GSS Press | May 2014 11

May 2014

In this issue

TalkinG PoinT Sergei Monin (Raiffeisen Bank Moscow) 3

aT a Glance RuSSia: Economy under pressure of the political agenda 4 andrey Shemetov (Moscow Exchange) 5

reSearch rePorT Focus Russia: Geopolitical tensions as a negative factor 6

BehinD The SceneS 9

MarkeT rounDuP 10

ciTy Break Moscow 17

have you MeT 18Bettina Janoschek

aTTila‘S PhoTo BloG evenTS 19

conTacT uS 20 iMPrinT & DiSclaiMer 21

The sharpening tone of voice between Russia and the West has left many of us puzzled. While the European economy has tied up closely with Russia over the past years, benefiting greatly from the huge business opportunities, this involvement is suddenly under scrutiny. We have dedica-ted the May issue of GSS Press to Russia and its securities market, a place we know in detail thanks to our strong and long-term presence dating back to the early 1990s.

We at Raiffeisen Bank international are highly attentive about the developments in the region. Running one of the largest foreign banks in the country, we are cons-tantly up to date and keep reappraising the situation. We understand how much our cli-ents, tensely facing the current turbulence, expect us to safeguard their interests. after all, our commitment has already been tes-ted and proven during the ruble crisis in 1998; once again we are striving to pru-dently accompany our customers.

Russia is one of RBi’s focus markets, contri-buting a substantial share to the banking group’s revenues. This is possible because our local management not only boasts a vast combined professional experience but also can count on the capacity of our financial and economic analysts. in this issue you can find enlightening interviews on the subject. Mr. Sergei Monin, CEO

of Raiffeisenbank Russia, and Mr. andrey Shemetov, Deputy Chairman of the Board of MOEX, were kind enough to answer to the questions from the GSS editorial team.

There is also news from our business line and therefore i am very pleased that the GSS Team, consisting of hand-picked in-dustry experts, is now fully operating. Ple-ase find an outline of responsibilities and reporting lines in this issue. Most of the faces will look familiar to you.Enjoy reading our second issue of GSS Press!

Kind regards,attila Szalay-Berzeviczy Executive DirectorHead of Group Securities Services

Keeping a weather eye on Russia

GSS PressGroup Securities Services Monthly

This document is intended forinstitutional investors only.

GSS Press | May 2014 2

TalkinG PoinT

Mr. Monin, what are the cornerstones of your success story in russia?a large share of the assets of the Raiffei-sen Group is indeed in Russia, and we are proud that we have managed to build a strategically important business for the Group. in 2013, not only did we make a big profit, but also implemented and parti-ally completed our strategic cost optimiza-tion program.

We’ve also benefited from our diversified business model of universal bank. Our corporate portfolio didn’t show substantial growth last year while retail portfolio skyro-cketed which provided overall growth to a record-setting numbers in 2013.

at the same time we kept the quality of the portfolio at a high level. We are not gro-wing at the expense of quality. in 2013, we invested heavily in quality: created the unified SME front office, a new websi-te, R-Connect, R-Mobile, R-Dealer, Elbrus, Siebel, and we also invested in efficiency, with the creation of the unified operational center in Yaroslavl, and the application of lean techniques. We are pleased with the increase of operating efficiency and we are going to continue working to increa-se it further. By the end of 2013 our ROE was higher than the assets growth rate. We know how to generate capital and we do not need external injections, hence this ma-kes us a reliable bank that is sustainable in the face of economic volatility.

What are your strategic priorities for 2014?Our strategy is to operate on the full-service bank model, enabling us to continuously im-prove efficiency and to fully meet our custo-mer requirements in all business segments.

This includes a strong corporate business and a well-developed retail segment. The strategy may see some alterations such as changes to the segment share, additions to the product range, changes to payback periods and collateral depending on the credit rating of the borrower, and so on. But for the most part we have selected our development path and we are sticking to it.

how does the current political climate im-pact the strategic focus of your bank? how do you ensure to stay on top bearing in mind the challenges ahead e.g. a shrinking forecast in GDP growth?Our business model is very stable, because we are working with high quality borro-wers. Such borrowers are by definition more stress-resistant to any external stimuli. The combination of stability with the high return on equity means that we can con-fidently say that Raiffeisen is a successful and reliable company, and our customers clearly share that view. We see minor fluctuations regarding withdrawals from deposit and current accounts, but we do not expect any major changes. From the point of view of currency preferences, our retail clients now favor foreign currency deposit accounts over Ruble denominated accounts. as of today, this is the only thing that we are having to deal with.

importantly, Raiffeisen in Russia has a high level of capitalization, high profitability and good quality assets. in addition, we have very strong liquidity reserves; we meet the Central Bank regulations, as well as the much more conservative requirements of the Group. The bank is in very good shape, and this means that we can, and therefore our customers, look to the future with confidence.

With regard to the deteriorating economic conditions, we have a neutral outlook. The currently expected decrease in economic growth will not bring about any substantial changes to our agenda. We will stay on our chosen development path and currently do not plan to step off it.

after the recent consolidation of the rus-sian stock exchanges and cSDs, what do you see as the next mile stones on the road towards turning Moscow into one of the key capital market centers of the world? What are the most important topics that need to be addressed in the near future by the local regulators?The consolidation of the Russian stock ex-changes and CSDs were the major steps in improving and simplifying the Russian financial market infrastructure. These chan-ges are very important for both - foreign and local investors. in terms of the goals to

a reliable company Raiffeisen Bank Moscow is a dominant player amongst the international banks within the Russian Market. Moreover, RB Moscow contributed around 45% to the RBI Group‘s profit in 2013. GSS Press asked Mr. Sergei Monin, Chairman of the Board of ZAO Raiffeisenbank, for his view on the current market conditions.

GSS Press | May 2014 3

TalkinG PoinT

be reached i can mention – proper level of the investors’ rights protection, settlement of the very painful question of corporate actions, which includes a very wide range of the issues with disclosure of foreign no-minees, proxy voting, voluntary corporate actions, some uncertainty with taxation.

The development of the trading infrastruc-ture and legislation should become also a very effective step to boost the financial market, the regulators should stimulate the listing of the foreign financial instruments in Russia, expand the CCP activity including derivative trading. The important topic for local financial institutions is development of the securitization schemes.

But of course, it is clear that the whole con-cept of turning Moscow into one of the key international capital market centers highly depends on foreign investors‘ sentiment to-wards Russia. undoubtedly, investment cli-mate has been materially damaged during the recent months due to the ukraine factor. although the currently imposed sanctions against Russia are relatively soft they are definitely negative for the sentiment. Funda-mentally, the prospects of economic growth in Russia have also deteriorated. Even if serious sanctions were not imple-mented, an uncertainty could lead to wea-ker investment activity and consumption which could also be suppressed by an in-crease in the cost of borrowings and inflati-

onary risks. in such circumstances political efforts and resolution of the ukraine conflict are essential inputs to start moving forward with infrastructure issues.

rB russia also plays an important role within rBi`s Group Securities Services. What role does the new GSS unit play within your bank?RB Russia has always considered this busi-ness line as important for the bank and for the clients; it has been developed in very close cooperation with RBi. The main bene-fit we have seen in this initiative from our perspective is a joint group effort to pitch and acquire new customers that proved very fruitful.

GSS Press | May 2014 4

These days when we are discussing eco-nomic development and prospects of any business areas with no exception for cus-tody, we bear in mind a currently com-plex political situation, which undoubtedly affects all areas of the russian economy. nonetheless, we have a neutral outlook and hope that the turbulences will neither be significant nor long-lasting. We have prepared a summary of recent news and opinions, however, they do not reflect raiffeisenbank’s specific position on any of the issues discussed.

Within the course of the current develop-ments, a lot of notable announcements were made by Russian politicians, including the description of potential reciprocity actions in case of economic sanctions. Mr. igor Shuvalov, Deputy Prime Minister, said that the Moscow Exchange should become the primary trading floor for privatization iPOs and added that Russian companies should consider a delisting of their shares on for-eign stock exchanges and trade them in Moscow as a protection measure amid the standoff over ukraine. “Companies and their boards of directors should consider the need for further trading of shares on foreign exchanges”, Shuvalov told reporters after a government meeting. He announced that the government was creating “attractive” conditions for companies that will decide to re-register on the Moscow Exchange.

The representatives of Russian authorities commented on this speech saying that it is not a potential ban for international listing of Russian companies, but a recommenda-tion to the companies for dual listing inclu-ding the Moscow Exchange, as some of the Russian companies such as Yandex NV, VimpelCom Ltd. andMail.ru Group Ltd. are only traded on stock exchanges abroad.

Some of the companies such as aFK Siste-ma, Novatek and Bashneft have denied to plan any delisting from international stock exchanges at the moment.

rating downgradesin March S&P and Fitch downgraded the outlook on Russia‘s long-term foreign and local currency ratings (BBB/Baa1/BBB) to negative from stable on sanctions expec-tations, referring to the potential impact of uS and Eu sanctions on the economy. The explanation for the shift was growing geo-political and economic risks and refinan-cing risk of Russian companies and banks. Later on, Moody’s also placed Russia’s rating on review for possible downgrade.

in april S&P has cut Russia’s sovereign ra-ting from BBB to BBB- with a “negative” outlook. The country’s long-term local cur-rency rating was also reduced from BBB+ to BBB, while the short-term currency rating was downgraded to a-3. S&P explained its decision with a notable capital outflow in the first quarter of 2014 and reduced capa-bilities of the country to attract funding on foreign financial markets due to the political risks associated with the ukrainian crisis.

Banking systemSanctions were introduced against several Russian individuals and Russian banks, mo-reover the potential sanction extension has caused some changes in the Russian ban-king system. Some of the banks reported outflows of non-residents’ deposits, how-ever, the amount of funds removed from the banks is immaterial for the banks and for the banking system as a whole. Much

more visible was the process of repatriati-on of money by Russian banks from their accounts with foreign banks (uSD 20.7 bn in March). as per Raiffeisenbank Research Russia estimates, only a minor part of these funds was used in credit activity in foreign currency, while the majority was placed on correspondent accounts with the CBR and in cash.

national Payment System The sanctions against Rossiya bank, follo-wed by the termination of the bank’s cli-ents’ card service by Visa and MasterCard (the same actions although soon canceled were made against Rossiya’s affiliated banks), spurred another round of exhaus-tive discussion over the establishment of a National Payment System (NPS). The Cen-tral Bank and Government have had seve-ral meetings with the banks; as a result the NPS concept was prepared in very short period. The NPS is to be created and sup-ported by the Central Bank with the par-ticipation of the Russian banks. The NPS concept also provides for the inclusion of Ruble into the CLS (Continuous Linked Sett-lement) payment system.

Based on Central Bank estimates, the NPS can be up and running within the next six months. as part of NPS development, the Central Bank plans for the NPS to be an obligatory system for all budget settlement (wages of military, government officials and all other budget settlement with private persons), which means a RuB trillion turna-round starting from 2016.

evgenia klimova, Head of GSS Russia

aT a Glance

RuSSia: Economy under pressure of the political agenda

GSS Press | May 2014 5

aT a Glance

What were MoeX’s most important achie-vements in the last few months? Which services were offered to market partici-pants? 2013 was both a challenging and success-ful year for the Moscow Exchange. We completed an ambitious project to move to T+2 settlement; the Central Securities Depository started to perform its full range of duties and functions; we implemented REPO trading with the Central Counterpar-ty; we launched trading of precious metals and standardized OTC derivatives; and finally MOEX became a public company itself, by listing its shares on its own plat-form. The main goal of these changes is to integrate the Moscow Exchange even further into the international financial sys-tem. These were deliberate steps to impro-ve our range of services and extend the products available to our clients. Different market players have shown interest in dif-ferent products, and our goal is to find a happy medium that meets the interests of the majority of market participants and to provide a range of products and services that support a favorable trading environ-ment for everyone. The extended range of settlement mechanisms and related servi-ces that have been used for many years on Western trading floors have been unified and are now working in Russia. What are your key strategic priorities over the next couple of years? Which services are expected to be launched in 2014? Compared with 2013, which was a real breakthrough year, our plans for 2014 are more modest. However, our to-do list for this year includes projects that are equally im-portant, including an upgrade of clearing services on all of the Exchange’s markets, and development of collateral manage-

ment services. We will implement a single margin on the Derivatives and FX Markets, scheduled for the second half of the year, which will be another step towards single guarantee and clearing systems for trading members. New Listing rules to expand op-portunities for conservative investors and introduce the new rules of the recently ap-proved Corporate Governance Code to protect minority shareholders’ rights will come into force from June. Thus we are continuing to work on establishing a next-generation trading and clearing platform for all MOEX markets.

how would you describe the current sta-te of russia’s market infrastructure from an international investor’s point of view? What steps are needed to increase trading volumes on MoeX and concentrate trading of russian securities on the russian trading floor? We are confident that foreign investors de-cide to trade on those markets that offer a transparent and predictable environment. Obviously investors are not willing to custo-mize complicated back-office processes as well as review risk-management approa-ches specifically just to operate in Russia. Today we are demonstrating to foreign in-vestors that Russia uses the same trading rules as the rest of the world, that our infra-structure allows prompt execution of cash transactions, convenient settlement and sa-fekeeping of assets. Our goal is to provide supportive infrastructure that allows inves-tors to focus on making investment decisi-ons. in 2013 we ironed out the difference between markets and trading floors, so in-vestors now only have to choose between products and instruments.

how do you assess recent and forthcoming legislative changes aimed at simplifying the corporate action process for Dr hol-ders? how do think this process is likely to affect the distribution of investors between MoeX and international trading floors?as of 2014 a number of regulatory amend-ments have simplified dividend pay-out me-chanisms and the taxation of DR programs. However, it is still too early to talk about potential regulatory changes that may come in the future.

Nevertheless, it is important to understand that the majority of investors prefer local shares to depositary receipts of these sha-res. First of all the associated transaction costs are lower, while secondly deposita-ry receipts remain a derivative instrument, with less protection of shareholders’ rights.We are confident that the Moscow Ex-change will consolidate its position as the pricing and liquidity center for Russian se-curities. as of the end of 2013 we increa-sed our share of trading volumes of Russian securities to 63%, and we expect this figure to increase to 65% this year. Overall our long-term target is to secure 75% of Russi-an securities trading volumes through the Moscow Exchange.

how would you assess investors’ reactions to the latest political developments in the region? how long-lasting do you think the effect of recent events will be?assessments of political risks are always a major criteria in investors’ decision making processes. The key role of the Exchange in this regard is to be predictable for its clients, i.e. to operate in strict compliance with exis-ting regulations and respond appropriately to provide investors with opportunities for trading regardless of external conditions.

Next-generation tradingThe Russian securities market is in the limelight once again. For GSS Press, Mr. Andrey Shemetov, Deputy Chairman of the Board of OJSC Moscow Exchange (MOEX), elaborated on latest infrastructure initiatives and strategies to mitigate investor risk.

GSS Press | May 2014 6

reSearch rePorT Topical issue

Please note the risk notifications and explanations at the end of this document 1

Geopolitical tensions as a negative factor

Conflict between Ukraine and Russia exacerbates sluggish economic performance in the CIS region Improving economic forecasts for Central Europe for 2014 In the baseline scenario, no major problems for Poland et al. from the Ukraine/Russia conflict

Since February, the dominant topic has been the conflict between Ukraine and Russia, which has resulted in the annexation of Crimea by Russia. In our main scenario, we continue to expect that Russia will not extend its territorial claims into eastern Ukraine. This scenario includes the possibility of temporary disputes about security issues in eastern Ukraine, but does not feature an escalation with military means or severe economic embargoes between the EU/USA and Russia. However, just these elevated tensions and the acrimonious mood between Moscow and Kiev are enough to make the negative effects for both economies and their financial markets even worse. For example, we recently downgraded the 2014 GDP forecast for Russia from 1.7% to 1% and we also lowered the 2015 forecast. Radical restructuring in Ukraine with an IMF programme and budget cuts will likely result in a massive decline of 3% to 7% in Ukraine’s 2014 GDP. By contrast, prospects for Poland, the Czech Republic and Hungary have continued to improve in the first few months of 2014, prompting us to revise our GDP growth projections upwards. There is hardly any change in the outlook for South-eastern Europe. For Austria, our GDP estimates have remained unchanged for more than a year now. Of course, this improvement in the economic situation in Central Europe would have to be downgraded in any scenario involving an escalation of the situation, with severe reciprocal economic sanctions between the EU and Russia and/or military conflict. It is also clear that the negative implications for Russia would be worse over the long term than they would be for Europe. Impact on monetary policy and exchange rates The geopolitical tensions have already resulted in significant outflows of capital from both countries involved in the crisis. Since open conflict broke out, Russians have wound up savings in roubles and US dollars and converted them into euros, yen and Swiss francs. The Russian central bank has reacted to the faster pace of RUB depreciation since the autumn of 2013 with modest intervention on the FX market and gradual widening of the bands of the currency basket (55% USD/45% EUR) and one significant increase in the key rate. By contrast, the Ukrainian central bank has had to take more restrictive administrative measures to keep control over UAH depreciation, despite its interventions. We believe that the rouble will remain weak (above 37.2 versus USD) until June, followed by a countermove. UAH/USD parity should settle in between 10.5 and 11.5 over the medium term. We also project a mild recovery for PLN and CZK by year-end. Impact on the bond and equity markets Yields have increased sharply in Russia (over 9% for 10y gov. bonds), reflecting investor scepticism about the country’s political and economic reliability. We hardly see any signs for an easing of tensions on the CEE bond markets in the second quarter, and consequently further increases in yields must be anticipated in Poland, Hungary and the Czech Republic. The weak start to the year on the CEE stock exchanges hardly comes as a surprise in light of the geopolitical tensions. We see some possibility for further setbacks in the second quarter, but as the year progresses we expect more focus on fundamental data and thus a rebound in stock prices.

RUSSIAGeopolitical tensions as a negative factorprovided by Raiffeisen ReseaRch

Since February, the dominant topic has been the conflict between Ukraine and Russia, which has resulted in the an-nexation of Crimea by Russia. In our main scenario, we continue to expect that Russia will not extend its territori-al claims into eastern Ukraine. This scenario includes the possibility of temporary disputes about security issues in eastern Ukraine, but does not feature an escalation with military means or severe economic embargoes between the EU/USA and Russia. However, just these elevated tensions and the acrimonious mood between Moscow and Kiev are enough to make the negative effects for both economies and their financial markets even worse. For example, we recently downgraded the 2014 GDP forecast for Russia from 1.7% to 1% and we also lowered the 2015 forecast. Radical restructuring in Ukraine with an IMF programme and budget cuts will likely result in a massive decline of 3% to 7% in Ukraine’s 2014 GDP. By contrast, prospects for Poland, the Czech Republic and Hungary have continued to improve in the first few months of 2014, prompting us to revise our GDP growth projections upwards. There is hardly any change in the outlook for South-eastern Europe. For Austria, our GDP estimates have remained unchanged for more than a year now. Of course, this improvement in the economic situation in Central Europe would have to be downgraded in any scenario involving an escalation of the situation, with severe reciprocal economic sanctions between the EU and Russia and/or military conflict. It is also clear that the negative implications for Russia would be worse over the long term than they would be for Europe.

Impact on monetary policy and exchange ratesThe geopolitical tensions have already resulted in signifi-cant outflows of capital from both countries involved in the crisis. Since open conflict broke out, Russians have wound up savings in roubles and US dollars and converted them into euros, yen and Swiss francs. The Russian central bank has reacted to the faster pace of RUB depreciation since the autumn of 2013 with modest intervention on the FX market and gradual widening of the bands of the currency basket (55% USD/45% EUR) and one significant increase

in the key rate. By contrast, the Ukrainian central bank has had to take more restrictive administrative measures to keep control over UAH depreciation, despite its interven-tions. We believe that the rouble will remain weak (above 37.2 versus USD) until June, followed by a countermove. UAH/USD parity should settle in between 10.5 and 11.5 over the medium term. We also project a mild recovery for PLN and CZK by year-end.

Impact on the bond and equity marketsYields have increased sharply in Russia (over 9% for 10y gov. bonds), reflecting investor scepticism about the country’s political and economic reliability. We hardly see any signs for an easing of tensions on the CEE bond mar-kets in the second quarter, and consequently further incre-ases in yields must be anticipated in Poland, Hungary and the Czech Republic. The weak start to the year on the CEE stock exchanges hardly comes as a surprise in light of the geopolitical tensions. We see some possibility for further setbacks in the second quarter, but as the year progres-ses we expect more focus on fundamental data and thus a rebound in stock prices.

Financial analyst: Peter Brezinschek

GSS Press | May 2014 7

reSearch rePorT

Please note the risk notifications and explanations at the end of this document 3

Russia

2009

20

09

2010

20

10

2011

20

11

2012

20

12

2013

20

13

2014

e 20

14e

2015

f 20

15f

Worst deterioration in relations with the West over Ukraine since the end of Cold War Ukraine situation: main scenario is for moderate sanctions; full-fledged trade and financial sanctions look less likely GDP forecast for 2014 cut from 1.7% to 1.0%, due to weak economy and current events In the light of the turmoil with Ukraine temporary RUB depreciation of 5-10%

Real GDP (% yoy)

10

5

0

-5

-10

Real GDP (% yoy)

Forecast

Economic outlook Russia’s external relations with the West (USA and EU) have deteriorated substantially over the political issues with Ukraine regarding Crimea. As of late March, no diplomatic solution had yet been found, and the West began to intro- duce targeted sanctions against Russian individuals. The escalation between Russia and Ukraine into a global stand-off between the West and Russia will definitely have consequences for the Russian economy. Together with weaker than expected economic activity during the first months of 2014, the political developments prompted us to revise our GDP forecast downward from 1.7% to 1.0% in 2014. The key macro indicators demonstrated disappointing dynamics in January.

Industrial output (% yoy) Source: Thomson Reuters, Raiffeisen RESEARCH

Budget and current account balance

-8 Forecast -6

-4 -2 0 2 4 6

General budget balance (% of GDP) Current account balance (% of GDP)

Source: Thomson Reuters, Raiffeisen RESEARCH

Industrial production and investment activity stagnated, business sentiment worsened and real wages growth decelerated, creating corresponding risks for retail sales and GDP growth. The main factor which will determine the magnitude of the negative impact of the political conflict is to what extent the West will intervene with economic sanctions against Russia. However, whatever the out- come is, the Russian economy will most likely suffer from the deterioration in the investment climate and household sentiment. We also see risks that political un- certainty and turbulence on the financial markets will discourage FDIs and port- folio investments. Moreover, a long period of uncertainty could lead to corporate investment programmes being frozen. Other factors which could suppress investment activity would be the increased cost of local and external borrowing and inflationary risks. The latter could also negatively affect the consumer sector. Having estimated the FX shock pass-through effect, which could add about 0.7 pp to the annual CPI, we also increased our inflation forecast for 2014 from 5.2% to 5.7%. While some industries may benefit from the currency depreciation, for consumers the melting purchasing power as a result of RUB depreciation could cause a significant slowdown in retail sales. In addition, even without economic

Key economic figures and forecasts 2009 2010 2011 2012 2013 2014e 2015f

Nominal GDP (EUR bn) 879.2 1147.1 1342.0 1540.0 1578.0 1431.0 1556.0

Real GDP (% yoy) -7.8 4.5 4.3 3.4 1.3 1.0 1.5

Industrial output (% yoy) -9.3 8.2 4.7 2.6 0.3 0.0 0.5

Unemployment rate (avg, %) 8.4 7.5 6.6 5.7 5.8 6.0 6.0

Average gross wages (% yoy) 7.8 12.4 11.5 13.9 10.0 8.0 7.0

Producer prices (avg, % yoy) 13.9 16.7 12.0 5.1 3.7 3.5 3.5

Consumer prices (avg, % yoy) 11.8 6.9 8.5 5.1 6.8 6.1 5.5

Consumer prices (eop, % yoy) 8.8 8.8 6.1 6.6 6.2 5.7 5.6

General budget balance (% of GDP) -6.3 -3.5 1.6 0.4 -1.0 -0.5 -0.6

Public debt (% of GDP) 8.3 9.3 9.8 10.5 12.0 13.0 14.0

Current account balance (% of GDP) 4.1 4.4 5.2 3.6 1.6 2.3 2.0

Official FX reserves (EUR bn) 291.0 331.0 349.7 369.1 342.9 330.2 337.8

Gross foreign debt (% of GDP) 37.1 31.8 31.1 31.4 34.1 42.3 43.0

EUR/RUB (avg) 43.6 40.3 42.0 39.7 42.2 49.7 49.3

USD/RUB (avg) 31.3 30.4 30.2 30.9 31.8 36.8 37.1

Basket/RUB (avg) 36.9 34.9 35.5 34.8 36.5 42.6 42.6

32 Please note the risk notifications and explanations at the end of this document

Russia

-8-6-4-20246

2009

2010

2011

2012

2013

2014

e

2015

f

General budget balance (% of GDP)Current account balance (% of GDP)

Real GDP (% yoy)

Source: Thomson Reuters, Raiffeisen RESEARCH

Budget and current account balance

Source: Thomson Reuters, Raiffeisen RESEARCH

Forecast

-10

-5

0

5

10

2009

2010

2011

2012

2013

2014

e

2015

f

Real GDP (% yoy)Industrial output (% yoy)

Key economic figures and forecasts

2009 2010 2011 2012 2013 2014e 2015f

Nominal GDP (EUR bn) 879.2 1147.1 1342.0 1540.0 1578.0 1431.0 1556.0

Real GDP (% yoy) -7.8 4.5 4.3 3.4 1.3 1.0 1.5

Industrial output (% yoy) -9.3 8.2 4.7 2.6 0.3 0.0 0.5

Unemployment rate (avg, %) 8.4 7.5 6.6 5.7 5.8 6.0 6.0

Average gross wages (% yoy) 7.8 12.4 11.5 13.9 10.0 8.0 7.0

Producer prices (avg, % yoy) 13.9 16.7 12.0 5.1 3.7 3.5 3.5

Consumer prices (avg, % yoy) 11.8 6.9 8.5 5.1 6.8 6.1 5.5

Consumer prices (eop, % yoy) 8.8 8.8 6.1 6.6 6.2 5.7 5.6

General budget balance (% of GDP) -6.3 -3.5 1.6 0.4 -1.0 -0.5 -0.6

Public debt (% of GDP) 8.3 9.3 9.8 10.5 12.0 13.0 14.0

Current account balance (% of GDP) 4.1 4.4 5.2 3.6 1.6 2.3 2.0

Official FX reserves (EUR bn) 291.0 331.0 349.7 369.1 342.9 330.2 337.8

Gross foreign debt (% of GDP) 37.1 31.8 31.1 31.4 34.1 42.3 43.0

EUR/RUB (avg) 43.6 40.3 42.0 39.7 42.2 49.7 49.3

USD/RUB (avg) 31.3 30.4 30.2 30.9 31.8 36.8 37.1

Basket/RUB (avg) 36.9 34.9 35.5 34.8 36.5 42.6 42.6

Source: Thomson Reuters, Raiffeisen RESEARCH

Economic outlookRussia’s external relations with the West (USA and EU) have deteriorated sub-stantially over the political issues with Ukraine regarding Crimea. As of late March, no diplomatic solution had yet been found, and the West began to intro-duce targeted sanctions against Russian individuals. The escalation between Rus-sia and Ukraine into a global stand-off between the West and Russia will defi-nitely have consequences for the Russian economy. Together with weaker-than-expected economic activity during the first months of 2014, the political devel-opments prompted us to revise our GDP forecast downward from 1.7% to 1.0% in 2014. The key macro indicators demonstrated disappointing dynamics in Jan-uary. Industrial production and investment activity stagnated, business sentiment worsened and real wages growth decelerated, creating corresponding risks for retail sales and GDP growth. The main factor which will determine the magni-tude of the negative impact of the political conflict is to what extent the West will intervene with economic sanctions against Russia. However, whatever the out-come is, the Russian economy will most likely suffer from the deterioration in the investment climate and household sentiment. We also see risks that political un-certainty and turbulence on the financial markets will discourage FDIs and port-folio investments. Moreover, a long period of uncertainty could lead to corporate investment programmes being frozen. Other factors which could suppress invest-ment activity would be the increased cost of local and external borrowing and in-flationary risks. The latter could also negatively affect the consumer sector. Hav-ing estimated the FX shock pass-through effect, which could add about 0.7 pp to the annual CPI, we also increased our inflation forecast for 2014 from 5.2% to 5.7%. While some industries may benefit from the currency depreciation, for consumers the melting purchasing power as a result of RUB depreciation could cause a significant slowdown in retail sales. In addition, even without economic

Preparing for all eventualities

Worst deterioration in relations with the West over Ukraine since the end of Cold War Ukraine situation: main scenario is for moderate sanctions; full-fledged trade and financial sanctions look less likely GDP forecast for 2014 cut from 1.7% to 1.0%, due to weak economy and current events In the light of the turmoil with Ukraine temporary RUB depreciation of 5-10%

Forecast

RUSSIA

GSS Press | May 2014 8

reSearch rePorT

33Please note the risk notifications and explanations at the end of this document

6.57.07.58.08.59.09.5

10.010.5

0 1 2 3 4 5 6 7 8 9 10Yields as of Mar-14Yield curve Mar-14Forecast Jun-14

29303132333435363738

Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14

USD/RUB (eop)

Exchange rate development

USD/RUB: 5y high 36.63, 5y low 27.28Source: Bloomberg, Raiffeisen RESEARCH

RUB rate and yield curve (%)*

* 1m – 6m interest rates; 1y – 10y LCY gov. bond yieldsSource: Bloomberg, Raiffeisen RESEARCH

Russia

Exchange rate forecasts

19-Mar1 Jun-14 Sep-14 Dec-14 Mar-15

EUR/RUB 50.05 50.2 48.7 49.0 49.6

Cons. 45.2 45.0 45.6 45.8

USD/RUB 35.96 37.2 37.4 36.3 36.7

Cons. 34.3 34.4 35.2 35.1RUB basket 42.30 43.0 42.5 42.0 42.5

1 5:00 p.m. (CET)Source: Bloomberg, Raiffeisen RESEARCH

sanctions, the banking sector would be affected by monetary policy tightening (as a response to FX shock), and retail lending may decelerate, creating addi-tional pressure on consumer activity.

Financial market outlookIn Q1 2014, RUB came under serious pressure, losing around 11.7% against the dual-currency basket and 10.4% against USD ytd. Initially, the RUB depreciation was explained by QE tapering (other EM currencies were also depreciating). Ad-ditionally, the CBR took further steps towards shifting to a free-floating regime by 2015, having cancelled its target interventions (USD 60 mn per day previously). Furthermore, MinFin decided to make FX purchases to the Reserve Fund on the open market (RUB 3.5 bn daily). However, at the beginning of March RUB depre-ciation became more acute due to the escalation of the situation with Ukraine. The CBR immediately responded to the panic on the FX market with (1) a tempo-rary hike in the key rate by 1.5 pp to 7%; and (2) a temporary shift in FX policy to manual control, in order to slow down/limit uncontrolled rouble depreciation. The cumulated interventions (which lead to a 5-kopeck shift of the FX band) were increased from USD 350 mn up to USD 1.5 bn. The CBR also demonstrated that it could intervene with huge urgent interventions (>USD 10 bn per day) to limit speculative pressure on RUB. As a result, speculative attacks became unattrac-tive due to both high cost of the CBR refinancing and interbank lending. Now the Russian FX market is driven more by political issues rather than economic ones. With the turmoil around Ukraine to persist for some while and given the lack of clear positive shift in fundamentals, we remain short term bearish on RUB, but would see some appreciation potential from the undervalued levels as soon as the situation with Ukraine calms down.As we expected, OFZ yields were on an upward trend in Q1 2014. At the very beginning of the quarter, selling pressure was mostly due to RUB weakening. Later, however, the escalation of Ukrainian crisis also put serious pressure on Rus-sian government bonds. Selling pressure from non-residents trying to decrease their exposure to Russia and increased REPO rates eventually triggered massive sell-off: yields on 10y OFZ jumped by 150bp to YTM 9.2% year-to-date. Accord-ing to CBR data, the position of non-residents in OFZ was cut by USD 1.2 bn in Jan 2014 (the outstanding exposure is USD 24 bn). We do not expect a fast reso-lution of the Ukraine crisis and the turmoil on the market is unlikely to calm down in Q2 which will not allow CBR to decrease the key rate to normal levels. Com-pared to the CBR’s current REPO rates, OFZs look expensive. We see a fair yield on 10y OFZ at YTM 10% now, but a sell-off may spur yields higher.

Financial analysts: Denis Poryvay, ZAO Raiffeisenbank, Moscow; Wolfgang Ernst, RBI Vienna

Interest rate forecasts

19-Mar1 Jun-14 Sep-14 Dec-14 Mar-15

Key rate 7.00 7.00 6.00 6.00 6.00

Cons. n.v. n.v. n.v. n.v.

1 month2 9.00 9.20 8.75 8.85 8.85

3 month2 9.32 9.75 9.30 9.40 9.40

6 month2 9.46 9.80 9.30 9.50 9.501 5:00 p.m. (CET) 2 Bid rateSource: Bloomberg, Raiffeisen RESEARCH

Yield forecasts

19-Mar1 Jun-14 Sep-14 Dec-14 Mar-15

2y T-bond2 7.48 8.0 7.3 7.6 7.8

Cons. n.v. n.v. n.v. n.v.

5y T-bond2 7.90 9.0 8.4 8.5 8.810y T-bond2 9.15 9.5 8.7 8.8 9.0

Cons. n.v. n.v. n.v. n.v.1 5:00 p.m. (CET) 2 Ask yieldSource: Bloomberg, Raiffeisen RESEARCH

Fore

cast

RUSSIA

GSS Press | May 2014 9

a service-oriented franchise spanning over a large number of countries requires multi-faceted management skills. i have therefore decided to establish a manage-ment body that consists of a selected num-ber of GSS Heads from various countries and the directors of the regional team.

i regard it as crucial to consult major strategic decisions together with my colle-agues, all of whom have reached senior status and enjoy a high reputation at their local banks. They will be involved into steering our fast expanding business.

Our new GSS Executive Committee (ExCo) met for the first time at the end of april and is scheduled to gather once

BehinD The SceneS

every three months. We have agreed on a consensus-based management style that invites every member to highlight oppor-tunities as well as to point out concerns, allowing me to throw my weight behind our jointly reached positions.

One of the main take-aways of our first ExCo meeting was to set a priority on improved service quality. Moreover, we have initiated an ongoing discussion and analysis of local, regional and European capital market infrastructure develop-ments and regulatory initiatives.

Other recurring topics of the ExCo mee-tings will encompass investment needs, risk mitigation, service and product stan-

GSS presents its management team

dardization as well as relationship ma-nagement. Occasionally, we will invite expert guest speakers to advise us on spe-cific topics and help us make the approp-riate business decisions.

We plan to keep you updated with news from the ExCo via GSS Press.

attila Szalay-BerzeviczyExecutive Director

Head of Group Securities Services

The newly appointed Gss executive committee: Laszlo szasz, Vit cermak, Radoslaw Ignatowicz, Katarina Markova-Rusnakova, Laszlo hazafi, evgenia Klimova, Jürgen sattler, Babett Pavlics, Bettina Janoschek, anita Fröch, attila szalay-Berzeviczy

GSS Press | May 2014 10

cSD moving forward

Mid april the European Parliament held a provisional vote on the Central Securities Depository Regulation (CSD R). The main goal of the CSD R is to promote safe, transparent, efficient settle-ment, to limit the number of settlement fails and to minimize risks.

What is going to be new?

• implementation of T+2 in austriaFollowing the regulation, T+2 is to be implemented at least 6

months prior to T2S, but latest by January 1st, 2016. The austrian securities market follows this practice and introduces T+2 on October 6th, 2014 as most of the securities markets will follow this date.

• cSD linksanother objective of the regulation is to increase competition, reduce cross-border barriers and improve connectivity to be able serve the Eu member markets and as well as the domestic market. Very important features to be mentioned are the licenses to provide cross-border services and efficient links between CSDs and other entities.

• Banking servicesin addition to the primary function a CSD provides is the possibility for them to as-certain banking services. Due to an austrian initiative is the impending addition of ‚article 54 Par 6‘ of the upcoming CSD Regulation, thus providing a smoother tran-sition for CSDs and the non-mandatory requirement to create a separate entity for banking services, hence allowing this new business line to be concluded under the CSD‘s original legal entity.

• SupervisionThe supervision of the CSD should stay in the responsibility of the respective member state and market authority. However, the European Securities and Markets authority (ESMa) should be involved, ensuring that all interested competent authorities receive all relevant information related to the CSDs’ activities.

The result of the official vote is expected in July 2014 and should come into effect in autumn this year.

Our viewThe Austrian market is on track in preparing for the T2S requirements. The implementation of T+2 Settlement cycle will help to mitigate risk and also minimize the collateral margins. Existing CSD services should not be affected by any changes deriving from the regulation, unless the CSD does not comply with the regulation’s principles.

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Spotlight news

cZ: Macro updateThe Czech economy has been show-ing positive upside trend over the last couple of months, making some analysts start to talk openly about the end of the recession. Caught by a positive surprise, the analysts were commenting on results from the last quarter of 2013. The GDP growth of 1.6% in quarter-to-quarter compa-rison drawn by transportation and industrial equipment sales was signi-ficantly above market expectations. Year-on-year it added 0.8%.Overall, 2013 showed worse figures than 2012, but the positive upside of the last quarter is perceived as a promising signal for the future. The Czech National Bank interventions against a strong CZK in order to support exports have played their part. The CNB is expected to keep on intervening and keeping the rate CZK 27 against EUR through 2014. GDP is expected to grow by 1.5% this year. In a survey among the Czech small and media enterprises the respon-dents provided EUR 15 bn capital investments (+5% YoY) in anticipation of a recovery.Positive inflation signals have also been recorded and the economy has definitely escaped from the deflation trap, analysts said.

auSTriaanita Froech Head of GSS Austria

GSS Press | May 2014 11

new civil code in hungary

a new Hungarian Civil Code (act V. of 2013) has entered into force on the 15th of March, 2014. The new act contains sever-al structural changes; it consolidates and integrates regulations from corporate law/family law and issues that had previously been regulated in separate acts. Thus it is expected to have an effect on the everyday operation of Hungarian enterprises.The new Civil Code has incorporated – among others – the content of the former Civil Code of 1959 – the legal regulations of the business associations and the real-estate register. There

have been certain modifications of the establishment and registry of mortgages; it also has to be emphasized that the option and assignment cannot be used as a form of colla-teral. The regulations on consumer protection have become more specified focusing on the interest of natural persons.The act has eight separate parts which all regulate different areas of civil law.

Most important changes with regards to financial institutions and investment services:• Private limited companies may issue their shares in either physical or dematerialized

form in line with their purposes (physical securities might again be more widely used than before).

• For public limited companies it will be obligatory to list their shares on a stock ex-change. Public shares can only be issued in dematerialized form.

• Public limited companies have to apply for stock exchange listing until 15 March 2016 (if they want to operate publicly). as of 15 March 2014, companies can be established in private limited form only and become public after being listed on a stock exchange.

• Continuous registration of shareholders will not be required by the new Civil Code (however a separate Government Decree will include the rules separately and based on preliminary information custodians will remain obliged to report position changes to registrars within two days of settlement and register the shares prior to corporate actions as well. Obligation of registration due to supervisory or issuers’ call will also stay in force).

• Definition of securities is extended to include instruments in written or in electronic form, provided that they contain, among other things, the name and the address of the issuer, a declaration that the instrument is considered a security, the entitlements embodied by the securities, the serial number and the number of securities in the series, if applicable, the place and date of issue and the signature of the issuer, in case of physical securities.

• Any general power of attorney referred to in the new Civil Code shall be valid for a pe-riod of at most five years. (The provision is not applicable to special Power of attorneys issued for specific purposes such as the annual one used for proxy voting).

• Further to the above changes, a large number of firms will be affected by the increase of capital limits. if their minimum capital does not reach HuF 3 million, Kft. Companies (limited liability companies) will be obligated to increase their capital.

• Rules relating to pledge have completely changed. The new law introduced a radical modification by announcing the invalidity of numerous, widely popular regulations of security types applied in practice nowadays (security assignment, security property transfer).

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Spotlight news

BG: Award from EMEA Finance for Best Investment Bank in Bulgaria EMEA Finance, an industry publica-tion, announced the Europe Banking Awards 2013 winners. In recognition of 2013 accomplishments and achie-vements in the field of investment banking, Raiffeisen Bank Internati-onal was awarded Best Investment Bank in Bulgaria. The official EMEA Finance awards ceremony will be held on May 13, 2014 in Warsaw, Poland.

hunGaryBabett Pavlics Head of GSS Hungary

GSS Press | May 2014 12

• The new Civil Code also introduces the definition of trusts and trustees as well as the requirements to the applicable agreements.

Our viewIt is essential for our Account Managers to be up-to-date with all the changes of the new Civil Code as besides the actualization of old regulations, several new rules have been introduced which affect the way our Bank is acting in its everyday operations. Raiffeisen Hungary has already updated all its agreements, certificates and statements in line with the new Civil Code. As an immediate effect, those clients who need to sign new agree-ments or modify their existing contracts with our Bank will in most case need to review the updated new versions of these documents.

implementation of aiFMD in hungary

Hungary, as part of the European union is implementing the alternative investment Fund Management Directive in its local legislation to establish the required harmonized frame-work for monitoring and supervising risks posed by alternative investment Funds (aiFs) and it focuses on regulating the alternative investment Fund Manager (aiFM). aiFMs and the aiFs they manage, and for strengthening the internal market in alternative funds. The Directive also includes new requirements for firms acting as a depositary for an aiF.The implementation is now finalized, as the related local acts and related Government Decrees have been put into force as follows:• The Act XVI. of 2014 on Collective Investment Units (implementing AIFMD and earlier

uCiT iV directives) • The Government Decree 78/2014. (III.14) on the Rules of debt undertaking (borrowing)

by collective investment units• The Government Decree 79/2014 (III. 14) about the Requirements with regards to

organizational set up, conflicts of interest management, ways of doing business and risk management of the Fund Management Companies

amendment of earlier fund related regulations were necessary to implement all the require-ments set out in the related Eu regulations (i.e. 2011/61/Eu, 2003/41/EC, 2009/65/EC, 1060/2009 EC, 1095/2010/Eu, 2321. Therefore, the scope of the aiFMD is broad. it covers the management, administration and marketing of alternative investment funds (aiFs) and it focuses on regulating the alternative investment Fund Manager (aiFM). an aiF is a ‘collective investment undertaking’ that is not subject to the uCiTS regime, and includes hedge funds, pri-vate equity funds, retail investment funds, investment companies and real estate funds, among others. The deadline for full adherence with the law in case of existing alternative investment Fund Managers (hereinafter: aiFM) is 22nd of July, 2014. The CEO of each alternative Fund Management Company is bound to issue a statement of full compliance with the requirements of the act for the Hungarian Supervision (National Bank of Hungary) until this deadline.

Our view: AIFMD prescribes several requirements as far as the organizational set-up and ope-rations of non-UCIT fund managers are concerned. There are several issues, which we consider as significant changes or completely „new” requirements and there are areas, where the responsibility and scope of activity significantly changes inbetween the Custodian and the Fund Manager. Raiffeisen Bank Hungary is currently heavily working

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Spotlight news

RS: New cabinetThe new Government, which has es-tablished a new cabinet at the end of April, will have the strongest lock on power by a single party in more than two decades.

Key tasks the new government will have to tackle: • continuation of the accession nego-

tiations with the EU • Budget Law 2014 revision (possibly

including new government sponso-red lending to offset weak credit supply)

• changes to 21 laws (privatizati-on, bankruptcy, construction and others aimed at stimulating new investments)

• public sector reform (state owned banks/public companies privatiza-tion, health/pension system reform)

• redundancy programs for excess employees in the administration

• bolstering the cooperation with United Arab Emirates

• signing the precautionary arrange-ment with IMF

GSS Press | May 2014 13

on the implementation and the proof of our full compliance with all requirements. In the upcoming issues of the current GSS Press, as well as in bilateral communications with our clients, we will keep our clients informed on all individual project elements and our status and compliance with the regulations.

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Spotlight news

Proposed changes to Polish corporate income Tax law imposing custody clients

The Polish Government adopted on March 18, 2014 and sent to Parliament on april 14, 2014 an amendment to corporate and personal income tax laws. The amendment refers to changes in the paying agent function in case of dividends and interest payments as well as to the Certificate of Residency validity. The changes will enter into force from January 2015.Corporate income Tax changes: The amendment introduces a simplified process of submitting documents that would result in a benefit from tax relief for foreign investors. The Ministry of

Finance shifted the tax payment obligation from issuers to entities running securities ac-counts. Despite imposing a new obligation on custodian banks this change will be be-neficial to custody clients as it will simplify the tax collection process and will reduce the documentation flow. Beginning of January 2015 (tbc) the local custodians and brokerage houses will be res-ponsible for calculation, deduction and the reporting of tax from dividend and interest from corporate bonds paid by Polish companies to the local tax authorities. Currently, local custodian banks and brokerage houses running securities accounts withhold tax on interests from Treasury bonds only.Certificate of Residency validity: The amendment clarifies that a Certificate of Residency without a validity date confirms the residency of the taxpayer and is valid for one year from the paper’s issuance date. This change eliminates uncertainty with respect to the validity of a Certificate of Residency.The aforementioned changes are the result of an active lobbying by the Custodian Bank Coun-cil. The CBC Board, at which Grzegorz Cieślik represents Raiffeisen Bank Polska Sa, has pre-sented rational views for this change to the Ministry of Finance triggering the legislation pro-cess. The main reason behind was the observed inconsistency across issuers’ documentation requirements with respect to foreign clients. in particular, this referred to different treatment of Certificate of Residency validity or requirements to provide additional confirmations to benefit from tax reduction at source. The talks with the Ministry started already in 2011/2012 and cus-todian banks were hoping for the new regulation to be in force from the beginning of 2013.

Our viewDespite the fact that the proposed changes must still be accepted by the Parliament, we do not expect any obstacles. The changes should introduce a consistent approach on documents submitted by foreign clients to benefit from tax relief at source through their verification by banks and brokerage houses maintaining clients’ accounts, rather than issuers. In particular we would not need to ask clients for multiple CoRs nor make notary

PolanDRadoslaw ignatowicz, Head of GSS Poland

RS: Public debt increasesFrom 2009, public debt has been rising and reached EUR 20.4 bn in February. Serbia now seeks to develop its domestic money and capital markets through issuance of Government securities. In an attempt to extend the yield curve further, next to 5Y and 15Y euro-denominated securities, the Min. Fin. launched a EUR 125 mn 10Y T-bill (5% coupon) that would facilitate insurance com-panies diversifying their investment portfolios. The yield came at 5.5%, while given the time horizon the risk appetite was quite satisfactory as a bid to cover came at 0.50.

GSS Press | May 2014 14

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Spotlight news

Babett Pavlics Head of GSS Hungary

copies of such documents for different issuers which would greatly simplify the process from an operational point of view. It should be noted that the above explained changes do not impact the length of documents provided by foreign clients, necessary for tax relief at source. The consistency in the process should make, however, the process more client-friendly and understandable.

ruling of the eu court of Justice may create WhT exemption for non-eu domiciled investment funds

in april, the Court of Justice for the European union (CJEu) issued a judgement (the case C-190/12) concluding that Poland, a Eu Member State, may not refuse a tax exemption for dividends paid by Polish companies to an investment fund established in a third coun-try being a non-Eu Member State (in that case it is a u.S. domiciled investment fund) pro-vided that there is a convention on mutual administrative assistance in place between the two countries which enables the Polish tax authorities to verify that such a non-Eu entity follows investment fund principles applicable to domestic investment funds. in Poland, the corporate income tax law (CiT) exempts investment funds from tax on condition that a fund has its registered office in Poland or in another Eu Member State.

BackgroundThe case refers to a uS domiciled investment fund investing in Poland in 2005 and 2006. The fund applied for a refund of a flat-rate CiT (15% based on DTT) on the base of discriminatory treatment to Eu law. Consequently to the rejection of the claim, the fund decided to take action to the Polish District administrative Court. The court expressed interpretation’s doubts in relation to the Free Movement of Capital principle and decided to refer the case to the CJEu asking:• Whether the Free Movement of Capital principle applies to the case• Whether the difference between the treatment of investment funds established in the

third country (non-Eu Member country) and that of investment funds established in a Eu Member State (discriminatory treatment) can be justified

The CJEu judgment confirmed that a u.S. domiciled investment fund should benefit based on the Free Movement of Capital principle, the same tax exemption as Polish investment funds with respect to the dividend paid by Polish companies if the tax authorities have sufficient regulatory framework (mutual convention) to verify the comparability of the non-Eu funds and domestic funds. also, the CJEu referred back to the Polish court to examine whether the mechanism for the exchange of such information is in place and whether the Polish Tax authorities are able to verify the information provided by the u.S. based investment funds on the conditions for their formation and the conduct of their business, in order to make sure that they operate within equivalent principles to Eu regulations.

Our viewDespite the fact that the case is now referred back to the Polish court for further analysis, the general approach of the CJEU judgment is a door opener for all non-EU Member State investment funds (e.g. U.S. funds, Canadian funds) to benefit from equal tax treatment with EU investment funds. Please note however, that the current existing CIT Law which excludes non-EU Member State investment funds from exemption remains unchanged. It is possible that the case will be further challenged and may be considered by the

RU: NSD executed operational auditOn April 17th, 2014 National Settle-ment Depository (NSD), Russia’s cen-tral securities depository, reported the results of an operational audit conducted by PricewaterhouseCoo-pers in compliance with International Standard on Assurance Engagements (ISAE) 3402. The audit has been per-formed pursuant to the requirements of the Federal Law “On central Secu-rities Depository” and according to the international standards of control over service organizations.

The auditors reviewed internal con-trol systems supporting settlement, clearing, depository and repository services as well as proper perfor-mance of control procedures to the monitoring objectives. In result of the audit the following key points were noted: • the description of the system of

internal control over NSD’s sett-lement, clearing, depository and repository services reflects the processes providing such services objectively;

• procedures of control correspon-ding to the objectives of control have proper design ensuring that all objectives of control will be achieved if the described control procedures work efficiently.

The full version of the report is availa-ble on the NSD’s official web-site upon request.

GSS Press | May 2014 15

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Superior Administrative Court. A positive judgement may entail the Polish government to consider changes in the tax law. The case remains on our radar as its final resolution may open a possibility of tax exempti-on for non-EU investment funds active in Poland. We will keep on monitoring this issue.

roManiaandrei Mezdrea Head of GSS Romania

cSD’s GSM confirming participation to Target-2-Securities program

Bucharest Stock Exchange has called the General Shareholder Meeting of the Romanian CSD, Depozitarul Central, in March to decide on matters related to the CSD’s adhesion to Target-2-Securities (T2S).The shareholders have confirmed their commitment to the CSD joining T2S in the first wave (June 2015), while the decision on the acquisition of a new software platform for settlement was postponed for a further shareholders’ meeting. The election of the software provider will be subject to a new GSM of the CSD.

Our viewAs the CSD will process the T2S operations manually until the software will be implemen-ted, delays in contracting the application provider could increase the operational risk at Depozitarul Central in the first few months after adhesion to T2S.

BSe/cSD’s initiative to boost securities lending and short selling Bucharest Stock Exchange and the local CSD have revived last year’s initiative to revise the current legal framework on securities lending and short selling activities in Romania. Raiffeisen Bank Romania has actively participated in the working group created last year in order to propose measures for increasing efficiency on margin mechanisms (margin trades, short selling and securities lending). at the end of March, local market participants have sent to the FSa their proposals to update securities lending and short selling legislation. Principal modifications requested:• eliminating the obligation to conclude solely standardized securities lending contracts

(GMSLa); market participants shall have the possibility to agree their own formats for securities lending operations;

• all securities registered at the CSD could be subject to securities lending operations, according to terms agreed by the market participants concluding securities lending contracts (please be reminded that currently only BSE’s first tier listed securities could be subject to securities lending operations);

• securities lending operations shall not be conditioned by the exchange of guarantees;• securities lending duration shall not be limited by law, but defined on contractual basis.

Spotlight news

RO: Amendments to the Regulation on exercising shareholders’ rights at general shareholder meetings The Romanian Financial Superviso-ry Authority (FSA) has amended the legal framework on exercising share-holders’ rights at general sharehol-der meetings.The new regulation es-tablishes the following rules: • a shareholder or a group of share-

holders representing at least 5% of a company‘s share capital, or less if provided by company‘s bylaws can request, once per year, the calling of a shareholder meeting in order to elect the company’s board management through cumulative voting.

• the increase of capital for a listed company through conversion of receivables shall be accompanied by preferred rights granted to all existing shareholders.

• institutional (foreign) shareholders using services of a local custodian are allowed to vote through corre-spondence by providing simplified documentation (the excerpt from the Trade Registry, in original form, is no longer required).

The amended legislation represents a minor step towards removal of one of the eight barriers identified within the Romanian capital markets in Fe-bruary 2014 by the joint group of local authorities and market partici-pants, namely the barrier regarding the breach of investors’ corporative rights regarding GSM attending and voting.

GSS Press | May 2014 16

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Our viewThe new legislative package, once approved by the FSA, will align the Romanian practices to international standards.

Katarina Markova-Rusnakov, Head of GSS Slovakia Slovakia

SWiFT communication to be implemented in 2015

With T2S around the corner, CDCP introduced its plan for fundamental system infrastructure consolidation which should enable SWiFT communication between CDCP and its mem-bers. The existing settlement systems of the Bratislava Stock Ex-change and CDCP will be replaced by a new system based on thin-client application. The result of the market discussion was a newly established interface that will be based on iSO20022 message standards. The most important changes include reduction of operational

risk, harmonization of settlement instructions, i.e. input of debt instruments in nominal value and equities in units with no further need to convert the instructed debt nominal value to units by local custodians. it also includes identification of each member by a unique BiC code in the CDCP system ensuring the elimination of the specific, SWiFT – unrelated, local identifier requirement. in addition, the implementation would bring new functionalities which have not been standards on the Slovak capital market, as for ex-ample linking and prioritization of instructions and automatic tolerance settlement limits. if the outlined roll-out happens according to plan, SWiFT communication will be ena-bled in august 2015. Settlement cash legs will be further ensured using the existing settlement procedures via T2S. Following the successful and timely implementation, no major system changes are expected prior to the T2S launch on February 6th, 2017. after migration to T2S, cash settlement of DvP transactions will be processed exclusively in the new environment.

Our view We welcome the initiative of CDCP to streamline the communication with its members and to put securities market infrastructure on the SWIFT network to provide a harmonized solution. Nevertheless, time wise CDCP is facing quite a challenging process in which we may see some delays due to the current early stage of the project which could postpone the implementation process, eventually splitting the implementation into more phases.

GSS Press | May 2014 17

The capital of the Russian Federation Moscow traces its history back to 1147. it is the political, cultural and business center of the country. Despite its age Moscow is eter-nally youthful, multifaceted yet holistic. it is growing and changing rapidly, while at the same time managing to remain essentially a Russian city. The capital’s history is reflec-ted in the rich architecture with the Krem-lin and the Red Square forming the heart of the city. Built largely of wood until the 19th century, the natural course of urban life in Moscow was regularly interrupted by fires, the most notable of which occurred du-ring Napoleon’s evasion in 1812. Moscow faced large-scale destruction in later pe-riods as well as including the time amid World War ii, but through thick and thin the city overcame many obstacles and became even more picturesque. The postwar era’s architectural legacy includes seven high ri-ses that were supposed to become the city’s main reference points construction of new metro stations in suburban Moscow, a high-way belt known as the Moscow Ring Road and a number of ambitious projects of the

present day, including the international busi-ness center “Moskva-City”.

a truly russian cityin Moscow you will find bright and memo-rable events and famous names in all gen-res of classical and modern theater, fine arts, music and sports. The choice is really large, you have to decide between visit-ing the Tretyakov Gallery which thrusts you into the largest and most famous pieces of Russian artists and the best collection of icons, or the Pushkin Museum of fine arts to see the world’s most significant impres-sionist and Post-impressionist collections along with old masters; attend the Bolshoi theater to see the world’s finest classical opera or ballet performances, or listen in the Moscow international House of Mu-sic; feel the “old Moscow spirit” at arbat Street, or the luxury of the world famous brand boutiques located in GuM and Sto-leshnikov pereulok; get the picturesque pa-noramic views of the city from Vorobyovy Gory or take it all in from the observation deck of the Ostankino TV tower.

ciTy Break

Moscow, a heady mix of ancient history and modern life area – 2 511 square km, including the territory of new Moscow (novaya Moskva) Population – over 12 million people over 1 000 000 enterprises and organizations around 400 banks More than 317 km of subway lines and more than 660 public transportation routes over 100 theaters and concert halls, more than 100 gardens and parks

Some of my top picks for ‘pit stops’ to charge one’s batteries off the beaten tracks

National and modern cuisine: oblomov, 5, 1st Monetchikovsky ln, Moscow 115054, €€€€

café Pushkin, Tverskoy bulvar, 26a, Moscow 103009, €€€€

khachapuri, 10 Bolshoy Gnezdnikovsky, Moscow, €€€

Stolovaya 57, inside GuM, 3rd floor, Moscow, €€

Bars and night clubs: Bobby Dazzler, Kostyansky per., 7/13, Moscow, €€€

Dantes Bar, Myasnickaya str., 13-3, €€€

krysha Mira, Naberezhnaya Tarasa Shevchenko 12/3, €€€€

after finishing your business and cultural affairs, spend the evening in one of the many high quality restaurants and prepa-re yourself for one of the longest nights in the megapolis, while night clubs represent a special part of Moscow life. „Moscow never sleeps“!

evgenia klimova, Head of GSS Russia

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Where did you start your professional career? To finance one of my biggest hobbies while still a university student – travelling – i took quite a few unusual assignments in the early stages of my „career“. From conducting tourists’ surveys in front of ma-jor attractions in Vienna to working as a bartender at numerous Formula 1 GPs, i tried a bit of everything. Finally, i decided to move into Banking and started my pro-fessional life abroad – in Paris and London – in Derivatives and FX Sales. Twist of fate finally brought me to the securities services industry in 1999, an area of the banking world that still keeps me interested and busy after 15 years!

What do you like about your job? and what do you find difficult? What i truly love about my job is the dyna-mism of change in the countries of CEE but also in our ever evolving industry. Central and Eastern Europe as we know it today, had a very different look for me when i grew up in the 80s in neighboring Vienna. a trip just across the border – cros-sing the iron curtain – was a true adventure and a slightly scary experience. Bratislava, Budapest, Prague and all the other beau-tiful places in our region were a different world at that time and seemed so much farther away. Today, i enjoy working with our teams based in 15 different countries – all try-ing to progress and drive their financial markets. it is fascinating to see how much development has been going on in these relatively young capital markets and how extremely well some have performed compared to the much more established „West“.

have you MeT

Of course, this process of change, struc-tural progress and harmonization is not happening overnight. Hence, the biggest challenge for me is to smoothen the bumps on the way there for our clients and busi-ness partners.

What are the biggest potentials you see for your markets? This question is tricky and can‘t be answe-red with one general statement for the en-tire region. Despite the fact that we always talk about „CEE“ as being one geogra-phical unit, we have to remember that the markets within CEE are extremely different from their stage of development, their size and their intrinsic opportunities. it is pretty sure that the times of outperforming growth are over for good. The markets in CEE are nowadays confronted with slow recovering economies and – again – growing political challenges. The recent ukrainian/Russian crisis just being the most prominent and th-reatening example.

However, expectations are that CEE will return to moderate and sustainable growth figures well above the Eu average. With this in mind, i am convinced that a smart and efficient set-up in the CEE region is key to success – especially in the securities services playing field. With T2S slowly but steadily reaching out for CEE, this efficien-cy will be the decisive factor for success in the future.

how do you spend your spare time? Despite quite a lot of business related tra-vel, i still enjoy being on the road in my private life as well. During winter times (which can last until late april in the alps),

The dynamism of change

i spend nearly each and every free day in the mountains. Skiing with the family is a great way of clearing your mind and filling up your batteries again, even during short breaks like a weekend. During summer it is when i truly enjoy living in Vienna with all the outdoor facilities it has to offer.

What is your favorite place in your city? Vienna has a lot to offer, culture, great food, historical sights.... but what i really enjoy is that you can get away from a great lunch in the very center to the beau-tiful and relaxing vineyards in the North West (very touristic Grinzing) or to the South West (rather unknown Mauer) in less than 30 minutes.

Bettina Janoschek, Head of GSS Sales and Relationship Management, provides an insight into her profession

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aTTila‘S PhoTo BloG

PhoTo oF The MonTh by Attila Szalay-Berzeviczy June 19, 2012. Simferopol – Lenin and a local lady enjoying the afternoon sun in the capital city of Crimea.

Upcoming Events11th russian Securities ForumWEDNESDaY, JuNE 3RD – THuRSDaY, JuNE 4TH

Hotel Baltschug Kempinski, Moscow

neMa 2014TuESDaY, JuNE 9TH – THuRSDaY, JuNE 11TH

Vienna Hilton

closing Party at neMa hosted by Raiffeisen, Standard Chartered and Clearstream. THuRSDaY, JuNE 11TH

wake_up beach bar, Vienna

GSS Press | May 2014

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conTacT uS

GSS central Teamraiffeisen Bank international aGam Stadtpark 91030 Vienna, austriawww.rbinternational.comattila Szalay-BerzeviczyHead of GSSattila.szalay-berzeviczy@rbinternational.comPhone: +43 1 71707-8252Jürgen SattlerHead of GSS Regional Managementjuergen.sattler@rbinternational.comPhone: +43 1 71707-1882Bettina JanoschekHead of GSS Sales & Relationship Managementbettina.janoschek@rbinternational.comPhone: +43 1 71707-1820

austriaraiffeisen Bank international aGam Stadtpark 91030 Vienna, austriaPhone: +43 1 71707-3040www.rbinternational.comanita FröchHead of GSS Austriaanita.froech@rbinternational.com

albaniaraiffeisen Bank Sh.a.“European Trade Center”Bulevardi “Bajram Curri” TiranaMirela BoriciHead of GSS Albaniamax.mustermann@rbinternational.comPhone: +355 4 2381000-1074www.raiffeisen.al

BelarusPriorbank JSc31-a, V. Khoruzhey Str.220002 Minskyury DorofeyHead of GSS Belarusyury.dorofey@priorbank.byPhone: +375 17 2899102www.priorbank.by

Bosnia and herzegovinaraiffeisen Bank d.d.Bosna i hercegovinaZmaja od Bosne bb71000 SarajevoDrazenko BobasHead of GSS Bosniadrazenko.bobas@rbb-sarajevo.raiffeisen.atPhone: +387 33 287-153www.raiffeisenbank.ba

Bulgariaraiffeisenbank (Bulgaria) eaD18/20 Gogol Str.1504 SofiaMaria lazovaHead of GSS Bulgariamaria.lazova@raiffeisen.bgPhone: +359 2 91985-463www.rbb.bg

croatiaraiffeisenbank austria d.d.Petrinjska 5910000 ZagrebMensur hodzicHead of GSS Croatiamensur.hodzic@rba.hrPhone: +385 1 6174-327www.rba.hr

czech republicraiffeisenbank a.s.Hvezdova 1716/2b14078 Prague 4vit cermakHead of GSS Czech Republicvit.cermak@rb.czPhone: +420 234 40-1481www.rb.cz

hungaryraiffeisen Bank Zrt.akadémia utca 61054 BudapestBabett PavlicsHead of GSS Hungarybabett.pavlics@raiffeisen.huPhone: +36 1 484-4395www.raiffeisen.hu

Polandraiffeisen Bank Polska S.a.(raiffeisen Polbank)Piękna 20 Str.00-549 Warsawradek ignatowiczHead of GSS Polandradoslaw.ignatowicz@raiffeisen.plPhone: +48 22 585-2000www.raiffeisen.pl

romaniaraiffeisen Bank S.a.15 Charles de Gaulle Square011857 Bucharest 1andrei MezdreaHead of GSS Romaniaandrei.mezdrea@raiffeisen.roPhone: +40 21 30612-89www.raiffeisen.ro

russiaZao raiffeisenbankSmolenskaya-Sennaya Sq. 28119020 Moscowevgenia klimovaHead of GSS Russiaevgenia.klimova@raiffeisen.ruPhone: +7-495-721 9900www.raiffeisen.ru

Serbiaraiffeisen banka a.d.Djordja Stanojevica 1611070 Novi Beogradivana novakovicHead of GSS Serbiaivana.novakovic@raiffeisenbank.rsPhone: +381 11 2207572www.raiffeisenbank.rs

SlovakiaTatra banka, a.s.Hodžovo námestie 381106 Bratislavakatarina MarkovaHead of GSS Slovakiakatarina_markova-rusnakova@tatrabanka.skPhone: +421-2-591 91111www.tatrabanka.sk

Sloveniaraiffeisen Banka d.d.Zagrebška cesta 762000 MariborPrimoz kovacicHead of GSS Sloveniaprimoz.kovacic@raiffeisen.siPhone: +386 22293119www.raiffeisen.si

ukraineraiffeisen Bank aval JSc9, Leskova Str.01011 Kievandrey Porada Head of GSS Ukraineandrey.porada@aval.uaPhone: +380 44 49540-03www.aval.ua

GSS Press | May 2014 21

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