WORLD WITHOUT BOUNDARIES

ANNUAL REPORT­ 2017 ANNUAL REPORT 2017

ANNUAL REPORT 2017

EMEA FINANCE AWARDS ‘BEST M&A DEAL OF YEAR’ TO EXPOBANK FOR ACQUISITION OF JSCB YAPI KREDI BANK MOSCOW (JSC)

At its annual Achievements Awards ceremony, EMEA Finance Magazine that covers capital and financial markets in Europe, Middle East and Africa recognized this acquisition as the Best M&A Deal in 2017.

Alexey Sannikov, CEO of Expobank LLC: “The Best M&A Deal of the Year nomination means our activities being assessed high. This turns into a good tradition and yet again proves our team’s competency and professionalism”.

In 2016 году Expobank was also recognized the best in this category and was awarded the Best M&A Deal of the Year for purchase of the Russian subsidiary of The Royal Bank of Scotland. 4 5 EXPOBANK ANNUAL REPORT 2017 Contents

GENERAL The Report has been prepared by Expobank Limited Liability INFORMATION­ Company (‘Expobank’). The consolidated data cover 1 2 3 4 the period from 01 January to 31 December 2017. 3 Key Topics Core Business CONTACT DETAILS The report highlights the development Offering a full range of banking services strategy, strategic priorities and perfor- to corporate clients and affluent private Address: mance indicators included in Expobank’s customers are among the Bank’s priorities, 2018-2020 strategy. as well as acquisition and consolidation 29 Kalanchevskaya Street, SUMMARY STRATEGIC CORPORATE FINANCIAL of banking assets. The Bank operates bldg.2, Moscow, 107078 REPORT GOVERNANCE­ STATEMENTS­ Standards under General License for Banking Operations No.2998 of 06 February 20122 The report has been prepared based issued by the Bank of Russia (CBR). General information Address of the Chairman Corporate governance: Independent auditor’s on Expobank 2017 IFRS Statements. 5 • 23 •  48 • 64 •  Expobank participates in the govern- of the Board of Directors principles and structure report Tel.: 9 • Assets and partner banks and Chairman of the Ratings ment’s deposit insurance programme Management Board 52 • Board of Directors 66 • Summary consolidated introduced by Federal Law No.177-FZ +7 (495) 228 31 31 10 • Geographical footprint and its Committees statement of financial The Bank has been rated dated 23 December 2003 ‘On Insurance 26 • Overview of Russian position of Household Deposits with Russian 14 • Key events in 2017 ­economy as of 2017 year 55 • CEO and Management high by leading rating end Board 68 • Consolidated statement Banks’. of comprehensive income agencies. 29 • Bank development strategy 58 • Risk Management, for the year ended Email: and strategic priorities till Control and Audit 31 December 2017 In October 2017 Fitch Ratings affirmed 2020 Expobank’s International Long-Term IDR [email protected] 60 • Disclosures 70 • Summary consolidated 34 • Expobank Premier statement of changes at “B+”, Outlook Stable. in equity 35 • Treasury In March 2018 Analytical Credit Rating 71 • Summary consolidated Agency (ACRA) assigned Expobank’s credit 37 • Corporate Banking statement of cash flows rating at “ВВВ+(RU)”, Outlook Stable. 24/7 Information Centre: 39 • M&A 73 • Notes The ratings reflect the Bank’s high return + 7 (495) 231-11-11 42 • Information Technologies on equity, capital adequacy and strong liquidity position1. + 7 (800) 500-07-70 43 • Foreign Trade

44 • Sustainable Development Website: expobank.ru

APPENDICES

77 • Glossary

1 78 • Contact information As of 31 March 2018. 2 As replacement of License No.2998 of 02 December 79 • Disclaimer and Scope of Report 2008. NEW ACCESS POINTS — NEW OPPORTUNITIES WITHOUT 1 BOUNDARIES

SUMMARY

IN NOVEMBER 2017 EXPOBANK SUCCESSFULLY AMONG CLOSED AN M&A DEAL ON ACQUISITION OF 100% 12.7 SHARES IN JSCB YAPI KREDI BANK MOSCOW (JSC) тоp 10 FROM YAPI VE KREDI BANKASI A.Ş., ONE OF THE RUB BLN BIGGEST TURKISH BANKS. EQUITY RUSSIAN BANKS EMEA FINANCE RECOGNIZED THIS ACQUISITION IN EFFICIENCY AS ‘DEAL OF THE YEAR’. FOR EXPO TEAM, IT HAS BEEN THE 8TH DEAL OF BUYING AN ASSET FROM AN INTERNATIONAL FINANCIAL INSTITUTION FOR THE LAST SEVERAL YEARS. 61.2 RUB BLN ASSETS

TEMA ISTANBUL MIXED-USE COMPLEX Istanbul, Turkey EXPOBANK SUMMARY 8 9 1 Expobank Today ANNUAL REPORT 2017 ASSETS AND PARTNER BANKS

Expobank EXPOBANK IS RATED PRIORITY Assets HIGH BY LEADING RATING AREAS ­Today AGENCIES and partner banks Offering a full range of bank- ing services to corporate clients and affluent private IGOR KIM customers are among the An international strategic th In 2017 Expobank was Bank’s priorities, as well investor with 20-year тоp • 100 7 among the best most 15 as acquisition and consolida- experience in the Russian efficient and profitable Expobank LLC is a private bank banks having scored tion of banking assets. and European banking from top 100 Russian banks th OFFICES 7 in the rating of the Expobank’s Management Team has sectors in net profits, equity and most efficient banks, ACROSS an extensive experience in acquisition net assets1 and was among the of financial assets and loan portfolios, and most profitable Russian RUSSIA also deep competences in structuring tailor banks A technology platform has been made deals in the corporate segment. built in Expobank that ensures the launch of new business ideas as fast as possible • Chairman of the Board of Directors, Expobank LLC (Russia) 1 Source: Banki.ru, as of 01 December 2017 2 RoAE — Return on Average Equity • Chairman of the Supervisory Board, Expobank CZ (Czech Republic) 600 12.7 54.0 • Chairman of the Board of Directors, AS Expobank (Latvia) Mr. Kim has successfully completed over 30 M&A deals both with Russian and global Expobank is a responsible financial institutions: Barclays (UK), Santander (Spain), Morgan Stanley (USA), employer with a headcount RUB BLN RUB BLN West LB (Germany), LBBW (Germany). Mr. Kim’s latest deals were the acquisitions of over 600 people EQUITY of WestLB Vostok from WestLB AG, FB-Leasing­ from VR Leasing AG (later merged to INCOME- Expobank LLC) and LBBW Bank CZ a.s. that was renamed to Expobank CZ. In March The Bank has high capital 2015, Expobank purchased ‘MAK-Bank’ LLC that also merged with Expobank LLC. adequacy and maintains a great EARNING ASSETS In 2016 acquisitions of the Russian and Kazakhstan subsidiaries of The Royal Bank share of highly liquid assets in its of Scotland (RBS) were completed. RBS Russia was merged to Expobank LLC while balance sheet RBS Kazakhstan was renamed to JSC Bank ExpoCredit.

2 ROaE : PARTNER BANKS: 36,000 SERBIA, 16.6% OF PRIVATE NIM: CUSTOMERS CZECH In 2017 JSCB Yapi Kredi Bank Moscow (JSC), a Russian ­RE­PUBLIC, subsidiary of Turkish YKB, was acquired, with its merger to Expobank completed in Q1 2018. 4.4% 7,000 LATVIA OF CORPORATE CLIENTS EXPOBANK SUMMARY 10 11 1 Expobank Today ANNUAL REPORT 2017 GEOGRAPHICAL FOOTPRINT

Partner banks form EXPOBANK LLC, EXPOBANK JSC BELGRADE, Geographical footprint new access points RUSSIA SERBIA to global financial

centers for Russian EXPOBANK CZ, AS EXPOBANK, clients, provide CZECH REPUBLIC LATVIA operational efficiency and consultancy expertise

LUXEMBURG

PRAGUE CZECH REPUBLIC RIGA LATVIA SAINT PETERSBURG

MOSCOW BELGRADE SERBIA KALUGA RUSSIA

PERM SURGUT YUZHNOWSAKHALINSK KEMEROVO YEKATERINBURG UFA KRASNOYARSK NOVOSIBIRSK

HONG KONG EXPOBANK SUMMARY 12 13 1 Expobank Today ANNUAL REPORT 2017 ASSETS AT A GLANCE

Assets at a glance POSITION AMONG FINANCIALS3 RATINGS RUSSIAN BANKS1

EXPOBANK LLC FitchRatings

Assets as of 2017 year end RUB 61.2 bln Net assets Equity RUB 12.7 bln th Capital adequacy ratio 17.9% 40 15 RUB 61,202 mln B+ Return on equity 16.6 % IN NET PROFIT BRANCHES (International scale) focuses on offering services to corporate clients and affluent private customers, and also AND OFFICES Equity against net assets on asset acquisition and consolidation (M&A deals). For two years in succession Expobank Affirmed in October 2017 was recognized as the Best Bank Operating in Russia by EMEA Finance Europe Banking Awards. The Bank has been operating in the Russian banking market since 1994 (General RUB 12,705 mln License No.2998 of 06 February 2012 issued by the Bank of Russia). Loan portfolio ACRA EXPOBANK CZ RUB 26,018 mln Assets as of 2017 year end EUR 988 mln Equity EUR 120 mln 11 Customer deposits BBB+ Capital adequacy ratio 28.2% CITIES RUB 43,288 mln (National scale) has been operating in the Czech banking market since 1991. The bank is focused on provi- Assigned in March 2017 sion of complex products and services. This covers corporate banking services including d treasury services, real-estate financing and export and trade financing as well as a broad 73 15 Comprehensive income range of private and personal banking services. Expobank CZ takes pride in being able to Ratings have never offer custom-made solutions and in its great care to detail when providing its clients with IN EQUITY REGIONS2 smart products and services. RUB 2,052 mln been downgraded

ROaE EXPOBANK JSC BELGRADE

Assets as of 2017 year end EUR 126.6 mln 16.6% Equity EUR 22.6 mln

Capital adequacy ratio 31.04 % 1 According to Banki.ru ranking as of 01 January 2018, together with consolidated JSCB Yapi Kredi Bank Expobank JSC Belgrade has been present in the Serbian market since 1990; it has 7 branch- th 6 Moscow (JSC) es in 6 cities (Belgrade, Pančevo, Novi Sad, Šabac, Čačak, Niš) and 170 employees. 83 2 Regions covered by car lending Expobank CZ is the majority owner of Expobank JSC Belgrade.The Bank has been operat- FEDERAL 3 IFRS, as of 01 January 2018 ing as Expobank JSC Belgrade since June 2017. IN NET ASSETS DISTRICTS A key element of the strategy in Serbia is working with small and medium-sized enter- prises and helping them to grow their businesses, including by supporting trade with the EU and Russia. The Bank has a particular focus on international trade and M&As. EXPOBANK SUMMARY 14 15 1 Expobank Today ANNUAL REPORT 2017 Key events in 2017

Key events in 2017

3 MARCH 12 MAY 6 JUNE FOREIGN TRADE IS AN IMPORTANT STRATEGIC DEVELOPMENT AREA Analytical Credit Rating Agency (ACRA) Expobank ranked 13th among the top CAR LENDING assigned to Expobank LLC a credit rating Russian banks by ROA. The rating was FOR EXPOBANK of ВВВ+(RU), Outlook Stable based on the data from top 200 banks WAS LAUNCHED by asset volume as of 1 April 2017 In 2017, implementing its approved 2020 development strategy, Expobank continued servicing clients engaged in foreign trade activities. • The Bank became member of the Russian National Committee of the International Chamber of Commerce and joined the World Business Organization. Together with the ICC Russia Banking Commission, Expobank takes an active part in the development of trade finance, search for efficient solutions at the level of law-making and executive bodies and in the formation of international expertise for international trade support.

20 AND 27 APRIL, 6 JUNE, 21 SEPTEMBER Niche retail areas form a stra- Car lending: this product tegic priority for Expobank. was launched with no offices Expobank invited its clients to a SmartExpo event. Development/build-up of re- involved, all interaction with tail areas based on the client- customers is done remotely The Bank made presentations on the promising area of in- centered ecosystem principle. and via dealers, with 75% ternational trade and got together key companies interest- Use of partner banks’ capaci- of operational support func- ed in the build-up of efficient foreign trade relations. ties in addition to banking tions fully automated. products and services. EXPOBANK SUMMARY 16 17 1 Expobank Today ANNUAL REPORT 2017 Key events in 2017

Key events in 2017

18 AUGUST 26 OCTOBER M&A DEALS Expobank joined the Expert Advisory Council for implementation of customs policy of the Expobank reached an agreement Development through Russian Federal Tax Service. The Bank actively participated in discussions related to customs M&A is an important part legislation, draft laws of the Federal Tax Service and their subsequent implementation. to buy Turkish JSCB Yapi Kredi Bank of Expobank’s strategy. Expo Moscow (JSC) Team is capable to imple- ment such projects and mon- itors markets both in Russia and in other regions on a reg- ular basis. Strong financial position and high returns enable the Bank to be ready for such transactions any moment. • In March 2018 Expobank consolidated an asset purchased through an acquisition of 100% shares in JSCB Yapi Kredi Bank Moscow (JSC) from Yapi Kredi 27 SEPTEMBER 4 OCTOBER 5 OCTOBER Expobank signed an agree- Bankasi A.S., one of the biggest ment with Yapi ve Kredi Turkish banks. Professional teams of SINOSURE and Expobank became member of the Russian Fitch Affirmed Expobank’s Rating at ‘B+’. Bankasi A. S., Turkey, to buy Expobank closed the deal on short-term National Committee of the International Fitch Ratings affirmed Expobank LLC’s liability insurance under a Russian and Chamber of Commerce and joined the Long-Term Issuer Default Rating (IDR) 100% shares in JSCB Yapi Chinese foreign trade contract. World Business Organization. at ‘B+’, Outlook Stable. According to Kredi Bank Moscow (JSC). Fitch Ratings analysts, rating affirma- The deal was expected to tion reflected the Bank’s stable financial performance through the credit cycle, close by the end of 2017 in particular stable asset quality and pending the approval from healthy financial performance the Central Bank of Russia. EXPOBANK SUMMARY 18 19 1 Expobank Today ANNUAL REPORT 2017 Key events in 2017

Key events in 2017 Post-reporting events

1 DECEMBER 27 DECEMBER 15 JANUARY 2018 1 MARCH 2018 Expobank successfully acquired Turkish JSCB Yapi Kredi Bank Moscow (JSC). The deal Expobank won ‘The Most Expobank started Expobank and PimPay agreed on coop- was closed within the target time frame after it was approved by the Central Bank Successful Bank 2017’ eration as part of the new ‘Ecom-Invest’ of Russia. the integration process product launch. Expobank will have an nomination awarded for JSCB Yapi Kredi Bank opportunity to lend to the players of the by the National Banking Russian e-commerce market, being one Journal. Moscow (JSC) of the first partners in the project. The following parameters In December 2017 successful acquisition of 100% shares in JSCB Yapi Kredi Bank were taken into account Moscow (JSC) was announced, and inte- 2 MARCH 2018 when selecting among the gration of Expobank with its subsidiary was nominees: customer-cen- under way. JSCB Yapi Credi Bank Moscow ACRA affirmed Expobank’s credit rating at “ВВВ+(RU)”, Outlook Stable. tricity of banks and compa- (JSC) was expected to start operating under a new name upon approvals from nies, availability and quality the Bank of Russia and registration of services, development of the amendments to the Charter. 26 MARCH 2018 of advanced IT solutions and general strive for innovation 18 JANUARY 2018 Expobank in the banking sector. Expobank joined an interdisciplinary successfully working group of ICC Russia for prepara- completed merger tion of Incoterms® 2020. The new version of Incoterms® regulations is planned to be of JSCB Yapi Kredi 8 DECEMBER published in 2019. It will contain instruction forms and recommendations on how to Bank Moscow (JSC) Expobank was among top 10 most efficient use electronic procedures in home trade. banks and among most profitable banks, The regulations will come into effect from Due to the integration equity according to Kommersant Magazine. 1 January 2020. increased by RUB 3.6 bln., Performance for the first 3 quarters of 2017 was taken into account: return on average around 400 of legal entities­ equity. migrated to Expobank as ­clients, while the loan book was preserved and equaled RUB 4.6 bln. UNLOCKING LIMITLESS POTENTIAL 2

STRATEGIC REPORT

THE BANK INTENDS TO BECOME FOR ITS CLIENTS A BASE BANK TO SUPPORT THEIR FOREIGN B+ UNIQUE CLIENT TRADE ACTIVITIES, A RELIABLE PARTNER SUPPORT OFFERED AND ADVISOR IN FOREIGN TRADE RELATED MATTERS Fitch Ratings «B+», Outlook Stable IN THE CHINESE, IN PARTICULAR COUNTRIES AND INDUSTRIES, TURKISH, TO UNDERWRITE COUNTERPARTIES UNDER TRANSACTIONS FOR ITS CLIENTS, TO PROVIDE HIGH CREDIT RATINGS SERBIAN AN EFFICIENT AND QUALITY SETTLEMENT PLATFORM FROM LEADING AND CZECH INTERNATIONAL LANGUAGES AGENCIES

CURRENCIES OF G10 COUNTRIES G10 24/5 THE BIRD’S NEST NATIONAL STADIUM Beijing, China EXPOBANK STRATEGIC REPORT 22 23 2 Address of the Chairman of the Board of Directors ANNUAL REPORT 2017

Address of the Chairman of the Board of Directors

Dear shareholders, directors, free liquidity cushion, high capital ade- of advanced financial technologies and IT clients and partners, quacy and rigorous criteria for assessment solutions; Expobank takes an active part of borrowers. Nonetheless, the Bank has in digitization, and investment in the area Global trends, current environment in the systematically increased the volume of the is streamed to provision of convenient banking sector, a great number of tech- corporate credit book: it grew by 107% dur- and modern services to clients on the one nology and regulatory changes make ing the three years of the Strategy being hand and to operational costs reduction — adjustments to both operational activities implemented. on the other hand. This will enable the of companies and to the economies Bank to be ready for speedy transforma- During the reporting period the Board development in general. tion and for introduction of new niche of Directors adopted an updated develop- marketable products. The past year was not an easy one for the ment strategy for Expobank with the key Russian banking sector. Nevertheless an priorities and business areas defined till the I would like to express gratitude primarily upward trend can be tracked: the retail year 2020. to our clients and partners for their trust loan portfolio volume across the sector and long-term cooperation, and also The Bank’s team sees it as its task to as a whole grew almost by RUB 1.3 trillion, to thank Expobank’s team for the high develop expertise and unique industry- or by 12.7%, as of 2017 year end (and responsibility they demonstrated when specific competencies in order to form reached RUB 12.2 trillion), it is the highest taking decisions and for their high profes- a quality loan portfolio. With its capacities value for the last three years and will en- sionalism. I am sure the year 2018 will in the Eastern Europe countries, the Bank able banks to actively operate in this area. be crucial for selecting a right and most intends to achieve a strong position in ser- efficient way, for building up an open and 2017 performance results show Expobank vicing financial and trade flows between constructive dialogue, for maintaining has retained its position of one of the most Russia and the countries where the partner the basis of the Bank’s business strategy efficient private Russian banks. Due to the banks operate and to become for its clients through its sustainability and ability to adopted Strategy the Bank maintained a base bank to support their foreign trade meet its own obligations while ensuring high stress resilience and readiness to activities. high reliability. respond to the market challenges. Low risk Further development of the banking sector appetite formed the basis for the Bank’s is impossible without implementation operation, which was reflected in a solid

With its capacities in the Eastern Europe countries, the Bank intends to achieve a strong position in servicing financial and trade flows between Russia and the countries where the partner banks operate

Igor Kim

Chairman of the Board of Directors Expobank LLC EXPOBANK STRATEGIC REPORT 24 25 2 Address of the Chairman of the Management Board ANNUAL REPORT 2017

Address of the Chairman of the Management Board

Dear clients, directors 2017 performance indicators are in line We adhere to the long-term strategy and partners, with the targets defined by Expobank 2020 of cooperation with both our clients and Development Strategy. Apart from that, we partners and every year we enhance the In 2017 the Bank demonstrated persistently successfully kept on with our key strategic quality of corporate governance through high results in key performance indicators: areas. An entry into new European markets recruitment of managers with expertise comprehensive income of RUB 2.1 bln., and an offer of competitive products are and by introduction of sustainable de- equity of RUB 12.7 bln., growth of 6.0 % provided to clients engaged in foreign velopment elements that are in line with and return on average equity (RoAE) and trade. The Bank invested in the creation international standards. return on average assets (RoAA) of 16.6% of an infrastructure that enables us to I would like to thank our clients for their and 3.2% respectively, which evidences the develop new niche areas, automate current trust, business partners — for mutually developed risk management system and business processes and offer a faster and beneficial cooperation, and Expopbank’s overall operational efficiency in Expobank. quality service to our clients. Today the Bank uses digital technologies and up- entire team — for the 2017 performance In the reporting year we had Russian and in- grades its product line with their help. results. Waiting ahead are new interesting ternational credit ratings affirmed — those projects, further developments in business assigned by ACRA (ВВВ+/RU, Outlook Our team has a unique competence and the tasks we are ready for, while our Stable) and Fitch (B+, Outlook Stable). of M&A deals implementation and its accumulated experience and skills will help Rating agencies analysts highlighted the professionalism enables us to successfully us to solve them successfully. stable asset quality and healthy financial deliver quite challenging projects gaining performance, and also reasonable capital high external expert assessment. buffers with capital adequacy ratio at 17.9% When buying a new asset, not only we as of 2017 year end. strive to further add to its value and expand Apart from that, in 2017 Exppobank was our presence in the Russian and foreign among top 10 most efficient banks and markets but we tend to develop new ranked as one of the leaders among the business solutions, integrating assets into most profitable banks assessed by return an efficiently operating corporate business on average equity. model.

We adhere to the long-term strategy of cooperation with both our clients and partners

Alexey Sannikov

CEO of Expobank LLC EXPOBANK STRATEGIC REPORT 26 27 2 Overview of Russian Economy as of 2017 Year End ANNUAL REPORT 2017

Overview of Russian +1.8% <6% 58.3 Economy GDP GROWTH INFLATION RATE AVERAGE RUB DURING IN THE CONSUMER TO USD RATE as of 2017 2017 MARKET DURING IN 2017 Year End 2017

In 2017 gradual recovery of Russian Consumer Price Index economy started. According to Ministry for Economic Development (MED) estimates, (CPI), according to Rosstat GDP over the year grew by 1.4–1.8% data for 2017, grew as compared to the 0.2% drop in 2016. During 2017 Urals oil price grew from USD of this value was due to a moderately Insufficient recovery rates An upward trend in manufacturing and by 2.5%, while CBR had 54 to 66 per barrel. The average yearly tough monetary policy adopted by the demand was accompanied by oil prices targeted it at 4%. price equaled USD 53, which exceeded the Bank of Russia and also due to one-off of consumer demand growth, a stronger Russian ruble against USD 49.9 forecasted by MED. According factors such as a bumper crop of fruit and are also reflected in the world currencies and by inflation rate the Minister for Economic Development, vegetables. Apart from that, the above oil reduction. MED’s formal forecast will be adjusted quotations and ruble exchange rate also record low inflation rate from USD 43.8 to USD 50 per barrel. had a positive impact on prices. Due to in the consumer market relatively stable prices, inflation expecta- Russian economy has been recovering since Q4 2016 but it has had no impact The average Russian ruble to US dollar tions of both professional market players which throughout 2017 rate in 2017 was 58.3 as compared to the (whose expectations generally coincide on households’ income growth average rate of 66.8 in 2016. Thus, ruble with the CBR’s target) and common people never exceeded 6% strengthened by 12.8%. A similar trend started to decrease. In December 2017 they YoY, according to the applied to other world currencies: by 10.8% dropped to the historical minimum of 8.7% 8% against euro (from 74.0 to 66.0), by 14% (as compared to 12.4% in December 2016). government statistics. 6% against the Chinese yuan (from 10.1 to 8.6), by 17% against the sterling pound Stagnation in households’ incomes still 4% (from 90.6 to 75.2). remains both a major limitation factor 2% for recovery of the retail market in Russia Consumer Price Index (CPI), according 0% and a risk for its further development. to Rosstat data for 2017, grew by 2.5%, –2% Movements of this parameter during 2017 while CBR had targeted it at 4%. Thus did not show any growth. –4% the inflation rate dropped to its historical –6% record low. A remarkable slow-down

–8%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q1 Q3 Q4 Q1 Q2 Q3 Q4 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017

Russian GDP physical volume index, % YoY

Source: Rosstat of Russia Real monetary incomes of households, % YoY EXPOBANK STRATEGIC REPORT 28 29 2 Bank development strategy and strategic priorities till 2020 ANNUAL REPORT 2017

By the end of 2017 inflation rate in the consumer market reduced in Russia to its historical minimum Bank development strategy and strategic priorities till 2020 30

25

20 15 MISSION OF THE BANK 10 5 WE BUILD A SMART BANKING BUSINESS DESIGNED TO HELP CLIENTS 0

% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 TO GROW THEIR BUSINESS VALUE AND TO PROMOTE THEIR FINANCIAL 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 SECURITY

Source: Rosstat of Russia CPI: non-food products

CPI: all products and services OUR VALUES CPI: food products Teamwork Effectiveness

Engagement of each team member, sin- and efficiency cere interest in achieving results through These factors were reflected in the Apart from that, some bigger private Focus on the best result using the most FACTORS HAVING joint effort. Willingness of every person to people’s consumer confidence. It resulted banks were subject to financial rehabilita- suitable methods. Constant search for make a valuable contribution maintaining in the retail trade turnover growth that AN IMPACT tion measures but in fact were national- ways to achieve professional improvement confidential and respectful relations. by the end of 2017 fixed at around 3% ized with the use of the Banking Sector and development. YoY (2.7% YoY in November, 3.1% YoY ON THE BANKING Consolidation Fund resources. As a result in October and 3.2% YoY in September). SECTOR IN 2017 the share of state-owned players in the It should be pointed out that this figure banking sector grew dramatically, which Openness, readiness Ethics, honesty does not cover purchases made in foreign Banks’ conservative strategy adopted for increased competition for smaller private to change and integrity internet stores and international travels corporate lending should be pointed out. banks to some extent. that play an ever-greater role among Openness to changes and appropriate Loyalty to ethical standards and principles. consumer demand factors. During 11 months the volume of loans In addition to the above, focus should response to the need for possible changes. Demonstration of the firm intention to act extended by banks to non-financial be drawn to the following risks that may Ability to accept various points of view and in line with ethical principles, honestly and Consumer growth in 2017 was due to both institutions practically did not change impact operations of the Bank and the adaptability to the new action plan when decently, abiding by professional code a drop in savings ratio and credit resources. (+0.2%) and equaled RUB 30.2 trillion. banking sector as a whole: a risk of banks’ selected. of conduct and social standards. According to CBR, loans extended to Banks generally take their time depositing interest margins being reduced, sharp individuals grew during 11 months of 2017 excess liquidity with the Bank of Russia and change in prices for energy products and/ from RUB 10.8 to 12 trillion (+11.1%) with assessing how stable the economy growth or depreciation of the ruble, geopolitical no single monthly drop. This tendency is that started in 2017 would turn out. risks due to escalation of tension between In 2017 Expobank updated its 2018-2020 development strategy, having approved expected to continue throughout 2018 nations, tightening of fiscal policy after and the trend is supported by a gradual Consistent toughening of CBR’s supervi- the presidential election in Russia and developmental strategic priorities and targets at the Board of Directors Meeting decrease of the CBR key interest rate and, sion policy also restricted risk appetite a subsequent slowdown in consumer and in January 2018. The four key areas were selected as major strategic priorities, in line consequently, by reduction of loan interest of banks. Regulatory risk is the key risk for manufacturing activities. rates. members of the banking market. with which further development of Expobank is planned.

During the year the number of operating Russian banks dropped from 733 to 561. EXPOBANK STRATEGIC REPORT 30 31 2 Bank development strategy and strategic priorities till 2020 ANNUAL REPORT 2017 Expobank 2020 Development Strategy

EXPOBANK 2020 DEVELOPMENT STRATEGY

BANK FACILITATING ITS CLIENTS’ FOREIGN TRADE OPERATIONS Corporate Banking Private Banking STRATEGIC PRIORITIES М&A Niche retail areas • Expansion of relationships with • Growth of fee income from Foreign Trade Deals on acquisition and consolidation • Development/build-up of retail of other financial institutions (M&As) large corporate clients of low cross sales and investment areas based on the client- • Expobank intends to become a base constitute part of the Bank’s business. risk. products. bank to support clients’ foreign trade. The Bank’s model allows having a regular centered ecosystem principle. income from such transactions. Use of partner banks’ capacities • Development of deep industry- • Enhancement of the client base • To be a reliable partner and advisor in addition to banking products specific competences in order loyalty and recruitment of new in foreign trade related matters in par- • Deals are entered into only and services. to form a quality credit target customers. ticular countries and industries. with owners of impeccable Principles to be used portfolio. • To underwrite counterparties under reputation. • In the selected niches, the Bank • Development of investment transactions for its clients. must grow into a first choice in building up niche retail • Increase of an average ticket products offers for VIP • A conservative approach to bank due to its service and the areas: • To provide an efficient and quality size regarding income gained customers. risks assessment in place: quality of services rendered and • Profitability from every client group. settlement platform (including the use of a wide range of hedging products / all doubtful assets to be not due to price dumping. • Development of a new Fast scalability and market capacity instruments helping the client to avoid repaid/ bought out by the • The Bank intends to become investment product line • FX risks, risk of non-delivery of goods owners before the deal • Development of light (digital) for its clients a base bank to including funds, formation • User friendly interface both for custom- and services, or other inappropriate acts closure, all remaining assets distribution networks and ers and the Bank’s employees support their foreign trade of new portfolios and strategies of counterparties). to be provisioned/ covered efficient combination of online activities via outsourcing them to big • Focus on customers (their needs) • First of all the Bank sets an objective by guarantees. and off line channels. Maximum investment companies. use of digital solutions in the • Achieving a strong position to achieve a strong position in servic- • Capability to develop digital ing financial and trade flows between • The Bank implements M&A communication processes with marketplaces in servicing financial and trade Implementation of package • Russia and the European countries deals only with the single customers and clients and flows between Russia and the offers for VIP customers. where the partner banks operate. decision taking center in place, in internal bank processes. European countries where the which eliminates the risk of loss partner banks operate. • Developing engagement of partner companies that offer of control over the acquired to customers non-banking asset. services in real estate, health • All top managers of the Bank care, education, legal support, have an extensive experience etc. in evaluation, acquisition and consolidation of banking assets owned by both Russian and foreign players. EXPOBANK STRATEGIC REPORT 32 33 2 Bank development strategy and strategic priorities till 2020 ANNUAL REPORT 2017 Expobank 2020 Development Strategy

The following quantitative Strategic targets when The following goals continue COMPETITIVE STRENGTHS OF EXPOBANK indices have been defined implementing Expobank’s to be strategic for Expobank: development strategy have as key performance providing clients with been: • indicators: changes as convenient and quality 1 • Top 30 in profitability; service as possible through in capital, ROAE , ROAA, implementation of innovative CIR. • Exceeding the sector average products and processes; values in all key indicators. • maintaining long-term financial stability and absence 2018 2019 2020 of reputational risks; Indicators Bank Sector Bank Sector Bank Sector Capital gains 22% 11% 23% 11% 23% 10% • ROE at levels not below ROAE 20% 12% 20% 11% 20% 9% ‘Inflation +5%’ regardless ROAA 4% 2% 3% 2% 3% 1% of market environment. CIR 38% 45% 35% 45% 35% 48%

Business standing Ratings Liquidity The Bank’s Strategy approved for 2018- the banking sector average by 2 percent- 1 ROAE — return on average equity and experience of the owners Fitch Ratings: International, at ‘B+’, 2020 takes into account changes that take age points. 2 ROAA — return on average assets Expobank has a liquidity cushion that Outlook Stable. Affirmed: October 2016. place in the Russian economy and banking 3 The Bank has a transparent structure enables it to live through any crisis quite And in order to diversify its income Cost to Income Ratio reflects efficiency of doing АCRА: National, at ‘BBB+’, Outlook Stable. sector. In particular, the most important business. It is calculated as a ratio of costs (operating of owners headed by Igor Kim who has comfortably. Assigned: March 2017. financial indicators in the Strategy are the structure and reduce dependence on in- expenses) of the Bank for the reporting period to an extensive banking experience. As of 1 January 2018, its share of liquid assets terest income, the Bank increases the its operating earnings (operating income) and is Ratings have never been downgraded. Bank’s stability and ability to perform own expressed as percentage. equaled 50.9%. obligations that are ensured by high capital share of non-interest income. The Bank’s adequacy. Capital management has to be strong competitiveness must also be done in order to ensure gains above the ensured by maintenance and streamlining banking sector average, the target for 2018 of operational efficiency. 2018 target for being 22% against the banking average CIR reflecting the business efficiency is set of 11%. at 38% against the banking sector average of 45%. Apart from capital gains, Expobank is planning to keep the share of liquid assets Accomplishment of the strategic tasks above 50% (at 2017 year end it was equal and targets set for the period till 2020 will to 57.9%). Such measure has to ensure be supported by a number of competitive high financial solvency and an ability to strengths of Expobank. respond quickly to opportunities emerg- ing in the market. Nonetheless, the Bank tends to be conservative when assuming credit risk.

With high stability maintained, the Bank strives to yield 2018 return on equity at the level of 20%, which exceeds the sector average by 8.8 percentage points, and Profits and return on equity Capitalization and reliable deposit base to return on assets of 4%, which exceeds In 2017 the Bank earned comprehensive Capital adequacy as of 01 January 2018 was 18.6%, which is far income of RUB 2,052 mln., which corre- above the regulatory minimum of 8%. sponds to ROaE of 16.6%. EXPOBANK STRATEGIC REPORT 34 35 2 Expobank Premier ANNUAL REPORT 2017 Treasury

Expobank Premier Treasury +7.4% RETAIL DEPOSITS Private banking is offered Apart from that, in 2017 Expobank CZ After Expobank’s expansion 2017 was marked for the banking sector Throughout 2017 GROWTH mostly to owners of com- developed and offered to customers new to the EU countries its cus- in Russia by the ongoing strengthening investment products with various risks of banking supervision, on the one hand, Expobank kept panies who typically do and yields. Availability of investment tomers have had an opportu- that affected both small banks and big on with the strategy business both in Russia and instruments — Russian issuers’ bonds nity to be serviced not only players that were transferred under the abroad. and Expobank’s Eurobonds — as well in the Czech Republic, but management of the Banking Sector of maintaining liquid as a flexible deposit line enabled the Bank Consolidation Fund, and by a drastic drop assets at a level exceeding Our bank evolves: in 2017 we expanded our to diversify risks, increase yield and asset in Serbia as well. in inflation to 2.51% p.a., on the other presence in Europe having acquired Marfin management efficiency. hand, which in its turn impacted the CBR 30% of the total assets. Bank Beograd in Serbia. It has 7 branches key interest rate that reduced from 10% In October 2017, as part of the loyalty pro- across the country and is a medium-sized at the beginning of the year to 7.75% at the gram for its affluent customers, Expobank local bank. The deal is consistently in line year end. held an offsite event in Verona, Italy. The with the implementation of the strategic customers were able to have an informal According to CBR’s preliminary data, cor- priorities aimed at continued expansion Changes in Liquid Assets and Their Share, conversation with the shareholders, get porate loans in 2017 remained on the 2016 to the international market, adding value answers to their questions related to level (0% growth), while consumer lending 2013–2017 to assets and extending the offer to our the development strategy of Expobank, grew by 13% YoY. Deposits increased customers actively doing business in the economic situation in the country and the by 4.8% YoY: +7.4% in retail deposits, European region. financial industry, the prospective trends +2.1% in corporate deposits. 33.3% 43.5% 56.8% 69.7% 50.9% in the banking sector. 100 A drop in the CBR key interest rate had 80 a direct impact on the reduction of banks’ 70 interest margin, which affected banks’ income in 2017 that, as compared to the 60 2016 results, fell by 15% across the sector, 50 to RUB 790 bln. 40

These factors left the efficiency of liquid- 30 ity management as the priority area for 20

Expobank’s Treasury. 10

0 2011 2012 2013 2014 2017

Liquid assets, bln rubles

Share in total assets

As of 1 January 2018, the share of liquid assets was over 50%. Current liquidity level enables the Bank to comfortably pass through any manifestations of crisis and to respond quickly to opportunities emerging in the market.

Within the framework of efficient liquidity management in 2017 Expobank invested temporarily free cash in debt securities of the issuers of high credit quality. EXPOBANK STRATEGIC REPORT 36 37 2 Treasury ANNUAL REPORT 2017 Corporate Banking

Corporate Banking >50% +13% CUSHION RISE IN CONSUMER OF LIQUID ASSETS LENDING Throughout 2017 Expobank continued to In addition, cooperation with Examples of successful develop the corporate transaction model As of 1 January 2018 some large corporates was focused on generation of fee income from cooperation with large implementation of complex structured deepened: corporates as of 2017 transactions for medium and large busi- year end nesses. Syndicated lending was actively • OAO NGK Slavneft; developing both in the field of arrange- In Q1 2017 the Bank started cooperation ment of syndicated loans and participation • EURACORE Group; with the biggest enterprise in the Republic in international syndicated loans regulated of Belarus, OJSC Byelorussian Steel Works by English law. Specific features of the • Clever Group; (Managing Company of Byelorussian selected model made it possible to have Metallurgical Company Holding) (‘BSW’). a good increment in the fee and interest • MonArch Group; income. Within a pre-export financing scheme, Securities Portfolio Split-Up by Issuer Rating In 2017, due • National Computer a facility agreement was signed and a facil- Apart from that, Expobank kept on with Corporation; ity was disbursed to Trade House BSW. (at 31.12.2017) to an emerging trend its consistent work on enhancement of lowering of deposit of its positions in such strategic sectors Synergy Group • BSW’s steel products are as residential development, oil and gas and • 7% 5% (an alcohol market leader); supplied to over 100 countries ВВВ– to ВВВ+ interest rates, Expobank’s agricultural industries. worldwide: to Australia, ВВ– to ВВ+ clients developed a need In 2017 financial relationships • Mistral Alko Group. Europe — 35 countries, to North and South Americas, В– to В+ in investing funds were built up with such ma- The Bank develops relationships with to the Middle East and in alternative products jor player in the real estate major corporate clients on the basis Unrated of industry specialization. This gives an op- Africa — 38 countries, South- generating a higher yield market as: portunity to carry out a detailed study Eastern Asia — 12 countries, of a particular sector’s structure, of leading to CIS — 10 countries. at a reduced risk. Tekta Group; • players, industry trends and needs. • MP Group. In 2018 further growth of joint transac- tions with Expobank CZ is foreseen, which proves synergy between the partner banks. To facilitate that, International Credit Committee has been established to speed 26% 62% up the decision making process for cross- country transactions. EXPOBANK STRATEGIC REPORT 38 39 2 M&A ANNUAL REPORT 2017

JSCB YAPI KREDI BANK M&A MOSCOW (JSC) 4.5 RUB bln In Q2 2017 a complex structured and high In Q4 2017, Rive Gauche Group, one • expansion of the loan book EMEA Finance Awards In 2016 году Expobank yield transaction with REGIONS Group was of Russia’s largest perfume and cosmetics through relationships with ‘Best M&A Deal of Year’ was also recognized the implemented. market players was recruited to Expobank sound borrowers; LOAN as a client. to Expobank for Acquisition best in this category and BOOK • This Group has become one loan book quality monitored, of JSCB Yapi Kredi Bank A facility agreement was • was awarded the Best of the biggest clients of the • measures taken to prevent non- Moscow (JSC) signed and a facility was Bank with a credit cap of RUB 3 performing debt occurrence. M&A Deal of the Year for disbursed. The company has bln. The deal was implemented purchase of the Russian with the assistance of J&T been operating in the market Expobank’s strategy in Corporate Development through M&As is an im- Banka a.s., a Czech partner for over 20 years and ranks Banking is focused on the development subsidiary of The Royal of long-term relationships with the clients portant part of the Expobank’s strategy. bank. Expobank acted as Senior 2nd among Russia’s cosmetics that have an experience of cooperation The Bank’s team is excellent at implement- Bank of Scotland. market participants. Lender for the amount of RUB throughout crises times and whose ing such projects and monitors the market both in Russia and in other countries. 2 bln. and Agent under the In 2017 a strategic decision was adopted businesses are resistant to uncertainties Expobank’s strong financial position and For Expobank’s Team, it’s been the eighth agreement with the Czech that in 2018 one of the goals for Expobank and stresses. Key factors in recruiting new M&A deals ensure growth high profitability ensure its readiness deal of buying assets from an interna- colleagues, Subordinate would be further development of complex clients are individual approach, speed to such transactions any time. tional banking group for the recent years. of Expobank’s business. structured and tailor-made products for of decision-taking, partner relationships Lenders for the amount of RUB Previously the following acquisitions were corporate clients, and further enhance- when resolving their financial tasks and For the last 5 years the 1 bln. In November 2017 Expobank successfully made: the Russian and Kazakhstan sub- ment of customer service quality and a wide range of banking products meeting closed an M&A deal having acquired 100% sidiaries from The Royal Bank of Scotland Bank’s Team closed In Q3 2017 Expobank LLC started coopera- development of unique solutions for the the clients’ needs. shares in JSCB Yapi Credi Bank Moscow (UK), Marfin Bank A. D. Beograd (Serbia) tion with ‘Russian Sea’ OJSC, the biggest Bank’s clients. 8 successful deals in the Successful cooperation with the federal (JSC) from Yapi Kredi Bankasi A.Ş., one from Cyprus Popular Bank Public Co Ltd., fish and seafood producer and distributor authorities and a number of large compa- of the biggest Turkish banks. LBBW Bank CZ a.s. (Germany), WestLB Russian and foreign in Russia. Key areas in Expobank corporate business Vostok from WestLB AG (Germany), FB- development in 2017 were: nies and state corporations is an evidence The total of active client accounts makes Leasing from VR Leasing AG (Germany), markets The company has a 15% of reliability of and trust to the Bank. over 500. The loan book as of the end • the Russian subsidiary of Barclays Bank • client number growth; of January 2018 was RUB 4.5 bln., while share in the Russian market PLC (UK). 1994 of finished fish and seafood clients’ funds equaled RUB 2.1 bln. Among • increase of the Bank’s earnings the most prominent companies the Bank Expobank is founded products. ‘Russian Sea’ OJSC’s via fee income growth coming is going to maintain relationships with are revenues in 2017 equaled from complex structured such major Turkish as players Kastamonu 2008 RUB 9.7 bln. As part of its transactions; Entegre, Hayat Kimya, Collin’s. financing project, a 1 year Barclays Bank PLC acquires Expobank facility agreement for RUB • non-interest income growth 500 mln. was signed, and funds and development of fee-based 2011–2012 were disbursed. The company products including risk-free The Bank develops intensively under the actively deposits its temporary income from servicing non- group of investors headed by Igor Kim. surplus funds with the Bank. resident clients; The Bank is renamed back to Expobank EXPOBANK STRATEGIC REPORT 40 41 2 M&A ANNUAL REPORT 2017

STRATEGY IMPLEMENTATION RESULTS: ≥ 500 2.1 M&A DEALS ACTIVE CLIENT rub bln ACCOUNTS CLIENTS’ In 2017 the Bank kept on its conservative Key principles FUNDS and weighted approach to M&A’s • Deals are entered into only with owners of impeccable Financial result from M&As reputation

• M&A activities do not bring 513 1,082 430 473 1,775 241 about risks for the Bank’s core 2,500 business 2,250

2,000 • A conservative approach to The deal on acquisition of the subsidiary risks assessment in place: 2012–2017 02.2015 1,750 JSCB Yapi Kredi Bank Moscow (JSC) all doubtful assets to be 03.2012 MAK-Bank is bought from ALROSA from Turkish YKB was closed as part 1,500 repaid/ bought out by the Holding of Expobank’s strategy implementation Latvian AS Expobank is acquired 1,250 and is aimed at expansion of international owners before the deal 03.2013 04.2016 cooperation. 1,000 closure, all remaining assets to be provisioned/ covered Russian subsidiary of RBS is acquired 750 Merger of Stromkombank Top managers’ principal task is to retain by guarantees high quality of service, develop business 500 11.2017 with Turkish companies and create a qual- 06.2013 250 The Bank implements M&A ity platform for further mutually beneficial • Subsidiary bank of Turkey’s Yapi Kredi Merger of Sibbiznesbank partnership. Expobank has already 0 deals only with the single is acquired RUB 2012 2013 2014 2015 2016 2017 established a unit to develop relationships mln decision taking center in place, 08.2013 with Turkish businesses, while the integra- which eliminates the risk tion implies centralization of liquidity Russian leasing subsidiary is bought from of loss of control over the management and build-up of efficient German VR LEASING acquired asset business processes. 09.2014 • All top managers of the Bank have an extensive experience Czech LBBW Bank CZ is bought from in evaluation, acquisition and German LBBW consolidation of banking assets owned by both Russian and foreign players EXPOBANK STRATEGIC REPORT 42 43 2 Information Technologies ANNUAL REPORT 2017 Foreign Trade

Information Technologies Foreign Trade

Principles and priorities Main principles • implementation of Artificial In 2017, implementing its approved 2020 • Korea Trade-Investment Promotion Product line in support of technological Intelligence (AI) Driven Data development strategy, Expobank kept Agency (KOTRA) in Russia of foreign trade includes: for development on enhancing the servicing environment Lake principles to facilitate • China Export & Credit Insurance development in Expobank: for clients engaged in foreign trade • Comfortable IT environment for a 100% of information understanding of the client and Corporation (Sinosure) activities. We have provided clients with Bank-Client document flow with regard technologies in Expobank • development of technologies offer better products; an access to the European and Asian 2017 witnessed implementa- to currency control are defined in the updated for ongoing optimization markets where Expobank either operates of business processes aimed • development of the employees’ or has partner relations. tion of a number of trends • High speed and quality of settlements 2020 Development at their acceleration and cost AI-related competences and on the level of government with foreign partners skills aimed to eliminate The Bank is a member of the Expert Strategy. efficiency; Advisory Council for implementa- regulation of foreign trade • Various currencies for settlements with manual tasks from business tion of customs policy of the Russian activities in Russia that will foreign partners: 120 currencies • enhancement of the ability to processes and develop new Federal Tax Service. In 2017 Expobank be in effect during 2018–2020 • A wide range of currencies for FX understand clients’ needs and products with maximum became member of the Russian National transactions: G10’s currencies preferences; personalization; Committee of the International Chamber and that are aimed at the de- of Commerce and joined the World velopment of trade between • Letter of credit transactions with a full- • creation of new approaches • implementation Business Organization. Together with the Russia and other countries: fledged transaction support both on the for the search, piloting and of decentralized online services ICC Russia Banking Commission, Expobank Russian and foreign side of a foreign implementation of innovative (‘smart contracts’) aimed to took an active part in the development • Development of financial instruments trade contract of trade finance, search for efficient eliminate manual work in deals for Russian-Chinese trade; solutions; solutions at the level of law-making and • Full mutual understanding with the structuring processes; executive bodies and in the formation • Streamlining of the Eurasian Economic Bank’s clients and their foreign partners • creation of an efficient and of international expertise for international Union (EEU) common customs space thanks to the Chinese, Serbian and reliable infrastructure enabling • development of a single trade support. and of the customs legislation; Czech Desks fast and cheap implementation sandbox for all partners • Liberalization of the currency The Bank intends to become for its clients aimed to test open APIs. Expobank started coopera- and assessment of new legislation; a base bank to support their foreign trade technologies and development This solution will unleash the tion with key centers in gov- activities, a reliable partner and advisor • Formation of new free trade zones of ecosystems. stream of implemented ideas ernment regulation of for- in foreign trade related matters in particu- within EEU — Serbia and other offered by external developers lar countries and industries, and also to eign trade activities and with countries. The Bank’s IT priorities underwrite counterparties under transac- and startups thus enabling to consulate, financial centers are as follows: attract new clients and reduce In the international trade between Russia tions for its clients and provide an efficient costs; of various countries whose and China, Expobank, having a number and quality settlement platform. • development of the CRM task is to develop interna- of strong points, became a reliable partner system to increase client • development of new tional trade relations: to large corporate clients. generated income, accelerate communication channels When forming products and services, • Expert Advisory Council for implemen- customer service process and with clients with the use developing IT environments and banking tation of customs policy of the Russian processes, Expobank Team has taken into reduce its cost; of messengers, social Federal Tax Service networks, speech recognition account all of the above trends to meet the and synthesis technologies. • Russian National Committee of the needs of our clients in the development International Chamber of Commerce of their foreign trade activities. In 2017 the Bank was focused on imple- • General Consulate of China mentation of IT solutions. in Yekaterinburg EXPOBANK STRATEGIC REPORT 44 45 2 Sustainable Development ANNUAL REPORT 2017

Sustainable Development

People-oriented approach We will keep on with When defining remuneration for its em- ployees, Expobank tends to be on par with is Expobank’s key strategic this trend and provide key companies in the financial sector. The OVER priority our employees with remuneration of each employee directly +12% depends on the performance of both the opportunities for Bank as a whole and each business area. In the dynamically developing and chang- professional development HEADCOUNT 600 ing banking environment Expobank has We are constantly GROWTH created a team of experts and managers within the Bank. EMPLOYEES who are real professionals in their respec- enhancing our tive areas. Expobank continues its education efforts remuneration system In 2017, the company’s headcount and provides the employees with a wide using the best market increased by 12% to 619 employees due range of training programs. In 2017 the to the development of new competences internal training grew by 22% as com- practices. All our HR and business areas. Both experienced and pared to 2016. The external training was processes are built up young specialists trained in various func- mainly focused on innovative products and tions joined the team. But as a whole, the technologies in the financial sector. as reasonable, legally Bank’s team remains stable — the attrition In 2017, 80% of the Bank’s employees took compliant, efficient and 80% 72% rate was 7%, which demonstrates quality team management and high personnel part in tutorials and development classes promoting strategic goals OF EMPLOYEES TOOK loyalty. A research held in 2017 revealed and seminars. Development of manage- PERSONNEL’S of the Bank. PART IN TUTORIALS that the personnel’s commitment indica- ment skills for managers of all levels was AND DEVELOPMENT COMMITMENT tor equaled 72%, while the average value designated as an important T&D area CLASSES AND across Russia was only 68% (according to for 2017-2019. The Bank launched a pro- INDICATOR SEMINARS AON Hewitt). gram enabling all managers to enhance their leadership skills, team building In 2017, one of the HR priorities in the capabilities, knowledge of processes and Bank was internal promotion, horizontal communications. and vertical job rotation. In 2017, 34% of all positions were filled with internal Throughout 2017 the Bank was actively candidates. developing volunteering — the employees, together with the Bank as an entity, participated in volunteer programs of tar- geted support for people in need. Since the +22% launch of first volunteer projects we have helped many troubled children and adults. INTERNAL TRAINING GROWTH EXPERTISE FOR SUSTAINED GROWTH

CORPORATE GOVERNANCE

EXPOBANK TIMELY DISCLOSES FULL, LATEST AND ACCURATE INFORMATION ROaE NIM ABOUT THE BANK TO ENSURE THAT ALL STAKEHOLDERS AND INVESTORS TAKE 16.6% 4.4% REASONABLE DECISIONS

CLEARLY DEFINED ALLOCATION OF COMPETENCES AMONG CORPORATE GOVERNANCE BODIES TO ENSURE PROPER CONTROL ARTSCIENCE MUSEUM Singapore EXPOBANK CORPORATE GOVERNANCE 48 49 2 Corporate governance: principles and structure ANNUAL REPORT 2017

The current corporate governance system of the Bank includes various elements and Corporate governance: mechanisms used to have shareholders’ rights exercised, to perform efficient internal principles and structure control, and carry out interaction among the Bank’s managers, shareholders, Board of Directors and other stakeholders.

The underlying principles and procedures for corporate governance are embedded BANK GOVERNING BODIES’ FUNCTIONS in the Charter and Code of Corporate Governance of the Bank1. One of the underlying principles of building an efficient corporate governance system is clearly General Audit Committee Strategy Committee defined allocation of competences among corporate governance bodies to ensure Shareholders’ Meeting of the Board of Directors of the Board of Directors proper control. The General Shareholders’ Meeting is the The Audit Committee assists the Board The Strategy Committee assists the Board highest governing body of the Bank that of Directors in carrying out its control of Directors in matters regarding improve- adopts resolutions for the principal matters function over the Bank’s financial and ment of the Bank’s efficiency over the of its operation. economic activities. The Committee long run, development and presentation FAIRNESS ACCOUNTABILITY EFFICIENCY analyses the financial statements prepara- of recommendations related to setting Board of Directors tion process, implements control over of strategic goals in the Bank’s activities • The Bank ensures equal and fair attitude • The Bank elaborated and implemented • The Bank will not resolve to appropri- publication of transparent and authentic aimed at the Bank’s development in the to all shareholders when they exercise the information policy for efficient ate profits, if such decision, though The Board of Directors performs strategic financial information. The Committee mid-term (3-5 years) and in the long run their right to participate in managing information exchange among the Bank, formally not in breach with the law, is management functions in the Bank, works out recommendations to the execu- (over 5 years), and in matters related the Bank. its shareholders, investors and other economically unreasonable and may defines major principles of and approaches tive bodies regarding the improvement to coordination of the relevant Bank interested parties. lead to erroneous impression of the to the set-up of the risk management of principles and policies underlying the subdivisions’ activities in the field of stra- • The Bank created best opportunities Bank’s activities. and internal control systems, controls the for the shareholders to take part • The Bank timely discloses full, latest system and procedures of internal control. tegic planning with those of the Board Bank’s executive bodies’ operation and The Committee assesses efficiency of the of Directors. in GSMs, conditions for them to adopt and accurate information about the performs other key functions. a reasonable attitude in respect of GSM Bank to enable adoption of reasonable internal and external audit functions, agenda, coordinate their actions, and decisions by the Bank’s shareholders The Board of Directors is responsible for including sponsoring of candidates and Management Board the opportunity to express their opinion and investors. adopting resolutions on appointment evaluation of the external auditor’s work results, of the procedures controlling the The Management Board is a collegiate ex- on the matters discussed. and resignation of the executive bodies’ ecutive body responsible for efficient and • The Bank discloses information in accor- members, inter alia in cases related to Bank’s compliance with the legislative and • The Bank’s shareholders are provided dance with the principles of regularity, regulatory requirements to financial state- timely execution of the Board of Directors’ improper execution of their duties. BoD resolutions and operational management. with an equal and fair opportunity consistency, promptness, availability, also controls whether the executive bodies ments, and those controlling compliance to participate in appropriation of the accuracy, completeness and compara- of the Bank act in line with the approved with the Code of Corporate Governance Chairman of the Bank’s profits, including by way of dis- bility of the data disclosed. development strategy and major business of the Bank. tribution among the shareholders. areas of the Bank. Management Board (CEO) Remuneration Committee CEO is a sole executive body managing of the Board of Directors operation of the Bank. The Remuneration Committee assists the Board of Directors in carrying out its control function over organization of, 1 Expobank LLC Code of Corporate Governance was developed and approved by the General Shareholders’ monitoring and control over the remunera- Meeting of the Bank in March 2016 based on the following laws and regulations: – Federal Law No.395-1 dated 02 December 1995 ‘On Banks and Banking’; tion system, assessment of whether it is – CBR (Bank of Russia) Letter No.119-T dated 13 September ‘On modern approaches to organization of corporate in line with the Bank’s strategy, nature governance in credit institutions’; – CBR Letter No.11-T dated 07 February 2007 ‘On the list of questions for credit institutions to carry out and scale of the performed transactions, evaluations of the corporate governance state’; its results, and the level and combinations – CBR Letter No. 14-Т dated 06 February 2012 “On recommendations of the Basel Committee on Banking Supervision ‘Principles of corporate governance enhancement’”; of the risks accepted. – CBR Letter No. 06-52/2463 dated 10 April 2014 ‘On the Code of Corporate Governance’; – CBR Regulation No.242-P dated 16 December 2003 ‘On organization of internal control in credit institutions and bank groups’ (as amended by Provision No.3241-U dated 24 April 2014) EXPOBANK CORPORATE GOVERNANCE 50 51 2 Corporate governance: principles and structure ANNUAL REPORT 2017

STRUCTURE OF CORPORATE GOVERNANCE AND CONTROL BODIES IN EXPOBANK

1 Ernst & Young LLC is the auditor of the consolidated One of the underlying principles of building work of the Board in the interests of the Members of the Board of Directors and financial statements of Expobank LLC and its subsidiaries in accordance with the International an efficient corporate governance system Bank and its shareholders. the Management Board control 97.7847% GENERAL External Financial Reporting Standards (IFRS) is clearly defined allocation of competenc- of the Bank’s shares1. SHAREHOLDERS’ Independent es among corporate governance bodies to To efficiently accomplish the tasks set for the Bank, the Board of Directors has, 1 ensure proper control. MEETING Auditor by its resolution, established the Audit The Bank’s Board of Directors consists Committee, Remuneration Committee and Strategy development, control of 5 members. Each member has experi- Strategy Committee. over the executive bodies ence, knowledge, qualification and enjoys impeccable reputation necessary to act as a BoD member and organize efficient

Shareholders (individuals and legal entities) 2 MANAGEMENT Chairman of the BOARD Management Board 2% Igor Kim BOARD (CEO) 0.0256% OF DIRECTORS 2.9084% German Tsoy Sole executive body 0.2153% Kirill Nifontov

MORELAM LLC

Dmitry Ganushkin

Alexander Proshin

BOD COMMITTEES Internal Audit Audit Committee Service Remuneration

Committee 1 As of 31 March 2018 75.5277% 2 Ownership structure: Bank’s shareholders Strategy Committee (as of 31 March 2018) 19.3230% EXPOBANK CORPORATE GOVERNANCE 52 53 2 Board of Directors and its Committees ANNUAL REPORT 2017

Board of Directors and its Committees

The Board of Directors DIRECTORS OF EXPOBANK LLC2 of the Bank1 consists Board of Directors is the highest governing body. It consists of 5 members who have strong of 5 members. Each competences in banking and business management, and experience in implementation member has experience, of major M&A deals knowledge, qualification and enjoys impeccable reputation necessary to act as a BoD member and organize efficient work of the Board in the interests of the Bank and its shareholders.

Igor Kim Kirill Nifontov German Tsoy Vadim Sorokin John McNaughton MEMBER OF BOD (INDEPENDENT MEMBER OF BOD, EXPOBANK LLC CHAIRMAN OF BOD, EXPOBANK LLC MEMBER OF BOD, EXPOBANK LLC MEMBER OF BOD, EXPOBANK LLC DIRECTOR), EXPOBANK LLC Member of the Supervisory Board Igor Kim is a shareholder of Expobank LLC A Russian banker, co-owner of Expobank Former Chairman of the Board of Directors CEO of STAN Group, CEO of Expobank CZ, has been in banking (Russia), Expobank CZ (Czech Republic) LLC (2.9% stake). Chairman of BoD of GMR Engineering Group. He has of JSC “STANKOTECH”, former Partner for over 20 years. Among his projects and Expobank AD Beograd (Serbia). of Expobank AD Beograd (Serbia), member extensive management experience in the of Deloitte & Touche CIS. He has exten- are several successful transactions that A strategic investor who has successfully of BoD of Expobank LLC, member of the oil and gas industry. sive advising experience in accounting, secured a stake in the capital of banks completed over 30 deals on acquisition and Supervisory Board of Expobank CZ. internal audit and control, establishment for foreign investors and international consolidation of financial assets both with Took part in implementation of a great and restructuring of banks, investment financial institutions, as well as a number Russian and foreign financial institutions number of M&A deals, including the acqui- companies and other financial institutions. of completed M&A deals. sition of a Russian subsidiary of Barclays Bank PLC.

1 As of 31 March 2018 2 As of 31 March 2018 EXPOBANK CORPORATE GOVERNANCE 54 55 2 Board of Directors and its Committees ANNUAL REPORT 2017 CEO and Management Board

In accordance with the Code of Corporate Governance, 1 there is one independent director in Expobank’s CEO and Management Board Board of Directors — Vadim Sorokin.

An independent director means a person who is sufficiently professional, experienced and Management of current activities of the Management Board independent to form their own opinion, capable to make impartial and fair judgements in- Bank is carried out by the Chairman of the dependent from the influence of the Bank’s executive bodies, specific groups of sharehold- Management Board (CEO, sole executive Number of members for the Management Board is determined by the Board of Directors. ers or other interested parties. The candidate (an elected BoD member) is not considered body) and by the Management Board independent, if such candidate is connected to the Bank, its substantial shareholder, major (collegiate executive body). In 2017 the Management Board consisted of 7 people: counterparty or the Bank’s competitor, or to the state. Except for the matters attributed to the competence of the Bank’s General Alexey Sannikov Shareholders’ Meeting and Board CHAIRMAN (CEO) of Directors, all matters related to man- agement of day-to-day operations fall Dmitry Ganushkin Audit Committee Remuneration Strategy within the competence of the executive DEPUTY CEO consists of 2 people: ­Committee consists Committee ­consists bodies of the Bank. of 2 people: of 3 people: • Vadim Sorokin CEO and the Management Board organize Oleg Novolodsky implementation of the resolutions adopted CHAIRMAN DEPUTY CEO • Igor Kim • Igor Kim by, and report to the General Shareholders’ CHAIRMAN CHAIRMAN Meeting and the Board of Directors. • John McNaughton Olga Pugacheva MEMBER Kirill Nifontov German Tsoy • • CEO Profile DEPUTY CEO MEMBER MEMBER Alexey Sannikov has been on the team for Alexey Fedotkin • Kirill Nifontov over 16 years. MEMBER During the past several years he acted DEPUTY CEO as CEO of Sibbusinessbank LLC (Surgut), later consolidated with Expobank (Russia). Viktoria Kandaurova In 2002, Alexey graduated with honors DEPUTY CEO from the Siberian Academy of Public Administration. In 2003, he was ap- pointed Head of Payroll Projects Andrey Shalimov at Sibakadembank. Progressing with his DEPUTY CEO career, in 2009 Mr. Sannikov joined MDM Bank OJSC where he became member of the Management Board. In 2011, he was appointed Advisor to CEO at Barclays Bank LLC. Since 2012 Alexey had been Deputy CEO at Expobank LLC and headed the Bank in 2016.

1 As of 31 March 2018 ManagementEXPOBANK BoardSTRATEGIC REPORT 56 57 2 Казначейский бизнес ANNUAL REPORT 2017

Oleg Viktoria Andrey Alexey Alexey Dmitry Olga Novolodsky Kandaurova Shalimov Sannikov Fedotkin Ganushkin Pugacheva

Deputy CEO Deputy CEO Deputy CEO Chairman (CEO) Deputy CEO Deputy CEO Deputy CEO EXPOBANK CORPORATE GOVERNANCE 58 59 2 Risk Management, Control and Audit ANNUAL REPORT 2017

Risk Management, Control and Audit 160% THE BANK’S NPL RISK MANAGEMENT The executive bodies implement the 2017 RESULTS Expobank’s Midterm Goals to About the Auditor PROVISIONING Risks and Capital Management Strategy, Develop Risk Management approve and ensure implementation of the Ernst & Young LLC is the auditor for COVERAGE The Bank has its risk management pro- risks and capital management procedures, • The Bank’s ratings are Processes: Expobank LLC. The Auditor has au- cesses organized in compliance with the RATIO and control risks. Business Units are maintained at a stable dited consolidated financial statements requirements of the Bank of Russia and primarily accountable for managing risks ongoing enhancement of the of Expobank LLC and its subsidiaries best international practices. Responsibility level: Fitch Ratings at ‘B+’ • on a daily basis: business processes owners for reporting periods 2013 to 2017 in ac- for risk management is allocated among (International Scale), risk management system, also own the risks inherent to such busi- cordance with the International Financial the Board of Directors, executive bodies Outlook Stable, and ACRA including by introducing ness processes. Business Units identify, Reporting Standards (IFRS). (Management Board and CEO), Risk scoring models for social assess and control the risks for the opera- at ‘BBB+(RU)’ (National Scale), Management and Business Units of the networks and machine learning An entry to the Unified State Register tions they are involved in. Outlook Stable. Bank. algorithms; of Legal Entities was made on 5 December Risks Management develops the meth- 2002, with State Registration Number The Board of Directors approves the • NPLs volume decreased odology for risk management; identifies, enhancement of technological 1027739707203 assigned. Risks and Capital Management Strategy, by 0.75 p. p. from 2.46% to • assesses and controls risks related to both controls its implementation and the scale 1.71%, while the banking effectiveness of risk Address: 77 Sadovnicheskaya naberezh- individual transactions and to the book of accepted risks, controls adherence to sector average is about 6%. management processes in the naya, bldg. 1, Moscow, Russia 115035. as a whole including independent expert the established limits and procedures credit pipeline and introduction evaluations of Business Units’ opinions. The Bank’s NPL provisioning of risks and capital management, and their Ernst and Young LLC is a Member of the Risks Management controls adherence coverage ratio is about 160% of the unified data repository efficiency. Self-Regulated Auditors’ Organization to the Strategy and policies in risks and against 52% of the market and BI-system; ‘Russian Union of Auditors’ (Association) capital management and prepares risk average. Thus the Bank’s (‘SRO RSA’). Ernst and Young LLC is development of risk statements for Business Units, the execu- loan portfolio quality ranks • included in the check copy of the Auditors management culture tive bodies and Board of Directors. sufficiently higher than the and Audit Organizations Register under enhancement programs. market average. the entry’s main registration number 11603050648. • Risk management models were successfully validated with the assistance of external consultants.

• Risk management processes for the niche retail areas were organized. EXPOBANK CORPORATE GOVERNANCE 60 61 2 Disclosures ANNUAL REPORT 2017

Disclosures

In the course of its business Expobank The Bank discloses Expobank tends to avoid formal approach DISCLOSURE CHANNELS strives to ensure transparency for share- information in accordance to disclosures and publishes essential infor- holders, investors and other stakeholders. mation regarding its activities based on the The major channel of information disclosure is the Bank’s corporate website expobank.ru The Bank has developed and implemented with the following principles: principles of voluntary disclosure, even if which provides most recent information about the Bank and its performance for the re- information policy for the Bank’s efficient such disclosure is not required by law. porting period. The information is also simultaneously provided in the English section communication with all interested parties. • regularity; One of the communication instruments of the Bank’s website expobank.ru/en/. Expobank timely discloses full, latest and • coherence; between the Bank and interested parties is accurate information about the Bank thus the annual report which provides an oppor- enabling its shareholders and investors to • promptness; tunity to estimate the Bank’s performance Status Regulatory compliance Disclosure channel Information/Audience adopt reasonable decisions. in the reporting period. Expobank discloses its annual report every year at its corporate • Federal Law No. 39-FZ Website of the authorized agency • mandatory disclosure; • availability; “On Securities Market” dated 22 April 1995; Interfax: website in “About the Bank — Annual http://www.e-disclosure.ru/portal/ • disclosures to analysts, shareholders and Report” section. • Regulation No. 454-P “On Disclosing company.aspx?id=7601 investors, in Russian and English, regarding • accuracy; Information by the Issuers of Issue-Grade the Bank’s performance, financial statements, Issuer of issue-grade Securities” (adopted by the Bank of Russia on 30 implementation of large investment projects, According to Medialogia, media monitor- 1 Corporate website: https://expobank. securities December 2014); fulfillment of strategic plans; • completeness; ing and analysis system, in 2017 various ru/about/openinfo/reports_kv/ sources published about 2,000 publications • Federal Law No. 224-FZ “On Countering the Corporate website: https://expobank. • disclosures for regulatory purposes. • comparability and consistency with references to Expobank, apart from Illegal Use of Insider Information and Market ru/about/openinfo/insider/ Manipulation” dated 27 July 2010 of the data disclosed. statements of material facts and analytical reports.

PROTECTION OF INSIDER INFORMATION

In accordance with the Bank of Russia’s Ordinance No. 3379–U dated 11 September 2014 1 In accordance with clause 30.4 of Federal Law No. 39-FZ “On Securities Market” dated 22 April 1996 and in order to prevent abusive practices in the form of illegal use of insider information, (as amended by Federal Law No. 282-FZ dated 28 the Bank created the List of information related to the insider information of Expobank December 2012), after the beginning of placement of issue-grade securities (with a registered LLC as an Issuer, a professional securities market participant and a credit institution Prospectus) the Bank shall disclose information in the executing transactions in financial instruments and foreign currency on behalf of its form of a quarterly report of the issuer of issue-grade customers, which obtains the insider information from its customers. securities. Expobank’s bond issue was placed on 25 June 2013; the Prospectus was registered by the Bank of Russia on 29 March 2013 (on 10 June 2016 the Bank The List is available at the Bank’s corporate website in the “Insider Information” section. of Russia adopted the resolution on state registration of amendments to the Resolution on Securities Issue regarding Series 3 Bonds). LIMITLESS BANKING TECHNOLOGIES CREATING VALUE 4

FINANCIAL STATEMENTS

RATING AGENCIES ANALYSTS DATA LAKE BBB+ HIGHLIGHTED THE STABLE ASSET QUALITY AND HEALTHY FINANCIAL PERFORMANCE, IMPLEMENTATION ACRA: ‘BBB+’, OF AI-DRIVEN DATA Outlook Satble AND ALSO REASONABLE CAPITAL BUFFERS LAKE PRINCIPLES WITH CAPITAL ADEQUACY RATIO AT 17.9% AS OF 2017 YEAR END

>48% OPERATING INCOME GREW BY 48% FROM RUB 1.2 TO 1.8 BLN EVOLUTION TOWER MOSCOW INTERNATIONAL BUSINESS CENTER Moscow, Russia EXPOBANK FINANCIAL STATEMENTS 64 65 4 Independent auditor’s report ANNUAL REPORT 2017 on the summary consolidated financial statements

Independent auditor’s report on the summary consolidated Ernst & Young LLC Sadovnicheskaya Nab., 77, bld. 1 Tel: +7 (495) 705 9700 financial statements Moscow, 115035, Russia +7 (495) 755 9700 www.ey.com/ru Fax: +7 (495) 755 9701

To the Shareholders MANAGEMENT’S OPINION Details of the audited entity Details of the auditor and Board of Directors RESPONSIBILITY Name: Expobank LLC Name: Ernst & Young LLC of Expobank LLC In our opinion, the summary consolidated FOR THE SUMMARY financial statements derived from the Record made in the State Register of Legal Record made in the State Register of Legal The accompanying summary consolidated audited consolidated financial state- Entities on 5 November 2002, State Entities on 5 December 2002; State financial statements, which comprise the CONSOLIDATED ments of the Group for the year ended Registration Number 1027739504760. Registration Number 1027739707203. summary consolidated statement of fi- FINANCIAL 31 December 2017 are consistent, in all nancial position as at 31 December 2017, material respects, with those consolidated Address: Russia 107078, Moscow, ul. Address: Russia 115035, Moscow, summary consolidated statement of com- STATEMENTS financial statements, on the basis de- Kalanchevskaya, 29, building 2. Sadovnicheskaya naberezhnaya, 77, prehensive income, summary consolidated scribed in Note 1. building 1. statement of changes in equity and sum- The management is responsible for the Ernst & Young LLC is a member of the mary consolidated statement of cash flows preparation of a summary of the audited Self-regulated Organization of Auditors for the year then ended, and related note, consolidated financial statements on the “Russian Audit Union” (Association) (“SRO are derived from the audited consolidated basis described in Note 1. RSA”). Ernst & Young LLC is included in the financial statements of Expobank LLC and control copy of the register of auditors its subsidiaries (together the “Group”), AUDITOR’S and audit organizations, main registration for the year ended 31 December 2017. We number 11603050648. expressed an unmodified audit opinion RESPONSIBILITY­ on those consolidated financial statements in our auditor’s report dated 6 April 2018. Our responsibility is to express an opinion on the summary consolidated financial The summary consolidated financial statements based on our procedures, statements do not contain all the disclo- which were conducted in accordance with sures required by International Financial International Standard on Auditing (ISA) A.V. Sorokin Reporting Standards. Reading the sum- 810, Engagements to Report on Summary mary consolidated financial statements, Financial Statements, as adopted in the Partner Ernst & Young LLC therefore, is not a substitute for reading Russian Federation by Order No. 207n the audited consolidated financial state- of the Ministry of Finance of the Russian ments of the Group. Federation dated 9 November 2016. 6 April 2018 EXPOBANK FINANCIAL STATEMENTS 66 67 4 Summary consolidated statement of financial position ANNUAL REPORT 2017 as of 31 December 2017

Summary consolidated statement of financial position as of 31 December 2017

(in thousands of Russian rubles) 31 December 2017 31 December 2016 (in thousands of Russian rubles) 31 December 2017 31 December 2016

Assets Treasury shares (1,220,018) −

Cash and cash equivalents 9,452,890 19,901,538 Retained earnings, including dividends paid 2,232,158 364,127

Obligatory reserve with the CBR 494,409 530,179 Unrealized gains on revaluation of investment securities available for sale 310,836 270,563

Trading securities, including: 11,338,499 10,272,689 Revaluation reserve for property and equipment 420,576 391,774

– non-pledged trading securities 11,338,499 10,272,689 TOTAL EQUITY 12,705,220 11,988,132

Amounts due from other banks 632,385 2,648,273 TOTAL LIABILITIES AND EQUITY 61,202,335 65,899,158

Loans to customers 26,018,201 14,515,998

Investment securities available for sale, including: 9,756,328 13,091,925

– non-pledged securities available for sale 8,020,988 13,091,925 Signed on behalf of the Management Board on 6 April 2018.

– pledged securities available for sale sold under direct repurchase agreements 1,735,340 −

Investment securities held to maturity, including: 811,862 2,283,112

– non-pledged securities held to maturity 811,862 2,283,112

Prepayment for current income tax liabilities 80,294 −

Intangible assets 29,361 35,631

Investment property 687,000 698,000

Property and equipment 1,698,871 1,440,353 А.М. SANNIKOV G.М. ULANOVA Deferred tax assets − 254,549 Chairman of the Management Board Chief Accountant Other assets 202,235 226,911

TOTAL ASSETS 61,202,335 65,899,158

Liabilities

Amounts due to other banks 2,953,720 1,851,213

Amounts due to customers 43,288,315 48,644,965

Debt securities issued 535,411 892,817

Income tax liabilities − 346,933

Other liabilities 536,702 962,244

Deferred tax liabilities 27,752 −

Subordinated Eurobonds issued 1,155,215 1,212,854

TOTAL LIABILITIES 48,497,115 53,911,026

Equity

Share capital 10,413,412 10,413,412

Share premium 548,256 548,256 EXPOBANK FINANCIAL STATEMENTS 68 69 4 Consolidated statement of comprehensive income ANNUAL REPORT 2017 for the year ended 31 December 2017

Consolidated statement of comprehensive income for the year ended 31 December 2017

(in thousands of Russian rubles) 2017 2016 (in thousands of Russian rubles) 2017 2016

Interest income 5,551,042 6,272,655 PROFIT FOR THE YEAR 1,983,031 3,047,132

Interest expense (2,851,348) (3,584,486) Other comprehensive income/(loss)

Net interest income 2,699,694 2,688,169 Other comprehensive income/(loss) to be reclassified to profit or loss in subsequent periods

Reversal/(charge) of allowance for impairment of amounts due from other banks and loans to customers 223,683 (782,648) Unrealized gains/(losses) on investment securities available for sale, net of tax 50,341 (84,429)

Net interest income after reversal/charge of allowance for impairment of amounts due from other Income tax effect (10,068) 16,886 2,923,377 1,905,521 banks, loans to customers and finance lease receivables Other comprehensive income not to be reclassified to profit or loss in subsequent periods Fee and commission income 547,632 520,086 Revaluation of property and equipment, net of tax 36,002 27,857 Fee and commission expense (88,687) (112,237) Income tax effect (7,200) (5,571) Gains less losses from trading securities 231,710 122,836 OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR 69,075 (45,257) Gains less losses from derivative financial instruments 21,958 11,599 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2,052,106 3,001,875 Gains less losses from dealing in foreign currencies 60,289 28,227

Gains less losses from foreign currency translation 180,055 211,284

Gains less losses on sale of investment securities available for sale 158,238 284,654

Gains on sale of Eurobonds classified as amounts due from other banks and loans to customers 46,815 976,516

Other operating income 129,541 354,425 Signed on behalf of the Management Board on 6 April 2018.

Other gains/(losses) from impairment and provisions 247,214 (396,626)

Administrative and other operating expenses (2,315,363) (2,124,469)

Excess of acquirees’ net assets over cost of investments 240,705 1,775,238

Profit before tax 2,383,484 3,557,054

Income tax (400,453) (509,922)

PROFIT FOR THE YEAR 1,983,031 3,047,132

А.М. SANNIKOV G.М. ULANOVA Chairman of the Management Board Chief Accountant EXPOBANK FINANCIAL STATEMENTS 70 71 4 Summary consolidated statement ANNUAL REPORT 2017 of changes in equity as of 31 December 2017 Summary consolidated statement of cash flows as of 31 December 2017

Summary consolidated statement Summary consolidated statement of cash of changes in equity as of 31 December 2017 flows as of 31 December 2017

Unrealized gains Revaluation Retained (in thousands of Russian rubles) 2017 2016 (in thousands Share Share on revaluation reserve for earnings / Treasury shares Total equity of Russian rubles) capital premium of investment securities property and (accumula-ted Cash flows from operating activities available for sale equipment losses) Interest received 5,994,611 6,296,352

Balance as Interest paid (2,971,817) (3,653,933) 10,413,412 548,256 − 338,106 369,488 (2,683,005) 8,986,257 of 31 December 2015 Fees and commissions received 592,338 520,086

Profit for the year − − − − − 3,047,132 3,047,132 Fees and commissions paid (88,687) (105,932)

Gains from trading securities 233,965 6,619 Other comprehensive − − − (67,543) 22,286 − (45,257) (loss)/income for the year Gains from dealing in foreign currencies 60,289 41,212

TOTAL Other operating income received 176,356 1,428,704 COMPREHENSIVE − − − (67,543) 22,286 3,047,132 3,001,875 Administrative and other operating expenses paid (2,208,181) (2,019,370) INCOME FOR THE YEAR Income tax paid (578,732) (574,841) Balance as 10,413,412 548,256 − 270,563 391,774 364,127 11,988,132 Cash flows from operating activities before changes in operating assets and liabilities 1,210,142 1,938,897 of 31 December 2016 Net (increase)/decrease in operating assets Profit for the year − − − − − 1,983,031 1,983,031 Obligatory reserve with the CBR 63,201 (98,535)

Other comprehensive Trading securities (1,116,439) (3,781,643) − − − 40,273 28,802 − 69,075 income for the year Amounts due from other banks 3,740,313 16,800,673

TOTAL Loans to customers (6,662,967) 21,749,083 COMPREHENSIVE − − − 40,273 28,802 1,983,031 2,052,106 INCOME FOR THE YEAR Other assets (74,841) 1,901,584

Net increase/(decrease) in operating liabilities Shareholders interests − − (1,220,018) − − − (1,220,018) purchased by the Group Amounts due to other banks (884,989) (11,138,637)

Amounts due to customers (6,773,362) (2,289,029) Dividends to shareholders − − − − − (115,000) (115,000) of the Group Debt securities issued (411,386) (158,820)

Balance as Other liabilities (168,351) 609,492 10,413,412 548,256 (1,220,018) 310,836 420,576 2,232,158 12,705,220 of 31 December 2017 Net cash (used in) / from operating activities (11,078,679) 25,533,065

Signed on behalf of the Management Board on 6 April 2018. Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (2,923,517) 12,481

Purchase of investment securities available for sale (5,639,801) (12,672,965)

Proceeds from sale and redemption of investment securities available for sale 8,991,163 548,412

Proceeds from redemption of investment securities held to maturity 1,448,186 155,951

Purchase of property and equipment (8,840) (17,438)

Proceeds from sale of property and equipment 5,235 1,413,743 А.М. SANNIKOV G.М. ULANOVA Purchase of intangible assets (1,811) (10,313) Chairman of the Management Board Chief Accountant EXPOBANK FINANCIAL STATEMENTS 72 73 4 Summary consolidated statement of cash flows ANNUAL REPORT 2017 as of 31 December 2017

(in thousands of Russian rubles) 2017 2016 NOTE 1

Acquisition of investment property − (5,603) Proceeds from sale of investment property − 55,991 Basis for preparation The summary consolidated financial statements do not contain the disclosures Net cash from/(used in) investing activities 1,870,615 (10,519,741) The summary consolidated financial presented in the complete set of con- Cash flows from financing activities statements are extracted from the full set solidated financial statements, namely Participant’s interest purchased (1,220,018) − of the Group’s consolidated financial state- summary of principal accounting policies ments in accordance with International and other explanatory information, Dividends paid to shareholders (115,000) − Financial Reporting Standards (“IFRS”) as required by IFRS. A copy of the audited Bonds issued that were purchased by the Group for subsequent resale (542) (1,916,351) as of 31 December 2017 and for the year consolidated financial statements can be Proceeds from placement of previously purchased bonds − 250,000 then ended. The summary consolidated received upon written request to Expobank financial statements comprise the sum- LLC: ul. Kalanchevskaya, 29, building 2, NET CASH USED IN FINANCING ACTIVITIES (1,335,560) (1,666,351) mary consolidated statement of financial Moscow, 107078, Russian Federation. Effect of exchange rate changes on cash and cash equivalents 94,976 (292,245) position as at 31 December 2017, summary Net (decrease)/increase in cash and cash equivalents (10,448,648) 13,054,728 consolidated statement of comprehensive income, summary consolidated statement Cash and cash equivalents, beginning 19,901,538 6,846,810 of changes in equity and summary con- Cash and cash equivalents, ending 9,452,890 19,901,538 solidated cash flow statement for the year then ended as they were included in the complete set of consolidated financial statements.

Signed on behalf of the Management Board on 6 April 2018.

A.M. SANNIKOV G.M. ULANOVA Chairman of the Management Board Chief Accountant EXPOBANK APPENDICES 74 75 5 Appendices ANNUAL REPORT 2017 Standalone and Internal Business Units

Cash service for Individuals: 7. Branch in Perm 9. Branch in Novosibirsk Appendices Monday — Thursday: 9:00-17:45 Friday: 9:00-16:30 BRANCH MANAGER: BRANCH MANAGER: Lunch break: 12:45-13:30 Natalia Malkina Anna Bogdanova APPENDIX 1. Legal entities: ADDRESS : ADDRESS : Monday — Thursday: 9:00-18:00 Office 1 , 84 Pushkina Str., Perm, 25 Krasny Av., Novosibirsk, STANDALONE AND INTERNAL BUSINESS UNITS Friday: 9:00-16:45 Perm region, 614000, Russia Novosibirsk region, 630099, Russia Cash service for Legal entities: BUSINESS HOURS: BUSINESS HOURS: Monday — Thursday: 9:00-17:45 Cash service for Individuals: Individuals: Individuals: 1. ‘Kalanchevsky’ 4. Branch in Saint Petersburg Friday: 9:00-16:30 Monday — Thursday: 10:00-19:00, Monday — Friday: 9:00-18:00 Monday — Friday: 9:00-18:00 Business Center Branch Lunch break: 12:45-13:30 Lunch break: 14:30-15:00 BRANCH MANAGER: Cash service for Individuals: Cash service for Individuals: BRANCH MANAGER: Friday: 10:00-18:00, Konstantin Mialovich TEL.: Monday — Friday: 9:00-18:00 Monday — Friday: 9:00-18:00 Marina Pleshakova Lunch break: 13:30-14:00 ADDRESS : +7 (800) 500-07-70 Lunch break: 13:00-14:00 Legal entities: ADDRESS : Legal entities: Office 3H, 74A Moskovsky Ave., +7 (495) 231-11-11 Legal entities: Monday — Friday: 9:00-18:00 29, Kalanchevskaya Str., bldg. 2, Monday — Thursday: 9:00-18:00 St. Petersburg, 196084, Russia +7 (495) 228-31-31 Monday — Friday: 9:00-18:00 Cash service for Legal entities: Friday: 9:00-17:00 Cash service for Legal entities: Monday — Friday: 9:00-18:00 Moscow, 107078, Russia BUSINESS HOURS: Cash service for Legal entities: Monday — Friday: 9:00-18:00 Individuals: 6. ‘Surgutsky’ Operational Office TEL.: BUSINESS HOURS: Monday — Thursday: 10:00-16:30, Lunch break: 13:00-14:00 Individuals: Monday — Friday: 09:00-18:00 +7 (800) 500-07-70 Lunch break: 14:30-15:00 BRANCH MANAGER: Monday — Friday: 9:00-18:00 Cash service for Individuals: TEL.: +7 (495) 231-11-11 Friday: 10:00-15:30, Maria Dimitriadi Cash service for Individuals: Monday — Friday: 09:10-17:50 +7 (800) 500-07-70 +7 (495) 228-31-31 Lunch break: 13:30-14:00 Monday — Friday: 9:00-18:00 Lunch break: 4:00-14:30 ADDRESS : +7 (495) 231-11-11 31 Mayakovskogo Str., Surgut, Legal entities: TEL.: Legal entities: +7 (495) 228-31-31 10. ‘Akademichesky’ Branch Monday — Thursday: 9:00-18:00 +7 (495) 231-11-59 Monday — Thursday: 09:00-18:00 Khanty-Mansi Autonomous Area, Tyumen Region, 628403, Russia Friday: 9:00-16:45 Friday: 09:00-16:45 8. ‘Ufimsky’ Operational Office BRANCH MANAGER: Saida Degtyareva Cash service for Legal entities: 3. ‘Kaluzhsky’ Business Center Cash service for Legal entities: BUSINESS HOURS: Monday — Friday: 09:10-17:50 BRANCH MANAGER: Monday — Thursday: 9:30-17:30 Operational Office Individuals: ADDRESS : Olga Dyblenko Friday: 9:30-16:15 Lunch break: 14:00-14:30 Monday — Thursday: 09:00-18:00 15 Akademika Koptyuga Av., BRANCH MANAGER: TEL.: TEL.: Friday: 09:00-16:45 ADDRESS : Novosibirsk, Novosibirsk region, Marina Anopchenko +7 (800) 500-07-70 +7 (800) 500-07-70 Cash service for Individuals: 16 Mustai Karim Str., Lenin district, Ufa, 630090, Russia ADDRESS : Monday — Thursday: 09:00-17:45 Bashkortostan Republic, 450077, Russia +7 (495) 231-11-11 +7 (495) 231-11-11 BUSINESS HOURS: Friday: 09:00-16:30 +7 (495) 228-31-31 Office 12, 102A Lenina Str., Kaluga, +7 (495) 228-31-31 BUSINESS HOURS: Individuals: Lunch break: 13:00-14:00 Kaluga region, 248016, Russia Individuals: Monday — Friday: 9:00-19:00 Legal entities: Monday — Thursday: 10:00-19:00 Cash service for Individuals: 2. ’Malaya Dmitrovka’ BUSINESS HOURS: 5. Branch in Yekaterinburg Monday — Thursday: 09:00-18:00 Individuals: Friday: 10:00-17:45 Monday — Friday: 9:00-19:00 Business Center Branch Friday: 09:00-16:45 Monday — Friday: 09:00-18:00 BRANCH MANAGER: Cash service for Individuals: Legal entities: Cash service for Legal entities: BRANCH MANAGER: Cash service for Individuals: Sergey Shelkovoy Monday — Thursday: 10:00-18:30 Monday — Friday: 09:30-17:00 Monday — Thursday: 09:00-17:45 Vera Ermakova Monday — Friday: 9:00-17:30 Friday: 10:00-17:15 Cash service for Legal entities: ADDRESS : Friday: 09:00-16:30 Lunch break: 13:00-13:30 Lunch break: 13:00-13:30 Monday — Friday: 9:00-19:00 ADDRESS : 49 Rozy Luxemburg Str., Yekaterinburg, Lunch break: 13:00-14:00 Legal entities: 20 Malaya Dmitrovka Str., Moscow, Legal entities: Sverdlovsk region, 620026, Russia TEL.: Monday — Friday: 09:00-18:00 TEL.: Monday — Thursday: 10:00-19:00 127006, Russia BUSINESS HOURS: +7 (800) 500-07-70 Cash service for Legal entities: +7 (800) 500-07-70 Friday: 10:00-17:45 Individuals: +7 (495) 231-11-11 BUSINESS HOURS: Monday — Friday: 09:00-17:30 +7 (495) 231-11-11 Cash service for Legal entities: Individuals: Monday — Thursday: 9:00-18:00 +7 (495) 228-31-31 Lunch break: 13:00-13:30 +7 (495) 228-31-31 Monday — Thursday: 10:00-18:30 Friday: 9:00-16:45 Monday — Thursday: 9:30-19:00 Friday: 10:00-17:15 TEL.: Friday: 9:30-18:00 Lunch break: 13:00-13:30 +7 (484-2) 21-02-83 TEL.: +7 (347) 226-97-86 EXPOBANK APPENDICES 76 77 5 Appendices ANNUAL REPORT 2017 Glossary

11. ‘Kuzbassky’ Operational Office Cash service for Legal entities: 14. ’Na Svobodnom’ GLOSSARY Monday — Friday: 09:00-18:00 Operational Office BRANCH MANAGER: TEL.: Yulia Koltsova BRANCH MANAGER: +7 (800) 500-07-70 Natalia Khromova ADDRESS : +7 (495) 231-11-11 Office 48, 4 Krasnaya Str., Central district, +7 (495) 228-31-31 ADDRESS : Kemerovo, Kemerovo region, 650000, 48 Novosibirskaya Str., Russia Krasnoyarsk, Krasnoyarsk region, 13. ’Na Vzletke’ BUSINESS HOURS: 660028, Russia Operational Office ACRA Analytical Credit Rating Agency (ACRA) founded on 20 November 2015 Individuals: BUSINESS HOURS: Monday — Friday: 9:00-18:00 BRANCH MANAGER: Individuals: IFRS International Financial Reporting Standards Cash service for Individuals: Kseniya Vekovenko Monday — Friday: 09:00-18:00 Monday — Friday: 9:00-18:00 ADDRESS : Cash service for Individuals: BoD Board of Directors, a corporate governing body of the Bank Legal entities: Bldg.14A, 78th Dobrovolcheskoy Monday — Friday: 09:00-18:00 Monday — Friday: 9:00-18:00 Brigady Str., Krasnoyarsk, Krasnoyarsk Lunch break: 13:00-13:30 FCS Federal Customs Service Cash service for Legal entities: region, 660077, Russia Legal entities: Monday — Friday: 9:00-18:00 Monday — Friday: 09:00-18:00 CBR The Central Bank of the Russian Federation is the banking sector regulator. BUSINESS HOURS: Cash service for Legal entities: Article 75 of the Constitution of the Russian Federation establishes a special legal status of the Bank of Russia, vests it with TEL.: Individuals: Monday — Friday: 09:00-18:00 the exclusive right to issue currency (Part 1) and protect the ruble and ensure its stability, which is the main function of the +7 (800) 500-07-70 Monday — Friday: 09:00-18:00 Lunch break: 13:00-13:30 Bank of Russia (Part 2). The status, purposes, functions and powers of the Bank of Russia are also spelled out in Federal +7 (495) 231-11-11 Cash service for Individuals: Law No. 86-FZ dated 10 July 2002 “On the Central Bank of the Russian Federation (Bank of Russia)” and other federal laws. +7 (495) 228-31-31 Monday — Friday: 09:00-18:00 TEL.: +7 (800) 500-07-70 Lunch break: 13:00-13:30 CIR Cost to Income Ratio reflects efficiency of doing business. It is calculated as a ratio of costs (operating expenses) +7 (495) 231-11-11 12. ‘Tsentralny’ Operational Office Legal entities: of the Bank for the reporting period to its operating earnings (operating income) and is expressed as percentage. Monday — Friday: 09:00-18:00 +7 (495) 228-31-31 BRANCH MANAGER: Cash service for Legal entities: ROAA Return on Average Assets is an indicator used to evaluate the profitability of the bank’s assets. Ekaterina Vlasova Monday — Friday: 09:00-18:00 15. Branch in Yuzhno-Sakhalinsk ADDRESS : Lunch break: 13:00-13:30 ROAE Return on Average Equity. Offices 81-82, 1 Perensona Str., BRANCH MANAGER: TEL.: Valery Bespalov WSJ The White Square Journal 82 Krasnoyarsk, Krasnoyarsk region, +7 (800) 500-07-70 WSJ published 2016 Top Russian Banks rating*. 660049, Russia +7 (495) 231-11-11 ADDRESS : st BUSINESS HOURS: +7 (495) 228-31-31 1 Floor, 78 Chekhova Str., Individuals: Yuzhno-Sakhalinsk, 693008, Russia Monday — Friday: 09:00-18:00 BUSINESS HOURS: Cash service for Individuals: Individuals: Monday — Friday: 09:00-18:00 Monday — Friday: 9:00-17:00 Legal entities: Cash service for Individuals: Monday — Friday: 09:00-18:00 Monday — Friday: 09:00-16:30 Legal entities: Monday — Friday: 9:00-17:00 Cash service for Legal entities: Monday — Friday: 09:00-16:30

TEL.: +7 (800) 500-07-70 +7 (495) 231-11-11 +7 (495) 228-31-31

*https://wsjournal.ru/rejting-100-samyh-innovatsionnyh-internet-bankov-rossii/ EXPOBANK APPENDICES 78 79 5 Appendices ANNUAL REPORT 2017 Disclaimer and Scope of Report

CONTACT DETAILS DISCLAIMER AND SCOPE OF REPORT

Expobank LLC Disclaimer The Bank relies upon the information Scope of Report obtained from the sources which it consid- 29, Kalanchevskaya Str., bldg. 2, Moscow, 107078 This annual report represents the perfor- ers as reliable, but does not guarantee its The information provided in the an- mance of Expobank and its subsidiaries accuracy or completeness. Any statements nual report, including the financial and +7 (495) 228-31-31 and affiliates (the “Bank”) for 2017 (the contained in these materials not constitut- economic results calculated on the basis “annual report”). The annual report is ing historic facts are forward-looking of the audited IFRS financial statements, [email protected] prepared on the basis of materials avail- statements associated with known and includes information on the performance able to the Bank at the moment of prepa- unknown risks, uncertainties and other of Expobank LLC and its subsidiaries and www.expobank.ru ration thereof and contains information factors as a result of which the actual affiliates. on the Bank’s performance in 2017, prior performance, achievements and results periods and estimated data, statements may significantly differ from any future This annual report is prepared based on the in respect of intentions, opinions or current performance, achievements and results information available to the Bank as of the 24/7 Information Center: expectations regarding the performance, reflected or expected in such forward-look- date of the report preparation. The annual financial position, strategic prospects, ing statements. The Bank does not assume report contains the review of 2017 results + 7 (495) 231-11-11 possible areas for development of the the obligation to review or confirm the and dynamics and certain data for the sector where the Bank operates. There expectations and estimations or to publish period from 1994 to 2016. + 7 (800) 500-07-70 may be risks and uncertainties in respect updates and changes in the forward- The information about the members of such forward-looking statements, which looking statements contained herein due of management and control bodies is depend on events and circumstances that to any future events or new information. provided in this annual report in compli- may change in the future. The annual report is not an offer to sell ance with the requirements of the Russian or a solicitation of an offer to subscribe law related to personal data. for and/or purchase any securities. It is understood that no provision of the annual report creates the basis for any contract or obligation of any kind. The information contained in this annual report shall not be deemed to be complete, accurate or unbiased for any purpose. None of the Bank’s directors, shareholders, officials, employees or any other persons assumes any responsibility for any losses of any kind which may arise as a result of any use of this annual report or its content.