2 0 1 9 annual report contents OVERVIEW Ameriabank at a glance 2 Chairman’s Statement 5 Chief Executive’s Review 7 Historic Milestones 9 Global Partners 11 Awards 13 STRATEGIC REPORT External Environment 15 Banking Sector in Armenia 20 Position of Ameriabank in the Banking Sector of Armenia 27 Business Model and Strategy 30 Retail Banking 33 Corporate and Investment Banking (CIB) 39 Trading 50 Innovation and Digitalization 52 Environmental and Social Governance 60 RISK MANAGEMENT Risk Management Objectives and Principles 63 Risk Appetite 66 Key Risks and Risk Profile 67 Risk Management Framework 79 Risk Organization and Governance 81 GOVERNANCE REPORT Chairman's Corporate Governance Statement 87 Corporate Governance Structure 88 Board of Directors 89 Board Committees 91 Members of the Board of Directors 93 Management Board and CEO 100 Organizational Chart 107 Our People 110 RESPONSIBILITY STATEMENT 116 FINANCIAL STATEMENTS Independent Auditor’s Report 119 Financial Statements 124 APPENDIX Abbreviations 205 OVERVIEW 2 Ameriabank at a glance Ameriabank is a dynamically developing bank and one of the major and most stable financial institutions in Armenia with clearly formulated digital agenda. Being the B first investment bank in Armenia, Ameriabank is now a universal bank offering innovative corporate, investment and retail banking services in a comprehensive package of banking solutions. Ameriabank is the leading bank in Armenia as measured by all key financial indicators (assets, liabilities, loans portfolio, net profit and equity) according to the 2019 year reportable data. In line with its mission of “improving the quality of life”, Ameriabank is currently going through a transformation process to become a more customer-centric bank, by enhancing digital capabilities and developing new products and solutions based on the evolving needs and preferences of the customers. N K overview Ameriabank annual report 2019 3 OVERVIEW OVERVIEW 4 • Strong Omni channel Distribution Platform with Focus on Digital: performance Offloading Ratio Online Baking Penetration Rate % % highlights 82.4 5.4pp YoY growth 34.0 10pp YoY growth The absolute leader of Armenian Banking Sector • Superior Customer Service with high satisfaction scores: by key financial indicators: Assets Equity Net Loans & Advances NPS 70.0% CEI* 9.45 AMD 968 bn AMD 101 bn AMD 586 bn 16.8% 12.0% 16.4% market share market share market share • Highest possible credit ratings for a bank operating in Armenia: 24.2% 12.8% 6.9% YoY growth YoY growth YoY growth S&P Moody’s Net Profit Liabilities Bank Deposits (LC) Ba3/NP AMD 12.1 bn AMD 867 bn Long-term B+ Short-term B Bank Deposits (FC) B1/NP Outlook stable BCA ba3 2% 6% CRA Ba3(cr)/NP 15. 17. SACP bb- market share market share Outlook stable 15.4% 25.6% YoY growth YoY growth Ameriabank annual report 2019 * Client Experience Index with max possible value of 10 Ameriabank annual report 2019 OVERVIEW 6 With these positive prerequisites, Armenian government successfully returned to the international capital markets in Q3 2019 with a benchmark $500mn 10-year Eurobond offering, refinancing a previous Eurobond tranche and significantly improving future debt service burden. On the back of strong order book momentum, the final yield was fixed at 4.2%, marking the lowest yield at placement for a USD CEEMEA Sovereign in the BB rating space chairman’s since 2013. Solid macro fundamentals ensured positive outcomes for the banking system, with increased overall profitability, improved loan portfolio quality and overall rather balanced risk profile. Fierce competition continued to be one of the main characteristics of our banking system, with statement significant pressure on margins and profitability. Despite the challenging environment, we managed to improve our interest margins and profitability. Andrew Mkrtchyan Chairman of the Board The year was also marked with significant advancements towards digitalization as almost all players were investing heavily in new technologies and solutions. We are vigilant as competition in this sphere continues to grow, and not just from banks, but from telecom and fintechs as well. With this in mind, in 2019 we have set the firm ground for delivering on our mid-term digital strategy and becoming an increasingly client-centric, faster and simpler financial services provider. We have been actively working towards developing and advancing innovative solutions for clients and becoming disruptive in our market. We have managed to plant the seeds for much better performance in the near future and can proudly state, that we are more than ever ready to face new challenges. We operate in the most prudent regulative environment in the region, which of course ensures financial stability, but Dear Shareholders, also means stringent regulatory standards. Our banking system has been one of the champions in the implementation of IFRS 16, IFRS 9 and harmonization of the regulatory Ameriabank has once again delivered strong financial performance in 2019 while making framework with Basel III. Against the upcoming substantial increases in regulatory capital significant progress towards its strategic goals. 2019 was a year of ambitious transformations requirements, we have been building up sufficient financial strength, so that to maintain the on our way of becoming a more digital, efficient and customer-centric organization. The right level of capital for balancing safety and returns. company-wide transformations initiated in 2018 were successfully finalized this year, creating a more flexible and effective organizational structure and supporting our digitalization strategy Looking ahead to 2020, we are committed to continue our pioneering role in the Armenian immensely. These transformations have already proved to be effective, improving the financial system and affirm our position as the leader by size and performance indicators. operational efficiency, enhancing overall service quality and helping us successfully deliver our Efficiency and diversification will continue to be the main drivers for reaching our strategic digital agenda for 2019. objectives, but we aim to put more stress on client centricity and digital transformation. In line with our mission of “Improving the quality of life”, we will be leveraging on strong digital In 2019, we not only maintained our leadership position in the market, but outpaced the capabilities to ensure superior customer experience and availability of innovative products and market in terms of assets growth increasing our market share by 0.9 pp. We registered tangible solutions. We will also continue to invest heavily into talent acquisition and development to progress in terms of all key performance metrics, with significantly higher profitability, ensure top professionalism and the right corporate culture for delivering on our ambitious stronger capital position, better diversification and significant growth of the loan book. We are goals. more than ever close to our IPO target, having already met most of the financial performance prerequisites that we set for ourselves years ago. On behalf of the Board of Directors, I would like to thank the team for their outstanding efforts and consistent performance. It is the commitment, energy and hard work of the team that This year’s performance was delivered against a largely supportive external environment. The enables us to reach new highs. I am confident that with such a united team we will successfully political situation in Armenia stabilized after Parliamentary elections in late 2018 ensuring an accomplish our new strategic objectives ensuring sustainable returns to our shareholders and attractive business environment and supporting further economic growth. 2019 was another creating long-term value for our stakeholders. successful year for Armenian economy, with GDP increasing by a solid 7.6%, 12 month cumulative inflation of 1.4% and stable exchange rate. This was achieved despite government austerity and halts and delays of a several large-scale strategic projects. As a result of strong macroeconomic performance and improved public debt indicators, Moody’s upgraded Armenia’s sovereign rating to Ba3 from B1, followed by another rating upgrade by Fitch Ratings to BB- from B+. Andrew Mkrtchyan Chairman of the Board Ameriabank annual report 2019 Ameriabank annual report 2019 OVERVIEW 8 In 2019, we continued our successful partnership with IFIs. As a solid ground for our loan portfolio diversification in key sectors of the country’s economy, we signed a financing chief agreement in the amount of USD 30 mn with OeEB, the Development Bank of Austria, dedicated to financing SMEs, as well as renewable energy and energy efficiency projects in Armenia. Another USD 25 mn loan agreement aimed at promoting the expansion of Ameriabank’s international trade portfolio was signed with OFID – the OPEC Fund for executive’s International Development. Aiming at supporting “green” projects and youth financing in Armenia we signed USD 20 mn equivalent Local Currency Facility Agreement with FMO, the Dutch development bank, which was the first local currency loan issued by FMO on its own review books in Armenia. 2019 was marked by multiple reputable awards and recognitions of excellence as well, all Artak Hanesyan stating our leadership in the local market. We received the Bank of the Year 2019 by the Banker Chairman of the Management Board, magazine and Euromoney Award for Excellence 2019 already for the sixth and the seventh time CEO respectively. Ameriabank was also recognized as the Best Bank