 31 December 2008 was as follows:

Corporate Loanstoindividuals SME Total In millions of Ukrainian hryvnias loans Mortgage Auto Consumer Other

Fair value of collateral - loans past due but not impaired -cashdeposits 59 9 - - 8 - 76 -residentialrealestate 5 1,125 - 13 19 93 1,255 -otherrealestate 118 293 - 4 22 107 544 -tradablesecurities 2 - - - - - 2 -equipment 164 - - 7 2 39 212 -guarantees 5 - 6 - - 36 47 -transportvehicles 243 - 14 - 4 183 444 -auto(cars) 44 -466 - 1 73 584 -otherassets 5 - - 2 2 6 15

Total fair value of collateral - loans past due but not impaired 645 1,427 486 26 58 537 3,179

Fair value of collateral - individually impaired loans -cashdeposits 177 6 7 - 1 - 191 -residentialrealestate 12 459 - 2 7 48 528 -otherrealestate 2,326 37 - 5 17 65 2,450 -tradablesecurities 2 - - - - 1 3 -equipment 3,042 - - 39 2 30 3,113 -guarantees 8 2 - - - 43 53 -transportvehicles 45 - 20 - 8 106 179 -auto(cars) 247 -570 - 1 49 867 -otherassets 754 1 - 37 - 7 799

Total fair value of collateral - individually impaired loans 6,613 505 597 83 36 349 8,183

Fair value of residential real estate at the end of the reporting period was estimated by indexing the values determined by the Group’s internal credit department staff at the time of loan inception for the average changes in residential real estate prices by city and region. Fair value of other real estate and other assets was determined by the Group’s credit department using the Group’s internal guidelines.

Refer to Note 28 for the estimated fair value of each class of loans and advances to customers. Geographical, maturity and interest rate analysis of loans and advances to customers is disclosed in Note 24. Information on related party balances is disclosed in Note 30.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

10 Premises, Leasehold Improvements and Equipment and Intangible Assets

Note Premises Leasehold Computers Motor Furniture, Total improve- vehicles equip- ments ment, intangible assets In millions of Ukrainian hryvnias and other

Cost or valuation at 1 January 2008 1,186 106 916 95 827 3,130 Accumulated depreciation and amortisation (46) (78) (427) (30) (303) (884)

Carryingamountat1January2008 1,140 28 489 65 524 2,246

Additions 260 45 338 18 112 773 Disposals (45) (1) (18) (3) (3) (70) Depreciation and amortisation charge 21 (31) (28) (196) (14) (78) (347) Impairment charge to profit or loss (1) - - - - (1) Impairment charge through other comprehensive income (17) - - - - (17) Revaluation 805 - - - - 805 Transfers - - 133 - (133) - Effect of translation to presentation currency 33 3 45 3 16 100

Carrying amount at 31 December 2008 2,144 47 791 69 438 3,489

Cost or valuation at 31 December 2008 2,172 150 1,283 106 690 4,401 Accumulated depreciation and amortisation (28) (103) (492) (37) (252) (912)

Carrying amount at 31 December 2008 2,144 47 791 69 438 3,489

Additions 36 11 92 7 112 258 Disposals (41) (4) (13) (2) (10) (70) Depreciation and amortisation charge 21 (44) (28) (235) (14) (79) (400) Impairment charge to profit or loss (32) - - - - (32) Reversal of impairment through profit 4 - - - -4 Impairment charge through other (370) - - - - (370) comprehensive income Revaluation 44 - - - - 44 Effect of translation to presentation currency 7 1 4 1 2 15

Carrying amount at 31 December 2009 1,748 27 639 61 463 2,938

Cost or valuation at 31 December 2009 1,799 123 1,249 105 765 4,041 Accumulated depreciation and amortisation (51) (96) (610) (44) (302) (1,103)

Carrying amount at 31 December 2009 1,748 27 639 61 463 2,938

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

10 Premises, Leasehold Improvements and Equipment and Intangible Assets (Continued)

Premises have been revalued at fair value at 31 December 2009 and at 31 December 2008. The valuations were carried out by a firm of valuers who hold a recognised and relevant professional qualification and who have recent experience in valuation of assets of similar location and category. The basis of valuation of premises was observable market prices in an active market and discounted cash flow techniques in the cases where there was no market-based evidence of fair value because of the specialised nature of the item of premises and the item is rarely sold. The main assumption used is the comparability of premises, for which selling prices were taken.

Included in the above carrying amount is UAH 837 million (2008: UAH 1,211 million) representing revaluation surplus relating to premises of the Group. As of 31 December 2009 a cumulative deferred tax liability of UAH 209 million (2008: UAH 303 million) was calculated with respect to this valuation adjustment and has been recorded directly to equity. At 31 December 2009 the carrying amount of premises would have been UAH 1,843 million (2008: UAH 676 million) had the assets been carried at cost less depreciation.

Included in the above category “Premises” are assets held under finance lease with the carrying amount of UAH 60 million (2008: UAH 61 million). Included in the above category “Computers” are assets held under finance lease with the carrying amount of UAH 27 million (2008: UAH 101 million).

As of 31 December 2009 the gross carrying amount of fully depreciated premises, leasehold improvements and equipment that are still in use was UAH 134 million (2008: UAH 153 million).

At 31 December 2009 premises carried at UAH 1,212 million (2008: nil) have been pledged to the NBU as collateral with respect to the refinancing loan. Refer to Note 12 and 26.

11 Other Financial Assets

In millions of Ukrainian hryvnias 2009 2008

Receivables arising from financial derivative 1,440 - Receivables from operations with customers 182 163 Plastic cards receivables 130 84 Accrued income receivable 26 54 Other 109 77

Less: Provision for impairment (104) (76)

Total other financial assets 1,783 302

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

11 Other Financial Assets (Continued)

Analysis by credit quality of other financial assets outstanding at 31 December 2009 is as follows:

Receivables Receivables Plastic Accrued Other Total arising from from cards income financial operations with receivables receivable In millions of Ukrainian hryvnias derivatives customers

Neither past due nor impaired - Large customers with credit history overtwoyears 1,440 - - - 22 1,462 -Smallcompanies - 57 52 26 - 135 -LargeOECDbanks - - 9 - 3 12 -Non-OECDbanks - - 52 - 26 78 - Balances renegotiated during the year - - 1 -4445

Totalneitherpastduenorimpaired 1,440 57 114 26 95 1,732

Receivables individually determined to be impaired (gross) - Not overdue - 61 - - - 61 -lessthan30daysoverdue - 20 - - - 20 -30to90daysoverdue - 8 - - - 8 -90to180daysoverdue - 8 - - - 8 -180to360daysoverdue - 3 - - - 3 -over360daysoverdue - 25 16 - 14 55

Total receivables individually determinedtobeimpaired - 125 16 - 14 155

Lessimpairmentprovision - (74) (16 ) - (14) (104)

Totalotherfinancialassets 1,440 108 114 26 95 1,783

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

11 Other Financial Assets (Continued)

Analysis by credit quality of other financial receivables outstanding at 31 December 2008 is as follows:

Receivables Plastic cards Accrued Other Total from operations receivables income In millions of Ukrainian hryvnias with customers receivable

Neither past due nor impaired - Large customers with credit history over two years - - - 12 12 -Largenewcustomers - - 2 32 34 - Small companies 22 2 49 27 100 - Large OECD banks - 8 --8 - Non-OECD banks 62 68 3 - 133 - Balances renegotiated during the year - 1 -67

Totalneitherpastduenorimpaired 84 79 54 77 294

Receivables individually determined to be impaired (gross) -180to360daysoverdue 79 5 - - 84

Total receivables individually determinedtobeimpaired 79 5 - - 84

Lessimpairmentprovision (73) (3) - - (76)

Totalotherfinancialassets 90 81 54 77 302

The primary factors that the Group considers in determining whether a receivable is impaired are its overdue status and realisability of related collateral, if any. As a result, the Group presents above an ageing analysis of other financial assets that are individually determined to be impaired. Neither past due nor impaired, but renegotiated balances represent the carrying amount of receivables that would otherwise be past due or impaired whose terms have been renegotiated.

Refer to Note 28 for the disclosure of the fair value of each class of other financial assets. Geographical, maturity and interest rate analysis of loans and advances to customers is disclosed in Note 24. Information on related party balances is disclosed in Note 30.

12 Due to the NBU and Other Central Banks and Due to Other Banks and Other Financing Institutions

Due to the NBU and other central banks at 31 December 2009 and 31 December 2008:

In millions of Ukrainian hryvnias 2009 2008 1 January 2008

TermborrowingsfromtheNBUandothercentralbanks 8,310 3,554 -

TotalduetotheNBUandothercentralbanks 8,310 3,554 -

The Group decided to separately disclose balances with the NBU and other central banks on the face of the consolidated statement of financial position. Opening consolidated statement of financial position as of 1 January 2008 is not presented as the balance of borrowings from the central banks was nil as of that date. Opening balance as of 1 January 2008 is presented in this Note.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

12 Due to the NBU and Other Central Banks and Due to Other Banks and Other Financing Institutions (Continued)

In October 2008 the Bank received a refinancing loan from the National Bank of Ukraine to support the Bank's liquidity. The refinancing loan of UAH 3,410 million was carried at fixed interest rate of 15% p.a. and initial maturity in October 2009. In October 2009 the NBU prolonged the existing refinancing loan. In December 2009 the NBU increased the exposure to UAH 8,310 million. Refinancing loans from the NBU carry fixed interest rates of 15% to 16.5% p.a. with maturities from September 2010 to October 2015.

As of 31 December 2009 loans and advances to customers with the carrying amount of UAH 1,070 million, premises of the Group with the carrying value of UAH 1,212 million and property rights for shares of the Bank held by 2 major owners of the Group were pledged as collateral in respect of the NBU refinancing loans. Refer to Notes 9, 10 and 26.

Due to the other banks and other financing institutions at 31 December 2009 and 31 December 2008:

In millions of Ukrainian hryvnias 2009 2008

Term placements of other commercial banks 2,115 5,716 Correspondent accounts and overnight placements of other banks 181 449 Long-term loans under the credit lines from other financing institutions 22 423 Pledge deposits of other banks 1 5

Totalduetootherbanksandotherfinancialinstitutions 2,319 6,593

Term placements of other commercial banks represent placements of commercial banks in UAH, USD and EUR with maturities from January 2010 to April 2017.

In March 2008 the Group received a syndicated loan of USD 200 million (UAH 1,010 million at the exchange rate applicable at the date of receipt). The syndicated loan was included in term placements of other commercial banks (UAH 1,540 million at the exchange rate applicable at 31 December 2008), carried a floating interest rate of LIBOR + 0.75% and had maturity in March 2009. The loan was fully repaid in March 2009.

As of 31 December 2008 included in term placements of other commercial banks are loans totalling UAH 286 million for financing of small and medium enterprises provided by the international financial institutions. These loans were denominated in USD, loans totalling UAH 40 million had interest rates of LIBOR + 1.85% and maturity date in March 2009 and loans totalling UAH 246 million had interest rate of 7.5% and maturity date in July 2009. These loans were fully repaid by the Group in 2009.

In October 2007 the Group obtained a loan of USD 250 million from an OECD bank with a contractual maturity in October 2012. However, the counterparty had a contractual right to call back the loan at the following dates: 6 October 2008, 6 October 2009, 6 October 2010 and 6 October 2011. The counterparty partly used the right and USD 210 million was repaid in October 2008 and the remaining USD 40 million was repaid by the Group in October 2009.

Geographical, maturity and interest rate analysis of due to other banks and other financial institutions is disclosed in Note 24.

Refer to Note 28 for the disclosure of the fair value of each class of amounts due to other banks and other financing institutions.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

13 Customer Accounts

In millions of Ukrainian hryvnias 2009 2008

Individuals - Term deposits 32,035 30,620 - Current/demand accounts 7,121 6,191

Legal entities - Term deposits 9,869 11,647 - Current/settlement accounts 8,108 8,512

Total customer accounts 57,133 56,970

Economic sector concentrations within customer accounts are as follows:

2009 2008 In millions of Ukrainian hryvnias Amount % Amount %

Individuals 39,156 69 36,811 65 Manufacturing 5,299 9 3,512 6 Trade 4,944 9 7,584 13 Services 1,804 3 3,124 6 Machinery 928 2 435 1 Agriculture 865 2 674 1 Transportandcommunication 784 1 1,837 3 Other 3,353 5 2,993 5

Totalcustomeraccounts 57,133 100 56,970 100

At 31 December 2009 the aggregate balances of the top 10 customers of the Group amount to UAH 6,171 million (2008: UAH 8,118 million) or 11% (2008: 14%) of total customer accounts.

At 31 December 2009 included in customer accounts are deposits of UAH 338 million (2008: UAH 490 million) held as collateral for irrevocable commitments under import letters of credit, guarantees issued by the Group. Refer to Note 26.

At 31 December 2009 included in customer accounts are deposits of UAH 7,341 million (2008: UAH 8,728 million) held as collateral for loans and advances to customers, issued by the Group. Refer to Note 9.

Fair value of each class of customer accounts is disclosed in Note 28. Geographical, maturity and interest rate analysis of customer accounts is disclosed in Note 24. Information on related party balances is disclosed in Note 30.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

14 Debt Securities in Issue

In millions of Ukrainian hryvnias 2009 2008

Eurobonds 3,757 4,180 Private placements of bonds 1,290 1,795 Mortgage bonds 745 893 Auto bonds 319 497 Promissory notes 1 5

Total debt securities in issue 6,112 7,370

In February 2007 the Group issued USD denominated Eurobonds with a par value of UAH 2,525 million maturing in February 2012. The bonds carry a coupon rate of 8% per annum and yield to maturity of 23.57% (2008: 51.58%). The Eurobonds are listed on the Swiss Stock Exchange.

In February 2007 the Group issued USD denominated Residential Mortgage Backed Floating Rate Notes (referred to as Mortgage bonds) with a par value of USD 180 million (UAH 909 million at the exchange rate at the date of the issue). The notes were issued in three series. The main features of the issues are described in the table below.

Notes Principal Initial interest rate Step-up Interest rate after Maturity date Issue amount, date step-up date price USD million

ClassA 134 LIBOR+2.1% April2014 LIBOR+4.2% December2031 100% ClassB 37 LIBOR+3.75% April2014 LIBOR+7.5% December2031 100% ClassC 9 10% - - December2031100%

The class C series bonds were repurchased by the Group according to the terms of issue.

In May 2007 the Latvian subsidiary of the Group issued EUR denominated Mortgage bonds with a par value of UAH 67 million maturing in May 2010. The bonds carry a coupon rate of EURIBOR+1.55%.

As at 31 December 2009 the Group had UAH denominated bonds issued in March 2007 with a par value of UAH 500 million maturing in March 2012. The bonds were issued under the terms of a private placement.

As at 31 December 2009 the Group had UAH denominated bonds issued in March 2007 with a par value of UAH 500 million maturing in March 2010. The bonds were issued under the terms of a private placement. Refer to Note 31.

As at 31 December 2008 the Group had UAH denominated bonds issued in July 2007 with a par value of UAH 250 million maturing not earlier than March 2010. The bonds were issued under the terms of a private placement.

In May 2008 the Group issued USD denominated Asset Backed Floating Rate Notes (referred to as Auto bonds) backed by car loans issued by the Group with a par value of USD 110 million (UAH 536 million at the exchange rate at the date of issue). The notes were issued in three series. The main features of the issues are described in the table below.

Notes Principal Initial interest rate Step-up Interest rate after Maturity date Issue amount, date step-up date price USD million

3 months LIBOR + 3-months LIBOR + ClassA 86 5.5% May 2011 6.88% November 2018 100% 3 months LIBOR + 3-months LIBOR + ClassB 19 7.5% May2011 9.38% November 2018 100% ClassC 5 12% - - November2018100%

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

14 Debt Securities in Issue (Continued)

As of 31 December 2009 Auto bonds with the total nominal value of USD 37 million (UAH 293 million at the exchange rate applicable as of 31 December 2009) were repurchased by the Group and removed from the consolidated statement of financial position, including all class C bonds repurchased according to the terms of the issue.

As of 31 December 2009 Mortgage bonds with the total nominal value of USD 9 million (UAH 72 million at the exchange rate applicable as of 31 December 2009) were repurchased by the Group and removed from the consolidated statement of financial position, including all class C bonds repurchased according to the terms of the issue.

Mortgage bonds and auto bonds mature and are being repaid in line with the maturity of the underlying loans to customers.

Mortgage bonds issued of the carrying value of UAH 745 million (2008: UAH 893 million) are effectively collateralised by loans and advances to customers in the amount of UAH 900 million (2008: UAH 1,270 million). Auto bonds issued of the carrying value of UAH 319 million (2008: UAH 497 million) are effectively collateralised by loans and advances to customers in the amount of UAH 394 million (2008: UAH 497 million). Refer to Note 9.

The fair value of each class of debt securities in issue is disclosed in Note 28. Geographical, currency, maturity and interest rate analyses of debt securities in issue are disclosed in Note 24.

15 Provisions for Liabilities and Charges, Other Financial and Non-financial Liabilities

Provisions for liabilities and charges, other financial and non-financial liabilities comprise the following:

In millions of Ukrainian hryvnias Note 2009 2008

Other financial liabilities Liability for finance lease 110 171 Accounts payable 102 65 Funds in the course of settlement 62 59 Provisionforcreditrelatedcommitments 26 43 29 Financial derivatives 27 19 39 Other 82 87

Total other financial liabilities 418 450

Provisions for liabilities and charges and other liabilities Unused vacation reserve 172 160 Provision for legal case 21 21 Accrued salaries and bonuses 19 53 Other 73 47

Total provisions for liabilities and charges and other non-financial liabilities 285 281

Total provisions for liabilities and charges, other financial and non-financial liabilities 703 731

Specific provisions were created for losses incurred on guarantees issued by the Group to borrowers whose financial condition deteriorated. The balance at 31 December 2009 is expected to be utilised by the end of 2015 (2008: by the end of 2014). Refer to Note 26.

Refer to Note 28 for the disclosure of the fair value of each class of other financial liabilities. Geographical, maturity and interest rate analyses of other financial liabilities are disclosed in Note 24. Information on related party balances is disclosed in Note 30.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

16 Subordinated Debt

In millions of Ukrainian hryvnias 2009 2008

Subordinated debt provided by legal entities 1,425 1,275 Subordinated debt provided by individuals 13 58

Total subordinated debt 1,438 1,333

Subordinated debt represents long term borrowing agreements, which, in case of the Group’s default, would be secondary to the Group’s other obligations, including deposits and other debt instruments. In accordance with the Law of Ukraine on Banks and Banking Activities and the NBU regulations, subordinated debt cannot be withdrawn from the Bank for at least five years from the date of receipt.

The debts rank after all other creditors in case of liquidation.

Included in subordinated debt, provided by legal entities, are USD denominated subordinated debts issued in February 2006 in the amount of UAH 758 million at par at the exchange rate at the date of issue at 8.75% per annum payable quarterly with contractual maturity in February 2016 and USD denominated subordinated debt issued in March 2005 in the amount of UAH 30 million at the exchange rate at the date of issue at par at 10% per annum payable monthly with contractual maturity in March 2010. Under subordinated debt issued in February 2006 the Group has a call option exercisable in February 2011 at par.

Subordinated debt provided by individuals represents subordinated debt issued in USD, EUR and UAH during July 2004 – April 2005 with interest rates from 10% to 12% per annum payable monthly and contractual maturity from January to April 2010.

Refer to Note 28 for the disclosure of the fair value of each class of subordinated debt. Geographical, maturity and interest rate analysis of subordinated debt is disclosed in Note 24. Information on related party balances is disclosed in Note 30.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

17 Share Capital

In millions of UAH except for Number of outstanding Nominal Inflation adjusted number of shares shares, in millions amount amount

At1January2008 27.08 2,714 2,967 Newsharesissued 15.20 1,515 1,515 Increase in the nominal amount of the shares - 1,457 1,457

At31December2008 42.28 5,686 5,939 Newsharesissued 6.21 1,000 1,000 Increase in the nominal amount of the shares - 1,125 1,125

At31December2009 48.49 7,811 8,064

The nominal registered amount of the Bank’s issued share capital prior to restatement of capital contributions made before 1 January 2001 to the purchasing power of the Ukrainian hryvnia at 31 December 2009 is UAH 7,811 million (2008: UAH 5,686 million).

In April 2009 the shareholders made a decision to increase the nominal amount of the Bank’s issued shares from UAH 134.45 per share to UAH 161.08 per share. The increase was followed by an increase in the share capital by capitalisation of dividends in the amount of UAH 1,125 million.

In July 2009, the Bank issued an additional 6,208,100 ordinary shares with nominal amount of UAH 161.08 per share totalling UAH 1,000 million.

In February 2008, the Bank issued an additional 15,150,000 ordinary shares with nominal amount of UAH 100 per share totalling UAH 1,515 million.

In May 2008 the shareholders made a decision to increase the nominal amount of the Bank’s issued shares from UAH 100 per share to UAH 134.45 per share. The increase was followed by an increase in the share capital by capitalisation of dividends in the amount of UAH 1,457 million.

The total authorised number of ordinary shares is 48.49 million shares (2008: 42.28 million shares) with a par value of UAH 161.08 per share (2008: UAH 134.45 per share). All issued ordinary shares are fully paid.

Each ordinary share carries one vote.

18 Other Reserves

Revaluation reserve for available-for-sale securities is reclassified to profit or loss for the year when realised through sale or impairment. Revaluation reserve for premises is transferred to retained earnings when realised through depreciation, sale or other disposal. Currency translation reserve is reclassified to profit or loss for the year when realised through disposal of a subsidiary by sale, liquidation, repayment of share capital or abandonment of all, or part of, that subsidiary.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

19 Interest Income and Expense

In millions of Ukrainian hryvnias 2009 2008

Interest income Loans and advances to legal entities 8,399 5,174 Loans and advances to individuals 5,846 6,103 Due from other banks 291 278 Other 13 52

Total interest income 14,549 11,607

Interest expense Term deposits of individuals 3,956 2,847 Due to the NBU and other central banks 1,091 81 Term deposits of legal entities 794 542 Current/settlement accounts 480 509 Due to other banks and other financing institutions 413 353 Debt securities in issue 358 645 Subordinated debt 176 100 Other 27 108

Total interest expense 7,295 5,185

Net interest income 7,254 6,422

Information on interest income and expense from transactions with related parties is disclosed in Note 30.

20 Fee and Commission Income and Expense

In millions of Ukrainian hryvnias 2009 2008

Fee and commission income Cash collection and cash transactions 1,238 1,043 Settlement transactions 790 989 Guarantees issued 25 18 Transactions with securities 20 16 Foreign exchange 13 29 Other 33 16

Total fee and commission income 2,119 2,111

Fee and commission expense Cash and settlement transactions 190 291 Other 42 13

Total fee and commission expense 232 304

Net fee and commission income 1,887 1,807

Information on fee and commission income from transactions with related parties is disclosed in Note 30.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

21 Administrative and Other Operating Expenses

In millions of Ukrainian hryvnias Note 2009 2008

Staff costs 2,171 2,487 Rent 541 483 Insurance expenses 443 127 Depreciation and amortisation of premises, leasehold improvementsandequipmentandintangibleassets 10 400 347 Mail and telecommunication 215 221 Utilities and household expenses 208 240 Contributions to Individual Deposits Guarantee Fund 171 137 Security 144 104 Maintenance of premises, leasehold improvements and equipment 135 135 Taxes other than income 112 107 Advertising and marketing 72 129 Transportation 68 69 Other 239 429

Totaladministrativeandotheroperatingexpenses 4,919 5,015

Included in staff costs are statutory pension contributions of UAH 442 million (2008: UAH 496 million) and social security contributions of UAH 71 million (2008: UAH 73 million). Pension contributions are made into the State pension fund which is a defined contribution plan.

Information on administrative and other operating expenses from transactions with related parties is disclosed in Note 30.

22 Income Taxes

Income tax expense recorded in the statement of comprehensive income comprises the following:

In millions of Ukrainian hryvnias 2009 2008

Current tax 70 326 Deferred tax 645 225

Income tax expense for the year 715 551

The income tax rate applicable to the majority of the Group’s income is 25% (2008: 25%). The income tax rate applicable to the majority of income of subsidiaries ranges from 15% to 30% (2008: from 15% to 30%). Reconciliation between the expected and the actual taxation charge is provided below.

In millions of Ukrainian hryvnias 2009 2008

Profit before tax 2,040 2,538

Theoretical tax charge at statutory rate (2009: 25%; 2008: 25%) 510 635

Tax effect of items which are not deductible or assessable for taxation purposes: - Income which is exempt from taxation - (163) - Non-deductible expenses 145 78 - Unrecognised deferred tax assets 60 1

Income tax expense for the year 715 551

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

22 Income Taxes (Continued) During the year ended 31 December 2009 a deferred tax asset of UAH 82 million (2008: deferred tax liability of UAH 198 million) has been recorded directly in other comprehensive income in respect of the revaluation of the Group’s premises.

Differences between IFRS and statutory taxation regulations in Ukraine and other countries give rise to certain temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below and is recorded at the rate of 25% (2008: 25%), except for temporary differences that arise in respect of assets and liabilities of subsidiaries, which are taxed at different rates.

31 December (Charged)/ Charged 31 December 2008 credited to directly to 2009 profit or loss other compre- hensive In millions of Ukrainian hryvnias income

Tax effect of deductible temporary differences Loanimpairmentprovision 26 150 - 176 Accruedexpensesandotherliabilities 105 (15) - 90 Deferraloftransactioncostsatinitialrecognition (85) 124 - 39

Gross deferred tax asset 46 259 - 305 Lessoffsettingwithdeferredtaxliability 51 (280) - (229) Less:unrecogniseddeferredtaxasset - (60) - (60)

Recogniseddeferredtaxasset 97 (81) - 16

Tax effect of taxable temporary differences Accrued income (44) (653) - (697) Fairvalueofderivativefinancialinstruments (635) 134 - (501) Prepaidexpensesandotherassets (84) (194) - (278) Premises, leasehold improvements and equipment (408) 79 82 (247) Trading securities and investment securities available-for-sale 90 (210) - (120)

Grossdeferredtaxliability (1,081) (844) 82 (1,843) Lessoffsettingwithdeferredtaxasset (51) 280 - 229

Recogniseddeferredtaxliability (1,132) (564) 82 (1,614)

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

22 Income Taxes (Continued)

In the context of the Group’s current structure and Ukrainian tax legislation, tax losses and current tax assets of different group companies may not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity and the same taxation authority.

31 December (Charged)/ Charged 31 December 2007 credited to directly to 2008 profit or loss other compre- hensive In millions of Ukrainian hryvnias income

Tax effect of deductible temporary differences Accruedexpensesandotherliabilities 68 37 - 105 Trading securities and investment securities available-for-sale (14) 104 - 90 Loanimpairmentprovision (258) 284 - 26

Grossdeferredtaxasset (204) 425 - 221 Lessoffsettingwithdeferredtaxliability 238 (362) - (124)

Recogniseddeferredtaxasset 34 63 - 97

Tax effect of taxable temporary differences Fairvalueofderivativefinancialinstruments (7) (628) - (635) Premises, leasehold improvements and equipment (176) (34) (198) (408) Deferraloftransactioncostsatinitialrecognition (50) (35) - (85) Prepaidexpensesandotherassets - (84) - (84) Accrued income (175) 131 - (44)

Grossdeferredtaxliability (408) (650) (198) (1,256) Lessoffsettingwithdeferredtaxasset (238) 362 - 124

Recogniseddeferredtaxliability (646) (288) (198) (1,132)

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis

Starting from 1 January 2009, the Group prepares its segment analysis in accordance with IFRS 8, Operating segments , which replaced IAS 14, Segment reporting . Comparatives were adjusted to conform to the presentation of current period amounts.

Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM) and for which discrete financial information is available. The CODM is the person or group of persons who allocates resources and assesses the performance for the entity. The functions of CODM are performed by the management board of the Group.

(a) Description of products and services from which each reportable segment derives its revenue

The Group is organised on the basis of four main business segments:

 Retail banking – representing private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages.

 Corporate banking – representing direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products.

 Investment banking – representing financial instruments trading, structured financing, corporate leasing, merger and acquisitions advice.

 Treasury – representing interbank loans, deposits, foreign currency exchange operations, arrangement of funding in the international markets, asset and liabilities management, issue of senior bonds and assets backed securities, project financing, negotiation of limits for trade financing with financial institutions.

Transactions between the business segments are on normal commercial terms and conditions. Funds are ordinarily reallocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on the Group’s cost of capital. There are no other material items of income or expense between the business segments. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balances sheet, but excluding taxation. Internal charges and transfer pricing adjustments have been reflected in the performance of each business segment.

Included in other are assets, liabilities, revenues and expenses that are not allocated to any of the above segments.

(b) Factors that management used to identify the reportable segments

The Group’s segments are strategic business units that focus on different customers. They are managed separately because each business unit requires different marketing strategies and service level.

Segment financial information reviewed by the CODM does not include information of the Group’s subsidiaries. Regular review of these subsidiary banks is delegated to the local management teams. The CODM obtains financial statements of the Bank’s subsidiaries. Management considered that information on subsidiary banks is available less frequently in concluding that segments exclude details of the subsidiaries.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

(c) Measurement of operating segment profit or loss, assets and liabilities

The CODM reviews financial information of the Bank prepared based on Ukrainian accounting standards adjusted to meet the requirements of NBU reporting rules and before consolidation of subsidiaries. Such financial information differs in certain aspects from International Financial Reporting Standards:

 funds are generally reallocated between segments at internal interest rates set by the treasury department, which are determined by reference to market interest rate benchmarks, contractual maturities for loans and observed actual maturities of customer accounts balances;  income taxes are not allocated to segments;  loan loss provisions are recognised based on the statutory accounting rules;  loans and advances to customers are written-off based on statutory requirements;  fair value of derivative is not recognised in statutory accounts;  SWAP operations are recognised at cost;  commission income related to lending is recognised immediately rather than deferred using the effective interest method; and  consolidation of subsidiaries.

The CODM evaluates performance of each segment based on profit before tax.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

(d) Information about reportable segment profit or loss, assets and liabilities

Segment information for the reportable segments for the year ended 31 December 2009 is set out below:

Retail Corporate Investment Treasury Total Other Total banking banking banking reportable In millions of Ukrainian hryvnias segments

Cash and cash equivalents and mandatoryreserves 2,822 198 - 3,266 6,286 - 6,286 Tradingsecurities - - 105 - 105 - 105 Duefromotherbanks 140 - 158 8,172 8,470 - 8,470 Loans and advances to customers 12,345 49,302 22 - 61,669 - 61,669 Investment securities available- for-sale - 9 50 - 59 - 59 Investment securities held to maturity - - - 372 372 - 372 Investmentinsubsidiaries - - 796 - 796 - 796 Intangibleassets 2 1 - 1 4 1 5 Premises, leasehold improvementsandequipment 682 242 6 15 945 362 1,307 Otherfinancialassets 231 31 10 6,036 6,308 - 6,308 Otherassets 61 57 - 6 124 16 140 Non-currentassetsheldforsale - - - - - 44 44

Total reportable segment assets 16,283 49,840 1,147 17,868 85,138 423 85,561

DuetotheNBU - - - 8,310 8,310 - 8,310 Due to other banks and other financinginstitutions - - - 7,193 7,193 - 7,193 Customeraccounts 35,935 12,905 414 741 49,995 - 49,995 Debtsecuritiesinissue - 1 - 1,289 1,290 - 1,290 Currentincometaxliability - - - - - 9 9 Deferredincometaxliability - - - - - 42 42 Otherfinancialliabilities 1,221 486 60 5,356 7,123 - 7,123 Othernon-financialliabilities 8 12 2 1 23 5 28 Subordinateddebt - 61 - 1,239 1,300 - 1,300

Total reportable segment liabilities 37,164 13,465 476 24,129 75,234 56 75,290

Capitalexpenditure 102 36 1 2 141 54 195

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued) Retail Corporate Investment Treasury Total Other Total banking banking banking reportable In millions of Ukrainian hryvnias segments

2009

Externalrevenues 6,106 10,982 69 2,779 19,936 - 19,936 Revenuesfromothersegments 2,161 (5,678) (143) 2,370 (1,290) 1,290 -

Totalrevenues 8,267 5,304 (74) 5,149 18,646 1,290 19,936

Total revenues includes: -Interestincome 5,909 4,391 (142) 4,868 15,026 1,290 16,316 -Feeandcommissionincome 2,106 859 66 126 3,157 - 3,157 -Otheroperatingincome 252 54 2 155 463 - 463

Totalrevenues 8,267 5,304 (74) 5,149 18,646 1,290 19,936

Interestexpense (4,103) (966) (6) (3,868) (8,943) - (8,943) Provisionforloanimpairment (752) (4,309) - 145 (4,916) - (4,916) Impairment of investment securitiesavailable-for-sale - - (12) - (12) - (12) Release of provision for credit related commitments - 254 - - 254 - 254 Feeandcommissionexpense (102) - (59) (482) (643) - (643) Losses less gains from trading securities - - (430) - (430) - (430) Gains less losses from trading in foreign currencies - - - 192 192 - 192 Gains less losses from disposals of investment securities available-for-sale - - 11 - 11 - 11 Administrative and other operatingexpenses (2,328) (811) (57) (85) (3,281) (1,022) (4,303)

Segmentresult 982 (528) (627) 1,051 878 268 1,146

Income tax (96)

Income for the year 1,050

Capital expenditure represents additions to non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

Segment information for the reportable segments for the year ended 31 December 2008 is set out below:

Retail Corporate Investment Treasury Total Other Total banking banking banking reportable In millions of Ukrainian hryvnias segments

Cash and cash equivalents and mandatoryreserves 2,490 218 - 1,654 4,362 - 4,362 Tradingsecurities - - 552 - 552 - 552 Duefromotherbanks - 2 83 6,301 6,386 - 6,386 Loans and advances to customers 16,355 48,562 17 907 65,841 - 65,841 Investment securities available- for-sale - 1 3 167 171 - 171 Investment securities held to maturity - - - 258 258 - 258 Investmentinassociates - - 556 - 556 - 556 Intangibleassets 3 1 - - 4 1 5 Premises, leasehold improvementsandequipment 832 274 9 7 1,122 339 1,461 Otherfinancialassets 175 29 10 - 214 - 214 Otherassets 50 41 7 26 124 18 142 Non-currentassetsheldforsale - - - - - 49 49

Total reportable segment assets 19,905 49,128 1,237 9,320 79,590 407 79,997

DuetotheNBU - - - 3,410 3,410 - 3,410 Due to other banks and other financinginstitutions - - 4 11,275 11,279 - 11,279 Customeraccounts 35,656 14,437 338 2,595 53,026 - 53,026 Debtsecuritiesinissue - 1 - 1,794 1,795 - 1,795 Currentincometaxliability - - - - - 16 16 Deferredincometaxliability - - - - - 7 7 Otherfinancialliabilities 588 215 2 116 921 - 921 Othernon-financialliabilities 21 10 4 2 37 11 48 Subordinateddebt 58 46 - 1,196 1,300 - 1,300

Total reportable segment liabilities 36,323 14,709 348 20,388 71,768 34 71,802

Capitalexpenditure 465 153 5 3 626 189 815

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

Retail Corporate Investment Treasury Total Other Total banking banking banking reportable In millions of Ukrainian hryvnias segments

2008

Externalrevenues 5,862 6,172 81 2,825 14,940 - 14,940 Revenuesfromothersegments 1,636 (4,392) (218) 1,414 (1,560) 1,560 -

Totalrevenues 7,498 1,780 (137) 4,239 13,380 1,560 14,940

Total revenues includes: -Interestincome 5,033 714 (212) 1,867 7,402 1,560 8,962 -Feeandcommissionincome 2,373 1,030 65 2,344 5,812 - 5,812 -Otheroperatingincome 92 36 10 28 166 - 166

Totalrevenues 7,498 1,780 (137) 4,239 13,380 1,560 14,940

Interestexpense (2,942) (715) (24) (1,289) (4,970) - (4,970) Provisionforloanimpairment (1,709) (1,629) - 58 (3,280) - (3,280) Provision for credit related commitments - (178) - - (178) - (178) Feeandcommissionexpense (204) (1) - (242) (447) - (447) Losses less gains from trading securities - - (550) - (550) - (550) Gains less losses from trading in foreigncurrencies 565 411 (7) (90) 879 - 879 Losses less gains from disposals of investment securities available-for-sale - - (1) - (1) - (1) Administrative and other operatingexpenses (2,497) (862) (107) (103) (3,569) (939) (4,508)

Segmentresult 711 (1,194) (826) 2,573 1,264 621 1,885

Income tax (593)

Income for the year 1,292

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities

Total consolidated revenues comprise interest income, fee and commission income and other operating income. In millions of Ukrainian hryvnias 2009 2008

Total revenues for reportable segments 18,646 13,380

(a) Recognition of financial derivatives (1,560) 567 (b) Consolidation adjustments (1,258) 1,036 (c) Reclassification of forex gains less losses (275) (2,800) (d) Other adjustments (34) 54 (e) Unallocated revenues 1,290 1,560

Total consolidated revenues 16,809 13,797

Reconciliation of reportable profit or loss: In millions of Ukrainian hryvnias 2009 2008

Total reportable segment result 878 1,264

(a) Recognition of financial derivatives 1,083 336 (b) Consolidation adjustments (341) (408) (d) Other adjustments 201 814 (e) Unallocated revenues and expenses 268 621 (f) Provision for impairment of loans and advances to customers (115 ) (390) (k) Release of provision for credit related commitments 70 301

Profit before tax 2,044 2,538

Reconciliation of reportable assets: In millions of Ukrainian hryvnias 2009 2008

Total reportable segment assets 85,138 79,590

(a) Recognition of financial derivatives 1,943 336 (b) Consolidation adjustments 8,793 6,709 (d) Other adjustments (444) (313) (e) Unallocated assets 423 407 (f) Release of provision for impairment of loans and advancestocustomers 602 976 (g) SWAP operations at fair value (6,766) (185)

Total consolidated assets 89,689 87,520

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

Reconciliation of reportable liabilities: In millions of Ukrainian hryvnias 2009 2008

Total reportable segment liabilities 75,234 71,768

(b) Consolidation adjustments 8,118 5,385 (d) Other adjustments (513) (340) (e) Unallocated liabilities 56 34 (g) SWAP operations at fair value (6,766) (182) (h) Deferred income tax liability 1,510 1,025

Total consolidated liabilities 77,639 77,690

Reconciliation of material items of income for the year ended 31 December 2009 is as follows:

Interestincome Feeand Gains less losses from In millions of Ukrainian hryvnias commission income financial derivatives

Totalamountforallreportablesegment 15,026 3,157 -

(a)Recognitionoffinancialderivatives (1,560) - 2,643 (b)Consolidationadjustments (1,525) 277 - (d) Other adjustments (34) - - (e)Unallocatedrevenues 1,290 - - (h) Reclassifications 1,352 (1,315) -

AsreportedunderIFRS 14,549 2,119 2,643

Reconciliation of material items of expense for the year ended 31 December 2009 is as follows:

Interest Provision for impairment Administrative and other expense of loans and advances to operating expenses In millions of Ukrainian hryvnias customers

Totalamountforallreportablesegment (8,943) (4,916) (3,281)

(b)Consolidationadjustments 1,470 (255) (874) (d)Otheradjustments 142 27 20 (e)Unallocatedexpenses - - (1,022) (f)Impairmentcharge - (115) - (h)Reclassifications 36 (238) 238

AsreportedunderIFRS (7,295) (5,497) (4,919)

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

Reconciliation of material items of income for the year ended 31 December 2008 is as follows:

In millions of Ukrainian hryvnias Interestincome Feeand Result from translation commission income in foreign currencies

Totalamountforallreportablesegment 7,402 5,812 -

(a)Recognitionoffinancialderivatives 567 - - (b)Consolidationadjustments 774 262 (366) (d) Other adjustments 119 (79) 92 (e)Unallocatedrevenues 1,560 - - (h) Reclassifications 1,185 (3,884) 3,171

AsreportedunderIFRS 11,607 2,111 2,897

Reconciliation of material items of expense for the year ended 31 December 2008 is as follows:

Interestexpense Provisionfor Administrative and other impairment of loans operating expenses and advances to In millions of Ukrainian hryvnias customers

Totalamountforallreportablesegment (4,970) (3,280) (3,569)

(b)Consolidationadjustments (206) (364) (958) (d) Other adjustments (9) (473) 451 (e) Unallocated expenses - - (939) (f) Provision for impairment of loans and advances to customers - (390) -

AsreportedunderIFRS (5,185) (4,507) (5,015)

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

Reconciliation of material assets at 31 December 2009 is as follows:

Cash and cash Due from Loans and Financial Other equivalents and other advances to derivatives financial In millions of Ukrainian hryvnias mandatory reserves banks customers assets

Total amount for all reportable segment 6,286 8,470 61,668 - 6,308

(a) Recognition of financial derivatives - - (1,503) 2,005 - (b) Consolidation adjustments 2,847 834 4,142 - 194 (d) Other adjustments (497) - 26 - 56 (f) Release of provision for impairment - 274 329 - - (g) SWAP operations at fair value - (748) - - (6,018) (h)Reclassification 2,819 (4,761) 1,935 - (197) (i) Recognition of receivable arising from financial derivative - - - -1,440

As reported under IFRS 11,455 4,069 66,597 2,005 1,783

Reconciliation of material liabilities at 31 December 2009 is as follows:

Due to the Due to Customer Debt Provisions for Subor- NBU and other accounts securities liabilities and dinated other banks and in issue charges, other debt In millions of Ukrainian hryvnias central other financial and banks financing non-financial institutions liabilities

Total amount for all reportable segment 8,310 7,193 49,995 1,290 7,151 1,309

(b)Consolidationadjustments - (11) 6,684 718 448 141 (d)Otheradjustments - 7 41 (17) 39 (12) (g)SWAPoperationsatfairvalue - (749) - - (6,018) - (h)Reclassification - (4,121) 413 4,121 (917) -

As reported under IFRS 8,310 2,319 57,133 6,112 703 1,438

Reconciliation of material assets at 31 December 2008 is as follows: In millions of Ukrainian hryvnias Cash and cash Due from Loans and Financial Other equivalents and other advances to derivatives financial mandatory banks customers assets reserves

Total amount for all reportable segment 4,362 6,386 65,841 - 214

(a)Recognitionoffinancialderivatives - - (2,214) 2,551 - (b)Consolidationadjustments 1,314 105 3,748 - 210 (d)Otheradjustments (348) 1 243 - 28 (f)Releaseofprovisionforimpairment 12 407 556 - - (g)SWAPoperationsatfairvalue - (185) - - - (h)Reclassification 4,052 (4,052) (100) - (150)

As reported under IFRS 9,392 2,662 68,074 2,551 302

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

Reconciliation of material liabilities at 31 December 2008 is as follows:

Due to the Due to Customer Debt Provisions for Subordi NBU and other accounts securities liabilities and nated other banks and in issue charges, other debt In millions of Ukrainian hryvnias central other financial and banks financing non-financial institutions liabilities

Total amount for all reportable segment 3,410 11,279 53,026 1,795 969 1,315

(b) Consolidation adjustments - 81 3,750 1,078 349 41 (d) Other adjustments 144 (23) (8) (31) (118) (23) (g) SWAP operations at fair value - (216) - - 34 - (h) Reclassifications - (4,528) 202 4,528 (202) - (k) Release of provision for impairment - - - - (301) -

As reported under IFRS 3,554 6,593 56,970 7,370 731 1,333

The reconciling items are attributable to the following: (a), (i) – Financial derivatives are accounted for at fair value. Receivables arising from financial derivatives are accounted at amortised cost less impairment. In statutory accounts results from operations with financial derivatives are accounted when cash is received within interest income. (b) – Segment reporting is prepared before consolidation of subsidiaries. (c), (h) – Reclassifications are done based on the economic substance of transactions. The Bank presented debt securities issued separately in IFRS financial statements. (e) – Unallocated balances represent balances which were not included in the reportable segments. (f) – In Segment reporting the Bank analyses provision for impairment created in accordance with the National Bank of Ukraine requirements. (g) – The Bank presented SWAP operations on a net basis in its IFRS financial statements. (j) – Deferred tax liability calculated based on IFRS carrying amounts of assets and liabilities. (k) – Provision for credit related commitments calculated based on historical loss experience.

(f) Analysis of revenues by products and services The Group’s revenues are analysed by products and services in Notes 19 (interest income), Note 20 (fee and commission income).

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

23 Segment Analysis (Continued)

(f) Geographical information Revenues for each individual country for which the revenues are material are reported separately as follows: In millions of Ukrainian hryvnias 2009 2008

Ukraine 14,684 12,112 Other countries 2,125 1,685

Total consolidated revenues 16,809 13,797

The analysis is based on domicile of the customer. Revenues from off-shore companies of Ukrainian customers are reported as revenues from Ukraine. Revenues comprise interest income, fee and commission income and other operating income.

The Bank does not analyze the capital expenditure, current and deferred income tax in segment reporting.

(g) Major customers

The Group does not have customers with the revenues exceeding 10% of the total revenue of the Group.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management

The risk management function within the Group is carried out in respect of financial risks, operational risks and legal risks. Financial risk comprises market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The primary objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.

Risk Management Bodies Risk management policy, monitoring and control are conducted by a number of bodies of the Group under the supervision of the credit committee (the “Credit Committee”) and the recently created Security Committee. Other bodies responsible for risk management within the Group include the Treasury, Risk- Management Division, Internal Control and Fraud-Management Division, the Finance and Risk Division including the Financial Risks Department. The Group also has a system of internal controls which is supervised and monitored by its Internal Audit Department and Financial Monitoring Department.

Credit Committee The Credit Committee, which is composed of the Chairman of the Bank, its Deputies, the Head of the Dnipropetrovsk regional branch, the Head of the Finance and Risk Division, Head of Risk-Management Division, Head of Internal Control and Fraud-Management Division, meets bi-weekly and is responsible for setting credit policy, approving loans over the prescribed lending limits and the limits for counterparty banks, monitoring loan performance and the quality of the Group’s loan portfolio and reviewing large loan projects and the lending policies of the Bank’s branches. The Credit Committee also monitors the interest rates set for a range of currencies by the Group’s main competitors and the overall market situation and determines the Group’s pricing policy on the basis of the above. In addition, due to the importance of liquidity risk management, the Credit Committee is also responsible for preparing and formulating management decisions with regard to increasing the Group’s funding base.

Security Committee The Security Committee is primarily responsible for reducing transaction risk, including assisting management in preventing fraud; enhancing the security of the Group’s staff and its information systems, including the implementation of the Group’s personnel security policy; and improving the Group’s ability to resist internal and external threats to its systems, including threats to the Group’s IT security. The Security Committee meets monthly and the members in attendance vary depending on the topic of the meeting. In 2009 Security Committee was renamed to Internal Control Committee, the functions of the Committee renamed the same.

Treasury Day-to-day asset and liability management is done by the Treasury. The Treasury is responsible for overseeing the Group’s assets and liabilities and liquidity and interest rate sensitivity analysis based on instructions and guidelines from the Financial Risks Department and its own assessments. The Treasury is responsible for the operational aspects of asset and liability management.

Financial Risks Department The Financial Risks Department calculates and monitors the Bank’s compliance with the mandatory ratios set by the NBU, the requirement to maintain mandatory reserves on the Bank’s correspondent account with the NBU and its internal liquidity ratios (in accordance with the Bank’s internal Methodology for Liquidity Risk Assessment and Control). In carrying out these functions, the Financial Risks Department works with the Treasury, its back office, and depositary and credit service officers of the head office business divisions and the Credit Committee.

In order to monitor and control liquidity within the Bank and its branches and sub-branches, the Financial Risks Department prepares daily reports on the maximum liquidity gap by matching assets and liabilities with different maturities and currencies as well as providing daily forecasts of the Group’s balances on its correspondent account with the NBU to ensure the Bank’s compliance with the mandatory reserve requirement and with the instant, current and short-term liquidity ratios set by the NBU. The liquidity reports are maintained in an electronic database that is accessible by the Treasury and is used for purposes of liquidity management. In addition, the Financial Risks Department prepares guidelines for head office business divisions seeking to raise long-term funds and/or reviews decisions of the Credit Committee on the implementation of programmes to increase the Bank’s funding base in order to ensure that the Group’s short- and long-term liquidity requirements are met.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

Risk-Management Division The Risk-Management Division analyses the creditworthiness of counterparty banks, calculates provisions for the Group’s active operations and limits for counterparty banks, monitors problem assets in the loan portfolio under credit programs, monitors compliance with interbank transaction limits, sets the lending authority limits of branch and sub-branch heads. It also determines the strategy and basic methodological approaches in the Group’s risk management system and oversees its compliance with the requirements established by the NBU as well as the Group’s internal guidelines.

Internal Control and Fraud-Management Division The Internal Control and Fraud-Management Divison reviews and checks the results of work performed by the divisions of the Group and assists in formulating management decisions on enhancing transactional security and reducing risk based on data derived from this verification process. In particular, the Internal Control and Fraud-Management Divison develops methodologies for detecting suspicious and fraudulent transactions and for reducing errors in statistical analysis of data from the Group’s accounting software and other sources, and verifies risk assumptions based on the results of such analyses.

Credit risk. The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Group’s lending and other transactions with counterparties giving rise to financial assets.

The Group’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the consolidated statement of financial position. For guarantees and commitments to extend credit, the maximum exposure to credit risk is the amount of the commitment. Refer to Note 26. The credit risk is mitigated by collateral and other credit enhancements.

The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers.

The general principles of the Group’s credit policy are outlined in the formal Group’s Credit Policy. Formal and unified Group’s Credit Manual regulates every significant aspect of the lending operations of the Group and outlines procedures for analysing the financial position of borrowers and the valuation of any proposed collateral and specifies the requirements for loan documentation and the procedures for the monitoring of loans.

The Group has collateral policy based on a thorough review and assessment of the value of collateral. The Group’s goal is to ensure that there is sufficient collateral to cover a particular loan if the quality of that loan should deteriorate in value. A substantial portion of the Group’s loan portfolio generally includes acceleration clauses in case of deterioration of the financial position of the borrower. Credit products are, except in very unusual circumstances, only made available to customers that hold accounts with the Group. This policy provides the dual benefits of additional security for the credit products and additional business for the Group in other areas of corporate banking services.

The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to a single borrower, or groups of affiliated borrowers. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and principal payment obligations and by changing the lending limits where appropriate. Exposure to credit risk is also managed, in part, by obtaining collateral and corporate and personal guarantees.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

Problem loans are identified on a daily basis based on signs of debt servicing deterioration. The Group carries out analyses of problem loans by collecting information about such loans, investigating the causes of problems and working out measures for their early redemption. On the basis of the findings of such analyses, a report is submitted to the Bank’s Board regarding the problem loans in the Group’s loan portfolio and the level of acceptable credit risk. To improve the quality of the loan portfolio, the Group applies a policy of on-line blocking the ability of a sub-branch or manager responsible for a particular lending programme to grant further loans if the percentage of non-performing loans issued by a particular sub-branch or manager exceeds the maximum permitted level of problem assets until this level decreases.

Management maintains individual records of significant number of Ukrainian retail customers, which constitutes the largest credit bureau in Ukraine, allowing the Group to mitigate credit risks by targeting borrowers, who have a good credit history.

Problem Loan Recovery The Credit Committee has developed a systematic approach involving a comprehensive set of procedures intended to enable the Group to realise the highest possible level of repayment on non- performing loans.

If a borrower does not perform its obligations under a loan agreement, it is the responsibility of the relevant credit officer to take initial actions to determine whether the cause of late payments is administrative or credit-related in nature. At this stage, the officers loan inspectors contact the borrower, request repayment and check the availability of any collateral. Loan inspector calls borrowers to remind them of their repayment obligation several days before the scheduled repayment date, and after such date to demand repayment (during day-time and night-time). If such measures do not result in the repayment of the loan and the non-performance exceeds 90 days, the loan is classified as a “problem loan”. The Risk-Management Division, which is able to identify all problem loans in the Group, issues a banking order each month to transfer problem loans from the relevant credit unit’s books to a specialised unit within Security Division (the “Security Service”).

The Security Service is responsible for all loans issued by the Group classified as “problem loans”, excluding loans where the total debt amounts to less than UAH 1,000 (which continue to be processed by the monitoring unit). The Security Service obtains and reviews all documentation relating to the borrower, performs an official internal investigation to identify the reasons for the problem, draws up a plan of action for the repayment of the debt and reviews the collateral (which may entail organising protection). In a number of enforcement actions the Group initiates court proceedings. The Security Service will often engage in negotiations with the borrower over a problem loan either concurrently with, or prior to, initiating court proceedings the collateral for sale at auction, to attach the borrower’s account(s) with another bank or to take possession of property under a mortgage or transport facilities. If collateral is available, and upon satisfactory results of an analysis of whether the borrower is undergoing purely temporary business difficulties and of that borrower’s willingness and capacity to repay its debt, negotiations usually aim at debt restructuring and include requirements to obtain additional collateral, personal guarantees by shareholders and management, increased interest rates and revised repayment schedules.

Other legal actions available to the Group include executive proceedings for the enforcement of debt and bankruptcy proceedings. In the event of any criminal action on the part of the borrower, irrespective of the borrower’s readiness to repay its debt, the Group involves the relevant state authorities. The Credit Committee meets monthly to review the status of non-performing loans.

The Group maintains a policy that problem loans are not refinanced without convincing evidence that they will be repaid or reliably secured.

Related Party Lending The Group conducts its business with related parties on a commercial, arm’s-length basis. The Group competes with other banking institutions for the business of these parties. Each loan request from a related party is subject to the same credit approval procedures as are applied to any other loan applicant.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in (a) currency, (b) interest rate and (c) equity products, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

Currency risk. Currency risk is the risk that the value of financial instruments owned by the Group will fluctuate due to changes in foreign exchange rates. The Group’s major currency positions are in Ukrainian hryvnia, U.S. dollars and Euros. In respect of currency risk, Management sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily.

The Group’s policy in respect of open currency positions is restricted under Ukrainian law to certain thresholds and strictly monitored by the NBU on a daily basis. In order to hedge its currency risk, the Group enters into arrangements with other banks pursuant to which the Group makes term deposits with other banks and accepts term deposits for the same term from the same counterparty banks in a different currency.

The Group also enters into currency options in the Group’s loan agreements with some customers requiring the customers to pay compensation in case of depreciation of the Ukrainian hryvnia relative to the U.S. dollar. Refer to Note 27.

The table below summarises the Group’s exposure to foreign currency exchange rate risk at the end of the reporting period:

At31December2009 At31December2008 Monetary Monetary Swaps, Net Monetary Monetary Swaps, Net financial financial spots balance financial financial spots balance In millions of assets liabilities and sheet assets liabilities and sheet Ukrainian hryvnias forwards position forwards position

Ukrainian hryvnias 48,528 34,111 (634) 13,783 31,780 28,967 85 2,898 US Dollars 27,151 30,883 (4,303) (8,035) 41,172 33,617 2,154 9,709 Euros 6,881 7,552 4,433 3,762 6,640 10,562 (2,277) (6,199) Other 3,382 3,124 486 744 3,411 3,104 - 307

Total 85,942 75,670 (18) 10,254 83,003 76,250 (38) 6,715

Derivatives presented above are monetary financial assets or monetary financial liabilities, but are presented separately in order to show the Group’s gross exposure.

Amounts disclosed in respect of derivatives represent the fair value, at the end of the reporting period, of the respective currency that the Group agreed to buy (positive amount) or sell (negative amount) before netting of positions and payments with the counterparty. The amounts by currency are presented gross as stated in Note 27. The net total represents the fair value of the currency derivatives.

Fair value of option derivative embedded in loans and advances to customers (refer to Note 27) was included in the table above together with host instruments into UAH denominated financial assets. The above analysis includes only monetary assets and liabilities. Investments in equities and non-monetary assets are not considered to give rise to any material currency risk.

As disclosed in the above table, the Group had significant open positions in USD and EUR at the end of 2008. Due to this factor and depreciation of UAH against these currencies as described in Notes 1 and 3, the Group accumulated unrealised foreign exchange translation losses less gains of UAH 7 million during the year ended 31 December 2009 (2008: gains less losses of UAH 2,897 million).

The following table presents sensitivities of profit or loss for the year and equity to reasonably possible changes in exchange rates applied at the end of the reporting period relative to the functional currency of the respective Group entities, with all other variables held constant:

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

At31December2009 At31December2008 Impact on profit Impact on equity Impact on profit Impact on equity In millions of Ukrainian hryvnias or loss or loss

US Dollar strengthening by 5% (2008:strengtheningby25%) (402) (402) 2,427 2,427 US Dollar weakening by 5% (2008:weakeningby25%) 402 402 (2,427) (2,427) Euro strengthening by 5% (2008:strengtheningby25%) 188 188 (1,550) (1,550) Euro weakening by 5% (2008:weakeningby25%) (188) (188) 1,550 1,550 Other strengthening by 5% (2008: strengthening by 25%) 37 37 77 77 Other weakening by 5% (2008:weakeningby25%) (37) (37) (77) (77)

Total - - - -

The exposure was calculated only for monetary balances denominated in currencies other than the functional currency of the respective entity of the Group.

Interest rate risk. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. Management monitors on a daily basis and sets limits on the level of mismatch of interest rate repricing that may be undertaken.

The Group is exposed to interest rate risk, principally as a result of lending at fixed interest rates, in amounts and for periods, which differ from those of term borrowings at fixed interest rates. In practice, interest rates are generally fixed on a short-term basis. Also, interest rates that are contractually fixed on both assets and liabilities are usually renegotiated to reflect current market conditions.

The Board sets limits on the level of mismatch of interest rates on assets and liabilities sensitive to interest rates, which is monitored regularly. In the absence of any available hedging instruments, the Group normally seeks to match its interest rate positions.

The Finance and Risk Division and the Credit Committee are both responsible for interest rate risk management. The Finance and Risk Division establishes the principal policies and approaches to interest rate risk management and the Credit Committee conducts weekly monitoring and revision of interest rates for various currencies within certain time limits and product categories. The Group regularly monitors interest rate risk by means of interest rate gap analysis, which is based on ordering assets and liabilities sensitive to interest rates into a number of time bands. Fixed interest rate assets and liabilities are arranged by the time remaining until maturity, while assets and liabilities with a variable interest rate are arranged by the nearest possible term of repricing. The net sensitivity gap between assets and liabilities in a given time band represents the volume sensitive to changes of market interest rates. The product of this difference and the presumed change of interest rates represents the approximate changes of net interest income. A negative net sensitivity gap in a given time band, which means that interest-bearing liabilities exceed interest-earning assets in that time band, represents a risk of a decline in net interest income in the event of increases in market interest rates. A positive net sensitivity gap in a given time band, which means that interest-bearing liabilities, represent a risk of a decline in net interest income in the event of a decline in market interest rates.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

The table below summarises the Group’s exposure to interest rate risks. The table presents the aggregated amounts of the Group’s financial assets and liabilities at carrying amounts, categorised by the earlier of contractual interest repricing or maturity dates.

Demand From 1 to From 3 to More than Non- Total and less 3 months 12 months 1 year monetary than In millions of Ukrainian hryvnias 1 month

31 December 2009 Totalfinancialassets 28,780 5,533 23,673 27,956 16 85,958 Totalfinancialliabilities 24,445 10,326 25,606 15,293 60 75,730

Net interest sensitivity gap at 31 December 2009 4,335 (4,793) (1,933) 12,663 (44) 10,228

31 December 2008 Totalfinancialassets 13,002 8,630 30,647 30,724 83 83,086 Totalfinancialliabilities 21,554 12,090 29,282 13,324 20 76,270

Net interest sensitivity gap at 31 December 2008 (8,552) (3,460) 1,365 17,400 63 6,816

All of the Group’s debt instruments reprice within 5 years.

At 31 December 2009, if interest rates at that date had been 200 basis points lower (2008: 200 basis points lower) with all other variables held constant, profit for the year would have been UAH 3 million (2008: UAH 111 million) higher, mainly as a result of lower interest expense on variable interest liabilities.

If interest rates had been 200 basis points higher (2008: 200 basis points higher), with all other variables held constant, profit would have been UAH 3 million (2008: UAH 111 million) lower, mainly as a result of higher interest expense on variable interest liabilities .

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

The Group monitors interest rates for its financial instruments. The table below summarises interest rates based on reports reviewed by key management personnel:

2009 2008 In % p.a. USD UAH Euro Other USD UAH Euro Other

Assets Correspondent accounts and overnight deposits with other banks 0022 00 11 Correspondent accounts with NBU, Central Bank of Russian Federation and Central Bank of Latvia, Central Bank of Cyprus andCentralBankofGeorgia - 0 - 0 - 0 - 0 Debt trading securities - - - - -10 - - Other debt securities at fair value throughprofitorloss - - - 7 - - - - Due from other banks 5 1 3 0 11 0 0 3 Loans and advances to legal entities 14 19 10 30 14 22 10 20 Loans and advances to individuals 15 29 9 44 15 30 9 36 Debt investment securities held to maturity ------Other financial assets 3-30 30 12

Liabilities Due to the NBU and other central banks -16 - - -15 - - Correspondent accounts and overnight deposits of other banks 3003 14 08 Termplacementsofotherbanks 1 - 3 7 4 5 6 4 Long-term loans under the credit lines from international financial institutions - - 4 - 10 - 6 - Customer accounts -currentaccountsofcustomers 2 0 4 4 0 0 0 0 -termdepositsoflegalentities 11 14 11 11 11 9 7 3 -termdepositsofindividuals 12 21 12 15 11 15 8 6 Debtsecuritiesinissue 8 7 6 - 8 11 - 12 Subordinateddebt 8 11 10 10 9 12 10 10 Otherfinancialliabilities 11 0 0 1 17 0 0 6

The sign “-“ in the table above means that the Group does not have the respective assets or liabilities in the corresponding currency.

The Group is exposed to prepayment risk through providing fixed or variable rate loans, including mortgages, which give the borrower the right to early repay the loans. The Group’s current year profit and equity at the end of the reporting period would not have been significantly impacted by changes in prepayment rates because such loans are carried at amortised cost and the prepayment right is at or close to the amortised cost of the loans and advances to customers (2008: no material impact).

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

Geographical risk concentrations. The geographical concentration of the Group’s financial assets and liabilities at 31 December 2009 is set out below:

In millions of Ukrainian hryvnias Ukraine OECD NonOECD Total

Assets Cashandcashequivalentsandmandatoryreserves 4,773 4,732 1,950 11,455 Trading securities and other financial assets at fair - - 18 18 value through profit or loss Due from other banks 452 3,617 - 4,069 Loansandadvancestocustomers 51,730 1,758 13,109 66,597 Financial derivatives 2,005 - - 2,005 Investmentsecuritiesavailable-for-sale 7 - 1 8 Investmentsecuritiesheldtomaturity 23 - - 23 Other financial assets 1,553 63 167 1,783

Total financial assets 60,543 10,170 15,245 85,958

Non-financial assets 3,167 14 550 3,731

Total assets 63,710 10,184 15,795 89,689

Liabilities DuetotheNBUandothercentralbanks 8,310 - - 8,310 Duetootherbanksandotherfinancinginstitutions 169 1,962 188 2,319 Customer accounts 41,859 3,952 11,322 57,133 Debt securities in issue 46 5,884 182 6,112 Other financial liabilities 122 29 267 418 Subordinated debt 14 1,284 140 1,438

Total financial liabilities 50,520 13,111 12,099 75,730

Non-financial liabilities 1,815 - 94 1,909

Total liabilities 52,335 13,111 12,193 77,639

Netbalancesheetposition 11,375 (2,927) 3,602 12,050

Credit related commitments 979 14 573 1,566

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

Assets, liabilities and credit related commitments have been based on the country in which the counterparty is located. Balances with Ukrainian counterparties actually outstanding to/from offshore companies of these Ukrainian counterparties are allocated to the caption “Ukraine”. Cash on hand, precious metals and premises and equipment have been allocated based on the country in which they are physically held.

The geographical concentration of the Group’s assets and liabilities at 31 December 2008 is set out below:

In millions of Ukrainian hryvnias Ukraine OECD NonOECD Total

Assets Cashandcashequivalentsandmandatoryreserves 2,984 5,234 1,174 9,392 Trading securities and other financial assets at fair value through profit or loss 87 - 14 101 Due from other banks 425 2,220 17 2,662 Loansandadvancestocustomers 51,947 2,280 13,847 68,074 Financial derivatives 2,551 - - 2,551 Investmentsecuritiesavailable-for-sale 3 1 - 4 Other financial assets 38 46 218 302

Total financial assets 58,035 9,781 15,270 83,086

Non-financial assets 3,697 128 609 4,434

Total assets 61,732 9,909 15,879 87,520

Liabilities DuetotheNBUandothercentralbanks 3,410 - 144 3,554 Duetootherbanksandotherfinancinginstitutions 37 6,060 496 6,593 Customer accounts 43,085 3,413 10,472 56,970 Debt securities in issue 850 6,290 230 7,370 Other financial liabilities 161 16 273 450 Subordinated debt 58 1,188 87 1,333

Total financial liabilities 47,601 16,967 11,702 76,270

Non-financial liabilities 1,354 - 66 1,420

Total liabilities 48,955 16,967 11,768 77,690

Netbalancesheetposition 12,777 (7,058) 4,111 9,830

Creditrelatedcommitments 2,352 1,468 1,393 5,213

Other risk concentrations. Management monitors and discloses concentrations of credit risk by obtaining reports listing exposures to borrowers with aggregated loan balances in excess of 10% of net assets. Refer to Notes 8 and 9.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

Liquidity risk. Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan drawdowns, guarantees and from margin and other calls on cash-settled derivative instruments. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. Liquidity risk is managed by Treasury Department of the Group.

The Group has developed specific approaches to liquidity issues based on medium-term (i.e., three to twelve months), short-term (i.e., two to fifteen weeks) and current (i.e., up to fourteen days) time periods. With respect to medium-term liquidity, the Treasury, in co-ordination with the Financial Risks Department, performs an analysis of the Group’s payments calendar over this period and considers contingency options available to the Group in the event that unfavourable developments or crisis situations occur.

Decisions on short-term liquidity management are taken by the Treasury. These decisions are based on an analysis of the volatility of various assets and liabilities. Estimates are made after application of internally developed models as to the volume and likelihood of unexpected withdrawals of funds and the probability that additional funding might be required. In order to minimise unanticipated changes in funding, the Group separately analyses the possible consequences of the withdrawal of a large amount of funds by major customers. Client managers and senior Group management work closely with major customers to coordinate plans with regard to movement of funds.

Decisions with respect to current liquidity management are taken by the head of Treasury. Reports on actions taken are made to the Credit Committee. The Group’s payments calendar for each upcoming 14- day period is analysed, and decisions taken on the attraction of short-term interbank deposits, the immediate sale of securities from the Treasury portfolio, and other facilities available to the Group. The Treasury implements decisions on a real-time basis.

The Group seeks to maintain a stable funding base primarily consisting of amounts due to other banks, corporate and retail customer deposits and debt securities. The Group invests the funds in diversified portfolios of liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements.

The liquidity management of the Group requires considering the level of liquid assets necessary to settle obligations as they fall due; maintaining access to a range of funding sources; maintaining funding contingency plans; and monitoring balance sheet liquidity ratios against regulatory requirements. The Bank calculates liquidity ratios on a daily basis in accordance with the requirement of the National Bank of Ukraine. These ratios are:

- Instant liquidity ratio (N4), which is calculated as the ratio of highly-liquid assets to liabilities payable on demand. The ratio was 57% at 31 December 2009 (2008: 57%) with the minimum required limit of 20% (2008: 20%).

- Current liquidity ratio (N5), which is calculated as the ratio of liquid assets to liabilities maturing within 31 calendar days. The ratio was 80% at 31 December 2009 (2008: 56%) with the minimum required limit of 40% (2008: 40%).

- Short-term liquidity ratio (N6), which is calculated as the ratio of liquid assets to liabilities with original maturity of up to one year. The ratio was 45% at 31 December 2009 (2008: 37%) with the minimum required limit of 20% (2008: 20%).

The Treasury Department receives information about the liquidity profile of the financial assets and liabilities. The Treasury Department then provides for an adequate portfolio of short-term liquid assets, largely made up of short-term liquid trading securities, deposits with banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole.

The daily liquidity position is monitored and regular liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions is performed by the Treasury Department.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

The table below shows liabilities at 31 December 2009 by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows, including gross finance lease obligations (before deducting future finance charges), prices specified in deliverable forward agreements to purchase financial assets for cash, contractual amounts to be exchanged under gross settled currency swaps, and gross loan commitments. Such undiscounted cash flows differ from the amount included in the statement of financial position because amounts disclosed in consolidated statement of financial position are based on discounted cash flows.

When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at the end of the reporting period.

The maturity analysis of financial liabilities at 31 December 2009 is as follows:

Demand and From 1 to From 3 to From Over 5 Total less than 3 months 12 months 12 months years In millions of Ukrainian hryvnias 1 month to 5 years

Liabilities Due to the NBU and other central banks 122 232 2,030 8,950 1,495 12,829 Due to other banks and other financinginstitutions 433 244 13 1,147 684 2,521 Customeraccounts 30,148 6,269 20,604 1,636 118 58,775 Debtsecuritiesinissue 18 740 619 5,333 236 6,946 Subordinateddebt 1 66 54 294 1,441 1,856 Otherfinancialliabilities 318 3 37 60 - 418 GrosssettledSWAPsandforwards 7,468 - - - - 7,468

Total contractual future payments forfinancialobligations 38,508 7,554 23,357 17,420 3,974 90,813

Credit related commitments, gross (Note 26) 191 213 439 766 - 1,609

The maturity analysis of financial liabilities at 31 December 2008 is as follows:

Demand and From 1 to From 3 to From Over 5 Total less than 3 months 12 months 12 months years In millions of Ukrainian hryvnias 1 month to 5 years

Liabilities Due to the NBU and other central banks 187 83 3,703 - - 3,973 Due to other banks and other financing institutions 814 2,361 5,197 1,731 486 10,589 Customeraccounts 23,747 7,136 20,725 8,025 85 59,718 Debtsecuritiesinissue 39 261 972 7,570 259 9,101 Subordinateddebt 1 53 101 444 1,500 2,099 Otherfinancialliabilities 196 25 111 121 245 698 GrosssettledSWAPsandforwards 2,692 - - - - 2,692

Total contractual future payments forfinancialobligations 27,676 9,919 30,809 17,891 2,575 88,870

Credit related commitments, gross (Note26) 1,789 672 1,760 1,021 - 5,242

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

Payments in respect of gross settled swaps and forwards will be accompanied by related cash inflows which are disclosed at their present values in Note 27. Customer accounts are classified in the above analysis based on contractual maturities. However, in accordance with Ukrainian Civil Code, individuals have a right to withdraw their deposits prior to maturity if they forfeit their right to accrued interest.

The Group does not use the above undiscounted maturity analysis to manage liquidity. Instead, the Group monitors expected maturities, which may be summarised as follows at 31 December 2009:

Demand and From 1 to From 3 to Over 1 No stated Total less than 3 months 12 months year maturity In millions of Ukrainian hryvnias 1 month

Assets Cash and cash equivalents and mandatoryreserves 11,455 - - - - 11,455 Other financial assets at fair value through profit or loss 10 - - - 8 18 Duefromotherbanks 1,869 806 929 465 - 4,069 Loansandadvancestocustomers 11,118 4,729 22,669 28,081 - 66,597 Financialderivatives 574 336 1,005 90 - 2,005 Investment securities available-for- sale -- - -88 Investmentsecuritiesheldtomaturity 3 - 20 - - 23 Otherfinancialassets 376 306 1,063 38 - 1,783

Totalfinancialassets 25,405 6,177 25,686 28,674 16 85,958

Liabilities Due to the NBU and other central banks - - 998 7,312 - 8,310 Due to other banks and other financinginstitutions 371 234 42 1,672 - 2,319 Customeraccounts 23,632 8,887 23,351 1,263 - 57,133 Debtsecuritiesinissue 11 689 435 4,977 - 6,112 Otherfinancialliabilities 284 7 25 66 36 418 Subordinateddebt 1 101 - 1,336 - 1,438

Totalfinancialliabilities 24,299 9,918 24,851 16,626 36 75,730

Net liquidity gap at 31December2009 1,106 (3,741) 835 12,048 (20) 10,228

Cumulative liquidity gap at 31December2009 1,106 (2,635) (1,800) 10,248 10,228

Creditrelatedcommitments 180 198 422 766 - 1,566

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

24 Financial Risk Management (Continued)

The analysis by expected maturities may be summarised as follows at 31 December 2008:

Demand and From 1 to From 3 to Over 1 No stated Total less than 3 months 12 months year maturity In millions of Ukrainian hryvnias 1 month

Assets Cash and cash equivalents and mandatoryreserves 9,392 - - - - 9,392 Trading securities and other financial assets at fair value through profit or loss - - 12 8 81 101 Duefromotherbanks 181 42 2,005 434 - 2,662 Loansandadvancestocustomers 2,591 7,431 27,055 30,997 - 68,074 Financialderivatives - 938 1,613 - - 2,551 Investment securities available-for- sale - - - 1 34 Otherfinancialassets 255 22 3 3 19 302

Totalfinancialassets 12,419 8,433 30,688 31,443 103 83,086

Liabilities Due to the NBU and other central banks 144 - 3,410 - - 3,554 Due to other banks and other financinginstitutions 596 2,253 1,548 2,196 - 6,593 Customeraccounts 19,462 8,468 22,935 6,105 - 56,970 Debtsecuritiesinissue 35 191 672 6,472 - 7,370 Otherfinancialliabilities 197 36 81 131 5 450 Subordinateddebt 1 41 45 1,246 - 1,333

Totalfinancialliabilities 20,435 10,989 28,691 16,150 5 76,270

Net liquidity gap at 31December2008 (8,016) (2,556) 1,997 15,293 98 6,816

Cumulative liquidity gap at 31December2008 (8,016) (10,572) (8,575) 6,718 6,816 -

Creditrelatedcommitments 1,787 667 1,747 1,012 - 5,213

The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks ever to be completely matched since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Group and its exposure to changes in interest and exchange rates. Management believes that in spite of a substantial portion of customer accounts being on demand, diversification of these deposits by number and type of depositors, and the past experience of the Group would indicate that these customer accounts provide a long-term and stable source of funding for the Group. Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment because the Group does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

25 Management of Capital

The Group’s objectives when managing capital are (i) to comply with the capital requirements set by the National Bank of Ukraine, (ii) to safeguard the Group’s ability to continue as a going concern and (iii) to maintain a sufficient capital base to achieve a capital adequacy ratio based on the Basel Accord of at least 8%. The Group considers total capital under management to be equity as shown in the consolidated statement of financial position. The amount of capital that the Group managed as of 31 December 2009 was UAH 12,050 million (2008: UAH 9,830 million). Compliance with capital adequacy ratios set by the National Bank of Ukraine is monitored monthly with reports outlining their calculation reviewed and signed by the Bank’s Chairman and Chief Accountant. Other objectives of capital management are evaluated annually.

Under the current capital requirements set by the National Bank of Ukraine banks have to maintain a ratio of regulatory capital to risk weighted assets (“statutory capital ratio”) above a prescribed minimum level. Regulatory capital is based on the Bank’s reports prepared under Ukrainian accounting standards and comprises:

In millions of Ukrainian hryvnias 2009 2008

Netassetsunadjustedforaccruals,provisionsandtaxes 8,390 7,474 Plus subordinated debt 1,210 780 Less investments into subsidiaries (796) (556) Other (2) (9)

Total regulatory capital 8,802 7,689

The Group and the Bank are also subject to minimum capital requirements established by covenants stated in loan agreements, including capital adequacy levels calculated in accordance with the requirements of the Basel Accord, as defined in the International Convergence of Capital Measurement and Capital Standards (updated April 1998) and Amendment to the Capital Accord to incorporate market risks (updated November 2005), commonly known as Basel I. The composition of the Group’s capital calculated in accordance with Basel Accord is as follows:

In millions of Ukrainian hryvnias 2009 2008

Tier 1 capital Share capital 8,064 5,939 Disclosed reserves 2,542 2,191 Cumulative translation reserve 354 330 Less: goodwill and intangible assets (57) (53) Total tier 1 capital 10,903 8,407

Tier 2 capital Asset revaluation reserves 628 908 Additional capital 462 462 Subordinated debt 1,198 1,204 Total tier 2 capital 2,288 2,574

Total capital 13,191 10,981

The Group and the Bank have complied with all externally imposed capital requirements as of 31 December 2009 and 31 December 2008.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

26 Contingencies and Commitments

Legal proceedings. From time to time and in the normal course of business, claims against the Group are received. On the basis of its own estimates and both internal and external professional advice the Management is of the opinion that no material losses will be incurred in respect of claims, except as described below.

Tax legislation. Ukrainian tax and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant authorities.

The Ukrainian tax authorities may be taking a more assertive and sophisticated approach in their interpretation of the legislation and tax examinations. Combined with a possible increase in tax collection efforts to respond to budget pressures, the above may lead to an increase in the level and frequency of scrutiny by the tax authorities and it is possible that transactions and activities that have not been challenged in the past may be challenged.

As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

Ukrainian transfer pricing legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of all controllable transactions, provided that the transaction price differs from market price.

Controllable transactions include transactions with related parties, as determined under the Corporate Profit Tax (CPT) Law, whose definition is significantly different from IFRS, all transactions with non- residents (irrespective whether performed between related or unrelated parties) and transactions with non-standard CPT payers.

There is no formal guidance as to how these rules should be applied in practice. The procedure for assessing additional tax liabilities using transfer pricing rules requires the tax authorities to obtain a court decision approving the tax amount. It is not clear at the moment when (or if) new or more detailed transfer pricing regulations will be introduced. It is possible with the evolution of the interpretation of the transfer pricing rules in Ukraine and the changes in the approach of the Ukrainian tax authorities, that transfer prices could potentially be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the entity.

The Group includes companies incorporated outside of Ukraine. Tax liabilities of the Group are determined on the assumption that these companies are not subject to Ukrainian profits tax because they do not have a permanent establishment in Ukraine. Ukrainian tax laws do not provide detailed rules on taxation of foreign companies within a Ukrainian group. It is possible that with the evolution of the interpretation of these rules and the changes in the approach of the Ukrainian tax authorities, the non- taxable status of some or all of the foreign companies of the Group in Ukraine may be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the entity.

Ukrainian tax legislation does not provide definitive guidance in certain areas. From time to time, the Group adopts interpretations of such uncertain areas that reduce the overall tax rate of the Group. As noted above, such tax positions may come under heightened scrutiny. The impact of any challenge by the tax authorities cannot be reliably estimated; however, it may be significant to the financial condition and/or the overall operations of the entity.

The Group’s Management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax position will be sustained. Accordingly, as of 31 December 2009 no provision for potential tax liabilities had been recorded (2008: no provision).

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

26 Contingencies and Commitments (Continued)

Capital expenditure commitments. At 31 December 2009 the Group has contractual capital expenditure commitments in respect of construction of premises, computers and furniture and equipment totalling UAH 17 million (2008: UAH 8 million). The Group believes that future net income and funding will be sufficient to cover this and any similar such commitments.

Operating lease commitments. As of 31 December 2009 and 2008 the Group had no commitments under non-cancellable operating leases.

Compliance with covenants. The Group is subject to certain covenants related primarily to its foreign borrowings. In particular, the Bank is required to maintain certain level of share capital, a certain capital adequacy ratio, certain level of regulatory ratios. Non-compliance with such covenants may result in negative consequences for the Group including growth in the cost of borrowings and declaration of default. The Group was in compliance with covenants as of 31 December 2009 and 31 December 2008.

Credit related commitments. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate or cash deposits and therefore carry less risk than a direct borrowing.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments, if the unused amounts were to be drawn down. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit related commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

Outstanding credit related commitments are as follows:

In millions of Ukrainian hryvnias Note 2009 2008

Guarantees issued 914 2,965 Import letters of credit 616 2,794 Irrevocable commitments to extend credit 123 140

Less: Cash covered letters of credit (44) (657) Less:Provisionforcreditrelatedcommitments 15 (43) (29)

Total credit related commitments 1,566 5,213

The total outstanding contractual amount of undrawn credit lines, letters of credit, and guarantees does not necessarily represent future cash requirements, as these financial instruments may expire or terminate without being funded. The fair value of credit related commitments was UAH 43 million at 31 December 2009 (2008: UAH 29 million).

As of 31 December 2008 UAH 1,448 million or 28% of the total amount of credit related commitments was represented by exposure to 2 counterparties of the Group. The Group’s on-balance sheet exposure to these counterparties represented by loans and advances to customers, amounted to UAH 905 million.

As of 31 December 2009 irrevocable commitments under letters of credit and guarantees issued by the Group of gross amount of UAH 1,530 million (2008: UAH 5,759 million) are secured by UAH 338 million (2008: UAH 490 million). Refer to note 13.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

26 Contingencies and Commitments (Continued)

Credit related commitments are denominated in currencies as follows:

In millions of Ukrainian hryvnias 2009 2008

Ukrainian Hryvnias 376 780 US Dollars 454 2,690 Euro 606 1,498 Other currencies 130 245

Total 1,566 5,213

Fiduciary assets. These assets are not included in the Group’s consolidated statement of financial position as they are not assets of the Group. Nominal values disclosed below are normally different from the fair values of respective securities. The fiduciary assets held by the Group on behalf of its customers fall into the following categories:

2009 2008 In millions of Ukrainian hryvnias Nominal value Nominal value

Shares of Ukrainian companies 3,836 4,906 Domestic corporate bonds 1,879 1,711 Investment certificates 48 91

Assets pledged and restricted. The Group had assets pledged as collateral with the following carrying value:

Note 2009 2008 Asset Related Asset Related pledged liability/ pledged liability/ In millions of Ukrainian hryvnias commitment commitment

Gross receivables under swap, forwardandspotagreements 27 7,450 7,468 2,654 2,692 Duefromotherbanks 8 - - 1,448 1,448 Loansandadvancestocustomers 9,14 1,294 1,064 1,767 1,390 Premises, loans and advances to 9, 10, customers 12 2,282 8,310 - -

Total 11,026 16,842 5,869 5,530

Gross receivables under swap, forward and spot agreements presented above are recognised on a net basis in the statement of financial position, giving rise to a derivative financial asset or liability within other assets or other liabilities, respectively.

As disclosed in Note 8, balances due from other banks totalling UAH 158 million (2008: UAH 84 million) have been pledged as cover for letters of credit and international payments.

In addition, mandatory reserve balances in the amount of UAH 1,141 million (2008: UAH 31 million) represent mandatory reserve deposits which are not available to finance the Group’s day to day operations as disclosed in Note 7.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

27 Derivative Financial Instruments

Foreign exchange and other derivative financial instruments entered into by the Group are generally traded in an over-the-counter market with professional market counterparties on standardised contractual terms and conditions. Derivatives have potentially favourable (assets) or unfavourable (liabilities) conditions as a result of fluctuations in market interest rates, foreign exchange rates or other variables relative to their terms. The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

The table below sets out fair values, at the end of the reporting period, of currencies receivable or payable under foreign exchange forward contracts entered into by the Group. The table reflects gross positions before the netting of any counterparty positions (and payments) and covers the contracts with settlement dates after the respective end of the reporting period. The contracts are short term in nature.

2009 2008 Contracts Contracts Contracts Contracts with positive with negative with positive with negative In millions of Ukrainian hryvnias fair value fair value fair value fair value

Foreign exchange swaps, forwards and spots: fair values, at the end of the reporting period date, of -USDreceivableonsettlement(+) 998 490 1,310 1,111 -USDpayableonsettlement(-) (641) (5,150) (18) (249) -Eurosreceivableonsettlement(+) 244 5,126 18 130 -Eurospayableonsettlement(-) (883) (54) (1,309) (1,116) -UAHreceivableonsettlement(+) - - - 85 - UAH payable on settlement (-) (173) (461) - - - Other currencies receivable on settlement (+) 535 57 - - - Other currencies payable on settlement (-) (79) (27) - -

Net fair value of foreign exchange forwards and swaps 1 (19) 1 (39)

At 31 December 2009, the Group had outstanding obligations from unsettled spot transactions with foreign currencies of UAH 6,020 million (2008: UAH 3,789 million). The net fair value of unsettled spot transactions is insignificant.

During the year ended 31 December 2009 the Group incurred loss of UAH 36 million (2008: UAH 284 million) resulting from foreign exchange forwards and swaps.

In addition, as disclosed in Note 4, as of 31 December 2009 the Group had outstanding derivatives embedded in loans issued to customers which were separated from the host instrument and carried at fair value of UAH 2,005 million (2008: UAH 2,551 million). During the year ended 31 December 2009 the Group recognised a gain of UAH 2,679 million (2008: UAH 249 million) in respect of change in fair value of a financial derivative that arises on the issue of UAH denominated loans with the condition of compensation in the case of UAH devaluation against USD. This embedded derivative is represented by a currency option maturing in up to 3 years. The strike price was from UAH 7.7 to UAH 8.5 per USD 1 (2008: UAH 4.84 to UAH 7.88 per USD 1).

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

28 Fair Value of Financial Instruments

(a) Fair values of financial instruments carried at amortised cost. Fair values of financial instruments carried at amortised cost are as follows:

2009 2008 In millions of Ukrainian hryvnias Fair value Carrying value Fair value Carrying value

FINANCIAL ASSETS

Cash and cash equivalents and mandatory reserves Cash on hand 3,494 3,494 3,206 3,206 CashbalanceswithCentralBanks 2,865 2,865 694 694 Correspondent accounts and overnight placementswithotherbanks 5,096 5,096 5,492 5,492

Trading securities and other financial assets at fair value through profit or loss Government bonds 10 10 21 21 Corporate shares 8 8 80 80

Due from other banks Termplacementswithotherbanks 3,767 3,767 2,578 2,578 Guaranteedepositswithotherbanks 302 302 84 84

Loans and advances to customers Corporate loans 46,907 47,653 40,191 41,145 Loanstoindividuals-card 6,579 6,579 7,958 7,957 Loanstoindividuals-mortgage 4,595 4,983 6,471 6,553 Loanstoindividuals-auto 3,054 3,072 4,283 4,392 Loanstoindividuals-consumer 356 364 728 742 Loanstoindividuals-other 1,195 1,213 1,407 1,407 Loanstosmallandmediumenterprises(SME) 2,501 2,646 5,520 5,517 Reverse sale and repurchase agreements - corporate 87 87 361 361

Financial derivatives 2,005 2,005 2,551 2,551

Investment securities available-for-sale Unquoted shares 8 8 4 4

Investment securities held to maturity 24 23 - - Government bonds

Other financial assets Receivablesarisingfromfinancialderivative 1,440 1,440 - - Receivablesfromoperationswithcustomers 108 108 90 90 Plasticcardsreceivables 114 114 81 81 Accruedincomereceivable 26 26 54 54 Other 95 95 77 77

TOTALFINANCIALASSETS 84,636 85,958 81,931 83,086

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

28 Fair Value of Financial Instruments (Continued)

2009 2008 In millions of Ukrainian hryvnias Fair value Carrying value Fair value Carrying value

FINANCIAL LIABILITIES

Due to the NBU and other central banks DuetotheNBUandothercentralbanks 8,310 8,310 3,554 3,554

Due to other banks and other financing institutions Termplacementsofotherbanks 2,115 2,115 5,716 5,716 Correspondent accounts and overnight placements of other banks 181 181 449 449 Long-term loans under the credit lines from otherfinancinginstitutions 22 22 423 423 Pledgedepositsofotherbanks 1 1 5 5

Customer accounts Termdepositsofindividuals 32,035 32,035 30,620 30,620 Current/demandaccountsofindividuals 7,121 7,121 6,191 6,191 Termdepositsofotherlegalentities 9,869 9,869 11,647 11,647 Current/settlement accounts of other legal entities 8,108 8,108 8,512 8,512

Debt securities in issue Eurobonds 2,856 3,757 2,111 4,180 Privateplacementsofbonds 1,299 1,290 1,705 1,795 Mortgage bonds 745 745 893 893 Auto bonds 319 319 497 497 Promissory notes 1 1 5 5

Other financial liabilities Liabilityforfinancelease 110 110 171 171 Accounts payable 102 102 65 65 Fundsinthecourseofsettlement 62 62 59 59 Provisionforcreditrelatedcommitment 43 43 29 29 Financial derivatives 18 18 39 39 Other 83 83 87 87

Subordinated debt Subordinated debt 1,001 1,438 910 1,333

TOTALFINANCIALLIABILITIES 74,401 75,730 73,688 76,270

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

28 Fair Value of Financial Instruments (Continued)

(b) Analysis by fair value hierarchy of financial instruments carried at fair value.

For financial instruments carried at fair value, the level in the fair value hierarchy into which the fair values are categorised are as follows:

2009 2008 Quoted Valuation Valuation Quoted Valuation Valuation price in technique technique price in technique technique an active with with an active with with market inputs signifi- market inputs signifi- (Level 1) observa- cant non- (Level 1) observa- cant non- ble in observa- ble in observa- markets ble inputs markets ble inputs In millions of Ukrainian hryvnias (Level 2) (Level 3) (Level 2) (Level 3)

FINANCIAL ASSETS

Trading securities and other financial assets at fair value through profit or loss Governmentbonds 10 - - 21 - 74 Corporateshares - - 8 - 6 -

Financial derivatives - - 2,005 - - 2,551

Other financial assets - -1 - -1

TOTAL FINANCIAL ASSETS CARRIEDATFAIRVALUE 10 - 2,014 21 6 2,626

Debt securities in issue Eurobonds 2,856 - - 2,111 - - Privateplacementsofbonds - 1,299 - - 1,705 - Mortgagebonds 745 - - 893 - - Auto bonds 319 - - 497 - - Promissorynotes - 1 - - 5 -

Other financial liabilities - - 72 - - 68

TOTAL FINANCIAL LIABILITIES CARRIED AT FAIR VALUE 3,920 1,300 72 3,501 1,710 68

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

28 Fair Value of Financial Instruments (Continued)

(c) Reconciliation of movements in instruments belonging to the level 3 of the fair value hierarchy. A reconciliation of movements in Level 3 of the fair value hierarchy of the financial derivatives for the year ended 31 December 2009 and 31 December 2008 is as follows:

In million of Ukrainian hryvnias Financial derivatives

Fair value at 1 January 2008 -

Recognition of financial derivative on loan origination 2,368 Gains less losses recognised in profit or loss for the year (Note 27) 249 Cash received (66)

Fair value at 31 December 2008 2,551

Gains less losses recognised in profit or loss for the year (Note 27) 2,679 Cash received (2,730) Amortisation of gain to interest income (495)

Fair value at 31 December 2009 2,005

Cumulative revaluation gains less losses recognised in profit or loss for the current and prior years for assets held at 31 December 2009 2,928

Financial derivatives are classified into level 3 instruments because these instruments require management to make assumptions about credit risk of the counterparty which are not supportable by observable market data.

The sensitivity to valuation assumptions is disclosed in the Note 4.

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by an active quoted market price. Where quoted market prices are not available, the Group used valuation techniques. Certain valuation techniques required assumptions that were not supported by observable market data. The total net fair value gain estimated using valuation techniques that was recognised in profit or loss amounts to UAH 2,643 million (2008: loss of UAH 35 million).

The fair value of floating rate instruments that are not quoted in an active market was estimated to be equal to their carrying amount. The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.

Discount rates used depend on currency, maturity of the instrument and credit risk of the counterparty and were as follows:

2009 2008

Loans and advances to customers Corporate loans 12%to27%p.a. 12%to48%p.a. Loans to individuals - mortgage 15%to30%p.a. 12%to24%p.a. Loans to individuals - auto 11%to21%p.a. 12%to24%p.a. Loans to individuals - consumer 12%to54%p.a. 9%to68%p.a. Loans to individuals - card 12%to60%p.a. 9%to57%p.a. Loans to individuals - other 14%to36%p.a. 9%to68%p.a. Loanstosmallandmediumenterprises(SME) 18%to32%p.a. 10 % to 53 % p.a. Reversesaleandrepurchaseagreements-corporate 12%to24%p.a. 8%to14%p.a.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

29 Presentation of Financial Instruments by Measurement Category

For the purposes of measurement, IAS 39, Financial Instruments: Recognition and Measurement , classifies financial assets into the following categories: (a) loans and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and (d) financial assets at fair value through profit or loss (“FVTPL”). Financial assets at fair value through profit or loss have two subcategories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading. The following table provides a reconciliation of financial assets with these measurement categories as of 31 December 2009:

Loans Availa- Assets Held to Total and ble-for- desig- maturity receiv- sale nated at In millions of Ukrainian hryvnias ables assets FVTPL

ASSETS Cash and cash equivalents and mandatory reserves 11,455 - - - 11,455 Trading securities and other financial assets at fair value through profit or loss - - 18 - 18 Due from other banks Termplacementswithotherbanks 3,767 - - - 3,767 Guaranteedepositswithotherbanks 302 - - - 302 Loans and advances to customers Corporate loans 47,653 - - - 47,653 Loans to individuals - card 6,579 - - - 6,579 Loanstoindividuals-mortgage 4,983 - - - 4,983 Loans to individuals - auto 3,072 - - - 3,072 Loanstoindividuals-consumer 364 - - - 364 Loans to individuals - other 1,213 - - - 1,213 Loanstosmallandmediumenterprises(SME) 2,646 - - - 2,646 Reversesaleandrepurchaseagreements-corporate 87 - - - 87 Financial derivatives - - 2,005 - 2,005 Investment securities available-for-sale - 8 - - 8 Investment securities held-to-maturity - - - 23 23 Other financial assets 342 - 1,441 - 1,783

TOTALFINANCIALASSETS 82,463 8 3,464 23 85,958

NON-FINANCIAL ASSETS 3,731

TOTAL ASSETS 89,689

As of 31 December 2009 and 31 December 2008 all of the Group’s financial liabilities except for derivatives were carried at amortised cost. Derivatives belong to the fair value through profit or loss measurement category.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

29 Presentation of Financial Instruments by Measurement Category (Continued)

The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2008:

Loans Availa- Trading Assets Total and ble-for- assets desig- receiv- sale nated at In millions of Ukrainian hryvnias ables assets FVTPL

ASSETS Cash and cash equivalents and mandatory reserves 9,392 - - - 9,392 Trading securities and other financial assets at fair value through profit or loss - - 87 14 101 Due from other banks Termplacementswithotherbanks 2,578 - - - 2,578 Guaranteedepositswithotherbanks 84 - - - 84 Loans and advances to customers Corporate loans 41,145 - - - 41,145 Loans to individuals - card 7,957 - - - 7,957 Loanstoindividuals-mortgage 6,553 - - - 6,553 Loans to individuals - auto 4,392 - - - 4,392 Loanstoindividuals-consumer 742 - - - 742 Loans to individuals - other 1,407 - - - 1,407 Loanstosmallandmediumenterprises(SME) 5,517 - - - 5,517 Reversesaleandrepurchaseagreements-corporate 361 - - - 361 Financial derivatives - - - 2,551 2,551 Investment securities available-for-sale - 4 - - 4 Other financial assets 301 - - 1 302

TOTALFINANCIALASSETS 80,429 4 87 2,566 83,086

NON-FINANCIAL ASSETS 4,434

TOTAL ASSETS 87,520

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

30 Related Party Transactions

Parties are generally considered to be related if the parties are under common control or one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

At 31 December 2009 and 31 December 2008, the outstanding balances with related parties were as follows:

2009 2008 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r In millions of Ukrainian hryvnias shareholders shareholders

Gross amount of loans and advances to customers (contractual interest rate: 2009: UAH - 14%, USD - 14%, EUR - 13%; 2008: UAH - 13%, USD - 13%, EUR -7%) - 21 6,147 - 19 5,699

Impairment provisions for loans and advancestocustomersat31December - - (2,288) - - (1,305)

Loans and advances to customers writtenoffasuncollectable - - - - - (78)

Financialderivatives - - 225 - - -

Otherfinancialassets - - 2 - - 247

Otherassets - - 414 - - 432

Customer accounts (contractual interest rate: 2009: UAH - 8%, USD - 1%, EUR - 13%; 2008: UAH - 1%, USD - 8%, EUR - 15%) 455 102 2,129 1,130 - 2,715

Otherfinancialliabilities - - 10 - - -

Provision for losses on credit related commitments ------

Subordinated debt (contractual interest rate: 2009: UAH - 6%, RUR - 1%; 2008: UAH-3%,RUR-7%) - - 125 - - -

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

30 Related Party Transactions (Continued)

The income and expense items with related parties for 2009 and 2008 were as follows:

2009 2008 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r In millions of Ukrainian hryvnias shareholders shareholders

Interest income - 9 1,287 - 2 747 Interest expense (67) (5) (144) - - (33) Provision for loan impairment - - (1,029) - - (45) Fee and commission income -- 65-- 81 Losses less gains from financial derivatives - - (104) - - (429) Other operating income -- 6-- 5 Administrative and other operating expenses, excluding management remuneration - (2) (452) - - (135)

At 31 December 2009 and 31 December 2008, other rights and obligations with related parties were as follows:

2009 2008 Share- Manage- Compa nies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r In millions of Ukrainian hryvnias shareholders shareholders

Guaranteesissued - - 7 - - 530 Irrevocable commitments to extend credit ------Importlettersofcredit - - 70 - - 186

Less: Provision for credit related commitments - - (33) - - -

Totalcreditrelatedcommitments - - 44 - - 716

Aggregate amounts lent to and repaid by related parties during 2009 and 2008 were:

2009 2008 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r In millions of Ukrainian hryvnias shareholders shareholders

Amounts lent to related parties during the period - 18 8,020 - 10 11,395

Amounts repaid by related parties during the period - 34 8,700 - 20 10,286

In October 2009 the Group partially disposed an interest in the Latvian subsidiary to a party under common control in amount of UAH 60 million.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2009

30 Related Party Transactions (Continued)

In 2009, the remuneration of the members of the Board of Directors comprised salaries, discretionary bonuses, pension contributions and other short-term benefits totalling UAH 16 million (2008: UAH 6 million), including contributions into the State pension fund of UAH 1 million (2008: UAH 1 million) and social security contributions of UAH 0.1 million (2008: UAH 0.1 million). This amount consists of expenses included in PrivatBank Group consolidated statement of comprehensive income and expenses incurred by the Group's related party on behalf of the Group, which are not reimbursable to the related party and therefore have not been reflected in the PrivatBank Group consolidated statement of comprehensive income.

In 2008 the majority shareholders of the Bank offered an option to the management of the Bank who hold shares of the Bank to sell part or all of their shares to the major shareholders. The option was immediately exercisable and was open for a limited period of time. The price of each share under the offer was determined based on an assumption that the Bank's market capitalisation at the time the option was offered was USD 2 billion. As a result of the offer, some members of the Bank’s management sold part or all of their shares to the majority shareholders.

Short-term bonuses fall due wholly within twelve months after the end of the period in which management rendered the related services.

31 Events After the End of the Reporting Period

Repayments of significant borrowings. In March 2010 Bank repaid UAH 500 million related to series K of private placements and UAH 500 million related to series L of private placements.

Increase in share capital. On 20 March 2010 the shareholders took a decision to increase the Bank’s share capital by UAH 1,049 million up to nominal value of UAH 8,860 million. The share capital was increased by capitalising dividends attributable to the shareholders of the Bank for the year ended 31 December 2009.

Other events. In January 2010 the NBU increased interest rate under refinancing loan to 17.3% and in March 2010 decreased the interest rate from 17.3% to NBU discount rate (since 12 August 2009: 10.25%) + 2% in respect of the whole amount of loan outstanding of UAH 8,310 million.

In March 2010, Ukraine's long-term foreign currency rating was increased by Standard & Poor’s from CCC+ to B-/C, national currency rating was increased from B-/C to B/B and national-scale sovereign rating was increased from uaBBB to uaA. Fitch Ratings has revised Ukraine’s sovereign debt outlook from negative to stable.

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PRIVATBANK GROUP International Financial Reporting Standards Consolidated Financial Statements and Independent Auditor’s Report 31 December 2008

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PrivatBank Group

CONTENTS

INDEPENDENT AUDITOR’S REPORT

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet...... 1 Consolidated Income Statement...... 2 Consolidated Statement of Changes in Equity...... 3 Consolidated Statement of Cash Flows...... 5

Notes to the Consolidated Financial Statements

1 Introduction...... 6 2 Operating Environment of the Group...... 7 3 Summary of Significant Accounting Policies...... 8 4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies ...... 19 5 Adoption of New or Revised Standards and Interpretations...... 21 6 New Accounting Pronouncements...... 21 7 Cash and Cash Equivalents and Mandatory Reserves...... 25 8 Trading Securities...... 27 9 Due from Other Banks...... 28 10 Loans and Advances to Customers...... 29 11 Investment Securities Available for Sale...... 37 12 Investment Securities Held to Maturity ...... 37 13 Premises, Leasehold Improvements and Equipment and Intangible Assets ...... 38 14 Other Financial Assets...... 39 15 Other Assets...... 41 16 Due to Other Banks and Other Financing Institutions...... 42 17 Customer Accounts ...... 43 18 Debt Securities in Issue...... 44 19 Provisions for Liabilities and Charges, Other Financial and Non-financial Liabilities...... 45 20 Subordinated Debt...... 46 21 Share Capital...... 46 22 Other Reserves...... 47 23 Interest Income and Expense...... 47 24 Fee and Commission Income and Expense...... 48 25 Other Operating Income...... 48 26 Administrative and Other Operating Expenses...... 49 27 Income Taxes...... 49 28 Segment Analysis...... 52 29 Financial Risk Management ...... 55 30 Management of Capital...... 70 31 Contingencies and Commitments...... 71 32 Derivative Financial Instruments...... 74 33 Fair Value of Financial Instruments ...... 75 34 Presentation of Financial Instruments by Measurement Category ...... 80 35 Related Party Transactions ...... 82 36 Events After the Balance Sheet Date ...... 84

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PrivatBank Group Consolidated Income Statement

In millions of Ukrainian hryvnias Note 2008 2007

Interest income 23 11,607 7,034 Interest expense 23 (5,185) (3,021)

Net interest income 6,422 4,013 Provision for impairment of loans and advances to customers 10 (4,507) (666)

Net interest income after provision for impairment of loans and advances to customers 1,915 3,347

Fee and commission income 24 2,111 1,473 Fee and commission expense 24 (304) (161) Losses less gains from trading securities (100) - Losseslessgainsfromfinancialderivatives 32 (35) (13) Losses less gains from other financial assets at fair value through profit or loss (9) - Gains less losses from trading in foreign currencies 974 351 Foreignexchangetranslationgainslesslosses 29 2,897 15 Impairmentofinvestmentsecuritiesavailable-for-sale 11 (1) (607) Gains less losses from disposals of investment securities available-for-sale 11 43 145 (Provision)/release of provision for credit related commitments 31,19 (8) 48 Other operating income 25 79 87 (Losses less gains)/ gains less losses arising from early retirement of debt (9) 5 Administrativeandotheroperatingexpenses 26 (5,015) (3,236) Excess of interest in the fair value of the net assets of the subsidiary acquired over the cost of investment - 60

Profit before tax 2,538 1,514 Income tax 27 (551) (392)

Profit for the year 1,987 1,122

Profit is attributable to Equity holders of the Bank 2,027 1,101 Minority interest (40) 21

Profit for the year 1,987 1,122

The notes set out on pages 6 to 84 form an integral part of these consolidated financial statements. 2

F-101 PrivatBank Group Consolidated Statement of Changes in Equity ee:0– rm Tusa,My1,21 1:8– e – 17:48 – Thursday, May 13, 2010 – 0 From: – Level:0

Note Attributable to equity holders of the Bank Minority Total Share Additional Revaluation Revaluation reserve Currency Retained Total Interest equity capital capital reserve for for securities translation earnings In millions of Ukrainian hryvnias premises available-for-sale reserve

Balanceat1January2007 2,335 82 356 6 5 381 3,165 83 3,248

Securities available-for-sale: -Disposals 11 - - - (8) - - (8) - (8) Premises: -Revaluation 13 - - 9 - - - 9 3 12 -Realisedrevaluationreserve 13 - - (3) - - 3 - - - Incometaxrecordedinequity 27 - - (1) 2 - (1) - (1) (1) Currencytranslationdifferences - - - - 28 - 28 12 40

Net income recognised directly in equity - - 5 (6) 28 2 29 14 43 4211 2008 Financials – print3

F-102 Profitfortheyear - - - - - 1,101 1,101 21 1,122

Total recognised income for the year - - 5 (6) 28 1,103 1,130 35 1,165

Paid-insharecapital 21 632 - - - - - 632 - 632 Additional capital -Cashcontribution 22 - 506 - - - - 506 - 506 -Incometaxliability 22 - (126) - - - - (126) - (126) Funds contributed by minority into sharecapitalofsubsidiaries ------3 3 Purchaseofminority ------(62) (62) Businesscombinations ------40 40

Balanceat31December2007 2,967 462 361 - 33 1,484 5,307 99 5,406

The notes set out on pages 6 to 84 form an integral part of these consolidated financial statements. 3 PrivatBank Group Consolidated Statement of Changes in Equity ee:0– rm Tusa,My1,21 1:8– e – 17:48 – Thursday, May 13, 2010 – 0 From: – Level:0

Note Attributable to equity holders of the Bank Minority Total Share Additional Revaluation Revaluation reserve Currency Retained Total Interest equity capital capital reserve for for securities translation earnings In millions of Ukrainian hryvnias premises available-for-sale reserve

Balanceat31December2007 2,967 462 361 - 33 1,484 5,307 99 5,406

Premises: -Revaluation 13 - - 805 - - - 805 - 805 - Impairment charge through equity - - (17) - - - (17) - (17) -Realisedrevaluationreserve - - (43) - - 43 - - - Incometaxrecordedinequity - - (198) - - - (198) - (198) Currencytranslationdifferences - - - - 297 - 297 35 332

Net income recognised directly in rn3– 4211 2008 Financials – print3 equity - - 547 - 297 43 887 35 922

F-103 Profitfortheyear - - - - - 2,027 2,027 (40) 1,987

Total recognised income for the year - - 547 - 297 2,070 2,914 (5) 2,909

Paid-insharecapital 21 1,515 - - - - - 1,515 - 1,515 Capitalisation of dividends 21 1,457 - - - - (1,457) - - -

Balanceat31December2008 5,939 462 908 - 330 2,097 9,736 94 9,830

The notes set out on pages 6 to 84 form an integral part of these consolidated financial statements. 4 Level: 0 – From: 0 – Thursday, May 13, 2010 – 17:48 – eprint3 – 4211 2008 Financials

PrivatBank Group Consolidated Statement of Cash Flows

In millions of Ukrainian hryvnias Note 2008 2007

Cash flows from operating activities Interest received 10,831 6,349 Interest paid (5,105) (2,599) Fees and commissions received 2,084 1,405 Fees and commissions paid (304) (161) Losses from trading in trading securities (100) - Losses from financial derivatives (6) (10) Income received from trading in foreign currencies 974 357 Other operating income received 125 91 Staff costs paid (1,919) (1,556) Administrative and other operating expenses paid (3,258) (1,447) Income tax paid (614) (174)

Cash flows from operating activities before changes in operating assets and liabilities 2,708 2,255

Changes in operating assets and liabilities Net decrease/(increase) in mandatory reserve balances 852 (416) Net (increase)/decrease in trading securities (72) 7 Net decrease in other financial assets at fair value through profit or loss 5 4 Net increase in due from other banks (465) (701) Net increase in loans and advances to customers (14,318) (16,457) Net decrease in other financial assets 5 14 Net increase in other assets (119) (71) Net (decrease)/increase in due to other banks (2,177) 1,846 Net increase in customer accounts 7,695 12,318 Net increase in provisions for liabilities and charges, other financial and non-financial liabilities 196 98

Net cash used in operating activities (5,690) (1,103)

Cash flows from investing activities Acquisition of investment securities available-for-sale - (539) Proceeds from disposal of investment securities available-for-sale - 596 Acquisition of investment securities held to maturity 12 - (1,160) Proceeds from redemption of investment securities held to maturity 12 1,160 - Acquisition of premises, leasehold improvements and equipment (1,058) (737) Proceeds from disposal of premises, leasehold improvements and equipment 283 3 Acquisition of intangible assets (3) - Dividends received 6 - Acquisition of subsidiaries, net of cash acquired - (38)

Net cash from/(used in) investing activities 388 (1,875)

Cash flows from financing activities Proceeds from refinancing loan from central banks 16 3,534 - Proceeds from subordinated debt 20 18 - Repayment of subordinated debt 20 - (1) Issue of ordinary shares 21 1,515 632 Proceeds from debt securities issued 862 5,331 Repayment of debt securities issued (1,179) (17) Contributions from shareholders - 506 Funds contributed by minority into share capital of subsidiaries - 1

Net cash from financing activities 4,750 6,452

Effect of exchange rate changes on cash and cash equivalents 2,845 186

Net increase in cash and cash equivalents 2,293 3,660 Cash and cash equivalents at the beginning of the year 7,068 3,408

Cash and cash equivalents at the end of the year 7 9,361 7,068

Investing and financing transactions that did not require the use of cash and cash equivalents were excluded from the cash flow statement and are disclosed in Note 7.

The notes set out on pages 6 to 84 form an integral part of these consolidated financial statements. 5

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

1 Introduction

These financial statements have been prepared in accordance with International Financial Reporting Standards for the year ended 31 December 2008 for PrivatBank (the “Bank”) and its subsidiaries (together referred to as the “Group” or “PrivatBank Group”). The Bank was incorporated and is domiciled in Ukraine. The Bank is a closed joint stock company limited by shares and was set up in accordance with Ukrainian regulations. As of 31 December 2008 and 2007 the ultimate major shareholders of the Bank were 2 Ukrainian citizens Mr I.V. Kolomoyskiy and Mr G.B. Bogolyubov who as at 31 December 2008 owned respectively 49.02% (2007: 43.44%) and 48.86% (2007: 43.44%) of the outstanding shares and neither of which individually controlled the Bank. Amendments to Ukrainian banking legislation introduced in 2006 provide that banks in Ukraine may exist either in the form of an open joint stock company or as a cooperative bank. The banks in other corporate forms, such as closed joint company or limited liability company must be transformed into open joint stock companies before September 2009. In addition, on 29 April 2009 a new Joint Stock Company Law entered into force, which provides that joint stock companies may be either public or private. The new Joint Stock Company Law establishes additional requirements for the banks to bring their statutory documents in compliance with this requirement before 29 April 2011. The Group does not expect the transformation to have any impact on its consolidated financial statements apart from certain additional disclosures required for public companies. Principal activity. The Bank’s principal business activity is commercial and retail banking operations within Ukraine. The Bank was initially registered as a commercial entity with limited liability and re- organised into a closed joint stock entity in 2000.The Bank has operated under a full banking licence issued by the National Bank of Ukraine (the “NBU”) since March 1992. The Bank participates in the state deposit insurance scheme (registration #113 dated 2 September 1999), which operates according to the Law 32740-III “On Individuals Deposits Guarantee Fund” dated 20 September 2001 (as amended). Individuals Deposits Guarantee Fund guarantees repayment of individual deposits up to UAH 150 thousand (2007: UAH 50 thousand) per individual in case bank liquidation procedure is started. As at 31 December 2008 the Bank had 37 branches and 3,241 outlets within Ukraine and a branch in Cyprus (2007: 39 branches, 2,808 outlets in Ukraine and a branch in Cyprus). Additionally, as at 31 December 2008 and 2007 the Bank had subsidiary banks in the Russian Federation, Latvia, Georgia and representative offices in Kyiv (Ukraine), Moscow (Russia), Almaty (Kazakhstan), London (United Kingdom) and Beijing (China) and three special purpose entities in the United Kingdom. As at 31 December 2008 principal subsidiaries included in the consolidated financial statements, were as follows: Percentage of legal ownership Nature of Country of 31 December 31 December Name business registration 2008 2007

AS PrivatBank Banking Latvia 95.07% 63.38% Moscomprivatbank Russian 86.20% 86.20% Banking Federation JSC TaoPrivatBank Banking Georgia 75.00% 75.00%

Registered address and place of business. The Bank’s registered address is:

50, Naberezhna Peremohy Str., 49094, Dnipropetrovsk, Ukraine.

Presentation currency. These financial statements are presented in millions of Ukrainian hryvnias ("UAH million"), unless otherwise stated.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

2 Operating Environment of the Group

Ukraine continues to display characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that is not freely convertible outside of Ukraine, restrictive currency controls, and high inflation of 22.3% for the year ended 31 December 2008 (2007: 16.6%). The financial situation in the Ukrainian market significantly deteriorated during 2008, particularly in the fourth quarter. The ongoing global financial and economic crisis that emerged out of the severe reduction in global liquidity which commenced in the middle of 2007 (often referred to as the “Credit Crunch”) has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the banking sector and the wider economy, and, at times, higher interbank lending rates and very high volatility in stock and currency markets. The uncertainties in the global financial markets have also led to failures of banks and other financial sector participants and to bank rescues in the United States of America, Western Europe, Ukraine and elsewhere. Since October 2008 the NBU introduced temporary administration at a number of Ukrainian banks due to their liquidity problems. The full extent of the impact of the ongoing financial crisis is proving to be difficult to anticipate or completely guard against. As a result of the global financial crisis, the Ukrainian economy experienced a reduced level of capital inflow and a decrease in demand for exports. Additionally, the country ratings by international rating agencies were downgraded in October 2008 and February 2009 (refer to Note 36). These factors, together with increasing domestic uncertainty, led to volatility in the currency exchange market and resulted in significant downward pressure on the Ukrainian hryvnia relative to major foreign currencies. Since October 2008 the NBU has been entering the market to support the national currency. The official UAH to US Dollar (USD) exchange rate of the National Bank of Ukraine devalued from UAH 4.861 per USD 1 at 30 September 2008 to UAH 7.70 per USD 1 at 31 December 2008 and UAH UAH 7.6303 per USD 1 at the date of approval of these consolidated financial statements for issue. In the light of the current economic turmoil, the International Monetary Fund (the IMF) has agreed to issue an SDR 11 billion stabilizing loan to Ukraine if the country complies with certain requirements. The first tranche of SDR 3 billion has been received in November 2008 and the next tranche of SDR 1.25 billion was due in February 2009. However completion of the first review of Ukraine’s economic performance under the Stand-By Arrangement was significantly delayed and the release of the second tranche of SDR 1.9 billion was approved only in May 2009 after the Executive Board of the IMF granted waivers of non- observance of certain performance criteria. The major condition for qualifying for the loan was the development and ratification of a government anti-crisis package aiming to stabilize the economy, including determining the shortfall in capital and liquidity existing in the banking sector and taking the necessary steps to address the shortfalls. The loan is expected to have a positive effect on the Ukrainian economy, however the receipt of the next tranches is subject to the IMF’s conclusion on progress made by Ukraine in addressing structural issues. A number of measures have been undertaken to support the Ukrainian financial markets, including the following:  On 13 October 2008 National Bank of Ukraine took the decision to impose a limitation on pre-term withdrawal of deposits. Additional restrictions were imposed on credit and currency transactions, which significantly reduced the volume of lending operations.  On 31 October 2008 the Parliament of Ukraine adopted the Law On Immediate Measures for Prevention of Negative Consequences of Financial Crisis and Changes to Certain Legal Acts of Ukraine, which, in particular, raised the guarantee repayment of individual deposit from Individual Deposits Guarantee Fund to UAH 150,000 per individual in case bank liquidation procedures are commenced.  The list of assets which can be pledged under refinancing agreements with the NBU was significantly extended.  The NBU significantly increased volumes of liquidity support provided to Ukrainian banks; during October-December 2008 the total volume of liquidity support operations including overnight loans, loans sold through auctions and other facilities amounted to UAH 99 billion.  Mandatory reserves requirements were eased to provide additional liquidity to the banking sector.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

2 Operating Environment of the Group (Continued)

The volume of wholesale financing has significantly reduced since August 2007. Such circumstances may affect the ability of the Group to obtain new borrowings and re-finance its existing borrowings at terms and conditions similar to those applied to earlier transactions. As a result of unfavourable market conditions, the volume of operations on interbank market has decreased significantly. The primary factors influencing the given dynamics are overall illiquid market conditions between Ukrainian banks and a tightening of the NBU’s monetary policy in the first half of 2008. Borrowers of the Group may be adversely affected by the financial and economic environment, which could in turn impact their ability to repay the amounts owed. As a significant part of loans to customers was issued in foreign currencies, UAH depreciation against these currencies had a significant impact on borrowers’ ability to service the loans. Deteriorating economic conditions for borrowers may also have an impact on management's cash flow forecasts and assessment of the impairment of financial and non- financial assets. To the extent that information is available, management has properly reflected revised estimates of expected future cash flows in its impairment assessments. The amount of provision for impaired loans is based on management's appraisals of these assets at the balance sheet date after taking into consideration the cash flows that may result from foreclosure less costs for obtaining and selling the collateral. The market in Ukraine for many types of collateral, especially real estate, has been severely affected by the recent volatility in global financial markets resulting in there being a low level of liquidity for certain types of assets. As a result, the actual realisable value on foreclosure may differ from the value ascribed in estimating allowances for impairment. As a result of global volatility in financial and commodity markets, among other factors, there has been a significant decline in the Ukrainian stock market since mid-2008. The fair values of quoted investments in active markets are based on current bid prices (financial assets) or offer prices (financial liabilities). If there is no active market for a financial instrument, the Group establishes fair value using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. The valuation models reflect current market conditions at the measurement date which may not be representative of market conditions either before or after the measurement date. As at the balance sheet date management has reviewed its models to ensure they appropriately reflect current market conditions, including the relative liquidity of the market and credit spreads. The market in Ukraine for many types of real estate has been severely affected by the recent volatility in global financial markets. As such the carrying value of land and buildings measured at fair value in accordance with IAS 16 has been updated to reflect market conditions at the reporting date.

The tax, currency and customs legislation within Ukraine is subject to varying interpretations and frequent changes. Furthermore, the need for further developments in the bankruptcy laws, the formalised procedures for the registration and enforcement of collateral, and other legal and fiscal impediments contribute to the challenges faced by banks currently operating in Ukraine. Management is unable to reliably determine the effects on the Group's future financial position of any further deterioration in the liquidity of the financial markets and the increased volatility in the currency and equity markets. Management believes it is taking all the necessary measures to support the sustainability of the Group’s business in the current circumstances. Refer also to Note 36.

3 Summary of Significant Accounting Policies

Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value, and by the revaluation of premises, available-for-sale financial assets, and financial instruments categorised as at fair value through profit or loss. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated (refer to Note 5).

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

3 Summary of Significant Accounting Policies (Continued)

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition and includes transaction costs . Measurement at cost is only applicable to investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related balance sheet items.

The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.

Initial recognition of financial instruments . Trading securities, derivatives and other financial instruments at fair value through profit or loss are initially recorded at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.

All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.

Derecognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. All short term interbank placements, beyond overnight placements, are included in due from other banks. Amounts, which relate to funds that are of a restricted nature, are excluded from cash and cash equivalents. Cash and cash equivalents include cash on hand, unrestricted demand and overnight deposits with central and other banks. Cash and cash equivalents are carried at amortised cost.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

3 Summary of Significant Accounting Policies (Continued)

Mandatory cash balances with the NBU. Mandatory cash balances with the NBU are carried at amortised cost and represent non-interest bearing mandatory reserve deposits which are not available to finance the Group’s day to day operations and hence are not considered as part of cash and cash equivalents for the purposes of the consolidated cash flow statement. Trading securities. Trading securities are financial assets which are either acquired for generating a profit from short-term fluctuations in price or trader’s margin, or are securities included in a portfolio in which a pattern of short-term trading exists. The Group classifies securities into trading securities if it has an intention to sell them within a short period after purchase, i.e. within 3 months. The Group may choose to reclassify a non-derivative trading financial asset out of the fair value through profit or loss category if the asset is no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables are permitted to be reclassified out of fair value through profit or loss category only in rare circumstances arising from a single event that is unusual and highly unlikely to reoccur in the near term. Financial assets that would meet the definition of loans and receivables may be reclassified if the Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity. Trading securities are carried at fair value. Interest earned on trading securities calculated using the effective interest method is presented in the consolidated income statement as interest income. Dividends are included in dividend income within other operating income when the Group’s right to receive the dividend payment is established and it is probable that the dividends will be collected. All other elements of the changes in the fair value and gains or losses on derecognition are recorded in profit or loss as gains less losses from trading securities in the period in which they arise. Other securities at fair value through profit or loss. Other securities at fair value through profit or loss are financial assets designated irrevocably, at initial recognition, into this category. Management designates securities into this category only if (a) such classification eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or (b) a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information on that basis is regularly provided to and reviewed by the Group’s key management personnel. Recognition and measurement of this category of financial assets is consistent with the above policy for trading securities. Due from other banks. Amounts due from other banks are recorded when the Group advances money to counterparty banks with no intention of trading the resulting unquoted non-derivative receivable due on fixed or determinable dates. Amounts due from other banks are carried at amortised cost. Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to purchase or originate an unquoted non-derivative receivable from a customer due on fixed or determinable dates and has no intention of trading the receivable. Loans and advances to customers are carried at amortised cost.

When impaired financial assets are renegotiated and the renegotiated terms and conditions differ substantially from the previous terms, the new asset is initially recognised at its fair value.

Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if any.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

3 Summary of Significant Accounting Policies (Continued)

The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred: - any instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems; - the borrower experiences a significant financial difficulty as evidenced by the borrower’s financial information that the Group obtains; - the borrower considers bankruptcy or a financial reorganisation; - there is an adverse change in the payment status of the borrower as a result of changes in the national or local economic conditions that impact the borrower; or - the value of collateral significantly decreases as a result of deteriorating market conditions. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets and the experience of management in respect of the extent to which amounts will become overdue as a result of past loss events and the success of recovery of overdue amounts. Past experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect past periods and to remove the effects of past conditions that do not exist currently. Past experience is the basis for the estimation of the loss identification period, in particular the time lag between the actual loss event and identification of the loss event by the Group. This approach ensures that the impact of losses which have not yet been specifically identified, is included in the estimation of loan loss impairment. If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification of terms. Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss. Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment loss account in the income statement. Credit related commitments. The Group enters into credit related commitments, including commitments to extend credit, letters of credit and financial guarantees. Financial guarantees represent irrevocable assurances to make payments in the event that a customer cannot meet its obligations to third parties and carry the same credit risk as loans. Financial guarantees and commitments to provide a loan are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the commitment, except for commitments to originate loans if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination; such loan commitment fees are deferred and included in the carrying value of the loan on initial recognition. At each balance sheet date, the commitments are measured at the higher of (i) the remaining unamortised balance of the amount at initial recognition and (ii) the best estimate of expenditure required to settle the commitment at the balance sheet date.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

3 Summary of Significant Accounting Policies (Continued)

Investment securities available for sale. This classification includes investment securities which the Group intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The Group classifies investments as available for sale at the time of purchase.

Investment securities available for sale are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in profit or loss. Dividends on available-for-sale equity instruments are recognised in profit or loss when the Group’s right to receive payment is established and it is probable that the dividends will be collected. All other elements of changes in the fair value are deferred in equity until the investment is derecognised or impaired, at which time the cumulative gain or loss is removed from equity to profit or loss. Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of investment securities available for sale. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses on equity instruments are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through current period’s profit or loss.

Sale and repurchase agreements. Sale and repurchase agreements (“repo agreements”) which effectively provide a lender’s return to the counterparty are treated as secured financing transactions. Securities sold under such sale and repurchase agreements are not derecognised. The securities are not reclassified in the balance sheet unless the transferee has the right by contract or custom to sell or repledge the securities, in which case they are reclassified as repurchase receivables. The corresponding liability is presented within amounts due to other banks.

Securities purchased under agreements to resell (“reverse repo agreements”) which effectively provide a lender’s return to the Group are recorded as due from other banks or loans and advances to customers, as appropriate. The difference between the sale and repurchase price is treated as interest income and accrued over the life of repo agreements using the effective interest method.

Investment securities held to maturity. This classification includes quoted non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has both the intention and ability to hold to maturity. Management determines the classification of investment securities held to maturity at their initial recognition and reassesses the appropriateness of that classification at each balance sheet date. Investment securities held to maturity are carried at amortised cost. Promissory notes purchased. Promissory notes purchased are included in trading securities, or in due from other banks or in loans and advances to customers, depending on their substance and are recorded, subsequently remeasured and accounted for in accordance with the accounting policies for these categories of assets.

Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the acquirer’s share of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the date of exchange. Goodwill on acquisitions of subsidiaries is presented separately in the consolidated balance sheet. Goodwill on acquisitions of associates is included in the investment in associates. Goodwill is carried at cost less accumulated impairment losses, if any.

The Group tests goodwill for impairment at least annually and whenever there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the business combination. Such units or group of units represent the lowest level at which the Group monitors goodwill and are not larger than a segment. Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the operation disposed of, generally measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit which is retained.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

3 Summary of Significant Accounting Policies (Continued)

Premises, leasehold improvements and equipment. Premises, leasehold improvements and equipment are stated at cost, restated to the equivalent purchasing power of the Ukrainian hryvnia at 31 December 2000 for assets acquired prior to 1 January 2001, or revalued amounts, as described below, less accumulated depreciation and provision for impairment, where required. Cost of premises and equipment of acquired subsidiaries is the estimated fair value at the date of acquisition.

Premises are subject to revaluation with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Increases in the carrying amount arising on revaluation are credited to revaluation reserve in equity. Decreases that offset previous increases of the same asset are charged against revaluation reserve directly in equity; all other decreases are charged to the income statement. The revaluation reserve for premises and equipment included in equity is transferred directly to retained earnings when the surplus is realised on the retirement or disposal of the asset, or as the asset is used by the Group; in the latter case, the amount of the surplus realised is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. At the date of revaluation accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset.

Management has updated the carrying value of land and buildings measured in accordance with the revaluation model as at the reporting date using market based evidence and is satisfied that sufficient market based evidence of fair value is available to support the updated fair values.

Construction in progress is carried at cost less provision for impairment where required. Construction in progress is not depreciated until the asset is available for use.

All other items of premises and equipment are stated at cost less accumulated depreciation and impairment losses, if any.

Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing major parts or components of premises and equipment items are capitalised and the replaced part is retired.

At each reporting date management assesses whether there is any indication of impairment of premises and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as the higher of an asset’s fair value less costs to sell and its value in use. The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in the income statement to the extent it exceeds the previous revaluation surplus in equity. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset’s value in use or fair value less costs to sell.

Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit or loss. Depreciation. Land is not depreciated. Depreciation on other items of premises, leasehold improvements and equipment is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives as follows: Premises 50 years Computers 4 years Furniture and equipment 4-10 years Motor vehicles 6 years Other 3-5 years Leasehold improvements are depreciated over the term of the underlying lease. The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Intangible assets. The Group’s intangible assets other than goodwill have definite useful life and primarily include capitalised computer software.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

3 Summary of Significant Accounting Policies (Continued)

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring them to use. Development costs that are directly associated with identifiable and unique software controlled by the Group are recorded as intangible assets if an inflow of incremental economic benefits exceeding costs is probable. Capitalised costs include staff costs of the software development team and an appropriate portion of relevant overheads. All other costs associated with computer software, e.g. its maintenance, are expensed when incurred. Capitalised computer software is amortised on a straight line basis over expected useful lives of 5 years. Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss on a straight-line basis over the period of the lease. Leases embedded in other agreements are separated if (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets and (b) the arrangement conveys a right to use the asset. In 2008 the Bank revised its disclosure of obligations under operating lease agreements and concluded that the lease agreements are in fact all cancellable. Therefore as at 31 December 2008 and 2007 the Bank had no commitments under non-cancellable operating lease agreements. Respective disclosure for 2007 has been adjusted to reflect this revision. Finance lease liabilities. Where the Group is a lessee in a lease which transferred substantially all the risks and rewards incidental to ownership to the Group, the assets leased are capitalised in premises, leasehold improvements and equipment at the commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance lease balance outstanding. The corresponding rental obligations, net of future finance charges, are included in other financial liabilities. The interest cost is charged to the income statement over the lease period using the effective interest method. The assets acquired under finance leases are depreciated over their useful life or the shorter lease term if the Group is not reasonably certain that it will obtain ownership by the end of the lease term. Due to other banks and other financing institutions. Amounts due to other banks and other financing institutions are recorded when money or other assets are advanced to the Group by counterparty banks or other financing institutions. The non-derivative liability is carried at amortised cost. If the Group purchases its own debt, it is removed from the consolidated balance sheet and the difference between the carrying amount of the liability and the consideration paid is included in gains or losses arising from early retirement of debt. Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporate customers and are carried at amortised cost. Debt securities in issue . Debt securities in issue include Eurobonds, promissory notes and bonds issued by the Group. Debt securities are stated at amortised cost. If the Group purchases its own debt securities in issue, they are removed from the consolidated balance sheet and the difference between the carrying amount of the liability and the consideration paid is included in gains arising from early retirement of debt. Subordinated debt. Subordinated debt represents long-term borrowing agreements that, in case of the Group’s default, would be secondary to the Group’s primary debt obligations. Subordinated debt is carried at amortised cost. Derivative financial instruments. Derivative financial instruments, including foreign exchange contracts, forward rate agreements, currency swaps and currency options are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative . Changes in the fair value of derivative instruments are included in profit or loss. The Group does not apply hedge accounting. Certain derivative instruments embedded in other financial instruments are treated as separate derivative instruments when their risks and characteristics are not closely related to those of the host contract.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

3 Summary of Significant Accounting Policies (Continued)

Income taxes. Income taxes have been provided for in the consolidated financial statements in accordance with legislation enacted or substantively enacted by the balance sheet date. The income tax charge comprises current tax and deferred tax and is recognised in the consolidated income statement except if it is recognised directly in equity because it relates to transactions that are also recognised, in the same or a different period, directly in equity. Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within administrative and other operating expenses. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit . Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes . Deferred tax balances are measured at tax rates enacted or substantively enacted at the balance sheet date which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised. Deferred income tax is provided on post acquisition retained earnings and other post acquisition movements in reserves of subsidiaries, except where the Group controls the subsidiary’s dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future. Uncertain tax positions. The Group's uncertain tax positions are reassessed by management at every balance sheet date. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the balance sheet date and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the balance sheet date. Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Trade and other payables. Trade payables are accrued when the counterparty has performed its obligations under the contract and are carried at amortised cost. Share capital. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recorded as share premium in equity. Dividends. Dividends are recorded in equity in the period in which they are declared. Any dividends declared after the balance sheet date and before the financial statements are authorised for issue are disclosed in the subsequent events note. The statutory accounting reports of the Bank are the basis for profit distribution and other appropriations. Ukrainian legislation identifies the basis of distribution as the retained earnings. Income and expense recognition. Interest income and expense are recorded in the consolidated income statement for all debt instruments on an accrual basis using the effective interest method. This method defers, as part of interest income or expense, all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

3 Summary of Significant Accounting Policies (Continued)

Fees integral to the effective interest rate include origination fees received or paid by the entity relating to the creation or acquisition of a financial asset or issuance of a financial liability, for example fees for evaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating the terms of the instrument and for processing transaction documents. Commitment fees received by the Group to originate loans at market interest rates are integral to the effective interest rate if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination. The Group does not designate loan commitments as financial liabilities at fair value through profit or loss. When loans and other debt instruments become doubtful of collection, they are written down to the present value of expected cash inflows and interest income is thereafter recorded for the unwinding of the present value discount based on the asset’s effective interest rate which was used to measure the impairment loss. All other fees, commissions and other income and expense items are generally recorded on an accrual basis by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Loan syndication fees are recognised as income when the syndication has been completed and the Group retains no part of the loan package for itself or retains a part at the same effective interest rate as for the other participants. Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as the acquisition of loans, shares or other securities or the purchase or sale of businesses, and which are earned on execution of the underlying transaction, are recorded on its completion. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time-proportion basis. Asset management fees related to investment funds are recorded rateably over the period the service is provided. The same principle is applied for wealth management, financial planning and custody services that are continually provided over an extended period of time. Recognition of deferred day one profit and loss. The Group has entered into transactions, where fair value is determined using valuation models for which not all inputs are market observable prices or rates. Such a financial instrument is initially recognised at the transaction price, which is the best indicator of fair value, although the value obtained from the relevant valuation model may differ. The difference between the transaction price and the model value, commonly referred to as “day one profit and loss”, is not recognised immediately in profit and loss. The timing of recognition of deferred day one profit and loss is determined individually. It is either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred day one profit and loss. Subsequent changes in fair value are recognised immediately in the income statement without reversal of deferred day one profits and losses. Foreign currency translation. The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. The functional currency of the Bank, and the Group’s presentation currency, is the national currency of Ukraine, Ukrainian hryvnia (“UAH”). Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate at the respective balance sheet dates. Foreign exchange gains and losses resulting from the settlement of transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange rates are recognised in profit or loss. Translation at year-end rates does not apply to non-monetary items, including equity investments. Effects of exchange rate changes on the fair value of equity securities are recorded as part of the fair value gain or loss. As the characteristics of the economic environment of Ukraine indicate that hyperinflation has ceased, effective from 1 January 2001 the Bank no longer applies the provisions of IAS 29. Accounting for the effects of hyperinflation prior to 1 January 2001 is detailed further below. The results and financial position of each group entity (the functional currency of none of which is a currency of a hyperinflationary economy) are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

3 Summary of Significant Accounting Policies (Continued)

(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); (iii) components of equity are translated at the historic rate; and (iv) all resulting exchange differences are recognised as a separate component of equity. The principal rates of exchange used for translating foreign currency balances were as follows: 31 December 2008,UAH 31 December 2007,UAH 1 US Dollar (USD) 7.700000 5.050000 1 Euro (EUR) 10.855460 7.419460 1 Russian Ruble (RUB) 0.262080 0.205790 1 Latvian Lat (LVL) 15.334737 10.644849 1 Georgian Lari (GEL) 4.085939 3.172908

Fiduciary assets. Assets held by the Group in its own name, but on the account of third parties, are not reported in the consolidated balance sheet. The extent of such balances and transactions is indicated in Note 31. For the purposes of disclosure, fiduciary activities do not encompass safe custody functions. Commissions received from fiduciary activities are shown in fee and commission income. Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Accounting for the effects of hyperinflation. Prior to 2001 Ukraine experienced relatively high levels of inflation and was considered to be hyperinflationary as defined by IAS 29 “Financial Reporting in Hyperinflationary Economies” (“IAS 29”). In accordance with IAS 29, when an economy ceases to be hyperinflationary and an enterprise is not required to prepare and present financial statements in accordance with IAS 29, it should treat the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements. Those non-monetary items that arose in the periods of hyperinflation or earlier periods need to be restated in terms of the purchasing power of Ukrainian hryvnia at the end of the reporting period preceding the period in which hyperinflation ceased. This restatement was prepared by indexing the historical balances by changes in the general price index up to 31 December 2000. Monetary assets and liabilities are not restated because they are already expressed in terms of the monetary unit current at the period end. Non-monetary assets and liabilities (items which are not expressed in terms of the monetary unit current at the period end) are restated by applying the relevant conversion factor. The effect of inflation on the Group’s net monetary position in 2000 and prior years is included in retained earnings. Staff costs and related contributions. Wages, salaries, contributions to the Ukrainian state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by the employees of the Group. Segment reporting . A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), and which is subject to risks and rewards that are different from those of other segments. Segments with a majority of revenue earned from sales to external customers and whose revenue, result or assets are ten percent or more of all the segments are reported separately. Geographical segments of the Group have been reported separately within these consolidated financial statements based on the ultimate domicile of the counterparty, e.g. based on economic risk rather than legal risk of the counterparty. Amendments of the financial statements after issue. The Bank’s shareholders and management have the power to amend the financial statements after issue.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognised in the financial statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Impairment losses on loans and advances. The Group regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in the consolidated income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. A 10% increase or decrease in actual loss experience compared to the loss estimates used would result in an increase or decrease in loan impairment losses of UAH 422 million (2007: UAH 117 million), respectively. Impairment losses for individually significant loans are based on estimates of discounted future cash flows of the individual loans, taking into account repayments and realisation of any assets held as collateral against the loans. A 10% increase or decrease in the actual loss experience compared to the estimated future discounted cash flows from individually significant loans, which could arise from differences in amounts and timing of the cash flows, would result in an increase or decrease in loan impairment losses of UAH 50 million (2007: UAH 24 million), respectively.

Impairment of available-for-sale equity investments. The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates among other factors, the volatility in share price.

As at 31 December 2008 the Group’s portfolio of equity investments were carried at cost less impairment. The cost of these equity investments was UAH 103 million and the carrying value was UAH 4 million (2007: cost UAH 623 million and carrying value UAH 4 million). For these equity securities, fair value cannot be reliably determined as there was no active market for these shares, the recent trades were effected at prices which vary significantly within the same day or recent trade prices were not publicly available. For the purposes of assessment of impairment of those equity securities for which fair value cannot be reliably determined, the Group has considered financial data of the investees, where available, and cash flows from subsequent sale of securities discounted at market interest rate.

In 2008 the Group sold or exchanged for other equity investments, shares with nil carrying value (2007: UAH 83 million) at the date of sale, whose fair value could not be reliably determined as at 31 December 2007. A gain of UAH 43 million (2007: UAH 139 million) was recognised in the consolidated income statement in respect of this sale.

In 2008 the Group recognised impairment losses on investment securities available-for-sale of UAH 1 million (2007: UAH 607 million). Had the Management adopted different assumptions and used different valuation judgements when determining whether or not the available-for-sale investment securities were impaired, the carrying amount of the available-for-sale equity investments could have been significantly increased. Management based its estimate of the carrying amount on available information. Had more information regarding equity securities been available, Management’s estimate of the carrying amount and appropriateness of impairment charges may have changed.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued)

Fair value of derivatives. The fair values of financial derivatives that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. To the extent practical, models use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair values. As at 31 December 2008 the Bank had loans to customers totalling UAH 17,247 million (31 December 2007: UAH 10,339 million) issued in UAH with the condition of compensation to be received by the Bank in the event that the official exchange rate of UAH depreciates against USD. The contract to receive compensation was accounted for by the Bank as a financial derivative with the fair value of UAH 2,551 million as at 31 December 2008 (31 December 2007: nil) estimated using a valuation technique. This valuation technique takes into account expected movements in exchange rates, discount factor and credit risk. Changing the assumptions about expected exchange rates may result in a different profit. If the expected UAH/USD exchange rate for the year 2009 would be higher/lower by 15%, the fair value of the derivative and the respective income statement amount would increase/decrease by UAH 625 million. If the discount rate used for fair valuation of the derivatives for the year 2009 would be higher/lower by 100 basis points, the fair value of the derivative and the respective income statement amount would decrease/ increase by UAH 12 million. If the credit risk of counterparties for the year 2009 would be higher/lower by 10%, the fair value of the derivative and the respective income statement amount would decrease/increase by UAH 282 million. Refer to Note 32. Tax legislation. Ukrainian and Russian tax, currency and customs legislation is subject to varying interpretations. Refer to Note 31. Initial recognition of related party transactions. In the normal course of business the Group enters into transactions with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analysis. Terms and conditions of related party balances are disclosed in Note 35. Valuation of own use premises . Premises of the Group are stated at fair value based on reports prepared by a valuation company. The basis for their work is sales comparison approach. At the date of revaluation accumulated depreciation was eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. When performing revaluation certain judgements and estimates are applied by the valuers in determination of the comparison of premises to be used in sales comparison approach. Changes in assumptions about these factors could affect reported fair values. The valuation was based on comparative sales of premises with the price per square meter varying from UAH 170 to UAH 52,954, depending upon the location of premises. To the extent that the price per square meter differs by +/-5 percent, the fair value of premises would be UAH 215 million higher or UAH 215 million lower. Additional capital contribution . As disclosed in the Note 22, in December 2007 the Bank’s major shareholders made an additional capital contribution in the form of cash amounting to UAH 380 million net of income tax of UAH 126 million which was made through related and third parties as a settlement of debts due to the major shareholders of the Bank. Should a different judgement have been applied and the amounts received have been treated as income, the Group’s interest income for the year ended 31 December 2007 would have been UAH 506 million higher and the income tax expense for the year ended 31 December 2007 would have been UAH 126 million higher. Derecognition of financial assets. Management applies judgement to determine if substantially all the significant risks and rewards of ownership of financial assets are transferred to counterparties, in particular which risks and rewards are the most significant and what constitutes substantially all risks and rewards. During the year ended 31 December 2007 the Group sold a portfolio of loans with carrying value of UAH 617 million to another Ukrainian bank which received a loan from the Group of UAH 617 million. However, these loans have not been derecognised in 2007 as in the Management's judgement the derecognition criteria were not met. During the year ended 31 December 2008 the counterparty bank attracted financing from third parties and partially repaid the loan outstanding to the Group. Taking into account changes in the circumstances, Management reassessed the treatment of this transaction. Respective loans to customers have now been derecognised together with recognition of related exposure to the counterparty bank. Refer also to Notes 9 and 10.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

5 Adoption of New or Revised Standards and Interpretations

Certain new interpretations became effective for the Group from 1 January 2008: IFRIC 11, IFRS 2—Group and Treasury Share Transactions (effective for annual periods beginning on or after 1 March 2007);

IFRIC 12, Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008); and

IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for annual periods beginning on or after 1 January 2008).

These interpretations did not have any significant effect on the Group’s consolidated financial statements.

Reclassification of Financial Assets—Amendments to IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7, Financial Instruments: Disclosures and a subsequent amendment, Reclassification of Financial Assets: Effective Date and Transition. The amendments allow entities the options (a) to reclassify a financial asset out of the held for trading category if, in rare circumstances, the asset is no longer held for the purpose of selling or repurchasing it in the near term; and (b) to reclassify an available-for-sale asset or an asset held for trading to the loans and receivables category, if the entity has the intention and ability to hold the financial asset for the foreseeable future or until maturity (subject to the asset otherwise meeting the definition of loans and receivables). The amendments may be applied with retrospective effect from 1 July 2008 for any reclassifications made before 1 November 2008; the reclassifications allowed by the amendments may not be applied before 1 July 2008 and retrospective reclassifications are only allowed if made prior to 1 November 2008. Any reclassification of a financial asset made on or after 1 November 2008 takes effect only from the date when the reclassification is made. The Group has not elected to make any of the optional reclassifications during the period.

6 New Accounting Pronouncements

Certain new standards and interpretations have been published that are mandatory for the Group’s accounting periods beginning on or after 1 January 2009 or later periods and which the Group has not early adopted:

IFRS 8, Operating Segments (effective for annual periods beginning on or after 1 January 2009). The standard applies to entities whose debt or equity instruments are traded in a public market or that file, or are in the process of filing, their financial statements with a regulatory organisation for the purpose of issuing any class of instruments in a public market. IFRS 8 requires an entity to report financial and descriptive information about its operating segments, with segment information presented on a similar basis to that used for internal reporting purposes. Management is currently assessing what impact the standard will have on segment disclosures in the Group’s financial statements.

Puttable Financial Instruments and Obligations Arising on Liquidation—IAS 32 and IAS 1 Amendment (effective for annual periods beginning on or after 1 January 2009). The amendment requires classification as equity of some financial instruments that meet the definition of financial liabilities. The Group does not expect the amendment to affect its financial statements.

IAS 23, Borrowing Costs (revised March 2007; effective for annual periods beginning on or after 1 January 2009). The main change to IAS 23 is the removal of the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. An entity is, therefore, required to capitalise such borrowing costs as part of the cost of the asset. The revised standard applies prospectively to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009. The Group does not expect the amendment to the standard to have a material effect on its financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

6 New Accounting Pronouncements (Continued)

IAS 1, Presentation of Financial Statements (revised September 2007; effective for annual periods beginning on or after 1 January 2009). The main change in IAS 1 is the replacement of the income statement by a statement of comprehensive income which will also include all non-owner changes in equity, such as the revaluation of available-for-sale financial assets. Alternatively, entities will be allowed to present two statements: a separate income statement and a statement of comprehensive income. The revised IAS 1 also introduces a requirement to present a statement of financial position (balance sheet) at the beginning of the earliest comparative period whenever the entity restates comparatives due to reclassifications, changes in accounting policies, or corrections of errors. The Group expects the revised IAS 1 to affect the presentation of its financial statements but to have no impact on the recognition or measurement of specific transactions and balances.

IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual periods beginning on or after 1 July 2009). The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minority interests”) even if this results in the non-controlling interests having a deficit balance (the current standard requires the excess losses to be allocated to the owners of the parent in most cases). The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the former subsidiary will have to be measured at its fair value. The Group is currently assessing the impact of the amended standard on its financial statements.

Vesting Conditions and Cancellations—Amendment to IFRS 2, Share-based Payment (issued in January 2008; effective for annual periods beginning on or after 1 January 2009). The amendment clarifies that only service conditions and performance conditions are vesting conditions. Other features of a share-based payment are not vesting conditions. The amendment specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group does not expect the amendment to have a material effect on its financial statements.

IFRS 3, Business Combinations (revised January 2008; effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The revised IFRS 3 will allow entities to choose to measure non-controlling interests using the existing IFRS 3 method (proportionate share of the acquiree’s identifiable net assets) or at fair value. The revised IFRS 3 is more detailed in providing guidance on the application of the purchase method to business combinations. The requirement to measure at fair value every asset and liability at each step in a step acquisition for the purposes of calculating a portion of goodwill has been removed. Instead, in a business combination achieved in stages, the acquirer will have to remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss. Acquisition-related costs will be accounted for separately from the business combination and therefore recognised as expenses rather than included in goodwill. An acquirer will have to recognise at the acquisition date a liability for any contingent purchase consideration. Changes in the value of that liability after the acquisition date will be recognised in accordance with other applicable IFRSs, as appropriate, rather than by adjusting goodwill. The revised IFRS 3 brings into its scope business combinations involving only mutual entities and business combinations achieved by contract alone. The Group is currently assessing the impact of the amended standard on its financial statements.

IFRIC 13, Customer Loyalty Programmes (effective for annual periods beginning on or after 1 July 2008). IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Group’s operations because no Group companies operate any loyalty programmes.

IFRIC 15, Agreements for the Construction of Real Estate (effective for annual periods beginning on or after 1 January 2009). The interpretation applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors, and provides guidance for determining whether agreements for the construction of real estate are within the scope of IAS 11 or IAS 18. It also provides criteria for determining when entities should recognise revenue on such transactions. The Group is currently assessing the impact of the amendment on its financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

6 New Accounting Pronouncements (Continued)

IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective for annual periods beginning on or after 1 October 2008). The interpretation explains which currency risk exposures are eligible for hedge accounting and states that translation from the functional currency to the presentation currency does not create an exposure to which hedge accounting could be applied. The IFRIC allows the hedging instrument to be held by any entity or entities within a group except the foreign operation that itself is being hedged. The interpretation also clarifies how the gain or loss recycled from the currency translation reserve to profit or loss is calculated on disposal of the hedged foreign operation. Reporting entities will apply IAS 39 to discontinue hedge accounting prospectively when their hedges do not meet the criteria for hedge accounting in IFRIC 16. IFRIC 16 does not have any impact on these financial statements as the Group does not apply hedge accounting.

Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate—IFRS 1 and IAS 27 Amendment (issued in May 2008; effective for annual periods beginning on or after 1 January 2009). The amendment allows first-time adopters of IFRS to measure investments in subsidiaries, jointly controlled entities or associates at fair value or at previous GAAP carrying value as deemed cost in the separate financial statements. The amendment also requires distributions from pre-acquisition net assets of investees to be recognised in profit or loss rather than as a recovery of the investment. The amendments will not have any impact on the Group’s consolidated financial statements.

Eligible Hedged Items—Amendment to IAS 39, Financial Instruments: Recognition and Measurement (effective with retrospective application for annual periods beginning on or after 1 July 2009). The amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment is not expected to have any impact on the Group's financial statements as the Group does not apply hedge accounting.

Improvements to International Financial Reporting Standards (issued in May 2008). In 2007, the International Accounting Standards Board decided to initiate an annual improvements project as a method of making necessary, but non-urgent, amendments to IFRS. The amendments consist of a mixture of substantive changes, clarifications, and changes in terminology in various standards. The substantive changes relate to the following areas: classification as held for sale under IFRS 5 in case of a loss of control over a subsidiary; possibility of presentation of financial instruments held for trading as non-current under IAS 1; accounting for sale of IAS 16 assets which were previously held for rental and classification of the related cash flows under IAS 7 as cash flows from operating activities; clarification of definition of a curtailment under IAS 19; accounting for below market interest rate government loans in accordance with IAS 20; making the definition of borrowing costs in IAS 23 consistent with the effective interest method; clarification of accounting for subsidiaries held for sale under IAS 27 and IFRS 5; reduction in the disclosure requirements relating to associates and joint ventures under IAS 28 and IAS 31; enhancement of disclosures required by IAS 36; clarification of accounting for advertising costs under IAS 38; amending the definition of the fair value through profit or loss category to be consistent with hedge accounting under IAS 39; introduction of accounting for investment properties under construction in accordance with IAS 40; and reduction in restrictions over manner of determining fair value of biological assets under IAS 41. Further amendments made to IAS 8, 10, 18, 20, 29, 34, 40, 41 and to IFRS 7 represent terminology or editorial changes only, which the IASB believes have no or minimal effect on accounting. The Group does not expect the amendments to have any material effect on its financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

6 New Accounting Pronouncements (Continued)

Improvements to International Financial Reporting Standards (issued in April 2009; amendments to IFRS 2, IAS 38, IFRIC 9 and IFRIC 16 are effective for annual periods beginning on or after 1 July 2009; amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 and IAS 39 are effective for annual periods beginning on or after 1 January 2010). The improvements consist of a mixture of substantive changes and clarifications in the following standards and interpretations: clarification that contributions of businesses in common control transactions and formation of joint ventures are not within the scope of IFRS 2; clarification of disclosure requirements set by IFRS 5 and other standards for non-current assets (or disposal groups) classified as held for sale or discontinued operations; requiring to report a measure of total assets and liabilities for each reportable segment under IFRS 8 only if such amounts are regularly provided to the chief operating decision maker; amending IAS 1 to allow classification of certain liabilities settled by entity’s own equity instruments as non-current; changing IAS 7 such that only expenditures that result in a recognised asset are eligible for classification as investing activities; allowing classification of certain long-term land leases as finance leases under IAS 17 even without transfer of ownership of the land at the end of the lease; providing additional guidance in IAS 18 for determining whether an entity acts as a principal or an agent; clarification in IAS 36 that a cash generating unit shall not be larger than an operating segment before aggregation; supplementing IAS 38 regarding measurement of fair value of intangible assets acquired in a business combination; amending IAS 39 (i) to include in its scope option contracts that could result in business combinations, (ii) to clarify the period of reclassifying gains or losses on cash flow hedging instruments from equity to profit or loss and (iii) to state that a prepayment option is closely related to the host contract if upon exercise the borrower reimburses economic loss of the lender; amending IFRIC 9 to state that embedded derivatives in contracts acquired in common control transactions and formation of joint ventures are not within its scope; and removing the restriction in IFRIC 16 that hedging instruments may not be held by the foreign operation that itself is being hedged. The Group does not expect the amendments to have any material effect on its financial statements. IFRS 7 (Amendments) – Financial Instruments: Disclosures: Improving disclosures about financial instruments (issued in March 2009; effective for annual periods beginning on or after 1 January 2009). The amendments form part of the IASB’s focused response to the financial crisis and addresses the G20 conclusions aimed at improved transparency and enhanced accounting guidance. The improvements also reflect discussions by the IASB’s Expert Advisory Panel on measuring and disclosing fair values of financial instruments when markets are no longer active. The Bank is currently assessing the impact of the amended standard on its consolidated financial statements.

IFRIC 17, Distribution of Non-Cash Assets to Owners (effective for annual periods beginning on or after 1 July 2009). The amendment clarifies when and how distribution of non-cash assets as dividends to the owners should be recognised. An entity should measure a liability to distribute non-cash assets as a dividend to its owners at the fair value of the assets to be distributed. A gain or loss on disposal of the distributed non-cash assets will be recognised in profit or loss when the entity settles the dividend payable. IFRIC 17 is not relevant to the Group’s operations because it does not distribute non-cash assets to owners.

IFRS 1, First-time Adoption of International Financial Reporting Standards (following an amendment in December 2008, effective for the first IFRS financial statements for a period beginning on or after 1 July 2009). The revised IFRS 1 retains the substance of its previous version but within a changed structure in order to make it easier for the reader to understand and to better accommodate future changes. The Group concluded that the revised standard does not have any effect on its financial statements.

IFRIC 18, Transfers of Assets from Customers (effective for annual periods beginning on or after 1 July 2009). The interpretation clarifies the accounting for transfers of assets from customers, namely, the circumstances in which the definition of an asset is met; the recognition of the asset and the measurement of its cost on initial recognition; the identification of the separately identifiable services (one or more services in exchange for the transferred asset); the recognition of revenue, and the accounting for transfers of cash from customers. IFRIC 18 is not expected to have any impact on the Group’s financial statements.

Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Group’s financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

7 Cash and Cash Equivalents and Mandatory Reserves

In millions of Ukrainian hryvnias 2008 2007

Cash on hand 3,206 3,104 Cash balances with the NBU 78 942 CashbalanceswiththeCentralBankofRussianFederation 241 198 Cash balances with the Central Bank of Latvia 127 124 Cash balances with the Central Bank of Cyprus 70 60 Cash balances with the Central Bank of Georgia 178 16 Correspondent accounts and overnight placements with other banks - Ukraine 132 1 - Other countries 5,360 3,507

Totalcashandcashequivalentsandmandatoryreserves 9,392 7,952

As at 31 December 2008 and 2007 mandatory reserve balance with the National Bank of Ukraine is calculated on the basis of a simple average over a monthly period and should be maintained at the level of 0 to 5 per cent (2007: 0.5 to 5 per cent) of certain obligations of the Bank. As such, mandatory reserve balance with the National Bank of Ukraine can vary from day to day. For December 2008 the Bank’s mandatory reserve balance was UAH 1,091 million (2007: UAH 828 million). The Bank may satisfy its mandatory reserve requirement with its balance on correspondent account with the National Bank of Ukraine. Mandatory reserve balances carry zero interest rate. As at 31 December 2008 the National Bank of Ukraine did not require the Bank to observe mandatory reserve requirements. All funds held on accounts with NBU could be used for settlements with third parties.

As at 31 December 2008 the mandatory reserve balances of the Bank’s subsidiaries in Russia and Georgia that should be kept with respective central banks were UAH 31 million (2007: mandatory reserves in Russia, Latvia and Georgia were UAH 55 million).

As the respective liquid assets are not available to finance the Group’s day-to-day operations, except for the mandatory reserves with the Bank of Latvia and the Central Bank of Cyprus and mandatory reserve with the NBU which was allowed for settlements with third parties as at 31 December 2008, for the purposes of the consolidated cash flow statement, the mandatory reserve balances relating to the Russian and Georgian subsidiaries (2007: mandatory reserve balances with the NBU and mandatory reserve balances of subsidiaries) are excluded from cash and cash equivalents. As at 31 December 2008 the Group’s cash and cash equivalents for the purposes of consolidated cash flow statement were as follows:

In millions of Ukrainian hryvnias 2008 2007

Totalcashandcashequivalentsandmandatoryreserves 9,392 7,952 Less mandatory reserves balances (31) (884)

Cash and cash equivalents for the purposes of the consolidated cash flow statement 9,361 7,068

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

7 Cash and Cash Equivalents and Mandatory Reserves (Continued)

Analysis by credit quality of cash and cash equivalents and mandatory reserve balances outstanding at 31 December 2008 is as follows:

Cash on Cash Correspondent Total hand balances accounts and overnight with the placements with other Central banks In millions of Ukrainian hryvnias Banks

Neither past due nor impaired Cash on hand 3,206 - - 3,206 CashbalanceswithCentralBanks - 694 - 694 AA- rated - - 1,133 1,133 A+ rated - - 2,375 2,375 A rated - - 1,303 1,303 B- to BBB rated - - 4949 RD rated - - 33 Unrated - - 629 629

Total cash and cash equivalents and mandatoryreserves 3,206 694 5,492 9,392

Neither past due nor impaired assets were analysed based on Fitch ratings.

Analysis by credit quality of cash and cash equivalents and mandatory reserve balances outstanding at 31 December 2007 is as follows:

Cash on Cash Correspondent Total hand balances accounts and overnight with the placements with other Central banks In millions of Ukrainian hryvnias Banks

Neither past due nor impaired Cash on hand 3,104 - - 3,104 CashbalanceswithCentralBanks - 1,340 - 1,340 AA rated - - 485 485 AA- rated - - 1,026 1,026 A+ rated - - 665 665 A rated - - 462 462 A- rated - - 794 794 BBB rated - - 1010 B+ rated - - 5151 B- rated - - 33 Unrated - - 1212

Total cash and cash equivalents and mandatoryreserves 3,104 1,340 3,508 7,952

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

7 Cash and Cash Equivalents and Mandatory Reserves (Continued)

Investing and financing transactions that did not require the use of cash and cash equivalents and were excluded from the cash flow statement are as follows:

In millions of Ukrainian hryvnias 2008 2007

Non-cash investing activities Acquisition of investment securities available for sale in exchange for other investment securities available for sale - (615) Proceeds from disposal of investment securities available for sale in exchange for trading securities 43 - Proceeds from disposal of investment securities available for sale in exchange for other investment securities available for sale - 604

Non-cash investing activities 43 (11)

Non-cash financing activities Dividends (1,457) - Increase in share capital 1,457 -

Non-cash financing activities - -

Geographical, currency, maturity and interest rate analysis of cash and cash equivalents and mandatory reserves is disclosed in Note 29.

8 Trading Securities

In millions of Ukrainian hryvnias 2008 2007

Ukrainian government bonds 13 16

Total debt securities 13 16

Corporate shares 74 -

Total trading securities 87 16

Corporate shares are shares of Ukrainian companies.

Trading securities are carried at fair value which also reflects any credit risk related write-downs. As trading securities are carried at their fair values based on observable market data and by reference to the investee’s net asset value, the Group does not analyse or monitor impairment indicators.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

8 Trading Securities (Continued)

Analysis by credit quality of debt trading securities is as follows at 31 December 2008:

In millions of Ukrainian hryvnias Ukrainiangovernmentbonds Total

Neither past due nor impaired (at fair value) - B+ rated 13 13

Total debt trading securities 13 13

Analysis by credit quality of debt trading securities is as follows at 31 December 2007:

In millions of Ukrainian hryvnias Ukrainiangovernmentbonds Total

Neither past due nor impaired (at fair value) - BB- rated 16 16

Total debt trading securities 16 16

Neither past due nor impaired assets were analysed based on Fitch ratings.

Interest rate analysis of trading securities is disclosed in Note 29.

9 Due from Other Banks

In millions of Ukrainian hryvnias 2008 2007

Term placements with other banks 2,578 1,205 Guarantee deposits with other banks 84 123

Total due from other banks 2,662 1,328

Term placements with other banks include UAH 419 million of a placement with a local bank who purchased a portfolio of loans from the Group at the gross amount of UAH 617 million in December 2007.

Guarantee deposits represent balances placed with other banks as cover for letters of credit and for international payments. These are effectively restricted deposits, which are required to be maintained to complete the related trade finance activity. Refer to Note 31.

Amounts due from other banks are not collateralised. Analysis by credit quality of amounts due from other banks outstanding at 31 December 2008 is as follows:

Term placements with Guarantee deposits Total In millions of Ukrainian hryvnias other banks with other banks

Neither past due nor impaired - A+ rated 12 12 24 - A rated 1 70 71 - B rated - 2 2 - RD rated 3 - 3 - Unrated 2,562 - 2,562

Totalduefromotherbanks 2,578 84 2,662

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

9 Due from Other Banks (Continued)

Analysis by credit quality of amounts due from other banks outstanding at 31 December 2007 is as follows:

Term placements with Guarantee deposits Total In millions of Ukrainian hryvnias other banks with other banks

Neither past due nor impaired - AA rated 115 29 144 - AA- rated 11 12 23 - A rated 6 76 82 - B rated 10 6 16 - Unrated 1,063 - 1,063

Totalduefromotherbanks 1,205 123 1,328

Neither past due nor impaired assets were analysed based on Fitch ratings.

The primary factor that the Group considers in determining whether a deposit is impaired is its overdue status.

As at 31 December 2008 the total aggregate amount of one counterparty of the Group amounted to UAH 1,970 million (2007: UAH 1,032 million) or 74% of the gross amount due from other banks (2007: 78%). These placements are denominated in USD and were placed with a private bank in an OECD country. As at 31 December 2008 out of this amount UAH 1,448 million was pledged against loans provided by the counterparty to the Group’s customers totalling UAH 1,448 million. Refer to Note 31.

As an active participant in the banking markets, the Group has a significant concentration of credit risk with other financial institutions. In total, credit risk exposure to financial institutions is estimated to have amounted to UAH 11,502 million (2007: UAH 7,672 million) comprising cash and cash equivalents, deposits and other amounts due from banks, and financial derivatives.

Refer to Note 33 for the estimated fair value of each class of amounts due from other banks. Interest rate analysis of due from other banks is disclosed in Note 29.

10 Loans and Advances to Customers

In millions of Ukrainian hryvnias 2008 2007

Corporate loans 45,421 23,957 Loans to individuals - card 9,426 5,542 Loans to individuals - mortgage 7,361 5,075 Loans to individuals - auto 4,933 3,655 Loans to individuals - consumer 973 2,297 Loans to individuals - other 1,475 1,362 Loans to small and medium enterprises (SME) 6,252 3,924 Reverse sale and repurchase agreements – corporate (Reverse repo) 363 68

Less: Provision for loan impairment (8,130) (2,810)

Total loans and advances to customers 68,074 43,070

As at 31 December 2008 interest income of UAH 660 million (2007: UAH 329 million) was accrued on loans and advances to customers impaired at the year end.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

10 Loans and Advances to Customers (Continued)

Movements in the provision for loan impairment during 2008 are as follows:

Corpo- Loans to individuals SME Reverse Total rate repo In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Provision for loan impairment at 1January2008 1,566 644 88 65 323 75 48 12,810 Provision for impairment during the year 2,282 475 477 327 387 16 542 14,507 Amounts written off during the year asuncollectible (219) (22) - (9) (696) (31) - - (977) Currencytranslationdifferences 647 372 243 158 217 8 145 -1,790

Provision for loan impairment at 31December2008 4,276 1,469 808 541 231 68 735 28,130

Movements in the provision for loan impairment during 2007 are as follows:

Corpo- Loans to individuals SME Reverse Total rate repo In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Provision for loan impairment at 1 January 2007 1,591 197 98 69 79 29 104 -2,167 (Recovery of)/provision for impairmentduringtheyear (7) 444 (8) (4) 251 46 (57) 1 666 Amounts written off during the year asuncollectible (19) - (3) - (13) - - - (35) Recovery of amounts previously writtenoffasuncollectible - - - - 3 - - - 3 Acquisitionofsubsidiaries - - - - 1 - 1 - 2 Currencytranslationdifferences 1 3 1 - 2 - - - 7

Provision for loan impairment at 31December2007 1,566 644 88 65 323 75 48 12,810

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

10 Loans and Advances to Customers (Continued)

Economic sector risk concentrations within the customer loan portfolio are as follows:

2008 2007 In millions of Ukrainian hryvnias Amount % Amount %

Loanstoindividuals 24,168 32 17,931 39 Commerceandfinance 14,772 19 7,038 15 Oil trading 10,774 14 3,117 7 Smallandmediumenterprises(SME) 6,252 8 3,924 9 Agriculture,forestryandfoodindustry 4,054 5 3,838 8 Manufacturing 3,799 5 1,758 4 Metallurgyandmining 3,317 4 2,735 6 Securitiestrading 3,230 4 1,126 3 Construction 2,010 3 1,960 4 Tourism 1,166 2 666 1 Transport,storageandcommunication 258 1 812 2 Other 2,404 3 975 2

Total loans and advances to customers (before impairment) 76,204 100 45,880 100

As at 31 December 2008 the total aggregate amount of loans to the top 10 borrowers of the Group amounted to UAH 11,629 million (2007: UAH 4,871 million) or 15% of the gross loan portfolio (2007: 11%).

As at 31 December 2008 the Group had 8 borrowers (2007: 2 borrowers) with aggregate loan balances in excess of 10% or the net assets of UAH 1,034 million (2007: UAH 541 million). The total aggregate amount of these loans was UAH 10,127 million (2007: UAH 1,430 million)

As at 31 December 2007 the total loans and advances to customers included loans with total gross amount of UAH 617 million sold to a local commercial bank. As at 31 December 2007 the loans were not derecognised due to significant risks related the assets retained by the Group. As at 31 December 2008 all the significant risks were transferred to the purchaser bank and the total balance of the loans was derecognised.

The borrowers have the contractual right to early repay the loans. Based on the types of the loan products, the Group may charge penalties for such early repayments.

As at 31 December 2008 loans and advances to customers in the amount of UAH 1,270 million (2007: UAH 878 million) have been pledged as collateral with respect to the mortgage bonds issued and auto loans in the amount of UAH 497 million (2007: nil) have been pledged as collateral with respect to auto bonds issued. Please refer to Notes 18 and 31.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

10 Loans and Advances to Customers (Continued)

Breakdown of loans and advances to customers by type of collateral taken as at 31 December 2008 is as follows:

Corpo- Loans to individuals SME Reverse Total rate repo In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Unsecuredexposures 16,6279,426 634 520 109 6901,990 - 29,996 Loans collateralised by: -cashdeposits 8,454 - 100 102 - 65 7 - 8,728 -residentialrealestate 234 - 5,937 1 22 97 898 - 7,189 -otherrealestate 9,015 - 541 - 4 2261,129 -10,915 -tradablesecurities 1,796 - 24 - - 193 6 363 2,382 -equipment 5,243 - 1 - 109 11 246 - 5,610 -guarantees 658 - 77 12 - 24 437 -1,208 -transportvehicles 601 - - 86 - 17 846 - 1,550 -auto(cars) 409 - 54,209 - 5 482 -5,110 -otherassets 2,384 - 42 3 729 147 211 - 3,516

Total loans and advances to customers(beforeimpairment) 45,421 9,426 7,361 4,933 973 1,475 6,252 363 76,204

Breakdown of loans and advances to customers by type of collateral taken as at 31 December 2007 is as follows:

Corpo- Loans to individuals SME Reverse Total rate repo In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Unsecuredexposures 11,6485,512 366 35 206 5391,010 - 19,316 Loans collateralised by: -cashdeposits 312 - 627 34 16 223 20 - 1,232 -residentialrealestate 478 - 3,801 199 30 60 741 - 5,309 -otherrealestate 1,380 - 173 31 31 170 716 - 2,501 -tradablesecurities 1,923 26 27 1 39 - 32 68 2,116 -equipment 1,949 - - 2 101 9 206 -2,267 -guarantees 937 4 21 4 166 28 211 - 1,371 -transportvehicles 960 - 4 130 74 13 534 - 1,715 -auto(cars) 463 - 553,217 98 39 429 - 4,301 -otherassets 3,907 - 1 2 1,536 281 25 - 5,752

Total loans and advances to customers(beforeimpairment) 23,957 5,542 5,075 3,655 2,297 1,362 3,924 68 45,880

Other assets held as collateral include gas, oil and other assets. Included in unsecured loans to corporate clients are mainly loans and advances to customers secured with property rights for future cash proceeds from the sales contracts.

This disclosure represents the lower of the carrying value of the loan or collateral taken; the remaining part is disclosed within the unsecured exposures. The carrying value of loans was allocated based on the liquidity of the assets taken as collateral.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

10 Loans and Advances to Customers (Continued)

Analysis by credit quality of loans outstanding at 31 December 2008 is as follows:

Corpo- Loans to individuals SME Reverse Total rate repo In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Neither past due nor impaired - Large borrowers with credit history with the Group over two years 15,667 - 684799 - - - -17,150 - Large new borrowers with credit history with the Group less than 2 years 5,080 ------5,080 -Loanstomediumsizeentities 10,888 - - - - - 637 332 11,857 -Loanstosmallentities 860 - - - - -4,502 30 5,392 - Loans between UAH 1-100 million - 18 819 6 -946 - -1,789 -LoanslessthanUAH1million - 5,964 3,7813,124 624 328 - - 13,821 -Loansrenegotiatedin2008 1,297 - 200 - - 11 - - 1,508

Total neither past due nor impaired 33,792 5,982 5,484 3,929 624 1,285 5,140 362 56,597

Past due but not impaired -lessthan30daysoverdue 270 1,832 800 384 59 28 477 - 3,850 -30to60daysoverdue 205 - 398 136 39 20 205 - 1,003

Totalpastduebutnotimpaired 475 1,832 1,198 520 98 48 682 - 4,853

Loans individually determined to be impaired (gross) -Notoverdue 10,695 - 4 - 1 - - -10,700 -lessthan30daysoverdue 107 ------107 -30to90daysoverdue 1 323 - 1 - - 5 - 330 -90to180daysoverdue 123 575 334 316 79 78 219 - 1,724 -180to360daysoverdue 130 328 241 104 81 34 99 - 1,017 -over360daysoverdue 98 386 100 63 90 30 108 1 876

Total individually impaired loans(gross) 11,154 1,612 679 484 251 142 431 1 14,754

Lessimpairmentprovisions (4,276) (1,469) (808) (541) (231) (68) (735) (2) (8,130)

Total loans and advances to customers 41,145 7,957 6,553 4,392 742 1,407 5,517 361 68,074

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

10 Loans and Advances to Customers (Continued)

Analysis by credit quality of loans outstanding at 31 December 2007 is as follows:

Corpo- Loans to individuals SME Reverse Total rate repo In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Neither past due nor impaired - Large borrowers with credit history with the Group over two years 4,153 ------4,153 - Large new borrowers with credit history with the Group less than 2 years 5,322 ------5,322 -Loanstomediumsizeentities 7,069 19 1,002 25 59 497 301 40 9,012 -Loanstosmallentities 7594,581 3,576 3,243 1,684 707 3,436 28 18,014 -Loansrenegotiatedin2007 818 28 6 - - 69 18 - 939

Total neither past due nor impaired 18,1214,628 4,5843,268 1,7431,2733,755 68 37,440

Past due but not impaired -lessthan30daysoverdue 30 91 237 169 70 27 85 - 709 -30to90daysoverdue 44 - 145 117 - 20 31 - 357

Totalpastduebutnotimpaired 74 91 382 286 70 47 116 - 1,066

Loans individually determined to be impaired (gross) -Notoverdue 5,407 ------5,407 -lessthan30daysoverdue 2 ------2 -30to90daysoverdue -320 - - 89 - - - 409 -90to180daysoverdue 83 171 56 53 95 18 18 - 494 -180to360daysoverdue 24 156 48 41 193 22 21 - 505 -over360daysoverdue 246 176 5 7 107 2 14 - 557

Total individually impaired loans(gross) 5,762 823 109 101 484 42 53 - 7,374

Lessimpairmentprovisions (1,566) (644) (88) (65) (323) (75) (48) (1) (2,810)

Total loans and advances to customers 22,3914,898 4,9873,590 1,9741,2873,876 67 43,070

The Group applied the portfolio provisioning methodology prescribed by IAS 39, Financial Instruments: Recognition and Measurement , and created portfolio provisions for impairment losses that were incurred but have not been specifically identified with any individual loan by the balance sheet date. The Group’s policy is to classify each loan as ‘neither past due nor impaired’ until specific objective evidence of impairment of the loan is identified. The impairment provisions may exceed the total gross amount of individually impaired loans as a result of this policy and the portfolio impairment methodology.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

10 Loans and Advances to Customers (Continued)

The primary factors that the Group considers in determining whether a loan is impaired are its overdue status and realisability of related collateral, if any. As a result, the Group presents above an ageing analysis of loans that are individually determined to be impaired.

Neither past due nor impaired, but renegotiated loans represent the carrying amount of loans that would otherwise be past due or impaired whose terms have been renegotiated. Past due but not impaired loans, except for card loans to individuals, represent collateralised loans where the fair value of collateral covers the overdue interest and principal repayments. The amount reported as past due but not impaired is the whole balance of such loans, not only the individual instalments that are past due.

The fair value of collateral in respect of loans past due but not impaired and in respect of loans individually determined to be impaired at 31 December 2008 was as follows:

Corpo- Loans to individuals SME Total rate In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Fair value of collateral - loans past due but not impaired -cashdeposits 59 - 9 - - 8 - 76 -residentialrealestate 5 - 1,125 - 13 19 93 1,255 -otherrealestate 118 - 293 - 4 22 107 544 -tradablesecurities 2 ------2 -equipment 164 - - - 7 239 212 -guarantees 5 - - 6 - -36 47 -transportvehicles 243 - - 14 - 4 183 444 -auto(cars) 44 - -466 - 1 73 584 -otherassets 5 - - - 2 2 6 15

Total fair value of collateral - loans past due but not impaired 645 - 1,427 486 26 58 537 3,179

Fair value of collateral - individually impaired loans -cashdeposits 177 - 6 7 - 1 - 191 -residentialrealestate 12 - 459 - 2 7 48 528 -otherrealestate 2,326 - 37 - 5 17 65 2,450 -tradablesecurities 2 - - - - - 1 3 -equipment 3,042 - - - 39 2 30 3,113 -guarantees 8 - 2 - - -43 53 -transportvehicles 45 - - 20 - 8 106 179 -auto(cars) 247 - -570 - 1 49 867 -otherassets 754 - 1 - 37 - 7 799

Total fair value of collateral - individuallyimpairedloans 6,613 - 505 597 83 36 349 8,183

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

10 Loans and Advances to Customers (Continued)

The fair value of collateral in respect of loans past due but not impaired and in respect of loans individually determined to be impaired at 31 December 2007 was as follows:

Corpo- Loans to individuals SME Total rate In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Fair value of collateral - loans past due but not impaired -cashdeposits 3 - - 1 1313 - 30 -residentialrealestate 4 - 655 24 22 12 78 795 -otherrealestate 26 - 6 19 4 22 108 185 -tradablesecurities 2 8 - - 1 - 2 13 -equipment 101 - 1 4 327 46 -guarantees 12 3 86 57 19 14175 366 -transportvehicles 2 - 1 19 3 6 54 85 -auto(cars) 2 - 5293 16 5 30 351 -otherassets 100 - - 1 253 30 19 403

Total fair value of collateral - loans past due but not impaired 161 12 753 415 335 105 493 2,274

Fair value of collateral - individually impaired loans -cashdeposits 1 ------1 -residentialrealestate 18 - 125 2 11 - 11 167 -otherrealestate 255 - - 1 1 - 14 271 -tradablesecurities 61 ------61 -equipment 703 - - - 9 -20 732 -guarantees 140 - 20 16 54 - 51 281 -transportvehicles 79 - - 5 1 - 9 94 -auto(cars) 12 - 3 88 10 - 10 123 -otherassets 255 - - - 276 - 7 538

Total fair value of collateral - individuallyimpairedloans 1,524 - 148 112 362 - 122 2,268

Fair value of residential real estate at the balance sheet date was estimated by indexing the values determined by the Group’s internal credit department staff at the time of loan inception for the average changes in residential real estate prices by city and region. Fair value of other real estate and other assets was determined by the Group’s credit department using the Group’s internal guidelines.

Refer to Note 33 for the estimated fair value of each class of loans and advances to customers. Interest rate analysis of loans and advances to customers is disclosed in Note 29. Information on related party balances is disclosed in Note 35.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

11 Investment Securities Available for Sale

In millions of Ukrainian hryvnias 2008 2007

Corporate shares – at cost 103 623

Less: Provision for impairment (99) (619)

Total investment securities available-for-sale 4 4

The movements in investment securities available for sale are as follows:

In millions of Ukrainian hryvnias 2008 2007

Carrying amount at 1 January 4 484 Gains less losses from disposals 43 145 Purchases 1 1,154 Disposals of investment securities available-for-sale (43) (1,200) Acquisitions of subsidiaries - 28 Provision for impairment during the year (1) (607)

Carrying amount at 31 December 4 4

Interest rate analysis of investment securities available for sale is disclosed in Note 29.

12 Investment Securities Held to Maturity

In millions of Ukrainian hryvnias 2008 2007

Deposit certificates of the NBU - 1,160

Total investment securities held to maturity - 1,160

Deposit certificates are short-term debt securities issued by the NBU with the initial maturity of 6-8 days and annual interest rate of 1%-2%. Investment securities held to maturity were fully redeemed in January 2008.

Refer to Note 33 for the disclosure of the fair value of investment securities held to maturity. Interest rate analysis of investment securities held to maturity is disclosed in Note 29.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

13 Premises, Leasehold Improvements and Equipment and Intangible Assets

Note Premises Leasehold Computers Motor Furniture, Total improve- vehicles equip- ments ment, intangible assets In millions of Ukrainian hryvnias and other

Cost or valuation at 1 January 2007 928 83 422 75 871 2,379 Accumulated depreciation and amortisation (21) (62) (236) (22) (305) (646)

Carryingamountat1January2007 907 21 186 53 566 1,733

Acquisitions through business combinations 16 - 3 1 2 22 Additions 225 27 308 23 158 741 Disposals (8) - - (2) (1) (11) Transfers - - 119 - (119) - Depreciationandamortisationcharge 26 (22) (20) (130) (11) (91) (274) Revaluation 12 - - - - 12 Effect of translation to presentation currency 10 - 3 1 9 23

Carryingamountat31December2007 1,140 28 489 65 524 2,246

Costorvaluationat31December2007 1,186 106 916 95 827 3,130 Accumulated depreciation and amortisation (46) (78) (427) (30) (303) (884)

Carryingamountat31December2007 1,140 28 489 65 524 2,246

Additions 260 45 338 18 112 773 Disposals (45) (1) (18) (3) (3) (70) Depreciation and amortisation charge 26 (31) (28) (196) (14) (78) (347) Impairment charge to profit or loss (1) - - - - (1) Impairment charge through equity (17) - - - - (17) Revaluation 805 - - - - 805 Transfers - - 133 - (133) - Effect of translation to presentation currency 33 3 45 3 16 100

Carrying amount at 31 December 2008 2,144 47 791 69 438 3,489

Cost or valuation at 31 December 2008 2,172 150 1,283 106 690 4,401 Accumulated depreciation and amortisation (28) (103) (492) (37) (252) (912)

Carrying amount at 31 December 2008 2,144 47 791 69 438 3,489

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

13 Premises, Equipment and Intangible Assets (Continued)

Premises have been revalued to market value at 31 December 2008. The valuation was carried out by a firm of valuers who hold a recognised and relevant professional qualification and who have recent experience in valuation of assets of similar location and category. The basis of valuation of premises was market value and discounted cash flow techniques in cases where market value was not determinable.

Included in the above carrying amount is UAH 1,211 million (2007: UAH 512 million) representing revaluation surplus relating to premises of the Group. As at 31 December 2008 a cumulative deferred tax liability of UAH 303 million (2007: UAH 124 million) was calculated with respect to this valuation adjustment and has been recorded directly to equity. At 31 December 2008 the carrying amount of premises would have been UAH 676 million (2007: UAH 493 million) had the assets been carried at cost less depreciation.

During 2007 the Group transferred items of property with total carrying value of UAH 119 million from furniture, equipment, intangible assets and other category into computers. Assets transferred mainly consist of ATMs and POS-terminals.

As at 31 December 2008 the gross carrying amount of fully depreciated property, leasehold improvements and equipment that are still in use was UAH 153 million (2007: UAH 309 million).

14 Other Financial Assets

In millions of Ukrainian hryvnias 2008 2007

Receivables from operations with customers 163 96 Plastic cards receivables 84 88 Accrued income receivable 54 36 Other 77 40

Less: Provision for impairment (76) (72)

Total other financial assets 302 188

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

14 Other Financial Assets (Continued)

Analysis by credit quality of other financial assets outstanding at 31 December 2008 is as follows:

Receivables Plastic cards Accrued Other Total from operations receivables income In millions of Ukrainian hryvnias with customers receivable

Neither past due nor impaired - Large customers with credit history over two years - - - 12 12 -Largenewcustomers - - 2 32 34 - Small companies 22 2 49 27 100 - Large OECD banks - 8 --8 - Non-OECD banks 62 68 3 - 133 - Balances renegotiated during the year - 1 -67

Totalneitherpastduenorimpaired 84 79 54 77 294

Receivables individually determined to be impaired (gross) -180to360daysoverdue 79 5 - - 84

Total receivables individually determinedtobeimpaired 79 5 - - 84

Lessimpairmentprovision (73) (3) - - (76)

Totalotherfinancialassets 90 81 54 77 302

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

14 Other Financial Assets (Continued)

Analysis by credit quality of other financial receivables outstanding at 31 December 2007 is as follows:

Receivables from Plastic cards Accrued Other Total operations with receivables income In millions of Ukrainian hryvnias customers receivable

Neither past due nor impaired - Large customers with credit historyovertwoyears - - - 36 36 -Mediumsizedcompanies - - 2 - 2 -Smallcompanies 14 - 34 1 49 -LargeOECDbanks - 6 - 1 7 -Non-OECDbanks 1 76 - 1 78

Total neither past due nor impaired 15 82 36 39 172

Receivables individually determined to be impaired (gross) -30to90daysoverdue 81 6 - 1 88

Total receivables individually determinedtobeimpaired 81 6 - 1 88

Lessimpairmentprovision (65) (6) - (1) (72)

Totalotherfinancialassets 31 82 36 39 188

The primary factors that the Group considers in determining whether a receivable is impaired are its overdue status and realisability of related collateral, if any. As a result, the Group presents above an ageing analysis of receivables that are individually determined to be impaired. Neither past due nor impaired, but renegotiated balances represent the carrying amount of receivables that would otherwise be past due or impaired whose terms have been renegotiated.

Refer to Note 33 for the disclosure of the fair value of each class of other financial assets.

15 Other Assets

In millions of Ukrainian hryvnias 2008 2007

Prepaid expenses 515 46 Precious metals held 152 37 Prepayments for premises and equipment 33 27 Inventory and other banking assets 27 22 Prepayments for taxes other than income tax 32 12 Other 39 36

Total other assets 798 180

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

16 Due to Other Banks and Other Financing Institutions

In millions of Ukrainian hryvnias 2008 2007

Term placements of other commercial banks 5,716 4,246 Term borrowings from the central banks 3,554 - Long-term loans under the credit lines from other financing institutions 423 1,520 Correspondent accounts and overnight placements of other banks 449 469 Pledge deposits of other banks 5 5

Totalduetootherbanksandotherfinancinginstitutions 10,147 6,240

In October 2008 the Bank received a refinancing loan from the National Bank of Ukraine to support the Bank's liquidity. The refinancing loan of UAH 3,410 million is included in term borrowings from the central banks, carries a fixed interest rate of 15% p.a. and matures in October 2009. The loan is collateralised by 32,620,844 shares of the Bank owned by the majority shareholders.

In March 2008 the Bank received a syndicated loan of USD 200 million (UAH 1,010 million at the exchange rate applicable at the date of receipt). The syndicated loan is included in term placements of other commercial banks (UAH 1,540 million at the exchange rate applicable at 31 December 2008), carries a floating interest rate of LIBOR + 0.75% and matures in March 2009. The loan was fully repaid in March 2009. Refer to the Note 36.

As at 31 December 2008 included in term placements of other commercial banks are loans totalling UAH 286 million for financing of small and medium enterprises provided by international financial institutions. These loans are denominated in USD, loans totalling UAH 40 million have interest rates of LIBOR + 1.85% and mature in March 2009 and loans totalling UAH 246 million have interest rate of 7.5% and mature in July 2009.

At 31 December 2008 the Bank had an outstanding loan of USD 40 million provided by an OECD bank with contractual maturity in October 2012. However, the counterparty has a contractual right to call back the loan at the following dates: 6 October 2009, 6 October 2010 and 6 October 2011. In October 2008 the counterparty partly used this right and USD 210 million was repaid by the Bank.

Long-term loans under the credit lines from other financing institutions as at 31 December 2007 represented credit lines for small and medium enterprises. These loans were denominated in USD and EUR and were fully repaid during 2008 at their respective maturities.

Refer to Note 33 for the disclosure of the fair value of each class of amounts due to other banks and other financing institutions.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

17 Customer Accounts

In millions of Ukrainian hryvnias 2008 2007

Individuals - Term deposits 30,620 18,953 - Current/demand accounts 6,191 5,908

Legal entities - Term deposits 11,647 2,624 - Current/settlement accounts 8,512 8,518

Total customer accounts 56,970 36,003

Economic sector concentrations within customer accounts are as follows:

2008 2007 In millions of Ukrainian hryvnias Amount % Amount %

Individuals 36,811 65 24,861 69 Trade 7,584 13 2,157 6 Manufacturing 3,512 6 492 1 Services 3,124 6 5,881 16 Transportandcommunication 1,837 3 319 1 Agriculture 674 1 206 1 Machinery 435 1 574 2 Other 2,993 5 1,513 4

Totalcustomeraccounts 56,970 100 36,003 100

At 31 December 2008 the aggregate balances of the top 10 customers of the Group amount to UAH 8,118 million (2007: UAH 2,720 million) or 14% (2007: 8%) of total customer accounts.

At 31 December 2008 included in customer accounts are deposits of UAH 490 million (2007: UAH 61 million) held as collateral for irrevocable commitments under import letters of credit, financial guarantees and promissory notes endorsements. Refer to Note 31.

As at 31 December 2008 included in customer accounts are deposits of UAH 8,737 million (2007: UAH 1,232 million) held as collateral for loans and advances to customers, issued by the Group.

Fair value of each class of customer accounts is disclosed in the Note 33.

Geographical, currency, maturity and interest rate analysis of customer accounts is disclosed in Note 29. Information on related party balances is disclosed in Note 35.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

18 Debt Securities in Issue

In millions of Ukrainian hryvnias 2008 2007

Eurobonds 4,180 2,595 Private placements of bonds 1,795 2,977 Mortgage bonds 893 769 Auto bonds 497 - Promissory notes 5 18

Total debt securities in issue 7,370 6,359

In February 2007 the Group issued USD denominated Eurobonds in form of loan participation notes with par value of USD 500 million (UAH 2,525 million at exchange rate at the date of issue) maturing in February 2012. The bonds carry a coupon rate of 8% per annum, and yield to maturity of 10%. The Eurobonds are listed on the Swiss Stock Exchange.

In February 2007 the Group issued USD denominated Residential Mortgage Backed Floating Rate Notes (referred to as Mortgage bonds) with a par value of USD 180 million (UAH 909 million at the exchange rate at the date of issue). The notes were issued in three series. The main features of the issues are described in the table below.

Notes Principal Initial interest Step-up Interest rate after Maturitydate Issue amount, rate date step-up date price USD thousand

ClassA 134,100 LIBOR+2.1% April2014 LIBOR+4.2% December2031 100% ClassB 36,900 LIBOR+3.75% April2014 LIBOR+7.5% December2031 100% ClassC 9,000 10% - -December2031 100%

The class C series bonds were repurchased by the Group according to the terms of issue.

In May 2007 the Latvian subsidiary of the Group issued EUR denominated mortgage bonds with a par value of UAH 67 million at the exchange rate at the date of issue, maturing in May 2010. The bonds carry a coupon rate of EURIBOR+1.55%.

In May 2008 the Group issued USD denominated Asset Backed Floating Rate Notes (referred to as Auto bonds) backed by car loans issued by the Group with a par value of USD 110 million (UAH 536 million at the exchange rate at the date of issue). The notes were issued in three series. The main features of the issues are described in the table below.

Notes Principal Initial interest rate Step-up Interest rate after step-up Maturity Issue amount, date date date price USD thousand

November ClassA 85,800 3monthsLIBOR+5.5% May2011 3-monthsLIBOR+6.88% 2018 100% November ClassB 18,700 3monthsLIBOR+7.5% May2011 3-monthsLIBOR+9.38% 2018 100% November ClassC 5,500 12% - - 2018 100%

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

18 Debt Securities in Issue (Continued) As at 31 December 2008 auto bonds with the total nominal value of USD 49 million (UAH 377 million at the exchange rate applicable as at 31 December 2008) were repurchased by the Group and removed from the consolidated balance sheet, including all class C bonds repurchased according to the terms of the issue.

Mortgage bonds and auto bonds mature and are being repaid in line with the maturity of the underlying loans to customers. Mortgage bonds issued with the carrying value of UAH 893 million (2007: UAH 769 million) are effectively collateralised with loans and advances to customers in the amount of UAH 1,270 million (2007: UAH 878 million). Auto bonds issued with the carrying value of UAH 497 million (2007: nil) are effectively collateralised with loans and advances to customers in the amount of UAH 497 million (2007: nil). Refer to Note 31. The fair value of each class of debt securities in issue is disclosed in Note 33. Geographical, currency, maturity and interest rate analyses of debt securities in issue are disclosed in Note 29.

19 Provisions for Liabilities and Charges, Other Financial and Non-financial Liabilities

Provisions for liabilities and charges, other financial and non-financial liabilities comprise the following:

In millions of Ukrainian hryvnias 2008 2007

Other financial liabilities Liability for finance lease 171 96 Accounts payable 65 16 Funds in the course of settlement 59 39 Provision for credit related commitments 29 21 Financial derivatives (Note 32) 39 8 Other 87 23

Total other financial liabilities 450 203

Provisions for liabilities and charges and other liabilities Unused vacation reserve 160 66 Accrued salaries and bonuses 53 52 Provision for legal case 21 21 Other 47 42

Total provisions for liabilities and charges and other non-financial liabilities 281 181

Total provisions for liabilities and charges, other financial and non-financial liabilities 731 384

Specific provisions were created for losses incurred on financial guarantees and promissory notes endorsement whose financial conditions deteriorated. The balance at 31 December 2008 is expected to be utilised by the end of 2014 (2007: by the end of 2013). Provisions for legal cases include a provision for certain legal claims brought against the Bank by individuals and entities, who provided money to former employees of branches of the Bank, when those employees held senior management positions in these branches. The balance as at 31 December 2008 is expected to be utilised by the end of 2018 (2007: by the end of 2017). In management’s opinion, after taking appropriate legal advice, the outcome of these legal claims will not give rise to any significant loss beyond the accrued amounts. Refer to Note 31. Refer to Note 33 for the disclosure of the fair value of each class of other financial liabilities. Geographical, currency, maturity and interest rate analyses of other financial liabilities are disclosed in Note 29. Information on related party balances is disclosed in Note 35.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

20 Subordinated Debt

In millions of Ukrainian hryvnias 2008 2007

Subordinated debt provided by legal entities 1,275 899 Subordinated debt provided by individuals 58 38

Total subordinated debt 1,333 937

Subordinated debt represents long term borrowing agreements, which, in case of the Group’s default, would be secondary to the Group’s other obligations, including deposits and other debt instruments. In accordance with the Law of Ukraine on Banks and Banking Activities and the NBU regulations, subordinated debt cannot be withdrawn from the Bank for at least five years from the date of receipt.

The debts rank after all other creditors in case of liquidation.

Included in subordinated debt, provided by legal entities, are USD denominated subordinated debts issued in February 2006 in the amount of UAH 758 million at par at the exchange rate at the date of issue at 8.75% per annum payable quarterly with contractual maturity in February 2016 and USD denominated subordinated debt issued in March 2005 in the amount of UAH 30 million at the exchange rate at the date of issue at par at 10% per annum payable monthly with contractual maturity in March 2010. Under subordinated debt issued in February 2006 the Group has a call option exercisable in February 2011 at par.

Subordinated debt provided by individuals represents subordinated debt issued in USD, EUR and UAH during July 2004 – April 2005 with interest rates from 10% to 12% per annum payable monthly and contractual maturity from July 2009 to April 2010.

Refer to Note 33 for the disclosure of the fair value of each class of subordinated debt. Geographical, currency and maturity and interest rate analysis of subordinated debt is disclosed in Note 29. Information on related party balances is disclosed in Note 35.

21 Share Capital

In millions of UAH except for Number of outstanding Nominal amount Inflation adjusted amount number of shares shares, in millions

At1January2007 20.8 2,082 2,335 Newsharesissued 6.3 632 632

At31December2007 27.1 2,714 2,967 Newsharesissued 15.2 1,515 1,515 Increase in the nominal amount of the shares - 1,457 1,457

At31December2008 42.3 5,686 5,939

The nominal registered amount of the Bank’s issued share capital prior to restatement of capital contributions made before 1 January 2001 to the purchasing power of the Ukrainian hryvnia at 31 December 2008 is UAH 5,686 million (2007: UAH 2,714 million).

In February 2008, the Bank issued additional 15,150,000 ordinary shares with nominal amount of UAH 100 per share totalling UAH 1,515 million.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

21 Share Capital (Continued)

In May 2008 the shareholders made a decision to increase the nominal amount of the Bank’s issued shares from UAH 100 per share to UAH 134.5 per share. The increase was followed by an increase in the share capital by capitalisation of dividends in the amount of UAH 1,457 million.

The total authorised number of ordinary shares is 42.3 million shares (2007: 27.1 million shares) with a par value of UAH 134.5 per share (2007: UAH 100 per share). All issued ordinary shares are fully paid.

Each ordinary share carries one vote.

22 Other Reserves

Revaluation reserve for available-for-sale securities is transferred to profit or loss when realised through sale or impairment. Revaluation reserve for premises and equipment is transferred to retained earnings when realised through depreciation, sale or other disposal. Currency translation reserve is transferred to profit or loss when realised through disposal of a subsidiary by sale, liquidation, repayment of share capital or abandonment of all, or part of, that subsidiary.

In December 2007 the Bank’s major shareholders made an additional capital contribution in the form of cash amounting to UAH 506 million, in respect of which the Group recognised income tax liability of UAH 126 million as at 31 December 2007. The contribution amounting to UAH 380 million, net of tax was made through related and third parties as a settlement of debts due to the major shareholders of the Bank.

23 Interest Income and Expense

In millions of Ukrainian hryvnias 2008 2007

Interest income Loans and advances to individuals 6,103 4,276 Loans and advances to legal entities 5,174 2,575 Due from other banks 278 168 Other 52 15

Total interest income 11,607 7,034

Interest expense Term deposits of individuals 2,847 1,526 Due to other banks and other financing institutions 434 580 Current/settlement accounts 509 341 Debt securities in issue 645 273 Term deposits of legal entities 542 196 Subordinated debt 100 85 Other 108 20

Total interest expense 5,185 3,021

Net interest income 6,422 4,013

Information on interest income and expense from transactions with related parties is disclosed in Note 35.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

24 Fee and Commission Income and Expense

In millions of Ukrainian hryvnias 2008 2007

Fee and commission income Cash collection and cash transactions 1,043 730 Settlement transactions 989 669 Guarantees issued 18 19 Foreign exchange 29 17 Transactions with securities 16 15 Other 16 23

Total fee and commission income 2,111 1,473

Fee and commission expense Cash and settlement transactions 291 153 Other 13 8

Total fee and commission expense 304 161

Net fee and commission income 1,807 1,312

Information on fee and commission income from transactions with related parties is disclosed in Note 35.

25 Other Operating Income

In millions of Ukrainian hryvnias 2008 2007

Consulting services provided 31 23 Dividend income 6 1 Penalties received 4 35 Other 38 28

Total other operating income 79 87

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

26 Administrative and Other Operating Expenses

In millions of Ukrainian hryvnias Note 2008 2007

Staff costs 2,487 1,562 Rent 483 268 Depreciation and amortisation of premises, leasehold improvementsandequipmentandintangibleassets 13 347 274 Utilities and household expenses 240 145 Mail and telecommunication 221 168 Contributions to Individual Deposits Guarantee Fund 137 85 Maintenance of premises, leasehold improvements and equipment 135 123 Advertising and marketing 129 98 Insurance expenses 127 158 Taxes other than income 107 39 Security 104 70 Transportation 69 49 Other 429 197

Totaladministrativeandotheroperatingexpenses 5,015 3,236

Included in staff costs are statutory pension contributions of UAH 496 million (2007: UAH 332 million) and social security contributions of UAH 73 million (2007: UAH 60 million). Pension contributions are made into State pension fund which is a defined contribution plan.

Information on administrative and other operating expenses from transactions with related parties is disclosed in Note 35.

27 Income Taxes

Income tax expense recorded in the income statement comprises the following:

In millions of Ukrainian hryvnias 2008 2007

Current tax 326 349 Deferred tax 225 43

Income tax expense for the year 551 392

The income tax rate applicable to the majority of the Group’s income is 25% (2007: 25%). The income tax rate applicable to the majority of income of subsidiaries ranges from 15% to 30% (2007: from 15% to 30%). Reconciliation between the expected and the actual taxation charge is provided below.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

27 Income Taxes (Continued)

In millions of Ukrainian hryvnias 2008 2007

Profit before tax 2,538 1,514

Theoretical tax charge at statutory rate (2008: 25%; 2007: 25%) 635 379

Tax effect of items which are not deductible or assessable for taxation purposes: - Income which is exempt from taxation (163) - - Non-deductible expenses 78 31 - Other 1 (17) Profits taxed at different rates - (1)

Income tax expense for the year 551 392

During the year ended 31 December 2008 a deferred tax liability of UAH 198 million (2007: UAH 3 million) has been recorded directly in equity in respect of the revaluation of the Group’s premises.

Differences between IFRS and statutory taxation regulations in Ukraine and other countries give rise to certain temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below and is recorded at the rate of 25% (2007: 25%), except for temporary differences that arise in respect of assets and liabilities of subsidiaries located in other countries.

31 December (Charged)/ Charged 31 December 2007 credited to directly to 2008 In millions of Ukrainian hryvnias profit or loss equity

Tax effect of deductible temporary differences Accruedexpensesandotherliabilities 68 37 - 105 Prepaidexpensesandotherassets 6 17 - 23 Trading securities and investment securities available-for-sale 28 206 - 234 Loan impairment provision - 157 - 157

Grossdeferredtaxasset 102 417 - 519 Lessoffsettingwithdeferredtaxliability (68) (354) - (422)

Recogniseddeferredtaxasset 34 63 - 97

Tax effect of taxable temporary differences Trading securities and investment securities available-for-sale (42) (102) - (144) Premises, leasehold improvements and equipment (176) (34) (198) (408) Loanimpairmentprovision (258) 127 - (131) Accrued income (175) 131 - (44) Fairvalueofderivativefinancialinstruments (7) (628) - (635) Prepaidexpensesandotherassets (6) (101) - (107) Deferraloftransactioncostsatinitialrecognition (50) (35) - (85)

Grossdeferredtaxliability (714) (642) (198) (1,554) Lessoffsettingwithdeferredtaxasset 68 354 - 422

Recogniseddeferredtaxliability (646) (288) (198) (1,132)

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

27 Income Taxes (Continued)

In the context of the Group’s current structure and Ukrainian tax legislation, tax losses and current tax assets of different group companies may not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity and the same taxation authority.

31 December (Charged)/ Charged 31 December 2006 credited to directly to 2007 In millions of Ukrainian hryvnias profit or loss equity

Tax effect of deductible temporary differences Accruedexpensesandotherliabilities 34 34 - 68 Prepaidexpensesandotherassets - 6 - 6 Trading securities and investment securities available-for-sale - 28 - 28

Gross deferred tax asset 34 68 - 102 Lessoffsettingwithdeferredtaxliability (34) (34) - (68)

Recogniseddeferredtaxasset - 34 - 34

Tax effect of taxable temporary differences Trading securities and investment securities available-for-sale (132) 88 2 (42) Premises,leaseholdimprovementsandequipment (168) (7) (1) (176) Loan impairment provision (218) (40) - (258) Accrued income (62) (113) - (175) Fairvalueofderivativefinancialinstruments (11) 4 - (7) Prepaidexpensesandotherassets (8) 2 - (6) Deferraloftransactioncostsatinitialrecognition (5) (45) - (50)

Grossdeferredtaxliability (604) (111) 1 (714) Lessoffsettingwithdeferredtaxasset 34 34 - 68

Recogniseddeferredtaxliability (570) (77) 1 (646)

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

28 Segment Analysis

The Group’s primary format for reporting segment information is business segments and the secondary format is geographical segments.

Business segments. The Group is organised on the basis of four main business segments:

 Retail banking – representing private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages.

 Corporate banking – representing direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products.

 Investment banking – representing financial instruments trading, structured financing, corporate leasing, merger and acquisitions advice.

 Treasury – representing interbank loans, deposits, foreign currency exchange operations, arrangement of funding in the international markets, asset and liabilities management, issue of senior bonds and assets backed securities, project financing, negotiation of limits for trade financing with financial institutions.

Transactions between the business segments are on normal commercial terms and conditions. Funds are ordinarily reallocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on the Group’s cost of capital. There are no other material items of income or expense between the business segments. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balances sheet, but excluding taxation. Internal charges and transfer pricing adjustments have been reflected in the performance of each business segment.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

28 Segment Analysis (Continued)

Segment information for the main reportable business segments of the Group for the years ended 31 December 2008 and 2007 is set out below:

Retail Corporate Investment Treasury Unallo- Elimina- Total In millions of Ukrainian hryvnias banking banking banking cated tions

2008

Externalrevenues 6,182 7,404 77 127 7 - 13,797 Revenuesfromothersegments 1,636 - - 1,414 1,560 (4,610) -

Totalrevenues 7,818 7,404 77 1,541 1,567 (4,610) 13,797

Total revenues comprise: -Interestincome 6,738 6,676 6 1,237 1,560 (4,610) 11,607 -Feeandcommissionincome 1,069 689 65 288 - - 2,111 -Otheroperatingincome 11 39 6 16 7 - 79

Totalrevenues 7,818 7,404 77 1,541 1,567 (4,610) 13,797

Segmentresult 950 (28) (309) 1,503 422 - 2,538 Income tax expense (551)

Profit 1,987

Segmentassets 25,119 55,044 248 6,071 941 - 87,423 Currentanddeferredtaxassets ------97

Total assets 87,520

Segmentliabilities 38,763 18,978 223 18,471 116 - 76,551 Current and deferred tax liabilities ------1,139

Total liabilities 77,690

Capitalexpenditure 621 190 6 4 240 - 1,061 Depreciation and amortisation expense 199 32 1 1 114 - 347 Impairment losses charged to profitorloss 2,082 2,486 1 - (61) - 4,508

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

28 Segment Analysis (Continued)

Retail Corporate Investment Treasury Unallo- Elimina- Total In millions of Ukrainian hryvnias banking banking banking cated tions

2007

Externalrevenues 4,543 3,562 56 433 - - 8,594 Revenuesfromothersegments 359 - - 833 1,310 (2,502) -

Totalrevenues 4,902 3,562 56 1,266 1,310 (2,502) 8,594

Total revenues comprise: -Interestincome 3,972 3,065 10 1,179 1,310 (2,502) 7,034 -Feeandcommissionincome 893 460 38 82 - - 1,473 -Otheroperatingincome 37 37 8 5 - - 87

Totalrevenues 4,902 3,562 56 1,266 1,310 (2,502) 8,594

Segmentresult 952 689 (556) 245 184 - 1,514 Income tax expense (392)

Profit 1,122

Segmentassets 23,023 23,598 103 8,646 866 - 56,236 Current and deferred tax assets 34

Total assets 56,270

Segmentliabilities 25,227 9,895 343 14,356 102 - 49,923 Current and deferred tax liabilities 941

Total liabilities 50,864

Capitalexpenditure 418 118 4 3 194 - 737 Depreciation and amortisation expense 129 43 1 1 100 - 274 Impairment losses charged to profitorloss 683 (48) 607 - - - 1,242

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

28 Segment Analysis (Continued)

Geographical segments. Segment information for the main geographical segments of the Group is set out below for the years ended 31 December 2008 and 2007.

In millions of Ukrainian hryvnias Ukraine OECD Non-OECD Total

2008

Segment assets 68,340 3,283 15,800 87,423 External revenues 11,448 204 2,145 13,797 Capital expenditure (963) - (98) (1,061) Creditrelatedcommitments(Note31) 5,131 - 82 5,213

2007

Segment assets 42,247 6,156 7,833 56,236 External revenues 7,438 100 1,056 8,594 Capital expenditure (663) - (74) (737) Creditrelatedcommitments(Note31) 2,033 - 41 2,074

External revenues and assets and credit related commitments have generally been allocated based on domicile of the counterparty. Cash on hand, precious metals, premises and equipment and capital expenditure have been allocated based on the country in which they are physically held.

29 Financial Risk Management

The risk management function within the Group is carried out in respect of financial risks (credit, market, and liquidity risks), operational risks and legal risks. Financial risk comprises market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The primary objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.

Risk Management Bodies Risk management policy, monitoring and control are conducted by a number of bodies of the Group under the supervision of the credit committee (the “Credit Committee”) and the recently created Security Committee. Other bodies responsible for risk management within the Group include the Treasury, the Finance and Risk Division (comprising the Risk Control Department and the Analytical Risk Management Centre) and the Financial Risks Department. The Group also has a system of internal controls which is supervised and monitored by its Internal Audit Department and Financial Monitoring Department.

Credit Committee The Credit Committee, which is composed of the Chairman of the Bank, its Deputies, the Head of the Dnipropetrovsk regional branch, the Head of the Finance and Risk Division and the Head of the Analytical Risk Management Centre, meets bi-weekly and is responsible for setting credit policy, approving loans over the prescribed lending limits and the limits for counterparty banks, monitoring loan performance and the quality of the Group’s loan portfolio and reviewing large loan projects and the lending policies of the Bank’s branches. The Credit Committee also monitors the interest rates set for a range of currencies by the Group’s main competitors and the overall market situation and determines the Group’s pricing policy on the basis on the above. In addition, due to the importance of liquidity risk management, the Credit Committee is also responsible for preparing and formulating management decisions with regard to increasing the Group’s funding base.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

Security Committee The Security Committee is primarily responsible for reducing transaction risk, including assisting management in preventing fraud; enhancing the security of the Group’s staff and its information systems, including the implementation of the Group’s personnel security policy; and improving the Group’s ability to resist internal and external threats to its systems, including threats to the Group’s IT security. The Security Committee meets monthly and the members in attendance vary depending on the topic of the meeting.

Treasury Day-to-day asset and liability management is done by the Treasury. The Treasury is responsible for overseeing the Group’s assets and liabilities and liquidity and interest rate sensitivity analysis based on instructions and guidelines from the Financial Risks Department and its own assessments. The Treasury is responsible for the operational aspects of asset and liability management.

Financial Risks Department The Financial Risks Department calculates and monitors the Bank’s compliance with the mandatory ratios set by the NBU, the requirement to maintain mandatory reserves on the Bank’s correspondent account with the NBU and its internal liquidity ratios (in accordance with the Bank’s internal Methodology for Liquidity Risk Assessment and Control). In carrying out these functions, the Financial Risks Department works with the Treasury, its back office, and depositary and credit service officers of the head office business divisions and the Credit Committee.

In order to monitor and control liquidity within the Bank and its branches and sub-branches, the Financial Risks Department prepares daily reports on the maximum liquidity gap by matching assets and liabilities with different maturities and currencies as well as providing daily forecasts of the Group’s balances on its correspondent account with the NBU to ensure the Bank’s compliance with the mandatory reserve requirement and with the instant, current and short-term liquidity ratios set by the NBU. The liquidity reports are maintained in an electronic database that is accessible by the Treasury and is used for purposes of liquidity management. In addition, the Financial Risks Department prepares guidelines for head office business divisions seeking to raise long-term funds and/or reviews decisions of the Credit Committee on the implementation of programmes to increase the Bank’s funding base in order to ensure that the Group’s short- and long-term liquidity requirements are met.

Risk Control Department The Risk Control Department analyses the creditworthiness of counterparty banks, calculates provisions for the Group’s active operations and limits for counterparty banks, monitors problem assets in the loan portfolio under credit programs, monitors compliance with interbank transaction limits, reviews the lending authority limits of branch and sub-branch heads, analyses lending policies of the branches and sub- branches and provides the Credit Committee with suggestions for improving its policies. It also determines the strategy and basic methodological approaches in the Group’s risk management system and oversees its compliance with the requirements established by the NBU as well as the Group’s internal guidelines (including, among others, transaction limits and balance sheet structural limits for branches and sub-branches).

Analytical Risk Management Centre The Analytical Risk Management Centre reviews and checks the results of work performed by the divisions of the Group and assists in formulating management decisions on enhancing transactional security and reducing risk based on data derived from this verification process. In particular, the Analytical Risk Management Centre develops methodologies for detecting suspicious and fraudulent transactions and for reducing errors in statistical analysis of data from the Group’s accounting software and other sources, and verifies risk assumptions based on the results of such analyses.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

Credit risk. The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit risk arises as a result of the Group’s lending and other transactions with counterparties giving rise to financial assets.

The Group’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the consolidated balance sheet. For guarantees and commitments to extend credit, the maximum exposure to credit risk is the amount of the commitment. Refer to Note 31. The credit risk is mitigated by collateral and other credit enhancements.

The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Limits on the level of credit risk by product and industry sector are approved regularly by management. Such risks are monitored on a revolving basis and subject to an annual or more frequent review.

The general principles of the Group’s credit policy are outlined in the formal Group’s Credit Policy. Formal and unified Group’s Credit Manual regulates every significant aspect of the lending operations of the Group and outlines procedures for analysing the financial position of borrowers and the valuation of any proposed collateral and specifies the requirements for loan documentation and the procedures for the monitoring of loans.

The Group has collateral policy based on a thorough review and assessment of the value of collateral. The Group’s goal is to ensure that there is sufficient collateral to cover a particular loan if the quality of that loan should deteriorate in value. A substantial portion of the Group’s loan portfolio generally includes acceleration clauses in case of deterioration of the financial position of the borrower. Credit products are, except in very unusual circumstances, only made available to customers that hold accounts with the Group. This policy provides the dual benefits of additional security for the credit products and additional business for the Group in other areas of corporate banking services.

The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to a single borrower, or groups of affiliated borrowers, and by close on-going supervision of concentrations in geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and principal payment obligations and by changing the lending limits where appropriate. Exposure to credit risk is also managed, in part, by obtaining collateral and corporate and personal guarantees.

Basic information on the level of credit risk, including reports on the loan portfolio and the volume of problem assets broken down by credit programme and manager, is posted on the Group’s internal website. This information is updated weekly and can be viewed both as at the current date and over a period of time. There are specific sections of the Group’s website dedicated to problem assets for both corporate and retail clients and the portfolio of corporate loans.

A review of the lending and deposit-taking policy of each branch is presented to the Credit Committee twice per month. The following information on the Bank’s branch loan portfolio is considered by the Credit Committee:

 information on the major risks taken (being the ten largest exposures in the portfolio);  information on the ten largest problem loans; and  information on the ten largest problem loans that have been passed to the Group’s Security Service.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

Loan Approval Procedure The lending policies and credit approval procedures of the Group are based on strict guidelines in accordance with the NBU regulations. The Group also has detailed regulations for collateral assessment, which is conducted by Group’s trained specialists on collateral.

The Bank sets lending authority limits to limit risks to the Group arising from lending activities. Lending authority limits for senior managers of branches (comprising heads of branches, general and first deputy heads) are set twice per year by the Risk Control Department in the head office and approved by an order of the Bank together with proxies authorizing the relevant heads to make lending decisions. The lending authority limit of a branch or sub-branch head depends on the amount of own funds of a branch or sub- branch, overall rating of a branch or sub-branch and its integrated lending activity efficiency rating.

Lending authority limits for junior managers (heads of departments and divisions) are set by the head of the relevant branch or sub-branch and apply to a particular individual.

If the amount of a proposed loan does not exceed the lending authority limit of a head of a branch or sub- branch, the decision on granting the loan is taken by the credit committee of a branch. If the amount exceeds this limit, lending authority is granted from the head office in accordance with the Bank’s credit procedures.

Off-Balance Sheet Policy Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a result of another party to a financial instrument failing to perform in accordance with the terms of the contract. The Group uses the same credit policies in respect of conditional obligations as it does for balance sheet financial instruments, which include credit approval procedures, risk control limits and monitoring procedures.

Loan Monitoring The Group’s IT systems allow the Management monitoring of loans’ performance on-line.

The Group reassesses the credit risk on each loan on an ongoing basis by (i) monitoring the financial and market position of the borrower and (ii) assessing the sufficiency of collateral for the loan. The financial and market position of the borrower is regularly reviewed and, on the basis of such review, the internal credit rating of the borrower may be revised. The review is based on the flow of funds into the customer’s accounts, its most recent financial statements and other business and financial information submitted by the borrower or otherwise obtained by the Group.

The current market value of collateral is monitored regularly to assess its sufficiency with respect to the loan in question. The review of collateral is performed by independent appraisal companies. The frequency of such reviews depends on the security provided and the degree of volatility of the asset’s market price.

Problem loans are identified on a daily basis based on signs of debt servicing deterioration. The Group carries out analyses of problem loans by collecting information about such loans, investigating the causes of problems and working out measures for their early redemption. On the basis of the findings of such analyses, a report is submitted to the Bank’s Board regarding the problem loans in the Group’s loan portfolio and the level of acceptable credit risk. To improve the quality of the loan portfolio, the Group applies a policy of on-line blocking the ability of a sub-branch or manager responsible for a particular lending programme to grant further loans if the percentage of non-performing loans issued by a particular sub-branch or manager exceeds the maximum permitted level of problem assets until this level decreases.

Management maintains individual records of significant number of Ukrainian retail customers, which constitutes the largest credit bureau in Ukraine, allowing the Group to mitigate credit risks by targeting borrowers, who have a good credit history.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

Problem Loan Recovery The Credit Committee has developed a systematic approach involving a comprehensive set of procedures intended to enable the Group to realise the highest possible level of repayment on non- performing loans.

If a borrower does not perform its obligations under a loan agreement, it is the responsibility of the relevant credit officer to take initial actions to determine whether the cause of late payments is administrative or credit-related in nature. At this stage, the officers of the dedicated monitoring unit contact the borrower, request repayment and check the availability of any collateral. The monitoring unit calls borrowers to remind them of their repayment obligation several days before the scheduled repayment date, and after such date to demand repayment (during day-time and night-time). If such measures do not result in the repayment of the loan and the non-performance exceeds 90 days, the loan is classified as a “problem loan”. The Risk Control Department, which is able to identify all problem loans in the Group, issues a banking order each month to transfer problem loans from the relevant credit unit’s books to a specialised unit within Security Division (the “Security Service”).

The Security Service is responsible for all loans issued by the Group classified as “problem loans”, excluding loans where the total debt amounts to less than UAH 1,000 (which continue to be processed by the monitoring unit). The Security Service obtains and reviews all documentation relating to the borrower, performs an official internal investigation to identify the reasons for the problem, draws up a plan of action for the repayment of the debt and reviews the collateral (which may entail organising protection). In a number of enforcement actions the Group initiates court proceedings. The Security Service will often engage in negotiations with the borrower over a problem loan either concurrently with, or prior to, initiating court proceedings the collateral for sale at auction, to attach the borrower’s account(s) with another bank or to take possession of property under a mortgage or transport facilities. If collateral is available, and upon satisfactory results of an analysis of whether the borrower is undergoing purely temporary business difficulties and of that borrower’s willingness and capacity to repay its debt, negotiations usually aim at debt restructuring and include requirements to obtain additional collateral, personal guarantees by shareholders and management, increased interest rates and revised repayment schedules.

Other legal actions available to the Group include executive proceedings for the enforcement of debt and bankruptcy proceedings. In the event of any criminal action on the part of the borrower, irrespective of the borrower’s readiness to repay its debt, the Group involves the relevant state authorities. The Credit Committee meets monthly to review the status of non-performing loans.

The Group maintains a policy that problem loans are not refinanced without convincing evidence that they will be repaid or reliably secured.

Sector Concentrations The Credit Committee regularly reviews and adopts sector exposure adjustments in response to submissions of the Risk Control Department and its own sector analyses.

Related Party Lending The Group conducts its business with related parties on a commercial, arm’s-length basis. The Group competes with other banking institutions for the business of these parties. Each loan request from a related party is subject to the same credit approval procedures as are applied to any other loan applicant.

Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in (a) currency, (b) interest rate and (c) equity products, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

Currency risk. Currency risk is the risk that the value of financial instruments owned by the Group will fluctuate due to changes in foreign exchange rates. The Group’s major currency positions are in Ukrainian hryvnia, U.S. dollars and Euros. In respect of currency risk, Management sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily.

The Group’s policy in respect of open currency positions is restricted under Ukrainian law to certain thresholds and strictly monitored by the NBU on a daily basis. In order to hedge its currency risk, the Group enters into arrangements with other banks pursuant to which the Group makes term deposits with other banks and accepts term deposits for the same term from the same counterparty banks in a different currency.

The Group also enters into currency options in the Group’s loan agreements with some customers requiring the customers to pay compensation in case of depreciation of the Ukrainian hryvnia relative to the U.S. dollar. Refer to Note 32.

The table below summarises the Group’s exposure to foreign currency exchange rate risk at the balance sheet date:

At31December2008 At31December2007 Monetary Monetary Swaps, Net Monetary Monetary Swaps, Net financial financial spots balance financial financial spots balance In millions of assets liabilities and sheet assets liabilities and sheet Ukrainian hryvnias forwards position forwards position

Ukrainian hryvnias 31,780 28,967 85 2,898 26,162 23,068 322 3,416 US Dollars 41,172 33,617 2,154 9,709 19,394 18,509 (1,420) (535) Euros 6,640 10,562 (2,277) (6,199) 5,590 6,462 1,096 224 Other 3,411 3,104 - 307 2,618 1,700 (1) 917

Total 83,003 76,250 (38) 6,715 53,764 49,739 (3) 4,022

Derivatives presented above are monetary financial assets or monetary financial liabilities, but are presented separately in order to show the Group’s gross exposure.

Amounts disclosed in respect of derivatives represent the fair value, at the balance sheet date, of the respective currency that the Group agreed to buy (positive amount) or sell (negative amount) before netting of positions and payments with the counterparty. The amounts by currency are presented gross as stated in Note 32. The net total represents the fair value of the currency derivatives.

Fair value of option derivative embedded in loans and advances to customers (refer to Note 32) was included in the table above together with host instruments into UAH denominated financial assets. The above analysis includes only monetary assets and liabilities. Investments in equities and non-monetary assets are not considered to give rise to any material currency risk.

As disclosed in the above table, the Group had significant open positions in USD and EUR at the end of 2008. Due to this factor and depreciation of UAH against these currencies as described in Notes 1 and 3, the Group accumulated unrealised foreign exchange translation gains less losses of UAH 2,897 million during the year ended 31 December 2008.

The following table presents sensitivities of profit or loss and equity to reasonably possible changes in exchange rates applied at the balance sheet date relative to the functional currency of the respective Group entities, with all other variables held constant:

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

At31December2008 At31December2007 Impact on profit Impact on equity Impact on profit Impact on equity In millions of Ukrainian hryvnias or loss or loss US Dollar strengthening by 25% (2007:strengtheningby5%) 2,534 2,534 (27) 27 US Dollar weakening by 25% (2007:weakeningby5%) (2,534) (2,534) 27 (27) Euro strengthening by 25% (2007:strengtheningby5%) (1,548) (1,548) 11 11 Euro weakening by 25% (2007:weakeningby5%) 1,548 1,548 (11) (11) Other strengthening by 25% (2007: strengthening by 5%) 77 77 46 46 Other weakening by 25% (2007:weakeningby5%) (77) (77) (46) (46)

Total - - - -

The exposure was calculated only for monetary balances denominated in currencies other than the functional currency of the respective entity of the Group.

Interest rate risk. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. Management monitors on a daily basis and sets limits on the level of mismatch of interest rate repricing that may be undertaken.

The Group is exposed to interest rate risk, principally as a result of lending at fixed interest rates, in amounts and for periods, which differ from those of term borrowings at fixed interest rates. In practice, interest rates are generally fixed on a short-term basis. Also, interest rates that are contractually fixed on both assets and liabilities are usually renegotiated to reflect current market conditions.

The Board sets limits on the level of mismatch of interest rates on assets and liabilities sensitive to interest rates, which is monitored regularly. In the absence of any available hedging instruments, the Group normally seeks to match its interest rate positions.

The Finance and Risk Division and the Credit Committee are both responsible for interest rate risk management. The Finance and Risk Division establishes the principal policies and approaches to interest rate risk management and the Credit Committee conducts weekly monitoring and revision of interest rates for various currencies within certain time limits and product categories. The Group regularly monitors interest rate risk by means of interest rate gap analysis, which is based on ordering assets and liabilities sensitive to interest rates into a number of time bands. Fixed interest rate assets and liabilities are arranged by the time remaining until maturity, while assets and liabilities with a variable interest rate are arranged by the nearest possible term of repricing. The net sensitivity gap between assets and liabilities in a given time band represents the volume sensitive to changes of market interest rates. The product of this difference and the presumed change of interest rates represents the approximate changes of net interest income. A negative net sensitivity gap in a given time band, which means that interest-bearing liabilities exceed interest-earning assets in that time band, represents a risk of a decline in net interest income in the event of increases in market interest rates. A positive net sensitivity gap in a given time band, which means that interest-bearing liabilities, represent a risk of a decline in net interest income in the event of a decline in market interest rates.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

The table below summarises the Group’s exposure to interest rate risks. The table presents the aggregated amounts of the Group’s financial assets and liabilities at carrying amounts, categorised by the earlier of contractual interest repricing or maturity dates.

Demand From 1 to From 6 to More than Non- Total and less 6 months 12 months 1 year monetary than In millions of Ukrainian hryvnias 1 month

31 December 2008 Totalfinancialassets 13,002 8,630 30,647 30,724 83 83,086 Totalfinancialliabilities 21,554 12,090 29,282 13,324 20 76,270

Net interest sensitivity gap at 31 December 2008 (8,552) (3,460) 1,365 17,400 63 6,816

31 December 2007 Totalfinancialassets 10,777 1,805 15,332 25,723 138 53,775 Totalfinancialliabilities 17,139 5,893 20,565 6,145 - 49,742

Net interest sensitivity gap at 31 December 2007 (6,362) (4,088) (5,233) 19,578 138 4,033

All of the Group’s debt instruments reprice within 5 years, except for loans and advances to customers totalling UAH 68,074 million which reprice within 6 to 24 years (2007: all reprice within 5 years, except for loans and advances to customers totalling UAH 43,070 million which reprice within 6 to 24 years and debt securities in issue totalling UAH 769 million which reprice within 6 years).

At 31 December 2008, if interest rates at that date had been 200 basis points lower (2007: 50 basis points lower) with all other variables held constant, profit for the year would have been UAH 111 million (2007: UAH 9 million) higher, mainly as a result of lower interest expense on variable interest liabilities.

If interest rates had been 200 basis points higher (2007: 50 basis points higher), with all other variables held constant, profit would have been UAH 111 million (2007: UAH 9 million) lower, mainly as a result of higher interest expense on variable interest liabilities .

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

The Group monitors interest rates for its financial instruments. The table below summarises interest rates based on reports reviewed by key management personnel:

2008 2007 In % p.a. USD UAH Euro Other USD UAH Euro Other

Assets Correspondent accounts and overnight deposits with other banks 0011 1 - 30 Correspondent accounts with NBU, Central Bank of Russian Federation and Central Bank of Latvia, Central Bank of Cyprus andCentralBankofGeorgia - 0 - 0 - 0 - 0 Debttradingsecurities - 10 - - - 10 - - Other debt securities at fair value through profit or loss ------8 Duefromotherbanks 11 0 0 3 11 - 3 - Loans and advances to legal entities 14 22 10 20 12 13 11 17 Loans and advances to individuals 15 30 9 36 15 34 15 24 Debt investment securities held to maturity - - - - - 1 - - Otherfinancialassets 3 0 1 2 0 0 0 0

Liabilities Correspondent accounts and overnight deposits of other banks 1408 02 00 Termplacementsofotherbanks 4 5 6 4 8 8 6 6 Long-term loans under the credit lines from international financial institutions 10 - 6 - 8 - 8 - Customer accounts -currentaccountsofcustomers 0 0 0 0 0 0 0 0 -termdepositsoflegalentities 11 9 7 3 6 9 7 6 -termdepositsofindividuals 11 15 8 6 9 14 7 11 Debtsecuritiesinissue 8 11 - 12 8 12 - 10 Subordinateddebt 9 12 10 10 9 12 11 7 Otherfinancialliabilities 17 0 0 6 16 0 0 0

The sign “-“ in the table above means that the Group does not have the respective assets or liabilities in the corresponding currency.

The Group is exposed to prepayment risk through providing fixed or variable rate loans, including mortgages, which give the borrower the right to early repay the loans. The Group’s current year profit and equity at the current balance sheet date would not have been significantly impacted by changes in prepayment rates because such loans are carried at amortised cost and the prepayment right is at or close to the amortised cost of the loans and advances to customers (2007: no material impact).

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

Geographical risk concentrations. The geographical concentration of the Group’s financial assets and liabilities at 31 December 2008 is set out below:

In millions of Ukrainian hryvnias Ukraine OECD NonOECD Total

Assets Cashandcashequivalentsandmandatoryreserves 2,984 5,234 1,174 9,392 Trading securities 87 - - 87 Otherfinancialassetsatfairvaluethroughprofitorloss - - 14 14 Due from other banks 425 2,220 17 2,662 Loansandadvancestocustomers 51,947 2,280 13,847 68,074 Financial derivatives 2,551 - - 2,551 Investmentsecuritiesavailableforsale 3 1 - 4 Other financial assets 38 46 218 302

Total financial assets 58,035 9,781 15,270 83,086

Non-financial assets 3,697 128 609 4,434

Total assets 61,732 9,909 15,879 87,520

Liabilities Duetootherbanksandotherfinancinginstitutions 3,447 6,060 640 10,147 Customer accounts 43,085 3,413 10,472 56,970 Debt securities in issue 850 6,290 230 7,370 Other financial liabilities 161 16 273 450 Subordinated debt 58 1,188 87 1,333

Total financial liabilities 47,601 16,967 11,702 76,270

Non-financial liabilities 1,354 - 66 1,420

Total liabilities 48,955 16,967 11,768 77,690

Netbalancesheetposition 12,777 (7,058) 4,111 9,830

Creditrelatedcommitments 2,352 1,468 1,393 5,213

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

Assets, liabilities and credit related commitments have been based on the country in which the counterparty is located. Balances with Ukrainian counterparties actually outstanding to/from offshore companies of these Ukrainian counterparties are allocated to the caption “Ukraine”. Cash on hand, precious metals and premises and equipment have been allocated based on the country in which they are physically held.

The geographical concentration of the Group’s assets and liabilities at 31 December 2007 is set out below:

In millions of Ukrainian hryvnias Ukraine OECD NonOECD Total

Assets Cashandcashequivalentsandmandatoryreserves 3,593 3,460 899 7,952 Trading securities 16 - - 16 Otherfinancialassetsatfairvaluethroughprofitorloss - - 16 16 Due from other banks 17 1,297 14 1,328 Loansandadvancestocustomers 35,282 1,542 6,246 43,070 Financial derivatives 41 - - 41 Investmentsecuritiesavailable-for-sale 4 - - 4 Investmentsecuritiesheldtomaturity 1,160 - - 1,160 Other financial assets 98 5 85 188

Total financial assets 40,211 6,304 7,260 53,775

Non-financial assets 2,071 13 411 2,495

Total assets 42,282 6,317 7,671 56,270

Liabilities Due to other banks 421 5,110 709 6,240 Customer accounts 30,304 1,293 4,406 36,003 Debt securities in issue 250 5,934 175 6,359 Other financial liabilities 70 6 127 203 Subordinated debt 115 777 45 937

Total financial liabilities 31,160 13,120 5,462 49,742

Non-financial liabilities 1,055 5 62 1,122

Total liabilities 32,215 13,125 5,524 50,864

Netbalancesheetposition 10,067 (6,808) 2,147 5,406

Creditrelatedcommitments 2,035 - 39 2,074

Other risk concentrations. Management monitors and discloses concentrations of credit risk by obtaining reports listing exposures to borrowers with aggregated loan balances in excess of 10% of net assets. Refer to Notes 9 and 10.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

Liquidity risk. Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan drawdowns, guarantees and from margin and other calls on cash-settled derivative instruments. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. Liquidity risk is managed by Treasury Department of the Group.

The Group has developed specific approaches to liquidity issues based on medium-term (i.e., three to twelve months), short-term (i.e., two to fifteen weeks) and current (i.e., up to fourteen days) time periods. With respect to medium-term liquidity, the Treasury, in co-ordination with the Financial Risks Department, performs an analysis of the Group’s payments calendar over this period and considers contingency options available to the Group in the event that unfavourable developments or crisis situations occur.

Decisions on short-term liquidity management are taken by the Treasury. These decisions are based on an analysis of the volatility of various assets and liabilities. Estimates are made after application of internally developed models as to the volume and likelihood of unexpected withdrawals of funds and the probability that additional funding might be required. In order to minimise unanticipated changes in funding, the Group separately analyses the possible consequences of the withdrawal of a large amount of funds by major customers. Client managers and senior Group management work closely with major customers to coordinate plans with regard to movement of funds.

Decisions with respect to current liquidity management are taken by the head of Treasury. Reports on actions taken are made to the Credit Committee. The Group’s payments calendar for each upcoming 14- day period is analysed, and decisions taken on the attraction of short-term interbank deposits, the immediate sale of securities from the Treasury portfolio, and other facilities available to the Group. The Treasury implements decisions on a real-time basis.

The Group seeks to maintain a stable funding base primarily consisting of amounts due to other banks, corporate and retail customer deposits and debt securities. The Group invests the funds in diversified portfolios of liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements.

The liquidity management of the Group requires considering the level of liquid assets necessary to settle obligations as they fall due; maintaining access to a range of funding sources; maintaining funding contingency plans; and monitoring balance sheet liquidity ratios against regulatory requirements. The Bank calculates liquidity ratios on a daily basis in accordance with the requirement of the National Bank of Ukraine. These ratios are:

- Instant liquidity ratio (N4), which is calculated as the ratio of highly-liquid assets to liabilities payable on demand. The ratio was 57% at 31 December 2008 (2007: 61%).

- Current liquidity ratio (N5), which is calculated as the ratio of liquid assets to liabilities maturing within 31 calendar days. The ratio was 56% at 31 December 2008 (2007: 87%).

- Short-term liquidity ratio (N6), which is calculated as the ratio of liquid assets to liabilities with original maturity of up to one year. The ratio was 37% at 31 December 2008 (2007: 46%).

The Treasury Department receives information about the liquidity profile of the financial assets and liabilities. The Treasury Department then provides for an adequate portfolio of short-term liquid assets, largely made up of short-term liquid trading securities, deposits with banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole.

The daily liquidity position is monitored and regular liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions is performed by the Treasury Department.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

The table below shows liabilities at 31 December 2008 by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows, including gross finance lease obligations (before deducting future finance charges), prices specified in deliverable forward agreements to purchase financial assets for cash, contractual amounts to be exchanged under gross settled currency swaps, and gross loan commitments. Such undiscounted cash flows differ from the amount included in the balance sheet because the balance sheet amount is based on discounted cash flows.

When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at the balance sheet date.

The maturity analysis of financial liabilities at 31 December 2008 is as follows:

Demand and From 1 to From 3 to From Over 5 Total less than 3 months 12 months 12 months years In millions of Ukrainian hryvnias 1 month to 5 years

Liabilities Due to other banks and other financinginstitutions 1,001 2,444 8,900 1,731 486 14,562 Customeraccounts 23,747 7,136 20,725 8,025 85 59,718 Debtsecuritiesinissue 39 261 972 7,570 259 9,101 Subordinateddebt 1 53 101 444 1,500 2,099 Otherfinancialliabilities 196 25 111 121 245 698 GrosssettledSWAPsandforwards 2,870 - - - - 2,870

Total contractual future payments forfinancialobligations 27,854 9,919 30,809 17,891 2,575 89,048

Credit related commitments, gross (Note31) 1,789 672 1,760 1,021 - 5,242

The maturity analysis of financial liabilities at 31 December 2007 is as follows:

Demand and From 1 to From 3 to From Over 5 Total less than 3 months 12 months 12 months years In millions of Ukrainian hryvnias 1 month to 5 years

Liabilities Due to other banks and other financinginstitutions 1,101 498 2,636 2,602 305 7,142 Customeraccounts 16,274 4,828 15,005 652 43 36,802 Debtsecuritiesinissue 7 446 1,239 5,364 - 7,056 Subordinateddebt 8 44 130 339 1,022 1,543 Otherfinancialliabilities 83 6 29 89 102 309 GrosssettledSWAPsandforwards 1,598 - - - - 1,598

Total contractual future payments forfinancialobligations 19,071 5,822 19,039 9,046 1,472 54,450

Credit related commitments, gross (Note 31) 99 - 325 1,671 - 2,095

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

Payments in respect of gross settled swaps and forwards will be accompanied by related cash inflows which are disclosed at their present values in Note 32. Customer accounts are classified in the above analysis based on contractual maturities. However, in accordance with Ukrainian Civil Code, individuals have a right to withdraw their deposits prior to maturity if they forfeit their right to accrued interest.

The Group does not use the above undiscounted maturity analysis to manage liquidity. Instead, the Group monitors expected maturities, which may be summarised as follows at 31 December 2008:

Demand and From 1 to From 3 to Over 1 No stated Total less than 3 months 12 months year maturity In millions of Ukrainian hryvnias 1 month

Assets Cash and cash equivalents and mandatoryreserves 9,392 - - - - 9,392 Tradingsecurities - - 12 - 75 87 Other financial assets at fair value throughprofitorloss - - - 8 6 14 Duefromotherbanks 181 42 2,005 434 - 2,662 Loansandadvancestocustomers 2,591 7,431 27,055 30,997 - 68,074 Financialderivatives - 938 1,613 - - 2,551 Investment securities available-for- sale - - - 1 34 Otherfinancialassets 255 22 3 3 19 302

Totalfinancialassets 12,419 8,433 30,688 31,443 103 83,086

Liabilities Due to other banks and other financinginstitutions 740 2,253 4,958 2,196 - 10,147 Customeraccounts 19,462 8,468 22,935 6,105 - 56,970 Debtsecuritiesinissue 35 191 672 6,472 - 7,370 Otherfinancialliabilities 197 36 81 131 5 450 Subordinateddebt 1 41 45 1,246 - 1,333

Totalfinancialliabilities 20,435 10,989 28,691 16,150 5 76,270

Net liquidity gap at 31December2008 (8,016) (2,556) 1,997 15,293 98 6,816

Cumulative liquidity gap at 31December2008 (8,016) (10,572) (8,575) 6,718 6,816 -

Creditrelatedcommitments 1,787 667 1,747 1,012 - 5,213

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

29 Financial Risk Management (Continued)

The analysis by expected maturities may be summarised as follows at 31 December 2007:

Demand and From 1 to From 3 to Over 1 No stated Total less than 3 months 12 months year maturity In millions of Ukrainian hryvnias 1 month

Assets Cash and cash equivalents and mandatory reserves 7,952 - - - - 7,952 Tradingsecurities 16 - - - - 16 Other financial assets at fair value throughprofitorloss 16 - - - - 16 Duefromotherbanks 30 93 1,109 96 - 1,328 Loansandadvancestocustomers 1,197 1,493 13,931 26,449 - 43,070 Investment securities available-for- sale - - - 1 34 Investmentsecuritiesheldtomaturity 1,160 - - - - 1,160 Otherfinancialassets 186 - - 43 - 229

Totalfinancialassets 10,557 1,586 15,040 26,589 3 53,775

Liabilities Due to other banks and other - financing institutions 1,055 486 2,496 2,203 6,240 Customeraccounts 9,111 8,145 18,546 201 - 36,003 Debtsecuritiesinissue 26 413 1,117 4,803 - 6,359 Otherfinancialliabilities 86 6 23 88 - 203 Subordinateddebt - 28 79 830 - 937

Totalfinancialliabilities 10,278 9,078 22,261 8,125 - 49,742

Net liquidity gap at 31December2007 279 (7,492) (7,221) 18,464 3 4,033

Cumulative liquidity gap at 31 December 2007 279 (7,213) (14,434) 4,030 4,033 -

Creditrelatedcommitments 98 - 322 1,654 - 2,074

The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks ever to be completely matched since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Group and its exposure to changes in interest and exchange rates.

Management believes that in spite of a substantial portion of customer accounts being on demand, diversification of these deposits by number and type of depositors, and the past experience of the Group would indicate that these customer accounts provide a long-term and stable source of funding for the Group.

Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment because the Group does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

30 Management of Capital

The Group’s objectives when managing capital are (i) to comply with the capital requirements set by the National Bank of Ukraine, (ii) to safeguard the Group’s ability to continue as a going concern and (iii) to maintain a sufficient capital base to achieve a capital adequacy ratio based on the Basel Accord of at least 8%. The Group considers total capital under management to be equity as shown in the consolidated balance sheet. The amount of capital that the Group managed as of 31 December 2008 was UAH 10,341 million (2007: UAH 5,406 million). Compliance with capital adequacy ratios set by the National Bank of Ukraine is monitored monthly with reports outlining their calculation reviewed and signed by the Bank’s Chairman and Chief Accountant. Other objectives of capital management are evaluated annually.

Under the current capital requirements set by the National Bank of Ukraine banks have to maintain a ratio of regulatory capital to risk weighted assets (“statutory capital ratio”) above a prescribed minimum level. Regulatory capital is based on the Bank’s reports prepared under Ukrainian accounting standards and comprises:

In millions of Ukrainian hryvnias 2008 2007

Netassetsunadjustedforaccruals,provisionsandtaxes 7,474 4,941 Plus subordinated debt 780 807 Less investments into subsidiaries (556) (553) Other (9) (11)

Total regulatory capital 7,689 5,184

The Group and the Bank are also subject to minimum capital requirements established by covenants stated in loan agreements, including capital adequacy levels calculated in accordance with the requirements of the Basel Accord, as defined in the International Convergence of Capital Measurement and Capital Standards (updated April 1998) and Amendment to the Capital Accord to incorporate market risks (updated November 2005), commonly known as Basel I. The composition of the Group’s capital calculated in accordance with Basel Accord is as follows:

In millions of Ukrainian hryvnias 2008 2007

Tier 1 capital Share capital 5,939 2,967 Disclosed reserves 2,191 1,582 Cumulative translation reserve 330 34 Less: goodwill (50) (35) Total tier 1 capital 8,410 4,548

Tier 2 capital Asset revaluation reserves 908 361 Additional capital 462 462 Subordinated debt 1,204 799 Total tier 2 capital 2,574 1,622

Total capital 10,984 6,170

The Group and the Bank have complied with all externally imposed capital requirements as at 31 December 2008 and 31 December 2007.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

31 Contingencies and Commitments

Legal proceedings. From time to time and in the normal course of business, claims against the Group are received. On the basis of its own estimates and both internal and external professional advice the Management is of the opinion that no material losses will be incurred in respect of claims, except as described below.

The Group is the subject of suits by individuals and entities who provided money to former employees of branches of the Bank, whilst those employees held senior management positions in these branches. Those former employees are currently the subject of criminal proceedings relating to the embezzlement of money of the Bank and individuals and entities. The individuals and entities are claiming that the Bank is responsible for the criminal actions of the former employees and are seeking amounts totalling approximately UAH 34 million. The Group believes that the two former employees will be found guilty in the criminal cases and that, on the basis of such a finding of criminal liability, the civil suits against the Group will be partly rejected. As such, a provision of UAH 21 million (2007: UAH 21 million) has been made in this respect. Refer to Note 19.

Tax legislation. Ukrainian tax and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant authorities.

The Ukrainian tax authorities may be taking a more assertive and sophisticated approach in their interpretation of the legislation and tax examinations. Combined with a possible increase in tax collection efforts to respond to budget pressures, the above may lead to an increase in the level and frequency of scrutiny by the tax authorities and it is possible that transactions and activities that have not been challenged in the past may be challenged.

As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

Ukrainian transfer pricing legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of all controllable transactions, provided that the transaction price differs from market price.

Controllable transactions include transactions with related parties, as determined under the Corporate Profit Tax (CPT) Law, whose definition significantly different from IFRS, all transactions with non- residents (irrespective whether performed between related or unrelated parties) and transactions with non-standard CPT payers.

There is no formal guidance as to how these rules should be applied in practice. The procedure for assessing additional tax liabilities using transfer pricing rules requires the tax authorities to obtain a court decision approving the tax amount. It is not clear at the moment when (or if) new or more detailed transfer pricing regulations will be introduced. It is possible with the evolution of the interpretation of the transfer pricing rules in Ukraine and the changes in the approach of the Ukrainian tax authorities, that transfer prices could potentially be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the entity.

The Group includes companies incorporated outside of Ukraine. Tax liabilities of the Group are determined on the assumption that these companies are not subject to Ukrainian profits tax because they do not have a permanent establishment in Ukraine. Ukrainian tax laws do not provide detailed rules on taxation of foreign companies within a Ukrainian group. It is possible that with the evolution of the interpretation of these rules and the changes in the approach of the Ukrainian tax authorities, the non- taxable status of some or all of the foreign companies of the Group in Ukraine may be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the entity.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

31 Contingencies and Commitments (Continued)

Ukrainian tax legislation does not provide definitive guidance in certain areas. From time to time, the Group adopts interpretations of such uncertain areas that reduce the overall tax rate of the Group. As noted above, such tax positions may come under heightened scrutiny. The impact of any challenge by the tax authorities cannot be reliably estimated; however, it may be significant to the financial condition and/or the overall operations of the entity. The Group’s Management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax position will be sustained. Accordingly, as at 31 December 2008 no provision for potential tax liabilities had been recorded (2007: no provision). Capital expenditure commitments. At 31 December 2008 the Group has contractual capital expenditure commitments in respect of construction of premises, computers and furniture and equipment totalling UAH 8 million (2007: UAH 89 million). The Group believes that future net income and funding will be sufficient to cover this and any similar such commitments. Operating lease commitments. As at 31 December 2008 and 2007 the Group had no commitments under non-cancellable operating leases. Compliance with covenants. The Group is subject to certain covenants related primarily to its foreign borrowings. In particular, the Bank is required to maintain certain level of share capital, a certain capital adequacy ratio, certain level of regulatory ratios. Non-compliance with such covenants may result in negative consequences for the Group including growth in the cost of borrowings and declaration of default. The Group was in compliance with covenants as at 31 December 2008 and 31 December 2007. Credit related commitments. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate or cash deposits and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments, if the unused amounts were to be drawn down. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit related commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Outstanding credit related commitments are as follows: In millions of Ukrainian hryvnias Note 2008 2007

Import letters of credit 2,137 909 Guarantees issued 2,965 1,177 Irrevocable commitments to extend credit 140 9

Less:Provisionforcreditrelatedcommitments 19 (29) (21)

Total credit related commitments 5,213 2,074

The total outstanding contractual amount of undrawn credit lines, letters of credit, and guarantees does not necessarily represent future cash requirements, as these financial instruments may expire or terminate without being funded. The fair value of credit related commitments was UAH 38 million at 31 December 2008 (2007: UAH 21 million). As at 31 December 2008 UAH 1,448 million or 28% of the total amount of credit related commitments was represented by exposure to 2 counterparties of the Group. The Group’s on-balance sheet exposure to these counterparties represented by loans and advances to customers, amounted to UAH 905 million.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

31 Contingencies and Commitments (Continued)

Credit related commitments are denominated in currencies as follows:

In millions of Ukrainian hryvnias 2008 2007

Ukrainian Hryvnias 780 483 US Dollars 2,690 926 Euro 1,498 623 Other currencies 245 42

Total 5,213 2,074

Fiduciary assets. These assets are not included in the Group’s consolidated balance sheet as they are not assets of the Group. Nominal values disclosed below are normally different from the fair values of respective securities. The fiduciary assets held by the Group on behalf of its customers fall into the following categories:

2008 2007 In millions of Ukrainian hryvnias Nominal value Nominal value

Shares of Ukrainian companies 4,906 7,020 Domestic corporate bonds 1,711 308 Investment certificates 91 69

Assets pledged and restricted. The Group had assets pledged as collateral with the following carrying value:

Note 2008 2007 Asset Related Asset Related pledged liability/ pledged liability/ In millions of Ukrainian hryvnias commitment commitment

Gross receivables under swap 32 agreements 2,654 2,692 1,496 1,499 Duefromotherbanks 9 1,448 1,448 - - Loansandadvancestocustomers 10,18 1,767 1,390 946 769

Total 5,869 5,530 2,442 2,268

Gross receivables under swap agreements presented above are recognised on a net basis in the balance sheet, giving rise to a derivative financial asset or liability within other assets or other liabilities, respectively.

As disclosed in Note 9, balances due from other banks totalling UAH 84 million (2007: UAH 123 million) have been pledged as cover for letters of credit and international payments.

In addition, mandatory cash balances in the amount of UAH 31 million (2007: UAH 884 million) represent mandatory reserve deposits which are not available to finance the Group’s day to day operations as disclosed in Note 7.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

32 Derivative Financial Instruments

Foreign exchange and other derivative financial instruments entered into by the Group are generally traded in an over-the-counter market with professional market counterparties on standardised contractual terms and conditions. Derivatives have potentially favourable (assets) or unfavourable (liabilities) conditions as a result of fluctuations in market interest rates, foreign exchange rates or other variables relative to their terms. The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

The table below sets out fair values, at the balance sheet date, of currencies receivable or payable under foreign exchange forward contracts entered into by the Group. The table reflects gross positions before the netting of any counterparty positions (and payments) and covers the contracts with settlement dates after the respective balance sheet date. The contracts are short term in nature.

2008 2007 Contracts Contracts Contracts Contracts with positive with negative with positive with negative In millions of Ukrainian hryvnias fair value fair value fair value fair value

Foreign exchange swaps: fair values, at the balance sheet date, of -USDreceivableonsettlement(+) 1,310 1,111 86 - -USDpayableonsettlement(-) (18) (249) (270) (1,172) -Eurosreceivableonsettlement(+) 18 130 261 811 -Eurospayableonsettlement(-) (1,309) (1,116) - (5) -UAHreceivableonsettlement(+) - 85 15 358 -UAHpayableonsettlement(-) - - (51) - - Other currencies payable on settlement (-) - - (36) -

Foreign exchange forwards: fair values, at the balance sheet date, of -USDpayableonsettlement(-) - - (35) (29) -LTVreceivableonsettlement(+) - - 35 - -Eurosreceivableonsettlement(+) - - - 29

Net fair value of foreign exchange forwards and swaps 1 (39) 5 (8)

At 31 December 2008, the Group had outstanding obligations from unsettled spot transactions with foreign currencies of UAH 3,789 million (2007: UAH 537 million). The net fair value of unsettled spot transactions is insignificant.

During the year ended 31 December 2008 the Group incurred loss of UAH 284 million resulting from foreign exchange forwards and swaps.

In addition, as disclosed in Note 4, as at 31 December 2008 the Group had outstanding derivatives embedded in loans issued to customers which were separated from the host instrument and carried at fair value of UAH 2,551 million. During the year ended 31 December 2008 the Group recognised a gain of UAH 249 million (2007: a loss of UAH 44 million) in respect of change in fair value of a financial derivative that arises on the issue of UAH denominated loans with the condition of compensation in the case of UAH devaluation against USD. This embedded derivative is represented by a currency option maturing in up to 5 years. The strike price was from UAH 4.84 to UAH 7.88 per USD 1 (2007: UAH 5.05 per USD 1). The fair value gain was recorded in losses less gains from financial derivatives in the consolidated income statement. The gain resulted from changes in fair value of the option between the date of initial recognition and 31 December 2008.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

33 Fair Value of Financial Instruments

Fair values of financial instruments are as follows at 31 December 2008:

Fair value by measurement method: Total fair Carrying Quoted Valuation Valuation value value price in an technique technique active with inputs with market observable significant in markets non- observable In millions of Ukrainian hryvnias inputs

FINANCIAL ASSETS

Cash and cash equivalents and mandatory reserves Cash on hand - 3,206 - 3,206 3,206 CashbalanceswithCentralBanks - 694 - 694 694 Correspondent accounts and overnight placements with other banks - 5,492 - 5,492 5,492

Trading securities Governmentbonds 13 - - 13 13 Corporate shares - - 74 74 74

Other financial assets at fair value through profit or loss Government bonds 8 - - 8 8 Corporate shares - 6 - 6 6

Due from other banks Termplacementswithotherbanks - 2,578 - 2,578 2,578 Guaranteedepositswithotherbanks - 84 - 84 84

Loans and advances to customers Corporate loans - 40,191 - 40,191 41,145 Loanstoindividuals-card - 7,958 - 7,958 7,957 Loanstoindividuals-mortgage - 6,471 - 6,471 6,553 Loanstoindividuals-auto - 4,283 - 4,283 4,392 Loanstoindividuals-consumer - 728 - 728 742 Loanstoindividuals-other - 1,407 - 1,407 1,407 Loans to small and medium enterprises 5,520 - 5,520 5,517 - (SME) Reverse sale and repurchase agreements - 361 - 361 361 - corporate

Investment securities available for sale Unquoted shares - - 4 4 4

Financial derivatives - - 2,551 2,551 2,551

Other financial assets Receivablesfromoperationswithcustomers - 90 - 90 90 Plasticcardsreceivables - 81 - 81 81 Accruedincomereceivable - 54 - 54 54 Other - 77 - 77 77

TOTALFINANCIALASSETS 21 79,281 2,629 81,931 83,086

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

33 Fair Value of Financial Instruments (Continued)

Fair value by measurement method: Total fair Carrying Quoted Valuation Valuation value value price in an technique technique active with inputs with market observable significant in markets non- observable In millions of Ukrainian hryvnias inputs

FINANCIAL LIABILITIES

Due to other banks and other financing institutions Termplacementsofotherbanks - 5,716 - 5,716 5,716 Termborrowingsfromthecentralbanks - 3,554 - 3,554 3,554 Long-term loans under the credit lines from otherfinancinginstitutions - 423 - 423 423 Correspondent accounts and overnight placements of other banks - 449 - 449 449 Pledgedepositsofotherbanks - 5 - 5 5

Customer accounts Termdepositsofindividuals - 30,620 - 30,620 30,620 Current/demandaccountsofindividuals - 6,191 - 6,191 6,191 Termdepositsofotherlegalentities - 11,647 - 11,647 11,647 Current/settlement accounts of other legal - entities 8,512 - 8,512 8,512

Debt securities in issue Eurobonds 2,111 - - 2,111 4,180 Privateplacementsofbonds - 1,705 - 1,705 1,795 Mortgage bonds 893 - - 893 893 Auto bonds 497 - - 497 497 Promissory notes - 5 - 5 5

Other financial liabilities Liabilityforfinancelease - 171 - 171 171 Accounts payable - 65 - 65 65 Fundsinthecourseofsettlement - 59 - 59 59 Provisionforcreditrelatedcommitment - 29 - 29 29 Financial derivatives - 39 - 39 39 Other - 87 - 87 87

Subordinated debt Subordinated debt - 910 - 910 1,333

TOTALFINANCIALLIABILITIES 3,501 70,187 - 73,688 76,270

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

33 Fair Value of Financial Instruments (Continued)

Fair values of financial instruments are as follows at 31 December 2007: Fair value by measurement method: Total fair Carrying Quoted Valuation Valuation value value price in an technique technique active with inputs with market observable significant in markets non- observable In millions of Ukrainian hryvnias inputs

FINANCIAL ASSETS

Cash and cash equivalents and mandatory reserves Cash on hand - 3,104 - 3,104 3,104 CashbalanceswithCentralBanks - 1,340 - 1,340 1,340 Correspondent accounts and overnight placementswithotherbanks - 3,508 - 3,508 3,508

Trading securities Governmentbonds 16 - - 16 16

Other financial assets at fair value through profit or loss Government bonds 9 - - 9 9 Corporate shares - 7 - 7 7

Due from other banks Termplacementswithotherbanks - 1,205 - 1,205 1,205 Guaranteedepositswithotherbanks - 123 - 123 123

Loans and advances to customers Corporate loans - 22,486 - 22,486 22,391 Loanstoindividuals-card - 4,898 - 4,898 4,898 Loanstoindividuals-mortgage - 5,120 - 5,120 4,987 Loanstoindividuals-auto - 3,674 - 3,674 3,590 Loanstoindividuals-consumer - 2,137 - 2,137 1,974 Loanstoindividuals-other - 1,287 - 1,287 1,287 Loans to small and medium enterprises (SME) - 3,876 - 3,876 3,876 Reverse sale and repurchase agreements - corporate - 67 - 67 67

Investment securities available for sale Unquoted shares - 4 - 4 4

Investment securities held to maturity Governmentbonds 1,160 - - 1,160 1,160

Financial derivatives - 41 - 41 41

Other financial assets Receivablesfromoperationswithcustomers - 31 - 31 31 Plasticcardsreceivables - 82 - 82 82 Accruedincomereceivable - 36 - 36 36 Other - 39 - 39 39

TOTALFINANCIALASSETS 1,185 53,065 - 54,250 53,775

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

33 Fair Value of Financial Instruments (Continued)

Fair value by measurement method: Total fair Carrying Quoted Valuation Valuation value value price in an technique technique active with inputs with market observable significant in markets non- observable In millions of Ukrainian hryvnias inputs

FINANCIAL LIABILITIES

Due to other banks and other financing institutions Termplacementsofotherbanks - 4,246 - 4,246 4,246 Correspondent accounts and overnight - - placements of other banks 469 469 469 Long-term loans under the credit lines from - - other financing institutions 1,520 1,520 1,520 Pledgedepositsofotherbanks - 5 - 5 5

Customer accounts Termdepositsofindividuals - 18,980 - 18,980 18,953 Current/demandaccountsofindividuals - 5,908 - 5,908 5,908 Termdepositsofotherlegalentities - 2,624 - 2,624 2,624 Current/settlement accounts of other legal entities - 8,518 - 8,518 8,518

Debt securities in issue Eurobonds 2,397 - -- 2,397 2,595 Privateplacementsofbonds - 2,960 - 2,960 2,977 Mortgage bonds 769 - - 769 769 Promissory notes - 18 - 18 18

Other financial liabilities Liabilityforfinancelease - 96 - 96 96 Fundsinthecourseofsettlement - 39 - 39 39 Accounts payable - 16 - 16 16 Provisionforcreditrelatedcommitment - 21 - 21 21 Financial derivatives - 8 - 8 8 Other - 23 - 23 23

Subordinated debt Subordinated debt - 931 - 931 937

TOTALFINANCIALLIABILITIES 3,166 46,382 - 49,548 49,742

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

33 Fair Value of Financial Instruments (Continued)

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by an active quoted market price. Where quoted market prices are not available, the Group used valuation techniques. Certain valuation techniques required assumptions that were not supported by observable market data. The total net fair value loss estimated using valuation techniques that was recognised in profit or loss amounts to UAH 35 million (2007: UAH 13 million).

The fair value of floating rate instruments that are not quoted in an active market was estimated to be equal to their carrying amount. The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity. Discount rates used depend on currency, maturity of the instrument and credit risk of the counterparty and were as follows:

2008 2007

Loans and advances to customers Corporate loans 12%to48%p.a. 10%to18%p.a. Loans to individuals - mortgage 12%to24%p.a. 9%to18%p.a. Loans to individuals - auto 12%to24%p.a. 9%to18%p.a. Loans to individuals - consumer 9%to68%p.a. 10%to67%p.a. Loans to individuals - card 9%to57%p.a. 10%to54%p.a. Loans to individuals - other 9%to68%p.a. 10%to67%p.a. Loanstosmallandmediumenterprises(SME) 10%to53%p.a. 10 % to 47% p.a. Reversesaleandrepurchaseagreements-corporate 8%to14% p.a. 8%to25%p.a.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

34 Presentation of Financial Instruments by Measurement Category

For the purposes of measurement, IAS 39, Financial Instruments: Recognition and Measurement , classifies financial assets into the following categories: (a) loans and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and (d) financial assets at fair value through profit or loss (“FVTPL”). Financial assets at fair value through profit or loss have two subcategories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading. The following table provides a reconciliation of financial assets with these measurement categories as of 31 December 2008:

Loans Availa- Trading Assets Held to Total and ble-for- assets desig- maturity receiv- sale nated at In millions of Ukrainian hryvnias ables assets FVTPL

ASSETS Cash and cash equivalents and mandatory reserves 9,392 - - - - 9,392 Trading securities - 87 - - 87 Other financial assets at fair value through profit or loss - - - 14 - 14 Due from other banks Termplacementswithotherbanks 2,578 - - - - 2,578 Guaranteedepositswithotherbanks 84 - - - - 84 Loans and advances to customers Corporateloans 41,145 - - - - 41,145 Loanstoindividuals-card 7,957 - - - - 7,957 Loanstoindividuals-mortgage 6,553 - - - - 6,553 Loanstoindividuals-auto 4,392 - - - - 4,392 Loanstoindividuals-consumer 742 - - - - 742 Loanstoindividuals-other 1,407 - - - - 1,407 Loanstosmallandmediumenterprises(SME) 5,517 - - - - 5,517 Reverse sale and repurchase agreements - corporate 361 - - - - 361 Investment securities available-for-sale - 4 - - - 4 Financial derivatives - - 2,551 - - 2,551 Other financial assets Receivablesfromoperationswithcustomers 90 - - - - 90 Plasticcardsreceivables 81 - - - - 81 Accruedincomereceivable 54 - - - - 54 Other 77 - - - - 77

TOTALFINANCIALASSETS 80,430 4 2,638 14 - 83,086

NON-FINANCIAL ASSETS 4,434

TOTAL ASSETS 87,520

As of 31 December 2008 and 31 December 2007 all of the Group’s financial liabilities except for derivatives were carried at amortised cost. Derivatives belong to the fair value through profit or loss measurement category.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

34 Presentation of Financial Instruments by Measurement Category (Continued)

The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2007:

Loans Availa- Trading Assets Held to Total and ble-for- assets desig- maturity receiv- sale nated at In millions of Ukrainian hryvnias ables assets FVTPL

ASSETS Cash and cash equivalents and mandatory reserves 7,952 - - - - 7,952 Trading securities - - 16 - - 16 Other financial assets at fair value through profit or loss - - - 16 - 16 Due from other banks Termplacementswithotherbanks 1,205 - - - - 1,205 Guaranteedepositswithotherbanks 123 - - - - 123 Loans and advances to customers Corporateloans 22,391 - - - - 22,391 Loanstoindividuals-card 4,898 - - - - 4,898 Loanstoindividuals-mortgage 4,987 - - - - 4,987 Loanstoindividuals-auto 3,590 - - - - 3,590 Loanstoindividuals-consumer 1,974 - - - - 1,974 Loanstoindividuals-other 1,287 - - - - 1,287 Loanstosmallandmediumenterprises(SME) 3,876 - - - - 3,876 Reverse sale and repurchase agreements - corporate 67 - - - - 67 Investment securities available-for-sale - 4 - - - 4 Investment securities held to maturity - - - - 1,160 1,160 Financial derivatives - - 41 - - 41 Other financial assets Accruedincomereceivable 36 - - - - 36 Receivablesfromoperationswithcustomers 31 - - - 31 Plasticcardsreceivables 82 - - - - 82 Other 39 - - - - 39

TOTALFINANCIALASSETS 52,538 4 57 16 1,160 53,775

NON-FINANCIAL ASSETS 2,495

TOTAL ASSETS 56,270

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

35 Related Party Transactions

Parties are generally considered to be related if the parties are under common control or one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

At 31 December 2008 and 31 December 2007, the outstanding balances with related parties were as follows:

2008 2007 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r In millions of Ukrainian hryvnias shareholders shareholders

Gross amount of loans and advances to customers (contractual interest rate: 2008: UAH - 13%, USD - 13%, EUR - 7%; 2007: UAH - 13%, USD - 13%, EUR -10%) - 19 5,699 - 20 2,556

Impairment provisions for loans and advancestocustomersat31December - - (1,305) - - (337)

Loans and advances to customers writtenoffasuncollectable - - (78) - - -

Otherfinancialassets - - 247 - - 3

Otherassets - - 432 - - -

Customer accounts (contractual interest rate: 2008: UAH - 1%, USD - 8%, EUR - 15%; 2007: UAH - 1%, USD - 1%, EUR - 9%) 1,130 - 2,715 - 1 855

Otherfinancialliabilities - - - - - 6

Provision for losses on credit related commitments -- --- 7

Subordinated debt (contractual interest rate: 2008: UAH - 3%, RUR - 7%; 2007: UAH - 3%, RUR - 7%) -- --- 98

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

35 Related Party Transactions (Continued)

The income and expense items with related parties for 2008 and 2007 were as follows:

2008 2007 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r In millions of Ukrainian hryvnias shareholders shareholders

Interest income - 2 747 - 2 291 Interest expense - - (33) - - (33) Provision for loan impairment - - (45) - - (25) Fee and commission income -- 81-- 30 Losses less gains from financial derivatives - - (429) - - - Other operating income -- 5-- 4 Administrative and other operating expenses, excluding management remuneration - - (135) - - (169)

At 31 December 2008 and 31 December 2007, other rights and obligations with related parties were as follows:

2008 2007 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r In millions of Ukrainian hryvnias shareholders shareholders

Guaranteesissued - - 530 - - 55 Irrevocable commitments to extend credit - - - - 2 - Importlettersofcredit - - 186 - - 109

Aggregate amounts lent to and repaid by related parties during 2008 and 2007 were:

2008 2007 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r In millions of Ukrainian hryvnias shareholders shareholders

Amounts lent to related parties during the period - 10 11,395 - 21 8,401

Amounts repaid by related parties during the period - 20 10,286 - 15 9,720

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2008

35 Related Party Transactions (Continued)

The ultimate major shareholders of the Bank are 2 Ukrainian citizens, Mr I. V. Kolomoyski and Mr G. B. Bogolyubov, neither of which individually controls the Bank.

In 2008, the remuneration of the members of the Board of Directors comprised salaries, discretionary bonuses, pension contributions and other short-term benefits totalling UAH 6 million (2007: UAH 6 million) including UAH 1 million (2007: UAH 1 million) of contributions into the State pension fund and UAH 0.1 million (2007: UAH 0.1 million) of social security contributions.

Short-term bonuses fall due wholly within twelve months after the end of the period in which management rendered the related services.

During 2008 the majority shareholders of the bank offered an option to management of the bank who hold shares of the Bank to sell part or all of their shares to the major shareholders. The option was immediately exercisable and was open for a limited period of time. The price of each share under the offer was determined based on an assumption that the Bank's market capitalisation at the time the option was offered was USD 2 billion. As a result of the offer, some of the managers sold part or all of their shares to the majority shareholders.

36 Events After the Balance Sheet Date

In February 2009 Fitch Ratings downgraded Ukraine's long-term foreign and local currency Issuer Default Ratings to 'B' from 'B+'. This reflects the increased risk of a banking and currency crisis in Ukraine, due to intensified stress on the financial system. The Outlooks on both Issuer Default Ratings are ‘negative’. The agency has also downgraded the Country Ceiling to 'B' from 'B+'. Also in February 2009 Ukraine’s credit rating was cut two levels by Standard & Poor’s. The long-term foreign currency rating was lowered to CCC+. The agency left Ukraine’s outlook ‘negative’, indicating it might reduce the ratings further.

Dividends. On 21 April 2009 at the General Shareholders Meeting the shareholders decided to increase the share capital of the Bank by an additional UAH 1,125 million. The share capital was increased by capitalising dividends.

Increase in share capital. On 30 April 2009 the shareholders took a decision to increase the Bank’s share capital by UAH 1,000 million up to nominal value of UAH 7,811 million. An increase will be performed through additional contributions by existing shareholders of the Bank.

Refinancing. In March 2009 the Bank signed a refinancing credit line agreement with the NBU for a total of UAH 5 billion with the interest rate of 16.5 per cent p.a. maturing in March 2010. As at 30 June 2009 the Bank utilised UAH 4,272 million out of this credit line.

Repayments of significant borrowings. The Bank fully repaid an outstanding syndicated loan of USD 200 million (equivalent of UAH 1,540 million at the exchange rate as at 31 December 2008) which matured on 17 March 2009. Additionally, UAH 500 million related to the private placements was repaid in May 2009 and USD 70 million (equivalent of UAH 539 million at the exchange rate as at 31 December 2008) related to Eurobonds was repaid in April 2009.

Other events. In May 2009 the shareholders decided to change the legal status of the Bank from a closed joint stock company into a public joint stock company in order to comply with the changes in Ukrainian company legislation.

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PRIVATBANK GROUP International Financial Reporting Standards Consolidated Financial Statements and Independent Auditor’s Report 31 December 2007

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PrivatBank Group

CONTENTS

INDEPENDENT AUDITOR’S REPORT

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet...... 1 Consolidated Income Statement...... 2 Consolidated Statement of Changes in Equity...... 3 Consolidated Statement of Cash Flows...... 5

Notes to the Consolidated Financial Statements

1 Introduction...... 6 2 Operating Environment of the Group...... 6 3 Summary of Significant Accounting Policies...... 7 4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies ...... 18 5 Adoption of New or Revised Standards and Interpretations...... 21 6 New Accounting Pronouncements...... 21 7 Cash and Cash Equivalents and Mandatory Reserve Balances...... 24 8 Due from Other Banks...... 26 9 Loans and Advances to Customers...... 27 10 Investment Securities Available-for-Sale...... 35 11 Investment Securities Held to Maturity ...... 35 12 Goodwill...... 36 13 Premises, Leasehold Improvements and Equipment and Intangible Assets ...... 37 14 Other Financial Assets...... 38 15 Other Assets...... 41 16 Due to Other Banks and Other Financing Institutions...... 41 17 Customer Accounts ...... 42 18 Debt Securities in Issue...... 43 19 Provisions for Liabilities and Charges, Other Financial and Non-financial Liabilities...... 44 20 Subordinated Debt...... 45 21 Share Capital...... 46 22 Other Reserves...... 46 23 Interest Income and Expense...... 47 24 Fee and Commission Income and Expense...... 47 25 Administrative and Other Operating Expenses...... 48 26 Income Taxes...... 49 27 Segment Analysis...... 52 28 Financial Risk Management ...... 55 29 Management of Capital...... 69 30 Contingencies and Commitments...... 70 31 Derivative Financial Instruments...... 73 32 Fair Value of Financial Instruments ...... 74 33 Reconciliation of Classes of Financial Instruments with Measurement Categories ...... 78 34 Related Party Transactions ...... 80 35 Business Combinations...... 82 36 Acquisition of Minority Interest...... 83 37 Subsequent Events...... 83

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PrivatBank Group Consolidated Income Statement

In millions of Ukrainian hryvnias Note 2007 2006

Interest income 23 7,034 4,186 Interest expense 23 (3,021) (1,812)

Net interest income 4,013 2,374 Provision for impairment of loans and advances to customers 9 (666) (497)

Net interest income after provision for impairment of loans and advances to customers 3,347 1,877

Fee and commission income 24 1,473 1,043 Fee and commission expense 24 (161) (91) Gains less losses from trading securities - 2 (Losses less gains)/gains less losses from financial derivatives 31 (13) 47 Gains less losses from other financial assets at fair value through profit or loss - 30 Gains less losses from trading in foreign currencies 351 252 Foreign exchange translation gains less losses 15 30 Gains on initial recognition of liabilities at rates below market - 12 Impairmentofinvestmentsecuritiesavailable-for-sale 10 (607) (551) Gains less losses from disposals of investment securities available-for-sale 10 145 305 Release of provision/(provision charge) for credit related commitments 30,19 48 (17) Other operating income 87 83 Gains arising from early retirement of debt 5 - Administrativeandotheroperatingexpenses 25 (3,236) (2,165) Excess of interest in the fair value of the net assets of the subsidiaryacquiredoverthecostofinvestment 36 60 -

Profit before tax 1,514 857 Income tax 26 (392) (241)

Profit for the year 1,122 616

Profit is attributable to Equity holders of the Bank 1,101 608 Minority interest 21 8

Profit for the year 1,122 616

The notes set out on pages 7 to 83 form an integral part of these consolidated financial statements. 2

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PrivatBank Group Consolidated Statement of Cash Flows

In millions of Ukrainian hryvnias Note 2007 2006

Cash flows from operating activities Interest received 6,349 3,932 Interest paid (2,599) (1,684) Fees and commissions received 1,405 1,056 Fees and commissions paid (161) (108) Income received from trading in trading securities - 8 Income received from financial derivatives (10) - Income received from trading in foreign currencies 357 252 Other operating income received 91 92 Staff costs paid (1,556) (997) Administrative and other operating expenses paid (1,447) (900) Income tax paid (174) (87)

Cash flows from operating activities before changes in operating assets and liabilities 2,255 1,564

Changes in operating assets and liabilities Net (increase)/decrease in mandatory reserve balances (416) 737 Net decrease in trading securities 7 25 Net decrease in other financial assets at fair value through profit or loss 4 84 Net (increase)/decrease in due from other banks (701) 605 Net increase in loans and advances to customers (16,457) (11,534) Net decrease/(increase) in other financial assets 14 (46) Net decrease in other assets (71) (89) Net increase in due to other banks 1,846 1,442 Net increase in customer accounts 12,318 5,281 Net increase in provisions for liabilities and charges, other financial and non-financial liabilities 98 51

Net cash used in operating activities (1,103) (1,880)

Cash flows from investing activities Acquisition of investment securities available-for-sale (539) (1,049) Proceeds from disposal of investment securities available-for-sale 596 1,043 Acquisition of investment securities held to maturity 11 (1,160) - Acquisition of premises, leasehold improvements and equipment (737) (440) Proceeds from disposal of premises, leasehold improvements and equipment 3 6 Acquisition of subsidiaries, net of cash acquired 35 (38) - Proceeds from disposal of subsidiary, net of cash disposed - 24

Net cash used in investing activities (1,875) (416)

Cash flows from financing activities Proceeds from subordinated debt 20 - 749 Repayment of subordinated debt 20 (1) - Issue of ordinary shares 21 632 500 Proceeds from debt securities issued 5,331 576 Repayment of debt securities issued (17) (506) Borrowings from other financing institutions - 1,159 Contributions from shareholders 22 506 - Funds contributed by minority into share capital of subsidiaries 1 -

Net cash from financing activities 6,452 2,478

Effect of exchange rate changes on cash and cash equivalents 186 108

Net increase in cash and cash equivalents 3,660 290 Cash and cash equivalents at the beginning of the year 3,408 3,118

Cash and cash equivalents at the end of the year 7 7,068 3,408

Investing and financing transactions that did not require the use of cash and cash equivalents were excluded from the cash flow statement and disclosed in Note 7.

The notes set out on pages 7 to 83 form an integral part of these consolidated financial statements. 5

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

1 Introduction

These financial statements have been prepared in accordance with International Financial Reporting Standards for the year ended 31 December 2007 for PrivatBank (the “Bank”) and its subsidiaries (together referred to as the “Group” or “PrivatBank Group”).

The Bank was incorporated and is domiciled in the Ukraine. The Bank is a closed joint stock company limited by shares and was set up in accordance with Ukrainian regulations.

Principal activity. The Bank was initially registered as a commercial entity with limited liability and re- organised into a closed joint stock entity in 2000 . The Bank has operated under a banking license issued by the Central Bank of Ukraine – the National Bank of Ukraine (the “NBU”) since March 1992. The Bank’s principal business activity is commercial and retail banking operations within Ukraine. As at 31 December 2007 the shareholders of the Bank are two individuals who own 43.44% of the outstanding shares each, two Ukrainian companies which own 5.16% and 4.34% of the outstanding shares, respectively, and Management of the Bank who own 3.62% of the outstanding shares (31 December 2006: two individuals owned 41.46% of the outstanding shares each, two Ukrainian companies owned 6.72% and 5.66% of the outstanding shares, respectively, and Management of the Bank owned 4.70% of the outstanding shares). The ultimate major shareholders of the Bank are 2 Ukrainian citizens, Mr I.V. Kolomoyski and Mr G.B. Bogolyubov, neither of which individually controls the Bank.

The Bank has 39 branches and 2,808 outlets within Ukraine and a branch in Cyprus (2006: 41 branches, 2,325 outlets in Ukraine and branch in Cyprus). Additionally, the Bank has subsidiary banks in the Russian Federation, Latvia, Georgia and representative offices in Kyiv (Ukraine), Moscow (Russia), Almaty (Kazakhstan), London (United Kingdom) and Beijing (China) (2006: Kyiv (Ukraine) and Almaty (Kazakhstan)) and two special purpose entities in the United Kingdom.

Registered address and place of business. The Bank’s registered address and place of business is:

50, Naberezhna Peremohy Str., 49094, Dnipropetrovsk Ukraine

Presentation currency. These financial statements are presented in millions of Ukrainian hryvnias (“UAH million”).

2 Operating Environment of the Group

Whilst there have been improvements in economic trends in the country, Ukraine continues to display certain characteristics of an emerging market. These characteristics include, but are not limited to, the existence of a currency that is not freely convertible outside of Ukraine, restrictive currency controls, and inflation of 16.6 % for year ended 31 December 2007 (year ended 31 December 2006: 11.6%). The tax, currency and customs legislation within Ukraine is subject to varying interpretations and changes, which can occur frequently. Management is unable to predict all developments which could have an impact on the banking sector and consequently what effect, if any, they could have on the financial position of the Group.

The future economic direction of Ukraine is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Government, together with tax, legal, regulatory, and political developments.

The banking sector in Ukraine is particularly sensitive to adverse fluctuations in confidence and economic conditions. Furthermore, the need for further developments in the anti-money laundering legislation, bankruptcy laws, formalised procedures for the registration and enforcement of collateral, and other legal and fiscal impediments contribute to the difficulties experienced by banks currently operating in Ukraine.

In addition, economic conditions continue to limit the volume of activity in the financial markets. Market quotations in generally illiquid markets may not be reflective of the values for financial instruments, which would be determined in an efficient, active market involving many willing buyers and willing sellers.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

2 Operating Environment of the Group (Continued)

Recent volatility in global financial markets. Since the second half of 2007 there has been a sharp rise in foreclosures in the US subprime mortgage market. The effects have spread beyond the US housing market as global investors have re-evaluated their exposure to risks, resulting in increased volatility and lower liquidity in the fixed income, equity, and derivative markets. The volume of Eurobond issues and similar wholesale financing by Ukrainian banks has significantly reduced since August 2007. Such circumstances may affect the ability of the Group to obtain new borrowings and refinance its existing borrowings at terms and conditions that applied to similar transactions in recent periods. Borrowers of the Group may also be affected by the lower liquidity situation which could in turn impact their ability to repay their amounts owed. Management is unable to reliably estimate the effects on the Group's financial position of any further possible deterioration in the liquidity of the financial markets and their increased volatility.

3 Summary of Significant Accounting Policies

Basis of preparation. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention, as modified by the revaluation of premises, available-for-sale financial assets, derivative financial instruments and financial instruments categorised as at fair value through profit or loss. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated (refer to Note 6 Adoption of New or Revised Standards and Interpretations).

Amendments of the financial statements after issue. The Bank’s shareholders and management have the power to amend the financial statements after issue.

Consolidated financial statements. Subsidiaries are those companies and other entities (including special purpose entities) in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies so as to obtain benefits. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date that control ceases.

The Group holds 50% of voting rights in a fully consolidated subsidiary LLC PrivatOffice. The Group has the power to govern the financial and operating policies of this subsidiary through contractual arrangements with another shareholder of the subsidiary, which also holds 50% of voting rights.

The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The date of exchange is the acquisition date where a business combination is achieved in a single transaction, and is the date of each share purchase where a business combination is achieved in stages by successive share purchases.

The excess of the cost of acquisition over the acquirer’s share of the fair value of the net assets of the acquiree at each exchange transaction is recorded as goodwill. The excess of the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired over cost (”negative goodwill”) is recognised immediately in profit or loss.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any minority interest.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Bank and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

Minority interest is that part of the net results and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Bank. Minority interest forms a separate component of the Group’s equity.

Purchases and sales of minority interests. The Group applies the economic entity model to account for transactions with minority shareholders. Any difference between the purchase consideration and the carrying amount of minority interest acquired is recorded as goodwill or negative goodwill. The Group recognises the difference between sales consideration and carrying amount of minority interest sold as a gain or loss in the income statement.

Key measurement terms. Depending on their classification financial instruments are carried at fair value, cost, or amortised cost as described below.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair value is the current bid price for financial assets and current asking price for financial liabilities which are quoted in an active market. For assets and liabilities with offsetting market risks, the Group may use mid-market prices as a basis for establishing fair values for the offsetting risk positions and apply the bid or asking price to the net open position as appropriate. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange or other institution and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

In other than active markets, the most recent arms length transactions are the basis of current fair values. Recent transaction prices are appropriately adjusted if they do not reflect current fair values, for example because the transaction was a distress sale. Fair value is not the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distress sale.

Valuation techniques such as discounted cash flows models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to fair value certain financial instruments for which external market pricing information is not available. Valuation techniques may require assumptions not supported by observable market data. Disclosures are made in these financial statements if changing any such assumptions to a reasonably possible alternative would result in significantly different profit, income, total assets or total liabilities.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition and includes transaction costs. Measurement at cost is only applicable to investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments. Refer to Note 10.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related balance sheet items.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate (refer to income and expense recognition policy).

Initial recognition of financial instruments . Trading securities, derivatives and other financial instruments at fair value through profit or loss are initially recorded at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.

All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date that the Group commits to deliver a financial asset. All other purchases and sales are recognised on the settlement date with the change in value between the commitment date and settlement date not recognised for assets carried at cost or amortised cost; recognised in profit or loss for trading securities, derivatives and other financial assets at fair value through profit or loss; and recognised in equity for assets classified as available-for-sale.

Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. All interbank placements, beyond overnight placements are included in due from other banks. Amounts, which relate to funds that are of a restricted nature, are excluded from cash and cash equivalents. Cash and cash equivalents are carried at amortised cost.

Mandatory reserve balances. Mandatory reserve balances are carried at amortised cost and represent non-interest bearing mandatory reserve assets. In those cases where the Central Bank regulations require the Group to keep at the beginning of each business day certain amount as mandatory reserve deposit and hence the mandatory reserve balances are not available to finance the Group’s day to day operations, they are not considered as part of cash and cash equivalents for the purposes of the consolidated cash flow statement.

Trading securities. Trading securities are securities which are either acquired for generating a profit from short-term fluctuations in price or trader’s margin, or are securities included in a portfolio in which a pattern of short-term trading exists. The Group classifies securities into trading securities if it has an intention to sell them within a short period after purchase, i.e. within 3 months. Trading securities are not reclassified out of this category even when the Group’s intentions subsequently change.

Trading securities are carried at fair value. Interest earned on trading securities calculated using the effective interest method is presented in the consolidated income statement as interest income. Dividends are included in dividend income within other operating income when the Group’s right to receive the dividend payment is established and it is probable that the dividends will be collected. All other elements of the changes in the fair value and gains or losses on derecognition are recorded in profit or loss as gains less losses from trading securities in the period in which they arise.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

Other securities at fair value through profit or loss. Other securities at fair value through profit or loss are securities designated irrevocably, at initial recognition, into this category. Management designates securities into this category only if (a) such classification eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or (b) a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information on that basis is regularly provided to and reviewed by the Group’s key management personnel.

Recognition and measurement of this category of financial assets is consistent with the above policy for trading securities.

Due from other banks. Amounts due from other banks are recorded when the Group advances money to counterparty banks with no intention of trading the resulting unquoted non-derivative receivable due on fixed or determinable dates. Amounts due from other banks are carried at amortised cost.

Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to purchase or originate an unquoted non-derivative receivable from a customer due on fixed or determinable dates and has no intention of trading the receivable. Loans and advances to customers are carried at amortised cost.

When impaired financial assets are renegotiated and the renegotiated terms and conditions differ substantially from the previous terms, the new asset is initially recognised at its fair value.

Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers whether a financial asset is impaired is its overdue status and realisability of related collateral, if any. The following other principal criteria are also used to determine that there is objective evidence that an impairment loss has occurred:

- any instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems; - the borrower experiences a significant financial difficulty as evidenced by borrower’s financial information that the Group obtains; - the borrower considers bankruptcy or a financial reorganisation; - there is adverse change in the payment status of the borrower as a result of changes in the national or local economic conditions that impact the borrower; and - the value of collateral significantly decreases as a result of deteriorating market conditions.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets and the experience of Management in respect of the extent to which amounts will become overdue as a result of past loss events and the success of recovery of overdue amounts. Past experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect past periods and to remove the effects of past conditions that do not exist currently. Past experience is the basis for the estimation of the loss identification period, in particular the time lag between the actual loss event and identification of the loss event by the Group. This approach ensures the impact of that losses which have not yet been specifically identified, is included in the estimation of loan loss impairment.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

If the terms of a financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification of terms.

Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss.

Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined.

Credit related commitments. The Group enters into credit related commitments, including letters of credit and financial guarantees. Financial guarantees represent irrevocable assurances to make payments in the event that a customer cannot meet its obligations to third parties and carry the same credit risk as loans. Financial guarantees and commitments to provide a loan are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the commitment, except for commitments to originate loans if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination; such loan commitment fees are deferred and included in the carrying value of the loan on initial recognition. At each balance sheet date, the commitments are measured at the higher of (i) the remaining unamortised balance of the amount at initial recognition and (ii) the best estimate of expenditure required to settle the commitment at the balance sheet date.

Investment securities available-for-sale. This classification includes investment securities which the Group intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. The Group classifies investments as available-for-sale at the time of purchase.

Investment securities available-for-sale are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in profit or loss. Dividends on available-for-sale equity instruments are recognised in profit or loss when the Group’s right to receive payment is established and it is probable that the dividends will be collected. All other elements of changes in the fair value are deferred in equity until the investment is derecognised or impaired, at which time the cumulative gain or loss is removed from equity to profit or loss. Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of investment securities available-for-sale. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses on equity instruments are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through current period’s profit or loss.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

Sale and repurchase agreements and lending of securities. Sale and repurchase agreements (“repo agreements”) which effectively provide a lender’s return to the counterparty are treated as secured financing transactions. Securities sold under such sale and repurchase agreements are not derecognised. The securities are not reclassified in the balance sheet unless the transferee has the right by contract or custom to sell or repledge the securities, in which case they are reclassified as repurchase receivables. The corresponding liability is presented within amounts due to other banks or other borrowed funds.

Securities purchased under agreements to resell (“reverse repo agreements”) which effectively provide a lender’s return to the Group are recorded as due from other banks or loans and advances to customers, as appropriate. The difference between the sale and repurchase price is treated as interest income and accrued over the life of repo agreements using the effective interest method.

Investment securities held to maturity. This classification includes quoted non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has both the intention and ability to hold to maturity. Management determines the classification of investment securities held to maturity at their initial recognition and reassesses the appropriateness of that classification at each balance sheet date. Investment securities held to maturity are carried at amortised cost.

Promissory notes purchased. Promissory notes purchased are included in trading securities, investment securities available-for-sale or in due from other banks or in loans and advances to customers, depending on their substance and are recorded, subsequently remeasured and accounted for in accordance with the accounting policies for these categories of assets.

Derecognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the acquirer’s share of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the date of exchange. Goodwill on acquisitions of subsidiaries is presented separately in the consolidated balance sheet. Goodwill is carried at cost less accumulated impairment losses, if any.

The Group tests goodwill for impairment at least annually and whenever there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of cash- generating units, that are expected to benefit from the synergies of the business combination. Such units or group of units represent the lowest level at which the Group monitors goodwill and are not larger than a segment. Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the operation disposed of, generally measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit which is retained.

Premises, leasehold improvements and equipment. Premises, leasehold improvements and equipment are stated at cost, restated to the equivalent purchasing power of the Ukrainian hryvnia at 31 December 2000 for assets acquired prior to 1 January 2001, or revalued amounts, as described below, less accumulated depreciation and provision for impairment, where required. Cost of premises and equipment of acquired subsidiaries is the estimated fair value at the date of acquisition.

Premises of the Group are subject to revaluation on a regular basis. The frequency of revaluation depends upon the movements in the fair values of the premises being revalued. The revaluation reserve for premises included in equity is transferred directly to retained earnings when the surplus is realised, i.e. either on the retirement or disposal of the asset. At the date of revaluation accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

Construction in progress is carried at cost less provision for impairment where required. Construction in progress is not depreciated until the asset is available for use.

All other items of premises and equipment are stated at cost less accumulated depreciation and impairment losses, if any.

Costs of minor repairs and maintenance are expensed when incurred. Cost of replacing major parts or components of premises and equipment items are capitalised and the replaced part is retired.

If impaired, premises, leasehold improvements and equipment are written down to the higher of their value in use and fair value less costs to sell. The decrease in carrying amount is charged to profit or loss to the extent it exceeds the previous revaluation surplus in equity. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the estimates used to determine the asset’s value in use or fair value less costs to sell.

Gains and losses on disposals determined by comparing proceeds with carrying amount are recognised in profit or loss.

Depreciation. Depreciation of premises, leasehold improvements and equipment is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives as follows:

Premises 50 years Computers 4 years Furniture and equipment 4-10 years Motor vehicles 6 years Other 3-5 years

Leasehold improvements are depreciated over the term of the underlying lease.

The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. The residual value of an asset is nil if the Group expects to use the asset until the end of its physical life. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Intangible assets. All of the Group’s intangible assets have definite useful life and primarily include capitalised computer software.

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Development costs that are directly associated with identifiable and unique software controlled by the Group are recorded as intangible assets if the inflow of incremental economic benefits exceeding costs is probable. Capitalised costs include staff costs of the software development team and an appropriate portion of relevant overheads. All other costs associated with computer software, e.g. its maintenance, are expensed when incurred. Capitalised computer software is amortised on a straight line basis over expected useful lives of 5 years.

Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss on a straight-line basis over the period of the lease.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

Finance leases. Where the Group is a lessee in a lease which transfers substantially all the risks and rewards incidental to ownership to the Group, the assets leased are capitalised in premises, leasehold improvements and equipment at the commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of future finance charges, are included in other financial liabilities. The interest cost is charged to the income statement over the lease period using the effective interest method. The assets acquired under finance leases are depreciated over their useful life or the shorter lease term if the Group is not reasonably certain that it will obtain ownership by the end of the lease term.

Due to other banks and other financing institutions. Amounts due to other banks and other financing institutions are recorded when money or other assets are advanced to the Group by counterparty banks or other financing institutions. The non-derivative liability is carried at amortised cost. If the Group purchases its own debt, it is removed from the consolidated balance sheet and the difference between the carrying amount of the liability and the consideration paid is included in gains or losses arising from early retirement of debt.

Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporate customers and are carried at amortised cost.

Debt securities in issue . Debt securities in issue include promissory notes, bonds issued by the Group. Debt securities are stated at amortised cost. If the Group purchases its own debt securities in issue, they are removed from the consolidated balance sheet and the difference between the carrying amount of the liability and the consideration paid is included in gains arising from early retirement of debt.

Subordinated debt. Subordinated debt represents long-term borrowing agreements that, in case of the Group’s default, would be secondary to the Group’s primary debt obligations. Subordinated debt is carried at amortised cost.

Derivative financial instruments. Derivative financial instruments, including foreign exchange contracts, interest rate futures, forward rate agreements, currency and interest rate swaps, currency and interest rate options are carried at their fair value.

All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative . Changes in the fair value of derivative instruments are included in profit or loss. The Group does not apply hedge accounting.

Certain derivative instruments embedded in other financial instruments are treated as separate derivative instruments when their risks and characteristics are not closely related to those of the host contract.

Income taxes. Income taxes have been provided for in the consolidated financial statements in accordance with legislation enacted or substantively enacted by the balance sheet date. The income tax charge comprises current tax and deferred tax and is recognised in the consolidated income statement except if it is recognised directly in equity because it relates to transactions that are also recognised, in the same or a different period, directly in equity.

Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within administrative and other operating expenses.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantively enacted at the balance sheet date which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets and liabilities are netted only within the individual companies of the Group. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.

Deferred income tax is provided on post acquisition retained earnings of subsidiaries, except where the Group controls the subsidiary’s dividend policy and it is probable that the difference will not reverse through dividends or otherwise in the foreseeable future.

Uncertain tax positions. The Group's uncertain tax positions are reassessed by Management at every balance sheet date. Liabilities are recorded for income tax positions that are determined by Management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the balance sheet date and any known Court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on Management’s best estimate of the expenditure required to settle the obligations at the balance sheet date.

Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount. They are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

Trade and other payables. Trade payables are accrued when the counterparty has performed its obligations under the contract and are carried at amortised cost.

Dividends. Dividends are recorded in equity in the period in which they are declared. Dividends declared after the balance sheet date and before the financial statements are authorised for issue are disclosed in the subsequent events note. The statutory accounting reports of the Bank are the basis for profit distribution and other appropriations. Ukrainian legislation identifies the basis of distribution as the retained earnings.

Income and expense recognition. Interest income and expense are recorded in the consolidated income statement for all debt instruments on an accrual basis using the effective interest method. This method defers, as part of interest income or expense, all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Fees integral to the effective interest rate include origination fees received or paid by the entity relating to the creation or acquisition of a financial asset or issuance of a financial liability, for example fees for evaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating the terms of the instrument and for processing transaction documents. Commitment fees received by the Group to originate loans at market interest rates are integral to the effective interest rate if it is probable that the Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination. The Group does not designate loan commitments as financial liabilities at fair value through profit or loss.

When loans and other debt instruments become doubtful of collection, they are written down to present value of expected cash inflows and interest income is thereafter recorded for the unwinding of the present value discount based on the asset’s effective interest rate which was used to measure the impairment loss.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

All other fees, commissions and other income and expense items are generally recorded on an accrual basis by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Loan syndication fees are recognised as income when the syndication has been completed and the Group retained no part of the loan package for itself or retained a part at the same effective interest rate for the other participants.

Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as the acquisition of loans, shares or other securities or the purchase or sale of businesses, which are earned on execution of the underlying transaction are recorded on its completion. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time-proportion basis. Asset management fees related to investment funds are recorded rateably over the period the service is provided. The same principle is applied for wealth management, financial planning and custody services that are continuously provided over an extended period of time.

Recognition of deferred day one profit and loss. The Group has entered into transactions, where fair value is determined using valuation models for which not all inputs are market observable prices or rates. Such a financial instrument is initially recognised at the transaction price, which is the best indicator of fair value, although the value obtained from the relevant valuation model may differ. The difference between the transaction price and the model value, commonly referred to as “day one profit and loss”, is not recognised immediately in profit and loss.

The timing of recognition of deferred day one profit and loss is determined individually. It is either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred day one profit and loss. Subsequent changes in fair value are recognised immediately in the income statement without reversal of deferred day one profits and losses.

Foreign currency translation. The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. The Bank’s functional currency and the Group’s presentation currency is the national currency of Ukraine, Ukrainian hryvnia (“UAH”).

Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate at the respective balance sheet dates. Foreign exchange gains and losses resulting from the settlement of transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange rates are recognised in profit or loss. Translation at year-end rates does not apply to non-monetary items, including equity investments. Effects of exchange rate changes on the fair value of equity securities are recorded as part of the fair value gain or loss.

As the characteristics of the economic environment of Ukraine indicate that hyperinflation has ceased, effective from 1 January 2001 the Bank no longer applies the provisions of IAS 29. Accounting for the effects of hyperinflation prior to 1 January 2001 is detailed further below. The results and financial position of each group entity (the functional currency of none of which is a currency of a hyperinflationary economy) are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate component of equity.

When a subsidiary is disposed of through sale, liquidation, repayment of share capital or abandonment of all, or part of, that entity, the exchange differences deferred in equity are reclassified to profit or loss.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

The principal rates of exchange used for translating foreign currency balances were:

31 December 2007, UAH 31 December 2006, UAH 1 USD 5.050000 5.050000 1 EUR 7.419460 6.650850 1 RUB 0.205790 0.191790 1 LVL 10.644849 9.539372 1 GEL 3.172908 2.947184

Fiduciary assets. Assets and liabilities held by the Group in its own name, but on the account of third parties, are not reported on the consolidated balance sheet. The extent of such balances and transactions is indicated in Note 30. For the purposes of disclosure, fiduciary activities do not encompass safe custody functions. Commissions received from fiduciary activities are shown in fee and commission income.

Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

Accounting for the effects of hyperinflation. Prior to 2001 Ukraine experienced relatively high levels of inflation and was considered to be hyperinflationary as defined by IAS 29 “Financial Reporting in Hyperinflationary Economies” (“IAS 29”). In accordance with IAS 29, when an economy ceases to be hyperinflationary and an enterprise is not required to prepare and present financial statements in accordance with IAS 29, it should treat the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements. Those non-monetary items that arose in the periods of hyperinflation or earlier periods need to be restated in terms of the purchasing power of Ukrainian hryvnia at the end of the reporting period preceding the period in which hyperinflation ceased.

This restatement was prepared by indexing the historical balances by changes in the general price index up to 31 December 2000.

Monetary assets and liabilities are not restated because they are already expressed in terms of the monetary unit current at the period end. Non-monetary assets and liabilities (items which are not expressed in terms of the monetary unit current at the period end) are restated by applying the relevant conversion factor. The effect of inflation on the Group’s net monetary position in 2000 and prior years is included in retained earnings.

Staff costs and related contributions. Wages, salaries, contributions to the Ukrainian state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by the employees of the Group.

Segment reporting . A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segments with a majority of revenue earned from sales to external customers and whose revenue, result or assets are ten percent or more of all the segments are reported separately. Geographical segments of the Group have been reported separately within these consolidated financial statements based on the ultimate domicile of the counterparty, e.g. based on economic risk rather than legal risk of the counterparty.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

3 Summary of Significant Accounting Policies (Continued)

Changes in presentation. Where necessary, corresponding figures have been adjusted to conform to the presentation of the current year amounts. The Bank decided to separate loans and advances to customers issued to small and medium enterprises from corporate and individual clients. The effect of reclassifications is as follows:

In millions of Ukrainian hryvnias (as presentation currency, Note 3) 2006

Increase in Loans to small and medium enterprises (SME), gross 2,043

Decrease in Corporate loans, gross (193) Loans to individuals, gross (1,850)

Any further changes to these financial statements require approval of the Bank’s Management who authorised these financial statements for issue.

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognised in the financial statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on Management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Impairment of available-for-sale equity investments. The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates among other factors, the volatility in share price.

During 2006 and 2007 the Group increased its exposure to market risk in relation to its investment portfolio. Prior to 2006 this portfolio mainly consisted of actively traded shares of Ukrainian companies, the market value of which Management believed to be reflective of their inherent value. In 2006 the Bank decided to change its investment policy and started to invest in more risky securities which the Management believes have a greater risk/return profile.

As at 31 December 2007 the Group’s portfolio of equity investments were carried at cost less impairment. The cost of these equity investments was UAH 623 million and the carrying value was UAH 4 million (2006: cost UAH 672 million and carrying value UAH 84 million). For these equity securities, fair value cannot be reliably determined as there was no active market for these shares, the recent trades were effected at prices which vary significantly within the same day or recent trade prices were not publicly available. For the purposes of assessment of impairment of those equity securities for which fair value cannot be reliably determined, the Group has considered financial data of the investees, where available, and cash flows from subsequent sale of securities discounted at market interest rate.

In 2007 the Group sold or exchanged for others equity investments, shares with the carrying value of UAH 83 million (2006: UAH 606 million) at the date of sale, whose fair value could not be reliably determined as at 31 December 2006. A gain of UAH 139 million (2006: UAH 22 million) was recognised in the consolidated income statement in respect of this sale.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued)

In 2007 the Group recognised impairment losses on investment securities available-for-sale of UAH 607 million (2006: UAH 551 million). Had the Management adopted different assumptions and used different valuation judgements when determining whether or not the available-for-sale investment securities were impaired, the carrying amount of the available-for-sale equity investments could have been significantly increased. Management based its estimate of the carrying amount on available information. Had more information regarding equity securities been available, Management’s estimate of the carrying amount and appropriateness of impairment charges may have changed.

Tax legislation. Ukrainian and Russian tax, currency and customs legislation is subject to varying interpretations. Refer to Note 30.

Impairment losses on loans and advances. The Group regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the assessed delay in repayment of principal on 5% of the total loans and advances to custom ers differs by +/- one month, the provision would be approximately UAH 25 million (2006: UAH 17 million) higher or UAH 21 million (2006: UAH 17 million) lower.

Fair value of derivatives. The fair values of financial derivatives that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations require Management to make estimates. Changes in assumptions about these factors could affect reported fair values.

As at 31 December 2007 the Group had loans to customers totalling UAH 10,339 million (2006: UAH 7,251 million) issued in UAH with the condition of compensation to be received by the Group in the event that the official exchange rate of UAH depreciates against USD. The contract to receive compensation was accounted for by the Group as financial derivative with insignificant fair value as at 31 December 2007 (2006: UAH 44 million) estimated using a valuation technique. This valuation technique takes into account expected movements in exchange rates and probabilities of these movements with the highest probability estimated for exchange rate of UAH 5.05 per USD 1. Changing the assumptions about probabilities of movements in the exchange rates may result in a different profit. If the highest probability is assigned to an exchange rate of UAH 5.10 (2006: UAH 5.15) to USD 1, the fair value of the derivative and the respective income statement movement would increase by UAH 85 million (2006: UAH 71 million).

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

4 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued)

As at 31 December 2007 the Group had loans totalling UAH 137 million issued to construction companies in USD at 12% nominal interest rate per annum with the condition of compensation to be received by the Group on sale of real estate, for construction of which money were borrowed. Compensation is calculated as 50% of sale proceeds less cost of sales, which is a fixed amount and less cost of borrowings. The contract to receive compensation was accounted for by the Group as a financial derivative with the fair value of UAH 41 million estimated using a valuation technique. This valuation technique takes into account expected prices for real estate property at the time of sale of real estate property. Changing the assumptions about probabilities of movements in the prices for real estate property, not supported by observable market data to a reasonably possible alternative, may result in a different profit. If prices for real estate increase/decreased by 5% above the estimated prices, the fair value of derivative and respective income statement movement would increase/decrease by UAH 7 million. The fair value of the derivative at inception and as at 31 December 2006 was insignificant.

Special Purpose Entities. Judgement is also required to determine whether the substance of the relationship between the Group and a special purpose entity indicates that the special purpose entity is controlled by the Group.

Initial recognition of related party transactions. In the normal course of business the Group enters into transactions with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analysis.

Goodwill. Recoverable amount of goodwill was estimated based on value in use calculation. Refer to Note 12.

Fair value of premises. As stated in Note 13, premises of the Group are subject to revaluation on a regular basis. Such revaluations are based on the results of work of independent valuers. The basis for their work is sales comparison approach, which is further confirmed by income capitalisation approach. When performing revaluation certain judgements and estimates are applied by the valuers in order to determine which comparable premises should be used in the sales comparison approach, what should be the useful lives of the assets revalued and what capitalisation rates should be applied for the income capitalisation approach. Changes in assumptions about these factors could affect reported fair values.

Judgement is required to determine frequency of revaluation based on changes in the fair value of premises subject to revaluation. The Management regularly analyses whether the fair value of premises differs materially from its carrying amount, to conclude if further revaluation is required. Based on the analysis of the fair value of premises as at 31 December 2007, the Management concluded that no further revaluation is required as fair value of premises is not materially different from the carrying amount.

Recognition of financial instruments. Management applies judgement to determine whether financial assets and financial liabilities should be recognised in a transaction where the counterparty for both asset and liability is the same. No asset and liability is recognised in the balance sheet where the arrangement is in the same currency, for the same amount and with the same maturity, unless there is a substantial business purpose for such an arrangement.

Initial recognition of loans received from other financing institutions . The Group has long-term loans received under credit-lines from other financing institutions. These resources are received under the inter-state project financing aimed to serve the public interest that is often provided at advantageous rates. As the transactions are with unrelated parties, Management’s judgement is that this lending should be considered as an instrument of a special purpose market and no initial recognition gains should arise.

Derecognition of financial assets. Management applies judgement to determine if substantially all the significant risks and rewards of ownership of financial assets are transferred to counterparties, in particular which risks and rewards are the most significant and what constitutes substantially all risks and rewards. During the year ended 31 December 2007 the Group sold a portfolio of loans with carrying value of UAH 617 million to another Ukrainian bank. However, these loans have not been derecognised as in the Management's judgement the derecognition criteria were not met

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

5 Adoption of New or Revised Standards and Interpretations

Certain new IFRSs became effective for the Group from 1 January 2007. Listed below are those new or amended standards or interpretations which are or in the future could be relevant to the Group’s operations and the nature of their impact on the Group’s accounting policies. All changes in accounting policies were applied retrospectively with adjustments made to the retained earnings at 1 January 2006, unless otherwise described below.

IFRS 7, Financial Instruments: Disclosures and a complementary Amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures (effective from 1 January 2007). The IFRS introduced new disclosures to improve the information about financial instruments, including about quantitative aspects of risk exposures and the methods of risk management. The new quantitative disclosures provide information about the extent of exposure to risk, based on information provided internally to the entity’s key management personnel. Qualitative and quantitative disclosures cover exposure to credit risk, liquidity risk and market risk including sensitivity analysis to market risk. IFRS 7 replaced IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions , and some of the requirements in IAS 32, Financial Instruments: Disclosure and Presentation . The Amendment to IAS 1 introduced disclosures about the level of an entity’s capital and how it manages capital. The new disclosures are made in these consolidated financial statements. Other new standards or interpretations. The Group has adopted the following other new standards or interpretations which became effective from 1 January 2007: IFRIC 7, Applying the Restatement Approach under IAS 29 (effective for periods beginning on or after 1 March 2006); IFRIC 8, Scope of IFRS 2 (effective for periods beginning on or after 1 May 2006); IFRIC 9, Reassessment of Embedded Derivatives (effective for annual periods beginning on or after 1 June 2006); IFRIC 10, Interim Financial Reporting and Impairment (effective for annual periods beginning on or after 1 November 2006). The new IFRIC interpretations 7 to 10 did not significantly affect the Group’s financial statements.

Effect of Adoption of New or Revised Standards. No significant changes to consolidated financial information were made as a result of adoption of new or revised standards and interpretations.

6 New Accounting Pronouncements

Certain new standards and interpretations have been published that are mandatory for the Group’s accounting periods beginning on or after 1 January 2008 or later periods and which the Group has not early adopted:

IFRS 8, Operating Segments (effective for annual periods beginning on or after 1 January 2009). The standard applies to entities whose debt or equity instruments are traded in a public market or that file, or are in the process of filing, their financial statements with a regulatory organisation for the purpose of issuing any class of instruments in a public market. IFRS 8 requires an entity to report financial and descriptive information about its operating segments and specifies how an entity should report such information. Management is currently assessing what impact the standard will have on segment disclosures in the Group’s financial statements.

Puttable financial instruments and obligations arising on liquidation—IAS 32 and IAS 1 Amendment (effective from 1 January 2009). The amendment requires classification as equity of some financial instruments that meet the definition of a financial liability. The Group does not expect the amendment to affect its consolidated financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

6 New Accounting Pronouncements (Continued)

IAS 23, Borrowing Costs (revised March 2007; effective for annual periods beginning on or after 1 January 2009). The revised IAS 23 was issued in March 2007. The main change to IAS 23 is the removal of the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. An entity is, therefore, required to capitalise such borrowing costs as part of the cost of the asset. The revised standard applies prospectively to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009. The Group does not expect the amendment to affect its consolidated financial statements.

IAS 1, Presentation of Financial Statements (revised September 2007; effective for annual periods beginning on or after 1 January 2009). The revised IAS 1 replaces the financial statement titles ‘balance sheet’ and ‘cash flow statement’ with ‘statement of financial position’ and ‘statement of cash flows’. The main change in IAS 1 is the replacement of the income statement by a statement of comprehensive income which will also include all non-owner changes in equity, such as the revaluation of available-for-sale financial assets. Alternatively, entities will be allowed to present two statements: a separate income statement and a statement of comprehensive income. The revised IAS 1 also introduces a requirement to present a statement of financial position at the beginning of the earliest comparative period whenever the entity restates comparatives due to reclassifications, changes in accounting policies, or corrections of errors. The Bank expects the revised IAS 1 to impact the presentation of its financial statements but to have no impact on the recognition or measurement of specific transactions and balances.

IAS 27, Consolidated and Separate Financial Statements (revised January 2008; effective for annual periods beginning on or after 1 July 2009). The revised IAS 27 will require an entity to attribute total comprehensive income to the owners of the parent and to the non-controlling interests (previously “minority interests”) even if this results in the non-controlling interests having a deficit balance (the current standard requires the excess losses to be allocated to the owners of the parent in most cases). The revised standard specifies that changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control must be accounted for as equity transactions. It also specifies how an entity should measure any gain or loss arising on the loss of control of a subsidiary. At the date when control is lost, any investment retained in the former subsidiary will have to be measured at its fair value. The Group is currently assessing the impact of the amended standard on its consolidated financial statements.

Vesting Conditions and Cancellations—Amendment to IFRS 2, Share-based Payment (issued in January 2008; effective for annual periods beginning on or after 1 January 2009). The amendment clarifies that only service conditions and performance conditions are vesting conditions. Other features of a share-based payment are not vesting conditions. The amendment specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group does not expect the amendment to affect its consolidated financial statements.

IFRS 3, Business Combinations (revised January 2008; effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). The revised IFRS 3 will allow entities to choose to measure non- controlling interests using the existing IFRS 3 method (proportionate share of the acquiree’s identifiable net assets) or at fair value. The revised IFRS 3 is more detailed in providing guidance on the application of the purchase method to business combinations. The requirement to measure at fair value every asset and liability at each step in a step acquisition for the purposes of calculating a portion of goodwill has been removed. Instead, goodwill will be measured as the difference at acquisition date between the fair value of any investment in the business held before the acquisition, the consideration transferred and the net assets acquired. Acquisition-related costs will be accounted for separately from the business combination and therefore recognised as expenses rather than included in goodwill. An acquirer will have to recognise at the acquisition date a liability for any contingent purchase consideration. Changes in the value of that liability after the acquisition date will be recognised in accordance with other applicable IFRSs, as appropriate, rather than by adjusting goodwill. The revised IFRS 3 brings into its scope business combinations involving only mutual entities and business combinations achieved by contract alone. The Group is currently assessing the impact of the amended standard on its consolidated financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

6 New Accounting Pronouncements (Continued)

IFRS 1 amendments to First-time adoption of international financial reporting standards and IAS 27 Consolidated and separate financial statements - Cost of an investment in a subsidiary, jointly controlled entity or associate (effective for annual periods beginning on or after 1 January 2009).

Improvements to IFRSs (issued in May 2008). In 2007, the International Accounting Standards Board decided to initiate an annual improvements project as a method of making necessary, but non urgent, amendments to International Financial Reporting Standards. The amendments issued in May 2008 consist of a mixture of substantive changes, clarifications, and corrections to terminology in various standards. The Company does not expect any material impact on its financial statements from these amendments when they become effective on 1 January 2009 or later.

Other new standards or interpretations. The Group has not early adopted the following other new standards or interpretations:

IFRIC 11, IFRS 2 - Group and Treasury Share Transactions (effective for annual periods beginning on or after 1 March 2007); IFRIC 12, Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008); IFRIC 13, Customer Loyalty Programmes (effective for annual periods beginning on or after 1 July 2008); IFRIC 14, IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for annual periods beginning on or after 1 January 2008).

Unless otherwise described above, the new standards and interpretations are not expected to significantly affect the Group’s financial statements.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

7 Cash and Cash Equivalents and Mandatory Reserve Balances

In millions of Ukrainian hryvnias 2007 2006

Cash on hand 3,104 1,944 Cash balances with the NBU (other than mandatory reserve deposits) 114 205 Mandatory cash balances with the NBU 828 419 CashbalanceswiththeCentralBankofRussianFederation 198 86 Cash balances with the Central Bank of Latvia 124 153 Cash balances with the Central Bank of Cyprus 60 45 Cash balances with the Central Bank of Georgia 16 - Correspondent accounts and overnight placements with other banks - Ukraine 1 120 - Other countries 3,507 893

Total cash and cash equivalents and mandatory reserve balances 7,952 3,865

As at 31 December 2007 mandatory reserve balance with the National Bank of Ukraine is calculated on the basis of a simple average over a monthly period (2006: monthly period) and should be maintained at the level of 0.5 to 5 per cent (2006: 0.5 to 5 per cent) of certain obligations of the Bank. As such, mandatory reserve balance with the National Bank of Ukraine can vary from day-to-day. For December 2007 the Bank’s mandatory reserve balance was UAH 828 million (2006: UAH 419 million). The Bank may satisfy its mandatory reserve requirement with its balance on correspondent account with the National Bank of Ukraine (31 December 2006: balance on correspondent account with the National Bank of Ukraine). Mandatory reserve balances carry zero interest rate.

As at 31 December 2007, in accordance with the NBU regulations the Bank was required to maintain the daily balance on correspondent account with the NBU at the level not less than 100% of the mandatory reserves balance for the preceding month (2006: not less than 100% of the mandatory reserve balance for the preceding month).

As at 31 December 2007 the mandatory reserve balances of the Bank’s subsidiaries in Russia, Latvia, Georgia were UAH 55 million (2006: in Russia and Latvia UAH 106 million).

As the respective liquid assets are not available to finance the Group’s day-to-day operations, except for the mandatory reserves with the Bank of Latvia and the Central Bank of Cyprus for the purposes of the consolidated cash flow statement, the mandatory reserve balance is excluded from cash and cash equivalents. As at 31 December 2007 the Group’s cash and cash equivalents for the purposes of consolidated cash flow statement were as follows:

In millions of Ukrainian hryvnias 2007 2006

Total cash and cash equivalents and mandatory reserves balances 7,952 3,865 Less mandatory reserves balances (884) (457)

Cash and cash equivalents for the purposes of the consolidated cash flow statement 7,068 3,408

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

7 Cash and Cash Equivalents and Mandatory Reserve Balances (Continued)

Analysis by credit quality of cash and cash equivalents and mandatory reserve balances outstanding at 31 December 2007 is as follows:

Cash on Cash Correspondent Total hand balances accounts and overnight with the placements with other In millions of Ukrainian hryvnias Central Bank banks

Current and not impaired Cash on hand 3,104 - - 3,104 Cash balances with Central Banks (other than mandatoryreservedeposits) - 328 - 328 MandatorycashbalanceswiththeCentralBanks - 1,012 - 1,012 Large OECD banks - - 3,266 3,266 Other OECD banks - - 194 194 Non-OECD banks - - 4646 OtherUkrainianbanks - - 2 2

Total cash and cash equivalents and mandatoryreservebalances 3,104 1,340 3,508 7,952

Analysis by credit quality of cash and cash equivalents and mandatory reserve balances outstanding at 31 December 2006 is as follows:

Cash on Cash Correspondent Total hand balances accounts and overnight with the placements with other In millions of Ukrainian hryvnias Central Bank banks

Current and not impaired Cash on hand 1,944 - - 1,944 Cash balances with Central Banks (other than mandatoryreservedeposits) - 383 - 383 MandatorycashbalanceswiththeCentralBanks - 525 - 525 Largest20Ukrainianbanks - - 5 5 Large OECD banks - - 734 734 Other OECD banks - - 101 101 Non-OECD banks - - 5858 OtherUkrainianbanks - - 115 115

Total cash and cash equivalents and mandatoryreservebalances 1,944 908 1,013 3,865

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

7 Cash and Cash Equivalents and Mandatory Reserve Balances (Continued)

Investing transactions that did not require the use of cash and cash equivalents were excluded from the consolidated cash flow statement are as follows:

In millions of Ukrainian hryvnias 2007 2006

Non-cash investing activities Acquisition of investment securities available-for-sale in exchange for other investment securities available-for-sale (615) (949) Proceeds from disposal of investment securities available-for-sale in exchange for other investment securities available-for-sale 604 949 Acquisition of premises - (99) Liability for finance lease - 99 Capitalisation of dividends - 452 Share capital - (452)

Non-cash investing activities (11) -

Geographical, currency, maturity and interest rate analysis of cash and cash equivalents and mandatory reserve balances is disclosed in Note 28. Information on related party balances is disclosed in Note 34.

8 DuefromOtherBanks

In millions of Ukrainian hryvnias 2007 2006

Term placements with other banks 1,205 405 Guarantee deposits with other banks 123 205 Overdue placements with other banks - 3

Total due from other banks 1,328 613

Guarantee deposits represent balances placed with other banks as cover for letters of credit and for international payments. These are effectively restricted deposits, which are required to be maintained to complete the related trade finance activity. Refer to Note 30.

Analysis by credit quality of amounts due from other banks outstanding at 31 December 2007 is as follows:

Term placements with Guarantee deposits Total In millions of Ukrainian hryvnias other banks with other banks

Current and not impaired - Top 20 Ukrainian banks 10 - 10 - Other Ukrainian banks 7 - 7 - Large OECD banks 83 117 200 - Other OECD banks 1,097 - 1,097 - Non-OECD banks 8 6 14

Totalduefromotherbanks 1,205 123 1,328

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

8 DuefromOther Banks(Continued)

Analysis by credit quality of amounts due from other banks outstanding at 31 December 2006 is as follows:

Term Guarantee Overdue Total placements with deposits with placements with In millions of Ukrainian hryvnias other banks other banks other banks

Current and not impaired -Top20Ukrainianbanks - - 3 3 -OtherUkrainianbanks 71 20 - 91 -LargeOECDbanks 204 84 - 288 - Other OECD banks 78 27 - 105 - Non-OECD banks 52 74 - 126

Totalduefromotherbanks 405 205 3 613

As at 31 December 2007 the total aggregate amount of one counterpart of the Group amounted to UAH 1,032 million (2006: UAH 202 million) or 78% of the gross due from other banks (2006: 33%).

Carrying value of each class of amounts due from other banks approximates fair value at 31 December 2007 and 31 December 2006. At 31 December 2007 the estimated fair value of due from other banks was UAH 1,328 million (2006: UAH 613 million). Refer to Note 32.

Geographical, currency, maturity and interest rate analysis of due from other banks is disclosed in Note 28. Information on related party balances is disclosed in Note 34.

9 Loans and Advances to Customers

In millions of Ukrainian hryvnias 2007 2006

Corporate loans 23,957 16,266 Loans to individuals - card 5,542 3,441 Loans to individuals - mortgage 5,075 2,789 Loans to individuals - auto 3,655 1,997 Loans to individuals - consumer 2,297 1,858 Loans to individuals - other 1,362 736 Loans to small and medium enterprises (SME) 3,924 2,043 Reverse sale and repurchase agreements - corporate 68 4

Less: Provision for loan impairment (2,810) (2,167)

Total loans and advances to customers 43,070 26,967

As at 31 December 2007 interest income of UAH 329 million (2006: UAH 130 million) was accrued on loans and advances to customers impaired at the year end.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

9 Loans and Advances to Customers (Continued)

Movements in the provision for loan impairment during 2007 are as follows:

Corpo- Loans to individuals SME Reverse Total rate sale and In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other repurchase

Provision for loan impairment at 1January2007 1,591 197 98 69 79 29 104 -2,167 (Recovery of)/provision for impairmentduringtheyear (7) 444 (8) (4) 251 46 (57) 1 666 Amounts written off during the year as uncollectible (19) - (3) - (13) - - - (35) Recovery of amounts previously writtenoffasuncollectible - - - - 3 - - - 3 Acquisitionofsubsidiaries - - - - 1 - 1 - 2 Currencytranslationdifferences 1 3 1 - 2 - - - 7

Provision for loan impairment at 31December2007 1,566 644 88 65 323 75 48 12,810

Movements in the provision for loan impairment during 2006 are as follows:

Corpo- Loans to individuals SME Total rate In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Provision for loan impairment at 1January2006 1,322 152 82 59 73 24 87 1,799 Provision for impairment during the year 23845 8560 47 517 497 Amounts written off during the year as uncollectible - - (69)(50) (41) - - (160) Recovery of amounts previously writtenoffasuncollectible 29 ------29 Currencytranslationdifferences 2 ------2

Provision for loan impairment at 31December2006 1,591 197 98 69 79 29 104 2,167

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

9 Loans and Advances to Customers (Continued)

Economic sector risk concentrations within the customer loan portfolio are as follows:

2007 2006 In millions of Ukrainian hryvnias Amount % Amount %

Loanstoindividuals 17,931 39 10,821 37 Commerceandfinance 7,038 15 4,559 15 Smallandmediumenterprises(SME) 3,924 9 2,043 7 Agriculture,forestryandfoodindustry 3,838 8 2,756 9 Oil trading 3,117 7 3,089 11 Metallurgyandmining 2,735 6 2,279 8 Manufacturing 1,758 4 880 3 Securitiestrading 1,126 3 158 1 Transport,storageandcommunication 812 2 369 1 Tourism 666 1 515 2 Other 2,935 6 1,665 6

Total loans and advances to customers(beforeimpairment) 45,880 100 29,134 100

As at 31 December 2007 the total aggregate amount of loans to the top 10 borrowers of the Group amounted to UAH 4,871 million (2006: UAH 3,973 million) or 11% of the gross loan portfolio (2006: 14%).

As at 31 December 2007 the Group had 2 borrowers (2006: 9 borrowers) with aggregate loan balances in excess of 10% or the net assets of UAH 541 million (2006: UAH 325 million). The total aggregate amount of these loans was UAH 1,430 million (2006: UAH 4,979 million)

The borrowers have the contractual right to early repay the loans. Based on the types of the loan products the Group may charge penalties for such early repayments.

As at 31 December 2007 loans and advances to customers in the amount of UAH 946 million (2006: UAH 152 million) have been pledged as collateral with respect to the mortgage bonds issued. Please refer to Notes 18 and 30.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

9 Loans and Advances to Customers (Continued)

Breakdown of loans and advances to customers by type of collateral taken as at 31 December 2007 is as follows:

Corpo- Loans to individuals SME Reverse Total rate sale and In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other repurchase

Unsecuredexposures 11,6485,512 366 35 206 5391,010 - 19,316 Loans collateralised by: -cashdeposits 312 - 627 34 16 223 20 - 1,232 -residentialrealestate 478 - 3,801 199 30 60 741 - 5,309 -otherrealestate 1,380 - 173 31 31 170 716 - 2,501 -tradablesecurities 1,923 26 27 1 39 - 32 68 2,116 -equipment 1,949 - - 2 101 9 206 -2,267 -guarantees 937 4 21 4 166 28 211 - 1,371 -transportvehicles 960 - 4 130 74 13 534 - 1,715 -auto(cars) 463 - 553,217 98 39 429 - 4,301 -otherassets 3,907 - 1 2 1,536 281 25 - 5,752

Total loans and advances to customers(beforeimpairment) 23,957 5,542 5,075 3,655 2,297 1,362 3,924 68 45,880

Breakdown of loans and advances to customers by type of collateral taken as at 31 December 2006 is as follows:

Corpo- Loans to individuals SME Reverse Total rate sale and In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other repurchase

Unsecuredexposures 9,6323,289 86 17 79 246 369 4 13,722 Loans collateralised by: -cashdeposits 351 - 7 - - 51 28 - 437 -residentialrealestate 123 - 2,595 - 15 54 410 - 3,197 -otherrealestate 1,226 101 87 - 8 102 427 - 1,951 -tradablesecurities 249 - - - - 51 - - 300 -equipment 1,325 - - - 119 9198 -1,651 -guarantees 718 2 12 - 92 48116 - 988 -transportvehicles 291 - - 99 24 11 252 - 677 -auto(cars) 372 49 21,881 65 11 239 - 2,619 -otherassets 1,979 - - - 1,456 153 4 - 3,592

Total loans and advances to customers(beforeimpairment) 16,266 3,441 2,789 1,997 1,858 7362,043 4 29,134

Other assets held as collateral include gas, oil and other assets. Included in unsecured loans to corporate clients are mainly loans and advances to customers secured with property right for future cash proceeds from the sales contracts.

This disclosure represents the lower of the carrying value of the loan or collateral taken; the remaining part is disclosed within the unsecured exposures. The carrying value of loans was allocated based on the liquidity of the assets taken as collateral.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

9 Loans and Advances to Customers (Continued)

Analysis by credit quality of loans outstanding at 31 December 2007 is as follows:

Corpo- Loans to individuals SME Reverse Total rate sale and In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other repurchase

Current and not impaired - Large borrowers with credit history with the Group over two years 4,153 ------4,153 - Large new borrowers with credit history with the Group less than 2 years 5,322 ------5,322 -Loanstomediumsizeentities 7,069 19 1,002 25 59 497 301 40 9,012 -Loanstosmallentities 7594,581 3,576 3,243 1,684 707 3,436 28 18,014 -Loansrenegotiatedin2007 818 28 6 - - 69 18 - 939

Totalcurrentandnotimpaired 18,121 4,628 4,584 3,268 1,743 1,273 3,755 68 37,440

Past due but not impaired -lessthan30daysoverdue 30 91 237 169 70 27 85 - 709 -30to90daysoverdue 44 - 145 117 - 20 31 - 357

Totalpastduebutnotimpaired 74 91 382 286 70 47 116 - 1,066

Loans individually determined to be impaired (gross) -Notoverdue 5,407 ------5,407 -lessthan30daysoverdue 2 ------2 -30to90daysoverdue -320 - - 89 - - - 409 -90to180daysoverdue 83 171 56 53 95 18 18 - 494 -180to360daysoverdue 24 156 48 41 193 22 21 - 505 -over360daysoverdue 246 176 5 7 107 2 14 - 557

Total individually impaired loans (gross) 5,762 823 109 101 484 42 53 - 7,374

Lessimpairmentprovisions (1,566) (644) (88) (65) (323) (75) (48) (1) (2,810)

Total loans and advances to customers 22,3914,898 4,9873,590 1,9741,2873,876 67 43,070

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

9 Loans and Advances to Customers (Continued)

Analysis by credit quality of loans outstanding at 31 December 2006 is as follows:

Corpo- Loans to individuals SME Reverse Total rate sale and In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other repurchase

Current and not impaired - Large borrowers with credit history with the Group over two years 1,393 - 13 - - - - -1,406 - Large new borrowers with credit history with the Group less than 2 years 3,990 ------3,990 -Loanstomediumsizeentities 4,482 - 530 37 6 233 82 - 5,370 -Loanstosmallentities 1,1052,854 2,132 1,931 1,681 269 1,920 4 11,896 -Loansrenegotiatedin2006 523 - - - - 50 1 - 574

Totalcurrentandnotimpaired 11,493 2,854 2,675 1,968 1,687 5522,003 4 23,236

Past due but not impaired -lessthan30daysoverdue 36 298 46 11 7 36 10 - 444 -30to90daysoverdue 40 - 15 5 - 5 4 - 69

Totalpastduebutnotimpaired 76 298 61 16 7 41 14 - 513

Loans individually determined to be impaired (gross) -Notoverdue 4,409 ------4,409 -lessthan30daysoverdue 17 ------17 -30to90daysoverdue 2137 1 - 20 - - - 160 -90to180daysoverdue 22 67 5 4 5 52 4 - 159 -180to360daysoverdue 29 63 37 3 11 3 5 - 151 -over360daysoverdue 218 22 10 6 128 88 17 - 489

Total individually impaired loans (gross) 4,697 289 53 13 164 143 26 - 5,385

Lessimpairmentprovisions (1,591) (197) (98) (69) (79) (29) (104) - (2,167)

Total loans and advances to customers 14,6753,244 2,6911,928 1,779 7071,939 4 26,967

The Group applied the portfolio provisioning methodology prescribed by IAS 39, Financial Instruments: Recognition and Measurement , and created portfolio provisions for impairment losses that were incurred but have not been specifically identified with any individual loan by the balance sheet date. The Group’s policy is to classify each loan as ‘current and not impaired’ until specific objective evidence of impairment of the loan is identified.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

9 Loans and Advances to Customers (Continued)

The primary factors that the Group considers in determining whether a loan is impaired are its overdue status and realisability of related collateral, if any. As a result, the Group presents above an ageing analysis of loans that are individually determined to be impaired.

Current and not impaired, but renegotiated loans represent the carrying amount of loans that would otherwise be past due or impaired whose terms have been renegotiated. Past due but not impaired loans, except for card loans to individuals represent collateralised loans where the fair value of collateral covers the overdue interest and principal repayments. The amount reported as past due but not impaired is the whole balance of such loans, not only the individual instalments that are past due.

Fair value of collateral in respect of loans past due but not impaired and in respect of loans individually determined to be impaired at 31 December 2007 was as follows:

Corpo- Loans to individuals SME Total rate In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Fair value of collateral - loan past due but not impaired -cashdeposits 3 - - 1 1313 - 30 -residentialrealestate 4 - 655 24 22 12 78 795 -otherrealestate 26 - 6 19 4 22 108 185 -tradablesecurities 2 8 - - 1 - 2 13 -equipment 101 - 1 4 327 46 -guarantees 12 3 86 57 19 14175 366 -transportvehicles 2 - 1 19 3 6 54 85 -auto(cars) 2 - 5293 16 5 30 351 -otherassets 100 - - 1 253 30 19 403

Total fair value of collateral - loanpastduebutnotimpaired 161 12 753 415 335 105 493 2,274

Fair value of collateral - individually impaired loans -cashdeposits 1 ------1 -residentialrealestate 18 - 125 2 11 - 11 167 -otherrealestate 255 - - 1 1 - 14 271 -tradablesecurities 61 ------61 -equipment 703 - - - 9 -20 732 -guarantees 140 - 20 16 54 - 51 281 -transportvehicles 79 - - 5 1 - 9 94 -auto(cars) 12 - 3 88 10 - 10 123 -otherassets 255 - - - 276 - 7 538

Total fair value of collateral - individuallyimpairedloans 1,524 - 148 112 362 - 122 2,268

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

9 Loans and Advances to Customers (Continued)

Fair value of collateral in respect of loans past due but not impaired and in respect of loans individually determined to be impaired at 31 December 2006 was as follows:

Corpo- Loans to individuals SME Total rate In millions of Ukrainian hryvnias loans Card Mortgage Auto Consumer Other

Fair value of collateral - loan past due but not impaired -cashdeposits 1 - - - 8 - - 9 -residentialrealestate 7 - 104 - - - 2 113 -otherrealestate 10 - - - - - 2 12 -equipment 7- - - 2 -3 12 -guarantees 8 - - 1 9 - 8 26 -transportvehicles 4 - - 1 - - 1 6 -auto(cars) 2 - -10 1 - 2 15 -otherassets 1 - - - 27 2 2 32

Total fair value of collateral - loanpastduebutnotimpaired 40 - 104 12 47 2 20 225

Fair value of collateral - individually impaired loans -cashdeposits 1 - - - 7 5 - 13 -residentialrealestate 77 - 91 - - 9 10 187 -otherrealestate 226 - 5 - - 13 12 256 -tradablesecurities 39 ------39 -equipment 109 1 - - 2 8 9 129 -guarantees 125 2 3 1 5 11 25 172 -transportvehicles 40 - - 1 - 4 6 51 -auto(cars) 16 3 -34 - 3 5 61 -otherassets 59 1 - - 248 66 5 379

Total fair value of collateral - individually impaired loans 692 7 99 36 262 119 72 1,287

Fair value of residential real estate at the balance sheet date was estimated by indexing the values determined by the Group’s internal credit department staff at the time of loan inception for the average increases in residential real estate prices by city and region. Fair value of other real estate and other assets was determined by the Group’s credit department using the Group’s internal guidelines.

The estimated fair value of loans and advances to customers by class of financial asset as at 31 December 2007 is disclosed in the Note 32.

Geographical, currency, maturity and interest rate analysis of loans and advances to customers is disclosed in Note 28. Information on related party balances is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

10 Investment Securities Available-for-Sale

In millions of Ukrainian hryvnias 2007 2006

Promissory notes - 32

Total debt securities - 32

Corporate shares – at fair value - 368 Corporate shares – at cost 623 672

Less: Provision for impairment (619) (588)

Total investment securities available-for-sale 4 484

The movements in investment securities available-for-sale are as follows:

In millions of Ukrainian hryvnias Note 2007 2006

Carrying amount at 1 January 484 720 Gains less losses from disposals 22 145 305 Purchases 1,154 1,693 Disposalsofinvestmentsecuritiesavailable-for-sale (1,200) (1,686) Acquisitions of subsidiaries 35 28 - Fair value gain recognised in equity - 8 Provision for impairment during the year (607) (551) Reclassification to loans and advances to customers - (5)

Carrying amount at 31 December 4 484

Geographical, currency, maturity and interest rate analysis of investment securities available-for-sale is disclosed in Note 28. Information on related party debt investment securities available-for-sale is disclosed in Note 34.

11 Investment Securities Held to Maturity

In millions of Ukrainian hryvnias 2007

Deposit certificates of the NBU 1,160

Total investment securities held to maturity 1,160

Deposit certificates are short-term debt securities issued by the NBU with the initial maturity of 6-8 days and annual interest rate of 1%-2%.

Carrying value of investment securities held to maturity approximates fair value at 31 December 2007. At 31 December 2007 the estimated fair value of investment securities held to maturity was UAH 1,160 million. Refer to Note 32.

Geographical, currency, maturity and interest rate analysis of investment securities held to maturity is disclosed in Note 28. Information on related party investment securities held to maturity is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

12 Goodwill

Movements in goodwill arising on the acquisition of subsidiaries are:

In millions of Ukrainian hryvnias Note 2007 2006

Carrying amount at 1 January 30 27 Acquisition of subsidiary 35 2 - Effect of translation to presentation currency 3 3

Carrying amount at 31 December 35 30

Goodwill arising on the acquisition of 99.85% of total ordinary shares of Closed Joint-Stock Company “Cobos” and 95.07% of total ordinary shares of AS Paritate Banka (Latvia) and 75% of total ordinary shares of JSC TaoPrivatBank for which the agreement dates were after 31 March 2004, is carried at cost less accumulated impairment and not amortised but assessed annually for impairment.

Goodwill Impairment Test

Goodwill is allocated to cash-generating units (CGUs) which represent the lowest level within the Group at which the goodwill is monitored by Management and which are not larger than a segment as follows:

In millions of Ukrainian hryvnias 2007 2006

PrivatBank AS 32 29 CJSC Cobos 1 1 JSC TaoPrivatBank 2 -

Total carrying amount of goodwill 35 30

The recoverable amount of each CGU (including goodwill) was determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates. The growth rates do not exceed the long-term average growth rate for the business sector of the economy in which the CGU operates. Management determined budgeted gross margin based on past performance and its market expectations.

Geographical analyses of goodwill is disclosed in Note 28.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

13 Premises, Leasehold Improvements and Equipment and Intangible Assets

Note Premises Leasehold Computers Motor Furniture, Total improve- vehicles equip- ments ment, intangible assets In millions of Ukrainian hryvnias and other

Cost or valuation at 1 January 2006 541 81 351 57 594 1,624 Accumulated depreciation and amortisation (7) (59) (198) (18) (198) (480)

Carryingamountat1January2006 534 22 153 39 396 1,144

Additions 139 20 80 23 294 556 Disposals (51) (1) - (1) (13) (66) Transfers - (2) 2 - - - Depreciationandamortisationcharge 25 (14) (18) (49) (8) (117) (206) Revaluation 293 - - - - 293 Effect of translation to presentation currency 6 - - - 6 12

Carryingamountat31December2006 907 21 186 53 566 1,733

Costorvaluationat31December2006 928 83 422 75 871 2,379 Accumulated depreciation and amortisation (21) (62) (236) (22) (305) (646)

Carryingamountat31December2006 907 21 186 53 566 1,733

Acquisitions through business 16 - 3 1 2 22 combinations Additions 225 27 308 23 158 741 Disposals (8) - - (2) (1) (11) Transfers - - 119 - (119) - Depreciationandamortisationcharge 25 (22) (20) (130) (11) (91) (274) Revaluation 12 - - - - 12 Effect of translation to presentation currency 10 - 3 1 9 23

Carryingamountat31December2007 1,140 28 489 65 524 2,246

Costorvaluationat31December2007 1,186 106 916 95 827 3,130 Accumulated depreciation and amortisation (46) (78) (427) (30) (303) (884)

Carryingamountat31December2007 1,140 28 489 65 524 2,246

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

13 Premises, Leasehold Improvements and Equipment and Intangible Assets (Continued)

The basis of valuation of premises was market value and discounted cash flow techniques in cases where market value was not determinable.

Included in the above carrying amount is UAH 512 million (2006: UAH 503 million) representing revaluation surplus relating to premises of the Group. As at 31 December 2007 a cumulative deferred tax liability of UAH 124 million (2006: UAH 125 million) was calculated with respect to this valuation adjustment and has been recorded directly to equity. At 31 December 2007 the carrying amount of premises would have been UAH 493 million (2006: UAH 406 million) had the assets been carried at cost less depreciation.

During 2007 the Group transferred items of property with total carrying value of UAH 119 million from furniture, equipment, intangible assets and other category into computers. Assets transferred mainly consist of ATMs and POS-terminals.

Construction in progress amounts to UAH 432 million (2006: UAH 266 million). Carrying value of items of construction in progress is included into the carrying values of appropriate categories of premises, leasehold improvements and equipment.

As at 31 December 2007 premises with total carrying value of UAH 72 million had been retired from active use and are not classified as held for sale in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” as conditions of this standard are not met.

As at 31 December 2007 the gross carrying amount of fully depreciated property, leasehold improvements and equipment that are still in use was UAH 309 million (2006: UAH 256 million).

Included in premises is an asset held under finance leases at carrying amount of UAH 65 million (2006: UAH 62 million). Included in office and computer equipment are assets held under finance leases at carrying amount of UAH 87 million (2006: UAH 76 million). Refer to Note 19.

14 Other Financial Assets

In millions of Ukrainian hryvnias Note 2007 2006

Doubtful debts from operations with customers 96 21 Plastic cards receivables 88 48 Financial derivatives 31 41 48 Accrued income receivable 36 21 Other 40 8

Less: Provision for impairment (72) (39)

Total other financial assets 229 107

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

14 Other Financial Assets (Continued)

Movements in the provision for impairment of other financial assets during 2007 and 2006 are as follows:

Doubtful debts Plastic Accrued Other Total from operations cards income In millions of Ukrainian hryvnias with clients receivables receivable

Provisionforimpairmentat1January2006 13 8 4 5 30 Provisionforimpairmentduringtheyear 5 (1) 2 3 9

Provisionforimpairmentat31December2006 18 7 6 8 39

Provisionforimpairmentduringtheyear 38 (7) (6) (7) 18 Amountswrittenoffduringtheyearasuncollectible (5) - - - (5) Acquisition of subsidiaries 14 6 - - 20 -

Provisionforimpairmentat31December2007 65 6 - 1 72

Analysis by credit quality of other financial receivables outstanding at 31 December 2007 is as follows:

Doubtful debts Plastic Financial Accrued Other Total from operations cards derivatives income In millions of Ukrainian hryvnias with customers receivables receivable

Current and not impaired - Large customers with credit historyovertwoyears - - 41 - 36 77 -Mediumsizedcompanies - - - 2 - 2 -Smallcompanies 14 - - 34 1 49 -LargeOECDbanks - 6 - - 1 7 -Non-OECDbanks 1 76 - - 1 78

Totalcurrentandnotimpaired 15 82 41 36 39 213

Receivables individually determined to be impaired (gross) -30to90daysoverdue 81 6 - - 1 88

Total receivables individually determinedtobeimpaired 81 6 - - 1 88

Lessimpairmentprovision (65) (6) - - (1) (72)

Total other financial receivables 31 82 41 36 39 229

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

14 Other Financial Assets (Continued)

Analysis by credit quality of other financial receivables outstanding at 31 December 2006 is as follows:

Doubtful debts Plastic Financial Accrued Other Total from operations cards derivatives income In millions of Ukrainian hryvnias with customers receivables receivable

Current and not impaired - Large customers with credit historyovertwoyears - - 48 - - 48 -Smallcompanies - 3 - - - 3 -LargeOECDbanks - 6 - - - 6 -Non-OECDbanks - 39 - - - 39

Totalcurrentandnotimpaired - 48 48 - - 96

Past due but not impaired -30to90daysoverdue - - - 21 - 21

Totalpastduenotimpaired - - - 21 - 21

Receivables individually determined to be impaired (gross) -90to180daysoverdue 21 - - - 8 29

Total receivables individually determinedtobeimpaired 21 - - - 8 29

Less impairment provision (18) (7) - (6) (8) (39)

Total other financial receivables 3 41 48 15 - 107

The primary factors that the Group considers whether a receivable is impaired is its overdue status. As a result, the Group presents above an ageing analysis of receivables that are past due but not impaired and individually determined to be impaired.

Carrying value of each class of other financial assets approximates fair value at 31 December 2007 and 31 December 2006. At 31 December 2007 the estimated fair value of other financial assets was UAH 229 million (2006: UAH 107 million). Refer to Note 32. Information on related party balances is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

15 Other Assets

In millions of Ukrainian hryvnias 2007 2006

Prepaid expenses 46 62 Precious metals held 37 39 Prepayments for premises and equipment 27 29 Inventory and other banking assets 22 43 Prepayments for taxes other than income tax 12 - Prepayments for securities - 8 Other 35 -

Total other assets 179 181

16 Due to Other Banks and Other Financing Institutions

In millions of Ukrainian hryvnias 2007 2006

Term placements of other banks 4,246 2,310 Long-term loans under the credit lines from other financing institutions 1,520 1,203 Correspondent accounts and overnight placements of other banks 469 743 Pledge deposits of other banks 5 10

Totalduetootherbanksandotherfinancinginstitutions 6,240 4,266

Long-term loans under the credit lines from other financing institutions as at 31 December 2007 represent credit lines for small and medium enterprises provided by the German-Ukrainian Fund and international financing institutions (2006: German-Ukrainian Fund, State Mortgage Institution and international financing institutions). Loans provided by other international financing institutions are denominated in USD and EUR (2006: USD), have interest rates of 6.7%-8.9% (2006: 6.6%-8.9%) per annum and maturity in January 2008-November 2008 (2006: August 2007-August 2008). The loan provided by German-Ukrainian Fund is denominated in EUR, has interest rate of EURIBOR+2.5% per annum and maturity in April 2008 (2006: interest rate of EURIBOR+1.5% per annum and maturity in April 2008). The loan provided by State Mortgage Institution is denominated in UAH, has interest rate of 12% per annum and maturity in July 2007.

The carrying value of each class of due to other banks approximates fair value at 31 December 2007 and 31 December 2006. At 31 December 2007 the estimated fair value of due to other banks was UAH 6,240 million (2006: UAH 4,266). Refer to Note 32.

Geographical, currency, maturity and interest rate analysis of due to other banks and other financing institutions is disclosed in Note 28. Information on related party balances is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

17 Customer Accounts

In millions of Ukrainian hryvnias 2007 2006

Individuals - Term deposits 18,953 11,881 - Current/demand accounts 5,908 3,770

Legal entities - Term deposits 2,624 2,106 - Current/settlement accounts 8,518 5,954

Total customer accounts 36,003 23,711

Economic sector concentrations within customer accounts are as follows:

2007 2006 In millions of Ukrainian hryvnias Amount % Amount %

Individuals 24,861 69 15,651 66 Services 5,881 16 1,078 5 Trade 2,157 6 3,276 14 Machinery 574 2 428 2 Manufacturing 492 1 1,391 6 Transportandcommunication 319 1 297 1 Agriculture 206 1 160 1 Other 1,513 4 1,430 5

Totalcustomeraccounts 36,003 100 23,711 100

At 31 December 2007 the aggregate balance of the top 10 customers of the Group amounts to UAH 2,720 million (2006: UAH 1,350 million) or 8% of total customer accounts (2006: 6%).

At 31 December 2007 included in customer accounts are deposits of UAH 61 million (2006: UAH 499 million) held as collateral for irrevocable commitments under import letters of credit, financial guarantees and promissory notes endorsements.

As at 31 December 2007 included in customer accounts are deposits of UAH 1,232 million (2006: UAH 437 million) held as collateral for loans and advances to customers, issued by the Group.

Fair value of each class of customer accounts is disclosed in the Note 32.

Geographical, currency, maturity and interest rate analysis of customer accounts is disclosed in Note 28. Information on related party balances is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

18 Debt Securities in Issue

In millions of Ukrainian hryvnias 2007 2006

Eurobonds 2,595 - Private placements of bonds 2,977 811 Mortgage bonds 769 80 Promissory notes 18 - Other debt securities in issue - 34

Total debt securities in issue 6,359 925

In February 2007 the Group issued USD denominated Eurobonds with a par value of UAH 2,525 million maturing in February 2012. The bonds carry a coupon rate of 8% per annum, and yield to maturity of 10%. The Eurobonds are listed on the Swiss Stock Exchange.

In February 2007 the Group issued USD denominated Residential Mortgage Backed Floating Rate Notes (referred to as Mortgage bonds) with a par value of UAH 909 million. The notes were issued in three series. The main features of the issues are described in the table below.

Notes Principal Initial interest Step-up Interest rate after Maturitydate Issue amount, rate date step-up date price UAH million

ClassA 677 LIBOR+2.1% April2014 LIBOR+4.2% December2031 100% ClassB 186 LIBOR+3.75% April2014 LIBOR+7.5% December2031 100% ClassC 46 10% - -December2031 100%

The class C series bonds were repurchased by the Group according to the terms of issue.

In May 2007 the Latvian subsidiary of the Group issued EUR denominated Mortgage bonds with a par value of UAH 67 million maturing in May 2010. The bonds carry a coupon rate of EURIBOR+1.55%.

Mortgage bonds issued with the carrying value of UAH 769 million (2006: UAH 80 million) are effectively collateralised with loans and advances to customers in the amount of UAH 878 million (2006: UAH 152 million). Refer to Note 30.

The fair value of each class of debt securities in issue is disclosed in Note 32.

Geographical, currency, maturity and interest rate analyses of debt securities in issue are disclosed in Note 28. Information on related party balances is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

19 Provisions for Liabilities and Charges, Other Financial and Non-financial Liabilities

Provisions for liabilities and charges, other financial and non-financial liabilities comprise the following:

In millions of Ukrainian hryvnias 31 December 2007 31 December 2006

Other financial liabilities Liability for finance lease 96 99 Funds in the course of settlement 39 17 Provision for credit related commitments 21 69 Accounts payable 16 11 Other 31 -

Total other financial liabilities 203 196

Provisions for liabilities and charges and other liabilities Unused vacation reserve 66 65 Accrued salaries and bonuses 52 47 Provision for legal case 21 21 Other 42 51

Total provisions for liabilities and charges and other non-financial liabilities 181 184

Total provisions for liabilities and charges, other financial and non-financial liabilities 384 380

Specific provisions were created for losses incurred on financial guarantees and promissory notes endorsement whose financial conditions deteriorated. The balance at 31 December 2007 is expected to be utilised by the end of 2013 (2006: by the end of 2012).

Provisions for legal cases include a provision for certain legal claims brought against the Bank by individuals and entities, who provided money to former employees of branches of the Bank, whilst those employees held senior management positions in these branches. The balance as at 31 December 2007 is expected to be utilised by the end of 2017 (2006: by the end of 2017). In the management opinion, after taking appropriate legal advice, the outcome of these legal claims will not give rise to any significant loss beyond the accrued amounts. Refer to Note 30.

Carrying value of each class of other financial liabilities approximates fair value at 31 December 2007 and 31 December 2006. At 31 December 2007 the estimated fair value of other financial liabilities was UAH 203 thousand (2006: UAH 196 million). Refer to Note 32.

Geographical, currency, maturity and interest rate analyses of other financial liabilities are disclosed in Note 28. Information on related party balances is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

20 Subordinated Debt

In millions of Ukrainian hryvnias 2007 2006

Subordinated debt provided by legal entities 899 888 Subordinated debt provided by individuals 38 38

Total subordinated debt 937 926

Subordinated debt represents long term borrowing agreements, which, in case of the Group’s default, would be secondary to the Group’s other obligations, including deposits and other debt instruments. In accordance with the Law of Ukraine on Banks and Banking Activities and the NBU regulations, subordinated debt cannot be withdrawn from the Bank for at least five years from the date of receipt.

The debts rank after all other creditors in case of liquidation.

Included in subordinated debt, provided by legal entities, are USD denominated subordinated debts issued in February 2006 in the amount of UAH 758 million at par at 8.75% per annum payable quarterly with contractual maturity in February 2016 and USD denominated subordinated debt issued in March 2005 in the amount of UAH 30 million at par at 10% per annum payable monthly with contractual maturity in March 2010. Under subordinated debt issued in February 2006 the Group has a call option exercisable in February 2011 at par.

The rest of the amount is represented by subordinated debt issued on 31 December 2002 in the amount of UAH 70 million at 7% per annum payable annually with contractual maturity of 31 December 2008. In 2003 the interest rate was decreased to 3% per annum.

Subordinated debt, provided by individuals, represents subordinated debt issued in USD, EUR and UAH during July 2004 – April 2005 with interest rates from 10% to 12% per annum payable monthly and contractual maturity from July 2009 to April 2010.

At 31 December 2007 the fair value of subordinated debt was UAH 931 million (2006: UAH 964 million). Refer to Note 32.

Geographical, currency and maturity and interest rate analysis of subordinated debt is disclosed in Note 28. Information on related party balances is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

21 Share Capital

In millions of UAH except for Number of Outstanding Nominal amount Inflation adjusted amount number of shares shares, in millions

At1January2006 11.3 1,130 1,383 Newsharesissued 9.5 952 952

At31December2006 20.8 2,082 2,335 Newsharesissued 6.3 632 632

At31December2007 27.1 2,714 2,967

On 12 May 2007 the shareholders of the Bank took a decision to issue 6.3 million of additional shares totalling UAH 632 million. On 28 August 2007 the NBU registered the increase in the share capital of the Bank in the amount of UAH 632 million.

On 20 November 2007 the shareholders of the Bank took a decision to issue 15.2 million of additional shares totalling UAH 1,515 million. As at 31 December 2007 this share issue was neither registered in the NBU nor paid by the Shareholders.

All ordinary shares have a nominal value of UAH 100 per share, rank equally and each share carries one vote.

22 Other Reserves

In millions of Ukrainian hryvnias 2007 2006

Additional capital 462 82 Revaluation reserve for premises and equipment 361 356 Revaluation reserve for available-for-sale securities - 6 Currency translation reserve 33 5

Total other reserves 856 449

Revaluation reserve for available-for-sale securities is transferred to profit or loss when realised through disposal or impairment. Revaluation reserve for buildings is transferred to retained earnings when realised through depreciation, impairment, sale or other disposal. Currency translation reserve is transferred to profit or loss when realised through disposal of a subsidiary by sale, liquidation, repayment of share capital or abandonment of all, or part of, that subsidiary.

In December 2007 the Bank’s major Shareholders made an additional capital contribution in the form of cash amounting to UAH 506 million, in respect of which the Group recognised income tax liability of UAH 126 million as at 31 December 2007. The contribution amounting to UAH 380 million, net of tax was made through related and third parties as a settlement of debts due to the major Shareholders of the Bank.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

23 Interest Income and Expense

In millions of Ukrainian hryvnias 2007 2006

Interest income Loans and advances to individuals 4,276 2,430 Loans and advances to legal entities 2,575 1,626 Due from other banks 168 114 Other 15 16

Total interest income 7,034 4,186

Interest expense Term deposits of individuals 1,526 1,019 Due to other banks and other financing institutions 580 227 Current/settlement accounts 341 225 Debt securities in issue 273 52 Term deposits of legal entities 196 203 Subordinated debt 85 78 Other 20 8

Total interest expense 3,021 1,812

Net interest income 4,013 2,374

Information on interest income and expense from transactions with related parties is disclosed in Note 34.

24 Fee and Commission Income and Expense

In millions of Ukrainian hryvnias 2007 2006

Fee and commission income Cash collection and cash transactions 730 479 Settlement transactions 669 482 Guarantees issued (Note 30) 19 14 Foreign exchange 17 9 Transactions with securities 15 10 Other 23 49

Total fee and commission income 1,473 1,043

Fee and commission expense Cash and settlement transactions 153 86 Other 8 5

Total fee and commission expense 161 91

Net fee and commission income 1,312 952

Information on fee and commission income and expense from transactions with related parties is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

25 Administrative and Other Operating Expenses

In millions of Ukrainian hryvnias Note 2007 2006

Staff costs 1,562 1,055 Depreciation and amortisation of premises, leasehold improvementsandequipmentandintangibleassets 13 274 206 Rent 268 138 Mail and telecommunication 168 112 Insurance expences 158 47 Utilities and household expenses 145 132 Maintenance of premises, leasehold improvements and equipment 123 99 Advertising and marketing 98 48 Contributions to Individual Deposits Guarantee fund 85 57 Security 70 54 Transportation 49 40 Taxes other than income 39 38 Other 197 139

Totaladministrativeandotheroperatingexpenses 3,236 2,165

Included in staff costs are statutory social security contributions of UAH 60 mln (2006: UAH 35 mln) and pension contributions of UAH 332 mln (2006: UAH 225 mln).

Information on administrative and other operating expenses from transactions with related parties is disclosed in Note 34.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

26 Income Taxes

Income tax expense comprises the following:

In millions of Ukrainian hryvnias 2007 2006

Current tax 349 84 Deferred tax 43 157

Income tax expense for the year 392 241

The income tax rate applicable to the majority of the Group’s income is 25% (2006: 25%). The income tax rate applicable to the majority of subsidiaries income ranges from 15% to 30% (2006: from 15% to 25%). A reconciliation between the expected and the actual taxation charge is provided below.

In millions of Ukrainian hryvnias 2007 2006

Profit before tax 1,514 857

Theoretical tax charge at statutory rate (2007: 25%; 2006: 25%) 379 214

Tax effect of items which are not deductible or assessable for taxation purposes: - Income which is exempt from taxation - (1) - Non-deductible expenses 31 29 - Other (17) - Profits taxed at different rates (1) (1)

Income tax expense for the year 392 241

During the year ended 31 December 2007 a deferred tax liability of UAH 3 million (2006: UAH 73 million) has been recorded directly in equity in respect of the revaluation of the Group’s premises. In addition, during the year ended 31 December 2006 a deferred tax asset of UAH 2 million has been recorded directly in equity in respect of the valuation of securities available-for-sale.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

26 Income Taxes (Continued)

Differences between IFRS and Ukraine and other countries statutory taxation regulations give rise to certain temporary differences between the carrying amount of certain assets and liabilities for financial reporting purposes and for income tax purposes. The tax effect of the movement on these temporary differences is recorded at the rate of 25% (2006: 25%), except for temporary differences that arise in respect of assets and liabilities of subsidiaries located in other countries.

31 December Business (Charged)/ Charged 31 December 2006 combi- credited to directly to 2007 In millions of Ukrainian hryvnias nations profit or loss equity

Tax effect of deductible temporary differences Accruedexpensesandotherliabilities 34 - 34 - 68 Prepaidexpensesandotherassets - - 6 - 6 Trading securities and investment securitiesavailable-for-sale - - 28 - 28

Grossdeferredtaxasset 34 - 68 - 102 Less offsetting with deferred tax liability (34) - (34) - (68)

Recogniseddeferredtaxasset - - 34 - 34

Tax effect of taxable temporary differences Trading securities and investment securitiesavailable-for-sale (132) - 88 2 (42) Premises, leasehold improvements and equipment (168) - (7) (1) (176) Loanimpairmentprovision (218) - (40) - (258) Accruedincome (62) - (113) - (175) Fair value of derivative financial instruments (11) - 4 - (7) Prepaidexpensesandotherassets (8) - 2 - (6) Deferral of transaction costs at initial recognition (5) - (45) - (50)

Grossdeferredtaxliability (604) - (111) 1 (714) Lessoffsettingwithdeferredtaxasset 34 - 34 - 68

Recogniseddeferredtaxliability (570) - (77) 1 (646)

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

26 Income Taxes (Continued)

31 December Business (Charged)/ Charged 31 December 2005 combi- credited to directly to 2006 In thousands of Ukrainian hryvnias nations profit or loss equity

Tax effect of deductible temporary differences Accruedexpensesandotherliabilities 13 - 21 - 34

Grossdeferredtaxasset 13 - 21 - 34 Less offsetting with deferred tax liability (9) - (25) - (34)

Recogniseddeferredtaxasset 4 - (4) - -

Tax effect of taxable temporary differences Trading securities and investment securitiesavailable-for-sale (167) - 37 (2) (132) Premises, leasehold improvements andequipment (81) 2 (17) (72) (168) Loanimpairmentprovision (51) - (167) - (218) Accrued income (40) - (22) - (62) Fair value of derivative financial instruments - - (11) - (11) Prepaidexpensesandotherassets (5) - (3) - (8) Deferral of transaction costs at initial recognition (10) - 5 - (5)

Grossdeferredtaxliability (354) 2 (178) (74) (604) Lessoffsettingwithdeferredtaxasset 9 - 25 - 34

Recogniseddeferredtaxliability (345) 2 (153) (74) (570)

In the context of the Group’s current structure and Ukrainian tax legislation, tax losses and current tax assets of different group companies may not be offset against current tax liabilities and taxable profits of other group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore, deferred tax assets and liabilities are offset only when they relate to the same taxable entity and the same taxation authority.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

27 Segment Analysis

The Group’s primary format for reporting segment information is business segments and the secondary format is geographical segments.

Business Segments. The Group is organised on a basis of four main business segments:

 Retail banking – representing private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages, monetary transfers and foreign exchange services.

 Corporate banking – representing direct debit facilities, current accounts, deposits, overdrafts, loan and other credit facilities, foreign currency and derivative products.

 Investment banking – representing financial instruments trading, structured financing, corporate leasing, merger and acquisitions advice.

 Treasury – representing interbank loans, deposits, foreign currency exchange operations, arrangement of funding in the international markets, asset and liabilities management, issue of senior bonds and assets backed securities, project financing, negotiation of limits for trade financing with financial institutions.

Transactions between the business segments are on normal commercial terms and conditions. Funds are ordinarily reallocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on the Group’s cost of capital. There are no other material items of income or expense between the business segments. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balances sheet, but excluding taxation. Internal charges and transfer pricing adjustments have been reflected in the performance of each business segment.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

27 Segment Analysis (Continued)

Segment information for the main reportable business segments of the Group for the years ended 31 December 2007 and 2006 is set out below:

Retail Corporate Investment Treasury Unallo- Elimina- Total In millions of Ukrainian hryvnias banking banking banking cated tions

2007

Externalrevenues 4,543 3,562 56 433 - - 8,594 Revenuesfromothersegments 359 - - 833 1,310 (2,502) -

Totalrevenues 4,902 3,562 56 1,266 1,310 (2,502) 8,594

Total revenues comprise: -Interestincome 3,972 3,065 10 1,179 1,310 (2,502) 7,034 -Feeandcommissionincome 893 460 38 82 - - 1,473 -Otheroperatingincome 37 37 8 5 - - 87

Totalrevenues 4,902 3,562 56 1,266 1,310 (2,502) 8,594

Segmentresult 952 689 (556) 245 184 - 1,514 Income tax expense (392)

Profit 1,122

Segmentassets 23,023 23,598 103 8,646 865 - 56,235 Current and deferred tax assets 35

Total assets 56,270

Segmentliabilities 25,227 9,895 343 14,356 102 - 49,923 Current and deferred tax liabilities 941

Total liabilities 50,864

Capitalexpenditure 418 118 4 3 194 - 737 Depreciation and amortisation 129 43 1 1 100 - 274 expense Impairment losses charged to profitorloss 683 (48) 607 - - - 1,242

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

27 Segment Analysis (Continued)

Retail Corporate Investment Treasury Unallo- Elimina- Total In millions of Ukrainian hryvnias banking banking banking cated tions

2006

Externalrevenues 2,774 2,331 51 157 - - 5,313 Revenuesfromothersegments 288 2 - 230 367 (887) -

Totalrevenues 3,062 2,333 51 387 367 (887) 5,313

Total revenues comprise: -Interestincome 2,443 1,902 10 351 367 (887) 4,186 -Feeandcommissionincome 613 393 27 10 - - 1,043 -Otheroperatingincome 6 38 14 26 - - 84

Totalrevenues 3,062 2,333 51 387 367 (887) 5,313

Segmentresult 731 345 (263) 108 (64) - 857 Income tax expense (241)

Profit 616

Segmentassets 12,648 18,764 767 1,399 441 - 34,019 Current and deferred tax assets 10

Total assets 34,029

Segment liabilities 15,593 10,038 244 4,283 50 - 30,208 Current and deferred tax liabilities 573

Total liabilities 30,781

Capitalexpenditure 255 154 - 1 146 - 556 Depreciation and amortisation expense 104 52 - - 50 - 206 Impairment losses charged to profit orloss 290 366 454 (36) - - 1,074

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

27 Segment Analysis (Continued)

Geographical segments. Segment information for the main geographical segments of the Group is set out below for the years ended 31 December 2007 and 2006. In millions of Ukrainian hryvnias Ukraine OECD Non-OECD Total

2007

Segment assets 42,246 6,156 7,833 56,235 External revenues 7,438 100 1,056 8,594 Capital expenditure (663) - (74) (737) Creditrelatedcommitments(Note30) 2,033 - 41 2,074

2006

Segment assets 29,020 1,567 3,432 34,019 External revenues 4,784 101 428 5,313 Capital expenditure (526) - (30) (556) Creditrelatedcommitments(Note30) 1,093 6 288 1,387

External revenues and assets, other than as detailed below, and credit related commitments have generally been allocated based on domicile of the counterparty. Cash on hand, precious metals, premises and equipment and capital expenditure have been allocated based on the country in which they are physically held.

28 Financial Risk Management

The primary goal for the Group’s risk management is to achieve an optimal level of risk-return of its operations. The purpose of risk management is to monitor and control the size and concentration of risks arising from the Group’s activities. The risk management function within the Group is carried out in respect of financial risks (credit, market, geographical, currency, liquidity and interest rate), operational risks and legal risks. The Group’s risk management policy is designed to identify and analyse the above mentioned risks, set appropriate limits and continually monitor these risks and limits by means of advanced administrative and information systems. The Group manages risks using principles of checks and balances, continuity, prudence and hedging. Furthermore, the Group’s risk management policies and systems are continuously modified and enhanced to reflect changes in markets and products. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.

Risk Management Bodies Risk management policy, monitoring and control are conducted by a number of bodies of the Group under the supervision of the credit committee (the “Credit Committee”) and the recently created Security Committee. Other bodies responsible for risk management within the Group include the Treasury, the Finance and Risk Division (comprising the Risk Control Department and the Analytical Risk Management Centre) and the Financial Risks Department. The Group also has a system of internal controls which is supervised and monitored by its Internal Audit Department and Financial Monitoring Department.

Credit Committee The Credit Committee, which is composed of the Chairman of the Bank, its Deputies, the Head of the Dnipropetrovsk regional branch, the Head of the Finance and Risk Division and the Head of the Analytical Risk Management Centre, meets bi-weekly and is responsible for setting credit policy, approving loans over the prescribed lending limits and the limits for counterparty banks, monitoring loan performance and the quality of the Group’s loan portfolio and reviewing large loan projects and the lending policies of the Bank’s branches. The Credit Committee also monitors the interest rates set for a range of currencies by the Group’s main competitors and the overall market situation and determines the Group’s pricing policy on the basis on the above. In addition, due to the importance of liquidity risk management, the Credit Committee is also responsible for preparing and formulating management decisions with regard to increasing the Group’s funding base.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

Security Committee The Security Committee is primarily responsible for reducing transaction risk, including assisting management in preventing fraud; enhancing the security of the Group’s staff and its information systems, including the implementation of the Group’s personnel security policy; and improving the Group’s ability to resist internal and external threats to its systems, including threats to the Group’s IT security. The Security Committee meets monthly and the members in attendance vary depending on the topic of the meeting.

Treasury Day-to-day asset and liability management is done by the Treasury. The Treasury is responsible for overseeing the Group’s assets and liabilities and liquidity and interest rate sensitivity analysis based on instructions and guidelines from the Financial Risks Department and its own assessments. The Treasury is responsible for the operational aspects of asset and liability management.

Financial Risks Department The Financial Risks Department calculates and monitors the Bank’s compliance with the mandatory ratios set by the NBU, the requirement to maintain mandatory reserves on the Bank’s correspondent account with the NBU and its internal liquidity ratios (in accordance with the Bank’s internal Methodology for Liquidity Risk Assessment and Control). In carrying out these functions, the Financial Risks Department works with the Treasury, its back office, and depositary and credit service officers of the head office business divisions and the Credit Committee.

In order to monitor and control liquidity within the Bank and its branches and sub-branches, the Financial Risks Department prepares daily reports on the maximum liquidity gap by matching assets and liabilities with different maturities and currencies as well as providing daily forecasts of the Group’s balances on its correspondent account with the NBU to ensure the Bank’s compliance with the mandatory reserve requirement and with the instant, current and short-term liquidity ratios set by the NBU. The liquidity reports are maintained in an electronic database that is accessible by the Treasury and is used for purposes of liquidity management. In addition, the Financial Risks Department prepares guidelines for head office business divisions seeking to raise long-term funds and/or reviews decisions of the Credit Committee on the implementation of programmes to increase the Bank’s funding base in order to ensure that the Group’s short- and long-term liquidity requirements are met.

Risk Control Department The Risk Control Department analyses the creditworthiness of counterparty banks, calculates provisions for the Group’s active operations and limits for counterparty banks, monitors problem assets in the loan portfolio under credit programs, monitors compliance with interbank transaction limits, reviews the lending authority limits of branch and sub-branch heads, analyses lending policies of the branches and sub- branches and provides the Credit Committee with suggestions for improving its policies. It also determines the strategy and basic methodological approaches in the Group’s risk management system and oversees its compliance with the requirements established by the NBU as well as the Group’s internal guidelines (including, among others, transaction limits and balance sheet structural limits for branches and sub-branches).

Analytical Risk Management Centre The Analytical Risk Management Centre reviews and checks the results of work performed by the divisions of the Group and assists in formulating management decisions on enhancing transactional security and reducing risk based on data derived from this verification process. In particular, the Analytical Risk Management Centre develops methodologies for detecting suspicious and fraudulent transactions and for reducing errors in statistical analysis of data from the Group’s accounting software and other sources, and verifies risk assumptions based on the results of such analyses.

Credit risk. The Group takes on exposure to credit risk which is the risk that a counterparty will be unable to pay all amounts in full when due. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

The Group’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets on the consolidated balance sheet. Refer to Notes 7, 8, 9 and 14. For guarantees, import letters of credit and commitments to extend credit, the maximum exposure to credit risk is the amount of the commitment. Refer to the Note 30.

The general principles of the Group’s credit policy are outlined in the formal Group’s Credit Policy. Formal and unified Group’s Credit Manual regulates every significant aspect of the lending operations of the Group and outlines procedures for analysing the financial position of borrowers and the valuation of any proposed collateral and specifies the requirements for loan documentation and the procedures for the monitoring of loans.

The Group has collateral policy based on a thorough review and assessment of the value of collateral. The Group’s goal is to ensure that there is sufficient collateral to cover a particular loan if the quality of that loan should deteriorate in value. A substantial portion of the Group’s loan portfolio generally include acceleration clauses in case of deterioration of the financial position of the borrower. Credit products are, except in very unusual circumstances, only made available to customers that hold accounts with the Group. This policy provides the dual benefits of additional security for the credit products and additional business for the Group in other areas of corporate banking services.

The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to a single borrower, or groups of affiliated borrowers, and by close on-going supervision of concentrations in geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and principal payment obligations and by changing the lending limits where appropriate. Exposure to credit risk is also managed, in part, by obtaining collateral and corporate and personal guarantees.

Basic information on the level of credit risk, including reports on the loan portfolio and the volume of problem assets broken down by credit programme and manager, is posted on the Group’s internal website. This information is updated weekly and can be viewed both as at the current date and over a period of time. There are specific sections of the Group’s website dedicated to problem assets for both corporate and retail clients and the portfolio of corporate loans.

A review of the lending and deposit-taking policy of each branch is presented to the Credit Committee twice per month. The following information on the Bank’s branch loan portfolio is considered by the Credit Committee:

 information on the major risks taken (being the ten largest exposures in the portfolio);  information on the ten largest problem loans; and  information on the ten largest problem loans that have been passed to the Group’s Security Service.

Loan Approval Procedure The lending policies and credit approval procedures of the Group are based on strict guidelines in accordance with the NBU regulations. The Group also has detailed regulations for collateral assessment, which is conducted by Group’s trained specialists on collateral.

The Bank sets lending authority limits to limit risks to the Group arising from lending activities. Lending authority limits for senior managers of branches (comprising heads of branches, general and first deputy heads) are set twice per year by the Risk Control Department in the head office and approved by an order of the Bank together with proxies authorizing the relevant heads to make lending decisions. The lending authority limit of a branch or sub-branch head depends on the amount of own funds of a branch or sub- branch, overall rating of a branch or sub-branch and its integrated lending activity efficiency rating.

Lending authority limits for junior managers (heads of departments and divisions) are set by the head of the relevant branch or sub-branch and apply to a particular individual.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

If the amount of a proposed loan does not exceed the lending authority limit of a head of a branch or sub- branch, the decision on granting the loan is taken by the credit committee of a branch. If the amount exceeds this limit, lending authority is granted from the head office in accordance with the Bank’s credit procedures.

Off-Balance Sheet Policy Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a loss as a result of another party to a financial instrument failing to perform in accordance with the terms of the contract. The Group uses the same credit policies in respect of conditional obligations as it does for balance sheet financial instruments, which include credit approval procedures, risk control limits and monitoring procedures.

Loan Monitoring The Group’s IT systems allow the Management monitoring of loans’ performance on-line.

The Group reassesses the credit risk on each loan on an ongoing basis by (i) monitoring the financial and market position of the borrower and (ii) assessing the sufficiency of collateral for the loan. The financial and market position of the borrower is regularly reviewed and, on the basis of such review, the internal credit rating of the borrower may be revised. The review is based on the flow of funds into the customer’s accounts, its most recent financial statements and other business and financial information submitted by the borrower or otherwise obtained by the Group.

The current market value of collateral is monitored regularly to assess its sufficiency with respect to the loan in question. The review of collateral is performed by independent appraisal companies. The frequency of such reviews depends on the security provided and the degree of volatility of the asset’s market price.

Problem loans are identified on a daily basis based on signs of debt servicing deterioration. The Group carries out analyses of problem loans by collecting information about such loans, investigating the causes of problems and working out measures for their early redemption. On the basis of the findings of such analyses, a report is submitted to the Bank’s Board regarding the problem loans in the Group’s loan portfolio and the level of acceptable credit risk. To improve the quality of the loan portfolio, the Group applies a policy of on-line blocking the ability of a sub-branch or manager responsible for a particular lending programme to grant further loans if the percentage of non-performing loans issued by a particular sub-branch or manager exceeds the maximum permitted level of problem assets until this level decreases.

Management maintains individual records of significant number of Ukrainian retail customers, which constitutes the largest credit bureau in Ukraine, allowing the Group to mitigate credit risks by targeting borrowers, who have a good credit history.

Problem Loan Recovery The Credit Committee has developed a systematic approach involving a comprehensive set of procedures intended to enable the Group to realise the highest possible level of repayment on non- performing loans.

If a borrower does not perform its obligations under a loan agreement, it is the responsibility of the relevant credit officer to take initial actions to determine whether the cause of late payments is administrative or credit-related in nature. At this stage, the officers of the dedicated monitoring unit contact the borrower, request repayment and check the availability of any collateral. The monitoring unit calls borrowers to remind them of their repayment obligation several days before the scheduled repayment date, and after such date to demand repayment (during day-time and night-time). If such measures do not result in the repayment of the loan and the non-performance exceeds 90 days, the loan is classified as a “problem loan”. The Risk Control Department, which is able to identify all problem loans in the Group, issues a banking order each month to transfer problem loans from the relevant credit unit’s books to a specialised unit within Security Division (the “Security Service”).

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

The Security Service is responsible for all loans issued by the Group classified as “problem loans”, excluding loans where the total debt amounts to less than UAH 1,000 (which continue to be processed by the monitoring unit). The Security Service obtains and reviews all documentation relating to the borrower, performs an official internal investigation to identify the reasons for the problem, draws up a plan of action for the repayment of the debt and reviews the collateral (which may entail organising protection). In a number of enforcement actions the Group initiates court proceedings. The Security Service will often engage in negotiations with the borrower over a problem loan either concurrently with, or prior to, initiating court proceedings the collateral for sale at auction, to attach the borrower’s account(s) with another bank or to take possession of property under a mortgage or transport facilities. If collateral is available, and upon satisfactory results of an analysis of whether the borrower is undergoing purely temporary business difficulties and of that borrower’s willingness and capacity to repay its debt, negotiations usually aim at debt restructuring and include requirements to obtain additional collateral, personal guarantees by shareholders and management, increased interest rates and revised repayment schedules.

Other legal actions available to the Group include executive proceedings for the enforcement of debt and bankruptcy proceedings. In the event of any criminal action on the part of the borrower, irrespective of the borrower’s readiness to repay its debt, the Group involves the relevant state authorities. The Credit Committee meets monthly to review the status of non-performing loans.

The Group maintains a policy that problem loans are not refinanced without convincing evidence that they will be repaid or reliably secured.

Sector Concentrations The Credit Committee regularly reviews and adopts sector exposure adjustments in response to submissions of the Risk Control Department and its own sector analyses.

Related Party Lending The Group conducts its business with related parties on a commercial, arm’s-length basis. The Group competes with other banking institutions for the business of these parties. Each loan request from a related party is subject to the same credit approval procedures as are applied to any other loan applicant.

Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The Board of Directors sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements

Currency risk. Currency risk is the risk that the value of financial instruments owned by the Group will fluctuate due to changes in foreign exchange rates. The Group’s major currency positions are in Ukrainian hryvnia, U.S. dollars and Euros. In respect of currency risk, Management sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily.

The Group’s policy in respect of open currency positions is restricted under Ukrainian law to certain thresholds and strictly monitored by the NBU on a daily basis. In order to hedge its currency risk, the Group enters into arrangements with other banks pursuant to which the Group makes term deposits with other banks and accepts term deposits for the same term from the same counterparty banks in a different currency.

The Group also enters into currency options in the Group’s loan agreements with some customers requiring the customers to pay a premium in case of depreciations of the value of the Ukrainian hryvnia relative to the U.S. dollar. Refer to Note 31.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

The table below summarises the Group’s exposure to the currency risk at the balance sheet dates:

At31December2007 At31December2006 Monetary Monetary Swaps, Net Monetary Monetary Swaps, Net financial financial spots balance financial financial spots balance In millions of assets liabilities and sheet assets liabilities and sheet Ukrainian hryvnias forwards position forwards position

UAH 26,162 23,068 322 3,416 17,582 13,352 (95) 4,135 US Dollars 19,394 18,509 (1,420) (535) 10,120 12,868 (191) (2,939) Euros 5,590 6,462 1,096 224 2,352 2,802 288 (162) Other 2,618 1,700 (1) 917 1,563 866 - 697

Total 53,764 49,739 (3) 4,022 31,617 29,888 2 1,731

Derivatives presented above are monetary financial assets or monetary financial liabilities, but are presented separately in order to show the Group’s gross exposure .

Amounts disclosed in respect of derivatives represent the fair value, at the balance sheet date, of the respective currency that the Group agreed to buy (positive amount) or sell (negative amount) before netting of positions and payments with the counterparty. The amounts by currency are presented gross as stated in Note 30. The net total represents the fair value of the currency derivatives.

The above analysis includes only monetary assets and liabilities. Investments in equities and non- monetary assets are not considered to give rise to any material currency risk.

The following table presents sensitivities of profit and loss and equity to reasonably possible changes in exchange rates applied at the balance sheet date, with all other variables held constant:

At31December2007 At31December2006 Impact on profit Impact on equity Impact on profit Impact on equity In millions of Ukrainian hryvnias or loss or loss

USDollarstrengtheningby5% (27) 27 (147) 147 USDollarweakeningby5% 27 (27) 147 (147) Eurostrengtheningby5% 11 11 (8) 8 Euroweakeningby5% (11) (11) 8 (8) Otherstrengtheningby5% 46 46 35 35 Otherweakeningby5% (46) (46) (35) (35)

The exposure was calculated only for monetary balances denominated in currencies other than the functional currency of the respective entity of the Group.

Interest rate risk. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. Management monitors on a daily basis and sets limits on the level of mismatch of interest rate repricing that may be undertaken. The table below summarises the Group’s exposure to interest rate risks. The table presents the aggregated amounts of the Group’s financial assets and liabilities at carrying amounts, categorised by the earlier of contractual interest repricing or maturity dates.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

The Group is exposed to interest rate risk, principally as a result of lending at fixed interest rates, in amounts and for periods, which differ from those of term borrowings at fixed interest rates. In practice, interest rates are generally fixed on a short-term basis. Also, interest rates that are contractually fixed on both assets and liabilities are usually renegotiated to reflect current market conditions.

The Board sets limits on the level of mismatch of interest rates on assets and liabilities sensitive to interest rates, which is monitored regularly. In the absence of any available hedging instruments, the Group normally seeks to match its interest rate positions.

The Finance and Risk Division and the Credit Committee are both responsible for interest rate risk management. The Finance and Risk Division establishes the principal policies and approaches to interest rate risk management and the Credit Committee conducts weekly monitoring and revision of interest rates for various currencies within certain time limits and product categories. The Group regularly monitors interest rate risk by means of interest rate gap analysis, which is based on ordering assets and liabilities sensitive to interest rates into a number of time bands. Fixed interest rate assets and liabilities are arranged by the time remaining until maturity, while assets and liabilities with a variable interest rate are arranged by the nearest possible term of repricing. The net sensitivity gap between assets and liabilities in a given time band represents the volume sensitive to changes of market interest rates. The product of this difference and the presumed change of interest rates represents the approximate changes of net interest income. A negative net sensitivity gap in a given time band, which means that interest-bearing liabilities exceed interest-earning assets in that time band, represents a risk of a decline in net interest income in the event of increases in market interest rates. A positive net sensitivity gap in a given time band, which means that interest-bearing liabilities, represent a risk of a decline in net interest income in the event of a decline in market interest rates.

Demand From 1 to From 6 to More than Non- Total and less 6 months 12 months 1 year monetary than In millions of Ukrainian hryvnias 1 month

31 December 2007 Totalfinancialassets 10,777 1,805 15,332 25,723 138 53,775 Totalfinancialliabilities 17,139 5,893 20,565 6,145 - 49,742

Net interest sensitivity gap at 31December2007 (6,362) (4,088) (5,233) 19,578 138 4,033

31 December 2006 Totalfinancialassets 5,731 2,832 9,438 13,603 471 32,075 Totalfinancialliabilities 9,297 3,546 13,472 3,709 - 30,024

Net interest sensitivity gap at 31December2006 (3,566) (714) (4,034) 9,894 471 2,051

All of the Group’s debt instruments re-price within 24 years (2006: all re-price within 24 years).

At 31 December 2007, if interest rates at that date had been 50 basis points lower with all other variables held constant, profit for the year would have been UAH 9 million (2006: UAH 3 million) higher, mainly as a result of lower interest expense on variable interest liabilities. If interest rates had been 50 basis points higher, with all other variables held constant, profit would have been UAH 9 million (2006: UAH 3 million) lower, mainly as a result of higher interest expense on variable interest liabilities.

Sensitivity analysis is calculated for all interest bearing financial instruments with the floating interest rates, which are carried at amortised cost and are subject to changes in market interest rate. In addition, changes in market interest rates have an impact on fair value of fixed interest instruments classified as available-for-sale. Sensitivity analysis is prepared based on the assumption that all other variables are held constant and changes in the market interest rate would only affect interest bearing financial instruments with the floating interest rate carried at amortised cost and fair value of available-for-sale debt securities.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

The Group monitors interest rates for its financial instruments. The table below summarises interest rates based on reports reviewed by key management personnel:

2007 2006 In % p.a. USD UAH Euro Other USD UAH Euro Other

Assets Correspondent accounts and overnight deposits with other banks 1 - 3 0 312 3 - Correspondent accounts with NBU, Central Bank of Russian Federation and Central Bank of Latvia, Central Bank of Cyprus andCentralBankofGeorgia - 0 - 0 - 0 - 0 Debttradingsecurities - 10 - - - 25 - - Other debt securities at fair value through profit or loss ---8 -- -8 Duefromotherbanks 11 - 3 - 0 3 2 - Loans and advances to legal entities 12 13 11 17 12 14 12 8 Loans and advances to individuals 15 34 15 24 14 29 13 32 Debt investment securities held to maturity - 1 ------Otherfinancialassets 0 0 0 0 0 0 0 0

Liabilities Correspondent accounts and overnight deposits of other banks 0200 16 10 Termplacementsofotherbanks 8 8 6 6 8 6 5 3 Long-term loans under the credit lines from international financial EURIBOR institutions 8 - 8 - 812 +1.5 . - Customer accounts -currentaccountsofcustomers 0 0 0 0 0 0 0 0 -termdepositsoflegalentities 6 9 7 6 6 6 7 2 -termdepositsofindividuals 9 14 7 11 9 14 8 2 EURIBOR Debtsecuritiesinissue 8 12 - 10 10 12 +1.6 . 6 Subordinateddebt 9 12 11 7 9 12 10 10 Otherfinancialliabilities 16 0 0 0 0 0 0 0

The sign “-“ in the table above means that the Group does not have the respective assets or liabilities in the corresponding currency.

The Group is exposed to prepayment risk through providing fixed or variable rate loans, including mortgages, which give the borrower the right to early repay the loans. The Group’s current year profit and equity at the current balance sheet date would not have been significantly impacted by changes in prepayment rates because such loans are carried at amortised cost and the prepayment right is at or close to the amortised cost of the loans and advances to customers.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

Geographical risk concentrations. The geographical concentration of the Group’s financial assets and liabilities at 31 December 2007 is set out below:

In millions of Ukrainian hryvnias Ukraine OECD NonOECD Total

Assets Cash and cash equivalents and mandatory reserve balances 3,593 3,460 899 7,952 Trading securities 16 - - 16 Otherfinancialassetsatfairvaluethroughprofitorloss - - 16 16 Due from other banks 17 1,297 14 1,328 Loansandadvancestocustomers 35,282 1,542 6,246 43,070 Investmentsecuritiesavailable-for-sale 4 - - 4 Investmentsecuritiesheldtomaturity 1,160 - - 1,160 Other financial assets 139 5 85 229

Total financial assets 40,211 6,304 7,260 53,775

Non-financial assets 2,071 13 411 2,495

Total assets 42,282 6,317 7,671 56,270

Liabilities Due to other banks 421 5,110 709 6,240 Customer accounts 30,304 1,293 4,406 36,003 Debt securities in issue 250 5,934 175 6,359 Other financial liabilities 70 6 127 203 Subordinated debt 115 777 45 937

Total financial liabilities 31,160 13,120 5,462 49,742

Non-financial liabilities 1,055 5 62 1,122

Total liabilities 32,215 13,125 5,524 50,864

Netbalancesheetposition 10,067 (6,808) 2,147 5,406

Creditrelatedcommitments 2,035 - 39 2,074

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

The geographical concentration of the Group’s assets and liabilities at 31 December 2006 is set out below:

In millions of Ukrainian hryvnias Ukraine OECD NonOECD Total

Assets Cash and cash equivalents and mandatory reserve balances 2,186 835 844 3,865 Trading securities 21 - - 21 Othersecuritiesatfairvaluethroughprofitorloss - - 18 18 Due from other banks 97 470 46 613 Loansandadvancestocustomers 24,595 278 2,094 26,967 Investmentsecuritiesavailable-for-sale 484 - - 484 Other financial assets 62 6 39 107

Total financial assets 27,445 1,589 3,041 32,075

Non-financial assets 1,573 - 381 1,954

Total assets 29,018 1,589 3,422 34,029

Liabilities Duetootherbanksandotherfinancinginstitutions 462 3,728 76 4,266 Customer accounts 20,323 843 2,545 23,711 Debt securities in issue 499 311 115 925 Subordinated debt 107 776 43 926 Other financial liabilities 58 1 137 196

Total financial liabilities 21,449 5,659 2,916 30,024

Non-financial liabilities 702 - 55 757

Total liabilities 22,151 5,659 2,971 30,781

Netbalancesheetposition 6,867 (4,070) 451 3,248

Creditrelatedcommitments 1,094 6 287 1,387

Other risk concentrations. Management monitors and discloses concentrations of credit risk by obtaining reports listing exposures to borrowers with aggregated loan balances in excess of 10% of net assets. Refer to Notes 8, 9 and 17.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

Liquidity risk. Liquidity risk is the risk of mismatches between maturities of assets and liabilities, which may result in the Group being unable to meet its obligations in a timely manner. For liquidity risk management, the Treasury maintains a liquidity portfolio designed to provide support to the payment capacity of the Group in the event that assets and liabilities fluctuate away from internal forecasts. The Treasury constantly reviews and improves the methodology for calculating and structuring the liquidity portfolio. The Group manages assets and liabilities fluctuations through adjustments in its liquidity portfolio.

The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan drawdown, guarantees and from margin and other calls on cash-settled derivative instruments. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty.

The Group has developed specific approaches to liquidity issues based on medium-term (i.e., three to twelve months), short-term (i.e., two to fifteen weeks) and current (i.e., up to fourteen days) time periods. With respect to medium-term liquidity, the Treasury, in co-ordination with the Financial Risks Department, performs an analysis of the Group’s payments calendar over this period and considers contingency options available to the Group in the event that unfavourable developments or crisis situations occur.

Decisions on short-term liquidity management are taken by the Treasury. These decisions are based on an analysis of the volatility of various assets and liabilities. Estimates are made after application of internally developed models as to the volume and likelihood of unexpected withdrawals of funds and the probability that additional funding might be required. In order to minimise unanticipated changes in funding, the Group separately analyses the possible consequences of the withdrawal of a large amount of funds by major customers. Client managers and senior Group management work closely with major customers to coordinate plans with regard to movement of funds.

Decisions with respect to current liquidity management are taken by the head of Treasury. Reports on actions taken are made to the Credit Committee. The Group’s payments calendar for each upcoming 14- day period is analysed, and decisions taken on the attraction of short-term interbank deposits, the immediate sale of securities from the Treasury portfolio, and other facilities available to the Group. The Treasury implements decisions on a real-time basis.

The Group seeks to maintain a stable funding base comprising primarily amounts due to other banks, corporate and retail customer deposits and debt securities and invest the funds in diversified portfolios of liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements.

The liquidity management of the Group requires considering the level of liquid assets necessary to settle obligations as they fall due; maintaining access to a range of funding sources; maintaining funding contingency plans; and monitoring balance sheet liquidity ratios against regulatory requirements. The Bank calculates liquidity ratios on a daily basis in accordance with the requirement of the NBU. These ratios are:

- Instant liquidity ratio (N4), which is calculated as the ratio of highly-liquid assets to liabilities payable on demand; the ratio was 61 % at 31 December 2007 (31 December 2006: 41 %).

- Current liquidity ratio (N5), which is calculated as the ratio of liquid assets to liabilities maturing within 31 calendar days; the ratio was 87 % at 31 December 2007 (31 December 2006: 58 %).

- Short-term liquidity ratio (N6), which is calculated as the ratio of assets maturing in one year to regulatory capital and liabilities maturing in one year; the ratio was 46 % at 31 December 2007 (31 December 2006: 24 %).

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

The table below shows liabilities at 31 December 2007 by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows, including gross finance lease obligations (before deducting future finance charges), prices specified in deliverable forward agreements to purchase financial assets for cash, contractual amounts to be exchanged under a gross settled currency swaps, and gross loan commitments. Such undiscounted cash flows differ from the amount included in the balance sheet because the balance sheet amount is based on discounted cash flows. Net settled derivatives are included at the net amounts expected to be paid.

When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at the balance sheet date.

The maturity analysis of financial liabilities at 31 December 2007 is as follows:

Demand and From 1 to From 3 to From Over 5 Total less than 3 months 12 months 12 months years In millions of Ukrainian hryvnias 1 month to 5 years

Liabilities Due to other banks and other financinginstitutions 1,101 498 2,636 2,602 305 7,142 Customeraccounts 16,274 4,828 15,005 652 43 36,802 Debtsecuritiesinissue 7 446 1,239 5,364 - 7,056 Subordinateddebt 8 44 130 339 1,022 1,543 Otherfinancialliabilities 83 6 29 89 102 309 GrosssettledSWAPsandforwards 1,598 - - - - 1,598

Total contractual future payments forfinancialobligations 19,071 5,822 19,039 9,046 1,472 54,450

Credit related commitments, gross (Note 30) 99 - 325 1,671 - 2,095

The maturity analysis of financial liabilities at 31 December 2006 is as follows:

Demand and From 1 to From 3 to From Over 5 Total less than 3 months 12 months 12 months years In millions of Ukrainian hryvnias 1 month to 5 years

Liabilities Due to other banks and other financinginstitutions 16 2 3,356 637 - 4,011 Customeraccounts 11,861 3,562 10,201 70 - 25,694 Debt securities in issue - 7 84 922 - 1,013 Subordinateddebt - 34 38 134 1,056 1,262 Otherfinancialliabilities 28 2 - 97 - 127 GrosssettledSWAPsandforwards 452 - - - - 452

Total contractual future payments forfinancialobligations 12,357 3,607 13,679 1,860 1,056 32,559

Credit related commitments, gross - (Note 30) 769 15 14 658 1,456

Payments in respect of gross settled SWAPs and forwards will be accompanied by related cash inflows comprising UAH 1,595 million (2006: UAH 453 million), which are disclosed at their fair values in Note 31. Net settled SWAPs and forwards give a rise to a liability of UAH 3 million in 2007 (2006: UAH 1 million of asset). Customer accounts are classified in the above analysis based on contractual maturities.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

The Group does not use the above undiscounted maturity analysis to manage liquidity. Instead, the Group monitors expected maturities, which may be summarised as follows at 31 December 2007:

Demand and From 1 to From 3 to Over 1 No stated Total less than 3 months 12 months year maturity In millions of Ukrainian hryvnias 1 month

Assets Cash and cash equivalents and mandatory reserve balances 7,952 - - - - 7,952 Tradingsecurities 16 - - - - 16 Other financial assets at fair value throughprofitorloss 16 - - - - 16 Duefromotherbanks 30 93 1,109 96 - 1,328 Loansandadvancestocustomers 1,197 1,493 13,931 26,449 - 43,070 Investment securities available-for- sale - - - 1 34 Investmentsecuritiesheldtomaturity 1,160 - - - - 1,160 Otherfinancialassets 186 - - 43 - 229

Totalfinancialassets 10,557 1,586 15,040 26,589 3 53,775

Liabilities Due to other banks and other - financinginstitutions 1,055 486 2,496 2,203 6,240 Customeraccounts 9,111 8,145 18,546 201 - 36,003 Debtsecuritiesinissue 26 413 1,117 4,803 - 6,359 Otherfinancialliabilities 86 6 23 88 - 203 Subordinateddebt - 28 79 830 - 937

Totalfinancialliabilities 10,278 9,078 22,261 8,125 - 49,742

Net liquidity gap at 31December2007 279 (7,492) (7,221) 18,464 3 4,033

Cumulative liquidity gap at 31December2007 279 (7,213) (14,434) 4,030 - -

Creditrelatedcommitments 98 - 322 1,654 - 2,074

The above analysis is based on expected maturities. The entire portfolio of trading securities is therefore classified within demand and less than one month based on Management’s assessment of portfolio’s realisability.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

28 Financial Risk Management (Continued)

The analysis by expected maturities may be summarised as follows at 31 December 2006:

Demand and From 1 to From 3 to Over 1 No stated Total less than 3 months 12 months year maturity In millions of Ukrainian hryvnias 1 month

Assets Cash and cash equivalents and - mandatory reserve balances 3,865 - - - 3,865 Tradingsecurities 21 - - - - 21 Other financial assets at fair value throughprofitorloss - - - 12 6 18 Duefromotherbanks 105 227 250 31 - 613 Loansandadvancestocustomers 1,666 2,605 9,188 13,508 - 26,967 Investment securities available-for- sale 33 - - - 451 484 Otherfinancialassets 59 - - 48 - 107

Totalfinancialassets 5,749 2,832 9,438 13,599 457 32,075

Liabilities Due to other banks and other financinginstitutions 493 10 3,176 587 - 4,266 Customeraccounts 5,282 5,743 11,378 1,308 - 23,711 Debtsecuritiesinissue 6 2 98 819 - 925 Otherfinancialliabilities 90 2 - 104 - 196 Subordinateddebt - 27 - 899 - 926

Totalfinancialliabilities 5,871 5,784 14,652 3,717 - 30,024

Net liquidity gap at 31 December 2006 (122) (2,952) (5,214) 9,882 457 2,051

Cumulative liquidity gap at 31 December2006 (122) (3,074) (8,288) 1,594 - -

Creditrelatedcommitments 706 15 14 652 - 1,387

The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks ever to be completely matched since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Group and its exposure to changes in interest and exchange rates.

Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the commitment because the Group does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

29 Management of Capital

The Bank’s objectives when managing capital are (i) to comply with the capital requirements set by the National Bank of Ukraine, (ii) to safeguard the Bank’s ability to continue as a going concern and (iii) to maintain a sufficient capital base to achieve a capital adequacy ratio based on Basel Accord of at least 8%. The amount of capital that the Bank manages is UAH 5,184 million (2006: UAH 3,579 million).Compliance with capital adequacy ratios set by the National Bank of Ukraine is monitored monthly with reports outlining their calculation reviewed and signed by the Bank’s Chief Financial Officer and Chief Accountant.

Under the current capital requirements set by the National Bank of Ukraine banks have to maintain a ratio of regulatory capital to risk weighted assets (“statutory capital ratio”) above a prescribed minimum level. Regulatory capital is based on the Bank’s daily reports prepared based on the statutory trial balance unadjusted for accruals, provisions and taxes and comprises:

In millions of Ukrainian hryvnias 2007 2006

Netassetsunadjustedforaccruals,provisionsandtaxes 4,941 2,868 Plus subordinated debt 807 835 Less investments into subsidiaries (553) (119) Other (11) (5)

Total regulatory capital 5,184 3,579

The Group and the Bank are also subject to minimum capital requirements established by covenants stated in loan agreements, including capital adequacy levels calculated in accordance with the requirements of the Basel Accord, as defined in the International Convergence of Capital Measurement and Capital Standards (updated April 1998) and Amendment to the Capital Accord to incorporate market risks (updated November 2005), commonly known as Basel I. The composition of the Group’s capital calculated in accordance with Basel Accord is as follows:

In millions of Ukrainian hryvnias 2007 2006

Tier 1 capital Share capital 2,967 2,335 Disclosed reserves 1,582 464 Cumulative translation reserve 34 4 Less: goodwill (35) (30) Total tier 1 capital 4,548 2,773

Tier 2 capital Asset revaluation reserves 361 362 Additional capital 462 87 Subordinated debt 799 872 Total tier 2 capital 1,622 1,321

Total capital 6,170 4,094

The Bank and the Group have complied with the capital requirements imposed by the NBU and loan providers (loan covenants) as at 31 December 2007.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

30 Contingencies and Commitments

Tax legislation. Tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant local and central authorities. Tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

Ukrainian tax legislation does not provide definitive guidance in certain areas. From time to time, the Group adopts interpretations of such uncertain areas that reduce the overall tax rate of the Group. Such tax positions may come under scrutiny. The impact of any challenge by the tax authorities cannot be reliably estimated; however, it may be significant to the financial condition and/or the overall operations of the entity.

The Group’s Management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax position will be sustained. Accordingly, as at 31 December 2007 no provision for potential tax liabilities had been recorded (2006: no provision).

Legal proceedings . From time to time and in the normal course of business, claims against the Group are received. On the basis of its own estimates and both internal and external professional advice the Management is of the opinion that no material losses will be incurred in respect of claims, except as described below.

The Group is the subject of suits by individuals and entities who provided money to former employees of branches of the Bank, whilst those employees held senior management positions in these branches. Those former employees are currently the subject of criminal proceedings relating to the embezzlement of money of the Bank and individuals and entities. The individuals and entities are claiming that the Bank is responsible for the criminal actions of the former employees and are seeking amounts totalling approximately UAH 34 million. The Group believes that the two former employees will be found guilty in the criminal cases and that, on the basis of such a finding of criminal liability, the civil suits against the Group will be partly rejected. As such, a provision of UAH 21 million (2006: UAH 21 million) has been made in this respect. Refer to Note 19.

Capital expenditure commitments. At 31 December 2007 the Group has contractual capital expenditure commitments in respect of construction of premises, computers and furniture and equipment totalling UAH 89 million (2006: UAH 38 million). The Group believes that future net income and funding will be sufficient to cover this and any similar such commitments.

Operating lease commitments. Where the Group is the lessee, the future minimum lease payments under non-cancellable operating leases are as follows:

In millions of Ukrainian hryvnias 2007 2006

Not later than 1 year 246 138 Later than 1 year and not later than 5 years 373 264 Later than 5 years 67 214

Total operating lease commitments 686 616

Compliance with covenants. The Group is subject to certain covenants related primarily to its borrowings. Non-compliance with such covenants may result in negative consequences for the Group including growth in the cost of borrowings and declaration of default. The Group is in compliance with covenants as at 31 December 2007 and 31 December 2006 .

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

30 Contingencies and Commitments (Continued)

Credit related commitments. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate or cash deposits and therefore carry less risk than a direct borrowing.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit related commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Outstanding credit related commitments are as follows:

In millions of Ukrainian hryvnias Note 2007 2006

Guarantees issued 1,177 1,076 Import letters of credit 17 909 239 Irrevocable commitments to extend credit 9 141

Less:Provisionforcreditrelatedcommitments 19 (21) (69)

Total credit related commitments 2,074 1,387

The total outstanding contractual amount of undrawn credit lines, letters of credit, and guarantees does not necessarily represent future cash requirements, as these financial instruments may expire or terminate without being funded. Fair value of credit related commitments was UAH 21 million at 31 December 2007 (2006: UAH 69 million). Credit related commitments are denominated in currencies as follows:

In millions of Ukrainian hryvnias Note 2007 2006

UAH 483 383 US Dollars 926 769 Euro 623 210 Other currencies 42 25

Total 2,074 1,387

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

30 Contingencies and Commitments (Continued)

Fiduciary assets. These assets are not included in the Group’s consolidated balance sheet as they are not assets of the Group. Nominal values disclosed below are normally different from the fair values of respective securities. The fiduciary assets held by the Group on behalf of its customers fall into the following categories:

2007 2006 In thousands of Ukrainian hryvnias Nominal value Nominal value

Shares of Ukrainian companies 7,020 6,167 Domestic corporate bonds 308 179 Shares of foreign companies - 29 Investment certificates 69 2

Assets pledged and restricted. At 31 December 2007 the Group has the following assets pledged as collateral:

Notes 2007 2006 Asset Related Asset Related In millions of Ukrainian hryvnias pledged liability pledged liability

Gross receivables under swap agreements 1,496 1,499 437 435 Loansandadvancestocustomers 946 769 152 80

Total 2,442 2,268 589 515

Gross receivables under swap agreements presented above are recognised on a net basis in the balance sheet, giving rise to a derivative financial asset or liability within other assets or other liabilities, respectively.

As disclosed in Note 8, balances due from other banks totalling UAH 123 million (2006: UAH 205 million) have been pledged as cover for letters of credit and international payments.

In addition, mandatory cash balances in the amount of UAH 884 million (2006: UAH 457 million) represent mandatory reserve deposits which are not available to finance the Group's day to day operations as disclosed in Note 7.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

31 Derivative Financial Instruments

Foreign exchange and other derivative financial instruments entered into by the Group are generally traded in an over-the-counter market with professional market counterparties on standardised contractual terms and conditions. Derivatives have potentially favourable (assets) or unfavourable (liabilities) conditions as a result of fluctuations in market interest rates, foreign exchange rates or other variables relative to their terms. The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

The table below sets out fair values, at the balance sheet date, of currencies receivable or payable under foreign exchange forwards contracts entered into by the Group. The table reflects gross positions before the netting of any counterparty positions (and payments) and covers the contracts with settlement dates after the respective balance sheet date. The contracts are short term in nature.

2007 2006 Contracts Contracts Contracts Contracts with positive with negative with positive with negative In millions of Ukrainian hryvnias fair value fair value fair value fair value

Foreign exchange swaps: fair values, at the balance sheet date, of -USDreceivableonsettlement(+) 86 - - - -USDpayableonsettlement(-) (270) (1,172) (166) (42) -Eurosreceivableonsettlement(+) 261 811 181 137 -Eurospayableonsettlement(-) - (5) - (13) -UAHreceivableonsettlement(+) 15 358 71 48 -UAHpayableonsettlement(-) (51) - (83) (131) - Other currencies payable on settlement (-) (36) - - -

Foreign exchange forwards: fair values, at the balance sheet date, of -USDpayableonsettlement(-) (35) (29) - - -LTVreceivableonsettlement(+) 35 - - - -EURreceivableonsettlement(-) - 29 - - -USDreceivableonsettlement(+) - - - 17 -EURpayableonsettlement(-) - - - (17)

Net fair value of foreign exchange forwards and swaps 5 (8) 3 (1)

The Group had outstanding obligations from unsettled spot transactions with foreign currencies of UAH 537 million (2006: UAH 31 million). Net fair value of unsettled spot transactions is insignificant.

During the year ended 31 December 2007 the Group recognised a loss of UAH 44 million (2006: a gain of UAH 24 million) in respect of change in fair value of a financial derivative that arises on the issue of UAH denominated loans with the condition of compensation in the case of UAH depreciation against USD. This embedded derivative is represented by a currency option with insignificant fair value at the beginning, maturing in up to 5 years. The strike price was UAH 5.05 per USD 1 (2006: UAH 5.05 per USD 1).

During the year ended 31 December 2007 the Group recognised a gain of UAH 41 million (2006: nil) in respect of change in fair value of a financial derivative that arises on loans issued to construction companies in USD at 12% nominal interest rate per annum with the condition of compensation to be received by the Group on sale of real estate, for construction of which money were borrowed. Compensation is calculated as 50% of sale proceeds less cost of sales, which is fixed amount and less cost of borrowings. The fair value of derivative at inception was insignificant.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

32 Fair Value of Financial Instruments

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by an active quoted market price.

The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to determine the estimated fair value. Ukraine continues to display some characteristics of an emerging market and economic conditions continue to limit the volume of activity in the financial markets. Market quotations may be outdated or reflect distress sale transactions and therefore not represent fair values of financial instruments. Management has used all available market information in estimating the fair value of financial instruments.

Financial instruments carried at fair value. Trading securities, other securities at fair value through profit or loss, investment securities available-for-sale and financial derivatives are carried in the consolidated balance sheet at their fair value.

Fair values were determined based on quoted market prices except for certain investment securities available-for-sale (Note 10) for which there were no available external independent market price quotations. These securities have been fair valued by the Group on the basis of discounted cash flows, financial data of the investees and application of other valuation methodologies. Valuation techniques required certain assumptions that were not supported by observable market data. Changing any such used assumptions to a reasonably possible alternative would not result in a significantly different profit, income, total assets or total liabilities.

Cash and cash equivalents and mandatory reserve balances are carried at amortised cost which approximates current fair value.

Loans and receivables carried at amortised cost. The fair value of floating rate instruments is normally their carrying amount. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity. Discount rates used depend on currency, maturity of the instrument and credit risk of the counterparty and were as follows:

In millions of Ukrainian hryvnias 2007 2006

Loans and advances to customers – Note 9 Corporate loans 10%to18%p.a. 7%to17%p.a. Loans to individuals - mortgage 9%to18%p.a. 11%to14%p.a. Loans to individuals - auto 9%to18%p.a. 11%to14%p.a. Loans to individuals - consumer 10%to67%p.a. 9%to81%p.a. Loans to individuals - card 10%to54%p.a. 11%to67%p.a. Loans to individuals - other 10%to67%p.a. 9%to81%p.a. Loanstosmallandmediumenterprises(SME) 10%to47%p.a. 8% to 53% p.a. Reversesaleandrepurchaseagreements-corporate 8%to25% p.a. 12%to16%p.a.

Refer to Notes 8 and 9 for the estimated fair values of due from other banks and loans and advances to customers, respectively.

Investment securities held to maturity. Fair value for investment securities held to maturity is based on quoted market prices. Refer to Note 11 for the estimated fair value of investment securities held to maturity.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

32 Fair Value of Financial Instruments (Continued)

Liabilities carried at amortised cost. The fair value of Eurobonds is based on quoted market prices. The estimated fair value of fixed interest rate instruments with stated maturity, for which a quoted market price is not available, was estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity. The fair value of liabilities repayable on demand or after a notice period (“demandable liabilities”) is estimated as the amount payable on demand, discounted from the first date that the amount could be required to be paid. Refer to Notes 16, 17, 18 and 20 for the estimated fair values of due to other banks and other financing institutions, customer accounts, debt securities in issue and subordinated debt, respectively. Discount rates used were consistent with the Group’s credit risk and also depend on currency and maturity of the instrument and ranged from 2% p.a. to 16% p.a. (2006: from 1% p.a. to 14% p.a.).

Derivative financial instruments. All derivative financial instruments are carried at fair value as assets when the fair value is positive and as liabilities when the fair value is negative. Their fair value of these derivatives was estimated using valuation techniques.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

32 Fair Value of Financial Instruments (Continued)

Fair values of financial assets are as follows:

31December2007 31December2006 In millions of Ukrainian hryvnias Carryingvalue Fairvalue Carryingvalue Fairvalue

FINANCIAL ASSETS CARRIED AT AMORTISED COST Cash and cash equivalents and mandatory reserve balances Cash on hand 3,104 3,104 1,944 1,944 Cash balances with Central Banks 1,340 1,340 908 908 Correspondent accounts and overnight placementswithotherbanks 3,508 3,508 1,013 1,013 Due from other banks Termplacementswithotherbanks 1,205 1,205 405 405 Guaranteedepositswithotherbanks 123 123 205 205 Overdueplacementswithotherbanks - - 3 3 Loans and advances to customers Corporate loans 22,391 22,486 14,675 14,744 Loanstoindividuals-card 4,898 4,898 3,244 3,244 Loanstoindividuals-mortgage 4,987 5,120 2,691 2,875 Loanstoindividuals-auto 3,590 3,674 1,928 1,978 Loanstoindividuals-consumer 1,974 2,137 1,779 1,778 Loanstoindividuals-other 1,287 1,287 707 714 Loans to small and medium enterprises (SME) 3,876 3,876 1,939 1,939 Reverse sale and repurchase agreements - corporate 67 67 4 4 Investment securities available-for-sale Unquoted shares 4 4 84 84 Investment securities held to maturity Governmentbonds 1,160 1,160 - - Other financial assets Doubtful debts from operations with customers 31 31 3 3 Plasticcardsreceivables 82 82 41 41 Accruedincomereceivable 36 36 15 15 Other 39 39 - -

FINANCIAL ASSETS CARRIED AT FAIR VALUE Trading securities Government bonds 16 16 21 21 Other financial assets at fair value through profit or loss Government bonds 9 9 18 18 Corporate shares 7 7 - - Investment securities available-for-sale Quoted shares - - 368 368 Promissory notes - - 32 32 Other financial assets Financial derivatives 41 41 48 48

TOTALFINANCIALASSETS 53,775 54,250 32,075 32,384

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

32 Fair Value of Financial Instruments (Continued)

Fair values of financial liabilities are as follows:

31December2007 31December2006 In millions of Ukrainian hryvnias Carryingvalue Fairvalue Carryingvalue Fairvalue

FINANCIAL LIABILITIES CARRIED AT AMORTISED COST Due to other banks and other financing institutions Termplacementsofotherbanks 4,246 4,246 2,310 2,310 Correspondent accounts and overnight placements of other banks 469 469 743 743 Long-term loans under the credit lines from otherfinancinginstitutions 1,520 1,520 1,203 1,203 Pledgedepositsofotherbanks 5 5 10 10 Customer accounts Termdepositsofindividuals 18,953 18,980 11,881 11,388 Current/demandaccountsofindividuals 5,908 5,908 3,770 3,770 Termdepositsofotherlegalentities 2,624 2,624 2,106 1,217 Current/settlement accounts of other legal entities 8,518 8,518 5,954 5,970 Debt securities in issue Eurobonds 2,595 2,397 - - Privateplacementsofbonds 2,977 2,960 811 811 Mortgage bonds 769 769 80 80 Promissory notes 18 18 - - Otherdebtsecuritiesinissue - - 34 34 Other financial liabilities Liabilityforfinancelease 96 96 99 99 Fundsinthecourseofsettlement 39 39 17 17 Accounts payable 16 16 11 11 Other 28 28 - - Subordinated debt Subordinated debt 937 931 926 964

FINANCIAL LIABILITIES CARRIED AT FAIR VALUE Other financial liabilities Provisionforcreditrelatedcommitment 21 21 69 69 Other 3 3 - -

TOTALFINANCIALLIABILITIES 49,742 49,548 30,024 28,696

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

33 Reconciliation of Classes of Financial Instruments with Measurement Categories

For the purposes of measurement, IAS 39, Financial Instruments: Recognition and Measurement , classifies financial assets into the following categories: (a) loans and receivables; (b) available-for-sale financial assets; (c) financial assets held to maturity and (d) financial assets at fair value through profit or loss (“FVTPL”). Financial assets at fair value through profit or loss have two subcategories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for trading. The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2007:

Loans Availa- Trading Assets Held to Total and ble-for- assets desig- maturity receiv- sale nated at In millions of Ukrainian hryvnias ables assets FVTPL

ASSETS Cash and cash equivalents and mandatory - - - - reserve balances 7,952 7,952 Trading securities - - 16 - - 16 Other financial assets at fair value through profit or loss - - - 16 - 16 Due from other banks - - - Termplacementswithotherbanks 1,205 - - - - 1,205 Guaranteedepositswithotherbanks 123 - - - - 123 Loans and advances to customers Corporateloans 22,391 - - - - 22,391 Loanstoindividuals-card 4,898 - - - - 4,898 Loanstoindividuals-mortgage 4,987 - - - - 4,987 Loanstoindividuals-auto 3,590 - - - - 3,590 Loanstoindividuals-consumer 1,974 - - - - 1,974 Loanstoindividuals-other 1,287 - - - - 1,287 Loanstosmallandmediumenterprises(SME) 3,876 - - - - 3,876 Reverse sale and repurchase agreements - corporate 67 - - - - 67 Investment securities available-for-sale - 4 - - - 4 Investment securities held to maturity - - - - 1,160 1,160 Other financial assets Accruedincomereceivable 36 - - - 36 Doubtful debts from operations with customers 31 31 Plasticcardsreceivables 82 - - - 82 Financialderivatives - - 41 - 41 Other 39 - -39

TOTALFINANCIALASSETS 52,538 4 57 16 1,160 53,775

NON-FINANCIAL ASSETS 2,495

TOTAL ASSETS 56,270

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

33 Reconciliation of Classes of Financial Instruments with Measurement Categories (Continued)

The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2006:

Loans Availa- Trading Assets Held to Total and ble-for- assets desig- maturity receiv- sale nated at In millions of Ukrainian hryvnias ables assets FVTPL

ASSETS Cash and cash equivalents and mandatory reserve balances 3,865 - - - - 3,865 Trading securities - - 21 - - 21 Other financial assets at fair value through profit or loss - - - 18 - 18 Due from other banks and other financing institutions Termplacementswithotherbanks 405 - - - - 405 Guaranteedepositswithotherbanks 205 - - - - 205 Overdueplacementswithotherbanks 3 - - - - 3 Loans and advances to customers Corporateloans 14,675 - - - - 14,675 Loanstoindividuals-card 3,244 - - - - 3,244 Loanstoindividuals-mortgage 2,691 - - - - 2,691 Loanstoindividuals-auto 1,928 - - - - 1,928 Loanstoindividuals-consumer 1,779 - - - - 1,779 Loanstoindividuals-other 707 - - - - 707 Loanstosmallandmediumenterprises(SME) 1,939 - - - - 1,939 Reverse sale and repurchase agreements - corporate 4 - - - -4 Investment securities available-for-sale - 484 - - - 484 Other financial assets - Doubtfuldebtsfromoperationswithcustomers 3 - - - - 3 Plasticcardsreceivables 41 - - - - 41 Financialderivatives 48 - - - - 48 Accruedincomereceivable 15 - - - - 15

TOTALFINANCIALASSETS 31,552 484 21 18 - 32,075

NON-FINANCIAL ASSETS 1,954

TOTAL ASSETS 34,029

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

34 Related Party Transactions

Parties are generally considered to be related if the parties are under common control or one party has the ability to control the other party or can exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

At 31 December 2007, the outstanding balances with related parties were as follows:

2007 2006 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r shareholders and shareholders and In millions of Ukrainian hryvnias other related parties other related parties

Correspondent accounts and overnight placements with other banks (2006: UAH -12%,USD-3%) - - - - - 114

Due from other banks (contractual interestrate:2006:UAH-3%) - - - - - 3

Gross amount of loans and advances to customers (contractual interest rate: 2007: UAH - 13%, USD - 13%, EUR - 10%, 2006: UAH - 14%, USD - 11%, EUR - 10%) - 20 2,556 - 12 1,608

Impairment provisions for loans and advancestocustomersat31December - - (337) - - (362)

Investmentsecuritiesavailable-for-sale - - - - - 1

Otherfinancialassets - - 3 - - 1

Correspondent accounts and overnight placements of other banks (contractual interestrate:2006:RUB–18%) - - - - - 148

Customer accounts (contractual interest rate: 2007: UAH - 1%, USD - 1%, EUR - 9%, 2006: UAH - 5%, USD - 3%, EUR - 10%) - 1 855 - 2 399

Debtsecuritiesinissue - - - - - 11

Otherfinancialliabilities - - 6 1 - 4

Provision for losses on credit related commitments -- 7-- 25

Subordinated debt (contractual interest rate: 2007: UAH - 3%, RUB - 7%, 2006: UAH - 3%, USD - 10%, EUR - 10%, RUB -9%) -- 98 -- 94

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

34 Related Party Transactions (Continued)

The income and expense items with related parties for 2007 were as follows:

2007 2006 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r shareholders and shareholders and In millions of Ukrainian hryvnias other related parties other related parties

Interest income - 2 291 - 2 158 Interest expense - - (33) - (16) Provision for loan impairment - - (25) - - (219) Dividend income -- --- 9 Fee and commission income -- 30-- 14 Gains on initial recognition of liabilities at rates below market -- --- 12 Provision for losses on credit related commitments - - -- - (25) Other operating income -- 4-- 1 Administrative and other operating expenses, excluding management remuneration - - (169) - (1) (1)

At 31 December 2007, other rights and obligations with related parties were as follows:

2007 2006 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r shareholders and shareholders and In million of Ukrainian hryvnias other related parties other related parties

Guaranteesissued - - 55 - - 105 Irrevocable commitments to extend credit - 2 - - - - Importlettersofcredit - - 109 - - 52

Aggregate amounts lent to and repaid by related parties during 2007 were:

2007 2006 Share- Manage- Companies unde r Share- Manage- Companies unde r holders ment control of majo r holders ment control of majo r shareholders and shareholders and In million of Ukrainian hryvnias other related parties other related parties

Amounts lent to related parties during the period - 21 8,401 - 17 2,646

Amounts repaid by related parties during the period - 15 9,720 - 15 1,925

The ultimate major shareholders of the Bank are 2 Ukrainian citizens, Mr I.V. Kolomoyski and Mr G.B. Bogolyubov, neither of which individually controls the Bank.

In 2007, the remuneration of 15 members of the Board of Directors comprised salaries, discretionary bonuses, pension contributions and other short-term benefits totalling UAH 6 million (2006: UAH 6 million) including UAH 1 million (2006: UAH 1 million) of contributions into the State pension fund and UAH 0.1 million (2006: UAH 0.1 million) of social security contributions.

The major shareholders of the Group have offered to buy the Management’s 3.62% shareholding. Once the terms of this transaction have been settled, a new remuneration and incentive system for key management personnel will be introduced.

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PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

35 Business Combinations

On 23 July 2007 the Group acquired 75.00% of the share capital of JSC Tao Bank, Georgia. The acquired subsidiary contributed operating income of UAH 12 million and a loss of UAH 8 million to the Group for the period from the date of acquisition to 31 December 2007. If the acquisition had occurred on 1 January 2007, the contribution to the Group revenue for 2007 would have been UAH 21 million, and the acquired subsidiary would have contributed a loss for the year of UAH 10 million.

The consideration paid by the Group was based on results of an appraisal of the acquiree’s business taken as a whole. However, in accordance with IFRS 3 “Business Combinations”, the Group must account for acquisitions based on fair values of the identifiable assets acquired and liabilities and contingent liabilities assumed. The purchase price allocation required by IFRS 3 is provisional and may be subject to change. These two different approaches can lead to differences, and, as set out in the table below, recognition of goodwill.

The details of the assets and liabilities acquired and goodwill arising are as follows:

Note IFRS carrying amount Attributed immediately before fair value In thousands of Ukrainian hryvnias business combination

Cashandcashequivalentsandmandatoryreservebalances 120 120 Due from other banks 1 1 Loans and advances to customers 103 103 Current income tax prepayment 1 1 Premises, leasehold improvements, equipment and intangible assets 21 21 Other assets 7 7 Due to other banks (17) (17) Customer accounts (74) (74) Deferred income tax liability (1) (1) Other liabilities (1) (1)

Net assets of the subsidiary 160 160

Fair value of acquired interest in net assets of the subsidiary 120 120 Goodwillarisingfromtheacquisition 12 2 2

Total purchase consideration 122 122 Less: Cash and cash equivalents of subsidiary acquired 114 114

Outflow of cash and cash equivalents on acquisition 8 8

The goodwill is primarily attributable to the profitability of the acquired business, the significant synergies and combined costs savings expected to arise.

The purchase consideration comprises cash and cash equivalents paid of UAH 122 million.

82

F-268 Level: 0 – From: 0 – Thursday, May 13, 2010 – 17:29 – eprint3 – 4211 2007 Financials

PrivatBank Group Notes to the Consolidated Financial Statements – 31 December 2007

35 Business Combinations (Continued)

On 1 January 2007 the Group acquired 99.71% of the share capital of LLC Ukrainian Bureau of Credit Histories and 50% of the share capital of LLC Privat-Office. On 1 October 2007 the Group acquired 99.99% of the share capital of LLC Privat-Finansist, 99.90% of share capital of LLC Spectrum-Energo and 100% of share capital of LLC Privat-Elektron. The acquired subsidiaries contributed operating loss UAH 70 million and loss of UAH 38 million to the Group for the period from the date of acquisition to 31 December 2007. If the acquisition had occurred on 1 January 2007, contribution to the Group operating loss for 2007 would have been UAH 70 million, and loss for the 2007 would have been UAH 38 million.

The assets and liabilities of LLC Ukrainian Bureau of Credit Histories, LLC Privat-Office, LLC Privat- Finansist, LLC Spectrum-Energo and LLC Privat-Elektron acquired are not material. The aggregated details of the purchase are as follows:

IFRS carrying amount Attributed immediately before fair value In millions of Ukrainian hryvnias business combination

Net assets of subsidiaries 35 35

Fair value of acquired interest in net assets of 35 35 subsidiaries

Total purchase consideration 35 35 Less: Cash and cash equivalents of subsidiaries acquired 5 5

Outflow of cash and cash equivalents on acquisition 30 30

Fair value of assets and liabilities acquired do not materially differ from the carrying value of those assets and liabilities.

36 Acquisition of Minority Interest

On December 2007 the Group increased it’s economic interest in Moscomprivatbank, a subsidiary of the Group. The increase was done through purchase in full of additional share issue of subsidiary. As a result of this transaction the controlling share changed from 50% to 86.2%. The excess of the fair value of the net assets acquired amounting to UAH 196 million over the consideration paid of UAH 136 million was credited to the income statement in the amount of UAH 60 million. At the result of this purchase minority share decreased by UAH 62 million.

37 Subsequent Events

In February 2008, the Bank issued an additional 15,150,000 ordinary shares totalling UAH 1,515 million, which were registered by the NBU on 28 March 2008.

In May 2008 the General Meeting of Shareholders approved the capitalisation of dividends in amount of UAH 1,457 million through an increase in nominal value of shares.

In May 2008 the official exchange rate of Ukrainian hryvnia to USD appreciated from UAH 5.05 per USD 1 as at 21 May 2008 to UAH 4.85 per USD 1 as at 22 May 2008. The total cumulative appreciation since the year-end was approximately 4%.

In May 2008 the Group issued USD denominated bonds backed by auto loans issued by the Group. The total value of these bonds is USD 105 million (UAH 507 million), with tranche A amounting to USD 86 million with an initial interest rate of 3 months LIBOR + 5.5% and tranche B amounting to USD 19 million with an initial interest rate of 3 months LIBOR + 7.5%. These bonds mature in November 2018 and have an interest rate step-up date in May 2011.

83

F-269 Appendix A: The Banking Sector and Banking Regulation in Ukraine

Ukrainian Banking System The current institutional framework of the Ukrainian banking sector consists of the NBU and commercial banks. As at 1 August 2010, there were a total of 194 commercial banks registered in Ukraine, 176 of which have been granted licences by the NBU to perform banking transactions. The Ukrainian banking sector has a high level of concentration of capital. According to the NBU, as at 1 July 2010, approximately 52.8 per cent. of the banking sector¶s total assets were held by the ten largest Ukrainian banks. As at 1 July 2010, Ukraine¶s two state-owned banks (the State Export-Import Bank of Ukraine (³Ukreximbank´) and the State Savings Bank of Ukraine (³Oschadbank´)) had approximately 13.8 cent. of the Ukrainian banking sector¶s total assets, 12.7 per cent. of the total loan portfolio and 11.9 per cent. of total retail deposits in Ukraine. After adopting anti-crisis legislation, Ukraine has recapitalised three commercial banks, namely RodovidBank, Bank Kyiv and Ukrgazbank. As at 1 August 2010, 52 banks in Ukraine had some foreign capital, of which 20 were fully owned by foreign owners, and 35.7 per cent. of the total statutory capital of all Ukrainian banks was foreign- owned. According to the NBU, as at 1 August 2010, the total assets of Ukrainian banks licensed to perform banking transactions amounted to UAH 901.8 billion. The total loan portfolio of such banks as at 1 August 2010 constituted UAH 725.3 billion, including UAH 477 billion of corporate loans and UAH 199.5 billion of retail loans. According to the NBU, during the six months ended 30 June 2010, the statutory capital of Ukrainian banks that were licensed to perform banking transactions increased by 11.76 per cent. amounting to UAH 133.2 billion compared to 1 January 2010 (compared to a 47.1 per cent. increase in statutory capital in 2008). During the six months ended 30 June 2010, the total assets and total liabilities of all licensed Ukrainian banks increased by 1.35 per cent. and increased by 0.6 per cent., respectively, and amounted to UAH 885.25 billion and UAH 758 billion, respectively (compared to an increase of 1.0 per cent. and a decrease of 7.9 per cent., respectively, in 2008). The regulatory capital of Ukrainian banks increased by 5.8 per cent. during the six months ended 30 June 2010 (compared to a 3.9 per cent. increase in 2008), amounting to UAH 127.16 billion as at 1 July 2010. See ³²Banking Supervision² Mandatory Ratios²Capital Requirements´ for a discussion of the difference between statutory capital and regulatory capital. Commercial banks operating in Ukraine are divided by the NBU into four groups according to the size of assets of the banks as at 1 July 2010. Accordingly, the first group includes 18 banks with total assets of more than UAH 11 billion; the second group includes 19 banks with total assets ranging from UAH 4 billion to UAH 14 billion; the third group includes 21 banks with total assets ranging from UAH 1.5 billion to UAH 4.9 billion; and the fourth group includes 118 banks with total assets of less than UAH 2.6 billion. Despite the NBU¶s rate-cutting policies, the average annual lending rate of Ukrainian commercial banks as at 30 June 2010 was 15.7 per cent. for loans in hryvnia and 10.2 per cent. for loans in foreign currency, according to NBU statistics. Evolution of Ukrainian Banking Sector During the last decade, the banking sector has been one of the fastest growing sectors of the Ukrainian economy. The Ukrainian banking sector is increasingly competitive and there have been a number of recent acquisitions of Ukrainian banks by foreign banks, which is likely to increase competition further. Ukraine had 76 registered (commercial) banks in 1991. The total number of banks increased to 230 by 1995 and decreased to 194 by 1 August 2010. Since 1994, Ukreximbank and Oschadbank have been the only two wholly state-owned banks in Ukraine. No single bank currently has a dominant position in any banking business in Ukraine. The level of concentration in the Ukrainian banking industry (measured using the Herfindahl-Hirschman index) is similar to the levels in the United Kingdom, France and Italy. From 1991 to 1993, the Ukrainian banking industry underwent a period of reorganisation and rapid growth. Soviet-era banks were re-registered by the NBU and a number of the current leading

A-1 Appendix A: The Banking Sector and Banking Regulation in Ukraine

Ukrainian banks were established or re-registered during this period. The total number of banks registered by the NBU almost doubled from 1991 to 1992 and again from 1992 to 1993. In 1994 and 1995, the NBU strengthened banking regulations and sought to bring domestic standards closer to international standards. As a result, twelve banks were liquidated after failing to comply with these more rigorous standards during this period. In response, the NBU introduced a number of mandatory financial ratios for banks. The NBU also implemented a national electronic payment system to facilitate electronic settlements within Ukraine. Further, the NBU tightened its monetary policy in order to address hyperinflation, which had reached 400 per cent. in 1994. This resulted in improved borrowing rates for Ukrainian businesses and consumers. The period from 1996 to mid-1998 was a period of stabilisation in the Ukrainian banking system. The introduction of the hryvnia in 1996, together with a further tightening of the NBU¶s monetary and budget deficit policy, led to a further reduction in inflation and interest rate spreads. The banking sector¶s profit in 1996 was twice that of the previous year. However, the rapid growth of the Ukrainian banking sector was halted by the Russian financial crisis in August 1998, which resulted in the depreciation of the Ukrainian hryvnia (which fell from UAH 2.4 per U.S. dollar to UAH 5.4 per U.S. dollar over a 17 month period). Sixteen banks were liquidated during 1998. From mid-1998 to mid-2001, the Ukrainian banking system underwent a period of modernisation. In 1998, the NBU promulgated international accounting standards for Ukrainian banks. Banks with foreign capital entered the market and introduced new banking services and products. In 2001, Ukraine was placed on the list of Non-Cooperative Countries and Territories of the Financial Action Task Force (the ³FATF´) as a result of its non-cooperation with the FATF and its failure to enact anti-money laundering legislation that met international standards. Nevertheless, total loans and assets in the banking sector continued to grow. At the beginning of 2004, the FATF removed Ukraine from its list of Non-Cooperative Countries and Territories. In January 2006, it ended formal monitoring of Ukraine. During the period from 2004 to 2008, a number of foreign banks acquired majority stakes in leading Ukrainian banks, including Bank Aval (Raiffeisen International Bank-Holding AG), UkrSibbank (BNP Paribas), Raiffeisenbank Ukraina (OTP Bank), TAS-Kommerzbank (Swedbank AB), Ukrsotsbank (Bank Austria-Creditanstalt AG), Bank Forum (CommerzBank AG), Pravex (Intesa Sanpaolo S.p.A.) and smaller banks including Mriya (VTB), Index-Bank (Credit Agricole), Prestige Bank (Erste Bank), HVB Ukraine (Bank Pekao), Bank NRB (Sberbank), International Commerce Bank (Piraeus Bank), Electron Bank (Austrian Volksbanken) and Marine Transport Bank (Marfin Popular Bank). In June and July 2009, the Parliament adopted a law amending the Banking Law (as defined below), according to which the minimum statutory capital requirement for all banks established after the date when the amendments became effective is UAH75 million. In addition, the amendments provide that banks are to be established only in the form of a public joint-stock company or cooperative bank (i.e. it is no longer permitted to establish banks in the form of a limited liability company). The Ukrainian banking market is expected to become more competitive as a result of the deregulation of the industry and Ukraine¶s accession to the WTO. From 16 May 2008, the date of Ukraine¶s accession to the WTO, foreign banks are permitted to operate branch offices in Ukraine, subject to certain statutory entrance criteria. Legislative Framework for the Ukrainian Banking Sector The NBU regulates the banking activities of Ukrainian banks in accordance with, among other laws, the Law of Ukraine ³On the National Bank of Ukraine´ of 20 May 1999 (the ³National Bank Law´), the Law of Ukraine ³On Banks and Banking Activity´ of 7 December 2000, as amended (the ³Banking Law´), Ukrainian legislation on joint stock companies and other business entities, as well as various NBU regulations. These laws and regulations set out the list of banking operations and other transactions that may be performed by banks and establish the framework for the registration and licensing of banks and the regulation of banking activities by the NBU.

A-2 Appendix A: The Banking Sector and Banking Regulation in Ukraine

Banking Operations Banks provide a wide range of banking services. Banks are permitted to perform the operations specified in their banking licence and the ³written permit´ issued to them by the NBU. On the basis of their banking licence, banks may perform the following operations: (i) taking deposits from legal entities and individuals; (ii) opening and servicing current accounts of customers and correspondent banks, including transferring funds from these accounts by means of payment instruments and placing funds on these accounts; (iii) depositing funds on their own behalf, under their own terms and at their own risk; (iv) granting guarantees, bails and similar instruments; (v) factoring; (vi) leasing; (vii) safekeeping and renting safes for storing valuables and documents; (viii) issuing, purchasing, selling and servicing cheques, notes and other negotiable payment instruments; (ix) issuing bank payment cards and performing operations using these cards; and (x) providing consulting and informational services with respect to banking operations. On the basis of their written permit, banks may be authorised to perform the following operations: (i) foreign currency operations; (ii) issuing their own securities; (iii) purchasing and selling securities on behalf of their clients; (iv) operations on the securities market on their own behalf (including underwriting); (v) investing in the statutory capital and shares of other legal entities; (vi) issuing and making payments under state and other monetary lotteries; (vii) transporting cash and valuables; (viii) money market operations, exchange rate and interest rate swaps, and financial futures and options; (ix) trust management of funds and securities; and (x) depositary, custodianship and registrar services. Under the Banking Law, banks may not engage in manufacturing, commodities trading (except for trading in precious metals and coins) or insurance activities (except for insurance brokerage). Pursuant to Ukrainian legislation banks may grant loans to Ukrainian borrowers only in Ukrainian hryvnia, unless such borrowers have their own revenues or earnings in foreign currency. This restriction is stated to be temporary and is expected to remain in effect until 1 January 2011. Role of the NBU The NBU is the central bank of Ukraine. Established in 1991 and governed in accordance with the Constitution of Ukraine and the National Bank Law, the NBU is a specialised state institution whose principal objective is to ensure the external and internal stability of the national currency. To carry out its main function, the NBU strives to maintain the stability of the banking system and, within its competence, price stability. The NBU sets the official exchange rate of the national currency against foreign currencies, the discount rate and other interest rates. The NBU is also responsible for the accumulation and custody of the state¶s gold and currency reserves. In addition, it registers commercial banks, issues licences, supervises the operations of Ukrainian banks and determines the procedures for providing emergency funds to commercial banks. Monetary Policy The NBU is responsible for implementing monetary policy. Currently, the NBU implements monetary policy through instruments such as mandatory reserve requirements for banks, setting interest rates, refinancing commercial banks, issuing debt instruments and carrying out reverse repo operations. The NBU reduced the discount rate from 45 per cent. at the beginning of 2000 to 12.5 per cent. by the end of 2001 (after the economy had begun to stabilise following the regional financial crisis of 1998), and to 7.0 per cent. in December 2002. The NBU subsequently increased the discount rate to 9.5 per cent. (effective 10 August 2005) and then decreased it to 8.5 per cent. (effective 10 June 2006). As at 1 January 2007, the discount rate was 8.5 per cent. From 1 June 2007, the discount rate was further reduced to 8.0 per cent. However, the NBU increased the discount rate to 10 per cent. from 30 April 2008 to address the problem of inflation. After the NBU increased the discount rate to 11.0 per cent. as at 15 June 2009 and further decreased to 10.25 per cent. as at 12 August 2009. From 18 June 2010, the discount rate was reduced to 9.25 per cent. Subsequently, the NBU has twice decreased the discount rate to 8.5 per cent. and 7.75 per cent. on 8 July 2010 and 10 August 2010, respectively. Registration and Licensing The NBU registers commercial banks and grants licences and written permits for the performance of banking activities. The NBU may suspend or revoke banking licences and written permits. The NBU maintains the State Register of Banks of Ukraine.

A-3 Appendix A: The Banking Sector and Banking Regulation in Ukraine

Supervision and Control The NBU oversees the banks¶ compliance with mandatory ratios, limits and reserve requirements, imposes sanctions for violations of such ratios, limits and requirements, establishes reporting requirements and accounting rules and procedures for banks, oversees banks¶ operations and transactions, appoints temporary administrators to banks undergoing financial difficulties and regulates the direct and indirect acquisition of shareholdings in banks exceeding 10, 25, 50 and 75 per cent. thresholds. Transactions with Banks The NBU lends to banks, maintains other banks¶ correspondent accounts, provides cash and settlement services to banks, issues guarantees to banks, carries out transactions with sovereign debt securities, trades bullion and precious stones, and purchases and sells foreign currency. The NBU may not own capital in other banks and commercial entities, perform real estate transactions (except as necessary for its own operations), or engage in trading, manufacturing, insurance or other activities which do not directly relate to its functions. Exchange Control In accordance with Ukrainian foreign currency legislation, the NBU has substantial powers to regulate foreign currency operations. In accordance with the Decree of the Cabinet of Ministers of Ukraine ³On the System of Currency Regulation and Currency Control´ of 19 February 1993, the NBU is empowered, among other things, to implement the government¶s foreign currency policy, to determine the procedures for purchasing and carrying out transactions with foreign currency, to issue and revoke licences for foreign currency operations, to determine the methodology for setting and applying foreign currency exchange rates, and to stipulate uniform accounting and reporting procedures for banks. Governing Bodies of the NBU The principal governing bodies of the NBU are the Council and the Board. The Council, being the highest governing body of the NBU, consists of 15 members, seven of whom are appointed by Parliament and seven of whom are appointed by the President of Ukraine. The Governor of the NBU (nominated by the President of Ukraine and appointed by Parliament for a five-year term) acts ex officio as the fifteenth member of the Council. The Council is responsible, in particular, for formulating the principles of Ukraine¶s monetary policy and has the right to veto the Board¶s decisions if they contravene such principles. The Board, which is comprised of the Governor, his or her deputies and other members of the Board, is responsible for implementing Ukraine¶s monetary policy, the development and implementation of other NBU policies and the management of the NBU. The NBU organisation includes its headquarters in Kyiv, branches (or territorial departments), clearing units, the Mint, a banknote paper factory, the State Treasury of Ukraine, the Central Depositary, other specialised units, banking educational institutions and operational service units. According to the National Bank Law, neither the state nor the NBU are liable for the other¶s obligations, unless either has accepted such liability under an agreement or such liability is imposed by Ukrainian legislation. The NBU is legally and financially independent of the Ukrainian Government. Under the National Bank Law, the NBU is generally not permitted to extend loans to the state budget for the purpose of covering the state budget deficits. Banking Supervision Under the National Bank Law and the Banking Law, the NBU is authorised to adopt binding regulations concerning banking and foreign currency operations. The NBU has actively used this power in recent years, creating a detailed and extensive body of regulations. The NBU adopted the Instruction on Regulation of Activities of Ukrainian Banks No. 368, dated 28 August 2001 (the ³Banking Regulation Instruction´) which established capital adequacy, liquidity and other ratios. The NBU also sets auditing and other requirements for commercial banks. Some of the principal features of the supervisory regime governing banks in Ukraine are set out below.

A-4 Appendix A: The Banking Sector and Banking Regulation in Ukraine

Mandatory Ratios The NBU is authorised to introduce mandatory ratios for Ukrainian banks. The Banking Regulation Instruction envisages five different types of mandatory ratios/requirements: capital requirements, liquidity requirements, credit risks requirements, investment risk requirements and currency position requirements. Capital Requirements The NBU has established requirements for minimum regulatory capital, regulatory capital adequacy and core capital adequacy which are binding on banks in Ukraine. A bank¶s regulatory capital (being the sum of its principal (or core) capital, which consists of, among other items, its statutory capital, share premium, retained earnings and certain reserve funds, and additional capital, which consists of, among other items, assets revaluation reserves, general loan loss reserves and subordinated debt) cannot be less than the minimum statutory capital required by the Banking Law (which as at 1 August 2010 was UAH 75 million for newly established banks) and the minimum regulatory capital requirements established by the NBU for each particular year. As at 1 August 2010, the minimum regulatory capital requirements for banks is UAH 120 million. This regulatory capital requirement is subject to periodic increases. The minimum regulatory capital adequacy requirement is intended to ensure that Ukrainian banks are able to discharge their liabilities in full when due. The minimum regulatory capital adequacy requirement set by the NBU is 10 per cent. of a bank¶s risk-weighted assets (or 15 per cent. in the case of banks that have been operating for less than 12 months, and 12 per cent. for banks that have been operating for between 12 and 24 months). Risk-weighted assets are calculated by applying various risk weightings to the bank¶s assets and off balance sheet commitments according to the terms set by the NBU. The minimum core capital adequacy requirements are intended to ensure that the creditors and depositors of Ukrainian banks are protected from unexpected losses that banks may incur in the course of their operations. The core capital adequacy requirement is calculated as the ratio of the bank¶s core capital to its total assets and must be at least 4 per cent. Liquidity Requirements The NBU has also established three separate liquidity ratios: the instant liquidity ratio, the current liquidity ratio and short-term liquidity ratio. The instant liquidity ratio is set by the NBU in order to ensure that a bank may meet its liabilities from highly liquid assets, and is calculated as the ratio of a bank¶s correspondent account funds and cash to its current liabilities. According to the Banking Regulation Instruction, a bank must have an instant liquidity ratio of at least 20 per cent. The current liquidity ratio is set in order to determine a bank¶s ability to match its liquid assets to liabilities of corresponding maturity. The current liquidity ratio is calculated with respect to the bank¶s liabilities with maturities of up to 31 days. A bank¶s current liquidity ratio (being the ratio of the bank¶s primary and secondary liquid assets, including cash, banking metals, cash held on correspondent accounts with the NBU (excluding funds of statutory provisions of a bank in the NBU) and other banks and debt securities issued or refinanced by the NBU, to liabilities with maturities of up to 31 days) must be at least 40 per cent. The short-term liquidity ratio is set in order to determine a bank¶s ability to meet its short-term liabilities from its liquid assets. A bank¶s short-term liquidity ratio (being the ratio of liquid assets to short-term liabilities with maturities of less than one year) must be at least 60 per cent. According to the NBU¶s definition, liquid assets include cash, banking metals, amounts in correspondent accounts maintained with NBU, short term deposits with the NBU, loans granted to legal entities, state agencies, municipal agencies and individuals, excluding arrears loans, debt securities of state agencies in the bank¶s trading portfolio, available-for-sale and held-to-maturity securities, and the positive difference between the sums on corresponding accounts, deposits and loans provided to other banks and the sums on corresponding accounts, deposits and loans granted by other banks. Short-term liabilities include funds of the NBU maintained on the corresponding account with the bank, deposits of the NBU, loans granted by the NBU, the negative difference between the sums on corresponding accounts, deposits and loans provided to other banks and the sums on corresponding accounts, deposits and loans granted by

A-5 Appendix A: The Banking Sector and Banking Regulation in Ukraine other banks, loans granted by the international financial institutions, funds of the bank¶s clients, funds of the state budget of Ukraine, securities debt instruments issued by the bank, arrears deposits with other banks, arrears loans provided by other bank, indebtedness of the assets acquisition, subordinated loan of the bank, and liabilities under all types of guarantees and committed credit lines to banks and customers. Credit Risk Requirements The Banking Regulation Instruction provides for four types of maximum borrowing limits: (a) the maximum credit risk per borrower; (b) the maximum total amount of large credit risks; (c) the maximum total amount of loans, guarantees and sureties per insider; and (d) the maximum total amount of loans, guarantees and sureties granted to all insiders. The maximum credit risk per borrower (or group of borrowers, if any one borrower owns more than ten per cent. of the shares of the other, or any third party owns more than ten per cent. of the shares of each such borrower, or the borrowers use the loan proceeds jointly or for providing a further loan to a third party which is a customer of the lending bank) is calculated as the ratio of all of the bank¶s financial claims outstanding with respect to a particular borrower to the bank¶s regulatory capital, and may not exceed 25 per cent. However, a bank¶s internal regulations may establish a more stringent limit on loans to a single borrower. Notwithstanding the above borrowing limit, Ukrainian banking regulations permit banks to advance a loan to a borrower which would result in the bank exceeding the maximum credit risk amount per borrower provided the bank fulfils the following conditions: (i) the bank complies with the applicable capital ratio; and (ii) the loan is secured either by a pledge of proprietary rights over the monies deposited with the lender bank or by the pledge of savings/deposit certificates issued by the lender bank for the term of the loan or by an unconditional commitment granted to the bank by the government or central bank of a ³class A state´ (states which have official ranking of ³class A state´ provided by one of the top ranking agencies (Moody¶s, Fitch and Standard and Poor¶s)), the International Bank for Reconstruction and Development or the European Bank for Reconstruction and Development, or, for loans with a maturity of up to one year, banks having an investment grade credit rating assigned by one of the major credit rating agencies. Under the Banking Regulation Instruction, credit risks are considered to be large if the amount of all loans, including off-balance sheet commitments such as guarantees granted to a single borrower or a group of affiliated borrowers, equals or exceeds 10 per cent. of the bank¶s regulatory capital. The maximum total amount of large credit risks may not exceed 800 per cent. of the bank¶s regulatory capital. If the maximum total amount of large credit risks is exceeded, the regulatory capital adequacy ratio is required to be doubled, if such excess is less than 50 per cent. and tripled, if such excess is more than 50 per cent. The maximum total amount of loans, guarantees and sureties per insider is required to be less than five per cent. of the statutory capital of a bank. Banks must also comply with the maximum total amount of loans, guarantees and sureties granted to all insiders ratio. This ratio is calculated as the ratio of total indebtedness of all of the bank¶s insiders and aggregate amount of the off-balance commitments granted by the bank to all its insiders to the amount of the bank¶s statutory capital and may not exceed 30 per cent. The bank¶s internal regulations may establish a more stringent limit on the maximum total amount of loans, guarantees and sureties granted to insiders. Investment Risk Ratio Banking Regulation Instruction provides for two mandatory ratios related to investment risk: the aggregate investment risk ratio and the single issuer investment risk ratio. The single issuer investment risk ratio, which limits the risk connected with investments (whether direct or portfolio) in equity of a single issuer, is calculated as a ratio of the amount invested in the equity securities and/or statutory capital of such issuer and the amount of the bank¶s regulatory capital and the ratio may not exceed 15 per cent. The aggregate investment risk ratio limits the risk connected with total equity investments (whether direct or portfolio) of a bank. The aggregate investment risk ratio is calculated as a ratio of the total equity investments against the amount of the bank¶s regulatory capital and may not exceed 60 per cent.

A-6 Appendix A: The Banking Sector and Banking Regulation in Ukraine

Open Currency Position Risk The currency position of Ukrainian banks is determined on a daily basis and in respect of each particular foreign currency. The general open currency position is determined as the sum of such individual positions. The general open position of a bank may not exceed 30 per cent. of the bank¶s regulatory capital, while the general long open position may not exceed 20 per cent. of the bank¶s regulatory capital and the general short open position may not exceed 10 per cent. of the bank¶s regulatory capital. In addition, a bank¶s long open position in freely convertible currencies may not exceed 15 per cent. of the bank¶s regulatory capital; the open position in non-convertible currencies and banking metals may not exceed five per cent. of the bank¶s regulatory capital (at the bank¶s discretion); and the open currency position under forward contracts may not exceed 10 per cent. of the bank¶s regulatory capital. Compulsory Reserve Requirements Reserve Requirements In 2001, the NBU adopted regulations relating to the mandatory reserves of commercial banks which provide that the NBU will impose sanctions for the failure to maintain the prescribed amounts of mandatory reserves. Such sanctions are payable from a bank¶s profits. Currently, commercial banks are required annually to transfer to their reserves not less than five per cent. of their profit, unless and until such reserves are equal to 25 per cent. of their regulatory capital. The NBU may require commercial banks to increase their mandatory reserve amounts. The NBU established these mandatory reserve requirements in order to maintain the liquidity of the banking system and the stability of the Ukrainian hryvnia. Banks are required to maintain certain reserves in current accounts with the NBU. There are no restrictions on the withdrawal of funds from the NBU. However, if the minimum average reserve requirements are not met, a bank may be subject to penalties. Reserve requirements are calculated as a percentage of certain of the bank¶s liabilities. Since 1 October 2006, reserves are required to be not less than the sum of one per cent. of the amount of demand deposits and current accounts of customers in hryvnia; five per cent. of demand deposits and current accounts of customers in foreign currency; 0.5 per cent. of term deposits of customers in hryvnia; and four per cent. of term deposits of customers in foreign currency. From 2 May 2008, funds borrowed from non-resident banks became subject to such mandatory reserve requirements. Banks are required to file information regarding their reserves with the NBU and its regional units promptly after the end of each reporting period. Amounts deposited with the NBU in compliance with the compulsory reserve requirements may not be subject to attachment. In the event of the revocation of a bank¶s banking licence, such amounts are included in the pool of assets generally available for distribution amongst the bank¶s creditors in the order established by applicable Ukrainian legislation. Provisioning and Loss Allowances Banks must comply with mandatory requirements to cover net loan risks and review those provisions on a monthly basis. Some loan products, such as ³budget loans´, credit transactions between entities within the system of one bank (for banks 100 per cent. owned by foreign entities ² credit transactions with the parent company if such company is assigned an investment-grade credit rating), real estate backed leasing transactions, subordinated loans, uncommitted off-balance sheet credit lines (other than commitments extended to banks) and funds in foreign currencies transferred to the NBU, do not require any provisions. As at 1 August 2010, Ukrainian legislation sets forth separate provisioning requirements for loans in national or foreign currencies as well as for certain consumer loans. Each of the above groups of loans is classified into five categories, subject to varying provisioning requirements. The following provisioning requirements are set forth for loans in the national currency: 2 per cent. for the same nature consumer loans and 1 per cent. for other standard loans; 10 per cent. for the same nature consumer loans and 5 per cent. for other loans on watch; 40 per cent. for the same nature consumer loans and 20 per cent. for other substandard loans; 80 per cent. for the same nature consumer loans and 50 per cent. for other doubtful loans; and 100 per cent. for all non-performing loans. Provisioning requirements applicable to loans in foreign currencies are higher than for loans in the national currency

A-7 Appendix A: The Banking Sector and Banking Regulation in Ukraine in line with an NBU policy aimed at reducing credit risks, especially for loans in foreign currencies, and are as follows: 2 per cent. for standard loans (50 per cent. if a borrower has no foreign currency earnings); 7 per cent. (100 per cent. if a borrower has no foreign currency earnings) for loans on watch; 25 per cent. (100 per cent. if a borrower has no foreign currency earnings) for substandard loans; 60 per cent. (100 per cent. if a borrower has no foreign currency earnings) for doubtful loans; and 100 per cent. for non-performing loans. Protection of Depositors The Law of Ukraine ³On the Fund for Guaranteeing Deposits of Individuals´ of 20 September 2001 (the ³Deposits Securing Law´) introduced the current system of securing deposits held by individuals in Ukrainian banks. It modified the previously existing arrangements for the protection of depositors that were established in 1998 by the Presidential Decree ³On Measures for the Protection of the Rights of Individual Depositors of Commercial Banks of Ukraine´ of 10 September 1998 (the ³Decree´). Pursuant to the Deposits Securing Law, Ukrainian commercial banks must be members of the Individual Deposits Guarantee Fund (the ³Deposit Guarantee Fund´), established under the Decree and operating according to the Deposits Securing Law, and are obliged to transfer to the Deposit Guarantee Fund an initial contribution in the amount of one per cent. of their registered statutory capital (payable once after obtaining a banking licence). The amount of the regular contribution payable to the Deposit Guarantee Fund by Ukrainian banks is determined twice per year, on 31 December and 20 June, at a rate of 0.25 per cent. of the aggregate amount of deposits, including interest accrued, and is payable quarterly in equal instalments. The Deposit Guarantee Fund may also require Ukrainian banks to make a special contribution if the revenues of the Deposit Guarantee Fund are not sufficient to repay and service loans borrowed by the Deposit Guarantee Fund in order to meet compensation claims following the collapse of one or more banks. The Deposit Guarantee Fund guarantees deposits with commercial banks, including interest, to a maximum of UAH 150,000 per depositor with each such bank (as at 1 August 2010). Deposits are recognised as ³unavailable´, and therefore eligible for compensation from the funds held by the Deposit Guarantee Fund, on the date of appointment of a bank¶s liquidator. As of 2 August 2010, the Deposit Guarantee Fund had 169 member banks and 6 temporary member banks. As at 1 August 2010, the total amount of funds accumulated by the Deposit Guarantee Fund was equal to UAH 3,093 million. Reporting Requirements Banks are required to submit annual reports that contain audited financial statements or consolidated financial statements, if they have affiliates under their control, as well as a general description of the bank¶s business. Financial statements must include a balance sheet, an income statement, a cash flow statement and a shareholders¶ equity statement. The general description section describes the basic features of a bank¶s business and its organisation and management. Interim financial statements are submitted by banks on a quarterly basis and consist of a balance sheet, an income statement, an off- balance sheet liabilities statement, trust management accounts and a cover letter. The purpose of the cover letter is to describe and explain events and operations that are important for a fair presentation of the financial position of a bank and are material. Banks are also required to submit to the NBU statistical data on a daily, weekly and monthly basis to enable the ongoing review and monitoring by the NBU of their performance and financial position. On 27 December 2007, the NBU adopted resolution No. 480 ³On the Procedure for Preparation and Disclosure of Financial Statements of the Ukrainian Banks´, which introduced new rules for the preparation of financial statements based on the IFRS requirements for the disclosure of information in financial statements, as well as on Ukrainian accounting standards requirements, and the regulations of the NBU. Banks may prepare their 2007 annual financial statements in accordance with the new resolution, and will be required to do so starting from the 2008 annual financial statements and financial statements for the first quarter of 2009. The NBU may at any time conduct full or selective audits of any bank filings and may inspect any of the banks¶ books and records. Accounting Practices The NBU has established a standard format for the presentation of financial and statistical data and the recording of banking transactions. The Banking Law requires the annual balance sheet and other financial statements of banks to be certified by an independent licensed auditor.

A-8 Appendix A: The Banking Sector and Banking Regulation in Ukraine

Insolvency Regime The Ukrainian Parliament has not yet adopted any laws specifically regulating insolvency and bankruptcy proceedings in respect of Ukrainian banks. In Ukraine, solvency restoration and bankruptcy proceedings in respect of Ukrainian legal entities are generally governed by the Law of Ukraine ³On the Restoration of a Debtor¶s Solvency or Declaration of its Bankruptcy´ of 14 May 1992 (the ³Insolvency Law´). However, the application of the Insolvency Law to Ukrainian banks is limited and modified by the provisions of the Banking Law. A Ukrainian bank may be restored to solvency by means of a temporary administration procedure directed and supervised by the NBU. Restoration of Solvency Under Ukrainian law, the NBU would be required to impose temporary administration on a Ukrainian bank if the NBU were to determine that there exists a ³significant threat to the solvency´ of the bank. In addition, the NBU would have discretion to impose temporary administration on a Ukrainian bank if (i) a bank two or more times fails to comply with any legitimate requests or demands of the NBU; (ii) the Ukrainian bank¶s regulatory capital decreases by 30 per cent. over a six month period; (iii) a bank fails to meet ten per cent. or more of its aggregate overdue liabilities and such failure continues for at least 5 business days; (iv) any member of the bank¶s management is arrested for or convicted of a criminal offence; (v) a bank commits any act aimed at the concealment of any accounts, assets, registers, reports or other documents; (vi) a bank refuses to submit to authorised representatives of the NBU any documents or information specified in the Banking Law without a legitimate reason; (vii) there is a public conflict within the management; (viii) a bank requests the NBU to institute temporary administration; (ix) violation of anti-money laundering legislation by a bank; or (x) a bank performances a transaction which leads or could lead to a loss of assets. The temporary administrator appointed by the NBU would replace all of the bank¶s governing bodies for the entire term of the temporary administration (being a period of up to one year), and would be authorised to carry out any acts aimed at the bank¶s financial rehabilitation, including but not limited to (i) terminating any ongoing operation (including the discharge of any outstanding obligation) of the bank (without terminating or invalidating the agreement itself); (ii) reorganising a bank; and (iii) terminating, in accordance with Ukrainian legislation, any agreement to which the bank is party and which, in the opinion of the temporary administrator, is either loss-making or ³unnecessary´. The latter applies only to an agreement which contains outstanding obligations of any party. The temporary administrator would have a broad discretion in determining whether a particular agreement is loss-making or ³unnecessary´, given that Ukrainian legislation provides no criteria for making such determination. In each case, a dissatisfied counterparty would be entitled to challenge the temporary administrator¶s decision in court and, where applicable, to demand compensation by the Ukrainian bank for any damages resulting from such decision. During the term of operation of the temporary administration of a Ukrainian bank, but not longer than for a period of three months during such term, the NBU may impose a moratorium on the satisfaction of claims of the bank¶s creditors, which became due prior to the appointment of the temporary administrator or the introduction of the moratorium. Applicable legislation exempts the following payments from the moratorium: ongoing operations performed by the temporary administrator, payroll liabilities, alimonies, obligations in respect of personal injuries, copyright liabilities, and liabilities to other creditors incurred in connection with obligations assumed by the bank in the course of temporary administration. During the term of the moratorium, the accrual of any financial sanctions for the non- performance of the bank¶s payment obligations (including default interest, penalties and fines), as well as any enforcement action for the recovery of debts, would be suspended. Additionally, the temporary administrator may apply to a Ukrainian court to declare invalid any agreement for the disposal of the bank¶s assets prior to his appointment on one of the grounds provided in the Banking Law, including any transfer of assets: (a) within a six month period before the appointment of the temporary administrator, if the purpose of the transfer was to grant a preference to the transferee as compared to the bank¶s other creditors (such as where the asset transfer was not carried out on an arms-length basis and/or was carried out on preferential terms); or (b) within a three- year period before the appointment of the temporary administrator, if the value of the asset was significantly higher than the price paid by the purchaser to the bank; or (c) within a three-year period before the appointment, if the purpose of the transfer was to conceal the bank¶s assets from the other

A-9 Appendix A: The Banking Sector and Banking Regulation in Ukraine creditors or to violate the rights of such creditors; or (d) within a one-year period before the appointment of the temporary administrator, if the transfer threatened the interests of the bank¶s creditors or was effected pursuant to an agreement between the bank and a related party of the bank or such agreement contravened the requirements of Ukrainian legislation; or (e) within a three-year period before the appointment of the temporary administrator, if the transfer was made without consideration; or (f) if it was based on forged documents or if it was of a fraudulent nature. If an asset transfer agreement is declared invalid by a court, the bank and the transferee will be required to make full restitution, meaning that the bank will be required to repay all amounts received from the transferee and the transferee will be required to return the assets to the bank (or, if such return is not possible, to pay to the Ukrainian bank the value of the assets). Insolvency Liquidation Procedure If the temporary administration procedures imposed by the NBU do not result in the restoration of the bank¶s solvency, the NBU may revoke the bank¶s license and order its liquidation. The NBU is also authorised to revoke the bank¶s licence and order its liquidation if, in the course of the temporary administration of the bank, the NBU considers that it is impracticable to bring the bank¶s activity into legal and financial conformity with the provisions of the Banking Law and NBU regulations within a one-year period (except that, for banks whose liabilities constitute ten per cent. or more of the aggregate liabilities of the banking system, such term may be extended up to two years), or if the bank is not in compliance with the provisions of the Banking Law or NBU regulations and such non- compliance has resulted in substantial loss of the bank¶s assets and there is an indication that the bank is insolvent. The NBU is obliged to institute bankruptcy proceedings against a Ukrainian bank if the bank is not able to discharge its obligations under a court judgment within a six-month period and no work-out agreement has been reached between the bank and its creditor within that period. Following a decision by the NBU to revoke a bank¶s license and commence liquidation proceedings, the NBU must apply to a court for approval of the liquidator appointed by the NBU and for confirmation that the liquidation procedure complies with the requirements set out in the Banking Law. Creditors of a bank intending to initiate bankruptcy proceedings should, before submission of the bankruptcy petition to a Ukrainian court, request the NBU to liquidate the bank upon presentation to the NBU of evidence of the bank¶s inability to discharge its payment obligations on time and in full. If the NBU fails to respond within one month, the creditors would be entitled to submit a bankruptcy petition to a competent Ukrainian court. Upon receipt of the bankruptcy petition, a Ukrainian court must obtain either an opinion of the NBU on the feasibility and grounds for the liquidation of the bank, and may only proceed with the bankruptcy proceedings if the NBU provides an affirmative opinion or a resolution of the NBU on the revocation of its banking license and the appointment of a liquidator. The court must dismiss the creditor¶s bankruptcy petition if the NBU issues a negative opinion. Bankruptcy proceedings against a Ukrainian bank may not start as long as its banking license remains effective. Ukrainian law does not permit the financial rehabilitation (sanation) of a bank if its banking license has been revoked. Upon revocation of the banking licence, the authority that instituted bankruptcy proceedings (either the NBU or a Ukrainian court) must appoint a liquidator. The court may reject the liquidator appointed by the NBU if it finds that there is a conflict of interest between such liquidator and the bank. The liquidator would assume his duties immediately upon revocation of the banking license and would be responsible for: (i) preserving the bank¶s assets; (ii) managing and disposing of the assets; (iii) creating an inventory and appraising the assets; (iv) exercising the powers of the bank¶s management bodies; (v) chairing the liquidation commission and forming the liquidation estate; and (vi) filing claims against third parties to recover debts owed to the bank. In addition, a liquidator would be entitled to refuse to perform, and would be entitled unilaterally to terminate, in accordance with applicable law, any agreement entered into by a Ukrainian bank which had not been performed by such time. Upon the revocation of a bank¶s banking licence and appointment of a liquidator: (i) all of the bank¶s payment obligations that existed prior to the revocation of the banking licence will become due and payable in accordance with the procedure and order of priority established by applicable Ukrainian legislation; (ii) no default-related penalties provided for in the agreements entered into with, and payable by, the Ukrainian bank, will further accrue; (iii) the bank will be precluded from making payments to third parties, except for certain limited categories of payments (such as maintenance and

A-10 Appendix A: The Banking Sector and Banking Regulation in Ukraine utility payments and salaries); and (iv) the bank will be precluded from accepting and making payments for the benefit (and at the instruction) of its clients. Upon commencement of liquidation proceedings, the liquidator of a Ukrainian bank must publish in the official bulletins of Parliament and the Cabinet of Ministers of Ukraine a notice on the liquidation of the bank. Creditors are entitled to submit their claims against the bank to the liquidator within the one- month period after the date of publication of the notice. Creditors¶ claims filed after the expiry of the one-month period are deemed to have been settled. The liquidator must, within three months of the date of publication of the notice of liquidation, consider all claims filed by the bank¶s creditors, determine their amount and assign them to the respective priority category. Claims for the payment of fees and expenses incurred in connection with the liquidation and claims secured by pledge are satisfied outside of the order of priority established by the applicable legislation. The former are satisfied during the course of the liquidation proceedings and in accordance with the schedule approved by the NBU. Receipts from the sale of collateral are used solely for the satisfaction of claims secured by the collateral. The balance of the creditors¶ claims are satisfied upon the sale of the bank¶s assets in the following order of priority: first, liabilities resulting from death or personal injury; second, payroll liabilities incurred prior to the commencement of the liquidation proceedings; third, debt obligations to the Fund for the Guaranteeing of Deposits of Individuals; fourth, obligations to individual depositors in an amount exceeding the sum paid by the Fund of the Guaranteeing of Deposits of Individuals; fifth, liabilities to the National Bank of Ukraine with respect to decrease of security value, provided by a bank in relation to refinancing loan; sixth, liabilities to the Ministry of Finance with respect to the returnable financial assistance save for the contributions to the charter capital of a bank; seventh, liabilities to individuals with respect to blocked payments (except liabilities to subjects of entrepreneurial activities); eighth, all other claims, save for the claims under the subordinated debt, and ninth, claims under the subordinated debt. Claims for the payment of fees and expenses incurred in connection with the liquidation and claims secured by pledge are satisfied outside of the order of priority. Anti-Money Laundering In May 2010, the Ukrainian Parliament adopted the law ³On Combating the Legalisation (Laundering) of Income Obtained by Criminal Means, or Terrorism Financing´ (the ³Anti-Money Laundering Law´). Banks are required to comply with the provisions of the Anti-Money Laundering Law relating to, among other things, the development of appropriate internal standards and procedures, client identification, monitoring of client operations and reporting of operations to the specially authorised governmental body, the State Committee for Monitoring of Ukraine (the ³SCFM´). The Anti-Money Laundering Law requires that banks monitor and report any transactions if the amount of a single transaction is equal to or exceeds UAH 150,000 (or its equivalent in foreign currencies) and the transaction has certain characteristics as set forth in the Anti-Money Laundering Law, including one or more of the following: the transaction involves a cash payment; one or more of the parties is resident or has a bank account in a country that does not participate in international efforts to combat money- laundering (which generally corresponds to the list of Non-Cooperative Countries and Territories maintained by FATF); the transaction involves making bank deposits for a third party beneficiary; or the transaction involves the deposit of precious stones, precious metals and other property with a pawnbroker. In addition, banks are required to monitor any transaction involving any individual or organisation that is connected with terrorist activities (according to information provided by the SCFM) and any legal entity controlled by them or their agents. If bank officers suspect that a transaction is being conducted in order to legalise any funds received as a result of illegal activity or to finance terrorist activities, they are required to report such operations whether or not they qualify as monitored transactions.

A-11 REGISTERED OFFICE OF THE ISSUER UK SPV Credit Finance plc Pellipar House First Floor 9 Cloak Lane London EC4R 2RU United Kingdom

REGISTERED OFFICE OF THE BANK Public Joint-Stock Company Commercial Bank PrivatBank 50, Naberezhna Peremohy Dnipropetrovsk 49094 Ukraine

TRUSTEE Deutsche Trustee Company Limited Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom

PRINCIPAL PAYING AGENT Deutsche Bank AG, London Branch Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom

LEGAL ADVISERS To the Issuer To the Bank To the Bank as to English law as to English law as to Ukrainian law

Baker & McKenzie LLP Freshfields Bruckhaus Deringer LLP Avellum Partners 100 New Bridge Street 65 Fleet Street Leonardo Business Center London EC4A 6JA London EC4Y 1HS 19-21 Bohdana Khmelnytskoho Str. United Kingdom United Kingdom 11th Floor Kyiv 01030 Ukraine

To the Joint Lead Managers and the Trustee To the Joint Lead Managers and the Trustee as to Ukrainian law as to English law

Baker & McKenzie ± CIS, Limited Linklaters LLP Renaissance Business Center One Silk Street 24 Vorovskoho St. London EC2Y 8HQ Kyiv 01054 United Kingdom Ukraine

AUDITORS OF THE BANK LLC Audit Firm ³PricewaterhouseCoopers (Audit)´ 75 Zhylyanska Street Kyiv 01032 Ukraine

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