JOINT STOCK COMPANY BANK CASPIAN

Transcription

1 JOINT STOCK COMPANY BANK CASPIAN Consolidated Financial Statements For The Year Ended And Independent Auditors Report

2 JOINT STOCK COMPANY BANK CASPIAN CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS 1 INDEPENDENT AUDITORS REPORT 2 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER : Consolidated statement of income 3-4 Consolidated balance sheet 5 Consolidated statement of changes in shareholders equity 6 Consolidated statement of cash flows 7-8 Notes to the consolidated financial statements 9-38

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5 JOINT STOCK COMPANY BANK CASPIAN CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER Notes Year ended 31 December Year ended 31 December INTEREST INCOME Loans to customers 28 15,429,014 7,482,812 Investment securities 777, ,315 Amounts due from credit institutions 454,615 45,871 16,661,546 8,020,998 INTEREST EXPENSE Amounts due to customers 28 (2,076,879) (1,378,353) Subordinated loan (966,151) (914,006) Amounts due to credit institutions (1,555,765) (497,362) Debt securities issued (1,512,871) (337,499) (6,111,666) (3,127,220) NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 10,549,880 4,893,778 Provision for impairment losses on interest bearing assets 4 (2,929,742) (1,809,426) NET INTEREST INCOME 7,620,138 3,084,352 FEES AND COMMISSIONS Fee and commission income 5, 28 2,524,817 1,484,225 Fee and commission expense 5 (317,207) (221,934) 2,207,610 1,262,291 Net gain/(loss) on securities held-for-trading 6 218,179 (45,041) Net gain on foreign exchange operations - dealing 243, ,499 - translation differences 45,753 60,238 Underwriting (loss)/income (161,156) 38,484 Fines and penalties 658, ,483 Other (expense)/income (80,899) 55,515 NET NON INTEREST INCOME 3,131,483 2,011,469 3

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9 JOINT STOCK COMPANY BANK CASPIAN CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER Notes Year ended 31 December Year ended 31 December CASH FLOWS FROM OPERATING ACTIVITIES: Income before income tax expense 5,180,943 2,178,440 Adjustments for: Provision for impairment losses on interest bearing assets 2,929,742 1,809,426 Provision for impairment losses on other transactions 98, Provision for guarantees and other off-balance sheet contingencies 9,848 66,689 Depreciation and amortization of fixed and intangible assets 242, ,501 Gain on disposal of property and equipment (2,973) (26,420) Unrealized (gain)/loss on trading securities (138,237) 42,453 Unrealized foreign exchange (gain)/loss (47,486) 100,132 Cash flow from operating activity before changes in net operating assets and liabilities 8,272,609 4,345,057 Net increase in operating assets: Obligatory reserve (1,106,692) (330,758) Trading securities (10,309,938) (5,405,268) Amounts due from credit institutions (4,729,563) (895,293) Loans to customers (61,411,177) (15,728,299) Advances paid (1,311,830) - Other assets (381,531) (213,406) Net increase/(decrease) in operating liabilities Amounts due to Government 21,344 (170,134) Amounts due to credit institutions 25,798,063 11,439,316 Amounts due to customers 10,582,464 1,672,646 Other liabilities 460, ,609 Cash used in operating activities before income taxes (34,115,975) (5,102,530) Corporate income tax paid (654,792) (590,746) Net cash used in operating activities (34,770,767) (5,693,276) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,003,394) (801,696) Proceeds from sale of property and equipment 42,210 42,033 Purchase of investment available-for-sale (134,386) - Net cash used in investing activities (1,095,570) (759,663) 7

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11 JOINT STOCK COMPANY BANK CASPIAN NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 1. ORGANISATION JSC Bank Caspian (the Bank ) is a joint-stock company, which was incorporated in the Republic of Kazakhstan in December The Bank is regulated by the National Bank of the Republic of Kazakhstan (NBRK) and the Agency of the Republic of Kazakhstan on the regulation and the supervision of financial market and financial organizations (AFS) and conducts its business under general license number No. 245 on 30 September. The Bank's primary business consists of commercial activities, trading with securities and foreign currencies, originating loans and guarantees. The registered address of the Bank is 90 Adi Sharipov Street, Almaty, , Republic of Kazakhstan. The Bank has 40 branches in the Republic of Kazakhstan. The Bank is a parent company of the banking group (the Group ) which includes JSC Insurance Company Almaty International Insurance Group ( AIIG ) in the consolidated financial statements. AIIG was formed as a joint stock company under the laws of the Republic of Kazakhstan in late The company s principal activity is provision of property and casualty insurance. The company possesses licenses No. DOS 5-2/1 and No. OS 5-2/1 for provision of non-life voluntary and obligatory insurance. During and the Group had an average of 2,735 and 1,344 employees, respectively. These consolidated financial statements were authorized for issue by the Group s Management on 17 February BASIS OF PREPARATION Accounting basis These consolidated financial statements of the Bank have been prepared in accordance with Internationaal Financial Reporting Standards ( IFRS ). These consolidated financial statements are presented in thousands of Kazakhstani Tenge ( KZT ), unless otherwise indicated. These consolidated financial statements are prepared on an accrual basis under the historical cost convention modified for the measurement at fair value of financial securities held for trading and property and equipment and according to International Accounting Standard 29 Financial Reporting in Hyperinflationary Economies (IAS 29). Accounting policies in relation to insurance activities have not been disclosed as these activities are not considered significant to the operations and consolidated financial position of the Group. The Group maintains its records and prepares its consolidated financial statements in accordance with IFRS. The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to change relate to the provisions for losses and impairment and the fair value of financial instruments. 9

12 Measurement currency The measurement currency in these consolidated financial statements is the Kazakhstani Tenge. 3. SUMMARY OF THE ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements incorporate the financial statements of the Bank and entity controlled by the Bank (its subsidiary) made up to each year. Control is achieved where the Bank has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Recognition and measurement of financial instruments The Group recognizes financial assets and liabilities on its balance sheet when it becomes a party to the contractual obligation of the instrument. Regular way purchase and sale of the financial assets and liabilities are recognized using settlement date accounting. Regular way purchases of financial instruments that will be subsequently measured at fair value between trade date and settlement date are accounted for in the same way as for acquired instruments. Financial assets and liabilities are initially recognized at fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss transaction costs that are directly attributable to acquisition or issue of the financial asset or financial liability. The accounting policies for subsequent re-measurement of these items are disclosed in the respective accounting policies set out below. Cash and cash equivalents Cash and cash equivalents include cash on hand, unrestricted balances on correspondent and time deposit accounts with the National Bank of the Republic of Kazakhstan with original maturity within 90 days, and advances to banks in countries included in the Organization for Economic Co-operation and Development ( OECD ), except for margin deposits for operations with plastic cards, which may be converted to cash within a short period of time. For purposes of determining cash flows, the minimum reserve deposit required by the National Bank of the Republic of Kazakhstan is not included as a cash equivalent due to restrictions on its availability. Obligatory reserves Obligatory reserves represent mandatory reserve demand deposits and cash which are not available to finance the Bank s day to day operations and, hence, are not considered as part of cash and cash equivalents for the purpose of the consolidated statements of cash flows. Trading securities Securities purchased principally for the purpose of generating a profit from short-term fluctuations in price or dealers margin are classified as trading securities. Trading securities are initially recognized under the policy for financial instruments and are subsequently measured at fair value, based on market values as of the balance sheet date. Realized and unrealized gains and losses resulting from operations with trading securities are recognized in the statement of income as gains less losses from trading securities. Interest earned on trading securities is reported as interest income. 10

13 In determining estimated fair value, securities are valued at the quotes of the Kazakhstan Stock Exchange if quoted on an exchange, or the last bid price if traded over-the-counter. When market prices are not available or if liquidating the Group s position would reasonably be expected to impact market prices, fair value is determined by reference to price quotations for similar instruments traded in different markets or objective and reliable management s estimates of the amounts that can be realized. Loans and advances to banks In the normal course of business, the Group maintains current accounts or deposits for various periods of time with other banks. Amounts due from credit institutions with a fixed maturity term are subsequently measured at amortized cost using the effective interest method. Those that do not have fixed maturities are carried at cost. Amounts due from credit institutions are carried net of any allowance for impairment. Repurchase and reverse repurchase agreements The Group enters into sale and purchase back agreements ( repos ) and purchase and sale back agreements ( reverse repos ) in the normal course of its business. Repos and reverse repos are utilized by the Group as an element of its treasury management and trading business. A repo is an agreement to transfer a financial asset to another party in exchange for cash or other consideration and a concurrent obligation to reacquire the financial assets at a future date for an amount equal to the cash or other consideration exchanged plus interest. These agreements are accounted for as financing transactions. Financial assets sold under repo are retained in the consolidated financial statements and consideration received under these agreements is recorded as collateralized deposit received. Assets purchased under reverse repos are recorded in the consolidated financial statements as cash placed on deposit which is collateralized by securities and other assets. In the event that assets purchased under reverse repo are sold to third parties, the results are recorded with the gain or loss included in net gains/(losses) on respective assets. Any related income or expense arising from the pricing difference between purchase and sale of the underlying assets is recognized as interest income or expense. Derivative financial instruments The Group enters into derivative financial instruments to manage currency and liquidity risks and such financial instruments are held primarily for trading purposes. Derivatives entered into by the Group include forwards, swaps and foreign currency options. Derivative financial instruments are initially recorded and subsequently measured at fair value which approximates the fair value of the consideration given. Fair values are obtained from the interest rates model. Most of the derivatives the Group enters into are of a short-term and speculative nature. The results of the valuation of derivatives are reported in assets (aggregate of positive market values) or liabilities (aggregate of negative market values), respectively. Both positive and negative valuation results are recognized in the profit and loss for the year in which they arise under net gain on foreign exchange operations for foreign currency derivatives. 11

14 Originated loans Loans originated by the Group are financial assets that are created by the Group by providing money directly to a borrower or by participating in a loan facility. Loans granted by the Group with fixed maturities are initially recognized in accordance with the policy stated above. The difference between the nominal amount of consideration given and the amortized cost of loans issued at lower than market terms is recognized in the period the loan is issued as initial recognition adjustment discounting using market rates at inception and included in the profit and loss account as losses on origination of assets. Subsequently, the carrying amount of such loans is adjusted for amortization of the losses on origination and the related income is recorded as interest income within the profit and loss account using the effective interest method. Loans to customers that do not have fixed maturities are carried at cost. Loans to customers are carried net of any allowance for impairment losses. Write off of loans and advances Loans and advances are written off against allowance for loan losses in case of uncollectibility of loans and advances, including through repossession of collateral. Loans and advances are written off after management has exercised all possibilities available to collect amounts due to the Group and after the Group has received all available collateral. Non-accrual loans Loans are placed on non-accrual status when interest or principal is delinquent for a period in excess of 30 days, except when all amounts due are fully secured by cash or marketable securities and collection proceedings are in process. Interest income is not recognized if recovery is doubtful. Subsequent payments by borrowers are applied to either principal or delinquent interest based on individual arrangements with the borrower. A non-accrual loan is restored to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period. Allowances for impairment of financial assets The Group establishes an allowance for impairment losses of financial assets when there is objective evidence that a financial asset or group of financial assets is impaired. The allowance for impairment losses is measured as the difference between carrying amounts and the present value of expected future cash flows, including amounts recoverable from guarantees and collateral, discontinued at the financial asset s original effective interest rate, for financial assets which are carried at amortised cost. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusted an allowance account. For financial assets carried at cost the allowance for impairment losses is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed. The determination of the allowance for impairment losses is based on an analysis of the risk assets and reflects the amount which, in the judgment of management, is adequate to provide for losses incurred. Provisions are made as a result of an individual appraisal of risk assets for financial assets that are individually significant, and an individual or collective assessment for financial assets that are not individually significant. 12

15 The change in the allowance for impairment losses is charged to profit and the total of the allowance for impairment losses is deducted in arriving at assets as shown in balance sheet. Factors that the Group considers in determining whether it has objective evidence that an impairment loss has been incurred include information about the debtors or issuers liquidity, solvency and business and financial risk exposures, levels of and trends in delinquencies for similar financial assets, national and local economic trends and conditions, and the fair value of collateral and guarantees. These and other factors may, either individually or taken together, provide sufficient objective evidence that an impairment loss has been incurred in a financial asset or group of financial assets. It should be understood that estimates of losses involve an exercise of judgment. While it is possible that in particular periods the Group may sustain losses, which are substantial relative to the allowance for impairment losses, it is the judgment of management that the allowance for impairment losses is adequate to absorb losses incurred on the risk assets. Operating leases Leases of assets under which the risks and rewards of ownership are effectively retained with the lessor are classified as operating leases. Lease payments under operating lease are recognized as expenses on a straight-line basis over the lease term and included into administrative and operating expenses. Investments available-for-sale Investments available-for-sale represent debt and equity investments that are intended to be held for an indefinite period of time. Such securities are initially recorded at fair value. Subsequently the securities are measured at fair value, with such re-measurement recognized directly in equity, plus accrued coupon income recognized in consolidated profit or loss for the period as interest income on investment securities. The Group uses quoted market prices to determine the fair value for the Group s investments available-for-sale. If such quotes do not exist, management estimation is used. Dividends received are included in dividend income in the consolidated profit and loss account. When there is objective evidence that such securities have been impaired, the cumulative loss previously recognized in equity is removed from equity and recognized in profit and loss for the period. Reversals of such impairment losses on debt instruments, which are objectively related to events occurring after the impairment, are recognized in consolidated profit and loss for the period. Reversals of such impairment losses on equity instruments are not recognized in consolidated profit and loss. Property, equipment and intangible assets Equipment is carried at cost less accumulated depreciation and any accumulated impairment for diminution in value. Property is carried at revalued cost less accumulated depreciation and any accumulated impairment for diminution in value. Revaluations of property are performed with sufficient regularity such that the carrying amount does not fluctuate materially. Any revaluation increase arising on the revaluation of such property is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognized as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in the carrying amount arising on the revaluation of such property is charged as an expense to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the revaluation reserve is transferred to retained earnings. Depreciation on assets under construction and those not placed in service commences from the date the assets are ready for their intended use. Depreciation is calculated on a straight-line basis over the following estimated useful lives: 13

16 Buildings 2% Furniture and fixtures 10%-33% Vehicles 12.5%-25% Intangible assets 23.5% Leasehold improvements are amortized over the life of the related leased asset. The carrying amounts of property and equipment are reviewed at each balance sheet date to assess whether they are recorded in excess of their recoverable amounts, and where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount. An impairment is recognized in the respective period and is included in administrative and operating expenses. Costs related to repairs and renewals are charged when incurred and included in administrative and operating expenses unless they qualify for capitalization. Taxation Income tax expense represents the sum of the current and deferred tax expense. The current tax expense is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s current tax expense is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. Deferred tax is charged or credited in the consolidated profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Countries where the Group operates also have various other taxes, which are assessed on the Group s activities. These taxes are included as a component of operating expenses in the consolidated profit and loss account. 14

17 Debt securities issued Debt securities issued represent promissory notes, certificates of deposit and debentures issued by the Group. They are accounted for according to the same principles used for customer and bank deposits. Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the obligation can be made. Share capital Contributions to share capital are recognized at cost. Share premium represents the excess of contributions over the nominal value of the shares issued. Gains and losses on sales of treasury stock are charged or credited to share premium. External costs directly attributable to the issue of new shares, other than on a business combination, are deducted from equity net of any related income taxes. Dividends on ordinary shares are recognized in equity as a reduction in the period in which they are declared. Dividends that are declared after the balance sheet date are treated as a subsequent event under International Accounting Standard 10 Events after the Balance Sheet Date ( IAS 10 ) and disclosed accordingly. Retirement and other benefit obligations The Group does not have any pension arrangements separate from the State pension system of the Republic of Kazakhstan, which requires current contributions by the employer calculated as a percentage of current gross salary payments; such expense is charged in the period the related salaries are earned. In addition, the Group has no post-retirement benefits or significant other compensated benefits requiring accrual. Contingencies Contingent liabilities are not recognized in the consolidated financial statements unless it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. Recognition of income and expense Interest income and expense are recognized on an accrual basis using effective interest rate method. Interest income also includes income earned on investments in securities. Other income is credited to profit and loss account when the related transactions are completed. Loan origination fees, if significant, are deferred (together with related direct costs) and recognized as an adjustment to the loan s effective yield. Commission incomes/expenses are recognized on an accrual basis. 15

18 Fee and commission income Fee and commission income includes loan origination fees, loan commitment fees, loan servicing fees and loan syndication fees. Loan origination fees are deferred, together with the related direct costs, and recognized as an adjustment to the effective interest rate of the loan. Where it is probable that a loan commitment will lead to a specific lending arrangement, the loan commitment fees are deferred, together with the related direct costs, and recognized as an adjustment to the effective interest rate of the resulting loan. Where it is unlikely that a loan commitment will lead to a specific lending arrangement, the loan commitment fees are recognized in profit and loss over the remaining period of the loan commitment. Where a loan commitment expires without resulting in a loan, the loan commitment fee is recognized in profit and loss on expiry. Loan servicing fees are recognized as revenue as the services are provided. Loan syndication fees are recognised in profit and loss when the syndication has been completed. All other commissions are recognized when services are provided. Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translated into KZT at the appropriate spot rates of exchange ruling at the balance sheet date. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transaction. Gains and losses arising from these translations are recognized in the statement of income as gains less losses from foreign currencies. Rates of exchange The exchange rates at year-end used by the Group in the preparation of the consolidated financial statements are as follows: KZT/US Dollar KZT/Euro Offset of financial assets and liabilities Financial assets and liabilities are offset and reported net on the balance sheet when the Group has a legally enforceable right to set off the recognized amounts and the Group intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. In accounting for a transfer of a financial asset that does not qualify for derecognition, the Group does not offset the transferred asset and the associated liability. Fiduciary activities The Group provides trustee services to its customers. Also the Group provides depositary services to its customers that include transactions with securities on their depo accounts. Assets accepted and liabilities incurred under the fiduciary activities are not included in the Group s financial statements. The Group accepts the operational risk on these activities, but the Group s customers bear the credit and market risks associated with such operations. 16

19 Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segments with a majority of revenue earned from sales to external customers and whose revenue, result or assets are ten per cent or more of all the segments are reported separately. Geographical segments of the Group have been reported separately within these consolidated financial statements based on the ultimate domicile of the counterparty, e.g. based on economic risk rather than legal risk of the counterparty. 4. ALLOWANCES FOR IMPAIRMENT LOSSES, OTHER PROVISIONS The movements in allowance for impairment losses on interest earning assets were as follows Beginning of the year 2,513,764 1,283,495 Provision 2,929,742 1,809,426 Write-offs (472,856) (484,548) Recoveries 107,538 3,251 Transfers - (97,860) End of the year 5,078,188 2,513,764 The movements in allowances for impairment losses on other transactions were as follows: Beginning of the year 100,481 3,905 Provision 98, Write-offs (14,155) (2,120) Transfers 5,927 97,860 End of the year 190, ,481 The movements in provision for off balance sheet transactions were as follows: Beginning of the year 189, ,046 Provision 9,848 66,689 Transfers (5,927) - End of the year 193, ,735 Allowances for impairment of assets are deducted from the related assets. Provisions for guarantees and letters of credit are recorded in liabilities. 17

20 5. FEE AND COMMISSION INCOME Fee and commission income comprise: Year ended Year ended Bank accounts serving and cash operations 882, ,169 Documentary operations 561, ,290 Settlements 432, ,976 Foreign exchange operations 175, ,871 Trust operations 133,751 21,225 Other 338, ,694 Total fee and commission income 2,524,817 1,484,225 Settlements 106,604 92,242 Documentary operations 107, ,893 Operations related to Eurobonds issue 41,703 - Other 61,341 16,799 Total fee and commission expense 317, ,934 Net fee and commission income 2,207,610 1,262, NET GAIN/(LOSSES) ON SECURITIES HELD-FOR-TRADING Net gain/(loss) on securities held-for-trading comprise: Year ended Year ended Change in fair value of trading securities 173,670 (51,664) Sales and redemptions 44,509 6,623 Net gains/(losses) on securities held-for-trading 218,179 (45,041) 7. PAYROLL, ADMINISTRATIVE AND OPERATING EXPENSES Salaries and benefits comprise: Year ended Year ended Salaries 2,443,629 1,401,107 Social tax 287, ,759 Total salaries and benefits 2,731,070 1,564,866 18

21 Administrative and operating expenses comprise: Year ended Year ended Marketing and advertising 481, ,388 Operating taxes 416, ,278 Occupancy and rent 265, ,320 Administrative 186, ,070 Communication 163, ,388 Charity 134,530 - Business travel 119, ,370 Repair and maintenance of property and equipment 73,696 52,123 Transportation 71,251 46,987 Insurance 68,894 2,521 Entertainment 64,118 27,148 Security 56,825 34,746 Legal and consultancy 56,264 16,578 Office supplies 32,718 21,361 Fines and penalties 21,657 34,317 Loss on property and equipment disposals 3,447 60,052 Other 272,704 38,842 Total administrative and operating expenses 2,488,988 1,111, TAXATION The Group provides for taxes based on the statutory tax accounts maintained and prepared in accordance with the Kazakhstani statutory tax regulations which may differ from International Financial Reporting Standards. During the years ended and, Kazakhstan s tax rates for corporate income tax were 30% for non-insurance activities and 4% for insurance activities. The Group is subject to certain permanent tax differences due to the non-tax deductibility of exchange losses and other expenses and the tax-free regime for certain income under local tax regulations. Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Temporary differences as of and relate mostly to different methods of income and expense recognition as well as to recorded values of certain assets. 19

22 Temporary differences as of and comprise: Deferred assets: Loans to customers 925, ,090 Other 30,977 - Total deferred assets 956, ,090 Deferred liabilities: Fixed assets (1,055,948) (892,751) Other - (8,048) Total deferred liabilities (1,055,948) (900,799) Net deferred (liabilities)/assets (99,619) 72,291 Deferred tax(liabilities)/ assets at the statutory rate (30%) (29,885) 21,687 Less: valuation allowance - (21,687) Net deferred tax liabilities (29,885) - Relationships between tax expenses and accounting profit for the year ended and are explained as follows: Year ended 31 December Year ended 31 December Income before income tax expense 5,180,943 2,178,440 Tax at the statutory rate (30%) 1,554, ,532 Non-taxable income from securities (297,779) (140,083) Non-taxable income from mortgages (44,374) (45,815) Income of associate taxable at different tax rate (697,001) (35,860) Loss on disposal of fixed assets 1, Other permanent differences 146,827 (9,801) Change in valuation allowance 21,687 (21,687) Income tax expense 684, ,778 Year ended 31 December Year ended 31 December Current income tax expense 654, ,169 Deferred tax expense/ (benefit) 29,885 (105,391) Income tax expense 684, ,778 20

23 Deferred income tax liabilities Year ended 31 December Year ended 31 December Beginning of the year - 93,759 Increase of revaluation reserve - 11,632 Deferred tax expense/ (benefit) 29,885 (105,391) End of the year 29, EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net income for the year attributable to common shareholders by the weighted average number of common shares outstanding during the year. For the diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of potential dilutive shares. The Group had one type of dilutive shares, convertible debt. The convertible debt is assumed to have been converted into shares and the net profit is adjusted to eliminate the applicable interest expense less the tax effect. The following reflects the income and share data used in the basic and diluted earnings per share computations: Year ended 31 December Year ended 31 December Profit: Net income for the year 4,496,266 1,777,662 Less: Dividends on preferred shares (2,415) (2,366) Income less dividends on preferred shares 4,493,851 1,775,296 Weighted average number of common shares for basic and diluted earnings per share 13,198,089 9,260,001 Earnings per share basic and diluted (tenge) CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise: Cash on hand 2,690,748 1,780,653 Current accounts with credit institutions 811,672 1,276,068 Current accounts with NBRK 715,044 6,530,312 Total cash and cash equivalents 4,217,464 9,587,033 21

24 At and, current accounts with OECD based banks were KZT 674,541 thousand and KZT 1,097,829 thousand, respectively. At and, 5 banks accounted for 77% and 83%, respectively, of total current accounts with credit institutions and represented 4% and 11%, respectively, of the Group s total shareholders equity. 11. OBLIGATORY RESERVES Under Kazakh legislation, the Group is required to maintain certain obligatory reserves, which are computed as a percentage of certain liabilities of the Bank. Such reserves must be held in either noninterest bearing deposits with NBRK or in physical cash and maintained based on average monthly balances of the aggregate of deposits with NBRK and physical cash. The use of such funds is, therefore, subject to certain usage restrictions. 12. SECURITIES HELD-FOR-TRADING Securities held-for-trading comprise: Interest to nominal % Interest to nominal % Debt securities Bonds of the Ministry of Finance of the Republic of Kazakhstan ,162, ,625,310 Corporate bonds ,121, ,158 Promissory notes of Kazakhstani corporations ,081, ,629 Eurobonds of the Ministry of Finance of the Republic of Kazakhstan ,029, ,128,030 Eurobonds of JSC Development Bank Kazakhstan , Notes of NBRK ,892,929 Total securities held-for-trading 24,194,231 13,746,056 Subject to repurchase agreements 12,107, LOANS AND ADVANCES TO BANKS Loans and advances to banks comprise: Loans issued under reverse repurchase agreements 5,243,641 1,250,055 Time deposits and loans 2,160,438 1,424,461 Total loans and advances to banks 7,404,079 2,674,516 At and, 5 credit institutions accounted for 99% and 93%, respectively, of time deposits and loans and represented 13% and 14%, respectively, of the Group s total shareholders equity. 22

25 At and, time deposits in the amount of KZT 6,699 thousand and KZT 13,000 thousand, respectively, were pledged to the counterparty banks. The Group had entered into reverse repurchase agreements with various undisclosed counterparties through KASE and directly with one credit institution. As of the subject of these agreements is bonds of the Ministry of Finance of the Republic of Kazakhstan of KZT 685,292 thousand and shares of Kazakhstani issuers of KZT 4,558,349 thousand. At, the subject of these agreements are bonds of the Ministry of Finance of the Republic of Kazakhstan of KZT 1,250,055 thousand. 14. LOANS TO CUSTOMERS, LESS ALLOWANCE FOR IMPAIRMENT LOSSES Loans to customers, less allowance for impairment losses comprise: Loans to customers 112,683,264 51,944,098 Overdrafts 302,252 1, ,985,516 51,945,584 Allowance for impairment losses (5,078,188) (2,513,764) Total loans to customers, less allowance for impairment losses 107,907,328 49,431,820 As of and included in loans to customers are non-accrual loans which amounted to KZT 2,144,540 thousand and KZT 819,717 thousand, respectively. As of and, the Group had a concentration of loans represented by KZT 19,166,528 thousand due from ten borrowers (16.98% of total gross loan portfolio) and KZT 13,704,018 thousand due from ten borrowers (26.38% of total gross loan portfolio), respectively. An allowance of KZT 1,144,701 thousand and KZT 139,711 thousand, respectively, was made against these loans. As of and, loans of KZT 4,958,677 thousand and KZT 2,654,462 thousand, respectively, were fully secured by cash collateral. 23

26 As of, loans are made principally within Kazakhstan to the following sectors: Trade 47,559,228 22,167,594 Individuals 41,171,520 12,676,684 Construction 7,274,154 5,893,845 Services 4,841,127 2,874,051 Manufacturing 4,220,487 4,824,297 Agriculture and food processing 2,943, ,912 Oil & Gaz 2,528,111 1,247,044 Transport 808, ,893 Other 1,639, , ,985,516 51,945,584 Allowance for impairment losses (5,078,188) (2,513,764) Total loans to customers, less allowance for impairment losses 107,907,328 49,431, INVESTMENTS AVAILABLE-FOR-SALE During the Group purchased common shares of JSC Bank Centercredit. As of Group s share in JSC Bank Centercredit equity was 0.72%. 16. FIXED AND INTANGIBLE ASSETS The movements of fixed assets were as follows: Land and buildings Furniture and fixtures Vehicles Assets under construction Intangible assets Total Cost or revaluation 2,204, , , ,004 49,808 3,248,984 Additions - 598, , ,852 87,344 1,003,394 Disposals (25,817) (25,625) (10,989) - - (62,431) Transfer 173, (173,969) - - 2,352,666 1,218, , , ,152 4,189,947 Accumulated depreciation 313, ,368 56,141-29, ,878 Charge 63, ,222 32,482-5, ,686 Disposals (9,354) (12,457) (1,383) - - (23,194) 367, ,133 87,240-34, ,370 Net book value: 1,985, , , , ,240 3,281,577 1,891, , , ,004 20,681 2,560,106 24

27 17. ADVANCES PAID As at advances paid comprise: Advances paid 1,350,000 - Fair value adjustment to advances paid (38,170) - Total advances paid 1,311,830 - As at advances paid contained amount paid by the Group for land according to agreement for purchase of land dates 20 December between the Group and TOO Central Asian Investment Company CAI-Kazakhstan. Advance was paid on 20 December. The Group plans to break the deal and the fact does not contradict the agreement. Counterparty plans to return the advance on 20 March Fair value was calculated using weighted average interest rate for commercial borrowing during 12.9%. Management of the Group does not expect legal suits in relation to the issue. 18. OTHER ASSETS, LESS ALLOWANCE FOR IMPAIRMENT LOSSES Prepayments and receivables on capital expenditures 658, ,164 Other prepayments 177, ,513 Insurance assets 92,462 93,922 Inventory 36,358 28,074 Taxes receivable, other than income tax 31, ,755 Due from employees 3,887 3,234 Collateral obtained from defaulted borrowers - 97,860 Income tax prepaid - 84,577 Other 95,908 33,975 1,096, ,074 Allowance for impairment losses (190,339) (100,481) Total other assets, less allowance for impairment losses 906, , AMOUNTS DUE TO GOVERNMENT At and, the amounts due to the Ministry of Agriculture of the Republic of Kazakhstan represent pass-through loans to individuals and private companies under the State Agriculture Support Program. The Group bears credit risk in connection with these loans. The Group s margin on pass-through loans ranges from 2.0% to 4.3% per annum. 25

28 20. LOANS AND ADVANCES FROM BANKS Loans and advances from banks comprise: Time deposits and loans 33,835,613 20,050,091 Loans received under repurchase agreements 12,107,964 - Loans from the Small Business Development Fund 42, ,551 Current accounts 1,589 2,672 Total loans and advances from banks 45,987,377 20,189,314 At and, amounts due to the Small Business Development Fund CJSC represent pass-through loans to individuals and private companies under the State Agriculture Support Program. As at all amounts received under the program were fully passed to the borrowers and are included as loans to customers, less allowance for impairment losses. The Group bears credit risk in connection with these loans. At and, 10 major credit institutions accounted for 79% and 74% of time deposits and loans, respectively. 21. AMOUNTS DUE TO CUSTOMERS Amounts due to customers comprise: Time deposits 30,058,538 19,611,254 Current accounts 12,219,062 12,083,882 Total amounts due to customers 42,277,600 31,695,136 Held as security 4,552,786 2,690,837 At, analysis of customer accounts by sector follows: Individuals 17,737,422 11,903,737 Service 11,236,544 4,820,730 Trade 5,822,989 3,736,127 Construction 2,105,993 1,830,145 Agriculture and food processing 1,317, ,443 Fuel, gas and chemicals 1,234,623 2,580,850 Manufacturing 1,126,179 1,300,865 Transport and communication 595,864 2,854,664 Other 1,100,713 2,139,575 Total amounts due to customers 42,277,600 31,695,136 26

29 22. DEBT SECURITIES ISSUED Debt securities issued comprise: Maturity date Month/year Interest rate % Subordinated debt securities issued Third issue 12/ % 7,417,166 7,489,015 Second issue 5/ % 3,088,499 3,083,876 10,505,665 10,572,891 Non-subordinated debt securities issued Fourth issue 6/ % 6,197,274 6,629,142 Bond program first issue 1/ % 3,520,923 - Bond program second issue 5/ % 5,428,176 - Eurobonds 10/ % 20,138,807-35,285,180 6,629,142 Total debt securities issued 45,790,845 17,202, OTHER LIABILITIES Other liabilities comprise: Insurance liabilities 382, ,480 Taxes payable, other than income tax 237, ,462 Accrued expenses 100,377 45,449 Due to employees 61,577 41,284 Interest and commission expenses prepaid 41,845 25,145 Other 322, ,644 Total other liabilities 1,146, ,464 27

30 24. SHAREHOLDERS EQUITY Movement of shares authorized, fully paid and outstanding follows: Number of shares Amount Preference Common Preference Common Inflation Total ,000 9,165,588 24,150 3,248, ,318 3,700,462 Contributed in KZT - 1,820,000-2,096,820-2,096, ,000 10,985,588 24,150 5,345, ,318 5,797,282 Contributed in KZT - 4,683,395-1,888,218-1,888, ,000 15,668,983 24,150 7,234, ,318 7,685,500 As of, 15,668,983 common shares and 115,000 preference shares were issued, fully paid and registered. The share capital of the Group was contributed by the shareholders in KZT and they are entitled to dividends and any capital distribution in Kazakhstani tenge. Preference shares are non-voting and guarantee annual cumulative dividends of not less than 21 tenge per share. During the years ended and, the Group declared dividends on preference shares in the amount of KZT 2,415 thousand and KZT 2,366 thousand. 25. COMMITMENTS AND CONTINGENCIES In the normal course of business the Group is a party to financial instruments with off-balance sheet risk in order to meet the needs of its customers. These instruments, involving varying degrees of credit risk, are not reflected in the balance sheet. The Group s maximum exposure to credit loss under contingent liabilities and commitments to extend credit, in the event of non-performance by the other party where all counterclaims, collateral or security prove valueless, is represented by the contractual amounts of those instruments. The Group uses the same credit control and management policies in undertaking off-balance sheet commitments as it does for on-balance operations. 28

31 At, the Group s financial commitments and contingencies comprised the following: Credit related commitments Undrawn loan commitments 13,705,395 10,455,734 Guarantees 4,879,401 4,201,724 Letters of credit 2,341,863 1,471,959 20,926,659 16,129,417 Lease commitments Not later than 1 year 265,889-21,192,548 16,129,417 Less cash collateral (43,578) (36,375) Less provisions (193,656) (189,735) Financial commitments and contingencies 20,955,314 15,903,307 As of and, guarantees and letters of credit of KZT 43,578 thousand and KZT 36,375 thousand, respectively, were secured by the client s funds, and the bank did not create any provisions against these commitments. Capital commitments The Group had no material commitments for capital expenditures outstanding as of. Operating environment The Group's principal business activities are within the Republic of Kazakhstan. Laws and regulations affecting business environment in the Republic of Kazakhstan are subject to rapid changes and the Group's assets and operations could be at risk due to negative changes in the political and business environment. Legal proceedings From time to time and in the normal course of business, claims against the Group are received from customers and counterparties. Management is of the opinion that no material unaccrued losses will be incurred and accordingly no provision has been made in these consolidated financial statements. Taxes Kazakhstani commercial legislation, and tax legislation in particular may give rise to varying interpretations and amendments, which may be retrospective. In addition, as Management s interpretation of tax legislation may differ from that of the tax authorities, transactions may be challenged by the tax authorities, and as a result the Group may be assessed additional taxes, penalties and interest. The Group believes that it has already made all tax payments, and therefore no allowance has been made in the consolidated financial statements. Tax years remain open to review by the tax authorities for five years. Pensions and retirement plans Employees receive pension benefits in accordance with the laws and regulations of the Republic of Kazakhstan. As of and, the Group was not liable for any supplementary pensions, post-retirement health care, insurance benefits, or retirement indemnities to its current or former employees. 29

32 26. RISK MANAGEMENT POLICIES Management of risk is fundamental to the banking business and is an essential element of the Group s operations. The main risks inherent to the Group s operations are those related to credit, liquidity and market movements in interest and foreign exchange rates. A summary description of the Group s risk management policies in relation to those risks follows. Credit Risk The Group is exposed to credit risk which is the risk that a counter party will be unable to pay amounts in full when due. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to industry segments. Limits on the level of credit risk by borrower and product, by industry sector, by region are approved quarterly by the Board of Directors. In the case of most loans, the Group obtains collateral. Such risks are monitored on a continuous basis and subject to annual or more frequent reviews. The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on and off-balance sheet exposures which are set by the Credit Committee. The maximum credit risk exposure in the event other parties fail to meet their obligations under financial instruments is equal to the carrying value of financial assets as presented in the accompanying consolidated financial statements and the disclosed financial commitments. Concentration At the geographical concentration of financial assets and liabilities is set out below: Kazakhstan OECD CIS and other foreign Countries Total ASSETS Cash and cash equivalents 2,527,741 1,545, ,787 4,217,464 Obligatory reserves 2,118, ,118,420 Securities held-for-trading 24,194, ,194,231 Loans and advances to banks 7,404, ,404,079 Loans to customers 95,220,682 13,621,727 4,143, ,985,516 Investments available-for-sale 183, ,911 Advances paid 1,311, ,311,830 Other assets 316,994 34,977 49, ,223 TOTAL ASSETS 133,277,888 15,202,640 4,336, ,816,674 LIABILITIES Amounts due to the Government 94, ,604 Loans and advances from banks 17,714,249 26,784,966 1,488,162 45,987,377 Amounts due to customers 40,080, ,349 1,341,551 42,277,600 Debt securities issued subordinated 10,505, ,505,665 Debt securities issued non-subordinated 15,146,373 20,138,807-35,285,180 Deferred tax liabilities 29, ,885 Other liabilities 1,116,509 13,704 16,576 1,146,789 TOTAL LIABILITIES 84,687,985 47,792,826 2,846, ,327,100 NET BALANCE SHEET POSITION 48,589,903 (32,590,186) 1,489,857 17,489,574 30