ANNUAL REPORT BPS-SBERBANK

2015

ANNUAL REPORTBPS-SBERBANK

Contents

Address to Shareholders and Partners

Bank profile

Report of the Management Board

Macroeconomic environment and banking system development in the Republic of Belarus

Corporate business

Operations in financial markets

Retail business

Banking holding development

Risk management

Bank development

Corporate governance

Compliance with prudential requirements set by the National Bank of the Republic of Belarus

IFRS financial performance results of BPS-Sberbank Group

Main performance indicators of the group

Analysis of the consolidated profit and loss statement

Analysis of the consolidated statement of financial condition

Equity

Contacts and details

3

5

8

8

13

21

24

32

33

35

41

52

54

56

57

63

69

71

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Dear Shareholders, Customers and Partners!

Another financial year is over, and it was undoubtedly more challenging than expected. The economic situation in the Republic of Belarus in 2015 evolved under influence of negative trends in the Russian and world economies.

In spite of the challenges, we managed to reach certain results. BPS-Sberbank Group earned IFRS net profit of BYR 190 billion. The Bank still holds the 3rd position in the financial market and expanded its presence in the segments of corporate loans and retail deposits. The customer base loyalty was secured in conditions of tough competition.

The scale of business expanded corresponding to the customers’ needs and strategic plans. The prevailing part of business is concentrated in the corporate sector. The Bank issued loans to the enterprises operating in core branches of the economy including export-oriented and import-replacing businesses, investment projects with high degree of

readiness, as well as small and medium enterprises. Therefore, the corporate loan portfolio reached BYR 30 trillion.

For the purpose of customers’ international business development, the Master Agreement was signed with Eximbank of Russia in order to propose new effective instruments of import financing, and the agreement with the National Bank of the Republic of Belarus allowing financing of import from China.

Using the advantages of the international Sberbank Group, the customers were offered unique opportunities of cross border business in all countries of presence of the Group. The exposure under cross border transactions equaled nearly USD 2,5 billion.

The new model of retail business development based on leading-edge banking technologies allowed providing new services to customers in the reporting year, namely mobile acquiring in the acquiring business segment, Sberbank Online in the Internet banking segment, new services of online placement of deposits and acquisition of precious metals with the use of Sberbank Online and Mobile Banking systems.

The large-scale project of global technical reorganization of the Bank’s Call Centre was implemented, which drastically changed the process of communicating with customers. The leading international vendor Oracle highly appraised the project and presented the Bank with the well-deserved award.

Among other important achievements of Sberbank Group in Belarus in 2015 were:

• Creation of the firmware complex of the International Processing Centre that executed the first transactions in the beginning of the current year;


Viktor PerepelitsaActing Chairman of the Board

4

• Establishment of the non-bank credit and financial organization for cash collection and transit, the first of the kind in the country.

Transformation of all processes during the recent years including conceptually new approaches to management of risks, IT systems, and staff allowed us keep steady functioning in this difficult period.

Against the backdrop of persisting high uncertainty in the world financial markets, the Group is intending to move forward. Key priorities are the customers and their needs, struggle for quality of the loan portfolio and improvement of business efficiency, management of innovations underpinned by continuous implementation of new technologies.

We set ambitious goals, and we have the necessary potential and customer trust to reach them.

I would like to express my sincerest gratitude for your support and cooperation.


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Bank profile

Full name: “BPS-Sberbank” Open Joint-Stock Company.

Abbreviated business name: BPS-Sberbank.

Principal shareholder: Sberbank of Russia.

Head Office of the Bank is located at the address: 6, Muliavin Blvd., Minsk 220005, Belarus.

BPS-Sberbank entirely shares the general mission of Sberbank Group and is its champion in the Republic of Belarus.

Our mission

We are committed to instilling confidence and security, we make people’s lives better by helping them to fulfill their dreams and aspirations.

We are building one of the best financial companies in the world, whose success is based on professional expertise and the feeling of harmony of our staff.

In its activities the Bank is guided by the principles that are part of the philosophy of the Group.

Our values

• Responsibility

• Integrity

• Aspiration for development and perfection

• Team spirit and efficiency

• Openness and trust

• Respect for each other and for traditions

• Customer focus

Bank awards in 2015

• Diploma “Leader in Visa PayWave contactless cards issue in the Republic of Belarus” – the honourable award from Visa International payment system.

• “Best customer service solution based on Oracle Call Centre solution in 2015” – the award from the leading international vendor Oracle.

• “STP Award Excellent Quality” – the award from Commerzbank AG presented for each of the recent six years.

Bank profile

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• “Trade Award” – the award from Commerzbank AG to the best partner bank in trade finance.

• “Largest Regional Coverage in SME Financing” – the award from the Bank for Development of the Republic of Belarus.

Position of the Bank in the financial market of the Republic of Belarus

In 2015, BPS-Sberbank’s business developed with support of the international Sberbank Group in compliance with the strategic plans.

The Bank secured its third market position in the financial market of the country and expanded presence in the segments of corporate loans and retail deposits.

Market positions

Bank profile

International credit ratings

Credit ratings assigned by the international rating agency Fitch Ratings Ltd are the highest possible with regard to the sovereign rating of the Republic of Belarus.

Assets

Market shareItem Ranking

Equity

as of 01.01.2016 as of 01.01.2016

Loans to customers

Corporate

Retail

10,2%

5,7%

11,6%

13,6%

2,4%

3

4

3

3

5

Customer funding 9,1% 3

Corporate 9,4% 4

Retail 9,0% 3

Profit 3,5% 6

7

Bank profile

Rating FitchRatings

• On August 14, 2014, Fitch Ratings downgraded the long-term issuer default rating in foreign currency (IDR) from B to B-. The rating downgrade is attributed to revision of sovereign and country risks of the Republic of Belarus.

• On August 7, 2015, Fitch Ratings confirmed the long-term issuer default rating as B- with Stable Outlook. The other ratings were also confirmed at the same level.

Long-term issuer default rating

B

B- B-

22.03.2012 14.12.2012 04.12.2013 28.11.2014 07.08.201522.01.2010 15.03.2011 14.08.2011

Long-term IDR outlook: Stable

Long-term IDR

Short-term IDR

Stability

Support

Credit rating wasconfirmed on 07.08.2015

Credit rating is the highest possible with regard to thesovereign rating

В-

В

b-

5

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Macroeconomic environment and banking system development in the Republic of Belarus

Development of the Belarusian economy in 2015 was shaped by deteriorating external economic environment against the backdrop of accumulated structural imbalances. Deterioration of trading terms along with continuing shrinkage of foreign demand, reduction of foreign investments inflow in conditions of high inflation and devaluation expectations laid material impact on possibilities to finance investments and ultimate consumption, which in its turn led to GDP dropdown.

Basic macroeconomic parameters of the Republic of Belarus in 2011-2015

Item 2011 2012 2013 2014 2015

Real GDP growth, % +5,5 +1,7 +1,0 +1,7 -3,9

GDP per capita, USD 6 785 6 722 7 579 7 988 5 784

Industrial production growth, % +9,1 +5,8 -4,9 +2,0 -6,6

Growth of investments into core capital, % +17,9 -11,7 +9,3 -5,8 -14,8

Consumer price index growth, % +108,7 +21,8 +16,5 +16,2 +12,0

Growth of real disposable income of the population, % -1,1 +21,5 +16,3 +0,9 -5,9

Reduction of foreign and domestic demand led to material decrease of production in all sectors of the economy. The largest drop was seen in machinery construction, metal processing and light industries. Construction and real estate areas suffered and the volume of cargo transportation reduced, too.

In spite of production volume decline, growth of export in natural terms made 2%, supported by increase of export sales of oil products. At the same time, downturn in industrial production lowered the demand in imported raw materials and led to reduction of import of non-investment goods and non-food consumer products, which allowed reaching positive foreign trade balance at the level of 0,6% GDP.

Improvement of foreign trade and possibility to retain duties from export of oil products in the budget of the Republic of Belarus bridged the current account deficit to 3,8% GDP.



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Meanwhile, significant payments to serve the external debt (USD 6,3 billion), along with reduction of new sources of capital inflow, prevented payment balance improvement, in spite of the current account balance deficit decrease, which led to reduction of international reserves by USD 880 million, or 17,5%.

Pressure on the international reserves made the National Bank refuse from targeting of the foreign exchange rate and allow material devaluation of the national currency.

Change of BYR exchange rate, % year-to-date (devaluation (-) / revaluation (+)

Payment balance, % GDP

2011 2012 2013 2014 2015

Change to reservesCurrent account Financial accountExceptional financing

10,0

7,5

5,0

2,5

0

-2,5

-5,0

-7,5

-10,0

4,7

0,1-1,2

-1,9-1,1

USD

EURRUB

01.02.2015 01.04.2015 01.06.2015 01.08.2015 01.10.2015 01.12.2015

19,0

41,2

56,760

50

40

30

20

10

0

10

Thus, the Belarusian rouble devaluated by 36,1% throughout 2015, including:

• to USD – by 56,7%;

• to EUR – by 41,2%;

• to RUB – by 19%.

Nominal devaluation led to weakening of the real exchange rate of the Belarusian rouble. In December 2015 the real effective exchange rate of BYR was below that of December 2014 by 25,1%, including to Russian rouble by 25,7%, which helped somehow improve competitiveness of Belarusian exporters.

Change of interim objectives of the monetary and credit policy and increase of flexibility of the exchange rate policy led to material increase of volatility of BYR exchange rate to foreign currency and growth of devaluation expectations. As a result, from 2H 2015 there appeared net demand from the population for foreign currency.

In order to secure stability at the foreign exchange and money markets, the National Bank adhered to strict monetary and credit policy.

Shrinkage of domestic demand against the backdrop of economic policy measures led to slowdown of inflation processes in spite of material weakening of the Belarusian rouble exchange rate.

External factors, recession and toughening of the economic policy resulted in deterioration of financial condition of companies and reduction of real disposable income of the population. Net profit of companies fell by 43,2%, the number of loss-making entities grew by 44%, and their share exceeded 20% of the total number of entities.

In 2015, the banking sector developed in unfavourable economic conditions shaped by negative external factors. For the purpose of their minimization, the regulatory authorities undertook a set of measures aimed at balancing of the monetary and credit and the foreign exchange markets.

The regulator preserved tough approaches to refinancing of banks, in order to stimulate active operations in accordance with the available resources.

The banks adhered to reserved lending policy and coordinated their actions with the regulatory authority and the Government to reduce pressure on the asset quality.

The interest rates in the loans and deposits market were established under influence of the economic situation at the end of 2014 and the measures for its stabilization taken by the regulatory authority.

With regard to the dynamics of interest rates in the interbank market and other material factors, the regulatory authority steadily reduced interest rates on liquidity regulation instruments. Along with that, interest rates in the loans and deposits market gradually decreased.

The refinancing rate remained unchanged from January 9, 2015 and made 25% p.a. at the year end.


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Equity of the banking sector as of 2016 year start made BYR 78,6 trillion, and thus increased by 26,3% for the year. Assets of banks exceeded BYR 630 trillion, and thus increased by 30,9% (without account of devaluation – 1,5%).

The share of impaired assets of banks in assets subject to credit risk increased from 4,4% to 6,8%.

The ratio of total assets of the banking system to GDP in 2015 made 72,5%.


Institutional characteristics of the banking sector

Banking system development in 2011-2015

01.01.2012 01.01.2013 01.01.2014 01.01.2015 01.01.2016

87,3

60,662,1

49,8

38,1

40,7

12,68,5 8,8

61,972,5

40,343,5

8,4 9,0

Assets / GDP, %Loans / GDP, %Equity / GDP, %

01.01.2012 01.01.2013 01.01.2014 01.01.2015 01.01.2016

Assets,BYR trillion

Loans,BYR trillion

NPL Share, %

0,4 0,50,9

1,5

2,3

630,6 377,8259,4 147,9 321,4 201,9 395,2 259,4 481,5 314,0

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In the reporting year, profit was by 22,9% less than in 2014. Return on banking system assets made 1,0%, return on equity made 8,4%.

Exposure under loans issued by banks to branches of the economy (in Belarusian roubles and foreign currencies) in comparison with the beginning of 2015 increased by 20% (without account of devaluation – reduction by 4,6%).

As of January 1, 2016 the loan portfolio of banks made BYR 378 trillion, of which loans in the national currency made BYR 162 trillion.

The share of FX loans in the portfolio made 57,2%.

The volume of deposits in BYR and foreign currencies increased by 38,1%, of which corporate funding grew by 29%, retail funding grew by 43,5%.


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Corporate business

Resulting from the economic growth slowdown in the Republic of Belarus in 2015, the conditions of operation and financial status of companies deteriorated.

Aggravation of the macroeconomic situation directly influenced solvency of the companies, which led to growth of non-performing loans in the banking system and competition for high income-generating customers among the banks.

Taking into account its competitive advantages (service quality, high technological content, functionality of the sales channels), the Bank remained a reliable partner for its customers, which was proved by expansion of the Bank’s customer base.

137 new economic entities including 128 small and medium companies were attracted for lending service.


Dynamics of the number of customers using cash and settlement services in 2011-2015

41 190

2015

41 322

30 542

31 735

36 531

2011 2012 2013 2014

Customer base structure as of 01.01.2016 by segments, %

0,32,7

97

Largest

Large

SME

Continuous improvement and introduction of modern technologies into customer service is one of the most important competitive advantages of the Bank.

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Corporate customer service quality

Corporate customer application processing improvement continued:

• The channels for submission of applications to the Bank were supplemented with remote banking system channels (the period for review of applications was reduced to 7 days, paper document turnover was decreased);

• Positive dynamics of corporate customer satisfaction with application review process was achieved.

In order to improve service quality, the questionnaire for assessment of corporate customer service was developed and published on the Bank’s web-site. The Quality Index reached a high mark of 81%.

Corporate CRM development

Introduction of the corporate customer relations management system (CRM) has been an integral part of successful long-term business development since 2012.

In the reporting year, the functionality was introduced for creation, maintenance and further storage of the potential transaction presupposing interaction of CRM with limit accounting and lending process management systems.

The functionality was introduced for transfer of information about corporate customers to Sberbank of Russia to create the uniform customer profile, join transnational structures into related groups (meta-groups) at the Group level.

Lending terms in the corporate lending development model were toughened.

Corporate loans

The Bank’s market share in corporate loans segment of the Belarusian banking system increased by 0,9% and reached 13,6%. The growth was underpinned by, inter alia, cross border transactions executed on the Bank’s balance sheet within the Group.

The amount of loans issued by the Bank to the productive sectors of the economy in 2015 grew by 4% and made BYR 52 trillion.

In accordance with IFRS, the loan portfolio including loans to finance circulating capital, portfolio investments into securities, loans to finance export and import operations, and financing of investment and construction projects (gross) as of 01.01.2016 made BYR 30 trillion, i.e. the growth made 20%.


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Corporate loan portfolio structure of the Bank Group by industry (IFRS), %

Buildding materials (2,9%)Light industry (1,9%)Transport and communications (1,7%)Metallurgy (2,5%)Energy and fuel (1,9%)Mining (0,8%)Agriculture (1,5%)Real estate (25,9%)

Financial services (3,4%)Machinery construction and equipment (13,5%)Trade and catering (17,4%)Timber and wood processing (2,4%)Food products (10,0%)Construction (3,9%)Chemicals and petrochemicals (6,0%)Other (4,3%)

13,5

17,4

2,4

10,0

3,9

6,04,42,91,91,72,51,90,81,5

25,9 3,4

The share of specialized lending in the loan portfolio increased by 1% and thus made 53%.


Corporate loan portfolio structure by product

Specialized loans Commercial loans

53

47

52

48

2014 2015

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Corporate loan portfolio structure by currency

BYR USD RUB CHFEUR

2014 2015

20,1%

28,1%

46,4%

0,02%

5,4%

14,2%

37,1%

43,7%

0,02%

5,0%

A material share of loans in foreign currency is attributed to a large portion of investment loans. In conditions of augmenting foreign exchange risks, the Bank aims to reduce currency concentration of the loan portfolio.

Taking into account strategic priorities and establishment of favourable environment for development of private business, the Bank expands cooperation with small and medium enterprises, including implementation of certain agreements.

Together with the Bank for Development of the Republic of Belarus, 51 projects valued over BYR 58 billion were financed.

EBRD resources in the amount of ca. EUR 7 million were utilized to finance BelSEFF sustainable energy projects.

Beneficial SME lending was carried out in accordance with Decree of President of the Republic of Belarus dated 24.03.2009 No. 255 “On specific measures of state support of small business” in the amount of BYR 20,5 billion.

“Credit Factory” lending technology based on the scoring system was continued to be deployed in Micro business segment. The loan product line was approved for Small and Micro segments, and “Credit Conveyor” lending technology started to be deployed in Small customer segment.

The IFRS loan portfolio in this segment increased by 1,3 times up to BYR 6,7 trillion.

For its performance results in 2015, the Bank was awarded with the title “The widest regional coverage of small and medium business financing” assigned by the Bank for Development of the Republic of Belarus.


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Corporate loan portfolio structure by tenor as of 31.12.2014 (IFRS)

From 6 to 12 months

From 1 to 6 months

> 1 year

Call and < 1 month

56,0%

25,0%

4,0%

15,0%


Investment business

Financing of economically effective, export-oriented and import-replacing projects implemented by the companies operating in the productive sector of the economy is one of the top priorities of the Bank’s investment business.

Customer exposure of the Bank under the investment projects as of 01.01.2016 made BYR 21,8 trillion, which is more than half of the corporate portfolio of the Bank (including loans financed by the Group). About BYR 4 trillion was allocated to finance investment projects throughout the year.

In the changing macroeconomic environment, financing of highly effective real estate construction projects initiated in the preceding years, continued:

• The public and residential development site “Minsk Lighthouse” – construction of the public mall with the parking lot, to be launched this year;

• Financing with resources of the Group banks – construction of the contemporary multifunctional trade and entertainment complex with the hotel and the parking lot in Minsk.

The Bank participated in financing of 27 governmental programs including 21 investment ones. In servicing governmental programs, the Bank’s strategy is aimed at further reduction of lending volumes. Throughout the year, the portfolio was reduced by 46% to BYR 1,9 trillion. The funds allocated to finance governmental programs exceeded BYR 848 billion, including BYR 428 billion for financing of investment projects.

Financing of investment projects with high degree of readiness continued: construction of the new milk processing plant in Nesvizh and the whey processing and whey-fat concentrate production plant in Schutchin to be launched in mid-2016.

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Cross border deals with Sberbank Group

In conditions of international sanctions applied to Sberbank Group, the exposure under cross border deals (including customer guarantees and letters of credit) equaled nearly USD 2,5 billion in the reporting year.

Two prominent direct transactions with Belaruskali booked on the balance sheet of the Group were executed for the total amount of EUR 730 million which were utilized to support the country’s economy.

Group priorities by industry are concentrated on the exporting and the import-replacing companies (mining – 56%, oil extraction and processing – 15%, machinery construction – 10%).

International business of customers

The Bank maintains the 3rd rank in the international trade finance segment and preserves the quality of international operations despite economic challenges in the recent years. This is confirmed by the award from Commerzbank AG for excellent quality of international settlements, assigned to the Bank for the 6th year in a row.

In the difficult external market environment, the Bank executed over 500 new international trade finance deals for around USD 299 million. More than 70% of the deals were executed together with the Group, and one of the deals was declared the best Group deal in 2015.

The projects using trade finance instruments were implemented in various industries: machinery construction, building, trade, health care, etc. The best products are available today to all categories of customers regardless of their business volume and international expertise. About 22% of annual trade finance liabilities fall upon SME customer segment.

The highest quality of service, leading-edge products and spotless reputation are acknowledged by not only customers but also international partners. For the second consecutive year, the Bank was assigned with Trade Award from Commerzbank AG, one of the most reputable international banks.

In the reporting year, trade finance products were utilized by almost 300 customers of the Bank who were proposed new efficient import financing instruments. In particular, the Framework Agreement was signed with Eximbank of Russia, and the clean limit of RUB 700 million was established to be utilized, inter alia, under the program for financing of high-tech Russian export.

The swap agreement was concluded with the National Bank of the Republic of Belarus which will allow financing import from China in RMB.

In order to promote trade finance services and financial awareness, the Bank actively participated in public events: the business forum “Minsk Invest Weekend”, the summer youth business forum “Lipen.PRO”, the international financial services exhibition “MoneyFest”. Several special educational seminars were held for the Bank’s customers, attented by representatives of the Embassy of the Republic of Poland in the Republic of Belarus.

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Share of Belarusian banks in the corporate funding structure, %

Corporate funding structure of the Bank by industries, %

11

3

8

4

6

33 21,2

12,5

25,72,2

0,9

4,5

9,2

8,4

2,5

12,9

7

9 9

Belarusbank (33%)Belagroprombank (10%)BPS-Sberbank (9%)Belinvestbank (9%)BelVEB (7%)

Priorbank (6%)Belgazprombank (8%)VTB Bank (4%)Alfa Bank (3%)Other (11%)

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Educationand health care (2,5%)Transportand communications (8,4%)Financial services (9,2%)Wood processing (4,5%)

Energy (2,2%)Mining (0,9%)Construction (12,5%)Trade (25,7%)Industrial production (21,2%)Other (12,9%)

In the result of those activities, the Bank’s share in servicing foreign trade turnover of the Republic of Belarus in 2015 made 9,2%.

Corporate funding

The Bank holds the 4th rank by corporate customer funding with the share of 9,4%. The amount of deposits at the beginning of 2016 exceeded BYR 10 trillion, after 3,3% increase. The prioritized direction of corporate customer relations is creation of attractive conditions for placement of available funds by customers.

The increasing customer interest to investment of available funds into bonds issued by the Bank is attributed to the possibility of stable income throughout the validity of the agreement and management of placement tenors. The balance on accounts after sale of bonds to legal entities throughout the year increased by 2,5 times and made BYR 1,8 trillion as of the beginning of 2016.

Corporate customers are represented by companies operating in the leading branches of the economy of the Republic of Belarus. Traditionally, industrial enterprises occupy the largest share of the Bank’s resource base.

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For maximum effectiveness of the customers’ operations, the Bank applies contemporary high-tech and innovation solutions. The following remote banking services enjoy great popularity among the customers: Bank-Client, Internet-Client, Statement Online, Mobile Client. Customers are on package service by 100% as of 01.01.2016, and 99% of the customers are using remote banking services.

Short-term deposit agreements were concluded in the real time mode on the basis of the trade and information automated system “SavEx” that has been successfully functioning in the Belarusian market for 2 years. The share of agreements concluded via “SavEx” in 2015 reached 97% (in 2014 – 70%). The number of corporate customers connected to “SavEx” doubled and reached 3 589.


Structure of corporate funding by segments, %

Small and medium businessLarge and largest business

01.01.2014

74

26

01.01.2015

64

36

01.01.2016

55

45

Dynamics of attracted corporate funds by segments is characterized by the increasing share of small and medium business.

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Operations in financial markets

Development of relations with international financial institutions, insurance agencies, and foreign banks

In 2015, great attention was paid to promotion of cooperation with foreign banks and international banking institutions. In spite of challenging external market conditions, the Bank was able not only to secure its positions in the international business but also to introduce a line of new promising products offering additional benefits to the customers in execution of foreign trade operations via Sberbank Group.

Apart from the Group, cooperation was developed with other foreign partner banks. Four bank counterparties established new clean risk limits for trade finance operations with the Bank. With regard to the newly established facilities, the total amount of limits as of January 1, 2016 exceeded USD 690 million.

The customers got the opportunity to have their contracts with Chinese counterparties financed in RMB on special beneficial terms.

The product line was supplemented by the product that enables the customers to attract financing in Russian roubles on the most beneficial terms.

Along with that, partner relations were developed with foreign banks and international financial institutions. The Bank was among the first in Belarus to conclude the cooperation agreement with the International Investment Bank, due to which the customers were offered new options to execute international transactions with counterparties from countries of Eastern Europe and Asia.

Being a part of the international Sberbank Group, the Bank possesses unique advantages in execution of international operations in the countries of presence of the Group. Thus, apart from cooperating with banks in such traditional trading partner countries as Czech Republic, Austria, and Switzerland, the Bank’s customers successfully implemented projects in India, Turkey and some countries of Eastern Europe and the Balkan peninsula, using intragroup products of Sberbank.

Correspondent banking

In the correspondent banking area, the Bank continued optimization of its correspondent network based on the current needs of the Bank and its customers. New correspondent relations with account opening were established, while other low activity correspondent accounts were closed.

The Bank’s correspondent network is traditionally one of the most widespread ones in Belarus. To execute customer settlements and own operations, the Bank opened nearly 60 NOSTRO correspondent accounts in 10 foreign currencies and precious metals (gold, silver, platinum, and palladium). The Bank opened more than 100 LORO accounts for Belarusian and foreign banks in different currencies.

Developing its international activity, building up transaction volumes and increasing the number of counterparties, the Bank adheres to international anti-money laundering

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laws, complies with the requirements of the national legislation and internal regulations, and consistently applies the ‘know your customer’ policy.

Stock market

In the reporting year, the Bank continued to develop as a professional participant of the stock market. A lot of attention was paid to introduction of new products and improvement of service quality.

The Bank invests large amounts into long-term public bonds in the local and foreign currencies. The investments available for sale and held to maturity (IFRS) increased 5 times and exceeded BYR 7 trillion.

In the framework of cooperation with legal entities, 20 issues of corporate bonds were arranged, including 13 issues of mortgage bonds.

Introducing a new product, the Bank implemented two transactions of sale of corporate customer bonds to natural persons for the amount of USD 15 million, and executed the transactions of placement of mortgage bonds in Belarusian roubles for the total amount exceeding BYR 59 billion.

In order to build up the customer base, own bonds were actively sold. The proceeds from sale of own bonds as of 01.01.2016 made BYR 1,9 trillion.

Traditionally, much attention was paid to depository services provided to legal entities and natural persons.

The Bank’s depository is one of the largest ones in the country and serves 365 security issuers (market share – 8,2%).

In the reporting year, 18 new issuers and 113 depositors were attracted for service.

Foreign exchange market

In 2015, development of remote channels for sale of services on operations in financial markets continued. The Bank is the only Belarusian commercial bank offering counterparty banks the services of foreign exchange operations with instant execution via the electronic trading system.

The Bank’s trading system is used by 18 counterparty banks; the volume of interbank foreign exchange operations in 2015 exceeded USD 20 billion. Active position of the Bank in the domestic foreign exchange market allowed confirming the status of the leading operator in the interbank market on operations with Belarusian rouble and conversion operations with foreign currencies.

In order to promote operations with the national currency, in 2015 the Bank maintained the status of the market maker in foreign exchange operations with the Belarusian rouble in the trading system of Moscow Exchange JSC. This expanded the range of counterparties interested in those operations, and provided for execution of settlements on concluded deals via the central counterparty – Moscow Exchange JSC.

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Precious metals market

Remote sales channels for execution of operations with precious metals also continued. For individual customer there were introduced the services of purchase of precious metals with placement into unallocated accounts via Sberbank Online and Mobile Banking systems.

BPS-Sberbank actively continues to develop and promote the financial markets services for the customers, paying much attention to the quality of service in all market segments.

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Retail business

In spite of challenging competition in the banking market, retail business showed positive dynamics of development in 2015.

Based on the annual performance results, the Bank became the runner-up in the nomination “Best Android mobile application 2015” awarded by infobank.by.

The international corporation Oracle awarded the Bank with the title “Best customer service solution on the basis of Oracle call centres in 2015”.

The Bank became the first among Belarusian banks to introduce the possibility to pay for toll parking lots in Minsk.

The previous year became the time for search of new ways of retail business development and its improvement due to increase of labour productivity and staff optimization.

The Bank invested into raising financial awareness of the population, in order to make banking services simple and understandable for all categories of Belarusian citizens.

Bank’s positions in the retail market

The Bank is present in the retail segment of the Belarusian financial market with the following rankings:

• the 2nd rank by plastic cards issue maintained for many years, and the 1st rank by issue of contactless payment cards;

• the stable 3rd rank by retail deposits with the market share of 9%;

• the 4th rank by retail loans (without beneficial mortgage lending and real estate financing) with the share of 7,3%.

The Bank’s market shares are: 12,8% of all payment cards in circulation (22,6% of the total number of contactless cards), 14,8% of ATMs, 10,1% of payment terminals, and 10,4% of merchant POS terminals.

Customers

The number of retail customers of the Bank increased in the reporting year by 84 thousand people or 6%, and now exceeds 1 568,4 thousand individuals. The VIP customer base increased by 28,7%, the affluent customer base grew by 40,4%.

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Retail funding structure by currency as of 01.01.2016, %

Retail funding structure as of 01.01.2016, %

Term deposits structure by tenor as of 01.01.2016, %

Retail funding dynamics, IFRS adjusted to hyperinflation, BYR billion

BYR

USD RUB

EUR

116

69

14

> 1 year < 1 year

87

13

18 223

6643

9047

10 66912 311

01.2012 01.2013 01.2014 01.2015 01.2016

Term deposits

Current accounts

Bonds

Unallocatedmetall accounts

12

80

17

Retail funding

The product line was expanded throughout the year, and the rates set for the Bank’s fees were tailored to various customer segments.

Apart from the basic deposit line, retail customers were offered new deposit products with regard of their behavior preferences. In 2015, new products were launched: online deposits in Belarusian roubles and foreign currencies, available 24/7, with real-time execution of operations.

26

59,062,3

4,34,1

36,733,6

Consumer loans Car loans Mortgage loans

01.01.2015 01.01.2016

Retail loan portfolio structure by product, %

NPL90+ share in the retail loan portfolio as of 01.01.2016 made 3,1%.


The resource base was growing also due to attraction of funds into the investment product – unallocated metal accounts (gold, silver, palladium, platinum). The customers could purchase precious metals and credit them onto the unallocated account in the real-time mode. As a result, the balance of funds on unallocated accounts increased by 55% and equaled BYR 447 billion.

In the reporting year, the number of opened pension accounts grew by 9%, and their balance increased by 1,6 times up to BYR 186 billion.

Cultivating people’s interest to alternative investment instruments, the Bank continued to develop operations with bonds sold to the population. As of 01.01.2016, bonds in USD, EUR and BYR were sold for the total amount equaling BYR 118 billion.

Attraction of retail deposits provided for their growth in the reporting year by 1,5 times up to BYR 18,2 trillion.

Retail loans

In conditions of decrease of real disposable income of the population, the Bank followed a conservative lending policy, in order to avoid deterioration of the loan portfolio quality.

The retail loan portfolio before provisioning reduced throughout the year by 5,8%, and made BYR 1756 billion as of 01.01.2016. In 2015, retail loans were issued for the amount of BYR 2,2 trillion, including BYR 73 billion for financing of real estate and residential premises.

Along with that, the Bank maintained all types of retail loans in its product line.

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01.01.2012 01.01.2013 01.01.2014

Card issued, thousand ATMs Merchant terminalsMerchants

356

665

8229

1634

267511

2806

1413

291

563

5590

1527

01.01.2015 01.01.2016

331

626

6346

1678

363

661

8237

1664

Dynamics of cards issuance and service infrastructure, units


Plastic cards and transactional products and services

The Bank is a member of international payment systems MasterСard Worldwide, Visa International, BELCARD national payment system, and the exclusive acquirer of American Express cards in the territory of the Republic of Belarus.

Throughout many years, the Bank remains one of the leaders in the market of banking payment cards in Belarus:

• Over 1,6 million cards were issued including more than 160 thousand contactless cards;

• 655 ATMs, 356 information terminals (including 39 terminals with cash-in modules) were installed;

• 10 052 merchant terminals were connected.

The Bank is certified as an acquirer of contactless technology cards in the international payment systems MasterCard and Visa РayWave.

In the framework of development of card issuance business with American Express, beta testing of American Express cards issued by the Bank was carried out.

In 2015, the Bank started issuance of Belcard-PREMIUM Maestro “Motsnaya Kartka” (“Strong Card”) issuance, and acquiring of contactless cards started.

The card product for the Youth segment was launched.

The Bank offers a wide range of traditional services to the population:

• Transfer of funds from the account and without account opening in favour of individuals, legal entities, and individual entrepreneurs;

• Credit to and advance of cash from the account and without account opening;

• Execution of continuous transfer instruction.

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Following the strategy of moving of operations into remote service channels, acceptance of payments at the Bank’s cash desks is steadily reduced – the number of payments decreased by 50%. Meanwhile, the amount of accepted payments in favour of legal entities in the reporting year grew by 7% up to BYR 3,6 trillion.

The Bank occupies the 4th place in the bank ranking by acceptance of payments in the Uniform Settlement and Information Area (ERIP). The market share by the number and amount of payments accepted via ERIP made 7,3% and 5,4%, respectively.

Private individuals actively use the Bank’s service of international money transfers, due to the convenient operation technology and attractive fees.

The amount of money transfers executed via private payment systems for the year equaled USD 67,7 million.

Developed regional network and technical capabilities of the Bank allow provision of these services in all service locations operating in self-authorization mode, thus the customers are able to send and receive transfers both on business days and holidays.

E-Banking

With this technology, the Bank installs merchant terminals for acceptance of payment tools based on innovational form factors: mobile phones, watches, stickers, sim and micro-sd cards (Mobile payWave and Mobile Paypass).

The customers are offered a new acquiring service – mobile acquiring (M-POS acquiring).

The new Internet banking platform – Sberbank Online – was launched, online registration of new users is carried out.

There was introduced the service of opening and replenishment of term bank deposits in the online mode for the users of Sberbank Online and mobile applications of the Bank on Android, iOS, and Windows Phone platforms.

The new service “Perevedi mne!” (“Transfer to me!”) was introduced allowing the customers to transfer funds between the cards Maestro and MasterCard issued by any bank of the Republic of Belarus.

Last December, acceptance testing was carried out under the project of the International Processing Centre of Sberbank of Russia.

Developing the remote banking channels, the Bank moves retail operations to remote service channels. The number of customers connected to Sberbank Online, SMS Banking, Automated Payment services as of 01.01.2016 made more than 450 thousand people or 29% of the total customer base of the Bank.

Call Centre

In 2015, the Bank continued to develop its Call Centre as the uniform information source about products and services of the Bank for the customers, and took measures to bring the customer service standards into conformity with international standards.

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The work was continued to develop the Call Centre as an alternative bank product and service sales channel.

During the year, the Call Centre picked more than 730 thousand customer calls, which is by 21% more than in 2014.

In the structure of applications, the share of alternative communication channels increased: 83% - phone, 17% - alternative channels (online chat, e-mail, web call centre, calls ordered from the official web-site).

The availability of Call Centre lines (average response time) made on average 25 seconds, while the number of incoming calls considerably increased.

The project “Call Centre development on the basis of the new software complex together with CRM – customer relationship management system”, launched in 2014, was accomplished. Main results are:

• Installation of the new ‘smart’ IVR with introduction of automated services of retrieval of information on customer accounts before connection to the operator;

• Creation of the universal working environment for the operator, integrated into CRM system of the Bank with expanded functionality and convenient interface;

• Development of alternative communication channels (online consultant, call order service, processing of requests redirected from the web-site).

In order to standardize customer service by phone, redirection of individual customer calls from the lines of the Bank’s divisions to the Call Centre was organized.

In the framework of customer-focused approach aimed at reduction of customer’s costs on communication with the Bank, the single multi-channel mobile line was arranged. As a result, Call Centre is available not only by the line 148 but also the single mobile number 5 148 148.

The total index of customer satisfaction with Call Centre service in 2015 made 77% (scores 9 and 10 by 10-point system), meanwhile the level of customer satisfaction with the average waiting time increased by 20% in comparison with 2014, and made 69%.

VIP customer service

Progressive development of VIP customer service of the Bank continued. The VIP customer base in 2015 grew by 29% which was attributed to establishment of the respective service environment and further promotion of competitive segment-focused product offering.

In the framework of establishment and development of long-term trust relations with VIP customers and further advancement of this direction, the specialized web-site for VIP customers of the Bank was launched: www.sberbank1.by.

In order to improve service quality, research was carried out on Priority Pass, Concierge service, qualitative and quantitative survey of loyalty and satisfaction of VIP customers of the Bank.

Additional 7 service locations for VIP customers were opened in the regional network of the Bank. Totally, 29 BPS-Sberbank Premier areas are operating.

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Retail customer service quality improvement

Key directions of the Bank’s development are high quality of service and customer focus in business process design.

Following the contemporary market trends aimed at satisfaction of customer needs, the Bank implements a range of measures directed at improvement of the provided service.

At present, with regard to consumer preferences, the process of service quality monitoring is transformed into analysis of customer experience of Bank service. The customer’s voice – regular surveys and customer applications – is the main source of information in the new system. Feedback from customers allows determination of areas for growth.

In the reported year, the pilot survey of customer satisfaction with the quality of service in structural divisions of the Bank’s network was carried out.

Customer satisfaction index (CSI) is general assessment of customer experience in acquisition and use of products and services. This assessment allows determining the value and ratio of price, quality, accessibility, and other factors influencing customer loyalty.

In order to improve customer service quality, special attention was paid to development and enhancement of arrangement of processing of incoming applications.

To build an efficient customer relations system, various channels are used for feedback: the Call Centre, social networks, Internet portals, book of suggestions and observations, written and electronic applications, personal appointments with top managers of different levels.

Analysis of reasons for complaints and suggestions on work improvement allows perfection of the existing processes of the Bank in accordance with customer expectations. Based on the acquired analytical data, the areas of growth and prospects of development are determined, and systematic decisions are taken.

In 2015, the work was performed on structuring of the system for processing of customer applications coming via different feedback channels, and elimination of grounds underlying claims. As a result of analysis of applications there was designed the plan of measures aimed at improvement of processes and products of the Bank.

In the framework of comprehensive approach to establishment of an efficient system of communication with customers, the section of the official web-site of the Bank intended for submission of applications, was upgraded.

Financial awareness

Understanding the importance of development of financial awareness of customers, the Bank implemented a range of large-scale projects focused on various categories of the population.

Using new forms of interaction with service consumers, 4 web-conferences were arranged to inform the customers about advantages of remote banking services, planning of personal budget, forms of savings, and use of modern technologies.

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The educational book for junior students “Kupilki iz kopilki” (“Buying from the moneybox”) was published.

The days of financial awareness for various categories of people were attended by more than 2500 people from different regions of the country.

The exhibition “MoneyFest” hosted the seminar “Effective finance management. Remote banking service”. Students of the first and the second years of study of secondary special and higher educational establishments participated in the events.

In the reporting year, the pilot project “School of new opportunities” was successfully implemented.

“School of new opportunities” is a set of information seminars for the younger generation arranged by the Bank under the programme of financial awareness improvement.

The first students of the school were members of the Belarusian Republican Union of Youth. The project helped young people find answers to their financial issues, communicate with banking business practitioners.

The following educational seminars were offered to the participants of the project:

• Personal finance management

• Forms of savings

• How to borrow a loan

• Payment cards. Remote banking service.

In 2015, the first crowdsourcing project “Digital bank of the future” was implemented, participated by students of the third and the fourth year of study of the Banking Department of Polesye State University.

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Banking holding development

Customers’ demand in additional services determines development of the effective bank holding.

The strategic model of the holding development stipulates outsourcing of activities outside of core banking business to subsidiary companies.

The milestone of the reporting year was outsourcing of cash collection and transportation business and establishment of the company INCASS.EXPERT, the first in Belarus non-bank credit and finance organization operating in cash collection business.

In the reporting year, the banking holding actively developed in the investment and banking business, IT sphere, leasing and insurance.

SB-Global. In the Belarusian banking system, only BPS-Sberbank has a subsidiary providing comprehensive advisory services to support customer’s business, including structuring of complex transactions with an investment part, and assessment of the value of business in accordance with international standards.

IT company Service Desk. The IT subsidiary of the bank increased the volume of services sold to the customers including banks, and improved its positions in the Belarusian market. In 2015 new competencies developed: repair of NCR ATMs, installation and maintenance of Qmatic electronic queues, software for POS terminals was developed and certified for their further sale, installation and maintenance.

Quality of services of the company corresponds to the international standards. The company obtained the status of the authorized partner of the Chinese telecommunication company Huawei, the status Gold IT Operations Software Specialist of HP Enterprise. Service Desk is the first company in Belarus certified under the international IT service management quality standard ISO/IEC 20000-1:2011, and an associate advisor of British Standards Institution (ISO/IEC 20000, ISO 27001).

IT company Sberbank Technologies. The dependent software IT company (resident of High-Tech Park) provides services of development, modification, support of software and implementation of IT projects of customers from Sberbank Group.

BPS-Leasing. Following modern international trends, the Bank provides leasing services to customers via the dependent company BPS-Leasing (transactions with complex structure) and leasing partners (SME transactions).

TASK insurance company. The dependent insurance company TASK has been operating in the market for 25 years. It provides all kinds of insurance except for life insurance and steadily holds the 2nd rank in the insurance segment by the amount of fees, earning dividends for the Bank.


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Risk management

In 2015 the work was continued on implementation of initiatives stipulated by the plan of introduction of the targeted model of integrated risk management system of Sberbank Group in BPS-Sberbank.

In the framework of introduction of the integrated risk management model, the Bank implemented the following activities:

• Update of risk tolerance parameters of BPS-Sberbank;

• Development and approval of high-level documents;

• Continuation of quality improvement of pilot retrieval data in the framework of introduction of new approaches to provisioning on the basis of IFRS with the use of international approaches to the quantitative assessment of credit risks (EL).

In the reporting year, the tasks of corporate credit risk management improvement were actively resolved. The project “Credit Factory” for Macro customer segment was accomplished. The project “Credit Conveyor” was finalized and its deployment started in all branches. Work continued on improvement of the lending process and credit risk management in the Largest, Large and Medium customer segments. Active automation of the new credit process (NCP) was carried out, all automated process systems were put into production.

In order to improve retail risk management efficiency:

• The scoring card of internal credit histories of the population was developed;

• The social and demographic scoring model for risk assessment of unsecured loan was put into operation;

• Methodological base and software complex under the “Credit Factory” technology were developed;

• Approaches to assessment of creditworthiness of borrowers and risk parameters for calculation of the maximum loan amount with regard to the portfolio quality and the economic situation were enhanced;

• The procedure of verification of information about the borrower to simplify the process for the customer was analyzed;

• The loan product line was expanded.

The introduced automated technology of fraud prevention allowed reducing credit risk in 2015 by prevention of fraud attempts by retail customers. Due to this system, 56% of loan applications matched by certain rules, and 3% of the pool of matched applications were deemed fraudulent.

The Bank adequately managed operational risks in the financial markets, both credit and market risks.

Credit risk management comprises the established general system of assessment and rating of banks and tailored approaches to assessment of the ability of the specific borrower to fulfill its obligations. Financial status of counterparty banks is regularly monitored.

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Improving the process of setting limits to credit risks inherent to operations executed in financial markets, PEGA FI was implemented, being the automated system for registration and monitoring of status of components of the process of management of operations in financial markets. The automated system Zeus for control of limit utilization is in use.

To develop the system of post-control of market risks, the methodological base of the process of independent verification of cost of operations in financial markets was approved. Risk metrics are calculated which allows controlling the level of market risks of operations on the trade book.

The Bank works on implementation of approaches of the parental company to risk management in financial markets operations. In the framework of establishment of the Uniform credit process of lending operations and operations in financial markets, the respective methodological base was prepared.

Liquidity risk management process included approval of mandates of portfolios and subportfolios of securities of the internal bank, limits and restrictions on subportfolios were set. The methodologies of scenario analysis and GAP analysis of liquidity risk were developed.

Net interest income sensitivity was approved as the interest rate risk tolerance indicator.

The Bank adopted early warning indicators of foreign exchange risk, and developed the plan of measures to prevent crisis events related to foreign exchange risk realization.

In the reporting year, the process of transformation of operational risk management into the standardized process compliant with international practice, continued. Work was performed on update and further development of the regulation base including update of the process of risk incident data collection process, development and improvement of the management report system.

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Bank development

Banking technologies improvement

For the purpose of transformation of the Bank into a service company, a range of large-scale modifications are introduced, including technical upgrade and industrialization of systems and processes.

Today, the Bank has created a single centre of transformation management being the single input point for development of optimal solutions related to introduction of new technologies and innovations, implementation of measures aimed at development of business and optimization of the processes.

For successful implementation of transformations, the infrastructure of continuous improvement was created and is developing by means of integration and synergy of process management, project management and PSS 2.0 tools and their integration in to the management system of the Bank.

Project management system development aims at expansion of the project culture and its active application in various spheres of the Bank’s activity:

• In 2015, in order to improve the training system, the remote learning course “Project management” was created. More than 85% of mid-level executives and line managers of the Head Office underwent project management training;

• Development of project management methodology was carried out in terms of clarification and formalization of the process of transformations in the projects and programmes of the Bank, and update of key regulations of the Bank;

• In terms of management of motivation and effectiveness of managers through the system of project priorities, changes were introduced into the rules of management of such projects, the mechanism of monitoring with application of automated project management system was improved;

• The project approach in PSS resulted in release of the Technological Scheme of PSS project management.

Innovation activity was developed in the Bank due to active use of the corporate social network by the Bank’s employees. The collective interaction tools – crowdsourcing, professional communities, knowledge databases – allowed improving innovation activity of the staff. Initiatives implemented through PSS projects (DMAIC, PDCA and quick initiatives) and requests for changes gave the economic effect in the amount above BYR 18 billion.

In the area of improvement of banking processes and Production System of Sberbank (PSS):

• The Mature Entity model was implemented by development of three components – processes, management system, and culture;

• To understand the level of maturity, self-assessment of structural divisions of the Head Office and the Operating Office was carried out, which detected the areas requiring escalation of certain components; the plans for maturity improvement were established;

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• The system of regular surveys “Voice of internal customer” was launched; it allows determining problematic areas of the Bank’s activities in order to improve the internal service quality; based on the survey results, optimization measures were taken in relation to the reviewed services; the general list of services to be surveyed in 2016 was drawn;

• To enable continuous improvement, the Bank is implementing Gemba programme – on-site visits of structural divisions by top managers for visual assessment of process execution, determination of the existing problems and development of their solutions;

• In terms of PSS 2.0 competencies development, regular training and certification of the Bank’s employees for “black”, “green” and “yellow” belts are carried out; remote training courses “5C in the Bank’s office”, “Problem solution algorithm based on PDCA cycle” were developed and introduced; the training course “Assessment of current PSS maturity in structural divisions of the Bank” was developed and implemented; the training course “Management system” was held for the top management of the Bank.

There were undertaken the measures for identification and selection of top priority processes, detection of processes with low efficiency and high level of operating risks.

The corporate process database was created and is developed: electronic repository of processes based on Business Studio software, and the resource “Process management system” on the corporate web-portal.

The process management system is integrated with other systems of the Bank (based on role concept of the process approach): risk management, internal control system; processing of customer applications; regulation of the Bank’s activity.

Information technologiesSimultaneously with project implementation, the following projects with IT content were

implemented in the reporting year:

• Automation of the new lending process;

• Trust management of customers’ assets;

• Establishment of the non-bank credit and finance organization;

• Automation of the banking product “Letters of credit issued by the Bank”;

• Introduction of the new Internet banking for individuals, and other projects;

• Implementation of the tools for maintenance of relations with customers and meta-groups;

• Cross border CRM for subsidiary banks. Stage 2;

• Creation of the system for record of calls, management of quality and productivity for the Underwriting Centre – Verint Impact 360;

• Transfer to the uniform processing centre of Sberbank Group (MPC. Stage 1).

The Bank paid much attention to development of different systems of communication, monitoring, routing, and centralization of software complexes. The following systems were launched:


37


• Videoconference servers, allowing continuous videoconferencing and increasing the number of calls;

• Fax servers, providing divisions of the Bank with electronic facsimile communication;• Intellectual routing of phone calls in the most cost-efficient way, allowing the Bank

reducing expenses on phone calls;• Gateways for incoming communication via mobile operators for the Call Centre,

which allows to provide access for the Bank’s customer to the Call Centre at the rates of mobile operators;

• Highly productive routing hub based on Cisco Nexus 7000 and ASR1002X equipment, allowing improvement of capacity of the corporate network and providing for continuity, safety and scalability;

• Monitoring based on SevOne and Cisco Prime Infrastructure, improving manageability of the Bank’s corporate network;

• Monitoring of IT infrastructure, allowing centralization processing of server, storage system and other infrastructure events.

In 2015, modernization of storage systems and server equipment was carried out.The projects and processes implemented in the reporting year allowed maintenance of

the customer base, improvement of quality and effectiveness of operations.

Operating efficiency management

An important step in achievement of objectives set for 2015 was improvement of the quality of operating support of business and cost optimization. The most important milestones were:

Transformations in the organizational structure of the Operations unit• The strategic project was implemented: Non-Bank Credit and Finance Organization

“INCASS.EXPERT” CJSC was established on the basis of the Cash Management Centre;

• The number of staff of the Operations unit was optimized;• The schedule of enlargement of interregional divisions for operations with valuables

was approved, and the Department for Operations with Valuables was created.Optimization of operating costs of the Operations unit due to abandonment of premises

and growth of labour efficiency• The economic effect made about BYR 4,7 billion and was attributed to growth of

labour efficiency, reengineering of processes, innovation activity and implementation of PSS projects of the Operating Office “Central European” in the result of:– Launching of the “robot” for automatic credit of lists of individuals;– Reengineering of processes for internal financial operations;– Additional centralization and automation of supporting functions from divisions of

the Bank to the Operating Office “Central European”;

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Vitebsk region: 1 RD, 5 BSCs, 6 RWBs

RD – Regional DirectorateBSC – Banking Service CentreRWB – Remote Workbench

Mogilyov region: 1 RD, 2 BSCs, 5 RWBs

Gomel region: 1 RD, 6 BSCs, 12 RWBs

Minsk: 1 RD, 10 BSCs, 18 RWBsMinsk region: 5 BSCs, 5 RWBs

Grodno region: 1 RD, 3 BSCs, 12 RWBs

Brest region: 1 RD, 2 BSCs, 3 RWBs

Regional network of BPS-Sberbank as of 01.01.2016

– Implementation of the technology for automatic processing of requests from governmental authorities as to operations of corporate entities;

– Testing of approaches of the Nationаl Bank of the Republic of Belarus on introduction of electronic document exchange with governmental authorities (the Ministry of Justice of the Republic of Belarus and the banking system).

• The project “Transformation of Operating Function” broke even, NPV of economic profit made USD 1,4 million;

• The project “Introduction of the centralized forecasting and management of cash desk resources of the Bank” was accomplished.

Regional network development

The branch network of the Bank remains one of the most widespread in the Republic of Belarus and comprised 99 sales offices in all regions of the country, and a representative office in the Republic of Poland, as of the beginning of 2016. On 01.01.2016, 49 sales offices, or half of their total value, functioned in the new format.

In the framework of implementation of the Strategy of development of the Bank in the reporting year, measures were undertaken for reformatting of the regional network in order to establish an efficient, technological, flexible and manageable network of sales offices meeting requirements of business growth and satisfying all customer demands in services.

In 2015, the work with the regional network was aimed at its optimization with regard to economic potential of the regions, prospects of business development, optimization of costs and improvement of the Bank’s efficiency.

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HR development

The Bank carried out a large-scale optimization of HR costs and the number of staff, standardization of organizational structure and development of the activity effectiveness management system.

In 2015, the staff of the Bank decreased by 24%, including 16% attributed to outsourcing of the cash collection business to the subsidiary company.

In the result of organizational transformations, as of 01.01.2016:

• The share of employees in business units made 60%, the remaining 40% engaged in support and control services;

• The average age of the Bank’s staff is 37 years;

• The share of employees with higher education makes 87%;

• 68% of the employees have over 5 years of experience with the Bank, 40% of the employees spent more than 10 years with the Bank, which proves stability of the Bank’s staff.

In 2015, the work was accomplished on standardization of the salary structure. The assessment of personal effectiveness “5+” and group/individual KPIs were introduced into the system of bonuses and applied to almost all employees.

The Bank pays much attention to training and professional improvement of the staff. Remote training methods are used most actively. Cooperation with the Corporate University of Sberbank of Russia is developing, the employees undergo training in the Virtual School of Sberbank, study at various MBA courses.

Prospects of development of the Bank in 2016

Maintenance of high uncertainties in the international financial, raw material and commodity markets, wide spread of forecast of development in the main trading partner countries of the Republic of Belarus in 2016 create challenges for the banking system of Belarus depending of different scenarios of economy development.

In the existing economic environment, with shrinkage of businesses and deterioration of banking assets quality, the Bank understands the importance of well-balanced support of companies operating in the productive sector of the economy pro rata their solvent demand.

Lending under economically effective and export-oriented projects implemented by industrial companies will remain one of the main priorities.

To support lending, the Bank intends to actively attract funding from non-residents and residents of the domestic market for a long term.

In the current situation, foreign exchange currency concentration of assets should be reduced to order to alleviate pressure on the equity, for its maintenance at the level sufficient to cover the risks.

For the same purpose, the Bank is interested in improvement of financial condition of its customers.

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It is very important to prevent critical deterioration of the loan portfolio quality and increase of provisioning costs.

If necessary, loan indebtedness will be restructured with regard to the conditions and peculiarities of the economic activity of the companies.

The Bank intends to implement only the top priority projects, to optimize the regional network and the staff as much as possible, to improve internal business processes in order to reduce operating costs.

In conditions of internal and external challenges, the Bank will put its best efforts into implementation of the Strategy of development of the Bank in 2014-2018. Its execution is an integral component of achievement of financial stability and improvement of effectiveness of the Bank’s business.

The Bank confirms that its main strategic objective is maintenance of efficiency due to internal optimization, with preservation of high quality of customer service.

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Corporate governance


General Meeting of Shareholders

Supervisory Board

Management Board

Assets and LiabilitiesManagement Committee

LargeCredit Committee

SmallCredit Committee

IT Committee

Expert ProjectCommittee

ProcurementCommittee

ImpairedAssets Committee

Chairman of the Management Board

Deputies Chairman of the Board

Internal Audit HR Secretariat

CorporateBusiness

Retail Business

BankingTechnologies

Risk Management

Operations

Organizational, functionaland methodological support

Audit Commission

Strategyand Finance

BankingHolding

Administration

RegionalDevelopment

Executive Directors

AuditCommittee

RiskCommittee

Regional networkin the Republic of Belarus

1 tier

Representative Officein the Republic of Poland

Head Office

Regional Directorates / Banking Service Centres

RemoteDesk

RemoteDesk

RemoteDesk

2 tier

Organization structure of the Bank as of 01.01.2016

42

Brief description of the organization structure

The management bodies of the Bank are the General Meeting of Shareholders, the Supervisory Board, and the Management Board. The procedure and rules of operation, and scope of authority of the management bodies are determined by the Articles of Association of the Bank. The controlling body of the Bank is the Audit Commission.

The General Meeting of Shareholders is the supreme management body of the Bank. The issues related to its exclusive scope of authority cannot be delegated to other management bodies.

Business processes of the Bank are divided into business and support directions.

Operations are carried out on the basis of the two-tier model including the Head Office and the structural divisions of the Bank (regional directorates, banking service centres, other structural divisions), and the Representative Office.

Supervisory Board

In accordance with the Articles of Association, the Supervisory Board carries out general management of the Bank’s activities except for the issues attributed to the exclusive scope of authority of the General Meeting of Shareholders. The Supervisory Board is responsible for compliance of the Bank with the law, the Articles of Association, and the local regulations, and regulates the Bank’s activity to that effect.

The Supervisory Board comprises the Audit Committee and the Risk Committee.

The members of the Supervisory Board were elected by the General Meeting of Shareholders on March 31, 2015.

Members of the Supervisory Board as of December 31, 2015

1. PiotR P. PRoKoPoViCHChairman of the Supervisory Board Chairman of the Entrepreneurship Development Council of the Republic of Belarus

2. SeRGey N. GORKOVDeputy Chairman of the Supervisory Board Deputy Chairman of the Management Board, supervisor of International Operations, Sberbank of Russia

3. VaSIlI S. MaTyUSHeVSKIDeputy Chairman of the Supervisory BoardFirst Deputy Prime Minister of the Republic of Belarus (representative of the state)

4. GRIGORIy M. aNaSHKINMember of the Supervisory BoardManaging Director for International Banks, Finances, Sberbank of Russia


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5. PaVel S. BaRCHUGOVMember of the Supervisory BoardSenior Managing Director, Director of International Planning and Control Division, Sberbank of Russia

6. aleKSaNDR a. VeDyaKHINMember of the Supervisory BoardManaging Director, Risks, Sberbank of Russia

7. aRTyOM S. DOVlaTOVMember of the Supervisory BoardSenior Managing Director, Director of Division for Coordination of International Development, Sberbank of Russia

8. lIUDMIla P. POPOVaMember of the Supervisory BoardIndependent director Chair of the Audit Committee of BPS-Sberbank

9. KONSTaNTIN a. KOlPaKOVMember of the Supervisory BoardDeputy Chairman of the Management Board, Mosoblbank (independent director, Chairman of the Risk Committee of BPS-Sberbank)

10. PiotR A. FiLiPPoVMember of the Supervisory BoardManaging Director, Head of Strategic Planning Centre, Sberbank of Russia

Committees of the Supervisory Board

In connection with amendments of the Articles of Association introduced in April 2013, the Risk Committee and the Audit Committee of the Supervisory Board were established and have been operating for the recent 3 years.

Risk Committee

The Risk Committee is a continuously operating collective body of the Supervisory Board of the Bank and acts in accordance with the Regulation on the Risk Committee of the Bank. The objectives of the Risk Committee are provision of implementation of the Bank’s risk management strategy. The main task of the Committee is provision of due preparation of resolutions of the Supervisory Board on risk management issues by means of detailed study of the issues and drafting of the necessary recommendations. Meetings are held when


44

necessary but not less than once per quarter. In 2015, 4 meetings of the Risk Committee were held.

In accordance with the Regulation, the Committee performs the following functions:• Internal monitoring of fulfillment of the strategy and resolutions of the Supervisory

Board of the Bank in relation to the risk profile and risk tolerance;• Assessment of efficiency of the Bank’s risk management system;• Quarterly revision of reports of the Chief Risk Officer on the status of the risk

management system and the degree of risks assumed by the Bank;• Presentation of recommendations on risk management issues, improvement of the

risk management system, including those on the basis of assessment of efficiency of the Bank’s risk management system, to the Supervisory Board for review;

• Quarterly presentation of the report on the status and results of operation of the risk management system of the Bank, to the Supervisory Board for review.

The Risk Committee considered the following issues within its scope of authority in 2015:

• Quarterly reports of the Chief Risk Officer on the status of the risk management system and the degree of risks assumed by the Bank, based on quarterly results;

• The draft of the List of risk parameters determining the tolerable (secure) degree of risks, for the purpose of financial stability and long-term functioning of BPS-Sberbank (risk tolerance);

• The report of the Risk Committee to the Supervisory Board of the Bank on the status and results of operation of the risk management system of the Bank in 2015.

Audit Committee

The Audit Committee of the Bank was established to assist the Supervisory Board in controlling the effectiveness of the internal control, corporate governance and internal audit systems. The Committee is in charge of general management and support of the internal control system, the internal audit system of the Bank, as well as selection of and arrangement of communication with the external auditors of the Bank.

In 2015, the Audit Committee regularly monitored and controlled:

• The internal audit process;

• Arrangement of work of the Bank’s officer in charge of internal control;

• Organization of compliance control and control of activities in the sphere of combatting money laundering, terrorist financing and financing of proliferation of mass destruction weapons.

Throughout the year, the independent director communicated with the Internal Audit Department and the Internal Control and Compliance Department of the Bank in order to perform the objectives of organization of the internal audit and internal control in the Bank.


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The Audit Committee executed:

• Current monitoring and control of arrangement of the internal control system and procedures by the Bank’s management, for the purpose of effective activity in the areas including reporting, monitoring of compliance with the law of the Republic of Belarus and local regulations of the Bank;

• Monitoring of execution of resolutions of the Supervisory Board and recommendations of the Audit Committee in relation to the internal control system, by the Bank’s management.

In the reporting year, the Audit Committee and the Supervisory Board regularly reviewed the audit revision reports and the activity of the Internal Audit Department, reports of the officer responsible for internal control and control in the sphere of combatting money laundering, terrorist financing and financing of proliferation of mass destruction weapons, and resolved other issues related to arrangement of the internal control system.

The Audit Committee selected audit companies to carry our independent external audit of the financial statements of the Bank.

By order of the Audit Committee, the Bank assessed the work on elimination of discrepancies and application of recommendations resulting from the independent external audit of financial statements of the Bank, revisions carried out by the Internal Audit Department of the Bank, Revision Commission of the Bank, and the National Bank of the Republic of Belarus.

Due to amendments to the legislation of the Republic of Belarus in the sphere of corporate governance, in December 2015 the members of the Audit Committee changed and included 4 members of the Supervisory Board.

In accordance with the Articles of Association, on March 28, 2016 the General Meeting of Shareholders elected the new members of the Supervisory Board, with the respective changes in the number of members and personalities.

New members of the Supervisory Board since March 28, 2016

1. PiotR P. PRoKoPoViCHChairman of the Supervisory Board Chairman of the Entrepreneurship Development Council of the Republic of Belarus

2. VaSIlI S. MaTyUSHeVSKIDeputy Chairman of the Supervisory Board First Deputy Prime Minister of the Republic of Belarus (representative of the state)

3. SVeTlaNa a. SaGaIDaKDeputy Chairman of the Supervisory BoardDeputy Chairman of the Management Board, Sberbank of Russia

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4. GRIGORIy M. aNaSHKINMember of the Supervisory BoardSenior Managing Director for Foreign Banks, Finances, Sberbank of Russia

5. aleKSey V. aFaNaSyeVMember of the Supervisory BoardHead of Principal Financial Division, Minsk City Executive Committee (representative of the state)

6. PaVel S. BaRCHUGOVMember of the Supervisory BoardSenior Managing Director – Director of International Financial Planning and Control Division, Sberbank of Russia

7. aleKSaNDR a. VeDyaKHINMember of the Supervisory BoardSenior Vice-President, Sberbank of Russia

8. KONSTaNTIN a. KOlPaKOVMember of the Supervisory BoardDeputy Chairman of the Management Board, Mosoblbank (independent director, Chairman of the Risk Committee of BPS-Sberbank)

9. NaTalIa N. laZaReVaMember of the Supervisory BoardSenior Managing Director, International Operations, Sberbank of Russia

10. lIUDMIla P. POPOVaMember of the Supervisory BoardIndependent directorChair of the Audit Committee of BPS-Sberbank

11. PiotR A. FiLiPPoVMember of the Supervisory BoardManaging Director, Deputy Head of Strategy Development and Implementation Division, Strategy and Development Department, Sberbank of Russia

Members of the Management Board of the Bank as of December 31, 2015

In accordance with the Articles of Association, in 2015 the Management Board of the Bank was the executive collective body in charge of current activity management. Throughout the reporting year, meetings of the Management Board were held in accordance with the schedule of the Board, comprising 40 meetings held and 753 issues reviewed.

The membership of the Management Board did not change in the reporting year.


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1. ViKtoR V. PEREPELitSAActing Chairman of the Management Board

2. VlaDIMIR N. KOleDaMember of the Management BoardSenior Deputy Chairman of the Management Board

3. OleG V. BORODKOMember of the Management BoardDeputy Chairman of the Management Board

4. aNaTOlIy V. BORISeVICHMember of the Management BoardDeputy Chairman of the Management Board

5. VIKTOR V. VaSIlIUKMember of the Management BoardDeputy Chairman of the Management Board

6. lIlIya M. aSTaPOVICHMember of the Management BoardExecutive Director

7. aleKSey a. MOZZHUKHINMember of the Management BoardExecutive Director

Committees of the Bank

Certain authority of the Management Board was delegated to the established committees, which does not contradict the law.

Assets and Liabilities Management Committee

The Assets and Liabilities Management Committee is a continuously functioning collective body that acts on the basis of the Regulation on the Assets and Liabilities Management Committee of BPS-Sberbank. In its activities, the Committee reports to the Management Board of the Bank and is headed by Chairman of the Management Board.

The objective of the Committee is implementation of the Bank’s Strategy by development of optimal managerial decisions related to management of assets and liabilities, liquidity and market risks.

In 2015, 62 meetings were held to review 379 issues.


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Large Credit Committee

The Large Credit Committee is a collective work body of the Bank acting on the basis of the Regulation on the Large Credit Committee of BPS-Sberbank, and reports to the Management Board of the Bank.

The objective of the Large Credit Committee is improvement and implementation of the lending policy maintained by the Bank in relation to corporate customers from the Largest, Large and Medium segments.


Small Credit Committee

The Small Credit Committee is a continuously functioning collective body of the Bank acting on the basis of the Regulation on the Small Credit Committee of BPS-Sberbank.

The purpose of its establishment is adoption of decisions on lending operations with legal entities and individual entrepreneurs meeting the criteria of Micro and Small segments, and consideration of other issues related to execution and monitoring of credit operations with small customers and individuals.


Information Technologies Committee

The Information Technologies Committee is the collective body to draw and adopt the most important conceptual decisions in the area of automation and informatization of the Bank’s activity, acting on the basis of the Regulation on the Information Technologies Committee of BPS-Sberbank.

The objective of the Committee is establishment and implementation of the uniform policy in the area of automation and informatization of the Bank’s activity, minimization of bank risks related to introduction and use of banking information technologies.

Impaired Assets Committee

The Impaired Assets Committee is the collective body of the Bank acting on the basis of the Regulation on the Impaired Assets Committee of BPS-Sberbank. It is headed by Chairman of the Management Board.

The Committee was established in the framework of creation of an effective management of overdue corporate exposure of the Bank in accordance with the standards of the parental bank, and adopts decisions on selection of optimal strategies to settle impaired assets.


Procurement Committee

The Procurement Committee of the Bank is the collective body acting on the basis of the Regulation on the procedure of procurement of goods (work, services) in BPS-Sberbank.


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The Committee was established for arrangement and execution of procurement for amounts exceeding 20,000 reference values, and coordination of work on arrangement and execution of procurement of goods (work, services) in the Bank.

The Procurement Committee determines the procedure of selection of the supplier (contractor, vendor) in procurement of goods, work, services, exclusive or other material rights for objects of intellectual property, and permits (rights, licenses) for the use of such objects at own cost of the Bank.


Expert Project Committee

The Expert Project Committee of BPS-Sberbank is the collective body acting on the basis of the Regulation on the Expert Project Committee of BPS-Sberbank.

The Expert Project Committee adopts decisions on the issues related to arrangement of execution of the Bank’s project. The objective of the Committee is assistance in implementation of the Bank’s Strategy in relation to transformations executed in the form of projects.


Audit Commission

In accordance with the Articles of Association of BPS-Sberbank, in order to execute internal control over financial and economic activity of the Bank, the General Meeting of Shareholders elected the Audit Commission comprising three members. The Audit Commission is elected for the period until the next General Meeting of Shareholders.

The Audit Commission assesses authenticity of accounting and reporting data on financial and economic activity and correct recognition in the accounting (financial) statements and other documents.

Members of the Audit Commission elected by the General Meeting of Shareholders of BPS-Sberbank on March 31, 2015 and March 28, 2016, remained unchanged:

OlGa e. SHIRyaeVaLead AuditorInternal Audit Division, Sberbank of Russia

OleG N. PODOlyaKDirector of Internal Audit Department, BPS-Sberbank

VIKTOR l. TSINGOVaTOVExpert, International Development Coordination Division, Sberbank of Russia


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Internal control system

The Bank established and effectively uses the internal control system taking into account the requirements of the regulatory and controlling authorities of the Republic of Belarus, approaches of Sberbank of Russia, the management bodies of the Bank, recommendations of the Basel Committee on Banking Supervision in relation to organization of internal control.

The internal control system of the Bank is developed with regard to generally accepted international approaches including establishment of the controlling environment, measures for management of risks and opportunities, measures for implementation of control procedures, information systems and communications, measures for monitoring and independent review.

The internal control is executed by:

• Supervisory Board,

• Management Board of the Bank,

• Audit Commission of the Bank,

• Audit Committee,

• Collective work bodies of the Bank (committees),

• Structural divisions,

• Functional units including the Internal Audit Department, the Internal Control and Compliance Department,

• The Bank’s employees of all levels including officers responsible for internal control and risk management, practices and procedures for avoidance of the Bank’s involvement in illegal financial operations.

In accordance with the Articles of Association of the Bank, the Internal Audit Department is in charge of internal audit and revises the Bank’s activity, including the internal control system and the risk management system, as well as assessment of efficiency of business processes. The Department reports to the Supervisory Board of the Bank.

The officer responsible for internal control:

• Coordinates and controls the activity of divisions, functional units and officers of the Bank in execution of internal control;

• Develops local regulations stipulating the policy, methodology and procedures of the internal control system in the Bank;

• Provides for drawing management reports on the status of the internal control system of the Bank, submits the reports to the Supervisory Board, the Audit Committee, and the Management Board of the Bank,

• Informs the Management Board and the Supervisory Board about detected problems, actual or potential risks, violations in the Bank’s activities, and threats to its interests.

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Authorized capital

The authorized capital of the Bank in 2015 remained unchanged, and as made BYR 735 850 million as of 01.01.2016. The capital is divided into 1 470 828 888 common shares and 871 112 preference shares with the face value of BYR 500 each.

The share of Sberbank of Russia in the share structure remained unchanged and made 98,43%, the remaining share falling on state-owned companies by 0,0028% and other legal entities and individuals by 1,57%. The total number of shareholders of the Bank is 13 966 legal entities and individuals.

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Compliance with prudential requirementsset by the National Bank of the Republic of Belarus

No. ItemRequirement set by the National Bank 01.01.2016

1 Minimum regulatory capital (BYR million) 497 700,0 4 881 769,4

2 liquidity ratios

2.1 Instant Not less than 20% 433,2%

2.2 Current Not less than 70% 211,3%

2.3 Short-term Not less than 1,0 1,3

2.4 Liquid to total assets Not less than 20% 36,0%

3 Capital adequacy ratios

3.1 Regulatory Not less than 10% 12,4%

3.2 Core Not less than 5% 7,7%

Risk concentration limitsMaximum credit exposure

4 Per single borrower (group of related borrowers)

Not more than 25% of the regulatory capital 25,0%

5 5.1

5.2

Per insider and related persons: Individual

Legal entity

Not more than 2% of the regulatory capital

Not more than 15% of the regulatory capital

0,1%7,1%

6 Funds placed in countries not included into Group A


aggregate risk value

7 For legal entity insiders and related persons, and individual insiders and related legal entities


8 For individual insiders and related individuals

Not more than 5%of the regulatory capital 1,7%

9 Aggregate large risk exposure Not more than 6-fold amount of the regulatory capital 3,2

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No. ItemRequirement set by the National Bank 01.01.2016

10 Retail funding to risk-limited assets of the Bank Not more than 1 0,8

11 Aggregate open position for all foreign currencies and precious metals

Not more than 105%of the regulatory capital 5,5%

12 Aggregate participation of the Bank in authorized capitals of all commercial companies


13 Aggregate participation of the Bank in authorized capitals of commercial com-panies with the main activity not being banking and/or financial business


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IFRS performance results of BPS-Sberbank Group

In spite of material deterioration of macroeconomic conditions in 2015, BPS-Sberbank group managed to gain certain financial results. In comparison with 2014:

• Net profit increased by 2,8 times and reached BYR 190,4 billion (in 2014: BYR 68,4 billion);

• Operating income before provisioning for impaired interest generating assets made BYR 5 020,2 billion, after 1,6-fold growth (in 2014: BYR 3 197,2 billion);

• Operating costs increased by 4,5%, operating cost to income ratio (CIR) reduced to 43% in comparison with 64,6% in 2014;

• Interest margin grew by 0,8% and reached 7,8%;

• Aggregate income increased by 115,7% and made BYR 199,6 billion;

• Aggregate assets increased by 18%;

• Core capital adequacy ratio for 2015 made 14,6%.Following the conservative loan loss provisioning strategy, in 2015 the Group allocated

BYR 2 765,1 billion into loan loss reserves.Growth of the cost of risk by 7,8% to 9,4% was attributed to the necessity of creation

of reserves for loans nominated in foreign currencies in the result of devaluation of the Belarusian roubles, and total deterioration of the corporate and retail customer loan portfolio caused by the economic slowdown.

Main performance indicators of the Group

2015 2014

Change in 2015

to 2014, % 2013 2012

annual indicators, ByR billion

Operating income before provisioning 5 020,3 3 198,9 +57 2 918,5 2 987,4

Loan loss reserves 2 765,1 428,3 +546 63,1 425,3

Operating income 2 250,8 2 770,6 -19 2 878,8 2 588,5

Operating expense 2 160,0 2 066,1 +4,5 1 854,1 1 617,2

Profit before tax 122,1 287,0 -57,5 684,0 467,7

Net profit 190,4 68,4 +178 446,9 317,6


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2015 г. 2014 г.

Change in 2015

to 2014, % 2013 г. 2012 г.

Ratios as of december 31, ByR billionNet corporate loans 26 145,4 23 732,6 +10 23 963, 4 24 563,6

Net retail loans 1 665,6 1 813,6 — 1 622,6 1 318,7

Loan loss reserves 3 886,1 1 323,4 +194 1 102,6 1 214,7

Gross customer loans 31 697,3 27811,1 +14 26 688,6 27 097,0

Total assets 47 094,4 39 907,1 +18 41 090,8 43 165,6

Corporate funding 10 231,6 9 904,9 +3 10 003,5 12 451,7

Retail funding 18 223,4 12 310,5 +48 10 669,2 10 521,0

Total liabilities 42 565,7 35 577,5 +20 36 747,6 39 508,1

Total own funds 4 528,7 4 329,4 +5 4 343,2 3 657,5

Capital for calculation of capital adequacy ratio in accordance with Basel Accord

5 543,7 5 048,5 +10 5 103,8 4 272,9

Financial ratios, %Return on equity (ROE) 4,3 1,6 +2,7 11,2 9,0

Return on average annual assets (ROA) 0,4 0,2 +0,2 1,1 0,8

Spread (profitability of assets less cost of borrowings) 8,5 8,5 +0,0 7,9 10,8

Net interest margin (net interest income to average annual interest income generating assets)

7,8 7,0 +0,8 5,9 7,4

Operating cost to income ratio before provisioning (CIR) 43,0 64,6 -21,6 63,5 54,1

Net customer loans to deposits ratio (LDR) 97,7 115,0 -17,3 123,8 112,7

Capital adequacy ratios, %Tier 1 capital adequacy ratio 11,2 12,1 -0,9 11,6 9,1

Tier 1 and 2 total capital adequacy ratio 14,6 15,2 -0,6 14,8 11,7

Equity to total assets ratio 9,6 10,9 -1,3 10, 6 8,5

Quality of assetsNPL share in the loan portfolio, % 10,0 2,4 +7,6 1,7 1,1

Loan loss reserves to NPLs, x 1,2 2,0 -0,8 2,4 4,1

Loan loss reserves to gross loan portfolio, x 12,3 4,9 +7,4 4,1 4,5

In preparation of the IFRS consolidated financial statements of the Group for 2012-2014, IAS 29 “Financial Reporting in Hyperinflationary Economies” was applied. Financial performance indicators of the Group in 2012-2014 were recalculated in accordance with the standard and shown in purchasing power prices at the end of 2014.

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analysis of the consolidated profit and loss statement

Net interest income

Net interest income before loan loss provisioning increased in the reporting year by 34,3% and made BYR 2 770,0 billion. The growth was underpinned by the volume and the interest rate factors. Retail funding was an exception, since the cost of funding decreased in 2015.

Factor analysis of income/expense

Volume factorInterest rate

factorChange of interest income/expense

assets, ByR million

Corporate loans 392 413 761 279 1 153 692

Retail loans 13 863 110 959 124 822

Interbank loans 15 085 7 097 22 182

Investments available for sale 459 855 (375 868) 83 987

Investments held to maturity (12 784) 3075 (9709)

Change of interest income 868 432 506 542 1 374 974

liabilities, ByR million

Due to the National Bank of the Republic of Belarus 6725 78 745 85 470

Due to corporate customers 9260 220 367 229 627

Due to retail customers 383 288 (177 843) 205 445

Due to other banks (71 483) 179 920 108 437

Debt securities issued 64 072 (25 115) 38 957

Change of interest expense 391 862 276 074 667 936

Change of net interest income 476 570 230 468 707 038

The table shows average annual values of assets and liabilities of the Bank’s group and interest income/expense generated by each item of the financial status report, as well as average annual profitability/cost.

Interest income increased in 2015 by 29,1% and made BYR 6 092,1 billion. Out of the total interest income volume, 84% of income falls on corporate loans.

Interest expense increased in 2015 by 25,2% and made BYR 3 322,1 billion. Main components of interest expense remain interest expense on retail and corporate funding which is one of the main funding sources. Their shares in the total interest expense amount make 41,3% and 31,2%, respectively.

The volume of average annual interest income generating assets increased in 2015 by 20,2%. The average annual interest expense generating liabilities increased by 8,0%. The average cost of funding and borrowing grew by 1,2%.

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Against instability in the economy of the country, the efficiency ratios of the main business of the Bank related to funds placement and attraction remained at the level proving high effectiveness of this business.

Based on performance results in the reporting year, the net interest spread corresponded to the level of 2014 and made 8,5%, while the net interest margin grew to 7,8 % (7,0% in 2014).

2015 2014

Average annual value

Interest income/ expense

Average profitability/

cost, %

Average annual value

Interest income/ expense

Average profitability/

cost, %

assets, ByR million

Corporate loans 27 472 768 5 158 588 18,8 25 021 115 4 004 896 16,0

Retail loans 1 810 662 587 137 32,4 1 757 949 462 315 26,3

Investments available for sale 4 172 545 249 917 6,0 1 106 371 165 930 15,0

Interbank loans 1 781 742 80 584 4,5 1 306 384 58 402 4,5

Investments held to maturity 115 109 15 894 13,8 229 904 25 603 11,1

Total interest income generating assets 35 352 826 6 092 120 17,2 29 421 723 4 717 146 16,0

Loan loss reserves (2 604 771) — — (1 212 958) — —

Assets not generating interest income 10 752 716 — — 12 290 167 — —

total assets 43 500 771 — — 40 498 932 — —

liabilities, ByR million

Due to the National Bank of the Republic of Belarus 724 597 105 033 14,5 539 230 19 563 3,6

Due to corporate customers 10 068 307 1 037 488 10,3 9 954 210 807 861 8,1

Due to retail customers 15 266 993 1 371 384 9,0 11 489 848 1 165 939 10,1

Due to banks 10 719 559 657 010 6,1 12 325 676 548 573 4,5

Debt securities issued 1 360 704 151 173 11,1 866 155 112 216 13,0

Total interest expense generating liabilities 38 140 160 3 322 088 8,7 35 175 119 2 654 152 7,5

Liabilities not generating interest expense 931 447 — — 987 460 — —

Total liabilities 39 071 607 — — 36 162 579 — —

Net interest spread1 — — 8,5 — — 8,5

Net interest margin2 — — 7,8 — — 7,0

1 Net interest spread (calculated as the difference between the average profitability of interest income generating assets and the average cost of interest expense generating liabilities).2 Net interest margin (calculated as the ratio of net interest income to average annual interest income generating assets).

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Interest rates on corporate loans increased less than those on deposits, in order to avoid evolvement of negative trends in the productive sector of the economy. Interest rates on retail loans materially increased at the beginning of 2015 against the backdrop of devaluation expectations of the population.

Loan profitability dynamics (all currencies, %)

1Q 2014 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015

Interest incomefrom retail loans

Interest incomefrom total loans

Interest incomefrom corporate loans

17,9 16,5 16,2 16,020,4 19,4 19,1 18,8

19,2 17,8 17,8 17,621,9 21,2 20,8 20,8

25,8 24,5 25,3 26,3

35,233,9 33,2 32,4


Customer funding cost dynamics (all currencies, %)

1Q 2014 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015

Retail fundingCorporate funding

9,0

9,0 8,98,2 8,3

8,08,9

8,7

10,7

9,4

8,48,1

13,0

11,5

9,710,3

At the end of 2014 crisis events in the Russian economy aggravated, and sharp devaluation of the Russian rouble occurred. In connection with increased risks in the economies of Russia and Belarus, the Belarusian banking system faced liquidity shortage, and material growth of interest rates on attracted funding was seen. In order to reduce pressure on the foreign exchange market, the interest rates on deposits in the local currency were increased to 50% p.a. at the beginning of 2015.

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Net non-interest income

Net non-interest income made BYR 2 250,9 billion and thus almost doubled in comparison with 2014 – the increase made 98,2%. Main growth was attributed to operations with foreign currency.

Net non-interest income, BYR million

2015 2014 Change, %

Income from services and fees 1 674 256 1 543 256 8,5

Cost of services and fees (393 832) (399 204) (1,3)

Net profit from disposal of investments available for sale 291 (23 349) (101,2)

Net profit from operations with foreign currency and foreign exchange derivatives, net profit from revaluation of foreign currency

936 894 (70 018) (1438,1)

Net profit from operations with precious metals and term transactions with precious metals, net profit from revaluation of precious metals

(280 164) (46 657) 500,5

Result from disposal of the subsidiary (33 161) — —

Depreciation of non-circulating assets held for sale (6251) — —

Other provisioning 577 1622 (64,4)

Other income 352 291 130 222 170,5

Total non-interest income 2 250 901 1 135 872 98,2

Net fee and commission income of the Bank’s group in 2015 increased by 11,9% and reached BYR 1 280,4 billion. The structure of fee and commission income remained unchanged, with the major growth provided by plastic cards operations (15,6%), cash and settlement operations with customers (16,0%), cash collection services (27,9%), and agency fees (27,9%).

Reduction of fees on transactions with foreign currency by 42,7% was attributed to the decision of the regulating authority to execute transactions of purchase and sale of foreign currency on the over-the-counter basis. Due to that, fee and commission income of the Bank earned from operations of foreign exchange trade by order of customers at the Belarusian Currency and Stock Exchange markedly dropped.

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Income from services and fees, BYR million

2015 2014 Change Change, %

Other operations with payment cards 488 515 422 440 66 075 15,6

Salary credit and payout via card accounts 304 519 331 599 (27 080) (8,2)

Cash and settlement operations with customers 287 688 247 985 39 703 16,0

Agency fees 216 728 179 514 37 214 20,7

Documentary operations 166 894 152 468 14 426 9,5

Cash collection and delivery 105 069 82 166 22 903 27,9

Operations with foreign currency 63 962 111 723 (47 761) (42,7)

Operations with securities 22 458 4795 17 663 368,4

Interbank settlements 496 327 169 51,7

Other 17 927 10 239 7688 75,1

Fee and commission expense (393 832) (399 204) 5372 (1,3)

Net fee and commission income 1 280 424 1 144 052 136 372 11,9

Net profit from operations with foreign currencies and precious metals in 2015 made BYR 656,7 billion.

Operations with foreign currencies and precious metals, BYR million

2015 2014 Change, %

Net trade operations 883 416 249 126 255

Net exchange rate differences (1 728 517) (828 826) 109

Net profit from operations with foreign exchange derivatives 1 831 995 509 682 259

Total net profit/(loss) from operations with foreign currencies 936 894 (70 018) 1338

Net loss from operations with precious metals (36 750) (7344) 400

Revaluation of financial precious metals (1 144 397) (486 122) 135

Net profit from operations with derivatives in pre-cious metals 900 983 446 809 102

Total net loss from operations with precious metals (280 164) (46 657) 500

Total net profit from operations with foreign currencies and precious metals 656 730 (116 675) 563

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Net profit from operations with foreign currency in 2015 made BYR 936,9 billion.

Weakening of the Belarusian rouble in 2015, currency structure of assets and liabilities of the Bank’s group determined negative exchange rate difference in the amount of BYR 1 728,5 billion. Negative influence of exchange rate fluctuations was compensated by realized profit from trade operations in the amount of BYR 883,4 billion and foreign exchange derivatives in the amount of BYR 1 832 billion.

The Bank’s group uses swap deals with foreign currencies and precious metals to regulate liquidity and attract long-term resources in order to provide financing to the productive sector of the economy.

Net loss from operations with precious metals made BYR 280,1 billion.

In 2015 and 2014, financial precious metals were attracted in order to conclude long-term swap deals “precious metals/ foreign currency” and “precious metals/ Belarusian roubles” to finance lending operations in the productive sector of the economy. The structure of income and expense on operations with precious metals follows this pattern: loss from revaluation of attracted funds and income from operations with derivatives. In 2014, non-realized positive revaluation of derivatives with precious metals made BYR 446,8 billion. Realized gains from the short-term swap “Gold/ Belarusian roubles” closed in 2015 made BYR 900,9 billion.

Operating costs

Operating costs of the Bank’s group grew in 2015 by 4,5% to BYR 2 159,9 billion.

The main item of operating costs is staff expense which made 45,3% of all operating expenses. However, in comparison with 2014 the staff expense reduced by 11,4% and made BYR 978,9 billion.

Operating costs, BYR million


Staff expense 761 662 858 357 (96 695) (11,3)

Allocations to the Fund for Social Protection of Population 205 087 233 156 (28 069) (12,0)

Other staff expense 11 450 12 460 (1010) (8,1)

Total staff expense 978 199 1 103 973 (125 774) (11,4)

Operational and financial lease 208 125 93 571 114 554 122,42

Maintenance of software systems 201 222 94 667 106 555 112,56

Maintenance of buildings and equipment 186 775 262 994 (76 219) (28,98)

Amortization and depreciation 186 519 186 319 200 0,11

Taxes, except for income tax 66 886 94 151 (27 265) (28,96)

Stationery 53 291 30 266 23 025 76,08

Advertising 35 367 41 687 (6320) (15,16)

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Utilities 35 248 26 297 8951 34,04

Security 35 183 37 913 (2730) (7,20)

Transport and fuel 16 254 13 028 3226 24,76

Legal advisory and other consultation services 12 885 11 542 1343 11,64

Telecommunications 11 585 9905 1680 16,96

Charity and sponsorship 6641 7550 (909) (12,04)

Other expense 125 798 52 197 73 601 141,0

Other operating costs 1 181 779 962 087 219 692 22.8

Total operating costs 2 159 978 2 066 060 93 918 4,5

Other items of operating costs increased by 22,8% mainly due to growth of rental fees by 122,4% and software maintenance costs.

Growth of rental fees was attributed to the conclusion of the agreement of sale of own buildings with back financial and operating lease in 2014. Actually, the costs thereunder had been incurred since January 2015.

Growth of software maintenance costs was attributed to acquisition and update of the Bank’s software: CRM network was developed, SAP platform was introduced.

A positive trend is that operating cost to income ratio before provisioning (CIR) made 43,0 %, and thus reduced in comparison with 2014 by 21,6% (2014: 64,6%).

Loan loss provisioning costs grew in 2015 up to BYR 2 765,1 billion against BYR 428,3 billion in 2014, and the provisioning rate grew from 4,9% to 12,3%, respectively.

Loan loss reserves, BYR million

2015 2014 Change, %

Loan loss reserves as of January 1st 1 323 364 1 102 551 20

Annual provisions 2 765 131 428 290 545,6

Non-performing assets written off (202 318) (53 031) (281,5)

Effect from adjustment to hyperinflation — (154 446) (100)

loan loss reserves of as December 31st 3 886 177 1 323 364 193,7

Main reasons of credit risk growth were deterioration of the macroeconomic situation in the country and the neighbouring economies (Russia, Ukraine, Kazakhstan), and corporate loan loss provisioning in foreign currency due to continuing devaluation of the Belarusian rouble.

63


analysis of the consolidated statement of financial condition

General trends

In 2015, the assets of the Bank’s Group increased by 18% and reached BYR 47 094 billion. Loans to customers occupy the biggest share in the assets structure: their share as of 01.01.2016 reduced by 5% and made 59%.

In the result of acquisition of governmental bonds by the Bank, the share of securities in the assets as of the year end increased by 11% up to 15%. The securities portfolio grew up to BYR 7 205 billion. It mainly consists of long-term governmental bonds in foreign and the local currencies and is used for liquidity management.

The share of liquid assets including cash and advances to other banks made 13%.

Customer loans

The gross loan portfolio of the Bank’s Group in 2015 increased by 18% and reached BYR 31 697 billion. The share of corporate loans in the total loan portfolio slightly grew and made 94,5% (2014 – 93,1%).

Growth of the loan portfolio before loan loss provisioning was attributed to reassessment of the loans in foreign currencies due to devaluation of the Belarusian rouble.

Share assets, %

Customer loans Liquid assets OtherSecurities

2014

64%

14%

18%

4%

2015

59%

13%

13%

15%

64

The share of the loans in foreign currencies increased from 66,8% to 73,2% the year before.

Retail lending in foreign currencies is prohibited in accordance with Resolution of the National Bank of the Republic of Belarus.


Customer loans distribution by currency, BYR billion

12 000

10 000

8000

6000

4000

2000

0

2015 2015

Corporateloans

2014

Corporateloans

Retailloans

2014

Retailloans

RUB

EUR

USD

BYR

Other

Customer loans, BYR million

2015 2014

Change, %amount% of

amount amount% of

amount

Corporate commercial loans 14 010 607 44,2 11 904 241 44,3 17,7

Corporate special loans 15 930 186 50,3 13 100 502 48,8 21,6

Corporate loans 29 940 793 94,5 25 004 743 93,1 19,7

Consumer and other retail loans 779 645 2,5 900 301 3,4 (13,4)

Credit cards and overdraft loans 274 515 0,9 279 232 1,0 (1,7)

Retail mortgage loans 626 132 2,0 607 839 2,3 3,0

Retail car loans 76 228 0,2 77 432 0,3 (1,6)

Retail loans 1 756 520 5,5 1 864 804 6,9 (5,8)

Total customer loans 31 697 313 100,0 26 869 547 100,0 18,0

65


In the challenging economic environment and reduction of real disposable income of the population, the Group adhered to somehow conservative lending policy in order to avoid deterioration of the loan portfolio quality. The gross retail loan portfolio reduced by 5,8% in the reporting year and made BYR 1 756 billion at the end of 2015. Along with that, the Bank preserved all kinds of retail loans in its product line.

Loan portfolio quality

The loan loss reserve coverage of the loan portfolio before provisioning as of the end of the reporting year made 12,3%. NPL coverage by reserves remained comfortable in 2015 – 122%.

Securities portfolio

The securities portfolio is represented by long-term governmental securities by 98,4%, and is used for liquidity management purposes.

Securities portfolio, BYR million

2015 2014

BYR million Share, % BYR million Share, %

Long-term governmental securities 7 089 255 98,4 1 071 968 78,9

Bonds issued by Belarusian banks 61 621 0,9 43 651 3,2

Eurobonds issued by the Ministry of Finance of the Republic of Belarus — — 208 990 15,4

Bonds issued by municipal authorities 22 355 0,3 9 872 0,7

Total debt securities 7 173 231 99,6 1 334 481 98,2

Shares 32 139 0,4 24 843 1,8

Total securities 7 205 370 100,0 1 359 324 100,0

All debt securities available for sale are recognized at their fair value. In the majority of cases the fair value is determined on the basis of market quotations valid as of the reporting date. If market quotations were unavailable, standard evaluation models were applied with the use of open market data.

66

Analysis of liabilities

The structure of liabilities of the Group is mainly represented by retail and corporate funding totaling BYR 28 455 billion or 67% of the liabilities value as of 31.12.2015.

In 2015, the Group increased the volume of issued corporate bonds by BYR 1 053 billion (2,5-fold growth in comparison with 2014).

Due to banks

Funds due to banks are mainly represented by support from the parental bank (Sberbank of Russia), making 65,5% and 64,4% in the total volume of interbank borrowings at the end of 2015 and 2014, respectively.


Due to banks, %

Corporatefunding

Due to banks OtherRetailfunding

20152014

35%

28%

9%

28%

43%

23%

10%

24%

67


Customer funding

Customer funding in 2015 increased by 28,1% up to BYR 28 455 billion. The volume of retail funding was increasing more actively, which led to the growth of retail funding by 9% up to 64%.

Customer funding, BYR million

2015 2014

BYR million Share, % BYR million Share, %

Retail funding

Current/call accounts 2 855 147 10 2 221 815 10

Term deposits 15 368 307 54 10 088 717 45

Total retail funding 18 223 454 64 12 310 532 55

Corporate funding

Current/call accounts 2 989 760 11 3 270 358 15

Term deposits 7 241 926 25 6 634 570 30

Total corporate funding 10 231 686 36 9 904 928 45

total 28 455 140 100 22215460 100

Customer funding structure by currency, BYR billion

14 000

12 000

10 000

8000

6000

4000

2000

0

2015 2015

Corporate funding

2014

Corporate funding Retail funding

2014

Retail funding

Preciousmetals

Other

RUB

EUR

USD

BYR

68

Taking into account devaluation of the local currency, the share of foreign currencies in retail deposits remained high and increased by 17,8% in comparison with 2014, reaching 89,6%.

The share of foreign currency funding in the corporate funding structure grew from 49,3% to 64,3% in 2015.


69

equity

Equity of the Group increased by 5% and reached BYR 4 529 billion. The growth was attributed to profit from the Group activities.

Equity, BYR million


Authorized capital 3 217 563 3 217 563 — —

Income from share issue 5 763 5 763 — —

Fixed assets revaluation reserve 267 283 284 923 (17 640) (6)

Investments revaluation reserve 16 710 7547 9163 121

Retained profit 1 021 421 813 564 207 857 26

Total share capital 4 528 740 4 329 360 199 380 5

Minor participation share — 229 (229) (100)

Total equity 4 528 740 4 329 589 199 151 5

In 2015, for the purpose of liquidation of the non-core subsidiary, the Bank sold 98,7% of shares of the agricultural company Narochanskaya Niva 2004 LLC for the total amount of BYR 35 million and terminated recognition of the minor participation share on its books.

Capital adequacy

Capital adequacy, BYR million

2015 2014

Tier 1 capital, ByR million

Authorized capital 3 217 563 3 217 563

Income from share issue 5763 5763

Retained profit 1 021 421 813 564

Total Tier 1 capital (core capital) 4 244 747 4 036 890


70

2015 2014

Tier 2 capital, ByR million

Fund for revaluation of office buildings 267 283 284 923

Fund for revaluation of investments available for sale 16 710 7547

Applicable subordinated loan 1 015 000 719 116

Total Tier 2 capital 1 298 993 1 011 586

Total capital 5 543 740 5 048 476

Risk-weighted assets 37 955 344 33 232 124

Core capital adequacy ratio(Tier 1 capital / Risk-weighted assets), % 11,2 12,1

Total capital adequacy ratio(Total capital / Risk-weighted assets), % 14,6 15,2

In 2015, the core capital adequacy ratio made 11,2%, the total CAR made 14,6%, which by far exceeds the minimum ratio set by the Basel Committee (8%).

The Group manages its capital in order to comply with the requirements of the law and provide for continuity of business, while maximizing profit for the shareholders by optimization of the balance of liabilities and capital of the Group.

Share of Sberbank of Russia in the authorized capital of the Bank is 98,43%.


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Контакты и реквизиты

Contacts and details

Full name

BPS-Sberbank (Open Joint-Stock Company)

Abbreviated business name

BPS-Sberbank

Legal address: 6, Muliavin Blvd., Minsk 220005, Belarus

Phone: 148 (+375 29) 5 148 148 – for international calls

Fax: (+375 17) 210 03 42

Telex: 252410AVAL BY

Web: www.bps-sberbank.by

E-mail: [email protected]

BIC: 153001369

S.W.I.F.T.: BPSBBY2X

OKPO: 00040583

UNP: 100219673

ОКОNH: 96120

Documents

ANNUAL REPORT BPS-SBERBANK