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TABLE OF CONTENTS

MESSAGE OF THE EXECUTIVE DIRECTOR 2

MAIN ACTIVITIES OF THE BANK 4

LENDING TO THE ECONOMY 5

FACTORING AND TRADE FINANCE 9

INVESTMENT BANKING SERVICES 11

INFORMATION TECHNOLOGIES AND SECURITY 15

RISK MANAGEMENT 16

INTERNAL AUDIT 17

HUMAN RESOURCE MANAGEMENT 18

MARKETING 20

FINANCIAL RESULTS 21

INDEPENDENT AUDITOR’S REPORT 24 MESSAGE OF THE EXECUTIVE DIRECTOR

operations are planned to increase further. In 2011 the Bank introduced the Internet Banking system, which allows customers to quickly and conveniently manage their accounts without time and geographical con- straints. In 2011 the Bank also had significant achievements in the sphere of investment activity. Within the scope of “Best Competitor 2011” survey conducted by “ARMINFO” rating agency among RA banks, ARMSWISS- BANK was recognized as the winner of “Activity in RA government securities market” and “Activity in corporate debt market” nominations. In 2011 the Bank acted as underwriter and market maker for “Artsakh HEK” OJSC In 2011 the Bank continued to grow organizing the third issue and placement of steadily making new achievements and its shares. Overall, 130 investors participated strengthening its competitive position in the in the placement of the shares. As a result, RA banking sector. Despite the continuation the Company raised an amount of AMD of the trends of increasing competition in the 3,649,597,860, which is an unprecedented banking sector, which is most evident in the indicator for the RA corporate securities credit market with more funds being offered market. including those available under programs of In 2011 the Bank expanded the range of international organizations, the Bank man- operations with gold offering its clients the aged to improve its year-end key perfor- opportunity to invest in unallocated metal mance indicators and reported a net income accounts. of AMD 1.2 billion. The Bank maintained its status of agent The Bank continued to develop increas- in the market of treasury bonds and acted as ing the quality and quantity of the provided a market maker of the securities issued by services, as well as developing and offering its clients. The Bank plans to continue be- its clients new products and services. ing proactive in the sphere of investments Based on the customers' demand, the through expanding operation volumes in bro- Bank introduced the new “Receivable financ- kerage services, including marginal transac- ing” and “Factoring-Guarantee” products in tions in the international markets, repurchase 2011, which became widely used among agreement transactions with foreign securi- suppliers. ties, operations with gold, including unallo- In 2011 the Bank developed and intro- cated metal accounts, etc., as well as devel- duced a new lending facility, “Purchase order oping new products. The Bank also plans to financing”. This product is not new to the in- develop and introduce new products, par- ternational market but is not used extensive- ticularly operations with foreign shares and ly in the local market as it's provided by only future agreements on the indices thereof. a few banks. This service soundly fits into The Bank plans to expand cooperation the framework of other corporate services with both existing and new partners empha- provided by the Bank and based on the level sizing cooperation with international organi- of demand, the amounts of such financing zations through involvement in lending and

2 other programs of the current partners as ARMSWISSBANK has entered a new well as establishing and developing further stage of development where accumulated cooperation with three more international expertise, acquired market position, repu- organizations within the coming 2-3 years. tation and qualified professional staff will The Bank continued cooperation with ensure a sustainable basis for further devel- the European Bank for Reconstruction and opment. Development (EBRD) receiving and entirely On behalf of ARMSWISSBANK Staff I disbursing the second tranche of the SME would like to extend our grateful acknowl- loan (USD 3 million) in 2011. The Bank in- edgement to our Clients, Partners, Board as tensively funded its customers' trade finance well as the Shareholder for the faith in our needs under the TFP line within the overall Bank, support and mutually beneficial coop- limit of USD 3 million. As a result, the above- eration. mentioned limit was mostly used up and an I would also like to express my trust and initial agreement was negotiated with EBRD profound gratitude to the Bank's personnel for extending it by another USD 2 million in for their devoted work. 2012. The Bank also continued cooperation with Factors Chain International (FCI) as well as German Armenian fund within the scope of SME lending and “Renewable Energy Development” programs. In 2011 the Bank actively worked towards increasing its mortgage loans portfolio both Gevorg Machanyan under the National Mortgage Company's Chairman of the Management Board program and from its own resources. Executive Director In 2011 the Bank signed two new agreements for USD 750 thousand and USD 1.3 million.

3 MAIN ACTIVITIES OF THE BANK

tional standards is one of the Bank’s main strategic directions. Hence, from the moment of its conception, the Bank has been actively promoting new investment services and making notable efforts to achieve leading position in this field. The Bank offers its customers a wide range of investment instruments, such as shares of American, Europe- an and Russian companies and investment funds, depositary receipts, government and corporate bonds, commodity futures as well as repo and marginal operations with foreign securities, transactions with gold including unallocated metal accounts, etc. Our clients can improve risk diversification and manage their cash flows more ef- ficiently through a variety of financial instru- Grigor Movsisyan ments including derivatives. Member of the Management Board In order to cope with new market chal- Financial Director lenges and successfully devise investment projects, ARMSWISSBANK offers underwrit- Remaining loyal to its policy, ARM- ing services to its corporate clients. SWISSBANK continues to evolve activities As one of the leaders in the Armenian in three main directions, namely, corporate, government securities market and a govern- investment and private banking, with the vi- ment securities agent of RA, ARMSWISS- sion to become the leading bank in Armenia BANK acts as a market maker to enhance in those areas. liquidity of the Armenian securities market. ARMSWISSBANK is distinguished by ARMSWISSBANK offers its clients tailor- the wide range of services provided to its made services, including development of corporate clients including both traditional individual, corporate and other types of (payment and settlement services, lending securities portfolios, brokerage, custodial services, flexible deposit schemes, trade and consulting services. The flexibility while finance, etc.) and non-traditional services (al- working with the clients is one of the key fac- ternative financing, factoring, forward, swap, tors for the progressive development of the option, financial consulting, etc.) Bank and promotion of ARMSWISSBANK Trade finance, factoring as well as com- brand. modity and financial futures are mainly de- ARMSWISSBANK develops long-term signed for clients engaged in importing and partner relations with its clients based on exporting activities to maintain their competi- close and mutually beneficial cooperation. tiveness in local and international markets The Bank’se professional, skilled and ex- and facilitate new markets penetration. perienced personnel identifies each client’s Investment banking attuned to interna- needs and offers quality financial solutions.

4 LENDING TO THE ECONOMY

SUMMARY STATISTICS

The Bank was rather active in the sphere of lending in 2011 continuing to develop further the achievments of the previous years. In 2011 the loan portfolio of the Bank grew by about 56.6% and interest income earned thereon increased by 30.1% (the growth of the same indicators over the previous year were 34.4% and 38.2% respectively).

Grigor Hovhannisyan Member of the Management Board Director of the Lending Department

Growth dynamics of the loan portfolio over the previous five years

billion AMD 20,2 20,0 18,0 16,0 14,0 12,9 12,0

10,0 9,6 8,0 6,5 6,0 3,3 2,0 0

2007 2008 2009 2010 2011

5 Growth dynamics of interest income from lending activities over the previous five years

AMD million

2.500,0

2.135,0 2.000,0

1.500,0 1.641,0

1.187,0 1.000,0 745,0 500 408,0 0

2007 2008 2009 2010 2011

CREDIT RISK MANAGEMENT

To manage credit risk the Bank always portfolio and its return. performs activities towards the diversification Below presented is the loan portfolio of the loan portfolio by geographical location diversified by geographical location and sec- and sectors of the economy. This allowed tors of the economy: to ensure the stable growth rate of the loan

Share in the lending portfolio Location of the borrowers' activity 31.12.09 31.12.10 31.12.11 Yerevan 46,0% 47,6% 50,0% Syunik 7,6% 9,4% 10,4% Vayots Dzor 4,4% 4,5% 4,9% Kotayk 17,0% 8,5% 4,6% Other regions of RA 6,0% 6,5% 7,4% NKR 19,0% 23,5% 22,0% Abroad 0,0% 0,0% 0,7%

0,7% Yerevan

7,4% NKR 4,6% 4,9% Syunik 10,4% Vayots Dzor 50,0% Kotayk 22,0% Other regions of RA Abroad

6 Sectors of the economy Share î» inë³ theÏ³ lendingñ³ñ Ïß ÇportfolioéÁ îÝ ï»ëáõÃÛ³Ý ×ÛáõÕ»ñ (including loans of the individuals) í³ñÏ³ÛÇÝ åáñïý»ÉáõÙ (³Û¹ ÃíáõÙ` ýÇ½ÇÏ³Ï³Ý ³ÝÓ³Ýó í³ñÏ»ñ) 31.12.09 31.12.10 31.12.11 31.12.09 31.12.10 31.12.11 Industry 54,2% 37,9% 38,4% ²ñ¹ÛáõÝ³µ»ñáõÃÛáõ Ý 54,2% 37,9% 38,4% Trade 16,9% 14,9% 14,9% ²é¢ïáõñ 16,9% 14,9% 14,9% Catering and other services 6,1% 6,5% 5,4% Ð³Ýñ³ÛÇÝ ëÝáõÝ¹ ¢ ëå³ë³ñÏÙ³Ý ³ÛÉ áÉáñï Ý»ñ 6,1% 6,5% 5,4% Agriculture 4,5% 2,7% 2,9% ¶ÛáõÕ³ïÝï»ëáõÃÛáõ Ý 4,5% 2,7% 2,9% Transport and communications 2,2% 3,8% 3,3% îñ³Ýëåáñï ¢ Ï³ å 2,2% 3,8% 3,3% Construction 1,3% 7,0% 7,5% ÞÇÝ³ñ³ñáõÃÛáõ Ý 1,3% 7,0% 7,5% Loans to individuals 8,8% 8,2% 9,5% üÇ½ÇÏ³Ï³Ý ³ÝÓ³Ýó í³ñÏ »ñ 8,8% 8,2% 9,5% Financial services 0,4% 8,6% 9,5% üÇÝ³Ýë³Ï³Ý Ñ³ïí³ Í 0,4% 8,6% 9,5% Other sectors of the economy 5,6% 10,4% 8,6% îÝï»ëáõÃÛ³Ý ³ÛÉ ×ÛáõÕ» ñ 5,6% 10,4% 8,6%

Structure of the loan portfolio by sectors of the economy as of 31.12.11 Industry Trade

14,9% Catering and

9,5% other services 38,4% Agriculture 8,6% Transport and communications 5,4% Construction 9,5% 3,3% 2,9% 7,5% Loans to individuals Financial sector Other sectors of the economy

It is worth mentioning, that 20% of the risks through cooperation with independant loan portfolio (and over 50% of the loans to specialists/consultants. the industry sector) comprises loans to the To increase the efficiency of the lending energy sector. procedure and mitigate the related risks the The significant share of investments in Bank realized a number of important activi- the energy sector, particularly in the renew- ties during the year. Particularly, the Monitor- able energy sector, is due to the intensive ing and internal control division was created activities of many years implemented by the in the Lending department, internal acts reg- Bank in this sphere and its strategic impor- ulating the lending procedure were reviewed, tance for the Republic of Armenia. control over the activities of the department The Bank actively participates in all avail- was strengthened. The abovementioned ac- able lending programs in this sphere, inter- tivities succeeded in significantly improving national and local business events and semi- the qualitative indicators of the loan portfolio, nars and periodically implements activities particularly the share of classified loans in towards training professionals and mitigating the total loan portfolio significantly decreased

7 amounting to 1.3% as of 31.12.2011 (as of ► “Atlantic Forfaitierungs AG”, a Swiss 31.12.2010 this indicator was 6.9%). company with which the Bank started coop- ertion in 2011. An agreement of financing for PARTICIPATION IN LOCAL AND INTERNA- the amount of USD 750,000 was approved TIONAL LENDING PROGRAMS for the Bank which allowed to offer its clients medium term loans for trade financing with The Bank highly prioritizes cooperation attractive terms. with international lending organizations since ► Small and Medium Entrepreneurship De- besides being a source of stable, long term velopment National Center of Armenia (SME and less expensive funds such cooperation DNC) with which the Bank cooperates since also enhances the professionalism of the 2009 and grants loans to those small and Bank’s staff and increases the Bank’s repu- medium Armenian enterprises which lack tation among investors and partners. The the security funds/collaterals necessary to Bank’s strategic partners from this perspec- support the requested loan amounts. If this tive are the following: is the case, SME DNC conducts necessary ► PMU of the German Armenian Fund with studies and extends funding to the Bank to which the Bank cooperates under 2 lending cover for the Bank’s credit risk. The organi- programs. The first is the “Renewable en- zation constantly improves the terms of its ergy development” program which the Bank services which promotes further expansion started in 2006 and is one of the leaders in of bilateral cooperation. the RA banking system. The second is the ► In 2011 the Bank reviewed its approaches “SME development” program in which the regarding some retail services, such as Bank started participation in 2009 and is an mortgage lending. This was mainly aimed at active and reliable partner as well. The Bank thoroughly meeting existing and potential cli- anticipates significant growth for both of the ents’ needs. However, in the highly competi- abovementioned programs throughout the tive environment in the financial sector, this next couple of years. task was impossible to accomplish by relying ► EBRD, with which the Bank started co- merely on the Bank’s own resources. As a operation since 2010 signing agreements result a decision was made to gain mem- of Small and Medium Enterprises (SME) bership to the mortgage loans refinancing financing for USD 5 million and Trade Facili- program of the ‘’National Mortgage Com- tation Programme (TFP) for USD 3 million. In pany’’ RCO CJSC which enabled the Bank 2011 the Bank almost entirely disbursed the to lend long term mortgage loans in AMD. As received funds and anticipates further ex- a result, the Bank’s mortgage loans portfolio pansion of cooperation in 2012 both through grew by 161.9% over the year amounting to attracting more funds and implementation of AMD 1,723.4 million at year end. new joint projects.

8 FACTORING AND TRADE FINANCE

FACTORING

In 2011 the Bank successfully maintained the steady growth rate of the factoring portfolio. During the reporting year, domestic factoring operations amounted to AMD 5.4 billion exceeding the previous year’s amount by 36%. In the meantime income received on factoring operations increased by 44%.

Gevorg Khachatryan Member of the Management Board Director of Customer Service Department

Domestic Factoring turnover

billion AMD

5,4

3,9

2,7

1,6

0,3

The Receivable Financing (closed-end pected to intensify in 2012. factoring) service which the Bank introduced In 2011 the Bank significantly diversified by the end of 2010 significantly contributed its factoring portfolio attracting new borrow- to the increase in the amount of factoring ers from new sectors of the economy. The operations during the reporting year. In 2011 year-end structure of the factoring portfolio a new factoring service was designed and by sectors of the economy (by borrowers) is introduced to the client, namly, the Factoring- presented below. Guarantee, operations with which are ex-

9 Structure of domestic factoring portfolio by sectors of the economy 2,0% Trade 4,0% 11,0% Energy 32,0% Food 16,0% Construction Transportation 17,0% 18,0% Light industry Other sectors The number of clients using the Bank’s dynamics of the factoring clients and borrow- factoring services at year end amounted to ers is presented below. 57 and the number of borrowers was 22. The

The dynamics of the factoring clients and borrowers

44 38

24 22 20 15 10

Number of Clients Number of borrowers

OTHER INSTRUMENTS OF TRADE FINANCE

In 2011 the Bank further expanded co- new clients. Particularly, the Bank was more operation with EBRD under the Trade fa- active in the sphere of financing importing cilitation program financing international operations within the scope of the Revolving trade operations, issuing letters of credit and credit agreement signed with EBRD. Since guarantees. The Bank also started coopera- the limit allowed by EBRD under the Trade tion with Atlantic Forfaitierungs AG within the facilitation program has been almost entirely scope of financing international trade opera- used up, it is expected to be increased in tions which is expected to expand further in 2012. The amount of international trade fi- 2012. nancing operations for 2011 was about USD Cooperation with international organiza- 4.1 million in contrast to the USD 2.5 million tions allowed the Bank to offer trade finance for the previous year. facilities under competitive terms and attract

10 INVESTMENT BANKING SERVICES

the entire placement on the secondary /B/ platform of “NASDAQ OMX ARMENIA” stock exchange. Besides the range of core underwriting services the Bank also ensures the liquidity of “ARTSAKH HEK” OJSC’s shares in the secondary market making two-sided quotations in the “NASDAQ OMX ARMENIA” stock exchange and acting as a market maker for the Company. In 2011 the Bank intermedi- ated 28 transactions with the Company’s shares for an amount of AMD 36 million which account for 18% of the total exchange operations with stocks. Regarding the corporate bonds market it is worth mentioning that the high returns of the government bonds were a major detrac- Karen Turyan tion to the issuance of corporate bonds. Member of the Management Board Given the vast availability of cheaper credit Director of the Investment Department resources, the attractiveness of coporate bonds as a financing instrument was dimin- ished. CORPORATE SECURITIES As a result, the Bank did not organize UNDERWRITING any placements of corporate bonds in 2011. However, the Bank continued servicing the In 2011 the Bank’s major achievement retirements and coupon payments of the in the primary market of corporate securi- already issued bonds. Particularly, payments ties was the placement of the third additional of the principal amounts and coupon pay- issuance of “ARTSAKH HEK” shares for an ments of “ARMRUSGASPROM” CJSC’s and amount of AMD 3,649,597,860. ARMSWISS- “Valletta” Ltd’s CJSC’s third issuances were BANK acted as an underwriter and settle- made assisting the issuers and providing ment bank. The Bank succeeded in allocat- settlement banking services. ing 3,287,926 ordinary nominal shares. This During the reporting year the Bank con- was the largest IPO ever in the history of the tinued quoting its placements of corporate Armenian corporate securities market. bonds in ARMSWISSBANK’s offcial ASWI In fact, 69% of the placement (around web-page at Bloomberg international infor- AMD 2.5 billion) were purchased by foreign mation system. investors. The placement was implemented In 2011 the Bank continued providing in two stages: via exercising preemptive consulting services to its corporate clients re- rights by the existing shareholders to pur- garding capital structure, corporate strategy, chase shares and open subscription. The restructuring and other issues. Bank assisted the Company in the process- es of registering the shareholders’ ownership rights of the shares with the RA Central De- DEALING ACTIVITIES pository and ARMSWISSBANK and trans- fering the shares to the owners’ personal In 2011 the Bank continued to actively accounts. Starting from December 27th of implement operations with RA government 2011 the Bank also organized the listing of and corporate securities in the domestic

11 financial market. amounted to AMD 165 billion. This indicator During the reporting year the Bank’s is 30% more then that of the previous year operations in the primary market amounted and was mainly directed to increasing the to over AMD 18 billion in nominal value, and Bank’s investment portfolio. over AMD 19 billion in the secondary market. To increase its invetment portfolio the It was not a coincidence that the Bank was Bank purchased government securities for a recognized the best in commercial banks’ ac- nominal value of about AMD 14.2 billion from tivity in RA government securities market as government securities initial allocation auc- well as in corporate debt market nominations tions in 2011. This indicator is about twice by “ARMINFO” independent rating agency. more than that of the previous year due to Operations with corporate bonds de- both the Bank’s active participation to the creased since due to post-crisis issues, repurchases organized by the RA ministry of particulary the fact that bond yeilds are now finance selling bonds for an amount of AMD higher than loan interest rates availble to the 4 billion and in the secondary market, selling companies in the real sector of the economy, bonds for AMD 5 billion more then the pur- there were no new issuances of corporate chased amount. As a result, taking also into bonds. The obove mentioned situation has consideration the retirements of the bonds, adversely effected the attractiveness of issu- the Bank’s portfolio of government securities ing corporate bonds. increased by about AMD 4.6 billion in nomi- To promote the development of the RA nal value. Interest income on the bond port- stock market, and increase liquidity of “Art- folio increased by 30 percent as compared sakh HEK” OJSC’s shares, in 2011 the Bank to 2010 results, amounting to AMD 1,757 provided two-sided quotations for those million and income from trade of bonds stocks implementing buy/sell transactions increased by more than 55% during the year with about 31,727 stocks (for the amount of amounting to AMD 61 million. In 2011 the AMD 35,357,070). Bank maintained its status of treasury bonds In 2011 the Bank continued allocating market agent. funds with its clients and attracting from oth- The structure and income dynamics of er financial institutions through repo agree- the Bank’s investment portfolio is presented ments. Operations with the said instrument below:

The Structure and Income Dynamics of the Bank's Investment Portfolio

billion AMD ÙÉÝ ÐÐ ¹ñ³Ù

1.800,0

1.600,0

1.400,0

1.200,0

1.000,0

800,0

600,0

400,0

200,0

Investments in government bonds Interest income Investments in corporate bonds and shares Operating net income

12 In 2011 the Bank continued participating BROKERAGE ACTIVITY in foreign currency auctions at “NASDAQ OMX ARMENIA” stock exchange, imple- Investment banking including brokerage mented buy and sell operations totaling to services is considered one of the Bank’s about AMD 128 billion with the main convert- main strategic activities and is carried out in ible currencies in the interbank forex market. accordance with the international standards. During the year the Bank continued the Within the scope of its brokerage activities extensive use of foreign currency swaps, the Bank offers its clients a wide variety of implementing transactions in the interbank investment instruments, such as shares and market for around AMD 51 billion. depository receipts of American, European It is also worth mentioning that during the and Russian companies, government and reporting year, the Bank implemented swap corporate securities, commodity futures, and forward transactions also with its clients repo operations with foreign securities and (excluding interbank transactions) amounting marginal operations. to AMD 1 billion and AMD 53 million respec- In 2011 the Bank had a number of signifi- tively. cant achievements in the sphere of invest- In 2011 the Bank continued active opera- ment services. The number of the Bank’s tions in the domestic market of precious met- brokerage clients increased by 13% com- als maintaining a leading position in the RA pared to the previous year. Operations were financial system with the largest share of the implemented with shares and depository total operations with precious metals. During receipts of leading companies trading on the year the Bank implemented buy and sell foreign stock exchanges. transactions with precious metals for around The total number of brokerage transac- AMD 25.5 billion. From the second semester tions with foreign securities implemented of 2011 the Bank also started providing its upon the orders of the Bank’s clients during clients services with unallocated metal ac- 2011 was 1,137 for an amount of AMD 10.9 counts, operations with which amounted to billion which exceeded the previous year’s AMD 233.5 by year end. indicator by around 75%. Major part of this ARMSWISSBANK is one of the few amount, namely AMD 10.8 billion is attribut- banks in Armenia that provide quotations ed to the brokerage transactions with foreign for AMD, RA government bonds, currency securities. forwards and deposits in Reuters system as In 2011 the Bank also had active partici- well as quotations for AMD, major curren- pation in the auctions at corporate securities cies, RA government and corporate bonds, platforms of the “NASDAQ OMX ARMENIA” foreign currency forwards, interbank deposit stock exchange. Transactions with corporate and repurchase agreement rates at the of- bonds implemented at NASDAQ OMX AR- ficial web page of the Bank at Bloomberg MENIA upon customers’ orders amounted information system. to AMD 32 million. As a result, the Bank The Bank is active both in RA (attracting received commissions for an amount of AMD and allocating short and medium term de- 10.8 from brokerage transactions in 2011 posits and loans) and international money which exceeds the previous year’s amount markets, making deposits with leading by 27%. foreign banks. Overall deposits and loans In 2011 the Bank also offered its clients amounted to AMD 12 billion and AMD 25 bil- repo transactions with foreign securities lion respectively. which amounted to AMD 2.2 billion in contrast to the amount of AMD 2.1 billion for the

13 previous year. Return on the said operations actions for an amount of AMD 1.4 billion dur- was AMD 3.4 million for the reporting year. ing the year, from which the Bank received In 2011 the Bank started implementing AMD 2.8 million income. marginal transactions with foreign securities The dynamics of the amounts of and which allows additional financing to the cli- income recieved on investment services pro- ents to purchase securities. As a result, the vided by the Bank are presented below: Bank’s clients implemented marginal trans-

Dynamics of the Amounts and Income of Investment Operations (million AMD)

Brokerage operations Income on brokerage operations Repo operations Income on Repo operations Marginal operations Income on marginal operations

14 INFORMATION TECHNOLOGIES AND SECURITY

The new Intrusion Prevention systems was installed. To make local networks more secure and manageable certain monitoring systems were installed. All of the abovementioned activities were aimed to increase the consistency of the systems operating in the Bank. Swift Alliance software of the SWIFT international payment and settlement system was updated from Release 6 to Release 7, which has a number of advantages compared to the previous version. A number of operations in the Bank were automated to reduce the human risk factor. AS-Internet Bank system was installed in the Bank in 2011 which allows the Bank’s customers to remotely use the Bank’s ser- Manvel Khachiyan vices, that is, from any place, at any time Director of the Information without visiting the Bank and without signifi- Technologies Department cant expenses, via the internet. To ensure the security of the Bank’s web site the cer- tificates of the globally recognized VeriSign ARMSWISSBANK always improves IT company were applied. infrastructure and will continue ensuring the In 2011 the Bank installed relevant net- consistency of information and infrastructure work devices which allowed to physically constantly introducing new technologies. separate one network from the other in the In 2011 the Bank implemented a number Bank increasing the productivity and security of activities to increase security guided by of the network. In 2011 risk mitigation re- the international COBIT, ISO 27001, ISO mained one of the Bank’s primary objectives 17799 standards. Particularly, several se- the main directions of which are interchange- curity related regulations were regrouped, ability (of persons and systems) and cor- user access levels were revised, information respondence of information technologies to technologies were monitored and research international standards (COBIT, ISO 27001) studies were conducted. and application thereof.

15 RISK MANAGEMENT

the Bank’s exposure to credit, market and other risks. The Bank has a separate Risk Manage- ment Division, which is independent from operational units and exercises daily and periodic control over the Bank’s operations through examining risk bearing transactions and monitoring the compliance with the set benchmarks and internal normatives of the Bank. An effective system of credit, market, liquidity and operational risk management is applied in the Bank based on modern methods and technologies of risk assessment and mitigation. The Bank periodically reviews the existing guidelines and limits of investment benchmarks adjusting them to the situation Siranush Torgomyan of local and international financial markets. Head of the Risk Management Division Stress test models are periodically exercised for observing the risks typical of the Bank. The Bank’s management has always The Bank uses methodological guidelines prioritized the effiency and consistancy of for credit risk assessment. The tools that are risk management mechanisms. The Bank’s made available by foreign partners are used Board, the Management Board, the Execu- to hedge the foreign currency risk and limits tive Director as well as each employee of the are defined for derivatives according to the Bank are involved in the risk management regulation enforced in the Bank. One of the process. Risk analysis is a vital component key elements of interest rate risk manage- of the Bank’s strategic planning process as ment, namely the maturity GAP model, is well as the assessment and implementation used for market risk assessment. of short and medium term projects. For the puprose of managing operational Collective decision-making and consul- risk and reducing possible losses, the Bank tative bodies operate in the Bank, namely, has insurance packages, namely, the Bank- the Management Board, Credit, Investment, ers Blanked Bond Policy and Building and Assets and Liabilities Management, Com- Property insurance. pliance and Client Relations Management The Bank implements detailed examina- committees. The risk management process tion of its clients, partners and beneficiar- is regulated by the Board, which establishes ies within the framework of its Anti-Money limits, benchmarks, investment guidelines, Laundering and Counter-Terrorism Financ- criteria of selecting borrowers and partners, ing policy which complies with international collateral requirements, etc., which reduce standards.

16 INTERNAL AUDIT

complicance of the Bank’s activity to the RA legislation, legal requirements of the CBA and internal regulations of the Bank. The Internal Audit acts according to its annual work plan approved by the Bank’s Board carrying out both planned examinations and initiating examinations at its own discretion. To improve the Bank’s internal control system the Internal Audit closely cooperates with the Bank’s governing bodies and structural units. It is worth mentioning, that in 2011the Internal Audit has completely fulfilled the the planned activities approved by the Bank’s Board. In 2011 the Internal Audit cooperated with EBRD’s consultants to study the international practice in the field of internal audit Arkadi Pinachyan and improve internal control mechanisms in Head of Internal Audit the Bank. Methods of risk identification and assessment as well as their application in the Bank were discussed. The Internal Audit also studies the risks Based on the Bank’s experience in the related to the Bank’s activity, evaluates field of internal audit and experts’ conclu- whether the internal control mechanisms for sions, internal legal acts regulating internal the reduction and prevention of such risks audit activities were reviewed and are sufficient and effective, and monitors the ammended.

17 HUMAN RESOURCE MANAGEMENT

employees). As of December 31, 2011, the number of the Bank’s employees was 91, and the average age was 31. The Bank prioritizes the continuous training of its personnel to ensure awareness of the changing legislation, new technologies, cooperation mechanisms with institutional partners, etc. During the reporting year 42 employees of the Bank participated in 57 seminars, presentations and conferences in the Repub- lic of Armenia and 5 employees participated in conferences and trainings abroad. Fur- thermore, 32 internal seminars were organized in the Bank. In 2011 two employees of the Bank successfully took the exams of the training Kristina Dadayan program in trade finance organised jointly by Head of Administration the European Bank for Reconstruction and Development (EBRD) and the International Chamber of Commerce (ICC). Human resources management policy A number of analytical papers were pre- aims to ensure the conformity of human sented by the Bank’s employees on issues resource management quality with interna- related to the Bank. tional standards and creating favorable envi- Around 80% of the employees participat- ronment for the employees’ responsible and ed in the health insurance package offered creative work. Particularly, the Bank prioritiz- within the scope of the Bank’s social policies es employees’ career advancement creating during the reporting year. all necessary conditions for their professional Corporate events, parties and hikings growth, acquisition of new skills and knowl- were organized for the Bank’s employees. edge, as well as for social welfare. Together All these events contributed to strengthen- with the expansion of the Bank’s operations ing interpersonal relationships among the the staff and it’s structure has also changed. employees creating a strong team spirit and In 2011 the Bank recruited both experienced an atmosphere of cooperation and mutual and young professionals (15 new respect.

18 PROJECT PROJECT ADMINISTRATION LENDING DIVISION FINANCING DIVISION LENDING DEPARTMENT PROCESSING AND REPORTING DIVISION AND REPORTING PROCESSING MONITORING AND INTERNAL CONTROL DIVISION CONTROL AND INTERNAL MONITORING INTERNAL AUDIT INTERNAL RISK MANAGEMENT DIVISION RISK MANAGEMENT BUSINESS INVESTMENT INVESTMENT DEPARTMENT DEPARTMENT DEVELOPMENT DEVELOPMENT AS OF 31.12.2011 FINANCIAL DIRECTOR FINANCIAL MANAGEMENT BOARD MANAGEMENT SUPERVISORY BOARD SUPERVISORY EXECUTIVE DIRECTOR ORGANIZATIONAL CHART ORGANIZATIONAL VAULT “ARMSWISSBANK” CJSC CORPORATE CORPORATE DEPARTMENT SHAREHOLDERS GENERAL MEETING SHAREHOLDERS GENERAL SERVICE DIVISION SERVICE CUSTOMER SERVICE SERVICE CUSTOMER OPERATIONAL DIVISION OPERATIONAL LEGAL DIVISION LEGAL INFORMATION INFORMATION ACCOUNTING AND ACCOUNTING AND MANAGEMENT DIVISION MANAGEMENT REPORTING DIVISION REPORTING AND DOCUMENTARY AND DOCUMENTARY SECURITY AND SECURITY HOUSEHOLD TECHNOLOGIES DEPARTMENT TRANSACTIONS DIVISION REPORTING DEPARTMENT REPORTING CORRESPONDENT RELATIONSHIP RELATIONSHIP CORRESPONDENT

19 MARKETING

es were placed on a number of specialized web sites with links to the Bank’s web page. In 2011 the Bank implemented marketing activities in RA and abroad, particularly in Marseille, France to promote the allocation of the 3rd issue of “Artsakh HEK” OJSC’s shares by attracting investors. Also banner stands with information about the Bank’s services were designed and printed for using at Expos and advertising at large business centers. In 2011 the Bank updated the design and content of the booklets presenting its products and services. Also, new booklets were designed and printed to present the new services offered by the Bank. The Bank also implemented marketing researches, studies Hayk Mkrtchyan on RA banking market, services offered by Director of the Business the competitors, fees and interest rates and Development Department developed its own tariff policy. In 2011 the Bank also created a movie about the seven years of its activity and the In 2011 the Bank intensified activities main achievements throughout these years. towards the promotion of both existing and The Bank carried out activities among the new products. target groups of clients directed to reveal the In 2011 the Bank thoroughly changed the unrecognized needs of the clients, establish design and structure of its web site making it effective contact with them, gradually intro- more informative and attractive. The web site duce private banking services, apply new provides information on the Bank’s business technologies of providing services, diversify philosophy, principal values, provided ser- the services provided to each of the Bank’s vices, the Bank’s administration as well as clients. The Bank continued to effectively use other necessary information on the Bank’s “direct marketing” to attract new clients. activity and on the main instruments of lo- A significant number of meetings and cal and international markets. During 2011 seminars were organized to increase public e-marketing activities were intensified, ban- recognition and attract new clients. ner-advertisements about the Bank’s servic-

20 FINANCIAL RESULTS

ARMSWISSBANK completed the sev- enth year of its activity with a substantial growth in all key performance indicators. During the reporting year the Bank’s assets increased by AMD 12.8 billion or by 36% compared with the previous period amounting to AMD 47.9 billion. Also there were some changes within the structure of the assets. Loans to customers increased by AMD 8.8 billion, securities pledged under repurchase agreements (sold under the condition of buying back) have increased by AMD 6.1 billion. Loans comprise a large portion of the assets, namely, 46%, securities account for 33%, the share of interbank deposits is 9% and the outstanding balance of the correspondent accounts with the CBA Sedrak Baghdasaryan is 11% of the total assets which is explained Member of the Management Board by the large amounts of market instruments Director of the Accounting and (international loans, repurchase agreements, Reporting Department etc.) which require high liquidity. Chief Accountant

The Structure and Dynamics of the Assets

ÙÉÝ ÐÐ ¹ñ³Ù billion AMD

50,0

40,0

30,0

20,0

10,0

2005 2006 2007 2008 2009 2010 2011

Other Assets Money Market Securities Portfolio Loan Portfolio

21 Total liabilities of the Bank have in- changed. Amounts due to financial institu- creased by AMD 11.4 billion or by 43% tions increased by AMD 800.0 million. during the reporting year amounting to AMD Liabilities to legal entities and individuals 37.5 billion. increased by AMD 3.7 billion. The structure of the liabilities has also

The Structure and Dynamics of the Liabilities

billion AMD 40,0

35,0

30,0

25,0

20,0

15,0

10,0

5,0

2005 2006 2007 2008 2009 2010 2011

Other liabilities Resources attracted from clients Resources attracted from financial institutions

Net interest income has increased by retained profit as of December 31, 2011 ac- 26% or AMD 555 million during the reporting crued from the moment the Bank was found- period amounting to AMD 2.3 billion. Income ed amounted to more than AMD 2.2 billion, on loans and securities have comprised 95% without accounting for the provisions to the of the total interest income. general reserve for an amount of AMD 1.0 In 2011 the Bank’s net profit was about billion. Total capital of the Bank amounted to AMD 1.2 billion. Compared to 2010, net about AMD 10.5 billion at the end of 2011, profit increased by AMD 246 million which is increasing by 18% compared to the previous mainly a result of increase in both the Bank’s year due to the amount of the profit made in income bearing assets and the annual return the reporting period. on RA government securities. As a result, the

22 Dynamics of the annual profit and indicators of profitability

million AMD

1250 14 %

1150

1050 12 %

950 10 % 850

750 8 % 650

550 6 % 450

350 4 % 250

150 2 % 50

0 0 %

(50) -2 % 2005 2006 2007 2008 2009 2010 2011

Annual Profit ROE ROA

2 2

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ManagementÙ³ëÇÝ, ë»÷³Ï³Ý is responsible Ï³åÇï³ÉáõÙ for the preparation ÷á÷áËáõÃÛáõÝÝ»ñÇ and fair presentation Ù³ëÇÝ ¨ ¹ñ³Ù³Ï³Ý of these financial ÙÇçáóÝ»ñÇ statements 2424 February, February,Ù³ëÇÝ,Ù³ëÇÝ, 20 20 12ë»÷³Ï³Ý 12ë»÷³Ï³Ý Ï³åÇï³ÉáõÙ Ï³åÇï³ÉáõÙ ÷á÷áËáõÃÛáõÝÝ»ñÇ ÷á÷áËáõÃÛáõÝÝ»ñÇ Ù³ëÇÝ Ù³ëÇÝ ¨ ¨¹ñ³Ù³Ï³Ý ¹ñ³Ù³Ï³Ý ÙÇçáóÝ»ñÇ ÙÇçáóÝ»ñÇ Ñáëù»ñÇ Ù³ëÇÝ ³Ù÷á÷ Ñ³ßí»ïíáõÃÛáõÝÝ»ñÁ` ù³Õí³Í §²ñÙëíÇë³ÝÏ¦ ö´À-Ç 2011Ã. Ñáëù»ñÇÑáëù»ñÇ Ù³ëÇÝ Ù³ëÇÝ ³Ù÷á÷ ³Ù÷á÷ Ñ³ßí»ïíáõÃÛáõÝÝ»ñÁ` Ñ³ßí»ïíáõÃÛáõÝÝ»ñÁ` ù³Õí³Í ù³Õí³Í §²ñÙëíÇë §²ñÙëíÇë³ÝÏ¦³ÝÏ¦ ö´À-Ç ö´À-Ç 2011Ã. 2011Ã. in accordance with International Financial Reporting Standards, and for such internal control as Yerevan Yerevan ¹»Ïï»Ù»ñÇ 31-Ç ¹ñáõÃÛ³Ù ³í³ñïí³Í ï³ñí³ ³áõ¹Çïáñ³Ï³Ý ëïáõ·áõÙ ³Ýó³Í ¹»Ïï»Ù¹»Ïï»Ù»ñÇ»ñÇ 31-Ç 31-Ç ¹ñáõÃÛ³Ù ¹ñáõÃÛ³Ù ³í³ñïí³Í ³í³ñïí³Í ï³ñí³ ï³ñí³ ³áõ¹Çïáñ³Ï³Ý ³áõ¹Çïáñ³Ï³Ý ëïáõ·áõÙ ëïáõ·áõÙ ³Ýó³Í ³Ýó³Í management determines is necessary to enable the preparation of financial statements that are free ýÇÝ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇó: Ø»Ýù ³Û¹ Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ í»ñ³»ñÛ³É 24 ýÇÝ³Ýë³Ï³ÝýÇÝ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇó: Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇó: Ø»Ýù Ø»Ýù ³Û¹ ³Û¹ Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ í»ñ³ í»ñ³»ñÛ³É»ñÛ³É 24 24 from material misstatement, whether due to fraud or error. ÷»ïñí³ñÇ 2012Ã-Ç Ù»ñ »½ñ³Ï³óáõÃÛáõÝáõÙ ³ñï³Ñ³Ûï»É »Ýù ãÓ¨³÷áËí³Í ÷»ïñí³ñÇ÷»ïñí³ñÇ 2012Ã-Ç2012Ã-Ç Ù»ñÙ»ñ »½ñ³Ï³óáõÃÛáõÝáõÙ»½ñ³Ï³óáõÃÛáõÝáõÙ ³ñï³Ñ³Ûï»É³ñï³Ñ³Ûï»É »Ýù»Ýù ãÓ¨³÷áËí³ÍãÓ¨³÷áËí³Í ³áõ¹Çïáñ³Ï³Ý »½ñ³Ï³óáõÃÛáõÝ: ³áõ¹Çïáñ³Ï³Ý³áõ¹Çïáñ³Ï³Ý »½ñ³Ï³óáõÃÛáõÝ: »½ñ³Ï³óáõÃÛáõÝ: Auditor’s Responsibility

²Ù÷á÷ ýÇÝ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÁ ã»Ý å³ñáõÝ³ÏáõÙ áÉáñ ²Ù÷á÷²Ù÷á÷ ýÇÝ³Ýë³Ï³ÝýÇÝ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÁÑ³ßí»ïíáõÃÛáõÝÝ»ñÁ ã»Ýã»Ý å³ñáõÝ³ÏáõÙå³ñáõÝ³ÏáõÙ áÉáñáÉáñ Our ³ó³Ñ³ÛïáõÙÝ»ñÁ,responsibility is to expressáñáÝù anå³Ñ³ÝçíáõÙ opinion on these»Ý financüÇÝ³Ýë³Ï³Ýial statements Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ based on our audit. We ³ó³Ñ³ÛïáõÙÝ»ñÁ,³ó³Ñ³ÛïáõÙÝ»ñÁ, áñáÝùáñáÝù å³Ñ³ÝçíáõÙå³Ñ³ÝçíáõÙ »Ý»Ý üÇÝ³Ýë³Ï³ÝüÇÝ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇÑ³ßí»ïíáõÃÛáõÝÝ»ñÇ conductedÙÇç³½·³ÛÇÝ our auditëï³Ý¹³ñïÝ»ñáõÙ in accordance with (üÐØê): International Ð»ï¨³ Standards³ñ, ³Ù÷á÷on Auditing. ýÇÝ³Ýë³Ï³Ý Those standards ÙÇç³½·³ÛÇÝÙÇç³½·³ÛÇÝ ëï³Ý¹³ñïÝ»ñáõÙëï³Ý¹³ñïÝ»ñáõÙ (üÐØê):(üÐØê): Ð»ï¨³Ð»ï¨³³ñ,³ñ, ³Ù÷á÷³Ù÷á÷ ýÇÝ³Ýë³Ï³ÝýÇÝ³Ýë³Ï³Ý requireÑ³ßí»ïíáõÃÛáõÝÝ»ñÇ that we comply withÁÝÃ»ñóáõÙÁ ethical requirements ãÇ ÷áË³ñÇÝáõÙ and plan and§²ñÙëíÇë perform³ÝÏ¦ the auditö´À-Ç to obtain Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇÑ³ßí»ïíáõÃÛáõÝÝ»ñÇ ÁÝÃ»ñóáõÙÁÁÝÃ»ñóáõÙÁ ãÇãÇ ÷áË³ñÇÝáõÙ÷áË³ñÇÝáõÙ §²ñÙëíÇë§²ñÙëíÇë³ÝÏ¦³ÝÏ¦ ö´À-Çö´À-Ç reasonable³áõ¹Çïáñ³Ï³Ý assurance ëïáõ·áõÙ about whether ³Ýó³Í the ýÇÝ³Ýë³Ï³Ý financial statements Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ are free from materialÁÝÃ»ñóÙ³ÝÁ: misstatement. ³áõ¹Çïáñ³Ï³Ý³áõ¹Çïáñ³Ï³Ý ëïáõ·áõÙ ëïáõ·áõÙ ³Ýó³Í ³Ýó³Í ýÇÝ³Ýë³Ï³Ý ýÇÝ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ ÁÝÃ»ñóÙ³ÝÁ: ÁÝÃ»ñóÙ³ÝÁ:

²Ù÷á÷ ýÇ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ ÝÏ³ïÙ³Ù Õ»Ï³í³ñáõÃÛ³Ý ²Ù÷á÷²Ù÷á÷ ýÇ³Ýë³Ï³ÝýÇ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇÑ³ßí»ïíáõÃÛáõÝÝ»ñÇ ÝÏ³ïÙ³ÙÝÏ³ïÙ³Ù Õ»Ï³í³ñáõÃÛ³ÝÕ»Ï³í³ñáõÃÛ³Ý An å³ï³ëË³Ý³ïíáõÃÛáõÝÁaudit involves performing procedures to obtain audit evidence about the amounts and å³ï³ëË³Ý³ïíáõÃÛáõÝÁå³ï³ëË³Ý³ïíáõÃÛáõÝÁ disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, includinÔ»Ï³í³ñáõÃÛáõÝÁg the assessment å³ï³ëË³Ý³ïáõof the risks of material ¿ misstatement³áõ¹Çïáñ³Ï³Ý of the financialëïáõ·áõÙ statements, ³Ýó³Í whether Ô»Ï³í³ñáõÃÛáõÝÁÔ»Ï³í³ñáõÃÛáõÝÁ å³ï³ëË³Ý³ïáõå³ï³ëË³Ý³ïáõ ¿ ¿ ³áõ¹Çïáñ³Ï³Ý³áõ¹Çïáñ³Ï³Ý ëïáõ·áõÙëïáõ·áõÙ ³Ýó³Í³Ýó³Í dueýÇÝ³Ýë³Ï³Ý to fraud or error. Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ In making those ³Ù÷á÷ risk assessments, å³ïñ³ëïÙ³Ý the auditorÑ³Ù³ñ: considers internal control ýÇÝ³Ýë³Ï³ÝýÇÝ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ ³Ù÷á÷ ³Ù÷á÷ å³ïñ³ëïÙ³Ý å³ïñ³ëïÙ³Ý Ñ³Ù³ñ: Ñ³Ù³ñ: relevant to the entity’s preparation and fair presentation of the financial statements in order to design²áõ¹ÇïáñÇ audit procedures å³ï³ëË³Ý³ïíáõÃÛáõÝÁ that are appropriate in the circumstances, but not for the purpose of ²áõ¹ÇïáñÇ²áõ¹ÇïáñÇ å³ï³ëË³Ý³ïíáõÃÛáõÝÁ å³ï³ëË³Ý³ïíáõÃÛáõÝÁ expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluatingØ»ñ å³ï³ëË³Ý³ïíáõÃÛáõÝÝthe appropriateness of accounting ¿, ÑÇÙÝí»Éáí policies used Ù»ñand theÏáÕÙÇó reasonableness Çñ³Ï³Ý³óñ³Í of accounting Ø»ñØ»ñ å³ï³ëË³Ý³ïíáõÃÛáõÝÝå³ï³ëË³Ý³ïíáõÃÛáõÝÝ ¿,¿, ÑÇÙÝí»ÉáíÑÇÙÝí»Éáí Ù»ñÙ»ñ ÏáÕÙÇóÏáÕÙÇó Çñ³Ï³Ý³óñ³ÍÇñ³Ï³Ý³óñ³Í ÁÝÃ³ó³Ï³ñ·»ñÇ íñ³, ³ñï³Ñ³Ûï»É »½ñ³Ï³óáõÃÛáõÝ ³Ù÷á÷ ýÇÝ³Ýë³Ï³Ý ÁÝÃ³ó³Ï³ñ·»ñÇÁÝÃ³ó³Ï³ñ·»ñÇ íñ³,íñ³, ³ñï³Ñ³Ûï»É³ñï³Ñ³Ûï»É »½ñ³Ï³óáõÃÛáõÝ»½ñ³Ï³óáõÃÛáõÝ ³Ù÷á÷³Ù÷á÷ ýÇÝ³Ýë³Ï³ÝýÇÝ³Ýë³Ï³Ý estimates made by management, as well as evaluating the overall presentation of the financial Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ í»ñ³»ñÛ³É` ³áõ¹ÇïÇ ÙÇç³½·³ÛÇÝ ëï³Ý¹³ñï 810 §²Ù÷á÷ Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇÑ³ßí»ïíáõÃÛáõÝÝ»ñÇ í»ñ³í»ñ³»ñÛ³É`»ñÛ³É` ³áõ¹ÇïÇ³áõ¹ÇïÇ ÙÇç³½·³ÛÇÝÙÇç³½·³ÛÇÝ ëï³Ý¹³ñïëï³Ý¹³ñï 810810 §²Ù÷á÷§²Ù÷á÷ statements. ýÇÝ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇ í»ñ³»ñÛ³É ³áõ¹Çïáñ³Ï³Ý »½ñ³Ï³óáõÃÛ³Ý ýÇÝ³Ýë³Ï³ÝýÇÝ³Ýë³Ï³Ý Ñ³ßí»ïíáõÃÛáõÝÝ»ñÇÑ³ßí»ïíáõÃÛáõÝÝ»ñÇ í»ñ³í»ñ³»ñÛ³É»ñÛ³É ³áõ¹Çïáñ³Ï³Ý³áõ¹Çïáñ³Ï³Ý »½ñ³Ï³óáõÃÛ³Ý»½ñ³Ï³óáõÃÛ³Ý ÝÏ³ïÙ³Ù ÏÇñ³éíáÕ ³é³ç³¹ñ³ÝùÝ»ñ¦ ëï³Ý¹³ñïÇÝ Ñ³Ù³å³ï³ëË³Ý: ÝÏ³ïÙ³ÙÝÏ³ïÙ³Ù ÏÇñ³éíáÕ ÏÇñ³éíáÕ ³é³ç³¹ñ³ÝùÝ»ñ¦ ³é³ç³¹ñ³ÝùÝ»ñ¦ ëï³Ý¹³ñïÇÝ ëï³Ý¹³ñïÇÝ Ñ³Ù³å³ï³ëË³Ý: Ñ³Ù³å³ï³ëË³Ý:

²áõ¹Çï, Ð³ñÏ»ñ, ÊáñÑñ¹³ïíáõÃÛáõÝ ²áõ¹Çï,²áõ¹Çï, Ð³ñÏ»ñ, Ð³ñÏ»ñ, ÊáñÑñ¹³ïíáõÃÛáõÝ ÊáñÑñ¹³ïíáõÃÛáõÝ ²áõ¹Çï, Ð³ñÏ»ñ, ÊáñÑñ¹³ïíáõÃÛáõÝ ²áõ¹Çï,²áõ¹Çï, Ð³ñÏ»ñ, Ð³ñÏ»ñ, ÊáñÑñ¹³ïíáõÃÛáõÝ ÊáñÑñ¹³ïíáõÃÛáõÝ Audit, Tax, Advisory Audit,Audit, Tax, Tax, Advisory Advisory Audit, Tax, Advisory Audit,Audit, Tax, Tax, Advisory Advisory ¶ñ³ÝÃ ÂáñÝÃáÝ ÆÝÃ»ñÝ»ßÝÉÇ ³Ý¹³Ù ¶ñ³ÝÃ¶ñ³ÝÃ ÂáñÝÃáÝ ÂáñÝÃáÝ ÆÝÃ»ñÝ»ßÝÉÇ ÆÝÃ»ñÝ»ßÝÉÇ ³Ý¹³Ù ³Ý¹³Ù ¶ñ³ÝÃ ÂáñÝÃáÝ ÆÝÃ»ñÝ»ßÝÉÇ ³Ý¹³Ù ¶ñ³ÝÃ¶ñ³ÝÃ ÂáñÝÃáÝ ÂáñÝÃáÝ ÆÝÃ»ñÝ»ßÝÉÇ ÆÝÃ»ñÝ»ßÝÉÇ ³Ý¹³Ù ³Ý¹³Ù Member of Grant Thornton International Ltd MemberMember of Grant of Grant Thornton Thornton International International Ltd Ltd Member of Grant Thornton International Ltd MemberMember of Grantof Grant Thornton Thornton International International Ltd Ltd

²áõ¹Çï,²áõ¹Çï, Ð³ñÏ»ñ, Ð³ñÏ»ñ, ÊáñÑñ¹³ïíáõÃÛáõÝ ÊáñÑñ¹³ïíáõÃÛáõÝ Audit,Audit, Tax, Tax, Advisory Advisory ¶ñ³ÝÃ¶ñ³ÝÃ ÂáñÝÃáÝ ÂáñÝÃáÝ ÆÝÃ»ñÝ»ßÝÉÇ ÆÝÃ»ñÝ»ßÝÉÇ ³Ý¹³Ù ³Ý¹³Ù MemberMember of Grantof Grant Thornton Thornton International International Ltd Ltd

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WeWe believe believe that that the the audit audit evidence evidence we we have have obtained obtained is is sufficient sufficient and and appropriate appropriate to to provide provide a abasis basis forfor our our audit audit opinion. opinion.

OpinionOpinion

InIn our our opinion, opinion, the the financial financial statements statements give give a atrue true and and fair fair view view of of the the financial financial position position of of the the “Armswissbank”“Armswissbank” CJSC CJSC as as of of December December 31, 31, 2011, 2011, and and of of its its financial financial performance performance and and i tsits cash cash flowsflows for for the the yea year rthen then ended ended in in acco accordancerdance with with Internation Internationalal Financial Financial Reporting Reporting Standards Standards. .

GagikGagik Gyulbudaghyan Gyulbudaghyan ArmenArmen Vanyan Vanyan ManagingManaging Partner Partner AuditAudit Manager Manager

GrantGrant Thornton Thornton CJSC CJSC 2424 February, February, 20 201212 YerevanYerevan

“Armswissbank”“Armswissbank” closed closed joint joint stock stock company company 4 4 FinancialFinancial statements statements “Armswissbank” closed joint stock company 3 3131 December December 2011 2011 Financial statements 31 December 2011 StatementStatement ofof financialfinancial ppositionosition Statement of comprehensive income

InIn thousand thousand Armenian Armenian drams drams AsAs of of AsAs of of NotesNotes DecemberDecember 31, 31, 20 201111 DecemberDecember 31, 31, 20 201010 In thousand Armenian drams Year ended Year ended ASSETSASSETS Notes December 31, 2011 December 31, 2010 CashCash and and balances balances with with CBA CBA 1313 5,694,191 5,694,191 4,040,9684,040,968 Interest and similar income 6 4,326,816 3,316,153 PreciousPrecious metals metals 1414 49,54249,542 153,785153,785 Interest and similar expense 6 (2,038,730) (1,583,504) AmountsAmounts due duefromfrom other other financial financial institutions institutions 1515 3,693,6173,693,617 4,368,4414,368,441 Net interest income 2,288,086 1,732,649 DerivativeDerivative financial financial assets assets 1616 20,76420,764 20,64420,644 LoansLoans and and advances advances to to customers customers 1717 21,841,99721,841,997 13,034,62113,034,621 Fee and commission income 7 150,532 92,897 InvestmentsInvestments available available for for sale sale 1818 4,381,9264,381,926 7,347,0747,347,074 Fee and commission expense 7 (22,143) (13,049) SecuritiesSecurities pledged pledged under under repurchase repurchase ag agreementsreements 2626 11,442,92611,442,926 5,320,9185,320,918 Net fee and commission income 128,389 79,848 Property,Property, plant plant and and equipment equipment 1919 648,561648,561 619,868619,868 IntangibleIntangible assets assets 2020 43,78443,784 50,35450,354 DeferredDeferred income income tax tax assets assets 1212 16,30616,306 Net trading income 8 128,796 68,960 - - OtherOther assets assets 2121 161,448161,448 191,233191,233 Gains less losses on investments available for sale 60,788 39,184 Other income 9 99,728 74,465 Impairment charge for credit losses 17 (300,706) (42,528) TOTALTOTAL ASSETS ASSETS 47,978,75647,978,756 35,164,21235,164,212 Staff costs 10 (580,023) (480,447) Depreciation of property and equipment 19 (55,020) (57,944) LIABILITIESLIABILITIES AND AND EQUITY EQUITY Amortization of intangible assets 20 (7,698) (6,529) LiabilitiesLiabilities Other expenses 11 (258,343) (202,096) AmountsAmounts due due to to the the CBA CBA 2222 11,977,38711,977,387 5,661,2655,661,265 DerivativeDerivative financial financial liabilities liabilities 1616 5,5065,506 10,71610,716 Profit before income tax 1,503,997 1,205,562 FinancialFinancial liabilities liabilitiesheldheld for for trading trading 15,1715,17 798,055 798,055 - - Income tax expense 12 (305,114) (252,571) AmountsAmounts due due to tootherotherfinancialfinancial institutions institutions 2323 8,584,9868,584,986 7,936,8907,936,890 Profit for the year 1,198,883 952,991 AmountsAmounts due due to to customers customers 2424 15,740,23715,740,237 12,313,52612,313,526 CurrentCurrent income income tax tax liabilities liabilities 104,576104,576 127,913127,913 Other comprehensive income: DeferredDeferred income income tax tax liabilities liabilities 1212 6 1,92961,929 - - Net unrealized gains/(losses) from changes in fair value 275,477 (186,985) OtherOther liabilities liabilities 2525 232,044232,044 84,13484,134 Net (gains)/losses realized to net profit on disposal of available- 31,254 196,158 TotalTotal liabilities liabilities 37,504,72037,504,720 26,134,44426,134,444 for-sale instruments Income tax relating to components of other comprehensive (61,346) (1,834) EquityEquity income ShareShare capital capital 2727 7,002,0007,002,000 7,002,0007,002,000 Other comprehensive income for the year, net of tax 245,385 7,339 StatutoryStatutory general general reserve reserve 1,000,0001,000,000 500,000500,000

OtherOther reserves reserves 100,726100,726 (144,659)(144,659) 960,330 Total comprehensive income for the year 1,444,268 RetainedRetained earnings earnings 2,371,3102,371,310 1,672,4271,672,427 TotalTotal equity equity 10,474,03610,474,036 9,029,7689,029,768

The accompanying notes on pages 7 to 51 are an integral part of these financial statements. TOTALTOTAL LIABILITIES LIABILITIES AN ANDD EQUITY EQUITY 47,978,75647,978,756 35,164,21235,164,212

TheThe financial financial statements statements from from pages pages 3 3to to 5 15 1were were s ignedsigned by by the the Bank’s Bank’s Executive Executive Director Director and and ChiefChief Accountant Accountant on on 2 42 4February February 201 2012.2 . TheThe ac accompanycompanyinging notes notes on on pages pages 7 7to to 5 15 1are are an an integral integral part part of of these these financial financial statements. statements.

G.G. MACH MACHANYANANYAN S.S. BAGHDASARYAN BAGHDASARYAN ExecutiveExecutive Director Director ChiefChief accountant accountant

2 2

OpinionOpinion

GagikGagik Gyulbudaghyan Gyulbudaghyan ArmenArmen Vanyan Vanyan ManagingManaging Partner Partner AuditAudit Manager Manager

GrantGrant Thornton Thornton CJSC CJSC 2424 February, February, 20 201212 YerevanYerevan

The accompanying notes on pages 7 to 51 are an integral part of these financial statements. TOTALTOTAL LIABILITIES LIABILITIES AN ANDD EQUITY EQUITY 47,978,75647,978,756 35,164,21235,164,212

G.G. MACH MACHANYANANYAN S.S. BAGHDASARYAN BAGHDASARYAN ExecutiveExecutive Director Director ChiefChief accountant accountant

The accompanying notes on pages 7 to 51 are an integral part of these financial statements. TOTALTOTAL LIABILITIES LIABILITIES AN ANDD EQUITY EQUITY 47,978,75647,978,756 35,164,21235,164,212

G.G. MACH MACHANYANANYAN S.S. BAGHDASARYAN BAGHDASARYAN ExecutiveExecutive Director Director ChiefChief accountant accountant

“Armswissbank”“Armswissbank” closed closed joint joint stock stock company company 6 6 FinancialFinancial statements statements “Armswissbank” closed joint stock company 5 3131 December December 2011 2011 Financial statements 31 December 2011 StatementStatement ofof cashcash fflowslows

InIn thousand thousand Armenian Armenian drams drams YearYear ended ended YearYear ended ended Statement of changes in equity DecemberDecember 31, 31, 2011 2011 DecemberDecember 31, 31, 2010 2010 CashCash flows flows from from operating operating activities activities ProfitProfit before before tax tax 1,503,9971,503,997 1,205,5621,205,562 In thousand Armenian drams Revaluation reserve AdjustmentsAdjustments for for Statutory of securities ImpairmentImpairment charge charge for for credit credit losses losses 300,706300,706 42,52842,528 Share general available Retained AmortizationAmortization and and depreciation depreciation allowances allowances 62,71862,718 64,47364,473 capital reserve for sale earnings Total NetNet gains gains from from sale sale of of PPE PPE - - (140)(140) InterestsInterests receivable receivable (91,148)(91,148) (140,627)(140,627) 7,002,000 200,000 (151,998) 1,019,436 8,069,438 Balance as of January 1, 2010 InterestsInterests payable payable 23,76223,762 114,015114,015 Distribution to reserve - 300,000 - (300,000) - ForeignForeign currency currency translation translation ne net lossest losses of of non non-trading-trading assets assets and and 38,23638,236 9,0159,015 Transactions with owners - 300,000 - (300,000) - liabilitiesliabilities Profit for the year - - - 952,991 952,991 NetNet income income from from changes changes in in fair fair value value of of trading trading instruments instruments (5,311)(5,311) (9,928)(9,928) CashCash flows flows from from operating operating activities activities before before changes changes in in 1,832,9601,832,960 1,284,8981,284,898 operatingoperating assets assets and and liabilities liabilities Other comprehensive income: Net unrealized loss from changes in fair value - - (186,985) - (186,985) (Inc(Increase)/decreaserease)/decrease in in operating operating assets assets Net losses realized to comprehensive income - - 196,158 - 196,158 statement on disposal of available-for-sale PreciousPrecious metals metals 104,243104,243 (153,785)(153,785) instruments AmountsAmounts due due from from other other financial financial institutions institutions 496,379496,379 (1,792,252)(1,792,252) Income tax relating to components of other - - (1,834) - (1,834) LoansLoans and and advances advances to to customers customers (8,203,723)(8,203,723) (2,992,258)(2,992,258) comprehensive income OtherOther assets assets 31,28831,288 (63,478)(63,478) Total comprehensive income for the year - - 7,339 952,991 960,330 Increase/(decrease)Increase/(decrease) in in opera operatingting liabilities liabilities Balance as of December 31, 2010 7,002,000 500,000 (144,659) 1,672,427 9,029,768 RepurchaseRepurchase agreements agreements with with the the CBA CBA 6,343,7786,343,778 (2,199,985)(2,199,985) FinancialFinancial liabilities liabilitiesheldheld for for trading trading 798,055798,055 - - Distribution to reserve - 500,000 - (500,000) - AmountsAmounts due due to to financial financial institutions institutions (946,107)(946,107) (88,340)(88,340) Transactions with owners - 500,000 - (500,000) - AmountsAmounts due due to to customers customers 2,620,7442,620,744 3,003,5163,003,516 Profit for the year - - - 1, 198,883 1, 198,883 OtherOther liabilities liabilities 147,91147,916 6 20,17520,175 NetNet cash cash flow flow used used in in operating operating activities activities before before income income tax tax 3,225,5333,225,533 (2,981,509)(2,981,509) Other comprehensive income: IncomeIncome tax tax paid paid (311,562)(311,562) (185,178)(185,178) Net unrealized gain from changes in fair value - - 275,477 - 275,477 NetNet cash cash used used in in operating operating activities activities 2,913,9712,913,971 (3,166,687)(3,166,687) Net losses realized to comprehensive income - - 31,254 - 31,254 statement on disposal of available-for-sale CashCashflowsflows from from investing investing activities activities instruments (Purchase)(Purchase) /sale /sale of of investment investment securities securities (2,932,222) (2,932,222) 1,281,8031,281,803 Income tax relating to components of other - - (61,346) - (61,346) comprehensive income PurchasePurchase of of property property and and equipment equipment (83,744) (83,744) (8,951)(8,951) ProceedsProceeds from from sale sale of of property property and and equipment equipment 31 31 167167 Total comprehensive income for the year - - 245,385 1, 198,883 1,444,268 PurchasePurchase of of intangible intangible assets assets (1,128) (1,128) (15,030)(15,030) NetNet cash cashfrom/from/ (used (used in) in) investing investing activities activities (3,017,063)(3,017,063) 1,257,9891,257,989 Balance as of December 31, 2011 7,002,000 1,000,000 100,726 2,371,310 10,474,036

CashCash flow flow from from financing financing activities activities LoansLoans received received from from the the CBA CBA (19,121)(19,121) 7,4457,445 LoansLoans received received from from financial financial institutions institutions 1,248,3331,248,333 3,328,8033,328,803 OtherOther long long term term loans loans 172,266172,266 755,317755,317 NetNet cash cash fl owflow from from financing financing activities activities 1,401,4781,401,478 4,091,5654,091,565 NetNet increase increase in in cash cash and and cash cash equivalents equivalents 1,298,3861,298,386 2,182,8672,182,867 CashCash and and cash cash equivalents equivalents at at the the beginning beginning of of the the year year 4,732,9244,732,924 2,596,9932,596,993 ExchangeExchange differences differences on on cash cash and and cash cash equivalents equivalents 40,07340,073 (46,936)(46,936)

CashCash and and cash cash equivalents equivalents at at the the end end of of the the year year (note (note 13) 13) 6,071,3836,071,383 4,732,9244,732,924

SupplementarySupplementary information: information:

InterestInterest received received 4,376,2954,376,295 3,175,5453,175,545 InterestInterest paid paid (2,128,983)(2,128,983) (1,469,489)(1,469,489)

The accompanying notes on pages 7 to 51 are an integral part of these financial statements. TOTALTOTAL LIABILITIES LIABILITIES AN ANDD EQUITY EQUITY 47,978,75647,978,756 35,164,21235,164,212

G.G. MACH MACHANYANANYAN S.S. BAGHDASARYAN BAGHDASARYAN ExecutiveExecutive Director Director ChiefChief accountant accountant

CashCash and and cash cash equivalents equivalents at at the the end end of of the the year year (note (note 13) 13) 6,071,3836,071,383 4,732,9244,732,924

SupplementarySupplementary information: information:

InterestInterest received received 4,376,2954,376,295 3,175,5453,175,545 InterestInterest paid paid (2,128,983)(2,128,983) (1,469,489)(1,469,489)

FOREIGN CORRESPONDENT BANKS Germany EUR Frankfurt Main Commerzbank AG COBA DE FF USD Austria Raiffeisen Bank EUR Vienna RZBA AT WW International AG USD Switzerland CHF Zurich UBS AG EUR UBSW CH ZH80A USD Russia RUB USD Moscow UniCredit Bank CJSC EUR IMBK RU MM CHF GBP RUB Moscow Promsvyazbank JSCB USD PRMSRUMM EUR Latvia USD Riga Norvik Bank JSC LATBLV22 EUR

30 Cooperation and Membership Union of Banks of Armenia (UBA) NASDAQ OMX Armenia Stock Exchange Armenian Credit Reporting Agency (ACRA) Society for Worldwide Interbank Financial Telecommunications (SWIFT) Factors Chain International (FCI) American Chamber of Commerce in Armenia (AMCHAM) Partner Bank of the German-Armenian Found (Renewable Energy program) SME Development National Center (SME DNC) European Bank for Reconstruction and Development (EBRD) National Mortgage Company (NMC)

BANK DETAILS Full Name: “ARMSWISSBANK” CJSC Licenses: Banking License N 84 granted by the Central Bank of Armenia on February 25, 2005 Address: 10 V. Sargsyan Str., Yerevan 0010, Republic of Armenia Tax Code: 02574955 Correspondent account at the Central Bank of RA: 103002102509 SWIFT code: ARSJAM22 Reuters page: ARSJ, ARSI Bloomberg page: ASWI Telephone: +374 10 52 95 93, 58 44 19, 54 07 28 Fax: +374 10 52 95 91 E-mail: [email protected] URL: www.armswissbank.am, www.armswissbank.com Service hours: 9:30 – 17:30