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 some of the largest public-private partnerships from 2017 onwards. Modernisation envisages priorities in 2016, enabling us to limit the increase for infrastructure projects of national importance. development of digital products, a significant in staff costs and administrative expenses reduction in the time it takes to bring new to the level of inflation. Our cost-effectiveness A number of major transaction banking projects were products and services to market, the development increased in 2016, with the costs to net operating completed in 2016, and deposits from clients of the of data analysis models and an integrated income before provisions ratio declining Corporate-Investment business increased. Trade and programme of process automation. Under the to 45.8%, compared to 53.8% in 2015. export financing grew, including several important new strategy, we have set the goal of delivering export finance transactions with EXIAR, further net profit of over RUB 200 billion by 2019. VTB Group became the leader in the Russian diversification by industry, and a move towards more retail banking market, with loans to individuals complex structured projects while at the same time I am certain that we will strengthen and improve growing by 11% year-on-year, and our market share simplifying and accelerating internal procedures. upon last year’s results, supported by growth in the increasing to 19.6%. Mortgage lending remains one Russian economy and increased business activity. of our key products, with the share in the Group’s VTB Capital, the Group’s investment banking I would like to thank the VTB team for their hard portfolio of loans to individuals rising to 46%, arm, remains the leader in the main segments and effective work. We aim to improve the world while consumer loans also showed solid growth. of the Russian investment banking market – around us: to strengthen the economy, support debt capital markets, equity capital markets positive changes in our communities, develop Another important milestone in the development and corporate finance. During 2016, VTB helped human capital, and ultimately create long-term, of the Group’s retail business was the launch to raise over RUB 1.5 trillion for the Russian sustainable growth in value for our shareholders. of Post Bank in January 2016 in partnership with economy. VTB Capital was the sole organiser the Russian Post. Even the first set of results of Russia’s sovereign Eurobond issue. Our show that this has been a very successful project: primary focus is on raising capital using the Post Bank showed not only impressive growth in Russian trading and settlement infrastructure. its network, opening more than 6,300 offices, but Dear shareholders, clients and partners, it also achieved sustainable profitability in its first As part of the implementation of VTB Group’s Strategy year of operation. The bank’s Development Strategy for 2014–2016, the merger with the Bank of Moscow 2016 was a successful year for VTB Group: to 2023 foresees the opening of 26,000 service was completed in 2016. We are proud of the fact we significantly increased profitability, with strong points for 21 million clients. This will significantly that, thanks to careful coordination and hard work core revenue performance from key business improve access to high-quality banking services by the entire VTB team, the merger was smooth lines, and a net profit of RUB 51.6 billion. in Russia and bring in a large volume of clients for and efficient for all of our clients and partners. the Group, helping us reach an entirely new scale The Group’s operating profit increased by 23.8% of presence in Russia’s retail banking market. The Strategy for 2017–2019, approved in December year-on-year, supported by recovery in net interest 2016, focuses on increasing core banking revenue margin to 3.7%, compared to 2.6% a year earlier, VTB Group remained one of the leading lenders to and improving cost efficiency. The merger of VTB Bank and 7.3% year-on-year growth in net fee and Russia’s largest companies, as well as to small and and VTB24 in order to create a single, universal commission income to RUB 81.8 billion. We have medium-sized businesses. Corporate loan portfolio customer-oriented bank that will be a technological also improved the balance sheet, increasing the quality continued to improve, which helped us keep leader in the future remains a key priority. In addition, President share of customer deposits to 66% of liabilities, cost of risk below the target level set out in our strategy modernisation based on the latest technologies and Chairman and maintaining strong capital adequacy ratios. and better than in 2015. The Group plays a key role will gradually be achieved in all the Group’s assets of the Management Board Andrey Kostin VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 1. VTB key financial highlights highlights position and banking sector in 2016 report governance responsibility statements Annexes

10 1. VTB key financial highlights 11

Total assets, RUB billion Shareholders’ equity, RUB billion

12,191 2014 1,131 2014

13,642 2015 1,454 2015

12,586 2016 1,410 2016

Customer loans,1 RUB billion Net operating income before provisions for impairment, RUB billion

9,150 2014 530.8 2014

10,110 2015 412.3 2015

9,487 2016 510.6 2016

Customer deposits, RUB billion Net profit, RUB billion

5,669 2014 0.8 2014

7,267 2015 1.7 2015

7,347 2016 51.6 2016

Key performance metrics, %

2014 2015 2016

Net interest margin (NIM) 4.0 2.6 3.7

Cost to net operating income before provisions (CIR) 41.9 53.8 45.8

Return on equity (ROE) 0.1 0.1 3.6

1 Gross loans and advances to customers, including those pledged under repurchase agreements. Providing real opportunities to small and medium business

Supporting small and medium business customers, financing projects in the agricultural and food industries and building community and innovative production facilities contribute to strengthening the regional economy and the real sector. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 2. VTB market position highlights position and banking sector in 2016 report governance responsibility statements Annexes

14 15 2. VTB market position VTB Group global presence

VTB Group is one of the leaders in Russian The Group has an extensive branch network in and international financial services markets, Russia with over 7,700 offices, and is present and is Russia’s second-largest financial group. in the world’s key financial markets.

VTB Group in the Russian banking market (as of 31 December 2016)2

Segment Market share2, % Rank Corporate loans 15.7 2

Corporate deposits 23.3 1

Retail loans 19.6 2

Retail deposits 11.0 2

VTB Bank (PJSC) (VTB Bank or the Bank) is the Insurance Agency owns 100% of the Bank’s Type parent company of VTB Group (VTB or the Group). 2 preference shares. The total share of the Russian VTB Bank’s majority shareholder is the Federal Federation (in the form of the Federal Agency for State Agency for State Property Management, which Property Management and the Ministry of Finance owns 60.9% of the Bank’s ordinary shares. The of the Russian Federation) and Deposit Insurance Ministry of Finance owns 100% of the Bank’s type 1 Agency in the Bank’s share capital is 92.2%. preference shares, and the state corporation Deposit

VTB Group key businesses (global business lines)3

Corporate-Investment banking Mid-Corporate banking Retail business Services to large corporate customers, providing Services to mid-corporate customers, providing Services to individuals and small business a range of transactions with financial institutions a full range of banking products and services customers and all types of insurance services

• Assets: RUB 6.8 trillion • Assets: RUB 0.8 trillion • Assets: RUB 4.1 trillion • Customer loans3: RUB 5.4 trillion • Customer loans3: RUB 0.6 trillion • Customer loans3: RUB 2.2 trillion • Customer deposits: RUB 3.1 trillion • Customer deposits: RUB 0.7 trillion • Customer deposits: RUB 3.5 trillion At the end of 2016, 23.5 million individuals and VTB Capital has branches in Singapore and and companies were using VTB Group’s banking Dubai. The Group’s investment banking division VTB Group’s global network is unique to the diversification and increased profitability from and financial services in Russia and abroad provides broker-dealer operations in the US, Russian banking industry. Group companies its transactions in high-margin markets. (compared with 21.7 million at the end of 2015). conducts securities transactions and provides provide services in the CIS, Europe, Asia, North financial advisory services in Hong Kong, America and Africa, enabling the Group to facilitate As of the end of 2016, the Group’s banking business VTB also has banks in Austria, Germany and and operates investment banking services in international partnerships and promote Russian was active in 22 countries around the world. In the France, which are part of a European sub-holding Bulgaria. In addition, in Vietnam, VRB Bank, companies aiming to engage with global markets. CIS countries, the Group has banks in Armenia, with VTB Bank (Austria) acting as the parent bank. a joint venture between VTB and a Vietnamese The Group’s international operations enable Ukraine, Belarus, Kazakhstan and Azerbaijan. The Group also has subsidiary and affiliated banks loan institution, conducts banking activities. in the United Kingdom, Cyprus, Serbia, Georgia and Angola, and branches in China and India, 2 Market share is calculated using VTB’s methodology based on RAS data from the Bank of Russia. Market share in retail and corporate deposits do not include current accounts. 3 Loans and advances to customers (net of provisions), including amounts pledged under repurchase agreements. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 2. VTB market position highlights position and banking sector in 2016 report governance responsibility statements Annexes

16 17 VTB Group’s organisational structure (as of 31 December 2016)

VTB Bank (PJSC)

VTB 24 (PJSC) JSC VTB Capital Holding VTB Insurance, Ltd

PJSC “Post Bank” VTB Capital IB Holding, Ltd VTB Life Insurance, JSC

BM-Bank JSC VTB Capital plс VTB Medical Insurance, JSC “VTB BANK” PJSC JSC VTB Capital “VTB Factoring”, Ltd CJSC VTB Bank (Belarus) “VTB Pension Administrator”, Ltd NPF VTB Pension Fund, JSC “VTB Bank (Armenia)” CJSC LLD VTB DC VTB Real Estate LLC Subsidiary JSC VTB Bank (Kazakhstan) “VTB Specialized Depository”, CJSC OJSC VTB Bank (Azerbaijan) JSC VTB Registrar JSC “VTB Bank (Georgia)” “Multicarta”, Ltd Banco VTB Africa, S.A. “VTB-Leasing”, JSC VTB Bank (Austria) AG

VTB Bank (Deutschland) AG

VTB Bank (France) SA

VTB Bank JSC Belgrade VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 3. Russian economy and banking sector in 2016 highlights position and banking sector in 2016 report governance responsibility statements Annexes

18 19 3. Russian economy and banking Investments in fixed assets continued to decline, Russian banking sector, RUB billion a trend that began in 2013. Investment contracted sector in 2016 0.9% in 2016 against the dramatic downturn Assets of 10.1% a year earlier. Investments were

restrained by a variety of factors, including reduced 49,510 access to external sources of financing and tight monetary policy. Nevertheless, investments began 57,423

to recover in 2H 2016, with fixed capital investment 77,653 growth of 0.5% year-on-year in 3Q 2016, the Russian economy In December, unemployment decreased to 5.3%, first positive quarterly change since 2Q 2014. 83,000 reaching the level seen at the end of 2014. 80,063 In 2016, Russian household consumption and Nominal wage growth accelerated, up 7.7% The Bank of Russia cut the key rate twice during private corporate sector investment contracted, in 2016 versus an increase of 5.1% in 2015. 2016, from 11.0% to 10.0%. Though the disinflation but the decline was less dramatic than in 2015. During the year, real wage growth was mostly trajectory is in line with the Bank of Russia’s Equity The former dropped 5.0%, from 9.8% in 2015, in positive territory, while it was negative projections, and inflation expectations are

while the latter decreased 0.9% – compared throughout 2015, with acceleration seen towards gradually decreasing, the Bank of Russia’s 5,911 to a 10.1% drop the previous year. This indicates the end of the year, resulting in 0.7% growth for monetary policy remains conservative. that the Russian economy has completed 2016, compared to a 9.0% decrease in 2015. 6,629

its initial adjustment to the terms of trade shock As a result, the contraction in retail trade turnover In line with the gradual downward trend witnessed 6,922 and is set to expand in the coming quarters. improved to -5.2%, compared to -10.0% in 2015. since mid-2016, consumer inflation decreased from Since mid-2016, signs of economic recovery Nevertheless, the retail sales recovery lags 12.9% year-on-year in December 2015 to 5.4% in 7,552

have already started to emerge, including behind growth in real wages, which indicates December 2016. Headline inflation decreased as 8,611 improving retail lending conditions and an that households continue to save rather than a result of favourable harvests, both domestically expansion in mortgage lending, the bottoming-out spend. Historically tight lending conditions and and globally, as well as a turnaround in oil prices, of retail turnover and an increase in fixed asset continuing household deleveraging are holding which supported the rouble rate against foreign Net profit investment. Overall, GDP contracted 0.2% in back any increase in consumer demand. currencies. Throughout the year, the rouble increased

2016 (compared to a 2.8% drop in 2015). by as much as 17% against the US dollar, reaching 1,012 RUB 60.7 against the dollar as of 31 December 2016. The macroeconomic climate was more supportive 994

of household consumption in 2016 than in 2015. 589 Russian banking sector Russian macroeconomic indicators, % change year-on-year 192

Investment in fixed assets Industrial production Retail turnover Russian banking sector assets decreased 3.5% in 930 2016, compared to a 6.9% increase in 2015 amid 6.8 6.3 3.9 still-low demand for loans and a 17% increase 2012 3.4 2.7 1.7 1.3 in the value of the rouble versus the US dollar. 2013 0.8 0.4 The penetration of banking services, defined 2014

-1.5 -0.9 -0.8 as a banks’ total assets divided by GDP, also 2015 2012 declined 7 percentage points year-on-year to 93%. 2016 2013 -5.2

2014 A stronger rouble, weak macroeconomic conditions Source: Bank of Russia. -10.1 -10.0 2015 and still-high interest rates had a negative impact on 2016 the volume of corporate loans for Russia, resulting Source: Rosstat. in a 9.5% decrease in 2016, compared to a 12.7% VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 3. Russian economy and banking sector in 2016 highlights position and banking sector in 2016 report governance responsibility statements Annexes

20 21 increase in 2015, when it was supported by a 23% Asset quality stabilised as the share of overdue loans Customer accounts decreased 3.5% in 2016, In 2016, the lower cost of financing and lower drop in the value of the rouble. In contrast, retail to total loans was flat at 6.7% in 2016. In corporate as a 4.2% growth in retail deposits was only partially provisioning expenses supported an increase in total lending in Russia increased 1.1% in 2016 on the lending, the share edged up 5bp to 6.3% as of 31 offset the 9.9% drop in corporate accounts. A year profits to RUB 930 billion, up from RUB 192 billion back of accelerating mortgage lending growth December 2016, while in retail lending, it dropped earlier, customer accounts were up 18.9% in 2015, a year before. According to the Bank of Russia, (+12.4% versus +10.4% in 2015). This marked 14bp to 7.9%. The share of provisions in the total including a 25.2% expansion in retail deposits and the number of unprofitable banks in the country a turnaround from the 5.7% decline in retail lending loan portfolio increased 35bp to 8.2% at the end 14.2% growth in corporate accounts. The share of decreased slightly to 178 from 180 in 2015. a year earlier amid significant deleveraging. Total of 2016, which helped improve the coverage ratio customer deposits among total liabilities edged loans in the Russian market decreased 6.9% in to 158%, up from 149% at the end of 2015. up to 69% from 68% as of the end of 2015. Solid profit supported banks’ capital 2016, after increasing 7.6% year-on-year in 2015. adequacy. By year-end, the overall capital Banking sector debt to the Bank of Russia decreased adequacy ratio (N1.0) had increased 49.2% year-on-year to 3.4% of total assets from to 13.1% from 12.7% at the end of 2015. Russian banking sector, RUB billion 6.5% at the end of 2015, as the liquidity situation improved. The gross loan-to-deposit ratio slid Corporate loans Retail loans 3 percentage points during 2016 to 83%.

19,971 7,737

22,499 9,957

29,536 11,330

33,301 10,684

30,135 10,804

Corporate deposits Retail deposits

15,328 14,251

17,355 16,958

24,443 18,553

27,924 23,219

25,149 24,200

2012 2013 2014 2015 2016

Source: Bank of Russia. Reasonable loans for modern housing

The Bank’s participation in the government program for supporting housing loans, cooperation with major construction companies and special military lending makes modern housing more affordable for millions of Russians. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

24 25 4. Management report financial indicators, the range of investment VTB Capital held the Eighth Annual RUSSIA banking services and products offered and the CALLING! Investment Forum. The three-day event efficient use of capital. VTB Capital has been attracted more than 2,000 visitors, including winning the award for several years running. 500 investors from 60 countries, government representatives and heads of leading global According to the international magazine corporations. The forum featured about Trade & Forfaiting Review (TFR), VTB Bank 1,000 business meetings for representatives 4.1. Key events in 2016 bulk of the Bank of Moscow’s business: about 70% was the winner for “Best Bank for Trade of Russian companies and investors. of its assets, totalling more than RUB 900 billion Finance in Russia and the CIS in 2016”. January according to IFRS. More than 10 million individuals On 17 October, VTB Bank announced the launch and small businesses became clients of VTB Bank. August of the placement of overnight bonds on the Moscow On 28 January, a signing ceremony was held Exchange. Overnight bonds represent a unique to mark the creation of Post Bank to replace Leto The Banker magazine awarded VTB Bank the top Post Bank’s Supervisory Council approved its new high-tech product on the stock market, Bank. As a result of the agreement, Russian Post prize for “Deal of the Year” in the category “Best Development Strategy up to 2023. The Strategy designed for the overnight investment acquired 50% minus one share of Leto Bank Issue of Sovereign Bonds” for the placement calls for the opening of 26,000 Post Bank of unclaimed rouble balances. This tool is designed (renamed Post Bank in March 2016) through of federal loan bonds of the Russian Ministry branches at post offices throughout the country. for a wide range of investors who are interested its 100% subsidiary; VTB Group retained of Finance that are linked to inflation. In July Post Bank is focused on multi-channel operations in reliable short-term financial instruments. a stake of 50% plus one share of Post Bank. 2015, VTB Capital acted as the placement with individuals. The customer segments agent, the bookrunner and the settlement targeted by Post Bank are online shoppers, November Post Bank’s key goals are to provide citizens bank for the debut issue of federal loan bonds payroll customers, retirees and small and micro of Russia with better access to financial of the Russian Ministry of Finance linked to businesses. By 2023, the bank’s client base will On 2 November, VTB’s Supervisory Board decided to services, to inject spare cash reserves from inflation in the amount of RUB 75 billion. total 21 million people. This will be achieved by merge VTB24 Bank with VTB Bank. The integration individuals into the economy, and to increase attracting both walk-in customers as well as active of VTB24 will be carried out in accordance with competition in the financial services market. VTB Capital was the sole organiser of clients of Russian Post, which is one of the key VTB Group’s strategy, which calls for the transfer Russia’s sovereign issue of Eurobonds synergies between Russian Post and VTB Group. of the Group’s Russian banks to a single platform. March in the amount of USD 1.75 billion. The incorporation of VTB24 will optimise the VTB Capital was named the Best Investment structure of the Group’s retail business in the On 14 March, an Extraordinary General Meeting of June Bank in the United Kingdom in 2016 for Russian market, centralise management functions, Shareholders was held by absentee voting. Issues M&A, based on analytical data from the unify the operating model and IT systems of the related to the merger with the Bank of Moscow The Annual General Meeting of Shareholders took business publication Finance Monthly integrated banks and generate synergies from the were discussed at the meeting. Following a vote, place on 24 June. Around 1,140 shareholders and and a survey of market participants. merger of regional networks. All of this will result a resolution on the reorganisation of VTB Bank their representatives (including those participating in a significant reduction in VTB Group’s costs. was adopted. From 14 March to 28 April 2016, in absentia) attended the meeting. The event September those shareholders who voted against, or did was broadcast online on VTB Bank’s website. December not participate in voting on the reorganisation, VTB Capital was named Best Investment Bank had the right to present their shares for VTB Capital’s research team took the in Debt Capital Markets in Russia, according VTB successfully completed the construction redemption. Shares were redeemed at a price top spot in surveys conducted by the to the Euromoney Real Estate Survey 2016. of the Central Segment of the Western Rapid of RUB 0.04 per ordinary registered share. Institutional Investor 2016 EMEA Research Diameter (WRD). On 2 December, Russian President Team and the 2016 Extel Survey. October Vladimir Putin attended the opening ceremony May of the Central Segment of WRD. The public-private July VTB Bank was assigned the highest rating for partnership project includes the construction On 10 May , VTB Bank successfully completed its corporate governance, 7++ (Developed Corporate and operation of the Central Segment of the entire merger with the Bank of Moscow, thereby enabling VTB Capital received a prestigious Euromoney Governance Practice), based on the results length of the WRD. It is being implemented the Group to ensure substantial additional cost Award for Excellence 2016 in the category of annual independent monitoring carried by Northern Capital Highway, a consortium savings and streamline the Group’s business “Best Investment Bank in Russia”. The main out by the Russian Institute of Directors. formed by the leading shareholder VTB Capital. operations. As part of the merger, VTB took over the criteria for evaluating the nominees were VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

26 27 On 8 December, an Extraordinary General maintaining a strong market position and improving in the Russian banking market, enabled the Group to led to a drop in the net interest margin and in Meeting of Shareholders was held in the form the efficiency of its Corporate-Investment banking significantly reduce costs. This was achieved through banking sector earnings. On the other hand, of absentee voting. The agenda included issues business; the consolidation of administrative structures, the VTB Group’s long-standing business model turned related to the approval of new versions of developing its Mid-corporate banking business centralisation of operations with corporate clients, out to be not sufficiently prepared for the economic the Charter and the conversion of preference as a separate profit centre and strengthening the as well as support functions and internal controls, downturn. In a situation where credit risks were shares. The General Meeting of Shareholders Group’s position in this market segment; and the optimisation of network infrastructure and materialising, the high concentration of the loan decided to convert preference shares and Type achieving faster growth in the retail business — administrative costs. Already in 2016, the effect of portfolio led to a significant increase in provision A preference shares into new types of shares increasing market share as well as the share of the these cost savings amounted to RUB 7.8 billion. costs, while the lack of a diversified funding that allow for the payout of dividends not retail segment in the Group’s business overall; Creation of Post Bank in collaboration with the base among the Group’s banks led to a rapid only for the year, but also for each quarter. strengthening risk management and control systems Russian Post: VTB Group’s access to the Russian revaluation of a significant portion of liabilities at the Group level; Post’s network will enable massive growth in the and a rise in the Group’s interest expenses. On 14 December, the VTB Bank Supervisory Board increasing operational efficiency and instituting retail business and will significantly strengthen the approved VTB Group’s Development Strategy for stringent cost control; and Group’s position in servicing the mass retail segment. By year-end 2016, VTB Group had yet to achieve 2017–2019. The Group’s new strategy focuses implementing measures for the transition Creation and development of the Mid-Corporate the trajectory for net profit and return on capital on the following three priorities: 1) improving to a universal bank platform. Banking global business line: by the end of approved in the Strategy, but financial results business profitability and increasing net profit 2014–2016, the Group had built an effective showed a significant positive trend compared to the to more than RUB 200 billion in 2019; 2) integrating Despite difficult external conditions, VTB Group has customer service model, significantly increased previous year. First of all, it is important to note the banking business, including the merger managed, over the past three years, to strengthen its customer base and strengthened its position in the recovery of the net interest margin to 3.7%, of VTB Bank and VTB24, and the establishment its position in all key banking market segments lending, deposit-taking, and transaction services in compared to 2.6% in 2015, due to lower funding of a single universal bank; 3) and modernisation, and has successfully implemented major this segment. costs and the growth of high-margin retail lending. including a breakthrough in the development transformation projects. The Group continued Reform of the international network management A second important factor was the increase in net of a modern customer-oriented bank through to expand its retail loan portfolio in 2016, with model: measures instituted in 2016 enabled the fee and commission income in the Group’s retail large-scale technological transformation. an increase of 11%. With market growth of only Group to centralise responsibility for the performance and transaction banking businesses, which grew by 1%, VTB Group expanded its retail loan portfolio of its international banking subsidiaries, speed up 7.3% year-on-year in 2016 and reached a record RUB On 16 December, an Extraordinary General Meeting by 10 p.p., increasing its market share from management decision-making at the head office, 81.8 billion. A conservative approach to credit risk of Shareholders was held in the form of absentee 17.8% to 19.6%. The Group’s market share in centralise risk management and underwriting. management enabled the Group to keep the cost of voting. The only item on the meeting’s agenda retail deposits and accounts grew to 11.0% in VTB has begun the transition to a model for the credit risk at 2%, which is better than the strategic related to determining the amount of dividends 2016. The Group expanded its relationships with balanced development of subsidiary banks relying on benchmarks, while the cost of risk excluding credit for Type 2 preferred registered shares of VTB Bank corporate entities, improving its market share their own funding, their own capital-raising sources related commitments fell from 1.8% in 2015 to 1.5% (PJSC), the terms and form of their payment for the in corporate lending and funding to 15.7% and and limitations on currency and credit risks. in 2016. Further efforts to improve the efficiency of first nine months of 2016, and the establishment 20.8%4, respectively. In 2016, the Group retained the Group’s business helped contain growth in staff of the date by which the persons entitled to its status as the undisputed leader in Russia Despite successes in instituting qualitative and administrative expenses to 5.4% year-on-year, receive dividends have been determined. for investment banking services. According to transformations, a number of financial targets which was in line with Russia’s official level of price Thomson Reuters, the Group’s market share in set out in the 2014–2016 Strategy were not met. inflation in 2016. As a result, the cost-income ratio debt capital markets was 53.5%, in equity capital This was due to both external and internal factors. decreased from 54% in 2015 to 46% in 2016. 4.2. VTB Group strategy markets 27% and 44% for M&A. Along with its On the one hand, the Russian economy underwent strong business growth in 2014–2016, VTB Group a very difficult period of slowing economic growth In 2016, the Group consistently implemented In 2016, VTB Group completed the implementation implemented a series of major strategic projects in the context of the drop in energy prices, the strategic initiatives corresponding of its Quality Growth Strategy (Development aimed at developing its market positions and introduction of sanctions, capital flight and to the objectives and priorities set out Strategy) that had been prepared for 2014–2016 diversifying the Group’s business, as well as currency devaluation. In the banking sector, in the Strategy for 2014–2016. and was approved by the Supervisory Council improving internal efficiency and governance: this led to a sharp revaluation in FX-borrowing on 10 April 2014. The objectives of the obligations for corporate entities, and a substantial Development Strategy for 2014–2016 were: Reorganisation of the Bank of Moscow and its merger deterioration in credit risks. There was a decrease into VTB Bank (PJSC), the largest integration project in lending to individuals against the backdrop of falling real incomes. The sharp rise in the Bank of 4 Market share is calculated using VTB’s methodology based on RAS data from the Bank of Russia. Market share in corporate funding includes term deposits and current accounts from legal entities. Russia’s key rate and of funding costs in general VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

28 29 Maintaining a strong market position and Development of the mid-corporate banking By the end of 2016, the increase in the total Increased operational efficiency and the institution increasing efficiency in corporate-investment business as a separate profit centre and number of active individual clients among Group of stringent cost control banking strengthening of the group’s position in this market banks surpassed that of VTB’s major competitors. segment The Group continued to work on the introduction In 2016, VTB Group took the following major steps In 2016, VTB Group maintained its status as of segment-oriented sales models. To strengthen to improve operational efficiency and control costs: a leading lender to major Russian companies In 2016, the Group continued developing its position in this long-standing segment of the and enterprises and continued to work on mid-corporate lending. First, emphasis was Group’s customer base, an updated privileged a number of administrative and management costs rebalancing its loan portfolio in favour of placed on financing companies focused on service model was launched, and the launch of a joint were optimised in accordance with the approved strategic and import-substituting industries. import substitution, developing innovative project with the Russian Post to create Post Bank objectives of the merger of the Bank of Moscow with products, and on supporting small and medium- marked a breakthrough in mass retail. By the VTB Bank (PJSC); In 2016, the expansion of the liquidity sized enterprises, often in collaboration with end of 2016, the network of Post Bank branches increased centralisation of support functions and management product line and new options state programmes. The Group implemented had reached 5,700 sales outlets at Russian Post controls was carried out, including in the areas of offered by the Group for the short-term placement projects to improve the credit process, offices and 334 independent customer centres. operational support, procurement, as well as the of funds led to an increase in deposit and optimised operations involving collateral Group’s infrastructure related to the creation of a settlement accounts held by clients in the and expanded the powers of its subsidiaries In 2016, the Group increased its loan portfolio Group-wide data processing centre; Corporate-Investment banking business. while maintaining risk at the target level. and retail deposits, and also reached its strategic the sales network was optimised; market share goals. However, the share of retail 49 projects were implemented in Corporate- In 2016, a number of landmark transaction One of the most important results of 2016 business in the Group’s business structure was Investment banking and 118 projects in Retail banking projects were implemented. The Group was the completion of the integration of the below the strategic benchmark as a result of banking to optimise business processes. continued upgrading its e-banking system, Bank of Moscow, the transition to the target lower than expected growth rates in banking expanded cooperation with Russian corporations model for customer service and the creation markets. The Group managed to maintain positive Measures for the transition to a universal bank in building a centralised cash-flow management of a platform for further growth in the share financial results in its retail business in a market platform system (central treasury) and account services of the mid-corporate business market. that was challenging throughout 2015, and in under state defence orders, and also integrated 2016 it moved closer to the goals set forth in In 2016, the integration of the Bank of Moscow payments using the Mir national payment system To streamline business operations in 2016, the Strategy, showing a 25% return on capital. with VTB Bank (PJSC) was carried out through cards into its acquiring products. To develop its measures aimed at increasing the performance the reorganisation of OJSC Bank of Moscow by documentary business, the Company increased of client managers were implemented, the Improving risk management and strengthening risk spinning off JSC BS (Bank Spetsialny) and its its volume of trade and export financing, functionality of remote sales channels were control systems at the group level regular business (corporate and investment implemented several significant transactions expanded and the regional network, network banking, mid-corporate and retail banking) and, involving export loans with the participation infrastructure and real estate were optimised. In 2016, the Group continued implementing at the same time, merging it with VTB Bank (PJSC). of EXIAR, further diversified its business servicing This resulted in a significant increase in projects aimed at harmonising and improving Successful implementation of the project enabled: specific industries, and shifted the focus the Group’s customer base in this segment the efficiency of the risk management system. towards more complex guarantee products while and an increase in the operating income The main results of this work were: assurance that all systems were functioning smoothly, simplifying and speeding up internal processes. for each member of the client team. including those related to customer service, and the introduction of new methods for risk management generation of reports from the merged bank; In its investment banking business, the Group Achievement of faster growth in the retail business within the Group (with more than 20 standards and the implementation of the approved goals for the strengthened its position in all key areas of activity – increase in market share, as well as the share of codes of practice); transition to target organisational and business and maintained its leadership in the market for the retail segment in the group’s business overall introduction of risk management systems based models of operations with corporate clients and retail fixed-income instruments, as well as in the debt on performance indicators that are risk-sensitive customers, the centralisation of support and control and equity capital markets and corporate finance. In developing its retail business in 2016, the (through risk appetite); functions and the optimisation of the regional network. Group prioritised increasing its active customer calculation of economic capital as one of the The development of a model for client coverage base, while maintaining its leading position in main instruments of the Group’s capital adequacy On 2 November 2016, the Supervisory and the CRM system enabled the Group to fulfil terms of customer satisfaction, strengthening its assessment; Council of VTB Bank set as one of its priority the strategic objective of increasing cross-selling positions in all segments of the market, as well as designation of a dedicated division for retail credit goals the reorganisation of VTB Bank to the level of 4.3 products per client. maintaining a high level of cost-effectiveness. risk management within VTB Bank in connection with (PJSC) through the incorporation of VTB 24 the integration of the Bank of Moscow. (PJSC) by no later than January 2018. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

30 31 VTB Group’s Development Strategy for 2017–2019 a reduction in the Group’s dependence providing additional sources of income through top three Russian banks in terms of the share on funds from the Bank of Russia, as well as personalised products and increasing the granularity of active clients in online and mobile banking. On 14 December 2016, VTB’s Supervisory minimisation of the share of FX funds. of pricing based on an in-depth analysis of customer The development of CRM and implementation of Council approved a new Development Strategy data; new analytical tools should increase the number for VTB Group for 2017–2019. On the basis of By 2019, the Group should almost double upgrading the remote service system to a new of products for customers and cross-selling lessons learned from the implementation of the the amount of deposits from individuals qualitative level, increasing the share of active users with the Group’s subsidiaries. The development Strategy for 2014–2016, major trends in the (RUB +2.3 trillion, a 4 percentage point increase of mobile and online banking; of payment services, including P2P transfers, macroeconomic situation and Russia’s banking in market share to 15%5) and, regarding the improving the Group’s internal efficiency through utility payments and new acquiring products market, VTB Group’s three key development structure of deposits from corporate clients, see the end-to-end automation of processes. should lead to exponential growth in fee and priorities in the new Strategy are as follows: an increase in the relative share represented commission income and current account balances. by small and medium-sized businesses. Development of global business lines 1. Increased profitability – exponential growth Achieving the profitability target in corporate- in profits to more than RUB 200 billion by year-end Current account balances should increase The main priorities of the new strategy for investment banking while maintaining market in 2019 and a return on equity of around 14%; at a faster rate, which will be achieved in the developing the global business lines are: leadership corporate segment through the implementation 2. Integration of the banking business and of an integrated strategy for developing the a new scale for the Group’s retail business; Strategic development priorities in corporate- construction of a single universal bank; transaction business (including the introduction of achieving the profit target in corporate-investment investment banking pre-suppose maintaining new business models for small and medium-sized banking while maintaining market leadership; a leading position in lending to large corporate 3. Modernisation – a breakthrough businesses) and the development of payment developing a new model for small and mid- clients while increasing lending competitiveness in the development of a modernised, services and new savings products for consumers. corporate banking – exponential growth in terms of and optimising the Group’s funding structure. customer-oriented bank through large- the number of clients and income diversification. The growth in business volumes should be scale technological transformation. Integration of VTB Bank and VTB24 accompanied by continued efforts to optimise New scale for the Group’s retail business the sectoral structure of the loan portfolio and These are the priorities that determine VTB Group’s A significant contribution to improving the increase the share of the priority sectors, as Strategic Development Programme, which foresees efficiency of VTB Group and the implementation The new scale for the retail business suggests well as to increase the performance of cross- substantial structural improvements and changes of profit targets will be achieved through the that by 2019, the Group should see a significant selling and the profitability per customer. in the Group’s business model to improve the merger of VTB Bank and VTB24. There are increase in its customer base and business quality of customer service, strengthen market two main steps to the integration project: volumes through the creation of the best The Group’s transaction business should grow positions and significantly boost financial results. retail bank in the country for the middle class faster than the market and faster than lending. The Group’s overarching strategic initiatives for first phase: the legal merger of the banks, which (VTB Bank), and the best retail bank in the This can be achieved by improving service the achievement of its 2017–2019 goals are: should be completed by January 2018; country for the mass market (Post Bank). quality, offering innovative new products and second phase: complete operational and upgrading the existing technology platform. The significant structural improvements and cost technological integration, which allows for full To achieve the established goals, the market priority in developing the investment business reductions in the Group’s funding; synergy. share in payroll clients needs to increase by is to maintain leading positions and growth in the merging of VTB Bank and VTB24, opening up 1.5 times. The loan portfolio and deposits line with the recovery in Russia’s markets. The a qualitatively new level of interaction between Digital transformation from individuals should show a growth rate focus of the international business will be on business lines; that outstrips the market, thereby increasing financing the operations of the largest Russian the digital transformation of the Group’s business The digital transformation of the Group’s business market shares to 24% and 15% 6, respectively. companies and their strategic partners abroad and processes. and processes represents an important response while taking advantage of opportunities in the to a number of external and internal challenges. VTB and Post Bank should become leaders in domestic market to expand foreign exchange Funding The introduction of innovative technologies is terms of customer loyalty in the target segments. transactions, as well as operations with designed for a range of critical objectives, such as: The user-friendliness and functionality of digital commodities and corporate finance (M&A, DCM). As concerns the structure of funding, the goals channels should be substantially improved, while are the progressive growth in customer deposits, the Group’s retail business should break into the

5 Market share is calculated using VTB’s methodology based on projected IFRS data. 6 Market shares are calculated using VTB’s methodology based on projected IFRS data. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

32 33 Developing a new model for small and mid- Information on the auditor’s conclusions about Information about the system Programme is the inclusion of key performance corporate banking – exponential growth in terms of the implementation of the Long-Term Development of key performance indicators indicators (hereinafter referred to as KPIs) in the the number of clients and income diversification Programme system of incentives for responsible persons, An important element in monitoring the attainment guaranteeing employees a uniform course The Group’s strategy for mid-corporate banking is In accordance with the instructions of the of the objectives of the Strategy and the of action for the attainment of strategic goals. based on building a mass model for services with Government of the Russian Federation, the a focus on transaction products and strong growth Programme’s implementation is subject to an In accordance with the approved strategic objectives, VTB Group established the following key performance in the lower customer base, while strengthening annual audit. The audit of the Programme’s indicators: positions and developing classic credit models implementation is governed by the Bank-approved in the upper market customer segment. Standards for Conducting an Audit of the Indicator Implementation of the Long-Term Development ROE – return on equity The mass transaction model will be based on Programme, which contains information about the TSR – total shareholder return for a given year

developing remote channels and providing access procedures of the planned audit, the procedures Net operating income before provisions for loan impairment

to all products online, developing package offers for the tender to select an auditor, conducting the Cost of risk – provision charge for loan impairment divided by average customer loans for transaction products and increasing the use of audit, the time frame for completing audit-related Net fee and commission income statistical methods in planning client strategies work and on decision-making based on the results Cost/income ratio – staff costs and administrative expenses divided by operating income before provisions and sales campaigns. At the same time, lending of the audit, as well as on the corresponding to lower-income customers will be selective, Terms of Reference for conducting the audit. Tier 1 CAR – tier 1 capital adequacy ratio requiring a history of good relations with VTB. The audit of the implementation of the Programme KPIs for 2015–2018 The model for operations in the upper client segment for 2016 was carried out by Ernst & Young. The will continue its emphasis on personalised customer audit report of 16 March 2017 was prepared Indicator 2015 2016 2017 2018 service with the support of client-product teams, on the basis of the audit. On 22 March 2017, ROE, % 14 15 15 15 sector specialisation will be launched along with a new the Supervisory Council reviewed the report on The yield on the MICEX Financials Index for the relevant reporting period, adjusted approach to planning customer strategies based on the fulfilment of the Programme indicators for TSR for dividends paid out during the period on shares included in the Index the client’s net worth and the Group’s share thereof. 2016 and the results of the audit. On the basis Net operating income before provisions, RUB billion 623 743 810 875 of these procedures, the auditor concluded that Cost of risk, % 2.0 2.2 1.9 1.7 Long-Term Development Programme the information in the report fairly represents: Net fee and commission income, RUB billion 92 118 140 155

Cost/income ratio, % 44 42 42 42 Based on the Development Strategy for 2014–2016 the actual values of the Bank’s performance Tier 1 CAR, % 11.0 11.3 11.4 11.5 approved by the Supervisory Council, the Bank indicators specified by the Programme for the year developed a Long-Term Development Programme ending on 31 December 2016, and the extent of for 2014–2018 (hereinafter the “Programme”). the attainment of the target values; The current version of the Regulation on KPIs consolidated financial statements of VTB Bank information about the causes for failing to also contains the following information: and its subsidiaries, as specified in the Programme. The Programme contains a detailed list of implement measures included in the Programme, measures to ensure that the Bank achieves the and deviations in the actual values of the appropriate remuneration for the tasks performed, The link between the expected amount of the development goals specified by the Strategy (a Bank’s performance indicators against those the results of activities and the level of risks taken; variable part of remuneration for VTB Bank’s more detailed description of the implementation envisaged in the Programme for the year ending correlation between the remuneration of the Bank’s Management Board and the execution of the of individual measures in 2016 is presented on 31 December 2016. executive bodies and the achievement of the established KPIs is set in the approved Procedure in the relevant sections of this Report). objectives and tasks specified in the Programme; for Determining the Variable Amount of Remuneration correlation between the chief executive officer’s for the Members of the Management Board KPIs and the achievement of performance targets of the Bank, as well as in the employment of VTB Group, calculated on the basis of the IFRS contracts of the Bank’s senior management. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

34 35 Implementation of KPIs 2016 point 6.1 of the Regulation on Key Performance are responsible for doing business with clients from Indicators, the variable part of the remuneration the respective sectors of the economy, including Indicator Target Actual* Execution Comments of the executive bodies can be determined by companies in the public and defence sectors. The main KPI deviation factors: taking into account performance indicators that This approach enables the Group to improve the • insufficient recovery of the Group’s net interest margin in the context of maintaining measure specific areas of responsibility for any quality of its sector expertise and build products a high level of interest rates on the market Management Board member (individual targets) or and solutions tailored to the needs of specific clients. and a high share of interest-bearing liabilities within the Group that are more for the organisation in general (Group targets). sensitive to changes in the key rate; The structure of the product units is also • below-target share of the retail loan portfolio in interest-bearing assets; designed for sector specialisation and the • insufficient growth of net commission 4.3. Review of operating performance requirements of major corporate clients. This, income against the background of weaker-than-expected business activity in particular, allows the Group to enhance ROE, % 14.7 3.6 25% of corporate clients. 4.3.1. Corporate-investment banking its approach to credit analysis and improve KPI execution in 2016 amounts to 72%: VTB the quality of its corporate loan portfolio. TSR reached (-4%) versus 33% for the MICEX Segment overview7 Financials Index. Cumulative KPI execution for 2014–2016 amounts to 93%: VTB TSR The transaction banking business comprises two The yield on the MICEX Financials Index reached 59% versus 72% for the Share of VTB Group total, % main product lines: the documentary business, TSR, % for the relevant reporting period 72% MICEX Financials Index. Assets 44 which includes a variety of guarantees and Net operating income before provisions, RUB billion 743 561.5 76% Not met for similar reasons as for ROE indicator. Customer loans and advances (net) 61 credits, and the line of liquidity management

Cost of risk, % 2.2 1.5 71% Target exceeded. Customer deposits 42 products, including account management products, financing products (including the Insufficient growth of net commission income Net interest income 25 Net fee and commission against the background of weaker-than- accrual of interest on client account balances), Net fee and commission income 22 income, RUB billion 118 81.8 69% expected business activity of corporate clients. as well as acquiring services, remote banking Provision charge7 51 The non-fulfilment of the indicator is the services, and settlement and cash services. result of the non-fulfilment of the goal for Net operating income 19 net operating income before provisions, while the absolute amount of staff costs and Staff costs and administrative expenses 25 The Group’s investment banking business offers administrative expenses and the ratio of costs Cost/income ratio, % 42.0 50.7 79% to average assets are above the target values. a full range of investment banking products, Source: VTB Group IFRS consolidated financial statements for 2016. including trading operations, organising debt and Tier 1 CAR, % 11.3 12.9 114% Target exceeded. equity issuance, M&A transactions and consulting The Corporate-Investment Banking (CIB) global services, private equity, asset management, FX and * Indicators are calculated in accordance with the methodology of the Programme business line specialises in servicing major corporate interest rate products and hedging strategies. clients through the sales of lending, transaction The above-mentioned documents were prepared respective managers. It is also possible to use and investment products, as well as leasing In 2016, the Bank continued developing the in accordance with the Guidelines for the Use of individual indicators for each respective manager and factoring services across all regions where project for the cross-selling of products from Key Performance Indicators by State Corporations, to determine how successfully various projects/ VTB Group is present, including Russia, the CIS, subsidiary companies to VTB Bank’s corporate State-Owned Companies, State Unitary Enterprises tasks/programmes have been implemented. Europe, Asia, the USA, the Middle East and Africa. customers. Compared to 2015, there was an and Commercial Enterprises in Whose Charter increase in the number of client managers and Capital the Russian Federation or a Subject of The list of KPIs and their weight in accordance with In order to maximise the effectiveness of its clients taking part in the project. Also, the cross- the Russian Federation Has a Share of More than the Bank’s governing documents is determined customer service, VTB has created a dedicated selling system now has a new project member, 50%, jointly developed by Russia’s Ministry for the reporting period by a decision of the client coverage unit and a separate credit unit Tele2, and a new product, an operating lease. of Economic Development and the Russian Supervisory Council on an individual basis that is responsible for the maintenance and Federal Property Management Agency. for each member of the Management Board. development of a modern line of lending products. Lending business

On the basis of the above-mentioned KPIs, key In accordance with point 4.1 of the Regulation on The client coverage unit’s service model is centred VTB offers a wide range of lending products and performance indicators are established to assess Key Performance Indicators, the approved business around sector coverage, with dedicated teams that provides financing for varying time periods in all the activities of the Bank’s executive bodies, taking plan, budget and Bank Strategy can be used in into account the areas of activity of the Bank’s establishing the KPI targets. In accordance with 7 Provision charges for impairment of debt financial assets, other assets, credit-related commitments and legal claims. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

36 37 the world’s major currencies. The Bank also offers At the end of 2016, the Group’s corporate credit VTB Group loans to legal entities the structure of its portfolio management in various types of credit lines with drawdown limits, portfolio decreased 10% to RUB 7,311 billion, by economic sector, % this sector and to improve its quality: credit limits or with a combination of these limits. which was in line with the overall situation in

the market. The Group saw its market share in 15 % a unified credit risk management centre for real In addition to traditional financing, VTB also offers corporate lending increase from 14.6% to 15.7%9, estate operations was created within the Bank’s 11 % complex credit products, including structured repo, maintaining the No 2 market position in Russia. Oil and gas Credit Department; investment and project financing, debt and equity 13 % restructuring was implemented through conversion financing services, consulting services on structuring In 2016, VTB Group paid particular attention to into roubles as well as mechanisms for hedging Building construction 12 % investment projects, trade finance services and direct operations with customers from strategic sectors foreign currency risks; financing from institutional investors and banks. of the economy, including import substitution. 11 % negotiations were carried out with borrowers Metals 15 % to improve the underlying collateral, the repayment VTB’s clients have access to structured financing Another important direction in the Group’s and maturity terms based on market realities. 11 % products that make it possible to significantly business development is the crediting and At the same time, the Bank continued to develop reduce interest rates by allowing the Bank to select financing of new infrastructure and investment Government bodies 11 % lending for high-quality projects in the sector:

the currency for repayment. Leasing and factoring projects in various sectors of the economy. 8 % business with the country’s largest, most stable products are provided to the Group’s customers players in the real estate market saw further Manufacturing 11 % through VTB Leasing and VTB Factoring. For example, VTB Bank played an active role development; in financing new regional projects related to social 7 % new loan products were developed, including

In 2016, the corporate sector’s investment activity infrastructure and road construction implemented Trade and commerce 7 % lending for builders, lending for CEIF real estate, remained at low levels in the context of limited through public-private partnerships. Funding project financing for a diversified pool of construction access to international capital markets and high was organised for the construction of maritime 6 % projects at an early cycle, repo transactions with funding rates. The strengthening of the rouble against transport facilities for the oil and gas sector, Energy 5 % companies in this sector in both the domestic and foreign currencies contributed to a drop in the and in the field of airport infrastructure. the international market; 6 % rouble earnings of export-oriented companies. loans secured by commercial real estate and In 2016, the Group maintained a focus Finance 6 % construction projects in Central and Eastern Europe These factors, coupled with the high accumulated on developing its lending business in the 6 % were further developed. debt burden of companies in certain sectors international markets of Eastern Europe and Asia. Transport 5 % of the economy, led to a drop in lending to The Group concluded new credit transactions One of VTB’s priorities in 2016 was to develop trade corporate-sector clients. Companies preferred in Mongolia, including under the aegis of the 6 % and export financing in all of the regions where the to direct profits to the repayment of existing debt. Export Insurance Agency of Russia (EXIAR). Chemical 8 % Group has a presence, with a particular focus on collaboration with companies doing business with 8 4 % VTB Group loans to legal entities , RUB billion The Bank has been working with the Essar group Telecommunications partners in the Asia-Pacific region. In particular, the of companies since 2014. During this time, the and media 3 % volume of new agreements aimed at supporting trade 8,150 7,205 7,311 Bank has provided financial support as part of the 7 % turnover between Russia and China signed by VTB purchase of shares from minority shareholders with Chinese banks in 2016 totalled CNY 12 billion. 5,100 Other 6 % 4,210 and the delisting of shares of Essar Energy Limited and Essar Oil Limited on the stock exchange. The Bank continued to support its customers’ Additional funding was granted in 2016, which 2016 foreign trade operations all over the world: in resulted in the largest transaction by a Russian 2015 2016, in collaboration with more than 100 foreign 2012 2013 2014 2015 2016 bank in India in terms of loan volume. financial institutions, VTB carried out more than 400 transactions with partners from 48 countries in Source: VTB Group IFRS consolidated financial statements for 2016. Source: VTB Group IFRS consolidated financial statements for 2016. Europe, Asia, Africa and North and South America.

In light of negative trends in the construction In 2016, VTB concluded a number of significant 8 The loan portfolio before provisions, including loans pledged under repurchase agreements. 9 The market share is calculated using VTB’s methodology with data from the Bank of Russia based on RAS statements. and real estate sectors in 2014–2016, the export credit transactions in collaboration Bank undertook significant efforts to optimise with EXIAR. Customers from various industries VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

38 39 took advantage of the Bank’s offers, including simplified the list of documents required by transactions. To optimise the costs for processing In 2016, the Bank brought in new business by the nuclear power, oil-refining and chemical customers to deposit funds, and also improved payment documents for the Bank’s payroll clients, promoting the creation of its centralised treasury sectors. Funding covered by EXIAR was provided the terms and conditions for deposits. a new service was introduced for registering and other transaction business services. Currently, to support Russian exports, to Europe and the salary payments through the RBS system. these services are provided to more than 120 large CIS, as well as to parts of Asia, including India These steps enabled VTB Group to expand its holdings, including more than 1,600 legal entities. and Mongolia. VTB customers also had access customer base. Corporate deposits in 2016 remained To further facilitate liquidity management for to direct loan products for long-term financing flat, decreasing by just 1% to RUB 4,342 billion, and customers, the Bank broadened the functionality In 2016, VTB’s subsidiary banks in Belarus, in collaboration with leading export credit agencies. VTB Group’s market share in this sector increased of its simple banking support services and Kazakhstan, Western Europe and Africa continued from 21.3% at the end of 2015 to 23.3%10 as of implemented a variety of control options to expand and improve their range of transaction In 2016, leading international magazines Global 31 December 2016. The Group has the largest in the Customer Settlement Centre (CSC). banking products and to actively promote their Trade Review, Trade & Forfaiting Review and market share in term corporate deposits in Russia. Customer interactions were improved, such services to clients. Steps taken thus far have enabled Global Finance recognised VTB as the best bank as the procedures for making payments and the Bank to more than double foreign network in trade financing in Russia and the CIS. VTB Group deposits of legal entities, RUB billion generating card files. The Bank simplified the revenues from settlement and cash services. contractual structure for the CSC system, and 4,384 4,342 Customer deposits now offers it in the form of general conditions. Every year, VTB conducts customer satisfaction 3,520 1,008 1,062 Moreover, the process for connecting and surveys regarding its transaction banking services.

VTB Group continued to focus on attracting 869 configuring the system was improved. In 2016, a similar study was conducted by PWC, an 2,590 customer deposits, keeping in line with market 2,379 independent consulting agency. Customers’ responses changes and meeting customer needs. CIB 878 The Bank participates in the national payment are taken into account when planning the further 920 quickly ensured compliance with any legislative 3,375 3,281 system, and is actively integrating it into development of the Bank’s products, helping VTB 2,651 changes not only by informing customers, but also its services. In 2016, as part of merchant to stay on the leading edge of the banking market. 1,712 by proactively rolling out products and providing 1,459 acquiring, the Bank’s line of cards was extended customers with effective mechanisms to ensure with the introduction of the MIR card. E-commerce and Internet acquiring in urban and compliance with new regulatory requirements. 2012 2013 2014 2015 2016 municipal projects VTB Bank’s flexible pricing policy and individual In accordance with Federal Law 275-FZ of 29 approach to customers enabled the Group to Current/settlement accounts December 2012 on State Defence Contracts, As a partner of the Government of Moscow in increase its volume of customer deposits. Term deposits VTB Bank is an authorised bank for the the field of transport solutions and socially implementation of defence procurement contracts. important urban projects, VTB Bank continued In 2016, the Bank continued to expand placement to develop its Entry and Nutrition programme Source: VTB Group IFRS consolidated financial statements for 2016. options for temporarily free cash. All of the Bank’s For customers participating in state defence in 2016, enabling supplements to be paid into clients were given the option under special terms and contracts, the Bank has created a service for the accounts used by children for meals at school. conditions to implement the simultaneous accrual Transaction banking remote provision of a separate account number and payment of interest on their monthly average on the Bank’s website and in the RBS system. The Social Taxi programme, whereby transportation and minimum cash balances, as well as the option In 2016, the Group improved customer service in To facilitate customers’ use of the RBS system, is provided to disabled people with limited mobility, of accruing interest on account balances based its transaction banking business by introducing special functionalities were implemented for is now in its pilot phase. The Social Assistant on average monthly balances under a progressive best international practices and by responding Bank documents for the confirmation of account project is under development, in which money is scale of interest rates. The Bank considered quickly to market demands. This included the transactions involving state defence contracts. credited on the social security cards of patients individual client needs when improving the development of new products, improvements of sales To simplify contract procedures, a single at in-patient facilities to pay for grocery orders. conditions for increasing minimum cash balances. procedures, a special focus on developing the comprehensive application has been developed remote banking system (RBS) and making the Bank’s for joining several services at the same time. The Bank works closely with the Moscow Department VTB is constantly taking steps to improve interactions with its customers more user-friendly. of Transport and Road Infrastructure Development, customer service and streamline business VTB has been actively involved in large-scale SUE Moscow Metro, SUE Mosgortrans and JSC processes to further develop deposit products and In 2016, the Bank added new formalised electronic projects to centralise the management of cash Central PPK. In 2016, the Bank developed the My reduce operating expenses. In 2016, VTB Bank documents to the RBS to facilitate customer flows, liquidity and financial risks at leading Russian Travel Card app that allows anyone with a Russian corporations. This has enabled the Bank to increase bank card, at no extra charge, avoid queues and 10 The market share is calculated using VTB’s methodology with data from the Bank of Russia based on RAS statements. its market share among Russia’s largest companies. cashiers when buying a ticket for any form of VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

40 41 transportation, including suburban trains. This In 2016, VTB Group held onto its second-place banking market and gained leading positions Investment banking technology will improve the quality of passenger position in the market for documentary operations. in a number of markets in the CEE region. service, decrease the time spent on purchasing VTB is developing its documentary business with VTB Group offers a full range of investment tickets and reduce the size of queues at peak times. large corporate clients in the regions of Russia. Global markets banking products, including advising on M&A The Group’s highly skilled management teams at transactions and organising debt and equity At year-end, the Bank entered into an sales outlets made it possible to focus on quality VTB Group offers a full range of services for issuance. The business is focused on serving agreement with SUE Mosgortrans on the improvements to the Bank’s services for large fixed income, equity and FX trading, as well customers in key sectors of the economy implementation of contactless bank cards regional and geographically diversified companies, as interest rate and global commodities in both Russia and international markets. to pay for travel by passengers using land as well as on an individualised approach to the market operations. The Group also provides transport, as well as an agreement for non-cash terms and conditions for documentary transactions, currency and interest rate risk management Debt capital markets By year-end 2016, VTB Capital ticket payments through ticket machines. factoring in the specifics of the work and servicing services, including hedging solutions, as well had become the clear leader in terms of the number export, import and domestic contracts. as structured finance, structured deposits and and volume of transactions in Russia’s debt The Bank provides cash transfers to the Federal notes, structured credit and hybrid products. capital markets, having organised 92 placements Treasury for payments using the most sought- Custody services throughout the year totalling USD 22 billion, with after channel for managing parking services, VTB Group clients are able to access equity a record 54% market share (Thomson Reuters). the Moscow Parking mobile application. The VTB Group Custody is one of the largest custodians capital markets in Russia, Turkey, Eastern Europe, functionality of the mobile application is regularly in Russia and provides a full range of custody the Middle East and South Africa. VTB Capital is In 2016, VTB Capital took part in the organisation expanded and adapted for user convenience. services for all types of securities issued by a member of the London Stock Exchange (LSE) and of more than 70 issues of Eurobonds in Russia The cashless payment services for the bicycle Russian and foreign issuers. The majority of it also has access to a number of foreign markets and the CIS, including the placement of Global parking terminal network are fully operational. companies operating in the Russian market through its extensive network of local brokers. Ports, OJSC Russian Railways and Evraz Group hold depository accounts with the Bank. During Eurobonds. VTB Capital served as the sole In 2016, a service was implemented for purchasing the reporting period, transaction services In 2016, VTB Capital strengthened its organiser of the landmark Eurobond issue by the parking tickets through a special section of the portal through accounts with Russian sovereign bonds position in the Russian market and occupied Russian Ministry of Finance and the subsequent of the Moscow Department of Transport and Road remained in high demand among local and a leading position by trading volume in placement worth a total of USD 3 billion. Infrastructure Development (www.parking.mos.ru). foreign participants in the Russian securities the Moscow Exchange repo market. market through Euroclear Bank accounts. Maintaining its leading position in Russia, The Bank is a key partner of the Moscow Euroclear Bank is one of the largest international VTB Capital Broker continued to develop its direct VTB Capital continued to expand its presence Department of Information Technology and account depositories, whose agent for custody market access (DMA) service on Moscow Exchange. in international debt capital markets by participating supports the payment service at the Moscow operations in Russia is VTB Custody. The Group expanded the business’s customer base in the organisation of six issues on the part portal for state and municipal services. in 2016 and it plans to expand the geography of of issuers from China. Of particular note was an The Bank’s depository acts as a Russian its financial instruments and trading platforms, issue of Eurobonds by the Republic of Cyprus’s Documentary business sub-custodian for the Bank of New York in particular, by providing its clients with access Ministry of Finance totalling EUR 1 billion. Mellon and Deutsche Bank Trust Company to Moscow Exchange’s currency section. In 2016, in light of the macroeconomic situation Americas, holding the underlying assets for Equity capital markets In 2016, VTB Capital and the continuation of sanctions, the main issuing share depository receipts for shares VTB Group maintained its position as one of the successfully implemented a number of landmark objectives of VTB’s documentary business were to: in a number of major Russian issuers. leading traders of government and corporate bonds transactions, including the additional placement on Moscow Exchange and in over-the-counter of 10.9% of the shares in ALROSA Diamond Company maintain its leading position in the Russian market; Investment banking markets. It remains the market leader in Russia in on the Moscow Exchange, as well as the additional increase the Bank’s share in the market for fixed-income instruments. In 2016, the Group’s placement of Rusagro shares, one of Russia’s largest documentary products for high-net-worth clients; VTB Group holds Russia’s leading investment share of trades in the bond market was 15% for agro-holdings. VTB Capital acted as the organiser systematically reduce the documentary portfolio in banking franchise and continues to be one of the both rouble-denominated bonds and Eurobonds. of IPOs on the Moscow Exchange for the Russneft the high-risk sectors of infrastructure construction key advisors for Russian corporate clients looking oil company in the amount of RUB 32.4 billion and and service companies with the aim of reducing the to access global capital markets. Investment The Group remains one of the leading players in the Budushchee financial group in the amount of burden on the Bank’s regulatory capital; services are primarily sold under the VTB Capital the foreign exchange and derivatives markets, with RUB 11.7 billion. It also organised the first ever Russian adhere to guidelines on repaying economic capital brand. In 2016, the Group maintained its leading market shares of 22% and 30%, respectively. IPO in the sector of pension fund management. allocated for documentary operations. position in various segments of Russia’s investment VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

42 43 According to Dealogic and Thomson Reuters, by the The Group is an active participant in the international The total increase in corporate assets in a fiduciary Research end of 2016, VTB Capital was the market leader precious metals market and a key provider of hedging capacity for 2016 exceeded RUB 174 billion, in ECM in Russia and the CIS with a 27% market solutions to Russia’s leading gold producers. an increase of 20%, or RUB 29 billion. VTB Capital provides research services to clients share, while the American magazine Global Finance representing both economic and corporate recognised VTB Capital as the Best Investment Bank In the spring of 2016, VTB Group prepaid for By maximising its sales model and its spheres in Russia, Eastern Europe, the Middle for equity capital in Central and Eastern Europe. deliveries of aluminium from the Kazakhstan communications with agents, constantly East and North Africa. In 2016, the VTB Capital Electrolysis Plant totalling EUR 300 million. This monitoring client preferences and actively Research Department prepared recommendations Corporate finance According to a number of transaction provided the plant with immediate access working to attract new customers, VTB Capital IM on 140 Russian and international companies information agencies, including Thomson Reuters, to liquidity, guaranteed sales and predictable cash was able to increase its operations with major and produced more than 2,300 publications with Bloomberg and Mergermarket, VTB Capital was the flow. This was VTB’s first transaction of this scale private capital. In 2016, the size of assets under reviews of companies, the macroeconomic situation top M&A consultant in Russia and the CIS in 2016. involving the prepayment of aluminium supplies management grew to RUB 30 billion, which is and specific sectors of the Russian economy. in compliance with the London Metal Exchange three times more than the previous year. At the same time, VTB Group has strengthened its standard. This transaction significantly strengthened Moreover, VTB Capital’s analysts regularly provide position in international M&A markets, providing the Group’s position in commodities markets, VTB Capital Asset Management has repeatedly been independent research on Russian markets, including consulting services to clients in Western Europe, China, while access to the metal ensures VTB Group’s named among the top 10 firms in the retail mutual reports on the fixed-income, equity and commodity Africa and Turkey. According to Thomson Reuters, significant presence in the aluminium market. funds sector by Investfunds.ru. The company’s clients markets. In terms of research, VTB Capital provides VTB Capital was the top consultant in 2016 in terms of have access to 19 unique strategies for investing analytical support to Group companies, customers the number of announced M&A transactions in Central Investment management in the Russian economy and in foreign securities. and partners, as well as government agencies. and Eastern Europe, as well as in India. VTB Group confirmed its ability to provide a comprehensive package The Group offers sophisticated asset management VTB Capital IM continued to expand its range of The Institutional Investor EMEA Research Team of financial services and solutions to customers in solutions on the Russian and international closed-end mutual investment funds, and these Report 2016 ranked VTB Capital’s research team international markets by serving as the sole advisor to markets. These services are offered by subsidiaries were used to implement a range of real estate seventh in the EMEA region, which was the India’s Essar Global Fund in the sale of Essar Oil Ltd to of VTB Capital Investment Management and private equity projects, as well as incentive best result among Russian banks. VTB Capital’s Rosneft and a consortium of investors led by United (VTB Capital IM), one of the key divisions programmes for corporate management. researchers were ranked first among global banks Capital Partners and Trafigura. VTB Capital successfully in VTB Group’s corporate investment business. by investors from Russia, Eastern and Central brokered the sale of a 50.8% stake in Hongri Acron, In 2016, the National Rating Agency and RusRating Europe, and sixth by investors from Western Europe. a factory asset of the Akron group of companies in China, In 2016, VTB Capital IM assets under management assigned the subsidiaries of VTB Capital IM In general, VTB Capital’s EMEA team occupied to the Chinese diversified holding Century Sunshine increased by 20%, exceeding RUB 379 billion. a reliability rating of AAA (maximum reliability), while eight of the leading positions in industry rankings, Group Holdings Ltd, which also produces fertilisers. According to this indicator, VTB Capital IM is among Expert RA assigned an A++ rating (extremely high/ including first place in the transport sector. Russia’s three largest management groups. highest level of reliability and quality of service). Among its other awards, Global Finance magazine named VTB Capital the Best Investment Bank in VTB Capital IM is the market leader in Russia Central and Eastern Europe for the third year in a row. in managing pension funds, endowment funds In addition, the British magazine Euromoney and closed-end mutual funds. It is also one recognised VTB Capital as the Best Investment of the three largest companies in terms of the Bank in Russia for the fourth year in a row. volume of insurance reserves and funds of self- regulatory organisations under management. Commodities markets In 2016, VTB Capital IM conducted successful work VTB Group offers an extensive line of financial in the segment of individual asset management products for commodities markets, including for corporate clients, expanding its client portfolio international and local trade in raw materials, with new pension funds, insurance companies, structured financing and hedging strategies. self-regulatory organisations and endowment funds. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

44 45 Awards received by VTB Capital in 2016 VTB Capital’s major investment transactions in 2016

World’s Best Investment Banks Rosneft Bashneft Essar Oil DP World Russia USD 10.8 billion USD 5.3 billion USD 12.9 billion Undisclosed Best Investment Bank Best Investment Bank Best Investment Bank Best Investment Bank Privatization of 19.5% stake Privatization of 50.1% stake Sale of 98% of Essar Oil Limited Proposed acquisition in Russia in the UK in CEE in Russia to Rosneft, Trafigura and UCP of a 49% stake in NUTEP

Agent of the FASPM Agent of the FASPM Sole Financial Advisor Financial Advisor 2013–2016 2015, 2016 2013, 2015, 2016 2010–2016 2016 2016 2016 2016

World’s Best Investment Banks Pulkovo Airport Private Shareholders of Vnukovo Century Sunshine Group Otkritie EUR 240 million Undisclosed Undisclosed USD 1.45 billion Best Securitisation House #1 Equity Sales Team Best Equity Bank #1 Best Sale of 24.99% stake in Pulkovo Vnukovo Airport Consolidation Acquisition of 50,5% stake Acquisition of Archangelskgeoldobycha Bond Market Sales in EMEA in Russia in CEE in Hongri Acron from Lukoil and Trading Exclusive Financial Advisor Exclusive Financial Advisor Financial Advisor Exclusive Financial Advisor 2009–2016 2009, 2010, 2013–2016 2011–2016 2016 2016 2016 2016 2016

ALROSA Europlan Rusagro Oil Company RussNeft USD 812 million RUB 15 billion USD 250 million RUB 32.4 billion #1 M&A Advisor #1 Russia #1 Russia and the CIS #1 Best Investment Bank Privatization Follow-on Offering Secondary Public Offering Follow-on offering Initial Public Offering in Russia, and the CIS ECM International DCM on the Debt Capital Markets CEE and India Bookrunner Bookrunner in Russia

Joint Global Coordinator and Joint Bookrunner Sole Global Coordinator and Joint Bookrunner Joint Global Coordinator and Joint Bookrunner Joint Global Coordinator and Joint Bookrunner 2016 2016 2016 2016 2016 2016 2016 2016

Best Road Deal in CEE: #1 Transportation Best Event Management: Best Asset Manager M-11 Team in Emerging EMEA in Russia Moscow to St. Petersburg “RUSSIA CALLING!” Toll Road Investment Forum 2016 2016 2013, 2016 2015, 2016

VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

46 47 VTB Capital’s major investment transactions in 2016 Non-banking financial business In 2016, in line with its three-year strategy for 2014–2016, VTB Group continued to develop Along with providing corporate clients with Mid-Corporate banking as a global business banking and insurance services, VTB Group also line, which enabled VTB to strengthen its Russian Federation Bank Otkritie Republic of Cyprus Global Ports Holding offers clients leasing and factoring services. position with mid-corporate clients. USD 3 billion USD 400 million EUR 1 billion USD 750 million Eurobond issue Eurobond issue Eurobond issue Eurobond issue Synergies and cross-selling of banking and non-banking products remains one of the Segment overview11

Sole Lead Manager and Bookrunner Joint Lead Manager and Bookrunner Joint Bookrunner Joint Bookrunner Group’s main development priorities. 2016 2016 2016 2016 Share of VTB Group total, % Leasing Assets 5 Customer loans and advances (net) 7

VTB Leasing is one of Russia’s leading Customer deposits 10 leasing companies. The company has 55 HNA Group Modern Land O1 Properties Polyus Gold Net interest income 9 offices across Russia, as well as subsidiary USD 673 million USD 350 million USD 350 million USD 500 million Net fee and commission income 12 High Yield Eurobond Green Eurobond issue Eurobond issue Eurobond issue businesses in the CIS and Europe. VTB Leasing Provision charge11 13 is one of the top three leasing companies Net operating income 7 Joint Bookrunner Joint Lead Manager and Joint Bookrunner Sole Lead Manager and Sole Bookrunner Joint Lead Manager and Bookrunner in Russia, and one of the top 20 in Europe. 2016 2016 2016 2016 Staff costs and administrative expenses 9 In 2016, the company’s leasing portfolio grew to RUB 380.4 billion, with the volume of new Source: VTB Group IFRS consolidated financial statements for 2016. leasing contracts reaching RUB 114.7 billion. The main sectors of the leasing portfolio remain The merger of the Bank of Moscow with STLC Metalloinvest Russian Railways Rostelecom rail transport, aviation equipment and equipment VTB Bank resulted in the integration of the VTB USD 500 million RUB 15 billion RUB 20 billion RUB 15 billion Eurobond issue Local bond issue Local bond issue Local bond issue for oil production and refining. The share and Bank of Moscow teams, the implementation of transactions in rapidly expanding sectors for of the target model of the unified Bank’s branch

Joint Lead Manager and Bookrunner Joint Lead Manager Joint Lead Manager Joint Lead Manager leasing such as automobiles, freight transport network, the successful transfer to a single IT platform 2016 2016 2016 2016 and specialised machinery continued to grow, for lending to Mid-Corporate banking customers. reaching 14% of the portfolio by the end of 2016. Outside Russia, the Group has been actively working VTB Leasing is continuously improving its with mid-corporate clients in the CIS and Georgia. business processes and developing new programmes to secure customer loyalty. Lending business The company is a member of the preferential lease programme of the Russian Ministry As part of work with its mid-corporate customer of Industry and Trade, and every fifth car base, VTB Bank successfully participated in the produced under the Industry and Trade financing of infrastructure projects, food and programme was funded by VTB Leasing. agricultural production, the pharmaceutical industry and industries focused on import 4.3.2. Mid-corporate banking substitution, as well as on the development of innovative manufacturing and construction VTB Group has targeted the development methods both throughout Russia and of the regional economy, a sector that wherever its subsidiary banks are located represents a significant portion of the in the countries of the CIS and Georgia. company’s Mid-Corporate business.

11 Provision charges for impairment of debt financial assets, other assets, credit-related commitments and legal claims. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

48 49 In 2016, the business was focused on supporting Financing was provided for significant projects isolate and other products in the Far East – the not only for these countries, but for Russia as small and mid-sized enterprises (SMEs). Currently, in the health and pharmaceutical industries: the project provides for the processing of 240 tonnes well, as this compensates for the withdrawal cooperation has been established with the Federal construction of the first nuclear medicine centre of soybeans per year; from the market of goods on the sanctions list. Corporation for the Development of Small and in the Stavropol Region in southern Russia for the construction of a pig farm and meat processing Financing was provided for the construction Medium-sized Enterprises (the Corporation) to work provision of public services related to the diagnosis plant in the Belgorod Region; and upgrading of social services, including out the needs of potential and existing SME clients and treatment of cancer, the construction and fitting- construction of a pig-breeding complex for 2,600 educational institutions, sport complex facilities, for financial support from VTB, as well as support out of a private perinatal centre in Rostov‑on‑Don, animals in the Voronezh Region; as well as the reconstruction of facilities that do tools from the Corporation. In its work to support the reconstruction of a drug production facility liquorice jelly production in Penza; not meet today’s environmental requirements. SME customers, VTB offers a lending programme in the Kemerovo Region, and the construction expansion of the range of products and with favourable terms against the guarantees of a new modern facility for the pharmaceutical improvements in the efficiency of milk production In preparation for the 28th World Winter of the Corporation. Using the Corporation’s tools production of substances for injecting drugs within in the Trans-Baikal Region; Universiade in 2017 in Almaty, VTB Bank for SMEs, it is now much easier for the real sector the pharmaceutical cluster of St. Petersburg. financing for new production of galvanised steel (Kazakhstan) financed the construction of of the economy to access financing for business with polymer coating in the Vladimir Region jointly the event’s most important sports venue, development, including regional production. In the infrastructure sector, the construction with Chinese investors. the Ice Arena. The official opening of the of socially significant facilities were financed, facility was held on 19 September 2016. In 2016, a new preferential loan programme including development projects, such as VTB Bank is also actively involved in a state for agricultural producers was developed Yasno.Yanino in the Leningrad Region. This project programme approved by the Russian Government VTB Kazakhstan signed agreements with and approved by a group of experts, including involves the construction of a modern apartment to Support Investment Projects on the Territory of various national funds for the co-financing VTB. VTB Bank is one of the authorised complex, three kindergartens, a school, a health the Russian Federation Based on Project Financing. of state programmes and subsidies aimed banks taking part in this programme. centre and other infrastructure projects. Under the at promoting the regional development federal programme Contributions for the Creation of In 2016, VTB Bank in collaboration with the of private entrepreneurship and competitiveness In 2016, under the policy of import substitution, New Places in Educational Institutions in Territorial Russian Export Centre carried out a series of and improving access to financial services VTB financed a range of large investment projects Entities of the Russian Federation, financing was marketing activities to extend financial and for companies in the agricultural sector. in the agriculture and food industry, including the provided for a portion of the construction costs non-financial support to export-oriented SMEs. modernisation of sugar factories in the Krasnodar of a comprehensive school in the city of Kirov. In the cities of Stavropol, Rostov-on-Don and As part of its consumer lending, the Group Region, the construction of a new turkey production Krasnodar, VTB Bank collaborated with the continued to work on aligning processes and processing complex in the Tyumen Region, VTB also funded important regional Russian Export Centre to conduct business and technologies, enabling a more adaptive, a high-tech greenhouse complex in the Volgograd projects in other industries: seminars, which included information about customer-oriented approach to the structuring Region, a modern food enterprise for the production the services offered by the SME Corporation. of transactions that takes into account the of buckwheat in the Altai Region and a plant for construction of a plant for the production specifics of each client’s business. the deep processing of wheat and the production of galvanised steel in the city of Murom in the In addition, VTB, the SME Corporation and of feed additives for animals in the Tyumen Region. Vladimir Region, which will replace imported the Russian Export Centre (REC) signed The Group’s banks aimed to bear in mind the Chinese products and create new jobs; a trilateral agreement on cooperation specifics of the macroeconomic situation in the As part of the import substitution policy ensuring the continuity of the railway infrastructure to support export-oriented SMEs. regions where operations were carried out during in the agriculture and the food industry, construction process under the East Landfill the year to actively restructure distressed loan VTB Bank financed projects such as upgrades strategic project in the Far Eastern Federal District; Following electronic auctions in 2016, portfolios, which resulted in terms that were to a poultry complex in the Leningrad organisation of production for the output of a deep VTB Bank concluded several major contracts better suited to the customer’s business, while Region and fish farms in the Republic of wood products company in the Vologda Region, for the provision of credit to regional and still maintaining the quality of the loan portfolio. Karelia, as well as the development of which was included by the Ministry of Industry and municipal executive authorities. dairy production in the Kirov Region. Trade of Russia on its list of priority investment Documentary business projects in forest development; the organisation In 2016, VTB subsidiary banks in the CIS All of the projects funded by the Bank are of great of new production in forest development in the countries and Georgia continued to support the In 2016, in light of the economic downturn, VTB’s socio-economic importance to their respective Kirov Region; development of social infrastructure projects in documentary business focused primarily on the regions, resulting in new jobs and the provision creation of new production for the deep processing the transport sector, the financing of food and development and commissioning of tools and of high-quality local products for residents. of soybean in food and feed meal, soybean oil, soy agricultural production of strategic importance product solutions designed to meet customer VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

50 51 demand, including the financing of foreign Transaction banking In 2016, changes were made to the City Planning for upgrading the Remote Banking System (RBS) trade and protection of customer interests. Code whereby self-regulatory organisations in the was selected, and requirements for the new system In 2016, VTB’s transaction business field of engineering studies, architectural design, were developed. In 2016, a number of RBS services In the context of easing international sanctions continued to enjoy the advantages of its wide construction, reconstruction and the capital repair were modified, and account maintenance services against Iran, VTB resumed servicing the regional presence and the vast experience of capital construction facilities had to place cash were offered for the placement of funds from the foreign trade activities of clients with Iran. in working with mid-corporate clients. for compensation funds in special accounts in compensation funds of self-regulated organisations. authorised credit organisations by 1 November 2016. Customer demand was steady for documentary One of the most important events of 2016 was In a short time, the necessary regulatory framework Optimisation of the banking network products in the area of servicing domestic the successful merger of the Bank of Moscow to arrange systematic work with self-regulatory contracts. In response to new market trends and with VTB Bank. As the legal successor to organisations was developed and approved within In 2016, VTB Group continued its work aimed customer needs, VTB’s banks quickly developed the Bank of Moscow, VTB has carried out extensive the Bank, in close cooperation with the Ministry at optimising regional network costs and new uses for documentary products (guarantees work to migrate the Bank of Moscow’s client base, of Construction, Housing and Utilities of Russia, improving the efficiency of regional divisions. on behalf of consortiums, guarantees for loans and also confirmed and strengthened the position Rostekhnadzor and national associations of self- granted by development funds, guarantees for and functioning of a key financial partner, the city regulating organisations. As a result of these efforts, Targeted actions for vacating facilities for their the housing and communal service sector, etc.). of Moscow. Thus, the Bank ensured best practices about 25% of Russian self-regulatory organisations subsequent sale and the exit from certain in organising the reception and routing of payments met the deadline to open special accounts in the rented facilities enabled the Bank to maximise VTB is working on establishing Russian-market received for housing and utilities from the residents Bank in accordance with the legal requirements. the real estate fund in use and to reduce costs operations for bank guarantees based on work of Moscow, and expanded the list of available for its maintenance by revising lease terms. under new provisions of the Civil Code that services while maintaining a high level of interaction In connection with the adoption of Federal Law entered into force in 2015. In this vein, in October with city structures and agent banks in monitoring No 49-FZ of 2 March 2016 on Amendments to As part of the project to merge with the Bank 2016, a conference entitled “Independent the level of payment collections for utilities. Certain Legislative Acts of the Russian Federation of Moscow and replace the Bank’s target IT Assurance: International Experience and to Improve Legislation Regulating Tourist platform to ensure convenient conditions for Russian Practice” was held in collaboration The Bank continued to participate in the Activity, the Bank implemented a project with the transfer of corporate clients in Moscow and with the International Chamber of Commerce. development of a system for the repair of the the Tourpomosch Association. VTB Bank is a key the Moscow Region, 14 additional offices of common property of apartment buildings. In financial partner of the Tourpomosch Association, VTB Bank’s subsidiary in Moscow were opened. In 2016, VTB Bank improved simplified 2016, VTB Bank maintained its leading position and it opened an account for the establishment of procedures for issuing bank guarantees in servicing regional operators: approximately funds for the personal liability of tour operators. To generate additional synergies by combining secured in full by customer cash or promissory 30% of regional operators selected VTB Bank the banks of VTB Group in the cities of Moscow, notes from the Bank. A number of conditions as their main financial partner. The Bank provides Work continued on promoting transaction Kazan, Saratov, Novokuznetsk, Krasnoyarsk were standardised to streamline the services to more than 7,000 special accounts business products in regional sales outlets. and Vladivostok, the corporate and retail process for documentary transactions. for capital repairs held by regional operators, Work continues on an ongoing basis to agree outlets of VTB and VTB24 were combined. management companies and homeowners. upon individual service solutions for clients, Based on the Bank’s performance in 2016, the including decision-making at the level of individual To centralise key business and administrative trends were positive for the documentary business: In 2016, VTB Bank carried on its tradition of tariffs. Global projects were developed and functions at the branch level, organisational the documentary portfolio of transactions with participating in the annual All-Russian Congress completed, including the Customer Settlement structures at two operational offices in the cities mid-corporate clients grew almost 25% in 2016. In of Regional Operators on Common Property and Centre for corporations and administrations, and of Lipetsk and Tambov were reorganised, with 2016, total fee income for documentary operations Apartment Building Capital Repairs as the sole long-term projects were developed regarding a simultaneous review of their status. This step with mid-corporate clients grew 26% year-on-year. representative of the financial community. To banking support for contracts and more. will reduce personnel costs and improve improve cooperation among its members related the manageability of the regional network Generally, customer demand for the Group’s to capital repairs, a trilateral agreement was Particular attention was paid to product by consolidating decision-making centres. documentary products remained steady. signed in 2016 on cooperation between the Bank, development. To maximise and expand the VTB demonstrated a flexible response to customer the Unified Electronic Trading Platform and the range of services for mid-corporate clients, work Throughout the year, the effectiveness of spending requests and offered interesting product Association of Regional Operators on Common was carried out to broaden relationships within related to the administration and maintenance solutions for services related to letters of credit. Property and Apartment Building Capital Repairs. VTB Group, in particular with Post Bank, and with of the regional network was monitored. the Unified Electronic Trading Platform. A strategy VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

52 53 4.3.3. Retail business second-largest retail lender, increasing its for VTB24, while Post Bank focuses on serving the for clients. The system also automatically selects the market share 2 percentage points to 19.6%. mid- and lower-income customer segments. most suitable communication channel for sending the Segment overview12 offer once it has been generated: via SMS, a phone In 2016, mortgage loans were the main driver VTB24. In 2016, VTB24 continued updating call, automated banking system or other channels. Share of VTB Group total, % of growth in the retail loan portfolio, as the and optimising its product line of lending Assets 27 demand for such loans remained high in Russia, solutions. As part of this product line, the bank Mortgage lending Customer loans and advances (net) 25 and the Group continued to prioritise relatively consistently improved its pricing system – the Customer deposits 47 low-risk products while increasing assets. pricing mechanism has repeatedly been adjusted VTB24. In 2016, VTB24 issued more than 153,000

Net interest income 47 to ensure optimum results in its operation. mortgage loans, with a mortgage portfolio (consisting Mortgage loans reached 45.9% of the Group’s of mortgage and housing loans) valued at around Net fee and commission income 63 gross loans to individuals as of 31 December The bank continued to optimise sales processes RUB 0.9 trillion, which was an annual increase Provision charge12 34 2016, versus 44.6% as of 31 December 2015. and cash loans. Throughout the retail network, the of 14%. At the end of the year, the Bank’s mortgage Net operating income 65 The shares of consumer loans and credit card loans technology for the 1 Visit Application was launched, portfolio included about 650,000 active mortgages. Staff costs and administrative expenses 54 in the portfolio were 43.8% and 5.9%, respectively, whereby in a single visit to the bank, the client can

Source: VTB Group IFRS consolidated financial statements for 2016. versus 43.6% and 6.3% as of 31 December 2015. carry out the entire service cycle for a product from In 2016, VTB24 participated in the implementation The share of car loans dropped to 4.1% by 31 the application for a loan to the receipt of funds. of a state programme providing support for mortgage December 2016 compared to 5.1% a year earlier. lending to provide mortgage loans to buy housing VTB’s Retail Business provides banking services Post Bank. In 2016, strategic cooperation with the in new buildings at a discounted rate of 11.4% per to individuals and small business customers VTB Group loans to individuals, RUB billion Federal State Unitary Enterprise Russian Post allowed annum. In 2016, about 50% of the mortgage loans (the Retail Banking product line). This sector Post Bank to secure the highest organic growth issued by VTB24 were part of this programme. also includes a full range of insurance products 2,176 rate for a portfolio among Russia’s top 25 banks. and solutions (the Insurance product line). 1,945 1,960 VTB24’s active presence in the sector of In 2016, Post Bank significantly improved mortgage lending for housing under construction The core of the Group’s retail business is VTB24, 1,521 1,088 its credit procedures, thereby improving the and its cooperation with the country’s largest 985 the second-largest retail bank in Russia. In addition, 1,020 quality of loans over 2015 while maintaining construction companies enabled customers 1,120 VTB Group’s retail banking services in Russia its approval level. The improvement in credit to purchase new housing compliant with 848 90 100 are provided by VTB Bank, as a universal bank, 130 procedures led to a reduction in the cost of risk current quality requirements under the most 628 while Post Bank specialises in consumer loans. compared with loans issued in 2015. favourable terms, including a reduced interest 133 998 102 795 875 rate for mortgages, and the option of purchasing 540 Lending business 391 VTB Bank. In 2016, VTB Bank launched housing at an earlier stage of construction. the Reduced Loan Payment programme, The stabilisation of the macroeconomic situation in 2012 2013 2014 2015 2016 which involves consolidating all of the loans In 2016, VTB24 maintained its position as a market Russia in the second half of 2016, State anti-crisis held by a customer at a lower interest rate, leader in lending to military servicemen participating subsidy programmes and the reduction of the Consumer, credit cars and other loans including those issued by other banks. in the accumulative mortgage system, with a market key rate by the Bank of Russia enabled banks to Car loans share of about 30%. Mortgage loans worth over significantly improve retail lending conditions and Mortgages Under this programme, the main advantages RUB 16 billion were issued under this programme. proceed in building credit portfolios. Despite this, for customers are the convenience of servicing the banking system continued to be influenced Source: VTB Group IFRS consolidated financial statements for 2016. these loans after their consolidation, the In 2016, VTB24 completed a large-scale, by the economic crisis in 2016 and was impacted option of obtaining additional funds as well as landmark project for the mortgage market by the effects of reduced household income. savings from reduced monthly payments. to manage the mortgage portfolio of the Consumer loans Agency for Housing Mortgage Lending (AHML), In light of this, the Group’s retail loan portfolio In 2016, VTB Bank introduced a platform for real-time whereby over 230,000 mortgage loans were in 2016 increased by 11% to RUB 2,176 billion, As part of the Group’s Development Strategy, interaction-based marketing. This solution provides transferred to VTB24 for servicing. and the Group ended the year as Russia’s high-income customers are the priority category the calculation of a targeted marketing offer that takes into account the current context and the history In 2016, VTB24 continued to support borrowers 12 Provision charges for impairment of debt financial assets, other assets, credit-related commitments and legal claims. of customer interactions with the Bank in real time facing difficult financial situations. In 2016, VTB24 VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

54 55 converted the foreign-currency mortgages held by As a result, more than 75% of sales of new The Bank launched Apple and Samsung Pay for In 2016, VTB Bank implemented a large-scale about 30% of borrowers into roubles. At the same cars on credit involved state subsidies. MasterCard and Samsung Pay for Visa. Since this project to create the infrastructure for cashless time, VTB24 was involved in efforts to help mortgage service was launched, over 40,000 customers have payment for Moscow Metro tickets using bank borrowers in the AHML programme. This programme One of the most important areas of the activated it on their telephones, resulting in an cards. During the year, about 2,000 POS terminals benefited more than 700 mortgage borrowers. automobile loan business is the development accumulated turnover of more than RUB 1 billion on supporting contact and contactless bank card of joint programmes with car manufacturers. cards tied to Apple and Samsung Pay applications, payments were installed at 193 metro stations. VTB Bank. In 2016, VTB Bank’s mortgage In 2016, the Bank launched a joint car loan and the implementation of more than 700,000 sales reached a record volume: 1.5 times programme with Subaru and KAMAZ. operations; In 2016, VTB Bank started issuing debit and payroll more mortgage loans were issued compared The Paperless PIN was launched, whereby customers cards under the MIR payment system, and accepting to 2015. Also in 2016, VTB Bank launched its The largest number of vehicles financed can independently generate the PIN for their card by MIR bank cards from third-party issuers at the own line of mortgage products and completely through VTB24 loans in 2016 were sold in phone; Bank’s ATMs. Technological readiness for the use redesigned online mortgage sales by adding Moscow (25%), St. Petersburg (8%), Kazan (5%), The Mir debit card is now available for VTB24’s of the cards at POS terminals has been ensured. a Mortgages section to the Bank’s website. Krasnodar (5%) and Nizhny Novgorod (3%). customers. VTB Bank launched its new Super3 debit cards. Car loans One of VTB24’s strategic objectives for 2017 In 2016, VTB24 issued about 10 million plastic This is a contactless bank card with the Troika is the development and growth of sales in the and 1.9 million virtual cards, a 12% increase transportation card application that lets users In 2016, VTB24 maintained its leading position segment of used cars through the expansion over the issuance of plastic cards in 2015. pay for travel on Moscow city transport. in the market for automobile loans. Sales of new cars of sales channels (starting with developing in 2016 fell 11%, while the number of automobile a channel for financing the purchase of vehicles In the autumn of 2016, VTB24 launched a mass The card lets users receive up to 5% cash back loans issued by VTB24 in this sector increased 9%. between individuals). In particular, the Bank issue of the Mir national card. By the end of 2016, in the built-in Troika wallet, withdraw cash for free The Bank’s overall sales grew 38% in 2015, including will focus on updating the application and more than 374,000 Mir cards had been issued. and carry out free transfers and payments in remote through the development of a high-demand approval process for car loans to make the channels. Super3 allows its holders free travel segment of the market, i.e. lending for used cars. experience even faster and more convenient. As part of the process for creating the Mir national on the metro and other forms of public transport The share of the used-car segment reached 10%. payment system, VTB24 was able to secure the in Moscow. On average, for every RUB 1,000 that Bank cards and acquiring use of the national card throughout the network is spent, the holder receives one free trip. In 2016, a new product was introduced for of ATMs, active POS terminals and self-service financing used cars sold between individuals. VTB24. By year-end 2016, VTB24 credit cards were terminals. The technological readiness for the VTB Bank has cancelled the fee for money VTB24 is the market leader in this segment recognised as the best in the market by both the Mir card’s online service has been confirmed, transfers from other Russian bank cards to VTB of the automobile loan market. Frank Research Group and Banki.ru. The VTB24 based in part on the MirAccept service, which cards via mobile, online banking or ATMs. Autocard, VTB24 Experience Card, Collection and provides additional customer authentication. When financing a used-car purchase between VTB24 Mir Card were recognised as the best. In 2016, Post Bank launched a new line of individuals, the following main advantages The Bank plans to continue issuing cards featuring Mir cardholders can take advantage of all of credit cards. The Element 120 credit card of the product are worth noting: loyalty programmes to customers, thereby continuing the most popular features on the market at has the longest interest-free period among to increase business profitability due to the high more than 11,000 ATMs, 89,000 POS terminals the top 30 banks. In 2016, the credit card 0% down payment; degree of transaction activity on the cards. and about 13,000 self-service terminals. became a separate product at Post Bank. no insurance collateral; the ability to check the car on the property mortgage In 2016, the sales of credit cards with a credit Contactless payment using a mobile phone has Services for small businesses register; limit almost doubled, reaching 383,000 cards been successfully implemented. In 2016, the the seller is checked for bankruptcies. during the year. In the reporting period, the bank MasterCard cards issued by VTB24 featured the VTB24. In 2016, VTB24 continued its growth issued more than 750,000 debit package services, latest SamsungPay and ApplePay services. in the small business sector (SB). The SB client Transactions for this product are carried out and, taking into account client desertion, the base increased by 8% to 370,000 customers. in a single visit to the Bank’s car loan centre total portfolio at year-end amounted to about Contracts were concluded for membership in the company of a VTB24 employee. 730,000 packets, a five-fold increase over 2015. in major international American Express and In 2016, VTB24 continued developing its transaction UnionPay International payment systems, business model, the basic elements of which were In 2016, VTB24 continued implementing the In 2016, VTB24 implemented the following marketing terms for cooperation were coordinated, the build-up of a liability portfolio and increase programme of Government Subsidies for Car Loans. measures to develop the debit card offering: and certification work is now under way. in commission income. The volume of funds VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

56 57 attracted to the portfolio grew 22% and amounted A commission with a progressive fee scale linked to in compliance with the requirements of the new law. In April 2016, the Bank changed the terms to about RUB 350 billion. Fee and commission the amount transferred has been set up to deal with All of the Bank’s partners are included in the state and conditions for the Savings Account product income increased 17% compared to 2015. transfers from individual accounts to retail accounts; register of entities providing collection services. by introducing a new interest scheme whereby The “Market Place store”, a non-banking service, was customer benefits increase with the length As part of its lending programmes, VTB24 implemented based on the VTB24 Business Online Customer deposits of time funds are kept in the account. continues its cooperation with government system. This store allows clients to learn about institutions that support small businesses: partner services, receive a personalised offer and As of 31 December 2016, VTB Group’s retail Since June 2016, customers have been able request a service; deposits amounted to RUB 3,004 billion, a 4% to open Savings Accounts in VTB24 Online, in 2016, the volume of loans under the SME Bank VTB24 Business Online now features electronic increase from the beginning of the year due to the and since July 2016 through a mobile application programme amounted to RUB 0.5 billion; filing of customer applications for emergency strong positions of the Group’s retail business and as well. In 2016, the Savings Account portfolio RUB 2.8 billion in loans was issued under a guarantee and consulting services for FX control. a change in the preferences of Russian depositors grew to RUB 61 billion, with the total value of the from the SME Corporation/SME Bank; in favour of large systemic banks. The Group’s portfolio at the end of 2015 totalling RUB 7 billion. loans totalling RUB 9.7 billion were issued VTB Bank. In 2016, VTB Bank successfully launched market share in terms of individual deposits in 58 regions under the State programme for the a new sales and service model for small business increased for the year from 10.9% to 11.0%. In 2016, VTB24 revised its interest rates provision of loans under the guarantee of regional customers with a focus on the sale of service on deposits several times, in line with guaranteed funds. packages for settlement and cash services. VTB Group deposits of individuals, RUB billion market conditions. During the year, the Russian market tended towards a decrease In 2016, a total of RUB 13 billion in loans was Asset quality 2,883 3,004 in the profitability of deposits. issued to small business customers under 466 628 2,149 programmes with these organisations. At the beginning of 2016, VTB24 launched Mobile 1,793 390 Post Bank. In 2016, Post Bank updated its line of Collection, a commercial operation of high-tech 1,434 337 deposits and brought a new product to market, 307 2,417 Updates to existing products and new solutions for organising a collector’s workplace. 2,376 the Savings Account. The formation of a clear 1,456 1,759 offers in the Group’s product line for The system allows a collector to access all the 1,127 and attractive line of loan products facilitated: small businesses in 2016 included: information on a debtor and his/her loans while on the road (on their tablet, using secure communication 2012 2013 2014 2015 2016 more than 63,000 new deposits; A new line of service packages for small businesses channels and data encryption). In addition, Mobile more than 295,000 customers who hold Savings was launched. Packages were modified to meet the Collection deals with logistics for the day’s routes Current/settlement accounts Accounts; needs of existing and potential customers; and allows managers to monitor travels. The Term deposits more than 13,500 customers began to have their A special package for clients under the payroll introduction of the VTB24 system led to increased pensions deposited in their Savings Accounts. project was introduced; productivity on the part of field staff, as they were Source: VTB Group IFRS consolidated financial statements for 2016. The “Preparation of Registration Documents” freed from a number of routine operations. In 2016, a platform to work with payroll clients service was launched for individual entrepreneurs; VTB24. Deposits at VTB24 comprise the bulk of and pensioners was created at Post Bank. The “Online Conversion” service was expanded In 2016, VTB24 developed and implemented funds from the Group’s retail customers. In 2016, In a short time, it reached the mid-market pace in Business Online: the time for carrying out a system to work with individuals facing bankruptcy, the Bank focused on expanding its rouble portfolio. for the daily opening of accounts for payroll transactions was extended from 16:00 to 23:50 at including monitoring those in bankruptcy Rates for FX deposits were significantly reduced. projects. All business processes have been any branch, and a conversion option for overdrafts proceedings, the application of restrictions on In November 2016, VTB24 started offering a rouble aligned: Customers – the Bank – Partners. and FX sales by non-residents was implemented; their accounts, a statement of the bank’s claims promotional deposit to customers transitioning The “Reserve Account” service has been as a creditor and the implementation of a practice from foreign-currency deposits; the «Profitable Remote banking services implemented. This service allows customers to to initiate bankruptcy for individual borrowers. Privilege Promo» deposit is offered to holders of the remotely reserve an account number (and begin Privilege package who convert at least 80% of their VTB24. In 2016, the number of active clients to provide billing information to its partners In connection with the adoption and entry into force foreign-currency deposits to roubles. To attract rouble using VTB24 Online’s remote banking and counterparties). Subsequently, when of the Law on the Protection of Rights and Legitimate funds, at the end of the year the Bank launched system (RBS) doubled, reaching 1.7 million, contacting the bank, the client provides a full Interests of Individuals in Carrying Out Activities the 10-20-30 campaign, focused simultaneously and the total number of clients of VTB24 set of documents and is given full access to the to Repay Overdue Debt, VTB24 conducted an inventory on attracting deposits and savings accounts, Online grew by 3.2 million to 7.2 million. previously reserved account; of its debt collection processes. VTB24 and the Bank’s as well as increasing customers’ transaction activity. counterparties acting as collection agencies are VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

58 59 In 2016, VTB24 modernised VTB24 Online In 2016, the total number of SMS notification Transfers and payments 15% of the Bank’s sales of mortgage loans and remote channels to improve the system’s users increased by 1.5 times to 8.2 million, cash loans. The share of car loans reached 2%. functionality and add new features. including 5.3 million customers using the In 2016, VTB24 continued to develop its payment service for free as part of payroll projects. and money transfer services. The number At the end of 2016, the Privilege package Major upgrades to VTB24 Online channels included: of payments made by individual customers showed the following results: In April 2016, the Smart SMS mobile application for the services of various organisations reached New functionality including: remote opening was launched, allowing bank customers connected 50 million, unchanged from last year. customer base: 433,000 people; of Savings Accounts; money transfers to VTB24 to the SMS notification service to receive visual Privilege holders accounted for 42% of the VTB24 clients using a mobile phone number; a 50% statistics on costs, including details about In 2016, VTB24 implemented a convenient deposit base and 74% of the Bank’s savings discount when paying fines; and money transfers the names of stores where transactions were service enabling customers to pay for accounts; within VTB24 using a QR code via the iOS application. carried out. In addition, this information can be utility services in 54 major cities through 20% of VTB24’s credit card portfolio; An expanded range of operations for customers with an stored and compared with data from previous remote banking channels (1,500 utility Privilege holders’ average deposit is integrated services contract through Master Accounts: periods. The app replaces standard SMS apps providers have already provided details). RUB 4.7 million. money transfers to VTB24 clients (legal entities), with extended notifications and the ability to repayment of loans from other banks, and card-to-card categorise expenses. In 2016, the applications The Autopay service allowing mobile-phone In 2016, 14 new dedicated banking offices for money transfers from Master Account cards. user numbers exceeded 130,000. top-ups by automatic direct debit is being Privilege holders were opened, along with 17 A number of measures to improve the stability, developed. In December 2016, this service banking offices featuring dedicated Privilege areas. performance and speed of online banking. Post Bank. Post Bank’s development strategy calls was launched for cellular services provided Privilege holders are serviced at 585 banking Clients can now access the What’s New section to see for reducing operating costs by scaling the model by MegaFon, a major mobile phone operator. offices (approximately one third of the network), the latest updates and innovations, as well as the of available retail services and the widespread use At the beginning of 2017, a similar service including 46 dedicated offices and 539 offices with main features of the application. of remote banking channels. The Bank focuses was introduced for Beeline and MTS. dedicated service areas for premium customers. Infrastructure improvements were carried out on multi-channel work with individuals. In 2016, to improve the stability of the PUSH code transfer work was carried out to get customers to use VTB Bank offered its customers new options VTB Bank. In 2016, VTB Bank launched Altitude, service. electronic channels. Customers can now become for using remote channels in 2016. Now, a new premium package for high-net-worth clients. clients of the bank without visiting a customer users can check their outstanding tax due In 2016, VTB’s remote channels were overhauled, centre by simply registering in any remote service directly from an ATM by searching for an To facilitate account management, clients and a new version of the mobile app for iOS channel, where they will instantly get an Online Individual Taxpayer Number or a Unique can activate up to five status cards of their was made available to clients in November. Card with the attached free package of benefits Identifier of Charges (the payment number choice for personal use or for family members: An updated Android version was launched in early for online customers. Online deposit opening also on the tax document). VTB Bank also now MasterCard World Black Edition/Visa Signature, 2017, as well as an update for online banking. became available in remote service channels. offers the option of paying for traffic fines MasterCard World Elite/Visa featuring or Mosenergosbyt tickets by scanning a QR code. contactless payment technology. Cards can be To further improve the security of its remote An additional remote channel for instant loan opened in any combination, and can be debit banking channels, VTB24 implemented: repayment and topping-up cards and accounts with Services for high-net-worth customers or credit, basic or added-value, as well as in no fee from third-party bank cards was created. different currencies (RUB/USD/EUR). The cards A programme for clients to test the new Software In 2016, VTB24 continued to be active in attracting provide the option of higher credit limits at Token app (available on Android, iOS and Windows VTB Bank. VTB Bank undertook a series customers to the bank’s premium service model. discounted rates, including overdraft protection, Phone) to generate one-time codes for authenticating of measures to encourage customers to use and higher limits for cash withdrawals. and verifying VTB24 Online operations. remote banking channels as a way of reducing VTB24. In 2016, the premium segment of the A programme for clients to test a fraud-prevention the operating load in the branch network. VTB24 customer base – customers registered Private Banking system giving customers the option carry out some for Privilege services – increased by 1.6 times, operations without confirmation. At year-end, 23% of the Bank’s clients were from 279,000 to 433,000 customers. VTB24. VTB24 Private Banking is the market A pilot programme for employees and a focus group active users of the online bank and the mobile leader in Russia’s private banking market. of customers to test biometrics in the Mobile Bank application, and the share of deposit product sales Credit products in the Privilege channel (client Currently, VTB24 has 24 Private Banking offices. (Selfie Entrance in a Mobile Application). through remote channels increased by 25%. relationship managers) accounted for more than VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

60 61 In 2016, new products and services were Investment services for retail customers dealer. The launch of operations with individual ATM as a Sales Channel has been implemented offered to Private Banking clients. Sales were clients on the FX market is planned for 2017. throughout the SST network, allowing launched for Prime NEW, an updated package VTB24 ended 2016 firmly established as one of communications with any bank client. of services for VIP clients. New products for VIP Russia’s leading brokerage firms and banks providing Branch network and ATMs clients include loans secured by Eurobonds, brokerage services to individuals. VTB24 has the A new innovation makes it possible to transfer a structured products provided by the brokerage highest number of registered customers and the As of 31 December 2016, the Group had more than high proportion of transactions involving large service, and a new product to invest in VTB fourth-largest number of active clients on the Moscow 7,700 offices (operating under the VTB24, VTB Bank sums from tellers to the self-service network. Capital’s Residential Real Estate fund. Exchange. At the end of 2016, about 250,000 and Post Bank brands) in Russia, as well as more brokerage accounts belonging to the Bank’s customers than 16,500 ATMs, more than 45% of which are An independent study by Marc Analytics VIP clients can now put together their own team were registered on the Moscow Exchange, including multi-function self-service terminals (SSTs). ranked VTB24 in the top three among peers of investment consultants. Cooperation has about 11,000 individual investment accounts. for customer satisfaction and loyalty across begun with the Bank of Singapore, enabling VTB24. As of the end of 2016, the VTB24 all client segments of the SST network. customers to invest in Asian stock markets. VTB24’s client investment business volumes branch network consisted of 1,076 offices in doubled in 2016 across almost all indicators. 369 cities across 74 regions of Russia. Transaction turnover in the network grew by In 2016, VTB24 saw a 24% increase in VIP RUB 519 billion (18%) compared to 2015, including clients, who now total more than 10,000 Customer transactions on the stock and FX markets During the year, 46 new offices were opened, the turnover of cash deposits in the network, which customers. VTB24 Private Banking’s exceeded RUB 2.1 billion (twice that of 2015). VTB24 and 43 projects were implemented to optimise increased by more than 50% compared to 2015. assets under management grew by ranked sixth in Moscow Exchange’s “Leading Market the existing network. In 2016, 16 low- RUB 132 billion to RUB 864 billion. Operators – Shares: T+ trading” ranking and 10th performing non-format offices were closed. Post Bank. On 6 April 2016, PJSC Leto Bank in the Exchange’s “Trading Participants by Volume officially changed its name to PJSC Post Bank. The portfolio of investment products held by of Customer Transactions” ranking for the FX market. More than half of the offices opened in 2016 VTB24 Private Banking customers reached provide service areas for high-net-worth clients. VTB24 retains 50% plus one share control RUB 100 billion, more than doubling year-on- The average daily volume of margin lending in 2016 In 2016, the number of offices with dedicated of the capital of Post Bank, while 50% minus year. The average credit balance per customer amounted to about RUB 11 billion (twice that of 2015). areas for high-net-worth clients increased from 531 one share is held by Pochtovye Finansy Ltd., at the end of 2016 was RUB 86.2 million. to 585, accounting for 54% of the entire network. a wholly owned subsidiary of the Russian Post. The volume of OTC operations with foreign VTB Bank. In 2016, VTB Bank’s Private Banking securities by the bank’s clients totalled In 2016, VTB24’s SST network increased to 12,538 Leto Bank’s entire regional branch network successfully implemented the following projects: USD 725 million (2.3 times greater than in 2015). units. Over the year, VTB24 purchased 1,967 SSTs, continues to operate under the new Post Bank 884 of which are universal ATMs equipped with brand, while future development will focus A remote service for VIP clients and remote The volume of operations conducted by paying-in and cash-dispensing functions, and 670 on Russian Post branches. In 2016, more confirmation of transactions was launched, VTB24 customers in Moscow Exchange’s are information and payment terminals featuring than 5,700 outlets for banking services were allowing Private Banking clients to carry out a futures and options market exceeded the latest technology for non-cash payments. opened at post offices. By year end 2018, wide range of financial transactions anywhere in RUB 4.3 trillion (a 15% increase over 2015). the bank will be represented at 18,000 the world; In 2016, the number of ATMs with a cash pay-in Russian Post branches across the country. An SMS service is now available for VIP In 2016, the amount of mutual funds raised function in VTB24’s SST network grew by 19%, and clients to receive notifications about account through VTB24 agent points amounted to ATMs with cash recycling tripled in number. In 2016, The total number of active individual clients transactions; around RUB 1.8 billion (up 75% over 2015). the VTB24 self-service network had accessibility reached 3.3 million as of the end of 2016, New agency products for VIP clients are now of 97%, which is 0.6% higher than in 2015. and this is projected to increase to 21 million available with VTB Capital Broker and VTB Capital In 2016, the volume of VTB24 customer by 2023. One of the strategic goals is to reduce Asset Management International; transactions on the FX market exceeded VTB24 improved the client-friendliness of its the share of cash payments in the economy. Payment cards with new designs were issued USD 153 billion, including swap operations. SSTs, as well as SST functionality to replace To achieve this goal, the bank plans to develop in a joint project with the State Tretyakov Gallery teller transactions within the SST network: remote banking channels and to expand its ATM and Visa. The new limited edition is dedicated In 2016, VTB24 established a subsidiary company, network (to 8,000 units) and POS terminals. to an exhibition marking the 200th anniversary VTB24 Forex, which is licenced as a professional A new script for the ATM menu using 3D effects By year-end, Post Bank’s network of ATMs of Ivan Aivazovsky. securities market participant to act as an FX reduces the time to execute each transaction by 30%. featuring cash recycling numbered 2,000 units. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

62 63 Insurance which acquired and guaranteed the fulfilment of of pension reserves under non-state coverage 4.4. Review of financial performance all obligations to MSK Insurance Group clients. totalled RUB 2.2 billion (38% growth). Insurance forms part of the global retail business Financial highlights of 2016 line and is represented by VTB Insurance, VTB Life Insurance, which launched endowment The Fund pursues an investment policy that combines VTB Health Insurance and VTB Life Insurance. life insurance products in 2014 and investment life high profitability and maximum investment security, VTB Group’s net profit in 2016 was RUB 51.6 billion. insurance in 2015, grew its sales to RUB 13 billion. ensuring the preservation and accrual of customer Net interest income increased by 43.5% VTB Insurance is one of the fastest-growing players In 2016, the Company concluded 10,000 investment life funds. In 2016, the yield on pension savings to RUB 415.0 billion. in the Russian insurance market. Premium volumes insurance contracts and 5,000 endowment insurance allocated to the Fund’s customer accounts reached Net fee and commission income rose by 7.3% have increased more than seven-fold over the past contracts. VTB Life Insurance is firmly established among 10.3%. The yield on pension reserves as part of to RUB 81.8 billion. five years, making VTB Insurance one of the 10 Russia’s 10 largest life insurance companies, and the programme for non-state provision of pensions The total provision charge rose by 18.6% year-on-year largest insurers in Russia. Standard & Poor’s has continues to increase its market share, which reached through a well-balanced portfolio amounted to 8.9%. to RUB 211.2 billion. The cost of risk, including assigned VTB Insurance a financial stability rating 5.8% in 2016, up 0.8 percentage points over 2015. provisions for credit related commitments, amounted of BB+, the highest given to an insurance company As of the end of 2016, the Fund served to 2.0% in 2016 compared to 1.7% in 2015. with Russian capital. VTB Insurance was also As part of developing its compulsory health more than 1.3 million customers. The Group improved its cost efficiency in 2016: the assigned the highest reliability rating by RAEX. insurance business in 2016, VTB Insurance ratio of costs to operating income before provisions incorporated two insurers specialising In the first nine months of 2016, the Fund was Russia’s decreased to 45.8% for 2016 versus 53.8% for 2015. At the end of 2016, VTB Insurance’s volume in compulsory health insurance in the Lipetsk seventh-largest by pension assets under management. In 2016, on top of ongoing cost management efforts, of business totalled RUB 63 billion, a 31% Region. VTB insurance also agreed to acquire the Group kept its staff costs and administrative increase over 2015. At the same time, Russia’s one of Russia’s largest health insurers, ROSNO- In January 2017, the RAEX ratings agency granted expenses in check, which grew just 5.4% year-on-year to insurance market grew by less than 15% in 2016. MS. After the merger of ROSNO-MS and VTB the Fund a rating of A++ (“exceptionally high RUB 233.9 billion (on par with price inflation). VTB Insurance’s market share by volume of premiums Health Insurance, the VTB Insurance subsidiary level of reliability”), with a stable outlook. Capital adequacy remained strong: at the end of 2016, earned increased from 4.6% in 2015 to 4.9%. will become Russia’s largest compulsory the Group’s Tier 1 capital adequacy ratio was 12.9%. health insurer with 24 million customers. In 2016, as part of the Non-State Pension Provision In 2016, VTB Insurance’s retail business grew by (NSPP) product, the Fund launched a unique a rapid 75%. Premiums in the retail business reached 4.3.4. Other non-banking financial business service to conclude NSPP contracts online RUB 50 billion. Corporate insurance (excluding on the Fund’s website and allowing payment compulsory state personal insurance) grew by 14%, VTB Pension Fund of premiums through NSPP contracts using with premiums reaching RUB 13 billion. The company points under VTB24’s Collection programme. paid out a total of RUB 10 billion for the year. VTB’s non-state Pension Fund is one of the fastest- growing non-state pension funds in Russia and VTB Insurance strengthened its position both in a leading player in the Russian market, providing VTB Group key financial highlights13 14 the insurance market as a whole and in individual a full range of services for compulsory pension segments. The company is the market leader for insurance and non-state retirement benefits, RUB billion 2016 2015 Change accident insurance, and among the top three for including corporate pension programmes. Net interest income 415.0 289.1 43.5% financial risk insurance and personal property Net fee and commission income 81.8 76.2 7.3%

insurance. VTB also ranks among Russia’s 10 largest In 2016, the Fund was elected to the Board of the Provision charge for impairment 13 (211.2) (178.1) 18.6%

insurers in markets such as corporate property National Association of Non-State Funds (NSF) and Staff costs and administrative expenses (233.9) (221.9) 5.4% insurance, comprehensive insurance for aircraft and has been actively involved in developing the legal Net profit 51.6 1.7 x30 watercraft, voluntary health insurance and more. It framework for the next stage of pension reform. Gross loans and advances to customers, including those pledged under is also one of the 10 largest Russian reinsurers. repurchase agreements 9,487.0 10,110.0 -6.2% As of year-end 2016, the Fund managed Customer deposits 7,346.6 7,267.0 1.1% Since 2014, VTB Insurance has served as the RUB 130 billion, a 15% increase over the Net interest margin 3.7% 2.6% 1.1 p.p. parent company of an insurance group that previous year. The amount of pension savings includes the subsidiaries VTB Life Insurance and (compulsory pension insurance) totalled RUB 13 Provision charges for impairment of debt financial assets, other assets, credit related commitments and legal claims. VTB Health Insurance. In 2016, MSK Insurance 125 billion (15% growth), while the amount 14 Provision charge for loan impairment and provision charge for impairment of credit related commitments divided by average gross loans and advances to customers (including financial assets classified as loans and advances to customers pledged under repurchase agreements) Group was incorporated into VTB Insurance, and average credit related commitments. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

64 65 RUB billion 2016 2015 Change Total fee and commission income in 2016 Total fee and commission expenses Costs to average assets 1.8% 1.8% - increased by 11.3% year-on-year, amounting to increased by 24.6% in 2016, mainly due Cost of risk (including credit related commitments)14 2.0% 1.7% 0.3 p.p. RUB 109.7 billion. The bulk of fee and commission to growth in fees and commissions on

Tier 1 CAR 12.9% 12.4% 0.5 p.p. income came from settlement transactions settlement transactions and trade finance.

Return on equity 3.6% 0.1% 3.5 p.p. and trade finance, accounting for 57.7% of the overall amount, up from 55.9% in 2015.

Income statement analysis this amounted to RUB 1,107.8 billion, slightly Net fee and commission income higher compared to 2015 (+0.6% year-on-year). Net interest income and net interest margin RUB billion 2016 2015 Change Net interest income increased by 43.5% to Commission on settlement transactions and trade finance 63.3 55.1 14.9% Interest income on loans and advances RUB 415.0 billion on the back of the repricing Commission on guarantees and other credit related commitments issued 13.3 14.7 -9.5%

to customers, debt securities and amounts due of the Group’s assets and liabilities, and the Commission on operations with securities and capital markets 8.6 10.2 -15.7%

from other banks represent one of the main resumption of growth of higher-margin retail Agents’ fee received for insurance products distribution and other services 9.4 8.3 13.3% sources of the Group’s operating income. In 2016, lending. As a result, net interest margin rose to Commission on cash transactions 6.2 5.2 19.2% 3.7% in 2016 compared to 2.6% in 2015. Other 8.9 5.1 74.5%

Interest income Total fee and commission income 109.7 98.6 11.3% Commission on settlement transaction and trade finance (19.7) (14.2) 38.7%

RUB billion 2016 2015 Change Commission on operations with securities and capital markets (3.5) (2.5) 40.0%

Financial assets at fair value through profit or loss 19.5 21.1 -7.6% Commission on cash transactions (3.0) (2.9) 3.4%

Loans and advances to customers 1,017.8 1,011.7 0.6% Other (1.7) (2.8) -39.3%

Due from other banks 48.0 51.5 -6.8% Total fee and commission expense (27.9) (22.4) 24.6%

Other financial assets, including securities 22.5 16.6 35.5% Net fee and commission income 81.8 76.2 7.3% Financial assets not at fair value through profit or loss 1,088.3 1,079.8 0.8% Source: VTB Group IFRS consolidated financial statements for 2016. Total interest income 1,107.8 1,100.9 0.6% Source: VTB Group IFRS consolidated financial statements for 2016. Provision charge for impairment of the Bank of Moscow. The Group’s ratio of costs to average assets was unchanged Interest expense In 2016, the Group’s provision charge for compared to 2015 and amounted to 1.8%. impairment of debt financial assets and other RUB billion 2016 2015 Change assets, credit-related commitments and Net profit Customer deposits (475.0) (441.6) 7.6% legal claims amounted to RUB 211.2 billion, Due to other banks and other borrowed funds (151.9) (287.5) -47.2% an increase of 18.6% year-on-year. Net profit amounted to RUB 51.6 billion in 2016,

Debt securities issued (32.4) (49.9) -35.1% due to a significant increase in income from core

Subordinated debt (21.5) (24.1) -10.8% Cost of risk, including credit related business activities, including a 43.5% year-on- commitments amounted to 2.0% in year increase in net interest income, and a 7.3% Total interest expense (680.8) (803.1) -15.2% 2016 compared to 1.7% in 2015. increase in net fee and commission income. Payments to deposit insurance system (12.0) (8.7) 37.9%

Net interest income 415.0 289.1 43.5% Staff costs and administrative expenses Analysis of the statement of financial position Source: VTB Group IFRS consolidated financial statements for 2016. Cost-cutting measures helped to constrain Assets Net fee and commission income Retail business and of Transaction banking products the rise in staff costs and administrative and services helped the Group to achieve a record expenses to only 5.4% year-on-year (on par with As of 31 December 2016, the Group’s total Growing fee and commission income remains one net fee and commission income of RUB 81.8 billion price inflation in Russia), to RUB 233.9 billion, assets amounted to RUB 12,585.5 billion, of the Group’s priorities. The development of the for the year, an increase of 7.3% year-on-year. despite one-off expenses from the integration down 7.7% compared to 31 December 2015. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

66 67 The Group’s loan portfolio contracted by 6.2% to The Group’s retail loan book increased by Asset quality Liabilities RUB 9,487.0 billion due to a decline in loans to 11.0% during 2016, significantly exceeding the 105,8% 104,6% legal entities during the first quarter of 2016. This growth of the Russian retail lending market, Total liabilities decreased by 8.3% in 672.5 was driven by the repayment of several large FX- which grew only by 1.1% during the year. 635.4 632.5 2016, amounting to RUB 11,175.3 denominated loans, as well as the strengthening of 604.4 billion as of 31 December 2016. the Russian ruble and the corresponding revaluation of loans denominated in foreign currencies. As of 31 December 2016, customer deposits amounted to RUB 7,346.6 billion, up 1.1% from Assets the end of 2015. As of the end of 2016, customer deposits accounted for 65.7% of the Group’s total RUB billion 2016 2015 Change liabilities versus 59.6% at the end of 2015. Cash and short-term funds 452.9 570.7 -20.6% 2015 2016

Mandatory cash balances with central banks 95.1 70.8 34.3% Allowance for loan impairment / non-performing loans Non-derivative financial assets at fair value through profit or loss, including pledged under repurchase agreements 267.1 308.1 -13.3% Allowance for loan impairment (RUB bn)

Derivative financial assets 180.5 304.8 -40.8% Non-performing loans (RUB bn)

Due from other banks, including pledged under repurchase agreements 1,051.2 1,358.2 -22.6%

Loans and advances to customers, including pledged under repurchase Source: VTB Group IFRS consolidated financial statements for 2016. agreements 8,854.5 9,437.5 -6.2%

Investment financial assets, including pledged under repurchase agreements 340.7 353.3 -3.6% Liabilities Investments in associates and joint ventures 90.6 104.3 -13.1%

Assets of disposal groups and non-current assets held for sale 15.6 15.8 -1.3% RUB billion 2016 2015 Change

Land, premises and equipment 352.7 310.3 13.7% Due to other banks 1,208.9 1,224.0 -1.2%

Investment property 235.5 245.0 -3.9% Customer deposits 7,346.6 7,267.0 1.1%

Goodwill and other intangible assets 155.1 162.0 -4.3% Derivative financial liabilities 165.0 284.1 -41.9%

Deferred income tax asset 87.8 76.6 14.6% Other borrowed funds 1,307.2 2,121.5 -38.4%

Other assets 406.2 324.5 25.2% Debt securities issued 399.6 623.5 -35.9%

Total assets 12,585.5 13,641.9 -7.7% Liabilities of disposal groups held for sale 2.2 13.0 -83.1% Deferred income tax liability 35.2 30.2 16.6% Source: VTB Group IFRS consolidated financial statements for 2016. Other liabilities 486.5 361.7 34.5% Asset quality level of 104.6% as of 31 December 2016, Total liabilities before subordinated debt 10,951.2 11,925.0 -8.2% compared to 105.8% as of 31 December 2015. Subordinated debt 224.1 262.8 -14.7%

As of 31 December 2016, the share of non- Total liabilities 11,175.3 12,187.8 -8.3% performing loans (NPL)15 in gross customer As of the end of 2016, the amount of loans Source: VTB Group IFRS consolidated financial statements for 2016. loans including those pledged under and advances to customers written off repurchase agreements amounted to 6.4%, up amounted to RUB 161.8 billion compared 0.1 p.p. compared to 31 December 2015. to RUB 159.7 billion in 2015. Capital and capital adequacy

The allowance for loan impairments reached 6.7% VTB Group continues to maintain strong capital ratios were 14.6% and 12.9%, respectively, versus of the total loan book, on par with the 2015 result. adequacy levels. As of 31 December 2016, 14.3% and 12.4% on 31 December 2015. The NPL coverage ratio remained at a comfortable the Group’s total and Tier 1 capital adequacy

15 Non-performing loans are loans that are in arrears for more than 90 days. Principal and interest payments are included in the calculation of non-performing loans. The NPL ratio is calculated as the share of the total amount of loans, including financial assets classified as loans and advances to customers pledged under repurchase agreements. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

68 69 Capital and capital adequacy VTB Group’s risk appetite is detailed through the The standard organisational structure of the establishment of specific quantitative and qualitative Group’s banks and financial companies includes an RUB billion 2016 2015 Change indicators, with corresponding reference values. The independent risk assessment and control division Tier 1 capital 1,273.5 1,315.8 -3.2% risk appetite includes quantitative indicators that can that corresponds to the appropriate risk profile and Tier 2 capital 222.4 259.3 -14.2% be allocated to VTB’s business lines, VTB Group’s scale of the business, as well as a senior manager

Deducted: equity investments in financial institutions and subordinated companies and along other levels of allocation. responsible for comprehensive risk management. debt provided (56.9) (59.2) -3.9% Total capital after deductions 1,439.0 1,515.9 -5.1% The key principles of the Group’s risk To coordinate risk management policies and Risk-weighted assets 9,872.7 10,630.1 -7.1% management system also include: practices across the Group, and to implement

Tier 1 capital ratio to total risk-weighted assets 12.9% 12.4% 0.5 p.p. and improve the analysis of consolidated risk Compliance with legal and other mandatory management procedures, a number of collective Total capital ratio to total risk-weighted assets 14.6% 14.3% 0.3 p.p. requirements; bodies report to the VTB Group Management Source: VTB Group IFRS consolidated financial statements for 2016. Transparency of risk-associated activities for Committee. These collective bodies include: shareholders, investors and other interested parties, 4.5. Risk management As a high level overview, the Group’s risk appetite taking into account their interests; The Group’s Risk Management Committee, includes the following key provisions: Analysing and managing risks on a consolidated basis, including its Commission on the Introduction of Risk Policy, organisation and structure of risk management covering all of the Group’s Russian and foreign banks, Management within VTB Group; The size of potential losses on risks accepted by the as well as its key financial companies; The Group’s Credit Committee; VTB Group level risk management Group should not reach such a level that would lead to Optimal distribution of risks within the Group; The Group’s Retail Risk Committee: the cessation of the Group’s operations, including under minimising exposure and potential losses from risks in The Group’s Finance Committee, including its The main risks that VTB Group is exposed to are stress conditions; national and international markets; subordinate Assets and Liabilities Commission.17 credit risk, market risks (including risks associated The Group must have enough capital to secure the Developing a risk management culture within the with changes in the market prices of financial interests of creditors in the hypothetical (extremely Group’s companies, including improving employees’ Control over the risk management organisation instruments, interest rates and foreign exchange unlikely) event of unexpected losses as a result of risks skills in terms of identifying and preventing possible policy within the Group’s companies is carried out rates), liquidity risk and operational risks. taken; risks and losses in their areas of responsibility; on a systematic basis, primarily through corporate The structure of the Group’s operational cash flow and Providing the risk management function with sufficient governance (including through the representation Risk management at the Group level includes risk liquidity buffers should ensure the timely fulfilment of resources, introducing modern methods for assessing of VTB Bank on subsidiaries’ supervisory councils/ identification, evaluation and monitoring; control obligations to clients in the short and long term; and monitoring risks based on industry best practices. boards of directors). Key internal regulations over the size, structure and distribution of risks; The structure of assets and liabilities must ensure the of subsidiaries related to risk management are identification of effective measures to optimise and efficient use of resources and comply with the Group’s The Group’s risk management system has a multi- approved by governing bodies, taking into account minimise risks; and compiling regular risk reports. business model; layered structure, which includes consolidated the contribution of the specialised risk divisions. As part of its operations, the Group must try to (Group-level) and local-level risk management, One of the key principles of risk management at avoid a high degree of concentration of credit risk with a high degree of centralisation of the Group’s During the year, the Group continued implementation VTB Group is to manage the activities of the Group, in counterparties, industries and countries/regions with risk management function. The risk management of the strategy for the development of VTB considering risk appetite, which is determined a high level of risk; system is built around the Group’s global Group’s risk management system for 2014–2016, in accordance with regulatory requirements and Sustainable development and economic efficiency business lines (Corporate-Investment Banking, as well work on the long-term development international practice. This approach involves the in the long term; Mid-Corporate Banking, Retail Banking) and programme for the Bank for 2014–2018 approved identification and oversight of indicators of the Compliance with the national regulators in countries is based on the harmonisation of approaches by the Bank’s Supervisory Board, including: Group’s overall risk target level and risk profile where the Group operates, as well as with the standards to managing the main types of risks, including in accordance with its strategic objectives and and recommendations of international agencies;16 through the coordination of activities by specialised Phased implementation of the concept for risk the integration of risk appetite into business Maintaining an impeccable reputation, avoiding actions risk divisions of VTB Bank and the Group. appetite within VTB Group; planning and risk management procedures. that could result in harm to the Group’s reputation; Improvements to the system for limiting risk, Maintaining and improving credit ratings granted by including introducing limits on the level of international rating agencies (without state support). 17 In November 2016, a new working collegiate body was established, the Committee for the Management of Group Assets and Liabilities. Functional development and other procedures for the formation of the committee are ongoing; it is planned to include decision-making 16 The Basel Committee on Banking Supervision, European Central Bank and others. in the area of coordinating liquidity risk and market risk management for the Group in the scope of the Committee’s responsibilities. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

70 71 expected losses on transactions subject to credit VTB Bank’s policy aims to create an integrated Credit risk Assessing the capital necessary to cover the Group’s risk, and setting limits on operations of the risk management system that corresponds credit risks; Treasury portfolio that are subject to market risk; to the nature and scale of the Bank’s Credit risk is the risk of financial loss Maintaining a centralised database of Group The method for calculating the requirements for operations and risk profile, and that enables (loss of revenue or additional expenses) borrowers, including those requiring particular capital adequacy for significant risks based on further development of the business. should a borrower/counterparty/issuer fail attention; internal models (economic capital) was refined to to meet its contractual obligations. Preparing regular consolidated financial statements meet the requirements of the Bank of Russia; The Bank’s risk management is developed and regarding the Group’s credit risk and submitting them Models for credit risk assessment were fine-tuned, improved in accordance with banking best VTB Group is exposed to credit risk through its to the Group’s governing bodies for review. based on an internal rating system in accordance practices, regulations and recommendations loan portfolios, securities portfolios, guarantees, with the requirements of the Bank of Russia; of the Bank of Russia, as well as generally letters of credit, derivatives portfolios and other Consolidated risk management covers the most Development projects for the risk management accepted international standards. credit-related contractual commitments. essential assets and off-balance-sheet operations of IT infrastructure and reporting tools for risk were the Group’s companies that bear credit risk and that implemented. In terms of organisation, VTB Bank’s risk VTB Group level credit risk management require control over their concentration within the Group management system comprises the Supervisory as a whole. Within the context of consolidated control VTB Bank level risk management Council, executive bodies, credit committees, Credit risk at VTB Group is managed simultaneously and reporting, the scope and range of such operations the Assets and Liabilities Committee, the at the local level with VTB Group companies is determined by the Group’s coordinating bodies. The Bank’s main internal documents Credit Risk Management Committee and and at the Group (consolidated) level. specify key principles of and approaches other special committees and structural units Specialised units within VTB Bank that are not part of to the organisation and development of its involved in risk management processes. Within the framework of the local credit risk the Risk Department (including the Corporate Business risk management system, including: management system, Group companies assume Support Directorate and the Non-Core Bad Assets The division responsible for developing the risk and manage credit risks independently (including Department) work to identify, monitor and resolve The Regulation on the VTB Bank Risk Management management system and controlling the credit, insurance and hedging risks), within the scope potential problems and bad debt at the Group level. System, designed in line with the Procedures market and operational risks within VTB Bank and of their authority and limits with regard to risk endorsed by the Russian Government and VTB Group is the VTB Bank Risk Department. As of indicators, and in accordance with national In 2016, VTB Bank set up a specialised unit under approved by the Supervisory Council on 16 the end of 2016, it comprised the following units: regulations and Group standards. VTB Group’s the Retail Credit Risk Department—the group for risk November 2015; companies are responsible for the results of their management in subsidiary banks—with the aim of VTB Bank’s Strategy for Managing Risk and Capital, Corporate Business Support Directorate; lending activities and the quality of their loan centralising retail risk management in its subsidiary developed in accordance with the regulatory Industry and Public Company Analysis Service; portfolios, and also for monitoring and controlling banks. This unit is the competence centre responsible requirements of the Bank of Russia and subject Credit Risk Division; the credit risks associated with their portfolios. for the development of common approaches and to revision at least once a year to update its Operational Risk Division; procedures for retail credit risk management; the provisions. Retail Credit Risk Division; The key elements of the Group’s consolidated centralised, systematic evaluation of such risk; and the Market Risk Division; credit risk management are as follows: formation of an optimal structure for retail credit risk In 2016, VTB Bank’s Strategy for Managing Strategy, Methodology and Consolidated Risk taken by the Group, including with regard to compliance Risk and Capital was updated twice, and the Analysis Division; Harmonisation of credit policies (credit risk with the Group’s risk appetite. VTB’s subsidiary banks new editions were approved by the Supervisory Loan Application Division. management policies) of the Group’s companies; that perform the above-mentioned operations are Council on 29 January and on 2 November. Development and adoption of common standards guided by a set of documents approved by the Group’s As part of the merger of the Bank of Moscow and (principles and methods) concerning credit Management Committee that establish standards and The main strategic objective in the field of risk VTB Bank in 2016, a special unit – the Retail procedures and managing credit risk to be used approaches for managing retail lending risks at the management is to minimise potential financial Credit Risk Division – was set up under the Risk throughout the entire Group (including the level of each subsidiary bank and at the Group level. losses from exposure to the risks faced by Department to manage retail credit risk at the Bank. methodology for assessing counterparties, pricing the Bank’s operations, ensuring financial The main purpose of this structural division is to credit operations, security, monitoring, backup, VTB Bank level credit risk management strength and sustainable growth for the Bank ensure the effective functioning and development stress testing); in accordance with the strategic objectives of the Bank’s retail credit risk management system. Establishing consolidated limits and other VTB Bank manages credit risk by: specified by the Supervisory Council. restrictions within the Group (including limits on counterparties/groups of related counterparties, Restricting credit risk through the Bank’s existing large transactions, countries, industry sectors); system of limits, which comply with the Bank VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

72 73 of Russia’s mandatory regulations and other Key areas (methods) for managing credit risk of the national regulator and the recommendations by the Assets and Liabilities Management requirements. They are regularly reviewed by the at VTB Bank are determined by the credit risk of VTB Bank; Committee. The liquidity accounting standards VTB Risk Management Department and approved by management policy (credit policy). The main tool VTB manages the Group’s liquidity by centrally of the Bank of Russia are also applied when VTB Bank’s authorised collective body; for credit risk mitigation and control over their controlling and managing the key measures taken by carrying out forecast liquidity management. Accepting collateral and insurance to cover credit levels is the system for establishing credit limits. the Group. risks, charging adequate fees for the credit risk and Long-term liquidity forecasts and risk analysis establishing provisions for possible loan losses; The main types of credit risk limits are: Methods for controlling and reducing across VTB Group and within VTB Bank are carried Assessing the level of credit risk assumed by the liquidity risk groups include: out by the Market Risk Division. The results of the Bank for each counterparty, as well as regularly Limits on the aggregate level of credit risk for the loan analysis are presented in a consolidated report monitoring the credit portfolio, individual customers, portfolio overall and for individual segments; monitoring compliance with the established appetite to the Bank’s Assets and Liabilities Committee, transactions and collateral (including by ranking Limits restricting the level of risk for a particular customer for liquidity risk; the Group’s Management Committee and the borrowers); (or group of related customers). These limits include monitoring compliance with the regulatory limit set Assets and Liabilities Commission operating Preventing credit risk at the loan application review limits for operations with a customer (group of related by the Bank of Russia for the short-term liquidity of a under the Group’s Finance Committee. stage, and taking prompt measures as soon as credit customers), including sub-limits for various types of banking group. risk factors have been identified through monitoring. operations with a credit risk/designated purpose (credit, Each forecast includes receivables and payments documentary limits, limits on trading activities, limits on VTB Bank level liquidity risk management according to the contractual terms for operations, The Bank applies the following main methods transactions with debt securities, etc.); while also taking into account the following: of credit risk assessment: Limits on the concentration of credit risk (by industry, The Bank has current and forecast country, major counterparties, credit products); liquidity risk management in place. Planned transactions; Determining a customer’s level of creditworthiness Credit and deposit limits are established for credit Possible extension of clients’ funds (deposits and by analysing financial indicators and conducting an organisations (including overdraft sub-limits, Managing current liquidity entails short-term promissory notes); expert assessment (in compliance with the Bank’s nostro accounts, provision of funds), limits on forecasting and management of cash flows in Possible outflows of unstable “on-demand” capital internal procedures for ranking); the level at which trading operations, limits on transactions with debt respect of currencies and terms (time frames). (clients’ settlement and current accounts, as well a customer (or group of related customers) is ranked securities, and limits on contingent liabilities; In this way, the Bank can ensure that it will meet as Loro accounts). is taken into account when determining the cost Limits in accordance with the requirements its obligations, complete settlements on behalf levels of loan transactions; (mandatory regulations) of the Bank of Russia. of its customers and fund ongoing operations. In addition, the Risk Division conducts stress Analysing the level of concentration of the Bank’s testing to assess risk factors that can have credit risk for individual borrowers (or group of The Bank employs software to reduce credit risk. Current liquidity management is carried out an impact on the Bank’s liquidity forecast. related borrowers), the industry, country, customer by the Treasury Finance Department based segments, types of credit products; Liquidity risk on a real-time (intraday) determination of the Liquidity gaps are closed through new Estimating possible losses from credit risk in the Bank’s current payment position and forecast borrowings and the renewal of existing process of calculating and creating provisions for VTB Group level liquidity risk management future payment position, taking into account deposits. The Group’s medium-term liquidity possible losses (in compliance with the requirements the payments schedule and other scenarios. is managed by attracting interbank loans and of the Bank of Russia and IFRS); Liquidity management is applied at the customer deposits, repo transactions and Assessing capital adequacy and the scale of credit Group level based on bylaws approved The objective in forecast liquidity management secured loans from the Bank of Russia. risk when calculating the required ratios established by the Group’s Management Committee. is to develop and implement instruments to by the Bank of Russia; manage assets and liabilities to support the The currency structure of liquidity is managed Determining internal capital needs (economic capital Within the Group, liquidity management Bank’s instant funding capability, and to plan by conducting conversion swap transactions. calculation) for credit risk, taking into account the is based on the following principles: increases in its asset portfolio by optimising actual quality of the loan portfolio (as required by the the ratio of liquid assets and profitability. A significant proportion of VTB Group’s liabilities Bank of Russia and under Basel II)18; Each bank/company within the Group manages is represented by customer deposits (deposits, Conducting stress testing of loan portfolio losses, its own liquidity on a separate basis to meet its The Bank achieves this by making long-term promissory notes, current accounts of corporate taking into account different macroeconomic obligations and to comply with the requirements liquidity forecasts and by adhering to internal and retail customers), resources from the Bank scenarios. liquidity standards (standards for liquid and of Russia, interbank deposits and Eurobonds. highly liquid assets and the liquidity standard for 18 Approach based on internal credit ratings. the Treasury securities portfolio), as formulated VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

74 75 Although a considerable portion of customer Market risk limits, including internal OCP and VaR (Value- applicable for the calculation of VaR for market risk liabilities are short-term deposits and “on-demand” at-Risk) limits and regulatory OCP limits. associated with the Group’s securities portfolio. accounts, the diversification of these liabilities Market risk is the risk of downward pressure on and VTB’s past experience indicate that these the Group’s financial results or the capital base Approved stress scenarios are used to calculate VaR is calculated by using historical modelling liabilities are consistently refinanced by customers due to adverse changes in the value of the Group’s the capital required to cover VTB Bank’s open over a period of two years with a one-trading-day and that they are, for the most part, a stable assets/liabilities (claims/liabilities) as a result currency risk structural OCP. A VaR assessment time horizon and a confidence interval of 95%. source of funding. The stable element of short-term of market conditions, i.e., risk factors (such is carried out using the VaR method to monitor customer liabilities is determined for various as exchange rates, interest rates, the yield on debt the established risk appetite index for structural Due to the limited liquidity in the Russian market currencies using a statistical trend analysis of the securities and credit spreads, stock quotes and OCP. The VaR assessment is used to estimate the for corporate fixed-income instruments (typical for cumulative balances of these accounts over time. stock market indices, commodity prices, etc.), largest potential negative effect (within a specified emerging markets), the selection of historical data as well as due to changes in the volatility of these confidence interval) of changes in the value of FX concerning quotes was based on the following Money-market instruments (interbank loans and indicators and correlations between them. positions on the Group’s financial performance. The approach: historical data was used for instruments deposits, repurchase agreements) are used to VaR assessment is conducted via historical modelling with a quote history of at least 200 trading days control short-term liquidity, and are not considered Interest rate risk over a period of two years with a one-trading-day in the previous year, no more than 10 successive as a source of funding for long-term assets. time horizon and a confidence interval of 95%. trading days without quotes, and an issue date no Interest rate risk management is based later than the beginning of the reporting year. Methods for controlling and reducing on VTB Group’s bylaws and includes: Market risk on trading operations liquidity risk include: VaR is assessed for less liquid securities Setting standard interest rates for deposits and The Group’s securities portfolio is exposed to the that do not meet the above requirements by Monitoring compliance with established internal limits internal rates for funding, taking into account current risk of losses resulting from changes in the market using historical data on comparable (proxy) and regulations, including appetite for liquidity risk; market conditions; prices of securities, commodities and stock indices. instruments that meet the following criteria: Analysing liquidity risk using a set of quantitative Calculating interest rate risk (ECap, etc); and qualitative indicators; Setting capital limits for covering the interest rate risk To limit price risk, the Group’s Management The proxy instrument should be the same type of Implementing forecasting, situational modelling for the Group and individual banks. Committee sets/revises on an annual basis, financial instrument as the original instrument; and stress testing of the Bank’s liquidity; the Group’s appetite for market risk (including The issuer of the proxy instrument should be from the Monitoring calculated gaps taking into account the The basic parameters used to assess interest rate risk are: stress-test limits, VaR limits and limits on same sector and country as the original instrument, scenario analysis of the Bank’s liquidity for various allowable losses, i.e., “stop-loss”), which are then and should have comparable credit ratings; time periods to identify disparities between receipts The sensitivity of the Group’s interest position to a passed down by the Group’s Risk Management The proxy instrument and the original instrument and payments; change in interest rates, measured in terms of (1) Committee to business lines and subsidiaries. should be denominated in the same currency; Identifying and analysing the impact of internal and the size of the reduction in the net present value of The proxy instrument and the original instrument external factors on the Bank’s liquidity, and the the interest position; and (2) the net interest income The Risk Department monitors compliance with should have comparable durations. forecast for changes; under an unfavourable parallel movement of the yield the Group’s market risk limits on a weekly basis. Adopting and implementing solutions for curves by 100 basis points; Local market risk limits are monitored by the Proxy instruments were used for the VaR management of assets and/or liabilities of the Bank The capital for covering interest-rate risk, measured subsidiary banks’ risk divisions on a daily basis. calculation for approximately one-quarter to maintain liquidity risk at a level that complies with by assessing reductions in the current value of of the securities in the Group’s portfolio. internal and regulatory liquidity ratios; the Bank’s interest-rate position in the event of The Risk Department informs business divisions Developing a detailed plan of action for mobilisation potentially unfavourable interest-rate movements. about compliance with the Group’s limits on a Operational risk of liquid assets by the Bank in the event of weekly basis and submits a report to the Assets insufficient liquidity; Currency risk and Liabilities Management Committee on a Operational risk is the risk of loss resulting Ensuring compliance with the Bank of Russia’s monthly basis regarding compliance with limits, from flaws in the type and scale of the Group’s mandatory liquidity ratios by monitoring actual and The Group uses internal regulations adopted by recommendations for the modification thereof, operations or inconsistency between internal forecast values of established intra-bank maximum the Group’s Management Committee to manage and proposals to reduce/hedge market risk. processes and legislative requirements for banking permissible values for mandatory ratios. The its currency risk. It also ensures that the currency operations, their violation by VTB staff or other procedure for monitoring compliance with mandatory of its assets matches that of its liabilities and VTB uses VaR to evaluate risks in its securities individuals (due to unintentional or intentional liquidity ratios is regulated by a separate regulatory maintains an open currency position (OCP) in portfolio. The key assumptions listed above that acts or omissions), lack of functionality of IT act of the Bank. each of the Group’s banks within established are used in calculating VaR for currency risk are also VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 4. Management report highlights position and banking sector in 2016 report governance responsibility statements Annexes

76 77 and other systems or the breakdown thereof, Minimising risk: developing and implementing the A well-managed HR policy, good staff training and Key priorities for 2017 as well as damaging external events. necessary corrective measures to reduce identified education; risks; Prevention measures to ensure continuity of the VTB Group has approved a Risk Management VTB Bank’s operational risk management system Taking risk: questions related to whether or not financial and economic activities related to the Development Strategy for 2017–2019 to is designed to prevent potential losses and to take a certain risk are subject to approval by the Group’s banking operations and transactions by determine the key strategic directions for to reduce the possibility of business process authorised bodies/individuals within the bank in setting up alternative communications channels, the further development of the Group’s risk failures and the inability to provide high- the event that measures aimed at minimising the geographically distributed server rooms, management system in the medium term. quality services to the Bank’s clients caused risk are not economically feasible; independent sources of power, heat and water In 2017, the Group plans to further develop by staff errors, system breakdowns, internal Avoiding risk: refusal to carry out a business supply, and by taking fire protection measures. its risk management system (including to or external fraud or violations of the law. operation subject to an identified risk if the ensure compliance with new regulatory potential losses as a result of the risk would be The insurance programmes covering risks to the requirements and international standards) In managing operational risk, the Bank adheres critical for the Bank and/or if carrying out the Bank’s professional activity risks in 2016 were by implementing the following measures: to the Bank of Russia’s regulations, as well as operation in question could jeopardise the Bank’s provided by insurance against crime under the the recommendations of the Basel Committee solvency, and if measures aimed at minimising the Financial Institution’s Blanket Bond scheme Switching to the IFRS 9 standard, effectively on Banking Supervision. To implement its risk are not economically feasible; (including electronic and computer crimes), liability monitoring the implementation of the business operational risk strategy, VTB carries out regular Transferring risk (risk insurance): risk insurance insurance for directors and officials of the Group’s plan for the reserves required for possible losses procedures to identify, assess, control and limit involves those operational risks that the bank companies, insurance for funds and valuables while (taking into account the Group’s Development operational risk. All significant deficiencies is unable to manage and that exceed the Bank’s in storage and during transit, ATM insurance, etc. Strategy); from a risk perspective that are identified direct control (including the risk of the loss of Completing the organisational and technical within the internal control system are subjected collateral pledged to the Bank to secure credit, VTB Bank also insures against risks centralisation of risk management functions in the to rigorous analysis. Based on the analysis, the risks associated with the transportation and related to business activities (including merged VTB Bank (taking into account the planned measures are developed and implemented to storage of valuables and cash, property risks, etc.). buildings, equipment and vehicles). incorporation of VTB24); eliminate the causes and sources of the risk. Developing infrastructure for centralised decisions The Bank uses the following key methods In 2016, the Bank took the following based on uniform assessments and risk appetite; To manage operational risk, the Bank has to reduce and limit its operational risk: steps to develop its system for Consistently improving the monitoring system using implemented the following unified mechanisms managing operational risk: the Group’s funds (capital) to cover risks through to identify, assess and monitor the level of Maintaining an integrated system of current and capital, with the full-scale practical implementation operational risk: a centralised process to collect backup internal controls that is common to all Development of mechanisms to monitor the level of internal procedures for assessing and planning information on incidents of operational risk business units and operations throughout the of operational risk at the level of the Bank and capital adequacy in the Group; and related operating losses; control over the Bank; the Group’s companies as part of the concept of Developing the IT infrastructure and optimising the level of key performance indicators related to Regulating all key operations using internal managing risk appetite; collection, processing and storage of information on operational risk, and procedures to minimise standards and codes of practice; Unification of methodological approaches to the Group’s risks; operational risk. This makes it possible to carry Registering and documenting banking operations operational risk management at the Group level, Further work on the automation of key processes out a quantitative assessment of operational and transactions, and maintaining consistent including with regard to risk management regarding and the analytical aspects of risk management, risk indicators in relation to the Bank’s products control over primary documents and operating fraud and IT risks; in particular the further implementation of an IT and the Bank’s various business activities, accounts; Development of the methodology for a unified system platform for calculating the value of risky assets processes and systems, including in the context Applying the principles of dividing and of tools to be used for operational risk management under Basel II; of individual risk categories, the identification limiting employees’ functions, authority and (self-assessment, key risk indicators, corrective Developing the methodology of credit risk of sources of risk and implementation of measures responsibilities; implementing dual controls; action plans to reduce risks and the consequences assessment based on internal ratings; to limit risk, reflected in management reporting. collective decision-making; setting limits on the thereof, scenario analysis); Researching new approaches to the management of terms and scale of operations; Improving regular reporting on the Group’s the most significant risks (in particular credit and The Bank uses the following methods Automating banking operations using high- operational risks. interest rate risk in the banking book); to respond to operational risks: performance IT systems that are constantly Further improving the system for planning and the monitored and repaired promptly in case of Operational risk did not have a significant continuity of operations at the level of the Bank breakdown; impact on the Bank’s performance in 2016. and the Group. Supporting infrastructure projects to invest in economic development

The Group’s active role in implementing key public-private partnership projects boosts the development of national infrastructure. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

80 81 5. Corporate governance Under its current management model, the Internal audit; Group is governed along two key lines: Compliance and internal controls aimed at countering money laundering and the financing of terrorism; administrative management – realising the rights of Branding and marketing; 5.1. Overview of the corporate governance system the parent bank as the main shareholder by allowing Human resources; its representatives to participate in the management Security; 5.1.1. VTB Group governance bodies of subsidiary companies; Property management. functional management – managing the Group’s VTB Group is structured as a strategic holding. single brand, centralised management of financial business, support and control lines within VTB The commissions’ responsibilities include identifying This model entails a common single development performance and risk, and unified control systems. Group as a whole. Functional coordination is a best practices and developing proposals on strategy for all Group companies, as well as a supplementary governance mechanism that provides their implementation, which are then considered early-stage expert review of management decisions. by the Group Management Committee. VTB Group management system To meet key strategic objectives, the following The management system established by the Group Administrative structure business lines have been established within enables the Bank to develop a global mechanism for the Group: Corporate-Investment Banking, Mid- client service, closely coordinate the work of every Corporate Banking, Retail Banking (for more on the business line in all the Bank’s regions of operation, Group Management global business lines and their performance, see increase profitability through synergies between VTB Bank Committee Section 4.3 “Review of operating performance”). business lines and best practices, and optimise costs by sharing infrastructure and resources more The Group’s Corporate Centre sets extensively among Group companies. Furthermore, the overall strategic direction of the Group this management model is a platform to effectively and best practices within the Group. integrate assets acquired by VTB Group.

VTB Group Management Committee VTB Group pays significant attention to improving Corpotate-Investment Management Boards its governance system, which is designed to banking of subsidiaries VTB Group’s single governing body is the VTB comply fully with corporate and anti-monopoly Group Management Committee, which analyses legislation in countries where the Group operates. the development strategies of individual business The regulations of the Management Committee areas, business plans for the Group and its ensure that it cannot make decisions that would Mid-Corporate banking companies. It analyses reports analyses reports in any way limit competition in the Group’s markets on their implementation, assesses liquidity and of operation or violate legislative norms or the risks, oversees the implementation of priority statutory documents of Group companies. In VTB24 projects and approves standards, approaches accordance with civil law, VTB Group’s governance Functional management Functional and principles for the Group’s operations. system is based on the principle of protecting the independence of all legal entities within the Group. Retail business Coordinating commissions have been established VTB Capital to provide expert support to the Group Management 5.1.2. Corporate governance of VTB Bank Committee in the following lines of activity: VTB Bank’s corporate governance system is based Corporate-Investment Banking; on unconditional compliance with the requirements Support and control Mid-Corporate Banking; of Russian legislation and the Bank of Russia, and it Other subsidiaries Retail Business; also draws heavily on international best practices. Business with financial institutions; Corporate governance; VTB guarantees that all shareholders Information technology; receive equal treatment. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

82 83 VTB Bank’s corporate governance system The Staff and Remuneration Committee Code’s provisions into VTB Bank’s operations. reports to the Supervisory Council and drafts In February 2015, the roadmap was approved Reports recommendations on key appointments and by VTB Bank’s Supervisory Council. incentives for members of the Supervisory Council Elects and the Bank’s executive and control bodies. During the reporting year, the Bank implemented General Independent Statutory Audit the following measures set out in the roadmap: Meeting Auditor Approves Commission of Shareholders Reports The Strategy and Corporate Governance Committee, which reports to the Supervisory Council, considers provisions were stipulated in the Bank’s Charter and makes recommendations on strategic providing for the mandatory publication on the Bank’s website of the minutes of the General Elects Reports development issues and on improving VTB corporate governance, as well as on streamlining Meetings of Shareholders; the management of the Bank’s own stock. the competence of the Bank’s Supervisory Council

Strategy and Appoints Elects was expanded regarding such important areas as Corporate VTB adheres to a policy of full and timely disclosure the control of major transactions made by the Bank’s Governance Prepares Prepares Committee recommendations recommendations of reliable information, giving shareholders, main subsidiaries, as well as approval of the Bank’s and reports and reports budget; Sta and investors and counterparties the opportunity to Supervisory Remuneration make properly informed decisions. Information is matters requiring a resolution by a majority of all Council Appoints Committee disclosed in compliance with Russian legislation elected members of the Supervisory Council are now Prepares Audit recommendations Appoints and the requirements of the UK financial regulator, stipulated in the Bank’s Charter. These include, in Committee and reports the Financial Conduct Authority (FCA). particular, matters related to determining the priority areas for the Bank’s operations, the payment of dividends, approval of the Bank’s dividend policy, etc.

Reports Appoints Reports 5.2. Development of corporate governance in 2016 At the Bank’s next General Meeting of Shareholders, it is expected that a new edition of the Bank’s President and Charter will be approved, which will provide a list of Appoints Chairmen of the Internal Audit Corporate One of the main areas where VTB Bank’s corporate the most important issues that require resolutions Management Board Reports Department Prepares Secretary governance system was enhanced during the adopted at meetings of the Supervisory Council recommendations and the Management and reports Board reporting period was the full implementation held in person, in accordance with the Code. of the Action Plan, adopted by the Supervisory Council, for the implementation of the provisions The Bank’s performance in the area of corporate of the Corporate Governance Code (the Code), governance enabled it to maintain a high position The General Meeting of Shareholders is the activity is aimed primarily at safeguarding the approved by the Bank of Russia in March 2014. in the National Corporate Governance Rating, where supreme governing body of VTB Bank. The rights and interests of the shareholders. it was accorded a score of 7++, corresponding to Supervisory Council, elected by the shareholders In accordance with the directives of the “well-developed corporate governance practice”. and accountable to them, provides strategic The Supervisory Council oversees the Audit Government of the Russian Federation and The Russian Institute of Directors (RID) provides the management and oversight of the Bank’s executive Committee, which, in conjunction with the instructions of the Federal Property Management annual rankings, which are based on an independent bodies, namely the President and Chairman of Internal Audit Department, supports the Agency on the implementation of the Code review. A rating of 7++ is assigned to a company that the Management Board and the Management management bodies in ensuring the smooth in companies whose main shareholder is the complies with the requirements of Russian legislation Board itself. The executive bodies are responsible running of the Bank’s operations. VTB contracts state, VTB assessed its compliance with the in the field of corporate governance, and denotes for the day-to-day management of the Bank. an external auditor, who has no connection to corporate governance principles outlined in the fairly low risk to shareholders of losses associated They carry out the tasks entrusted to them by the Bank or the interests of its shareholders, to Code by comparing the Code’s provisions with with corporate governance, according to experts. the shareholders and the Supervisory Council. inspect and verify the Bank’s financial reports. its own corporate governance standards. The Statutory Audit Commission monitors In June 2016, the VTB Annual General Meeting The system of corporate governance and internal the Bank’s financial and economic affairs. As a result of this analysis, VTB developed of Shareholders (AGM) was held, at which control of the Bank’s financial and economic an Action Plan (roadmap) to integrate the the new composition of the Supervisory VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

84 85 Council and the Statutory Audit Commission The decision to convene a General Meeting of Annual General Meeting of Shareholders 12. Approval of a new edition of the Regulation were approved. Four independent directors Shareholders is taken by the Supervisory Council. In on VTB Bank Supervisory Council; became part of the Supervisory Council, accordance with the applicable Russian law and the The Annual General Meeting of Shareholders including minority shareholder representatives Bank’s Charter, information about the date and venue of PJSC VTB Bank was held on 24 June 2016 13. Approval of a new edition of the Regulation Shahmar Movsumov and Valery Petrov. of the General Meeting of Shareholders, as well as the at the Oktyabrsky Grand Concert Hall in on VTB Bank Management Board; publication date of the list of shareholders eligible to St. Petersburg. The meeting was attended by The Statutory Audit Commission is composed of six participate, is published on VTB’s website. During the 449 shareholders and their representatives 14. Approval of a new edition of the Regulation people, none of whom is a VTB officer or employee. time frame specified by law, shareholders can review (compared to 379 in 2015). In total, 1,144 on Remuneration and Compensation Paid to materials for the General Meeting of Shareholders on shareholders took part, including voting by Members of VTB Bank Supervisory Council; The RID considers the current composition the Bank’s official website or at Shareholder Liaison proxy, which accounted for 8,861,682,681,323 of the Bank’s Supervisory Council to be Centres in Moscow, St. Petersburg and Yekaterinburg. votes, i.e. 68.3743% of the total votes. 15. Approval of the Regulation on remuneration balanced and sensitive to the interests and Compensation Paid to the Members of of all investors and shareholders. Four General Meetings of Shareholders Eighteen agenda items were VTB Bank Statutory Audit Commission; were convened in 2016. discussed at the meeting: 16. Remuneration of Supervisory Council 5.3. General Meeting Extraordinary General Meeting of Shareholders 1. Approval of VTB Bank Annual Report; members who are not state employees, in of Shareholders of VTB Bank on 14 March 2016 accordance with VTB Bank Charter; 2. Approval of VTB Bank annual On 14 March 2016, an Extraordinary General Meeting financial statements; 17. Remuneration of Statutory Audit Commission The General Meeting of Shareholders is the of Shareholders was held in the form of absentee members who are not state employees in supreme governing body of VTB Bank. Any holder voting. The following issues were discussed at the 3. Approval of VTB Bank profit allocation for 2015; accordance with VTB Bank Charter; of ordinary shares may exercise the right to concerning the merger with the Bank of Moscow: participate directly in the management of the Bank 4. Amount, terms and form of the 2015 dividend 18. Approval of related-party transactions by voting on the agenda of the General Meeting 1. The reorganisation of VTB Bank (as a public payment and a record date to determine to be entered into by VTB Bank in the of Shareholders. Preference shares carry voting joint stock company) by merging it with the persons entitled to receive dividends; course of its ordinary business. rights only in special cases, as stipulated by law. joint stock company BS Bank (Bank Special). 5. Number of VTB Bank Supervisory Meeting participants approved a new edition Shareholders may take part in a meeting of 2. Approval of the amended Charter of VTB Bank. Council members; of the Bank’s Charter, which includes a new shareholders either in person (in the event method for voting at shareholder meetings. that an in-person meeting is held) or through 3. Approval of a new edition of the Regulation on 6. Election of VTB Bank Supervisory Amendments to the Charter were approved at absentee voting. On 1 July 2016, legislative the Procedure for Preparing, Convening and Holding Council members; the AGM and allowed the possibility of electronic amendments entered into force changing the of General Meetings of Shareholders of VTB Bank. voting at meetings by all shareholders. time period for nominal shareholders to provide 7. Number of VTB Bank Statutory information to the issuer on the identities of 4. Approval of a new edition of the Regulation Audit Commission members; At the meeting, shareholders agreed to the following the ultimate owners of shares. For this reason, on VTB Bank Supervisory Council. distribution of the Bank’s profits from 2015: the distribution of ballots by post is restricted 8. Election of VTB Bank Statutory to those individuals whose rights to securities 5. Approval of a new edition of the Regulation Audit Commission members; net profit to be allocated: RUB 49,139,619,785.73; are recorded directly with the registrar. on VTB Bank Management Board. allocations to the Reserve Fund: 9. Approval of VTB Bank auditor; RUB 2,456,980,989.29; Regardless of where their shareholdings are Following a vote, a resolution on the reorganisation dividend payment allocations on ordinary shares: registered, all shareholders of VTB Bank have of VTB Bank was adopted. Those shareholders who 10. Approval of a new edition of VTB Bank Charter; RUB 15,163,833,364.69; access to the electronic voting system developed voted against or did not participate in voting on dividend payment allocations on preference shares: by the Bank’s registrar, JSC VTB Registrar. Electronic the reorganisation had the right to present their 11. Approval of a new edition of the RUB 90,276,222.00; voting is possible on the site www.vtbreg.com, as shares for redemption during the period from 14 Regulation on the Procedure for Preparing, dividend payment allocations on Type A preference well as through the VTB Shareholder application. March to 28 April 2016. Shares were redeemed at Convening and Holding of General shares: RUB 17,838,815,203.89; a price of RUB 0.04 per ordinary registered share. Meetings of Shareholders of VTB Bank; retained net profit: RUB 13,589,714,005.86. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

86 87 Shareholders approved a dividend payment Extraordinary General Meeting of Shareholders Extraordinary General Meeting of Shareholders The Supervisory Council determines the rules for of RUB 0.00117 per ordinary share, the same of 8 December 2016 of 16 December 2016 the functioning of the Bank’s corporate governance as the previous year. Detailed information system through the adoption of bylaws regulating on dividend payments for 2015 is available An Extraordinary General Meeting of Shareholders The Extraordinary Meeting of Shareholders of 16 the principles and procedures of its individual in Section 8.2 “Dividends of VTB Bank”. was held on 8 December 2016 in the form of December 2016, in the form of absentee voting, elements and the controls over the effectiveness absentee voting. The agenda included the following adopted a decision on its only agenda item: of the corporate governance system as a whole. Other key decisions at the Annual General Meeting issues related to the approval of new versions of of Shareholders included the election of new Charter and the conversion of preference shares: 1. The amount, terms and form of dividend payment The Supervisory Council is entrusted with the function members of the Supervisory Council and of the for Type 2 VTB Bank preference shares for the first of managing conflicts of interest between the Bank’s Statutory Audit Commission. As a result of the 1. Approval of Amendment No 1 nine months of 2016 and a record date to determine management bodies, shareholders and employees. voting, the representation of minority shareholders to VTB Bank Charter; persons to be entitled to receive dividends. in these management and oversight bodies was Members of the Supervisory Council are elected maintained. Shahmar Movsumov, Head of the 2. Placement of Type 1 VTB Bank In accordance with the decision of the General by the General Meeting of Shareholders for a State Oil Fund of Azerbaijan, one of the Bank’s preference shares through the conversion Meeting of Shareholders, dividends were accrued term of one year. Shareholders holding at least major shareholders, and Valery Petrov, Chairman of of VTB Bank preference shares; in the amount of RUB 0.00581369 per Type 2 2% of the Bank’s voting shares have the right VTB Bank Shareholder Consultative Council, were preference share. Dividends paid out to shareholders to nominate candidates to the Supervisory re-elected to the Supervisory Council. Igor Repin, 3. Placement of Type 2 VTB Bank preference amounted to RUB 17,870,730,759.45. Council. Members of the Supervisory Council a member of VTB Bank Shareholder Consultative shares through conversion of Type A are elected by means of a cumulative ballot Council, represented shareholder interests on VTB Bank preference shares; Of the 87,315 shareholders entitled to participate at the General Meeting of Shareholders. the Statutory Audit Commission in 2016. in the meeting, 591 took part in voting. The 4. Approval of Amendment No 2 e-voting system was used by 406 shareholders. The Supervisory Council in place at the end of 2016 In 2016, a live webcast of the event was to the VTB Bank Charter; was elected at the AGM on 24 June 2016. As of 31 traditionally organised on VTB’s website December 2016, the Supervisory Council consisted and a teleconference was also held with the 5. Approval of a new edition of the Regulation on 5.4. Supervisory Council of VTB Bank of 11 members, 10 of whom were non-executive Yekaterinburg branch of VTB Bank (PJSC), thanks the procedure for preparing, convening and holding directors, and four were independent directors. This to which the shareholders in the Ural region were General Meetings of Shareholders of VTB Bank; Scope of responsibilities combination of directors is in line with international able to take part in the meeting. A consultation best practices and ensures that all shareholders’ zone was organised for shareholders in the 6. Approval of a new edition of the Regulation The Supervisory Council is one of the most important interests are represented on the Supervisory lobby of the Oktyabrsky Grand Concert Hall to on VTB Bank Supervisory Council. elements of VTB’s corporate governance system. Council. The composition of the Supervisory Council review materials about the meeting and to obtain The Council is guided in its activities by the is reviewed annually to ensure the right level of information from VTB Group experts about the Of the 86,976 shareholders entitled to participate interests of the Bank and its shareholders. Acting professionalism, experience and effectiveness, and to products and services offered by subsidiaries. in the meeting, 594 took part in voting. Holders of in accordance with Russian legislation, the Bank’s ensure that it is in line with VTB’s strategic objectives. An interactive demonstration of the electronic preference shares and Type A preference shares Charter, the Regulation on the Supervisory Council voting system developed by JSC VTB Registrar was had the right to vote only on the first agenda item. and the Code of Corporate Governance, it provides VTB places great importance on the appointment of especially popular among meeting participants. During the extraordinary meeting, the new electronic general oversight over the Bank’s operations. Independent Directors. These directors’ effective work After seeing the value and benefits offered by this voting system was used by 413 shareholders, on the Supervisory Council strengthens shareholders’ new technology, shareholders had an opportunity representing 70% of all meeting participants. The main tasks of the Supervisory Council are the and investors’ trust in the Bank and ensures a high to register and receive a login and password elaboration and adoption of the Bank’s development level of transparency for its governance system for remote e-voting at subsequent meetings. The General Meeting of Shareholders decided strategy, as well as the formation of the Bank’s and for the objectivity of the Supervisory Council’s to convert preference shares and Type A executive bodies and oversight over their activities, decision-making. The Independent Directors actively The voting results and all decisions can be preference shares into new types of shares that organising assessments of the performance of participate in Supervisory Council discussions and viewed on the Bank’s website at: http:// allow for the payment of dividends not only the internal control and risk management system, the decision-making process. Together, they monitor www.vtb.ru/ir/governance/meeting/. for the year, but also on a quarterly basis. determining the Bank’s personnel policy, including the Bank’s performance and its competitive position, remuneration of executive bodies and Bank analyse the effectiveness of the management team, management, and participation in decision-making assess mechanisms and systems of internal control on issues pertaining to Bank management. and risk management, and settle corporate conflicts. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

88 89 According to the Bank’s Code of Corporate Liability insurance for Supervisory Council members Chairman of the Supervisory Council or her duties are assumed by a Supervisory Council Governance, the Supervisory Council should member as decided by the Supervisory Council. include at least three directors who meet the Supervisory Council members are insured under the The Chairman of the Supervisory Council is elected independence criteria established by the listing director’s liability insurance programme (Director’s by a majority vote of the members of the Supervisory On 6 July 2016, Alexey Ulyukayev was elected rules of the trade operator whose quotation list and Officer’s Liability, D&O). In accordance with the Council. The Supervisory Council has the right to Chairman of VTB Supervisory Council; however, includes the Bank’s securities. The independent D&O, compensable losses (including legal expenses) re-elect its Chairman at any time by majority vote. following his voluntary resignation, Sergey members of the Supervisory Council must not have incurred due to unintentional wrongful acts, negligence Dubinin was elected as Chairman of the VTB any relationship with the Bank that would prevent or omission on the part of members of the Supervisory The Chairman is not permitted to combine this role Supervisory Council on 14 December 2016. them from fairly and impartially making decisions Council related to the Bank’s financial operations with the position of President and Chairman of the with regard to VTB’s strategy and ongoing are reimbursed in relation to the claims filed during Management Board. The Chairman of the Supervisory Composition of the Supervisory Council activities. In determining the independence the insurance period by investors, shareholders or Council may not also be a member of the VTB Bank criteria for members of the Supervisory Council, government bodies. The grounds for a claim may be the Management Board, nor may he or she have any On 24 June 2016, the Annual General Meeting of VTB Bank is guided by the requirements of personal responsibility of members of the Supervisory type of employment relationship with the Bank. Shareholders re-elected Alexey Moiseev to the current legislation, the listing rules of the trade Council for mistakes made during the decision-making Supervisory Council, while Nikolai Kropachev operator whose quotation list includes the process, shortfalls in financial control and risk The Chairman organises the work of the Council, left the Supervisory Council. Independent Bank’s securities and the Bank’s Charter. management leading to losses, reduction in share convenes and chairs its meetings, ensures that directors Sergey Galitsky, Yves-Thibault de price, asset value or damages caused to third parties. minutes are kept and presides over General Meetings Silguy, Shahmar Movsumov and Valery Petrov In order to fulfil the recommendations of the of Shareholders. In the absence of the Chairman, his remained on the Supervisory Council. Code of Corporate Governance, the Annual In 2016, the Supervisory Council reviewed and General Meeting of Shareholders of 25 June 2015 approved the extension of the director’s liability approved a new edition of the Regulation on insurance contract for a new term. The Procurement the Supervisory Council that specifies the rights Commission and the Staff and Remuneration Committee Composition of the Supervisory Council and duties of the members of the Supervisory approved the feasibility of extending the contract. Council, as well as the option of electing a Senior Education Independent Director from among the members of Remit Business the Supervisory Council serving as independent Finance and directors. The Senior Independent Director acts The Supervisory Council provides strategic direction; Members of the and Risk Administra- Supervisory Council Member since Management Law Economics tion as an adviser to the Chairman of the Supervisory determines VTB’s long-term priorities; approves its Sergey Dubinin 2011 √ Council, and coordinates interactions between the development strategy; determines the key principles independent directors, including the convening of and overall approach to risk management, internal Matthias Warnig 2007 √ √ meetings between the independent directors and control, remuneration policy and compensation paid Sergey Galitsky 2015 √ the Chairman. The Senior Independent Director to members of the Supervisory Council, executive Yves-Thibault de Silguy 2007 √ √ also interacts with the Bank’s shareholders. bodies and other key executives; and exercises Andrey Kostin 2002 √

If a dispute arises, the Senior Independent oversight over the activity of executive bodies and Nikolai Kropachev 2008 √

Director should undertake resolving the dispute corporate governance. The Supervisory Council plays Shahmar Movsumov 2013 √ √ through cooperation with the Supervisory Council a key role in the Bank’s key corporate activities. Alexey Moiseev 2013 √ √ Chairman, the other members of the Supervisory Valery Petrov 2015 √ Council and the Bank’s shareholders to ensure The main functions of the Supervisory Council the smooth operation of the Supervisory Council. are specified in the Charter and the Regulations Alexey Ulyukayev 2002 √ on VTB Bank Supervisory Council. These Vladimir Chistyukhin 2014 √ On 24 June 2016, Sergey Galitsky was documents can be viewed on the Bank’s website Andrey Sharonov 2015 √ elected Senior Independent Director. at: http://www.vtb.ru/group/documents/. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

90 Sergey Dubinin 91 Foreign Economies and Foreign Economic as a member of the Board of Directors of PJSC Sergey Galitsky Chairman of the Supervisory Relations at Lomonosov Moscow State AC Transneft, Chairman of the Board of Directors Independent Member of the Council since 14 December 2016 University Faculty of Economics; of United Company RUSAL Plc (Jersey), Deputy Supervisory Council since Member of the Supervisory Council since 3 June 2011 1975–1976 – Junior Research Associate at Chairman of the Board of Directors of PJSC NK 25 June 2015 Chairman of the Supervisory Lomonosov Moscow State University; Rosneft, Member of the Administrative Board of Senior Independent Director Council from 16 June 1974–1975 – Secretary of the Komsomol GAZPROM Schweiz AG (Switzerland), Chairman since 24 June 2016 2011 to 25 June 2015 Committee at Lomonosov Moscow State of the Administrative Council of Gas Project University Faculty of Economics. Development Central Asia AG (Switzerland), Interatis Engineering AG (Switzerland), Since February 2014 – Head of the Finance and Awards: Medal Commemorating the 850th Interatis Consulting AG (Switzerland). Since April 2006 – Director General of PJSC Credit Department at Lomonosov Moscow State Anniversary of Moscow; Honorary Diploma from the Magnit; since 2014 – President of Krasnodar University Faculty of Economics. Advisor and Government of the Russian Federation and Honorary Previous positions: Football Club. Chairman of the Board and Member member of the Board of Directors of JSC VTB Badge for Achievements in the Russian Electric 2006–2016 – Managing Director of of the Board of Directors of PJSC Magnit. Capital. Member of the Board of Directors of VTB Power Industry; Winner of Best Financial Director Nord Stream AG (Switzerland); Capital IB Holding Ltd, JSC VTB Capital Holding. and Best Independent Director of the Year, Aristos 2005–2006 – Chairman of the Board of Previous positions: Award 2013, winner of Best Independent Director in Directors of CJSC Dresdner Bank; 2009–2014 – President of Krasonodar Football Club; Previous positions: the Financial Sector, Reputation of the Year Award 2004–2005 – Chairman of the 1996–2006 – Director General of JSC Tander. 2005–2008 – Member of Board of Directors, 2013. In 2014, Sergey Dubinin ranked among Management Committee of Dresdner Chief Financial Officer of RAO UES; the 25 Top Chairmen of the Board of Directors. Kleinwort for Russia and the CIS; Born in 1967. In 1992, graduated from Kuban State 2004–2005 – Member of RAO UES Board of Directors; 2002–2005 – President of CJSC Dresdner Bank; University with a degree in Finance and Credit. 2001–2004 – Deputy Chairman of Born in 1950. In 1973, graduated from the 2001–2006 – Chief Coordinator of RAO UES Board of Directors; Lomonosov Moscow State University, majoring Dresdner Bank Group in Russia; Holds no shares of the Bank’s charter 1998–2001 – Deputy Chairman of OJSC in Political Economy, and in 1976 as an 1999–2001 – Managing Director of the BNP- capital as of 31 December 2016. Gazprom Management Board; extramural postgraduate of the Lomonosov Dresdner Bank branch in St. Petersburg; 1995–1998 – Chairman of the Bank of Russia; Moscow State University. Higher Doctorate 1997–1999 – Deputy Manager of the 1995– Member of OJSC Gazprom Management Board; in Economics, Associate Professor. Moscow branch of BNP-Dresdner Bank; Yves-Thibault de Silguy 1994–1995 – First Deputy Chairman of the 1990–1997 – Management Board Independent member of the Management Board of Imperial Commercial Bank; Holds shares equivalent to 0.00033% of the Advisor of Dresdner Bank AG; Supervisory Council since 1994 – Acting Minister of Finance Bank’s charter capital as of 31 December 2016. 1981–1990 – Officer at the Ministry of 28 June 2013 of the Russian Federation; Foreign Trade, then at the Council of Ministers Independent member of the 1993–1994 – First Deputy Minister of Holds 0.00164% of ordinary shares of of the German Democratic Republic. Supervisory Council from Finance of the Russian Federation; the Bank as of 31 December 2016. 4 April 2007 to 26 June 2008 1992–1993 – Deputy Chairman of the Born in 1955. In 1981, graduated from the Bruno Russian State Committee for Economic Leuschner Higher School of Economics in Berlin Cooperation with CIS countries; Matthias Warnig and Karlshorst, majoring in National Economics. Since May 2010 – Vice-President of the Board of VINCI 1991–1992 – Economics Expert in the Member of the Supervisory In 1995, received additional professional training SA (France), Senior Director of the Board of Directors Executive Office of the USSR President; Council since 28 June 2013 at Dresdner Bank AG, Bad Homburg (Germany) VINCI Group (France). Also serves as manager of 1981–1991 – Associate Professor of Independent member of the and London (United Kingdom) through the YSILOP consulting SARL (France), Chairman of the Foreign Economies and Foreign Economic Supervisory Council from Lending and Risk Management programme. Supervisory Council of Sofisport SA (France), member Relations at Lomonosov Moscow State 4 April 2007 to 28 June 2013 of the Supervisory Council of VTB (France), member University Faculty of Economics; Holds no shares of the Bank’s charter of the Board of Directors of SOLVAY SA (Belgium) 1977–1981 – Assistant Professor of capital as of 31 December 2016. and of Louis Vuitton Moet Hennessy SA (France). Foreign Economies and Foreign Economic Relations at Lomonosov Moscow State Since September 2015 – Executive Director of UniversityFaculty of Economics; Nord Stream 2 AG (Switzerland); since 2008 – 1976–1977 – Teaching Assistant in Director Interatis AG (Switzerland). Also serves VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

92 93 Previous positions: Born in 1948. In 1971, graduated graduated from the Support Fund. Member of the Supreme Council, United Class 1 Acting State Advisor of St. Petersburg. 2005–2012 – Member of the Council for University of Rennes II-Upper Brittany and from the Russia political party. Member of the Management Foreign Affairs, French Foreign Ministry; University of Paris I (Pantheon-Sorbonne) with degrees Board of the non-profit partnership National Council Born in 1959. In 1981, graduated from 2004–2011 – Member of the Board of Directors of in Law, from the Paris Institute of Political Studies on Corporate Governance. Professor in the Department the Legal Department of Leningrad State SMEG (Societe monegasque d’eau et d’lectricite´); (Sciences Po) in 1972 and from the e´cole Nationale of Finance and Accounting, Director of the Graduate University (now St. Petersburg State 2007–2008 – Member of the Supervisory d’Administration (ENA) in 1976, Guernica class. School of Management, St. Petersburg State University. University). PhD in Law, Professor. Council of JSC VTB Bank; 2004–2006 – Vice President of Suez Holds no shares of the Bank’s charter Previous positions: Has received multiple awards from the President Environnement (Belgium); capital as of 31 December 2016. 1996–2002 – Chairman of the State of Russia, the Russian Government and the 2003–2006 – Acting General Director, member Corporation Bank for Development and Foreign Ministry of Education and Science of Russia. of the Executive Committee of SUEZ (Belgium), Economic Affairs (Vnesheconombank); President of Aguas Argentinas (Argentina); Andrey Kostin 1995–1996 – First Deputy Chairman of the Holds no shares of the Bank’s charter 2002–2010 – Member of the Economic Member of the Management Board of the National Reserve Bank; capital as of 31 December 2016. Council, French Defence Ministry; Supervisory Council since 1993–1995 – Deputy Head of the Foreign 2001–2002 – General Director, SUEZ (Belgium); 29 November 2002 Investment Department at Imperial Bank; 2000–2006 – President, Sino-French 1979–1992 – Diplomatic service at the USSR Shahmar Movsumov Holdings (Hong Kong); Consulate General in Australia (1979–1982) Independent member of 1995–1999 – Member of the European and Embassy to the UK (1985–1990). the Supervisory Council Commission, responsible for economic, since 28 June 2013 monetary and financial affairs; Born in 1956. In 1979, graduated with Honours 1993–1995 – Secretary-General of the Since 2002 – President and Chairman of from the Economics Department of the Lomonosov Interdepartmental Committee for Questions of the VTB Bank Management Board. Moscow State University with a PhD in Economics. Economic Cooperation in Europe. Advisor for European affairs responsible for the preparation of Chairman of the Supervisory Councils of VTB 24 (PJSC) Holds shares equivalent to 0.00036% of the summits of industrialised nations in the Cabinet and the Russian Gymnastics Federation. Member of the Bank’s charter capital as of 31 December 2016. Since 2006 – Executive Director of the State Oil Fund of French Prime Minister Edouard Balladur; Board of Directors at Pirelli & C. S.p.A., JSC VTB Capital, JSC of Azerbaijan and Chairman of the National Committee 1988–1993 – Director of International VTB Capital Holding, VTB Capital IB Holding Ltd, Congress Holds 0.00183% of ordinary shares of on the Extractive Industries Transparency Initiative. Affairs of Usinor Sacilor Group; Centre Konstantinovsky LLC. Member of the Council of the the Bank as of 31 December 2016. 1986–1988 – Advisor for International Economic Affairs Association of Russian Banks. President of the non- Previous positions: in the Cabinet of French Prime Minister Jacques Chirac; commercial partnership Financial and Banking Council 2005–2006 – General Director of the 1985–1986 – Counsellor for Economic of the CIS. Member of the Bureau of the Board, Russian Nikolai Kropachev National Bank of Azerbaijan; Affairs, French Embassy in Washington; Union of Industrialists and Entrepreneurs. Member of Member of the Supervisory 1995–2005 – Chief FX Markets Economist, 1981–1984 – Advisor, then Deputy Head of the the Supervisory Council, Russian Volleyball Federation, Council from 26 June Head of Group, Head of Section, Deputy Head of Cabinet, then Vice President of Economic and Monetary CSKA Hockey Club. Member of the Board of Trustees 2008 to 24 June 2016 Department, Head of Department, Chief Advisor Affairs for the Commission of European Communities; of the Sports Foundation Dynamo Hockey Club, the to CEO – all at the Central Bank of Azerbaijan. 1976–1981 – Authorised representative of Higher School of Economics, Financial University under the Department for Economic Cooperation at the Government of the Russian Federation, Lomonosov Awards: Taraggi Medal, Republic of Azerbaijan. the Ministry of Foreign Affairs, France. Moscow State University, St. Petersburg State University, Friends of the Russian Museum Development Fund, the Born in 1972. In 1995, graduated from the Moscow Awards: Knight of the Le´gion d’Honneur; French Russian Orthodox Church Charitable Foundation for the Since 2008 – Rector of St. Petersburg State University. State Institute of International Relations with a National Order of Merit for Services to the Fatherland; Restoration of the Voskresensk Stavropegial Resurrection degree in International Economics, and in 2004 French National Order of Merit for Services to (New Jerusalem) Monastery, the Bolshoi Theatre, the State Previous positions: from the John F. Kennedy School of Government at Development of Agriculture; French National Order of Academic Mariinsky Theatre, the associations I.K.O Centre, 2006–2008 – Senior Vice Rector of Harvard University with an MBA in Public Finance. Merit for Services to Art and Literature; Bronze Medal the State Primorsky Opera and Ballet Theatre, the National St. Petersburg State University; of the French Republic for Voluntary Military Service. Coordination Centre for Developing Economic Cooperation 2000–2005 – President of the Holds no shares of the Bank’s charter with Countries of the Asia-Pacific Region, the Deaf-Blind Statutory Court of St. Petersburg. capital as of 31 December 2016. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

94 95 Alexey Moiseev Valery Petrov Born in 1966. In 1988, graduated from the Alexander Merit to the Fatherland IV Degree (2010), Order of Member of the Supervisory Independent Member of Mozhaisky Military Space Academy (previously the Merit (2006), Gratitude of the Russian Federation Council since 24 June 2016 the Supervisory Council Alexander Mozhaisky Military Engineering Institute), (2006), Honorary Title Merited Economist of the Member of the Supervisory since 25 June 2015 majoring in Radio Engineering and Automatic Russian Federation (2004), Medal Commemorating Council from 28 June Control Systems Programming. In 1999, graduated the 300th anniversary of St. Petersburg (2003), 2013 to 25 June 2015 from the Chernomyrdin Moscow State Open Gratitude of the President of Russian Federation University, majoring in Law. PhD in Economics. (2002), Jubilee Medal Commemorating 200 Years of the Russian Ministry of Finance (2002), Certificate Holds shares equivalent to 0.00000002% of the of Merit of the Russian Federation (2001). Since 2012 – Deputy Finance Minister of the Since 2013 – Chairman of the VTB Bank Bank’s charter capital as of 31 December 2016. Russian Federation. Also serves as Chairman of Shareholder Consultative Council. Born in 1956. Graduated in 1979 from the the Board of Directors of JSC GOZNAK, as a board Holds 0.00000008% of ordinary shares of Lomonosov Moscow State University majoring in member of the Deposit Insurance Agency and as a Since August 2016 – Deputy General Director of the the Bank as of 31 December 2016. Political Economy. PhD in Economics, Professor. member of the Supervisory Council of JSC AHML. Institute of Financial Markets Development; since July 2016 – Lecturer, Department of Economics Holds no shares of the Bank’s charter Previous positions: and Finance, International University in Moscow. Alexey Ulyukayev capital as of 31 December 2016. 2010–2012 – Deputy Head of the Analytics Chairman of the Supervisory Department, Head of Macroeconomic Previous positions: Council from 25 June 2015 until 14 Analysis Division at CJSC VTB Capital; 2013–2016 – Deputy Chief Executive December 2016 Vladimir Chistyukhin 2001–2010 – Senior Economist, Deputy Officer, Arsenal Insurance Company; Member of the Supervisory Member of the Supervisory Head of Analytics Department at Renaissance 2011–2016 – Deputy Chairman of the Board, Council from 29 November 2002 Council since 19 June 2014 Capital – Financial Adviser LLC; Institute of Financial Markets Development; until 19 June 2014, and again 1998–2001 – Economist and Senior Analyst 2009–2013 – Deputy General since 14 December 201619 in Sovereign Instruments Market, Fixed Director, JSC RCB Group; Income Instruments Market Department 2007–2009 – General Director, JSC Ingosstrakh- From June 2013 to November 2016 – Minister at BNP Paribas, London, UK; Investments Asset Management; of Economic Development of the Russian 1995–1996 – Category 1 Economist, Leading 2005–2007 – Chief Managing Director, Federation. Also holds the position of Chairman Economist at the Bank of Russia. Alfa Capital Asset Management; of the Supervisory Council of UK RDIF LLC, and Since February 2014 – Deputy Governor of 2003–2005 – Deputy General Director, is a member of the Supervisory Council of the the Bank of Russia. Member of the Board Awards: Honorary Diploma of the Government of Moscow Interbank Currency Exchange; Agency for Strategic Initiatives (ASI).19 of Directors of the Bank of Russia. the Russian Federation, Letter of Acknowledgement 1999–2003 – Director of the Market from the Chairman of the Bank of Russia, Letter Analysis Department, Rosbank; Previous positions: Previous positions: of Acknowledgement from Igor Shuvalov, First 1997–1999 – General Director, 2004–2013 – First Deputy Chairman 2013–2014 – First Deputy Head of the Deputy Prime Minister of the Russian Federation. Alyans Asset Management. of the Bank of Russia; Financial Markets Service, Bank of Russia; 2000–2004 – First Deputy Minister of 2011–2013 – Director of the Financial Born in 1973. In 1995, graduated from Awards: Recognised in Top 100 Professional General Finance of the Russian Federation; Stability Department, Bank of Russia; Ordzhonikidze State University of Management Directors of Russia (2008), Award for Personal 1999–2000 – Deputy Director of the 2004–2011 – Deputy Director of the with a degree in International Economics; in Contribution to the Development of the Stock Institute for Economies in Transition; Banking Regulation and Supervision 1998, graduated from the University of Rochester Market (2008), Diploma for Top 100 Professional 1998–1999 – Deputy Director of the Institute of Department, Bank of Russia; (USA) with an MBA in Business Management. Commercial Directors in Russia (2005), Diploma Economic Problems during Transition Periods; 2002–2004 – Deputy Director of the for Top 200 Professional Commercial Directors in 1996–1998 – Deputy of the Moscow City Duma. Department of Foreign Exchange Regulation Holds no shares of the Bank’s charter Russia (2004), Diploma for Top 100 Professional and Control, Bank of Russia; capital as of 31 December 2016. Careers in Business and Government (2004). Awards: Stolypin Medal I Degree (2016), Order for 2000–2002 – Deputy Director of the Department Merit to the Fatherland III Degree (2015), Order for of Foreign Exchange Regulation, Bank of Russia;

19 In December 2016, VTB Bank received a statement from Alexey Ulyukayev announcing his voluntary resignation as the Chairman of VTB Bank’s Supervisory Council and his departure from VTB Bank’s Supervisory Council. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

96 97 1999–2000 – Head of the Foreign Exchange JSC Rosgeologiya, JSC Sovcomflot. Chairman Introduction to membership on the Supervisory Meetings of the Supervisory Council are held on Operations Analysis Division, Department of and independent member of the Board of Council a scheduled basis, although if necessary, they Foreign Exchange Regulation, Bank of Russia; Directors, NefteTransService Management may be held outside the schedule with absentee 1997–1999 – Deputy Head of the Division of Company. Independent member of the Board An induction programme for first-time members of voting. The format of each Supervisory Council Foreign Exchange Control of Capital Operations, of Directors, Novatek, Chairman of the Board of the Supervisory Council of VTB Bank was introduced meeting is decided based on the importance Division Head of the Department of Foreign Directors, Eko-Sistema Management Company. in order to ensure the efficient operation of the of its agenda. The most significant matters Exchange Regulation and Control, Bank of Russia; Supervisory Council. It will also improve the Bank’s are brought before in-person meetings. 1996–1997 – Lead Economist of the Foreign Previous positions: corporate governance practices in accordance Exchange Regulation Division, Chief Economist of 2013–2016 – Rector of the Skolkovo with the best international corporate governance At every Supervisory Council meeting, a report is the Division of Foreign Exchange Control of Capital Moscow School of Management; principles, including those provided by the Corporate provided to update members on the implementation Operations, Department of Foreign Exchange 2010–2013 – Moscow Deputy Governance Code approved by the Board of Directors of previously approved decisions and programmes, Regulation and Control, Bank of Russia; Mayor for Economic Policy; of the Bank of Russia, the Regulation on the as well as on directives and assignments stipulated 1995–1996 – Economist of the 2nd 2007–2010 – Managing Director, Troika Staff and Remuneration Committee of the Bank’s by the Russian Government, and to provide category, Economist of the 1st category, Lead Dialogue Investment Company. Supervisory Council and the Bank’s Code of Corporate a briefing on VTB Group’s loan portfolio. Economist in the Foreign Exchange Regulation Governance. The induction programme was created Division, Chief Director of Foreign Exchange Awards: Order of Honour (2009), Letter of by decision of the Staff and Remuneration Committee Members are able to review materials for meetings Regulation and Control, Bank of Russia. Acknowledgment from the President of the of the Bank’s Supervisory Council on 7 October 2016. in advance, as well as recommendations and Russian Federation (2008), Title of Merited conclusions of the Council’s Committees on each Born in 1973. In 1995, graduated Economist of the Russian Federation (2006), As part of this programme, the Bank’s Corporate agenda point. The schedule for the Council is from the Lomonosov Moscow State Letter of Acknowledgment from the President Secretary held meetings with the newly elected compiled for the period between AGMs and is University with a degree in Law. of the Russian Federation (2003). members of the Supervisory Council at which the approved by the Supervisory Council. Meetings are work procedures of the Supervisory Council and other scheduled in advance based on the business cycle Holds no shares of the Bank’s charter Born in 1964. In 1986, graduated from the bodies of the Bank were presented. The organisational of the Bank and may be held in person or through capital as of 31 December 2016. Ufa Aviation Institute, majoring in Aviation structure, Bank’s Charter, strategy, corporate absentee voting. Any member unable to attend a Engineering; in 1996, graduated from the Russian governance system, risk management and internal meeting can still participate via video conference Presidential Academy of Public Administration control system and the division of responsibilities (including voting on the agenda items); they can Andrey Sharonov with a degree in Law, PhD in Sociology. among the Bank’s executive bodies were also also submit a written opinion on agenda items. Member of the Supervisory presented. Other information regarded as important Council since 25 June 2015 Holds no shares of the Bank’s charter for the proper performance of the duties of members Depending on the results of in-person meetings or capital as of 31 December 2016. of the Supervisory Council was also provided. absentee ballots, minutes are drawn up reflecting the position of each member of the Supervisory Council In 2016, no members of the Supervisory Work of the Supervisory Council based on his or her vote on the agenda items. Council purchased or sold Bank shares. Meetings of the Supervisory Council are Meetings and absentee ballots are held on average convened at the initiative of its Chairman or at six times per quarter. In 2016, the Supervisory Since September 2016 – President of the the request of a Council member, the Statutory Council held 21 meetings (28 in 2015), including Skolkovo Moscow School of Management. Audit Commission, the Auditor, the Management eight in-person meetings and 13 through Member of the Board of Directors, Board or the President and Chairman of the absentee voting. One off-site meeting of the Management Board. A quorum is formed by the Supervisory Council was held in St. Petersburg. attendance of half of the elected members. The Supervisory Council actively engaged with Decisions are taken by a majority vote of participating the Bank’s minority shareholders, and also members unless otherwise provided in the Charter considered the Report on Cooperation with the and the Regulation on the Supervisory Council. Bank’s Shareholders and a plan of action for For decision-making purposes, each member work with the shareholders during the upcoming of the Council has one vote at meetings. calendar year. Independent Member of the VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

98 99 Supervisory Council and Chairman of the VTB Bank employees: Alexey Moiseev (since 24 June In 2016, the Supervisory Council discussed and approval of the agenda of the annual and extraordinary Shareholder Consultative Council Valery Petrov 2016) and Alexey Ulyukayev (until 15 November took decisions on priority areas of the Bank’s General Meetings of Shareholders, recommendations and Senior Independent Director Sergey Galitsky 2016); as well as representatives of the state: activities, including the following issues: on the amount of dividends, the preliminary approval took part in meetings with minority shareholders. Sergey Dubinin, Matthias Warnig, Andrey of the Bank’s annual report, determination of the Kostin, Nikolai Kropachev (until 24 June 2016), approval of VTB Bank’s Development Strategy for amount of remuneration for the auditor’s services; Features of the Supervisory Council’s work Vladimir Chistyukhin, Andrey Sharonov and 2017–2019; approval of related-party transactions; as a partially state-owned company Alexey Ulyukayev (since 15 November 2016). approval of VTB Bank’s business plan and financial approval of the Supervisory Council to allow the plan for 2017; President and Chairman of the Board and members Corporate governance in partially state-owned In carrying out their functions on the Supervisory fulfilment of targets in the Long-Term Development of the Management Board to hold management companies differs as a result of the special status Council, the representatives of state interests Programme of VTB Bank for 2014–2018; positions in other organisations; of its major shareholder, the Russian Federation. must take into account the position of the acquisition and disposal of shares in the Bank’s election of Vladimir Verkhovshinsky, Gennady shareholder and vote on certain issues as subsidiary companies; Soldatenkov and Mikhail Zadornov as members of the VTB Bank Supervisory Council includes directed by the shareholder on the basis of establishment/reorganisation of the Bank’s Management Board of VTB Bank, as well as of Mikhail representatives of state interests who are state the directives of the Russian Federation. subsidiary companies; Sukhov and Olga Dergunova as Deputies to the procedure for identifying and selling the Bank’s President and Chairman of the Management Board. Statistics on the meetings of the Supervisory Council non-core assets; opening of the Bank’s branches; As part of the organisation of an effective risk Meeting format 2015 2016 operational efficiency of VTB Group companies management and internal control system within Number of meetings in person 8 8 (including the global network); the Bank’s Supervisory Council in 2016: Number of meetings conducted by absentee ballots 20 13 structure and volume of VTB Bank’s bad assets. approval of new versions of VTB Bank Risk and Participation of members of the Supervisory Council in meetings/absentee voting in 2016 In addition, in 2016, the agenda of the Capital Management Strategy and of the Procedure Supervisory Council included such issues as: for Managing the Most Significant Risks; in-person in-person review of the report on the status of risk management meetings, meetings, election of the senior independent director; and an assessment of the effectiveness thereof; Members of the Supervisory Number of meetings personal written Council (absentee voting) participation opinion absentee ballot review of the report on the results of the approval of the action plan for providing business assessment of the corporate governance system; continuity and/or operational recovery in case of a Sergey Dubinin 21 of 21 7/87.50% 1/12.50% 13/100% review of the reports on the activities of the material deterioration in the Bank’s financial standing; Matthias Warnig 19* of 21 5/62.50% 3/37.50% 11/84.62% Supervisory Council’s committees; review of reports on the activities of the internal audit Sergey Galitsky 21 of 21 4/50% 4/50% 13/100% approval of a new edition of VTB Bank Human department and approval of its work plan; Yves-Thibault de Silguy 19* of 21 6/75% 2/25% 11/84.62% Resources Policy and Remuneration Policy, a new review of the reports issued by responsible VTB Shahmar Movsumov 21 of 21 4/50% 4/50% 13/100% edition of the List of Key Performance Indicators Bank managers on the results of implementation of Alexey Moiseev (since 24 June 2016) 10 of 11 2/50% 2/50% 6/85.71% for assessing the activities of the members of the the Consolidated Policy on the Prevention of Money Andrey Kostin 20** of 21 8/100% 0/0% 12/92.31% Management Board of VTB Bank, the Regulation Laundering and Terrorist Financing (AML/CTF); review

Nikolai Kropachev (until 24 June 2016) 10 of 10 2/50% 2/50% 6/100% on the Procedure for Disclosing Information about of the recommended measures for improving AML/

Valery Petrov 21 of 21 7/87.50% 1/12.50% 13/100% VTB Bank Related-Party Transactions, a new edition CTF for 2015; of the Regulation on the Procurement of Goods, review of the quarterly reports by inspectors on Vladimir Chistyukhin 21 of 21 5/62.50% 3/37.50% 13/100% Works and Services by VTB Bank, amendment No the Bank’s professional activities in the securities Andrey Sharonov 21 of 21 5/62.50% 3/37.50% 13/100% 1 to the Regulation on the VTB Bank Supervisory market and specialised depositary, as well as on Alexey Ulyukayev 18 of 21 6/75% 1/12.50% 11/84.62% Council Staff and Remuneration Committee; preventing abuse of insider information and market review of the report on the Bank’s sponsorship and manipulation. * Did not participate in meetings (absentee voting) whose agenda items could have involved him in a legal or business-related conflict of interest. charitable activities for the year, as well as plans ** Andrey Kostin did not take part in absentee voting for Supervisory Council meetings whose agenda contained only matters on the approval of transactions in the execution of which he had an interest, and thus his vote was not taken into account in the voting results in accordance with Article for sponsorship and the provision of charitable In total, the Supervisory Council 83 of the Federal Law on Joint Stock Companies. assistance in the upcoming calendar year; reviewed 240 issues in 2016. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

100 101 Issues considered by the Supervisory Council in 2016 Committees of the Supervisory Council Statistics on meetings of the Audit Committee in 2016

The Supervisory Council has standing committees in-person in-person that support the effective implementation of the meetings, meetings, Number of meetings personal written Council’s managerial and supervisory functions Members of the Committee (absentee voting) participation opinion absentee ballot and that provide preliminary detailed analysis Yves-Thibault de Silguy 15 of 15 6/100% 0/0% 9/100% and recommendations regarding the issues Matthias Warnig 15 of 15 4/66.67% 2/33.33% 9/100% that the Council deems most important. Valery Petrov 15 of 15 6/100% 0/0% 9/100% At the end of 2016, the Supervisory Council had the following committees: In 2016, a total of 15 meetings (six in-person regular review of the consolidated financial statements meetings and nine with absentee voting) were of VTB Bank in compliance with IFRS and quarterly Audit Committee; held by the Audit Committee. Considerable focus monitoring of the financial results of VTB Group; Staff and Remuneration Committee; was placed on analysis and improvement of preliminary review of matters related to the Bank’s Strategy and Corporate Governance Committee. internal control at the Bank and within VTB Group, Internal Audit Department: analysis of the schedule including in the context of VTB’s merger with the for internal auditing, discussion of reports of the Defining priorities for VTB activities (10.8 %) The Supervisory Council committees are not Bank of Moscow, as well as the effectiveness Department of Internal Audit on significant violations Risks, internal control (8.3 %) governing bodies of the Bank and cannot act of various types of risk management. and shortcomings discovered at VTB Bank and its Personnel-related matters (9.2 %) in the name of the Supervisory Council. subsidiaries, recommendations by the internal audit Corporate governance and procedural matters (36.7 %) In 2016, the key areas addressed by the and external supervisory bodies to further improve the Review of reports (3.3 %) Audit Committee Audit Committee were the following: procedures involved in internal and external auditing; Approval of transactions (31.7 %) review of other matters related to the Bank’s activity, in The Audit Committee performs an analytical and strategic issues related to development and risk some cases based on particular assignments from the Details of the Supervisory Council’s work can support function to ensure that internal control management within the Bank and VTB Group, Supervisory Council. be viewed on the Bank’s website at: http:// systems work effectively. The Committee’s remit including changes in the quality of corporate and retail www.vtb.ru/ir/governance/council/activity/. includes general oversight over the preparation loan portfolios, results management of operational Staff and Remuneration Committee of financial reports and the functioning of the and market risk, liquidity risk at VTB Bank, taking into Approval of related-party transactions Bank’s risk management and internal control account the implementation of the Bank of Russia’s The Staff and Remuneration Committee’s role is to procedures, as well as the appraisal of candidates introduction of international approaches in this area assist the Supervisory Council in appointing and In accordance with the amendments to the Federal for external auditor, review of the audit report, (Basel III); remunerating members of the Bank’s governing Law on Joint Stock Companies, which entered review of the effectiveness of the internal control review of the current status of and prospects for bodies and the Statutory Audit Commission. into force on 1 January 2017, the procedures procedures and the drafting of proposals to development of VTB Bank’s retail business following for carrying out related-party transactions were improve them. The Audit Committee is headed the merger with the Bank of Moscow; The Committee comprises members of the significantly changed. In particular, in place of the by an independent member of the Supervisory existing principles on reporting by sector; Supervisory Council who have relevant procedure for approving such transactions, a new Council. The majority of the members of the methods for maintaining the effectiveness of expertise and experience in this area. procedure was introduced whereby the members Committee are also independent directors. the internal control system in preventing money of the Supervisory Council and the members of the laundering and the financing of terrorism; As of 31 December 2016, the Staff and Remuneration company’s collective executive body, as well as As of 31 December 2016, the Audit Committee oversight over the annual open tender for the external Committee comprised the following members: shareholders (if all of the members of the Supervisory comprised the following members: auditor, including the provision of recommendations Council are related parties to the transaction), are on candidates to the Supervisory Council; Sergey Dubinin (Committee Chairman, Chairman of to be informed about planned transactions. Yves-Thibault de Silguy (Committee Chairman, coordinating with the external auditor, assessment of the Supervisory Council); independent member of the Supervisory Council); the external auditor’s report and recommendations Sergey Galitsky (independent member of the In this context, the Regulation on the Procedure Matthias Warnig (member of the Supervisory Council); provided as part of the audit process and of the review Supervisory Council, Senior Independent Director); for Providing Information about VTB Bank Valery Petrov (independent member of the of the Bank and Group’s interim and annual RAS and Valery Petrov (independent member of the Related-Party Transactions was approved by Supervisory Council). IFRS financial statements; Supervisory Council). a decision of the Supervisory Council. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

102 103 Statistics on the meetings of the Staff and Remuneration Committee in 2016 Statistics on the meetings of the Strategy and Corporate Governance Committee in 2016

in-person in-person in-person in-person meetings, meetings, meetings, meetings, Number of meetings personal written Number of meetings personal written Members of the Committee (absentee voting) participation opinion absentee ballot Members of the Committee (absentee voting) participation opinion absentee ballot Nikolai Kropachev (until 24 June Sergey Galitsky 14 of 14 2/40% 3/60% 9/100% 2016) 8 of 8 2/100% 0/0% 6/100% Sergey Dubinin (until 24 June 2016) 6 of 6 1/50% 1/50% 4/100% Sergey Dubinin (since 24 June 2016) 7 of 7 1/100% 0/0% 6/100% Andrey Kostin 13 of 14 4/80% 0/0% 9/100% Sergey Galitsky 15 of 15 3/100% 0/0% 12/100% Shahmar Movsumov 13 of 14 3/60% 2/40% 8/88.89% Valery Petrov 15 of 15 3/100% 0/0% 12/100% Valery Petrov 14 of 14 4/80% 1/20% 9/100%

Alexey Ulyukayev 10 of 14 2/40% 1/20% 7/77.78%

In 2016, a total of 15 Committee meetings (three As of 31 December 2016, the Strategy Vladimir Chistyukhin 13 of 14 2/40% 2/40% 9/100%

in-person meetings and 12 in the form of absentee and Corporate Governance Committee Andrey Sharonov 12 of 14 3/60% 1/20% 7/77.78%

voting) were held. The meetings considered issues comprised the following members: Alexey Moiseev (since 24 June 2016) 8 of 8 2/66.67% 1/33.33% 5/100% such as the composition of the Supervisory Council and Statutory Audit Commission, regulatory documents Sergey Galitsky (independent member of the In 2016, the Strategy and Corporate Governance Regulation on the Quality Management System for describing the remuneration policy for the members Supervisory Council, Senior Independent Director); Committee held 14 meetings (five in-person VTB Bank Products (Services); of the Supervisory Council and the Statutory Audit Andrey Kostin (member of the Supervisory Council); meetings and nine with absentee voting). At these matters related to the Bank’s participation in Commission, the selection and remuneration of Shahmar Movsumov (independent member of the meetings, the following matters were considered: subsidiary companies; members of the Bank’s Management Board, approval of Supervisory Council); procedural matters. the introduction of a programme for first-time members Alexey Moiseev (Committee Chairman since 24 VTB Bank Development Strategy for 2017–2019; elected to the Supervisory Council of VTB Bank, along November 2016, member of the Supervisory VTB Bank Risk and Capital Management Strategy; More information about the Supervisory Council and with other issues in accordance with its main functions. Council); VTB Bank’s business plan for 2017; its committees can be found on the Bank’s website Valery Petrov (independent member of the the Bank’s plan to develop lending for small and at: http://www.vtb.ru/ir/governance/council/. Strategy and Corporate Governance Committee Supervisory Council); medium-sized enterprises; Alexey Ulyukayev (member of the Supervisory report on the implementation of VTB Bank Long-Term Corporate Secretary The Strategy and Corporate Governance Committee Council, Chairman of the Committee until 24 Development Programme for 2014–2018 based on assists the Supervisory Council on matters of strategy November 2016); the results of 2015; VTB Bank established the position of Corporate and corporate governance. The Committee’s main tasks Vladimir Chistyukhin (member of the Supervisory results of the merger between the Bank of Moscow Secretary in 2011 while introducing measures are to set the Bank’s short-, medium- and long-term Council); and VTB Bank; to improve its corporate governance system. strategic objectives and priorities and to monitor Andrey Sharonov (member of the Supervisory distribution of profits for 2015 and determination of progress towards achieving them; to support and Council). the amount of dividends to be paid out; The Corporate Secretary is a Bank official who improve corporate governance; and to assist in the analysis of the influence of the payment of interim oversees compliance of the Bank’s management effective strategic management of the Bank’s capital. dividends on VTB Bank’s financial stability; and employees with applicable legislation, the results of the assessment of the corporate Charter and bylaws that guarantee shareholders’ governance system carried out by the Supervisory interests and ability to exercise their legal rights. Council, and of the independent monitoring of the The Corporate Secretary also provides a liaison Bank’s corporate governance system; between the Bank and its shareholders, promotes proposals for the development of the system for the development of corporate governance practices working with VTB Bank minority shareholders; and supports the smooth operation of the Bank’s procedures for managing VTB Bank’s most significant Supervisory Council. Functionally, the Corporate risks; Secretary is elected by and reports to the Supervisory action plan for ensuring business continuity in case Council and, administratively, to the President and of a material deterioration in the Bank’s financial Chairman of the Bank’s Management Board. The standing; Corporate Secretary is subordinate to the Supervisory VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

104 105 Council and is appointed and dismissed by decision ensuring the disclosure of information about On 28 September 2011, 5.5. Management Board of VTB Bank of the Supervisory Council. The report on the work of the Bank and archiving the Bank’s corporate the Supervisory Council the Corporate Secretary is reviewed and approved documents; elected Evgeniy Ignatyev The Management Board is the collective on an annual basis by the Bank’s Supervisory coordinating and monitoring interaction between as Corporate Secretary executive body of VTB Bank, and together with Council. The report on work for 2015 was approved the Bank and its shareholders, helping to avoid following recommendations the President and Chairman, it oversees the by the Supervisory Council on 3 March 2016. corporate conflicts; from the Strategy and Bank’s day-to-day operations. The Management participating in improving the system and Corporate Governance Board reports to the General Meeting of The administration of the Supervisory Council functioning of the Bank’s corporate governance; Committee and the Staff and Shareholders and the Supervisory Council. operates under the guidance of the Corporate ensuring interaction with the Bank’s regulatory Remuneration Committee. Secretary. The Corporate Secretary is Secretary agencies, trade operators, the registrar and the The Management Board acts in accordance with to the Supervisory Council and also serves as Statutory Audit Commission; Biography Russian legislation, the Bank’s Charter and the Secretary for the General Meeting of Shareholders. other matters in accordance with the Regulation on Regulation of the Management Board as approved the Corporate Secretary. Since June 2013 – Chief of Staff of VTB Bank by the General Meeting of Shareholders. The Staff and Remuneration Committee reviews Supervisory Council and Corporate Secretary; candidates for the position and provides The Corporate Secretary keeps the Supervisory 2011–2013 – Corporate Secretary of VTB Bank; The Supervisory Council is responsible for recommendations to the Supervisory Council. Council informed about the work of VTB Bank 2010–2011 – Director of the Shareholder determining the size and composition of the by providing information to the members Relations Service at VTB Bank; Management Board, for electing its members, The Corporate Secretary acts on the basis of the of the Supervisory Council about: 2008–2010 – Senior Manager of the Debt Origination and for pre-term termination of their powers if Regulation on the Corporate Secretary of VTB Bank, and Investor Relations Department at VTB Bank; necessary. Members of the Management Board approved by the Supervisory Council of VTB Bank significant events and key personnel changes at the 2004–2008 – Chief Consultant, Deputy Director are appointed by the Supervisory Council. The (minutes No 22 of 7 September 2015), which takes Bank, reviews of financial markets, the Bank’s stock (acting director) of the Corporate Governance term of an employment contract with a member of into account the requirements of the Listing Rules of prices and global depository receipts, press reviews Department at JSC VTB Bank North-West the Management Board may be no more than five CJSC MICEX Stock Exchange, the recommendation of about the Bank and VTB Group, information on the (former Industrial Construction Bank); years before it must be reviewed for renewal. the Corporate Governance Code approved by the Board work carried out with shareholders and the Bank’s 2003–2004 – Lawyer, CJSC Investtorg; Directors of the Bank of Russia and the guidelines shareholder structure (weekly); 2002–2003 – Assistant Lawyer, CJSC The Management Board is in charge of the day-to-day of the Federal Property Management Agency. the Bank’s liquidity, the list of persons affiliated Exchange Complex (St. Petersburg). operations of VTB that fall within its area of expertise, with the Bank (quarterly); and it is responsible for implementing the decisions The Regulation on VTB Bank’s Corporate Secretary the results of audits of the Bank, its subsidiaries Born in 1981. In 1999, graduated from the of the General Meeting of Shareholders and the is available on the Bank’s website at: http:// and departments by the Bank of Russia; St. Petersburg Social Services School, majoring in Supervisory Council. More detailed information on www.vtb.ru/upload/iblock/b7c/polozhenie- changes in Russian legislation with implications for Law. 2002 – Law Degree from St. Petersburg State the powers of the Management Board is provided o-korporativnom-sekretare-2015.pdf. members of the Supervisory Council. University of Maritime and Inland Shipping. in the Regulation on the Management Board, available on the Bank’s website at: http://www. The Corporate Secretary’s main In order to maintain the Bank’s listing in accordance Holds no shares of the Bank’s charter vtb.com/upload/iblock/bab/regulation_on_jsc_ responsibilities include: with the Moscow Exchange Listing Rules, the capital as of 31 December 2016. vtb_bank_management_board_2016.pdf. Corporate Secretary carries out the following: participation in preparations for and the holding of Winner of the Corporate Governance Director General Meetings of Shareholders and compliance monitoring the compliance of shares with the Listing – Corporate Secretary category at the Director with the requirements of Russian legislation, the VTB Rules, as well as the preparation and presentation of the Year awards held by the Independent Bank Charter and other Bank’s bylaws; to the Moscow Exchange of quarterly and periodic Directors Association and the Russian Union administration of the Supervisory Council’s operations financial reports and Bank’s documents; of Industrialists and Entrepreneurs. and supervision of preparations for and the holding of providing profiles of the independent directors; Council meetings; disclosure and reporting. He has no family ties to other members of the governing or supervisory bodies of VTB Bank. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

106 107 Composition of the Management Board Previous positions: and OJSC VTB Bank (Azerbaijan). Chairman of the Holds shares equivalent to 0.00022% of the 2008–2011 – Senior Vice President of JSC Board of Directors of CJSC VTB Bank (Belarus), CJSC Bank’s charter capital as of 31 December 2016. VTB Bank; President of CJSC VTB Capital; Dynamo Moscow Football Club, Glavkino Ltd. Deputy Andrey Kostin 2006–2008 – Head of Investment Banking, Chairman of the Supervisory Council of PJSC VTB Holds 0.00112% of ordinary shares of President and Chairman of the First Deputy Chairman of the Management Bank (Ukraine). Member of the Supervisory Council the Bank as of 31 December 2016. Management Board, Member Board, Deutsche Bank Russia; of OJSC EvroFinance Mosnarbank, VTB 24 (PJSC). of the Supervisory Council 2002–2006 – Director, Head of Eastern European Member of the Board of Directors of OJSC ROSKINO, Operations at Deutsche Bank AG, London; NPJSC National Satellite Company, and JSC Russian Olga Dergunova 1996–2002 – Analyst, Executive Director of Emerging Media Group. Chairman of the Board of the Bolshoi Deputy President and Chairman Markets Department, Lehman Brothers Bank, London; Theatre Foundation. Chairman of the Public Council of the Management Board 1994–1996 – Dealer, Senior Dealer at the under the Federal Security Service of the Russian Currency Trading Department, JSC INCOMBANK. Federation. President of the Federation of Artistic Term of office in accordance with employment Gymnastics of Russia. Vice President of the Federation contract: 10 June 2012 to 9 June 2017. Born in 1970. In 1994, graduated from Plekhanov of International Gymnastics (FIG). Member of the Board Russian University of Economics. In 2002, graduated of Trustees of the International Student Basketball (For a detailed biography, see the from London Business School with an MBA. League, the Moscow State Institute of International Supervisory Council section, p. 92-93) Relations (University) of the Russian Ministry of Foreign Term of office in accordance with employment Holds shares equivalent to 0.00362% of the Affairs, the Russian Academy of National Economy contract: 7 July 2016 to 9 June 2017. Bank’s charter capital as of 31 December 2016. and Public Administration under the President of Yuri Soloviev the Russian Federation (RANEiPA) and the Moscow Joined VTB Bank in 2016, and was previously First Deputy President Holds 0.01819% of ordinary shares of State Tchaikovsky Conservatory (University). Member employed at VTB Bank from 2007 to 2012. Since July and Chairman of the the Bank as of 31 December 2016. of the Board of the Foundation for Restoring the 2016 – Deputy President and Chairman of the Board. Management Board New Jerusalem Monastery of the Russian Orthodox Until July 2016 – Advisor and Senior Vice President. Church, the Development of St. Petersburg State Vasily Titov University endowment fund. Member of the Executive She is also a member of the Supervisory Board of the First Deputy President Committee of the Board of Trustees of the Federal Federal State Autonomous Educational Institution and Chairman of the State Budgetary Culture Institution, the State of Higher Professional Education Moscow Institute Management Board Academic Bolshoi Theatre of Russia, and the Deputy of Physics and Technology (State University) (MIPT). Term of office in accordance with employment Representative of the Business Advisory Council Member of the Board of Trustees of the Graduate contract: 10 June 2012 to 9 June 2017. of the Asia-Pacific Economic Cooperation forum. School of Management at the Federal State Budget Institution of Higher Professional Education Joined VTB Bank in April 2008. Since Previous positions: St. Petersburg State University. Member of the Board May 2011 – First Deputy President and 1998–2002 – Deputy Head of the Administrative of the non-profit foundation Forum Analytical Centre. Chairman of the Management Board. Term of office in accordance with employment Department, External and Public Relations Director, contract: 10 June 2012 to 9 June 2017. Head of Information and External Relations at Previous positions: He is also Chairman of the Board of Directors of Vnesheconombank of the USSR. Member of the 2012–2016 – Deputy Minister of Economic JSC VTB Capital, JSC Holding VTB Capital, VTB Joined VTB Bank in 2002. Since August 2009 Board of Directors at Vnesheconombank; Development of the Russian Federation – Head of Capital IB Holding Ltd, VTB Capital Investment – First Deputy President and Chairman of the 1996–1998 – Deputy Managing Director of the Federal Agency for State Property Management; Management Ltd, JSC VTB Leasing, VTB Management Board. Before August 2009 – Deputy the All-Russian Automobile Alliance; 2007–2012 – Member of the Infrastructure Investment Ltd and T2 RTK Holding President and Chairman of the Management 1996 – Assistant to the First Deputy Chairman Management Board of VTB Bank; Ltd. Member of the Supervisory Council of PJSC Board, member of the Management Board, of the Government of the Russian Federation. 1994–2007 – General Director of Microsoft Rus, VTB Bank (Ukraine). Member of the Board of Senior Vice President and Vice President. President of Microsoft Russia and CIS countries; Directors of VTB Capital Investment Management Born in 1960. In 1983, graduated from A.A. 1992–1994 – Senior Researcher at the Holding AG, VTB Capital Private Equity Holding He is also Chairman of the Supervisory Council Zhdanov Leningrad State University, and in limited liability partnership Mikroinform; AG, and Insurance Company VTB Insurance, Ltd. of VTB Bank (Austria) AG, JSC VTB Bank (Georgia) 2002 from the Financial Academy under the 1990–1991 – Senior Researcher at the joint Government of the Russian Federation. Soviet-American enterprise Paragraph; VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

108 109 1987–1990 – Engineer, Software Engineer 1993–1994 – Director, Chairman of GagarinStroi 1995–2002 – served in Debt Management, Capital 2006–2010 – Vice Governor of St. Petersburg; at the Voskhod Research Institute. Industrial and Investment Centre. and Transaction Planning, Asset and Liability 2001–2003 – First Deputy Chairman of the Management Management at Lehman Brothers, London. Board of JSC Industrial and Construction Bank; Born in 1965. In 1987, graduated from the Born in 1955. In 1982, graduated from the 1999–2001 – Deputy Chairman of the Management Plekhanov Russian University of Economics. Novosibirsk Agricultural Institute. PhD in Economics. Born in 1972. In 2002, graduated from London Board of JSC Industrial and Construction Bank; Business School with a Master’s Degree in Finance. 1993–1999 – Deputy Managing Director, Holds no shares of the Bank as of 31 December 2016. Holds shares equivalent to 0.00009% of the and later Managing Director of the Bank’s charter capital as of 31 December 2016. Holds shares equivalent to 0.00207% of the St. Petersburg Currency Exchange. Bank’s charter capital as of 31 December 2016. Valery Lukyanenko Holds 0.00046% of ordinary shares of Awards: Order for Merit to the Fatherland, Deputy President and Chairman the Bank as of 31 December 2016. Holds 0.01042% of ordinary shares of II Class; Order of Friendship. of the Management Board the Bank as of 31 December 2016. Born in 1960. In 1983, graduated from Herbert Moos the M.I. Kalinin Polytechnic Institute, Deputy President and Chairman Mikhail Oseevskiy Leningrad. PhD in Economics. of the Management Board Deputy President and Chairman of the Management Board Holds no shares of the Bank as of 31 December 2016.

Term of office in accordance with employment contract: 10 June 2012 to 9 June 2017. Andrei Puchkov Deputy President and Chairman Joined VTB Bank in 2002. Since August 2016, of the Management Board Deputy President and Chairman of the Management Term of office in accordance with employment Board. Since December 2008 – Member of the contract: 10 June 2012 to 9 June 2017. Term of office in accordance with employment Management Board. Before 2008 – Head of the contract: 16 August 2012 to 9 June 2017. First Corporate Business Division and Senior Vice Joined VTB Bank in 2009. Since November President; Senior Vice President and Head of 2009 – Deputy President and Chairman of Joined VTB Bank in 2012. Since August 2012 – Mid-Size Business in the First Corporate Business the Management Board. Before November Deputy President and Chairman of the Management Division; Senior Vice President of the First Corporate 2009 – Senior Vice President. Board. Before August 2012 – Advisor to President Term of office in accordance with employment Business Division; Vice President and Head of Large and Chairman of the Management Board. contract: 10 June 2012 to 9 June 2017. Corporate Business in the Fourth Corporate Business He is also Chairman of the Board of Directors of Division; Vice President; Counsellor to the President VTB Capital Plc. Member of the Board of Directors He is also a member of the Supervisory Council of Joined VTB Bank in 2002. Since December 2008 – and Chairman of the Management Board of VTB. of JSC VTB Leasing, VTB Factoring Ltd, VTB Capital VTB 24 (PJSC), JSC VTB Bank (Georgia). Member of Deputy President and Chairman of the Management IB Holding Ltd, JSC Holding VTB Capital, JSC VTB the Board of Directors of CJSC VTB Bank (Belarus), Board. Before December 2008, held the following He is also Chairman of the Board of Directors Capital, PJSC HALS-Development, VTB Debt Centre JSC VTB Bank (Kazakhstan), JSC Unified Electronic positions in the Bank’s legal department: Deputy of JSC VTB Bank (Belgrade). Member of the Ltd. Member of the Supervisory Council of VTB 24 Trading Platform. Chairman of the Board of Trustees Head of Department, Head of Department, Vice Supervisory Board of VTB 24 (PJSC). (PJSC), PJSC Post Bank and PJSC VTB Bank (Ukraine). of the St. Petersburg Local Orthodox Religious President (Head of Department), Senior Vice Organisation Kazan Diocese of the Russian Orthodox President (Head of Department), Senior Vice Previous positions: Previous positions: Church of St. Petersburg (Moscow Patriarchate). President and member of the Management Board. 2001–2002 – Chairman of the Council of Experts in 2008–2009 – CEO, VTB Capital Plc, London; Project Financing and Forecasting at JSCB Lanta-Bank; 2007–2008 – CFO, Lehman Brothers Previous positions: He is also Chairman of the Supervisory Council of 1994–2002 – Deputy Head of the State Asia-Pacific, Hong Kong; 2011–2012 – Deputy Minister of Economic JSC VTB Development. Member of the Supervisory Programmes Division, Head of the Foreign 2002–2007 – Head of Asset and Liability Development and Trade of the Russian Federation; Council of PJSC VTB Bank (Ukraine), VTB 24 (PJSC). Economic Relations Division at the Office of Management, Treasurer, Lehman 2010–2012 – Vice Governor of St. Petersburg and Chairman of the Board of Directors of VTB Debt Centre the President of the Russian Federation; Brothers Asia-Pacific, Tokyo; Head of the St. Petersburg City Administration; Ltd, PJSC Hals-Development and JSC BM Bank. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

110 111 Previous positions: 1994–1996 – Director of the Research and of the Management Board, Chairman of the 2008–2009 – Managing Director, Head of 1999–2002 – Member of the Forecasting Management Division, Moscow branch Management Board of OJSC VTB Bank North-West; Business Support Division, CJSC VTB Capital; Moscow City Bar Association; of the General Office of the Bank of Russia; 2006–2007 – Deputy Head of OJSC 1998–2008 – Head of the Fixed Income Securities 1996–1997 – Legal consultant in the Central 1993–1994 – Deputy Director of the Research and Vneshtorgbank Branch, St. Petersburg; Transactions Unit, Head of the Forex Transactions Economic Department of the Bank of Russia. Forecasting Division, Director of the Department 2004–2006 – Advisor to the General and Fixed Income Transactions Unit, Head of the of Financial Markets and Monetary Policy, Moscow Manager and Deputy General Manager Operational Division at Deutsche Bank Ltd; Born in 1977. In 1998, graduated from branch of the General Office of the Bank of Russia; of GUTA-BANK, North-West branch; 1994–1998 – Economist, Head of Back Office, the Law Department of the Lomonosov 1993 – Director of the Department of Financial 1996–2004 – Consultant with the Liquidity Head of Interbank Transactions Unit of FX Moscow State University. Markets and Monetary Policy, Moscow branch Management Department, Consultant with the Transactions Division, JSCB Avtobank; of the General Office of the Bank of Russia. Transfer Operations Department, Consultant with 1992–1994 – FX Transactions Holds shares equivalent to 0.00006% of the the Department of Financial Instruments, Senior Economist at Rosvooruzhenie. Bank’s charter capital as of 31 December 2016. Born in 1968. In 1990, graduated Consultant with the Brokerage Department, from the Lomonosov Moscow State Chief Acquiring and Authorisation Expert, Head Born in 1972. In 1995, graduated from Moscow Holds 0.00030% of ordinary shares of University. PhD in Economics. of the Acquiring and Authorisation Department State Institute of International Relations. the Bank as of 31 December 2016. at OJSC Industry and Construction Bank. Holds no shares of the Bank as of 31 December 2016. Holds shares equivalent to 0.00021% of the Born in 1974. In 1996, graduated from Bank’s charter capital as of 31 December 2016. Mikhail Sukhov St. Petersburg State University of Economics Deputy President and Chairman Denis Bortnikov and Finance, majoring in National Economy. Holds 0.00103% of ordinary shares of of the Management Board Member of the the Bank as of 31 December 2016. Management Board Holds no shares of the Bank as of 31 December 2016.

Vladimir Verkhoshinsky Victoria Vanurina Member of the Member of the Management Board Management Board Term of office in accordance with employment contract: 16 November 2016 to 9 June 2017. Term of office in accordance with employment contract: 10 June 2012 to 9 June 2017. Joined VTB Bank in 2016. Since November 2016 – Deputy President and Chairman Joined VTB Bank in January 2006. Since November of the Management Board. 2011 – Member of the Management Board. Term of office in accordance with employment Before November 2011 – Head of North-Western Term of office in accordance with employment contract: 21 June 2016 to 9 June 2017. Previous positions: Regional Centre, Senior Vice President. contract: 10 June 2012 to 9 June 2017. 2012–2016 – Deputy Chairman of the Bank of Russia; Joined VTB Group in 2009. Since June 2016 – 2001–2012 – Director of the Bank of Russia He is also a member of the board of the Joined VTB Bank in October 2009. Since August Member of the Management Board. Until June Department for Licensing Credit Institutions Leningrad Regional Chamber of Commerce 2011 – Member of the Management Board. 2016 – Senior Vice President of VTB Bank (PJSC); and Their Financial Rehabilitation; and Industry. Member of the Board of Trustees Deputy President and Chairman of the Board, 1998–2001 – Deputy Director of the Prudential of the Federal State Budget Institution of She is also a member of the Board of Member of the Board, Vice-President of OJSC Bank Banking Supervision Department, Bank of Russia; Higher Professional Education St. Petersburg Directors of JSC Holding VTB Capital, of Moscow; Vice President and Head of Corporate 1998 – Deputy Director of Prudential Banking State University of Economics. CJSC VTB Specialised Depository. Development and Strategy of the Department of Supervision and Head of the Prudential Supervision Strategy and Corporate Development, Department Methodology Division, Bank of Russia; Previous positions: Previous positions: Head, Managing Director of JSC VTB Bank. 1996–1997 – Director of the General 2007–2011 – Deputy Chairman of the Management 2009–2011 – Senior Vice President of JSC Analysis Division of the Prudential Banking Board, Head of Department, First Deputy Chairman VTB Bank, Chief Operating Officer, member of He is also a member of the Board of Directors Supervision Department, Bank of Russia; the Management Board, CJSC VTB Capital; of Insurance Company VTB Insurance, Ltd. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

112 113 Previous positions: 24 (PJSC), JSC VTB Bank (Georgia), PJSC Post Bank, Maxim Kondratenko 2001–2003 – Deputy Head of the Private 2008–2009 – Financial Analyst at the representative the Federal State Autonomous Educational Institution Member of the and Corporate Services Department, CJSC office of the VR Capital Investment Fund (Moscow); of Higher Professional Education at the National Management Board Mezhdunarodny Moskovsky Bank; 2003–2006 – Junior Analyst, Analyst at Research University Higher School of Economics. 1999–2001 – Head of the Corporate Services the representative office of the McKinsey & Department, Austria Creditanstalt Bank Company Consulting Company (Moscow); Previous positions: (Russia) (from 28 September 2001, CJSC 2002–2003 – Specialist in the Internal 2003–2005 – Deputy of the of the fourth Mezhdunarodny Moskovsky Bank); Control Service for Operations Management convocation of the Russian State Duma; 1999–1999 – General Director, CitiConsult Ltd; for Private Clients, CJSC Citibank. 1999–2003 – Deputy of the third 1997–1999 – Deputy Department convocation of the Russian State Duma; Term of office in accordance with employment Manager, RK-International Rossiysky Born in 1981. In 2003, graduated from the 1997–1999 – Minister of Finance contract: 27 November 2015 to 9 June 2017. Kredit Commercial Bank (since 13 January Finance Academy under the Government of the of the Russian Federation; 1998, OJSC Rossiysky Kredit Bank); Russian Federation. In 2008, graduated from 1995–1997 – Deputy of the second Joined VTB Bank in August 2013. Since November 1996–1997 – Chief Specialist for Stanford University (USA) with an MBA. convocation of the Russian State Duma; 2015 – Member of the Management Board. operations with non-residents and client 1993–1995 – Deputy of the first development in the Liabilities Department, Holds no shares of the Bank’s charter convocation of the Russian State Duma; He is also a Member of the Supervisory Rossiysky Kredit Commercial Bank; capital as of 31 December 2016. 1991–1993 – Chief Researcher, Member Council of PJSC VTB Bank (Ukraine). Member 1996–1996 – Deputy Head, Chief Specialist, of the Board of the Centre for Economic of the Board of Directors of JSC BM Bank. Regional Clients Section, Regional Development and and Political Research (EPIcentre); Regional Policy Department, Rossiysky Kredit Bank; Mikhail Zadornov 1990–1991 – Member of the State Previous positions: 1995–1996 – Deputy Head, Chief Specialist, Member of the Economic Reform Committee of the 2013–2015 – Head of the Risk Department, Information and Analysis Section, Regional Management Board RSFSR Council of Ministers; Senior Vice President, JSC VTB Bank; Development, Analysis and Planning 1989–1990 – Junior Research Assistant and 2012–2013 – Director of Restructuring and Department, Rossiysky Kredit Bank; Research Assistant at the Institute of the Bad Loan Department, CJSC UniCredit Bank; 1994–1995 – Manager, Clients Sector, Passive Economy, as well as an expert for the Planning 2009–2012 – Director of the Credit Restructuring Operations Department, Rossiysky Kredit Bank. and Budgetary Commission of the USSR Supreme Department, CJSC UniCredit Bank; Council and Research Assistant at the Institute of 2008–2009 – Member of the Management Born in 1973. Graduated in 1996 from Lomonosov the Economy of the USSR Academy of Sciences. Board, JSC Russian Standard Bank; Moscow State University with a major in Philosophy. Term of office in accordance with employment 2008–2008 – Deputy Director of the Retail Business In 1999, he graduated from the Russian Foreign contract: 29 December 2016 to 9 June 2017. Born in 1963. In 1984, graduated from the Russian Department, JSC Russian Standard Bank; Trade Academy of the Russian Trade Ministry University of Economics. PhD in Economics. 2007–2008 – Department Head, Executive with a specialisation in International Economics. Joined VTB Group in 2005. Since December Director of the Retail Sales and Private Banking PhD in Economics. In 2007, he graduated from 2016 – Member of the Management Board of VTB Holds shares equivalent to 0.00005% of the Department, CJSC Mezhdunarodny Moskovsky Bank London Business School with an MBA. Bank (PJSC), in addition to other duties. Since Bank’s charter capital as of 31 December 2016. (since 26 December 2007, CJSC UniCredit Bank); 2005 – President and Chairman of VTB 24 (PJSC) 2006–2007 – General Manager, CJSC Holds no shares of the Bank’s charter Management Board. He is also Chairman of the Board Holds 0.00025% of ordinary shares of Mezhdunarodny Moskovsky Bank; capital as of 31 December 2016. of Directors of Insurance Company VTB Insurance, Ltd. the Bank as of 31 December 2016. 2003–2006 – Head of the Retail Sales Department, Member of the Board of Directors of CJSC VTB Bank CJSC Mezhdunarodny Moskovsky Bank; (Armenia). Member of the Supervisory Council of VTB VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

114 115 Erkin Norov Gennady Soldatenkov President and Chairman of the Management Board In this regard, a bonus has been established Member of the Member of the amounting to 30% on top of the base Management Board Management Board The President and Chairman of the Management payment of a Supervisory Council member Board oversees VTB’s day-to-day operations, for chairmanship of the Supervisory Council, with responsibility for implementing the with a 20% bonus on top of the base pay for Group’s strategy and meeting strategic targets. chairmanship of a Council committee and a 10% The President and Chairman reports to the bonus on top of the base pay for membership General Meeting of Shareholders and the of a Supervisory Council committee. Supervisory Council. Andrey Kostin has been Term of office in accordance with employment Term of office in accordance with employment President and Chairman of the Management The bonus is paid to a Supervisory Council contract: 10 June 2012 to 9 June 2017. contract: 29 December 2016 to 9 June 2017. Board of VTB Bank since June 2002. member or a member of a committee of the Supervisory Council provided that in the Joined VTB Bank in 2002. Member of Management Joined VTB Group in 2001. Since December 2016 – reporting year he or she attended in person or Board from 2002 to 2007 and since September 2009. Member of the Management Board of VTB Bank 5.6. Remuneration of the members participated via video-conferencing in at least (PJSC), in addition to other duties. Since May 2016 – of the Supervisory Council half of the meetings of the Council, and that he He is also a member of the Board of Directors of President and Chairman of the Management Board or she also participated in at least half of the JSC BM Bank, Airport Alliance (Netherlands) B.V. of JSC BM Bank. Until May 2016 – President and and the Management Board absentee votes of the Supervisory Council. Chairman of the Management Board of OJSC Bank Previous positions: of Moscow, First Deputy President and Chairman In accordance with a resolution of the General In compliance with the Regulation on 2007–2009 – Senior Vice President, Management of the Management Board of OJSC Bank of Moscow Meeting of Shareholders, the members Remuneration and Compensation for Expenses Board member of JSC NOMOS-BANK; (2011–2015), Deputy President and Chairman of of the VTB Bank Supervisory Council may Incurred by Members of the Supervisory Council 2002–2007 – Vice President, Senior Vice President, the Management Board of VTB Bank (2001–2011). receive remuneration and compensation of the Bank, the General Meeting of Shareholders member of Management Board of the Bank for Foreign for expenses incurred in the course of approved the payment of expenses incurred by Trade of the Russian Federation (JSC Vneshtorgbank); He is also a member of the Board their duties during their term in office. members of the Supervisory Council who are 1999–2002 – Development Director, of Directors of JSC BM Bank. not state employees during the performance Development and Strategic Planning Director, In 2016, the Annual General Meeting of of their duties as members of the Supervisory USSR Bank for Foreign Economic Activities; Previous positions: Shareholders of VTB Bank approved a new Council (accommodation, meals, travel services, 1999 – Department Head, Calculation of Taxable 1997–2001 – Deputy Chairman of the edition of the Regulation on Remuneration and including VIP lounge services, and other fees Base and Tax Revenue Planning Department, Management Board, Sberbank, Chairman of Compensation for Expenses Incurred by Members and charges for various forms of transport). Russian Ministry of Taxes and Duties; Moscow Regional Head Office of Sberbank; of the Supervisory Council. According to the 1992–1999 – Deputy Chairman of the Management 1992–1997 – Vice President of Sberbank, Chairman Regulation, the base of the remuneration is paid In accordance with current Russian legislation, Board for Development of JSC AvtoVAZ of Moscow Regional Head Office of Sberbank. to a Supervisory Council member, provided that members of the Supervisory Council who are state servicing – Lada Service; Marketing and Trade in the reporting year he or she attended in person employees do not receive any remuneration. Director, General Director of the Economy and Born in 1952. In 1975, he graduated from or participated via video-conferencing in at least Finance Department at AvtoVaz Corporation. the Moscow Finance Institute. In 1989, he half of the meetings of the Council, and that he On 24 June 2016, VTB Bank’s AGM graduated from the Moscow Higher Party or she also participated in at least half of the approved the following: Born in 1954. In 1976, graduated from School, and in 1990 from the Higher Commerce absentee votes of the Supervisory Council. the Lomonosov Moscow State University School of the Academy of National Economy a) To pay remuneration as follows to and in 2001 from the Academy of National under the USSR Council of Ministers. The total remuneration of a Supervisory Supervisory Council members who are Economy under the Government of the Council member is based on their participation not state employees: for their work on the Russian Federation. PhD in Economics. Holds shares equivalent to 0.00024% of the in Council activities, as a member of the Supervisory Council – RUB 4,600,000 each; Bank’s charter capital as of 31 December 2016. Council, as the Chairman of the Council Holds no shares of the Bank’s charter and for their actual activities as a member for chairmanship of the Supervisory capital as of 31 December 2016. Holds 0.0012% of ordinary shares of and/or Chairman of a committee. Council – RUB 1,380,000; the Bank as of 31 December 2016. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

116 117 for chairmanship of a Supervisory Council function properly, and that the transactions it carries 6. Zahar Sabantsev – Head of the Division for Bank’s systems of corporate governance, risk committee – RUB 920,000 each; out are legal. The Statutory Audit Commission is Monitoring the Finance Sector, Organisational management and internal control meet the elected at the AGM, which determines its size and Support and Associated Work of the requirements established by the laws of the Russian for membership of a Supervisory Council composition for the period until the next AGM. Financial Policy Department of the Ministry Federation and regulations of the Bank of Russia, committee – RUB 460,000 each. of Finance of the Russian Federation. and are in accordance with the nature and scale of At the AGM on 24 June 2016, shareholders elected the Bank’s operations. b) To provide compensation to Supervisory the Statutory Audit Commission as follows: On account of the election of new members of the Council members who are not state employees Statutory Audit Commission by the Annual General In 2016, VTB Bank Statutory Audit Commission for expenses they incur while carrying out their 1. Sergei Platonov – Chairman of the Statutory Meeting of the Shareholders, the following members held three in-person meetings and one duties, namely: accommodation, travel expenses Audit Commission, Deputy Director of the Financial left the Statutory Audit Commission in June 2015: meeting with absentee voting. (including VIP lounge services), other duties Policy Department, Ministry of Finance of the and fees for various forms of transport. Russian Federation, member of the Statutory Leonid Volkov – Plenipotentiary Representative In accordance with a resolution of the General Audit Commission of OJSC Gazprom, member of of the Chuvash Republic to the President of the Meeting of Shareholders, the members of In 2016, remuneration paid to members of the the Statutory Audit Commission of JSC AHML; Russian Federation, member of VTB Shareholders VTB Bank’s Statutory Audit Commission may Supervisory Council who are not state employees Consultative Council; receive remuneration and compensation totalled RUB 53,820 thousand (gross earnings), 2. Yevgeny Gontmakher – Deputy Director at Alexander Krivosheev – Advisor to the General for expenses incurred in the course of compared to RUB 49,680 thousand in 2015 the Primakov National Research Institute of Director of OJSC United Grain Company. their duties during their term in office. (gross earnings). Expenses incurred in the course World Economy and International Relations of their duties were also reimbursed. These (affiliated with the Russian Academy of Sciences), In 2016, the Statutory Audit Commission Since 2016, the Regulation on Remuneration expenses totalled RUB 1,525 thousand. Deputy Director of the Kudrin Fund of Civil elected by the Annual General Meeting of and Compensation Paid to the Members of the Initiatives, member of the Management Board, Shareholders on 25 June 2015, in accordance Statutory Audit Commission has been in force The Supervisory Council is responsible for Institute of Contemporary Development; with the Work Plan for VTB Bank Statutory at the Bank. According to this document, the determining the amount of the remuneration and Audit Commission for 2015–2016, audited basic part of the remuneration paid to members compensation paid to members of the Management 3. Mikhail Krasnov – Director of Verysell SA VTB Bank financial and economic activities for of the Statutory Audit Commission is 20% of Board. Salaries, including compensation and (Switzerland), member of the Statutory Audit 2015, as a result of which the Statutory Audit the average remuneration paid to a member of incentive payments, are fixed in the employment Commission of PJSC Rostelecom, member of the Commission reached the following conclusions: the Supervisory Council who is an independent contracts of the Management Board members. Committee for Strategic Planning of the Board of director or representative of the state. The actual Directors at OJSC Russian Venture Company; VTB Bank 2015 annual financial statements amount of remuneration paid to a member of the In 2016, members of the Management Board were prepared in accordance with the applicable Statutory Audit Commission during the reporting received remuneration (salary, bonuses) 4. Anastasia Olshanova – Deputy Head of the legislation and regulations of the Russian Federation period is determined based on the number of in the amount of RUB 361,805 thousand Department for the Privatisation of Market and the Bank of Russia; days in the corporate year during which said (RUB 399,031 thousand in 2015). Organisations at the Office of Property Relations and VTB Bank 2015 annual report was prepared in member of the Statutory Audit Commission carried the Privatisation of Large Organisations of the Federal accordance with the applicable legislation of the out their duties. For chairing the Statutory Audit Agency for State Property Management, member of Russian Federation; Commission, the Regulation on Remuneration 5.7. Statutory audit the Board of Directors of OJSC VNIPIneft, member of information contained in the Bank’s accounting and Compensation Paid to the Members of the commission of VTB Bank the Statutory Audit Commission of PJSC RNCB Bank; records and published financial statements for 2015 Statutory Audit Commission establishes a bonus is true; of 30% of the basic remuneration for members 5. Igor Repin – Deputy Executive Director of the no substantial violations of legal acts of the Russian of the Bank’s Statutory Audit Commission. The Statutory Audit Commission is responsible for Association of Professional Investors, Chairman of the Federation on accounting procedures or violations providing financial control over the Bank’s financial Board of Directors of OJSC Vichugskaya Gorodskaya of legal acts of the Russian Federation in conducting In accordance with applicable Russian legislation, and economic activities. The main objective of the Elektroset, Chairman of the Board of Directors of financial and economic activities were found; members of the Statutory Audit Commission who Statutory Audit Commission is to ensure that the OJSC Kineshemskaya GES, Chairman of the Statutory no violations by the Bank of the statutory are civil servants do not receive any remuneration. Bank is compliant with applicable legislation and Audit Commission of PJSC RusHydro, Chairman of requirements set by the Bank of Russia were found; other statutory instruments, that its internal controls the Statutory Audit Commission of JSC RosGeo; VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

118 119 On 24 June 2016, VTB Bank AGM the necessary independence by the way its parts VTB Bank internal control and audit Internal Audit Department’s recommendations approved the following: function together and by its reporting structure. to address previously identified issues. The Bank’s internal control system includes: 1. Remuneration to members of the Statutory Audit VTB Group’s internal control system ensures: The Internal Audit Department’s organisational Commission of VTB Bank who are not civil servants: governing bodies (General Meeting of Shareholders, structure comprises a number of units responsible efficiency of VTB Group’s and VTB Bank’s activities; Supervisory Council, Management Board, and the for day-to-day monitoring, coordination of for work as part of the Statutory Audit Commission of effective management of assets and liabilities President and Chairman of the Management Board as internal control systems across the Group, and VTB Bank – RUB 920,000 each; (including asset integrity) and risks; the sole executive body); auditing. To increase the effectiveness of the for chairing the Statutory Audit Commission of VTB reliable, complete and timely financial and Statutory Audit Commission; monitoring of the internal control system in the Bank – RUB 1,196,000. management information and reporting; Chief Accountant (and his or her deputies); Bank’s regional branches, the structure of the security of information; branch managers (and their deputies) and branch Internal Audit Department includes dedicated 2. Compensation to members of the Statutory Audit compliance with legislation, regulating acts, rules chief accountants (and their deputies); internal control teams at the branch level. Commission of VTB Bank who are not civil servants, and standards; structural units (responsible managers) in charge of during the performance of their duties, of all non-involvement of the Group and its employees in internal control. The Internal Audit Department is responsible for: expenses associated with the performance of their unlawful activity. duties as members of the Statutory Audit Commission Audit Committee verifying and assessing the effectiveness of the of VTB Bank, namely: accommodations, travel and The VTB Group Management Committee established internal control system; other fees and charges for various types of transport. an Internal Audit Coordination Committee, as The Audit Committee operates as part of the structure verifying the effectiveness of the Bank’s risk- well as a Coordination committee for compliance of the Supervisory Council in order to facilitate management system; In 2016, members of VTB Bank Statutory and internal control aimed at preventing money the effective performance of the functions of the verifying the reliability, completeness, objectivity Audit Commission received remuneration laundering and the financing of terrorism. Supervisory Council in the area of control over and timeliness of the preparation of accounting and in the amount of RUB 2,760 thousand. the Bank’s financial and economic activities. management reports; The main objectives of VTB Group’s internal verifying compliance with Russian legislation and In 2016, the Statutory Audit Commission provided control and audit functions include: More detailed information on the composition and the requirements of regulatory and supervisory information necessary to monitor the financial and activity of the Audit Committee can be found in authorities; economic activities of VTB Bank on a regular basis, independently assessing the effectiveness of the Section 5.4 “Supervisory Council of VTB Bank”. verifying the adequacy and reliability of systems of including information concerning indicators related internal control and risk management systems; internal control for the use of automated information to financial statements prepared in accordance with accounting reports, business processes and the Internal Audit Department systems; RAS standards, consolidated financial statements activities of departments and individual employees, establishing uniform approaches to the organisation prepared in accordance with IFRS, information as well as assessing the economic expediency and The Internal Audit Department provides direct of VTB’s internal control systems. on the implementation of the directives issued effectiveness of operations and transactions; support to the Bank’s governing bodies to by the government of the Russian Federation and verifying the reliability of internal control over ensure that VTB Group works effectively. The The Internal Audit Department liaises with the Audit the programme for selling non-core assets. automated information systems, as well as verifying Internal Audit Department monitors internal Committee and independent auditors, providing methods used to secure property; control systems, conducts audits and provides information on the internal control system and More details on VTB Bank Statutory Audit Commission monitoring key risk areas and risk-control impartial recommendations for improving reporting any shortcomings during the audit period. can be found on VTB’s website at: http://www.vtb. mechanisms, with a view to identifying banking operations and control procedures. ru/ir/governance/control/revission_commition/. shortcomings in the internal control system and In 2016, the Internal Audit Department conducted emerging risks, and to create mechanisms to The Internal Audit Department is an independent 39 audits, including 10 audits of business processes prevent these risks; structural unit of VTB Bank and operates under at the Bank’s parent company and 29 audits of 5.8. Internal control and audit developing recommendations to improve the the direct supervision of the Supervisory Council. branch activities. In addition, as part of its ongoing efficiency of systems, processes, procedures, The Supervisory Council approves the Internal monitoring, Internal Audit Department staff members VTB Group’s internal control and audit functions transactions and activities by Group structural units Audit Department’s work plans and monitors conducted 688 thematic audits at the branch level. operate in compliance with international best and employees; their implementation, reviews the Internal Audit practices and applicable legislation in the countries organising efficient communications with external Department’s reports on the results of audits In connection with the merger with OJSC Bank where the Group operates. The system is guaranteed regulatory bodies and auditors. and on monitoring of the internal control system, of Moscow, the Bank’s retail business became as well as reports on the implementation of the a complete, wide-ranging business line offering VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

120 121 comprehensive customer service. In order to (including corruption), improper use of insider implementation methods, in terms of regulatory Prevention of money laundering and financing of implement innovative approaches to its auditing information and market manipulation; (compliance) risks; terrorism and monitoring of lending operations and the maintenance of VTB Group’s strong reputation coordination and participation in the development service offered to retail clients, the Internal Audit and raising its investment appeal on the financial of comprehensive measures aimed at reducing The Group’s main internal control objectives Department conducted the relevant work in terms market. the level of regulatory (compliance) risk within the in terms of preventing money laundering and of methodology and also tested the tools that had Bank and VTB Group; financing of terrorism (AML/CFT) are: been developed in the course of its verification The main requirements of the internal monitoring the effectiveness of regulatory activities. In addition, in accordance with best control (compliance) system, the standards (compliance) risk management; ensuring compliance with AML/CFT legislation; practices concerning the regional branches of and principles of its functioning within VTB identification of conflicts of interest in the effective internal control for AML/CFT purposes as a the Bank’s retail business, the Internal Audit Group, the distribution of powers and areas of Bank’s activities and among its employees, and means of ensuring the Bank’s stability, reliability and Department arranged distance oversight that makes responsibility are set out in the Bank’s Charter. participation in the development of bylaws aimed solid reputation, as well as a way of safeguarding the it possible not only to quickly identify violations at minimising such conflicts; interests of creditors and depositors; and/or shortcomings and bottlenecks in terms Compliance Control Office and Department of analysis of indicators related to customer minimising the risk of customer transactions involving of customer service, but also to take preventive Compliance Control and Financial Monitoring complaints (requests, claims) and the Bank’s money laundering or terrorist financing, as well as the measures in order to minimize the risk of fraud. compliance with customer rights; risk of non-compliance with international sanctions; The Bank established a Compliance Control Office analysis of the economic expediency of the avoiding involving Group employees in money In addition to conducting audits and monitoring the as part of the Department of Compliance Control Bank’s conclusion of contracts with legal entities laundering or terrorist financing; Bank’s internal control system, the Internal Audit and Financial Monitoring to assist the Bank’s or individual entrepreneurs for the provision of requirements to establish a system of internal control Department’s priority is to control the activities of governing bodies with the effective management services and/or the completion of outsourcing for AML/CFT purposes, the distribution of powers subsidiaries. In 2016, the Internal Audit Department of regulatory (compliance) risks resulting in losses operations by the Bank; and areas of responsibility stipulated in the Rules conducted 11 audits related to the activities of the due to non-compliance with Russian legislation, participation in the development of bylaws aimed on Internal Control for AML/CFT Purposes and other Bank’s subsidiaries. The Internal Audit Department the Bank’s Charter, standards for self-regulatory at preventing commercial bribery and corruption, Group’s bylaws. also analyses, on a regular basis, reports on organisations, and also as a result of the application and compliance with the rules on corporate the work of Group companies’ internal audit of sanctions and/or the impact of other measures conduct and professional ethics; Department of Compliance Control and Financial services. To enhance the level of professionalism on the part of the supervisory authorities. It will establishment of a Violations and Corrupt Practices Monitoring: Monitoring Banking Operations Unit and exchange experience, on-the-job training is also ensure a consistent approach to internal Hotline that can report messages from the Bank’s provided for staff from the internal audit services (compliance) control at the credit and non-credit employees about existing or potential violations, In order to meet the above-mentioned objectives, within Group companies, including with the financial institutions included in VTB Group. and reviewing such reports; the Bank established a Monitoring Banking involvement of VTB Group functional coordinators. functional coordination of the compliance Operations Unit within the Department of The Compliance Control Office includes units function in the credit and non-credit financial Compliance Control and Financial Monitoring. Compliance control responsible for day-to-day monitoring, coordination, institutions included within VTB Group, monitoring management of regulatory (compliance) risks and oversight measures in terms of managing The Unit’s remit includes: The main objectives of VTB Group’s and the effective functioning of the system of regulatory (compliance) risk within the Bank compliance control system are: internal (compliance) control in VTB Group. and within the credit and non-credit financial ensuring that there is an efficient process in place for institutions included within VTB Group, complying preparing and submitting information foreseen under compliance of VTB Group companies with The remit of the Compliance Control Office includes: with the requirements of the laws of the country of legislation on AML/CFT to the authorised body; the legislation of the country of registration, registration of the organisation in question within cooperation under the Unit’s remit with state internal regulations, standards of self-regulatory identifying regulatory (compliance) risks, keeping the framework of the rights granted to the Bank as authorities of the Russian Federation, as well as organisations and common business practice; records of developments related to regulatory a shareholder/participant; Russian, foreign and international organisations and effective management of regulatory (compliance) (compliance) risks, determining the probability coordination of the Bank’s activities aimed at institutions (including financial institutions) on matters risks; of their occurrence and providing quantitative meeting the requirements of the US Foreign related to AML/CFT; creation and maintenance of an effective system of assessments of the possible consequences; Account Tax Compliance Act (FATCA); development of an internal control system for AML/CFT governance information and reporting; monitoring regulatory (compliance) risks, including organisation of training for Bank employees and analysis of the results of the Bank’s activities in preventing the involvement of VTB Group an analysis of new banking products and services on matters within the remit of the Compliance the area of AML/CFT; stakeholders or employees in unlawful activities introduced by the Bank, as well as their planned Control Office. development and improvement of the rules for internal control for AML/CFT purposes and VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

122 123 programmes for their implementation, as well as In order to harmonise approaches to internal the Shareholder Relations Service is responsible Council on the basis of the report of an independent other internal regulations on issues related to the (compliance) control for AML/CFT purposes, for communications with individual shareholders. appraiser, i.e. RUB 0.04 per ordinary share. remit of the Monitoring Banking Operations Unit; as well as to reflect the experience of the development of guidelines, regulations and functional coordination of VTB Group In 2016, against the background of a gradual In December 2016, two Extraordinary General procedures for cooperation in the implementation of companies, the following internal documents recovery in investment activity on the part of Russian Meetings of Shareholders were held through tasks for AML/CFT purposes; were updated or developed in 2016: investors, VTB Bank continued to implement a absentee voting. The agenda for these meetings consulting employees on matters that arise during programme of comprehensive interaction with included issues related to the conversion of the implementation of internal control rules for AML/ VTB Group Concept for the Consolidated Management shareholders and representatives of the investment previously issued preference shares and Type CFT purposes, including the preparation of responses of the System of Internal Control on Functional Areas community, the impact of which has spread to 28 A preference shares into new types of shares to requests concerning the methodology; of Compliance and on Preventing Money Laundering regions of the Russian Federation. The renewal and (Type 1 and Type 2 preference shares), allowing coordination and organisation of training for Bank and Terrorist Financing; diversification of the shareholder base continued for the payment of interim dividends after every employees on AML/CFT matters; Regulation on Cooperation among VTB Group through active interaction with investors. quarter. After amending the Bank’s Charter, participation in the development of functional Companies in Functional Areas of Compliance and on the General Meeting of Shareholders approved requirements for automated systems used to carry Preventing Money Laundering and Terrorist Financing; In 2016, the key IR events were the: the payment of dividends for the first nine out functions related to AML/CFT; Regulation on the Coordination and Monitoring of months of 2016 for Type 2 preference shares. organisation of work for the implementation of the Implementation of Budget Expenditures by the annual General Meeting of Shareholders; internal controls for AML/ CFT purposes by the Internal Control Divisions of VTB Group Companies; holding of three extraordinary General Meetings of For more information on General Meetings Bank’s structural units and the coordination of their Regulation on the Coordination Commission for Shareholders and other corporate actions related of Shareholders held in 2016 and on the interaction; Compliance and Internal Control for the Purposes of to the merger with the Bank of Moscow and the decisions taken, see Section 5.3 “General implementation of ongoing monitoring of the Preventing Money Laundering and Terrorist Financing conversion of preference shares; Meeting of Shareholders of VTB Bank”. application of rules and internal control programmes under the VTB Group Management Committee; holding of VTB Investor Day in London; for AML/CFT purposes. Regulation on Operational and Regulatory participation of shareholders in the formation of a Development of electronic communication channels (Compliance) Risk Management within VTB Group. new VTB Group development strategy for 2017–2019, and introduction of an e-voting system The main internal control activities for AML/ including an IT strategy; CFT purposes conducted in 2016 were aimed at In 2016, VTB Bank Management Board also drafted implementation of a comprehensive programme for As part of the reform of corporate activities in harmonising the approaches, procedures and forms and approved new versions of the Regulation cooperation with shareholders in Russia; the Russian market undertaken by the central of the corresponding internal control processes on the Compliance Control Department, the development of electronic communication channels and depository, a gradual transition of issuers and within the Group for AML/CFT purposes. Regulation on VTB Bank Compliance Control the introduction of electronic voting at General Meetings shareholders towards electronic channels of Unit of the Department of Compliance Control of Shareholders. interaction is being carried out on all issues, To improve practical work in the area of internal and Financial Monitoring, and the Regulation on including the realisation of the rights of investors in control, the Department of Compliance Control and the Banking Operations Monitoring Unit of the Merger with the Bank of Moscow and the conversion the implementation of various corporate actions. Financial Monitoring works with the Coordination Department of Compliance Control and Financial of preference shares Commission on Compliance and Internal Control Monitoring (minutes No 84 of 4 October 2016). In 2016, VTB Bank worked on the development for the Purpose of Preventing Money Laundering In 2016, VTB Group implemented a number of of its electronic channels of communication with and Terrorist Financing under VTB Group’s projects requiring the approval of the General shareholders. The VTB Shareholder application, Management Committee (the Commission). 5.9. Investor relations Meeting of Shareholders. As a result, several launched in December 2015, was installed by extraordinary meetings were convened in addition more than 4.6 thousand users during the year. In 2016, the Commission held two in-person Developing relations and maintaining a constructive to the Annual Meeting. At an extraordinary meeting The application’s most popular sections are meetings and three meetings with absentee voting, dialogue with shareholders, investors and held through absentee voting on 14 March 2016, Investment Ideas and Forecasts, Quotes, News at which decisions aimed at ensuring compliance all interested parties within the investment VTB Bank shareholders approved the Bank’s and the Shareholder Calendar. In early 2017, the with the principles of the functional coordination of community is one of VTB Group’s key priorities. merger with JSC BS Bank, which had been spun application will add a Voting section to take part internal (compliance) control and internal control off from the Bank of Moscow. In accordance with both in electronic voting at General Meetings of for AML/CFT purposes in the above-mentioned VTB senior management and authorised units applicable legislation, VTB Bank shareholders who Shareholders and in other surveys and ballots. areas within VTB Group were discussed with engage with investors on an ongoing basis. The voted against the merger or who did not take part Group companies and subsequently adopted. Investor Relations Department is responsible for in the voting had the right to redeem their shares Electronic voting at shareholder meetings has communications with institutional investors, and at the price determined by VTB Bank’s Supervisory been possible since 1 July 2016. VTB Shareholders VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

124 125 were able to test a trial version of the system Group’s senior management: the President and Chairman investment consultants representing companies Discussion of a report by the Bank of Russia on on 24 June 2016 at the Annual General Meeting of VTB Bank’s Management Board, Andrey Kostin; providing brokerage services to individuals. improving corporate governance in PJSCs; of Shareholders. At Extraordinary Meetings of the head of VTB Group’s Corporate and Investment In addition, 19 open days were hosted at the Plans for cooperation with VTB’s minority Shareholders held in December 2016, the electronic Business, First Deputy President and Chairman of VTB Bank’s branch and operations offices. At these shareholders; voting system was used by more than 70% of Bank’s Management Board, Yuri Soloviev; the Head events, Bank representatives and members of VTB Group’s financial performance and dividend policy; those who participated in the meetings. Holders of VTB Group’s Retail Business, the President and the Shareholders Consultative Council provided Distribution of profits for 2015; of shares of VTB Bank, regardless of where their Chairman of the Management Board of VTB24, Mikhail individual consultations for shareholders, Plans for the development of the retail business and rights are registered, can make use of the electronic Zadornov; and the CFO of VTB Group, Deputy President addressing a wide range of issues related to the launch of special products for shareholders; voting system online at www.vtbreg.com. and Chairman of VTB Bank’s Management Board, the ownership and disposal of Bank shares. In The introduction of remote e-voting at shareholder Herbert Moos. Of great interest at the VTB Investor Day December, a traditional roundtable discussion meetings. In 2016, a survey of shareholders was conducted in London was the macroeconomic session involving was held in Yekaterinburg, during which VTB as part of the development of the new structure the participation of the Deputy Minister of Finance of Group experts and Bank shareholders discussed Meetings of the Shareholders Consultative Council for a unified corporate website, and usability the Russian Federation, Alexey Moiseev; the Deputy the investment strategy for the coming year. were attended by representatives of VTB Group’s testing was carried out on sections of the site Minister of Economic Development of the Russian management. Members of the Shareholders intended for shareholders and investors. The Federation, Nikolai Podguzov; and the First Deputy In total, 1,676 shareholders and investors Consultative Council submitted more than 120 practice of sending out regular newsletters via Chairman of the Bank of Russia, Ksenia Yudaeva. participated in the regional investor days, proposals, including both those formulated by email to clients of the VTB24 depositary and users seminars and open days in 2016. members of the Council themselves and others registered on the site www.vtb.ru continued. VTB Bank continues to implement a comprehensive received through crowdsourcing from minority programme for engaging with shareholders and The Bank also continued to conduct workshops shareholders respecting the Group’s development Facebook and Twitter remained among priority the investment community in Russia’s regions. In on personal financial management and on strategy and its IT unit. Many of these suggestions means of communication with shareholders, 2016, 72 events were held within the framework of working with securities for students from the were taken into account, and some of them, in with engagement led through the accounts the programme, including investor days, seminars country’s leading economic universities. In 2016, particular on the electronic services offered by of the Shareholders Consultative Council. for shareholders, meetings with analysts and more than 500 students from Kaliningrad, VTB24 Bank, have already been implemented. representatives of brokerage firms, workshops for Rostov-on-Don, Irkutsk, Nizhny Novgorod and Meetings with shareholders and investors students from economics faculties and broadcasts of Khabarovsk took part in training programmes. Throughout the year, members of the Shareholders important corporate events at Shareholders’ Centres. Consultative Council participated in events held Despite the introduction of electronic technologies Shareholders consultative council by the Bank for minority shareholders in various and services for shareholders, VTB Bank continued In 2016, Russian Investor Days, in which not only regions of Russia. As has traditionally been to hold regular meetings with shareholders existing shareholders but also potential investors, In 2016, five meetings of the Shareholders the case, a detailed report on the work of the and investors in Russia and abroad. representatives of the media and investment Consultative Council were held. Council members Shareholders Consultative Council was presented companies have traditionally participated, took took an active part in discussions on strategic during the Annual General Meeting of Shareholders. In 2016, the VTB management team, employees of place in four cities: Moscow, St. Petersburg, issues related to VTB Group, presented their In accordance with a decision of the AGM, a the Investor Relations Department and Shareholder Yekaterinburg and Krasnodar. Special seminars recommendations for improving products representative of the Shareholders Consultative Relations Service actively participated in investor for private investors were held in nine other cities and services, crowd-sourced ideas from Council was once again elected to the Supervisory conferences and meetings with institutional throughout the country. The meeting programme, shareholders regarding the new strategy and Council. Since June 2016, the interests of minority investors and individual shareholders. which included presentations on issues ranging took into consideration other issues affecting shareholders on the Statutory Audit Commission from the activities of VTB Group to the use of the interests of minority shareholders. have been represented by the Shareholders VTB held more than 250 meetings with tax incentives by private investors, was highly Consultative Council’s Igor Repin. This ensures institutional investors and analysts and took appreciated by the participants. The events Among the issues discussed at representation of minority shareholders in both VTB part in eight investor conferences organised were attended by a member of the Supervisory Shareholders Consultative Council Bank’s management bodies and oversight bodies. by major international investment banks. Council, Valery Petrov; representatives of the meetings in 2016 were the following: Moscow stock exchange; and experts from relevant When the current four-year term comes to an One of the most important events in the field of departments of VTB Bank and its subsidiaries. VTB Group’s development strategy for 2017–2019; end in 2017, new members will be elected to interaction with institutional investors during the IT solutions and plans for the technological the Shareholders Consultative Council. Detailed reporting period was the holding of a VTB Group Investor During the year, six meetings were held in various development of VTB Group; information and the regulations for electing Day in London, where VTB Group was represented by the Russian regions with portfolio managers and VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 5. Corporate governance highlights position and banking sector in 2016 report governance responsibility statements Annexes

126 127 members of the Shareholders Consultative portal/company.aspx?id=1210, the London Stock months at: www.vtb.ru/ir/disclosure/, as well as shareholder is entitled to specify the manner of Council are on the site www.vtb.ru. Exchange’s website at www.londonstockexchange. on VTB Bank’s dedicated Interfax page at www.e- inspecting the documents that is convenient for com and VTB Bank’s corporate website www. disclosure.ru/portal/company.aspx?id = 1210. him or her: directly or by requesting copies. More detailed information about VTB Bank’s vtb.ru, where the most complete information engagement with the investment community about the Bank’s activities is regularly updated in An electronic version of the Annual Report is If the documents requested by the shareholder can be found in the Investor Relations accordance with the requirements of legislation uploaded onto the Bank’s corporate website contain information that is a commercial secret, a section on the website: www.vtb.ru. and the Bank’s internal documents. at www.vtb.ru/ir/disclosure/fannual/ and receipt from the shareholder confirming that he or the Interfax page at www.e-disclosure. she has been warned of the confidentiality of the VTB Bank pays particular attention to ensuring that ru/portal/company.aspx?id = 1210. information being obtained and of the necessity 5.10. Disclosure policy of VTB Bank any relevant information is available simultaneously of preserving it must be attached to the request. to all shareholders and analysts in accordance VTB Bank discloses information on a quarterly VTB Bank adheres to the principle of providing with the principles of openness and transparency. basis at www.vtb.ru/ir/disclosure/affiliated/, For providing copies of documents, the Bank charges shareholders, potential investors and professional The Bank strives to maintain the highest level and a list of affiliates can be found on a fee not exceeding the cost of their preparation market participants with reliable information of transparency in relation to its activities and it VTB Bank’s Interfax page at www.e-disclosure. (as well as mailing costs, if the entitled person has about the Bank’s operations that may be useful for discloses a wide range of corporate information. ru/portal/company.aspx?id = 1210. copies of documents sent to his or her address). making investment and management decisions. The Bank discloses its information in the form of an In addition, in accordance with para. 7 of Article Detailed procedures for obtaining access to VTB discloses information in accordance with the annual report, quarterly reports, lists of affiliates, 7.1 of Federal Law No. 129-FZ on State Registration Bank documents, as well as the procedures for requirements of the Federal Law on the Securities material facts and announcements on events that of Legal Entities and Individual Entrepreneurs of 8 assessing the cost to the Bank for making copies Market, the Federal Law on Joint Stock Companies, are required to be disclosed in securities markets August 2001 and Article 7 of Federal Law No. 127-FZ of documents and bank details for payment are Regulation No. 454-P on Disclosure of Information in Russia and abroad, listing prospectuses, annual on Insolvency (Bankruptcy) of 26 October 2002, provided on the Bank’s official website: www.vtb.ru. by Issuers of Equity Securities adopted by the Bank financial statements, and other information subject VTB Bank discloses information through a specialised of Russia on 30 December 2014, as well as the to mandatory disclosure by joint stock companies. resource called the Unified Register of Information Shareholders have the right to access documents requirements of the Moscow Exchange’s Listing on Facts about Legal Entities at www.fedresurs.ru. that are publicly disclosed by the Bank, Rules and those of the London Stock Exchange, and Information about the system and practice without sending requests to the Bank, via the in accordance with the recommendations of the of corporate governance is disclosed on the The provision of information and documents Bank’s website (www.vtb.ru) and through VTB Corporate Governance Code approved by the Board Bank’s corporate website. This includes detailed by VTB Bank upon the request of Bank Bank’s Interfax page at www.e-disclosure. of Directors of the Bank of Russia on 21 March 2014. information about compliance with the principles shareholders is performed in accordance with ru/portal/company.aspx?id = 1210. and recommendations of the Corporate Governance the principle of equal and unhindered access. The Regulation on Information Policy approved by Code approved by the Board of Directors of the Bank the Bank’s Supervisory Council on 15 July 2008 of Russia on 21 March 2014, along with information To obtain access to Bank documents, a (minutes No 9) is applied at VTB Bank, as is the about the organisation and general principles of shareholder must send a request to the Bank for Regulation on the Procedure for Disclosure of corporate governance at VTB Bank, information inspection or copies of documents in which the Information in the Bank adopted by Order No 262 about members of the Supervisory Council, members of the President and Chairman of VTB Bank on 11 of the executive bodies, the Corporate Secretary, April 2014 and the Regulation for Cooperation on the chief accountant and his deputies, and the Information Disclosure in the Securities Market, managers and chief accountants of Bank branches. approved by VTB Group’s Management Committee (minutes No 26 of 31 December 2014). At the end of each financial year, VTB Bank publishes audited consolidated financial statements in The main platforms for disclosure are the accordance with IFRS, with an audit report and Interfax newswire and the Bank’s own website at interim condensed consolidated financial statements www.e-disclosure.ru, http://www.e-disclosure.ru/ in accordance with IFRS every three, six and nine Building an efficient matrix of corporate investment businesses to multiply clients’ wealth

VTB Group’s single platform enables a comprehensive approach to providing services to corporate clients and achieving great performance thanks to a balanced line of products, services and solutions tailored to meet our clients’ needs. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 6. Corporate social responsibility highlights position and banking sector in 2016 report governance responsibility statements Annexes

130 131 6. Corporate social responsibility Training and development The development of topics such as results-based management through the development of personal The corporate training system continued to responsibility, situational leadership in the develop in 2016 in the context of strategic face of change and optimal motivation was also priorities and ongoing business objectives, emphasised in 2016. At the end of the year, a new with a primary focus on improving the quality modular programme called Design Thinking was and effectiveness of management and the successfully launched. It was built on the principle Due to the scale of its operations, the Group Personnel performance assessments that cover all development of a learning organisation. of “designer training”: independent, one-day has a significant economic and social impact employees and management are carried out annually. training sessions with clearly defined topics and a on the regions where it operates. VTB fully They are based on key performance indicators (KPIs) Qualitative development could be seen in the past flexible schedule allow participants to choose one recognises that achieving the Group’s strategic consistent with the Group’s strategic and operational year in executive training programmes, such as New or more topics that are most relevant for them. targets is impossible without aligning its own priorities, and defined in both quantitative and Energy for Leadership and Management Algorithms. goals with society’s interests. Therefore, the qualitative terms. In turn, these performance Both programmes received high ratings from During the reporting period, 15 sessions were Group maintains strong relationships with assessments make it possible to formulate individual participants and became the flagship programmes held at the VTB Knowledge Academy on a wide stakeholders and strives to consider their interests development plans and are an effective tool for for management development within VTB Group. range of topics, from negotiation strategies to Agile in all aspects of its activities, thereby ensuring providing feedback to employees on an annual basis. methodologies. Interest in these training sessions the business’s sustainable development. The line manager training programme Management is constantly growing within the Group, especially Incentive and remuneration system Algorithms expanded significantly in 2016 in on the part of employees of regional offices and terms of both the range of participants (the subsidiary companies who are able to take part 6.1. Personnel VTB’s incentive system is designed to motivate programme was attended by representatives of in the programme through videoconferencing. employees to be effective and results-oriented. 12 of the Group’s participating companies) and In 2016, work continued on improving the Incentives provided within the system reflect their geographic scope (employees of regional The programmes for the development of young efficiency of HR processes, harmonising systems the results of Group companies’ performance offices from St. Petersburg to Khabarovsk took part professionals, VTB Junior and VTB GROWTH, also and standards for work with personnel, and and the personal effectiveness of employees. in the training modules), and a mobile application expanded, as they have proven to be effective tools strengthening partnerships with businesses in for the programme was also developed. for attracting, hiring and developing talented students the joint implementation of strategic initiatives Improving the incentive and remuneration system, and graduates of leading universities both in Russia through the efforts of the professionals including by adopting and following the latest The middle management development programme and abroad. In 2016, a total of 90 people participated working in all parts of the Group. practices consistent with the Group’s objectives, New Energy for Leadership also become a Group- in these programmes, including graduates of the is one of the most important ways to increase wide programme, with 70 executives from 11 leading Russian universities and foreign business As of 31 December 2016, VTB Group efficiency within VTB Group. In 2016, work continued Group companies taking part. The programme schools (77 from Moscow and St. Petersburg, nine employed 94,966 people (compared to in a number of priority areas, including improving was fundamentally redesigned, and the format from various regions of Russia, and four from the 92,882 people as of 31 December 2015). the remuneration system to reflect changes to of the second cycle was innovative not only for Group’s foreign offices (London, Shanghai). labour legislation and in accordance with the new the Bank but also for the Graduate School of Appraisal requirements to ensure that remuneration systems Management of St. Petersburg State University, the Corporate culture in place at credit institutions correspond to the Bank’s partner for programme implementation. The Group uses a variety of personnel assessment type and scale of their operations, performance The main topic of each module included examples As part of the merger with the Bank of Moscow, more tools depending on the operational task in results, level and combination of assumed risks. of both Russian and international practices and than 20 integration sessions were held in 2016, at question: personnel recruitment, contests approaches, and an important component of each which the employees of the merged banks were able for participation in corporate development A key project in terms of incentives was the module was the discussion of a real business to discuss the opportunities and challenges brought programmes and annual performance reviews. harmonisation of remuneration systems during case led by the Group’s top managers. Given the about by the merger, to agree on new “rules of the In 2016, assessment centres were also regularly the merger between OJSC Bank of Moscow significant integration processes taking place within game” and to acquire skills for effective teamwork. used in internal competitions to fill management and VTB Bank (PJSC). Significant work was VTB Group, issues related to the development positions, and also in the process of conducting carried out to adapt certain elements of the of corporate culture were particularly timely VTB has traditionally paid attention to sports, personnel audits at subsidiary companies. incentive system for retail business units. subjects of the final certification programmes. and in 2016 Group teams in football, volleyball, VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 6. Corporate social responsibility highlights position and banking sector in 2016 report governance responsibility statements Annexes

132 133 basketball, hockey, athletics and paintball enjoyed 6.2. Responsible resource During the reporting period, work also continued on the All of these measures, as well as measures good results, just as they traditionally do: athletes management sale of unused properties freed up as part of the project aimed at improving working conditions and from VTB won prizes at various tournaments and to optimise the location of VTB Group divisions. Despite complying with legislation on occupational health competitions (in the OMHL amateur hockey league, the unfavourable international economic situation, the and safety, were also carried out in the new the ROSTEC corporate games, etc.). More than than One of VTB Group’s main priorities is taking a decrease in financial and economic activity in the country facilities of the Bank’s property complex resulting 300 people took part in charitable sporting events responsible approach to the use of natural resources and the reduction in demand in the real estate market, from the merger with the Bank of Moscow. (football, bicycle races, cross-country skiing). with emphasis on improving systems for managing eight facilities were sold in 2016 with a total area of the Group’s own resource and power consumption. 8,000 sq. m (in 2015, the Bank was able to free up and The main measures taken for the modernisation The Ninth VTB Games were held in August. With sell nine facilities with a total area of 20,400 sq. m). of office space were as follows: more than 5,500 people taking part, the Games Environmental efficiency were truly the sporting high point of the year. Transport work on the modernisation of the electric lighting VTB Group’s environmental efficiency is primarily system in elevator lobbies and inside inter-storey Targeted work with the younger generation has always related to controlling resource use and saving For several years, the Bank has taken steps to reduce stairs from the 7th to the 32nd floors of Tower West, been one of the priorities of VTB Group. A wide-ranging energy at its properties, as well as implementing and modernise its automobile fleet with cars that thereby reducing the power used by the lighting programme called Children 360 was implemented uniform standards and practices alongside meet higher emission standards (including planned system, by replacing old equipment with an energy- in 2016. The purpose of the program is to improve measures for optimising consumption levels. replacements) as well as the optimisation of traffic efficient system, and also by redistributing the the quality of life of employees with children through routes. As a result of these initiatives, the Bank of system’s operations to day and night modes. Better systematic and comprehensive child care, the quality Real estate Moscow’s fleet of vehicles was cut by about 30% in the fire safety was ensured by replacing heating elements of life of employees with children, to help them be Moscow region alone. However, the merging in 2016 of with equipment that generates less heat; more effective at work and at home and to promote In 2016, VTB continued to optimise the properties the Bank of Moscow with VTB Bank led to an increase installation of a centralised automatic system of fan balance in their professional and personal lives. The used within the Group. These efforts were based in the number of vehicles used by VTB Bank from 189 coil units in the halls of the 1st and 2nd floors in the programme reflects a modern approach to the formation on the moving process resulting from the merger of in 2015 to 300 (a 58% increase compared with 2015). Bank’s Head Office in St. Petersburg (30 Bolshaya of a harmonious society through improvements in the Bank of Moscow units with VTB Bank, affecting Morskaya St.). financial literacy and career development, better both the divisions of the parent organisation, VTB Collection and recycling of waste habits in terms of physical activity and leading a Bank in Moscow, and the regional network of the Supporting environmental protection projects healthy lifestyle, adaptation to adult life for employees’ former Bank of Moscow. The Bank continues to As a result of preparatory measures implemented children and for children adopted from orphanages. maintain its policy of renovating existing properties in 2015, about 140 kg of batteries were In 2016, VTB Group continued to support to improve their resource and energy efficiency, collected in Tower West of the Federation Tower important projects and programmes aimed at In 2016, the Bank held more than 30 events and also to introduce best practices aimed at during the reporting period, and about 110 protecting and improving the environment, as part of the programme: career guidance protecting the environment and minimising any tonnes of paper was sent off to be recycled. resolving global environmental issues, reducing forums and educational activities (“Bank your negative environmental impact. A component of pollution, improving waste management and opportunities”, “My choice”, “School for young the current real estate management strategy is the Resource and energy consumption managing natural resources in a sustainable magicians”, etc.), parents’ clubs, excursions, consolidation of VTB Group holding companies manner. VTB Group continued its active game simulations and family holidays. in modern administrative and business centres In 2016, the following activities were cooperation with the Government of the Russian that are fully compliant with all ergonomic, implemented as part of the Energy Conservation Federation, the Ministry of Natural Resources and As part of other programmes in the areas of resource- and energy-efficiency requirements. and Enhanced Efficiency Programme: Environment and other government bodies. volunteerism and charity work, more than 20 large-scale events were held in 2016: Donor Days In 2016, projects were launched to house harmonisation of the air-conditioning system In 2016, the Group created VTB Ecology, a to raise funds to help with children’s medical Group companies in the Nevskaya Ratusha (ventilation) with the heating system; company dedicated to generating funds and treatment in collaboration with the Lifeline complex in St. Petersburg and the Group’s head transition to LED lighting and the installation of light implementing projects and programmes. Its main foundation, the “Prepare a Schoolbag” event for offices in the Eurasia Tower in Moscow. sensors; objective is to lay the groundwork for quality children living in orphanages, a range of activities replacement of standard plumbing fixtures with projects in the above areas for VTB Bank and during Good Deeds Week, and events for those The Bank’s properties freed up from these moves water-saving fixtures; the other financial companies of the Group, taking part in the VTB Veterans programme. are due to be sold between 2017 and 2019, thereby installation of water metres on every floor; to effectively manage these projects and to A training course on charitable activities for reducing the share of obsolete facilities in the installation of control valves in heating system develop and introduce innovative mechanisms Group employees was of particular interest. property portfolio and significantly cutting costs. circuits. for a “green fund” to VTB Group’s operations. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 6. Corporate social responsibility highlights position and banking sector in 2016 report governance responsibility statements Annexes

134 135 Last year, VTB Bank continued cooperation with Russian legislative and regulatory acts on waste The First Moscow Financial Forum; Arts and culture the World Wildlife Fund (WWF) to finance the management, the introduction of the best available The international economic forum for CIS member “Preservation of the big cat population in the technologies and increasing energy efficiency. states: “25 Years Together, New Formats of Supporting arts and culture is a key part of the Bank’s Russian regions” programme, and the Bank decided Interaction”; social policy, and VTB Group provides significant in 2015 to co-finance the project in the amount of In addition to these projects, VTB donated The international financial and banking forum for CIS financial support in this area. In recent years, VTB USD 5 million over five years. The project’s main funds to the following organisations member states: “Minsk Business Meetings”; has supported a number of national events as a aim is to improve the environmental sustainability during the reporting period: The Second International Military-Technical Forum sponsor of major theatres, museums and festivals. of the natural ecosystems in the Far East, Altai, “Army 2016”; Sayany and the North Caucasus to preserve the Centre for the Study and Conservation of the The “Strategic Partnership 1520” conference; In 2016, VTB Group continued its cooperation and expand the habitat of Amur tigers, as well Amur Tiger Population, aimed at preserving the Amur ATOMEXPO 2016; with the following museums: as Far Eastern, Persian and snow leopards. tiger population and increasing its numbers; The Russia & CIS Trade and Export Finance the Out of Time cultural-ethnographic fund to enable Conference; Russian Museum (exhibition “Leon Bakst: In Honour In 2016, the Bank continued its activities as the it to create a documentary film called “On the Trail of The Congress of the Association of Russian Banks, of the 150th Anniversary of the Artist’s Birth”); Russian Executive Agency for the Project Support the Amur Tiger”; “What should be done ... in the interests of the The State Tretyakov Gallery (anniversary exhibition Instrument (PSI) under the Arctic Council Action the Klin District Humane Society non-profit development of the Russian banking system and “Ivan Aivazovsky: On the 200th Anniversary of Plan to Eliminate Arctic Pollution. In 2016, with organisation to build and equip a shelter for economic growth in 2016–2018?”; His Birth”; exhibition of works by sculptor Mikhail VTB’s help, the reconstruction of the Valday Cluster homeless animals; The 11th International Conference of the National Dronov); fuel and energy complex to reduce black carbon a charitable fund for programmes run by Help for Finance Association “The Russian Derivatives Market”. State Hermitage Museum (exhibition “From the emissions was largely completed, as was the Homeless Dogs to aid in its support for animals. Dinner-Service Storerooms: Decorating the Russian construction of a hybrid wind-diesel power station Science and education Imperial Table in the Eighteenth to Early Twentieth at the Tundra agricultural production co-operative. Centuries”); 6.3. Social programmes In 2016, assistance was provided to leading Pushkin State Museum of Fine Arts (exhibition of Funding was generated in excess of EUR 1.2 million Russian universities and for projects in the Northern Renaissance artists “The Cranachs: between for PSI to implement these projects, with a VTB Group is a socially responsible corporation. Its areas of science and education, including: Renaissance and Mannerism”; exhibition of works total project cost of over EUR 4 million. activities are focused not only on delivering strong by Giovanni Battista Piranesi and Albert Marquet; results and achieving the targets set by investors The Graduate School of Management of the exhibition “Ilya Silberstein: For the 110th anniversary In addition, PSI has secured about EUR 0.7 million and shareholders, but also on providing ongoing, St. Petersburg State University; of the collector’s birth”); in grants to finance the preparation of feasibility stable support in the regions where it operates, The Financial University under the Government of hosting an exhibition called “Russian Space” to mark studies, as well as other preparatory activities the development of civil society and strengthening the Russian Federation; the birth of Yuri Gagarin; for the financing of the following projects: the social sphere. In its activities, the Group is Lomonosov Moscow State University Faculty of Koktebel Ecological, Historical and Cultural Reserve, focused on the best global practices in the areas of Economics; “Cimmeria of Maksimilian Voloshin”; an assessment of the impact of soot emissions on social responsibility, sponsorship and patronage. St. Petersburg State University of Economics; House Museum of Marina Tsvetaeva Cultural Centre; public health at the local level; The Moscow Architectural Institute (State Friends of the State Peterhof Museum development “mapping” of the potential for replacing diesel- This Annual Report provides information about Academy); fund; powered heat and power plants in the Arctic and the main areas of VTB’s charity work and the Far Eastern Federal University; Kizhi State Historical-Architectural and Ethnographic north-western regions of the Russian Federation; largest projects in terms of sponsorship. More Ammosov North-Eastern Federal University; Memorial Museum Reserve. a feasibility study for eliminating the use of diesel information about VTB Group’s social programmes The Talent and Success Foundation; fuel for powering Dolgoshchelya (Mezensky District, is available in VTB Bank 2016 Social Report. The Specialised Fund for the Management of Target In addition, VTB Group’s partners during the reporting Arkhangelsk Region); Capital for the Development of MGIMO. period included the Tchaikovsky Moscow State the collection, disposal and destruction of PCBs in Business events Conservatory (University) and the Shostakovich the Russian Railways system; VTB Bank established scholarships for students from St. Petersburg Academic Symphony Orchestra. measures to protect two flyways of migratory birds. VTB participates in a number of major business the Khabarovsk State Academy of Economics and Law, forums and conferences. In 2016, these included: Pacific National University, the Far Eastern Institute Cooperation with leading theatres is growing. In 2016, VTB Group began developing and of Management (a branch of the Russian Academy Support was provided to fund the Mariinsky introducing mechanisms for financing related to The St. Petersburg International Economic Forum 2016; of National Economy and Public Administration Theatre, the Bolshoi Theatre, the Tbilisi A.S. the implementation of a number of newly adopted The Eastern Economic Forum in Vladivostok; under the President of the Russian Federation). Griboedov Russian State Drama Theatre in Georgia, VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 6. Corporate social responsibility highlights position and banking sector in 2016 report governance responsibility statements Annexes

136 137 the Ilze Liepa Charitable Foundation for the An Illustrated Story for Children and Moscow: Healthcare As part of its support for children’s healthcare Promotion of Choreography and the Visual Arts An Illustrated Story for Children. The collection and assistance for orphans, VTB works with and the Courage Moscow Children’s Theatre. was published by the Aurora publishing house. VTB Bank has been implementing the corporate a number of foundations, including: charity programme World Without Tears since VTB provided support for guest performances VTB also continued its long-term cooperation 2003. The programme is aimed at supporting Volunteers in Aid of Orphans charitable foundation; in Georgia and Sevastopol by the Moscow Pyotr with the Kultura TV channel, the TV healthcare for children throughout the entire Russian VIDEOPASPORT charitable foundation for facilitating Fomenko Workshop Theatre, and for guest programme “What? Where? When?” and Federation. The Bank has transferred significant the placement of children left without parental care in performances by the Eifman Ballet in London. the National Satellite Company, which funds for the direct purchase of medical equipment foster families; In cooperation with the Perm Tchaikovsky Opera and broadcasts under the name Tricolor TV. for children’s hospitals. In 2016, 20 medical Exit charitable fund for resolving autism-related Ballet Theatre, VTB Bank sponsored the Theatre’s institutions from various regions of Russia took issues; performances at the Golden Mask Festival in Moscow. In 2016, a large-scale two-year project on part in the programme, as did four Moscow-based Karelian regional branch of the Russian Children’s the part of VTB Bank to digitise the unique hospitals. The Bank spent a total of RUB 48 million Fund, a national public charitable foundation; VTB sponsored many important cultural events Photochronicles archive of Russia’s oldest news in providing assistance to hospitals in 2016. Pskov branch of the Russian Red Cross national during the reporting period, including: agency, ITAR-TASS, was successfully completed. public organisation. In addition to the World Without Tears programme, 38th Moscow International Film Festival; Sports the Bank also provides charitable assistance The Bank provides financial assistance to public display of collections by Russian designers dedicated to medical institutions in the Republic of Karelia organisations for veterans and the disabled, as well to the 20th anniversary of the Russian Silhouette VTB Group’s key social priorities in the area in the framework of a comprehensive plan as to religious and charitable organisations. Charity Foundation; of sport include supporting high-performance for socio-economic development in Karelia, TEFI 2016 television awards ceremony; sport, investing in sports infrastructure Hospice No 1 for children with cancer and Spasskaya Tower International Military Music Festival facilities and promoting a healthy lifestyle. many other medical institutions. on Red Square; In 2016, the Group provided financial support 26th Baltic House International Theatre Festival; for various Russian and international sports 13th Baltic Seasons Arts Festival; organisations and events, including: 24th Window to Europe Russian Film Festival in Vyborg; gala concert featuring ballet stars from the Bolshoi Dynamo Moscow Football Club; Theatre as part of the autumn meetings of the United Hockey Club Dynamo; International Monetary Fund (IMF) and the World Women’s Basketball Club Dynamo; Bank in Washington (USA). Volleyball Federation of Russia; Russian Gymnastics Federation; As part of a programme for the preservation and Georgian National Gymnastics Federation; dissemination of cultural heritage in 2016, five more International Gymnastics Federation (FIG); books were published through a Russian State Library The International Association of Athletics project called “Classics of World Literature: Word and Federations (IAAF); Image”; and four volumes were published as part of VTB United League (basketball); a project to translate the works of Russian classics Student Basketball Association; and contemporary literature into Vietnamese and the International Student Basketball League; works of modern Vietnamese writers into Russian. KAMAZ-Master rally team; Kremlin Cup International Tennis Tournament; VTB Bank also sponsored the publication by Hoff Open 2016 Tennis Tournament; the Young Guard publishing house of a three- National Tennis Development Centre; volume edition called The Lives of Remarkable Russian Chess Federation; People, as well as a two-volume collection called Golf Federation in the City of Moscow; Two Capitals, which includes St. Petersburg: Public bicycle hire system in Moscow. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 7. Financial statements highlights position and banking sector in 2016 report governance responsibility statements Annexes

138 7. Financial statements 139

7.1. Management 7.2. Consolidated The summary consolidated financial statements Details of the audited entity responsibility statement financial statements do not contain all the disclosures required by International Financial Reporting Standards. Reading Name: VTB Bank (Public joint-stock company) the summary consolidated financial statements, VTB Management is responsible for preparing VTB Bank summary consolidated financial therefore, is not a substitute for reading the audited Record made in the State Register of Legal the Annual Report and the Group’s consolidated statements derived from the audited consolidated financial statements of the Group. Entities on 22 November 2002, State financial statements in accordance with applicable consolidated financial statements and Registration Number 1027739609391. laws and regulations. independent auditor’s report for the Management’s responsibility for the summary year ended 31 December 2016 consolidated financial statements Address: Russia 190000, Saint-Petersburg, I confirm that to the best of my knowledge: Bolshaya Morskaya st., 29. Translation of the original Russian version. Management is responsible for the preparation of the consolidated financial statements of VTB Bank a summary of the audited consolidated financial Details of the auditor and its subsidiaries (together “the Group”), prepared Report of the independent auditor on the summary statements on the basis described in the footnote to in accordance with IFRS, give a true and fair view of consolidated financial statements the summary consolidated financial statements. Name: Ernst & Young LLC the assets, liabilities, financial position and profit or loss of the Group; and To the Shareholders and Supervisory Council Auditors’ responsibility Record made in the State Register of this Annual Report includes a fair review of the of VTB Bank (public joint-stock company) Legal Entities on 5 December 2002, State development and performance of the Group’s Our responsibility is to express an opinion on the Registration Number 1027739707203. business and position, together with a description of The accompanying summary consolidated financial summary consolidated financial statements based on the principal risks and uncertainties that the Group statements, which consist of the summary our procedures, which were conducted in accordance Address: Russia 115035, Moscow, faces. consolidated statement of financial position as with International Standard on Auditing (ISA) 810 Sadovnicheskaya naberezhnaya, 77, building 1. at 31 December 2016, the summary consolidated Engagements to Report on Summary Financial income statement, summary consolidated Statements enacted in the Russian Federation by Ernst & Young LLC is a member of Self-regulated statement of comprehensive income, summary the Ministry of Finance of the Russian Federation organization of auditors «Russian Union of consolidated statement of cash flows, and summary in Order No 207n dated 9 November 2016. auditors» (Association) («SRO RUA»). Ernst & consolidated statement of changes in shareholders’ Young LLC is included in the control copy of the equity for the year then ended, are derived from Opinion register of auditors and audit organizations, the audited consolidated financial statements main registration number 11603050648. of VTB Bank and its subsidiaries (together, the In our opinion, the summary consolidated financial Group) for the year ended 31 December 2016. statements derived from the audited consolidated VTB Bank President We expressed an unmodified audit opinion on financial statements of the Group for the year ended and Chairman those consolidated financial statements in our 31 December 2016 are consistent, in all material of the Management Board Andrey Kostin auditor’s report dated 1 March 2017. Those respects, with those audited consolidated financial consolidated financial statements and the summary statements, on the basis described in the footnote consolidated financial statements of the Group to the summary consolidated financial statements. do not reflect the effects of events that occurred subsequent to the date of our auditor’s report P. P. TSEBERNYAK on those consolidated financial statements. Partner Ernst & Young LLC

7 March 2017 VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 7. Financial statements highlights position and banking sector in 2016 report governance responsibility statements Annexes

Translation of the original Russian version Translation of the original Russian version

140 141 VTB Bank summary consolidated income statement for the year ended 31 December 2016 2015 Change (in billions of Russian roubles) Profit before tax 65.5 12.3 432.5% Income tax expense (21.6) (6.9) 213.0%

2016 2015 Change Net profit after tax 43.9 5.4 713.0%

Interest income 1,107.8 1,100.9 0.6% Profit/(loss) after tax from subsidiaries acquired exclusively with a view to resale 7.7 (3.7) 308.1%

Interest expense (680.8) (803.1) -15.2% Net profit 51.6 1.7 2,935.3%

Payments to deposit insurance system (12.0) (8.7) 37.9% Net profit/(loss) attributable to:

Net interest income 415.0 289.1 43.5% Shareholders of the parent 52.3 10.7 388.8%

Provision charge for impairment of debt financial assets (144.7) (167.5) -13.6% Non-controlling interests (0.7) (9.0) -92.2%

Net interest income after provision for impairment 270.3 121.6 122.3% Basic and diluted earnings per share (expressed in Russian roubles per share) 0.00318 0.00010 3,080.0% Net fee and commission income 81.8 76.2 7.3% Basic and diluted earnings per share before profit after tax from subsidiaries acquired Gains net of losses arising from financial instruments at fair value through profit or loss 8.7 34.2 -74.6% exclusively with a view to resale (expressed in Russian roubles per share) 0.00258 0.00039 561.5% Gains net of losses / (losses net of gains) from investment financial assets available-for-sale 9.1 (16.7) 154.5%

(Losses net of gains) / gains net of losses arising from foreign currencies and precious metals (17.6) 32.3 -154.5%

Gains net of losses on initial recognition of financial instruments and other gains on loans VTB Bank summary consolidated statement of comprehensive income for the year ended 31 December and advances to customers 2.1 1.4 50.0% (in billions of Russian roubles) Share in profit of associates and joint ventures 3.1 5.8 -46.6%

Gains from disposal of subsidiaries and associates 6.3 3.3 90.9% 2016 2015

Gains net of losses / (losses net of gains) arising from extinguishment of liabilities 0.3 (1.5) 120.0% Net profit 51.6 1.7

Provision charge for impairment of other assets, credit related commitments and legal claims (66.5) (10.6) 527.4% Other comprehensive income/(loss): Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods: Other operating income 26.6 23.2 14.7% Net result on financial assets available-for-sale, net of tax 9.3 13.7 Non-interest (losses)/gains (27.9) 71.4 -139.1% Cash flow hedges, net of tax (0.9) (0.1) Net insurance premiums earned 59.2 84.1 -29.6% Share of other comprehensive (loss)/income of associates and joint ventures (3.0) 4.6 Net insurance claims incurred, movement in liabilities to policyholders and acquisition costs (49.1) (80.5) -39.0% Effect of translation, net of tax (31.5) 6.4 Revenues less expenses from insurance activity 10.1 3.6 180.6% Total other comprehensive (loss)/income to be reclassified to profit or loss in subsequent periods (26.1) 24.6 Revenue and other gains from other non-banking activities 43.5 24.0 81.3% Other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods: Cost of sales and other expenses from other non-banking activities (42.8) (35.2) 21.6% Actuarial (losses net of gains)/gains net of losses arising from difference between pension plan assets and Impairment of land, premises and intangible assets other than goodwill used in non-banking obligations (1.3) 0.3 activities (3.6) (6.2) -41.9% Revaluation reserve of assets of disposal groups held for sale (0.4) – Net gain/(loss) from change in fair value of investment property recognised on revaluation 8.2 (3.1) 364.5% Land and premises revaluation, net of tax (0.1) 6.1 Loss from disposal of disposal group held for sale (1.3) – n/a Total other comprehensive income/(loss) not to be reclassified to profit or loss in subsequent periods (1.8) 6.4 Revenues less expenses from other non-banking activities 4.0 (20.5) 119.5%

Impairment of land, premises and intangible assets other than goodwill (0.8) (5.3) -84.9% Other comprehensive (loss)/income, net of tax (27.9) 31.0

Impairment of goodwill – (0.3) n/a Total comprehensive income 23.7 32.7 Total comprehensive income/(loss) attributable to: Other operating expense (38.1) (12.5) 204.8% Shareholders of the parent 25.0 41.5 Staff costs and administrative expenses (233.9) (221.9) 5.4% Non-controlling interests (1.3) (8.8) Non-interest expenses (272.8) (240.0) 13.7%

These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together, the Group) prepared in accordance with IFRS for the year ended 31 December 2016. For a better of VTB Bank and its subsidiaries (together, the Group) prepared in accordance with IFRS for the year ended 31 December 2016. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank. were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 7. Financial statements highlights position and banking sector in 2016 report governance responsibility statements Annexes

Translation of the original Russian version Translation of the original Russian version

142 143 VTB Bank summary consolidated statement of financial position as at 31 December (in billions of Russian roubles)

2016 2015 Change 2016 2015 Change Assets Deferred income tax liability 35.2 30.2 16.6%

Cash and short-term funds 452.9 570.7 -20.6% Other liabilities 486.5 361.7 34.5%

Mandatory cash balances with central banks 95.1 70.8 34.3% Total liabilities before subordinated debt 10,951.2 11,925.0 -8.2%

Non-derivative financial assets at fair value through profit or loss, including pledged under Subordinated debt 224.1 262.8 -14.7% repurchase agreements 267.1 308.1 -13.3% Total liabilities 11,175.3 12,187.8 -8.3%

• Non-derivative financial assets at fair value through profit or loss 240.7 237.1 1.5% Equity

• Non-derivative financial assets at fair value through profit or loss, pledged under Share capital 659.5 659.5 0.0% repurchase agreements 26.4 71.0 -62.8% Share premium 433.8 433.8 0.0% Derivative financial assets 180.5 304.8 -40.8% Perpetual loan participation notes 136.5 164.0 -16.8% Due from other banks, including pledged under repurchase agreements 1,051.2 1,358.2 -22.6% Treasury shares and bought back perpetual loan participation notes (2.5) (2.9) -13.8% • Due from other banks 1,037.4 1,353.2 -23.3% Other reserves 44.8 72.2 -38.0% • Due from other banks, pledged under repurchase agreements 13.8 5.0 176.0% Retained earnings 128.4 127.6 0.6% Loans and advances to customers, including pledged under repurchase agreements 8,854.5 9,437.5 -6.2% Equity attributable to shareholders of the parent 1,400.5 1,454.2 -3.7% • Loans and advances to customers 8,664.8 8,827.7 -1.8% Non-controlling interests 9.7 (0.1) -9,800.0% • Loans and advances to customers, pledged under repurchase agreements 189.7 609.8 -68.9% Total equity 1,410.2 1,454.1 -3.0% Investment financial assets, including pledged under repurchase agreements 340.7 353.3 -3.6% Total liabilities and equity 12,585.5 13,641.9 -7.7% • Investment financial assets 324.2 259.3 25.0%

• Investment financial assets, pledged under repurchase agreements 16.5 94.0 -82.4%

Investments in associates and joint ventures 90.6 104.3 -13.1%

Assets of disposal groups and non-current assets held for sale 15.6 15.8 -1.3% Approved for issue and signed on 1 March 2017 Land, premises and equipment 352.7 310.3 13.7%

Investment property 235.5 245.0 -3.9%

Goodwill and other intangible assets 155.1 162.0 -4.3% Deferred income tax asset 87.8 76.6 14.6% A.L. Kostin Other assets 406.2 324.5 25.2%

Total assets 12,585.5 13,641.9 -7.7% President – Chairman of the Management Board

Liabilities

Due to other banks 1,208.9 1,224.0 -1.2%

Customer deposits 7,346.6 7,267.0 1.1% Herbert Moos Derivative financial liabilities 165.0 284.1 -41.9% Other borrowed funds 1,307.2 2,121.5 -38.4% Chief Financial Officer – Deputy Chairman Debt securities issued 399.6 623.5 -35.9% of the Management Board Liabilities of disposal groups held for sale 2.2 13.0 -83.1%

These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together, the Group) prepared in accordance with IFRS for the year ended 31 December 2016. For a better of VTB Bank and its subsidiaries (together, the Group) prepared in accordance with IFRS for the year ended 31 December 2016. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank. were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 7. Financial statements highlights position and banking sector in 2016 report governance responsibility statements Annexes

Translation of the original Russian version Translation of the original Russian version

VTB Bank summary consolidated statement of cash flows for the year ended 31 December (in billions of Russian roubles)

2016 2015 2016 2015 Cash flows from operating activities Purchase of investment financial assets held-to-maturity (41.5) (63.9)

Interest received 1,090.8 1,043.7 Proceeds from redemption of investment financial assets held-to-maturity 26.5 3.0 Purchase of land, premises and equipment (81.7) (51.1) 144 Interest paid (684.1) (785.2) 145 Payments to deposit insurance system (11.3) (8.7) Proceeds from sale of land, premises and equipment 4.2 4.3

Gains received on operations with financial assets at fair value through profit or loss 14.9 27.1 Purchase or construction of investment property (14.8) (17.3)

(Losses incurred)/gains received on dealing in foreign currency (164.2) 18.8 Proceeds from sale of investment property 6.8 4.6

Fees and commissions received 110.8 97.6 Purchase of intangible assets (5.7) (5.8)

Fees and commissions paid (28.3) (22.7) Proceeds from sale of intangible assets 1.2 0.6

Other operating income received 25.9 22.9 Net cash used in investing activities (92.8) (129.2)

Other operating expenses paid (14.6) (5.3) Cash flows from financing activities

Staff costs, administrative expenses paid (209.9) (213.5) Dividends paid (51.1) (18.0)

Income received from non-banking activities 56.6 39.4 Proceeds net of repayment in short-term local bonds issued 25.2 –

Expenses paid in non-banking activities (38.9) (35.3) Repayment of local bonds (73.8) (76.2)

Net insurance premiums received 83.8 92.1 Buy-back of local bonds (32.9) (13.0)

Net insurance claims paid (26.1) (37.4) Proceeds from sale of previously bought-back local bonds 51.5 24.3

Income tax paid (31.6) (15.1) Repayment of Eurobonds (36.0) (319.7)

Cash flows from operating activities before changes in operating assets and liabilities 173.8 218.4 Buy-back of Eurobonds (12.3) (40.7)

Net decrease/(increase) in operating assets Proceeds from sale of previously bought-back Eurobonds 10.3 26.5

Net (increase)/decrease in mandatory cash balances with central banks (25.9) 15.2 Proceeds from syndicated loans 0.5 15.7

Net decrease/(increase) in restricted cash 2.8 (0.8) Repayment of syndicated loans (136.4) (28.7)

Net decrease/(increase) in correspondent accounts in precious metals 2.0 (0.9) Proceeds from sale of previously bought-back syndicated loans 13.7 –

Net (increase)/decrease in financial assets at fair value through profit or loss (4.1) 63.1 Proceeds from other borrowings and funds from local central banks 2,910.2 10,731.0

Net decrease/(increase) in due from other banks 142.1 (558.5) Repayment of other borrowings and funds from local central banks (3,576.5) (11,369.2)

Net increase in loans and advances to customers (149.8) (466.7) Repayment of subordinated debt (6.2) (53.9)

Net increase in other assets (69.5) (37.4) Buy-back of subordinated debt (9.0) (4.3)

Net (decrease)/increase in operating liabilities Proceeds from sale of previously bought-back subordinated debt 0.6 8.5

Net increase in due to other banks 274.0 499.5 Cash received from sale of treasury shares 17.9 13.6

Net increase in customer deposits 617.8 1,368.7 Cash paid for treasury shares (17.9) (6.5)

Net (decrease)/increase in debt securities issued other than bonds issued (84.2) 0.4 Share issue to non-controlling interests 2.5 –

Net increase/(decrease) in other liabilities 72.8 (39.5) Proceeds from sale of non-controlling interests in subsidiaries 5.5 –

Net cash from operating activities 951.8 1,061.5 Buy-back of perpetual loan participation notes (7.9) (0.9)

Cash flows used in investing activities Proceeds from sale of previously bought-back perpetual loan participation notes 8.3 0.5

Dividends and other distributions received 8.8 1.0 Amounts paid on perpetual loan participation notes (14.0) (13.1)

Proceeds from sales or maturities of investment financial assets available-for-sale 272.5 225.2 Net cash used in financing activities (927.8) (1,124.1)

Purchase of investment financial assets available-for-sale (259.8) (232.0) Effect of exchange rate changes on cash and cash equivalents (44.2) 65.7

Purchase of subsidiaries, net of cash (12.8) – Net decrease in cash and cash equivalents (113.0) (126.1)

Disposal of subsidiaries, net of cash 3.2 2.8 At the beginning of period 561.6 687.7

Purchase of and contributions to associates (2.3) (0.6) At the end of period 448.6 561.6

Proceeds from sale of share in associates 2.6 –

These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together, the Group) prepared in accordance with IFRS for the year ended 31 December 2016. For a better of VTB Bank and its subsidiaries (together, the Group) prepared in accordance with IFRS for the year ended 31 December 2016. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank. were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 7. Financial statements highlights position and banking sector in 2016 report governance responsibility statements Annexes

Translation of the original Russian version Translation of the original Russian version

VTB Bank summary consolidated statements of changes in shareholders’ equity for the year ended 31 December (in billions of Russian roubles)

Non- controlling Total 146 Attributable to shareholders of the parent interests equity 147

Perpetual loan Treasury shares and bought participation back perpetual loan Share capital Share premium notes participation loan notes Other reserves Retained earnings Total

Balance at 1 January 2015 352.1 433.8 126.6 (6.7) 42.8 169.3 1,117.9 13.1 1,131.0

Net result from treasury shares transactions – – – 4.2 – 2.3 6.5 – 6.5

Net result from bought back perpetual loan participation notes transactions – – – (0.4) – 0.2 (0.2) – (0.2)

Profit/(loss) for the period – – – – 10.7 10.7 (9.0) 1.7

Other comprehensive income – – – – 30.5 0.3 30.8 0.2 31.0

Total comprehensive income/(loss) for the period – – – – 30.5 11.0 41.5 (8.8) 32.7

Preference share issue 307.4 – – – – – 307.4 – 307.4

Transfer of premises revaluation reserve upon disposal or depreciation – – – – (1.2) 1.2 – – –

Share-based payments – – – – – (0.2) (0.2) – (0.2)

Acquisition of subsidiaries – – – – – – – 1.8 1.8

Disposal of subsidiaries – – – – – – – 0.1 0.1

Acquisition of non-controlling interests – – – – 0.1 1.1 1.2 (6.3) (5.1)

Amounts paid on perpetual loan participation notes – – – – – (11.7) (11.7) – (11.7)

Foreign exchange translation of perpetual loan participation notes – – 37.4 – – (37.4) – – –

Tax effect recognised on perpetual loan participation notes – – – – – 9.8 9.8 – 9.8

Dividends declared – – – – – (18.0) (18.0) – (18.0)

Balance at 31 December 2015 659.5 433.8 164.0 (2.9) 72.2 127.6 1,454.2 (0.1) 1,454.1

Net result from bought back perpetual loan participation notes transactions – – – 0.4 – – 0.4 – 0.4

Profit/(loss) for the period – – – – – 52.3 52.3 (0.7) 51.6

Other comprehensive loss – – – – (26.0) (1.3) (27.3) (0.6) (27.9)

Total comprehensive income/(loss) for the period – – – – (26.0) 51.0 25.0 (1.3) 23.7

Transfer of premises revaluation reserve upon disposal or depreciation – – – – (1.1) 1.1 – – –

Share-based payments – – – – – (0.2) (0.2) – (0.2)

Increase in share capital of subsidiaries – – – – – 0.2 0.2 2.3 2.5

Acquisition of subsidiaries – – – – – – – 1.7 1.7

Disposal of subsidiaries – – – – (0.3) 0.4 0.1 1.0 1.1

Sale and purchase of non-controlling interests – – – – – (0.6) (0.6) 6.3 5.7

Amounts paid on perpetual loan participation notes – – – – – (14.0) (14.0) – (14.0)

Foreign exchange translation of perpetual loan participation notes – – (27.5) – – 27.5 – – –

Tax effect recognised on perpetual loan participation notes – – – – (2.7) (2.7) – (2.7)

Dividends declared – – – – – (50.9) (50.9) (0.2) (51.1)

Other distributions – – – – – (11.0) (11.0) – (11.0)

Balance at 31 December 2016 659.5 433.8 136.5 (2.5) 44.8 128.4 1,400.5 9.7 1,410.2

These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), These summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS), namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements namely summary of principal accounting policies and other explanatory information as presented in the audited consolidated financial statements of VTB Bank and its subsidiaries (together, the Group) prepared in accordance with IFRS for the year ended 31 December 2016. For a better of VTB Bank and its subsidiaries (together, the Group) prepared in accordance with IFRS for the year ended 31 December 2016. For a better understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should understanding of the Group’s financial position, its financial performance and its cash flows, these summary consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements be read in conjunction with the audited consolidated financial statements of the Group from which these summary consolidated financial statements were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank. were derived. Copies of audited consolidated financial statements can be obtained from VTB Bank. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

148 149 8. Annexes The total number of shareholders of the Bank dividend for the year. The amount of the dividend as of December 2016 was 90 thousand, is subject to approval at the Annual General including 89 thousand individuals. VTB Bank Meeting of Shareholders. In addition, the Bank’s is not aware of any shareholders owning Charter provides for the possibility of paying out more than 1% of the Bank’s authorised share interim dividends to holders of Type 1 and Type capital, except those mentioned above. 2 preference shares after for each quarter.

8.1. Share capital of VTB Bank VTB Bank’s ordinary shares trade on the Moscow Exchange and on the London Stock Exchange in the 8.2. Dividends of VTB Bank As of 31 December 2016, VTB Bank’s charter capital form of Global Depositary Receipts (GDRs). Moscow amounted to RUB 651,033,883,623.38, and was Exchange has included VTB Bank’s shares in its top Dividend payments divided into ordinary and preference shares: Level 1 list and in the MICEX Index, the MICEX 10 Blue Chip Index, the Broad Market Index and the VTB Bank’s Annual General Meeting of Shareholders Type of shares Number of shares Par value of a share MICEX Financials Index. One lot is 10,000 shares. on 24 June 2016 approved the payment of Ordinary shares 12,960,541,337,338 RUB 0.01 dividends for 2015 in the amount of: Each VTB GDR is the equivalent of 2,000 ordinary Type 1 preference shares 21,403,797,025,000 RUB 0.01 shares. The Bank of New York Mellon is the depositary RUB 0.00117 per ordinary nominal share with a par Type 2 preference shares 3,073,905,000,000 RUB 0.1 bank for the VTB GDR Programme. On 31 December value of RUB 0.01; Total 37,438,243,362,338 2016, GDRs accounted for 6.1% of the Bank’s voting RUB 0.00000421776668385314 per preference shares, or 1.22% of the Bank’s share capital. share with a par value of RUB 0.01; In accordance with its Charter, the Bank has the right The record date for the state registration of VTB RUB 0.00580330726027317 per Type A preference to issue a maximum number of 14,000,000,000,000 Bank’s ordinary shares issue is 29 September 2006. At an Extraordinary General Meeting of Shareholders share with a par value of RUB 0.1. ordinary shares with a par value of RUB 0.01 of VTB Bank on 8 December 2016, a decision was each. The state registration number of VTB Bank’s As of 31 December 2016, the Bank’s taken to issue Type 1 and Type 2 preference shares by The total amount of dividends was RUB outstanding ordinary shares is 10401000B. largest shareholders are as follows: converting registered preference shares and Type A 33.1 billion (RUB 18.0 billion for 2014), preference shares issued previously. This conversion including RUB 15.2 billion on ordinary shares, Number % of ordinary % of share was carried out at the suggestion of the Ministry of RUB 0.1 billion on preference shares and Shareholder of shares shares capital in RUB Finance of the Russian Federation and the Deposit RUB 17.8 billion on Type A preference shares.

Ordinary shares Insurance Agency, the holders of these shares.

The Russian Federation as represented by the Federal Agency In accordance with a decision of the Annual General for State Property Management 7,897,477,400,292 60.93 12.13 The state registration number of VTB Bank Type Meeting of Shareholders, the record date for State Oil Fund of the Republic of Azerbaijan 381,913,414,634 2.95 0.59 1 preference shares is 20301000B. The record dividends for 2015 was 4 July 2016. Dividends were

Credit Suisse AG 305,231,347,002 2.36 0.47 date for the state registration of the issue is 13 paid in accordance with the timeframe set out by law.

JSC Rossiya Bank 244,176,300,000 1.88 0.37 December 2016. All shares of this type are placed at the disposal of the sole purchaser purchaser, The Extraordinary General Meeting of Shareholders JSC Russian Agricultural Bank 182,028,460,000 1.41 0.28 the Russian Federation as represented by the of 16 December 2016 also decided to pay dividends PJSC Bank Saint Petersburg 163,578,720,000 1.26 0.25 Ministry of Finance of the Russian Federation. for the first nine months of 2016 in the amount ALFA-BANK JSC 134,698,880,000 1.04 0.21 of RUB 0.00581369 per Type 2 preference share Other legal entities and individuals 3,833,465,275,410 28.16 5.60 The state registration number of VTB Bank Type 2 of PJSC VTB Bank with a par value of RUB 0.1. Total ordinary shares 12,960,541,337,338 100.00 19.90 preference shares is 20401000B. The record date Dividends paid out to shareholders amounted to

Type 1 preference shares for the state registration of the issue is 13 December RUB 17,870,730,759.45. Interim dividends for

The Russian Federation represented by the Ministry of 2016. All shares of this type are placed at the disposal the first nine months of 2016 on ordinary shares Finance of the Russian Federation 21,403,797,025,000 - 32.88 of a sole purchaser, the Deposit Insurance Agency. and Type 1 preference shares were not paid.

Type 2 preference shares VTB Bank Type 1 and Type 2 preference shares are As of 31 December 2016, the amount paid in State Corporation Deposit Insurance Agency 3,073,905,000,000 - 47.22 not traded on exchanges, and do not offer a fixed dividends amounted to RUB 15,161,747,767.79, VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

150 151 with the proportion of dividends paid out The Russian Federation, represented by the dividends per share is calculated to the nearest Given the above, and taking into account that the of the total declared dividends amounting Federal Agency for State Property Management: kopeck. Rounding is performed in accordance income tax is calculated and withheld by a tax agent, to 99.986%. Dividends on all types of RUB 9,240,048,588.34; with the rules of mathematical rounding. mutual funds, foreign institutional investors and preference shares were paid in full. The Russian Federation, represented by the individual investors can apply for a tax exemption or a Ministry of Finance of the Russian Federation: The date when the list of persons entitled to a share reduced tax rate on dividends received by submitting The amount of dividends paid to major RUB 90,276,222.00; of the Bank’s net profit is compiled is determined at documents that demonstrate that they have the shareholders in 2016 was as follows: The Deposit Insurance Agency: the General Meeting of Shareholders, but can be no right to preferential tax treatment to the Bank’s RUB 35,709,545,963.34. earlier than 10 days before the date when the decision registrar, CJSC VTB Registrar, or to the depositary to pay dividends is due to be made, and no later than where his or her shares are registered. In the case of The record of VTB Bank dividend payments for the last five years2021 20 days following such a decision. The time period share transfer to beneficial ownership, documents for the payment of dividends depends on the type of should be submitted to a trust manager. A complete 2011 2012 2013 2014 2015 registered shareholder. Dividend payments to nominal list of the required documents can be found in Net profit in accordance with RAS (RUB million) 24,406 18,096 34,485 19,674 49,140 shareholders and trustees listed on the shareholder the Investor Relations section of www.vtb.ru. Total amount of dividend payments (RUB million) 9,205 14,959 15,034 18,000 33,093 register must be made within 10 working days, while

Dividend payout ratio dividend payments to other registered shareholders Since 1 January 2015, the tax rate on dividends (% of VTB Bank’s net profit in accordance with RAS) 38 83 44 91 67 must be made within 25 working days of the date when has changed, and for both individuals and Dividend payout ratio the list of persons entitled to dividends is compiled. legal entities that are residents of the Russian (% of VTB Group’s net profit in accordance with IFRS) 10 17 15 2,250 1,947 Federation it now amounts to 13% (previously it Dividend payout for ordinary shares (RUB million) 9,205 14,959 15,034 15,164 15,164 Shareholders appearing on the register receive was 9%), and 15% for non-residents. This rate Dividend payout for Type 1 preference shares20 (RUB million) - - - 2,836 90 dividends by postal order or bank transfer to the applies to the total dividend sum, which can be Dividend payout for Type 2 preference shares21 (RUB million) - - - - 17,839 shareholders’ accounts at their request (if bank less than the total volume of payments based on Dividend amount per ordinary share (RUB) 0.00088 0.00143 0.00116 0.00117 0.00117 details are provided). Shareholders whose rights are the income received by VTB Bank as dividends

Dividend amount per Type 1 preference share (RUB) - - - ≈0.000132 ≈0.0000042 registered via nominal shareholders receive dividends from participating in other companies, as tax in monetary form in accordance with the procedure has already been paid on these amounts. Dividend amount per Type 2 preference share (RUB) - - - - ≈0.0058 stipulated in Russian laws on securities. The current Dividend policy the recommended amount for dividend payments legislation, which was amended on 1 January 2014, If a double taxation agreement applies, tax payments shall be determined by the Bank’s Supervisory does not provide for cash dividend payments. are made in accordance with the rate specified in the One of the main rights of shareholders is the right Council on the basis of the Bank’s consolidated agreement, taking into account Russian legislation. to receive a share of the Bank’s net profit in the financial statements in accordance with IFRS. The Any dividends accrued but unclaimed by form of dividend payments. Dividend payments are recommended amount of dividend payments, shareholders within a period of three calendar approved by the AGM, following recommendations according to the Regulation, is not less than 25% of years are subject to allocation back to the profit 8.3. Report on compliance with the made by the Supervisory Council. In determining the the Group’s consolidated net profit according to IFRS. of the Bank. Therefore, if a shareholder does not principles and recommendations recommended dividend amount, the Supervisory The Dividend Policy is available on the Bank’s website: claim his or her accrued dividends within three Council is guided by the amount of the Bank’s http://www.vtb.ru/group/documents/#regulation. years, he or she loses the right to receive them. of the code of corporate governance net profit and by the Dividend Policy. The Bank’s Charter also provides for the possibility of the The amount of the dividend payment per share, Dividend taxation The report on compliance with the principles and payment of interim dividends for each quarter to as well as the period and form of payment are recommendations of the Corporate Governance holders of Type 1 and Type 2 preference shares. determined at the General Meeting of Shareholders A tax agent calculates and deducts tax from the Code was reviewed by the Supervisory Council separately for ordinary shares and for all types of dividend payments it makes at year-end. Since 1 of VTB Bank at the meeting on 22 March 2017. On 29 January 2016, VTB Bank’s Supervisory preference shares. The amount of the dividend January 2014, when income is distributed in the VTB Bank’s Supervisory Council confirms that the Council approved a new version of the Regulation payment may not exceed the amount recommended form of dividends on shares issued by a Russian data presented in this report present complete on the Dividend Policy, in accordance with which, by the Supervisory Council. The amount of accrued organisation, a tax agent can be considered not and accurate information about the Company’s only an issuer of these shares, but also, in cases compliance with the principles and recommendations 20 In accordance with the decision of the Extraordinary General Meeting of shareholders of VTB Bank on 8 December 2016, Type 1 and Type 2 stipulated by law, a trustee, a depositary and so on. of the Corporate Governance Code in 2016. preference shares were placed by converting preference shares and Type A registered preference shares. 21 In accordance with the decision of the Extraordinary General Meeting of shareholders of VTB Bank on 8 December 2016, Type 1 and Type 2 preference shares were placed by converting preference shares and Type A preference shares. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

152 Criteria for assessing compliance Status of Criteria for assessing compliance Status of 153 Principles of corporate with the relevant principle of comp- Comments/ Principles of corporate with the relevant principle of comp- Comments/ № governance corporate governance liance explanation № governance corporate governance liance explanation The company shall ensure equal and fair treatment for all its shareholders in exercising their rights to participate in the management 1.1 of the company. Compliance 1. One of the company’s bylaws (internal 1. There is a publicly available internal policy) contains provisions pursuant to which Partial company document, approved by the General each participant of a General Meeting may compliance Meeting of Shareholders, that governs the Every shareholder had an opportunity to freely request a copy of their completed ballot procedures for conducting General Meetings. exercise their right to vote in the simplest and certified by the counting commission prior to Non- 2. The company has established a 1.1.5 most convenient way for them. the completion of the meeting in question. compliant straightforward means of communicating Compliance The company creates the best possible with the company, such as a hotline, e-mail 1. When conducting General Meetings of conditions for its shareholders to participate or online forums, allowing shareholders to Partial Shareholders during the reporting period in in the general meeting, for the development express their opinions and send questions compliance the form of a meeting (with the joint presence of sound positions related to agenda items regarding the agenda during preparations for of shareholders), sufficient time was provided at the General Meeting, for coordinating their the General Meeting. The company undertook Non- for reports on agenda items, as well as time activities, as well as an opportunity to express such actions before every General Meeting compliant to discuss those items. 1.1.1 their views on the issues under consideration. that took place during the reporting period. 2. Candidates for the company’s management and oversight bodies were available to 1. Notice of an upcoming General Meeting of answer questions from shareholders at the Shareholders is posted (published) on the meeting at which their nominations were put website no later than 30 days before the date to a vote. of the General Meeting. 3. When making decisions related to the Compliance 2. The notice about an upcoming meeting preparation and holding of General Meetings must indicate the place of the meeting and Compliance The procedures established by the company of Shareholders, the Board of Directors Partial the documents required for admission to the for conducting General Meetings provides an considered the use of telecommunications compliance premises. Partial equal opportunity to all individuals present at facilities to provide remote access to The procedure for giving notice of the General 3. Shareholders were provided with access to compliance a meeting to express their opinions and ask shareholders to participate in General Non- Meeting and the provision of materials for information about who proposed the agenda 1.1.6 questions. Meetings during the reporting period. compliant the General Meeting gives shareholders items and who nominated individuals to the Non- an opportunity to properly prepare for Board of Directors and the Statutory Audit compliant 1.2 Shareholders are given equal and fair opportunities to participate in the profits of the company by receiving dividends. 1.1.2 participation in the meeting. Commission. 1. The company has developed an open 1. During the reporting period, shareholders dividend policy that has been approved by had the opportunity to put questions to the Board of Directors and that has been members of the executive bodies and the disclosed. Compliance members of the Board of Directors prior to 2. If the company’s Dividend Policy uses the and during the Annual General Meeting. company’s reporting indicators to determine Partial 2. The position of the Board of Directors The company has developed and the amount of the dividend, then the relevant compliance (including dissenting opinions entered in implemented a transparent and clear provisions of the Dividend Policy take into the minutes) on each agenda item at General mechanism for determining the amount and account the Group’s consolidated financial Non- In the course of the preparation for and the Meetings held during the reporting period 1.2.1 payment of dividends. statements. compliant holding of a General Meeting, shareholders was included in the materials for the General Compliance had the opportunity to receive information Meeting of Shareholders. The company does not take a decision on Compliance about the meeting and materials for the 3. The company provided those shareholders Partial the payment of dividends if such a decision, meeting without hindrance and in a timely with a right to access the list of persons compliance while not formally in violation of legal Partial manner to put questions to the executive entitled to participate in the General Meeting restrictions, is unjustified from an economic The company’s Dividend Policy provides compliance bodies and the members of the Board of from the date of its receipt by the company Non- point of view and could lead to the formation clear guidance on the financial/economic Directors and to communicate with one in all cases regarding General Meetings held compliant of misconceptions about the company’s circumstances under which the company Non- 1.1.3 another. during the reporting period. 1.2.2 activities. should not pay dividends. compliant

1. During the reporting period, shareholders had the opportunity to submit proposals Compliance for inclusion on the agenda of the Annual General Meeting during a period of no Partial less than 60 days after the end of the Compliance During the reporting period, the company compliance corresponding calendar year. The company does not permit any did not take any actions that led to the Implementation of the shareholder right to 2. During the reporting period, the company Partial diminution of the dividend rights of existing diminution of the dividend rights of existing Non- request that a general meeting be convened, did not refuse to accept proposals for the compliance 1.2.3 shareholders. shareholders. compliant to nominate candidates to the management agenda or nominations to the company’s bodies and to make proposals for inclusion various bodies as a result of typos or other Non- on the agenda of the general meeting did not insignificant errors in the shareholder’s compliant 1.1.4 involve needless difficulties. proposal. VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

154 Criteria for assessing compliance Status of Criteria for assessing compliance Status of 155 Principles of corporate with the relevant principle of comp- Comments/ Principles of corporate with the relevant principle of comp- Comments/ № governance corporate governance liance explanation № governance corporate governance liance explanation In order to prevent shareholders from using During the reporting period, meetings of other means of earning a profit (income) at the Board of Directors addressed issues the company’s expense beyond dividends The Board of Directors establishes the basic related to progress on implementation and Compliance and liquidation value, the company’s bylaws guidelines for the company’s activities in updating of the company’s strategy, approval have established monitoring mechanisms the long term, evaluates and approves the of the company’s financial and economic Partial that ensure the timely discovery of and a company’s key performance indicators and plan (budget), as well as the consideration compliance procedure for the approval of transactions Compliance key business goals, and evaluates and of criteria and indicators (including interim) with persons affiliated (associated) with approves the strategy and business plans for related to the company’s strategy and Non- The company is committed to preventing major shareholders (individuals with the Partial 2.1.2 the company’s core activities. business plans. compliant shareholders from using other means of right to make use of the votes stemming from compliance earning a profit (income) at the company’s voting shares) in cases where the law does expense beyond dividends and liquidation not formally recognise such transactions as Non- 1. The Board of Directors has defined the Compliance 1.2.4 value. related-party transactions. compliant principles and approaches to organising a risk management and internal control system in Partial The corporate governance system and practices shall ensure equal terms and conditions for all shareholders owning shares of the same The Board of Directors determines the the company. compliance 1.3 class (category), including minority and foreign shareholders, as well as their equal treatment by the company. principles of and approaches to organising a 2. The Board of Directors assessed the risk management and internal control system company’s risk management and internal Non- 2.1.3 in the company. control system during the reporting period. compliant The company has created the conditions Compliance for the fair treatment of each shareholder During the reporting period, the procedures 1. The company has developed and by the company’s management and for managing potential conflicts of interest Partial implemented a policy (policies), approved by oversight bodies, including conditions involving major shareholders were effective, compliance the Board of Directors, on the remuneration ensuring the inadmissibility of abuse by and conflicts between shareholders, if any, and reimbursement (compensation) of Compliance major shareholders in relation to minority were given due attention by the Board of Non- The Board of Directors determines the expenses for members of the company’s 1.3.1 shareholders. Directors. compliant company policy on remuneration and/or Board of Directors, executive bodies and Partial reimbursement (compensation) for expenses other key executives. compliance for members of the company’s Board of 2. Issues related to this policy (policies) were Compliance Directors, executive bodies and other key considered during the reporting period at Non- The number of Bank 2.1.4 executives. meetings of the Board of Directors. compliant Partial shares held by compliance companies controlled The company does not undertake actions that by the Bank is extremely 1. The Board of Directors plays a key role in Compliance lead or may lead to the artificial redistribution There were no quasi-treasury shares or they Non- small: less than 0.001% the prevention, detection and resolution of 1.3.2 of corporate control. did not vote during the reporting period. compliant of the total. The Board of Directors plays a key role in internal conflicts. Partial the prevention, detection and resolution of 2. The company has established a system for compliance Shareholders must be provided with reliable and effective ways to register their rights to their shares, as well the possibility to dispose of internal conflicts between the company’s identifying transactions involving a conflict of 1.4 their shares freely and easily. executive bodies, shareholders and the interest, and a system of measures aimed at Non- 2.1.5 employees. resolving such conflicts. compliant Compliance Compliance The quality and reliability of the activities Partial The Board of Directors plays a key role in Shareholders must be provided with reliable performed by the company’s registrar to compliance ensuring the transparency of the company, 1. The Board of Directors approved the Partial and effective ways to register their rights to maintain the register of securities holders the timeliness and completeness of the Regulation on Information Policy. compliance their shares, as well the possibility to dispose meet the needs of the company and its Non- company’s disclosure of information, and 2. The company has appointed responsible 1.4 of their shares freely and easily. shareholders. compliant shareholders’ unhindered access to company officials for implementation of its Information Non- The Board of Directors carries out strategic management within the company, defines the basic principles and approaches to organising a 2.1.6 documents. Policy. compliant risk management and internal control system within the company, supervises the activity of executive bodies and also performs other key 2.1 functions. Compliance The Board of Directors is responsible for decisions relating to the appointment and 1. The Board of Directors has the authority, Partial dismissal of members of executive bodies, per the Charter, to appoint and dismiss The Board of Directors oversees the corporate compliance including in connection with the improper members of executive bodies, as well as to Compliance governance practices within the company During the reporting period, the Board performance of their duties. The Board of determine the terms of their contracts. and plays a key role in significant corporate of Directors considered the issue of the Non- Directors also carries out oversight measures 2. The Board of Directors reviewed the Partial 2.1.7 events. company’s corporate governance practices. compliant to ensure that the company’s executive report(s) of the sole executive body and of compliance 2.2 The Board of Directors is accountable to the company’s shareholders. bodies act in accordance with the approved members of the collective executive body development strategy and the company’s on the implementation of the company’s Non- 1. The company’s Annual Report for the 2.1.1 main areas of activity. strategy. compliant reporting period includes information on Compliance individual directors’ attendance at board and committee meetings. Partial 2. The Annual Report contains information compliance Information about the work of the Board of about the main results of the assessment of Directors is disclosed and presented to the the work of the Board of Directors carried out Non- 2.2.1 shareholders. during the reporting period. compliant VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

156 Criteria for assessing compliance Status of Criteria for assessing compliance Status of 157 Principles of corporate with the relevant principle of comp- Comments/ Principles of corporate with the relevant principle of comp- Comments/ № governance corporate governance liance explanation № governance corporate governance liance explanation 2.4 The Board of Directors shall include a sufficient number of independent directors. Compliance An independent director is a person who has sufficient professionalism, experience and The company has a transparent procedure for Partial independence to form their own positions, providing shareholders with an opportunity compliance is able to formulate objective and honest to direct their questions and their position on opinions, is independent from the influence The Chairman of the Board of Directors must those questions to the Chairman of the Board Non- of the company’s executive bodies, individual 2.2.2 be available to the company’s shareholders. of Directors. compliant groups of shareholders and other interested The Board of Directors must be an efficient and professional governing body that is capable of making objective and independent parties. It should be kept in mind that, under Compliance 2.3 judgements and passing resolutions in the best interests of the company and its shareholders. normal conditions, a candidate (elected During the reporting period, all independent member of the Board of Directors) who is members of the Board of Directors met all Partial 1. The company has adopted a procedure for associated with the company, its major the criteria for independence set out in the compliance assessing the effectiveness of the Board of shareholders, a significant counterparty or recommendations 102-107 of the Code Directors that includes an assessment of the competitor or the state may not be considered or were recognised as independent by a Non- professional qualifications of the members of 2.4.1 independent. decision of the Board of Directors. compliant Only individuals who have an excellent the Board of Directors. business and personal reputation, and 2. During the reporting period, the Board Compliance 1. During the reporting period, the Board who also have the knowledge, skills and of Directors (or its Nominating Committee) of Directors (or its Nominating Committee) experience required to make decisions evaluated candidates for the Board of Partial formed an opinion about each candidate’s related to the remit of the board of directors Directors in terms of whether they had compliance independence and presented shareholders and required for the effective performance of the necessary experience, knowledge and with their conclusions. its functions may be elected by the members business reputation, as well as whether or not Non- 2. During the reporting period, the Board 2.3.1 of the Board of Directors. they had any conflicts of interest. compliant of Directors (or its Nominating Committee) reviewed, on at least one occasion, the Whenever a General Meeting of Shareholders independence of the current members of was held during the reporting period the Board of Directors who are indicated whose agenda included the issue of the An assessment of the compliance of as independent directors in the company’s election of the Board of Directors, the candidates for the Board of Directors with the Annual Report. Compliance company provided the shareholders with criteria for independence shall be carried out, 3. The company has developed procedures the CVs of all candidates for members of along with a regular review of the compliance for determining the necessary actions a board Partial the Board of Directors, the results of the of independent members of the Board of member must take in the event that he or compliance evaluation of the candidates conducted by Directors with the independence criteria. In she ceases to be independent, including the the Board of Directors (or the Nominating Compliance conducting such an assessment, content obligation to inform the Board of Directors Non- The members of the Board of Directors are Committee). It also provided information 2.4.2 should prevail over form. about this in a timely manner. compliant elected through a transparent procedure that on each candidate’s compliance with the Partial allows shareholders to receive information independence criteria in accordance with compliance about the candidates that is sufficient to form recommendations 102-107 of the Code, as Compliance a picture of their personal and professional well as the written consent of the candidates Non- 2.3.2 qualities. for election to the Board of Directors. compliant Partial compliance Independent directors shall account for at Compliance least one third of all directors elected to the Independent directors account for at least one Non- The composition of the Board of Directors As part of the procedures for assessing the 2.4.3 board. third of all directors elected to the Board. compliant shall be balanced, including in terms of work of the Board of Directors carried out Partial the qualifications of its members, their during the reporting period, the Board of compliance experience, knowledge and business Directors analysed its own requirements Compliance qualities, and it shall enjoy the confidence of in the area of professional qualifications, Non- Independent directors (who have no conflict 2.3.3 the shareholders. experience and business skills. compliant of interest) provide a preliminary assessment Partial Independent directors play a key role in the of significant corporate actions related to compliance The quantitative composition of the Board of prevention of internal conflicts within the possible conflicts of interest, and the results Directors shall make it possible to organise As part of the procedures for assessing company and in the company’s performance of that assessment are presented to the Non- the activities of the Board of Directors in the the work of the Board of Directors carried Compliance 2.4.4 of significant corporate actions. Board. compliant most efficient manner possible, including out during the reporting period, the Board the possibility of the formation of the board of Directors considered the issue of the Partial 2.5 The Chairman of the Board of Directors shall facilitate the most effective performance of the functions assigned to the Board. committeescommittees. It shall shall also compliance of the quantitative composition compliance 1. The Chairman of the Board of Directors provide the company’s significant minority of the Board of Directors with the company’s is an independent director or a senior shareholders with an opportunity to elect to the requirements and the interests of Non- The Chairman of the Board of Directors is independent director is selected from among Compliance 2.3.4 Board of Directors a candidate of their choice. shareholders. compliant an independent director, or the elected the independent directors. independent directors select a senior 2. The role, rights and responsibilities of Partial independent director who coordinates the the Chairman of the Board of Directors (and compliance work of the independent directors and is if applicable, of the senior independent responsible for communication with the director) are stipulated, as required, in the Non- 2.5.1 Chairman of the Board of Directors. company’s bylaws. compliant VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

158 Criteria for assessing compliance Status of Criteria for assessing compliance Status of 159 Principles of corporate with the relevant principle of comp- Comments/ Principles of corporate with the relevant principle of comp- Comments/ № governance corporate governance liance explanation № governance corporate governance liance explanation 1. In accordance with the company’s bylaws, Compliance the members of the Board of Directors have The Chairman of the Board of Directors the right to to access documents and to make ensures a constructive atmosphere for The effectiveness of the work of the Chairman Partial All members of the Board of Directors inquiries concerning the company and its Compliance holding meetings, a free discussion of the of the Board of Directors is evaluated in the compliance shall have equal access to the company’s subsidiary organisations, and the company’s issues included on the meeting agenda and framework of the performance evaluation documents and information. Newly elected executive bodies are required to provide Partial oversight over the execution of decisions procedures for the Board of Directors during Non- members of the Board of Directors shall, in relevant information and documents. compliance 2.5.2 taken by the Board of Directors. the reporting period. compliant the shortest possible time, be provided with 2. The company has established a formalised sufficient information about the company and programme of introductory events for newly Non- 2.6.4 the work of the Board of Directors. elected members of the Board of Directors. compliant Compliance The duty of the Chairman of the Board of Meetings of the Board of Directors, preparations for them and the participation of board members therein shall ensure that the board The Chairman of the Board of Directors shall Directors to take steps to ensure the timely Partial 2.7 works in an effective manner. take the necessary measures for the timely delivery of materials to members of the Board compliance provision of information to members of the of Directors concerning items on the agenda Board of Directors in order to take decisions of a meeting of the board is stipulated in Non- Compliance 2.5.3 about items on the agenda. company bylaws. compliant Partial Board members act in good faith and reasonably in the interests of the company and its shareholders on the basis of sufficient Meetings of the Board of Directors shall be compliance 2.6 information, with due care and diligence. held as necessary, taking into account the scale of operations and the tasks facing the The Board of Directors held at least six Non- 1. According to the company’s bylaws, a 2.7.1 company at a given period of time. meetings during the reporting year. compliant member of the Board of Directors must notify the Board of Directors if he or she has a conflict of interest in respect of any item on The company has approved an internal Compliance the agenda of a meeting of the board or of a document that stipulates the procedure board committee prior to the discussion of The company’s bylaws shall enshrine for the preparation and holding of board Partial the relevant agenda item. procedures for the preparation and holding meetings, in which it is also established that compliance 2. The company’s bylaws provide that a board of board meetings that allow members of the notice about a meeting must be provided, member must abstain from voting on any Compliance Board of Directors to prepare adequately for as a rule, not less than five days prior to the Non- matter in which he or she has a conflict of 2.7.2 such meetings. meeting. compliant Board members take decisions based on all interest. Partial available information, without any conflicts 3. The company has established a procedure compliance of interest, taking into account the equal that allows the Board of Directors to receive Compliance treatment of the company’s shareholders, professional advice on matters within its Non- The format of each meeting of the Board 2.6.1 within the framework of normal business risk. remit at the company’s expense. compliant of Directors is determined based on the The company’s Charter or bylaws provide that Partial importance of the items on its agenda. the most important issues (according to the compliance The most important issues are resolved at list provided in recommendation 168 of the Compliance meetings of the Board of Directors held in Code) must be considered at in-person Board Non- 2.7.3 person. meetings. compliant Partial The company has adopted and published an compliance The Bank’s Charter The rights and obligations of members of the internal document that clearly stipulates the contains provisions Board of Directors are clearly defined in the rights and responsibilities of members of the Non- providing for the 2.6.2 company’s bylaws. Board of Directors. compliant adoption of decisions by a majority of elected 1. Individual attendance at board and members of the committee meetings, as well as the time Supervisory Council on devoted to preparation for participation in all matters specified in such meetings, was taken into account as paragraph 170 of the part of the Board of Directors assessment The company’s Charter provides that Compliance Code, with the exception procedures during the reporting period. decisions on the most important issues of three. 2. In accordance with the company’s bylaws, outlined in recommendation 170 of the Code Partial Amendments to the members of the Board of Directors are Compliance Decisions on the most important issues must be taken at a meeting of the Board compliance Charter with regard to the required to notify the Board of their intention concerning the company’s activities shall be of Directors by a qualified majority of not specified procedure for to be a part of the management bodies of Partial taken at a meeting of the board of directors less than three fourths of the votes or by a Non- voting on other issues is other organisations (beyond those that are compliance by a qualified majority or a majority of all the majority of all the elected members of the compliant planned for the AGM in the company’s subsidiaries or dependent 2.7.4 elected members of the Board of Directors. Board of Directors. 2017. Board members have sufficient time to organisations), as well as the fact of such Non- 2.6.3 perform their duties. appointments. compliant VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

160 Criteria for assessing compliance Status of Criteria for assessing compliance Status of 161 Principles of corporate with the relevant principle of comp- Comments/ Principles of corporate with the relevant principle of comp- Comments/ № governance corporate governance liance explanation № governance corporate governance liance explanation The Board of Directors shall form committees for preliminary consideration of the most important issues related to the company’s The Bank’s Supervisory 2.8 activities. Council Staff and Remuneration Committee The Bank’s Supervisory consists not only of Council Audit Committee independent directors, consists not only of although the majority of independent directors, the Committee members although the majority of are independent. the Committee, including The current members the Chairman, are of the Committee are independent. selected based on the The current members individual experience of the Committee are and competence of each selected based on the member. individual experience The Bank complies with and competence of each the requirements on member. corporate governance of The Bank complies with the Moscow Exchange the requirements on Listing Rules, including corporate governance of the requirements for the Moscow Exchange the composition of the Listing Rules, including Supervisory Council the requirements for committees. 1. The Board of Directors has formed an Audit the composition of the Concerning the Committee composed entirely of independent Supervisory Council Code’s additional directors. committees. requirements regarding 2. The company’s bylaws stipulate the Audit Regarding all other 1. The Board of Directors established a the composition of Committee’s tasks, including those tasks requirements of the Remuneration Committee that consists solely the Committee, the outlined in recommendation 172 of the Code. Code on this issue, the of independent directors. Compliance practicality is unclear, 3. At least one member of the Audit Compliance practicality is unclear, For preliminary consideration of issues related 2. The Chairman of the Remuneration including due to the Committee, who is an independent director, including due to the to the formation of effective and transparent Committee is an independent director who is Partial risk of not being able to has experience and expertise in the Partial risk of not being able to remuneration practices, a Remuneration not the Chairman of the Board of Directors. compliance fill the Committee with For the preliminary consideration of issues preparation, analysis, evaluation and auditing compliance fill the Committee with Committee was established that consists of 3. The company’s bylaws stipulate the Supervisory Council related to the control of the company’s of financial statements. Supervisory Council independent directors and is chaired by an Remuneration Committee’s tasks, including Non- members with the financial and economic activities, an Audit 4. Meetings of the Audit Committee took Non- members with the independent director who is not the Chairman those tasks outlined in recommendations 180 compliant necessary competence in Committee shall be established that is place at least once a quarter during the compliant necessary competence in 2.8.2 of the Board of Directors. of the Code. this field. 2.8.1 composed of independent directors. reporting period. terms of internal audit. 1. The Board of Directors established a Nominating Committee (or the tasks thereof For preliminary consideration of issues specified in recommendation 186 of the related to the implementation of staff Code are performed by another committee) Compliance planning (succession planning) and the consisting mostly of independent directors. The functions of the professional composition and performance 2. The company’s bylaws stipulate the Partial Nominating Committee of the Board of Directors, a Nominating tasks of the Nominating Committee (or compliance belong to the Supervisory Committee (appointments, human resources) the relevant committee with combined Council Staff and was established, most of whose members are functions), including the tasks outlined in Non- Remuneration Committee 2.8.3 independent directors. recommendation 186 of the Code. compliant of VTB Bank (PJSC).

Given the scope and risk level, the Board of Directors determined that the composition of its committees fully meets the company’s Compliance goals. Additional committees were either During the reporting period, the company’s formed or are not deemed necessary (strategy Board of Directors considered the Partial committee, corporate governance committee, composition of its committees in terms of compliance ethics committee, risk management the Board’s duties and the the company’s committee, budget committee, committee on objectives. Additional committees were either Non- 2.8.4 health, safety and the environment, etc.). formed or were deemed unnecessary. compliant VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

162 Criteria for assessing compliance Status of Criteria for assessing compliance Status of 163 Principles of corporate with the relevant principle of comp- Comments/ Principles of corporate with the relevant principle of comp- Comments/ № governance corporate governance liance explanation № governance corporate governance liance explanation 1. Committees of the Board of Directors are 1. Compliance in relation chaired by independent directors. Compliance to the Bank’s Supervisory Compliance 2. The company’s bylaws (policies) include Council Audit Committee. provisions under which individuals who are Partial In respect of other The Corporate Secretary is sufficiently The Board of Directors approves the Partial The composition of the committees is not members of the Audit Committee, the compliance committees, see paras. independent of the company’s executive appointment and dismissal of the Corporate compliance determined in such a way that it allows Nominating Committee or the Remuneration 2.8.1 and 2.8.2 bodies, and has been given the necessary Secretary, as well as decisions to award for a comprehensive discussion of issues Committee may attend committee meetings Non- 2. Not stipulated in authority and resources to carry out its additional remuneration to the Corporate Non- beforehand, taking into account different only at the invitation of the chairman of the compliant bylaws, but is complied 3.1.2 assigned tasks. Secretary. compliant 2.8.5 views. relevant committee. with in practice. The level of remuneration paid by the company shall be sufficient to enable it to attract, motivate and retain employees who have the required skills and qualifications. Remuneration shall be paid to Board members, executive bodies and other key managers at the Compliance 4.1 company in accordance with the remuneration policy adopted by the company.

Partial The level of remuneration provided by During the reporting period, the chairmen compliance the company to members of the Board of The committee chairmen shall regularly of the committees reported regularly to Directors, executive bodies and other key inform the Board of Directors and its the Board of Directors on the work of the Non- executives creates sufficient motivation 2.8.6 Chairman about the work of its committees. committees. compliant for them to work effectively, allowing the company to attract and retain competent 2.9 The Board of Directors shall ensure that the quality of its work and that of its committees and its members is assessed. and skilled professionals. This allows the Compliance company to avoid having to pay a level of The company has adopted a bylaw or bylaws 1. The self-assessment and external remuneration that is more than necessary, (policy/policies) regulating the remuneration Partial evaluation of the Board of Directors carried and it prevents the formation of unjustifiably for members of the Board of Directors, compliance out during the reporting period included an large gaps in the level of remuneration executive bodies and other key executives, Assessment of the quality of the work of the evaluation of the work of the committees, between these officials and company which clearly stipulate approaches to the Non- Board of Directors is aimed at determining individual Board members and the Board of Compliance 4.1.1 employees. remuneration of these individuals. compliant the degree of the effectiveness of the Board’s Directors as a whole. work, its committees and Board members, the 2. The results of the self-assessment or Partial The company’s remuneration policy is compliance of their work with the company’s external assessment of the Board of Directors compliance determined by the Remuneration Committee development needs, intensification of the carried out during the reporting period were and approved by the Board of Directors. Compliance work of the Board of Directors and identifying discussed at an in-person meeting of the Non- The Board of Directors, with the support During the reporting period, the Remuneration 2.9.1 areas in which their work can be improved. Board of Directors. compliant of the Remuneration Committee, monitors Committee reviewed the Remuneration Policy Partial the introduction and implementation of (Policies) and the policy regulating its (their) compliance An external evaluation the company’s Remuneration Policy, and if implementation; if necessary, it presented of the work of the Bank’s necessary it reviews and makes adjustments appropriate recommendations to the Board Non- Supervisory Council was 4.1.2 to it. of Directors. compliant not carried out in 2016. Provisions are enshrined The company’s Remuneration Policy (Policies) in the Bank’s bylaws The company’s Remuneration Policy provides contains (contain) transparent mechanisms Compliance Compliance that provide for such an transparent mechanisms for determining for determining the remuneration of members The work of the Board of Directors, its assessment at least once the amount of remuneration for members of of the Board of Directors, executive bodies Partial committees and Board members is assessed Partial every three years. There the Board of Directors, executive bodies and and other key executives at the company. It compliance on a regular basis, at least once a year. To To conduct an independent assessment of the compliance are plans to engage an other key executives at the company. It also (they) also regulates (regulate) all kinds of conduct an independent assessment of the quality of the Board of Directors’ work during independent consultant regulates all types of payments, benefits and payments, benefits and privileges provided to Non- quality of the Board of Directors’ work, a the last three reporting periods, the company Non- to evaluate the work of 4.1.3 privileges provided to such individuals. such individuals. compliant third-party entity (consultant) is engaged at engaged a third-party entity (consultant) at compliant the Supervisory Council 2.9.2 least once every three years. least once. in 2017. The company determines a policy on the reimbursement (compensation) of expenses Compliance The company’s Corporate Secretary is responsible for efficient ongoing interaction with its shareholders, coordination of the company’s that enumerates a list of reimbursable 3.1 actions designed to protect the rights and interests of its shareholders and support for the efficient work of its Board of Directors. expenses and the level of service that The policy (policies) on remuneration or Partial members of the Board of Directors, executive the company’s other bylaws establish compliance The company has adopted and disclosed an bodies and other key executives at the reimbursement rules for Board members, internal document called the Regulation on company may qualify for. This policy may form executive bodies and other key executives at Non- the Corporate Secretary. Compliance 4.1.4 a part of the company’s Remuneration Policy. the company. compliant The company’s website and Annual Report The Corporate Secretary has sufficient provide biographical information about Partial The system of remuneration for members of the Board of Directors shall ensure that the financial interests of the directors are in line with knowledge, experience and expertise for the the Corporate Secretary. The same level of compliance 4.2 the long-term financial interests of shareholders. execution of his or her duties. This official detail is provided about the members of the enjoys an impeccable reputation and the company’s Board of Directors and executive Non- The company pays fixed annual remuneration 3.1.1 confidence of shareholders. management. compliant to the members of the Board of Directors. Compliance The company does not pay a remuneration for participation in meetings of the Board or Partial Board committees. Fixed annual remuneration was the only compliance The company does not use short-term form of monetary remuneration that Board incentives or additional material incentives members received for their work on the Board Non- 4.2.1 for members of the Board of Directors. during the reporting period. compliant VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

164 Criteria for assessing compliance Status of Criteria for assessing compliance Status of 165 Principles of corporate with the relevant principle of comp- Comments/ Principles of corporate with the relevant principle of comp- Comments/ № governance corporate governance liance explanation № governance corporate governance liance explanation The Bank does not 1. The company has established a long-term apply other forms incentive programme for members of the A long-term incentive of remuneration executive bodies and other key company programme using the for members of the executives using the company’s shares Bank’s shares has not Supervisory Council (financial instruments based on company been developed, as it beyond their fixed shares). does not seem to be annual remuneration, 2. The long-term incentive programme for the right time to do so, the basic amount of members of executive bodies and other key partly because of the Long-term holding of company shares has which is determined by company executives provides that the right restrictions imposed been the most conducive to ensuring the the General Meeting of to sell shares and other financial instruments Compliance by civil and tax law in convergence of the financial interests of the If the bylaw (bylaws) detailing the policy Shareholders. The company has established a long-term that are granted within the programme shall relation to options and members of the Board of Directors with the (policies) on remuneration include a provision Compliance The effectiveness of incentive programme for members of the not be granted less than three years from Partial other programmes using long-term interests of shareholders. The allowing company shares to be granted to long-term incentive executive bodies and other key company the date that such shares or instruments are compliance the shares, and also in company does not make the right to dispose members of the Board of Directors, then clear Partial programmes for Board executives using the company’s shares awarded. The right to sell shares shall be relation to restrictions of shares dependent on the achievement rules regulating how Board members can compliance members is unclear due (options or other derivative instruments conditional upon the company’s achievement Non- on the right to dispose of of certain performance results, and Board hold these shares must be stipulated in a way to the limited one-year 4.3.2 whose underlying asset is company shares). of certain performance indicators. compliant shares. members do not participate in option that promotes the long-term holding of such Non- period for which they may 4.2.2 programmes. shares. compliant be elected. The amount of compensation (golden The amount of compensation (golden parachute) that is paid by the company in the parachute) that is paid by the company in the event of the early termination of members of event of the early termination of members of Compliance the executive bodies or key executives at the the executive bodies or key executives at the Compliance The company does not provide any additional The company does not provide any additional initiative of the company and in the absence initiative of the company and in the absence payments or compensation in the event payments or compensation in the event Partial of any actions taken by the employees of any actions taken by the employees Partial of the early termination of members of the of the early termination of members of the compliance themselves that were not in good faith shall themselves that were not in good faith did compliance Board of Directors in connection with the Board of Directors in connection with the not exceed two times the base salary that not, during the reporting period, exceed two transfer of control over the company or other transfer of control over the company or other Non- is paid as part of the annual compensation times the base salary that is paid as part of Non- 4.2.3 circumstances. circumstances. compliant 4.3.3 package. the annual compensation package. compliant

The system of remuneration due to members of the executive bodies and other key company managers provides that their remuneration is The company has established an efficient risk management and internal control system that is designed to provide reasonable assurance 4.3 dependent on the company’s performance results and their personal contributions to achieving these. 5.1 that the company’s goals will be achieved.

Recommendation 3 is not 1. During the reporting period, the annual being complied with. The Compliance performance indicators approved by the Bank has not formalised The functions that the company’s various Board of Directors were used to determine any procedures in its control bodies and divisions play in the risk Partial the amount of variable compensation for internal documents for The Board of Directors determines the management and internal control system are compliance members of executive bodies and other key the return of bonuses. principles and approaches used to shape clearly stipulated in the company’s bylaws/ executives at the company. The Bank’s approach the company’s risk management and internal relevant policies that were approved by the Non- 2. In the course of the last evaluation of in regard to incentives 5.1.1 control system. Board of Directors. compliant the system of remuneration for members of for members of the executive bodies and other key executives executive bodies and at the company, the Board of Directors (the other key employees Compliance Remuneration for members of executive Remuneration Committee) confirmed that the allows it to avoid the risk bodies and other key executives at the Company employed an effective ratio of base of improper payments. If The company’s executive bodies have Partial company shall be determined in such a way salary to variable compensation. Compliance such improper payments The company’s executive bodies shall ensure ensured the distribution of functions and compliance as to provide a reasonable and justified 3. The company has established a procedure were to take place, the the establishment and maintenance of an responsibilities for risk management and ratio between their base salary and variable that provides for the return of bonuses that Partial Bank would apply legally effective system of risk management and internal control between their subordinate Non- remuneration depending on the company’s were unlawfully obtained by members of the compliance established procedures 5.1.2 internal control at the company. unit and department heads. compliant results and the personal (individual) executive bodies and other key executives at for the purposes of contribution of each employee to the final the company. Non- ensuring the return of The company’s risk management and internal 1. The company has approved a policy on Compliance 4.3.1 result. compliant such payments. control system provides for an objective, fair preventing corruption. and clear picture of the company’s current 2. The company provides an accessible Partial state and prospects, the integrity and means of notifying the Board of Directors or compliance transparency of the company’s reporting, and the Board’s Audit Committee about violations the reasonableness and acceptability of the of the law, internal procedures and the Non- 5.1.3 risks taken by the company. company’s code of ethics. compliant

The Board of Directors takes necessary During the reporting period, the Board of Compliance measures to ensure that the company’s current Directors or its Audit Committee evaluated risk management and internal control system the effectiveness of the company’s risk Partial complies with the principles and approaches management and internal control system. compliance determined by the Board of Directors to ensure Information about the main findings of this that such a system is organised and functions evaluation are included in the company’s Non- 5.1.4 effectively. Annual Report. compliant VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

166 Criteria for assessing compliance Status of Criteria for assessing compliance Status of 167 Principles of corporate with the relevant principle of comp- Comments/ Principles of corporate with the relevant principle of comp- Comments/ № governance corporate governance liance explanation № governance corporate governance liance explanation The company organises an internal audit to ensure the regular independent evaluation of the reliability and effectiveness of the risk The company discloses complete, up-to-date and reliable information about the company to allow its shareholders and investors to make 5.2 management and internal control system and corporate governance practice. 6.2 informed decisions.

The company has created a separate 1. The company’s Information Policy structural unit or contracted an independent The company has created a separate Compliance stipulates the approaches and criteria for external organisation to conduct the internal structural unit to conduct internal audits determining information that could materially audit. The functional and administrative that is functionally subordinate to the Partial affect the company’s valuation, the value of reporting relationship of the internal audit Board of Directors or the Audit Committee compliance its securities and the procedures that ensure unit has been established. Functionally, the or it has engaged an independent external the timely disclosure of such information. internal audit unit is subordinate to the Board organisation with the same subordinate Non- 2. If the company’s securities are traded in 5.2.1 of Directors. status to conduct internal audits. compliant foreign markets, then equivalent material information is disclosed in the Russian Federation and in those foreign markets at Compliance The internal audit unit evaluates the 1. During the reporting period, an assessment Compliance the same time during the reporting year. effectiveness of the internal control system was provided of the effectiveness of the The company discloses information in 3. If foreign shareholders hold a substantial Partial and assesses the effectiveness of the risk internal control and risk management system Partial accordance with the principles of regular number of shares in the company, then compliance management and corporate governance as part of the internal audit process. compliance publication, consistency, timeliness, as well information was disclosed during the systems. The company employs generally 2. The company uses generally accepted as accessibility, accuracy, completeness and reporting year not only in Russian, but also in Non- accepted standards in the field of internal approaches to internal control and risk Non- 6.2.1 comparability of the data disclosed. a commonly known foreign language. compliant 5.2.2 auditing. management. compliant 1. During the reporting period, the company 6.1 The company and its activities are transparent to shareholders, investors and other interested parties. disclosed its annual and semi-annual 1. The Board of Directors approved the financial statements prepared in accordance company’s Information Policy, which takes with IFRS. The company’s Annual Report for into account the recommendations of the Compliance the reporting period included annual financial The company has developed and Code. statements that were prepared in accordance Compliance implemented an information policy 2. The Board of Directors (or one of its Partial with IFRS, along with the auditor’s report. that ensures effective communication committees) considered issues related to the compliance The company avoids taking a formal approach 2. The company discloses both in its Partial of information between the company, company’s compliance with its Information to the disclosure of information, and it Annual Report and on its website complete compliance shareholders, investors and other interested Policy at least once during the reporting Non- discloses important information about its information on its capital structure in 6.1.1 parties. period. compliant activities even when such disclosure is not accordance with recommendation 290 of the Non- 6.2.2 required by law. Code. compliant 1. The company discloses information on its system of corporate governance and the general principles of corporate governance Compliance that are applied in the company, including on 1. The company’s Annual Report provides the company’s website. The Annual Report, which is one of the most information on the key aspects of its activities Partial 2. The company discloses information on important tools for sharing information with and its financial results. compliance the composition of its executive bodies and shareholders and other interested parties, 2. The company’s Annual Report contains its Board of Directors, the independence of contains information that makes it possible to information about the environmental and Non- Board members and their membership of 6.2.3 assess the company’s activities for the year. social aspects of the company’s activities. compliant Board committees (in accordance with the The company provides information and documents requested by its shareholders in accordance with the principle of equal and definitions provided in the Code). Compliance 6.3 unhindered access. 3. In the event that a person should assume The company discloses information on its control of the company, the company Partial corporate governance system and practices, publishes a memorandum by the controlling compliance Compliance including detailed information on compliance person concerning said person’s plans with the principles and recommendations of in relation to the company’s corporate Non- The company’s Information Policy stipulates Partial 6.1.2 the Code. governance. compliant The company provides information and a non-burdensome procedure for providing compliance documents requested by its shareholders in shareholders with access to information, accordance with the principle of equal and including information about the company’s Non- 6.3.1 unhindered access. subsidiaries, at the request of shareholders. compliant

1. During the reporting period, the company did not refuse to satisfy shareholder requests When the company provides information to for information, or if it did deny any requests, Compliance shareholders, it ensures a reasonable balance then such refusals were justified. between the interests of specific shareholders 2. In cases stipulated by the company’s Partial and the interest of the company itself in Information Policy, shareholders are warned compliance ensuring the confidentiality of important trade about the confidential nature of information secrets that could have a material impact on and take responsibility for maintaining its Non- 6.3.2 its competitiveness. confidentiality. compliant VTB Annual Report 2016 VTB key financial VTB market Russian economy Management Corporate Corporate social Financial 8. Annexes highlights position and banking sector in 2016 report governance responsibility statements Annexes

168 Criteria for assessing compliance Status of Criteria for assessing compliance Status of 169 Principles of corporate with the relevant principle of comp- Comments/ Principles of corporate with the relevant principle of comp- Comments/ № governance corporate governance liance explanation № governance corporate governance liance explanation Any actions that will or may materially affect the company’s share capital structure and its financial position and, accordingly, the position Non-compliance in of its shareholders (“material corporate actions”) shall be taken on fair terms and conditions ensuring that the rights and interests of the terms of expanding 7.1 shareholders as well as other interested parties are observed. the list of grounds on which members of the 1. The company’s Charter contains a list of Supervisory Council and transactions or other actions that constitute other persons referred material corporate actions and the criteria that 1. The company’s bylaws have established to in respective laws are used to determine such actions. Decisions a procedure for retaining an independent are deemed to have an regarding material corporate actions fall within appraiser to determine the value of property interest in the Bank’s Material corporate actions include the the competence of the Board of Directors. that is alienated or acquired by a significant transactions. reorganisation of the company, the In cases where the authority to take such transaction or a related-party transaction. The Bank believes that acquisition of 30 per cent or more of voting corporate actions falls under the competence 2. The company’s bylaws have established the introduction of such a shares (takeover), material transactions by of the General Meeting of Shareholders, the The list of transactions a procedure for retaining an independent practice could significantly the company, an increase or decrease in Board of Directors provides shareholders with and significant corporate appraiser to assess the value of shares that hamper the activities of the company’s share capital, the listing and appropriate recommendations. actions is determined by are acquired or bought back by the company. Compliance the Bank and put it at a delisting of company shares, as well as other 2. The company’s Charter recognises the the Bank’s Charter. 3. The company’s bylaws have established disadvantage compared actions that could lead to a significant change following, at a minimum, to be material At the same time, the an expanded list of grounds on which the Partial to other financial market in the rights of shareholders or a violation corporate actions: the reorganisation of the Compliance Regulation on the Audit members of the Board of Directors and other compliance participants, including in of their interests. The company’s Charter company, the acquisition of 30 per cent Committee stipulates The rules and procedures governing material persons referred to in respective laws are relation to the duration includes a list of (criteria) transactions or or more of voting shares (takeover), the Partial a special procedure for corporate actions taken by the company are deemed to have an interest in the company’s Non- of the procedure for prior other actions falling within the category of completion of material transactions by the compliance work on matters related 7.2.2 stipulated in the company’s bylaws. transactions. compliant approval of transactions. material corporate actions. These actions company, an increase or decrease in the to the completion of fall within the competence of the company’s company’s share capital and the listing and Non- major transactions (para. 7.1.1 Board of Directors. delisting of company shares. compliant 2.2.1 of the Regulation).

Compliance The Board of Directors plays a key role in making decisions or developing Partial recommendations about material corporate The company has stipulated a procedure compliance actions. The Board of Directors relies on under which the independent directors the position of the company’s independent declare their positions on material corporate Non- 7.1.2 directors. actions prior to their approval. compliant

When completing material corporate actions that affect the rights and legal interests of shareholders, equal conditions are provided for all company shareholders. If the mechanisms 1. Taking into account the nature of the protecting the legal rights of shareholders are company’s business, the company’s Charter insufficient, then further measures to protect establishes less restrictive criteria than the Compliance the rights and legal interests of the company’s minimum provided for under the law for shareholders are provided. The company is classifying the company’s transactions as Partial governed not only by compliance with the material corporate actions. compliance See para. 7.1 formal requirements of the law, but also by the 2. During the reporting period, all material The Bank complies with principles of corporate governance set out in corporate actions underwent an approval Non- para. 2 7.1.3 the Code. process before implementation. compliant

The company has established a procedure regulating material corporate actions that allows shareholders to receive timely and complete information on such actions, provides them with an opportunity to influence decision-making about such actions and ensures compliance 7.2 with and an adequate level of protection of their rights in the performance of such actions.

Compliance

1. During the reporting period, the company Partial Information about material corporate actions disclosed information on its material corporate compliance is disclosed together with the reasons, actions in a timely manner and in detail, conditions and consequences of such including the reasons for and timing of such Non- 7.2.1 actions. actions. compliant VTB Annual Report 2016

170 8.4. Contact information Depositary Bank for the VTB GDR Programme

VTB Bank (PJSC) The Bank of New York Mellon Legal address: Legal address: One Wall Street, New York, NY 10286, USA 29 Bolshaya Morskaya St., St. Petersburg, 190000 Postal address: Postal address: BNY Mellon, Depositary Receipts Division 43 Vorontsovskaya St., Moscow 109147, Russia 101 Barclay Street – 22nd Floor Phone: +7 (495) 739 77 99 New York, NY 10286, USA 8 800 200 77 99 E-mail: [email protected] Registrar

Corporate Secretary JSC VTB Registrar Legal address: Evgeniy Ignatyev 23 Pravdy St., Moscow 125040, Russia Phone: +7 (495) 775 71 17 Postal address: E-mail: [email protected] P.O. Box 54, Moscow 127137, Russia Phone: +7 (495) 787 44 83 Investor Relations Department E-mail: [email protected] (institutional investors and analysts)

Phone: +7 (495) 775 71 39 E-mail: [email protected]

Shareholder Relations Service (individual shareholders)

Phone: +7 (495) 258 49 47 E-mail: [email protected]

Shareholders Consultative Council

Website: www.vtb.ru/ir/sovet, www.facebook. com/ksavtb, www.twitter.com/ksavtb VTB shareholder mobile application Phone: +7 (985) 774 31 55 E-mail: [email protected]

Auditor

Ernst and Young LLC 77, bldg 1, Sadovnicheskaya Emb. Moscow 115035, Russia Phone: +7 (495) 755 97 00