Gazprombank Group Annual Report IFRS consolidated financial statements 2008 Annual Report Annual 2008 Gazprombank Group Contents 2 Statement of the Chairman of the Board of Directors 3 Statement of the Chairman of the Management Board Group image 9 2008 milestones 11 Lines of activity 12 Key performance indicators over 5 years 13 Gazprombank’s position 14 Banking Group’s geography 16 Shareholders 16 Board of Directors 17 Management Board Annual results and prospects for development 21 Macroeconomic environment and Russia’s banking sector 24 Group’s performance in 2008 27 Steps to minimize risks 29 Partnership relations with shareholders 30 Strategy and objectives Lines of business pursued in 2008 35 Customers and products 37 Commercial lending 39 Retail services 41 E-services 43 Depository business 45 Private banking 46 Trading in financial and stock markets 48 Project and structured finance 50 Investment and financial advisory services 52 Non-financial asset management Streamlining management system 57 Corporate governance 59 Infrastructure and regional network development 61 Risk management 65 Internal control and auditing 66 Institutional development and HR management 69 Charity work and sponsorship 73 Consolidated financial statements Reference information 181 Branches and representative offices 186 Subsidiary and affiliated banks 187 Licenses, permits, certificates 190 Contact details Gazprombank Group Annual Report 2008 Statement of the Chairman of the Board of Directors Dear Shareholders, The year 2008 has proven both Gazprombank’s reliability and efficiency in harsh economic environment and its role as a key financial institution capable of performing at the national-scale level. Gazprombank has become an active participant of government programs of supporting the banking system and companies operating in the real economy segment. Given the scope of the tasks at hand, both the shareholders and the state increase the Bank’s equity to maintain its stability and enhance its operating excellence for the benefit of major strategic corporations, the people of Russia, and the national economy as a whole. For almost 20 years, Gazprombank has been a key element of the Gazprom Group, providing comprehensive banking services for the majority of companies and organizations of the gas industry. The Bank has also performed a wide range of short- and long-term operations. OAO Gazprom is a strategic and the principal shareholder of the Bank. Gazprom and the Bank expand their cooperation both along the traditional and new innovative lines of activity. One of them is promotion of innovations, including development and implementation of new financing procedures for Gazprom Group’s innovative projects. Gazprombank plays an important social role, too, servicing more than 2.8 million retail customers. Hundreds of thousands of them keep their savings with the Bank and apply here for lending. I am sure that in a time of the global financial crisis Gazprombank will not only keep but also boost its potential, gain invaluable experience and secure its position as one of the leading banks of Russia. Chairman of the Board of Directors, Gazprombank (Open Joint-stock Company) Chairman of the Management Board, OAO Gazprom Alexey B. Miller 2 Statement of the Chairman of the Management Board Dear Shareholders, Customers and Partners, The past year saw the origin of a global economic crisis. Russia’s banking sector was one of the first to face its blows. Closing of international sources of finance, growing instability of currencies, capital outflow, collapse of stock markets – these, along with many other hardships of our present-day life, could not leave Gazprombank spared. Notwithstanding that, we managed to remain a reliable, dynamic and professional partner. Foreseeing the coming difficulties, Gazprombank Group’s management deliberately opted for a conservative and careful policy. We generated sufficient reserves of liquidity and streamlined our balance sheet structure. This helped to survive external shocks, minimize losses, and adequately assess risks and opportunities. Steps taken helped the Bank to keep the existent and find many new customers, including large Russian corporations. Gazprombank’s loan portfolio increased significantly for the year while the assets in general almost doubled in 2008. The number of individual depositors exceeded 2.8 million people, and the volume of deposits grew by 35%, which is better than in 2007. Our regional network development resulted in the opening of three branch offices in Yakutsk, Khabarovsk and Cheboksary, bringing their total number to 40 this year. The Bank managed to reimburse its foreign loans worth USD1 billion, confirming its repute as one of the most stable and reliable banks in Russia, Central and Eastern Europe. As always, we have something to tell our shareholders and offer to our customers. The Bank’s performance is provided in the statement below. However, we acquired a lot of new features last year, which I would like to specify separately. As soon as the global financial crisis hit Russia, Gazprombank took an active part in working out and implementing measures of state support for the financial and real economy sectors. Our representatives worked in a lot of working groups regardless of industrial specification or the administrative level – from city administrations, federal ministries to the Russian Government. In the period from September to December 2008, Gazprombank received 543 billion Roubles from 3 Gazprombank Group Annual Report 2008 the Finance Ministry and the Bank of Russia to pursue anti-crisis activities. Support provided by the Bank amounted to 553 billion Roubles, which is 10 billion Roubles more than we received. In our anti-crisis work we focused primarily on the restructuring of weak banks and lending to strategic companies in the most important industries, such as agriculture, food industry, defense industry and transportation, electric-power supply industry, nuclear, oil, petroleum, chemical, oil and gas industries. The Bank also took part in the government programs of mortgage loan restructuring. Today we deem our duty to think strategically and act for the good of the country. In doing so we met full understanding and support of our shareholders, whose direct involvement resulted in bringing the Group’s capital to 135 billion Roubles (calculated in line with the Central Bank’s requirements). Our plans for 2009 are just as large-scale as in the preceding year. We will need a greater mobilization of the Bank’s internal resources and consolidation of efforts by all members of the Gazprombank Group. Tens of thousands of companies, millions of people, everyone who needs financial support and keeps savings with us wants to see a reliable and efficient bank. In this regard I think it necessary to hand it to the employees of Gazprombank, whose dedication and professionalism made the aforementioned accomplishments reality. No wonder, the crisis made us cut expenses, reduce bonuses, and abandon a number of fringe benefits. But we managed to avoid layoffs, because we value every single specialist, and place teamwork as one of our priorities. The Bank’s management will stick to these rules in the future. Crises come and go, but eternal values remain. The Bank was extremely meticulous about its charity work and sponsorship activities in 2008. Even in a time of crisis our social responsibility calls for providing selfless help to those in need. We are glad to say that we managed to accomplish everything that had been planned. 4 I hope the Annual report you find below will once again prove our adherence to the Bank’s traditions – high quality of services, steady development, wise diversification, careful risk-taking and unconditional fulfillment of our commitments. These are things that make up the Bank’s reputation, which is so dear to us. I wish you every success and hope for further fruitful cooperation. Yours faithfully, Andrey I. Akimov Chairman of the Management Board, Gazprombank (Open Joint-stock Company) 5 Reactor assembly. Vertical lathe operator Nikolay A. Danilkin checking draft figures Saint-Petersburg, North-Western Federal District Gazprombank Group Annual Report 2008 Group image 2008 milestones Lines of activity Key performance indicators over 5 years Gazprombank’s position Banking Group’s geography Shareholders Board of Directors Management Board 2008 milestones January Gazprombank is one of the underwriters of a RUR10 billion issue of OAO AIZhK’s Series A11 bonds with maturity date in 2020 – the longest maturity term of all corporate bonds in Russia. February Closing of a RUR1.3 billion deal on the sale of investments into OOO Gaztehlizing. The Bank wins the tender for attraction of OAO AK Transneft’s idle funds. Gazprombank appears on the list of banks for attraction of GK Olimpstroi's idle funds. Gazprombank’s Eurobonds are included in the Central Bank’s Lombard list. March GPB (OJSC) joins the Memorandum on the construction of a power station in the Yamal-Nenets Autonomous District. The Bank draws upon a USD450 million syndicated loan from a pool of foreign banks. April The Bank signs an option agreement with Fortress Minerals Corp. on the purchase of 51% in its subsidiary entitled to develop a gold ore field in the Khabarovsk region. Gazprombank repays a USD166.7 million tranche of a syndicated loan. May Gazprombank and China Export and Credit Insurance Corporation (SINOSURE) enter into a cooperation agreement. GPB (OJSC) is an underwriter of a RUR1.6 billion issue of OAO OMZ’s Series 06 bonds. June GPB (OJSC) signs a cooperation agreement with the Federal Service for Military and Technical Cooperation. The Bank signs documents on project financing of the second stage of the Sakhalin-2 project worth USD5.3 billion, the first deal of such caliber in Russia. Gazprombank has been Gazprom’s financial advisor on the project since 2006. Gazprombank is one of the underwriters of a RUR10 million issue of OAO MTS’s Series 03 bonds with maturity date in 2018. GPB (OJSC) issues USD500 million Eurobonds with maturity date in 2013.