Home Credit and Finance Bank

Transcription

1 Condensed Consolidated Interim Financial Statements (unaudited)

2 Contents Condensed Consolidated Interim Statement of Profit or Loss Condensed Consolidated Interim Statement of Comprehensive Income Condensed Consolidated Interim Statement of Financial Position Condensed Consolidated Interim Statement of Changes in Equity Condensed Consolidated Interim Statement of Cash Flows

3 Condensed Consolidated Interim Statement of Profit or Loss 9 month 9 month 3 month 3 month period ended period ended period ended period ended 30 Sep Sep 2014 Note Interest income 4 47,256 57,339 14,846 17, 578 Interest expense 4 (24,3072 (18,9812 (7,4342 (6,2712 Net interest income 22,949 38,358 7,412 11,307 Fee and commission income 5 11,453 15,976 4,043 5,530 Fee and commission expense 6 (1,9612 (2,1592 (5112 {7062 Net fee and commission income 9,492 13,817 3,532 4,824 Other operating income, net 7 1, Operating income 34,262 53,150 11,475 16,664 Impairment losses on loans to customers 8 (29,658) (37,924) (7,411) (11,032) Impairment losses on property, equipment and intangible assets 8 (140) (445) 100 Recovery/(impairment losses) on other assets 8 4 (3) 4 (1) General administrative expenses 9 (15,643) (19,603) (4,519) ~5,691) Operating expenses (45,4372 (57,9752 (11,8262 (16,7242 Loss before tax (11,175) (4,825) (351) (60) Income tax benefit/( expense) 10 1, (842 (1012 Loss for the period {9,274) {4,179) {435) {161) The condensed consolidated interim financial statements as set out onpages 3 to 40 were approved by the Board of Management on 4 December Y. Andresov Chief Financial Offi~cr """' :. I. Kolikova The condensed consolidated interim statement of profit or loss is to be read in conjunction with the notes to, and forming part of, the condensed consolidated interim financial statements. 3

4 Condensed Consolidated Interim Statement of Comprehensive Income 9 month 9 month 3 month 3 month period ended period ended period ended period ended 30 Sep Sep 2014 Loss for the period, recognised in condensed consolidated interim statement of profit or loss (9,274) (4,179) (435) (161) Other comprehensive loss that is or may be reclassified subsequently to profit or loss. Revaluation reserve for financial assets available for sale: net change in fair value of financial assets available for sale, net of tax (36) (25) (46) (50) net change in fair value of financial assets available for sale transferred to profit or loss, net of tax 168 (6) 2 41 Cash flow hedge reserve: effective portion of changes in fair value, net of tax 508 1,958 1,781 1,540 net amount transferred to profit or loss, net of tax (1,055) (1,758) (1,918) (1,609) Effect of foreign currency translation ~1,891) 28 ~1,585~ 846 Other comprehensive {loss)/income for the period, net of tax (2,306) 197 (1,766) 768 Total comprehensive (loss)/income for the period (11,580) (3,982) (2,201) 607 Y. Andresov Chief Financial Offic:w r..., ~ I. Kolikova The condensed consolidated interim statement of comprehensive income is to be read in conjunction with the notes to, and forming part of, the condensed consolidated interim financial statements. 4

5 Condensed Consolidated Interim Statement of Financial Position as at 30 September 2015 ASSETS Cash and cash equivalents Placements with banks and other financial institutions Loans to customers Positive fair value of derivative instruments Financial assets available for sale Property, equipment and intangible assets Assets classified as held for sale Investment in associate Deferred tax asset Current income tax receivable Other assets Total assets LIABILITIES AND EQUITY Note Dec ,665 33,862 9,830 15, , ,779 10,488 9,570 25,415 18,120 9,324 11, ,555 2, , , Liabilities Debt securities issued Subordinated debt Due to banks and other financial institutions Current accounts and deposits from customers Negative fair value of derivative instruments Deferred tax liability Other liabilities Total liabilities Equity Charter capital Other capital contributions Revaluation reserve for financial assets available for sale Cash flow hedge reserve Translation reserve Retained earnings Total equity attributable to equity holders of the Group Total liabilities and equity ,378 17,323 29,612 37,259 11,376 38, , , ,970 5, , ,092 4,406 4,406 10,631 10, (113) ,024 2,915 24, ,230 52, , ,740 Y. Andresov ChiefFinancial Offi~er I. Kolikova ~ The condensed consolidated interim statement of financial position is to be read in conjunction with the notes to, and forming part of, the condensed consolidated interim financial statements. 5

6 Condensed Consolidated Interim Statement of changes in equity Attributable to equity holders of the Group Revaluation reserve for Cash flow Charter Other capital financial assets hedge Translation Retained capital contributions available for sale reserve reserve earnings Total Balance at l January ,406 10, ,878 55,196 Loss for the period (4,179) (4,179) Revaluation reserve for financial assets available for sale: net change in fair value, net of tax (25) (25) net change in fair value transferred to profit or loss, net of tax (6) (6) Cash flow hedge reserve: effective portion of changes in fair value, net of tax 1,958 1,958 net amount transferred to profit or loss, net of tax (1,758) (1,758) Effect of foreign currency translation Total comprehensive loss for the period (31) {4,179) p,982) Dividends paid (1,211) (1,211) Balance at 30 September 2014 (unaudited) (26) ,488 50,003 Balance at l January ,406 10,631 (113) 666 2,915 34,143 52,648 Loss for the period (9,274) (9,274) Revaluation reserve for financial assets available for sale: net change in fair value, net of tax (36) (36) net change in fair value transferred to profit or loss, net of tax Cash flow hedge reserve: effective portion of changes in fair value, net of tax net amount transferred to profit or loss, net of tax (1,055) (1,055) Effect of foreign currency translation (1,891) (1,891) Total comprehensive loss for the period 132 (547) (1,891) (9 274) (11,580) Dividends paid (838) (838) Balance at 30 September 2015 (unaudited) , ,230 ChiofFimmcial Off~ A, Y. Andresov I. Kolikova,.; 6

7 Condensed Consolidated Interim Statement of Cash Flows Note 9 month period ended 9 month period ended 30 Sep 2014 Cash flow from operating activities Interest received Interest paid Fees and commissions.received Fees and commissions paid Net receipts from foreign exchange transactions Other operating income received Administrative and other operating expenses paid Income tax paid Cash flows from operating activities before changes in operating assets and liabilities 47,453 (22,269) 11, 731 (1,943) (12,349) (306) 23,601 58,002 (19,410) 15,505 (2,154) 1, (17,849) (581) 35,381 Changes in operating assets and liabilities Net decrease/(increase) in placements with banks and other financial institutions Net increase in financial assets available for sale Net decrease in loans to customers Net decrease in other assets Net decrease in current accounts and deposits from customers Net (decrease)/increase in due to banks and other financial institutions Net increase/( decrease) in other liabilities 6,276 (7,041) 20, (291) (26,632) 33 (851) (4,951) 5, (9,639) 18,154 (38) Net cash from operating activities 16,875 44,713 Cash flows used in investing activities Dividends from associate Proceeds from sale of property and equipment Acquisition of property, equipment and intangible assets ~l, (1,9252 Net cash used in investing activities (8852 (1,9172 Cash flows used in financing activities Proceeds from the issue of debt securities Repayments of debt securities issued Repayments of subordinated debt Dividends paid 190 (5,181) (10,861) ~8382 1,284 (26,325) (1,2112 Net cash used in financing activities p6,6902 (26,2522 Net increase in cash and cash equivalents (700) 16,544 Effect of exchange rate changes on cash and cash equivalents 1,503 1, 758 Cash and cash equivalents at 1 January 11 33,862 43,323 Cash and cash equivalents at 30 September 34,665 61,625 Chairman of the Board of Management Y. Andresov ChiefFinancial Offi~ ~ I. Kolikova ~.. 7

8 1. Description of the Group OOO "" (the "Bank") was established in the Russian Federation as a Limited Liability Company and was granted its banking licence in In 2002 the Bank was acquired by Home Credit Group. On 13 October 2011 the Bank received General Banking Licence #316 from the Central Bank of Russia (the "CBR"). The Bank together with its subsidiaries is further referred to as the Group. Registered office 8/1 Pravda st Moscow Russian Federation Participants Country of incorporation Ownership interest (%) 31 Dec 2014 Home Credit B.V. Home Credit International a.s. The Netherlands Czech Republic The ultimate controlling owner is Petr Kellner, who exercises control over the Group through PPF Group N.V. registered in the Netherlands. Consolidated subsidiaries Country of incorporation Ownership interest (%) 31 Dec 2014 Financial Innovations (LLC) Russian Federation Bonus Center Operations (LLC)* Russian Federation Bank Home Credit (SB JSC) Kazakhstan Eurasia Capital S.A. Luxemburg see below see below Eurasia Structured Finance No.1 S.A.* Luxemburg see below see below HC Finance (LLC) Russian Federation see below see below Eurasia Structured Finance No.3 B.V. The Netherlands see below see below HC Finance No.2 (LLC) Russian Federation see below see below Eurasia Structured Finance No.4 B.V. The Netherlands see below see below Eurasia Capital S.A., Eurasia Structured Finance No.1 S.A., HC Finance (LLC), Eurasia Structured Finance No.3 B.V., HC Finance No.2 (LLC) and Eurasia Structured Finance No.4 B.V. are special purpose entities established to facilitate the Group s issues of debt securities and subordinated debt. * As at 30 September 2015 Eurasia Structured Finance No.1 S.A. and Bonus Center Operations (LLC) were in the process of liquidation. Associate Country of incorporation Ownership interest (%) 31 Dec 2014 Equifax Credit Services (LLC) Russian Federation Council Board of Management Jiri Smejc Irina Kolikova Galina Vaisband Yuly Tai Chairman Deputy Chairman Member Member Yuriy Andresov Dmitri Mosolov Artem Aleshkin Aleksandr Antonenko Martin Schaffer Olga Egorova Chairman First Deputy Chairman Deputy Chairman Deputy Chairman Deputy Chairman Member 8

9 1. Description of the Group (continued) Principal activities The activities of the Group are regulated by the CBR and the activities of the subsidiary bank JointStock Company (Bank Home Credit (SB JSC)) are regulated by the National Bank of the Republic of Kazakhstan (the "NBRK"). The principal activity of the Group is the provision of the full range of banking products and services to individual customers across the Russian Federation and the Republic of Kazakhstan such as lending, deposit taking, saving and current accounts service and maintenance, payments, debit cards issuance and maintenance, Internetbanking, payroll and other banking services. The loans are offered to existing and new customers across the Russian Federation and the Republic of Kazakhstan via a national wide distribution network comprising variable channels: own banking offices, points of sale at retailers, Russian Post branches, Kazakh Post branches and other third parties. As at 30 September 2015 the Bank's distribution network comprised the head office in Moscow and 7 branches in Ufa, RostovonDon, SaintPetersburg, Yekaterinburg, Novosibirsk, Khabarovsk, Nizhniy Novgorod, 334 standard banking offices, 4,227 loan offices, 79 regional centres, 2 representative offices and over 87 thousand points of sale which cover over 2,000 residential areas in the Russian Federation and 4 Russian post offices. As at 30 September 2015 the ATM network comprised 805 ATMs and payment terminals across the Russian Federation. As at 30 September 2015 the distribution network in Kazakhstan comprised 42 standard banking offices, 5,340 loan offices and points of sale and 235 Kazakhstan post offices. As at 30 September 2015 the ATM network of Bank Home Credit (SB JSC) comprised 320 ATMs and payment terminals across Kazakhstan. 2. (a) (b) Basis of preparation The condensed consolidated interim financial statements follow, in the context of measurement, all requirements of International Financial Reporting Standards (IFRS). The disclosures in these condensed consolidated interim financial statements have been presented in accordance with IAS 34 Interim Financial Reporting, and therefore should be read in conjunction with the Group s annual consolidated financial statements for the year ended 31 December 2014, as these condensed consolidated interim financial statements provide an update of previously reported financial information. Basis of measurement The condensed consolidated interim financial statements are prepared on the historical cost or amortised historical cost basis except that financial instruments at fair value through profit or loss and availableforsale assets are stated at fair value. Other financial assets and liabilities are stated at amortised cost. Nonfinancial assets and liabilities are stated at historical cost, restated for the effects of inflation as described in Note 3(b) of the Group's annual consolidated financial statements for the year ended 31 December Presentation and functional currency The national currency of the Russian Federation is the Russian Rouble ("RUB"). Management determined functional currency of the Bank and all of its subsidiaries, except Bank Home Credit (SB JSC), to be the RUB as it reflects the economic substance of the majority of underlying events and circumstances of the Group. The functional currency of Bank Home Credit (SB JSC) is Kazahstan Tenge ("KZT"). The RUB is the Group s presentation currency for the purposes of these consolidated financial statements. Financial information presented in RUB is rounded to the nearest million unless otherwise stated. 9

10 2. Basis of preparation (continued) (c) 3. a) Business environment The Group s operations are primarily located in the Russian Federation and the Republic of Kazakhstan. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation and the Republic of Kazakhstan, which display emergingmarket characteristics. Legal, tax and regulatory frameworks continue to be developed, but are subject to varying interpretations and frequent changes that, together with other legal and fiscal impediments, contribute to the challenges faced by entities operating in the Russian Federation and the Republic of Kazakhstan. The current economic and geopolitical environment has impacted the Russian economy in a number of ways, including lower growth, a volatile currency, liquidity strains and financial stress on consumers. These and other factors create risks for the Group s local business activities. The Group s management takes all the necessary steps to support the economic stability of the Group and its operations in the current circumstances. The condensed consolidated interim financial statements reflect management s assessment of the impact of the business environment of the Russian Federation and the Republic of Kazakhstan on the operations and financial position of the Group. The future business environment may differ from management s assessment. Significant accounting policies The significant accounting policies applied in the preparation of the condensed consolidated interim financial statements are consistent with those used in the preparation of the Group's annual financial statements for the year ended 31 December New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations were not yet effective as at 30 September 2015, and were not applied in preparing these condensed consolidated interim financial statements. Of these pronouncements, potentially the following will have an impact on the financial position and performance. The Group plans to adopt these pronouncements when they become effective. IFRS 9 Financial Instruments, published in July 2014, is intended ultimately to replace International Financial Reporting Standard IAS 39 Financial Instruments: Recognition and Measurement. The Group recognises that the new standard introduces many changes to accounting for financial instruments and is likely to have a significant impact on the condensed consolidated interim financial statements. The Group has not analysed the impact of these changes yet. The Group does not intend to adopt this standard early. The standard will be effective for annual periods beginning on or after 1 January 2018 and will be applied retrospectively with some exemptions. IFRS 15 Revenue from Contracts with Customers supersedes IAS 11 Construction Contracts ; IAS 18 Revenue ; IFRIC 13 Customer Loyalty Programmes ; IFRIC 15 Agreements for the Construction of Real Estate ; IFRIC 18 Transfers of Assets from Customers and SIC31 Revenue Barter Transactions Involving Advertising Services. The new standard results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multipleelement arrangements. The standard will be effective for annual periods beginning on or after 1 January Early application is permitted. The Group has not yet analysed the likely impact of the standard on its financial position or performance. The Group does not intend to adopt this standard early. Various Improvements to IFRS are dealt with on a standardbystandard basis. All amendments, which result in accounting changes for presentation, recognition or measurement purposes, will come into effect not earlier than 1 January The Group has not yet analysed the likely impact of the improvements on its financial position or performance. 10

11 3. Significant accounting policies (continued) b) Comparative numbers Income and expense on interest rate derivatives were reclassified from interest income and interest expense in the amounts of 1,129 and 909 respectively to other operating income for the nine month period ended 30 September 2014 in order to conform the presentation in The reclassification had no impact on the Group's result or equity. 11

12 4. Interest income and interest expense 9 month 9 month 3 month 3 month period ended period ended period ended period ended 30 Sep Sep 2014 Interest income Loans to individuals 43,449 55,861 13,521 16,842 Financial assets available for sale 1, Placements with banks and other financial institutions 1, Amounts receivable under reverse repurchase agreements Loans to corporations ,256 57,339 14,846 17,578 Interest expense Current accounts and deposits from customers 18,878 Subordinated debt 2,371 Due to banks and other financial institutions 1,630 Debt securities 996 Hedging derivative instruments ,170 1,866 1,777 1, , , ,307 18,981 7,434 6,271 12

13 5. Fee and commission income 9 month period ended 9 month period ended 30 Sep month period ended 3 month period ended 30 Sep 2014 Insurance agent commissions Contractual penalties from customers Cash operations Fees from retailers Customer payments processing and account maintenance Pension agent commissions Other 7,327 1, ,659 2,509 1, , ,365 1, ,453 15,976 4,043 5, Fee and commission expense 9 month period ended 9 month 3 month 3 month period ended period ended period ended 30 Sep Sep 2014 Cash transactions Payments to the Deposits Insurance Agency Payments processing and account maintenance State duties Other ,961 2,

14 7. Other operating income, net 9 month period ended Net gain/(loss) on spot transactions and currency derivatives 1,739 Net gain on early redemption of subordinated debt 559 Gain from sale of loans Share of profit of associate 96 Net realised gain on disposal of financial assets available for sale 93 Net gain on early redemption of debt securities issued 18 Net (loss)/gain on interest rate derivatives (110) (Loss)/gain from foreign exchange revaluation of financial assets and liabilities (758) Other (97) Note 1,821 9 month period ended 30 Sep (169) month period ended 1, (1,273) (27) month period ended 30 Sep 2014 (642) Impairment losses Cash loans Credit card loans POS loans Property, equipment and intangible assets Mortgage loans Car loans Loans to corporations Other assets 9 month 9 month 3 month 3 month period ended period ended period ended period ended 30 Sep Sep ,793 7,709 3, (4) 29,794 24,373 8,909 4, (37) (6) (18) 3 38,372 4,226 1,985 1,086 (100) 114 (4) 7,307 6,763 3,125 1, (23) 1 11,033 14

15 9. General administrative expenses Note 9 month period ended 9 month period ended 30 Sep month period ended 3 month period ended 30 Sep 2014 Personnel related expenses Depreciation and amortisation Payroll related taxes Occupancy Professional services Telecommunication and postage Repairs and maintenance Information technology Taxes other than income tax Travel expenses Advertising and marketing Other 26 6,827 2,012 1,431 1,273 1, ,235 2,049 1,848 2, , , , ,643 19,603 4,519 5,691 Business optimisation programme During the nine month period ended 30 September 2015 the Group continued its business optimisation programme in the Russian Federation to increase effectiveness of business and optimise costs, including staff cost optimisation and closure of less effective offices. During the nine month period ended 30 September 2015 as a result of closure of offices the Group recognised general administrative expenses of 748 including provision for restructuring of 34 (Note 23) (during the nine month period ended 30 September 2014: 585 including provision for restructuring of 174). 15

16 10. Income tax benefit/(expense) 9 month period ended 9 month period ended 3 month period ended 3 month period ended 30 Sep Sep 2014 Current tax expense (695) (287) (231) 82 Current tax underprovided in previous periods (117) 3 Deferred tax benefit 2, (183) 1, (84) (101) Reconciliation of effective tax rate Loss before tax Income tax using the applicable tax rate (20%) Dividends from Bank Home Credit (SB JSC) Nontaxable income/(net nondeductible costs) Income taxed at lower tax rates Current tax underprovided in previous periods 9 month 9 month 3 month 3 month period ended period ended period ended period ended 30 Sep Sep 2014 (11,175) (4,825) (351) (60) 2,235 (186) 965 (132) 70 (92) 12 (43) (201) (65) (113) (117) 3 1, (84) (101) 16

17 10. Income tax benefit/(expense) (continued) The tax effects relating to components of other comprehensive income comprise: 9 month period 9 month period 3 month period 3 month period ended ended 30 Sep 2014 ended ended 30 Sep 2014 Tax Amount Tax Amount Amount benefit / Amount before benefit/ Amount before Tax Amount before Tax (expense) net of tax tax (expense) net of tax tax benefit net of tax tax benefit Amount before tax Amount net of tax Net change in fair value of financial assets available for sale 165 (33) 132 (39) 8 (31) (55) 11 (44) (11) 2 (9) Cash flow hedge reserve (684) 137 (547) 250 (50) 200 (171) 34 (137) (86) 17 (69) (519) 104 (415) 211 (42) 169 (226) 45 (181) (97) 19 (78) 17

18 11. Cash and cash equivalents 31 Dec 2014 Amounts receivable under reverse repurchase agreements 13,723 Placements with banks and other financial institutions due within one month 10,870 8,296 Cash 4,560 16,382 Nostro accounts with the CBR 4,485 5,184 Nostro accounts with the NBRK 1,027 Placements with the CBR 4,000 34,665 33,862 Placements with banks and other financial institutions shown above comprise nostro accounts and loans and deposits. None of the items described above are impaired or past due. 12. Placements with banks and other financial institutions 31 Dec 2014 Term deposits with banks and other financial institutions due after one month 6,923 11,640 Placements with MasterCard and VISA 1,510 1,314 Minimum reserve deposit with the CBR 1,192 1,988 Minimum reserve deposit with the NBRK ,830 15,372 The minimum reserve deposit with the CBR is a mandatory noninterest bearing deposit calculated in accordance with regulations issued by the CBR whose withdrawability is restricted. In accordance with regulations issued by the NBRK, minimum reserve requirements are calculated as a percentage of particular Bank Home Credit s (SB JSC) liabilities. Bank Home Credit (SB JSC) is required to comply with these requirements by maintaining average cash and nostro accounts with the NBRK in local currency equal or in excess of the average minimum requirements. Placements with MasterCard and VISA are security deposits whose withdrawability is restricted. None of the items described above are impaired or past due. 18

19 13. Loans to customers Cash loans 128,872 POS loans 48,411 Credit card loans 35,674 Mortgage loans 4,655 Car loans 23 Loans to corporations 3,706 Impairment allowance (35,819) 185, Dec ,523 63,636 46,420 4, (47,884) 244,779 As at 30 September 2015 Cash loans receivables shown above included loans with a gross value of 79,752 originated under new underwriting criteria since 1 September 2013 (31 December 2014: 83,991). The Group provides pointofsale loans ("POS loans") for any purpose including household goods, services and other purposes. Credit cards are generally issued for 3 years and have an average credit limit of TRUB 70 and require a minimum monthly payment of 5% of the outstanding credit balance on the respective credit card, credit cards are issued since 21 June 2015 require a minimum monthly payment of 5% of the outstanding principal balance and other charges on the respective credit card (31 December 2014: 3 years and TRUB 62 respectively and a minimum monthly payment of 5% of the outstanding credit balance). As at 30 September 2015 the average loantovalue ratio for mortgage loans was 58% (31 December 2014: 60%). As at 30 September 2015 loans to corporations included secured loans with the total carrying amount of 3,327 pledged with mortgages of 5,600 and loantovalue ratio of 59%. The following table provides the average size of loans granted and the average contractual term by type of loans: Size TRUB Term Months 31 December 2014 Size TRUB Term Months Cash loans POS loans Total allowances for impairment by product classes to nonperforming loans ("NPLs") by product classes: 31 December 2014 Provision Provision NPLs coverage NPLs coverage % % Cash loans 18, , POS loans 4, , Credit card loans 8, , Mortgage loans Car loans Total 32, ,

20 13. Loans to customers (continued) Nonperforming loans are defined by the Group as loans and receivables overdue for more than 90 days. Loans and receivables, except for mortgage and car loans, overdue for more than 360 days are written off. Mortgage and car loans and receivables overdue over 720 days are written off. Some of the loans written off can be subsequently sold. During the nine month period ended 30 September 2015 the Group sold nonperforming loans with a gross value including penalties of 16,553 for 182 (nine month period ended 30 September 2014: gross value including penalties of 29,159 for 2,315). During the nine month period ended 30 September 2015 the Group sold performing cash and POS loans to related parties with the gross value of 6,132 for 6,413. The gain of 281 is recognised in other operating income, net (nine month period ended 30 September 2014: performing cash and POS loans with the gross value of 18,558 for 18,732, with a gain of 174) (Note 7). The Group estimated the impairment on loans to customers in accordance with the accounting policy as described in Note 3(j) of the Group's annual consolidated financial statements for the year ended 31 December 2014, unless described below. At the end of 2014 the Group launched loan restructuring aimed at managing customer relationships and maximising collection opportunities. For impairment assessment purposes, such renegotiated loans are kept in the same category of assets as at the date of restructuring unless within a defined period of time the borrowers fail to comply with the renegotiated terms or instead prove their performance under new conditions in which case they are treated as nondelinquent. As at 30 September 2015 renegotiated loans to retail customers amounted to 4,939 (31 December 2014: none). Changes in collection estimates could affect the impairment losses recognised. For example, to the extent that estimated future cash flows of loans differ by plus/minus one percent, the loan impairment allowance as at 30 September 2015 would be 1,855 lower/higher (31 December 2014: 2,448). As at 30 September 2015 cash loans receivables with the total carrying amount of 6,290 (31 December 2014: 6,226) were sold to Eurasia Structured Finance No.3 B.V. and served as collateral in relation to the notes issued by the HC Finance (LLC) as a part of cash loan securitisation transaction (refer to Note 18). Eurasia Structured Finance No.3 B.V. cannot sell or repledge these cash loan receivables (unless the enforcement event contemplated by the relevant documentation occurs) to other parties save for the obligation of the Bank to repurchase ineligible receivables. As at 31 December 2014 POS loans receivable with the total carrying amount of 11,000 served as collateral for a corporate term deposit (refer to Note 21). 20

21 13. Loans to customers (continued) Analysis of movements in impairment allowance Movements in the loan impairment allowance by classes of loans to customers for the nine month period ended 30 September 2015 were as follows: Balance at 1 January Net charge Loans recovered and sold which previously were written off Write offs Cash loans 32,133 17,793 1,576 (28,748) POS loans 6,198 3,921 Effect of foreign currency translation (575) (211) Balance at 30 September (unaudited) 22,179 5,106 Credit card loans 9,234 7, (5,265) (9,387) (92) 8,061 Mortgage loans (10) 465 Car loans 11 3 (6) 8 Loans to corporations Total 47,884 29,658 2,571 (43,498) (796) 35,819 Net charge of impairment allowance for Cash loans of 17,793 shown above includes 7,583 on loans originated under new conditions since 1 September Movements in the loan impairment allowance by classes of loans to customers for the nine month period ended 30 September 2014 were as follows: Balance at 1 January Net charge/ (recovery) Cash loans 33,286 24,373 POS loans 7,433 4,703 Credit card loans 4,968 8,909 Mortgage loans 141 (37) Car loans 19 (6) Loans to corporations 18 (18) Total 45,865 37,924 Loans recovered and sold which previously were written off Write offs Effect of foreign currency translation Balance at 30 September (unaudited) 2,122 (25,283) , (6,295) 316 (5,237) 91 (8) ,863 8, ,519 (11) (36,834) ,713 Net charge of impairment allowance for Cash loans of 24,373 shown above includes 4,341 on loans originated under new conditions since 1 September

22 14. Positive fair value of derivative instruments Hedging derivative instruments Trading derivative instruments 9, , Dec , , Financial assets available for sale Quoted debt securities Note 31 Dec 2014 Unpledged Pledged as collateral under sale and repurchase agreements 20 25,415 10,578 7,542 25,415 18, Property, equipment and intangible assets (a) Intangible assets (b) Cost Accumulated amortisation Net book value Property and equipment Cost Accumulated depreciation Impairment losses 6,075 (3,192) 2, Dec ,296 (2,394) 2, Dec ,467 15,102 (6,026) (6,528) (242) Net book value 6,441 8,332 Movements in the impairment allowance were as follows: Balance at 1 January (242) (193) Impairment losses (140) (445) Amounts related to offices closed Balance at 30 September (unaudited) (322) 22

23 17. Other assets Settlements with suppliers Taxes other than income tax Prepaid expenses Accrued income Other Impairment allowance 31 Dec (2) 1,414 1, Debt securities issued Maturity Stock exchange RUB bond issue 02 of 3,000 February 2016 Cash loan receivables backed notes of 5,000 November 2021/ November 2016* Coupon rate 8.25% 31 Dec 2014 Unsecured RUB bond issue 7 of 5,000 April % 5,092 Fixed, 9.40% 3,025 3,020 4,971 4,966 Unsecured KZT bond issue 1 of Fixed, MKZT 7,000 November % 1,743 2,134 Unsecured KZT bond issue 2 of MKZT 6,769 February 2019 Fixed, 9.50% 1,639 2,111 * Early redemption option date 8,353 11,378 17,323 In April 2010 the Group issued the unsecured RUB denominated bond issue 7 with a fixed coupon rate set for two years and resetable at certain coupon dates. In April 2015 the Group fully repaid the bond issue at par. In February 2013 the Group issued the RUB denominated Stock exchange bond issue 02 with a fixed coupon rate which is valid until the final maturity. In November 2013 the Group issued the RUB denominated cash loan receivables backed notes through HC Finance (LLC) with a fixed coupon rate which is valid until the coupon payment date on 19 January 2017 and capped floating coupon rate from 20 January 2017 till the final maturity. The proceeds from the issue were used to grant an unsecured loan to Eurasia Structured Finance No. 3 B.V. This loan was used to obtain cash loan receivables from the Bank (Note 13). The Bank issued the public offer to purchase the outstanding securitisation bonds on 27 November In November 2013 the Group issued the unsecured KZT denominated bond issue 1 with a fixed coupon rate which is valid until the final maturity. In February 2014 the Group issued the unsecured KZT denominated bond issue 2 with a fixed coupon rate which is valid until the final maturity. 23

24 18. Debt securities issued (continued) Eurasia Capital S.A., HC Finance (LLC), HC Finance No.2 (LLC), Eurasia Structured Finance No.3 B.V. and Eurasia Structured Finance No.4 B.V. are structured entities established by the Group with the primary objective of raising finance through the issuance of debt securities and securitising part of consumer loan portfolio. These structured entities are run according to predetermined criteria that are part of the initial design of the vehicles. The daytoday servicing of the receivables is carried out by the Group under a servicing contract, other key decisions are also made by the Group. In addition, the Group is exposed to a variability of returns from the vehicles through exposure to tax benefits, cost savings related to issuance of debt securities and securitizing part of consumer loan portfolio. As a result, the Group concludes that it controls these structured entities. 19. Subordinated debt Loan participation notes issue of MUSD 500 Loan participation notes issue of MUSD 200 Subordinated borrowings from the parent, MKZT 640 * Early redemption option date / Repayment date Maturity April 2020/ April 2018* April 2021/ April 2019* December 2016/ January 2015* Coupon rate 31 Dec 2014 Fixed, 9.38% 15,766 25,608 Fixed, 10.50% 13,846 11, % ,612 37,259 5 In October 2012 the Group issued MUSD 500 of subordinated seven and a half year loan participation notes at the fixed rate of 9.38% through Eurasia Capital S.A. The terms of the loan agreement include the call option executable on 24 April 2018 ("the reset date"). After the reset date the interest rate is determined as two year US treasuries rate b.p. The proceeds from the issue were used to grant a subordinated loan to the Bank. In November 2012 the issue was registered with the CBR. As at 30 September 2015 the Group bought back the loan participation notes with a cumulative par value of MUSD 271 with result recognised in other operating income, net (Note 7). In October 2013 the Group issued MUSD 200 of Basel III compliant tier 2 seven and a half year loan participation notes at the fixed rate of 10.50% through Eurasia Capital S.A. The proceeds from the issue were used to grant a subordinated loan to the Bank. The terms of the loan agreement include the call option executable on 17 April 2019 ("the reset date"). After the reset date the interest rate is determined as two year US treasuries rate b.p. In November 2013 the issue was registered with the CBR. In January 2015 the Group repaid prematurely subordinated borrowings from the parent at par. 20. Due to banks and other financial institutions 31 Dec 2014 Unsecured loans 10,683 Secured loans Other balances ,376 31,633 6, ,796 24

25 20. Due to banks and other financial institutions (continued) As at 31 December 2014 the Group pledged and transferred financial assets available for sale with carrying amount of 7,542 (Note 15) as collateral for secured loans that had recourse only to the transferred assets. These financial assets might be repledged or resold by counterparties in the absence of any default by the Group, but the counterparty had an obligation to return the securities when the contract matures. The Group determined that it retained substantially all the risks and rewards related to these securities and therefore did not derecognise them. The fair value of the transferred assets available for sale and related secured loans was equal to their carrying amount and net position was Current accounts and deposits from customers 31 Dec 2014 Retail Term deposits Current accounts and demand deposits 151,771 27, ,559 19, , ,900 Corporate Term deposits Current accounts and demand deposits 6,485 16, ,083 16, , ,263 As at 31 December 2014 the balance of corporate term deposit secured by POS loan receivables was 5,749 (refer to Note 13). The Group determined that it retained substantially all the risks and rewards related to these POS loan receivables and therefore did not derecognise them. 22. Negative fair value of derivative instruments Trading derivative instruments Dec Other liabilities 31 Dec 2014 Accrued employee compensation 1,478 1,369 Settlements with suppliers 1,204 2,109 Other taxes payable Provision for litigations Accrued payments to the Deposits Insurance Agency Provision for restructuring 98 Other ,970 5,251 25

26 23. Other liabilities (continued) Movements in the provision for litigations were as follows: Balance at 1 January Net charge Amounts paid (65) (158) Balance at 30 September (unaudited) Movements in the provision for restructuring were as follows: Balance at 1 January Net charge Amounts related to offices closed (132) (101) Balance at 30 September (unaudited)

27 24. Financial instruments The following table shows assets and liabilities as at 30 September 2015 and 31 December 2014 by remaining contractual undiscounted cash flows. Such undiscounted cash flows differ from the amount included in the consolidated statement of financial position because the statement of financial position amount is based on discounted cash flows. Under Russian law, individuals can withdraw their term deposits at any time, forfeiting in most of the cases the accrued interest. The management believes that the majority of deposits will be withdrawn in accordance with their contractual maturity dates as presented in the table below. 30 September December 2014 Less than 1 1 to 3 3 months to More than Less than 1 1 to 3 3 months to More than 5 month months 1 year 1 to 5 years 5 years No maturity Total month months 1 year 1 to 5 years years No maturity Total Assets Cash and cash equivalents 34,881 34,881 33,887 33,887 Placements with banks and other financial institutions 1,637 5,590 2,705 9,932 7,522 4,933 3,732 16,187 Loans to customers 16,344 38, ,498 76,942 1, ,985 24,066 48, , ,365 1, ,199 Positive fair value of derivative instruments 686 2,437 6, ,089 (9) 13 3,994 5,993 9,991 Financial assets available for sale 6,823 1,644 18,283 26, ,042 3,260 18,287 Property, equipment and intangible assets 9,324 9,324 11,234 11,234 Assets classified as held for sale Investment in associate Deferred tax asset 5,555 5,555 1, ,542 Current income tax receivable Other assets , , , ,894 Total assets 58,905 44,076 Liabilities Debt securities issued ,612 8,832 12, ,927 13,481 Subordinated debt 1,408 1,408 35,444 38, ,573 46,780 Due to banks and other financial institutions 4,890 5,201 1, ,606 12,364 16,802 9, Current accounts and deposits from customers 39,419 35, ,550 3, ,551 35,366 42,888 96,383 22,940 Negative fair value of derivative instruments Deferred tax liability Other liabilities 2,427 1, ,970 3,201 1, ,251 Total liabilities 46,799 Irrevocable credit related commitments 6, ,924 2,237 1, ,282 Financial guarantees 2,000 10, ,300 Net offbalance position 6, ,961 77,035 1,905 17, ,552 59,150 62, , ,327 3,866 15, ,588 42, ,242 48, ,395 Net balance position 12,106 1,173 18,719 28,769 1,905 17,485 80,157 7, ,924 51,222 61, ,046 83, ,556 45,853 38,512 3,866 15, ,419 2,237 2,000 11,738 38, ,803 50, , ,169 16,582 Cumulative net position 5,196 6,369 25,088 53,843 55,748 73,233 5,691 5,247 39,362 77,267 81,133 96,837 27

28 24. Financial instruments (continued) Fair value of financial instruments The estimates of fair value are intended to approximate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. However given the uncertainties and the use of subjective judgment, the fair value should not be interpreted as being realisable in an immediate sale of the assets or transfer of liabilities. Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Group determines fair values using other valuation techniques. The following assumptions are used by management to estimate the fair values of financial instruments that are traded in active markets: The estimation of the fair value of debt securities issued was made by using market quotes in the range of % from notional amount for debt securities issued in RUB The estimation of the fair value of subordinated debt was made by using market quotes in the range of % from notional amount for subordinated debt issued in USD. The following assumptions are used by management to estimate the fair values of other financial instruments: The estimation of the fair value of POS, cash and credit card loans was made by using discounting future cash flows at discount rates of 30.0%. The estimation of the fair value of mortgage loans was made by using discounting future cash flows at discount rates of 14.0% The estimation of the fair value of placements with banks and other financial institutions was made by using discounting future cash flows at discount rates of 12.4% in RUB, 6.1% in USD The estimation of the fair value of debt securities issued was made by using discounting future cash flows at discount rates of 13.7% in KZT The estimation of the fair value of due to banks and other financial institutions was made by using discounting future cash flows at discount rates of 12.3% in RUB and 9.7% in KZT The estimation of the fair value of current accounts and deposits from customers was made by using discounting future cash flows at discount rates of 10.5% in RUB, 4.6% in USD, 3.7% in EUR and 9.6% in KZT The Group uses valuation models for determining the fair value of financial instruments at fair value through profit or loss based on FX spot rates as set by the CBR, benchmark interest rates and other inputs. The Group measures fair values for financial instruments recorded in the condensed consolidated interim statement of financial position using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Quoted market price (unadjusted) in an active market for an identical instrument Level 2: Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. 28

29 24. Financial instruments (continued) The Group has a control framework with respect to the measurement of fair values. This framework includes the Risk Department, which is independent of front office management and reports to the Chief Risk Officer, and which has overall responsibility for the independent verification of the results of trading and investment operations and all significant fair value measurements. Specific controls include: verification of observable pricing reperformance of model valuations a review and approval process for new models and changes to models involving both quarterly calibration and the back testing of models against observed market transactions analysis and investigation of significant daily valuation movements review of significant unobservable inputs, valuation adjustments and significant changes to the fair value measurement of Level 3 instruments compared to previous month. Where thirdparty information, such as broker quotes or pricing services, are used to measure fair value, the Risk Department assesses and documents the evidence obtained from the third parties to support the conclusion that such valuations meet IFRS requirements. This includes: verifying that the broker or pricing service is approved by the Group for use in pricing the relevant type of financial instrument understanding how the fair value has been arrived at the extent to which it represents actual market transactions when prices for similar instruments are used to measure fair value, how these prices have been adjusted to reflect the characteristics of the instrument subject to measurement where a number of quotes for the same financial instrument have been obtained, how fair value has been determined using those quotes. Significant valuation issues are reported to the Board of Management. The following table analyses the fair values of financial instruments not measured at fair value, by the level in the fair value hierarchy into which each fair value measurement was categorised as at 30 September 2015: Carrying amount Fair value Level 1 Level 2 Level 3 Total Assets Loans to customers 185, , ,065 Liabilities Debt securities issued Subordinated debt 11,378 29,612 7,815 26,127 3,127 10,942 26,127 Current accounts and deposits from customers 185, , ,315 29

30 24. Financial instruments (continued) The following table analyses the fair values of financial instruments not measured at fair value, by the level in the fair value hierarchy into which each fair value measurement was categorised as at 31 December 2014: Carrying amount Fair value Level 1 Level 2 Level 3 Total Assets Loans to customers 244, , ,106 Liabilities Debt securities issued Subordinated debt Current accounts and deposits from customers 17,323 7,944 8,615 16,559 37,259 26, , , , ,994 The estimates of fair values of financial assets other than loans to customers and financial liabilities other than debt securities issued, subordinated debt and current accounts and deposits from customers as at 30 September 2015 and 31 December 2014 are not materially different from their carrying values. The table below analyses financial instruments measured at fair value as at 30 September 2015, by the level in the fair value hierarchy into which the fair value measurement was categorised: Level 1 Level 2 Level 3 Total Assets Positive fair value of derivative instruments Financial assets available for sale 25,415 9, ,488 25,415 Liabilities Negative fair value of derivative instruments Balance at the end of the period The following table shows a reconciliation for fair value measurements in Level 3 of the fair value hierarchy (nine month period ended 30 September 2014: none): Trading derivative instruments Balance at the beginning of the period 90 Revaluation during the period, recognised in profit and loss

31 24. Financial instruments (continued) The table below analyses financial instruments measured at fair value at 31 December 2014, by the level in the fair value hierarchy into which the fair value measurement was categorised: Assets Positive fair value of derivative instruments Financial assets available for sale Level 1 18,120 Level 2 Level 3 Total 9, ,570 18,120 Liabilities Negative fair value of derivative instruments Although the Group believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements in Level 3, changing the estimated discount rates by 1% fall or rise, would have the following effects: Effect on profit or loss 31 Dec 2014 Favourable Unfavourable 1 13 (1) (5) 25. Commitments Credit related commitments The Group has outstanding commitments to extend credit. These commitments take the form of approved credit limits related to customer credit card accounts, approved overdraft facilities, guarantees and approved consumer loans. 31 Dec 2014 Credit card commitments 15,874 19,581 Undrawn overdraft facilities to corporations 4,386 1,045 POS and cash loan commitments 2,538 2,237 Guarantees provided 13,300 22,798 36,163 The total outstanding contractual commitments to extend credit indicated above represent future cash requirements. Credit related commitments to individual clients are mainly classified into category less than one month in terms of maturity, however some of these commitments may expire or terminate without being funded. 31

32 26. Operating leases The Group leases a number of premises and equipment under operating leases. Lease payments are usually increased annually to reflect market rentals. None of the leases includes contingent rentals. Noncancellable operating lease rentals are payable as follows: 31 Dec 2014 Less than one year 809 1,687 Between one and five years 1,593 3,319 More than five years During the nine month period ended 30 September ,273 (nine month period ended 30 September 2014: 2,503) was recognised as an expense in the condensed consolidated interim statement of profit or loss in respect of operating leases (Note 9). 27. Contingencies Taxation contingencies 2,628 5,321 The taxation systems in the Russian Federation and the Republic of Kazakhstan are relatively new and are characterised by frequent changes in legislation, official pronouncements and court decisions, which are often unclear, contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year remains open for review by the tax authorities during three and five subsequent calendar years respectively; however, under certain circumstances a tax year may remain open longer. Recent events suggest that the tax authorities are taking a more assertive position in their interpretation and enforcement of tax legislation. Starting from 1 January 2012 new transfer pricing rules came into force in Russia. These provide the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controllable transactions if their prices deviate from the market range or profitability range. According to the provisions of transfer pricing rules, the taxpayer should sequentially apply five market price determination methods prescribed by the Tax Codes. Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the evolution of the interpretation of transfer pricing rules in the Russian Federation and changes in the approach of the Russian tax authorities, that such transfer prices could be challenged. Since the current Russian transfer pricing rules became effective relatively recently, the impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group. These circumstances may create tax risks in the Russian Federation and the Republic of Kazakhstan that are more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian and Kazakhstan tax legislation, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and the effect on these condensed consolidated interim financial statements, if the authorities were successful in enforcing their interpretations, could be significant. 32

33 28. (a) Related party transactions Transactions with the parent Amounts included in the condensed consolidated interim statement of profit or loss in relation to transactions with the parent are as follows: 9 month 9 month period ended period ended 30 Sep 2014 Interest income Interest expense (2) (14) Loss from foreign exchange revaluation of financial assets and liabilities , Amounts included in the condensed consolidated interim statement of financial position in relation to transactions with the parent are as follows: 31 Dec 2014 Cash and cash equivalents 5,166 Placements with banks and other financial institutions 6,918 11,639 Subordinated debt (197) 12,084 11,442 As at 30 September 2015 cash and cash equivalents shown above included term deposits of 5,166 at an effective interest rate of 7.9% with a maturity of less than one month and placements with banks and other financial institutions shown above included term deposits of 6,918 at an effective interest rate of 8.2% with a maturity of three months to one year (31 December 2014: 11,639 at an effective interest rate of 6.9% with a maturity of three months to two years). As at 31 December 2014 subordinated debt amounted to 197 at an effective interest rate of 16.0% with a maturity of one to five years. 33

34 28. Related party transactions (continued) (b) Transactions with entities controlled by the ultimate controlling entity Amounts included in the condensed consolidated interim statement of profit or loss in relation to transactions with entities controlled by the ultimate controlling entity are as follows: 9 month 9 month period ended period ended 30 Sep 2014 Interest income (186) (260) Interest expense (1,705) (901) Fee and commission income 926 1,207 (Loss)/gain from foreign exchange revaluation of financial assets and liabilities (116) 48 Net loss on spot transactions and derivatives (84) (6) Gain from sale of loans Other operating income (5) General administrative expenses (900) (673) (1,789) (411) Amounts included in the condensed consolidated interim statement of financial position in relation to transactions with entities controlled by the ultimate controlling entity are as follows: 31 Dec 2014 Cash and cash equivalents Loans to customers Property, equipment and intangible assets Other assets 5 43 Debt securities issued (90) (81) Subordinated debt (11,465) (7,273) Due to banks and other financial institutions (7,562) (9,186) Current accounts and deposits from customers (208) (9,995) Negative fair value of derivative instruments (84) Other liabilities (209) (210) (18,660) (25,586) As at 30 September 2015 loans to customers shown above included loan origination agent fees paid of 133 which formed an integral part of loans to customers and were to be amortised within 12 months (31 December 2014: loan origination agent fees paid of 228; loans to corporations: none). The effective interest rate on debt securities issued shown above was 9.4% and a maturity was three months to one year as at 30 September 2015 (31 December 2014: 9.7% and one month to two years respectively). As at 30 September 2015 due to banks and other financial institutions included term deposits with the effective interest rate of 9.4% and a maturity from one month to two years (31 December 2014: 9.5% with a maturity from one month to five years). 34

35 28. Related party transactions (continued) As at 30 September 2015 current accounts and deposits from customers included deposits of 157 at an effective interest rate of 8.0% with a maturity from one month to three months and other balances of 51 with a maturity of less than one month (31 December 2014: a deposit of 9,861 at an effective interest rate of 21.4% with a maturity from one month to three months and other balances of 134 with a maturity of less than one month). As at 30 September 2015 the effective interest rate on subordinated debt shown above was 9.7% and a maturity from three months to five years (31 December 2014: 9.9% with a maturity from three months to five years). (c) Transactions with members of key management Amounts included in the condensed consolidated interim statement of profit or loss in relation to transactions with members of key management (members of the Council and the Board of Management) of 258 (nine month period ended 30 September 2014: 313) represent compensation for the period. 29. Capital management The Group s lead regulator, the CBR, sets and monitors capital requirements for both the Bank and the Group as a whole. Bank Home Credit (SB JSC) is regulated and monitored in Kazakhstan by the NBRK. The Group defines as capital those items defined by statutory regulation as capital for credit institutions. Starting from 1 January 2014 the Group calculates the amount of capital and capital adequacy ratios for prudential purposes in accordance with the Provision of the CBR dated 28 December 2012 No 395 P On methodology of calculation of own funds (capital) of the credit organisations (Basel III). As at 30 September 2015, this minimum levels of core capital, primary capital and total capital to risk weighted assets were 5.0%, 6.0% and 10.0% respectively (31 December 2014: 5.0%, 5.5% and 10.0% respectively). The Group maintains capital adequacy at the level appropriate to the nature and volume of its operations. The Group provides the territorial CBR that supervise the Bank with information on mandatory ratios in accordance with set form. The Accounting department controls on a daily basis compliance with capital adequacy ratios. The calculation of capital adequacy of the Group based on requirements set by the CBR as at 30 September 2015 and 31 December 2014 was as follows: 31 Dec 2014 Riskweighted assets 460, ,221 Core capital 35,374 47,494 Primary capital 35,374 47,494 Additional capital 24,703 26,242 Total capital 60,077 73,736 Core capital adequacy ratio N % 9.8% Primary capital adequacy ratio N % 9.8% Total capital adequacy ratio N % 15.2% The Group also calculates its capital adequacy in compliance with the methodology set out by the Bank of International Settlements (BIS). Tier I capital is represented by equity. Tier II capital is represented by subordinated debt up to 50% of tier I. 35

36 29. Capital management (continued) The calculation of capital adequacy based on requirements set by BIS as at 30 September 2015 and 31 December 2014 was as follows: 31 Dec 2014 Risk weighted assets 248, ,878 Tier I capital 40,230 52,648 Tier II capital 17,354 22,763 Total capital 57,584 75,411 Tier I ratio 16.2% 17.0% Capital Adequacy Ratio 23.2% 24.4% As at 30 September 2015 and 31 December 2014 and during the reporting period the Group was fully in compliance with the capital regulations described above. 30. Segment analysis The Board of Management is the chief operating decision maker. The Board ofmanagement reviews internal reporting on a regular basis to assess the performance of individual segments and to allocate resources accordingly. The Board of Management monitors performance mainly from a product perspective and geographical perspective. Operational information is represented by major reportable segments being POS loans, cash loans and credit card loans. Other segments comprising mortgage loans, car loans, loans to corporations and treasury operations are less significant and thus are not reported separately by the Group. The Group operates in the Russian Federation and the Republic of Kazakhstan. In presenting geographical information the allocation of revenue is based on the geographical location of customers and assets. Revenues of reportable segments consist of interest and fee income including intersegment revenues resulting from allocation of financing raised by the treasury function to major segments. Performance of individual segments is assessed by the Board of Management based on segment profit or loss. Total segment assets mainly consist of the loan portfolio and interest earning financial assets accumulated as a result of treasury operations. A presentation of segment revenues, segment profit and assets is provided below. 36

37 30. Segment analysis (continued) (a) Operational segments POS Credit card Cash Other loans loans loans segments Total 9 month period ended 30 September 2015 External interest income 6,580 7,897 28,606 4,173 47,256 Fee and commission income 4,164 2,263 4, ,238 Inter segment revenue 20,502 20,502 Total revenues 10,744 10,160 32,832 25,260 78,996 External interest expense (24,307) (24,307) Inter segment interest expense (2,661) (2,710) (15,804) (21,175) Inter segment other operating income, net Fee and commission expense (64) (613) (272) (61) (1,010) Other operating income, net ,542 1,918 Impairment losses (3,921) (7,709) (17,793) (231) (29,654) Total expenses (6,375) (10,873) (33,250) (23,057) (73,555) Segment profit/(loss) 4,369 (713) (418) 2,203 5,441 9 month period ended 30 September 2014 External interest income 6,785 9,776 38,969 1,809 57,339 Fee and commission income 3,801 3,121 8, ,775 Inter segment revenue 16,599 16,599 Total revenues 10,586 12,897 47,583 18,647 89,713 External interest expense (18,981) (18,981) Inter segment interest expense (2,214) (1,794) (13,189) (17,197) Inter segment other operating income, net Fee and commission expense (109) (942) (112) (27) (1,190) Other operating income, net (63) Impairment losses (4,703) (8,909) (24,373) 61 (37,924) Total expenses (7,014) (11,579) (36,928) (18,276) (73,797) Segment profit/(loss) 3,572 1,318 10, ,916 37

38 30. Segment analysis (continued) Segment assets POS Credit card Cash loans loans loans A reconciliation of segment revenues to total revenues is provided as follows: 251,107 Carrying amount at 31 December ,438 37, ,390 51, ,697 9 month 9 month period ended period ended 30 Sep 2014 Segment revenues 78,996 89,713 Inter segment revenue (20,502) (16,599) Unallocated fee and comission income Total revenues 58,709 73,315 A reconciliation of segment profit to total profit before tax is provided as follows: Other segments Carrying amount at 30 Septemeber ,305 27, ,693 73,496 Total 9 month 9 month period ended period ended 30 Sep 2014 Segment profit for reportable segments 5,441 15,916 Unallocated fee and comission income Unallocated fee and comission expense (951) (969) Unallocated other operating income (97) 78 Unallocated impairment losses (140) (448) General administrative expenses (15,643) (19,603) Loss before tax (11,175) (4,825) Reportable segments' assets are reconciled to total assets as follows: 31 Dec 2014 Total segment assets 251, ,697 Cash and cash equivalents (excluded from other segments) 13,415 27,588 Placements with banks and other financial institutions (excluded from other segments) 1,398 2,418 Property, equipment and intangible assets 9,324 11,234 Assets classified as held for sale Investment in associate Income tax assets 5,912 3,365 Other assets 1,414 1,894 Total assets 282, ,740 38

39 30. Segment analysis (continued) (b) Geographical segments Russian Federation Kazakhstan Eliminations Total 9 month period ended 30 September 2015 External interest income 39,904 7,352 47,256 Fee and commission income 7,693 3,760 11,453 Inter segment revenue 89 (89) Total revenues 47,686 11,112 (89) 58,709 External interest expense (22,898) (1,409) (24,307) Inter segment interest expense (89) 89 Inter segment other operating income/(expense), net 215 (47) 168 Fee and commission expense (1,795) (166) (1,961) Other operating income/(expense), net 4,069 (549) (1,867) 1,653 Impairment losses (27,201) (2,593) (29,794) General administrative expenses (12,184) (3,459) (15,643) Total expenses (59,794) (8,312) (1,778) (69,884) (Loss)/profit before tax (12,108) 2,800 (1,867) (11,175) Income tax benefit/(expense) 2,703 (802) 1,901 (Loss)/profit for the period (9,405) 1,998 (1,867) (9,274) Russian Federation Kazakhstan Eliminations Total 9 month period ended 30 Septemeber 2014 External interest income 52,419 4,920 57,339 Fee and commission income 13,807 2,169 15,976 Inter segment revenue 168 (168) Total revenues 66,394 7,089 (168) 73,315 External interest expense (17,929) (1,052) (18,981) Inter segment interest expense (168) 168 Inter segment other operating income/(expense), net (156) (156) Fee and commission expense (2,023) (136) (2,159) Other operating income, net 2, (1,309) 1,131 Impairment losses (36,298) (2,074) (38,372) General administrative expenses (17,261) (2,342) (19,603) Total expenses (71,326) (5,673) (1,141) (78,140) (Loss)/Profit before tax (4,932) 1,416 (1,309) (4,825) Income tax benefit/(expense) 970 (324) 646 (Loss)/Profit for the period (3,962) 1,092 (1,309) (4,179) 39

40 30. Segment analysis (continued) Segment assets Carrying amount at 30 september 2015 Carrying amount at 31 December 2014 Russian Federation Kazakhstan Eliminations Total 257,041 27,570 (1,776) 282, ,758 34,417 (4,435) 338,740 Y'. Andresov Chief Financial Officer r7 ~ ~/ I. Kolikova / I