Embed Size (px)
Citation preview
ANNUAL
REPORT
2006
JSC «OSCHADBANK»
1. Address of the Chairman of the Management Board
of the Bank to Customers 2
2. Members of the Management Board of JSC Oschadbank 3
3. Organisational Structure of JSC Oschadbank 5
4. Bank’s Performance Results 6
5. Deposit Transactions 11
6. Lending Business of the Bank 13
7. Correspondent Network and Transactions with Other Banks 19
8. Transactions with Securities 21
9. Corporate Client Services of the Bank 22
10. State Securities Service Transactions 25
11. Cash Turnover, Transactions, and Collection Organisation 27
12. Foreign Exchange Transactions 30
13. Card Transactions 32
14. Risk Management 37
15. Application of Information Technologies 40
16. Human Resources 41
17. Branch Network 42
18. Licences and Permits 45
19. Opinion of Independent Auditors 46
20. Profit and Loss Account 49
21. Balance Sheet 50
22. Addresses of Branches - Regional Directorates 52
Table of Contents
ANNUAL REPORT 2006
Dear ladies and gentlemen,
We are proud that the State Savings (Oschadny) Bank of Ukraine is one of the largest fi nancial institutions of Ukraine, a bank of the national scale.
The year 2006 was quite successful for Oschadbank. It has not only retained its positions among Top 10 leading Ukrainian banks, but also received a profi t of UAH 145 million (or 7 times as much as in 2005). The credit portfolio grew substantially under circumstances of the market competition development: the mortgage and car lending programmes started operating actively.
The nomination of Oschadbank as the bank authorised to maintain accounts of the Energorynok (Energy Pool) has defi nitely become a symbolic event of the year. Since November 2006, the bank has been performing instructions of the Cabinet of Ministers of Ukraine related to the maintenance of accounts of members of the wholesale electrical energy market. In addition, the bank has continued providing systemic services at a state-of-the-art level to such major corporate customers as the Pension Fund of Ukraine, Energoatom, and Ukrtelekom.
The bank’s team of employees consisting of 38,000 people is a precious resource of the bank. Our specialists are selfl essly working in 6,147 offi ces, of which 44.4% are located in rural areas.
An important task for Oschadbank is the provision of the stable banking service to individuals. The Bank keeps assisting the government with the implementation of state social and economic development programmes that concern almost any citizen of Ukraine.
The bank will keep developing in the future as a universal bank, implement novel banking technologies, and providing services to businesses and individuals in all regions of the country. That is why our slogan says: “Oschadbank is always close to you”.
We consider the reliability in resolving problems of the national level, the responsibility in issues of the social protection of individuals, the balanced and effi cient decisions, and the principled adherence to the law to be the major principles of our business.
We are sincerely grateful to our respected customers and business partners for their trust, which is the most important condition of the success in banking. We hope that we will effi ciently co-operate in the future on a large scale.
SincerelyChairman of the Management BoardChairman of the Management Board
2
ANNUAL REPORT 2006
Anatoliy Guley
Sergiy Oleksandrovych Podrezov, Deputy Chairman of the Board of
Management
Anatoliy Ivanovych Guley, Chairman of the Board of Management
Roman Mykolayovych Mahuta, First Deputy Chairman of the Board
of Management
Vasyl Danylovych Buryak, Deputy Chairman of the Board of Management
3
ANNUAL REPORT 2006
2. Members of the Management Board of JSC Oschadbank
Hryhoriy Vasyliovych Borodin, Deputy Chairman of the Board of Management, Head of Luhansk Oblast Branch
Oleksandr Dmytrovych Hryshko, Deputy Chairman of the Board
of Management, Director of the Retail Business Department
Anatoliy Ivanovych Solodovnik, Deputy Chairman of the Board of Management, Director of the IT Department
4
ANNUAL REPORT 2006
Members of the Management Board of JSC Oschadbank
3. Organisational Structure of JSC Oschadbank as of 01.01.2007
Asset and Liability Management Committee
Financial committee
Tariff and Product Policy
Committee
SUPERVISORY COUNCIL
BOARD OF MANAGEMENT
HEAD OFFICE
Branches (oblast directorates), Main Directorate for the City of Kyiv and Kyiv
Oblast, Crimean Republican Directorate (25 offices)
BRANCHES/OUTLETS – 394 offices
Geographically separatedoutlets – 5728 offices
Tender committee
Credit committee
5
ANNUAL REPORT 2006
As a result of its operation in the year 2006, the bank increased its net assets by 21.8% or UAH 2,075,100,000 to the level of UAH 11,590,400,000.
The interest-bearing liabilities accounted for 79.7% of the bank’s liabilities. They grew during the reporting year in absolute terms by UAH 1,196,700,000 to UAH 9,232,900,000. The percentage share of term deposits and funds raised from other banks (mainly as collateral for short-term interbank loans) increased in the liabilities structure of the bank.
The term deposits increased by UAH 692,500,000 or 48.4%. Their share grew by 3.3 per cent to 18.3%.
Funds of individuals grew by 26.8% or UAH 1,569,500,000 to UAH 7,432,200,000, thus accounting for 80.5% of the interest-bearing funds.
The amount of funds raised from other banks grew by UAH 575,100,000, and their share in net liabilities more than doubled and amounted to 7.9%.
The share of accounts payable almost halved in com-parison with the beginning of the year to 3.6%.
The share of the equity of the bank (capital) in the liabilities structure almost doubled (from 8.2% to 15.5%) mainly due to the revaluation of fixed assets from 0.3% to 7.8%. The book capital grew over the year 2006 by UAH 1,015,800,000 to UAH 1,791,400,000. Its structure changed toward the reduction of the share of the autho-rised capital from 90.6% to 40.3% in the amount of UAH 722,000,000.
4. Bank’s Performance Results
6
ANNUAL REPORT 2006
The Bank is adequately capitalised. The regulatory capital of the bank determined on the basis of require-ments of resolution of the Board of the National Bank of Ukraine No. 397 of 27 October 2005 grew by UAH 111,000,000 to UAH 878,500,000. The regulatory capital adequacy ratio amounted to 11.31%.
The structure of the bank’s assets improved in 2006 due to the increase in the share of loans granted to cus-tomers. The interest-bearing assets grew by 20% or UAH 1,425,600,000 since the beginning of the year to UAH 8,571,200,000, and accounted for 74% of the net assets.
65,9%
15,0%
8,2%
6,2%
3,6%
1,2%
18,3%
53,5%
15,5%
7,9%
3,6%
1,3%
Banks
Current accounts
Term deposits
Accounts payable
Other
Capital
Liabilities Structure as of 01 January 2006
7
ANNUAL REPORT 2006
Liabilities Structure as of 01 January 2007
The credit portfolio of the bank (including interbank loans and off-balance-sheet commitments) grew during the reporting year by a factor of 2.5 or UAH 3,916,800,000 to UAH 6,482,500,000. Off-balance-sheet commit-ments of the bank grew by UAH 611,300,000 to UAH 667,900,000.
The outstanding amount of retail loans (without the reduction by the actual provisions amount) doubled since the beginning of the year (grew by UAH 1,393,100,000 to UAH 2,696,300,000).
The outstanding amount of loans to business entities
Fixed and intangible assets
Cash Non-government securities
Corporate loansc
Loans to banks
Accounts receivable and other assetsFunds on the correspondent account with the NBU
Debt securities refinanced by the NBU and securities issued by the NBU
Retail loans
Banks
Fixed and intangible assets
CashNon-government securities
Corporate loans
Loans to banks
Accounts receivable and other assetsFunds on the correspondent account with the NBU
Debt securities refinanced by the NBU and securities issued by the NBU
Retail loans
Banks
Fixed and intangible assets
CashNon-government securities
Corporate loans
Loans to banks
Accounts receivable and other assetsFunds on the correspondent account with the NBU
Debt securities refinanced by the NBU and securities issued by the NBU
Retail loans
Banks
Fixed and intangible assets
Cash Non-government securities
Corporate loansc
Loans to banks
Accounts receivable and other assetsFunds on the correspondent account with the NBU
Debt securities refinanced by the NBU and securities issued by the NBU
Retail loans
Banks
Assets Structure as of 01 January 2006
40,1%
10,9%
12,6%
7,3%
5,3%
5,1%3,7%
13,3%
0,3%
1,5%
16,3%
22,8%
12,7%
9,2%
14,6%
5,4%
1,1%5,0%
11,3%
1,7%
8
ANNUAL REPORT 2006
Assets Structure as of 01 January 2007
and state authorities (without the reduction by the actual provisions amount) grew by a factor of 2.5 or by UAH 1,065,800,000 to UAH 1,760,400,000.
The share of loans granted to customers increased considerably in the structure of net assets (taking into ac-count the reduction by the amount of the booked provi-sions), namely as follows: retail loans by a factor of 1.7 (to 22.8%); corporate loans by a factor of 3.4 (to 12.7%).
The bank continued investing funds into debt se-curities refinanced and issued by the National Bank of Ukraine in order to ensure the reliability and stability, as well as to diversify assets in order to reduce the risks. These investments amounted to UAH 1,893,400,000 as of the end of the year 2006.
The share of the balance of the correspondent ac-count with the National Bank of Ukraine dropped by 5.9% or by UAH 453,200,000; the cash balance went down by 1.9% and UAH 64,100,000 respectively over the year 2006.
The amount of the operating income of the bank ver-sus the year 2005 grew by 44.7% or UAH 319,300,000 to UAH 1,033,000,000. Its structure shifted toward the in-crease in the share of net interest income, which amounted to 57.3%.
The net interest income of the bank increased by 82.4% and amounted to UAH 592,300,000. The net com-mission income reached the figure of UAH 322,100,000, the trading income amounted to UAH 45,700,000, and the other income amounted to UAH 72,900,000. The overheads of the bank totalled UAH 799,400,000.
The operating profit of the bank amounted to UAH 233,600,000.
The major share thereof (11%) was spent on provi-sioning for asset transactions.
9
ANNUAL REPORT 2006
The provisions for possible losses under asset trans-actions were booked by the bank in full and amounted to UAH 484,700,000. Their share in net assets dropped by 1% to 4.2%.
The net profit amounted to UAH 145,300,000 or 7.2 times as much as in the year 2005.
In 2006, offices of JSC Oschadbank provided con-siderable volumes of cash and payment services to both corporate and individual customers, namely:
● the bank processed UAH 15.1 billion in utility pay-ments from individuals to legal entities or UAH 3.0 billion or 25.3% more than in 2005;
● the bank disbursed UAH 10.2 billion in salaries and other revenues to the individuals via individual cur-rent accounts, or UAH 2.3 billion or 28.8% more than in the year 2005;
● the bank disbursed UAH 20.4 billion in pensions and unemployment benefits, or UAH 4.7 billion or 29.6% more than in the year 2005. As of 1 January 2007, the number of pensioners receiving their pensions via JSC Oschadbank grew by 110,000 to almost 2,300,000.
Thanks to that, the non-interest revenues of the bank grew by 13% to UAH 441,000,000, or 42.7% of the oper-ating income in the year 2006 on a year-to-year basis.
The Bank has been maintaining the liquidity at a high level.
In the year 2006, the amount of the profit tax and other statutory fees, dues and charges to the state bud-get and state special-purpose funds amounted to UAH 250,300,000 and was 57% larger than in the year 2005.
10
ANNUAL REPORT 2006
In 2006, Oschadbank offered the individuals 18 term deposit products, including 10 deposit products in the domestic currency (namely, “Depozytny Oschadnoho Banku”, “Strokovy Pensiyny Oschadnoho Banku”, “Arse-nal Oschadnoho Banku”, “Dytiachy Oschadnoho Banku”, “Nakopychuvalny Oschadnoho Banku”, “Shkilny Os-chadnoho Banku”, “Novy Vidsotok Oschadnoho Banku”, “Avansovy Oschadnoho Banku”, “Osoblyvy Oschadnoho Banku”, “Nakopychuvalny Zhytlovy Oschadnoho Banku”) and 8 foreign-currency deposit products (namely, “Depo-zytny Oschadnoho Banku”, “Strokovy Pensiyny Oschad-noho Banku”, “Arsenal Oschadnoho Banku”, “Dytiachy Oschadnoho Banku”, “Nakopychuvalny Oschadnoho Banku”, “Novy Vidsotok Oschadnoho Banku”, “Avansovy-15 “Novy Vidsotok Oschadnoho Banku”, “Nakopychuval-ny EURO Oschadnoho Banku”).
The share of the retail deposits in the structure of funds raised by the bank (disregarding interbank loans) is the highest and amounted to 89.3% as of 01 January 2007.
The largest amount of savings of individuals was raised to the “Strokovy Pensiyny Oschadnoho Banku” deposits, whose conditions are among those most fa-vourable.
The “Arsenal” deposits characterised by the possibil-ity of the use of a certain portion of funds lodged to the account and the payment of the increased interest was introduced for the military pensioners being the target customer group of the bank.
An Exclusive service package was developed in or-der to create special conditions for providing services to the bank’s customers.
The funds of depositors have also been raised to the domestic and foreign-currency current accounts, and pension current accounts, as well as demand deposits
5. Deposit Transactions
11
ANNUAL REPORT 2006
“Pensiyny+” and “Universalny Oschadnoho Banku” in the foreign currency.
In 2006, the savings of individuals deposited with the bank grew by UAH 1,569,543,000 and amounted to UAH 7,432,152,000 as of 01 January 2007; the domestic currency funds increased by UAH 1,341,117,000 to UAH 6,791,051,000, while the foreign currency funds grew by UAH 228,417,000 to UAH 641,101,000.
The balance of demand deposits grew by UAH 877,511,000 to UAH 5,325,355,000 as of 01 January 2007, while the balance of term deposits grew by UAH 692,023,000 to UAH 2,106,797,000.
8 000 000
(kUAH)
7 500 0007 000 0006 500 0006 000 0005 500 0005 000 0004 500 0004 000 0003 500 0003 000 0002 500 0002 000 0001 500 0001 000 000
500 0000
01.01.200101.01.2000
935 945 1 272 965
2 109 572
2 814 2983 443 087 3 459 679
5 862 618
7 432 152
01.01.2002 01.01.2003 01.01.2004 01.01.2005 01.01.2006 01.01.2007
Balances of Individual Savings in JSC Oschadbank
12
ANNUAL REPORT 2006
Offices of JSC Oschadbank had been providing retail loans under 11 standardised lending products in order to satisfy the needs of the current and prospected customers of the bank during the year 2006: “Retail new car loan”, “Retail loan for the housing purchase on the secondary real estate market”, “Consumer loan secured with one mortgage object”, “Retail loan for the purchase of industrial goods in retail networks”, “Retail loan for the purchase of energy conservation commodities”, “Save and get a loan for vacation”, “Retail lending against surety”, Retail lend-ing for the housing purchase on the primary real estate market”, “Retail refinancing loan in Oschadbank”, “Retail lending on security of precious metal products and scrap”, “Lending to young people”.
The Bank plans for the further increase in the retail credit portfolio by implementing new products and improv-ing the lending conditions under the existing products.
The growth of the retail credit portfolio amounted in 2006 to UAH 1,422,577, which is UAH 846,896,000 or 68% more than in the previous year. As of 01 January 2007, the retail credit portfolio (including off-balance-sheet commit-ments) amounted to UAH 2,751,457,000 or, without the off-balance-sheet commitments, to UAH 2,696,331,000. The retail off-balance-sheet credit commitments grew over the year 2006 by UAH 29,198,000 to UAH 55,126,000.
JSC Oschadbank is planning for the further expan-sion of the retail credit portfolio by offering new lending products and programmes.
6. Lending Business of the Bank
13
ANNUAL REPORT 2006
3 000 000
2 800 000
2 600 000
2 400 000
2 200 000
2 000 000
1 800 000
1 600 000
1 400 000
1 200 000
1 000 000
800 000
600 000
400 000
200 000
01.01.2000
64 356 93 408151 650 218 401
354 663
741 466
1 303 251
2 751 457
01.01.2001 01.01.2002 01.01.2003 01.01.2004 01.01.2005 01.01.2006 01.01.2007
0
(kUAH)
Offices of the bank granted retail loans totalling UAH 2,870,452,000, which is by UAH 1,443,938,000 or 101.2% more than in the year 2005 (UAH 1,426,514,000). The loan repayments totalled UAH 1,477,372,000, which is by UAH 612,643,000 or 70.8% less on a year-to-year basis (UAH 864,729,000). The bank entered into 350,528 lending agreements with individuals during the reporting year, which is 57,169 or 19.5% more than a year ago (293,359). The average statistical amount of a retail loan per borrower amounted to UAH 6100 or UAH 2600 more than in 2005.
Retail Credit Portfolio Trends
14
ANNUAL REPORT 2006
The overdue and contingent debt under retail loans amounted to UAH 67,790,000 as of 01 January 2007 and accounted for 2.5% of the retail loan portfolio. This figure is higher by UAH 19,088,000 or 39.2% than the 2005 figure. The share of this indicator in the total amount of outstanding loans of individuals dropped by 1.2% over the year. The amount of the standard debt under loans grant-ed to individuals from 01 January 2006 till 01 January 2006 grew by UAH 1,070,914,000 or 104.0%, while the non-standard debt grew by UAH 322,165,000 or 117.7%, namely: the watch loans totalled UAH 293,956,000 or 144.2% more; the substandard loans totalled UAH 17,758,000 or 64.8% more; the contingent loans totalled UAH 4,680,000 or 32.8% more; the bad loans totalled UAH 5,771,000 or 20.4% more.
Довгострокові
Короткострокові
Позабалансові зобов`язання
Сумнівні
Прострочені
Long-term loans
Short-term loans
Off-balance sheet commitments
Contingent loans
Overdue loans
1,0%
90,2%
1,4%
2,0%
5,4%
Structure of the Retail Credit Portfolio by Maturity as of 01 January 2007
15
ANNUAL REPORT 2006
In 2006, the bank continued with the active efforts aimed at the acquisition of new corporate customers. Various lending arrangements and loan types were used taking account of the needs and manufacturing process features of the companies: overdraft, working capital loans, multi-currency credit lines, etc.
According to the balance-sheet data, the corporate credit portfolio (including off-balance-sheet credit com-mitments) grew by UAH 1,638,200,000 or 225.8%. The corporate credit (portfolio including off-balance-sheet credit commitments) amounted to UAH 2,363,700,000 as of 01 January 2007, including: UAH 1,760,400,000 in loans on the bank’s balance sheet and UAH 603,300,000 in off-balance-sheet corporate credit commitments.
The loans granted to corporate customers by Os-chadbank’s offices over the year amounted to UAH 2,734,300,000, including: UAH 103,400,000 - overdraft loans, UAH 2,496,000 - working capital loans; UAH 72,600,000 - investment loans; and UAH 62,300,000 - mortgage loans.
The amount of term loans grew by 40.9% over the year (from 42.3% as of 01 January 2006 to 83.2% as of 01 January 2007). The amount of contingent and over-due corporate loans in the network of the bank dropped by UAH 105,100,000 or 40.9%.
The long-term loans account for 42.2% of the total corporate credit portfolio; the short-term loans account for 41.1%, and the contingent and overdue debt accounts for further 16.8%.
The share of negatively categorised assets in the corporate credit portfolio dropped by 38.6% as of 01 Jan-uary 2007 versus 01 January 2006. The absolute drop in the amount of the contingent and bad debt of the year totalled UAH 78,982,000.
16
ANNUAL REPORT 2006
Corporate business
The balance of loans granted to agricultural product manufacturers amounts to UAH 197,1000,000 or 11.0% of the total credit portfolio. The share of loans granted to agricultural companies dropped by 11.3% (from 22.3% as of 01 January 2006).
The structure of the portfolio of loans to corporate customers and state authorities by economy sectors as of 01 January 2007 is provided below:
17
ANNUAL REPORT 2006
Виробництво та розподілення електроенергії, газу, пари та гарячої води
Оптова торгівля і посередництво в оптовій торгівлі
Сільське господарство, мисливство та пов`язані з ним послуги
Будівництво та операції з нерухомістю
Виробництво автомобілів, причепів та інших транспортних засобів
Діяльність наземного транспорту та транспортні послуги
Роздрібна торгівля; ремонт побутових виробів та предметів особистого вжитку
Виробництво харчових продуктів, напоїв
Виробництво гумових та пластмасових виробів
Інші галузі економіки
Electrical energy, gas, steam and hot water production and distribution
Wholesale trade and mediation in wholesale trade
Agriculture, hunting and related services
Construction and real-estate transactions
Manufacture of cars, trailers and other vehicles
Ground-based transportation business and transportation services
Retail trade, repair of household objects and personal items
Production of foods and beverages
Production of rubber and plastic articles
Other sectors of economy
12,96%
23,66%
14,41%
11,00%10,44%
9,85%
7,26%
3,61%4,44%
2,36%
Electrical energy, gas, steam and hot water production and distribution
Wholesale trade and mediation in wholesale trade
Agriculture, hunting and related services
Construction and real-estate transactions
Manufacture of cars, trailers and other vehicles
Ground-based transportation business and transportation services
Retail trade, repair of household objects and personal items
Production of foods and beverages
Production of rubber and plastic articles
Other sectors of economy
As of 01 January 2007, offices of the bank entered into 1,817 corporate loan agreements or 388 more on a year-to-year basis. The total interest income on corporate loans amounted to UAH 122,200,000 over the reporting year.
Co-operation with state institutions
The loans granted to state authorities in the year 2006 totalled UAH 200,000. The loans to state authori-ties equalled UAH 500,000 as of 01 January 2007. The bank received the interest income on these loans in the amount of UAH 30,500.
18
ANNUAL REPORT 2006
The network of correspondent accounts of JSC Oschadbank fully covers both the payment needs of the bank’s customers, and own needs of the bank. As of 01 January 2007, JSC Oschadbank maintained correspondent relations with 64 banks in 15 countries of the world. There are 37 non-resident banks among the correspondents of Oschadbank, including 23 banks from CIS and Baltic coun-tries.
The correspondent network of JSC Oschadbank relies on 90 nostro and 85 vostro accounts.
The balances of nostro correspondent accounts to-talled UAH 1,069,000,000; those of vostro accounts totalled UAH 23,000,000 as of 1 January 2007.
The bank has been active on the interbank money mar-ket of Ukraine and remained one of the major market mark-ers contributing to the stable development of the interbank market. The bank has been widely using all the available money market instruments.
The intensification of the co-operation with finance and credit institutions not only expands the bank’s opportunities for using the interbank market for liquidity management pur-poses, but also contributes to the expansion of the range of transactions performed as a part of complex banking ser-vices. Oschadbank strives for establishing long-term part-nership relations with all banking counterparties.
The interbank money market lending and borrowing transactions were carried out taking account of risks and the value mainly for the purposes of optimising the liquidity fluctuations.
The co-operation with counterparty banks was based on the General Agreements on the Interbank Market Transactions. JSC Oschadbank concluded into General Agreements with 112 resident and 24 non-resident banks as of 01 January 2007.
7. Correspondent Network and Transactions with Other Banks
19
ANNUAL REPORT 2006
JSC Oschadbank’s Credit Committee set interbank transaction limits for 132 resident banks and 48 banks of ex-USSR and other countries.
The average daily portfolio of interbank loans of VAT Oschadbank in 2006 amounted to UAH 1,039,000,000; the balance of funds on correspondent accounts with other banks amounted to UAH 660,000,000.
The preference was given to overnight and short-term loans in the course of the lending on the interbank market. JSC Oschadbank lent funds both on the domestic money market of Ukraine, and on international markets. The do-mestic currency funds accounted for 59% and the foreign currency funds accounted for 41% of the funds placed on interbank money markets.
The funds were raised on the interbank market dur-ing the year 2006 mainly as collateral for granted inter-bank loans. The average daily borrowing amounted to UAH 450,000,000; the foreign currency borrowing prevailed with the share of 98% in the overall borrowing structure.
As of 01 January 2007, the funds lent to other banks totalled UAH 2,426,000,000 (including UAH 390,000,000 in repo transactions and UAH 914,000,000 in funds borrowed from other).
Interbank loans were obtained and provided at rates that matched the average level of market rates for transac-tions in relevant currencies with relevant maturities.
The income of JSC Oschadbank from transactions on the interbank money markets amounted to UAH 98,245,040 (including UAH 17,460,040 from repo transactions); the ex-penses totalled UAH 19,347,770; the net interest income amounted to UAH 78,897,270.
Oschadbank remained an active member of the in-terbank foreign exchange market of Ukraine during the re-porting year. The trading income of JSC Oschadbank from Forex transactions amounted to UAH 1,647,610.
20
ANNUAL REPORT 2006
JSC Oschadbank remained the largest operator of the governmental securities market of Ukraine in 2006. As of 01 January 2007, the par value of the portfolio of govern-mental securities and bonds of local self-government bod-ies amounted to UAH 1,875,250,000; while the par value of the corporate portfolio amounted to UAH 194,000,000.
The portfolio of corporate securities was formed from bonds that have been in demand on the securities market.
The interest income of JSC Oschadbank in 2006 from investments into securities amounted to UAH 273,322,000, including:
● UAH 231,452,000 from governmental securities;
● UAH 1,829,000 from bonds of local self-government bodies;
● UAH 13,590,000 from corporate securities;
● UAH 26,451,000 from certificates of deposit of the National Bank of Ukraine.
The trading income of JSC Oschadbank from trans-actions with securities amounted to UAH 749,000 in the year 2006.
8. Transactions with Securities
21
ANNUAL REPORT 2006
During the reporting year, Oschadbank continued to sup-port the implementation of a number of the state and special-purpose programmes focused on servicing corporate custom-ers and citizens of Ukraine.
In pursuance of Resolution of the Cabinet of Ministers of Ukraine No. 1349 of 12 September 2002 “On Measures to Improve the Pension Finance Management Efficiency”, and Instruction of the Cabinet of Ministers of Ukraine No. 25-r of 21 January 2004 “On Nominating the Authorised Bank to Car-ry out Settlement and Cash Transactions with Monies of the Pension Fund of Ukraine”, the bank services 754 institutions of the Pension Fund of Ukraine. These institutions held 3933 accounts as of 01 January 2007. The payment services have been provided using 864 Client/Bank (PC-banking) software/hardware packages installed by the bank in the Pension Fund offices; the bank has been performing the daily maintenance of the money of the Pension Fund of Ukraine, and provided consolidated reporting files to main directorates of the Pen-sion Fund, the Pension Fund of Ukraine, and the Ministry of Finance of Ukraine. According to the Mechanism of Crediting Accounts Held with the State Treasury of Ukraine with Monies of the Pension Fund of Ukraine No. 01-04/9682/10667/242 of 03 November 2004, the funds have been accumulated during the business day on accounts of directorates of the Pension Fund of Ukraine held with Oschadbank, and then remitted to the account of the Pension Fund of Ukraine held with the State Treasury of Ukraine.
The average daily balance of accounts of offices of the Pension Fund of Ukraine grew amounted in the year 2006 to UAH 259,802,380 or 1.5% more on a year-to-year basis. The average monthly turnover on accounts of the Pension Fund of Ukraine amounted to UAH 24.98 billion (15.6% up versus 2005); and almost 1.9 million transactions were carried out monthly (5.5% up over the year).
9. Corporate Client Services of the Bank
22
ANNUAL REPORT 2006
Oschadbank continued co-operating with UDPPZ Ukrposhta. The accounts of post offices were migrated to Oschadbank for the provision of cash and payment ser-vices in pursuance of the General Agreement between JSC State Savings (Oschadny) Bank of Ukraine and Ukrposh-ta Ukrainian State-owned Postal Communication Enterprise. As of 01 January 2007, the bank held 673 accounts of 224 of-fices of UDPPZ Ukrposhta. The number of UDPPZ Ukrposhta offices (354 offices as of 01 January 2006) dropped versus the year 2005 due to the implementation of item 9.5 of the Decision of the Board of the Ministry of Transport and Communication of Ukraine on the reorganisation of the UDPPZ Ukrposhta post office network approved with Order of the Ministry of Transport and Communication of Ukraine No. 442 of 09 August 2005.
The average daily balance of accounts of UDPPZ Ukrposhta offices dropped by 2.1% versus the year 2005 during the reporting year to UAH 231,109,740 due to the stressed schedule of funding of pension disbursements and the urgent provision of cash for the pension disbursement to post offices. Average monthly turnover of post offices amounted to about UAH 4 billion (5.2% up versus the previ-ous year). The amount of cash issued to post offices for the pension disbursement totalled UAH 45.91 billion in the year 2006 or 3.4% more than in 2005.
JSC Oschadbank continued co-operating with JSC Ukrtelekom. Offices of Oschadbank opened 59 ac-counts for 30 branches of Ukrtelekom and the Main Op-erations Directorate of Oschadbank opened 1 account for JSC Ukrtelekom as of 01 January 2007 in pursuance of the General Agreement on Co-operation and Provision of Banking Services to JSC Ukrtelekom and Branches Thereof between JSC Oschadbank and JSC Ukrtelekom No. 31/3-17-3. The bank ensured the daily provision of con-solidated expanded statements of accounts of Ukrtelekom branches, and the consolidated information on the cash
23
ANNUAL REPORT 2006
flow on accounts of Ukrtelekom branches held with JSC Oschadbank.
The average daily balance of funds on accounts of JSC Ukrtelekom and its branches amounted to UAH 9,088,600, while the average monthly turnover of these accounts amount-ed to about UAH 30,000,000.
Offices of JSC Oschadbank opened 585 current accounts for payments for the ongoing electrical energy consumption with the special utilisation arrangements to the wholesale electrical energy supplier, supplying companies and their structural units on 1 November of the reporting year in pursuance of Resolu-tion of the Cabinet of Ministers of Ukraine No. 1004 of 24 July 2006 “On Nomination of the Authorised Bank to Service Cur-rent Accounts of Members of the Wholesale Electrical Energy Market with the Special Utilisation Arrangements”. In addition, offices of VAT Oschadbank opened 104 current accounts for members of the wholesale electrical energy market as of 01 January 2007, and, in pursuance of specific resolutions and instructions of the government, 91 additional current accounts for energy suppliers, 27 accounts for generating companies and 59 accounts for other parties to settlements. The current and additional account opening process is going on.
The average monthly turnover of funds on accounts of supplying companies and SE Energorynok amounted to al-most UAH 9.9 billion; the average daily balance of funds on these accounts is UAH 238,476,060; there were over 750,000 transactions per month.
Offices of the bank opened and maintained 12 accounts of electoral funds in pursuance of the Law of Ukraine “On Elec-tion of People’s Deputies” and 2199 accounts of electoral funds in pursuance of the Law of Ukraine “On Election of Deputies of the Verkhovna Rada of the Autonomous Republic of Crimea, Local Councils and Village, Town and City Mayors”.
24
ANNUAL REPORT 2006
Laws of Ukraine “On State Guarantees of the Restitution of Savings of Citizens of Ukraine” and “On State Budget of Ukraine for the Year 2006” earmarked UAH 590,000,000 for the disbursement of compensations to citizens of Ukraine for the loss of value by the monetary savings.
The procedure of payments in the year 2006 was defined with Resolutions of the Cabinet of Ministers of Ukraine No. 1091 of 03 August 2006 “On Disbursement in 2006 of Com-pensations for the Loss of Value by Savings and Insurance Premiums of Citizens of Ukraine Deposited in Offices of the Savings Bank of the USSR and State Insurance Offices of the USSR That Operated on the Territory of Ukraine before 2 Jan-uary 1992” and No. 1205 of 15 August 2006 “On Some Issues of the Restitution of Savings to Citizens of Ukraine”.
JSC Oschadbank received the first tranche in pursu-ance of the said resolutions on 31 August in the amount of UAH 50,000,000. Offices of the bank started with the dis-bursement of the compensations to citizens of Ukraine on 01 September 2006.
The Cabinet of Ministers of Ukraine adopted resolution No. 1716 of 13 December 2006 “On Amendment of Resolution of the Cabinet of Ministers of Ukraine No. 1091 of 03 August 2006 with Reallocation of Funds within Their Balances Taking Account for the Reimbursement for Expenses Associated with the Disbursements and the Securities Buy-outs” as a result of the operation during nine months of the year 2006 on the basis of proposals of JSC Oschadbank (Letter No. 34/1-04/16 of 19 October 2006).
The last tranche of UAH 285,000,000 was received by offices of the bank on 19 December 2006, for instance, for the disbursement of the compensation under the State Interest-free Targeted Bonds of the year 1990 for the following commodi-ties: microwave ovens, Minsk, Biriusa and ZIL refrigerators, Zig-Zag sewing machines, Viatka washing machines, house-hold PCs, colour television sets, motorcycles with a sidecar, video tape recorders and mini tractors, as well as Tavria ZAZ 1102 cars and State Treasury Bills of the USSR.
As of 19 December 2006, offices of JSC Oschad-bank received UAH 590,000,000 from the State Budget of
10. State Securities Service Transactions
25
ANNUAL REPORT 2006
Ukraine, including:● UAH 33,000,000 for depositors who have not re-
ceived the savings compensation during 2002-2005 within the balance of the indexed deposit, but not more than UAH 50 per account per depositor;
● UAH 20,000,000 for successors of depositors de-ceased in years 2003 and 2004, or other individuals listed in Article 8 of the Law of Ukraine “On State Guarantees of the Restitution of Savings of Citizens of Ukraine” who have not received the compensation for the loss of value by monetary savings during years 2003 and 2004 within the balance of the indexed deposit in the amount of the state funeral allow-ance, but not more than UAH 150;
● UAH 260,000,000 for successors of depositors de-ceased in the year 2005, or other individuals listed in Ar-ticle 8 of the Law of Ukraine “On State Guarantees of the Restitution of Savings of Citizens of Ukraine” who have not received the compensation for the loss of value by mon-etary savings during the year 2005 within the balance of the indexed deposit, but not more than UAH 500, and those deceased in the year 2006 within the balance of the indexed deposit, but not more than UAH 500;
● UAH 140,000,000 for buying out the State Interest-free Targeted Bonds of the year 1990 for the commodities that have not been purchased during the previous years, namely: microwave ovens, Minsk, Biriusa and ZIL refrigera-tors, Zig-Zag sewing machines, Viatka washing machines, household PCs, colour television sets, motorcycles with a sidecar, video tape recorders and mini tractors, as well as Tavria ZAZ 1102 cars;
● UAH 137,000,000 for holders of State Treasury Bills of the USSR.
As of 01 January 2007, offices of JSC Oschad-bank disbursed compensations in the amount of UAH 256,904,880.34.
The balance of unused budged funds in the amount of UAH 330,032,720.66 was transferred to the State Budget of Ukraine on the last business day of the budget year.
.
26
ANNUAL REPORT 2006
JSC Oschadbank is providing services to more than 118,000 enterprises and organisations of various ownership forms, including:
The number of corporate clients of the bank grew by 3603 or 4.6% in the year 2006. The total number of com-panies and organisations being customers of the bank grew by 2666 or 2.3%.
The cashless credits to current accounts of indi-
Господарські організації
Профспілкові, громадські та інші організації
Cуб`єкти підприємницької діяльності
Орендарі і фермери
Установи Пенсійного фонду
Business organisations
Trade union, public and other organisations
Sole traders
Lessees and farmers
Pension Fund offices
11. Cash Turnover, Transactions, and Collection Organisation
30,9%
33,0%
0,6%4,7%
30,8%
27
ANNUAL REPORT 2006
viduals held with offices of the bank amounted to UAH 30,619,960,000. The amounts of pensions prevailed with UAH 19,461,290,000 in the structure of cashless credits to current accounts. Almost 2,295,000 pensioners were re-ceiving their pensions via the bank as of 01 January 2007. In addition, almost 926,000 people were receiving allow-ances and other social payments via offices of the bank.
Salaries and equivalent payments are paid via de-posit accounts with offices of the bank to employees of 16,170 enterprises and organisations, of which 9,328 are funded from the state budget.
Cashless payments of individuals to retail, utility and other institutions and organisations are making an impor-tant contribution into reducing the cash turnover. During the year, the individual current accounts held with offices of the bank were debited with UAH 99,620,000 on a cash-less basis, which is UAH 40,228,000 more than in 2005 (an increase by a factor of 1.6).
The bank continued providing services to institutions and organisations, which are funded from the state and local budgets. As of 01 January 2007,181 outlets of Os-chadbank were providing services to offices of the State Treasury and local budgets.
The bank provided cash services to 1710 institutions and organisations funded from the state budget and 1852 organisations funded from local budgets.
The transportation of cash and other valuables in all directions needed by the bank was carried out by the bank’s own cash collection and valuables transportation service. The cash collection and valuables transportation units operate in 447 offices of the bank in almost any dis-trict centre of Ukraine. The whole network of offices of the bank and 4147 corporate customers, including 1100 of-fices of other banks were serviced by the cash collection and valuables transportation units in the reporting year.
28
ANNUAL REPORT 2006
The fact that 78% of business entities serviced by Oschadbank’s cash collection service do not hold current accounts with its offices and are customers of other banks demonstrates the competitive potential of Oschadbank’s cash collection service on this market.
Officers of the service are provided with firearms and means of individual protection for the reliable protection of valuables.
The bank was developing the individual domestic currency transfer services via the bank’s network dur-ing the reporting year. These transfers amounted to UAH 42,482,100 in 2006 or 52.6% more than in 2005. More than 61,000 customers have used this service.
The processing of cash payments is one of the most widespread services of the bank. As in prior years, the cash payment processing transactions were in a great demand among customers. The amount of payments ac-cepted by offices of the bank in the year 2006 totalled UAH 15,088,655,000 or 25.3% more than in the previous year. The rent and utility payments totalled UAH 8,035,843,100 in the total amount of cash payments. The clients made payments in the amount of UAH 1,723,726,200 to bud-gets of various levels and state special purpose funds via offices of the bank. Other payments to legal entities for the commodities sold, services provided and work per-formed by them amounted to UAH 5,329,085,700.
29
ANNUAL REPORT 2006
In order to increase the profitability, the bank focused its activities in the year 2006 on increasing its rating on the banking services market, attracting more customers and implementing novel banking products.
Offices of the bank developed, maintained and controlled a number of non-trading transactions during the reporting year: money transfers via international payment systems, bank transfers, compensatory payments, bureau-de-change transactions, transactions with cheques and bank metals; it also exercised the foreign exchange control agent functions in the course of settlements under export/import contracts of customers and own foreign trade contracts.
Offices of the bank continued making bank transfers in a foreign currency via the network of correspondent banks by involving the network of the bank and using production and labour resources efficiently, as well as transfers via in-ternational payment systems.
As of 01 January 2007, Oschadbank operated 1364 Western Union transfer receipt and disbursement stations; 514 stations were migrated to the new software (MT 2000).
Oschadbank carries out money transfers using the Migom system. The bank opened 120 more stations for the receipt and disbursement of such transfers during the re-porting year (the bank had 825 Migom transfer stations as of 01 January 2007).
The competition on the market of express transfers has intensified; customers migrate to cheaper money transfer systems. Due to this, Oschadbank is paying great efforts to remain competitive.
New agreements were concluded with non-resident banks JSCB Sberbank of Russian Federation and JSCB Sviaz-Bank (13 November 2006) for the performance of ex-press money transfers in order to expand the range of ser-
12. Foreign Exchange Transactions
30
ANNUAL REPORT 2006
vices and to increase the income. The bureau-de-change transactions were carried out
by Oschadbank in US Dollars, Euro, Canadian Dollars, Swiss Francs, English Pounds of Sterling, Russian Rubles, Hungarian Forints, Moldovan Leu, Polish Zloty, and Belaru-sian Rubles.
The bank transacts with cheques and VTM. The trav-eller’s cheque sales volumes during the reporting year amounted to USD 296,000 and EUR 321,000; those of VTP CP cards amounted to USD 241,000. The payments under cheques amounted to USD 3,179,000, EUR 523,000 and GBP 84,000.
Oschadbank paid considerable attention to transac-tions with bank metals in the reporting year. For instance, the amount of the importation of bank metals grew by a fac-tor of 2.8 versus year 2005 and exceeded 1 tonne due to the increase in volumes of such transactions, the expansion of the network of the sale thereof, and the attraction of new customers.
There are plans of the introduction of new types of transactions with bank metals, the expansion of the sales of investment and memorable coins made of precious metals, the involvement of new customers and the improvement of the service quality aimed at expanding the positions of the bank on this banking service market in the year 2007.
Foreign Currency Bank Transfers of Individuals
The performance of transactions in international trans-fer systems Western Union, Migom, Vigo, Travelex Money Transfer, Interexpress and Xpress Money continued during the reporting year. The transfers totalled UAH 1,091,017,100 in the domestic currency equivalent, which is by 37.6% more than in 2005.
31
ANNUAL REPORT 2006
JSC Oschadbank is a principal member of MasterCard International and Visa International payment systems
The following banking products were developed and implemented in 2006:
● Arsenal programme intended for military pensioners who receive pensions via offices of the bank. A credit line can be set for the validity period of the card on the card ac-count opened for a MasterCard Electronic card with Arsenal design;
● a MasterCard Platinum card intended for high net worth customers;
● conditions of the issue of payment cards such as Visa Classic, Visa Gold, MasterCard Mass, MasterCard Gold, MasterCard Platinum within the Exclusive service package (for customers who hold a large deposit with Oschadbank or obtained a large loan from the bank);
● Sviatkovy package conditions that provide for the is-sue of Visa Classic, Visa Gold, MasterCard Mass, Master-Card Gold and MasterCard Platinum cards;
● new conditions of lending to employees of enterprises and organisations under salary projects using MasterCard or Visa payment cards.
The bank continued selling card products focused on the disbursement of the salary to employees of corporate customers (salary cards), pensions and other allowances (pension cards), including the targeted social aid and so-cially oriented payments (social cards), the interest on funds raised on deposits (deposit cards). The range of electronic vouchers sold via the network of Oschadbank’s ATMs was expanded.
Oschadbank has successfully performed the procedure of the registration of licensing agreements concluded with Visa and MasterCard systems in the year 2006 in accor-
13. Card Transactions
32
ANNUAL REPORT 2006
dance with requirements of the National Bank of Ukraine.Today, the bank is an issuer of almost the whole range
of card products of the leading international payment sys-tems of the world (Visa International and MasterCard In-ternational). The number of international payment cards is-sued by the bank in the year 2006 totalled 494,882, and the total issue volume as of 01 January 2007 amounted to 1,370,188 cards (951,769 MasterCard International cards and 418,419 Visa International cards), i.e., it grew by 56% over the reporting year.
Almost 150,000 people were provided with the service of the salary disbursement via card accounts in 2006. The number of pensioners who receive their pension via the bank using cards grew to 130,000.
Holders of payment cards, including cards issued under salary and pension projects, are provided with the possibil-ity of the obtainment of loans: in case of private customers - up to 100% of the deposit; in case of salary projects - up to 500% of the salary; in case of cards of military pensioners - up to 1000% of the due pension; in case of ordinary pen-sion cards - 100% of the due pension. Conditions of lending to card holders secured by means of the financial risk insur-ance were developed.
The credit portfolio volume attributable to card products by UAH 11,450,000 to UAH 18,500,000 as of 01 January 2007 in comparison with the beginning of the year 2006.
The bank’s focus on the further attraction of individu-als to making payments with cards provides for the further expansion of the card acceptance infrastructure. To this end, the bank installed 59 ATMs and 479 POS terminals in the year 2006, and their total number reached 565 and 2425 respectively. In addition, the cash advances under Os-chadbank cards are possible on preferential conditions in the network of ATMs and offices of JSC Ukreximbank.
33
ANNUAL REPORT 2006
The expansion of the acquiring network contributes to the increase in the acquiring turnover. There were 13,672,000 transactions to the total amount of UAH 4,175,636,000 carried out in the bank’s acquiring network during the reporting year.
A sustained trend toward the increase in sales of mo-bile communication electronic top-up vouchers via the net-work of the bank’s ATMs has been observed during the year. The vouchers of such mobile operators as UMC, Kyivstar, Life and Jeans are sold currently via the bank’s ATM network to provide additional services to the holders of cards issued by JSC Oschadbank.
The bank has implemented the service of the online transfer of funds between card accounts of the bank’s customers in the ATM network. The instant ATM transfers simplify the money transfer procedure and provide an al-ternative to the standard procedure of the execution of a transfer via an offi ce of the bank. The transfer can be initi-ated in any point of Ukraine where an ATM of the bank is installed to any card account of the bank’s customer. This
Volumes of Transactions with Electronic Vouchers in 2006
January
0
50 000
100 000
150 000
200 000
250 000
300 000
350 000
February March April May June July August September October November December
34
ANNUAL REPORT 2006
service is widely used by holders of Oschadbank’s cards. The bank opened settlement correspondent accounts
for settlements and MasterCard Intl. and Visa Intl. pay-ment systems with authorised banks of these systems - HSBC Bank, JP Morgan Chase Bank, CitiBank, and JSC Ukreximbank. The correspondent accounts are held in USD, EUR and UAH.
Guarantee deposits were placed with authorised banks of payment systems in order to cover possible fi-nancial risks under card-related payments of the bank.
The following interest income was received on guar-antee deposits during the year 2006:
● on the deposit for MasterCard Intl. – USD 8,774.21;● on the deposit for Visa Intl. – USD 6,639.93.The reimbursement in the foreign currency in the
amount exceeding USD 27,611,000 or UAH 138,796,000 under transactions of customers of non-resident banks via ATMs and outlets of the bank.
The second shift was introduced for the performance of the additional processing of electronic payment docu-ments of regional directorates of the bank after 6.00 p.m. in order to ensure the prompt processing of electronic pay-ment documents for credits of the salary, pensions, schol-arships and other payments under card projects during the reporting year.
The next step toward the improvement of the customer service quality has become the creation of the foundation for the implementation of the 24/7 customer support service in the bank tasked with providing various information on the payment cards, rates of the bank, the location of cash points, the resolution of non-standard situations, etc.
The issues of the security and the risk optimisation become more and more pressing with the increase in the
35
ANNUAL REPORT 2006
issue of payment cards and the volumes of card transac-tions. To this end, the bank has implemented a system for the monitoring and the identification of transactions with elements of possible fraud.
In 2006, MasterCard International completed its reor-ganisation into a joint stock company. As a result, Oschad-bank has finally acquired corporate rights in the form of shares of MasterCard Incorporated.
During the reporting year, the bank has been improv-ing the novel information technologies introduced earlier in order to retain leading positions on the market, ensure the further dynamic development and attain competitive advantage versus other Ukrainian banks.
The bank carried out successful marketing campaigns aimed at the encouragement of the issue of cards of inter-national systems and payments with cards, namely:
● together with Visa: the shopping festival “Visa. Ex-clusive Payment Card of Turin 2006!” and “Act smartly, pay with Visa”. There are two Oschadbank customers among the winners of the “Act smartly, pay with Visa” campaign.
● the raffle of tickets to football games of the Cham-pions League provided by MasterCard was held for mili-tary pensioners receiving their pensions using MasterCard cards with Arsenal design.
36
ANNUAL REPORT 2006
The implementation of the Risk Management Concept approved by the Supervisory Council of the Bank in 2004 continued in 2006. The bank manages its financial risks, such as the market risk (foreign exchange, interest-rate and pricing risks, and the liquidity risk), as well as the credit risk. The Assets and Liabilities Management Committee (here-inafter referred to as the “ALCO”) and the Credit Committee are executive arms of the bank, which determine the policy of the management of financial (market and credit) risks. The Assets and Liabilities Management Committee (ALCO) of the bank determines the policy in the field of the management of assets, liabilities, and market risks of the bank. The day-to-day agenda of the ALCO comprises al-locating the bank’s capital; maintaining the adequate sol-vency from the point of view of the financial risks, managing market risks of the bank and taking managerial actions to bring the bank’s balance-sheet structure in line with its stra-tegic objectives and priorities of the long-term policy. The Credit Committee determines the credit and invest-ment policy, and manages the credit risks of the bank. The major tasks of the committee include the management of the credit and investment portfolio of the bank, setting limits and restrictions on lending transactions, setting credit risk limits and restrictions for specific credit products, curren-cies, structural units, borrowers and borrower groups, as well as types of business activities. The committees operate on a permanent basis; their ac-tivity is focused on reviewing the status of the management of financial risks, the provision of the methodologies, setting of limits and restrictions for asset transactions and finan-cial risks, the control over the compliance therewith, and the making of relevant decisions.
14. Risk Management
37
ANNUAL REPORT 2006
The status of the management of financial risks is regu-larly monitored and controlled by the bank’s internal audit function that provides for the independent analysis and as-sessment of the process of the management of financial risks, the efficiency of the organisation thereof, and the quality of the performance of relevant functions by structural units of the bank, the efficiency of the interaction of structur-al units in terms of the management of financial risks. The internal audit function provides the Board of Management of the bank, the ALCO and the Credit Committee with opinions on the sufficiency and efficiency of the current internal audit system for the compliance with requirements of regulations and internal policies of the bank on the management of fi-nancial risks in the course of banking transactions. The operational risks of the bank were controlled by the internal audit, revision and control functions during the re-porting year. The strengthening of the risk management function at the regional level was one of the priorities of the Risk Manage-ment Concept (hereinafter referred to as “Concept”) in 2006 for the bank. For instance, regional asset and liability man-agement committees (hereinafter referred to as “regional ALCOs”) were established as collegiate and permanent bodies set up by decision of the management board of the bank, vested with certain powers in respect of the ongoing management of assets and liabilities of relevant regional committees. The major objective of the establishment of regional ALCOs was the optimisation of the management of assets and liabilities of regional directorates, and the co-ordination of the work of all structural units and subordinated institu-tions of regional directorates that belong to the ALCO of the relevant region in order to ensure the profitable operation and the management of market risks at the level of regional directorates within the limits and restrictions imposed by the
38
ANNUAL REPORT 2006
Board of Management and the ALCO of the Bank. Structural units that perform risk management functions, and exercise ongoing control over the implementation of, and compliance with, current policies and procedures, the asset and liability, market risk management methodologies at the regional level were set up at the level of regional di-rectorates in accordance with provisions of the Concept. The bank improved the system of the management of its credit, foreign exchange, interest-rate and liquidity risks within the scope of the Concept implementation and on the basis of the organisation of risk management units at the regional level. The bank will be striving for the improvement of the qual-ity of the own credit analysis, the consolidation of the credit discipline in order to substantially improve lending process-es and, hence, raise the lending business of the bank to a much higher level during the nearest years. Major priorities of the bank in this area are the definition and implementation of policies, methodologies, regulations and procedures of the credit risk management, the support to the assessment and monitoring of the whole credit and investment business of the bank (as a whole and at the re-gional directorate level), limits on credit products and lend-ing-related products, other concentration limits, and the per-formance of management actions in respect of bringing the credit and investment business of the bank into conformity with its strategic objectives and business plan. The Concept provides for the strengthening of the risk management function at the regional level during the year 2007, and the implementation of the risk management into credit processes of the bank.
39
ANNUAL REPORT 2006
In order to provide the information support to the imple-mentation of the business plan of the bank, the IT units have performed the work on the development, implementation, support, and maintenance of automated banking systems, automated bank management systems, the development of the corporate wide-area network of the bank and com-munication systems, the continued implementation of the programme of development of the technical platform of the bank, the organisation and the management of information technologies in the year 2006.
The software that makes it possible for offices of Os-chadbank to service accounts of energy market members was developed to expand the range of banking services; the software of the Banking Metal sub-system and Shvydka Kopiyka express transfer system, whose implementation is planned for the year 2007, were developed; additional ac-cess was organised to information resources of networks of third-party organisations and the Internet for the connection of Western Union, PosterPrepaid and Travelex terminals.
A new protected version of TCPFOSS software for the communication with the National Bank of Ukraine was im-plemented; additional balance-sheet branches and outlets were connected to the bank’s wide-area network.
A new version of Oschadbank’s web-site was imple-mented; the process of testing of officers of the bank was organised and supported using a remote training course management system.
The work is going on aimed at the replacement of the obsolete hardware on current workplaces and the provision of the hardware for the new workplaces.
15. Application of Information Technologies
40
ANNUAL REPORT 2006
The human resource management policy, which is aimed at the development of human resources, the creation of professional teams capable of securing the performance of strategic tasks and the high-quality customer service, is in the focus of attention of the bank’s management. The im-provement of the efficiency of the selection and placement of human resources, the training and qualification develop-ment, the enhancement of the motivation and assessment system, and the corporate culture development are among priorities of the human resource management policy.
The bank had 36,411 full-time employees as of 01 Jan-uary 2007. The number of officers directly involved into the customer service was increased by 1053 people during the reporting year due to the strategic objectives of the bank that provide for the consolidation of positions on the bank-ing services market, the high-quality level of the customer service for individual and corporate customers of the bank.
The proportion of specialists with the university-level edu-cation at management positions was 88.5% (or 91.7% includ-ing those studying remotely at universities and colleges).
The comprehensive professional and economic train-ing system that operates in the bank makes it possible to set up the management development reserve, to train and develop specialists both in educational establishments and directly in the bank.
In 2006, 673 people were admitted to universities, 1021 people graduated from universities and 3808 officers of the bank are currently studying in university-level education es-tablishments.
The bank’s specialist training centre held 58 education-al events attended by 1462 officers. Further 280 officers studied at the qualification development courses in spe-cialised higher-education establishments. Moreover, over
16. Human Resources
41
ANNUAL REPORT 2006
27 thousand people study in the professional and economic training schools operating in offices of the bank on a per-manent basis. 3629 tellers and cashiers were trained during the reporting year from among the newly hired officers.
The electronic remote training and testing programme implemented in the bank contributes to enhancing the qual-ity and the efficiency of the training process, and the as-sessment of the professional knowledge level of the offi-cers. 1743 officers were tested during the reporting year, including heads of regional directorates and managers of branch outlets.
The bank highly appreciates the creative approach, the desire and the skill to improve own quality and performance results. In 2006, 11 officers were awarded the Golden Med-al of Merit of Joint Stock Company «State Savings Bank of Ukraine» 31 officers were awarded the Silver Medal of Merit; 65 were awarded the Diploma of Merit, and 24 received the Letter of Gratitude from the Head of the Management Board.
The branch network of Oschadbank has developed during the year 2006 in accordance with the course toward the restructuring of offices by means of the conversion of branches into outlets. This contributed to the development of the financial potential of regional units of the bank and provided the possibility for the implementation of modern technologies, the improvement of the efficiency of the man-agement of the branch network, assets and liabilities, and the human resources of the bank.
The preservation of the bank’s presence in regions and
17. Branch Network 42
ANNUAL REPORT 2006
those banking service markets, where Oschadbank has a considerable market share and stable financial performance results, were in the focus of attention in the context of the identification of branch network development areas during the reporting year.
The bank remains to be a systemic bank with the most widespread branch network. The network provides unique opportunities for the exchange and the dissemination of the positive experience, the introduction of model management structures, products and technologies.
In spite of the fierce competition on the market, Oschad-bank still has substantial advantages versus commercial banks in the field of the provision of services to the popula-tion in various regions of the country due to its widespread network. The branch network is mainly focused on working in the retail segment of the market and makes it possible to deal with the small and medium enterprises.
As of 01 January 2007, the bank’s network comprised 6147 offices, including 394 branches (together with 25 re-gional directorates) and 5728 outlets without balance sheets. The bank keeps improving its outlet location policy trying to bring them closer to places with the highest current and po-tential demand for banking products and services in order to provide the maximum convenience for its customers.
Since most offices of the bank are accommodated in leased premises, and due to the ongoing trend toward the increase in rental rates, 23 offices were purchased by the bank (including 7 for outlets) with the total value of about UAH 15 million during the year 2006 in order to mitigate the risks of the substantial increase in expenses of the bank.
Realising the social importance of the presence of a state-owned bank in the most remote parts of the country and understanding its role in the implementation of state programmes, the management of the bank concentrated its efforts on creating favourable conditions for the customer
43
ANNUAL REPORT 2006
service, the disbursement of compensation payments to in-dividuals, the expansion of the range of the services being provided.
In order to improve the customer service quality and to accelerate the decision making by the management, while retaining the advantages of the centralised management of the branch network development, Oschadbank will ex-pand the powers of its offices and units that deal with cus-tomers directly, and develop a flexible tariff policy taking account of conditions of the economic and social develop-ment of each region.
В сільській місцевості
В містах державного, республіканського, обласного та районного значення
В селищах міського типу
Geographical Distribution of Oschadbank’s Branch Network
2 662
2 731
754
In rural areas
In cities of national, republican, oblast and district significance
In towns
44
ANNUAL REPORT 2006
Joint Stock Company «State Savings Bank of Ukraine» was registered as a legal entity on 31 December 1991 by Pechersk District State Administration in the City of Kyiv (Legal Entity State Registration Certificate AOO No. 038999 of 31 December 1991) and entered into the State Banks Register on 31 December 1991 under No. 4 (JSC Oschadbank Registration Certificate No. 4 issued by the National Bank of Ukraine on 31 December 1991).
The bank performs banking transactions on the ba-sis of banking licence No. 148 of 16 January 2002, permit and permit annex No. 148-2 of 29 April 2002 issued by the National Bank of Ukraine.
In addition, JSC Oschadbank has the following li-cences:
● for the lottery issue and organisation (state instant lotteries) issued by the Ministry of Finance of Ukraine on 14 February 2004 and valid from 23 February 2001 till 23 February 2013;
● for the exercise of the following professional activi-ties on the securities market: securities issue and circula-tion activities; depository activities of a securities custo-dian issued by the State Commission for Securities and Stock Market on 20 June 2005 and valid from 20 June 2005 till 20 June 2010.
18. Licences and Permits
45
ANNUAL REPORT 2006
We audited the annual financial statements of Joint Stock Company «State Savings Bank of Ukraine», Kyiv, Ukraine (hereinafter referred to as the “Bank”) for the year, which ended on 31 December 2006.
These financial statements comprise the balance sheet as of 31 December 2006, the profit and loss ac-count as of 31 December 2006, the equity statement as of 31 December 2006, the cash flow report as of 31 De-cember 2006, the asset and liability maturity structure (liquidity risk) report for the year 2006, the description of important aspects of the accounting policy, and other explanatory notes.
Responsibility of the Management The Management of the Bank is responsible for the
preparation and the adequate presentation of the attached financial statements in accordance with requirements of National Accounting Policies (Standards) (hereinafter referred to as “NAPS”), and requirements of the current legislation. The responsibility of the management covers the following: the development, the introduction and the use of the internal control in respect of the preparation and adequate presentation of financial statements that do not contain substantial distortions caused by fraud or errors; the selection and the application of an appropriate accounting policy, and accounting assessments that are in conformity with circumstances.
Responsibility of the AuditorWe are responsible for providing an opinion on the
annual financial statements on the basis of results of our audit. We carried out our audit in accordance with re-quirements of the Audit Activities Act of Ukraine, Interna-
19. Opinion of Independent Auditors
46
ANNUAL REPORT 2006
tional Audit, Assurance and Ethics Standards of the In-ternational Federation of Accountants, and requirements of the National Bank of Ukraine. These standards require us to adhere to ethical requirements, and to plan and per-form the audit for obtaining the sufficient assurance that the annual financial statements are free from substantial distortions.
The audit envisages the performance of procedures for obtaining the audit evidence in respect of amounts and disclosures stated in the annual financial statements. The choice of procedures depends on the judgement of an au-ditor. Such procedures include the evaluation of risks of substantial distortions of the annual financial statements due to fraud or errors. While evaluating these risks, the auditor considered the internal control measures related to the preparation and the adequate presentation of an-nual financial statements in order to develop audit pro-cedures that match the circumstances. The audit also includes the assessment of the suitability of the applied accounting policy, the acceptability of accounting valua-tions made by the management, and the evaluation of the overall presentation of annual financial statements.
We believe that we have obtained sufficient and ap-propriate audit evidence for expressing our opinion.
The opinion is unconditionally positive.In our opinion, the annual financial statements ad-
equately reflect all substantial aspects of the financial standing of the Bank as of 31 December 2006, its finan-cial performance and cash flow for the year that finished on 31 December 2006 in conformity with the NAPS and the requirements of the current legislation.
47
ANNUAL REPORT 2006
Opinion in Respect of Legislative and Regulatory ActsIn accordance with the current legislation that regu-
lates the banking business, we confirm that:● the information about the value of assets and li-
abilities of the Bank by maturity is full and adequate; the quality of the management of assets and liabilities of the Bank, the quality of the credit portfolio and the securities portfolio, the status of the accounts receivable are suf-ficient within the scope of the Bank’s business and the requirements of the current legislation;
● provisions and the capital of the Bank are adequate, for instance, in terms of the conformity of the structure of the Bank’s capital, funds and provisions with requirements of regulations of the National Bank of Ukraine. The risks of banking transactions with insiders and related parties are assessed adequately.
● accounting, internal audit procedures and control measures of the Bank are in conformity with requirements of regulatory acts of the National Bank of Ukraine;
● the amount of the fixed asset revaluation carried out as of 1 November 2006 is UAH 1,157,364,000, in-cluding the amount of the revaluation of fixed assets that supports the technological performance of banking func-tions and equals UAH 1,105,942,000.
Kyiv, 25 April 2007.S.O. BalchenkoLLC AF “BDO Balans-Audyt”, Director Certificate No. 0000040 valid till 01 January 2010
48
ANNUAL REPORT 2006
Row Item Reporting year Previous year
1 Net interest income 592,275 324,6831.1 Interest income 836,174 530,2061.2 Interest expenses (243 899) (205 523)2 Net commission income 322 140 268 3382.1 Commission income 395 225 333 9072.2 Commission expenses (73 085) (65 569)3 Trading income 45 711 34 3304 Dividend income 0 05 Income from the participation in capital 0 806 Other income 72 888 86 2357 Total income 1 033 014 713 6668 General administration expenses (186 976) (154 480)9 Payroll expenses (552 226) (395 793)10 Losses from the participation in capital (5) (32)11 Other expenses (60 246) (51 332)12 Profit from operations 233 561 112 02913 Net provisioning expenses (25 621) (70 476)14 Income/Expense from long-term assets intended for sale 0 015 Profit before tax 207 940 41 55316 Profit tax expenses (62 644) (21 394)17 Profit after tax 145 296 20 15918 Net profit/loss from the sale of long-term assets intended for sale 0 019 Net profit/loss 145 296 20 15920 Net profit per ordinary share (UAH) 204 642,67 66 312,1121 Adjusted net profit per ordinary share (UAH) 204 642,67 66 312,11
20. Profit and Loss Account as of 31 December 2006 (thousand UAH)
49
ANNUAL REPORT 2006
Row Item Reporting year Previous year ASSETS1 Funds with the National Bank of Ukraine and cash of the bank 1,190,245 1,718,7062 Treasury and other securities refinanced by the National Bank 1,893,438 3,819,552 of Ukraine and securities issued by the National Bank of Ukraine 3 Funds with other banks 2,371,875 1,684,3204 Securities in the bank’s trading portfolio 0 05 Securities in the bank’s portfolio for sale 21,423 26,4656 Loans and outstanding debt of clients 4,111,623 1,614,6977 Securities in the bank’s portfolio 172,284 0 till maturity 8 Investments into associated and subsidiary companies 550 5379 Fixed and intangible assets 1,686,805 505,77610 Accrued income to be received 40 801 51,95911 Deferred tax asset 0 012 Other assets 93 642 85,75113 Long-term assets intended for sale 7 730 7,55214 Total Assets 11 590 416 9,515,315 LIABILITIES 15 Banks 913 811 338,72815.1 including loans obtained from the National Bank of Ukraine 0 12,864,16 Clients 8 440 596 8,283,40217 Certificates of deposit issued by the bank 492 372
21. Balance Sheet as of 31 December 2006 (thousand UAH)
50
ANNUAL REPORT 2006
Row Item Reporting year Previous year
18 Debt securities issued by the bank 0 019 Expenses accrued for payment 137 383 110,68120 Deferred tax liabilities 293 395 2,82021 Other liabilities 13 332 3,73322 Total Liabilities 9 799 009 8,739,736 OWN CAPITAL 23 Authorised capital 722 000 703,00024 Capitalised dividend 1 000 1,00025 Own shares (interests, units) redeemed from shareholders (participants) 0 0,26 Issuance differences 0 027 Reserves and other funds of the Bank 12,508 11,34928 Revaluation reserves, including: 899,570 29,867,28.1 Reserves of the revaluation of non-working assets 899,570 29,86728.2 Reserves of the revaluation of securities 0 029 Retained profit (Non-covered loss) of previous years 11,033 10,20430 Profit/Loss of the reporting year pending approval 145,296 20,15931 Total own capital 1,791,407 775,57932 Total Liabilities 11,590,416 9,515,315
51
ANNUAL REPORT 2006
1. JSC Oschadbank 01023, Kyiv, 12-г Hospitalna Street Tel. (044) 2478569
2. Main Kyiv City and Oblast Directorate 01034, Kyiv, 27 Volodymyrska Street Tel. (044) 2472902
3. Vinnytsia Oblast Directorate 21100, Vinnytsia, 71 Soborna Street Tel. (0432) 326697
4. Volyn Oblast Directorate 43001, Lutsk, 8 Chervonoho Khresta Street Tel. (0332) 776100
5. Dnipropetrovsk Oblast Directorate 49044, Dnipropetrovsk, 9a Klara Zetkin Street Tel. (0562) 356886
6. Donetsk Oblast Directorate 83048, Donetsk, 87-b Universytetska Street Tel. (062) 3815557
7. Zhytomyr Oblast Directorate 10014, Zhytomyr, 15 Peremohy Street Tel. (0412) 220838
8. Zakarpattia Oblast Directorate 88000, Uzhhorod, 15 Corso Street Tel. (03122) 35564
9. Zaporizhzhia Oblast Directorate 69063, Zaporizhzhia, 48 Prospekt Lenina Tel. (061) 2270203
10. Ivano-Frankivsk Oblast Directorate 76018, Ivano-Frankivsk, 14 Hetmana Mazepy Street Tel. (03422) 23336
11. Kirovohrad Oblast Directorate 25006, Kirovohrad, 9 Dekabrystiv Street Tel. (0522) 358431
12. Crimean Republican Directorate 95017, Simferopol, 55-a Kyivska Street Tel. (0652) 510184
13. Luhansk Oblast Directorate 91055, Luhansk, 1 Shevchenka Street Tel. (0642) 344604
52
ANNUAL REPORT 2006
22. Addresses of Branches – Regional Directorates of JSC Oschadbank
14. Lviv Oblast Directorate 79000, Lviv, 9 Sichovykh Striltsiv Street Tel. (032) 2403903
15. Mykolayiv Oblast Directorate 54024, Mykolayiv, 50 Khersonske Shosse Tel. (0512) 560013
16. Odesa Oblast Directorate 65014, Odesa, 17 Bazarna Street Tel. (048) 7773273 17. Poltava Oblast Directorate 36000, Poltava, 22 Kotliarevskoho Street Tel. (0532) 503600
18. Rivne Oblast Directorate 33028, Rivne, 16 Symona Petliury Street Tel. (0362) 267506
19. Sumy Oblast Directorate 40030, Sumy, 32 Horkoho Street Tel. (0542) 215440
20. Ternopil Oblast Directorate 46001, Ternopil, 2 Maidan Voli Tel. (0352) 521382
21. Kharkiv Oblast Directorate 61003, Kharkiv, 22 Konstytutsiyi Square Tel. (057) 7312969
22. Kherson Oblast Directorate 73000, Kherson, 24 Suvorova Street Tel. (0552) 490110
23. Khmelnitsky Oblast Directorate 29000, Khmelnitsky, 46 Kamianetska Street Tel. (0382) 783272
24. Cherkasy Oblast Directorate 18005, Cherkasy, 320 Shevchenko Boulevard Tel. (0472) 360040
25. Chernivtsi Oblast Directorate 58013, Chernivtsi, 244 Chervonoarmiyska Street Tel. (0372) 585576
26. Chernihiv Oblast Directorate 14000, Chernihiv, 19 Prospekt Myru Tel. (0462) 676941
53
ANNUAL REPORT 2006
