Annual Report 2016 World Without Barriers. VTB Group Achieving business effectiveness through technology-based approaches 2 3 Contents Mission and values 4 5.3. General Meeting of Shareholders of VTB Bank 84 Statement of the Chairman of the Supervisory Council 6 5.4. Supervisory Council of VTB Bank 87 Statement of the President and Chairman of the Management Board 8 5.5. Management Board of VTB Bank 105 1. VTB key financial highlights 10 5.6. Remuneration of the members of the Supervisory Council and the Management Board 115 2. VTB market position 14 5.7. Statutory audit commission of VTB Bank 116 3. Russian economy and banking sector in 2016 18 5.8. Internal control and audit 118 4. Management report 24 5.9. Investor relations 122 4.1. Key events in 2016 24 5.10. Disclosure policy of VTB Bank 126 4.2. VTB Group strategy 26 6. Corporate social responsibility 130 4.3. Review of operating performance 35 6.1. Personnel 130 4.3.1. Corporate-investment banking 35 6.2. Responsible resource management 132 4.3.2. Mid-corporate banking 47 6.3. Social programmes 134 4.3.3. Retail business 52 7. Financial statements 138 4.3.4. Other non-banking financial business 62 7.1. Management responsibility statement 138 4.4. Review of financial performance 63 7.2. Consolidated financial statements 138 4.5. Risk management 68 8. Annexes 148 5. Corporate governance 80 8.1. Share capital of VTB Bank 148 5.1. Overview of the corporate governance system 80 8.2. Dividends of VTB Bank 149 5.1.1. VTB Group governance 80 8.3. Report on compliance with the principles and recommendations 5.1.2. Corporate governance of VTB Bank 81 of the code of corporate governance 151 5.2. Development of corporate governance in 2016 83 8.4. Contact information 170 VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial Mission and values highlights position and banking sector in 2016 report governance responsibility statements Annexes 4 5 Mission and values Our mission Versatility. Our wealth of expertise across a broad range of financial products and services ensures that we offer To provide world-class financial products and services all of our customers the most comprehensive, flexible and that help to create a prosperous and sustainable sophisticated solutions that suit their individual needs. future for our customers, stakeholders and society. Team. Our dedicated team of professionals Our values benefits from the synergy of knowledge afforded by our diverse line of businesses, and our Group’s Trust. Gaining and retaining the trust of our spirit is enhanced by the energy, creative insight customers is VTB Group’s most important value. and potential of each member of our team. Reliability. VTB Group’s long-term strength is Our identity reinforced by leading positions in the financial markets where we operate and our ability to VTB Group is the leading Russian financial institution provide local expertise on a global scale. with a strong presence in key international markets. Transparency. Our business is open and transparent, Our vision and all of our key stakeholders cooperate closely in order to deliver maximum value and visibility. VTB Group’s goal is to become a premier player in all of its priority markets. VTB Annual Report 2016 Statement of the Chairman of the Supervisory Council 6 Statement of the Chairman 7 of the Supervisory Council launch of Post Bank, the positive impact of the plan, the following modifications to the Charter possible at all shareholder meetings since integration of the Bank of Moscow, and our were adopted during 2016: criteria for dealing July, and the mobile app VTB Shareholder, leading position in the corporate investment with issues based on the majority of all voting which was launched at the end of 2015, has banking business have laid a solid foundation for members of the Supervisory Board, as well as attracted around 5,000 users in just one year. future growth. In 2017, the Group will continue measures envisioning the mandatory posting of to work on merging VTB24 with VTB Bank, which minutes from General Meetings of Shareholders All of this has helped to increase our 7+ corporate will enable us to achieve significant synergies. onto the company website. The authority of the governance rating to 7++ on the scale developed Supervisory Board was expanded to include by the Russian Institute of Directors (RID). This Strategy approval of the Bank’s business plan and corresponds to the category “Highly Developed oversight of major deals entered into by its largest Corporate Governance Practices.” In addition, RID The Supervisory Board approved a new medium- subsidiaries. A list of the most important issues experts have deemed the current composition of term strategy was adopted at the end of the year to be discussed at face-to-face meetings of the the Bank’s Shareholders Consultative Council to based on the latest market developments and Supervisory Council was developed. The required be balanced and representative of the interests VTB’s successful experience. The strategy for changes to the Charter will be considered by the of all investor and shareholder groups. 2017-2019 is aimed at increasing profitability, General Meeting of Shareholders. This improved integrating the Group’s banking business, system for VTB corporate governance will make Outlook and achieving a major technology-based it possible to precisely coordinate the activities transformation. Implementation of this strategy of each line of business in all the regions where The progress that was achieved in key strategic aims to strengthen the Group’s competitive they operate, increase revenue through efficient priorities during 2016 will bear fruit in the advantages, while we also optimising the cooperation between lines of business, share years ahead, bringing new opportunities for organisational structure and costs, which should best practices, as well as optimise expenditures growth and increasing the quality and pace help us achieve significant growth in profitability. by expanding the use of common resources and of VTB Group’s development. Moreover, VTB, infrastructure among the Group’s companies. which is developing as a systemically important Dear shareholders, clients and partners, The Group plans to increase the share of company and a socially responsible leader, will the retail business in the loan portfolio and The group will continue to devote increased continue to increase shareholder value and VTB Group significantly improved its financial deposits, optimise the cost of liabilities, attention to treating all shareholders equally and contribute to economic development in Russia performance in 2016, while continuing increase profitability, and rapidly develop our maintaining an active dialog with all stakeholders. and the other countries where we operate. to implement conservative risk management transaction banking business. We are confident Based on past practice, the representative policies and paying special attention to that, together with VTB’s excellent standing in of minority shareholders, Valery Petrov, Chairman cost management. I am very confident the sector, this strategy will generate positive of the Shareholders Consultative Council, was that our 2016 results, together with strong results for shareholders and clients. elected to the Supervisory Council. During the corporate social responsibility, ensure the reporting period Igor Repin, a member of the sustainable and balanced development Corporate governance Shareholders Consultative Council, was also of the Group over the long term. and shareholder relations elected to the Audit Commission. Accordingly, individual shareholders are represented on For the full year, VTB Group earned a net profit In 2016 VTB Group completed implementation both the management and oversight bodies. of RUB 51.6 billion, with sustainable performance of measures that had been adopted by the across all key indicators, improved cost efficiency, Supervisory Board to incorporate the provisions During the last year, VTB has been actively Chairman and strong capital adequacy ratios. Our retail of the Corporate Governance Code approved developing electronic methods of interacting of the Supervisory business’s growing market share, the successful by the Bank of Russia. In accordance with this with shareholders. Electronic voting has been Council of VTB Bank Sergey Dubinin VTB Annual Report 2016 Statement of the President and Chairman of the Management Board 8 Statement of the President and 9 Chairman of the Management Board Cost optimisation was one of VTB Group’s key in 2015. The Group plays a key role in some from 2017 onwards. Modernisation envisages priorities in 2016, enabling us to limit the increase of the largest public-private partnerships for development of digital products, a significant in staff costs and administrative expenses infrastructure projects of national importance. reduction in the time it takes to bring new to the level of inflation. Our cost-effectiveness products and services to market, the development increased in 2016, with the costs to net operating A number of major transaction banking projects were of data analysis models and an integrated income before provisions ratio declining completed in 2016, and deposits from clients of the programme of process automation. Under the to 45.8%, compared to 53.8% in 2015. Corporate-Investment business increased. Trade and new strategy, we have set the goal of delivering export financing grew, including several important net profit of over RUB 200 billion by 2019. VTB Group became the leader in the Russian export finance transactions with EXIAR, further retail banking market, with loans to individuals diversification by industry, and a move towards more I am certain that we will strengthen and improve growing by 11% year-on-year, and our market share complex structured projects while at the same time upon last year’s results, supported by growth in the increasing to 19.6%.