Open Joint Stock Company “OTP Bank” Bank...“OTP Bank” (the “Bank”), which comprise the balance sheet as at 31 December 2008, the income statement, the statements of changes

Open Joint Stock Company “OTP Bank” Financial Statements For the Year Ended 31 December 2008

Open Joint Stock Company “OTP Bank” TABLE OF CONTENTS

Page STATEMENT OF MANAGEMENT‟S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE FINANCIAL STATEMENTS 1 INDEPENDENT AUDITORS‟ REPORT 2-3 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008:

Income statement 4 Balance sheet 5 Statement of changes in equity 6 Statement of cash flows 7-8 Notes to the financial statements 9-57

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Open Joint Stock Company “OTP Bank” STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 The following statement, which should be read in conjunction with the independent auditors‟ responsibilities stated in the independent auditors‟ report set out on pages 2-3, is made with a view to distinguishing the respective responsibilities of management and those of the independent auditors in relation to the financial statements of Open Joint Stock Company “OTP Bank”. Management is responsible for the preparation of the financial statements that present fairly the financial position of the Bank as at 31 December 2008, the results of its operations, cash flows and changes in equity for the year then ended, in accordance with International Financial Reporting Standards (“IFRS”). In preparing the financial statements, management is responsible for: Selecting suitable accounting principles and applying them consistently; Making judgments and estimates that are reasonable and prudent; Stating whether IFRS have been followed; and Preparing the financial statements on a going concern basis, unless it is inappropriate

to presume that the Bank will continue in business for the foreseeable future. Management is also responsible for: Designing, implementing and maintaining an effective and sound system of internal controls,

throughout the Bank; Maintaining proper accounting records that disclose, with reasonable accuracy at any time,

the financial position of the Bank, and which enable them to ensure that the financial statements of the Bank comply with IFRS;

Maintaining statutory accounting records in compliance with legislation and accounting standards of the Russian Federation (“RF”);

Taking such steps as are reasonably available to them to safeguard the assets of the Bank; Detecting and preventing fraud, errors and other irregularities. The financial statements for the year ended 31 December 2008 were authorized for issue on 28 May 2009 President of the Bank. On behalf of the Management Board: _________________________ _________________________ President Chief Accountant A.A. Korovin D.I. Karpov 28 May 2009 28 May 2009 Moscow Moscow

INDEPENDENT AUDITORS’ REPORT To the Shareholders and the Board of Directors of Open Joint Stock Company “OTP Bank”: Report on the financial statements We have audited the accompanying financial statements of Open Joint Stock Company “OTP Bank” (the “Bank”), which comprise the balance sheet as at 31 December 2008, the income statement, the statements of changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s responsibility for the financial statements Management of the Bank is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors' responsibility Our responsibility is to express an opinion on reliability of these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor‟s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity‟s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity‟s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Opinion In our opinion, the financial statements present fairly, in all material respects the financial position of the Bank as at 31 December 2008, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. 28 May 2009 Moscow

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Open Joint Stock Company “OTP Bank” INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008 (in thousands of Russian rubles)

Notes Year ended

31 December 2008

Year ended 31 December

2007 Interest income 5,30 12,762,139 8,723,453 Interest expense 5,30 (2,736,032) (2,449,320) NET INTEREST INCOME BEFORE PROVISION

FOR IMPAIRMENT LOSSES ON INTEREST BEARING ASSETS 10,026,107 6,274,133

Provision for impairment losses on interest bearing assets 6 (3,897,191) (2,170,202) NET INTEREST INCOME 6,128,916 4,103,931 Net gain/(loss) on financial assets and liabilities

at fair value through profit or loss 7 1,226,138 (34,890) Net (loss)/gain on foreign exchange operations 8,30 (828,952) 163,853 Fee and commission income 9,30 1,857,952 2,232,833 Fee and commission expense 9,30 (441,688) (250,492) Net realized gain on investments available-for-sale - 5,026 Other provisions 6 19,701 (13,255) Other income 10,30 37,696 27,308 NET NON-INTEREST INCOME 1,870,847 2,130,383 OPERATING INCOME 7,999,763 6,234,314 OPERATING EXPENSES 11,30 (6,106,241) (4,635,766) PROFIT BEFORE INCOME TAX 1,893,522 1,598,548 Income tax expense 12 (399,461) (419,496) NET PROFIT 1,494,061 1,179,052 On behalf of the Management Board: _________________________ _________________________ PresidentChief Accountant A.A. Korovin D.I. Karpov 28 May 2009 28 May 2009

Moscow Moscow The notes on pages 9-57 form an integral part of these financial statements.

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Open Joint Stock Company “OTP Bank” BALANCE SHEET AS AT 31 DECEMBER 2008 (in thousands of Russian rubles)

Notes 31 December

2008 31 December

2007 ASSETS:

Cash and cash equivalents 13,30 17,065,786 5,465,631 Minimum reserve deposit with the Central Bank of

the Russian Federation 14 49,975 732,333 Financial assets at fair value through profit or loss 15 320,739 6,934,243 Due from banks 16,30 412,588 2,083,071 Loans to customers 17,30 53,762,494 41,347,501 Investments available-for-sale 18,30 1,966,881 1,563,649 Investments held to maturity 19 2,699,695 - Property, plant and equipment and intangible assets 20 2,484,470 2,189,013 Current income tax assets 92,392 19,113 Deferred income tax assets 12 155,069 119,079 Other assets 21,30 372,317 400,786

TOTAL ASSETS 79,382,406 60,854,419 LIABILITIES AND EQUITY LIABILITIES:

Due to banks 22,30 33,471,583 10,394,094 Customer accounts 23,30 32,831,299 41,593,036 Debt securities issued 24 1,308,853 1,214,562 Other provisions 6 18,259 45,966 Deferred income tax liabilities 12 166,017 141,413 Other liabilities 25,30 629,632 430,886 Subordinated debt 26,30 2,112,799 1,837,948

TOTAL LIABILITIES 70,538,442 55,657,905

EQUITY:

Share capital 27 4,265,532 3,765,532 Share premium 27 2,000,000 - Investments available-for-sale fair value reserve (620,277) (255,293) Property, plant and equipment revaluation reserve 526,691 510,915 Retained earnings 2,672,018 1,175,360

TOTAL EQUITY 8,843,964 5,196,514

TOTAL LIABILITIES AND EQUITY 79,382,406 60,854,419 On behalf of the Management Board: _________________________ _________________________ President Chief Accountant A.A. Korovin D.I. Karpov 28 May 2009 28 May 2009


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Open Joint Stock Company “OTP Bank” STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 (in thousands of Russian rubles) Share

capital Share

premium Investments available-for-

sale fair value

Property and equipment revaluation

reserve

(Accumulated deficit)/

Retained earnings

Total equity

31 December 2006 3,765,532 - - - (3,692) 3,761,840 Fair value adjustment on investments

available-for-sale - - (335,912) - - (335,912) Property, plant and equipment

revaluation - - - 652,328 - 652,328 Deferred income tax recognized directly

in equity - - 80,619 (141,413) - (60,794) Net profit for 2007 - - - - 1,179,052 1,179,052 31 December 2007 3,765,532 - (255,293) 510,915 1,175,360 5,196,514 Fair value adjustment on investments

available-for-sale - - (439,434) - - (439,434) Writing-off property, plant and

equipment revaluation reserve (as a result of disposal) - - - (2,597) 2,597 -

Deferred income tax recognized directly in equity - - 74,450 18,373 - 92,823

Issue of share capital: - ordinary shares and share premium 500,000 2,000,000 - - - 2,500,000 Net profit for 2008 - - - - 1,494,061 1,494,061 31 December 2008 4,265,532 2,000,000 (620,277) 526,691 2,672,018 8,843,964 On behalf of the Management Board: _________________________ _________________________ President Chief Accountant A.A. Korovin D.I. Karpov 28 May 2009 28 May 2009


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Open Joint Stock Company “OTP Bank” STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2008 (in thousands of Russian rubles) Notes Year ended

31 December 2008


2007 CASH FLOWS FROM OPERATING ACTIVITIES:

Profit before income tax 1,893,522 1,598,548 Adjustments for:

Provision for impairment losses on interest bearing assets 3,897,191 2,170,202 (Recovery of provision)/provision for impairment losses

on other transactions (19,701) 13,255 Fair value adjustment on financial assets held for trading 45,479 164,686 Fair value adjustment on derivative financial instruments 35,094 1,253 Loss from disposal of property, plant and equipment and

intangible assets 18,220 217 Depreciation of property, plant and equipment and

intangible assets 319,757 202,165 Translation loss on foreign exchange operations 836,484 (32,815) Change in interest accruals, net (1,077,260) (1,044,731) Change in noninterest accruals, net 175,182 273,986 Loss on revaluation of property, plant and equipment - 58,515 Income on assets received for free (11,391) -

Cash inflow from operating activities before changes in

operating assets and liabilities 6,112,577 3,405,281

Changes in operating assets and liabilities (Increase)/decrease in operating assets:

Minimum reserve deposit with the Central Bank of Russian Federation 682,358 (33,088)

Due from banks 1,695,163 (1,548,957) Financial assets at fair value through profit or loss 3,707,673 (328,269) Loans to customers (11,774,711) (14,536,975) Other assets 492 (139,150)

Increase/(decrease) in operating liabilities Due to banks and other financial institutions 18,689,444 8,531,626 Customer accounts (9,811,672) 4,984,579 Other liabilities 12,402 24,847 Debt securities issued/(repaid) 84,457 (567,864)

Cash inflow/(outflow) from operating activities

before taxation 9,398,183 (207,970) Income tax paid (393,767) (448,148)

Net cash inflow/(outflow) from operating activities 9,004,416 (656,118)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property, plant and equipment and intangible assets (635,842) (590,087)

Proceeds on sale of property, plant and equipment and intangible assets 2,408 1,009

Proceeds on sale of investments available-for-sale 6,310 1,406,068 Purchase of investments available-for-sale - (3,219,074)

Net cash outflow from investing activities (627,124) (2,402,084)

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Open Joint Stock Company “OTP Bank” STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2008 (in thousands of Russian rubles)

Notes Year ended

31 December 2008


2007 CASH FLOWS FROM FINANCING ACTIVITIES:

Subordinated debt - 1,221,639 Dividends paid (461) (6,349) Issue of share capital and share premium 2,500,000 -

Net cash inflow from financing activities 2,499,539 1,215,290

Effect of changes in foreign exchange rate fluctuations

on cash and cash equivalents 723,324 137,504 NET INCREASE/(DECREASE) IN CASH AND

CASH EQUIVALENTS 11,600,155 (1,705,408) CASH AND CASH EQUIVALENTS, beginning of year 13 5,465,631 7,171,039 CASH AND CASH EQUIVALENTS, end of year 13 17,065,786 5,465,631 Interest paid and received by the Bank during the year ended 31 December 2008 amounted to RUB 2,385,387 thousand and RUB 11,560,656 thousand, respectively. Interest paid and received by the Bank during the year ended 31 December 2007 amounted to RUB 2,512,781 thousand and RUB 7,799,651 thousand, respectively. On behalf of the Management Board: _________________________ _________________________ President Chief Accountant A.A. Korovin D.I. Karpov 28 May 2009 28 May 2009


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Open Joint Stock Company “OTP Bank” NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (in thousands of Russian rubles)

1. ORGANIZATION Open Joint Stock Company “OTP Bank” (the “Bank”) was incorporated in the Russian Federation (RF) in 1994. The Bank is regulated by the Central Bank of the Russian Federation (the “CBR”) and conducts its business under general license number 2766 issued on 04 March 2008. The Bank‟s primary business consists of commercial activities to individuals and legal entities, including trading with securities and foreign currencies, and originating loans and guarantees. The registered office of the Bank is located at 45 Pokrovka St., bldg. 1, Moscow 105062, Russian Federation. At the beginning of 2008 the Bank had 5 branches operating in the Russian Federation in Omsk, Novorossiysk, Novosibirsk, St. Petersburg and Zhukovsky. During the year 2008 another 2 branches were registered: “Samarskiy” branch in Samara and “Nizhegorodskiy” branch in Nizhniy Novgorod. Due to the fact that “Nizhegorodskiy” branch received its BIK number only in January 2009, there were no operations in 2008. The Bank is a parent company of a group which consists of the following enterprises: Proportion or ownership

interest, %

Name Country of operation 2008 2007 Type of operation

OJSC “OTP Bank” Russian Federation Parent

company Parent

company Commercial bank Limited Liability Company

“PSF” Russian Federation 100.0 100.0 Financial lease Limited Liability Company

“Gamayun” Russian Federation 100.0 100.0 Catering

Limited Liability Company

“Promfin” Russian Federation 99.2 99.2 Consulting services Limited Liability Company

“Investment company “Promstroyinvest” Russian Federation 99.0 99.0 Investments

Limited Liability Company

“Business-Office” Russian Federation 99.2 99.2 Real estate Limited Liability Company “Audit firm “Consulting-

legal Center” Russian Federation 25.0 25.0 Accounting and audit Because of the fact that the influence of the group members is immaterial consolidated statements of the group are not prepared.

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As at 31 December 2008 and 2007, the following shareholders owned the issued shares of the Bank:

31 December

2008, % 31 December

2007, % Shareholder First level shareholders: OTP BANK PLC 58.12 51.34 LLC “INVEST OIL” 17.18 19.46 LLC “Megaform Inter” 14.30 16.20 LLC “ALLIANCERESERVE” 5.49 10.22 Other 4.91 2.78 Total 100.00 100.00 Ultimate shareholders: OTP BANK PLC 95.09 97.22 Other 4.91 2.78 Total 100.00 100.00 As OTP BANK PLC holds 100% shares of LLC “INVEST OIL”, “Megaform Inter” and LLC “ALLIANCERESERVE”, as at 31 December 2008 and 31 December 2007 OTP BANK PLC effectively owned 95.09% and 97.22% respectively of the Bank‟s shares, so the Bank is a subsidiary of OTP BANK PLC.

2. BASIS OF PRESENTATION Reporting basis These financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”). These financial statements are presented in thousands of Russian Rubles (“RUB‟000”), unless otherwise indicated. These financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments and measurement of buildings at revalued amounts according to International Accounting Standard (“IAS”) No. 16 “Property, Plant and Equipment”. In accordance with IAS 29 the economy of the Russian Federation was considered to be hyperinflationary during 2002 and prior years. Starting 1 January 2003, the Russian economy is no longer considered to be hyperinflationary and the values of non-monetary assets, liabilities and equity as stated in measuring units as at 31 December 2002 have formed the basis for the amounts carried forward to 1 January 2003. The Bank maintains its accounting records in accordance with Russian Law. These financial statements have been prepared from the Russian statutory accounting records and have been adjusted to conform with IFRS. Entered adjustments include certain reclassifications to reflect the economic substance of underlying transactions including reclassifications of certain assets and liabilities, income and expenses to appropriate financial statement captions. Functional currency The functional currency of the financial statements is the Russian Rubles (RUB).

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3. SIGNIFICANT ACCOUNTING POLICIES Recognition and measurement of financial instruments The Bank recognizes financial assets and liabilities on its balance sheet when it becomes a party to the contractual obligations of the instrument. Regular way purchases and sales of financial assets and liabilities are recognized using settlement date accounting. Financial assets and liabilities are initially recognized at fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to acquisition or issue of the financial asset or financial liability. The accounting policies for subsequent re-measurement of these items are disclosed in the respective accounting policies set out below. Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized where:

the rights to receive cash flows from the asset have expired; the Bank has transferred its rights to receive cash flows from the asset, or retained the right to

receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a „pass-through‟ arrangement; and

the Bank either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A financial asset is derecognized when it has been transferred and the transfer qualifies for derecognition. A transfer requires that the Bank either: (a) transfers the contractual rights to receive the asset‟s cash flows; or (b) retains the right to the asset‟s cash flows but assumes a contractual obligation to pay those cash flows to a third party. After a transfer, the Bank reassesses the extent to which it has retained the risks and rewards of ownership of the transferred asset. If substantially all the risks and rewards have been retained, the asset remains on the balance sheet. If substantially all of the risks and rewards have been transferred, the asset is derecognized. If substantially all the risks and rewards have been neither retained nor transferred, the Bank assesses whether or not is has retained control of the asset. If it has not retained control, the asset is derecognized. Where the Bank has retained control of the asset, it continues to recognize the asset to the extent of its continuing involvement. Financial liabilities A financial liability is derecognized when the obligation is discharged, cancelled, or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the income statement. Cash and cash equivalents Cash and cash equivalents include cash on hand and current bank accounts. Cash equivalents are short-term, highly liquid investments that are readily convertible to amounts of cash and that are subject to an insignificant risk of change in value. Amounts with any restrictions are not included in cash and cash equivalents. Minimum reserve deposit with the Central Bank of the Russian Federation Minimum reserve deposits with the CBR are deposits with the CBR not used in the day-to-day activities of the Bank. For purposes of determining cash flows, the minimum reserve deposit required by the CBR is not included as a cash equivalent and is reported in a separate balance sheet items.

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Due from banks In the normal course of business, the Bank maintains advances and deposits for various periods of time with other banks. Due from banks are measured at amortized cost using the effective interest method. Amounts due from credit institutions are carried net of any allowance for impairment losses, if any. Financial assets and liabilities at fair value through profit or loss Financial assets and liabilities at fair value through profit or loss represent derivative instruments or securities acquired principally for the purpose of selling them in the near future, or are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent and actual pattern of short-term profit taking or financial assets/liabilities that upon initial recognition are designated by the bank at fair value through profit or loss. Financial assets and liabilities at fair value through profit or loss are initially recorded and subsequently measured at fair value. The Bank uses quoted market prices to determine fair value for financial assets and liabilities at fair value through profit or loss. The fair value adjustment for financial assets and liabilities at fair value through profit or loss is recognized in the income statement for the period. The Bank enters into derivative financial instruments to manage currency, liquidity risks and for trading purposes. Derivative financial instruments entered into by the Bank include currency futures, short-term interest rate futures and securities futures. Derivative financial instruments that are entered by the Bank are not qualified for hedge accounting. Derivative financial instruments In the normal course of business, the Bank enters into various derivative financial instruments. Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each balance sheet date. The fair values are estimated based on quoted market prices or pricing models that take into account the current market and contractual prices of the underlying instruments and other factors. Derivatives are carried as assets when their fair value is positive and as liabilities when it is negative. Derivatives are included in financial assets and liabilities at fair value through profit or loss in the consolidated balance sheet. Gains and losses resulting from these instruments are included in Net gain/loss from financial assets and liabilities at fair value through profit or loss in the income statement. Derivative instruments embedded in other financial instruments are treated as separate derivatives if their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value with unrealized gains and losses reported in income statement. An embedded derivative is a component of a hybrid (combined) financial instrument that includes both the derivative and a host contract, with the effect that some of the cash flows of the combined instrument vary in a similar way to a stand-alone derivative. Repurchase and reverse repurchase agreements In the normal course of business, the Bank enters into sale and repurchase agreements (“repos”) and purchase and sale back agreements (“reverse repos”). Repos and reverse repos are utilized by the Bank as an element of its treasury management and trading business. A repo is an agreement to transfer a financial asset to another party in exchange for cash or other consideration and a concurrent obligation to reacquire the financial assets at a future date for an amount equal to the cash or other consideration exchanged plus interest. These agreements are accounted for as financing transactions. Financial assets sold under repo are retained in the financial statements and consideration received under these agreements is recorded as collateralized deposit received within balances due to banks and customer accounts. Assets purchased under reverse repos are recorded in the financial statements as cash placed on deposit collateralized by securities and other assets and are classified within balances due from banks or loans to customers.

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In the event that assets purchased under reverse repo are sold to third parties, the results are recorded with the gain or loss included in net gains/(losses) on respective assets. Any related income or expense arising from the pricing difference between purchase and sale of the underlying assets is recognized as interest income or expense. Loans to customers Loans to customers are non-derivative assets with fixed or determinable payments that are not quoted in an active market, other than those classified in other categories of financial assets. Loans granted by the Bank are initially recognized at fair value plus related transaction costs. Where the fair value of consideration given does not equal the fair value of the loan, for example where the loan is issued at lower than market rates, the difference between the fair value of consideration given and the fair value of the loan is recognized as a loss on initial recognition of the loan and included in the income statement. Subsequently, loans are carried at amortized cost using the effective interest method. Loans to customers are carried net of any allowance for impairment losses. Write off of loans and advances Loans and advances are written off against the allowance for impairment losses when deemed uncollectible. Loans and advances are written off after management has exercised all possibilities available to collect amounts due to the Bank and after the Bank has sold all available collateral. Excess funds upon such sale are repaid to the borrower. Loans and advances may be also written off on basis of Board of Directors order when the following conditions are simultaneously met: The main loan is due for more than two years; There are no cash flows under the contract for more than two years. Allowance for impairment losses The Bank accounts for impairment of financial assets when there is objective evidence that a financial asset or group of financial assets is impaired. Impairment losses are measured as the difference between carrying amounts and the present value of expected future cash flows, including amounts recoverable from guarantees and collateral, discounted at the financial asset‟s original effective interest rate, for financial assets which are carried at amortized cost. If in a subsequent period the amount of impairment losses decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. For the financial assets carried at cost, the impairment losses are measured as the difference between the carrying amount of the financial asset and present value of the estimated future cash flows discounted using the current market interest rate for a similar financial instrument. Such impairment losses are not reversed. The determination of impairment losses is based on the analysis of risk assets and reflects the amount which, in the judgement of the management, is adequate to provide for losses incurred. Provisions are created as a result of an individual appraisal of risk assets for financial assets that are individually significant, and an individual or collective assessment for financial assets that are not individually significant. The change in impairment losses is charged to the profit and loss and the total of impairment losses is deducted in arriving at assets as shown in the balance sheet. Factors that the Bank considers in determining whether it has objective evidence that an impairment loss has been incurred include information about the debtors‟ or issuers‟ liquidity, solvency and business and financial risk exposures, levels of the trends in delinquencies for similar financial assets, national and local economic trends and conditions, and the fair value of collateral and guarantees. These and other factors may, either individually or taken together, provide sufficient objective evidence that an impairment loss has been incurred in a financial asset or group of financial assets.

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It should be understood that estimates of losses involve an exercise of judgement, while it is possible that in particular periods the Bank may sustain losses, which are substantial relative to the allowance for impairment losses, it is judgement of management that the allowance for impairment losses is adequate to absorb losses incurred on the risk assets. Investments available-for-sale Investments available-for-sale represent debt and equity investments that are intended to be held for an indefinite period of time. Such securities are initially recorded at fair value. Subsequently the securities are measured at fair value, with such re-measurement recognized directly in equity until sold when gain/loss previously recorded in equity is recycled through the income statement. Impairment losses, foreign exchange gains or losses and interest income accrued using the effective interest method are recognized directly in the income statement. The Bank uses quoted market prices to determine the fair value for the Bank‟s investments available-for-sale. If the market for investments is not active, the Bank establishes fair value by using valuation techniques. Valuation techniques include using recent arm‟s length market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the Bank uses that technique. Dividends received on investments available-for-sale are included in dividend income in the income statement. Non-marketable debt and equity securities are stated at amortized cost and cost, respectively, less impairment losses, if any, unless fair value can be reliably measured. When there is objective evidence that such securities have been impaired, the cumulative loss previously recognized in equity is removed from equity and recognized in the income statement for the period. Reversals of such impairment losses on debt instruments, which are objectively related to events occurring after the impairment, are recognized in the income statement for the period. Reversals of such impairment losses on equity instruments are not recognized in the income statement. Investments held to maturity Investments held to maturity are debt securities with determinable or fixed payments. The Bank has the positive intent and ability to hold them to maturity. Such securities are carried at amortized cost using the effective interest method, less any allowance for impairment. Amortized discounts are recognized in interest income over the period to maturity using the effective interest method. Property, plant and equipment and intangible assets Property, plant and equipment (except buildings) and intangible assets, acquired after 1 January 2003 are disclosed in financial statements at historical cost less accumulated depreciation and any recognized impairment loss, if any. Property, plant and equipment and intangible assets, acquired before 1 January 2003 are disclosed in financial statements at historical cost restated for inflation less accumulated depreciation and any recognized impairment loss, if any. Depreciation is charged on the carrying value of property, plant and equipment and intangible assets and is designed to write off assets over their useful economic lives. Depreciation is calculated on a straight line basis at the following annual prescribed rates:

Buildings and constructions 2.5%-20% Furniture and equipment 3.3%-52.2% Motor vehicles 9.8%-32.4% Intangible assets 10% - 80.0%

Leasehold improvements are amortized over the lease agreement conditions. Expenses related to repairs and renewals are charged when incurred and included in operating expenses unless they qualify for capitalization.

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The carrying amount of property, plant and equipment and intangible assets are reviewed at each balance sheet date to assess whether they are recorded in excess of their recoverable amount. Impairment loss is recognized in the respective period and is included in operating expenses. After the recognition of an impairment loss the depreciation charge for property, plant and equipment is adjusted in future periods to allocate the assets‟ revised carrying value, less its residual value (if any), on a systematic basis over its remaining useful life. Buildings are stated in the balance sheet at their revalued amounts, being the fair value at the date of revaluation, determined from market-based evidence by appraisal undertaken by professional independent appraisers, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluation are performed with sufficient regularly such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date. Any revaluation increase arising on the revaluation of such buildings is credited to the property, plant and equipment revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognized as an expense in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in carring amount arising on the revaluation is charged as an expense to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to income statement. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. Taxation Income tax expense represents the sum of the current and deferred tax expense. The current tax expense is based on taxable profit for the year. Taxable profit differs from net profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Bank‟s current tax expense is calculated using tax rates that have been enacted during the reporting period. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

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Deferred income tax assets and deferred income tax liabilities are offset and reported net on the balance sheet if: The Bank has a legally enforceable right to set off current income tax assets against current

income tax liabilities; and Deferred income tax assets and the deferred income tax liabilities relate to income taxes levied

by the same taxation authority on the same taxable entity. The Russian Federation also has various other taxes, which are assessed on the Bank‟s activities apart from income tax. These taxes are included as a component of operating expenses in the income statement. Due to banks, customer accounts, debt securities issued, subordinated debt Due to banks, customer accounts, debt securities issued and subordinated debt are initially recognized at fair value. Subsequently, amounts due are stated at amortized cost and any difference between net proceeds and the redemption value is recognized in the income statement over the period of the borrowings, using the effective interest method as interest expenses. Other provisions Other provisions are recognized when the Bank has a present legal or constructive obligation as a result of past events (determined by legal standards or deemed), it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the obligation can be made. Financial guarantees Financial guarantees issued by the Bank are credit insurance that provides for specified payments to be made to reimburse to the holder for a loss it incurs because a specified debtor fails to make payment when due under the original or modified terms of a debt instrument. Such financial guarantee contracts are initially recognized at fair value. Subsequently they are measured at the higher of (a) the amount recognized as a provision in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”; and (b) the amount initially recognized less, where appropriate, cumulative amortization of initial premium revenue received over the financial guarantee contracts or letter of credit issued. Share capital and share premium Contributions to share capital made before 1 January 2003 are recognized at their cost restated for inflation. Contributions to share capital made after 1 January 2003 are recognized at cost. Share premium represents the excess of contributions over the nominal value of the shares issued. Dividends on ordinary shares are recognized in equity as a reduction in the period in which they are declared. Dividends that are declared after the balance sheet date are treated as a subsequent event under IAS 10 “Events after the Balance Sheet Date” (“IAS 10”) and disclosed accordingly. Retirement and other benefit obligations In accordance with the requirements of the Russian legislation, state pension system provides for the calculation of current payments by the employer as a percentage of current total payment to staff. This expense is charged in the period in which the related salaries are earned. The Bank does not have any pension arrangements separate from the state pension system of the Russian Federation. In addition, the Bank has no post-retirement benefits or other significant compensated benefits requiring accrual. Recognition of income and expense Interest income and expense are recognized on an accrual basis using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

17

Once a financial asset or a group of similar financial assets has been written down (partly written down) as a result of an impairment loss, interest income is thereafter recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Interest earned on assets at fair value is classified as interest income. Loan origination fees are deferred, together with the related direct costs, and recognized as an adjustment to the effective interest rate of the loan. Where it is probable that a loan commitment will lead to a specific lending arrangement, the loan commitment fees are deferred, together with the related direct costs, and recognized as an adjustment to the effective interest rate of the resulting loan. Where it is unlikely that a loan commitment will lead to a specific lending arrangement, the loan commitment fees are recognized in the income statement over the remaining period of the loan commitment. Where a loan commitment expires without resulting in a loan, the loan commitment fee is recognized in the income statement on expiry. Loan servicing fees are recognized as revenue as the services are provided. All other commissions are recognized when services are provided. Other income/expenses are recognized to the extent of gain/loss and in the period, when arised. Foreign currency translation Monetary assets and liabilities denominated in foreign currencies and translated into RUB at the appropriate spot rates of exchange established by the Central Bank of the Russian Federation at the balance sheet date. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transaction. Profit and losses arising from these translations are included in net gain on foreign exchange operations. Rates of exchange The exchange rates used by the Bank in the preparation of the financial statements as at year-end are as follows: 31 December

2008 31 December

2007 RUB/US Dollar 29.3804 24.5462 RUB/Euro 41.4411 35.9332 Offset of financial assets and liabilities Financial assets and liabilities are offset and reported net on the balance sheet when the Bank has a legally enforceable right to set off the recognized amounts and the Bank intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. In accounting for a transfer of a financial asset that does not qualify for de-recognition, the Bank does not offset the transferred asset and the associated liability. Fiduciary activities The Bank provides trustee services to its customers. The Bank also provides depositary services to its customers which include transactions with securities on their depositary accounts. Assets accepted and liabilities incurred under the fiduciary activities are not included in the Bank‟s financial statements. The Bank accepts the operational risk on these activities, but the Bank‟s customers bear the credit and market risks associated with such operations.

18

Areas of significant management judgments and sources of estimation uncertaincy The preparation of financial statements in accordance with IFRS requires the management of the Bank to make estimates and assumptions that affect the reported amounts of the assets and liabilities of the Bank, disclosure of contingent assets and liabilities as at the reporting date and reporting amounts of income and expenses. Actual results could differ from those estimates and assumptions. Estimates that are particularly susceptible to change relate to the provisions for impairment losses and the fair value of financial instruments. The following estimates and judgements are considered to be important for presentation of a financial condition of the Bank. Loans to customers are measured at amortized cost less allowance for impairment losses. The estimation of allowance for impairment losses involves an exercise of significant judgement. The Bank estimates allowances for impairment losses with the objective of maintaining balance sheet provisions at a level believed by management to be sufficient to absorb losses incurred in the Bank‟s loan portfolio. The calculation of provisions on impaired loans is based on the likehood of the assets being written off and the estimated loss on such a write-off. These assessments are made using statistical techniques based on historical experience. These determinations are supplemented by the application of management judgement. The Bank considers accounting estimates related to provisions for loans to be key sources of estimation uncertainly because: (i) they are highly susceptible to change from period to period as the assumptions about future default rates and valuation of losses relating to impaired loans and advances are based on recent performance experience, and (ii) any significant difference between the Bank‟s estimated losses (as reflected in the provisions) and actual losses will require the Bank to take provisions which could have a material impact on its future income statement and its balance sheet. The Bank‟s assumptions about estimated losses are based on past performance, past customer behaviour, the credit quality of recent underwritten business and general economic conditions, which are not necessarily an indication of future losses. Certain property (buildings) is measured at revalued amounts. The date of the latest appraisal was 31 December 2007 year. Investments available-for-sale are measured at fair value less impairment losses. The estimation of impairment losses involves the exercise of significant management judgement. The accounting policy for the impairment of financial instruments is discussed in Note 3 below. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be offset. Estimation of probabilities is based on management estimation of future taxable profit and involves the exercise of significant management judgement from the Bank. Taxation is discussed in Notes 12 and 28. Adoption of new and revised standards In the current year, the Bank has adopted all of the new and revised Standards and Interpretations issued by the IASB and IFRIC of the IASB that are relevant to its operations and effective for annual reporting periods ending on 31 December 2008. The adoption of these new and revised Standards and Interpretations has not resulted in changes to the Bank‟s accounting policies that have affected the amounts reported for the current or prior years, except the amendments to IAS 39 “Financial Instruments: Recognition and Measurement” and IFRS 7, “Financial Instruments: Disclosures” titled “Reclassification of Financial Assets”.

19

Amendments to IAS 39, “Financial Instruments: Recognition and Measurement”, and IFRS 7, “Financial Instruments: Disclosures”, titled “Reclassification of Financial Assets” – On 13 October 2008 IASB issued amendments to IAS 39 and IFRS 7 which permits certain reclassifications of non-derivative financial assets (other than those designated as at fair value through profit or loss at initial recognition under the fair value option) out of the fair value through profit or loss category and also allow reclassification of financial assets from the available for sale category to the loans and receivables category in particular circumstances. The amendments to IFRS 7 introduce additional disclosure requirements if an entity has reclassified financial assets in accordance with the amendments to IAS 39. The amendments are effective as of 13 October 2008 and in certain circumstances can be applied retrospectively from 1 July 2008. The information about the effect of accepted adjustments is presented in notes 15 and 18.

4. RECLASSIFICATIONS Reclassifications Certain reclassifications have been made to the financial statements as at 31 December 2007 and for the year then ended to conform to the presentation as at 31 December 2008 and for the year then ended as current year presentation provides better view of the financial position of the Bank. Nature of reclassification Amount

(RUB’000) Balance

sheet/Income statement line as per the previous

report

Balance sheet/Income

statement line as per current

report

Reclassification of commissions on financial market operations

13,340

Net gain on financial assets and liabilities at fair value

through profit or loss

Fee and commission

expense

Reclassification of income from the services of

processing, storing and copying of documents, trust operations 4,816

Other income

Fee and commission

income Reclassification of commissions for money

transfer services, cash-settlement services and operations where acting as an intermediary 46,681

Operating expenses

Fee and commission

expense

20

5. NET INTEREST INCOME Year ended

31 December 2008


2007 Interest income comprises: Interest income on assets carried at amortized cost: 12,296,046 8,116,670

- interest income on impaired financial assets 11,213,642 6,931,800 - interest income on unimpaired financial assets 1,082,404 1,184,870

Interest income on financial assets at fair value 466,093 606,783 Total interest income 12,762,139 8,723,453 Interest income on assets carried at amortized cost comprises:

Interest on loans to customers 12,059,440 7,966,781 Interest on investments held-to-maturity 142,991 289 Interest on due from banks 93,615 149,600

Total interest income on financial assets carried at amortized cost 12,296,046 8,116,670 Interest income on financial assets at fair value:

Interest income on financial assets recognized at fair value through profit or loss 282,610 533,892

Interest income on financial assets available-for-sale 183,483 72,891 Total interest income on financial assets at fair value 466,093 606,783 Interest expense comprises: Interest on financial liabilities carried at amortized cost 2,736,032 2,449,320 Total interest expense 2,736,032 2,449,320 Interest expense on financial liabilities carried at amortized cost

comprise: Interest on customer accounts 1,537,378 2,023,235 Interest on deposits from banks 1,013,359 251,835 Interest on subordinated debt 120,064 77,182 Interest on debt securities issued 65,231 97,068

Total interest expense on financial liabilities carried at

amortized cost 2,736,032 2,449,320 Net interest income before provision for impairment losses on

interest bearing financial assets 10,026,107 6,274,133

6. ALLOWANCE FOR IMPAIRMENT LOSSES AND OTHER PROVISIONS The movements in allowance for impairment losses on interest bearing assets were as follows: Loans to

customers Investments

available-for-sale

Total

31 December 2006 3,203,305 25 3,203,330 Provision / (recovery) of provision 2,170,205 (3) 2,170,202 Loans written off against allowance (13,780) - (13,780) Recovery of loans previously written off 7,204 - 7,204 31 December 2007 5,366,934 22 5,366,956 Provision 3,897,191 - 3,897,191 Loans written off against allowance (3,232,791) - (3,232,791) Recovery of loans previously written off 46,834 - 46,834 31 December 2008 6,078,168 22 6,078,190

21

The movements in other allowances were as follows: Other

assets Provisions for commitments

on loans

Legal proceedings

Total

31 December 2006 12,499 34,812 - 47,311 Provision 2,101 10,315 839 13,255 Assets written off against allowance (410) - - (410) 31 December 2007 14,190 45,127 839 60,156 Provision/(recovery of provision) 8,006 (27,235) (472) (19,701) Assets written off against allowance (71) - - (71) 31 December 2008 22,125 17,892 367 40,384

7. NET GAIN/(LOSS) ON FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Net gain/ (loss) on financial assets and liabilities at fair value through profit or loss comprises: Year ended

31 December 2008


2007 Net (loss)/gain on financial assets and liabilities held-for-trading (26,022) 9,166 Net gain/(loss) on operations with derivative financial instruments 1,252,160 (44,056) Total net gain/(loss) on financial assets and liabilities at fair value

through profit or loss 1,226,138 (34,890) Net (loss)/gain on operations with financial assets held-for-trading

comprises: Realized gain on trading operations 19,457 173,852 Unrealized expense on fair value adjustment (45,479) (164,686)

Total net (loss)/gain on operations with financial assets and

liabilities held for trading (26,022) 9,166 The Bank enters into derivative financial instruments to manage currency and liquidity risks and such financial instruments are held primarily for trading purposes.

8. NET (LOSS)/GAIN ON FOREIGN EXCHANGE OPERATIONS Net (loss)/gain on foreign exchange operations comprise: Year ended

31 December 2008


2007 Dealing, net 7,532 131,038 Translation differences, net (836,484) 32,815 Total net (loss)/gain on foreign exchange operations (828,952) 163,853

22

9. FEE AND COMMISSION INCOME AND EXPENSE Fee and commission income and expense comprise: Year ended

31 December 2008


2007 Fee and commission income: Cash and settlement operations 669,558 602,833 Plastic cards operations 585,472 773,371 Operations where acting as an intermediary 254,808 242,377 Foreign exchange operations 127,396 341,977 Use of Client-Bank system 71,909 75,148 Currency control agent‟s functions 51,298 115,462 Attracting of clients service for insurance companies 40,219 19,553 Cash collection operations 27,254 24,723 Documentary operations 9,204 10,820 Typography, storage and copying of documents 6,502 5,701 Banknote transactions 3,776 2,436 Provision of services through automated information system 1,453 1,587 Broker‟s commission 1,302 2,510 Other 7,801 14,335 Total fee and commission income 1,857,952 2,232,833 Fee and commission expense: Plastic cards operations 180,974 154,336 Operations where acting as an intermediary 139,431 32,003 Operations on financial markets, including deals with securities 50,964 13,341 Settlement transactions and money transfer 49,367 32,200 Banknote transactions 13,581 7,462 Depository services 3,237 4,548 Cash collection operations 1,669 4,075 Counter-guarantees 1,483 1,736 Registrar‟s fee 871 564 Other 111 227 Total fee and commission expense 441,688 250,492

10. OTHER INCOME Other income comprises: Year ended

31 December 2008


2007 Safe deposit boxes rental income 12,892 11,326 Gains on VISA shares received for free 11,391 - Gains on deposit interest recalculation in case of termination of

the contracts before the maturity date 7,787 - Property lease income 901 635 Fines and penalties received 846 473 Income from write-off of accounts payable 723 925 Gain on transactions with own promissory notes 125 191 Income of disposal of property not attributed to property,

plant and equipment 99 70 Refund of re-registration of the Bank‟s shares - 3,050 Refund of mandatory proposal for treasury stock acquisition - 1,726 Other 2,932 8,912 Total other income 37,696 27,308

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11. OPERATING EXPENSES Operating expenses comprise: Year ended

31 December 2008


2007 Staff costs 3,080,292 2,260,556 Operating leases 700,091 502,376 Unified social tax 531,290 419,575 Postal and telecommunications costs, informational systems 328,708 181,692 Depreciation and amortization charges on property, plant and

equipment and intangible assets 319,757 202,165 Other taxes and duties 306,280 209,253 Advertising costs 168,325 87,515 Stationery and inventory expenses 110,359 59,721 Repairs and maintenance of premises 104,590 71,560 Deposit insurance 102,653 162,109 Security expenses 90,807 58,229 Business trip expenses 40,492 36,229 Repairs and maintenance of other property 32,692 63,483 Repairs and maintenance of vehicles 23,752 10,346 Inventories not included in property and equipment 21,962 38,441 Information and consulting services 19,279 95,181 Loss from fixed assets disposal 18,220 217 Insurance expenses 12,155 5,504 Expenses related to the paperwork 12,087 6,803 Rights of use of intellectual property 11,138 12,474 Transport expenses 10,742 18,536 Realtor services 10,155 7,675 Auditing services 8,361 7,604 Representation expenses 6,844 760 Penalties and fines 2,202 10,586 Recruitment 2,163 4,288 Outdoor advertising expenses 1,988 1,209 Charity and sponsorship expenses 1,741 3,769 Subscription to print issues and professional literature 1,472 2,159 Membership fee 1,270 966 Revaluation loss on fixed assets - 58,515 Other expenses 24,374 36,270 Total operating expenses 6,106,241 4,635,766

12. INCOME TAXES The Bank provides for taxes based on the tax accounts maintained and prepared in accordance with the tax regulations of the Russian Federation where the Bank and its subsidiaries operate, which may differ from IFRS. The Bank is subject to certain permanent tax differences due to the non-tax deductibility of certain expenses and a tax free regime for certain income. Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Temporary differences as at 31 December 2008 and 2007 relate mostly to different methods of income and expense recognition as well as to recorded values of certain assets. The tax rate used for the 2008 and 2007 reconciliations below is the corporate tax rate of 24% payable by corporate entities in the Russian Federation on taxable profits under tax law in that jurisdiction. In November 2008, an amendment to the Tax Code was enacted to reduce the corporate income tax rate from 24% to 20% effective from 1 January 2009. Current year Russian income tax is measured at 24% in 2008 and 2007 of the assessable profit for the year. Starting from 31 December 2008 deferred taxes are measured at 20% (2007: 24%).

24

Temporary differences as at 31 December 2008 and 2007 comprise: 31 December

2008 31 December

2007 Deductible temporary differences: Loans to customers 464,093 146,491 Investments available-for-sale 154,141 336,062 Other liabilities and other provisions 107,134 121,112 Other assets 60,009 12,447 Investments held to maturity 8,513 - Debt securities issued 4,829 13,757 Financial assets at fair value through profit and loss - 155,707 Total deductible temporary differences 798,719 785,576 Taxable temporary differences: Property, plant and equipment and intangible assets 852,866 815,761 Financial assets at fair value through profit and loss 595 - Due from banks - 8,452 Total taxable temporary differences 853,461 824,213 Net deferred tax (liability)/asset at the statutory tax rate (20%/24%) (42,977) 51,521 Less: unrecognized deferred tax receivable - (13,061) Net deferred income tax (liability)/asset (42,977) 38,460 Net deferred tax (liability)/asset (42,977) 38,460 Relationships between tax expenses and accounting profit for the years ended 31 December 2008 and 2007 are explained as follows: 31 December

2008 31 December

2007 Profit before income tax 1,893,522 1,598,548 Tax at the statutory tax rate (24 %) 454,445 383,652 Change in unrecognized deferred tax recievables (13,061) (82,201) Tax effect of permanent differences – non deductable tax expenses 35,844 118,045 Effect of change in income tax rates (8,595) - Revise of income tax base for 2007, in 2008 (69,172) - Income tax expense 399,461 419,496 Current income tax expense 318,024 457,956 Change in the deferred tax expense 81,437 (38,460) Income tax expense 399,461 419,496

31 December

2008 31 December

2007 Beginning of the period – Deferred income tax assets 119,079 - Beginning of the period – Deferred income tax liabilities (141,413) - Changes in deferred tax liabilities and assets recognized in

the income statement (81,437) 38,460 Changes in deferred income tax assets recognized in equity 74,450 80,619 Changes in deferred income tax liabilities recognized in equity 18,373 (141,413) End of the period - Deferred income tax assets 155,069 119,079 End of the period – Deferred income tax liabilities (166,017) (141,413)

25

13. CASH AND CASH EQUIVALENTS 31 December

2008 31 December

2007 Balances with the Central Bank of the Russian Federation

(excluding minimum reserve deposits with the Central bank of the Russian Federation) 7,251,044 1,721,502

Cash in correspondent accounts and accounts in non-bank credit institutions 6,759,745 1,375,073

Cash 3,054,997 2,369,056 Total cash and cash equivalents 17,065,786 5,465,631

14. MINIMUM RESERVE DEPOSITS WITH THE CENTRAL BANK OF THE RUSSIAN FEDERATION As at 31 December 2008 and 2007 minimum reserve deposits with the Central Bank of the Russian Federation amounted to RUB 49,975 thousand and RUB 732,333 thousand, respectively. The Bank is required to maintain minimum reserve deposits with the CBR at all times.

15. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS In accordance with amendments to IAS 39 and IFRS 7 management of the Bank on 31 October 2008 decided to reclassify starting from 1 July 2008 debt securities from financial assets at fair value through profit and loss to investments available-for-sale and investments held to maturity. As at 1 July 2008 the total amount of reclassified securities was RUB 2,823,920 thousand. As at 1 July 2008 the total amount of expected cash flows from reclassified securities was RUB 3,890,310 thousand, and effective interest rates were measured from 5.06% to 10.89% per annum. If reclassification was not performed, unrealized loss on fair value of these securities totaling RUB 574,029 thousand have been included in income statement for the year ended 31 December 2008. Financial assets at fair value through profit or loss comprise: 31 December 31 December 2008 2007 Financial assets held for trading:

Debt securities 320,739 6,934,243 Total financial assets held for trading 320,739 6,934,243 Total financial assets at fair value through profit or loss 320,739 6,934,243

26

Financial assets recognized at fair value through loss or profit comprise: 31 December 2008 31 December 2007 Interest

to nominal, % Fair value Interest

to nominal, % Fair value Debt securities: Government bonds: Federal loan bonds 6-9 320,739 5.8-10 1,135,924 320,739 1,135,924 Eurobonds: Moscow City Hall - 5.06 616,562 CJSC “International Industrial Bank” - 9-9.5 362,749 CJSC “TsUN LenSpetsSMU” - 9.75 281,841 CJSC JSCB “Gazbank” - 9.75 280,076 OJSC “Promsvyazbank” - 8.75 264,391 Kazakhgold Group Ltd (Kazakhstan) - 9.38 203,375 OJSC AK “Transneft” - 5.67 192,072 TNK-ВР Holding - 6.63 183,783 OJSC “Sibacadembank” - 8.30 175,939 LLC “Slavinvestbank” - 9.88 62,026 LLC “Mirax Group” - 9.45 53,799 NAK “Naftogaz Ukraine” - 8.13 48,494 OJSC “Astana Finance” - 7.88 35,554 OJSC “Kazanorgsintez” - 9.25 24,556 - 2,785,217 Corporate bonds: LLC “Alliance-Finance” - 8.75 500,550 OJSC “Moscow Credit Bank” - 9.50 458,429 OJSC “SKB-Bank” - 9.75 415,236 JSCB “Uniastrum Bank” (LLC) - 10.9-11 347,000 CJSC CB “KEDR” - 11.15 214,116 OJSC BANK “ST. PETERSBURG” - 9 187,670 CJSC “Bank Russky Standart” - 8.25 87,787 - 2,210,788 Municipal bonds: Administration of the Republic of Karelia - 8.15 400 - 400 Promissory notes of Russian banks: LLC “SLAVINVESTBANK” - 11.68-11.73 396,141 CJSC JSCB “Russ-Bank” - 11.99-12.07 322,736 OJSC “Dalnevostochny Bank” - 10.51-10.58 83,037 - 801,914 Total debt securities 320,739 6,934,243 Total financial assets held for trading 320,739 6,934,243

27

Derivative financial instruments comprise: 31 December 2008 31 December 2007 Nominal

amount, (RUB ’000)

Net fair value

(RUB ‘000)

Nominal amount,

(RUB ’000)

Net fair value

(RUB ‘000) Asset Liability Asset Liability Derivative

financial instruments:

Foreign currency contracts

Futures 1,359,977 - - 5,726,093 - 614 Total 1,359,977 - - 5,726,093 - 614 As at 31 December 2008 and 2007 included in financial assets at fair value through profit or loss is accrued interest income on debt securities amounting to RUB 6,488 thousand and RUB 93,379 thousand, respectively. As at 31 December 2007 the use of Federal loan bonds with carrying value of RUB 592,913 thousand, bonds of OJSC “Bank St.-Petersburg” with carrying value of RUB 129,767 thousand, and bonds of OJSC “Moscow Credit Bank” with carrying value of RUB 398,164 thousand were restricted, as collateral represented by these securities enables the Bank to use the one-day and automatic overdraft loans when making transfer payments through the correspondent accounts with the CBR. As at 31 December 2008 included in financial assets at fair value through profit or loss are Federal loan bonds amounting to RUB 320,739 thousand, which were pledged as collateral under repurchase agreements with CBR.

16. DUE FROM BANKS Due from banks comprise: 31 December

2008 31 December

2007 Due from banks 412,588 1,668,290 Loans under reverse repurchase agreements - 414,781 Total due from banks 412,588 2,083,071 As at 31 December 2008 and 2007 accrued interest income of 3,148 thousand RUB and 3,403 thousand RUB, respectively was included in the balances due from banks. As at 31 December 2008 and 2007 the maximum credit risk exposure on due from banks amounted to RUB 412,588 thousand and RUB 2,083,071 thousand, respectively. Fair value of assets pledged and carrying value of loans under reverse repurchase agreements as at 31 December 2008 and 2007 are presented as follows: 31 December 2008 31 December 2007 Carrying value

of loans Fair value of

collateral Carrying value


collateral Shares of Russian companies: OJSC “MMC “Norilsk Nickel” - - 180,137 202,459 OJSC “RAO UES of Russia” - - 125,087 140,177 OJSC “Gazprom” - - 55,028 62,757 OJSC “VTB” - - 54,529 62,200 Total - - 414,781 467,593

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17. LOANS TO CUSTOMERS Loans to customers comprise: 31 December

2008 31 December

2007 Loans to customers 59,840,205 44,318,404 Loans under reverse repurchase agreements 457 2,396,031 59,840,662 46,714,435 Less: allowance for impairment losses (6,078,168) (5,366,934) Total loans to customers 53,762,494 41,347,501 As at 31 December 2008 and 2007 accrued interest income less allowance for imparement losses included in loans to customers amounted to RUB 930,627 thousand and RUB 649,868 thousand, respectively. Movements in allowances for impairment losses for the years ended 31 December 2008 and 2007 are disclosed in Note 6. The table below summarizes the amount of loans secured by collateral, rather than the fair value of the collateral itself: 31 December

2008 31 December

2007 Unsecured loans 29,005,066 27,574,926 Loans collateralized by pledge of real estate 21,409,849 10,271,971 Loans collateralized by pledge of vehicles 4,728,963 2,620,877 Loans collateralized by pledge of goods in turnover 3,044,629 2,311,856 Loans collateralized by other property 911,416 1,158,196 Loans collateralized by pledge of the Bank‟s promissory notes 471,421 154,131 Loans collateralized by pledge of inventories 116,217 21,913 Loans collateralized by pledge of cash 70,262 87,486 Loans collateralized by pledge of securities 20,472 2,461,393 Loans collateralized by other collateral 62,367 51,686 59,840,662 46,714,435 Less: allowance for impairment losses (6,078,168) (5,366,934) Total loans to customers 53,762,494 41,347,501 31 December

2008 31 December

2007 Analysis by sector: Individuals 43,272,867 32,167,208 Trade 4,682,275 3,298,806 Real estate and rent 4,046,080 2,079,136 Construction 3,327,180 2,577,478 Manufacturing 2,164,302 2,093,486 Agriculture 744,367 570,004 Government authorities 503,347 258,253 Finance and operating leases 309,207 209,005 Services 285,719 513,318 Transport 149,844 117,780 Science 94,016 54,744 Publishing and printing 68,745 43,591 Finance 62,830 2,531,535 Oil & gas production, refining and transportation - 48,192 Other 129,883 151,899 59,840,662 46,714,435 Less: allowance for impairment losses (6,078,168) (5,366,934) Total loans to customers 53,762,494 41,347,501

29

During the year ended 31 December 2007 the Bank received financial assets by taking possession of collateral it held as security with carring amount of RUB 62 thousand. As at 31 December 2007 such assets were not included in Property and equipment balance due to selling. There were no such cases in 2008. Loans to individuals comprise the following products: 31 December

2008 31 December

2007 Consumer loans 18,647,115 18,619,365 Mortgage loans 9,563,984 2,297,238 Plastic cards overdraft loans 8,427,450 6,281,196 Car loans 3,379,547 1,493,335 Entrepreneurs 1,523,211 1,693,105 Other 1,731,560 1,782,969 43,272,867 32,167,208 Less: allowance for impairment losses (5,613,767) (4,957,989) Total loans to individuals 37,659,100 27,209,219 As at 31 December 2008 and 2007 the Bank granted loans to 5 and 3 borrowers/groups of related borrowers totaling RUB 6,219,327 thousand and RUB 2,276,524 thousand, respectively, which individually exceeded 10% of the Bank‟s equity. As at 31 December 2008 and 2007 nearly all loans were granted to companies and individuals whose business activity is within the Russian Federation, which represents a significant geographical concentration in one region. As at 31 December 2008 and 2007 loans to 10 borrowers/groups of related borrowers totaled 14.20% (RUB 8,496,931 thousand) and 10.72% (RUB 5,008,841 thousand), respectively, in the loan portfolio. As at 31 December 2008 and 2007 a maximum credit risk exposure on loans to customers amounted to RUB 53,762,494 thousand and RUB 41,347,501 thousand, respectively. As at 31 December 2008 and 2007 a maximum credit risk exposure on loan commitments and overdrafts extended by the Bank to its customers amounted to RUB 5,694,793 thousand and RUB 9,358,033 thousand, respectively. As at 31 December 2008 and 2007 loans to customers included loans in amount of RUB 205,742 thousand and RUB 237,207 thousand, respectively, whose terms have been renegotiated. Otherwise these loans would be past due or impaired. As at 31 December 2008 and 2007 loans to customers included loans in amount of RUB 5,526,740 thousand and RUB 7,307,003 thousand, respectively, that were individually determined to be impaired. As at 31 December 2008 and 2007 such loans were collateralized by Bank‟s promissory notes, real estate, vehicles, equipment, goods in turnover and other assets types of collateral with a fair value of RUB 8,409,383 thousand and RUB 9,023,507 thousand, respectively.

30

Carrying value of loans under reverse repurchase agreements and fair value of assets pledged as at 31 December 2008 and 2007 are presented as follows: 31 December 2008 31 December 2007 Carrying value




collateral Corporate shares OJSC “Surgutneftegaz” 243 242 81,318 91,396 OJSC “NK Rosneft” 132 132 20,604 23,539 OJSC “Gazprom” 62 62 254,307 288,789 OJSC “NK Lukoil” 12 12 14,929 16,810 JSB “Sberbank” (OJSC) 8 8 296,202 336,930 OJSC RAO “UES of Russia” - - 476,161 532,256 OJSC “Rostelecom” - - 250,456 291,579 VTB Bank (OJSC) - - 174,307 200,432 OJSC AK “Transneft” - - 60,386 68,776 OJSC “MMC “Norilsk Nickel” - - 27,231 30,727 OJSC “Tatneft” - - 19,492 22,202 OAO “Uralsvyazinform” - - 8,800 9,847 OJSC “POLYUS GOLD” - - 4,063 4,531 OJSC “MTS” - - 2,039 2,379 OJSC “Severstal” - - 33 33 Total corporate shares 457 456 1,690,328 1,920,226 Promissory notes of

Russian banks OJSC “ALFA-BANK” - - 223,127 227,903 JSCB “MDM-BANK” (OJSC) - - 151,908 154,103 OJSC “JSB BARS” BANK - - 147,115 150,537 OJSC “ROSSELKHOZBANK” - - 90,142 92,160 OJSC “Nomos-Bank” - - 46,902 48,097 OJSC JSCB “Moscow Bank for

Reconstruction and Development” - - 46,509 47,573 Total promissory notes

of Russian banks - - 705,703 720,373 Total 457 456 2,396,031 2,640,599

18. INVESTMENTS AVAILABLE FOR SALE In accordance with amendments to IAS 39 and IFRS 7 management of the Bank on 31 October 2008 decided to reclassify, starting from 1 July 2008, debt securities from investments available-for-sale to investments held to maturity. As at 1 July 2008 the total amount of reclassified securities was RUB 1,549,239 thousand. As at 1 July 2008 the total amount of expected cash flows from reclassified securities was RUB 2,647,143 thousand, and effective interest rates were from 10.85% to 17.79% per annum. If reclassification was not performed, an unrealized loss on fair value of these securities totaling RUB 811,947 thousand should have been recognized for the year ended 31 December 2008. Investments available-for-sale comprise: 31 December

2008 31 December

2007 Debt securities 1,947,833 1,550,969 Equity securities 19,048 12,680 Total investments available for sale 1,966,881 1,563,649

31

31 December 2008 31 December 2007

Interest to

nominal, % Fair value Interest to

nominal, % Fair value

Debt securities Eurobonds: Moscow City Hall 5.06 475,321 - - CJSC JSCB “Gazbank” 9.75 335,235 - - CJSC “TsUN LenSpetsSMU” 9.75 244,939 - - OJSC “Sibacadembank” 8.30 215,443 - - JSCB “Promsvyazbank” (CJSC) 8.75 154,602 - - OJSC AK “Transneft” 5.67 149,984 - - TNK-ВР Holding 6.63 124,197 - - CJSC “International Industrial

Bank” 9-9.5 116,938 - - LLC “Slavinvestbank” 9.88 77,121 - - LLC “Mirax Group” 9.45 54,053 - - JSC “Temirbank” - - 9.50 739,257 LLC AKB “Alliance Bank” - - 7.88-9.75 709,117 JSC Center Credit - - 8.63 102,595 Total Eurobonds 1,947,833 1,550,969 Promissory notes: OJSC “Rossiysky Credit Bank” 2.74-2.82 22 2.74-2.82 22 Less allowance for impairment

losses (22) (22) Total promissory notes: - - Total debt securities 1,947,833 1,550,969 31 December 2008 31 December 2007

Ownership,

% Amount Ownership,

% Amount

Equity securities Ordinary shares and equity interest LLC “PSF” 100 12,543 100 12,543 VISA Inc. - 6,364 - - Other - 141 - 137 Total equity securities 19,048 12,680 Total securities available-for-sale 1,966,881 1,563,649 Movements in allowances for impairment losses for the years ended 31 December 2008 and 2007 are disclosed in Note 6. As at 31 December 2008 and 2007 included in securities available-for-sale was accrued interest income of RUB 58,078 thousand and RUB 77,230 thousand, respectively. As at 31 December 2008 included in securities available-for-sale is eurobonds amounting to RUB 904,104 thousand, which were pledged as collateral under repurchase agreements with CBR.

32

19. INVESTMENTS HELD TO MATURITY Investments held to maturity comprise: 31 December 2008 31 December 2007 Interest to

nominal, % Amount

Interest to

nominal, % Amount

Corporate bonds: LLC “Alliance-Finance” 8.75 500,793 - - Eurobonds: Temir Capital B.V. (JSC

“Temirbank”) 9.50 902,591 - - OJSC “Alliance-Bank” 7.88-9.75 861,076 - - Kazakhgold Group Ltd

(KazakhGold) 9.38 253,632 - - OJSC “Bank Center Credit” 8.63 141,114 - - OJSC “Astana Finance” 7.88 40,489 - - Total investments held

to maturity 2,699,695 - As at 31 December 2008 included in investments held to maturity was accrued interest income of RUB 88,793 thousand.

20. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS Property, plant and equipment and intangible assets comprise:

Land

Buildings

Construc-tions

Construction in progress,

capital investments

Vehicles

Other property, plant and equipment

Intangible assets

Total At initial/ indexed cost As at 31 December 2006 3,723 940,859 15,133 4,833 57,687 836,901 26,078 1,885,214 Additions 15 276 4,918 35,610 17,807 371,273 160,188 590,087 Revaluation - 491,327 - - - - - 491,327 Transfers - 4,110 2,981 (7,091) - - - - Disposals - - (1,672) - (3,092) (46,859) - (51,623) As at 31 December 2007 3,738 1,436,572 21,360 33,352 72,402 1,161,315 186,266 2,915,005 Additions - 158 71,125 55,409 8,651 449,519 50,980 635,842 Transfers - 6,603 342 (24,727) - - 17,782 - Disposals - (3,170) (981) - (1,276) (54,397) - (59,824) As at 31 December 2008 3,738 1,440,163 91,846 64,034 79,777 1,556,437 255,028 3,491,023 Accumulated depreciation As at 31 December 2006 - 195,271 2,115 - 30,080 445,021 4,223 676,710 Charge for the year - 30,521 1,426 - 10,937 140,702 18,579 202,165 Revaluation - (102,486) - - - - - (102,486) Disposals - - (1,524) - (3,035) (45,838) - (50,397) As at 31 December 2007 - 123,306 2,017 - 37,982 539,885 22,802 725,992 Charge for the year - 55,312 9,455 - 11,418 200,865 42,707 319,757 Disposals - (328) (544) - (1,276) (37,048) - (39,196) As at 31 December 2008 - 178,290 10,928 - 48,124 703,702 65,509 1,006,553 Net book value As at 31 December 2008 3,738 1,261,873 80,918 64,034 31,653 852,735 189,519 2,484,470 Net book value As at 31 December 2007 3,738 1,313,266 19,343 33,352 34,420 621,430 163,464 2,189,013

As at 31 December 2008 and 2007 included in property, plant and equipment was fully depreciated equipment in use at a cost of RUB 380,300 thousand and RUB 297,482 thousand, respectively.

33

As at 31 December 2007 the buildings owned by the Bank were revalued to market value according to the report of an independent appraiser. Buildings were valued by an independent professional appraiser, with experience in valuing assets with similar locations and categories. Due to inhomogeneity of valuated assets, located in different regions of the Russian Federation, the following methods were used by independent valuators: Discounted cash flow method (income approach); Comprehensive cost method (cost approach); Sales comparison method (market approach). Independent valuators determined an appropriate approach depending on the specific features of the asset. As a result, the carrying value of the buildings amounted to RUB 1,313,266 thousand. If the buildings were accounted at indexed cost less accumulated depreciation and accumulated impairment, the carrying value would be RUB 719,452 thousand as at 31 December 2007. As at 31 December 2008 the carring value of buildings including previous revaluation amounted to RUB 1,261,873 thousand. If the buildings were accounted at indexed cost less accumulated depreciation and accumulated impairment, the carrying value would be RUB 683,151 thousand as at 31 December 2008.

21. OTHER ASSETS Other assets comprise: 31 December

2008 31 December

2007 Other financial assets: Revaluation on spot transactions 13,172 5,897 Accrued commission 12,940 10,968 Prepayments and receivables on other transactions 12,410 7,036 Debtors on operations with plastic cards 10,150 47,621 Insurance contributions to operational risk coverage 8,050 4,071 Settlements on broker operations 2,947 265 Dividends accrued 15 - 59,684 75,858 Less allowance for impairment losses (9,317) (4,598) Total other financial assets 50,367 71,260 Other non-financial assets: Prepayments and receivables on business transactions 313,847 327,538 Tax settlements, other than income tax 18,946 9,004 Advances to employees 1,940 2,576 Precious metals 25 - 334,758 339,118 Less allowance for impartment losses (12,808) (9,592) Total other non-financial assets 321,950 329,526 Total other assets 372,317 400,786 Movements in allowances for impairment losses on other assets for the years ended 31 December 2008 and 2007 are disclosed in Note 6.

34

22. DUE TO BANKS Due to banks or other financial institutions comprise:

31 December

2008 31 December

2007 Loans and term deposits of banks 23,895,595 9,978,046 Loans from Bank of Russia 8,098,160 - Loans under repurchase agreements from the Bank of Russia 1,081,863 - Correspondent accounts of other banks 395,965 416,048 Total due to banks 33,471,583 10,394,094 As at 31 December 2008 and 2007 included in due to banks was accrued interest expense of RUB 304,493 thousand and RUB 42,039 thousand, respectively. As at 31 December 2008 included in due to banks or other financial institutions are loans under repurchase agreements from the Bank of Russia with due date before 11 January 2009. Fair value of assets pledged and carrying value of loans under repurchase agreements as at 31 December 2008 and 2007 are presented as follows: 31 December 2008 31 December 2007 Fair value of




of loans Government bonds Federal loan bonds 320,739 308,804 - - Eurobonds: Dresdner Kleinwort Wasserstein

(Moscow) 475,321 413,980 - - OJSC “Promsvyazbank” 154,602 120,507 - - OJSC AK “Transneft” 149,984 129,354 - - TNK-ВР Holding 124,197 109,218 - - Total 1,224,843 1,081,863 - - As at 31 December 2008 and 2007 the due to banks in the amounts of RUB 22,871,306 thousand (68.33%) and RUB 7,646,217 thousand (73.56%), respectively, were due to the Parent company of the Bank, which represents significant concentration. The Bank is obligated to comply with financial covenants in relation to due to banks disclosed above. These covenants include stipulated ratios, debt to equity ratios and various other financial performance ratios. The Bank has not breached any of these covenants during the years ended 31 December 2008 and 2007.

23. CUSTOMER ACCOUNTS Customer accounts comprise: 31 December

2008 31 December

2007 Time deposits 18,107,410 22,680,591 Repayable on demand 14,723,889 18,912,445 Total customer accounts 32,831,299 41,593,036

35

31 December 2008

31 December 2007

Analysis by sector: Individuals 19,565,409 23,923,377 Trade 3,211,819 6,054,151 Construction 2,831,897 2,231,680 Services 1,156,501 2,040,837 Insurance 977,700 478,193 Real estate and rent 846,892 647,060 Manufacturing and engineering 717,355 962,155 Finance and investments 604,060 1,362,811 Transport and communication 489,741 1,617,971 Science, education and IT 478,675 603,294 Marketing and advertising 399,549 457,298 Food industry 279,579 239,232 Public activities and charity 163,630 239,762 Publishers, polygraphy and mass media 117,992 150,974 Agriculture 106,843 82,597 Power and heat generation and distribution 13,070 17,335 Oil & gas production, refining and transportation 11,364 68,435 Finance and operating leases 6,245 13,748 Other 852,978 402,126 Total customer accounts 32,831,299 41,593,036 As at 31 December 2007 time deposits from 4 customers/groups of related customers totaled RUB 2,461,899 thousand, which individually exceeded 10% of the Bank‟s equity. As at 31 December 2008 and 2007 included in customer accounts was accrued interest expense of RUB 223,306 thousand and RUB 133,157 thousand, respectively.

24. DEBT SECURITIES ISSUED Debt securities issued comprise:

Maturity date

month/year

Annual interest rate,

%

31 December 2008

Maturity date

month/year

Annual interest rate,

%

31 December 2007

Discounted promissory notes

January

2009 – July 2015 5.11-13.10 887,635

November 2007 –

December 2012 4.59-10.45 858,070

Interest bearing promissory notes

January 2009 – October

2009 7.75-12.50 372,188

January 2008 – October

2009 6.42-9.06 263,530

Interest/discount free promissory notes

on demand – January

2009 - 49,030

on demand – January

2009 - 92,962 Total Debt securities issued 1,308,853 1,214,562 As at 31 December 2008 and 2007 accrued interest expense included in debt securities issued amounted to RUB 29,411 thousand and RUB 29,424 thousand, respectively. The Bank is obligated to comply with financial covenants in relation to debt securities issued disclosed above. These covenants include stipulated ratios, debt to equity ratios and various other financial performance ratios. The Bank has not breached any of these covenants during the years ended 31 December 2008 and 2007.

36

25. OTHER LIABILITIES Other liabilities comprise: 31 December

2008 31 December

2007 Other financial liabilities: Revaluation on spot transactions 48,844 6,475 Accrued commission expenses 7,499 18,301 Dividends payable to shareholders 375 836 Settlements on other operations 6,891 9,670 63,609 35,282 Other non-financial liabilities: Compensations to employees accrued 408,216 215,775 Taxes payable, other than income tax 91,385 53,136 Trade accounts payable and fees payable for professional services 45,887 92,989 Accrued expenses on contributions to the deposit insurance scheme 18,557 28,928 Current income tax liabilities 1,978 4,776 566,023 395,604 Total other liabilities 629,632 430,886

26. SUBORDINATED DEBT 31 December 2008 31 December 2007

Currency Interest rate, %

Maturity date year

Carrying value

Maturity date year

Carrying value

Subordinated debt of

OTP BANK PLC USD 7.05 2014 1,067,066 2014 891,685 Subordinated debt of

ОТР Financing Cyprus CHF 4.6 2014 475,896 2014 371,562

Subordinated debt of OTP BANK PLC RUB 7 2014 199,742 2012 201,493

Subordinated debt of OTP BANK PLC RUB 7 2015 156,162 2013 157,531

Subordinated debt of OTP BANK PLC RUB 6.5 2015 128,239 2013 129,284

Subordinated debt of OTP BANK PLC RUB 6.5 2014 85,694 2012 86,393

Total subordinated

debt 2,112,799 1,837,948 As at 31 December 2008 and 2007 accrued interest expenses included in subordinated debt amounted to RUB 16,945 thousand and RUB 18,890 thousand, respectively. In the event of bankruptcy or liquidation of the Bank repayment of this debt is subordinate to the repayment of the Bank‟s liabilities to all other creditors. The purpose for attracting subordinated debt is for compliance with the Bank‟s Capital Adequacy Ratio approved by the CBR and maintaining of the Bank‟s Capital Adequacy Ratio to the extent allowed by the major shareholder OTP Bank Plc.

37

27. SHARE CAPITAL AND SHARE PREMIUM As at 31 December 2008 and 2007 the Bank‟s share capital comprised of 261,801,385,310 and 211,801,385,310 ordinary shares, respectively, with par value of RUB 0.01 each. As at 31 December 2008 the Bank‟s share capital comprised the following number of shares with par value of RUB 0.01 each: Authorized

share capital Unpaid

share capital Repurchased

share capital Total

share capital (shares ‘000)

Ordinary shares 261,801,385 - - 261,801,385 As at 31 December 2007 the Bank‟s share capital comprised the following number of shares with par value of RUB 0.01 each: Authorized

share capital Unpaid

share capital Repurchased

share capital Total

share capital (shares ‘000)

Ordinary shares 211,801,385 - - 211,801,385 Changes in the number of shares outstanding for the year ended 31 December 2008 and 2007 were as follows: Ordinary

shares, (shares ‘000)

31 December 2006 211,801,385 31 December 2007 211,801,385 Changes in the number of shares due to additional issue of shares 50,000,000 31 December 2008 261,801,385 On 30 September 2008 the Bank of Russia registered the report of results of additional share issue of OJSC “OTP Bank”. Thus share capital of the Bank was increased in value RUB 500,000 thousand. Share premium represents the excess of contributions over the nominal value of the shares issued. As the market price of the shares issued was above the nominal value, share premium amount to RUB 2,000,000 thousand as at 31 December 2008. The Bank‟s distributable reserves among the shareholders reserves are limited to the amount of its reserves as disclosed in its statutory accounts. Non-distributable reserves are represented by a reserve fund, which is created as required by the statutory regulations, in respect of general banking risks, including future losses and other unforeseen risks or contingencies. The reserve has been created in accordance with the Bank‟s statute that provides for the creation of a reserve for these purposes of not less than 5% of the Bank‟s share capital reported in statutory books.

38

28. COMMITMENTS AND CONTINGENCIES In the normal course of business the Bank is a party to financial instruments with off-balance sheet risk, in order to meet the needs of its customers. These instruments involve varying degrees of credit risk which are not reflected in the balance sheet. The Bank‟s maximum exposure to credit loss under contingent liabilities and commitments to extend credit, in the event of non-performance by the other party where all counterclaims, collateral or security prove valueless, is represented by the contractual amounts of those instruments. The Bank uses the same credit control and management policies in undertaking off-balance sheet commitments as it does for on-balance operations. Provision for losses on contingent credit liabilities amounted to RUB 17,892 thousand and RUB 45,127 thousand as at 31 December 2008 and 2007, respectively. As at 31 December 2008 and 2007 the nominal or contract amounts were: 31 December

2008 31 December

2007 Nominal

amount Nominal amount

Contingent liabilities and credit commitments Commitments on loans and unused credit lines 17,826,434 20,070,559 Guarantees issued and similar commitments 502,518 406,232 Total contingent liabilities and credit commitments 18,328,952 20,476,791 Extension of loans to customers within credit line limits is approved by the Bank on a case-by-case basis and depends on borrowers‟ financial performance, debt service and other conditions. As at 31 December 2008 and 2007 such unused credit lines come to RUB 5,864,624 thousand and RUB 9,396,672 thousand, respectively. Capital commitments – as at 31 December 2008 and 2007 the Bank had capital commitments in respect of premises in lease totaling RUB 29,290 thousand and RUB 47,766 thousand, respectively. Operating lease commitments – Where the Bank is the lessee, the future minimum lease payments under non cancelable operating leases as at 31 December 2008 and 2007 are as follows: 31 December

2008 31 December

2007 Less than 1 year 673,307 450,775 Later than 1 year and not later than 5 years 1,160,986 814,594 Later than 5 years 42,502 55,036 Total operating lease commitments 1,876,795 1,320,405 Fiduciary activities – In the normal course of its business the Bank enters into agreements with limited right on decision making with clients for their assets management in accordance with specific criteria established by clients. The Bank accepts the operational risk on these activities, but the Bank‟s customers bear the credit and market risks associated with such operations. As at 31 December 2008 and 2007 the amount of the clients‟ funds plus unrealized income on the clients‟ position does not exceed RUB 2,375 thousand and RUB 3,617 thousand, respectively. The Bank also provides depositary services to its customers. As at 31 December 2008 and 2007, the Bank had customer securities totaling 97,680,559,974 items and 251,040,282 items, respectively, in its nominal holder accounts.

39

Legal proceedings – From time to time and in the normal course of business, claims against the Bank are received from customers and counterparties. Movements in allowances for legal claims are disclosed in Note 6. Taxation – Provisions of the Russian tax legislation are sometimes inconsistent and may have more than one interpretation, which allows the Russian tax authorities to take decisions based on their own arbitrary interpretation of these provisions. In practice, the Russian tax authorities often interpret the tax legislation not in favor of the taxpayers, who have to resort to court proceeding to defend their position against the tax authorities. If a particular treatment based on management‟s judgment of the Bank‟s business activities is challenged by the tax authorities, the Bank may be assessed additional taxes, penalties and interest. Such uncertainty could, in particular, be attributed to tax treatment of financial instruments/derivatives and determination of market price of transactions for transfer pricing purposes. The management of the Bank is confident that applicable taxes have all been accrued and, consequently, creation of respective provisions is not required. Generally, taxpayers are subject to tax audits with respect to three calendar years preceding the year of the audit. Operating environment – The Bank‟s principal business activities are within the Russian Federation. Laws and regulations affecting the business environment in the Russian Federation are subject to rapid changes and the Bank‟s assets and operations could be at risk due to negative changes in the political and business environment. Specific volatility in global and RF’s financial markets – In recent months a number of major economies around the world have experienced volatile capital and credit markets. A number of major global financial institutions have either been placed into bankruptcy, taken over by other financial institutions and/or supported by government funding. As a consequence of the recent market turmoil in capital and credit markets both globally and in the Russian Federation, notwithstanding any potential economic stabilization measures that may be put into place by the Government of the RF, there exists economic uncertainties surrounding the continual availability, and cost, of credit both for the Bank and its counterparties, the potential for economic uncertainties to continue in the foreseeable future and, as a consequence, the potential that assets may not be recovered at their carrying amount in the regular course of business, and a corresponding impact on the Bank‟s profitability. Losses incurred by the Bank as a result of decline of securities prices as at 31 December 2008 didn‟t exceed RUB 550,370 thousand. In connection with continuing world economic crisis strong credit limits were set by the Bank of Russia (amounting to RUB 15,000,000 thousand), Ministry of Finance of the Russian Federation (amounting to RUB 3,000,000 thousand) and major government institutions such as Assistance Fund of Housing and communal services reform (amounting to RUB 745,000 thousand). This resulted in significant increase in limits of funds which could be received on capital market. Correspondent Banks haven‟t decreased the limits and haven‟t changed the terms of cooperation with the Bank. Recoverability of financial assets – As a result of recent economic turmoil in capital and credit markets globally, and the consequential economic uncertainties existing as at balance sheet date, there exists the potential that assets may not be recovered at their carrying amount in the regular course of business. As at 31 December 2008, the Bank has financial assets amounting to RUB 76,278,550 thousand (as at 31 December 2007: RUB 57,465,355 thousand). The recoverability of these financial assets depends on a large extent on the efficacy of the fiscal measures and other measures and other actions, beyond the Bank‟s control, undertaken within various countries to achieve economic stability and recovery. The recoverability of the Bank‟s financial assets is determined based on conditions prevailing and information available as at balance sheet date. It is the management‟s opinion that no additional provision on financial assets is needed at present, based on prevailing conditions and available information.

40

29. SUBSEQUENT EVENTS Starting 1 January 2009 an amendment to the Tax Code of Russian Federation is effective to reduce the corporate income tax rate from 24% to 20%. In addition, an amendment to current procedure of recognition of certain types of expenses is provided, which makes possible to reduce income tax base. In the normal course of business the Bank during the period from 1 January 2009 till the date if Audit report issue undertook various contractual commitments and contingencies. Significant commitments with maturity date after the date of audit report represent credit funds due to CBR in amount of RUB 2,000,000 thousand. However, during the stated period the Bank reduced its payables to CBR. From 1 January 2009 till the audit report date the Bank repaid credit funds in amount of RUB 9,000,000 thousand.

30. TRANSACTIONS WITH RELATED PARTIES Related parties or transactions with related parties, as defined by IAS 24 “Related party disclosures”, represent: (a) Parties that directly, or indirectly through one or more intermediaries: control, or are controlled

by, or are under common control with, the Bank (this includes parents, subsidiaries and fellow subsidiaries); have an interest in the Bank that gives then significant influence over the Bank; and that have joint control over the Bank;

(b) Associates – enterprises on which the Bank has significant influence and which is neither a subsidiary nor a joint venture of the investor;

(c) Joint ventures in which the Bank is a venturer; (d) Members of key management personnel of the Bank or its parent; (e) Close members of the family of any individuals referred to in (a) and (d); (f) Parties that are entities controlled, jointly controlled or significantly influenced by, or for which

significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or

(g) Post-employment benefit plans for the benefit of employees of the Bank, or of any entity that is a related party of the Bank.

In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. Details of transactions between the Bank and other related parties are disclosed below: 31 December 2008 31 December 2007 Related party

transactions

Total category as per financial

statements caption

Related party transactions


statements caption

Cash and cash equivalents 2,427 17,065,786 849 5,465,631 - shareholders 1,647 - 98 - - entities and banks controlled by

shareholders 780 - 751 - Due to banks 275,490 412,588 - 2,083,071 - entities and banks controlled by

shareholders 275,490 - - - Loans to customers 43,600 59,840,662 25,400 46,714,435 - key management personnel of

the Bank 41,804 - 21,615 - - other related parties 1,796 - 3,785 -

41

31 December 2008 31 December 2007 Related party

transactions


statements caption



statements caption

Allowance for impairment losses on

loans to customers 42 6,078,168 117 5,366,934 - key management personnel of

the Bank 38 - 106 - - other related parties 4 - 11 - Investments available-for-sale 12,549 1,966,881 12,549 1,563,649 - other related parties 12,549 - 12,549 - Other assets 1,351 372,317 83 400,786 - shareholders 907 - - - - key management personnel of

the Bank 444 - 83 - Due to banks 23,036,928 33,471,583 7,646,217 10,394,094 - shareholders 22,871,306 - 7,646,217 - - entities and banks controlled by

shareholders 165,622 - - - Customer accounts 352,420 32,831,299 131,529 41,593,036 - shareholders 202,508 - 335 - - key management personnel of

the Bank 134,392 - 67,230 - - other related parties 15,520 - 63,964 - Other liabilities 90 629,632 - 430,886 - key management personnel of

the Bank 90 - - - Subordinated debt 2,112,799 2,112,799 1,837,948 1,837,948 - from shareholders 1,636,904 - 1,466,387 - - entities and banks controlled by

shareholders 475,895 - 371,561 - Commitments on credits and

unused credit lines 2,944 5,864,624 4,761 9,396,672 - key management personnel of

the Bank 2,944 - 4,760 - - other related parties - - 1 - Compensation of directors and other members of key management personnel is the following: 31 December 2008 31 December 2007 Related

party transactions


statements caption



statements caption

Key management personnel

compensation: - Short-term employee benefits 317,011 3,080,292 213,909 2,260,556 317,011 3,080,292 213,909 2,260,556

42

Included in the income statement for the years ended 31 December 2008 and 2007 are the following amounts which arose due to transactions with related parties: Year ended

31 December 2008 Year ended

31 December 2007 Related party

transactions


statements caption



statements caption

Interest income 11,052 12,762,139 5,061 8,723,453 - shareholders 2,541 - 2,969 - - key management personnel of

the Bank 3,193 - 1,563 - - entities and banks controlled by

shareholders 4,950 - 1 - - other related parties 368 - 528 - Interest expense 871,488 2,736,032 249,291 2,449,320 - shareholders 842,851 - 239,164 - - key management personnel of


shareholders 20,679 - 1,167 - - other related parties 2,546 - 1,130 - Net (loss)/gain on

foreign exchange operations 299,835 (828,952) 9,125 163,853 - shareholders 296,386 - 9,029 - - key management personnel of

the Bank 660 - 92 - - entities and banks controlled by

shareholders 2,742 - - - - other related parties 47 - 4 - Fee and commission income 1,586 1,857,952 399 2,232,833 - shareholders 353 - 7 - - key management personnel of

the Bank 210 - 272 - - entities and banks controlled by

shareholders 840 - - - - other related parties 183 - 120 - Fee and commission expenses 6 441,688 - 250,492 - shareholders 3 - - - entities and banks controlled by

shareholders 3 - - - Other income 54 37,696 1,777 27,308 - shareholders 44 - 1,726 - - key management personnel of

the Bank 10 - 41 - - other related parties - - 10 - Operating expenses 15,519 6,106,241 16,727 4,635,766 - key management personnel of


shareholders 2,053 - 383 -

43

31. FAIR VALUE OF FINANCIAL INSTRUMENTS Estimated fair value disclosures of financial instruments are made in accordance with the requirements of IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement”. Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm‟s length transaction, other than in forced or liquidation sale. The estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a market exchange from the sale of its full holdings of a particular instrument. The fair value of financial assets and liabilities compared with the corresponding carrying amount in the balance sheet of the Bank is presented below: 31 December 2008 31 December 2007 Carrying value Fair value Carrying value Fair value Cash and cash equivalents 17,065,786 17,065,786 5,465,631 5,465,631 Financial assets at fair value

through profit or loss 320,739 320,739 6,934,243 6,934,243 Due from banks 412,588 412,588 2,083,071 2,083,071 Investments available-for-sale 1,947,833 1,947,834 1,550,969 1,550,969 Investments held to maturity 2,699,695 1,784,947 - - Due to banks 33,471,583 33,471,583 10,394,094 10,394,094 Customer accounts 32,831,299 32,831,299 41,593,036 41,593,036 Debt securities issued 1,308,853 1,308,853 1,214,562 1,214,562 Subordinated debt 2,112,799 2,112,799 1,837,948 1,837,948 As at 31 December 2008 and 2007 investments available-for-sale in the amount of RUB 19,048 thousand and RUB 12,680 thousand, respectively, were carried at historical cost. The fair value of loans cannot be measured reliably due to time and value restrictions. As at 31 December 2008 and 2007 loans to customers in amount of RUB 53,762,494 thousand and RUB 41,347,501 thousand, respectively, were carried at amortized cost net of provision for impairment. The fair value of loans to customers cannot be fairly determined as it is impossible to receive fair value or to apply estimation methodic for such instruments. The management of the Bank checks the amount of provision for impairment of loans to customers.

32. REGULATORY MATTERS Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total (8%) and tier 1 capital (4%) to risk weighted assets. The ratio was calculated according to the principles employed by the Basel Committee. As at 31 December 2008 the Bank‟s total capital amount for Capital Adequacy purposes was RUB 10,939,817 thousand and tier 1 capital amount was RUB 8,937,550 thousand with ratios of 17.27% and 14.11%, respectively. As at 31 December 2007 the Bank‟s total capital amount for Capital Adequacy purposes was RUB 7,015,572 thousand and tier 1 capital amount was RUB 4,940,892 thousand with ratios 13.40% and 9.44%, respectively. As at 31 December 2008 the Bank included in the computation of total capital for capital adequacy purposes the subordinated debt received, limited to 50% of tier 1 capital. In the event of bankruptcy or liquidation of the Bank repayment of this debt is subordinate to the repayment of the Bank‟s liabilities to all other creditors.

44

33. CAPITAL RISK MANAGEMENT The share capital management is performed by the Bank‟s management bodies: Board of Directors, General Meeting of Shareholders. The primary objectives of the Bank‟s capital management is, in particular, to comply with the minimum share capital requirements set by the legislation of the Russian Federation, ensure compliance with obligatory ratios of the Bank of Russia, and compliance of the Bank‟s share capital with the minimum statutory capital established by the Bank of Russia. The Bank‟s share capital may be increased or decreased. The General Meeting of Shareholders may take a decision to decrease the share capital of the Bank through purchase of a portion of outstanding shares to reduce their total number, through the redemption of the shares repurchased, and decrease of the par value of shares. No decrease in the Bank‟s share capital is planned. The increase in the share capital is possible through increase in the par value of all outstanding shares or shares of certain categories (types), and additional share issue. The decision to increase the share capital of the Bank through an increase in the par value of its shares or additional share issues is referred to the competence of the General Meeting of Shareholders of the Bank: In case of additional share issues though a closed subscription; In case of additional share issues through an open subscription in an amount exceeding 25 percent

of outstanding ordinary shares of the Bank and other cases stipulated by Russian legislation. The decision to increase the share capital of the Bank through issue of additional shares within the number and categories (types) of authorized shares is referred to the competence of the Board of Directors of the Bank in the following cases: Issue of additional shares through an open subscription (if the number of additional shares does

not exceed 25% of the outstanding ordinary shares); Conversion of previously issued convertible securities into shares in accordance with the terms

of issue and the legislation of the Russian Federation; Issue of additional shares paid from the Bank‟s property upon distribution among the shareholders; The decision to increase the share capital of the Bank is not referred to the competence of

the General Meeting of Shareholders in accordance with the effective legislation. Regulatory authorities of the Russian Federation set the following limits on capital of credit organizations of the RF: 1. Capital adequacy ratio N1 (for the entities where the capital is more than EUR 5 mln. – 10%). 2. The aggregated stability indicator relating to the capital assessment within the ratio established by

the Federal Law “On insurance of deposits” should be considered at least “Satisfactory” which means that the indicator does not exceed 2.3.

In 2008 the Bank complied with all the requirements related to the structure and amount of equity set by the legislation.

34. RISK MANAGEMENT POLICIES Management of risk is one of the priority tasks of the Bank. In 2007 the Bank commenced activities to bring the Bank‟s risk management into compliance with the standards of the Parent Bank – OTP BANK PLC. As part of this process, the Bank‟s personnel structure has been reformed including the establishment of a separate Risk Management Division. The Bank has also reformed its key collective bodies responsible for risk accepting – Main Credit Committee, Asset and Liability Management Committee, Product Development Committee – and established a Troubled Assets Department.

45

In 2007 as part of risk management integration process the Bank continued to implement the accepted by the Parent Bank general principles of risk assessment and accepting according to local specifics, regulatory framework of the Bank of Russia and recommendations of the Basle Committee on Banking Supervision and audit companies. The Bank‟s risk management system is based on a continuing and ongoing processes of risk identifying, analyzing, monitoring and controlling. The Bank distinguishes between the following major risks: credit exposures, liquidity and market movements in interest rates and foreign exchange rates. A description of the Bank‟s risk management policies in relation to those risks follows. Credit risk The Bank is exposed to credit risk, which is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Management of credit risk is of the highest priority for the Bank. Increase in the Bank‟s loan portfolio, expansion of its market share and introduction of new products are performed under obligatory control of the credit risk level. Credit risk management is performed in accordance with internal regulations approved by the Bank‟s Main Credit Committee. The regulations provide for a systematic approach to the principles of risk knowledge, segregation of authority, monitoring and control over the risks accepted. During 4 quarter 2008 the Bank changed its credit policy from loan portfolio expansion based to the policy which aims to retain the archived loan portfolio capacity with decreased risk level. The set of measures of effective risk management undertaken in retail credit market at the end of 2008 represented changes in terms of loan contracts, increased attention to loan collaterals and monitoring of loans. In retail business, the approach to the assessment of the risks accepted is based on statistical assessment (scoring cards, for example) and personal information (credit bureau, Federal Migration Service, etc.). To optimize the work of its Overdue Debt Collection Directorate, the decision has been taken to engage external collection agencies. The factors listed below will influence the Bank strategy over credit risks measurement and acceptance in 2009 in the following way: Changes in loan portfolio increase strategy by moving from aggressive loan portfolio expansion

policy to the policy of retention the archived level of loan portfolio on basis of “minimum risk with stable return” approach;

Changes in proportion of national and foreign currency loans due to changes in people saving preferences which resulted from national currency devaluation;

Financing of the most perspective and profitable credit projects. The principle of selection and higher requirements to the financial performance of borrowers (especially, new borrowers of the Bank) should become basic in the work of credit departments of the Bank;

Diversification of loan portfolio (allocation of loan portfolio between the most possible number of borrowers and sectors);

Only acceptance of the credit risk which allows to create high quality credit assets; Maximum prudence when refinancing other banks credits; In case of presenting to the Client foreign currency credit product, the limit level should be

decreased by 20% (for the purpose of currency risk reduction); Only approval of credit deals guaranteed by the most liquid and secure collateral. The basis of effective credit risk management of corporate borrowers is independent and accurate evaluation of borrowers‟ present and future financial performance, regular control over financial performance and quality of loan maintenance during the terms of loan agreement, and also prudent and careful loan portfolio management.

46

In 2008 for large corporate borrowers the Bank developed personal credit schedules, deal structuring, minimizing loss risks both for the Bank and for the borrower under legislation requirements of Russian Federation, CBR standards and Bank internal standards. New credit product were proposed for the clients of “Small and medium business” segment: “Business mortgage for small and medium business”, “Classic credit for small and medium business”, “Overdraft for small and medium business”. Maximum Exposure of credit risk The Bank‟s maximum credit risk exposure may vary significantly depending on the individual risks inherent in specific assets and overall market risks. The following table presents the maximum exposure to credit risk of balance sheet and off balance sheet financial assets. For financial assets in the balance sheet, the maximum exposure is equal to the carrying amount of those assets prior to any offset or collateral. For financial guarantees and other off balance sheet assets, the maximum exposure to credit risk is the maximum amount the Bank would have to pay if the guarantee was called on or in the case of commitments, if the loan amount was called on. As at 31 December 2008: Maximum

exposure Offset Net credit

risk exposure after offset

Collateral Net credit risk exposure

after offset and

collateral Balances with the Central Bank of

the Russian Federation 7,251,044 - 7,251,044 - 7,251,044 Corresponding accounts and

accounts of non-bank credit institutions 6,759,745 - 6,759,745 - 6,759,745

Financial assets at fair value through profit or loss 320,739 - 320,739 - 320,739

Due from banks 412,588 - 412,588 - 412,588 Loans to customers 59,840,662 (541,683) 59,298,979 (22,680,357) 36,618,622 Investments available-for-sale 1,966,881 - 1,966,881 - 1,966,881 Investments held to maturity 2,699,695 - 2,699,695 - 2,699,695 Guarantees issued and

similar liabilities 502,518 (32,856) 469,662 (2,350) 467,312 Commitments on loans and

unused credit lines 5,864,624 - 5,864,624 - 5,864,624 As at 31 December 2007: Maximum

exposure Offset Net credit

risk exposure after offset

Collateral Net credit risk exposure

after offset and

collateral Balances with the Central Bank of

the Russian Federation 1,721,502 - 1,721,502 - 1,721,502 Corresponding accounts and

accounts of non-bank credit institutions 1,375,073 - 1,375,073 - 1,375,073

Financial assets at fair value through profit or loss 6,934,243 - 6,934,243 - 6,934,243

Due from banks 2,083,071 - 2,083,071 (1,562,853) 520,218 Loans to customers 46,714,435 (241,617) 46,472,818 (16,900,559) 29,572,259 Investments available-for-sale 1,563,671 - 1,563,671 - 1,563,671 Guarantees issued and

similar liabilities 406,232 (38,158) 368,074 (1,964) 366,110 Commitments on loans and

unused credit lines 9,396,672 - 9,396,672 - 9,396,672

47

Financial assets are graded according to the current credit rating they have been issued by an internationally regarded agency such as Fitch, Standard & Poor‟s and Moody‟s. The highest possible rating is AAA. Investment grade financial assets have ratings from AAA to BBB. Financial assets which have ratings lower than BBB are classed as speculative grade. As of December, 31 2008 and 2007 the Cash and Cash equivalents in the CBR amounted to RUB 7,251,044 thousand and RUB 1,721,502 thousand, respectively. The credit rating of the Russian Federation according to the international rating agencies in 2008 corresponded to investment level BBB. The following table details the credit ratings of financial assets held by the Bank as at 31 December 2008: ААА АА A ВВВ <ВВВ Not rated 31 December

2008 Total

(RUB ‘000) Corresponding accounts

and accounts of non-bank credit institutions - 314,614 24,811 3,792,962 17,149 2,610,209 6,759,745

Financial assets at fair value through profit or loss - - - 320,739 - - 320,739

Due from banks - 137,070 6 2 275,508 2 412,588 Loans to customers - - - - - 53,762,494 53,762,494 Investments available-

for-sale - - 6,364 625,305 1,322,528 12,684 1,966,881 Investments held to

maturity - - - - 2,699,695 - 2,699,695 As at 31 December 2007: ААА АА A ВВВ <ВВВ Not rated 31 December

2007 Total

(RUB ‘000) Corresponding accounts

and accounts of non-bank credit institutions - 11,708 769,193 860 18,672 574,640 1,375,073

Financial assets at fair value through profit or loss - - - 2,128,340 4,805,903 - 6,934,243

Due from banks - 52 2,332 17 402,951 1,677,719 2,083,071 Loans to customers - - - - - 41,347,501 41,347,501 Investments available-

for-sale - - - - 1,550,969 12,680 1,563,649 The banking industry is generally exposed to credit risk through its financial instruments and contingent liabilities. With regard to the loans to customers this risk exposure is concentrated within the Russian Federation. The exposure is monitored on a regular basis to ensure that the credit limits and credit worthiness guidelines established by the Bank‟s risk management policy are not breached.

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Geographical concentration Country risk refers to the risk of losses when foreign counterparties are not able to meet their obligations due to economic, political and social changes or due to specifications of local legislation. This type of risk is controlled by the Credit Committee of the Bank. When loan applications or market technologies are considered special attention is paid to the country of residence of potential borrowers and to the country effect on the technology. More severe requirements are in effect for non-residents as compared to the residents of the Russian Federation. The Bank continuously monitors the recent developments in the world in order to be able to react to the relevant changes in a timely manner. The geographical concentration of assets and liabilities is set out below: Russian

Federation OECD

countries Other

countries 31 December

2008 Total

(RUB ‘000) ASSETS: Cash and cash equivalents 16,702,923 351,045 11,818 17,065,786 Minimum reserve with the Central

Bank of the Russian Federation 49,975 - - 49,975 Financial assets at fair value

through profit or loss 320,739 - - 320,739 Due from banks 275,512 137,076 - 412,588 Loans to customers 53,687,329 39,021 36,144 53,762,494 Investments available-for-sale 1,960,493 6,388 - 1,966,881 Investments held to maturity 500,793 - 2,198,902 2,699,695 Property, plant and equipment and

intangible assets 2,484,470 - - 2,484,470 Current income tax assets 92,392 - - 92,392 Deferred income tax assets 155,069 - - 155,069 Other assets 370,632 1,685 - 372,317 TOTAL ASSETS 76,600,327 535,215 2,246,864 79,382,406 LIABILITIES Due to banks 10,588,909 22,871,306 11,368 33,471,583 Customer accounts 32,210,932 295,384 324,983 32,831,299 Debt securities issued 1,308,853 - - 1,308,853 Other provisions 18,259 - - 18,259 Deferred income tax liabilities 166,017 - - 166,017 Other liabilities 629,626 - 6 629,632 Subordinated debt - 1,636,904 475,895 2,112,799 TOTAL LIABILITIES 44,922,596 24,803,594 812,252 70,538,442 NET POSITION 31,677,731 (24,268,379) 1,434,612

49

Russian Federation

OECD countries

Other countries

31 December 2007 Total

(RUB ‘000) ASSETS: Cash and cash equivalents 4,477,374 984,997 3,260 5,465,631 Minimum reserve with the Central

Bank of the Russian Federation 732,333 - - 732,333 Financial assets at fair value

through profit or loss 6,646,820 - 287,423 6,934,243 Due from banks 2,083,071 - - 2,083,071 Loans to customers 41,290,838 36,375 20,288 41,347,501 Investments available-for-sale 12,660 20 1,550,969 1,563,649 Property, plant and equipment and

intangible assets 2,189,013 - - 2,189,013 Current income tax assets 19,113 - - 19,113 Deferred income tax assets 119,079 - - 119,079 Other assets 399,197 1,589 400,786 TOTAL ASSETS 57,969,498 1,022,981 1,861,940 60,854,419 LIABILITIES Due to banks 2,722,869 7,646,217 25,008 10,394,094 Customer accounts 40,244,605 1,046,850 301,581 41,593,036 Debt securities issued 1,061,596 152,966 - 1,214,562 Other provisions 45,966 - - 45,966 Deferred income tax liabilities 141,413 - - 141,413 Other liabilities 387,200 43,397 289 430,886 Subordinated debt - 1,466,387 371,561 1,837,948 TOTAL LIABILITIES 44,603,649 10,355,817 698,439 55,657,905 NET POSITION 13,365,849 (9,332,836) 1,163,501 Liquidity risk Liquidity risk refers to the inability to meet timely the Bank‟s obligations to its clients and counterparties as well as to satisfy the clients‟ and counterparties‟ and its own needs in credit resources. The Bank defines internal rules of management for funds with different maturity, investing them into financial instruments with respective due date, or repayable within 10-30 banking days. These rules are analyzed and revised by the Bank on a regular basis (subject to quarterly or more frequent reviews). Stress-testing and recommendations of the Parent are used during the analysis and review of the Bank‟s liquidity management models. During the liquidity management the Bank pays attention to evaluation and stress-testing of the level of stability of amounts of clients accounts (core deposit). The Bank checks that there are no liquidity gaps taking into account these researches. The liquidity risk is managed by the Asset and Liability Management Committee of the Bank. In order to manage liquidity risk an independent department of the Bank in charge of evaluation and monitoring of risk exposure performs its continuous (daily) monitoring. The exposure monitoring results are considered by the Asset and Liability Management Committee of the Bank. Current liquidity is managed by the Treasury Division of the Bank that performs operations in the money market to maintain the current liquidity level and optimize cash flows based on the tasks and decisions approved by the Bank‟s Asset and Liability Management Committee. To minimize the liquidity risk the Bank performs: Maintenance the optimum balance structure by currency and assets and liability maturity; Setting limits to positions for all financial instruments; Setting policy to operate on interbank market; Control over compliance with liquidity standards for credit institutions set by CBR; On-line monitoring of quick and current liquidity ratios.

50

An analysis of the liquidity and interest rate risks is presented in the following table. Weighted

average effective interest

rate

Up to 1 month

1 month to 3 months

3 months to 1 year

1 year to 5 years

Over 5 years

Maturity undefined


ASSETS Cash and cash equivalents 0.09% 4,053,913 - - - - - 4,053,913 Financial assets at fair value

through profit or loss 7.22% 320,739 - - - - - 320,739 Due from banks 8.51% 208,595 174,383 - 29,610 - - 412,588 Loans to customers 25.39% 4,965,023 8,872,781 14,744,061 16,028,730 9,151,899 - 53,762,494 Investments available-for-

sale 7.83% - 13,493 103,061 1,098,017 733,262 - 1,947,833 Investments held

to maturity 9.69% 6,004 63,892 18,897 1,585,915 1,024,987 - 2,699,695 Total interest bearing

assets 9,554,274 9,124,549 14,866,019 18,742,272 10,910,148 - 63,197,262 Cash and cash equivalents 13,011,873 - - - - - 13,011,873 Investments available-for-

sale - - - 19,048 - - 19,048 Other financial assets 44,637 4,550 1,180 - - - 50,367 Total financial assets 22,610,784 9,129,099 14,867,199 18,761,320 10,910,148 - 76,278,550 Minimum reserve with

the Central Bank of the Russian Federation 49,975 - - - - - 49,975

Property, plant and equipment and intangible assets - - - - - 2,484,470 2,484,470

Current income tax assets - 92,392 - - - - 92,392 Deferred income tax assets - - 155,069 - - - 155,069 Other non-financial assets 36,495 22,412 72,435 189,513 1,095 - 321,950 Total non-financial assets 86,470 114,804 227,504 189,513 1,095 2,484,470 3,103,856 TOTAL ASSETS 22,697,254 9,243,903 15,094,703 18,950,833 10,911,243 2,484,470 79,382,406 LIABILITIES Due to banks 7.05% 5,817,588 1,215,948 4,034,289 22,376,922 - - 33,444,747 Customer accounts 10.40% 9,328,173 3,792,019 7,309,969 290,692 - - 20,720,853 Debt securities issued 6.12% 639,733 294,070 202,173 119,734 4,113 - 1,259,823 Subordinated debt 6.43% - 16,945 - - 2,095,854 - 2,112,799 Total interest bearing

liabilities 15,785,494 5,318,982 11,546,431 22,787,348 2,099,967 - 57,538,222 Due to banks 26,836 - - - - - 26,836 Customer accounts 12,108,590 429 1,411 16 - - 12,110,446 Debt securities issued 49,030 - - - - - 49,030 Other financial liabilities 63,608 - - 1 - - 63,609 Total financial liabilities 28,033,558 5,319,411 11,547,842 22,787,365 2,099,967 69,788,143 Other provisions 17,417 594 248 - - 18,259 Deferred income tax

liabilities - - - - - 166,017 166,017 Other non-financial

liabilities 78,431 93,175 394,082 335 - - 566,023 Total non-financial

liabilities 95,848 93,769 394,330 335 - 166,017 750,299 TOTAL LIABILITIES 28,129,406 5,413,180 11,942,172 22,787,700 2,099,967 166,017 70,538,442 Liquidity gap (5,432,152) 3,830,723 3,152,531 (3,836,867) 8,811,276 Interest sensitivity gap (6,231,220) 3,805,567 3,319,588 (4,045,076) 8,810,181 Cumulative interest

sensitivity gap (6,231,220) (2,425,653) 893,935 (3,151,141) 5,659,040 Cumulative interest

sensitivity gap as a percentage of total assets (7.85%) (3.06%) 1.13% (3.97%) 7.13%

51

Weighted average effective interest

rate

Up to 1 month

1 month to 3 months

3 months to 1 year

1 year to 5 years

Over 5 years

Maturity undefined


ASSETS Cash and cash equivalents 3.9% 998,387 - - - - - 998,387 Financial assets at fair value

through profit or loss 8.8% 6,934,243 - - - - - 6,934,243 Due from banks 5.4% 2,083,071 - - - - - 2,083,071 Loans to customers 30.0% 6,593,054 8,596,766 14,155,620 10,238,683 1,763,378 - 41,347,501 Investments available-for-

sale 8.8% 4,411 63,841 8,974 645,276 828,467 - 1,550,969 Total interest bearing

assets 16,613,166 8,660,607 14,164,594 10,883,959 2,591,845 - 52,914,171 Cash and cash equivalents 4,467,244 - - - - - 4,467,244 Investments available-for-

sale - - - 12,680 - 12,680 Other financial assets 70,274 986 71,260 Total financial assets 21,150,684 8,660,607 14,165,580 10,896,639 2,591,845 - 57,465,355 Minimum reserve with

the Central Bank of the Russian Federation - - - - - 732,333 732,333

Property, plant and equipment and intangible assets - - - - - 2,189,013 2,189,013

Current income tax assets - 19,113 - - - - 19,113 Deferred income tax assets - - 119,079 - - - 119,079 Other non-financial assets 61,255 62,067 66,327 139,248 629 329,526 Total non-financial assets 61,255 81,180 185,406 139,248 629 2,921,346 3,389,064 TOTAL ASSETS 21,211,939 8,741,787 14,350,986 11,035,887 2,592,474 2,921,346 60,854,419 LIABILITIES Due to banks 5.3% 3,845,164 19,525 - 6,504,743 - - 10,369,432 Customer accounts 7.3% 13,387,576 4,461,892 7,803,702 219,740 - - 25,872,910 Debt securities issued 7.4% 348,884 302,986 284,617 185,113 - - 1,121,600 Subordinated debt 6.5% 9,701 8,022 - 283,000 1,537,225 - 1,837,948 Total interest bearing

liabilities 17,591,325 4,792,425 8,088,319 7,192,596 1,537,225 - 39,201,890 Due to banks 24,662 - - - - - 24,662 Customer accounts 15,716,575 1,155 2,363 33 - - 15,720,126 Debt securities issued 81,673 5,327 2,702 3,260 - - 92,962 Other financial liabilities 35,017 7 28 225 5 - 35,282 Total financial liabilities 33,449,252 4,798,914 8,093,122 7,196,114 1,537,230 - 55,074,922 Other provisions 43,836 220 1,910 - - - 45,966 Deferred income tax

liabilities - - - - - 141,413 141,413 Other non-financial

liabilities 94,062 133,396 168,146 - - - 395,604 Total non-financial

liabilities 137,898 133,616 170,056 - - 141,413 582,983 TOTAL LIABILITIES 33,587,150 4,932,530 8,263,467 7,196,114 1,537,230 141,413 55,657,905 Liquidity gap (12,375,211) 3,809,257 6,087,518 3,839,773 1,055,244 Interest sensitivity gap (978,159) 3,868,182 6,076,275 3,691,363 1,054,620 Cumulative interest

sensitivity gap (978,159) 2,890,023 8,966,298 12,657,661 13,712,281 Cumulative interest

sensitivity gap as a percentage of total assets (1.61%) 4.75% 14.73% 20.80% 22.53%

52

A further analysis of the liquidity risk is presented in the following tables in accordance with IFRS 7. The amounts disclosed in these tables do not correspond to the amounts recorded on the balance sheet because of the following: (a) term to maturity of financial liabilities, that are not derivatives, calculated for non-discounted

cash flows on financial liabilities (main debt and interests) on the earliest date, when the Bank will be liable to redeem the liability, and

(b) estimated term till maturity of financial assets, that are not derivatives, calculated for non-discounted cash flows on financial assets (including interests), which will be received on these assets based on contractual terms of maturity, except the cases when the Bank expects that cash flows will be received in the different time.

LIABILITIES Up to 1

month 1 month to 3

months 3 months

to 1 year 1 year to

5 years Over

5 years 31 December

2008 Total

Due to banks 5,847,145 1,383,068 5,146,149 24,665,456 - 37,041,818 Customer accounts 9,379,020 3,922,829 7,761,146 305,866 - 21,368,861 Debt securities issued 642,482 299,825 211,482 150,141 6,483 1,310,413 Subordinated debt - 33,936 100,839 539,287 2,199,134 2,873,196 Total interest bearing liabilities 15,868,647 5,639,658 13,219,616 25,660,750 2,205,617 62,594,288 Due to banks 26,836 - - - - 26,836 Customer accounts 12,108,590 429 1,411 16 - 12,110,446 Debt securities issued 49,030 - - - - 49,030 Derivatives (net) 48,844 - - - - 48,844 Guarantees issued 502,518 - - - - 502,518 Unused credit lines 5,864,624 - - - - 5,864,624 TOTAL LIABILITIES 34,469,089 5,640,087 13,221,027 25,660,766 2,205,617 81,196,586 LIABILITIES Up to 1

month 1 month to 3

months 3 months

to 1 year 1 year to

5 years Over

5 years 31 December

2007 Total

Due to banks 3,861,472 62,493 289,073 7,203,288 - 11,416,326 Customer accounts 13,476,498 4,609,801 8,036,002 227,098 - 26,349,399 Debt securities issued 349,583 306,846 304,616 224,938 - 1,185,983 Subordinated debt 9,701 15,682 92,491 758,634 1,667,983 2,544,491 Total interest bearing liabilities 17,697,254 4,994,822 8,722,182 8,413,958 1,667,983 41,496,199 Due to banks 24,662 - - - - 24,662 Customer accounts 15,716,575 1,155 2,363 33 - 15,720,126 Debt securities issued 81,673 5,327 2,702 3,260 - 92,962 Derivatives (net) 6,475 - - - - 6,475 Guarantees issued 406,232 - - - - 406,232 Unused credit lines 9,396,672 - - - - 9,396,672 TOTAL LIABILITIES 43,329,543 5,001,304 8,727,247 8,417,251 1,667,983 67,143,328 Market Risk Market risk refers to the risk of losses caused by unfavorable fluctuations in market prices. Market risk includes currency, interest rate and other price risks. The Bank is exposed to market risks associated with its interest rate, currency and equity instruments which are subject to general and specific market fluctuations. The Asset and Liability Management Committee of the Bank proposes the main approaches to the assessment, control and estimation of the maximum exposure to the risks (by setting the limits on each risk). Limits on the level of exposure are approved by the Asset and Liability Management Committee of the Bank. The daily compliance of the limits is controlled by an independent department responsible for assessment of the level of risk exposure.

53

However, this approach does not allow fully avoiding losses which exceed the limits in case of unusual market fluctuations. The existing methods of valuation of market risks and technology of operations at various markets (where such risks arise) adopted by the Bank minimize the possibility of losses that exceed the set limits. Interest rate sensitivity Interest rate risk refers to the possibility of adverse changes in interest rates in view of the gap between maturities of assets, liabilities and off-balance sheet instruments. The Bank is exposed to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Such fluctuations may increase the interest margin, however the unexpected changes of interest rates may cause decrease of interest margin or lead to losses. To minimize the interest rate risk, the Bank issues the regulations to manage liabilities and assets of the Bank according to their terms and liquidity. The interest rate risk monitoring is performed continuously by the Asset and Liability Management Committee of the Bank. Interest rates on funds placed and received by the Bank are subject to regular revision (subject to quarterly or more frequent reviews) and approval by the collective bodies of the Bank. The table below represents an analysis of sensitivity to interest rate risk based on the reasonably possible changes. Impact on profit and equity upon change of the interest rate by +1%:

Up to

1 month 1 month to

3 months 3 months to

1 year

Total 2008 (52,058) 31,923 11,822 (8,313) 2007 (118,596) 31,744 22,828 (64,024) Impact on profit and equity upon change of the interest rate by -1%:

Up to

1 month 1 month to

3 months 3 months to

1 year

Total 2008 52,058 (31,923) (11,822) 8,313 2007 118,596 (31,744) (22,828) 64,024 Currency risk Currency risk is a form of market risk. Currency risk is defined as the risk that the value of a financial instrument will fluctuate due to unfavorable changes in foreign exchange rates. General management of the Bank‟s currency position (currency and maturity) is performed as part of the activity of the Bank‟s collective bodies (Asset and Liability Management Department, Credit Committee, Management Board). Currently, the Bank tries to avoid significant currency imbalances in the balance sheet structure using various risk management instruments (borrowings from the Parent, use of derivatives). The Bank‟s Treasury Division performs operational management of the level of open currency position of the Bank by the means of limits set by the collective bodies of the Bank and the Central Bank of the Russian Federation.

54

The Bank‟s exposure to foreign currency exchange rate risk is presented in the tables below: RUB USD

USD 1 = RUB

29.3804

EUR EUR 1 =

RUB 41.4411

Other currency


(RUB ‘000) ASSETS: Cash and cash equivalents 4,589,667 11,154,878 1,149,610 171,631 17,065,786 Minimum reserve with

the Central Bank of the Russian Federation 49,975 - - - 49,975

Financial assets at fair value through profit or loss 320,739 - - - 320,739

Due from banks 245,898 166,680 - 10 412,588 Loans to customers 37,509,763 12,471,718 193,483 3,587,530 53,762,494 Investments available-for-sale 12,660 1,233,555 720,666 1,966,881 Investments held to maturity 500,793 1,297,336 820,432 81,134 2,699,695 Property, plant and equipment

and intangible assets 2,484,470 - - - 2,484,470 Current income tax assets 92,392 - - - 92,392 Deferred income tax assets 155,069 - - - 155,069 Other assets 363,052 6,505 1,470 1,290 372,317 TOTAL ASSETS 46,324,478 26,330,672 2,885,661 3,841,595 79,382,406 LIABILITIES Due to banks 9,997,413 19,899,312 430,271 3,144,587 33,471,583 Customer accounts 23,732,609 5,294,738 3,401,480 402,472 32,831,299 Debt securities issued 987,577 297,582 23,694 - 1,308,853 Other provisions 18,202 57 - - 18,259

Deferred income tax liabilities 166,017 - - - 166,017 Other liabilities 625,674 3,848 109 1 629,632 Subordinated debt 569,837 1,067,066 - 475,896 2,112,799 TOTAL LIABILITIES 36,097,329 26,562,603 3,855,554 4,022,956 70,538,442 OPEN BALANCE SHEET

POSITION 10,227,149 (231,931) (969,893) (181,361)

55

RUB USD

USD 1 = RUB 24.5462

EUR EUR 1 =

RUB 35.9332

Other currency


(RUB ‘000) ASSETS: Cash and cash equivalents 4,101,274 990,941 359,851 13,565 5,465,631 Minimum reserve with

the Central Bank of the Russian Federation 732,333 - - - 732,333

Financial assets at fair value through profit or loss 4,149,026 1,790,752 994,465 - 6,934,243

Due from banks 1,828,973 103,051 151,029 18 2,083,071 Loans to customers 35,601,162 5,236,469 25,930 483,940 41,347,501 Investments available-for-sale 12,660 841,852 622,288 86,849 1,563,649 Property, plant and equipment

and intangible assets 2,189,013 - - - 2,189,013 Current income tax assets 19,113 - - - 19,113 Deferred income tax assets 119,079 - - - 119,079 Other assets 394,795 4,355 64 1,572 400,786 TOTAL ASSETS 49,147,428 8,967,420 2,153,627 585,944 60,854,419 LIABILITIES Due to banks 2,206,531 6,834,474 1,178,590 174,499 10,394,094 Customer accounts 35,547,946 4,369,396 1,673,098 2,596 41,593,036 Debt securities issued 1,078,460 136,102 - - 1,214,562 Other provisions 45,412 550 4 - 45,966 Deferred income tax liabilities 141,413 - - - 141,413 Other liabilities 380,348 7,417 43,121 - 430,886 Subordinated debt 574,701 891,685 - 371,562 1,837,948 TOTAL LIABILITIES 39,974,811 12,239,624 2,894,813 548,657 55,657,905 OPEN BALANCE SHEET

POSITION 9,172,617 (3,272,204) (741,186) 37,287 Derivative financial instruments and spot contracts Fair value of derivative financial instruments and spot contracts are included in the currency analysis presented above and the following table presents further analysis of currency risk by types of derivative financial instruments and spot contracts: RUB USD

USD 1 = RUB 29.3804

EUR EUR 1 =

RUB 41.4411

Other currency


OPEN BALANCE SHEET

POSITION 10,227,149 (231,931) (969,893) (181,361) Accounts receivable on spot and

futures contracts 1,461,006 2,442,985 787,324 394,128 5,085,443 Accounts payable on spot and

futures contracts 2,278,571 2,630,802 - 176,070 5,085,443 NET SPOT AND DERIVATIVE

FINANCIAL INSTRUMENTS POSITION (817,565) (187,817) 787,324 218,058

TOTAL OPEN POSITION 9,409,584 (419,748) (182,569) 36,697

56

RUB USD USD 1 =

RUB 24.5462

EUR EUR 1 =

RUB 35.9332

Other currency


OPEN BALANCE SHEET

POSITION 9,172,617 (3,272,204) (741,186) 37,287 Accounts receivable on spot and

futures contracts 3,668,394 6,115,697 1,228,108 8,685 11,020,884 Accounts payable on spot and

futures contracts 7,108,210 3,074,749 783,621 54,304 11,020,884 NET SPOT AND DERIVATIVE

FINANCIAL INSTRUMENTS POSITION (3,439,816) 3,040,948 444,487 (45,619)

TOTAL OPEN POSITION 5,732,801 (231,256) (296,699) (8,332) Currency risk Sensitivity The table below details the Bank‟s sensitivity to appreciation and depreciation of the US dollar and Euro against the Russian ruble. 15% and 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management‟s assessment of the possible change in foreign currency exchange rates. The sensitivity analysis only includes outstanding foreign currency denominated monetary items and adjusts their translation at the end of the period for a 15% and 10% change in foreign currency rates. Impact on net profit before tax and equity based on asset values as at 31 December 2008 and 31 December 2007: As at 31 December 2008 As at 31 December 2007 RUB/USD

+15% RUB/USD

-15% RUB/USD

+15% RUB/USD

-15% Impact on profit or loss (3.33%) 3.33% (2.17%) 2.17% Impact on equity (0.71%) 0.71% (0.67%) 0.67% As at 31 December 2008 As at 31 December 2007 RUB/EUR

+10% RUB/EUR

-10% RUB/EUR

+10% RUB/EUR

-10% Impact on profit or loss (0.96%) 0.96% (1.86%) 1.86% Impact on equity (0.21%) 0.21% (0.57%) 0.57%

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Limitations of sensitivity analysis The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results. The sensitivity analyses do not take into consideration that the Bank‟s assets and liabilities are actively managed. Additionally, the financial position of the Bank may vary at the time that any actual market movement occurs. For example, the Bank‟s financial risk management strategy aims to manage the exposure to market fluctuations. As investment markets move past various trigger levels, management actions could include selling investments, changing investment portfolio allocation and taking other protective action. Consequently, the actual impact of a change in the assumptions may not have any impact on the liabilities, whereas assets are held at market value on the balance sheet. In these circumstances, the different measurement bases for liabilities and assets may lead to volatility in shareholder equity. Other limitations in the above sensitivity analyses include the use of hypothetical market movements to demonstrate potential risk that only represent the Bank‟s view of possible near-term market changes that cannot be predicted with any certainty; and the assumption that all interest rates move in an identical fashion. Price risk Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices whether those changes are caused by factors specific to the individual security or its issuer or factors affecting all securities traded in the market. The Bank is exposed to price risks of its products which are subject to general and specific market fluctuations. The Bank manages price risk through periodic estimation of potential losses that could arise from adverse changes in market conditions and establishing and maintaining appropriate stop-loss limits and margin and collateral requirements. With respect to undrawn loan commitments the Bank is potentially exposed to a loss of an amount equal to the total amount of such commitments. However, the likely amount of a loss is less than that, since most commitments are contingent upon certain conditions set out in the loan agreements. The table below represents an analysis of sensitivity to price risk based on the balance sheet position for investments in debt and equity securities at the reporting date. The results of the analysis of the sensitivity of the Bank‟s profit before tax and equity for the year to changes in prices of securities on a simplified scenario of 1% symmetrical increase or decrease in all securities prices are given in the table below: 31 December 2008

RUB’000 31 December 2007

RUB’000 1% increase in

securities price 1% decrease in securities price

1% increase in securities price

1% decrease in securities price

Impact on profit before tax 3,143 (3,143) 60,465 (60,465) Impact on equity 22,224 (22,224) 75,202 (75,202)

Documents

Open Joint Stock Company “OTP Bank” Bank...“OTP Bank” (the “Bank”), which comprise the balance sheet as at 31 December 2008, the income statement, the statements of changes