Eurasian Bank JSC Consolidated Financial Statements for the year ended 31 December 2016 Eurasian Bank JSC Contents Independent Auditors’ Report Consolidated Statement of Profit or Loss and Other Comprehensive Income ................................................................ 9 Consolidated Statement of Financial Position ............................................. 10 Consolidated Statement of Cash Flows ................................................. 11-12 Consolidated Statement of Changes in Equity ...................................... 13-14 Notes to the Consolidated Financial Statements ................................. 15-101 «КПМГ Аудит» жауапкершілігі KPMG Audit LLC шектеулі серіктестік 050051 Almaty, 180 Dostyk Avenue, 050051 Алматы, Достық д-лы 180, E-mail: [email protected] Тел./факс 8 (727) 298-08-98, 298-07-08 Independent Auditors’ Report To the Board of Directors of Eurasian Bank JSC Opinion We have audited the consolidated financial statements of Eurasian Bank JSC and its subsidiary (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2016, the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. «КПМГ Аудит» ЖШС, Қазақстанда тіркелген; Швейцария заңнамасы бойынша тіркелген KPMG International Cooperative (“KPMG International”) қауымдастығына кіретін KPMG тəуелсіз фирмалар желісінің мүшесі. KPMG Audit LLC, a company incorporated under the Laws of the Republic of Kazakhstan, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Eurasian Bank JSC Independent Auditors’ Report Page 2 Impairment of loans to customers Please refer to the Notes 3 (g)(i) and 16 in the consolidated financial statements. The key audit matter How the matter was addressed in our audit The impairment of loans to Our audit procedures included evaluating and customers is estimated by testing the Group’s key controls over the management through the assessment of loan impairment, including application of judgement and use controls over the approval, recording and of highly subjective assumptions. monitoring of loans to customers, and evaluating the methodologies, inputs and Due to the significance of loans to assumptions used by the Group in calculating customers (representing 69.28% collectively assessed impairments and of total assets) and the related determining the adequacy of impairment estimation uncertainty, this is allowances for individually assessed loans to considered a key audit matter. customers through forecast recoverable cash We paid particular attention to the flows, including the realisation of collateral. assumptions and methodology We analysed the Group’s key inputs and used for the calculation of the assumptions for both collective and individual impairment allowance for loans to impairment allowances. As part of this, we customers with individual signs of critically assessed the Group’s revisions to impairment. estimates and assumptions in respect of We continued to pay attention to historical loss rates, collateral valuation, the impact of the recent significant discount rates and economic factors such as depreciation of the Kazakhstan the recent devaluation of the Kazakhstan tenge tenge on the recoverability of loans against the US Dollar and considered the denominated in US Dollars sensitivity of these inputs on the assessment of (representing 28.92% of total impairment. loans to customers) as at We challenged the appropriateness of the key 31 December 2016. assumptions used for collective impairment In particular, loans to certain against our understanding of the Group and its agricultural holdings amounting recent performance. This involved recalculation KZT 83,450,433 thousand of provisioning rates based on the Group’s demonstrated signs of impairment actual historic experience. and had to be assessed We considered whether sales of loans in the individually. period subsequent to reporting date provided a convincing evidence in respect of their impairment as at 31 December 2016 by assessing terms of the transactions. Eurasian Bank JSC Independent Auditors’ Report Page 3 Impairment of loans to customers, continued The key audit matter How the matter was addressed in our audit For a sample of exposures that were subject to an individual impairment assessment, and focusing on those with the most significant We also focused on the potential impact on the consolidated financial methodology used to calculate the statements, we specifically challenged the impairment allowance for Group’s assumptions on the expected future portfolios of loans to customers cash flows, including the value of realisable without individual signs of collateral based on our own understanding and impairment. available market information. Our testing of loans to individuals assessed collectively included re-performance of the model calculations and validation of the data inputs in the model in order to assess the accuracy of performance of the collective The impairment on all loans to impairment model. The assumptions inherent in individuals is collectively the model were critically assessed against our assessed, with the key understanding of the Group, its recent assumptions being the probability performance and industry developments. We of an account falling into arrears have assessed the methodology used by the and subsequently defaulting, the Group to calculate the propensity of accounts market value of any collateral with different arrears profiles to move both into provided and the estimated time and out of default, and recalculated these rates and cost to sell any collateral based on the Group’s actual historic repossessed by the Group. experience. These actual rates were compared to those assumed by the Group to assess the reasonableness of the rates used in the collective impairment assessment. The assumptions for valuation and expected costs to sell collateral, were also assessed by comparing them to recent actual results and other market data. We also assessed whether the consolidated financial statement disclosures appropriately reflect the Group’s exposure to: credit risk, credit quality of loan portfolio and sensitivity of impairment allowance to changes in key assumptions. Eurasian Bank JSC Independent Auditors’ Report Page 4 Other information Management is responsible for the other information. The other information comprises the information included in the Annual Report of the Group for 2016 but does not include the consolidated financial statements and our auditors’ report thereon. The Annual Report of the Group for 2016 is expected to be made available to us after the date of this auditors’ report. Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either