2005 Annual Report

DenizBank Moscow Mission

To be the Russian and CIS center of the globally active DenizBank Financial Services Group within the triangle of Turkey, the EU and the Russian Federation, supporting production and trade.

Vision

DenizBank Moscow was established with a vision to become a mid-size commercial bank within the existing 1,300 Russian banks. It also anticipates becoming the leading bank among Turkish-owned banks in Russia. Contents

> DenizBank Moscow in Brief 01 > Financial Highlights 02 > Zorlu Holding 03 > Chairman’s Statement 04 > Board of Directors 05 > Executive Management 06 > Review of Activities in 2005 07 > General 08 > Corporate Banking 09 > Corporate and Commercial Banking 10 > Financial Institutions 15 > Treasury 17 > Human Resources 18 > Information Technology 19 > Risk Management 22 > Corporate Governance 23 > Financial Statements and Auditor’s Report 25

DenizBank Moscow ‘first stop’ for DenizBank clients in Turkey who are currently conducting business in Russia or for those who desire to pursue possible business opportunities there. The in Brief presence of OOO Vestel CIS, the electronics division of Zorlu Holding in Russia, Taç Tekstil, the textiles division of Zorlu Holding and Zorlu Energy, the energy division of Background Zorlu Holding in Russia, also provide the Bank with DenizBank Moscow was established by the purchase of valuable business potential and synergy. 100% of the shares of Iktisat Bank Moscow (registered on June 15, 1998 by the Bank of Russia). It operated until the In addition to commercial banking, its core business, beginning of 2003 when it was acquired by DenizBank A.S. DenizBank Moscow has become an active player in the - part of its strategy to expand into Russia and the CIS. Russian foreign exchange and money markets as well as Subsequent to acquisition, the Bank’s name was changed fixed-income securities trading and investments. to DenizBank Moscow (the license and name changes were registered by the Bank of Russia on October 6, 2003) and Within the next five years, DenizBank Moscow aims to its capital was increased from US$ 1.7 million to US$ 20.6 become a commercial bank providing full financial services million. Shares were distributed between DenizBank AG primarily to Turkish-Russian businesses. Not limited to this and DenizBank A.fi. with each holding a share capital of segment, the Bank will also serve Russian companies in the 51% and 49% respectively. commercial banking sphere. The Bank is capable of delivering a wide range of contemporary financial services DenizBank Moscow is a member of the State Deposit to a large group of corporate and individual clients Insurance System, the Association of Russian Banks, utilizing high business ethics, an adequate capital base and National Fund Association, SWIFT and the Association of diversified risk adjusted assets. Russian-Turkish Businessmen (RTIB). Core business areas Business goal The core business areas of DenizBank Moscow are Increasing commercial and investment relations between corporate, commercial and retail banking. Complementing Turkey and Russia are providing a unique opportunity for these areas are correspondent banking that provides the DenizBank Moscow to become a large commercial bank Bank with an extensive network of correspondent banks offering credit, non-credit and trade finance products to across major trading partner countries around the globe entrepreneurs doing business in Russia. The Bank is the and the treasury, overseeing the Bank’s funding and securities trading business. 01 Financial Highlights

(US$ thousands)

2005 2004 2003

Due from banks 22,740 16,537 6,427

Trading securities 62,929 28,138 11,749

Loans and advances to customers 27,481 8,342 711

Total assets 116,369 56,620 21,221

Deposits from banks 71,870 37,140 9,426

Deposits from customers 20,624 10,229 3,992

Shareholders’ equity 20,580 8,972 7,670

Interest income 6,673 2,339 237

Interest expense (2,154) (510) (72)

Net interest income 4,519 1,829 165

Operating income 4,754 4,296 1,757

Operating expenses (2,654) (2,712) (1,022)

Net profit 1,509 1,302 431

Capital adequacy ratio 19% 19% 43%

Number of staff 49 37 26 Zorlu Holding

DenizBank Moscow is a member of Zorlu Holding whose Subsequently, DenizBank established and/or acquired history goes back to the early 1950s when it was financial companies that included banks in Austria, Russia established as a producer of home textiles. It later grew and the Turkish Republic of Northern Cyprus in addition to into a dynamic group of industrial companies, globally factoring, leasing, investment and brokerage companies to recognized for high quality. Zorlu Holding is now one of complement its existing banking products and services. In the largest and most extensive industrial conglomerates in 2003, the DenizBank Financial Services Group (DFS Group) Turkey. With a total of 65 companies, Zorlu Holding has 15 was formed along the lines of a financial supermarket able large-scale industrial concerns operating in the to offer a wide range of financial services. international arena plus three energy plants which provide employment for 30,000 people. In 2005, Zorlu Holding Energy production companies achieved a total turnover of US$ 4.3 billion and Zorlu Energy is currently operating four energy plants and an export volume of US$ 2.5 billion. is serving 300 industrial complexes with a total power capacity of 387 MW. Additionally, it has established local Currently, Zorlu Holding concentrates on four major partnerships in Russia and Israel to build and operate business areas: power plants with a total capacity of 1.140 MW.

> Home textiles and polyester yarn, Zorlu O&M was established in 2000 to provide power plant > Electronics, consumer durables and information operating and maintenance services to Zorlu Energy and technology, non-Zorlu Holding companies. Other energy companies > Financial services and within Zorlu Holding are; Zorlu Industrial, Zorlu Petrogas, > Energy production. Amity Oil, Zorlu Electricity Wholesale, Zorlu Natural Gas Wholesale, Thrace Region Natural Gas Distribution and Home textiles and polyester yarn Gaziantep Natural Gas Distribution. Having steadily grown in the area of home textiles over time, Zorlu Holding entered international markets with its brands. Currently, the Holding has a total of ten manufacturing plants in Turkey, France, South Africa, Iran and Turkmenistan.

Electronics, consumer durables and information technology Vestel Electronics, a publicly traded company, is Zorlu Holding’s admiral ship in the Electronics, Consumer Durables and Information Technology Group. This group is comprised of a total of 19 companies; nine local and ten overseas.

Financial services The Holding further increased the number of companies under its management as it ventured into the financial services sector in 1997 with the acquisition of DenizBank.

03 Chairman’s Statement

DenizBank Moscow is dedicated to the development and DenizBank Moscow will continue investing in its alternative growth of Russian-Turkish business relationships while distribution channels and retail banking infrastructure as it providing a wide range of banking services to Turkish and penetrates further into the corporate, commercial and Russian companies involved in foreign trade. retail markets. Offering high quality service and product bundles, these efforts will result in an increase in the In Russia, banking regulations were accelerated in an effort Bank’s visibility among Russian clientele. to raise public confidence in the banking system; in parallel with this process, trade volume and tourism between As a multi-cultural bank, our clients come from a number Turkey and Russia increased. The leaders of both countries of different countries; our multi-national employees are recently met in both Ankara and Moscow and declared an able to provide the international expertise necessary to increased commitment toward additional economic meet the needs of these clients. collaboration. Turkey has always considered Russia an essential business partner. As an advocate of the highest In the second half of 2005, paid-in capital was increased business ethics, possessing an adequate capital base two-fold to provide the necessary funding to accelerate the coupled with diversified risk-adjusted assets, DenizBank growth process. It is anticipated that within the next three Moscow is destined to become a key player in the Turkish- years, DenizBank Moscow will rank in the upper echelon Russian economic scene. among Russian mid-size banks and among the top 100 largest banks in Russia. We, at DenizBank Moscow, aspire to be a leader in the provision of credit and trade finance products. As we Relatively speaking, much has been accomplished within a progress further into this area, we are also focusing our short space of time. The road head is long, yet profitable; attention on Russia’s money and capital markets. Banking efforts to expand DenizBank Moscow’s role as a global in Russia requires special expertise due to unique market player are being pursued with prudence and diligence. We conditions that are very country-specific. As more are certain that the relationship with DenizBank in Turkey knowledge and expertise of the local market is obtained will prove to be very fruitful and we see a successful future and as the necessary licenses are received, we are delving ahead. To all of our faithful shareholders, I would like to deeper into our core business – commercial banking. The add my thanks and my gratitude to that of the Board of experience gained will be passed on to our clients to assist Directors. The support they have given us has been the them in their quest to do business with Russia. motivation for DenizBank Moscow to rise to the upper echelons of the Russian banking sector. Additionally, a Our aim presently is to assist Turkish entrepreneurs with great deal of the credit also goes to our dedicated their investments in Russia. As such, we extend cash and employees and managers - without whom we would never non-cash credits to Russian and Turkish companies and have achieved our goals. Last but certainly not least, our assist in money transfer transactions by corporate and business partners and clients deserve to be acknowledged individual clients. We plan to expand our business for their confidence and trust that has made our success - undertakings to include more Russian and foreign everyone’s success. companies that wish to operate in Russia and will continue participating in the trading of investment-grade Russian securities. Additionally, we will grow in retail banking activities that are geared to serve small businesses and consumers. As this expansion moves forward, new branch offices will be opened in areas of economic activity. The Hakan Atefl Bank’s IT infrastructure was recently upgraded to be able Chairman to meet the needs of retail banking activities that are growing daily.

This year, we increased our trade finance business volume significantly by expanding relationships in both domestic and international markets. Accordingly, we enlarged our funding base assisted by local, regional and foreign banks. Board of Directors

123

456

1 Hakan Atefl Chairman 2 Mehmet Cem Bodur Member 3 Nihat Sevinç Member 4 Can Taflpulat Member 5 ‹smail Ergener Member 6 Derya Kumru Member and President & CEO

05 Executive Management

1 Derya Kumru President 2 Mutlu Ça¤l›yan Vice President - Operations 3 Dimitry Zhitniy Vice President - Treasury 4 Hayri Cansever Head of Marketing 5 Natalia Bolshakova Head of Financial Institutions Svetlana Barabanova Head of Operations Karen Zohrabian Head of Legal Department Olga Shestakova Chief Accountant Vladislav Chumachenko Head of IT Victor Rudnev Head of Risk Management Makar Gavrilov Head of Internal Control Dmitri Moudraguelia Head of Administrative Affairs

2 1 5 3 4 At the end of 2005, DenizBank Moscow had assets total›ng Review of Activities US$ 116.4 m›ll›on, represent›ng an ›ncrease of 106% over in 2005 the year-end 2004 f›gure of US$ 56.6 m›ll›on. General

Compared to the prev›ous year, 2005 saw DenizBank strengthen ›ts market pos›t›on among Turk›sh banks operat›ng ›n the Russ›an Federat›on due ›n part to ›ncreas›ng numbers of customers and the depth of bus›ness penetrat›on.

Favorable financial results Strong IT infrastructure At the end of 2005, DenizBank Moscow had assets totaling DenizBank Moscow’s IT infrastructure has been fully US$ 116.4 million, representing an increase of 106% over updated with new hardware including an upgrade to the year-end 2004 figure of US$ 56.6 million. SwiftNet technology within the SWIFT interface; operations have begun on a leased line. Operational The Bank posted a net profit of US$ 1.5 million at the end software was also upgraded with all banking applications of 2005 while shareholders’ equity increased from US$ 8.9 working seamlessly as of the year’s end. Additionally, the million to US$ 20.6 million, representing an increase of Internet website was renewed and its content re- 129% over the year-end 2004 figure. developed. A VPN connection was established with DenizBank in Istanbul resulting in better information Expanding the scope of activities sharing. DenizBank Moscow completed its Business DenizBank Moscow acquired a license from the Central Continuity Plans and established the Disaster Recovery Site Bank of the Russian Federation to start retail banking in 2005. activities and collect deposits denominated in both Russian rubles and foreign currencies in 2004. Retail activities of Competent human resources the Bank initially involved selling a range of consumer DenizBank Moscow initiated a restructuring of its human banking products to the personnel of existing corporate resources by redefining workflows, job descriptions and customers. Such products included consumer loans secured procedures that assist in the delivery of banking services to with the surety of corporate customers, savings deposits clients. In 2005, the number of staff was further increased and salary payment schemes. with new recruits enabling the Bank to penetrate the markets deeper and faster with high quality service. During the year, the Bank increased its trade finance business volume significantly by expanding relationships in domestic and international markets. It enlarged its funding base provided by local, regional and foreign banks and widened both the international and domestic correspondent networks. Corporate Banking

DenizBank Moscow has primarily targeted the construction Additionally, a new branch will be opened in Kazan, 800 industry along with Turkish companies operating in other miles east of Moscow. business areas in Russia. Compared to the previous year, 2005 saw DenizBank strengthen its market position among The total of ongoing projects that were issued a letter of Turkish banks operating in the Russian Federation due in guarantee by the Bank has reached US$ 650 million. part to increasing numbers of customers and the depth of business penetration. Incoming and outgoing foreign exchange transfers totaling US$ 329.5 million In addition to its goal of increasing business levels with active clients, future plans include establishing a Russian > incoming FX transfers US$ 147.7 million Marketing Team that will steer the Bank toward more Russian companies and expand its marketing activities. > outgoing FX transfers US$ 181.8 million.

09 Corporate and Commercial Banking

Products and services on offer DenizBank Moscow is the only Turkish bank in Russia that In all the services it provides, DenizBank Moscow benefits provides a special card-based payment system for customs from the synergy created with other members of the duty payments. The Customs Card enables clients to pay DenizBank Financial Services Group. These members customs duties within customs premises simply by using a include - DenizBank A.fi., DenizLeasing and DenizFactoring plastic card. This card makes customs operations faster and in Turkey and DenizBank AG in Germany and Austria. easier. DenizBank Moscow aims to serve the financial needs of its clients by capitalizing on this synergy. With approximately Competitive advantages 250 DenizBank A.fi. branches throughout Turkey, seven DenizBank Moscow enjoys a number of major advantages branches in Austria and Germany and its vast over its peers with regard to its corporate and commercial correspondent network in Europe, the USA and the Far banking business. As a member of Zorlu Holding with large- East, DenizBank Moscow’s primary goal is to deliver world- scale investments in electronics, textiles and energy class financial products and services to its clients. industries in Russia and with its leading shareholder DenizBank AG of Austria (a triple A-rated country), the DenizBank Moscow employs relationship managers fluent Bank is endowed with competitive strength. in Russian, English, Turkish and German. They are trained to offer solution-providing services while building mutually Strong cooperation and coordination with DenizBank A.fi. beneficial relationships. They also deliver consultation in Turkey coupled with the relatively low cost of funding services regarding banking regulations in countries where has enabled DenizBank Moscow to quote favorable rates to DenizBank and its affiliates operate as well as banking its corporate and commercial customers. As a result, these applications specific to these countries. advantages have helped the Bank to offer suitable lending and trade finance lines to its customers. In addition to traditional short-term corporate lending products, DenizBank Moscow offers full-coverage cash and In the coming years, DenizBank Moscow will invest in its settlement services, documentary business and trade branch network, alternative distribution channels and retail finance and financial advisory services and long-term banking infrastructure in an effort to penetrate into the lending facilities at favorable conditions. The Bank, acting corporate, commercial and retail markets by offering as its customers’ sole banking partner, may provide all service and product bundles. These efforts will also help essential financial services they require under one roof. increase recognition among Russian corporate customers. In all the serv›ces ›t prov›des, DenizBank Moscow benef›ts from the synergy created w›th other members of the DenizBank F›nanc›al Serv›ces Group.

The credit portfolio and construction companies’ needs and L/Cs for imports of DenizBank Moscow’s growth strategy in corporate and commercial goods and/or machinery and equipment. By commercial banking entails providing services to large- the end of 2005, share of cash and non-cash credits in total scale Turkish and Russian companies as well as multi- credit portfolio were 44% and 56%, respectively. national companies operating in the Russian Federation. Additionally, small-scale Russian companies handling By the end of 2005, credits were concentrated in imports and/or exports with Turkey also fall within the construction, tourism, manufacturing and services scope of DenizBank Moscow’s marketing activities. industries. These were the major industries which DenizBank Moscow had granted credit lines during 2005. Indirect lending activities are geared toward leading Russian companies involved with oil and gas, Textiles and electronics will gain importance within the telecommunications, transportation, food processing and credit portfolio in the future since Zorlu Holding other business sectors by the purchase of corporate bonds companies have a strong presence in these sectors and issued by these companies. their counterparts in Russia make up prospective clients for the Bank. As DenizBank Moscow expands its lending DenizBank Moscow has a credit portfolio composed of activities toward Russian companies, the credit portfolio companies from various industries such as manufacturing, will become more diversified. construction, tourism, electronics, textiles, food and beverages. The sizes of the companies in the portfolio NPL reserve policy range from small businesses to large-scale industrial DenizBank Moscow allocates reserves according to Russian corporations. Central Bank regulations that also comply with international standards. The reserve requirement is Cash credits are extended with various terms to meet assessed periodically on a monthly basis. working capital requirements, investments in machinery and equipment. Additionally, project finance facilities are In terms of International Financial Reporting Standards, provided for capacity increase investments and new the Bank’s allocated reserve ratio for potential NPLs is 0.8% business launches. Non-cash credits are allocated mainly in for 2005. In case of any NPL, the Bank sets aside 100% the form of L/Gs for lease agreements, payment guarantees reserves after one month, following a diligent and

11 Corporate and Commercial Banking continued

In 2006, DenizBank Moscow plans to expand ›ts corporate and commerc›al bus›ness portfol›o by add›ng new compan›es and concentrat›ng on the requ›rements of ›ts current customers.

conservative provisioning policy. At the end of 2005, the Another area of synergy is created when DenizBank ratio of NPLs within the total loan portfolio was 0.2%, Moscow provides credit facilities to customers against which can be considered as a minor figure. counter-guarantees of DenizBank A.fi. in Turkey and DenizBank AG in Austria. DenizBank Moscow will cooperate Synergy with the DFS Group and Zorlu Holding more closely with DenizBank AG thanks to its EU identity companies as new frontiers are discovered in Europe. Zorlu Holding companies operating in Russia are active in home textiles, energy and home electronics sectors. With Future plans regard to corporate banking, DenizBank Moscow is their In 2006, DenizBank Moscow plans to expand its corporate home bank able to provide all of their banking and commercial business portfolio by adding new requirements. Establishing banking relations with suppliers companies and concentrating on the requirements of its and distributors of Zorlu Holding companies is one of the current customers. To this end, the Bank will emphasize the major goals of DenizBank Moscow. Shares of cash and non- quality and distribution of its banking products and cash loans granted to Zorlu Holding companies are 14.44% services. While the primary focus will continue to target and 3.29%, respectively. Turkish companies in Russia, DenizBank Moscow will expand its business relationships with leading, DenizBank Moscow is the first check-point for active or creditworthy Russian and multi-national companies. potential clients of DenizBank A.fi. in Russia. In this respect, the customer portfolio of DenizBank A.fi. is a great Cash management services asset, helping to expand the corporate banking activities of Payment system regulations in Russia allow payments only DenizBank Moscow. DenizBank Moscow also reaches out to through bank accounts, making up numerous business Turkish companies in Russia that are not currently opportunities for the banking system. DenizBank Moscow customers of DenizBank A.fi. This two-sided synergy helps operates an Additional Cash Unit within client premises both banks attain more customers. and provides "Inkassation" Service (cash collection) for numerous companies. Turkish companies operating in Russia, especially those in tourism and construction industries, generate ample cash One cash management service at DenizBank Moscow is the flows. Through DenizBank Moscow, this cash flow is "Internet Based Bank-Client System" that is used to receive directed toward DenizBank A.fi. branches in Turkey. instructions for ruble payments and international SWIFT transfers from the client while conveying all account professional staff in terms of legislative compliance and details including history. The data traffic is fully encrypted risk management. and signed, reflecting high security technology. Another service offered by the Bank is the Customs Card, The Bank also provides consultations on the currency which enables companies to make their customs duty legislation of the Russian Federation, currency control payments utilizing a debit card provided by DenizBank themes and procedural assistance in foreign trade Moscow instead of taking the risk of making cash operations. All schemes are evaluated by experienced payments. This application facilitates the customs operations of corporate clients, making them safer.

Breakdown of the cash credit portfolio by industries 2005 2004 US$ millions % US$ millions % Manufacturing 10.77 39.20 2.99 34.42 Construction 8.79 32.00 3.57 41.09 Services 6.16 22.41 0.58 6.76 Other 1.76 6.39 1.53 17.73 Total 27.48 100.00 8.69 100.00

Breakdown of the credit portfolio by types and currency (US$ millions) 2005 2004 RUR US$ EUR RUR US$ EUR Cash Credits 2.3 24.6 0.6 1.1 7.6 - Non-Cash Credits 5.5 22.2 7.5 0.00 9.4 1.4 Total Credit Portfolio 7.8 46.8 8.1 31.32 16.98 1.00

13 The Bank posted a net prof›t of US$ 1.5 m›ll›on at the end of 2005 wh›le shareholders’ equ›ty ›ncreased from US$ 8.9 m›ll›on to US$ 20.6 m›ll›on, represent›ng an ›ncrease of 129% over the year-end 2004 f›gure. Financial Institutions

DenizBank Moscow ›s an act›ve player ›n the Russ›an and ›nternat›onal ›nterbank money and fore›gn exchange markets.

During 2005, DenizBank Moscow continued to expand Moscow cooperates with large and medium-size Russian correspondent relations with Russian and foreign financial banks, key banks in the CIS countries and leading banks in institutions. The correspondent network established by the countries where DenizBank Moscow’s shareholder banks DenizBank Moscow has been developed in line with have business interests. customer demand and trade geography. The Bank is focused on business relationships with strong and DenizBank Moscow, together with its parent bank, reputable counterparties. DenizBank AG, is an active participant in the syndicated loan market. In 2005, they took part in syndicated loans of The wide branch network and presence of DenizBank some of the largest banks in Russia and the CIS countries. Financial Services Group in different regions of the world allows DenizBank Moscow to provide low-cost services, International banking products and services on offer reduce the time for international money transfers, widen DenizBank Moscow offers its correspondent banks a wide the spectrum of documentary transactions and introduce range of services: new services that take customers’ needs into account. > Correspondent banking services DenizBank Moscow conducts documentary transactions of - Account opening and maintenance in ruble, US dollar all types. These include cash collection, opening letters of and euro. FX and MM transactions credit and provisions of bank guarantees. The Bank is ready > > Trade Finance to provide its clients with all the necessary advice - Advising, confirmation and negotiation of L/Cs regarding types of transactions and to assist in drafting - Trade discounting and refinancing the payment conditions of a contract so as to ensure the - Trade guarantees and stand-by L/Cs best possible protection of the client’s interests. - Confirmed reimbursements - Reimbursement financing DenizBank Moscow is an active player in the Russian and > Capital market transactions international interbank money and foreign exchange - Trading in sovereign and corporate ruble-denominated markets. The Bank participates both in raising and placing bonds and Russian eurobonds. funds in Russian rubles and foreign currency, as interbank deposits or under bilateral loan agreements. DenizBank

15 Financial Institutions continued

DenizBank Moscow w›ll pos›t›on ›tself ›n ›nternat›onal markets as a med›um-s›ze Russ›an bank, backed by strong shareholder support and the capac›ty to prov›de a w›de range of h›gh qual›ty correspondent bank›ng serv›ces.

Plans for the future volume of trade finance transactions in the near future. Relying on the international experience and strong There are plans in the pipeline to enter into the syndicated reputation of its shareholder banks, DenizBank Moscow loan and debt markets by issuing corporate bonds. plans to develop closer business cooperation with leading Consequently, within the scope of corporate finance Russian and international banks. activities, DenizBank Moscow will also act as an arranger in corporate bond issues for its customers. With growth in its level of activity and the number of customers, DenizBank Moscow plans to participate in GSM DenizBank Moscow will position itself in international 102-103 credit facilities extended by the CCC of the US markets as a medium-size Russian bank, backed by strong Department of Agriculture. Additionally, it plans to shareholder support and the capacity to provide a wide increase the number of correspondent banks and the range of high quality correspondent banking services. Treasury

Being a relatively small Bank has its advantages. DenizBank Department to reshape the scope of its activities. It will Moscow’s qualified staff possesses international experience, focus on TMU activities in an effort to contribute to the flexibility and competence in treasury dealings. This has Bank’s overall profitability with income derived from fees made the Bank a successful participant in Russian money and commissions. Concurrently however, the Bank will and capital markets. continue trading in Russian fixed income markets, in which it has been very successful over the past two years. The Bank’s Treasury Department is made up of the Fixed Income Desk, Money Market Desk, FX Desk and the Trading environment Treasury Marketing Unit (TMU). Within this organizational Russia is an important emerging market with an improving set-up, the Treasury Department is active in FX transactions macro-economic performance. GDP recorded a growth rate (FX/RUR and FX/FX), deposits, fixed income securities (in of 5.9% while gold/currency reserves reached US$ 170 domestic and international markets) and cash transfers. billion, an increase of US$ 120 billion in 2005. With positive developments like these, investing in Russian capital Trading guidelines markets has become attractive, especially after the latest DenizBank Moscow’s trading guidelines can be investment grade updates announced by S&P and characterized as prudent, solution providing and highly FitchRatings. selective with regard to investing. Almost all customer transactions are covered by a counter-deal which enables DenizBank Moscow has tried to take advantage of the the Treasury Department to quote more competitive prices improving economic scene in the last few years by to customers. investing in Russian securities. The size of the securities portfolio increased two fold to reach US$ 63 million in Trading Volume 2005. This was achieved by utilizing the utmost care and 2005 2004 adhering to market risk management issues. The Bank FX traded US$ 863 million US$ 396 million invested mainly in highly liquid sovereign and quasi- Securities traded US$ 61 million US$ 63 million sovereign bonds. For the next couple of years, the Bank expects that its securities trading volume will decrease relatively while increases will be achieved in TMU turnover In 2006, DenizBank Moscow will focus more on retail and direct loans. banking activities which will require the Treasury 17 Human Resources

DenizBank Moscow maintains a staff with excellent At the end of 2005, there were a total of 49 employees educational backgrounds and experience in banking and averaging 32 years of age; of these, almost two-thirds are financial services. The pleasant working environment at the female. Three staff members possess post-graduate Bank allows the staff to exhibit their creativity which is in diplomas while 40 have earned university degrees; 31 are turn reflected on the Bank’s service quality. fluent in at least one foreign language and four are fluent in two foreign languages. At the end of 2006, the number DenizBank Moscow’s recruitment policy is to "hire the right of staff will increase to 60; this number will double by the person for the right job." Since the Bank is a rapidly end of 2007. developing start-up, new staff is frequently hired from other banks and financial institutions. Creating a common corporate culture is the goal of in-house training programs applied to new recruits in addition to training on technical matters. Information Technology

DenizBank Moscow’s IT ›nfrastructure has been fully updated w›th new hardware ›nclud›ng an upgrade to Sw›ftNet technology w›th›n the SWIFT ›nterface;

In 2005, DenizBank Moscow’s IT Department completed > Restriction of ICQ and MSN services was established. some key projects, including the following system > To reduce Internet traffic and access to non-violated WEB improvements: pages, restrictions for web browsing was established. > The IVR system was improved by increasing answering > Increase in the bandwidth of the Internet connection to lines from four to eight. 2 MBs. > Additional local network bandwidth was acquired: 1 GBs Remote cash unit (Opercassa) for servers, 100 MBs for PC workstations. A system that supports an unlimited number of remote > Two new servers were put into operation providing e- cash units was established. It includes a Microsoft Terminal mail hosting and remote accessibility. Server, a Citrix Metaframe Presentation Server and a Cisco > A new e-mail server was installed (migration from PIX FireWall VPN connection. Exchange Server 5.5 to Microsoft Exchange 2003’s last version). > Remote e-mail access was established through a WEB- based interface (Web Outlook Access). > Remote Terminal Access to the Bank via VPN connection and Citrix Metaframe Presentation Server 3.0 was achieved.

19 Information Technology continued

The number of cl›ent-bank users was ›ncreased from 25 to 110 ›n 2005. A support messag›ng system to handle cl›ent transact›ons for bank operators was developed.

Client-bank System > Deal procedures with other departments were outlined The number of client-bank users was increased from 25 to and put into operation. 110 in 2005. A support messaging system to handle client transactions for bank operators was developed. An IT business plan based on user requirements (case technology) was developed. IT organization improvements > Disaster Recovery and Business Continuity Plans were > An IT help desk was developed in compliant with prepared and a Disaster Recovery Site was established. ITIL/ITMS international standard (Information Technology Service Management). The w›de branch network of DenizBank F›nanc›al Serv›ces Group allows DenizBank Moscow to prov›de low-cost serv›ces, reduce the t›me for ›nternat›onal money transfers, w›den the spectrum of documentary transact›ons and ›ntroduce new serv›ces that take customers’ needs ›nto account. Risk Management

DenizBank Moscow is fully aware that a successful banking In the coming year, the Bank will continue gradual operation cannot be sustained without due attention given implementation of Basel II risk management principles in to risk management principles. To this end, the Bank has, conjunction with its shareholder banks, thus enabling an since its inception, developed a risk management system all-encompassing application throughout the DenizBank modeled after its shareholder banks. Continuously Financial Service Group. upgrading its control systems, the Bank strives to create a universal and pervasive system that allows managers to DenizBank Moscow has foreseen an impressive progression monitor and act upon all aspects of financial activity. in its business volume and spectrum of banking service. This growth has been followed by the inevitably emerging Adhering to the requirements set forth by the Central Bank new risk and quantitative increase in risk related to of Russia and other state regulatory bodies, the Bank’s risk activities that are traditional for the Bank. The Bank is management system is comprised of controls over market, bound to take proactive measures that aim at minimizing credit, liquidity and operational risks. Following the Basel these risks to acceptable levels. II guidelines, the Central Bank of Russia issued interpretations of Basel II principles for banks with regard to legal, operational and reputation loss risk management. Nevertheless, other Basel II principles have yet to be made compulsory for banks. Not only led by Central Bank regulations but also following its shareholder banks in their aim to achieve full compliance with Basel II, DenizBank Moscow has taken solid steps to apply these principles well into the future. Their prudent guidelines ensure predictability and sustainability of profit and a more stable capital base over the long term. Corporate Governance

R›sk management pr›nc›ples known as Basel II have been adopted under the Bank’s understand›ng of Corporate Governance as gu›d›ng pr›nc›ples to m›t›gate bank›ng r›sks.

Corporate Governance Statement sets forth the Bank’s > Continuously increase the Bank’s market value through commitments concerning the arrangement of relations the contributions of the Board of Directors and the with shareholders and stakeholders. In addition, it also Executive Committee, establishes the duties and responsibilities of the Board of > Maintain high employee motivation to provide services Directors and lower management levels through corporate that increase customer satisfaction, governance principles of transparency, equality, > Enable the Board of Directors to monitor the Bank’s responsibility and accountability. activities effectively through the internal and external audit systems in line with the aforementioned principles, Risk management principles known as Basel II have been > Promote the formation of all kinds of information adopted under the Bank’s understanding of Corporate platforms that enlighten stakeholders about the Bank’s Governance as guiding principles to mitigate banking risks. position and performance, and > Take the utmost care to enable stakeholders to use and The first and foremost aim of adopting internationally protect their contractual and statutory rights. accepted corporate governance principles is to protect all stakeholders and instill them with confidence in the Bank. Extreme care has been taken to develop and implement mechanisms that conform to Corporate Governance Principles along with the aims detailed below.

> Develop a management philosophy that creates responsibility and added value and minimizes risk through effective control mechanisms, > Build confidence with existing and potential shareholders, customers, employees and domestic and international markets in general,

23 Cont›nuously upgrad›ng ›ts control systems, DenizBank Moscow str›ves to create a un›versal and pervas›ve system that allows managers to mon›tor and act upon all aspects of f›nanc›al act›v›ty. Financial statements and auditors' report CJSC Denizbank Moscow 31 December 2005

Independent Auditors’ Report

To the Shareholders of Denizbank Moscow 13, bld. 42, 2-nd Zvenigorodskaya st. 123022, Moscow, Russian Federation

We have audited the accompanying balance sheet of CJSC Denizbank Moscow (“the Bank”) as of 31 December 2005 and the related income statement, statement of movements in shareholders’ equity and statement of cash flows for the year then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of the Bank as of 31 December 2005 and the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Moscow, Russian Federation 31 January 2006 CJSC Denizbank Moscow Income Statement

2005 2004 Notes USD’ 000 USD’ 000 Interest income 5 6,673 2,339 Interest expense 5 (2,154) (510)

Net interest income 4,519 1,829

Fee and commission income 900 364 Fee and commission expense (254) (105)

Net fee and commission income 646 259

Net gain on financial instruments at fair value through profit or loss 6 22 687 Net foreign exchange result (433) 1,521

Operating income 4,754 4,296

General administrative expenses 7 (2,780) (2,413) Recovery / (provision) for impairment losses 8 126 (299)

Operating expenses (2,654) (2,712)

Income before tax 2,100 1,584

Income tax expense 9 (591) (282)

Net income 1,509 1,302

The financial statements were approved by the Board of Management of the Bank on 31 January 2006.

President & CEO Chief Accountant

Derya Kumru Shestakova Olga

The income statement is to be read in conjunction with the notes to, and forming part of, the financial statements. CJSC Denizbank Moscow Balance Sheet

31 December 2005 31 December 2004 Notes USD’ 000 USD’ 000 ASSETS

Cash 612 1,115 Due from the Central Bank of Russia 10 1,906 1,742 Placements with banks and other financial institutions 11 22,740 16,537 Financial instruments at fair value through profit or loss 12 62,929 28,138 Loans to customers 13 27,481 8,342 Other assets 14 57 99 Deferred tax assets 15 12 - Property and equipment 16 632 647 Total Assets 116,369 56,620

LIABILITIES AND SHAREHOLDER’S EQUITY

Financial instruments at fair value through profit or loss 12 495 - Deposits and balances from banks and other financial institutions 17 71,869 37,140 Current accounts and deposits from customers 18 20,624 10,229 Promissory notes 2,784 - Other liabilities 19 17 82 Deferred tax liabilities 15 - 197 Total Liabilities 95,789 47,648

Shareholders’ Equity 20 Share capital 24,331 14,915 Share premium 683 - Accumulated losses (4,434) (5,943) Total Shareholder’s Equity 20,580 8,972

Commitments and Contingent liabilities 22,23 - -

Total Liabilities and Shareholders’ Equity 116,369 56,620

The balance sheet is to be read in conjunction with the notes to, and forming part of, the financial statements.

29 CJSC Denizbank Moscow Statement of Cash Flows

2005 2004 Note USD’ 000 USD’ 000 CASH FLOWS FROM OPERATING ACTIVITIES Net profit 1,509 1,302

Adjustments for non-cash items Depreciation 75 64 Interest expense 254 68 Interest income (815) (548) Impairment losses on loans to customers (126) 299 Income tax expense 591 282 Fair value revaluation of financial instruments through profit or loss (567) (545) 921 922 (Increase)/decrease in operating assets Placements with banks and other financial Institutions (1,029) - Financial instruments at fair value through profit or loss (33,427) (15,442) Loans to customers (18,999) (7,918) Other assets 584 335

Increase/(decrease) in operating liabilities Deposits and balances from banks and other financial institutions 34,583 27,582 Current accounts and deposits from customers 10,372 6,235 Other liabilities (87) 53 Promissory notes 2,765 -

Net cash provided from operating activities before income taxes paid (4,317) 11,767

Income taxes paid (900) (123)

Cash flows from operations (5,217) 11,644

CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property & equipment, net (60) (584)

Cash flows from investing activities (60) (584)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of share capital 10,099 -

Cash flows from financing activities 10,099 -

Net increase in cash and cash equivalents 4,822 11,060 Cash and cash equivalents at beginning of year 19,394 8,334

Cash and cash equivalents at end of year 26 24,216 19,394

The statement of cash flows is to be read in conjunction with the notes, to and forming part of, the financial statements. CJSC Denizbank Moscow Statement of Changes in Shareholders’ Equity

Share Capital Share Premium Accumulated Losses Total USD’000 USD’000 USD’ 000 USD’ 000 Balance as of 1 January 2004 14,915 - (7,245) 7,670

Net income - - 1,302 1,302

Balance as of 1 January 2005 14,915 - (5,943) 8,972

Issue of share capital 9,416 683 - 10,099 Net income - - 1,509 1,509

Balance as of 31 December 2005 24,331 683 (4,434) 20,580

The statement of changes in shareholders’ equity is to be read in conjunction with the notes, to and forming part of, the financial statements. 31 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

1. Background

1.1 Principal activities

CJSC Denizbank Moscow (the “Bank”) is part of Zorlu Group, which is a significant financial and industrial group in Turkey specialising in textile, electronics, energy production and financial services. The Bank was re-established on 19 May 2003 through the acquirement of CJSC Iktisat Bank (Moscow) and was re-registered on 19 September 2003.

The Bank’s predecessor, CJSC Iktisat Bank (Moscow) was initially established by Iktisat Bankasi T.A.Sh. as a joint stock company under the legislation of the Russian Federation and was granted its general banking license in 1998.

As of today the principal activities of the Bank are deposit taking, lending and operations with securities and foreign exchange. The activities of the Bank are regulated by the Central Bank of the Russian Federation (“the CBR”). As of 31 December 2005, the Bank carried out its activities in Moscow. The average number of persons employed by the Bank during the year was approximately 49 (2004: 37).

1.2 Russian business environment

Whilst there have been improvements in recent years in the economic situation, the Russian Federation has been still experiencing political and economic change which has affected, and may continue to affect the activities of enterprises operating in this environment. The prospects for future economic stability in the Russian Federation are largely dependent upon the effectiveness of economic measures undertaken by the government, together with legal, regulatory and political developments, which are beyond the Bank’s control. Consequently, operations in the Russian Federation involve risks, which do not typically exist in other markets. The accompanying financial statements reflect management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Bank. The future business environment may differ from management’s assessment.

2. Basis of preparation

2.1 Statement of compliance

The financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted and published by the International Financial Reporting Interpretations Committee of the IASB.

2.2 Basis of measurement

The financial statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments and financial instruments at fair value through profit or loss.

2.3 Functional and presentation currency

The national currency of the Russian Federation is the Russian rouble. The functional and presentation currency used in the preparation of these financial statements is United States Dollar (“USD”). The US Dollar has been used as the functional and presentation currency as management considers that the USD reflects the economic effects of the underlying transactions, events and conditions relevant to the Bank.

All amounts in the financial statements have been rounded to the nearest thousand. The RUR/USD exchange rate as of 31 December 2005 and 31 December 2004 was 28,7825 RUR/USD and 27,7487 RUR/USD respectively. CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

2.4 Critical accounting estimates and judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from these estimates.

The most significant estimates and assumptions relate to managements’ estimate of the provision for loan impairment which is described in more detail in Note 13.

2.5 Change in accounting policies

The Bank has adopted the revised versions of IFRS that were effective for accounting periods beginning on 1 January 2005. The changes to the Bank’s accounting policies and their effect on the financial statements are described below. The comparative figures for 2004 have been adjusted to conform to changes in presentation in the 2005 financial statements as required by the amended IFRS.

The significant changes in accounting policies as they relate to the Bank’s financial position, results of its operations and its cash flows, as presented in these financial statements, are summarised as follows:

• Application of IAS 1 “Presentation of Financial Statements” (revised 2003) has resulted in increased disclosures, including disclosure of critical accounting estimates and judgments in applying accounting policies.

• Application of IAS 24 “Related Party Disclosures” (revised 2003) has resulted in increased disclosures in respect of related party transactions.

There was no impact on opening retained earnings as at 1 January 2005 arising from the adoption of any of the above-mentioned standards.

3. Significant accounting policies

The following significant accounting policies have been applied in the preparation of the financial statements. The accounting policies have been consistently applied.

3.1 Foreign currency transactions

Transactions in foreign currencies are translated to the appropriate functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated to the functional currency at the foreign exchange rate ruling at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at the foreign exchange rate ruling at the dates the fair values were determined. Foreign exchange differences arising on translation are recognised in the income statement.

33 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

3.2 Cash and cash equivalents

The Bank considers cash, balances with Central Bank, placements with banks and financial institutions as well as financial assets at fair value through profit or loss with original maturity periods of less than three months to be cash and cash equivalents.

3.3 Financial instruments

The Bank classified its financial instruments into the following categories: loans and receivables, financial instruments at fair value through profit or loss, available-for-sale financial instruments and held-to-maturity investments. Financial instruments are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial instruments is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available.

Financial assets and liabilities are recognised in the balance sheet when the Bank becomes a party to the contractual provisions of the instrument. All regular way purchases of financial assets are accounted for at the settlement date. Financial instruments are initially measured at its fair value plus including transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability. An assessment for impairment is undertaken at least at each balance sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Bank provides money, goods or services directly to a debtor with no intention of trading the receivables.

Loans and receivables are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss.

Financial instruments at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset or liability is classified in this category if acquired or incurred principally for the purpose of selling or repurchasing in the near term, or is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit making, or is a derivative (except for a derivative that is designated and effective hedging instrument), or upon initial recognition, designated by management as at fair value through profit or loss. All trading derivatives in a net receivable position (positive fair value), as well as options purchased, are reported as an asset. All trading derivatives in a net payable position (negative fair value), as well as options written, are reported as a liability.

Subsequent to initial recognition, the financial instruments included in this category are measured at fair value with changes in fair value recognised in profit or loss. Financial assets originally designated as financial assets at fair value through profit or loss may not subsequently be reclassified.

Available-for-sale financial instruments

Available-for-sale financial assets include non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets.

All financial assets within this category are subsequently measured at fair value, unless otherwise disclosed, with changes in value recognised directly in equity, net of any effects arising from income taxes. Gains and losses arising from securities classified as available-for-sale are recognised in the income statement when they are sold or when the investment is impaired. Interest in relation to an available-for-sale financial asset is recognized as earned in the income statement calculated using the effective interest method. CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and a fixed date of maturity. Investments are classified as held-to maturity if there is an intention and ability of the Bank’s management to hold them until maturity.

Held-to-maturity investments are subsequently measured at amortised cost using the effective interest method. In addition, if there is objective evidence that the investment has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the investment are recognised in profit or loss.

The fair value of financial instruments is based on their quoted market price at the balance sheet date without any deduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using pricing models or discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate at the balance sheet date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the balance sheet date. The fair value of derivatives that are not exchange-traded is estimated at the amount that the Bank would receive or pay to terminate the contract at the balance sheet date taking into account current market conditions and the current creditworthiness of the counterparties.

All financial liabilities, other than those designated at fair value through profit or loss and financial liabilities that arise when a transfer of a financial asset carried at fair value does not qualify for derecognition, are measured at amortised cost. Amortised cost is calculated using the effective interest method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.

Derecognition of financial instruments occurs when the rights to receive cash flows from the investments expire or substantially all of the risks and rewards of ownership have been transferred. Any rights or obligations created or retained in the transfer are recognized separately as assets or liabilities. A financial liability is derecognised when it is extinguished.

3.4 Offsetting

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

3.5 Leases

Leases under which the Bank assumes substantially all the risks and rewards of ownership are classified as finance leases. The related asset acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at commencement of the lease, less accumulated depreciation and impairment losses. A corresponding amount is recognised as a finance lease liability.

Subsequent accounting for assets held under finance lease agreements correspond to those applied to comparable acquired assets. The corresponding finance lease liability is reduced by lease payments less finance charges, which are expensed to finance costs. Finance charges represent a constant periodic rate of interest on the outstanding balance of the finance lease liability.

Payments made under operating lease are recognised in the income statement on a straight-line basis over the term of the lease.

35 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

3.6 Property and equipment

Items of property and equipment are stated at cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The cost of the self-constructed assets includes the cost of materials, direct labour and an appropriate portion of production overhead. Where an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other expenditure is recognized in the income statement as an expense incurred.

Depreciation is charged to the income statement on a straight line basis over the estimated useful lives of the individual assets. Land is not depreciated. Depreciation commences the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and ready for use. The estimated useful lives are as follows:

Leasehold improvements 10 - 50 years Vehicles 4 years Fixtures, fittings and other equipment 5 - 10 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

3.7 Impairment

The carrying amounts of Bank’s financial assets carried at amortised cost/cost and non financial assets, non including deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

Financial assets carried at amortised cost

The Bank reviews its loans and receivables, to assess impairment on a regular basis. A loan or receivable 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 loan or receivable and that event (or events) has an impact on the estimated future cash flows of the loan that can be reliably estimated.

The Bank first assesses whether objective evidence of impairment exists individually for loans and receivables that are individually significant, and individually or collectively for loans and receivables that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed loan or receivable, whether significant or not, it includes the receivable in a group of loans and receivables with similar credit risk characteristics and collectively assesses them for impairment. Loans and receivables 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 a loan or receivable has been incurred, the amount of the loss is measured as the difference between the carrying amount of the loan or receivable and the present value of estimated future cash flows including amounts recoverable from guarantees and collateral discounted at the loan or receivables original effective interest rate. Contractual cash flows and historical loss experience adjusted on the basis of relevant observable data that reflect current economic conditions provide the basis for estimating expected cash flows.

In some cases the observable data required to estimate the amount of an impairment loss on a loan or receivable may be limited or no longer fully relevant to current circumstances. This may be the case when a borrower is in financial difficulties and there is little available historical data relating to similar borrowers. In such cases, the Bank uses its experience and judgement to estimate the amount of any impairment loss.

All impairment losses in respect of loans and receivables are recognized in the income statement and are only reversed if a subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

Financial assets carried at cost

Financial assets carried at cost include unquoted equity instruments included in available-for-sale assets that are not carried at fair value because their fair value can not be reliably measured. If there is objective evidence that such investments are impaired the impairment loss is calculated as the difference between the carrying amount of the investment and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset.

All impairment losses respect of these investments are recognized in the income statement and can not be reversed.

Non financial assets

Non financial assets, other than deferred taxes, are assessed at each reporting date for any indications of impairment. The recoverable amount of non financial assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

All impairment losses in respect of non financial assets are recognized in the income statement and reversed only if there has been a change in the estimates used to determine the recoverable amount. Any impairment loss revered is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.8 Provisions

Provisions are recognised when the Bank has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

3.9 Equity

Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction in equity from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recognised as a share premium.

Dividends are recognised as a liability and deducted from equity at the balance sheet date only if they are declared before or on the balance sheet date. Dividends are disclosed when they are proposed or declared after the balance sheet date but before the financial statements are authorised for issue.

3.10 Employee benefits

In the normal course of business the Bank contributes to the Russian Federation state pension scheme on behalf of its employees. Mandatory contributions to the governmental pension scheme are expensed when incurred. Discretionary pensions and other post-employment benefits are included in labour costs in the income statement, however, separate disclosures are not provided, as these costs are not material.

37 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

3.11 Taxation

Income tax on the profit for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised of the liability settled, based on the tax rates that have been enacted or substantively enacted at the balance sheet date.

3.12 Interest income and interest expense

Interest income and expense is recognized in the income statement as it accrues, taking into account the effective yield of the asset or an applicable floating rate. Interest income and expense includes the amortisation of any discount or premium or other differences between the initial carrying amount of an interest bearing instrument and its amount at maturity calculated on an effective interest rate basis.

3.13 Fee and commission income

Fee and commission income arises on financial services provided by the Bank including cash management services and asset management services.

3.14 Net result on financial instruments at fair value through profit or loss

Net result on financial instruments at fair value through profit or loss includes gains and losses arising from disposals and changes in the fair value of financial assets and liabilities at fair value through profit or loss.

4. New standards and Interpretations not yet adopted

A number of new Standards, amendments to Standards and Interpretations are not yet effective as at 31 December 2005, and have not been applied in preparing these financial statements. Of these pronouncements, potentially the following will have an impact on the Company’s operations. The Company plans to adopt these pronouncements when they become effective. The Company has not yet analysed the likely impact of these new standards on its financial statements:

• Amendment to IAS 1 “Presentation of Financial Statements - Capital Disclosures” (effective from 1 January 2007). The Standard will require increased disclosure in respect of the Company’s capital.

• Amendment to IAS 39 “Financial Instruments: Recognition and Measurement - Cash Flow Hedge Accounting of Forecast Intragroup Transactions” (effective from 1 January 2006). The amendment allows the foreign currency risk of a highly probable forecast intragroup transaction to qualify as a hedged item provided that a certain criteria are met.

• Amendment to IAS 39 “Financial Instruments: Recognition and Measurement - The Fair Value Option” (effective from 1 January 2006). The amendment changes the definition of financial instruments classified at fair value through profit or loss and restricts the ability to designate financial instruments as part of this category. CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

• Amendment to IAS 39 “Financial Instruments: Recognition and Measurement and IFRS 4 Insurance Contracts - Financial Guarantee Contracts” (effective from 1 January 2006). The amendment requires issued financial guarantees, other than those previously asserted by the entity to be insurance contracts, to be initially recognised at their fair value and subsequently measured at the higher of: the unamortized balance of the related fees received and deferred and the expenditure required to settle the commitment at the balance sheet date.

• IFRS 7 “Financial Instruments: Disclosures” (effective from January 2007). The standard will require increased disclosure in the respect of the Company’s financial instruments.

• IFRIC 4 “Determining Whether an Arrangement Contains a Lease” (effective from 1 January 2006). IFRIC 4 requires the determination of whether an arrangement is or contains a lease to be based on the substance of the arrangement.

5. Interest income and interest expense

2005 2004 USD’ 000 USD’ 000 Interest income Debt securities 4,602 1,561 Loans to customers 1,570 508 Placements with banks and other financial institutions 501 270 Total interest income 6,673 2,339

Interest expense Deposits and balances from banks and other financial Institutions 1,935 470 Deposits from customers 200 40 Promissory notes 19 - Total interest expense 2,154 510

6. Net gain on financial instruments at fair value through profit or loss

2005 2004 USD’ 000 USD’ 000 Debt instruments 22 687

7. General administrative expenses

2005 2004 USD’ 000 USD’ 000 Employee compensation 1,547 1,012 Occupancy 341 359 Repairs and maintenance 283 205 Taxes other than on income 195 280 Administrative expenses 164 138 Depreciation and amortisation 75 64 Other 175 355 Total general administrative expenses 2,780 2,413

39 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

8. Provision/(recovery) for impairment losses

2005 2004 USD’ 000 USD’ 000 Provision/(recovery) for impairment of loans to customers (126) 299

9. Income tax expense

2005 2004 USD’ 000 USD’ 000 Current tax expense Current year 800 182

Deferred tax expense Origination / (reversal) of timing differences (209) 100 Total income tax expense 591 282

The Bank’s applicable tax rate for 2005 was 24% (2004 - 24%). Deferred tax balances as of 31 December 2005 have been determined using a tax rate of 24% (2004 - 24%).

Reconciliation of effective tax rate 2005 2004 USD’ 000 USD’ 000 Income before tax 2,100 1,584 Income tax using the applicable tax rate 504 380 Net non-taxable income and non-deductible costs 87 (98) Total income tax expense 591 282

10. Due from the Central Bank of Russia

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Nostro accounts 652 1,068 Minimum reserve deposit 1,254 674 Total due from the Central Bank of Russia 1,906 1,742

The minimum reserve deposit is a mandatory non-interest bearing deposit calculated in accordance with regulations issued by the CBR and whose withdrawability is restricted. The nostro balances represent balances with the CBR related to settlement activity and were available for withdrawal at year end.

11. Placements with banks and other financial institutions

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Nostro accounts 10,337 10,663 Loans and deposits 12,403 5,874 Total placements with banks and other financial institutions 22,740 16,537 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

Significant exposures

As of 31 December 2005 the Bank had three counterparties (2004: one counterparty) whose balance exceeded 10% of the placements with banks and other financial institutions. The gross value of this exposure as of 31 December 2005 was 15,387 USD’000 (2004: 10,041 USD’000).

12. Financial instruments at fair value through profit or loss

12.1 Financial assets at fair value through profit or loss

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Debt instruments Corporate bonds 49,975 18,299 Private sectors eurobonds 6,657 3,936 Municipal bonds 6,297 5,832 62,929 28,067 Foreign exchange derivative contracts - 71 Total financial instruments at fair value through profit or loss 62,929 28,138

12.2 Financial liabilities at fair value through profit or loss

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Foreign exchange derivative contracts 495 -

Gains and losses arising on foreign exchange derivative financial instruments and changes in fair value are recognised in net foreign exchange income or expense, as appropriate.

Pledged securities

As at 31 December 2005 municipal and corporate debt securities with market value of 7,807 USD’000 (2004: nil) were pledged as security for funds borrowed from Gazprombank. See also Note 17.

13. Loans to customers

Loans and advances to customers are issued primarily to customers located within the Russian Federation who operate in the following economic sectors:

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Retail customers 57 76 Commercial customers Construction, glass and mining 8,864 4,223 Tourism and transportation 6,208 100 Consumer durables 4,000 2,821 Food 3,489 - Textile and leather 3,359 1,383 Trade 1,216 - Other 510 87 27,703 8,690 Provision for impairment (222) (348) Total loans to customers 27,481 8,342

41 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

Analysis of movements in the provision for loan impairment 2005 2004 USD’ 000 USD’ 000 Balance at beginning of year 348 49 (Recovery) / charge for the year (126) 299 Balance at end of year 222 348

Significant exposures

As of 31 December 2005, the Bank had three exposures to companies (2004: three companies), which individually comprised more than 10% of loans to customers. The gross value of these exposures as of 31 December 2005 was 16,447 USD’000 (2004: 4,650 USD’000).

Critical accounting estimates and judgements

The Bank has estimated the provision for impairment on loans to customers in accordance with accounting policy described in Note 3.7. Management estimates the likelihood of repayment of loans and advances to customers based on analysis of individual accounts for individually significant loans, and collectively for loans with similar terms and risk characteristics. Factors taken into consideration when assessing individual loans include collection history with the customer, timeliness of payments and collateral, if any.

14. Other assets

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Tax prepayment 55 24 Other 2 75 Total other assets 57 99

15. Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following items:

Assets Liabilities Net 31 December 31 December 31 December 31 December 31 December 31 December In thousands of USD 2005 2004 2005 2004 2005 2004 Loans to customers 28 84 - - 28 84 Financial instruments at fair value through profit or loss - - (82) (213) (82) (213) Property and equipment - - (85) (81) (85) (81) Other 151 30 - (17) 151 13 Tax assets/(liabilities) 179 114 (167) (311) 12 (197)

Movement in temporary differences during the year

Balance Recognised Recognised Balance In thousands of USD 1 January 2005 in income in equity 31 December 2005 Loans to customers 84 (56) - 28 Financial instruments at fair value through profit or loss (213) 131 - (82) Property and equipment (81) (4) - (85) Other 13 138 - 151 Tax assets/(liabilities) (197) 209 - 12 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

16. Property and equipment

Leasehold Fixtures, fittings and In thousands of USD improvements other equipment Vehicles Total Cost At 1 January 2005 400 274 107 781 Additions 6 69 - 75 Disposals (15) - - (15) At 31 December 2005 391 343 107 841

Depreciation At 1 January 2005 11 85 38 134 Depreciation charge 19 32 24 75 At 31 December 2005 30 117 62 209

Carrying value At 31 December 2004 389 189 69 647

At 31 December 2005 361 226 45 632

17. Deposits and balances from banks and other financial institutions

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Term deposits 67,323 33,248 Subordinated loans 3,700 3,700 Vostro accounts 846 192 Total deposits and balances from banks and other financial institutions 71,869 37,140

Significant exposures

As of 31 December 2005 there was one related group, which individually comprised more than 10% of deposits and balances from banks and other financial institutions (2004: three exposures). The gross value of these deposits as of 31 December 2005 was 54,229 USD’000 (2004: 30,878 USD’000). See also Note 25.

Pledged securities

As at 31 December 2005 municipal and corporate debt securities with market value of 7,807 USD’000 (2004: nil) were pledged as security for funds borrowed from Gazprombank. See also Note 12.

18. Current accounts and deposits from customers

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Term deposits 12,192 3,035 Current accounts and demand deposits 8,432 7,194 Total current accounts and deposits from customers 20,624 10,229

43 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

Significant exposures

As of 31 December 2005 there were two counterparties, which individually comprised more than 10% of current accounts and deposits from customers (2004: five). Total value of these balances as of 31 December 2005 was 8,674 USD’000 (2004: 7,725 USD’000).

19. Other liabilities

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Taxes payable 15 33 Other 2 49 Total other liabilities 17 82

20. Shareholders’ Equity

During 2005 the Bank has increased its share capital by 10,099 USD’000 through issue of additional 46,000 ordinary shares. At 31 December 2005 the authorised, issued and fully paid outstanding share capital comprises 88,000 ordinary shares with a par value RUR 5,869 per share.

The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at annual and general meetings of the Bank. Dividends payables are restricted to the maximum retained earnings of the Bank, which are determined according to legislation of the Russian Federation. In accordance with the legislation of the Russian Federation, as of 31 December 2005, retained earnings available for distribution amounted to USD 1,082 thousand.

21. Risk management

Management of risk is fundamental to the business of banking and is an essential element of the Bank’s operations. The major risks faced by the Bank are those related to price, credit exposures, liquidity and movements in interest rates and foreign exchange rates. These risks are managed in the following manner:

21.1 Price risk

Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or factors affecting all instruments traded in the market. Price risk arises when the Bank takes a long or short position in a financial instrument.

The Bank has developed policies and procedures for the management of price risk, including guidelines to limit portfolio concentration on one instrument and the establishment of Limits for particular instruments which are actively monitored by the Bank.

The Bank’s Limits are reviewed and approved by the Board of Directors.

21.2 Credit risk

Credit risk is the risk of financial loss occurring as a result of default by a borrower or counterparty on their obligation to the Bank.

The Bank has developed policies and procedures for the management of credit exposures, including guidelines to limit portfolio concentration and the establishment of a Credit Committee which actively monitors the Bank’s credit risk.

The Bank’s credit policy is reviewed and approved by the Board of Directors. CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

21.3 Interest rate risk

Interest rate risk is measured by the extent to which changes in market interest rates impact on margins and net interest income. To the extent the term structure of interest bearing assets differs from that of liabilities, net interest income will increase or decrease as a result of movements in interest rates.

Interest rate risk is managed by increasing or decreasing positions within limits specified by the Bank’s management. These limits restrict the potential effect of movements in interest rates on current earnings and on the value of interest sensitive assets and liabilities.

The Bank’s interest rate policy is reviewed and approved by the Board of Directors. See note 27.

21.4 Liquidity risk

The Bank maintains liquidity management with the objective of ensuring that funds will be available at all times to honour all cash flow obligations as they become due.

The Bank’s liquidity policy is reviewed and approved by the Board of Directors. See note 28.

21.5 Foreign exchange rate risk

The Bank has assets and liabilities denominated in several foreign currencies. Foreign currency risk arises when the actual or forecasted assets in a foreign currency are either greater or less than the liabilities in that currency.

The Bank’s foreign currency policy is reviewed and approved by the Board of Directors. See note 29.

22. Commitments

At any time the Bank has outstanding commitments to extend credit. These commitments take the form of approved loans and credit card limits and overdraft facilities.

The Bank provides financial guarantees and letters of credit to guarantee the performance of customers to third parties. These agreements have fixed limits and generally extend for a period of up to 2 year.

The contractual amounts of commitments are set out in the following table by category. The amounts reflected in the table for commitments assume that amounts are fully advanced. The amounts reflected in the table for guarantees and letters of credit represent the maximum accounting loss that would be recognised at the balance sheet date if counterparties failed completely to perform as contracted.

31 December 2005 31 December 2004 USD’000 USD’ 000 Contracted amount Guarantees and letters of credit 35,184 10,791 Undrawn loan commitments 5,307 2,523 Total commitments 40,491 13,314

45 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

Commitments on forward contracts

Gains and losses arising on foreign exchange derivative financial instruments and changes in fair value are recognised in net foreign exchange income or expense, as appropriate.

Notional or agreed amount Negative fair value USD’000 USD’ 000 Contracted amount Derivative foreign exchange contracts to buy US dollars and sell Russian roubles 24,700 15 Derivative foreign exchange contracts to buy EUR and sell Russian roubles 17,934 480 42,634 495

23. Contingencies

23.1 Insurance

The Bank does not have full coverage for its premises and equipment, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Bank property or relating to Bank operations. Until the Bank obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Bank’s operations and financial position. Currently the Bank has initiated a tender process with a number of insurance companies and plans to enter into an agreement within the first half of 2006.

23.2 Litigation

From time to time and in the normal course of business, claims against the Bank are received. On the basis of own estimates and internal and external professional advice the Management is of the opinion that no material losses will be incurred and accordingly no provision has been made in these financial statements.

23.3 Taxation contingencies

The taxation system in the Russian Federation is relatively new and is characterised by numerous taxes and frequently changing legislation, which may be applied retroactively and is often unclear, contradictory, and subject to interpretation. Often, differing interpretations exist among numerous taxation authorities and jurisdictions. Taxes are subject to review and investigation by a number of authorities, which are enabled by law to impose severe fines, penalties and interest charges.

These facts may create tax risks in the Russian Federation substantially more significant than in other countries. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation. However, the relevant authorities may have differing interpretations and the effects could be significant. CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

24. Fair value of financial instruments

The estimated fair value of the Bank’s financial assets and liabilities, as required to be disclosed by IAS 32 “Financial Instruments: Disclosure and Presentation”, are as follows:

Carrying amount Fair value Carrying amount Fair value 2005 2005 2004 2004 USD’000 USD’000 USD’000 USD’000 Assets Cash 612 612 1,115 1,115 Due from the Central Bank of Russia 1,906 1,906 1,742 1,742 Placements with banks and other financial institutions 22,740 22,740 16,537 16,537 Financial instruments at fair value through profit or loss 62,929 62,929 28,138 28,138 Loans to customers 27,481 27,481 8,342 8,342 Other assets 57 57 99 99

Liabilities Financial instruments at fair value through profit or loss 495 495 - - Deposits and balances from banks and other financial institutions 71,869 71,869 37,140 37,140 Promissory notes 2,784 2,784 - - Other liabilities 17 17 82 82

The estimated fair values of financial instruments at fair value through profit or loss is based on quoted market prices and exchange rates ruling at the balance sheet date without any deduction for transaction costs.

The estimated fair values of all other financial assets and liabilities is calculated using discounted cash flow techniques based on estimated future cash flows and discount rates for a similar instruments at the balance sheet date.

The estimates of fair value are intended to approximate the amount for which a financial instrument could be exchanged between knowledgeable, willing parties in an arm's length transaction. However given the uncertainties and the use of subjective judgment, the fair value should not be interpreted as being realisable in an immediate sale of the assets or settlement of liabilities.

25. Related party transactions

The Bank’s shareholding structure is as follows:

• Denizbank A.S. 49% • Denizbank A.G. 51%

Both Denizbank A.S. and Denizbank A.G. are part of Denizbank Group, which is in turn also part of a larger Zorlu Group - a significant financial and industrial group in Turkey.

25.1 Transactions with Directors and senior management

Within 2005 total directors and senior management remuneration was 445 USD’000 (2004: 259 USD’000).

All transactions with Directors and senior management were concluded on an arm's length basis.

47 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

The outstanding balances and average interest rates as at 30 December 2005 and 31 December 2004 with Directors and Senior Management are as follows:

31 December 2005 Average 31 December 2004 Average Interest USD’000 Interest Rate USD’ 000 Rate Liabilities Current accounts and deposits of key management personnel 806 6,1% 1,578 -

25.2 Transactions with Shareholders

31 December 2005 Average 31 December 2004 Average Interest USD’000 Interest Rate USD’ 000 Rate Assets Placements with banks and other financial institutions 75 1,1% 10,046 -

Liabilities Deposits and balances from banks and other financial institutions 15,540 3,0% 18,993 2%

As at 31 December 2005 the Bank has also obtained from shareholders three letters of guarantee as securities for granted loans to customers with total value of 3,840 USD’000.

Amounts included in the income statement in relation to transactions with Shareholders are as follows:

2005 2004 USD’ 000 USD’ 000 Interest income 51 49 Interest expense (782) (276) Net foreign exchange income/(expense) (326) (244) CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

25.3 Transactions with Zorlu Group

31 December 2005 Average 31 December 2004 Average Interest USD’000 Interest Rate USD’ 000 Rate Assets Loans to customers 4,000 8,2% 500 7% Financial instruments at fair value through profit or loss - - 71 -

Liabilities Financial instruments at fair value through profit or loss 495 - - - Deposits and balances from banks and other financial institutions 38,689 5,2% - - Current accounts and deposits from customers 2,089 - - - Other liabilities - - 62 -

Commitments Letters of credit 832 - 1,762 - Liabilities on unmatured forward contracts 42,634 - 15,155 -

Amounts included in the income statement in relation to transactions with Zorlu Group are as follows:

2005 2004 USD’ 000 USD’ 000 Interest income 121 36 Commission income 149 114 Interest expense (847) (164) Net foreign exchange income 474 1,008

26. Cash and cash equivalents

Cash and cash equivalents at the end of the financial year as shown in the consolidated statement of cash flow is composed of the following items:

31 December 2005 31 December 2004 USD’ 000 USD’ 000 Cash 612 1,115 Due from the Central Bank of Russia 1,906 1,742 Placements with banks and other financial institutions 21,698 16,537 Total cash and cash equivalents 24,216 19,394

49 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

27. Average effective interest rates

The table below displays the Bank’s interest bearing assets and liabilities as at 31 December 2005 and their corresponding interest rates range as at that date.

Value 31 December 2005 Value 31 December 2004 USD’ 000 Interest Rate Range USD’ 000 Interest Rate Range Interest Bearing Assets Due from the Central Bank of Russia 1,906 0% 1,742 0%

Placements with banks and other financial institutions - Roubles 12,407 0-10% 6,300 0-1% - USD and other currencies 10,333 0-6% 10,237 -

Financial instruments at fair value through profit or loss - Roubles 56,272 7-16% 20,449 9-17% - USD and other currencies 6,657 8-15% 7,618 5-13%

Loans to customers - Roubles 2,491 9-16% 1,080 6-16% - USD and other currencies 24,490 8-14% 7,262 7-13%

Interest Bearing Liabilities

Deposits and balances from banks and other financial institutions - Roubles 729 0-2% 505 0-1% - USD and other currencies 71,140 0-6% 36,635 2-4%

Current accounts and deposits from customers - Roubles 9,433 0-8% 6,514 2-7% - USD and other currencies 11,191 0-7% 3,715 3-5%

Promissory notes - USD and other currencies 2,784 1,3% - - CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

28. Maturity analysis

The following table shows assets and liabilities by remaining contractual maturity dates as at 31 December 2005. Due to the fact that substantially all the financial instruments of the Bank are fixed rated contracts, these remaining contractual maturity dates also represent the contractual interest rate repricing dates.

Less than 1 to 3 3 months More 1 month months to 1 year than 1 year Total USD’000 USD’ 000 USD’ 000 USD’ 000 USD’ 000 Assets Cash 612 - - - 612 Due from the Central Bank of Russia 1,709 8 189 - 1,906 Placements with banks and other financial institutions 19,742 1,951 1,047 - 22,740 Financial instruments at fair value through profit or loss - 571 15,530 46,828 62,929 Loans to customers 1,060 1,134 19,924 5,363 27,481 Other assets 57 - - - 57 Deferred tax assets 12 - - - 12 Property and equipment 632 - - - 632 Total Assets 23,824 3,664 36,690 52,191 116,369

Liabilities Financial instruments at fair value through profit or loss 495 - - - 495 Deposits and balances from banks and other financial institutions 21,558 23,919 22,692 3,700 71,869 Current accounts and deposits from customers 12,378 5,141 3,105 - 20,624 Promissory notes 30 252 1,557 945 2,784 Other liabilities 17 - - - 17 Total Liabilities 34,478 29,312 27,354 4,645 95,789

Net position as at 31 December 2005 (10,654) (25,648) 9,336 47,546 (20,580)

Net position as at 31 December 2004 (5,367) (656) (8,591) 23,586 8,972

51 CJSC Denizbank Moscow Notes to, and forming a part of, the financial statements for the year ended 31 December 2005

29. Currency analysis

The following table shows the currency structure of assets and liabilities at 31 December 2005:

Roubles USD Other currencies Total USD’ 000 USD’ 000 USD’ 000 USD’ 000 Assets Cash 106 471 35 612 Due from the Central Bank of Russia 1,906 - - 1,906 Placements with banks and other financial institutions 12,407 10,317 16 22,740 Financial instruments at fair value though profit or loss 56,272 6,657 - 62,929 Loans to customers 2,491 24,401 589 27,481 Other assets 57 - - 57 Deferred tax assets 12 - - 12 Property and equipment 632 - - 632 Total Assets 73,883 41,846 640 116,369

Liabilities Financial instruments at fair value though profit or loss 495 - - 495 Deposits and balances from banks and other financial institutions 729 55,158 15,982 71,869 Current accounts and deposits from customers 9,433 9,542 1,649 20,624 Promissory notes - 1,754 1,030 2,784 Other liabilities 17 - - 17 Total Liabilities 10,674 66,454 18,661 95,789

Net on balance sheet position as of 31 December 2005 63,209 (24,608) (18,021) 20,580

Net off balance sheet position as of 31 December 2005 (43,129) 24,700 17,934 (495)

Net (short) / long position as of 31 December 2005 20,080 92 (87) 20,085

Net (short) / long position as of 31 December 2004 8,260 846 (63) 9,043 Finar Corporate Communications © 2006 +90 0212 259 43 11 13, Bld. 42, 2nd Zvenigorodskaya Str., 6th Floor, Moscow, 123022, Russian Federation Tel: +7 (495) 725-1020 Fax: +7 (495) 725-1025 www.denizbank.ru