GAZPROMBANK GROUP • ANNUAL REPORT 2016 FINANCIAL STATEMENTS FINANCIAL CONSOLIDATED IFRS ON BASED REPORT ANNUAL GROUP GAZPROMBANK GAZPROMBANK GROUP ANNUAL REPORT BASED ON IFRS CONSOLIDATED FINANCIAL STATEMENTS 3 GAZPROMBANK ANNUAL REPORT 2016 TABLE OF CONTENTS Statement of the Chairman of the Board of Directors 4 Statement of the Chairman of the Management Board 6 Key performance indicators 9 MAIN RESULTS FOR THE YEAR AND BUSINESS DEVELOPMENT OBJECTIVES 10 External environment in 2016 12 Financial performance 14 Positioning 18 Ratings 19 Business development strategy and objectives 20 SUSTAINABLE DEVELOPMENT 22 Corporate business Customer base 24 Commercial lending 28 Retail business Retail business 30 Private banking: 2016 full-year results and development prospects 34 Investment banking Project and structured finance 36 Most significant project finance and financial advice transactions in 2016 39 Commodity and capital market operations 40 Asset management 44 Privaty equity 45 Machine-building assets: principal areas of operations and key projects 47 Resource base development 48 Depository operations, specialized depository services 50 Risk management 51 Bank GPB (JSC) regional network 57 Regional network map 58 HR policy and employee development and motivation 60 Development of information technologies 63 Social responsibility and international cultural cooperation 64 CORPORATE GOVERNANCE 66 Shareholders of Bank GPB (JSC) 68 Board of Directors of Bank GPB (JSC) 69 Management Board of Bank GPB (JSC) 71 Corporate governance system of Bank GPB (JSC) 76 Organizational management flowchart of Bank GPB (JSC) 77 Internal control system 78 FINANCIAL STATEMENTS 80 REFERENCE INFORMATION 98 Branches of Bank GPB (JSC) 100 Representative offices of Bank GBP (JSC) in other countries 102 Subsidiary and affiliated banks with an ownership of more than 5% 103 Licenses 105 Contact information and bank details 108 4 GAZPROMBANK ANNUAL REPORT 2016 5 GAZPROMBANK ANNUAL REPORT 2016 STATEMENT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS Dear Shareholders, The reporting year was busy and fruitful and also to financial advisory services for Gazprombank. The Bank achieved signi- as well as services related to placement ficant financial results and reaffirmed once of the Group’s securities in the Russian again its strong reliability and resilience. and international markets. As one of the country’s key systemically - Work was continued to enhance tech- important banks, Gazprombank success- nology capability of Gazprombank Group’s fully pursued collaboration with corporate industrial assets. It also was performed customers, including enterprises of key in the interests of Gazprom, a large industries of the Russian economy, in 2016. consumer of the products manufac- Within the framework of an approved tured by the domestic machine-building plan of the Bank’s interaction with Public industry. Joint-Stock Company Gazprom, measures The Board of Directors has positively were taken last year to make arrange- evaluated the Bank’s performance, ments for provision of integrated banking and expresses its conviction that imple- services to Gazprom and its employees. mentation of a well-thought and well-bal- A great deal of attention was paid anced strategy will allow the Bank to cooperation in management of money to reinforce its competitive positions flows of Gazprom Group companies, in the banking sector even further. Alexey B. Miller Chairman of the Board of Directors, Bank GPB (JSC) Chairman of the Management Committee, Gazprom 6 GAZPROMBANK ANNUAL REPORT 2016 7 GAZPROMBANK ANNUAL REPORT 2016 STATEMENT OF THE CHAIRMAN OF THE MANAGEMENT BOARD Dear Shareholders, An ability to respond timely to external indicators of a financial institution’s ope - Customers and Partners challenges and to adapt to a new reality rations, to the pre-crisis level, with its value of the Bank, was probably the most necessary quality reaching 3.0% in 2016. in the past few years. Difficulties of that In 2016, a number of loans were period, which were caused by macro- successfully restructured, with PJSC economic instability and various external Mechel’s indebtedness taking a special shocks, gave a powerful impetus place in those efforts. Interaction to re- adjustment of the outlook, including with the company fell on hard times, the perspective about the hierarchy but it reflected in full measure Gazprom- of targets and prioritizing in everyday bank’s commitment to principles activities. The 2016 outcome showed that of responsible work with customers. Gazprombank was able to make use of all The restructuring will allow PJSC Mechel available opportunities in the best possible to pursue actively investment projects that way, in order to cope with challenges, have priority significance for the country move ahead and solidify its fundamental and will ensure the company’s solvency strengths in the Russian financial market. in the future. Today, it can be said with conviction that Achievements attest to the Bank’s effective our efforts have contributed to serious work, which required mobilization of all achievements. Last year, Gazprombank internal resources. Last year, Gazprombank generated a considerable profit — took a tough stance administering its RUB 29.0 billion. One important aspect operating costs, and, as a result, they did of that success was growth of stable core not exceed the 2015 level, with business banking income: in 2016, that indicator performance still improving. In 2016, was up by 22.1% from a year before. work to improve operating efficiency was While foreign currency loans were continued; its elements were staff optimi- devalued because the ruble was getting zation, a program to centralize supporting stronger, the Bank kept its aggregate loan functions, carrying out projects portfolio at the level of end-2015 last year. to enhance the quality of the services At the same time, we managed to increase provided by the Bank, and cutting costs volumes of new ruble loans and to enlarge of transactions. the Bank’s share in the lending market both Owing to a correct choice of priorities, for legal entities and private individuals. coherent teamwork and support from Another event that can be considered the government, Gazprombank has favorable for the Bank was recovery managed to achieve performance targets. of the interest margin, one of essential Key factors of success were continuous 8 GAZPROMBANK ANNUAL REPORT 2016 development and consolidation field will provide feedstock for the facility. Among international events that of competitive strengths, with universality Once a powerful enterprise of that sector occurred in 2016, I would like to empha- of business and a strategic partnership appears in the region, reserves of Yamal size Gazprombank’s collaboration with with major enterprises of main industries hydrocarbons will be supplied to inter- the State Oil Company of the Azerbaijan of Russian economy traditionally being national markets, which will reinforce Republic (SOCAR). Among joint projects, the principal ones among them. positions of the Russian Federation there is construction of gas processing Gazprom and its subsidiaries take a special as an exporter of LNG. It must be noted and polymer plants in Garadagh. The gas place among the Bank’s customers. that the production-supporting infrastruc- processing plant will have a capacity We develop mutually beneficial cooper- ture will be widely used for community of 10 bcm of processed natural gas ation in many areas, everywhere across needs. People living in the peninsula a year, and the polymer plant will be able Russia and abroad. The Bank is actively will be getting new housing, good roads to produce 570,000 tons of polyethylene involved in preparation and implemen- and advanced modes of transportation and 120,000 tons of polypropylene annu- tation of large-scale investment projects and means of telecommunications. ally. The Bank was a financial consultant of Gazprom Group. For instance, last year, In association with Rosneft, our Bank for the project. Gazprombank acted as financial consultant is involved in the construction of Zvezda, Moreover, an agreement was signed of Gazprom Pererabotka Blagoveschensk the biggest ship-building facility in the Far in 2016 between SOCAR and Cryogen- LLC in a project of construction of the Amur East. Implementation of that project mash, an enterprise of Gazprombank Gas Processing Plant with a capacity will help build a new industrial cluster Group, to design and supply a nitrogen of 42 bcm a year. The new plant to be set in the Primorye and will produce a signif- unit for a project to build high-density up within the framework of the Eastern Gas icant multiplication effect for a number polypropylene and polyethylene plants Program will become one of the world’s of associated industries. Well-known in Azerbaijan, which the company biggest helium producers. The construc- international companies have displayed is carrying out in association with the Bank. tion project will focus on protection their interest in the enterprise’s products. It is another concrete example of effective of the environment and creation Vladimir Putin, Pre sident of the Russian work of Gazprombank Group’s industrial of an infrastructure required for efficient Federation, took part in the cere- enterprises in the increase of exports work of the new enterprise and comfor- monial commissioning of the first of the domestic hi-tech sector. Products table living conditions of local residents. stage of the ship-building