T T R ANNUAL REPO ANNUAL 2011 from INTENTIONS to LIFE LIFE ANNUAL REPORT to INTENTIONS INTENTIONS from total pages: 124 ANNUAL REPORT 2011 from INTENTIONS to LIFE CONTENTS: EURASIAN BANK HIGHLIGHTS 2 LETTER FROM THE CHIEF EXECUTIVE OFFICER 5 MANAGEMENT TEAM 9 5-YEAR SELECTED IFRS CONSOLIDATED FINANCIALS 10 1 SUMMARY OF CONSOLIDATED PERFORMANCE 13 MARKET ENVIRONMENT 13 BUSINESS SEGMENTS 15 2 fiNANciAL STATEMENT 23 STATEMENT OF INCOME 2011 VS. 2010 23 BALANCE SHEET HIGHLIGHTS 2011 VS 2010 27 STATEMENT OF INCOME 2010 VS. 2009 33 BALANCE SHEET HIGHLIGHTS 2010 VS 2009 38 3 RECENT DEVELOPMENTS 43 RECENT DEVELOPMENTS 43 CORPORATE GOVERNANCE 44 MANAGEMENT BOARD 46 FORWARD LOOKING STATEMENTS 51 Independent Auditors’ Report 53 4 RISK MANAGEMENT 55 COMPANY INFORMATION 61 5 CONSOLidATED FINANciAL STATEMENTS 63 ANNUAL REPORT from INTENTIONS to LIFE 2011 Financial figures in this annual report are taken from the corresponding year’s audited consolidated financial statements and their accompanying notes. Numbers may be rounded or represented graphically. Totals and percent changes presented in the document reflect the calculations of the unrounded numbers, and may be different from the calculations performed on the rounded figures. The reader should read the accompanying audited financial statements and notes for the 2010-2011 years. Prior years audited financial statements are available on tenge tends to trade in a fairly stable range against the US the company website (www.eubank.kz). For simplification, dollar, there was a one time devaluation from 120 tenge to the annual report presents data in millions of tenge, and on the US dollar to 150 tenge to the US dollar in February 2009. occasion, charts present data in with billions of tenge. The Readers who may be converting financial figures presented audited financial statements present data in thousands of in the report in tenge, should be aware that data for 2009 tenge. In all cases, the units are stated. and prior years is not convertible to US dollars at the 2011 Any comparative data to the Kazakhstan banking sector rate. The data on the official rate for the tenge is presented (including market shares, loan portfolio quality) is drawn on the National Bank’s website (www.nationalbank.kz). from official reports to the Kazakhstan financial regula- Forecasts and historical data for the Kazakhstan econ- tor, the Committee for Financial Supervision (a part of the omy are available from multilateral organisations, such as National Bank), and are also available in English from their the World Bank and International Monetary Fund. Histori- website (www.afn.kz). All data reported to the regulator is cal data is also available from the Kazakhstan Government’s accounted under Kazakhstan GAAP on a non-consolidated official Statistical Agency, and available from their website basis. The numbers are not directly comparable to the IFRS (www.stat.kz). A number of domestic and international fi- data for the Eurasian Bank Group presented in the financial nancial institutions and research groups make forecasts statements and in this annual report. available for their clients. Any historical economic data is Any figure recorded in tenge that has been converted into based on data from the Statistical Agency or from Govern- US dollars for the readers convenience, has been converted at ment releases. the year end 2011 National Bank of the Republic of Kazakh- stan official rate of 148.4 tenge to the US dollar. While the p. 2 WWW.EUBANK.KZ EURASIAN BANK ANNUAL REPORT 2011 EURASIAN BANK HIGHLIGHTS Eurasian Bank JSC is a Kazakhstani bank offering corpo- cused on Natural Resources, Energy and Power, Transport rate, SME and retail banking services to its clients. Eurasian and Agriculture. In 2010 Eurasian Bank acquired a bank in Bank ended 2011 as the 10th largest bank in Kazakhstan by Russia, which represents a very modest portion of the busi- assets, with almost 3% of banking sector assets. Eurasian ness. In 2011 the Bank acquired ProstoKredit, giving the Bank’s activities are currently focused on the Almaty region, Bank a larger consumer finance operation in Kazakhstan. as well as the rest of the country. Commercial banking is fo- Key Financial Figures (KZT bln) kzt bln 2009 2010 2011 Total Assets 321.3 356.9 369.4 Customer Loans 149.0 213.3 256.0 Client Deposits 240.6 245.8 245.6 Equity 24.2 25.6 31.9 Operating Income 8.7 12.3 25.6 Costs 24.4 10.9 17.6 Net Income -9.4 0.6 6.0 Total Comprehensive Income -9.7 1.4 6.3 Tier 1 Capital Adequacy Ratio (FMSC)* 11.8% 9.4% 6.6% Total Capital Adequacy Ratio (FMSC) 17.1% 14.2% 11.8% * Under FMSC rules, Tier 1 capital does not include undistributed net profit of current year. Market Shares** Jan-10 Jan-11 Jan-12 Assets 2.8% 3.0% 2.9% Customer Loans (Net) 2.4% 3.3% 3.5% Corporate Deposits 2.3% 3.3% 3.3% Retail Deposits 5.1% 3.8% 2.3% ** Source: FMSC website. Ratings Foreign Currency Local Currency National Scale Outlook Long-term Short-term Long-term Short-term Long-term Standard & Poors B+ B B+ B kzBBB Stable rating date 12-Dec-11 9-Nov-09 12-Dec-11 9-Nov-09 12-Dec-11 12-Dec-11 Long-term Long-term Senior Subordinated Bank Financial Short-term Outlook Bank Deposits Unsecured Debt Debt Strength Moody’s B1 B1 B1 B2 E+ NP Negative rating date 9-Jul-03 24-Feb-09 30-Jun-10 18-Mar-11 9-Jul-03 9-Jul-03 24-Feb-09 p. 3 from INTENTIONS to LIFE AN BANK AN si A R U E > MICHAEL EggLETON p. 4 WWW.EUBANK.KZ ANNUAL REPORT 2011 LETTER FROM THE CHIEF EXECUTIVE Chief Executive OFFICER Officer Eurasian Bank Dear Shareholders, Customers and Partners, 2011 has been a year of true progress for the Bank. he financial and operat- modities, which are the core of export earnings and FDI into ing results highlight Eurasian the country. While many other parts of the economy have Bank’s continued transformation not yet shown a return to their pre-2008 levels, consumers to one of the few genuinely active are gaining confidence, leading to growth in retail lending. banks in Kazakhstan. operating In- This was really the only segment showing sustained growth come grew by 109% to KZT25.6 bln in lending in the country, and has been a focus of Eurasian (USD172.7 million ), and Net Income Bank in 2011 with the acquisition of the Kazakh retail busi- reached KZT6.0 bln (USD42.4 million). Most of the current ness of Société Générale (ProstoKredit). The acquisition has Tmanagement team has been in place since the first quarter led to Eurasian Bank holding a larger position in consumer in 2010. In 2010 we focused on putting the bank on sound finance in Kazakhstan. footing, by upgrading our team, deploying our funds, and Eurasian Bank is one of the few banks in the country that improving processes and procedures to ensure good control has shown significant lending growth in the past two years. of all our risks; including centralizing and updating the risk Much of the sector is still trying to recover from the liquid- procedures to international standards. This difficult process, ity and asset quality crisis that started in late 2007. Eurasian and the work carried out to clean-up bad loans, led to the re- Bank’s growth comes from a combination of the economic sults achieved this year, as well as to the sustainable growth growth, the well defined strategy and risk control meas- strategy that is in place. ures put in place, and strong shareholder support to date Kazakhstan’s economy has shown another year of strong (through equity funding and backing of the growth strategy). growth, with GDP rising by 7.5%. This growth has been Clearly, the weakness of a number of competitors and the driven by the strong markets for energy and mineral com- reduced focus of some international players on Kazakhstan p. 5 ANNUAL REPORT from INTENTIONS to LIFE 2011 We continue to focus on profitable “growth. has provided opportunities. our task is to make these oppor- lenging sector to bank. It continues to be difficult to find tunities into longer-term advantages for the Bank. Renewed sufficient credible opportunities to lend with the comfort of restructuring of one of the major Government controlled good security, good management and good business funda- banks gives us some concern, both in terms of potential mentals at net returns which appropriately reflect the risk of non-economic driven behavior, as well as potential reputa- borrowers. Furthermore, the interest rates that we can get tional damage internationally for the entire banking sector. from this sector are significantly lower than in the Retail While we have grown our loan book in all reported seg- sector, in spite of a worse NPl and loan recovery dynamic ments in 2011, the real leader was consumer lending. This (on a relative basis) as well as less third party confirmations growth was a product of both the general growth in this seg- or data that can be independently collected as in the retail ment, as well as our acquisition of business of ProstoKredit lending business (such as credit bureaus and salary confir- at the beginning of the year. Going forward, we continue to mations). We continue to look for lending opportunities in focus on growth in the retail sector, with an increasing prod- this market, as it is important for our aims of having a bal- uct and service offer aimed to capture business from middle anced business portfolio.