SETTING THE STANDARD Annual Report 2017 CONTENTS CORPORATE 1 VTB AT A GLANCE 5 SOCIAL RESPONSIBILITY Mission and values 4 Personnel 155 VTB Group today 6 Responsible resource management 158 Financial highlights 14 Social programmes 159 Statement of the Chairman of the Supervisory Council 16 Statement of the President FINANCIAL and Chairman of the Management Board 18 6 STATEMENTS Key еvents 20 Responsibility statement 166 Consolidated financial statements 166 MANAGEMENT 2 REPORT Russian economy 24 7 ANNEXES Strategy 28 Share capital 182 Dividends 183 RESULTS Report on compliance with the principles OVERVIEW and recommendations of the corporate 3 governance code 237 Corporate-investment business 38 Bank details and contacts 200 Mid-corporate business 52 Contact information 201 Retail business 56 Financial review 70 Risk management 80 Technological transformation 90 CORPORATE 4 GOVERNANCE Overview of the corporate governance system 98 General meeting of shareholders 102 Supervisory council 105 Management board 129 Compensation of the members of the supervisory council and the management board 137 Internal control and audit 140 Investor relations 146 Disclosure policy 150 VTB AT A GLANCE 38.9 million clients + % TRUST 21 Gaining and retaining the trust growth in retail of our customers is VTB funding in 2017 Group’s most important value. Corporate Social VTB at a Glance Management Report Results Overview Corporate Governance Financial Statements Annexes Responsibility 4 5 VTB AT A GLANCE ADVANCED SECOND LARGEST BANK IN RUSSIA DIGITAL WIDE-SCALE PRESENCE ACROSS THE FOUR CONTINENTS Mission and values OUR MISSION OUR VALUES To provide world-class financial Trust. Gaining and retaining the trust products and services that help of our customers is VTB Group’s most to create a prosperous and sustainable important value. >20 SUBSIDIARY BANKS future for our customers, stakeholders Reliability. VTB Group’s long-term and society. strength is reinforced by leading AND COMPANIES positions in the financial markets where we operate and our ability to provide OUR IDENTITY local expertise on a global scale. Transparency. Our business is open VTB Group is the leading Russian and transparent, and all of our key financial institution with a strong stakeholders cooperate closely in order presence in key international markets. to deliver maximum value and visibility. Versatility. Our wealth of expertise across a broad range of financial products OPERATIONS IN ALL and services ensures that we offer all of OUR VISION our customers the most comprehensive, SEGMENTS OF flexible and sophisticated solutions that VTB Group’s goal is to become suit their individual needs. a premier player in all of its priority THE FINANCIAL MARKET markets. Team. Our dedicated team of professionals benefits from the synergy of knowledge afforded by our diverse line of businesses, and our Group’s spirit is enhanced by the energy, creative insight and potential of each member of our team. Corporate Social VTB at a Glance Management Report Results Overview Corporate Governance Financial Statements Annexes Responsibility 6 7 VTB Group today VTB Group in Russia (market share as of 31 December 2017) OUR HISTORY CLIENT BASE ASSETS 173% 28 years 38.9 million clients Established on 17 October 1990 +15.4 million clients year-on-year GLOBAL PRESENCE EMPLOYEES 20 countries 97 thousand CORPORATE BUSINESS 16.8% 222 Loans Funding to legal from legal entities entities BRANCH NETWORK ASSETS 14 thousand 13.0 RUB trillion In Russia RETAIL BUSINESS 202 214 126 ATMS CREDIT RATING Loans Mortgage Funding from to individuals individuals 20 thousand ВВВ– in Russia Ba1 ruAAA INVESTMENT BUSINESS 245 20 176 573 fees DCM ECM M&A Corporate Social VTB at a Glance Management Report Results Overview Corporate Governance Financial Statements Annexes Responsibility 8 9 The Group of VTB Bank and its subsidiaries and The Group operates in the corporate-investment CLIENT BASE associates (hereinafter “VTB Group” or the “Group”) banking sector, the retail banking sector and other includes Russian and foreign commercial banks, as well sectors. Corporate-investment banking, mid-corporate as insurance, leasing and other companies controlled banking and retail business represent the Group’s by the Group. global business lines, which specialise in servicing 90 thousand 540 thousand 38.3 million various client segments. mid-corporate small business individual VTB Group is structured as a holding company, which banking clients clients clients envisages a unified strategy for the development of Group companies, a single brand, centralised financial management and risk management and unified control systems. 8 thousand 6.1 million 6.7 million In Russia, the Group conducts banking operations corporate-Investment payroll clients using through a parent company, VTB Bank, and a number of banking clients clients remote channels subsidiary banks, including VTB24 (prior to 1 January 2018) and Post Bank. On 1 January 2018, the Group completed the merger between VTB24 and VTB Bank and began servicing customers of both banks under a unified VTB brand. VTB Group’s global network is unique to the Russian banking industry. Group companies provide services in the CIS, Europe, Asia, North America and Africa, enabling the Group to facilitate international partnerships and promote Russian companies aiming to engage with global markets. The Group’s Russia international operations enable diversification and increased profitability from its transactions in high- margin markets. Belarus United Kingdom Germany Kazakhstan As of the end of 2017, the Group’s banking and Austria Ukraine investment banking business was active in 20 countries Bulgaria Georgia Kyrgyzstan USA around the world. Outside Russia, the Group operates Italy Armenia Azerbaijan China through 11 subsidiary banks, located in Germany, the Cyprus United Kingdom, Serbia, Armenia, Belarus, Kazakhstan, Azerbaijan, Ukraine (two banks), Georgia and Angola, and through three representative offices located India in Italy, China and Kyrgyzstan, as well as two VTB Vietnam branches located in China and India, a branch of VTB Capital in Singapore and a branch of VTB Bank (Europe) in Austria. The Group’s investment banking division Singapore provides broker-dealer operations in the US, conducts securities transactions and provides financial advisory services in Hong Kong, and operates investment banking services in Bulgaria. The Group also has Angola an associated bank in Cyprus. In addition, in Vietnam, VRB Bank, a joint venture between VTB and a Vietnamese bank, conducts banking activities. Corporate Social VTB at a Glance Management Report Results Overview Corporate Governance Financial Statements Annexes Responsibility 10 11 VTB Group’s organisational structure (as of 31 December 2017) VTB Group has a number of important competitive advantages that allow it to maintain and strengthen VTB Bank (PJSC) its market positions in its priority areas of business VTB 24 (PJSC) JSC VTB Capital Holding VTB Insurance, Ltd. its highly flexible business it is Russia’s second-largest the universal banking PJSC “Post Bank” VTB Capital IB Holding, Ltd. VTB Life insurance, JSC 1 model 2 and systemically important 3 business model of VTB Bank bank and its subsidiary banks and companies is ideally BM-Bank JSC VTB Capital plc VTB Medical Insurance, Ltd. suited to Russian conditions CJSC VTB Bank (Belarus) JSC VTB Capital “VTB Factoring”, Ltd. brand awareness an extensive base the unique ability 4 and state interest ensure 5 of corporate clients 6 to serve Russian clients PJSC “VTB BANK” (Ukraine) VTB Forex limited NPF VTB Pension Fund, JSC financial strength and strong relationships on a global scale and increased customer with leading Russian confidence companies in key sectors “VTB Bank (Armenia)” CJSC “VTB Pension administrator”, Ltd. VTB Real Estate LLC of the economy Subsidiary JSC VTB Bank “VTB Specialized Depository”, LLC VTB DC (Kazakhstan) CJSC opportunities for sustainable its wide regional sales leading positions asset growth network in the area of retail banking OJSC VTB Bank (Azerbaijan) JSC VTB Registrar 7 8 9 services, using the work experience and client bases JSC “VTB Bank (Georgia)” “VTB-Leasing”, JSC of VTB24 and Post Bank Banco VTB Africa, S.A. the investment banking its team of managers On 1 January 2018, the Group completed the merger of VTB24 10 division of VTB Capital, 11 with extensive experience VTB Bank (Europe) SE into VTB Bank and started servicing clients of both banks under the which provides a full range in the financial sector unified VTB brand. The merger was one of the key initiatives under of services in international the Group’s approved strategy for 2017–2019, and management financial markets VTB Bank JSC Belgrade expects to achieve business synergies and costs savings from the integration of the two banks. The merger of VTB24 into VTB Bank helped to optimise the structure of the Group’s retail business in the Russian market, centralising management functions, unifying the integrated banks’ operating models and IT systems, and creating synergies from the merger of regional networks. The integration involved developing a completely new system for interaction between Group’s global business lines – Corporate-Investment Banking, Mid-Corporate Banking, and Retail business – within a single organisation. Corporate Social VTB at a Glance Management Report Results Overview Corporate Governance Financial Statements Annexes Responsibility 12 13 Ownership structure Stock Exchange