Annual Report Kazkommertsbank

Transcription

1 1

2 Table of content: Chairman of the Board social social 2 3

3 social 1 Chairman of the Board Dear shareholders, partners, customers and employees of the Bank, This 2012 year has been another eventful and challenging financial year. Looking at the results for 2012, first of all I would like to express my gratitude to our shareholders, partners, customers and employees for their trust, cooperation, well coordinated and efficient work. All this enabled the Bank to remain the leader in the Kazakhstani market, as the Bank accounted for 21% of the total lending volume and had a 19% market share in terms of the capital. We achieved our targets in all areas of business and improved our performance. The Bank s income before provisions and taxes increased by 28% year-on-year, interest income before provisions grew by 9.7% and the net interest margin adjusted for one-off provisioning charges increased from 3.3% to 3.9%, exceeding the forecasted figure of 3.7%. Besides, the fee and commission income increased by 15% thanks to the income from credit card and settlement operations, while operating expenses decreased by 0.7%, against the growth by 3-5% forecasted earlier. Apart from the improvements in margin and operating expense, gross loans grew by 3.8%, which also exceeds the earlier forecast of 2-3% growth. However, due to the expected regulatory changes, in particular, the Basel III requirements which are to be introduced (some of them came into force since January 1, 2013), and the possible implications of such changes, the Bank decided to make additional provisions and thus improve its position, as well as to tackle regulatory issues and issues related to liquidity outflow. This measure greatly improved the Bank s position in terms of the capital, and the Bank s capital adequacy ratios both on tier 1 capital and total capital considerably exceed the required minimum 2.7 and 1.7 times respectively. In the fourth quarter of 2012, one-off provisions amounted to 196 billion tenge; as a result, the provisioning rate under IFRS reached the regulatory levels and amounted to 32.5% of gross loans. As a result the Bank recorded a net loss for 2012 amounting to 131 billion tenge. Additional one-off specific provisions under IFRS were formed using capital surplus and income generated in As far as the funding is concerned, the growth of the retail deposit base remained strong; in 2012, it amounted to 6% predominantly driven by 11% increase in retail deposits. As early as in the first half of 2012, the retail deposits exceeded US$ 4 billion, reaching an all-time high in the Bank s 20-year history. It is important to mention that such an increase became possible without an increase in interest rates. On the contrary, the average cost of deposits went down, which improved the net interest margin (the difference between the cost of funding and yields on placement of funds). The growth in the deposit base indicates 4 the depositors confidence in the Bank and its high reputation. Thus, the share of retail the health of newborn babies and reducing the infant and mother mortality rate. We 5 deposits in the total deposit base increased to 42% compared to 41% a year earlier. Innovations, foreseeing the market trends and always focusing on the needs of our customers, offering and rendering new products and solutions on the market remain our top priorities. For instance, in 2012, we launched new versions of Homebank.kz Internet Banking applications for Android and iphone. The number of their regular users has already exceeded 30 thousand! Meanwhile, the total number of registered users of the Homebank. kz web portal has reached 400 thousand. In other words, today one of three customers uses Internet services provided by Kazkom to manage own finances: make payments, place deposits, make money transfers, shop online, etc. When working with corporate customers, we also actively promote products which ensure the user s convenience and security. If customers have special needs, a large number of subsidiaries or branches, make and receive a large number of payments every day, we form special teams comprising the most experienced specialists of the Bank, who identify the needs of a company and suggest a tailored solution. We use this approach when working with our major corporate customers: Kazakhstan Temir Zholy, KAZATOMPROM, Kazakhtelecom, Agip, Chevron, KazMunaiGas, Nazarbayev University. We continued increasing our investments in the economy to meet the business needs. As a result, in 2012, the amount of loans disbursed to our customers increased by 26.5%; notably, loans to small businesses increased by as much as 134%. We continuously focus on developing convenient banking solutions, which enable Kazkom to become the main partner for individuals, small and medium-sized businesses and for many of the country s largest companies. The main indicator evidencing the result of our work and the demand for our services is a 13% growth in transaction fee and commission income in We opened five new offices and closed eight less efficient ones; besides, we expanded our ATM network. As a result, our cost to income ratio improved and reached 21.3% during the period, compared to 25.9% in We are glad that 2012 was a successful year for the majority of our corporate customers. Projects which had been suspended during the crisis were resumed. A considerable number of large construction and infrastructure projects were completed. The measures taken by the Government to stimulate the growth in the non-resource sector of the economy produced tangible results: interest rate subsidy programs were launched, and Kazkom s customers actively participate in the development of agriculture, tourism, small and medium-sized businesses. As a result, the demand for loans increased, and the Bank s loan book grew by 4% saw the opening of Esentai Mall, a shopping and entertainment center that is unique in the region. This became a milestone project for Kazkom, which has been financing its construction. Global brand names such as Saks Fifth Avenue, Loius Vuitton, Loro Piana, Fendi and several others have been presented there for the first time. As early as a month after the opening, the mall became an undisputed leader in terms of sales in Almaty. Besides, the Ritz Carlton Hotel Company, a global leader in running luxury hotels, announced that it is entering the Kazakhstani market in cooperation with a customer of Kazkommertsbank. The development of the hotel, jointly financed by the Bank and its customer, is underway; the hotel is to be opened by the end of Social projects remain an important part of our business. With the Bank s support, the Third International Opera and Ballet Festival was held in the State Academic Opera and Ballet Theatre named after Abay, and an exhibition of French art, Pearls of France, took place at the A. Kasteev State Museum of Arts in Almaty. The Bank became a country partner of the Ministry of Healthcare and UNICEF in the national program for protecting continued fitting regional maternity hospitals with state-of-the-art medical equipment, and

4 in 2012 the hospital in Urdzharsk in the East Kazakhstan Region was provided with such equipment. Kazkom and the Damu Fund launched a joint charity project Look at the Stars, which is aimed at supporting entrepreneurship among the disabled; as a result, 60 people received grants from Kazkommertsbank for developing their own business. We greatly appreciate the fact that the general public expressed a high opinion of our efforts in the social sphere: in November 2012, the Bank was ranked first among Kazakhstan s 100 largest companies in the High Level of Social Responsibility category in the Expert RA 100 ranking. Thus, in 2012, Kazkommertsbank achieved important results and succeeded in business. In 2013, we plan to continue working on all areas of our business: 1) developing and offering innovative products to customers; 2) increasing efficiency and reducing operating expenses; 3) assisting our customers in implementing investment and infrastructure projects in the country; 4) financing small and medium-sized business; 5) providing more opportunities for retail customers is a landmark year for the country s financial system: 20 years ago, a national currency was introduced and important reforms which were a prerequisite for the establishment and development of the financial market in the independent Republic of Kazakhstan started. At the beginning of 2013, we clearly defined our objectives and strategy, and started the year with a highly professional team and a strong customer base. Yours sincerely, Nurzhan Subkhanberdin, Chairman of the Board 6 7

5 social As of the end of 2012, the Bank is the leader in the banking sector in terms of the amount of assets: its market share totals 18.4%; the Bank is also a leader in terms of lending and deposits: its share in terms of the volume of the loan portfolio amounted to 20.6%, while in terms of customers deposits it accounted for 17.4%. 2 Analysis of the Bank s The bank s assets As of the end of 2012, the Bank s total assets amounted to 2,445 billion tenge compared to 2,566 billion tenge as of December 31, 2011; they decreased by 121 billion tenge, or 4.7%. The reduction was mainly related to a decrease in the amount of loans to customers by 162 billion tenge. As of December 31, 2012, the net loan portfolio totaled 1,918 billion tenge compared to 2,080 billion tenge as of December 31, Net loans to customers still account for the largest share of the Group s assets; as of December 31, 2012, their share totaled 78.4% against 81.1% as of December 31, As of December 31, 2012, highly liquid assets (cash and balances in national banks, unpledged securities, loans and advances to banks and other financial institutions) totaled 296 billion tenge, demonstrating a slight decrease compared to 310 billion tenge as of December 31, 2011; the reduction amounted to 4.5%. The share of liquid assets in the asset structure remained unchanged and amounted to 12.1% of the total assets. By the end of 2012, the share of cash and balances in national (central) banks increased to 4.4% compared to 4.1% as of the beginning of the reporting period. The amount of loans and advances to banks and other financial institutions increased; their share totaled 6.0% of assets as of December 31, 2012, compared to 2.1% as of December 31, The share of the securities portfolio in the asset structure decreased from 8.1% to 5.8%. As of December 31, 2012, the share of other assets amounted to 3.7% against 3.1% as of the beginning of the period. As of December 31, 2012, the amount of loans and advances to banks and other financial institutions increased by 93 billion tenge and totaled 147 billion tenge compared to 54 billion tenge as of December 31, The amount of financial assets at fair value through profit or loss decreased by 69 billion tenge. Breakdown of as of December 31, 2012 and 2011 *The securities portfolio includes all securities classified as financial assets at fair value through profit or decreased by 153 billion tenge, or 7.1% in relative terms. As of the end of 2012, the 8 9 loss, as well as the items investments available-for-sale and investments held to maturity Loans to customers As of December 31, 2012, the volume of the net loan portfolio totaled 1,918 billion tenge compared to 2,080 billion tenge as of the beginning of the year. The reduction totaled 162 billion tenge, or 7.8%. The Bank s priorities remained unchanged: they include maintaining the existing customer base, attracting new customers in various sectors of the economy and granting more loans. The Bank is one of the key participants of the government s stabilization programs aimed at supporting entrepreneurship, solving the problems of equity holders by financing the completion of housing construction and refinancing mortgage loans. Active participation in state programs promoting social and economic development of the Republic of Kazakhstan was reflected in the Memorandum of Cooperation as part of the Partnership of the State and the Private Sector for signed by the Almaty Municipality in November Apart from Kazkommertsbank, in 2012, eight other banks of the Republic of Kazakhstan joined the Memorandum. The implementation of the previous Memorandum of Cooperation as part of the Partnership of the State and the Private Sector for signed in August 2011 was considered successful, as it allowed to implement the projects related to construction of housing and infrastructure and small and medium-sized business development, as well as to create new jobs. The Bank s contingent liabilities increased by 8.9 billion tenge, or by 12.5%. Overall, the net loan book, which includes contingent liabilities and the loan portfolio, gross loan book added billion tenge, or 4.0%, compared to 2011.

6 social Breakdown of the Bank s loan book as of December 31, 2012 and 2011 Loans to customers December 31, 2012 December 31, 2011 Change KZT mln US$ mln KZT mln US$ mln KZT mln US$ mln % Loans to customers 2,840,979 18,847 2,737,769 18, , % Loans to customers under repurchase agreements % Total loans to customers (gross) 2,840,978 18,847 2,737,769 18, , % Less provisions for losses on loans to customers 923,287 6, ,108 4, ,178 1, % Total loans to customers (net) 1,917,692 12,722 2,079,661 14, ,969-1, % Contingent liabilities December 31, 2012 December 31, 2011 Change KZT mln US$ mln KZT mln US$ mln KZT mln US$ mln % Guarantees 79, , , % Letters of credit 3, , , % Total contingent liabilities (gross) 83, , , % Less provisions for losses on contingent liabilities 2, , % Total contingent liabilities (net) 80, , , % Total loan book December 31, 2012 December 31, 2011 Change KZT mln US$ mln KZT mln US$ mln KZT mln US$ mln % Total loan book (gross) 2,924,245 19,399 2,811,944 18, , % Less provisions for losses on loans to customers and contingent liabilities 925,960 6, ,632 4, ,327 1, % Total loan book (net) 1,998,285 13,256 2,151,312 14, ,027-1, % Guarantees increased by 10.4 billion tenge, or by 15.1% in relative terms. Letters of credit decreased by 1.3 billion tenge, or by 25.2%; as of December 31, 2012, they totaled 4.0 billion tenge. As of the end of 2012, the Bank formed provisions for losses on loans to customers amounting to billion tenge compared to billion tenge as of the beginning of the year. In 2012, the growth totaled billion tenge, or 40.3%. In 2012, the provisioning rate increased and amounted to 32.5% compared to 24.0% as of December 31, This is related to additional provisions accrued by the Bank on a one-time basis in the fourth quarter of 2012 and amounting to 196 billion tenge, as provisions under international standards were made equal to provisions under the Kazakh standards, which are higher. As of December 31, 2012, the provision for losses on guarantees and other contingent liabilities increased year-on-year, totaling 2.7 billion tenge compared to 2.5 billion tenge as of December 31, 2011; this was mainly related to an increase in the principal on contingent liabilities. The Bank attaches special importance to improving and developing risk management systems and actively deals with problem loans on an individual basis. The Bank s efforts to improve the quality of assets are aimed at dealing with both external and internal factors. The Bank provides services to corporate customers, small and medium-sized businesses, billion tenge in 2011 to 2,547 billion tenge in The share of corporate loans (gross) in as well as to the private sector. Historically, the corporate sector has been the main focus of the Group s business. The Bank provides services to large and medium-sized industrial enterprises in Kazakhstan and transnational companies operating in Kazakhstan; it actively develops trade financing, project financing, short-term and SME lending. As for the private sector, the Bank provides consumer and mortgage loans, credit card loans and loans to private entrepreneurs as part of programs for supporting small businesses. In 2012, the Bank continued to actively participate in the disbursement of funds provided by JSC NWF Samruk-Kazyna, the Distressed Assets Fund and the Entrepreneurship Development Fund Damu. Overall, corporate loans accounted for 89.7% of loans to customers in 2012 and 89.5% in 2011; the share of retail loans totaled 10.3% and 10.5% respectively. Breakdown of the loan portfolio by sectors as of December 31, 2012 and 2011 Breakdown of the loan portfolio by sectors December 31, 2012 December 31, 2011 Change KZT mln US$ mln KZT mln US$ mln KZT mln US$ mln % loans 2,546,986 16,897 2,450,437 16,512 96, % Retail loans 293,993 1, ,332 1,936 6, % Total loans to customers (gross) 2,840,979 18,847 2,737,769 18, , % Less provisions for losses on loans to customers 923,287 6, ,108 4, ,179 1, % Total loans to customers (net) 1,917,692 12,722 2,079,661 14, ,969-1, % Share (%) Share (%) loans 89.7% 89.5% Retail loans 10.3% 10.5% Total loans to customers (gross) 100% 100% As of December 31, 2012, retail loans increased by 2.3%, or by 6.7 billion tenge in absolute terms; the increase was mainly related to consumer lending. Retail loans comprise mainly consumer and mortgage loans. The share of mortgage loans in the total amount of net loans to the retail sector totaled 57.7% as of the end of 2012 and 61.1% as of the end of As of December 31, 2012, the share of consumer loans (net) amounted to 39.2% against 34.9% as of the beginning of the year. As of December 31, 2012, retail mortgage loans totaled billion tenge, having decreased by 4.4 billion tenge compared to the beginning of the year; their share in the total retail loan portfolio decreased by 3.4 points. Consumer lending increased by 10.6 billion tenge compared to the beginning of the reporting period; its share in the total retail loan portfolio rose from 34.9% last year to 39.2% as of the end of In 2012, the amount of corporate loans increased by 96.5 billion tenge from 2,450.4 the total amount of the loan portfolio (gross) slightly increased and totaled 89.7%.

7 social Breakdown of the corporate loan portfolio (gross) by industries as of December 31, 2012 and 2011 The amount of loans to customers denominated in U.S. dollars decreased by 1.1%, while that of loans to customers denominated in the national currency added 9.9%. Loans in Russian rubles declined by 10.6%, while those denominated in other currencies decreased by a factor of 2.3. Breakdown of the loan portfolio (net) by currency As of December 31, 2012, loans for residential and commercial construction accounted for the biggest share in the structure of the corporate loan portfolio (44.8%); loans related to trade, real estate and the development of the hospitality business accounted for 11.9%, 7.8% and 7.2% respectively. The total share of these loans in the corporate loan portfolio amounted to 71.7%. As compared to the beginning of the period, the amount of real estate loans increased by 18 billion tenge, totaling billion tenge as of the end of the reporting period; their share in the corporate loan portfolio also increased to 7.8% against 7.4% as of December 31, Lending also increased in the sectors such as residential and commercial construction (by 86 billion tenge), trade (by 32.4 billion tenge), manufacture of other non-metallic mineral products (by 8.6 billion tenge), the fuel and energy sector (by 2 billion tenge), manufacture of building materials (by 2 billion tenge), the hospitality industry (by 1.8 billion tenge) and industrial and other construction (by 1.3 billion tenge). The volume of loans to the food and health care industry also increased by 0.9 billion tenge and 0.4 billion tenge respectively. Other industries saw a year-on-year decrease in the amount of lending. Diversification of the loan book enables effective control over the level of risk; therefore, the Bank considers it reasonable to strengthen the relations with its new customers as market conditions are improving and to cover more segments with a considerable growth potential. Changes in the volume of the loan portfolio (gross) by currency December 31, 2012 December 31, 2011 Change KZT mln KZT mln KZT mln % Loans to customers (gross) 2,840,979 2,737, , % KZT 1,368,000 1,244, , % US$ 1,436,398 1,453,032-16, % EUR 9,593 9, % RUB 26,753 29,926-3, % Other currencies % In 2012, the demand of the economy for long-term lending (over 5 years) decreased year-on-year; its share amounted to 26.3% compared to 30.4% as of December 31, In 2012, the share of loans with a maturity of one to five years increased, which indicates the growing demand for medium-term lending; in 2012, its share (net; less accrued interest) rose to 44.8% compared to 30.4% in As of the end of 2012, the shares of short-term loans (with a maturity of less than a month; from one month to one year) totaled 0.8% and 28.1%, compared to 1.9% and 37.4% as of the end of The Bank grants long-term loans using its own funds and as part of credit lines provided by the EBRD, international financial institutions and the Government of the Republic of Kazakhstan. Breakdown of the loan portfolio by maturity

8 social Loans to customers are secured by real estate, guarantees, inventories, equipment, government securities, shares and deposits. The collateral is evaluated very conservatively, and independent experts are engaged if necessary. As of December 31, 2012, the share of unsecured loans (gross) increased and totaled 4.3% compared to 2.8% as of the end of Short-term loans granted to reliable customers account for a major share of unsecured loans. Provisioning rate Breakdown of the loan portfolio by type of collateral December 31, 2012 December 31, 2011 KZT mln Share, % KZT mln Share, % Secured loans 2,708, % 2,654, % Loans with collateral under the registration process 10, % 5, % Unsecured loams 122, % 77,74.8% Total loans to customers (gross) 2,840, % 2,737, % Breakdown of the loan portfolio by type of collateral In 2012, the provisioning rate amounted to 32.5% against 24% and 20.8% in 2011 and An increase in provisions and the provisioning rate as of the end of 2012 was mainly related to the fact that in the fourth quarter of 2012, the Bank accrued additional provisions totaling 196 billion tenge on a one-time basis; this was done in order to offset the possible negative consequences identified during the analysis of the impact of the planned changes in the regulatory environment (they may affect the regulatory capital, the amount of open currency positions and liquid assets). Specific provisions under IFRS were additionally formed on a one-time basis using capital surplus and income generated in As a result, provisions under international standards were made equal to provisions under the Kazakh standards, which are higher. The Bank continues to follow a conservative policy on accruing provisions. In general, the increase in provisioning is mainly influenced by the continuing uncertainty about the economic recovery, coupled with instability across stock markets, which continues to cause difficulties for the Bank s customers (large and small businesses). This caused an increase in non-performing loans, which totaled billion tenge (30.2%) as of December 31, 2012, against billion tenge (28.2% of the loan portfolio) in Provisions added billion tenge, or 40.3%, and reached billion tenge. The Bank is constantly taking measures for improving the quality of the loan portfolio. Loans granted by the Bank are classified by quality depending on whether payments are made on time, the borrower s position, the relations between the Bank and the borrower, the credit history, the collateral, the borrower s creditworthiness and available liquidity. There are the following groups of loans: standard; substandard; watch; doubtful; loss. As of December 31, 2012, standard and substandard loans totaled 599 billion tenge compared to 682 billion tenge as of the end of During the period under analysis, their share amounted to 21.1%. To compare, a year earlier, their share had totaled 24.9%. The share of problem loans in the loan portfolio has been increasing since 2007, which is primarily related to the deteriorating financial position of borrowers due to the crisis in the country that has continued for several years. The share of doubtful and loss loans increased compared to December 31, 2011; by the end of 2012, it totaled 41.4%. (30.7% at the end of 2011).

9 social Loans and advances to banks and other financial institutions Loans and advances to banks and other financial institutions December 31, 2012 (KZT mln) December 31, 2011 (KZT mln) absolute (KZT mln) Change relative,% Loans % Deposits 42,162 25,514 16, % Correspondent accounts in other banks 93,490 26,895 66, % Loans under repurchase agreements 10, , % Loans and advances to banks and other financial institutions, gross 146,983 54,128 92, % Less provisions for impairment losses % Loans and advances to banks and other financial institutions, net 146,703 53,968 92, % In 2012, the amount of loans and advances to banks and other financial institutions increased by 92.7 billion tenge, or by a factor of 2.7. This change was mainly related to an increase in correspondent accounts at other banks, which totaled 66.6 billion tenge. As of December 31, 2012, there was 93.5 billion tenge in correspondent accounts, against 26.9 billion tenge as of the beginning of the year. Securities portfolio and derivative financial instruments The balance sheet item financial assets at fair value through profit or loss includes all types of securities (debt and equity), as well as derivative financial instruments. Financial assets at fair value through profit or loss As of December 31, 2012 As of December 31, 2011 Deviation KZT mln Share KZT mln Share KZT mln % 118, % 188, % -69, % debt securities 103, % 165, % (61,715) (37.32%) equity securities 6, % 9, % (3,497) (35.50%) derivative financial instruments 8, % 13, % (4,279) (32.66%) Investments available-for-sale 15, % 15, % % debt securities 13, % 11, % 2, % equity securities 1, % 4, % (2,390) (58.19%) Investments held to maturity 6, % 4, % 2, % debt: 6, % 4, % 2, % Investments in associates 0.0% 0.0% 0.00% TOTAL SECURITIES PORTFOLIO 132, % 194, % (62,038) (31.87%) Deposits added 16.6 billion tenge; loans under repurchase agreements increased by 9.9 billion tenge, while loans to banks decreased by 0.3 billion tenge. TOTAL securities portfolio and derivative financial instruments 141, % 207, % (66,317) (31.92%) As of December 31, 2012, deposits totaled 42.2 billion tenge against 25.5 billion The term securities portfolio covers investments in securities (debt and equity) tenge as of the beginning of the reporting period. As of December 31, 2012, loans at fair value through profit or loss, investments available-for-sale and investments under repurchase agreements amounted to 10.7 billion tenge against 0.8 billion tenge held to maturity. As of December 31, 2012, their amount decreased to billion as of December 31, As of December 31, 2012, loans to banks totaled 0.6 billion tenge compared to billion tenge in The decline was mainly caused by a tenge compared to 0.9 billion tenge as of the beginning of the year. decrease in the amount of short-term notes of the National Bank of the Republic of As of December 31, 2012, assets purchased under reverse repurchase agreements Kazakhstan by 41.6 billion tenge. Investments in state treasury notes of the Ministry of comprised notes and shares of Kazakh companies. Finance of the Republic of Kazakhstan also decreased by 9 billion tenge; investments The currency structure of this item indicates that that the Bank accumulated free in Russian Government Eurobonds fell by 8.7 billion tenge, while those in the bonds of cash mainly in foreign currency, as the Bank placed it in the leading western banks. international financial institutions, foreign banks and financial organizations declined Thus, as of December 31, 2012, the share of FX loans and advances to banks totaled by 3 billion tenge. In 2012, derivatives decreased by 4.3 billion tenge due to a 33.1% 90.2%, while those in national currency accounted for 9.8%. As of December 31, fall in the fair value of cross currency swap transactions (from 13.0 billion tenge as of 2011, the share of FX loans and advances totaled 94.7%, while those in national the beginning of the year to 8.7 billion tenge as of the end of 2012). currency accounted for 5.3%. Compared to the previous year, the structure of financial assets at fair value through When placing funds on the interbank market, the Group follows a conservative profit or loss did not change considerably. Marketable securities of Kazakh issuers policy, placing temporarily free cash funds for a shorter period of time within the still account for the biggest share in the structure. As of December 31, 2012, the approved limits or if they are backed by government securities. portfolio of the Bank s financial assets at fair value through profit or loss includes As of December 31, 2012, 91.7% of funds were placed for less than one year, compared to 65.1% at the end of mainly securities issued by the Kazakhstani government and securities of Kazakh issuers; their share totals 75.4%.

10 social Financial assets at fair value through profit or loss as of December 31, 2012 The share of cash on hand in the total cash in national (central) Banks increased and totaled 47.1% as of December 31, 2012 compared to 39.3% as of December 31, The currency structure of cash and balances in national (central) banks remained practically unchanged during the periods under analysis. As of the end of 2012, the share of funds denominated in tenge increased to 76.6% compared to 72.3% as of the end of 2011, while the share of funds denominated in U.S. dollars decreased to 11.8% compared to 20.5%, and the share of funds denominated in other currencies totaled 11.6% against 7.2% as of the end of Fixed and intangible assets As of December 31, 2012, residual value of the Bank s fixed and intangible assets totaled 32.5 billion tenge against 33.0 billion tenge as of the end of In 2012, the residual value decreased by 0.5 billion tenge, or by 1.5%. The item Furniture and equipment decreased most considerably: from 7.6 billion tenge as of December 31, 2011 to 7.1 billion tenge as of December 31, The Group s property and other immovable items are regularly re-evaluated. As of December 31, 2012, the residual value of buildings, structures and land amounted to 23.4 billion tenge against 23.3 billion tenge as of the end of Cash and balances in national (central) banks and precious metals Intangible assets include software, patents and licenses; their residual value totaled 1.4 billion tenge as of December 31, 2012 compared to 1.5 billion tenge as of December 31, In 2012, the share of cash and balances in national (central) banks and investments in precious metals in did not change considerably; it amounted to 4.5%. As of December 31, 2012, the item Cash and balances in national (central) banks totaled billion tenge, having added 1.4 billion tenge, or 1.4%. Currency structure of cash and balances in central banks in 2012 and

11 social The Bank s liabilities In the reporting period, the bank continued to service its liabilities according to established schedules. The analysis of data on the Kazakhstani banking sector has revealed that as of December 31, 2012, the Bank is one of the leading institutions in the banking sector in terms of the volume of customer accounts, with their share totaling 17.4%. During the period under analysis, the volume of customer accounts increased by 90.5 billion tenge or 6.2%; as of December 31, 2012, it totaled 1,554 billion tenge, as compared to 1,463 billion tenge as of December 31, Breakdown of the Bank s deposit portfolio: In 2012, the Bank s total liabilities increased by 7.8 billion tenge, or 0.4%; as of December 31, 2012, they amounted to 2,137 billion tenge as compared to 2,129 billion tenge as of December 31, Customer accounts increased by 90.5 billion tenge from 1,463 billion tenge as of December 31, 2011 to 1,554 billion tenge as of the end of 2012; this includes 105 billion tenge borrowed under state programs from the National Welfare Fund Samruk-Kazyna and the Distressed Assets Fund. The amount of loans and advances from banks and other financial institutions increased by 18.3 billion tenge and totaled 110 billion tenge as of December 31, 2012, as compared to 92 billion tenge as of December 31, Some items decreased, for instance, financial liabilities designated at fair value through profit or loss fell by 28.9 billion tenge; debt securities issued declined by 26.8 billion tenge; other borrowed funds decreased by 7.7 billion tenge, and subordinated debt decreased by 15.9 billion tenge. The structure of underwent changes, as the share of customer accounts increased from 68.7% as of December 31, 2011, to 72.7% as of December 31, 2012, while advances from banks and financial institutions increased from 4.3% to 5.2%. The share of subordinated debt decreased from 6.5% to 5.7%; other borrowed funds declined from 1.2% to 0.9%; the share of other liabilities dropped from 4.0% to 1.6%, and the share of outstanding securities decreased from 15.2% to 13.9%. Customer accounts ВIn accordance with its deposit policy, the Bank gives priority to keeping the right balance of economic feasibility of using borrowed funds, competitiveness and deposit reliability. The Bank adheres to its deposit strategy focused on a diversified deposit base, competitive products 20 and services with acceptable risk levels. The Bank is not seeking to increase its deposit base by construction of facilities of KUAT corporation, and 3.6 billion tenge allocated for 21 raising interest rates, being one of the most reliable and transparent banks in Kazakhstan. As of December 31, 2012 As of December 31, 2011 Deviation Volume, KZT mln share, % Volume, KZT mln In 2012, the share of corporate deposits amounted to 57.6% as compared to 59.4% in As of December 31, 2012, the volume of corporate deposits totaled billion tenge as compared to 869 billion tenge in 2011; it increased by 25.2 billion tenge, or 2.9%. The deposit portfolio structure changed as the share of retail deposits increased; for instance, as of December 31, 2012, their share totaled 42.4%, as compared to 40.6% at the beginning of the year. The volume of funds borrowed under state programs from the National Welfare Fund Samruk-Kazyna and the Distressed Assets Fund decreased by 1.7 billion tenge. Thus, as of December 31, 2012, corporate accounts totaled billion tenge, whereas retail deposits amounted to billion tenge. As of December 31, 2012, funds of the National Welfare Fund Samruk-Kazyna, the EDF Damu and the Distressed Assets Fund, including accrued interest, totaled billion tenge as compared to billion tenge as of the beginning of the year, down by 1.8 billion tenge. Funds of the National Welfare Fund Samruk-Kazyna (less accrued interest) totaled 80.1 billion tenge, as compared to 81.4 billion tenge as of the beginning of the year; this includes 22.6 billion tenge allocated for refinancing mortgages and 57.4 billion tenge allocated for financing further construction of real estate in Astana and Almaty. As of December 31, 2012, funds of the Distressed Assets Fund (less accrued interest) amounted to 23.6 billion tenge, including 20 billion tenge allocated for completing the financing private enterprises in the manufacturing industry. share, % absolute relative% deposits 894, % 869, % 25, % Demand deposits 301, % 394, % -92, % Term deposits 592, % 474, % 117, % Retail deposits 659, % 594, % 65, % Demand deposits 83, % 66, % 16, % Term deposits 576, % 527, % 48, % Total customer accounts 1,553, % 1,463, % 90, % Demand deposits 384, % 460, % -76, % Term deposits 1,169, % 1,002, % 166, %

12 social Customer deposits (KZT mln) Debt securities issued As of December 31, 2012, the volume of debt securities issued totaled billion tenge, down by 26.8 billion tenge as compared to billion tenge as of December 31, The decrease in issued securities was due to scheduled repayments of and repurchase of the Bank s own issued securities. As customer confidence in the Bank is growing, in 2012 the volume of retail deposits increased by 65.3 billion tenge, or 11%, from billion tenge as of the end of 2011 to billion tenge as of the end of The growth in deposits was mainly related to retail term deposits, which were up by 48.9 billion tenge or 9.3%; the growth rate of retail demand deposits was rather high as well, totaling 24.6% or 16.4 billion tenge in absolute terms. The table below presents the deposit base breakdown by national and foreign currency for the periods under analysis: As of December 31, 2012 As of December 31, 2011 Deviation Volume, KZT mln share, % Volume, KZT mln share, % The volume of customer accounts in tenge fell by 2.6% or 22.7 billion tenge, and their share in the currency structure also went down; as of the end of 2012, it amounted to 55.3% of the total volume of the Bank s customer accounts, as compared to 60.3% at the beginning of the year. The volume of customer accounts in foreign currency increased by 19.5% or billion tenge, and their share in the deposit portfolio currency structure increased from 39.7% at the beginning of 2012 to 44.7% at the end of the year. Deposits are an important source of financing for the Bank; therefore, the Bank is planning to make further efforts to preserve the existing deposit base, offering competitive market-based terms and continuing close cooperation with state organizations. The Bank is a member of the Kazakhstan Deposit Insurance Fund, 22 which, in turn, enables it to attract new customers, increase the confidence of the 23 existing customers and protect their interests more effectively. absolute, KZT mln relative, KZT mln deposits 894, % 869, % 25, % in KZT 521, % 597, % -76,513 (12.8%) in foreign currency 372,964.0% 271, % 101, % Retail deposits 659, % 594, % 65,322 11% in KZT 338, % 284, % 53, % in foreign currency 321, % 309, % 11, % Total customer accounts 1,553, % 1,463, % 90, % in KZT 859, % 882, % -22,691 (2.6%) in foreign currency 693, % 580, % 113, % On February 13, 2012, the Bank redeemed Eurobonds worth a total of 122 million pounds sterling (28,609 million tenge) issued in February 2007 with the original issue value of 350 million pounds sterling. On November 13, 2012, the Bank canceled treasury bonds with the total par value of US$ 40 million (6,038 million tenge). On December 19, 2012, the Bank redeemed Eurobonds issued in December 2007 with the original issue value of US$ 125 million. In 2012, the Bank repurchased its treasury bonds with the total par value of 556 million tenge (US$ 3.6 million) maturing in In 2012, the Bank sold its treasury bonds with the total par value of 6,119 million tenge (US$ 41 million) maturing in The Group is required to maintain certain financial ratios to meet its covenants. These covenants specify ratios such as capital rationing, the debt to equity ratio and other financial performance ratios. The Group did not violate any of these covenants during the reporting period. As of December 31, 2012 As of December 31, 2011 Deviation Volume, KZT mln share, % Volume, KZT mln share, % absolute, KZT mln relative, KZT mln Correspondent accounts 2, % 3, % % Loans and advances from banks and financial institutions Loans and advances from banks and other financial institutions As of December 31, 2012, the volume of loans and advances from banks and other financial institutions totaled billion tenge, up from 92.2 billion tenge as of December 31, The increase in this item within the period under analysis is due to new repurchase transactions. 24, % 44, % -20, % EBRD loan 11, % 15, % -4, % Loans under repurchase agreements 71, % 27, % 43, % TOTAL 110, % 92, % 18, % The Bank serves as a clearing agent for the majority of banks operating in Kazakhstan, which have free and stable-value accounts in the Bank. As of the end of 2012, the volume of correspondent accounts decreased and amounted to 2.5 billion tenge as compared to 3.5 billion tenge at the end of Loans and advances from banks and financial institutions decreased by 20.1 billion tenge (US$ 138 million) and totaled 24.8 billion tenge as of December 31, This decrease is mainly related to scheduled repayment of external liabilities to Deutsche bank London branch amounting to US$ 90 million, Societe Generale (US$ 21 million) and London Forfaiting Company (US$ 10 million). This item comprises

13 social mainly borrowings from banks and financial institutions of such countries as the United Kingdom, Austria, Luxembourg, Germany, Switzerland, China and Korea, since the Bank participates in servicing export and import transactions and foreign trade financing. The Bank offers short-term, medium-term and long-tem lending products as part of foreign lines of credit through instruments such as trade financing, project financing and investment project financing. As of December 31, 2012, the volume of borrowings forming part of the repurchase agreements with banks item went up from 28 billion tenge as of the beginning of the year to 71.5 billion tenge. This is related to servicing the Bank s foreign currency liabilities, since a significant portion of liquid assets consists of tenge-denominated instruments, the Bank raises part of foreign currency funds through short-term borrowing instruments backed by securities. Loans granted by the European Bank for Reconstruction and Development decreased by 4.2 billion tenge. The share of loans under repurchase agreements in the structure of loans and advances from banks and other financial institutions increased from 30.3% to 64.7%, whereas the share of loans and advances from banks and financial institutions went down from 48.7% to 22.4%. The shares of correspondent accounts and EBRD loans edged down from 3.8% to 2.3% and from 17.2% to 10.6% respectively. Other borrowed funds The volume of other borrowed funds decreased by 29.3% or 7.7 billion tenge; as of December 31, 2012, it stood at 18.6 billion tenge as compared to 26.4 billion tenge as of December 31, Financing provided by the Entrepreneurship Development Fund Damu Long-term loans from other organizations December 31, 2012 December 31, 2011 Deviation (KZT mln) share, % (KZT mln) share, % absolute relative,% 17, % 20, % (2,819) (13.8%) 1, % 6, % (4,909) (81.8%) Other borrowed funds 18, % 26, % (7,728) (29.3%) The Bank has continued its cooperation with the EDF Damu. As of the end of 2012, the volume of financing provided by the EDF Damu totaled 17.5 billion tenge, down by 2.8 billion tenge as compared to the beginning of the year. The Bank continues to implement other programs in cooperation with various international financial institutions such as Private Export Funding Corporation and Deere Credit. As of December 31, 2012, long-term loans from other organizations totaled 1.1 billion tenge, down by 4.9 billion tenge as compared to the beginning of the year. Changes include scheduled and early repayments of previously borrowed funds. Subordinated debt As of December 31, 2012, the Bank s subordinated debt amounted to billion tenge, having decreased by 15.9 billion tenge or 11.5% in relative terms compared to the beginning of the year (when it totaled 138 billion tenge). The Bank s capitalization As of December 31, 2012, the Bank s total capitalization amounted to billion tenge, down by 25.3% as compared to the end of As of December 31, 2012 As of December 31, 2011 Deviation KZT mln US$ mln KZT mln US$ mln absolute, KZT mln relative, KZT mln Long-term liabilities 512,414 3, ,070 4,551 (173,656) (25.3%) Subordinated debt 120, , (15,375) (11.3%) Total liabilities 632,940 4, ,971 5,453 (189,031) (23.0%) Equity,,,,, Share capital 9, , (15) (0.2%) Common shares 7, , (8) (0.1%) Preference shares 1, ,239 8 (7) (0.6%) Share premium 194,721 1, ,924 1,293 (203) (0.1%) Fixed assets revaluation reserves 5, , % Other reserves 97, ,085 1,500 (128,968) (57.0%) Total equity 306,654 2, ,520 2,889 (128,866) (29.6%) Total capitalization 939,594 6,233 1,257,491 8,342 (317,897) (25.3%) As of December 31, 2012, shareholders equity of the Parent totaled billion tenge as compared to billion tenge at the beginning of the year. The decrease in 2012 amounting to 29.6% or billion tenge was related to the negative financial result at year-end, as the Bank made additional provisions on a one-time basis in the 4th quarter of 2012 amounting to 196 billion tenge, as a result of equalizing provisions under international standards with provisions under Kazakhstani standards, which are higher. As of December 31, 2012, the Bank s equity calculated under the Basel framework totaled billion tenge (including Tier I capital of billion tenge) as compared to billion tenge (including Tier I capital of 442 billion tenge) as of December 31, As of December 31, 2012, the Bank s Tier I capital adequacy ratio and total capital adequacy ratio stood at 13.7% and 16.9% respectively as compared to 18.6% and 22.3% as of December 31, The following table illustrates the calculation of capital adequacy ratio under the Basel framework, as of December 31, 2012 and 2011:

14 social Regulatory capital a : Tier I capital: December 31, 2012 December 31, 2011 Changes (KZT mln) (KZT mln) (KZT mln) Share capital (common shares) 7,776 7,784 (8) Share premium reserve 194, ,924 (203) Retained earnings b 225, ,380 23,538 Operating (loss)/profit b (131,131) 23,480 (154,611) Non-controlling interest 1,315 1, Goodwill (2,405) (2,405) 0 Innovative instruments c 10,868 14,729 (3,861) Total Tier I capital 307, ,004 (134,942) Property and equipment revaluation reserve d 5,710 4, Share capital (preference shares) 1,232 1,239 (7) Subordinated debt e 66,176 82,947 (16,771) Total Tier II capital 73,118 89,052 (15,934) Total capital 380, ,056 (150,876) Tier I capital adequacy ratio 13.7% 18.6% (4.92%) Total capital adequacy ratio 16.9% 22.3% (5.42%) а In accordance with rules set within the Basel framework. b When calculating capital adequacy as of December 31, 2012, the Retained earnings item includes the statutory reserves formed to the requirement of the authorized agency and reflected in under International Financial Reporting Standards (IFRS) as from July 1, c Innovative instruments are perpetual bonds. d The Property and equipment revaluation reserve item includes discounted reserve/ deficit on revaluating investments available for sale (in accordance with the Basel framework). e When calculating capital adequacy as of December 31, 2012, 2011 and 2010, the Group included subordinated debt not exceeding 50% of Tier I capital in the calculation of capital. In the event of bankruptcy or liquidation of the Bank, this debt is repaid after the Bank has fulfilled its obligations to all other creditors. The bank s income for the year ended December 31 Net interest income before provisions for the impairment of interest-earning assets Change KZT mln KZT mln KZT mln % 124, ,322 11, % Net non-interest income 34,777 18,556 16, % Operating profit before provisions for the impairment of interest-earning assets 159, ,878 27, % Operating expense (33,890) (34,128) 238 (0.7%) (Provisions)/recovery of provisions on guarantees and other off-balance sheet liabilities (109) 1,387 (1,496) (107.9%) Provisions for impairment for other operations (2,577) (1,865) (712) 38.2% Net profit before provisions for the impairment of interest-earning assets and tax Provisions for the impairment of interest-earning assets 122,539 97,272 25, % (286,325) (66,095) (220,230) 333.2% (Loss)/profit before income tax (163,786) 31,177 (194,963) (625.3%) Income tax benefit/expense 32,854 (7,657) 40,511 (529.1%) Net (loss)/profit (130,932) 23,520 (154,452) (656.7%) Attributable to:,,, Shareholders of the parent (131,131) 23,480, (154,611) (658.5%) Minority interest % Profitability ratios ROA (5.1%) 0.9% ROE (28.4%) 5.5% An increase in provisions for impairment of interest-earning assets is related to onetime additional provisions under IFRS which did not affect the current regulatory capital adequacy. This caused a negative financial result under IFRS for 2012 amounting to 131 billion tenge against a net profit of 23.5 billion tenge for full-year Income before provisions for the impairment of interest-earning assets and tax for fullyear 2012 increased by 26% year-on-year. The increase in the income before provisions for the impairment of interest-earning assets and tax was mainly related to the growth of net interest income before provisions for the impairment of interest-earning assets from billion tenge in 2011 to billion tenge in 2012 and the growth of net noninterest income by a factor of 1.9 (by 16.2 billion tenge). During the 12 months of 2012, a deferred tax liability created earlier was recovered. This resulted in income tax benefit totaling 32.9 billion tenge against income tax expense amounting to 7.7 billion tenge during the same period in Interest income Income, KZT mln Deviation Average yield, % KZT mln % Interest on loans to customers 222, ,938 (12,268) (5.2%) Interest on loans and advances to banks and other financial institutions Interest income on financial assets at fair value through profit or loss 2,441 3,392 (951) (28.0%) ,950 8,523 (1,573) (18.5%) Total interest income 232,0646,853 (14,792) (6.0%)

15 social In 2012, interest income decreased by 6.0%, or by 14.8 billion tenge, and totaled billion tenge against billion tenge in The decline was primarily related to a decrease in interest rates on loans and a reduction in the amount of average interestearning assets. The decline was mainly related to income on loans to customers, which decreased by 12.3 billion tenge, as the average yield on loans to customers fell from 13.2% to 12.7%. Interest income on loans to banks and financial assets at fair value through profit or loss decreased by 28.0% and 18.5% respectively, which is related to a decline in the average volume of these items. The share of income on loans to customers in the structure of interest income was traditionally large and amounted to 96.0% as compared to 95.2% in Interest expense In 2012, interest expense on loans and advances from banks decreased by 26.6% and totaled 4.0 billion tenge against 5.4 billion tenge in This is related to a decline in the average amount of loans from banks and financial institutions in Net interest income Change KZT mln KZT mln % Interest income 232,061, 246,853,,(14,792) (6.0%) Interest expense (107,723) (133,531) 25,808, (19.3%) Net interest income before provisions for the impairment of interest-earning assets 124,338, 113,322, 11,016, 9.7% Provisions for the impairment of interest-earning assets (286,325) (66,095) (220,230) 333.2% Net interest (expense)/ income (161,987) 47,227, (209,214) (443.0%) Interest expense on debt securities issued, subordinated debt and dividends on preference shares Interest on loans and advances from banks and repurchase transactions Interest expenses on customer accounts and repurchase transactions Expense, KZT mln Deviation Average rate, % KZT mln % (36,406) (41,370) 4,964 (12.0%) (3,972) (5,412) 1,440 (26.6%) (65,986) (85,490) 19,504 (22.8%) Interest expenses on other liabilities (1,359) (1,259) (100) 7.9% Total interest expenses (107,723) (133,531) 25,808 (19.3%) In 2012, interest expense decreased by 19.3% (or by 25.8 billion tenge) year-onyear, as the rate on the Bank s interest-bearing liabilities declined from 6.3% in 2011 to 5.4% in Keeping costs down is the Bank s primary goal as it is an important stabilizing factor. Expenses on customer accounts still account for the biggest share in interest expenses (61.3% in 2012 compared to 64.0% in the same period in 2011). The share of expense on debt securities issued, subordinated debt and dividends on preference shares increased from 31% to 33.8%. In 2012, expense on loans and advances from banks decreased to 3.7% compared to 4.1% in During the 12 months of 2012, interest expense on customer accounts decreased by 22.8% (by 19.5 billion tenge) and totaled 66.0 billion tenge compared to 85.5 billion tenge during the 12 months of The decline was related to a reduction in the average cost of customers deposits from 5.8% in 2011 to 4.6% in 2012; overall, this reflects the general situation in the market. Thus, as of the end of 2012, the interest on new retail deposits recommended by the Kazakhstan Deposit Insurance Fund totaled 9% on deposits in tenge and 6% on deposits in other currencies, against 10% on deposits in tenge and 7% on deposits in other currencies as of December 31, In 2012, interest expense on debt securities issued, including subordinated debt and dividends on preference shares, decreased by 5.0 billion tenge compared to liabilities according to schedules. In 2012, net interest income before provisions for the impairment of interestearning assets increased by 11.0 billion tenge and totaled billion tenge compared to billion tenge in The increase was mainly related to a reduction in the average cost of interest-bearing liabilities. In 2012, net interest income decreased due to an increase in expenses as the Bank formed additional provisions under IFRS on a one-time basis in the fourth quarter of An additional one-time increase in specific provisions under IFRS using capital surplus under IFRS enabled the Bank to offset the negative impact of the planned changes in regulations. In 2012, the Group identified several corporate loans which are unlikely to generate cash inflow until The management considers these loans impaired. In accordance with IAS 39, interest should continue to be accrued on impaired loans even if they are doubtful. In 2012, the interest income accrued on these loans totaled 42.3 billion tenge. The management decided to make a loan loss provision amounting to 42.3 billion tenge against this interest. Net interest margin and spread (KZT mln) % (KZT mln) % Interest income 232,0646,853 Accrued interest income with 100% provisions 42,314 42,172 Adjusted interest income 189, ,681 Average yield on interest-earning assets Average cost of interest-bearing liabilities Margin (%)* Spread (%)** * The net interest margin is reduced by the amount of accrued interest income with 100% provisions 28 This was mainly related to a decline in their average amount, as the Bank repaid its ** Spread is the difference between the rate on interest-earning assets and the rate on interest- 29 bearing liabilities

16 social In 2012, the ratio of the adjusted net interest margin before provisions for impairment tenge. As a result, the share of this item in the fee and commission income changed. During of interest-earning assets to the average amount of interest-earning assets totaled 3.9% the period under analysis, the share of operations with banking cards increased from 28.4% against 3.3% in Provisions for impairment of interest-earning assets for the year ended December 31 to 31.6%. Investment fees on administered pension funds, fee and commission income from encashment and settlements also increased by 21.6%, 21.9% and 19.2% respectively. The structure of fee and commission expenses also changed. The fee and commission expenses on bank cards services increased by 28.6%, while those on services provided Change KZT mln KZT mln KZT mln % Provisions for losses on loans to customers 286,193 65, , Provisions for losses on loans to banks Provisions for investments available-for-sale 126 (126) (100.0) by correspondent banks and payments to the Deposit Insurance Fund added 23.9% and 17.9% respectively. The share of bank cards services in the fee and commission expenses increased most considerably: from 31.5% in 2011 to 34.2% in TOTAL 286,325 66, , In 2012, provisions for the impairment of interest-earning assets increased fourfold by billion tenge and totaled billion tenge compared to 66.1 billion tenge in the same period in The effective provisioning rate on loans to customers rose from 24.0% as of December 31, 2011 to 32.5% as of December 31, Item Operating expense KZT mln Change, percent Share, % Total operating expense 33,890 34,128 (1%) 100% 100% Staff costs 17,799 18,036 (1%) 53% 53% Net gain (loss) on financial assets at fair value through profit or loss Net gain (loss) on operations in foreign currency, securities and precious metals Net non-interest income Change KZT mln share, % KZT mln In 2012, the Bank recognized net non-interest income totaling 34.8 billion tenge compared to 18.6 billion tenge in This increase is related to dividend income of 8.5 billion tenge and the growth of net gain on operations in foreign currency, securities and precious metals totaling 2.6 billion tenge and net fee and commission income amounting to 2.2 billion tenge. In 2012, income from operations with derivatives totaled 3.9 billion tenge against a loss of 6.5 billion tenge in In 2012, this enabled the Bank to improve the results of operations with financial assets at fair value through profit or loss. Dividend income increased, as dividend payments on the securities of Kazakhtelecom JSC amounting to 8.5 million tenge were made. In 2012, the net gain on operations in foreign currency, securities and precious metals totaled 3.6 billion tenge compared to 1.0 billion tenge in share, % KZT mln % (326) (0.9) (5,232) (28.2) 4,906 (93.8) 3, , Net fee and commission income 18, , , Net realized (loss)/gain on investments availablefor-sale (649) (1.9) (751) (736.3) Dividend income 8, , Other income 4, , (1,043) (18.0) Net non-interest income 34, , , Depreciation and amortization 3,149 3,286 (4%) 9% 10% Operating leases 2,452 2,509 (2%) 7% 7% Property and equipment maintenance 2,279 2,276 0% 7% 7% Advertising and telecommunications costs 2,093 2,378 (12%) 6% 7% Taxes other than income tax 1,599 1,609 (1%) 5% 5% Bank cards services % 3% 2% Security services % 2% 1% Vehicle maintenance % 1% 1% Other expenses 2,445 2,545 (4%) 7% 7% In 2012, operating expense decreased by 1% year-on-year from 34.1 billion tenge to 33.9 billion tenge. Staff costs totaled 17.8 billion tenge, demonstrating a 1% year-on-year decrease. Overall, the Group limits its operating expense and attaches special importance to controlling it. Expenses on depreciation and amortization decreased by 4% year-on-year, mainly at the parent company. This was related to the disposal of fixed assets and the fact that several leased office buildings were fully depreciated and the license for Amex was fully amortized (as it expired in October 2012). Operating leases decreased by 2% as the leased area was reduced, larger leased offices were closed and smaller ones were opened. In 2012, advertising and telecommunications costs decreased by 12% year-on-year as advertising was reduced in general and paid voice traffic decreased (the largest offices installed special GSM gateways enabling to make outgoing calls via K Cell / BeeLine, without using the services of Telecom). The reduction in the number and duration of domestic long-distance calls also contributed to the decrease in the expenses. During the 12 months of 2012, net fee and commission income increased by 13.1% and 30 totaled 18.9 billion tenge. The structure of fee and commission income changed: fee and maintenance of buildings, software support, etc.) did not change, and this item remained 31 commission income from operations with banking cards increased by 27.9%, or by 1.9 billion The structure of expenditure on property and equipment maintenance (repairs and practically at the same level as in 2011.

17 Bank cards services (ATMs, POS terminals, cards) added 5%, as the number of machines and issued cards increased. The cost of security services increased by 471 million tenge, as the Bank started outsourcing security services. Expenditure on vehicle maintenance added 72 million tenge, which was mainly related to seasonal fluctuations in the prices for fuel and lubricants. Other expenses decreased by 4% year-on-year. Income tax Due to a one-time increase in provisions at the end of 2012 totaling 196 billion tenge, during the 12 months of 2012, a deferred tax liability created earlier was recovered. This resulted in income tax benefit totaling 32.9 billion tenge against income tax expense of 7.7 billion tenge in the same period in

18 3 social Overview of the corporate system The corporate system of JSC Kazkommertsbank ( the Bank ) is based on strict compliance with the requirements of the legislation of the Republic of Kazakhstan and the National Bank of Kazakhstan, as well as on the commitment to meeting the latest international requirements and using best practices and expertise in corporate as fully as possible. 2. structure The General Shareholders Meeting is the Bank s supreme governing body. Members of the Board of Kazkommertsbank are elected by shareholders and are accountable to the General Shareholders Meeting. The Board determines business priorities and supervises the Management Board, the Bank s executive body, as well as the Board committees, the Internal Audit Service and the Secretary. The corporate structure of Kazkommertsbank The Governance Code ( the Code ) is the main document regulating the Bank s corporate system; the Code was approved by the General Shareholders Meeting of the Bank in 2006 and was subsequently reviewed and updated in 2008 and In its day to day operations, the Bank complies with the Code in order to ensure efficient, which, in its turn, is aimed at maintaining and improving the investment attractiveness for the shareholders in the long term. A high-quality and efficient corporate system contributes to improving the Bank s operations and enables the Board to perform its duties most effectively, acting in the interests of all shareholders. The Code meets the requirements of the Law of the Republic of Kazakhstan on Joint- Stock Companies, which provides the legal framework for defining corporate standards in the country. The Code also complies with the existing legislation of the Republic of Kazakhstan, the main provisions of the UK Governance Code ( the Combined Code ) overseen by the Financial Reporting Council, the Bank s Articles of Association, and the Governance Code approved by the Issuers Council. The Bank s corporate is based on the following key principles: 1) protecting and respecting the rights and legitimate interests of the Bank s Shareholders; 2) efficient management of the Bank; 3) transparent and objective disclosure of information on the Bank s operations; 4) lawfulness and ethics; 5) dividend policy; 6) HR policy; 7) environmental protection; 8) corporate dispute resolution. Kazkommertsbank adheres to the principle of giving all its shareholders equal treatment, respecting their rights stipulated by the legislation of the Republic of Kazakhstan (including those related to receiving dividends and participating in the management of the Bank by holding General Shareholders Meetings), providing the shareholders with accurate information on the Bank, including its financial position, financial and operating results, in 34 management. Independent directors also play the key role in supervising and ensuring 35 due time. The Board is the Bank s governing body which is responsible for strategic management of the Bank, monitors its financial and business operations and risk management system and implements the Bank s decisions and the policy approved by the General Shareholders Meeting. In accordance with the Code, the duties of the Chairman of the Board and the Chairman of the Management Board are separated: the Chairman of the Board organizes the work of the Board, while the Chairman of the Management Board manages the day-to-day operations of the Bank. The meetings of the Board should be held when necessary, but no less than once a month. 1) The Board Members of the Board are elected by the General Shareholders Meeting. Members of the Board are elected to the position only after approval is obtained from the Committee for the control and supervision of financial market and financial organizations of the National Bank of Kazakhstan. The Board should include five to seven persons. Independent directors should account for at least one third of the Board. At present, the Bank s Board comprises 6 persons; 2 of them are independent directors, and there remains one vacancy for an independent director. Although all Directors are equal before the law of the Republic of Kazakhstan, which ensures effective management of the company, independent directors are of great importance for the corporate system. They are responsible for considering the strategy proposed by other Directors and for assessing the performance of the Bank s efficient work of the Board committees.

19 3 social 4 5 In 2012, the membership of the Bank s Board underwent certain changes. On May 18, 2012, as part of the planned rotation of an independent director put forward by the European Bank for Reconstruction and Development, a decision was made to remove Gail Buyske, an independent director and a member of the Board, who had held this position since 2003, from office before the end of her term. At the suggestion of the EBRD, Dmitry Tulin was elected for this position. On June 1, 2012, the Bank was informed that S. Shibaev, who was elected to the Bank s Board as an independent director at the Extraordinary General Shareholders Meeting held on July 21, 2009, was to take voluntary redundancy on June 2, ) Members of the Board Nurzhan Subkhanberdin (b. 1965) Chairman Nina Zhussupova (b. 1962) Chairperson of the Management Board Appointment: joined the Bank in 1995; since September 2002, she has been the member of the Board. Biography: Since 1995, Ms. Zhussupova had held the positions of the first Deputy Chairman of the Management Board, the Chief Accountant of the Bank and the head of the Accounts Office; since 2002, she has chaired the Bank s Management Board. Ms. Zhussupova graduated from the faculty of economics of the Almaty Institute of National Economy. She has been awarded the Medal 10 Years of the Independence of the Republic of Kazakhstan and the Order of Kurmet. Appointment: joined the Bank in 1991 and became Chairman of the Board in Biography: Prior to becoming the Chairman of the Board, Mr. Subkhanberdin had been the Chairman of the Management Board of the Bank since From 1991 through 1993, he was the First Deputy Chairman of the Bank. Mr. Subkhanberdin graduated from Moscow State University and has a degree in economics from Kazakh State University. Appointment: 2011 Serik Akhanov (b. 1951) Deputy Chairman Membership in Committees: Chairman of the Staff and Remuneration Committee and the Social Committee, member of the Audit Committee. Biography: Mr. Akhanov is a Doctor of Economics and professor. He has an extensive work experience in government agencies and the financial sector. He worked for the Council of Ministers of the Kazakh SSR ( ) and the President s Office ( ). He held the positions of the Deputy Minister of Economy ( and ), the First Deputy Chairman of the Management Board of Eximbank Kazakhstan ( and 2001), the Deputy Governor of the National Bank of Kazakhstan ( ), and the Vice-Minister of Finance (1999). In , Mr. Akhanov was a member of the Board of Kazkommertsbank. In and he was an adviser to the Chairman of the Management Board of JSC Kazkommertsbank. Mr. Akhanov has been Appointment: 2012 Dmitry Tulin (b. 1956) Independent director Membership in Committees: Chairman of the Audit Committee and the Committee on Strategic Planning and Risks, member of the Staff and Remuneration Committee and the Social Committee. Biography: Prior to his election to the Board of Directors, Mr. Tulin held senior management positions in several Russian and international financial institutions. He holds a diploma of the Moscow Finance Institute ( ) and a PhD in Economics of the Institute of Finance and Economics ( ). 36 the Chairman of the Council of the Financial Institutions Association of Kazakhstan since In addition, Mr. Yerzhanov is the President of the Guild of He has been awarded the Parasat Order. Mukhtar Yerzhanov (b. 1950) Member of the Board representing the interests of Central Asian Investment Company (CAIC). Appointment: 2008 Membership in Committees: Member of the Audit Committee. Biography: Mr. Yerzhanov is a partner in an audit firm, a professor at the Turar Ryskulov Kazakh Economic University and Turan University. Besides, he is the Chairman of the Committee on Development of Audit Theory and Practice under the Chamber of Auditors of Kazakhstan. Internal Auditors and Accountants of Kazakhstan.

20 3 social 4 5 Archag Patrick Vosgimorukian (b. 1973) Member of the Board representing Alnair capital Holding Appointment: 2009 Membership in Committees: member of the Committee on Strategic Planning and Risks. Biography: Mr. Vosgimorukian is the General Manager of AMUN Capital Advisors KZ, an affiliate of Alnair. From 2007 through 2008, he worked as a Managing Director at Renaissance Capital Central Asia and supervised investments, banking and finance in Central Asia and the Caucasus. From 2000 through 2007, he was the Head of Mergers & Acquisitions in CEE and CIS at ABN AMRO Finance London Ltd. Prior to that, from 1998 through 2000, he worked as an EMEA TMT (Technology, Media, Telecommunications) Equity Research Analyst at Societe Generale Securities. In 1994, he graduated with a BA in International Relations from the American University of Paris (AUP, Paris, France); in 1998, he was approved for the Customer Function CF30 (Investment Advisor Function CF21) by the Financial Services Authority (FSA, London, UK). Serik Akhanov Committee member (Deputy Chairman of the Board ) Alua Nurkeeva Committee member (General Manager of Alnair Capital, Director of the Financial Institutions sector of Amun Capital Advisors KZ) T. Zhumataeva Committee member (Director of the Internal Audit Service) Committee on Strategic Planning and Risks: The main duties of the Committee include: Analyzing and developing recommendations on general internal documents of the Bank and individual relevant reports in order to ensure sufficient conditions necessary for creating efficient risk management, corporate and strategic planning systems; Analyzing and developing recommendations for the regulations on committees and departments of the Bank in order to ensure sufficient authority and rights necessary for creating efficient risk management, corporate and strategic planning systems; Analyzing best international practices related to strategic planning, corporate and risk management, and providing the Board with relevant reports; 3) Board committees Kazkommertsbank has created an efficient system for corporate and monitoring of financial and business operations in order to protect the rights and legitimate interests of shareholders. There are three Board committees: the Committee on Strategic Planning and Risks, the Audit Committee and the Staff and Remuneration Committee. The Audit Committee: The Board appoints members of the Audit Committee, whose duties include: monitoring the integrity of information on financial position disclosed by the Bank; assessing the internal financial control system; monitoring and assessing the efficiency of internal audit; providing the Board with recommendations on appointment, reappointment and removal of the external auditor from office, as well as on the remuneration and employment conditions of the external auditor; assessing and monitoring the independence of the external auditor, objectivity and efficiency of the audit. Committee members: Dmitry Tulin Chairman (Independent director) At the request of the Board and the Bank s Management Board, conducting detailed analysis, audit and preparing recommendations related to specific issues of risk management, strategic planning and corporate, as well as to possible strategic M&A transactions, sale of assets, considerable restructuring of core businesses, etc., which are beyond the scope of day-to-day operations; Preparing recommendations for the Board on transactions considered as major ones in accordance with the Law of the Republic of Kazakhstan on Joint-Stock Companies and the Bank s Articles of Association. Committee members: Dmitry Tulin Chairman (Independent director) Archag Patrick Vosgimorukian Committee member (Member of the Board representing Alnair) Rustam Nabirov Committee member (Managing Director supervising market, corporate and retail risks) The Staff and Remuneration Committee The Committee provides the Board with advice and recommendations concerning cooperation with senior managers, their appointment and transfers, performance evaluation and the system of incentives. Committee members: Mukhtar Yerzhanov Committee member (Member of the Board ) Serik Akhanov Chairman (Deputy Chairman of the Board ) 38 39