COMMERCIAL BANK FOR THE GAS INDUSTRY 1999 Annual Report
Chairman of the Board of Management, Commercial Bank for the Gas Industry Gazprombank, Vice-President of the Association of Russian Banks V. I. TARASOV
Address to the Participants, Partners and Customers of Gazprombank The past year clearly demonstrated that Russia, in order to recover its national economy, should first and foremost rely on its own forces. The cheap resources borrowed from foreign financial markets have turned out to be a dangerous financial and political mirage. The slow but tangible growth of the manufacturing industry became a positive trend of 1999. One of the primary targets of the monetary policy that is being developed by the Government and the Central Bank of the Russian Federation is to consolidate this trend, to make the economy independent of fluctuations in world prices for natural resources. Changes in the banking system where the consequences of the crisis are still keenly perceptible should become an integral part of this policy. Their major goal is to make the manufacturing industry and the banking sector face each other, to provide an opportunity for banks to profitably and without risk invest their resources in the development of the manufacturing industry, and for manufacturing companies to receive those on the terms providing cost effectiveness and repayment. Because of a lack of the required volume of foreign investments, an increase in the efficiency of the internal financial resources acquires paramount importance. This, in its turn, requires lenders to carry out constant and meticulous work aimed at facilitating settlements, reducing the cost of bank transactions, diversifying the client base, consolidating resources, launching modern technologies. These were the objectives that formed the basis of the 1999 development program of Gazprombank. Gazprombank, Commercial Bank for the Gas Industry, the authorized bank for OAO (Open Joint Stock Company) Gazprom for all major spheres of banking services, has been oriented towards meeting the requirements of the real economy sector companies since its foundation. Gazprombank, which will mark 10 years in business in 2000, has acquired experience and expertise which enable it to develop those lines of business that are of interest for the gas industry and its partners, to steadily improve its financial performance. In accordance with the major rating and information agencies, over the past year Gazprombank ranked among the first five top Russian banks in terms of basic performance ratios. International rating agency Moody s confirmed its assessment of the Bank s reliability and efficiency by upgrading Gazprombank s rating in long-term foreign currency deposits to the highest position which can be assigned to a Russian bank. We thank the Bank s participants, all our customers and partners for their confidence in Gazprombank, wish them success and hope to continue our fruitful cooperation. Chairman of the Board V.I. Tarasov
Reference Information 1999 Annual Report
COMMERCIAL BANK FOR THE GAS INDUSTRY R e f e r e n c e I n f o r m a t i o n 35 General Information on the Bank FULL NAME: Commercial Bank for the Gas Industry Gazprombank ABBREVIATED NAME: Gazprombank BEGINNING OF ACTIVITIES: July 31, 1990 LICENCE: General Licence of the Bank of Russia No.354 BANK ADDRESS: 117420, Moscow, Nametkina St., 16-B TELEPHONE: (095) 719 1697 (automated inquiry service) FAX: (095) 719 1686 TELEX: 412027 GAZ RU E-MAIL: mailbox@gazprombank.ru INTERNET: www.gazprombank.ru SWIFT: GAZPRUMM REUTERS: GZPM CORRESPONDENT ACCOUNT: 30101810200000000823 in GRKC GU CB RF in Moscow INN: 7736011540 BIK: 044525823 Code OKONKh: 96120 Code OKPO: 09807684
36 COMMERCIAL BANK FOR THE GAS INDUSTRY R e f e r e n c e I n f o r m a t i o n Gazprombank Participants JOINT STOCK COMPANY GAZPROM PRODUCTION ASSOCIATIONS, ENTERPRISES AND ORGANIZATIONS OF THE GAS INDUSTRY: TYUMENTRANSGAZ MOSTRANSGAZ URENGOIGAZPROM NADYMGAZPROM SEVERGAZPROM YAMBURGGAZDOBYCHA ZAPSIBGAZPROM MEZHREGIONGAZ VOLGOTRANSGAZ LENTRANSGAZ ORENBURGGAZPROM KUBANGAZPROM ASTRAKHANGAZPROM TATTRANSGAZ VOLGOGRADTRANSGAZ PERMTRANSGAZ SURGUTGAZPROM YUGTRANSGAZ URALTRANSGAZ GAZEXPORT INTERPROCOM GAZKOMPLEKTIMPEX TOMSKTRANSGAZ KAVKAZTRANSGAZ DAGESTANGAZPROM SAMARATRANSGAZ VOLGOGRADNEFTEMASH SPETSGAZAVTOTRANS TSENTRGAZ SG-TRANS GIPROGAZTSENTR GAZTORGPROMSTROI GIPROSPETSGAZ GAZENERGOSERVICE ORGENERGOGAZ BURGAZGEOTERM KOSTROMATRUBINVEST GAZSTROIDETAL SEVERGAZTORG GAZINTERPRIBOR SEVERGAZBANK
COMMERCIAL BANK FOR THE GAS INDUSTRY R e f e r e n c e I n f o r m a t i o n 37 Board of Directors Board of Management CHAIRMAN of the BOARD: Rem I. Vyakhirev Chairman of the Board of Management, OAO Gazprom DEPUTY CHAIRMEN: Pyotr I. Rodionov Deputy Chairman of the Board of Management, OAO Gazprom Mikhail N. Rakhimkulov Adviser to Director General, Interprocom Victor I. Tarasov Chairman of the Board of Management, Commercial Bank for the Gas Industry Gazprombank MEMBERS of the BOARD: Alexander G. Ananenkov Director General, YAMBURGGAZDOBYCHA Marina A. Bezrukova Deputy Director General, MEZHREGIONGAZ Mikhail V. Dokuchaev Member of the Board of Management, OAO Gazprom Sergei K. Dubinin Deputy Chairman of the Board of Management, OAO Gazprom Alexander N. Kozachenko Director General, MOSTRANSGAZ Victor A. Chichelov Director General, PERMTRANSGAZ Alexander A. Shkuta Deputy Director General, Gazexport CHAIRMAN OF THE BOARD: Victor I. Tarasov FIRST DEPUTY CHAIRMAN: Alexander V. Chernoivan DEPUTY CHAIRMEN: Lidiya N. Lisovaya Alexander G. Primak Valery A. Seregin Alexander I. Sobol Pavel V. Utkin Nikolai I. Olenev Kirill Yu. Lyovin MEMBER OF THE BOARD: Alexander V. Muraviev
38 COMMERCIAL BANK FOR THE GAS INDUSTRY R e f e r e n c e I n f o r m a t i o n Regional Infrastructure Astrakhan, 414057, Vorobyeva Prospect, 12-2, tel. (752-2) 34-07-88 Beloyarsky, Tyumen Region, 626818, Molodosti St., 7a, tel. (346-70) 2-15-32 Volgograd, 400074, Kozlovskaya St., 34, tel. (844-2) 93-00-05 Izhevsk, Udmurt Republic, 426039, Votkinskoye Shosse, 182, tel. (341-2) 20-72-82 Kostroma, 156000, Sovetskaya St., 9a, tel. (094-2) 31-39-49 Krasnodar, 350051, Dzerzhinskogo St., 36, tel. (861-2) 54-22-16 Lipetsk, 398002, Gagarina St., 49-a, tel. (074-2) 42-01-01 Makhachkala, Republic of Dagestan, 367025, Ermoshkina St., 24, tel.(872-2) 67-53-59 Moscow,117799, Vernadskogo Prospect, 41, tel. (095) 355-99-82 Nadym, Tyumen Region, 626711, Orudzheva Nab., 53, tel.(345-95) 2-00-20 Nizhny Novgorod, 603005, Piskunova St., 3/5, tel.(831-2) 34-01-47 Novy Urengoi, Tyumen Region, 626718, 26th Party Congress St., 4, tel. (345-49) 3-19-32 Orenburg, 460021, Turkestanskaya St., 161, tel. (353-2) 72-98-17 Rostov-on-Don, 344024, Sokolova Prospect., 80, tel.(863-2) 34-33-74 Saint-Petersburg, 193148, Sedova St., 15, tel. (812) 567-61-83 Saratov, 410052, 50-letiya Oktyabrya Prospect, 118-a, tel.(845-2) 12-57-88 Stavropol, 355012, Lenina St., 419/2, tel. (865-2) 76-27-99 Tomsk, 634050, Pushkina St., 52 E, tel.(382-2) 65-76-14 Tula, 300904, Lenina Prospect, 108-a, tel.(087-2) 33-35-29 Tyumen, 625026, Respubliki St., 62, tel. (345-2) 22-84-15 Ufa, Republic of Bashkortostan, 450022, Mendeleeva St., 138, tel. (347-2) 52-28-00 Ukhta, Republic of Komi, 169400, 30-letiya Oktyabrya St., 22/12, tel. (812-47) 4-17-34 Chaikovsky, Perm Region, 617740, Primorsky Blvd., 30, tel.(342-41) 6-46-51 Yekaterinburg, 620086, Radischeva St., 55А, tel. (343-2) 12-16-01 Yugorsk, Tyumen Region, 627720, Sovetsky District., Lenina St., 31, tel.(346-75) 2-04-75
COMMERCIAL BANK FOR THE GAS INDUSTRY R e f e r e n c e I n f o r m a t i o n 39 BANKS IN WHOSE AUTHORIZED CAPITAL GAZPROMBANK HAS A STAKE GENERAL BANKING AND TRUST CO., Ltd Budapest, Hungary. N-1055, Marko Str., 9 Tel.: (103-61) 269-14-73 BELGAZPROMBANK 220121, Minsk, Belarus. Pritytskogo Str., 60/2 Tel.: (375-17) 258-96-49 COMMERCIAL BANK GAZENERGOPROMBANK 142770, Moscow Region, Gazoprovod Leninsky District. Tel. (095) 420-55-67 INVESTMENT COMMERCIAL BANK EVROPEISKY 236010, Kaliningrad, Kutuzova Str., 39 Tel.: (011-2) 22-19-00 COMMERCIAL BANK INTRUSTBANK 117333, Moscow, Gubkina Str., 3g Tel.: (095) 132-69-93 COMMERCIAL BANK SEVERGAZBANK 160001, Vologda, Blagoveshenskaya Str., 3 Tel.: (817-2) 72-70-83 JOINT STOCK COMMERCIAL BANK SIBIRGAZBANK 626417, Surgut, Tyumen Region Svobody Blvd., 12 Tel.: (346-2) 24-06-06 COMMERCIAL BANK SOCHIGAZPROMBANK 354000, Sochi, Navaginskaya Str., 14 Tel.: (862-2) 92-65-47 Branches of Gazprombank Banks in whose authorized capital Gazprombank has a stake
Principal Business 1999 Annual Report
COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s 41 Basic Performance Ratios in 1999 NET ASSETS In 1999 Gazprombank significantly expanded the range of its business activities which was reflected in its basic ratios: Net assets grew by 13.5 bln RUR or 36.1% Equity grew by 2.8 bln RUR or 46.2% Authorized capital grew by 1.5 bln RUR or 38.1% Liquid assets grew 2.2 times (to 9.1 bln RUR) Volume of credit investments in the economy increased by 10.7 bln RUR or 57% EQUITY The 1999 book profit of Gazprombank was 566.8 mln RUR. Gazprombank significantly enhanced its client base. It acquired over 2000 corporate clients. Partner enterprises in the gas industry and large export-oriented enterprises of other industries constitute a significant part of the Bank s new customers. Gazprombank expanded its branch network. Besides the branch in Ufa, over 20 new supplementary offices and teller desks were set up. All Gazprombank branches earned profit by the end of 1999. The Bank s branch network received a total income of 239 mln RUR, which exceeded the 1998 performance by 77%. In 1999 the Interregional Banking Group for the Gas Industry acquired legal status. It comprised Gazprombank and 7 other banks in whose authorized capital the former has a share. Establishment of the Interregional Group considerably improved the efficiency of services to the enterprises of that industry and its partners through a broader range of services and improvement of their standard. AUTHORIZED CAPITAL
42 COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s Resource Base Development RESOURCE BASE STRUCTURE as of 01.01.2000 Current Liabilities Liabilities Due at Call 55% 8% 18% 19% In 1999 Gazprombank s resource base increased 1.4 times. The Bank s equity increased nearly 1.5 times and reached 9 bln RUR. One of the major components of growth was an increase of the authorized capital to 5.3 bln RUR achieved through supplementary contributions by the Bank s shareholders. The amount of term liabilities increased significantly (nearly 2 times). To provide for credit requirements of the gas industry the Bank actively borrowed financial resources by way of deposits and debt instruments (bills of exchange and certificates of deposit) and also loans in the interbank credit market. The amount of funds borrowed from private citizens continued to grow. The total amount of deposits reached 2.6 bln RUR by year-end (2.3-time increase). In early 2000 Gazprombank became the fourth Russian bank in terms of the amount of retail deposits. Its branches accounted for a significant share of such deposits. The structure of the borrowed funds as at January 1, 2000 underwent substantial changes as compared to January 1, 1999. Whereas the share of the equity remained at the same level, the decrease of the balance in demand accounts was offset by an increase of term borrowings. The structure of term borrowings also changed: with the reduction of borrowings in the interbank credit market, the total amount of borrowed deposits and sold debt instruments increased. This ensured stabilization of the resource base and reduction of Gazprombank s dependency on the short term and speculative interbank market. Eguity Other Liabilities
COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s 43 Client Base Development In the past year the number of Gazprombank s corporate customers grew over 25% and exceeded 10 thousand. The number of customers settlement and current accounts reached 13 thousand (in 1999 approximately 4.5 thousand new accounts were opened). An average annual balance in the customers accounts increased 2.6 times in the past year, including 2.4 times in the foreign currency accounts. The increase was not only in the new accounts, but also in those opened previously. At present actually all enterprises and companies in the gas industry (approximately 1000) are Gazprombank s customers. One of the primary strategic targets of the Bank s development is diversification of the client base. That is to be achieved, in the first place, by attracting partner enterprises in the gas industry and also export-oriented enterprises of the defense industry, energy producing industry, petrochemical industry, and budgetary and non-budgetary organizations. In 1999 within the framework of the policy pursued by the Bank it commenced providing services to Rosvooruzhenie State Company, the RF Social Insurance Fund, Rosgosstrakh Company, the Russian Federal Property Fund, Sibur Joint Stock Company, Aircraft Manufacturing Group in Komsomolsk-on-Amur, Salavatnefteorgsyntez Joint Stock Company, Shekinoazot Joint Stock Company, Tobolsk Petrochemical Factory, Boksitogorsky Glinozem Joint Stock Company, Volzhsky Trubny Zavod (Tube-Producing Plant), Perm State Manufacturing Company, regional power plants of RAO UES (Russian Joint Stock Company United Power System ) and others. 1999 witnessed effective steps aimed at improving the standard of services provided, developing and launching new ones. Some of them are listed below: Management of clients funds to secure a higher degree of profitability. Provision of services aimed at establishing a Clearing and Settlement Center for a large corporate customer. Provision of services via the Client-Bank multi-currency system. Monetary netting of debts to OAO Gazprom for CIS consumer countries. Provision of financial services at specialized auctions held by the Russian Federal Property Fund) NUMBER OF CORPORATE CUSTOMERS AVERAGE ANNUAL BALANCE IN THE CORPORATE CUSTOMERS ACCOUNTS IN USD TERMS
44 COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s STRUCTURE OF PLACEMENTS as of 01.01.2000 Lending Credit Placements Cash and Correspondent Accounts in Banks Placements in Securities Other Placements 1% 4% 24% 71% Lending to the real economy sector has traditionally been the major direction of placing Gazprombank s funds. The Bank s credit portfolio as at the end of 1999 accounted for over 36 bln RUR. The total amount of loans granted to enterprises and organizations increased 1.6 times and reached 29.4 bln RUR. The total turnover in lending reached 94 bln RUR. The most significant projects where Gazprombank participated as a lender in 1999 were placements in the long-term projects of OAO Gazprom. The total volume of placements in this business sector amounted to 21 bln RUR by the end of 1999. Gazprombank developed and launched a scheme of financing the project to provide supplementary capacities to transport gas to Romania ( Romgaz Company) and Bulgaria ( Bulgargaz ). Lending to a number of large companies of the defense industry began in 1999 in the framework of pre-export financing. The Bank s borrowers were the Sukhoi Aircraft Designers Office, Splav Enterprises, Motovilikha Factory, Orsk and Mari Machine Works. The loans extended were duly repaid in the course of the year. The lending scheme for private customers employees in the gas industry continues to develop. It is carried out in cooperation with the Gas Industry Insurance Company Sogaz. The total amount of loans extended to individuals was 500 mln RUR as at the end of 1999. The debt overdue amounted to approximately 1% of the total assets, which is considerably less than the identical ratio of other Russian banks. The Credit Portfolio Analysis software program introduced by the Bank made it possible to considerably improve management of its credit portfolio and enhance the efficiency of portfolio management of the entire Bank, including its branch network.
COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s 45 Settlement Services to the Gas Industry One of the major directions of Gazprombank activities is to ensure settlements between the gas industry enterprises, counterparts and partners of the industry. In late 1998 the Bank set up a specialized Settlement Center aimed at further improving the efficiency of that service. A correspondent network that comprises its branches, the Interregional Banking Group for the Gas Industry and correspondent banks in 45 regions of Russia was set up on the basis of the Center. The availability of its organic ramified settlement system enables the Bank to effectively resolve such a large-scale task as to provide banking services to payments by Russian consumers for the natural gas delivered. In 1999 a new service for Mezhregiongaz Company Direct Management of Accounts was put into operation. Its introduction reduced by one day the period of transferring funds from gas consumers, enhanced the efficiency of monitoring and management of the funds received. The system is in operation in Gazprombank s 17 branches and 4 participating banks of the Interregional Group. 1999 2000 witnessed implementation of that system in other organizations of the gas industry which have developed regional structures: Insurance Company Sogaz, Gazoneftekhimicheskaya Company, Companies Gazprommedstrakh and Mostransgaz. To finance OAO Gazprom subsidiaries the Settlement Center developed a scheme of specialized settlement services for their accounts through Gazprombank s branches. The scheme is in operation in 4 branches of Gazprombank. In 1999 OAO Gazprom and several companies of Belarus and Ukraine mutually settled their accounts via the Settlement Center to clear the debts for gas totaling 1,252 mln RUR. Due to the rapid transfer scheme elaborated by the Bank for Gazfond Pension Fund over 14 thousand retired employees of the gas industry receive their pensionable remuneration via Gazprombank s Settlement Center without delay. SYSTEM OF SPECIALIZED SETTLEMENT SERVICES TO LARGE CORPORATE CUSTOMERS Settlement Center Branches and Subsidiary Banks: within the System joining the System
46 COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s Foreign Economic Activities. Foreign Exchange Transactions Development of Gazprombank s foreign economic activities and international contacts directly relates to providing banking services to OAO Gazprom in Europe and CIS countries. Gazprombank ensured uninterrupted banking supervision of largest foreign loans and investment projects by OAO Gazprom and other customers of the Bank. The amount of credits extended by Gazprombank in the framework of various projects to lay the Polish section of Yamal Western Europe gas pipeline amounted to 711.3 mln USD, and to 13.5 mln USD within the framework of the Blue Stream project. 1999 witnessed increased borrowings from non-residents to be invested in the gas industry projects. A scheme of trading foreign currencydenominated promissory notes issued by Commercial Bank Gazprombank in the foreign markets was developed. The Bank borrowed over 100 mln USD against its drafts from foreign partners. The Bank provides constant servicing to long-term syndicated loans of OAO Gazprom and keeps special accounts for projects with Deutsche Bank and Dresdner Bank (Germany), Credit Lyonnais (France). The Bank meets its commitments to its foreign partners duly and in the full. For instance, in May 1999 the Bank repaid a syndicated loan of 230 mln USD arranged by Deutsche Bank (London). Gazprombank considerably expanded its range of services to finance foreign trade transactions. Export pre-financing, import post-financing are carried out. The Bank considerably reduced the rates charged for documentary transactions. It reached an agreement with a number of major European banks to fix limits on such transactions which are to be conducted without coverage. Gazprombank finalized arranging its Euro correspondent accounts. Accounts in the common European currency were opened, in particular, with Deutsche Bank, Dresdner Bank, Commerzbank (Germany), BNP, Eurobank (France), ABN-AMRO (Netherlands), KBC (Belgium), Banca Commerciale Italiana (Italy). Gazprombank was one of the leading USD and Euro operators at the Moscow Interbank Currency Exchange last year.
COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s 47 Securities Transactions Gazprombank s placements in securities amounted to approximately 4% of the assets over the past year. The main type of government securities the Bank deals in are Government Domestic Foreign Currency Bonds (Minfin Bonds). Gazprombank became one of the major participants in that market in 1999. Gazprombank completely restructured its GKO/OFZ portfolio and resumed transactions in this type of securities after the official opening of the trading sessions (February 1999). The Bank conducts transactions in roubledenominated government securities to maintain the required level of liquidity. Placements in GKO/OFZ did not exceed 100 mln RUR in the course of the year. Shares of OAO Gazprom make up a considerable portion of Gazprombank s block of shares. Those are actively traded at the Moscow and St. Petersburg Stock Exchanges. After the offer for the shares was suspended Gazprombank also trades them in the OTC market. Gazprombank is the Payment Dealer for OAO Gazprom to service its domestic bond issue. Transactions in the draft market remain an important sphere of business for the Bank. Drafts of OAO Gazprom are traded at a specialized trading site set up for the purpose. The volume of the Bank s own drafts sold in the domestic market totaled 206.6 mln USD, 20 mln Euro and 121.4 bln RUR; the sale of certificates of deposit accounted for 118.8 bln RUR. Gazprombank s drafts are on the list of those accepted by Mezhregiongaz Company in payment for the gas in lieu of the cash component. A number of Russian regions accept the Bank s drafts as tax payments to the municipal budgets.
48 COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s Depositary Services Gazprombank has set up a depositary network that is unique both in terms of the number of shareholders whom services are rendered to, and the number of regional depositaries. The objective for its establishment is to provide all types of depositary services to the trade in OAO Gazprom shares and financial instruments. In terms of its structure the depositary network consists of the Head (Central) Office in Moscow and regional depositaries. Taking into account the ongoing trend towards an outflow of shares from the regions to Moscow, the depositary network was restructured. In March 1999 Gazprombank launched a unified trade depositary. The Depositary Client remote access system is in operation. By the end of 1999 the depositary network comprised 41 regional depositaries. 25 of them operate on the basis of Gazprombank branches, and 10 on the basis of member banks of the Interregional Banking Group for the Gas Industry. Gazprombank s depositary network services over 1 mln securities accounts (over 2 thousand of which are those of legal entities). The total number of shares accounted for is approximately 12 bln. At present the Bank holds approximately 200 share and bond issues of different joint stock companies, most of which are involved in gas extraction, transportation and processing. The Bank s depositary network is active in servicing drafts including those of OAO Gazprom and its debtors. Since 1998 a system of settlements in drafts for Mezhregiongaz Company has been in operation. Its implementation made it possible to avoid physical movement of drafts in settlements in drafts or mutual settlements. The depositary units are active in diversifying their transactions by servicing credit and collateral transactions, REPO, broker and dealer transactions, and providing other services. COMMERCIAL BANK GAZPROMBANK DEPOSITARY NETWORK. HIERARCHY AND INTERACTION Subsidiary Banks Gazprombank s branches Gazprombank s Settlement Depositary Center Registrars Settlement Depositaries Correspondent Depositaries Trade Depositary Transfer Agents Regional Depositaries Settlement Depositary Company Trade Sites
COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s 49 Plastic Cards The Gas Industry Non-cash Settlement System based on Gazprombank s plastic cards covers parent and subsidiary units of OAO Gazprom, and also enterprises and organizations contractually related to the gas industry. It was launched to provide guaranteed settlements in the environment of inflation and crisis of traditional payment instruments of cash settlements. Besides, adoption of the non-cash plastic card technology ensures that a portion of the wage and salary fund remains within the gas branch and is used for low-interest loans to the enterprises and organizations of that industry. In early 1999 the first stage of the System was launched, and implementation of the second stage began. Plastic Card Service Centers were set up in 20 regions of Russia on the basis of the Bank s branches and member banks of the Interregional Banking Group for the Gas Industry. Over 145 thousand employees of more than 100 enterprises of the gas industry are offered plastic card services by Gazprombank. By the end of 1999 the infrastructure of the System comprised over 450 point-of-sale terminals and 210 ATMs (100 point-of-sale terminals and 80 ATMs were installed last year). The Main Processing Center of the System attached to the Head Office of Gazprombank in Moscow has been in operation since October 1998. TP II hardware/software complex by IFS International is its major technological core. Its introduction in 1999 made it possible to significantly reduce financial risks that occur when funds are reserved in settlement banks of various payment systems, to ensure technological safety and independence of the payment system of OAO Gazprom. The Bank possesses the status of a principal member of Visa and Europay international payment systems, issues and services plastic cards of those systems, and also distributes American Express plastic cards. The Bank provides independent processing of Visa cards since 1999. NON-CASH SETTLEMENT SYSTEM BASED ON PLASTIC CARDS Main Processing Center (PC) Regional PC s Issuing Banks POS New Regional Projects
50 COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s Branch Network Elements of Gazprombank s regional infrastructure are available in all the regions where natural gas is extracted, transported or consumed. In 1999 the development of its branch network was carried out in accordance with the decisions of the General Meeting of Participants of the Bank and taking into account a number of agreements signed between OAO Gazprom and the bodies of power of the RF constituent regions. Over the past year Gazprombank signed 21 agreements stipulating Gazprombank s participation in servicing joint projects and programs, and its financial and banking advisory services. Gazprombank has a ramified and efficiently operating branch network that comprises 25 branches (a new branch was set up in Yekaterinburg in early 2000), 17 supplementary offices and 49 teller desks outside teller units (11 offices and 11 teller desks were set up last year). Gazprombank branches are active in introducing modern banking technologies and new methods of servicing their customers, thus ensuring constant growth of the client base. As of the end of 1999 the branches offered services to over 730 enterprises of the gas industry and approximately 8700 other legal entities. The share of the balance in settlement and current accounts of corporate customers and individuals in the structure of the funds borrowed by the branches grew considerably over the past year. That made it possible to increase the amount of credits granted to the real economy sector enterprises. The amount of funds transferred to the Head Office to credit development programs of the gas industry was also increased. All the branches of Gazprombank earned profit by the year-end. The aggregate profit of the Bank s branch network totaled 240 mln RUR and exceeded the 1998 profit by 100 mln RUR. The book value in the branches increased approximately 2.3 times to 5 bln RUR. The resource and technology base developed considerably over the past year. The branches in Moscow, Tomsk and Lipetsk moved to new premises, and the branch in Tula purchased the premises it had previously rented. Gazprombank and Mezhregiongaz Company concluded an agreement to acquire and construct buildings to house both the Bank and the Company units. Gazprombank is planning to set up branches in Bryansk (on the basis of Energoinvestbank) and Shyolkovo (Moscow Region) in the near future. Work is underway to set up Gazprombank branches in Omsk, Novosibirsk, Barnaul and Kemerovo. ACCOUNT OF OPERATIONS IN GAZPROMBANK S BRANCHES (mln roubles) Data as of 01.01.1999 as of 01.01.2000 % as of 1999 Book Value 2 213 5 069 229 Book Profit 136 239 177 Balance in Corporate Customers Accounts 535 1 088 203 Loans to Customers 653 1 063 163 Deposits of Individuals 673 1 573 234 Debtors Overdue 57 19 33
COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s 51 Interregional Banking Group for the Gas Industry To promote further improvement of banking services to OAO Gazprom, the Interregional Banking Group for the Gas Industry was set up in June 1999. It comprised Gazprombank and a number of banks in whose authorized capital the former has a stake: Belgazprombank (Belarus, Minsk), Commercial Bank Gazenergoprombank (Moscow Region), Investment Commercial Bank Evropeisky (Kaliningrad), Joint Stock Commercial Bank Intrustbank (Moscow), Commercial Bank Severgazbank (Vologda), Joint Stock Commercial Bank Sibirgazbank (Surgut), Commercial Bank Sochigazprombank (Sochi). Heads of the participating banks formed the Board of the Group, and V. I. Tarasov, Chairman of the Board of Management of Gazprombank, was elected its Chairman. Current business and long-term development of the Interregional Group are closely linked to the need of the enterprises and organizations of the gas industry for banking services. Gazenergoprombank has the function of the authorized bank for the gas industry in the Moscow, Belgorod and Ryazan Regions; Sibirgazbank performs identical functions in the Tyumen Region, Bank Evropeisky in the Kaliningrad Region and Sochigazprombank in the Krasnodar Territory. Apart from 8 head offices the Group s regional network comprises approximately 50 branches. Conclusion of the Regional Development Agreement has become an important stage in the development of the Interregional Group. This will make it possible to eliminate a conflict of interests and ensure lower costs of setting up new branches. To create a common interregional payment system of OAO Gazprom the banks participating in the Interregional Group have set up a common Settlement Center on the basis of Gazprombank s Settlement Center. This ensures rapid payments, control over the flow of payments and further consolidation of resources for the benefit of the gas industry. Gazprombank, with its high potential for launching modern banking technologies, assists other participating banks in that field in order to create a uniform standard of high quality banking services. This, in turn, enables the participating banks to constantly expand their client base and range of services. In the interests of the industry, the banks incorporated in the Interregional Group are launching projects such as the development of the book entry settlement system on the basis of plastic cards (for instance, Settlement Centers of Severgazbank and Sibirgazbank are launched within this framework) and the system of depositary services to the shareholders of OAO Gazprom.
52 COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s Organizational Development of the Bank I n the past year Gazprombank expanded its integrated program-oriented business development planning. Besides the Comprehensive Development Plan for the entire Bank for the year 2000, Development Plans of all its branches and the participating banks of the Interregional Group were drafted and coordinated. The Comprehensive Plan contains not only strategic targets, but also quantitative benchmarks for the development of the Bank. It furthermore comprises a set of development plans that are coordinated as to resources, executors and dates. Gazprombank s development is ensured, among other things, through constant attention for optimization of the hierarchy and personnel management. In 1999 due to the need to improve the current and create new lines of business the Bank set up units such as the Treasury, Settlement Center, Precious Stones and Metals Department and a number of others. The improvement of the financial ratios of the Bank s business operations surpasses the rate of growth of the staff numbers. Thus, the number of the employees of Gazprombank as a whole increased by 12.5% which is considerably less than the growth of the Bank s basic performance rates. Performance of Gazprombank s employees is constantly assessed and certified. 625 employees (including 110 in senior positions) in 17 branches were certified and qualified last year. Specialized business training and qualification upgrading for the staff is one of the major directions of personnel management. Every other employee of the Bank went through some kind of training in 1999. The staff have a high standard of education and qualifications and practical experience in banking. Moving to the new premises in Novocheryomushkinskaya Str. in Moscow in 2000 will become a positive factor in promoting Gazprombank s development. This will make it possible to improve the environment for providing services to the customers and to expand the range of services offered.
COMMERCIAL BANK FOR THE GAS INDUSTRY P r i n c i p a l B u s i n e s s 53 Support for Bank Transactions The Integrated Data Transfer System of Gazprombank was further improved in 1999. Within the framework of the concept for its development the following operations were carried out: An information storage bank for the system data was set up, which made it possible to substantially facilitate the Bank s financial reports and accounts and to improve the efficiency of its current business analysis; Operations were carried out to update the specialized software of the Settlement Center; A software package to support the Depositary Center operations in executing orders of the Russian issuers for transactions in securities, and hardware and software to support the business of the regional depositaries were developed; Hardware and software to provide automation for internal accounting of business contracts were developed. Operational efficiency of the Bank s Settlement Center is to a large extent due to the high-speed land-based and satellite gas branch telecommunications systems. Participation of the Bank in the project of launching Satellite Yamal-100 and putting it into operation was of paramount importance for the further development of the corporate communications system. Since December 1999 Gazprombank s Head Office operates with its 12 branches via the Yamal-100 satellite communications system. Electronic payment system Bank Client continued to develop. Its modified version providing remote servicing not only to customers rouble accounts, as in the past, but also to foreign currency ones was launched in 1999. Gazprombank is increasingly active in using Internet, the global computer network. Website to provide information about the Bank was opened.
Financial Accounts 1999 Annual Report
COMMERCIAL BANK FOR THE GAS INDUSTRY F i n a n c i a l A c c o u n t s 55 BALANCE SHEET of COMMERCIAL BANK GAZPROMBANK as of 1 January 2000 thousand RUR Assets 1 Cash and Due from the Central Bank of the Russian Federation 4248749 2 Government debt securities 1250321 3 Current accounts with banks and other financial institutions 8033034 4 Net trading securities (4.1 4.2) 70479 4.1. Trading securities (book value) 79184 4.2. Provision for diminution in value of securities 8705 5 Loans to customers and banks 36367843 5а Accrued interest (including overdue) 188108 6 Assets leased out 7 Loan loss provision 2197116 8 Net loans to customers and banks (5-7) 34170727 9 Compensation for the difference between the calculated and created loan loss provision for 1994 10 Fixed and intangible assets, inventories and small value items 628598 11 Net long-term investments (11.1 11.2) 904426 11.1 Long-term investments (book value) 920027 11.2 Provision for diminution in value of securities 15601 12 Deferred expense 69832 13 Other assets 1341081 14 Total assets (1 + 2 + 3 + 4 + 5а + 6 + 8 + 9 + 10 + 11 + 12 + 13) 50905355 Liabilities 15 Loans from the Central Bank of the Russian Federation 16 Accounts and deposits from banks and other financial institutions 5576688 17 Current accounts and deposits from customers 24641933 17.1 Deposits of individuals included above 2644520 18 Deferred income 356 19 Issued debt securities 7417890 20 Other liabilities 4240046 21 Provision for other debtors, risks and liabilities 11 22 Total liabilities (15 + 16 + 17 + 18 + 19 + 20 + 21) 41876924 Equity
56 COMMERCIAL BANK FOR THE GAS INDUSTRY F i n a n c i a l A c c o u n t s 23 Charter capital (shareholders funds) including 5315247 23.1 Registered ordinary shares 5315246 23.2 Registered preference shares 23.3 Unregistered charter capital of non-joint stock banks 1 24 Treasury stock 25 Share premium reserve 26 Funds and retained earnings 2298176 27 Revaluation of fixed assets 5978 28 Profit for the year 566841 29 Dividends paid out of the profit of the current year 30 Distributed profit (net of dividends) 373845 31 Retained earnings for the year (28 29 30) 192996 32 Expenses and risks which impact equity -1216034 33 Total equity (23 23.3 24 + 25 + 26 + 27 + 31 32) 9028430 34 Total liabilities (22 + 23.3 + 33) 50905355 Commitments and Contingent Liabilities 35 Irrevocable liabilities of the financial institution *) 8968058 36 Guarantees issued 575968 *) Liabilities under non-deliverable (index) forward contracts, not met under terms of the contract, for the amount of 4437206 thousand RUR, included in the line Irrevocable liabilities of the financial institutions, for accounting purposes are shown on a net basis at the official rate of the Central bank of the Russian Federation determined for the dates at which those contracts were to be executed as stipulated in the relevant contracts. At the same time, the Bank s receivables for similar non-deliverable (index) forward contracts, which are not disclosed in these financial statements, amount to 2506606 thousand RUR as of the reporting date. TRUST ACCOUNTS as of 1 January 2000 thousand RUR Asset accounts 8 Current accounts 3306150 Liability accounts 11 Trust capital 3306150
COMMERCIAL BANK FOR THE GAS INDUSTRY F i n a n c i a l A c c o u n t s 57 PROFIT and LOSS STATEMENT of COMMERCIAL BANK GAZPROMBANK for 1999 thousand RUR Interest and similar income 1 Current accounts and placements with banks and other financial institutions 747348 2 Loans to customers 2141567 3 Assets leased out 4 Fixed income securities 297569 5 Other 823 6 Total interest income (1 + 2 + 3 + 4 + 5) 3187307 Interest and similar expense 7 Current accounts and deposits from banks and financial institutions 1060521 8 Current deposits and accounts from customers 1660511 9 Issued debt securities 559579 10 Rent 45701 11 Total interest expenses (7 + 8 + 9 + 10) 3326312 12 Net interest income (6 11) -139005 13 Commission income 360219 14 Commission expenses 31514 15 Net commission income (13 14) 328705 Other operating expenses 16 Foreign exchange gains 19827720 17 Trading operations with precious metals, securities, and other assets, positive revaluation of precious metals, securities, and other assets 991568 18 Dividend income 1587 19 Other income 690922 20 Total other operating income (16 + 17 + 18 + 19) 21511797 21 Current income (12 + 15 + 20) 21701497 Other operating expenses 22 Salaries 238736 23 Maintenance 231342 24 Foreign exchange expense 17573167
58 COMMERCIAL BANK FOR THE GAS INDUSTRY F i n a n c i a l A c c o u n t s 25 Trading operations with metals, securities, and other assets, REPO deals, negative revaluation of precious metals and securities 565615 26 Other expenses 911279 27 Total other expenses (22 + 23 + 24 + 25 + 26) 19520139 28 Net profit before provision and miscellaneous income (21 27) 2181358 29 Changes in loan loss provision 1635833 30 Changes in provision for diminution in value of securities -21316 31 Changes in other provisions 32 Profit before miscellaneous income (28-29-30-31) 566841 33 Net miscellaneous income 34 Profit before taxation (32 + 33) 566841 35 Profit tax* 218784 36 Deferred profit tax liabilities 36а Miscellaneous expenses after taxation 37 Net profit for the year (34 36 36а) 566841 * The total profit tax paid (cl.35) is shown in the Profit and Loss Statement as a disclosure and is not excluded from the calculation of profits for 1999, shown in accordance with cl.37. Chairman of the Board of Gazprombank V.I. Tarasov Chief Accountant of Gazprombank G.N. Kozyulina The audited Annual Financial Statements, after appropriate adjustments, are prepared in all material aspects in accordance with the requirements of the effective legislation of the Russian Federation and the regulatory documents governing accounting and reporting in the Russian Federation. The truthfulness of the Balance Sheet and Profit and Loss Statement, after appropriate adjustments made by the Bank during the course of the audit, is confirmed. We took into consideration the footnote disclosure to the Financial Statements provided by the Bank. Information concerning the above data is contained in the Audit Opinion on the authenticity of the Report of a credit institution as at January 1, 2000. Acting General Director of ZAO KPMG (Licence # 006315 dated 18 February 1998) N.V. Lukashova
KPMG OPINION of the audit firm ZAO KPMG on the Financial Statements of the Commercial Bank for the Gas Industry Gazprombank for the period from January 1, 1999 to December 31, 1999 We have performed an audit of the attached Financial Statements of the Commercial Bank for the Gas Industry Gazprombank (the Bank) including the balance sheet and the profit and loss statement as at January 1, 2000 and for 1999. The Financial Statements were prepared by the Board of Management of the Bank based on the Accounting Rules for the Credit Organisations in the Russian Federation No. 61, approved by the Order of the Central Bank of the Russian Federation dated June 18, 1997 No. 02-263 (with subsequent additions and amendments), the Regulations of the Central Bank of the Russian Federation On the annual financial statements for supervised credit organisations dated December 25, 1998 No. 452-U (with subsequent additions and amendments), the Regulations of the Central Bank of the Russian Federation On the publication purposes financial statements of the credit organisations for 1999 dated February 22, 2000 No. 745-U (with subsequent additions and amendments), the Order of the Central Bank of the Russian Federation On the entry into force of the Instruction On the preparation of the financial statements dated October 1, 1997 No. 02-429 (with subsequent additions and amendments) and the Instruction of the Central Bank of the Russian Federation On the preparation of financial statements dated October 1, 1997 No. 17 (with subsequent additions and amendments). The Board of Directors of Commercial Bank for the Gas Industry Gazprombank is responsible for the preparation of the Financial Statements and for the plans for addressing the Year 2000 problem. Our responsibility is to express an opinion on the truthfulness of these Financial Statements, in all material aspects, based on our audit. We performed the audit pursuant to the Decree of the President of the Russian Federation Temporary rules for the audit activities in the Russian Federation dated December 22, 1993 No. 2263, the Regulation of the Central Bank of the Russian Federation On audit activity in the banking system of the Russian Federation dated September 10, 1997 No. 64 (with subsequent additions and amendments) approved by the Order of the Central Bank of the Russian Federation. On the entry into force of the Regulations on audit activity in the banking system of the Russian Federation dated September 10, 1997 No. 02-391, the Regulations of the Central Bank of the Russian Federation On the procedure for the preparation and submission to the Central Bank of the Russian Federation of an Audit Opinion Based on the Results of an Audit of the Activity of a Credit Organisation dated December 23, 1997 No. 10-P, Audit Standards, approved by the Audit Commission under the President of the Russian Federation dated December 25, 1996, January 22, 1998 and July 15, 1998, March 18, 1999, April 27, 1999, August 20, 1999, and October 20, 1999 (Minutes No. 6, No. 2, No. 4, No. 2, No. 3, No. 5 and No. 6 accordingly), Audit Standards approved by the Expert Committee on banking audit of the Central Bank of the Russian Federation, International Audit Standards and our internal Audit Standards.
KPMG The audit was planned and performed to obtain sufficient assurance that the Financial Statements are free of material misstatement. The audit included an examination on a test basis of the data contained in the Financial Statement. The review of the compliance of a number of the financial and business operations performed by the Bank with the effective legislation of the Russian Federation was performed exclusively to obtain reasonable assurance that the Financial Statements are free of material misstatement. We believe that our audit provides a reasonable basis for expressing an opinion on the truthfulness of these Financial Statements. The audited Annual Financial Statements, after the appropriate adjustments, are prepared in all material aspects in accordance with the requirements of the effective legislation of the Russian Federation and the regulatory documents governing accounting and reporting in the Russian Federation. The truthfulness of the attached balance sheet and profit and loss statement, which are certified for identification purposes by the signature of the Acting General Director and the seal of the audit firm ZAO KPMG, is confirmed taking into account appropriate adjustments made by the Bank in the course of the audit. Moscow March 23, 2000 N.V. Lukashova Acting General Director, ZAO KPMG O.Y. Sokolov Audit Manager